Everybody Loves Languages 20F/A 2011 Annual report (foreign) (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Annual Report

FORM 20-F/A

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .

For the transition period from __________ to ________

Commission file number 333-98397

LINGO MEDIA CORPORATION

(FORMERLY LINGO MEDIA INC.)

(Exact name of Registrant as specified in its charter)

Ontario, Canada

(Jurisdiction of incorporation or organization)

151 Bloor Street West, #703, Toronto, Ontario, Canada M5S 1S4

(Address of principal executive offices)

Michael Kraft, President & CEO

Tel: (416) 927-7000 Facsimile: (416) 927-1222

Lingo Media Corporation 151 Bloor Street West, #703, Toronto, Ontario, Canada M5S 1S4

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities to be registered pursuant to Section 12(b) of the Act:

None

Securities to be registered pursuant to Section 12(g) of the Act:

Common Shares, without par value

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 20,543,177

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act

Yes ___ No X

If this report is an annual transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ___ No X

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ___ No X

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ___ Accelerated Filer ___ Non-accelerated filer X

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ___ International Financial Reporting Standards as issued by Other ___

the International Accounting Standards Board X

If “Other” has been checked in response to the previous question mark, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ___ Item 18 ___

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ___ No X

LINGO MEDIA CORPORATION

FORM 20-F/A ANNUAL REPORT

TABLE OF CONTENTS

PART I

Item 1. Identity of Directors, Senior Management and Advisors 4

Item 2. Offer Statistics and Expected Timetable.............. 4

Item 3. Key Information...................................... 4

Item 4. Information on the Company........................... 11

Item 5. Operating and Financial Review and Prospects........... 18

Item 6. Directors, Senior Management and Employees........... 29

Item 7. Major Shareholders and Related Party Transactions.... 39

Item 8. Financial Information................................ 40

Item 9. The Offer and Listing................................ 40

Item 10. Additional Information............................... 43

Item 11. Quantitative and Qualitative Disclosures About Market Risk................................... 54

Item 12. Description of Securities Other Than Equity Securities................................... 55

PART II

Item 13. Default, Dividend Arrearages and Delinquencies....... 55

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds................ 55

Item 15. Controls and Procedures......................... .....55

Item 16.A. Audit Committee Financial Expert......................... .....56

Item 16.B. Code of Ethics......................... .....57

Item 16.C. Principal Accountant Fees and Services......................... .....57

Item 16.D. Exemptions From the Listing Standards for Audit Committees......................... .....57

Item 16.E. Purchase of Equity Securities By the Issuer and Affiliated Purchases......................... .....57

PART III

Item 17. Financial Statements................................. 57

Item 18. Financial Statements................................. 58

Item 19. Exhibits............................................. 58

Forward-Looking Statements

This Annual Report on Form 20-F contains certain forward-looking statements, which reflect management’s expectations regarding the Company’s results of operations, performance, growth, and business prospects and opportunities.

Statements about the Company’s future plans and intentions, results, levels of activity, performance, goals or achievements or other future events constitute forward-looking statements. Wherever possible, words such as "may," "will," "should," "could," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," or "potential" or the negative or other variations of these words, or similar words or phrases, have been used to identify these forward-looking statements. These statements reflect management’s current beliefs and are based on information currently available to management as at the date hereof.

Forward-looking statements involve significant risk, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and readers should not place undue reliance on the forward-looking statements. Although the forward-looking statements contained in this Annual Report are based upon what management believes to be reasonable assumptions, the Company cannot assure readers that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this Annual Report, and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by law. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including: general economic and market segment conditions, competitor activity, product capability and acceptance, international risk and currency exchange rates and technology changes. More detailed assessment of the risks that could cause actual results to materially differ than current expectations is contained in the sections entitled "Risk Factors", “Information on the Company” and “Operating and Financial Review and Prospects”.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY 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 under the symbol LM and inter-listed on the OTC Bulletin Board under the symbol LMDCF. The consolidated financial statements of the Company as at and for the year ended December 31, 2011 comprise the Company and its subsidiaries.

Lingo Media Corporation is an ESL industry acquisition company in online and print-based education product 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 marketed under the Q Group brand. 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 in China. (See Item 4 “Information on the Company – History and Development of the Company”)

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.

3.A Selected Financial Data

Conversion to International Financial Reporting Standards

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). These are the Company’s first annual consolidated financial statements prepared in accordance with IFRS. The Company previously applied the available standards under previous Canadian Accepted Accounting Principles (“Canadian GAAP”) that were issued by the Accounting Standards Board of Canada. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in Note 22 “Transition to IFRS” of our consolidated financial statements for the year ended December 31, 2011 included elsewhere herein. As required by IFRS 1 “First-time Adoption of International Financial Reporting Standards”, January 1, 2010 has been considered to be the date of transition to IFRS by the Company. Therefore, the comparative figures that were previously reported under previous Canadian GAAP for the 2010 fiscal year have been restated in accordance with IFRS.

The selected financial data should be read in conjunction with the consolidated financial statements and other financial information included elsewhere in the Annual Report.

Lingo Media Corporation (the “Company” or “Lingo Media”) has not declared any dividends since incorporation and does not anticipate that it will do so in the foreseeable future. The present policy of the Company is to retain any future earnings for use in its operations and the expansion of its business.

The following data for the fiscal years ended December 31, 2011 and 2010 is derived from our consolidated financial statements prepared in accordance with IFRS and expressed in Canadian Dollars.

	Fiscal Year Ended December 31
	2011			2010

Revenue		$2,066,969			$1,985,153
Loss from Operations		(4,203,274	)		(3,477,491	)
Total Comprehensive Loss		(4,634,468	)		(3,395,245	)
Total Assets		3,049,175			5,696,341
Current Assets		1,761,715			1,255,472
Issued Share Capital		20,543,177			13,949,189
Weighted Number of Common Shares		18,797,185			13,277,226
Total Equity		1,449,834			1,890,826
Dividends per Common Share	NIL			NIL
Basic and Diluted Loss per Share		$(0.25	)		$(0.26	)

The following selected financial data has been extracted from the consolidated financial statements (previously filed with our Annual Reports on Form 20-F) for the 2009, 2008, and 2007 fiscal years, which were prepared in accordance with Canadian GAAP and reconciled to accounting principles generally accepted in the United States (“US GAAP”).

	Fiscal Year Ended December 31
	2009			2008			2007

Revenue from Continuing Operations		$1,466,696			$969,128			$879,626
Loss from Continuing Operations		(2,959,145	)		(2,311,474	)		(632,192	)
Loss from Discontinued Operations		367,293			(1,571,369	)		(292,848	)
Total Comprehensive Loss		(2,591,852	)		(3,882,843	)		(925,040	)
Total Assets		5,703,152			8,526,792			8,162,401
Current Assets		847,976			3,117,249			1,716,903
Issued Share Capital		12,465,857			12,457,607			9,582,262
Weighted Number of Common Shares		12,460,930			10,426,861			5,655,792
Total Equity		4,415,042			6,640,382			5,885,677
Dividends per Common Share	NIL			NIL			NIL
Basic and Diluted Loss per Share
from Continuing Operations		(0.24	)		(0.22	)		(0.11	)
Basic and Diluted Loss per Share
from Discontinued Operations		0.03			(0.15	)		(0.05	)

US GAAP Loss from Continuing Operations		(2,396,266	)		(3,125,218	)		(4,884,728	)
US GAAP Loss from Discontinued Operations		367,293			(1,571,369	)		(292,848	)
US GAAP Total Comprehensive Loss		(2,028,973	)		(4,696,587	)		(5,177,576	)
US GAAP Total Assets		921,327			3,182,088			3,542,150
US GAAP Equity		(366,783	)		(1,295,678	)		(1,354,717	)
US GAAP Loss per Share
from Continuing Operations		(0.19	)		(0.30	)		(0.86	)
US GAAP Loss per Share
from Discontinued Operations		(0.16	)		(0.45	)		(0.92	)

3.A.3. Exchange Rates

In this Annual Report, unless otherwise specified, all dollar amounts are expressed in Canadian Dollars ($). The Government of Canada permits a floating exchange rate to determine the value of the Canadian Dollar against the U.S. Dollar (USD).

The table sets forth the rate of exchange for the Canadian Dollar at the end of the five most recent fiscal periods ended December 31st, the average rates for the period and the range of high and low rates for the period. The data for each month during the previous twelve months is also provided.

Table No. 4

U.S. Dollar/Canadian Dollar

	Average	High	Low	Close
Apr-12	0.9927	1.0042	0.981	0.9879
Mar-12	0.9935	1.0006	0.9859	1.0025
Feb-12	0.997	1.0028	0.9895	0.9895
Jan-12	1.0127	1.027	1.0007	1.0028
Dec-11	1.0241	1.0396	1.0096	1.017
Nov-11	1.0257	1.0494	1.0081	1.0203
Oct-11	1.0191	1.0549	0.9913	0.9967
Sep-11	1.003	1.0482	0.9755	1.0482
Aug-11	0.9824	0.9948	0.9602	0.9794
Jul-11	0.9558	0.969	0.9428	0.9555
Jun-11	0.9773	0.987	0.9645	0.9645
May-11	0.9678	0.9787	0.9508	0.9686

Fiscal Yr Ended Dec. 31, 2011	0.9959	1.0130	0.98	0.9944
Fiscal Yr Ended Dec. 31, 2010	1.0295	1.0778	0.9946	0.9946
Fiscal Yr Ended Dec. 31, 2009	1.0839	1.3001	0.9961	1.0264
Fiscal Yr Ended Dec. 31, 2008	1.0592	1.2968	0.9719	1.2246
Fiscal Yr Ended Dec. 31, 2007	1.0697	1.1853	0.917	0.9881

3.B. Capitalization and Indebtedness

Not applicable

3.C. Reasons for the Offer and Use of Proceeds

Not applicable

3.D. Risk Factors

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 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 set out below.

Management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner. The Company’s senior management oversees the management of these risks. The Board of Directors reviews and agrees on policies for managing each of these risks which are summarized below.

Risk of History of Losses

The Company has had a history of losses and there is no assurance that it can reach profitability in the future. The Company will require significant additional funding to meet its business objectives. Capital will need to be available to help expand not only the Company’s product line but also to improve market penetration and sales through an increasing distribution network.

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 US Dollars against Canadian Dollars would have increased the net equity by $39,393 (2010 - $118,884) due to reduction in the value of net liability balance. A 10% of weakening of the US Dollar against Canadian Dollar at December 31, 2011 would have had the equal but opposite effect.

The significant financial instruments of the Company, their carrying values and the exposure to USD denominated monetary assets and liabilities, as of December 31, 2011 are as follows:

	US Denominated				China Denominated				Taiwan Denominated
	CAD		USD		CAD		RMB		CAD		NTW
Cash		384,584		378,156		45,834		283,625		-		-
Accounts receivable		293,216		288,315		749,514		4,638,079		-		-
Accounts payable		13,049		12,831		-		-		-		-

USD, RMB and New Taiwan Dollars are converted at the prevailing year-end exchange rates.

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 December 31, 2011, the Company had cash and cash equivalent of $482,767, accounts and grants receivable of $1,175,330 and prepaid and other receivables of $103,618 to settle current liabilities of $1,599,399.

Economic Dependence

The Company has sales to a major customer in 2011 and 2010, a government agency of the People’s Republic of China. The total percentage of sales to this customer during the year was 64% (2010 – 59%) and the total percentage of accounts receivable at December 31, 2011 was 63% (2010 – 45%).

Market Trends and Business Uncertainties

Lingo Media believes that the trends in English language learning in China are strong and continue to grow. Developing countries around the world, specifically in the Far East and Latin America are expanding their mandates for the teaching of English to students, young professionals and adults. Although the outlook for learning English in China, other Far East countries, and Latin America remains positive, there can be no assurance that this trend will continue or that the Company will benefit from this trend.

If our major customer and distributors of our print-based products in China fail to devote sufficient time and resources to our business, or if their performance is substandard, our revenues will be adversely affected. We have no experience in directly distributing our products in China and no internal capability to do so yet. We have and will continue to establish collaborative relationships, and those relationships may expose us to a number of other unidentifiable risks.

Competitive Markets

We operate in competitive and evolving markets locally, nationally and globally. These markets are subject to rapid technological change and changes in customer preferences and demand. There can be no assurance that we will be able to obtain market acceptance or compete for market share. We must be able to keep current with the rapidly changing technologies, to adapt its services to evolving industry standards and to improve the performance and reliability of its services. New technologies could enable competitive product offerings and adversely affect us and our failure to adapt to such changes could seriously harm its business.

Failure Of Delivery Infrastructure to Perform Consistently

Our success as a business depends, in part, on its ability to provide consistently high quality online services to users via the Delivery Infrastructure. There is no guarantee that the Company’s Delivery Infrastructure and/or its software will not experience problems or other performance issues. If the Delivery Infrastructure or software fails or suffers performance problems, then it would likely affect the quality and interrupt the continuation of our services and significantly harm the business.

The Company’s Delivery Infrastructure is susceptible to natural or man-made disasters such as earthquakes, floods, fires, power loss and sabotage, as well as interruptions from technology malfunctions, computer viruses and hacker attacks. Other potential service interruptions may result from unanticipated demands on network infrastructure, increased traffic or problems in customer service. Significant disruptions in the Delivery Infrastructure could harm the Company’s goodwill and its brands and ultimately could significantly and negatively impact the amount of revenue it may earn from its service. Like all Internet transmissions, our services may be subject to interception and malicious attack. Pirates may be able to obtain or copy our products without paying fees. The Delivery Infrastructure is exposed to spam, viruses, worms, spyware, denial of service or other attacks by hackers and other acts of malice. The Company uses security measures intended to make theft of its software more difficult. However, if the Company is required to upgrade or replace existing security technology, the cost of such security upgrades or replacements could have a material adverse effect on our financial condition, profitability and cash flows.

Limited Intellectual Property Protection

The Company relies on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect its proprietary rights. In addition, our success may depend, in part, on its ability to obtain patent protection and operate without infringing the rights of third parties. There can be no assurance that, once filed, the Company’s patent applications will be successful, that we will develop future proprietary products that are patentable, that any issued patents will provide us with any competitive advantages or will not be successfully challenged by any third parties or that the patents of others will not have an adverse effect on the ability of the Company to do business. In addition, there can be no assurance that others will not independently develop similar products, duplicate some or all of our products or, if patents are issued, design their products so as to circumvent the patent protection held by the Company. We will seek to protect its product documentation and other written materials under trade secret and copyright laws which afford only limited protection. Despite precautions taken by the Company, it may be possible for unauthorized third parties to copy aspects of our business and marketing plans or future strategic documents or to obtain and use information that we regard as proprietary. There can be no assurance that the Company’s means of protecting its proprietary rights will be adequate or that our competitors will not independently develop similar or superior technology. Litigation may be necessary in the future to enforce our intellectual property rights, to protect trade secrets or to determine the validity and scope of the propriety rights of others. Such litigation could result in substantial costs and diversion of resources.

Government Regulation and Licensing

The operations may be subject to Canadian and foreign provincial and/or state and federal regulations and licensing. There can be no assurance that we will be able to comply with the regulations or secure and maintain the required licensing for its operations. Government regulation and licensing could seriously impact our ability to achieve its financial and operational objectives. The Company is subject to local, provincial and/or state, federal, and international laws affecting companies conducting business on the Internet, including user privacy laws, laws giving special protection to children, regulations prohibiting unfair and deceptive trade practices and laws addressing issues such as freedom of expression, pricing and access charges, quality of products and services, taxation, advertising, intellectual property rights and information security. The restrictions imposed by and the costs of complying with, current and possible future laws and regulations related to its business could limit our growth and reduce client base and revenue.

Operating in Foreign Jurisdictions

The Company’s current and future development opportunities relate to geographical areas outside of Canada. There are a number of risks inherent in international business activities, including government policies concerning the import and export of goods and services, costs of localizing products and subcontractors in foreign countries, costs associated with the use of foreign agents, potentially adverse tax consequences, limits on repatriation of earnings, the burdens of complying with a wide variety of foreign laws, nationalization and possible social, labour, political and economic instability. There can be no assurance that such risks will not adversely affect the business, financial condition and results of operations. Furthermore, a portion of expenditures and revenues will be in currencies other than the Canadian Dollar. Foreign exchange exposure may change over time with changes in the geographic mix of its business activities. Foreign currencies may be unfavourably impacted by global developments, country-specific events and many other factors. As a result, future results may be adversely affected by significant foreign exchange fluctuations.

Economic Conditions

Unfavourable economic and market conditions could increase our financing costs, reduce demand for its products and services, limit access to capital markets and negatively impact any access to future credit facilities. Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns.

Working Capital

We may need to raise additional funds in order to finance our operations. The Company expects that corporate growth will be funded from equity and/or debt financing(s) to help generate needed capital. Insuring that capital is available to increase production; sales and marketing capacity; and to provide support materials and training in the market place and to expand is essential to success. There can be no assurance that financing will be available on terms favorable to us, or at all. If adequate funds are not available on acceptable terms, we may be forced to curtail or cease our operations. Even if we are able to continue our operations, the failure to obtain financing could have a substantial adverse effect on our business and financial results.

Our Public Trading Market is Highly Volatile

The Company's common shares trade on the TSX Venture Exchange under the symbol "LM", and on NASD:OTC BB under the symbol “LMDCF”.

The market price of our common shares could fluctuate substantially due to:

§	Quarterly fluctuations in operating results;

§	Announcements of new products or services by us or our competitors;

§	Technological innovations by us or our competitors;

§	General market conditions or market conditions specific to our or our customer’s industries; or

§	Changes in earning estimates or recommendations by analysts.

Penny Stock Rules

Our common shares are quoted on the OTC Electronic Bulletin Board; a FINRA sponsored and operated quotation system for equity securities. It is a more limited trading market than the NASDAQ Capital Market, and timely, accurate quotations of the price of our common shares may not always be available. You may expect trading volume to be low in such a market. Consequently, the activity of only a few shares may affect the market and may result in wide swings in price and in volume.

Our common shares are listed on the OTC Bulletin Board, and are subject to the requirements of Rule 15(g) 9, promulgated under the Securities Exchange Act as long as the price of our common shares is below $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser’s consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trade involving a stock defined as a penny stock. Generally, the Commission defines a penny stock as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.

The stock market has experienced significant price and volume fluctuations, and the market prices of companies, have been highly volatile. Investors may not be able to sell their shares at or above the then current, OTC BB price. In addition, our results of operations during future fiscal periods might fail to meet the expectations of stock market analysts and investors. This failure could lead the market price of our common shares to decline.

There is Uncertainty as to the Company’s Shareholders’ Ability to Enforce Civil Liabilities Both Within and Outside of the United States

The preponderance of our assets are located outside the United States and are held through companies incorporated under the laws of Canada, Barbados, and Hong Kong and Representative Offices in China and Taiwan. In addition, a majority of our directors and officers are nationals and/or residents of countries other than the United States. All or a substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for shareholders to effect service of process within the United States upon these persons. In addition, investors may have difficulty enforcing, both in and outside the United States, judgments based upon the civil liability provisions of the Securities laws of the United States or any State thereof.

ITEM 4. INFORMATION ON THE COMPANY

4.A. History and Development of the Company

Incorporation and Name Changes

The Company was incorporated under the name Alpha Publishing Inc. pursuant to the Business Corporations Act (Alberta) on April 22, 1996. The name was changed to Alpha Ventures Inc. on May 24, 1996. Pursuant to Articles of Continuance effective April 22, 1998, the Company was continued as an Ontario company under the provisions of the Business Corporations Act (Ontario) under the name, Alpha Communications Corp. The name was changed to Lingo Media Inc. on July 4, 2000, and changed to Lingo Media Corporation on October 16, 2007.

The Company currently has eight active subsidiaries: Lingo Learning Inc. "LLI", Lingo Media International Inc. "LMII", Speak2Me Inc. “S2M”, Speak2Me International Inc. “S2MII”, Speak2Me (Hong Kong) Limited “S2MHK”,, Speak2Me (Beijing) “S2MBJ”, Parlo Corporation “Parlo” and ELL Technologies Limited (“ELL Tech”).

LLI was incorporated pursuant to the Business Corporations Act (Ontario) on November 21, 1994 under the name Alpha Corporation. Alpha Corporation changed its name to Lingo Media Ltd. on August 25, 2000 and again on March 6, 2008 to Lingo Learning Inc.

LMII was incorporated pursuant to the Companies Act of Barbados on September 11, 1996 under the name International Alpha Ventures Inc. On May 13, 1997, wholly-owned subsidiary's name was changed to International Alpha Media, Inc. and then was changed to Lingo Media International Inc. on September 20, 2000.

S2M was incorporated pursuant to the Business Corporations Act (Ontario) on February 22, 2007.

S2MII was incorporated pursuant to the Companies Act of Barbados on October 15, 1996 under the name Consolidated Sino Ventures Ltd. On March 20, 2008, wholly-owned subsidiary’s name was changed to Speak2Me International Inc. under the Companies Act of Barbados.

S2MHK was incorporated pursuant to the Companies Ordinance, Hong Kong on March 12, 2008.

S2MBJ was incorporated under the laws of the People’s Republic of China on May 22, 2008.

Parlo was incorporated pursuant to the Business Corporations Act (Ontario) on September 24, 2009.

ELL Tech was incorporated pursuant to the Companies Acts 1985 to 1989 of England and Wales on May 23, 2005 under the name Q Group Limited. On April 29, 2010, after acquiring this wholly-owned subsidiary, its name was changed to ELL Technologies Limited.

The Company’s Executive Office is located at:

151 Bloor Street West

Suite 703

Toronto, Ontario, Canada M5S 1S4

Telephone: (416) 927-7000

Facsimile: (416) 927-1222

E-mail: investor@lingomedia.com

Website: www.lingomedia.com

The Company’s Beijing Representative Office is located at:

Room 1113, 11/F

Block A, Gateway, #18 Xiaguangli North Road

East Third Ring Chaoyang District

Beijing 100027

China

The Company's fiscal year ends on December 31st.

The Company's common shares trade on the TSX Venture Exchange under the symbol "LM", and on the OTC BB under the symbol “LMDCF” and are quoted on the Berlin-Bremen Stock Exchange under the symbol “LIM.BE” and the German securities code is (WKN) 121226.

4.B. BUSINESS OVERVIEW

Background

Lingo Media Corporation is an ESL industry acquisition company that is Changing the way the world learns English, 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 marketed under the Q Group brand (www.elltechnologies.com). Parlo is a fee-based online ELL training and assessment service (www.parlo.com). Speak2Me is a free-to-consumer advertising-based online ELL service in China (www.speak2me.cn). Lingo Learning is a print-based publisher of ELL programs in China. Lingo Media has formed successful relationships with key government and industry organizations, establishing a strong presence in China's education market of more than 300 million students. The Company continues to expand its ELL offerings and is extending its reach globally.

As of December 31, 2011, the Company operated three distinct business segments as follows:

Print-Based English Language Learning

The Company continues to maintain its legacy business through its subsidiary Lingo Learning, a print-based publisher of English language learning programs in China since 2001. Lingo Learning has an established presence in China’s education market of over 300 million students. To date, it has co-published more than 395 million units from its library of more than 360 program titles in China.

Lingo Media’s strengths and opportunities lie in its approach to the development of original language learning materials including English as a Second/Foreign Language (ESL/EFL) and English for Special Purposes (ESP). In China, the Company pre-sells its program to educational ministries through co-publishing with local publishers, while retaining full copyright ownership and distribution rights for all other markets.

China Publishing

Lingo Media has spent 15 years developing English Language Learning (ELL), products, programs, and relationships in the Chinese market. Learning to communicate in English is seen as a top priority for Chinese school students and young adult learners. Along with learning how to use a PC, English skills are perceived as a key determinant of their future levels of prosperity. The Company’s ELL books, audio and CD-based programs are unique in that they have a special focus on the spoken language. In addition to developing learning materials, considerable resources have been expended on the development of relationships with leading Chinese publishers, both in the education and trade sectors, as well as in extensive marketing of Lingo Media’s programs.

The Company is capitalizing on its co-development approach in the Chinese market. Lingo Media sees its relationships with leading Chinese publishers; its Canadian and Chinese author teams; and its original custom-developed content as key factors in opening up the Chinese educational market. The Company has secured long-term publishing contracts for the Kindergarten to Grade 12 (K-12) and higher educational markets, which it anticipates will generate ongoing revenue streams from the sale of its programs.

Seasonality

The Company may experience some seasonal trends in the sale of its publications. For example, sales of educational published materials experience seasonal fluctuations with higher sales in the Spring (second calendar quarter) and Fall (fourth calendar quarter).

Co-Publishing Partners in China

People's Education Press

People's Education Press (“PEP”) a division of China's State Ministry of Education, publishes more than 60% of educational materials for the Kindergarten to Grade 12 (“K-12”) market throughout China, for all subjects, including English Language Learning. PEP has a readership of more than 120 million students. Lingo Learning has four programs with PEP. Three series target the elementary market of 100 million students: PEP Primary English (for Grades 3-6; Chinese students now begin learning English in Grade 3); Starting Line (Grades 1-6); and Beginning English for Young Learners (Grades 1 and 2). The Reading Practice series is for junior middle school students. All series include the core textbooks in addition to supplemental activity books, audiocassettes, teacher resource books, and other materials.

Online English Language Learning

(i) Training

To further leverage its Speak2Me lesson library and technology platform, the Company has expanded its online offerings to include fee-based spoken English training solutions for corporations, governments, educational institutions, and consumers. This fee-based training service incorporates a reporting platform in the form of a Learning Management System for HR administrators. Parlo also offers customized solutions to tailor to clients’ needs.

In May 2010, the Company acquired ELL Technologies which offers over 1,700 hours of interactive learning through a number of product offerings that include Q English, Q Business, Q Kids, and Q Traveler and other tailor-made solutions. ELL Technologies sells in over 22 countries through a network of distributors and earns its revenues from licensing and subscription fees.

(ii) Social Learning

Through its free-to-consumer www.speak2me.cn website, the Company operates an online English language learning service in China that includes a unique social learning infrastructure. This website incorporates its proven pedagogy with fun, interactive lesson modules to address the rapidly growing need for spoken English in China. Speak2Me's platform uses speech recognition technology to teach spoken English online through more than 350 targeted lessons that engage users in interactive conversations with a virtual instructor. The www.speak2me.cn website generates its revenue from its Conversational Advertising™ which allows an advertiser to embed its brand and message inside a lesson that engages a user for 2-3 minutes and from sponsorship advertising.

Segmented Information (Before Other Financial Items Below)

	Online			Print-Based
	English			English
	Language			Language
	Learning			Learning		Total
Revenue		829,589			1,237,380		2,066,969
Acquisition of property and equipment		2,251			334		2,585
Segment assets		1,610,229			1,438,946		3,049,175
Segment income (loss)		(4,249,437	)		358,908		(3,890,529	)

For Print-Based English Language Learning Segment

	2011		2010
Revenue		1,237,380		1,127,818
Acquisition of property and equipment		334		968
Segment assets		1,757,859		1,665,740
Segment income (loss)		358,908		(684,542	)

For Online English Language Learning Segment

	2011			2010
Revenue		829,589			857,335
Acquisition of property and equipment		2,251			2,104
Segment assets		1,287,133			4,030,600
Segment income (loss)		(4,249,437	)		(2,427,641	)

Other Financial Items

	2011			2010
Foreign exchange		(19,709	)		24,177
Interest and other financial		328,112			294,675
Stock-based compensation		518,114			(31,609	)
Accumulated other comprehensive income		(82,579	)		(4,181	)
Total		743,938			283,062

Revenue by Geographic Region

	2011		2010
China		$1,320,945		$1,311,850
Other		746,024		673,303
		$2,066,969		$1,985,153

Identifiable Assets

	2011		2010
Canada		$2,923,211		$5,665,434
China		121,964		30,907
		$3,049,175		$5,596,341

Intangibles

In October 2007, the Company acquired Speak2Me, an online media company that has developed software combining speech recognition and animation technology for the teaching and practice of spoken English. From that point until late 2009, the Company continued to develop this technology and capitalized it as software and web development costs. Upon acquisition of ELL Technologies in 2010, the Company started capitalizing costs related to their new software and web development initiatives.

			Accumulated
December 31, 2011	Cost		Amortization		Net
Software and web development(i)		$5,931,786		$5,865,705		$66,081
Content platform(ii)		1,477,112		470,214		1,006,898
Customer relationships(iii)		130,000		103,458		26,542
		$7,538,898		$6,439,377		$1,099,521

December 31, 2010	Cost		Accumulated Amortization		Net
Software and web development(i)		$6,583,227		$3,625,947		$2,957,280
Content platform(ii)		1,477,122		292,202		1,184,920
Customer relationships(iii)		130,000		37,917		92,083
		$8,130,349		$3,966,066		$4,234,283

January 1, 2010	Cost	Accumulated Amortization	Net
Software and web development(i)	$6,153,543	$1,395,736	$4,757,807
Content platform(ii)	-	-	-
Customer relationships(iii)	-	-	-
	$6,153,543	$1,395,736	$4,757,807

(i)

The Company began commercial production and sale of its services and products during 2009 and started amortizing the cost of software and web development costs on a straight-line basis over the useful life of the assets which is estimated to be 3 years. At the year end, Management assessed the value of this asset and found it to be impaired. Accordingly, an impairment loss of $703,600 was recorded.

(ii)	In 2010, the Company acquired a content platform, which was already commercialized. The content platform costs are being amortized on a straight-line basis over the useful life of the assets which is estimated to be 5 years.

(iii)

In 2010, the Company acquired customer relationships from its acquisition. The customer relationships are being amortized on a straight-line basis over the useful life of the assets which is estimated to be 2 years.

4.C. Organization Structure

See 4.A. “History and Development of the Company” for more information.

Name of subsidiary	Principal activity	Place of incorporation	Proportion of ownership interest and voting rights held
		and operation	December 31, 2011	December 31, 2010	January 1, 2010
Lingo Learning Inc.	Developer and publisher of English language learning print and audio-based products	Canada	100%	100%	100%

Speak2Me Inc.	Free English language learning online service	Canada	100%	100%	100%

Parlo Corporation	Fee-based English language learning online training & assessment service	Canada	100%	100%	100%

ELL Technologies Limited	English language learning multi-media & online training service	U.K	100%	100%	100%

Lingo Media International Inc.	Marketer and distributor of Lingo Learning products	Barbados	100%	100%	100%

Speak2Me International Inc.	Holding Company	Barbados	100%	100%	100%

Speak2Me (Hong Kong) Limited	Holding Company	Hong Kong	100%	100%	100%

Speak2Me Education Information & Technology Co. Ltd.	Marketing and sales of Speak2Me service and products	China	100%	100%	100%

Lingo Group Limited	Holding Company	Canada	83.3%	83.3%	83.3%

4.D. Property and Equipment

The Company’s executive offices are located in rented premises of approximately 4,270 sq. ft. at 151 Bloor Street West, Suite 703, Toronto, Ontario, Canada M5S 1S4. The Company began occupying these facilities, through its subsidiary Lingo Learning Inc. in March 2006.

The Company’s Beijing representative offices are located in rented premises of approximately 2,174 sq. ft. at Room 1113, 11/F, Block A, Gateway, #18 Xiaguangli North Road, East Third Ring Chaoyang District, Beijing 100027, China

The Company has office equipment, furniture and computer equipment located in these offices and for the fiscal years ended December 31, 2011, 2010, 2009, 2008, and 2007 they have a net carrying value of $48,321, $58,161, $73,351, $64,839, and $73,144 respectively.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion for the fiscal years ended December 31, 2011, and December 31, 2010 should be read in conjunction with the consolidated financial statements of the Company and the notes thereon.

The following discussion contains forward-looking statements that are subject to significant risks and uncertainties. Readers should carefully review the risk factors described herein and in other documents the Company files from time to time with the Securities and Exchange Commission.

5.A Overview

Critical Accounting Policies and Estimates

BASIS OF PREPRATION

Statement of compliance and going concern

These consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). These are the Company’s first consolidated annual financial statements prepared in accordance with IFRS. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in Note 22 of the consolidated financial statements enclosed herein.

The Company’s consolidated financial statements are 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 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.

Basis of measurement

These consolidated financial statements have been prepared on the historical cost basis. The comparative figures presented in these consolidated financial statements are in accordance with IFRS and any changes from figures previously reported under Canadian GAAP have been discussed in Note 22 of the consolidated financial statements enclosed herein.

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and the entities controlled by the Company (i.e. subsidiaries) as at December 31, 2011. 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 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.

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 Speak2Me Inc. 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”.

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 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 impairment loss

· Income taxes

· Valuation of share-based payments

SUMMARY OF SIGINFICANT ACCOUTING POLICIES

Revenue recognition

Royalty revenue from licensing sales in China is recognized based on confirmation of finished products produced by its licensees and when collectability is reasonably assured. Royalty revenue from audiovisual products is recognized based on the confirmation of sales by its licensees, and when collectability is reasonably assured. Royalty revenues are not subject to right of return or product warranties. Revenue from the sale of published and supplemental products is recognized upon delivery and when the risk of ownership is transferred and collectability is reasonably assured.

Revenue from fee-based English language training and assessment services and licenses are recognized on a straight line basis over the term of the agreement and when collectability is reasonably assured.

Revenue from online advertising and sponsorships in China is recognized at the time of delivery and when collectability is reasonably assured.

Comprehensive income

Comprehensive income measures net earnings for the period plus other comprehensive income. Other comprehensive income consists of changes in equity from non-owner sources, such as unrealized gains and losses on available for sale financial assets, changes to unrealized gains and losses on the effective portion of cash flow hedges and changes to foreign currency translation adjustments of foreign operations during the period. Amounts reported as other comprehensive income are accumulated in a separate component of shareholders’ equity as Accumulated Other Comprehensive Income.

Property and equipment

Property and equipment are initially recorded at cost. Amortization is provided using methods outlined below at rates intended to amortize the cost of assets over their estimated useful lives.

Method

Rate

Computer and office equipment

Declining balance 20%

The Company’s policy is to record an impairment loss in the period when it is determined that the carrying amount of the asset may not be recoverable.

Publishing development costs

The Company capitalizes costs related to English language learning products and programs when the feasibility and profitability of the project can be reasonably considered certain. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalized if the product or process is technically and commercially feasible and the Company has sufficient resources to complete development. The expenditure capitalized includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognized in the income statement as an expense as incurred. Capitalized development expenditure is stated at cost less accumulated amortization and impairment losses.

Software and web development costs

The Company capitalizes all costs related to the development of its free-to-consumer and fee-based English language learning services when the feasibility and profitability of the project can be reasonably considered certain. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalized if the product or process is technically and commercially feasible and the Company has sufficient resources to complete development. The expenditure capitalized includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognized in the income statement as an expense as incurred. Capitalized development expenditure is stated at cost less accumulated amortization and impairment losses.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets of an acquired business.

The Company measures goodwill as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the venture, less the net recognized amount (fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in profit.

The Company elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognized amount of the identifiable net assets, at the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.

Government grants

The Company receives government grants based on certain eligibility criteria for book publishing industry development in Canada. These government grants are recorded as a reduction of general and administrative expenses to offset direct costs funded by the grant. The Company records a liability for the repayment of the grants and a charge to operations in the period in which conditions arise that will cause the government grants to be repayable.

Deferred income taxes

Deferred taxation is recognized using the liability method on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. However, the deferred taxation is not recognized if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred taxation is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred taxation asset is realized or the deferred taxation liability is settled.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and jointly controlled entities, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to offset current income tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Foreign currency translation

Foreign currency transactions are initially recorded in the functional currency at the transaction date exchange rate. At the balance sheet date, monetary assets and liabilities denominated in a foreign currency are translated into the functional currency at the reporting date exchange rate. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items at year-end exchange rates are recognized in the income statement.

Non-monetary items measured at historical cost are translated using the historical exchange rate. Non-monetary items measured at fair value are translated using the exchange rates at the date when fair value was determined.

Financial statements of subsidiaries, affiliates and joint ventures for which the functional currency is not the Canadian Dollar are translated into Canadian Dollar as follows: all asset and liability accounts are translated at the balance sheet exchange rate and all earnings and expense accounts and cash flow statement items are translated at average exchange rates for the period. The resulting translation gains and losses are recorded as foreign currency translation adjustments in other comprehensive income and recorded in the currency translation reserve in equity. On disposal of a foreign operation the cumulative translation differences recognized in equity are reclassified to the income statement and recognized as part of the gain or loss on disposal. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into Canadian Dollars at the balance sheet rate.

Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income in the translation reserve.

Use of Estimates

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes to the consolidated financial statements. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Significant estimates include those related to the recoverability of the carrying value of intangible assets, the fair value estimates of share-based payment and warrants, deferred income taxes, provisions and contingent liabilities. Actual results may differ from those estimates.

Earnings (loss) per share

Loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year, including contingently issuable shares which are included when the conditions necessary for issuance have been met. Diluted loss per share is calculated in a similar manner, except that the weighted average number of common shares outstanding is increased to include potentially issuable common shares from the assumed exercise of common share purchase options and warrants, if dilutive. During the year ended December 31, 2011, all the outstanding stock options, warrants and brokers’ warrants were anti-dilutive

Stock-based compensation plan

The stock-based compensation plan allows Company employees and consultants to acquire shares of the Company. The fair value of share-based payment awards granted is recognized as an employee or consultant expense with a corresponding increase in equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee.

Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. The fair value is measured at grant date and each tranche is recognized on a straight line basis over the period during which the share purchase options vest. The fair value of the share-based payment awards granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the awards were granted. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number of awards, for which the related service and non-market vesting conditions are expected to be met.

For equity-settled share-based payment transactions, the Company measures the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably, in which cases, the Company measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.

Financial instruments

All financial instruments are recorded initially at fair value. In subsequent periods, all financial instruments are measured based on the classification adopted for the financial instrument: fair value through profit and loss (“FVTPL”); held to maturity; loans and receivables; and available for sale or other liability.

Financial assets

FVTPL assets are subsequently measured at fair value with the change in the fair value recognized in net income during the period.

Held to maturity assets are subsequently measured at amortized cost using the effective interest rate method.

Loans and receivables are subsequently measured at amortized cost using the effective interest rate method.

Available for sale assets are subsequently measured at fair value with the changes in fair value recorded in other comprehensive income, except for equity instruments without a quoted market price which are measured at cost.

Financial liabilities

Held for trading liabilities are subsequently measured at fair value with the change in the fair value recognized in net income during the period.

Other liabilities are subsequently measured at amortized cost using the effective interest rate method. Transaction costs are expensed as incurred.

The Company has classified its financial instruments as follows:

Financial Instrument

Classification

Cash and cash equivalents

FVTPL

Accounts and grants receivable

Loans and receivables

Accounts payable

Other liabilities

Accrued liabilities

Other liabilities

Loans payable

Other liabilities

The Company’s financial instruments measured at fair value on the balance sheet consist of cash and cash equivalents, which is measured at level 1 of the fair value hierarchy. There are three levels of the fair value hierarchy as follows:

Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

Impairment of long-lived assets

The Company’s property and equipment and intangibles with finite lives are reviewed for an indication of impairment at each balance sheet date. If indication of impairment exists, the asset’s recoverable amount is estimated. The recoverable amount is the greater of the asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized when the carrying amount of an asset, or its cash-generating unit, exceeds its recoverable amount. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Impairment losses are recognized in profit and loss for the period.

An impairment loss is reversed if there is an indication that there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Operating Results

Financial information for the year ended December 31, 2011 and 2010 was prepared in accordance with IFRS.

Fiscal Year Ended December 31, 2011 vs. Fiscal Year Ended December 31, 2010

Revenues from print-based English language learning for the year ended December 31, 2011 were $1,237,380 compared to $1,127,803 for fiscal 2010. Direct costs associated with publishing revenue are kept to a minimum and has been consistent throughout the years. The Company continues to maintain its relationship with PEP and is investing in the development of its existing and new programs and marketing activities to maintain and increase its royalty revenues.

Publishing revenue for the year ended December 31, 2011 increased 0.97% compared to fiscal 2010. This increase is mainly attributed to the increased royalty through licensing sales to local publishers rather than direct sales made by PEP. Since the State Ministry of Education has mandated the increase of licensing sales vs. direct sales to local publishers, PEP had increased its licensing sales revenues. The Company expects this trend to continue but it does not have any control over PEP’s attempt to enter into licensing sales vs. direct sales with additional local publishers.

In 2011, Lingo Media earned $829,589 in online English language learning revenue as compared to $857,350 in 2010.

Selling, General and Administrative

Selling, general and administrative expenses decreased to $2,340,555 compared to $2,902,216 for fiscal 2010. This decrease was largely due to the rationalization of costs related to the operations of online English language learning services. Selling, general and administrative expenses for the two segments are segregated below.

Print-Based English Language Learning

Selling, general and administrative cost for print-based publishing decreased from 2010 to 2011 primarily because of reduction of the head count and accrual of grants. Premises expenses decreased as the Company allocated additional rent expenses to its Online ELL business. The following is a breakdown of selling, general and administrative costs directly related to print-based English language learning:

	2011			2010
Sales, marketing & administration	$	234,479		$	119,572
Consulting fees and salaries		590,461			991,225
Travel		67,248			112,322
Premises		74,493			97,208
Shareholder service		81,115			134,768
Professional fees		10,301			212,704
Less: Grants		(192,352	)		(85,632	)
	$	865,745		$	1,582,167

Online English Language Learning

Selling, general and administrative cost related to online English language learning was $1,649,810 for fiscal 2011 compared to $1,329,819 for the same period in 2010. Selling, general and administrative costs for this business unit increased from 2010 to 2011 as a result of increased sales efforts in certain regions.

	2011			2010
Sales, marketing & administration	$	1,255,232		$	939,417
Consulting fees and salaries		325,333			148,278
Travel		30,893			36,803
Reserve for doubtful accounts		(43,569	)		92,049
Premises		66,549			71,034
Professional fees		15,372			33,890
Less: Grants		(175,000	)		-

	$	1,474,810		$	1,321,471

Government Grants

Lingo Media makes applications to the Canadian government for various types of grants to support its publishing and international marketing activities. Each year, the amount of any grant may vary depending on certain eligibility criteria (including prior year revenues) and the monies available to the pool of eligible candidates.

These government grants are recorded as a reduction of general and administrative expenses to offset direct costs funded by the grant. During the year, the Company recorded $367,352 of such grants. Certain government grants are repayable in the event the Company's annual net income for each of the previous two years exceeds 15% of revenue and at such time a liability would be recorded. During the year, the conditions for the repayment of government grants were not met 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 $175,000 grant is repaid.

During 2008, Lingo Media was audited by a government grant agency and was assessed with a repayment of $115,075 relating to a publishing grant. In 2010, the Company was reassessed with a reduction to the repayment to $100,000 which is recorded in accrued liabilities.

While the Company will continue to apply for various government grants to fund its ongoing development and market expansion, there can be no assurance the Company will be successful in obtaining these grants in the future, that the Company will meet the eligibility requirements for the grants or that the grant programs will still be offered.

Foreign Exchange

The Company recorded foreign exchange gain of approximately $19,709 as compared to a loss of approximately $24,177 in fiscal 2010, relating to the Company's currency risk through its activities denominated in foreign currencies as the Company is exposed to foreign exchange risk as a significant portion of its revenue and expenses are denominated in US Dollars, European Euros, and Chinese Renminbi.

Net Loss

Total comprehensive loss for the Company was $(4,634,468) for the year ended December 31, 2011 as compared to $(3,395,245) in 2010. These losses can be attributed to the two operating segments and other financial costs as shown below:

Online ELL	2011	2010
Revenue	829,589	857,350
Expenses:
Direct cost	168,013	75,869
General & administrative	1,474,810	1,321,471
Amortization of property & equipment	5,186	7,384
Amortization of development costs	2,544,818	2,443,382
Impairment loss	703,600	-
Income taxes and other taxes	7,600	(563,115)
	5,079,027	3,284,991
Segment Loss - Online ELL	(4,074,438)	(2,427,641)

Print-Based ELL	2011	2010
Revenue	1,237,380	1,127,803
Expenses:
Direct cost	(26,264)	42,072
General & administrative	865,745	1,582,167
Amortization of property & equipment	7,414	6,697
Amortization of development costs	8,807	15,211
Income taxes and other taxes	197,770	166,198
	878,472	1,812,345
Segment Loss – Print-Based	183,908	(684,542)
Other
Foreign exchange	(19,709)	24,177
Interest and other financial expenses	328,112	294,675
Stock-based compensation	518,114	(31,609)
Accumulated other comprehensive income	(82,579)	(4,181)
	(743,938)	(283,062)
Total Comprehensive Loss	(4,634,468)	(3,395,245)

During the year, the Company continued to invest in product development and prepared for the launch of its fee-based online training and assessment service. The majority of its expenses consist of selling, general and administrative expenses detailed in the selling, general and administrative section above. The loss increased as a result of increased expenditures related to stock-based compensation.

Expenses include selling, general and administrative, amortization expenses and income taxes and other taxes. Currently, corporate overhead, salaries and executive compensation are included as part of print-based English language learning expense.

Stock-based Compensation

The Company amortizes stock-based compensation with a corresponding increase to the contributed surplus account. During 2011, the Company recorded an expense of $518,114 compared to $29,645 during 2010. The increase in this expense is due to two financings completed during the year.

Net Loss

The Company reported a total comprehensive loss of ($4,634,468) for the year ended December 31, 2011, as compared to a net comprehensive loss of ($3,395,245) in 2010.

The Company recorded a tax expense of $205,370 for the year ended December 31, 2011 compared to a tax recovery of $396,917 in 2010.

5.B Liquidity and Capital Resources

Financial information for the year ended December 31, 2011 and 2010 was prepared in accordance with IFRS.

Fiscal Years Ended December 31, 2011 and 2010

As at December 31, 2011, the Company had cash and cash equivalents of $482,767 compared to $203,906 at the end of 2010. Accounts and grants receivable of $1,175,330 were outstanding at the end of 2011 compared to $931,101 at the end of 2010 as the Company increased its sales in the last quarter of 2011. With 63% of the receivables from PEP and a 180 day collection cycle, the Company does not anticipate an effect on its liquidity. Total current assets amounted to $1,761,715 (2010 - $1,255,472) with current liabilities of $1,599,341 (2010 - $3,041,786) resulting in a working capital of $162,375 (2010 - working capital deficit of ($1,965,110)).

The Company receives government grants based on certain eligibility criteria for international marketing support and publishing industry development in Canada. These government grants are recorded as a reduction of general and administrative expenses to offset direct costs funded by the grant. The Company receives these grants throughout the year from different agencies and government programs. Each grant is applied for separately based on the Company meeting certain eligibility requirements. The Company has relied on obtaining these grants for its operations and has been successful at securing them in the past, but it cannot be assured of obtaining these grants in the future. Government grants received during the year were $132,599 compared to $85,648 during 2010.

The Company plans on raising additional equity through private placement financings, as the capital markets permit, in an effort to finance its growth plans and expansion into new international markets. The Company has been successful in raising sufficient working capital in the past.

The Company has incurred significant losses 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 the issuance of equity, debt financing, sales contracts and distribution agreements. The outcome of these matters is partially dependent on factors outside of the Company’s control.

5.C Research and Development

During the years ended December 31, 2011 and 2010, respectively, the Company expended $1,099,521 and $4,234,283 on intangibles, under the categories of ”software and web development costs”, “content platform” and “customer relationships”. These expenditures in 2011 and 2010 were primarily directed at developing the Parlo and ELL products for the international market.

5.D Trend Information

Lingo Media believes that the trends in English language learning are strong and will continue to grow. Developing countries around the world, specifically in the Far East and Latin America are expanding their mandates for the teaching of English to students, young professionals and adults. Although the outlook for learning English in China, other Far East countries, and Latin America remains positive, there can be no assurance that this trend will continue or that the Company will benefit from this trend.

5.E Off-Balance Sheet Arrangements

The Company has not entered into any off-balance sheet finance arrangements.

5.F Tabular disclosure of contractual obligations

Our obligations as of December 31, 2011 were as follows:

Expressed in Canadian Dollars

The Company has future minimum lease payments under operating leases for premises and equipment as follows:

2012

$ 256,757

2013

268,316

2014

271,732

2015

193,332

2016

193,332

The rent expense associated with operating lease for premise and equipment is recognized on a straight-line basis.

As a result of the acquisition of ELL Technologies (see Note 23 of the consolidated financial statements), the Company will owe royalties of 3-9% (Year 2) and 2-8% (Year 3) of ELL Technologies revenues based upon a number of gross revenue targets. Royalty amounts will be due on a quarterly basis.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A. Directors and Senior Management

Table No. 6

Directors and Senior Management

June 29, 2012

			Date of
			Election or
Name	Position	Age	Appointment
Michael P. Kraft	President/CEO/Director	49	November 1996
Khurram Qureshi	CFO/Secretary/Treasurer	49	April 1997/December 2011
Gali Bar-Ziv	COO	40	June 2009
Scott Remborg	Director	62	July 2000
Jerry Grafstein	Director	57	September 2010
Weibing Gong	Director	43	September 2010
Anton Telegin	Director	44	December 2011

Michael P. Kraft is the President, CEO and a Director of Lingo Media and has been so since its inception in 1996. He is also the Chairman of Buckingham Group Limited, a private merchant banking corporation and President of MPK Inc., a private business consulting corporation to private and public companies since 1994. Mr. Kraft is a director of Pioneering Technology Inc., HTN Inc. and Southtech Capital Corporation, all TSX Venture Exchange listed companies. He received a Bachelor of Arts in Economics from York University in 1985.

Khurram Qureshi was the Chief Financial Officer of the Company from 1997 to July 2009, and reappointed in December 2011. Mr. Qureshi received a Bachelor of Administrative Studies from York University in 1987 and received the Chartered Accountant designation in 1990. Mr. Qureshi is also a partner at CQK, Chartered Accountants.

Gali Bar-Ziv brings more than 10 years of management and entrepreneurial experience, including financing, mergers and acquisitions, strategic planning, channel development and corporate development. Most recently, Gali profitably grew a sales, marketing and distribution start-up to sales growth of more than 700% year over year. Prior to that, Gali successfully turned around the largest service division of a $300MM financial services company. Gali holds a Bachelor of Law (LL.B) degree from the University of London and an MBA in Strategic and Entrepreneurial studies from the Schulich School of Business in Toronto.

Scott Remborg is an independent consultant in the Information Technology and eCommerce sector. From 1994 to 1999, he initiated and led the development of Sympatico, Canada’s largest Internet service and portal, for Bell Canada and twelve other telecommunications companies across Canada. From 2001 to 2003, Mr. Remborg was General Manager, eBusiness, at Air Canada. He also held senior management positions at Reuters and I.P. Sharp Associates. Mr. Remborg has an MBA from BI Norwegian School of Management and the University of Alberta.

The Honourable Jerry S. Grafstein, Q.C., holds degrees from the University of Western Ontario and the University of Toronto and has taught the Bar Admission Course at Osgoode Hall. Mr. Grafstein has wide-ranging legal and business experience in all aspects of media. He was a co-founder of a range of media companies, focusing on broadcasting, cable, communications, and publication enterprises in Canada, the USA, the UK and South America. He advised several key government ministries, including Transportation, External Affairs, Consumer and Corporate Affairs and Justice. He was appointed to the Senate of Canada in 1984 by then Prime Minister Pierre Elliott Trudeau. Mr. Grafstein has served on all Senate Committees, including the Foreign Affairs and the Legal and Constitutional Affairs Committees. He served as Chairman of the Senate Banking, Trade and Commerce Committee. While in the Senate, he was a long serving Co-Chair of the Canada-United States Inter-Parliamentary Group, and a long serving senior officer of the Organization for Security and Co-Operation in Europe Parliamentary Assembly (OSCE PA). Mr. Grafstein retired from the Senate on January 1, 2010. He continues his law practice in corporate finance and communication law as counsel to Minden Gross LLP in Toronto and remains active in the local affairs in Toronto.

Tommy Weibing Gong holds an Electrical & Mechanics Engineering degree from Huazhong University of Science and Technology in China, and professional IT certifications through his North American education and started his IT career in 1996 in Silicon Valley. He is founder of Polar Bear Energy Inc., a business in the Cleantech and Greentech sector. Mr. Gong is now a leading commercial property developer in Shanghai with his partnership with Shanghai Green Town Plaza Real Estate Development Co., Ltd, Shanghai Zhetie Green Town Real Estate Development Co., Ltd, and through his interests as founder of Zysteq North America Corporation and Chairman of Shanghai Tommy Real Estate Development Co., Ltd, and Shanghai Tommy & Jane Property Investment and Management Co., Ltd.

Anton Telegin is the Chief Commercial Officer for Orascom Telecom (OTH) and Vimplecom Ltd.’s BU Asia & Africa. The combination of the two companies in April 2011 has made it the 6th largest mobile telecom provider in the world. Anton now oversees all the commercial functions within OTH and Vimplecom’s BU Asia & Africa encompassing Market Development, Product Development, Commercial Roaming & International Business, Market Planning & Pricing, as well as Enterprise & Customer Operations. He has a commercial expertise gained from over 16 years of experience in the Telecom industry where he led the successful launch of various high quality innovative commercial products yielding multi-billion dollar revenue streams and built a proven track record in driving regional operations from start-ups to market leadership. Anton holds an Engineering Degree from the Moscow State Technical University in Russia and an MBA from Kingston University in the UK.

The Directors have served in their respective capacities since their election and/or appointment and will serve until the next Annual General Meeting or until a successor is duly elected, unless the office is vacated in accordance with the Articles/By-Laws of the Company.

The Senior Management serves at the pleasure of the Board of Directors with management service contracts but without term of office, except as disclosed herein.

Despite certain of the Company’s Executive Officers spending material portions of their time on businesses other than the Company, the Company believes that they devote sufficient time to the Company to properly carry out their duties.

No Director and/or Executive Officer has been the subject of any order, judgment, or decree of any governmental agency or administrator or of any court or competent jurisdiction, revoking or suspending for cause any license, permit or other authority of such person or of any corporation of which he is a Director and/or Executive Officer, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he is an officer or director from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security or any aspect of the securities business or of theft or of any felony.

There are no arrangements or understandings between any two or more Directors or Executive Officers, pursuant to which he was selected as a Director or Executive Officer. There are no family relationships between any two or more Directors or Executive Officers.

6.B. Compensation

The table below sets forth information concerning the compensation paid, during each of the last three fiscal years (as applicable), to the Company’s Chief Executive Officer, Chief Financial Officer, and other Executive Officers of the Company and its subsidiaries who received total remuneration, determined on the basis of base salary and bonuses in excess of $100,000 during the last three fiscal years ended December 31 (the “Named Executive Officers”).

Summary Compensation Table

Expressed in Canadian Dollars

Name and principal position	Year	Salary ($)	Share-based awards ($)	Option-based awards ($)(2)	Non-equity incentive plan compensation ($)		Pension Value ($)	All other compensation ($)(1)	Total compensation ($)
Name and principal position	Year	Salary ($)	Share-based awards ($)	Option-based awards ($)(2)	Annual incentive plans	Long-term incentive plans(3)	Pension Value ($)	All other compensation ($)(1)	Total compensation ($)
Michael P. Kraft President, Chief Executive Officer and Director	2011 2010 2009	180,000 180,000 180,000	Nil Nil Nil	127,045 Nil Nil	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil	Nil 23,057 20,090	307,045 203,057 200,090
Gali Bar-Ziv Chief Operating Officer	2011 2010	144,000 134,000	Nil Nil	222,246 Nil	Nil Nil	Nil Nil	Nil Nil	Nil 31,643	366,246 165,643
Khurram R. Qureshi Chief Financial Officer	2011 2010 2009	5,000 42,000 72,000	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil	5,000 42,000 72,000
Ryan Robertson Chief Financial Officer	2011 2010	100,000 50,000	Nil Nil	103,480 Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	203,480 50,000

_____________________

Notes:

(1)	Perquisites and other personal benefits, securities or property that do not in the aggregate exceed the lesser of $50,000 and 10% of the total of the annual salary and bonus for any NEO for the financial year, if any, are not disclosed.

(2)

The weighted average grant date fair value was calculated in accordance with the Black-Scholes model using the common share price on the date of grant, with the key valuation assumptions being stock-price volatility of 80%, risk free interest rate of 1.5%, no dividend yields, and expected life of 5 years.

(3)

"LTIP" or "long term incentive plan" means any plan which provides compensation intended to serve as incentive for performance to occur over a period longer than one financial year, but does not include option or stock appreciation right plans or plans for compensation through restricted shares or restricted share units.

(4)	Gali Bar-Ziv joined the Company in June 2009.

(5)	Ryan Robertson was succeeded as Chief Financial Officer by Khurram Qureshi in December 2011.

Management Agreements

Michael P. Kraft

The Company entered into a consulting agreement (the "Kraft Consulting Agreement") dated as of October 18, 2007 with MPK Inc. pursuant to which the Company engaged MPK Inc. to provide the services of Michael P. Kraft (the "Consultant") to be the President & Chief Executive Officer of the Company. MPK Inc. is a corporation wholly-owned and controlled by Michael P. Kraft.

The Kraft Consulting Agreement provides for an initial term of twenty-four (24) months to begin on January 1, 2008 and renewals for a further two (2) years unless terminated pursuant to the terms thereof. The Kraft Consulting Agreement provides that the Company pay MPK Inc. $15,000 per month plus reimbursement for certain expenses properly incurred in connection with the Company. In addition to providing an allowance for a health and dental plan, the Kraft Consulting Agreement also provides for an automobile allowance of $1,500 per month.

This agreement expired December 31, 2011 and is currently under negotiation.

Gali Bar-Ziv

The Company entered into a consulting agreement (the "Bar-Ziv Consulting Agreement") dated as of June 1, 2009 with Busy Babies Inc. pursuant to which the Company engaged Busy Babies Inc. to provide the services of Gali Bar-Ziv (the "Consultant") to be the Chief Operating Officer of the Company. Busy Babies Inc. is a corporation wholly-owned and controlled by Gali Bar-Ziv.

The Bar-Ziv Consulting Agreement provided for an initial term of twelve (12) months to begin on June 1, 2009 and automatic renewals for a further one (1) year unless terminated pursuant to the terms thereof. The Bar-Ziv Consulting Agreement provides that the Company pay the Consultant up to $12,000 per month plus reimbursement for certain expenses properly incurred in connection with the Company.

This agreement expired June 1, 2011 and is currently under negotiation.

Khurram Qureshi

Mr. Qureshi is engaged by the Company on a month-to-month basis and receives $5,000 per month plus reimbursement for certain expenses properly incurred in connection with the Company.

Stock Options. The Company grants stock options to Directors, Senior Management and employees; refer to ITEM #6.E., "Share Ownership, Stock Options”.

Director Compensation. The non-management directors of the Company are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of the Board of Directors. The Board of Directors may award special remuneration to any Director undertaking any special services on behalf of the Company other than services ordinarily required of a Director. Other than indicated below no Director received any compensation for his services as a Director, including committee participation and/or special assignments.

Change of Control Remuneration.

Michael Kraft

The Consultant may terminate the Kraft Consulting Agreement upon ninety (90) days written notice to the Company and the Company shall pay to the Consultant, all amounts due and owing up to the effective date of termination. The Consultant may also terminate the Kraft Consulting Agreement for the following reasons: (i) a material change in the position, duties and responsibilities of the Consultant; (ii) the Consultant ceases to be the most senior officer of the Company; (iii) any material reduction in the compensation payable to the Consultant in accordance with the terms of the Kraft Consulting Agreement; and (iv) the Company's head office being located more than 50 kilometres from its current location and the Consultant's current residence ("Good Cause"). If the Consultant terminates the Kraft Consulting Agreement for Good Cause the Company shall pay to the Consultant, all amounts due and owing up to the effective date of termination and a settlement amount equal to eighteen (18) months of compensation at the rate of compensation payable to the Consultant immediately prior to the effective date of termination.

The Kraft Consulting Agreement may be terminated by the Company by giving written notice to the Consultant and the Company shall pay to the Consultant, all amounts due and owing up to the effective date of termination and a settlement amount equal to eighteen (18) months of compensation at the rate of compensation payable to the Consultant immediately prior to the effective date of termination.

In the event of a change of control, the Consultant may, for a period of six (6) months after the effective date of any such change of control, elect to terminate the Kraft Consulting Agreement with the Company upon eight weeks notice and the Company shall pay to the Consultant, all amounts due and owing up to the effective date of termination and a settlement amount equal to eighteen (18) months of compensation at the rate of compensation payable to the Consultant immediately prior to the effective date of termination by voluntary resignation. In the event of a change of control and if the Company terminates the Consultant without cause, the settlement amount shall be equal to twenty-four (24) months of compensation at the rate of compensation payable to the Consultant immediately prior to the effective date of termination.

The Consultant is subject to an 18 month non-compete period following the termination of the Kraft Consulting Agreement.

Gali Bar-Ziv

The Consultant may terminate the Bar-Ziv Consulting Agreement upon ninety (90) days written notice to the Company and the Company shall pay to the Consultant, all amounts due and owing up to the effective date of termination. The Consultant may also terminate the Bar-Ziv Consulting Agreement for the following reasons: (i) a material change in the position, duties and responsibilities of the Consultant; (ii) the Consultant ceases to be the most senior officer of the Company; (iii) any material reduction in the compensation payable to the Consultant in accordance with the terms of the Bar-Ziv Consulting Agreement; and (iv) the Company's head office being located more than 50 kilometres from its current location and the Consultant's current residence ("Good Cause"). If the Consultant terminates the Bar-Ziv Consulting Agreement for Good Cause the Company shall pay to the Consultant, all amounts due and owing up to the effective date of termination and a settlement amount equal to six (6) months of compensation at the rate of compensation payable to the Consultant immediately prior to the effective date of termination.

2.	The Bar-Ziv Consulting Agreement may be terminated by the Company by giving written notice to the Consultant and the Company shall pay to the Consultant, all amounts due and owing up to the effective date of termination.

The Consultant is subject to a nine month non-compete period following the termination of the Bar-Ziv Consulting Agreement.

Other Compensation. No Executive Officer/Director received “other compensation” in excess of the lesser of US$25,000 or 10% of such officer's cash compensation, and all Executive Officers/Directors as a group did not receive other compensation which exceeded US$25,000 times the number of persons in the group or 10% of the compensation.

Bonus/Profit Sharing/Non-Cash Compensation. Except for the stock option program discussed in ITEM #6.E., the Company has no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to the Company's Directors or Executive Officers.

Pension/Retirement Benefits. No funds were set aside or accrued by the Company during Fiscal 2011 to provide pension, retirement or similar benefits for Directors or Executive Officers.

6.C. Board Practices

6.C.1. Terms of Office.

The Senior Management serves at the pleasure of the Board of Directors with management service contracts but without term of office, except as disclosed herein.

6.C.2. Termination benefits

Not applicable

6.C.3. Board of Director Committees.

The Company has established an Audit Committee, Compensation Committee and Corporate Governance Committee in compliance with the Guidelines.

The Audit Committee assists the Board in its oversight of: (i) the integrity of the financial reporting of the Company; (ii) the independence and performance of the Company's external auditors; and (iii) the Company's compliance with legal and regulatory requirements. The members of the Audit Committee are Messrs. Joshi (Chairman), Remborg and Kraft, Messrs. Remborg and Joshi being independent as defined in the Guidelines. Mr. Joshi was succeeded as Chairman by Michael Stein on December 8, 2011.

The Compensation Committee assists the Board in fulfilling its obligations relating to human resource and compensation matters of the Company and its subsidiaries and to establish a plan for the continuity and development of senior management. The members of the Compensation Committee during the past fiscal year were Ashesh Shah, and Anthony Lacavera (Chairman), being independent directors as defined in the Guidelines. Following the December 8, 2011 shareholder meeting, the Committee was comprised of Michael Stein (Chairman), Scott Remborg, and Michael Kraft, Messrs. Stein and Remborg being independent as defined in the Guidelines.

The Corporate Governance Committee assists the Board by: (i) developing, reviewing and planning the Company's approach to corporate governance issues, including developing a set of corporate governance principles and guidelines specifically applicable to the Company; (ii) identifying and recommending to the Board potential new nominees to the Board; (iii) monitoring management's succession plan for the Chief Executive Officer (the "CEO") and other senior management; and (iv) overseeing enforcement of and compliance with the Company's proposed Code of Business Conduct. The members of the Corporate Governance Committee during the past fiscal year were Messrs. Joshi (Chairman), Remborg and Shah, all being independent directors as defined in the Guidelines. Following the December 8, 2011 shareholder meeting, Mr. Joshi was succeeded by Jerry Grafstein.

6.E. Share Ownership

Table No. 7 lists, as of June 29, 2011, Directors and Executive Officers who beneficially own the Company's voting securities and the amount of the Company's voting securities owned by the Directors and Executive Officers as a group. Table No. 7 includes all persons/companies where the Company is aware that they have 5% or greater beneficial interest in the Company’s securities.

Table No. 7

Shareholdings of Directors and Executive Officers

Shareholdings of 5% Shareholders

Title		Amount and Nature	Percent
of		of Beneficial	of
Class	Name of Beneficial Owner	Ownership(1)	Class
Common	Michael P. Kraft(2)(4)	1,328,905(5)	6.47%
Common	Khurram Qureshi	134,990(7)	*
Common	Gali Bar-Ziv	52,500(9)	*
Common	Scott Remborg(2)	154,372(6)	*
Common	Tommy Gong	[nil](12)	*
Common	Jerry Grafstein	60,000(14)	*
Common	Anton Telegin	[nil]	*
Common	Orascom Telecom Holding SAE	2,857,143	13.91%
Common	SCP Partners	2,036,987	9.92
As a group (9 parties)		6,624,897	32.24%

* Less than 1%.

(1)

The information as to voting securities beneficially owned, controlled or directed, not being within the knowledge of the Company, has been furnished by the respective individuals.

(2)

Member of the Audit Committee.

(3)

Member of the Compensation Committee.

(4)

Member of the Corporate Governance Committee.

(5)

Of such shares, 95,636 are held in Mr. Kraft's RRSP, and 1,233,269 are held by Buckingham Group Limited, a company controlled by Mr. Kraft. Mr. Kraft also holds 445,715 options and 166,670 warrants to purchase up to an additional 612,385 common shares of the Company.

(6)

Of such shares, 3,428 are held in Mr. Remborg's RRSP account. Mr. Remborg also holds options to purchase up to an additional 144,679 common shares of the Company.

(7)

Of such shares, 58,250 are held in Mr. Qureshi’s RRSP account, and 51,925 are held in his wife’s RRSP account. Khurram Qureshi also holds options to purchase up to an additional 152,486 common shares of the Company.

(8)

Of such shares, 2,000 are held in Mr. Bar-Ziv's RRSP, and 50,500 are held by Busy Babies, a company controlled by Mr. Bar-Ziv. Mr. Bar-Ziv also holds 440,000 options and 30,000 warrants to purchase up to an additional 470,000 common shares of the Company.

(9)

Tommy Gong also holds options to purchase up to an additional 20,000 common shares of the Company.

(10)

Of such shares, 60,000 are held by New Court Corporation, a company controlled by Mr. Grafstein. Mr. Grafstein also holds options to purchase up to an additional 30,000 common shares of the Company.

Stock Options

TSX Venture Exchange Rules and Policies

The terms and conditions of incentive options granted by the Company are done in accordance with the rules and policies of the TSX Venture Exchange ("TSX VEN"), including the number of common shares under option, the exercise price and expiration date of such options, and any amendments thereto.

Such “terms and conditions”, including the pricing of the options, expiration and the eligibility of personnel for such stock options; are described below.

The TSX VEN policy in respect of incentive stock options provides that shareholder approval is not required if the aggregate number of common shares that may be reserved for issuance pursuant to incentive stock options does not exceed 10% of the issued common shares of the Company, 5% to any one individual and 2% to any consultant at the time of granting.

Shareholder approval of the grant of incentive stock options is required pursuant to the rules of the TSX VEN where the grant will result in the Company having options outstanding which, in aggregate, are exercisable to acquire over 10% (to a maximum of 20%) of the outstanding common shares of the Company.

In addition, disinterested shareholders (all shareholders excluding insiders and associates of insiders) approval is required pursuant to the rules of the TSX VEN where:

(a) grant of incentive stock options could result at any time in:

(i) the Company having options outstanding to insiders which,

in aggregate, are exercisable to acquire over 20% of the

outstanding common shares of the Company; or

(ii) the issuance to insiders, within a one year period, of

common shares which, in aggregate, exceed 10% of the

outstanding common shares of the Company; or

(iii) the issuance to any one insider and such insider's

associates, within a one year period, of common shares

which, in aggregate, exceed 5% of the outstanding common

shares of the Company; or

(iv) the issuance to any consultant of common shares which, in

aggregate, exceed 2% of the outstanding common shares of

the Company; or

(b) the Company is proposing to decrease the exercise price of stock options held by any insiders.

Company Stock Option Plan

The Board has approved a stock option plan (the "Stock Option Plan") whereby options may be granted to directors, officers, employees, consultants of the Company and its subsidiaries. The number of shares which may be reserved for issuance under the Stock Option Plan is limited to 4,108,635 common shares, representing approximately 20% of the issued and outstanding common shares of the Company as at November 3, 2011.

The maximum number of common shares which may be reserved for issuance in a 12 month period to any one individual under the Stock Option Plan, shall not, in the aggregate, exceed 5% of the issued and outstanding common shares of the Company at the time of grant. The maximum number of common shares which may be reserved for issuance in a 12 month period to any consultants and persons engaged in investor relations activities for the Company, shall not, in the aggregate, exceed 2% of the issued and outstanding common shares at the time of grant. Any common shares subject to a prior option granted under the Stock Option Plan which for any reason are cancelled or terminated prior to exercise will be available for a subsequent grant under the Stock Option Plan.

The option price of any common shares cannot be less than the closing price of the shares on the day immediately preceding the day upon which the option is granted less any permitted discount. Options may be granted under the Stock Option Plan to be exercisable for a maximum period of ten years, subject to earlier termination, upon the termination of the optionee’s employment, upon the optionee ceasing to be an employee, officer, director or consultant of the Company or any of its subsidiaries, as applicable, or upon the optionee retiring, becoming permanently disabled or dying. The options under the Stock Option Plan are non-transferable. The Stock Option Plan contains provisions for adjustment in the number of shares issuable thereunder in the event of a subdivision, consolidation, reclassification or change of the common shares, a merger or other relevant changes in the Company’s capitalization.

On July 5, 2006, October 5, 2007, October 14, 2008, August 18, 2009, September 23, 2010, and December 8, 2011 the Company's shareholders ratified and approved an increase in the number of common shares eligible to be issued under the Company's Stock Option Plan to approximately 20% of the issued and outstanding common shares as at the date of the respective shareholders meetings. Currently, the Stock Option Plan provides that the maximum aggregate number of shares reserved for issuance and which could be purchased upon the exercise of all options granted thereunder could not exceed 4,108,635, which number represented 20% of the 20,543,177 issued and outstanding as at the Record Date of the Company’s last Annual and Special Meeting. As of the date hereof, options to purchase an aggregate of 2,629,569 common shares are outstanding under the Stock Option Plan.

The names and titles of the Directors/Executive Officers of the Company to whom outstanding stock options have been granted and the number of common shares subject to such options are set forth in the Table below as of June 30, 2012, as well as the number of options granted to Directors and officers as a group.

Stock Options Outstanding

Expressed in Canadian Dollars

	Number of securities underlying unexercised options (#)	Option exercise price (C$)	Option expiration date
Michael P. Kraft President, Chief Executive Officer and Director	142,857 200,000 50,000	0.70 0.66 1.00	February 14, 2012 February 15, 2016 February 15, 2016
Gali Bar-Ziv Chief Operating Officer	100,000 340,000	1.07 0.66	February 15, 2016 February 15, 2016
Khurram R. Qureshi Chief Financial Officer	52,486 50,000 50,000	0.70 1.70 1.00	February 14, 2012 February 15, 2016 February 15, 2016

Scott Remborg	42,500 50,000 30,750 21,429	0.66 1.00 1.75 0.84	Feb. 15, 2016 Feb. 15, 2016 May 1, 2014 May 22, 2012
Jerry Grafstein	30,000	0.66	Feb. 15, 2016
Tommy Gong	20,000	0.66	Feb. 15, 2016
Anton Telegin(3)	Nil	Nil	Nil

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A. Major Shareholders.

7.A.1.a. Holdings By Major Shareholders.

Refer to ITEM #6.E. and Table No. 7. Other than those shareholders set forth in Table No.7, there are no shareholders who hold more than 5% of the Company's shares.

7.A.1.b. Significant Changes in Major Shareholders’ Holdings.

There were no significant changes in major shareholders’ holdings.

7.A.2. Canadian Share Ownership. May 31, 2012, the Company’s registered shareholders’ list showed 20,543,177 common shares outstanding with 36 registered shareholders, with 15,097,318 owned by 26 shareholders residing in Canada, 2,444,928 shares owned by 5 registered shareholders in US and 3,000,931 shares owned by 5 foreign registered shareholders.

7.A.3. Control of Company. The Company is a publicly owned Canadian corporation, the shares of which are owned by U.S. residents, Canadian residents and other foreign residents. The Company is not controlled by any foreign government or other person(s) except as described in ITEM #4.A., “History and Development of the Company”, and ITEM #6.E., “Share Ownership”.

7.B. Related Party Transactions

During the year, 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)	The Company charged $65,525 (2010 - $78,137) to corporations with one director in common for rent, administration, office charges and telecommunications.

(b)	Key management compensation was $360,057 (2010 – $185,000) and is reflected as consulting fees paid to corporations owned by officers, as discussed in ITEM #6.B, and a director of the Company, of which, $113,800 (2010 -$91,113) is unpaid and included in accounts payable.

(c)	At December 31, 2011, the Company had loans payable due to corporations controlled by officers, as discussed in ITEM #6.B, and directors of the Company in the amount of $435,000 (2010 - $345,000) bearing interest at 9% per annum. Interest expense related to these loans is $30,305 (2010 - $21,607).

Other than as disclosed above, there have been no transactions since December 31, 2011 or proposed transactions, which have materially affected or will materially affect the Company in which any director, executive officer, or beneficial holder of more than 10% of the outstanding common stock, or any of their respective relatives, spouses, associates or affiliates has had or will have any direct or material indirect interest. Management believes the transactions referenced above were on terms at least as favorable to the Company as the Company could have obtained from unaffiliated parties.

ITEM 8. FINANCIAL INFORMATION

8.A. Consolidated Statements and Other Financial Information

The Company's financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). These are the Company’s first consolidated annual financial statements prepared in accordance with IFRS. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in Note 22 of the consolidated financial statements.

The financial statements as required under ITEM #18 are attached hereto and found immediately following the text of this Annual Report. The audit reports of Collins Barrow Toronto LLP are included herein immediately preceding the financial statements and schedules.

Audited Financial Statements

for Fiscal 2011 and Fiscal 2010

8.A.7. Legal/Arbitration Proceedings

The Directors and the management of the Company do not know of any material, active or pending, legal proceedings against them; nor is the Company involved as a plaintiff in any material proceeding or pending litigation.

The Directors and the management of the Company know of no active or pending proceedings against anyone that might materially adversely affect an interest of the Company.

8.A.8 Company Policy on Dividend Distribution

The Company does not intend to pay dividends in cash or in kind in the foreseeable future. The Company expects to retain any earnings to finance the further growth of the Company. The directors of the Company will determine if and when dividends should be declared and paid in the future based upon the earnings and financial conditions of the Company at the relevant time and such other factors as the directors may deem relevant. All of the Common Shares of the Company are entitled to an equal share in any dividends declared and paid.

8.B. Significant Changes

No significant change has occurred since the date of the annual financial statements.

ITEM 9. THE OFFER AND LISTING

9.A.4. Common Share Trading Information

The Company's common shares began trading on the Alberta Stock Exchange in Calgary, Alberta, Canada under its former name Alpha Ventures Inc. in November 1996. The Alberta Stock Exchange was absorbed by the Canadian Venture Exchange, which was absorbed by the TSX Venture Exchange (“Exchange”). The Company’s listing was automatically transferred from the Alberta Stock Exchange to the Exchange as a Tier 2 company. The current stock symbol on the Exchange is “LM”. The CUSIP number is 5357441065.

The Exchange currently classifies Issuers into different tiers based on standards, including historical financial performance, stage of development and financial resources of the Issuer at the time of listing. Specific Minimum Listing Requirements for each industry segment in each of Tier 1, Tier 2 and Tier 3 have been established by the Exchange.

Policy 2.1 of the Exchange outlines the Minimum Listing Requirements for each industry segment in Tier 1 and Tier 2. Under this policy, Lingo Media Corporation is a Tier 2 Issuer in the industry segment category of Junior Industrial. Each industry segment is further divided into categories. Quantitative minimum requirements for listing for the industry segment Junior Industrial and Tier 2 are provided in Section 4.3 of Exchange Policy 2.1.

Similarly, Policy 2.5 of the Exchange sets out the minimum standards to be met by Issuers to continue to qualify for listing in each Tier, referred to as Tier Maintenance Requirements (“TMR”). A Tier 2 Issuer which fails to meet one of the Tier 2 TMR will not automatically be suspended or designated as “Inactive”. The Exchange will provide notice of failure to meet one of the Tier 2 TMR and will allow the Issuer 6 months from the date of notice to meet the requirement, failing which the Exchange may designate the Issuer as Inactive. If a Tier 2 Issuer fails to meet more than one Tier 2 TMR, notice will be given to the Issuer by the Exchange and if the requirements are not met within 90 days of the notice, the Exchange will designate the Issuer as Inactive and apply the restrictions on Inactive Issuers retroactively. An Inactive Issuer may continue to trade on Tier 2 of the Exchange for 18 months from the date it is designated as Inactive. If the Issuer does not meet all of the applicable Tier 2 TMR within that 18 month period, its listed shares may be suspended from trading by the Exchange.

To maintain a listing as an active Tier 2 Issuer, an Issuer must meet all Tier 2 TMR for its industry segment as set out in Section 4 of the Exchange Policy 2.5.

The table No. 9 lists the volume of trading and high, low and closing sales prices on the TSX Venture Exchange for the Company's common shares for: the last 12 months, the last twelve fiscal quarters; and the last five fiscal years.

Table No. 9

TSX Venture Exchange

Common Shares Trading Activity

Period	Sales -- Canadian Dollars
Ended	Volume	High	Low	Close
Monthly
May 2012	101,250	0.335	0.25	0.30
April 2012	172,010	0.36	0.255	0.30
March 2012	34,313	0.45	0.27	0.36
February 2012	6,462	0.445	0.37	0.40
January 2012	21,920	0.41	0.30	0.37
December 2011	129,573	0.40	0.28	0.35
November 2011	398,710	0.49	0.24	0.32
October 2011	196,356	0.60	0.37	0.41
September 2011	255,728	0.70	0.51	0.55
August 2011	243,743	0.78	0.58	0.60
July 2011	175,337	0.80	0.60	0.73
June 2011	130,386	0.82	0.67	0.77

Quarterly

3/31/2012	62,695	0.445	0.27	0.36
12/31/2011	724,639	0.60	0.24	0.35
9/30/2011	674,808	0.80	0.51	0.55
6/30/2011	320,920	0.82	0.60	0.77
3/31/2011	73,200	0.95	0.55	0.73
12/31/2010	40,500	0.80	0.50	0.75
9/30/2010	39,700	0.74	0.42	0.65
6/30/2010	47,100	0.72	0.39	0.45
03/31/2010	1,894,902	1.24	0.83	0.75
12/31/2009	733,158	1.05	0.75	1.04
09/31/2009	155,187	1.20	0.85	1.05
06/30/2009	323,870	1.43	0.66	1.20
03/31/2009	245,300	1.05	0.62	0.90
12/31/2008	361,125	1.71	0.55	1.19
09/30/2008	447,358	1.92	1.36	1.70
06/30/2008	542,301	2.20	1.62	1.85
3/31/2008	463,600	1.83	0.85	1.81

Yearly

12/31/2011	1,793,567	0.95	0.24	0.35
12/31/2010	2,022,202	1.24	0.39	0.75
12/31/2009	1,457,515	1.43	0.62	1.04
12/31/2008	1,494,984	2.20	0.55	1.19
12/31/2007	930,134	1.50	0.63	1.19

The Company's shares became quoted for trading on the OTC Bulletin Board on January 22, 2004.

The table No.10 lists the volume of trading and high, low and closing sales prices on the OTC Bulletin Board for the Company's common shares for the last 12 months, the last twelve fiscal quarters; and since commencement of trading.

Table No. 10

OTC Bulletin Board

Common Shares Trading Activity


Period	Sales -- US Dollars
Ended	Volume	High	Low	Close
Monthly
May 2012	642	0.28	0.26	0.26
April 2012	93,557	0.366	0.2539	0.28
March 2012	0	0.366	0.366	0.366
February 2012	200	0.366	0.258	0.366
January 2012	0	0.258	0.258	0.258
December 2011	4,881	0.302	0.258	0.258
November 2011	2,285	0.3761	0.2607	0.2607
October 2011	1,714	0.5918	0.3761	0.3761
September 2011	1,934	0.62	0.5918	0.5918
August 2011	41,000	0.7413	0.566	0.6553
July 2011	1,142	0.801	0.726	0.7413
June 2011	0	0.801	0.801	0.801

Quarterly

3/31/2012	200	0.366	0.258	0.366
12/31/2011	8,880	0.5918	0.258	0.258
9/30/2011	44,076	0.81	0.566	0.5918
6/30/2011	8,584	0.99	0.735	0.7413
3/31/2011	75,706	0.88	0.46	0.88
12/31/2010	90,582	0.68	0.46	0.46
9/30/2010	168,656	0.66	0.38	0.60
6/30/2010	247,020	0.78	0.40	0.40
03/31/2010	418,300	1.52	0.67	0.68
12/31/2009	355,000	1.00	0.70	1.00
09/30/2009	14,200	1.15	0.70	0.99
06/30/2009	64,100	1.05	0.51	1.05
03/31/2009	20,600	1.24	0.60	0.90
12/31/2008	67,041	1.58	0.61	1.24
09/30/2008	278,741	1.85	1.30	1.85
06/30/2008	58,200	2.00	1.00	1.85

Yearly

12/31/2011	137,246	0.99	0.258	0.258
12/31/2010	924,558	1.52	0.38	0.46
12/31/2009	453,900	1.24	0.51	1.00
12/31/2008	867,582	2.00	0.61	1.24
12/31/2007	245,718	1.40	0.21	1.22

The Company's common shares became quoted for trading on the Berlin-Bremen Stock Exchange on August 20, 2003. No trades of the Company's common shares have taken place on the Berlin-Bremen Stock Exchange to this date.

9.A.5. Common Share Description

Not Applicable

9.C. Stock Exchanges Identified

The common shares trade on the TSX Venture Exchange, OTCBB and are quoted for trading on the Berlin-Bremen Stock Exchange. Refer to ITEM #9.A.4.

ITEM 10. ADDITIONAL INFORMATION

10.A. Share Capital

Not Applicable

10.B. Memorandum and Articles of Association

Objects and Purposes

The Company’s corporation number as assigned by the Ontario Ministry of Consumer and Commercial Relations is 4020-1165. The Company’s Articles of Incorporation do not contain the Company’s purpose or its objectives, as neither is required under the laws of Ontario.

Disclosure of Interest of Directors

No director of the Company is permitted to vote on any resolution to approve a material contract or transaction in which such director has a material interest.

Subject to the Articles of Incorporation and any unanimous shareholder agreement, the board may fix their remuneration.

Borrowing Powers of Directors, ByLaws - Section 3.10

The board of directors may from time to time:

(i) borrow money upon the credit of the Corporation;

(ii) issue, reissue, sell or pledge debt obligations of the

Corporation;

(iii) subject to the Business Corporations Act (Ontario), give a guarantee on behalf of the

Corporation to secure performance of an obligation of any

person; and

(iv) mortgage, hypothecate, pledge or otherwise create a

security interest in all or any property of the

Corporation, owned or subsequently acquired, to secure any

debt obligations of the Corporation.

Delegation of Power to Borrow, Bylaws – Section 3.11

The board may by resolution delegate all or any of the powers conferred on them by paragraphs (i) and (iii) of section 3.10 hereof, to any one or more of the directors, the Managing Director, the executive committee, the Chairman of the Board (if any), the President, any Vice-President, the Secretary, the Treasurer, any Assistant Secretary, any Assistant Treasurer or the General Manager.

Director Qualification and Retirement

Neither the Articles of Incorporation nor the Bylaws of the Company discuss the retirement or non-retirement of directors under an age limit requirement, and there is no number of shares required for director qualification.

Description of Rights, Preferences and Restrictions

Attaching to Each Class of Shares

a) Class/Number of Shares. The Company’s Articles of Incorporation provide that: the Corporation is authorized to issue two classes of shares, namely an unlimited number of Preferred Shares without nominal or par value (“Preferred Shares”) and an unlimited number of Common Shares (“Common Shares”).

b) Common Shares. The holders of Common Shares shall be entitled:

1) to vote at all meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote, and on every poll taken at every such meeting, or adjourned meeting, every holder of Common Shares shall be entitled to one vote in respect of each Common Share held; and

2) subject to the rights of the holders of Preferred Shares, to receive the remaining property of the Corporation upon a dissolution; and

3) subject to the rights of the holders of Preferred Shares, to receive all other dividends declared by the Corporation.

c) Preferred Shares. The Preferred Shares as a class shall carry and be subject to the following rights, privileges, restrictions and conditions:

Directors’ Rights to Issue in One or More Series.

The Preferred Shares may at any time or from time to time be issued in one or more series, each series to consist of such number of shares as may before the issue thereof be determined by the Directors by resolution; the Directors of the Company may (subject as hereinafter provided) by resolution fix, from time to time before the issued thereof, the designation, rights, privileges, restrictions and conditions attaching to the shares of such series including, without limiting the generality of the foregoing (1) the issue price, (2) the rate, amount or method of calculation of dividends and whether the same are subject to change of dividends and whether the same are subject to change or adjustment, (3) whether such dividends shall be cumulative, non-cumulative or partly cumulative, (4) the dates, manner and currencies of payments of dividends and the dates from which dividends shall accrue, (5) the redemption and/or purchase prices and terms and conditions of redemption and/or purchase, with or without provision for sinking or similar funds, (6) conversion and/or exchange and/or classification rights, (7) the voting rights if any, and/or (8) other provisions, the whole subject to the following provisions, and to the issue of Certificate(s) of Amendment setting forth such designations, rights, privileges, restrictions and conditions attaching to the shares of each series.

Ranking of Preferred Shares.

The Preferred Shares shall be entitled to preference over the Common Shares of the Corporation and over any other shares ranking junior to the Preferred Shares with respect to payment of dividends and distribution of assets in the event of liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs and may also be given such other preferences not inconsistent with paragraphs (1) and (2) hereof over the Common Shares of the Corporation and over any other shares ranking junior to the Preferred Shares as may be determined in the case of each series of Preferred Shares authorized to be issued.

Amendment with Approval of Holders of Preferred Shares.

The rights, privileges, restrictions and conditions attaching to the Preferred Shares as a class may be repealed, altered, modified, amended or amplified by Certificate(s) of Amendment, but in each case with the approval of the holders of Preferred Shares (only as a class but not as individual series) given as hereinafter specified.

Approval of Holders of Preferred Shares.

Subject to the Provisions of the Business Corporations Act, any consent or approval given by the holders of Preferred Shares as a class shall be deemed to have been sufficiently given if it shall have been given in writing by the holders of at least sixty-six and two-thirds percent (66²/³%) of the outstanding Preferred Shares or by a resolution passed at a meeting of holders of Preferred Shares duly called and held upon not less than fifteen days’ notice at which the holders of at least a majority of the outstanding Preferred Shares are present or are represented by proxy and carried by the affirmative vote of not less than sixty-six and two-thirds percent of the votes cast at such meetings, in addition to any other consent or approval required by the Business Corporation Act. If at any such meeting the holders of a majority of the outstanding Preferred Shares are not present or represented by proxy within one-half hour after the time appointed for such meeting, then the meeting shall be adjourned to such date not less than fifteen days thereafter and to such time and place as may be designated by the Chairman, and not less than ten days’ written notice shall be given of such adjourned meeting. At such adjourned meeting the holders of the Preferred Shares present or represented by proxy may transact the business for which the meeting was originally convened and a resolution passed by the affirmative vote of not less than sixty-six and two-thirds percent of the votes cast at such meeting shall constitute the consent or approval of the holders of Preferred Shares. On every poll taken at every meeting, every holder of Preferred Shares shall be entitled to one vote in respect of each share held. Subject to the foregoing, the formalities to be observed in respect of the giving or waiving of notice of any such meeting and the conduct thereof shall be those from time to time prescribed in the Bylaws of the Corporation with respect to meetings of shareholders. Any consent or approval given by the holders of Preferred Shares or a series as a class shall be deemed to have been sufficiently given if in the same manner as provided herein regarding holders of Preferred Shares as a class.

d) Dividend Rights. The Company’s Bylaws provide that holders of common shares shall be entitled to receive dividends and the Company shall pay dividends thereon, as and when declared by the board of directors of the Company out of moneys properly applicable to the payment of dividends, in such amount and in such form as the board of directors may from time to time determine and all dividends which the directors may declare on the common shares shall be declared and paid in equal amounts per share on all common shares at the time outstanding, subject to the prior rights of any shares ranking senior to the common shares with respect to priority in the payment of dividends.

e) Voting Rights. Neither the Company’s Bylaws nor its Articles of Incorporation provide for the election or re-election of directors at staggered intervals.

f) Redemption Provisions. The Company may purchase any of its issued common shares subject to the provisions of the Ontario Business Corporations Act.

g) Sinking Fund Provisions. Neither the Company’s Articles of Incorporation nor its Bylaws contain sinking fund provisions.

h) Liability to Further Capital Calls by the Company. Neither the Company’s Articles of Incorporation nor its Bylaws contain provisions allowing the Company to make further capital calls with respect to any shareholder of the Company.

i) Discriminatory Provisions Based on Substantial Ownership. Neither the Company’s Articles of Incorporation nor its Bylaws contain provisions that discriminate against any existing or prospective holders of securities as a result of such shareholder owning a substantial number of shares.

j) Miscellaneous Provisions. Neither the Articles of Incorporation nor the Bylaws of the Company address the process by which the rights of holders of stock may be changed. The general provisions of the Ontario Business Corporations Act apply to this process, and require shareholder meetings and independent voting for such changes.

A meeting of shareholders may be called at any time by resolution or by the Chairman of the Board or by the President and the Secretary shall cause notice of a meeting of shareholders to be given when directed so to do by resolution of the board or by the Chairman or the Board or the President.

The board shall call an annual meeting of the shareholders not later than eighteen (18) months after the Corporation comes into existence and subsequently not later than fifteen (15) months after holding the last preceding annual meeting.

A special meeting of shareholders may be called at any time and may be held in conjunction with an annual meeting of shareholders.

Meeting of shareholders shall be held at the place within Canada determined by the board from time to time. Notwithstanding the above subsection, a meeting of shareholders may be held outside Canada if all the shareholders entitled to vote at that meeting so agree, and a shareholder who attends a meeting of shareholders held outside Canada is deemed to have so agreed except when he attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully held.

Neither the Articles of Incorporation nor the Bylaws of the Company discuss limitations on the rights to own securities or exercise voting rights thereon.

Although not expressly enumerated in the Articles, pursuant to Canadian regulations, shareholder ownership must be disclosed by any shareholder who owns more than 10% of the Company’s common stock.

There is no provision of the Company’s Articles of Incorporation or Bylaws that would delay, defer or prevent a change in control of the Company, and that would operate only with respect to a merger, acquisition, or corporate restructuring involving the Company (or any of its subsidiaries). The Company’s Bylaws do not contain a provision indicating the ownership threshold above which shareholder ownership must be disclosed. With respect to the matters discussed in this Item 10B, the law applicable to the Company is not significantly different from United States law. Neither the Articles of Incorporation nor Bylaws contain provisions governing changes in capital that are more stringent than the conditions required by law.

The Ontario Business Corporations Act contains provisions that require a "special resolution" for effecting certain corporate actions. Such a "special resolution" requires a three-quarters vote of shareholders rather than a simple majority for passage. The principle corporate actions for which the Company would require a "special resolution" include:

a. Changing its name;

b. Changing the place where its registered office is situated;

c. Adding, changing or removing any restriction on the business

or businesses that the corporation may carry on;d. Certain reorganizations of the corporation and alterations of

share capital;e. Increasing or decreasing the number of directors or the

minimum or maximum number of directors;f. Any amendment to its articles regarding constraining the

issue or transfer of shares to persons who are not resident

Canadians; and

g. Dissolution of the corporation.

10.C. Material Contracts

Not Applicable

10.D. Exchange Controls

Except as discussed in ITEM #10.E., the Company is unaware of any Canadian federal or provincial laws, decrees, or regulations that restrict the export or import of capital, including foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-Canadian holders of the common shares. The Company is unaware of any limitations on the right of non-Canadian owners to hold or vote the common shares imposed by Canadian federal or provincial law or by the charter or other constituent documents of the Company.

10.E. Taxation

A brief description of provisions of the tax treaty between Canada and the United States is included below, together with a brief outline of certain taxes, including withholding provisions, to which United States security holders are subject under existing laws and regulations of Canada. The consequences, if any, of provincial, state and local taxes are not considered.

Security holders should seek the advice of their own tax advisors, tax counsel or accountants with respect to the applicability or effect on their own individual circumstances of the matters referred to herein and of any provincial, state or local taxes.

Material Canadian Federal Income Tax Consequences

The discussion under this heading relates to the principal Canadian federal income tax consequences of acquiring, holding and disposing of shares of common stock of the Company for a shareholder of the Company who is not a resident of Canada but is a resident of the United States and who will acquire and hold shares of common stock of the Company as capital property for the purposes of the Income Tax Act (Canada) (the “Canadian Tax Act”). This summary does not apply to a shareholder who carries on business in Canada through a “permanent establishment” situated in Canada or performs independent personal services in Canada through a fixed base in Canada if the shareholder’s holding in the Company is effectively connected with such permanent establishment or fixed base. This information is based on the provisions of the Canadian Tax Act and the regulations thereunder and on an understanding of the administrative practices of Canada Revenue Agency, and takes into account all specific proposals to amend the Canadian Tax Act or regulations made by the Minister of Finance of Canada as of the date hereof. This discussion is not a substitute for independent advice from a shareholder’s own Canadian and U.S. tax advisors.

The provisions of the Canadian Tax Act are subject to income tax treaties to which Canada is a party, including the Canada-United States Income Tax Convention (1980), as amended (the “Convention”).

Dividends on Common Shares and Other Income. Under the Canadian Tax Act, a non-resident of Canada is subject to Canadian withholding tax at the rate of 25 percent on dividends paid or deemed to have been paid to him or her by a corporation resident in Canada. The Convention limits the rate to 15 percent if the shareholder is a resident of the United States and the dividends are beneficially owned by and paid to such shareholder, and to 5 percent if the shareholder is also a corporation that beneficially owns at least 10 percent of the voting stock of the payor-corporation.

The amount of a stock dividend (for tax purposes) would be equal to the amount by which the paid up or stated capital of the Company had increased because of the payment of such dividend. The Company will furnish additional tax information to shareholders in the event of such a dividend. Interest paid or deemed to be paid on the Company’s debt securities held by non-Canadian residents may also be subject to Canadian withholding tax, depending upon the terms and provisions of such securities and any applicable tax treaty.

The Convention exempts from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable organization or to an organization constituted and operated exclusively to administer a pension, retirement or employee benefit fund or plan, if the organization is a resident of the United States and is exempt from income tax under the laws of the United States.

Dispositions of Common Shares. Under the Canadian Tax Act, a taxpayer’s capital gain or capital loss from a disposition of a share of common stock of the Company is the amount, if any, by which his or her proceeds of disposition exceed (or are exceeded by, respectively) the aggregate of his or her adjusted cost base of the share and reasonable expenses of disposition. One-half of a capital gain (the “taxable capital gain”) is included in income, and one-half of a capital loss in a year (the “allowable capital loss”) is deductible from taxable capital gains realized in the same year. The amount by which a shareholder’s allowable capital loss exceeds the taxable capital gain in a year may be deducted from a taxable capital gain realized by the shareholder in the three previous or any subsequent year, subject to adjustment when the capital gains inclusion rate in the year of disposition differs from the inclusion rate in the year the deduction is claimed.

If a share of common stock of the Company is disposed of to the Company other than in the open market in the manner in which shares would normally be purchased by the public, the proceeds of disposition will, in general terms, be considered as limited to the paid-up capital of the share and the balance of the price paid will be deemed to be a dividend. In the case of a shareholder that is a corporation, the amount of any capital loss otherwise determined may be reduced by the amount of dividends previously received in respect of the shares disposed of, unless the corporation owned the shares for at least 365 days prior to sustaining the loss and (together with corporations, persons and other entities, with whom the corporation was not dealing at arm’s length) did not own more than five percent of the shares of any class of the corporation from which the dividend was received. These loss limitation rules may also apply where a corporation is a member of a partnership or a beneficiary of a trust that owned the shares disposed of.

Under the Canadian Tax Act, a non-resident of Canada is subject to Canadian tax on taxable capital gains, and may deduct allowable capital losses, realized on a disposition of “taxable Canadian property.” Shares of common stock of the Company will constitute taxable Canadian property of a shareholder at a particular time if the shareholder used the shares in carrying on business in Canada, or if at any time in the five years immediately preceding the disposition 25 percent or more of the issued shares of any class or series in the capital stock of the Company belonged to one or more persons in a group comprising the shareholder and persons with whom the shareholder did not deal at arm’s length.

The Convention relieves United States residents from liability for Canadian tax on capital gains derived on a disposition of shares unless (a) the value of the shares is derived principally from “real property” in Canada, including the right to explore for or exploit natural resources and rights to amounts computed by reference to production, (b) the shareholder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he or she ceased to be resident in Canada, or (c) the shares formed part of the business property of a “permanent establishment” that the holder has or had in Canada within the 12 months preceding the disposition.

Material United States Federal Income Tax Considerations

The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, published Internal Revenue Service ("IRS") rulings, published administrative positions of the IRS and court decisions that are currently applicable. This discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation that, if enacted, could be applied, possibly on a retroactive basis, at any time. Holders and prospective holders of shares of the Company should consult their own tax advisors about the Federal; state, local and foreign tax consequences of purchasing, owning and disposing of shares of the Company.

U.S. Holders. As used herein, a "U.S. Holder" includes a holder of shares of the Company who is a citizen or resident of the United States, a corporation created or organized in or under the laws of the United States or of any political subdivision thereof, any entity that is taxable as a corporation for U.S. tax purposes and any other person or entity whose ownership of shares of the Company is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, nonresident alien individuals or foreign corporations whose ownership of shares of the Company is not effectively connected with conduct of trade or business in the United States, shareholders who acquired their stock through the exercise of employee stock options or otherwise as compensation and shareholders who hold their stock as ordinary assets and not as capital assets.

Distributions on Shares of the Company. U.S. Holders receiving dividend distributions (including constructive dividends) with respect to shares of the Company are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the extent that the Company has current or accumulated earnings and profits as defined under U.S. Federal tax law, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited against the U.S. Holder's United States Federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder's United States Federal taxable income by those who itemize deductions. (See discussion that is more detailed at "Foreign Tax Credit" below). To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a return of capital up to the U.S. Holder's adjusted basis in the shares and thereafter as gain from the sale or exchange of the shares. Preferential tax rates for net capital gains are applicable to a U.S. Holder that is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder that is a corporation.

Dividends paid on the shares of the Company are not expected to be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder that is a corporation may be entitled to a 70% deduction of the United States source portion of dividends received from the Company (unless the Company qualifies as a "foreign personal holding company" or a "passive foreign investment company", as defined below) if such U.S. Holder owns shares representing at least 10% of the voting power and value of the Company.

In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. Dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S.Dollar value on the date of receipt. Any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. Dollars, will be ordinary income or loss. However, for tax years after 1997, an individual whose realized foreign exchange gain does not exceed U.S. $200 will not recognize that gain, to the extent that there are not expenses associated with the transaction that meet the requirement for deductibility as a trade or business expense (other than travel expenses in connection with a business trip or as an expense for the production of income).

Foreign Tax Credit. A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of shares of the Company may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. It will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income subject to tax. This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations that apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder's United States Federal income tax liability that the U.S. Holder's foreign source income bears to his or its worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. There are further limitations on the foreign tax credit for certain types of income such as "passive income", "high withholding tax interest", "financial services income", and "shipping income". The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and holders and prospective holders of shares of the Company should consult their own tax advisors regarding their individual circumstances.

In the case of certain U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), owning 10% or more of the Company's Common Shares, a portion of the qualifying Canadian income tax paid by the Company will also be available as a foreign tax credit for U.S. federal income tax purposes, at the election of the U.S. Holder.

Disposition of Shares of the Company. A U.S. Holder will recognize a gain or loss upon the sale of shares of the Company equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholder's tax basis in the shares of the Company. This gain or loss will be a capital gain or loss if the shares are a capital asset in the hands of the U.S. Holder, and will be a short-term or long-term capital gain or loss depending upon the holding period of the U.S. Holder. Gains and losses are netted and combined according to special rules in arriving at the overall capital gain or loss for a particular tax year. Deductions for net capital losses are subject to significant limitations. Corporate capital losses (other than losses of corporations electing under Subchapter S or the Code) are deductible to the extent of capital gains. Non-corporate taxpayers may deduct net capital losses, whether short-term or long-term, up to U.S. $3,000 a year (U.S. $1,500 in the case of a married individual filing separately). For U.S. Holders that are individuals, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.

Other Considerations

In the following circumstances, the above sections of this discussion may not describe the United States Federal income tax consequences resulting from the holding and disposition of shares of the Company:

Foreign Personal Holding Company. If at any time during a taxable year more than 50% of the total combined voting power or the total value of the Company's outstanding shares is owned, directly or indirectly, by five or fewer individuals who are citizens or residents of the United States and 60% (50% in subsequent years) or more of the Company's gross income for such year was derived from certain passive sources (e.g., from dividends received from its subsidiaries), the Company would be treated as a "foreign personal holding company". In that event, U.S. Holders that hold shares of the Company (on the earlier of the last day of the Company's tax year or the last date on which the Company was a foreign personal holding company) would be required to include in gross income for such year their allowable portions of such passive income to the extent the Company does not actually distribute such income.

Foreign Investment Company. If 50% or more of the combined voting power or total value of the Company's outstanding shares are held, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701 (a)(31)), and the Company is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest, it is possible that the Company might be treated as a "foreign investment company" as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging shares of the Company to be treated as ordinary income rather than capital gain.

Passive Foreign Investment Company. As a foreign corporation with U.S. Holders, the Company will be treated as a passive foreign investment company ("PFIC"), as defined in Section 1297 of the Code, if 75% or more of its gross income in a taxable year is passive income, or the average percentage of the Company’s assets (by value) during the taxable year which produce passive income or which are held for production of same is at least 50%. Passive income is defined to include gross income in the nature of dividends, interest, royalties, rents and annuities; excess of gains over losses from certain transactions in any commodities not arising inter alia from a PFIC whose business is actively involved in such commodities; certain foreign currency gains; and other similar types of income. Foreign mining companies that are in the exploration stage may have little or no income from operations and/or may hold substantial cash and short-term securities that pay interest and dividends while awaiting expenditure in connection with the business. Given the complexities of determining what expenditures may be deductible and of how assets held for production of active income should be valued, the Company, based on advice from its professional advisers, cannot conclude whether it is a PFIC.

It is not the intention of the Company to be considered a PFIC and the Company does not consider this to be a material risk. In the event that it were to become classified as a PFIC, the following should be taken into consideration. U.S. Holders owning shares of a PFIC are subject to a special tax and to an interest charge based on the value of deferral of U.S. tax attributable to undistributed earnings of a PFIC for the period during which the shares of the PFIC are owned. This special tax would apply to any gain realized on the disposition of shares of a PFIC. In addition, the gain is subject to U.S. federal income tax as ordinary income, taxed at top marginal rates, rather than as capital gain income. The special tax would also be payable on receipt of excess distributions (any distributions received in the current year that are in excess of 125% of the average distributions received during the 3 preceding years or, if shorter, the shareholder's holding period). If, however, the U.S. Holder makes a timely election to treat a PFIC as a qualified electing fund ("QEF") with respect to such shareholder's interest and the Company provides an annual information statement, the above-described rules will not apply. The Company will provide such an information statement upon request from a U.S. Holder for current and prior taxable years. Instead, the electing U.S. Holder would include annually in his gross income his pro rata share of the PFIC's ordinary earnings and any net capital gain regardless of whether such income or gain was actually distributed. A U.S. Holder of a PFIC treated as a QEF can, however, further elect to defer the payment of United States Federal income tax on such income and gain inclusions, with tax payments ultimately requiring payment of an interest factor. In addition, with a timely QEF election, the electing U.S. Holder will obtain capital gain treatment on the gain realized on disposition of such U.S. Holder’s interest in the PFIC. Special rules apply to U.S. Holders who own their interests in a PFIC through intermediate entities or persons.

Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S. Holders who hold, actually or constructively, marketable stock of a foreign corporation that qualifies as a PFIC may elect to mark such stock to the market (a “mark-to-market election”). If such an election is made, such U.S. Holder will not be subject to the special taxation rules of PFIC described above for the taxable years for which the mark-to-market election is made. A U.S. Holder who makes such an election will include in income for the taxable year an amount equal to the excess, if any, of the fair market value of the shares of the Company as of the close of such tax year over such U.S. Holder's adjusted basis in such shares. In addition, the U.S. Holder is allowed a deduction for the lesser of (i) the excess, if any, of such U.S. Holder's adjusted tax basis in the shares over the fair market value of such shares as of the close of the tax year, or (ii) the excess, if any of (A) the mark-to-market gains for the shares in the Company included by such U.S. Holder for prior tax years, including any amount which would have been included for any prior year but for Section 1291 interest on tax deferral rules discussed above with respect to a U.S. Holder, who has not made a timely QEF election during the year in which he holds (or is deemed to have held) shares in the Company and the Company is a PFIC (“Non-Electing U.S. Holder”), over (B) the mark-to-market losses for shares that were allowed as deductions for prior tax years. A U.S. Holder's adjusted tax basis in the shares of the Company will be increased or decreased to reflect the amount included or deducted as a result of mark-to-market election. A mark-to-market election will apply to the tax year for which the election is made and to all later tax years, unless the PFIC stock ceases to be marketable or the IRS consents to the revocation of the election.

The IRS has issued proposed regulations that would treat as taxable certain transfers of PFIC stock by a Non-Electing U.S. Holder that are not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. In such cases, the basis of the Company's shares in the hands of the transferee and the basis of any property received in the exchange for those shares would be increased by the amount of gain recognized. A U.S. Holder who has made a timely QEF election (as discussed herein) will not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. The transferee's basis in this case will depend on the manner of the transfer. The specific tax effect to the U.S. Holder and the transferee may vary based on the manner in which the shares of the Company are transferred. Each U.S. Holder should consult a tax advisor with respect to how the PFIC rules affect their tax situation.

The PFIC and QEF election rules are complex. U.S. Holders should consult a tax advisor regarding the availability and procedure for making the QEF election as well as the applicable method for recognizing gains or earnings and profits under the foregoing rules.

Controlled Foreign Corporation. If more than 50% of the voting power of all classes of stock or the total value of the stock of the Company is owned, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships and corporations or estates or trusts other than foreign estates or trusts, each of whom own 10% or more of the total combined voting power of all classes of stock of the Company ("United States shareholder"), the Company could be treated as a "controlled foreign corporation" under Subpart F of the Code. This classification would effect many complex results including the required inclusion by such United States shareholders in income of their pro rata share of "Subpart F income" (as specially defined by the Code) of the Company. Subpart F requires current inclusions in the income of United States shareholders to the extent of a controlled foreign corporation's accumulated earnings invested in "excess passive" assets (as defined by the Code). In addition, under Section 1248 of the Code, a gain from the sale or exchange of shares by a U.S. Holder who is or was a United States shareholder at any time during the five year period ending with the sale or exchange is treated as ordinary dividend income to the extent of earnings and profits of the Company attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because it is not clear that Subpart F would apply to the U.S. Holders of shares of the Company, a more detailed review of these rules is outside of the scope of this discussion.

If the Company is both a PFIC and controlled foreign corporation, the company will not be treated as a PFIC with respect to United States shareholders of the controlled foreign corporation. This rule will be effective for taxable years of the Company ending with or within such taxable years of United States shareholders.

Summary

Management believes this discussion covers all material tax consequences. Nevertheless, this is not intended to be, nor should it be construed to be, legal or tax advice to any holder of common shares of the Company Holders and prospective holders are encouraged to consult their own tax advisers with respect to their particular circumstances.

10.F. Dividends and Paying Agents

Not Applicable

Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

A 10% strengthening of the US dollars against Canadian dollars would have increased the net equity by $39,393 (2010 - $118,884) due to reduction in the value of net liability balance. A 10% of weakening of the US dollar against Canadian dollar at December 31, 2011 would have had the equal but opposite effect.

The significant financial instruments of the Company, their carrying values and the exposure to USD denominated monetary assets and liabilities, as of December 31, 2011 are as follows:

	US Denominated				China Denominated				Taiwan Denominated
	CAD		USD		CAD		RMB		CAD		NTW
Cash		384,584		378,156		45,834		283,625		-		-
Accounts receivable		293,216		288,315		749,514		4,638,079		-		-
Accounts payable		13,049		12,831		-		-		-		-

USD, RMB and New Taiwan dollars are converted at the prevailing year-end exchange rates.

The Company operates one segment of its business in China, and a substantial portion of our operating expenses are in Canadian dollars, whereas our revenue from co-publishing agreements are primarily in Renminbi which is first converted to US dollars then to Canadian dollars. A significant adverse change in foreign currency exchange rates between the Canadian dollars relative to US dollars or Renminbi to US dollars could have a material effect on our consolidated results of operations, financial position or cash flows. We have not hedged exposures denominated in foreign currencies, as they are not material at this time.

	RMB	USD	USD	USD	USD
		At 12/31/2011	-5%	-10%	-15%
Year-end Exchange Rate For 1 RMB to USD		0.1585	0.1506	0.1427	0.1347
Annual Revenue From China	8,575,909	1,359,282	1,291,317	1,223,353	1,155,389
Accounts Receivable	4,642,151	735,781	698,992	662,203	625,414


	USD	CAD	CAD	CAD	CAD
		Year 2011	+5%	-5%	-10%
Average Annual Exchange Rate for 1 USD to CAD		0.9907	1.0402	0.9412	0.8916
Annual Revenue From China	1,234,788	1,223,304	1,284,469	1,162,139	1,100,974

	USD	CAD	CAD	CAD	CAD
		At 12/31/2011	+5%	-5%	-10%
Year-end Exchange Rate for 1 USD to CAD		1.0241	1.0753	0.9729	0.9217
Cash	376,972	386,057	405,360	366,754	347,451
Accounts Receivable	962,676	985,876	1,035,170	936,583	887,289
Accounts Payable	33,063	33,859	35,552	32,166	30,474

Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not Applicable

PART II

Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not Applicable

Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not Applicable

ITEM 15. CONTROLS AND PROCEDURES

15.A. As of the end of the period covered by this report ("Date of Evaluation"), an evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Recent Accounting Pronouncements

The following pronouncements issued by the IASB and interpretations published by IFRIC will become effective for annual periods beginning on or after January 1, 2013, with earlier adoption permitted. IFRS 10, IFRS 11 and IFRS 12 permit early adoption if all of the standards are collectively adopted.

IFRS 10 – Consolidated Financial Statements establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. A new definition of ‘control’ has been established. IFRS 10 replaces the consolidation requirements in SIC-12 Consolidation—Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements.

IFRS 11 – Joint Arrangements establishes the principles for joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form. IFRS 11 requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method whereas for a joint operation the venture will be accounted for using the proportionate consolidation method.

IFRS 12 – Disclosure of Interests in Other Entities is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities.

IFRS 13 – Fair Value Measurement defines fair value, requires disclosure about fair value measurements and provides a framework for measuring fair value when it is required or permitted within the IFRS standards.

IAS 19 – Employee Benefits amends the existing standard to eliminate options to defer the recognition of gains and losses in defined benefit plans, requires remeasurement of a defined benefit plan’s assets and liabilities to be presented in other comprehensive income and increases the disclosure.

The IASB also amended the following standard which is effective as per the date identified.

IAS 1 – Presentation of Financial Statements was amended and requires companies to group items presented within Other Comprehensive Income based on whether they may be subsequently reclassified to profit or loss. This amendment is effective for annual periods beginning on or after July 1, 2012, with earlier adoption permitted.

IFRS 9 – Financial Instruments addresses the classification and measurement of financial assets. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value. The new standard also requires a single impairment method to be used. The IASB has extended the effective date to January 1, 2015.

The Company has not yet completed its evaluations of the effect of adopting the above standards and the impact it may have on its consolidated financial statements.

15.B. There have been no changes that have materially affected, or that is reasonably likely to affect, the Company's internal control over financial reporting during the period covered by this Annual Report.

ITEM 16. RESERVED

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

During the past fiscal year, the members of the audit committee (the "Audit Committee") were Sanjay Joshi ("Chairman"), Scott Remborg and Michael P. Kraft, of whom Sanjay Joshi and Scott Remborg are independent. Mr. Joshi was succeeded as Chairman by Michael Stein on December 8, 2011. Each member of the Audit Committee is financially literate as defined by MI 52-110.

A member of the Audit Committee is independent if the member has no direct or indirect material relationship with the Company. A material relationship means a relationship which could, in the view of the Board, reasonably interfere with the exercise of a member's independent judgment.

A member of the Audit Committee is considered financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company. Each has acquired these attributes through relevant experience serving as directors and/or audit committee members of various other private and public companies.

ITEM 16B. CODE OF ETHICS

The Company has adopted a “Code of Conduct”, the text of such code is available through its internet website.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Nature of Services	Fees Paid to Auditor in Year-ended December 31, 2011	Fees Paid to Auditor in Year-ended December 31, 2010
Audit Fees(1)	$66,350	$93,730
Audit-Related Fees(2)	Nil	Nil
Tax Fees(3)	5,021	Nil
All Other Fees(4)	11,925	Nil
Total	$83,296	$93,730

Notes:

(1)	"Audit Fees" include fees necessary to perform the annual audit and any quarterly reviews of the Company's financial statements

(2)

"Audit-Related Fees" include services that are traditionally performed by the auditor. These audit-related services include employee benefit audits, due diligence assistance, accounting consultations on proposed transactions, internal control reviews and audit or attest services not required by legislation or regulation.

(3)

"Tax Fees" include fees for all tax services other than those included in "Audit Fees" and "Audit-Related Fees". This category includes fees for tax compliance, tax planning and tax advice. Tax planning and tax advice includes assistance with tax audits and appeals, tax advice related to mergers and acquisitions, and requests for rulings or technical advice from tax authorities

(4)	"All Other Fees" include all other non-audit services

ITEM 16D. NOT APPLICABLE

ITEM 16E. NOT APPLICABLE

ITEM 16F. NOT APPLICABLE

ITEM 16G. NOT APPLICABLE

PART III

ITEM 17. FINANCIAL STATEMENTS

The Company has elected to provide financial statements pursuant to ITEM #18.

ITEM 18. FINANCIAL STATEMENTS

The Company's financial statements are stated in Canadian Dollars (CAD) and are prepared in accordance with with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).

The financial statements as required under ITEM #18 are attached hereto as exhibits. The audit reports of Collins Barrow Toronto LLP are included herein immediately preceding the financial statements and schedules.

Audited Financial Statements

Auditor's Report, dated April 30, 2012

Consolidated Balance Sheets at December 31, 2011 and December 31, 2010

Consolidated Statements of Operations and Deficit

for the years ended December 31, 2011 and December 31, 2010

Consolidated Statements of Cash Flows

for the years ended December 31, 2011 and December 31, 2010

Notes to Financial Statements

ITEM 19. EXHIBITS

1.1 Articles of Amendment. Certificates of Incorporation, By-Laws/Articles, incorporated by reference from the Lingo Media Inc. F-1 Registration Statement filed August 20, 2002.

1.2 Amended By-Laws of the Company incorporated by reference from the Lingo Media Corporation Form 20-F/A filed February 17, 2012.

12.1. Certificate of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

12.2. Certificate of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

13.1 Certificate of the CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

13.2 Certificate of the CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

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, thereunto duly authorized.

LINGO MEDIA CORPORATION

By: /s/ “Michael P. Kraft”

Michael P. Kraft

President and Chief Executive Officer

By: /s/ “Khurram Qureshi"

Khurram Qureshi

Chief Financial Officer

January 22, 2013

LINGO MEDIA CORPORATION

Consolidated Financial Statements

For the year ended December 31, 2011

Management’s Responsibility

To the Shareholders of

Lingo Media Corporation

Management is responsible for the preparation and presentation of the accompanying consolidated financial statements, including responsibility for significant accounting judgments and estimates in accordance with International Financial Reporting Standards and ensuring that all information in the Management Discussion & Analysis is consistent with the statements. This responsibility includes selecting appropriate accounting principles and methods, and making decisions affecting the measurement of transactions in which objective judgment is required.

In discharging its responsibilities for the integrity and fairness of the consolidated financial statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of financial statements.

The Board of Directors and the Audit Committee include some Directors who are neither management nor employees of the Company. The Board is responsible for overseeing management in the performance of its financial reporting responsibilities, and for approving the financial information included in the annual report. The Audit Committee has the responsibility of meeting with management and external auditors to discuss the internal controls over the financial reporting process, auditing matters and financial reporting issues. The Audit Committee is also responsible for recommending the appointment of the Company’s external auditors.

Collins Barrow Toronto LLP, an independent firm of Chartered Accountants, is appointed by the Audit Committee of the Board to audit the consolidated financial statements and report directly to them; their report follows. The external auditors have full and free access to, and meet periodically and separately with, both the Audit Committee and management to discuss their audit findings.

April 30, 2012

/s/ Michael Kraft		/s/ Khurram Qureshi
President & CEO		Chief Financial Officer

[LETTERHEAD OF COLLINS BARROW]

INDEPENDENT AUDITORS' REPORT

To the Shareholders of

Lingo Media Corporation

We have audited the accompanying consolidated financial statements of Lingo Media Corporation and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2011, December 31, 2010, and January 1, 2010 and the consolidated statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2011 and 2010 and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Lingo Media Corporation and its subsidiaries as at December 31, 2011, December 31, 2010, and January 1, 2010 and its financial performance and its cash flows for the years ended December 31, 2011 and 2010 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 2 in the consolidated financial statements which indicates that the Company has material uncertainties that raise substantial doubt about the Company's ability to continue as a going concern.

Licensed Public Accountants

Chartered Accountants

April 30, 2012

Toronto, Ontario

LINGO MEDIA CORPORATION

Consolidated Financial Statements

As at December 31, 2011

Contents

Consolidated Financial Statements	Page

Balance Sheets	4
Statement of Comprehensive Income	5
Statement of Changes in Equity	6
Statement of Cash Flows	7
Notes to the Financial Statements	8 - 35

LINGO MEDIA CORPORATION

Consolidated Balance Sheets

(Expressed in Canadian Dollars, unless otherwise stated)

	Notes	December 31, 2011	December 31, 2010	January 1, 2010
ASSETS			(Note 22)	(Note 22)
Current Assets

Cash and cash equivalents		$ 482,767	$ 230,906	$ 201,451
Accounts and grants receivable, net	6	1,175,330	931,101	569,571
Prepaid and other receivables		103,618	93,465	76,954

		1,761,715	1,255,472	847,976
Non-Current Assets

Property and equipment, net	7	48,321	58,161	73,351
Publishing development cost, net	8	-	8,807	24,018
Intangibles, net	9	1,099,521	4,234,283	4,757,807
Goodwill	23	139,618	139,618	-

TOTAL ASSETS		3,049,175	5,696,341	5,703,152

LIABILITIES AND EQUITY

Current Liabilities

Accounts payable		373,521	903,689	313,915
Accrued liabilities		335,820	729,892	393,665
Deferred revenue		-	-	15,533
Loans payable	10	890,000	1,408,205	-
		1,599,341	3,041,786	723,113
Non-Current Liabilities

Balance of acquisition payment due	23	-	763,729
Deferred tax		-	-	564,997
TOTAL LIABILITIES		1,599,341	3,805,515	1,288,110

Equity

Share capital	11	17,925,347	15,131,192	14,220,192
Warrants	13	1,046,365	-	281,355
Share-based payment reserve	12	2,130,735	1,612,621	1,362,875
Accumulated other comprehensive income		(86,760)	(4,181)	-
Deficit		(19,565,853)	(14,848,806)	(11,449,380)
TOTAL EQUITY		1,449,834	1,890,826	4,415,042

TOTAL LIABILITIES AND EQUITY		$ 3,049,175	$ 5,696,341	$ 5,703,152

The accompanying notes are an integral part of these consolidated financial statements.

These consolidated financial statements are authorized for issue by the Board of Directors on April 30, 2012.

/s/ Michael Kraft		/s/ Michael Stein
Director		Director

LINGO MEDIA CORPORATION

Consolidated Statement of Comprehensive Income

For the years ended December 31, 2011 and 2010

(Expressed in Canadian Dollars, unless otherwise stated)


	Notes	2011	2010
			(Note 22)
Revenue		$ 2,066,969	$ 1,985,153

Expenses

Selling, general and administrative expenses		2,340,555	2,903,638
Share-based payments	12	518,114	(31,609)
Direct costs		141,749	117,941
Amortization – intangibles	9	2,544,818	2,443,382
Impairment loss		703,600	-
Amortization – publishing development costs	8	8,807	15,211
Depreciation – property and equipment	7	12,600	14,081
Total Expenses		6,270,243	5,462,644

Loss from Operations		(4,203,274)	(3,477,491)

Net Finance Charges

Interest expense		328,112	294,675
Foreign exchange (gain) / loss		(19,709)	24,177


Loss Before Income Tax		(4,511,677)	(3,796,343)

Income Tax Expense (Recovery)	14	205,370	(396,917)

Net Loss for the Period		(4,717,047)	(3,399,426)

Other Comprehensive Income

Exchange differences on translating foreign operations		82,579	4,181

Total Comprehensive Loss, Net of Tax		$(4,634,468)	$ (3,395,245)

Loss per Share
Basic and Diluted		$ (0.25)	$ (0.26)

Weighted Number of Common Shares Outstanding
Basic and Diluted		18,797,185	13,277,226

The accompanying notes are an integral part of these consolidated financial statements.

LINGO MEDIA CORPORATION

Consolidated Statement of Changes in Equity

For the year ended December 31, 2011 and 2010

(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, 2010		12,465,857	$	14,220,192		$	1,362,875		$	281,355		$	-		$	(11,449,380	)	$	4,415,042
Loss for the year		-		-			-			-			-			(3,399,426	)		(3,399,426	)
Other comprehensive income / (loss)		-		-			-			-			(4,181	)		-			(4,181	)
Issued shares - acquisition of ELL Technologies Limited		1,050,000		651,000			-			-			-			-			651,000
Issued shares - against loan payable		433,332		260,000			-			-			-			-			260,000
Warrants expired - shares		-		-			281,355			(281,355	)		-			-			-
Share-based payments charged to operations		-		-			(31,609	)		-			-			-			(31,609	)

Balance as at December 31, 2010		13,949,189		15,131,192			1,612,621			-			(4,181	)		(14,848,806	)		1,890,826

Issued shares - equity financing		5,557,001		3,053,985			-			-			-			-			3,053,985
Issued shares - balance of ELL Technologies Limited acquisition payment		1,036,987		786,535			-			-			-			-			786,535
Net loss for the year		-		-			-			-			-			(4,717,047	)		(4,717,047	)
Warrants issued		-		(1,046,365	)		-			1,046,365			-			-			-
Share-based payments charged to operations		-		-			518,114			-			-			-			518,114
Other comprehensive income (loss)		-		-			-			-			(82,579	)		-			(82,579	)
Balance as at December 31, 2011		20,543,177	$	17,925,347		$	2,130,735		$	1,046,365		$	(86,760	)	$	(19,565,853	)	$	1,449,834

The accompanying notes are an integral part of these consolidated financial statements.

LINGO MEDIA CORPORATION

Consolidated Statement of Cash Flows

For the years ended December 31, 2011 and 2010

(Expressed in Canadian Dollars, unless otherwise stated)

	2011	2010
CASH FLOWS FROM OPERATING ACTIVITIES

Net Loss Before Income Tax	$ (4,717,047)	$ (3,399,426)

Adjustments to Net Profit for Non-Cash Items:

Depreciation - property & equipment	12,600	14,081
Amortization – publishing development costs	8,807	15,211
Amortization – intangibles	2,544,818	2,443,382
Impairment loss	703,600	-
Transaction costs paid in shares	-	31,000
Share-based payments	518,114	(31,609)
Unrealized foreign exchange gain	(34,923)	(22,806)
Deferred income tax recovery	-	(564,997)
Interest accretion	178,795	(81,205)
Operating Loss before Working Capital Changes	(785,236)	(1,464,959)

Working Capital Adjustments:

(Increase) / decrease in accounts and grants receivable	(244,229)	(361,530)
(Increase) / decrease in prepaid and other receivables	(10,153)	(16,511)
Increase / (decrease) in accounts payable	(530,168)	249,579
Increase / (decrease) in accrued liabilities	(394,072)	320,694
Cash Generated from / (used in) Operations	(1,963,858)	(1,241,727)

CASH FLOWS FROM INVESTING ACTIVITIES

Expenditures on software & web development costs	(138,681)	(312,746)
Purchase of property and equipment	(2,585)	(3,072)

Net Cash Flows Generated from / (used in) Investing Activities	(141,266)	(315,818)

CASH FLOWS FROM FINANCING ACTIVITIES

Share capital issue during the year	3,320,200	-
Share issue costs	(266,215)	-
Advances (Repayment) of loan payable	(697,000)	1,587,000

Net Cash Flows Generated from / (used in) Financing Activities	2,356,985	1,587,000

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS	251,861	29,455

Cash and Cash Equivalents at the Beginning of the Year	230,906	201,451

Cash and Cash Equivalents at the End of the Year	$ 482,767	$ 230,906

The accompanying notes are an integral part of these consolidated financial statements.

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

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 consolidated financial statements of the Company as at and for the year ended December 31, 2011 comprise the Company and its subsidiaries.

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 and going concern

These consolidated 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 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 consolidated financial statements for the year ended December 31, 2011 (including comparatives) were approved and authorized for issue by the board of directors on April 30, 2012.

2.2 Basis of measurement

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

2.	BASIS OF PREPRATION (Cont’d)

2.3 Basis of consolidation

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

2.4

Functional and presentation currency

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

Determination of functional and presentation currency

Determination of impairment loss

Income taxes

Valuation of share-based payments

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

4.	SUMMARY OF SIGINFICANT ACCOUTING POLICIES

Revenue recognition

Revenue from online advertising and sponsorships in China is recognized at the time of delivery and when collectability is reasonably assured.

Comprehensive income

Property and equipment

Property and equipment are initially recorded at cost. Amortization is provided using methods outlined below at rates intended to amortize the cost of assets over their estimated useful lives.

Method	Rate
Computer and office equipment	Declining balance20 %

The Company’s policy is to record an impairment loss in the period when it is determined that the carrying amount of the asset may not be recoverable.

Publishing development costs

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

4.	SUMMARY OF SIGINFICANT ACCOUTING POLICIES (Cont’d)

Software and web development costs

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets of an acquired business.

Government grants

Deferred income taxes

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

4.	SUMMARY OF SIGINFICANT ACCOUTING POLICIES (Cont’d)

Deferred income taxes (Cont’d)

Foreign currency translation

Use of Estimates

Earnings (loss) per share

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

4.	SUMMARY OF SIGINFICANT ACCOUTING POLICIES (Cont’d)

Stock-based compensation plan

Financial instruments

Financial assets

FVTPL assets are subsequently measured at fair value with the change in the fair value recognized in net income during the period.

Held to maturity assets are subsequently measured at amortized cost using the effective interest rate method.

Loans and receivables are subsequently measured at amortized cost using the effective interest rate method.

Financial liabilities

Held for trading liabilities are subsequently measured at fair value with the change in the fair value recognized in net income during the period.

Other liabilities are subsequently measured at amortized cost using the effective interest rate method. Transaction costs are expensed as incurred.

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

4.	SUMMARY OF SIGINFICANT ACCOUTING POLICIES (Cont’d)

Financial instruments (Cont’d)

The Company has classified its financial instruments as follows:

Financial Instrument Classification

Cash and cash equivalents FVTPL

Accounts and grants receivable Loans and receivables

Accounts payable Other liabilities

Accrued liabilities Other liabilities

Loans payable Other liabilities

Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

Impairment of long-lived assets

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

5.	RECENT ACCOUNTING PRONOUNCEMENTS

The IASB also amended the following standard which is effective as per the date identified.

The Company has not yet completed its evaluations of the effect of adopting the above standards and the impact it may have on its consolidated financial statements.

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

6.	ACCOUNTS AND GRANTS RECEIVABLE:

Accounts and grants receivable consist of:

	December 31, 2011	December 31, 2010	January 1, 2010
Trade receivable	$ 1,042,730	$ 931,101	$ 569,571
Grants receivable (Note 15)	132,600	-	-
	$ 1,175,330	$ 931,101	$ 569,571

7.	PROPERTY AND EQUIPMENT

Cost, January 1, 2010	$ 225,710
Additions	3,072
Effect of foreign exchange	(19,049)
Cost, December 31, 2010	209,733
Additions	2,585
Effect of foreign exchange	844
Cost, December 31, 2011	$ 213,162
Accumulated depreciation, January 1, 2010	152,359
Charge for the year	14,081
Effect of foreign exchange	(14,868)
Accumulated depreciation, December 31, 2010	151,572
Charge for the year	58,159
Effect of foreign exchange	(44,890)
Accumulated depreciation, December 31, 2011	$ 164,841

Net book value, January 1, 2010	$ 73,351
Net book value, December 31, 2010	$ 58,161
Net book value, December 31, 2011	$ 48,321

8.	PUBLISHING DEVELOPMENT COSTS

	December 31, 2011	December 31, 2010	January 1, 2010

Opening balance	$ 8,807	$ 24,018	$ 1,301,220
Amortization	(8,807)	(15,211)	(1,277,202)
Balance	$ -	$ 8,807	$ 24,018

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

9.	INTANGIBLES

In October 2007, the Company acquired Speak2Me, an online media company that has developed software combining speech recognition and animation technology for the teaching and practice of spoken English. From that point until late 2009, the Company continued to develop this technology and capitalized it as software and web development costs. Upon acquisition of ELL Technologies in 2010 (Note 23), the Company started capitalizing costs related to their new software and web development initiatives.

			Accumulated
December 31, 2011	Cost		Amortization		Net
Software and web development(i)	$	5,931,786	$	5,865,705	$	66,081
Content platform(ii)		1,477,112		470,214		1,006,898
Customer relationships(iii)		130,000		103,458		26,542
	$	7,538,898	$	6,439,377	$	1,099,521

December 31, 2010	Cost		Accumulated Amortization		Net
Software and web development(i)	$	6,583,227	$	3,625,947	$	2,957,280
Content platform(ii)		1,477,122		292,202		1,184,920
Customer relationships(iii)		130,000		37,917		92,083
	$	8,130,349	$	3,966,066	$	4,234,283

January 1, 2010	Cost		Accumulated Amortization		Net
Software and web development(i)	$	6,153,543	$	1,395,736	$	4,757,807
Content platform(ii)		-		-		-
Customer relationships(iii)		-		-		-
	$	6,153,543	$	1,395,736	$	4,757,807

(i)

(ii)

In 2010, the Company acquired a content platform, which was already commercialized. The content platform costs are being amortized on a straight-line basis over the useful life of the assets which is estimated to be 5 years.

(iii)

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

10.	LOANS PAYABLE

	December 31, 2011		December 31, 2010
Loans payable, interest bearing at 9% per annum with monthly interest payments, secured by a general security agreement and due on September 8, 2012(i)(ii)(iv).		890,000		1,000,000
Loan payable, interest bearing at 12% per annum with monthly interest payments, secured by assigned accounts and due on demand(iii).		-		235,000
Loan payable in USD, interest bearing at 12% per annum with monthly interest payments, secured by assigned accounts and due on demand(iii).		-		102,000
Loan payable, interest bearing at 12% per annum with monthly interest payments, secured by a general security agreement and due September 30, 2011(iii).		-		200,000
Loans payable, interest bearing at 12% per annum with monthly interest payments, secured by a general security agreement and due October 31, 2011.		-		50,000
Unamortized transaction costs(i)				(178,795	)
	$	890,000	$	1,408,205

(i)

The Company issued 433,332 common shares with a total value of $260,000 as a lending fee to secure the loan financing in September 2010 (Note 11). These transaction costs were amortized into income over the term of the debt.

(ii)

Included in the $890,000 loan are loans in the amount of $435,000 to related parties as disclosed in Note 25.

(iii)

Loans in the amount of $697,000 were repaid in the period ending December 31, 2011.

(iv)

On September 9, 2011 the maturity date of the loans payable in the amount of $890,000 was extended for an additional year to September 8, 2012.

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

11.	SHARE CAPITAL

Common shares - Authorized

Unlimited number of preference shares with no par value

Unlimited number of common shares with no par value

Common shares - Transactions:

(i)

On May 13, 2010, the Company announced the acquisition of ELL Technologies (Note 23) from SCP Partners. The consideration payable to SCP Partners, as principal shareholder of ELL Technologies, for the acquisition was paid and satisfied as follows:

1,000,000 Lingo Media shares, subject to a lock-up and leak-out agreement for 36 months after closing and a monthly leak-out in equal instalments of 41,667 shares being released per month from the 13th to 36th month;

US$763,729 (CAD$786,535) to be paid 12 months after the closing or earlier, in cash and/or in a second tranche of Lingo Media shares at the Company’s sole discretion. If US$763,729 (CAD$786,535) is paid in Lingo Media shares, the price per share shall be (i) the then current market price based on a ten day trading average, and (ii) not less than CAD$0.50 per share, subject to a lock-up and a leak-out agreement for 24 months in equal monthly instalments; and

Lingo Media will pay royalties based on net revenues at rates ranging from 10% to 2% based on escalating sales from increments of US$1 Million to US$5 Million for a period of three years.

Landmark Ventures, Inc. acted as financial advisor to ELL Technologies and its principal shareholder, SCP Partners. As part of the transaction fee, the Company issued 50,000 Lingo Media shares to Landmark Ventures upon closing

(ii)

On September 9, 2010, Lingo Media closed a $1 Million loan financing.

Pursuant to the terms of the financing, Lingo Media has entered into a loan agreement and general security agreements with five arm's length parties and three insiders to borrow an aggregate of $1,000,000. The insider participation consisted of one director/officer who advanced $300,000, one director who advanced $100,000 and two executive officers who advanced $55,000 in aggregate.

The Loan had a maturity date of September 8, 2011 and bears interest at a rate of 9% per annum, payable monthly in arrears, and is secured by a charge over all of Lingo Media’s assets and properties. The Company issued to the lenders as additional consideration for the Loan an aggregate of 400,000 common shares of Lingo Media (the "Bonus Shares"). The Bonus Shares issued were based on 20% of the value of the Loan, divided by a deemed issue price of $0.50 per Bonus Share. The Company has also agreed to repay to the lenders $0.50 of every $1.00 raised by Lingo Media through any equity financing during the original and extended term of the Loan. Subsequent to the closing of this transaction two equity financings were completed and the lenders waived this right. Lingo Media may elect to prepay the Loan in whole or in part at any time at its sole discretion without penalty which was waived by all lenders prior to the private placement financings. The Company has also agreed to issue 33,332 common shares of Lingo Media to eligible persons (collectively, the "Finder") in connection with the proceeds raised under the loan through the Finder.

On September 9, 2011, the Company announced that it has negotiated a one year extension to the term of the $1 million loan financing (the "Loan") completed on September 8, 2010. The new maturity date of the remaining $890,000 Loan is September 8, 2012 and continues to bear interest at a rate of 9% per annum, payable monthly in arrears and is secured by a charge over all of Lingo Media’s assets and properties. Lingo Media may elect to prepay the Loan in whole or in part at any time at its sole discretion without penalty.

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

11.	SHARE CAPITAL (Cont’d)

Common shares - Transactions: (Cont’d)

(iii)

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. The number of Common Shares issuable pursuant to the Financing, if all Warrants are exercised, is 7,317,336 Common Shares for gross proceeds of $4,939,201.

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 at $0.60 until September 4, 2012. On closing, the Company issued 23,333 Finder's Units, 151,620 Finder's Warrants and paid a $92,135 Cash Finder's Fee to the Finders. The Loan lenders waived their right to be repaid $0.50 of every $1.00 raised by Lingo Media through this financing. 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.

(iv)

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. The number of Common Shares issuable pursuant to the Second Financing, if all Warrants are exercised, is 3,750,000 Common Shares for gross proceeds of $2,531,250.

In connection with the Second Financing, the Company agreed to pay a 7% finder's fee payable in cash to eligible persons, 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 and paid a $55,230 Cash Finder's Fee to the Finders. The Loan lenders waived their right to be repaid $0.50 of every $1.00 raised by Lingo Media through this 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.

(v)

On June 3, 2011, the Company issued 1,036,987 common shares (the "Payment Shares") as the second and final payment representing the US$763,729 (CAD$786,535) balance payable to SCP Partners, for the acquisition of ELL Technologies. This payment was made pursuant to the purchase agreement between Lingo Media and SCP Partners announced on May 13, 2010, whereby Lingo Media acquired all of issued and outstanding shares of ELL Technologies. The Payment Shares are subject to a four month regulatory hold period from the date of issuance and are also subject to a 24 month lock-up and leak-out agreement whereby the Payment Shares will be held in escrow and released in a monthly leak-out of equal instalments of 43,208 shares released each month.

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

12.	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.

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, 2010	919,106	$ 1.30
Granted	100,000	1.75
Expired	(197,959)	1.36
Forfeited	(112,791)	1.75
Outstanding as at December 31, 2010	708,356	$ 1.27
Granted	1,922,000	0.79
Expired	(14,286)	1.05
Forfeited	(581,000)	0.91
Outstanding as at December 31, 2011	2,035,070	$ 0.89

Options exercisable as at January 1, 2010	657,606	$ 1.12
Options exercisable as at December 31, 2010	658,356	$ 1.24
Options exercisable as at December 31, 2011	1,600,763	$ 0.95

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

12.	STOCK OPTIONS (Cont’d)

The following table summarizes information about stock options outstanding at December 31, 2011.

	Options Exercisable			Options Outstanding
Expiry Date	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Number Outstanding	Weighted Average Exercise Price
2/14/2012	195,343	0.12	0.70	195,343	0.70
5/22/2012	21,429	0.39	0.84	21,429	0.84
6/14/2012	10,798	0.45	0.91	10,798	0.91
1/12/2013	85,000	1.04	0.70	85,000	0.70
3/10/2013	15,000	1.19	1.40	15,000	1.40
4/10/2013	50,000	1.28	1.70	50,000	1.70
4/22/2013	5,000	1.31	2.00	5,000	2.00
6/26/2013	25,000	1.49	1.80	25,000	1.80
5/1/2014	151,500	2.33	1.75	151,500	1.75
2/15/2016	891,693	4.13	0.85	1,276,000	0.79
2/22/2016	150,000	4.15	0.78	200,000	0.76
	1,600,763			2,035,070

The weighted average grant-date fair value of options granted to employees, consultants and directors during 2011 has been estimated at $0.47 (2010 - $0.03) using the Black-Scholes option-pricing model. The estimated fair value of the options granted is expensed over the options vesting periods. The pricing model assumes the weighted average risk free interest rates of 1.50% (2010 – 1.08%) weighted average expected dividend yields of NIL (2010 – NIL), the weighted average expected common stock price volatility (based on historical trading) of 80% (2010 – 94%) and a weighted average expected life of 5 years (2010 – 1 year), which were estimated based on past experience with options and option contract specifics.

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

13.

WARRANTS

The following summarizes the warrants outstanding:

	Weighted Average Remaining Contractual Life (Years)	Series	Number of Warrants	Weighted Average Exercise Price
January 1, 2010		2008	2,142,858	8.00
Expired			(2,142,858)
December 31, 2010			-
Expired			-
Issued	0.45	2011a	3,658,668	0.75
Issued	0.29	2011b	1,875,000	0.75
December 31, 2011			5,533,668

The following summarizes the compensation warrants outstanding:

	Weighted Average Remaining Contractual Life (Years)	Series	Number of Warrants	Weighted Average Exercise Price
December 31, 2010			Nil	Nil
Issued	0.45	2011	151,620	0.60
Issued	0.30	2011	78,900	0.60
December 31, 2011			230,520

14.	INCOME TAXES

The provision for income taxes reflects an effective income tax rate, which differs from the Canadian corporate income tax rate as follows:

	2011			2010
Combined basic Canadian federal and provincial income tax rate		28.25	%		31.00	%
Effective income tax recovery on loss from
continuing operations before income taxes	$	(1,274,549	)	$	(1,053,822	)
Increase (decrease) resulting from change in the deferred tax assets not recognized		1,208,000			(15,078	)
Withholding tax on sales to China		186,019			168,080
Non-deductible items		148,483			25,133
Expiration of non-capital losses		-			224,420
Change in prior year estimates and other		(62,583	)		254,350
	$	205,370		$	(396,917	)

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

14.	INCOME TAXES (Cont’d)

The tax effect of temporary differences representing deferred tax assets is as follows:

	2011			2010
Deferred tax assets:
Operating loss carry forwards	$	2,886,000		$	2,462,000
Share issue costs		66,000			67,000

		2,952,000			2,529,000
Deferred tax assets not recognized		(2,647,000	)		(1,439,000	)

Deferred tax assets recognized		305,000			1,090,000
Software and web development costs		(310,000	)		(1,096,000	)
Property and equipment		5,000			6,000
Net deferred tax assets (liabilities)	$	-		$	-

Deferred tax assets and liabilities will be impacted by changes in tax laws and rates. The effects of these changes are not currently determinable. In assessing whether the deferred tax assets are realizable, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the years in which those temporary differences become deductible. Management considers projected taxable income, uncertainties related to the industry in which the Company operates and tax planning strategies in making this assessment. The Company has not recognized any benefit for these losses.

At December 31, 2011, the Company has non-capital losses available for carry forward for Canadian income tax purposes amounting to $11,541,941. These losses expire in the following fiscal years:

2014	$707,084
2015	767,114
2026	1,189,664
2027	1,067,640
2028	2,170,269
2029	1,972,846
2030	1,974,866
2031	1,692,458
	$11,541,941

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

15.	GOVERNMENT GRANTS

Included as a reduction of general and administrative expenses are government grants of $367,352 (2010 - $85,648), relating to the Company's publishing and software projects. At the end of the year, $132,599 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 which is recorded in accrued liabilities.

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.

16.	FOREIGN EXCHANGE GAIN OR LOSS

The Company recorded a foreign exchange gain of approximately $19,709 (2010 - $(24,177)) relating to the changes in currency translation rates in respect of Company's activities denominated in foreign currencies.

17.	FINANCIAL INSTRUMENTS

Fair values

The carrying value of cash and cash equivalent and accounts and grants receivable, approximates its fair value due to the liquidity of this instrument. The carrying value of accounts payables and accrued liabilities and loans payables approximates its fair value due to the requirement to extinguish the liability on demand.

Financial risk management objectives and policies

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

17.	FINANCIAL INSTRUMENTS (Cont’d)

Foreign currency risk

The significant financial instruments of the Company, their carrying values and the exposure to USD denominated monetary assets and liabilities, as of December 31, 2011 are as follows:

	US Denominated				China Denominated				Taiwan Denominated
	CAD		USD		CAD		RMB		CAD		NTW
Cash		384,584		378,156		45,834		283,625		-		-
Accounts receivable		293,216		288,315		749,514		4,638,079		-		-
Accounts payable		13,049		12,831		-		-		-		-

USD, RMB and New Taiwan dollars are converted at the prevailing year-end exchange rates.

Liquidity Risk

18.	ECONOMIC DEPENDENCE

The Company has sales to a major customer in 2011 and 2010, a government agency of the People’s Republic of China. The total percentage of sales to this customer net of discontinued operations during the year was 64% (2010 – 59%) and the total percentage of accounts receivable at December 31, 2011 was 63% (2010 – 45%).

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

19.	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 2011 or 2010.

20.	SEGMENTED INFORMATION

The Company operates two distinct reportable business segments as follows:

Print-based English Language Learning: Lingo Learning Inc. ("Lingo Learning") is a print-based publisher of English school programs in China.

Online English Language Learning: ELL Technologies, a subsidiary acquired in 2010, is a globally-established ELL multi-media and online training company marketing under the Q Group brand. Parlo is a fee-based online English language training and assessment service. Speak2Me, a subsidiary acquired in 2007, is a free-to-customer advertising-based online English learning service in China.

Segmented Information (Before Other Financial Items Below)

	Online			Print-Based
	English			English
	Language			Language
	Learning			Learning		Total
Revenue		829,589			1,237,380		2,066,969
Acquisition of property and equipment		2,251			334		2,585
Segment assets		1,610,229			1,438,946		3,049,175
Segment income (loss)		(4,249,437	)		358,908		(3,890,529	)

For Print-Based English Language Learning Segment

	2011		2010

Revenue		1,237,380		1,127,818
Acquisition of property and equipment		334		968
Segment assets		1,757,859		1,665,740
Segment income (loss)		358,908		(684,542	)

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

20.	SEGMENTED INFORMATION (Cont’d)

For Online English Language Learning Segment

	2011			2010
Revenue		829,589			857,335
Acquisition of property and equipment		2,251			2,104
Segment assets		1,287,133			4,030,600
Segment income (loss)		(4,249,437	)		(2,427,641	)

Other Financial Items

		2011			2010
Foreign exchange			(19,709	)		24,177
Interest and other financial	��		328,112			294,675
Stock-based compensation			518,114			(31,609	)
Accumulated other comprehensive income			(82,579	)		(4,181	)
Total			743,938			283,062

Revenue by Geographic Region

	2011		2010
China	$	1,320,945	$	1,311,850
Other		746,024		673,303
	$	2,066,969	$	1,985,153

Identifiable Assets

	2011		2010
Canada	$	2,923,211	$	5,665,434
China		121,964		30,907
	$	3,049,175	$	5,596,341

Non-current Assets

	Online		Print-Based
	English		English
	Language		Language
	Learning		Learning		Total
Segment assets	$	1,614,413	$	1,434,762	$	3,049,175
Current assets		526,568		1,235,147		1,761,715
Long-term assets		1,087,845		199,615		1,287,460

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

21.	COMMITMENTS AND CONTINGENCY

The Company has future minimum lease payments under operating leases for premises and equipment as follows:

2012	$256,757
2013	268,316
2014	271,732
2015	193,332
2016	193,332

The rent expense associated with operating lease for premise and equipment is recognized on a straight-line basis.

As a result of the acquisition of ELL Technologies (see Note 23), the Company will owe royalties of 3-9% (Year 2) and 2-8% (Year 3) of ELL Technologies revenues based upon a number of gross revenue targets. Royalty amounts will be due on a quarterly basis.

22.	EXPLANATION OF TRANSITION TO IFRS

The accounting policies in Note 4 have been applied in preparing the consolidated financial statements for the year ended December 31, 2011 and 2010 and the preparation of an opening IFRS balance sheet on January 1, 2010, the Transition Date. An explanation of how the transition from GAAP to IFRS has affected the Company’s statement of financial position and statement of comprehensive income is set out in the following statements.

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

Reconciliation of Assets, Liabilities and Equity

	As at December 31, 2010			As at January 1, 2010
ASSETS	CGAAP	Effect of Transition	IFRS	CGAAP	Effect of Transition	IFRS
Current Assets
Cash and cash equivalents	$ 230,906		$ 230,906	$ 201,451		$ 201,451
Accounts and grants receivable	931,101		931,101	569,571		569,571
Prepaid and sundry assets	93,465		93,465	76,954		76,954
	1,255,472		1,255,472	847,976		847,976
Non-Current Assets
Property and equipment (b)	62,342	(4,181)	58,161	73,351		73,351
Publishing development cost, net	8,807		8,807	24,018		24,018
Software and web development costs, net	4,234,283		4,234,283	4,757,807		4,757,807
Goodwill	139,618		139,618	-		-
TOTAL ASSETS	$ 5,700,522		$ 5,696,341	$ 5,703,152		$ 5,703,152

LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$ 903,689		$ 903,689	$ 313,915		$ 313,915
Accrued liabilities	729,892		729,892	393,665		393,665
Deferred revenue	-		-	15,533		15,533
Loans payable (e)	1,587,000	(178,795)	1,408,205	-		-
	3,220,581		3,041,786	723,113		723,113
Non-Current Liabilities
Balance due on acquisition of ELL Technologies Limited	763,729		763,729	564,997		564,997
TOTAL LIABILITIES	$ 3,984,310		$ 3,805,515	$ 1,288,110		$ 1,288,110

Equity Attributable to the Equity Holders of the Company
Issued share capital	15,131,192		15,131,192	14,220,192		14,220,192
Warrants	-		-	281,355		281,355
Share-based payment reserve (c)	1,641,283	(28,662)	1,612,621	1,290,631	72,244	1,362,875
Foreign currency translation reserves(b)	-	(4,181)	(4,181)	-		-
Accumulated loss (c and e)	(15,056,263)	207,457	(14,848,806)	(11,377,136)	(72,244)	(11,449,380)
TOTAL EQUITY	$ 1,716,212		$ 1,890,826	$ 4,415,045	-	$ 4,415,042
TOTAL EQUITY AND LIABILITIES	$ 5,700,522		$ 5,696,341	$ 5,703,152		$ 5,703,152

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

Reconciliation of Loss and Comprehensive Loss
	Year Ended Dec. 31, 2010
	CGAAP	Effect of Transition	IFRS

Revenue	1,985,153	-	1,985,153
Expenses
Direct costs	117,941	-	117,941
Amortization - publishing development costs	15,211	-	15,211
Amortization - property and equipment	14,081	-	14,081
Amortization - software development costs	2,443,382	-	2,443,382
Selling, general and administrative expenses (f)	2,927,815	(24,177)	2,903,638
Share based compensation (c)	69,297	(100,906)	(31,609)
Total expenses	5,587,727	(125,083)	5,462,644
Loss from operations	(3,602,574)	125,083-	(3,477,491)
Other income / expenses
Interest expense (e)	(473,470)	178,795	(294,675)
Foreign exchange (income)/loss (f)	-	(24,177)	(24,177)
Loss from operations - before tax	(4,076,044)	279,701	(3,796,343)
Income tax expense	396,917	-	396,917
Loss for the year	(3,679,127)	279,701	(3,399,426)
Other comprehensive income
Exchange differences on translating foreign operations (b)		(4,181)	(4,181)

Total comprehensive income for the year, net of tax	(3,679,127)	283,882	(3,395,245)

Loss per share

(0.28)

0.02

(0.26)

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

Reconciliation of Equity

The following reconciliation provides a quantification of the effect, after taxation, of the transition to IFRS

Reconciliation of equity	For the year ended January 1, 2010	For the year ended December 31, 2010

Equity previously reported under Canadian GAAP	$ 4,415,045	$ 1,716,212

- Foreign currency translation reserves on translation and subsequent transfers	-	(4,181)

Equity reported under IFRS	$ 4,415,045	$ 1,712,031

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

22. EXPLANATIONS OF TRANSITION TO IFRS (Cont’d)

Restatement of statement of cash flows from Canadian GAAP to IFRS

The restatement from Canadian GAAP to IFRS had no significant effect on the reported cash flows generated by the Company. The reconciling items between Canadian GAAP and IFRS presentation have no net effect on the cash flows generated.

Notes to reconciliation

IFRS 1 – First-time Adoption of International Financial Reporting Standards (“IFRS”) sets forth guidance for the initial adoption of IFRS. Under IFRS 1, the standards are applied retrospectively at the transitional statement of financial position date with all adjustment to assets and liabilities taken to retained earning unless certain exemptions are applied. The Company has applied the following exemptions to its opening statement of financial positions dated January 1, 2010:

Basis of consolidation and business combinations

The Company has applied the business combinations exemption in IFRS 1. It has not restated business combinations that took place prior to the January 1, 2010 transition date.

Functional currency and foreign operations

IFRS requires that the functional currency of each entity in the consolidated Company be determined separately in accordance with the indicators as per IAS 21 – Foreign exchange and should be measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional currency of some companies of the Company is the US Dollars (“USD”) and the Chinese Renminbi (“RMB”). The consolidated financial statements are presented in Canadian Dollars (“$”) which is the group’s presentation currency. Under IFRS, the results and financial position of all the group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

all resulting exchange differences are recognized as a separate component of equity.

As a result of the application of the translation rules contained in IAS 21, for the year ended December 31, 2010, an adjustment of $4,181 was recorded.

Share-based payment transactions

The fair value of share options under the employee share incentive schemes and other equity instruments granted to Company employees is recognized as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and expensed over the period during which the employee becomes unconditionally entitled to the equity instruments. The total amount to be expensed is determined by reference to the fair value of the options granted, excluding the impact of any non-market service and performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest.

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

22.	EXPLANATIONS OF TRANSITION TO IFRS (Cont’d)

Share-based payment transactions

The fair value of the instruments granted is measured using the Black-Scholes option pricing formula, taking into account the terms and conditions upon which the instruments are granted. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest based on the non-marketing vesting conditions. It recognizes the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

This accounting policy has been applied to all equity instruments granted after November 7, 2002 that has not yet vested at January 1, 2010.

As under IFRS 2, Canadian GAAP also requires the Company to measure stock-based compensation related to stock options granted to employees at the fair value of the options on the date of grant and to recognize such expense over the vesting period of the option.

Cumulative translation differences exemption

The Company has elected not to apply retrospective treatment to certain aspects of IAS 21, The Effect of Changes in Foreign Exchange Rates, and deem the cumulative translation differences for all foreign operations to be zero at the transition date.

Transaction cost related to financial instruments

Under Canadian GAAP, the Company expensed transaction costs related to financial instruments measured at amortized cost.

Under IFRS, transaction costs in respect of financial instruments at fair value through profit or loss are recognized in profit or loss immediately, and transaction costs in respect of other financial instruments are included in the initial measurement of the financial statement. Accordingly, the Company adjusted transaction costs of $178,795 to its loans payable at December 31, 2010.

Reclassification

In the reconciliation of loss and comprehensive loss for 2010, $24,177 was reclassed to conform to the current year’s presentation.

23.	ACQUISITION

On May 13, 2010, the Company acquired all issued and outstanding shares of ELL Technologies (the "Acquisition"). The results of ELL Technologies’ operations have been included in these consolidated financial statements since that date. The aggregate purchase price was $1,385,000 which is satisfied through issuance of 1,000,000 shares valued at $620,000 and an agreement to pay US$1,000,000 less identified liabilities greater than US$100,000, calculated to be US$763,729 (CAD$786,535), to be paid 12 months after the closing date or earlier, in cash and/or in Lingo Media shares at the Company’s sole discretion. In the second quarter of 2011, the balance of the acquisition payment was paid through issuance of common shares of the Company.

In connection with the Acquisition, 50,000 shares valued at $31,000 were issued, along with cash payments of $128,000, to an agent. These acquisition costs were expensed as incurred. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed on the date of acquisition.

LINGO MEDIA CORPORATION

Notes to Consolidated Financial Statements

December 31, 2011

(Expressed in Canadian Dollars, unless otherwise stated)

23.	ACQUISITION (Cont’d)

	ELL Technologies
Content	$1,477,112
Customer relationships	130,000
Deferred income tax asset	433,000
Goodwill	139,618
Current liabilities	(340,195)
Deferred income tax liability	(433,000)
	$1,406,535

Share consideration	620,000
Balance of acquisition payment due	786,535
	$1,406,535

24.	SUPPLEMENTAL CASH FLOW INFORMATION

	2011	2010
Income taxes and other taxes paid	$ 85,940	$ 173,132
Interest paid	$103,532	$ 70,925

Non-cash transactions:

(a)

In 2010, 433,332, common shares (bonus shares) in the amount of $260,000 were issued as lending fees related to a loan financing of $1,000,000.

(b)

In 2011, warrants were issued in connection with a private placement are valued at $760,382. This amount has been recorded as an increase in warrants amount charged against share capital.

(c)

In 2011, compensation warrants were issued in connection with a private placement are valued at $31,676. This amount has been recorded as an increase in warrants amount with a corresponding increase in share issue costs which is charged against share capital.

25.	RELATED PARTY BALANCES AND TRANSACTIONS

(a)

The Company charged $65,525 (2010 - $78,137) to corporations with one director in common for rent, administration, office charges and telecommunications.

(b)

Key management compensation was $360,057 (2010 – $185,000) and is reflected as consulting fees paid to corporations owned by a director and officers of the Company, of which, $113,800 (2010 -$91,113) is unpaid and included in accounts payable.

(c)

At December 31, 2011, the Company had loans payable due to corporations controlled by directors and officers of the Company in the amount of $435,000 (2010 - $345,000) bearing interest at 9% per annum. Interest expense related to these loans is $30,305 (2010 - $21,607).

Everybody Loves Languages (LMDCF) 20-F/A2011 FY Annual report (foreign) (amended)