UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 6-K
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REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934
For the month of September 30, 2014
Commission File Number333-98397
Lingo Media Corporation
(Translation of registrant's name into English)
151 Bloor Street West, Suite 703, Toronto, Ontario Canada M5S 1S4
(Address of principal executive offices)
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 ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information contained 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 ☒
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-________________.
SIGNATURE
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 hereunder duly authorized.
| LINGO MEDIA CORPORATION |
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Date: November 28, 2014 | By: | /s/ Michael Kraft |
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| Michael Kraft President and CEO |
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LINGO MEDIA CORPORATION
Condensed Consolidated Interim Financial Statements
For the nine-month period ended September 30, 2014
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Financial Statements
As at September 30, 2014
Notice to Reader
Management has compiled the Condensed Consolidated Interim Financial Statements of Lingo Media Corporation (“Lingo Media” or the “Company”) consisting of the Balance Sheet as at September 30, 2014 and the Statements of Comprehensive Income, Changes in Equity and Cash Flows for the nine months then ended. All amounts are stated in Canadian Dollars. An accounting firm has not reviewed or audited these interim financial statements and management discussion and analysis thereon.
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Financial Statements
As at September 30, 2014
Contents | |
CondensedConsolidatedInterim Financial Statements | Page |
Balance Sheet | 4 |
Statements of Comprehensive Income | 5 |
Statements of Changes in Equity | 6 |
Statements of Cash Flows | 7 |
Notes to the Financial Statements | 8 - 19 |
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Balance Sheet
As at September 30, 2014
(Unaudited, expressed in Canadian Dollars, unless otherwise stated)
Notes | September 30, 2014 | December 31, 2013 | ||||||||||
ASSETS | ||||||||||||
Current Assets | ||||||||||||
Cash and cash equivalents | $ | 19,417 | $ | 78,091 | ||||||||
Accounts and grants receivable | 5 | 996,465 | 1,003,440 | |||||||||
Prepaid and other receivables | 66,526 | 84,620 | ||||||||||
| 1,082,408 | 1,166,151 | |||||||||||
Non-Current Assets | ||||||||||||
Property and equipment, net | 6 | 20,564 | 31,926 | |||||||||
Intangibles, net | 7 | 846,614 | 876,895 | |||||||||
Goodwill | 139,618 | 139,618 | ||||||||||
TOTAL ASSETS | $ | 2,089,204 | $ | 2,214,590 | ||||||||
LIABILITIES AND EQUITY | ||||||||||||
Current Liabilities | ||||||||||||
Accounts payable | $ | 216,387 | 282,315 | |||||||||
Accrued liabilities | 682,559 | 601,843 | ||||||||||
Loans payable | 8 | 823,833 | 819,545 | |||||||||
TOTAL LIABILITIES | 1,722,779 | 1,703,703 | ||||||||||
Equity | ||||||||||||
Share capital | 9 | 18,162,347 | 18,102,347 | |||||||||
Warrants | 11 | 1,132,685 | 1,132,685 | |||||||||
Share-based payment reserve | 2,544,945 | 2,512,717 | ||||||||||
Accumulated other comprehensive income | (390,556 | ) | (168,245 | ) | ||||||||
Deficit | (21,082,996 | ) | (21,068,617 | ) | ||||||||
TOTAL EQUITY | 366,425 | 510,887 | ||||||||||
TOTAL LIABILITIES AND EQUITY | $ | 2,089,204 | $ | 2,214,590 | ||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
These condensed consolidated interim financial statements are authorized for issuance by the Board of Directors on November 28, 2014.
/s/ Michael Kraft | /s/ Martin Bernholtz | |
Director | Director |
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Statement of Comprehensive Income
For the nine-months ended September 30, 2014 and 2013
(Unaudited, expressed in Canadian Dollars, unless otherwise stated)
Notes | For the three monthsended September 30 | For the nine monthsended September 30 | ||||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||||
Revenue | $ | 222,468 | $ | 130,139 | $ | 1,336,398 | $ | 983,511 | ||||||||||||
Expenses | ||||||||||||||||||||
Selling, general and administrative expenses | 205,626 | 219,791 | 690,166 | 849,729 | ||||||||||||||||
Share-based payment | 29,319 | 11,597 | 32,228 | 55,506 | ||||||||||||||||
Direct costs | 67,245 | 36,852 | 177,579 | 123,683 | ||||||||||||||||
Depreciation – property and equipment | 6 | 1,658 | 1,757 | 5,272 | 5,647 | |||||||||||||||
Amortization – intangibles | 7 | 154,377 | 116,652 | 429,539 | 313,621 | |||||||||||||||
Total Expenses | 458,225 | 386,649 | 1,334,784 | 1,348,186 | ||||||||||||||||
Profit / (Loss) from Operations | (235,757 | ) | (256,510 | ) | 1,614 | (364,675 | ) | |||||||||||||
Net Finance Charges | ||||||||||||||||||||
Interest expense | 43,619 | 56,646 | 136,975 | 179,948 | ||||||||||||||||
Foreign exchange (gain) / loss | (110,176 | ) | 25,629 | (261,819 | ) | (62,048 | ) | |||||||||||||
Profit / (Loss) before Tax | (169,200 | ) | (338,785 | ) | 126,458 | (482,575 | ) | |||||||||||||
Income and Other Tax Expense | 9,946 | 5,201 | 140,837 | 115,151 | ||||||||||||||||
Net Profit / (Loss) for the Period | (179,146 | ) | (343,986 | ) | (14,379 | ) | (597,726 | ) | ||||||||||||
OtherComprehensiveIncome | ||||||||||||||||||||
Exchange differences on translating foreign operations gain / (loss) | (76,513 | ) | 20,759 | (222,311 | ) | (17,371 | ) | |||||||||||||
Total Comprehensive Loss,Net ofTax | $ | (255,659 | ) | $ | (323,227 | ) | $ | (236,690 | ) | $ | (615,097 | ) | ||||||||
Loss perShare | ||||||||||||||||||||
Basic and Diluted | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.03 | ) | ||||||||
WeightedAverage Number ofCommonSharesOutstanding | ||||||||||||||||||||
Basic and Diluted | 21,925,844 | 21,192,510 | 21,815,341 | 20,920,635 | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Statement of Changes in Equity
For the nine-months ended September 30, 2014
(Unaudited, expressed in Canadian Dollars, unless otherwise stated)
Issued share capital | Share basedpaymentreserve | Warrants | Accumulated other comprehensive income | Deficit | Total equity | |||||||||||||||||||||||
Number of shares | Amount | |||||||||||||||||||||||||||
Balance as atJanuary 1, 2013 | 20,899,177 | $ | 18,014,347 | $ | 2,450,791 | $ | 1,132,685 | $ | (88,971 | ) | $ | (21,091,560 | ) | $ | 417,292 | |||||||||||||
Income / (loss) for the period | - | - | - | - | - | (597,726 | ) | (597,726 | ) | |||||||||||||||||||
Issued shares – against loans payable | 880,000 | 88,000 | - | - | - | - | 88,000 | |||||||||||||||||||||
Other comprehensive income / (loss) | - | - | - | - | (17,371 | ) | - | (17,371 | ) | |||||||||||||||||||
Share-based payments charged to operations | - | - | 55,506 | - | - | - | 55,506 | |||||||||||||||||||||
Balance as atSeptember 30, 2013 | 21,779,177 | 18,102,347 | 2,506,297 | 1,132,685 | (106,342 | ) | (21,689,286 | ) | (54,299 | ) | ||||||||||||||||||
Income / (loss) for the period | - | - | - | - | - | 620,669 | 620,669 | |||||||||||||||||||||
Other comprehensive income / (loss) | - | - | - | - | (61,903 | ) | - | (61,903 | ) | |||||||||||||||||||
Share-based payments charged to operations | - | - | 6,420 | - | - | - | 6,420 | |||||||||||||||||||||
Balance as atDecember 31, 2013 | 21,779,177 | 18,102,347 | 2,512,717 | 1,132,685 | (168,245 | ) | (21,068,617 | ) | 510,887 | |||||||||||||||||||
Income / (loss) for the period | - | - | - | - | - | (14,379 | ) | (14,379 | ) | |||||||||||||||||||
Issued shares – against loans payable | 600,000 | 60,000 | - | - | - | - | 60,000 | |||||||||||||||||||||
Other comprehensive income / (loss) | - | - | - | - | (222,311 | ) | - | (222,311 | ) | |||||||||||||||||||
Share-based payments charged to operations | - | - | 32,228 | - | - | - | 32,228 | |||||||||||||||||||||
Balance as atSeptember 30, 2014 | 22,379,177 | $ | 18,162,347 | $ | 2,544,945 | $ | 1,132,685 | $ | (390,556 | ) | $ | (21,082,996 | ) | $ | 366,425 | |||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Statement of Cash Flows
For the nine-months ended September 30, 2014
(Unaudited, expressed in Canadian Dollars, unless otherwise stated)
For the three months ended September 30 | For the nine months ended September 30 | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Income / (Loss) for the period | $ | (179,146 | ) | $ | (343,986 | ) | $ | (14,379 | ) | $ | (597,726 | ) | ||||
Adjustments to Net Profit for Non Cash Items: | ||||||||||||||||
Depreciation / amortization | 156,035 | 118,410 | 434,811 | 319,268 | ||||||||||||
Share-based payment | 29,319 | 11,597 | 32,228 | 55,506 | ||||||||||||
Interest accretion | 20,288 | 22,431 | 64,288 | 66,931 | ||||||||||||
Unrealized foreign exchange gain / (loss) | (80,215 | ) | 21,836 | (217,531 | ) | (18,177 | ) | |||||||||
Operating Loss before Working Capital Changes | (53,719 | ) | (169,712 | ) | (299,417 | ) | (174,198 | ) | ||||||||
Working Capital Adjustments: | ||||||||||||||||
(Increase)/decrease in accounts receivable | (101,131 | ) | (7,180 | ) | 6,975 | 653,473 | ||||||||||
(Increase)/decrease in prepaid and other receivables | 15,739 | 18,522 | 18,094 | 53,479 | ||||||||||||
Increase/(decrease) in accounts payable | 45,132 | 107,897 | (65,928 | ) | (63,280 | ) | ||||||||||
Increase/(decrease) in accrued liabilities | 119,369 | 46,812 | 80,716 | 187,904 | ||||||||||||
Cash Generated from / (used in) Operations | 25,390 | (3,661 | ) | 339,274 | 657,378 | |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
Purchase of intangibles | (150,510 | ) | (126,522 | ) | (394,671 | ) | (358,757 | ) | ||||||||
Purchase of property and equipment | - | - | (3,277 | ) | - | |||||||||||
Net Cash Flows Generated from / (used in) Investing Activities | (150,510 | ) | (126,522 | ) | (397,948 | ) | (358,757 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Share capital issued during the period | - | - | - | - | ||||||||||||
Share issue costs | - | - | - | - | ||||||||||||
Advances of loans payable | - | 50,000 | 60,000 | - | ||||||||||||
Repayment of loan payable | - | - | (60,000 | ) | (325,000 | ) | ||||||||||
Net Cash Flows Generated from / (used in) Financing Activities | - | 50,000 | - | (325,000 | ) | |||||||||||
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS | (125,120 | ) | (80,183 | ) | (58,674 | ) | (26,379 | ) | ||||||||
Cash and Cash Equivalents at the Beginning of the Period | 144,537 | 93,052 | 78,091 | 39,248 | ||||||||||||
Cash and Cash Equivalents at the End of the Period | $ | 19,417 | $ | 12,869 | $ | 19,417 | $ | 12,869 | ||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2014
(Unaudited - See Notice to Reader)
1. | CORPORATE INFORMATION |
Lingo Media Corporation (“Lingo Media” or the “Company”) is a publicly listed company incorporated in Canada with limited liability under the legislation of the Province of Ontario and its shares are listed on the TSX Venture Exchange and inter-listed on the OTC Bulletin Board. The condensed consolidated interim financial statements of the Company as at and for the quarter ended September 30, 2014 comprise the Company and its subsidiaries.
Lingo Media Corporation is an English as a Second Language (“ESL”) industry acquisition company in online and print-based education products and services. The Company is focused on English language learning (“ELL”) on an international scale through its four distinct business units: ELL Technologies Limited (“ELL Technologies”); ELL Technologies Ltd. (“ELL Canada”) Parlo Corporation (“Parlo”); Speak2Me Inc. (“Speak2Me”); and Lingo Learning Inc. (“Lingo Learning”). ELL Technologies is a globally-established ELL multi-media and online training company. Parlo is a fee-based online ELL training and assessment service. Speak2Me is a free-to-consumer advertising-based online ELL service in China. Lingo Learning is a print-based publisher of ELL programs.
The head office, principal address and registered and records office of the Company are located at 151 Bloor Street West, Suite 703, Toronto, Ontario, Canada, M5S 1S4.
2. | BASIS OF PREPARATION |
2.1 | Statement of compliance and going concern |
These condensed consolidated interim financial statements are unaudited and have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
These condensed consolidated interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business. The Company has a working capital deficiency as at September 30, 2014 and has incurred significant losses recurring over the years. This raises significant doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon raising additional financing through share issuance, borrowing, sales contracts and distribution agreements. There are no assurances that the Company will be successful in achieving these goals.
The condensed consolidated interim financial statements for the period ended September 30, 2014 (including comparatives) were approved and authorized for issue by the board of directors on November 28, 2014.
2.2 | Basis of measurement |
These condensed consolidated interim financial statements have been prepared on the historical cost basis. The comparative figures presented in these condensed consolidated interim financial statements are in accordance with IFRS.
2.3 | Basis of consolidation |
The condensed consolidated interim financial statements comprise the financial statements of the Company and the entities controlled by the Company (i.e. subsidiaries) as at September 30, 2014. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2014
(Unaudited - See Notice to Reader)
All intercompany balances, transactions, unrealized gains and losses resulting from inter-company transactions and dividends are eliminated in full.
2. | BASIS OF PREPARATION (Cont’d) |
2.4 | Functional and presentation currency |
The functional currency is the currency of the primary economic environment in which the entity operates and has been determined for each entity within the Company. These consolidated financial statements are presented in Canadian Dollars, which is the Company’s functional currency and presentation currency. The functional currency of Speak2Me is Chinese Renminbi (“RMB”) and the functional currency of its ELL Technologies subsidiary is the United States Dollar (“US$”).
The functional currency determinations were conducted through an analysis of the consideration factors identified in IAS 21, “The Effects of Changes in Foreign Exchange Rates”.
3. | SIGINFICANT ACCOUTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS |
The preparation of the Company’s condensed consolidated interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies, reported amounts of assets, liabilities and contingent liabilities, revenues and expenses at the date of the consolidated financial statements and during the reporting period.
Estimates and assumptions are continuously evaluated and are based on management’s historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.
Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:
● | Determination of functional and presentation currency |
● | Determination of the recoverability of the carrying value of intangible assets and goodwill |
● | Determination of impairment loss |
● | Recognition of deferred tax assets |
● | Valuation of share-based payments |
● | Recognition of provisions and contingent liabilities |
4. | SUMMARY OF SIGINFICANT ACCOUTING POLICIES |
The accounting policies applied by the Company in these condensed consolidated interim financial statements are the same as those applied by the Company in its consolidated financial statements for the year ended December 31, 2013.
5. | ACCOUNTS AND GRANTS RECEIVABLE |
Accounts and grants receivable consist of:
September 30,2014 | December 31, 2013 | |||||||
Trade receivable | $ | 859,915 | $ | 839,336 | ||||
Grants receivable | 136,550 | 164,104 | ||||||
| $ | 996,465 | $ | 1,003,440 | |||||
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2014
(Unaudited - See Notice to Reader)
6. | PROPERTY AND EQUIPMENT |
Cost, January 1, 2013 | $ | 212,329 | ||
Additions | - | |||
Effect of foreign exchange | 3,270 | |||
Cost, December 31, 2013 | $ | 215,599 | ||
Additions | 3,277 | |||
Disposal | (53,494 | ) | ||
Effect of foreign exchange | 1,016 | |||
Cost,September 30, 2014 | $ | 166,398 | ||
Accumulated depreciation, January 1, 2013 | 173,973 | |||
Charge for the year | 7,624 | |||
Effect of foreign exchange | 2,076 | |||
Accumulated depreciation, December 31, 2013 | $ | 183,673 | ||
Charge for the period | 5,272 | |||
Disposal | (44,276 | ) | ||
Effect of foreign exchange | 1,165 | |||
Accumulated depreciation,September 30, 2013 | $ | 145,834 | ||
Net book value, Janaury 1, 2013 | $ | 38,356 | ||
Net book value, December 31, 2013 | $ | 31,926 | ||
Net book value, September 30, 2014 | $ | 20,564 |
7. | INTANGIBLES |
Software and web development | Content Platform | Customer Relationships | Total | |||||||||||||
Cost, January 1, 2013 | $ | 6,792,163 | $ | 1,477,112 | $ | 130,000 | $ | 8,399,275 | ||||||||
Additions | 358,757 | - | - | 358,757 | ||||||||||||
Foreign exchange effect | 5,942 | - | - | 5,942 | ||||||||||||
Cost, September 30, 2013 | 7,156,862 | 1,477,112 | 130,000 | 8,763,974 | ||||||||||||
Additions | 72,954 | - | - | 72,954 | ||||||||||||
Foreign exchange effect | (4,751 | ) | - | - | (4,751 | ) | ||||||||||
Cost, December 31, 2013 | 7,225,065 | 1,477,112 | 130,000 | 8,832,177 | ||||||||||||
Additions | 394,671 | - | - | 394,671 | ||||||||||||
Foreign exchange effect | 7,081 | - | - | 7,081 | ||||||||||||
Cost, September 30, 2014 | $ | 7,626,817 | $ | 1,477,112 | $ | 130,000 | $ | 9,233,929 | ||||||||
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2014
(Unaudited - See Notice to Reader)
7. | INTANGIBLES (Cont’d) |
Software and web development | Content Platform | Customer Relationships | Total | |||||||||||||
Accumulated depreciation, January 1, 2013 | $ | 6,626,596 | $ | 766,446 | $ | 130,000 | $ | 7,523,042 | ||||||||
Charge for the period | 98,308 | 220,960 | - | 319,268 | ||||||||||||
Foreign exchange effect | (472 | ) | - | - | (472 | ) | ||||||||||
Accumulated depreciation, September 30, 2013 | 6,724,432 | 987,406 | 130,000 | 7,841,838 | ||||||||||||
Charge for the period | 37,319 | 74,462 | - | 111,781 | ||||||||||||
Foreign exchange effect | 1,663 | - | - | 1,663 | ||||||||||||
Accumulated depreciation, December 31, 2013 | 6,763,414 | 1,061,868 | 130,000 | 7,955,282 | ||||||||||||
Charge for the period | 208,579 | 220,960 | - | 429,539 | ||||||||||||
Foreign exchange effect | 2,495 | - | - | 2,495 | ||||||||||||
Accumulated depreciation,September 30, 2014 | $ | 6,974,488 | $ | 1,282,828 | $ | 130,000 | $ | 8,387,315 | ||||||||
Net book value, Janaury 01, 2013 | $ | 165,567 | $ | 710,666 | - | $ | 876,233 | |||||||||
Net book value, September 30, 2013 | $ | 432,430 | $ | 489,706 | - | $ | 922.136 | |||||||||
Net book value, December 31, 2013 | $ | 461,651 | $ | 415,244 | - | $ | 876,895 | |||||||||
Net book value, September 30, 2014 | $ | 652,330 | $ | 194,284 | - | $ | 846,614 | |||||||||
8. | LOANS PAYABLE |
September 30, 2014 | December 31, 2013 | |||||||
Loans payable, interest bearing at 9% per annum with monthly interest payments, secured by a general security agreement and due on September 8, 2015(i)(ii). | $ | 880,000 | $ | 880,000 | ||||
Unamortized transaction costs | (56,167 | ) | (60,455 | ) | ||||
| $ | 823,833 | $ | 819,545 | |||||
(i) | On August 27, 2014, the Company extended the term of the loan originally advanced on September 8, 2010, and extended for a further one-year term on September 8, 2011, 2012, 2013, and 2014. As additional consideration for the extension of the loan, the Company issued to the lenders an aggregate of 600,000 (2013 - 880,000) common shares of Lingo Media. The common shares were valued at market price of $0.10 per share. |
(ii) | Included in loans payable are loans amounting to $480,000 (2013 – $485,000) to related parties as disclosed in Note 17. |
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2014
(Unaudited - See Notice to Reader)
9. | SHARE CAPITAL |
a) | Common shares - Authorized |
Unlimited number of preference shares with no par value
Unlimited number of common shares with no par value
b) | Common shares -Transactions: |
(i) | On March 4, 2011, the Company closed a non-brokered private placement financing of 2,500,000 units (each a "Unit") at $0.60 per Unit and an over-allotment of 1,158,668 Units for gross proceeds of $2,195,200 (the "Financing"). Each Unit is comprised of one common share (each a "Common Share") in the capital of the Company and one non-transferable common share purchase warrant (each a "Warrant"). Each Warrant entitles the holder to purchase one Common Share at an exercise price of $0.75 per share until September 4, 2012. |
The Warrants are callable, at the option of Lingo Media, after July 5, 2011 in the event its Common Shares trade at or over $1.20 per share for 10 consecutive trading days. The number of Common Shares issuable pursuant to the Financing, if all Warrants are exercised, is 7,317,336 Common Shares for gross proceeds of $4,939,201. | ||
In connection with the Financing, the Company agreed to pay a 7% finder's fee payable in cash (the "Cash Finder's Fee") or Units (the "Finder's Units") to eligible persons (the "Finders"), along with finder's warrants ("Finder's Warrants") equal to 6% of the Units placed by the Finder in the Financing. Each Finder Unit entitles the holder to one Common Share and one Warrant. | ||
Each Finder's Warrant entitles the holder to acquire one Common Share of Lingo at $0.60 until September 4, 2012. On closing, the Company issued 23,333 Finder's Units, 151,620 Finder's Warrants and paid a $92,135 Cash Finder's Fee to the Finders. The Loan lenders waived their right to be repaid $0.50 of every $1.00 raised by Lingo Media through this financing. | ||
In the absence of a reliable measure of the services received, the services have been measured at the value of the finder’s warrants issued. The warrants were valued using the Black-Scholes pricing model using the following assumption: weighted average risk free interest rates of 1.78% weighted average expected dividend yields of NIL, the weighted average expected common stock price volatility (based on historical trading) of 83%, a forfeiture rate of zero, a stock price of $0.72, and a weighted average expected life of 1.5 years. | ||
On February 21, 2014, the expiry date of the Warrants was extended to March 4, 2016. |
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2014
(Unaudited - See Notice to Reader)
(ii) | On May 11, 2011, Lingo Media closed a non-brokered private placement financing of 1,875,000 units at $0.60 per Unit for gross proceeds of $1,125,000 (the "Second Financing"). Each Unit is comprised of one common share in the capital of the Company and one non-transferable common share purchase warrant. Each Warrant entitles the holder to purchase one Common Share at an exercise price of $0.75 per share until November 11, 2012. The Warrants are callable, at the option of Lingo Media, after September 11, 2011 in the event its Common Shares trade at or over $1.20 per share for 10 consecutive trading days. | |
In connection with the Second Financing, the Company agreed to pay a 7% Cash Finder’s Fee along with Finder's Warrants equal to 6% of the Units placed by the Finder in the Financing. Each Finder's Warrant entitles the holder to acquire one Common Share of Lingo at $0.60 until November 11, 2012. On closing, the Company issued 78,900 Finder's Warrants and paid a $55,230 Cash Finder's Fee to the Finders. The lenders waived their right to be repaid $0.50 of every $1.00 raised by Lingo Media through this Second Financing. At December 31, 2012, the Finder’s Warrants had expired. |
| 9. | SHARE CAPITAL(Cont’d) |
b) | Common shares -Transactions: |
(ii) | In the absence of a reliable measure of the services received, the services have been measured at the value of the finder’s warrants issued. The warrants were valued using the Black-Scholes pricing model using the following assumption: weighted average risk free interest rates of 1.51% weighted average expected dividend yields of NIL, the weighted average expected common stock price volatility (based on historical trading) of 65%, a forfeiture rate of zero, a stock price of $0.80, and a weighted average expected life of 1.5 years. |
On February 21, 2014, the expiry date of the Warrants was extended to May 11, 2016 with all other conditions remaining the same.
(iii) | On September 8, 2013, the Company extended the term of the $880,000 loan to September 8, 2014, originally advanced on September 8, 2010, and previously extended for a further one-year term on September 8, 2011 and 2012. As additional consideration for the extension of the loan, the Company respectively issued to the lenders an aggregate of 880,000 (2012 - 356,000) common shares of Lingo Media. The common shares were issued based on 10 per cent of the value of the loan, divided by a market price of $0.10 (2012 - $0.25) per common share. In the absence of a reliable measure of the services received, the services have been measured at the fair value of the common shares issued. |
(iv) | On August 27, 2014, the Company extended the term of the $880,000 loan to September 8, 2015, originally advanced on September 8, 2010, and previously extended for a further one-year term on September 8, 2011, 2012 and 2013. As additional consideration for the extension of the loan, the Company issued to the lenders an aggregate of 600,000 common shares of Lingo Media. The common shares were valued at market price of $0.10 per share. A reliable measure of the services received and been at the fair value of the common shares issued. |
10. | SHARE-BASED PAYMENTS |
In December 2011, the Company amended its stock option plan (the “2011 Plan“). The 2011 Plan was established to provide an incentive to employees, officers, directors and consultants of the Company and its subsidiaries.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2014
(Unaudited - See Notice to Reader)
The maximum number of shares which may be reserved for issuance under the 2011 Plan is limited to 4,108,635 common shares less the number of shares reserved for issuance pursuant to options granted under the 1996 Plan, the 2000 Plan, the 2005 Plan and the 2009 Plan, provided that the Board of Directors of the Company has the right, from time to time, to increase such number subject to the approval of the relevant exchange on which the shares are listed and the approval of the shareholders of the Company.
The maximum number of common shares that may be reserved for issuance to any one person under the 2011 Plan is 5% of the common shares outstanding at the time of the grant (calculated on a non-diluted basis) less the number of shares reserved for issuance to such person under any option to purchase common shares of the Company granted as a compensation or incentive mechanism.
The exercise price of each option cannot be less than the market price of the shares on the day immediately preceding the day of the grant less any permitted discount. The exercise period of the options granted cannot exceed 10 years. Options granted under the 2011 Plan do not have any required vesting provisions. The Board of Directors of the Company may, from time to time, amend or revise the terms of the 2011 Plan or may terminate it at any time.
10. | SHARE-BASED PAYMENTS (Cont’d) |
The following summarizes the options outstanding:
Number of Options | Weighted Average Exercise Price | |||||||
Outstanding as at January 1, 2013 | 3,070,500 | $ | 0.52 | |||||
Granted | 25,000 | 0.20 | ||||||
Expired | (105,000 | ) | 0.86 | |||||
Forfeited | (19,000 | ) | 0.66 | |||||
Outstanding as at September 30, 2013 | 2,971,500 | $ | 0.52 | |||||
Granted | - | - | ||||||
Expired | - | - | ||||||
Forfeited | (188,250 | ) | 0.87 | |||||
Outstanding as at December 31, 2013 | 2,783,250 | $ | 0.48 | |||||
Granted | 680,000 | 0.13 | ||||||
Expired | (50,750 | ) | 1.75 | |||||
Forfeited | (5,000 | ) | 0.66 | |||||
Outstanding as at September 30, 2014 | 3,407,500 | 0.39 | ||||||
Options exercisable as at September 30, 2013 | 2,171,336 | $ | 0.61 | |||||
Options exercisable as at December 31, 2013 | 2,033,004 | $ | 0.55 | |||||
Options exercisable as at September 30, 2014 | 2,644,505 | $ | 0.45 | |||||
The weighted average remaining contractual life for the stock options outstanding as at September 30, 2014 was 2.05 years (2013 – 2.76 years). The range of exercise prices for the stock options outstanding as at September 30, 2014 was $0.13 - $1.70 (2013 - $0.20 - $1.75). The weighted average grant-date fair value of options granted to employees, consultants and directors during the period has been estimated at $0.0674 (2013 - $0.09) using the Black-Scholes option-pricing model. The estimated fair value of the options granted is expensed over the options vesting periods.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2014
(Unaudited - See Notice to Reader)
The vesting periods on the options granted are as follows, 435,000 stock options vested immediately upon issuance, 245,000 stock options will vest quarterly over 18 months.
The pricing model assumes the weighted average risk free interest rates of 1.35% (2013 – 0.98%) weighted average expected dividend yields of Nil (2013 – Nil), the weighted average expected common stock price volatility (based on historical trading) of 79% (2013– 94%), a forfeiture rate of zero, a weighted average stock price of $0.22, a weighted average exercise price of $0.13 and a weighted average expected life of 3 years (2013 –3.01 years), which were estimated based on past experience with options and option contract specifics.
11. | Warrants |
The following summarizes the warrants outstanding:
Weighted Average Remaining Contractual Life (Years) | Series | Number of Warrants | Weighted Average Exercise Price | |||||||||||||
January 1, 2013 | ||||||||||||||||
Extended | 0.94 | A | 3,658,668 | 0.75 | ||||||||||||
Extended | 0.55 | B | 1,875,000 | 0.75 | ||||||||||||
December 31, 2013 | 5,533,668 | 0.75 | ||||||||||||||
September 30, 2014 | 5,533,668 | |||||||||||||||
The following summarizes the compensation warrants outstanding:
Weighted Average Remaining Contractual Life (Years) | Series | Number of Warrants | Weighted Average Exercise Price | |||||||||||||
January 1, 2013 | 230,520 | |||||||||||||||
Expired | - | 2011 | (151,620 | ) | 0.60 | |||||||||||
Expired | - | 2011 | (78,900 | ) | 0.60 | |||||||||||
December 31, 2013 | Nil | |||||||||||||||
September 30, 2014 | Nil | |||||||||||||||
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2014
(Unaudited - See Notice to Reader)
12. | GOVERNMENT GRANTS |
Included as a reduction of selling, general and administrative expenses are government grants of $194,884 (2013 - $190,813), relating to the Company's publishing and software projects. At the end of the period, $136,550 (2013 - $97,500) is included in accounts and grants receivable.
During 2008, the Company was audited by a government agency and was assessed with a repayment amount of $115,075 related to a publishing grant. In 2010, the Company was reassessed with a reduction to the repayment of $100,000 which was recorded in accrued liabilities and this proposed audit assessment was appealed by the Company. In 2013, the appeal was approved and the liability was re-assessed and reduced to $16,263, which was paid and the difference of $87,737 was recorded as grant revenue during 2013.
One government grant for the print-based ELL segment is repayable in the event that the segment’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.
One grant, relating to the Company’s “Development of Comprehensive, Interactive Phonetic English Learning Solution” project, is repayable semi-annually at a royalty rate of 2.5% per year’s gross sales derived from this project until 100% of the grant is repaid.
13. | FINANCIAL INSTRUMENTS |
Fair values
The carrying value of cash and accounts and grants receivable, approximates its fair value due to the liquidity of these instruments. The carrying value of accounts payables and accrued liabilities and loans payables approximates its fair value due to the requirement to extinguish the liabilities on demand.
Financial risk management objectives and policies
The financial risk arising from the Company’s operations are currency risk and liquidity risk. These risks arise from the normal course of operations and all transactions undertaken are to support the Company’s ability to continue as a going concern. The risks associated with these financial instruments and the policies on how to mitigate these risks.
Management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner. The Company’s Management oversees these risks. The Board of Directors reviews and agrees on policies for managing each of these risks.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities (when revenue or expense is denominated in a different currency from the Company’s functional currency) and the Company’s net investments in foreign subsidiaries. The Company operates internationally and is exposed to foreign exchange risk as certain expenditures are denominated in non-Canadian Dollar currencies.
A 10% strengthening of the US dollars against Canadian dollars would have increased the net equity by $161,663 (2013 - $7,662) due to reduction in the value of net liability balance. A 10% of weakening of the US dollar against Canadian dollar at September 30, 2014 would have had the equal but opposite effect. The significant financial instruments of the Company, their carrying values and the exposure to other denominated monetary assets and liabilities, as of September 30, 2014 are as follows:
| USD Denominated | China Denominated | |||||||||||||||
CAD | USD | CAD | RMB | |||||||||||||
Cash | $ | 9,667 | $ | 8,625 | $ | 4,816 | ¥ | 26,376 | ||||||||
Accounts receivable | $ | 851,001 | $ | 759,280 | $ | 700 | ¥ | 3,833 | ||||||||
Accounts payable | $ | 44,033 | $ | 39,287 | $ | 1,848 | ¥ | 10,120 | ||||||||
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2014
(Unaudited - See Notice to Reader)
Liquidity risk
The Company manages its liquidity risk by preparing and monitoring forecasts of cash expenditures to ensure that it will have sufficient liquidity to meet liabilities when due. The Company’s accounts payable and accrued liabilities generally have maturities of less than 90 days. At September 30, 2014, the Company had cash of $19,417, accounts and grants receivable of $996,465 and prepaid and other receivables of $66,526 to settle current liabilities of $1,705,929
Credit Risk
Credit risk refers to the risk that one party to a financial instrument will cause a financial loss for the counterparty by failing to discharge an obligation. The Company is primarily exposed to credit risk through accounts receivable. The maximum credit risk exposure is limited to the reported amounts of these financial assets. Credit risk is managed by ongoing review of the amount and aging of accounts receivable balances. As at September 30, 2014, the Company has outstanding receivables of $859,915. An allowance for doubtful accounts is taken on accounts receivable if the account has not been collected after a predetermined period of time and is offset to other operating expenses.
14. | CAPITAL MANAGEMENT |
The Company’s primary objectives when managing capital are to (a) safeguard the Company’s ability to develop, market, distribute and sell English language learning products, and (b) provide a sound capital structure for raising capital at a reasonable cost for the funding of ongoing development of its products and new growth initiatives. The Board of Directors does not establish quantitative capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.
The Company includes equity, comprised of issued share capital, warrants, share-based payments reserve and deficit, in the definition of capital. The Company is dependent on cash flow from co-publishing and distribution agreements and external financing to fund its activities. In order to carry out planned development of its products and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There has been no change to the Company’s capital management in 2014 or 2013.
15. | SEGMENTED INFORMATION |
The Company operates two distinct reportable business segments as follows:
Print-based English Language Learning: Lingo Learning is a print-based publisher of English school programs.
Online English Language Learning: ELL Technologies is a globally-established ELL multi-media and online training company. Parlo is a fee-based online English language training and assessment service. Speak2Me is a free-to-customer advertising-based online English learning service in China.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2014
(Unaudited - See Notice to Reader)
SegmentedInformation for Nine Months Ended September 30, 2014(BeforeOtherFinancialItems Below)
| September 30, 2014 | Online | Print-Based | Total | |||||||||
Revenue | $ | 443,520 | $ | 892,878 | $ | 1,336,398 | ||||||
Segment non-current assets | 990,713 | 16,083 | 1,006,796 | |||||||||
Segment assets | 1,116,223 | 972,981 | 2,089,204 | |||||||||
Segment liabilities | 620,825 | 1,101,954 | 1,722,779 | |||||||||
Segment Income (loss) | (374,865 | ) | 267,870 | (106,995 | ) |
| September 30, 2013 | Online English Language Learning | Print-Based English Language Learning | Total | |||||||||
Revenue | $ | 261,439 | $ | 722,072 | $ | 983,511 | ||||||
Segment non-current assets | 1,076,551 | 17,952 | 1,094,503 | |||||||||
Segment assets | 1,171,413 | 796,200 | 1,967,613 | |||||||||
Segment liabilities | 691,375 | 1,330,537 | 2,021,912 | |||||||||
Segment Income (loss) | (486,176 | ) | 61,855 | (424,321 | ) |
Other Financial Items | 2014 | 2013 | ||||||
Print-Based English Language Learning segment income (loss) | $ | 267,870 | $ | 61,856 | ||||
Online English Language Learning segment income (loss) | (374,865 | ) | (486,176 | ) | ||||
Foreign exchange | 261,819 | 62,048 | ||||||
Interest expense | (136,975 | ) | (179,948 | ) | ||||
Share-based payment | (32,228 | ) | (55,506 | ) | ||||
Other comprehensive income (loss) | (222,311 | ) | (17,371 | ) | ||||
Total Comprehensive Loss | $ | (236,690 | ) | $ | (615,097 | ) | ||
Revenue by Geographic Region
For the nine month period ended September 30 | 2014 | 2013 | ||||||
China | $ | 1,042,138 | $ | 723,875 | ||||
Other | 294,260 | 259,636 | ||||||
| $ | 1,336,398 | $ | 983,511 | |||||
Identifiable Assets
As at September 30 | 2014 | 2013 | ||||||
Canada | $ | 2,072,359 | $ | 1,878,028 | ||||
China | 16,845 | 89,585 | ||||||
| $ | 2,089,204 | $ | 1,967,613 | |||||
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2014
(Unaudited - See Notice to Reader)
16. | SUPPLEMENTAL CASH FLOW INFORMATION |
2014 | 2013 | |||||||
Income taxes and other taxes paid | $ | 140,837 | $ | 115,151 | ||||
Interest paid | $ | 61,006 | $ | 70,880 | ||||
17. | RELATED PARTY BALANCES AND TRANSACTIONS |
For the nine month period ended September 30, 2014, the Company had the following transactions with related parties, made in the normal course of operations, and accounted for at an amount of consideration established and agreed to by the Company and related parties.
(a) | Key management compensation was $268,098 (2013 – $247,500) and is reflected as consulting fees to corporations owned by a director and officers of the Company. As of September 30, 2014, $423,076 of management compensation is deferred and included in current liabilities. |
(b) | At September 30, 2014, the Company had loans payable due to corporations controlled by directors and officers of the Company in the amount of $480,000 (2013 - $485,000). Interest expense related to these loans is $32,311 (2013 - $32,734). |
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