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Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge) INTRODUCTION
The following management discussion and analysis compares our results of
operations for the nine months ended February 29, 2012 to the same period in
2011. 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 nine months ended
February 29, 2012.
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 are currently in the development stage and began our business developing and
licensing portal software products and related services. We developed a product
that we licensed to our customers to enable them to operate their own online
social networking portal without requiring any technical programming or website
design skills.
Since January 2010, we have expanded the scope of technology offerings to
include marketing mobile applications solutions and kiosk hardware and software
products. Portlogic's product offering now include enterprise software solutions
which fall into five principal product families: m2Meet, m2Bank, m2Market,
m2Ticket, and m2Kiosk.
Our 5 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.
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.
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.
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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, 2011.
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 February 29, 2012, cash equivalents
amounted to $9,067 (May 31, 2011 - $7,575).
SOURCE CODE
We have capitalized the costs of acquiring computer source code in accordance
with the provisions of the Accounting Standards Codification ("ASC") in ASC
985-20, "Costs of Software to Be Sold, Leased, or Marketed." At each reporting
period end, we analyze the realizability of our recorded software assets under
the provisions of that statement. We recognize an impairment loss when and to
the extent that the carrying amount of the software exceeds the estimated
undiscounted future cash flows that are expected to result from the use of the
asset and its eventual disposition. Since the source code has started to
generate positive cash flows and is still being used for development, no
impairment loss has been recognized. Amortization is provided using the
straight-line method over the asset's estimated useful life, three years. As of
February 29, 2012, the source code has been fully amortized.
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 gain amounted to $420 for the nine month period
ended February 29, 2012 (February 28, 2011 - loss of $2,505).
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RECENT ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED
In May 2011, the Financial Accounting Standard Board ("FASB") issued Accounting
Standards Update ("ASU" or "Update") No. 2011-04, "Fair Value Measurement (Topic
820): Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRS" which is intended to create consistency
between U.S. GAAP and International Financial Reporting Standards ("IFRS"). The
amendments include clarification on the application of certain existing fair
value measurement guidance and expanded disclosures for fair value measurements
that are estimated using significant unobservable (Level 3) inputs. This
guidance is effective prospectively for public entities for interim and annual
reporting periods beginning after December 15, 2011, with early adoption by
public entities prohibited. We are currently evaluating the requirements of this
standard, but it is not expected to have a material impact on our unaudited
interim consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (Topic
220): Presentation of Comprehensive Income" which requires comprehensive income
to be reported in either a single statement or in two consecutive statements
reporting net income and other comprehensive income. The amendment does not
change what items are reported in other comprehensive income. Additionally, in
December 2011, the FASB issued ASU No. 2011-12, "Comprehensive Income (Topic
220): Deferral of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05" which indefinitely defers the
requirement in ASU No. 2011-05 to present reclassification adjustments out of
accumulated other comprehensive income by component in both the statement in
which net income is presented and the statement in which other comprehensive
income is presented. During the deferral period, the existing requirements in
U.S. GAAP for the presentation of reclassification adjustments must continue to
be followed. These standards are effective for interim and annual financial
periods beginning after December 15, 2011 and are to be applied retrospectively,
with early adoption permitted. As these standards impact presentation
requirements only, the adoption of this guidance is not expected to have a
material impact on our unaudited interim consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08, "Intangibles - Goodwill and
Other (Topic 350): Testing for Goodwill Impairment" which permits an entity to
first assess qualitative factors to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying amount as a
basis for determining whether it is necessary to perform the two-step goodwill
impairment test described in Topic 350. The amendments in this update are
effective for annual and interim goodwill impairment tests performed for fiscal
years beginning after December 15, 2011. Early adoption is permitted. We do not
anticipate that the adoption of this pronouncement will have a significant
effect on our unaudited interim consolidated financial statements.
RESULTS OF OPERATIONS
COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED FEBRUARY 29, 2012 AND FEBRUARY
28, 2011
REVENUE
For the nine months ended February 29, 2012, we recognized $1,492 in revenue
from interest income on our short term deposits. For the nine months ended
February 28, 2011, we recognized $3,020 in dating revenues derived from our
proprietary source code. We have not yet begun to generate revenues from our
mobile marketing offerings.
COST OF GOODS SOLD
Cost of goods sold of $38,000 for the nine months ended February 28, 2011, is
made up entirely of amortization of our source code, which we include in cost of
goods sold. The work completed to earn revenue in this nine month period was
provided in-house using our source code. Amortization of our source code
commenced March 1, 2008 when it became apparent that the source code was being
used to generate revenue.
We incurred $Nil in cost of goods sold for the nine months ended February 29,
2012 as we did not earn any dating revenues in this period and our source code
has been fully amortized.
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EXPENSES
During the nine months ended February 29, 2012, we incurred total expenses of
$92,800 comprised of selling and administrative expense of $91,367 and
depreciation of $1,433; compared with total expenses of $130,629 comprised of
selling and administrative expense of $128,817 and depreciation of $1,812 for
the same period in 2011. Higher expenses for the prior nine month period ended
February 28, 2011 were incurred all around with the largest expenses for both
periods pertaining mostly to consulting and professional fees. The largest
difference between the two periods resulted from consulting fees of $16,662
versus $4,000 due to seven months of officers' fees versus two months in 2012.
However, this was offset by $10,000 in directors' fees which were not incurred
in 2011. Legal fees was much higher in the nine month period ended February 28,
2011 in part due to a legal adjustment of $5,798 resulting from the May 31, 2010
year end. As well, reduced audit fees in the nine month period ended February
29, 2012 was due to a change of auditors. Higher advertising (February 28, 2011
- $6,419) versus $424 advertising expense was incurred in the current period.
Much higher webhosting and system administration due to operations related to
the dating website revenues were incurred in the nine month period ended
February 28, 2011; as no dating revenues were realized in the current period, so
the same expense was related mostly to maintenance. And finally expenses related
to travel and meals of $10,213 were incurred in the prior period ended February
28, 2011. Very little travel incurred in the nine month period ended February
29, 2012.
NET INCOME/LOSS
During the nine months ended February 29, 2012, we incurred a net loss of
$91,308 compared with a net loss of $165,588 for the nine months ended February
28, 2011. The decrease in net loss was due to slightly higher revenue in the
nine months ended February 28, 2011 and much lower selling and administrative
expenses all around in the same period. As well, as our revenues in this period
were not earned from our dating software and our source code has been fully
amortized, we did not incur any cost of goods sold which was the highest expense
in the prior period ended February 28, 2011.
LIQUIDITY AND CAPITAL RESOURCES
We do not yet have an adequate source of reliable, long-term revenue to fund
operations. The Company is in the development. We have no significant assets or
financial resources. The amount of working capital that we will require depends
on several factors, including without limitation, the extent and timing of sales
of our products and related services, future costs of development, the timing
and costs associated with the expansion of our customer support capabilities,
and our operating results.
As of February 29, 2012, we had cash and cash equivalents of $14,203. We had
total current assets of $29,402.
In order to ensure we continue to generate cash revenues, during the next three
months, we have expanded the scope of technology offerings to include marketing
mobile applications solutions and kiosk hardware and software products. Our
proprietary web based community software will be further developed for mobile
use in our m2Meet division. However, our product offering now includes
enterprise software solutions which fall into five principal product families:
m2Meet, m2Bank, m2Market, m2Ticket, and m2Kiosk 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.
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
- 24 -
agreements, reseller agreements, partnership agreements, memoranda of
understanding, and software development agreements. We anticipate that we will
require $350,000 in total, over the next three months, to fund the start up of
each of these divisions. We anticipate launching each division, individually, as
technology solutions providers are in place. We need to be assured that we have
strong presentation support, an organized implementation strategy and ongoing
technical support. As we sign more technology partners with proven large scale
application experience, we will begin to hire project managers and begin
marketing our solutions to targeted potential clients.
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 six
months. If we generate no cash revenues other than the $14,203 that we had
available as of February 29, 2012, we will need to raise additional funds during
the next three 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.
On August 26, 2009, the Company issued a note payable in consideration of a draw
down unsecured loan up to an aggregate of $300,000 over a term of one year which
has been extended. Interest is payable at the prime rate plus 2%. Principal and
interest are now due on August 26, 2012 unless demanded earlier.
As of February 29, 2012, the Company borrowed $296,943 against the total
$300,000 available to be drawn down.
Prior to this, on July 18, 2008, the Company had issued a note payable in
consideration of a draw down unsecured loan up to an aggregate of $100,000 over
a term of one year which has been extended. As of February 29, 2012, the Company
borrowed $80,000 against this loan.
A shareholder has also loaned the Company $36,087 as of February 29, 2012.
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 February 29, 2012, our total assets were $30,706, our total liabilities
were $562,133, and stockholders' deficiency was $531,427.
SUBSEQUENT EVENTS
On March 30, 2012, we effected a common stock forward split 3:1. Each
shareholder is to receive two additional shares for each share they hold on the
Record Date. The number of authorized common shares shall be correspondingly
increased. The number of authorized preferred stock stays the same.
On March 30, 2012, we entered into a sales partner agreement with JBBMobile Inc.
The agreement provides that the we will resell and distribute JBBMobile's Field
Cloud Application and Mobile CRM software systems and solutions for a term of
one year. The agreement may automatically renew for periods of one year.
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.
- 25 -
Item 3.
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