Exhibit 1
Interim Consolidated Financial Statements
(Expressed in Canadian dollars)
LINGO MEDIA CORPORATION
March 31, 2008 and 2007
The Consolidated Interim Balance Sheet of Lingo Media Corporation as at March 31, 2008 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.
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LINGO MEDIA CORPORATION
Interim Consolidated Financial Statements
(Expressed in Canadian dollars)
March 31, 2008 and 2007
CONTENTS
Page | |
Consolidated Interim Financial Statements: | |
Consolidated Interim Balance Sheets | 3 |
Consolidated Interim Statements of Deficit | 4 |
Consolidated Interim Statements of Operations | 4 |
Consolidated Interim Statements of Cash Flows | 5 |
Notes to Consolidated Interim Financial Statements | 6 to 11 |
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LINGO MEDIA CORPORATION
Interim Consolidated Financial Statements
(Expressed in Canadian dollars)
March 31, 2008
March 31, 2008 | December 31, 2007 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 171,475 | $ | 343,338 | ||||
Short term investment | 150,000 | 150,000 | ||||||
Accounts and grants receivable (note 2) | 697,017 | 996,469 | ||||||
Inventory | 125,702 | 121,323 | ||||||
Prepaid and sundry assets | 123,548 | 131,869 | ||||||
1,267,742 | 1,742,999 | |||||||
Investment and advances | 182,520 | 182,520 | ||||||
Deferred costs | 157,419 | 157,419 | ||||||
Property and equipment, net | 87,784 | 89,325 | ||||||
Development costs, net | 244,931 | 267,910 | ||||||
Software & web development costs, net (note 3) | 4,600,286 | 4,326,246 | ||||||
Goodwill | 1,121,131 | 1,121,131 | ||||||
$ | 7,661,813 | $ | 7,887,550 | |||||
Liabilities and Shareholders' Equity Current liabilities: | ||||||||
Bank loans (note 4) | $ | 190,000 | $ | 230,000 | ||||
Accounts payable | 764,726 | 822,818 | ||||||
Accrued liabilities | 303,898 | 227,206 | ||||||
Current portion of loans payable (note 5) | 226,696 | 228,674 | ||||||
Unearned revenue | 159,755 | - | ||||||
1,645,075 | 1,508,698 | |||||||
Loans payable (note 5) | 203,031 | 203,031 | ||||||
Future income taxes | 337,749 | 290,145 | ||||||
540,780 | 493,176 | |||||||
Shareholders' equity: | ||||||||
Capital stock (note 7 (a)) | 10,338,725 | 10,335,707 | ||||||
Contributed surplus | 493,227 | 452,411 | ||||||
Deficit | (5,355,994 | ) | (4,902,442 | ) | ||||
5,475,958 | 5,885,676 | |||||||
$ | 7,661,813 | $ | 7,887,550 |
See accompanying notes to interim consolidated financial statements.
Approved on behalf of the Board:
signed “Michael Kraft”
Director
signed “Sanjay Joshi”
Director
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LINGO MEDIA CORPORATION
Interim Consolidated Financial Statements
(Expressed in Canadian dollars)
March 31, 2008 and 2007
March 31, 2008 | March 31, 2007 | |||||||
Deficit, beginning of period | $ | (4,902,442 | ) | $ | (3,228,477 | ) | ||
Net loss for the period | (453,552 | ) | (309,640 | ) | ||||
Deficit, end of period | (5,355,994 | ) | (3,538,117 | ) |
See accompanying notes to interim consolidated financial statements.
March 31, 2008 | March 31, 2007 | |||||||
Revenue | $ | 671,793 | $ | 667,533 | ||||
Direct costs | 134,737 | 139,277 | ||||||
Margin | 537,056 | 528,256 | ||||||
Expenses: | ||||||||
General and administrative | 882,537 | 770,319 | ||||||
Amortization of property and equipment | 33,359 | 20,718 | ||||||
Interest and other financial expenses | 30,880 | 29,442 | ||||||
Stock-based compensation | 43,833 | 17,154 | ||||||
990,608 | 837,633 | |||||||
Loss before income taxes and other taxes | (453,552 | ) | (309,377 | ) | ||||
Income taxes and other taxes | - | - | ||||||
Net loss for the period | $ | (453,552 | ) | (309,377 | ) | |||
Loss per share | $ | (0.05 | ) | $ | (0.07 | ) | ||
Weighted average number of | ||||||||
common shares outstanding | 9,583,637 | 4,227,277 |
See accompanying notes to interim consolidated financial statements.
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LINGO MEDIA CORPORATION
Interim Consolidated Financial Statements
(Expressed in Canadian dollars)
March 31, 2008 and 2007
March 31, 2008 | March 31, 2007 | |||||||
Cash flows provided by (used in): | ||||||||
Operations: | ||||||||
Net loss for the period | $ | (453,55 | ) | $ | (309,674 | ) | ||
Items not affecting cash: | ||||||||
Amortization of property and equipment | 9,427 | 4,120 | ||||||
Amortization of development costs | 23,932 | 16,598 | ||||||
Stock-based compensation | 43,833 | 17,154 | ||||||
Foreign exchange gain/(loss) | 34,207 | - | ||||||
Change in non-cash balances related to operations: | ||||||||
Accounts and grants receivable | 299,452 | 53,119 | ||||||
Inventory | (4,379 | ) | (18,355 | ) | ||||
Prepaid and sundry assets | 8,321 | (55,208 | ) | |||||
Accounts payable | (58,092 | ) | 52,944 | |||||
Accrued liabilities | 76,692 | (57,249 | ) | |||||
Unearned revenue | 159,755 | 177,778 | ||||||
Cash provided by (used in) operating activities | 139,597 | (118,773 | ) | |||||
Financing: | ||||||||
Increase in bank loans | (40,000 | ) | - | |||||
Advances of loans payable | - | 47,230 | ||||||
Current portion of long term loan | (1,978 | ) | - | |||||
Issuance of capital stock | 3,017 | 5,000 | ||||||
Cash provided by financing activities | (38,961 | ) | 52,230 | |||||
Investing: | ||||||||
Expenditures on software & web development costs | (274,039 | ) | - | |||||
Purchase of property and equipment | 1,540 | - | ||||||
Development costs | - | (23,327 | ) | |||||
Cash used in investing activities | (272,499 | ) | (23,327 | ) | ||||
Increase / (decrease) in cash | (171,863 | ) | (89,870 | ) | ||||
Cash, beginning of period | 343,338 | 73,169 | ||||||
Cash, end of period | $ | 171,475 | $ | (16,701 | ) |
See accompanying notes to interim consolidated financial statements.
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LINGO MEDIA CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
March 31, 2008 and 2007
Lingo Media Corporation is a diversified print and online education product and services corporation. Speak2Me Inc. (“Speak2Me”), a new subsidiary acquired during the year, is a new media company focused on interactive advertising in China through its Internet-based English Language web Learning portal. In China, Lingo Media is a print-based publisher of English language learning programs through its subsidiary Lingo Learning Inc. (formerly Lingo Media Ltd.) In Canada, Lingo Media through its subsidiary A+ Child Development (Canada) Ltd., specializes in early childhood cognitive development programs which publishes and distributes educational materials along with its proprietary curriculum through its four offices in Calgary, Edmonton, Vancouver and Toronto.
1. Significant accounting policies:
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, 2008 and the results of operations and cash flows for the three months ended March 31, 2008 and 2007.
2. Accounts and grants receivable:
Accounts and grants receivable consist of:
March 31, 2008 | December 31, 2007 | |||||||
Trade receivables | $ | 669,461 | $ | 740,332 | ||||
Cash advance | - | 241,059 | ||||||
Grants receivable | 27,556 | 15,078 | ||||||
$ | 697,017 | $ | 996,469 |
3. Software and web development costs:
In October 2007, the Company acquired Speak2Me Inc. (“Speak2Me”), a new media company that has developed software combining speech recognition and animation technology for the teaching and practice of spoken English. All costs associated with development of the Speak2Me software and its contents are capitalized as Software and web development:
March 31, 2008 | December 31, 2007 | |||||||
Cost | $ | 4,600,286 | $ | 4,326,246 |
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LINGO MEDIA CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
March 31, 2008 and 2007
4. Bank loans:
March 31, 2008 | December 31, 2007 | |||||||
Revolving line of credit of $500,000 bearing interest at prime plus 4.0% per annum and secured by a $150,000 GIC, bearing interest at 3.5% maturing on December 10, 2008, and a charge on all assets including inventory and accounts receivables. | 190,000 | 230,000 | ||||||
$ | 190,000 | $ | 230,000 |
The terms of the $190,000 revolving line of credit require that certain measurable covenants be met. As at March 31, 2008, the Company was in violation of certain covenants. As the lines of credit are currently presented as a current liability no additional adjustment is required.
5. Loans payable:
Loans payable consists of the following:
March 31, 2008 | December 31, 2007 | |||||||
Loan payable, due to a non-related party, interest bearing at 12% per annum payable monthly, unsecured and due on demand. | $ | 226,696 | $ | 228,674 | ||||
Loan payable, due to a non-related party, interest bearing at 12% per annum with monthly interest payments, secured by a general security agreement and due on April 30, 2009. | 203,031 | 203,031 | ||||||
429,727 | 431,705 | |||||||
Less: Current portion | 226,696 | 228,674 | ||||||
$ | 203,031 | $ | 203,031 |
6. Capital stock and stock options:
(a) Authorized:
Unlimited preference shares, no par value
Unlimited common shares, no par value
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LINGO MEDIA CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
March 31, 2008 and 2007
The following details the changes in issued and outstanding common shares:
Common Shares | ||||||||
Number | Amount | |||||||
Balance, January 1, 2007 | 32,578,170 | $ | 5,028,656 | |||||
Issued: | ||||||||
Options exercised | 282,600 | 59,450 | ||||||
32,860,770 | $ | 5,088,106 | ||||||
Share Consolidation (1 new for 7 old) | 4,694,396 | 5,088,106 | ||||||
Issued: | ||||||||
Private Placement (iv) | 387,500 | 775,000 | ||||||
Common shares issued for the acquisition of Speak2Me Inc. | 4,500,366 | 9,000,732 | ||||||
Less: Share issue costs | - | (63,750 | ) | |||||
Balance, December 31, 2007 | 9,582,262 | $ | 10,335,707 | |||||
Issued: | ||||||||
Options exercised | 4,762 | 3,017 | ||||||
Balance, March 31, 2008 | 9,587,024 | $ | 10,338,725 |
In 2006, the Company issued 3 million common shares (the "Performance Shares") to management of A+ Child Development (Canada) Ltd. ("A+"). These Performance Shares are held in trust by the Company and are to be released in equal installments of 1 million Performance Shares to management of A+ upon achieving certain financial milestones over a 3-year period. Management of A+ did not achieve the first set of milestones for the year-ended December 31, 2007 and as a result 1 million of the Performance Shares will be cancelled and returned to treasury.
(b) Stock options
2008 | 2007 | |||||||||||||||
Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price | |||||||||||||
Options outstanding, beginning of year | 516,738 | $ | 0.98 | 275,634 | $ | 1.33 | ||||||||||
Options granted | 375,000 | 1.24 | 300,000 | 0.68 | ||||||||||||
Options exercised | (4,762 | ) | 0.70 | 40,372 | 0.84 | |||||||||||
Options expired/canceled | (595 | ) | 0.70 | (68,524 | ) | - | ||||||||||
Outstanding, March 31, 2008 | 886,381 | 0.98 | 516,738 | 0.98 | ||||||||||||
Options exercisable, March 31, 2008 | 886,381 | $ | 0.98 | 338,509 | $ | 1.10 |
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LINGO MEDIA CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
March 31, 2008 and 2007
The following table summarizes information about stock options outstanding at March 31, 2008:
Options outstanding | Options exercisable | |||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||
Range | average | average | average | |||||||||||||||||||
of exercise | Number | remaining | exercise | Number | exercise | |||||||||||||||||
prices | outstanding | contractual life | price | outstanding | price | |||||||||||||||||
$ | 0.70 - $1.00 | 397,011 | 4.40 | $ | 0.74 | 138,545 | $ | 0.74 | ||||||||||||||
$ | 1.01 - $1.33 | 138,656 | 1.98 | 1.30 | 138,656 | 1.30 | ||||||||||||||||
$ | 1.34 - $2.00 | 350,713 | 3.98 | 1.17 | 60,713 | 1.46 | ||||||||||||||||
Total | 886,380 | 3.86 | 1.00 | 337,914 | 1.11 |
7. Financial instruments and risk management:
The Company as part of its operations carries a number of financial instruments. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments except as otherwise disclosed.
(a) Currency risk:
The Company is subject to currency risk through its activities outside of Canada. Unfavourable changes in the exchange rate may affect the operating results of the Company. The Company is also exposed to currency risk as a substantial amount of its revenue is denominated in U.S. dollars and Chinese Renminbi ("RMB").
There were no derivative instruments outstanding at March 31, 2008 and 2007.
(b) Financial Instruments:
The significant financial instruments of the Company, their carrying values and the exposure to U.S. dollar denominated monetary assets and liabilities, as of March 31, 2008 are as follows:
US Denominated | Chinese Denominated | |||||||||||||||
CAD | USD | CAD | RMB | |||||||||||||
Cash | 57,432 | 55,949 | 87,236 | 627,413 | ||||||||||||
Accounts and grants receivable | 477,890 | 465,553 | 201,841 | 1,451,237 | ||||||||||||
Accounts payable | 39,575 | 38,553 | 87,332 | 627,917 |
US dollars and Chinese Renminbi are converted on the prevailing year-end exchange rates.
(c) Fair market values:
The carrying values of cash, short-term investment, accounts and grants receivable, accounts payable, accrued liabilities, bank loans and loans payable approximate their fair values due to the relatively short periods to maturity.
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LINGO MEDIA CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
March 31, 2008 and 2007
(d) Concentration of risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. Cash and short-term investment consist of deposits with major financial institutions. With respect to accounts receivable, the Company performs periodic credit evaluations of the financial condition of its customers and typically does not require collateral from them. Management assesses the need for allowances for potential credit losses by considering the credit risk of specific customers, historical trends and other information. The Jintu loan receivable (note 4) is secured by a personal guarantee from a non – related party.
(e) Interest rate risk:
The Company manages its exposure to interest rate risk through floating rate borrowings. The floating rate debt is subject to interest rate cash flow risk, as the required cash flows to service the debt will fluctuate as a result of changes in market rates.
8. Segmented information:
The Company operates two distinct reportable business segments as follows.
English Language Learning: The Company develops, publishes and licenses book, audio/video cassette, CD-based product and supplemental product for English language learning for the educational school market in China.
Early Childhood Development: 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.
March 31, 2008 | English Language Learning | Early Childhood Development | Total | |||||||||
Revenue | - | $ | 671,793 | $ | 671,793 | |||||||
Cost of sales | - | 134,737 | 134,737 | |||||||||
Margin | - | $ | 537,056 | $ | 537,056 |
March 31, 2007 | English Language Learning | Early Childhood Development | Total | |||||||||
Revenue | $ | 587 | $ | 666,946 | $ | 667,533 | ||||||
Cost of sales | 235 | 139,338 | 139,573 | |||||||||
Margin | $ | 352 | $ | 537,608 | $ | 527,960 |
The Company's revenue by geographic region based on the region in which the customers are located is as follows:
March 31, 2008 | March 31, 2007 | |||||||
Canada | $ | 671,793 | $ | 667,533 | ||||
China | - | - | ||||||
$ | 671,793 | $ | 667,533 |
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LINGO MEDIA CORPORATION
Notes to Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
March 31, 2008 and 2007
The majority of the Company’s identifiable assets as at March 31, 2008 are located as follows:
March 31, 2008 | March 31, 2007 | |||||||
Canada | $ | 2,879,007 | $ | 2,634,984 | ||||
China | 4,782,806 | 182,520 | ||||||
$ | 7,661,813 | $ | 2,817,504 |
9. 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 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, 2008 | March 31, 2007 | |||||||
Loss for the period - Canadian GAAP | $ | (481,108 | ) | $ | (309,674 | ) | ||
Impact of United States GAAP and adjustments: | ||||||||
Amortization of development costs | 23,932 | 16,598 | ||||||
Software and web development costs | (274,039 | ) | - | |||||
Loss for the period - United States GAAP | $ | (731,216 | ) | $ | (293,076 | ) |
The cumulative effect of these adjustments on the consolidated shareholders' equity of the Company is as follows:
March 31, 2008 | March 31, 2007 | |||||||
Shareholders' equity - Canadian GAAP | $ | 5,488,402 | $ | 1,089,028 | ||||
Development costs | (121,005 | ) | (121,005 | ) | ||||
Compensation expense | (287,083 | ) | (243,250 | ) | ||||
Deferred costs | (157,419 | ) | (157,419 | ) | ||||
Software & web development costs | (726,748 | ) | - | |||||
Shareholders' equity - United States GAAP | $ | 4,156,147 | $ | 567,354 |
10. Comparative figures:
Certain comparative figures have been reclassified to conform with the financial statement presentation adopted in the current period.
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