Edgar Filing: LINGO MEDIA CORP

lmc_6k-063012.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16 under

the Securities Exchange Act of 1934

For the month of June 30, 2012

Commission File Number 333-98397

Lingo Media Corporation

(Translation of registrant's name into English)

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

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F x Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes o No x

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- .

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunder duly authorized.

	LINGO MEDIA CORPORATION

Date: August 29, 2012	By:	/s/ Michael Kraft
		Michael Kraft President and CEO

LINGO MEDIA CORPORATION

Condensed Consolidated Interim Financial Statements

For the six-month period ended June 30, 2012

LINGO MEDIA CORPORATION

Condensed Consolidated Interim Financial Statements

As at June 30, 2012

Notice to Reader

Management has compiled the Condensed Consolidated Interim Financial Statements of Lingo Media Corporation (“Lingo Media” or the “Company”) consisting of the Condensed Consolidated Interim Balance Sheet as at June 30, 2012 and the Condensed Consolidated Interim Statements of Comprehensive Income, Changes in Equity and Cash Flows for the six months then ended. All amounts are stated in Canadian Dollars. An accounting firm has not reviewed or audited these Condensed Consolidated Interim Financial Statements and Management Discussion and Analysis thereon.

LINGO MEDIA CORPORATION

Condensed Consolidated Interim Financial Statements

As at June 30, 2012

Contents

Condensed Consolidated Interim Financial Statements	Page

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

LINGO MEDIA CORPORATION

Condensed Consolidated Interim Balance Sheet

As at June 30, 2012

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

	Notes	June 30, 2012			December 31, 2011
ASSETS
Current Assets

Cash and cash equivalents		$	264,109		$	482,767
Accounts receivable	5		966,654			1,175,330
Prepaid and other receivables			107,107			103,618

			1,337,870			1,761,715
Non-Current Assets

Property and equipment, net	6		43,431			48,321
Intangibles, net	7		942,796			1,099,521
Goodwill			139,618			139,618

TOTAL ASSETS		$	2,463,715		$	3,049,175

LIABILITIES AND EQUITY

Current Liabilities

Accounts payable		$	462,863		$	373,521
Accrued liabilities			332,532			335,820
Loans payable	8		890,000			890,000

TOTAL LIABILITIES			1,685,395			1,599,341

Equity

Share capital	9		17,925,347			17,925,347
Warrants	11		1,046,365			1,046,365
Share-based payment reserve			2,172,518			2,130,735
Accumulated other comprehensive income			(64,914	)		(86,760	)
Deficit			(20,300,996	)		(19,565,853	)
TOTAL EQUITY			778,320			1,449,834

TOTAL LIABILITIES AND EQUITY		$	2,463,715		$	3,049,175

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

/s/ Michael Kraft		/s/ Tommy Gong
Director		Director

LINGO MEDIA CORPORATION

Condensed Consolidated Interim Statement of Comprehensive Income

For the six-months ended June 30, 2012 and 2011

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

	Notes	For the three months ended June 30						For the six months ended June 30
		2012			2011			2012			2011

Revenue		$	737,163		$	455,740		$	995,090		$	756,574

Expenses

Selling, general and administrative expenses			575,734			419,812			1,183,280			1,198,872
Share-based payment			13,057			152,263			41,783			531,385
Direct costs			69,438			67,621			140,910			125,489
Amortization – publishing development costs			-			425			-			16,501
Depreciation – property and equipment	6		1,851			3,081			4,899			6,127
Amortization – intangibles	7		94,681			645,868			194,243			1,243,509
Total Expenses			754,761			1,289,070			1,565,115			3,121,883

Loss from Operations			(17,598	)		(833,330	)		(570,025	)		(2,365,309	)

Net Finance Charges

Interest (income) expense			32,036			19,055			60,611			63,636
Foreign exchange (gain) / loss			(35,131	)		192,781			7,070			125,298


Loss before Tax			(14,503	)		(1,045,166	)		(637,706	)		(2,554,243	)

Income Tax Expense			84,418			72,841			97,437			84,696

Loss for the Period – Continuing Operations			(98,921	)		(1,118,007	)		(735,143	)		(2,638,939	)


Other Comprehensive Income

Exchange differences on translating foreign operations			14,245			(47,763	)		21,846			(25,033	)

Total Comprehensive Loss, Net of Tax		$	(84,676	)	$	(1,165,770	)	$	(713,297	)	$	(2,663,972	)

Loss per Share
Basic and Diluted		$	(0.004	)	$	(0.06	)	$	(0.03	)	$	(0.15	)

Weighted Number of Common Shares Outstanding
Basic and Diluted			20,543,177			18,689,811			20,543,177			18,253,908

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

LINGO MEDIA CORPORATION

Condensed Consolidated Interim Statement of Changes in Equity

For the six-months ended June 30, 2012

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

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

Balance as at January 1, 2011		13,949,189	$	15,131,192		$	1,612,621			-	$	(4,181	)	$	(14,848,806	)	$	1,890,826
Loss for the period / year		-		-			-			-		-			(3,064,517	)		(3,064,517	)
Issued shares – equity financing		5,557,001		3,053,985			-			-		-			-			3,053,985
Issued shares – balance of ELL Technologies Limited acquisition payment due		1,036,987		786,535			-			-		-			-			786,535
Warrants issued		-		(1,046,365	)		-			1,046,365		-			-			-
Other comprehensive income / (loss)		-		-			-			-		59,565			-			59,565
Share-based payments charged to operations		-		-			531,388			-		-			-			531,388
Balance as at June 30, 2011		20,543,177		17,925,347			2,144,009			1,046,365		55,384			(17,913,323	)		3, 257,782
Loss for the period / year		-		-			-			-		-			(1,652,530	)		(1,652,530	)
Other comprehensive income / (loss)		-		-			-			-		(142,144	)		-			(142,144	)
Share-based payments charged to operations		-		-			(13,274	)		-		-			-			(13,274	)

Balance as at December 31, 2011		20,543,177		17,925,347			2,130,735			1,046,365		(86,760	)		(19,565,853	)		1,449,834

Loss for the period		-		-			-			-		-			(735,143	)		(735,143	)
Share-based payments charged to operations		-		-			41,783			-		-			-			41,783
Other comprehensive Loss		-		-			-			-		21,846			-			21,846
Balance as at June 30, 2012		20,543,177	$	17,925,347		$	2,172,518		$	1,046,365	$	(64,914	)	$	(20,300,996	)	$	778,320

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

LINGO MEDIA CORPORATION

Condensed Consolidated Interim Statement of Cash Flows

For the six-months ended June 30, 2012

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

	For the three months ended June 30						For the six months ended June 30
	2012			2011			2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES

Loss before Tax	$	(98,921	)	$	(1,118,007	)	$	(735,143	)	$	(2,663,972	)

Adjustments to Net Profit for Non Cash Items:

Depreciation / amortization		96,532			649,374			199,142			1,266,137
Share-based payment		13,057			152,263			41,783			531,388
Unrealized foreign exchange gain		(4,633	)		83,980			14,177			(21,682	)

Operating Loss before Working Capital Changes		6,035			(364,133	)		(480,041	)		(866,447	)

Working Capital Adjustments:

(Increase)/decrease in accounts receivable		(71,284	)		(131,005	)		208,676			(1,064	)
(Increase)/decrease in prepaid and other receivables		141			(420,178	)		(3,489	)		(376,604	)
Increase/(decrease) in accounts payable		111,597			(500,535	)		89,342			(622,484	)
Increase/(decrease) in accrued liabilities		46,271			(238,585	)		(3,288	)		(301,363	)

Cash Generated from / (used in) Operations		92,760			(1,522,693	)		(188,800	)		(2,164,617	)


CASH FLOWS FROM INVESTING ACTIVITIES

Expenditures on software & web development costs		(3,934	)		(60,278	)		(29,858	)		(101,421	)
Purchase of property, plant and equipment		-			(1,846	)		-			-


Net Cash Flows Generated from / (used in) Investing Activities		(3,934	)		(62,124	)		(29,858	)		(101,421	)

CASH FLOWS FROM FINANCING ACTIVITIES

Share capital issue during the period		-			1,125,000			-			3,320,200
Share issue costs		-			(151,230	)		-			(243,365	)
Increase/(decrease) in loans payable		-			(763,729	)		-			(1,360,729	)
Balance of acquisition payment due - settled by shares		-			777,229			-			777,229

Net Cash Flows Generated from / (used in) Financing Activities		-			987,270			-			2,493,335

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS		88,826			(597,547	)		(218,658	)		227,297

Cash and Cash Equivalents at the Beginning of the Period		175,283			1,055,750			482,767			230,906

Cash and Cash Equivalents at the End of the Period	$	264,109		$	458,203		$	264,109		$	458,203

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

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

June 30, 2012

(Unaudited - See Notice to Reader)

1. CORPORATE INFORMATION

Lingo Media Corporation (“Lingo Media” or the “Company”) is a publicly listed company incorporated in Canada with limited liability under the legislation of the Province of Ontario and its shares are listed on the TSX Venture Exchange and inter-listed on the OTC Bulletin Board. The condensed consolidated interim financial statements of the Company as at and for the quarter ended June 30, 2012 comprise the Company and its subsidiaries.

Lingo Media Corporation is an ESL industry acquisition company in online and print-based education product and services. The Company is focused on English language learning (“ELL”) on an international scale through its four distinct business units: ELL Technologies Limited (“ELL Technologies”); Parlo Corporation (“Parlo”); Speak2Me Inc. (“Speak2Me”); and Lingo Learning Inc. (“Lingo Learning”). ELL Technologies is a globally-established ELL multi-media and online training company marketed under the Q Group brand. Parlo is a fee-based online ELL training and assessment service. Speak2Me is a free-to-consumer advertising-based online ELL service in China. Lingo Learning is a print-based publisher of ELL programs in China.

The head office, principal address and registered and records office of the Company are located at 151 Bloor Street West, Suite 703, Toronto, Ontario, Canada, M5S 1S4.

2. BASIS OF PREPARATION

2.1 Statement of compliance and going concern

These condensed consolidated interim financial statements are unaudited and have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).

These condensed consolidated interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business. The Company has a working capital deficiency as at June 30, 2012 and has incurred significant losses recurring over the years. This raises significant doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon raising additional financing through share issuance, borrowing, sales contracts and distribution agreements. There are no assurances that the Company will be successful in achieving these goals.

The condensed consolidated interim financial statements for the period ended June 30, 2012 (including comparatives) were approved and authorized for issue by the board of directors on August 29, 2012.

2.2 Basis of measurement

These condensed consolidated interim financial statements have been prepared on the historical cost basis. The comparative figures presented in these condensed consolidated interim financial statements are in accordance with IFRS.

2.3 Basis of consolidation

The condensed consolidated interim financial statements comprise the financial statements of the Company and the entities controlled by the Company (i.e. subsidiaries) as at June 30, 2012 (the “Group”). Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

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

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

June 30, 2012

(Unaudited - See Notice to Reader)

2.4 Functional and presentation currency

The functional currency is the currency of the primary economic environment in which the entity operates and has been determined for each entity within the Group. These consolidated financial statements are presented in Canadian Dollars, which is the Company’s functional currency and presentation currency. The functional currency of its Lingo Learning and Speak2Me subsidiaries is Chinese Renminbi (“RMB”) and the functional currency of its ELL Technologies subsidiary is the United States Dollar (“US$”).

The functional currency determinations were conducted through an analysis of the consideration factors identified in IAS 21, “The Effects of Changes in Foreign Exchange Rates”.

3. SIGINFICANT ACCOUTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies, reported amounts of assets, liabilities and contingent liabilities, revenues and expenses at the date of the consolidated financial statements and during the reporting period.

Estimates and assumptions are continuously evaluated and are based on management’s historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.

Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:

Determination of functional and presentation currency

Determination of impairment loss

Income taxes

Valuation of share-based payments

4. SUMMARY OF SIGINFICANT ACCOUTING POLICIES

The accounting policies applied by the Company in these condensed consolidated interim financial statements are the same as those applied by the Company in its consolidated financial statements for the year ended December 31, 2011.

5. ACCOUNTS RECEIVABLE:

Accounts receivable includes trade receivables and grant receivables as follows:

	June 30, 2012		December 31, 2011
Trade receivable	$	820,688	$	1,042,730
Grants receivable		145,966		132,600
	$	966,654	$	1,175,330

6. PROPERTY AND EQUIPMENT

Cost, January 1, 2011	$	209,733
Additions		2,585
Effect of foreign exchange		844
Cost, December 31, 2011	$	213,162
Additions		-
Effect of foreign exchange		79
Cost, June 30, 2012	$	213,241

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

June 30, 2012

(Unaudited - See Notice to Reader)

6. PROPERTY AND EQUIPMENT (Cont’d)

Accumulated depreciation, January 1, 2011		151,572
Charge for the year		58,159
Effect of foreign exchange		(44,890	)
Accumulated depreciation, December 31, 2011	$	164,841
Charge for the period		4,904
Effect of foreign exchange		65
Accumulated depreciation, June 30, 2012	$	169,810

Net book value, January 1, 2011	$	58,161
Net book value, December 31, 2011	$	48,321
Net book value, June 30, 2012	$	43,431

7. INTANGIBLES

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

June 30, 2011	Cost			Accumulated Amortization			Net


Software and web development(i)		$	6,595,967		$	4,707,600		$	1,888,367
Content platform(ii)			1,477,122			320,918			1,156,204
Customer relationships(iii)			130,000			70,610			59,390

		$	8,203,089		$	5,099,127		$	3,103,962

December 31, 2011	Cost			Accumulated Amortization			Net

Software and web development(i)		$	5,931,786		$	5,865,705		$	66,081
Content platform(ii)			1,477,112			470,214			1,006,898
Customer relationships(iii)			130,000			103,458			26,542

		$	7,538,898		$	6,439,377		$	1,099,521

June 30, 20112	Cost			Accumulated Amortization			Net


Software and web development(i)		$	265,626		$	182,431		$	83,195
Content platform(ii)			1,477,122			617,521			859,601
Customer relationships(iii)			130,000			130,000			-

		$	1,872,748		$	929,952		$	942,796

(i)

The Company began commercial production and sale of its services and products during 2009 and started amortizing the cost of software and web development costs on a straight-line basis over the useful life of the assets which is estimated to be 3 years. At December 31, 2011, Management assessed the value of this asset and found it to be impaired. Accordingly, an impairment loss of $703,600 was recorded.

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

June 30, 2012

(Unaudited - See Notice to Reader)

7. INTANGIBLES (Cont’d)

(ii)

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

(iii)

In 2010, the Company acquired customer relationships from its acquisition. The customer relationships are being amortized on a straight-line basis over the useful life of the assets which is estimated to be 2 years. As at June 30, 2012, this asset is fully amortized.

8. LOANS PAYABLE

	June 30, 2012		December 31, 2011
Loans payable, interest bearing at 9% per annum with monthly interest payments, secured by a general security agreement and due on September 8, 2012(i)(ii)(iii).		890,000		890,000
	$	890,000	$	890,000

(i)

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

(ii)

Included in the $890,000 loan are loans in the amount of $435,000 to related parties as disclosed in Note 15.

(iii)

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

9. SHARE CAPITAL

a) Common shares - Authorized

Unlimited number of preference shares with no par value

Unlimited number of common shares with no par value

b) Common shares - Transactions:

(i)

On March 4, 2011, the Company closed a non-brokered private placement financing of 2,500,000 units (each a "Unit") at $0.60 per Unit and an over-allotment of 1,158,668 Units for gross proceeds of $2,195,200 (the "Financing"). Each Unit is comprised of one common share (each a "Common Share") in the capital of the Company and one non-transferable common share purchase warrant (each a "Warrant"). Each Warrant entitles the holder to purchase one Common Share at an exercise price of $0.75 per share until September 4, 2012. The Warrants are callable, at the option of Lingo Media, after July 5, 2011 in the event its Common Shares trade at or over $1.20 per share for 10 consecutive trading days. The number of Common Shares issuable pursuant to the Financing, if all Warrants are exercised, is 7,317,336 Common Shares for gross proceeds of $4,939,201.

In connection with the Financing, the Company agreed to pay a 7% finder's fee payable in cash (the "Cash Finder's Fee") or Units (the "Finder's Units") to eligible persons (the "Finders"), along with finder's warrants ("Finder's Warrants") equal to 6% of the Units placed by the Finder in the Financing. Each Finder Unit entitles the holder to one Common Share and one Warrant. Each Finder's Warrant entitles the holder to acquire one Common Share of Lingo at $0.60 until September 4, 2012. On closing, the Company issued 23,333 Finder's Units, 151,620 Finder's Warrants and paid a $92,135 Cash Finder's Fee to the Finders. The Loan lenders waived their right to be repaid $0.50 of every $1.00 raised by Lingo Media through this financing.

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

June 30, 2012

(Unaudited - See Notice to Reader)

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

The warrants were valued using the Black-Scholes pricing model using the following assumption: weighted average risk free interest rates of 1.78% weighted average expected dividend yields of NIL, the weighted average expected common stock price volatility (based on historical trading) of 83% and a weighted average expected life of 1.5 years.

(ii)

On May 11, 2011, Lingo Media closed a non-brokered private placement financing of 1,875,000 units at $0.60 per Unit for gross proceeds of $1,125,000 (the "Second Financing"). Each Unit is comprised of one common share in the capital of the Company and one non-transferable common share purchase warrant. Each Warrant entitles the holder to purchase one Common Share at an exercise price of $0.75 per share until November 11, 2012. The Warrants are callable, at the option of Lingo Media, after September 11, 2011 in the event its Common Shares trade at or over $1.20 per share for 10 consecutive trading days. The number of Common Shares issuable pursuant to the Second Financing, if all Warrants are exercised, is 3,750,000 Common Shares for gross proceeds of $2,531,250.

In connection with the Second Financing, the Company agreed to pay a 7% finder's fee payable in cash to eligible persons, along with finder's warrants equal to 6% of the Units placed by the Finder in the Financing. Each Finder's Warrant entitles the holder to acquire one Common Share of Lingo at $0.60 until November 11, 2012. On closing, the Company issued 78,900 Finder's Warrants and paid a $55,230 Cash Finder's Fee to the Finders. The Loan lenders waived their right to be repaid $0.50 of every $1.00 raised by Lingo Media through this financing. The warrants were valued using the Black-Scholes pricing model using the following assumption: weighted average risk free interest rates of 1.51% weighted average expected dividend yields of NIL, the weighted average expected common stock price volatility (based on historical trading) of 65% and a weighted average expected life of 1.5 years.

(iii)

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

10. STOCK OPTIONS

In December 2011, the Company amended its stock option plan (the “2011 Plan“). The 2011 Plan was established to provide an incentive to employees, officers, directors and consultants of the Company and its subsidiaries. The maximum number of shares which may be reserved for issuance under the 2011 Plan is limited to 4,108,635 common shares less the number of shares reserved for issuance pursuant to options granted under the 1996 Plan, the 2000 Plan, the 2005 Plan and the 2009 Plan, provided that the Board of Directors of the Company has the right, from time to time, to increase such number subject to the approval of the relevant exchange on which the shares are listed and the approval of the shareholders of the Company.

The maximum number of common shares that may be reserved for issuance to any one person under the 2011 Plan is 5% of the common shares outstanding at the time of the grant (calculated on a non-diluted basis) less the number of shares reserved for issuance to such person under any option to purchase common shares of the Company granted as a compensation or incentive mechanism.

The exercise price of each option cannot be less than the market price of the shares on the day immediately preceding the day of the grant less any permitted discount. The exercise period of the options granted cannot exceed 10 years. Options granted under the 2011 Plan do not have any required vesting provisions. The Board of Directors of the Company may, from time to time, amend or revise the terms of the 2011 Plan or may terminate it at any time.

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

June 30, 2012

(Unaudited - See Notice to Reader)

10. STOCK OPTIONS (Cont’d)

The following summarizes the options outstanding:

	Number of Options			Weighted Average Exercise Price
Outstanding as at January 1, 2011		708,356		$	1.27
Granted		1,812,000
Expired		(14,286	)
Outstanding as at June 30, 2011		2,506,070		$	0.90
Expired		(471,000	)
Outstanding as at December 31, 2011		2,035,070		$	0.89
Expired		(227,570	)
Outstanding as at June 30, 2012		1,807,500		$	0.91


Options exercisable as at January 1, 2011		658,356		$	1.24
Options exercisable as at June 30, 2011		1,539,962		$	1.12
Options exercisable as at December 31, 2011		1,600,763		$	0.95
Options exercisable as at June 30, 2012		1,480,100		$	0.97

The following table summarizes information about stock options outstanding at June 30, 2012:

	Options Exercisable						Options Outstanding
Expiry Date	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Outstanding		Weighted Average Exercise Price
1/12/2013		85,000		0.54		0.70		85,000		0.70
3/10/2013		15,000		0.69		1.40		15,000		1.40
4/10/2013		50,000		0.78		1.70		50,000		1.70
4/22/2013		5,000		0.81		2.00		5,000		2.00
6/26/2013		25,000		0.99		1.80		25,000		1.80
5/1/2014		151,500		1.84		1.75		151,500		1.75
2/15/2016		998,600		3.63		0.83		1,276,000		0.79
2/22/2016		150,000		3.65		0.78		150,000		0.76
		1,480,100						1,807,500

The weighted average grant-date fair value of options granted to employees, consultants and directors has been estimated at $0.60 (2011 - $0.47) using the Black-Scholes option-pricing model. The estimated fair value of the options granted is expensed over the options vesting periods. The pricing model assumes the weighted average risk free interest rates of 1.50% (2011 – 1.78%) weighted average expected dividend yields of NIL (2011 – NIL), the weighted average expected common stock price volatility (based on historical trading) of 80% (2011 – 81%) and a weighted average expected life of 5 years (2011 – 5 years), which were estimated based on past experience with options and option contract specifics.

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

June 30, 2012

(Unaudited - See Notice to Reader)

11. WARRANTS

The following summarizes the warrants outstanding:

	Weighted Average Remaining Contractual Life (Years)		Series			Number of Warrants		Weighted Average Exercise Price
January 1, 2011							-
Expired							-
Issued		0.45		2011	a		3,658,668		0.75
Issued		0.29		2011	b		1,875,000		0.75
December 31, 2011							5,533,668
June 30, 2012							5,533,668

The following summarizes the compensation warrants outstanding:

	Weighted Average Remaining Contractual Life (Years)		Series		Number of Warrants		Weighted Average Exercise Price
January 1, 2011					Nil		Nil
Issued		0.45		2011		151,620		0.60
Issued		0.30		2011		78,900		0.60
December 31, 2011						230,520
June 30, 2012						230,520

12. FINANCIAL INSTRUMENTS

Fair values

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

Financial risk management objectives and policies

The financial risk arising from the Company’s operations are currency risk and liquidity risk. These risks arise from the normal course of operations and all transactions undertaken are to support the Group’s ability to continue as a going concern. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below.

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

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities (when revenue or expense is denominated in a different currency from the Company’s functional currency) and the Company’s net investments in foreign subsidiaries. The Company operates internationally and is exposed to foreign exchange risk as certain expenditures are denominated in foreign currencies.

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

June 30, 2012

(Unaudited - See Notice to Reader)

12. FINANCIAL INSTRUMENTS (Cont’d)

Liquidity risk

The Company manages its liquidity risk by preparing and monitoring forecasts of cash expenditures to ensure that it will have sufficient liquidity to meet liabilities when due. The Company’s accounts payable and accrued liabilities generally have maturities of less than 90 days. At June 30, 2012, the Company had cash and cash equivalent of $264,109, accounts and grants receivable of $966,654 and prepaid and other receivables of $107,107 to settle current liabilities of $1,685,395.

13. CAPITAL MANAGEMENT

The Company’s primary objectives when managing capital are to (a) safeguard the Company’s ability to develop, market, distribute and sell English language learning products, and (b) provide a sound capital structure for raising capital at a reasonable cost for the funding of ongoing development of its products and new growth initiatives. The Board of Directors does not establish quantitative capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.

The Company includes equity, comprised of issued share capital, warrants, share-based payments reserve and deficit, in the definition of capital. The Company is dependent on cash flow from co-publishing and distribution agreements and external financing to fund its activities. In order to carry out planned development of its products and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There has been no change to the Company’s capital management.

14. SEGMENTED INFORMATION

The Company operates two distinct reportable business segments as follows:

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

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

Segmented Information for Six Months Ended June 30, 2012 (Before Other Financial Items Below)

	Online English Language Learning			Print-Based English Language Learning		Total

Revenue		367,717			627,373		995,090
Acquisition of property and equipment		-			-		-
Segment assets		1,328,682			1,135,033		2,463,715
Segment income (loss)		(721,268	)		95,590		(625,678	)

For Print-Based English Language Learning Segment

	June 30, 2012		June 30, 2011
Revenue		627,373		517,012
Segment assets		1,135,033		1,186,854
Segment income (loss)		95,590		(330,225	)

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

June 30, 2012

(Unaudited - See Notice to Reader)

14. SEGMENTED INFORMATION (Cont’d)

For Online English Language Learning Segment

	June 30, 2012			June 30, 2011
Revenue		367,717			239,562
Segment assets		1,328,682			3,973,379
Segment income (loss)		(721,269	)		(1,588,395	)

	June 30, 2012			June 30, 2011
Print-Based English Language Learning segment income (loss)		95,590			(330,225	)
Online English Language Learning segment income (loss)		(721,269	)		(1,588,395	)
Foreign exchange		(7,070	)		(125,298	)
Interest and other financial		(60,611	)		(63,636	)
Share-based payments		(41,783	)		(531,385	)
Other comprehensive income		21,846			(25,033	)

Total Comprehensive Loss	$	(713,297	)	$	(2,663,972	)

Revenue by Geographic Region

	2012		2011
China	$	631,747	$	517,012
Other		363,343		239,652
	$	995,090	$	756,574

Identifiable Assets

	2012		2011
Canada	$	2,421,962	$	5,277,611
China		41,753		28,622
	$	2,463,715	$	5,306,233

	Online English Language Learning		Print-Based English Language Learning		Total

Segment assets	$	1,328,682	$	1,135,033	$	2,463,715
Current assets		227,518		1,110,351		1,337,869
Long-term assets		1,101,164		24,682		1,125,846

15. RELATED PARTY BALANCES AND TRANSACTIONS

For the period of six month, the Company had the following transactions with related parties, made in the normal course of operations, and accounted for at an amount of consideration established and agreed to by the Company and related parties.

(a)

In 2012, the Company charged $5,000 (2011 - $10,000) to a corporation with one director in common for rent.

(b)

Key management compensation was $192,000 (2011 – $212,000) and is reflected as consulting fees paid to corporations owned by a director and officers of the Company. As of June 30, 2012, $228,110 of management compensation is deferred and included in accounts payable.

(c)

At June 30, 2012, the Company had loans payable due to corporations controlled by directors and officers of the Company in the amount of $435,000 (2011 - $435,000) bearing interest at 9% per annum. Interest expense related to these loans is $9,761 (2011 - $11,240).

LINGO MEDIA CORPORATION

Notes to Condensed Consolidated Interim Financial Statements

June 30, 2012

(Unaudited - See Notice to Reader)

16. SUPPLEMENTAL CASH FLOW INFORMATION

	2012		2011

Income taxes and other taxes paid	$	97,347	$	84,696
Interest paid	$	60,611	$	63,636
Balance of acquisition payment due – settled by shares	$	-	$	777,229

17. SUBSEQUENT EVENT

Subsequent to June 30, 2012, the Company extended the term of the 3,658,668 warrants issued by the Company on March 4, 2011 and the 1,875,000 warrants issued by the Company on May 11, 2011 (collectively, the "Warrants"). The terms of the Warrants have each been extended for a period of 18 months. The Warrants were scheduled to expire on September 4, 2012 and November 11, 2012, respectively, but will now expire on March 4, 2014 and May 11, 2014, respectively.