PORTLOGIC SYSTEMS INC. - 10-K -
(Edgar Glimpses Via Acquire Media NewsEdge) Management's Discussion and Analysis of Financial Condition and Results of
The following discussion and analysis compares our results of operations for the
twelve months ended May 31, 2013 to the same period in 2012. This discussion and
analysis should be read in conjunction with our financial statements and the
related notes thereto included elsewhere in this annual report for the year
ended May 31, 2013. This annual report contains certain forward-looking
statements and our future operation results could differ materially from those
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements that involve
risks and uncertainties. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially from
those anticipated in the forward-looking statements for many reasons, including
the risks described in this report and other reports we file with the U.S.
Securities and Exchange Commission. Although we believe the expectations
reflected in the forward-looking statements are reasonable, they relate only to
events as of the date on which the statements are made. We do not intend to
update any of the forward-looking statements after the date of this report to
conform these statements to actual results or to changes in our expectations,
except as required by law.
We incorporated on June 22, 2004 as Portlogic Systems Inc. under the laws of the
State of Nevada. On June 5, 2008, the Company filed a Form S-1 Registration
Statement under the United States Securities Act of 1933. It became effective
June 24, 2008.
We are currently in the development stage and our business comprised developing
and licensing portal software products and related services. We have developed a
product that we licensed to our customers to enable them to operate their own
online social networking portal without requiring any technical programming or
website design skills. We are further developing our product to include location
based services. Currently, we have shifted our focus and our primary target
market consists of marketing agencies with a need for mobile application
Since January 2010, we have expanded the scope of technology offerings to
include marketing mobile applications solutions and kiosk hardware and software
products. Portlogic's product offering now include enterprise software solutions
which fall into six principal product families: m2Meet, m2Bank, m2Market,
m2Ticket, m2Kiosk, and m2Workflow.
On June 18, 2012, we incorporated a wholly-owned subsidiary, VOIP 1, Inc. under
the laws of the State of Nevada. VOIP 1, Inc. specializes in data and voice
telecommunications technologies. VOIP 1 began earning revenues in September
We have a financial year end of May 31.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon our financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our estimates, including those related to the reported amounts of
revenues and expenses, bad debt, investments, intangible assets, income taxes,
and contingencies and litigation. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from these estimates under different
assumptions or conditions. We consider the following accounting policies to be
critical because the nature of the estimates or assumptions is material due to
the levels of subjectivity and judgment necessary to account for highly
uncertain matters or the susceptibility of such matters to change or because the
impact of the estimates and assumptions on financial condition or operating
performance is material.
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CASH AND CASH EQUIVALENTS
Cash equivalents comprise highly liquid instruments with a maturity of three
months or less when purchased. As at May 31, 2013, cash equivalents amounted to
$Nil (May 31, 2012 - $8,779).
We have capitalized the costs of acquiring computer source code in accordance
with the provisions of the Accounting Standards Codification ("ASC") in ASC
985-20, "Costs of Software to Be Sold, Leased, or Marketed." At each reporting
period end, we analyze the realizability of our recorded software assets under
the provisions of that statement. We recognize an impairment loss when and to
the extent that the carrying amount of the software exceeds the estimated
undiscounted future cash flows that are expected to result from the use of the
asset and its eventual disposition. Since the source code has started to
generate positive cash flows and is still being used for development, no
impairment loss has been recognized. Amortization is provided using the
straight-line method over the asset's estimated useful life, three years. As of
May 31, 2013, the source code has been fully amortized.
We recognize revenue at the point of passage to the customer of title and risk
of loss when there is persuasive evidence of an arrangement, the sales price is
determinable, and collection of the resulting receivable is reasonably assured.
We recognize service revenues at the time of performance. Revenues billed in
advance under contracts are deferred and recognized over the corresponding
FOREIGN CURRENCY TRANSLATION
We maintain our accounting records in US dollars, which is its functional and
reporting currency. At the transaction date, each asset, liability, revenue and
expense denominated in a foreign currency is translated into the functional
currency by the use of the exchange rate in effect at that date. At the period
end, we translate monetary assets and liabilities denominated in a foreign
currency into the functional currency by using the exchange rate in effect at
that date. The resulting foreign exchange gains and losses are included in
operations. Foreign exchange loss amounted to $262 for the year end May 31, 2013
(May 31, 2011 - gain of $313).
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RESULTS OF OPERATIONS
COMPARISON OF RESULTS FOR THE YEARS ENDED MAY 31, 2013 and MAY 31, 2012
For the year ended May 31, 2013, we recognized $648,806 in revenue from our
telecommunications operations which began earning revenues in September 2012.
For the year ended May 31, 2012, we recognized $1,578 in revenue only from
interest income on our short term deposits.
COST OF GOODS SOLD
We incurred $618,451 in cost of goods sold for the year ended May 31, 2013
against our telecommunications revenue. For the year ended May 31, 2012 we
incurred $Nil in cost of good sold as we did not recognize any dating revenues
to incur cost of sales nor had we yet begun to generate revenues from our mobile
marketing offerings. Our telecommunications operations had not yet begun.
During the year ended May 31, 2013, we incurred total expenses of $326,313
comprised of selling and administrative expense of $325,521 and depreciation of
$792; compared with total expenses of $131,038 comprised of selling and
administrative expense of $129,407 and depreciation of $1,631 for the year ended
May 31, 2012. Higher expenses for the current year ended May 31, 2013 were
incurred all around with the creation and start up and operations of our
subsidiary, Voip 1, Inc. The largest expenses for both years pertained mostly to
consulting and professional fees. The largest difference between the two years
resulted from consulting fees of $150,775 in the year ended May 31, 2013 versus
$4,000 in the prior year ended May 31, 2012 due to the appointment of our new
Chief Executive Officer as well as consultants for our new operations. We
incurred branding fees of $875, telecom licensing fees totaling $2,550, and
higher office expenses in the current year ended May 31, 2013 due to our new
operations which were not incurred in the prior year ended May 31, 2012.
Bookkeeping and accounting fees increased to $78,000 in the current year ended
May 31, 2013 from $36,000 in the prior year ended May 31, 2012 due to the change
in the renewed agreement which came into affect on December 1, 2012. Finally,
interest expense was $32,854 in the year ended May 31, 2013 versus $22,336 in
the year ended May 31, 2012 due to additional loans.
During the year ended May 31, 2013, we incurred a net loss of $295,958 compared
with a net loss of $129,460 for the year ended May 31, 2012. Although revenue
was much higher in the current year, the large increase in net loss was due
entirely to the corresponding higher selling and administrative expenses from
the creation and start up of our new formed subsidiary, Voip 1, Inc. and its
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LIQUIDITY AND CAPITAL RESOURCES
We do not yet have an adequate source of reliable, long-term revenue to fund
operations. The Company is in the development. We have no significant assets or
financial resources. The amount of working capital that we will require depends
on several factors, including without limitation, the extent and timing of sales
of our products and related services, future costs of development, the timing
and costs associated with the expansion of our customer support capabilities,
and our operating results.
As of May 31, 2013, we had cash and cash equivalents of $2,270. We had total
current assets of $67,308.
In order to ensure we continue to generate cash revenues, during the next three
months, we have expanded the scope of technology offerings to include marketing
mobile applications solutions and kiosk hardware and software products. Our
proprietary web based community software will be further developed for mobile
use in our m2Meet division. However, our product offering now includes
enterprise software solutions which fall into six principal product families:
m2Meet, m2Bank, m2Market, m2Ticket, and m2Kiosk as follows:
m2Meet: A community networking software solution. Currently being developed from
our proprietary web based source code. Internet and mobile users with similar
interests will use m2Meet to socially network and connect using location based
technology such as GPS.
m2Bank: (Mobile to Bank) is a financial transactions system that facilitates
bill payments, money transfers, and account management.
m2Market: Mobile marketing solutions including a Bluetooth push technology that
is used to deliver marketing materials to mobile phones.
m2Ticket: Mobile ticketing sales engine which manages the sale and delivery of
tickets through mobile phones for the transportation and entertainment industry.
m2Kiosk: A line of standard and custom kiosks hardware and software which
integrates with mobile phone applications in the marketing, financial, and
m2Workflow: Customer relations management (CRM) on mobile phones for service
Due to the cost of developing the technology to offer such products we have
decided to offer many of our products by bundling technology from third party
suppliers. Agreements can include but are not limited to licensing agreements,
reseller agreements, partnership agreements, memoranda of understanding, and
software development agreements. We anticipate that we will require $250,000 in
total, over the next six months, to fund the start up of each of these
divisions. We anticipate launching each division, individually, as technology
solutions providers are in place. We need to be assured that we have strong
presentation support, an organized implementation strategy and ongoing technical
support. As we sign more technology partners with proven large scale application
experience, we will begin to hire project managers and begin marketing our
solutions to targeted potential clients.
As part of our expansion of operations, on June 18, 2012, we incorporated a
wholly-owned subsidiary, VOIP 1, Inc. VOIP 1, Inc. specializes in data and voice
telecommunications technologies. In September 2012, we began generating
telecommunications revenues. Because of the success we have had with our
operations, we have been focusing on this business line as our main operations.
Any additional cash revenues that we generate from our operations will ease the
burden on our cash and enable us to finance operations beyond the next twelve
months. If we generate no cash revenues other than the $2,270 that we had
available as of June 1, 2013, we will need to raise additional funds during the
next twelve months. Potential sources of such working capital could include
senior debt facilities, new lines of credit, bank financings or additional sales
of our securities. If we raise funds through the sale of our securities, the
common stock currently outstanding would be diluted. There is a risk that such
additional financing may not be available, or may not be available on acceptable
terms, and the inability to obtain additional financing or generate sufficient
cash from operations could require us to reduce or eliminate expenditures for
capital equipment, production, or marketing of our products, or otherwise
curtail or discontinue our operations, which could have a material adverse
effect on our business, financial condition and results of operations.
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On August 26, 2009, the Company issued a note payable in consideration of a draw
down unsecured loan up to an aggregate of $300,000 over a term of one year which
has been extended. Interest is payable at the prime rate plus 2%. Principal and
interest are now due on August 26, 2014 unless demanded earlier.
As of May 31, 2013, the Company borrowed $311,486 against this loan.
Prior to this, on July 18, 2008, the Company had issued a note payable in
consideration of a draw down unsecured loan up to an aggregate of $100,000 over
a term of one year which has been extended. As of May 31, 2013, the Company
borrowed $80,000 against this loan.
A shareholder has also loaned the Company $36,857. $12,000 of this has been
repaid to the shareholder. Another $5,000 was repaid on November 19, 2012. In
April and May 2013, a further net $2,775 was loaned to the Company. As of May
31, 2013, the balance of the shareholder loan is $22,632.
On June 6, 2012, a new lender loaned $100,080 to the Company. On July 30, 2012
an additional $49,980 was loaned to the Company. On October 4 and November 16,
2012, additional funds of $25,000 on each date were loaned to the Company. The
Company has used the proceeds of this loan to aid with the operations of its new
subsidiary. As of May 31, 2013, the total balance of this new loan is $200,060.
Our consolidated financial statements have been prepared on a continuing
operation basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business.
As of May 31, 2013, our total assets were $67,622, our total liabilities were
$923,559, and stockholders' deficiency was $855,937.
OFF-BALANCE SHEET TRANSACTION
We currently have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
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