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, 2017
|_| 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.
No
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.
No
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.
No
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
No
pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes
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.
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
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act).
No
Yes
State issuer’s revenues for its most recent fiscal year.
$93,475
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 20, 2018, being US$0.60 per share under the symbol
SGLDF on the OTC Markets Group Inc. and CAD$0.67 under symbol SGW on the TSX Venture
Exchange : $43,383,822.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of the registrant’s common stock, no par value per
share, was 72,474,703 as of March 20, 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 ....................................................................... 12
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. .......................................................... 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ..................... 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. ........................................................ 48
ITEM 9A. CONTROLS AND PROCEDURES................................................................. 48
ITEM 9B. OTHER INFORMATION................................................................................. 49
PART III ................................................................................................................................ 50
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE................................................................................................................ 50
ITEM 11. EXECUTIVE COMPENSATION .................................................................... 52
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDERS MATTERS ................................ 54
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE......................................................................................... 56
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES ................................... 57
PART IV ................................................................................................................................ 58
ITEM 15. EXHIBITS ....................................................................................................... 58
SIGNATURES .................................................................................................................. 58
CERTIFICATIONS ........................................................................................................... 58
CERTIFICATION PURSUANT TO 18 U.S.C. §1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 .......................................... 61
EXHIBIT LIST.................................................................................................................. 63
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 primary focus of Shoal Games is the development and marketing of the Rooplay EdTech platform
for children and families. Rooplay is currently live exclusively on Google Play in 27 languages and
135 countries. 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 platform 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 so that children have fun and are challenged in new ways with every session.
Rooplay has hundreds of interactive games in every imaginable format.
Shoal Games management believes that through the development of the Rooplay platform, and the
production of exclusive EdTech game 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 can establish Rooplay as a global provider
of mobile entertainment for children. Rooplay generates revenue for the Company from consumer
subscriptions which customers 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 Company believes 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
Page 3
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.
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 590,000 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. (“Shoal Media Canada”), Shoal Games (UK) plc (“Shoal UK”),
Coral Reef Marketing Inc. (“Coral Reef”), Shoal Media Inc. (“Shoal Media”), Rooplay Media Ltd.
(“Rooplay Media”), Shoal Media UK Ltd. (“Shoal Media UK”), and Rooplay Media Kenya Limited.
(“Rooplay Kenya”)
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.
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.
Page 4
On October 25, 2016, Rooplay Media Ltd., was incorporated under the laws of British Columbia,
Canada.
On March 27, 2017, Shoal Media UK Ltd. was incorporated under the laws of England and Wales.
On July 12, 2017, Rooplay Media Kenya Limited was incorporated under the laws of Kenya.
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.
Shoal Games Domain Names
Shoal Games owns
the domain names Rooplay.com, Shoalgames.com, Shoalgames.net,
Shoalmedia.com, Garfieldsbingo.com, Trophybingo.com, and Trophybingo.ca and many other smaller
domains.
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.
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 hundreds of 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.
Page 5
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 hundreds of games and its exclusive Rooplay Originals (branded Games
developed by the Company) . All users acquired via the direct-to-consumer model will be offered a
free 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 Company believes 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 (“Rooplay Originals”) 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.
OPERATIONS
Employees
As of December 31, 2017, 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.
Page 6
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
Rooplay competes with systems such as ABCMouse, Homer, Lingokids, and other learning products
that are based on subscription. Rooplay differs in that it is not only an educational system, but an
entertainment system with hundreds of games both for fun and learning. Most of the competition relies
on videos and e-books for content, whereas Rooplay is only games. ABCMouse raised US$150 million
at a valuation of more than US$1Billion. The Company views the success of ABCMouse as proof of
the size of the market and is developing Rooplay to be a superior and differentiated product.
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 confirmation that the social
bingo marketplace is valuable although costly to compete with.
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, 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
Page 7
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 $1,142.
We operate sales and marketing offices in London, United Kingdom and in Amsterdam, the
Netherlands. There are no direct monthly rental fees in either location.
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, 2017. 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 1, 2017. The Annual Meeting
is for the purposes of electing our directors and to ratify the appointment of Davidson & Company LLP,
Chartered Professional Accountants, as our independent auditors for the 2017 fiscal year, to ratify our
Rolling Stock Option plan and for any other regular business. The Company issued a schedule 14A
proxy statement to the shareholders on September 20, 2017.
Page 8
All nominees for directors were elected; the appointment of auditors was ratified; and the Rolling
Stock Option plan was ratified. The voting on each matter is set forth below:
a)
Elected to set the number of directors at 4.
For
43,011,933
Against
8,470
Abstain
-
Not Voted
8,286,842
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)
Election of the Directors of the Company.
Nominee
T. M. Williams
J. M. Williams
F. Curtis
W. Moore
For
Against
Abstain
Not Voted
42,995,329
42,995,429
42,996,154
42,996,354
-
-
-
-
25,073
24,973
24,248
24,048
8,286,843
8,286,843
8,286,843
8,286,843
Approved the selection of Davidson & Company LLP, Chartered Professional Accountants as
(c)
the Company's independent auditors for the fiscal year ending December 31, 2017.
For
51,274,794
Against
-
Abstain
32,451
Not Voted
-
(d)
The ratification of the existing Rolling Stock Option plan was approved.
For
42,984,744
Abstain
-
Against
35,658
Not Voted
8,286,843
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 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
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, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
Prices as per Yahoo! TM Finance
1.
High (1)
$0.45
$0.49
$0.48
$0.40
$0.47
$0.50
$0.54
$0.50
Low (1)
$0.25
$0.38
$0.34
$0.33
$0.35
$0.45
$0.35
$0.34
On March 20, 2018, the last reported sale price of our common stock, as reported by the OTCQB, was
$0.60 per share and CAD$0.67 per share on the TSX Venture Exchange.
As of March 20, 2018, we believe there are approximately 1,181 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
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).
Page 10
On October 11, 2016, the Company closed its rights issue 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.
During the quarter ended June 30, 2017, the Company closed a TSX Venture Exchange approved non-
brokered private placement financing totaling CAD$1.045 million ($790,281). The private placement
consisted of 2,323,779 units priced at CAD$0.45 ($0.34) per unit. Each Unit was comprised of one
common share and one share purchase warrant. Each share purchase warrant is exercisable into one
common share of the Company for 12 months following closing. The exercise price of the warrants is
CAD$0.55 per share for the first six months following closing and CAD$0.65 per share for the period
which is 7-12 months following closing.
During the quarter ended September 30, 2017, the Company closed a TSX Venture Exchange approved
non-brokered private placement financing totaling $1,010,763. The private placement consisted of
2,887,895 units priced at $0.35 per unit. Each Unit was comprised of one common share and one share
purchase warrant. Each share purchase warrant is exercisable into one common share of the Company
for 12 months following closing. The exercise price of the warrants is $0.44 per share for the first six
months following closing and $0.52 per share for the period which is 7-12 months following closing.
During the quarter ended December 31, 2017, the Company closed a TSX Venture Exchange approved
non-brokered private placement financing totaling $45,011. The private placement consisted of
128,600 units priced at $0.35 per unit. Each Unit was comprised of one common share and one share
purchase warrant. Each share purchase warrant is exercisable into one common share of the Company
for 12 months following closing. The exercise price of the warrants is $0.44 per share for the first six
months following closing and $0.52 per share for the period which is 7-12 months following closing.
During the quarter ended December 31, 2017, two warrants holders exercised their warrants for 121,111
shares at CAD$0.55 (approximately US$0.43) per share raising a total of US$52,310.
Subsequent to the year ended December 31, 2017, a warrant holder exercised their warrant for 15,000
shares at $0.44 per share raising a total of $6,600.
Subsequent to the year ended December 31, 2017, the Company closed a TSX Venture Exchange
approved private placement financing totaling $2,551,500. The private placement consisted of
7,290,000 shares priced at $0.35 per share.
Securities authorized for issuance under equity compensation plans.
In 2015, the shareholders approved the 2015 plan. 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 1,605,000 stock purchase options (2016 - 1,010,000) outstanding at December 31, 2017.
During the year ended December 31, 2017, there were nil (2016 – nil) options exercised and 130,000
(2016 – nil) options cancelled, issued under this plan.
Equity Compensation Plan Information
Number of securities to be
issued upon exercise of
outstanding options and rights
(a)
1,605,000
Weighted average exercise
price of outstanding options
and rights
(b)
0.42
Number of securities
remaining available
for future issuance
(c)
4,911,970
0
1,605,000
0
0.42
0
4,911,970
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 and 40,000 options were cancelled
unexercised subsequent to the year ended December 31, 2017.
Page 11
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)
Gain on derivative liability –
warrants
Interest and other income
Income tax recovery /
(expense)
Promissory note accretion and
interest
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,
2017
93,475
-
93,475
2016
278,921
482,013
(203,092)
2015
111,610
482,012
(370,402)
2014
2013
32,470
482,013
(449,543)
26,389
-
26,389
(1,860,785)
78,712
(2,447,298)
-
(2,612,194)
-
(2,221,663)
-
(780,754)
-
18
30,761
(84,132)
155
(1,294)
(5,982)
-
(498,791)
1,089
(480)
-
-
510
(848)
-
-
840
(1,666)
-
-
$
(1,741,951) $
(3,156,302) $
(2,981,987) $
(2,671,544) $
(755,191)
-
-
-
-
-
-
-
-
(1,741,951)
-
-
(3,156,302)
16,305
-
(2,965,682)
1,684,047
-
6,677,759
(628,029)
5,062,233
1,912,301
-
-
(1,942,885)
(785,766)
$
(0.03) $
(0.05) $
(0.05) $
(0.04) $
(0.01)
61,730,928
58,227,957
55,812,511
67,165,374
64,156,392
Year Ended December 31,
2017
2016
2015
2014
2013
$
Consolidated Balance Sheet Data:
Cash
Total assets
Total liabilities
Total stockholders’ (deficit)
equity
Working capital
478,397 $
557,853
705,262
(147,409)
345,184
60,190 $
129,093
444,680
570,086 $
1,129,526
177,792
2,876,386 $
3,996,745
156,579
(315,587)
13,896
951,734
454,447
3,840,166
2,856,230
491,203
3,607,123
238,540
3,368,583
646,015
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
Page 12
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 EdTech platform
for children and families. Rooplay is live exclusively on Google Play in 27 languages and 135
countries. 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 platform 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 so that children have fun and are challenged in new ways with every session.
Rooplay has hundreds of interactive games in every imaginable format.
Shoal Games management believes that through the development of the Rooplay platform, and the
production of exclusive EdTech game content with its branded Rooplay Originals 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 can
establish Rooplay as a global provider of mobile entertainment for children. Rooplay generates 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.
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 590,000 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
Page 13
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.
We consider the following accounting policies to be both those most important to the portrayal of our
financial condition and require the most subjective judgment:
- Revenue recognition;
- Software development
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 revenues 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 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 Rooplay, Garfield’s Bingo, and Trophy Bingo
were $5,768,476 as at December 31, 2017 (2016 - $4,935,274).
SOURCES OF REVENUE AND REVENUE RECOGNITION
We generate our revenue from the following:
- The sale of in-app purchases in Rooplay Originals (Branded EdTEch games for children and
families), 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.
Page 14
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 8 of this report.
Revenue
Cost of sales
Gross profit
Operating expenses and other
(income) / expenses
Gain on derivative liability –
warrants
Promissory note accretion and
interest
Loss before income taxes
Income tax recovery
Loss after tax
Basic and diluted loss per share
Weighted average common shares,
basic and diluted
Three Months Ended
December 31,
2017
(Unaudited)
September 30
2017
(Unaudited)
June 30
2017
(Unaudited)
March 31
2017
(Unaudited)
18,587
-
18,587
18,853
-
18,853
22,776
-
22,776
33,259
-
33,259
(537,533)
(484,121)
(439,949)
(399,164)
54,043
24,669
-
-
(22,110)
(487,013)
30,761
(456,252) $
(22,111)
(462,710)
-
(462,710)
(21,869)
(439,042)
-
(439,042)
(18,042)
(383,947)
-
(383,947)
(0.01) $
(0.01) $
(0.01) $
(0.00)
$
$
65,025,158
62,063,832
60,069,795
59,708,318
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
Promissory note accretion and
interest
Loss before income taxes
Income tax (expense) recovery
Loss after tax
Basic and diluted loss per share
Weighted average common shares,
basic and diluted
$
$
120,503
(82,720)
655,364
-
5,982
(744,066)
(1,302)
(745,368) $
120,503
(67,745)
589,561
498,791
-
(1,156,097)
(1)
120,504
(42,683)
578,294
-
-
(620,977)
9
(1,156,098) $
(620,968) $
120,503
(9,944)
623,924
-
-
(633,868)
-
(633,868)
(0.01) $
(0.02) $
(0.01) $
(0.01)
59,708,318
59,535,637
57,474,435
56,197,703
Our financial statements and related schedules are described under “Item 8. Financial Statements”.
Page 15
RESULTS OF OPERATIONS
Years Ended December 31, 2017 and 2016
Revenue
Total revenue from operations were $93,475 for the year ended December 31, 2017, a decrease from
revenue of $278,921 for the same period in the prior year. The decrease in total revenue compared to
fiscal 2016, is due to the Company ceasing to market it’s legacy product in mid 2016 while it developed
and prepared for the full launch of Rooplay in late 2017. Rooplay revenues are subscription based and
are expected to grow slowly initially.
Selling and marketing expenses
Sales and marketing expenses from operations were $244,810 for the year ended December 31, 2017,
a decrease of 39% over expenses of $403,523 for the same period in the prior year. This decrease in
sales and marketing expenses was due to a low marketing spend in 2017 for our legacy products in
order to preserve cash and prepare for the main launch of Rooplay which began in late 2017. Selling
and marketing expenses principally include publishing services and user acquisition costs to acquire
players for the Rooplay platform.
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.
General and administrative expenses
General and administrative expenses were $256,303 for the year ended December 31, 2017, an increase
of 14% over costs of $225,422 for the previous year. This increase in general and administrative
expenses is largely due to the increased expenditures incurred in raising capital in 2017. General and
administrative expenses consist primarily of legal and professional fees, premises costs for our offices,
and other general corporate and office expenses.
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, excluding salaries incurred for the development of
our products increased to $461,416 during the year ended December 31, 2017, an increase of 12% over
expenses of $413,166 for the previous year.
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 $4,068 during the year ended December 31, 2017,
over depreciation of $3,570 during the prior year. This increase in depreciation and amortization
compared to fiscal 2016, is due to the disposal of old obsolete equipment and the depreciation on new
equipment.
Development and amortization
The Company expensed $833,202 in development costs during the year ended December 31, 2017, a
decrease of 23% over $1,077,638 of development costs in the prior year. This decrease in development
costs is due to a smaller team developing the Rooplay platform technology and our Originals gaming
engines.
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. These
costs were fully amortized in fiscal 2016.
Page 16
Stock-based compensation expense
During the year ended December 31, 2017, the Company incurred non-cash stock compensation
expenses of $43,212 from the issuance of 725,000 stock options at CAD$0.54 per option compared to
stock compensation expenses of $257,293 in fiscal 2016 from the issuance of 1,010,00 stock options at
CAD$0.54 per option. The options are issued to consultants and employees as per the Companies 2015
Stock Option Plan.
Other income and expenses
During the year ended December 31, 2017, the Company has a foreign exchange loss of $12,274
compared to foreign exchange loss of $33,020 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, 2017, we received interest income of $18 compared to interest
income of $155 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 2017
compared to fiscal 2016.
During the year ended December 31, 2017, the Company closed a TSX Venture Exchange approved
non-brokered private placement financing totaling CAD$1.045 million. The private placement
consisted of 2,323,779 units priced at CAD$0.45 ($0.34) per unit. Each Unit was comprised of one
common share and one share purchase warrant. The warrants have an exercise price in Canadian dollars
whilst the Company’s functional currency is US Dollars. Therefore, in accordance with ASU 815 –
Derivatives and Hedging, the warrants have a derivative liability value. This liability value has no effect
on the cashflow of the Company and does not represent a cash payment of any kind. During the year
ended December 31, 2017, the Company recognized a gain of $78,712 on this derivative liability.
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.
Income taxes
During the year ended December 31, 2017, a subsidiary of the Company applied for a Canadian tax
credit in relation to fiscal 2016. The Company received a tax credit of $30,761. This compares to an
income tax expense in relation to profits earned in its subsidiaries in different jurisdictions of $1,294
during the year ended December 31, 2016.
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.
Net loss and loss per share
The net loss after taxation for the year ended December 31, 2017, amounted to $1,741,951, a loss of
$0.03 per share, compared to a net loss of $3,156,302, a loss of $0.05 per share, in year ended December
31, 2016. The net loss in fiscal 2016 included the one time write off of $498,791 of prepaid
development costs due to the unfortunate bankruptcy of our primary software development supplier.
LIQUIDITY AND CAPITAL RESOURCES
We had cash of $478,397 and working capital of $345,184 at December 31, 2017. This compares to
cash of $60,190 and working capital of $13,896 at December 31, 2016.
Page 17
During the year ended December 31, 2017, we used cash of $1,638,837 in operating activities compared
to using cash of $2,476,707 in the prior year.
Net cash generated by financing activities was $2,060,684 in the year ended December 31, 2017, which
compares to cash generated by financing activity of $1,974,215 in fiscal 2016. This cash generated by
financing activity is due to the cash raised from the private placements and warrant exercise during the
year ended December 31, 2017 compared to the cash raised from the private placements and rights
issue during the year ended December 31, 2016
Cash of $3,640 was used in investing activities in fiscal 2017, compared to $7,404 in the prior year.
This decrease in cash used in investing activities is due to the acquisition of equipment and furniture
for new employees in fiscal 2016.
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, 2017 and 2016.
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 20,
2018, and approved the financial statements for the year ended December 31, 2017.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page 18
SHOAL GAMES LTD. and subsidiaries
Consolidated Financial Statements
Years ended December 31, 2017 and 2016
Report of Independent Registered Public Accounting Firm
for the years ended December 31, 2017 and 2016
Consolidated Financial Statements
Balance Sheets
Statements of Operations
Statements of Stockholders’ Equity (Deficiency)
Statements of Cash Flows
Notes to Consolidated Financial Statements
20
21
22
23
24
25
Page 19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of
Shoal Games Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Shoal Games Ltd. (the “Company”),
as of December 31, 2017 and 2016, and the related consolidated statements of operations, changes in
stockholders’ equity (deficiency), and cash flows for the years ended December 31, 2017 and 2016,
and the related notes (collectively referred to as the “financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of Shoal
Games Ltd. as of December 31, 2017 and 2016, and the results of its operations and its cash flows for
the years ended December 31, 2017 and 2016 in conformity with accounting principles generally
accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the
Company has suffered recurring losses from operations and has a net capital deficiency that raise
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.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated financial statements based on
our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. According, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatements of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statement. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2010.
Vancouver, Canada
March 20, 2018
Page 20
“DAVIDSON & COMPANY LLP”
Chartered Professional Accountants
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 (2016 - $27,666) (Note 3)
Prepaid expenses (Note 4)
Total Current Assets
Equipment, net (Note 5)
Security deposits
Deferred tax asset, less valuation allowance of $102,809
(December 31, 2016 - $15,017) (Note 10)
2017
2016
$
478,397
$
60,190
15,022
54,714
548,133
9,720
-
-
17,194
33,494
110,878
10,148
8,067
-
Total Assets
$
557,853
$
129,093
Liabilities and Stockholders’ Deficiency
Current liabilities:
Accounts payable
Accrued liabilities
Accounts payable and accrued liabilities - related party (Note 11)
Derivative liability – warrants (Note 2j and 8)
Total Current Liabilities
$
Promissory notes (note 7)
Total Liabilities
Commitments (Note 9)
Stockholders’ Deficiency (Note 8):
Common stock, no par value, unlimited shares
Authorized 65,169,703 shares issued and outstanding
(December 31, 2016 - 59,708,318)
Accumulated deficit
Accumulated other comprehensive income:
Foreign currency translation adjustment
Total Stockholders’ Deficiency
$
30,111
84,081
44,185
44,572
202,949
502,313
705,262
3,667
87,959
5,356
-
96,982
347,698
444,680
23,133,400
(23,305,389)
21,223,271
(21,563,438)
24,580
(147,409)
24,580
(315,587)
Total Liabilities and Stockholders’ Deficiency
$
557,853
$
129,093
See accompanying notes to consolidated financial statements.
Page 21
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 income (loss)
Operating expenses:
Depreciation and amortization (Note 5)
Directors fees
General and administrative
Promissory note accretion and interest
(Note 7)
Provision for doubtful debts (Note 3)
Salaries, wages, consultants and benefits
Selling and marketing
Stock-based compensation (Note 8)
Game development (Note 6)
Total operating expenses
2017
2016
$
93,475
$
278,921
-
-
93,475
4,068
5,500
256,303
84,132
-
461,416
244,810
43,212
833,202
1,932,643
482,013
482,013
(203,092)
3,570
6,000
225,422
5,982
27,666
413,166
403,523
257,293
1,077,638
2,420,260
Loss before other income (expense) and income taxes
(1,839,168)
(2,623,352)
Other income (expense):
Gain on derivative liability – warrants (Note 8)
Foreign exchange loss
Interest and other income
Loss on prepaid development (Note 4)
Loss before income taxes
Income tax recovery (expense) (Note 10)
Loss after tax
Other comprehensive income (loss)
Comprehensive income (loss)
Basic and diluted loss per common share (Note 2)
Weighted average common shares outstanding, basic
(Note 2)
Weighted average common shares outstanding, diluted
(Note 2)
See accompanying notes to consolidated financial statements.
78,712
(12,274)
18
-
(1,772,712)
30,761
$
(1,741,951)
-
$
$
(1,741,951)
(0.03)
$
$
$
61,730,928
61,730,928
-
(33,020)
155
(498,791)
(3,155,008)
(1,294)
(3,156,302)
-
(3,156,302)
(0.05)
58,227,957
58,227,957
Page 22
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
Years ended December 31, 2017 and 2016
Common stock
Shares
Amount
Accumulated
Deficit
Accumulated Other
Comprehensive
income
Foreign currency
translation
adjustment
Total
Stockholders’
Equity
(Deficiency)
Balance, December 31, 2015
56,197,703
$19,334,290
($18,407,136)
$ 24,580
$951,734
Discount on promissory note
-
58,284
Private placements
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)
Discount on promissory note
Gain on extinguishment and
reissuance of promissory notes
with related parties
-
-
23,461
94,191
Private placements
5,340,274
1,846,055
Exercise of Warrants
121,111
52,310
Share issuance costs
Stock-based compensation
Derivative liability – warrants
Net loss
-
-
-
-
(25,816)
43,212
(123,284)
-
(1,741,951)
Balance, December 31, 2017
65,169,703
$23,133,400
($23,305,389)
$ 24,580
See accompanying notes to consolidated financial statements.
Page 23
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
58,284
1,562,479
80,949
(70,024)
257,293
(3,156,302)
-
-
-
-
-
-
-
-
23,461
94,191
1,846,055
52,310
(25,816)
43,212
(123,284)
(1,741,951)
($147,409)
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
Gain on derivative liability – warrants
Stock-based compensation
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses
Security deposits
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:
Private placements
Promissory note
Rights issue
Share issuance costs
Warrant exercised
Net cash provided by financing activities
Change in cash
Cash, beginning of year
Cash, end of year
Supplementary information:
Interest paid
Income taxes (recovery) paid
Non-cash financing activity – Extinguishment and reissuance of promissory
notes
Non-cash financing activity – Discount on related party loans
Non-cash investing activity
See accompanying notes to consolidated financial statements.
2017
2016
$
(1,741,951)
$
(3,156,302)
4,068
-
84,132
(78,712)
43,212
2,172
(21,220)
8,067
61,395
(1,638,837)
(3,640)
(3,640)
1,846,055
188,135
-
(25,816)
52,310
2,060,684
418,207
60,190
478,397
-
(30,761)
94,191
23,461
-
$
$
$
$
$
$
$
$
$
$
$
$
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
(509,896)
570,086
60,190
-
1,294
-
58,284
-
Page 24
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
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 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, 2017 and 2016, and has an
accumulated deficit of $23,305,389 as at December 31, 2017. This raises substantial doubt about
the Company’s ability to continue as a going concern.
In view of the matters described in the preceding paragraph, recoverability of a major portion of
the recorded asset amounts and settlement of the liability amounts shown in the accompanying
balance sheets is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to succeed in its future operations. The financial
statements do not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might be necessary should
the Company be unable to continue in existence.
Management continues to review operations in order to identify additional strategies designed to
generate cash flow, improve the Company’s financial position, and enable the timely discharge
of the Company’s obligations. If management is unable to identify sources of additional cash
flow in the short term, it may be required to further reduce or limit operations.
Page 25
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
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
Rooplay Media Ltd.
British Columbia, Canada
Rooplay Media Kenya Limited
Kenya
Shoal Media Inc.
Anguilla
Shoal Games (UK) Plc
United Kingdom
Shoal Media (UK) Ltd.
United Kingdom
100%
100%
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.
During the year ended December 31, 2017, Shoal Media UK Ltd. was incorporated under the
laws of England and Wales and Rooplay Media Kenya Limited was incorporated under the
laws of Kenya.
All inter-company balances and transactions have been eliminated in the consolidated
financial statements.
(b) Use of estimates:
The preparation of consolidated financial statements in conformity with US GAAP, requires
management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and recognized revenues and expenses for the reporting periods.
Significant areas requiring the use of estimates include the collectibility of accounts
receivable, the valuation of promissory notes, stock-based compensation and the estimated
market rate of 15%, the derivative liability – warrants valuation and the valuation of deferred
tax assets. Actual results may differ significantly from these estimates.
Page 26
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
2. Summary of significant accounting policies (Continued):
(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.
Advertising revenues, not generated in Trophy Bingo or Garfield’s Bingo, have been
recognized when collection of the amounts are reasonably assured.
Rooplay revenues 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 operations. 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
online platforms 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, 2017, was $nil (2016 - $27,666).
(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
Page 27
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
2. Summary of significant accounting policies (Continued):
(f) Equipment: (Continued)
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
operations as realized.
(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 amortized the capitalized software development costs over a
period of 3 years. The Company performs an annual review of the estimated economic life
and the recoverability of such capitalized software costs, using a net realizable value test.
The Company completed the amortization of the capitalized Trophy Bingo software
development expenses on December 31, 2016.
If a determination is made that capitalized amounts are not recoverable based on the estimated
cash flows to be generated from the applicable software, any remaining capitalized amounts
are written off. Although the Company believes that its approach to estimates and judgments
as described herein is reasonable, actual results could differ and the Company may be exposed
to increases or decreases in revenue that could be material.
Total software development costs for the development of all three games; Rooplay, Garfield’s
Bingo and Trophy Bingo, were $5,768,476 as at December 31, 2017 (December 31, 2016 -
$4,935,274).
(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 2017 totaled $244,810 (2016 - $403,523).
(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.
Page 28
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
2.
Summary of significant accounting policies (Continued):
(i) Stock-based compensation: (Continued)
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
(j) Derivative liability – warrants
2017
-
25%
25%
1.56%
5 years
5%
2016
-
78%
78%
1.9%
5 years
0%
The warrants have an exercise price in Canadian dollars whilst the Company’s functional
currency is US Dollars. Therefore, in accordance with ASU 815 – Derivatives and Hedging,
the warrants have a derivative liability value. This liability value has no effect on the cashflow
of the Company and does not represent a cash payment of any kind.
A fair value of the derivative liability of $123,284 was been estimated on the date of the
subscription using the Binomial Lattice pricing model. During the year ended December 31,
2017, there was a gain on derivative liability - warrants of $78,712 and the derivative liability
– warrants value reduced to $44,572 with the following assumptions:
Average stock price
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life of warrants
December 31, 2017
CAD$0.65
June 16, 2017
Subscription date
CAD$0.64
-
93.74%
1.66%
0.5 year
-
33%
0.71%
1 year
The average stock price is calculated on the probability weighted average price of the exercise
of the warrants.
(k) 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, 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.
Page 29
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
2. Summary of significant accounting policies (Continued):
(k) Impairment of long-lived assets and long-lived assets to be disposed of: (Continued)
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.
(l) 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. The Company recognizes the income tax recovery from the receipt of tax
credits upon receipt of funds. 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.
(m) 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 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 1,605,000 (2016 - 1,010,000) stock options and
5,219,163 (2016 - nil) warrants were excluded as at December 31, 2017.
Page 30
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
2. Summary of significant accounting policies (Continued):
(m) Net (loss) income per share: (Continued)
The earnings per share data for the year ended December 31, 2017 and 2016 are summarized
as follows:
Loss for the year
Basic and diluted weighted average number of
common shares outstanding
Basic and diluted (loss) earnings per common
share outstanding
2017
$
(1,741,951) $
2016
(3,156,302)
61,730,928
58,227,957
$
(0.03) $
(0.05)
(n) New accounting pronouncements and changes in accounting policies:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-
09, Revenue from Contracts with Customers and issued subsequent amendments to the initial
guidance in August 2016, March 2016, April 2016, and May 2016 within ASU 2016-04, ASU
2016-08, ASU 2016-10, ASU 2016-11 and ASU 2016-12, respectively. The guidance in this
update supersedes the revenue recognition requirements in ASC 605, Revenue Recognition,
and most industry-specific guidance throughout the Codification. Additionally, this update
supersedes some cost guidance included in ASC 605-35, Revenue Recognition -
Construction-Type and Production-Type Contracts. In addition, the existing requirements for
the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract
with a customer (for example, assets within the scope of ASC 360, Property, Plant, and
Equipment, and intangible assets, within the scope of ASC 350, Intangibles - Goodwill and
Other) are amended to be consistent with the guidance on recognition and measurement in
this update. The guidance states that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. An entity
should also disclose sufficient information to enable users of financial statements to
understand the nature, amount, timing, and uncertainty of revenue and cash flows arising
from contracts with customers. The standard was to be effective for the Company as of
January 1, 2017, but in August 2016, the FASB delayed the effective date of the new revenue
accounting standard to January 1, 2019, and would permit early adoption as of the original
effective date. Earlier adoption is not otherwise permitted for public entities. An entity can
apply the revenue standard retrospectively to each prior reporting period presented (full
retrospective method) or retrospectively with the cumulative effect of initially applying the
standard recognized at the date of initial application in retained earnings (modified
retrospective method). The Company is currently assessing the impact of this update on its
consolidated financial statements. The Company adopted ASC 2014-09 as of January 1, 2018
using the modified retrospective method. The new standard will therefore be applied to all
contracts not completed as of January 1, 2018. The Company does not believe the adoption
Page 31
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
2. Summary of significant accounting policies (Continued):
(n) New accounting pronouncements and changes in accounting policies: (Continued)
of ASC 606 will have a material impact to its results of operations or cash flows.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU
2016-01”), which requires that equity investments, except for those accounted for under the
equity method or those that result in consolidation of the investee, be measured at fair value,
with subsequent changes in fair value recognized in net income. However, an entity may
choose to measure equity investments that do not have readily determinable fair values at
cost minus impairment, if any, plus or minus changes resulting from observable price changes
in orderly transactions for the identical or a similar investment of the same issuer. ASU 2016-
01 also impacts the presentation and disclosure requirements for financial instruments. ASU
2016-01 is effective for public business entities for annual periods, and interim periods within
those annual periods, beginning after December 15, 2017. Early adoption is permitted only
for certain provisions. The Company does not expect that the adoption of ASU 2016-01 will
have a material effect on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires
lessees to recognize most leases on the balance sheet. This ASU requires lessees to recognize
a right-of-use asset and lease liability for all leases with terms of more than 12 months.
Lessees are permitted to make an accounting policy election to not recognize the asset and
liability for leases with a term of twelve months or less. The ASU does not significantly
change the lessees’ recognition, measurement and presentation of expenses and cash flows
from the previous accounting standard. Lessors’ accounting under the ASC is largely
unchanged from the previous accounting standard. In addition, the ASU expands the
disclosure requirements of lease arrangements. Lessees and lessors will use a modified
retrospective transition approach, which includes a number of practical expedients. The
provisions of this guidance are effective for annual periods beginning after December 15,
2018, and interim periods within those years, with early adoption permitted. Management is
evaluating the requirements of this guidance and has not yet determined the impact of the
adoption on the Company’s financial position or results of operations.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments”. The accounting
standard changes the methodology for measuring credit losses on financial instruments and
the timing when such losses are recorded. ASU No. 2016-13 is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2019. Early adoption is
permitted for fiscal years, and interim periods within those years, beginning after December
15, 2018. The Company is currently evaluating the impact of ASU No. 2016-13 on its
financial position, results of operations and liquidity.
Page 32
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
2. Summary of significant accounting policies (Continued):
(n) New accounting pronouncements and changes in accounting policies: (Continued)
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 adopted ASC
2014-09 as of January 1, 2018. The impact of ASU 2016-15 will be the disclosure of the
interest on the promissory note in the Statement of Cash Flows. The Company will reclassify
$11,289 (2016 - $811) of interest relating to the principal portion of the promissory note from
net cash used in operating activities to cash flows from financing activities. The Company
does not expect ASU 2016-15 to have any other material impact on its consolidated financial
statements.
In October 2016, 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 adopted ASU 2016-16 on January 1, 2018 and it did
not have an impact on its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic
718): Scope of Modification Accounting. The new standard provides guidance about which
changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in Topic 718. This pronouncement is effective for annual reporting
periods beginning after December 15, 2017 but early adoption is permitted. The Company
adopted ASU 2017-09 on January 1, 2018 and it did not have an impact on its consolidated
financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 850), the
objective of which is to improve the financial reporting of hedging relationships to better
portray the economic results of an entity's risk management activities in its financial
statements. In addition, the amendments in this Update make certain targeted improvements
to simplify the application and disclosure of the hedge accounting guidance in current general
accepted accounting principles. This pronouncement is effective for public entities for fiscal
years beginning after December 15, 2018. Early application is permitted in any period after
issuance. For cash flow and net investment hedges existing at the date of adoption, an entity
should apply a cumulative-effect adjustment related to eliminating the separate measurement
of ineffectiveness to accumulated other comprehensive income with a corresponding
adjustment to the opening balance of retained earnings as of the beginning of the fiscal year
Page 33
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
2. Summary of significant accounting policies (Continued):
(n) New accounting pronouncements and changes in accounting policies: (Continued)
that an entity adopts the amendments in this Update. The amended presentation and
disclosure guidance is required only prospectively. The Company is currently evaluating the
impact of adopting this guidance on its financial position, results of operations and liquidity.
In February 2018, FASB issued Accounting Standards Update ("ASU") 2018-02, "Income
Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income" to address a narrow-scope
financial reporting issue that arose as a consequence of the change in the tax law. On
December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide
for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for
Fiscal Year 2018 (Tax Cuts and Jobs Act of 2017). The ASU permits a reclassification from
accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the newly enacted federal corporate income tax rate. The amount of the
reclassification would be the difference between the historical corporate income tax rate of
34% and the newly enacted 21% corporate income tax rate. ASU 2018-02 is effective for all
entities for fiscal years beginning after December 15, 2018, and interim periods within those
fiscal years with early adoption permitted, including adoption in any interim period, for (i)
public business entities for reporting periods for which financial statements have not yet been
issued and (ii) all other entities for reporting periods for which financial statements have not
yet been made available for issuance. The changes are required to be applied retrospectively
to each period (or periods) in which the effect of the change in the U.S. federal corporate
income tax rate in the Tax Cuts and Jobs Act of 2017 is recognized. The Company is currently
evaluating the impact of adopting this guidance.
In February 2018, FASB issued ASU 2018-03, “Technical Corrections and Improvements to
Financial Instruments (Subtopic 825-10) – Recognition and Measurement of Financial Assets
and Financial Liabilities”. This update was issued to clarify certain narrow aspects of
guidance concerning the recognition of financial assets and liabilities established in ASU No.
2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities”. This includes an amendment to clarify that an
entity measuring an equity security using the measurement alternative may change its
measurement approach to a fair valuation method in accordance with Topic 820, Fair Value
Measurement, through an irrevocable election that would apply to that security and all
identical or similar investments of the same issued. The update is effective for fiscal years
beginning after December 15, 2017 and interim periods within those fiscal years beginning
after June 15, 2018. The Company is currently assessing the impact that adopting this new
accounting standard will have on our consolidated financial statements.
Page 34
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
2. Summary of significant accounting policies (Continued):
(m) 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, 2017, as compared to the recent accounting standards
described in the Annual Report, that are of material significance, or have potential material
significance, to us.
(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. Stock-based compensation and
derivative liability – warrants were measured using Level 2 inputs.
The Company deemed a fair value of the promissory notes 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 level 3 inputs by applying 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.
(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.
Page 35
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
3. Accounts Receivable:
The accounts receivable as at December 31, 2017, is summarized as follows:
Accounts receivable
Provision for doubtful accounts
Net accounts receivable
$
$
2017
42,688
(27,666)
15,022
$
$
2016
44,860
(27,666)
17,194
The Company had bank accounts with the National Bank of Anguilla. During the year ended
December 31, 2016, the National Bank of Anguilla filed for chapter 11 protection. The Company
expensed the balance on account of $27,666 in fiscal 2016 as a doubtful debt.
4. Prepaid expenses
During the year ended December 31, 2016, the Company had prepaid for future development
expenses for 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
$
$
2016
863,660
(364,869)
(498,791)
-
The Company has other prepaid expenses of $54,714 (2016 - $33,494) including prepaid licenses
fees of $33,502 (2016 - $7,835) for the year ended December 31, 2017.
Page 36
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
5. Equipment:
2017
Equipment and computers
Furniture and fixtures
2016
Equipment and computers
Furniture and fixtures
Cost
116,444
7,541
123,985
Cost
112,804
7,541
120,345
$
$
$
$
Accumulated
depreciation
107,444
6,821
114,265
Accumulated
depreciation
103,555
6,642
110,197
$
$
$
$
Net book
Value
9,000
720
9,720
Net book
Value
9,249
899
10,148
$
$
$
$
Depreciation expense was $4,068 (2016 - $3,570) for the year ended December 31, 2017.
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 development
expenses
Capitalized
Expenses
Accumulated
amortization
Net book
Value
$
1,446,038
$
1,446,038
$
-
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, 2017 and 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
2017
4,935,274
833,202
5,768,476
$
$
2016
3,857,636
1,077,638
4,935,274
$
$
Page 37
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
7. Promissory notes:
The Company has issued unsecured promissory notes from shareholders of the Company. The
notes were repayable on March 31, 2018. The interest on the notes are 2% per annum, calculated
and compounded annually and paid annually. Interest in arrears shall accrue interest. The unpaid
principal amount due hereunder may be reduced to zero from time to time without affecting the
validity of this note.
The promissory notes are accounted for by discounting the notes in a manner that reflects the
entity’s borrowing rate when interest cost is recognized in subsequent periods. The Company
applied an estimated market rate of 15% to the promissory notes. In doing so, the Company used
the discounted cash flow approach to value the present value of the notes. The cash flow stream
from the coupon interest payments and the final principal payment were discounted at 15% to
arrive at the valuations. The Company used a deemed rate of 15% as the appropriate discount
rate after examining the interest rates for similar instruments issued in the same time frame for
similar companies without the conversion feature. During the year ended December 31, 2017,
the Company issued $188,135 (2016 - $400,000) promissory notes and recognized a discount on
the promissory notes of $23,461 (2016 - $58,284) and $72,844 (2016 - $5,171) of interest
accretion.
On March 31, 2017, the maturity date on the promissory notes was extended to April 1, 2020.
The Company treated the change as an extinguishment and reissuance of the notes. The
Company recognized a discount on the promissory notes of $94,191 from the extinguishment
and reissuance of the notes through equity since the notes are from related parties.
Opening balance
Promissory note issued
Discount on promissory note
Gain on extinguishment and reissuance of
promissory notes with related parties
Extinguishment of promissory notes to related
parties
Reissuance of promissory notes to related
parties
Accrued interest
Interest accretion
Closing balance
2017
$
347,698
$
188,135
(23,461)
(94,191)
(418,181)
418,181
11,288
72,844
2016
-
400,000
(58,284)
-
-
-
811
5,171
$
502,313
$
347,698
Page 38
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
8. Stockholders’ deficiency:
The holders of common stock are entitled to one vote for each share held. There are no
restrictions that limit the Company’s ability to pay dividends on its common stock. The Company
has not declared any dividends since incorporation. The Company’s common stock has no par
value per common stock.
(a) Common stock issuances:
Fiscal 2017
In December 2017, two warrant holders exercised their warrants and acquired 121,111
common shares of the Company at CAD$0.55 (approximately $0.43) per share totaling
$52,310.
In October 2017, the Company closed a TSX Venture Exchange approved non-brokered
private placement financing totaling $45,011. The private placement consisted of 128,600
units priced at $0.35 per unit. Each Unit was comprised of one common share and one share
purchase warrant. Each share purchase warrant is exercisable into one common share of the
Company for 12 months following closing. The exercise price of the warrants is $0.44 per
share for the first six months following closing and $0.52 per share for the period which is 7-
12 months following closing.
In September 30, 2017, the Company closed a TSX Venture Exchange approved non-
brokered private placement financing totaling $1,010,763. The private placement consisted
of 2,887,895 units priced at $0.35 per unit. Each Unit was comprised of one common share
and one share purchase warrant. Each share purchase warrant is exercisable into one common
share of the Company for 12 months following closing. The exercise price of the warrants is
$0.44 per share for the first six months following closing and $0.52 per share for the period
which is 7-12 months following closing.
In ended June 2017, the Company closed a TSX Venture Exchange approved non-brokered
private placement financing totaling CAD$1.045 million (approximately $790,281). The
private placement consisted of 2,323,779 units priced at CAD$0.45 ($0.34) per unit. Each
Unit was comprised of one common share and one share purchase warrant. Each share
purchase warrant is exercisable into one common share of the Company for 12 months
following closing. The exercise price of the warrants is CAD$0.55 per share for the first six
months following closing and CAD$0.65 per share for the period which is 7-12 months
following closing.
The Company incurred issuance costs of $25,816 (2016 - $70,024) from the private
placements and warrant exercise.
Fiscal 2016
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
Page 39
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
8.
Stockholders’ deficiency: (Continued)
(a) Common stock issuances: (Continued)
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 issue 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.
Fiscal 2018
Subsequent to the year ended December 31, 2017, a warrant holder exercised their warrant
for 15,000 shares at $0.44 per share raising a total of $6,600.
Subsequent to the year ended December 31, 2017, the Company closed a TSX Venture
Exchange approved private placement financing totaling $2,551,500. The private placement
consisted of 7,290,000 shares priced at $0.35 per share. Pursuant to the private placement the
Company shall pay a commission of $253,750.
(b) Warrants
A summary of warrant activity for the warranty for the years ended December 31, 2017 and
2016 are as follows:
Outstanding, December 31, 2016 and
2015
-
$
-
Number of
options
Exercise price
Expiry date
Granted
Granted
Granted
Exercised
Outstanding December 31, 2017
(c) Stock option plans:
2,323,779
2,887,895
128,600
(121,111)
5,219,163
0.43 – 0.49
0.44 – 0.52
0.44 – 0.52
(0.43)
0.48
June 15, 2018
September 28, 2018
October 26, 2018
June 15, 2018
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
Page 40
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
8.
Stockholders’ deficiency: (Continued)
(c) Stock option plans: (Continued)
granted, the exercise price and their vesting schedule. The maximum term possible is 10
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, 2017, the Company granted 725,000 (2016 - 1,010,000)
options with an exercise price of CAD$0.54 (approximately $0.42) (2016 – CAD$054,
approximately $0.42) per share, expiring November 8, 2022 (2016 - December 20, 2021). As
at December 31, 2017, there were a total of 1,605,000 stock options (2016 – 1,010,000)
outstanding. During the year ended December 31, 2017, there were nil options exercised
(2016 - nil) and 130,000 options expired unexercised (2016 – nil).
Of the options outstanding at December 31, 2017, a total of 1,230,000 (2016 -1,010,000)
were fully vested and a total of 375,000 (2016 - nil) were issued where 10% vests at the grant
date, 15% one year following the grant date and 2% per month starting 13 months after the
grant date. A total of 1,267,500 (2016 – 1,010,000) of these common stock purchase options
had vested at December 31, 2017.
A summary of stock option activity for the stock option plans for the years ended December
31, 2017 and 2016 are as follows:
Number of
options
-
$
Weighted average
exercise price
-
Outstanding, December 31, 2015
Granted
Exercised
Outstanding, December 31, 2016
Granted
Exercised
Cancelled
1,010,000
-
1,010,000
725,000
-
(130,000)
0.42
-
0.42
0.42
-
(0.42)
0.42
Outstanding December 31, 2017
1,605,000
$
The aggregate intrinsic value for options as of December 31, 2017 was $nil (2016 - $nil).
The following table summarizes information concerning outstanding and exercisable stock
options at December 31, 2017:
Range of exercise
prices per share
$ 0.42
0.42
Number
outstanding
880,000
725,000
1,605,000
Number
exercisable
880,000
387,500
1,267,500
Expiry date
December 20, 2021
November 8, 2022
Page 41
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
8.
Stockholders’ deficiency: (Continued)
(c) Stock option plans: (Continued)
The Company recorded stock-based compensation of $43,212 on the 725,000 options granted
and vested (2016 – $257,293) and as per the Black-Scholes option-pricing model, with a
weighted average fair value per option of $0.13 (2016 - $0.34).
Subsequent to the year ended December 31, 2017, 40,000 options were cancelled
unexercised.
(d) 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 were released in thirty three
percent (33%) tranches on the dates that were six, twelve and eighteen months after the listing
date (July 2, 2015).
The Escrow Shares were released as follows:
Balance December 31, 2015
Released in 2016
Balance December 31, 2016
9. Commitments:
Number of shares
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 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:
2018
2019
$
1,478
-
The Company paid rent expense totaling $19,018 for the year ended December 31, 2017 (2016
- $26,152).
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
Page 42
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
9. Commitments: (Continued)
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.
As at December 31, 2017, the Company had a number of renewable license commitments with
large brands, including, Garfield, Moomins, Mr Men and Little Miss, Mr. Bean, Peter Rabbit and
the Winx club. These agreements have commitments to pay royalties on the revenue from the
licenses subject to the following minimum guarantee payments:
2018
2019
2020
$
31,418
30,585
3,000
The Company expensed the minimum guarantee payments over the life of the agreement and
recognized license expense of $12,888 (2016 - $499) for the year ended December 31, 2017.
10. 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% and various other rates for other jurisdictions to the
pretax income / losses from operations as a result of the following:
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
2017
592,264
(494,697)
(30)
-
21,016
(87,792)
30,761
$
$
2016
1,072,702
(1,072,270)
(35)
-
1,190
(2,881)
(1,294)
$
$
Page 43
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
10. Income taxes: (Continued)
The Tax Cuts and Jobs Act ("Tax Act") was signed into law on December 22, 2017. Included as
part of the law, was a permanent reduction in the federal corporate income tax rate from 34% to
21% effective January 1, 2018.
The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at December 31, 2017 and 2016 are presented below:
Deferred tax assets:
Net operating loss carry forwards
Valuation Allowance
2017
102,809
(102,809)
-
$
$
$
$
2016
15,017
(15,017)
-
The valuation allowance for deferred tax assets as of December 31, 2017 and 2016, was $102,809
and $15,017, respectively. The net change in the total valuation allowance was an increase of
$87,792 for the year ended December 31, 2017, and a decrease of $2,881 for the year ended
December 31, 2016.
As at December 31, 2017, the Company’s had $207,497 of non-capital losses expiring through
December 31, 2037.
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.
During the year ended December 31, 2017, Shoal Media (Canada) Inc., a subsidiary of Shoal
Games Ltd., received the British Columbia Interactive Digital Media Tax Credit of CAD$39,919
($30,761) for the year ended December 31, 2016 from the British Columbia Provincial
Government. The Company recognized this tax credit as a recovery of income tax expense on the
statement of operations upon receipt of funds.
11. Related party transactions:
The Company has a liability of $33,000 (2016 - $nil) to a company owned by a current director
and officer of the Company for payment of consulting fees of $132,000 (2016 - $132,000) by
the current director and officer of the Company.
The Company has a liability of $97 (2016 - $nil) to a current director and officer of the Company
for expenses incurred.
The Company has a liability of $3,982 (2016 - $2) to a current director and officer of the
Company for expenses incurred.
Page 44
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
11. Related party transactions: (Continued)
The Company has a liability of $nil (2016 - $nil) to a company owned by a current director and
officer of the Company for payment of consulting fees of $77,310 (2016 - $81,285) by the
current director and officer of the Company.
The Company has a liability of $nil (2016 - $nil) to a company owned by a current director and
officer of the Company for payment of consulting fees of $90,000 (2016 - $90,000) by the
current director and officer of the Company.
The Company has a liability of $nil (2016 - $2) to a company owned by a previous director of
the Company for payment of consulting fees of $nil (2016 - $8,378) by the previous director of
the Company.
The Company has a liability of $1,000 (2016 - $500), to independent directors of the Company
for payment of consulting fees. During the year ended December 31, 2017, the Company paid
$5,500 (2016 - $6,000) to the independent directors in director fees.
The Company has a liability of $6,106 (2016 - $4,852), to an officer of the Company for payment
of consulting fees and expenses incurred of $93,078 (2016 - $63,655) by the officer of the
Company.
The Company has promissory notes totaling $600,235 (2016 - $400,811), including interest,
from shareholders holding more than 10% of the Company. The interest on the notes are 2% per
annum, calculated and compounded annually and accrued.
During the year ended December 31, 2017, the directors and shareholders holding more than
10% of the Company’s shares subscribed for 1,200,000 units totaling CAD$540,000 ($408,102)
in the private placement.
During the year ended December 31, 2017, the Company granted 125,000 (2016 - 500,000)
options with an exercise price of CAD$0.54 (approximately $0.42) for both fiscal 2017 and fiscal
2016 per share to related parties. The Company expensed $13,110 (2016 - $127,373) in stock-
based compensation for these options granted to related parties.
The Company has a receivable of $2,630 (2016 - $nil) from a company of which a current
director of the Company is a director.
The related party transactions are in the normal course of operations and were measured at the
exchange amount, which is the amount of consideration established and agreed to by the related
party.
Page 45
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
12. 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.
2017
2016
Total revenue from continuing operations
Western Europe
Central, Eastern and Southern Europe
Nordics
North America
Other
Total revenue
Equipment
The Company’s equipment is located as follows:
Net Book Value
Anguilla
Canada
United Kingdom
13. Concentrations:
Major customers
$
$
$
$
10,940
486
875
63,155
18,019
93,475
2017
552
8,353
815
9,720
$
$
$
$
33,239
118
1,355
220,088
24,121
278,921
2016
828
8,097
1,223
10,148
During the year ended December 31, 2017 and 2016, the Company sold subscriptions on its site
Rooplay and sold in-app purchases on its social bingo sites, Trophy Bingo and Garfield’s Bingo
and Rooplay Originals. There was no single player who had purchased more than 10% of the
Rooplay, 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 Rooplay, Trophy Bingo and
Garfield’s Bingo to be played thereon.
During the year ended December 31, 2017 and 2016, the Company offered limited advertising.
The Company is reliant on one sales customer who provides the advertising revenue.
14. 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, 2017, the Company had total cash balances of
$478,397 (2016 - $60,190) at financial institutions, where $336,756 (2016 - $nil) is in excess of
federally insured limits.
Page 46
SHOAL GAMES LTD. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2017 and 2016
14. Concentrations of credit risk: (Continued)
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, 2017, the Company had three customers, totaling $9,066 who accounted
for greater than 10% of the total accounts receivable. As of December 31, 2016, the Company
had four customers, totaling $13,300 who accounted for greater than 10% of the total accounts
receivable.
The Company controls credit risk through monitoring procedures and receiving prepayments of
cash for services rendered. The Company performs credit evaluations of its customers but
generally does not require collateral to secure accounts receivable.
Page 47
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, 2017 and 2016.
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, 2017, the Company’s internal control over financial
reporting is effective under the COSO framework.
Page 48
(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, 2017, and to the date of filing this
annual report.
ITEM 9B - OTHER INFORMATION
None
Page 49
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers as at December 31, 2017, are as follows:
Age Position
Name
T. M. Williams 77
42
J. M. Williams
53
F. Curtis
W. Moore
50
H. W. Bromley 47
X* - Chairman of Committee
Executive Chairman
Chief Executive Officer
Non Executive Director
Non Executive Director
Chief Financial Officer
Audit
Committee
X
X
X
X*
Governance
Committee
Compensation
Committee
X
X*
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 has served as director since November 7, 2016. He 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 including leading an
international management consultancy. Will holds a 1st class MBA from Henley Business School
with a distinction for his thesis on ‘business model innovation in technology start-ups’. He is Chief
Page 50
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. 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, four 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,
2017, the Non Executive Directors collectively received compensation of $5,500 (Fiscal 2016 -
$6,000). 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
Page 51
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.
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)
2017
2016
2015
2017
2016
2015
2017
2016
2015
132,000
132,000
132,000
167,310
171,285
181,734
93,078
63,655
62,719
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,000
100,000
-
25,000
100,000
-
25,000
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, 2017, the Company granted 725,000 options (2016 –
1,010,000) with an exercised price of CAD$0.54 (approximately US$0.42) per share.
During the year ended December 31, 2017, nil (2016 – nil) options were exercised. During the year
ended December 31, 2017, 130,000 (2016 – nil) options were cancelled.
Page 52
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.
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 $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.
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.
Page 53
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, 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 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 20, 2018, 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 20, 2018, are deemed outstanding.
Percentage of beneficial ownership is based upon 72,474,703 shares of common stock outstanding
at March 20, 2018. 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 54
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
17,273,281
(1)
21.79%
633,200
(2)
0.80%
175,000
(3)
0.22%
125,000
(4)
0.16%
500,000
(5)
0.63%
All directors and Named Executive Officers
as a group (5 persons)
18,706,481
23.60%
Pendinas Limited
Ballacarrick, Pooilvaaish Road
Castletown, IM9 4PJ
Isle of Man
Wydler Global Equity Fund
Claridenstrasse 20
Zurich, 8002
Switzertland
27,887,999
(6)
35.18%
7,200,000
(7)
9.08%
(1) Includes 16,948,281 shares held directly by Mr. T. M. Williams and 125,000 shares of common stock that may be
issued upon the exercise of 125,000 stock purchase options with an exercise price of CAD$0.54 (approximately
US$0.42) per share and 200,000 shares of common stock that may be issued upon the exercise of 200,000 warrants
with an exercise price of CAD$0.65 (approximately US$0.52) per share warrants.
(2) Includes, 308,200 shares held directly by Mr. J. M. Williams and 125,000 shares of common stock that may be
issued upon the exercise of 125,000 stock purchase options with an exercise price of CAD$0.54 (approximately
US$0.42) per share and 100,000 shares of common stock that may be issued upon the exercise of 100,000 warrants
with an exercise price of CAD$0.65 (approximately US$0.52) per share warrant.
(3) Includes 50,000 shares held directly by Ms. F. Curtis and 125,000 shares of common stock that may be issued upon
the exercise of 125,000 stock purchase options with an exercise price of CAD$0.54 (approximately US$0.42) per
share.
(4) Includes125,000 shares of common stock that may be issued upon the exercise of 125,000 stock purchase options
with an exercise price of CAD$0.54 (approximately US$0.42) per share.
Page 55
(5) Includes, 375,000 shares held directly by Mr. H. W. Bromley and 125,000 shares of common stock that may be
issued upon the exercise of 125,000 stock purchase options with an exercise price of CAD$0.54 (approximately
US$0.42) per share.
(6) Includes 26,987,999 shares and 900,000 shares of common stock that may be issued upon the exercise of 900,000
warrants with an exercise price of CAD$0.65 (approximately US$0.52) per share warrant, 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.
(7) Includes 7,200,000 shares held directly by Wydler Global Equity Fund.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
The Company has a liability of $33,000 (2016 - $nil) to a company owned by a current director and
officer of the Company for payment of consulting fees of $132,000 (2016 - $132,000) by the current
director and officer of the Company.
The Company has a liability of $97 (2016 - $nil) to a current director and officer of the Company
for expenses incurred.
The Company has a liability of $3,982 (2016 - $2) to a current director and officer of the Company
for expenses incurred.
The Company has a liability of $nil (2016 - $nil) to a company owned by a current director and
officer of the Company for payment of consulting fees of $77,310 (2016 - $81,285) by the current
director and officer of the Company.
The Company has a liability of $nil (2016 - $nil) to a company owned by a current director and
officer of the Company for payment of consulting fees of $90,000 (2016 - $90,000) by the current
director and officer of the Company.
The Company has a liability of $nil (2016 - $2) to a company owned by a previous director of the
Company for payment of consulting fees of $nil (2016 - $8,378) by the previous director of the
Company.
The Company has a liability of $1,000 (2016 - $500), to independent directors of the Company for
payment of consulting fees. During the year ended December 31, 2017, the Company paid $5,500
(2016 - $6,000) to the independent directors in director fees.
The Company has a liability of $6,106 (2016 - $4,852), to an officer of the Company for payment
of consulting fees and expenses incurred of $93,078 (2016 - $63,655) by the officer of the
Company.
The Company has promissory notes totaling $600,235 (2016 - $400,811), including interest, from
shareholders holding more than 10% of the Company. The interest on the notes are 2% per annum,
calculated and compounded annually and accrued.
During the year ended December 31, 2017, the directors and shareholders holding more than 10%
of the Company’s shares subscribed for 1,200,000 units totaling CAD$540,000 ($408,102) in the
private placement.
During the year ended December 31, 2017, the Company granted 125,000 (2016 - 500,000) options
with an exercise price of CAD$0.54 (approximately $0.42) for both fiscal 2017 and fiscal 2016 per
share to related parties. The Company expensed $13,110 (2016 - $127,373) in stock-based
compensation for these options granted to related parties.
Page 56
The Company has a receivable of $2,630 (2016 - $nil) from a company of which a current director
of the Company is a director.
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, 2017, the Company incurred fees of $39,115 (2016 - $51,000)
from the principal accountant during fiscal 2017 - Davidson & Company LLP, $39,115 of these
fees related to audit fees (2016 - $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 57
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 20, 2018
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 20, 2018
Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)
March 20, 2018
Page 58
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, 2017, 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
2018
J. M. Williams,
Chief Executive Officer,
(Principal Executive Officer)
Date : March 20, 2018,
Page 59
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, 2017, 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 20, 2018
Page 60
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, 2017, 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 20, 2018
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.
Page 61
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, 2017, 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 20, 2018
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.
Page 62
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 20, 2018.
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 20, 2018.
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 20, 2018.
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 20, 2018.
(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.
Page 64