UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
PROPALMS, INC.
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(Name of Small Business Issuer in its charter)
Nevada
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(State or other jurisdiction of incorporation or organization)
22-3351399
-------------------------------------
(I. R. S. Employer Identification No. )
Unit 7, The Maltings Castlegate
Malton, N. Yorkshire
United Kingdom YO17 7DP
011-44-1653-696270
-----------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
Securities to be registered pursuant to Section 12(b) of the Act.
Securities to be registered pursuant to Section 12(g) of the Act.
Common Stock
--------------
(Title of Class)
1
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 1. Description of Business
Propalms, Inc (the "Company"), a Nevada corporation formed in 2006, is a holding
company with no operations. Its sole asset is ownership of 100% of Propalms,
Ltd. a UK limited company ("Propalms"). For purposes of this description, all
business of Propalms is being consolidated into the Company.
Propalms was founded in 2001 as a focused software company to develop
infrastructure products to license and distribute world wide. Propalms
specializes in URL filtering systems for both Microsoft Proxy and ISA Server
platforms.
In 2005 Propalms purchased from Tarantella, Inc., a subsidiary of
SunMicro Systems, the Terminal Service Edition (TSE), a Windows server-based
software product. The Company's vision is to focus on its award winning TSE
software and continue to develop innovative products for the Server-Based global
market, from small businesses to the large enterprises. TSE publishes
server-based Windows applications and the Windows desktop through a single,
unified and portable browser interface.
Today, Propalms Ltd is a software vendor / development company that has
extensive experience in the enhancement of value of software for distributors,
and provision of quality support for a broad range of customers. Propalms works
with value-added resellers (VARs) and Independent Software Vendors (ISVs)
internationally enabling Propalms to innovatively enhance channel distribution,
providing suppliers and customers with a better way of doing business.
Propalms is dedicated to providing quality support, and reliable, scalable
software at affordable prices. The Company's key advantages are:
- Existing and growing customer base worldwide
- Existing and increasingly secure annual support revenue
- Only one main competitor (Citrix Systems)
- Substantial barrier for other competition to enter market
Software Products
In 2005, Propalms purchased an existing and established software product called
TSE (Terminal Services Edition), with customers worldwide and an established
distribution network in 26 countries. Propalms purchased the intellectual
property rights and all the technical knowledge base, and took over the key
development team of the TSE product.
TSE enables any company to run all their software applications through their
servers, rather than on each individual desktop. It enables all users,
regardless of where they are based, to access their applications without having
the problems of incompatibility issues and upgrade problems, all in a seamless
manner.
TSE is a complete management product for the server-based computing environment.
It enables all enterprises, large or small, to save significant money in
managing their software and hardware, providing secure remote access and
2
providing a more controlled IT environment. Using the base technologies of
Microsoft Windows, TSE provides a full solution that manages end users,
application servers and server-hosted Windows applications.
Unlike other solutions, TSE leverages the Microsoft(R) RDP protocol as a
standard building block, adding an intelligent management layer and protecting
customers' long-term investments in the Microsoft platform. TSE publishes
server-based Windows applications and the Windows desktop through a single,
unified and portable browser interface.
Propalms acquired all the continuing annual support agreements, the brand rights
with all collateral and the entire database of the TSE product including all
customer information.
The financial implication to any organization or government in installing a thin
client solution is substantial money savings. Therefore, this sector of the
software industry has become one of the key growth areas in recent years.
Marketing and Distribution
Propalms does not typically sell its products directly to customers. Most sales
are channeled through its certified distribution network throughout the world.
Propalms focuses its resources and energy on the technical development and
enhancement of its products, and the marketing campaigns and sales generation
leads, which are then passed on through its distribution channels.
The Company's initial strategy is to focus on the small business emerging market
which its principal competition has no real hunger for. Propalms is focused on
winning orders for companies needing 100 to 400 end user licenses, which
strategy positions Propalms as an alternative to its very large competitor.
Propalms has a number of marketing tools at its disposal:
o E-Shot: The marketing tool of the moment - it is both cheap to
produce, cheap to send, and can generate instant results.
Propalms is currently evaluating two email marketing and lead
generation tools that enable it to verify the value of the e-shot
blast and provide it with the metrics to ensure it is obtaining
value for the money invested.
o Tracking: Online tracking is very important to see how many
people have read an e-shot or e-newsletter, who is reading it,
and which articles interested them most. This allows for a more
targeted sales and marketing effort.
o Leadbank: Offers a complete lead generation service and is hosted
as an ASP service.Leadbank's forte is in generating qualified
leads and website optimization for search engines. There is also
a facility for e-broadcasts.
o Data Cleaning and Subscription Management: Leadbank will be able
to clean Propalms' existing data. With regards to subscription
management, Leadbank can be configured to ask a number of
segmenting questions, including an opt-in question. The data can
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then be filtered to collect the required results, providing a
tool to generate tight, responsive email communities, allowing
targeted and rapid dissemination of information. The tracking
capabilities will then be verified.
o Direct Mail: Providing there is a tight control on the return on
investment, direct mailings can be a positive marketing tool.
However, the cost of direct mail pieces can be prohibitive and
will only be considered where substantial vendor funding is
available.
o Telemarketing: Propalms will have access to 3 separate
telemarketing resources: (i) the internal telemarketing
department working out of its own offices, (ii) the sales account
managers, and (iii) Target 250 Ltd who are a specialist UK based
telemarketing company that get technology companies appointments
with IT Directors. (on a project by project basis). Telemarketing
enables the Company to ensure marketing messages can be followed
up and results can be quantified. Propalms' telemarketing is
flexible and can respond quickly any topic the public is
interested in.
o Advertising: Propalms is booking space in specific trade
publications that provide targeted exposure to the reseller
community.
o Propalms Website: The website has been developed and is
maintained in-house. This allows for changes to be made
instantly, offering a dynamic website. As the backbone of
Propalms online marketing effort, the website constantly reflects
the products and services offered, the current campaign, and a
clear "call to action" for each product page.
Propalms provides a unique proposition to the distributor and reseller channel
on a worldwide basis through adding the services below:
o Telesales: Propalms intention is to employ our own telemarketing
team both in the UK and the U.S. that will eventually consist of
five people who average four hundred calls a day into end user
databases. These end users tend to be Government, Health,
Education and Corporate with networks with more than 250 personal
computers. The leads are then re-qualified by Propalms' team of
product managers before being handed to the account managers to
hand to their resellers. These leads are then tracked by the
telemarketing team as they only get paid commissions on leads
that turn into actual product orders. The Company now employs 2
telemarketers in the UK and 1 in the U.S. The results have
generated more than 300 leads over the past 3 months with about
30 new sales.
o Pre-Sales Telephone Support: Propalms has 7 technical people who
give free of charge pre sales support and 30 days post sales
support, along with on site visits for TSE. The Company has 6
support people based in India who provide 24 hour support, 5 days
a week. There is one technical consultant in Europe who helps the
distributor with both support and on site visits.
o Extra Support Revenue Services: Propalms provides a variety of
support at additional costs for clients who request it.
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o Online Pre-Sales Installation: Propalms has the ability to
have online meetings with a client and actually take over
their computer for training and product setup as required.
o On Site Pre-Sales Installation: Propalms tries to book an
engineer to visit end users where the account has more then
500 nodes on their network. It gives the knowledge of
successful installation and proper training on the product.
This method of pre-sales has resulted in a 90% rate of
conversion into firm orders.
o Funded Heads: Propalms provides large resellers with a
funded head to work in their office with their sales desk to
promote the TSE products.
U.S. Office
Propalms intends to open an Office in USA by the end of December 2008. This
office will become our worldwide headquarters and will run the finance,
marketing, sales and support departments.
..
Research and Development
Since Propalms purchased the existing and established software product TSE,
there is no current further major core development needed where this product is
concerned. Since July 2005, Propalms has made two upgrades including a major
upgrade V5.0 released in April 2006. It is our intention to continue this
upgrade/development schedule, to provide our existing and future customers with
practical features. In July 2006, we took over the key development team of the
TSE product and have since expanded the team from a core group of 5 to a team of
18 people.
It is our intention to release a new enterprise product in 2008 that will be
focused on large organizations and governmental bodies, and will host a range of
major enhancements for this market.
Distributors
Propalms has distribution agreements in place with 36 distributors worldwide to
resell the TSE software. These agreements permit distributors who find resellers
to sell TSE licenses to the end-users. Our top 3 distributors are:
o Tridex Systems, USA
o TCB, Japan
o Global, Canada
Technical Support:
1st Line support for all resellers is available via chosen regional
distributors. 2nd Line support will be available directly with Propalms via our
email support alias support@propalms.com or on-line support directly with one of
our representatives via Webex.
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The following additional technical resources are available via our website
www.propalms.com:
----------------
o Product downloads
o Searchable knowledgebase
o Press releases
o Case studies
o Public newsgroup
o Technical Newsletters
Product roadmaps will be published to keep our partners' technical staff up to
date with our product development progress and future plans.
Technical Training and Accreditation:
To maximize revenue opportunity with Propalms products we provide to all
partners technical staff training to our accreditation level. This in turn gives
our partner the tools to provide implementation and support services directly to
their customers.
Competition
The main competition in our industry comes from U.S. based Citrix, Inc. (NASDAQ:
CTRX), which has approximately 90% of the current market for products like ours.
Over the last 3 years, Citrix has been growing in excess of 50% per annum, with
2006 revenue at approximately $1.08 Billion and net profit of approximately
$196.75 Million.
Other competitors include: (1) Eircom, Quoted on the Tel Aviv stock exchange
(has recently finished developing a thin client solution application at a
substantial cost. Their strategy is to cross sell this new product to their
existing customer base, but as of November 01, 2007, we do not believe that
Eircom has made any significant sales); (2) Microsoft, which at this time does
not sell a fully functioning thin client solution. They only provide the
operating backbone to all servers called the Microsoft Terminal Server Edition.
Employees
Propalms employs 6 full time and 3 part time employees and enjoys good employee
relations.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Cautionary statement identifying important factors that could cause our actual
results to differ from those projected in forward looking statements.
Pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, readers of this report are advised that this document
contains both statements of historical facts and forward looking statements.
Forward looking statements are subject to certain risks and uncertainties, which
could cause actual results to differ materially from those indicated by the
forward looking statements. Examples of forward looking statements include, but
are not limited to (i) projections of revenues, income or loss, earnings per
share, capital expenditures, dividends, capital structure and other financial
items, (ii) statements of our plans and objectives with respect to business
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transactions and enhancement of shareholder value, (iii) statements of future
economic performance, and (iv) statements of assumptions underlying other
statements and statements about our business prospects.
Results of Operations - Years ended January 31, 2007 and January 31, 2006
-------------------------------------------------------------------------
Revenue
-------
Revenues are generated from the sale of licenses to our software and service and
maintenance.
Total revenues for the period ending January 31, 2007 were $708,434, as compared
to $142,009 for the period ended January 31, 2006. The increase is attributable
to increased sales of our core products.
Cost of Revenue
---------------
Cost of Revenue increased from $90,325 in 2006 to $422,358 in 2007 and consists
primarily of fees paid to outside firms to perform software support tasks,
amortization of acquired product technology and capitalized software development
costs, and other personnel-related costs of providing technical support and
consulting, as well as, the Company's online services.
Expenses
--------
Expenses for the period ended January 31, 2006 and 2007 were $402,177 and
$1,811,538, respectively. The increase is attributable primarily to expenses
associated with process of becoming a publicly traded company and associated
expenses to market out common stock.
Net Loss
--------
During the period ended January 31, 2007, the company recorded a Net Loss of
$1,525,462 as compared to a loss $350,493 for period ending January 31, 2006.
The increase is primarily attributable to the increase in expenses associated
with becoming a public company.
Income Taxes
------------
As of January 31, 2007 and 2006, our UK subsidiary had net operating loss carry
forwards which can be carried forward indefinitely to offset future taxable
income. The deferred tax assets for the subsidiary at January 31, 2007 consist
mainly of net operating loss carry forwards and were fully reserved as we
believe it is more likely than not that these assets will not be realized in the
future.
Assets and Liabilities
----------------------
At January 31, 2007 the Company had $419,750 in current assets and total assets
of $1,390,691, and $2,358,470 in current liabilities and $2,660,549 in Total
Liabilities.
Going Concern
As shown in the consolidated financial statements, during the year ended January
31, 2007, we incurred net losses of $1,525,462. In addition, we had a negative
cash flow in operating activities amounting to $109,343 in the year ended
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January 31, 2007, and our accumulated deficit was $1,875,955 as of January 31,
2007. If we are unable to generate profits and unable to continue to obtain
financing for our working capital requirements, we may have to curtail our
business sharply or cease business altogether.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of liabilities that might be necessary
should we Company be unable to continue as a going concern. Our continuation as
a going concern is dependent upon our ability to generate sufficient cash flow
to meet our obligations on a timely basis, to retain our current financing, to
obtain additional financing, and ultimately to attain profitability. We are in
the process of raising equity financing by private placement agreements to
overcome the condition.
Item 3. Description of Property.
Property
The Company does not yet have any offices. All corporate operations are managed
out of the Propalms, Ltd. offices in the UK. It is the intention to set up a
Head Office in the US in 2008. Our UK subsidiary leases a main office located at
Unit 7, The Maltings Castlegate Malton, North Yorkshire YO17 7DP, UK. The lease
term is for 3 years, ending September 1, 2008. The U.S.-based marketing office
is located at 9780 Mt. Pyramid Court, Ste.290, Englewood, CO, 80112, and the
India office is located at 15 National Co-op Housing Society, ITI Road, Aundh,
Pune 411007, India.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of the date hereof, the number of Shares
beneficially owned by each director, officer and other Share holders owning of
record and or beneficially, 5% or more of our Shares.
Percentage
of Ownership
------------
Owen Dukes, CEO/Director 115,475,000 36.98%
Robert Zysblat, President/Director 115,475,000 36.98%
Nakul Sood, Director 10,000,000 .032%
All officers and directors as a group 240,950,000 73.99%
Certain of the above named Shareholders may be deemed "Promoters" or
"Affiliates" of the Company as defined under the Act.
Item 5. Directors and Executive Officers, Promoters and Control Persons.
DIRECTORS AND OFFICERS
The Directors and Executive Officers of the Company as of the date of this
offering are as follows:
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Name Age Position
Owen Dukes 40 CEO; Chairman; President of Propalms, Ltd.;
Director
Robert Zysblat 50 President; Director
Nakul Sood 33 Director
The directors of the Company are elected annually by the shareholders for a term
of one year, or until their successors are elected and qualified. The Officers
are appointed by the Board of Directors at the annual meeting of directors
immediately following each annual meeting of shareholders of the Company and
serve at the pleasure of the Board of Directors.
Background of Directors and Executive Officers
Owen Dukes, CEO, Director: In July 2005, Dukes became a director of Propalms
Ltd. and In Jan, 2006, he was appointed CEO. Mr. Dukes has twenty years
extensive industry experience. He worked for Phoenix Distribution, the leading
Microsoft reseller, as their UK channel Manager from 1993 to 2000. Mr. Dukes
then worked as Business Development Manager for Surf Control PLC, from 2000 to
2001 building up their UK market to a multi million pound enterprise. In 2000,
he launched Arc Technology Distribution Ltd, and purchased two other
distributors, Unidirect Ltd and IPconnect Ltd. Over the next three years, Mr.
Dukes restructured the ARC business and this year that company is expected to
generate revenue in excess of $12 million. Since this period, he has taken a
back seat in Arc, and as of Jan 2007, will be appointed chairman.
Robert Zysblat, President; Director: Mr. Zysblat has a well known
entrepreneurial track record in the security software industry and has
successfully led and sold a number of significant messaging companies. In 1998
he purchased 100% shareholding of Computer Communications Ltd, becoming CEO, and
successfully sold this business in an MBO in July 2001. In December 2000, he
purchased 5th Generation Messaging, becoming CEO, and sold all his stock in July
2002. In September 2002, he purchased MSS communications becoming Chairman, and
sold the business in 2004. Mr. Zysblat since July 2005, now brings to Propalms a
commercial focus and the ability to help customers implement and integrate
products.
Nakul Sood, Director: Mr. Sood was formerly the Director of Product Management
and Planning at New Moon Systems, Inc. and on the original development team of
the Propalms TSE software. Several years later, New Moon Systems was purchased
by Tarantella, Inc. where he was named the Director of IDC and Product
Management. Just prior to the acquisition of Tarantella by Sun Microsystems, Mr.
Sood founded Aloha Technology Pvt. Ltd where he is currently the Managing
Director. Mr. Sood earned dual MBAs in Marketing and Information Systems from
Hawaii Pacific University and his bachelor's in Mechanical Engineering while
living in India.
Meetings and Committees of the Board
------------------------------------
The Board of Directors currently consists of three members. There are no
committees of the Board. The Board meets as needed.
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Item 6. Executive Compensation.
The following table sets forth information concerning the annual and long-term
compensation of our Chief Executive Officer, and the most highly compensated
employees and/or executive officers who served at the end of the fiscal year
2006, and whose salary and bonus exceeded $100,000 for the fiscal year 2006, for
services rendered in all capacities to us. The listed individuals shall be
hereinafter referred to as the "Named Executive Officers."
Annual Compensation
Name and principal position Year Salary ($) Bonus ($) Other Annual
Compensation
Owen Dukes, CEO 2006 65,000 0 0
Robert Zysblat, President 2006 65,000 0 0
Employment agreements
The Company has Employment Agreements with its executive officers. Each
Employment Agreement will be renewed on a yearly basis unless the Company
otherwise notifies them. The Employment Agreements provided for base salaries,
exclusive of bonuses, merit raises and other options, if any, which may be
awarded from time to time by the Board of Directors. The Employment Agreements
require the Principles to refrain from disclosing confidential information
regarding the Company, refrain from competing with the Company for one year
following termination and contains an invention assignment clause in favor of
the Company. Additionally, there are changes of control provisions in favor of
the employees, which provide for an additional twelve-month salary post
termination.
Item 7. Certain Relationships and Related Transactions and Director
Independence.
The Company's subsidiary has retained Katherine Dukes as the operations Manager
in the UK office. During this period, she was compensated $66,968. Ms. Dukes is
the wife to the CEO of the Company.
Item 8. Description of Securities.
Our Articles of Incorporation authorize the issuance of up to 500,000,000 shares
of Common Stock, having a par value of $0.0001 per share and 20,000,000 shares
of Preferred Stock, having a par value of $0.0001 per share.
Description of Common Stock. Holders of Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of stockholders
and may not cumulate their votes for the election of directors. Shares of Common
Stock are not redeemable, do not have any conversion or preemptive rights, and
are not subject to further calls or assessments once fully paid.
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Holders of Common Stock will be entitled to share pro rata in such dividends and
other distributions as may be declared from time to time by the board of
Directors out of funds legally available therefore, subject to any prior rights
accruing to any holders of preferred stock of the Company. Upon liquidation or
dissolution of the Company, holders of shares of Common Stock will be entitled
to share proportionally in all assets available for distribution to such
holders.
Description of Preferred Stock. The terms, preferences, limitations and relative
rights of the Preferred Stock are as follows:
(a) The Board of Directors is expressly authorized at any time and from
time to time to provide for the issuance of shares of Preferred Stock in one or
more series, with such voting powers, full or limited, but not to exceed one
vote per share, or without voting powers, and with such designations,
preferences and relative participating, optional or other special rights and
qualifications, limitations or restrictions, as shall be fixed and determined in
the resolution or resolutions providing for the issuance thereof adopted by the
Board of Directors, and as are not stated and expressed in this Certificate of
Incorporation or any amendment hereto, including (but without limiting the
generality of the foregoing) the following:
(i) the distinctive designation of such series and the number of shares
which shall constitute such series, which number may be increased (but not above
the total number of authorized shares of Preferred Stock and, except where
otherwise provided by the Board of Directors in creating such series) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by resolution by the Board of Directors;
(ii) the rate of dividends payable on shares of such series, the times
of payment, whether dividends shall be cumulative, the conditions upon which and
the date from which such dividends shall be cumulative;
(iii) whether shares of such series can be redeemed, the time or times
when, and the price or prices at which shares of such series shall be
redeemable, the redemption price, terms and conditions of redemption, and the
sinking fund provisions, if any, for the purchase or redemption of such shares;
(iv) the amount payable on shares of such series and the rights of
holders of such shares in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the corporation;
(v) the rights, if any, of the holders of shares of such series to
convert such shares into, or exchange such shares for, shares of Common Stock or
shares of any other class or series of Preferred Stock and the terms and
conditions of such conversion or exchange; and
(vi) the rights, if any, of the holders of shares of such series to
vote.
(b) Except in respect of the relative rights and preferences that may be
provided by the Board of Directors as hereinbefore provided, all shares of
Preferred Stock shall be of equal rank and shall be identical, and each share of
a series shall be identical in all respects with the other shares of the same
series.
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Transfer Agent, Registrar and Warrant Agent
Our transfer agent is Florida Atlantic Stock Transfer, 7130 Nob Hill Rd.,
Tamarac, Florida, 33321, phone number 954-726-6305.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
Our common stock began trading on the Pink Sheets over-the-counter system under
the symbol "JLNY", but the symbol was changed to "PRPM" on February 14, 2007.
Historical Market Price Data for Common Stock
---------------------------------------------
The following table sets forth the range of high and low bid prices for the
common stock for the period beginning January 1, 2007 and ending October 31.
These over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, markdown or commission, and may not necessarily represent actual
transactions.
Common Stock High ($) Low ($)
Quarter Ended April 30, 2007 $.14 $.07
Quarter Ended July 30, 2007 $.12 $.05
Quarter Ended October 31, 2007 $.09 $.03
Period Ended November 12, 2007 $.04 $.03
Number of Shareholders and Total Outstanding Shares
As of November 1, 2007, approximately 312,239,135 shares of our common stock
were outstanding and, as far as we can determine, were held by approximately 37
holders of record.
No dividends have been paid on the common stock, and none are expected to be
paid in the foreseeable future.
Item 2. Legal Proceedings.
None.
Item 3. Changes in and Disagreements with Accountants.
Propalms changed accountants in June, 2007 to Kabani & Company, Inc., Certified
Public Accountants, 6033 West Century Blvd., Suite 810, Los Angeles, CA 90045,
Phone: 310-694-3590. The previous accountants were Richard L. Brown & Company,
P.A. in Tampa, Florida. There were no disagreements with the previous
accountants.
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Item 4. Recent Sales of Unregistered Securities.
Pursuant to its Private Placement Memorandum dated January 1, 2007, MJMM
Investments, LLC signed a Subscription Agreement dated January 9, 2007. During
the period from January 16, 2007 to November 1, 2007, MJMM Investments, LLC
purchased a total of 23,113,837 shares for the amount of $ 310,600.
Pursuant to its Private Placement Memorandum dated January 1, 2007, Ivest Group,
LLC signed a Subscription Agreement dated January 10, 2007. During the period
from January 26, 2007 to November 1, 2007, Ivest Group, LLC purchased a total of
1,093,441 shares for the amount of $30,000.
Item 5. Indemnification of Directors and Officers.
Nevada Revised Statutes Section 78.7502 provides for both discretionary and
mandatory indemnification of officers and directors of the Company.
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of Surge pursuant to
the foregoing provisions, or otherwise, Surge has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
13
PART F/S
PROPALMS USA, INC.
Consolidated Financial Statements
January 31, 2007
14
PROPALMS USA, INC.
CONSOLIDATED BALANCE SHEET
January 31, 2007
ASSETS
Current assets:
Cash and cash equivalents $ 21,286
Restricted cash 119,714
Accounts receivable, net of allowance
of doubtful accounts of $10,354 129,528
Prepaid expenses and other current assets 149,222
-----------
Total current assets 419,750
Property and equipment, net of
accumulated depreciation of $6,318 (note 3) 13,151
Intangible assets, net of accumulated
amortization of $284,969 (note 5) 957,789
-----------
Total assets $ 1,390,691
===========
LIABILITIES & STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 256,342
Accrued expenses 433,716
Notes payable (note 6) 746,392
Loans from shareholders (note 7) 147,178
Deferred revenue 582,880
Derivative liability 191,962
-----------
Total current liabilities 2,358,470
Long term liabilities:
Deferred revenue 55,697
Notes payable (note 6) 246,382
-----------
Total long term liabilities 302,079
-----------
Total liabilities $ 2,660,549
Commitments and Contingencies (Note 8) --
Stockholders' deficit:
Common stock, $0.0001 par value; 500,000,000
shares authorized; 384,630,782
issued and 272,797,448 outstanding 272,797
Additional paid in capital 329,844
Subscription receivable (10,000)
Accumulated deficit (1,875,955)
Comprehensive gain 13,456
-----------
Total deficit in stockholders' deficit (1,269,858)
-----------
Total liabilities and
stockholders' deficit $ 1,390,691
===========
The accompanying notes are an integral part of
these consolidated financial statements.
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PROPALMS USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 2007 AND 2006
2007 2006
------------- -------------
Net revenue $ 708,434 $ 142,009
Cost of revenue 422,358 90,325
------------- -------------
Gross profit 286,076 51,684
Expenses:
Research and development 184,570 117,341
Sales and marketing 350,017 150,127
General & administrative 1,024,817 95,454
Impairment loss 67,700 --
------------- -------------
Total operating expenses 1,627,104 362,922
------------- -------------
Net operating loss (1,341,028) (311,238)
Other (income) expenses:
Interest income (2,525) --
Interest expense 70,197 39,255
Change in fair value of derivative liability 116,762 --
------------- -------------
Total other expenses 184,434 39,255
------------- -------------
Net loss (1,525,462) (350,493)
Other comprehensive income (loss):
Foreign currency translation 13,456 --
------------- -------------
Comprehensive loss $ (1,512,006) $ (350,493)
============= =============
Basic and diluted loss per share:
Net loss $ (0.01) $ (0.00)
============= =============
Weighted average shares used in calculating
net loss per share - Basic and diluted 233,031,170 230,000,000
============= =============
The accompanying notes are an integral part of
these consolidated financial statements.
16
PROPALMS USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended January 31, 2007 and 2006
2007 2006
----------- -----------
Cash flows from operating activities:
Net (loss) $(1,525,462) $ (350,493)
Adjustments to reconcile net loss
to net cash (used in) provided by
operating activities:
Amortization 186,358 81,115
Depreciation 4,609 1,292
Stock issued for services 582,500 --
Impairment loss 67,700 --
Provision for bad debt 53,286 --
Options expense 4,700 --
Change in fair value of derivative liability 116,762 --
Increase in assets
Increase in accounts receivables (86,415) (77,746)
Increase in prepaid expenses and
other current assets (70,571) (11,185)
Increase in liabilities
Increase in accounts payable 357,643 78,830
Increase in accruals & deferred revenue 168,387 55,016
Increase in customer support 31,160 495,652
----------- -----------
Net cash provided by(used in)
operating activities (109,343) 272,481
----------- -----------
Cash flows used in investing activities:
Acquisition of intangible assets (161,913) (1,027,711)
Purchases of property and equipment (4,546) (13,194)
Restricted cash (119,714) --
----------- -----------
Net cash used in
investing activities (286,173) (1,040,905)
----------- -----------
Cash flows from financing activities:
Payment on note payable -- (20,905)
Proceeds from issuance of note payable 289,036 761,261
Proceeds from loans from shareholders 27,845 106,050
Issuance of common stock for cash 10,000 141
----------- -----------
Net cash provided by
financing activities 326,881 846,547
----------- -----------
Effect of exchange rate on
cash & cash equivalents 11,798 --
Net increase in cash & cash equivalents (56,837) 78,123
Cash & cash equivalents beginning of period 78,123 --
----------- -----------
Cash & cash equivalents end of period $ 21,285 $ 78,123
=========== ===========
Supplemental disclosures:
Interest paid $ 70,197 $ 39,255
Income tax paid $ -- $ --
The accompanying notes are an integral part of
these consolidated financial statements.
17
PROPALMS USA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For The Years Ended January 31, 2007 and 2006
Additional
Common Common Paid in Subscription Comprehensive Accumulated Total
Shares Par Capital receivable Loss Deficit Equity
----------- ----------- ----------- ----------- ----------- ----------- -----------
Opening balance 230,000,000 $ 230,000 $ (229,859) $ -- $ -- $ -- $ 141
Net loss for the period from
inception to
January 31, 2006 -- -- -- -- -- (342,978) (342,978)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance as of January 31,
2006 230,000,000 230,000 (229,859) -- -- (350,493) (350,352)
Recapitalization as a result
of reverse merger 21,380,782 121,381 (21,381) -- -- -- $ --
Shares issued for cash 1,666,666 1,667 18,333 (10,000) -- -- 10,000
Stock issued for services 19,750,000 19,750 562,750 -- -- -- 582,500
Comprehensive loss -- -- -- -- 13,456 -- 14,360
Net Loss for the year ended
January 31, 2007 -- -- -- -- -- (1,525,462) (1,525,462)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance as of January 31,
2007 272,797,448 $ 272,797 $ 329,844 $ (10,000) $ 13,456 (1,875,955) $(1,269,859)
=========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
18
PROPALMS USA, INC
NOTES TO THE FINANCIAL STATEMENTS
January 31, 2007 and 2006
Note 1 - Nature of Business
Nature of Business
Propalms, Inc. (the "Company"), formerly Jenna Lane, Inc. (Jenna Lane), was
incorporated in 1995 under the laws of the State of Nevada.
Propalms Ltd was a UK registered company incorporated in October 2001 with a
fiscal year end of January 31. On July12, 2005 Propalms, Ltd. purchased from
Tarantella, Inc. a license and purchase option agreement for the world wide
intellectual property rights, including the entire customer base and all the
ongoing maintenance revenue, of a software product called Terminal Services
Edition ("TSE"). Jenna Lane is a Nevada Corporation, incorporated in 1995. Jenna
Lane was a non-operating company. On December 8, 2006, shareholders of Propalms
Ltd. purchased 13,750,000 shares of Jenna Lane. On December 9, 2006, Jenna Lane
entered into an agreement with all the shareholders of Propalms Ltd. to exchange
230,000,000 shares of Jenna Lane for all the issued and outstanding stock of
Propalms Ltd. After the consummation of the agreement, the former shareholders
of Propalms Ltd. own 243,750,000 shares of common stock of Jenna Lane, which
represent 89.35% of Jenna Lane's outstanding shares.
The exchange of shares with Propalms, Ltd. has been accounted for as a reverse
acquisition under the purchase method of accounting since the shareholders of
the Propalms, Ltd. obtained control of the consolidated entity. Accordingly, the
merger of the two companies has been recorded as a recapitalization of Propalms
Ltd, with Propalms Ltd. being treated as the continuing entity. The historical
financial statements presented are those of Propalms Ltd. The continuing company
has retained January 31 as its fiscal year end. The financial statements of the
legal acquirer are not significant; therefore, no pro forma financial
information is submitted.
The consolidated financial statements include the accounts of Propalms, Inc. and
its wholly owned subsidiary, Propalms Ltd. All significant inter-company
accounts and transactions have been eliminated in consolidation.
During December 2006 Jenna Lane increased its authorized common shares to
500,000,000 in order to acquire Propalms Ltd.
In March 2007 Jenna Lane, Inc. changed its name to Propalms USA, Inc. and its
ticker symbol to PRPM.PK in order to better reflect the nature of the Company's
business. As a result of this recapitalization and reorganization, the financial
statements of the Company reflect the results of operations beginning on July
12, 2005 (since "Inception"). Further, on June 22, 2007 Propalms USA, Inc.
changed its name to Propalms, Inc. to better reflect the Company's international
sales and global presence.
Propalms Inc., through Propalms Ltd., develops TSE which offers users a complete
management product for the Microsoft server-based computing (SBC) environment.
TSE allows users to manage and operate all their software applications centrally
on their servers rather than on each individual desktop computer. The Company
markets and licenses its products through multiple channels such as value-added
resellers and channel distributors.
19
Note 2 - Summary of significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
For purposes of the cash flow statements, the Company considers all highly
liquid investments with original maturities of three months or less at the time
of purchase to be cash equivalents.
Accounts Receivable:
The Company's customer base consists of a geographically dispersed customer
base. The Company maintains reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Reserves are recorded primarily on a
specific identification basis.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to earnings as incurred; additions, renewals and betterments
are capitalized. When property and equipment are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
respective accounts, and any gain or loss is included in operations.
Depreciation is computed using various methods over the estimated useful lives
of the assets, which is four years. Depreciation expense was $4,609 and $1,292
for the periods ended January 31, 2007 and 2006, respectively.
The Company accounts for the costs of computer software developed or obtained
for internal use in accordance with Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." The
Company capitalizes costs of materials, consultants, and payroll and
payroll-related costs for employees incurred in developing internal-use computer
software. These costs are included with "Computer equipment and software." Costs
incurred during the preliminary project and post-implementation stages are
charged to general and administrative expense.
Intangible Assets:
Intangible assets consist of product licenses, renewals, distributor
relationships and goodwill. The Company evaluates intangible assets, goodwill
and other long-lived assets for impairment, at least on an annual basis and
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable from its estimated future cash flows. Recoverability of
intangible assets, other long-lived assets and, goodwill is measured by
comparing their net book value to the related projected undiscounted cash flows
from these assets, considering a number of factors including past operating
results, budgets, economic projections, market trends and product development
20
cycles. If the net book value of the asset exceeds the related undiscounted cash
flows, the asset is considered impaired, and a second test is performed to
measure the amount of impairment loss. Potential impairment of goodwill is being
evaluated in accordance with SFAS No. 142.
As part of intangible assets, the Company capitalizes certain computer software
development costs in accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed." Costs incurred
internally to create a computer software product or to develop an enhancement to
an existing product are charged to expense when incurred as research and
development expense until technological feasibility for the respective product
is established. Thereafter, all software development costs are capitalized and
reported at the lower of unamortized cost or net realizable value.
Capitalization ceases when the product or enhancement is available for general
release to customers.
The Company makes on-going evaluations of the recoverability of its capitalized
software projects by comparing the amount capitalized for each product to the
estimated net realizable value of the product. If such evaluations indicate that
the unamortized software development costs exceed the net realizable value, the
Company writes off the amount which the unamortized software development costs
exceed net realizable value. Capitalized and purchased computer software
development costs are being amortized ratably based on the projected revenue
associated with the related software or on a straight-line basis over three
years, whichever method results in a higher level of amortization.
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121,"Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations for a Disposal of a Segment of a Business." The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds the
fair market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal. As of January 31, 2007, the Company
determined that there was an impairment of $95,480 to the value of the software.
Revenue Recognition
The Company recognizes its revenue in accordance with the Securities and
Exchange Commissions ("SEC") Staff Accounting Bulletin No. 104, "Revenue
Recognition" ("SAB 104") and The American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," as amended by SOP 98-4 and SOP 98-9, SOP 81-1, "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts," and
Accounting Research Bulletin 45 (ARB 45) "Long-Term Construction Type
Contracts." The Company's revenue recognition policy is as follows:
License Revenue: The Company recognizes revenue from license contracts without
major customization when a non-cancelable, non-contingent license agreement has
been signed, delivery of the software has occurred, the fee is fixed or
21
determinable, and collectibilty is probable. Revenue from the sale of licenses
with major customization, modification, and development is recognized on a
percentage of completion method, in conformity with ARB 45 and SOP 81-1. Revenue
from the implementation of software is recognized on a percentage of completion
method, in conformity with Accounting Research Bulletin ("ARB") No. 45 and SOP
81-1. Any revenues from software arrangements with multiple elements are
allocated to each element of the arrangement based on the relative fair values
using specific objective evidence as defined in the SOPs. An output measure of
"Unit of Work Completed" is used to determine the percentage of completion which
measures the results achieved at a specific date. Units completed are certified
by the Project Manager and EVP IT/ Operations.
Services Revenue: Revenue from consulting services is recognized as the services
are performed for time-and-materials contracts. Revenue from training and
development services is recognized as the services are performed. Revenue from
maintenance agreements is recognized ratably over the term of the maintenance
agreement, which in most instances is one to two years.
The Company markets and licenses its products, Propalms Terminal Server Edition
("TSE"), primarily through indirect channels such as value-added resellers and
channel distributors. The product license is perpetual and includes either one
to two years of maintenance. Maintenance includes enhancements and unspecified
software upgrades.
Fair Value:
Unless otherwise indicated, the fair values of all reported assets and
liabilities, which represent financial instruments, none of which are held for
trading purposes, approximate carrying values of such amounts.
Advertising Costs:
The Company expenses the cost of advertising as incurred. Advertising costs for
the years ended January 31, 2007 and 2006 were insignificant.
Net Income/Loss Per Share:
Net income/loss per share is calculated in accordance with the Statement of
financial accounting standards No. 128 (SFAS No. 128), "Earnings per share."
Basic net income/loss per share is based upon the weighted average number of
common shares outstanding. Diluted net income per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
The weighted average number of shares used to compute basic and diluted loss per
share is the same in these consolidated financial statements for the years ended
January 31, 2007 and 2006 since the effect of dilutive securities is
anti-dilutive.
Product Concentration
The Company derives substantially all of its revenues from its TSE Server
product and anticipates that this product and future derivative products and
product lines based upon this technology will continue to constitute a majority
of its revenue. The Company could experience declines in demand for this
product, whether as a result of general economic conditions, new competitive
22
product releases, price competition, lack of success of its strategic partners,
technological change or other factors. The total revenue generated during the
year ended January 31, 2007 from the product was $708,434 and the receivable as
of January 31, 2007 was $129,528.
Cost of Revenues
Cost of revenues consists primarily of fees paid to outside firms to perform
software support tasks, amortization of acquired product technology and
capitalized software development costs, and other personnel-related costs of
providing technical support and consulting, as well as, the Company's online
services.
Foreign Currency & Operations
The functional currency was the Great Britain Pound for the year ended January
31, 2007. The January 31, 2007 financial statements of the Company were
translated to United States dollars using year-end exchange rates as to assets
and liabilities and average exchange rates as to revenues and expenses. Capital
accounts were translated at their historical exchange rates when the capital
transactions occurred. Net gains and losses resulting from translation of
foreign currency financial statements are included in the statements of
stockholder's equity as other comprehensive income or (loss). Foreign currency
transaction gains and losses are included in consolidated income (loss).
Approximately 40% of the Company's revenues are derived from sales to business
in the United Kingdom, 6.5% are derived from sales to business in Europe, and
1.5% are derived from sales to business in Canada. The remaining 52% of revenues
are derived from sales to business in the United States, Central and South
America, and Asia.
Income Taxes:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"). Under SFAS 109, deferred
income tax assets or liabilities are computed based on the temporary difference
between the financial statement and income tax bases of assets and liabilities
using the currently enacted marginal income tax rate. Deferred income tax
expenses or credits are based on the changes in the deferred income tax assets
or liabilities from period to period. Deferred tax assets may be recognized for
temporary differences that will result in deductible amounts in future periods
and for loss carry forwards. A valuation allowance is established if, based on
the weight of available evidence, it is more likely than not that some portion
or all of the deferred tax asset will not be realized.
As of January 31, 2007 and 2006, the Company's UK subsidiary had net operating
loss carry forwards which can be carried forward indefinitely to offset future
taxable income. The deferred tax assets for the subsidiary at January 31, 2007
consists mainly of net operating loss carry forwards and were fully reserved as
the management believes it is more likely than not that these assets will not be
realized in the future.
The following table sets forth the significant components of the net deferred
tax assets for operation in the UK as of January 31, 2007 and 2006.
23
2007 2006
------ ------
Net Operating Loss Carryforward $ 1,086,085 $ 195,008
Total Deferred Tax Assets 206,350 37,050
Less: Valuation Allowance (206,350) (37,050)
----------- -----------
Net Deferred Tax Asset $ -- $ --
=========== ===========
The following is a reconciliation of the provision for income taxes at the U.S.
federal income tax rate to the income taxes reflected in the Statement of
Operations:
January 31, January 31,
2007 2006
----------- -----------
Tax expense (credit) at statutory rate-federal (34) (34)
State tax expense net of federal tax (6) (6)
Changes in valuation allowance 40 40
Foreign income tax:
UK 19 19
Changes in valuation allowance (19) (19)
Tax expense at actual rate -
=========== ===========
Stock-based compensation
The Company adopted SFAS No. 123 (Revised 2004), Share Based Payment ("SFAS No.
123R"), under the modified-prospective transition method on October 1, 2006.
SFAS No. 123R requires companies to measure and recognize the cost of employee
services received in exchange for an award of equity instruments based on the
grant-date fair value. Share-based compensation recognized under the
modified-prospective transition method of SFAS No. 123R includes share-based
compensation based on the grant-date fair value determined in accordance with
the original provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, for all share-based payments granted prior to and not yet vested
as of October 1, 2006 and share-based compensation based on the grant-date
fair-value determined in accordance with SFAS No. 123R for all share-based
payments granted after October 1, 2006. SFAS No. 123R eliminates the ability to
account for the award of these instruments under the intrinsic value method
prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and allowed under the original provisions of SFAS No.
123. Prior to the adoption of SFAS No. 123R, the Company accounted for our stock
option plans using the intrinsic value method in accordance with the provisions
of APB Opinion No. 25 and related interpretations. The Company has not granted
any stock-based compensation to any employees, officers or directors at January
31, 2007.
Segment Reporting
Statement of financial accounting standards No. 131, Disclosures about segments
of an enterprise and related information (SFAS No. 131), which superseded
statement of financial accounting standards No. 14, Financial reporting for
segments of a business enterprise, establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
24
deciding how to allocate resources and in assessing performances. The Company
allocates its resources and assesses the performance of its sales activities
based upon geographic locations of its customers (see Note 2, Foreign Currency
and Operations.
Going Concern
The accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the consolidated
financial statements, during the year ended January 31, 2007, the Company
incurred net losses of $1,525,462. In addition, the Company had a negative cash
flow in operating activities amounting $109,343 in the year ended January 31,
2007, and the Company's accumulated deficit was $1,875,955 as of January 31,
2007. If the Company is unable to generate profits and unable to continue to
obtain financing for its working capital requirements, it may have to curtail
its business sharply or cease business altogether.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to retain its
current financing, to obtain additional financing, and ultimately to attain
profitability. The Company is in the process of raising equity financing by
private placement agreements to overcome the condition.
Recent Accounting Pronouncements:
In February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
Derivative Instruments and Hedging Activities", and SFAS No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". SFAS No. 155, permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, clarifies which interest-only strips and principal-only
strips are not subject to the requirements of SFAS No. 133, establishes a
requirement to evaluate interest in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. This statement is effective for all financial instruments acquired
or issued after the beginning of the Company's first fiscal year that begins
after September 15, 2006. Management is currently evaluating the effect of this
pronouncement on the financial statements.
In March 2006 FASB issued SFAS No. 156, "Accounting for Servicing of Financial
Assets." This Statement amends SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," with respect
to the accounting for separately recognized servicing assets and servicing
liabilities. This Statement:
o Requires an entity to recognize a servicing asset or servicing
liability each time it undertakes an obligation to service a financial
asset by entering into a servicing contract.
25
o Requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practicable.
o Permits an entity to choose amortization method or fair value
measurement method for each class of separately recognized servicing
assets and servicing liabilities.
o At its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities with
recognized servicing rights, without calling into question the
treatment of other available-for-sale securities under Statement 115,
provided that the available-for-sale securities are identified in some
manner as offsetting the entity's exposure to changes in fair value of
servicing assets or servicing liabilities that a servicer elects to
subsequently measure at fair value.
o Requires separate presentation of servicing assets and servicing
liabilities subsequently measured at fair value in the statement of
financial position and additional disclosures for all separately
recognized servicing assets and servicing liabilities.
This Statement is effective as of the beginning of the Company's first fiscal
year that begins after September 15, 2006. Management is currently evaluating
the effect of this pronouncement on financial statements.
In September 2006, FASB issued SFAS No. 157 "Fair Value Measurements". This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. Management is currently
evaluating the effect of this pronouncement on financial statements.
In September 2006, FASB issued SFAS No. 158 "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106, and 132(R)". This Statement improves financial reporting by
requiring an employer to recognize the over funded or under funded status of a
defined benefit postretirement plan (other than a multiemployer plan) as an
asset or liability in its statement of financial position and to recognize
changes in that funded status in the year in which the changes occur through
comprehensive income of a business entity or changes in unrestricted net assets
of a not-for-profit organization. This Statement also improves financial
reporting by requiring an employer to measure the funded status of a plan as of
the date of its year-end statement of financial position, with limited
exceptions. An employer with publicly traded equity securities is required to
initially recognize the funded status of a defined benefit postretirement plan
and to provide the required disclosures as of the end of the fiscal year ending
after December 15, 2006. An employer without publicly traded equity securities
is required to recognize the funded status of a defined benefit postretirement
plan and to provide the required disclosures as of the end of the fiscal year
ending after June 15, 2007. However, an employer without publicly traded equity
securities is required to disclose the following information in the notes to
26
financial statements for a fiscal year ending after December 15, 2006, but
before June 16, 2007, unless it has applied the recognition provisions of this
Statement in preparing those financial statements:
o A brief description of the provisions of this Statement
o The date that adoption is required
o The date the employer plans to adopt the recognition provisions of
this Statement, if earlier.
The requirement to measure plan assets and benefit obligations as of the date of
the employer's fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. Management is currently evaluating
the effect of this pronouncement on financial statements.
In February 2007, FASB issued FASB Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." FAS 159 is effective for fiscal
years beginning after November 15, 2007. Early adoption is permitted subject to
specific requirements outlined in the new Statement.
FAS 159 allows entities to choose, at specified election dates, to measure
eligible financial assets and liabilities at fair value that are not otherwise
required to be measured at fair value. If a company elects the fair value option
for an eligible item, changes in that item's fair value in subsequent reporting
periods must be recognized in current earnings. FAS 159 also establishes
presentation and disclosure requirements designed to draw comparison between
entities that elect different measurement attributes for similar assets and
liabilities. Management is currently evaluating the effect of this pronouncement
on financial statements.
Reclassifications
Certain reclassifications have been made to the 2006 financial statements to
conform with the 2007 presentation.
Note 3 - Property and Equipment
Property and equipment at January 31, 2007 are as follows:
========================================
----------------------------------------
Computer and office equipment $15,489
Computer software 2,644
Furniture and fixtures 1,336
----------------------------------------
Total Property and
Equipment 19,469
----------------------------------------
Less: Accumulated Depreciation (6,318)
----------------------------------------
Net Property & Equipment $13,151
========================================
Depreciation expense amounts to $4,609, and $1,292 for the years ended January
31, 2007 and 2006, respectively.
Note 4 - Acquisitions
Concurrent with the inception of business on July 12, 2005, the Company
completed the acquisition of $1,008,000 in net intangible assets from an
unrelated third party. The Company engaged an independent valuation expert to
27
estimate the fair values of the assets and liability acquired. The excess of
consideration given over the fair value of the assets and liability acquired has
been recorded as goodwill. The assets acquired consisted of $604,000 in
developed software technology and $404,000 in customer relationships.
Additionally, the Company assumed an obligation to continue to provide support
and maintenance to the existing users of the acquired software technology.
The determination of the fair value of this obligation of $143,000 was based on
estimates and assumptions provided by the Company. The estimated fair value of
this obligation was determined by utilizing a cost build-up approach plus a
normal profit margin. The Company did not include any costs associated with
selling efforts, research and development or the related fulfillment margins on
these costs as they were not deemed to represent a legal obligation at the time
of the acquisition.
This obligation is being amortized to revenues over a two-year period on a
pro-rata basis. During the period ended January 31, 2007, the Company recognized
$74,744 as revenue related to the amortization of this obligation. The net
remaining value of the obligation at January 31, 2007 is comprised of a current
portion of $32,898, which is included in deferred revenue in the accompanying
balance sheet.
Note 5 - Goodwill and Intangible Assets
Intangible assets consist of acquired developed software technology, acquired
customer relationship, capitalized software development costs and goodwill.
The components of intangible assets at January 31, 2007 are summarized as
follows:
----------------------------------------------------------
2007 Est. Life
--------- ---------
----------------------------------------------------------
Developed Software Technology $ 571,216 5 years
Customer Relationships 445,935 10 years
----------------------------------------------------------
Software Development Costs 197,827 2 years
----------------------------------------------------------
Less: Accumulated
Amortization (284,969)
----------------------------------------------------------
Net intangible assets $ 930,009
==========================================================
The developed software technology and software development costs are being
amortized to cost of revenues. The value of the customer relationships is being
amortized to Sales and Marketing expense. The amortization for the years ended
January 31, 2007 and 2006 amounted to $209,542 and $81,115, respectively.
The Company determined as of January 31, 2007, that the value of software was
impaired and recognized an impairment loss of $67,700.
Note 6- Derivative liability
During the year ended January 31, 2007, the Company entered into an agreement
with an investor relation firm to provide services for a period of two years.
The fees for the services were determined to be $37,500 per month or 1,500,000
shares and 4,000,000 options exercisable for a term of 2 years. These options
are exercisable at 40% discount to the 10 day average closing bid price for the
10 days immediately prior to the date the consultant gives notice to exercise
the options. As the options do not have a fixed exercise price, therefore, these
options have been separately presented as a derivative liability as of January
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31, 2007 in the accompanying balance sheet having a value of $191,962. The value
of the option was calculated using the Black-Scholes model using the following
assumptions: Discount rate of 4.13%, volatility of 281% and expected term of 2
years. The fair value of the option liability will be adjusted to fair value
each balance sheet date with the change being shown as a component of net loss.
The fair value of the options at inception was $75,200 which was charged to
consulting fee and is being amortized over the term of the agreement. As of
January 31, 2007, the unamortized portion of the fee was $70,500 which has been
shown as a part of the prepaid expenses in the accompanying balance sheet.
The Black-Scholes pricing model used the following assumptions:
Risk-free interest rate 4.13%
Expected life 2 years
Expected volatility 100%
Dividend yield 0%
Aggregated
Exercise Intrinsic
# shares Price Value
--------- --------- ---------
Options:
Outstanding and exercisable,
January 31, 2006 -- $ -- $ --
Granted 4,000,000 0.012 4,800
Exercised -- -- --
Expired -- -- --
--------- --------- ---------
Outstanding and exercisable,
June 30, 2007 4,000,000 $ 0.012 $ 152,000
Note 7 - Debt
To finance the acquisition of those certain assets and liabilities in July 2005,
the Company made an initial cash payment of $100,000 and agreed to make payments
to the seller over a scheduled 30-month period, for a total of $900,000. The
agreement calls for quarterly payments of $50,000, with the initial payment due
October 2005, until December 2007, at which time the remaining balance is due
and payable. This note is non-interest bearing. In recording this liability, the
Company imputed approximately $135,000 of interest using a rate of 8%.
At January 31, 2007, the remaining obligation owed the seller is $800,000. The
balance sheet at January 31, 2007 reflects a total amount of $705,163. The
difference between the amount actually owed to the seller and the amount of debt
on the accompanying balance sheet reflects imputed interest that will be
recognized as interest expense over the life of the indebtedness.
29
On July 10, 2006 the Company received working capital loan financing from HSBC
Plc. Interest is charged on a monthly basis and repayments of principal and
interest are made monthly. The total principal outstanding at January 31, 2007
was $287,611 of which $41,229 is recorded as current and $246,382 is recorded as
long term. Interest charged for the period ended January 31, 2007 was $11,008.
The loan is repayable over a ten year period beginning three months from July
2006 in fixed monthly installments of $3,436 per month inclusive of interest.
Interest is at 2.2% margin over the bank's base rate. A proportion of the
initial sum advanced (40%) is held on deposit with HSBC Plc and is included in
restricted cash assets; the remainder of the original loan (60%) has been
secured by the personal guarantee of the Company's CEO.
The maturity schedule of the loan over the next five years ending January 31 is
as follows:
2008 $41,229
2009 41,229
2010 41,229
2011 41,229
2012 41,229
Note 8 - Loans from Shareholders
As part of the Company's July 2005 reorganization and recapitalization discussed
in Note 1, each of the two shareholders loaned the Company $53,205. These notes
are non-interest-bearing and due on demand or upon certain events that would
effect a change in control of the Company. Further advances made to the Company
during the period ended January 31, 2007 amounted to $40,768. The total amount
owed, of $147,178, is reflected as current as it is a demand note.
Note 9 - Commitments and Contingencies
At January 31, 2007 there were no material commitments or contingencies. The
Company leases office space in the United Kingdom on a month-to-month basis.
This lease is accounted for as an operating lease.
The company has a 2 year agreement with an investor relations firm. The
agreement entails a cash fee of $37,500 per month or 1,500,000 shares of the
company per month. The agreement is through December 15, 2008.
The company also has executive agreements with the President & CEO of the
company for a monthly salary of approximately $65,000 per annum. These
agreements can be cancelled at the age of 65 years of the executive or after
giving 6 months notice.
Note 10 - Factoring agreement
During the period the Company engaged arranged an invoice financing facility
from G.E. Capital Financing, a factoring firm. The facility has a minimum period
of 24 months. The advance percentage is 75% and the advance period is 90 days
from the end of month of invoice date. The approved currencies are Euro,
Sterling Pound & US$ and Canadian dollar. Advances on debts due to be collected
at January 31, 2007 by G.E. Capital are included in accrued expenses and
amounted to $61,071. The company has provided a fixed and floating charge over
30
its assets and guaranteeing the obligations. A personal guarantee and indemnity
executed by the CEO and president limited to 30,000 GBP. The Company
discontinued this facility effective April 2007.
Note 11 - Stockholders Deficit
On December 9, 2006, we entered into a Share Exchange Agreement (the "Exchange
Agreement") with Propalms Ltd., a privately owned UK company ("Propalms Ltd."),
and the beneficial owners of all of Propalms Ltd's shares, (the "Shareholders"),
pursuant to which the Registrant acquired all of the issued and outstanding
shares of stock of Propalms Ltd in exchange for the issuance in the aggregate of
230,000,000 shares of common stock of the Company (the "Shares") to the
Shareholders of Propalms Ltd.
During the period ended January 31, 2007 the Company issued a total of
272,797,448 common shares as follows:
==========================================================================
Shares Issued Total Shares
============= ============
--------------------------------------------------------------------------
Issued for services 19,750,000 19,750,000
Issued for stock subscriptions 1,666,666 21,416,666
--------------------------------------------------------------------------
Issued to existing shareholders of Jenna
Lane, Inc. 21,380,782 42,797,448
--------------------------------------------------------------------------
As part of the Jenna Lane purchase, the Company was obligated to reserve
25,000,000 shares of common stock for one year from the closing date.
Note 12- Related Party Transactions
During the year ended January 31, 2007, the Company paid $56,478 each as annual
compensation to the President and to the CEO of the Company who are also the
major shareholders of the Company. The Company has retained Katherine Dukes as
the operations Manager. During this period, she was compensated $66,968. Ms.
Dukes is the wife to the CEO of the Company.
Note 13 - Subsequent Events
Termination of Factoring Contract
In April 2007, Propalms terminated their factoring contract with GE
Finance.
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PART III
Item 1. Index to Exhibits
2.1 Certified Articles of Incorporation, State of Nevada
2.2 Certified Corporate Charter, State of Nevada
2.3 Corporate Bylaws
3.1 Certified Certificate of Amendment, State of Nevada
3.2 Certified Articles of Merger, State of Nevada
Item 2. Description of Exhibits
2.1 Certified Articles of Incorporation, State of Nevada
2.2 Certified Corporate Charter, State of Nevada
2.3 Corporate Bylaws
3.1 Certified Certificate of Amendment, State of Nevada
3.2 Certified Articles of Merger, State of Nevada
32
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
PROPALMS, INC.
Date: 11-13-07 By: /s/ Robert Zysblat
------------------- --------------------------------
Robert Zysblat, President
33