UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549




Annual
Report





FORM
20-F





oREGISTRATION 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




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


For
the transition period from __________ to ________




Commission
file number _______








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)





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.
12,457,607





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 12 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 ninety
days.            Yes x        
No o





Indicate
by check mark which financial statement item the registrant has elected to
follow:          Item
17 x        
Item 18 o


- 1
-


LINGO
MEDIA CORPORATION


FORM
20-F ANNUAL REPORT


TABLE
OF CONTENTS





PagePART IItem
      1.
                        Identity
      of Directors, Senior Management and Advisors
                        3Item
      2.
                        Offer
      Statistics and Expected Timetable
                        3Item
      3.
                        Key
      Information
                        3Item
      4.
                        Information
      on the Company
                        14Item
      5.
                        Operating
      and Financial Review and Reports
                        23Item
      6.
                        Directors,
      Senior Management and Employees
                        38Item
      7.
                        Major
      Shareholders and Related Party Transactions
                        46Item
      8.
                        Financial
      Information
                        48Item
      9.
                        The
      Offer and Listing
                        49Item
      10.
                        Additional
      Information
                        52Item
      11.
                        Quantitative
      and Qualitative Disclosures About Market Risk
                        61Item
      12.
                        Description
      of Securities Other Than Equity Securities
                        61PART
      IIItem
      13.
                        Default,
      Dividend Arrearages and Delinquencies
                        62Item
      14.
                        Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds
                        62Item
      15.
                        Controls
      and Procedures
                        62Item
      16.
                        Reserved
                        63PART
      IIIItem
      17.
                        Financial
      Statements
                        64Item
      18.
                        Financial
      Statements
                        64Item
      19.
                        Exhibits
                        64




- 2
-


Forward-Looking
Statements





Included
in this annual report are various forward-looking statements that can be
identified by the use of forward looking terminology such as "may", "will",
"expect", "anticipate", "estimate", "continue", "believe", or other similar
words.  We have made forward-looking statements with respect to the
following, among others:





-
            the
      Company’s goals and strategies;


-
            the
      Company’s ability to obtain licenses/permits to operate in China and
      Canada;


-
            the
      importance and expected growth of English language learning in
      China;


-
            the
      importance and expected growth of early childhood development in
      Canada;


-
            the
      Company’s revenues;


-
            the
      Company’s potential profitability;
and


-
            the
      Company’s need for external
capital.





These
statements are forward-looking and reflect our current
expectations.  They are subject to a number of risks and
uncertainties, including but not limited to, changes in the economic and
political environment in China.  In light of the many risks and
uncertainties surrounding China and the early childhood market in Canada
prospective purchasers of our shares should keep in mind that we cannot
guarantee that the forward-looking statements described in this annual report
will transpire.





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





3.A.2.  Selected
Financial Data





Our
financial statements are reported in Canadian Dollars and presented in
accordance with Canadian generally accepted accounting principles and reconciled
to U.S. generally accepted accounting principles (“GAAP”) in the footnotes, for
the fiscal years ended December 31, 2008, December 31, 2007, December 31, 2006,
December 31, 2005 and December 31, 2004. The financial statements for the fiscal
years ended December 31, 2004 to December 31, 2006 have been audited by Mintz
& Partners LLP. Meyers, Norris, Penny LLP audited December 31, 2007
financial statements and Collins Barrow Toronto LLP audited December 31, 2008
financial statements.





The
selected financial data should be read in conjunction with the 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.




- 3
-


Table
No. 3


Selected
Financial Data


Expressed
in Canadian Dollars


(CDN$
in 000’s, except per share data)




Year
              
              
              Year
              
              
              Year
              
              
              Year
              
              
              YearEnded
              
              
              Ended
              
              
              Ended
              
              
              Ended
              
              
              Ended12/31/08
              
              
              12/31/07
              
              
              12/31/06
              
              
              12/31/05
              
              
              12/31/04Revenue
      from continuing operations
              
              $
              969
              
              
              $
              880
              
              
              $
              894
              
              
              $
              906
              
              
              $
              590Gross
      Profit from continuing operations
              
              $
              843
              
              
              $
              766
              
              
              $
              761
              
              
              $
              783
              
              
              $
              495Net
      Loss from continuing operations
              
              $
              (2,311
              )
              
              $
              (632
              )
              
              $
              (691
              )
              
              $
              (726
              )
              
              $
              (795
              )Revenue
      from discontinued operations
              
              $
              2576
              
              
              $
              3125
              
              
              $
              680
              
              
              $
              -
              
              
              $
              -Net
      Loss from discontinuing operations
              
              $
              (1571
              )
              
              $
              (292
              )
              
              $
              (58
              )
              
              $
              -
              
              
              $
              -(Loss)
      per Share from continuing operations
              
              $
              (0.22
              )
              
              $
              (0.11
              )
              
              $
              (0.17
              )
              
              $
              (0.03
              )
              
              $
              (0.04
              )(Loss)
      per Share from discontinuing operations
              
              $
              (0.15
              )
              
              $
              (0.05
              )
              
              $
              (0.01
              )
              
              $
              -
              
              
              $
              -Dividends
      per Share
              
              $
              0.00
              
              
              $
              0.00
              
              
              $
              0.00
              
              
              $
              0.00
              
              
              $
              0.00Weighted
      Avg. Shares
              
              $
              10,427
              
              
              $
              5,656
              
              
              $
              4,060
              
              
              $
              3,530
              
              
              $
              3,232Period-end
      Sharesoutstanding
              
              $
              12,458
              
              
              $
              9,582
              
              
              $
              4,694
              
              
              $
              4,125
              
              
              $
              3,444Working
      Capital
              
              $
              1,796
              
              
              $
              208
              
              
              $
              (347
              )
              
              $
              278
              
              
              $
              271Long-Term
      Debt/Loans Payable
              
              
              -
              
              
              
              203
              
              
              
              348
              
              
              
              -
              
              
              
              -Shareholders’
      Equity
              
              $
              6,640
              
              
              $
              5,886
              
              
              $
              1,376
              
              
              $
              1,088
              
              
              $
              938Total
      Assets
              
              $
              8,527
              
              
              $
              8,162
              
              
              $
              2,884
              
              
              $
              1,611
              
              
              $
              1,798US
      GAAP income (Loss)
              
              $
              (4,697
              )
              
              $
              (5,178
              )
              
              $
              (633
              )
              
              $
              (710
              )
              
              $
              (427
              )US
      GAAP Basic Loss per Share
              
              $
              (0.45
              )
              
              $
              (0.92
              )
              
              $
              (0.16
              )
              
              $
              (0.17
              )
              
              $
              (0.12
              )US
      GAAP Equity
              
              $
              1,296
              
              
              $
              1,355
              
              
              $
              1,098
              
              
              $
              625
              
              
              $
              482US
      GAAP Total Assets
              
              $
              3,182
              
              
              $
              3,631
              
              
              $
              2,606
              
              
              $
              1,391
              
              
              $
              1,212
 
 (1)
              Cumulative
      Net Loss since incorporation under US GAAP has been
      ($14,373,238).(2)
              a)
      Under US GAAP, development costs of new businesses are expensed as
      incurred: 2008-($218,795), 2007-$nil, 2006-$nil, 2005-$nil and
      2004-$nil.b)
      Under US GAAP, development costs amortized under Canadian GAAP would be
      reversed tocalculate Loss per Share: 2008 – $128,478, 2007 – $99,805, 2006
      – $156,648, 2005 – $133,290 and 2004-$346,124.c)
      Under US GAAP, software and web development costs are expensed as
      incurred: 2008-$880,846, 2007-$4,352,341, 2006-$nil, 2005-$nil and
      2004-$nil.


- 4
-





3.A.3.  Exchange
Rates





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





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.





For
purposes of this table, the rate of exchange means the
noon   buying rate in New York City for cable transfers in
foreign currencies as certified for customs purposes by the Federal Reserve Bank
of New York.  The table sets forth the number of Canadian Dollars
required under that formula to buy one U.S. Dollar.  The average rate
means the average of the exchange rates on the last day of each month during the
period.





Table
No. 4


U.S.
Dollar/Canadian Dollar




Average
                                  
                                  
                                  High
                                  
                                  
                                  Low
                                  
                                  
                                  CloseApril
      2009
                                  
                                  1.23
                                  
                                  
                                  1.27
                                  
                                  
                                  1.20
                                  
                                  
                                  1.21March
      2009
                                  
                                  1.26
                                  
                                  
                                  1.30
                                  
                                  
                                  1.22
                                  
                                  
                                  1.25February
      2009
                                  
                                  1.24
                                  
                                  
                                  1.27
                                  
                                  
                                  1.21
                                  
                                  
                                  1.26January
      2009
                                  
                                  1.22
                                  
                                  
                                  1.28
                                  
                                  
                                  1.18
                                  
                                  
                                  1.23December
      2008
                                  
                                  1.23
                                  
                                  
                                  1.30
                                  
                                  
                                  1.18
                                  
                                  
                                  1.22November
      2008
                                  
                                  1.22
                                  
                                  
                                  1.30
                                  
                                  
                                  1.15
                                  
                                  
                                  1.24October
      2008
                                  
                                  1.17
                                  
                                  
                                  1.30
                                  
                                  
                                  1.04
                                  
                                  
                                  1.21September
      2008
                                  
                                  1.06
                                  
                                  
                                  1.08
                                  
                                  
                                  1.03
                                  
                                  
                                  1.04August
      2008
                                  
                                  1.05
                                  
                                  
                                  1.07
                                  
                                  
                                  1.02
                                  
                                  
                                  1.06July
      2008
                                  
                                  1.01
                                  
                                  
                                  1.03
                                  
                                  
                                  1.00
                                  
                                  
                                  1.02June
      2008
                                  
                                  1.01
                                  
                                  
                                  1.03
                                  
                                  
                                  0.99
                                  
                                  
                                  1.01May
      2008
                                  
                                  1.00
                                  
                                  
                                  1.02
                                  
                                  
                                  0.98
                                  
                                  
                                  0.99Fiscal
      Year Ended Dec. 31, 2008
                                  
                                  1.07
                                  
                                  
                                  1.30
                                  
                                  
                                  0.97
                                  
                                  
                                  1.22Fiscal
      Year Ended Dec. 31, 2007
                                  
                                  1.07
                                  
                                  
                                  1.19
                                  
                                  
                                  0.91
                                  
                                  
                                  0.98Fiscal
      Year Ended Dec. 31, 2006
                                  
                                  1.13
                                  
                                  
                                  1.16
                                  
                                  
                                  1.11
                                  
                                  
                                  1.12Fiscal
      Year Ended Dec. 31, 2005
                                  
                                  1.21
                                  
                                  
                                  1.27
                                  
                                  
                                  1.15
                                  
                                  
                                  1.17Fiscal
      Year Ended Dec. 31, 2004
                                  
                                  1.30
                                  
                                  
                                  1.39
                                  
                                  
                                  1.17
                                  
                                  
                                  1.21


3.B.  Capitalization
and Indebtedness





Not
applicable





- 5
-




3.D.  Risk
Factors





The
Company is subject to a number of risks and uncertainties.





Lingo
Media is a diversified online and print education product and services
company.  Speak2Me Inc. (“Speak2Me”), a subsidiary acquired in 2007,
is a new media company focused on interactive advertising in China through its
Internet-based English language learning platform. In China, Lingo Media
continues to expand its legacy business via its wholly-owned subsidiary Lingo
Learning Inc. (“Lingo Learning”), a print-based publisher of English language
learning programs.  In Canada, Lingo Media through its 70.33%
subsidiary A+ Child Development (Canada) Ltd. (“A+”) specialized in early
childhood cognitive development programs which distributed educational materials
along with its proprietary curriculum.  In December 2008, A+ filed a
Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency
Act.





As of
December 31, 2008, the Company operated two distinct business segments as
follows:





Online
English Language Learning





The
Company offers an online English language learning community in China through
its acquisition of Speak2Me.  Speak2Me incorporates Lingo Media’s
proven pedagogy with fun, interactive lesson modules to address the rapidly
growing need for spoken English worldwide.  Speak2Me’s groundbreaking
service uses speech recognition technology to teach spoken English online
through more than 350 targeted lessons that engage users in interactive
conversations with a virtual teacher. A unique social-networking infrastructure
that allows students to form study groups and offers contests, prizes and other
incentives, creates a learning environment that engenders co-operation and
competition, just as in a conventional classroom. Speak2Me’s patent-pending
Conversational AdvertisingTM platform allows Speak2Me to provide its innovative
offering to end-users at no cost. In addition, Speak2Me offers premium content
development services and custom training modules to support businesses and
institutions that require English language training for their
personnel.





Print-Based
English Language Learning





The
Company continues to expand its publishing business via its subsidiary Lingo
Learning Inc. (“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 200 million students.  To
date, it has co-published 278 million units from its library of more than 340
program titles in China.





The
Company derives its revenue from doing business in China. If any of the
following risks occur, our business, results of operations and financial
condition would likely suffer.  In any such events, the market price
of our common stock could decline and you may lose all or part of your
investment in our shares of common stock.





Risk
Factors Associated with Speak2Me’s Online English Language Learning
Business





Early
Stage of Development





Speak2Me
is at an early stage of development in its business. There can be no assurance
that Speak2Me's business will be profitable. There can be no assurance that
Speak2Me will be able to generate sufficient activity to be profitable in the
future and Speak2Me's limited operating history makes an evaluation of its
prospects difficult.





- 6
-




Competitive
Markets





Speak2Me
operates in competitive and evolving markets. These markets are subject to rapid
technological change and changes in customer preferences and demand. There can
be no assurance that Speak2Me will be able to obtain market acceptance or
compete for market share. Speak2Me 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 Speak2Me and its
failure to adapt to such changes could seriously harm its business.





Uncertain
Economic Conditions





Unfavourable
economic and market conditions could increase Speak2Me's financing costs, reduce
demand for its products and services, limit access to capital markets and
negatively impact any access to future credit facilities for Speak2Me.
Expenditures by advertisers tend to be cyclical, reflecting overall economic
conditions as well as budgeting and buying patterns.





We
Will Need Additional Financing





Speak2Me
will require additional funds for sales and marketing. Failure to obtain
additional financing will result in significant delays in developing new
products and markets. If Speak2Me is unsuccessful in raising the additional
financing called for in its Business Plan, Speak2Me is confident it can continue
operations with a series of smaller financings, but would be forced to scale
back its sales and expansion plans.





We
Are Dependent on Key Personnel





Speak2Me
is dependent upon the efforts, performance and commitment of its senior officers
and directors, who are responsible for the future development of Speak2Me's
business. Shareholders and investors will be relying upon the business judgment,
expertise and integrity of Speak2Me's management and directors. To the extent
that the services of any senior officers or directors would be unavailable for
any reason, a disruption to the operations of Speak2Me could result, and other
persons would be required to manage and operate Speak2Me. Speak2Me's future
success will also depend in large part upon its ability to attract and retain
highly skilled personnel. There can be no assurance that Speak2Me will be
successful in attracting and retaining such personnel.





Advertisers
May Not Place Advertising in an Educational Context





Speak2Me’s
market research indicates that potential advertisers and its target demographic
is receptive to the placement of corporate advertising in the context of a
website devoted to education. However, Speak2Me is aware of the risk of
political change in any country in which it is operating which may mean the
local government regulators may no longer be willing to accept corporate
advertising within its student network.





Parents
and Students May Not Be Willing to Pay for Online Services





Offline
English Language Learning instruction is a growing industry, but attempts to
attract large numbers of paying students to subscription-based online English
Language Learning services have largely failed. Given that online consumption
patterns in China are largely following trends already established in the West,
and given that few industries and companies in the international markets have
been able to establish thriving subscription-supported online services, a pure
subscription model is unlikely to succeed in China.





- 7
-




Low
Growth of Internet Advertising





Speak2Me
is aware that the level of Internet advertising is currently low, especially in
Asia and Latin American countries compared to the West. Speak2Me's forecast
profitability is highly dependent on the assumption that Internet advertising
will grow rapidly. The market for Internet advertising, content and services is
intensely competitive and rapidly evolving. Speak2Me expects that competition
will continue to increase, including in its target market in China. It is not
difficult to enter this market, and current and new competitors, including
companies in traditional media, can launch Internet sites rapidly.





Speak2Me
May Not Generate Online Advertising/Sponsorship Revenue





Speak2Me’s
future success depends in part on its ability to establish, increase and sustain
online advertising/sponsorship revenue, and therefore market and advertiser
acceptance of Speak2Me's services will be important to the success of Speak2Me’s
business. Speak2Me’s ability to generate advertising revenue will be directly
affected by the number of users of its service. Speak2Me’s ability to generate
advertising revenue will also depend on several other factors, including the
level and type of market penetration of Speak2Me’s service, broadening its
relationships with advertisers, its user base being attractive to advertisers,
its ability to derive better demographic and other information from users,
competition for advertising funds from other media and changes in the
advertising industry and economy generally. Speak2Me’s expense levels are based
in part on expectations of future revenue. Speak2Me may be unable to adjust
spending quickly enough to compensate for any unexpected revenue shortfall.
Speak2Me anticipates that some of its advertising customers will not allow
Speak2Me to place their advertisements next to other advertisements. Speak2Me
may not always be successful at accommodating these orders. In such situations,
inability to fulfill competing orders might cause Speak2Me to lose a potentially
significant amount of revenue, particularly if the customer that cannot be
accommodated chooses not to advertise with Speak2Me.





We
Must Maintain User Relationships





The
ability of Speak2Me to attract and maintain users requires that it provide a
competitive offering of products and services that meet the needs and
expectations of its users. Speak2Me's ability to satisfy the needs or demands of
its users may be adversely affected by factors such as the inability or failure
to identify changing client needs or expectations or the inability to adapt in a
timely and cost-effective manner to innovative products and services offered by
competitors. In addition, Speak2Me must continue to attract and retain users to
compete successfully for advertising revenue. Speak2Me cannot be sure that it
will compete successfully with current or future competitors in sustaining or
growing Speak2Me’s web site traffic levels and user levels. If Speak2Me fails to
attract and retain more users, Speak2Me’s market share, brand acceptance and
revenue would not scale, which would have a material adverse effect on
Speak2Me’s business, financial condition and results of operations.





We
Must Create Content and Services Accepted by Users





Speak2Me’s
success is dependent upon its ability to deliver original and compelling content
and services for its online English language instruction software that attract
and retain users in its target market. Speak2Me’s ability to successfully
develop and produce content and services is subject to numerous uncertainties,
including the ability to:





·
            Anticipate
      and successfully respond to rapidly changing consumer tastes and
      preferences;


·
            Fund
      new content development;


·
            Attract
      and retain qualified editors, writers, producers, and technical
      personnel;


·
            Build
      brand loyalty among users; and


·
            Build
      a sense of community among users and encourage use of the interactive
      features on Speak2Me’s website.




- 8
-




We
Must Provide Delivery Infrastructure to Perform Consistently





Speak2Me’s
success as a business depends, in part, on its ability to provide consistently
high quality online services to users via the Speak2Me Delivery Infrastructure.
There is no guarantee that the Speak2Me Delivery Infrastructure and/or
Speak2Me’s software will not experience problems or other performance issues. If
the Speak2Me Delivery Infrastructure or software fails or suffers performance
problems, then it would likely affect the quality and interrupt the continuation
of Speak2Me’s service and significantly harm Speak2Me’s business.





Speak2Me’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 Speak2Me Delivery Infrastructure could harm Speak2Me’s
goodwill and the Speak2Me brand and ultimately could significantly and
negatively impact the amount of revenue it may earn from its
service.  Like all Internet transmissions, Speak2Me’s services may be
subject to interception and malicious attack. Pirates may be able to obtain or
copy Speak2Me’s products without paying fees to Speak2Me. The Speak2Me Delivery
Infrastructure is exposed to spam, viruses, worms, spyware, denial of service or
other attacks by hackers and other acts of malice. Speak2Me uses security
measures intended to make theft of its software more difficult. However, if
Speak2Me is required to upgrade or replace existing security technology, the
cost of such security upgrades or replacements could have a material adverse
effect on Speak2Me’s financial condition, profitability and cash
flows.





We
Have Limited Intellectual Property Protection





Speak2Me
relies on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. In addition, Speak2Me’s 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, Speak2Me’s patent
applications will be successful, that Speak2Me will develop future proprietary
products that are patentable, that any issued patents will provide Speak2Me 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 Speak2Me to do business. In addition, there can be no assurance that
others will not independently develop similar products, duplicate some or all of
Speak2Me’s products or, if patents are issued to Speak2Me, design their products
so as to circumvent the patent protection held by Speak2Me. Speak2Me 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 Speak2Me, it may be possible for unauthorized third parties
to copy aspects of Speak2Me’s business and marketing plans or future strategic
documents or to obtain and use information that Speak2Me regards as proprietary.
There can be no assurance that Speak2Me’s means of protecting its proprietary
rights will be adequate or that Speak2Me’s competitors will not independently
develop similar or superior technology. Litigation may be necessary in the
future to enforce Speak2Me’s intellectual property rights, to protect Speak2Me’s
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 of Speak2Me may be subject to Canadian and foreign provincial and/or
state and federal regulations and licensing. There can be no assurance that
Speak2Me 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 Speak2Me's ability to achieve its financial and operational
objectives. Speak2Me 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 Speak2Me’s growth and reduce its client base and
revenue.





- 9
-




Operating
in Foreign Jurisdictions May Create Risks





Speak2Me’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 Speak2Me’s business, financial
condition and results of operations. Furthermore, a portion of Speak2Me’s
expenditures and revenues will be in currencies other than the Canadian dollar.
Speak2Me’s 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, Speak2Me’s future results may be adversely affected
by significant foreign exchange fluctuations.





Risks Associated with
Print-Based English Language Learning





Risk
of Failing to Achieve Market Acceptance





Although
the Company has contracts with People Education Press (“PEP”) in Beijing for
English Language Learning materials, there can be no assurance that the State
Ministry of Education in China will continue to accept the educational
publications produced by the Company.





We
Have Limited Experience in China





The
Company has limited experience in providing traditional educational publishing
in China.  Although the Company has retained the services of Canadian,
US, British and Chinese educators to assist the Company with these endeavors,
there can be no assurance that the Company will be able to attract and retain
qualified personnel with relevant experience for the continued management and
development of its business.





Political
and Economic Policies of the Chinese Government





The
growth of the Company’s business is dependent on government budgetary policy,
particularly the allocation of funds to sustain the growth of the English
language learning and training programs in China.  The Company’s
customers in China, excluding Renzhen Group, are directly or indirectly owned or
controlled by the Chinese government.  Accordingly, their business
strategies, capital expenditure budgets and spending plans are largely decided
in accordance with government policies, which, in turn, are determined on a
centralized basis at the highest level by the State Planning Commission of
China.  As a result, the growth of our business is heavily dependent
on government policies for English language learning and
training.  Despite the high priority currently accorded by the
government to this area, and a high level of funding allocated by the government
to this sector, insufficient government allocation of funds to sustain its
growth in the future could reduce the demand for our products and services and
have a material adverse effect on our ability to grow our business.





Since the
establishment of the People’s Republic of China (“PRC”) in 1949, the Communist
Party has been the governing political party in China.  The highest
bodies of leadership are the Politburo of the Communist Party, the Central
Committee and the National People's Congress.  The State Council,
which is the highest institution of government administration, reports to the
National People's Congress and has under its supervision various commissions,
agencies and ministries, including Ministry of Commerce of the PRC
“MOFCOM”.  Since the late 1970s, the Chinese government has been
reforming the Chinese economic system.  Reforms have included
decollectivization of farms; legalization of interregional and international
trade by individuals and businesses; legalization of markets in most goods and
services; elimination of price controls; and privatization of some state-owned
productive assets.  Reforms began in the farming sector and rural
industry, and were later implemented in various service
industries.  In the last five years, China has also begun dismantling
large state monopolies in heavy industry. Although the Company believes that
economic reform and the macroeconomic measures adopted by the Chinese government
have had and will continue to have a positive effect on the economic development
in China, there can be no assurance that the economic reform strategy will not
from time to time be modified or revised.  Such modifications or
revisions, if any, could have a material adverse effect on the overall economic
growth of China and investment in the English language learning and training
sectors in China.  Such developments could reduce, perhaps
significantly, the demand for our products and services.  There is no
guarantee that the Chinese government will not impose other economic or
regulatory controls that would have a material adverse effect on our
business.  Furthermore, changes in political, economic and social
conditions in China, adjustments in policies of the Chinese government or
changes in laws and regulations could adversely affect our industry in general
and our competitive position in particular.  Changes in government
policies might include  increased restrictions on the nature of
business activities that foreign-owned enterprises may perform or additional
tax/fee/license requirements for foreign-owned enterprises; increased
restrictions on the publishing industry, including restrictions on the nature of
business activities that publishers may perform; additional tax/fee/license
requirements; requirements to publish or not to publish certain content; and
direct state supervision or control of publisher's activities; and more
intensive approval requirements for educational materials.





- 10
-




Highly
Competitive Market





The
educational publishing market in China is rapidly changing. Competitors to the
Company’s strategic co-publishing partners in the market mainly include
provincial and municipal educational publishing companies such as Hebei
Education Press and Shanghai Foreign Language Educational Press. In addition,
there are many large multinational educational publishing companies with
substantial, existing publishing operations in Asian markets including China,
that have significantly greater financial, technological, marketing and human
resources who have entered the English language learning and training market in
China, which could hurt the Company’s future prospects and erode its market
share.





Most of
our competitors have greater financial, technical and human resources than us,
may be able to respond more quickly to new and emerging technologies and changes
in customer requirements or devote greater resources to the development,
promotion and sale of new products or services.  It is possible that
competition in the form of new competitors or alliances, joint ventures or
consolidation among existing competitors may decrease our market
share.  Increased competition could result in fewer customer
engagements, reduced gross margins and loss of market share, any one of which
could materially and adversely affect our revenues and overall financial
condition.





Economic
Risks Associated with Doing Business in China





The
Chinese economy has experienced uneven growth across geographic and economic
sectors. The current economic situation may adversely affect our profitability
over time as expenditures for English language training products may decrease
due to the results of slowing domestic demand and deflation.  In
addition, the Chinese government may implement changes in fiscal policy that
could increase our costs of operating our business in China or slow demand for
our products.  We cannot predict what effects changes in Chinese
government policies may have on our business or results of
operations.





Currency
Exchange Risk





Our
reporting currency is the Canadian Dollar.  However, substantially all
revenues from China activities are denominated in United States
Dollars.  In July 2005, the Chinese government announced that the Yuan
would no longer be pegged to the United States Dollar, but would float against a
basket of currencies. China's currency had been pegged at 8.28 against the
United States Dollar for a decade, but the adjustment allowed it to float
against a number of currencies including the US dollar, the Euro, the Japanese
Yen, the South Korean Won, the UK Pound, the Thai Baht and the Russian
Rouble.  Since that time, the Yuan has traded below the pegged
rate.





If the
Yuan were no longer pegged to the basket of currencies, rate fluctuations may
have a material impact on the Company’s consolidated financial reporting. The
Company’s accounts receivable from China will decline in value if the Yuan
depreciates relative to the Canadian and United States Dollar.  Any
such depreciation could adversely affect the market price of our common
stock.  Very limited hedging transactions are available in China to
reduce our exposure to exchange rate fluctuations.  To date, we have
not entered into any hedging transactions in an effort to reduce our exposure to
foreign currency exchange risk.  While we may decide to enter into
hedging transactions in the future, the availability and effectiveness of these
hedges may be limited and we may not be able to successfully hedge our exposure
at all.  In addition, our currency exchange losses may be magnified by
Chinese exchange control regulations that may restrict our and our Chinese
partners’ ability to convert Renminbi into United States Dollars.





We
Must Manage Our Growth





As the
Company endeavors to increase its sales and develop new lines of business, it
will be subject to a number of risks associated with the management of such
growth. These risks include increased responsibilities for existing personnel,
the need to hire additional qualified personnel and, in general, higher levels
of operating expenses.  In order to manage current operations and any
future growth effectively, the Company will need to continue to implement and
improve it’s operational, financial and management information systems and to
hire, train, motivate, manage and retain qualified employees.  In
particular, it will need to ensure that adequate mechanisms are in place to
address potential growth from the largely untapped Chinese marketplace and to
ensure that the Company has hired, trained and retained employees that are
familiar with that marketplace.  There can be no assurance that the
Company will be able to manage such growth effectively, that its management,
personnel or systems will be adequate to support the Company’s operations or
that the Company will be able to achieve the increased levels of revenue
commensurate with the increased levels of operating expenses associated with
this growth. In the event the Company is unable to manage its growth effectively
due to expenses exceeding sales, the timing of expenses becoming due or other
reasons, the Company may be forced to reduce or curtail operations.





- 11
-




We
Have a Concentrated Customer Base





We have
derived and believe that we will continue to derive a significant portion of our
revenues from one large customer.  In 2005, 2006, 2007 and 2008, one
customer accounted for 98%, 100%, 100% and 100% of the Company’s revenues
respectively. The loss, cancellation or deferral of the large contract with this
large customer would have a material adverse effect on our revenues from
China.  In addition, there can be no assurance that we will bring in
any new significant customers in China.





Other Risk
Factors





Dependence
on Michael P. Kraft, the Company’s Chief Executive Officer





The
Company’s future success is dependent on the success and ability of its key
management and product development teams.  The Company has obtained
key man insurance on its senior executive in the amount of
$1,000,000.  The loss of key personnel or the inability to attract and
retain highly qualified personnel, consultants or advisors, could adversely
affect the Company’s business.  The Company faces competition for such
personnel from other companies and organizations.  There can be no
assurance that the Company will be successful in hiring or retaining qualified
personnel.  The inability of the Company to retain and attract the
necessary personnel or the loss of services of any of its key personnel could
have a material adverse effect on the Company.





Technological
Changes May Reduce the Company’s Sale of Its Products and Services





The
traditional publishing industry continues to experience technological
change.  The publishing industry continues to evolve from traditional
mechanical format printing to full digital printing.  The inability of
the Company to keep pace with the new technologies and standards in the print
industry could render its products and services non-competitive.  The
Company’s future success will depend on its ability to address the increasingly
sophisticated needs of its customers by producing and marketing enhancements to
its products and services that respond to customer requirements.  The
Company may be required to invest significant capital in order to remain
competitive. A failure on the part of the Company to effectively manage a
product transition will directly affect the demand for the Company’s products
and the future profitability of the Company’s operations.





Exchange
Rate Fluctuations May Reduce the Company’s Revenues or Increase the Company’s
Expenses





The
Company does transact some business involving currencies other than the Canadian
currency in both purchasing and selling goods and services.  The
Company is exposed to fluctuations in foreign currency exchange rates that may
have an adverse effect on the Company’s businesses.





Dependence
on Key Contractors for Maintenance of High Quality Content





A key
component of the continued success of the traditional publishing activities of
the Company will be the ability of the Company to maintain high quality
content.  The Company must continue to develop new and innovative
products to sustain its educational publishing activities in order to ensure the
continued viability of the traditional publishing aspects of its
business.  Although the Company continues to retain experienced
educators and editors to develop content for its educational publications, there
can be no assurance that the Company will be able to continue hiring experienced
educators and editors to maintain the current high quality level of content for
future publications.





- 12
-




Competition
is Likely to Have a Tremendous Impact on our Business





The
Company faces considerable competition from traditional educational publishing
companies and from educational software providers in China both of which offer
the same or similar services as are available from the Company’s traditional
publishing operations.  In addition, it is anticipated that as China
becomes more open to foreign involvement for educational programs, the level of
competition will further intensify.





We
May Need Additional Capital in the Future and it May Not Be Available on
Acceptable Terms





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.





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.





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” and are quoted on the Berlin-Bremen
Stock Exchange under the symbol “LIM.BE” and the German securities code is (WKN)
121226.


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.





- 13
-




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





Introduction





Lingo
Media is a diversified online and print education product and services
company.  Speak2Me Inc. (“Speak2Me”), a subsidiary acquired in 2007,
is a new media company focused on interactive advertising in China through its
Internet-based English language learning platform. In China, Lingo Media
continues to expand its legacy business via its wholly-owned subsidiary Lingo
Learning Inc. (“Lingo Learning”), a print-based publisher of English language
learning programs.  In Canada, Lingo Media through its 70.33%
subsidiary A+ Child Development (Canada) Ltd. (“A+”) specialized in early
childhood cognitive development programs which distributed educational materials
along with its proprietary curriculum.  In December 2008, A+ filed a
Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency
Act.




As of
December 31, 2008, the Company operated two distinct business segments as
follows:





- 14
-




Online
English Language Learning





The
Company offers an online English language learning community in China through
its acquisition of Speak2Me.  Speak2Me incorporates Lingo Media’s
proven pedagogy with fun, interactive lesson modules to address the rapidly
growing need for spoken English worldwide.  Speak2Me’s groundbreaking
service uses speech recognition technology to teach spoken English online
through more than 350 targeted lessons that engage users in interactive
conversations with a virtual teacher. A unique social-networking infrastructure
that allows students to form study groups and offers contests, prizes and other
incentives, creates a learning environment that engenders co-operation and
competition, just as in a conventional classroom. In addition, Speak2Me offers
premium content development services and custom training modules to support
businesses and institutions that require English language training for their
personnel.





Print-Based
English Language Learning





The
Company continues to expand its publishing business via its subsidiary Lingo
Learning Inc. (“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 200 million students.  To
date, it has co-published 278 million units from its library of more than 340
program titles in China.





On
December 23, 2008 A+ filed a Notice of Intention to Make a Proposal under the
Bankruptcy and Insolvency Act (“Proposal”).  On April 23, 2009, the
Proposal by A+ was approved by the Superior Court of Justice.  This
filing precipitated from the decision made on December 23, 2008 to restructure
A+’s operations.  After an extensive strategic evaluation, Lingo Media
decided to focus its resources on the expansion of its English language learning
businesses including its subsidiaries Lingo Learning and Speak2Me.





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:





Jianwai SOHO


Building 17, Suite 601


39 East 3rd Ring Road,


Dong San Huan Zhong Lu


Beijing, 100022, China


Telephone: +86 10 5900 0152


Facsimile:  +86 10 5900 1800





The
Speak2Me office is located at:





76 Roosevelt Road


7F-2, Section 3


Taipei 100


Taiwan





- 15
-




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.





History and
Development





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", Lingo Group Limited “LGL", A + Child
Development (Canada) Ltd., Speak2Me Inc. “S2M”,  Speak2Me
International Inc. “S2MII”, Speak2Me (Hong Kong) Limited “S2MHK” and Speak2Me
(Beijing) “S2MBJ”.





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.





LGL was
incorporated under the laws of the State of Delaware on April 16, 1999 under the
name Yangtze Online.  On May 16, 2000, wholly-owned subsidiary’s name
was changed to EnglishLingo, Inc.  On August 12, 2002 the company
jurisdiction was transferred to the Province of Ontario.  On October
28, 2004 the wholly-owned subsidiary’s name was changed to Lingo Group
Limited.





A+ was
incorporated pursuant to the Business Corporations Act of Alberta on February
12, 1999. A+ is 70.33% owned by the Company.  In December 2008, A+
filed a Notice of Intent to Make a Proposal under the Bankruptcy and Insolvency
Act.





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.





- 16
-




4.B.  BUSINESS
OVERVIEW





Background





Lingo
Media is a diversified online and print education product and services
company.  Speak2Me Inc. (“Speak2Me”), a subsidiary acquired in 2007,
is a new media company focused on interactive advertising in China through its
Internet-based English language learning platform. In China, Lingo Media
continues to expand its legacy business via its wholly-owned subsidiary Lingo
Learning Inc. (“Lingo Learning”), a print-based publisher of English language
learning programs.  In Canada, Lingo Media through its 70.33%
subsidiary A+ Child Development (Canada) Ltd. (“A+”) specialized in early
childhood cognitive development programs which distributed educational materials
along with its proprietary curriculum.  In December 2008, A+ filed a
Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency
Act.





As of
December 31, 2008, the Company operated two distinct business segments as
follows:





Online
English Language Learning





The
Company offers an online English language learning community in China through
its acquisition of Speak2Me.  Speak2Me incorporates Lingo Media’s
proven pedagogy with fun, interactive lesson modules to address the rapidly
growing need for spoken English worldwide.  Speak2Me’s groundbreaking
service uses speech recognition technology to teach spoken English online
through more than 350 targeted lessons that engage users in interactive
conversations with a virtual teacher. A unique social-networking infrastructure
that allows students to form study groups and offers contests, prizes and other
incentives, creates a learning environment that engenders co-operation and
competition, just as in a conventional classroom. Speak2Me’s patent-pending
Conversational AdvertisingTM platform allows Speak2Me to provide its innovative
offering to end-users at no cost. In addition, Speak2Me offers premium content
development services and custom training modules to support businesses and
institutions that require English language training for their
personnel.





Print-Based
English Language Learning





The
Company continues to expand its publishing business via its subsidiary Lingo
Learning Inc. (“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 200 million students.  To
date, it has co-published 278 million units from its library of more than 340
program titles in China.





English Language
Learning





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 six years developing English as a Foreign Language (EFL),
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 EFL book, 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.





- 17
-




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 Media 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 Practiceseries 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.





Phoenix
Publishing & Media Group





Phoenix
Publishing and Media Group (PPMG), formerly Jiangsu Publishing Group, was
established in September 2001. It is one of the largest provincial publishing
houses in China with a registered capital of 720 million RMB, revenue of more
than 8 billion RMB and total assets of 7.4 billion RMB.  PPMG’s
subsidiaries include 8 publishing houses, 1 audio visual publishing house, 1
printing house and an import-export trading corporation.  Lingo Media
has co-published and launched Lingo College English with
Yilin Press.





China
International Publishing Group





Foreign
Language Press (“FLP”) is a subsidiary of China's largest trade publishing
group, China International Publishing Group (“CIPG”). CIPG develops and
distributes books to Chinese retail bookstores, in addition to producing
selected texts and supplemental books for the educational market. Lingo Media
co-published with CIPG theEnglish for Hosts book and audiocassette package.





The
Lingo Media Approach





Lingo
Media specializes in publishing materials for language learning. Lingo Media
focuses on two sectors: English as a Second Language (ESL) in English-speaking
countries and English as a Foreign Language (EFL) in China.





The key
to publishing successful EFL programs are two simple concepts: quality and
relevance. Our core philosophy says that English language learning materials
should be relevant to the market we are trying to reach. Our approach
involves:





Researching
and Understanding the Market





The
process began with relationship building and communication.  We talk
with key organizations, associations and ministries in each country to better
understand their needs and concerns. We looked for the right niche for Lingo
Media, and then sought out local partners to aid in the marketing and
implementation of our programs.  Moreover, we searched for individuals
in China who manage the Company’s affairs.  These individuals become
our links to China's community and culture.





- 18
-




Bilateral
Relationships





With
Lingo Media liaisons in place, our goal is to assure that our English Language
Learning materials meet the highest educational standards.





Constant
Monitoring of Effectiveness





Our
people in the field in China are constantly monitoring the effectiveness of our
programs; they ask and answer the crucial questions - Does the material serve
the intended audience?





Comprehensive
Product Development





Because
we know that a language learning program needs to serve a number of different
groups, we considered the requirements of all of the ultimate users:
administrators, teachers and students.  Each group has its own
perspective. We developed an approach that works for all.





Collaborative
Partnerships





With
local partners and educational organizations involved with the process of
implementing programs, they are pleased with the results.  Our
partners are involved in all stages of program marketing, implementation and
monitoring – in effect they are strategic team members.





Bilateral
Development





September
2001 marked the first official launch of a Lingo Media program entitled PEP Primary English. The
program was developed by an international team of respected educational writers:
Jack Booth, David Booth, Linda Booth and Larry Swartz (award winning Canadian
authors of the elementary language arts series Impressions), together with
Yuexin Wu from Wuxi Normal School and PEP’s English Editorial Team.





Relevant
Material





We know
how to listen. Our teams ensure that program material is relevant and culturally
appropriate, as well as educationally sound.





- 19
-




Products





English
Language Learning





Programs for
Children:





Series:
                Beginning
      English For Young LearnersType
      of Program:
                English
      as a Foreign Language (EFL)
                  English
      as a Second Language (EFL)Description:
                A
      series of student books, audiocassettes, teacher resource books and
      ancillary materials. The program promotes oral language use through
      partner-based activities suited for both large and small groups. It
      enhances listening, speaking and emerging literacy skills, using an
      activity-based approach.Components:
                Student
      Books:                   4
                  Audiocassettes:                  8
                  Teacher
      Resource Books:  2Target
      Audience:
                Elementary
      Schools: JK, SK, Grades
1-2






Series:
                PEP
      Primary EnglishType
      of Program:
                English
      as a Foreign Language (EFL)
                  English
      as a Second Language (ESL)Description:
                A
      series of student books, audiocassettes, teacher resource books and
      ancillary materials. The program employs a variety of learning strategies
      to promote interactive, two-way communication as students explore the
      content through task-based activities.Components:
                Student
      Books:                   8
                  Audiocassettes:                16
                  Teacher
      Resource Books:  8
                  Ancillary
      Materials:           56Target
      Audience:
                Elementary
      Schools: Grade 3-6Series:
                Starting
      LineType
      of Program:
                English
      as a Foreign Language (EFL)
                  English
      as a Second Language (EFL)Description:
                A
      series of student books, audiocassettes, teacher resource books and
      ancillary materials. The program employs interactive, two-way
      communication to help and encourage students to build word power in
      listening, speaking, reading, and writing as they participate in
      task-based activities designed for use in multi-level
      classrooms.Components:
                Student
      Books:                 12
                  Audiocassettes:                12
                  Teacher
      Resource Books:  6
                  Ancillary
      Materials:           72Target
      Audience:
                Elementary
      Schools:
Grade     1-6




- 20
-




Programs for
Juveniles





Series:
                        Reading
      PracticeType
      of Program:
                        English
      as a Foreign Language (ESP)
                          English
      as a Second Language (EFL)Description:
                        A
      series of student books to supplement the widely used PEP textbooks for
      grades 7-9. These supplemental books provide a wide range of reading
      selections and follow-up activities, language games, puzzles, and other
      sources for developing comprehension.Components:
                        Student
      Books:             5
                          Audiocassettes:            5Target
      Audience:
                        Junior
      Middle Schools: Grades 7-9Series:
                        Subject-Based
      EnglishType
      of Program:
                        English
      for Special Purposes (ESP)Description:
                        A
      series of student textbooks, audiocassettes, and teacher resource books.
      The first set of six subjects includes Law, Mathematics, Physics,
      Geological Prospecting and Mining, Biology, and
      Transportation.
                          This
      program is required in order to meet the new curriculum mandated by the
      Chinese State Ministry of Education stating that all third and fourth year
      students not majoring in English must take English courses related to
      their subject area.Components:
                        Student
      textbooks:              6
                          Audiocassettes:                12
                          Teacher
      Resource Books:  6Target
      Audience:
                        Third
      and fourth year university students majoring in subjects other than
      EnglishSeries:
                        English
      in Business CommunicationsType
      of Program:
                        English
      for Special Purposes (ESP)Description:
                        A
      series of self-study books and audiocassettes for adult English learners
      focused on specific English language needs for a variety of professions
      and occupations.  The series is designed to develop and enhance
      listening comprehension, vocabulary development and pronunciation. Subject
      areas include Insurance, Marketing, Meetings, Negotiations, Banking,
      Presentations and English for Hosts.Components:
                        Self-Study
      Books:  6
                          Audiocassettes:   12Target
      Audience:
                        Self-Study
      Adult MarketSeries:
                        Lingo
      Vocational EnglishType
      of Program:
                        English
      as a Foreign Language (EFL) English as a Second Language
    (ESL)Description:
                        Create
      fluency and gain skills in modern spoken and written English using modern
      pedagogy.  Students will gain oral fluency as they work across
      the four modalities—listening, speaking, reading and writing—while
      supporting their general knowledge skills.  This program uses
      two different textbooks—listening/speaking, and reading/writing, as well
      as audiocassettes, to support learning.Components:
                        Student
      textbooks:              10
                          CD
      Roms:                8
                          Teacher
      Resource Books:  10Target
      Audience:
                        Chinese
      Vocational SchoolsNumber
      of Levels:
                        4Publication
      Date:
                        September
      2006Author(s):
                        Lisa
      Bruno, Lisa Black, Sarah MillerPublisher:
                        Lingo
      Media
                          China
      School Edition: Co-publisher – Yilin
Press




- 21
-




United
States vs. Foreign Sales/Assets





During
the fiscal years ended December 31, 2008, 2007, and 2006 respectively,
$2,568,086, $3,126,651, and $685,521, of sales revenue were generated in
Canada.  In 2008, the Company discontinued the line of business that
generates all sales in Canada.





During
the fiscal years ended December 31, 2008, 2007, and 2006 respectively, no sales
revenue was generated in the United States.





During
the fiscal years ended December 31, 2008, 2007, and 2006 respectively, $967,908,
$877,706, and $888,816of sales revenue were generated in China.





At
December 31, 2006 substantially all of the Company’s assets were located in
Canada. At December 31, 2008 and 2007 respectively, $2,453,878 and $3,304,571 of
the Company’s identifiable assets are located in Canada, and, as a result of the
acquisition of Speak2Me, $6,072,914 and $5,462,464 are located in
China.





Dependency
Upon Intellectual Property





The
Company is dependent on its intellectual property and the contracts in China
with various Chinese publishers.





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).





Research and Development,
Trademarks, Licenses, and Etc.





Research
and Development





During
the years ended December 31, 2008, 2007, and 2006 respectively, the Company
expended $880,846, $4,352,341, and $91,325 on research and development, under
the categories of “development costs” “software development costs” and “deferred
costs”.  These expenditures were primarily directed at developing
products for the China market.





Trademarks
and Copyrights





The
Company owns the trademarks, Lingo Media and English Lingo in Canada and China.
The Company also owns certain trademarks for Speak2Me in China and has pending
trademark applications in other jurisdictions.  In addition, certain
materials are copyrighted.





Employees





As of May
15, 2009, the Company has forty employees. None of the Company's employees are
covered by collective bargaining agreements.





- 22
-




4.C. Organization
Structure





The
Company currently has eight active subsidiaries: Lingo Learning Inc. (previously
Lingo Media Ltd.), Lingo Media International Inc., Lingo Group Limited, A+ Child
Development (Canada) Ltd., Speak2Me Inc., Speak2Me (Hong Kong) Limited, Speak2Me
International Inc. and Speak2Me Beijing Refer to ITEM 4.  “Information
on the Company, 4.A. History and Development of the Company, History and
Development” for more information.





4.D.  Property,
Plant 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 Jianwai SOHO, Building 17, Suite 601, 39 East 3rd
Ring Road, Dong San Huan Zhong Lu, Beijing, 100022, China





The
Company’s Taiwan representative offices are located in rented premises of
approximately 1,615 sq. ft. at 76 Roosevelt Road, 7F-2, Section 3, Taipei 100,
Taiwan





The
Company has office equipment, furniture and computer equipments located in these
offices and for the fiscal years ended December 31, 2008, 2007 and 2006 they
have a net carrying value of $64,839, $73,144 and $58,716
respectively.





ITEM 5.  OPERATING
AND FINANCIAL REVIEW AND PROSPECTS





The
following discussion for the fiscal years ended December 31, 2008, and December
31, 2007 should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto.





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





Lingo
Media is a diversified online and print education product and services
company.  Speak2Me Inc. (“Speak2Me”), a subsidiary acquired in 2007,
is a new media company focused on interactive advertising in China through its
Internet-based English language learning platform. In China, Lingo Media
continues to expand its legacy business via its wholly-owned subsidiary Lingo
Learning Inc. (“Lingo Learning”), a print-based publisher of English language
learning programs.  In Canada, Lingo Media through its 70.33%
subsidiary A+ Child Development (Canada) Ltd. (“A+”) specialized in early
childhood cognitive development programs which distributed educational materials
along with its proprietary curriculum.  In December 2008, A+ filed a
Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency
Act.





- 23
-




Critical Accounting Policies
and Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ materially from those estimates and
assumptions.





In
management’s opinion, revenue recognition, development costs, deferred costs,
acquired publishing content and use of estimates as presented in the financial
statements of the year ended December 31, 2008 are critical accounting policies
and are as follows:





Revenue
recognition:





Revenue
from web-based advertising in China is recognized at the time of delivery and
when collectability is reasonably assured.





Lingo
Media earns royalty revenues from its key customer, People’s Education Press
(“PEP”), a Chinese State Ministry of Education publisher on the following
basis:





·
            Finished
      Product Sales – PEP prints and sells Lingo Media’s English language
      learning programs to provincial distributors in
  China.


·
            Licensing
      Sales – PEP licenses Lingo Media’s English language learning programs to
      provincial publishers who then print and sell the programs to provincial
      distributors in China.





Lingo
Media earns a significantly higher royalty rate from Finished Product Sales
compared to Licensing Sales.





In
accordance with the co-publishing agreement between PEP and Lingo Media (the
“Co-Publishing Agreement”), PEP pays to Lingo Media a royalty on print runs of
Finished Product Sales and a royalty on actual revenues of Licensing
Sales.  PEP provides Lingo Media with print run reconciliations on a
semi-annual basis, as their reporting systems are unable to provide quarterly
sales information.  Under the Co-Publishing Agreement, Lingo Media
invoices PEP on a quarterly basis at 40% of the prior six months actual
sales.  PEP then provides a reconciliation of the royalty revenues for
the first and second quarters by the end of August and for the third and forth
quarters by the end of March.


Royalty
revenues from audiovisual products are recognized upon the confirmation of
sales, and when collectibility is reasonably assured.  Royalty
revenues are not subject to right of return or product warranties. Revenues from
the sale of published and supplemental products are recognized upon delivery and
when the risk of ownership is transferred and collectibles are reasonably
assured.





Deferred
costs, investment and advances:





The
pre-operating costs relating to establishing a joint venture in China are
recorded as deferred costs.  Pre-operating costs are capitalized until
the commencement of commercial operations and then amortized on a straight-line
basis, over a maximum of five years.  Loans made in trust with a view
to establishing a joint venture are recorded as investment and
advances.  The carrying value of these deferred costs and advances are
assessed on a periodic basis to determine if a write-down is required. Any
required write-down is charged to operations in the year such write-down is
determined to be necessary.





In June
2005, the Company signed a definitive Joint Venture Agreement (“JV Agreement”)
with Sanlong Cultural Communication Co. Ltd. (“Sanlong”). The joint venture
company will be known as Hebei Jintu Education Book Co. Ltd.
(“Jintu”).  The Company has incurred and advanced a total of $339,939
to the joint venture.  The Company intended to utilize the sales
channel of Jintu to localize and distribute product of A+.  Since A+
has filed a Proposal the Company has written-off its investment in the joint
venture.





- 24
-




Development
costs:





Under
Canadian GAAP, the Company capitalized costs related to English Language
Learning products and programs and amortizes these costs on a straight-line
basis over periods of up to five years. Under United States GAAP, these costs
are expensed as incurred per Statement of Financial Accounting Standards
(“SFAS”) No. 2, Research and Development Costs.  The Company failed to
expense the development costs for US GAAP purposes in its 2007 financial
statement reconciliation of Canadian to US GAAP disclosure and has now restated
the reconciliation to reflect the expense.





Acquired
publishing content:





The costs
of obtaining the English as a Foreign Language ("EFL") program entitled
"Communications: An Interactive EFL Program" and an international folktale
series entitled "Stories Lost and Found: The Universe of Folktale" have been
capitalized and are being amortized over a five-year period.  The
Company regularly reviews the carrying values of its acquired publishing
content.  The Company evaluates the carrying value of these assets
based on the undiscounted value of expected future cash flows.  If the
carrying value exceeds the amount recoverable, a write-down of the asset to its
estimated fair value would be charged to operations in the year such a
write-down is determined to be necessary.





Use of
estimates:





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as at December 31, 2008 and December 31, 2007
and the reported amounts of revenue and expenses during the years then
ended.  Actual results may differ from those
estimates.  Significant areas requiring the use of management
estimates related to the useful lives and impairment of property and equipment,
development costs and acquired publishing content.





Operating
Results





Fiscal Year Ended December
31, 2008 vs. Fiscal Year Ended December 31, 2007





Revenue
and Margin




Lingo
Media earned revenues in China as follows:





Online
      English Language Learning
                              
                              
                              Print-Based
      EnglishLanguage
      Learning
                              
                              
                              TotalRevenue
                              
                              $
                              -
                              
                              
                              $
                              969,128
                              
                              
                              $
                              969,128Cost
      of sales
                              
                              
                              -
                              
                              
                              
                              126,329
                              
                              
                              
                              126,329Margin
                              
                              $
                              -
                              
                              
                              $
                              842,799
                              
                              
                              $
                              842,799




Revenues
from China for the year ended December 31, 2008 were $969,128 compared to
$879,626 for fiscal year 2007. The Company continues to advance its relationship
with PEP and is developing new programs to maintain and increase its royalty
revenues.




In
Canada, revenues from A+ for the year ended December 31, 2008 were $2,575,559
compared to $3,124,731 for fiscal year 2007. As part of its restructuring, A+
discontinued its operations in Canada and these revenues and related expenses
are reported as discontinued operations.





- 25
-




Lingo
Media earned revenues at December 31, 2007 in China as follows:





Online
      English Language Learning
                        
                        
                        Print-Based
      EnglishLanguage
      Learning
                        
                        
                        TotalRevenue
                        
                        $
                        -
                        
                        
                        $
                        879,626
                        
                        
                        $
                        879,626Cost
      of Sales
                        
                        
                        -
                        
                        
                        
                        113,317
                        
                        
                        
                        113,317Margin
                        
                        $
                        -
                        
                        
                        $
                        766,309
                        
                        
                        $
                        766,309





Revenues
from China for the year ended December 31, 2008 were $969,128 compared to
$879,626 for 2007. The Company continues to advance its relationship with PEP
and has developed new programs to maintain and increase its royalty revenue.





Lingo
Media expanded its in-house product development team with the appointment of
Chris Anderson as its Managing Editor in order to develop new English language
learning programs.  The Company also appointed Jenny Bao as Director of
Marketing to enhance its relationships with existing customers and to secure new
business.





The
Company had no unearned revenues as at December 31, 2008.





General and
Administrative





General
and administrative costs consist of executive compensation, consulting fees,
office administration, rent, marketing, professional fees, shareholders
services, any foreign exchange losses or gains and government grants which are
offset against the general and administration expenses incurred during the
period.





Overall,
general and administrative expenses increased due to the acquisition and
consolidation of Speak2Me operations into the financial results of Lingo Media.
Below is the detailed analysis of general and administrative expenses for the
year ended December 31, 2008.





2008
                        
                        
                        2007Administration
                        
                        191,290
                        
                        
                        183,777Advertising
      and promotion
                        
                        39,737
                        
                        
                        17,797Consulting
      fees and employee compensation
                        
                        829,057
                        
                        
                        405,715Equipment
      leases
                        
                        17,931
                        
                        
                        16,891Executive
      compensation
                        
                        358,841
                        
                        
                        201,233Foreign
      exchange
                        
                        160,223
                        
                        
                        (103,505
                        )Premises
                        
                        161,895
                        
                        
                        118,145Professional
      fees
                        
                        260,977
                        
                        
                        129,395Shareholder
      services
                        
                        54,877
                        
                        
                        49,740Travel
                        
                        118,328
                        
                        
                        91,6642,193,156
                        
                        
                        1,110,852Less
      Grants
                        
                        (65,430
                        )
                        
                        (164,545
                        )Total
                        
                        2,127,726
                        
                        
                        946,307





Selling
general and administrative expenses related to A+ have been reallocated and
reported as discontinued operations.





- 26
-




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 $110,430 of such grant.  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, at such time a liability would be recorded.
During the year, the conditions for the repayment of grants were not met and no
liability was recorded.





During
2008, Lingo Media was audited by a government grant agency and was assessed with
a repayment amount of $115,075.  The Company believes their claim is
unjust and is vigorously disputing the assessment.  At the end of the
year, a provision of $45,000 has been recorded in general and administrative
expenses.





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 programs will still be
offered.





Foreign
Exchange





Included
in general and administrative expenses is a foreign exchange loss of
approximately $160,223 as compared to a gain of approximately $103,505 in fiscal
2007, 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 is denominated in US Dollars,
New Taiwanese Dollars and Chinese Renminbi.





Interest
and Other Financial Expenses





In 2008,
the Company had loans payable bearing interest at 12% (2007 - 12%) per
annum.  Interest expense related to these loans for the year ended
December 31, 2008 is $95,544.





Stock-Based
Compensation





The Company amortizes
stock-based compensation with a corresponding increase to the contributed
surplus account. During 2008, the Company recorded an expense of $252,792
compared to $156,395 during 2007. This increase is primarily due to the issuance of new options in
2008 and it has a full year effect of the option granted in
2007.




Discontinued
Operations




On
December 23, 2008, A+ filed a Notice of Intent to file a
Proposal.  The Company wrote-down the carrying value A+, resulting in
a charge of $1,571,369 (2007 - $292,848, 2006 - $57,906) to net loss, included
in the write-down was $274,852 of future income tax assets.





All
comparative figures have been adjusted to exclude results from the discontinued
operations.  The net assets of A+ were presented as assets and
liabilities of the discontinued operations at their carrying value.





- 27
-




Net
Loss





The
Company reported a net loss of ($3,882,843) for the year ended December 31, 2008
as compared to a net loss of ($925,040) in 2007 in accordance with Canadian
GAAP. The loss for 2008 is comprised of the following:





2008
                    
                    
                    2007Operating
      loss
                    
                    $
                    (2,311,474
                    )
                    
                    $
                    (632,192
                    )Loss
      from the operations of A+
                    
                    
                    (450,238
                    )
                    
                    
                    (292,848
                    )Write
      off of goodwill from the acquisition of A+
                    
                    
                    (1,121,131
                    )
                    
                    
                    -Net
      Loss
                    
                    $
                    (3,882,843
                    )
                    
                    $
                    (925,040
                    )





Fiscal Year Ended December
31, 2007 vs. Fiscal Year Ended December 31, 2006





Revenue
and Margin





Lingo
Media earned Print-Based English Language Learning revenues at December 31, 2007
and December 31, 2006 in China as follows:





2007
                    
                    
                    2006Revenue
                    
                    $
                    879,626
                    
                    
                    $
                    894,073Cost
      of Sales
                    
                    
                    113,318
                    
                    
                    
                    132,968Margin
                    
                    $
                    766,308
                    
                    
                    $
                    761,105





Revenues
from China for the year ended December 31, 2007 were $879,626 compared to
$894,073 for 2006. The Company continues to advance its relationship with PEP
and has developed new programs to maintain and increase its royalty revenue.





In July
2006, the Company entered into a publishing agreement with Yilin Press to
co-publish a Vocational
English For College program in China.  In addition, the Company
developed a new educational program – Lingo Kindergarten English –
aimed at China’s vast pre-school market.





Lingo
Media expanded its in-house product development team with the appointment of
Chris Anderson as its Managing Editor in order to develop new English language
learning programs.  The Company also appointed Jenny Bao as Director of
Marketing to enhance its relationships with existing customers and to secure new
business.





Lingo
Media earned revenue from its Early Childhood Development segment in the year
ended December 31, 2007 and December 31, 2006.  In December 2008, the
Company filed a Notice of Intent to File a Proposal under the Bankruptcy and
Insolvency Act; all results from this operation are included in discontinued
operations.





2007
                    
                    
                    2006Revenue
                    
                    $
                    3,124,731
                    
                    
                    $
                    680,264Cost
      of Sales
                    
                    
                    644,758
                    
                    
                    
                    186,309Margin
                    
                    $
                    2,479,973
                    
                    
                    $
                    493,955




- 28
-




In 2006,
Lingo Media expanded into early childhood development sector through the
acquisition of A+ effective October 1, 2006.  Revenues and expenses of A+
for the period from October 1, 2006 to December 31, 2006 were included in the
consolidated statements of operations of the Company.   A+ had
reported revenues of $3.1 million in 2006, of which $680,264 had been recognized
as revenue and included in the operations of Lingo Media for the period from
October 1, 2006 to December 31, 2006. A+ derives revenues from publishing and
distribution of educational materials aimed at the early childhood market.
 A+ has developed a successful and proprietary curriculum for parents to
use with their children based on the latest neuroscience
research.   As of December 23, 2008, A+ filed a Notice of Intent
to File a Proposal under the Bankruptcy and Insolvency
Act.  All results from this operation are included in
discontinued operations.





The
Company had no unearned revenues as at December 31, 2007.





General and
Administrative





General
and administrative costs consist of executive compensation, consulting fees,
office administration, rent, marketing, professional fees, shareholders
services, any foreign exchange losses or gains and government grants which are
offset against the general and administration expenses incurred during the
period.





The
following sets out the details for the general and administrative expenses for
2007 as compared to 2006:





General
and administrative expenses were $946,307 during fiscal 2007 as compared to
$809,260 for fiscal 2006. Overall, general and administrative expenses increased
due to the acquisition of Speak2Me operations into the financials of Lingo
Media. Below is the detailed analysis of general and administrative expenses for
the year ended December 31, 2007 and 2006:





2007
                            
                            
                            2006Administration
                            
                            
                            183,777
                            
                            
                            
                            76,622Advertising
      and promotion
                            
                            
                            17,797
                            
                            
                            
                            42,127Consulting
      fees and employee compensation
                            
                            
                            405,715
                            
                            
                            
                            442,669Equipment
      leases
                            
                            
                            16,891
                            
                            
                            
                            12,197Executive
      compensation
                            
                            
                            201,233
                            
                            
                            
                            147,291Foreign
      exchange
                            
                            
                            (103,505
                            )
                            
                            
                            6,690Premises
                            
                            
                            118,145
                            
                            
                            
                            109,663Professional
      fees
                            
                            
                            129,395
                            
                            
                            
                            56,843Shareholder
      services
                            
                            
                            49,740
                            
                            
                            
                            45,984Travel
                            
                            
                            91,664
                            
                            
                            
                            51,4731,110,852
                            
                            
                            
                            991,560Less
      Grants
                            
                            
                            (164,545
                            )
                            
                            
                            (182,300
                            )Total
                            
                            
                            946,307
                            
                            
                            
                            809,260




- 29
-




Government
Grants





The
Company 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. The Company records a
liability for the repayment of the grants in the period in which conditions
arise that will cause the government grant to be repayable.  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. Included as a reduction of general and administrative expenses,
are government grants of $164,545 for fiscal 2007 (2006 – $182,300), relating to
the Company's publishing projects in China and Canada.  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 programs will still be
offered for qualifying companies.





Foreign
Exchange





Included
in general and administrative expenses is a foreign exchange loss of
approximately $103,505 (2006 - $7,968), relating to currency translation rates
in respect of the Company’s activities denominated in foreign
currencies.





Interest
on Debt





In 2007,
the Company had loans payable bearing interest at 12% (2006 - 12%) per
annum.  Interest expense related to these loans for the year ended
December 31, 2007 is $27,077.  At December 31, 2007, the outstanding
loans were in the aggregate sum of $431,705 plus accrued interest of
$14,705.





Amortization





The
following is a summary amortization schedule:





2007
                        
                        
                        2006Property
      Plant and Equipment
                        
                        
                        13,465
                        
                        
                        
                        64,402Development
      Costs
                        
                        
                        99,805
                        
                        
                        
                        156,648Acquired
      Publishing Content
                        
                        nil
                        
                        
                        
                        53,003113,270
                        
                        
                        
                        274,053





Amortization
expense includes amortization of property and equipment, development costs and
acquired publishing content. The amortization charge for 2007 was $113,270 (2006
- $274,053). This represents a significant decrease over 2006 due to reduced
carrying values of these assets.





- 30
-




Stock-Based
Compensation





The
Company amortizes stock-based compensation with a corresponding increase to the
contributed surplus account. During 2007, the Company expensed $156,395 compared
to $193,819 during 2006.





Net Loss





The
Company reported a net loss of ($925,040) for fiscal 2007 as compared to a net
loss of ($748,924) for fiscal 2006. The Company reported taxes paid of $127,267
for the fiscal year ended December 31, 2007 compared to taxes paid of $160,465
for fiscal 2006.





Fiscal Year Ended December
31, 2006 vs. Fiscal Year Ended December 31, 2005





Revenue
and Margin





Lingo
Media earned Print-Based English Language Learning revenues at December 31, 2006
and December 31, 2005 in China as follows:





2006
                    
                    
                    2005Revenue
                    
                    $
                    894,073
                    
                    
                    $
                    888,545Cost
      of Sales
                    
                    
                    132,968
                    
                    
                    
                    123,107Margin
                    
                    $
                    761,105
                    
                    
                    $
                    765,438





Revenues
from China for the year ended December 31, 2006 were $894,073 compared to
$888,545 for 2005. The Company continues to advance its relationship with PEP
and has developed new programs to maintain and increase its royalty
revenue.





In July
2006, the Company entered into a publishing agreement with Yilin Press to
co-publish a Vocational
English For College program in China.  In addition, the Company
developed a new educational program – Lingo Kindergarten English –
aimed at China’s vast pre-school market.





Lingo
Media expanded its in-house product development team with the appointment of
Suzanne Robare as its Managing Editor in order to develop new English language
learning programs.  The Company has also appointed Jenny Bao as
Director of Marketing to enhance its relationships with existing customers and
to secure new business.





The
Company had no unearned revenues as at December 31, 2006.





- 31
-




General and
Administrative





General
and administrative costs consist of executive compensation, consulting fees,
office administration, rent, marketing, professional fees, shareholders
services, any foreign exchange losses or gains and government grants which are
offset against the general and administration expenses incurred during the
period.





The
following sets out the details for the general and administrative expenses for
2006 as compared to 2005:





General
and administrative expenses were $809,260 during fiscal 2006 as compared to
$855,118 for fiscal 2005. Below is the detailed analysis of general and
administrative expenses for the year ended December 31, 2006:





2006
                      
                      
                      2005Administration
                      
                      
                      76,622
                      
                      
                      
                      110,818Advertising
      and promotion
                      
                      
                      42,127
                      
                      
                      
                      26,788Consulting
      fees and employee compensation
                      
                      
                      442,669
                      
                      
                      
                      472,300Equipment
      leases
                      
                      
                      12,197
                      
                      
                      
                      10,318Executive
      compensation
                      
                      
                      147,291
                      
                      
                      
                      176,383Foreign
      exchange
                      
                      
                      6,690
                      
                      
                      
                      18,373Premises
                      
                      
                      109,663
                      
                      
                      
                      83,915Professional
      fees
                      
                      
                      56,843
                      
                      
                      
                      58,622Shareholder
      services
                      
                      
                      45,984
                      
                      
                      
                      40,743Travel
                      
                      
                      51,473
                      
                      
                      
                      76,630991,560
                      
                      
                      
                      1,074,890Less
      Grants
                      
                      
                      (182,300
                      )
                      
                      
                      (219,772
                      )Total
                      
                      
                      809,260
                      
                      
                      
                      855,118




Government
Grants




The
Company 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. The Company records a
liability for the repayment of the grants in the period in which conditions
arise that will cause the government grant to be repayable.  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. Included as a reduction of general and administrative expenses,
are government grants of $182,300 for fiscal 2006 (2005 – $219,772), relating to
the Company's publishing projects in China.  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 programs will still be
offered for qualifying companies.




- 32
-




Foreign
Exchange




Included
in general and administrative expenses is a foreign exchange loss of
approximately $7,968 (2005 - $18,373), 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 substantial portion of its revenue is
denominated in US dollars and Chinese Renminbi.




Interest
on Debt




During
the year the Company had loans payable bearing interest at 12 % (2005 - 12%) per
annum.  Interest expense related to these loans for the year is
$31,260 (2005 - $11,767).  At December 31, 2006, $347,541 (2005 -
$101,929) was due to those lenders.




In
addition, the Company has revolving lines of credit bearing interest at prime
plus 2% and 2.5%.   These bank facilities are supported by
general security agreements, a short term investment and a charge against the
Company’s accounts receivable and inventory.  Interest expense paid on
the loan for the year is $36,897 (2005: $7,609). The outstanding balance of
these loans at year end was $485,000.




Premiums
paid on the Export Development Corporation insurance policy were $13,755 for the
year.


Amortization




The
following is a summary amortization schedule:





2006
                      
                      
                      2005Property
      Plant and Equipment
                      
                      64,402
                      
                      
                      12,278Development
      Costs
                      
                      156,648
                      
                      
                      184,797Acquired
      Publishing Content
                      
                      53,003
                      
                      
                      70,670274,05
                      
                      
                      267,745





Amortization
expense includes amortization of property and equipment, development costs and
acquired publishing content. The amortization charge for 2006 was $222,306 (2005
- $267,745). This represents a significant decrease over 2005 due to reduced
carrying values of development costs.





- 33
-




Stock-Based
Compensation





The
Company amortizes stock-based compensation with a corresponding increase to the
contributed surplus account. During 2006, the Company expensed $193,819 compared
to $214,337 during 2005.





Net Loss





The
Company reported a net loss of ($748,924) for fiscal 2006 as compared to a net
loss of ($725,732) for fiscal 2005. The Company reported taxes paid of $160,455
for the fiscal year ended December 31, 2006 compared to taxes paid of $128,839
for fiscal 2005.





5.B Liquidity and Capital
Resources





Fiscal Year Ended December
31, 2008





As at
December 31, 2008, the Company had cash and cash equivalents of $2,279,937 (2007
$377,127), and accounts and grants receivable of $642,543 (2007 - $958,179). The
Company’s total current assets amounted to $3,117,249 (2007 - $1,716,903) with
current liabilities of $1,321,411 (2007 - $1,508,696) resulting in a working
capital surplus of $1,795,838 (2007 - working capital surplus of
$208,207).





In
October 2008, the Company successfully completed a private placement with
Orascom Telecom of $5 million by issuing 2,857,143 units at a price of $1.75 per
unit (“Unit”), with each Unit consisting of one common share (“Common Share”)
and three-quarters (0.75) of one share purchase warrant
(“Warrant”).  Each whole Warrant is exercisable to acquire one further
Common Share for a period of 24 months from September 15, 2008 (the “Closing
Date“): (i) at a price of $4.00 for a period of 12-months from the Closing Date;
(ii) at a price of $6.00 per Common Share if exercised between 12-18 months from
the Closing Date; and (iii) at a price of $8.00 per Common Share if exercised
between 18-24 months from the Closing Date. The Warrants are callable, 120 days
after the Closing Date, at the option of Lingo Media, in the event the Common
Shares of the Company trade at or over 50% above the strike price of the Warrant
for 10 consecutive trading days.





During
2008, the Company repaid loans in the amount of $783,620.  As at
December 31, 2008, A+ had a revolving line of credit outstanding in the amount
of $80,986 (2007 - $230,000) bearing interest at prime plus 4% per
annum.  This bank facility is secured by a general security agreement
and a short-term investment of $150,000.  The term of the revolving
line of credit requires that certain measurable covenants be met. As at December
31, 2008, the Company was in violation of certain covenants and the Company
subsequently paid down and closed the line of credit. The line of credit
outstanding at year end is presented as part of current liabilities of
discontinued operations.





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 $110,430 compared to $164,545 during 2007;
this amount includes a one time reduction of $45,000 based on anticipated
adjustment for a prior period grant.  During 2008, the Company was
audited by a government grant agency and was assessed with a repayment amount of
$115,075.  The Company believes their claim is unjust and is
vigorously disputing the assessment.  At the end of the year, a
provision of $45,000 has been recorded in general and administrative
expense.





The
Company plans on raising additional equity through private placements, as the
capital markets permit, in an effort to finance its growth plans into
international markets in addition to financing growth capital for the China
market.  The Company has been successful in raising sufficient working
capital in the past.





- 34
-




Fiscal Year Ended December
31, 2007





As at
December 31, 2007, the Company had cash on hand of $377,127 (2006 - $94,896),
and accounts and grants receivable of $958,179 (2006 - $278,803). The Company’s
total current assets amounted to $1,716,903 (2006 - $812,942) with current
liabilities of $1,508,698 (2006 - $1,160,069) resulting in a working capital
surplus of $208,206 (2006 - working capital deficiency of
$347,127).





During
the course of 2007, the Company received $775,000 through the exercise of stock
options. The Company secured loans  in the amount of $84,164 and it
repaid $nil of these loans in 2007, $340,000 of the loan proceeds were used to
fund the cash portion of the A+ acquisition. As at December 31, 2007, the
Company had one line of credit with a balance outstanding of $230,000. The bank
facility is secured by a General Security Agreement and the short-term
investment of $150,000.





The terms
of the revolving lines of credit require the Company to maintain certain
measurable covenants such as current ratio, debt to equity ratio and tangible
net worth.  As at December 31, 2007, the Company was in violation of all
these covenants. Financial statements reflect these facilities as current
liability. The Company plans to partially repay and reduce the facilities to an
acceptable amount funded through an equity financing.





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 either 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 2007 were $164,545 compared to $182,300 in
2006.  This represents a significant portion of the Company’s sources
of funds.





The terms
of the $230,000 revolving line of credit require that certain measurable
covenants be met.  As at December 31, 2007, the Company was in
violation of certain covenants, for which the lender subsequently provided a
written waiver stating that it will not demand repayment until April 30,
2008.  As the lines of credit are currently presented as a current
liability no additional adjustment is required.





The
Company plans on raising additional equity through private placements, as the
capital markets permit, in an effort to finance its growth plans in addition to
finance ongoing working capital needs resulting therefrom.  The
Company has been successful in raising sufficient working capital in the
past.





Fiscal Year Ended December
31, 2006





As at
December 31, 2006, the Company had cash on hand of $94,896 (2005 - $144,337),
and accounts and grants receivable of $278,803 (2005 - $488,303). The Company’s
total current assets amounted to $812,942 (2005 - $801,072) with current
liabilities of $1,160,069 (2005 - $523,320) resulting in a working capital
deficiency of $347,127 (2005 - working capital of $277,752).





During
the course of 2006, the Company received $66,679 through the exercise of stock
options. The Company secured loans  in the amount of $711,500 and it
repaid $465,887 of these loans in 2006, $340,000 of the loan proceeds were used
to fund the cash portion of the A+ acquisition. As at December 31, 2006, the
company had two lines of credit with a balance outstanding of $485,000. First
bank facility is secured by the accounts receivable from China, which in turn
are insured by the Export Development Corporation. Second bank facility is
secured by a General Security Agreement and the short-term investment of
$150,000.





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 either 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 2006 were $182,300 compared to $219,772 in
2005.  This represents a significant portion of the Company’s sources
of funds.





The
Company plans on raising additional equity through private placements, as the
capital markets permit, in an effort to finance its growth plans in addition to
finance ongoing working capital needs resulting therefrom.  The
Company has been successful in raising sufficient working capital in the
past.





- 35
-




Reconciliation of Canadian
and United States Generally Accepted Accounting Principles
("GAAP"):





Development
Costs


Under
Canadian GAAP, the Company capitalized costs related to English Language
Learning products and programs and amortizes these costs on a straight-line
basis over periods of up to five years. Under United States GAAP, these costs
are expensed as incurredper SFAS No. 2,
Researchand Development Costs.




Statement
of Comprehensive Income


SFAS No. 130, ReportingComprehensive Income ("SFAS 130"), establishes standards for the
reporting and disclosure of comprehensive income and its components in financial
statements.  Components of comprehensive income or loss include net
income or loss and all other changes in other non-owner changes in equity, such
as the change in the cumulative translation adjustment and the unrealized gain
or loss for the year on "available-for-sale" securities.  For all
periods presented, comprehensive loss is the same as loss for the year under US
GAAP.





Calculation of Loss for the
Year





The
consolidated financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") as applied in Canada.  In the
following respects, GAAP as applied in the United States differs from that
applied in Canada.





If United
States GAAP were employed, the loss in each year would be adjusted as
follows:





Expressed
      in Canadian Dollars
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006Loss
      for the year - Canadian GAAP
                        
                        $
                        (3,882,843
                        )
                        
                        $
                        (925,040
                        )
                        
                        $
                        (748,924
                        )Impact
      of US GAAP and adjustments:Amortization
      of development costs (a)
                        
                        
                        128,478
                        
                        
                        
                        99,805
                        
                        
                        
                        156,648Development
      cost write-off (a)
                        
                        
                        (218,795
                        )
                        
                        
                        -
                        
                        
                        
                        -Deferred
      cost write-off (b)
                        
                        
                        157,419
                        
                        
                        
                        -
                        
                        
                        
                        -Deferred
      cost expense (b)
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (40,316
                        )Software
      and web development cost (c)
                        
                        
                        (880,846
                        )
                        
                        
                        (4,352,341
                        )
                        
                        
                        -Loss
      for the year - United States GAAP
                        
                        $
                        (4,696,587
                        )
                        
                        $
                        (5,177,576
                        )
                        
                        $
                        (632,592
                        )




- 36
-




Calculation of Earnings per
Share:





Under
both US and Canadian GAAP, basic earnings per share are computed by dividing the
net income for the year available to common shareholders, as measured by the
respective accounting principles (numerator), by the weighted average number of
common shares outstanding during that year (denominator).  Basic
earnings per share exclude the dilutive effect of potential common
shares.





Diluted
earnings per share under Canadian GAAP and US GAAP give effect to all potential
common shares outstanding during the year. Potential common shares consist of
the incremental common shares issuable upon the exercise of stock options using
the treasury stock method.





The
following table reconciles the numerators and denominators of the basic and
diluted earnings per share under U.S. GAAP as required by SFAS 128:




Expressed
      in Canadian Dollars
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006Numerator
      for basic and diluted income (loss) per share:Income
      (loss) – US GAAP
                          
                          
                          (4,696,587
                          )
                          
                          
                          (5,177,576
                          )
                          
                          
                          (632,592
                          )Denominator
      for basic and diluted (loss) per share:Weighted
      average common shares
                          
                          
                          10,426,861
                          
                          
                          
                          5,655,792
                          
                          
                          
                          4,060,331Basic
      and diluted loss per share – US GAAP
                          
                          $
                          (0.45
                          )
                          
                          $
                          (0.92
                          )
                          
                          $
                          (0.16
                          )





5.E Research and
Development





During
the years ended December 31, 2008 and 2007, respectively, the Company expended
$880,846 and $4,352,341 on research and development, under the categories of
“development costs”, “software and web development costs” and “deferred
costs”.  These expenditures in 2008 and 2007 were primarily directed
at developing the Speak2Me products for the China market.





5.F Trend
Information





Lingo
Media believes that the trend in English language learning in China is strong
and growing.  The State Ministry of Education in China (“MOE”) is
expanding its mandate for the teaching of English learning programs to
students.    Although the outlook for learning English in
China remains positive, there can be no assurance that this trend will continue
or that the Company will benefit from this trend.





In
Canada, pre-school supplemental education market remains strong, there can be no
assurance that this trend will continue or that the Company will benefit from
this trend.





- 37
-




5.F
Tabular disclosure of contractual obligations




Our
obligations as of December 31, 2008, were as follows:


Expressed
in Canadian Dollars





Obligation
                                                
                                                Expiring
                                                
                                                BalanceEquipment
      Lease
                                                
                                                July
      31, 2012
                                                
                                                $
                                                53,005Rent
      in Canada
                                                
                                                February
      28, 2011
                                                
                                                $
                                                314,712





ITEM
6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES





6.A.  Directors
and Senior Management





Table
No. 6


Directors
and Senior Management


May
15, 2009




Name
                            
                            Position
                            
                            Age
                            
                            Date of First Election of
      AppointmentMichael
      P. Kraft
                            
                            President/CEO/Director
                            
                            45
                            
                            November
      1996Khurram
      R. Qureshi
                            
                            CFO/Secretary/Treasurer
                            
                            46
                            
                            April
      1997Scott
      Remborg
                            
                            Director
                            
                            59
                            
                            July
      2000Ashraf
      Halim
                            
                            Director
                            
                            43
                            
                            October
      2008Nereida
      Flannery
                            
                            Director
                            
                            37
                            
                            June
      2005Ashesh
      Shah
                            
                            Director
                            
                            40
                            
                            October
      2008Sanjay
      Joshi
                            
                            Director
                            
                            36
                            
                            October
      2007Anthony
      Lacavera
                            
                            Director
                            
                            34
                            
                            April
      2008


- 38
-




Michael P. Kraft is the
President & Chief Executive Officer of the Company since its inception in
1996. Mr. Kraft is also the Chairman of Buckingham Group Limited, a private
merchant banking corporation and President of MPK Inc., a private business
consulting corporation to both private and public corporations since 1994. He is
also a director of Pioneering Technology Inc. since July, a TSX Venture
listed company.  Mr. Kraft received a Bachelor of Arts in
Economics from York University in 1985.





Khurram R. Qureshi is the
Chief Financial Officer of the Company since 1997.  Mr. Qureshi is
also the Chief Financial Officer of Canadian Shield Resources Ltd. since
1997.  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.





Scott Remborg is an
independent consultant in Information Technology and eCommerce.  From 2001
to 2003, he was General Manager, eBusiness, at Air Canada. From 1994
to 1999, Mr. Remborg started up and led Sympatico, the
largest internet service and web portal in Canada.  Earlier
in his career he held senior management positions at Reuters and I.P. Sharp
Associates.  Mr. Remborg has an MBA and was educated at the BI
Norwegian School of Management in Oslo and the University of Alberta,
Canada.





Ashraf Halim has 20 years of
commercial and management experience of which 17 are in the telecom industry.
 He is currently responsible for Strategic Marketing for Orascom Telecom
Holding S.A.E., a role which encompasses market strategy, commercial budget,
pricing, products and services roadmap and research. In this capacity, Ashraf
spearheaded various successful key strategic commercial initiatives for OTH.
 Prior to joining Orascom Telecom Holding S.A.E., Ashraf held the position
of Marketing Deputy Director with the Egyptian Company for Mobile Services, and
several commercial positions with Lucent Technologies in both Egypt and the UK
where he was in charge of the GSM business development for Lucent in the Middle
East and Africa. Ashraf holds a BSc. in Engineering from Cairo
University.





Nereida Flannery is a
Partner and was co-founder of Beijing based The Balloch Group, one of
China's premier Investment Banks.  The firm today has 60 employees and
is involved with financing through public and private investments and M&A
advisory.  She focused on the firm's M&A business in particular in
natural resources and was responsible for heading teams that advised on some of
China's most important overseas acquisitions of late.   With over
13 years experience in China, Ms. Flannery previously was VP of
business development at Alibaba.com in Shanghai and was the General Manager of
the Canada China Business Counsel in China (CCBC).  Ms. Flannery has a
degree in Political Science from Queen's University and speaks Chinese, Greek
and French.





Ashesh Shah is an
entrepreneur and corporate advisor who enjoys the dynamic process of taking
concepts from “ideation” to commercialization. Mr. Shah co-founded InterMedia
Interactive Software in 1991, a firm specializing in consumer-focused education
CD-ROM titles. From 1998 to 2004, Mr. Shah built several internet-focused firms
targeting healthcare and “clicks and mortar” clients. From 2004-2007, Mr. Shah
served as a General Partner with the DCP Group, a boutique consulting firm
specializing in cross-border advisory services designed to assist
education-market clients in evaluating market opportunities, and building
relationship networks to accelerate their success in international markets.
Currently, Ashesh is actively pursuing several entrepreneurial activities that
leverage his cross-cultural and technology expertise. He serves as the CEO of
Maxx Medical.





Sanjay Joshi is a partner
with WeirFoulds LLP in Toronto and practices corporate and securities law, with
an emphasis on financing transactions. He obtained his LL.B. degree from Queen's
University in 1999. Mr. Joshi represents agents and issuers active in the
Canadian and US public markets. He advises Canadian investment dealers, limited
market dealers and merchant banks as well as listed issuers in the natural
resource, new-media and telecommunications sectors. Mr. Joshi sits on the board,
and is Chair of the Audit Committee, for numerous companies, both public and
private. He is called to the Bar in Ontario and British Columbia.





Anthony Lacavera co-founded
Globalive Communications Corp. in 1998, becoming President and Chief Executive
Officer in 1999. Mr. Lacavera also serves as co-founder and Chairman of several
of Globalive’s present and past portfolio companies, including Enunciate
Conferencing, OneConnect Services, Cohere Conferencing, Cellwand Communications,
and most recently as the initial director and principal executive officer of Yak
Communications (NASDAQ: YAKC) acquired by Globalive in November 2006. Mr.
Lacavera received a B.A.Sc. (Honours) in Computer Engineering from the
University of Toronto in 1997.





- 39
-




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
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 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





ANNUAL
      COMPENSATION
              LONG-TERM
      COMPENSATIONAwards
              Payouts(NEO)
                Name
      and
                Principal
                Position
              Year
              Salary
                ($)
              Bonus
                ($)
              Other
                Annual
                Compen-sation(1)
                ($)
              Securities
                Under
                Options/
                SARs
                Granted(2)
                (#)
              Restricted
                Shares
      or
                Restricted
                Share
                Units
                ($)
              LTIP(3)
                Payouts
                ($)
              All
      Other
                Compen-
                sation
                ($)Michael
      P. Kraft (4)
                President
      & CEO
              2008
                2007
                2006
              180,000
                120,000
                122,500
              Nil
                Nil
                Nil
              Nil
                Nil
                Nil
              Nil
                142,857
                Nil
              Nil
                Nil
                Nil
              Nil
                Nil
                Nil
              Nil
                Nil
                NilKhurram
      R. Qureshi
                Chief
      Financial Officer
              2008
                2007
                2006
              101,750
                42,942
                96,000
              Nil
                Nil
                Nil
              Nil
                Nil
                Nil
              Nil
                71,429
                Nil
              Nil
                Nil
                Nil
              Nil
                Nil
                Nil
              Nil
                Nil
                Nil





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)
            "SAR" or "stock appreciation
      right" means a right granted by the Company, as compensation for
      services rendered, to receive a payment of cash or an issue or transfer of
      securities based wholly or in part on changes in the trading price of
      publicly traded securities of the
Company.


(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)
            Paid
      by Lingo Learning Inc., a wholly-owned subsidiary of the Company, to MPK
      Inc., a company controlled by Mr. Kraft.  See “Management
      Agreement".




- 40
-




Management
Agreement The Company entered into a consulting agreement ("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.





The
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 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 plan and
life insurance policy, the Consulting Agreement also provides for an automobile
allowance of $1,500 per month.





The
Consultant may terminate the 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 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 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 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
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
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-complete period following the
termination of the Consulting Agreement. MPK Inc. is a corporation
controlled by Michael P. Kraft, the President & Chief Executive Officer of
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 receive a fee of $250 for each board meeting and for each committee
meeting attended. Directors 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.  The Company has no plans or
arrangements in respect of remuneration received or that may be received by
Executive Officers of the Company in Fiscal 2008 to compensate such officers in
the event of termination of employment (as a result of resignation, retirement,
change of control) or a change of responsibilities following a change of
control, where the value of such compensation exceeds US$60,000 per Executive
Officer.





- 41
-




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 2008 to provide pension, retirement or similar benefits for
Directors or Executive Officers.





6.C.  Board
Practices





6.C.1.  Terms
of Office.





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.





6.C.2.
Termination benefits





Not
applicable





6.C.3.  Board of
Director Committees.





The
Company has four committees: Audit Committee, Compensation Committee and
Corporate Governance Committee.





The Audit
Committee recommends to the Board of Directors the engagement of the independent
auditors of the Company and reviews with the independent auditors the scope and
results of the Company’s audits, the Company’s internal accounting controls, and
the professional services furnished by the independent auditors to the
Company.  The current members of the Audit Committee are: Scott
Remborg, Michael P. Kraft and Sanjay Joshi.





The
Compensation Committee establishes and modifies compensation and incentive plans
and programs, and reviews and approves compensation and awards under
compensation and incentive plans and programs for elected officers of the
Company. The current members of the Compensation Committee are: Michael P.
Kraft, Anthony Lacavera and Ashesh Shah.





The
Corporate Governance Committee was established to assist 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
Code of Conduct.  The current members of the Corporate Governance
Committee are Sanjay Joshi and Michael P. Kraft.





- 42
-




6.E.  Share
Ownership





Table No.
7 lists, as of May 15, 2009, 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 of
      Class
                            
                            Name of Beneficial
      Owner
                            
                            Amount
      and Nature of Beneficial Ownership
(1)
                            
                            Percent of
      ClassCommon
                            
                            Michael
      P. Kraft(2)(3)(4)
                            
                            963,235(5)
                            
                            7.73%Common
                            
                            Scott
      Remborg(2
                            
                            154,372(6)
                            
                            1.24%Common
                            
                            Khurram
      Qureshi
                            
                            129,490(10)
                            
                            1.04%Common
                            
                            Ashraf
      Halim
                            
                            [nil](8)
                            
                            *Common
                            
                            Nereida
      Flannery
                            
                            [nil](7)
                            
                            *Common
                            
                            Ashesh
      Shah(3)
                            
                            3,000(9)
                            
                            *Common
                            
                            Sanjay
      Joshi(2)(4)
                            
                            [nil](12)
                            
                            *Common
                            
                            Anthony
      Lacavera
                            
                            403,220(11)
                            
                            3.24%As a group (8 parties)
                            
                            
                            
                            1,653,317
                            
                            13.27%




*  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, 71,636 are held in Mr. Kraft's RRSP, and 891,599 are held by
      Buckingham Group Limited, a company controlled by Mr.
      Kraft.  Mr. Kraft also holds options to purchase up to an
      additional 195,715 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 73,607 common shares of
      the Company.


(7)
            Ms.
      Flannery also holds options to purchase up to an additional 62,893 common
      shares of the Company.


(8)
            Ashraf
      Halim also holds options to purchase up to an additional 20,000 common
      shares of the Company.


(9)
            Ashesh
      Shah also holds options to purchase up to an additional 22,500 common
      shares of the Company.


(10)
            Of
      such shares, 38,606 shares are held in his wife’s RRSP, 9,819 in his
      wife’s name and 7,750 are held in Mr. Qureshi’s RRSP.  Mr.
      Qureshi also holds options to purchase up to an additional 54,486 common
      shares of the Company.


(11)
            Of
      such shares, 274,820 shares are held in 425243Ontario Inc. and 108,400 in
      AAL Telecom Holdings Inc., both wholly owned holding companies of Mr.
      Lacavera.  425243 Ontario Inc. also holds 30,125 warrants to
      purchase up to an additional 30,125 common shares in the
      Company.  Mr. Lacavera also holds options to purchase up to an
      additional 30,000 common shares of the
Company.


(12)
            Sanjay
      Joshi also holds options to purchase up to an additional 33,250 common
      shares of the Company.




- 43
-




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.





- 44
-




Company Stock Option
Plan





A new
stock option plan (the "2005
Plan") was adopted by the board of directors in May 30, 2005 and approved
by the shareholders of the Company at the annual and special Meeting of
shareholders on June 30, 2005 to encourage ownership of common shares by
directors, officers, employees and consultants of the Company. The number of
shares which may be reserved for issuance under the 2005 Plan is limited to
5,421,342 common shares, representing approximately 20% of the issued and
outstanding common shares of the Company as at June 30, 2005, less the number of
shares reserved for issuance pursuant to options previously
granted.





Options
may be granted under the 2005 Plan only to directors, officers, employees,
consultants of the Company and its subsidiaries and personal holding
corporations controlled by a director or officer of the Company and its
subsidiaries as designated from time to time by the board of directors of the
Company.  The maximum number of common shares which may be reserved
for issuance to any one person under the 2005 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 granted as a compensation or incentive
mechanism.  Any shares subject to an option granted under the 2005
Plan that for any reason is cancelled or terminated prior to exercise will be
available for a subsequent grant under the 2005 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 granted under the 2005 Plan may be
exercised during a period not exceeding five 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 an
of its subsidiaries, as applicable, or upon the optionee retiring, becoming
permanently disabled or dying.  Options granted to optionees vest over
an 18 month period with no greater than 16.67% of any options granted to an
optionee vesting in any three month period or such longer period as the board
may determine.  The options under the 2005 Plan are
non-transferable.  The 2005 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.





The 2005
Plan provides that the Company may provide financial assistance in respect of
options granted under the 2005 Plan by means of loans to
optionees.  Under the terms of the 2005 Plan, the Company may, but is
not obligated to, loan to an optionee the funds required to exercise any
particular option.  The 2005 Plan provides that any such loan will be
for a term not exceeding 10 years and will be non-interest
bearing.  Any such loan will be repayable at maturity or upon the
death of the optionee or earlier in certain other circumstances.  Any
loans made under the 2005 Plan are to be secured by a pledge of the shares
acquired upon the exercise of the option exercised being funded to a trustee for
such purposes.  In the event that any loan amount is not fully repaid
when due the trustee holding the pledged shares is entitled to realize on the
shares being held by it as security for the loan.  Loans made under
the 2005 Plan are made on a full recourse basis.  The 2005 Plan
provides that any shares acquired pursuant to loans made under the 2005 Plan may
be sold by the optionee from time to time provided that an amount equal to the
aggregate option exercise price or the balance of the loan is applied in
repayment of the loan.  Any financial assistance so provided under the
2005 Plan will be subject to and made in accordance with all applicable laws and
regulatory policies at the time of making the loan.





On July
5, 2006 and October 5, 2007, the Company's shareholders ratified and approved an
increase in the number of common shares eligible to be issued under the
Company's 2005 Plan to approximately 20% of the issued and outstanding common
shares as at the date of the respective shareholders
meetings.  Currently the 2005 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 6,558,820, which
number represented approximately 20% of the 32,794,102 issued and outstanding as
at the Company’s last Annual and Special Meeting held on October 5, 2007 (“2007 Shareholder’s
Meeting”).





At the
2007 Shareholder’s Meeting, the Company's shareholders also approved a
consolidation of the Company's issued share capital on the basis of one (1) new
for seven (7) old common shares (the "Consolidation"). As a result,
the number of common shares eligible to be issued under the Company's 2005 Plan
was also reduced on a one (1) for seven (7) basis.





Currently,
the 2005 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 1,920,000, which number represents approximately 20%
of the issued and outstanding common shares of the Company as at the Company’s
last Annual and Special Meeting held on October 14,
2008.  .





As of the
date hereof, options to purchase an aggregate of 1,250,369 common shares are
outstanding under the 2005 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 May 15, 2009, as
well as the number of options granted to Directors and officers as a
group.





- 45
-




Stock
Options Outstanding


Expressed
in Canadian Dollars





Name
                              
                              CommonStock
                              
                              
                              ExercisePrice
                              
                              GrantDate
                              
                              ExpirationDateKhurram
      Qureshi
                              
                              
                              2,000
                              
                              
                              $
                              1.33
                              
                              10/5/04
                              
                              10/5/09Khurram
      Qureshi
                              
                              
                              52,486
                              
                              
                              $
                              0.70
                              
                              2/14/07
                              
                              2/14/12Michael
      Kraft
                              
                              
                              10,714
                              
                              
                              $
                              1.33
                              
                              10/5/04
                              
                              10/5/09Michael
      Kraft
                              
                              
                              42,143
                              
                              
                              $
                              1.33
                              
                              1/14/05
                              
                              1/14/10Michael
      Kraft
                              
                              
                              142,857
                              
                              
                              $
                              0.70
                              
                              2/14/07
                              
                              2/14/12Nereida
      Flannery
                              
                              
                              10,714
                              
                              
                              $
                              1.47
                              
                              10/17/05
                              
                              10/17/10Nereida
      Flannery
                              
                              
                              21,429
                              
                              
                              $
                              0.84
                              
                              5/22/07
                              
                              5/22/12Nereida
      Flannery
                              
                              
                              30,750
                              
                              
                              $
                              1.75
                              
                              05/01/09
                              
                              05/01/14Scott
      Remborg
                              
                              
                              10,714
                              
                              
                              $
                              1.33
                              
                              10/5/04
                              
                              10/5/09Scott
      Remborg
                              
                              
                              10,714
                              
                              
                              $
                              1.47
                              
                              10/17/05
                              
                              10/17/10Scott
      Remborg
                              
                              
                              21,429
                              
                              
                              $
                              0.84
                              
                              5/22/07
                              
                              5/22/12Scott
      Remborg
                              
                              
                              30,750
                              
                              
                              $
                              1.75
                              
                              05/01/09
                              
                              05/01/14Sanjay
      Joshi
                              
                              
                              33,250
                              
                              
                              $
                              1.75
                              
                              05/01/09
                              
                              05/01/14Anthony
      Lacavera
                              
                              
                              30,000
                              
                              
                              $
                              1.75
                              
                              05/01/09
                              
                              05/01/14Ashraf
      Halim
                              
                              
                              20,000
                              
                              
                              $
                              1.75
                              
                              05/01/09
                              
                              05/01/14Ashesh
      Shah
                              
                              
                              22,500
                              
                              
                              $
                              1.75
                              
                              05/01/09
                              
                              05/01/14Total
      Officers/Directors
                              
                              
                              492,450





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.





The
participation in private placements of equity by the Company and exercise of
stock options/share purchase warrants has lead over the last several years to
some significant changes in the holdings of major shareholders; table reflects
direct/indirect holdings of common shares, refer to Table No. 7 for additional
information.




Shares
    Owned
                              
                              
                              Shares
    Owned
                              
                              
                              Shares
    Owned12/31/2008
                              
                              
                              12/31/2007
                              
                              
                              12/31/2006Michael
      P. Kraft
                              
                              
                              963,235
                              
                              
                              
                              1,450,102
                              
                              
                              
                              495,450





- 46
-




7.A.2.  Canadian
Share Ownership. On May 15, 2009, the Company’s registered shareholders’
list showed 12,457,607 common shares outstanding with 36 registered
shareholders, with 9,048,735 owned by 27 shareholders residing in Canada, 11,714
shares owned by 3 registered shareholders in US and 3,397,158 shares owned by 6
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





Michael P. Kraft,
President/CEO/Director





Mr. Kraft
is compensated indirectly through MPK Inc., as discussed in ITEM
#6.B.





Funds Owed to
Officers/Directors





Officers/Directors
have lent the Company funds during the last several years to alleviate the
corporate need for working capital.





Interest Payable to
Officers/Directors





Officers/Directors
have lent the Company funds during the last several years to alleviate the
corporate need for working capital.  Officer/Director loans bear
interest at 12% per annum interest payable totaled:





From
January 2007 through May 2007, LMK Inc., a company controlled by the wife of
Michael P. Kraft, MPK Inc., loaned the Company an aggregate of $182,000. These
loans bore interest at 12% per annum.  These loans were repaid in full
during 2008.





From
January 2008 through October 2008, LMK Inc., a company controlled by the wife of
Michael P. Kraft, loaned the Company an aggregate of $60,000. These loans bore
interest at 12% per annum.  At May 15, 2009, $nil was outstanding
related to these loans.





Other
than as disclosed above, there have been no transactions since December 31,
2008, 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.





- 47
-




ITEM 8.  FINANCIAL
INFORMATION





8.A.  Consolidated
Statements and Other Financial Information


The
Company's financial statements are stated in Canadian Dollars (CDN$) and are
prepared in accordance with Canadian Generally Accepted Accounting Principles
(GAAP), the application of which, in the case of the Company, conforms in all
material respects for the periods presented with United States GAAP, except as
discussed in footnotes to the financial statements.





The
financial statements as required under ITEM #17 are attached hereto and found
immediately following the text of this Annual Report.  The audit
reports of Collins Barrow Toronto LLP, Chartered Accountants, and Meyers, Norris
Penny, LLP are included herein immediately preceding the financial statements
and schedules.





Audited
Financial Statements for Fiscal 2008 and Fiscal 2007





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.




- 48
-




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.





- 49
-




Table
No. 9


TSX
Venture Exchange


Common
Shares Trading Activity




Sales
      -- Canadian DollarsPeriod
      Ended
                      
                      Volume
                      
                      
                      High
                      
                      
                      Low
                      
                      
                      CloseMonthlyApril
      2009
                      
                      
                      146,260
                      
                      
                      
                      1.19
                      
                      
                      
                      0.66
                      
                      
                      
                      0.88March
      2009
                      
                      
                      84,529
                      
                      
                      
                      0.98
                      
                      
                      
                      0.62
                      
                      
                      
                      0.90February
      2009
                      
                      
                      81,167
                      
                      
                      
                      1.05
                      
                      
                      
                      0.76
                      
                      
                      
                      0.95January
      2009
                      
                      
                      79,810
                      
                      
                      
                      1.05
                      
                      
                      
                      0.80
                      
                      
                      
                      1.05December
      2008
                      
                      
                      72,292
                      
                      
                      
                      1.19
                      
                      
                      
                      0.55
                      
                      
                      
                      1.19November
      2008
                      
                      
                      113,424
                      
                      
                      
                      1.46
                      
                      
                      
                      0.90
                      
                      
                      
                      1.19October
      2008
                      
                      
                      175,409
                      
                      
                      
                      1.71
                      
                      
                      
                      0.85
                      
                      
                      
                      1.18September
      2008
                      
                      
                      165,208
                      
                      
                      
                      1.90
                      
                      
                      
                      1.36
                      
                      
                      
                      1.70August
      2008
                      
                      
                      85,205
                      
                      
                      
                      1.92
                      
                      
                      
                      1.58
                      
                      
                      
                      1.92July
      2008
                      
                      
                      196,945
                      
                      
                      
                      1.87
                      
                      
                      
                      1.60
                      
                      
                      
                      1.79June
      2008
                      
                      
                      185,323
                      
                      
                      
                      1.97
                      
                      
                      
                      1.70
                      
                      
                      
                      1.85May
      2008
                      
                      
                      118,497
                      
                      
                      
                      2.00
                      
                      
                      
                      1.00
                      
                      
                      
                      1.85




Quarterly03/31/2009
                  
                  
                  245,506
                  
                  
                  
                  1.05
                  
                  
                  
                  0.62
                  
                  
                  
                  0.9012/31/2008
                  
                  
                  361,125
                  
                  
                  
                  1.71
                  
                  
                  
                  0.55
                  
                  
                  
                  1.1909/30/2008
                  
                  
                  447,358
                  
                  
                  
                  1.92
                  
                  
                  
                  1.36
                  
                  
                  
                  1.7006/30/2008
                  
                  
                  542,301
                  
                  
                  
                  2.20
                  
                  
                  
                  1.62
                  
                  
                  
                  1.853/31/2008
                  
                  
                  463,600
                  
                  
                  
                  1.83
                  
                  
                  
                  0.85
                  
                  
                  
                  1.8112/31/2007
                  
                  
                  161,557
                  
                  
                  
                  1.39
                  
                  
                  
                  1.19
                  
                  
                  
                  1.199/30/2007
                  
                  
                  401,886
                  
                  
                  
                  1.40
                  
                  
                  
                  1.05
                  
                  
                  
                  1.196/30/2007
                  
                  
                  294,400
                  
                  
                  
                  1.19
                  
                  
                  
                  0.84
                  
                  
                  
                  1.053/31/2007
                  
                  
                  72,291
                  
                  
                  
                  1.155
                  
                  
                  
                  0.63
                  
                  
                  
                  0.87512/31/2006
                  
                  
                  128,088
                  
                  
                  
                  1.365
                  
                  
                  
                  0.70
                  
                  
                  
                  1.1559/30/2006
                  
                  
                  123,945
                  
                  
                  
                  1.47
                  
                  
                  
                  0.84
                  
                  
                  
                  1.3656/30/2006
                  
                  
                  187,668
                  
                  
                  
                  1.12
                  
                  
                  
                  0.49
                  
                  
                  
                  1.053/31/2006
                  
                  
                  226,664
                  
                  
                  
                  1.33
                  
                  
                  
                  0.77
                  
                  
                  
                  1.0512/31/2005
                  
                  
                  83,509
                  
                  
                  
                  1.54
                  
                  
                  
                  0.77
                  
                  
                  
                  1.199/30/2005
                  
                  
                  216,388
                  
                  
                  
                  1.855
                  
                  
                  
                  0.77
                  
                  
                  
                  1.5756/30/2005
                  
                  
                  142,287
                  
                  
                  
                  1.575
                  
                  
                  
                  0.84
                  
                  
                  
                  1.333/31/2005
                  
                  
                  255,582
                  
                  
                  
                  2.275
                  
                  
                  
                  1.26
                  
                  
                  
                  1.26




Yearly12/31/2008
                  
                  
                  1,494,984
                  
                  
                  
                  2.20
                  
                  
                  
                  0.55
                  
                  
                  
                  1.1912/31/2007
                  
                  
                  930,134
                  
                  
                  
                  1.50
                  
                  
                  
                  0.63
                  
                  
                  
                  1.1912/31/2006
                  
                  
                  666,365
                  
                  
                  
                  1.47
                  
                  
                  
                  0.49
                  
                  
                  
                  1.15512/31/2005
                  
                  
                  697,765
                  
                  
                  
                  2.275
                  
                  
                  
                  0.77
                  
                  
                  
                  1.1912/31/2004
                  
                  
                  1,497,789
                  
                  
                  
                  2.03
                  
                  
                  
                  1.89
                  
                  
                  
                  1.96




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





- 50
-




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






Sales --
      US DollarsPeriod
      Ended
                                          
                                          Volume
                                          
                                          
                                          High
                                          
                                          
                                          Low
                                          
                                          
                                          CloseMonthlyApril
      2009
                                          
                                          
                                          10,367
                                          
                                          
                                          
                                          0.90
                                          
                                          
                                          
                                          0.51
                                          
                                          
                                          
                                          0.70March
      2009
                                          
                                          
                                          7,123
                                          
                                          
                                          
                                          1.00
                                          
                                          
                                          
                                          0.60
                                          
                                          
                                          
                                          0.90February
      2009
                                          
                                          
                                          13,170
                                          
                                          
                                          
                                          1.00
                                          
                                          
                                          
                                          0.62
                                          
                                          
                                          
                                          0.75January
      2009
                                          
                                          
                                          100
                                          
                                          
                                          
                                          1.00
                                          
                                          
                                          
                                          1.00
                                          
                                          
                                          
                                          1.00December
      2008
                                          
                                          
                                          11,600
                                          
                                          
                                          
                                          1.24
                                          
                                          
                                          
                                          0.61
                                          
                                          
                                          
                                          0.75November
      2008
                                          
                                          
                                          18,657
                                          
                                          
                                          
                                          1.30
                                          
                                          
                                          
                                          0.80
                                          
                                          
                                          
                                          1.25October
      2008
                                          
                                          
                                          36,784
                                          
                                          
                                          
                                          1.58
                                          
                                          
                                          
                                          0.65
                                          
                                          
                                          
                                          1.00September
      2008
                                          
                                          
                                          175,908
                                          
                                          
                                          
                                          1.85
                                          
                                          
                                          
                                          1.30
                                          
                                          
                                          
                                          1.85August
      2008
                                          
                                          
                                          51,524
                                          
                                          
                                          
                                          1.80
                                          
                                          
                                          
                                          1.60
                                          
                                          
                                          
                                          1.80July
      2008
                                          
                                          
                                          51,309
                                          
                                          
                                          
                                          1.85
                                          
                                          
                                          
                                          1.55
                                          
                                          
                                          
                                          1.74June
      2008
                                          
                                          
                                          15,300
                                          
                                          
                                          
                                          1.90
                                          
                                          
                                          
                                          1.66
                                          
                                          
                                          
                                          1.86May
      2008
                                          
                                          
                                          33,300
                                          
                                          
                                          
                                          2.00
                                          
                                          
                                          
                                          1.00
                                          
                                          
                                          
                                          1.85




Quarterly03/31/2009
                  
                  
                  20,393
                  
                  
                  
                  1.00
                  
                  
                  
                  0.60
                  
                  
                  
                  0.9012/31/2008
                  
                  
                  67,041
                  
                  
                  
                  1.58
                  
                  
                  
                  0.61
                  
                  
                  
                  1.2409/30/2008
                  
                  
                  278,741
                  
                  
                  
                  1.85
                  
                  
                  
                  1.30
                  
                  
                  
                  1.8506/30/2008
                  
                  
                  58,200
                  
                  
                  
                  2.00
                  
                  
                  
                  1.00
                  
                  
                  
                  1.853/31/2008
                  
                  
                  144,200
                  
                  
                  
                  1.79
                  
                  
                  
                  0.71
                  
                  
                  
                  1.7912/31/2007
                  
                  
                  37,089
                  
                  
                  
                  1.40
                  
                  
                  
                  0.77
                  
                  
                  
                  1.229/30/2007
                  
                  
                  62,944
                  
                  
                  
                  1.40
                  
                  
                  
                  0.77
                  
                  
                  
                  1.336/30/2007
                  
                  
                  78,952
                  
                  
                  
                  1.19
                  
                  
                  
                  0.70
                  
                  
                  
                  0.913/31/2007
                  
                  
                  47689
                  
                  
                  
                  2.10
                  
                  
                  
                  0.35
                  
                  
                  
                  0.8412/31/2006
                  
                  
                  76626
                  
                  
                  
                  4.06
                  
                  
                  
                  0.63
                  
                  
                  
                  1.1769/30/2006
                  
                  
                  128421
                  
                  
                  
                  2.66
                  
                  
                  
                  0.63
                  
                  
                  
                  1.2886/30/2006
                  
                  
                  143740
                  
                  
                  
                  1.19
                  
                  
                  
                  0.41
                  
                  
                  
                  1.013/31/2006
                  
                  
                  144133
                  
                  
                  
                  1.33
                  
                  
                  
                  0.7
                  
                  
                  
                  0.9112/31/2005
                  
                  
                  12106
                  
                  
                  
                  1.39
                  
                  
                  
                  0.56
                  
                  
                  
                  0.8059/30/2005
                  
                  
                  36046
                  
                  
                  
                  1.68
                  
                  
                  
                  0.525
                  
                  
                  
                  1.266/30/2005
                  
                  
                  65326
                  
                  
                  
                  1.27
                  
                  
                  
                  0.735
                  
                  
                  
                  0.983/31/2005
                  
                  
                  62985
                  
                  
                  
                  1.89
                  
                  
                  
                  0.98
                  
                  
                  
                  1.26




Yearly12/31/2008
                  
                  
                  867,582
                  
                  
                  
                  2.00
                  
                  
                  
                  0.61
                  
                  
                  
                  1.2412/31/2007
                  
                  
                  245,718
                  
                  
                  
                  1.40
                  
                  
                  
                  0.21
                  
                  
                  
                  1.2212/31/2006
                  
                  
                  492,923
                  
                  
                  
                  5.80
                  
                  
                  
                  0.406
                  
                  
                  
                  1.17612/31/2005
                  
                  
                  219,321
                  
                  
                  
                  1.89
                  
                  
                  
                  0.525
                  
                  
                  
                  0.80512/31/2004
                  
                  
                  778,080
                  
                  
                  
                  3.57
                  
                  
                  
                  0.84
                  
                  
                  
                  1.61




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.





- 51
-




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.





- 52
-




Delegati on 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:





1)
            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.




- 53
-




2)
            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.





3)
            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.





4)
            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.




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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.


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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 Customs and
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.





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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.





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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.





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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.





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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.





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Item 11.QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK





Foreign
Currency Risk





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
                    
                    
                    USDAt
      12/31/08
                    
                    
                    
                    -5%
                    
                    
                    
                    -
      10%
                    
                    
                    
                    -
      15%Year-end
      exchange rate for 1 RMB to USD
                    
                    
                    
                    
                    
                    0.1466
                    
                    
                    
                    0.1393
                    
                    
                    
                    0.1319
                    
                    
                    
                    0.1246Annual
      co-publishing revenue from China
                    
                    
                    6,269,713
                    
                    
                    
                    919,140
                    
                    
                    
                    873,183
                    
                    
                    
                    827,226
                    
                    
                    
                    781,269Accounts
      receivable
                    
                    
                    4,016,308
                    
                    
                    
                    588,791
                    
                    
                    
                    559,351
                    
                    
                    
                    529,912
                    
                    
                    
                    500,472USD
                    
                    
                    CDN
                    
                    
                    CDN
                    
                    
                    CDN
                    
                    
                    CDNYear
      2008
                    
                    
                    
                    +
      5%
                    
                    
                    
                    -
      5%
                    
                    
                    
                    -
      10%Average
      annual exchange rate for 1 USD to CDN
                    
                    
                    
                    
                    
                    
                    1.0660
                    
                    
                    
                    1.1193
                    
                    
                    
                    1.0127
                    
                    
                    
                    0.9594Annual
      co-publishing revenue from China
                    
                    
                    907,981
                    
                    
                    
                    967,908
                    
                    
                    
                    1,016,303
                    
                    
                    
                    919,512
                    
                    
                    
                    871,117USD
                    
                    
                    CDN
                    
                    
                    CDN
                    
                    
                    CDN
                    
                    
                    CDNAt
      12/31/08
                    
                    
                    
                    +
      5%
                    
                    
                    
                    -
      5%
                    
                    
                    
                    -
      10%Year-end
      exchange rate for 1 USD to CDN
                    
                    
                    
                    
                    
                    
                    1.2180
                    
                    
                    
                    1.2789
                    
                    
                    
                    1.1571
                    
                    
                    
                    1.0962Cash
                    
                    
                    284,286
                    
                    
                    
                    346,260
                    
                    
                    
                    363,573
                    
                    
                    
                    328,947
                    
                    
                    
                    311,634Accounts
      receivable
                    
                    
                    500,383
                    
                    
                    
                    609,466
                    
                    
                    
                    639,940
                    
                    
                    
                    578,993
                    
                    
                    
                    548,520Accounts
      payable
                    
                    
                    50,000
                    
                    
                    
                    60,900
                    
                    
                    
                    63,945
                    
                    
                    
                    57,855
                    
                    
                    
                    54,810





Item 12.DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES





Not
Applicable





- 61
-




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.   Within
the 90-day period prior to the filing of 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.





Changes
in Accounting Policies Including Initial Adoption





Effective
January 1, 2008, the Company has adopted the following Sections issued or
amended by the CICA:


Section
1400, General Standards of Financial Statement Presentation


Section
1535, Capital Disclosures


Section
3031, Inventories


Section
3862, Financial Instruments Disclosures


Section
3863, Financial Instruments Presentation





Adoption
of these new accounting standards has no material impact on the amounts reported
in the Company’s financial statements as most of them relate primarily to
disclosure.





Adoption
of International Financial Reporting Standards





In
January 2006, the Accounting Standards Board announced its decision to require
all publicly accountable enterprises to report under International Financial
Reporting Standards (“IFRS”) for years beginning on or after January 1, 2011.
These changes reflect a global shift to IFRS and they are intended to facilitate
capital flows and bring greater clarity and consistency to financial reporting
in the global marketplace. The Company is in the process of completing the
scoping phase of its conversion plan which has a timeline for assessing
resources and training, analyzing key differences, and selecting accounting
policies under IFRS.





- 62
-




Policies
and Procedures





The
Company did not maintain a complete set of policies and procedures governing
decision and authorization processes. As such, reliance was placed on
management’s substantive review of period end balances, transactions recorded in
each period, scrutiny of business activity and centralized cash management to
detect errors and ensure the financial statements do not contain material
misstatements. The Company assigned dedicated staff to formulate a plan, using a
generally recognized framework, to document key processes and controls, and
initiated the creation of a comprehensive set of policies and procedures. The
completion of documentation and implementation of the initiative will continue
in 2008.





Segregation
of Duties





Due to
resource constraints, the Company is reliant on the performance of compensating
procedures during its financial period-end closing process in order to ensure
that the financial statements are presented fairly and accurately, in all
material respects. Additional compensating control procedures have been
performed in the preparation of our financial statements to ensure their
reliability.





These
Compensating Controls Include:





·
            Review
      of all balances and
reconciliations;


·
            Review
      of bank registers and disbursement details in risk locations;
      and


·
            Analytical
      review and analysis of performance against
  expectations.





During
2008, the Company enhanced internal controls over financial reporting by
introducing the following additional changes:





·
            Improved
      budgetary controls; and


·
            Strengthened
      technical expertise in the accounting and finance areas of the
      organization





15.B.   There
have been no significant changes in the Company's internal controls or the
occurrence of events or other factors that could significantly affect these
controls, subsequent to the Date of Evaluation.





ITEM
16.  RESERVED




- 63
-




PART
III





ITEM
17.  FINANCIAL STATEMENTS





The
Company's financial statements are stated in Canadian Dollars (CDN$) and are
prepared in accordance with Canadian Generally Accepted Accounting Principles
(GAAP), the application of which, in the case of the Company, conforms in all
material respects for the periods presented with United States GAAP, except as
discussed in footnotes to the financial statements.





The
financial statements as required under ITEM #17 are attached hereto as
exhibits.  The audit reports of Meyers Norris Penny LLP and Collins
Barrow Toronto LLP are included herein immediately preceding the financial
statements and schedules.





Audited Financial
Statements





Auditor's
Report, dated April 14, 2009





Consolidated
Balance Sheets at December 31, 2008 and December 31, 2007





Consolidated
Statements of Operations and Deficit for the years ended December 31, 2008,
December 31, 2007 and December 31, 2006





Consolidated
Statements of Cash Flows for the years ended December 31, 2008, December 31,
2007 and December 31, 2006





Notes to
Financial Statements





ITEM
18.  FINANCIAL STATEMENTS





The
Company has elected to provide financial statements pursuant to ITEM
#17.





ITEM
19.  EXHIBITS





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





2.  Instruments
defining the rights of holders of equity or debt securities being registered
incorporated by reference from the Lingo Media Inc. F-1 Registration Statement
filed August 20, 2002.





- 64
-






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
      CORPORATIONMay
      15, 2009
                      By:
                      /s/
      Michael P. KraftMichael
      P. KraftPresident
      and Chief Executive OfficerBy:
                      /s/
      Khurrum R. QureshiKhurrum
      R. QureshiChief
      Financial Officer






65