UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2015
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 209, Toronto, Ontario, Canada |
|
M5C 2B5 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code (437)
886-2432
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 whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒
No ☐
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 ☒
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of October 20, 2015, the registrant had 33,525,784 shares of
common stock, par value $0.001, outstanding.
PORTLOGIC SYSTEMS INC.
FORM 10-Q
For the three months ended August 31, 2015
TABLE OF CONTENTS
|
PAGE
NUMBER |
|
|
PART
I |
|
|
|
|
Item
1. |
Consolidated
Financial Statements. |
4 |
Item
2. |
Management's
Discussion and Analysis of Financial Condition and Results of Operations. |
17 |
Item
3. |
Quantitative
and Qualitative Disclosures About Market Risk. |
20 |
Item
4T. |
Controls
and Procedures. |
20 |
|
|
|
PART
II |
|
|
|
|
Item
1. |
Legal
Proceedings. |
22 |
Item
1A. |
Risk
Factors. |
22 |
Item
2. |
Unregistered
Sales of Equity Securities and Use of Proceeds. |
24 |
Item
3. |
Defaults
Upon Senior Securities. |
24 |
Item
4. |
Submission
of Matters to a Vote of Security Holders. |
24 |
Item
5. |
Other
Information. |
24 |
Item
6. |
Exhibits. |
25 |
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS
Statements in this quarterly report on Form
10-Q 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 quarterly report on Form 10-Q, 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
quarterly report on Form 10-Q, except as required by law.
PART I
Item 1. Financial Statements
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2015 (UNAUDITED)
FORMING A PART OF QUARTERLY REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
PORTLOGIC SYSTEMS INC.
|
Page # |
|
|
Unaudited Interim Consolidated Balance Sheets as of August 31, 2015 and May 31, 2015 |
5 |
|
|
Unaudited Interim Consolidated Statements of Operations for the Three Months Ended August 31, 2015 and August 31, 2014 |
6 |
|
|
Unaudited Interim Consolidated Statements of Cash Flows for the Three Months Ended August 31, 2015 and August 31, 2014 |
7 |
|
|
Notes to Unaudited Interim Consolidated Financial Statements |
8-16 |
PORTLOGIC SYSTEMS INC.
UNAUDITED INTERIM CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31, 2015 AND MAY 31, 2015
(Amounts expressed in US Dollars)
| |
Aug 31,
2015 | | |
May 31,
2015 | |
ASSETS | |
| $ | | |
| $ | |
Current | |
| | | |
| | |
Cash and cash equivalents | |
| 10,074 | | |
| 1,156 | |
Loan receivable, net of allowance for doubtful accounts of $0 at August 31, 2015 and May 31, 2015 | |
| 7,850 | | |
| 7,850 | |
Accounts receivable | |
| 48,212 | | |
| 48,212 | |
Prepaid expenses and deposits | |
| 6,255 | | |
| 6,255 | |
| |
| 72,391 | | |
| 63,473 | |
| |
| | | |
| | |
TOTAL ASSETS | |
| 72,391 | | |
| 63,473 | |
| |
| | | |
| | |
LIABILITIES | |
| | | |
| | |
Current | |
| | | |
| | |
Accounts payable and accrued liabilities | |
| 245,050 | | |
| 236,620 | |
Short term loans | |
| 23,025 | | |
| 23,025 | |
New convertible loans | |
| 620,396 | | |
| 812,936 | |
Shareholder loan | |
| 36,072 | | |
| 36,072 | |
Other loan | |
| 2,550 | | |
| 2,550 | |
Convertible loan | |
| 7,000 | | |
| 7,000 | |
| |
| 934,093 | | |
| 1,118,203 | |
| |
| | | |
| | |
STOCKHOLDERS’ DEFICIENCY | |
| | | |
| | |
Capital stock | |
| | | |
| | |
Preference stock; $0.001 par value; 1,000,000 shares authorized;
0 issued and outstanding at August 31, 2015 and May 31, 2015 | |
| - | | |
| - | |
Common stock; $0.001 par value; 225,000,000 shares authorized;
33,525,784* issued and outstanding at August 31, 2015
275,784* issued and outstanding at May 31, 2015 | |
| 33,525 | | |
| 275 | |
Additional paid in capital | |
| 578,775 | | |
| 397,025 | |
Accumulated deficit | |
| (1,474,002 | ) | |
| (1,452,030 | ) |
| |
| (861,702 | ) | |
| (1,054,730 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | |
| 72,391 | | |
| 63,473 | |
* Common stock figures reflect the 1:750 reverse common
stock split effective March 16, 2015 on a retroactive basis.
The accompanying notes form an integral part of these unaudited
interim consolidated financial statements.
PORTLOGIC SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31, 2015 AND 2014
(Amounts expressed in US Dollars)
| |
For the three
months ended | | |
For the three
months ended | |
| |
August 31,
2015 | | |
August 31,
2014 | |
| |
$ | | |
$ | |
Gross margin | |
| | |
| |
Revenue | |
| - | | |
| 122,768 | |
Cost of goods sold | |
| - | | |
| 106,946 | |
| |
| - | | |
| 15,822 | |
| |
| | | |
| | |
Expenses | |
| | | |
| | |
Selling and administrative | |
| 21,972 | | |
| 12,015 | |
Depreciation | |
| - | | |
| - | |
| |
| 21,972 | | |
| 12,015 | |
| |
| | | |
| | |
Net (loss)/profit for the period | |
| (21,972 | ) | |
| 3,807 | |
| |
| | | |
| | |
Net loss per share for the period | |
| | | |
| | |
Basic and fully diluted | |
| (0.0009 | ) | |
| (0.0138 | ) |
| |
| | | |
| | |
Weighted average number of shares outstanding | |
| | | |
| | |
Basic and fully diluted | |
| *25,414,371 | | |
| *275,784 | |
* Reflects the 1:750 reverse common stock split effective
March 16, 2015 on a retroactive basis.
The accompanying notes form an integral part
of these unaudited interim financial statements.
PORTLOGIC SYSTEMS INC.
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 2015 AND 2014
(Amounts expressed in US Dollars)
| |
For the three
months ended
Aug 31,
2015 | | |
For the three
months ended
Aug 31,
2014 | |
| |
$ | | |
$ | |
Cash Flows from Operating Activities | |
| | |
| |
Net (Loss)/ Profit | |
(21,972) | | |
3,807 | |
Adjustments made to reconcile net loss to net cash from operating activities | |
| | | |
| | |
Changes in operating assets and liabilities | |
| | | |
| | |
Decrease (increase) in accounts and other receivables | |
| 11,439 | | |
| (95,885 | ) |
Increase (decrease) in accounts payable and accrued liabilities | |
| 8,430 | | |
| 88,212 | |
Cash flows used in operating activities | |
| (2,103 | ) | |
| (3,866 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Purchase of equipment | |
| - | | |
| - | |
Cash flows used in investing activities | |
| - | | |
| - | |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Proceeds from new convertible loans | |
| 22,460 | | |
| - | |
Conversion of convertible loans | |
| (215,000 | ) | |
| - | |
Proceeds from issuance of common stock | |
| 203,561 | | |
| - | |
Cash flows provided by financing activities | |
| 11,021 | | |
| - | |
Increase (decrease) in cash and cash equivalents | |
| 8,918 | | |
| (3,866 | ) |
Cash and cash equivalents, beginning of period | |
| 1,156 | | |
| 4,011 | |
Cash and cash equivalents, end of period | |
| 10,074 | | |
| 145 | |
The accompanying notes form an integral part of these unaudited interim consolidated financial statements.
PORTLOGIC SYSTEMS INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2015
(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. 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.
In August 2015, Portlogic started development on
a high definition video server platform.
The accompanying unaudited interim consolidated
financial statements include Portlogic and its subsidiary (herein after referred to collectively as the “Company”).
All intercompany balances and transactions have been eliminated on consolidation.
The unaudited interim consolidated financial statements
have been prepared in accordance with Securities and Exchange Commission requirements for interim financial statements. Therefore,
they do not include all of the information and footnotes required in accordance with United States Generally Accepted Accounting
Principles (“GAAP”) for complete financial statements. The unaudited interim consolidated financial statements should
be read in conjunction with the Form 10-K for the year ended May 31, 2015.
The unaudited interim consolidated financial statements
present the balance sheet, statements of operations, and cash flows of the Company. The unaudited interim consolidated financial
statements have been prepared by management in accordance with GAAP.
NOTE 2. GOING CONCERN
The unaudited interim 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 unaudited interim consolidated
financial statements should the Company not be able to continue normal business operations.
The Company has incurred losses from inception and,
during the three month period ended August 31, 2015, the Company utilized $2,103 (August 31, 2014 - $3,866) of cash in operations.
At August 31, 2015, the Company reported a deficit of $1,474,002 and continues to expend cash in amounts that exceed revenues.
These conditions cast substantial doubt on the ability of the Company to continue as a going concern and meet its obligations
as they come due. Management is considering various alternatives and is pursuing raising additional capital resources. Nevertheless,
there can be no assurance that these initiatives if undertaken will be successful.
PORTLOGIC SYSTEMS INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2015
(Amounts expressed in US Dollars)
NOTE 2. GOING CONCERN (cont’d)
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.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
The interim consolidated financial information is
unaudited. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position as of
August 31, 2015 and the results of operations, and cash flows presented herein have been included in the unaudited interim consolidated
financial statements. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative
of results of operations for the full year.
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,
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 August 31, 2015, cash equivalents amounted to $Nil (May 31, 2015
- $Nil).
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 and included
as part of selling and administrative expenses. Advertising costs amounted to $Nil for the three month period ended August 31,
2015 (August 31, 2014 - $Nil).
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.
PORTLOGIC SYSTEMS INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2015
(Amounts expressed in US Dollars)
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
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 $Nil for the three month period ended August 31, 2015 (August 31, 2014 - $Nil).
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 three month periods ended August 31, 2015 and August 31, 2014. 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.
PORTLOGIC SYSTEMS INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2015
(Amounts expressed in US Dollars)
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
Financial Instruments and Risk Concentrations (cont’d)
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.
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. |
PORTLOGIC SYSTEMS INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2015
(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 | |
$ | 10,074 | | |
$ | - | | |
$ | - | | |
$ | 10,074 | |
Loan receivable | |
| - | | |
| - | | |
$ | 7,850 | | |
$ | 7,850 | |
Liability | |
| | | |
| | | |
| | | |
| | |
Short term loans | |
| - | | |
| - | | |
$ | 23,025 | | |
$ | 23,025 | |
New convertible loans | |
| - | | |
| - | | |
$ | 620,396 | | |
$ | 620,396 | |
Shareholder loan | |
| - | | |
| - | | |
$ | 36,072 | | |
$ | 36,072 | |
Other loan | |
| - | | |
| - | | |
$ | 2,550 | | |
$ | 2,550 | |
Convertible loan | |
| - | | |
| - | | |
$ | 7,000 | | |
$ | 7,000 | |
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| |
August 31, 2015 | | |
May 31, 2015 | |
| |
$ | | |
$ | |
Cost of goods sold & Telecom | |
| - | | |
| - | |
Audit and review | |
| 20,500 | | |
| 20,400 | |
Bookkeeping and accounting | |
| 14,112 | | |
| 11,612 | |
Legal | |
| - | | |
| - | |
Consulting | |
| 37,000 | | |
| 37,000 | |
IT | |
| 48,000 | | |
| 48,000 | |
Other | |
| (1,789 | ) | |
| (2,861 | ) |
Interest payable | |
| 127,227 | | |
| 122,469 | |
| |
| 245,050 | | |
| 236,620 | |
NOTE 6. SHORT TERM LOANS
In the year ended May 31, 2014, the Company 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. The aggregate balance payable on these short term loans is $23,025 as of August
31, 2015 (May 31, 2015 - $23,025).
NOTE 7. ASSIGNMENT AND NEW CONVERTIBLE LOANS
On October 11, 2012, the Company entered into a
convertible loan agreement with Bedford International Ltd. for $25,000 which was received on October 4, 2012 to meet cash flow
needs for operations. On January 12, 2014, the Company received notice that this convertible loan was assigned to Haynes Gallo
Wealth Management Ltd. by Bedford International. On May 8, 2015, the Company agreed to settle the convertible note in full by
issuing 1,250,000 share of common stock to Haynes Gallo Wealth Management at the conversion rate of $0.02 per share. The common
stock was issued on July 15, 2015.
PORTLOGIC SYSTEMS INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2015
(Amounts expressed in US Dollars)
NOTE 7. ASSIGNMENT AND NEW CONVERTIBLE LOANS (cont’d)
On December 31, 2013, the Board of Directors approved
to amend an existing $636,546 in 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. $70,000 of the Notes Payable were loaned by separate third parties
and therefore reclassed. Therefore, the total balance payable on this convertible loan is restated as $566,546 as of August 31,
2015 (May 31, 2015 - $566,546).
On December 3, 2013, the Company borrowed $45,000,
structured as a convertible loan, from KJV Property Group LLC to help meet cash flow needs for operations. On March 26, 2015,
$20,000 of this loan was assigned to Fenwood Capital LLC. On May 5, 2015, $20,000 of this loan was elected to be converted into
1,000,000 shares of common stock at the conversion rate of $0.02 per share. The common stock was issued on July 15, 2015. As of
May 31, 2015, there is a balance remaining of $5,000 payable on this convertible loan. Interest accrued on the $40,000 prior loaned
amounts has been written off. On October 16, 2014, the Company borrowed a further $9,800 from KJV Property. On May 1, 2015, the
Company entered into a Convertible Drawdown Loan Agreement with KJV Property, in consideration of a drawdown loan up to $100,000
for funds advanced over a term of two years. Interest payable on the principal amount shall accrue at a fixed rate equal to the
prime interest rate plus 2%. On June 4, 2015, the Company borrowed $12,460 from the $100,000 available to be drawn down. The total
balance payable on this convertible loan is $22,260 as of August 31, 2015.
On September 4, 2014, the Company borrowed $12,390,
structured as a convertible loan, from Fenwood Capital LLC to help meet cash flow needs for operations. On November 20, 2014,
a further $4,200 was borrowed. On August 18, 2015 a further $10,000 was borrowed as a private placement for 200,000 common shares
at $0.05 per share. As of August 31, 2015, these common shares have not been issued. As of August 31, 2015, the total balance
payable on this convertible loan is $26,590.
On March 26, 2015, a convertible loan for $20,000
was assigned to Fenwood Capital by another party. On May 5, 2015, Fenwood Capital elected to convert the loan into 1,000,000 shares
of common stock at the conversion rate of $0.02 per share. The common stock was issued on July 15, 2015.
Interest
expense on all the above loans of the Company has been corrected and calculated to August 31, 2015 and amounted to $4,758 for
the three months ended August 31, 2015 (August 31, 2014 - $5,049) and is included in selling and administrative expense. As at
August 31, 2015, accrued interest of $127,227 (May 31, 2015 - $122,469) is included in accounts payable and accrued liabilities.
NOTE 8. DEBT CONVERSION AGREEMENT
On March 30, 2015, the Company entered into a debt
conversion agreement with the Chief Executive and Financial Officer whereby $150,000 of Accounts Payable owed by the Company to
the officer was converted to 30,000,000 shares of restricted common stock in full satisfaction of the $150,000 amount owed. The
restricted common stock was issued on June 22, 2015.
NOTE 9. SHAREHOLDER LOAN
A shareholder of the Company has advanced amounts
to the Company as required to help meet cash flow needs for operations. The total balance payable to the shareholder as of August
31, 2015 is $36,072 (May 31, 2015 - $36,072).
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, 2015. This convertible debenture has not been repaid and is due on March 10,
2016.
PORTLOGIC SYSTEMS INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2015
(Amounts expressed in US Dollars)
NOTE 11. 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 23,605*
shares of common stock to nine individuals for cash in the amount of $0.1250 per share for a total of $2,950.
On February 7, 2005, the Company issued a total
of 800* shares of common stock to one individual for cash in the amount of $0.25 per share for a total of $200.
On May 26, 2005, the Company issued a total of 12,000*
shares of common stock to one individual for cash in the amount of $0.25 per share for a total of $3,000.
In July 2005, the Company issued a total of 202,200*
shares of common stock to nine individuals for cash in the amount of $0.25 per share for a total of $50,550.
On September 14, 2005, the Company issued a total of 10,000* shares of
common stock to one director for cash in the amount of $0.25 per share for a total of $2,500.
On October 31, 2005, the Company issued a total
of 17,920* shares of common stock in the amount of $6.25 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 240*
shares of common stock to three individuals for cash in the amount of $6.25 per share for a total of $1,500.
In May 2006, the Company issued a total of 1,920*
shares of common stock to five individuals for cash in the amount of $6.25 per share for a total of $12,000.
In June 2006, the Company issued a total of 250*
shares of common stock to three individuals for cash in the amount of $6.00 per share for a total of $1,500.
On July 22, 2006, the Company issued a total of
82* shares of common stock to one individual for cash in the amount of $6.09 per share for a total of $500.
On December 22, 2006, the Company issued a total
of 250* shares of common stock to one individual for cash in the amount of $6.00 per share for a total of $1,500.
On February 22, 2007, the Company issued a total
of 1,068* shares of common stock to one individual for cash in the amount of $18.72 per share for a total of $20,000.
In May 2007, the Company issued a total of 5,138*
shares of common stock to three individuals for cash in the amount of $32.99 per share for a total of $169,500.
On January 10, 2008, the Company issued a total
of 231* shares of common stock to one individuals for cash in the amount of $43.29 per share for a total of $10,000.
On April 11, 2012, the Company issued a total of
40* shares of common stock to a director in return for services. The market value of shares on the date of issuance was $120.00
per share.
PORTLOGIC SYSTEMS INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2015
(Amounts expressed in US Dollars)
NOTE 11. STOCK TRANSACTIONS * (cont’d)
On April 11, 2012, the Company issued a total of
40* shares of common stock to another director in return for services. The market value of shares on the date of issuance was
$120.00 per share.
On June 22, 2015, pursuant to the Debt Conversion
Agreement dated March 30, 2015, the Company issued 30,000,000 shares of restricted common stock to an officer of the Company in
full satisfaction of $150,000 of Accounts Payable owed to the officer for past services.
On July 15, 2015, pursuant to the Conversion Notice
dated May 5, 2015, the Company issued 1,000,000 shares of common stock to Fenwood Capital LLC in the amount of $0.02 per share
for a total of $20,000.
On July 15, 2015, pursuant to the Conversion Notice
dated May 5, 2015, the Company issued 1,000,000 shares of common stock to KJV Property Group LLC in the amount of $0.02 per share
for a total of $20,000.
On July 15, 2015, pursuant to the Conversion Notice
dated May 8, 2015, the Company issued 1,250,000 shares of common stock to Haynes Gallo Wealth Management Ltd in the amount of
$0.02 per share for a total of $25,000.
As of August 31, 2015, the Company had 33,525,784*
share of common stock issued and outstanding.
* After giving retroactive effect of 1:750 reverse common stock split
effective March 16, 2015
NOTE 12. STOCKHOLDERS’ DEFICIENCY
The stockholders' deficiency section of the Company
contains the following classes of capital stock as of August 31, 2015:
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 33,525,784* shares issued and outstanding.
The stockholders' deficiency section of the Company
contains the following classes of capital stock as of May 31, 2015:
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 275,784* 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 and the 1:750 reverse common stock split
effective March 16, 2015.
NOTE 13. 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 August 31, 2015, $7,850 remains receivable from UOMO
(May 31, 2015 – $7,850). |
PORTLOGIC SYSTEMS INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2015
(Amounts expressed in US Dollars)
NOTE 13. COMMITMENTS AND RELATED PARTY TRANSACTIONS (cont’d)
| 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 30, 2014. The officer has waived compensation for the final month of
the term. On March 30, 2015, the Company entered into a debt conversion agreement with
the officer whereby $150,000 of Accounts Payable owed by the Company to the officer for
past services was converted to 30,000,000 shares of restricted common stock. Until the
Company begins earning profits, the officer will accrue $2,500 per quarter to provide
services. Therefore, the related service fee for the three months ended August 31, 2015
amounted to $2,500 (August 31, 2014 - $1,200). |
| c) | 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. As of August 31, 2015, $150,000 remains payable by the former officer. |
NOTE 14. SUBSEQUENT EVENTS
The Company evaluated all events or transactions
that occurred after August 31, 2015 up through the date these financial statements were available for issuance. During this period,
the Company did not have any other material recognizable subsequent events.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
INTRODUCTION
The following management discussion and analysis
compares our results of operations for the three months ended August 31, 2015 to the same period in 2014. This management
discussion and analysis should be read in conjunction with our unaudited interim consolidated financial statements and the related
notes thereto included elsewhere in this quarterly report for the three months ended August 31, 2015.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q 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 have a financial year end of May 31.
We offer enterprise mobile marketing applications
solutions, 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. |
Due to the cost of developing the technology to
offer such products we have decided to offer many of our products by bundling technology from third party suppliers. Agreements
can include but are not limited to licensing agreements, reseller agreements, partnership agreements, memoranda of understanding,
and software development agreements. We have also developed a product that we license to our customers to enable them to operate
their own online social networking portal without requiring any technical programming or website design skills.
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.
In August 2015, we started developing a high definition
video server platform.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations is based upon our unaudited interim consolidated financial statements, which have been prepared
in accordance with Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include
all of the information and footnotes required in accordance with United States Generally Accepted Accounting Principles (“GAAP”)
for complete financial statements. The unaudited interim consolidated financial statements should be read in conjunction with
the Form 10-K for the year ended May 31, 2015.
The preparation of these unaudited interim consolidated
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.
CASH AND CASH EQUIVALENTS
Our cash equivalents comprise highly liquid instruments
with a maturity of three months or less when purchased. As at August 31, 2015, cash equivalents amounted to $Nil (May 31, 2015
- $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 our 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 $Nil for the three month period ended August 31, 2015 (August 31,
2014 - $Nil).
RESULTS OF OPERATIONS
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED AUGUST 31, 2015 AND
AUGUST 31, 2014
REVENUE
For the three months ended August 31, 2014, we recognized
$122,768 in revenue from our Voip 1 telecommunications operations. For the three months ended August 31, 2015, we recognized $Nil
in revenue. We have not yet begun to generate revenues from our mobile marketing offerings or our high definition video server
platform.
COST OF GOODS SOLD
We incurred $106,946 in cost of goods sold against
our telecommunications operations for the three months ended August 31, 2014. We incurred $Nil in cost of goods sold for the three
months ended August 31, 2015.
EXPENSES
During the three months ended August 31, 2015, we
incurred total expenses of $21,972 comprised of selling and administrative expense. During the three months ended August 31, 2014,
we incurred total expenses of $12,015 comprised of selling and administrative expense. Higher expenses for the three month period
ended August 31, 2015 resulted entirely to the higher legal fees of $9,186 vs. $Nil in the three month period ended August 31,
2014 due to the costs associated with the 1:750 reverse common stock split that had not been accrued.
NET INCOME/LOSS
During the three months ended August 31, 2015, we
incurred a net loss of $21,972 compared with net profit of $3,870 for the three months ended August 31, 2014 due to decreased
activity in the Voip 1 telecommunications operations 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. As of August 2015, we have begun developing a high definition video server.
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 August 31, 2015, we had cash and cash equivalents
of $10,074. We had total current assets of $72,391.
We anticipate that we will require $350,000 in total,
over the next nine 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 nine months. If we generate
no cash revenues other than the $10,074 that we had available as of August 31, 2015, we will need to raise additional funds during
the next nine months. Potential sources of such working capital could include senior debt facilities, new lines of credit, bank
financings or additional sales of our securities. If we raise funds through the sale of our securities, the common stock currently
outstanding would be diluted. There is a risk that such additional financing may not be available, or may not be available on
acceptable terms, and the inability to obtain additional financing or generate sufficient cash from operations could require us
to reduce or eliminate expenditures for capital equipment, production, or marketing of our products, or otherwise curtail or discontinue
our operations, which could have a material adverse effect on our business, financial condition and results of operations.
Our unaudited interim
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 August 31, 2015, our total assets were $72,391,
our total liabilities were $934,093 and stockholders’ deficiency was $861,702.
SUBSEQUENT EVENTS
We have evaluated all events or transactions that
occurred after August 31, 2015 up through the date these financial statements were available for issuance. During this period,
we did not have any other material recognizable subsequent events.
OFF-BALANCE SHEET TRANSACTION
We currently have no off-balance sheet arrangements
that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Smaller reporting companies are not required to provide the information
required by this Item.
Item 4T. 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 quarterly report on Form 10-Q. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures can 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 August 31, 2015. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
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.
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 August
31, 2015.
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 quarterly 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 the rules of the Securities and Exchange Commission
that permit us to provide only management’s report in this quarterly report.
Changes in Internal Control Over Financial Reporting
There was no change in our internal controls over
financial reporting that occurred during the quarter ended August 31, 2015 that has materially affected, or is reasonably likely
to materially affect, our internal controls over financial reporting.
PART II
Item 1. 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 1A. Risk Factors
Risks Relating To Our Business
We intend to grow our Company by acquisition
and have expanded the scope of technology offerings to include marketing mobile applications solutions, kiosk hardware and software
products, and telecommunications operations. If we are not successful, our business will be harmed.
Our business strategy includes the attainment of
a portion of our growth through our ability to successfully execute our acquisition model. In order to pursue a growth by acquisition
strategy successfully, we must identify suitable candidates for these transactions, complete these transactions, and manage post-closing
issues such as integration of the acquired business into our corporate structure. Integration issues are complex, time-consuming,
and expensive and, without proper planning and implementation, could significantly disrupt our business. Potential disruptions
include diversion of management's attention, loss of key business and/or personnel from the acquired company, unanticipated events,
and legal liabilities. If the business becomes impaired, there could be partial or full write-offs attributed to the acquisition.
If we cannot obtain additional financing, we
may have to curtail operations and may ultimately cease to exist.
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. If we do not achieve sufficient revenues to meet our future obligations, we intend to
seek sufficient financial resources by issuing shares of common stock, borrowing cash from a bank or one of our directors, or
a combination of these activities. We may be unable to obtain additional financing using any of these methods. These conditions
raise substantial doubt about our ability to continue as a going concern. However, our unaudited interim consolidated financial
statements do not include any adjustments that might result if we are unable to continue our business.
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. This is the first quarter we
have turned a small Net Income.
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, and acting Chief Executive
Officer and President, 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 prior Chief Executive Officer and President, Joseph Putegnat performed most of our management functions,
and also oversaw 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.
We have limited cash which we anticipate will
be insufficient to fund our plan of operations for the forthcoming next nine months ending May 31, 2016 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 nine months ending May 31, 2016. We will need to continue to raise additional funds to fully fund our operations for the
next nine month period beginning September 1, 2015. 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
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.
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.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
N/A
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
During the first quarter of our fiscal year ended
May 31, 2016, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.
Item 5. Other Information
None.
Item 6. Exhibits
The exhibits listed below are filed as part of or incorporated by reference
in this report.
Exhibit
No.
|
|
Identification
of Exhibit |
|
|
|
21.1 |
|
Subsidiaries of the Registrant (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 |
October 20, 2015 |
-26-
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
As of October 20, 2015, 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.
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jueane Thiessen, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q 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: October 20, 2015
By: |
/s/
Jueane Thiessen |
|
|
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 Quarterly Report of
Portlogic Systems Inc. (the “Company”) on Form 10-Q for the three months ended August 31, 2015 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 20th day of October, 2015.
By: |
/s/ Jueane Thiessen |
|
|
Jueane Thiessen |
|
|
Principal Executive Officer,
Principal Accounting Officer, Treasurer, and Secretary |
|
|