Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
1. Basis of Presentation:
The accompanying unaudited financial statements
have been prepared by Shoal Games Ltd. ("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, 2016, included in the Company's
Annual Report on Form 10-K, filed March 31, 2017, 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 March 31,
2017 and 2016, and has an accumulated deficit of $21,947,385 as at March 31,
2017. This raises substantial doubt about the Company's ability to continue as
a going concern.
In view of the
matters described in the preceding paragraph, recoverability of a major portion
of the recorded asset amounts and settlement of the liability amounts shown in
the accompanying balance sheets is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should the
Company be unable to continue in existence.
Management
continues to review operations in order to identify additional strategies
designed to generate cash flow, improve the Company's financial position, and
enable the timely discharge 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.
Page 6
SHOAL GAMES
LTD.
and Subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
2. Summary of
significant accounting policies:
(a)
Basis of
presentation:
These consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America ("US GAAP") applicable to
annual financial information and with the rules and regulations of the United
States Securities and Exchange Commission. The financial statements include the
accounts of the Company's subsidiaries,
Company
|
Registered
|
% Owned
|
Shoal Media (Canada) Inc.
|
British Columbia, Canada
|
100%
|
Coral Reef Marketing Inc.
|
Anguilla
|
100%
|
Shoal Media Inc.
|
Anguilla
|
100%
|
Shoal Games (UK) Plc
|
United Kingdom
|
99%
|
Shoal Media (UK) Ltd.
|
United Kingdom
|
100%
|
Rooplay Media Ltd.
|
British Columbia, Canada
|
100%
|
In addition, there
are the following dormant subsidiaries; Bingo.com (Antigua) Inc., Bingo.com (Wyoming) Inc., and Bingo Acquisition Corp.
During the quarter ended
March 31, 2017, Shoal Media UK Ltd. was
incorporated under the laws of England and Wales.
All inter-company
balances and transactions have been eliminated in the consolidated financial
statements.
(b)
Use of estimates:
The preparation of
consolidated financial statements in conformity with US GAAP, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and recognized revenues and expenses for
the reporting periods.
Significant areas
requiring the use of estimates include the valuation of long-lived assets, the
collectibility of accounts receivable, the valuation of promissory notes and the
estimated market rate of 15% and the valuation of deferred tax assets.
Actual results may differ significantly from these estimates.
(c)
Revenue
recognition:
Trophy Bingo and Garfield's Bingo revenues have been recognized from the sale of
in-game purchases, net of platform fees, at the time of purchase by the player.
The revenue from in-game advertising is recognized when advertising is served to
the player.
Page 7
SHOAL GAMES
LTD.
and Subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(c)
Revenue
recognition: (Continued)
Advertising revenues, not generated in Trophy Bingo or Garfield's Bingo, have
been recognized when collection of the amounts are reasonably assured.
Rooplay revenue have been recognized when collection of the subscriptions are
reasonably assured and the provision of service has occurred.
(d)
Foreign currency:
The consolidated financial statements are presented in United States dollars,
the functional currency of the Company and its subsidiaries. The Company
accounts for foreign currency transactions and translation of foreign currency
financial statements under Statement ASC 830, Foreign Currency Matters.
Transaction amounts denominated in foreign currencies are translated at
exchange rates
prevailing at the transaction dates. Carrying values of monetary assets and
liabilities are adjusted at each balance sheet date to reflect the exchange rate
at that date. Non-monetary assets and liabilities are translated at the exchange
rate on the original transaction date.
Gains and losses from restatement of foreign currency
monetary and non-monetary assets and liabilities are included in net income.
Revenues and expenses are translated at the rates of exchange prevailing on the
dates such items are recognized in earnings.
(e) Software
Development Costs:
Software development costs incurred in the research and development of new
software products and enhancements to existing software products for external
use are expensed as incurred until technological feasibility has been
established. After technological feasibility is established, any software
development costs are capitalized and amortized at the greater of the
straight-line basis over the estimated economic life of the related product or
the ratio that current gross revenues for a product bear to the total of current
and anticipated future gross revenues for the related product. Commencing
January 1, 2014, the Company obtained technological feasibility and amortized
the capitalized software development costs over a period of 3 years. The Company
performs an annual review of the estimated economic life and the recoverability
of such capitalized software costs, using a net realizable value test. The
Company completed the amortization of the capitalized Trophy Bingo software
development expenses on December 31, 2016.
If a determination
is made that capitalized amounts are not recoverable based on the estimated cash
flows to be generated from the applicable software, any remaining capitalized
amounts are written off. Although the Company believes that its approach to
estimates and judgments as described herein is reasonable, actual results could
differ and the Company may be exposed to increases or decreases in revenue that
could be material.
Page 8
SHOAL GAMES
LTD.
and Subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(e) Software
Development Costs: (Continued)
Total software
development costs for the development of all three games; Rooplay, Garfield's
Bingo and Trophy Bingo, were $5,149,769 as at March 31, 2017 (March 31, 2016 -
$4,075,019).
(f) New
accounting pronouncements and changes in accounting policy:
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers and issued subsequent amendments to the
initial guidance in August 2016, March 2016, April 2016, and May 2016 within ASU
2016-04, ASU 2016-08, ASU 2016-10, ASU 2016-11 and ASU 2016-12, respectively.
The guidance in this update supersedes the revenue recognition requirements in
ASC 605, Revenue Recognition, and most industry-specific guidance throughout the
Codification. Additionally, this update supersedes some cost guidance included
in ASC 605-35, Revenue Recognition - Construction-Type and Production-Type
Contracts. In addition, the existing requirements for the recognition of a gain
or loss on the transfer of nonfinancial assets that are not in a contract with a
customer (for example, assets within the scope of ASC 360, Property, Plant, and
Equipment, and intangible assets, within the scope of ASC 350, Intangibles -
Goodwill and Other) are amended to be consistent with the guidance on
recognition and measurement in this update. The standard was to be effective for
the Company as of January 1, 2017, but in August 2016, the FASB delayed the
effective date of the new revenue accounting standard to January 1, 2019, and
would permit early adoption as of the original effective date. Earlier adoption
is not otherwise permitted for public entities. An entity can apply the revenue
standard retrospectively to each prior reporting period presented (full
retrospective method) or retrospectively with the cumulative effect of initially
applying the standard recognized at the date of initial application in retained
earnings (simplified transition method). The Company is currently assessing the
impact of this update on its consolidated financial statements. The Company has
not yet selected an adoption date, a transition method nor has it determined the
effect of the standard on its ongoing financial reporting.
On April 1, 2016, the FASB voted to defer the
effective date of ASU No. 2014-09, which outlines a single comprehensive model
for entities to use in accounting for revenues arising from contracts with
customers and notes that lease contracts with customers are a scope exception.
Public business entities may elect to adopt the amendments as of the original
effective date; however, if the proposed deferral is approved, adoption is
required for annual reporting periods beginning after December 15, 2017. We are
currently assessing the impact of the guidance on our consolidated financial
statements.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities ("ASU 2016-01"), which requires
that equity investments, except for those accounted for under the equity method
or those that result in consolidation of the investee, be measured at fair
value, with
Page 9
SHOAL GAMES
LTD.
and Subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(f) New
accounting pronouncements and changes in accounting policy: (Continued)
subsequent changes in fair value recognized in
net income. However, an entity may choose to measure equity investments that do
not have readily determinable fair values at cost minus impairment, if any, plus
or minus changes resulting from observable price changes in orderly transactions
for the identical or a similar investment of the same issuer. ASU 2016-01 also
impacts the presentation and disclosure requirements for financial instruments.
ASU 2016-01 is effective for public business entities for annual periods, and
interim periods within those annual periods, beginning after December 15, 2017.
Early adoption is permitted only for certain provisions. The Company does not
expect that the adoption of ASU 2016-01 will have a material effect on its
consolidated financial statements.
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842), which requires lessees to recognize most leases on
the balance sheet. This ASU requires lessees to recognize a right-of-use asset
and lease liability for all leases with terms of more than 12 months. Lessees
are permitted to make an accounting policy election to not recognize the asset
and liability for leases with a term of twelve months or less. The ASU does not
significantly change the lessees' recognition, measurement and presentation of
expenses and cash flows from the previous accounting standard. Lessors'
accounting under the ASC is largely unchanged from the previous accounting
standard. In addition, the ASU expands the disclosure requirements of lease
arrangements. Lessees and lessors will use a modified retrospective transition
approach, which includes a number of practical expedients. The provisions of
this guidance are effective for annual periods beginning after December 15,
2018, and interim periods within those years, with early adoption permitted.
Management is evaluating the requirements of this guidance and has not yet
determined the impact of the adoption on the Company's financial position or
results of operations.
In June 2016, the FASB issued ASU No. 2016-13,
"Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments". The accounting standard changes the methodology for
measuring credit losses on financial instruments and the timing when such losses
are recorded. ASU No. 2016-13 is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2019. Early adoption is
permitted for fiscal years, and interim periods within those years, beginning
after December 15, 2018. The Company is currently evaluating the impact of ASU
No. 2016-13 on its financial position, results of operations and liquidity.
In August 2016, the FASB issued ASU No. 2016-15,
"Statement of Cash Flows (Topic 230)". The new guidance is intended to reduce
diversity in practice in how certain transactions are classified in the
statement of cash flows. ASU No. 2016-15 is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2017. Early
adoption is
Page 10
SHOAL GAMES
LTD.
and Subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(f) New
accounting pronouncements and changes in accounting policy: (Continued)
permitted, provided that all of the amendments
are adopted in the same period. The guidance requires application using a
retrospective transition method. The Company is currently evaluating the impact
of ASU No. 2016-15 on its financial position, results of operations and
liquidity.
In October 2016, the Financial Accounting
Standards Board ("FASB") issued ASU No. 2016-16, Income Taxes (Topic 740). The
standard improves the accounting for income tax consequences of intra-entry
transfers of assets other than inventory. This pronouncement is effective for
annual reporting periods beginning after December 15, 2017. The amendments in
this ASU should be applied using a modified retrospective approach. The Company
is currently evaluating the impact of ASU No. 2016-16 on its financial position,
results of operations and liquidity.
In January of 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business. The
new standard provides a screen to determine when a set of assets and activities
is not a business. The screen requires that when substantially all of the fair
value of the gross assets acquired or disposed of is concentrated in a single
identifiable asset or a group of similar identifiable assets, the set is not a
business. This standard is effective for annual periods beginning after December
15, 2017 and interim periods within those periods, with early adoption
permitted, and should be applied prospectively on or after the effective date.
Upon the adoption of ASU 2017-01, it is expected that the majority of the
Company's acquisitions will be accounted for as asset acquisitions, whereas
under the current guidance the majority of the Company's acquisitions have been
accounted for as business combinations. The most significant difference between
the two accounting models that will impact the Company's consolidated financial
statements is that in an asset acquisition, property acquisition costs are
generally a component of the consideration transferred to acquire a group of
assets and are capitalized as a component of the cost of the assets, whereas in
a business combination, property acquisition costs are expensed and not included
as part of the consideration transferred. The Company is currently evaluating
the impact of adopting this guidance.
In January 2017, the FASB issued ASU 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. The new standard removes Step 2 of the goodwill impairment test,
which requires a hypothetical purchase price allocation. A goodwill impairment
will now be the amount by which a reporting unit's carrying value exceeds its
fair value, not to exceed the carrying amount of goodwill. The new standard is
effective for annual and interim goodwill impairment tests in fiscal years
beginning after December 15, 2019, and should be applied on a prospective basis.
Early adoption is permitted for annual or interim goodwill impairment testing
performed after January 1, 2017. The Company is currently evaluating the impact
of adopting this guidance.
Page 11
SHOAL GAMES
LTD.
and Subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(f) New
accounting pronouncements and changes in accounting policy: (Continued)
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation
(Topic 718) : Scope of Modification Accounting. The new standard provides
guidance about which changes to the terms or conditions of a share-based payment
award require an entity to apply modification accounting in Topic 718. This
pronouncement is effective for annual reporting periods beginning after December
15, 2017 but early adoption is permitted. The Company is currently evaluating
the impact of adopting this guidance.
There have been no other recent accounting
standards, or changes in accounting standards, during the quarter ended March
31, 2017, as compared to the recent accounting standards described in the Annual
Report, that are of material significance, or have potential material
significance, to us.
(g) Financial
instruments:
(i) Fair values:
The fair value of accounts receivable,
accounts payable, accrued liabilities, promissory notes and accounts payable and accrued
liabilities - related party approximate their financial statement carrying
amounts due to the short-term maturities of these instruments. Cash is carried
at fair value using a level 1 fair value measurement.
In
general, fair values determined by Level 1 inputs utilize quoted prices
(unadjusted) in active markets for identical assets or liabilities. Fair values
determined by Level 2 inputs utilize data points that are observable such as
quoted prices, interest rates and yield curves. Fair values determined by Level
3 inputs are unobservable data points for the asset or liability, and included
situations where there is little, if any, market activity for the asset. The
Company's cash was measured using Level 1 inputs.
(ii)
Foreign currency risk:
The Company operates internationally,
which gives rise to the risk that cash flows may be adversely impacted by
exchange rate fluctuations. The Company has not entered into any forward
exchange contracts or other derivative instrument to hedge against foreign
exchange risk.
3. Accounts Receivable:
The accounts receivable as at March 31, 2017, is summarized as follows:
|
|
March 31, 2017
|
|
December 31, 2016
|
Accounts
receivable
|
$
|
46,664
|
$
|
44,860
|
|
|
|
|
|
Provision for
doubtful accounts
|
|
(27,666)
|
|
(27,666)
|
|
|
|
|
|
Net accounts
receivable
|
$
|
18,998
|
$
|
17,194
|
Page 12
SHOAL GAMES
LTD.
and Subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
3. Accounts Receivable:
(Continued)
The Company had bank
accounts with the National Bank of Anguilla. During the year ended December 31,
2016, the National Bank of Anguilla, filed for chapter 11 protection. The
Company has expensed the balance on account of $27,666 (2015 - $nil) as a
doubtful debt.
4. Game
development assets:
During the year ended December 31, 2012, the Company commenced development of a
social bingo game, Trophy Bingo. During the year ended December 31, 2014, the
Company soft launched Trophy Bingo. The Company ceased to capitalize the
development costs and commenced the amortization of the capitalized development
costs over a period of three years. As at December 31, 2016, the capitalized
development costs were amortized in full.
During the year ended December 31, 2016, the
Company obtained the license to develop Garfield's Bingo. The game was launched
in November 2016. In addition, during the year ended December 31, 2016, the
Company obtained the license for Rooplay. The Company commenced development of
the Rooplay platform. During the period ended March 31, 2017, the Company has
expensed the development costs of all three products as incurred and has
expensed the following development costs for its three products.
|
|
March 31, 2017
|
|
December 31, 2016
|
Opening total game
development costs
|
$
|
4,935,274
|
$
|
3,857,636
|
|
|
|
|
|
Game development during the
period
|
|
214,495
|
|
217,383
|
Closing total game
development costs
|
$
|
5,149,769
|
$
|
4,075,019
|
5.
Promissory notes:
The Company
has issued unsecured promissory notes from shareholders of the Company. The
notes were repayable on March 31, 2018. The interest on the notes are 2% per
annum, calculated and compounded annually and paid annually. Interest in
arrears shall accrue interest. The unpaid principal amount due hereunder may be
reduced to zero from time to time without affecting the validity of this note.
The
promissory notes are accounted for by discounting the notes in a manner that
reflects the entity's borrowing rate when interest cost is recognized in
subsequent periods. The Company applied an estimated market rate of 15% to the
promissory notes. In doing so, the Company used the discounted cash flow
approach to value the present value of the notes. The cash flow stream from the
coupon interest payments and the final principal payment were discounted at 15%
to arrive at the valuations. The Company used a deemed rate of 15% as the
appropriate discount rate after examining the interest rates for similar
instruments issued in the same time frame for similar companies without the
conversion feature. During the year ended December 31, 2016, the Company issued
$400,000 promissory notes and recognized a discount on the promissory notes of $58,284 and $5,171 of interest accretion.
Page 13
SHOAL GAMES
LTD.
and Subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
5.
Promissory notes: (Continued)
During the quarter ended March 31, 2017, the Company issued $188,135 promissory
notes and recognized a discount on the promissory notes of $23,461 and $15,615
of interest accretion. These notes were issued with the same terms and
conditions as the promissory notes issued in the year ended December 31, 2016.
On March 31, 2017, the maturity date on the
promissory notes was extended to April 1, 2020. The Company treated the change
as an extinguishment and reissuance of the notes. The Company recognized a
discount on the promissory notes of $94,191 from the extinguishment and
reissuance of the notes.
|
|
March 31, 2017
|
|
December 31, 2016
|
Opening balance
|
$
|
347,698
|
$
|
-
|
|
|
|
|
|
Promissory note issued
|
|
188,135
|
|
400,000
|
|
|
|
|
|
Discount on promissory note
|
|
(23,461)
|
|
(58,284)
|
|
|
|
|
|
Gain on extinguishment and reissuance of promissory notes with related
parties
|
|
(94,191)
|
|
-
|
|
|
|
|
|
Extinguishment of promissory notes to related parties
|
|
(418,181)
|
|
-
|
|
|
|
|
|
Reissuance of promissory notes to related parties
|
|
323,990
|
|
-
|
|
|
|
|
|
Accrued interest
|
|
2,427
|
|
811
|
|
|
|
|
|
Interest accretion
|
|
15,615
|
|
5,171
|
|
|
|
|
|
Closing balance
|
$
|
436,223
|
$
|
347,698
|
Subsequent to the quarter ended March 31, 2017, the
Company issued unsecured promissory notes for $300,000, to shareholders of the
Company. These notes were issued with the same terms as the previous reissued
promissory notes with an interest of 2% per annum, calculated and compounded
annually and paid annually and a maturity date of April 1, 2020.
6.
Stockholders' Deficiency:
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.
Page 14
SHOAL GAMES
LTD.
and Subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
6.
Stockholders' Deficiency: (Continued)
(a) Common stock issuances:
No shares were issued during the quarter ended
March 31, 2017.
(b) Stock option plans:
No options were granted or exercised during the
period ended March 31, 2017.
7. Commitments:
The Company leases office facilities in
Vancouver, British Columbia, Canada, and The Valley, Anguilla, British West
Indies. These office facilities are leased under operating lease agreements. The
Canadian operating lease expired on December 31, 2016, but
unless 30 day notice is given this lease
automatically renews on a month to month basis
until notice is given. The Anguillan operating lease expired on April 1,
2011 but unless 3 month's notice is given it
automatically renews for a future 3 months until notice is given.
Minimum
lease payments under these operating leases are approximately as follows:
The Company paid rent expense totaling $4,662
for the quarter ended March 31, 2017 (March 31, 2016 - $5,426).
The Company has a management consulting
agreement with T.M. Williams (Row), Inc., an Anguilla incorporated company, and
Mr. T. M. Williams. During the year ended December 31, 2014, the Company amended
a previous agreement with Mr. T. M. Williams to provide for a consultancy
payment of 2.5% of the monthly social bingo business with a minimum of $11,000
and a maximum of $25,000 per month.
During the year ended December 31, 2014, the
Company entered into an agreement with Jayska Consulting Ltd. and Mr. J. M.
Williams, Chief Executive Officer of the Company for the provision of services
of Mr. J. M. Williams as Chief Executive Officer of the Company. The Consulting
agreement provides for a consultancy payment of GBP Sterling 5,000 per month. In
addition, during the year ended December 31, 2014, the Company entered into an
agreement with LVA Media Inc. and Mr. J. M. Williams, for the provision of
services of Mr. J. M. Williams as Chief Executive Officer of the Company. The
Consulting agreement provides for a consultancy payment of 2.5% of the monthly
social bingo business with a minimum of $7,500 and a maximum of $25,000 per
month.
During the year ended December 31, 2016, the
Company signed a licensing agreement with Paws, Inc. for the license for
Garfield's Bingo expiring on June 30, 2019 and a licensing agreement with
Rooplay Inc. for the license for Rooplay expiring on September 7, 2021. These
agreements have commitments to pay royalties on the revenue of the products
subject to minimum payments.
Page 15
SHOAL GAMES
LTD.
and Subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
8. Income Taxes:
Shoal Games Ltd. is domiciled
in the tax-free jurisdiction of Anguilla, British West Indies. However certain
of the Company's subsidiaries incur income taxation.
The tax effects of
temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at March 31, 2017, and December 31, 2016,
are presented below:
|
|
March 31, 2017
|
|
December 31, 2016
|
Deferred tax assets:
|
|
|
|
|
Net operating loss carry forwards
|
$
|
14,484
|
$
|
15,017
|
|
|
|
|
|
Valuation Allowance
|
|
(14,484)
|
|
(15,017)
|
|
$
|
-
|
$
|
-
|
In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
differences become deductible.
Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in assessing the realizability of
deferred tax assets.
9. Related Party
Transactions:
The Company has a liability of $33,000 (December 31, 2016 - $nil) to a company
owned by a current director and officer of the Company for payment of services
rendered of
$33,000 (March 31, 2016 - $33,000) by the
current director and officer of the Company.
The Company has a liability of $19,339 (December 31, 2016 - $2) to a current
director and officer of the Company for expenses incurred.
The Company has a liability of $18,732 (December 31, 2016 - $nil) to a company
owned by a current director and officer of the Company for payment of services
rendered of $18,581 (March
31, 2016 - $21,488) by the current director
and officer of the Company.
The Company has a liability of $22,500 (December 31, 2016 - $nil) to a company
owned by a current director and officer of the Company for payment of services
rendered of $22,500 (March
31, 2016 - $22,500) by the current director
and officer of the Company.
The Company has a
liability of $1,500 (December 31, 2016
- $500), to independent directors of the Company for payment of services
rendered. During the quarter ended March 31, 2017, the Company accrued $1,000
(March 31, 2016 - $2,000) to the independent directors in director fees.
Page 16
SHOAL GAMES
LTD.
and Subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
9. Related Party
Transactions: (Continued)
The Company has a
liability of $22,064 (December 31, 2016
- $4,852), to an officer of the Company for payment of services rendered and
expenses incurred of $22,107 (March 31, 2016 - $19,050)
by the officer of the Company.
The Company has a liability of $nil (December 31, 2016 - $2) to a Company owned
by a previous director of the Company for payment of consulting fees of $nil
(March 31, 2016 - $nil) by a previous director of the Company.
The Company has promissory notes totaling $591,372 (December 31, 2016 -
$400,811), including interest, from shareholders holding more than 10% of the
Company. The interest on the notes are 2% per annum, calculated and compounded
annually and paid annually. Subsequent to the quarter ended March 31, 2017, the
Company issued unsecured promissory notes for $300,000, from shareholders of the
Company with an interest rate of 2% per annum, calculated and compounded
annually and paid annually and a maturity date of April 1, 2020.
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.
10. Segmented information:
Revenue
The Company operates in one reportable business
segment, the sale of in-app purchases on Trophy Bingo and Garfield's Bingo.
The Company had the following revenue by
geographical region.
|
|
|
Three
Months ended March 31, 2017
|
|
Three
Months ended March 31, 2016
|
Total revenue
|
|
|
|
|
|
|
Western Europe
|
|
$
|
3,373
|
$
|
14,577
|
|
Central, Eastern and Southern Europe
|
|
|
44
|
|
10
|
|
Nordics
|
|
|
178
|
|
408
|
|
North America
|
|
|
24,043
|
|
89,849
|
|
Other
|
|
|
5,621
|
|
5,715
|
|
Total revenue
|
|
$
|
33,259
|
$
|
110,559
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
The Company's equipment is
located as follows:
Net Book Value
|
|
March
31, 2017
|
|
December 31, 2016
|
|
|
|
|
|
Anguilla
|
$
|
759
|
$
|
828
|
Canada
|
|
7,661
|
|
8,097
|
United Kingdom
|
|
1,121
|
|
1,223
|
|
$
|
9,541
|
$
|
10,148
|
Page 17
SHOAL GAMES
LTD.
and Subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2017 and 2016
(Unaudited)
11. Concentrations
Major customers
During the quarter ended March 31, 2017 and
2016, the Company sold in-app purchases on its social bingo sites, Trophy Bingo
and Garfield's Bingo. There was no single player who had purchased more than 10%
of the Trophy Bingo and Garfield's Bingo revenue. The Company is reliant on the
Google App, iOS App and Amazon App Stores to provide a platform for Trophy Bingo
and Garfield's Bingo to be played thereon.
During the quarter ended March 31, 2017 and
2016, the Company offered limited advertising. The Company is reliant on one
sales customer who provides the advertising revenue.
12.
Concentrations of Credit Risk:
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and accounts receivable. The Company places its
cash with high quality financial institutions and limits the amount of credit
exposure with any one institution.
The Company currently maintains a substantial
portion of its day-to-day operating cash balances at financial institutions. At
March 31, 2017, the Company had total cash balances of $31,776 (December 31,
2017 - $60,190) at financial institutions, where
$nil (December 31, 2016 - $nil) is in excess of federally insured limits.
The Company has concentrations of credit risk
with respect to accounts receivable, the majority of its accounts receivable are
concentrated geographically in the United States amongst a small number of
customers.
As of March 31, 2017, the Company had three
customers, totaling $13,418 who accounted for greater than 10% of the total
accounts receivable. As of December 31, 2016, the Company had four customers,
totaling $13,300 who accounted for greater than 10% of the total accounts
receivable.
The Company controls credit risk through
monitoring procedures and receiving prepayments of cash for services rendered.
The Company performs credit evaluations of its customers but generally does not
require collateral to secure accounts receivable.
Page 18