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 focusing on smart phones and tablets as well as hybrid touchscreen devices, wearables and car systems. As efficient text input becomes more important due to the rapid expansion of application for 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, and help users to control their input and enhance their communication.
The Company anticipates that more and more enterprise users will be relying on mobile and touchscreen devices and its technology will allow those enterprises to remain efficient and accurate. The Company's patent-pending data structures, algorithms and powerful prediction and Reach™ engines which are embodied in the iKnowU® keyboard application represent a new method for text input that is not solely focused on typing 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 accuracy while using semantics in order to help users create meaning and find related information based on that meaning.
The Company’s Reach™ technology provides advertising search to create new revenue opportunities through partnerships with online deal consolidator and advertisers. The technology provides location-based marketing messages in a timely and efficient manner while remaining unobtrusive and maintaining privacy of the user. With Reach™ the user never needs to switch between apps or exit the message compose screen to access relevant information.
Business Development
On January 9, 2007, we developed a new text entry/text messaging input solution for smartphones utilizing our patent pending prediction engine. This new solution for smartphones 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 received 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.
In October 2012, the iKnowU® keyboard application for Android powered devices was released. It leverages the Company’s state-of-the-art patented technology, delivering the most advanced keyboard automation solution available.
In January 2013, the Company released its new predictive text solution, WordLogic for Business, allowing organizations to improve productivity through accurate, faster and more consistent text entry across the workforce.
In May 2013, the company announced Reach™ patent-pending technology that understands the context of what you’re typing and instantly gives you access to the relevant app or data source to retrieve and share information. Users are then able to “reach” into these other sources and pull key information into the message you’re composing. Whether writing a text, email, IM or social update WordLogic Reach works seamlessly - meaning that the user never needs to switch between apps or exit the message compose screen. Reach™ was awarded CTIA 2014 Top 5 show floor pick by Mobile World Live.
In November 2013, the Company announced it will release Reach™ a technology delivers precise and timely context-based and location-aware marketing messages while users are still working in the iKnowU® predictive keyboard, superseding the need to exit core applications. Users no longer have to navigate through numerous applications to obtain information such as directions, restaurant listings, ratings, reviews, travel information and latest deals near their location.
Technology Overview
iKnowU™ 's award-winning keyboard is the most feature-rich and intuitive application for Android powered devices. We are the only keyboard provider that has the ability to predict entire phrases and sentences through their WordChunking™ technology, as well as offering the Company’s Gesturing™ capabilities. This unique feature gives users the ability to enter words and phrases with sub-second input, resulting in rapid entry speeds with full accuracy. Since October 2012, over 80,000 Android users have downloaded the application and are enjoying the most feature-rich, intelligent keyboard on the market. The application uniquely features:
WordChunkingTM
Displays possible predictions allowing you to find the word or phrase you’re looking for more quickly accurately
Word and Phrase Prediction
Create whole sentences and phrases in a fraction of the time that you’d normally take to type them
GesturingTM
Enter words and phrases with sub-second input resulting in
blazing fast entry speeds with full
accuracy
Auto Learn
iKnowU learns and monitors your style and use of words, adjusting to better predict what you
want to type
Smart Learn
Predicts names of people & places, email addresses, website & more
Right or Left Handed Preference
iKnowU adjusts its actions and displays based upon the setup for either right or left-handed
The Company’s technology is unique in that it encompasses both the desktop 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.
The Company also sells its patented predictive text technology, WordLogic for Business that brings text and phrase prediction to the workplace in one cost-effective solution. With over ten years’ experience, the Company understands the need for enterprises to offer their workers the ability to rapidly and seamlessly enter industry or company-specific words and sentences into a multitude of devices from PC’s to mobile phones and tablets. WordLogic for Business is optimized to run on Android tablets and smartphones as well as desktop PCs. It can also be used with custom touchscreen devices, such as touchscreen PDAs used by couriers and delivery companies. WordLogic for Business automatically syncs across all devices currently in use and delivers a consistent, high-quality experience for the end-user, irrespective of the device or platform they are using. Companies seeking to adopt predictive text can build WordLogic for Business into their existing IT infrastructure using WordLogic's simple SDK.
Reach™ the patent-pending technology provides context-aware search - including advertising search - within every app you are working in through the WordLogic predictive keyboard, superseding the need to exit core applications. Users will no longer have to navigate through numerous applications to obtain information such as directions, restaurant listings, ratings and reviews, travel information and other contextual data from Google or other mobile and content sites.
This unique ability to deliver precise and timely context-based and location-aware marketing messages gives WordLogic an advantage in the massive global pay-per-click advertising market. WordLogic Reach™ is truly the first technology to solve the problem of monitoring keystrokes in real-time in order to return contextual and location-based marketing messages in a timely and efficient manner while remaining unobtrusive and maintaining privacy of the user. Reach™ leverages our patented intelligent keyboard to provide advertisers, marketers and handset makers with technology that can potentially drive massive incremental advertising and marketing revenue straight from mobile or tablet touch screen keyboards without the need for other applications or external technologies.
Currently, WordLogic is developing a version of the award winning iKnowU® keyboard that integrates Reach™ Advertising Search to create new revenue opportunities through partnerships with online deal consolidator and providers that offers thousands of local deals covering hundreds of cities in North America. Using WordLogic Reach™, allows users’ existing texts to be analyzed for context information, indicating what are they talking about, as well as the location of where they are talking about it. For example, when users ask about doing a spa day in Whistler, Reach™ can show them relevant information about deals related to what they are discussing with their friends. With a network of the most popular deal sites gathering over 30,000 offers per month, Reach™ users will be able to directly access money-saving deals within their email or text messaging applications. These partnerships give way to incredible revenue opportunities for WordLogic by receiving revenue up to 10% of each deal purchased and revenues per advertisement viewed, while allowing users to enjoy deals that might not have been taken advantage of previously. WordLogic is expanding their portfolio of partnerships, creating unique opportunities for revenue growth and extraordinarily intuitive accessibility for users.
Current projects in development include an iOS version that will work in a custom messaging and note-taking application.
WordLogic recognizes the underserved Apple device market when it pertains to predictive technologies and looks to expand its market to iPads and iPhones. Also WordLogic is integrating its predictive technologies into voice recognition software to allow for phrase and context aware search by talking to a device. WordLogic realizes that this is a significant market for auto drivers as state laws ban use of mobile devices with your hands and eye gazing. WordLogic is also exploring using their tightly constructed set of algorithms and data structures allowing it to operate quickly and efficiently in wearable computing. Combined with the ability to predict not only words but letters, n-grams including up to 5 word sequences of language that can be defined and predicted better than ever before. Other current development efforts include adding more language dictionaries to the iKnowU® product including Mandarin, Japanese, and Arabic.
Intellectual Property
We own the copyright of all of the content 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 eight issued U.S. and European patents and nine pending U.S. patent applications, one of which has received a Notice of Allowance 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 and patent 8,552,984 B2, which deals with the redirection of information for the purposes of processing which occurs between e keyboard and the application receiving the input.
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 Allowance for application #11/871,900 related to keyboard prediction and search utilizing gesturing software technology.
On February 12, 2013 we received trademark notice of allowance for the mark “IKNOWU” under serial number 85678117 in the United States.
In February 2013 the Company filed a new patent covering the Reach™ technology.
On October 8, 2013 the Company received Patent No. US 8,552,984 B2 associated with application 11/036,267 which covers the processing which occurs between the keyboard and the application it is sending inputs to.
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.
Summary of the Company’s Patents and Patent Applications
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
The Company released iKnowU® to support Android-based devices, as Android became a market leader with a more than 75% share by the end of 2012 (Source: Business Insider 2012). The iKnowU® is available to download from the Google Play store for $1.99, with a free time-limited trial version also available.
The Company also brings the incredible power of its patented predictive text technology, released its new predictive text solution, WordLogic for Business, allowing organizations to improve productivity through accurate, faster and more consistent text entry across the workforce. Organizations seeking to adopt predictive text can build WordLogic for Business into their existing IT infrastructure using WordLogic's simple Software Development Kits. WordLogic for Business is available worldwide to businesses of all sizes as either a fully-hosted service from WordLogic or installed and internally hosted on the customer's systems and is available in multiple languages.
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., Apple, HTC Corp., Huawei, Nokia and LG Electronics Inc. Customers this size may have the potential to apply the Company’s technology in up to 300 million units annually.
The Company will also be targeting its enterprise solution WordLogic for Business to individual corporations, as well as enterprise software manufacturers such as Oracle, Microsoft and SAP.
The launch of iKnowU® with Reach™ will be targeted at the current consumer android market of 2.5 billion total units in 2014.
Marketing Strategy
The Company designed and implemented a new logo and website design in 2012. In October of 2012, the Company soft-launched its first Android product iKnowU® on Google Play and created a specifically branded site iknowu.net. The Company started marketing campaigns and promotion of the iKnowU® product via banner advertising campaigns on numerous mobile and internet portals.
The Company has engaged a marketing and public relations firms to disseminate the iKnowU® and Reach™ - WordLogic message to publishers worldwide.
The Company attended Apps World, CTIA and Mobile World Congress in 2013 to demonstrate WordLogic technologies to the industry.
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.
WordLogic is also exploring partnerships with other application developers, including VOIP, chat and messaging applications to leverage their existing customer base of millions of users to introduce them to WordLogic iKnowU® and Reach™.
WordLogic will be executing a marketing plan using paid advertising using Google AdWords, Facebook and Twitter advertising for the iKnowU® with Reach™ platform in 2014 that will provide millions new customers by end of year 2014.
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 predictive text platform, 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. Including the launch of iKnowU® with Reach™ platform in 2014 pursuing an advertising revenue mode that will drive revenues and downloads in 2014.
WordLogic’s patented approach to contextual natural language prediction is the most powerful one available on the market today. It’s has a tightly constructed set of algorithms and data structures allowing it to operate quickly and efficiently in form factors that its competitors cannot operate in giving it more range of uses as devices once again turn smaller (wearable computing).
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. Over 1 billion smartphones , 1.3 billion smartphones, and 1.4 billion smartphone were sold in 2013 , 2014, and 2015 respectively.
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. Although not double digit growth in 2014, 300 million desktop PCs, portable computers, and mini-notebooks are expected to ship to consumers, The Company may be of value to PC manufacturers that are seeking innovative advancements to the PC experience in order to remain competitive. Likewise, versions of the Company's technology can be incorporated into the growing number of tablet computers entering the marketplace (estimated at over 285 million for 2014).
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 $506 billion with strong gains coming from web search. 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.
Wearable technology market revenue was $4.3 billion as of 2012 and is expected to reach to $14.0 billion by 2018, growing at an estimated CAGR of 18.93 % from 2013 to 2018 and provide a significant opportunity for the Company’s technologies because of the structure of the code and small memory footprint.
Competition
The Company believes that speed, ease of use, phrase prediction 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 better predictive text technologies, many do not possess the existing technology and code to do so.
We compete with companies such as SwiftKey and Nuance that offer keyboard solutions that are not as robust as the company offerings but have significant market share among handset manufacturers and carriers. In 2012, SwiftKey spent more days as Google Play’s No.1 paid download than any other app, validating the global market for better text input for mobile devices. As we increase marketing and the awareness of the iKnowU™ product we are poised to significantly capture our competitor’s clients and new customers.
Government Regulation
The Company believes that speed, ease of use, phrase prediction 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 better predictive text technologies, many do not possess the existing technology and code to do so.
We compete with companies such as SwiftKey and Nuance that offer keyboard solutions that are not as robust as the company offerings but have significant market share among handset manufacturers and carriers. In 2012, SwiftKey spent more days as Google Play’s No.1 paid download than any other app, validating the global market for better text input for mobile devices. As we increase marketing and the awareness of the iKnowU® product we are poised to significantly capture our competitor’s clients and new customers.
The Company’s Reach technology is a market differentiator that provides significant advertising revenue opportunities above and beyond the competition’s business models of licensing and consumer purchases.
WordLogic’s patented approach to contextual natural language prediction also provides a significant advantage to the wearable computing market due to the technologies’ approach to language patterns and small memory footprint and CPU requirements.
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.
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.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
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 currently pay a total of $6,954 CAD per month on a month-to-month basis for 2113ft of corporate office space. The space we lease is utilized for general main office purposes.
On January 15, 2013, we also entered into a lease agreement for new office space located at 25 Broadway, 10th Floor, New York, NY 10004 U.S.A. Under the lease, we currently pay a total of $1,300 USD per month on a month-to-month basis for 80ft of corporate office space. The term had been terminated as of January 31, 2015 .
On July 10, 2012, we also entered into a lease agreement for new office space located at 3820 Cessna Drive, Suite 190, Richmond, BC Canada V7B 0A2. Under the lease, we currently pay a total of $2,172 CAD per month on a month-to-month basis for 934ft of corporate office space. The space we lease is utilized for general office purposes. 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 estate.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On July 14, 2014, the Company along with its wholly owned subsidiary 602531 British Columbia Ltd., filed a Complaint for Patent Infringement in the United States District Court for the Western District of Washington at Seattle against Touchtype Limited doing business as SwiftKey (“SwiftKey”). The action arises out of the activities of defendant SwiftKey, relating to the making, selling, offering for sale, licensing, and/or using of predictive text technology for computer devices in the United States that constitutes direct or indirect infringement of one or more claims of the Company’s United States Patent #8,552,984 entitled "Method, System, Apparatus and Computer-Readable Media For Directing Input Associated with Keyboard-Type Device".
On November 4, 2015, United States District Judge Janis L. Sammartino ruled in against Touchtype, Inc., dba SWIFTKEY, in their partial motion to dismiss WordLogic’s claim of infringement of U.S. Patent No. 8,552,984. The Court has ordered a settlement conference on January 25, 2016, requiring the attendance of someone with the authority for each party to settle the case. The Mandatory Settlement Conference scheduled for February 29, 2016 has been extended to March 18, 2016.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5.
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 (OTCBB). Our Common Stock has been quoted on the OTC Bulletin Board trading under the symbol “WLGC.OB” 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, 2014 through December 31, 2015, 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.
Record Holders
As of April 6, 2016, an aggregate of 135,443,185 and 135,211,645 shares of our Common Stock were issued and outstanding, respectively, and were owned by approximately 26 holders of record, based on information provided by our transfer agent.
Recent Sales of Unregistered Securities
None.
Re-Purchase and Retirement of Equity Securities
See Note 12 - Treasury Stock of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for information regarding share repurchases and retirement of treasury stock.
The repurchases were made using cash resources and occurred in the open market and pursuant to a trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934.
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.
On July 30, 2012, the Company registered on Form S-8 the 2012 Equity 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.
On April 11, 2013, the Company registered on Form S-8 the 2012 Equity Incentive Plan, under which the Company is authorized to issue up to twenty five million (25,000,000) shares of the Company’s Common Stock to the Company’s employees, executives and consultants.
ITEM 6.
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.
ITEM 7.
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, 2015
December 31, 2014
Current Assets
$40,123
$76,351
Current Liabilities
1,346,853
$1,263,320
Working Capital Deficit
$ (1,306,730)
$ (1,186,969)
Cash Flows
December 31, 2015
December 31, 2014
Cash Flows used in Operating Activities
$(674,465)
$(1,469,807)
Cash Flows from Investing Activities
50,000
nil
Cash Flows from Financing Activities
469,388
1,368,526
Effect of exchange rate changes on cash
149,324
13,478
Net Decrease in Cash During Period
$(5,753)
$(87,803)
Operating Revenues
Operating revenues for the twelve months ended December 31, 2015 were $nil and is comprised of product sales.
Operating revenues for the twelve months ended December 31, 2014 were $nil and is comprised of product sales.
Operating Expenses and Net Loss
Operating expenses for the twelve months period ended December 31, 2015 were $1,064,910 and is comprised of $91,551 in rent, $935,119 in selling, general and administrative and $38,240 in research and development. Operating expenses for the same period ended December 31, 2014 were $2,928,395 and is comprised of $108,190 in rent, $2,302,898 in selling, general and administrative and $517,307 in research and development.
Net loss for the twelve months period ended December 31, 2015 was $1,113,744 is comprised of $1,064,910 loss from operations, $48,874 in interest expense, and $40 in interest income. Net loss for the twelve months period ended December 31, 2014 was $2,945,972 and is comprised of $2,928,395 loss from operations, $17,735 in interest expense, and $158 in interest income.
Liquidity and Capital Resources
As at December 31, 2015, the Company’s cash and current asset balance was $40,123 compared to $73,651 as at December 31, 2014. The decrease in current assets of $36,228 is attributed to a decrease of $1,199 in cash and cash equivalents, a decrease of $4,554 in restricted cash, a decrease of $50,000 in investment, an increase of $21,659 in GST/HST refund receivable, a decrease of $30 in employee advances, a decrease of $128 in interest receivable, and a decrease in prepaid expenses of $1,976.
As at December 31, 2015, the Company had current and total liabilities of $1,346,853 compared with current and total liabilities of $1,263,320 as at December 31, 2014. The increase in total liabilities of $83,533 is attributed to an increase of $9,203 in bank overdraft, a decrease of $2,813 in accounts payable and accrued liabilities, an increase of $21,352 in indebtedness to related parties, an increase of $21,129 in accrued interest, a decrease of $ 160,908 in notes payable, an increase of $18,063 in notes payable to related party , and an increase of $177,507 in convertible notes payable .
As at December 31, 2015, the Company had a working capital deficit of $1,306,730 compared with a working capital deficit of $1,186,969 as at December 31, 2014. The increase in working capital deficit was primarily attributed to a decrease in cash and cash equivalents, restricted cash, prepaid expenses, and accounts payable and accrued liabilities, and an increase in GST/HST refund receivable, notes payable, note payable to related to party.
Cashflow from Operating Activities
During the year ended December 31, 2015, the Company used $674,465 of cash for operating activities compared to using of $1,469,807 of cash for operating activities during the same period ended December 31, 2014. The change in net cash generated in operating activities is primarily attributed to a decrease in operating expenses.
Cashflow from Investing Activities
During the year ended December 31, 2015, the Company received $50,000 of cash for investing activities compared to cash received of $nil for investing activities during the same period ended December 31, 2014. The change in net cash generated in investing activities is primarily attributed to a withdrawal of investments in term deposits.
Cashflow from Financing Activities
During the year ended December 31, 2015, the Company received $469,388 of cash from financing activities compared to cash received of $1,368,526 for the same period ended December 31, 2014. The change in cash flows from financing activities is primarily attributed to a decrease in proceeds from related party advances, proceeds from other promissory notes, sale of common shares, and proceed from stock options and warrants exercised.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued Accounting Pronouncements
In September, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805) (“ASU 2015-16”). Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in urrent-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected to have a material effect on the Company’s consolidated financial statements.
In August, 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods with that reporting period.
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company is currently in the process of evaluating the impact of adoption of ASU 2015-03 on its balance sheets.
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.
In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation , to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Company has elected early adoption of these amendments.
ITEM 7A.
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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WORDLOGIC CORPORATION
For the Years Ended December 31, 2015 and 2014
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Deficit
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
WordLogic Corporation
We have audited the accompanying consolidated balance sheets of WordLogic Corporation (the Company) as of December 31, 2015 and 2014 and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for each of the periods then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our 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 consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WordLogic Corporation as of December 31, 2015 and 2014, 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 consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has accumulated net loss since inception, 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, 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 consolidated 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 14, 2016
WORDLOGIC CORPORATION
Consolidated Balance Sheets
(Expressed in US Dollars)
December 31,
December 31,
Assets
Current Assets
Cash and cash equivalents
$
$
1,922
Restricted cash (Note 3) -
4,554
Investments (Note 4)
-
50,000
GST restricted refund receivable (Note 5)
29,008
7,349
Employee advances
Interest receivable (Note 4)
-
Prepaid expenses (Note 6)
10,233
12,209
Total Current Assets
40,123
76,351
Property and equipment, net of accumulated depreciation (Note 7)
6,088
9,521
Total Assets
$
46,211
$
85,872
Liabilities and Stockholders’ Deficit
Current Liabilities
Bank overdraft
$
15,378
$
6,175
Accounts payable and accrued liabilities
763,329
766,142
Indebtedness to related parties (Note 8)
99,526
78,174
Deposit from shareholder (Note 9)
50,000
50,000
Accrued interest (Note 10)
28,632
7,503
Notes payable (Note 10)
144,418
355,326
Convertible n otes payable (Note 10)
177,507
-
Notes payable to related parties (Note 10)
68 ,063
-
Total Current Liabilities
1,346,853
1,263,320
Total Liabilities
1,346,853
1,263,320
Stockholders’ Deficit
Common stock, $.001 par value; 250,000,000 shares authorized 133,690,145 shares issued and 133,458,605 outstanding as of December 31, 2015, 102,233,955 shares issued and 102,002,415 outstanding as of December 31, 2014, respectively (Note 11)
133,690
102,234
Additional paid-in capital
29,547,758
28,737,988
Stock payable
4,000
4,000
Accumulated deficit
(30,475,850)
(29,362,106)
Accumulated other comprehensive loss
(489,991)
(639,315)
Treasury stock, 231,540 shares as of December 31, 2015 and December 31, 2014 (Note 12)
(20,249)
(20,249)
Total Stockholders’ Deficit
(1,300,642)
(1,177,448)
Total Liabilities and Stockholders’ Deficit
$
46,211
$
85,872
The accompanying notes are an integral part of the consolidated financial statements.)
WORDLOGIC CORPORATION
Consolidated Statements of Operations
(Expressed in US Dollars)
(The accompanying notes are an integral part of the consolidated financial statements.)
WORDLOGIC CORPORATION
Consolidated Statement of Stockholders’ Deficit
(Expressed in US Dollars)
(The accompanying notes are an integral part of the consolidated financial statements.)
WORDLOGIC CORPORATION
Consolidated Statements of Cash Flows
(Expressed in US Dollars)
(The accompanying notes are an integral part of the consolidated financial statements.)
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
1.
NATURE OF OPERATIONS AND CONTINUANCE OF BUSINESS
Nature of Operations
WordLogic Corporation (the “Company” or “WLGC”), formerly TheAmericanWest.com, Inc., was incorporated under the laws of the State of Nevada on March 30, 1999. The Company’s primary business is the development and commercialization of data entry software for handheld computing devices. Its headquarters is located in Vancouver, BC, Canada.
Reverse Merger
On March 11, 2003, WLGC entered into an Agreement and Plan of Merger (the “Agreement”) with WordLogic Corporation (“WCPC”), a private British Columbia, Canada corporation. On May 27, 2003, WLGC issued 19,016,658 shares of its common stock in exchange for all 19,016,658 outstanding common shares of WCPC, and the two companies merged. This merger has been treated as a recapitalization of WCPC, with WLGC as the surviving legal entity. Since WLGC had, prior to the recapitalization, minimal assets and no operations, the recapitalization has been accounted for as the sale of 2,907,006 shares of WCPC’s common stock for the net assets of WLGC. Following the closing, WLGC remained the surviving corporation with 21,923,664 common shares outstanding, of which the former shareholders of WCPC owned approximately 86.74%.
In connection with the closing of the Agreement, WLGC changed its name to “WordLogic Corporation” (formerly TheAmericanWest.com, Inc.) and changed its OTCBB symbol under which its common stock trades on the Over-The-Counter Bulletin Board to “WLGC”. WLGC’s directors resigned their positions and the executive officers of WCPC were appointed to fill the vacancies created by the resignations, which resulted in a change in control.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has incurred recurring losses prior to the current period, has used significant cash in support of its operating activities and, based upon current operating levels, requires additional capital or significant reconfiguration of its operations to sustain its operations for the foreseeable future. At December 31, 2015, the Company has incurred losses of $30,475,850 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.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a)
Basis of Presentation
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Company’s fiscal year-end is December 31.
b)
Basis of Consolidation
The consolidated financial statements include the accounts of WordLogic Corporation and its wholly-owned subsidiary 602531 British Columbia Ltd. (the “Subsidiary”), an entity incorporated under the laws of the Province of British Columbia, Canada. The Subsidiary does not have any operations. All significant intercompany balances and transactions have been eliminated in consolidation.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
c)
Use of Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.
d)
Cash and Cash Equivalents
The Company considers all investment instruments purchased with an original maturity of three months or less to be cash equivalents. Investment securities with original or remaining maturities of more than three months but less than one year are considered short-term investments. Auction rate securities with original or remaining maturities of more than three months are considered short-term investments even if they are subject to re-pricing within three months. The Company was not invested in any auction rate securities as of December 31, 2015 and December 31, 2014. Investment securities held with the intent to reinvest or hold for longer than a year, or with remaining maturities of one year or more, are considered long-term investments. The Company’s cash equivalents at December 31, 2015 consisted of term deposits with original maturities of three months or less, and are therefore classified as cash and cash equivalents in the accompanying balance sheets.
Cash and cash equivalents consisted of cash and term deposits of $723 and $1,922 at December 31, 2015 and December 31, 2014 , respectively.
e)
Short and Long-term Investments
The Company accounts for its short-term and long-term investments in accordance with ASC 320, Investments-Debt and Equity Securities. The Company’s short and long-term investments in securities are classified as available-for-sale and are reported at fair value, with unrealized gains and losses, net of tax, recorded in other comprehensive income (loss). Realized gains or losses and declines in value judged to be other than temporary, if any, on available-for-sale securities are reported in other income, net. The Company reviews the securities for impairments considering current factors including the economic environment, market conditions, and the operational performance and other specific factors relating to the businesses underlying the securities. The Company records impairment charges equal to the amount that the carrying value of its available-for-sale securities exceeds the estimated fair market value of the securities as of the evaluation date. The fair value for publicly held securities is determined based on quoted market prices as of the evaluation date. In computing realized gains and losses on available-for-sale securities, the Company determines cost based on amounts paid, including direct costs such as commissions, to acquire the security using the specific identification method. The Company did not have any short or long-term investments in securities at December 31, 2015 or December 31, 2014.
The Company’s investment consisted of certified term deposit with original maturities of more than three months. The Company realized interest income based on term deposit rate agreed upon with Royal Bank of Canada. The company had term deposits totaling US $nil and $50,000 at December 31, 2015 and December 31, 2014, respectively. The company has recorded interest receivable of $nil and $128 at December 31, 2015 and December 31, 2014, respectively.
See Note 2.m for further information on fair value.
f)
Allowance for Doubtful Accounts
The Company considers its receivables to be fully collectable since the Company has only two receivable accounts, GST/HST (Goods and services tax/harmonized sales tax) receivable and interest receivable; accordingly, no allowance for doubtful accounts is required. The Company recognizes an allowance for doubtful accounts on specific accounts identified at risk based on the age of the outstanding receivable and the inability or unwillingness of its customers to make the required payments.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
g)
Property and Equipment
Property and equipment are stated at cost and are amortized over their estimated useful lives as follows:
Asset
Method
Rate
Computer equipment
Straight-line
33.3%
Computer software
Straight-line
100.0%
Furniture and fixtures
Declining balance
20.0%
Other equipment
Declining balance
20.0%
Amortization is recorded at one-half of the normal rate in the year of acquisition. We have compared the depreciation taken using the declining balance method to the straight-line method and have determined the difference to be immaterial for the year ended December 31, 2015 and 2014.
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.
h)
Impairment of Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the provisions issued by the FASB which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted future cash flows estimated to be generated by those assets are less than the assets’ carrying amount. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying value or fair value, less costs to sell.
i)
Deferred Revenue
Certain amounts are received pursuant to agreement and may only be used in the delivery of specific services and transactions. These amounts are recognized as revenue in the fiscal year the related expenditures are incurred and services are performed.
j)
Software Development Costs
Software development costs are recorded in accordance with the provisions issued by the FASB as follows. Costs incurred to establish the technological feasibility of computer software to be sold, leased, or otherwise marketed are expensed as incurred as research and development costs. Once technological feasibility is established, the cost of producing product masters for the software is capitalized. Capitalization of the software development costs ceases and amortization of the capitalized costs commences when the product is available for general release to customers. Capitalized costs are amortized based on the greater of (a) the ratio of current gross revenues to the total current and anticipated future gross revenues, or (b) the straight-line method over the remaining estimated economic life of the product.
k)
Research and Development
Expenditures relating to the development of new products and processes, including significant improvements to existing products, are charged to operations as incurred.
l)
Income Taxes
The Company accounts for income taxes under the provisions issued by the FASB which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company computes tax asset benefits for net operating losses carried forward. The potential benefit of net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
m)
Revenue Recognition
The Company recognizes revenues in accordance with ASC 985-605, Revenue Recognition - Software (“ASC 985-605”), or ASC 605-25, Revenue Recognition - Multiple-Element Arrangements.
Pursuant to ASC 985-605, the Company recognizes revenue when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is probable. The Company applies these criteria as discussed below:
·
Persuasive evidence of an arrangement exists. The Company requires a written contract, signed by both the customer and the Company, or a purchase order from those customers that have previously negotiated a standard end-user license arrangement or volume purchase agreement, prior to recognizing revenue on an arrangement.
·
Delivery has occurred. The Company delivers software and hardware to customers physically. The standard delivery terms are free on board shipping point.
·
The fee is fixed or determinable. The Company’s determination that an arrangement fee is fixed or determinable depends principally on the arrangement’s payment terms. Where these terms apply, the Company regards the fee as fixed or determinable, and recognizes revenue upon delivery (assuming other revenue recognition criteria are met). If the payment terms do not meet this standard, but rather, involve “extended payment terms,” the fee may not be considered to be fixed or determinable and the revenue would then be recognized when customer installments are due and payable.
·
Collectability is probable. To recognize revenue, the Company judges collectability of the arrangement fees on a customer-by-customer basis pursuant to a credit review policy. The Company typically sells to customers with which it has had a history of successful collections. For new customers, the Company evaluates the customer’s financial position and ability to pay. If the Company determines that collectability is not probable based upon the credit review process or the customer’s payment history, revenue is recognized when cash is collected.
If there are any undelivered elements, the Company defers revenue for those elements, as long as vendor specific objective evidence (“VSOE”) of fair value exists for the undelivered elements. Payment for product is due upon shipment, subject to specific payment terms. Payment for professional services is due either upon or in advance of providing the services, subject to specific payment terms. Reimbursements received for out-of-pocket expenses and shipping costs, which have not been significant to date, are recognized as revenue in accordance with ASC 605-45, Revenue Recognition - Principal Agent Considerations.
The Company earns revenue from the sale of its software products and from royalties earned on software licensing agreements. Revenue from the sale of software products is recognized at the point of delivery, which occurs when customers either download the software or are shipped software products. Royalty revenue is recognized in accordance with the terms of licensing agreements and when collectability is reasonably assured, which is usually on receipt of royalty payments.
The Company also recognizes revenue from the licensing of the intellectual property portfolio according to ASC 985-605, based on the terms of agreements involved.
The Company has not established a formal policy affecting warranty or returns. No estimate of returns from sales has been made.
n)
Fair Value for Financial Assets and Financial Liabilities
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10 35-37 are described below:
Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
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, 2015. 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, 2015, 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 year ended December 31, 2015.
The Company’s operations are in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk to the Company’s operations results from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.
In accordance with ASC 820, the following table presents the Company’s fair value hierarchy for its financial assets (investments) as of December 31, 2015 and December 31, 2014:
Level
December 31, 2015
December 31, 2014
Level 1
$nil
$50,000
Level 2
-
-
Level 3
-
-
o)
Foreign Currency Translation
The Company’s functional currency is the Canadian dollar and these financial statements have been translated into U.S. dollars in accordance with standards issued by the FASB. The Canadian dollar based accounts of the Company’s foreign operations have been translated into United States dollars using the current rate method. Assets and liabilities of those operations are translated into U.S. dollars using exchange rates as of the balance sheet date; income and expenses are translated using the weighted average exchange rates for the reporting period. Translation adjustments are recorded as accumulated other comprehensive income (loss), a separate component of shareholders’ equity.
p)
Stock-based Compensation
On January 1, 2006, the Company adopted standards issued by the FASB, which requires the measurement and recognition of compensation expense for all share-based awards made to employees and directors, including employee stock options and shares issued through its employee stock purchase plan, based on estimated fair values. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin 107 (“SAB 107”) relating to this standard. The Company has applied the provisions of SAB 107 in its adoption of this standard. The Company adopted the FASB standard using the modified prospective transition method, which requires the application of the accounting standard as of the beginning in 2006. The Company’s financial statements as of and for the year ended December 31, 2007 reflect the impact of this standard. In accordance with the modified prospective transition method, the Company’s financial statements for prior periods do not include the impact of this standard.
The Company’s determination of estimated fair value of share-based awards utilizes the Black-Scholes option-pricing model. The Black-Scholes model is affected by the Company’s stock price as well as assumptions regarding certain highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors.
q)
Net Income (Loss) per Share
Basic and diluted net income (loss) per share of common stock is presented in conformity with ASC 260, Earnings Per Share (“ASC 260”), for all periods presented. In accordance with ASC 260, basic net income (loss) per share has been computed using the weighted average number of shares of common stock outstanding during the period, less shares subject to repurchase. Diluted net income (loss) per share is computed on the basis of the weighted average number of shares and potential common shares outstanding during the period. Potential common shares result from the assumed exercise of outstanding stock options and warrants that have a dilutive effect when applying the treasury stock method.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
The following table presents the calculation of basic and diluted net income (loss) per share:
Due to a net loss for the years ended December 31, 2015, and 2014, basic and diluted net loss per share are equivalent as the inclusion of potential common shares in the number of shares used for the diluted computation would be anti-dilutive to the net loss per share.
r)
Comprehensive Income (Loss)
The Company reports its comprehensive income (loss) in accordance with provisions of the FASB. For the years ended December 31, 2015 and 2014, the Company’s only component of comprehensive loss was foreign currency translation adjustments.
s)
Advertising Costs
Advertising costs are charged to operations as incurred.
t)
Recent Accounting Pronouncements
In September, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805) (“ASU 2015-16”). Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in urrent-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected to have a material effect on the Company’s consolidated financial statements.
In August, 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods with that reporting period.
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company is currently in the process of evaluating the impact of adoption of ASU 2015-03 on its balance sheets.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.
In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation , to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Company has elected early adoption of these amendments.
u)
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, 2015 and December 31, 2014, the Company had restricted cash balances of $nil and $4,554, respectively. This cash was held in trust by our attorneys for the payment of future legal invoices.
4.
INVESTMENTS
TERM DEPOSITS
The company had held-to-maturity certified term deposits with original maturity date more than three months totaling $nil and $50,000 as of December 31, 2015 and December 31, 2014, respectively. During the year ended December 31, 2015, the Company had withdrawn certified term deposits of $50,000 for operating purposes. The Company has recorded an accrued interest receivable of $nil and $128 for above term deposits as of December 31 , 2015 and December 31, 2014 based on statements provided by financial institutions.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
5.
GST/HST REFUND RECEIVABLE - RESTRICTED
The Goods and Service Tax (“GST”) is a federal tax that applies to the supply of most property and services in Canada. All businesses operating in BC are responsible for collecting and remitting GST to the Canadian government. A GST registrant should collect the GST on most of their sales and pay the GST on most purchases they make to operate their business. They can claim an input tax credit (“ITC”), to recover GST paid or payable on the purchases they use in commercial activities. However, during the year ended December 31, 2015, the Company has not collected any GST since all sales were incurred in the United States which sales are not GST taxable. The Company has filed GST returns quarterly and claimed only ITC’s during the year ended December 31, 2015. As the result of this, as of December 31, 2015 and December 31, 2014, the Company had GST/HST refund receivable of $29,008 (CAD $40,149) and $7,349 (CAD $8,525), respectively. Since the Company has not paid the payroll deduction payable in full to Canada Revenue Agency (“CRA”), CRA has been holding the GST/HST Refund Receivable amount.
6.
PREPAID EXPENSES
As of December 31, 2015 and December 31, 2014, we had prepaid expenses of $10,233 and $12,209, respectively. Prepaid expenses have been incurred for marketing and advertisement fees and security deposit for an office leased property. Prepaid expenses consisted of the following:
Vendor
December 31, 2015
December 31, 2014
$
$
Bentall L.P.
9,016
10,757
Others
1,217
1,452
Total
10,233
12,209
7.
PROPERTY AND EQUIPMENT
Cost
$
Accumulated
Depreciation
as of
December 31,
$
Net Carrying
Amount
as of
December 31,
$
Net Carrying
Amount
as of
December 31,
$
Office equipment
7,851
5,358
2,493
3,651
Computer equipment
110,958
108,283
2,675
4,521
Computer software
5,123
5,123
-
-
Furniture and fixtures
12,211
11,291
1,349
136,143
130,055
6,088
9,521
Depreciation expense totaled $2,047 and $3,172 for the years ended December 31, 2015 and 2014, respectively.
8.
RELATED PARTY TRANSACTIONS AND BALANCES
The Company incurred the following related party transactions:
a.
The Company has entered into an agreement with a private company controlled by a director to provide management services requiring monthly payments of CAD $30,000, expiring December 31, 2015. Management fees incurred by the Company totaled $281,534 (CAD $360,000) and totaled $325,949 (CAD $360,000) for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and December 31, 2014, the amount owing to this private company totaled $28,749 and $14,095, respectively.
b.
The Company incurred accounting fees of $11,418 and $5,512 with a private company of which an officer is also an officer for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and December 31, 2014, the amount owing to this private company totaled $21,466 and $5,247, respectively.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
c.
The Company has entered into an agreement with a private company controlled by an officer to provide management services requiring monthly payments of CAD $20,000, expiring April 1, 2015. Management fees incurred by the Company totaled $nil and $158,448 (CAD $175,000) for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and December 31, 2013, the amount owing to this private company totaled $49,311 and $58,832, respectively.
d.
During the year ended December 31, 2015, the Company received a non-refundable deposit of $50,000 for software licence of which terms and condition has not yet been finalized.
e.
In March 2015, the Company received proceeds of $18,063 (CAD $25,000) on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $14,450 at December 31, 2015.
f.
In August 2014, the Company received proceeds of $10,000 on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $10,000 at December 31, 2015.
g.
In October 2014, the Company received proceeds of $20,000 on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $20,000 at December 31, 2015.
h.
Also in October 2014, the Company received proceeds of $189,640 (CAD $220,000) on an unsecured promissory note with a related party for a period one year at an interest of 12% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $164,252 and $189,640 at December 31, 2015 and 2014, respectively. This promissory note has been converted into a convertible note during the year ended December 31, 2015 and accrued interest of $19,074 (CAD $26,400) was included into the principal. The note is convertible at a fixed price of $0.07; the Company evaluated for beneficial conversion features and determined there were none due to the conversion price being greater than the market price on the date of grant.
i.
In November 2014, the Company received proceeds of $20,000 on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $10,000 at December 31, 2015.
j.
In January 2015, the Company conducted a private placement offering with a related party whereby it sold 200,000 securities at a price of $0.05 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
k.
In April 2015, the Company conducted a private placement offering with a related party whereby it sold 500,000 securities at a price of $0.02 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
l.
In June 2015, the Company conducted a private placement offering with a related party whereby it sold 300,000 shares at a price of $0.02 per share for total proceeds of $6,000.
m.
In July 2015, the Company conducted a private placement offering with a related party whereby it sold 1,000,000 securities at a price of $0.02 per share for total proceeds of $20,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
n.
Also in July 2015, the Company conducted a private placement offering with a related party whereby it sold 200,000 shares at a price of $0.02 per share for total proceeds of $4,000.
o.
In August 2015, the Company conducted a private placement offering with a related party whereby it sold 1,000,000 shares at a price of $0.01 per share for total proceeds of $10,000.
p.
In September 2015, the Company conducted a private placement offering with a related party whereby it sold 4,000,000 shares at a price of $0.01 per share for total proceeds of $40,000.
q.
Also in September 2015, the Company conducted a private placement offering with a related party whereby it sold 4,000,000 securities at a price of $0.01 per share for total proceeds of $40,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
9. DEPOSIT FROM SHAREHOLDER
a.
During the year ended December 31, 2015, the Company received non-refundable deposit of $50,000 for software licence of which terms and condition has not yet been finalized.
Description
December 31, 2015
December 31, 2014
$
$
Software licence
50,000
-
50,000
nil
Non-current
-
-
Current
50,000
-
50,000
nil
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
10.
NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
Promissory Notes
a.
In August 2014, the Company received proceeds of $10,000 on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $10,000 and $10,000 at December 31, 2015 and 2014, respectively.
b.
In September 2014, the Company received proceeds of $50,000 on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $50,000 and $50,000 at December 31, 2015 and 2014, respectively.
c.
In October 2014, the Company received proceeds of $20,000 on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $20,000 and $20,000 at December 31, 2015 and 2014, respectively.
d.
Also in October 2014, the Company received proceeds of $189,640 (CAD $220,000) on an unsecured promissory note with a related party for a period one year at an interest of 12% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $164,252 and $189,640 at December 31, 2015 and 2014, respectively. This promissory note has been converted into a convertible note during the year ended December 31, 2015 and accrued interest of $19,074 (CAD $26,400) was included into the principal. The note is convertible at a fixed price of $0.07; the Company evaluated for beneficial conversion features and determined there were none due to the conversion price being greater than the market price on the date of grant.
e.
In November 2014, the Company received proceeds of $20,000 on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $20,000 and $20,000 at December 31, 2015 and 2014, respectively.
f.
Also in November 2014, the Company received proceeds of $9,842 (CAD $11,000) on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $7,948 and $9,482 at December 31, 2015 and 2014, respectively.
g.
Also in November 2014, the Company received proceeds of $20,000 on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $20,000 and $20,000 at December 31, 2015 and 2014, respectively.
h.
In December 2014, the Company received proceeds of $10,344 (CAD $12,000) on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $8,670 and $10,344 at December 31, 2015 and 2014, respectively.
i.
Also in December 2014, the Company received proceeds of $12,930 (CAD $15,000) on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $10,837 and $12,930 at December 31, 2015 and 2014, respectively.
j.
Also in December 2014, the Company received proceeds of $12,930 (CAD $15,000) on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $10,837 and $12,930 at December 31, 2015 and 2014, respectively.
k.
In January 2015, the Company received proceeds of $3,613 (CAD $5,000) on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $3,613 at December 31, 2015.
l.
In February 2015, the Company received proceeds of $7,225 ( CAD $10,000) on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $7,225 at December 31, 2015.
m.
In January 2015, the Company received proceeds of $21,675 (CAD $30,000) on an unsecured promissory note for a period one year at an interest of 12% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $21,675 at December 31, 2015.
n.
In March 2015, the Company received proceeds of $18,063 (CAD $25,000) on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $14,450 at December 31, 2015.
o.
In May 2015, the Company received proceeds of $3,612 (CAD $5,000) on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $3,612 at December 31, 2015.
Interest expense on the note during the year ended December 31, 2015 and 2014 totaled $43,819 and $17,735, respectively, accrued interest during the same period was $23,577 and $7,503, respectively. Interest expense on the convertible note during the year ended December 31, 2015 and 2014 totaled $5,055 and $nill, respectively, accrued interest during the same period was $5,055 and $nill, respectively.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
11.
COMMON STOCK
For the year ended December 31, 2015:
a)
In January 2015, the Company issued 1,000,000 shares of its common stock at $0.06 per share for services rendered by consultants valued at $60,000 based on the fair market value of the trading price on date of grant.
b)
Also in January 2015, the Company conducted a private placement offering whereby it sold 170,000 securities at a price of $0.06 per share for total proceeds of $10,200. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
c)
Also in January 2015, the Company conducted a private placement offering with a related party whereby it sold 200,000 securities at a price of $0.05 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
d)
Also in January 2015, the Company issued 100,000 shares of its common stock at $0.10 per share related to the exercise of options, for total proceeds of $10,000.
e)
In February 2015, the Company conducted a private placement offering whereby it sold 510,000 securities at a price of $0.05 per share for total proceeds of $25,500. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
f)
Also in February 2015, the Company issued 100,000 shares of its common stock at $0.07 per share related to the exercise of options, for total proceeds of $7,000.
g)
In March 2015, the Company issued 100,000 shares of its common stock at $0.07 per share related to the exercise of options, for total proceeds of $7,000.
h)
In April 2015, the Company conducted a private placement offering whereby it sold 1,250,000 securities at a price of $0.04 per share for total proceeds of $50,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
i)
Also in April 2015, the Company conducted a private placement offering with a related party whereby it sold 500,000 securities at a price of $0.02 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
j)
Also in April 2015, the Company conducted a private placement offering whereby it sold 500,000 securities at a price of $0.02 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
k)
Also in April 2015, the Company conducted a private placement offering whereby it sold 1,000,000 securities at a price of $0.02 per share for total proceeds of $20,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
l)
In May 2015, the Company conducted a private placement offering whereby it sold 142,857 securities at a price of $0.07 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.15, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
m)
In June 2015, the Company conducted a private placement offering whereby it sold 166,667 securities at a price of $0.06 per share for total proceeds of $9,999. Each security consists of one common share in the capital of the Company and one half non-transferable share purchase warrant exercisable at USD $0.15, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
n)
Also in June 2015, the Company conducted a private placement offering with a related party whereby it sold 300,000 shares at a price of $0.02 per share for total proceeds of $6,000.
o)
In July 2015, the Company conducted a private placement offering with a related party whereby it sold 1,000,000 securities at a price of $0.02 per share for total proceeds of $20,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
p)
Also in July 2015, the Company conducted a private placement offering with a related party whereby it sold 200,000 shares at a price of $0.02 per share for total proceeds of $4,000.
q)
Also in July 2015, the Company issued totaling 3,200,000 shares of its common stock at average $0.067 per share for services rendered by consultants valued at $214,000 based on the fair market value of the trading price on date of grant.
r)
In August 2015, the Company conducted a private placement offering whereby it sold 2,500,000 securities at a price of $0.01 per share for total proceeds of $25,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
s)
Also in August 2015, the Company conducted a private placement offering with a related party whereby it sold 1,000,000 shares at a price of $0.01 per share for total proceeds of $10,000.
t)
In September 2015, the Company conducted a private placement offering with a related party whereby it sold 4,000,000 shares at a price of $0.01 per share for total proceeds of $40,000.
u)
Also in September 2015, the Company conducted a private placement offering with a related party whereby it sold 4,000,000 securities at a price of $0.01 per share for total proceeds of $40,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
v)
In October 2015, the Company conducted a private placement offering whereby it sold 1,000,000 shares at a price of $0.01 per share for total proceeds of $10,000.
w)
Also in October 2015, the Company issued 2,600,000 shares of its common stock at $0.035 per share for services rendered by consultants valued at $91,000 based on the fair market value of the trading price on date of grant.
x)
In November 2015, the Company conducted a private placement offering whereby it sold 500,000 securities at a price of $0.01 per share for total proceeds of $5,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
y)
Also in November 2015, the Company conducted a private placement offering whereby it sold 1,000,000 securities at a price of $0.02 per share for total proceeds of $20,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
z)
Also in November 2015, the Company issued 200,000 shares of its common stock at $0.045 per share for services rendered by management valued at $9,000 based on the fair market value of the trading price on date of grant.
aa)
In December 2015, the Company conducted a private placement offering with a related party whereby it sold 2,200,000 shares at a price of $0.01 per share for total proceeds of $22,000.
bb)
Also in December 2015, the Company conducted a private placement offering whereby it sold 350,000 securities at a price of $0.03 per share for total proceeds of $3,500. Each security consists of one common share in the capital of the Company and three fifths non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
cc)
Also in December 2015, the Company conducted a private placement offering with a related party whereby it sold 1,000,000 shares at a price of $0.01 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrant exercisable at USD $0.05, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
dd)
Also in December 2015, the Company conducted a private placement offering whereby it sold 666,666 shares at a price of $0.03 per share for total proceeds of $20,000.
For the year ended December 31, 2014:
ee)
In January 2014, the Company issued 75,000 shares of its common stock at $0.10 per share related for stock payable which company received $7,500 in December 2013 for the exercise of stock options.
ff)
Also in January 2014, the Company issued 700,000 shares of its common stock at $0.10 per share related to the exercise of warrants, for total proceeds of $70,000.
gg)
Also in January 2014, the Company conducted a private placement offering whereby it sold 100,000 shares at a price of $0.15 per share for total proceeds of $15,000.
hh)
In February 2014, the Company issued 1,200,000 shares of its common stock at $0.10 per share related to the exercise of warrants, for total proceeds of $120,000.
ii)
Also in February 2014, the Company conducted a private placement offering whereby it sold 600,000 shares at a price of $0.10 per share for total proceeds of $60,000.
jj)
In March 2014, the Company issued 150,000 shares of its common stock at $0.10 per share related to the exercise of warrants, for total proceeds of $15,000.
kk)
Also in March 2014, the Company conducted a private placement offering whereby it sold 100,000 shares at a price of $0.10 per share for total proceeds of $10,000.
ll)
Also in March 2014, the Company conducted a private placement offering whereby it sold 1,178,571 shares at a price of $0.14 per share for total proceeds of $165,000.
mm)
In May 2014, the Company issued 600,000 shares of its common stock at $0.10 per share related to the exercise of warrants, for total proceeds of $60,000.
nn)
Also in May 2014, the Company conducted a private placement offering whereby it sold 660,000 shares at a price of $0.10 per share for total proceeds of $66,000.
oo)
In June 2014, the Company conducted a private placement offering whereby it sold 522,000 shares at a price of $0.10 per share for total proceeds of $52,200.
pp)
Also in June 2014, the Company issued 500,000 shares of its common stock at $0.10 per share related to the exercise of options, for total proceeds of $50,000.
qq)
In July 2014, the Company conducted a private placement offering whereby it sold 1,500,000 shares at a price of $0.10 per share for total proceeds of $150,000.
rr)
In August 2014, the Company conducted a private placement offering whereby it sold 250,000 shares at a price of $0.10 per share for total proceeds of $25,000.
ss)
In September 2014, the Company conducted a private placement offering whereby it sold 650,000 shares at a price of $0.10 per share for total proceeds of $65,000.
tt)
Also in September 2014, the Company issued 700,000 shares of its common stock at $0.10 per share related to the exercise of options, for total proceeds of $70,000.
uu)
In October 2014, the Company issued 100,000 shares of its common stock at $0.10 per share related to the exercise of options, for total proceeds of $10,000.
vv)
Also in October 2014, the Company issued 200,000 shares of its common stock at $0.065 per share for services rendered by a consultant valued at $13,000 based on the fair market value of the trading price on date of grant.
ww)
In November 2014, the Company issued 1,100,000 shares of its common stock at $0.071 per share for services rendered by a consultant valued at $78,100 based on the fair market value of the trading price on date of grant.
xx)
Also in November 2014, the Company issued 100,000 shares of its common stock at $0.10 per share related to the exercise of options, for total proceeds of $10,000
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
The following table summarizes the continuity of the Company’s share purchases with warrants attached:
Number of Warrants
Weighted average
exercise price
$
Weighted average remaining contractual life
(in years)
Balance, December 31, 2013
4,580,000
0.10
2.11
Issued
6,200,571
0.14
1.93
Exercised
(2,650,000)
-
-
Expired/Cancelled
(100,000)
-
-
Outstanding, December 31, 2014
8,030,571
0.13
2.02
Issued
25,566,191
0.10
1.60
Exercised
-
-
-
Expired/Cancelled
(2,230,000)
-
-
Outstanding, December 31, 2015
31,366,762
0.11
1.50
During the year ended December 31, 2015, the Company issued 13,889,524 common shares with warrants attached for total cash proceeds of $269,200. The common stock issued included 13,889,524 attached warrants to purchase 25,566,191common stock at the weighted average exercise price of $0.10 per share. The relative fair value of the warrants attached to the common stock issued was estimated at the date of grant using the Black-Sholes pricing model. The relative fair value of the warrants attached to the common stock issued is $270,621, and the relative fair value of the common stock is $281,579 as of the issue date. The Black-Sholes pricing model assumption used are as follows: expected dividend yield of 0%; risk-free interest rate of 0.41%; expected volatility of 134.73%, and warrant term of 2 years.
During the year ended December 31, 2014, , the Company issued 5,000,571 common shares with warrants attached for total cash proceeds of $552,201. The common stock issued included 5,000,571 attached warrants to purchase 6,200,571 common stock at the weighted average exercise price of $0.14 per share. The relative fair value of the warrants attached to the common stock issued was estimated at the date of grant using the Black-Sholes pricing model. The relative fair value of the warrants attached to the common stock issued is $270,621, and the relative fair value of the common stock is $281,579 as of the issue date. The Black-Sholes pricing model assumption used are as follows: expected dividend yield of 0%; risk-free interest rate of 0.32% - 0.59%; expected volatility of 132% - 138%, and warrant term of 2 years.
12.
TREASURY STOCK
On August 15, 2012, the Company announced that the Company’s Board of Directors approved a share repurchase program authorizing up to five million shares of the Company’s outstanding common stock to be repurchased over a 12 month period commencing on August 20, 2012. Any shares repurchased by the Company shall be returned to the treasury and may be used, if and when needed, for general corporate purposes. During the year ended December 31, 2015 and 2014, the Company purchased nil and nil shares of common stock from treasury stock, respectively. During the year ended December 31, 2015 and 2014, the Company retired nil and nil shares of common stock from treasury stock, respectively. Following are our stock repurchases and retirement history.
Period
Total number of Shares Purchased or Retired
Average Price Paid per Share
August 1, 2012 - August 31, 2012
99,000
$
0.0961
September 1, 2012 - September 31, 2012
333,000
$
0.1007
October 1, 2012 - October 31, 2012
370,140
$
0.1036
November 1, 2012 - November 30, 2012
229,400
$
0.0874
December 10, 2012, retirement of treasury stock
(800,000)
$
-
Balance, December 31, 2014 and 2015
231,540
$
0.0983
13.
STOCK-BASED COMPENSATION
The Company has, since incorporation, adopted three stock option plans. The first plan is dated February 15, 2001, amended on October 15, 2009, under which the Company is authorized to grant options to acquire up to a total of 6,000,000 shares of common stock. The second plan is dated February 15, 2005, under which the Company is authorized to grant options to acquire up to a total of 3,000,000 shares of common stock. The third plan is dated July 30, 2012, under which the Company is authorized to grant options to acquire up to a total of 10,000,000 shares of common stock. Pursuant to the stock option plans, options granted are subject to vesting terms which range from immediate vesting to various stages over a period of one year including monthly vesting, at the sole discretion of the Board of Directors.
During the year ended December 31, 2008, the Company adopted the 2008 Stock Compensation Plan and the 2008 Equity Incentive Plan, under which the Company is authorized to issue up to 500,000 and 2,000,000 shares, respectively, of the Company’s common stock, to be registered on Form S-8, to the Company’s employees, executives and consultants. On May 14, 2010, the Company adopted the 2010 Share Incentive Plan on Form S-8 under which the Company is authorized to issue up to 10,000,000 registered shares of its common stock to qualified persons. On July 30, 2012, the Company adopted the 2012 Equity Incentive Plan on Form S-8 under which the Company is authorized to issue up to 10,000,000 registered shares of its common stock to qualified persons. On April 11, 2013, the Company adopted the 2013 Equity Incentive Plan on Form S-8 under which the Company is authorized to issue up to 25,000,000 registered shares of its common stock to qualified persons.
Compensation Warrants Granted to Non-employees
For the year ended December 31, 2015:
On November 10, 2015, the Company granted compensation warrants to purchase a total 500,000 shares of the Company’s common stock to a consultant. The warrants carry an exercise price of $0.04 per share. The warrants expire November 10, 2017. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $17,511. During the year ended December 31, 2015, the Company recorded stock-based compensation of $17,511 as a general and administrative expense in connection with these warrants.
On November 27, 2015, the Company granted compensation warrants to purchase a total 500,000 shares of the Company’s common stock to a consultant. The warrants carry an exercise price of $0.05 per share. The warrants expire November 27, 2017. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $17,305. During the year ended December 31, 2015, the Company recorded stock-based compensation of $17,305 as a general and administrative expense in connection with these warrants.
On December 17, 2015, the Company granted compensation warrants to purchase a total 300,000 shares of the Company’s common stock to a consultant. The warrants carry an exercise price of $0.15 per share. The warrants expire December 17, 2015. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $6,247. During the year ended December 31, 2015, the Company recorded stock-based compensation of $6,247 as a general and administrative expense in connection with these warrants.
For the year ended December 31, 2014:
On September 11, 2014, the Company granted compensation warrants to purchase a total of 2,311,000 shares of the Company’s common stock to a marketing firm. The warrants carry an exercise price of $0.10 per share. The warrants expire September 11, 2016. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $116,540. During the year ended December 31, 2014, the Company recorded stock-based compensation of $116,540 as a general and administrative expense in connection with these warrants.
On October 1, 2014, the Company granted compensation warrants to purchase a total of 300,000 shares of the Company’s common stock to a consultant. The warrants carry an exercise price of $0.10 per share. The warrants expire October 1, 2016. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $14,131. During the year ended December 31, 2014, the Company recorded stock-based compensation of $14,131 as a general and administrative expense in connection with these warrants.
On October 1, 2014, the Company granted compensation warrants to purchase a total of 300,000 shares of the Company’s common stock to a consultant. The warrants carry an exercise price of $0.10 per share. The warrants expire October 1, 2016. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $14,131. During the year ended December 31, 2014, the Company recorded stock-based compensation of $14,131 as a general and administrative expense in connection with these warrants.
On November 20 2014, the Company granted compensation warrants to purchase a total of 1,500,000 shares of the Company’s common stock to a consultant. The warrants carry an exercise price of $0.10 per share. The warrants expire November 20, 2016. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $78,088. During the year ended December 31, 2014, the Company recorded stock-based compensation of $78,088 as a general and administrative expense in connection with these warrants.
Options Granted to Employees
For the year ended December 31, 2015:
On February 18, 2015, the Company granted options to purchase a total of 300,000 shares of the Company’s common stock to an employee. The options carry an exercise price of $0.07 per share and vested immediately. The options expire February 18, 2018. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $10,448. During the year ended December 31, 2015, the Company recorded stock-based compensation of $10,448 as a general and administrative expense in connection with these options.
During the year ended December 31, 2015, the Company recognized and recorded stock-based compensation of $nil related to options granted in the prior year which vested in the current period as a general and administrative expense.
As at December 31, 2015, there was $nil total unrecognized compensation cost related to nonvested stock-based compensation arrangements.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
The fair value for warrants and stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average fair value of stock options granted during the year ended December 31, 2015 and 2014 were $0.34359 and 0.10073, respectively. The weighted average assumptions used are as follows:
The total intrinsic value of stock options exercised during the year ended December 31, 2015 and 2014 were $nil and $nil respectively.
The following table summarizes the continuity of the Company’s compensation warrants to non-employees:
Number of Warrants
Weighted Average Exercise Price
Weighted-Average Remaining Contractual Term (years)
Aggregate Intrinsic Value
Outstanding, December 31, 2013
5,505,000
$ 0.10
Granted
4,411,000
$ 0.10
Exercised
-
-
Expired/Cancelled
(5,000)
$ 0.10
Outstanding, December 31, 2014
9,911,000
$ 0.10
3.04
$nil
Exercisable, December 31, 2014
9,911,000
$ 0.10
3.04
$nil
Granted
1,300,000
0.07
Exercised
-
-
Expired/Cancelled
-
-
Outstanding, December 31, 2015
11,211,000
$ 0.10
2.05
$nil
Exercisable, December 31, 2015
11,211,000
$ 0.10
2.05
$nil
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
The following table summarizes the continuity of the Company’s stock options granted to employees:
Number of Options
Weighted Average Exercise Price
Weighted-Average Remaining Contractual Term (years)
Aggregate Intrinsic Value
Outstanding, December 31, 2013
21,140,000
$ 0.11
Granted
15,950,000
0.10
Exercised
(1,400,000)
0.10
Expired/Cancelled
(3,065,000)
0.10
Outstanding, December 31, 2014
32,625,000
$ 0.10
2.28
$nil
Exercisable, December 31, 2014
32,625,000
$ 0.10
2.27
$nil
Granted
300,000
0.10
Exercised
(300,000)
0.10
Expired/Cancelled
(75,000)
-
Outstanding, December 31, 2015
32,550,000
$ 0.10
1.30
$nil
Exercisable, December 31, 2015
32,550,000
$ 0.10
1.30
$nil
A summary of the status of the Company’s nonvested shares as of December 31, 2014, and changes during the year ended December 31, 2015, is presented below:
Nonvested shares
Number of Shares
Weighted Average Grant Date Fair Value
Nonvested at December 31, 2013
-
-
Granted
-
-
Vested
-
-
Nonvested at December 31, 2014
-
-
Granted
-
-
Vested
-
-
Nonvested at December 31, 2015
-
-
During the years ended December 31, 2015 and 2014, the Company recognized and recorded stock-based compensation of $51,510 and $1,263,397, respectively, as a general and administrative expense related to vested share-based compensation arrangements.
For the year ended December 31, 2014:
On February 1, 2014, the Company granted options to purchase a total of 2,000,000 shares of the Company’s common stock to an officer. The options carry an exercise price of $0.10 per share and vested immediately. The options expire February 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $254,868. During the year ended December 31, 2014, the Company recorded stock-based compensation of $254,868 as a general and administrative expense in connection with these options.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
The fair value for warrants and stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average fair value of stock options granted during the year ended December 31, 2015 and 2014 were $0.34359 and 0.10073, respectively. The weighted average assumptions used are as follows:
The total intrinsic value of stock options exercised during the year ended December 31, 2015 and 2014 were $nil and $nil respectively.
The following table summarizes the continuity of the Company’s compensation warrants to non-employees:
Number of Warrants
Weighted Average Exercise Price
Weighted-Average Remaining Contractual Term (years)
Aggregate Intrinsic Value
Outstanding, December 31, 2013
5,505,000
$ 0.10
Granted
4,411,000
$ 0.10
Exercised
-
-
Expired/Cancelled
(5,000)
$ 0.10
Outstanding, December 31, 2014
9,911,000
$ 0.10
3.04
$nil
Exercisable, December 31, 2014
9,911,000
$ 0.10
3.04
$nil
Granted
1,300,000
0.07
Exercised
-
-
Expired/Cancelled
-
-
Outstanding, December 31, 2015
11,211,000
$ 0.10
2.05
$nil
Exercisable, December 31, 2015
11,211,000
$ 0.10
2.05
$nil
The following table summarizes the continuity of the Company’s stock options granted to employees:
Number of Options
Weighted Average Exercise Price
Weighted-Average Remaining Contractual Term (years)
Aggregate Intrinsic Value
Outstanding, December 31, 2013
21,140,000
$ 0.11
Granted
15,950,000
0.10
Exercised
(1,400,000)
0.10
Expired/Cancelled
(3,065,000)
0.10
Outstanding, December 31, 2014
32,625,000
$ 0.10
2.28
$nil
Exercisable, December 31, 2014
32,625,000
$ 0.10
2.27
$nil
Granted
300,000
0.10
Exercised
(300,000)
0.10
Expired/Cancelled
(75,000)
-
Outstanding, December 31, 2015
32,550,000
$ 0.10
1.30
$nil
Exercisable, December 31, 2015
32,550,000
$ 0.10
1.30
$nil
A summary of the status of the Company’s nonvested shares as of December 31, 2014, and changes during the year ended December 31, 2015, is presented below:
Nonvested shares
Number of Shares
Weighted Average Grant Date Fair Value
Nonvested at December 31, 2013
-
-
Granted
-
-
Vested
-
-
Nonvested at December 31, 2014
-
-
Granted
-
-
Vested
-
-
Nonvested at December 31, 2015
-
-
During the years ended December 31, 2015 and 2014, the Company recognized and recorded stock-based compensation of $51,510 and $1,263,397, respectively, as a general and administrative expense related to vested share-based compensation arrangements.
For the year ended December 31, 2014:
On February 1, 2014, the Company granted options to purchase a total of 2,000,000 shares of the Company’s common stock to an officer. The options carry an exercise price of $0.10 per share and vested immediately. The options expire February 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $254,868. During the year ended December 31, 2014, the Company recorded stock-based compensation of $254,868 as a general and administrative expense in connection with these options.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
On February 1, 2014, the Company granted options to purchase a total of 2,000,000 shares of the Company’s common stock to an officer. The options carry an exercise price of $0.10 per share and vested immediately. The options expire February 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $254,868. During the year ended December 31, 2014, the Company recorded stock-based compensation of $254,868 as a general and administrative expense in connection with these options.
On February 1, 2014, the Company granted options to purchase a total of 100,000 shares of the Company’s common stock to an employee. The options carry an exercise price of $0.10 per share and vested immediately. The options expire February 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $12,743. During the year ended December 31, 2014, the Company recorded stock-based compensation of $12,743 as a general and administrative expense in connection with these options.
On February 1, 2014, the Company granted options to purchase a total of 100,000 shares of the Company’s common stock to an employee. The options carry an exercise price of $0.10 per share and vested immediately. The options expire February 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $12,743. During the year ended December 31, 2014, the Company recorded stock-based compensation of $12,743 as a general and administrative expense in connection with these options.
On February 1, 2014, the Company granted options to purchase a total of 100,000 shares of the Company’s common stock to an employee. The options carry an exercise price of $0.10 per share and vested immediately. The options expire February 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $12,743. During the year ended December 31, 2014, the Company recorded stock-based compensation of $12,743 as a general and administrative expense in connection with these options. Above four options and this option could be exercised, in whole or in part, in accordance with the following: 100% of the shares subject to the optionee continuing to be a service provider on such date.
On October 1, 2014, the Company granted options to purchase a total of 10,000,000 shares of the Company’s common stock to an officer. The options carry an exercise price of $0.10 per share and vested immediately. The options expire October 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $411,390. During the year ended December 31, 2014, the Company recorded stock-based compensation of $411,390 as a general and administrative expense in connection with these options.
On October 1, 2014, the Company granted options to purchase a total of 1,000,000 shares of the Company’s common stock to an employee. The options carry an exercise price of $0.10 per share and vested immediately. The options expire October 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $41,139. During the year ended December 31, 2014, the Company recorded stock-based compensation of $41,139 as a general and administrative expense in connection with these options.
On October 1, 2014, the Company granted options to purchase a total of 200,000 shares of the Company’s common stock to an employee. The options carry an exercise price of $0.10 per share and vested immediately. The options expire October 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $8,228. During the year ended December 31, 2014, the Company recorded stock-based compensation of $8,228 as a general and administrative expense in connection with these options.
On October 1, 2014, the Company granted options to purchase a total of 200,000 shares of the Company’s common stock to an employee. The options carry an exercise price of $0.10 per share and vested immediately. The options expire October 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $8,228. During the year ended December 31, 2014, the Company recorded stock-based compensation of $8,228 as a general and administrative expense in connection with these options.
On October 1, 2014, the Company granted options to purchase a total of 250,000 shares of the Company’s common stock to an employee. The options carry an exercise price of $0.10 per share and vested immediately. The options expire October 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $10,285. During the year ended December 31, 2014, the Company recorded stock-based compensation of $10,285 as a general and administrative expense in connection with these options. Above four options and this option could be exercised, in whole or in part, in accordance with the following: 100% of the shares subject to the optionee continuing to be a service provider on such date.
WORDLOGIC CORPORATION
Notes to the Consolidated Financial Statements
As at December 31, 2014 there was $nil total unrecognized compensation cost related to nonvested stock-based compensation arrangements.
14.
LEGAL PROCEEDINGS
CIVIL LITIGATION
On July 14, 2014, the Company along with its wholly owned subsidiary 602531 British Columbia Ltd., filed a Complaint for Patent Infringement in the United States District Court for the Western District of Washington at Seattle against Touchtype Limited doing business as SwiftKey (“SwiftKey”). The action arises out of the activities of defendant SwiftKey, relating to the making, selling, offering for sale, licensing, and/or using of predictive text technology for computer devices in the United States that constitutes direct or indirect infringement of one or more claims of the Company’s United States Patent #8,552,984 entitled "Method, System, Apparatus and Computer-Readable Media For Directing Input Associated with Keyboard-Type Device".
On November 4, 2015, United States District Judge Janis L. Sammartino ruled in against Touchtype, Inc., dba SWIFTKEY, in their partial motion to dismiss WordLogic’s claim of infringement of U.S. Patent No. 8,552,984. The Court has ordered a settlement conference on January 25, 2016, requiring the attendance of someone with the authority for each party to settle the case. The Mandatory Settlement Conference scheduled for February 29, 2016 has been extended to March 18, 2016.
15.
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:
Deferred tax assets
$2,502,585
$2,269,281
Valuation allowance
(2,502,582)
(2,269,281)
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 of $7,360,544 at December 31, 2015 and $6,674,357 at December 31, 2014 will begin to expire in 2028.
16.
SUBSEQUENT EVENTS
Subsequent to December 31, 2015, we issued an aggregate of 1,753,040 shares of our common stock related to exercises of warrants, exercise of stock options, and private placement offerings as of April 14, 2016.
Subsequent events have been reviewed through the date of this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
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, 2015. 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, 2015, 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, 2015, 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, 2015, the Company has not maintained sufficient internal controls over financial reporting for the cash process, including failure to segregate cash handling and accounting functions.
2.
We did not implement appropriate information technology controls - As at December 31, 2015, 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.
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, 2015, 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, 2015, 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.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
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, 66
President, Chief Executive Officer and Director
From May 27, 2003 to present
None
Darrin McCormack, 49
Chief Financial Officer
From August 13, 2007 to present
None
Mark Dostie, 45
Chief Technology Officer
From April 26, 2012 to April 1, 2015
None
T. Allen Rose, 58
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.
Darrin McCormack has been our Chief Financial Officer since August 13, 2007. Mr. McCormack is a Certified General Accountant and Certified Fraud Examiner and was the managing partner in the firm D. McCormack & Company Inc, CGA’s from July 1995 to February 2014 and is managing partner in the firm McCormack, Su & Company Inc. from March 2014 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.
Mark Dostie has over 20 years of professional software engineering experience. Mr. Dostie is the owner of Echelon Systems Consulting, where he has worked for the past eleven years. Echelon Systems is a consultancy company specializing in business consulting, systems implementation, and project and portfolio management. Mr. Dostie also serves as the Principal Consultant, Senior Business Analyst and Senior Software Engineer of Echelon Systems. His responsibilities include overseeing all operations of the company and developing all software for customers. Prior to working for Echelon Systems, Mr. Dostie has served as CEO, CTO. Lead Architect and Project Manager for numerous companies including MacDonald Dettwiler and Associates, PriceWaterhouse Coopers, eMediaIT. The Board of Directors appointed Mr. Dostie as Chief Technology Officer of the Company on account of his extensive experience in mobile, machine learning and other software technology.
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;
(1)
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;
(2)
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;
(3)
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;
(4)
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
(1)
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, 2015, Forms 5 and any amendments thereto furnished to us with respect to the year ended December 31, 2015, and the representations made by the reporting persons to us, we believe that during the year ended December 31, 2015, 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
We have adopted a Code of Ethics (the “Code”) that applies to our senior officers, including our Chief Executive Officer and Chief Financial Officer. A written copy of the Code is available on written request to the Company.
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.
ITEM 11.
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, 2015 and 2014.
Summary Compensation Table
(1)
Represents management consulting fees paid to Meridian Mercantile Inc. (“MMI”). MMI, 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 $27,162 USD ($30,000 CAD) for services rendered. Management fees incurred by the Company totaled $281,534 USD ($CAD 360,000) and totaled $325,949 ($CAD 360,000) for the years ended December 31, 2015 and 2014, respectively.
(2)
On February 1, 2014, the Company granted options to purchase a total of 2,000,000 shares of the Company’s common stock to an officer. The options carry an exercise price of $0.10 per share and vested immediately. The options expire February 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $254,868. During the year ended December 31, 2014, the Company recorded stock-based compensation of $254,868 as a general and administrative expense in connection with these options.
On October 1, 2014, the Company granted options to purchase a total of 10,000,000 shares of the Company’s common stock to an officer. The options carry an exercise price of $0.10 per share and vested immediately. The options expire October 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $411,390. During the year ended December 31, 2014, the Company recorded stock-based compensation of $411,390 as a general and administrative expense in connection with these options.
(3)
Represents amounts incurred with McCormack, Su & 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 $100 USD ($110 CAD) per hour.
(4)
On February 1, 2014, the Company granted options to purchase a total of 2,000,000 shares of the Company’s common stock to an officer. The options carry an exercise price of $0.10 per share and vested immediately. The options expire February 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $254,868. During the year ended December 31, 2014, the Company recorded stock-based compensation of $254,868 as a general and administrative expense in connection with these options.
(5)
The Agreement provided for Mr. Mark Dostie to be paid approximately $18,108 USD ($20,000 CAD) per month in exchange for his services.
(6)
Mr. T. Allen Rose served as our Chief Financial Officer until August 13, 2007 and is a Secretary, Treasurer, and one of our directors.
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.
Outstanding Equity Awards at Fiscal Year-End
The table below summarizes the outstanding equity awards to our executive officers as of December 31, 2015.
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
The Company paid $782 to our board members for their services during the year ended December 31, 2015.
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.
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 March 6, 2016 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.
As of February 23, 2016, there were 134,808,605 common shares outstanding, 32,350,000 shares issuable upon exercise of stock purchase options, 31,366,762 shares issuable upon exercise of stock purchase warrants issued and outstanding, and 11,211,000 shares issuable upon exercise of stock purchase compensation 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 V7T 2L2
Canada
Common
31,565,152 (4)
15.05%
Mark Dostie (5)
1130 West Pender Street, Suite 230
Vancouver, BC V6E 4A4
Canada
Common
7,000,000 (6)
3.34%
Darrin McCormack (7)
1729 Pavenham Rd.
Cowichan Bay, BC V0R 1N1
Canada
Common
1,531,300 (8)
0.73%
T. Allen Rose (9)
2400 - 650 W. Georgia St.
Vancouver, BC V6B 4N7
Canada
Common
1,000,000 (10)
0.48%
Leslie H. Hughbanks (11)
1930 Rocky Ford Rd.
Powhantan, VA 23139
U.S.A.
Common
24,550,000 (12)
11.71%
Terry Evanshen (13)
19 Dorset St.
Hampton, ON L0B 1J0
Canada
Common
7,700,000
3.67%
All Officers, Directors, and Shareholders as a Group (6 Persons)
Common
73,346,452
34.97%
(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 134,808,605 outstanding shares of Common Stock as of February 23, 2016 plus 32,350,000 shares issuable upon exercise of stock purchase options, 31,366,762 shares issuable upon exercise of stock purchase warrants issued and outstanding, and 11,211,000 shares issuable upon exercise of stock purchase compensation warrants issued and outstanding.
(3) Franklin R. Evanshen is the President, Chief Executive Officer, and a Director of the Company.
(4) Includes 9,808,383 common shares and options to purchase 21,700,000 shares of our Common Stock, held under his own name, and 5,676 common shares held by MCC Meridian Capital Corp., a company controlled by Franklin R. Evanshen.
(5) Mark Dostie is the Chief Technology Officer of the Company.
(6) Includes options to purchase 7,000,000 shares of our Common Stock.
(7) Darrin McCormack is the Chief Financial Officer of the Company.
(8) Includes 531,300 common shares and options to purchase 1,000,000 shares of our Common Stock.
(9) T. Allen Rose is the Secretary, Treasurer and a Director of the Company.
(10) Includes options to purchase 1,000,000 shares of our Common Stock.
(11) Leslie H. Hughbanks is a Shareholder.
(12) Includes warrants to purchase 14,150, 000 shares of our Common Stock and compensation warrants to purchase 800,000 shares of our Common Stock.
(11) Terry Evanshen is a Shareholder.
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.
ITEM 13.
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 Director” 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
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, 2015. Management fees incurred by the Company totaled $281,534 (CAD $360,000) and totaled $325,949 (CAD $360,000) for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and December 31, 2014, the amount owing to this private company totaled $28,749 and $14,095, respectively.
The Company incurred accounting fees of $11,418 and $5,512 with a private company of which an officer is also an officer for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and December 31, 2014, the amount owing to this private company totaled $21,466 and $5,247, respectively.
The Company has entered into an agreement with a private company controlled by an officer to provide management services requiring monthly payments of CAD $20,000, expiring April 1, 2015. Management fees incurred by the Company totaled $nil and $158,448 (CAD $175,000) for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and December 31, 2014, the amount owing to this private company totaled $49,311 and $58,832, respectively.
During the year ended December 31, 2015, the Company received a non-refundable deposit of $50,000 for software licence of which terms and condition has not yet been finalized.
In March 2015, the Company received proceeds of $18,063 (CAD $25,000) on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $14,450 at December 31, 2015.
In August 2014, the Company received proceeds of $10,000 on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $10,000 at December 31, 2015.
In October 2014, the Company received proceeds of $20,000 on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $20,000 at December 31, 2015.
In November 2014, the Company received proceeds of $20,000 on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $10,000 at December 31, 2015.
In January 2015, the Company conducted a private placement offering with a related party whereby it sold 200,000 securities at a price of $0.05 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
In April 2015, the Company conducted a private placement offering with a related party whereby it sold 500,000 securities at a price of $0.02 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
In June 2015, the Company conducted a private placement offering with a related party whereby it sold 300,000 shares at a price of $0.02 per share for total proceeds of $6,000.
In July 2015, the Company conducted a private placement offering with a related party whereby it sold 1,000,000 securities at a price of $0.02 per share for total proceeds of $20,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
Also in July 2015, the Company conducted a private placement offering with a related party whereby it sold 200,000 shares at a price of $0.02 per share for total proceeds of $4,000.
In August 2015, the Company conducted a private placement offering with a related party whereby it sold 1,000,000 shares at a price of $0.01 per share for total proceeds of $10,000.
In September 2015, the Company conducted a private placement offering with a related party whereby it sold 4,000,000 shares at a price of $0.01 per share for total proceeds of $40,000.
Also in September 2015, the Company conducted a private placement offering with a related party whereby it sold 4,000,000 securities at a price of $0.01 per share for total proceeds of $40,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
In November 2015, the Company issued 200,000 shares of its common stock at $0.045 per share for services rendered by management valued at $9,000 based on the fair market value of the trading price on date of grant.
In December 2015, the Company conducted a private placement offering with a related party whereby it sold 2,200,000 shares at a price of $0.01 per share for total proceeds of $22,000.
Also in December 2015, the Company conducted a private placement offering with a related party whereby it sold 1,000,000 shares at a price of $0.01 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrant exercisable at USD $0.05, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
Also in December 2015, the Company conducted a private placement offering with a related party whereby it sold 1,000,000 shares at a price of $0.01 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrant exercisable at USD $0.05, of which terms and conditions set forth in the attached Warrants Certificate Agreement.
On February 1, 2014, the Company granted options to purchase a total of 2,000,000 shares of the Company’s common stock to an officer. The options carry an exercise price of $0.10 per share and vested immediately. The options expire February 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $254,868. During the year ended December 31, 2014, the Company recorded stock-based compensation of $254,868 as a general and administrative expense in connection with these options.
On February 1, 2014, the Company granted options to purchase a total of 2,000,000 shares of the Company’s common stock to an officer. The options carry an exercise price of $0.10 per share and vested immediately. The options expire February 1, 2017. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $254,868. During the year ended December 31, 2014, the Company recorded stock-based compensation of $254,868 as a general and administrative expense in connection with these options.
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.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
During the fiscal year ended December 31, 2015, we incurred approximately $22,600 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, 2015.
During the fiscal year ended December 31, 2014, we incurred approximately $20,400 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, 2014.
Audit-Related Fees
The aggregate fees billed during the fiscal years ended December 31, 2015 and 2014 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, 2015 and 2014 for professional services rendered by our principal accountant tax compliance, tax advice and tax planning were $nil and $nil, respectively.
All Other Fees
The aggregate fees billed during the fiscal years ended December 31, 2015 and 2014 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.
ITEM 15. EXHIBITS.
(a)
Documents filed as part of this Report.
*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WORDLOGIC CORPORATION
Dated: April 14, 2016
/s/ Franklin Evanshen
By: Franklin Evanshen
Its: President & Chief Executive Officer
Dated: April 14, 2016
/s/ Darrin McCormack
By: Darrin McCormack
Its: Chief Financial Officer & Chief Accounting Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Dated: April 14, 2016
/s/ Franklin Evanshen
By: Franklin Evanshen
Its: Director
Dated: April 14, 2016
/s/ T. Allen Rose
By: T. Allen Rose
Its: Director