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EX-32.2 - EXHIBIT 32.2 SECTION 906 CERTIFICATIONS - WORDLOGIC CORPf10q093014_ex32z2.htm
EX-31.2 - EXHIBIT 31.2 SECTION 302 CERTIFICATIONS - WORDLOGIC CORPf10q093014_ex31z2.htm
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EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATIONS - WORDLOGIC CORPf10q093014_ex31z1.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 September 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

[f10q093014_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 November 4, 2014, there were 102,133,955 shares of the registrant’s $0.001 par value common stock issued and 101,902,415 outstanding.





WORDLOGIC CORPORATION*


TABLE OF CONTENTS


 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

3

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

33

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

36

ITEM 4.

CONTROLS AND PROCEDURES

37

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

38

ITEM 1A.

RISK FACTORS

38

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

39

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

39

ITEM 4.

MINE SAFETY DISCLOSURES

39

ITEM 5.

OTHER INFORMATION

39

ITEM 6.

EXHIBITS

39


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.



2




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

6

 

 

Unaudited Consolidated Statements of Stockholders’ Equity (Deficit)

8

 

 

Notes to the Unaudited Consolidated Financial Statements

15




3




WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Balance Sheets

(Expressed in US Dollars)


 

 

September 30, 2014

 

December 31, 2013

 

 

(Unaudited)

 

 

Assets

 

 

 

 

Current Assets

 

 

 

 

Cash and cash equivalents

$

1,952

$

61,791

Restricted cash (Note 3)

 

20,405

 

32,488

Investments (Note 4)

 

50,000

 

50,000

GST refund receivable (Note 5)

 

10,653

 

17,700

Employee advances

 

196

 

207

Interest receivable

 

83

 

128

Prepaid expenses (Note 6)

 

14,504

 

13,741

 

 

 

 

 

Total Current Assets

 

97,793

 

176,055

 

 

 

 

 

Property and equipment, net of accumulated depreciation (Note 7)

 

10,551

 

13,676

 

 

 

 

 

Total Assets

$

108,344

$

189,731

 

 

 

 

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

Bank overdraft

$

23,985

$

Accounts payable and accrued liabilities

 

715,244

 

751,285

Indebtedness to related parties (Note 8)

 

77,929

 

51,098

Deferred revenue (Note 9)

 

50,000

 

Notes payable (Note 10)

 

60,000

 

 

 

 

 

 

Total Current Liabilities

 

927,158

 

802,383

 

 

 

 

 

Total Liabilities

 

927,158

 

802,383

 

 

 

 

 

Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

 

Common stock, $.001 par value; 250,000,000 shares authorized 100,733,955 shares issued and 100,502,415 outstanding as of September 30, 2014, and 91,248,384 shares issued and 91,016,844 outstanding as of December 31, 2013, respectively (Note 11)

 

100,734

 

91,248

Additional paid-in capital

 

28,039,953

 

26,373,776

Stock payable

 

4,000

 

11,500

Accumulated deficit

 

(2,264,854)

 

(2,264,854)

Deficit accumulated during development stage

 

(26,029,987)

 

(24,151,280)

Accumulated other comprehensive loss

 

(648,411)

 

(652,793)

Treasury stock, 231,540 shares as of September 30, 2014 and December 31, 2013 (Note 12)

 

(20,249)

 

(20,249)

 

 

 

 

 

Total Stockholders’ Deficit

 

(818,814)

 

(612,652)

 

 

 

 

 

Total Liabilities and Stockholders’ Equity (Deficit)

$

108,344

$

189,731




4




WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statements of Operations

(Expressed in US Dollars)


 

 

Accumulated from May 27, 2003 (Date of Inception) to September 30,

 

For the Three months Ended (Unaudited)

 

For the Nine months Ended (Unaudited)

 

 

2014 (Unaudited)

 

September 30, 2014

 

September 30, 2013

 

September 30, 2014

 

September 30, 2013

Revenues

 

 

 

 

 

 

 

 

 

 

Product sales

$

27,114

$

$

$

$

366

Patents licensing

 

5,000,000

 

 

 

 

Royalty revenue

 

32,962

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

5,060,076

 

 

 

 

366

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

Rent, related party

 

1,153,205

 

28,139

 

28,246

 

83,321

 

92,046

Selling, general and administrative (Note 8 and 13)

 

25,204,924

 

328,371

 

443,917

 

1,488,064

 

2,174,730

Research and development

 

4,225,442

 

99,173

 

96,214

 

300,020

 

501,209

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

30,583,571

 

455,683

 

568,377

 

1,871,405

 

2,767,985

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) from Operations

 

(25,523,495)

 

(455,683)

 

(568,377)

 

(1,871,405)

 

(2,767,619)

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

Bad debts

 

(11,250)

 

 

 

 

Interest income

 

8,805

 

40

 

56

 

119

 

(74)

Interest expense:

 

 

 

 

 

 

Related parties

 

(84,152)

 

 

 

 

Amortization of discount on convertible note

 

(145,243)

 

 

 

 

Other notes, advances and amounts

 

(459,597)

 

(2,714)

 

 

(7,421)

 

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

 

(27,629,987)

 

(458,357)

 

(568,321)

 

(1,878,707)

 

(2,767,693)

 

 

 

 

 

 

 

 

 

 

 

Net extraordinary gain on litigation settlement, less applicable income taxes of $nil

 

1,600,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

(26,029,987)

 

(458,357)

 

(568,321)

 

(1,878,707)

 

(2,767,693)

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

Net Gain (Loss) of Foreign Currency Translation

 

(648,411)

 

23,002

 

(5,990)

 

4,382

 

5,246

Net Comprehensive Income (Loss)

$

(26,678,398)

$

(435,355)

$

(574,311)

$

(1,874,325)

$

(2,762,447)

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share

 

 

$

(0.00)

$

(0.01)

$

(0.02)

$

(0.03)

Diluted net income (loss) per share

 

 

$

(0.00)

$

(0.01)

$

(0.02)

$

(0.03)

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares used in calculating basic net income (loss) per share

 

 

 

99,111,672

 

85,169,253

 

96,263,387

 

83,790,653

Weighted average common shares used in calculating diluted net income (loss) per share

 

 

 

99,111,672

 

85,169,253

 

96,263,387

 

83,790,653



5




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 September 30,

 

For the Nine months Ended

(Unaudited)

 

 

2014

(Unaudited)

 

September 30,

2014

 

September 30,

2013

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

$

(26,029,987)

$

(1,878,707)

$

(2,767,693)

Adjustments to reconcile net income (loss) to net cash provided (used) in operating activities:

 

 

 

 

 

 

Bad debts

 

11,250

 

 

Depreciation and amortization

 

72,428

 

2,487

 

3,586

Common stock issued for services and payables

 

1,050,425

 

 

Stock-based compensation

 

14,538,925

 

674,962

 

652,716

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

 

40,027

 

7,092

 

19,818

Employee advances

 

(15,564)

 

11

 

7

Prepaid expenses

 

(14,504)

 

(763)

 

40,261

Accounts payable and accrued liabilities

 

974,207

 

(11,417)

 

330,142

Accrued interest payable

 

33,710

 

 

(1,042)

Deferred revenue

 

50,000

 

50,000

 

 

 

 

 

 

 

 

Net cash provided (used) in operating activities

 

(7,664,145)

 

(1,156,335)

 

(1,722,205)

 

 

 

 

 

 

 

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

 

(988,899)

 

26,831

 

63

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

 

1,053,120

 

60,000

 

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

 

1,312,915

 

385,000

 

242,500

Proceeds from sale of common shares

 

6,358,880

 

608,200

 

127,000

 

 

 

 

 

 

 

Net cash provided (used) by financing activities

 

8,431,371

 

1,080,031

 

369,563

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(648,411)

 

4,382

 

5,246

 

 

 

 

 

 

 

Net change in cash

 

20,827

 

(71,922)

 

(482,319)



6




 

 

 

 

 

 

 

Cash, beginning of period

 

1,530

 

94,279

 

756,166

 

 

 

 

 

 

 

Cash, end of period

$

22,357

 

22,357

$

273,847

 

 

 

 

 

 

 

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

$

4,000

$

(7,500)

$

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for income taxes

$

$

$

Cash paid for interest

$

229,270

$

7,421

$

5,497




7




WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statement of Stockholders’ Equity (Deficit)

(Expressed in US Dollars)


 

Common Stock

 

Treasury Stock

 

 

 

 

 

 

Shares

Par Value

$

Additional Paid-in Capital

Shares

Cost

$

Stock Payable (Receivable)

Accumulated Deficit

$

Deficit Accumulated During Development Stage

$

Accumulated Other Comprehensive 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)



8




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



9




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



10




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)



11




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)



12




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)



13




Sale of units consisting of one share of common stock and one warrant ($0.10/share)

1,772,000

1,772

175,428

177,200

Sale of units consisting of one share of common stock and one and half warrant ($0.10/share)

1,500,000

1,500

148,500

150,000

Sale of units consisting of one share of common stock and two warrants ($0.10/share)

450,000

450

44,550

 –

45,000

Sale of units consisting of one share of common stock and one warrant ($0.14/share)

1,178,571

1,179

163,822

165,001

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)

1,200,000

1,200

118,800

 –

120,000

Common stock options and warrants vested

674,962

 –

674,962

Stock payable for exercise of stock options ($0.10/share)

75,000

75

7,425

(7,500)

 –

0

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

Net loss

(1,878,707)

(1,878,707)

Currency translation adjustment

4,382

4,382

Balance, September 30, 2014 (Unaudited)

100,733,955

100,734

28,039,953

231,540

(20,249)

4,000

(2,264,854)

(26,029,987)

(648,411)

(818,814)




14




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


1. 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 September 30, 2014 the Company has incurred losses of $26,029,987 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.



15




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


Development Stage


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


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


a)

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.


b)

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.


c)

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.


d)

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 September 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 September 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 $1,952 and $61,791 at September 30, 2014 and December 31, 2013, respectively.



16




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


e)

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 September 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 September 30, 2014 and December 31, 2013, respectively. The company has recorded interest receivable of $83 and $128 at September 30, 2014 and December 31, 2013, respectively.


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


f)

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.


g)

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.



17




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


h)

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.


i)

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 and services are performed.


j)

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.


k)

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.


l)

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.



18




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


m)

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.



19




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


n)

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 September 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 September 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 nine months ended September 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 September 30, 2014 and December 31, 2013:


Level

 

September 30, 2014

 

December 31, 2013

Level 1

$

50,000

$

50,000

Level 2

 

 

Level 3

 

 


o)

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.



20




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


p)

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.


q)

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:


 

 

Nine month Ended September 30,

 

 

(Unaudited)

 

 

2014

 

2013

 

 

 

 

 

Numerator:

 

 

 

 

Net income (loss) – basic and diluted

$

(1,878,707)

$

(2,767,693)

 

 

 

 

 

Denominator:

 

 

 

 

Basic weighted average common shares outstanding

 

96,263,387

 

83,790,653

Effect of dilutive securities:

 

 

 

 

Stock options

 

 

Warrants

 

 

Diluted weighted average common shares outstanding

 

96,263,387

 

83,790,653

 

 

 

 

 

Net income (loss) per share - basic

$

(0.02)

$

(0.03)

Net income (loss) per share - diluted

$

(0.02)

$

(0.03)


Due to a net loss for the period ended September 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.



21




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


r)

Comprehensive Income (Loss)


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


s)

Advertising Costs


Advertising costs are charged to operations as incurred.


t)

Recent Accounting Pronouncements


In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.


In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation , to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The adoption of ASU 2014-10 is not expected to have a material impact on our financial position or results of operations.



22




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


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.


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.


u)

Reclassifications


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



23




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


3. RESTRICTED CASH


As of September 30, 2014 and December 31, 2013, the Company had restricted cash balances of $20,405 and $32,488, respectively. This cash was held in trust by our attorneys for the payment of future legal invoices.


4. INVESTMENTS


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


Investment Date

 

Amount

$

 

Maturity Date

 

Interest Rate

April 10, 2012

 

50,000

 

April 10, 2015

 

0.35%

September 30, 2014

 

50,000

 

 

 

 


The Company has recorded an accrued interest receivable of $83 and $128 for above term deposits as of September 30, 2014 and December 31, 2013, respectively, based on statements provided by financial institutions.


5. 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 nine month ended September 30, 2014, the Company has not collected any GST since all sales were incurred in the United States which sales are not GST taxable. The Company has filed GST returns quarterly and claimed only ITC’s during the period ended September 30, 2014. As the result of this, as of September 30, 2014 and December 31, 2013, the Company had GST refund receivable of $10,653 (CAD $11,940) and $17,700 (CAD $18,826), respectively.


6. PREPAID EXPENSES


As of September 30, 2014 and December 31, 2013, we had prepaid expenses of $14,504 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:


 

 

September 30, 2014

 

December 31, 2013

Vendor

 

$

 

$

Bentall L.P.

 

11,134

 

11,733

Quality Stock

 

1,867

 

Others

 

1,503

 

2,008

Total

 

14,504

 

13,741




24




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


7. PROPERTY AND EQUIPMENT


 

 

Cost

 

Accumulated Amortization as of September 30, 2014

 

Net Carrying Amount as of September 30, 2014

 

Net Carrying Amount as of December 31, 2013

 

 

$

 

$

 

$

 

$

Office equipment

 

9,695

 

5,717

 

3,978

 

4,888

Computer equipment

 

137,019

 

131,915

 

5,104

 

6,983

Computer software

 

6,326

 

6,326

 

 

Furniture and fixtures

 

15,079

 

13,610

 

1,469

 

1,805

 

 

 

 

 

 

 

 

 

 

 

168,119

 

157,568

 

10,551

 

13,676


Depreciation expense totaled $2,487 and $3,586 for the nine months ended September 30, 2014 and 2013, respectively.


8. RELATED PARTY TRANSACTIONS AND BALANCES


The Company incurred the following related party transactions:


a.

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 $246,729 (CAD $270,000) and $263,838 (CAD $270,000) for the nine months ended September 30, 2014 and 2013, respectively. As at September 30, 2014, the amount owing to this private company totaled $5,421.


b.

The Company incurred accounting fees of $2,285 and $27,263 with a private company of which an officer is also an officer during the nine months ended September 30, 2014 and 2013, respectively. As at September 30, 2014, the amount owing to this private company totaled $2,231.


c.

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 $159,917 (CAD $175,000) and $157,814 (CAD $161,500) for the nine months ended September 30, 2014 and 2013, respectively. As at September 30, 2014, the amount owing to this private company totaled $70,277.


9. DEFERRED REVENUE


a.

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


 

 

September 30, 2014

 

December 31, 2013

Description

 

$

 

$

Software license

 

50,000

 

 

 

50,000

 

nil

 

 

 

 

 

Non-current

 

 

Current

 

50,000

 

 

 

50,000

 

nil




25




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


10. NOTES PAYABLE


Promissory Notes


a.

During the nine month period ended September 30, 2014, the Company received proceeds of $10,000 on an unsecured promissory note, which remained outstanding at September 30, 2014. The note bears interest at 10% per annum.


Interest expense on the note during the nine month period ended September 30, 2014 totaled $nil.


b.

During the nine month period ended September 30, 2014, the Company received proceeds of $50,000 on an unsecured promissory note, which remained outstanding at September 30, 2014. The note bears interest at 10% per annum.


Interest expense on the note during the nine month period ended September 30, 2014 totaled $nil.


11. COMMON STOCK


For the nine months ended September 30, 2014:


a)

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.


b)

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.


c)

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.


d)

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.


e)

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.


f)

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.


g)

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.


h)

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.


i)

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.


j)

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.


k)

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.



26




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


l)

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.


m)

In July 2014, the Company conducted a private placement offering whereby it sold 1,500,000 shares at a price of $0.10 per share for total proceeds of $150,000.


n)

In August 2014, the Company conducted a private placement offering whereby it sold 250,000 shares at a price of $0.10 per share for total proceeds of $25,000.


o)

In September 2014, the Company conducted a private placement offering whereby it sold 650,000 shares at a price of $0.10 per share for total proceeds of $65,000.


p)

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


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

 

6,200,571

 

0.14

 

1.93

Exercised

 

(2,650,000)

 

 

Expired/Cancelled

 

(100,000)

 

 

Outstanding, September 30, 2014

 

8,030,571

 

0.13

 

2.24


During the nine months ended September 30, 2014, the Company issued 5,000,571 common shares with warrants attached for total cash proceeds of $552,200. The common stock issued included 5,000,571 attached warrants to purchase 6,200,571 common stock at the weighted average exercise price of $0.14 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 $270,621, and the relative fair value of the common stock is $281,579 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% - 0.59%; expected volatility of 132% - 138%, and warrant term of 2 years.


12. 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 nine months ended September 30, 2014, the Company did not purchase shares of common stock nor retire shares of common stock from treasury stock.



27




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


13. 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.


Compensation Warrants Granted to Non-employees


On September 11, 2014, the Company granted compensation warrants to purchase a total of 2,311,000 shares of the Company’s common stock to a marketing firm. The warrants carry an exercise price of $0.10 per share. The warrants expire September 11, 2016. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $116,540. During the nine months ended September 30, 2014, the Company recorded stock-based compensation of $116,540 as a general and administrative expense in connection with these warrants.


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 nine month ended September 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 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 nine month ended September 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 nine month ended September 30, 2014, the Company recorded stock-based compensation of $12,743 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 nine month ended September 30, 2014, the Company recorded stock-based compensation of $12,743 as a general and administrative expense in connection with these options.



28




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


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 nine month ended September 30, 2014, the Company recorded stock-based compensation of $12,743 as a general and administrative expense in connection with these options. Above four options and this option could be exercised, in whole or in part, in accordance with the following: 100% of the shares subject to the optionee continuing to be a service provider on such date.


During the nine months ended September 30, 2014, the Company recognized and recorded stock-based compensation of $10,457 related to options granted in the prior year which vested in the current period as a general and administrative expense.


As at September 30, 2014, there was $2,816 total unrecognized compensation cost related to nonvested stock-based compensation arrangements.


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 nine months ended September 30, 2014 were $0.1262. The weighted average assumptions used are as follows:


 

 

September 30,

 

December 31,

 

 

2014

 

2013

Expected dividend yield

 

0%

 

0%

Risk-free interest rate

 

0.23%

 

0.37%

Expected volatility

 

136.26%

 

181.36%

Expected option life (in years)

 

2.36

 

2.41


The total intrinsic value of stock options exercised during the nine months ended September 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

 

2,311,000

$

0.10

 

 

 

 

Exercised

 

 

 

 

 

 

Expired/Cancelled

 

(5,000)

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, September 30, 2014

 

7,811,000

$

0.10

 

3.60

$

nil

 

 

 

 

 

 

 

 

 

Exercisable, September 30, 2014

 

7,811,000

$

0.10

 

3.60

$

nil




29




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


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


 

 

Number of Warrants

 

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

 

(1,200,000)

 

0.10

 

 

 

 

Expired/Cancelled

 

(1,595,000)

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, September 30, 2014

 

22,645,000

$

0.11

 

2.10

$

nil

 

 

 

 

 

 

 

 

 

Exercisable, September 30, 2014

 

22,626,250

$

0.11

 

2.09

$

nil


A summary of the status of the Company’s nonvested shares as of December 31, 2013, and changes during the period ended September 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

 

56,250

 

 

 

 

 

 

Nonvested at September 30, 2014

 

18,750

 


During nine months ended September 30, 2014, the Company recognized and recorded stock-based compensation of $674,962 as a general and administrative expense related to vested share-based compensation arrangements.


14. 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.



30




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


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.


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".



31




WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


15. SUBSEQUENT EVENTS


a)

In October 2014, the Company issued 100,000 shares of its common stock at $0.10 per share related to the exercise of options, for total proceeds of $10,000.


b)

Also in October 2014, the Company issued 200,000 shares of its common stock at $0.10 per share for services rendered by consultant valued at $20,000 based on the consulting agreement.


c)

In November 2014, the Company issued 1,100,000 shares of its common stock at $0.10 per share for services rendered by consultant valued at $110,000 based on the consulting agreement.


Subsequent events have been reviewed through the date of this report.



32




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


 

 

September 30, 2014

 

December 31, 2013

Current Assets

$

97,793

$

176,055

Current Liabilities

$

927,158

$

802,383

Working Capital Deficit

$

(829,365)

$

(626,328)


Cash Flows


 

 

September 30, 2014

 

September 30, 2013

Cash Flows used in Operating Activities

$

(1,156,335)

$

(1,722,205)

Cash Flows from Investing Activities

$

nil

$

865,077

Cash Flows from Financing Activities

$

1,080,031

$

369,563

Effect of exchange rate changes on cash

$

4,382

$

5,246

Net Increase (Decrease) in Cash During Period

$

(71,922)

$

(482,319)


Operating Revenues


Operating revenues for the nine month period ended September 30, 2014 were $nil.


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


Operating Expenses and Net Loss


Operating expenses for the nine month period ended September 30, 2014 were $1,871,405 and is comprised of $83,321 in rent, $1,488,064 in selling, general and administrative and $300,020 in research and development. Operating expenses for the nine months period ended September 30, 2013 were $2,767,985 and is comprised of $92,046 in rent, $2,174,730 in selling, general and administrative and $501,209 in research and development.


Net loss for the nine month period ended September 30, 2014 was $1,878,707 and is comprised of $1,871,405 loss from operations and $119 in interest income and $7,421 in interest expense. Net loss for the nine months period ended September 30, 2013 was $2,797,693 and is comprised of $2,767,619 loss from operations and $74 in interest income reversed.




33




Liquidity and Capital Resources


As at September 30, 2014, the Company’s cash and current asset balance was $97,793 compared to $176,055 as at December 31, 2013. The decrease in current assets of $78,262 is attributed to a decrease of $59,839 in cash and cash equivalents, a decrease of $12,083 in restricted cash, a decrease of $7,047 in GST refund receivable, a decrease of $11 in employee advances, a decrease of $45 in interest receivable, and an increase in prepaid expenses of $763.


As at September 30, 2014, the Company had current and total liabilities of $927,158 compared with current and total liabilities of $802,383 as at December 31, 2013. The increase in total liabilities of $124,775 is attributed to an increase in bank overdraft of $23,985, a decrease in accounts payable and accrued liabilities of $36,041, an increase of $26,831 in indebtedness to related parties, an increase of $60,000 in notes payable, and an increase of $50,000 in deferred revenue.


As at September 30, 2014, the Company had a working deficit of $829,365 compared with a working capital deficit of $626,328 as at December 31, 2013. The increase in working capital deficit was primarily attributed to an increase in bank overdraft, note payable, and deferred revenue.


Cashflow from Operating Activities


During the nine month period ended September 30, 2014, the Company used $1,156,335 of cash for operating activities compared to the used of $1,722,205 of cash for operating activities during the same period ended September 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 nine month period ended September 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 September 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 nine month period ended September 30, 2014, the Company received $1,080,031 of cash from financing activities compared to cash received $369,563 for the same period ended September 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.



34




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


In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.


In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation , to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The adoption of ASU 2014-10 is not expected to have a material impact on our financial position or results of operations.


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.



35




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.


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.


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.



36




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 September 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


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.



37




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.


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".


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.




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


1.

Quarterly Issuances:


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


2.

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.


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.



39




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.



40




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: November 12, 2014

/s/ Franklin Evanshen

By: Franklin Evanshen

Its: President & Chief Executive Officer



Dated: November 12, 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: November 12, 2014

/s/ Franklin Evanshen

By: Franklin Evanshen

Its: Director



Dated: November 12, 2014

/s/ T. Allen Rose

By: T. Allen Rose

Its: Director



41