WORDLOGIC CORP - FORM 10-Q - August 19, 2014

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - WORDLOGIC CORP	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 SECTION 302 CERTIFICATION - WORDLOGIC CORP	f10q063014_ex31z2.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - WORDLOGIC CORP	f10q063014_ex32z1.htm
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - WORDLOGIC CORP	f10q063014_ex31z1.htm
EX-32.2 - EXHIBIT 32.2 SECTION 906 CERTIFICATION - WORDLOGIC CORP	f10q063014_ex32z2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

X .

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

For the transition period from ______ to _______

Commission File Number 000-32865

WORDLOGIC CORPORATION

[f10q063014_10q001.jpg]

(Exact name of registrant as specified in its charter)


Nevada		88-0422023
(State of incorporation)		(I.R.S. Employer Identification No.)

1130 West Pender St., Suite 230

Vancouver, BC Canada V6E 4A4

(Address of principal executive offices)

(604) 257-3660

(Registrant’s telephone number)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X . No . (Not required)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	.	Accelerated filer	.
Non-accelerated filer	. (Do not check if a smaller reporting company)	Smaller reporting company	X .

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes . No X .

As of August 14, 2014, there were 97,633,955 shares of the registrant’s $0.001 par value common stock issued and 97,402,415 outstanding.

WORDLOGIC CORPORATION*

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		Page

ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	36
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	39
ITEM 4.	CONTROLS AND PROCEDURES	39

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS
ITEM 1A.	RISK FACTORS	41
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	41
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	41
ITEM 4.	MINE SAFETY DISCLOSURES	41
ITEM 5.	OTHER INFORMATION	41
ITEM 6.	EXHIBITS	42

Special Note Regarding Forward-Looking Statements

Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of WordLogic Corporation (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

*Please note that throughout this Quarterly Report, and unless otherwise noted, the words "we," "our," "us," the "Company," or "WLGC" refers to WordLogic Corporation.

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Index


Unaudited Consolidated Balance Sheets	4

Unaudited Consolidated Statements of Operations	5

Unaudited Consolidated Statements of Cash Flows	7

Unaudited Consolidated Statements of Stockholders’ Equity (Deficit)	9

Notes to the Unaudited Consolidated Financial Statements	20

WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Balance Sheets

(Expressed in US Dollars)


		June 30,		December 31,
		2014		2013
		(Unaudited)

Assets

Current Assets

Cash and cash equivalents	$	1,997	$	61,791
Restricted cash (Note 3)		2,775		32,488
Investments (Note 4)		50,000		50,000
GST refund receivable (Note 5)		12,671		17,700
Employee advances		206		207
Interest receivable		39		128
Prepaid expenses (Note 6)		36,134		13,741

Total Current Assets		103,822		176,055

Property and equipment, net of accumulated depreciation (Note 7)		11,864		13,676

Total Assets	$	115,686	$	189,731


Liabilities and Stockholders’ Equity (Deficit)

Current Liabilities

Bank overdraft	$	7,321	$	–
Accounts payable and accrued liabilities		812,566		751,285
Indebtedness to related parties (Note 8)		34,207		51,098
Deferred revenue (Note 9)		50,000		–

Total Current Liabilities		904,094		802,383

Total Liabilities		904,094		802,383

Stockholders’ Equity (Deficit)

Common stock, $.001 par value; 250,000,000 shares authorized 97,633,955 shares issued and 97,402,415 outstanding as of June 30, 2014, and 91,248,384 shares issued and 91,016,844 outstanding as of December 31, 2013, respectively (Note 10)		97,634		91,248
Additional paid-in capital		27,613,104		26,373,776
Stock payable		29,000		11,500
Accumulated deficit		(2,264,854)		(2,264,854)
Deficit accumulated during development stage		(25,571,630)		(24,151,280)
Accumulated other comprehensive loss		(671,413)		(652,793)
Treasury stock, 231,540 shares as of June 30, 2014 and December 31, 2013 (Note 11)		(20,249)		(20,249)

Total Stockholders’ Deficit		(788,408)		(612,652)

Total Liabilities and Stockholders’ Equity (Deficit)	$	115,686	$	189,731

(The accompanying notes are an integral part of the consolidated financial statements.)

WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statements of Operations

(Expressed in US Dollars)


		Accumulated
		from May 27, 2003 (Date of		For the Three months Ended				For the Six months Ended
		Inception) to		(Unaudited)				(Unaudited)
		June 30,		June 30,		June 30,		June 30,		June 30,
		2014		2014		2013		2014		2013
		(Unaudited)
Revenues

Product sales	$	27,114	$	–	$	245	$	–	$	366
Patents licensing		5,000,000		–		–		–		–
Royalty revenue		32,962		–		–		–		–

Total Revenues		5,060,076		–		245		–		366

Operating expenses
Rent, related party		1,125,066		26,878		27,625		55,182		63,800
Selling, general and administrative (Note 8 and 12)		24,876,553		249,930		1,018,968		1,159,693		1,730,813
Research and development		4,126,269		104,393		220,224		200,847		404,995

Total Operating Expenses		30,127,888		381,201		1,266,817		1,415,722		2,199,608

Income (Loss) from Operations		(25,067,812)		(381,201)		(1,266,572)		1,415,722		(2,199,242)

Other income (expenses)
Bad debts		(11,250)		–		–		–		–
Interest income		8,765		40		58		79		(130)
Interest expense:				–		–		–		–
Related parties		(84,152)		–		–		–		–
Amortization of discount on convertible note		(145,243)		–		–		–		–
Other notes, advances and amounts		(456,883)		(2,538)		–		(4,707)		–
Gain on derivative liability		142,861		–		–		–		–
Gain on interest forgiveness		2,947		–		–		–		–
Gain (loss) on settled payables		(745,509)		–		–		–		–
Gain (loss) on legal settlement		(815,354)		–		–		–		–

Income (Loss) Before Extraordinary Item		(27,171,630)		(383,699)		(1,266,514)		(1,420,350)		(2,199,372)

Net extraordinary gain on litigation settlement, less applicable income taxes of $nil		1,600,000		–		–		–		–


Net Income (Loss)		(25,571,630)		(383,699)		(1,266,514)		(1,420,350)		(2,199,372)

Other Comprehensive Income
Net Gain (Loss) of Foreign Currency Translation		(671,413)		(36,899)		4,018		(18,620)		11,236
Net Comprehensive Income (Loss)	$	(26,243,043)	$	(420,598)	$	(1,262,496)	$	(1,438,970)	$	(2,188,136)

Basic net income (loss) per share			$	0.00	$	(0.02)	$	(0.01)	$	(0.03)
Diluted net income (loss) per share			$	0.00	$	(0.02)	$	(0.01)	$	(0.03)

Weighted average common shares used in calculating basic net income (loss) per share				96,310,768		83,765,177		94,815,640		83,765,177
Weighted average common shares used in calculating diluted net income (loss) per share				96,310,768		83,765,177		94,815,640		83,765,177

(The accompanying notes are an integral part of the consolidated financial statements.)

WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Expressed in US Dollars)


		Accumulated
		from May 27, 2003 (Date of entry to development stage) to		For the Six Months Ended (Unaudited)
		June 30,		June 30,		June 30,
		2014		2014		2013
		(Unaudited)
Cash flows from operating activities:

Net income (loss)	$	(25,571,630)	$	(1,420,350)	$	(2,199,372)
Adjustments to reconcile net income (loss) to net cash provided (used) in operating activities:
Bad debts		11,250		–		–
Depreciation and amortization		71,655		1,714		2,493
Common stock issued for services and payables		1,050,425		–		–
Stock-based compensation		14,418,976		555,013		645,657
Amortization of debt discount		145,243		–		–
Loss on settled liabilities		807,202		–		–
Gain on derivative liability		(142,861)		–		–
Loss on legal settlement		815,354		–		–
Changes in current assets and liabilities:
Receivables		38,053		5,118		(25,887)
Employee advances		(15,574)		1		12
Prepaid expenses		(36,134)		(22,393)		40,559
Accounts payable and accrued liabilities		1,054,325		68,701		245,575
Accrued interest payable		33,710		–		(1,710)
Deferred revenue		50,000		50,000		–
Net cash provided (used) in operating activities		(7,270,006)		(762,196)		(1,292,673)

Cash flows from investing activities:
Investment in term deposit		(50,000)		–		865,077
Purchases of equipment		(47,988)		–		–

Net cash provided (used) in investing activities		(97,988)		–		865,077

Cash flows from financing activities:
Proceeds from related party advances		1,354,054		–		–
Repayment of related party advances		(1,032,621)		(16,891)		(9,526)
Proceeds from promissory notes issued to related parties		411,509		–		–
Repayment of related party promissory notes		(493,941)		–		–
Proceeds from convertible promissory note		933,926		–		–
Repayment of convertible promissory notes		(947,462)		–		–
Proceeds from other promissory note		993,120		–		–
Repayment of other promissory notes		(449,220)		–		–
Payments on capital lease obligation		(12,071)		–		–
Proceeds from line of credit		60,659		–		–
Repayment of line of credit		(60,659)		–		–
Purchase of treasury stock		(101,440)		–		–
Proceeds from stock options and warrants exercised		1,242,915		315,000		50,000
Proceeds from sale of common shares		6,143,880		393,200		27,000



Net cash provided (used) by financing activities		8,042,649		691,309		67,474

Effect of exchange rate changes on cash		(671,413)		(18,620)		11,236

Net change in cash		3,242		(89,507)		(348,886)

Cash, beginning of period		1,530		94,279		756,166

Cash, end of period	$	4,772		4,772	$	407,280

Non-Cash Information:
Cashless exercise of warrants	$	275	$	–	$	–
Stock issued to settle notes payable plus accrued interest	$	1,445,853	$	–	$	–
Line of credit converted to bank loan	$	44,359	$	–	$	–
Retirement of treasury stock	$	81,191	$	–	$	–
Reclass from common stock to stock payable	$	4,000	$	–	$	–
Stock issued for stock payable	$	7,500	$	7,500	$	–

Supplemental disclosure of cash flow information:
Cash paid for income taxes		–		–		–
Cash paid for interest		226,556		4,707		2,991

(The accompanying notes are an integral part of the consolidated financial statements.)

WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statement of Stockholders’ Equity (Deficit)

(Expressed in US Dollars)


								Deficit
								Accumulated	Accumulated
			Additional			Stock		During	Other
	Common Stock		Paid-In	Treasury Stock		Payable	Accumulated	Development	Comprehensive
	Shares	Par Value	Capital	Shares	Cost	(Receivable)	Deficit	Stage	Loss	Total
		$			$	$	$	$	$	$
Balance, May 27, 2003 (inception), prior to reverse merger	19,016,657	19,017	1,504,366	–	–	–	(2,264,854)	–	3,806	(737,665)
Reverse merger with The American West.com, Inc. (Note 1)	2,907,007	2,907	(2,907)	–	–	–	–	–	–	–
Cancelled shares.	(60,000)	(60)	60	–	–	–	–	–	–	–
Comprehensive loss:
Net loss	–	–	–	–	–	–	–	(408,027)	–	(408,027)
Currency translation adjustment	–	–	–	–	–	–	–	–	(270,371)	(270,371)
Balance, December 31, 2003	21,863,664	21,864	1,501,519	–	–	–	(2,264,854)	(408,027)	(266,565)	(1,416,063)
Common stock issued in exchange for services and payables	88,000	88	47,369	–	–	–	–	–	–	47,457
Common stock options granted	–	–	10,344	–	–	–	–	–	–	10,344
Comprehensive income:
Net income	–	–	–	–	–	–	–	938,596	–	938,596
Currency translation adjustment	–	–	–	–	–	–	–	–	(97,095)	(97,095)
Balance, December 31, 2004	21,951,664	21,952	1,559,232	–	–	–	(2,264,854)	530,569	(363,660)	(516,761)
Sale of common stock ($0.65/share)	830,770	830	539,170	–	–	–	–	–	–	540,000
Common stock options granted	–	–	204,458	–	–	–	–	–	–	204,458
Comprehensive loss:
Net loss	–	–	–	–	–	–	–	(1,221,564)	–	(1,221,564)
Currency translation adjustment	–	–	–	–	–	–	–	–	(2,930)	(2,930)
Balance, December 31, 2005	22,782,434	22,782	2,302,860	–	–	–	(2,264,854)	(690,995)	(366,590)	(996,797)
Sale of units consisting of one share of common stock and one warrant ($0.60/share)	570,000	570	341,430	–	–	–	–	–	–	342,000
Common stock options exercised ($0.30/share)	100,000	100	29,900	–	–	–	–	–	–	30,000


Common stock options exercised ($0.60/share)	29,150	30	17,460	–	–	–	–	–	–	17,490
Sale of units consisting of one share of common stock and one warrant ($0.50/share)	1,000,000	1,000	499,000	–	–	–	–	–	–	500,000
Common stock options and warrants vested	–	–	1,132,512	–	–	–	–	–	–	1,132,512
Comprehensive loss:
Net loss	–	–	–	–	–	–	–	(2,214,823)	–	(2,214,823)
Currency translation adjustment	–	–	–	–	–	–	–	–	4,940	4,940
Balance, December 31, 2006	24,481,584	24,482	4,323,162	–	–	–	(2,264,854)	(2,905,818)	(361,650)	(1,184,678)
Sale of units consisting of one share of common stock and one warrant ($0.65/share)	200,000	200	129,800	–	–	–	–	–	–	130,000
Sale of units consisting of one share of common stock and one warrant ($0.50/share)	821,000	821	409,679	–	–	–	–	–	–	410,500
Sale of units consisting of one share of common stock and one warrant ($0.40/share)	75,000	75	29,925	–	–	–	–	–	–	30,000
Sale of units consisting of one share of common stock and one warrant ($0.30/share)	2,377,297	2,377	710,812	–	–	–	–	–	–	713,189
Sale of units consisting of one share of common stock and one warrant ($0.25/share)	40,000	40	9,960	–	–	–	–	–	–	10,000
Exercise of warrants ($1.25/share)	20,000	20	24,980	–	–	–	–	–	–	25,000
Common stock options exercised (cashless)	87,736	88	(88)	–	–	–	–	–	–	–
Common stock options and warrants vested	–	–	439,393	–	–	–	–	–	–	439,393
Comprehensive loss:
Net loss	–	–	–	–	–	–	–	(1,634,324)	–	(1,634,324)
Currency translation adjustment	–	–	–	–	–	–	–	–	(103,990)	(103,990)
Balance, December 31, 2007	28,102,617	28,103	6,077,623	–	–	–	(2,264,854)	(4,540,142)	(465,640)	(1,164,910)


Sale of common stock ($0.351.00/share)	100,000	100	99,900	–	–	–	–	–	–	100,000
Sale of units consisting of one share of common stock and one–half warrant ($0.60/share)	800,000	800	479,200	–	–	–	–	–	–	480,000
Sale of units consisting of one share of common stock and one–half warrant ($1.00/share)	50,000	50	49,950	–	–	–	–	–	–	50,000
Sale of units consisting of one share of common stock and one warrant ($0.20/share)	112,500	112	22,388	–	–	–	–	–	–	22,500
Sale of units consisting of one share of common stock and one warrant ($0.25/share)	200,000	200	49,800	–	–		–	–	–	50,000
Exercise of warrants ($0.50/share)	125,000	125	62,375	–	–	–	–	–	–	62,500
Exercise of warrants ($0.75/share)	100,000	100	74,900	–	–	–	–	–	–	75,000
Common stock options exercised ($0.30/share)	10,000	10	2,990	–	–	–	–	–	–	3,000
Common stock options exercised ($1.00/share)	192,000	192	191,808	–	–	–	–	–	–	192,000
Common stock issued for services ($0.68/share)	200,000	200	135,800	–	–	–	–	–	–	136,000
Common stock issued for services ($0.65/share)	300,000	300	194,700	–	–	–	–	–	–	195,000
Common stock issued in settlement of debt	3,930,879	3,931	1,568,421	–	–	–	–	–	–	1,572,352
Common stock options and warrants vested	–	–	2,361,327	–	–	–	–	–	–	2,361,327
Comprehensive loss:						–
Net loss	–	–	–	–	–	–	–	(4,923,057)	–	(4,923,057)
Currency translation adjustment	–	–	–	–	–	–	–	–	91,309	91,309
Balance, December 31, 2008	34,222,996	34,223	11,371,182	–	–	–	(2,264,854)	(9,463,199)	(374,331)	(696,979)
Common stock issued for services ($0.30/share)	200,000	200	59,800	–	–	–	–	–	–	60,000
Common stock issued for services ($0.53/share)	30,500	31	16,134	–	–	–	–	–	–	16,165


Common stock issued for services ($0.68/share)	250,000	250	169,750	–	–	–	–	–	–	170,000
Common stock issued for services ($0.40/share)	300,000	300	119,700	–	–	–	–	–	–	120,000
Common stock issued for services ($0.49/share)	100,000	100	48,900	–	–	–	–	–	–	49,000
Common stock issued for services ($0.31/share)	240,000	240	74,160	–	–	–	–	–	–	74,400
Common stock issued for services ($0.45/share)	300,000	300	134,700	–	–	–	–	–	–	135,000
Common stock issued for services ($0.41/share)	55,000	55	22,495	–	–	–	–	–	–	22,550
Common stock issued for services ($0.62/share)	100,000	100	61,900	–	–	–	–	–	–	62,000
Common stock issued for services ($0.43/share)	30,000	30	12,870	–	–	–	–	–	–	12,900
Common stock issued for services ($0.36/share)	50,000	50	17,950	–	–	–	–	–	–	18,000
Common stock issued for services ($0.47/share)	100,000	100	46,900	–	–	–	–	–	–	47,000
Common stock issued for services ($0.44/share)	50,000	50	21,950	–	–	–	–	–	–	22,000
Common stock issued for services ($0.30/share)	100,000	100	29,900	–	–	–	–	–	–	30,000
Common stock issued for services ($0.33/share)	90,000	90	29,610	–	–	–	–	–	–	29,700
Common stock issued for services ($0.35/share)	120,000	120	41,880	–	–	–	–	–	–	42,000
Common stock issued for services ($0.37/share)	50,000	50	18,450	–	–	–	–	–	–	18,500
Common stock issued for services ($0.28/share)	100,000	100	27,900	–	–	–	–	–	–	28,000
Common stock issued for services ($0.26/share)	127,500	127	33,023	–	–	–	–	–	–	33,150
Common stock options exercised ($0.21/share)	10,000	10	2,090	–	–	–	–	–	–	2,100


Common stock issued for services ($0.20/share)	100,000	100	19,900	–	–	–	–	–	–	20,000
Common stock issued for services ($0.22/share)	40,000	40	8,760	–	–	–	–	–	–	8,800
Common stock options exercised ($0.35/share)	33,333	33	11,633	–	–	–	–	–	–	11,666
Common stock options exercised ($0.30/share)	76,000	76	22,724	–	–	–	–	–	–	22,800
Sale of units consisting of one share of common stock and one warrant ($0.20/share)	175,000	175	34,825	–	–	–	–	–	–	35,000
Sale of units consisting of one share of common stock and one warrant ($0.30/share)	456,055	456	136,360	–	–	–	–	–	–	136,816
Sale of common stock ($0.16/share)	3,025,000	3,025	480,975	–	–	–	–	–	–	484,000
Sale of common stock ($0.15/share)	265,000	265	39,485	–	–	–	–	–	–	39,750
Sale of common stock ($0.30/share)	100,000	100	29,900	–	–	–	–	–	–	30,000
Sale of common stock ($0.35/share)	20,000	20	6,980	–	–	–	–	–	–	7,000
Common stock options and warrants vested	–	–	2,275,961	–	–	–	–	–	–	2,275,961
Comprehensive loss:
Net loss	–	–	–	–	–	–	–	(4,418,579)	–	(4,418,579)
Currency translation adjustment	–	–	–	–	–	–	–	–	(115,604)	(115,604)
Balance, December 31, 2009	40,916,384	40,916	15,428,747	–	–	–	(2,264,854)	(13,881,778)	(489,935)	(1,166,904)
Common stock issued for services ($0.39/share)	133,332	133	51,867	–	–	–	–	–	–	52,000
Common stock issued for services ($0.35/share)	320,000	320	111,680	–	–	–	–	–	–	112,000
Common stock issued for services ($0.33/share)	150,000	150	49,350	–	–	–	–	–	–	49,500
Common stock issued for services ($0.31/share)	92,321	92	28,527	–	–	–	–	–	–	28,619
Common stock issued for services ($0.30/share)	110,000	110	32,890	–	–	–	–	–	–	33,000


Common stock issued for services ($0.29/share)	150,000	150	43,350	–	–	–	–	–	–	43,500
Common stock issued for services ($0.28/share)	200,000	200	55,800	–	–	–	–	–	–	56,000
Common stock issued for services ($0.26/share)	3,200,000	3,200	828,800	–	–	–	–	–	–	832,000
Common stock issued for services ($0.25/share)	10,000	10	2,490	–	–	–	–	–	–	2,500
Common stock issued for services ($0.24/share)	113,750	114	27,186	–	–	–	–	–	–	27,300
Common stock issued for services ($0.20/share)	150,000	150	29,850	–	–	–	–	–	–	30,000
Common stock issued for services ($0.19/share)	50,000	50	9,450	–	–	–	–	–	–	9,500
Common stock issued for services ($0.18/share)	172,500	173	30,877	–	–	–	–	–	–	31,050
Common stock issued for services ($0.17/share)	19,412	19	3,281	–	–	–	–	–	–	3,300
Common stock issued for services ($0.16/share)	2,500,000	2,500	397,500	–	–	–	–	–	–	400,000
Common stock issued for services ($0.14/share)	1,495,000	1,495	207,805	–	–	–	–	–	–	209,300
Common stock issued for services ($0.13/share)	710,000	710	91,590	–	–	–	–	–	–	92,300
Common stock issued for services ($0.12/share)	850,000	850	101,150	–	–	–	–	–	–	102,000
Common stock issued for services ($0.11/share)	500,000	500	54,500	–	–	–	–	–	–	55,000
Common stock issued for services ($0.10/share)	210,000	210	20,790	–	–	–	–	–	–	21,000
Common stock issued for services ($0.09/share)	200,000	200	17,800	–	–	–	–	–	–	18,000
Common stock issued for services ($0.08/share)	2,460,000	2,460	194,340	–	–	–	–	–	–	196,800
Common stock issued for services ($0.07/share)	3,300,000	3,300	227,700	–	–	–	–	–	–	231,000


Common stock issued for services ($0.05/share)	2,400,000	2,400	117,600	–	–	–	–	–	–	120,000
Common stock issued in settlement of debt	2,042,888	2,043	293,778	–	–	–	–	–	–	295,821
Sale of common stock ($0.33/share)	30,000	30	9,870	–	–	–	–	–	–	9,900
Sale of common stock ($0.15/share)	919,999	921	136,954	–	–	–	–	–	–	137,875
Sale of common stock ($0.14/share)	140,200	140	19,488	–	–	–	–	–	–	19,628
Sale of common stock ($0.10/share)	1,185,000	1,185	117,315	–	–	–	–	–	–	118,500
Sale of units consisting of one share of common stock and one warrant ($0.20/share)	125,000	125	24,875	–	–	–	–	–	–	25,000
Sale of units consisting of one share of common stock and one warrant ($0.15/share)	643,000	643	95,807	–	–	–	–	–	–	96,450
Sale of units consisting of one share of common stock and one warrant ($0.10/share)	1,600,000	1,600	158,400	–	–	–	–	–	–	160,000
Common stock options exercised ($0.40/share)	200,000	200	79,800	–	–	–	–	–	–	80,000
Common stock options exercised ($0.15/share)	500,000	500	74,500	–	–	–	–	–	–	75,000
Common stock options and warrants vested	–	–	1,553,666	–	–	–	–	–	–	1,553,666
Comprehensive loss:
Net loss	–	–	–	–	–	–	–	(4,745,811)	–	(4,745,811)
Currency translation adjustment	–	–	–	–	–	–	–	–	(144,420)	(144,420)
Balance, December 31, 2010	67,798,786	67,799	20,729,373	–	–	–	(2,264,854)	(18,627,589)	(634,355)	(729,626)
Common stock issued for services ($0.30/share)	10,000	10	2,990	–	–	–	–	–	–	3,000
Common stock issued for services ($0.265/share)	390,000	390	102,960	–	–	–	–	–	–	103,350
Common stock issued for services ($0.26/share)	100,000	100	25,900	–	–	–	–	–	–	26,000
Common stock issued for services ($0.25/share)	544,220	544	135,510	–	–	–	–	–	–	136,054


Common stock issued for services ($0.235/share)	40,000	40	9,360	–	–	–	–	–	–	9,400
Common stock issued for services ($0.23/share)	225,000	225	53,775	–	–	–	–	–	–	54,000
Common stock issued for services ($0.22/share)	40,000	40	8,760	–	–	–	–	–	–	8,800
Common stock issued for services ($0.21/share)	150,000	150	31,350	–	–	–	–	–	–	31,500
Common stock issued for services ($0.20/share)	305,000	305	60,695	–	–	–	–	–	–	61,000
Common stock issued for services ($0.19/share)	830,000	830	156,870	–	–	–	–	–	–	157,700
Common stock issued for services ($0.18/share)	583,000	583	104,357	–	–	–	–	–	–	104,940
Common stock issued for services ($0.15/share)	475,000	475	70,775	–	–	–	–	–	–	71,250
Common stock issued for services ($0.258/share)	110,000	110	28,270	–	–	–	–	–	–	28,380
Common stock issued for services ($0.259/share)	260,000	260	67,080	–	–	–	–	–	–	67,340
Common stock issued for services ($0.13/share)	10,000	10	1,290	–	–	–	–	–	–	1,300
Common stock issued for services ($0.16/share)	307,000	307	48,813	–	–	–	–	–	–	49,120
Common stock issued for services ($0.12/share)	125,000	125	14,875	–	–	–	–	–	–	15,000
Common stock issued for services ($0.105/share)	100,000	100	10,400	–	–	–	–	–	–	10,500
Common stock issued in settlement of debt	300,000	300	59,700	–	–	–	–	–	–	60,000
Common stock issued in settlement of debt	480,000	480	85,920	–	–	–	–	–	–	86,400
Common stock issued in settlement of debt	480,000	480	81,120	–	–	–	–	–	–	81,600
Common stock issued in settlement of debt	500,000	500	62,000	–	–	–	–	–	–	62,500


Sale of units consisting of one share of common stock and one warrant ($0.15/share)	625,000	625	93,125	–	–	–	–	–	–	93,750
Common stock options exercised (cashlessly)	187,500	187	(187)	–	–	–	–	–	–	–
Sale of common stock ($0.15/share)	100,000	100	14,900	–	–	–	–	–	–	15,000
Sale of common stock ($0.10/share)	712,500	713	70,537	–	–	–	–	–	–	71,250
Sale of units consisting of one share of common stock and one warrant ($0.18/share)	532,000	532	95,228	–	–	–	–	–	–	95,760
Sale of units consisting of one share of common stock and one warrant ($0.10/share)	6,430,600	6,431	636,629	–	–	–	–	–	–	643,060
Common stock options and warrants vested	–	–	83,647	–	–	–	–	–	–	83,647
Stock receivable	–	–	–	–	–	(10,000)	–	–	–	(10,000)
Cancellation of common stock	(250,000)	(250)	250	–	–	–	–	–	–	–
Comprehensive loss:
Net loss	–	–	–	–	–	–	–	(2,132,373)	–	(2,132,373)
Currency translation adjustment	–	–	–	–	–	–	–	–	8,395	8,395
Balance, December 31, 2011	82,500,606	82,501	22,946,272	–	–	(10,000)	(2,264,854)	(20,759,962)	(625,960)	(632,003)
Stock issued for services ($0.103/share)	35,000	35	3,570	–	–	–	–	–	–	3,605
Sale of units consisting of two share of common stock and one warrant ($0.10/share)	350,000	350	34,650	–	–	10,000	–	–	–	45,000
Sale of units consisting of one share of common stock and one warrant ($0.10/share)	850,000	850	84,150	–	–	–	–	–	–	85,000
Stock issued for services for service at market price on grant date ($0.25/share)	111,111	111	27,666	–	–	–	–	–	–	27,777
Stock issued for services for service at market price on grant date ($0.10/share)	200,000	200	19,800	–	–	–	–	–	–	20,000
Stock issued for services for service at market price on grant date ($0.259/share)	50,000	50	12,900	–	–	–	–	–	–	12,950


Common stock options and warrants vested	–	–	479,607	–	–	–	–	–	–	479,607
Purchase of treasury stock	–	–	–	1,031,540	(101,440)	–	–	–	–	(101,440)
Retirement of treasury stock	(800,000)	(800)	(80,391)	(800,000)	81,191	–	–	–	–	–
Stock payable	(20,000)	(20)	(3,980)	–	–	4,000	–	–	–	–
Comprehensive loss:
Net Income	–	–	–	–	–	–	–	1,380,832	–	1,380,832
Currency translation adjustment	–	–	–	–	–	–	–	–	(31,200)	(31,200)
Balance, December 31, 2012	83,276,717	83,277	23,524,244	231,540	(20,249)	4,000	(2,264,854)	(19,379,130)	(657,160)	1,290,128
Sale of units consisting of one share of common stock and one warrant ($0.10/share)	2,430,000	2,430	240,570	–	–	–	–	–	–	243,000
Sale of units consisting of two share of common stock and one warrant ($0.10/share)	250,000	250	24,750	–	–	–	–	–	–	25,000
Sale of common stock ($0.10/share)	1,120,000	1,120	110,880	–	–	–	–	–	–	112,000
Sale of common stock ($0.15/share)	100,000	100	14,900	–	–	–	–	–	–	15,000
Exercise of warrant ($0.10/share)	3,425,000	3,425	339,075	–	–	–	–	–	–	342,500
Common stock issued in settlement of legal proceeding	500,000	500	57,000	–	–	–	–	–	–	57,500
Warrants issued in settlement of legal proceeding (Note 12)	–	–	773,644	–	–	–	–	–	–	773,644
Reverse common stock issued in settlement of legal proceeding	(53,333)	(54)	(7,821)	–	–	–	–	–	–	(7,875)
Common stock options exercised ($0.10/share)	200,000	200	19,800	–	–	–	–	–	–	20,000
Common stock options and warrants vested	–	–	1,276,734	–	–	–	–	–	–	1,276,734
Stock payable for exercise of stock options ($0.10/share)	–	–	–	–	–	7,500	–	–	–	7,500
Comprehensive loss:
Net loss	–	–	–	–	–	–	–	(4,772,150)	–	(4,772,150)
Currency translation adjustment	–	–	–	–	–	–	–	–	4,367	4,367
Balance, December 31, 2013	91,248,384	91,248	26,373,776	231,540	(20,249)	11,500	(2,264,854)	(24,151,280)	(652,793)	(612,652)


Sale of units consisting of one share of common stock and one warrant ($0.10/share)	1,122,000	1,122	111,078	–	–	25,000	–	–	–	137,200
Sale of units consisting of two share of common stock and one warrant ($0.10/share)	200,000	200	19,800	–	–	–	–	–	–	20,000
Sale of units consisting of one share of common stock and one warrant ($0.14/share)	1,178,571	1,179	163,821	–	–	–	–	–	–	165,000
Sale of units consisting of one share of common stock and one warrant ($0.15/share)	100,000	100	14,900	–	–	–	–	–	–	15,000
Sale of common stock ($0.15/share)	560,000	560	55,440	–	–	–	–	–	–	56,000
Exercise of warrant ($0.10/share)	2,650,000	2,650	262,350	–	–	–	–	–	–	265,000
Common stock options exercised ($0.10/share)	500,000	500	49,500	–	–	–	–	–	–	50,000
Common stock options and warrants vested	–	–	555,013	–	–	–	–	–	–	555,103
Stock payable for exercise of stock options ($0.10/share)	75,000	75	7,425	–	–	(7,500)	–	–	–	0
Comprehensive loss:
Net loss	–	–	–	–	–	–	–	(1,420,350)	–	(1,420,350)
Currency translation adjustment	–	–	–	–	–	–	–	–	(18,620)	(18,620)
Balance, June 30, 2014 (Unaudited)	97,633,955	97,634	27,613,104	231,540	(20,249)	29,000	(2,264,854)	(25,571,630)	(671,413)	(788,408)

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

NATURE OF OPERATIONS AND CONTINUANCE OF BUSINESS

Nature of Operations

WordLogic Corporation (the “Company” or “WLGC”), formerly TheAmericanWest.com, Inc., was incorporated under the laws of the State of Nevada on March 30, 1999. The Company’s primary business is the development and commercialization of data entry software for handheld computing devices. Its headquarters is located in Vancouver, BC, Canada.

Reverse Merger

On March 11, 2003, WLGC entered into an Agreement and Plan of Merger (the “Agreement”) with WordLogic Corporation (“WCPC”), a private British Columbia, Canada corporation. On May 27, 2003, WLGC issued 19,016,658 shares of its common stock in exchange for all 19,016,658 outstanding common shares of WCPC, and the two companies merged. This merger has been treated as a recapitalization of WCPC, with WLGC as the surviving legal entity. Since WLGC had, prior to the recapitalization, minimal assets and no operations, the recapitalization has been accounted for as the sale of 2,907,006 shares of WCPC’s common stock for the net assets of WLGC. Following the closing, WLGC remained the surviving corporation with 21,923,664 common shares outstanding, of which the former shareholders of WCPC owned approximately 86.74%.

In connection with the closing of the Agreement, WLGC changed its name to “WordLogic Corporation” (formerly TheAmericanWest.com, Inc.) and changed its OTCBB symbol under which its common stock trades on the Over-The-Counter Bulletin Board to “WLGC”. WLGC’s directors resigned their positions and the executive officers of WCPC were appointed to fill the vacancies created by the resignations, which resulted in a change in control.

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has incurred recurring losses prior to the current period, has used significant cash in support of its operating activities and, based upon current operating levels, requires additional capital or significant reconfiguration of its operations to sustain its operations for the foreseeable future. At June 30, 2014 the Company has incurred losses of $25,571,630 since inception. These factors, among others, raise significant doubt regarding the Company’s ability to continue as a going concern.

The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. The Company’s management intends to satisfy cash requirements with working capital acquired in exchange for debt and/or common stock. There is no assurance the cash infusions will continue in the future or that the Company will achieve profitable operations.

The Company’s future success will be dependent upon its ability to create and provide effective and competitive software products that meet customers changing requirements; including the effective use of leading technologies to continue to enhance its current products and to influence and respond to emerging industry standards and other technological changes on a timely and cost-effective basis.

Development Stage

Following its reverse merger on May 27, 2003, the Company entered the development stage and became a development stage enterprise.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Company’s fiscal year-end is December 31.

Basis of Consolidation

The consolidated financial statements include the accounts of WordLogic Corporation and its wholly-owned subsidiary 602531 British Columbia Ltd. (the “Subsidiary”), an entity incorporated under the laws of the Province of British Columbia, Canada. The Subsidiary does not have any operations. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

Cash and Cash Equivalents

The Company considers all investment instruments purchased with an original maturity of three months or less to be cash equivalents. Investment securities with original or remaining maturities of more than three months but less than one year are considered short-term investments. Auction rate securities with original or remaining maturities of more than three months are considered short-term investments even if they are subject to re-pricing within three months. The Company was not invested in any auction rate securities as of June 30, 2014 and December 31, 2013. Investment securities held with the intent to reinvest or hold for longer than a year, or with remaining maturities of one year or more, are considered long-term investments. The Company’s cash equivalents at June 30, 2014 consisted of term deposits with original maturities of three months or less, and are therefore classified as cash and cash equivalents in the accompanying balance sheets.

Cash and cash equivalents consisted of cash and term deposits of $1,997 and $61,791 at June 30, 2014 and December 31, 2013, respectively.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

Short and Long-term Investments

The Company accounts for its short-term and long-term investments in accordance with ASC 320, Investments-Debt and Equity Securities. The Company’s short and long-term investments in securities are classified as available-for-sale and are reported at fair value, with unrealized gains and losses, net of tax, recorded in other comprehensive income (loss). Realized gains or losses and declines in value judged to be other than temporary, if any, on available-for-sale securities are reported in other income, net. The Company reviews the securities for impairments considering current factors including the economic environment, market conditions, and the operational performance and other specific factors relating to the businesses underlying the securities. The Company records impairment charges equal to the amount that the carrying value of its available-for-sale securities exceeds the estimated fair market value of the securities as of the evaluation date. The fair value for publicly held securities is determined based on quoted market prices as of the evaluation date. In computing realized gains and losses on available-for-sale securities, the Company determines cost based on amounts paid, including direct costs such as commissions, to acquire the security using the specific identification method. The Company did not have any short or long-term investments in securities at June 30, 2014 or December 31, 2013.

The Company’s investment consisted of certified term deposit with original maturities of more than three months. The Company realized interest income based on term deposit rate agreed upon with Royal Bank of Canada. The company had term deposits totaling US $50,000 and $50,000 at June 30, 2014 and December 31, 2013, respectively. The company has recorded interest receivable of $39 and $128 at June 30, 2014 and December 31, 2013, respectively.

See Note 2.m for further information on fair value.

Allowance for Doubtful Accounts

The Company considers its receivables to be fully collectable since the Company has only two receivable accounts, GST/HST (Goods and services tax/harmonized sales tax) receivable and interest receivable; accordingly, no allowance for doubtful accounts is required. The Company recognizes an allowance for doubtful accounts on specific accounts identified at risk based on the age of the outstanding receivable and the inability or unwillingness of its customers to make the required payments.

Property and Equipment

Property and equipment are stated at cost and are amortized over their estimated useful lives as follows:


Asset	Method	Rate

Computer equipment	Straight-line	33.3%
Computer software	Straight-line	100.0%
Furniture and fixtures	Declining balance	20.0%
Other equipment	Declining balance	20.0%

Amortization is recorded at one-half of the normal rate in the year of acquisition. We have compared the depreciation taken using the declining balance method to the straight-line method and have determined the difference to be immaterial for the year ended December 31, 2014 and 2013.

Upon retirement or disposition of equipment, the cost and accumulated amortization are removed from the accounts and any resulting gain or loss is reflected in operations. Repairs and maintenance are charged to expense as incurred and expenditures for additions and improvements are capitalized.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

Impairment of Long-Lived Assets

The Company evaluates the carrying value of its long-lived assets under the provisions issued by the FASB which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted future cash flows estimated to be generated by those assets are less than the assets’ carrying amount. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying value or fair value, less costs to sell.

Deferred Revenue

Certain amounts are received pursuant to agreement and may only be used in the delivery of specific services and transactions. These amounts are recognized as revenue in the fiscal year the related expenditures are incurred or services performed.

Software Development Costs

Software development costs are recorded in accordance with the provisions issued by the FASB as follows. Costs incurred to establish the technological feasibility of computer software to be sold, leased, or otherwise marketed are expensed as incurred as research and development costs. Once technological feasibility is established, the cost of producing product masters for the software is capitalized. Capitalization of the software development costs ceases and amortization of the capitalized costs commences when the product is available for general release to customers. Capitalized costs are amortized based on the greater of (a) the ratio of current gross revenues to the total current and anticipated future gross revenues, or (b) the straight-line method over the remaining estimated economic life of the product.

Research and Development

Expenditures relating to the development of new products and processes, including significant improvements to existing products, are charged to operations as incurred.

Income Taxes

The Company accounts for income taxes under the provisions issued by the FASB which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company computes tax asset benefits for net operating losses carried forward. The potential benefit of net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

Revenue Recognition

The Company recognizes revenues in accordance with ASC 985-605, Revenue Recognition – Software (“ASC 985-605”), or ASC 605-25, Revenue Recognition – Multiple-Element Arrangements.

Pursuant to ASC 985-605, the Company recognizes revenue when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is probable. The Company applies these criteria as discussed below:

Persuasive evidence of an arrangement exists. The Company requires a written contract, signed by both the customer and the Company, or a purchase order from those customers that have previously negotiated a standard end-user license arrangement or volume purchase agreement, prior to recognizing revenue on an arrangement.

Delivery has occurred. The Company delivers software and hardware to customers physically. The standard delivery terms are free on board shipping point.

The fee is fixed or determinable. The Company’s determination that an arrangement fee is fixed or determinable depends principally on the arrangement’s payment terms. Where these terms apply, the Company regards the fee as fixed or determinable, and recognizes revenue upon delivery (assuming other revenue recognition criteria are met). If the payment terms do not meet this standard, but rather, involve “extended payment terms,” the fee may not be considered to be fixed or determinable and the revenue would then be recognized when customer installments are due and payable.

Collectability is probable. To recognize revenue, the Company judges collectability of the arrangement fees on a customer-by-customer basis pursuant to a credit review policy. The Company typically sells to customers with which it has had a history of successful collections. For new customers, the Company evaluates the customer’s financial position and ability to pay. If the Company determines that collectability is not probable based upon the credit review process or the customer’s payment history, revenue is recognized when cash is collected.

If there are any undelivered elements, the Company defers revenue for those elements, as long as vendor specific objective evidence (“VSOE”) of fair value exists for the undelivered elements. Payment for product is due upon shipment, subject to specific payment terms. Payment for professional services is due either upon or in advance of providing the services, subject to specific payment terms. Reimbursements received for out-of-pocket expenses and shipping costs, which have not been significant to date, are recognized as revenue in accordance with ASC 605-45, Revenue Recognition – Principal Agent Considerations.

The Company earns revenue from the sale of its software products and from royalties earned on software licensing agreements. Revenue from the sale of software products is recognized at the point of delivery, which occurs when customers either download the software or are shipped software products. Royalty revenue is recognized in accordance with the terms of licensing agreements and when collectability is reasonably assured, which is usually on receipt of royalty payments.

The Company also recognizes revenue from the licensing of the intellectual property portfolio according to ASC 985-605, based on the terms of agreements involved.

The Company has not established a formal policy affecting warranty or returns. No estimate of returns from sales has been made.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

Fair Value for Financial Assets and Financial Liabilities

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10 35-37 are described below:

Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data.

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company’s note payable approximates the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangement at June 30, 2014. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at June 30, 2014, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the six months ended June 30, 2014.

The Company’s operations are in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk to the Company’s operations results from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

In accordance with ASC 820, the following table presents the Company’s fair value hierarchy for its financial assets (investments) as of June 30, 2014 and December 31, 2013:


Level		June 30, 2014		December 31, 2013
Level 1	$	50,000	$	$50,000
Level 2		–		–
Level 3		–		–

Foreign Currency Translation

The Company’s functional currency is the Canadian dollar and these financial statements have been translated into U.S. dollars in accordance with standards issued by the FASB. The Canadian dollar based accounts of the Company’s foreign operations have been translated into United States dollars using the current rate method. Assets and liabilities of those operations are translated into U.S. dollars using exchange rates as of the balance sheet date; income and expenses are translated using the weighted average exchange rates for the reporting period. Translation adjustments are recorded as accumulated other comprehensive income (loss), a separate component of shareholders’ equity.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

Stock-based Compensation

On January 1, 2006, the Company adopted standards issued by the FASB, which requires the measurement and recognition of compensation expense for all share-based awards made to employees and directors, including employee stock options and shares issued through its employee stock purchase plan, based on estimated fair values. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin 107 (“SAB 107”) relating to this standard. The Company has applied the provisions of SAB 107 in its adoption of this standard. The Company adopted the FASB standard using the modified prospective transition method, which requires the application of the accounting standard as of the beginning in 2006. The Company’s financial statements as of and for the year ended December 31, 2007 reflect the impact of this standard. In accordance with the modified prospective transition method, the Company’s financial statements for prior periods do not include the impact of this standard.

The Company’s determination of estimated fair value of share-based awards utilizes the Black-Scholes option-pricing model. The Black-Scholes model is affected by the Company’s stock price as well as assumptions regarding certain highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors.

Net Income (Loss) per Share

Basic and diluted net income (loss) per share of common stock is presented in conformity with ASC 260, Earnings Per Share (“ASC 260”), for all periods presented. In accordance with ASC 260, basic net income (loss) per share has been computed using the weighted average number of shares of common stock outstanding during the period, less shares subject to repurchase. Diluted net income (loss) per share is computed on the basis of the weighted average number of shares and potential common shares outstanding during the period. Potential common shares result from the assumed exercise of outstanding stock options and warrants that have a dilutive effect when applying the treasury stock method.

The following table presents the calculation of basic and diluted net income (loss) per share:


		Six Months Ended June 30 (Unaudited)
		2014		2013

Numerator:
Net income (loss) – basic and diluted	$	(1,420,350)	$	(2,188,136)

Denominator:
Basic weighted average common shares outstanding		94,815,640		83,765,177
Effect of dilutive securities:
Stock options		–		–
Warrants		–		–
Diluted weighted average common shares outstanding		94, 815,640		83,765,177


Net income (loss) per share - basic	$	(0.01)	$	(0.03)
Net income (loss) per share - diluted	$	(0.01)	$	(0.03)

Due to a net loss for the period ended June 30, 2014, basic and diluted net loss per share are equivalent as the inclusion of potential common shares in the number of shares used for the diluted computation would be anti-dilutive to the net loss per share.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

Comprehensive Income (Loss)

The Company reports its comprehensive income (loss) in accordance with provisions of the FASB. For the six months ended June 30, 2014 and 2013, the Company’s only component of comprehensive loss was foreign currency translation adjustments.

Advertising Costs

Advertising costs are charged to operations as incurred.

Recent Accounting Pronouncements

In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:

Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and

Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

Reclassifications

Certain reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation.

RESTRICTED CASH

As of June 30, 2014 and December 31, 2013, the Company had restricted cash balances of $2,775 and $32,488, respectively. This cash was held in trust by our attorneys for the payment of future legal invoices.

INVESTMENTS

The company had held-to-maturity certified term deposits with original maturity date more than three months totaling $50,000 at June 30, 2014 as follows:


Investment Date	Amount ($)	Maturity Date	Interest Rate
April 10, 2012	50,000	April 10, 2015	0.35%
June 30, 2014	50,000

The Company has recorded an accrued interest receivable of $39 and $128 for above term deposits as of June 30, 2014 and December 31, 2013 based on statements provided by financial institutions.

GST RECEIVABLE

The Goods and Service Tax (“GST”) is a federal tax that applies to the supply of most property and services in Canada. All businesses operating in BC are responsible for collecting and remitting GST to the Canadian government. A GST registrant should collect the GST on most of their sales and pay the GST on most purchases they make to operate their business. They can claim an input tax credit (“ITC”), to recover GST paid or payable on the purchases they use in commercial activities. However, during the six months ended June 30, 2014, the Company has not collected any GST since all sales were incurred in the United State which sales are not GST taxable. The Company has filed GST returns quarterly and claimed only ITC’s during the period ended June 30, 2014. As the result of this, as of June 30, 2014 and December 31, 2013, the Company had GST refund receivable of $12,671 (CAD $13,527) and $17,700 (CAD $18,826), respectively.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

PREPAID EXPENSES

As of June 30, 2014 and December 31, 2013, we had prepaid expenses of $36,134 and $13,741, respectively. Prepaid expenses have been incurred for marketing and advertisement fees and security deposit for an office leased property. Prepaid expenses consisted of the following:


	June 30, 2014	December 31, 2013
Vendor	$	$
Bentall L.P.	11,698	11,733
Quality Stock	22,867	-
Others	1,587	2,008
Total	36,134	13,741

PROPERTY AND EQUIPMENT


	Cost $	Accumulated Amortization as of June 30, 2014 $	Net Carrying Amount as of June 30, 2014 $	Net Carrying Amount as of December 31, 2013 $
Office equipment	10,178	5,783	4,395	4,888
Computer equipment	143,854	138,008	5,846	6,983
Computer software	6,641	6,641	-	-
Furniture and fixtures	15,831	14,208	1,623	1,805

	176,504	164,640	11,864	13,676

Depreciation expense totaled $1,714 and $2,493 for the six months ended June 30, 2014 and 2013, respectively.

RELATED PARTY TRANSACTIONS AND BALANCES

The Company incurred the following related party transactions:

The Company has entered into an agreement with a private company controlled by a director to provide management services requiring monthly payments of CAD $30,000, expiring December 31, 2014. Management fees incurred by the Company totaled $164,096 (CAD $180,000) and $177,171 (CAD $180,000) for the six months ended June 30, 2014 and 2013, respectively. As at June 30, 2014, the amount owing to this private company totaled $nil.

The Company incurred accounting fees of $2,051 and $24,509 with a private company of which an officer is also an officer during the six months ended June 30, 2014 and 2013, respectively. As at June 30, 2014, the amount owing to this private company totaled $4,684.

The Company has entered into an agreement with a private company controlled by an officer to provide management services requiring monthly payments of CAD $20,000, expiring April 1, 2015. Management fees incurred by the Company totaled $109,397 (CAD $120,000) and $109,256 (CAD $111,000) for the six months ended June 30, 2014 and 2013, respectively. As at June 30, 2014, the amount owing to this private company totaled $29,523.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

DEFERRED REVENUE

During six months ended June 30, 2014, the Company received non-refundable deposit of $50,000 for software licence of which terms and condition has not been finalized.


	June 30, 2014	December 31, 2013
Description	$	$
Software licence	50,000	-
	50,000	nil

Non-current	-	-
Current	50,000	-
	50,000	nil

10.

COMMON STOCK

For the six months ended June 30, 2014:

In January 2014, the Company issued 75,000 shares of its common stock at $0.10 per share related for stock payable which company received $7,500 in December 2013 for the exercise of stock options.

Also in January 2014, the Company issued 700,000 shares of its common stock at $0.10 per share related to the exercise of warrants, for total proceeds of $70,000.

Also in January 2014, the Company conducted a private placement offering whereby it sold 100,000 shares at a price of $0.15 per share for total proceeds of $15,000.

In February 2014, the Company issued 1,200,000 shares of its common stock at $0.10 per share related to the exercise of warrants, for total proceeds of $120,000.

Also in February 2014, the Company conducted a private placement offering whereby it sold 600,000 shares at a price of $0.10 per share for total proceeds of $60,000.

In March 2014, the Company issued 150,000 shares of its common stock at $0.10 per share related to the exercise of warrants, for total proceeds of $15,000.

Also in March 2014, the Company conducted a private placement offering whereby it sold 100,000 shares at a price of $0.10 per share for total proceeds of $10,000.

Also in March 2014, the Company conducted a private placement offering whereby it sold 1,178,571 shares at a price of $0.14 per share for total proceeds of $165,000.

In May 2014, the Company issued 600,000 shares of its common stock at $0.10 per share related to the exercise of warrants, for total proceeds of $60,000.

Also in May 2014, the Company conducted a private placement offering whereby it sold 660,000 shares at a price of $0.10 per share for total proceeds of $66,000.

In June 2014, the Company conducted a private placement offering whereby it sold 522,000 shares at a price of $0.10 per share for total proceeds of $52,200.

Also in June 2014, the Company issued 500,000 shares of its common stock at $0.10 per share related to the exercise of options, for total proceeds of $50,000.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

The following table summarizes the continuity of the Company’s share purchases with warrants attached:


	Number of Warrants	Weighted average exercise price $	Weighted average remaining contractual life (in years)
Balance, December 31, 2013	4,580,000	0.10	2.11
Issued	3,050,571	0.12	1.93
Exercised	(2,650,000)	–	–
Expired/Cancelled	(100,000)	–	–
Outstanding, June 30, 2014	4,880,571	0.12	2.73

During the six months ended June 30, 2014, the Company issued 3,160,571 common shares with warrants attached for total cash proceeds of $368,200. The common stock issued included 2,580,571 attached warrants to purchase 3,050,571 common stock at the weighted average exercise price of $0.12 per share. The relative fair value of the warrants attached to the common stock issued was estimated at the date of grant using the Black-Sholes pricing model. The relative fair value of the warrants attached to the common stock issued is $171,824, and the relative fair value of the common stock is $165,376 as of the issue date. The Black-Sholes pricing model assumption used are as follows: expected dividend yield of 0%; risk-free interest rate of 0.32% - 0.49%; expected volatility of 132% - 138%, and warrant term of 2 years.

11.

TREASURY STOCK

On August 15, 2012, the Company announced that the Company’s Board of Directors approved a share repurchase program authorizing up to five million shares of the Company’s outstanding common stock to be repurchased over a 12 month period commencing on August 20, 2012. Any shares repurchased by the Company shall be returned to the treasury and may be used, if and when needed, for general corporate purposes. During six months ended June 30, 2014, the Company did not purchase shares of common stock nor retire shares of common stock from treasury stock.

12.

STOCK-BASED COMPENSATION

The Company has, since incorporation, adopted three stock option plans. The first plan is dated February 15, 2001, amended on October 15, 2009, under which the Company is authorized to grant options to acquire up to a total of 6,000,000 shares of common stock. The second plan is dated February 15, 2005, under which the Company is authorized to grant options to acquire up to a total of 3,000,000 shares of common stock. The third plan is dated July 30, 2012, under which the Company is authorized to grant options to acquire up to a total of 10,000,000 shares of common stock. Pursuant to the stock option plans, options granted are subject to vesting terms which range from immediate vesting to various stages over a period of one year including monthly vesting, at the sole discretion of the Board of Directors.

During the year ended December 31, 2008, the Company adopted the 2008 Stock Compensation Plan and the 2008 Equity Incentive Plan, under which the Company is authorized to issue up to 500,000 and 2,000,000 shares, respectively, of the Company’s common stock, to be registered on Form S-8, to the Company’s employees, executives and consultants. On May 14, 2010, the Company adopted the 2010 Share Incentive Plan on Form S-8 under which the Company is authorized to issue up to 10,000,000 registered shares of its common stock to qualified persons. On July 30, 2012, the Company adopted the 2012 Equity Incentive Plan on Form S-8 under which the Company is authorized to issue up to 10,000,000 registered shares of its common stock to qualified persons. On April 11, 2013, the Company adopted the 2013 Equity Incentive Plan on Form S-8 under which the Company is authorized to issue up to 25,000,000 registered shares of its common stock to qualified persons.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

Options Granted to Employees

On February 1, 2014, the Company granted options to purchase a total of 2,000,000 shares of the Company’s common stock to an officer. The options carry an exercise price of $0.10 per share and vested immediately. The options expire February 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $254,868. During the six month ended June 30, 2014, the Company recorded stock-based compensation of $254,868 as a general and administrative expense in connection with these options.

On February 1, 2014, the Company granted options to purchase a total of 100,000 shares of the Company’s common stock to an employee. The options carry an exercise price of $0.10 per share and vested immediately. The options expire February 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $12,743. During the six month ended June 30, 2014, the Company recorded stock-based compensation of $12,743 as a general and administrative expense in connection with these options.

During the six months ended June 30, 2014, the Company recognized and recorded stock-based compensation of $7,048 related to options granted in the prior year which vested in the current period as a general and administrative expense.

As at June 30, 2014, there was $6,225 total unrecognized compensation cost related to nonvested stock-based compensation arrangements.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

The fair value for warrants and stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average fair value of stock options granted during the six months ended June 30, 2014 were $0.1274. The weighted average assumptions used are as follows:


	June 30, 2014	December 31, 2013

Expected dividend yield	0%	0%
Risk-free interest rate	0.22%	0.37%
Expected volatility	136.00%	181.36%
Expected option life (in years)	2.37	2.41

The total intrinsic value of stock options exercised during the six months ended June 30, 2014 and 2013 were $nil and $nil respectively.

The following table summarizes the continuity of the Company’s compensation warrants to non-employees:


	Number of Warrants	Weighted Average Exercise Price	Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value

Outstanding, December 31, 2013	5,505,000	$ 0.10

Granted	–	–
Exercised	–	–
Expired/Cancelled	–	–

Outstanding, June 30, 2014	5,505,000	$ 0.10	4.53	$nil

Exercisable, June 30, 2014	5,505,000	$ 0.10	4.53	$nil

The following table summarizes the continuity of the Company’s stock options granted to employees:


	Number of Options	Weighted Average Exercise Price	Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value

Outstanding, December 31, 2013	21,140,000	$ 0.11

Granted	4,300,000	0.10
Exercised	(500,000)	0.10
Expired/Cancelled	(415,000)	0.10

Outstanding, June 30, 2014	24,525,000	$ 0.11	2.18	$nil

Exercisable, June 30, 2014	24,487,500	$ 0.11	2.18	$nil

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

A summary of the status of the Company’s nonvested shares as of December 31, 2013, and changes during the period ended June 30, 2014, is presented below:


Nonvested shares	Number of Shares	Weighted Average Grant Date Fair Value

Nonvested at December 31, 2013	75,000	–
Granted	–	–
Vested	37,500	–

Nonvested at June 30, 2014	37,500	–

During six months ended June 30, 2014, the Company recognized and recorded stock-based compensation of $555,013 as a general and administrative expense related to vested share-based compensation arrangements.

13.

LEGAL PROCEEDINGS

CIVIL LITIGATION

In January 2011, Mr. Knaven, a former officer and director of the Company, commenced a complaint to British Columbia’s Employment Standards Branch against the Company (the “ESB Complaint”) alleging that he was owed unpaid wages. In October 2011, Mr. Knaven initiated two further legal proceedings against the Company in B.C. Supreme Court (the “Supreme Court Actions”), in which he advanced further complaints in respect of claims for shares and interest, a claim for wrongful dismissal, and further claims for general and unspecified damages.

Regarding the ESB Complaint, on October 24, 2012 the Company applied successfully for a ruling placing that complaint in abeyance, to be dealt with by the B.C. Supreme Court rather than the ESB. In accordance with that ruling, Mr. Knaven on November 9, 2011 delivered a proposed amendment to his Notice of Civil Claim in one of the Supreme Court Actions. The quantified portion of Mr. Knaven’s claims totals approximately $261,752. He also seeks general and unspecified damages which are unquantified. Notwithstanding, $175,310 had been held in trust by the Supreme Court of British Columbia, the subject of a garnishment (See also Note 3). On July 23, 2013 WordLogic obtained a court order releasing $22,124.83 of those funds.

The Company vigorously contests the claims, and has filed Responses and Counterclaims regarding all of the above referenced disputes. The Counterclaims name Mr. Knaven and others as defendants by counterclaim. Mr. Knaven has been served and has filed Responses disputing and denying the Counterclaims.

In November 2013 the Company settled certain claims by Mr.Knaven and certain counterclaims by the Company as against Mr. Knaven. The terms of settlement are confidential. Following the settlement, the parties discontinued the claim and counterclaim as against each other, and Mr. Knaven withdrew a complaint he had made to the British Columbia’s Employment Standards Branch. In consideration for the settlement, the Company released $155,328 from the B.C. Supreme Court ordered garnishment to Mr. Knaven and issued 500,000 common shares of the Company valued at $57,500 to him. As result of the settlement, the Company recorded loss of $24,710.

In the proceedings referenced above, the Company had filed a counterclaim naming Mr. Knaven along with certain other defendants by counterclaim. Those other defendants by counterclaim have not yet been served. They include Mr. Mike Flom who appears to have been involved in assisting Mr. Knaven in formulating and advancing Knaven’s various claims against the Company. In addition, although Mr. Flom has neither threatened nor served any legal proceedings of his own, Mr. Flom had, during 2012, asserted that the Company owed him a “termination” payment and related sums totaling in excess of $500,000, and the issuance of shares. The Company has put Mr. Flom on notice that it does not accept those assertions.

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

In January 2013, the Company received notice from the former Chief Operating Officer Paul Silverstein, threatening a “whistle blower” claim pursuant to the US Sarbanes-Oxley and Dodd-Frank legislation, to be commenced in the State of New York, alleging he was forced to resign because he was investigating expenses incurred by the Chief Executive Officer. The Company denies the allegations, and further maintains the matter is to be resolved by arbitration. Accordingly on March 8, 2013 it commenced an arbitration in British Columbia, Canada to resolve the issues. The Company also appointed an independent director to conduct an investigation into the allegations raised by Silverstein to report to the Board of Directors on the outcome of his investigation, together with recommendations. The report was delivered to the Board of Directors on March 13, 2013. In response to an objection to jurisdiction raised by the former COO, the arbitrator commenced an initial process to determine his jurisdiction and ruled in favor of WordLogic.

On April 2, 2013, a complaint was filed with the United States District Court for the Southern District of New York by Silverstein against the Company in regards to certain claims asserted under the Dodd-Frank Wall Street Reform and Consumer Protection Act by Mr. Silverstein related to allegations of fraud and the termination of Silverstein as President and CEO of the Corporation. On October 3, 2013, the Corporation filed counterclaims against Silverstein related to his misconduct in the last month of his employment and upon his resignation. The Corporation vigorously denies Silverstein's allegations and will aggressively defend the claim and pursue its claims against Silverstein

On December 30, 2013, the Company reached an out of court settlement with Paul Silverstein regarding the previously disclosed claim filed by Mr. Silverstein and the counter claim filed by the Company. The settlement includes no admission of liability by either party. In consideration for the settlement, the Company issued 4 million warrants to purchase 4 million common shares of the Company to Mr. Paul Silverstein. Fair value of the warrants was estimated using Black-Sholes pricing model on settlement date. The Company recorded loss of $773,644 on this settlement.

On June 28, 2013, Biller Communications (“Biller”), a former consulting firm of the Company entered into a settlement agreement on the pending litigation whereby the Company paid Biller $17,000 in full and final settlement of the matter. This is a significantly reduced amount from the amount of $30,465 plus interest from May, 2012 and costs sued for in the complaint. The Company agreed to pay this amount in order to avoid any additional costly litigation, including depositions, court appearances and trial. The settlement amount was recorded as loss on legal settlement as of December 31, 2013.

On July 14, 2014, the Company along with its wholly owned subsidiary 602531 British Columbia Ltd., filed a Complaint for Patent Infringement in the United States District Court for the Western District of Washington at Seattle against Touchtype Limited doing business as SwiftKey (“SwiftKey”). The action arises out of the activities of defendant SwiftKey, relating to the making, selling, offering for sale, licensing, and/or using of predictive text technology for computer devices in the United States that constitutes direct or indirect infringement of one or more claims of the Company’s United States Patent #8,552,984 entitled "Method, System, Apparatus and Computer-Readable Media For Directing Input Associated with Keyboard-Type Device".

14.

SUBSEQUENT EVENTS

There were no additional subsequent events to disclose through the date of this filing.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION

FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

RESULTS OF OPERATIONS

Working Capital


	June 30, 2014	December 31, 2013
Current Assets	$103,822	$176,055
Current Liabilities	$904,094	$802,383
Working Deficit	$(800,272)	$(626,328)

Cash Flows



	June 30, 2014	June 30, 2013
Cash Flows used in Operating Activities	$(762,196)	$(1,292,673)
Cash Flows from Investing Activities	$nil	$865,077
Cash Flows from Financing Activities	$691,309	$67,444
Effect of exchange rate changes on cash	$(18,620)	$11,236
Net Increase (Decrease) in Cash During Period	$(89,507)	$(348,886)

Operating Revenues

Operating revenues for the six month period ended June 30, 2014 were $nil.

Operating revenues for the six month period ended June 30, 2013 were $366 and is comprised of product sales of $366.

Operating Expenses and Net Loss

Operating expenses for the six month period ended June 30, 2014 were $1,415,722 and is comprised of $55,182 in rent, $1,159,693 in selling, general and administrative and $200,847 in research and development. Operating expenses for the six months period ended June 30, 2013 were $2,199,608 and is comprised of $63,800 in rent, $1,730,813 in selling, general and administrative and $404,995 in research and development.

Net loss for the six month period ended June 30, 2014 was $1,420,350 and is comprised of $1,415,722 loss from operations and $79 in interest income and $4,707 in interest expense. Net loss for the six months period ended June 30, 2013 was $2,199,372 and is comprised of $2,199,242 loss from operations and $130 in interest income reversed.

Liquidity and Capital Resources

As at June 30, 2014, the Company’s cash and current asset balance was $103,822 compared to $176,055 as at December 31, 2013. The decrease in current assets of $72,233 is attributed to a decrease of $59,794 in cash and cash equivalents, a decrease of $29,713 in restricted cash, a decrease of $5,029 in GST refund receivable, a decrease of $1 in employee advances, a decrease of $89 in interest receivable, and an increase in prepaid expenses of $22,393.

As at June 30, 2014, the Company had current and total liabilities of $904,094 compared with current and total liabilities of $802,383 as at December 31, 2013. The increase in total liabilities of $101,711 is attributed to an increase in bank overdraft of $7,321, an increase in accounts payable and accrued liabilities of $61,281, a decrease of $16,891 in indebtedness to related parties, and an increase of 50,000 in deferred revenue.

As at June 30, 2014, the Company had a working deficit of $800,272 compared with a working capital deficit of $626,328 as at December 31, 2013. The increase in working deficit was primarily attributed to an increase in accounts payable and accrued liabilities.

Cashflow from Operating Activities

During the six month period ended June 30, 2014, the Company used $762,196 of cash for operating activities compared to the used of $1,292,673 of cash for operating activities during the same period ended June 30, 2013. The change in net cash used in operating activities is primarily attributed to a decrease in net loss.

Cashflow from Investing Activities

During the six month period ended June 30, 2014, the Company received $nil of cash for investing activities compared to $865,077 of cash received for investing activities during the same period ended June 30, 2013. The change in net cash flow in investing activities is primarily attributed to proceeds of investments in term deposits.

Cashflow from Financing Activities

During the six month period ended June 30, 2014, the Company received $691,309 of cash from financing activities compared to cash received $67,474 for the same period ended June 30, 2013. The change in cash flows from financing activities is primarily attributed to an increase of proceeds from stock options and warrants exercised and an increase in proceeds from sale of common shares.

Going Concern

We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Future Financings

We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.

Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Recently Issued Accounting Pronouncements

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2014, due to the material weaknesses resulting from the Board of Directors not currently having any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, and controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Please refer to our Annual Report on Form 10-K as filed with the SEC on April 7, 2014, for a complete discussion relating to the foregoing evaluation of Disclosures and Procedures.

Changes in Internal Control over Financial Reporting

Our management has also evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.

The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

CIVIL LITIGATION

ITEM 1A.

RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Quarterly Issuances:

We did not issue any unregistered shares, other than as previously reported.

Subsequent Issuances:

Subsequent to the quarter, we did not issue any unregistered shares, other than as previously reported.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS


Exhibit
Number	Description of Exhibit	Filing
3.01	Articles of Incorporation	Filed with the SEC on June 8, 2001 as part of our Registration Statement on Form 10SB12G.
3.01a	Certificate of Amendment to Articles of Incorporation	Filed with the SEC on May 21, 2003 as part of our Quarterly Report on Form 10QSB.
3.01b	Certificate of Amendment to Articles of Incorporation	Filed with the SEC on August 8, 2012 as part of our Current Report on Form 8-K.
3.02	Bylaws	Filed with the SEC on June 8, 2001 as part of our Registration Statement on Form 10SB12G.
4.01	2012 Equity Incentive Plan	Filed with the SEC on August 3, 2012 as part of our Registration Statement on Form S-8.
4.02	Sample Stock Option Agreement	Filed with the SEC on August 3, 2012 as part of our Registration Statement on Form S-8.
4.03	Sample Stock Award Agreement for Restricted Stock	Filed with the SEC on August 3, 2012 as part of our Registration Statement on Form S-8.
4.04	Sample Stock Award Agreement for Stock Units	Filed with the SEC on August 3, 2012 as part of our Registration Statement on Form S-8.
10.01	Promissory Note to Luis Carrillo for $6,000 dated August 5, 2010	Filed with the SEC on November 22, 2010 as part of our Quarterly Report on Form 10-Q.
10.02	Promissory Note to Luis Carrillo for $3,500 dated August 5, 2010	Filed with the SEC on November 22, 2010 as part of our Quarterly Report on Form 10-Q.
10.03	Settlement Agreement between Richard Kozukan and Jim Yano dated August 25, 2010	Filed with the SEC on November 22, 2010 as part of our Quarterly Report on Form 10-Q.
10.04	Website Services Agreement between the Company and Creative Web, Inc. dated August 31, 2010	Filed with the SEC on November 22, 2010 as part of our Quarterly Report on Form 10-Q.
10.05	Consulting Agreement between the Company and Douglas Schreiner dated September 8, 2010	Filed with the SEC on November 22, 2010 as part of our Quarterly Report on Form 10-Q.
10.06	Promissory Note to Luis Carrillo for $3,500 dated October 28, 2010	Filed with the SEC on November 22, 2010 as part of our Quarterly Report on Form 10-Q.
10.07	Promissory Note to Luis Carrillo for $2,500 dated October 28, 2010	Filed with the SEC on November 22, 2010 as part of our Quarterly Report on Form 10-Q.
10.08	Settlement Agreement between the Company and Luis Carrillo dated November 29, 2010	Filed with the SEC on May 23, 2011 as part of our Quarterly Report on Form 10-Q.
10.09	Promissory Note to Luis Carrillo for $4,900 dated January 13, 2011	Filed with the SEC on May 23, 2011 as part of our Quarterly Report on Form 10-Q.
10.10	Settlement Agreement between the Company and Mirador Consulting, Inc. dated February 2, 2011	Filed with the SEC on May 23, 2011 as part of our Quarterly Report on Form 10-Q.
10.11	Settlement Agreement between the Company and Luis Carrillo dated March 9, 2011	Filed with the SEC on May 23, 2011 as part of our Quarterly Report on Form 10-Q.
10.12	Promissory Note to Anthony Amado for $42,500 dated March 24, 2011	Filed with the SEC on May 23, 2011 as part of our Quarterly Report on Form 10-Q.
10.13	Settlement Agreement between the Company and Anthony Amado dated March 24, 2011	Filed with the SEC on May 23, 2011 as part of our Quarterly Report on Form 10-Q.
10.14	Promissory Note to Luis Carrillo for $3,000 dated March 25, 2011	Filed with the SEC on May 23, 2011 as part of our Quarterly Report on Form 10-Q.


10.15	Promissory Note to Luis Carrillo for $14,000 dated May 9, 2011	Filed with the SEC on May 23, 2011 as part of our Quarterly Report on Form 10-Q.
10.16	Settlement Agreement between the Company and Luis Carrillo dated October 21, 2011	Filed with the SEC on November 14, 2011 as part of our Quarterly Report on Form 10-Q.
10.17	Cancellation Agreement between the Company and Frank R. Evanshen dated October 27, 2011	Filed with the SEC on November 14, 2011 as part of our Quarterly Report on Form 10-Q.
10.18	Promissory Note for Luis Carrillo for $3,500 dated February 27, 2012.	Filed with the SEC on April 13, 2012 as part of our Annual Report on Form 10-K.
14.01	Code of Ethics	Filed with the SEC on April 14, 2005 as part of our Annual Report on Form 10K-SB.
16.01	Letter from Former Accountant Manning Elliott LLP dated March 13, 2009	Filed with the SEC on March 16, 2009 as part of our Amended Current Report on Form 8-K/A.
31.01	Certification of Principal Executive Officer Pursuant to Rule 13a-14	Filed herewith.
31.02	Certification of Principal Financial Officer Pursuant to Rule 13a-14	Filed herewith.
32.01	CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith.
32.02	CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith.
101.INS*	XBRL Instance Document	Filed herewith.
101.SCH*	XBRL Taxonomy Extension Schema Document	Filed herewith.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith.
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document	Filed herewith.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith.

*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WORDLOGIC CORPORATION

Dated: August XX, 2014

/s/ Franklin Evanshen

By: Franklin Evanshen

Its: President & Chief Executive Officer

Dated: August XX, 2014

/s/ Darrin McCormack

By: Darrin McCormack

Its: Chief Financial Officer & Chief Accounting Officer

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Dated: August XX, 2014

/s/ Franklin Evanshen

By: Franklin Evanshen

Its: Director

Dated: August XX, 2014

/s/ T. Allen Rose

By: T. Allen Rose

Its: Director

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