UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


Form 10-K


(Mark One)


[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended May 31, 2014


or


[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ____________ to ____________


Commission file number 333-151434


PORTLOGIC SYSTEMS INC.

(Exact name of registrant as specified in its charter)



NEVADA        

20-2000407

(State or other jurisdiction of incorporation or organization)                

(I.R.S. Employer Identification No.)


2 Toronto Street, Suite 422, Toronto, Ontario, Canada

M5C 2B5

(Address of principal executive offices)                   

(Zip Code)


Registrant’s telephone number, including area code

(647) 847-8350


Securities registered under Section 12(b) of the Exchange Act: None.


Securities registered under Section 12(g) of the Exchange Act: None.

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.  X Yes No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. 

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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 the 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 Act).

☐ Yes No X

As of September 10, 2014, the registrant had 206,551,422 shares of common stock, par value $0.001, outstanding.




DOCUMENTS INCORPORATED BY REFERENCE


None.





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PORTLOGIC SYSTEMS INC.


FORM 10-K

For the fiscal year ended May 31, 2014


TABLE OF CONTENTS

 

      PAGE NUMBER


PART I


Item 1.  

Business.                                                                            

5

Item 1A.

Risk Factors.

10

Item 2.  

Properties.                                                                            

15

Item 3.

Legal Proceedings.                                                                                  

  15

Item 4.  

Submission of Matters to a Vote of Security Holders.                                      

15


PART II


Item 5.  

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities.                        

16

Item 6.  

Selected Financial Data.

16

Item 7.

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

Operations.                    

17

Item 7A.  

Quantitative and Qualitative Disclosures About Market Risk.

20

Item 8.

Financial Statements and Supplementary Data.                                                               

21

Item 9.  

Changes in and Disagreements With Accountants on Accounting

               

and Financial Disclosure.              

38

Item 9A(T).  Controls and Procedures.                                                                          

38

Item 9B.

Other Information.

39


PART III


Item 10.   

Directors, Executive Officers and Corporate Governance.

40

Item 11.

Executive Compensation.                                                                            

43

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters.                                                                   

44

Item 13.

Certain Relationships and Related Transactions, and Director Independence               

45

Item 14.

Principal Accountant Fees and Services.                                                           

46


PART IV


Item 15.

Exhibits, Financial Statement Schedules.

47




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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS


Statements in this annual report on Form 10-K may be "forward-looking statements". Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions, or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates, and projections about our business based, in part, on assumptions made by our management. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and probably will, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this annual report on Form 10-K, including the risks described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in other documents we file with the Securities and Exchange Commission.


In addition, such statements could be affected by risks and uncertainties related to our financial condition, factors that affect our industry, market and customer acceptance, competition, government regulations and requirements and pricing, as well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this annual report on Form 10-K, except as required by law.




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PART I


ITEM 1.

Business


GENERAL


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. The address of our principal executive office is 2 Toronto Street, Suite 422, Toronto, Ontario, Canada M5C 2B5. Our telephone number is (647) 847-8350. Our website address is www.portlogicsystems.com. We have a financial year end of May 31.


We have not been profitable since our inception. We have no significant assets or financial resources. The limited extent of our assets and revenues and our limited operating history make us subject to the risks associated with start-up companies, including potentially negative cash flows. The report of our independent auditors for the fiscal year ended May 31, 2014 states that there is substantial doubt that we will be able to continue as a going concern. If we cannot continue to obtain additional financing, we may cease to exist.


We offer enterprise mobile marketing applications solutions, kiosk hardware and software products which fall into six principal product families: m2Meet, m2Bank, m2Market, m2Ticket, m2Kiosk, and m2Workflow. Prior to January 2010. Portlogic created and licensed online interactive community portal software systems and developed a series of web-based community portal products. In September 2013, FAMILIES social media family network site was launched.


On September 16, 2009, we incorporated a wholly-owned subsidiary, Sunlogic Energy Corporation in Panama City, Republic of Panama for the purpose of looking at solar and alternative green energy software and products. Initial operations include: capital formation; organization; website construction; target market identification; research costs; promotional materials costs; and marketing planning. To date, our subsidiary has not had any operations.


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 2012.


PRINCIPAL PRODUCTS AND SERVICES


Our scope of technology offerings includes marketing mobile applications solutions and kiosk hardware and software products.


Our 6 divisions are as follows:


1.

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.

2.

m2Bank: (Mobile to Bank) is a financial transactions system that facilitates bill payments, money transfers, and account management.

3.

m2Market: Mobile marketing solutions including a Bluetooth push technology that is used to deliver marketing materials to mobile phones.

4.

m2Ticket: Mobile ticketing sales engine which manages the sale and delivery of tickets through mobile phones for the transportation and entertainment industry.

5.

m2Kiosk: A line of standard and custom kiosks hardware and software which integrates with mobile phone applications in the marketing, financial, and ticketing industries.

6.

m2Workflow: Customer relations management (CRM) on mobile phones for service industries.

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Since June 2012, we have started specializing in data and voice telecommunications technologies. We began to earn telecom revenues in September 2012.


We also develop and license portal software products and provide custom software programming services to customers who license our products. Our portal software products are designed to enable our customers to operate their own online social networking portal without requiring any technical programming or website design skills. Each type of portal that we license to our customers has a standard pre-programmed functional framework along with content and appearance customized according to the customer’s particular requirements. Our licensing agreements with customers provide that we retain exclusive ownership rights over the portal software and any related products or features that we license to our customers. Our customers retain ownership rights over any content that they provide to customize their portal.


We host the portal software licensed to our customers on our own servers. Our portal software products include an online administration interface which our customers can use to manage the functionality, appearance, and content of their portal, such as what users are able to see and do when they visit the portal. As a result, customers that license our software can operate their online portal using only a personal computer and internet connection. They do not need to have any programming knowledge, additional software, hosting capabilities, or additional hardware.


We also offer, in exchange for additional licensing fees, ‘plug-in’ products that can provide additional functions to the basic portal software licensed by our customers. A plug-in is a discrete piece of software that provides a specific feature that our customers can add to their portal that we believe will enhance the experience of users accessing the portal. We either own the plug-ins or license them from third parties. Examples include video chat, instant messaging chat, modules that display automatically updating financial data or news, photo galleries, a payment facility to charge users for access and enable our customers to accept credit card payment.


One fully developed portal software product is an online social networking system marketed to entrepreneurs who wish to operate their own online social networking or dating business. We market this product through one of our websites, at www.internetdatingsoftware.com.


We earn revenues from our social networking software system in five primary ways:


1.

We charge a lump sum initial setup fee for each portal that we provide to a customer.

2.

Monthly or annual basic licensing fees, along with variable bandwidth and other fees that we charge to allow end users to access a customer’s portal stored on our server, are payable on an ongoing basis when our customers are licensing one of our portal products.

3.

We charge ongoing licensing fees for any plug-ins that we provide to our customers.

4.

We provide customized programming, graphic design, or other services to assist customers with customizing the appearance or functions of their portal. Fees for customized services are based on a quotation agreed to between us and the customer that sets out the scope of services to be performed.

5.

We offer master licensing agreements with resellers that wish to license our products to their own customers in return for the reseller paying us a fixed fee or proportion of revenues received from their customers.


Currently, we have been focusing on our data and telecommunications operations.




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OUR BUSINESS STRATEGY


Our business strategy was to offer a product that allows small and midsize businesses to compete in various online markets at comparatively low cost. Packages are customizable and are managed though a backend management administration area. We provide all technical support, including payment and tracking systems, servers, and client support.


Not all entrepreneurs who start up an online business will succeed, but we believe the ones who do can be expected to become long-term stable income centers for our company. As they develop, they will usually require more customization and may require more plug-ins on their site, all of which we can charge for.


Due to the cost of developing the technology to offer our marketing mobile applications solutions and kiosk hardware and software 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 are not a software company; rather we market mobile, kiosk and other technological solutions. And now we offer telecom as one of our solutions.


MARKETS FOR OUR PRINCIPAL PRODUCTS AND SERVICES


We believe our market consists of three groups: portal owners (active domains seeking to maximize the amount of traffic that they attract by adding functions that we can provide), private entrepreneurs (entrepreneurs interested in developing online businesses from scratch themselves) and data and telecommunications companies.


We also introduce mobile application solutions to marketing companies that may be interested in our technology partners. We are directly targeting Telco operators and governmental agencies.


CUSTOMERS


Our customers are mostly other businesses that also offer telecom and mobile technology solutions.


Our current revenues were evenly supported by our customer base; none of our clients represented major customers as a percentage or dollar amount of total revenues.


All of our revenues for the year ended May 31, 2014 were telecom customers which was our main focus. We do not have any customers for our mobile application solutions yet. We did not earn any revenue for our social networking software solutions for the year ended May 31, 2014.

 

COMPETITION


With our past product offering, we faced the portal software products industry, which is occupied by a wide variety of businesses, with numerous substitutes for the products and services that we offered. We competed with companies that offer do-it-yourself website design software products, website programmers, software developers, online social networking community service providers, and portal software products dedicated to a specific industry.


Our direct competitors now consist of companies that sell or license mobile marketing solutions. The direct competitors that we are aware of are privately held and we do not have access to certain information that would enable us to compare our business with them. Accordingly, it is difficult to determine some aspects of our competitive position. Based on information that is publicly available, we believe that the methods of competition that we use are similar to the methods that most of our direct competitors are using. Like most of our direct competitors, we market ourselves by maintaining a website that describes the features of our product, providing a mechanism to enable customers to order our products and services online, and we bid for key words with search engines to help our company and our products appear prominently in the results of searches made by potential customers. The method that we use to earn revenues also appears to be similar to the method used by most of our direct competitors. This method involves charging low fees for initial setup and ongoing licensing of our basic product and then marketing additional services and products to customers who license a basic product from us. Our fees to provide these additional services and products, including customized programming services and plug-ins, are intended to provide us with a high profit margin.

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We offer master licensing agreements with resellers who wish to license our products to their own customers. We are not aware of any competitors marketing their products using master licensing agreements, although this information may not be publicly disclosed. We believe that the master licensing method of marketing our products provides us with a competitive advantage compared to our other direct competitors because under these arrangements our resellers incur the costs of marketing to potential customers and providing customer service on our behalf. The cost of providing the products that are being licensed are primarily fixed and have already been incurred, and resellers may be able to access new niche markets if they have a reputation or specific subject matter expertise that we lack and are viewed favorably by a specific class of potential customers.


Because of our relatively limited revenues and cash, compared to our competitors we have less capacity to perform services for our customers or develop new features for our products. We are unable to incur significant upfront cash expenses to market our products and services. Unlike some of our more established competitors, we do not compete for customers by using high value marketing campaigns or building personal relationships with large business customers. We do, however, compete against larger companies because they advertise and provide their products and services to smaller businesses whom we are capable of providing products and services to and therefore represent potential customers.


We believe that the principal competitive factors in our industry are:

  

·

value of the products and services provided compared to their price;

·

quality of the products and services;

·

capability to generate revenues by producing add-on products and services to existing customers;

·

reputation for services provided to past customers;

·

brand recognition and size of the firm;  

·

ability to provide complete, integrated solutions;

·

speed of development and implementation of solutions;

·

effectiveness of sales and marketing efforts; and

·

financial stability.


We believe that we can currently compete favorably with respect to the first three of these factors. However, given our developmental stage of business, small size, and limited scope of operations, we believe that we are currently at a competitive disadvantage relative to more established competitors with respect to the other factors listed above. Established competitors who have greater access to capital and positive cash flow from revenues may be in a better position to capture a share of the available market.


We hope to offset the competitive advantages of our established competitors by providing, at relatively low cost, high quality customer service, innovative ideas, and products that have some customization that makes them more appealing to each specific segment of customers. In addition, our lack of affiliation with a larger company such as Google or Yahoo! means that we are not limited in our choice of technology. We are free to select the software or other technology that suits our own or our customers’ needs. As a result, we may be able to offer products and services that are more innovative or appealing to our customers at a lower cost than our competitors. However, we may not be able to compete successfully against our current or future competitors and competition may have a material adverse effect on our business, results of operations, or financial condition.

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INTELLECTUAL PROPERTY


As of May 31, 2014, we do not own any patents or trademarks. We are not licensing any product or service from a third party that is material to our business. Depending upon the particular needs and demands of our clients, we may, in the future, seek patents or copyrights for the intellectual material we produce.  


Our business plan contemplates that we will market our products and services in part by entering into master licensing agreements with resellers who wish to license our products to their own customers in return for the reseller paying us a fixed fee or proportion of revenues received from their customers. We have also entered into exclusive distribution agreements for our mobile applications solutions and kiosk hardware and software products. We have licensing agreements with telecom suppliers.


EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON OUR BUSINESS


There are numerous laws and regulations that apply to commerce on the Internet or are of more general application but have an effect on our operations. These include laws and regulations with respect to user privacy, freedom of expression, pricing, characteristics and quality of products and services, taxation, advertising, intellectual property rights, information security, language use, and the convergence of traditional telecommunications services with Internet communications. Due to the increasing popularity of use of the Internet by consumers and businesses, it is possible that additional laws and regulations with respect to the Internet may be adopted at federal, state, provincial, and local levels. There may be additional laws and regulations that will apply to the transaction of business by us that we will need to explore as we enter international markets. We are subject to laws in every jurisdiction in which we conduct business. Currently, we are incorporated in the United States and maintain a main office in the Province of Ontario, Canada. Current and future laws and regulations within and outside of the United States may have a material adverse effect on us and our business.


NEW PRODUCT DEVELOPMENT


Using the programming source code of the portal software for our online social networking system, we have been further developing to offer location-based services. We believe this will bring a new customer base for our m2Meet division as well as aid with our m2Market services. In September 2013, we launched FAMILIES social media family network site.


However, due to the cost of developing the technology to offer our marketing mobile applications solutions and kiosk hardware and software 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.


EMPLOYEES AND CONTRACTORS


As of May 31, 2014 we had one employee, consisting of our officer, Jueane Thiessen. Ms. Thiessen is our Chief Financial Officer, Treasurer, and Secretary and acting Chief Executive Officer and President. Mr. Joseph Putegnat was our Chief Executive Officer and President until February 19, 2014, at which point he resigned. The resignation was not a result of any disagreement with the Company and Mr. Putegnat continues to assist as we transition. We also retain contractors to provide services related to software programming, website hosting, sales, office work, and consulting services as necessary based on the phase of our business plan and available funds.

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Our contractors include programmers, website designers, system administrators, business writers, sales personnel, and telecom consultants. We plan to continue using our existing network of contractors to assist us with the ongoing development of our business and to retain the services of additional contractors as needed. We believe that our use of contractors to conduct our day-to-day operations and product and service development enables us to react to customer demands without the need to incur large fixed overhead costs. We therefore believe that the use of contractors will help us to maintain low day-to-day costs of business during our development stage, and we expect to be able to quickly expand our operations as the number and size of our customers increase. We believe that our network of contractors is sufficient to support our current levels of business activity, as well as increased levels of activity.


ITEM 1A.

Risk Factors

Risks Relating To Our Business


The independent accountant’s opinion on the financial statements for the fiscal years ended May 31, 2014 and May 31, 2013, includes an explanatory paragraph about our ability to continue as a going concern and, if we cannot continue to obtain additional financing, we may have to curtail operations and may ultimately cease to exist.


Our audited financial statements for the years ended May 31, 2014 and 2013 reflect a cumulative net loss of $1,412,380. These conditions raise substantial doubt about our ability to continue as a going concern. However, our financial statements do not include any adjustments that might result if we are unable to continue our business. The independent auditor’s report for the year ended May 31, 2014 includes an explanatory paragraph to the audit opinion stating that we have a working capital deficiency, an accumulated deficit and operating cash flow deficit that raise substantial doubt about our ability to continue as a going concern. Our continued operations are contingent on our ability to raise additional capital and obtain financing and success in future operations. If we do not acquire sufficient additional funding or alternative sources of capital to meet our working capital, we may have to substantially curtail our operations and business plan. To meet our future obligations, from time to time, we intend to issue debt or shares of our common stock or other equity instruments such as warrants.


We have a limited operating history and may never achieve or sustain profitable operations.


We have a short operating history and have not been profitable since our incorporation in June 2004. Even if we obtain future revenues sufficient to expand operations, increased operational or marketing expenses could adversely affect our liquidity. The limited extent of our assets and revenues, and our limited operating history make us subject to the risks associated with start-up companies, including potentially negative cash flows. We have no significant assets or financial resources. Our lack of operating history makes it very difficult for you to make an investment decision. We may never become profitable. You may lose your entire investment.


We depend on our officers and directors to perform our business activities and our ability to recruit and retain the qualified individuals needed to operate and develop our business is unknown.


We rely on our officers and directors to perform many of our business activities. Currently, our Chief Financial Officer, Secretary, and Treasurer, Jueane Thiessen, personally performs most of our accounting and financial management functions, and liases with external contractors who provide additional programming and consulting services. Ms. Thiessen is also involved in carrying out our sales activities. Our Chief Executive Officer and President, Joseph Putegnat performs most of our management functions, and also oversees our sales activities. On February 19, 2014, Mr. Putegnat resigned. The resignation was not a result of any disagreement with the Company and Mr. Putegnat has continued to assist us as we transition. Our present management structure, although adequate for the early stage of our operations, will likely have to be significantly augmented as our operations expand. Our future success will depend in part on the services of our key personnel and, additionally, on our ability to identify, hire and retain additional qualified personnel. There is intense competition for qualified management, marketing, accounting, and sales personnel in our new business line: marketing mobile application solutions. We may not be able to continue to attract and retain the personnel needed to operate and develop our business. Because we rely on our officers and directors to perform our sales, accounting, and financial management activities, failure to attract and retain key personnel could have a material adverse effect on us.

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We have limited cash which we anticipate will be insufficient to fund our plan of operations for the twelve months ending May 31, 2015 and if we are unable to raise additional capital, our business may fail and stockholders may lose their entire investment.


We have limited capital reserves to finance expansion or to protect us from a downturn in business. We currently do not have sufficient cash to fund operations for the forthcoming next twelve months ending May 31, 2015. We will need to continue to raise additional funds to fully fund our operations for the next twelve month period beginning June 1, 2014. Additional financing may come in the form of an offering of common shares, borrowing from a bank or one of our directors, or from revenues generated by our current or new business. If additional shares are issued to raise capital, our existing stockholders will suffer a dilution of their stock ownership and the value of our outstanding shares may fall. If we borrow more money, we will have to pay interest and may also have to agree to restrictions that limit our operating flexibility. We have no commitments for additional financing and there can be no assurance that additional funds will be available when needed, or on terms acceptable to us, if at all. If adequate funds are not available we may be required to change our planned business strategies. If we are unable to obtain adequate financing, we may not be able to successfully develop and market our products and services. As a result, we would need to curtail business operations which would have a material negative effect on operating results, the value of our outstanding stock is likely to fall, and our business may fail causing our stockholders to lose their entire investment.


Our sole director, Jueane Thiessen, also serves as our sole officer. This interrelationship may create a conflict of interest that might be detrimental to us.


Currently, our sole director, Jueane Thiessen, is also our sole officer, serving as our Chief Financial Officer, Treasurer, Secretary, and acting Chief Executive Officer and President. Up until February 19, 2014, a second director, Joseph Putegnat, served as our Chief Executive Officer and President. Our board of directors, which appoints our officers, consisted of four persons up until November 23, 2012: Mr. Putegnat, Ms. Thiessen, Mr. Donald Gilpin and Mr. Bruce Maschmeyer. As of December 5, 2012, Mr. Putegnat and Ms. Thiessen were the only remaining directors; Mr. Gilpin and Mr. Maschmeyer’s service terms have expired. On February 19, 2014, Mr. Putegnat resigned as an officer and a director. Because Ms. Thiessen is the only remaining director and officer, there exists a potential future conflict of interest regarding the decision to remove our officers or appoint new officers. Our directors and officers will deal with any such conflicts of interest, should they arise, in accordance with our Corporate Code of Ethics and applicable corporate law principles.


We may be subject to foreign currency fluctuation and such fluctuation may adversely affect our financial position and results.


Our main office is currently located in Canada and we pay most of our expenses in United States dollars. However, our target market is global. We may enter into contracts that require customers to pay us in currencies other than United States dollars. Therefore, our potential operations make us subject to foreign currency fluctuation. We do not make investments that offset the risk of adverse foreign currency fluctuations and we may suffer increased expenses and overall losses as a result.


We do not own patents on our products and, if other companies copy our products, our revenues may decline which may result in a decrease in our stock price.


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We do not own patents on our products we have developed and we do not currently intend to file for patent protection on those products. Therefore, another company could recreate our products and could compete against us, which would adversely affect our revenues.


We do not carry any insurance and we may be subject to significant lawsuits which could substantially increase our expenses.


We do not carry any insurance. There are a number of occurrences that could adversely affect our financial condition. These include damage to our assets, financial records, or other property by fire or water, as well as any successful lawsuits against us involving recovery of damages arising out of our contractual, legal, or other duties. Should such an uninsured loss occur, our costs may substantially increase which would lower our overall profitability, if any.


Amendments to telecommunications regulations could have a material adverse effect on our business by increasing the cost of our operations or the costs that customers must incur to use our products and services.


We use telecommunications services to deliver our online software licensing and programming services to customers. In addition, our customers typically require telecommunications systems to use our products and services. The telecommunications industry is subject to regulatory control. Any amendments to current regulations in any jurisdiction where we operate or where our customers conduct business could have a material adverse effect on our business, results of operations, and prospects. If amendments to regulations increase the cost of using telecommunications services, our operating expenses may increase. Additionally, if regulatory amendments increase the cost that our customers must incur to use our services, we may experience difficulty attracting new customers or retaining existing customers.


Equipment loss or malfunctions and telecommunication service interruptions or delays may adversely affect our ability to provide our products and services.


Our business is highly dependent on our computer and telecommunications equipment and software systems for the operation and quality of our services. The temporary or permanent loss of all or a portion of these systems, including as a result of physical damage or operating malfunction, or significant replacement delays, could have a materially adverse effect on our business, financial condition, and results of operations. Any interruptions, delays or capacity problems experienced on the Internet or with telephone services could adversely affect our ability to provide our products and services.


Substantially all of our revenue has been derived from short-term contract engagements. If these customers do not enter into additional contracts with us, you may lose your entire investment because we may be unable to obtain new revenues that generate sufficient cash to meet our obligations.


Our contracts with our current customers are short-term in nature and there is no guarantee that we will enter into new contracts and receive additional revenues from these customers in the future. We anticipate that we will rely on a small number of short-term engagements and customers for at least the next 12 months. Our existing customers and/or new customers may not provide us with sufficient levels of revenue to generate profits or even to sustain operations. We may not be able to replace the revenues generated by any existing customer that chooses not to enter into additional contract engagements with us.




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Risks Relating To Our Stock


"Penny Stock" rules may make buying or selling our securities difficult which may make our stock less liquid and make it harder for investors to buy and sell our shares.


Trading in our securities is subject to the SEC's "penny stock" rules and we anticipate that trading in our securities will continue to be subject to the penny stock rules for the foreseeable future. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser's written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by these requirements may discourage broker-dealers from recommending transactions in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the market price for our securities.


Existing and prospective shareholders may experience significant dilution if we enter into a business combination with a private concern or public company and issue securities to shareholders of such private company.


Our business plan contemplates that we may acquire other companies or assets. As a result, we may enter into a business combination with a private concern or public company that, depending on the terms of merger or acquisition, may result in us issuing securities to shareholders of any such private company. The issuance of previously authorized and unissued shares of common stock would result in reduction in percentage of shares owned by our present and prospective shareholders and may result in a change in control or management of our Company.


One of our shareholders, Fern Fair, controls 52.3% of our shares of common stock as of May 31, 2014, and she may not vote her shares in a manner that benefits minority shareholders.


One of our shareholders, Fern Fair, owns a significant percentage of our voting stock. As a result, Ms. Fair is able to significantly influence all matters requiring approval by shareholders, including the election of directors and the approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying, deterring, or preventing a change in control and may make some transactions more difficult or impossible to complete without the support of Ms. Fair. In addition, Ms. Fair may not have an interest in fully promoting the sale of our common stock if such sales would reduce the opportunity for her to sell her own shares at any time in the future.


Our common stock has experienced in the past, and is expected to experience in the future, significant price and volume volatility, which substantially increases the risk that our stockholders may not be able to sell their shares at or above the price that they paid for the shares.


Because of the limited trading market for our common stock, and because of the possible price volatility, you may not be able to sell your shares of common stock when you desire to do so. From June 1, 2013 and through May 31, 2014, our common stock was sold and purchased at prices that ranged from a high of $0.0700 to a low of $0.0012 per share. An inability for our stockholders to sell their shares in a rapidly declining market as a result of the illiquidity in our stock may substantially increase their risk of loss because the price for our common stock may suffer greater declines due to its price volatility.

- 13 -


The price of our common stock that will prevail in the market may be higher or lower than the price that our stockholders pay. Certain factors, some of which are beyond our control, that may cause our share price to fluctuate significantly include, but are not limited to, the following:


·

Variations in our quarterly operating results;

·

Development of a market in general for our products and services;

·

Changes in market valuations of similar companies;

·

Announcement by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

·

Loss of a major customer or failure to complete significant transactions;

·

Additions or departures of key personnel; and

·

Fluctuations in stock market price and volume.


Additionally, in recent years the stock market in general, and stocks quoted on the Over-The-Counter, or OTC in particular, have experienced significant price and volume fluctuations. In some cases, these fluctuations are unrelated or disproportionate to the operating performance of the underlying companies. These market and industry factors may materially and adversely affect our stock price, regardless of our operating performance.


Over the past few months, there have been periods of significant increases in trading volume of our common stock during which the price of our stock has both increased and decreased. The historical trading of our common stock is not necessarily an indicator of how it will trade in the future and our trading price as of the date of this annual report does not necessarily portend what the trading price of our common stock might be in the future.


Moreover, class action litigation has often been brought against companies following periods of volatility in the market price of the common stock of those companies. If we become involved in this type of litigation in the future, it could result in substantial costs and diversion of management attention and resources, which could have a further negative effect on investments in our stock.


Our directors have the right to authorize the issuance of preferred stock and additional shares of our common stock.


Our directors, within the limitations and restrictions contained in our articles of incorporation and without further action by our stockholders, have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and the relative rights, conversion rights, voting rights, and terms of redemption, liquidation preferences and any other preferences, special rights and qualifications of any such series. We have no intention of issuing preferred stock at the present time. Any issuance of preferred stock could adversely affect the rights of holders of our common stock.


Should we issue additional shares of our common stock at a later time, the ownership interest of each of our current stockholders would be proportionally reduced. Our stockholders do not have any preemptive right to acquire additional shares of our common stock, or any of our other securities.


If we fail to remain current on our reporting requirements, we could be removed from the OTC which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.


Companies trading on the OTC, such as us, must be reporting issuers under Section 12 of the Exchange Act, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC. If we fail to remain current on our reporting requirements, we could be removed from the OTC. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

- 14 -

 


As a result of being a public company, we will incur increased costs that will adversely affect our liquidity and increase the risk that we will become insolvent.


As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company associated with public company reporting requirements. We also anticipate that we will incur costs associated with recently adopted corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the Securities and Exchange Commission. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. The costs that we will incur as a result of being a public company will adversely affect our already limited liquidity, making it difficult for us to proceed with our business development plans and increasing the risk that we will become insolvent. We may never become profitable. You may lose your entire investment.



Item 2.

Properties


Our business operations are conducted from our principal executive offices at 2 Toronto Street, Suite 422, Toronto, Ontario, Canada M5C 2B5. Because our business model currently relies on retaining diverse contractors to help us develop our products and perform our operations, we believe that we can accommodate growth with little or no requirements for additional capital for infrastructure.



Item 3.

Legal Proceedings


We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against us or our officers and directors in their capacity as such that could have a material impact on our operations or finances.



Item 4.

Submission of Matters to a Vote of Security Holders


During the fourth quarter of our fiscal year ended May 31, 2014, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.


- 15 -




PART II


Item 5.

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


Our common stock is quoted on the OTC under the symbol "PGSY" Our stock was not actively traded until March 1, 2010.


The following table sets forth, for the quarterly periods indicated, the range of high and low bid prices of our common stock as reported on the OTC since our stock became actively traded. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.



For the Fiscal Year Ended May 31, 2014

High

 

Low

Quarter ended May 31, 2014

$ 0.0250

 

$ 0.0050

Quarter ended February 28, 2014

$ 0.0400

 

$ 0.0012

Quarter ended November 30, 2013

$ 0.0700

 

$ 0.0050

Quarter ended August 31, 2013

$ 0.0390

 

$ 0.0089

 

 

 

 

For the Fiscal Year Ended May 31, 2013

 

 

 

Quarter ended May 31, 2013

$ 0.0215

 

$ 0.0050

Quarter ended February 28, 2013

$ 0.1150

 

$ 0.0117

Quarter ended November 30, 2012

$ 0.0500

 

$ 0.0200

Quarter ended August 31, 2012

$ 0.1670

 

$ 0.0010



DIVIDENDS


On March 30, 2012 we paid a 3:1 common stock dividend for shareholders on record as of March 28, 2012.

Since then, we have not paid any further dividends on our common stock and do not expect to declare or pay any further dividends on our common stock in the foreseeable future. Payment of any dividends will depend upon our future earnings, if any, our financial condition, and other factors as deemed relevant by the board of directors.


HOLDERS


As of May 31, 2014, we had approximately 28 holders of record of our common equity.



SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS


We do not have any compensation plan under which equity securities are authorized for issuance.



Item 6.

Selected Financial Data


Smaller reporting companies are not required to provide the information required by this Item.




- 16 -


Item 7.

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


INTRODUCTION


The following discussion and analysis compares our results of operations for the twelve months ended May 31, 2014 to the same period in 2013. 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, 2014. This annual report contains certain forward-looking statements and our future operation results could differ materially from those discussed herein.


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.


OVERVIEW


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 offer enterprise mobile marketing applications solutions, kiosk hardware and software products which fall into six principal product families: m2Meet, m2Bank, m2Market, m2Ticket, m2Kiosk, and m2Workflow. Prior to January 2010. Portlogic created and licensed online interactive community portal software systems and developed a series of web-based community portal products. In September 2013, FAMILIES social media family network site was launched.


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 2012.


On September 16, 2009, we incorporated a wholly-owned subsidiary, Sunlogic Energy Corporation in Panama City, Republic of Panama for the purpose of looking at solar and alternative green energy software and products. To date, our subsidiary has not had any operations.


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.


- 17 -


CASH AND CASH EQUIVALENTS


Cash equivalents comprise highly liquid instruments with a maturity of three months or less when purchased. As at May 31, 2014, cash equivalents amounted to $Nil (May 31, 2013 - $Nil).


REVENUE RECOGNITION


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 service periods.


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 $37 for the year end May 31, 2014 (May 31, 2013 – loss of $262).


RESULTS OF OPERATIONS

COMPARISON OF RESULTS FOR THE YEARS ENDED MAY 31, 2014 and MAY 31, 2013


REVENUE


For the year ended May 31, 2014, we recognized $809,383 in revenue from our Voip 1 telecommunications operations. For the year ended May 31, 2013, we recognized $648,806 in revenue as we had just begun our telecommunications operations in August 2012.


COST OF GOODS SOLD


We incurred $781,209 in cost of goods sold against our telecommunications revenues for the year ended May 31, 2014. We incurred $618,451 in cost of goods sold for the year ended May 31, 2013.


EXPENSES


During the year ended May 31, 2014, we incurred total expenses of $187,317 comprised of selling and administrative expense of $187,003 and depreciation of $314; compared with total expenses of $326,313 comprised of selling and administrative expense of $325,521 and depreciation of $792 for the year ended May 31, 2013. Higher expenses for the year ended May 31, 2013 were incurred all around with the creation and start up 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 due to the appointment of our new Chief Executive Officer as well as telecom consultants for our new operations versus $Nil in the current year ended May 31, 2014. In the prior year ended May 31, 2013, we also incurred a one time billing system fee of $5,000, licensing fees totaling $2,550 due to our new operations which were not incurred in the current year May 31, 2014. As well $8,800 in directors’ fees were incurred in the prior year from our previous directors; we have not extended their terms into the current year. The generally higher expenses in the year ended May 31, 2013 was partly offset by the accounting expense of $120,000 in the current year ended May 31, 2014 vs. $78,000 in the prior year due to increased operations.


- 18 -


NET INCOME/LOSS


During the year ended May 31, 2014, we incurred a net loss of $159,143 compared with a net loss of $295,958 for the year ended May 31, 2013. The large decrease in net loss was due entirely to overall much lower selling and administrative expense in the current year as one time start-up costs had already been incurred in the previous year. The biggest expense in the prior year was for telecom consultants to assist with the start up of the new operations, which was no longer needed in the current period.


LIQUIDITY AND CAPITAL RESOURCES


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. Because of the success we have had with our operations, we have been focusing on this business line as our main operations.


We have begun to have an adequate source of reliable, long-term revenue to fund operations. However, 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, 2014, we had cash and cash equivalents of $4,011. We had total current assets of $77,767.


We anticipate that we will require $250,000 in total, over the next twelve months, to adequately fund the growth of our operations. We need to be assured that we have strong presentation support, an organized implementation strategy and ongoing technical support. As we sign more clients and technology partners with proven large scale application experience, we will begin to hire project managers and begin marketing our solutions to even more targeted potential clients.


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 $4,011 that we had available as of May 31, 2014, we will need to raise additional funds. 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.


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, 2014, our total assets were $77,767, our total liabilities were $1,092,847, and stockholders’ deficiency was $1,015,080.





- 19 -



OFF-BALANCE SHEET TRANSACTION


On March 10, 2014, a former officer issued a promissory note to the Company, in consideration of a loan of $150,000 for funds advanced, over a term of two years. Proceeds from any repayment of the promissory note will be credited against start-up costs of our telecommunications operations.


Besides the aforementioned, 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.



Item 7A.

Quantitative and Qualitative Disclosures About Market Risk


Smaller reporting companies are not required to provide the information required by this Item.



- 20 -




Item 8.    

Financial Statements and Supplementary Data



SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549



CONSOLIDATED FINANCIAL STATEMENTS


MAY 31, 2014 AND 2013


FORMING A PART OF ANNUAL REPORT

PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934



PORTLOGIC SYSTEMS INC.




 

 

 

 

 

Page #

 

 


Report of Independent Registered Public Accounting Firm


22


Consolidated Balance Sheets as of May 31, 2014 and May 31, 2013

23

 

 

 

 

 

 

Consolidated Statements of Operations for the Years ended May 31, 2014 and May 31, 2013

24

 

 

 

 

 

 

Consolidated Statement of Changes in Stockholders’ Deficiency from June 22, 2004 (Inception) to May 31, 2014

25-26

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Years ended May 31, 2014 and 2013

27

 

 

 

 

 

 

Notes to Consolidated Financial Statements

28-37




- 21 -





GEORGE STEWART, CPA

316 17TH AVENUE SOUTH

SEATTLE, WASHINGTON 98144

(206) 328-8554  FAX(206) 328-0383


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors

Portlogic Systems Inc.



I have audited the accompanying balance sheets of Portlogic Systems Inc. as of May 31, 2014 and 2013, and the related statements of operations, stockholders’ equity and cash flows for the years ended May 31, 2014 and 2013 and for the period from June 22 2004 (inception), to May 31, 2014.  These financial statements are the responsibility of the Company’s management.  My responsibility is to express an opinion on these financial statements based on my audit.


I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  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.  I believe that my audit provides a reasonable basis for my opinion.


In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Portlogic Systems Inc., as of May 31, 2014 and 2013, and the results of its operations and cash flows for the years ended May 31, 2014 and 2013 and the period from June 22, 2004 (inception), to May 31, 2014 in conformity with generally accepted accounting principles in the United States of America.


The accompanying financial statements have been prepared assuming the Company will continue as a going concern.  As discussed in Note # 2 to the financial statements, the Company has had no operations and has no established source of revenue.  This raises substantial doubt about its ability to continue as a going concern.  Management’s plan in regard to these matters is also described in Note # 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



/S/ George Stewart



Seattle, Washington

August 29, 2014





- 22 -





PORTLOGIC SYSTEMS INC.

 

 

 

CONSOLIDATED BALANCE SHEETS AS OF MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)

 

 

 

 

 


May 31, 2014

May 31, 2013

 

 

$

$

ASSETS

 

 

Current

 

 

Cash and cash equivalents

4,011

2,270

 Loan receivable, net of allowance for doubtful accounts of

    $0 at May 31, 2014 and 2013

7,850

7,850

Accounts receivable

59,651

50,933

Prepaid expenses and deposits

6,255

6,255

 

 

77,767

67,308

Long-term

 

 

 

Equipment, net

 

-

314

TOTAL ASSETS

77,767

67,622

 

 

 

LIABILITIES

 

 

Current

 

 

Accounts payable and accrued liabilities

404,726

302,381

Short term loans

23,025

 

Notes payable

-

391,486

New loan

-

200,060

New convertible loan

636,546

-

Shareholder loan

19,000

22,632

Other loan

2,550

-

Convertible loan

7,000

7,000

 

1,092,847

923,559

 

 

 

STOCKHOLDERS’ DEFICIENCY

 

 

Capital stock

 

 

Preference stock; $0.001 par value; 1,000,000 shares authorized;

 

 

   0 issued and outstanding at May 31, 2014 and 2013

-

-

Common stock; $0.001 par value; 225,000,000 shares authorized;

 

 

  206,551,422* issued and outstanding at May 31, 2014

 

 

 

  and May 31, 2013

 

206,551

206,551

Additional paid in capital

190,749

190,749

Accumulated deficit                           

(1,412,380)

(1,253,237)

 

 

(1,015,080)

(855,937)

 

 

 

 


TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

77,767

67,622

 

 

 

 

* Common stock figures reflect the 3:1 forward common stock split effective March 30, 2012 on a retroactive basis

 

 

 

 

The accompanying notes form an integral part of these consolidated financial statements.




- 23 -




PORTLOGIC SYSTEMS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)

 

 

 

 

 

For the Year

For the Year

 

 

ended

 ended

 

 

May 31, 2014

May 31, 2013

 

 

$

$

Gross margin

 

 

 

Revenue

 

809,383

648,806

Cost of goods sold

 

781,209

618,451

 

 

28,174

30,355

 

 

 

 

Expenses

 

 

 

Selling and administrative

 

187,003

325,521

Depreciation

 

314

792

 

 

187,317

326,313

 

 

 

 

Net loss for the period

 

 (159,143)

(295,958)

 

 

 

 

Net loss per share for the period

 

 

 

Basic and fully diluted

 

(0.0008)

(0.0014)

 

 

 

 

Weighted average number of shares outstanding

 

 

 

Basic and fully diluted

 

*206,551,422

*206,551,422

 

 

 

* Reflects the 3:1 forward common stock split effective March 30, 2012 on a retroactive basis.

 

 

 

 

The accompanying notes form an integral part of these financial statements.







- 24 -





PORTLOGIC SYSTEMS INC.

 

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY

FROM JUNE 22, 2004 (INCEPTION) TO MAY 31, 2014

 

Deficit

 

 

(Amounts Expressed in US Dollars)

Common
Stock *

Common
Stock
Amount

Additional
Paid in
Capital

Accumulated
During
Development
Stage

Unamortized
Stock-based
Compensation

Total
Stockholders’
Equity
(Deficiency)

 

 

$

$

$

$

$

Balance as of June 22, 2004

-  

-  

-  

Stock issued in January 2005 for cash @ 0.0005 (pre-stock split of 0.001) a share

 17,700,000

17,700

(14,750)

2,950

Stock issued in February 2005 for cash @ 0.001 (pre-stock split of 0.002) a share

 600,000

600

(400)

 200

Stock issued in May 2005 for cash @ 0.001 (pre-stock split of 0.002) a share

 9,000,000

 9,000

(6,000)

 3,000

Net loss for the period

 

 

 

(7,125)

(7,125)

Balance as of May 31, 2005

27,300,000

27,300

(21,150)

(7,125)

 (975)

Stock issued in July 2005 for cash @ 0.001 (pre-stock split of 0.002) a share

 151,650,000

151,650

(101,100)

 50,550

Stock issued in September 2005 for cash @ 0.001 (pre-stock split of 0.002) a share

 7,500,000

7,500

(5,000)

 2,500

Stock issued in October 2005 for software @ 0.025 (pre-stock split of 0.05) a share

 13,440,000

13,440

98,560

 112,000

Stock issued in April 2006 for cash @ 0.025 (pre-stock split of 0.05) a share

 180,000

180

1,320

 1,500

Stock issued in May 2006 for cash @ 0.025 (pre-stock split of 0.05) a share

 1,440,000

1,440

 10,560

 12,000

Net loss for the year

-  

(11,954)

 (11,954)

Balance as of May 31, 2006

201,510,000

 201,510

(16,810)

 (19,079)

 165,621

Stock issued in June 2006 for cash @ 0.025 (pre-stock split of 0.05) a share

 180,000

180

 1,320

 1,500

Stock issued in July 2006 for cash @ 0.025 (pre-stock split of 0.05) a share

 60,000

60

 440

 500

Stock issued in December 2006 for cash @ 0.025 (pre-stock split of 0.05) a share

 180,000

180

 1,320

 1,500

Stock issued in February 2007 for cash @ 0.075 (pre-stock split of 0.15) a share

799,998

800

 19,200

 20,000

Stock issued in May 2007 for cash @ 0.10 (pre-stock split of 0.20) a share

 600,000

600

 19,400

 20,000

Stock issued in May 2007 for cash @ 0.15 (pre-stock split of 0.30) a share

2,989,998

2,990

 146,510

 149,500

Net loss for the year

-

(39,305)

 (39,305)



- 25 -





PORTLOGIC SYSTEMS INC. (A Development Stage Company)

 

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY

FROM JUNE 22, 2004 (INCEPTION) TO MAY 31, 2014 (cont’d)

 

 

 

 

(Amounts Expressed in US Dollars)

 

Deficit

 

 

 

Common
Stock *

Common
Stock
Amount

Additional
Paid in
Capital

Accumulated
During
Development
Stage

Unamortized
Stock-based
Compensation

Total Stockholders’
Equity
(Deficiency)

 

 

$

$

$

$

$

Balance as of May 31, 2007

206,319,996

 206,320

 171,380

 (58,384)

319,316

Stock issued in January 2008 for cash @ 0.175 (pre-stock split of 0.35) a share

171,426

 171

9,829

-

10,000

Net loss for the year

(187,428)

 

(187,428)

Balance as of May 31, 2008

206,491,422

206,491

 181,209

 (245,812)

141,888

Net loss for the year

(157,555)

 

(157,555)

Balance as of May 31, 2009

206,491,422

206,491

 181,209

 (403,367)

(15,667)

Net loss for the year

(216,373)

 (216,373)

Balance as of May 31, 2010

206,491,422

206,491

 181,209

 (619,740)

(232,040)

Net loss for the year

(208,079)

(208,079)

Balance as of May 31, 2011

206,491,422

206,491

181,209

 (827,819)

(440,119)

Issuance of restricted stock for services

60,000

60

9,540

(9,600)

-

Amortization of stock-based compensation for stockholders

800

800

Net loss for the year

(129,460)

 (129,460)

Balance as of May 31, 2012

206,551,422

206,551

190,749

 (957,279)

(8,800)

(568,779)

Amortization of stock-based compensation for stockholders

8,800

8,800

Net loss for the year

(295,958)

 (295,958)

Balance as of May 31, 2013

206,551,422

206,551

190,749

 (1,253,237)

(855,937)

Net loss for the year

(159,143)

 (159,143)

Balance as of May 31, 2014

206,551,422

206,551

190,749

 (1,412,380)

(1,015,080)


* The figure in Common Stock reflects the 3:1 forward common stock split effective March 30, 2012 on a retroactive basis.

The accompanying notes form an integral part of these consolidated financial statements.



- 26 -





PORTLOGIC SYSTEMS INC.

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)

 

 

 

 

 

 

 

For the Year
Ended

May 31, 2014

For the Year

Ended

May 31, 2013

 

 

 

$

$

Cash Flows from Operating Activities

 

 

 

 

Net Loss

 

 

(159,143)

(295,958)

Adjustments made to reconcile net loss to net cash from

   operating activities

 

 

 

Depreciation of equipment

 

 

314

792

Amortization of stock-based compensation

 

 

-

8,800

Changes in operating assets and liabilities

 

 

 

 

Increase in accounts and other receivables

 

 

(8,718)

(49,840)

Decrease in interest receivable

 

 

-

86

Increase in accounts payable and accrued liabilities

 

102,345

143,751

Cash flows used in operating activities

 

 

(65,202)

(192,369)

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

Purchase of equipment

 

 

-  

-  

Cash flows used in investing activities

 

 

-  

-  

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

Proceeds from issuance of short term loans

 

 

23,025

-

Assignment of notes payable

 

 

(391,486)

-

Assignment of new loan

 

 

(200,060)

200,060

   Proceeds from assignment and issuance of convertible loan

 

636,546

-

Payments towards shareholder loan

 

 

(3,632)

(14,225)

Proceeds from issuance of other loan

 

 

2,550

-

Cash flows provided by financing activities

 

 

66,943

185,835

Increase (decrease) in cash and cash equivalents

 

 

1,741

(6,534)

Cash and cash equivalents, beginning of period

 

 

2,270

8,804

Cash and cash equivalents, end of period

 

 

4,011

2,270

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

Non-cash Activities

 

 

 

 

Promissory note receivable

 

 

150,000

-

 

The accompanying notes form an integral part of these consolidated financial statements.



- 27 -


PORTLOGIC SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)




NOTE 1.  ORGANIZATION AND DESCRIPTION OF BUSINESS


Portlogic Systems Inc. (“Portlogic”) was incorporated under the laws of the State of Nevada on June 22, 2004. On June 5, 2008, Portlogic filed a Form S-1 Registration Statement under the United States Securities Act of 1933. It became effective June 24, 2008.


Portlogic is a Toronto, Canada based development stage company with enterprise mobile marketing applications solutions, kiosk hardware and software products which fall into six principal product families: m2Meet, m2Bank, m2Market, m2Ticket, m2Kiosk, and m2Workflow. Prior to January 2010. Portlogic created and licensed online interactive community portal software systems and developed a series of web-based community portal products.


On September 16, 2009, Portlogic incorporated a wholly-owned subsidiary, Sunlogic Energy Corporation in Panama City, Republic of Panama for the purpose of looking at solar and alternative green energy software and products. Initial operations include: capital formation; organization; website construction; target market identification; research costs; promotional materials costs; and marketing planning. Sunlogic Energy Corporation is still incorporated as a subsidiary but its operations are on hold.


On June 18, 2012, Portlogic 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 2012.


The accompanying audited consolidated financial statements include Portlogic and its subsidiary (hereinafter referred to collectively as the “Company”). All intercompany balances and transactions have been eliminated in consolidation.


The accompanying audited consolidated financial statements present the balance sheet, statements of operations, stockholders’ deficiency and cash flows of the Company. The accompanying audited consolidated financial statements have been prepared by management in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for financial statements.



NOTE 2.  GOING CONCERN


The accompanying consolidated financial statements are presented on a going concern basis which contemplates the realization of assets and discharge of obligations in the normal course of business as they come due. No adjustments have been made to assets or liabilities in these consolidated financial statements should the Company not be able to continue normal business operations.


The Company has incurred losses from inception and, during the year ended May 31, 2014, the Company utilized $65,202 (2013 - $192,369) of cash in operations. At May 31, 2014, the Company reported a deficit of $1,412,380 and continues to expend cash in amounts that exceed revenues. These conditions cast substantial doubt on the ability of the Company to continue in business and meet its obligations as they come due. Management is considering various alternatives and is pursuing additional capital resources. Nevertheless, there can be no assurance that these initiatives if undertaken will be successful.


The Company has shifted its focus to specializing in mobile applications solutions marketing, and data and telecommunications technology. The Company also develops a series of web-based community portal products as well as a series of off-the-shelf template based websites. The Company’s continuance as a going concern is dependent on the commercialization of more of the Company’s products and the achievement of profitable operations as well as the success of the Company in raising additional long-term financing through debt or equity offerings. In the event that the Company is not successful in these efforts, the assets may not be realized or liabilities discharged at their carrying amounts, and differences from the carrying amounts reported in these consolidated financial statements could be material.


- 28 -


PORTLOGIC SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)



NOTE 3.  SIGNIFICANT ACCOUNTING POLICIES


Accounting Estimates


The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Financial statement items subject to significant judgment include the expected life of equipment and source code, the net realizable value of accounts receivable, the completeness of expense accruals, as well as income taxes and loss contingencies. Actual results may differ from those estimates.


Cash and Cash Equivalents


Cash equivalents comprise highly liquid instruments with a maturity of three months or less when purchased. As at May 31, 2014, cash equivalents amounted to $Nil (May 31, 2013 - $Nil).


Equipment


Equipment is recorded at cost less accumulated depreciation. Depreciation is provided using the straight-line method over the assets’ estimated useful lives (three years for computer hardware and mobile hardware and two years for computer software).


Asset Impairment


Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows that are expected to result from the use of the asset and its eventual disposition.


Advertising Costs


Advertising costs are expensed as incurred. Advertising costs amounted to $768 for the year ended May 31, 2014 (2013 - $768), which was included as part of selling and administrative expenses.


Revenue Recognition


The Company recognizes 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.


Service revenues are generally recognized at the time of performance.  Revenues billed in advance under contracts are deferred and recognized over the corresponding service periods.


Foreign Currency Translation


The Company maintains its 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, monetary assets and liabilities denominated in a foreign currency are translated 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 $37 for the year end May 31, 2014 (May 31, 2013 - loss of $262).



- 29 -


PORTLOGIC SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)




NOTE 3.  SIGNIFICANT ACCOUNTING POLICIES (cont’d)


Income Taxes


The Company accounts for its income taxes in accordance with ASC 740, “Income Taxes”, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that the deferred tax assets will not be realized.


Earnings (Loss) per Share


The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of the convertible loan into common shares would have an anti-dilutive effect.


Comprehensive Income


The Company has adopted ASC 220, "Comprehensive Income," which establishes standards for reporting and the display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners or distributions to owners. Among other disclosures, the standard requires that all items that are required to be recognized under the current accounting standards as a component of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income would be displayed in the statement of shareholders' equity and in the balance sheet as a component of shareholders' equity (deficiency). The Company had no other comprehensive income (loss) for the years ended May 31, 2014 and 2013. As such, net loss is equivalent to total comprehensive loss.


Financial Instruments and Risk Concentrations


The Company’s financial instruments comprise cash and cash equivalents, loan receivables, accounts payable and accrued liabilities, notes payable and convertible loan. Unless otherwise indicated, the fair value of financial assets and financial liabilities approximate their recorded values due to their short-terms to maturity. The Company determines the fair value of its long-term financial instruments based on quoted market values or discounted cash flow analyses.


Financial instruments that may potentially subject the Company to concentrations of credit risk comprise primarily cash and cash equivalents and accounts receivable. Cash and cash equivalents comprise deposits with major commercial banks and/or checking account balances. With respect to accounts receivable, the Company performs periodic credit evaluations of the financial condition of its customers and typically does not require collateral from them. Allowances are maintained for potential credit losses consistent with the credit risk of specific customers and other information. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or currency risks in respect of its financial instruments.




- 30 -


PORTLOGIC SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)



NOTE 3.  SIGNIFICANT ACCOUNTING POLICIES (cont’d)


Leases


Leases entered into by the Company as a lessee are classified as capital or operating leases. Leases that transfer substantially the entire risks and benefits incidental to ownership are classified as capital leases. At the inception of a capital lease, an asset and an obligation are recorded at an amount equal to the lesser of the present value of the minimum lease payments and the asset’s fair market value at the beginning of each lease. Rental payments under operating leases are expensed as incurred.


Stock-Based Compensation


The Company has adopted SFAS 123 (Revised), “Share Based Payment,” which requires the Company to measure the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee or a non-employee is required to provide service in exchange for the award-the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee and non-employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments.


NOTE 4.  FAIR VALUE MEASUREMENTS

Beginning June 1, 2008, the Company partially applied accounting standard, “Fair Value Measurements,” codified as ASC 820. The standard defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value, in this context, should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk.


In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:


 

Level 1

Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2

Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;

Level 3

Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which result in the use of management estimates.




- 31 -


PORTLOGIC SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)



NOTE 4.  FAIR VALUE MEASUREMENTS (cont’d)



Fair Value Measurements Using

  

Assets/Liabilities

  

  

Level 1

  

  

Level 2

  

  

Level3

  

  

At Fair Value

Asset

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Cash and cash equivalents

  

 $

4,011

  

  

$

-

  

  

  

-

  

  

$

4,011

     Loan receivable

 

 

-

 

 

 

 

 

 

$

7,850

 

 

$

7,850

Liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Short term loans

 

 

-

 

 

 

 

 

 

$

23,025

 

 

$

23,025

     New convertible loan

 

 

 

 

 

 

 

 

 

$

636,546

 

 

$

636,546

     Shareholder loan

 

 

-

 

 

 

 

 

 

$

19,000

 

 

$

19,000

     Other loan

 

 

 

 

 

 

 

 

 

$

2,550

 

 

$

2,550

     Convertible loan

 

 

-

 

 

 

 

 

 

$

7,000

 

 

$

7,000




NOTE 5.  EQUIPMENT


Equipment – May 31, 2014

 Cost

 Accumulated

Depreciation

 Net Book
Value

 

$

          $

     $

Mobile hardware

893

893

-

Computer hardware

9,266

9,266

-

Computer software

5,456

5,456

-

 

15,615

15,615

-


Equipment – May 31, 2013

 Cost

 Accumulated

Depreciation

 Net Book
Value

 

$

          $

     $

Mobile hardware

893

620

273

Computer hardware

9,266

9,225

41

Computer software

5,456

5,456

-

 

15,615

15,301

314



Depreciation expense amounted to $314 for the year ended May 31, 2014 (May 31, 2013 - $792).





- 32 -


PORTLOGIC SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)



NOTE 6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES


 

May 31, 2014

May 31, 2013

 

        $

        $

Cost of goods sold & Telecom

26,953

55,161

Audit and review

14,800

15,400

Bookkeeping and accounting

165,312

58,653

Legal

-

4,675

Consulting

37,000

37,000

IT

48,000

48,000

Other

6,040

5,590

Interest payable

106,621

77,902


404,726

302,381


NOTE 7.  SHORT TERM LOANS


In the year ended May 31, 2014, the Company has received short-term loans from two separate parties to help meet cash flow needs for operations. These are short term loans that the Company has already started repaying in installments.


NOTE 8.  NOTES PAYABLE


On July 18, 2008, the Company 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. Interest is payable at the prime rate plus 2%. This has been extended under the same terms. Principal and interest was now due on July 18, 2014 unless demanded earlier. On July 18, 2008, the Company borrowed $25,000 against the total $100,000 available to be drawn down. On April 14, 2009, the Company borrowed $5,000 against the total $75,000 available to be drawn down. On June 10, 2009, the Company borrowed $50,000 against the total $70,000 available to be drawn down leaving a total balance payable of $80,000. On December 31, 2013, the entire amount of this note was assigned to a third party. Therefore the balance payable on this note payable is $Nil as of May 31, 2014 (May 31, 2013 - $80,000).


On August 26, 2009, the Company issued an additional note payable in consideration of a draw down unsecured loan up to an aggregate of $300,000 over a term of one year. Interest is payable at the prime rate plus 2%. This has been extended under the same terms. Principal and interest was now due on August 26, 2014 unless demanded earlier. On August 26, 2009, the Company borrowed $100,000 against the total $300,000 available to be drawn down. On March 3, 2010, the Company borrowed $75,000 against the total $200,000 available to be drawn down. On August 24, 2010, the Company borrowed $30,000 against the total $125,000 available to be drawn down. On September 27, 2010, the Company borrowed $10,000 against the total $95,000 available to be drawn down. On November 1, 2010, the Company borrowed $10,000 against the total $85,000 available to be drawn down leaving $75,000 further funds available to be drawn down. On December 9, 2010, the Company borrowed $15,000 against the total $75,000 available to be drawn down leaving $60,000 further funds available to be drawn down. On December 15, 2010, the Company borrowed $10,000 against the total $60,000 available to be drawn down leaving $50,000 further funds available to be drawn down. On January 18, 2011, the Company borrowed $15,000 against the total $50,000 available to be drawn down leaving $35,000 further funds available to be drawn down. On March 9, 2011, the Company borrowed $12,000 against the total $35,000 available to be drawn down leaving $23,000 further funds available to be drawn down. On January 5, 2012, the Company borrowed $19,943 against the total $23,000 available to be drawn down leaving $3,057 further funds available to be drawn down. On March 13, 2012, the Company borrowed $8,943 against the total $3,057 available to be drawn down resulting in $5,886 overdrawn against the $300,000 loan. On April 2, 2012, the Company borrowed a final $5,600 resulting in $11,486 to be overdrawn against the $300,000 loan, leaving a total balance payable on this note payable of $311,486. On December 31, 2013, the entire amount of this note was assigned to a third party. Therefore the balance payable on this note payable is $Nil as of May 31, 2014 (May 31, 2013 - $311,486).

- 33 -


PORTLOGIC SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)


NOTE 8.  NOTES PAYABLE (cont’d)


Interest expense was calculated to December 31, 2013 and amounted to $28,719 for the year ended May 31, 2014 (May 31, 2013 - $32,854) and is included in selling and administrative expense. As at May 31, 2014, accrued interest of $106,621 (May 31, 2013 - $77,902) is included in accounts payable and accrued liabilities.


NOTE 9.  NEW LOAN


On June 8, 2012, the Company received an unsecured loan of $100,080 to help fund and start up the Company’s new Telecom line of business. On July 30, 2012, the Company received an additional $49,980. On October 4, 2012 and November 16, 2012, further loans of $25,000 on each date were received, leaving a total balance payable of $200,060. On December 31, 2013, the entire amount of this note was assigned to a third party. Therefore the balance payable is $Nil as of May 31, 2014 (May 31, 2013 - $200,060). Interest is payable at the prime rate plus 2% and was calculated to December 31, 2013.


NOTE 10.  CONVERTIBLE LOAN


A convertible debenture, issued March 11, 2005, was unsecured, matured March 11, 2012 and carried interest at a rate of 10% per annum. The instrument is convertible at the option of the holder into common shares of the Company at a rate of $0.05 per share, and may be redeemed at any time prior to maturity at the option of the holder, should certain conditions prevail. The holder of the debenture has signed agreements waiving interest accrued from March 11, 2005 through to March 10, 2014. This convertible debenture has not been repaid and is due on March 10, 2015.


NOTE 11.  ASSIGNMENT AND NEW CONVERTIBLE LOAN


On December 31, 2013, the Board of Directors approved to amend existing Notes Payable and New Loan to provide for conversion and assignment of outstanding amounts due and owing into shares of the Company’s common stock at $0.001 per share. In addition to the loan amounts assigned over, the Company borrowed $45,000 on December 3, 2013. Therefore in aggregate, the total balance payable on this convertible loan is $636,546 as of May 31, 2014 (May 31, 2013 - $Nil).


NOTE 12.  STOCK TRANSACTIONS *


Transactions, other than employees’ stock issuance, are in accordance with paragraph 8 of SFAS 123 “Share Based Payment”. Thus issuances shall be accounted for on the fair value of the consideration received. Transactions with employees’ stock issuance are in accordance with paragraphs (16-44) of SFAS 123. These issuances shall be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, or whichever is more readily determinable.


In January 2005, the Company issued a total of 17,700,000* shares of common stock to nine individuals for cash in the amount of $0.0005 per share for a total of $2,950.


On February 7, 2005, the Company issued a total of 600,000* shares of common stock to one individual for cash in the amount of $0.001 per share for a total of $200.


On May 26, 2005, the Company issued a total of 9,000,000* shares of common stock to one individual for cash in the amount of $0.001 per share for a total of $3,000.


In July 2005, the Company issued a total of 151,650,000* shares of common stock to nine individuals for cash in the amount of $0.001 per share for a total of $50,550.



- 34 -


PORTLOGIC SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)



NOTE 12.  STOCK TRANSACTIONS ** (cont’d)


On September 14, 2005, the Company issued a total of 7,500,000* shares of common stock to one director for cash in the amount of $0.001 per share for a total of $2,500.


On October 31, 2005, the Company issued a total of 13,440,000* shares of common stock in the amount of $0.025 per share for a total of $112,000, which was the fair value of the stock on date of issuance, in consideration for the purchase of source code software. A further $40,000 in cash was also paid as consideration for this asset purchase agreement.


In April 2006, the Company issued a total of 180,000* shares of common stock to three individuals for cash in the amount of $0.025 per share for a total of $1,500.


In May 2006, the Company issued a total of 1,440,000* shares of common stock to five individuals for cash in the amount of $0.025 per share for a total of $12,000.


In June 2006, the Company issued a total of 180,000* shares of common stock to three individuals for cash in the amount of $0.025 per share for a total of $1,500.


On July 22, 2006, the Company issued a total of 60,000* shares of common stock to one individual for cash in the amount of $0.025 per share for a total of $500.


On December 22, 2006, the Company issued a total of 180,000* shares of common stock to one individual for cash in the amount of $0.025 per share for a total of $1,500.


On February 22, 2007, the Company issued a total of 799,998* shares of common stock to one individual for cash in the amount of $0.075 per share for a total of $20,000.


In May 2007, the Company issued a total of 3,589,998* shares of common stock to three individuals for cash in the amount of $0.1416 per share for a total of $169,500.


On January 10, 2008, the Company issued a total of 171,426* shares of common stock to one individuals for cash in the amount of $0.175 per share for a total of $10,000.


On April 11, 2012, the Company issued a total of 30,000* shares of common stock to a director in return for services. The market value of shares on the date of issuance was $0.16 per share.


On April 11, 2012, the Company issued a total of 30,000* shares of common stock to another director in return for services. The market value of shares on the date of issuance was $0.16 per share.


As of May 31, 2012, the Company had 206,551,422* share of common stock issued and outstanding.


* After giving retroactive effect of 2:1 stock split effective January 20, 2010 and 3:1 forward common stock split effective March 30, 2012



NOTE 13.  UNAMORTIZED STOCK-BASED COMPENSATION FOR STOCKHOLDERS


On April 11, 2012, the Company issued 30,000 shares of its common stock to a director of the Company in return for services. The stock-based compensation issued has been valued at $4,800 ($0.16 per share) which was the fair value of the stock on the date of issuance. The stock must be held for a minimum of twelve months from the date of issuance. The amount of this compensation is being amortized over twelve months starting May 1, 2012. The unamortized portion of this is $Nil as at May 31, 2014 (May 31, 2013 - $Nil) and has been expensed as directors’ fees.



- 35 -


PORTLOGIC SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)




NOTE 13.  UNAMORTIZED STOCK-BASED COMPENSATION FOR STOCKHOLDERS (cont’d)


On April 11, 2012, the Company issued 30,000 shares of its common stock to another director of the Company in return for services. The stock-based compensation issued has been valued at $4,800 ($0.16 per share) which was the fair value of the stock on the date of issuance. The stock must be held for a minimum of twelve months from the date of issuance. The amount of this compensation is being amortized over twelve months starting May 1, 2012. The unamortized portion of this is $Nil as at May 31, 2014 (May 31, 2013 - $Nil) and has been expensed as directors’ fees.


The total unamortized portion of stock-based compensation for stockholders is $Nil as at May 31, 2014 (May 31, 2013 - $Nil).



NOTE 14.  STOCKHOLDERS’ DEFICIENCY


The stockholders' deficiency section of the Company contains the following classes of capital stock as of May 31, 2014: *


Preferred stock: $0.001 par value: 1,000,000 shares authorized and 0 shares issued and outstanding.

Common stock, $0.001 par value; 225,000,000 shares authorized and 206,551,422* shares issued and outstanding.


The stockholders' deficiency section of the Company contains the following classes of capital stock as of May 31, 2013: *


Preferred stock: $0.001 par value: 1,000,000 shares authorized and 0 shares issued and outstanding.

Common stock, $0.001 par value; 225,000,000 shares authorized and 206,551,422* shares issued and outstanding.


* After giving retroactive effect of 2:1 stock split effective January 20, 2010 and 3:1 forward common stock split effective March 30, 2012


NOTE 15.  COMMITMENTS AND RELATED PARTY TRANSACTIONS


a)

On June 25, 2008, the Company advanced $9,807 to UOMO Media Inc. (“UOMO”). The director of the Company is also a director of UOMO. This advance was paid back to the Company on February 19, 2010. In April and May 2010, the Company advanced a total amount of $13,500 as a temporary loan again. In June 2010, a further $1,600 was advanced totaling the temporary loan to $15,100. In August 2011, a payment of $1,624 was applied against this loan. On September 11, 2011, a payment of $490 was applied against this loan. In December 2011, payments of $4,043 were further applied against this loan. On October 1, 2012, $1,094 was repaid. As at May 31, 2014, $7,850 remains receivable from UOMO (May 31, 2013 – $7,850).

 

b)

On May 1, 2007, an independent contractor agreement was entered into under which compensation of $3,000 per month was to be paid to perform services as an officer to October 31, 2007. New agreements have been entered into with this contractor from November 1, 2007 to October 31, 2008 at $3,000 per month. The agreement was continued on a month-to-month basis. On June 30, 2012, the Company entered into a new agreement with the independent contractor under which compensation of $3,000 per month would be paid from July 1, 2012 to November 30, 2012. Then compensation of $10,000 per month would be paid from December 1, 2012 through to June 20, 2014. The related service fee for the year ended May 31, 2014 amounted to $120,000 (May 31, 2013 - $78,000).


c)

On July 1, 2012, an independent contractor agreement was entered into under which compensation of $12,000 per month was to be paid to perform services as an officer to December 31, 2012. The related service fee for the year ended May 31, 2014 amounted to $Nil (May 31, 2013 - $72,000).



- 36 -


PORTLOGIC SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2014 AND 2013

(Amounts expressed in US Dollars)



NOTE 15.  COMMITMENTS AND RELATED PARTY TRANSACTIONS (cont’d)


d)

On March 10, 2014, a former officer issued a promissory note to the Company, in consideration of a loan of $150,000 for funds advanced, over a term of two years. Proceeds from any repayment of the promissory note will be credited against start-up costs of our telecommunications operations.



NOTE 16.  SUBSEQUENT EVENTS


The Company evaluated all events or transactions that occurred after May 31, 2014 up through the date these financial statements were available for issuance. During this period, the Company did not have any material recognizable subsequent events.



- 37 -




Item 9.   

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.


On December 30, 2010, our Audit Committee of the Board of Directors dismissed MSCM LLP (“MSCM”) as our independent registered public accounting firm. During our two most recent fiscal years and subsequent interim period through the date of this Report, there were no disagreements with MSCM on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of MSCM, would have caused MSCM to make reference to the subject matter of the disagreement in its reports on the our Company’s financial statements for such years.


On December 31, 2010, our Audit Committee of the Board of Directors approved the engagement of George Stewart, CPA (“Stewart”) as our independent accountants for the fiscal year ending May 31, 2011 effective immediately and for fiscal years moving forward.


During our two most recent fiscal years, neither our Company nor anyone acting on our behalf consulted with Stewart regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, (ii) the type of audit opinion that might be rendered on the Company’s financial statements or (iii) any matter that was either a subject of disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).


Prior to our engagement, Stewart did not provide us with either written or oral advice that was an important factor considered by our Company in reaching a decision to continue the appointment of Stewart as our Company’s new independent registered public accounting firm.

 


Item 9A(T).

Controls and Procedures.


Evaluation of Disclosure Controls and Procedures


Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this annual report on Form 10-K. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures cannot be relied upon to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures include components of our internal control over financial reporting. Management's assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance that the control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met.


Management’s Report on Internal Control Over Financial Reporting


Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. We have assessed the effectiveness of those internal controls as of May 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

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A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects a company's ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the company's annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified a material weakness in our internal control over financial reporting. This material weakness consisted of inadequate staffing within the accounting operations of our Company. The small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews. Due to this material weakness, management could not conclude that its internal control over financial reporting was effective as of May 31, 2014.

Our review also indicated the existence of certain high level procedures that might or might not serve to provide compensating control over these weaknesses. These procedures consisted of analytical review of key operating results by our senior management, including preparation and review of monthly operating results, comparison of such results to budgets and to historical amounts. In addition, the board of directors received monthly updates on operations, and on a quarterly basis, reviews, investigates and discusses apparent inconsistencies and concerns with senior operating management.


Our review also revealed that although a number of controls appeared to exist, and were observed to have been in operation, documentary evidence that such controls were operating throughout the period was found to be lacking. Such evidence as signatures indicating that a certain procedure had been carried out and affixing responsibility were lacking in the internal control system.


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


Changes in Internal Control Over Financial Reporting


There was no change in our internal controls over financial reporting that occurred during the year ended May 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.


Item 9B.

Other Information


None.




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PART III


Item 10.   

Directors, Executive Officers and Corporate Governance


OUR DIRECTORS AND EXECUTIVE OFFICERS


The following table sets forth the name, age, positions, and offices or employments for the past five years as of May 31, 2014, of our directors and executive officers.


Name

Age

Position

Officer or Director Since

Jueane Thiessen

40

Director, President, Secretary, Treasurer

2004

Joseph Putegnat

55

Chief Executive Officer*

2012

Bruce Maschmeyer

63

Director **

2011

Donald Gilpin

65

Director ***

2011

Rafik Jallad

41

Chief Executive Officer ****

2010

Edvard Halupa

30

Director, Chief Technology Officer *****

2008


        * Mr. Putegnat resigned from office and our board of directors effective February 19, 2014.

      ** Mr. Maschmeyer resigned from office effective December 5, 2012, the end of the term of his Agreement.

    *** Mr. Gilpin resigned from office effective November 23, 2012, the end of the term of his Agreement.

  **** Mr. Jallad resigned from office effective July 31, 2011, the end of the term of his Agreement.

***** Mr. Halupa resigned from office and our board of directors, effective November 15, 2010.


BIOGRAPHIES OF OUR DIRECTORS AND EXECUTIVE OFFICERS

 

Jueane Thiessen has served as our Treasurer since June 2004 and as a director since January 2005. Ms. Thiessen served as our President from June 2004 through February 2007 and again served as our President from November 30, 2007 until August 1, 2010. Ms. Thiessen served as acting President again from August 1, 2011 until June 30, 2012 and currently again since February 19, 2014. Ms. Thiessen has over 19 years of experience performing accounting and financial management services for accounting, property management, and marketing firms. Her experience includes serving as the Treasurer of Algorithmics Inc., a Toronto-based enterprise risk management firm, from November 2000 through May 2002. From May 2002 through January 2003, Ms. Thiessen was Assistant Controller to Mosaic Group Inc., a marketing consulting firm located in Toronto, Canada. From January 2003 until November 2006, she was Director of Finance of FUSE Marketing Group, a Toronto-based marketing consulting agency, and from November 2006 until April 2007 she served as Chief Financial Officer of the N5R Group of companies, a real estate marketing agency with operations in Canada and the United States. In addition to her work with us, Ms. Thiessen currently performs management work for UOMO Media, Inc., a publicly traded development-stage multi-channel entertainment company based in Toronto, Canada, where she was appointed as Chief Financial Officer and to the board of directors in October 2006. Ms. Thiessen is a Certified General Accountant of the Province of Ontario, Canada and a Certified Public Accountant. She devotes a minimum of 30 hours per week to activities relating to Portlogic Systems Inc. pursuant to her Independent Contractor Agreement with us.


Joseph Putegnat was appointed as Chief Executive Officer and President on July 1, 2012. Mr. Putegnat is an experienced telecommunications executive and entrepreneur with more than 20 years extensive career in the development of wholesale carrier sales; credited with several start-up ventures in addition to his tenures at major telecommunications companies. From 2010 through 2011, Mr. Putegnat was the founder and President of XcomIP, LLC. From 2007 to 2008 he was the founder and President of XchangeTel, Inc., an international long-distance wholesale carrier focused on the use of VoIP technologies. Mr. Putegnat founded and served as President and CEO of Jupiter Telecom, Inc., an international long-distance wholesale carrier also focused on the use of VoIP technologies in the early years of integration from 2003 to 2005. Prior to founding Jupiter Telecom, from 1996 to 2000, Mr. Putegnat was founder and President of LDExchange.com, Inc., a technology-oriented long-distance wholesale carrier, which he built to more than $80 million in annual revenues with 220 carriers connected to the network. In November 1998, he negotiated the sale of LDExchange.com to Micro General, Inc. (since acquired by Fidelity National Information Systems, NYSE: FNF) for approximately $38 million. From 1993 to 1995, Mr. Putegnat was a founder of San Diego-based telecom consulting firm I-Tel, where he provided strategic consulting to two major U.S. carriers, and helped to establish a route to China that grossed revenues of approximately $17 million per month. From 1986 to 1990, Mr. Putegnat served as a national account representative for U.S. Sprint, consistently ranking as one of the top sales representatives nationwide, and was a member of the President’s Club from 1986 to 1990. Mr. Putegnat attended University of Florida in 1977 and University of Central Florida in 1979. Mr. Putegnat resigned on February 19, 2014. The resignation was not a result of any disagreement with the Company and Mr. Putegnat continues to assist as we transition.

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Bruce Maschmeyer served on our board of directors from December 6, 2011 until December 5, 2012, which was the end of the term of his Agreement. Bruce Maschmeyer has over 36 years of executive and senior management experience running several large and small companies. Mr. Maschmeyer has been the CEO of Abaan & Associates Inc. since its inception in May 2008. Prior to that, from 1975 to 1998, Mr. Maschmeyer was the Senior Sales and Marketing Executive at Gillette Canada. From 1998-2002, Mr. Maschmeyer served as General Manager at Tribar Industries Inc., a leading radar and LED indoor/outdoor advertising sign manufacturer and outdoor advertising company. And since 1997, Mr. Maschmeyer has owned and managed RGB Outdoor, a private LED video advertising company. Mr. Maschmeyer received a Bachelor of Science and Bachelor of Arts from the University of Alberta in 1975.


Donald Gilpin served on our board of directors from November 24, 2011 until November 23, 2012, which was the end of the term of his Agreement. Mr. Donald Gilpin has had a career spanning over 30 years in product development and sales management in the packaging and point-of-sale display industries. Prior to joining Portlogic Systems Inc., Mr. Gilpin’s headed Image Pak Display Group, a division of Smurfit Stone. Mr. Gilpin was also responsible for the creation, development and implementation of the Shoppers Drug Mart: Sidewinder Display program, which, today, is utilized by the point-of-purchase display industry in all major retail stores throughout North America. Mr. Gilpin has been the President of Abaan & Associates Inc. since its inception in May 2008. Prior to that, Mr. Gilpin was an Executive at Talon Retail Strategies Group Inc. He received a Bachelor of Business Administration from York University in Toronto in 1973.


Rafik Jallad served as our Chief Executive Officer from August 1, 2010 until July 31, 2011, which was the end of the term of his Agreement. Prior to joining, Mr. Jallad was the Chief Executive Officer of Blue-Creation, a UK-based technical consultancy company. Before joining Blue-Creation, Mr. Jallad was Vice President, Automotive, at Cambridge Silicon Radio (CSR), a leading connectivity company, responsible for their Automotive business unit and leading the strategy work from 2007 to 2010. From 2002 to 2007, Mr. Jallad held two senior management positions; from 2004 to 2007, Mr. Jallad was in charge of business development in US, Europe and Asia at Ubinetics, which was then acquired by CSR. From 2002 to 2004, Mr. Jallad headed British Telecom Syntegra’s mobility solutions. Prior to this, Mr. Jallad was an Associate for management and strategy consultants McKinsey and Company in Paris, France, from 1999 to 2002. Mr. Jallad holds a Masters Degree in engineering from EPFL - Swiss Federal Institute of Technology Lausanne, as well as an MBA from the INSEAD management business school.


Edvard Halupa has served as our Technology Manager since January 2007. On March 27, 2008, Mr. Halupa was appointed Chief Technological Officer and elected as a director. Mr. Halupa resigned from the Company on November 15, 2010. Mr. Halupa has extensive experience developing and managing online advertising campaigns, affiliate marketing, search engine marketing, or SEM, and knowledge of online communities and social media trends. From August 2005 through December 2006, Mr. Halupa was Marketing Manager for Interkod Technologie s.r.o., a web-development company in Slovak Republic. From September 2002 through July 2005, Mr. Halupa worked as a Webmaster and Freelance Marketer for clients including Technicom Computers. He holds a Bachelor of Arts and a Masters Degree in Management of Information Systems from the Faculty of Management, Comenius University in Bratislava, Slovakia. Mr. Halupa is an Associate Member (ASI) of the Securities and Investment Institute, London, UK since January 2008, and holds a Level III Certificate in Investment Securities.


COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT


Section 16(a) of the Exchange Act requires that certain reports be made by persons who own more than 10 percent of a class of equity securities registered pursuant to Section 12 of the Exchange Act, and directors and executive officers of an issuer that has a class of equity securities registered pursuant to Section 12 of the Exchange Act. These reports include initial reports of ownership and reports of changes in ownership of the registered securities. Section 16(a) of the Exchange Act does not apply to our directors, officers, or greater-than-ten percent stockholders because we do not have a class of equity securities registered pursuant to Section 12 of the Exchange Acct.

- 41 -


 


CODE OF ETHICS


On June 29, 2007, we adopted a Code of Ethics that applies to our Chief Executive Officer and Chief Financial Officer.


PROCEDURE FOR NOMINATING DIRECTORS

 

Our board of directors does not have a written policy or charter regarding how director candidates are evaluated or nominated to serve on our board. Additionally, our board has not created particular qualifications or minimum standards that candidates for the board must meet. Instead, each director on the board considers how a candidate could contribute to our business and meet our needs.

 

Our board will consider candidates for director that are recommended by our stockholders. Candidates recommended by stockholders are evaluated with the same methodology as candidates recommended by management or members of our board of directors. To refer a candidate for director, please send a resume or detailed description of the candidate's background and experience with a letter describing the candidate's interest in serving on our board to Portlogic Systems Inc., 2 Toronto Street, Suite 422, Toronto, Ontario, Canada M5C 2B5, attention: Jueane Thiessen. All candidate referrals are reviewed by at least one current board member.


During the fiscal year ended May 31, 2014, there were no material changes to the procedures by which our stockholders can recommend nominees to our board of directors.



COMMITTEES OF THE BOARD OF DIRECTORS


We do not have a standing audit committee, compensation committee, or nomination committee. Currently, our full board of directors performs the functions normally delegated to such committees. The board believes that at this time it is in the best interests of our Company and our stockholders for each member of the board to participate in all functions of the board as long as no conflicts are present. As of July 1, 2012, our board consists of four members and the board believes that all the directors must participate in all board activities including those normally performed by an audit committee, compensation committee, or nominating committee. However, as our board expands in the future, we will consider creating committees and delegating appropriate board functions to those committees at that time.



AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT


The board of directors has not designated a separate audit committee and the functions of such committee are conducted by the entire board, whose members are named above. We do not have an “audit committee financial expert,” as defined in Item 407(d)(5)(ii) of Regulation S-K. At the present time, we do not believe the services of a financial expert are warranted. We believe the cost related to retaining a financial expert at this time is prohibitive in view of the financial resources that we have available. Further, because of the development stage of our operations, we believe the services of a financial expert are not warranted. Currently, our full board of directors performs the functions normally delegated to an audit committee. The board believes that at this time it is in the best interests of our Company and our stockholders for each member of the board to participate in all functions of the board as long as no conflicts are present. Our board consists of two members and the board believes that all the directors should participate in all board activities including those normally performed by an audit committee. However, as our board expands in the future, we will consider creating an audit committee and appointing an audit committee financial expert at that time.





- 42 -





Item 11.  

Executive Compensation.

 

SUMMARY COMPENSATION


The following table presents the compensation information during the fiscal years ended May 31, 2014, May 31, 2013, May 31, 2012, May 31, 2011, and May 31, 2010 for our Principal Executive Officers. We refer to these executive officers as our “name executive officers” elsewhere in this annual report.


Summary Compensation Table

for Fiscal Years Ended May 31, 2014, 2013, 2012, 2011, and 2010



Name and Principal Position


Year ended May 31


Salary ($)


Total ($)

Joseph Putegnat,

Principal Executive

Officer

2014

2013


Nil

72,000

     Nil

72,000

Jueane Thiessen, Principal Executive Officer (1)

2014

2013

2012

2011

2010

120,000

78,000

36,000

36,000

36,000

120,000

  78,000

  36,000

  36,000

  36,000

Rafik Jallad,

Principal Executive

Officer

2012

2011

4,000

20,000

    4,000

   20,000


(1) Jueane Thiessen served as our President from June 22, 2004 until February 1, 2007, then since November 30, 2007 until August 1, 2010. Then again from August 1, 2011 until June 30, 2012. And currently since February 19, 2014.

NARRATIVE TO SUMMARY COMPENSATION TABLE


Employment Agreements with Each Named Executive Officer


Consulting Agreement with our current Principal Executive Officer, Joseph Putegnat


On July 1, 2012, we entered into an Independent Contractor Agreement with Joseph Putegnat under which compensation of $12,000 per month was to be paid to perform services as our Chief Executive Officer for a period of six months.


Consulting Agreement with our prior Principal Executive Officer, Rafik Jallad


On August 1, 2010, we entered into an Independent Contractor Agreement with Rafik Jallad under which compensation of $2,000 per month was to be paid to perform services as our Chief Executive Officer for a period of one year.


Consulting Agreement with our prior Principal Executive Officer, Jueane Thiessen


On May 1, 2007, we entered into an Independent Contractor Agreement with Jueane Thiessen for a term beginning May 1, 2007 and ending October 31, 2007. Pursuant to this agreement, Ms. Thiessen performed services as our Treasurer for a minimum of 30 hours per week and was compensated at a rate of $3,000 per month. New agreements have been entered into with Jueane Thiessen from November 1, 2007 to October 31, 2008 at $3,000 per month. The agreement has been continued on a month-to-month basis to May 31, 2012. On June 30, 2012, we entered into a new agreement under which compensation of $3,000 per month would be paid from July 1, 2012 to November 30, 2012. Then compensation of $10,000 per month would be paid from December 1, 2012 through to June 20, 2014.


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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END


As of May 31, 2014, we have not issued equity awards to our named executive officers included in the Summary Compensation Table.


DIRECTOR COMPENSATION


During the fiscal year ended May 31, 2014, no compensation was paid to our directors.


During the fiscal year ended May 31, 2013, no compensation was paid to our directors.


During the fiscal year ended May 31, 2012, we paid two of our directors as follows for serving on our board of directors:



Name


Year ended
May 31,


Cash Compensation ($)


Common Stock


Donald Gilpin


2012


$ 5,000


30,000


Bruce Maschmeyer


2012


$ 5,000


30,000


Prior to the above, no compensation has been paid to our directors for any of the last five fiscal years.


Item 12.

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


The following table sets forth, as of September 10, 2014, the number and percentage of our outstanding shares of common stock that, according to the information supplied to us, were beneficially owned by (i) each person who is currently a director, (ii) each named executive officer, (iii) all current directors and executive officers as a group and (iv) each person who, to our knowledge, is the beneficial owner of more than five percent of the outstanding common stock. Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable.



Name and Address of

Amount and Nature

Percent of

Title of Class

Beneficial Owner                  

of Beneficial Owner

Class (1)


Common

Jueane Thiessen

7,500,000

3.63%

503-23 Brant Street,

Direct Ownership

Toronto, Ontario,

Canada, L7G 2H2


Common           

Management as a        

7,500,000

3.63%

group including all    

Direct Ownership

executive officers

and directors (1 Person)


Common

Fern Fair

108,000,000

52.3%

Box 185, Hythe, Alberta,

Direct Ownership

Canada, T0H 2C0

- 44 -



Common

JOYN Internet Communities Inc.

13,440,000

6.5%

54 Walpole Avenue, Toronto,

Direct Ownership

Ontario, Canada, M4L 2H9

________________


(1)

Based on 206,551,422 shares outstanding as of September 10, 2014 and reflects the 3:1 forward stock split effective March 30, 2012.



SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS


As of May 31, 2014, we had no equity securities authorized for issuance.



Item 13.   

Certain Relationships and Related Transactions, and Director Independence


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


On July 1, 2012, we entered into an Independent Contractor Agreement with Joseph Putegnat under which compensation of $12,000 per month was to be paid to perform services as our Chief Executive Officer for a period of six months. Mr. Putegnat resigned on February 19, 2014 as our Chief Executive Officer and President.


On December 6, 2011, we appointed Bruce Maschmeyer to serve on our Board of Directors for a term of one year or until removed as a director. Pursuant to this agreement, Mr. Maschmeyer was compensated with 20,000 restricted common shares and $5,000 cash for his services. Mr. Maschmeyer resigned on December 5, 2012, the last day of the term of his Agreement.


On November 24, 2011, we appointed Donald Gilpin to serve on our Board of Directors for a term of one year or until removed as a director. Pursuant to this agreement, Mr. Gilpin was compensated with 20,000 restricted common shares and $5,000 cash for his services. Mr. Gilpin resigned from office on November 23, 2012, the last day of the term of his Agreement.


On August 1, 2010, we entered into an Independent Contractor Agreement with Rafik Jallad under which compensation of $2,000 per month was to be paid to perform services as our Chief Executive Officer for a period of one year. Mr. Jallad resigned from office on July 31, 2011, the last day of the term of his Agreement.


On May 1, 2007, we entered into an Independent Contractor Agreement with Jueane Thiessen for a term beginning May 1, 2007 and ending October 31, 2007. Pursuant to this agreement, Ms. Thiessen performed services as our Treasurer for a minimum of 30 hours per week and was compensated at a rate of $3,000 per month. This agreement was renewed on October 31, 2007 under the same terms for a period of three months. On November 30, 2007, Ms. Thiessen was appointed President. On January 31, 2008, we entered into new Independent Contractor Agreements with Jueane Thiessen, our President, Secretary, Treasurer and one of our directors, for terms beginning from February 1, 2008 through to October 31, 2008. Pursuant to this agreement, Ms. Thiessen performed services as our President, Secretary, and Treasurer for a minimum of 30 hours per week and was compensated at a rate of $3,000 per month. Ms. Thiessen served as our acting President again from August 1, 2011 to June 30, 2012. On June 30, 2012, we entered into a new agreement under which compensation of $3,000 per month would be paid from July 1, 2012 to November 30, 2012. Then compensation of $10,000 per month would be paid from December 1, 2012 through to June 20, 2014. Since February 19, 2014, Ms. Thiessen has served as our acting Chief Executive Officer and President.

On May 1, 2007, we entered into an Independent Contractor Agreement with Javed Mawji, our former President, Secretary, and Director, for a term beginning May 1, 2007 and ending October 31, 2007. Pursuant to this agreement, Mr. Mawji performed services as our President for a minimum of 25 hours per week and was compensated at a rate of $1,000 per month. Mr. Mawji resigned from office and as a director on November 30, 2007.

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On March 27, 2008, Edvard Halupa was appointed to serve as our Chief Technological Officer and was elected to serve on our Board of Directors. Pursuant to this agreement, Mr. Halupa spent approximately 10 hours per week on services provided to us and was compensated at a salary of $0 for his services. Mr. Halupa resigned from office and as a director on November 15, 2010.


DIRECTOR INDEPENDENCE


As of September 10, 2014, the following individuals each served as a director on our Board:


·

Ms. Jueane Thiessen


None of the members of our Board are “independent” directors, as defined under the standards of independence set forth in the Marketplace Rules of the NASDAQ Stock Market. We intend to apply to have our common stock traded on the Over-the-Counter Bulletin Board, or OTCBB. The OTCBB does not require that a majority of our Board be independent.



Item 14.   

Principal Accounting Fees and Services


We dismissed our previous independent auditors MSCM LLP on December 30, 2010 and engaged George Stewart, CPA on December 31, 2010 as our independent auditors to report on our balance sheet as of May 31, 2011, and the related combined statements of income, stockholders' equity, and cash flows for the year then ended. George Stewart, CPA remains as our independent auditor to report on our balance sheet as of May 31, 2012, and the related combined statements of income, stockholders' equity, and cash flows for the year then ended.

 

We do not expect our auditors to attend our annual meeting of stockholders but they will have an opportunity to make a statement by telephone if they wish to do so.

 

AUDIT FEES


2013:

The aggregate fees billed by our current auditors, George Stewart, CPA, for professional services rendered for the audit of our annual financial statements and review of financial statements included in the Form 10-Qs for fiscal year ended May 31, 2013 totaled $20,900.


2014:

The aggregate fees billed by our current auditors, George Stewart, CPA, for professional services rendered for the audit of our annual financial statements for fiscal year ended May 31, 2014 have not been billed as of September 10, 2014 but we estimate that they will be approximately $8,200. The fees charged by our current auditors to review our interim financial statements for the first, second and third quarters of 2013 were $12,900. Therefore the aggregate fees billed by our auditors for professional services rendered for the audit of our annual financial statements and review of financial statements included in the Form 10-Qs for fiscal year ended May 31, 2014 total $21,100.


 

AUDIT-RELATED FEES

 

During the last two fiscal years, no fees were billed or incurred for assurance or related services by our auditors that were reasonably related to the audit or review of financial statements reported above.


TAX FEES

 

During the last two fiscal years, no fees were billed or incurred for services which were related to tax compliance, tax advice, or tax planning by our auditors. No fees were paid for tax preparation services.

 



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ALL OTHER FEES

 

During the last two fiscal years, no other fees were billed or incurred for services by our auditors other than the fees noted above. Our board, acting as an audit committee, deemed the fees charged to be compatible with maintenance of the independence of our auditors.


THE BOARD OF DIRECTORS PRE-APPROVAL POLICIES


We do not have a separate audit committee. Our full board of directors performs the functions of an audit committee. Before an independent auditor is engaged by us to render audit or non-audit services, our board of directors pre-approves the engagement. Board of directors pre-approval of audit and non-audit services will not be required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by our board of directors regarding our engagement of the independent auditor, provided the policies and procedures are detailed as to the particular service, our board of directors is informed of each service provided, and such policies and procedures do not include delegation of our board of directors' responsibilities under the Exchange Act to our management. Our board of directors may delegate to one or more designated members of our board of directors the authority to grant pre-approvals, provided such approvals are presented to the board of directors at a subsequent meeting. If our board of directors elects to establish pre-approval policies and procedures regarding non-audit services, the board of directors must be informed of each non-audit service provided by the independent auditor. Board of directors pre-approval of non-audit services, other than review and attest services, also will not be required if such services fall within available exceptions established by the SEC. For the fiscal year ended May 31, 2014, 100% of audit-related services, tax services and other services performed by our independent auditors were pre-approved by our board of directors.

 

Our board has considered whether the services described above under the caption "All Other Fees", which are currently none, is compatible with maintaining the auditor's independence.


The board approved all fees described above.


PART IV


Item 15.

Exhibits, Financial Statement Schedules


a.

The following documents are filed as part of this 10-K:


1. FINANCIAL STATEMENTS


The following documents are filed in Part II, Item 8 of this annual report on Form 10-K:


·

Report of Independent Registered Certified Public Accounting Firm

·

Consolidated Balance Sheets as of May 31, 2014 and 2013

·

Consolidated Statements of Operations for the years ended May 31, 2014 and 2013

·

Consolidated Statements of Changes in Stockholders’ Deficiency from June 22, 2004 (inception) to May 31, 2014

·

Consolidated Statements of Cash Flows for the years ended May 31, 2014 and 2013

·

Notes to Financial Statements


2. FINANCIAL STATEMENT SCHEDULES


All financial statement schedules have been omitted as they are not required, not applicable, or the required information is otherwise included.




- 47 -





3. EXHIBITS


The exhibits listed below are filed as part of or incorporated by reference in this report.


Exhibit

No.       

Identification of Exhibit


10.1

Independent Contractor Agreement between Portlogic Systems Inc. and Jueane Thiessen, dated June 30, 2012 (included as Exhibit 10.1 to the Form 8-K filed July 5, 2012 and incorporated herein by reference).


10.2

Independent Contractor Agreement between Portlogic Systems Inc. and Joseph Putegnat, dated July 1, 2012 (included as Exhibit 10.1 to the Form 8-K filed July 5, 2012 and incorporated herein by reference).


10.3

Promissory Note issued by Joseph Putegnat issued to Portlogic Systems Inc. dated March 10, 2014 (included as Exhibit 10.1 to the Form 8-K filed March 10, 2014 and incorporated herein by reference).


17.1

Resignation of Joseph Putegnat, dated February 19, 2014 (included as Exhibit 17.1 to the Form 8-K filed February 20, 2014 and incorporated herein by reference).


21.1

Subsidiaries of the Registrant (filed herewith).


23.1

Consent of George Stewart, CPA relating to the audit of the consolidated financial statements for the years ended May 31, 2014 and 2013 (filed herewith).


31.1

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(filed herewith).


32.1

Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).


SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Portlogic Systems Inc.

(Registrant)


By

/s/ Jueane Thiessen

President, Principal Executive Officer, Principal

Accounting Officer and Treasurer   


Date

September 10, 2014




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EXHIBIT 21.1


SUBSIDIARIES OF THE REGISTRANT



As of September 10, 2014, we have two wholly-owned subsidiaries:


Sunlogic Energy Corporation.  This entity is incorporated in Panama City, Republic of Panama.


VOIP 1, Inc. This entity is incorporated under the laws of the State of Nevada.


.






GEORGE STEWART, CPA

316 17TH AVENUE SOUTH

SEATTLE, WASHINGTON 98144

(206) 328-8554 FAX(206) 328-0383




To Whom It May Concern:


The firm of George Stewart, Certified Public Accountant consents to the inclusion of our report on the Financial Statements of Portlogic Systems Inc. as of May 31, 2014 and 2013, in any filings that are necessary now or in the near future with the U. S. Securities and Exchange Commission.



Very Truly Yours,




/S/ George Stewart


George Stewart, CPA




August 29, 2014






EXHIBIT 31.1

CERTIFICATION PURSUANT TO18 U.S.C. ss 1350, AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jueane Thiessen, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Portlogic Systems Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  September 10, 2014

/s/ Jueane Thiessen

By: Jueane Thiessen

Principal Executive Officer, Principal Accounting Officer, Secretary, and Treasurer






EXHIBIT 32.1


CERTIFICATIONS PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)



In connection with the Annual Report of Portlogic Systems Inc. (the “Company”) on Form 10-K for the fiscal year ended May 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:



i.

The Report fully complies with the requirements of 13(a) or 15(d) of the Securities Exchange Act of 1934; and


ii.

The information contained in the Report fairly presents, in all material respects, the financial condition and Result of operations of the company.



IN WITNESS WHEREOF, the undersigned have executed this certification as of the 10th day of September, 2014.





/s/  Jueane Thiessen

-------------------------------------

By:  Jueane Thiessen

Principal Executive Officer, Principal Accounting Officer, Treasurer, and Secretary