UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER PURSUANT TO RULES 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 2003
Commission File Number: 333-98397
LINGO MEDIA INC.
________________________________________________________________________________________________
151 Bloor Street West, Suite 890, Toronto, Ontario Canada M5S 1S4
_________________________________________________________________________________________________
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F
[ X ]
Form 40-F
[ ]
Indicate by check mark whether the registrant by furnishing the information in this Form is also thereby furnishing
the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes
[ ]
No
[ X ]
LINGO MEDIA INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
(Unaudited)
March 31, 2003
INDEX
LINGO MEDIA INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian dollars)
(Unaudited)
March 31, 2003 | December 31, 2002 | |
ASSETS | ||
CURRENT: | ||
Cash | $ 178,198 | $ 79,871 |
Accounts receivable, net | 518,553 | 601,379 |
Loan receivable | 18,815 | 18,815 |
Prepaid expenses and other | 138,688 | 85,623 |
Inventory on hand | 30,550 | 34,243 |
884,804 | 819,931 | |
Capital assets, net | 44,664 | 45,742 |
Development costs, net | 698,466 | 727,641 |
Acquired publishing content, net | 247,344 | 265,012 |
Software development cost, net | 62,091 | 72,440 |
1,937,369 | 1,930,765 | |
LIABILITIES | ||
CURRENT: | ||
Accounts payable | $ 164,011 | $ 166,822 |
Accrued liabilities | 35,750 | 30,373 |
Current portion of long-term debt | 184,395 | 106,274 |
384,156 | 303,469 | |
SHAREHOLDERS’ EQUITY | ||
Capital Stock | ||
Authorized – Unlimited common shares and preferred shares with no par value. | ||
Issued – 20,883,827 common shares (December 31, 2002: 20,733,827) | 3,128,949 | 3,113,949 |
Deferred stock-based compensation | (36,875) | (45,208) |
Deficit | (1,538,861) | (1,441,444) |
1,553,213 | 1,627,297 | |
$ 1,937,369 | $ 1,930,765 |
See accompanying notes to the consolidated financial statements.
LINGO MEDIA INC.
CONSOLIDATED STATEMENT OF DEFICIT
(Expressed in Canadian dollars)
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31
2003 | 2002 | |
Deficit, beginning of period | (1,441,444) | (1,509,319) |
Net income (loss) for the period | (97,417) | 396 |
Deficit, end of period | (1,538,861) | (1,508,923) |
See accompanying notes to the consolidated financial statements.
LINGO MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in Canadian dollars)
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31
2003 | 2002 | |
Revenue | $ 224,632 | $ 419,166 |
Cost of sales | 34,606 | 285,103 |
190,026 | 134,063 | |
Expenses | ||
General and administrative | 168,696 | 109,298 |
Other interest and bank charges | 700 | 523 |
Earnings before interest, taxes and amortization | 20,630 | 24,242 |
Interest on long term debt | 3,597 | 13,266 |
Amortization | 74,476 | 63,904 |
Amortization of deferred stock-based compensation | 8,333 | 1,042 |
Earnings (Loss) before the undernoted | (65,777) | (53,969) |
Gain on Issue of shares of subsidiary | - | 67,500 |
Earnings (loss) before income taxes | (65,777) | 13,531 |
Income taxes | 31,640 | 13,135 |
EARNINGS (LOSS) FOR THE PERIOD | $ (97,417) | $ 396 |
Earnings (Loss) Per Share – Basic and Diluted | $ (0.01) | $ 0.00 |
Weighted average number of common shares outstanding | 17,874,956 | 14,185,487 |
See accompanying noted to consolidated financial statements.
LINGO MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian dollars)
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31
2003 | 2002 | |
OPERATING ACTIVITIES | ||
Net income (loss) for the period | $ (97,417) | $ 396 |
Items not affecting cash: | ||
Gain on issue of shares of subsidiary | - | (67,500) |
Amortization of capital assets | 1,343 | 2,569 |
Amortization of development costs | 45,118 | 33,319 |
Amortization of acquired publishing content | 17,667 | 17,667 |
Amortization of software development costs | 10,349 | 10,349 |
Amortization of deferred stock-based compensation | 8,333 | 1,042 |
Change in non-cash working capital items: | ||
Accounts receivable | 83,681 | (208,831) |
Accounts receivable factoring | - | - |
Loan receivable | - | (333) |
Prepaid expenses and other | (53,186) | (4,329) |
Inventory on hand | 3,693 | (29,572) |
Work in process | - | 100,380 |
Accounts payable | (2,811) | 143,920 |
Accrued liabilities | 5,377 | - |
22,147 | (923) | |
FINANCING ACTIVITIES | ||
Issuance of capital stock, net | 15,000 | 349,000 |
Increase in long-term debt | 78,121 | 37,349 |
Proceeds of sale of shares of subsidiary | - | 67,500 |
93,121 | 453,849 | |
INVESTING ACTIVITIES | ||
Purchase of capital assets | (1,000) | - |
Development costs | (15,942) | - |
(16,942) | - | |
Increase in cash | 98,327 | 452,926 |
Cash – Beginning of period | 79,871 | 7,473 |
Cash – End of period | $ 178,198 | $ 460,399 |
See accompanying notes to the consolidated financial statements.
LINGO MEDIA INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
For the Three Months Ended March 31, 2003
Lingo Media Inc. (the "Company") develops, publishes, distributes and licenses books, audiocassettes, multimedia and ancillary products for English language learning for the school and retail markets in China and Canada.
1.
Significant accounting policies:
The disclosures contained in these unaudited interim consolidated financial statements do not include all requirements of generally accepted accounting principles (GAAP) for annual financial statements. The unaudited interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2002.
The unaudited interim consolidated financial statements reflect all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary to present fairly the financial position of the Company as of March 31, 2003 and the results of operations and cash flows for the three months ended March 31, 2003 and 2002.
2.
Long-term debt:
March 2003 | December 2002 | |
Bank loan, repayable in monthly instalments of $4,225 plus interest, bearing interest at prime, secured by a general security agreement, maturing on June 23, 2003 | 8,450 | 12,675 |
Shareholder loan, bearing interest at 12% per annum and due on demand | 74,466 | 93,599 |
Loan from a corporation controlled by a director, bearing interest at 12% per annum and due on demand | 101,479 | - |
184,395 | 106,274 | |
Less current portion | 184,395 | 106,274 |
$ - | $ - |
3.
Warrants Exercise:
During March 2003, 150,000 Class D Warrants were exercised for $0.10 each, by a director of the Company.
4.
Stock Options:
On March 31, 2003, the Company had 2,343,340 (March 31, 2002 – 2,020,000) options outstanding.
5.
Segment information:
The Company operates as an international business and has no distinct reportable business segments.
The Company is developing books, audiocassettes, multimedia and ancillary products for English language learning to be sold or licensed to the school market, primarily in China and Canada. This service is called Educational Publishing.
The Company's revenue by geographic region based on the region in which the customer is located is as follows:
March 2003 | March 2002 | |
Canada | $ 6,424 | $ 331,893 |
China | 218,209 | 87,273 |
$ 224,632 | $ 419,166 |
Substantially all of the Company’s identifiable assets as at March 31, 2003 and December 31, 2002 are located in Canada.
6.
Reconciliation of Canadian and United States generally accepted accounting principles ("GAAP"):
These interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in Canada. Except as set out below, these financial statements also comply, in all material aspects, with accounting principles generally accepted in the United States.
The Following tables reconcile results as reported under Canadian GAAP with those that would have been reported under United States GAAP.
Statements of Operations:
March 2003 | March 2002 | |
Income (loss) for the period - Canadian GAAP | $ (97,417) | $ 396 |
Impact of United States GAAP and adjustments: | ||
Development costs (a) | - | - |
Amortization of development costs | 45,118 | 33,319 |
Amortization of software development costs | 10,349 | 10,349 |
Compensation expense (c) | - | (20,117) |
Share issue costs (d) | (16,630) | - |
Income (loss) for the year – United States GAAP | $ (58,580) | $ 23,947 |
The cumulative effect of these adjustments on the consolidated shareholders’ equity of the Company is as follows:
March 2003 | March 2002 | |
Shareholders’ equity based on Canadian GAAP | $ 1,553,213 | $ 1,627,297 |
Development costs (a) | (698,466) | (717,328) |
Software development costs (b) | (62,091) | (72,440) |
Share issue costs (d) | (69,606) | (63,058) |
Compensation expense (c) | (243,250) | (243,250) |
Shareholders’ equity – United States GAAP | $ 479,800 | $ 531,221 |
Under United States GAAP, the amounts shown on the consolidated balance sheets for development costs and software development costs would be $26,255 (2002:nil) and nil (2002:nil) for March 2003 respectively.
(a)
Development costs:
Under Canadian GAAP, the Company defers the incremental costs relating to the development and pre-operating phases of new businesses and established business and amortizes these costs on a straight-line basis over periods up to five years. Under United States GAAP, Incremental costs related to development and pre-operating plan of new business are expenses as incurred but the incremental costs incurred for established business are capitalized and amortized over on a straight line basis over periods up to five years.
(b)
Software development costs:
Under United States GAAP, the software development costs would be expensed as incurred.
(c)
Options to consultants:
Starting January 1, 2002 under United States and Canadian GAAP, the Company records compensation expense based on the fair value for stock or stock options granted in exchange for services from consultants. Before January 1, 2002, for the options issued and completely vested the Company did not recognize a compensation expense under Canadian GAAP but recorded a compensation expense under US GAAP for the options issued to consultants. In respect to options issued before January 1, 2002 but vesting in year 2002, the Company records expense under US GAAP but recognized no expenses under Canadian GAAP.
(d)
Share Issue Costs:
During 2002 and first three months, the Company incurred these costs to file registration statements with Securities and Exchange Commission in order to interlist for trading in United States. In accordance with US GAAP these costs are expressed as incurred.
SCHEDULE B:
1.- Analysis of Expenses
General and Administrative Expenses
Advertising and promotion | $ 2,493 |
Management fees | 34,988 |
Salaries and benefits | 49,448 |
Office and general | 24,295 |
Rent | 10,048 |
Equipment leases | 870 |
Shareholder services | 4,464 |
Foreign exchange | 32,846 |
Professional fees | 9,244 |
168,696 |
2.- Related Party Transactions
During the three month period ended March 31, 2003, a director of Lingo Media Inc. (the “Company”) advanced $100,000 to support the Company’s short-term cash flow requirements. Additionally, a shareholder loan made by a spouse of a director of the Company was partially repaid in the amount of $20,000 plus interest of $1,141 during the first three months of 2003. The shareholder loans bear interest at 12% per annum. Interest expense related to these loans for the three month period ended March 31, 2003 was $3,565.
3- Summary of Securities Issued and Options Granted during the Period.
Common Shares
Date of Issue | Number Issued | Exercise Price | Total Value |
Warrants exercised | March 30, 2003 | 150,000 | $ 0.10 | $15,000 |
Stock Options
Optionee | Date of Issue | Number Issued | Exercise Price | Expiry Date |
Consultants | January 16, 2003 | 50,000 | $0.10 | January 16, 2008 |
Employee | January 16, 2003 | 35,000 | $0.10 | January 16, 2008 |
4- Summary of Securities at the end of the Period
Common Shares outstanding as at March 31, 2003
20,733,827
Options to purchase Common Shares outstanding
2,343,340
Class C Warrants outstanding
500,000
(each warrant exercisable into one common share at
$0.15 per share, expiring November 23, 2002 (the expiry
date of the warrants has been extended to November 23,
2003))
Class D Warrants outstanding
2,775,000
(each warrant exercisable into one common share at
$0.10 per share, expiring March 30, 2003 (the expiry date for the
warrants has been extended to December 31, 2003 and exercise price
has been revised to $0.12))
5- Directors and Officers as of the date of this Report is signed and filed.
Michael P. Kraft | Director, President and Chief Executive Officer | |||
Richard J.G. Boxer | Director | |||
Richard H. Epstein | Director | |||
Scott Remborg | Director | |||
Chen Geng | Director | |||
Khurram R. Qureshi | Chief Financial Officer | |||
Imran Atique | Secretary & Treasurer |
Description of Business
Lingo Media Inc. develops, publishes, distributes and licenses books, audiocassettes, multimedia and ancillary products for English language learning for the school and retail markets, in Canada and China.
Management Discussion and Analysis
The following Management’s Discussion and Analysis should be read in conjunction with the Company’s interim financial statements for the three months ended March 31, 2003 and the accompanying notes; and annual financial statements for the fiscal year ended December 31, 2002 and the accompanying notes.
Revenue
Revenue for the first three months of 2003 was $224,632 compared to $419,166 for the same period of 2002, a 46% decrease. The decrease in the revenue is due to decreased sales in Canada. In 2002, the sales in Canada were higher due to a one-time Call for Resources from the Ontario Ministry of Education for early literacy materials.
Cost of Sales
Cost of Sales includes all costs directly related to production and distribution of the products sold such as manufacturing costs, freight, author royalties and sales commissions. Cost of sales for three months ended March 2003 were $34,606 as compared to $285,103 for the same period last year.
Gross Margin
The gross margin for the three months ended March 2003 was $190,026 as compared to $134,063 for the same period last year. In the first three months of 2003, Lingo Media’s gross margin percentage increased to 85% as compared to 32% for the same period last year. The increase in the gross margin percentage resulted from the change in the revenue mix. Revenue in 2002 was earned mainly from direct publishing, and royalty income as opposed to revenue for 2003, which was generated from royalty income. The gross margin for the first three months of 2003 increased by 42% as compared to the same comparative period in 2002.
General and Administrative
General and administrative costs consist of costs incurred at the corporate level including executive compensation, consulting fees, administration, marketing, professional fees, shareholders services, and any foreign exchange losses or gains. These expenses were $168,696 for the first three months of 2003, an increase of $59,398 over 2002’s $109,298. This increase is mainly due to a foreign exchange loss of $32,846 sustained by the Company due to the decrease in the US dollar as compared to Canadian dollars and also due to increased activity of the Company and non-recurring professional fees incurred to register the Company with the US Securities and Exchange Commission to qualify to trade in the US.
Amortization
Amortization for the three months ended March 2003 increased by 17% over the same period last year to $74,476 from $63,904. This increase is due to the amortization of capital assets that were acquired in the last six months of 2002.
Stock-Based Compensation
The amortization for the stock-based compensation was $8,333 for the three months ended March 2003 as compared to $1,042 for the same period last year, an increase of $7,291. This increase is attributed to the increased number of stock options vested during the period that were issued to consultants.
EBITA
The Company reported an EBITA (Earnings before interest, taxes and amortization) of $20,630 for the three months ended March 2003 as compared to $24,242 for the same period last year, a 15% decrease due to decrease in revenue. Although the Company’s EBITA was decreased, its EBITA percentage was increased from 6% for the first three months of 2002 to 9% for the same period in 2003.
Net Income (Loss)
The Company reported a loss before extraordinary items and taxes of $(65,777) for the first three months of 2003 as compared to a loss of $(53,969) for the same period last year, a 22% increase. Income taxes for the first three months ended March 2003 amounted to $31,640, whereas gain on issue of shares of subsidiary and income taxes amounted to $67,500 and $13,135 respectively for the same period last year. The Company reported no extraordinary items for the first three months of 2003. A net loss of $(97,417) for the three months ended March 2003 was reported as compared to a net loss income of $396 after extraordinary items income taxes for the same period last year.
During the first three months of 2003, the Company’s operating activities generated positive cash flow of $22,147 as compared to cash used in operating activities of $(924) in the same period last year.
Liquidity and Capital Resources
As of March 31, 2003, the Company had cash of $178,198 and accounts receivables of $518,553. The Company’s current assets amounted to $884,804 with current liabilities of $384,156 resulting in a working capital surplus of $500,648.
The Company believes that current cash on hand along with accounts receivable and recurring sales will satisfy working capital requirements for the next 12 months and beyond.
SIGNATURES
Pursuant to the requirements 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.
LINGO MEDIA INC.
By: /s/ “Michael P. Kraft”___________
Michael P. Kraft
President and Chief Executive Officer
By: /s/ “Khurram R. Qureshi”________
Khurram R. Qureshi
Chief Financial Officer
June 3, 2003
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14 AND 15d-14
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Michael P. Kraft, Chief Executive Officer of Lingo Media Inc., certify that:
I have reviewed this quarterly report on Form 6-K of Lingo Media Inc.
Based on my knowledge, this quarterly 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 quarterly report.
Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in the report.
I and the other certifying officers are responsible for establishing and maintaining disclosure controls and procedures for the Company.
I and the other certifying officers have designed such disclosure controls and procedures to ensure that material information is made known to us, particularly during the period in which the periodic report is being prepared.
I and the other certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this report; and
I and the other certifying officers have presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of that date.
I and the other certifying officers have disclosed to the Company’s auditors and to the audit committee of the board of directors (or persons fulfilling the equivalent function):
(i)
all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s auditors any material weaknesses in internal controls; and
(ii)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls; and
I and the other certifying officers have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated: June 3, 2003
BY: /s/ MICHAEL P. KRAFT
Michael P. Kraft
President and Chief Executive Officer
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14 AND 15d-14
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Khurram R. Qureshi, Chief Financial Officer of Lingo Media Inc., certify that:
I have reviewed this quarterly report on Form 6-K of Lingo Media Inc.
Based on my knowledge, this quarterly 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 quarterly report.
Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in the report.
I and the other certifying officers are responsible for establishing and maintaining disclosure controls and procedures for the Company.
I and the other certifying officers have designed such disclosure controls and procedures to ensure that material information is made known to us, particularly during the period in which the periodic report is being prepared.
I and the other certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this report; and
I and the other certifying officers have presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of that date.
I and the other certifying officers have disclosed to the Company’s auditors and to the audit committee of the board of directors (or persons fulfilling the equivalent function):
(i)
all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s auditors any material weaknesses in internal controls; and
(ii)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls; and
I and the other certifying officers have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated: June 3, 2003
BY: /s/ KHURRAM R. QURESHI
Khurram R. Queshi
Chief Financial Officer