UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
AMENDED 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.
(Name of Small Business Issuer in its charter)
Nevada
(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)
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 1. Description of Business
Propalms, Inc (the "Company"), a Nevada corporation formed in 2007,
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:
a. Existing and growing customer base worldwide
b. Existing and increasingly secure annual support revenue
c. Only one main competitor (Citrix Systems)
d. 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 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 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:
1. 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.
2. 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.
3. 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.
4. 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 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.
5. 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.
6. 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.
7. Advertising: Propalms is booking space in specific trade
publications that provide targeted exposure to the reseller
community.
8. 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:
1. 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.
2. Pre-Sales Telephone Support: Propalms has seven 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.
3. Extra Support Revenue Services: Propalms provides a variety
of support at additional costs for clients who request it.
4. 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.
5. On Site Pre-Sales Installation: Propalms tries to book
an engineer to visit end users where the account has more
than 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.
6. 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:
Tridex Systems, USA
TCB, Japan
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.
The following additional technical resources are available
via our website www.propalms.com:
Product downloads
Searchable knowledgebase
Press releases
Case studies
Public newsgroup
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 1, 2007, we do
not believe that Eircom has made any significant sales);
(2) Microsoft.
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
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
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
U.S. 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 10,000,000 .32%
----------- ------
All officers and
directors as a group 243,500,000 74.28%
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:
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. 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: 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.
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 $100,000 for
the fiscal year 2006, for services rendered in all
capacities to us. The listed individuals shall be
hereinafter referred to as the Named Executive Officers.
Annual
Name and principal Compensation Other Annual
position Year Salary($) Bonus($) 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.
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.
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 Feb 14th, 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 October 31, 2007, approximately 308,238,955 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.
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 Company pursuant to the foregoing
provisions, or otherwise, Company 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.
PROPALMS USA, INC.
Consolidated Financial Statements
January 31, 2007
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
Propalms, Inc.
We have audited the accompanying consolidated balance sheet
of Propalms, Inc. (a Nevada corporation) as of January 31,
2007, and the related consolidated statements of operations,
stockholders' deficit, and cash flows for the year ended
January 31, 2007. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Propalms, Inc. as of
January 31, 2007, and the consolidated results of their
operations and their consolidated cash flows for the year
ended January 31, 2007, in conformity with U.S. generally
accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. During the year ended January 31, 2007, the
Company incurred net losses of $1,525,462. In addition,
the Company had 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. These factors, among others, as discussed
in Note 1 to the consolidated financial statements, raise
substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Kabani & Company, Inc.
----------------------------
Certified Public Accountants
Los Angeles, California
August 31, 2007
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 27,280
Additional paid in capital 575,361
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.
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.
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.
PROPALMS USA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For The Years Ended January 31, 2007 and 2006
Additional
Common Common Paid in Subscription
Shares Par Capital receivable
-------- -------- ---------- ------------
Opening balance 230,000,000 $ 23,000 $ (22,859) $ -
Net loss for the
period from inception
to January 31, 2006 - - - -
------------ ---------- --------- ------------
Balance as of
January 31, 2006 230,000,000 23,000 (22,859) -
Recapitalization as a
result of reverse
merger 21,380,782 2,138 (2,138) -
Shares issued for cash 1,666,666 167 19,833 (10,000)
Stock issued for
services 19,750,000 1,975 580,525 -
Comprehensive loss - - - -
Net Loss for the year
ended January 31, 2007 - - - -
----------- --------- --------- ----------
Balance as of
January 31, 2007 272,797,448 $ 27,280 $ 575,361 $(10,000)
=========== ========= ========= ==========
Comprehensive Accumulated Total
Loss Deficit Equity
------------- ----------- ---------
Opening balance $ - $ - $ 141
Net loss for the
period from inception
to January 31, 2006 - (342,978) (342,978)
------------ ----------- ------------
Balance as of
January 31, 2006 - (350,493) (350,352)
Recapitalization as a
result of reverse
merger - - -
Shares issued for cash - - 10,000
Stock issued for
services - - 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 $13,456 $(1,875,955) $(1,269,859)
============ =========== ============
The accompanying notes are an integral part of these consolidated
financial statements.
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 July 12, 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.
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 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 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 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.
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 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 convern. 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:
1. 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.
2. Requires all separately recognized servicing assets and
servicing liabilities to be initially measured at fair value,
if practicable.
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
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:
1. A brief description of the provisions of this Statement
2. The date that adoption is required
3. 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 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 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.
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
banks 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 spare in the United Kingdom
on a month-to-month basis. This lease is accounted for as an
operating lease.
The company has a 2 years agreement with an investor relations
firm. The agreement entails for 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 $65,000 per
annum. These agreements can be cancelled at the age of 65 years
of the executive or after giving 6 months notice. (See note 13).
Note 10. Factoring agreement
During the period the Company engaged arranged an invoice
financing facility from G.E. Capital Financing, a factoring firm.
The facility has a minimum period of 24 months. The advance
percentage is 75% and the advance period is 90 days from the
end of month of invoice date. The approved currencies are
Euro, Sterling Pound & US$ 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 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 Propalm 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 and 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.
PART III
Item 1. Index to Exhibits
Item 2. Description of Exhibits
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: January 10, 2008 By: /s/ Robert Zysblat
----------------------
Robert Zysblat, President
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in this
Form 10-SB Registration Statement of Propalms, Inc. of our report
dated August 31, 2007, on our audit of the financial statments of
Proplams, Inc. as of January 31, 2007 and the consoilidated results
of their operations and cash flows for the year then ended, and the
reference to us under the caption "Experts."
KABANI & COMPANY, INC.
Los Angeles, California
/s/ Kabani and Company, Inc.
----------------------------
January 15, 2008