lingo_6k-093008.htm
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 month of September 30, 2008
 
Commission File Number 333-98397
 
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 x Form 40-F o
 
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): o
 
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): o
 
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 o No x
 
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  
       
Date: December 23, 2008
By:
/s/ Michael Kraft  
   
Michael Kraft
President and CEO
  
 
1
 
 
Consolidated Interim Financial Statements
(Expressed in Canadian dollars)

LINGO MEDIA CORPORATION
September 30, 2008 and 2007
(Unaudited – See Notice to Reader)








 
 
The Consolidated Interim Balance Sheet of Lingo Media Corporation as at September 30, 2008 and the Consolidated Interim Statements of Operations, Deficits and Cash Flows for the nine 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.
 
2
 
Lingo Media Corporation
September 30, 2008 and 2007
(Expressed in Canadian dollars)
(Unaudited – See Notice to Reader)






Notice to Reader

Management has compiled the unaudited interim financial statements of Lingo Media Corporation (“Lingo Media” or the “Company”) consisting of the Interim Consolidated Balance Sheets as at September 30, 2008 and the Interim Statements of Deficit, Operations, and Cash Flows for the nine months ended September 30, 2008.  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.
 
3
 
Lingo Media Corporation
September 30, 2008 and 2007
(Expressed in Canadian dollars)
(Unaudited – See Notice to Reader)
 
 
CONTENTS
 
 
Page
Consolidated Interim Balance Sheets 
5
Consolidated Interim Statements of Deficit
 6
Consolidated Interim Statements of Operations  7
Consolidated Interim Statements of Cash Flows   7
Notes to Consolidated Interim Financial Statements 
9
 
4
 
LINGO MEDIA CORPORATION
Consolidated Interim Balance Sheets
(Expressed in Canadian dollars)
(Unaudited – See Notice to Reader)
 

   
September 30, 2008
    
December 31, 2007
  
Assets
            
Current assets:
            
Cash
   $ 8,791     $ 343,338  
Short term investment
     150,000       150,000  
Accounts and grants receivable (note 3)
     685,481       996,469  
Inventory
     73,139       121,323  
Prepaid and sundry assets
     90,135       131,869  
      1,007,546       1,742,999  
                 
Investment and advances
     182,520       182,520  
Deferred costs
     157,419       157,419  
Property and equipment, net
     76,043       89,325  
Development costs, net
     248,269       267,910  
Software & web development costs, net (note 4)
     5,265,285       4,326,246  
Goodwill
     1,121,131       1,121,131  
    $ 8,058,213     $ 7,887,550  
                 
Liabilities and Shareholders' Equity                
Current liabilities:
                
Bank loans (note 5)
   $ 240,000     $ 230,000  
Accounts payable
     1,313,607       822,818  
Accrued liabilities
     713,124       227,206  
Unearned revenue
     141,145       -  
Current portion of loans payable (note 6)
     781,048       228,674  
      3,188,924       1,508,698  
                 
Loans payable (note 6)
     -       203,031  
Future income taxes
     354,452       290,145  
      3,543,376       2,001,873  
                 
Shareholders' equity:
                
Capital stock (note 7 (a))
     10,338,725       10,335,707  
Contributed surplus
     771,061       452,411  
Deficit
     (6,594,949 )     (4,902,442 )
      4,514,837       5,885,677  
                 
    $ 8,058,213     $ 7,887,550  
 
See accompanying notes to consolidated interim financial statements.
 
Approved on behalf of the Board:
         
/s/ Michael Kraft
   Director
 
  
Michael Kraft
    
 
  
         
/s/ Sanjay Joshi
   Director
 
  
Sanjay Joshi
    
 
  

5
 
LINGO MEDIA CORPORATION
Consolidated Interim Statements of Deficit
(Unaudited – See Notice to Reader)
(Expressed in Canadian dollars)
 

 
Three months
ended September 30
  
Nine months
ended September 30
  
 
2008
  
2007
  
2008
  
2007
  
Deficit, beginning of period
   $ (5,847,224 )   $ (4,366,938 )   $ (4,902,442 )   $ (3,977,402 )
                                 
Net loss for the period
     (747,725 )     (197,906 )     (1,692,507 )     (587,442 )
                                 
Deficit, end of period
   $ (6,594,949 )   $ (4,564,844 )   $ (6,594,949 )   $ (4,564,844 )
 
See accompanying notes to consolidated interim financial statements.
 
6
 
LINGO MEDIA CORPORATION
Consolidated Interim Statements of Operations
(Expressed in Canadian dollars)
(Unaudited)
 

   
Three months
ended September 30
    
Nine months
ended September 30
  
   
2008
    
2007
    
2008
    
2007
  
Revenue
   $ 770,322     $ 939,993     $ 2,599,428     $ 2,533,504  
Direct costs
     179,428       188,157       512,328       507,958  
Margin
     590,895       751,836       2,087,100       2,025,546  
                                 
Expenses:
                                
General and administrative
     1,142,967       846,467       3,168,099       2,313,478  
Amortization of property and equipment
     27,298       20,729       93,696       63,316  
Interest and other financial expenses
     29,576       53,029       134,488       88,000  
Stock-based compensation
     134,083       29,517       321,667       110,408  
      1,333,924       949,742       3,717,950       2,575,201  
                                 
Loss before income taxes and other taxes
     (743,030 )     (197,906 )     (1,630,850 )     (549,656 )
                                 
Income taxes and other taxes
     4,695       -       61,657       37,786  
                                 
Net loss for the period
   $ (747,725 )   $ (197,906 )   $ (1,692,507 )   $ (587,442 )
                                 
Loss per share
   $ (0.08 )   $ (0.04 )   $ (0.18 )   $ (0.13 )
                                 
                                 
Weighted average number of
                                
common shares outstanding
     9,585,907       4,547,000       9,585,907       4,547,000  
 
See accompanying notes to consolidated interim financial statements.
 
7
 
LINGO MEDIA CORPORATION
Consolidated Interim Statements of Cash Flow
(Expressed in Canadian dollars)
(Unaudited)
 

   
Three months
ended September 30
    
Nine months
ended September 30
  
   
2008
    
2007
    
2008
    
2007
  
                         
Cash flows provided by (used in):
                        
Operations:
                        
Net loss for the period
   $ (747,725 )   $ (197,906 )   $ (1,692,507 )   $ (587,442 )
Items not affecting cash:
                                
Amortization of property and equipment
     2,309       5,585       21,249       13,522  
Amortization of development costs
     24,365       16,598       73,832       49,794  
Stock-based compensation
     134,083       29,517       321,667       88,000  
Foreign exchange gain/(loss)
     (63,758 )     -       6,708       -  
Change in non-cash balances related to operations:
                          
Accounts and grants receivable
     163,698       (158,189 )     452,133       (270,102 )
Inventory
     53,683       (35,179 )     48,184       (61,581 )
Prepaid and sundry assets
     20,763       (40,238 )     41,734       (6,837 )
Accounts payable
     368,366       243,690       490,789       406,821  
Accrued liabilities
     582,615       (13,941 )     485,918       (98,238 )
Unearned revenue
     -       104,834       -       104,838  
Cash provided by (used in) operating activities
     538,399       (45,225 )     249,706       (361,225 )
Financing:
                                
Increase in bank loans
     30,000       (15,000 )     10,000       (30,000 )
Advances of loans payable
     (203,031 )     94,954       (203,031 )     341,704  
Issuance of capital stock
     -       16,593       3,017       21,593  
Current portion of long term loan
     341,852       -       552,374       -  
Cash provided by financing activities
     168,821       96,547       362,360       333,297  
Investing:
                                
Expenditures on software & web development costs
     (722,834 )     -       (939,038 )     -  
Purchase of property and equipment
     -       -       (7,575 )     -  
Development costs
     -       (4,318 )     -       (43,343 )
Cash used in investing activities
     (722,834 )     (4,317 )     (946,613 )     (43,343 )
                                 
Increase / (decrease) in cash
     (15,614 )     47,004       (334,547 )     (71,271 )
Cash, beginning of period
     24,405       (45,106 )     343,338       73,169  
Cash, end of period
   $ 8,791     $ 1,898     $ 8,791     $ 1,898  
 
See accompanying notes to consolidated interim financial statements.
 
8
 
LINGO MEDIA CORPORATION
Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
September 30, 2008 and 2007
(Unaudited)
 
 
1. Nature of operations:
 
Lingo Media Corporation is a diversified online and print-based education product and services corporation. Speak2Me Inc. (“Speak2Me”), a new subsidiary acquired during 2007, is a new media company focused on interactive advertising in China through its Internet-based English Language Web Learning portal. Lingo Learning Inc. (formerly Lingo Media Ltd.), a subsidiary of Lingo Media, is a print-based publisher of English language learning programs in China.  In Canada, Lingo Media through its subsidiary A+ Child Development (Canada) Ltd., specializes in early childhood cognitive development programs which publishes and distributes educational materials along with its proprietary curriculum through its four offices in Calgary, Edmonton, Vancouver and Toronto.
 
2. Significant accounting policies:
 
(a)  Basis of presentation:
 
The disclosures contained in these unaudited interim consolidated financial statements do not include all the requirements of generally accepted accounting principles (GAAP) for annual financial statements. The unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2007.
 
The unaudited interim consolidated financial statements reflect all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary to present fairly the financial position of the Company as of September 30, 2008 and the results of operations and cash flows for the nine months ended September 30, 2008 and 2007.
 
3. Accounts and grants receivable:
 
Accounts and grants receivable consist of:
 
   
September 30, 2008
    
December 31, 2007
  
Trade receivables   $ 613,111     $ 853,384  
Cash advance     -       128,007  
Grants receivable (note 7)
       72,370         15,078  
    $ 685,481     $ 996,469  
 
9
 
LINGO MEDIA CORPORATION
Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
September 30, 2008 and 2007
(Unaudited)
 
 
4. Software and web development costs:
 
In October 2007, the Company acquired Speak2Me Inc. (“Speak2Me”), a new media company that has developed software combining speech recognition and animation technology for the teaching and practice of spoken English. All costs associated with development of the Speak2Me software and its contents are capitalized as Software and web development:
 
   
September 30, 2008
    
December 31, 2007
  
Cost
   $ 5,265,285     $ 4,326,246  
 
5. Bank loans:
 
   
September 30, 2008
    
December 31, 2007
  
Revolving line of credit of $500,000 bearing interest at prime plus 4.0%
per annum and secured by a $150,000 GIC,  bearing interest at 3.5%
maturing on December 10, 2008,  and a charge on all A+ assets including
inventory and accounts receivables.
         240,000           230,000  
    $ 240,000     $ 230,000  
 
The terms of the $240,000 revolving line of credit require that certain measurable covenants be met.  As at September 30, 2008, the Company was in violation of certain covenants. As the line of credit is currently presented as a current liability no additional adjustment is required.
 
6. Loans payable:
 
Loans payable consists of the following:
 
   
September 30, 2008
    
December 31, 2007
  
Loan payable, due to a non-related party, interest
bearing at 12% per annum payable monthly, unsecured
and due on demand.
   $ 574,993     $ 228,674  
Loan payable, due to a non-related party, interest
bearing at 12% per annum with monthly interest payments,
secured by a general security agreement and due on April 30, 2009.
         206,055           203,031  
      781,048       431,705  
Less: Current portion
     781,048       228,674  
    $ -     $ 203,031  
 
10
 
LINGO MEDIA CORPORATION
Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
September 30, 2008 and 2007
(Unaudited)
 
 
7. Capital stock:
 
(a)  Authorized:
 
Unlimited preference shares, no par value
 
Unlimited common shares, no par value
 
The following details the changes in issued and outstanding common shares:

   
Common Shares
  
   
Number
    
Amount
  
Balance, December 31, 2007
     9,582,262     $ 10,335,707  
Issued:
                
Options exercised
     4,762       3,017  
Balance, September 30, 2008
     9,587,024     $ 10,338,725  
 
(b)   Stock options
 
    2008     2007  
    Number
of
shares
     Weighted average exercise price     Number
of
 shares
     Weighted average exercise price  
Options outstanding, beginning of year
     516,738     $ 0.98       275,634     $ 1.33  
Options granted
     250,000       1.13       350,000       0.77  
Options exercised
     (4,762 )     0.70       30,848       0.70  
Options expired/canceled
     (43,143 )     0.98       (1,191 )     1.23  
                                 
Outstanding, September 30
     718,833       1.05       516,738       0.91  
Options exercisable, September 30
     531,373     $ 1.00       338,509     $ 1.19  
 
The following table summarizes information about stock options outstanding at September 30, 2008:
 
            Options outstanding     Options exercisable  
Range
of exercise
prices
    
Number
outstanding
    
Weighted
average remaining contractual life
    
Weighted
average exercise
price
      
Number
outstanding
   Weighted
 average exercise
 price
  
$ 0.70 - $1.00       385,106       3.65     $ 0.74       310,979     $ 0.74  
$ 1.01 - $1.33       176,585       2.14       1.24       143,252       1.28  
$ 1.34 - $2.00       157,142       3.53       1.60       77,142       1.50  
Total
       718,833       3.26       1.05       531,373       1.00  
 
11
 
LINGO MEDIA CORPORATION
Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
September 30, 2008 and 2007
(Unaudited)
 
 
8. Government grants:
 
Included as a reduction of general and administrative expenses are government grants of $24,759 (2007 – $93,750), 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.
 
9. Financial instruments and risk management:
 
The Company as part of its operations carries a number of financial instruments.  It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments except as otherwise disclosed.
 
(a) Currency risk:
 
The Company is subject to currency risk through its activities outside of Canada.  Unfavourable changes in the exchange rate may affect the operating results of the Company.  The Company is also exposed to currency risk as a substantial amount of its revenue is denominated in U.S. dollars and Chinese Renminbi ("RMB").
 
There were no derivative instruments outstanding at September 30, 2008 and 2007.
 
(b)  Financial Instruments:
 
The significant financial instruments of the Company, their carrying values and the exposure to U.S. dollar denominated monetary assets and liabilities, as of September 30, 2008 are as follows:
 
     
US Denominated 
      
Chinese Denominated 
  
     
CAD 
      
USD 
      
CAD 
      
RMB 
  
Cash
     6,133       5,763       -       -  
Accounts and grants receivable
     582,283       547,156       582,283       3,830,089  
Accounts payable
     143,562       134,902       -       -  
 
US dollars and Chinese Renminbi are converted on the prevailing period-end exchange rates.
 
(c)  Fair market values:
 
The carrying values of cash, short-term investment, accounts and grants receivable, accounts payable, accrued liabilities, bank loans and loans payable approximate their fair values due to the relatively short periods to maturity.
 
(d) Concentration of risk:
 
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable.  Cash and short-term investment consist of deposits with major financial institutions.  With respect to accounts receivable, the Company performs periodic credit evaluations of the financial condition of its customers and typically does not require collateral from them.  Management assesses the need for allowances for potential credit losses by considering the credit risk of specific customers, historical trends and other information. The Jintu loan receivable (note 4) is secured by a personal guarantee from a non – related party.
 
12
 
LINGO MEDIA CORPORATION
Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
September 30, 2008 and 2007
(Unaudited)
 
 
10. Segmented information:
 
The Company operates three distinct reportable business segments as follows.
 
Online English Language Learning: The Company offers a groundbreaking online service using robust speech recognition technology acquired through its acquisition of Speak2Me Inc. in October 2007.
 
English Language Learning Publishing: The Company develops, publishes, distributes and licenses book, audio/video cassette, CD-based product and supplemental product for English language learning for the educational school markets in China and in Canada.
 
Early Childhood Development Publishing: 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.

 
September 30, 2008
  
Online
English
Language
Learning
    
English
Language
Learning
Publishing
    
Early
Childhood
Development
Publishing
    
 
Total
  
Revenue
     -     $ 434,817     $ 2,164,611     $ 2,599,428  
Cost of sales
     -       53,269       459,059       512,328  
Margin
     -     $ 381,548     $ 1,705,552     $ 2,087,100  

 
September 30, 2007
  
Online
English
Language
Learning
    
English
Language
Learning
Publishing
    
Early
Childhood
Development
Publishing
    
 
Total
  
Revenue
     -     $ 262,095     $ 2,271,409     $ 2,533,504  
Cost of sales
     -       34,065       473,893       507,958  
Margin
     -     $ 228,030     $ 1,797,516     $ 2,025,546  
 
The Company's revenue by geographic region based on the region in which the customers are located is as follows:
 
   
September 30, 2008
    
September 30, 2007
  
Canada     2,174,203       2,272,909  
China
   $ 425,226     $ 260,595  
    $ 2,599,428     $ 2,533,504  
 
13
 
LINGO MEDIA CORPORATION
Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
September 30, 2008 and 2007
(Unaudited)
 
 
The majority of the Company’s identifiable assets as at September 30, 2008 are located as follows:
 
   
September 30, 2008
    
September 30, 2007
  
Canada   $ 7,851,684     $ 2,948,912  
China
     206,528       182,520  
    $ 8,058,211     $ 3,131,432  
 
11. Subsequent event:
 
On October 15, 2008, the Company announced that its shareholders had approved a $5 million investment from Orascom Telecom Holding S.A.E. ("Orascom Telecom") as previously announced on September 17, 2008 at which time financing was closed in escrow subject to certain conditions including shareholders approval.
 
On October 14, 2008, shareholders approved the issuance of 2,857,143 Special Warrants of Lingo Media to Orascom Telecom pursuant to the terms of a subscription agreement (the "Subscription Agreement") dated August 21, 2008 (the "Offering"), as described in Lingo Media’s press release dated on September 17, 2008 and Management Information Circular dated September 12, 2008. The proceeds from the Offering will be used for Lingo Media’s on-going development, maintenance and operation of Speak2Me’s web portal and for general working capital purposes.
 
Each Unit consists of one common share (“Common Share”) and three-quarters (0.75) of one warrant (“Warrant”).  Each whole Warrant is exercisable to acquire one further Common Share for a period of 24 months from September 15, 2008 (the "Closing Date"): (i) at a price of $4.00 for a period of 12-months from the Closing Date, (ii) at a price of $6.00 per Common Share if exercised between 12-18 months from the Closing Date, and (iii) at a price of $8.00 per Common Share if exercised between 18-24 months from the Closing Date. The Warrants are callable, 120 days after the Closing Date, at the option of Lingo Media, in the event the Common Shares of the Company trade at or over 50% above the strike price of the Warrant for 10 consecutive trading days. All securities issued pursuant to the Offering are subject to a four-month hold period from the Closing Date.
 
14
 
LINGO MEDIA CORPORATION
Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
September 30, 2008 and 2007
(Unaudited)
 
 
12. Reconciliation of Canadian and United States generally accepted accounting principles ("GAAP"):
 
These interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in Canada. Except as set out below, these financial statements also comply, in all material aspects, with the United States generally accepted accounting principles.
 
The following tables reconcile results as reported under Canadian GAAP with those that would have been reported under United States GAAP.
 
Statements of Operations:
 
For the period ended September 30
  
2008
    
2007
  
Loss for the period - Canadian GAAP
   $ (1,692,507 )   $ (587,442 )
Impact of United States GAAP and adjustments:
                
Amortization of development costs
     73,832       49,794  
Amortization of deferred costs
     -       -  
Software and web development costs
     (939,038 )     -  
Loss for the period - United States GAAP
   $ (2,557,714 )   $ (537,648 )
Statements of cash flows:
                
   
September 30,
 2008
    
September 30,
 2007
  
Cash (used in) provided by investing activities –                
Canadian GAAP
   $ (946,613 )   $ (43,343 )
Impact of United States GAAP and adjustments:
                
Write-off of Software & web development costs
     939,038       -  
Cash used in investing activities - United States GAAP
   $ (7,575 )   $ (43,343 )
                 
   
September 30,
 2008
    
September 30, 2007
  
Cash (used in) provided by operating activities –                
Canadian GAAP
   $ (249,706 )   $ (361,225 )
Impact of United States GAAP and adjustments:
                
Write-off of Software & web development costs
     (939,038 )     -  
Cash used in operating activities - United States GAAP
   $ (689,333 )   $ (361,225 )
 
The cumulative effect of these adjustments on the consolidated shareholders' equity of the Company is as follows:
 
   
September 30,
 2008
    
September 30, 2007
  
Shareholders' equity - Canadian GAAP
   $ 4,514,836     $ 898,698  
Development costs
     (248,269 )     (155,072 )
Compensation expense
     (321,667 )     (243,250 )
Deferred costs
     (157,419 )     (157,419 )
Software & web development costs
     (452,709 )     -  
Shareholders' equity - United States GAAP
   $ 3,334,773     $ 342,958