UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K 

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

 

For the Fiscal Year Ended December 31, 2010 

 

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

For the transition period from ____________ to ____________

 

WORDLOGIC CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada		333-149000		88-0422023
(State or other jurisdiction		(Commission File Number)		(IRS Employer
of Incorporation)				Identification Number)
		1130 West Pender St., Suite 230 Vancouver, BC Canada V6E 2P4
		(Address of principal executive offices)
		(604) 257-3660
	(Registrant’s Telephone Number) Copy of all Communications to: Carrillo, Huettel & Zouvas, LLP 3033 Fifth Avenue, Suite 400 Telephone (619) 546-6100 Facsimile (619) 546-6060

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes      . No   X  .

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes      . No   X  .

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  

Yes   X  . No      .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes      . No      .

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

 

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    

Yes      . No   X  .

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2010 was $5,760,662 based upon the price ($0.14) at which the common stock was last sold as of the last business day of the most recently completed second fiscal quarter, multiplied by the approximate number of shares of common stock held by persons other than executive officers, directors and five percent stockholders of the registrant without conceding that any such person is an “affiliate” of the registrant for purposes of the federal securities laws.  Our common stock is traded in the over-the-counter market and quoted on the Over-The-Counter Bulletin Board under the symbol “WLGC.”

The number of shares of common stock outstanding as of April 15, 2011, was 71,351,053.

Documents incorporated by reference: None

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Table of Contents

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FORWARD-LOOKING STATEMENTS

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

·

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

·

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

·

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

·

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

·

Competition in our industry;

·

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

·

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

·

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

·

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

 

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

Use of Term

 

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

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PART I

ITEM 1.   BUSINESS

Business Overview

We were incorporated in the State of Nevada on March 30, 1999 under the original name of The American West.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 focuses on delivering advanced predictive text solutions designed to accelerate the entry of text and information into personal computing devices. Our target computing devices include handheld personal digital assistants (PDAs), smart phones, global positioning system (GPS), laptops, Tablet PCs, and conventional desktop computers. The Wordlogic Predictive Keyboard ^TM software provides a fast entry system that adapts to a user’s vocabulary and tendencies to predict the next most common letters, words, or phrases. This software incorporates a customizable dictionary, thesaurus, spellchecker, calculator, multilingual symbol capability and fast access to internet sites from within common software applications. In addition, this software incorporates internet search engines by which a user can highlight a word, press the search key and get the Merriam Webster Dictionary definition of the word.

Business Development  

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

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

On November 6, 2007 we were granted, through our subsidiary 602531 British Columbia Ltd., U.S. Patent No. 7,293,231, titled “Data Entry for Personal Computing Devices”, from the U.S. Patent and Trademark Office.  On January 9, 2008 we were granted our second European patent.  European Patent No. 1356368 was granted to us by the European Patent Office for the invention: “Data Entry Method and System For Personal Computer, And Corresponding Computer Readable Medium.”  As of March 31, 2009 our patent pending application number 11/133,770 is in a position of allowance with the US Patent Office.  We are now waiting until this patent is granted and expecting new developments with 3 additional patents currently in review at various patent offices. 

On September 30, 2008 we retained Mr. James P. Yano as our Chief Operations Officer. Mr. Yano has agreed to develop our business model and expand our distribution channels, commercialization opportunities and a marketing strategy for our predictive text input technology.  Mr. Yano has over 10 years experience in sales and marketing.  In that time he has served in various executive and managerial positions with companies specializing in software and scientific equipment.  From 2001 to 2005, Mr. Yano served as a Marketing Manager with Agilent Technologies Inc., a $6 billion scientific instruments/analysis equipment maker.  During this time, Mr. Yano organized product development, strategized new product concepts, executed the introduction of new products onto the market and exceeded sales forecasts.  From 2005 to the present, Mr. Yano has been working as Vice President of Marketing and International Channels with Aspectrics, Inc, a process instrument manufacturer.  Mr. Yano once again identified new products and market opportunities and commercialized the company’s concepts through the development of relationships with manufacturers and distribution agents.

In January 2010, we were granted an allowance by the United States Patent and Trademark Office (USPTO) for our third patent (Application No. 11/133 770), covering multiple database searches on any keyboard-based computing device. The patent Notice of Allowability covers claim numbers 81, 104-110, 112, 123, 128-134 and 136-147 and reinforces the claims established in our existing patent. This includes searches through such data sources as thesauruses, encyclopedias, databases and the use of web and mobile services on such devices as personal computers, servers, PDAs, smartphones and netbooks.

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Employees; Identification of Certain Significant Employees

As of December 31, 2010, we employed one full-time employee and no part-time employees. None of our employees is subject to a collective bargaining agreement and we believe that relations with our employees are very good. We also frequently use third party consultants to assist in the completion of various projects. Third parties are instrumental to keep the development of projects on time and on budget.

Intellectual Property

 

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

 

We have filed six individual patent applications for “Method, system and media for entering data in a personal computing device” in the United States, Canada and Europe.

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.

On March 4, 2004 European Patent No. 1171813 entitled "Data Entry for Personal Computing Devices" was granted to us by the European Patent Office. European Patent No. 1171813 has also been individually accepted in Germany, France, The United Kingdom, Italy, Finland, Spain, the Netherlands, and Portugal.

On August 9, 2007 the U.S. Patent and Trademark Office issued a Notice of Allowance indicating that our patent applications for “Method, system, apparatus and computer readable media for directing input associated with a keyboard-type device” have been allowed in the United States and internationally under the Patent Cooperation Treaty.

On November 6, 2007 we received approval for pioneer Patent No. 7293231 titled "Data Entry for Personal Computing Devices" from the U.S. Patent and Trademark Office. U.S. Patent No. 7,293,231 relates to various methods, systems, devices and computer-readable media for use in connection with computer-assisted data entry. We have also six additional patent applications pending in the U.S. Patent and Trademark Office in connection with U.S. Patent No. 7,293,231 – three divisional patent applications (US11/133,779, US11/134,759 and US11/134,810) and three continuation applications (US11/871,887, US11/871,900 and US11/871,904). These six additional patent applications have further claims directed to various aspects of computer-assisted data entry. These additional patent applications are in the name of our subsidiary 602531 British Columbia Ltd., and are based on and claim the benefit of U.S. Patent No. 7,293,231.

On January 9, 2008 we were granted our second European patent.  European Patent No. 1356368 was granted to us by the European Patent Office for the invention: “Data Entry Method and System for Personal Computer, And Corresponding Computer Readable Medium.”

As of March 31, 2009 our patent pending application number 11/133,770 is in a position of allowance with the US Patent Office.  We are now waiting until this patent is granted and expecting new developments with 3 additional patents currently in review at various patent offices. 

On March 16, 2010 the U.S. Patent and Trademark Office (USPTO) issued to us Patent No. 7681124 titled “Data Entry for Personal Computing Devices”. This patent consists of a total of 39 claims pertaining primarily for touch screen digital keyboards.

On May 13, 2010 the U.S. Patent and Trademark Office (USPTO) issued to us Patent No. 7716579.  This patent covers searches through such data sources as thesauruses, encyclopedias, databases and the use of web and mobile services on such devices as personal computers, servers, PDAs, smartphones and netbooks.

A copy of our patents can be obtained from the USPTO web site, located at www.uspto.gov or visit our web site at www.wordlogic.com to obtain a direct link to the patents.

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Government Regulation

Because we sell products through the Internet, we may be subject to rules and regulations around the world which affect business transacted on the Internet. The laws and regulations that govern our 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 intellectual properties are relevant to our business:

 

Intellectual Property.  Copyrighted material that we develop, as well as our trade mark and patents are important to our business prospects. 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. To date, we have received two European patents. On November 6, 2007 we received approval for pioneer Patent No. 7293231 titled "Data Entry for Personal Computing Devices" from the U.S. Patent and Trademark Office. We also have six additional patent applications pending in the U.S. Patent and Trademark Office in connection with U.S. Patent No. 7,293,231 However, these actions may be inadequate. We 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.

 

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.

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Conformance to E-Commerce Statutory Requirements for Formation of Contracts.  We intend to conduct e-commerce on our web sites, 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. 

 

Environmental Law. To the extent which environmental compliance may be necessary, we do not anticipate any significant compliance expense.

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.

In addition, certain of our SEC filings, including our annual reports on Form 10-K, our quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, can be viewed and printed from the investor information section of our website at www.wordlogic.com, as soon as reasonably practicable after filing with the SEC. Certain materials relating to our corporate governance, including our senior financial officers’ code of ethics, are also available in the investor relations section of our website.

ITEM 1A.   RISK FACTORS

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

ITEM 1B.   UNRESOLVED STAFF COMMENTS

None.

ITEM 2.   PROPERTIES

On June 23, 2010, we entered into a lease agreement for new office space located at1130 West Pender St., Suite 230, Vancouver, BC Canada V6E 2P4. Since that time, we have not sought to move or change our office site.  Our telephone number remains (604) 257-3600. Under the lease, we pay a total of $5,800 CAD per month on a month-to-month basis for 2113ft of corporate office space. The space we lease is utilized for general office purposes. It is our belief that the space is adequate for our immediate needs. Additional space may be required as we expand our operations. We do not foresee any significant difficulties in obtaining any required additional space. We do not own any real estate.

ITEM 3.   LEGAL PROCEEDINGS

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

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5.   MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock

On May 27, 2003, we began trading on the Over-the-Counter Bulletin Board (OTCBB) under the symbol of “WLGC.OB.” 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 quotations for our common stock as reported on the OTC Bulletin Board for the periods indicated.

2010  Fiscal Year		High Bid		Low Bid
Fourth Quarter: 10/1/10 to 12/31/10	$	0.54	$	0.15
Third Quarter: 7/1/10 to 9/30/10	$	0.41	$	0.0420
Second Quarter: 4/1/10 to 6/30/10	$	0.20	$	0.08
First Quarter: 1/1/10 to 3/31/10	$	0.31	$	0.0990
2009  Fiscal Year		High Bid		Low Bid
Fourth Quarter: 10/1/09 to 12/31/09	$	0.45	$	0.13
Third Quarter: 7/1/09 to 9/30/09	$	0.52	$	0.22
Second Quarter: 4/1/09 to 6/30/09	$	0.67	$	0.27
First Quarter: 1/1/09 to 3/31/09	$	0.94	$	0.25

Record Holders

As of December 31, 2010, an aggregate of 67,798,786 shares of our common stock were issued and outstanding and were owned by approximately 116 holders of record, based on information provided by our transfer agent.

 

Recent Sales of Unregistered Securities

Other than those previously reported, none.

 

Re-Purchase of Equity Securities

None.

 

Dividends

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

Securities Authorized for Issuance Under Equity Compensation Plans

 

On May 14, 2010, we filed a Share Incentive Plan on Form S-8 registering 10,000,000 shares for issuance to directors, selected employees and consultants of the Corporation.

The Plan permits the granting of stock options (including incentive stock options within the meaning of Code Section 422 and non-qualified stock options), stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards, other stock-based awards, or any combination of the foregoing.

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.

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ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following discussion should be read in conjunction with our audited financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or our behalf. We disclaim any obligation to update forward-looking statements.

The following discussion should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this Form 10-K. The discussions of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future.

 

Liquidity and Capital Resources

 

As of December 31, 2010, we had total cash of $86,817 and a working capital deficit of $732,298. At December 31, 2010 our deficit accumulated during the development stage was $18,627,589. Our net loss of $18,627,589 from May 27, 2003 (inception) to December 31, 2010 was mostly funded by our equity financing and related party loans. During the fiscal year ended December 31, 2010, we raised $722,453 through the sale of our equity securities and the exercise of options compared to $374,056 during the same period in 2009.  We were provided a net cash amount of $890,549 from financing activities for the year ended December 31, 2010 compared to $824,309 during the same period in 2009. During the fiscal year ended December 31, 2010 our cash position increased by $65,024, compared to an increase of $17,516 during the same period in 2009.

 

We used net cash of $681,105 in operating activities for the fiscal year ended December 31, 2010 compared to net cash of $691,189 in operating activities for the same period in 2009.  From our inception on May 27, 2003 to December 31, 2010 we have used net cash of $5,103,371 in operating activities.  We did not use any cash in investing activities during the years ended December 31, 2010 and 2009.  During the fiscal year ended December 31, 2010 our monthly cash requirement to fund our operations was approximately $57,000, compared to approximately $58,000 for the same period in 2009.

 

The effect of exchange rates on cash was a decrease in cash of $144,420 for the fiscal year ended December 31, 2010 compared to a decrease in cash of $115,604 for the fiscal year ended December 31, 2009.  This was due to the decrease in value of the US dollar versus the Canadian dollar in 2010.

We expect to require a total of approximately $1,952,000 set out as follows to fully carry out our business plan over the next twelve months beginning April 2011.  Our planned expenditures for the next twelve months include:

Description	Estimated Expenses ($)
Research and development costs for our Predictive KeyboardTM software	300,000
Management fees	500,000
Consulting fees (including legal and auditing fees)	450,000
Rent expenses	72,000
Salaries and other costs associated with third-party contractors	200,000
Marketing expenses	100,000
Travel expenses	75,000
Investor relations costs	30,000
Accrued interest expense	100,000
Other administrative expenses	125,000
Total	1,952,000

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We do not anticipate enough positive internal operating cash flow until we can generate substantial revenues, which may take the next few years to fully realize. There is no assurance we will achieve profitable operations. We have historically financed our operations primarily by cash flows generated from the sale of our equity securities and through cash infusions from our officers and affiliates in exchange for debt and/or common stock. No officer or affiliate has made any commitment or is obligated to continue to provide cash through loans or purchases of equity.

 

We estimate that we will require additional financing of approximately $2,000,000 to carry out our planned business operations and expansion over the next 12 months.

 

During the year ended December 31, 2006, we received proceeds of $436,500 on an unsecured promissory note and repaid $17,709. During the year ended December 31, 2007 an additional $6,720 was advanced and $60,000 was repaid.  During the year ended December 31, 2008 we repaid $348,000. No amounts were repaid during the year ended December 31, 2009, leaving a balance of $17,511 owing as at December 31, 2009. The note bears interest at 8% per annum and matured on June 15, 2010.  During the year ended December 31, 2010, $17,511 plus accrued interest of $54,422 was paid, leaving no balance owing at December 31, 2010.

Interest expense on the note during the years ended December 31, 2010 and 2009 totaled $nil and $1,401, respectively.

During the year ended December 31, 2008, we also received proceeds of $150,810 ($CAD150,000) from Peter Knaven, our director, Senior Vice President and Chief Technology Officer on an unsecured promissory note.  The note bears interest at 8% per annum and matures December 31, 2010.   During the year ended December 31, 2010, the Company settled the loan through the issuance of shares of its common stock.  Accrued interest payable on the note totaled $31,958 and $21,866 at December 31, 2010 and 2009, respectively.

Interest expense on the note during the years ended December 31, 2010 and 2009 totalled $8,503 and $10,583, respectively

We intend to meet the balance of our cash requirements for the next 12 months through external sources: a combination of debt financing and equity financing through private placements. Currently we are active in contacting broker/dealers in Canada and elsewhere regarding possible financing arrangements. However, we currently do not have any arrangements in place for the completion of any further private placement financings and there is no assurance that we will be successful in completing any further private placement financings. If we are unsuccessful in raising enough money through future capital raising efforts, we may consider other financing possibilities such as bank loans. If we are unsuccessful in raising enough money, we may not fully carry out our business plan.

Results of Operations

 

Revenues

 

Our total revenues decreased $2,156 from $3,178  for the fiscal year ended December 31, 2009 to $1,022 for the fiscal year ended December 31, 2010. The decrease in total revenues was mainly due to our decreased royalty revenue.  As we are a development stage company, our revenue streams are not established and thus our product sales and royalty revenues are unstable. From May 27, 2003 (inception) to December 31, 2010 we generated total revenues of $54,643.

 

Total revenues during the fiscal year ended December 31, 2010 consisted of $1,022 from product sales and $nil from royalty revenue. Total revenues during the fiscal year ended December 31, 2009 consisted of $3,178 from product sales and $ nil from royalty revenue.

 

Expenses

 

Our total operating expenses increased $620,839 to $5,021,017 for the fiscal year ended December 31, 2010 from $4,400,178 for the same period in 2009. The significant increase in total operating expenses was mainly due to increased payments to our management and more consultants hired in the fiscal year ended December 31, 2010.  From May 27, 2003 (inception) to December 31, 2010 our total operating expenses were $19,134,029, including $757,199 in rent, $15,810,372 in selling, general and administrative expenses, and $2,566,458 in research and development.

 

Our selling, general and administrative expenses consist of stock-based compensation, interest expenses, bank charges, travel, meals and entertainment, foreign exchange, office maintenance, communication expenses (cellular, internet, fax, and telephone), courier, postage costs, office supplies, salaries, management fees, and legal and auditing consulting fees.

11

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Selling, general and administrative expenses increased $962,780 to $4,624,567 for the fiscal year ended December 31, 2010 from $3,661,787 for the same period in 2009. The significant increase in selling, general and administrative expenses during the fiscal year ended December 31, 2009 was mainly due to an increase of our non-cash, stock-based compensation granted to newly hired consultants, directors and officers.

 

Research and development expenses were $293,270 for the year ended December 31, 2010 compared to $592,207 for the same period in 2009.  Our rent expenses decreased $43,004 to $103,180 for the year ended December 31, 2010 from $146,184 for the same period in 2009.  This decrease was due to the lower cost for our new office space.

 

Net Loss

 

We incurred a net loss of $4,745,811 for the year ended December 31, 2010, compared to net loss of $4,418,579 for the same period in 2009. The increase of $327,232 in net loss was largely the result of an increased non-cash, stock-based compensation to newly hired consultants, directors and officers during the fiscal year ended December 31, 2010.  We incurred a loss of $5,019,995 from operations for the year ended December 31, 2010, compared to a loss from operations of $4,397,000 for the same period in 2009.  Since May 27, 2003 (inception) to December 31, 2010, we have incurred losses from operations of $19,079,386 and a net loss of $18,627,589.

 

Our net loss per share was $0.10 for the fiscal year ended December 31, 2010 compared to $0.12 for the same period in 2009.

Going Concern

 

Our operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks we must, among other things, develop a customer base, implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products on a timely and cost-effective basis, respond to competitive developments and emerging industry standards, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

 

We are seeking equity financing to provide for the capital required to market our software and fully carry out our business plan. We cannot guarantee we will be successful in our business operations. A critical component of our operating plan impacting our continued existence is our ability to obtain additional capital through additional equity and/or debt financing. Obtaining additional financing will be subject to a number of factors including market conditions, investor acceptance of our business plan and investor sentiment. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. If we are unable to raise additional financing, we will have to significantly reduce our spending, delay or cancel planned activities or substantially change our current corporate structure. In such an event, we intend to implement expense reduction plans in a timely manner. However, these actions would have material adverse effects on our business, revenues, operating results, and prospects, resulting in a possible failure of our business. If we raise funds through equity or convertible securities, our existing stockholders may experience dilution and our stock price may decline.

 

We have generated limited revenues and incurred significant operating losses from operations. Since we anticipate we will expand operational activities, we may continue to experience net negative cash flows from operations and will be required to obtain additional financing to fund operations through equity securities’ offerings and bank borrowings to the extent necessary to provide working capital. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow from stockholders or other outside sources to sustain operations and meet our obligations on a timely basis and ultimately to attain profitability. We have limited capital with which to pursue our business plan. There can be no assurance that our future operations will be significant and profitable, or that we will have sufficient resources to meet our objectives.

 

These factors raise concerns about our ability to continue as a going concern. Our auditors have issued a going concern opinion. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next twelve months. Our financial statements do not include any adjustments that might result from the uncertainty about our ability to continue operating. If we are unable to obtain additional financing from outside sources and eventually produce enough revenues, we may be forced to sell our assets, or curtail or cease our operations.

 

12

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Off-Balance Sheet Arrangements

 

As of December 31, 2010, we had no off balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Contractual Obligations

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

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.

 

Software Development Costs

Software development costs are recorded in accordance with Statement on Financial Accounting Standards (“SFAS”) Statement No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed”.  Costs incurred to establish the technological feasibility of computer software to be sold, leased, or otherwise marketed are expensed as incurred as research and development costs.  Once technological feasibility is established, the cost of producing product masters for the software is capitalized.  Capitalization of the software development costs ceases and amortization of the capitalized costs commences when the product is available for general release to customers.  Capitalized costs are amortized based on the greater of (a) the ratio of current gross revenues to the total current and anticipated future gross revenues, or (b) the straight-line method over the remaining estimated economic life of the product.

Research and Development

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

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.    

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. 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.

13

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Inflation

The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

 

Cash Requirements

Our cash on hand as of December 31, 2010 is $86,817. We do not have sufficient cash on hand to pay the costs of our operations as projected to twelve (12) months or less or to fund our operations for that same period of time. We will require additional financing in order to proceed with some or all of our goals as projected over the next twelve (12) months. We presently do not have any arrangements for additional financing, and no potential lines of credit or sources of financing are currently available for the purpose of proceeding with any of our goals projected over the next twelve (12) months and beyond.

 

Any additional growth of the Company will require additional cash infusions. We may face expenses or other circumstances such that we will have additional financing requirements. In such event, the amount of additional capital we may need to raise will depend on a number of factors. These factors primarily include the extent to which we can achieve revenue growth, the profitability of such revenues, operating expenses, research and development expenses, and capital expenditures. Given the number of programs that we have ongoing and not complete, it is not possible to predict the extent or cost of these additional financing requirements.

Notwithstanding the numerous factors that our cash requirements depend on, and the uncertainties associated with each of the major revenue opportunities that we have, we believe that our plan of operation can build long-term value if we are able to demonstrate clear progress toward our objectives.

Progress in the development of our business plan will likely lend credibility to our plan to achieve profitability.

The Company does not anticipate any contingency upon which it would voluntarily cease filing reports with the SEC. It is in the compelling interest of this Registrant to report its affairs quarterly, annually and currently, as the case may be, generally to provide accessible public information to interested parties, and also specifically to maintain its eligibility for the OTCBB.

The failure to secure any necessary outside funding could have an adverse affect on our development and results there from and a corresponding negative impact on shareholder liquidity.

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 planned acquisitions and exploration activities.

 

Recent Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810):  Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. The Company does not expect the provisions of ASU 2010-02 to have a material effect on the financial position, results of operations or cash flows of the Company.

In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260.  Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.

14

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In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.  This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167. The Company does not expect the provisions of ASU 2009-17 to have a material effect on the financial position, results of operations or cash flows of the Company.

In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. The Company does not expect the provisions of ASU 2009-16 to have a material effect on the financial position, results of operations or cash flows of the Company.

In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1. The Company does not expect the provisions of ASU 2009-15 to have a material effect on the financial position, results of operations or cash flows of the Company.

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.

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ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

	Index
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-3
Consolidated Statements of Cash Flows	F-4
Consolidated Statements of Stockholders’ Deficit	F-5
Notes to the Consolidated Financial Statements	F-10

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Wordlogic Corporation

(A Development Stage Company)

 

We have audited the accompanying balance sheets of Wordlogic Corporation (A Development Stage Company) as of December 31, 2010 and 2009 and the related statements of operations, shareholders' equity (deficit) and cash flows for each of the twelve month periods then ended. These financial statements are the responsibility of the Company's management. The financial statements for the period from May 27, 2003 (Inception) to December 31, 2007 were audited by other auditors who expressed and unqualified opinion on those statements.  Our responsibility is to express an opinion on these financial statements based on our audit.

 

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

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wordlogic Corporation as of December 31, 2010 and 2009, and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.

 

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

 

 

/s/ M&K CPAS, PLLC

 

 

www.mkacpas.com

Houston, Texas

April 15, 2011

F-2

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WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Balance Sheets

(Expressed in US Dollars)

		December 31, 2010		December 31, 2009
Assets
Current Assets
Cash	$	49,467	$	371
Restricted cash (Note 3)		37,350		21,422
Accounts receivable		37		124
HST/GST refund receivable		20,438		5,851
Employee advances		221		209
Prepaid expenses		12,547		–
Total Current Assets		120,060		27,977
Property and equipment, net of accumulated depreciation (Note 4)		2,672		7,938
Total Assets	$	122,732	$	35,915
Liabilities and Stockholders’ Deficit
Current Liabilities
Bank overdraft	$	–	$	–
Accounts payable and accrued liabilities		498,763		792,749
Bank loan payable (Note 5)		35,160		43,601
Indebtedness to related parties (Note 6)		216,685		93,584
Accrued interest		48,350		112,653
Note payable to related party		–		142,721
Notes payable (Note 7)		53,400		17,511
Total Current Liabilities		852,358		1,202,819
Long Term Debt
Notes payable (Note 7)		–		–
Total Liabilities		852,358		1,202,819
Stockholders’ Deficit
Common stock, $.001 par value; 100,000,000 shares authorized,  67,798,786 and 40,916,384 shares issued and outstanding, respectively (Note 8)		67,799		40,916
Additional paid-in capital		20,729,373		15,428,747
Accumulated deficit		(2,264,854)		(2,264,854)
Deficit accumulated during development stage		(18,627,589)		(13,881,778)
Accumulated other comprehensive loss		(634,355)		(489,935)
Total Stockholders’ Deficit		(729,626)		(1,166,904)
Total Liabilities and Stockholders’ Deficit	$	122,732	$	35,915

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

F-3

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WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statements of Operations

(Expressed in US Dollars)

		Accumulated from May 27, 2003 (Date of Inception) to		For the Years Ended
		December 31, 2010 (unaudited)		December 31, 2010		December 31, 2009
Revenues
Product sales	$	21,681	$	1,022	$	3,178
Royalty revenue		32,962		–		–
Total Revenues		54,643		1,022		3,178
Operating expenses
Rent, related party (Note 6)		757,199		103,180		146,184
Selling, general and administrative (Note 6)		15,810,372		4,624,567		3,661,787
Research and development		2,566,458		293,270		592,207
Total Operating Expenses		19,134,029		5,021,017		4,400,178
Loss from Operations		(19,079,386)		(5,019,995)		(4,397,000)
Other income (expenses)
Interest income		1,760		–		–
Interest expense:
Related parties		(84,152)		(8,503)		(10,584)
Amortization of discount on convertible note		(145,243)		–		–
Other notes, advances and amounts		(435,569)		(7,533)		(10,995)
Gain on derivative liability		142,861		–		–
Gain (loss) on settled liabilities		(627,860)		290,220		–
Loss Before Income Taxes and Extraordinary Item		(20,227,589)		(4,745,811)		(4,418,579)
Income tax provision		–		–		–
Loss Before Extraordinary Item		(20,227,589)		(4,745,811)		(4,418,579)
Net extraordinary gain on litigation settlement, less applicable income taxes of $nil		1,600,000		–		–
Net Loss	$	(18,627,589)	$	(4,745,811)	$	(4,418,579)
Other Comprehensive Income
Net Gain/(Loss) of Foreign Currency Translation		(634,355)		(144,420)		(115,604)
Net Comprehensive Income	$	(19,261,944)	$	(4,890,231)	$	(4,534,183)
Basic and diluted loss per share			$	(0.10)	$	(0.12)
Weighted average common shares outstanding				48,048,274		36,256,669

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

F-4

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WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Expressed in US Dollars)

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

F-5

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WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statement of Stockholders’ Deficit

(Expressed in US Dollars)

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

F-6

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WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statement of Stockholders’ Deficit

(Expressed in US Dollars)

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

F-7

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WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statement of Stockholders’ Deficit

(Expressed in US Dollars)

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

F-8

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WORDLOGIC CORPORATION

(A Development Stage Company)

Consolidated Statement of Stockholders’ Deficit

(Expressed in US Dollars)

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

F-9

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WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2010

1.

NATURE OF OPERATIONS AND CONTINUANCE OF BUSINESS

Nature of Operations

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

Reverse Merger

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

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

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has incurred recurring losses, has used significant cash in support of its operating activities and, based upon current operating levels, requires additional capital or significant reconfiguration of its operations to sustain its operations for the foreseeable future. At December 31, 2010 the Company has a working capital deficiency of $732,298 and has incurred losses of $18,627,589 since inception. These factors, among others, raise significant doubt regarding the Company’s ability to continue as a going concern.

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

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

Development Stage

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

F-10

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WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2010

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.

a)

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.

a)

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.

a)

Cash and Cash Equivalents

The Company considers all highly liquid instruments with original maturities of three months or less when acquired, to be cash equivalents.  The Company had no cash equivalents at December 31, 2010 or 2009.

a)

Allowance for Doubtful Accounts

The Company considers its receivables to be fully collectible; accordingly, no allowance for doubtful accounts is required. The Company recognizes an allowance for doubtful accounts on specific accounts identified at risk based on the age of the outstanding receivable and the inability or unwillingness of its customers to make the required payments.

a)

Property and Equipment

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

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

Amortization is recorded at one-half of the normal rate in the year of acquisition. We have compared the depreciation taken using the declining balance method to the straight-line method and have determined the difference to be immaterial for the years ended December 31, 2010 and 2009.

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.

F-11

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WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

a)

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.

a)

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.

a)

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.

a)

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.

a)

Revenue Recognition

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

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

F-12

---

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

a)

Financial Instruments

The fair values of cash, accounts receivable, accounts payable, line of credit, bank overdraft, and related party balances approximate their carrying values due to the immediate or short-term maturity of these financial instruments. The long-term notes payable bear interest at rates that in management’s opinion approximate the current interest rates available to the Company for notes with the same maturity dates and therefore their fair value is estimated to approximate their carrying value.    

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.

a)

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.    

b)

Stock-based Compensation

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

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

F-13

---

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

c)

Loss per Common Share

The Company reports net loss per share in accordance with provisions of the FASB.  The provisions require dual presentation of basic and diluted loss per share. Basic net loss per share excludes the impact of common stock equivalents. Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents. As of December 31, 2010, there were 11,076,517 vested common stock options and warrants outstanding, which were excluded from the calculation of net loss per share-diluted because they were antidilutive.

d)

Comprehensive Income (Loss)

The Company reports its comprehensive income (loss) in accordance with provisions of the FASB.  For the years ended December 31, 2010 and 2009, the Company’s only component of comprehensive loss was foreign currency translation adjustments.

e)

Advertising Costs

Advertising costs are charged to operations as incurred.

f)

Recent Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810):  Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. The Company does not expect the provisions of ASU 2010-02 to have a material effect on the financial position, results of operations or cash flows of the Company.

In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260.  Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.

In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.  This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167. The Company does not expect the provisions of ASU 2009-17 to have a material effect on the financial position, results of operations or cash flows of the Company.

In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. The Company does not expect the provisions of ASU 2009-16 to have a material effect on the financial position, results of operations or cash flows of the Company.

In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1. The Company does not expect the provisions of ASU 2009-15 to have a material effect on the financial position, results of operations or cash flows of the Company.

F-14

---

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

g)

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, 2010 and 2009 we had restricted cash balances of $37,350 and $21,422, respectively.  This cash was held in trust by our attorneys for the payment of future legal invoices.

4.

PROPERTY AND EQUIPMENT

	Cost $	Accumulated Depreciation as of December 31, 2010 $	Net Carrying Amount as of December 31, 2010 $	Net Carrying Amount as of December 31, 2009 $
Office equipment	3,880	3,543	337	398
Computer equipment	142,139	141,144	995	5,955
Computer software	7,129	7,129	-	-
Furniture and fixtures	15,334	13,994	1,340	1,585
	168,482	165,810	2,672	7,938

Depreciation expense totalled $5,617 and $3,212 for the years ended December 31, 2010 and 2009, respectively.

5.

BANK LOAN PAYABLE

Represents a loan from the Royal Bank of Canada, repayable upon demand, requiring monthly blended payments of CDN$835 (US$840) including principal and interest at 4.25% per annum.  Proceeds of the loan were used to fully repay and discharge a line of credit in the amount of CDN$50,000 (US$50,270).  The loan is secured by a personal guarantee of an officer of the Company. The balance at December 31, 2010 is $35,160.

6.

RELATED PARTY TRANSACTIONS AND BALANCES

The Company incurred the following related party transactions:

a)

The Company entered into an agreement with a private company controlled by a director to rent office premises requiring monthly lease payments of $CAD 13,846, which expired June 30, 2010. Office rent incurred by the Company with this private company totalled $80,225 ($CAD 83,078) and $146,184 ($CAD 166,156) for the years ended December 31, 2010 and 2009, respectively.

b)

The Company has entered into an agreement with a private company controlled by a director to provide management services requiring monthly payments of $CAD 16,667, expiring June 1, 2011. Management fees incurred by the Company totalled $193,132 ($CAD 200,000) and $175,960 ($CAD 200,000) for the years ended December 31, 2010 and 2009, respectively.  As at December 31, 2010 the amount owing to this private company totalled $182,343.

F-15

---

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2010

6.

RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

c)

During the year ended December 31, 2008, the Company received proceeds of $150,810 ($CAD150,000) from a director on an unsecured promissory note.  During the year ended December 31, 2010, the Company settled the loan through the issuance of shares of its common stock. The note bears interest at 8% per annum, matures December 31, 2010 and includes $150,810 ($CAD 150,000) of principal and all related accrued interest.  Accrued interest payable on the note totalled $31,958 ($CAD 31,786) and $21,866 ($CAD 22,981) at December 31, 2010 and 2009, respectively. Interest expense on the note during the years ended December 31, 2010 and 2009 totalled $8,503 ($CAD 8,805) and $10,583 ($CAD 12,030), respectively.

d)

During the years ended December 31, 2010 and 2009, the Company incurred accounting fees of $32,520 and $25,387 with a private company of which an officer is also an officer, respectively.  As at December 31, 2010, the amount owing to this private company totalled $34,342.

e)

During the years ended December 31, 2010 and 2009, the Company incurred $98,176 and $87,980 with an officer for wages and salaries, respectively.

7.

NOTES PAYABLE

Promissory Notes

During the year ended December 31, 2006, the Company received proceeds of $436,500 on an unsecured promissory note and repaid $17,709. During the year ended December 31, 2007 an additional $6,720 was advanced and $60,000 was repaid.  During the year ended December 31, 2008 the Company repaid $348,000. The note bears interest at 8% per annum. During the year ended December 31, 2010, $17,511 plus accrued interest of $54,422 was paid, leaving no balance owing at December 31, 2010.

Interest expense on the note during the years ended December 31, 2010 and 2009 totalled $nil and $1,401, respectively.

During the year ended December 31, 2010, the Company received proceeds of $20,400 on an unsecured promissory note and repaid $9,500, leaving a balance owing of $10,900 at December 31, 2010.  The note bears interest at 10% per annum, which totalled $768, which remained outstanding at December 31, 2010.

Interest expense on the note during the years ended December 31, 2010 and 2009 totalled $768 and $nil, respectively.

During the year ended December 31, 2010, the Company received proceeds of $42,500 on an unsecured promissory note, which remained outstanding at December 31, 2010.  The note bears interest at 10% per annum, with no interest outstanding at December 31, 2010.

Interest expense on the note during the years ended December 31, 2010 and 2009 totalled $nil and $nil, respectively.

F-16

---

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2010

8.

COMMON STOCK

a)

For the year ended December 31, 2010:

b)

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

c)

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

d)

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

e)

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

f)

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

g)

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

h)

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

F-17

---

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2010

8.

COMMON STOCK (Continued)

i)

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

j)

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

k)

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

l)

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

m)

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

n)

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

o)

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

p)

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

q)

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

r)

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

s)

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

t)

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

u)

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

v)

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

w)

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

x)

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

y)

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

F-18

---

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2010

8.

COMMON STOCK (Continued)

z)

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

aa)

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

bb)

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

cc)

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

dd)

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

ee)

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

ff)

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

gg)

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

hh)

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

ii)

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

jj)

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

kk)

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

ll)

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

mm)

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

nn)

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

oo)

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

pp)

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

F-19

---

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2010

8.

COMMON STOCK (Continued)

qq)

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

rr)

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

ss)

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

tt)

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

vv)

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

ww)

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

xx)

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

yy)

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

zz)

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

aaa)

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

bbb)

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

ccc)

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

ddd)

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

eee)

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

fff)

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

ggg)

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

F-20

---

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2010

8.

COMMON STOCK (Continued)

hhh)

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

iii)

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

jjj)

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

kkk)

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

lll)

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

mmm)

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

nnn)

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

ooo)

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

ppp)

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

qqq)

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

rrr)

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

sss)

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

For the year ended December 31, 2009:

a)

In January 2009, the Company issued 200,000 shares of its common stock registered on a Form S-8 at $0.30 per share for services rendered by a consultant valued at $60,000 based on the price on date of grant.

b)

Also in January 2009, the Company issued 30,500 shares of its common stock registered on a Form S-8 at $0.53 per share for services rendered by a consultant valued at $16,165 based on the price on the date of grant.

c)

Also in January 2009, the Company issued 250,000 shares of its common stock registered on a Form S-8 at $0.68 per share for services rendered by a consultant valued at $170,000 based on the price on the date of grant.

d)

In April 2009, the Company issued 100,000 shares of its common stock at $0.40 per share for services rendered by consultants valued at $40,000 based on the price on the date of grant.

F-21

---

WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2010

8.

COMMON STOCK (Continued)

e)

Also in April 2009, the Company issued 100,000 shares of its common stock at $0.49 per share for services rendered by consultants valued at $49,000 based on the price on the date of grant.

f)

Also in April 2009, the Company issued 100,000 shares of its common stock at $0.31 per share for services rendered by consultants valued at $31,000 based on the price on the date of grant.

g)

Also in April 2009, the Company issued 300,000 shares of its common stock at $0.45 per share for services rendered by consultants valued at $135,000 based on the price on the date of grant.

h)

Also in April 2009, the Company issued 15,000 shares of its common stock at $0.41 per share for services rendered by consultants valued at $6,150 based on the price on the date of grant.

i)

In May 2009, the Company conducted a private placement offering whereby it issued 175,000 units at a price of $0.20 per unit for total proceeds of $35,000.  Each unit consisted of one share of the Company’s common stock and one warrant to purchase an additional share of common stock, exercisable at $0.50 per share.

j)

Also in May 2009, the Company issued 100,000 shares of its common stock at $0.62 per share for services rendered by consultants valued at $62,000 based on the price on the date of grant.

k)

Also in May 2009, the Company issued 40,000 shares of its common stock at $0.41 per share for services rendered by consultants valued at $16,400 based on the price on the date of grant.

l)

Also in May 2009, the Company issued 50,000 shares of its common stock at a price of $0.30 per share for total proceeds of $15,000.

m)

In June 2009, the Company issued 30,000 shares of its common stock at $0.43 per share for services rendered by consultants valued at $12,900 based on the price on the date of grant.

n)

Also in June 2009, the Company issued 100,000 shares of its common stock at $0.40 per share for services rendered by consultants valued at $40,000 based on the price on the date of grant.

o)

Also in June 2009, the Company issued 20,000 shares of its common stock at a price of $0.35 per share for total proceeds of $7,000.

p)

Also in June 2009, the Company issued 50,000 shares of its common stock at $0.36 per share for services rendered by consultants valued at $18,000 based on the price on the date of grant.

h)

Also in June 2009, the Company issued 33,333 shares of its common stock at $0.35 per share related to the exercise of stock options to a director for total proceeds of $11,667.

i)

In July 2009, the Company issued 100,000 shares of its common stock at $0.47 per share for services rendered by consultants valued at $47,000 based on the price on the date of grant.

j)

Also in July 2009, the Company conducted a private placement offering whereby it issued 2,500,000 shares of the Company's common stock at a price of $0.16 per share for total consideration of $400,000.

k)

Also in July 2009, the Company issued 50,000 shares of its common stock at $0.44 per share for services rendered by consultants valued at $22,000 based on the price on the date of grant.

l)

In August 2009, the Company conducted a private placement offering whereby it issued 125,000 shares of the Company's common stock at a price of $0.16 per share for total consideration of $20,000.

F-22

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WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2010

8.

COMMON STOCK (Continued)

m)

Also in August 2009, the Company issued 100,000 shares of its common stock at $0.30 per share for services rendered by consultants valued at $30,000 based on the price on the date of grant.

n)

Also in August 2009, the Company conducted a private placement offering whereby it issued 400,000 shares of the Company's common stock at a price of $0.16 per share for total consideration of $64,000.

o)

Also in August 2009, the Company issued 100,000 shares of its common stock at $0.31 per share for services

p)

rendered by consultants valued at $31,000 based on the price on the date of grant. 50,000 of these shares were issued to a close relative of an officer of the Company.

q)

In September 2009, the Company conducted a private placement offering whereby it issued 50,000 shares of the Company's common stock at a price of $0.30 per share for total consideration of $15,000.

r)

Also in September 2009, the Company issued 100,000 shares of its common stock at $0.35 per share for services rendered by consultants valued at $35,000 based on the price on the date of grant.

s)

Also in September 2009, the Company issued 90,000 shares of its common stock at $0.33 per share for services rendered by consultants valued at $29,700 based on the price on the date of grant.  30,000 of these shares were issued to a close relative of an officer of the Company.

t)

In October 2009, the Company conducted a private placement offering whereby it issued 377,497 units at a price of $0.30 per unit for total proceeds of $113,249.  Each unit consisted of one share of the Company’s common stock and one warrant to purchase an additional share of common stock, exercisable at $0.75 per share.

u)

Also in October 2009, the Company issued 100,000 shares of its common stock at $0.40 per share for services rendered by consultants valued at $40,000 based on the price on the date of grant.

v)

Also in October 2009, the Company issued 50,000 shares of its common stock at $0.37 per share for services rendered by consultants valued at $18,500 based on the price on the date of grant.

w)

Also in October 2009, the Company issued 40,000 shares of its common stock at $0.31 per share for services rendered by consultants valued at $12,400 based on the price on the date of grant.  30,000 of these shares were issued to a close relative of an officer of the Company.

x)

In November 2009, the Company issued 20,000 shares of its common stock at $0.35 per share related to the exercise of stock options to a director for total proceeds of $7,000.

y)

Also in November 2009, the Company issued 100,000 shares of its common stock at $0.28 per share for services rendered by consultants valued at $28,000 based on the price on the date of grant.

z)

Also in November 2009, the Company issued 127,500 shares of its common stock at $0.26 per share for services rendered by consultants valued at $33,150 based on the price on the date of grant. 30,000 of these shares were issued to a close relative of an officer of the Company.

aa)

Also in November 2009, the Company conducted a private placement offering whereby it issued 78,558 units at a price of $0.30 per unit for total proceeds of $23,567.  Each unit consisted of one share of the Company’s common stock and one warrant to purchase an additional share of common stock, exercisable at $0.75 per share.

bb)

In December 2009, the Company issued 10,000 shares of its common stock at $0.21 per share for services rendered by consultants valued at $2,100 based on the price on the date of grant.

F-23

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WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2010

8.

COMMON STOCK (continued)

cc)

Also in December 2009, the Company issued 76,000 shares of its common stock at $0.35 per share related to the exercise of stock options to a director for total proceeds of $22,800.

dd)

Also in December 2009, the Company issued 100,000 shares of its common stock at $0.20 per share for services rendered by consultants valued at $20,000 based on the price on the date of grant.

ee)

Also in December 2009, the Company conducted a private placement offering whereby it issued 265,000 shares of its common stock at a price of $0.15 per share for total proceeds of $39,750.

ff)

Also in December 2009, the Company issued 40,000 shares of its common stock at $0.22 per share for services rendered by consultants valued at $8,800 based on the price on the date of grant. 30,000 of these shares were issued to a close relative of an officer of the Company.

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

	Number of Warrants		Weighted average exercise price $		Weighted average remaining contractual life (in years)
Balance, December 31, 2008	5,835,797		1.00		1.25
Issued	631,055		0.68		1.79
Exercised	–		–		–
Expired/Cancelled	(4,698,297)		1.07		–
Balance, December 31, 2009	1,768,555		0.72		1.08
Issued	1,834,000		0.16		1.37
Exercised	–		–		–
Expired/Cancelled	(1,025,000)		1.02		–
Outstanding, December 31, 2010	2,577,555		0.20		2.32

9.

STOCK-BASED COMPENSATION

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

During the year ended December 31, 2008, the Company adopted the 2008 Stock Compensation Plan and the 2008 Equity Incentive Plan, under which the Company is authorized to issue up to 500,000 and 2,000,000 shares, respectively, of the Company’s common stock, to be registered on Form S-8, to the Company’s employees, executives and consultants.  On May 14, 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 May 20, 2010, the Company granted options to purchase a total of 250,000 shares of the Company’s common stock to a consultant. The options carry an exercise price of $0.15 per share and vested immediately. The options expire May 20, 2012. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average fair value of stock options granted was $0.07. During the year ended December 31, 2010, the Company recorded stock-based compensation of $16,492 as a general and administrative expense in connection with these options.

F-24

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WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2010

9.

STOCK-BASED COMPENSATION (continued)

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

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

On October 13, 2010, the Company granted options to purchase a total of 2,000,000 shares of the Company’s common stock to a director and officer. The options carry an exercise price of $0.30 per share and vested immediately. The options expire October 13, 2013. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average fair value of stock options granted was $0.28. During the year ended December 31, 2010, the Company recorded stock-based compensation of $559,829 as a general and administrative expense in connection with these options.

On November 1, 2010, the Company granted options to purchase a total of 1,000,000 shares of the Company’s common stock to a consultant. The options carry an exercise price of $0.30 per share and vested immediately. The options expire November 1, 2013. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average fair value of stock options granted was $0.25. During the year ended December 31, 2010, the Company recorded stock-based compensation of $214,176 as a general and administrative expense in connection with these options.

Also on November 1, 2010, the Company granted options to purchase a total of 2,000,000 shares of the Company’s common stock to an officer. The options carry an exercise price of $0.30 per share and vested immediately. The options expire November 1, 2013. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average fair value of stock options granted was $0.20. During the year ended December 31, 2010, the Company recorded stock-based compensation of $428,352 as a general and administrative expense in connection with these options.

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

The fair value for stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average fair value of stock options granted during the years ended December 31, 2010 and 2009 were $0.24 and $0.42 per share, respectively. The weighted average assumptions used are as follows:

	Years Ended
	December 31, 2010	December 31, 2009
Expected dividend yield	0%	0%
Risk-free interest rate	0.59%	1.89%
Expected volatility	154.37%	137.33%
Expected option life (in years)	2.81	3.98

The total intrinsic value of stock options exercised during the years ended December 31, 2010 and 2009 were $nil and $nil respectively.

F-25

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WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2010

9.

STOCK-BASED COMPENSATION (continued)

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

	Number of Options	Weighted Average Exercise Price	Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding, December 31, 2009	11,911,517	$ 0.56
Granted	6,500,000	$ 0.26
Exercised	(700,000)	$ 0.22
Expired/Cancelled	(1,215,000)	$ 0.58
Outstanding, December 31, 2010	16,496,517	$ 0.48	2.40	$nil
Exercisable, December 31, 2010	16,076,517	$0.49	2.44	$nil

A summary of the status of the Company’s nonvested shares as of December 31, 2010, and changes during the years ended December 31, 2010, is presented below:

Nonvested shares			Number of Shares	Weighted Average Grant Date Fair Value
Nonvested at January 1, 2010			960,000	$0.20
Granted			1,000,000,000	$0.07
Vested			(1,540,000)	$0.11
Nonvested at December 31, 2010			420,000	$0.20

As at December 31, 2010 there was $83,647 total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 1.75 years.

F-26

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WORDLOGIC CORPORATION

(A Development Stage Company)

Notes to the Consolidated Financial Statements

September 30, 2010

10.

INCOME TAXES

Deferred income taxes reflect the tax consequences on future years of differences between the tax bases:

	2010		2009
Net operating loss carry-forward	$5,181,628		$4,690,569
Valuation allowance	(5,181,628)		(4,690,569)
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 tax loss carry-forwards will begin to expire in 2027.

11.

SUBSEQUENT EVENTS

Subsequent to December 31, 2010, we issued an aggregate of 3,552,267 shares of our common stock as payment for services and/or settlement of debt.

F-27

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ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.   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, 2010. 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

Our management is responsible for establishing and maintaining effective internal control over financial reporting.  Under the supervision of our Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2010 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, 2010, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.

The Company’s auditors requested some out-of-period adjustments which has led management to conclude that the controls over the period-end financial reporting process were not operating effectively. Specifically, controls were not effective to ensure that routine and non-routine accounting estimates and other adjustments were appropriately recorded, reviewed, analyzed, and monitored on a timely basis. A material weakness in the period-end financial reporting process could result in the Company not being able to meet its regulatory filing deadlines and, if not remediated, has the potential to cause a material misstatement or to force the Company to miss a filing deadline in order to implement corrective action.

 

Certain entity level controls establishing a “tone at the top” were considered material weaknesses. The Company has an audit committee; however the members of the audit committee are all executive officers and are not independent.  

 

There are no preventative and detective IT systems in place to prevent and/or detect fraud other than password protection.  The Company has software based controls in place which prevent double entries and provides other detective control mechanisms such as account reconciliations.

 

There is no segregation of duties between cash management and cash account reconciliations which may result in the misappropriation of funds.

 

Management continues to evaluate remediation plans for the above control deficiencies.

 

16

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In light of the existence of these control deficiencies, the Company concluded that there is 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, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by COSO.

 

M&K CPAS, PLLC, an independent registered public accounting firm, was not required to and has not issued an attestation report concerning the effectiveness of our internal control over financial reporting as of December 31, 2010 pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

 

Changes in Internal Control over Financial Reporting

 

There have not been any changes in our internal control over financial reporting during the year ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B.   OTHER INFORMATION

 

None.

 

17

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PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS.

Identify of directors and executive officers

Our current directors and executive officers are as follows:

Name and Age	Position(s) Held	Tenure	Other Public Company Directorships
Frank R. Evanshen, 62	Director, President, and Chief Executive Officer	From May 27, 2003 to present	None
Darrin McCormack, 45	Chief Financial Officer	From August 13, 2007 to present	None
T. Allen Rose, 54	Director, Secretary and Treasurer	May 27, 2003 to present	None
James P. Yano, 44	Chief Operations Officer	September 30, 2008 to present	None

Term of Office

Each director serves until our next annual meeting of the stockholders or unless they resign earlier. The Board of Directors elects officers and their terms of office are at the discretion of the Board of Directors. Each of our directors serves until his or her successor is elected and qualified. 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 is removed from office. At the present time, members of the board of directors are not compensated for their services to the board.

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:

Frank R. Evanshen has been the President, Chief Executive Officer and a director of WordLogic Corporation since October 2001.  Upon the closing of our merger with WordLogic Corporation on May 27, 2003 Mr. Evanshen was appointed as our President, Chief Executive Officer and a director.  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 is the managing partner in the firm D. McCormack & Company Inc, CGA’s from July 1995 to present. D. McCormack & Company Inc. is a registered participant with the Canadian Public Accountability Board. Mr. McCormack has been a CGA in public practice since 1988. He received his diploma in Financial Accounting from Malaspina College in Nanaimo, BC in 1986.

 

T. Allen Rose has served as the director, Secretary and Treasurer of WordLogic Corporation since October 2001.  Upon the closing of our merger with WordLogic Corporation on May 27, 2003 Mr. Rose was appointed as our Chief Financial Officer, Secretary, Treasurer and a director.  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.

 

James P. Yano has served as our Chief Operations Officer since September 30, 2008.  Mr. Yano has over 10 years experience in sales and marketing.  In that time he has served in various executive and managerial positions with companies specializing in software and scientific equipment.  From 2001 to 2005, Mr. Yano served as a Marketing Manager with Agilent Technologies Inc., a $6 Billion scientific instruments/analysis equipment maker.  During this time, Mr. Yano organized product development, strategized new product concepts, executed the introduction of new products onto the market and exceeded sales forecasts.  From 2005 to the present, Mr. Yano has been working as Vice President of Marketing and International Channels with Aspectrics, Inc., a process instrument manufacturer.  At Aspectrics, Inc., Mr. Yano identified new products and market opportunities and commercialized the company’s concepts through the development of relationships with manufacturers and distribution agents.

 

18

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Significant Employees

 

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

Family Relationships

 

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

Involvement in Certain Legal Proceedings

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

(1)

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

(2)

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

(3)

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

i.

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

ii.

Engaging in any type of business practice; or

iii.

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

(4)

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

(5)

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

(6)

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

19

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(7)

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

i.

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

ii.

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

iii.

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

(8)

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

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended December 31, 2010, Forms 5 and any amendments thereto furnished to us with respect to the year ended December 31, 2010, and the representations made by the reporting persons to us, we believe that during the year ended December 31, 2010, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements.

Code of Ethics

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

Audit Committee

 

We established a separately-designated standing audit committee on February 19, 2008.  The committee consists of Darrin McCormack, our Chief Financial Officer, Peter Knaven, a Director, Senior Vice President and Chief Technology Officer, as well as T. Allen Rose, a Director, Secretary and Treasurer.

 

Darrin McCormack is the financial expert serving on our audit committee, but as he also serves as our Chief Financial Officer, he is not an independent member of our committee.

 

The OTCBB on which we list does not have any independence requirements for the Audit Committee.

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ITEM 11.   EXECUTIVE COMPENSATION

Summary Compensation Table

The table set forth below summarizes the annual and long-term compensation for services in all capacities to us payable to our executive officers during the years ending December 31, 2010 and 2009. 

 Summary Compensation Table