Notes to the Consolidated Financial Statements

1.

NATURE OF OPERATIONS AND CONTINUANCE OF BUSINESS

Nature of Operations

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

Reverse Merger

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

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

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has incurred recurring losses prior to the current period, has used significant cash in support of its operating activities and, based upon current operating levels, requires additional capital or significant reconfiguration of its operations to sustain its operations for the foreseeable future. At December 31, 2015, the Company has incurred losses of $30,475,850 since inception. These factors, among others, raise significant doubt regarding the Company’s ability to continue as a going concern.

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

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

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)

Basis of Presentation

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

b)

Basis of Consolidation

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

WORDLOGIC CORPORATION

Notes to the Consolidated Financial Statements

c)

Use of Estimates

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

d)

Cash and Cash Equivalents

The Company considers all investment instruments purchased with an original maturity of three months or less to be cash equivalents. Investment securities with original or remaining maturities of more than three months but less than one year are considered short-term investments. Auction rate securities with original or remaining maturities of more than three months are considered short-term investments even if they are subject to re-pricing within three months. The Company was not invested in any auction rate securities as of December 31, 2015 and December 31, 2014. Investment securities held with the intent to reinvest or hold for longer than a year, or with remaining maturities of one year or more, are considered long-term investments. The Company’s cash equivalents at December 31, 2015 consisted of term deposits with original maturities of three months or less, and are therefore classified as cash and cash equivalents in the accompanying balance sheets.

Cash and cash equivalents consisted of cash and term deposits of $723 and $1,922 at December 31, 2015 and December 31, 2014 , respectively.

e)

  Short and Long-term Investments

The Company accounts for its short-term and long-term investments in accordance with ASC 320, Investments-Debt and Equity Securities. The Company’s short and long-term investments in securities are classified as available-for-sale and are reported at fair value, with unrealized gains and losses, net of tax, recorded in other comprehensive income (loss). Realized gains or losses and declines in value judged to be other than temporary, if any, on available-for-sale securities are reported in other income, net. The Company reviews the securities for impairments considering current factors including the economic environment, market conditions, and the operational performance and other specific factors relating to the businesses underlying the securities. The Company records impairment charges equal to the amount that the carrying value of its available-for-sale securities exceeds the estimated fair market value of the securities as of the evaluation date. The fair value for publicly held securities is determined based on quoted market prices as of the evaluation date. In computing realized gains and losses on available-for-sale securities, the Company determines cost based on amounts paid, including direct costs such as commissions, to acquire the security using the specific identification method. The Company did not have any short or long-term investments in securities at December 31, 2015 or December 31, 2014.

The Company’s investment consisted of certified term deposit with original maturities of more than three months.  The Company realized interest income based on term deposit rate agreed upon with Royal Bank of Canada.  The company had term deposits totaling US $nil and $50,000 at December 31, 2015 and December 31, 2014, respectively.  The company has recorded interest receivable of $nil and $128 at December 31, 2015 and December 31, 2014, respectively.

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

f)

Allowance for Doubtful Accounts

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

WORDLOGIC CORPORATION

Notes to the Consolidated Financial Statements

g)

Property and Equipment

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

Amortization is recorded at one-half of the normal rate in the year of acquisition. We have compared the depreciation taken using the declining balance method to the straight-line method and have determined the difference to be immaterial for the year ended December 31, 2015 and 2014.

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

h)

Impairment of Long-Lived Assets

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

i)

Deferred Revenue

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

j)

Software Development Costs

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

k)

Research and Development

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

l)

Income Taxes

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

WORDLOGIC CORPORATION

Notes to the Consolidated Financial Statements

m)

Revenue Recognition

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

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

·

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

·

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

·

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

·

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

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

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

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

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

n)

Fair Value for Financial Assets and Financial Liabilities

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

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

WORDLOGIC CORPORATION

Notes to the Consolidated Financial Statements

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

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

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company’s note payable approximates the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangement at December 31, 2015. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at December 31, 2015, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the year ended December 31, 2015.

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

In accordance with ASC 820, the following table presents the Company’s fair value hierarchy for its financial assets (investments) as of December 31, 2015 and December 31, 2014:

o)

Foreign Currency Translation

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

p)

Stock-based Compensation

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

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

q)

Net Income (Loss) per Share

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

Due to a net loss for the years ended December 31, 2015, and 2014, basic and diluted net loss per share are equivalent as the inclusion of potential common shares in the number of shares used for the diluted computation would be anti-dilutive to the net loss per share.

r)

Comprehensive Income (Loss)

The Company reports its comprehensive income (loss) in accordance with provisions of the FASB.  For the years ended December 31, 2015 and 2014, the Company’s only component of comprehensive loss was foreign currency translation adjustments.

s)

Advertising Costs

Advertising costs are charged to operations as incurred.

t)

Recent Accounting Pronouncements

In September, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805) (“ASU 2015-16”). Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in urrent-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected to have a material effect on the Company’s consolidated financial statements.

In August, 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods with that reporting period.

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest–Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company is currently in the process of evaluating the impact of adoption of ASU 2015-03 on its balance sheets.

WORDLOGIC CORPORATION

Notes to the Consolidated Financial Statements

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

In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation , to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted.  The Company has elected early adoption of these amendments.

u)

Reclassifications

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

3.

RESTRICTED CASH

As of December 31, 2015 and December 31, 2014, the Company had restricted cash balances of $nil and $4,554, respectively.  This cash was held in trust by our attorneys for the payment of future legal invoices.

WORDLOGIC CORPORATION

Notes to the Consolidated Financial Statements

5.

GST/HST REFUND RECEIVABLE - RESTRICTED

The Goods and Service Tax (“GST”) is a federal tax that applies to the supply of most property and services in Canada. All businesses operating in BC are responsible for collecting and remitting GST to the Canadian government. A GST registrant should collect the GST on most of their sales and pay the GST on most purchases they make to operate their business. They can claim an input tax credit (“ITC”), to recover GST paid or payable on the purchases they use in commercial activities. However, during the year ended December 31, 2015, the Company has not collected any GST since all sales were incurred in the United States which sales are not GST taxable. The Company has filed GST returns quarterly and claimed only ITC’s during the year ended December 31, 2015. As the result of this, as of December 31, 2015 and December 31, 2014, the Company had GST/HST refund receivable of $29,008 (CAD $40,149) and $7,349 (CAD $8,525), respectively. Since the Company has not paid the payroll deduction payable in full to Canada Revenue Agency (“CRA”), CRA has been holding the GST/HST Refund Receivable amount.

6.

7.

Depreciation expense totaled $2,047 and $3,172 for the years ended December 31, 2015 and 2014, respectively.

8.

RELATED PARTY TRANSACTIONS AND BALANCES

The Company incurred the following related party transactions:

WORDLOGIC CORPORATION

Notes to the Consolidated Financial Statements

c.

The Company has entered into an agreement with a private company controlled by an officer to provide management services requiring monthly payments of CAD $20,000, expiring April 1, 2015. Management fees incurred by the Company totaled $nil and $158,448 (CAD $175,000) for the years ended December 31, 2015 and 2014, respectively.  As of December 31, 2015 and December 31, 2013, the amount owing to this private company totaled $49,311 and $58,832, respectively.

9.            DEPOSIT FROM SHAREHOLDER

a.

During the year ended December 31, 2015, the Company received non-refundable deposit of $50,000 for software licence of which terms and condition has not yet been finalized.

WORDLOGIC CORPORATION

Notes to the Consolidated Financial Statements

10.

NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

Promissory Notes

a.

In August 2014, the Company received proceeds of $10,000 on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $10,000 and $10,000 at December 31, 2015 and 2014, respectively.

b.

In September 2014, the Company received proceeds of $50,000 on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $50,000 and $50,000 at December 31, 2015 and 2014, respectively.

c.

In October 2014, the Company received proceeds of $20,000 on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $20,000 and $20,000 at December 31, 2015 and 2014, respectively.

d.

Also in October 2014, the Company received proceeds of $189,640 (CAD $220,000) on an unsecured promissory note with a related party for a period one year at an interest of 12% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $164,252 and $189,640 at December 31, 2015 and 2014, respectively. This promissory note has been converted into a convertible note during the year ended December 31, 2015 and accrued interest of $19,074 (CAD $26,400) was included into the principal. The note is convertible at a fixed price of $0.07; the Company evaluated for beneficial conversion features and determined there were none due to the conversion price being greater than the market price on the date of grant.

e.

In November 2014, the Company received proceeds of $20,000 on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $20,000 and $20,000 at December 31, 2015 and 2014, respectively.

f.

Also in November 2014, the Company received proceeds of $9,842 (CAD $11,000) on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $7,948 and $9,482 at December 31, 2015 and 2014, respectively.

g.

Also in November 2014, the Company received proceeds of $20,000 on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $20,000 and $20,000 at December 31, 2015 and 2014, respectively.

h.

In December 2014, the Company received proceeds of $10,344 (CAD $12,000) on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $8,670 and $10,344 at December 31, 2015 and 2014, respectively.

i.

Also in December 2014, the Company received proceeds of $12,930 (CAD $15,000) on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $10,837 and $12,930 at December 31, 2015 and 2014, respectively.

j.

Also in December 2014, the Company received proceeds of $12,930 (CAD $15,000) on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $10,837 and $12,930 at December 31, 2015 and 2014, respectively.

k.

In January 2015, the Company received proceeds of $3,613 (CAD $5,000) on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $3,613 at December 31, 2015.

l.

In February 2015, the Company received proceeds of $7,225 ( CAD $10,000) on an unsecured promissory note for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $7,225 at December 31, 2015.

m.

In January 2015, the Company received proceeds of $21,675 (CAD $30,000) on an unsecured promissory note for a period one year at an interest of 12% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $21,675 at December 31, 2015.

n.

In March 2015, the Company received proceeds of $18,063 (CAD $25,000) on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $14,450 at December 31, 2015.

o.

In May 2015, the Company received proceeds of $3,612 (CAD $5,000) on an unsecured promissory note with a related party for a period one year at an interest of 10% per annum which will be accrued semi-annually and repaid $nil, leaving a balance owing of $3,612 at December 31, 2015.

Interest expense on the note during the year ended December 31, 2015 and 2014 totaled $43,819 and $17,735, respectively, accrued interest during the same period was $23,577 and $7,503, respectively. Interest expense on the convertible note during the year ended December 31, 2015 and 2014 totaled $5,055 and $nill, respectively, accrued interest during the same period was $5,055 and $nill, respectively.

WORDLOGIC CORPORATION

Notes to the Consolidated Financial Statements

11.

COMMON STOCK

For the year ended December 31, 2015:

a)

In January 2015, the Company issued 1,000,000 shares of its common stock at $0.06 per share for services rendered by  consultants valued at $60,000 based on the fair market value of the trading price on date of grant.

b)

Also in January 2015, the Company conducted a private placement offering whereby it sold 170,000 securities at a price of $0.06 per share for total proceeds of $10,200. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

c)

Also in January 2015, the Company conducted a private placement offering with a related party whereby it sold 200,000 securities at a price of $0.05 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

d)

Also in January 2015, the Company issued 100,000 shares of its common stock at $0.10 per share related to the exercise of options, for total proceeds of $10,000.

e)

In February 2015, the Company conducted a private placement offering whereby it sold 510,000 securities at a price of $0.05 per share for total proceeds of $25,500. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

f)

Also in February 2015, the Company issued 100,000 shares of its common stock at $0.07 per share related to the exercise of options, for total proceeds of $7,000.

g)

In March 2015, the Company issued 100,000 shares of its common stock at $0.07 per share related to the exercise of options, for total proceeds of $7,000.

h)

In April 2015, the Company conducted a private placement offering whereby it sold 1,250,000 securities at a price of $0.04 per share for total proceeds of $50,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

i)

Also in April 2015, the Company conducted a private placement offering with a related party whereby it sold 500,000 securities at a price of $0.02 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

j)

Also in April 2015, the Company conducted a private placement offering whereby it sold 500,000 securities at a price of $0.02 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

k)

Also in April 2015, the Company conducted a private placement offering whereby it sold 1,000,000 securities at a price of $0.02 per share for total proceeds of $20,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

l)

In May 2015, the Company conducted a private placement offering whereby it sold 142,857 securities at a price of $0.07 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.15, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

m)

In June 2015, the Company conducted a private placement offering whereby it sold 166,667 securities at a price of $0.06 per share for total proceeds of $9,999. Each security consists of one common share in the capital of the Company and one half non-transferable share purchase warrant exercisable at USD $0.15, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

n)

Also in June 2015, the Company conducted a private placement offering with a related party whereby it sold 300,000 shares at a price of $0.02 per share for total proceeds of $6,000.

o)

In July 2015, the Company conducted a private placement offering with a related party whereby it sold 1,000,000 securities at a price of $0.02 per share for total proceeds of $20,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

p)

Also in July 2015, the Company conducted a private placement offering with a related party whereby it sold 200,000 shares at a price of $0.02 per share for total proceeds of $4,000.

q)

Also in July 2015, the Company issued totaling 3,200,000 shares of its common stock at average $0.067 per share for services rendered by consultants valued at $214,000 based on the fair market value of the trading price on date of grant.

r)

In August 2015, the Company conducted a private placement offering whereby it sold 2,500,000 securities at a price of $0.01 per share for total proceeds of $25,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

s)

Also in August 2015, the Company conducted a private placement offering with a related party whereby it sold 1,000,000 shares at a price of $0.01 per share for total proceeds of $10,000.

t)

In September 2015, the Company conducted a private placement offering with a related party whereby it sold 4,000,000 shares at a price of $0.01 per share for total proceeds of $40,000.

u)

Also in September 2015, the Company conducted a private placement offering with a related party whereby it sold 4,000,000 securities at a price of $0.01 per share for total proceeds of $40,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

v)

In October 2015, the Company conducted a private placement offering whereby it sold 1,000,000 shares at a price of $0.01 per share for total proceeds of $10,000.

w)

Also in October 2015, the Company issued 2,600,000 shares of its common stock at $0.035 per share for services rendered by consultants valued at $91,000 based on the fair market value of the trading price on date of grant.

x)

In November 2015, the Company conducted a private placement offering whereby it sold 500,000 securities at a price of $0.01 per share for total proceeds of $5,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrants exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

y)

Also in November 2015, the Company conducted a private placement offering whereby it sold 1,000,000 securities at a price of $0.02 per share for total proceeds of $20,000. Each security consists of one common share in the capital of the Company and one non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

z)

Also in November 2015, the Company issued 200,000 shares of its common stock at $0.045 per share for services rendered by management valued at $9,000 based on the fair market value of the trading price on date of grant.

aa)

In December 2015, the Company conducted a private placement offering with a related party whereby it sold 2,200,000 shares at a price of $0.01 per share for total proceeds of $22,000.

bb)

Also in December 2015, the Company conducted a private placement offering whereby it sold 350,000 securities at a price of $0.03 per share for total proceeds of $3,500. Each security consists of one common share in the capital of the Company and three fifths non-transferable share purchase warrant exercisable at USD $0.10, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

cc)

Also in December 2015, the Company conducted a private placement offering with a related party whereby it sold 1,000,000 shares at a price of $0.01 per share for total proceeds of $10,000. Each security consists of one common share in the capital of the Company and two non-transferable share purchase warrant exercisable at USD $0.05, of which terms and conditions set forth in the attached Warrants Certificate Agreement.

dd)

Also in December 2015, the Company conducted a private placement offering whereby it sold 666,666 shares at a price of $0.03 per share for total proceeds of $20,000.

For the year ended December 31, 2014:

ee)

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

ff)

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

gg)

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

hh)

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

ii)

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

jj)

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

kk)

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

ll)

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

mm)

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

nn)

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

oo)

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

pp)

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

qq)

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

rr)

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

ss)

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

tt)

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

uu)

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

vv)

Also in October 2014, the Company issued 200,000 shares of its common stock at $0.065 per share for services rendered by a consultant valued at $13,000 based on the fair market value of the trading price on date of grant.

ww)

In November 2014, the Company issued 1,100,000 shares of its common stock at $0.071 per share for services rendered by a consultant valued at $78,100 based on the fair market value of the trading price on date of grant.

xx)

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

During the year ended December 31, 2015, the Company issued 13,889,524 common shares with warrants attached for total cash proceeds of $269,200. The common stock issued included 13,889,524 attached warrants to purchase 25,566,191common stock at the weighted average exercise price of $0.10 per share. The relative fair value of the warrants attached to the common stock issued was estimated at the date of grant using the Black-Sholes pricing model. The relative fair value of the warrants attached to the common stock issued is $270,621, and the relative fair value of the common stock is $281,579 as of the issue date. The Black-Sholes pricing model assumption used are as follows: expected dividend yield of 0%; risk-free interest rate of 0.41%; expected volatility of 134.73%, and warrant term of 2 years.

During the year ended December 31, 2014, , the Company issued 5,000,571 common shares with warrants attached for total cash proceeds of $552,201. The common stock issued included 5,000,571 attached warrants to purchase 6,200,571 common stock at the weighted average exercise price of $0.14 per share. The relative fair value of the warrants attached to the common stock issued was estimated at the date of grant using the Black-Sholes pricing model. The relative fair value of the warrants attached to the common stock issued is $270,621, and the relative fair value of the common stock is $281,579 as of the issue date. The Black-Sholes pricing model assumption used are as follows: expected dividend yield of 0%; risk-free interest rate of 0.32% - 0.59%; expected volatility of 132% - 138%, and warrant term of 2 years.

12.

TREASURY STOCK

On August 15, 2012, the Company announced that the Company’s Board of Directors approved a share repurchase program authorizing up to five million shares of the Company’s outstanding common stock to be repurchased over a 12 month period commencing on August 20, 2012. Any shares repurchased by the Company shall be returned to the treasury and may be used, if and when needed, for general corporate purposes. During the year ended December 31, 2015 and 2014, the Company purchased nil and nil shares of common stock from treasury stock, respectively. During the year ended December 31, 2015 and 2014, the Company retired nil and nil shares of common stock from treasury stock, respectively. Following are our stock repurchases and retirement history.

13 .

STOCK-BASED COMPENSATION

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

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

Compensation Warrants Granted to Non-employees

For the year ended December 31, 2015:

On November 10, 2015, the Company granted compensation warrants to purchase a total 500,000 shares of the Company’s common stock to a consultant. The warrants carry an exercise price of $0.04 per share. The warrants expire November 10, 2017. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $17,511. During the year ended December 31, 2015, the Company recorded stock-based compensation of $17,511 as a general and administrative expense in connection with these warrants.

On November 27, 2015, the Company granted compensation warrants to purchase a total 500,000 shares of the Company’s common stock to a consultant. The warrants carry an exercise price of $0.05 per share. The warrants expire November 27, 2017. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $17,305. During the year ended December 31, 2015, the Company recorded stock-based compensation of $17,305 as a general and administrative expense in connection with these warrants.

On December 17, 2015, the Company granted compensation warrants to purchase a total 300,000 shares of the Company’s common stock to a consultant. The warrants carry an exercise price of $0.15 per share. The warrants expire December 17, 2015. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $6,247. During the year ended December 31, 2015, the Company recorded stock-based compensation of $6,247 as a general and administrative expense in connection with these warrants.

For the year ended December 31, 2014:

On September 11, 2014, the Company granted compensation warrants to purchase a total of 2,311,000 shares of the Company’s common stock to a marketing firm. The warrants carry an exercise price of $0.10 per share. The warrants expire September 11, 2016. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $116,540. During the year ended December 31, 2014, the Company recorded stock-based compensation of $116,540 as a general and administrative expense in connection with these warrants.

On October 1, 2014, the Company granted compensation warrants to purchase a total of 300,000 shares of the Company’s common stock to a consultant. The warrants carry an exercise price of $0.10 per share. The warrants expire October 1, 2016. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $14,131. During the year ended December 31, 2014, the Company recorded stock-based compensation of $14,131 as a general and administrative expense in connection with these warrants.

On October 1, 2014, the Company granted compensation warrants to purchase a total of 300,000 shares of the Company’s common stock to a consultant. The warrants carry an exercise price of $0.10 per share. The warrants expire October 1, 2016. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $14,131. During the year ended December 31, 2014, the Company recorded stock-based compensation of $14,131 as a general and administrative expense in connection with these warrants.

On November 20 2014, the Company granted compensation warrants to purchase a total of 1,500,000 shares of the Company’s common stock to a consultant. The warrants carry an exercise price of $0.10 per share. The warrants expire November 20, 2016. The fair value for warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of warrants granted was $78,088. During the year ended December 31, 2014, the Company recorded stock-based compensation of $78,088 as a general and administrative expense in connection with these warrants.

Options Granted to Employees

For the year ended December 31, 2015:

On February 18, 2015, the Company granted options to purchase a total of 300,000 shares of the Company’s common stock to an employee. The options carry an exercise price of $0.07 per share and vested immediately. The options expire February 18, 2018. The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the fair value of stock options granted was $10,448. During the year ended December 31, 2015, the Company recorded stock-based compensation of $10,448 as a general and administrative expense in connection with these options.

During the year ended December 31, 2015, the Company recognized and recorded stock-based compensation of $nil related to options granted in the prior year which vested in the current period as a general and administrative expense.

As at December 31, 2015, there was $nil total unrecognized compensation cost related to nonvested stock-based compensation arrangements.

WORDLOGIC CORPORATION

Notes to the Consolidated Financial Statements

The fair value for warrants and stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average fair value of stock options granted during the year ended December 31, 2015 and 2014 were $0.34359 and 0.10073, respectively. The weighted average assumptions used are as follows:

The total intrinsic value of stock options exercised during the year ended December 31, 2015 and 2014 were $nil and $nil respectively.

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

A summary of the status of the Company’s nonvested shares as of December 31, 2014, and changes during the year ended December 31, 2015, is presented below: