UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
Form 10-K
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 333-120120-01
SHOAL GAMES LTD.
(Exact name of registrant as specified in its charter)
ANGUILLA, B.W.I.
(State or other jurisdiction of incorporation
or organization)
98-0206369
(I.R.S. Employer Identification No.)
Hansa Bank Building, Ground Floor, Landsome Road
AI 2640, The Valley, Anguilla, B.W.I
(Address of principal executive offices)
(888) 374-2163
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
None
(Title of Each Class & Name of each exchange on which registered)
Securities registered under section 12(g) of the Exchange Act:
COMMON STOCK, NO PAR VALUE PER SHARE
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
(cid:0) FORMCHECKBOX (cid:0)(cid:0) No (cid:0) FORMCHECKBOX (cid:0)(cid:0)
Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.
(cid:0) FORMCHECKBOX (cid:0)(cid:0) No (cid:0) FORMCHECKBOX (cid:0)(cid:0)
Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.
(cid:0) FORMCHECKBOX (cid:0)(cid:0) No (cid:0) FORMCHECKBOX (cid:0)(cid:0)
Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes
(cid:0) FORMCHECKBOX (cid:0)(cid:0) No (cid:0) FORMCHECKBOX (cid:0)(cid:0)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K.
(cid:0) FORMCHECKBOX (cid:0)(cid:0)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:0) FORMCHECKBOX (cid:0)(cid:0)
filer
(cid:0) FORMCHECKBOX (cid:0)(cid:0)
Non-accelerated filer (cid:0) FORMCHECKBOX (cid:0)(cid:0)
(cid:0) FORMCHECKBOX (cid:0)(cid:0)
reporting company
Accelerated
Smaller
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act).
(cid:0) FORMCHECKBOX (cid:0)(cid:0) No (cid:0) FORMCHECKBOX (cid:0)(cid:0)
Yes
State issuer’s revenues for its most recent fiscal year.
$278,921
State the aggregate market value of the voting and non-voting common equity held by non-
affiliates computed by reference to the price at which the common equity was last sold, or the
average bid and asked price and asked price of such common equity, as of the last business day
of the registrant’s most recently completed second fiscal quarter.
Our common stock is currently quoted on the Over the Counter Markets – The Venture
Marketplace ("OTCQB") operated by OTC Markets Group Inc. (http://www.otcmarkets.com/)
under the symbol “SGLDF” and on the TSX Venture Exchange in Canada under the
symbol “SGW”. The closing share price as of March 31, 2017, being US$0.36 per share under
the symbol SGLDF on the OTC Markets Group Inc. and CAD$0.51 under symbol SGW on the
TSX Venture Exchange : $21,494,995.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of the registrant’s common stock, no par value per
share, was 59,708,318 as of March 31, 2017.
DOCUMENTS INCORPORATED BY REFERENCE
The merger of Bingo.com, Inc. with Shoal Games Ltd., which was approved by the Securities
Exchange Commission on March 8, 2005, and is effective on April 7, 2005, is described in the
prospectus filed under Rule 424(b) of the Securities Act and the Form S-4, which were filed on
March 9, 2005, and March 4, 2005, respectively. The Company filed Form SB2 on September
18, 2007, for the registration of shares originally issued in the private placement. In addition, the
Company filed a TSX Venture Exchange Listing Application for the TSX-V listing on June 29,
2015.
Page 1
TABLE OF CONTENTS
PART I .......................................................................................................................................... 3
ITEM 1. BUSINESS ................................................................................................................ 3
ITEM 2. PROPERTIES. .......................................................................................................... 8
ITEM 3. LEGAL PROCEEDINGS. ........................................................................................ 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ............ 8
PART II ....................................................................................................................................... 10
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. 10
ITEM 6. SELECTED FINANCIAL DATA .......................................................................... 11
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. ............................................................. 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ...................... 17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. .......................................................... 44
ITEM 9A. CONTROLS AND PROCEDURES ................................................................... 44
ITEM 9B. OTHER INFORMATION .................................................................................... 45
PART III ..................................................................................................................................... 46
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE .................................................................................................................... 46
ITEM 11. EXECUTIVE COMPENSATION ....................................................................... 49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDERS MATTERS .................................. 51
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE ............................................................................................ 54
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES ..................................... 54
PART IV ..................................................................................................................................... 55
ITEM 15. EXHIBITS ............................................................................................................ 55
SIGNATURES ....................................................................................................................... 55
CERTIFICATIONS ............................................................................................................... 56
CERTIFICATION PURSUANT TO 18 U.S.C. §1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 ............................................ 58
EXHIBIT LIST ...................................................................................................................... 60
Page 2
PART I
This Annual Report on Form 10-K contains forward-looking statements that involve risks and
uncertainties. All statements contained herein that are not statements of historical fact
constitute “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. Discussions containing forward-looking statements may be found in the
material set forth under “Business,” and “Management's Discussion and Analysis or Plan of
Operation,” as well as in this Annual Report generally. We generally use words such as
“believes,” “intends,” “expects,” “anticipates,” “plans,” and similar expressions to identify
forward-looking statements. Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results, level of activity,
performance or achievements. These forward-looking statements are subject to risks,
uncertainties and other factors, some of which are beyond our control, which could cause actual
results to differ materially from this forecast or anticipated in such forward-looking statements.
You should not place undue reliance on these forward-looking statements, which reflect our
view only as of the date of this report. We undertake no obligation to update these statements or
publicly release the result of any revisions to these statements to reflect events or circumstances
after the date of this report or to reflect the occurrence of unanticipated events.
ITEM 1. BUSINESS
INTRODUCTION
Shoal Games Ltd. (TSXV : SGW) (OTCQB : SGLDF) (www.shoalgames.com) is the parent
company of a group of companies, which creates consumer mobile software products and games.
The Company is managed by an experienced team of technology entrepreneurs who have a long
history in video games, enterprise software, mobile software, and Internet products.
The current focus of Shoal Games is the development and marketing of a platform of interactive
games for families and children. The product is called Rooplay and, similar to Netflix or Spotify, is a
cloud-based system for delivering content on-demand to consumers based on subscription. Rooplay
differs from Netflix and Spotify in that it does not supply television or music content, but games. In
particular, Rooplay is a platform of games specifically curated to be suitable for children and families.
Rooplay has no ads, no in-app purchases, no long downloads, no instant messaging, and no outbound
links of any form. These characteristics make the product a unique platform of game content that is
entirely safe for children.
Furthermore, the games on the Rooplay system are designed to both entertain and educate. Children
engaging with Rooplay learn technology, solve puzzles, paint pictures, practice language, learn math,
and much more. Shoal Games is developing a content system with Rooplay that builds tech literacy
and encourages early learning. The Company believes that to be able to teach children, they must
first hold their attention. Rooplay mixes entertainment with education so that long player sessions are
created in a safe environment where children have fun and are challenged in new ways with every
session. Rooplay has over 500 unique interactive games in every imaginable format.
One strategy that Shoal Games pursues to acquire content for the Rooplay system is by licensing
games from developers around the world. As each game has its own style of production, children
must learn to interact with each piece of software in a different way. In every game the art design,
game mechanics, controls and game objectives are different so each experience has its own learning
curve and is engaging for kids of every age.
While acquiring content through license is important, the Shoal Games team recognizes that the
development of exclusive content is critical to the competitive position of the Rooplay system.
Therefore, the Company is investing its resources into the design and production of Rooplay
Originals for release onto the Rooplay platform and into the App Stores as single products. Shoal
Games' Rooplay Originals focus on educational games (edugames), classic board and family games,
coloring books, jigsaw puzzles, and much more. In addition, the Rooplay Originals strategy is to
Page 3
license popular intellectual property rights to use in the production and publishing of its exclusive
content. The first license for Rooplay Originals is with the popular cartoon cat, Garfield, who will
feature in many of the Company's releases. Shoal Games intends on licensing many other popular
children's characters for future edugame productions.
Shoal Games management believes that through the development of the Rooplay platform and the
production of exclusive edugame content that it can create a defensible position in the market as a
platform of edugames and entertainment for kids of all ages. Shoal Games has a long history in video
games and software development and believes that its experienced team is capable of creating
Rooplay so that it becomes a global provider of mobile entertainment. Rooplay will generate revenue
for the Company from consumer subscriptions which customers will pay to unlock the Rooplay game
catalog.
Shoal Games' other mobile products include Garfield’s Bingo (www.garfieldsbingo.com), the first
mobile bingo game to feature a mega-brand; and Trophy Bingo (www.trophybingo.com), live across
mobile platforms with over 500,000 installs. Trophy Bingo and Garfield’s Bingo are innovative free-
to-play mobile games live in the Apple, Google and Amazon App Stores. The Company has
generated its main source of revenue to-date from players making in-app purchases in Trophy Bingo
and Garfield’s Bingo.
References in this document to “the Company,” “we,” “us,” and “our” refer to Shoal Games Ltd. and
our subsidiaries, which are described below.
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.
History and Corporate Structure
The Company was originally incorporated in the State of Florida on January 12, 1987.
Effective January 22, 1999, the Company acquired the use of the second level domain name
bingo.com and embarked on a strategy to become a leading online provider of bingo based games and
entertainment.
Effective April 7, 2005, the shares of Bingo.com, Ltd. by way of a merger between Bingo.com, Inc.
and Bingo.com, Ltd., began trading under the new ticker symbol “BNGOF”.
Effective December 31, 2014 the URL www.bingo.com and the online bingo business were sold to
Unibet, plc.
On January 22, 2015, Bingo.com, Ltd. filed Articles of Amendment with the Anguilla Registrar of
Companies changing its name to “Shoal Games Ltd.”. Effective at the open of markets on January
27, 2015, the Common Shares commenced trading under the new trading symbol “SGLDF” on the
OTC-QB.
On June 29, 2015, the Company filed a TSX Venture Exchange Listing Application for the TSX-V
listing and commenced trading on July 2, 2015, under the symbol “SGW”.
We conduct our business through the Anguilla incorporated entity and through our wholly-owned
subsidiaries Shoal Media (Canada) Inc. (previously English Bay Office Management Limited)
(“Shoal Media Canada”), Shoal Games (UK) plc (“Shoal UK”), Coral Reef Marketing Inc. (“Coral
Reef”), Shoal Media Inc. (“Shoal Media”) and Rooplay Media Ltd.
Shoal Media Canada was incorporated under the laws of British Columbia, Canada, on February 10,
1998, as 559262 B.C. Ltd. and changed its name to Bingo.com (Canada) Enterprises Inc. on February
11, 1999. It subsequently changed its name to English Bay Office Management Limited on
September 8, 2003. Effective March 11, 2016, it changed it name to Shoal Media (Canada) Inc.
On August 15, 2002, 99% of the share capital of Shoal UK was acquired. Shoal UK was incorporated
under the laws of England and Wales on August 18, 2000, as CellStop plc. and changed its name to
Bingo.com (UK) plc. on August 5, 2002. During the year ended December 31, 2015, the Company
changed the name of the company to Shoal Games (UK) plc.
Page 4
On January 21, 2008, Coral Reef Marketing Inc., was incorporated under the laws of Anguilla, British
West Indies.
On January 1, 2013, 100% of the share capital of Shoal Media Inc., an Anguillian Company was
acquired.
On October 25, 2016, Rooplay Media Ltd., was incorporated under the laws of British Columbia,
Canada.
Subsequent to the year ended December 31, 2016, Shoal Media UK Ltd. was incorporated under the
laws of England and Wales.
The Company also maintains a number of inactive wholly-owned subsidiaries. These are:
- Bingo.com (Antigua), Inc., (“Bingo.com (Antigua”)
incorporated as an Antigua
International Business Corporation on April 7, 1999, as Star Communications Ltd. and
changed its name to Bingo.com. (Antigua), Inc. on April 21, 1999;
- Bingo.com (Wyoming), Inc., incorporated in the State of Wyoming on July 14, 1999;
- Bingo.com Acquisition Corp., incorporated in the State of Delaware on January 9, 2001.
All three of the inactive subsidiaries were incorporated to facilitate the implementation of business
plans that we have since modified and refocused and, consequently, there is no activity in these
entities.
Our common shares are currently quoted on the Over the Counter Markets - The Venture Marketplace
("OTCQB") operated by OTC Markets Group Inc. under the symbol “SGLDF” and on the TSX
Venture Exchange in Canada under the symbol “SGW”. We have not been subject to any
bankruptcy, receivership or other similar proceedings.
Development of the Business
The primary focus of Shoal Games is the development and marketing of the Rooplay edugame system
for children and families. Shoal Games management believes that Rooplay could become a popular
global platform of educational and entertainment games for kids and is executing the business
strategy to achieve this goal.
Bingo.com Domain Name
Effective December 31, 2014, the Company sold the Bingo.com domain name to Unibet Group plc
for $8 million. The Company received cash consideration of $2,000,000 and the redemption of
15,000,000 common shares of the Company at a price of $0.40 per share, which were held by Unibet.
The 15,000,000 common shares held by Unibet Group plc. have been returned to the Company’s
treasury and subsequently canceled.
Shoal Games Domain Names
the domain names Rooplay.com, Shoalgames.com, Shoalgames.net,
Shoal Games owns
Shoalmedia.com, Shoalmedia.net, Garfieldsbingo.com, Trophybingo.com, Trophybingo.net, and
Trophybingo.ca.
BUSINESS OVERVIEW
The current focus of Shoal Games is the development and marketing of Rooplay, an innovative
platform of interactive games for families and children.
Product Strategy
Rooplay is a Netflix of games for children and families. Rooplay has no ads, no in-app purchases, no
long downloads, no instant messaging, and no outbound links of any form. These characteristics
make the product a unique platform of game content that is entirely safe for children.
Rooplay generates revenue from consumer subscriptions which are paid to access the Rooplay library
of games. Shoal Games management believes that the development of a platform system such as
Rooplay will create a significant and sustainable revenue stream for the Company.
Page 5
In addition to developing and maintaining the Rooplay system, Shoal Games develops original
content that it publishes into the App Stores as single apps and onto Rooplay to expand the library of
content on the platform. Mobile users can choose to download and play Shoal Games single apps, or
access the entire library of over 500 games from within Rooplay.
Marketing & Distribution Strategy
Shoal Games pursues both a business-to-consumer strategy and a business-to-business strategy with
Rooplay. With the Company's direct to consumer strategy, new users of Rooplay are created via paid
performance marketing, search engine marketing, word-of-mouth, and from links and promotions in
the Company's other mobile products.
The business-to-business distribution strategy involves targeted business development efforts with
mobile handset manufacturers, cable companies, and mobile telecommunications operators to
encourage them to partner with Shoal Games to distribute Rooplay to their customers. Shoal Games
offers revenue share opportunities to potential partners who are interested in providing content
systems such as Rooplay to their customers.
Pricing Strategy
Shoal Games is pursuing an aggressive penetration pricing strategy with Rooplay by offering monthly
subscriptions to its library of 500+ games and exclusive. All users acquired via the direct-to-
consumer model will be offered a 30 day trial period before the subscription fee becomes payable.
Rooplay users acquired via partner relationships will have varying periods of free trial and pricing as
determined by the partner's circumstances and region.
Growth Strategy
Shoal Games management is pursuing an aggressive growth strategy by approaching local partners in
many regions of the world who are interested in distributing Rooplay. Rooplay's games are not
restricted to any particular region and the demand for early learning systems such as Rooplay is
strong.
With more than 6.8 billion mobile phone subscriptions in place globally the demand for mobile
content systems is enormous. Rooplay fills a particular need for families and with every additional
piece of content that is added to the system the draw to Rooplay in comparison to other systems
becomes stronger. With the competition fierce between network operators for new mobile
subscribers, Shoal Games management believes that owning a content platform system such as
Rooplay will create long-term value for the Company’s shareholders.
International Strategy
The first release of Rooplay is in English, but the system has been designed from conception to
provide value to children and families of every language. Most games are developed without the
requirement of any text to learn and play so Rooplay's potential for localization and international
publishing is ideal. Furthermore, all of Shoal Games' original productions for Rooplay are built to
support learning in any language.
With densely populated regions such as China interested in games, the English language, and early
learning technology such as Rooplay, Shoal Games management is actively pursuing local partners to
assist in the distribution of Rooplay in China.
Trophy Bingo & Garfield's Bingo
The Company has completed the social bingo games Trophy Bingo and Garfield’s Bingo which are
available on Apple’s iOS, Google’s Android and Amazon Android systems. Revenue is generated in
the games via in-app purchases and advertising. Shoal Games management continues to support
Trophy Bingo and Garfield's bingo to grow revenues and provide cash to the Company.
Page 6
OPERATIONS
Employees
As of December 31, 2016, we had eleven full-time employees, not including temporary personnel,
consultants, and independent contractors. Since 2006 it has been, and continues to be, the Company’s
objective to control its costs by retaining consultants, as needed, to provide special expertise in
developing internal strategic, marketing, accounting and technical services. The Company ceased
outsourcing its software development personnel in September 2016 following the bankruptcy of its
outsource supplier. The Company immediately hired the key personnel from that organization whom
are now our full-time employees. None of our employees or consultants are represented by a labor
union, and we believe that our relationship with our employees and consultants is good.
We are substantially dependent upon the continued services and performance of J. M. Williams, Chief
Executive Officer and T. M. Williams, Executive Chairman. The loss of the services of these key
individuals would have a material adverse effect on our business, financial condition and results of
operations. We do not carry any key man life insurance on any individuals.
Seasonality
We do not believe that seasonality has an effect on our product demand or our revenue realization.
Competition
At present the Company is not aware of any direct competitors to Rooplay. To management's
knowledge, no other systems are in existence such as Rooplay that offer instantly playable edugames
and family games.
In the mobile bingo market, large operators have acquired the companies behind the two leading
social bingo games. Caesars Interactive Entertainment acquired Buffalo Studios, the makers of Bingo
Blitz, in 2012 for $53 million. More recently in 2014, GSN Games purchased Bash Gaming, the
makers of Bingo Bash, for $160 million. The Company views these acquisitions as additional
confirmation that the social bingo marketplace is valuable and will support another market entrant.
Costs and Effects of Compliance with Environmental Laws
The Company is in the business of developing and marketing Rooplay, Garfield’s Bingo, and Trophy
Bingo. To the best of our knowledge, no federal, state or local environmental laws are applicable to
our business.
BRITISH COLUMBIA SECURITIES COMMISSION
Effective September 15, 2008, the British Columbia Securities Commission (“BCSC”) issued rule 51-
509 Issuers Quoted in the U.S. Over-the-Counter Markets. Rule 51 - 509 requires all Over-the-
Counter Companies that have connections to British Columbia (BC) to comply with BC securities
law and certain public disclosure requirements. The Company is deemed to have connection to BC
due to the fact that administration and a director are located in BC. The Company has complied with
rule 51-509 and registered and filed the necessary documents on SEDAR. The Company is deemed,
due to the fact that there are less than 50% of the Company’s shareholders located in BC, to be a
foreign reporting issuer in accordance with NI 71-102 “Continuous Disclosure and Other Exemptions
Relating to Foreign Issuers”. Therefore the Company is only required to file what it files with the
Securities and Exchange Commission on SEDAR.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The equipment of the Company to operate the operations of the Company is located in Anguilla,
United Kingdom, and Canada. The revenue from in-app purchases is worldwide, with the majority
from Europe and the USA.
AVAILABLE INFORMATION
The Company makes available through the Corporate Shoal Games section of its internet website at
http://investor.shoalgames.com its annual report on Form 10-K, quarterly reports on Form 10-Q,
Page 7
current reports on Form 8-K, Press Releases, Research Reports, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably
practicable after electronically filing such material with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that we file with the Securities
and Exchange Commission at the Securities and Exchange Commission’s Public Reference Room at
100 F Street, N.E., Washington D.C. 20549. You can request copies of these documents, upon
payment of a duplicating fee, by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of
the Public Reference Room.
We file our reports with the Securities and Exchange Commission electronically through the
Securities and Exchange Commission’s Electronic Data Gathering, Analysis and Retrieval
(“EDGAR”) system. The Securities and Exchange Commission maintains an Internet site that
contains reports, proxy and information statements, and other information regarding companies that
file electronically with the Securities and Exchange Commission through EDGAR. The address of
this Internet site is http://www.sec.gov.
In addition, we file our reports on SEDAR, for TSX Venture companies. The address of this Internet
site is http://www.sedar.com.
ITEM 2. PROPERTIES.
Since 2005 our executive office is located in The Valley, Anguilla, British West Indies. We
commenced the present lease agreement on April 1, 2010, for a period of one year. Unless 3 month’s
notice is given it automatically renews for a future 3 months until notice is given. To date no notice
has been given. The monthly rental is $250.
Our primary administrative and development facility is located in leased space in Vancouver, British
Columbia. During the year ended December 31, 2016, the Company signed a lease expiring
December 31, 2016. After December 31, 2016, unless 30 day notice is given this lease is extended on
a month-to-month basis. To date no notice has been given. This facility comprises approximately
1,651 square feet. The monthly rental is approximately $1,146.
We operate a sales and marketing office in London, United Kingdom.
We believe that these facilities will be adequate to meet our requirements for the near future and that
suitable additional space will be available if needed. Other than described above, neither we, nor any
of our subsidiaries presently own or lease any other property or real estate.
ITEM 3. LEGAL PROCEEDINGS.
We are not currently a party to any legal proceedings and were not a party to any other legal
proceeding, during the fiscal year ended December 31, 2016. We are currently not aware of any legal
proceedings proposed to be initiated against us. However, from time-to-time, we may become subject
to claims and litigation generally associated with any business venture.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held our Annual Meeting of Stockholders in Anguilla on November 9, 2016, all matters were
unanimously approved.
All nominees for directors were elected and the appointment of auditors was ratified. The voting on
each matter is set forth below:
a)
Elected to set the number of directors at 4.
For
49,156,967
Against
100,248
Abstain
-
Not Voted
-
Page 8
Elected the following persons to serve as directors until the next annual meeting or until their
b)
successors are duly qualified:
T. M. Williams
J. M. Williams
F. Curtis (Non Executive Director)
W. Moore (Non Executive Director)
Mr. C. M. Devereux was nominated as a director but was unable to stand for re-election. Mr. W.
Moore was nominated at the Annual General Meeting and was elected accordingly by vote of the
shareholders.
For
Election of the Directors of the Company.
Nominee
T. M. Williams
J. M. Williams
F. Curtis
W. Moore
49,242,870
49,241,870
49,243,770
49,257,215
Against
Abstain
Not Voted
-
-
-
-
14,345
15,345
13,445
-
-
-
-
-
Approved the selection of Davidson & Company LLP, Chartered Professional Accountants as
(c)
the Company's independent auditors for the fiscal year ending December 31, 2016.
For
49,246,678
Against
-
Abstain
10,537
Not Voted
-
(d)
The ratification of the existing Rolling Stock Option plan was approved.
For
49,229,560
Against
27,655
Abstain
-
Not Voted
-
Mr. Jason Williams will continue as President and CEO of the Shoal Games Ltd. organization and
Mr. T. M. Williams, will continue to serve as Executive Chairman.
Page 9
PART II
ITEM
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
Our common stock is currently quoted on the TSX Venture Exchange in Canada under the
symbol “SGW” and on the Over the Counter Markets – The Venture Marketplace ("OTCQB")
operated by OTC Markets Group Inc. under the symbol “SGLDF”.
On March 19, 1997, our common stock was approved for trading on the National Association of
Securities Dealers OTC Bulletin Board (the “OTCBB”) under the symbol “PGLB”. In January 1999,
when we changed our name to Bingo.com, Inc., our OTCBB symbol was changed to “BIGG”. On
July 26, 1999, we changed our trading symbol from “BIGG” to “BIGR”. On April 7, 2005,
Bingo.com, Inc. completed a merger with its wholly- owned subsidiary Bingo.com, Ltd. The principal
reason for Bingo.com, Inc.’s merger with its subsidiary Bingo.com, Ltd. was to facilitate Bingo.com,
Inc.’s reincorporation under the International Business Companies Act of Anguilla, B.W.I. Effective
April 7, 2005, the shares of Bingo.com, Ltd. began trading under the new ticker symbol “BNGOF”.
In 2011, we transferred to the Over the Counter Markets - The Venture Marketplace ("OTCQB")
operated by OTC Markets Group Inc., whilst continuing our ticker symbol “BNGOF”. The bid
quotations set forth below, reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not reflect actual transactions. During the year ended December 31, 2015, the
Company changed its name to Shoal Games Ltd. and changed our trading symbol from “BNGOF” to
“SGLDF”. Effective July 2, 2015, the Company additionally commenced trading on the TSX Venture
Exchange in Canada under the symbol “SGW”.
Quarter Ended
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
December 31, 2015
September 30, 2015
June 30, 2015
March 31, 2015
Prices as per Yahoo! TM Finance
1.
High (1)
$0.47
$0.50
$0.54
$0.50
$0.75
$0.75
$0.53
$1.00
Low (1)
$0.35
$0.45
$0.35
$0.34
$0.36
$0.20
$0.19
$0.40
On March 31, 2017, the last reported sale price of our common stock, as reported by the OTCQB,
was $0.36 per share and CAD$0.51 per share on the TSX Venture Exchange.
As of March 31, 2017, we believe there are approximately 1,152 shareholders (including nominees
and brokers holding street accounts) of our shares of common stock.
Other than described above, our shares of common stock are not and have not been listed or quoted
on any other exchange or quotation system.
Dividend Policy
We have not declared or paid any cash dividends on our common stock since our inception. The
Board of Directors is presently reviewing the Company’s dividend policy. Any future payment of
dividends will depend upon our results of operations, financial condition, cash requirements and other
factors deemed relevant by our Board of Directors.
Recent Sales of Unregistered Securities
On September 30, 2015, option holders exercised their options for 515,000 shares of the Company at
$0.15 per share.
During the year ended December 31, 2016, the Company had a private placement with two closings
for a total of 3,337,934 common shares at CAD$0.60 per share, which raised proceeds of
US$1,562,479 (CAD$2,002,760). The Company incurred issuance costs of $33,876.
Page 10
On October 11, 2016, the Company closed its rights issued raising US$80,949 (CAD$107,168) from
the issuance of 172,681 common shares at an average price of CAD$0.626 per share. The Company
incurred issuance costs of $36,148.
Securities authorized for issuance under equity compensation plans.
In 2015, the shareholders approved the 2015 plan and the 1999, 2001 and the 2005 plans were
discontinued. Under the 2015 plan we have reserved 10% of the number of Shares of the Company
issued and outstanding as of each Award Date. Pursuant to this plan we have 1,010,000 stock
purchase options (2015 - nil) outstanding at December 31, 2016. During the year ended December 31,
2016, there were nil options exercised and nil options expired, issued under this plan.
Equity Compensation Plan Information
Number of securities to be
issued upon exercise of
outstanding options and rights
(a)
1,010,000
Weighted average exercise
price of outstanding options
and rights
(b)
0.42
Number of securities
remaining available
for future issuance
(c)
4,960,832
0
1,010,000
0
0.42
0
4,960,832
Plan category
Equity compensation
plans approved by
security holders
Equity compensation
plans not approved by
security holders
Total
As of the date of this report no further options have been awarded subsequent to the year ended
December 31, 2016.
ITEM 6. SELECTED FINANCIAL DATA.
Consolidated Statement of Operations Data for continuing operations:
Revenue
Trophy Bingo amortization
Gross (loss) profit
Operating expenses excluding
interest and other income
(expenses)
Interest and other income
Income tax expense
Loss on prepaid development
Net loss from continuing
operations
Discontinued Operations
Gaming revenue
Cost of producing revenue
Gain from the sale of the
domain name
Selling and marketing
Net (loss) profit
Basic and diluted net loss per
share from continuing
operations
Weighted average common
shares outstanding
Year Ended December 31,
2016
2015
2014
2013
2012
278,921
482,013
(203,092)
111,610
482,012
(370,402)
32,470
482,013
(449,543)
26,389
-
26,389
44,693
-
44,693
(2,453,280)
155
(1,294)
(498,791)
(2,612,194)
1,089
(480)
-
(2,221,663)
510
(848)
-
(780,754)
840
(1,666)
-
(594,897)
1,258
(1,008)
-
$
(3,156,302) $
(2,981,987) $
(2,671,544) $
(755,191) $
(549,954)
-
-
-
-
-
-
(3,156,302)
16,305
-
(2,965,682)
1,684,047
-
6,677,759
(628,029)
5,062,233
1,912,301
-
1,721,135
-
-
(1,942,885)
(785,766)
-
(1,217,416)
(46,235)
$
(0.05) $
(0.05) $
(0.04) $
(0.01) $
(0.01)
58,227,957
55,812,511
67,165,374
64,156,392
63,877,703
Page 11
Year Ended December 31,
2016
2015
2014
2013
2012
$
Consolidated Balance Sheet Data:
Cash
Total assets
Total liabilities
Total stockholders’ (deficit)
equity
Working capital
60,190 $
129,093
444,680
(315,587)
13,896
570,086 $
1,129,526
177,792
2,876,386 $
3,996,745
156,579
491,203 $
3,607,123
238,540
951,734
454,447
3,840,166
2,856,230
3,368,583
646,015
876,004
3,362,054
105,608
3,256,446
1,640,713
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information contained in this Management's Discussion and Analysis or Plan of Operation
contains "forward looking statements." Actual results may materially differ from those projected in
the forward looking statements as a result of certain risks and uncertainties set forth in this report.
Although management believes that the assumptions made and expectations reflected in the forward
looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact,
prove to be correct or that actual future results will not be materially different from the expectations
expressed in this Annual Report. The following discussion should be read in conjunction with the
audited Consolidated Financial Statements and related Notes thereto included in Item 7 and with the
Special Note regarding forward-looking statements included in Part I.
OVERVIEW
The primary focus of Shoal Games is the development and marketing of the Rooplay edugame system
for children and families. Rooplay has no ads, no in-app purchases, no long downloads, no instant
messaging, and no outbound links of any form. These characteristics make the product a unique
platform of game content that is entirely safe for children.
The games on the Rooplay system are designed to both entertain and educate. Children engaging
with Rooplay learn technology, solve puzzles, paint pictures, practice language, learn math, and much
much more. Shoal Games is developing a content system with Rooplay that builds tech literacy and
encourages early learning. The Company believes that to be able to teach children, they must first
hold their attention. Rooplay mixes entertainment with education so that long player sessions are
created in a safe environment so that children have fun and are challenged in new ways with every
session. Rooplay has over 500 unique interactive games in every imaginable format.
Shoal Games management believes that through the development of the Rooplay platform and the
production of exclusive edugame content that it can create a defensible position in the market as a
premium provider of mobile games content for kids. Shoal Games has a long history in games and
software development and believes that its experienced team is capable of creating Rooplay so that it
becomes a global provider of mobile entertainment. Rooplay will generate revenue for the Company
from consumer subscriptions which customers will pay to unlock the Rooplay game catalog. Shoal
Games management believes that the development of a platform system such as Rooplay will create a
significant and sustainable revenue stream for the Company.
Shoal Games management is pursuing an aggressive growth strategy by approaching local partners in
many regions of the world who are interested in distributing Rooplay. Rooplay's games are not
restricted to any particular region and the demand for early learning systems such as Rooplay is
strong.
With more than 6.8 billion mobile phone subscriptions in place globally the demand for mobile
content systems is enormous. Rooplay fills a particular need for families and with every additional
piece of content that is added to the system the draw to Rooplay in comparison to other systems
becomes stronger. With the competition fierce between network operators for new mobile
subscribers, Shoal Games management believes that owning a content platform system such as
Rooplay will create long-term value for the Company’s shareholders.
Page 12
Shoal Games' other mobile products include Garfield’s Bingo (www.garfieldsbingo.com), the first
mobile bingo game to feature a mega-brand; and Trophy Bingo (www.trophybingo.com), live across
mobile platforms with over 500,000 installs. Trophy Bingo and Garfield’s Bingo are innovative free-
to-play mobile games live in the Apple, Google and Amazon App Stores. The Company has
generated its main source of revenue to-date from players making in-app purchases in Trophy Bingo
and Garfield’s Bingo.
CRITICAL ACCOUNTING POLICIES
The following discussion of critical accounting policies is intended to supplement the Summary of
Significant Accounting Policies presented as Note 2 to our audited consolidated financial statements
presented elsewhere in this report. Note 2 summarize the accounting policies and methods used in the
preparation of our consolidated financial statements. The policies discussed below were selected
because they require the more significant judgments and estimates in the preparation and presentation
of our financial statements. 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, as well as other events and assumptions that are believed
to be reasonable at the time. Actual results could differ from these estimates under different
conditions.
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.
Advertising revenues, not generated in Trophy Bingo and 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.
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 on a straight-line basis over the estimated
economic life of the related product. The Company performs an annual review of the estimated
economic life and the recoverability of such capitalized software costs. 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. The Company capitalized
100% of its development costs of Trophy Bingo in 2013. Commencing January 1, 2014, the Company
commenced amortizing the capitalized software development costs over a period of 3 years and all
further development costs have been expensed. 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.
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. Total software development costs for the development of Rooplay,
Garfield’s Bingo, and Trophy Bingo were $4,935,274 as at December 31, 2016 (2015 - $3,857,636).
Page 13
SOURCES OF REVENUE AND REVENUE RECOGNITION
We generate our revenue from the following:
- The sale of in-app purchases in Garfield’s Bingo and Trophy Bingo in the Google play,
Apple iOS and Amazon App stores.
In-game advertising, whereby players watch advertising to gain in-game currency.
-
- The sale of advertising on our websites. We recognize revenue on this basis based on the
amount paid to us upon the delivery and fulfillment of advertising, provided that the
collection of the resulting receivable is probable.
- Consumer subscription from players paying to unlock the Rooplay game catalog.
SUPPLEMENTARY FINANCIAL INFORMATION
Quarterly Results of Operations
The following tables present our unaudited consolidated quarterly results of operations for each of our
last eight quarters. This data has been derived from unaudited consolidated financial statements that
have been prepared on the same basis as the annual audited consolidated financial statements and, in
our opinion, include all normal recurring adjustments necessary for the fair presentation of such
information. These unaudited quarterly results should be read in conjunction with our audited
consolidated financial statements, included in Item 7 of this report.
Three Months Ended
December 31,
2016
(Unaudited)
September 30
2016
(Unaudited)
June 30
2016
(Unaudited)
March 31
2016
(Unaudited)
Revenue
37,783
52,758
77,821
110,559
Cost of sales
Trophy Bingo amortization
Gross loss
Operating expenses and other
(income) / expenses
Loss on prepaid development
Loss before income taxes
Income tax expense
Income/(loss) after tax
Basic and diluted net income (loss)
per share
Weighted average common shares,
basic and diluted
$
$
120,503
(82,720)
661,346
-
(744,066)
120,503
(67,745)
120,504
(42,683)
120,503
(9,944)
589,561
498,791
(1,156,097)
578,294
-
(620,977)
623,924
-
(633,868)
-
(633,868)
1,302
(745,368) $
1
(9)
(1,156,098) $
(620,968) $
(0.01) $
(0.02)
(0.01) $
(0.01)
$
59,708,318
59,535,637
57,474,435
56,197,703
Page 14
Three Months Ended
December 31,
2015
(Unaudited)
September 30
2015
(Unaudited)
June 30
2015
(Unaudited)
March 31
2015
(Unaudited)
Revenue
85,535
11,130
6,253
8,692
Cost of sales
Trophy Bingo amortization
Gross loss
Operating expenses and other
(income) / expenses
Loss from continuing operations
before income taxes
Income tax expense
Loss from continuing operations
Discontinued operations
Loss after tax
Basic and diluted net income (loss)
per share
Continuing operations
Discontinued operations
Weighted average common shares,
basic and diluted
$
$
$
120,503
(34,968)
120,503
(109,373)
120,503
(114,250)
120,503
(111,811)
783,451
649,238
552,262
626,154
(818,419)
(758,611)
(666,512)
(737,965)
480
(818,899) $
-
-
(758,611) $
(666,512) $
-
-
-
(818,899) $
(758,611) $
(666,512) $
-
(737,965)
16,305
(721,660)
(0.01) $
-
(0.01) $
-
(0.01) $
- $
(0.01)
0.00
56,197,703
55,682,703
55,682,703
55,682,703
Our financial statements and related schedules are described under “Item 8. Financial Statements”.
RESULTS OF OPERATIONS
Years Ended December 31, 2016 and 2015
Revenue
Total revenue from continuing operations increased to $278,921 for the year ended December 31,
2016, an increase of 150% over revenue from continuing operations of $111,610 for the same period
in the prior year. The increase in total revenue compared to fiscal 2015, is due to the Company
launching a full global release of a feature complete Trophy Bingo in the Google Play and Apple App
Store in the latter half of the third quarter of fiscal 2015 and an increase in players playing Trophy
Bingo and the launch of Garfield’s Bingo in the fourth quarter of fiscal 2016.
Selling and marketing expenses
Sales and marketing expenses from continuing operations were $403,523 for the year ended
December 31, 2016, a decrease of 27% over expenses of $549,534 for the same period in the prior
year. This decrease in sales and marketing expenses from continuing operations in fiscal 2016,
compared to fiscal 2015, was due to a lower marketing spend for player acquisitions in Trophy Bingo
commencing in early 2016 whilst the Company prepared for the launch of planned new features in
Trophy Bingo to meet active player demand and to complete the development of Garfield’s Bingo.
Selling and marketing expenses principally include publishing services and user acquisition costs to
acquire players.
We expect to incur increased sales and marketing expenses to bring new players to Rooplay and our
bingo games now that all three products are commercially viable. There can be no assurances that
these expenditures will result in increased traffic or significant additional revenue.
Page 15
General and administrative expenses
General and administrative expenses consist primarily of premises costs for our office, legal and
professional fees, and other general corporate and office expenses. General and administrative
expenses decreased to $231,404 for the year ended December 31, 2016, a decrease of 35% over costs
of $356,647 for the previous year. Effective July 2, 2015, the Company commenced trading on the
TSX Venture Exchange as a tier 2 Technology Issuer under the trading symbol “SGW. This decrease
in general and administrative expenses compared to fiscal 2015, is due to the fees incurred in listing
the Company in 2015.
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.
Salaries, wages, consultants and benefits
Salaries, wages, consultants and benefits expenses decreased to $413,166 during the year ended
December 31, 2016, a decrease of 4% over costs of $429,072 for the previous year. Certain of the
Company’s salaries, wages, consultants and benefits expenses are incurred in Canadian Dollars. The
decline in the Canadian dollar in relation to the United States dollar has led to a decline in salaries,
wages, consultants and benefits expenses for the year ended December 31, 2016.
Depreciation and amortization
Equipment is depreciated using the declining balance method over the useful lives of the assets,
ranging from three to five years. Depreciation increased to $3,570 during the year ended December
31, 2016, over depreciation of $3,467 during the prior year. This increase in depreciation and
amortization compared to fiscal 2015, is due to the disposal of old obsolete equipment.
Development and amortization
Commencing January 1, 2014, the Company ceased to capitalize the development costs of Trophy
Bingo and commenced amortizing the capitalized development costs over the life of the game. The
Company expensed $1,077,638 in development costs during the year ended December 31, 2016, a
decrease of 12% over $1,230,216 of development costs in the prior year. This decrease in
development costs is due to a smaller team developing Rooplay, Garfield’s Bingo and Trophy Bingo
compared to fiscal 2015. In addition, the Company amortized $482,013 (2015 - $482,012) of the
capitalized development costs during the year ended December 31, 2016.
Other income and expenses
During the year ended December 31, 2016, the Company has a foreign exchange loss of $33,020
compared to foreign exchange gains of $33,758 in the prior year. These losses are due to the
exchange rate movements of the US Dollar compared to the Pound Sterling and the Canadian Dollar.
During the year ended December 31, 2016, we received interest income of $155, a decrease of 86%
compared to interest income of $1,089 in the prior year. The interest income is received from bank
term deposits from investing our cash. The decrease in interest income is due to lower bank account
balances in fiscal 2016 compared to fiscal 2015.
Loss on prepaid development
During the second quarter of fiscal 2016, the Company prepaid $863,660 in development costs, in
order to lessen our expected overall development costs. Effective August 31, 2016, Roadhouse
Interactive Limited, our outsourced developer, was placed in receivership. There was $498,791 in
development expenses which had not been utilized. The Company immediately expensed these costs
and hired the key members of the Roadhouse development staff that had been working on the
Company’s products. The Company, at all times, has retained ownership and copies of all requisite
source code and art work in all its products.
Page 16
Income taxes
The Company incurred income tax expense of $1,294 during the year ended December 31, 2016, in
relation to profits earned in its subsidiaries in different jurisdictions compared to income tax expense
of $480 in the prior year. During the year ended December 31, 2005, the Bingo.com, Inc. merged
with its subsidiary Bingo.com, Ltd. in Anguilla, British West Indies. Anguilla is a zero tax
jurisdiction.
Sale of domain name
Effective December 31, 2014, the Company sold its URL www.bingo.com and its bingo business to
Unibet Group plc (“Unibet”) for total consideration of $8,000,000. The Company received cash
consideration of $2,000,000 and redemption of the 15,000,000 common shares of the Company,
which were held by Unibet and recorded this gain in the year ended December 31, 2015. The
15,000,000 common shares held by Unibet were returned to the Company’s treasury and cancelled.
The Company recorded a residual gain from the sale of $16,305 which was received in the year ended
December 31, 2016.
Net loss and loss per share
The net loss after taxation for the twelve months ended December 31, 2016, amounted to
($3,156,302), a loss of ($0.05) per share, compared to a net loss of ($2,965,682), a loss of ($0.05) per
share in the twelve months ending December 31, 2015. The increase in net loss is due to the loss on
prepaid development costs.
LIQUIDITY AND CAPITAL RESOURCES
We had cash of $60,190 and working capital of $13,896 at December 31, 2016. This compares to
cash of $570,086 and working capital of $454,447 at December 31, 2015.
During the year ended December 31, 2016, we used cash of $2,476,707 in operating activities
compared to using cash of $2,383,038 in the prior year.
Net cash generated by financing activities was $1,974,215 in the year ended December 31, 2016,
which compares to cash generated by financing activity of $77,250 in fiscal 2015. This cash
generated by financing activity is due to the cash raised from two private placements and a rights
issue during the year ended December 31, 2016 compared to the cash raised from option holders
exercising their options during the year ended December 31, 2015
Cash of $7,404 used in investing activities in fiscal 2016, compared to $512 in the prior year. This
increase in cash used in investing activities is due to the acquisition of equipment and furniture for
new employees.
Our future capital requirements will depend on a number of factors, including costs associated with
the further development of Rooplay, Garfield’s Bingo and Trophy Bingo; the cost of marketing and
player acquisition costs for Rooplay, Garfield’s Bingo and Trophy Bingo, and the success of Rooplay,
Garfield’s Bingo and Trophy Bingo.
Off Balance Sheet Arrangements
We did not have any Off Balance sheet arrangements for the year ended December 31, 2016 and
2015.
AUDIT COMMITTEE
Our audit committee consists of four directors and reports to the Board of Directors. The audit
committee meets regularly throughout the year and met with the independent auditors on March 30,
2017, and approved the financials statements for the year ended December 31, 2016.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page 17
SHOAL GAMES LTD. and subsidiaries
Consolidated Financial Statements
Years ended December 31, 2016 and 2015
Report of Independent Registered Public Accounting Firm
for the years ended December 31, 2016 and 2015
Consolidated Financial Statements
Balance Sheets
Statements of Operations
Statements of Stockholders’ Equity (Deficiency)
Statements of Cash Flows
Notes to Consolidated Financial Statements
19
20
21
22
23
24
Page 18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of
Shoal Games Ltd.
We have audited the accompanying consolidated financial statements of Shoal Games Ltd. (the
“Company”), which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and
the related consolidated statements of operations, stockholders’ equity (deficiency), and cash flows
for the years ended December 31, 2016 and 2015. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Shoal Games Ltd. as of December 31, 2016 and 2015, and the
results of its operations and its cash flows for the years ended December 31, 2016 and 2015 in
conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that Shoal Games
Ltd. will continue as a going concern. As discussed in Note 1 to the consolidated financial statements,
the Shoal Games Ltd. has suffered recurring losses from operations. This matter, along with the other
matters set forth in Note 1, indicate the existence of material uncertainties that raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Vancouver, Canada
March 31, 2017
“DAVIDSON & COMPANY LLP”
Chartered Professional Accountants
Page 19
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Consolidated Balance Sheets
As at December 31,
Assets
Current assets:
Cash
Accounts receivable, less allowance for doubtful accounts
$27,666 (2015 - $nil) (Note 3)
Prepaid expenses
Total Current Assets
Equipment, net (Note 5)
2016
2015
$
60,190
$
570,086
17,194
33,494
110,878
44,948
17,205
632,239
10,148
6,314
Game development assets (Note 6)
-
482,013
Security deposits
8,067
8,960
Deferred tax asset, less valuation allowance of $15,017
(2015 - $17,898) (Note 11)
-
-
Total Assets
$
129,093
$
1,129,526
Liabilities and Stockholders’ Equity (Deficiency)
Current liabilities:
Accounts payable
Accrued liabilities
Accounts payable and accrued liabilities - related party (Note 12)
Total Current Liabilities
$
Promissory notes (note 8)
Total Liabilities
Commitments (Note 10)
Stockholders’ equity (Deficiency) (Note 9):
Common stock, no par value, unlimited shares authorized,
59,708,318 shares issued and outstanding
(December 31, 2015 - 56,197,703)
Accumulated deficit
Accumulated other comprehensive income:
Foreign currency translation adjustment
Total Stockholders’ Equity (Deficiency)
$
3,667
87,959
5,356
96,982
347,698
444,680
74,200
71,026
32,566
177,792
-
177,792
21,223,271
(21,563,438)
19,334,290
(18,407,136)
24,580
(315,587)
24,580
951,734
Total Liabilities and Stockholders’ Equity (Deficiency)
$
129,093
$
1,129,526
See accompanying notes to consolidated financial statements.
Page 20
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
Total revenue
Cost of sales:
Game development amortization (Note 6)
Total cost of sales
Gross loss
Operating expenses:
Depreciation and amortization (Note 5)
Directors fees
General and administrative
Provision for doubtful debts
Salaries, wages, consultants and benefits
Selling and marketing
Stock based compensation (Note 9)
Game development (Note 6)
Total operating expenses
2016
2015
$
278,921
$
111,610
482,013
482,013
(203,092)
3,570
6,000
231,404
27,666
413,166
403,523
257,293
1,077,638
2,420,260
482,012
482,012
(370,402)
3,467
9,500
356,647
-
429,072
549,534
-
1,230,216
2,578,436
Loss before other income (expense) and income taxes
(2,623,352)
(2,948,838)
Other income (expense):
Foreign exchange loss
Interest and other income
Loss on prepaid development (Note 4)
Loss from continuing operations before income taxes
Income tax expense (Note 11)
Loss from continuing operations
Discontinued operations: (Note 7)
Loss after tax
Other comprehensive income (loss)
Comprehensive income (loss)
Basic and diluted profit (loss) per common share (Note 2)
Continuing operations
Discontinued operations
Weighted average common shares outstanding, basic
(Note 2)
Weighted average common shares outstanding, diluted
(Note 2)
See accompanying notes to consolidated financial statements.
(33,020)
155
(498,791)
(3,155,008)
(1,294)
(33,758)
1,089
-
(2,981,507)
(480)
$
(3,156,302)
$
(2,981,987)
$
$
-
(3,156,302)
-
(3,156,302)
(0.05)
-
58,227,957
58,227,957
$
$
$
16,305
(2,965,682)
-
(2,965,682)
(0.05)
0.00
55,812,511
55,812,511
Page 21
77,250
(2,965,682)
951,734
58,284
1,562,479
80,949
(70,024)
257,293
(3,156,302)
-
-
-
-
-
-
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
Years ended December 31, 2016 and 2015
Common stock
Shares
Amount
Accumulated
Deficit
Accumulated Other
Comprehensive
income
Foreign currency
translation
adjustment
Total
Stockholders’
Equity
Balance, December 31, 2014
55,682,703
$19,257,040
$(15,441,454)
$ 24,580
$3,840,166
Exercise of stock options
515,000
77,250
-
Net loss
-
-
(2,965,682)
-
-
Balance, December 31, 2015
56,197,703
19,334,290
(18,407,136)
24,580
Discount on promissory note
-
58,284
Private placement
3,337,934
1,562,479
Rights issue
172,681
80,949
Share issuance costs
Stock based compensation
Net loss
-
-
-
(70,024)
257,293
-
(3,156,302)
-
-
-
-
-
Balance, December 31, 2016
59,708,318
$21,223,271
$(21,563,438)
$ 24,580
($315,587)
See accompanying notes to consolidated financial statements.
Page 22
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Consolidated Statements of Cash Flows
Years ended December 31,
Cash flows from operating activities:
Net loss
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization
Game development amortization
Accretion of promissory note
Stock based compensation
Discontinued operations
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses
Game development assets
Accounts payable and accrued liabilities
Net cash used in operating activities
Cash flows from investing activities:
Acquisition of equipment
Net cash used in investing activities
Cash flows from financing activities:
Exercise of stock options
Private placement
Promissory note
Rights issue
Share issuance costs
Net cash provided by financing activities
Change in cash
Cash, beginning of year
Cash, end of year
Supplementary information:
Interest paid
Income taxes paid
Non-cash financing activity
Non-cash investing activity
See accompanying notes to consolidated financial statements.
2016
2015
$
(3,156,302)
$
(2,965,682)
3,570
482,013
5,171
257,293
-
27,754
(16,289)
893
(80,810)
(2,476,707)
(7,404)
(7,404)
-
1,562,479
400,811
80,949
(70,024)
1,974,215
3,467
482,012
-
-
(16,305)
77,108
(2,838)
1,682
37,518
(2,383,038)
(512)
(512)
77,250
-
-
-
-
77,250
(509,896)
(2,306,300)
$
$
$
$
$
570,086
60,190
-
1,294
-
-
$
$
$
$
$
2,876,386
570,086
-
480
-
-
Page 23
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
1. Introduction:
Nature of business
The primary focus of Shoal Games Ltd. (the “Company”) is the development and marketing of
the Rooplay edugame system for children and families. Rooplay is an advertising free platform
of game content that is directed at children.
The games on the Rooplay system are designed to both entertain and educate. Children
engaging with Rooplay learn technology, solve puzzles, paint pictures, practice language, learn
math, and other educational games. Shoal Games is developing a content system with Rooplay
that builds tech literacy and encourages early learning.
Rooplay will generate revenue for the Company from consumer subscriptions which customers
pay to unlock the Rooplay game catalog.
Shoal Games' other mobile products include Garfield’s Bingo (www.garfieldsbingo.com), and
Trophy Bingo (www.trophybingo.com), are free-to-play mobile games live in the Apple,
Google and Amazon App Stores. The Company has generated its main source of revenue to-
date from players making in-app purchases in Trophy Bingo and Garfield’s Bingo.
Continuing operations
These 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 year ended December 31, 2016 and 2015,
and has an accumulated deficit of $21,563,438 as at December 31, 2016. 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 24
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
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
Coral Reef Marketing Inc.
Anguilla
Shoal Media Inc.
Anguilla
Shoal Games (UK) Plc
United Kingdom
Rooplay Media Ltd.
British Columbia, Canada
100%
100%
100%
99%
100%
In addition, there are the following dormant subsidiaries; Bingo.com (Antigua) Inc.,
Bingo.com (Wyoming) Inc., and Bingo Acquisition Corp.
During the year ended December 31, 2016, English Bay Office Management Limited
changed its name to Shoal Media (Canada) Inc. During the year ended December 31, 2016,
Rooplay Media Ltd. was registered in British Columbia, Canada. All inter-company
balances and transactions have been eliminated in the consolidated financial statements.
Subsequent to the year ended December 31, 2016, Shoal Media UK Ltd. was incorporated
under the laws of England and Wales.
(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 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 25
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
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) Accounts receivable:
Trade and other accounts receivable are reported at face value less any provisions for
uncollectible accounts considered necessary. Accounts receivable includes receivables from
payment processors and trade receivables from customers. The Company estimates doubtful
accounts on an item-by-item basis and includes over-aged accounts as part of allowance for
doubtful accounts, which are generally ones that are ninety-days overdue. Bad debt
expense, for the year ended December 31, 2016, was $nil (2015 - $nil).
(f) Equipment:
Equipment is recorded at cost less accumulated depreciation. Depreciation is provided for
annually on the declining balance method over the following periods:
Equipment and computers
Furniture and fixtures
3 years
5 years
Expenditures for maintenance and repairs are charged to expenses as incurred. Major
improvements are capitalized. Gains and losses on disposition of equipment are included in
income or expenses as realized.
Page 26
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
2. Summary of significant accounting policies (Continued):
(g) 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 is amortizing 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.
Total software development costs for the development of all three games; Rooplay,
Garfield’s Bingo and Trophy Bingo, were $4,935,274 as at December 31, 2016 (December
31, 2015 - $3,857,636).
(h) Advertising:
The Company expenses the cost of advertising in the period in which the advertising space
or airtime is used. Advertising costs from continuing operations charged to selling and
marketing expenses in 2016 totaled $403,523 (2015 - $549,534).
(i) Stock-based compensation:
The Company recognizes all stock-based compensation as an expense in the financial
statements and that such cost be measured at the fair value of the award.
The fair value of each option grant has been estimated on the date of the grant using the
Black-Scholes option-pricing model with the following assumptions:
Expected dividend yield
Expected stock price volatility
Weighted average volatility
Risk-free interest rate
Expected life of options
Forfeiture rate
Page 27
2016
-
78%
78%
1.9%
5 years
0%
2015
-
-
-
-
-
-
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
2.
Summary of significant accounting policies (Continued):
(j) Impairment of long-lived assets and long-lived assets to be disposed of:
The Company accounts for long-lived assets in accordance with the provisions of ASC 360,
Property, Plant and Equipment and ASC 350, Intangibles-Goodwill and Others. During the
periods presented, the only long-lived assets reported on the Company’s consolidated
balance sheet are equipment, game development assets, 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.
(k) Income taxes:
The Company follows the asset and liability method of accounting for income taxes. Under
this method, current income taxes are recognized for the estimated income taxes payable for
the current period. Deferred income taxes are provided based on the estimated future tax
effects of temporary differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases, as well as the benefit of losses available to be
carried forward to future years for tax purposes.
Deferred tax assets and liabilities are measured using the enacted tax rates that are expected
to apply to taxable income in the years in which those temporary differences are expected to
be recovered and settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in operations in the period that includes the enactment date. A valuation
allowance is recorded for deferred tax assets when it is not more likely than not that such
future tax assets will be realized.
(l) Net (loss) income per share:
ASC 260, “Earnings Per Share”, requires presentation of basic earnings per share (“Basic
EPS”) and diluted earnings per share (“Diluted EPS”). Basic earnings (loss) per share is
computed by dividing earnings (loss) available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per
share reflects the potential dilution, using the treasury stock method, that could occur if
outstanding options or warrants were exercised and converted into common stock. In
computing diluted earnings per share, the treasury stock method assumes that outstanding
Page 28
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
2. Summary of significant accounting policies (Continued):
(l) Net (loss) income per share: (Continued)
options and warrants are exercised and the proceeds are used to purchase common stock at
the average market price during the period.
Options and warrants will have a dilutive effect under the treasury stock method only when
the average market price of the common stock during the period exceeds the exercise price
of the options and warrants. In periods where losses are reported, the weighted average
number of common shares outstanding excludes common stock equivalents because their
inclusion would be anti-dilutive. A total of 1,010,000 (2015 - nil) stock options were
excluded as at December 31, 2016.
The earnings per share data for the year ended December 31, 2016 and 2015 are
summarized as follows:
Loss for the year from continuing operations
Income (loss) for the year from discontinued
operations
Basic and diluted weighted average number of
common shares outstanding
Basic and diluted (loss) earnings per common
share outstanding
Continuing operations
Discontinued operations
$
$
$
2016
(3,156,302) $
2015
(2,981,987)
- $
16,305
58,227,957
55,812,511
(0.05) $
- $
(0.05)
0.00
(m) Domain name and intangible assets:
The Company had capitalized the cost of the purchase of the domain name Bingo.com and
was amortizing the cost over five years from the date of commencement of operations. In
2002, the Company suspended the amortization of the domain name cost in accordance
with ASC 350, where companies are no longer required to amortize indefinite life assets but
instead test the indefinite intangible asset for impairment at least annually. The capitalized
amount was based on the net present value of the minimum payments permitted under the
terms of the purchase agreement. The domain name is tested for impairment by comparing
the future cash flows of the domain name with its carrying value. The Company determined
that as a result of level 3 unobservable inputs in accordance with ASC 820, Fair Value
Measurements and Disclosures, that the fair value of the domain name exceeded the
carrying value and therefore no impairment existed for the years presented.
(n) New accounting pronouncements and changes in accounting policies:
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 2015, March 2016,
Page 29
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
2. Summary of significant accounting policies (Continued):
(n) New accounting pronouncements and changes in accounting policies: (Continued)
April 2016, and May 2016 within ASU 2015-04, 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, 2018. 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.
In June 2014, the FASB issued ASU No. 2014-12, Compensation-Stock Compensation.
This guidance requires that a performance target that affects vesting, and that could be
achieved after the requisite service period, be treated as a performance condition. As such,
the performance target should not be reflected in estimating the grant date fair value of the
award. This update further clarifies that compensation cost should be recognized in the
period in which it becomes probable that the performance target will be achieved and
should represent the compensation cost attributable to the periods for which the requisite
service has already been rendered. The new standard is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2015 and can be
applied either prospectively or retrospectively to all awards outstanding as of the beginning
of the earliest annual period presented as an adjustment to opening retained earnings. Early
adoption is permitted. The adoption of ASU 2014-12 did not have a material impact on our
financial condition, liquidity or results of operations.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements -
Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to
Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 provides guidance about
management's responsibility to evaluate whether there is substantial doubt about an entity's
ability to continue as a going concern and sets rules for how this information should be
Page 30
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
2. Summary of significant accounting policies (Continued):
(n) New accounting pronouncements and changes in accounting policies: (Continued)
disclosed in the financial statements. ASU 2014-15 is effective for annual periods ending
after December 15, 2016 and interim periods thereafter. Early adoption is permitted. The
Company is evaluating the effect of ASU 2014-15 on our consolidated financial condition
and results of operations.
In November 2014, the FASB issued ASU No. 2014-16, Determining Whether the Host
Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to
Debt or to Equity. This standard requires an entity to “determine the nature of the host
contract by considering all stated and implied substantive terms and features of the hybrid
financial instrument, weighing each term and feature on the basis of the relevant facts and
circumstances which the hybrid financial instrument was issued or acquired and the
potential outcome of the hybrid financial instrument. ASU 2014-16 is effective for annual
periods ending after December 15, 2015 and interim periods thereafter. Early adoption is
permitted. The adoption of ASU 2014-16 did not have a material impact on our financial
condition, liquidity or results of operations.
In January 2015, the FASB issued ASU 2015-01, which eliminates from GAAP the concept
of extraordinary items. If an event or transaction meets the criteria for extraordinary
classification, it is segregated from the results of ordinary operations and is shown as a
separate item in the income statement, net of tax. ASU 2015-01 is effective for annual
periods, and interim periods within those annual periods, beginning after December 15,
2015. Early adoption is permitted. The adoption of ASU 2015-01 did not have a material
impact on our financial condition, liquidity or results of operations.
In February 2015, the FASB issued ASU 2015-02, which provides guidance for reporting
entities that are required to evaluate whether they should consolidate certain legal entities.
In accordance with ASU 2015-02, all legal entities are subject to reevaluation under the
revised consolidation model. ASU 2015-02 is effective for public business entities for
annual periods, and interim periods within those annual periods, beginning after December
15, 2015. Early adoption is permitted. The adoption of ASU 2015-02 did not have a
material impact on our financial condition, liquidity or results of operations.
On April 17, 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of
Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet
as a direct deduction from the associated debt liability. Currently, debt issuance costs are
recorded as an asset and amortization of these deferred financing costs is recorded in
interest expense. Under the new standard, debt issuance costs will continue to be amortized
over the life of the debt instrument and amortization will continue to be recorded in interest
expense. The new standard is effective for the Company on January 1, 2016 and will be
applied on a retrospective basis. The adoption of ASU 2015-03 did not have a material
Page 31
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
2. Summary of significant accounting policies (Continued):
(n) New accounting pronouncements and changes in accounting policies: (Continued)
impact on our financial condition, liquidity or results of operations.
The FASB has issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use
Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing
Arrangement. The amendments in ASU 2015-05 provide guidance to customers about
whether a cloud computing arrangement includes a software license. If a cloud computing
arrangement includes a software license, then the customer should account for the software
license element of the arrangement consistent with the acquisition of other software
licenses. If a cloud computing arrangement does not include a software license, the
customer should account for the arrangement as a service contract. The amendments do not
change the accounting for a customer’s accounting for service contracts. As a result of the
amendments, all software licenses within the scope of Subtopic 350-40 will be accounted
for consistent with other licenses of intangible assets. ASU 2015-05 is effective for public
entities for annual periods, including interim periods within those annual periods, beginning
after December 15, 2015. The adoption of ASU 2015-05 did not have a material impact on
our financial condition, liquidity or results of operations.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for
Measurement-Period Adjustments guidance to simplify the accounting for adjustments in a
business combination. An acquirer should recognize adjustments to provisional amounts
with a corresponding adjustment of goodwill, as well as the effect on earnings of changes in
depreciation, amortization or other income effects, in the reporting period in which the
adjustments are identified as if the accounting had been completed at the acquisition date.
Disclosure is required, by line item, of the amount recorded in current period earnings that
would have been recorded in previous reporting periods. This guidance is effective for
fiscal years and interim periods beginning after December 15, 2015, and requires
prospective application. Early adoption is permitted. The adoption of ASU 2015-16 did not
have a material impact on our financial condition, liquidity or results of operations.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance
Sheet Classification of Deferred Taxes , which requires deferred income tax liabilities and
assets to be classified as noncurrent on the balance sheet rather than being separated into
current and noncurrent. The guidance is effective for public entities for annual periods
beginning after December 15, 2016, and interim periods within those annual periods with
early adoption being permitted. The Company is still assessing the potential impact of ASU
2015-17 on its 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
Page 32
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
2. Summary of significant accounting policies (Continued):
(n) New accounting pronouncements and changes in accounting policies: (Continued)
equity method or those that result in consolidation of the investee, be measured at fair
value, with 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.
the FASB
In March 2016,
issued Accounting Standards Update No. 2016-09,
Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting (“ASU 2016-09”), which addresses how companies account for
certain aspects of share-based payments to employees. Entities will be required to recognize
the income tax effects of awards in the statement of income when the awards vest or are
settled, and to present excess tax benefits as an operating activity on the statement of cash
flows rather than as a financing activity. The ASU also addresses such areas as an
accounting policy election for forfeitures and the amount an employer can withhold to
cover income taxes and still qualify for equity classification. The amendments in this ASU
will be effective for annual periods beginning after December 15, 2016 and interim periods
within those annual periods. Early adoption is permitted. The Company is currently
Page 33
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
2. Summary of significant accounting policies (Continued):
(n) New accounting pronouncements and changes in accounting policies: (Continued)
evaluating the impact of the adoption of this standard on its consolidated financial
statements.
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 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 November 2016, the Financial Accounting Standards Board ("FASB") issued ASU No.
2016-18 (Topic 230) Statement of Cash Flow: Restricted Cash. The pronouncement
requires that the statement of cash flows explain the change during the period in the total of
cash, cash equivalents, and amounts generally described as restricted cash or restricted cash
equivalents. Therefore, amounts generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
The amendments of this ASU are effective for reporting periods beginning after December
15, 2017, with early adoption permitted. The standard must be applied retrospectively to all
periods presented. The Company is currently evaluating the impact of adoption on the
Consolidated Financial Statements.
Page 34
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
2. Summary of significant accounting policies (Continued):
(n) New accounting pronouncements and changes in accounting policies: (Continued)
There have been no other recent accounting standards, or changes in accounting standards,
during the year ended December 31, 2016, as compared to the recent accounting standards
described in the Annual Report, that are of material significance, or have potential material
significance, to us.
(o) Financial instruments:
(i) Fair values:
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. 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 December 31, 2016, is summarized as follows:
Accounts receivable
Provision for doubtful accounts
Net accounts receivable
$
$
2016
44,860
(27,666)
17,194
$
$
2015
44,948
-
44,948
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.
Page 35
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
4. Prepaid development
During the year ended December 31, 2016, the Company had prepaid for future development
expenses for Rooplay, Garfield’s Bingo and Trophy Bingo. As at August 31, 2016, Roadhouse
Interactive Limited, the Company’s outsourced developer of Trophy Bingo and Garfield’s
Bingo was placed in receivership. The Company immediately hired the key developers to
continue development of the Company’s products in-house. Shoal Games owned all the
source code and art works for the Company’s products.
Prepaid development paid
Expensed during the year
Loss on prepaid development
Net prepaid development
5. Equipment:
2016
Equipment and computers
Furniture and fixtures
2015
Equipment and computers
Furniture and fixtures
$
$
2016
863,660
(364,869)
(498,791)
-
Cost
112,804
7,541
120,345
Cost
105,853
7,088
112,941
$
$
$
$
Accumulated
depreciation
103,555
6,642
110,197
Accumulated
depreciation
100,279
6,348
106,627
$
$
$
$
Net book
Value
9,249
899
10,148
Net book
Value
5,574
740
6,314
$
$
$
$
Depreciation expense was $3,570 (2015 - $3,467) for the year ended December 31, 2016.
6. 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.
December 31, 2016
Capitalized
Expenses
Accumulated
amortization
Net book
Value
Capitalized development expenses
$
1,446,038
$
1,446,038
$
-
Page 36
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
6. Game development assets: (Continued)
December 31, 2015
Capitalized
Expenses
Accumulated
amortization
Net book
Value
Capitalized development expenses
$
1,446,038
$
964,025
$
482,013
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 year ended December 31, 2016,
the Company has expensed the development costs of all three products as incurred and has
expensed the following development costs for its three products.
Opening total game development costs
Game development during the year
Closing total game development costs
7. Discontinued operations
2016
3,857,636
1,077,638
4,935,274
$
$
2015
2,627,420
1,230,216
3,857,636
$
$
Effective December 31, 2014, the Company sold the www.bingo.com domain name to Unibet
Group plc. for cash consideration of $2,000,000 and redemption of the 15,000,000 common
shares of the Company, which were held by Unibet Group plc, at a price of $0.40 per share. The
15,000,000 common shares held by Unibet have been returned to the Company’s treasury and
were cancelled.
In addition, the Company disposed its online bingo business to Unibet Group plc. The
Company recognized the residual gain on the sale of the online bingo business of $16,305
received during the year ended December 31, 2015.
8. Promissory notes:
During the year ended December 31, 2016, the Company issued three unsecured promissory
notes for $400,000, accruing interest of $811 from shareholders of the Company. The notes are
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
Page 37
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
8. Promissory notes: (Continued)
discount rate after examining the interest rates for similar instruments issued in the same time
frame for similar companies without the conversion feature. The discount of the promissory
notes was $58,284 and the Company recognized $5,171 of interest accretion for the year ended
December 31, 2016.
Subsequent to the year ended December 31, 2016, the Company issued four unsecured
promissory notes for $188,135, from shareholders of the Company.
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:
During the year ended December 31, 2016, the Company had a private placement with two
closings for a total of 3,337,934 common shares at CAD$0.60 per share, which raised
proceeds of $1,562,479 (CAD$2,002,760). The Company incurred issuance costs of
$33,876.
On October 11, 2016, the Company closed its rights issued raising $80,949 (CAD$107,168)
from the issuance of 172,681 common shares at an average price of CAD$0.626 per share.
The Company incurred issuance costs of $36,148.
During the year ended December 31, 2015, the holders of 515,000 stock options exercised
their options for 515,000 shares for $77,250 at an exercise price of $0.15 per share.
(b) Stock option plans:
(i) 2015 stock option plan
In the year ended December 31, 2015, the shareholders approved the 2015 stock option plan
and the 1999, 2001 and the 2005 plans were discontinued. The 2015 stock option plan is
intended to provide incentive to employees, directors, advisors and consultants of the
Company to encourage proprietary interest in the Company, to encourage such employees
to remain in the employ of the Company or such directors, advisors and consultants to
remain in the service of the Company, and to attract new employees, directors, advisors and
consultants with outstanding qualifications. The maximum number of shares issuable under
the Plan shall not exceed 10% of the number of Shares of the Company issued and
outstanding as of each Award Date unless shareholder approval is obtained in advance in
accordance unless shareholder approval is obtained in advance in accordance. The Board of
Directors determines the terms of the options granted, including the number of options
granted, the exercise price and their vesting schedule. The maximum term possible is 10
Page 38
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
9.
Stockholders’ equity: (Continued)
(b) Stock option plans: (Continued)
years. Under the 2015 plan we have reserved 10% of the number of Shares of the Company
issued and outstanding as of each Award Date.
During the year ended December 31, 2016, the Company granted 1,010,000 options with an
exercise price of CAD$0.54 (approximately $0.42) per share, expiring December 20, 2021.
As at December 31, 2016, there were a total of 1,010,000 stock options (2015 - nil)
outstanding. During the year ended December 31, 2016, there were nil options exercised
(2015 - nil) and nil options expired unexercised (2015 – nil).
(ii) 2005 stock option plan:
During the year ended December 31, 2005, the Company's Board of Directors adopted the
2005 stock option plan, which was approved by the shareholders at the Annual General
meeting. The Company has reserved a total of 2,000,000 common shares for issuance under
the 2005 stock option plan. The Plan was 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
Board of Directors determines the terms of the options granted, including the number of
options granted, the exercise price and their vesting schedule. The plan was discontinued in
the year ended December 31, 2015.
As at December 31, 2016, there were a total of nil (2015 - nil) stock options outstanding
under the 2005 Stock Option Plan. During the year ended December 31, 2016, nil stock
options were exercised. During the year ended December 31, 2015, 515,000 stock options
were exercised at exercise prices of $0.15 per share raising $77,250. During the year ended
December 31, 2016, nil (2015 - 5,000) stock options expired unexercised.
Page 39
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
9.
Stockholders’ equity: (Continued)
(b) Stock option plans: (Continued)
A summary of stock option activity for the stock option plans for the years ended December
31, 2016 and 2015 are as follows:
Number of
options
Weighted average
exercise price
Outstanding and exercisable, December
31, 2014
520,000
$
Exercised
Expired
Outstanding, December 31, 2015
Granted
Exercised
Outstanding and exercisable,
December 31, 2016
(b) Stock option plans: (Continued)
(515,000)
(5,000)
-
1,010,000
-
1,010,000
$
0.15
0.15
0.15
-
0.42
-
0.42
The aggregate intrinsic value for options as of December 31, 2016 was $nil (2015 - $nil).
The Company recorded stock-based compensation of $257,293 on the 1,010,000 options
granted (2015 – nil) with a weighted average fair value per option of $0.42 (2015 - $nil).
(c) Escrow shares
In conjunction with the Listing Application for the TSX-V listing, the Company’s major
shareholders were required to place 33,909,104 common shares of the Company in escrow
under the terms of a TSX-V Tier 1 issuer. The escrow shares will be released in thirty three
percent (33%) tranches on the dates that are six, twelve and eighteen months after the
listing date. The Escrow Shares will be released as follows:
Balance December 31, 2014
Released in 2015
Balance December 31, 2015
Release in 2016
Balance December 31, 2016
10. Commitments:
Number of shares
33,909,104
(11,303,035)
22,606,069
(22,606,069)
-
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
Page 40
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
10. Commitments: (Continued)
agreements. The Canadian operating lease expired on December 31, 2016, but unless 30 day
notice is given this lease automatically renews for a future 3 months 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:
2017
2018
$
1,396
-
The Company paid rent expense totaling $26,152 for the year ended December 31, 2016 (2015
- $22,347).
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£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.
11. Income taxes:
The Company is domiciled in the tax-free jurisdiction of Anguilla, British West Indies. The
computed benefit / expense differed from the amounts computed by applying the United States
of America federal income tax rate of 34 percent and various other rates for other jurisdictions
to the pretax income / losses from operations as a result of the following:
Page 41
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
11.
Income taxes: (Continued)
Computed “expected” tax benefit (expense)
Reduction in income taxes resulting from income
taxes in other tax jurisdictions
Other
Change in taxation rates in other jurisdictions
Change in exchange rates
Change in valuation allowance
2016
1,072,702
(1,072,270)
(35)
-
1,190
(2,881)
(1,294)
$
$
2015
1,008,204
(1,007,419)
(84)
2,713
(3,885)
(9)
(480)
$
$
The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at December 31, 2016 and 2015 are presented below:
Deferred tax assets:
Net operating loss carry forwards
Valuation Allowance
2016
15,017
(15,017)
-
$
$
$
$
2015
17,898
(17,898)
-
The valuation allowance for deferred tax assets as of December 31, 2016 and 2015, was
$15,017 and $17,898, respectively. The net change in the total valuation allowance was a
decrease of $2,881 for the year ended December 31, 2016, and an increase of $9 for the year
ended December 31, 2015.
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.
12. Related party transactions:
The Company has a liability of $nil (2015 - $2,391) to a company owned by a current director
and officer of the Company for payment of consulting fees of $132,000 (2015 - $132,000) by
the current director and officer of the Company.
The Company has a liability of $2 (2015 - $6,507) to a current director and officer of the
Company for expenses incurred.
The Company has a liability of $nil (2015 - $14,804) to a company owned by a current director
and officer of the Company for payment of consulting fees of $81,285 (2015 - $91,734) by the
current director and officer of the Company.
Page 42
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
12. Related party transactions: (Continued)
The Company has a liability of $nil (2015 - $nil) to a company owned by a current director and
officer of the Company for payment of consulting fees of $90,000 (2015 - $90,000) by the
current director and officer of the Company.
The Company has a liability of $2 (2015 - $831) to a company owned by a previous director of
the Company for payment of consulting fees of $8,378 (2015 - $3,948) by the previous director
of the Company.
The Company has a liability of $500 (2015 - $6,500), to independent directors of the Company
for payment of consulting fees. During the year ended December 31, 2016, the Company paid
$6,000 (2015 - $9,500) to the independent directors in director fees.
The Company has a liability of $4,852 (2015 - $1,533), to an officer of the Company for
payment of consulting fees and expenses incurred of $63,655 (2015 - $62,719) by the officer of
the Company.
The Company has 3 promissory notes totaling $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 year ended
December 31, 2016, the Company issued four unsecured promissory notes for $188,135, from
shareholders of the Company.
During the year ended December 31, 2016, the Company granted 500,000 options with an
exercise price of CAD$0.54 (approximately $0.42) per share to related parties. The Company
expensed $127,373 in stock based compensation for these options granted to related parties.
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.
13. Segmented information:
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.
Total revenue from continuing operations
Western Europe
Central, Eastern and Southern Europe
Nordics
North America
Other
Total revenue
2016
2015
$
$
33,239
118
1,355
220,088
24,121
278,921
$
$
23,589
55
468
70,453
17,045
111,610
Page 43
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
13. Segmented information: (Continued)
Equipment
The Company’s equipment is located as follows:
Net Book Value
Anguilla
Canada
United Kingdom
United States of America
14. Concentrations:
Major customers
2016
2015
$
$
828
8,097
1,223
-
10,148
$
$
1,410
2,436
1,834
634
6,314
During the year ended December 31, 2016 and 2015, 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 year ended December 31, 2016 and 2015, the Company offered limited advertising.
The Company is reliant on one sales customer who provides the advertising revenue.
15. 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 December 31, 2016, the Company had total cash balances
of $60,190 (2015 - $570,086) at financial institutions, where $nil (2015 - $303,983) 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 December 31, 2016, the Company had four customers, totaling $13,300 who accounted
for greater than 10% of the total accounts receivable. As of December 31, 2015, the Company
had three customers, totaling $40,818 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 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
On February 4, 2010, we engaged Davidson & Company LLP, as its independent registered
public accounting firm, to audit our financial statements. The decision to engage Davidson &
Company LLP was approved by our Board of Directors at a Board meeting called for such
purpose.
There have not been any changes in accountants for the years ended December 31, 2016 and
2015.
ITEM 9A. CONTROLS AND PROCEDURES
(a)
Management’s responsibility
Our management acknowledges its responsibility for establishing and maintaining adequate
internal control over financial reporting of the Company.
(b)
Evaluation of disclosure controls and procedures.
Our management, including the Chief Executive Officer and the Chief Financial Officer,
evaluated the disclosure controls and procedures of the Company within 90 days prior to the date
of this report, and found them to be operating efficiently and effectively to ensure that
information required to be disclosed by us under the general rules and regulations promulgated
under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported,
within the time periods specified by rules and regulations of the SEC.
These disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us is accumulated and
communicated to our management, including our principal executive officer and principal
financial officer as appropriate to allow timely decisions regarding required disclosure. However
our management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, and
our management necessarily is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system was designed to provide reasonable assurance to
the Company’s management and board of directors regarding the preparation and fair
presentation of published financial statements. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement preparation and
presentation. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
Our management evaluated of the effectiveness of the Company’s design and operation of its
disclosure controls and procedures as defined in Exchange Act Rule 13a-15(f), based on the
framework set forth in the Internal Control—Integrated Framework (1992) issued by the by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our
evaluation, we believe that, as of December 31, 2016, the Company’s internal control over
financial reporting is effective under the COSO framework.
Page 45
(c)
Changes in internal controls.
There were no significant changes in our internal controls or other factors that could significantly
affect our internal controls during the year ended December 31, 2016, and to the date of filing this
annual report.
ITEM 9B - OTHER INFORMATION
None
Page 46
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers as at December 31, 2016, are as follows:
Governance
Committee
Compensation
Committee
Age Position
Name
T. M. Williams 76
41
J. M. Williams
52
F. Curtis
W. Moore
49
H. W. Bromley 46
X* - Chairman of Committee
Mr. G. Whitton and Mr. C. M. Devereux did not stand for re-election at the November 9, 2016
AGM.
Executive Chairman
Chief Executive Officer
Non Executive Director
Non Executive Director
Chief Financial Officer
X
X*
X
X*
X
X
Audit
Committee
X
X
X
X*
T. M. Williams has served as President, Chief Executive Officer and Chairman from August 20,
2001 until June 16, 2011. Since June 16, 2011, Mr. Williams has served as the Executive
Chairman. Since 1984, Mr. Williams has served as a principal of T.M. Williams (ROW), Inc., a
private consulting firm, and from 1993 until 2008, was Adjunct Professor, Faculty of Commerce
and Business Administration at the University of British Columbia. From 1988 to 1991, he was
President and Chief Executive Officer of Distinctive Software, Inc. in Vancouver, BC, and, upon
the acquisition of that company by Electronic Arts Inc., North America's largest developer of
entertainment software, he became President and Chief Executive Officer of Electronic Arts
(Canada) Inc., where he continued until 1993. From 1995 to 2012, Mr. Williams was a director of
YM Biosciences, Inc., a biotechnology company, until its acquisition by Gilead Sciences, Inc. In
addition, he is a director of several other private corporations.
Mr. J. M. Williams has served as Vice President, Business Development and Marketing Director
from September 2001 until June 16, 2011. Mr. J.M. Williams has been a director since July 26,
2007. Since June 16, 2011, Mr. J. M. Williams has served as the President and Chief Executive
Officer. Prior to his employment with Shoal Games Ltd., he was a Business Analyst with Blue
Zone Inc. (a technology company) and RBC Dominion Securities. Mr. J. M. Williams has a
bachelor of Commerce degree from the University of Victoria and a Masters of Business
Administration degree, specializing in strategic marketing, from the University of Warwick. Mr.
J. M. Williams is the son of Mr. T. M. Williams, the Company’s Executive Chairman.
Ms. F. Curtis has served as a director since June 10, 2009. She has served as Compliance Officer
and General Corporate Secretary for Counsel Limited, an Anguillian financial services
corporation, since 2006. Ms. Curtis has been working in the financial services industry since
1990. She started at the brokerage firm, Burns Fry, in Toronto (now Nesbitt Burns, Bank of
Montreal). She completed her Canadian Securities Course and became a licensed Securities
Broker in 1992. She was educated in England, and attended the University of Toronto, Canada for
her undergraduate degree. Ms. Curtis's MBA in Finance & International Affairs was granted by
the Rotman School of Business, University of Toronto.
Mr. W. G. Moore brings 28 years experience in sector leading entertainment businesses to Shoal
Games Ltd. He has a track record in corporate strategy, corporate finance, investor relations,
business model innovation and leading complex multi-stakeholder projects. After a decade
leading global projects for Virgin EMI and Polygram he spent 16 years as a media and
entertainment management consultant
international management
including
consultancy. Will holds a 1st class MBA from Henley Business School with a distinction for his
leading an
Page 47
thesis on ‘business model innovation in technology start-ups’. He is Chief Executive Officer of
50cc Games Ltd. & Nodding Frog Limited and Non-Exec Director to a small portfolio of
technology businesses.
Mr. H. W. Bromley has served as our Chief Financial Officer since July 2002. Mr. Bromley is
also the Chief Financial Officer for Roadhouse Interactive Limited (an online games development
company). From 2000 to 2001, Mr. Bromley was a Director and the Group Financial Officer for
Agroceres & Co. Ltd. From 1995 - 1999, he was an employee of Ernst & Young working in
South Africa and in the United States of America. Mr. Bromley has in addition worked for
CitiBank, Unilever PLC, Gerrard and CellStop Systems Inc. Mr. Bromley is a Chartered
Accountant.
COMPOSITION OF OUR BOARD OF DIRECTORS
We currently have four directors. All directors currently hold office until the next annual meeting
of stockholders or until their successors have been elected and qualified. Our officers are
appointed annually by the Board of Directors and hold office until their successors are appointed
and qualified. Pursuant to the Company's by-laws, the number of directors shall be increased or
decreased from time-to-time by resolution of the Board of Directors or the shareholders. Mr. J.
M. Williams is the son of Mr. T. M. Williams. There are no other family relationships between
any of the officers and directors of the Company.
COMMITTEES OF OUR BOARD OF DIRECTORS
We currently have three committees of our Board of Directors.
- Audit Committee - This committee will review the financial statements of the Company
and propose to the board to approve the financial statements. The Committee meets
quarterly to review and approve the quarterly financial statements and to discuss the
affairs of the company with the auditors.
- Governance Committee - This committee reviews the ethics policy of the Company and
ensures compliance. It will make recommendations to the board for improvement in
Corporate Governance. In addition it will be this committee to whom a whistle blower
will report.
- Compensation Committee - This committee will propose the appointment and
remuneration of the Chief Executive Officer including salary, stock options, and bonuses.
BOARD OF DIRECTORS MEETINGS
Our Board of Directors met, in person or by phone, seven times during the last fiscal year and it
regularly approves all material actions required by consent resolutions.
CODE OF ETHICS
On December 21, 2006, the Board of Directors of Shoal Games Ltd. (the "Board") adopted a new
Code of Business Conduct and Ethics (the "Code"), which applies to the Company's directors,
officers and employees. The Code was adopted to further strengthen the Company's internal
compliance program. The Code addresses among other things, honesty and integrity, fair dealing,
conflicts of interest, compliance with laws, regulations and policies, including disclosure
requirements under the federal securities laws, and administration of the code. The code is
available at
the Company's website at http://investor.shoalgames.com/ under Corporate
Governance. A copy of our Code of Ethics is available upon request at no charge to any
shareholder.
DIRECTOR COMPENSATION
The Non Executive Directors receive a cash compensation for their services as members of the
Board of Directors based on a compensation per meeting. During the year ended December 31,
2016, the Non Executive Directors collectively received compensation of $6,000 (Fiscal 2015 -
Page 48
$9,500). The Executive directors currently do not receive cash compensation for their services as
members of the Board of Directors. In addition, both the Non Executive and the Executive
Directors are reimbursed for expenses in connection with attendance at Board of Directors
meetings and specific business meetings. Directors are eligible to participate in our stock option
plans. Option grants to directors are at the discretion of the Board of Directors acting upon the
recommendation of the Compensation committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive
officers, and persons who own more than ten percent of a registered class of the Company's
equity securities, to file with the Securities and Exchange Commission (the “SEC”) initial reports
of ownership and reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than ten percent stockholders are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file.
Our officers, directors and greater than ten percent beneficial owners filed in a timely manner in
accordance with Section 16(a) filing requirements.
Page 49
ITEM 11. EXECUTIVE COMPENSATION
The following table describes the compensation we paid to our Chief Executive Officer and
directors (the “Named Executive Officer”).
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and
Principal Position
Year
Fees
$
Bonus
$
Other Annual
Compensation
$
Long-term
Compensation
Restricted
Stock
Awards
$
Securities
Underlying
Options /
SARs (#)
T.M. Williams -
Executive
Chairman (1)
J. M. Williams
CEO (2)
H. W. Bromley
CFO (3)
2016
2015
2014
2016
2015
2014
2016
2015
2014
132,000
132,000
174,789
171,285
181,734
186,749
63,655
62,719
71,601
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100,000
-
-
100,000
-
-
100,000
-
-
All Other
Compensation
$
-
-
-
-
-
-
-
-
-
(1) All of the compensation paid to the Named Executive Officer is paid to T.M. Williams (Row), Ltd. for
the services of Mr. T. M. Williams. See additional discussion in Employment Arrangements section of
Item 11 of this report.
(2) All of the compensation paid to the Named Executive Officer is paid to LVA Media Inc. for the services
of Mr. J. M. Williams as CEO of the Company and Jayska Consulting Ltd for the marketing services of
Mr. J. M. Williams. See additional discussion in Employment Arrangements section of Item 11 of this
report.
(3) All of the compensation paid to the Named Executive Officer is paid to Bromley Accounting Services
Ltd. for the services of Mr. H. W. Bromley.
OPTION GRANTS IN THE LAST FISCAL YEAR
During the year ended December 31, 2016, the Company granted 1,010,000 options (2015 – nil)
with an exercised price of CAD$0.54 (approximately US$0.42) per share.
During the year ended December 31, 2016, nil (2015 – 515,000) options were exercised. During
the year ended December 31, 2016, nil options expired unexercised. During the year ended
December 31, 2015, 5,000 options with an exercise price of $0.15 expired unexercised.
STOCK OPTION PLANS
In the year ended December 31, 2015, the 1999, 2001 and 2005 Stock Option Plans were
discontinued and replaced with the 2015 Stock Option Plan.
Our Board of Directors administers the 2015 Stock Option Plan. Our Board is authorized to
construe and interpret the provisions of the Stock Option Plans, to select employees, directors and
consultants to whom options will be granted, to determine the terms and conditions of options
and, with the consent of the grantee, to amend the terms of any outstanding options. The 2015
Stock Option Plan provides for the granting of stock options to the employees, directors, advisors
and consultants of the Corporation to encourage proprietary interest in the Corporation, to
encourage such employees to remain in the employ of the Corporation or such directors, advisors
and consultants to remain in the service of the Corporation, and to attract new employees,
directors, advisors and consultants with outstanding qualifications.
Page 50
Our Board determines the terms and provisions of each option granted under the Stock Option
Plans, including the exercise price, vesting schedule, repurchase provisions, rights of first refusal
and form of payment. The Plan shall not exceed 10% of the number of Shares of the Company
issued and outstanding as of each Award Date, inclusive of all Shares presently reserved for
issuance pursuant to previously granted stock options, unless shareholder approval is obtained in
advance. The Exercise Price shall be that price per Share, as determined by the Board in its sole
discretion, and announced as of the Award Date, at which an Option Holder may purchase a
Share upon the exercise of an Option, provided that it shall not be less than the closing price of
the Company’s Shares traded through the facilities of the Exchange on the day preceding the
Award Date, less any discount permitted by the Exchange, or such other price as may be required
or permitted by the Exchange.
The term of options under the Stock Option Plans will be determined by our Board; however, the
term of the stock option may not be for more than ten years. Where the award agreement permits
the exercise of an option for a period of time following the recipient's termination of service with
us, disability or death, that option will terminate to the extent not exercised or purchased on the
last day of the specified period or the last day of the original term of the option, whichever occurs
first.
If a third party acquires the Company through the purchase of all or substantially all of our assets,
a merger or other business combination, except as otherwise provided in an individual award
agreement, all unexercised options will terminate unless assumed by the successor corporation.
EMPLOYMENT ARRANGEMENTS
We entered into a management consulting agreement with T.M. Williams (Row), Inc., an
Anguilla incorporated company and Mr. Williams dated August 20, 2001, (the "Williams
Agreement"), amended February 28, 2002, in connection with the provision of services by Mr.
Williams as President and Chief Executive Officer of the Company. During the year ended
December 31, 2010, the agreement was amended to include a consultancy payment of US$11,666
per month payable in arrears for providing Mr. Williams services as Executive Chairman.
The term of the amended Williams Agreement is for a period of one year, unless terminated
sooner by any of the parties under the terms and conditions contained in the amended Williams
Agreement. If the amended Williams Agreement is not terminated by any of the parties, the term
may be renewed for a further one year period at the option of T.M. Williams (Row), Ltd., on
substantially the same terms and conditions, by giving three months notice in writing to the
Company. The agreement was renewed for a further one year period on August 1, 2013. This
contract is for the provision of services by Mr. Williams as Executive Chairman.
During the year ended December 31, 2010, the agreement was amended to include a consultancy
payment of $11,666 per month payable in arrears. This contract is for the provision of services by
Mr. T. M. Williams as Executive Chairman of the Company. During the year ended December
31, 2013, the agreement was amended 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 Marketing director of the Company. The
Consulting agreement provides for a consultancy payment of GBP£5,000 per month payable in
arrears. In addition, during the year ended December 31, 2014, entered into an agreement with
LVA Media Inc. and Mr. J. M. Williams, for the provision of services of Mr. J. M. Williams as
Page 51
Chief Executive Officer of Shoal Games Ltd. The Consulting agreement provides for a
consultancy payment equaling 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, 2012, the Company entered into a management consulting
agreement with Bromley Accounting Services Limited for the services of Mr. H. W. Bromley as
the Chief Financial Officer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect to beneficial
ownership of our common stock as of March 31, 2017, by:
-
-
-
-
each person known by us to beneficially own 5% or more of our outstanding common
stock;
each of our directors;
each of the Named Executive Officers; and
all of our directors and Named Executive Officers as a group.
In general, a person is deemed to be a “beneficial owner” of a security if that person has or shares
the power to vote or direct the voting of such security, or the power to dispose or direct the
disposition of such security. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of common stock subject to options or
debentures held by that person that are currently exercisable or convertible or exercisable or
convertible within 60 days of March 31, 2017, are deemed outstanding.
Percentage of beneficial ownership is based upon 59,708,318 shares of common stock
outstanding at March 31, 2017. To our knowledge, except as set forth in the footnotes to this table
and subject to applicable community property laws, each person named in the table has sole
voting and investment power with respect to the shares set forth opposite such person’s name.
Page 52
Name and Address of Beneficial Owner
T. M. Williams
Suite 4501
1011 West Cordova Street
Vancouver, BC
V6C 0B2
Canada
J. M. Williams
Flat 16
Bridgewater square
London, EC2Y 8AG
United Kingdom
F. Curtis
Ard Na Mara, Box 1127
Anguilla, B.W. I.
W. G. Moore
Clare Hall
Clare, Nr Sudbury
Suffolk
CO10 8PJ
United Kingdom
H. W. Bromley
3851 Edgemont Boulevard
North Vancouver BC, V7R 2P9
Canada
Number of Shares
Beneficially Owned
Percent of Class
19,699,746
(1)
32.44%
408,200
(2)
0.67%
150,000
(3)
0.25%
100,000
(4)
0.16%
475,000
(5)
0.79%
All directors and Named Executive Officers
as a group (6 persons)
20,832,946
34.31%
Bingo, Inc.
P.O. Box 727, Landsome Road
The Valley,
Anguilla, B.W.I.
Pendinas Limited
Ballacarrick, Pooilvaaish Road
Castletown, IM9 4PJ
Isle of Man
3,596,831
(6)
5.92%
26,087,999
(7)
42.97%
(1) Includes 16,722,281 shares held directly by Mr. T. M. Williams and 100,000 shares of common stock that may be
issued upon the exercise of 100,000 stock purchase options with an exercise price of CAD$0.54 (approximately
US$0.42) per share. Mr. T. M. Williams is a potential beneficiary of certain discretionary trusts that hold
approximately 80% of the shares of a private holding company. If 80% of the shares of common stock
beneficially owned by the private holding company are included here, Mr. T. M. William’s beneficial ownership
increases by 2,857,465 shares, representing 33.06% of the Class.
(2) Includes, 308,200 shares held directly by Mr. J. M. Williams and 100,000 shares of common stock that may be
issued upon the exercise of 100,000 stock purchase options with an exercise price of CAD$0.54 (approximately
US$0.42) per share.
(3) Includes 50,000 shares held directly by Ms. F. Curtis and 100,000 shares of common stock that may be issued
upon the exercise of 100,000 stock purchase options with an exercise price of CAD$0.54 (approximately
US$0.42) per share.
Page 53
(4) Includes100,000 shares of common stock that may be issued upon the exercise of 100,000 stock purchase options
with an exercise price of CAD$0.54 (approximately US$0.42) per share.
(5) Includes, 375,000 shares held directly by Mr. H. W. Bromley and 100,000 shares of common stock that may be
issued upon the exercise of 100,000 stock purchase options with an exercise price of CAD$0.54 (approximately
US$0.42) per share.
(6) Includes 3,596,831 shares held directly by Bingo, Inc., a private holding company.
(7) Includes 26,087,999 shares held directly by Pendinas Ltd., a company wholly owned by Mr. G. R. Williams. Mr.
G. R. Williams is not related to Mr. T. M. Williams nor Mr. J. M. Williams.
Page 54
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
The Company has a liability of $nil (2015 - $2,391) to a company owned by a current director
and officer of the Company for payment of consulting fees of $132,000 (2015 - $132,000) by the
current director and officer of the Company.
The Company has a liability of $2 (2015 - $6,507) to a current director and officer of the
Company for expenses incurred.
The Company has a liability of $nil (2015 - $14,804) to a company owned by a current director
and officer of the Company for payment of consulting fees of $81,285 (2015 - $91,734) by the
current director and officer of the Company.
The Company has a liability of $nil (2015 - $nil) to a company owned by a current director and
officer of the Company for payment of consulting fees of $90,000 (2015 - $90,000) by the current
director and officer of the Company.
The Company has a liability of $2 (2015 - $831) to a company owned by a previous director of
the Company for payment of consulting fees of $8,378 (2015 - $3,948) by the previous director of
the Company.
The Company has a liability of $500 (2015 - $6,500), to independent directors of the Company
for payment of consulting fees. During the year ended December 31, 2016, the Company paid
$6,000 (2015 - $9,500) to the independent directors in director fees.
The Company has a liability of $4,852 (2015 - $1,533), to an officer of the Company for payment
of consulting fees and expenses incurred of $63,655 (2015 - $62,719) by the officer of the
Company.
The Company has 3 promissory notes totaling $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 year ended December 31, 2016,
the Company issued four unsecured promissory notes for $188,135, from shareholders of the
Company.
During the year ended December 31, 2016, the Company granted 500,000 options with an
exercise price of CAD$0.54 (approximately $0.42) per share to related parties. The Company
expensed $127,373 in stock based compensation for these options granted to related parties.
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.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
During the year ended December 31, 2016, the Company incurred fees of $51,000 (2015 -
$51,000) from the principal accountant during fiscal 2016 - Davidson & Company LLP, $51,000
of these fees related to audit fees (2015 - $51,000).
Our Audit Committee reviewed the audit and non-audit services rendered by Davidson &
Company LLP, during the periods set forth above and concluded that such services were
compatible with maintaining the auditors’ independence. All audit and non-audit services
performed by our independent accountants are pre-approved by our Audit Committee to assure
that such services do not impair the auditors’ independence from us.
Page 55
ITEMS 15. EXHIBITS
PART IV
The exhibits required by Item 601 of Regulation S-K are listed in the accompanying Exhibit
Index at the end of this report. Each management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K has been identified.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHOAL GAMES LTD.
By:
/s/ J. M. Williams
J. M. Williams
Chief Executive Officer
Date: March 31, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature
By:
/s/ J. M. Williams
J. M. Williams
By:
/s/ H. W. Bromley
H. W. Bromley
Title
Chief Executive Officer
Date
March 31, 2017
Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)
March 31, 2017
Page 56
I, J. M. Williams, certify that:
1.
I have reviewed this annual report on Form 10-K of Shoal Games Ltd.;
EXHIBIT 31.1
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of Shoal Games Ltd. as of, and for, the periods presented in this annual report;
4. Shoal Games Ltd.’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to Shoal Games Ltd., including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of Shoal Games Ltd.’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of as of December 31, 2016, covered by this annual report
based on such evaluation; and
(d) Disclosed in this report any change Shoal Games Ltd.’s internal control over financial
reporting that occurred during Shoal Games Ltd.’s most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, Shoal Games Ltd.’s
internal control over financial reporting; and
5. Shoal Games Ltd.’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to Shoal Games Ltd.’s auditors and the
audit committee of Shoal Games Ltd.’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
Shoal Games Ltd.’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial reporting.
Signed : /s/ J. M. Williams
J. M. Williams,
Chief Executive Officer,
(Principal Executive Officer)
Date : March 31, 2017
Page 57
I, H. W. Bromley, certify that:
1.
I have reviewed this annual report on Form 10-K of Shoal Games Ltd.;
EXHIBIT 31.2
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of Shoal Games Ltd. as of, and for, the periods presented in this annual report;
4. Shoal Games Ltd.’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to Shoal Games Ltd., including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of Shoal Games Ltd.’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of as of December 31, 2016, covered by this annual report
based on such evaluation; and
(d) Disclosed in this report any change Shoal Games Ltd.’s internal control over financial
reporting that occurred during Shoal Games Ltd.’s most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, Shoal Games Ltd.’s
internal control over financial reporting; and
5. Shoal Games Ltd.’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to Shoal Games Ltd.’s auditors and the
audit committee of Shoal Games Ltd.’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
Shoal Games Ltd.’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial reporting.
Signed : /s/ H. W. Bromley
H.W. Bromley,
Chief Financial Officer
(Principal Accounting Officer)
Date : March 31, 2017
Page 58
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Shoal Games Ltd. (the “Company”) on Form 10-K for
the period ended December 31, 2016, as filed with the Securities and Exchange Commission on
the date hereof (the “Report”), I, J. M. Williams, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
b) The information contained in this Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ J. M. Williams
J. M. Williams
Chief Executive Officer
March 31, 2017
A signed original of this written statement required by Section 906 has been provided to Shoal
Games Ltd. and will be retained by the company and furnished to the Securities and Exchange
Commission or its staff upon request.
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EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Shoal Games Ltd. (the “Company”) on Form 10-K for
the period ended December 31, 2016, as filed with the Securities and Exchange Commission on
the date hereof (the “Report”), I, H. W. Bromley, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
a. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
b. The information contained in this Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ H. W. Bromley
H. W. Bromley
Chief Financial Officer
March 31, 2017
A signed original of this written statement required by Section 906 has been provided to Shoal
Games Ltd. and will be retained by the company and furnished to the Securities and Exchange
Commission or its staff upon request.
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EXHIBIT LIST
The following instruments are included as exhibits to this Report. Exhibits incorporated by
reference are so indicated.
Exhibit
Number
Description
4.4
4.5
10.2
10.24
10.29
10.32
10.33
10.36
10.37
10.38
10.39
10.40
10.41
31.1
31.2
32.1
32.2
Convertible Debenture between the Company and unrelated parties dated July 2, 2002. (b)
Common Stock Purchase Warrant between the Company and unrelated parties dated July 2,
2002. (b)
Asset Purchase Agreement by and between Bingo, Inc. and Progressive Lumber, Corp. dated
January 18, 1999. (a)
Amended Consulting Agreement dated February 28, 2002, between the Company, T.M.
Williams (Row), Ltd., and T.M. Williams. (c)
Amendment of Asset Purchase Agreement dated July 1, 2002. (d)
Code of Business Conduct and Ethics dated December 22, 2006. (e)
Amended Consulting Agreement dated June 16, 2010, between the Company, T.M. Williams
(Row), Ltd., and T.M. Williams. (f)
The Marketing Service Agreement between the Bingo.com, Ltd. wholly owned subsidiary,
Coral Reef Marketing Inc. and with Unibet International Limited dated March 19, 2010. (g)
Amended Consulting Agreement dated August 1, 2013, between the Company, T.M.
Williams (Row), Ltd., and T.M. Williams. (h)
Consulting Agreement dated January 1, 2014, between the Company, Jayska Consulting
Ltd., and J.M. Williams. (h)
Consulting Agreement dated January 1, 2014, between the Company, LVA Media Inc., and
J.M. Williams. (h)
Consulting Agreement dated October 1, 2013, between the Company, Devereux
Management Ltd., and C. M. Devereux. (h)
Consulting Agreement dated January 1, 2014, between the Company, Bromley Accounting
Services Limited, and H. W. Bromley. (h)
Certificate of Chief Executive Officer pursuant to the Securities Exchange Act Rules 13a-
15(e) and 15d -15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
dated March 31, 2017.
Certificate of Chief Financial Officer pursuant to the Securities Exchange Act Rules 13a-
15(e) and 15d -15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
dated March 31, 2017.
Certification from the Chief Executive Officer of Shoal Games Ltd. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
March 31, 2017.
Certification from the Chief Financial Officer of Shoal Games Ltd. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
March 31, 2017.
(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 June
30, 2002, on August 14, 2002.
(d) Previously filed with the Company’s year end report on Form 10-K/A for the year ended
December 31, 2002, on May 8, 2003.
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(e) Previously filed with the Company’s report on Form 8-K on December 26, 2006.
(f) Previously filed with the Company’s report on Form 8-K on June 17, 2010.
(g) Previously field with the Company’s report on Form 8-K/A on June 18, 2012.
(h) Previously filed with the Company’s report on Form 8-K on March 24, 2014.
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