Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
LINGO MEDIA INC.
June 30, 2007 and 2006
(Unaudited)
The Consolidated Interim Balance Sheet of Lingo Media Inc. (the "Company or Lingo Media") as at June 30, 2007 and the Consolidated Interim Statements of Operations, Deficits and Cash Flows for the six months then ended have not been reviewed by the Company’s auditors. These financial statements are the responsibility of the management and have been reviewed and approved by the Company’s Audit Committee.
LINGO MEDIA INC.
June 30, 2007 and 2006
(Expressed in Canadian dollars)
(Unaudited)
CONTENTS
Consolidated Interim Balance Sheets
Consolidated Interim Statements of Deficit
Consolidated Interim Statements of Operations
Consolidated Interim Statements of Cash Flows
Notes to Consolidated Interim Financial Statements
LINGO MEDIA INC.
Consolidated Interim Balance Sheets
(Expressed in Canadian dollars)
(Unaudited)
| June 30 2007 | December 31 2006 |
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Assets |
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Current assets: |
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Cash | $ - | $ 73,169 |
Short term investment | 150,000 | 150,000 |
Accounts and grants receivable (note 2) | 416,672 | 304,924 |
Inventory | 125,934 | 154,276 |
Prepaid and sundry assets | 151,915 | 130,573 |
| 844,521 | 812,942 |
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Investment and advances (note 3) | 182,520 | 182,520 |
Deferred costs (note 3) | 157,419 | 157,419 |
Property and equipment, net | 69,531 | 77,304 |
Development costs, net | 349,137 | 343,308 |
Future Income Taxes | 189,534 | 189,534 |
Goodwill | 1,121,131 | 1,121,131 |
| $ 2,724,260 | $ 2,884,158 |
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Liabilities and Shareholders' Equity |
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Current liabilities: |
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Bank Indebtness | $ 45,107 | $ - |
Bank loans (note 4) | 470,000 | 485,000 |
Accounts payable | 689,621 | 526,491 |
Accrued liabilities | 64,281 | 148,578 |
Unearned revenue | 177,778 | - |
| 1,269,009 | 1,160,069 |
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Loans payable (note 5) | 594,291 | 347,541 |
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Shareholders' equity: |
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Capital stock (note 6(a)) | 5,033,656 | 5,028,656 |
Contributed surplus | 383,776 | 325,293 |
Deficit | (4,366,938) | (3,977,401) |
| 1,050,494 | 1,376,548 |
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| $ 2,724,260 | $ 2,884,158 |
See accompanying notes to consolidated interim financial statements.
Approved on behalf of the Board:
"Michael Kraft" | Director |
“Khurram Qureshi” | Director |
LINGO MEDIA INC.
Consolidated Interim Statements of Deficit
(Unaudited)
(Expressed in Canadian dollars)
| Three months ended June 30 | Six months ended June 30 | ||
| 2007 | 2006 | 2007 | 2006 |
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Deficit, beginning of the period | $ (4,287,222) | $ (3,538,117) | $ (3,977,402) | $(3,228,477) |
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Net loss for period | (79,716) | (211,887) | (389,536) | (521,527) |
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Deficit, end of the period | $ (4,366,938) | $ (3,750,004) | $ (4,366,938) | $(3,750,004) |
See accompanying notes to consolidated interim financial statements.
LINGO MEDIA INC.
Consolidated Interim Statements of Operations
(Expressed in Canadian dollars)
(Unaudited)
| Three months ended June 30 | Six months ended June 30 | ||
| 2007 | 2006 | 2007 | 2006 |
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Revenue | $ 925,978 | $ 283,871 | $ 1,593,511 | $ 286,268 |
Direct costs | 180,080 | 36,870 | 319,801 | 38,105 |
Margin | 745,898 | 417,932 | 1,273,710 | 248,163 |
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Expenses: |
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Selling, general and administrative | 696,692 | 273,344 | 1,467,011 | 452,273 |
Amortization | 21,868 | 67,684 | 42,587 | 133,952 |
Interest and other financial expenses | 27,939 | 14,579 | 57,379 | 17,860 |
Stock-based compensation 41,329 | 62,325 | 58,483 | 124,649 | - |
| 787,828 | 417,932 | 1,625,460 | 728,734 |
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Loss before income taxes and other taxes | (41,930) | (170,931) | (351,750) | (480,571) |
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Income taxes and other taxes | 37,786 | 40,956 | 37,786 | 40,956 |
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Net loss for the period | $ (79,716) | $ (211,887) | $ (389,536) | $ (521,527) |
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Loss per share | $ (0.00) | $ (0.01) | $ (0.01) | $ (0.02) |
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Weighted average number of common shares outstanding | 30,741,348 | 26,070,589 | 30,741,348 | 26,070,589 |
See accompanying notes to consolidated interim financial statements.
LINGO MEDIA INC.
Consolidated Interim Statements of Operations
(Expressed in Canadian dollars)
(Unaudited)
| Three months ended June 30 | Six months ended June 30 | ||
| 2007 | 2006 | 2007 | 2006 |
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Cash flows provided by (used in): |
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Operations: |
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Net loss for the period: | $ (79,716) | $ (211,887) | $ (389,536) | $ (521,527) |
Items not affecting cash |
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Amortization of property and equipment | 3,817 | 2,559 | 7,937 | 4,960 |
Amortization of development costs | 16,598 | 47,458 | 33,196 | 93,657 |
Amortization of acquired publishing content | - | 17,667 | - | 35,335 |
Stock based compensation 41,329 | 62,325 | 58,483 | 124,649 | - |
Change in non-cash balances related to operations: |
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Accounts and grants receivable | (164,868) | 12,884 | (111,913) | (32,324) |
Inventory | 46,697 | 324 | 28,342 | 964 |
Prepaid and sundry assets | 33,866 | 46,278 | (21,343) | 56,747 |
Account payable | 109,876 | 41,380 | 163,130 | 124,435 |
Accrued liabilities | (27,048) | (3,614) | (84,297) | (26,267) |
Unearned revenue | (177,778) | (123,000) | - | - |
Cash used by operating activities: | (197,227) | (107,628) | (316,001) | (139,371) |
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Financing: |
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Increase (decrease) in bank loan | (15,000) | (15,000) | (15,000) | 5,000 |
Increase in loans payable | 199,520 | 167,701 | 246,750 | 118,764 |
Issuance of capital stock | - | 51,200 | 5,000 | 54,145 |
Cash provided by financing activities | 184,520 | 203,901 | 236,750 | 177,909 |
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Investing: |
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Purchase of property and equipment | - | (4,735) | - | (6,443) |
Development costs | - | (40,298) | - | (94,794) |
Deferred costs | (15,698) | (15,620) | (39,025) | (31,239) |
Cash (used in) investing activities | (15,698) | (60,653) | (39,025) | (132,476) |
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Increase (decrease) in cash | (28,405) | 35,620 | (118,275) | (93,938) |
(Bank indebtness) cash, beginning of period | (16,701) | 14,779 | 73,169 | 144,337 |
(Bank indebtness) cash, end of period | $ (45,106) | $ 50,399 | $ (45,106) | $ 50,399 |
See accompanying notes to consolidated interim financial statements.
LINGO MEDIA INC.
Notes to Consolidated Interim Financial Statements
(Unaudited)
(Expressed in Canadian dollars)
June 30, 2007 and 2006
Lingo Media Inc. develops, publishes and licenses book, audio/video cassette, CD-based product and supplemental product for English language learning for the educational school markets in China. In addition, through its subsidiary, A+ Child Development (Canada) Ltd. (“A+”), the Company specializes in early childhood cognitive development programs, through the publishing and distribution of educational materials along with its proprietary curriculum through its four offices in Calgary, Edmonton, Vancouver and Toronto.
1. Significant accounting policies:
(a)
Basis of presentation:
The disclosures contained in these unaudited interim consolidated financial statements do not include all the requirements of generally accepted accounting principles (GAAP) for annual financial statements. The unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2006.
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 June 30, 2007 and the results of operations and cash flows for the six months ended June 30, 2007 and 2006.
2. Accounts and grants receivable:
Accounts and grants receivable consist of:
| June 30, 2007 | December 31, 2006 |
Trade receivables | $ 350,384 | $ 285,141 |
Grants receivable | 66,288 | 19,783 |
| $ 416,672 | $ 304,924 |
3. Deferred costs, investment and advances:
In June 2005, the Company signed a definitive Joint Venture Agreement (“JV Agreement”) with Sanlong Cultural Communication Co. Ltd. (“Sanlong”). The joint venture company will be known as Hebei Jintu Education Book Co. Ltd. (“Jintu”). Jintu will continue Sanlong’s recently launched direct-to-consumer business of distributing educational newspapers and product extensions located in Shijiazhuang, Hebei Province, China. Under the JV Agreement, Lingo Media will invest approximately $365,000 (¥2,550,000 RMB) for its 51% share of Jintu. The closing is subject to government approval in China.
Pursuant to the June 2005 agreement, as at June 30, 2007 the Company advanced funds for working capital to Sanlong through a trust of $182,520, included in investment and advances, with a view to establishing Jintu and incurred $157,419 in expenditures, included in deferred costs, related to pre-operating costs. Upon commencement of the joint venture, the investment and advances will be converted into Lingo Media’s share of registered capital of the joint venture and these advances and investment is non refundable.
4. Bank loans:
Loans payable consist of the following:
| June 30, 2007 | December 31, 2006 |
Line of credit of $100,000 bearing interest at prime plus 2.5% per annum, due on demand and secured by the Company’s accounts receivable from customers in China, which in turn are secured by the Export Development Corporation. | $ 100,000 | $ 135,000 |
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Revolving line of credit of $500,000 bearing interest at prime plus 2% per annum and secured by a $150,000 GIC, bearing interest at 3.2% maturing December 7, 2007, and a charge on all assets of A+ including inventory and accounts receivables. | 370,000 | 350,000 |
| $ 470,000 | $ 485,000 |
The terms of the operating loans require that certain measurable covenants be met. As at June 30, 2007, the Company was in violation of certain covenants. As the operating loans are currently presented as a current liability no additional adjustment is required.
5. Loans payable:
Loans payable consist of the following:
| June 30, 2007 | December 31, 2006 |
Loan payable is interest bearing at 12% per annum, secured by a general security agreement and is due on August 31, 2008 | $ 168,154 | $ 7,541 |
Loan payable, due to a shareholder, is interest bearing at 12% per annum and is due on August 31, 2008 | 85,838 | - |
Loan payable, due to a non-related party, is interest bearing at 12% per annum payable monthly and is secured by a general security agreement and is due on August 31, 2008 | 340,299 | 340,000 |
| 594,291 | 347,541 |
Less: Current portion | - | - |
| $ 594,291 | $ 347,541 |
6. Capital stock:
(a)
Issued
| Common shares | |
| Number | Amount |
Balance, January 1, 2007 | 32,578,170 | $ 5,028,656 |
Issued: Option exercised | 50,000 | 5,000 |
Balance, June 30, 2007 | 32,628,170 | $ 5,033,656 |
(b)
Options
| Weighted Number of Options | Average Exercise Price |
Outstanding, January 1, 2007 | 1,929,437 | $ 0.19 |
Exercised | (50,000) | 0.10 |
Issued | 2,450,000 | 0.11 |
Cancelled | (8,334) | 0.175 |
Outstanding, June 30, 2007 | 4,321,103 | $ 0.14 |
Options exercisable, June 30, 2007 | 2,128,933 | $ 0.18 |
7. Government grants:
Included as a reduction of general and administrative expenses are government grants of $61,067 (2006 – $76,441), relating to the Company's publishing projects in China and Canada.
Certain government grants are repayable in the event that the Company's annual net income for each of the previous two years exceeds 15% of revenue. During the year, the conditions for the repayment of grants did not arise and no liability was recorded.
8.
Segmented information:
The Company operates two distinct reportable business segments as follows:
English Language Learning: The Company develops, publishes, distributes and licenses book, audio/video cassette, CD-based product and supplemental product for English language learning for the educational school markets in China.
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.
Six Months ended June 30, 2007:
| English Language Learning | Early Childhood Development | Total |
Revenue | $ 261,182 | $ 1,332,329 | $ 1,593,511 |
Cost of Sales | 37,665 | 282,136 | 319,801 |
Margin | $ 223,517 | $ 1,050,193 | $ 527,960 |
Six Months ended June 30, 2006:
| English Language Learning | Early Childhood Development | Total |
Revenue | $ 286,268 | - | $ 286,268 |
Cost of Sales | 38,105 | - | 38,105 |
Margin | $ 248,163 | - | $ 248,163 |
The Company's revenue for the six months ended June 30th by geographic region based on the region in which the customers are located is as follows:
| June 30, 2007 | June 30,2006 |
Canada | $ 1,332,916 | $ 3,841 |
China | 260,595 | 282,427 |
| $ 1,593,511 | $ 286,268 |
The majority of the Company’s identifiable assets are located as follows:
| June 30, 2007 | December 31, 2006 |
Canada | $ 2,514,740 | $ 2,701,638 |
China | 182,520 | 182,520 |
| $ 2,724,260 | $ 2,884,158 |
9. Reconciliation of Canadian and United States generally accepted accounting principles ("GAAP"):
These consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in Canada. Except as set out below, these financial statements also comply, in all material aspects, with the United States generally accepted accounting principles.
The following tables reconcile results as reported under Canadian GAAP with those that would have been reported under United States GAAP.
Statements of Operations:
| June 30, 2007 | June 30, 2006 |
Loss for the period - Canadian GAAP | $ (389,536) | $ (521,527) |
Impact of United States GAAP and adjustments: |
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Amortization of development costs (a) | 16,598 | 93,657 |
Deferred costs (d) | - | (31,329) |
Loss for the period - United States GAAP | $ (372,938) | $ (459,199) |
The cumulative effect of these adjustments on the consolidated shareholders' equity of the Company is as follows:
| June 30, 2007 | December 31, 2006 |
Shareholders' equity - Canadian GAAP | $ 1,050,494 | $ 1,376,548 |
Development costs | (153,846) | (121,005) |
Compensation expense | (243,250) | (243,250) |
Deferred costs | (157,419) | (157,419) |
Shareholders' equity - United States GAAP | $ 495,979 | $ 963,774 |