UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934
For the period endingJune 30, 2016
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-________________.
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Financial Statements
For the six-month period ended June 30, 2016
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Financial Statements
As at June 30, 2016
NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated interim financial statements of Lingo Media Corporation have been prepared by and are the responsibility of the Company's management. These unaudited condensed consolidated interim financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") and reflect Management’s best estimates and judgements based on information currently available. The Company's independent auditor has not performed a review of these financial statements in accordance with standards established for a review of interim financial statements by an entity's auditor.
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Financial Statements
As at June 30, 2016
Contents | |
Condensed Consolidated Interim Financial Statements | Page |
Balance Sheets | 4 |
Statements of Comprehensive Income | 5 |
Statements of Changes in Equity | 6 |
Statements of Cash Flows | 7 |
Notes to the Financial Statements | 8-20 |
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Balance Sheets
(Unaudited, expressed in Canadian Dollars, unless otherwise stated)
Notes | June 30, 2016 | December 31, 2015 | ||||||||||
ASSETS | ||||||||||||
CurrentAssets | ||||||||||||
Cash and cash equivalents | $ | 1,479,831 | $ | 409,022 | ||||||||
Accounts and grants receivable | 5 | 2,716,039 | 1,961,534 | |||||||||
Prepaid and other receivables | 483,618 | 488,154 | ||||||||||
| 4,679,488 | 2,858,710 | |||||||||||
Non-CurrentAssets | ||||||||||||
Property and equipment | 6 | 30,648 | 28,879 | |||||||||
Intangibles | 7 | 2,813,977 | 2,205,744 | |||||||||
Goodwill | 139,618 | 139,618 | ||||||||||
TOTAL ASSETS | $ | 7,663,731 | $ | 5,232,951 | ||||||||
EQUITY AND LIABILITIES | ||||||||||||
CurrentLiabilities | ||||||||||||
Accounts payable | 206,389 | 250,973 | ||||||||||
Accrued liabilities | 422,823 | 355,194 | ||||||||||
Loans payable | 8 | - | 580,000 | |||||||||
TOTAL LIABILITIES | 629,212 | 1,186,167 | ||||||||||
Equity | ||||||||||||
Share capital | 9 | 21,357,018 | 18,927,388 | |||||||||
Share-based payment reserve | 10 | 3,956,668 | 2,695,038 | |||||||||
Warrants | 11 | - | 1,439,632 | |||||||||
Accumulated other comprehensive income | (308,116 | ) | (362,210 | ) | ||||||||
Deficit | (17,971,051 | ) | (18,653,064 | ) | ||||||||
TOTAL EQUITY | 7,034,519 | 4,046,784 | ||||||||||
TOTAL EQUITY AND LIABILITIES | $ | 7,663,731 | $ | 5,232,951 | ||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
These condensed consolidated interim financial statements are authorized for issue by the Board of Directors on August 29, 2016.
/s/ Michael Kraft | /s/ Martin Bernholtz | |
Director | Director |
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Statements of Comprehensive Income
For the six-months ended June, 2016 and 2015
(Unaudited, expressed in Canadian Dollars, unless otherwise stated)
Notes | For the three months ended June 30 | For the six months ended June 30 | ||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||
Revenue | $ | 1,549,397 | $ | 1,794,659 | $ | 2,306,255 | $ | 2,446,286 | ||||||||||||
Expenses | ||||||||||||||||||||
Selling, general and administrative expenses | 386,137 | 321,442 | 590,838 | 581,626 | ||||||||||||||||
Amortization – intangibles | 7 | 247,149 | 174,389 | 471,437 | 354,430 | |||||||||||||||
Direct costs | 109,145 | 101,127 | 167,366 | 160,406 | ||||||||||||||||
Share-based payment | - | 6,578 | - | 35,817 | ||||||||||||||||
Depreciation – property and equipment | 6 | 2,584 | 2,178 | 4,028 | 3,896 | |||||||||||||||
TotalExpenses | 745,015 | 605,714 | 1,233,669 | 1,136,175 | ||||||||||||||||
ProfitfromOperations | 804,382 | 1,188,945 | 1,072,586 | 1,310,111 | ||||||||||||||||
Net Finance Charges | ||||||||||||||||||||
Interest (income) expense | 7,550 | 46,160 | 25,707 | 94,489 | ||||||||||||||||
Foreign exchange (gain) / loss | 29,027 | 27,110 | 215,571 | (132,633 | ) | |||||||||||||||
Profit before Tax | 767,805 | 1,115,675 | 831,308 | 1,348,255 | ||||||||||||||||
Income and other Tax Expense | 136,622 | 136,572 | 149,295 | 143,723 | ||||||||||||||||
Net Profit for the Period | 631,183 | 979,103 | 682,013 | 1,204,532 | ||||||||||||||||
OtherComprehensiveIncome | ||||||||||||||||||||
Exchange differences on translating foreign operations gain / (loss) | (6,864 | ) | 14,449 | 54,094 | (64,382 | ) | ||||||||||||||
Total Comprehensive Income,Net ofTax | 624,319 | $ | 993,552 | 736,107 | $ | 1,140,150 | ||||||||||||||
Earnings per Share | ||||||||||||||||||||
Basic and Diluted | $ | 0.02 | $ | 0.04 | $ | 0.02 | $ | 0.05 | ||||||||||||
Weighted Number of Common Shares Outstanding | ||||||||||||||||||||
Basic and Diluted | 32,855,333 | 25,890,288 | 30,250,553 | 23,297,533 | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Statements of Changes in Equity
For the six-months ended June 30, 2016
(Unaudited, expressed in Canadian Dollars, unless otherwise stated)
Issued share capital | Share- basedpayment reserve | Warrants | Accumulated other comprehensive income | Deficit | Total equity | |||||||||||||||||||||||
Number of shares | Amount | |||||||||||||||||||||||||||
Balance as at January 1, 2015 | 22,379,177 | $ | 18,162,347 | $ | 2,578,380 | $ | 1,393,202 | $ | (204,852 | ) | $ | (21,185,121 | ) | $ | 743,956 | |||||||||||||
Profit for the period | - | - | - | - | - | 1,204,532 | 1,204,532 | |||||||||||||||||||||
Other comprehensive Loss | - | - | - | - | (64,382 | ) | - | (64,382 | ) | |||||||||||||||||||
Private Placement | 5,000,000 | 500,000 | - | - | - | - | 500,000 | |||||||||||||||||||||
Warrants issuance | - | (70,230 | ) | - | 70,230 | - | - | - | ||||||||||||||||||||
Share-based payments charged to operations | - | - | 35,817 | - | - | - | 35,817 | |||||||||||||||||||||
Balance as at June 30, 2015 | 27,379,177 | $ | 18,592,117 | $ | 2,614,197 | $ | 1,463,432 | $ | (269,234 | ) | $ | (19,980,589 | ) | $ | 2,419,923 | |||||||||||||
Profit for the period | - | - | - | - | - | 1,327,525 | 1,327,525 | |||||||||||||||||||||
Other comprehensive Income | - | - | - | - | 92,976 | - | 92,976 | |||||||||||||||||||||
Warrant exercise | 1,700,000 | 236,300 | - | (23,800 | ) | - | - | 212,500 | ||||||||||||||||||||
Stock option exercise | 439,166 | 98,971 | (34,380 | ) | - | - | - | 64,591 | ||||||||||||||||||||
Share-based payments charged to operations | - | - | 115,221 | - | - | - | 115,221 | |||||||||||||||||||||
Balance as atDecember 31, 2015 | 29,518,343 | $ | 18,927,388 | $ | 2,695,038 | $ | 1,439,632 | $ | (362,210 | ) | $ | (18,653,064 | ) | $ | 4,046,784 | |||||||||||||
Profit for the period | - | - | - | - | - | 682,013 | 682,013 | |||||||||||||||||||||
Other comprehensive Loss | - | - | - | - | 54,094 | - | 54,094 | |||||||||||||||||||||
Warrant exercise | 5,711,683 | 2,382,685 | - | (161,423 | ) | - | - | 2,221,262 | ||||||||||||||||||||
Expired warrants | - | - | 1,278,209 | (1,278,209 | ) | - | - | - | ||||||||||||||||||||
Stock option exercise | 206,666 | 46,945 | (16,579 | ) | - | - | - | 30,366 | ||||||||||||||||||||
Balance as at June 30, 2016 | 35,436,692 | $ | 21,357,018 | $ | 3,956,668 | $ | - | $ | (308,116 | ) | $ | (17,971,051 | ) | $ | 7,034,519 | |||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
LINGO MEDIA CORPORATION
Condensed Consolidated Interim Statements of Cash Flows
For the six-months ended June 30, 2016 and 2015
(Unaudited, expressed in Canadian Dollars, unless otherwise stated)
For the three months ended June 30 | For the six months ended June 30 | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Incomefor the period | $ | 631,183 | $ | 979,103 | $ | 682,013 | $ | 1,204,532 | ||||||||
Adjustments to NetProfit for Non-CashItems: | ||||||||||||||||
Depreciation / amortization | 249,732 | 176,566 | 475,464 | 358,326 | ||||||||||||
Share-based payment | - | 6,578 | - | 35,817 | ||||||||||||
Unrealized foreign exchange gain | (18,137 | ) | 16,526 | 55,687 | (68,040 | ) | ||||||||||
Interest accretion | - | 15,000 | - | 30,000 | ||||||||||||
Operating Income before Working Capital Changes | 862,778 | 1,193,773 | 1,213,164 | 1,560,635 | ||||||||||||
WorkingCapitalAdjustments: | ||||||||||||||||
(Increase)/decrease in accounts and grants receivable | (134,140 | ) | (419,502 | ) | (754,505 | ) | (941,414 | ) | ||||||||
(Increase)/decrease in prepaid and other receivables | 6,798 | (283,072 | ) | 4,536 | (317,742 | ) | ||||||||||
Increase/(decrease) in accounts payable | (53,214 | ) | 85,289 | (44,584 | ) | 90,072 | ||||||||||
Increase/(decrease) in accrued liabilities | 55,226 | (437,724 | ) | 67,628 | (351,481 | ) | ||||||||||
Cash Generated from Operations | 737,448 | 138,764 | 486,239 | 40,070 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
Purchase in intangibles | (479,441 | ) | (483,539 | ) | (1,081,157 | ) | (861,462 | ) | ||||||||
Purchase of property and equipment | (3,879 | ) | (10,512 | ) | (5,901 | ) | (13,281 | ) | ||||||||
NetCash Flowsused inInvestingActivities | (483,320 | ) | (494,051 | ) | (1,087,058 | ) | (874,743 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Private placement | - | 500,000 | - | 500,000 | ||||||||||||
Stock option exercise | 19,483 | - | 30,366 | - | ||||||||||||
Warrant exercise | 1,665,012 | - | 2,221,262 | - | ||||||||||||
Advances/(repayments) of loans payable | (580,000 | ) | - | (580,000 | ) | - | ||||||||||
Repayment of loans payable | - | (90,000 | ) | - | (90,000 | ) | ||||||||||
CashFlows Generated fromFinancing Activities | 1,104,495 | 410,000 | 1,671,628 | 500,000 | ||||||||||||
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS | 1,358,623 | 54,713 | 1,070,809 | (334,673 | ) | |||||||||||
Cash and Cash Equivalents,Beginning of the Period | 121,208 | 87,615 | 409,022 | 477,001 | ||||||||||||
Cash andCashEquivalents,End of thePeriod | $ | 1,479,831 | $ | 142,328 | $ | 1,479,831 | $ | 142,328 | ||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(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 OTCQB Marketplace. The consolidated financial statements of the Company as at and for the year ended December 31, 2015 comprise the Company and its wholly owned subsidiaries consisted of Lingo Learning Inc., ELL Technologies Ltd., ELL Technologies Limited, Speak2Me Inc., Parlo Corporation and Lingo Group Limited.
Lingo Media is an EdTech company that is ‘Changing the way the world learns English’. The Company provides online and print-based solutions through its two distinct business units: ELL Technologies Ltd. (“ELL Technologies”) and Lingo Learning Inc. (“Lingo Learning”). ELL Technologies is a global English language learning multi-media and online training company. Lingo Learning is a print-based publisher of English language learning school programs in China.
The head office, principal address and registered and records office of the Company is located at 151 Bloor Street West, Suite 703, Toronto, Ontario, Canada, M5S 1S4.
2. | BASIS OF PREPRATION |
| 2.1 | Statement of compliance |
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”).
The condensed consolidated interim financial statements for the period ended June 30, 2016 were approved and authorized for issue by the board of directors on August 29, 2016.
| 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 consolidated financial statements comprise the financial statements of the Company and its wholly owned subsidiaries controlled by the Company (the “Group”) as at June 30, 2016. Control exists when the Company is exposed to, or has the rights to variable returns from its involvement with the entity and has the ability to affect these returns through its power over the entity.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group 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. All inter-group balances, transactions, unrealized gains and losses resulting from inter-group transactions and dividends are eliminated in full.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(Unaudited - See Notice to Reader)
2. | BASIS OF PREPRATION (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 Group. These consolidated financial statements are presented in Canadian Dollars, which is the Company’s functional currency and presentation currency. The functional currency of ELL Technologies is the United States Dollar (“USD”) and the functional currency of Speak2Me is Chinese Renminbi (“RMB”). All other subsidiaries’ functional currency is Canadian Dollar (“CAD”).
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 consolidated 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 and estimates 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 currency
● Determination of the recoverability of the carrying value of intangibles and goodwill
● Recognition of internally developed intangibles
● Determination and recognition of long-term revenue contracts
● Recognition of government grant and grant receivable
● 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, 2015.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(Unaudited - See Notice to Reader)
5. | ACCOUNTS AND GRANTS RECEIVABLE |
Accounts and grants receivable consist of:
June 30, 2016 | December 31, 2015 | |||||||
Trade receivable | $ | 2,595,766 | $ | 1,941,261 | ||||
Grants receivable (Note 12) | 120,273 | 20,273 | ||||||
| $ | 2,716,039 | $ | 1,961,534 | |||||
6. | PROPERTY AND EQUIPMENT |
Cost, January 1, 2015 | $ | 173,679 | ||
Additions | 13,281 | |||
Disposal | (5,000 | ) | ||
Effect of foreign exchange | 2,272 | |||
Cost, June 30, 2015 | 184,232 | |||
Additions | - | |||
Disposal | - | |||
Effect of foreign exchange | 4,189 | |||
Cost, December 31, 2015 | 188,421 | |||
Additions | 5,901 | |||
Effect of foreign exchange | (2,797 | ) | ||
Cost, June 30, 2016 | $ | 191,525 | ||
Accumulated depreciation, January 1, 2015 | $ | 148,873 | ||
Charge for the period | 3,896 | |||
Effect of foreign exchange | (1,915 | ) | ||
Accumulated depreciation, June 30, 2015 | 150,854 | |||
Charge for the period | 4,683 | |||
Disposal | (4,046 | ) | ||
Effect of foreign exchange | 8,051 | |||
Accumulated depreciation, December 31, 2015 | 159,542 | |||
Charge for the period | 4,028 | |||
Effect of foreign exchange | (2,693 | ) | ||
Accumulated depreciation, June 30, 2016 | $ | 160,877 | ||
Net book value, January 1, 2015 | $ | 24,806 | ||
Net book value, December 31, 2015 | $ | 28,879 | ||
Net book value, June 30, 2016 | $ | 30,648 |
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(Unaudited - See Notice to Reader)
7. | INTANGIBLES |
Software and WebDevelopment | Content Platform | Content Development | Total | |||||||||||||
Cost, January 1, 2015 | $ | 7,781,611 | $ | 1,477,112 | $ | - | $ | 9,258,723 | ||||||||
Additions | 406,055 | - | 455,407 | 861,462 | ||||||||||||
Effect of foreign exchange | 13,355 | - | - | 13,355 | ||||||||||||
Cost, June 30, 2015 | 8,201,021 | 1,477,112 | 455,407 | 10,133,540 | ||||||||||||
Additions | 376,890 | - | 833,088 | 1,209,978 | ||||||||||||
Effect of foreign exchange | 53,095 | - | - | 53,095 | ||||||||||||
Cost, December 31, 2015 | 8,631,006 | 1,477,112 | 1,288,495 | 11,396,613 | ||||||||||||
Additions | 335,948 | - | 745,208 | 1,081,157 | ||||||||||||
Effect of foreign exchange | (10,174 | ) | - | - | (10,174 | ) | ||||||||||
Cost, June 30, 2016 | $ | 8,956,780 | $ | 1,477,112 | $ | 2,033,703 | $ | 12,467,596 | ||||||||
Accumulated depreciation,January 1, 2015 | 7,053,835 | 1,357,290 | - | 8,411,126 | ||||||||||||
Charge for the period | 221,071 | 119,822 | 13,537 | 354,430 | ||||||||||||
Effect of foreign exchange | 8,884 | - | - | 8,884 | ||||||||||||
Accumulated depreciation,June 30, 2015 | 7,283,790 | 1,477,112 | 13,537 | 8,774,439 | ||||||||||||
Charge for the period | 289,295 | - | 77,995 | 367,290 | ||||||||||||
Effect of foreign exchange | 49,140 | - | - | 49,140 | ||||||||||||
Accumulated depreciation,December 31, 2015 | 7,622,225 | 1,477,112 | 91,532 | 9,190,869 | ||||||||||||
Charge for the period | 306,801 | - | 164,636 | 471,437 | ||||||||||||
Effect of foreign exchange | (8,687 | ) | - | - | (8,687 | ) | ||||||||||
Accumulated depreciation,June 30, 2016 | $ | 7,920,339 | $ | 1,477,112 | $ | 256,168 | $ | 9,653,619 | ||||||||
Net book value, December 31, 2015 | $ | 1,008,781 | - | $ | 1,196,963 | $ | 2,205,744 | |||||||||
Net book value, June 30, 2016 | $ | 1,036,441 | - | $ | 1,777,536 | $ | 2,813,977 | |||||||||
The Company began commercial production and sale of its services and products during 2009. In 2015, the Company focused on the redesign and upgrade of its ELL Technologies’ suite of products and invested $1,081,157 (2015 - $861,462). The ELL Technologies’ suite of products includes five different products, each designed to suit the needs of different demographic groups. Although the full suite of product is not yet complete, the Company has started the commercial production and sale of three of these products.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(Unaudited - See Notice to Reader)
7. | INTANGIBLES (Cont’d) |
Capitalized development expenditure is stated at cost less accumulated amortization and impairment losses. The software and web development cost are being amortized on a straight-line basis over the useful life of the asset, which is estimated to be 3 years.
Capitalized content development expenditure is stated at cost less accumulated amortization and impairment losses. The content development costs are being amortized on a straight-line basis over the useful life of the asset, which is estimated to be 5 years.
8. | LOANS PAYABLE |
June 30, 2016 | December31, 2015 | |||||||
Loans payable, interest bearing at 9% per annum with monthly interest payments, secured by a general security agreement and due on May 9, 2016(i)(ii) | $ | - | $ | 580,000 | ||||
| $ | - | $ | 580,000 | |||||
(i) | On April 27, 2016, the Company repaid $580,000 loan. This loan was originally advanced on September 8, 2010, and extended for further one-year terms on September 8, 2011, 2012, 2013 and 2014. On September 8, 2015, the loans were extended for a further eight-month term and due on May 9, 2016. |
(ii) | Included in loans payable are loans amounting to $480,000 (2015 – $480,000) to related parties as disclosed in Note 18. |
9. | SHARE CAPITAL |
a) | 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. |
On August 23, 2012, the expiry date of the Warrants was extended for additional 18 months to March 4, 2014 with all other conditions remaining the same. On February 21, 2014, the expiry date of the warrants was extended for an additional 2 years to March 4, 2016 with all other terms remaining consistent.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(Unaudited - See Notice to Reader)
9. | SHARE CAPITAL (Cont’d) |
b) | Common shares - Transactions: (Cont’d) |
(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. |
On August 23, 2012, the expiry date of the Warrants from the Second Financing was extended for an additional 18 months to May 11, 2014 with all other conditions remaining the same. Additionally, on February 21, 2014, the warrants were extended for an additional 2 years to May 11, 2016 with all other terms remaining consistent.
(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 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 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. 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. |
(v) | On April 17, 2015, Lingo Media closed a non-brokered private placement financing of 5,000,000 units at $0.10 per Unit for gross proceeds of $500,000. Each Unit is comprised of one common share in the capital of the Company and one common share purchase warrant. Each Warrant entitles the holder to purchase one Common Share at an exercise price of $0.125 per share until April 17, 2016. The securities issued pursuant to the Financing will be subject to a 4-month regulatory hold period commencing from April 17, 2015. |
c) | Stock options exercise |
In 2016, 206,666 stock options were exercised. Each stock option entitled the holder to one common share of the Company at an exercise price of $0.13, $0.14 and $0.66 for the gross proceeds of $30,366. These options have a grant date fair value of $0.0674, $0.0721 and $0.5174 respectively. The weighted average share price on the date of exercise of these options was $0.87.
d) | Warrants exercise |
In 2016, 5,711,683 warrants were exercised. Each warrant entitled the holder to one common share of the Company at an exercise price of $0.125 and $0.75 for the gross proceeds of $2,221,262. These warrants have a grant date fair value of $0.014, $0.0465 and $0.0482. The weighted average share price on the date of exercise of these warrants was$0.96.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(Unaudited - See Notice to Reader)
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.
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.
The following summarizes the options outstanding:
Number of Options | Weighted Average Exercise Price | |||||||
Outstanding as atJanuary 1, 2015 | 3,767,500 | $ | 0.35 | |||||
Expired | (25,000 | ) | 0.20 | |||||
Outstanding as atJune 30, 2015 | 3,742,500 | 0.35 | ||||||
Granted | 400,000 | 0.47 | ||||||
Forfeited | (100,833 | ) | 0.70 | |||||
Expired | (439,166 | ) | 0.15 | |||||
Outstanding as atDecember 31, 2015 | 3,602,501 | 0.33 | ||||||
Granted | 700,000 | 0.69 | ||||||
Expired | (957,500 | ) | 0.81 | |||||
Exercised | (206,666 | ) | 0.15 | |||||
Outstanding as atJune 30, 2016 | 3,138,335 | $ | 0.28 | |||||
Options exercisable as atJune 30, 2015 | 2,789,498 | $ | 0.41 | |||||
Options exercisable as at December 31, 2015 | 3,301,168 | $ | 0.39 | |||||
Options exercisable as at June 30, 2016 | 2,213,335 | $ | 0.24 |
The weighted average remaining contractual life for the stock options outstanding as at June 30, 2016 was 1.48 years (2015 – 1.21 years). The range of exercise prices for the stock options outstanding as at June 30, 2016 was $0.13 - $0.77 (2015 – $0.13 - $1.70). The weighted average grant-date fair value of options granted to employees, consultants and directors was $0.69 (2015 – $0.15) using the Black-Scholes option-pricing model.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(Unaudited - See Notice to Reader)
10. SHARE-BASED PAYMENTS(Cont’d)
The estimated fair value of the options granted is expensed over the options vesting periods.
The vesting periods on the options granted in 2016 are as follows, 700,000 (2015 – 400,000, 2014 – 1,590,000) stock options to be vested 7 months after grant date.
The pricing model assumed the weighted average risk free interest rates of 0.44% (2015 – 0.62%) weighted average expected dividend yields of Nil (2015 – Nil), the weighted average expected common stock price volatility (based on historical trading) of 78.9% (2015 – 52%), a forfeiture rate of zero, a weighted average stock price of $0.28, a weighted average exercise price of $0.69, and a weighted average expected life of 2.58 years (2015 – 1.5 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 | ||||||||||
Extended | - | A | 3,658,668 | $ | 0.75 | ||||||||
Extended | - | B | 1,875,000 | 0.75 | |||||||||
Issued | - | 5,000,000 | 0.125 | ||||||||||
Exercised | (1,700,000 | ) | 0.125 | ||||||||||
December 31, 2015 | 8,833,668 | $ | 0.52 | ||||||||||
Exercised | - | (5,711,683 | ) | 0.39 | |||||||||
Expired | - | (3,121,985 | ) | 0.75 | |||||||||
June 30, 2016 | - | $ | - | ||||||||||
The 3,658,668 warrants, series A issued on March 4, 2011 and the 1,875,000 warrants, series B issued on May 11, 2011 had an expiry date of March 4, 2014 and May 11, 2014 respectively. On February 14, 2014, the warrants were extended to March 4, 2016 and May 11, 2016 respectively. During the period, 600,000 Series A warrants were exercised. The exercise price is $0.75 with a proceeds of $450,000. 1,811,683 Series B warrants were exercised. The exercise price is $0.75 with proceeds of $1,358,762.
The 5,000,000 warrants issued on April 17, 2015 has an expiry date of April 17, 2016. (Note 9 (v)) During the period, 3,300,000 warrants were exercised. The exercise price is $0.125 with proceeds of $412,500.
12. | GOVERNMENT GRANTS |
Included as a reduction of selling, general and administrative expenses are government grants of $104,957 (2015 - $211,729), relating to the Company's publishing projects. At the end of the period, $120,273 (2015 - $20,273) is included in accounts and grants receivable.
One government grant for the Print-Based English language learning 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.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(Unaudited - See Notice to Reader)
12. | GOVERNMENT GRANTS (Cont’d) |
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 |
| 13.1 | 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 values of accounts payables and accrued liabilities and loans payables approximate its fair value due to the requirement to extinguish the liabilities on demand or payable within a year.
| 13.2 | Financial risk management objectives and policies |
The financial risk arising from the Company’s operations are currency risk, liquidity risk and credit risk. These risks arise from the normal course of operations and all transactions undertaken are to support the Group’s ability to continue as a going concern. The risks associated with these financial instruments and the policies on how to mitigate these risks are as follows:
| 13.3 | 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.
The company has been exposed to this fluctuation and has not implemented a program against these foreign exchange fluctuations.
A 10% strengthening of the US Dollars against Canadian Dollars would have increased the net equity by approximately $214,657 (2015 - $228,000) due to reduction in the value of net liability balance. A 10% of weakening of the US Dollar against Canadian Dollar at June 30, 2016 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 June 30, 2016 are as follows:
US Denominated USD | Euro Denominated Euro | China Denominated RMB | ||||||||||
Cash | 899,430 | 203 | - | |||||||||
Accounts receivable | 2,028,704 | 9,174 | - | |||||||||
Accounts payable | 38,872 | - | - | |||||||||
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(Unaudited - See Notice to Reader)
13. | FINANCIAL INSTRUMENTS (Cont’d) |
| 13.3 | Foreign currency risk (Cont’d) |
The carrying values and the exposure to other denominated monetary assets and liabilities as of June 30, 2015 are as follows:
US Denominated USD | China Denominated RMB | Euro Denominated Euro | ||||||||||
Cash | 81,533 | 36,493 | 9,912 | |||||||||
Accounts receivable | 708,880 | 5,637 | 2,574 | |||||||||
Accounts payable | 36,359 | 10,120 | - | |||||||||
| 13.4 | 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 June 30, 2016, the Company had cash of $1,479,831 (2015 - $142,328), accounts and grants receivable of $ 2,716,039 (2015 - $1,790,758) and prepaid and other receivables of $483,618 (2015 - $402,813) to settle current liabilities of $629,212 (2015 - $1,448,073).
| 13.5 | 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 June 30, 2016, the Company has outstanding receivables of $2,716,039 (2015- $1,790,758). 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.The Company deposits its cash with high credit quality financial institutions, with the majority deposited within Canadian Tier 1 Banks.
14. | MAJOR CUSTOMERS |
The Company has sales to a major customer in 2016 and 2015, a government agency of the People’s Republic of China. The total percentage of sales to this customer during the period was 43% (2015 – 38%) and the total percentage of accounts receivable at June 30, 2016 was 33% (2015 – 46%).
In 2016 and 2015, the Company has sales to an online education services distribution company. The total percentage of sales to this customer during the period was 17% (2015 – 46%) and the total percentage of accounts receivable at June 30, 2016 was 30% (2015 – 44%).
15. | 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.
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(Unaudited - See Notice to Reader)
15. | CAPITAL MANAGEMENT (Cont’d) |
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 agreements textbook royalties, distribution agreements for licensing sales 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 2016 or 2015.
16. | 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 textbook programs in China.
Online English Language Learning: ELL Technologies is a global English language learning online training and assessment company creating new learning platforms.
SegmentedInformation(BeforeOtherFinancialItems Below)
June 30, 2016 | Online English Language Learning | Print-Based English Language Learning | Total | |||||||||
Segmented assets | $ | 5,605,625 | $ | 2,058,106 | $ | 7,663,731 | ||||||
Segmented liabilities | 368,727 | 260,484 | 629,211 | |||||||||
Segmented revenue | 1,320,261 | 985,994 | 2,306,255 | |||||||||
Segmented direct costs | 123,133 | 44,233 | 167,366 | |||||||||
Segmented selling, general and administrative expenses | 331,573 | 259,265 | 590,838 | |||||||||
Segmented intangible amortization | 471,437 | - | 471,437 | |||||||||
Segmented other expenses | 906 | 152,417 | 153,323 | |||||||||
Segmented profit | 393,212 | 530,079 | 923,291 | |||||||||
Segmented intangible addition | 1,081,157 | - | 1,081,157 | |||||||||
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(Unaudited - See Notice to Reader)
16. | SEGMENTED INFORMATION (Cont’d) |
June 30, 2015 | Online English Language Learning | Print-Based English Language Learning | Total | |||||||||
Segmented assets | $ | 2,753,417 | $ | 1,114,579 | $ | 3,867,996 | ||||||
Segmented liabilities | 762,020 | 686,053 | 1,448,073 | |||||||||
Segmented revenue | 1,525,791 | 920,495 | 2,446,286 | |||||||||
Segmented direct costs | 119,639 | 40,767 | 160,406 | |||||||||
Segmented selling, general and administrative expenses | 260,549 | 321,077 | 581,626 | |||||||||
Segmented intangible amortization | 180,041 | - | 180,041 | |||||||||
Segmented other expenses | 401 | 146,175 | 146,576 | |||||||||
Segmented profit | 788,334 | 413,871 | 1,202,205 | |||||||||
Segmented intangible addition | 861,462 | - | 861,462 | |||||||||
Other Financial Items | 2016 | 2015 | ||||||
Online segmented income | $ | 393,212 | $ | 788,334 | ||||
Print-based segmented income | 530,079 | 413,871 | ||||||
Foreign exchange gain / (loss) | (215,571 | ) | 132,633 | |||||
Interest and other financial expense | (25,707 | ) | (94,489 | ) | ||||
Share-based payment | - | (35,817 | ) | |||||
Other comprehensive income (loss) | 54,094 | (64,382 | ) | |||||
Total ComprehensiveIncome | $ | 736,107 | $ | 1,140,150 | ||||
Revenue by Geographic Region
The Period Ended June 30 | 2016 | 2015 | ||||||
Latin America | $ | 756,479 | $ | 1,340,399 | ||||
China | 1,497,450 | 1,043,794 | ||||||
Other | 52,326 | 62,093 | ||||||
| $ | 2,306,225 | $ | 2,446,286 | |||||
LINGO MEDIA CORPORATION
Notes to Condensed Consolidated Interim Financial Statements
June 30, 2016
(Unaudited - See Notice to Reader)
16. | SEGMENTED INFORMATION (Cont’d) |
Identifiable Assets by Geographic Region
2016 | 2015 | |||||||
Canada | $ | 7,656,221 | $ | 3,851,865 | ||||
China | 7,510 | 16,131 | ||||||
| $ | 7,663,731 | $ | 3,867,996 | |||||
17. | SUPPLEMENTAL CASH FLOW INFORMATION |
June 30, 2016 | June 30, 2015 | |||||||
Income taxes and other taxes paid | $ | 149,295 | $ | 143,723 | ||||
Interest paid | $ | 18,404 | $ | 58,892 | ||||
18. | RELATED PARTY BALANCES AND TRANSACTIONS |
During the period, 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 $212,764 (2015 – $235,191) and is reflected as consulting fees and commissions paid to corporations owned by a director and officers of the Company, $223,387 is deferred and included in accounts payable. |
(b) | The Company charged $15,798 (2015 - $Nil) to corporations with one director or officer in common for rent, administration, office charges and telecommunications. |
(c) | Included in loans payable are loans amounting to $480,000 (2015 – $480,000) were due to related parties and were repaid in April 2016. |
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: August 29, 2016 | By: | /s/ Michael Kraft |
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| Michael Kraft President and CEO |
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