Edgar Filing: LINGO MEDIA CORP

lmdcf20131126_6k.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, 2013

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 ☒ 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

Date: November 29, 2013	By:	/s/ Michael Kraft
		Michael Kraft President and CEO

LINGO MEDIA CORPORATION

Condensed Consolidated Interim Financial Statements

For the nine-month period ended September 30, 2013

LINGO MEDIA CORPORATION

Condensed Consolidated Interim Financial Statements

As at September 30, 2013

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, 2013 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, 2013

Contents

Condensed Consolidated Interim 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 - 17

LINGO MEDIA CORPORATION

Condensed Consolidated Interim Balance Sheet

As at September 30, 2013

(Unaudited, expressed in Canadian Dollars, unless otherwise stated)

	Notes		September 30, 2013			December 31, 2012
ASSETS
Current Assets

Cash and cash equivalents			$	12,869		$	39,248
Accounts receivable		5		793,489			1,446,962
Prepaid and other receivables				66,751			120,231

				873,109			1,606,441
Non-Current Assets

Property and equipment, net		6		32,750			38,356
Intangibles, net		7		922,136			876,233
Goodwill				139,618			139,618

TOTAL ASSETS			$	1,967,613		$	2,660,648

LIABILITIES AND EQUITY

Current Liabilities

Accounts payable			$	514,375		$	577,655
Accrued liabilities				659,992			472,087
Loans payable		8		847,545			1,193,614

TOTAL LIABILITIES				2,021,912			2,243,356

Equity

Share capital		9		18,102,347			18,014,347
Warrants		11		1,132,685			1,132,685
Share-based payment reserve				2,506,298			2,450,791
Accumulated other comprehensive income				(106,342	)		(88,971	)
Deficit				(21,689,287	)		(21,091,560	)

TOTAL EQUITY				(54,299	)		417,292

TOTAL LIABILITIES AND EQUITY			$	1,967,613		$	2,660,648

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 25, 2013.

/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, 2013 and 2012

(Unaudited, expressed in Canadian Dollars, unless otherwise stated)

	Notes		For the three months ended September 30						For the nine months ended September 30
			2013			2012			2013			2012

Revenue			$	130,139		$	129,424		$	983,511		$	1,124,514

Expenses

Selling, general and administrative expenses				219,791			475,975			849,729			1,659,255
Share-based payment				11,597			145,608			55,506			187,391
Direct costs				36,852			32,183			123,683			173,092
Depreciation – property and equipment		6		1,757			2,463			5,647			7,362
Amortization – intangibles		7		116,652			83,445			313,621			277,688
Total Expenses				386,649			739,674			1,348,186			2,304,788

Loss from Operations				(256,510	)		(610,250	)		(364,675	)		(1,180,274	)

Net Finance Charges

Interest expense				56,646			41,633			179,948			102,244
Foreign exchange (gain) / loss				25,629			81,128			(62,048	)		88,198


Loss before Tax				(338,785	)		(733,011	)		(482,575	)		(1,370,716	)

Income and Other Tax Expense				5,201			10,930			115,151			108,367

Loss for the Period				(343,986	)		(743,941	)		(597,726	)		(1,479,083	)


Other Comprehensive Income

Exchange differences on translating foreign operations gain / (loss)				20,759			53,889			(17,371	)		75,735

Total Comprehensive Loss, Net of Tax			$	(323,227	)	$	(690,052	)	$	(615,097	)	$	(1,403,348	)

Loss per Share
Basic and Diluted			$	(0.015	)	$	(0.033	)	$	(0.029	)	$	(0.068	)

Weighted Number of Common Shares Outstanding
Basic and Diluted				21,192,510			20,622,288			20,920,635			20,562,684

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, 2013

(Unaudited, expressed in Canadian Dollars, unless otherwise stated)

	Issued share capital				Share based payment reserve		Warrants			Accumulated other comprehensive income			Deficit			Total equity
	Number of shares		Amount


Balance as at January 1, 2012		20,543,177	$	17,925,347	$	2,130,735	$	1,046,365		$	(86,760	)	$	(19,565,853	)	$	1,449,834
Income / (loss) for the period		-		-		-		-			-			(1,479,083	)		(1,479,083	)
Issued shares – bonus shares		356,000		89,000		-		-			-			-			89,000
Share-based payments charged to operations		-		-		187,391		-			-			-			187,391
Other comprehensive income / (loss)		-		-		-		-			75,735			-			75,735
Balance as at September 30, 2012		20,899,177	$	18,014,347	$	2,318,126	$	1,046,365		$	(11,025	)	$	(21,044,936	)	$	322,877
Income / (loss) for the period		-		-		-		-			-			116,557			116,557
Other comprehensive income / (loss)		-		-		-		-			(77,946	)		-			(77,946	)
Warrants expired		-		-		76,861		(76,861	)		-			-			-
Warrants extended		-		-		-		163,181			-			(163,181	)		-
Share-based payments charged to operations		-		-		55,804		-			-			-			55,804
Balance as at January 1, 2013		20,899,177		18,014,347		2,450,791		1,132,685			(88,971	)		(21,091,550	)		417,292
Income / (loss) for the period		-		-		-		-			-			(597,726	)		(597,726	)
Issued shares – against loan 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 at September 30, 2013	$	21,779,177		18,102,347	$	2,506,297	$	1,132,685		$	(106,342	)	$	(21,689,287	)	$	(54,299	)

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, 2013

(Unaudited, expressed in Canadian Dollars, unless otherwise stated)

	For the three months ended September 30						For the nine months ended September 30
	2013			2012			2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES

Income / (Loss) for the period	$	(343,986	)	$	(743,941	)	$	(597,726	)	$	(1,479,083	)

Adjustments to Net Profit for Non Cash Items:

Depreciation / amortization		118,410			85,908			319,268			285,050
Share-based payment		11,597			145,608			55,506			187,391
Interest accretion		22,431			-			66,931			-
Unrealized foreign exchange gain / (loss)		21,836			51,565			(18,177	)		(65,741	)

Operating Loss before Working Capital Changes		(169,712	)		(460,860	)		(174,198	)		(940,901	)

Working Capital Adjustments:

(Increase)/decrease in accounts receivable		(7,180	)		(14,906	)		653,473			193,770
(Increase)/decrease in prepaid and other receivables		18,522			22,883			53,479			19,394
Increase/(decrease) in accounts payable		107,897			85,162			(63,280	)		174,504
Increase/(decrease) in accrued liabilities		46,812			(8,989	)		187,904			(12,277	)

Cash Generated from / (used in) Operations		(3,661	)		(376,710	)		657,378			(565,511	)

CASH FLOWS FROM INVESTING ACTIVITIES

Expenditures on software & web development costs		(126,522	)		(38,525	)		(358,757	)		(68,383	)

Net Cash Flows Generated from / (used in) Investing Activities		(126,522	)		(38,525	)		(358,757	)		(68,383	)

CASH FLOWS FROM FINANCING ACTIVITIES

Share capital issued during the period		-			-			-			-
Share issue costs		-			-			-			-
Advances / (repayment) of loans payable		50,000			250,000			(325,000	)		250,000

Net Cash Flows Generated from / (used in) Financing Activities		50,000			250,000			(325,000	)		250,000

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS		(80,183	)		(165,237	)		(26,379	)		(383,895	)

Cash and Cash Equivalents at the Beginning of the Period		93,052			264,109			39,248			482,767

Cash and Cash Equivalents at the End of the Period	$	12,869		$	98,872		$	12,869		$	98,872

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, 2013

(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, 2013 comprise the Company and its subsidiaries.

Lingo Media 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”); 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, 2013 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, 2013 (including comparatives) were approved and authorized for issue by the board of directors on November 25, 2013.

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, 2013. 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.

All intercompany balances, transactions, unrealized gains and losses resulting from inter-company transactions and dividends are eliminated in full.

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

September 30, 2013

(Unaudited - See Notice to Reader)

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, 2012.

5.	ACCOUNTS AND GRANTS RECEIVABLE

Accounts and grants receivable consist of:

	September 30, 2013		December 31, 2012
Trade receivable	$	695,989	$	1,429,226
Grants receivable		97,500		17,736
	$	793,489	$	1,446,962

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

September 30, 2013

(Unaudited - See Notice to Reader)

6.	PROPERTY AND EQUIPMENT

Cost, January 1, 2012	$	213,162
Additions		-
Effect of foreign exchange		(833	)
Cost, December 31, 2012	$	212,329
Additions		-
Effect of foreign exchange		933
Cost, September 30, 2013	$	213,262

Accumulated depreciation, January 1, 2012		164,841
Charge for the year		9,838
Effect of foreign exchange		(706	)
Accumulated depreciation, December 31, 2012	$	173,973
Charge for the period		5,647
Effect of foreign exchange		892
Accumulated depreciation, September 30, 2013	$	180,512

Net book value, December 31, 2012	$	38,356
Net book value, September 30, 2013	$	32,750

7.	INTANGIBLES

	Software and web development			Content Platform		Customer Relationships		Total
Cost, January 1, 2012	$	6,649,699		$	1,477,122	$	130,000	$	8,256,811
Additions		68,383			-		-		68,383
Foreign exchange effect		9,851			-		-		9,851
Cost, September 30, 2012		6,727,933			1,477,112		130,000		8,335,045
Additions		74,832			-		-		74,832
Foreign exchange effect		(10,876	)		-		-		(10,876	)
Cost, December 31, 2012		6,791,889			1,477,112		130,000		8,339,001
Additions		358,757			-		-		358,757
Foreign exchange effect		5,942			-		-		5,942
Cost, September 30, 2013		7,156,588			1,477,112		130,000		8,763,700

Accumulated depreciation, January 1, 2012		6,583,618			470,214		103,458		7,157,290
Charge for the period		29,377			221,769		26,542		277,688
Foreign exchange effect		(335	)		-		-		(335	)
Accumulated depreciation, September 30, 2012		6,612,660			691,983		130,000		7,434,643
Charge for the period		13,601			74,463		-		88,064
Foreign exchange effect		61			-		-		61
Accumulated depreciation, December 31, 2012		6,626,322			766,446		130,000		7,522,768
Charge for the period		98,308			220,960		-		319,268
Foreign exchange effect		(472	)		-		-		(472	)
Accumulated depreciation, September 30, 2013		6,724,158			987,406		130,000		7,841,564

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

September 30, 2013

(Unaudited - See Notice to Reader)

7.	INTANGIBLES (Cont’d)

Net book value, December 31, 2012		$	165,567			$	710,666				-			$	876,233
Net book value, September 30, 2013		$	432,430			$	489,706				-			$	922,136

8.	LOANS PAYABLE

	September 30, 2013			December 31, 2012
Loans payable, interest bearing at 9% per annum with monthly interest payments, secured by a general security agreement and due on September 8, 2014^(i)(ii).	$	880,000		$	890,000
Loan payable, interest bearing at 12% per annum with monthly interest payments, secured by accounts receivable and due on January 31, 2013⁽ⁱⁱⁱ⁾.		-			365,000
Loan payable, interest bearing at 12% per annum with monthly interest payments, secured by accounts receivable and due on demand⁽ⁱⁱ⁾.		50,000			-
Unamortized transaction costs		(82,455	)		(61,386	)
	$	847,545		$	1,193,614

(i)

On September 8, 2013, the Company extended the term of the $890,000 loan originally advanced on September 8, 2010 for a further one-year term. As additional consideration for the extension of the loan, the Company 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, at the market value of $0.10 per common share.

(ii)

Included in loans payable are loans amounting to $485,000 (2012 – $435,000) to related parties as disclosed in Note 17.

(iii)

During the period, an aggregate of $375,000 of loans were repaid, of which, $100,000 was to a related party.

9.	SHARE CAPITAL

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.

		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 Media at $0.60 until September 4, 2012. On closing, the Company issued 23,333 Finder's Units, 151,620 Finder's Warrants which have expired and paid a $92,135 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 financing.

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

September 30, 2013

(Unaudited - See Notice to Reader)

b)	Common shares - Transactions: (Cont’d)

		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% and a weighted average expected life of 1.5 years.

		On August 23, 2012, the expiry date of the Warrants was extended for additional 18 months to March 4, 2014.

	(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 which have expired 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.

		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% and a weighted average expected life of 1.5 years.

		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.

(iii)

On September 8, 2012, the Company extended the term of the $890,000 loan originally advanced on Sept. 8, 2010, and extended for a further one-year term on Sept. 8, 2011. As additional consideration for the extension of the loan, the Company issued to the lenders an aggregate of 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 deemed issue price of $0.25 per common share.

(iv)

On September 8, 2013, the Company extended the term of the $890,000 loan to September 8, 2014, originally advanced on September 8, 2010, and previously extended for a further one-year terms on September 8, 2011 and September 8, 2012. As additional consideration for the extension of the loan, the Company issued to the lenders an aggregate of 88,000 common shares of Lingo Media. The common shares were issued based on 10 per cent of the value of the loan, based on a market value 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.

10.	STOCK OPTIONS

	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.

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

September 30, 2013

(Unaudited - See Notice to Reader)

10.	STOCK OPTIONS (Cont’d)

	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 at January 1, 2012		2,035,070		$	0.89
Expired		(227,570	)
Forfeited		(243,500	)
Outstanding as at September 30, 2012		1,564,000		$	0.90
Granted		1,700,000
Forfeited		(193,500	)
Outstanding as at December 31, 2012		3,070,500		$	0.52
Granted		25,000
Expired		(105,000	)
Forfeited		(19,000	)
Outstanding as at September 30, 2013		2,971,500		$	0.58

Options exercisable as at September 30, 2012		1,426,000		$	0.93
Options exercisable as at December 31, 2012		1,934,534		$	0.66
Options exercisable as at September 30, 2013		2,171,336		$	0.61

The following table summarizes information about stock options outstanding at September 30, 2013:

	Options Exercisable			Options Outstanding
Expiry Date	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Number Outstanding	Weighted Average Exercise Price

5/1/2014	106,500	0.58	1.75	106,500	1.75

11/8/2014	550,000	1.11	0.24	550,000	0.24

2/15/2016	934,500	2.38	.81	1,050,000	0.80

2/16/2016	100,000	2.40	0.70	100,000	0.70

4/12/2015	12,500	1.53	0.20	25,000	0.20

11/26/2017	467,836	4.16	0.24	1,140,000	0.24
	2,171,336			2,971,500

The weighted average remaining contractual life for the stock options outstanding as at June 30, 2013 was 2.76 years (2012 – 3.19 years). The range of exercise prices for the stock options outstanding as at June 30, 2013 was $0.20 - $1.75 (2012 - $0.70 - $2.00). The weighted average grant-date fair value of options granted to employees, consultants and directors during the period has been estimated at $0.09 (2012 - $0.60) 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, 2013

(Unaudited - See Notice to Reader)

10.	STOCK OPTIONS (Cont’d)

	The vesting periods on the options granted in the past year are as follows, 550,000 stock options vested immediately upon issuance, 740,000 stock options will vest quarterly over 18 months, 25,000 stock options will vest quarterly over 12 months, and 400,000 stock options will vest upon four consecutive quarters of earnings before interest, tax, depreciation and amortization.

11.	Warrants

	The following summarizes the warrants outstanding:

Weighted

Average

Remaining

Contractual

Life (Years)

Series

Number of

Warrants

Weighted

Average

Exercise

Price

January 1, 2011

Nil

Issued

0.61

2011a

3,658,668

0.75

Issued

0.38

2011b

1,875,000

0.75

September 30, 2012

5,533,668

September 30, 2013

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, 2011

Nil

Issued

2011a

151,620

0.60

Issued

2011b

78,900

0.60

December 31, 2011

230,520

Expired

2011

(230,520

)

September 30, 2012

Nil

September 30, 2013

Nil

12.	GOVERNMENT GRANTS

	Included as a reduction of selling, general and administrative expenses are government grants of $190,813 (2012 - $119,715), relating to the Company's publishing and software projects. At the end of the period, $97,500 (2012 - $178,048) 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 to $100,000. The Company continued to dispute the audit and negotiated a final settlement of $16,263 which is recorded in income.

	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.

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

September 30, 2013

(Unaudited - See Notice to Reader)

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 $7,662 (2012 - $4,065) due to reduction in the value of net liability balance. A 10% of weakening of the US dollar against Canadian dollar at September 30, 2013 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, 2013 are as follows:

	US Denominated				China Denominated
	CAD		USD		CAD		RMB
Cash	$	2,639	$	2,566	$	1,824	$	11,655
Accounts receivable		682,103		663,202		406		2,593
Accounts payable		110,225		107,171		-		-

	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, 2013, the Company had cash of $12,869, accounts and grants receivable of $793,489 and prepaid and other receivables of $66,751 to settle current liabilities of $2,021,912

	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, 2013, the Company has outstanding receivables of $695,989. 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.

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

September 30, 2013

(Unaudited - See Notice to Reader)

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 2013 or 2012.

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.

	Segmented Information for Nine Months Ended September 30, 2013 (Before Other Financial Items Below)

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	)

September 30, 2012	Online English Language Learning			Print-Based English Language Learning			Total

Revenue		434,869			689,945			1,124,514
Segment non-current assets		1,058,319			22,471			1,080,790
Segment assets		1,274,833			1,059,613			2,334,446
Segment liabilities		569,932			1,441,637			2,011,569
Segment Income (loss)		(1,098,467	)		(2,783	)		(1,101,250	)

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

September 30, 2013

(Unaudited - See Notice to Reader)

15.

SEGMENTED INFORMATION (Cont’d)

Other Financial Items	2013			2012
Print-Based English Language Learning segment income (loss)	$	61,856		$	(2,783	)
Online English Language Learning segment income (loss)		(486,176	)		(1,098,467	)
Foreign exchange		62,048			(88,198	)
Interest expense		(179,948	)		(102,244	)
Share-based payment		(55,506	)		(187,391	)
Other comprehensive income (loss)		(17,371	)		75,735
Total Comprehensive Loss	$	(615,097	)	$	(1,403,348	)

Revenue by Geographic Region

For the nine monthe period ended September 30,	2013		2012
China	$	723,875	$	695,393
Other		259,636		429,121
	$	983,511	$	1,124,514

Identifiable Assets

As at September 30,	2013		2012
Canada	$	1,878,028	$	2,291,769
China		89,585		42,677
	$	1,967,613	$	2,334,446

16.

SUPPLEMENTAL CASH FLOW INFORMATION

	2013			2012

Income taxes and other taxes paid	$	115,151	$	108,367
Interest paid	$	70,880	$	96,880
Financing changes paid through issuance of common shares	$	88,000	$	89,000

17.	RELATED PARTY BALANCES AND TRANSACTIONS

	For the nine month period ended September 30, 2013, 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 $247,500 (2012 – $288,000) and is reflected as consulting fees to corporations owned by a director and officers of the Company. As of September 30, 2013, $371,206 of management compensation is deferred and included in current liabilities.

(b)

At September 30, 2013, the Company had loans payable due to corporations controlled by directors and officers of the Company in the amount of $485,000 (2012 - $435,000), of which, $435,000 is bearing interest at 9% per annum and $50,000 is bearing interest at 12% per annum. Interest expense related to these loans is $32,734 (2012 - $29,389).