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 September 30, 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 INTERIM FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
(Unaudited)
September 30, 2003 and 2002
INDEX
Consolidated Interim Balance Sheets
Consolidated Interim Statement of Deficit
Consolidated Interim Statements of Operations
Consolidated Interim Statements of Cash Flows
Notes to Consolidated Interim Financial Statements
LINGO MEDIA INC.
CONSOLIDATED INTERIM BALANCE SHEETS
(Expressed in Canadian dollars)
(Unaudited)
September 30, 2003 | December 31, 2002 |
ASSETS | ||
CURRENT: | ||
Cash | $ 69,878 | $ 79,871 |
Accounts receivable, net (note 2) | 624,352 | 601,379 |
Loan receivable | 17,315 | 18,815 |
Prepaid expenses and other | 123,405 | 85,623 |
Inventory on hand | 30,188 | 34,243 |
856,139 | 819,931 | |
Capital assets, net | 39,812 | 45,742 |
Development costs, net | 682,980 | 727,641 |
Acquired publishing content, net | 212,009 | 2658,012 |
Software development costs, net | 41,394 | 72,440 |
$ 1,841,333 | $ 1,930,765 |
LIABILITIES | ||
CURRENT: | ||
Accounts payable | $ 248,758 | $ 45,742 |
Accrued liabilities | 17,250 | 727,641 |
Current portion of long-term debt (note 3) | 173,613 | 265,012 |
439,621 | 72,440 | |
SHAREHOLDERS’ EQUITY | ||
Capital Stock (note 4) | ||
Authorized - Unlimited common shares and preferred shares with no par value | ||
Issued - 20,951,577 common shares (December 31, 2002: 20,733,827) | 3,101,099 | 3,113,949 |
Deferred stock-based compensation | (20,208) | (45,208) |
Deficit | (1,679,179) | (1,441,444) |
1,401,712 | 1,627,297 |
$ 1,841,333 | $ 1,930,765 |
See accompanying notes to consolidated interim financial statements.
LINGO MEDIA INC.
CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF DEFICIT
(Expressed in Canadian dollars)
(Unaudited)
For the nine months ended September 30 |
2003 | 2002 |
Deficit, beginning of period | $ (1,441,444) | $ (1,509,319) |
Net income (loss) for the period | (237,735) | 17,106 |
Deficit, end of period | $ (1,679,179) | $ (1,492,213) |
See accompanying notes to consolidated interim financial statements.
LINGO MEDIA INC.
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(Expressed in Canadian dollars)
(Unaudited)
For the three months ended September 30 | For the nine month ended September 30 |
2003 | 2002 | 2003 | 2002 |
Revenue | $ 217,376 | $ 234,860 | $ 710,500 | $ 1,032,322 |
Cost of sales | 30,463 | 41,249 | 100,818 | 386,523 |
Margin | 186,914 | 193,611 | 609,682 | 645,799 |
Expenses | ||||
General and administrative | 109,156 | 118,546 | 478,073 | 418,440 |
Other interest and bank charges | 917 | 1,618 | 2,366 | 2,141 |
Earnings (loss) before interest, taxes, and amortization | 76,841 | 73,447 | 129,244 | 225,218 |
Interest on long term debt | 28,721 | 2,858 | 50,057 | 20,199 |
Amortization | 72,542 | 65,154 | 216,722 | 195,254 |
Earnings (loss) before the undernoted | (24,422) | 5,435 | (137,535) | 9,765 |
Gain on Issue of shares of subsidiary | - | 33,938 | - | 101,438 |
Earnings (loss) before income taxes | (24,422) | 39,938 | (137,535) | 111,203 |
Income taxes | 30,320 | 27,183 | 100,200 | 94,097 |
Earnings (loss) for the period | $ (54,742) | $ 12,190 | $ (237,735) | $ 17,106 |
Earnings (loss) per share – basic and diluted | $ (0.00) | $ 0.00 | $ (0.01) | $ 0.00 |
Weighted average number of common shares outstanding | 17,974,208 | 15,966,978 | 17,974,208 | 15,966,978 |
See accompanying notes to consolidated interim financial statements.
LINGO MEDIA INC.
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Expressed in Canadian dollars)
(Unaudited)
For the three months ended September 30 | For the nine month ended September 30 |
2003 | 2002 | 2003 | 2002 |
OPERATING ACTIVITIES | ||||
Net income (loss) for the period | $ (54,742) | $ 12,190 | $ (237,735) | $ 17,106 |
Items not affecting Cash: | ||||
Gain on issue of shares of subsidiary | - | (33,938) | - | (101,438) |
Amortization of capital assets | 3,030 | 2,566 | 6,833 | 7,698 |
Amortization of development costs | 33,935 | 33,322 | 101,613 | 99,967 |
Amortization of acquired publishing content | 17,667 | 17,667 | 53,002 | 53,002 |
Amortization of software development costs | 10,349 | 10,349 | 31,046 | 31,046 |
Amortization of deferred stock-based compensation | 8,333 | 1,250 | 25,000 | 3,542 |
Changes in non-cash working capital items: | ||||
Accounts receivable | 46,600 | (224,526) | (22,973) | (348,596) |
Loan receivable | - | - | 1,500 | 15,568 |
Prepaid expenses and other | (26,295) | 2,030 | (37,782) | 15,947 |
Inventory on hand | - | 3,368 | 4,054 | (23,327) |
Work in progress | - | - | - | 100,380 |
Accounts payable | 23,036 | 84,735 | 81,937 | 53,151 |
Accrued liabilities | 967 | 18,750 | (13,123) | (1,250) |
62,881 | (72,237) | (6,628) | (77,205) |
FINANCING ACTIVITIES | ||||
Issuance of capital stock | 7,150 | - | 22,150 | 349,000 |
Share issue costs | (35,000) | - | (35,000) | - |
Increase (decrease) in long-term debt | 35,037 | 39,213 | 67,339 | (333,673) |
Proceeds of sale of shares of subsidiary | - | 33,938 | - | 101,438 |
7,187 | 73,151 | 54,489 | 116,765 |
INVESTING ACTIVITIES | ||||
Purchase of capital assets | - | 49 | (1,000) | (1,658) |
Development costs | (11,718) | (3,525) | (56,854) | (10,313) |
(11,718) | (3,476) | (57,854) | (11,971) |
Net change in Cash | 58,350 | (2,562) | (9,993) | 27,589 |
Cash – Beginning of period | 11,529 | 37,624 | 79,871 | 7,473 |
Cash – End of period | $ 69,878 | $ 35,062 | $ 69,878 | $ 35,062 |
See accompanying notes to consolidated interim financial statements.
LINGO MEDIA INC.
Notes to Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
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 September 30, 2003 and the results of operations and cash flows for the nine months ended September 30, 2003 and 2002.
2.
Accounts Receivable
The components of account receivables at the following dates are as follows:
September 2003 | December 2002 |
Trade Receivables | $ 458,610 | $ 547,379 |
Grant Receivable | 165,742 | 54,000 |
$ 624,352 | $ 601,379 |
3.
Long-term debt:
September 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 | - | 12,675 |
Shareholder loan, bearing interest at 12% per annum and due on demand | 82,243 | 93,599 |
Loan from a corporation controlled by a director, bearing interest at 12% per annum and due on demand | 91,370 | - |
173,613 | 106,274 | |
Less current portion | 173,613 | 106,274 |
$ - | $ - |
4.
Capital Stock:
Common shares | ||
Number | Amount |
Balance, December 31, 2002: | $ 20,733,827 | $ 3,113,949 |
Warrants exercised (i) | 150,000 | 15,000 |
Warrants exercised (ii) | 18,750 | 2,250 |
Stock option exercised | 49,000 | 4,900 |
Share issue costs | - | (35,000) |
Balance, September 30, 2003 | $ 20,951,577 | $ 3,101,099 |
(i)
During March 2003, 150,000 Class D Warrants were exercised for $0.10 each, by a director of the Company.
(ii)
In September 2003, 18,750 Class D Warrants were exercised for $0.12 each, by a director of the Company.
5.
Stock Options:
On September 30, 2003, the Company had issued 2,274,340 (September 30, 2002 – 2,020,000) options to purchase the common shares of the Company.
6.
Segment information:
The Company operates as an international business and has no distinct reportable business segments.
The Company is developing books, audio cassettes, 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:
September 2003 | September 2002 |
Canada | $ 24,423 | $ 383,377 |
China | 686,077 | 648,945 |
$ 710,500 | $ 1,032,322 |
Substantially all of the Company’s identifiable assets as at September 30, 2003 and December 31, 2002 were located in Canada.
7.
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:
Loss for the Period | September 30, 2003 | September 30, 2002 |
Loss for the period, based on Canadian GAAP | $ (237,735) | $ 17,106 |
Development costs | - | (10,313) |
Amortization of development costs | 101,163 | 99,967 |
Amortization of software development costs | 31,046 | 31,046 |
Compensation expense | - | (58,767) |
Share issue costs | (35,630) | - |
Earnings (loss) for the period – U.S. GAAP | $ (140,706) | $ 79,039 |
The cumulative effect of these adjustments on the consolidated shareholders' equity of the Company is as follows:
Shareholders Equity | September 2003 | December 2002 |
Shareholders’ equity based on Canadian GAAP | $ 1,401,712 | $ 1,627,297 |
Development costs (a) | (615,813) | (717,328) |
Software development costs (b) | (41,394) | (72,440) |
Share issue costs (d) | (69,606) | (63,058) |
Compensation expense (c) | (243,250) | (243,250) |
Shareholders’ equity – United States GAAP | $ 431,645 | $ 531,221 |
Under United States GAAP, the amounts shown on the consolidated balance sheets for development costs and software development costs would be $67,167 (2002:nil) and nil (2002:nil) for September 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 and thereafter, the Company records expense under US GAAP but recognized no expenses under Canadian GAAP.
(d)
Share issue costs:
During 2002 and first nine months of 2003, the Company incurred these costs to file a registration statement with the US Securities and Exchange Commission in order to interlist for trading in the United States. In accordance with the US GAAP these costs are expensed as incurred.
LINGO MEDIA INC.
SCHEDULE A:
Please see the interim financial statements filed on SEDAR.
SCHEDULE B:
1 - General and Administrative Expenses
Advertising and promotion | $ 4,950 |
Management fees | 108,551 |
Salaries and benefits | 236,469 |
Office and general | 110,764 |
Travel | 22,220 |
Rent | 33,063 |
Equipment leases | 2,610 |
Foreign exchange | 59,150 |
Professional fees | 49,106 |
Shareholder services | 16,932 |
Grants | (165,742) |
Total | 478,073 |
2. - Related Party Transactions
During the three months period ended September 2003, a director of Lingo Media Inc. (the Company”) made an advance of $35,000 to the Company to support Company’s short-term cash flow requirements. The shareholder loans bear interest at 12% per annum. Interest expense related to the shareholder loans for the three month period was $4,643.
3 - Summary of Securities Issued and Options Granted during the Period.
Common Share
Date of Issue | Number Issued | Exercise Price | Total Value |
Warrants exercised | September 30, 2003 | 18,750 | $ 0.12 | $ 2,250 |
Stock options exercised | September 30, 2003 | 49,000 | $ 0.10 | $ 4,900 |
Stock Options
Optionee | Date of Issue | Number Issued | Exercise Price | Expiry Date |
Employee | Sept 15, 2003 | 25,000 | $0.14 | Sept 15, 2008 |
4 - Summary of Securities at the end of the Period
Common Shares outstanding as at September 30, 2003
20,951,577
Options to purchase Common Shares outstanding
2,274,340
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 was changed from November 23, 2002
to November 23, 2003))
Class D Warrants outstanding
2,606,250
(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 changed to $0.12))
5 - Directors and Officers as of the date of this Report is signed and filed.
Michael P. Kraft | Director, President & 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 statement for the nine months ended September 30, 2003 and the accompanying notes, and annual audited financial statements for the fiscal year ended December 31, 2002 and the accompanying notes.
Revenue
Revenue for the first nine months of 2003 was $710,500 compared to $1,032,322 for the same period for 2002, a 31% decrease. The decline in revenue was a result of lower sales in Canada and decline in US dollars currency rates as compared to Canadian currency. 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 language learning materials. Revenue from China, which is payable in US currency, increased by 5.72% as compared to last year but due to the decline in the US dollar the percentage increase in the Chinese revenue is lower..
Cost of Sales and Margin
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 nine months ended September 2003 were $100,818 as compared to $386,523 for the same period last year.
The gross margin for nine months ended September 2003 was $609,682 as compared to $645,799 for the same period last year. In the first nine months of 2003, the Company’s gross margins percentage increased to 86% as compared to 63% 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 finished product sales in Canada and royalty sales in China, compared to revenue for 2003, which was generated primarily from royalty sales in China.
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 $478,073 for the first nine months of 2003, an increase of $59,633 over the same period for 2002 of $418,440. This increase is mainly due to a foreign exchange loss of $59,150 sustained by the Company due to the decrease in US dollar as compared to Canadian dollars.
Amortization
Amortization for nine months ended September 2003 decreased by $10 over the same period last year to $191,712 from $191,722.
Stock-Based Compensation
The amortization for the stock-based compensation was $25,000 for the nine months ended September 2003 as compared to $3,542 for the same period last year, an increase $21,458. This increase is attributable 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 $129,244 for the nine months ended September 2003 as compared to $225,218 for the same period last year, a 43% decrease due to decrease in revenue, foreign exchange losses and increased consulting fees.
Net Income (Loss)
The Company reported a loss before extraordinary items and taxes of $(137,535) for the first nine months of 2003 as compared to a gain of $9,765 for the same period last year. Income taxes for the first nine months ended September 2003 amounted to $100,200, compared to a gain on issue of shares of subsidiary and income taxes amounted to $101,438 and $94,097 respectively for the same period last year. The Company reported no extra-ordinary items for the first nine months of 2003. The Company reported a net loss of $(237,735) for the nine months ended September 2003 as compared to a net income of $17,106 after extra-ordinary items and income taxes for the same period last year.
During the first nine months of 2003, the Company’s operating activates used cash of $6,628 as compared to cash used in operating activities of $77,205 in the same period last year.
Liquidity and Capital Resources
As of September 30, 2003, the Company had cash of $69,878 and accounts receivables of $624,352. The Company’s current assets amounted to $865,135 with current liabilities of $439,621 resulting in a working capital surplus of $425,517.
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
December 8, 2003