EXHIBIT
2








Consolidated
Financial Statements
 (Expressed
in Canadian dollars)
 
 LINGO
MEDIA CORPORATION
 December
31, 2008 and 2007
      1
  LINGO
MEDIA CORPORATION
 December
31, 2008 and 2007
 (Expressed
in Canadian dollars)
  CONTENTSPageStatement
      of Management’s Responsibility
                  3Auditors’
      Report
                  4Consolidated
      Balance Sheets
                  6Consolidated
      Statements of Deficit
                  7Consolidated
      Statements of
      Operations
                  8Consolidated
      Statements of Cash Flows
                  9Notes
      to Consolidated Financial Statements
                  10
 2
  Management’s
Responsibility
  To the
Shareholders of Lingo Media Corporation:
  Management
is responsible for the preparation and presentation of the accompanying
consolidated financial statements, including responsibility for significant
accountingjudgments
and estimates in accordance with Canadian generally accepted accounting
principles and ensuring that all information in the Management Discussion &
Analysis is consistent with the statements.  This responsibility
includes selecting appropriate accounting principles and methods, and making
decisions affecting the measurement of transactions in which objective judgment
is required.
  In
discharging its responsibilities for the integrity and fairness of the
consolidated financial statements, management designs and maintains the
necessary accounting systems and related internal controls to provide reasonable
assurance that transactions are authorized, assets are safeguarded and financial
records are properly maintained to provide reliable information for the
preparation of financial statements.
  The Board
of Directors and the Audit Committee include some Directors who are neither
management nor employees of the Company. The Board is responsible for overseeing
management in the performance of its financial reporting responsibilities, and
for approving the financial information included in the annual
report.  The Audit Committee has the responsibility of meeting with
management and external auditors to discuss the internal controls over the
financial reporting process, auditing matters and financial reporting
issues.  The Committee is also responsible for recommending the
appointment of the Company’s external auditors.
  Collins
Barrow Toronto LLP, an independent firm of Chartered Accountants, is appointed
by the Audit Committee of the Board to audit the consolidated financial
statements and report directly to them; their report follows.  The
external auditors have full and free access to, and meet periodically and
separately with, both the Audit Committee and management to discuss their audit
findings.
 
 April 30,
2009
 
 /s/
      Michael
      Kraft
                  
                  
                  /s/
      Khurram
      QureshiChief
      Executive Officer
                  
                  
                  Chief
      Financial Officer
  3
  Collins
      Barrow Toronto LLP
                  20
      Eglinton Avenue West
                  Suite
      2100, P.O. Box 2014
                  Toronto,
      Ontario
                  M4R
      1K8  Canada
                  
                  T.   416.480.0160
                  F.   416.480.2646
                  
                  www.collinsbarrow.com
   REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
  To the
Shareholders of Lingo Media Corporation:
  We have
audited the consolidated balance sheet of Lingo Media Corporation as at December
31, 2008, and the consolidated statements of operations, deficit and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
  We
conducted our audit in accordance with the Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). These standards require that we plan and perform an audit to
obtain reasonable assurance whether the consolidated financial statements are
free of material misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting.  Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
  In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2008, and the
results of its operations and its cash flows for the year then ended in
accordance with Canadian generally accepted accounting principles.
  The
consolidated financial statements as at and for the years ended December 31,
2007, except for restatement referred to in Note 26, and December 31, 2006 were
audited by other auditors who expressed opinions without reservation on those
consolidated financial statements in their reports dated April 20, 2008 and May
4, 2007, respectively.
 
 Canadian
generally accepted accounting principles vary in certain significant respects
from accounting principles generally accepted in the United States of
America.  Information relating to the nature and effect of such
differences is presented in Note 23 to the consolidated financial
statements.
 
 /s/
      Collins Barrow Toronto
      LLPToronto,
      Ontario
                      April 14, 2009
                    
                    
                    Collins Barrow Toronto
      LLP
                      Independent Registered Chartered
      Accountants
  This
      office is independently owned and operated by Collins Barrow Toronto
      LLP.
                  The
      Collins Barrow trademarks are used under License.
  4
  To the
Shareholders of Lingo Media Corporation:
  We
have audited the consolidated balance sheets of Lingo Media Corporation as at
December 31, 2007, and the consolidated statements of operations, deficit and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our
audit.
  We
conducted our audit in accordance with the Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). These standards require that we plan and perform an audit to
obtain reasonable assurance whether the consolidated financial statements are
free of material misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting.  Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation.
  In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2007, and the
results of its operations and its cash flows for the year then ended in
accordance with Canadian generally accepted accounting
principles.
  The
consolidated financial statements as at and for the year ended December 31, 2006
and 2005 were audited by other auditors who expressed an opinion without
reservation on those consolidated financial statements in their report dated May
4, 2007.
  Calgary,
      Alberta
                    /s/ MEYERS NORRIS PENNY
      LLPApril 20,
      2008
                    Independent
      Registered Chartered
Accountants
   Comments
by Independent Registered Chartered Accountants on Canada – United States of
America Reporting Differences:
 
 The
standards of the Public Company Accounting Oversight Board (United States)
require the addition of explanatory paragraphs (following the opinion paragraph)
when the financial statements are affected by conditions and events that cast
substantial doubt on the Company’s ability to continue as a going concern, such
as those described in Note 1 to the financial statements.  Our report
to the shareholders dated April 20, 2008 is expressed in accordance with
Canadian reporting standards, which do not require a reference to such
conditions and events in the report of the independent registered chartered
accountants when these are properly accounted for and adequately disclosed in
the financial statements.
 Calgary,
      Alberta
                      /s/ MEYERS NORRIS
      PENNY LLPApril 20,
      2008
                      Independent
      Registered Chartered
Accountants
 5
  LINGO
MEDIA CORPORATION
 Consolidated
Balance Sheets
 (Expressed
in Canadian dollars)
   As
      at December 31
                
                2008
                
                
                2007Restated
                  (See
      Note
                  10&
      26)AssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                2,279,937
                
                
                $
                377,127Accounts
      and grants receivable (note 4)
                
                
                642,543
                
                
                
                958,179Inventory
                
                
                -
                
                
                
                15,945Prepaid
      and sundry assets
                
                
                160,161
                
                
                
                89,631Current
      assets from discontinued operation (note 10)
                
                
                34,608
                
                
                
                276,0213,117,249
                
                
                
                1,716,903Investment
      and advances (note 5)
                
                
                -
                
                
                
                182,520Deferred
      costs (note 5)
                
                
                -
                
                
                
                157,419Property
      and equipment, net (note 6)
                
                
                64,839
                
                
                
                73,144Development
      costs, net (note 7)
                
                
                111,517
                
                
                
                267,910Software
      & web development costs, net (note 8)
                
                
                5,233,187
                
                
                
                4,352,341Other
      assets from discontinued operation (note 10)
                
                
                -
                
                
                
                1,412,164$
                8,526,792
                
                
                $
                8,162,401Liabilities
      and Shareholders' EquityCurrent
      liabilities:Accounts
      payable
                
                $
                265,344
                
                
                $
                351,196Accrued
      liabilities
                
                
                321,466
                
                
                
                122,674Loan
      payable (note 11)
                
                
                -
                
                
                
                228,674Current
      liabilities from discontinued operation (note 10)
                
                
                734,601
                
                
                
                806,1521,321,411
                
                
                
                1,508,696Loans
      payable (note 11)
                
                
                -
                
                
                
                203,031Future
      income taxes (note 14)
                
                
                564,997
                
                
                
                564,9971,886,408
                
                
                
                2,276,724Shareholders'
      equity:Capital
      stock (note 12 (a))
                
                
                14,205,515
                
                
                
                10,174,453Warrants
      (note 12 (b))
                
                
                372,385
                
                
                
                161,254Contributed
      surplus (note 12 (c))
                
                
                847,768
                
                
                
                452,411Deficit
                
                
                (8,785,284
                )
                
                
                (4,902,441
                )6,640,384
                
                
                
                5,885,677Commitments
      and contingency (note 21)$
                8,526,792
                
                
                $
                8,162,401
  See
accompanying notes to consolidated financial statements.
  Approved
on behalf of the Board:
  /s/
      Michael
      KraftMichael Kraft
                    Director
  /s/
      Sanjay
      JoshiSanjay
      Joshi
                      Director
 6
  LINGO
MEDIA CORPORATION
 Consolidated
Statements of Deficit
 (Expressed
in Canadian dollars)
   For
      the years ended December 31
                
                2008
                
                
                2007Restated
                  (See
      Note 10)Deficit,
      beginning of year
                
                $
                (4,902,441
                )
                
                $
                (3,977,401
                )Net
      loss for the year
                
                
                (3,882,843
                )
                
                
                (925,040
                )Deficit,
      end of year
                
                $
                (8,785,284
                )
                
                $
                (4,902,441
                )
  See
accompanying notes to consolidated financial statements.
  7
  LINGO
MEDIA CORPORATION
 Consolidated
Statements of Operations
 (Expressed
in Canadian dollars)
   For
      the years ended December 31
                
                2008
                
                
                2007
                
                
                2006Restated
                  (See
      Note 10)
                
                
                Restated
                  (See
      Note 10)Revenue
                
                $
                969,128
                
                
                $
                879,626
                
                
                $
                894,073Direct
      costs
                
                
                126,329
                
                
                
                113,318
                
                
                
                132,968Gross
      Margin
                
                
                842,799
                
                
                
                766,308
                
                
                
                761,105Expenses:General
      and administrative
                
                
                2,127,726
                
                
                
                946,307
                
                
                
                809,260Inventory
      write-off
                
                
                15,618
                
                
                
                -
                
                
                
                36,279Development
      cost write-down
                
                
                27,915
                
                
                
                28,184
                
                
                
                -Deferred
      cost, investment and advance write-off (note 5)
                
                
                339,939
                
                
                
                -
                
                
                
                -Amortization
      of property and equipment
                
                
                21,243
                
                
                
                13,465
                
                
                
                64,402Amortization
      of development costs
                
                
                128,478
                
                
                
                99,805
                
                
                
                156,648Interest
      and other financial expenses
                
                
                95,544
                
                
                
                27,077
                
                
                
                31,260Stock-based
      compensation
                
                
                252,792
                
                
                
                156,395
                
                
                
                193,8193,009,225
                
                
                
                1,271,233
                
                
                
                1,291,668Loss
      before the following:
                
                
                (2,166,456
                )
                
                
                (504,925
                )
                
                
                (530,563
                )Income
      taxes and other taxes (note 13)
                
                
                145,018
                
                
                
                127,267
                
                
                
                160,455Loss
      from continuing operations
                
                
                (2,311,474
                )
                
                
                (632,192
                )
                
                
                (691,018
                )Loss
      from discontinued operation (note 10)
                
                
                (1,571,369
                )
                
                
                (292,848
                )
                
                
                (57,906
                )Net
      loss for the period and comprehensive loss
                
                $
                (3,882,843
                )
                
                $
                (925,040
                )
                
                $
                (748,924
                )Loss
      per share from continuing operations (note 12 (f))
                
                $
                (0.22
                )
                
                $
                (0.11
                )
                
                $
                (0.17
                )Loss
      per share from discontinued operation (note 12 (f))
                
                $
                (0.15
                )
                
                $
                (0.05
                )
                
                $
                (0.01
                )Weighted
      average number ofcommon
      shares outstanding (note 12 (f))
                
                
                10,426,861
                
                
                
                5,655,792
                
                
                
                4,060,331
  See
accompanying notes to consolidated financial statements.
  8
  LINGO
MEDIA CORPORATION
 Consolidated
Statements of Cash Flows
 (Expressed
in Canadian dollars)
   For
      the years ended December 31
                
                2008
                
                
                2007
                
                
                2006Restated
                  (See
      Note 10)
                
                
                Restated
                  (See
      Note 10)Cash
      flows provided by (used in):Operations:Loss
      from continuing operations
                
                $
                (2,311,474
                )
                
                $
                (632,192
                )
                
                $
                (691,018
                )Items
      not affecting cash:Amortization
      of property and equipment
                
                
                21,243
                
                
                
                13,465
                
                
                
                11,399Amortization
      of development costs
                
                
                128,478
                
                
                
                99,805
                
                
                
                156,648Amortization
      of acquired publishing content
                
                
                -
                
                
                
                -
                
                
                
                53,003Stock-based
      compensation
                
                
                252,792
                
                
                
                156,395
                
                
                
                193,819Income
      taxes
                
                
                -
                
                
                
                -
                
                
                
                (17,426
                )Inventory
      write-off
                
                
                15,618
                
                
                
                -
                
                
                
                36,279Investment
      and advances write-off
                
                
                182,520
                
                
                
                -
                
                
                
                -Deferred
      costs write-off
                
                
                157,419
                
                
                
                -
                
                
                
                -Development
      cost write down
                
                
                27,915
                
                
                
                28,184
                
                
                
                -Change
      in non-cash balances related to operations:Accounts
      and grants receivable
                
                
                315,633
                
                
                
                (431,872
                )
                
                
                208,278Inventory
                
                
                327
                
                
                
                418
                
                
                
                17,720Prepaid
      and sundry assets
                
                
                (70,530
                )
                
                
                29,606
                
                
                
                15,111Accounts
      payable
                
                
                (158,933
                )
                
                
                (315,271
                )
                
                
                10,743Accrued
      liabilities
                
                
                198,793
                
                
                
                (25,904
                )
                
                
                84,734Cash
      provided by (used in) continuing operating activities
                
                
                (1,240,199
                )
                
                
                (1,077,366
                )
                
                
                79,290Cash
      provide by (used in) discontinued operation
                
                
                10,657
                
                
                
                (77,294
                )
                
                
                (296,265
                )Financing:Increase
      (decrease) in bank loans
                
                
                -
                
                
                
                (135,000
                )
                
                
                25,000Advances
      (repayment) of loans payable
                
                
                (431,705
                )
                
                
                84,164
                
                
                
                245,613Issuance
      of capital stock
                
                
                5,198,659
                
                
                
                775,000
                
                
                
                66,679Decrease
      in advances from shareholders
                
                
                -
                
                
                
                (319,836
                )
                
                
                -Share
      issue costs
                
                
                (726,402
                )
                
                
                (63,750
                )
                
                
                -Cash
      provided by financing activities
                
                
                4,040,552
                
                
                
                340,578
                
                
                
                337,292Investing:Cash
      acquired on acquisition of Speak2Me
                
                
                -
                
                
                
                1,508,521
                
                
                
                -Expenditures
      on software & web development costs
                
                
                (895,262
                )
                
                
                (389,129
                )
                
                
                -Purchase
      of property and equipment
                
                
                (12,938
                )
                
                
                (23,079
                )
                
                
                (38,117
                )Deferred
      costs incurred
                
                
                -
                
                
                
                -
                
                
                
                (40,316
                )Development
      costs
                
                
                -
                
                
                
                -
                
                
                
                (91,325
                )Cash
      provided by (used in) investing activities
                
                
                (908,200
                )
                
                
                1,096,313
                
                
                
                (169,758
                )Increase
      / (decrease) in cash
                
                
                1,902,810
                
                
                
                282,231
                
                
                
                (49,441
                )Cash
      and cash equivalents, beginning of year
                
                
                377,127
                
                
                
                94,896
                
                
                
                144,337Cash
      and cash equivalents, end of year
                
                $
                2,279,937
                
                
                $
                377,127
                
                
                $
                94,896Supplemental
      cash flow information (note 24)
  See
accompanying notes to consolidated financial statements.
  9
 LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   1.
                  Nature
      of Operations:
  Lingo
Media Corporation (“Lingo Media” or the “Company”) is a diversified online and
print education product and services company. Speak2Me Inc. (“Speak2Me”), a
subsidiary acquired during 2007, is a new media company focused on interactive
advertising in China through its Internet-based English language web learning
portal. Lingo Learning Inc. (formerly Lingo Media Ltd.), a subsidiary of Lingo
Media, is a print-based publisher of English language learning programs in
China.  In Canada, Lingo Media through its subsidiary A+ Child
Development (Canada) Ltd. (“A+”), until filing for a proposal to creditors
(“Proposal”) (note 10) specialized in early childhood cognitive development
programs which published and distributed educational materials along with its
proprietary curriculum through its four offices in Calgary, Edmonton, Vancouver
and Toronto.
  2.
                  Significant
      accounting policies:
  (a)
                  Basis
      of presentation:
  These
consolidated financial statements have been prepared in accordance with Canadian
generally accepted accounting principles applicable to a going concern, on the
basis that the Company will continue to generate or raise sufficient capital to
fund its operations and commitments.  Significant differences between
Canadian generally accepted accounting principles and United States generally
accepted accounting principles, as they relate to these consolidated financial
statements, are explained in note 23.
  These
consolidated financial statements include the accounts of the Company and its
subsidiaries; Lingo Learning Inc. (100%), Lingo Media International Inc. (100%)
and Lingo Group Limited (83%), A+ Child Development (Canada) Ltd. (70.33%) and
Speak2Me Inc. (100%).  All inter-company transactions and balances
have been eliminated.
  (b)
                  Revenue
      recognition:
  Revenue
from web based advertising in China is recognized at the time of delivery and
when collectability is reasonably assured.
  Royalty
revenue from sales by licensees of finished products in China is recognized
based on confirmation of finished products produced by its licensees and
collectability is reasonably assured.  Royalty revenue from
audiovisual product is recognized based on the confirmation of sales by its
licensees, and when collectability is reasonably assured.  Royalty
revenues are not subject to right of return or product warranties.Revenue from the sale of
published and supplemental products is recognized upon delivery and when the
risk of ownership is transferred and collectability is reasonably
assured.
  Revenue
from the sale of educational products in Canada is recognized at the time of
delivery and when the risk of ownership is transferred and collectability is
reasonably assured.
  (c)
                  Inventory:
  Inventory
      is recorded at the lower of cost and net realizable value and expensed
      based on the average cost.
  10
 LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   2.
                  Significant
      accounting policies (continued):
  (d)
                  Property
      and equipment:
  Property
and equipment are initially recorded at cost. Amortization is provided using
methods outlined below at rates intended to amortize the cost of assets over
their estimated useful lives.
  Method
                  
                  RateComputer
      and office equipment
                  declining
      balance
                  
                  20%
  The
Company’s policy is to record an impairment loss in the period when it is
determined that the carrying amount of the asset may not be
recoverable.
  (e)
                  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 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.
  (f)
                  Development
      costs:
  The
Company has capitalized costs related to English Language Learning products and
programs. The carrying value is 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.  Amortization of
the capitalized costs begins when the programs are starting to be sold and they
are amortized on a straight line basis over five years.
  (g)
                  Software
      & web development costs:
  The
company capitalizes all costs related to the development of its Speak2Me
products in accordance with Section 3450 (“Research and Development Cost”), of
the Canadian Institute of Chartered Accountants (CICA) Handbook. The Company
regularly reviews the carrying values of its software & web development
costs and 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.  Amortization of the capitalized costs begins when the
products are starting to be sold and are amortized on a straight line basis over
three years.
  11
 LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
 2.
                  Significant
      accounting policies (continued):
  (h)
                  Goodwill:
  Goodwill
represents the excess of the purchase price of acquired businesses over the
estimated fair value of the tangible and intangible net assets acquired. In
accordance with CICA 3062 (“Goodwill and Other Intangible Assets”) of the CICA
Handbook, goodwill is not amortized but is subject to an impairment test
annually, or more frequently if events or changes in circumstances indicate that
the goodwill amount may be impaired.  The impairment test consists of
a comparison of the carrying value of the Company’s reporting units with their
fair value, and any excess is recorded as a charge to net
earnings.  During the year the Company wrote-off its goodwill related
to its 70.33% interest in A+ and included in discontinued operations (note
10).
  (i)
                  Government
      grants:
  The
Company receives government grants based on certain eligibility criteria for
book publishing industry development in Canada.  These government
grants are recorded as a reduction of general and administrative expenses to
offset direct costs funded by the grant.  The Company records a
liability for the repayment of the grants and a charge to operations in the
period in which conditions arise that will cause the government grants to be
repayable.
  (j)
                  Future
      income taxes:
  The
Company follows the asset and liability method of accounting for income
taxes.  Under this method, future income tax assets and liabilities
are determined based on temporary differences between the financial reporting
and tax bases of assets and liabilities, as well as for the benefit of losses
available to be carried forward to future years for income tax
purposes.  Future income tax assets and liabilities are measured using
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.  Future income tax assets are recorded in the
financial statements if realization is considered more likely than
not.
  (k)
                  Foreign
      currency translation:
  Monetary
assets and liabilities denominated in foreign currencies are translated into
Canadian dollars at the exchange rates prevailing at the consolidated balance
sheet dates.  Non-monetary assets and liabilities are translated at
historical rates.  Transactions in foreign currencies are translated
into Canadian dollars at the approximate rates prevailing at the dates of the
transactions.  Foreign exchange gains and losses are included in
earnings for the year.
  The
Company's integrated foreign operations are translated into Canadian dollars at
exchange rates prevailing at the consolidated balance sheet dates for monetary
items and at exchange rates prevailing at the transaction dates for non-monetary
items.  Revenue and expenses are translated at exchange rates
prevailing during the year.  Exchange gains and losses are included in
earnings for the year.
  12
 LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   2.
                  Significant
      accounting policies (continued):
  (l)
                  Use
      of estimates:
  The
preparation of financial statements in conformity with Canadian 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 ended December 31, 2008, 2007 and 2006.  Actual results may
differ from those estimates.
  The
Company has products in various phases of development at any time during the
year.  Each product’s economic viability is determined by management,
after appropriate testing has been completed.  When a product is
deemed viable, its accumulated development costs are recorded and amortized over
the estimated period of economic viability.  The accumulated
development costs of any product not considered to be economically viable are
considered unrecoverable and included in the current year's
earnings.
  Accounts
receivable are stated after evaluation of its collectability and an appropriate
allowance for doubtful accounts is provided where considered
necessary.  Provisions are made for slow moving and obsolete
inventory. Amortization is based on the estimated useful lives of Property and
Equipment.
  The
amounts disclosed relating to fair values of stock options issued are based on
management’s estimates of expected stock price volatility, expected lives of the
options, risk-free interest rates and certain other assumptions using the
Black-Scholes option pricing model.  By their nature, these estimates
are subject to measurement uncertainty.
  The
calculation of future income tax is based on assumptions, which are subject to
uncertainty as to timing and which tax rates are expected to apply when
temporary differences reverse.  Future income tax recorded is also
subject to uncertainty regarding the magnitude of non-capital losses available
for carry forward and of the balances in various tax pools as the corporate tax
returns have not been prepared as of the date of financial statement
preparation.  By their nature, these estimates are subject to
measurement uncertainty and the effect on the consolidated financial statements
from changes in such estimates in future years could be
significant.
  (m)
                  Earnings
      (loss) per share:
  Earnings
(loss) per share is computed using the weighted average number of common shares
that are outstanding during the year. Diluted earnings per share is computed
using the weighted average number of common and 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.
  (n)
                  Stock-based compensation
      plan:
  The
Company applies the fair value based method of accounting to all stock-based
compensation. The fair value of the options issued in the year is determined
using the Black-Scholes option pricing model.  The estimated fair
value of the options is expensed to income over the vesting period.
  13
 LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
 (o)
                  Cash
      and cash equivalents:
 
 Cash and
cash equivalents consist of cash in the bank and highly liquid investments with
maturities of three months or less at the time of purchase.
 3.
                    Changes
      in accounting policies:
 (a)
                  On
      January 1, 2008, the Company adopted the recommendation of CICA Handbook
      Section 3862, Financial Instruments – Disclosures which supersedes the
      disclosure standards provided in Section 3861.  This Section
      provides standards for disclosures about financial instruments, including
      disclosures about fair value and the credit, liquidity and market risks
      associated with the financial instruments.  Disclosure
      requirements pertaining to this Section are contained in Note
      18.
  (b)
                  On
      January 1, 2008, the Company adopted CICA Handbook Section 3031,
      Inventories.  The new Section prescribes that inventories should
      be measured at the lower of cost and net realizable value and provides
      guidance on the determination of cost.  There has been no impact
      on the Company’s financial statement as a result of adopting this
      policy.  Section 3031 replaces inventory standards provided in
      Section 3030.
  (c)
                  On
      January 1, 2008, the Company adopted the recommendation of CICA Handbook
      Section 3863, Financial Instruments – Presentation which carries forward
      the presentation standards provided in Section 3861.  This
      section provides standards for presentation of financial instruments and
      nonfinancial derivatives.  Adoption of this standard had no
      impact on the Company’s financial instrument related presentation
      standards.
  (d)
                  On
      January 1, 2008, the Company adopted the recommendations of CICA Handbook
      Section 1400, General Standards of Financial Statement Presentation, to
      change the guidance related to management’s responsibility to assess the
      ability of the entity to continue as a going
      concern.  Management is required to make an assessment of an
      entity’s ability to continue as a going concern and should take into
      account all available information about the future, which is at least, but
      is not limited to 12 months from the balance sheet
      dates.  Disclosure is required of material uncertainties related
      to events or conditions that may cast significant doubt upon the entity’s
      ability to continue as a going
concern.
  (e)
                  On
      October 1, 2008, the Company adopted the recommendations of CICA Handbook
      Section 1535 Capital Disclosures.  The new standard requires an
      entity to disclose information to enable users of its financial statements
      to evaluate the entity’s objectives, policies and processes for managing
      capital.  Disclosure requirements pertaining to Section 1535 are
      contained in Note 17.
  (f)
                  Financial
      instruments
  On
January 1, 2007, the Company adopted the CICA Handbook Section 3855, Financial
Instruments – Recognition and Measurement; Section 1530, Comprehensive Income,
Section 3251, Equity, Section 3861, Financial Instruments – Disclosure and
Presentation and Section 3865, Hedges.  The principal changes in the
accounting for financial instruments due to the adoption of these accounting
standards are described below.
  14
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   3.
                  Changes
      in accounting policies (continued):
  (i)
                  Financial
      Assets and Financial Liabilities
  Under the
new standards, financial assets and financial liabilities are initially
recognized at fair value and are subsequently accounted for based on their
classification as described below.  The classification depends on the
purpose for which the financial instruments were acquired and their
characteristics.  Except in very limited circumstances, the
classification is not changed subsequent to initial recognition.
  Held for
Trading
  Financial
assets or financial liabilities that are purchased or incurred with the
intention of generating profits in the near term are classified as held for
trading.  These instruments are accounted for at fair value with the
change in the fair value recognized in net income during the
period.  Cash and cash equivalents and short-term investments were
classified as held for trading on January 1, 2007.
  Available-For-Sale
  Financial
assets classified as available-for-sale are carried at fair value with the
changes in fair value recorded in other comprehensive income.  When a
decline in fair value is determined to be other than temporary, the cumulative
loss included in the accumulated other comprehensive income is removed and
recognized in net income.  On disposal, unrealized gains and losses
are removed from cumulative other comprehensive income and recognized in net
income.  No investments were classified as available-for-sale on
January 1, 2007.
  Held-to-Maturity
  Securities
that have a fixed maturity date and which the Company has positive intention and
the ability to hold to maturity are classified as held-to-maturity and accounted
for at amortized cost using effective interest rate method.  No
investments were classified as held-to-maturity.
  Loans and
Receivables
  Trade and
note receivables are classified as loans and receivables, which are measured at
amortized cost.
  Other
Financial Liabilities
  Accounts
payable and accrued liabilities, are classified as other financial liabilities,
which are measured at amortized cost using the effective interest rate
method.
  (ii)
                  Comprehensive
      Income
  Comprehensive
income is composed of the Company’s net income and other comprehensive
income.  Other comprehensive income includes unrealized gains and
losses on available-for-sale securities, net of income
taxes.  Currently, the Company does not have any other comprehensive
income.
  15
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
 3.
                  Changes
      in accounting policies (continued):
  (iii)
                  Hedge
      Accounting
  Section
3865, Hedges, set out standards specifying when and how an entity can use hedge
accounting.  The adoption of hedge accounting is
optional.  This section offers entities the possibility of applying
different reporting options than those set out in Section 3855, Financial
Instruments – Recognition and Measurement, to qualifying transactions that they
elect to designate as hedges for accounting purposes.  Currently, the
Company is not involving in any hedging activities.
  (g)
                  On
      January 1, 2007, the Company adopted the new recommendations of the CICA
      Handbook Section 1506, Accounting Changes.  Under these new
      recommendations, voluntary changes in accounting policy are permitted only
      when they result in the financial statements providing reliable and more
      relevant information, requires changes in accounting policy to be applied
      retrospectively unless doing so is impractical, requires prior period
      errors to be corrected retrospectively and requires enhanced disclosures
      about the effects of changes in accounting policies, estimates and errors
      on the financial statements.  These recommendations also require
      the disclosure of new primary sources of generally accepted accounting
      principles that have been issued but not yet effective.  The
      impact that the adoption of this section will have on the Company’s
      financial statements will depend on the nature of the accounting
      changes.  The additional disclosure requirement is within Note 3
      under Future Accounting Changes.
  Future
Accounting Changes:
  (a)
                  In
      January 2006, the CICA Accounting Standards Board (“AcSB”) adopted a
      strategic plan for the direction of accounting standards in Canada. As
      part of that plan, accounting standards in Canada for public companies are
      expected to converge with International Financial Reporting Standards
      (“IFRS”) by the start of 2011.  The impact of the transition to
      IFRS on the Company’s financial statements is not yet
      determinable.
  (b)
                  In
      October 2008, the CICA issued new accounting standards Section 3064,
      Goodwill and Intangible Assets, replaces Section 3062, Goodwill and Other
      Intangible Assets and Section 3450, Research and Development
      Costs.  Section 3064 establishes standards for the recognition,
      measurement, presentation and disclosure of goodwill subsequent to its
      initial recognition and of intangible assets.  This section also
      addresses when an internally developed intangible asset meets the criteria
      for recognition as an assets.  These standards are anticipated
      to be adopted for the Company’s interim and annual reporting effective
      periods commencing January 1, 2009.  The Company does not expect
      the adoption of this standard to have a material impact on its financial
      statements.
  4.
                  Accounts
      and grants receivable:
  Accounts
and grants receivable consist of:
  2008
                  
                  
                  2007Trade
      receivables
                  
                  $
                  615,501
                  
                  
                  $
                  841,819Cash
      advance
                  
                  
                  -
                  
                  
                  
                  101,282Grants
      receivable (note 14)
                  
                  
                  27,042
                  
                  
                  
                  15,078$
                  642,543
                  
                  
                  $
                  958,179
  16
 LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   5.
                  Deferred
      costs, investment and advances:
  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 (Note 10) the Company has written-off its investment in the
joint venture.
  6.
                  Property
      and equipment:
  Property
and equipment consists of computer and office equipment:
  2008
                  
                  
                  2007Cost
                  
                  $
                  200,879
                  
                  
                  $
                  175,636Accumulated
      amortization
                  
                  
                  136,040
                  
                  
                  
                  102,492Net
      carrying value
                  
                  $
                  64,839
                  
                  
                  $
                  73,144
  7.
                  Development
      costs:
  Development
costs consist of the following:
 
 2008
                  
                  
                  2007Cost
                  
                  $
                  1,431,567
                  
                  
                  $
                  1,552,572Less:
      Accumulated amortization
                  
                  
                  (1,320,050
                  )
                  
                  
                  (1,284,662
                  )$
                  111,517
                  
                  
                  $
                  267,910
  One of
the Company’s projects has been put on hold, the resulting impairment provision
of $27,915 (2007 - $28,738, 2006 - $nil) is included in the Statement of
Operations in General and Administrative.
  8.
                  Software and web development
      costs:
  In
October 2007, the Company acquired Speak2Me Inc. (“Speak2Me”), a new media
company that has developed software combining speech recognition and animation
technology for the teaching and practice of spoken English. All costs associated
with development of the Speak2Me software and its contents are capitalized as
Software and web development in accordance with Section 3450 (“Research and
Development Cost”), of the CICA Handbook.
 
 2008
                  
                  
                  2007Cost
                  
                  $
                  5,233,187
                  
                  
                  $
                  4,352,341
  No
amortization has been taken as the Company has yet to begin commercial
production and sale of product.
  17
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   9.
                  Acquisitions
  Speak2Me
Inc.
  On
October 18, 2007, the Company acquired 100% of the outstanding common shares of
Speak2Me Inc. (“Speak2Me”).  The results of Speak2Me’s operations have
been included in these consolidated financial statements since that
date.  Speak2Me is a new media company that has developed software
combining speech recognition and avatar technologies for the teaching and
practice of spoken English.
  The
aggregate purchase price was $4,616,962. The acquisition was completed by way of
a share exchange agreement entered into between Lingo Media, Speak2Me and the
shareholders of Speak2Me on the basis of a share exchange ratio of one
post-consolidated common share of Lingo Media for each 3.975 common shares of
Speak2Me.  Under the terms of the acquisition, Lingo Media acquired
all the issued and outstanding common shares of Speak2Me in exchange for
4,500,366 post-consolidated common shares of Lingo Media.  The common
shares were valued at $4,536,351 based on the average market price of the
Company’s shares over a two-day period before and after the terms of the
acquisition were agreed to and announced.  The acquisition has been
accounted for using the purchase method, whereby the total cost of the
acquisition has been allocated to the assets acquired and to the liabilities
assumed based upon their respective fair values at the measurement
date.
  As part
of the acquisition, the shareholders of Lingo Media also approved the
consolidation of all its common shares on a one-for-seven basis, and the change
of the Company’s name to Lingo Media Corporation by way of a special resolution
of the shareholders at the Company’s Annual and Special Meeting held on October
5, 2007.
  The
following table summarizes the estimated fair value of the assets acquired and
liabilities assumed on the date of acquisition.
  Speak2Me
      Inc.Current
      assets
                  
                  $
                  1,789,301Property
      and equipment, net
                  
                  
                  17,903Software
      and web development costs
                  
                  
                  3,963,212Current
      liabilities
                  
                  
                  (588,457
                  )Future
      income tax liability
                  
                  
                  (564,997
                  )$
                  4,616,962Cash
      consideration
                  
                  
                  -Share
      consideration
                  
                  
                  4,536,351Business
      acquisition costs
                  
                  
                  80,611$
                  4,616,962
  Prior to
the business combination described in above, the Company and some of the
previous shareholders of Speak2Me were related by virtue of common control, by
companies owned by a director, by management, and by immediate family members of
management.  The transaction was measured at the exchange amount,
which is the amount of consideration paid or received as established and agreed
to by related parties.
  18
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
 10.
                  Discontinued
      Operations
  On
December 23, 2008, A+, the Company’s 70.33% owned subsidiary, filed a Notice of
Intent to make Proposal under the Bankruptcy and Insolvency Act
(“Proposal”).  The Company wrote-down the carrying value of its 70.33%
investment in A+, resulting in a charge of $1,571,369 (2007 - $292,848, 2006 -
$57,906) to earnings, include in the write-down was $274,852 in future income
tax assets related to its A+ subsidiary.
  As at
December 31, 2008, A+, the Company’s 70.33% owned subsidiary has a revolving
line of credit outstanding in the amount of $80,986 (2007 - $230,000) bearing
interest at prime plus 4% per annum.  The term of the revolving line
of credit require 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. The line of credit outstanding at
year end is presented as part of current liabilities of discontinued
operations.
  All
comparative figures have been adjusted to exclude results from discontinued
operations.
  The net
assets of A+ were presented as assets and liabilities of the discontinued
operations at their carrying value. The following table shows the major
categories of assets and liabilities of the discontinued
operations.
 
 2008
                  
                  
                  2007Current
      assets of discontinued operationCash
      and short term investment
                  
                  $
                  34,608
                  
                  
                  $
                  116,211Account
      receivable
                  
                  
                  -
                  
                  
                  
                  12,195Inventory
                  
                  
                  -
                  
                  
                  
                  105,377Prepaid
      and sundry assets
                  
                  
                  -
                  
                  
                  
                  42,238$
                  34,608
                  
                  
                  $
                  276,021Non
      current assets of discontinued operationProperty
      and equipment
                  
                  $
                  -
                  
                  
                  $
                  16,181Future
      income taxes
                  
                  
                  -
                  
                  
                  
                  274,852Goodwill
                  
                  
                  -
                  
                  
                  
                  1,121,131$
                  -
                  
                  
                  $
                  1,412,164Current
      liabilities of discontinued operationAccounts
      payable
                  
                  $
                  653,615
                  
                  
                  $
                  471,619Accrued
      liabilities
                  
                  
                  -
                  
                  
                  
                  104,532Bank
      loan
                  
                  
                  80,986
                  
                  
                  
                  230,000$
                  734,601
                  
                  
                  $
                  806,151
  The
statement of loss for the discontinued operations is as follows:
  2008
                  
                  
                  2007
                  
                  
                  2006Operating
      revenue
                  
                  $
                  2,575,559
                  
                  
                  $
                  3,124,731
                  
                  
                  $
                  680,264Expenses
                  
                  
                  3,025,797
                  
                  
                  
                  3,417,579
                  
                  
                  
                  738,170Write-off
      of goodwill
                  
                  
                  1,121,131
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      loss from discontinued operation
                  
                  $
                  1,571,369
                  
                  
                  $
                  292,848
                  
                  
                  $
                  57,906
  19
 LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   11.
                  Loans
      payable:
  Loans
payable consists of the following:
  2008
                  
                  
                  2007Loan
      payable, interest bearing at 12% per annum payable monthly, unsecured and
      due on demand.
                  
                  $
                  -
                  
                  
                  $
                  228,674Loan
      payable, interest bearing at 12% per annum with monthly interest payments,
      secured by a generalsecurity
      agreement and due on April 30, 2009.
                  
                  $
                  -
                  
                  
                  $
                  203,031
  All loans
payable including interest were repaid during the year-ended December 31,
2008
  12.
                  Capital
      stock, warrants and stock options:
  (a)
                  Authorized:
  Unlimited
preference shares, no par value
 Unlimited
common shares, no par value
  The
following details the changes in issued and outstanding common
shares:
  Common
      SharesNumber
                  
                  
                  AmountBalance,
      January 1, 2007
                  
                  
                  4,694,396
                  
                  
                  $
                  5,088,106Issued:Private
      placement (i)
                  
                  
                  387,500
                  
                  
                  
                  613,746Common
      shares issued for the acquisition of Speak2Me Inc.
                  
                  
                  4,500,366
                  
                  
                  
                  4,536,351Less:
      Share issue costs
                  
                  
                  -
                  
                  
                  
                  (63,750
                  )Balance,
      December 31, 2007
                  
                  
                  9,582,262
                  
                  
                  $
                  10,174,453Issued:Private
      placement (ii)
                  
                  
                  2,857,143
                  
                  
                  
                  4,718,645Options
      exercised
                  
                  
                  18,202
                  
                  
                  
                  38,821Less:
      Share issue costs
                  
                  
                  -
                  
                  
                  
                  (726,402
                  )Balance,
      December 31, 2008
                  
                  
                  12,457,607
                  
                  
                  $
                  14,205,515
  (i)
                    On
      October 17, 2007, the Company closed a private placement offering of
      subscription receipts. The gross proceeds of the offering totaled $775,000
      with an aggregate of 387,500 subscription receipts issued at a price of
      $2.00 per subscription receipt. Each subscription receipt entitles the
      holder to receive one common share and one common share purchase warrant
      of Lingo Media upon the closing of the acquisition of
      Speak2Me.  Each Warrant entitles the holder to purchase one (1)
      additional common share of Lingo Media at a purchase price of $6.00 per
      share and is exercisable for a period of twelve (12) months from the
      closing date of the Offering.
  (ii)
                    On
      October 15, 2008, the shareholders approved a $5 million investment from
      Orascom Telecom Holding S.A.E. ("Orascom Telecom") by issuing 2,857,143
      Common Shares.
  On
October 14, 2008, shareholders approved the issuance of 2,857,143 Special
Warrants to Orascom Telecom pursuant to the terms of a subscription agreement
(the “Subscription Agreement”) dated August 21, 2008 (the "Offering"), as
described in Lingo Media’s press release dated September 17, 2008 and Management
Information Circular dated September 12, 2008. The proceeds from the Offering
will be used for Lingo Media’s on-going development, maintenance and operation
of Speak2Me’s web portal and for general working capital purposes.
  20
 LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
 12.
                  Capital
      stock, warrants and stock options
(continued):
  Each Unit
consists of one common share (“Common Share”) and three-quarters (0.75) of one
warrant (“Warrant”).  Each whole Warrant is exercisable to acquire one
further Common Share for a period of 24 months from September 15, 2008 (the
"Closing Date"): (i) at a price of $4.00 for a period of 12-months from the
Closing Date, (ii) at a price of $6.00 per Common Share if exercised between
12-18 months from the Closing Date, and (iii) at a price of $8.00 per Common
Share if exercised between 18-24 months from the Closing Date. The Warrants are
callable, 120days after the Closing Date, at the option of Lingo Media, in the
event the Common Shares of the Company trade at or over 50% above the strike
price of the Warrant for 10 consecutive trading days. All securities issued
pursuant to the Offering are subject to a four-month hold period from the
Closing Date.
  (b)
                  Warrants:
  WarrantsNumber
                  
                  
                  Amount
                  
                  
                  Weighted
      Avg. Price
                  
                  
                  Weighted
      Avg. LifeBalance,
      January 1, 2007
                  
                  
                  -
                  
                  
                  $
                  -Issued:Warrants
      issued with private placement(12
      (a)(i))
                  
                  
                  387,500
                  
                  
                  
                  161,254
                  
                  
                  $
                  6.00
                  
                  
                  
                  1.0Balance,
      December 31, 2007
                  
                  
                  387,500
                  
                  
                  $
                  161,254
                  
                  
                  $
                  6.00
                  
                  
                  
                  1.0Issued:Warrants
      issued with private placement (12(a)(ii))
                  
                  
                  2,142,858
                  
                  
                  
                  281,357
                  
                  
                  $
                  4.00
                  
                  
                  
                  2.0Warrants
      issued in relation to privateplacement
      (12(a)(ii))
                  
                  
                  171,428
                  
                  
                  
                  91,028
                  
                  
                  $
                  2.00
                  
                  
                  
                  1.0Less:
      Expired warrants issued with privateplacement
      (12 (a)(i))
                  
                  
                  (387,500
                  )
                  
                  
                  (161,254
                  )
                  
                  $
                  6.00
                  
                  
                  
                  1.0Balance,
      December 31, 2008
                  
                  
                  2,314,286
                  
                  
                  $
                  372,385
                  
                  
                  $
                  3.85
                  
                  
                  
                  1.9
 
 All
outstanding warrants are exercisable as of December 31, 2008.
  (c)
                  Contributed
      Surplus:
  Balance,
      January 1, 2007
                  
                  $
                  325,293Stock-based
      compensation
                  
                  
                  156,395Options
      exercised
                  
                  
                  (29,277
                  )Balance,
      December 31, 2007
                  
                  
                  452,411Stock-based
      compensation
                  
                  
                  252,791Options
      exercised
                  
                  
                  (18,688
                  )Warrants
      expired
                  
                  
                  161,254Balance,
      December 31, 2008
                  
                  $
                  847,768
  21
 
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
 12.
                  Capital
      stock, warrants and stock options
(continued):
  (d)
                  Stock
      option plan
 
 In June,
2005, the Company adopted a new stock option plan (the “2005 Plan
“).  The 2005 Plan was established to provide an incentive to
employees, officers, directors and consultants of the Company and its
subsidiaries.  The maximum number of shares which may be reserved for
issuance under the 2005 Plan is limited to 4,821,955 common shares less the
number of shares reserved for issuance pursuant to options granted under the
1996 Plan and the 2000 Plan, provided that the Board of  Directors of
the Company has the right, from time to time, to increase such number subject to
the approval of the relevant exchange on which the shares are listed and the
approval of the shareholders of the Company.  The maximum number of
common shares that may be reserved for issuance to any one person under the 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 of the Company granted as a
compensation or incentive mechanism.  The exercise price of each
option can not be less than the market price of the shares on the day
immediately proceeding the day of the grant less any permitted
discount.  The exercise period of the options granted can not exceed 5
years.  Options granted under the 2005 Plan vest over an 18 month
period with no greater than 16.67% of any options granted to an optionee vesting
in any 3 month period or such longer period as the Board may determine. The
Board of Directors of the Company may, from time to time, amend or revise the
terms of the 2005 Plan or may terminate it at any time.
  Changes
for the stock option plans during the years ended December 31, 2008 and
2007 are as follows (post consolidation equivalents):
  2008
                  
                  
                  2007Number
                    of
                    shares
                  
                  
                  Weighted
      average exercise price
                  
                  
                  Number
                    of
                    shares
                  
                  
                  Weighted
      average exercise priceOptions
      outstanding, beginning of year
                  
                  
                  516,738
                  
                  
                  $
                  0.98
                  
                  
                  
                  275,634
                  
                  
                  $
                  1.33Options
      granted
                  
                  
                  290,000
                  
                  
                  
                  1.21
                  
                  
                  
                  300,000
                  
                  
                  
                  0.68Options
      exercised
                  
                  
                  (18,202
                  )
                  
                  
                  1.11
                  
                  
                  
                  40,372
                  
                  
                  
                  0.84Options
      expired/canceled
                  
                  
                  (155,416
                  )
                  
                  
                  1.13
                  
                  
                  
                  (68,524
                  )
                  
                  
                  -Options
      outstanding, end of year
                  
                  
                  633,120
                  
                  
                  
                  1.04
                  
                  
                  
                  516,738
                  
                  
                  
                  0.98Options
      exercisable, end of year
                  
                  
                  502,287
                  
                  
                  $
                  0.99
                  
                  
                  
                  338,509
                  
                  
                  $
                  1.10
  The
following table summarizes information about stock options outstanding at
December 31, 2008:
  Options
      outstanding
                  
                  
                  Options
      exercisableRange
                    ofexercise
                    prices
                  
                  
                  Number
                    outstanding
                  
                  
                  Weighted
                    average
      remaining contractual life
                  
                  
                  Weighted
                    averageexercise
                    price
                  
                  
                  Number
                    outstanding
                  
                  
                  Weighted
                    averageexercise
                    price$
                  0.70
      - $1.00
                  
                  
                  
                  342,249
                  
                  
                  
                  4.67
                  
                  
                  $
                  0.73
                  
                  
                  
                  299,749
                  
                  
                  $
                  0.73$
                  1.01
      - $1.33
                  
                  
                  
                  155,157
                  
                  
                  
                  1.66
                  
                  
                  
                  1.23
                  
                  
                  
                  130,157
                  
                  
                  
                  1.26$
                  1.34
      - $2.00
                  
                  
                  
                  135,714
                  
                  
                  
                  2.18
                  
                  
                  
                  1.62
                  
                  
                  
                  72.381
                  
                  
                  
                  1.55Total
                  
                  
                  
                  633,120
                  
                  
                  
                  3.40
                  
                  
                  
                  1.04
                  
                  
                  
                  502.287
                  
                  
                  
                  0.99
  22
 
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   12.
                  Capital
      stock warrants and stock options
(continued):
  (e)
                  Fair
      value of options:
  The
weighted average grant-date fair value of options granted to employees,
consultants and directors during 2008 has been estimated at $1.19 (2007 - $0.89)
using the Black-Scholes option-pricing model. The estimated fair value of the
options granted is expensed over the options vesting periods. The pricing model
assumes the weighted average risk free interest rates of 3.54% (2007 – 2.46%)
weighted average expected dividend yields of nil (2007 – nil), the weighted
average expected common stock price volatility of 162.7% (2007 – 105.0%) and a
weighted average expected life of 5 years.
  (f)
                  Loss
      per share:
  2008
                  
                  
                  2007
                  
                  
                  2006Numerator:Loss
      for year – Continuing operations
                  
                  $
                  (2,311,474
                  )
                  
                  $
                  (632,192
                  )
                  
                  $
                  (691,018
                  )Loss
      for year – Discontinued operation
                  
                  
                  (1,571,369
                  )
                  
                  
                  (292,848
                  )
                  
                  
                  (57,906
                  )Denominator:Number
      of common shares outstanding
                  
                  
                  12,457,607
                  
                  
                  
                  9,582,262
                  
                  
                  
                  4,694,396Weighted
      average number of common shares
                  
                  
                  10,426,861
                  
                  
                  
                  5,655,792
                  
                  
                  
                  4,060,331Loss
      per share, basic and diluted–
      Continuing operations
                  
                  $
                  (0.22
                  )
                  
                  $
                  (0.11
                  )
                  
                  $
                  (0.17
                  )Loss
      per share, basic and diluted–
      Discontinued operations
                  
                  $
                  (0.15
                  )
                  
                  $
                  (0.05
                  )
                  
                  $
                  (0.01
                  )
 
 Number of
common shares has been adjusted to reflect a 1 for 7 share consolidation that
took effect during 2007.
  23
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   13.
                  Income
      taxes:
  The
provision for income taxes reflects an effective income tax rate, which differs
from the Canadian corporate income tax rate as follows:
  2008
                  
                  
                  2007
                  
                  
                  2006Combined
      basic Canadian federal and provincial income tax rate
                  
                  
                  33.50
                  %
                  
                  
                  36.12
                  %
                  
                  
                  36.12
                  %Effective
      income tax recovery on oss from continuing operations before income
      taxes
                  
                  $
                  (725,763
                  )
                  
                  $
                  (182,378
                  )
                  
                  $
                  (191,639
                  )Increase
      (decrease) resulting from change in the valuation
    allowance:
                  
                  
                  14,309
                  
                  
                  
                  (555,893
                  )
                  
                  
                  (359,663
                  )Effect
      of reduced income taxes in foreign jurisdiction and subsidiary with lower
      tax rate
                  
                  
                  76,000
                  
                  
                  
                  220,387
                  
                  
                  
                  172,100Withholding
      tax on sales to China
                  
                  
                  145,018
                  
                  
                  
                  127,267
                  
                  
                  
                  130,322Non-deductible
      items
                  
                  
                  298,161
                  
                  
                  
                  56,490
                  
                  
                  
                  70,007Change
      in enacted rates
                  
                  
                  57,438
                  
                  
                  
                  121,222Change
      in prior year estimates
                  
                  
                  464,105
                  
                  
                  
                  364,277
                  
                  
                  
                  254,269Share
      issue cost and other
                  
                  
                  (184,250
                  )
                  
                  
                  (24,105
                  )
                  
                  
                  85,059$
                  145,018
                  
                  
                  $
                  127,267
                  
                  
                  $
                  160,455
  24
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   13.
                  Income
      taxes (continued):
  The tax
effect of temporary differences representing future tax assets is as
follows:
  2008
                  
                  
                  2007Future
      tax assets:Operating
      loss carry forwards
                  
                  $
                  2,223,329
                  
                  
                  $
                  2,564,846Share
      issue costs
                  
                  
                  186,235
                  
                  
                  
                  92,5592,409,564
                  
                  
                  
                  2,657,405Valuation
      allowance
                  
                  
                  (2,006,309
                  )
                  
                  
                  (1,992,235
                  )Future
      tax assets recognized
                  
                  
                  403,255
                  
                  
                  
                  665,170Future
      tax assets included in loss from discontinued operations
                  
                  
                  
                  
                  
                  
                  (274,852
                  )Software
      & web development costs
                  
                  
                  (932,362
                  )
                  
                  
                  (932,362)Property
      and equipment
                  
                  
                  (35,890
                  )
                  
                  
                  (22,953
                  )Net
      future tax assets (liabilities)
                  
                  $
                  (564,997
                  )
                  
                  $
                  (564,997
                  )
  Future
tax assets and liabilities will be impacted by changes in future tax laws and
rates.  The effects of these changes are not currently determinable.
In assessing the realizability of future tax assets, management considers
whether it is more likely than not that some portion or all of the future tax
assets will not be realized.  The ultimate realization of future tax
assets is dependent upon the generation of future taxable income during the
years in which those temporary differences become deductible. Management
considers projected future taxable income, uncertainties related to the industry
in which the Company operates and tax planning strategies in making this
assessment. The Company has not recognized any benefit for these
losses.
  At
December 31, 2008, the Company has non-capital losses available for carry
forward for Canadian income tax purposes amounting to $7,528,049. These losses
expire in the following fiscal years:
 
 2009
                  
                  $
                  291,0002010
                  
                  
                  951,8302014
                  
                  
                  1,029,0862015
                  
                  
                  992,5662026
                  
                  
                  910,7962027
                  
                  
                  1,395,6022028
                  
                  
                  1,957,169$
                  7,528,049
  14.
                  Government
      grants:
  Included
as a reduction of general and administrative expenses are government grants of
$110,430 (2007 – $164,545, 2006 - $182,500), relating to the Company's
publishing projects in China and Canada. At the end of the year $27,042 (2007 -
$15,708) is in accounts receivable.
  During
2008, the Company was audited by a government agency and was assessed with a
repayment amount of $115,075.  The Company believes their claim is
unjust and is vigorously disputing the assessment.  As at December 31,
2008 a provision of $45,000 has been recoded in general and administrative
expense.
  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.
  25
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   15.
                  Foreign
      exchange gain or loss:
  Included
in general and administrative expenses is a foreign exchange loss of
approximately $160,223 (2007 – $103,505, 2006 – $7,968) relating to the changes
in currency translation rates in respect of Company's activities denominated in
foreign currencies.
  16.
                  Related
      party balances and transactions:
  During
the year, the Company had the following transactions with related parties, made
in the normal course of operations, and accounted for at an amount of
consideration established and agreed to by the Company and related parties.
These transactions have not been disclosed elsewhere in the financial
statements:
  (a)
                  The
      Company had loans payable due to a corporation controlled by one of its
      directors bearing interest at 12% (2007 - 12%) per
      annum.  During 2008, the Company received $60,000 (2007 -
      $387,000, 2006 - $nil) and repaid $277,000 (2007 - $310,000, 2006 -
      $50,000) of these loans.  Interest expense related to these
      loans for the year is $18,490 (2007 - $62,137, 2006 -
      $5,878).  At December 31, 2008, $9,344 (2007 - $217,000) was due
      to those corporations.
  (b)
                  During
      the year, the Company charged $41,913 (2007 - $68,900, 2006 - $58,000) to
      a corporation with one director in common for rent, administration, office
      charges and telecommunications.   At December 31, 2008,
      $5,888 (2007 - $4,770) was outstanding as part of account
      receivable.
  (c)
                  During
      the year, the Company paid $218,075 (2007 - $nil, 2006 - $nil) in legal
      fees to a law firm in which a director of the Company is a
      partner.  These fees are included in general and administrative
      expense and share issuance cost within share
  capital.
  (d)
                  During
      the year the Company paid $180,000 (2007 - $120,000) for consulting fees
      to a corporation owned by a director and officer of the
      Company.
  (e)
                  The
      acquisition of Speak2Me constituted as a "related party transaction" as
      the CEO of the Company was also a director of Speak2Me and partially owned
      common shares of Speak2Me prior to its acquisition by Lingo
      Media.
  The
President & CEO of Lingo Media beneficially owned, indirectly, 1,583,333
common shares representing 10.63% of the issued and outstanding common shares of
Speak2Me prior to its acquisition by Lingo Media.  Due to the conflict
of interest, he abstained from voting on matters relating to this
acquisition.
  The Board
of Directors of Lingo Media appointed a special committee, consisting of two
independent directors, to review the proposed acquisition of
Speak2Me.  In reaching its conclusions and formulating its
recommendations, the special committee considered among other factors: (i)
audited financial statements of Speak2Me for the period ended August 24, 2007,
(ii) information in respect of its assets and operations, and (iii) an
independent valuation.
  26
 
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
 17.
                  Capital
      risk management:
  The
Company’s objective when managing capital is to maintain its ability to continue
as a going concern in order to provide returns for shareholders. The Company’s
capital structure comprised of issued capital stock, warrants, contributed
surplus and deficit. The Company’s objective in management of its capital
structure is to ensure access to sufficient cash flow to carry out its ongoing
operations. If and when necessary, the Company may attempt to raise additional
funds through the issuance of capital stock and warrants or by securing debt
financing. The Company is not subject to externally imposed capital
requirements.
  18.
                  Financial
      instruments and risk management:
  The
Company as part of its operations carries a number of financial
instruments.  It is management's opinion that the Company is not
exposed to significant interest, currency or credit risks arising from these
financial instruments except as otherwise disclosed.
  (a)
                  Currency
      risk:
 The
Company is subject to currency risk through its activities outside of
Canada.  Unfavourable changes in the exchange rate may affect the
operating results of the Company.  The Company is also exposed to
currency risk as a substantial amount of its revenue is denominated in U.S.
dollars and Chinese Renminbi ("RMB").
  There
were no derivative instruments outstanding at December 31, 2008 and
2007.
  (b)
                  Financial
      Instruments:
  The
significant financial instruments of the Company, their carrying values and the
exposure to U.S. dollar denominated monetary assets and liabilities, as of
December 31, 2008 are as follows:
  US
      Denominated
                  
                  
                  China
      Denominated
                  
                  
                  Taiwan
      DenominatedCAD
                  
                  
                  USD
                  
                  
                  CAD
                  
                  
                  RMB
                  
                  
                  CAD
                  
                  
                  NTWCash
                  
                  
                  346,260
                  
                  
                  
                  284,286
                  
                  
                  
                  6,938
                  
                  
                  
                  38,157
                  
                  
                  
                  40,797
                  
                  
                  
                  1,101,514Accounts
      receivable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  612,901
                  
                  
                  
                  3,413,861
                  
                  
                  
                  -
                  
                  
                  
                  -Accounts
      payable
                  
                  
                  60,900
                  
                  
                  
                  50,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
  US
dollars, Chinese Renminbi and New Taiwan dollars are converted on the prevailing
year-end exchange rates.
  (c)
                  Fair
      market values:
  The
carrying values of cash and cash equivalent, accounts and grants receivable,
accounts payable, accrued liabilities, and loans payable approximate their fair
values due to the relatively short periods to maturity.
  (d)
                  Concentration
      of risk:
  Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and accounts receivable.  Cash and cash
equivalent consist of deposits with major financial
institutions.  With respect to accounts receivable, the Company
performs periodic credit evaluations of the financial condition of its customers
and typically does not require collateral from them.  Management
assesses the need for allowances for potential credit losses by considering the
credit risk of specific customers, historical trends and other
information.
  27
 LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
 18.
                  Financial
      instruments and risk management
(continued):
  (e)
                  Interest
      rate risk:
  The
Company manages its exposure to interest rate risk through floating rate
borrowings. The floating rate debt is subject to interest rate cash flow risk,
as the required cash flows to service the debt will fluctuate as a result of
changes in market rates.    At year end, the Company has no loan
outstanding.
  19.
                  Economic
      dependence
  The
Company has sales to a major customer in 2008, 2007 and 2006, a government
agency of the People’s Republic of China.  The total percentage of
sales to this customer net of discontinued operations during the year was 100%
(2007 – 100%, 2006 – 100%), and the total percentage of accounts receivable at
December 31, 2008 was 95% (2007 – 93%).
  20.
                  Segmented
      information:
  The
Company operates two distinct reportable business segments as
follows.
  Online
English Language Learning: The Company offers a groundbreaking online service
using robust speech recognition technology acquired through its acquisition of
Speak2Me Inc. in October 2007.
  English
Language Learning Publishing: The Company develops, publishes, distributes and
licenses book, audio/video cassette, CD-based product and supplemental product
for English language learning for the educational school markets in
China.
  Online
      English Language Learning
                  
                  
                  English
                    Language
      Learning
                  
                  
                  TotalRevenue
                  
                  $
                  -
                  
                  
                  $
                  969,128
                  
                  
                  $
                  969,128Cost
      of sales
                  
                  
                  -
                  
                  
                  
                  126,329
                  
                  
                  
                  126,329Margin
                  
                  
                  -
                  
                  
                  
                  842,799
                  
                  
                  
                  842,799Acquisition
      of property and equipment
                  
                  
                  -
                  
                  
                  
                  12,937
                  
                  
                  
                  12,937Segment
      Assets
                  
                  
                  5,511,426
                  
                  
                  
                  2,980,758
                  
                  
                  
                  8,492,184Segment
      loss
                  
                  
                  507,894
                  
                  
                  
                  1,803,580
                  
                  
                  
                  2,311,474
  The
Company's revenue by geographic region based on the region in which the
customers are located is as follows:
  2008
                  
                  
                  2007
                  
                  
                  2006Canada
                  
                  $
                  1,220
                  
                  
                  $
                  1,920
                  
                  
                  $
                  5,257China
                  
                  
                  967,908
                  
                  
                  
                  877,706
                  
                  
                  
                  888,816$
                  969,128
                  
                  
                  $
                  879,626
                  
                  
                  $
                  894,073
  The
majority of the Company’s identifiable assets are located as
follows:
  2008
                  
                  
                  2007Canada
                  
                  $
                  2,453,878
                  
                  
                  $
                  3,304,571China
                  
                  
                  6,072,914
                  
                  
                  
                  5,462,464$
                  8,526,792
                  
                  
                  $
                  8,162,401
  28
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
 
  21.
                  Commitments
      and Contingency:
  The
Company has future minimum lease payments under operating leases for premises
and equipment as well as obligations under a consulting agreement as
follows:
  2009
                  
                  $
                  345,0912010
                  
                  
                  161,9842011
                  
                  
                  39,7362012
                  
                  
                  7,572
  The rent
expense associated with operating lease for premise and equipment is recognized
on a straight-line basis.
  The
Company has a contingency at December 31, 2008 relating to an assessment from a
government agency (Note 14).
  22.
                  Subsequent
      Event:
  (a)
                  On
      March 27, 2009, the Notice of Intent to Make Proposal under the Bankruptcy
      and Insolvency Act was accepted by A+’s creditors. The Company has allowed
      for a provision to cover all anticipated costs associated with the
      restructuring under its discontinued operations (note
  10).
  (b)
                  On
      January 16, 2009, the Company fully repaid the utilized portion of the
      $500,000 line of credit for A+.  Subsequently the line of credit
      was cancelled.
  29
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
 23.
                  Reconciliation
      of Canadian and United States generally accepted accounting
      principles:
  These
consolidated financial statements are prepared in accordance with generally
accepted accounting principles in Canada. Except as set out below, these
financial statements also comply, in all material aspects, with accounting
principles generally accepted in the United States (“United States GAAP”) and
pursuant to the rules and regulations of the Securities and Exchange
Commission.
  The
following tables reconcile results as reported under Canadian GAAP with those
that would have been reported under United States GAAP.
 
 Statements
      of Operations:2008
                  
                  
                  2007
                  
                  
                  2006Restated
      per Note 10
                  
                  
                  Restated
      per
                    Note
      10Loss
      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 StatesGAAP
                  
                  $
                  (4,696,587
                  )
                  
                  $
                  (5,177,576
                  )
                  
                  $
                  (632,592
                  )Basic
      and diluted loss per share for the year:
                  
                  
                  (0.45
                  )
                  
                  
                  (0.92
                  )
                  
                  
                  (0.16
                  )Cash
      (used in) provided by operating activities-
      Canadian GAAP
                  
                  $
                  (1,240,199
                  )
                  
                  $
                  (1,077,366
                  )
                  
                  $
                  79,290Impact
      of United StatesGAAP and
      adjustments:Write-off
      of software & web development cost
                  
                  
                  (880,846
                  )
                  
                  
                  (389,129
                  )
                  
                  
                  -Deferred
      cost
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (40,316
                  )$
                  (2,121,045
                  )
                  
                  $
                  (1,466,495
                  )
                  
                  $
                  38,974Statement
      of cash flows:2008
                  
                  
                  2007
                  
                  
                  2006Cash
      (used in) provided by investing activities-
      Canadian GAAP
                  
                  $
                  (908,200
                  )
                  
                  $
                  1,096,313
                  
                  
                  $
                  (169,758
                  )Impact
      of United States GAAP and adjustments:Write-off
      of software & web development cost
                  
                  
                  880,846
                  
                  
                  
                  389,129
                  
                  
                  
                  -Deferred
      cost
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  40,316Cash
      (used in) provided by investing activities-
      United StatesGAAP
                  
                  $
                  (27,354
                  )
                  
                  $
                  1,485,442
                  
                  
                  $
                  (129,442
                  )2008
                  
                  
                  2007Shareholders'
      equity - Canadian GAAP
                  
                  
                  6,640,384
                  
                  
                  
                  5,885,677Development
      costs (a)
                  
                  
                  (111,517
                  )
                  
                  
                  (21,200
                  )Deferred
      costs (b)
                  
                  
                  -
                  
                  
                  
                  (157,419
                  )Software
      and web development costs (c)
                  
                  
                  (5,233,187
                  )
                  
                  
                  (4,352,341
                  )$
                  1,295,680
                  
                  
                  $
                  1,354,717
  30
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
 23.
                  Reconciliation
      of Canadian and United States generally accepted accounting principles
      (continued):
 
 Number
      of
                    shares
                  
                  
                  Amount
                  
                  
                  Number
      of
                    warrants
                  
                  
                  Warrants
                  
                  
                  Contributed
                    Surplus
                  
                  
                  Deficit
                  
                  
                  TotalBalance,
      January 1, 2007
                  
                  
                  4,654,025
                  
                  
                  $
                  5,028,656
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  568,543
                  
                  
                  $
                  (4,499,075
                  )
                  
                  $
                  1
      098,124Private
      placement for cash, net
                  
                  
                  387,500
                  
                  
                  
                  549,996
                  
                  
                  
                  387,500
                  
                  
                  
                  161,254
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  711,250Common
      share issued for the acquisitionof
      Speak2Me Inc.
                  
                  
                  4,500,366
                  
                  
                  
                  4,536,351
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,536,351Options
      exercised
                  
                  
                  40,371
                  
                  
                  
                  59,450
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (29,277
                  )
                  
                  
                  -
                  
                  
                  
                  30,173Stock-based
      compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  156,395
                  
                  
                  
                  -
                  
                  
                  
                  156,395Net
      loss for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (5,177,576
                  )
                  
                  
                  (5,177,576
                  )Balance,
      December 31, 2007
                  
                  
                  9,582,262
                  
                  
                  
                  10,174,453
                  
                  
                  
                  387,500
                  
                  
                  
                  161,254
                  
                  
                  
                  695,661
                  
                  
                  
                  (9,676,651
                  )
                  
                  
                  1,354,717Private
      placement for cash, net
                  
                  
                  2,857,143
                  
                  
                  
                  3,992,241
                  
                  
                  
                  2,314,286
                  
                  
                  
                  372,385
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,364,626Options
      exercised
                  
                  
                  18,202
                  
                  
                  
                  38,821
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (18,688
                  )
                  
                  
                  -
                  
                  
                  
                  20,133Expired
      warrants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (387,500
                  )
                  
                  
                  (161,254
                  )
                  
                  
                  161,254
                  
                  
                  
                  -
                  
                  
                  
                  -Stock-based
      compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  252,791
                  
                  
                  
                  -
                  
                  
                  
                  252,791Net
      loss for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (4,696,587
                  )
                  
                  
                  (4,696,587
                  )Balance,
      December 31, 2007
                  
                  
                  12,457,607
                  
                  
                  $
                  14,205,515
                  
                  
                  
                  2,314,286
                  
                  
                  $
                  372,385
                  
                  
                  $
                  1,091,018
                  
                  
                  $
                  (14,373,238
                  )
                  
                  $
                  1,295,680
  (a)
                  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 Section 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.
  (b)
                  Under
      Canadian GAAP, the pre-operating costs relating to establishing a joint
      venture in China are recorded as deferred cost.  Pre-operating
      costs under United States GAAP are expensed when
  incurred.
  (c)
                  Under
      Canadian GAAP, the Company capitalized the cost of the Speak2Me
      acquisition and will begin amortization upon the selling of the products
      on a straight-ling basis over three years. Under The Financial Accounting
      Standard Board (“FASB”) Section 141 of the United States GAAP, acquisition
      costs of the Speak2Me technology are considered acquired in-process
      research and development. Since as of the acquisition date, the technology
      acquired requires a substantial amount of development work in order to
      begin selling as a product hence this cost is expensed in
      2007.  The Company failed to expense the acquisition 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. Furthermore, the Company continues to expense any development
      costs incurred during 2007 and 2008 for United States GAAP
      purposes.
  31
 LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   23.
                  Reconciliation
      of Canadian and United States generally accepted accounting principles
      (continued):
  (d)
                  Starting
      January 1, 2002 under United States and Canadian GAAP, the Company records
      compensation expense based on the fair value for stock or stock options
      granted in exchange for services from consultants. Before January 1, 2002,
      for the options issued and completely vested the Company did not recognize
      a compensation expense under Canadian GAAP but recorded a compensation
      expense under US GAAP for the options issued to consultants. In respect to
      options issued before January 1, 2002 but vesting in year 2002, the
      Company records expense under US GAAP but recognized no expenses under
      Canadian GAAP.
  (e)
                  Recent
      Accounting Pronouncements:
  (i)
                  FASB
      issued statement of Financial Accounting No. 157 Fair Value Measurement.
      This statement is effective for financial statements issued for fiscal
      years beginning after November 15, 2008 and interim periods within those
      fiscal years. Early adoption is permitted. The standard provides enhanced
      guidance for using fair value to measure assets and liabilities, the
      information used to measure fair value, and the effect of fair value
      measurement on earnings. The standard applies whenever other standards
      require (or permit) assets or liabilities to be measured at fair value. It
      does not expand the use of fair value in any new circumstances. The
      Company does not expect there to be any material impact on the
      Consolidated Financial Statements upon adoption of the
      standard.
  (ii)
                  Effective
      January 1, 2007, the Company adopted FIN 48, “Accounting for Uncertainty
      in Income Taxes – an interpretation of FASB Statement No. 109.” This
      interpretation requires that an entity recognize in the financial
      statements, the impact of a tax position, if that position is more likely
      than not to be sustained on examination by the taxing authorities, based
      on technical merits of the position. Tax benefits resulting from such a
      position should be measured as the amount that is more likely than not on
      a cumulative basis to be sustained on examination. FIN 48 also provides
      guidance on de-recognition, classification, interest and penalties on
      income taxes and accounting in interim periods. The adoption of this
      interpretation did not impact the Company’s Financial
      Statements.
  (iii)
                  In
      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities, including an amendment of FASB
      Statement No. 115 (SFAS No. 159). This statement permits entities to
      choose to measure many financial instruments and certain other items at
      fair value that are not currently required to be measured at fair
      value.  It also establishes presentation and disclosure
      requirements designed to facilitate comparisons between entities that
      choose different measurement attributes for similar types of assets and
      liabilities. SFAS No. 159 is effective on January 1, 2008. The Company is
      currently evaluating the impact of this standard on its Financial
      Statements.
  32
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   23.
                  Reconciliation
      of Canadian and United States generally accepted accounting principles
      (continued):
  (iv)
                  In
      December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
      Consolidated Financial Statements. This statement affects only entities
      that have an outstanding noncontolling interest in one or more
      subsidiaries or that deconsolidate a subsidiary. This statement provides
      guidance on the accounting and reporting for noncontrolling interest in a
      subsidiary to improve the relevance, comparability, and transparency of
      the financial information provided by consolidated financial statements.
      The Company does not expect there to be any material impact on the
      Consolidated Financial Statements upon adoption of the
      standard.
  (v)
                  In
      March 2007, the FASB issued SFAS No. 161, Disclosures about Derivative
      Instruments and Hedging Activities.  This statement improve
      financial report about derivative instruments and hedging activities by
      requiring enhanced disclosures to enable investors to better understand
      their effects on the Company’s financial position, financial performance,
      and cash flows.  It is effective for financial statements issued
      for fiscal years and interim periods beginning after November 15, 2008,
      with early adoption encouraged.  The Company does not expect
      there to be any material impact on the Consolidated Financial Statements
      upon adoption of the standard.
  (vi)
                  In
      April 2008, the FASB issued FAS 142-3, Determination of the Useful Life of
      Intangible Assets.  This statement requires that when the
      Company develops assumption about renewal or extension used to determine
      the useful life of a recognized intangible asset under FASB Statement No.
      142, Goodwill and Other Intangible Assets to consider its own historical
      experience in renewing or extending similar arrangements.  In
      the absence of that experience, the Company shall consider the assumptions
      that market participants would use about renewal or
      extension.  The Company is currently evaluating the impact of
      this standard on its Financial
Statements.
  (vii)
                  In
      October 2008, the FASB issued FAS 157-3, Fair Value Measurements to
      provide additional guidance on determining the fair value of a financial
      asset when the market for that asset is not active.  This
      statement is effective upon issuance, including prior periods for which
      financial statements have not been issued.  The Company is
      currently evaluating the impact of this standard on its Financial
      Statements.
  (viii)
                  In
      March 2009, the FASB issued Statement No. 162, The Hierarchy of Generally
      Accepted Accounting Principles, to become the single source of
      authoritative accounting principles used by nongovernmental entities in
      the preparation of financial statements in conformity with United States
      GAAP except for the rules and interpretive releases of the SEC under
      authority of federal securities laws, which are sources of authoritative
      GAAP for SEC registrants.    The statement is
      effective July 1, 2009 and the Company is currently evaluating the impact
      of this standard on its Financial
Statements.
  (ix)
                  The
      FASB revised Statement No. 141, Business Combination to improve the
      relevance, representational faithfulness and comparability of information
      a company provides about a business combination and its
      effects.  The statement requires an acquirer to recognize the
      assets acquired, the liabilities assumed, and any noncontrolling interest
      in the acquiree at the acquisition date, measured at fair values as of
      that date.  It also requires an acquirer to recognize
      contingencies arise as of the acquisition date, measured at their
      acquisition-date fair value and that goodwill as of the acquisition date
      is measured as a residual value.  The impact of the statement
      depends on whether the Company has such transaction in the
      future.
  33
  LINGO
MEDIA CORPORATION
 Notes to
Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 December
31, 2008 and 2007
   24.
                  Supplemental
      cash flow information:
 
 2008
                  
                  
                  2007
                  
                  
                  2006Income
      taxes and other taxes paid
                  
                  $
                  145,018
                  
                  
                  $
                  127,267
                  
                  
                  $
                  160,455Interest
      paid
                  
                  $
                  95,544
                  
                  
                  $
                  27,077
                  
                  
                  $
                  31,260
  Non-cash
transactions:
  (a)
                  In
      2008, warrants were issued in connection with a private placement (see
      note 12 (a)(ii)) are valued at  $281,357.  This amount
      has been recorded as an increase in warrants amount charged against share
      capital.
  (b)
                  In
      2008, compensation warrants were issued in connection with a private
      placement (see note 12(a)(ii)) are valued at  $91,025. This
      amount has been recorded as an increase in warrants amount with a
      corresponding increase in share issue costs which is charged against share
      capital
  (c)
                  In
      2007, 4,500,366 common shares were issued as consideration for the
      acquisition of Speak2Me Inc. in the amount of $4,536,351. As at December
      31, 2007, this amount is included in capital
  stock.
  (d)
                  In
      2006, 2,849,500 common shares (407,071 after reorganization) were issued
      as consideration for the acquisition of A+ Child Development (Canada) Ltd.
      in the amount of $569,900. As at December 31, 2006, this amount is
      included in capital stock.
  (e)
                  Included
      in the capital stock is $18,688 (2007 - $29,277) representing the fair
      value of stock options exercised (note
11(b)).
  25.
                  Comparative
      figures:
  Certain
comparative figures have been adjusted to exclude results from discontinued
operations and have been reclassified to conform to the financial statement
presentation adopted in the current year.
  26.
                  Correction
      of error and restatement:
  The 2007
comparative figures have been restated due to a correction of an error resulted
in reclassification of $139,777 out of accounts receivable and into software and
web development cost. It does not have an effect on the net loss or loss per
share for the year ended December 31, 2007.