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EXCEL - IDEA: XBRL DOCUMENT - WORDLOGIC CORPFinancial_Report.xls
EX-31.2 - EXHIBIT 31.2 SECTION 302 CERTIFICATION - WORDLOGIC CORPf10k123111_ex31z2.htm
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - WORDLOGIC CORPf10k123111_ex31z1.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - WORDLOGIC CORPf10k123111_ex32z1.htm
EX-32.2 - EXHIBIT 32.2 SECTION 906 CERTIFICATION - WORDLOGIC CORPf10k123111_ex32z2.htm
EX-10.26 - EXHIBIT 10.26 PROMISSORY NOTE - WORDLOGIC CORPf10k123111_ex10z26.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


   X .   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended December 31, 2011


       .   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT


For the Transition Period from ________ to _________

 

WORDLOGIC CORPORATION

[f10k123111_10k001.jpg]

(Exact name of registrant as specified in its charter)

 

Nevada

000-32865

88-0422023

(State or other jurisdiction

(Commission File Number)

(IRS Employer

of Incorporation)

 

Identification Number)

 

1130 West Pender St., Suite 230

Vancouver, BC Canada V6E 2P4

 

(Address of principal executive offices)

(604) 257-3600

(Registrant’s Telephone Number)


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes      . No  X .


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes      . No  X .


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      .


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.       .   

 





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 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 .


The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2011 was $11,279,381 based upon the price ($0.19) at which the common stock was last sold as of the last business day of the most recently completed second fiscal quarter, multiplied by the approximate number of shares of common stock held by persons other than executive officers, directors and five percent stockholders of the registrant without conceding that any such person is an “affiliate” of the registrant for purposes of the federal securities laws. Our common stock is traded in the over-the-counter market and quoted on the Over-The-Counter Bulletin Board under the symbol “WLGC.OB”


As of April 10, 2012, there were 83,535,606 shares of the registrant’s $0.001 par value common stock issued and outstanding.


Documents incorporated by reference: None




2



Table of Contents

  

 

Page

  

PART I

 

  

  

 

Item 1

Business

5

Item 1A

Risk Factors

11

Item 1B

Unresolved Staff Comments

11

Item 2

Properties

11

Item 3

Legal Proceedings

11

Item 4

Mine Safety Disclosures

11

  

  

 

  

PART II

 

  

  

 

Item 5

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

12

Item 6

Selected Financial Data

12

Item 7

Management's Discussion and Analysis of Financial Condition and Results of Operations

13

Item 7A

Quantitative and Qualitative Disclosures about Market Risk

16

Item 8

Financial Statements and Supplementary Data

F-1

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

17

Item 9A

Controls and Procedures

17

Item 9B

Other Information

18

  

  

 

  

PART III

 

  

  

 

Item 10

Directors and Executive Officers and Corporate Governance

18

Item 11

Executive Compensation

21

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

23

Item 13

Certain Relationships and Related Transactions

25

Item 14

Principal Accountant Fees and Services

25

  

  

 

  

PART IV

 

  

  

 

Item 15

Exhibits

26

  

  

 





3



FORWARD-LOOKING STATEMENTS


This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. These risks and uncertainties include the following:


·

The availability and adequacy of our cash flow to meet our requirements;

·

Economic, competitive, demographic, business and other conditions in our local and regional markets;

·

Changes or developments in laws, regulations or taxes in our industry;

·

Actions taken or omitted to be taken by third parties including our suppliers and competitors, as well as legislative, regulatory, judicial and other governmental authorities;

·

Competition in our industry;

·

The loss of or failure to obtain any license or permit necessary or desirable in the operation of our business;

·

Changes in our business strategy, capital improvements or development plans;

·

The availability of additional capital to support capital improvements and development; and

·

Other risks identified in this report and in our other filings with the Securities and Exchange Commission or the SEC.

 

This report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.


Use of Term

 

Except as otherwise indicated by the context hereof, references in this report to “Company,” “WLGC,” “we,” “us” and “our” are references to WordLogic Corporation.  All references to “USD” or United States Dollars refer to the legal currency of the United States of America.



4



PART I


ITEM 1.

BUSINESS


Business Overview


We were incorporated in the State of Nevada on March 30, 1999 under the original name of The AmericanWest.com, Inc.  Pursuant to an agreement and plan of merger dated as of March 11, 2003, we merged with and acquired the assets of WordLogic Corporation, a Delaware corporation.  In anticipation of the closing of the merger, we changed our name to WordLogic Corporation.  WordLogic Corporation, the public Nevada company, was the surviving corporation after the merger.


We are a software company that develops, markets, licenses and sells advanced predictive text solutions designed to accelerate the entry and retrieval of text and information for personal computing devices ranging from small handheld Mobile Devices with touch screen and QWERTY keyboards to desktop computers and tablet PCs.  As efficient text input becomes more important due to the rapid expansion of data such as SMS, email, social networking, and search, the Company seeks to provide a natural input method that could reduce finger movements by over 50%, supply accurate multiple word predictions in just a gesture or two, and help users to control their input and enhance their communication.  The Company's Intelligent Input Platform represents a new method for text input that is not solely focused on typing or speaking with speed and accuracy. Rather, as people input, search, text, email, and compose, the Company seeks to help individuals communicate and control their message, enhancing both accuracy and semantics in order to help users create meaning.


Business Development  


On January 9, 2007, we developed a new text entry/text messaging input solution for cell phones utilizing our patent pending prediction engine.  This new solution for cell phones is more efficient, user friendly and provides a more compelling text entry interface for users than our existing solutions.  In addition, the functionality and configuration of the technology can be expanded and/or modified to suit a user's or manufacturers' specific needs.


On March 15, 2007, we entered into a worldwide non-exclusive license with Cre8txt Limited of Bolton, United Kingdom.  Cre8txt has developed a keyboard which utilizes the skills of people who already use SMS (Short Message Service) texting on mobile phones.  Texting has become popular in Europe, North America and Asia.  Text message specific abbreviations have been developed which allow certain, experienced users to actually type text faster using a numerical keyboard layout rather than using a traditional computer QWERTY keyboard.  The Cre8txt keyboard is similar to a mobile phone keypad, and will utilize the WordLogic(TM) predictive text technology.  The WordLogic Prediction Engine is a powerful software tool which will predict text selected from a database of frequently used words, and will also be capable of translating SMS Text language into full text.  On July 5, 2007, we delivered the first 1,000 units of our software to Cre8txt Limited of Bolton, UK.


In March 2011, a new finger touchscreen prototype of the Company's WordLogic Predictive Keyboard was nominated for a CTIA Wireless 2011 Emerging Technology Award. The CTIA E-Tech Award category covers new or yet-to-be introduced products that enhance productivity and organization.


In February 2012, the Company entered into an agreement with RPX Corporation (“RPX”), for RPX to license the Company’s advanced predictive input software patents.  Under the terms of the agreement, the Company will receive a $5 million non-dilutive cash payment, while retaining full ownership of its patent portfolio.  RPX Corporation is a provider of patent risk solutions, offering defensive buying, acquisition syndication, patent intelligence and advisory services.  By acquiring patents, RPX helps to mitigate and manage patent risk for its growing client network.



5




Technology Overview


The WordLogic Predictive Keyboard TM software provides a fast entry system that adapts to a user’s vocabulary and tendencies to predict the next most common letters, words, or phrases used by that individual.  This software incorporates a customizable dictionary, thesaurus, spellchecker, calculator, multilingual symbol capability and fast access to internet sites from within common software applications.  In addition, this software incorporates internet search engines by which a user can highlight a word, press the search key and get the Merriam Webster Dictionary definition of the word.  The Company’s predictive text entry software uses Intelligent Input PlatformTM Technology to make it intuitive, fast, accurate and helpful. The software uniquely features:


·

Intuitive drill-down prediction

·

Exclusive multi-word, phrase and fragment prediction

·

Probable next key color-highlighting

·

Predicts accurately and learns based on individual usage

·

Supports concurrent mixed languages (e.g. English/Spanish/industry terms)

·

Runs on finger touchscreens, QWERTY keyboard and keypads, as well as on some smartphones and feature phones


Below is an image of the software technology prototype.


[f10k123111_10k002.jpg]


The Company’s technology enables individuals to effectively input and retrieve text from computer based devices ranging from desktop PCs to handheld mobile devices (e.g. smartphones). The technology is ubiquitous and works completely independent of the primary application. Furthermore, the technology can be customized to meet the individual user's preferences as well as the individual business’ needs to provide access to company specific information and unique terminology. There are a number of features that make the technology unique.


These features include:


1.

Gesturing and WordChunking (advanced predictive input):  The Company’s technology incorporates proprietary Gesturing and WordChunking features developed to increase the speed at which people can type. Generally, users of handheld devices are only able to use their thumbs when typing, which can be limiting and time consuming on either a QWERTY keyboard or a touchscreen. Gesturing increases the ease of text entry, reducing it to a few slight gestures of the fingertip. Our internal testing has found that the use of gesturing may improve mobile text input by three to five times.


WordChunking provides access to longer forms of text and text strings from only a few characters or shorter forms of text. WordChunking can be used to quickly enter complete phrases.  When predicting complete sentences, the Company estimates that WordChunking can increase the speed of text entry by six to seven times.


2.

Dynamic Text:  Another benefit of our software is that formerly static text is turned into dynamic, interactive text. When a term that the software recognizes as being in its dictionary is typed into the device-such as in a document, an instant message, or an email-the text string (the term) is highlighted. If the user clicks or taps the highlighted term, such as "stationary" or "Paris," a menu of choices is presented containing more levels of information related to that term. This information is obtained from Internet and dictionary databases and could include contact information, dictionary definitions, Web searches, or Wikipedia entries, among other data. By default, the software is configured to access Dictionary.com, Thesaurus.com, Encyclopedia.com, and Google.com.



6




3.

Refined Search:  The Company aims to change the way people interact with the Internet by enabling fast multi-level and multi-word Internet searches. A key competitive advantage of our technology is that it performs deep Internet searches more rapidly, saving time and raising productivity for executives, their staff, and individual consumers. Our software code is built inside the keyboard and not the operating system, a feature that the Company believes is innovative for its industry. With the intelligence built into the keyboard, the software can immediately search databases for any information inputted on the device, bypassing several steps of the traditional search process.


The software incorporates a Web Portal, which functions as a smart Internet research assistant, performing browserless Web searches on highlighted text strings without the user having to open an Internet browser. Our refined searches occur dynamically and in the background without all of the "click-through frustrations" of Internet browsing on handheld devices. Search queries can be refined multiple times before results are returned. For example, typing "Cleve" would automatically suggest "Cleveland" as a possible text completion candidate. If the user selects "Cleveland," further search suggestions automatically appear, such as "hotels," "restaurants," and "automotive." Selecting "automotive" allows the user to further refine the search for "dealerships" and then even to specify which dealer ("Ford") before the search results are displayed. This type of intuitive search simplifies the user's ability to access Web information via mobile or handheld devices, smartphones, and tablet PCs.


The Company’s technology is unique in that it encompasses both the desk top PC and mobile device platforms. This patented technology can improve the way that mobile device users interact with their devices and open the door to new revenue streams as well as provide a competitive advantage against rival companies.


Intellectual Property

 

We own the copyright of all of the contents of our website, www.WordLogic.com.

 

On October 21, 2003 we received trademark approval for the mark “WordLogic” under Reg. No. 2,774,468 pending in the United States. A similar trademark application has been approved and registered in Canada under TMA576,700.


Our intellectual property portfolio includes six issued U.S. and European patents and five pending U.S. patent applications, one of which has received a Notice of Allowability from the U.S. Patent and Trademark Office (“USPTO”).


In conjunction with its wholly owned subsidiary, 602531 British Columbia Ltd., the Company holds U.S. patents 7,293,231, 7,681,124, 7,716,579, and 7,921,361, which relate to data entry for personal computing devices. U.S. patent 7,293,231, which the Company believes to be one of its pioneering patents, relates to various methods, systems, devices, and computer-readable media for use in connection with computer-assisted data entry.


Equivalent foreign patents include EP 1171813 (WO 0057265), published under the Patent Cooperation Treaty and accepted by the European Patent Office. EP 1171813 is also accepted in Germany, France, the UK, Italy, Finland, Spain, the Netherlands, and Portugal. Additionally, a patent for a data entry method and system for personal computer and corresponding computer-readable medium is published by the World Intellectual Property Organization as WO 0233527 and by the European Patent Office as EP 1356368.


In addition, the Company has five U.S. patent applications filed in connection with its U.S. patent 7,293,231 related to various aspects of computer-assisted data entry. These entail three divisional patent applications (#11/133,779, #11/134,759, and #11/134,810) and two continuation applications (#11/871,900 and #11/871,904). These applications are also in the name of the Company's subsidiary 602531 British Columbia.


For the Company's pending applications, the USPTO has recently issued a Notice of Allowability for application #11/871,900 related to keyboard prediction and search utilizing gesturing software technology.


We will principally rely upon trademark, copyright, patent, trade secret and contract law to protect our proprietary rights.  We generally intend to enter into confidentiality agreements, “work-made-for-hire” contracts and intellectual property licenses with our employees, consultants and corporate partners, respectively, as part of our efforts to control access to and distribution of our products, content and other proprietary information.



7




Summary of the Company’s Patents and Patent Applications


ISSUED PATENTS

Issued Patent Number

Location

Issue Date

Description

1356368

Europe

Jan. 2008

Data Entry Method and System for Personal Computer, and Corresponding Computer Readable Medium

1171813

Europe

Mar. 2004

Data Entry for Personal Computing Devices

7,293,231

U.S.

Nov. 2007

Data Entry for Personal Computing Devices

7,681,124

U.S.

Mar. 2010

Data Entry for Personal Computing Devices

7,716,579

U.S.

May 2010

Data Entry for Personal Computing Devices

7,921,361

U.S.

April 2011

Data Entry for Personal Computing Devices


PATENT APPLICATIONS

Application Number

Location

Type

Recent USPTO Action

#11/133,779

U.S.

Divisional Patent Application

 

#11/134,759

U.S.

Divisional Patent Application

 

#11/134,810

U.S.

Divisional Patent Application

 

#11/871,900

U.S.

Continuation Application

Notice of Allowability

#11,871,904

U.S.

Continuation Application

 


A copy of our patents can be obtained from the USPTO web site located at www.uspto.gov or from our website located at www.WordLogic.com, which provides a direct link to the patents.


Product Availability


At present, any platform with a Windows®-based operating system is compatible with our technology, including PCs outfitted with Windows® Vista, Windows® XP, Windows® 2000, or Windows® 7. The Company is also developing software to support Android-based devices, as Android became a market leader with a more than 33% share by the end of 2010 (Source: New York Times January 2011).


Our software is available for licensing by original equipment manufacturers (OEMs) for use in consumer products. In addition, the WordLogic Predictive Keyboard can be provided to consumers directly as software hosted on a USB drive. Customers can visit the Store section of our corporate website (http://www.wordlogic.com/store.html) to order the software or to obtain more details of the portable USB product. The product can also be ordered through www.wordlogicusb.com or a call center.


The Company further supplies a CD version, which is designed for installation on one PC desktop. In contrast, the USB drive allows the user to run the software on any PC without requiring an installation. As the software can be accessed from a CD or USB flash drive, it is portable for transport and installation on devices worldwide.


Target Customers


The Company’s target customers will likely include Tier 1 wireless operators in the U.S. as well as smartphone original equipment manufacturers (OEMs). In the telecommunications industry, a Tier 1 wireless carrier entails a company that is the sole operator of its network, indicating that this provider offers a direct connection to the networks it uses to deliver voice and data as well as to the Internet. AT&T Inc. (T-NYSE), Verizon Communications Inc. (VZ-NYSE), Sprint Nextel Corp. (S-NYSE), and T-Mobile USA, Inc. are examples of Tier 1 operators. Conversely, Tier 2 companies may procure a portion of their networks from the Tier 1 carriers, and Tier 3 operators are wholly reliant on the networks of the Tier 1 and Tier 2 firms. In addition to targeting the Tier 1 carriers, the Company intends to market its technology to smartphone OEMs. Examples of smartphone OEMs include Samsung Electronics Co., Ltd., HTC Corp. (2498-TPE), Motorola Mobility Holdings Inc. (MMI-NYSE), and LG Electronics Inc. Customers this size may have the potential to apply the Company’s technology in up to 25 million units annually.


Marketing Strategy


The Company created a new logo in December 2010 and has begun using it on www.wordlogic.com as well as on social networking pages, including the Company's Twitter and Facebook profiles. Integration of the logo into current product demonstrations is also underway.



8




In January 2011, the Company re-launched its online retail store as part of its website redesign. The goal of the store is to allow customers to buy the desktop version of the product quickly without leaving our website. Additional desktop products are expected to become available for purchase as they are developed in the future.


The Company further refined its website design in March 2011. Aside from increased vibrancy, the new website features email sign-up options to enable customers and other interested parties, such as potential investors and promoters, to receive product updates and Company news via email.


Future retail-based marketing plans include customer email campaigns featuring corporate news and updated product information, external email marketing campaigns to attract new customers, and affiliate marketing. The Company is planning to build a new product demo and potentially a new infomercial that could be utilized for future television advertising campaigns.


Growth Strategy


In addition to further developing its current product offering, much of the Company’s strategy for growth going forward is based on its U.S. and European patents.  As well as leveraging its intellectual property, the Company seeks to increase emphasis on its Intelligent Input PlatformTM, which the Company believes can offer predictive input with a broad range of Internet-enabled control and communication applications.  Other projects in development include expanding and enhancing the Company’s retail product offerings.  Ultimately, the Company believes that it may become an acquisition target for larger companies within the technology sector due to the breadth of its patent portfolio and the novel characteristics of its technology.


The Industry


Smartphones and mobile devices have become a necessity for many professional and non-professional individuals. Touchscreens, email, 3G, 4G, and power-packed mobile applications have resulted in considerable growth of new devices. To this extent, the Company estimates that nearly 75% of phones shipped in the U.S. contain either a QWERTY or touchscreen keyboard. Smartphones in particular are sold at a rate of roughly 300 million per year, which the Company believes could grow by as much as 50% versus 20% for all phones collectively.  


Likewise, the PC market represents billions of dollars of equipment that uses text input and millions of consumers who could benefit from refined input and search options. In 2010, 346 million desktop PCs, portable computers, and mini-notebooks were shipped to consumers, a nearly 14% increase over 2009 (Source: International Data Corporation, a provider of market intelligence for the IT, telecommunications, and consumer technology markets). The Company may be of value to PC manufacturers that are seeking innovative advancements to the PC experience in order to remain competitive. Likewise, future versions of the Company's technology could also be incorporated into the growing number of tablet computers entering the marketplace (estimated at over 44 million for 2011).


Further, the information technology (IT) industry is experiencing several related trends: (1) rapid growth of mobile devices; (2) tablets gaining in popularity over netbooks; (3) smartphones becoming more advanced; (4) enterprise workers seeking to use their phones for both business and personal tasks; and (5) increasing developer activity online. Accordingly, there will likely be even greater emphasis on mobile apps going forward, particularly for tablets, and targeted toward enterprise. In many cases, large enterprises are expected to launch apps specific for their workforces, as these companies seek to reduce costs and leverage time and cost efficiencies (Source: The New Wave of App Development from TechNewsWorld, February 1, 2011).


Outsell, Inc., a research and advisory firm for the publishing and information industries, estimates that the global information industry is valued at $366 billion (Source: 2010 Information Industry Market Size, Share & Forecast Report December 17, 2010). The Company believes that there is considerable unmet need within this market for improved enterprise search tools and, consequently, an opportunity for our technology operating as either a front-end application or as a standalone product.


Competition


The Company believes that speed, ease of use, and a relatively small footprint are advantages of its technology that could further establish the Company as a provider of text input and manipulation software, particularly for mobile phones. However, as the demand for text-savvy phones accelerates, competition among text input solution providers is also increasing. Introducing technology and user interface enhancements is crucial to maintaining a competitive advantage.


Altogether, the predictive technology landscape is considered to be relatively competitive. Yet, within the refined search area, the Company believes that there are fewer competitors because although many developers would like to build the next new application, many do not possess the existing technology and code to do so.



9




To the Company's knowledge, the most relevant other firm with comparable expertise was Siri (acquired by Apple during 2010), although Google Instant has created considerable interest in the space. The Company expects companies such as Sony Erickson and Nokia to begin accelerating development of innovative applications in order to maintain market share and remain competitive. Additionally, the Company may compete with several product offerings from Nuance Communications, Inc. for mid-priced phones and with makers of predictive input and refined search applications for Google's Android devices, Research in Motion Ltd.'s (RIMM-NASDAQ) BlackBerry® products, and any other Windows®-based equipment.


We believe that our software will be competitive in the industry due to its predictive text and advanced search features as well as its application to a range of electronic devices since it is not designed for use solely in one class of phone or for only desktop computers.


Government Regulation


Because we sell products through the Internet, we may be subject to rules and regulations around the world, which will affect our business.  The laws and regulations that govern Internet commerce change rapidly.  Also, because we carry on business in Canada, we are subject to laws regarding employment, taxes and other regulatory issues for our Canadian operations.  The following laws and regulations applicable to Internet commerce and are relevant to our business:

 

Privacy Law.  The state of privacy law is unsettled, and rapidly changing.  Current and proposed federal, state and foreign privacy regulations and other laws restricting the collection, use and disclosure of personal information could limit our ability to use the information in our databases to generate revenues.  In late 1998, COPPA was enacted, mandating that measures be taken to safeguard minors under the age of 13.  The FTC promulgated regulations implementing COPPA on October 21, 1999, which became effective on April 21, 2000.  The principal COPPA requirement is that individually identifiable information about minors under the age of 13 not be collected, used or displayed without first obtaining informed parental consent that is verifiable in light of present technology.

 

The FTC final regulations create a “sliding scale” of permissible methods for obtaining such consent.  Consent for internal use of the individually identifiable information of children under the age of 13 can be obtained through e-mail plus an additional safeguard, such as confirming consent with a delayed e-mail, telephone call, or letter.  Obtaining verifiable consent from a child’s parent to share that child’s information with a third party or enable the child to publicly distribute the information by, for example, allowing unrestricted access to a chat room or message board is significantly more burdensome.  While the temporary “sliding scale implementation was due to expire on April 21, 2002, on October 31, 2001, the FTC extended the implementation period through April 21, 2005.  On April 21, 2005, the “sliding scale” mechanism was extended indefinitely.

 

The FTC has required that parental consent for such higher risk activities be verified by more secure methods than e-mail, such as a credit card in connection with a transaction, print-and-sign forms, toll-free numbers staffed by trained operators, or digital signatures.  Complying with the new requirements is costly and may dissuade some of our customers from using our products.  While we will attempt to be fully compliant with the FTC requirements, our efforts may not be entirely successful.  In addition, at times, we rely upon outside vendors to maintain data-collection software, and there can be no assurance that they will at all times comply with our instructions to comply with COPPA.  If our methods of complying with COPPA are inadequate, we may face litigation with the FTC or individuals, which would adversely affect our business.

 

Moreover, we have posted a privacy policy pertaining to all users and visitors to our web site.  By doing so, we will subject ourselves to the jurisdiction of the FTC.  Should any of our business practices be found to differ from our privacy policy, we could be subject to sanctions and penalties from the FTC.  It is also possible that users or visitors could try to recover damages in a civil action as well.

 

The European Union recently enacted its own privacy regulations that may result in limits on the collection and use of certain user information.  The laws governing the Internet, however, remain largely unsettled, even in areas where there has been some legislative action.  It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business on the Internet.  Furthermore, the Federal Trade Commission has recently investigated the disclosure of personal identifying information obtained from individuals by Internet companies.  Evolving areas of law that are relevant to our business include privacy law, regulation on what websites contain, and sales and use tax.  Because of this rapidly evolving and uncertain regulatory environment, we cannot predict how these laws and regulations might affect our business.  In addition, these uncertainties make it difficult to ensure compliance with the laws and regulations governing the Internet.  These laws and regulations could harm us by subjecting us to liability or forcing us to change how we do business.

 



10




Conformance to E-Commerce Statutory Requirements for Formation of Contracts.  We intend to conduct e-commerce on our web site, and through affiliated web sites.  The applicable law on online formation of contracts has been unsettled and is evolving.  On June 30, 2000, the federal government enacted the “E-Sign” statute, which in limited cases permits online formation of contracts.  Similarly, on January 1, 2000, California adopted a standard version of the Uniform Electronic Transactions Act (“UETA”), which also permits electronic signatures and record-keeping for certain types of contracts.  We attempt to comply with these laws, but there is no guarantee that we will be successful.  Judicial interpretation of the applicability of these laws could result in customer contracts being set aside or modified.  In that case, our e-commerce revenue could be materially adversely affected.

 

Sales Tax.  The tax treatment of goods sold over the Internet is currently unsettled.  A number of proposals have been made at the state and local level that would impose additional taxes on the sale of goods through the Internet.  Such proposals, if adopted, could substantially impair the growth of electronic commerce and could adversely affect our opportunity to derive financial benefit from electronic commerce.  While the Internet Tax Freedom Act (ITFA) has placed a moratorium on new state and local taxes on Internet commerce, the tax moratorium expired on November 1, 2003, and has not been re-enacted.  On November 1, 2007, the "Internet Tax Freedom Act Amendment Acts of 2007" was signed into law.  It extends the prohibitions against multiple and discriminatory taxes on electronic commerce until November 1, 2014. 

 

WHERE YOU CAN GET ADDITIONAL INFORMATION


We file annual, quarterly and current reports, proxy statements and other information with the SEC.  You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.W., Washington, DC 20549.  You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.


ITEM 1A.  

RISK FACTORS


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


ITEM 1B.  

UNRESOLVED STAFF COMMENTS


None.


ITEM 2.  

PROPERTIES


On June 23, 2010, we entered into a lease agreement for office space located at 1130 West Pender St., Suite 230, Vancouver, BC Canada V6E 4A4.  Since that time, we have not sought to move or change our office site.  Our telephone number remains (604) 257-3600.  Under the lease, we pay a total of $5,919 CAD per month on a month to month basis for 2113ft of corporate office space.  The space we lease is utilized for general office purposes.  It is our belief that the space is adequate for our immediate needs.  Additional space may be required as we expand our operations.  We do not foresee any significant difficulties in obtaining any required additional space.  We do not own any real property.


ITEM 3.  

LEGAL PROCEEDINGS


We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation.  There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.


ITEM 4.  

MINE SAFETY DISCLOSURES


Not Applicable.



11




PART II


ITEM 5.

MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock


Our Common Stock is currently quoted on the OTC Bulletin Board.  Our Common Stock has been quoted on the OTC Bulletin Board trading under the symbol “WLGC.OB” since since April 14, 2003.  Because we are quoted on the OTCBB, our securities may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if they were listed on a national securities exchange.

 

The following table sets forth the high and low bid prices for our Common Stock per quarter as reported by the OTCBB for the period from January 1, 2010 through December 31, 2011, based on our fiscal year end December 31. These prices represent quotations between dealers without adjustment for retail mark-up, markdown or commission and may not represent actual transactions.  


  

 

First Quarter

 

 

Second Quarter

 

 

Third Quarter

 

 

Fourth Quarter

2011 – High

 

$0.36

 

 

 

$0.28

 

 

 

$0.21

 

 

$0.15

2011 – Low

 

$0.12

 

 

 

$0.15

 

 

 

$0.10

 

 

$0.08

2010 – High

 

$0.31

 

 

 

$0.208

 

 

 

$0.41

 

 

$0.54

2010 – Low

 

$0.092

 

 

 

$0.08

 

 

 

$0.042

 

 

$0.15


Record Holders


As of April 10, 2012, an aggregate of 83,535,606  shares of our Common Stock were issued and outstanding and were owned by approximately 121 holders of record, based on information provided by our transfer agent.

 

Recent Sales of Unregistered Securities


None. 


Re-Purchase of Equity Securities


None.

 

Dividends


We have not paid any cash dividends on our Common Stock since inception and presently anticipate that all earnings, if any, will be retained for development of our business and that no dividends on our Common Stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of our Board of Directors and will depend upon, among other things, future earnings, operating and financial condition, capital requirements, general business conditions and other pertinent facts.  Therefore, there can be no assurance that any dividends on our Common Stock will be paid in the future.


Securities Authorized for Issuance Under Equity Compensation Plans

 

On May 14, 2010, the Company registered on Form S-8 the 2010 Share Incentive Plan, under which the Company is authorized to issue up to ten million (10,000,000) shares of the Company’s Common Stock to the Company’s employees, executives and consultants.


ITEM 6.  

SELECTED FINANCIAL DATA


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.



12




ITEM 7.   

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


This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections.  We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements.  These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted.  You should read this report completely and with the understanding that actual future results may be materially different from what we expect.  The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report.  We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.


RESULTS OF OPERATIONS


Working Capital


 

December 31, 2011

December 31, 2010

Current Assets

$   52,979

$120,060

Current Liabilities

$686,878

$852,358

Working Capital (Deficit)

$(633,899)

$(732,298)


Cash Flows


 

December 31, 2011

December 31, 2010

Cash Flows from (used in) Operating Activities

$(917,798)

$(681,105)

Cash Flows from (used in) Financing Activities

$848,238

$890,549

Net Increase (decrease) in Cash During Period

$(61,165)

$  65,024


Operating Revenues


Operating revenues for the twelve months ended December 31, 2011 were $4,076 and is comprised of product sales totaling $4,076.


Operating revenues for the twelve months ended December 31, 2010 were $1,022 and is comprised of product sales totaling $1,022.


Operating Expenses and Net Loss


Operating expenses for the twelve months ended December 31, 2011 were $1,987,410 and is comprised of $71,164 in rent, $1,556,967 in selling, general and administrative and $359,279 in research and development.


Operating expenses for the twelve months ended December 31, 2010 were $5,021,017 and is comprised of $103,180 in rent, $4,624,567 in selling, general and administrative and $293,270 in research and development.


Net loss for the twelve months ended December 31, 2011 was $2,132,373 and is comprised of $1,983,334 loss from operations, $11,250 bad debts, $7,689 in interest expense and $130,100 loss on settlement of debt.


Net loss for the twelve months ended December 31, 2010 was $4,745,811 and is comprised of $5,019,995 loss from operations and $16,036 in interest expense and $290,220 gain on settlement of debt.


Liquidity and Capital Resources


As at December 31, 2011, the Company’s cash and current asset balance was $52,979 compared to $120,060 as at December 31, 2010.  The decrease in current assets of $67,081 is attributed to decreases of $34,680 in cash, $37 in accounts receivable, $5,598 in HST/GST refund receivable, $276 in prepaid expenses, $5 in other current assets and $26,485 in restricted cash.



13




As at December 31, 2011, the Company had current and total liabilities of $686,878 compared with current and total liabilities of $852,358 as at December 31, 2010.  The decrease in total liabilities of $165,480 is attributed to decreases of $37,750 in accounts payable and accrued liabilities, $69,248 in indebtedness to related parties, interest payable of $13,996 and notes payable of $47,400, net of an increase in bank loans payable of $2,914.


As at December 31, 2011, the Company had a working capital deficit of $633,899 compared with a working capital deficit of $732,298 as at December 31, 2010.  The decrease in working capital deficit was primarily attributed to a reduction in accounts payable and accrued liabilities, indebtedness to related parties and notes payable.


Cashflow from Operating Activities


During the year ended December 31, 2011, the Company used $917,798 of cash for operating activities compared to the use of $681,105 of cash for operating activities during the year ended December 31, 2010.  The change in net cash used in operating activities is primarily attributed to an increase in operating costs (net of stock-based compensation).


Cashflow from Financing Activities


During the year ended December 31, 2011, the Company received $848,238 of cash from financing activities compared to $890,549 for the year ended December 31, 2010.  The change in cash flows from financing activities is primarily attributed to an increase in proceeds from sale of common stock net of repayment of promissory notes and related party advances.


Going Concern


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


Off-Balance Sheet Arrangements


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


Future Financings


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


Critical Accounting Policies


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


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


Contractual Obligations


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.



14




Recently Issued Accounting Pronouncements


In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance in ASU 2011-08 is intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the amendments improve the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to measure an impairment loss, if any, under the second step of the goodwill impairment test. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.


In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which is effective for annual reporting periods beginning after December 15, 2011. ASU 2011-05 will become effective for the Company on December 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income. The adoption of ASU 2011-05 is not expected to have a material impact on our financial position or results of operations.


In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will become effective for the Company on December 1, 2012. We are currently evaluating ASU 2011-04 and have not yet determined the impact that adoption will have on our financial statements.


In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”. This amendment explains which modifications constitute troubled debt restructurings (“TDR”). Under the new guidance, the definition of a troubled debt restructuring remains essentially unchanged, and for a loan modification to be considered a TDR, certain basic criteria must still be met. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructuring occurring on or after the beginning of the fiscal year of adoption. ASU 2011-02 has become effective for the Company on September 1, 2012. The Company does not believe that the guidance will have a material impact on its financial statements.


In December 2010, the FASB issued ASU 2010-29, “Business Combinations (Topic 805): Disclosure of supplementary pro forma information for business combinations.” This update changes the disclosure of pro forma information for business combinations. These changes clarify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. Also, the existing supplemental pro forma disclosures were expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our financial statements.



15




In December 2010, the FASB issued ASU 2010-28, “Intangible –Goodwill and Other (Topic 350): When to perform Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts.” This update requires an entity to perform all steps in the test for a reporting unit whose carrying value is zero or negative if it is more likely than not (more than 50%) that a goodwill impairment exists based on qualitative factors, resulting in the elimination of an entity’s ability to assert that such a reporting unit’s goodwill is not impaired and additional testing is not necessary despite the existence of qualitative factors that indicate otherwise. This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our financial statements.


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 7A.  

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.




16





ITEM 8.   

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA






WORDLOGIC CORPORATION

(A Development Stage Company)


For the Years Ended December 31, 2011 and 2010







Report of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets

F-3

Consolidated Statements of Operations

F-4

Consolidated Statements of Cash Flows

F-5

Consolidated Statements of Stockholders’ Deficit

F-6

Notes to the Consolidated Financial Statements

F-9



F-1






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors

WordLogic Corporation

(A Development Stage Company)


We have audited the accompanying balance sheets of WordLogic Corporation (A Development Stage Company) as of December 31, 2011 and 2010 and the related statements of operations, changes in stockholders' deficit and cash flows for each of the twelve month periods then ended.  Theses financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.


We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WordLogic Corporation as of December 31, 2011 and 2010, and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statement, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ M&K CPAS, PLLC

www.mkacpas.com

Houston, Texas

April 13, 2012




F-2





WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Balance Sheets

(Expressed in US Dollars)


 

 

December 31,

2011

 

December 31,

2010

 

 

 

 


Assets

 


 


 

 

 

 


Current Assets

 


 


 

 

 

 


Cash

$

 14,787

$

 49,467

Restricted cash (Note 3)

 

 10,865

 

 37,350

Accounts receivable

 

 –

 

 37

HST/GST refund receivable

 

 14,840

 

 20,438

Employee advances

 

 216

 

 221

Prepaid expenses

 

 12,271

 

 12,547

 

 

 

 

 

Total Current Assets

 

 52,979

 

 120,060

 

 

 

 

 

Property and equipment, net of accumulated depreciation (Note 4)

 

 1,896

 

 2,672

 

 

 

 

 

Total Assets

$

 54,875

$

 122,732

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

$

 461,013

$

 498,763

Bank loans payable (Note 5)

 

 38,074

 

 35,160

Indebtedness to related parties (Note 6)

 

 147,437

 

 216,685

Accrued interest

 

 34,354

 

 48,350

Notes payable (Note 7)

 

 6,000

 

 53,400

 

 

 

 

 

Total Current Liabilities

 

 686,878

 

 852,358

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 686,878

 

 852,358

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

 

Common stock, $.001 par value; 100,000,000 shares authorized,  82,500,606 and 67,798,786 shares issued and outstanding, respectively (Note 8)

 

 82,501

 

 67,799

Additional paid-in capital

 

 22,946,272

 

 20,729,373

Stock receivable

 

 (10,000)

 

 –

Accumulated deficit

 

 (2,264,854)

 

 (2,264,854)

Deficit accumulated during development stage

 

 (20,759,962)

 

 (18,627,589)

Accumulated other comprehensive loss

 

 (625,960)

 

 (634,355)

 

 

 

 

 

Total Stockholders’ Deficit

 

 (632,003)

 

 (729,626)

 

 

 

 

 

Total Liabilities and Stockholders’ Deficit

$

 54,875

$

 122,732

 

 


 

 


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

 



F-3






WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statements of Operations

(Expressed in US Dollars)


 

 

Accumulated

from May 27,

2003 (Date of Inception) to

 

For the Years Ended

 

 

December 31,

2011

(Unaudited)

 

December 31,

2011

 

December 31,

2010

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

Product sales

$

 25,757

$

 4,076

$

 1,022

Royalty revenue

 

 32,962

 

 –

 

 –

 

 

 

 

 

 

 

Total Revenues

 

 58,719

 

 4,076

 

 1,022

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Rent, related party (Note 6)

 

 828,363

 

 71,164

 

 103,180

Selling, general and administrative (Note 6)

 

 17,367,339

 

 1,556,967

 

 4,624,567

Research and development

 

 2,925,737

 

 359,279

 

 293,270

 

 

 

 

 

 

 

Total Operating Expenses

 

 21,121,439

 

 1,987,410

 

 5,021,017

 

 

 

 

 

 

 

Loss from Operations

 

 (21,062,720)

 

 (1,983,334)

 

 (5,019,995)

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

Bad debts

 

 (11,250)

 

 (11,250)

 

 –

Interest income

 

 1,760

 

 –

 

 –

Interest expense:

 

 

 

 

 

 

Related parties

 

 (84,152)

 

 –

 

 (8,503)

Amortization of discount on convertible note

 

 (145,243)

 

 –

 

 –

Other notes, advances and amounts

 

 (443,258)

 

 (7,689)

 

 (7,533)

Gain on derivative liability

 

 142,861

 

 –

 

 –

Gain (loss) on settled liabilities

 

 (757,960)

 

 (130,100)

 

 290,220

 

 

 

 

 

 

 

Loss Before Income Taxes and Extraordinary Item

 

 (22,359,962)

 

 (2,132,373)

 

 (4,745,811)

 

 

 

 

 

 

 

Income tax provision

 

 –

 

 –

 

 –

 

 

 

 

 

 

 

Loss Before Extraordinary Item

 

 (22,359,962)

 

 (2,132,373)

 

 (4,745,811)

 

 

 

 

 

 

 

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

 

 1,600,000

 

 –

 

 –

 

 

 

 

 

 

 

Net Loss

$

 (20,759,962)

$

 (2,132,373)

$

 (4,745,811)

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Gain/(Loss) of Foreign Currency Translation

 

 (625,960)

 

 8,395

 

 (144,420)

 

 

 

 

 

 

 

Net Comprehensive Income

$

 (21,385,922)

$

 (2,123,978)

$

 (4,890,231)

 

 

 

 

 

 

 

Basic and diluted loss per share

 

 

$

 (0.03)

$

 (0.10)

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 73,623,959

 

 48,048,274

 

 

 

 

 

 

 


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

 



F-4





WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Expressed in US Dollars)


 

 

Accumulated

from May 27,

2003 (Date of

Inception) to

 

For the Years Ended

 

 

December 31,

2011

(Unaudited)

 

December 31,

2011

 

December 31,

2010

Cash flows from operating activities:

 


 


 


Net loss

$

 (20,759,962)

$

 (2,132,373)

$

 (4,745,811)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Bad debts

 

 11,250

 

 11,250

 

 –

Depreciation and amortization

 

 61,781

 

 667

 

 5,617

Common stock issued for services and payables

 

 986,092

 

 938,635

 

 –

Stock-based compensation

 

 12,107,622

 

 83,644

 

 4,254,752

Amortization of debt discount

 

 145,243

 

 –

 

 –

Loss (gain) on settled liabilities

 

 822,600

 

 130,100

 

 (290,220)

Gain on derivative liability

 

 (142,861)

 

 –

 

 –

Changes in current assets and liabilities:

 

 

 

 

 

 

Receivables

 

 35,923

 

 5,635

 

 (14,500)

Employee advances

 

 (15,584)

 

 5

 

 (12)

Prepaid expenses

 

 (12,271)

 

 276

 

 (12,547)

Bank overdraft

 

 –

 

 –

 

 –

Accounts payable and accrued liabilities

 

 673,881

 

 58,359

 

 186,687

Accrued interest payable

 

 65,117

 

 (13,996)

 

 (65,071)

 

 

 

 

 

 

 

Net cash used in operating activities

 

 (6,021,169)

 

 (917,798)

 

 (681,105)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of equipment

 

 (26,942)

 

 –

 

 –

 

 

 

 

 

 

 

Net cash used in investing activities

 

 (26,942)

 

 –

 

 –

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from related party advances

 

 1,318,126

 

 –

 

 123,869

Repayment of related party advances

 

 (883,463)

 

 (69,248)

 

 –

Proceeds from promissory notes issued to related parties

 

 411,509

 

 –

 

 7,279

Repayment of related party promissory notes

 

 (493,941)

 

 –

 

 –

Proceeds from convertible promissory note

 

 933,926

 

 –

 

 –

Repayment of convertible promissory notes

 

 (947,462)

 

 –

 

 –

Proceeds from other promissory note

 

 993,120

 

 17,000

 

 62,900

Repayment of other promissory notes

 

 (443,220)

 

 –

 

 (17,511)

Payments on capital lease obligation

 

 (12,071)

 

 –

 

 –

Proceeds from line of credit

 

 60,659

 

 17,058

 

 –

Repayment of line of credit

 

 (22,585)

 

 (14,144)

 

 (8,441)

Proceeds from stock options and warrants exercised

 

 532,915

 

 –

 

 80,100

Proceeds from sale of common shares

 

 5,250,680

 

 897,572

 

 642,353

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 6,698,193

 

 848,238

 

 890,549

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 (625,960)

 

 8,395

 

 (144,420)

 

 

 

 

 

 

 

Net change in cash

 

 24,122

 

 (61,165)

 

 65,024

 

 

 

 

 

 

 

Cash, beginning of period

 

 1,530

 

 86,817

 

 21,793

 

 

 

 

 

 

 

Cash, end of period

$

 25,652

$

 25,652

$

 86,817

 

 

 

 

 

 

 

Non-Cash Information:

 

 

 

 

 

 

  Cashless exercise of warrants

$

 275

$

 187

$

 –

  Stock issued to settle notes payable plus accrued interest

$

 1,445,853

$

 160,400

$

 295,821

  Line of credit converted to bank loan

$

 44,359

$

 –

$

 –

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for income taxes

$

 –

$

 –

$

 –

 

 

 

 

 

 

 

Cash paid for interest

$

 212,931

$

 5,298

$

 3,534


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



F-5





WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statement of Stockholders’ Deficit

(Expressed in US Dollars)

 

 

 

 

 

 

Deficit

Accumulated

Accumulated

 

 

Common Stock

Additional

Paid-In


Stock

Accumulated

During

Development

Other

Comprehensive

 

 

Shares

Par Value

Capital

Receivable

Deficit

Stage

Loss

Total

 

 

$

$

$

$

$

$

$

 

 

 

 

 

 

 

 

 

Balance, May 27, 2003 (inception), prior to reverse merger

19,016,657

19,017

1,504,366

-

(2,264,854)

3,806

(737,665)

Reverse merger with The American West.com, Inc. (Note 1)

2,907,007

2,907

(2,907)

-

Cancelled shares.

(60,000)

(60)

60

-

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

-

(408,027)

(408,027)

Currency translation adjustment

-

(270,371)

(270,371)

 

 

 

 

 

 

 

 

 

Balance, December 31, 2003

21,863,664

21,864

1,501,519

-

(2,264,854)

(408,027)

(266,565)

(1,416,063)

Common stock issued in exchange for services and payables

88,000

88

47,369

-

47,457

Common stock options granted

10,344

-

10,344

Comprehensive income:

 

 

 

 

 

 

 

 

Net income

938,596

938,596

Currency translation adjustment

(97,095)

(97,095)

 

 

 

 

 

 

 

 

 

Balance, December 31, 2004

21,951,664

21,952

1,559,232

(2,264,854)

530,569

(363,660)

(516,761)

Sale of common stock ($0.65/share)

830,770

830

539,170

540,000

Common stock options granted

204,458

-

204,458

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

(1,221,564)

(1,221,564)

Currency translation adjustment

(2,930)

(2,930)

 

 

 

 

 

 

 

 

 

Balance, December 31, 2005

22,782,434

22,782

2,302,860

(2,264,854)

(690,995)

(366,590)

(996,797)

Sale of units consisting of one share of common stock and one warrant ($0.60/share)

570,000

570

341,430

342,000

Common stock options exercised ($0.30/share)

100,000

100

29,900

-

30,000

Common stock options exercised ($0.60/share)

29,150

30

17,460

17,490

Sale of units consisting of one share of common stock and one warrant ($0.50/share)

1,000,000

1,000

499,000

500,000

Common stock options and warrants vested

1,132,512

-

1,132,512

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

(2,214,823)

(2,214,823)

Currency translation adjustment

-

4,940

4,940

 

 

 

 

 

 

 

 

 

Balance, December 31, 2006

24,481,584

24,482

4,323,162

-

(2,264,854)

(2,905,818)

(361,650)

(1,184,678)

 

 

 

 

 

 

 

 

 

Balance, December 31, 2006 (continued)

24,481,584

24,482

4,323,162

-

(2,264,854)

(2,905,818)

 (361,650)

(1,184,678)

Sale of units consisting of one share of common stock and one warrant ($0.65/share)

200,000

200

129,800

-

 –

130,000

Sale of units consisting of one share of common stock and one warrant ($0.50/share)

821,000

821

409,679

-

 –

410,500

Sale of units consisting of one share of common stock and one warrant ($0.40/share)

75,000

75

29,925

-

 –

30,000

Sale of units consisting of one share of common stock and one warrant ($0.30/share)

2,377,297

2,377

710,812

-

 –

713,189

Sale of units consisting of one share of common stock and one warrant ($0.25/share)

40,000

40

9,960

-

 –

10,000

Exercise of warrants ($1.25/share)

20,000

20

24,980

-

 –

25,000

Common stock options exercised (cashless)

87,736

88

(88)

-

 –

Common stock options and warrants vested

439,393

-

 –

439,393

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

-

(1,634,324)

 –

(1,634,324)

Currency translation adjustment

-

 (103,990)

(103,990)

 

 

 

 

 

 

 

 

 

Balance, December 31, 2007

28,102,617

28,103

6,077,623

-

(2,264,854)

(4,540,142)

 (465,640)

(1,164,910)

Sale of common stock ($0.351.00/share)

100,000

100

99,900

-

 –

100,000

Sale of units consisting of one share of common stock and one-half warrant ($0.60/share)

800,000

800

479,200

-

 –

480,000

Sale of units consisting of one share of common stock and one-half warrant ($1.00/share)

50,000

50

49,950

-

 –

50,000


Continued



F-6






Sale of units consisting of one share of common stock and one warrant ($0.20/share)

112,500

112

22,388

-

 –

22,500

Sale of units consisting of one share of common stock and one warrant ($0.25/share)

200,000

200

49,800

 

 –

50,000

Exercise of warrants ($0.50/share)

125,000

125

62,375

-

 –

62,500

Exercise of warrants ($0.75/share)

100,000

100

74,900

-

 –

75,000

Common stock options exercised ($0.30/share)

10,000

10

2,990

-

 –

3,000

Common stock options exercised ($1.00/share)

192,000

192

191,808

-

 –

192,000

Common stock issued for services ($0.68/share)

200,000

200

135,800

-

 –

136,000

Common stock issued for services ($0.65/share)

300,000

300

194,700

-

 –

195,000

Common stock issued in settlement of debt

3,930,879

3,931

1,568,421

-

 –

1,572,352

Common stock options and warrants vested

2,361,327

-

 –

2,361,327

Comprehensive loss:

 

 

 

-

 

 

 

 

Net loss

-

(4,923,057)

(4,923,057)

Currency translation adjustment

-

91,309

91,309

 

 

 

 

 

 

 

 

 

Balance, December 31, 2008

34,222,996

34,223

11,371,182

-

(2,264,854)

(9,463,199)

(374,331)

(696,979)

Common stock issued for services ($0.30/share)

200,000

200

59,800

 –

60,000

Common stock issued for services ($0.53/share)

30,500

31

16,134

 –

16,165

Common stock issued for services ($0.68/share)

250,000

250

169,750

 –

170,000

Common stock issued for services ($0.40/share)

300,000

300

119,700

 –

120,000

Common stock issued for services ($0.49/share)

100,000

100

48,900

 –

49,000

Common stock issued for services ($0.31/share)

240,000

240

74,160

 –

74,400

Common stock issued for services ($0.45/share)

300,000

300

134,700

 –

135,000

Common stock issued for services ($0.41/share)

55,000

55

22,495

 –

22,550

Common stock issued for services ($0.62/share)

100,000

100

61,900

 –

62,000

Common stock issued for services ($0.43/share)

30,000

30

12,870

 –

12,900

Common stock issued for services ($0.36/share)

50,000

50

17,950

 –

18,000

Common stock issued for services ($0.47/share)

100,000

100

46,900

 –

47,000

Common stock issued for services ($0.44/share)

50,000

50

21,950

 –

22,000

Common stock issued for services ($0.30/share)

100,000

100

29,900

 –

30,000

Common stock issued for services ($0.33/share)

90,000

90

29,610

 –

29,700

Common stock issued for services ($0.35/share)

120,000

120

41,880

 –

42,000

Common stock issued for services ($0.37/share)

50,000

50

18,450

 –

18,500

Common stock issued for services ($0.28/share)

100,000

100

27,900

 –

28,000

Common stock issued for services ($0.26/share)

127,500

127

33,023

 –

33,150

Common stock options exercised ($0.21/share)

10,000

10

2,090

 –

2,100

Common stock issued for services ($0.20/share)

100,000

100

19,900

 –

20,000

Common stock issued for services ($0.22/share)

40,000

40

8,760

 –

8,800

Common stock options exercised ($0.35/share)

33,333

33

11,633

 –

11,666

Common stock options exercised ($0.30/share)

76,000

76

22,724

 –

22,800

Sale of units consisting of one share of common stock and one warrant ($0.20/share)

175,000

175

34,825

 –

35,000

Sale of units consisting of one share of common stock and one warrant ($0.30/share)

456,055

456

136,360

 –

136,816

Sale of common stock ($0.16/share)

3,025,000

3,025

480,975

 –

484,000

Sale of common stock ($0.15/share)

265,000

265

39,485

 –

39,750

Sale of common stock ($0.30/share)

100,000

100

29,900

 –

30,000

Sale of common stock ($0.35/share)

20,000

20

6,980

 –

7,000

Common stock options and warrants vested

2,275,961

 –

2,275,961

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

(4,418,579)

(4,418,579)

Currency translation adjustment

(115,604)

(115,604)

 

 

 

 

 

 

 

 

 

Balance, December 31, 2009

40,916,384

40,916

15,428,747

-

(2,264,854)

(13,881,778)

(489,935)

(1,166,904)

Common stock issued for services ($0.39/share)

133,332

133

51,867

-

 –

52,000

Common stock issued for services ($0.35/share)

320,000

320

111,680

-

 –

112,000

Common stock issued for services ($0.33/share)

150,000

150

49,350

-

 –

49,500

Common stock issued for services ($0.31/share)

92,321

92

28,527

 –

28,619

Common stock issued for services ($0.30/share)

110,000

110

32,890

 –

33,000

Common stock issued for services ($0.29/share)

150,000

150

43,350

 –

43,500

Common stock issued for services ($0.28/share)

200,000

200

55,800

 –

56,000

Common stock issued for services ($0.26/share)

3,200,000

3,200

828,800

 –

832,000

Common stock issued for services ($0.25/share)

10,000

10

2,490

 –

2,500

Common stock issued for services ($0.24/share)

113,750

114

27,186

 –

27,300

Common stock issued for services ($0.20/share)

150,000

150

29,850

 –

30,000

Common stock issued for services ($0.19/share)

50,000

50

9,450

 –

9,500

Common stock issued for services ($0.18/share)

172,500

173

30,877

 –

31,050

Common stock issued for services ($0.17/share)

19,412

19

3,281

 –

3,300

Common stock issued for services ($0.16/share)

2,500,000

2,500

397,500

 –

400,000

Continued



F-7






Common stock issued for services ($0.14/share)

1,495,000

1,495

207,805

 –

209,300

Common stock issued for services ($0.13/share)

710,000

710

91,590

 –

92,300

Common stock issued for services ($0.12/share)

850,000

850

101,150

 –

102,000

Common stock issued for services ($0.11/share)

500,000

500

54,500

 –

55,000

Common stock issued for services ($0.10/share)

210,000

210

20,790

 –

21,000

Common stock issued for services ($0.09/share)

200,000

200

17,800

 –

18,000

Common stock issued for services ($0.08/share)

2,460,000

2,460

194,340

 –

196,800

Common stock issued for services ($0.07/share)

3,300,000

3,300

227,700

 –

231,000

Common stock issued for services ($0.05/share)

2,400,000

2,400

117,600

 –

120,000

Common stock issued in settlement of debt

2,042,888

2,043

293,778

 –

295,821

Sale of common stock ($0.33/share)

30,000

30

9,870

 –

9,900

Sale of common stock ($0.15/share)

919,999

921

136,954

 –

137,875

Sale of common stock ($0.14/share)

140,200

140

19,488

 –

19,628

Sale of common stock ($0.10/share)

1,185,000

1,185

117,315

 –

118,500

Sale of units consisting of one share of common stock and one warrant ($0.20/share)

125,000

125

24,875

 –

25,000

Sale of units consisting of one share of common stock and one warrant ($0.15/share)

643,000

643

95,807

 –

96,450

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

1,600,000

1,600

158,400

 –

160,000

Common stock options exercised ($0.40/share)

200,000

200

79,800

 –

80,000

Common stock options exercised ($0.15/share)

500,000

500

74,500

 –

75,000

Common stock options and warrants vested

1,553,666

 –

1,553,666

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

(4,745,811)

(4,745,811)

Currency translation adjustment

(144,420)

(144,420)

 

 

 

 

 

 

 

 

 

Balance, December 31, 2010

67,798,786

67,799

20,729,373

-

(2,264,854)

(18,627,589)

(634,355)

(729,626)

Common stock issued for services ($0.30/share)

10,000

10

2,990

 –

3,000

Common stock issued for services ($0.265/share)

390,000

390

102,960

 –

103,350

Common stock issued for services ($0.26/share)

100,000

100

25,900

 –

26,000

Common stock issued for services ($0.25/share)

544,220

544

135,510

 –

136,054

Common stock issued for services ($0.235/share)

40,000

40

9,360

 –

9,400

Common stock issued for services ($0.23/share)

225,000

225

53,775

 –

54,000

Common stock issued for services ($0.22/share)

40,000

40

8,760

 –

8,800

Common stock issued for services ($0.21/share)

150,000

150

31,350

 –

31,500

Common stock issued for services ($0.20/share)

305,000

305

60,695

 –

61,000

Common stock issued for services ($0.19/share)

830,000

830

156,870

 –

157,700

Common stock issued for services ($0.18/share)

583,000

583

104,357

 –

104,940

Common stock issued for services ($0.15/share)

475,000

475

70,775

 –

71,250

Common stock issued for services ($0.258/share)

110,000

110

28,270

 –

28,380

Common stock issued for services ($0.259/share)

260,000

260

67,080

 –

67,340

Common stock issued for services ($0.13/share)

10,000

10

1,290

 –

1,300

Common stock issued for services ($0.16/share)

307,000

307

48,813

 –

49,120

Common stock issued for services ($0.12/share)

125,000

125

14,875

 –

15,000

Common stock issued for services ($0.105/share)

100,000

100

10,400

 –

10,500

Common stock issued in settlement of debt

300,000

300

59,700

 –

60,000

Common stock issued in settlement of debt

480,000

480

85,920

 –

86,400

Common stock issued in settlement of debt

480,000

480

81,120

 –

81,600

Common stock issued in settlement of debt

500,000

500

62,000

 –

62,500

Sale of units consisting of one share of common stock and one warrant ($0.15/share)

625,000

625

93,125

 –

93,750

Common stock options exercised (cashlessly)

187,500

187

(187)

 –

Sale of common stock ($0.15/share)

100,000

100

14,900

 –

15,000

Sale of common stock ($0.10/share)

712,500

713

70,537

 –

71,250

 

 

 

 

 

 

 

 

 

Sale of units consisting of one share of common stock and one warrant ($0.18/share)

532,000

532

95,228

 –

95,760

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

6,430,600

6,431

636,629

 –

643,060

Common stock options and warrants vested

83,647

 –

83,647

Stock receivable

-

(10,000)

 –

(10,000)

 

 

 

 

 

 

 

 

 

Cancellation of common stock

(250,000)

(250)

250

 –

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

(2,132,373)

(2,132,373)

Currency translation adjustment

8,395

8,395

Balance, December 31, 2011

82,500,606

82,501

22,946,272

(10,000)

(2,264,854)

(20,759,962)

(625,960)

(632,003)


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



F-8



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 “WLC”), 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, WLC entered into an Agreement and Plan of Merger (the “Agreement”) with WordLogic Corporation-private company (“WCPC”), a British Columbia, Canada corporation. On May 27, 2003, WLC 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 WLC the legal surviving entity. Since WLC 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 WLC. Following the closing, WLC 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, WLC 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”. WLC’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, 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 December 31, 2011 the Company has a working capital deficiency of $633,899 and has incurred losses of $20,759,962 since inception. These factors, among others, raise significant doubt regarding the Company’s ability to continue as a going concern.


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


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


Development Stage


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


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.



F-6



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements



2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


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 highly liquid instruments with original maturities of three months or less when acquired, to be cash equivalents.  The Company had no cash equivalents at December 31, 2011 and 2010, respectively.


e)

Allowance for Doubtful Accounts


The Company considers its receivables to be fully collectible; 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.


f)

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 years ended December 31, 2011 and 2010.


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.


g)

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.



F-7



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


h)

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.


i)

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.


j)

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.


k)

Revenue Recognition


The Company recognizes revenue related to sales and licensing of data entry software in accordance with standards issued by the FASB; accordingly revenue will only be recognized when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectibility is reasonably assured.


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 collectibility is reasonably assured, which is usually on receipt of royalty payments.  


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


l)

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.



F-8



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


l) Fair Value for Financial Assets and Financial Liabilities (Continued)


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 December 31, 2011. 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 December 31, 2011, 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 period ended December 31, 2011.


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.


m)

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.    


n)

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 behaviours.


o)

Loss per Common Share


The Company reports net loss per share in accordance with provisions of the FASB.  The provisions require dual presentation of basic and diluted loss per share. Basic net loss per share excludes the impact of common stock equivalents. Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents. As of December 31, 2011, there were 4,540,000 vested common stock options and warrants outstanding, which were excluded from the calculation of net loss per share-diluted because they were antidilutive.


p)

Comprehensive Income (Loss)


The Company reports its comprehensive income (loss) in accordance with provisions of the FASB.  For the years ended December 31, 2011 and 2010, the Company’s only component of comprehensive loss was foreign currency translation adjustments.



F-9



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


q)

Advertising Costs


Advertising costs are charged to operations as incurred.


r)

Recent Accounting Pronouncements


In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance in ASU 2011-08 is intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the amendments improve the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to measure an impairment loss, if any, under the second step of the goodwill impairment test. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.


In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which is effective for annual reporting periods beginning after December 15, 2011. ASU 2011-05 will become effective for the Company on December 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income. The adoption of ASU 2011-05 is not expected to have a material impact on our financial position or results of operations.


In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will become effective for the Company on December 1, 2012. We are currently evaluating ASU 2011-04 and have not yet determined the impact that adoption will have on our financial statements.


In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”. This amendment explains which modifications constitute troubled debt restructurings (“TDR”). Under the new guidance, the definition of a troubled debt restructuring remains essentially unchanged, and for a loan modification to be considered a TDR, certain basic criteria must still be met. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructuring occurring on or after the beginning of the fiscal year of adoption. ASU 2011-02 has become effective for the Company on September 1, 2012. The Company does not believe that the guidance will have a material impact on its financial statements.



F-10



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements



2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


r) Recent Accounting Pronouncements


In December 2010, the FASB issued ASU 2010-29, “Business Combinations (Topic 805): Disclosure of supplementary pro forma information for business combinations.” This update changes the disclosure of pro forma information for business combinations. These changes clarify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. Also, the existing supplemental pro forma disclosures were expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our financial statements.


In December 2010, the FASB issued ASU 2010-28, “Intangible –Goodwill and Other (Topic 350): When to perform Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts.” This update requires an entity to perform all steps in the test for a reporting unit whose carrying value is zero or negative if it is more likely than not (more than 50%) that a goodwill impairment exists based on qualitative factors, resulting in the elimination of an entity’s ability to assert that such a reporting unit’s goodwill is not impaired and additional testing is not necessary despite the existence of qualitative factors that indicate otherwise. This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our financial statements.


s)

Reclassifications


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


3.

RESTRICTED CASH


As of December 31, 2011 and 2010 we had restricted cash balances of $10,865 and $37,350, respectively.  This cash was held in trust by our attorneys for the payment of future legal invoices.


4.

PROPERTY AND EQUIPMENT


 

Cost

$

Accumulated

Amortization

as of

December 31,

2011

$

Net Carrying

Amount

as of

December 31,

2011

$

Net Carrying

Amount

as of

December 31,

2010

$

Office equipment

3,795

3,531

264

337

Computer equipment

139,010

138,426

584

995

Computer software

6,972

6,972

-

-

Furniture and fixtures

14,996

13,948

1,048

1,340

 

 

 

 

 

 

164,773

162,877

1,896

2,672


Depreciation expense totalled $667 and $5,617 for the years ended December 31, 2011 and 2010, respectively.


5.

BANK LOANS PAYABLE


Represents loans from the Royal Bank of Canada, repayable upon demand, as follows:


a.

In the amount of CDN$24,950 (US$24,533) as at December 31, 2011 (CDN$34,970 (US$35,160) as at December 31, 2010), requiring monthly blended payments of CDN$835 (US$821) including principal and interest at 4.25% per annum.  Proceeds of the loan were used to fully repay and discharge a line of credit in the amount of CDN$50,000 (US$49,165).  The loan is secured by a personal guarantee of an officer of the Company.



F-11



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


5.

BANK LOANS PAYABLE (Continued)


b.

In the amount of CDN$13,747 (US$13,541) as at December 31, 2011 (CDN$nil (US$nil) as at December 31, 2010), requiring monthly blended payments of CDN$1,540 (US$1,514) including principal and interest at 5.02% per annum.  Proceeds of the loan were used to fully repay and discharge a corporate visa in the amount of CDN$18,218 (US$17,914).  The loan is secured by a personal guarantee of an officer of the Company.


6.

RELATED PARTY TRANSACTIONS AND BALANCES


The Company incurred the following related party transactions:


a)

The Company entered into an agreement with a private company controlled by a director to rent office premises requiring monthly lease payments of $CAD 13,846, which expired June 30, 2010. Office rent incurred by the Company with this private company totaled $nil ($CAD nil) and $80,225 ($CAD 83,078) for the years ended December 31, 2011 and 2010, respectively.


b)

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, 2012. Management fees incurred by the Company totaled $365,202 ($CAD 360,000) and $193,132 ($CAD 200,000) for the years ended December 31, 2011 and 2010, respectively.  As at December 31, 2011 the amount owing to this private company totaled $105,100.


c)

During the year ended December 31, 2008, the Company received proceeds of $150,810 ($CAD150,000) from a director on an unsecured promissory note.  During the year ended December 31, 2010, the Company settled the loan through the issuance of shares of its common stock. The note bears interest at 8% per annum, matures December 31, 2010 and includes $150,810 ($CAD 150,000) of principal and all related accrued interest.  Accrued interest payable on the note totalled $31,255 ($CAD 31,786) and $31,958 ($CAD 31,786) at December 31, 2011 and 2010, respectively. Interest expense on the note during the years ended December 31, 2011 and 2010 totalled $nil ($CAD nil) and $8,503 ($CAD 8,805), respectively.


d)

During the years ended December 31, 2011 and 2010 the Company incurred accounting fees of $32,970 and $32,520 with a private company of which an officer is also an officer, respectively.  As at December 31, 2011, the amount owing to this private company totaled $42,337.


e)

During the years ended December 31, 2011 and 2010, the Company incurred $146,081 and $98,176 with a former officer for wages and salaries, respectively.


7.

NOTES PAYABLE


Promissory Notes


During the year ended December 31, 2010, the Company received proceeds of $20,400 on an unsecured promissory note and repaid $9,500, leaving a balance owing of $10,900 at December 31, 2010. During the year ended December 31, 2011, the Company received further proceeds of $17,000 and settled $21,900 of loans through the issuance of shares of its common stock, leaving a balance owing of $6,000 at December 31, 2011.  The note bears interest at 10% per annum, which totaled $3,099, which remained outstanding at December 31, 2011.


Interest expense on the note during the years ended December 31, 2011 and 2010 totaled $2,331 and $nil, respectively.

During the year ended December 31, 2010, the Company received proceeds of $42,500 on an unsecured promissory note, which remained outstanding at December 31, 2010.  During the year ended December 31, 2011, the Company settled the loans through the issuance of shares of its common stock, leaving no balance owing at December 31, 2011.  The note bears interest at 10% per annum, with no interest outstanding at December 31, 2011.


Interest expense on the note during the years ended December 31, 2011 and 2010 totaled $nil and $nil, respectively.



F-12



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements



8.

COMMON STOCK


For the year ended December 31, 2011:


a)

In January 2011, the Company issued 10,000 shares of its common stock at $0.30 per share for services rendered by a consultant valued at $3,000 based on the price on the date of grant.


b)

Also in January 2011, the Company conducted private placement offerings whereby it issued 570,000 units at a price of $0.15 per share for total proceeds of $85,500. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.25 per share.


c)

Also in January 2011, the Company issued 390,000 shares of its common stock at $0.265 per share for services rendered by consultants valued at $103,350 based on the price on the date of grant.  140,000 of these shares were issued to an officer of the Company.


d)

Also in January 2011, the Company issued 200,000 shares of its common stock at $0.25 per share for services rendered by a consultant valued at $50,000 based on the price on the date of grant.


e)

Also in January 2011, the Company issued 100,000 shares of its common stock registered on a Form S-8 at $0.26 per share for services rendered by an officer valued at $26,000 based on the price on the date of grant.


f)

Also in January 2011, the Company issued 150,000 shares of its common stock at $0.21 per share for services rendered by consultants valued at $31,500 based on the price on the date of grant.


g)

In February 2011, the Company conducted private placement offerings whereby it issued 600,000 units at a price of $0.10 per share for total proceeds of $60,000.  Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.25 per share.


h)

Also in February 2011, the Company issued 85,000 shares of its common stock at $0.20 per share for services rendered by consultants valued at $17,000 based on the price on the date of grant.


i)

Also in February 2011, the Company issued 97,220 shares of its common stock at $0.25 per share for services rendered by an officer valued at $24,305 based on the price on the date of grant.  


j)

In March 2011, the Company issued 10,000 shares of its common stock at $0.19 per share for services rendered by a consultant valued at $1,900 based on the price on the date of grant.


k)

Also in March 2011, the Company settled $42,500 of an outstanding promissory note through the issuance of 300,000 shares of the Company's common stock.  Shares issued were valued at fair value of $0.20 which resulted in a loss on conversion of $17,500.


l)

Also in March 2011, the Company issued 40,000 shares of its common stock at $0.22 per share for services rendered by a consultant valued at $8,800 based on the price on the date of grant.


m)

Also in March 2011, the Company issued 575,000 shares of its common stock at $0.19 per share for services rendered by consultants valued at $109,250 based on the price on the date of grant.


n)

Also in March 2011, the Company conducted a private placement offering whereby it issued 55,000 units at a price of $0.15 per share for total proceeds of $8,250. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.25 per share.


o)

In April 2011, the Company issued 10,000 shares of its common stock at $0.19 per share for services rendered by a consultant valued at $1,900 based on the price on the date of grant.



F-13



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


8.

COMMON STOCK (Continued)


p)

Also in April 2011, the Company conducted private placement offerings whereby it issued 1,610,600 units at a price of $0.10 per share for total proceeds of $161,060.  1,310,600 of the units consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.10 per share and 300,000 of the units consisted of one share of the Company’s common stock and two warrants to purchase two additional shares of common stock, also exercisable at $0.10 per share.


q)

Also in April 2011, the Company conducted a private placement offering whereby it issued 112,500 shares of its common stock at $0.10 per share for proceeds receivable of $11,250.


r)

Also in April 2011, the Company issued 187,500 shares of its common stock in exercise of stock options, cashless.


s)

Also in April 2011, the Company conducted a private placement offering whereby it issued 175,000 units at a price of $0.18 per share for total proceeds of $31,500. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.40 per share.


t)

Also in April 2011, the Company issued 100,000 shares of its common stock at $0.20 per share for services rendered by consultants valued at $20,000 based on the price on the date of grant.


u)

Also in April 2011, the Company issued 40,000 shares of its common stock at $0.235 per share for services rendered by a consultant valued at $9,400 based on the price on the date of grant.


v)

Also in April 2011, the Company issued 132,000 shares of its common stock at $0.25 per share for services rendered by a consultant valued at $33,000 based on the price on the date of grant.


w)

Also in April 2011, the Company issued 100,000 shares of its common stock at $0.258 per share for services rendered by consultants valued at $9,030 based on the price on the date of grant.


x)

In May 2011, the Company issued 10,000 shares of its common stock at $0.258 per share for services rendered by a consultant valued at $2,580 based on the price on the date of grant.


y)

Also in May 2011, the Company conducted a private placement offering whereby it issued 357,000 units at a price of $0.18 per share for total proceeds of $64,260. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.40 per share.


z)

Also in May 2011, the Company conducted a private placement offering whereby it issued 320,000 units at a price of $0.10 per share for total proceeds of $32,000. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.15 per share.


aa)

Also in May 2011, the Company issued 115,000 shares of its common stock at $0.25 per share for services rendered by consultants valued at $28,750 based on the price on the date of grant.


bb)

In June 2011, the Company issued 260,000 shares of its common stock at $0.259 per share for services rendered by consultants valued at $67,340 based on the price on the date of grant.


cc)

Also in June 2011, the Company issued 225,000 shares of its common stock at $0.24 per share for services rendered by  consultants valued at $54,000 based on the price on the date of grant.


dd)

Also in June 2011, the Company issued 115,000 shares of its common stock at $0.19 per share for services rendered by consultants valued at $21,850 based on the price on the date of grant.


ee)

Also in June 2011, the Company conducted a private placement offering whereby it issued 100,000 shares of its common stock at $0.15 per share for proceeds of $15,000.


ff)

In July 2011, the Company issued 110,000 shares of its common stock at $0.19 per share for services rendered by consultants valued at $20,900 based on the price on the date of grant.



F-14



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements



8.

COMMON STOCK (Continued)


gg)

Also in July 2011, the Company issued 583,000 shares of its common stock at $0.18 per share for services rendered by consultants valued at $104,940 based on the price on the date of grant.


hh)

Also in July 2011, the Company issued 250,000 shares of its common stock at $0.15 per share for services rendered by consultants valued at $37,500 based on the price on the date of grant.


ii)

Also in July 2011, the Company issued 120,000 shares of its common stock at $0.20 per share for services rendered by a consultant valued at $24,000 based on the price on the date of grant.


jj)

Also in July 2011, the Company conducted a private placement offering whereby it issued 125,000 units at a price of $0.10 per share for total proceeds of $12,500. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.10 per share.


kk)

Also in July 2011, the Company conducted a private placement offering whereby it issued 185,000 shares of its common stock at $0.10 per share for total proceeds of $18,500.


ll)

In August 2011, the Company issued 10,000 shares of its common stock at $0.19 per share for services rendered by a consultant valued at $1,900 based on the price on the date of grant.


mm)

Also in August 2011, the Company issued 165,000 shares of its common stock at $0.16 per share for services rendered by consultants valued at $26,400 based on the price on the date of grant.


nn)

Also in August 2011, the Company issued 100,000 shares of its common stock at $0.15 per share for services rendered by a consultant valued at $15,000 based on the price on the date of grant.


oo)

Also in August 2011, the Company issued 10,000 shares of its common stock at $0.13 per share for services rendered by a consultant valued at $1,300 based on the price on the date of grant.


pp)

Also in August 2011, the Company settled outstanding debt totaling $48,000 through the issuance of 480,000 shares of the Company’s common stock at a price recorded at the market price on the date of grant, being $0.17 per share.  Accordingly, we recorded a loss on settlement for the difference in the fair value of the shares issued and the debt extinguished of $33,600.


qq)

Also in August 2011, the Company settled outstanding debt totaling $48,000 through the issuance of 480,000 shares of the Company’s common stock at a price recorded at the market price on the date of grant, being $0.18 per share.  Accordingly, we recorded a loss on settlement for the difference in the fair value of the shares issued and the debt extinguished of $38,400.


rr)

Also in August 2011, the Company conducted a private placement offering whereby it issued 150,000 shares of its common stock at $0.10 per share for proceeds of $15,000.


ss)

Also in August 2011, the Company conducted a private placement offering whereby it issued 2,375,000 units at a price of $0.10 per share for total proceeds of $237,500. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.10 per share.


tt)

In September 2011, the Company issued 142,000 shares of its common stock at $0.16 per share for services rendered by consultants valued at $22,720 based on the price on the date of grant.


uu)

Also in September 2011, the Company issued 115,000 shares of its common stock at $0.15 per share for services rendered by consultants valued at $17,250 based on the price on the date of grant.


vv)

Also in September 2011, the Company conducted a private placement offering whereby it issued 300,000 units at a price of $0.10 per share for total proceeds of $30,000. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.10 per share.


ww)

In October 2011, the Company issued 10,000 shares of its common stock at $0.15 per share for services rendered by a consultant valued at $1,500 based on the price on the date of grant.



F-15



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


8.

COMMON STOCK (Continued)


xx)

Also in October 2011, the Company issued 115,000 shares of its common stock at $0.12 per share for services rendered by consultants valued at $13,800 based on the price on the date of grant.


yy)

Also in October 2011, the Company conducted a private placement offering whereby it issued 15,000 shares of its common stock at $0.10 per share for proceeds of $1,500.


zz)

Also in October 2011, the Company conducted a private placement offering whereby it issued 150,000 units at a price of $0.10 per share for total proceeds of $15,000. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.10 per share.


aaa)

Also in October 2011, the Company settled outstanding debt totalling $21,900 through the issuance of 500,000 shares of the Company’s common stock at a price recorded at the market price on the date of grant, being $0.125 per share.  Accordingly, we recorded a loss on settlement for the difference in the fair value of the shares issued and the debt extinguished of $40,600.


bbb)

In November 2011, the Company issued 10,000 shares of its common stock at $0.12 per share for services rendered by a consultant valued at $1,200 based on the price on the date of grant.


ccc)

Also in November 2011, the Company conducted a private placement offering whereby it issued 150,000 shares of its common stock at $0.10 per share for proceeds of $15,000.


ddd)

Also in November 2011, the Company conducted a private placement offering whereby it issued 200,000 units at a price of $0.10 per share for total proceeds of $20,000. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.10 per share.


eee)

In December 2011, the Company conducted a private placement offering whereby it issued 850,000 units at a price of $0.10 per share for total proceeds of $75,000. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.10 per share.  Proceeds of $10,000 in connection with 100,000 of the units issued, remain receivable as at December 31, 2011.


fff)

Also in December 2011, the Company issued 100,000 shares of its common stock at $0.105 per share for services rendered by a consultant valued at $10,500 based on the price on the date of grant.


For the year ended December 31, 2010:


a)

In January 2010, the Company issued 10,000 shares of its common stock at $0.25 per share for services rendered by a consultant valued at $2,500 based on the price on the date of grant.


b)

Also in January 2010, the Company conducted a private placement offering whereby it issued 125,000 shares of its common stock at a price of $0.20 per share for total proceeds of $25,000.


c)

Also in January 2010, the Company issued 100,000 shares of its common stock at $0.24 per share for services rendered by consultants valued at $24,000 based on the price on the date of grant.


d)

Also in January 2010, the Company settled outstanding promissory notes and accrued interest totalling $71,934 through the issuance of 479,554 shares of the Company's common stock at a price recorded at the market price on the date of grant, being $0.18 per share.  Accordingly, we recorded a loss on settlement for the difference in the fair value of the shares issued and the debt extinguished.


e)

Also in January 2010, the Company issued 40,000 shares of its common stock at $0.20 per share for services rendered by consultants valued at $8,000 based on the price on the date of grant.  30,000 of these shares were issued to a close relative of an officer of the Company.


f)

Also in January 2010, the Company issued 19,412 shares of its common stock at $0.17 per share for services rendered by a consultant valued at $3,300 based on the price on the date of grant.



F-16



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


8.

COMMON STOCK (Continued)


g)

Also in January 2010, the Company issued 13,750 shares of its common stock at $0.24 per share for services rendered by a consultant valued at $3,300 based on the price on the date of grant.


h)

In February 2010, the Company issued 110,000 shares of its common stock at $0.20 per share for services rendered by consultants valued at $22,000 based on the price on the date of grant.


i)

Also in February 2010, the Company issued 62,500 shares of its common stock registered on a Form S-8 at $0.18 per share for services rendered by consultants valued at $11,250 based on the price on the date of grant.


j)

Also in February 2010, the Company issued 40,000 shares of its common stock at $0.19 per share for services rendered by consultants valued at $7,600 based on the price on the date of grant. 30,000 of these shares were issued to a close relative of an officer of the Company.


k)

In March 2010, the Company issued 10,000 shares of its common stock at $0.19 per share for services rendered by a consultant valued at $1,900 based on the price on the date of grant.


l)

Also in March 2010, the Company issued 200,000 shares of its common stock at $0.40 per share related to the exercise of stock options to a consultant for total proceeds of $80,000.


m)

Also in March 2010, the Company conducted a private placement offering whereby it issued 140,200 shares of its common stock at $0.14 per share for total proceeds of $19,628.


n)

Also in March 2010, the Company conducted a private placement offering whereby it issued 1,000,000 units at a price of $0.10 per unit for total proceeds of $100,000.  Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional 1/2 share of common stock, exercisable at $0.15 per share.


o)

Also in March 2010, the Company conducted a private placement offering whereby it issued 600,000 units at a price of $0.10 per unit for total proceeds of $60,000.  Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.15 per share.


p)

In April 2010, the Company issued 510,000 shares of its common stock at $0.13 per share for services rendered by consultants valued at $66,300 based on the price on the date of grant.


q)

Also in April 2010, the Company issued 1,400,000 shares of its common stock registered on a Form S-8 at $0.08 for services rendered by a consultant valued at $112,000 based on the price on the date of grant.


r)

Also in April 2010, the Company issued 100,000 shares of its common stock at $0.18 per share for services rendered by consultants valued at $18,000 based on the price on the date of grant.


s)

In May 2010, the Company issued 10,000 shares of its common stock at $0.18 per share for services rendered by a consultant valued at $1,800 based on the price on the date of grant.


t)

Also in May 2010, the Company conducted a private placement offering whereby it issued 650,000 shares of its common stock at $0.10 per share for total proceeds of $65,000.


u)

Also in May 2010, the Company issued 850,000 shares of its common stock registered on Form S-8 at $0.12 per share for services rendered by employees and consultants valued at $102,000 based on the price on the date of grant.


v)

Also in May 2010, the Company issued 100,000 shares of its common stock at $0.10 per share for services rendered by a consultant valued at $10,000 based on the price on the date of grant.


w)

Also in May 2010, the Company issued 1,020,000 shares of its common stock registered on Form S-8 at $0.14 per share for services rendered by consultants valued at $142,800 based on the price on the date of grant.



F-17



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


8.

COMMON STOCK (Continued)


x)

Also in May 2010, the Company conducted a private placement offering whereby it issued 200,000 units at a price of $0.10 per unit for total proceeds of $20,000.  Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.15 per share.


y)

Also in May 2010, the Company issued 100,000 shares of its common stock at $0.14 per share for services rendered by consultants valued at $14,000 based on the price on the date of grant.


z)

In June 2010, the Company issued 10,000 shares of its common stock at $0.14 per share for services rendered by a consultant valued at $1,400 based on the price on the date of grant.


aa)

Also in June 2010, the Company issued 265,000 shares of its common stock registered on Form S-8 at $0.14 per share for services rendered by consultants valued at $37,100 based on the price on the date of grant.


bb)

Also in June 2010, the Company conducted a private placement offering whereby it issued 200,000 units at a price of $0.10 per unit for total proceeds of $20,000.  Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.15 per share.


cc)

Also in June 2010, the Company issued 100,000 shares of its common stock at $0.14 per share for services rendered by consultants valued at $14,000 based on the price on the date of grant.


dd)

In July 2010, the Company issued 10,000 shares of its common stock at $0.13 per share for services rendered by a consultant valued at $1,300 based on the price on the date of grant.


ee)

Also in July 2010, the Company issued 190,000 shares of its common stock registered on Form S-8 at $0.13 per share for services rendered by consultants valued at $24,700 based on the price on the date of grant.


ff)

Also in July 2010, the Company issued 500,000 shares of its common stock at $0.11 per share for services rendered by a consultant valued at $55,000 based on the price on the date of grant.


gg)

Also in July 2010, the Company conducted a private placement offering whereby it issued 135,000 shares of its common stock at $0.10 per share for total proceeds of $13,500.


hh)

Also in July 2010, the Company issued 100,000 shares of its common stock at $0.10 per share for services rendered by consultants valued at $10,000 based on the price on the date of grant.


ii)

In August 2010, the Company issued 10,000 shares of its common stock at $0.10 per share for services rendered by a consultant valued at $1,000 based on the price on the date of grant.


jj)

Also in August 2010, the Company issued 200,000 shares of its common stock registered on Form S-8 at $0.09 per share for services rendered by a consultant valued at $18,000 based on the price on the date of grant.


kk)

Also in August 2010, the Company settled $50,000 of an outstanding promissory note owing to a former director through the issuance of 625,000 shares of the Company's common stock at a price recorded at the market price on the date of grant, being $0.08 per share.  


ll)

Also in August 2010, the Company issued 400,000 shares of its common stock registered on Form S-8 at $0.07 per share for services rendered by a consultant valued at $28,000 based on the price on the date of grant.


mm)Also in August 2010, the Company issued 250,000 shares of its common stock at $0.08 per share for services    rendered by consultants valued at $20,000 based on the price on the date of grant.


nn)

In September 2010, the Company issued 10,000 shares of its common stock at $0.08 per share for services rendered by a consultant valued at $800 based on the price on the date of grant.


oo) Also in September 2010, the Company issued 800,000 shares of its common stock registered on Form S-8 at $0.08 per share for services rendered by consultants valued at $64,000 based on the price on the date of grant.



F-18



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


8.

COMMON STOCK (Continued)


pp) Also in September 2010, the Company issued 2,400,000 shares of its common stock at $0.05 per share for services rendered by a consultant valued at $120,000 based on the price on the date of grant.


qq)

Also in September 2010, the Company issued 400,000 shares of its common stock at $0.07 per share for services rendered by consultants valued at $28,000 based on the price on the date of grant.


rr)

Also in September 2010, the Company issued 2,500,000 shares of its common stock registered on Form S-8 at $0.07 per share for services rendered by consultants valued at $175,000 based on the price on the date of grant.


ss)

Also in September 2010, the Company issued 3,000,000 shares of its common stock at $0.26 per share for services rendered by a director valued at $780,000 based on the price on the date of grant.


tt)

Also in September 2010, the Company issued 200,000 shares of its common stock registered on Form S-8 at $0.26 per share for services rendered by consultants valued at $52,000 based on the price on the date of grant.


uu)

Also in September 2010, the Company conducted a private placement offering whereby it issued 200,000 shares of its common stock at $0.15 per share for total proceeds of $30,000.


vv)

Also in September 2010, the Company conducted a private placement offering whereby it issued 334,000 units at a price of $0.15 per unit for total proceeds of $50,100.  Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.20 per share.


ww)

Also in September 2010, the Company conducted a private placement offering whereby it issued 30,000 shares of its common stock at $0.33 per share for total proceeds of $9,900.


xx)

Also in September 2010, the Company issued 100,000 shares of its common stock at $0.33 per share for services rendered by consultants valued at $33,000 based on the price on the date of grant.


yy)

In October 2010, the Company issued 10,000 shares of its common stock at $0.35 per share for services rendered by a consultant valued at $3,500 based on the price on the date of grant.


zz)

Also in October 2010, the Company issued 92,321 shares of its common stock at $0.31 per share for services rendered by a consultant valued at $28,620 based on the price on the date of grant.


aaa) Also in October 2010, the Company settled $75,000 of an outstanding promissory note owing to a former director through the issuance of 375,000 shares of the Company's common stock at a price recorded at the market price on the date of grant, being $0.20 per share.  


bbb)Also in October 2010, the Company conducted a private placement offering whereby it issued 366,666 shares of its common stock at $0.15 per share for total proceeds of $55,000.


ccc) Also in October 2010, the Company issued 133,332 shares of its common stock at $0.39 per share for services rendered by consultants valued at $52,000 based on the price on the date of grant. These shares were issued to close relatives of an officer of the Company.


ddd) Also in October 2010, the Company conducted a private placement offering whereby it issued 300,000 shares of its common stock at $0.15 per share for total proceeds of $45,000.


eee) Also in October 2010, the Company issued 50,000 shares of its common stock at $0.33 per share for services rendered by a consultant valued at $16,500 based on the price on the date of grant.


fff)  Also in October 2010, the Company issued 100,000 shares of its common stock at $0.35 per share for services rendered by consultants valued at $35,000 based on the price on the date of grant.


ggg) In November 2010, the Company issued 10,000 shares of its common stock at $0.30 per share for services rendered by a consultant valued at $3,000 based on the price on the date of grant.



F-19



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


8.

COMMON STOCK (Continued)


hhh) Also in November 2010, the Company issued 2,500,000 shares of its common stock at $0.16 per share for services rendered by consultants valued at $400,000 based on the price on the date of grant.


iii)

Also in November 2010, the Company settled $25,000 of an outstanding promissory note and $50,0000 in wages owing to a former director through the issuance of 500,000 shares of the Company's common stock at a price recorded at the market price on the date of grant, being $0.15 per share.  


jjj)

In November 2010, the Company issued 200,000 shares of its common stock at $0.28 per share for services rendered by a consultant valued at $56,000 based on the price on the date of grant.


kkk) Also in November 2010, the Company issued 150,000 shares of its common stock at $0.29 per share for services rendered by consultants valued at $43,500 based on the price on the date of grant.


lll)

In December 2010, the Company conducted a private placement offering whereby it issued 53,333 shares of its common stock at $0.15 per share for total proceeds of $7,874.


mmm) Also in December 2010, the Company issued 210,000 shares of its common stock at $0.35 per share for services rendered by consultants valued at $73,500 based on the price on the date of grant.


nnn) Also in December 2010, the Company settled $9,500 of an outstanding promissory note through the issuance of 63,334 shares of the Company's common stock at a price recorded at the market price on the date of grant, being $0.15 per share.  


ooo) Also in December 2010, the Company issued 500,000 shares of its common stock at $0.15 per share related to the exercise of stock options to a consultant for total proceeds of $75,000.


ppp) Also in December 2010, the Company conducted a private placement offering whereby it issued 309,000 shares of its common stock at $0.15 per share for total proceeds of $46,350.


qqq) Also in December 2010, the Company issued 100,000 shares of its common stock at $0.30 per share for services rendered by consultants valued at $30,000 based on the price on the date of grant.


The following table summaries the continuity of the Company’s share purchase warrants:


 

Number of Warrants

 

Weighted average

exercise price

$

 

Weighted average remaining contractual life

(in years)

Balance, December 31, 2009

1,768,555

 

0.72

 

Issued

1,834,000

 

0.16

 

0.37

Exercised

 

 

Expired/Cancelled

(1,025,000)

 

 

 

 

 

 

 

 

Balance, December 31, 2010

2,577,555

 

0.20

 

1.58

Issued

9,137,600

 

0.14

 

1.54

Exercised

 

 

Expired/Cancelled

(456,055)

 

 

 

 

 

 

 

 

Outstanding, December 31, 2011

11,259,100

 

0.13

 

1.62




F-20



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements



9.

STOCK-BASED COMPENSATION


The Company has, since incorporation, adopted two 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.  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.


For the year ended December 31, 2011:


The Company did not grant any options during the year ended December 31, 2011.


For the year ended December 31, 2010:


On May 20, 2010, the Company granted options to purchase a total of 250,000 shares of the Company’s common stock to a consultant. The options carry an exercise price of $0.15 per share and vested immediately. The options expire May 20, 2012. The fair value for 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 was $0.07. During the year ended December 31, 2010, the Company recorded stock-based compensation of $16,492 as a general and administrative expense in connection with these options.


On March 26, 2010, the Company granted options to purchase a total of 500,000 shares of the Company’s common stock to a consultant. The options carry an exercise price of $0.15 per share and vested immediately. The options expire March 26, 2012. The fair value for 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 was $0.07. During the year ended December 31, 2010, the Company recorded stock-based compensation of $35,948 as a general and administrative expense in connection with these options.


On August 5, 2010, the Company granted options to purchase a total of 250,000 shares of the Company’s common stock to a consultant. The options carry an exercise price of $0.10 per share and vested immediately. The options expire August 5, 2013. The fair value for 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 was $0.05. During the year ended December 31, 2010, the Company recorded stock-based compensation of $13,265 as a general and administrative expense in connection with these options.


On October 13, 2010, the Company granted options to purchase a total of 2,000,000 shares of the Company’s common stock to a director and officer. The options carry an exercise price of $0.30 per share and vested immediately. The options expire October 13, 2013. The fair value for 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 was $0.33. During the year ended December 31, 2010, the Company recorded stock-based compensation of $669,263 as a general and administrative expense in connection with these options.


On November 1, 2010, the Company granted options to purchase a total of 1,000,000 shares of the Company’s common stock to a consultant. The options carry an exercise price of $0.30 per share and vested immediately. The options expire November 1, 2013. The fair value for 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 was $0.25. During the year ended December 31, 2010, the Company recorded stock-based compensation of $254,689 as a general and administrative expense in connection with these options.


Also on November 1, 2010, 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 $0.30 per share and vested immediately. The options expire November 1, 2013. The fair value for 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 was $0.25. During the year ended December 31, 2010, the Company recorded stock-based compensation of $509,379 as a general and administrative expense in connection with these options.



F-21



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements


9.

STOCK-BASED COMPENSATION (continued)


On December 17, 2010, the Company granted options to purchase a total of 500,000 shares of the Company’s common stock to a consultant. The options carry an exercise price of $0.10 per share and vested immediately. The options expire December 17, 2012. The fair value for 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 was $0.23. During the year ended December 31, 2010, the Company recorded stock-based compensation of $115,076 as a general and administrative expense in connection with these options.


The fair value for 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 years ended December 31, 2011 and 2010 were $nil and $0.24 per share, respectively. The weighted average assumptions used are as follows:


 

Years Ended

 

December 31,

2011

December 31,

2010

 

 

 

Expected dividend yield

-

0%

Risk-free interest rate

-

0.59%

Expected volatility

-

154.37%

Expected option life (in years)

-

2.81


The total intrinsic value of stock options exercised during the years ended December 31, 2011 and 2010 were $nil and $nil respectively.


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


 

Number of Options

Weighted Average Exercise Price

Weighted-Average Remaining Contractual Term (years)

Aggregate Intrinsic Value

 

 

 

 

 

Outstanding, December 31, 2010

16,496,517

$ 0.48

 

 

 

 

 

 

 

Granted

-

-

 

 

Exercised

(250,000)

$ 0.05

 

 

Expired/Cancelled

(11,706,517)

$ 0.41

 

 

 

 

 

 

 

Outstanding, December 31, 2011

4,540,000

$ 0.69

1.91

$nil

 

 

 

 

 

Exercisable, December 31, 2011

4,540,000

$ 0.69

1.91

$nil


A summary of the status of the Company’s nonvested shares as of December 31, 2011, and changes during the years ended December 31, 2011, is presented below:


Nonvested shares

Number of

Shares

Weighted

Average

Grant Date

Fair Value

 

 

 

Nonvested at January 1, 2011

420,000

$0.20

Granted

-

-

Vested

(420,000)

$0.20

 

 

 

Nonvested at December 31, 2011

-

-


As at December 31, 2011 there was $nil total unrecognized compensation cost related to nonvested share-based compensation arrangements.



F-22



WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements



10.

INCOME TAXES


Deferred income taxes reflect the tax consequences on future years of differences between the tax bases.  The deferred tax assets are as follows:


 

2011

 

2010

 

 

 

 

Deferred tax assets

$2,062,311

 

$1,761,754

Valuation allowance

(2,062,311)

 

(1,761,754)

 

 

 

 

Net future income taxes

 

 

 

 

 


In assessing the realizability of future tax assets, management considers whether it is more likely than not that some portion or all of the future tax assets will not be realized.  The ultimate realization of future tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers the scheduled reversal of future tax liabilities, projected future taxable income and tax planning strategies in making this assessment.  Management has provided for a valuation allowance on all of its losses as there is no assurance that future tax benefits will be realized.


Our operating loss carry-forwards $6,065,622 at December 31, 2011, $5,181,628 at December 31, 2010) will begin to expire in 2028.


11.

SUBSEQUENT EVENTS


Subsequent to December 31, 2011, the Company conducted a private placement offering whereby it issued 1,035,000 units at a price of $0.10 per share for total proceeds of $103,500. Each unit consisted of one share of the Company's common stock and one warrant to purchase an additional share of common stock, exercisable at $0.10 per share.  




F-23






ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSURE.


None.


ITEM 9A.

CONTROLS AND PROCEDURES.


Disclosure Controls and Procedures


We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.


We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2011. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.


Management’s Report on Internal Control Over Financial Reporting


Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f).  The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011, using the criteria established in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").  


A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.  In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2011, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.


1.

We did not maintain appropriate cash controls – As of December 31, 2011, the Company has not maintained sufficient internal controls over financial reporting for the cash process, including failure to segregate cash handling and accounting functions.  Alternatively, the effects of poor cash controls were mitigated by the fact that the Company had limited transactions in their bank accounts.


2.

We did not implement appropriate information technology controls – As at December 31, 2011, the Company retains copies of all financial data and material agreements; however, there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors.

     

Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.

     



17





As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by COSO. 

  

Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of December 31, 2011, that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  


This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.


Continuing Remediation Efforts to address deficiencies in Company’s Internal Control over Financial Reporting


Once the Company is engaged in a business of merit and has sufficient personnel available, then our Board of Directors, in particular and in connection with the aforementioned deficiencies, will establish the following remediation measures:


1.

Our Board of Directors will nominate an independent financial expert on our Board of Directors in the next fiscal year.


2.

We will appoint additional personnel to assist with the preparation of the Company’s monthly financial reporting, including preparation of the monthly bank reconciliations.


 ITEM 9B.  

OTHER INFORMATION

 

None.

 

PART III


ITEM 10.   

DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


Identification of Directors and Executive Officers


The following table sets forth the names, ages, date of appointment and other public company directorships of our current directors and officers.


Name and Age

Position(s) Held

Tenure

Other Public Company Directorships

Frank R. Evanshen, 63

President, Chief Executive Officer and Director

From May 27, 2003 to present

None

Darrin McCormack, 46

Chief Financial Officer

From August 13, 2007 to present

None

T. Allen Rose, 55

Secretary, Treasurer and Director

May 27, 2003 to present

None


Term of Office


Each of our officers is elected by the Board of Directors to a term of one (1) year and serves until his or her successor is duly elected and qualified, or until he or she dies, resigns or is removed from office.  Each director of the Company serves for a term of one (1) year until our next annual meeting of the shareholders or unless they die, resign or are removed earlier.


Background and Business Experience


The business experience during the past five years of each of the persons presently listed above as an Officer or Director of the Company is as follows:


Franklin R. Evanshen has been the President, Chief Executive Officer and a Director of the Company since May 27, 2003.  Mr. Evanshen has been a venture capitalist and merchant banker for over 25 years and has extensive experience in raising capital for private and public ventures. He received his Bachelor of Arts from Loyola College in Montreal in 1970.



18






Darrin McCormack has been our Chief Financial Officer since August 13, 2007. Mr. McCormack is a Certified General Accountant and Certified Fraud Examiner and is the managing partner in the firm D. McCormack & Company Inc, CGA’s from July 1995 to present.  Mr. McCormack has been a CGA in public practice since 1988. He received his diploma in Financial Accounting from Malaspina College in Nanaimo, BC in 1986.

 

T. Allen Rose has served as a Director and the Chief Financial Officer, Secretary and Treasurer of the Company since May 27, 2003.  Mr. Rose resigned as our Chief Financial Officer on August 13, 2007. Mr. Rose is a Chartered Accountant and has been in senior financial management for numerous private and public companies since 1983. He received his Bachelor of Commerce in Finance & Accounting from McMaster University in Hamilton, Ontario in 1979.

 

Significant Employees

 

Other than the officers and directors described above, we do not expect any other individuals to make a significant contribution to our business.


Family Relationships

 

There are no family relationships among our officers, directors or persons nominated for such positions.


Involvement in Certain Legal Proceedings


During the past ten years no director, executive officer, promoter or control person of the Company has been involved in the following:


(1)

A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;


(2)

Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);


(3)

Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:


i.

Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;


ii.

Engaging in any type of business practice; or


iii.

Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;


(4)

Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;


(5)

Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;



19






(6)

Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;


(7)

Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:


i.

Any Federal or State securities or commodities law or regulation; or


ii.

Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or


iii.

Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or


(8)

Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.


Compliance with Section 16(a) of the Exchange Act


Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company.  Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.  Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended December 31, 2011, Forms 5 and any amendments thereto furnished to us with respect to the year ended December 31, 2011, and the representations made by the reporting persons to us, we believe that during the year ended December 31, 2011, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements.


Code of Ethics


Our Board of Directors has not adopted a code of ethics due to the fact that we presently only have two directors and we are in the development stage of our operations. We anticipate that we will adopt a code of ethics when we increase either the number of our directors and officers or the number of our employees.


Audit Committee

 

We established a separately-designated standing audit committee on February 19, 2008.  The committee consists of Darrin McCormack, our Chief Financial Officer and T. Allen Rose, a Director, Secretary and Treasurer.  However, Darrin McCormack, the financial expert serving on our audit committee, is also our Chief Financial Officer; therefore, he is not an independent member of our committee.  Further, T. Allen Rose is not an independent member of our committee, as he is also an officer of the Company.  Due to the lack of an independent member, the Company’s audit committee does not function as an audit committee should since there is a lack of independent directors on the committee and the Board of Directors has not identified an audit committee financial expert (as defined in Item 407 of Regulation S-K), who is knowledgeable about reporting and financial statements requirements, to serve on the audit committee due to the Company’s inability to attract such a person.


The Company intends to establish a new audit committee of the Board of Directors that shall consist of independent directors.  The audit committee’s duties will be to recommend to the Company’s board of directors the engagement of an independent registered public accounting firm to audit the Company’s financial statements and to review the Company’s accounting and auditing principles.  The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls.  The audit committee shall at all times be composed exclusively of directors who are, in the opinion of the Company’s board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.



20






ITEM 11.  

EXECUTIVE COMPENSATION


Summary Compensation Table


The following table sets forth the compensation paid to our executive officers during the years ending December 31, 2011 and 2010. 


Summary Compensation Table


Name and principal position

Year

Salary ($)

Bonus ($)

Stock Awards ($)

Option Awards ($)

Non-Equity Incentive

Plan Compensation ($)

Nonqualified Deferred Compensation Earnings ($)

All Other Compensation ($)

Total ($)

Franklin Evanshen President, CEO and Director

 

2011

nil

nil

nil

nil

nil

nil

$365,202

$365,202

2010

nil

nil

$780,000 (1)

$669,263 (2)

nil

nil

$193,132(3)

$1,532,961

Darrin McCormack CFO

 

2011

nil

nil

$41,000

Nil

nil

nil

$32,970

$73,970

2010

nil

nil

$12,000

nil

nil

Nil

$20,520(4)

$32,520

Peter Knaven

Former Senior Vice President, Chief Technology Officer and Director (5)

2011

$146,081

nil

nil

nil

nil

nil

nil

$146,081

2010

$98,175

nil

$36,000

$509,379 (6)

nil

nil

nil

$562,527

T. Allen Rose Secretary, Treasurer, Director and Former CFO

2011

nil

nil

nil

Nil

nil

nil

nil

nil

2010

nil

nil

nil

Nil

nil

nil

nil

nil

James P. Yano Chief Operations Officer (7)

 

2011

nil

nil

$18,000

nil

nil

nil

nil

$18,000

2010

nil

nil

$30,500

nil

nil

nil

nil

$30,500


(1)

In September 2010, the Company issued 3,000,000 shares of its common stock at $0.26 per share, valued at $780,000 based on the price on the date of grant, to Mr. Evanshen for services rendered.

(2)

On October 13, 2010, the Company granted to Mr. Evanshen options to purchase a total of 2,000,000 shares of the Company’s common stock. The options carry an exercise price of $0.30 per share and vested immediately. The options expire October 13, 2013. The fair value for 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 was $0.33. During the year ended December 31, 2010, the Company recorded stock-based compensation of $669,263 as a general and administrative expense in connection with these options.


On October 27, 2011, the Company entered into a Cancellation Agreement with Mr. Evanshen, pursuant to which one hundred percent (100%) of Mr. Evanshen’s outstanding and unexercised Accrued Options to purchase shares of common stock of the Company were terminated and cancelled in their entirety.  

(3)  

Represents management consulting fees paid to Meridian Capital Corp. (“MCC”). MCC, a company controlled by Franklin R. Evanshen, has a management agreement with the Company for services provided personally by Mr. Evanshen in his role as our President and Chief Executive Officer. The agreement currently requires monthly payments of approximately $30,433 ($30,000 CAD) for services rendered.

 

 

(4)  

Represents amounts incurred with D. McCormack & Company Inc., a company of which Darrin McCormack is an officer, for accounting and financial management services provided personally by Mr. McCormack in his role as Chief Financial Officer.  Under the agreement, fees are charged at approximately $111 ($110 CAD) per hour.



21






(5)  

Peter Knaven is our former Senior Vice President, Chief Technology Officer and Director.  Mr. Knaven had an Employment Agreement with the Company for his employment as a Software Programmer and Developer. The Agreement provided for Mr. Knaven to be paid approximately $16,231 ($16,000 CAD) per month in exchange for his services.  During the year ended December 31, 2010, Mr. Knaven resigned as a Director of the Company.  During the year ended December 31, 2011, Mr. Knaven resigned as Senior Vice President, Chief Technology Officer.

 

 

(6)

On November 1, 2010, the Company granted options to Mr. Knaven to purchase a total of 2,000,000 shares of the Company’s common stock. The options carry an exercise price of $0.30 per share and vested immediately. The options expire November 1, 2013. The fair value for 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 was $0.25. During the year ended December 31, 2010, the Company recorded stock-based compensation of $509,379 as a general and administrative expense in connection with these options.

 


During the year ended December 31, 2011, the Company entered into a Cancellation Agreement with Mr. Knaven, pursuant to which one hundred percent (100%) of Mr. Knaven’s outstanding and unexercised Accrued Options to purchase shares of common stock of the Company were terminated and cancelled in their entirety.  

(7)  

James P. Yano is our former Chief Operations Officer.  According to that certain Consulting Agreement entered into by and between the Company and Mr. Yano, Mr. Yano shall serve as Chief Operations Officer of the Company from October 1, 2008 until September 30, 2011 in exchange for a monthly salary of $18,000 and options to purchase 1,500,000 shares of the Company’s Common Stock (the “Options”) with the following conditions:


a.

The Options will vest at a rate of 40,000 per month, with any remainder vesting on September 30, 2011.


b.

The Options are exercisable at $0.80 per share and contain cashless exercise provisions.


c.

Vested Options will expire 24 months after vesting.  All Options, whether vested or unvested, will expire upon the delivery of notice of the termination of the Consulting Agreement.


d.

The Consulting Agreement may be terminated by either Mr. Yano or the Company with 7 days written notice.


Mr. Yano’s Consulting Agreement was amended on October 1, 2009. According to the amended agreement, the monthly salary of $18,000 was cancelled; however, Mr. Yano was to continue his services and will remain entitled to the above Options. Subsequently, Mr. Yano resigned as the Company’s Chief Operations Officer.


Narrative Disclosure to Summary Compensation Table


There are no compensatory plans or arrangements, including payments to be received from the Company with respect to any executive officer, that would result in payments to such person because of his or her resignation, retirement or other termination of employment with the Company or its subsidiaries, any change in control, or a change in the person’s responsibilities following a change in control of the Company.



22






Outstanding Equity Awards at Fiscal Year-End


The table below summarizes the outstanding equity awards to our executive officers as of December 31, 2011.  


OPTION AWARDS

Name

Number of Common Shares Underlying Unexercised Options

(#) Exercisable

Number of Common Shares Underlying Unexercised Options

(#) Unexercisable

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)

Option Exercise Price

($)

Option Expiration Date

Franklin R. Evanshen

Nil

Nil

Nil

Nil

n/a

 

 

 

 

 

 

Darrin McCormack

100,000

200,000

100,000

Nil

Nil

Nil

Nil

Nil

Nil

$0.27

$0.52

$0.30

Mar. 6, 2014

Apr. 27, 2014

Oct. 29, 2012

Peter Knaven

Nil

Nil

Nil

Nil

n/a

 

 

 

 

 

 

James P. Yano

200,000

1,100,000

Nil

Nil

Nil

900,000

$0.80

$0.40

Sep 30, 2013

Sep. 30, 2013 (1)

T. Allen Rose

250,000

Nil

Nil

$0.80

Aug. 18, 2013


(1)

The options will vest at a rate of 40,000 per month, with any remainder vesting on September 30, 2011.  Vested Options will expire 24 months after vesting.  All options, whether vested or unvested, will expire upon the delivery of notice of the termination of the Consulting Agreement with Mr. Yano.


Long-Term Incentive Plans


There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.


Compensation of Directors


Our directors receive no extra compensation for their service on our board of directors.


Compensation Committee


We currently do not have a compensation committee of the Board of Directors.  The Board of Directors as a whole determines executive compensation.


ITEM 12.  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information concerning the number of shares of our Common Stock, owned beneficially as of April 10, 2012 by: (i) each of our directors; (ii) each of our named executive officers; and (iii) each person or group known by us to beneficially own more than 5% of our outstanding shares of Common Stock.  Unless otherwise indicated, the shareholders listed below possess sole voting and investment power with respect to the shares they own.

 



23






As of April 10, 2012, there were 83,535,606 common shares, 4,540,000 shares issuable upon exercise of stock purchase options, and 11,259,100 shares issuable upon exercise of stock purchase warrants issued and outstanding.


Name and Address of Beneficial Owner

Title of Class

Amount &

Nature of

Beneficial

Ownership

(1)

Percent of Class

(2)(%)

Franklin R. Evanshen (3)

1280 Braeside Street

W. Vancouver BC Canada V7T 2L2

Common

9,864,059 (4)

9.93%

Darrin McCormack (5)

1729 Pavenham Rd.

Cowichan Bay

BC, Canada V0R 1N1

Common

330,000 (6)

0.33%

T. Allen Rose (7)

2400 – 650 W. Georgia St.

Vancouver, BC Canada V6B 4N7

Common

260,000 (8)

0.26%

All Officers and Directors as a Group (3 Persons)

Common

10,454,059

10.52%

Harold Gunn 

1116 Ironwork Passage 

Vancouver

British Columbia V6H 3P1

Common

6,054,836

6.10%


(1)

The number and percentage of shares beneficially owned is determined under rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days through the exercise of any stock option or other right. The persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table.

 

(2)

Based on 83,535,606 issued and outstanding shares of Common Stock as of April 10, 2012 plus shares issuable upon exercise of options and warrants.


(3)

Franklin R. Evanshen is the President, Chief Executive Officer, and a Director of the Company.  


(4)

Includes 9,858,383 common shares held under his own name, and 5,676 common shares held by MCC Meridian Capital Corp., a company controlled by Franklin R. Evanshen.

 

(5)

Darrin McCormack is the Chief Financial Officer of the Company.  His beneficial ownership includes 330,000 common shares.

  

(6)

Includes 70,000 common shares and options to purchase 400,000 shares of our common stock.


(7)

T. Allen Rose is the Secretary, Treasurer and a Director of the Company.

 

(8)

Includes 10,000 common shares and options to purchase 250,000 shares of our common stock.


Changes in Control


There are no present arrangements or pledges of the Company’s securities which may result in a change in control of the Company.

 



24






ITEM 13.  

CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE


Director Independence

 

For purposes of determining director independence, we have applied the definitions set forth in NASDAQ Rule 5605(a)(2). The OTCBB on which shares of common stock are quoted does not have any director independence requirements.  The NASDAQ definition of “Independent Officer” means a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.


According to the NASDAQ definition, neither Frank R. Evanshen nor T. Allen Rose is an independent director because they are also executive officers of the Company.


Related Party Transactions


We have 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, 2012. Management fees incurred by the Company totaled $365,202 ($CAD 360,000) and $193,132 ($CAD 200,000) for the years ended December 31, 2011 and 2010, respectively.  As at December 31, 2011 the amount owing to this private company totaled $105,100.


During the years ended December 31, 2011 and 2010 the Company incurred accounting fees of $32,970 and $32,520 with a private company of which an officer is also an officer, respectively.  As at December 31, 2011, the amount owing to this private company totaled $42,337.


During the years ended December 31, 2011 and 2010, the Company incurred $146,081 and $98,176 with a former officer for wages and salaries, respectively.


Other than the foregoing, none of the directors or executive officers of the Company, nor any person who owned of record or was known to own beneficially more than 5% of the Company’s outstanding shares of its Common Stock, nor any associate or affiliate of such persons or companies, has any material interest, direct or indirect, in any transaction that has occurred during the past fiscal year, or in any proposed transaction, which has materially affected or will affect the Company.

 

With regard to any future related party transaction, we plan to fully disclose any and all related party transactions in the following manner:


·

disclosing such transactions in reports where required;

·

disclosing in any and all filings with the SEC, where required;

·

obtaining disinterested directors consent; and

·

obtaining shareholder consent where required.


Review, Approval or Ratification of Transactions with Related Persons


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


ITEM 14.  

PRINCIPAL ACCOUNTANT FEES AND SERVICES



 

Year Ended

December 31, 2011

Year Ended

December 31, 2010

Audit fees

$26,434

$30,909

Audit-related fees

$nil

$ nil

Tax fees

$nil

$ nil

All other fees

$nil

$ nil

Total

$26,434

$30,909




25






Audit Fees


During the fiscal year ended December 31, 2011, we incurred approximately $26,434 in fees to our principal independent accountants for professional services rendered in connection with the audit and review of our financial statements for fiscal year ended December 31, 2011.


During the fiscal year ended December 31, 2010, we incurred approximately $30,909 in fees to our principal independent accountants for professional services rendered in connection with the audit and review of our financial statements for fiscal year ended December 31, 2010.


Audit-Related Fees


The aggregate fees billed during the fiscal years ended December 31, 2011 and 2010 for assurance and related services by our principal independent accountants that are reasonably related to the performance of the audit or review of our financial statements (and are not reported under Item 9(e)(1) of Schedule 14A) was $0 and $0, respectively.


Tax Fees


The aggregate fees billed during the fiscal years ended December 31, 2011 and 2010 for professional services rendered by our principal accountant tax compliance, tax advice and tax planning were $0 and $0, respectively.


All Other Fees


The aggregate fees billed during the fiscal years ended December 31, 2011 and 2010 for products and services provided by our principal independent accountants (other than the services reported in Items 9(e)(1) through 9(e)(3) of Schedule 14A) was $0 and $0, respectively.


PART IV

 

ITEM 15.

EXHIBITS.


(a)

Documents filed as part of this Report.

 

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.

3.02

Bylaws

Filed with the SEC on June 8, 2001 as part of our Registration Statement on Form 10SB12G.

4.01

2010 Share Incentive Plan

Filed with the SEC on May 14, 2010 as part of our Registration Statement on Form S-8.

4.02

Sample Performance-Based Award Agreement

Filed with the SEC on May 14, 2010 as part of our Registration Statement on Form S-8.

4.03

Sample Non-Qualified Stock Option Grant Agreement

Filed with the SEC on May 14, 2010 as part of our Registration Statement on Form S-8.

4.04

Sample Qualified Stock Option Grant Agreement

Filed with the SEC on May 14, 2010 as part of our Registration Statement on Form S-8.

10.01

Debt Settlement Agreement between the Company and Richard Kozukan dated January 11, 2010

Filed with the SEC on February 8, 2010 as part of our Current Report on Form 8-K.

10.02

Consulting Agreement between the Company and Advidea, Inc. dated April 1, 2010

Filed with the SEC on May 18, 2010 as part of our Quarterly Report on Form 10-Q.

10.03

Subscription Agreement between the Company and Ulrich Rutsch dated January 5, 2010

Filed with the SEC on May 18, 2010 as part of our Quarterly Report on Form 10-Q.

10.04

Subscription Agreement between the Company and Michael C. O’Brian dated March 29, 2010

Filed with the SEC on May 18, 2010 as part of our Quarterly Report on Form 10-Q.

10.05

Subscription Agreement between the Company and Pamela A. Vandy dated March 31, 2010

Filed with the SEC on May 18, 2010 as part of our Quarterly Report on Form 10-Q.

10.06

Consulting Agreement between the Company and Douglas A. Glaser dated April 1, 2010

Filed with the SEC on November 22, 2010 as part of our Quarterly Report on Form 10-Q.



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10.07

Consulting Agreement between the Company and Mirador Consulting, Inc. dated July 8, 2010

Filed with the SEC on November 22, 2010 as part of our Quarterly Report on Form 10-Q.

10.08

Consulting Agreement between the Company and Linda Gaal dated August 2, 2010

Filed with the SEC on November 22, 2010 as part of our Quarterly Report on Form 10-Q.

10.09

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.

10.10

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.

10.11

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.

10.12

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.

10.13

Consulting Agreement between the Company and Douglas Schreiner dated September 8, 2010

Filed with the SEC on November 22, 2010 as part of our Quarterly Report on Form 10-Q.

10.14

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.

10.15

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.

10.16

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.

10.17

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.

10.18

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.

10.19

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.

10.20

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.

10.21

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.

10.22

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.

10.23

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.

10.24

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.

10.25

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.

10.26

Promissory Note to Luis Carrillo for $3,500 dated February 27, 2012

Filed herewith.

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.



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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:  April 12, 2012

/s/ Franklin Evanshen

 

By: Franklin Evanshen

 

Its: President and Chief Executive Officer

 

 

 

 

 

 

 

 

Dated:  April 12, 2012

/s/ Darrin McCormack

 

By: Darrin McCormack

 

Its:  Chief Financial 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:  April 12, 2012

/s/ Franklin Evanshen

 

Franklin Evanshen, Director

 

 

 

 

 

 

Dated:  April 12, 2012

/s/ T. Allen Rose

 

T. Allen Rose, Director



 



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