Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
LINGO MEDIA INC.
March 31, 2007 and 2006
(Unaudited)
The Consolidated Interim Balance Sheet of Lingo Media Inc. as at March 31, 2007 and the Consolidated Interim Statements of Operations, Deficits and Cash Flows for the three months then ended have not been reviewed by the Company’s auditors. These financial statements are the responsibility of the management and have been reviewed and approved by the Company’s Audit Committee.
LINGO MEDIA INC.
March 31, 2007 and 2006
(Expressed in Canadian dollars)
(Unaudited)
CONTENTS
| |
| Page |
| |
Consolidated Interim Balance Sheets | 3 |
| |
Consolidated Interim Statements of Deficit | 4 |
| |
Consolidated Interim Statements of Operations | 5 |
| |
Consolidated Interim Statements of Cash Flows | 6 |
| |
Notes to Consolidated Interim Financial Statements | 7 |
2
LINGO MEDIA INC.
Consolidated Interim Balance Sheets
(Expressed in Canadian dollars)
(Unaudited)
| | |
| March 31 2007 | December 31 2007 |
| | |
Assets | | |
| | |
Current assets: | | |
Cash | $ - | $ 73,169 |
Short term investment | 150,000 | 150,000 |
Accounts and grants receivable (note 2) | 251,805 | 304,924 |
Inventory | 172,631 | 154,276 |
Prepaid and sundry assets | 185,781 | 130,573 |
| 949,750 | 812,942 |
| | |
Investment and advances (note 3) | 182,520 | 182,520 |
Deferred costs (note 3) | 157,419 | 157,419 |
Property and equipment, net | 73,348 | 77,304 |
Development costs, net | 350,037 | 343,308 |
Future Income Taxes | 189,534 | 189,534 |
Goodwill | 1,121,131 | 1,121,131 |
| $ 2,834,205 | $ 2,884,158 |
| | |
Liabilities and Shareholders' Equity | | |
| | |
Current liabilities: | | |
Bank Indebtness | $ 16,701 | $ - |
Bank loans (note 4) | 485,000 | 485,000 |
Accounts payable | 579,598 | 526,491 |
Accrued liabilities | 91,329 | 148,578 |
Unearned revenue | 177,778 | - |
| 1,350,553 | 1,160,069 |
| | |
Loans payable (note 5) | 347,541 | 347,541 |
| | |
Shareholders' equity: | | |
Capital stock (note 6(a)) | 5,033,656 | 5,028,656 |
Contributed surplus | 342,447 | 325,293 |
Deficit | (4,287,075) | (3,977,401) |
| 1,089,028 | 1,376,548 |
| | |
Commitments | | |
| $ 2,834,205 | $ 2,884,158 |
See accompanying notes to consolidated interim financial statements.
Approved on behalf of the Board:
3
LINGO MEDIA INC.
Consolidated Interim Statements of Deficit
(Expressed in Canadian dollars)
(Unaudited)
| | |
For the three months ended March 31 | 2007 | 2006 |
| | |
Deficit, beginning of period | $ (3,977,402) | $ (3,228,477) |
| | |
Net loss for the period | (309,674) | (309,640) |
| | |
Deficit, end of period | $ (4,287,075) | $ (3,538,117) |
See accompanying notes to consolidated interim financial statements.
4
LINGO MEDIA INC.
Consolidated Interim Statements of Operations
(Expressed in Canadian dollars)
(Unaudited)
| | |
For the three months ended March 31 | 2007 | 2006 |
Revenue | $ 667,533 | $ 2,397 |
Direct costs | 139,573 | 1,235 |
Margin | 527,960 | 1,162 |
Expenses: | | |
General and administrative | 770,319 | 178,927 |
Amortization | 20,718 | 66,268 |
Interest and other financial expenses | 29,442 | 3,282 |
Stock-based compensation | 17,154 | 62,325 |
| | |
| 837,633 | 310,802 |
| | |
Loss before income taxes and other taxes | (309,674) | (309,640) |
| | |
Income taxes and other taxes | - | - |
| | |
Net loss for the period | (309,674) | (309,640) |
| | |
Loss per share | $ (0.01) | $ (0.01) |
| | |
| | |
Weighted average number of | | |
common shares outstanding | 29,590,941 | 26,070,589 |
| | |
See accompanying notes to consolidated interim financial statements.
5
LINGO MEDIA INC.
Consolidated Interim Statements of Cash Flows
(Expressed in Canadian dollars)
(Unaudited)
| | |
For the three months ended March 31 | 2007 | 2006 |
| | |
Cash flows provided by (used in): | | |
Operations: | | |
Net loss for the period | $ (309,674) | $ (309,640) |
Items not affecting cash: | | |
Amortization of property and equipment | 4,120 | 2,401 |
Amortization of development costs | 16,598 | 46,199 |
Amortization of acquired publishing content | - | 17,668 |
Stock-based compensation | 17,154 | 62,325 |
Change in non-cash balances related to operations: | | |
Accounts and grants receivable | 52,955 | (45,208) |
Inventory | (18,355) | 640 |
Prepaid and sundry assets | (55,208) | 10,469 |
Accounts payable | 53,107 | 83,056 |
Accrued liabilities | (84,733) | (22,653) |
Unearned revenue | 177,778 | 123,000 |
Cash used by operating activities | (118,773) | (31,743) |
| | |
Financing: | | |
Increase in bank loans | - | 20,000 |
Increase (decrease) in loans payable | 47,230 | (48,937) |
Issuance of capital stock | 5,000 | 2,945 |
Cash provided by financing activities | 52,230 | (25,992) |
| | |
Investing: | | |
Purchase of property and equipment | - | (1,707) |
Deferred costs | - | (15,620) |
Development costs | (23,327) | (54,496) |
Cash used in investing activities | (23,327) | (71,823) |
| | |
Increase / (decrease) in cash | (89,870) | (129,558) |
Cash, beginning of period | 73,169 | 144,337 |
(Bank indebtness) cash, end of period | $ (16,701) | $ 14,779 |
6
Lingo Media Inc. (the "Company or Lingo Media") develops, publishes and licenses book, audio/video cassette, CD-based product and supplemental product for English language learning for the educational school markets in China. In addition, through its subsidiary, A+ Child Development (Canada) Ltd., the Company specializes in early childhood cognitive development programs, through the publishing and distribution of educational materials along with its proprietary curriculum through its four offices in Calgary, Edmonton, Vancouver and Toronto.
1. Significant accounting policies:
(a)
Basis of presentation:
The disclosures contained in these unaudited interim consolidated financial statements do not include all the requirements of generally accepted accounting principles (GAAP) for annual financial statements. The unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2007.
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, 2007 and the results of operations and cash flows for the three months ended March 31, 2007 and 2006.
2. Accounts and grants receivable:
Accounts and grants receivable consist of:
| | |
| March 31, 2007 | December 31, 2006 |
Trade receivables | $ 214,104 | $ 285,141 |
Grants receivable (note 12) | 37,701 | 19,783 |
| $ 251,805 | $ 304,924 |
3. Deferred costs, investment and advances:
In June 2005, the Company signed a definitive Joint Venture Agreement (“JV Agreement”) with Sanlong Cultural Communication Co. Ltd. (“Sanlong”). The joint venture company will be known as Hebei Jintu Education Book Co. Ltd. (“Jintu”). Jintu will continue Sanlong’s recently launched direct-to-consumer business of distributing educational newspapers and product extensions located in Shijiazhuang, Hebei Province, China. Under the JV Agreement, Lingo Media will invest approximately $365,000 (¥2,550,000 RMB) for its 51% share of Jintu. The closing is subject to government approval in China.
Pursuant to the June 2005 agreement, as at March 31, 2007 the Company advanced funds for working capital to Sanlong through a trust of $182,520, included in investment and advances, with a view to establishing Jintu and incurred $157,419 in expenditures, included in deferred costs, related to pre-operating costs. Upon commencement of the joint venture, the investment and advances will be converted into Lingo Media’s share of registered capital of the joint venture and these advances and investment is non refundable.
4. Bank loans:
| | | |
| | March 31 2007 | December 31 2006 |
Line of credit of $150,000 bearing interest at prime plus 2.5% per annum, due on demand and secured by the Company’s accounts receivable from customers in China, which in turn are secured by the Export Development Corporation. | | $ 125,000 | $ 135,000 |
Operating loan of $500,000 bearing interest at prime plus 2% per annum and secured by a charge on all assets including inventory and accounts receivables. | |
360,000 |
350,000 |
| | $ 485,000 | $ 485,000 |
The terms of the operating loan require that certain measurable covenants be met. As at March 31, 2007, the Company was in violation of certain covenants. As the operating loan is currently presented as a current liability no additional adjustment is required.
5. Loans payable:
Loans payable consists of the following:
| | |
| March 31 | December 31 |
| 2007 | 2006 |
| | |
Loan payable, due to a shareholder, is interest bearing | | |
at 12% per annum and is due on August 31, 2008 | $ 51,306 | $ 7,541 |
| | |
Loan payable, due to a non-related party, is interest | | |
bearing at 12% per annum payable monthly and is | | |
secured by a general security agreement and is due on | | |
August 31, 2008 | 343,465 | 340,000 |
| 394,771 | 347,541 |
| | |
Less: Current portion | - | (101,929) |
| | |
| $ 394,771 | $ 347,541 |
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6. Capital stock:
(a)
Issued
| | |
| Common Shares |
| Number | Amount |
Balance, January 1, 2007 | 32,578,170 | $ 5,028,656 |
Issued: | | |
Option exercised | 50,000 | 5,000 |
Balance, March 31, 2007 | 32,628,170 | $ 5,033,656 |
(b)
Options
| | |
| Weighted | |
| Number of | Average |
| Options | Exercise Price |
| | |
Outstanding, January 1, 2007 | 1,929,437 | $ 0.19 |
Exercised | (50,000) | 0.10 |
Issued | 1,650,000 | 0.10 |
| | |
Outstanding, March 31, 2007 | 3,529,437 | $ 0.15 |
| | |
Options exercisable, March 31, 2007 | 2,128,933 | $ 0.18 |
7. Government grants:
Included as a reduction of general and administrative expenses are government grants of $28,750 (2006 – $35,392), relating to the Company's publishing projects in China and Canada.
Certain government grants are repayable in the event that the Company's annual net income for each of the previous two years exceeds 15% of revenue. During the year, the conditions for the repayment of grants did not arise and no liability was recorded.
8
8. Segmented information:
The Company operates two distinct reportable business segments as follows:
English Language Learning: The Company develops, publishes, distributes and licenses book, audio/video cassette, CD-based product and supplemental product for English language learning for the educational school markets in China and in Canada.
Early Childhood Development: The Company specializes in early childhood cognitive development programs, through the publishing and distribution of educational materials along with its unique curriculum through its four offices in Calgary, Edmonton, Vancouver and Toronto.
| | | |
| English Language Learning | Early Childhood Development |
Total |
Revenue | $ 587 | $ 666,946 | $ 667,533 |
Cost of Sales | 235 | 139,338 | 139,573 |
Margin | $ 352 | $ 527,608 | $ 527,960 |
The Company's revenue by geographic region based on the region in which the customers are located is as follows:
| | |
| March 31, 2007 | December 31, 2006 |
| | |
Canada | $ 667,533 | $ 2,397 |
China | - | - |
| | |
| $ 667,533 | $ 2,397 |
The majority of the Company’s identifiable assets are located as follows:
| | |
| March 31, 2007 | December 31, 2006 |
| | |
Canada | $ 2,634,984 | $ 2,768,399 |
| | |
China | 182,520 | 182,520 |
| | |
| $ 2,817,504 | $ 2,950,919 |
9. Reconciliation of Canadian and United States generally accepted accounting principles ("GAAP"):
These consolidated interim 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 the United States generally accepted accounting principles.
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 31 | March 31 |
| 2007 | 2006 |
| | |
Loss for the period - Canadian GAAP | $(309,674) | $(309,640) |
Impact of United States GAAP and | | |
adjustments: | | |
Amortization of development costs (a) | 16,598 | 26,310 |
Deferred costs (d) | - | (15,620) |
Loss for the period - United States GAAP | $(293,076) | $(298,950) |
The cumulative effect of these adjustments on the consolidated shareholders' equity of the Company is as follows:
| | |
| March 31 | March 31 |
| 2007 | 2006 |
Shareholders' equity - Canadian GAAP | $1,089,028 | $1,376,548 |
Development costs | (121,005) | (121,005) |
Compensation expense | (243,250) | (243,250) |
Deferred costs | (157,419) | (157,419) |
Shareholders' equity - United States GAAP | $567,354 | $963,774 |
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