Consolidated Financial Statements

 

Consolidated Financial Statements

(Expressed in Canadian dollars)

 

LINGO MEDIA INC.

December 31, 2004 and 2003

 

 

 

 

 

 

 

 

 

LINGO MEDIA INC.

December 31, 2004 and 2003

(Expressed in Canadian dollars)

 

 

 

 

CONTENTS

 

 

 

 

Auditor’s Report

 

Consolidated Balance Sheets

 

Consolidated Statements of Deficit

 

Consolidated Statements of Operations

 

Consolidated Statements of Cash Flows

 

Notes to Consolidated Financial Statements

 

 

 

 

 

 

 

AUDITORS' REPORT

 

To the Directors of

 

Lingo Media Inc.

 

We have audited the consolidated balance sheets of Lingo Media Inc. as at December 31, 2004 and 2003, and the consolidated statements of operations, deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audits in accordance with the Canadian generally accepted auditing standards and with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.

 

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2004 and 2003, and the results of operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

 

 

 

Toronto, Ontario

 

“Mintz & Partners LLP”

April 26, 2005                                                                                              CHARTERED ACCOUNTANTS

 

 

 

 

 

Lingo Media Inc.

Consolidated Balance Sheets

(Expressed in Canadian dollars)

 

 

 

See accompanying notes to consolidated financial statements.

 

Approved on behalf of the Board:

 

“Richard Boxer”

_______________________________ Director

 

 

“Khurram Qureshi”

_______________________________ Director

 

 

 

 

LINGO MEDIA INC.

Consolidated Statements of Deficit

(Expressed in Canadian dollars)

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

LINGO MEDIA INC.

Consolidated Statements of Operations

(Expressed in Canadian dollars)

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

LINGO MEDIA INC.

Consolidated Statements of Cash Flows

(Expressed in Canadian dollars)

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

LINGO MEDIA INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2004 and 2003

______________________________________

 

 

Lingo Media Inc. (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 and retail bookstore market in China and for the educational school market in Canada.  

 

1.

Significant accounting policies:

 

(a)

Basis of presentation:

 

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles applicable to a going concern, on the basis that the company will continue to generate sufficient capital to fund its operations. Significant differences between Canadian generally accepted accounting principles and United States generally accepted accounting principles, as they relate to these consolidated financial statements, are explained in note 19.

 

These consolidated financial statements include the accounts of the Company and its subsidiaries, Lingo Media Ltd., Lingo Media International Inc. and Lingo Group Limited (formerly ”EnglishLingo, Inc.”)  All significant inter-company transactions and balances have been eliminated.

 

(b)

Change in accounting policy

 

Effective January 1, 2004, the CICA handbook, Section 3870, "Stock-Based Compensation and Other Stock-Based Payments" was amended to require expense treatment of all stock-based compensation and payments for options granted beginning on or after January 1, 2002. As permitted by this standard, this change in accounting policy has been applied retroactively without restatement of the prior years' financial statements. In 2004, this change resulted in an increase of $8,842 to the opening deficit as at January 1, 2004 and an increase of $8,842 to contributed surplus. As a result of the change in accounting policy the previously recognized deferred stock-based compensation of $3,500 and $50,000 in 2003 and 2002 respectively has been reversed resulting in a decrease in share capital of $53,500 in 2003.

 

(c)

Revenue recognition:

 

Royalty revenue from finished products is recognized based on confirmation of finished products produced by its licensees and royalty revenue from audiovisual product is recognized based on the confirmation of sales by its licensees, and when collectibility is reasonably assured.  Royalty revenues are not subject to right of return or product warranties. Amounts received in advance of the confirmation are treated as customer deposits. Revenue from the sale of published and supplemental products is recognized upon delivery and when the risk of ownership is transferred and collectibility is reasonably assured.

 

(d)

Accounts