United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 31, 2008
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 000 52980
PROPALMS, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 22-3351399
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Unit 4, Park Farm Courtyard
Easthorpe, Malton N. Yorkshire
United Kingdom Y017 6QX
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(Address of Principal Executive Offices) (Zip Code)
011-44-1653-696060
(Issuer's Telephone Number)
Securities Registered under Section 12(b) of the
Exchange Act: None.
Securities Registered under Section 12(g) of the
Exchange Act:
Common Stock
(Title of Class)
Check whether the Issuer is not required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act. [ ]
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB. [X]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act.) Yes [ ] No [ ]
Issuer's revenues for the most recent fiscal year were $1,076,715.
The aggregate market value of the voting and non-voting common
equity of the registrant as of May 6, 2008 was $12,708,900 based
on the $0.029 per share closing price of the Common Stock on the
Over The Counter Bulletin Board composite transactions tape.
The number of shares of Common Stock outstanding as of
May 14, 2008 was 438,237,924.
TABLE OF CONTENTS
Part I:
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Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security
Holders
Part II:
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Item 5. Market for Common Equity, Related Stockholder
Matters and Small Business Issuer Purchases
of Equity Securities
Item 6. Management's Discussion and Analysis or
Plan of Operation
Item 7. Financial Statements
Independent Auditors Consent
Balance Sheet
Statement of Operations
Statement of Cash Flows
Statement of Deficit in Stockholders' Equity
Notes to Financial Statements
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Item 8A(T). Controls and Procedures
Item 8B. Other Information
Part III:
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Item 9. Directors, Executive Officers, Promoters, and
Control Persons and Corporate Governance;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
Item 12. Certain Relations and Related Transactions, and
Director Independence
Item 13. Exhibits
Item 14. Principal Accountant Fees and Services
FORWARD LOOKING STATEMENT INFORMATION
Certain statements made in this Annual Report on Form
10-KSB are "forward-looking statements" made in reliance upon the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995 regarding the plans and objectives of management for
future operations. Such statements may relate to, but are not
limited to, information or assumptions about known and unknown
risks, sales (including pricing), income/(loss), earnings per share,
operating income or gross margin improvements, return on equity,
return on invested capital, capital expenditures, working capital,
cash flow, dividends, capital structure, debt to capitalization
ratios, interest rates, internal growth rates, restructuring,
impairment and other charges, potential losses on divestitures,
impact of changes in accounting standards, pending legal proceedings
and claims (including environmental matters), future economic
performance, costs and cost savings (including raw material
inflation, productivity and streamlining), synergies, management's
plans, goals and objectives for future operations, performance and
growth or the assumptions relating to any of the forward-looking
statements. These statements generally are accompanied by words
such as "intend," "anticipate," "believe," "estimate," "project,"
"target," "plan," "expect," "will," "should," "would" or similar
statements. The Company cautions that forward-looking statements
are not guarantees because there are inherent difficulties in
predicting future results. Actual results could differ materially
from those expressed or implied in the forward-looking statements.
Factors that could cause actual results to differ include, but are
not limited to, those matters set forth in this Annual Report
generally and Item 1A to this Annual Report. Some of these factors
are described as criteria for success. The Company's failure to
achieve, or limited success in achieving, these objectives could
result in actual results differing materially from those expressed
or implied in the forward-looking statements. In addition, there
can be no assurance that the Company has correctly identified and
assessed all of the factors affecting the Company or that the
publicly available and other information the Company receives with
respect to these factors is complete or correct.
Part I
Item 1. Description of Business.
Overview of our Business.
Propalms, Inc. (the "Company"), a Nevada corporation is the
successor to Propalms USA, Inc. ("Propalms USA"). Its sole asset is
100% ownership of Propalms, Ltd. a United Kingdom limited company
incorporated in October 2001.
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"). The TSE product and its
related services comprise the Company's sole product line.
Jenna Lane was a publicly traded non-operating Delaware
corporation, incorporated in 1995. On December 8, 2006, shareholders
of Propalms, Ltd. purchased 13,750,000 shares of Jenna Lane, which
represented 50.1% of the outstanding shares. Jenna Lane
immediately increased its authorized common to 500 million shares.
On December 9, 2006, Jenna Lane entered into an agreement with all
the shareholders of Propalms, Ltd. to exchange 230 million shares
of Jenna Lane common equity for all the issued and outstanding stock
of Propalms, Ltd. After the consummation of the agreement, the
former shareholders of Propalms, Ltd. owned 243,750,000 shares of
common stock of Jenna Lane, which represented 89.35% of Jenna Lane's
outstanding shares.
In December 2006, the Company incorporated in the state of
Nevada. In March 2007, Jenna Lane changed its name to Propalms USA
and its ticker symbol to PRPM.PK in order to better reflect the
Company's international sales and global presence. Further, in
June 2007, the Company filed Articles of Merger with the state of
Nevada merging Propalms USA into the Company. The merger was
effected to make the Company a public company in order to be able
to provide the Company with other business options for making
acquisitions, other business growth opportunities, provide potential
liquidity to the Company's existing shareholders and to avail
itself of the more favorable corporate tax laws in Nevada.
The Company, through its wholly owned subsidiary, Propalms Ltd.,
develops software for TSE which offers users a complete management
product for the Microsoft server based computing ("SBC") environment.
TSE application 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 TSE product
and related services through multiple channels such as value added
resellers and channel distributors.
The consolidated financial statements include the accounts of
the Company and its resulting wholly owned subsidiary, Propalms, Ltd.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
The Company's website address is www.propalms.com where copies
of Exchange Act and Securities Act reports are available free of charge.
Software Products
Today, the Company is a software vendor and development company
whose product is applicable for a broad range of customers. The
Company works with international value added resellers. In the
computer and other industries, a value added reseller ("VARs") is a
company that takes an existing product, adds its own 'value' usually
in the form of a specific application for the product (for example,
a special computer application), and resells it as a new product. An
Independent Software Vendors ("ISVs") who develop their own software
and require it to run on Microsoft Windows 2000/2003 as a SBC system.
The Company utilizes the services of VARs and ISVs to enable the
Company's ability to enhance channel distribution.
In July 2005, when Propalms Ltd. purchased the TSE worldwide
product business, it also acquired all rights and ownership interest
in the TSE intellectual property rights, including but not limited to
trademark, patent, copyrights, and technical knowledge base, all
continuing annual support agreements, and the entire TSE database
consisting of all product and customer information. Propalms Ltd
also took over the TSE development team. At the time of this
acquisition, the TSE product had a worldwide customer base and an
established distribution network in 26 countries. When purchased
by the Company, TSE was an existing and established software
product, requiring no major core development in regards to the
product's functionality. Since the original purchase of TSE
Version 4, the Company has developed and markets Versions 5 and 6.
Server based computing (SBC) is a technology whereby computer
applications are deployed, managed, supported and executed on
servers rather than on personal computers ("PCs"). In SBC
environments, upgrades, application deployment, technical support,
and data storage and backup are simplified because only the
servers need to be managed, not the PCs. Data and applications
reside on a few servers rather than on many individual
workstations. Personal computers essentially become terminals
and can be replaced by simpler, less expensive (and most
importantly) easier to manage devices called "thin clients." SBC
solutions are enormously popular among enterprises, as they promise
to greatly simplify the computing infrastructure.
In summary, TSE enables an enterprise to simply install and
run substantially all of their software applications that have
traditionally been installed on each separate work station or
computer through remote and centralized servers, rather than on
each individual desktop. It enables enterprise approved 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. It also enables a centralized
function to control or manage software updates.
TSE is a comprehensive management product for the SBC
environment. It enables 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
solution to manage end users, application servers and server hosted
Windows applications.
Unlike other SBC solutions, TSE leverages the Microsoft RDP
protocol as a standard building block, adding an intelligent
management layer and protecting customers' long term investments in
Microsoft technology. TSE publishes server based Windows
applications and the Windows desktop through a single, unified and
portable browser interface.
Partner Relationships
At this time, Microsoft does not sell a fully functioning SBC
solution. They only provide the operating system for all servers,
known as Microsoft Terminal Services Edition.
As TSE leverages the Microsoft RDP protocol as a standard
building block, the Company has become a Microsoft Certified
Partner and is working toward becoming a Microsoft Gold ISV,
which is the highest level of partnership that any third part
software vendor can attain with Microsoft. Once becoming a
Microsoft Gold ISV, the Company will have better access to the
Microsoft development and support teams, be listed on the
Microsoft website, and have the ability to conduct joint events
from worldwide Microsoft offices.
Marketing and Distribution
Most of the Company's sales are channeled through its certified
distribution network throughout the world which is currently composed
of 37 distributors operating in 48 countries. The Company 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.
Currently Propalms product sells to three types of customers:
1. Independent software Vendors ("ISV") who develop their own software
and require it to run on Microsoft Windows 2000/2003 as a SBC system.
2. Application Service Providers ("ASP") who host and deliver
centrally managed applications. They typically rent applications
software from the provider on a per user per month basis and charge
their customer accordingly.
3. End users who can have any number of desktop computers.
End users are from both the public and private sectors and
typically have between 5 and 5000 desktop computers in their
organization. Examples of current TSE users by industry are:
Manufacturing
Software Houses
Local Government
Telecoms
Communications
Health Care
Educational Establishments
Legal
Charitable organizations
Banking
International Groups
The Company's initial strategy is to focus on the small business
emerging market which its principal competition has no real desire
to compete in. The Company is focused on winning orders for
companies needing 100 to 400 end user licenses, a market in which
the larger SBC companies are not currently competing.
Currently, the Company has approximately 2000 customers worldwide
which comprise approximately a total of 200,000 concurrent users.
Though the Company has several large customers, it is not
dependent on any or even a relative few customers for its continued
existence.
The Company markets its product in the following ways:
1. E-Shot: E-Short is e-mail marketing software produced by Net
Formation Ltd. It is an internet marketing tool that gives the
Company complete control in managing contacts, creation of
professionally designed messages and accurately targeting them,
all in a simple to use highly available online application. It
is both inexpensive to produce and inexpensive to send, and can
generate instant results. The Company is currently evaluating
two email marketing and lead generation tools that enable it to
verify the value of the e-shot blast campaign and provide it with
the metrics to ensure it is obtaining value for the money invested.
The Company is also evaluating its E-Shot success through online
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 by providing the Company with user
feedback that can be promptly analyzed to permit the Company to
access customer use patterns or needs.
2. Leadbank: which offers a complete service in generating qualified
leads and website optimization for search engines. Those leads are
then circulated to the Company's distributors for follow up. Also,
Leadbank can be configured to collect certain data which can then be
filtered to collect the required results, providing a tool to
generate responsive email information.
3. Direct Mail: Sending hard copies and paper mailings of corporate
marketing materials directly to targeted consumers through traditional
mail services. Direct mailings can be a positive marketing tool.
However, the cost of direct mail pieces can be prohibitive and will
only be considered when sufficient funding is available.
4. Telemarketing: The Company has access to three separate
telemarketing resources: (i) its internal telemarketing department
working out of its own offices, (ii) the sales account managers, and
(iii) a specialist UK based telemarketing company that get technology
companies appointments with information technology directors (on a
project by project basis). Information is gathered by the
telemarketing process on customer/market needs, interests and
opportunities. This information is then provided to the Company to
target sales and customer opportunities. Telemarketing enables the
Company to ensure marketing messages can be followed up and results
can be quantified. The Company's telemarketing is flexible and can
respond quickly any topic the public is interested in.
5. Advertising: The Company is booking space in specific trade
publications that provide targeted exposure to VARs and ISVs.
6. The Company's 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 the Company's online
marketing effort, the website constantly reflects the products and
services offered.
The Company provides the following support and services to its
worldwide VARs and ISVs:
1. Telesales: The Company's intention is to employ our own
telemarketing team both in the United Kingdom and the United States
that will focus on contacting government, health, education and
corporate enterprises with networks with more than 250 personal
computers. Currently, the Company employs two telemarketers in the
United Kingdom and one in the United States. These existing
telemarketers have generated more than 300 leads over the past
three months that resulted in approximately 30 new sales.
2. Telephone Support: The Company has seven technical people who
give free-of-charge pre-sales support and thirty days post-sales
support. The Company has six support people based in India who
provide 24-hour support, five days a week.
3. Online Pre-Sales Installation: The Company has the ability to
have online meetings with a client and operate offsite the
client's computer for training and product setup.
4. On Site Pre-Sales Installation: When feasible, the Company
practice is to book an engineer to visit end users where the
account has more then 500 connections on their network. This
helps promote the foundation for a successful installation and
provides initial training on the product. This method of
pre-sales support has resulted in a 90% conversion rate into
firm orders.
5. On Site Representative: The Company provides large VARs with
a representative to work in the respective VARs office with the
sales desk to help promote the TSE products.
Initial customer service support for all resellers is
available via chosen regional distributors. Additional support
will be available directly with the Company via our email at
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:
1. Product downloads,
2. Searchable knowledgebase,
3. Press releases,
4. Case studies,
5. Public newsgroup, and
6. Technical newsletters.
Technical Training and Accreditation
To assist in the sales process, the Company provides to all VARs
technical staff training geared to their established provider
accreditation level. This in turn gives the VARs the tools to provide
implementation and support services directly to their customers.
Research and Development
When purchased by the Company, TSE was an existing and established
software platform product, requiring no major core development in
regards to the product's functionality, except with respect to routine
advances and enhancements. Since July 2005, Propalms has made two
upgrades including a major upgrade V5.0 released in April 2006. It is
our intention to continue to upgrade and develop the TSE technology to
provide our existing and future customers with more practical and up to
date features. Since the original TSE acquisition in 2005, we have
expanded the development team from a core group of 5 to a team of 18
people. That development activity is contracted to India based Aloha
Technologies, the Managing Director being Nakul Sood, a Director of the
Company. All development work is performed by Aloha Technologies on a
work for hire basis and the Company owns all rights title and interest
in any work developed by Aloha Technologies.
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.
Competition
The market for SBC was started by and is dominated by Citrix who
developed the first SBC product. Citrix has continued to develop the
product and the market from the late 1990s and have maintained their
position as the major worldwide supplier.
There are now a small number of other providers who have followed
Citrix into the SBC market but they do not appear to have gained any
significant share.
Employees
The Company employs eight full time and three part time employees.
The Company employees are not subject to collective bargaining
agreements. Except for the executive officers, no employees have
entered into employment agreements.
Item 1A. Risk Factors
The benefits we anticipate from acquiring TSE may not be realized.
Propalms Ltd. and the Company were established to develop the
underserved thin client server market for remote terminal services.
The Company acquired TSE with the expectation that the acquisition
will result in various benefits including, among other things,
enhanced revenue and profits, and greater market presence and
development. TSE was acquired to establish the Company in the
emerging smaller and medium sized business markets. We may not
realize any of these benefits.
The Company may not achieve the anticipated benefits of our
acquisition of TSE as rapidly as, or to the extent, anticipated by
management and certain financial or industry analysts, and others may
not perceive the same benefits of the acquisition as the Company. For
example, TSE's contribution to the Company financial results may not
meet the current expectations of management for a number of reasons,
including marketplace penetration, product integration risks, and could
dilute our profits beyond the current expectations of our management.
Operations and costs incurred and potential liabilities assumed in
connection with our acquisition of TSE also could have an adverse effect
on our business, financial condition and operating results. If these
risks materialize, our stock price could be materially adversely affected.
Our business could be adversely impacted by conditions affecting the
information technology market.
The demand for our products and services depends substantially upon
the general demand for business-related computer appliances and software,
which fluctuates based on numerous factors, including capital spending
levels, the spending levels and growth of our current and prospective
customers and general economic conditions. Fluctuations in the demand
for our products and services could have a material adverse effect on
our business, results of operations and financial condition. Future
economic projections for the information technology sector are
uncertain. If an unfavorable information technology spending environment
develops, it could negatively impact our business, results of operations
and financial condition.
Our long sales cycle for enterprise-wide sales could cause significant
variability in our revenue and operating results for any particular period.
In recent quarters, a growing number of our large and medium-sized
customers have decided to implement our enterprise customer license
arrangements on a departmental or enterprise-wide basis. Our long sales
cycle for these large-scale deployments makes it difficult to predict
when these sales will occur, and we may not be able to sustain these
sales on a predictable basis.
We have a long sales cycle for these enterprise wide sales because:
our sales force generally needs to explain and demonstrate the benefits
of a large scale deployment of our product to potential and existing
customers prior to sale; our service personnel typically spend a
significant amount of time assisting potential customers in their
testing and evaluation of our products and services; our customers are
typically large and medium size organizations that carefully research
their technology needs and the many potential projects prior to making
capital expenditures for software infrastructure; and before making a
purchase, our potential customers usually must get approvals from
various levels of decision makers within their organizations, and this
process can be lengthy.
The continued long sales cycle for these large scale deployment
sales could make it difficult to predict the quarter in which sales will
occur. Delays in sales could cause significant variability in our
revenue and operating results for any particular period.
If we do not develop new products and services or enhancements to our
existing products and services, our business, results of operations and
financial condition could be adversely affected.
The markets for our products and services are characterized by:
rapid technological change; evolving industry standards; fluctuations
in customer demand; changes in customer requirements; and frequent new
product and service introductions and enhancements.
Our future success depends on our ability to continually enhance
our current products and services and develop and introduce new products
and services that our customers choose to buy. If we are unable to keep
pace with technological developments and customer demands by introducing
new products and services and enhancements, our business, results of
operations and financial condition could be adversely affected. Our
future success could be hindered by: delays in our introduction of new
products and services; delays in market acceptance of new products and
services or new releases of our current products and services; and our,
or a competitor's, announcement of new product or service enhancements
or technologies that could replace or shorten the life cycle of our
existing product and service offerings.
We cannot guarantee that newer versions of TSE products will
achieve the broad market acceptance by our VARs and ISVs and entities
with which we have a technology relationship, customers and prospective
customers necessary to generate significant revenue. In addition, we
cannot guarantee that we will be able to respond effectively to
technological changes or new product announcements by others. If we
experience material delays or sales shortfalls with respect to our new
products and services or new releases of our current products and
services, those delays or shortfalls could have a material adverse
effect on our business, results of operations and financial condition.
We believe that we could incur additional costs and royalties as we
develop, license or buy new technologies or enhancements to our existing
products. These added costs and royalties could increase our cost of
revenues and operating expenses. However, we cannot currently quantify
the costs for such transactions that have not yet occurred. In addition,
we may need to use a substantial portion of our cash and investments to
fund these additional costs.
If we lose key personnel or cannot hire enough qualified employees,
our ability to manage our business could be adversely affected.
Our success depends, in large part, upon the services of a number
of key employees. Except for the CEO and President/CFO, we do not have
long term employment our personnel. The effective management of our
growth, if any, could depend upon our ability to retain our highly skilled
technical, sales and services managerial, finance and marketing personnel.
If any of those employees leave, we will need to attract and retain
replacements for them. We may also need to add key personnel in the
future. The market for these qualified employees is competitive. We
could find it difficult to successfully attract, assimilate or retain
sufficiently qualified personnel in sufficient numbers. Also, we may
need to hire additional personnel to develop new products, product
enhancements and technologies. If we cannot add the necessary staff and
resources, our ability to develop future enhancements and features to
our existing or future products could be delayed. Any delays could
have a material adverse effect on our business, results of operations
and financial condition.
If we fail to manage our operations and grow revenue or fail to
continue to effectively control expenses, our future operating results
could be adversely affected.
Historically, the scope of our operations, the number of our
employees and the geographic area of our operations and our revenue
have grown rapidly. This growth could continue to place a significant
strain on our managerial, operational and financial resources. To
manage our current growth and any future growth effectively, we need
to continue to implement and improve additional management and financial
systems and controls. We may not be able to manage the current scope of
our operations or future growth effectively and still exploit market
opportunities for our products and services in a timely and cost
effective way. Our future operating results could also depend on our
ability to manage: our existing product lines; our sales and marketing
organizations; and our client support organization as installations of
our products increase.
In addition, to the extent our revenue grows, if at all, we believe
that our cost of revenues and certain operating expenses could also
increase. We believe that we could incur additional costs, including
royalties, as we develop, license or buy new technologies or
enhancements to our existing products and services. These added costs
and royalties could increase our cost of revenues and operating expenses
and lower our gross margins. However, we cannot currently quantify the
costs for such transactions that have not yet occurred or of these
developing trends in our business. In addition, we may need to use a
substantial portion of our cash and investments or issue additional
shares of our common stock to fund these additional costs.
We cannot assure you that our operating expenses will be lower than
our estimated or actual revenues in any given quarter. If we experience
a shortfall in revenue in any given quarter, we likely will not be able
to further reduce operating expenses quickly in response. Any
significant shortfall in revenue could immediately and adversely affect
our results of operations for that quarter. Also, due to the fixed
nature of many of our expenses and our current expectation for revenue
growth, our income from operations and cash flows from operating and
investing activities could be lower than in recent years.
Attractive acquisition opportunities may not be available to us, which
could negatively affect the growth of our business.
Our business strategy includes the selective acquisition of
businesses and technologies. We plan to seek opportunities to expand
our product portfolio, customer base, technology, and technical talent
through acquisitions. However, we may not have the opportunity to make
suitable acquisitions on favorable terms in the future, which could
negatively impact the growth of our business. We expect that other
companies in our industry will compete with us to acquire compatible
businesses. This competition could increase prices for businesses and
technologies that we would likely pursue, and our competitors may have
greater resources than we do to complete these acquisitions.
If we determine that any of our goodwill or intangible assets, including
technology purchased in acquisitions, are impaired, we would be required
to take a charge to earnings, which could have a material adverse effect
on our results of operations.
We have a significant amount of goodwill and other intangible
assets, such as product and core technology, related to our TSE
acquisition. We do not amortize goodwill and intangible assets that
are deemed to have indefinite lives. However, we do amortize certain
product and core technologies and other intangibles. We periodically
evaluate our intangible assets, including goodwill, for impairment at
the reporting unit level (operating segment). We review for impairment
annually, or sooner if events or changes in circumstances indicate that
the carrying amount could exceed fair value. Fair values are based on
discounted cash flows using a discount rate determined by our management
to be consistent with industry discount rates and the risks inherent in
our current business model. Due to uncertain market conditions and
potential changes in our strategy and product portfolio, it is possible
that the forecasts we use to support our goodwill and other intangible
assets could change in the future, which could result in non-cash charges
that would adversely affect our results of operations and financial
condition.
Furthermore, impairment testing requires significant judgment,
including the identification of reporting units based on our internal
reporting structure that reflects the way we manage our business and
operations and to which our goodwill and intangible assets would be
assigned. Significant judgments are required to estimate the fair value
of our goodwill and intangible assets, including estimating future cash
flows, determining appropriate discount rates, estimating the applicable
tax rates, foreign exchange rates and interest rates, projecting the
future industry trends and market conditions, and making other
assumptions. Changes in these estimates and assumptions, including
changes in our reporting structure, could materially affect our
determinations of fair value.
We recorded approximately $958,000 of goodwill and unamortized
intangible assets in connection with our TSE acquisition. If the
actual revenues and operating profit attributable to acquired intangible
assets are less than the projections we used to initially value these
intangible assets when we acquired them, then these intangible assets
may be deemed to be impaired. If we determine that any of the goodwill
or other intangible assets associated with our recent acquisitions are
impaired, then we would be required to reduce the value of those assets
or to write them off completely by taking a related charge to earnings.
If we are required to write down or write off all or a portion of those
assets, or if financial analysts or investors believe we may need to take
such action in the future, our stock price and operating results could be
materially adversely affected.
Our business could be adversely affected if we are unable to expand and
diversify our distribution channels.
We currently intend to continue to expand our distribution channels
by leveraging our relationships with independent hardware and software
vendors and system integrators to encourage them to recommend or
distribute our products. In addition, an integral part of our strategy
is to diversify our base of channel relationships by adding and training
more channel members with abilities to reach larger enterprise customers
and to sell our newer products. This strategy will require additional
resources, as we will need to expand our internal sales and service
coverage of these customers. If we fail in these efforts and cannot
expand, train or diversify our distribution channels, our business could
be adversely affected. In addition to this diversification of our base,
we will need to maintain a healthy mix of channel members who cater to
smaller customers. We may need to add and remove distribution members
to maintain customer satisfaction and a steady adoption rate of our
products, which could increase our operating expenses. We are currently
investing, and intend to continue to invest, significant resources to
develop these channels, which could reduce our profits.
We could change our licensing programs or subscription renewal programs,
which could negatively impact the timing of our recognition of revenue.
We continually reevaluate our licensing programs and subscription
renewal programs, including specific license models, delivery methods,
and terms and conditions, to market our current and future products and
services. We could implement new licensing programs and subscription
renewal programs, including offering specified and unspecified
enhancements to our current and future product and service lines. Such
changes could result in recognizing revenues over the contract term as
opposed to upon the initial shipment or licensing of our software product.
We could implement different licensing models in certain circumstances,
for which we would recognize licensing fees over a longer period. Changes
to our licensing programs and subscription renewal programs, including the
timing of the release of enhancements, upgrades, and maintenance releases,
the term of the contract, discounts and other factors, could impact the
timing of the recognition of revenue for our products, related
enhancements and services and could adversely affect our operating
results and financial condition.
Sales of our TSE product constitute substantially all of our license
sales revenue and our deferred revenue.
We anticipate that sales of our TSE product will continue to
constitute a substantial portion of our license sales revenue. Our
ability to continue to generate both recognized and deferred revenue
from that product will depend on our customers continuing to perceive
value in automatic delivery of our software upgrades and enhancements.
If our customers do not continue to purchase our TSE product, our
license sales revenue and deferred revenue would decrease significantly
and our results of operations and financial condition would be
adversely affected.
As our international sales and operations grow, we could become
increasingly subject to additional risks that could harm our business.
We conduct significant sales and customer support, development and
engineering operations in countries outside of the United States. During
the year ended January 31, 2008, we derived approximately 66% of our
revenues from sales other than the United States. Our continued growth
and profitability could require us to further expand our international
operations. To successfully expand international sales, we must
establish additional foreign operations, hire additional personnel and
recruit additional international resellers. Our international
operations are subject to a variety of risks, which could cause
fluctuations in the results of our international operations. These risks
include: compliance with foreign regulatory and market requirements;
variability of foreign economic, political and labor conditions;
changing restrictions imposed by regulatory requirements, tariffs or
other trade barriers or by United States export laws; longer accounts
receivable payment cycles; potentially adverse tax consequences;
difficulties in protecting intellectual property; burdens of
complying with a wide variety of foreign laws; and as we generate
cash flow in non-United States jurisdictions, if required, we may
experience difficulty transferring such funds to the United States
in a tax efficient manner.
Our proprietary rights could offer only limited protection. Our
products, including products obtained through acquisitions, could
infringe third party intellectual property rights, which could result
in material costs.
Our efforts to protect our proprietary rights may not be
successful. We rely primarily on a combination of copyright, trademark,
patent and trade secret laws, confidentiality procedures and
contractual provisions to protect our proprietary rights. The loss of
any material trade secret, trademark, trade name, patent or copyright
could have a material adverse effect on our business. Despite our
precautions, it could be possible for unauthorized third parties to
copy or reverse engineer certain portions of our products or to
otherwise obtain and use our proprietary information. If we cannot
protect our proprietary technology against unauthorized copying or
use, we may not remain competitive. Any of our pending or future
patent applications, whether or not being currently challenged, may
not be issued with the scope we seek, if at all, and if issued, may
not provide any meaningful protection or competitive advantage.
We are subject to risks associated with our strategic and technology
relationships.
Our business depends on strategic and technology relationships
primarily with our VAR's and ISV's. We cannot assure you that those
relationships will continue in the future. In addition to our
relationship with Microsoft, we rely on strategic or technology
relationships with other companies. We depend on the entities with
which we have strategic or technology relationships to successfully
test our products, to incorporate our technology into their products
and to market and sell those products. We cannot assure you that we
will be able to maintain our current strategic and technology
relationships or to develop additional strategic and technology
relationships. If any entities in which we have a strategic or
technology relationship are unable to incorporate our technology into
their products or to market or sell those products, our business,
results of operations and financial condition could be materially
adversely affected.
Our success depends on our ability to attract, retain and further
penetrate large enterprise customers.
We must retain and continue to expand our ability to reach and
penetrate large enterprise customers by adding more effective VARs
and ISVs. Our inability to attract and retain large enterprise
customers could have a material adverse effect on our business,
results of operations and financial condition. Large enterprise
customers usually request special pricing and generally have longer
sales cycles, which could negatively impact our revenues. By
granting special pricing, such as bundled pricing or discounts, to
these large customers, we may have to defer recognition of some or
all of the revenue from such sales. This deferral could reduce our
revenues and operating profits for a given reporting period.
Additionally, as we attempt to attract and penetrate large enterprise
customers, we may need to increase corporate branding and marketing
activities, which could increase our operating expenses. These efforts
may not proportionally increase our operating revenues and could reduce
our profits.
We rely on distribution channels and major distributors that we
do not control.
We rely significantly on independent distributors and resellers
(VARs and ISVs) to market and distribute our products and appliances.
We do not control our distributors and resellers. Additionally, our
distributors and resellers are not obligated to buy our products and
could also represent other lines of products. We maintain and
periodically revise our sales incentive programs for our independent
distributors and resellers, and such program revisions may adversely
impact our results of operations. Further, we could maintain
individually significant accounts receivable balances with certain
distributors. The financial condition of our distributors could
deteriorate and distributors could significantly delay or default on
their payment obligations. Any significant delays, defaults or
terminations could have a material adverse effect on our business,
results of operations and financial condition.
Our products could contain errors that could delay the release of new
products and may not be detected until after our products are shipped.
Despite significant testing by us and by current and potential
customers, our products, especially new products or releases or
acquired products, could contain errors. In some cases, these errors
may not be discovered until after commercial shipments have been made.
Errors in our products could delay the development or release of new
products and could adversely affect market acceptance of our products.
Additionally, our products depend on third party products, which could
contain defects and reduce the performance of our products or render
them useless. Because our products are often used in mission critical
applications, errors in our products or the products of third parties
upon which our products rely could give rise to warranty or other claims
by our customers.
If we do not generate sufficient cash flow from operations in the
future, we may not be able to fund our product development and
acquisitions and fulfill our future obligations.
Our ability to generate sufficient cash flow from operations to
fund our operations and product development, including the payment of
cash consideration in acquisitions and the payment of our other
obligations, depends on a range of economic, competitive and business
factors, many of which are outside our control. We cannot assure you
that our business will generate sufficient cash flow from operations,
or that we will be able to liquidate our investments, repatriate cash
and investments held in our overseas subsidiaries, sell assets or raise
equity or debt financings when needed or desirable. An inability to
fund our operations or fulfill outstanding obligations could have a
material adverse effect on our business, financial condition and results
of operations. For further information, please refer to "Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Liquidity and Capital Resources.
Our stock price could be volatile, and you could lose the value of
your investment.
Our stock price has been volatile and has fluctuated significantly
in the past. The trading price of our stock is likely to continue to be
volatile and subject to fluctuations in the future. Your investment in
our stock could lose some or all of its value. Some of the factors that
could significantly affect the market price of our stock include: actual
or anticipated variations in operating and financial results; analyst
reports or recommendations; changes in interest rates; and other events
or factors, many of which are beyond our control.
The stock market in general, and stock markets for software
companies and technology companies in particular, have experienced
extreme price and volume fluctuations. These broad market and industry
factors could materially and adversely affect the market price of our
stock, regardless of our actual operating performance.
Our business is subject to seasonal fluctuations.
Our business is subject to seasonal fluctuations. Historically,
our net revenues have fluctuated quarterly and have generally been the
highest in the fourth quarter of our fiscal year due to corporate
calendar year end spending trends. In addition, our European operations
generally provide lower revenues in the summer months because of the
generally reduced level of economic activity in Europe during the summer.
This seasonal factor also typically results in higher fourth quarter
revenues. Quarterly results are also affected by the timing of the
release of new products and services. Because of the seasonality of our
business, results for any quarter, especially our fourth quarter, are
not necessarily indicative of the results that may be achieved for the
full fiscal year.
Our common stock may be considered a "penny stock" and may be
difficult to sell.
The SEC has adopted regulations which generally define "penny stock"
to be an equity security that has a market or exercise price of less than
$5.00 per share, subject to specific exemptions. The market price of our
common stock may be below $5.00 per share and therefore may be designated
as a "penny stock" according to the rules of the Securities and Exchange
Commission ("SEC"). This designation requires any broker or dealer
selling these securities to disclose certain information concerning the
transaction, obtain a written agreement from the purchaser and determine
that the purchaser is reasonably suitable to purchase the securities.
These rules may restrict the ability of brokers or dealers to sell our
common stock and may affect the ability of our stockholders to sell their
shares. In addition, since our common stock is currently quoted on the
OTC Bulletin Board, our stockholders may find it difficult to obtain
accurate quotations of our common stock and may find few buyers to
purchase the stock or a lack of market makers to support the stock price.
We are subject to risks associated with our strategic and technology
relationships.
Our business depends on strategic and technology relationships. We
cannot assure you that those relationships will continue in the future.
In addition to our relationship with Microsoft, we rely on strategic or
technology relationships with other companies. We depend on the entities
with which we have strategic or technology relationships to successfully
test our products, to incorporate our technology into their products and
to market and sell those products. We cannot assure you that we will be
able to maintain our current strategic and technology relationships or to
develop additional strategic and technology relationships. If any
entities in which we have a strategic or technology relationship are
unable to incorporate our technology into their products or to market or
sell those products, our business, results of operations and financial
condition could be materially adversely affected.
Item 2. Properties.
The Company currently does not own any real property. All
operations of the Company are managed out of the Propalms offices in the
United Kingdom. The Company is currently evaluating its options with
respect to purchasing or leasing real property in the United States.
Propalms leases its main office, located at Unit 4, Park Farm
Courtyard, Easthorpe, Malton, North Yorkshire YO17 6QX, UK. The lease
term is for 3 years, ending December 31, 2011.
Item 3. Legal Proceedings.
We are not a party to any legal proceeding which would be material
to our business, financial condition or results of operations other
than the ordinary course, routine litigation.
Item 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of the fiscal year ended January 31,
2008, our annual meeting of security holders was held on January 10,
2008. At this meeting the following individuals were elected to serve
as directors of the Company for a one year term: Robert Zysblat, Owen
Dukes and Nakul Sood. The results of the election of such individuals
to the board of directors are as follow:
Votes Cast Abstenations
Votes Cast Against Election and Broker
Director for Election or Withheld Non-Votes
---------- ------------ --------------- ------------
Robert Zysblat 402,532,941 0 0
Owen Dukes 402,532,941 0 0
Nakul Sood 402,532,941 0 0
Also voted on at the Annual Meeting was the ratification of
independent auditor appointment of Kabani & Company, Los Angeles,
CA for 2008:
Votes Cast Abstenations
Votes Cast Against Appt. and Broker
Auditor for Appointment or Withheld Non-Votes
---------- --------------- ------------- ------------
Kabani & Co. 402,741,902 87,720 0
Part II
Item 5. Market for Common Equity, Related Stockholder Matters and
Small Business Issuer Purchases of Equity Securities.
Market Information.
The Company common stock began trading on the Pink Sheets
over-the-counter system under the symbol "JLNY" on December 15, 2006.
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 periods indicated as reported
by the OTC Bulletin Board. These over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, markdown or
commission, and may not necessarily represent actual transactions.
Year Ended
Jan. 31, 2008 High($) Low($)
-------------- ------- ------
1st Quarter $0.14 $0.07
2nd Quarter $0.12 $0.05
3rd Quarter $0.09 $0.03
4th Quarter $0.10 $0.04
Year Ended
Jan. 31, 2007
--------------
4th Quarter $0.06 $0.02
Holders of Common Stock.
As of March 31, 2008, 438,237,924 shares of our common stock were
outstanding and, as far as we can determine, were held by approximately
992 holders of record. We believe that there are significantly more
beneficial holders of our common stock as many beneficial holders hold
their stock in 'street name.'
Dividends.
We have not paid any cash dividends on our capital stock in the
last two years and do not currently anticipate paying any cash dividends
on our capital stock in the foreseeable future. We currently intend
to retain any earnings for use in our business. The payment of
dividends on our common stock is within the discretion of our board of
directors, subject to our certificate of incorporation.
Securities Authorized for Issuance under Equity Compensation Plans.
Weighted
Number of average Number of
securities to exercise securities remaining
be issued upon price of available for futire
exercise of outstanding issuance under equity
outstanding of options, compensation plans
options, warrants warrants (excluding securites
and rights and rights reflected in col.(a))
----------------- ----------- ---------------------
(a) (b) (c)
----------------- ----------- ---------------------
Equity
compensation
plans approved
by security
holders 4,000,000 .065 0
Equity
compensation
plans not
approved
by security
holders 0 0
----------------- ----------- ---------------------
Total 4,000,000 .065 0
Recent Sale of Unregistered Securities.
Pursuant to its Private Placement Memorandum dated January 1, 2007,
MJMM Investments, LLC signed a subscription agreement dated
January 9, 2007. Pursuant to the terms of the subscription agreement a
total of 93,500,000 common shares were reserved for purchase by MJMM
Investments, LLC. From January 1, 2007 to January 31, 2008, MJMM
Investments, LLC has purchased a total of 42,174,687 of the reserved
shares. Out of the 93,500,000 reserved shares, MJMM Investments, LLC
was granted 13,500,000 shares in exchange for services provided in
acquiring Jenna Lane, the public shell company; MJMM Investments, LLC
received payment of 12,000,000 for future services to be rendered on
behalf of the Company; and MJMM Investments, LLC purchased 16,674,687
shares for an average purchase price of $0.03 per share.
Pursuant to its Private Placement Memorandum dated January 1, 2007,
Ivest Group, LLC signed a subscription agreement dated January 10, 2007.
Pursuant to the terms of the subscription agreement a total of 39,750,000
common shares were reserved for purchase by Ivest Group, LLC. From that
date to November 1, 2007, Ivest Group purchased a total of 21,343,441 of
the optioned shares. The agreement has been terminated and the remaining
18,406,559 reserved shares have been transferred to reserves for purchase
by MJMM Investments, LLC.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion should be read in conjunction with our
consolidated financial statements, including the notes to those
statements, included elsewhere in this annual report.
This discussion contains forward looking statements, which are neither
promises nor guarantees and involve risks and uncertainties. Our actual
results may differ significantly from the results discussed in the
forward looking statement. Factors that might cause those differences
include, but are not limited to, those discussed in Item 1A. "Risk
Factors."
Propalms, Inc. (the "Company"), was incorporated on December 8,
2006 under the laws of the State of Nevada. The Company is the
successor to Propalms USA, Inc. ("Propalms USA"). Its sole asset is
100% ownership of Propalms, Ltd. a United Kingdom limited company
incorporated in October 2001.
Jenna Lane was a publicly trading non-operating Delaware corporation,
incorporated in 1995. On December 8, 2006, shareholders of Propalms, Ltd.
purchased 13,750,000 shares of Jenna Lane, which represented 50.1% of the
outstanding shares. On December 12, 2006, Jenna Lane entered into an
agreement with all the shareholders of Propalms, Ltd. to exchange 230
million shares of Jenna Lane common equity for all the issued and
outstanding stock of Propalms, Ltd. After the consummation of the
agreement, the former shareholders of Propalms, Ltd. owned 243,750,000
shares of common stock of Jenna Lane, which represented 89.35% of
Jenna Lane's outstanding shares.
In March 2007, Jenna Lane changed its name to Propalms USA.
Further, on June 2007, the Company filed Articles of Merger with the
state of Nevada merging Propalms USA into the Company and became a
publicly traded company on the Pink Sheets.
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 share exchange 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 a January 31 as its fiscal year end.
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").
The consolidated financial statements include the accounts of the
Company and its resulting wholly owned subsidiary, Propalms, Ltd. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
Plan of Operation.
As reported in the accompanying financial statements, the Company
has incurred net operating losses for the periods ending January 31,
2008 and 2007.
The Company plans to raise additional funds through future sales
of our common stock, until such time as our revenues are sufficient to
meet our cost structure, and ultimately achieve profitable operations.
We can provide no assurances that we will be successful in raising
additional capital or achieving profitable operations. Additional
sales of the Company common stock shall dilute shareholder equity and
could have an adverse effect of the share price. The financial
statements do not include any adjustments that might result from
the outcome of these uncertainties. We believe we will need financing
within three months to continue our business plan and operations.
For the next 12 months, our Plan of Operations is to undertake
the following:
Completion of Testing and Installation of Large Customer Purchases
We are continuing the testing and installation procedures at several of
our larger customer sites. Once these installations are completed, the
number of concurrent users using TSE will increase significantly,
resulting in additional revenue to the Company.
Purchase of Significant Equipment
We do not intend to purchase any significant equipment over the next
twelve months.
Personnel Plan
We do not expect any material changes in the number of employees over
the next 12 month period. We do and will continue to outsource
contract employment as needed.
General Administration
We anticipate spending approximately $1.1 million on general and
administration costs over the next 12 months. These costs will
consist primarily of rent and facility support expenses, finance and
administrative support, compensation, legal fees, audit fees and
investor relations.
Off Balance Sheet Arrangements
There are no off balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that
is material to investors.
Our principal capital resources have been through the subscription and
issuance of common stock, although we have also used stockholder loans.
Cash Requirements
We estimate that we will spend approximately $1.1 million on general and
administrative expenses and $1.4 million on our sales and marketing
programs over the next 12 months. Our working capital requirements may
increase in response to our continued progression of larger customer
testing and installations.
Based on our current plan of operations, we believe that we have
sufficient working capital to fund our budgeted expenditures over the
next 12 months.
Specifically, we estimate our operating expenses and working capital
requirements for the next 12 months to be as follows:
Estimated Funding Required During the Next 12 Months
----------------------------------------------------
Expense Amount
-------------- --------
Research and development $ 350,000
Sales and marketing 1,400,000
Other general administrative expenses 1,100,000
----------
Total 2,850,000
Cash on hand, January 31, 2008, 25,000
Net revenues 1,850,000
Equity capital 1,000,000
Results of Operations: Years ended January 31, 2008 and
January 31, 2007.
Revenues.
Revenues are generated from the sale of licenses to our software
and the service and maintenance of such software.
Total revenue for the period ending January 31, 2008 increased
approximately 50% to $1,076,715 as compared to $708,434 for the period
ended January 31, 2007. The increase is attributable to increased sales
of our core products.
Cost of Revenues.
Cost of revenue for the period ending January 31, 2008 increased
20% to $517,243 as compared to $422,358 for the period ended
January 31, 2007.
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.
Expenses.
Operating expenses for the periods ended January 31, 2008 and 2007
were $3,231,690 and $2,167,104, respectively. The increase is
attributable primarily to expenses associated with process of becoming
a publicly traded company and associated expenses to market our common
stock.
Net Loss.
During the periods ended January 31, 2008 and 2007, the Company
recorded net losses of $2,469,599 and $2,065,462. The increase in
the comparative net loss is primarily attributable to the significant
cost of raising capital while lowering the associated cost of
sales.
Income Taxes.
As of January 31, 2008 and 2007, 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, 2008 and 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.
As of January 31, 2008 and 2007 the Company had $187,463 and
$419,751 in current assets and total assets of $1,002,657 and
$1,390,690, respectively. For the same periods, the Company has
$2,417,784 and $2,628,469 in current liabilities and $3,060,990 and
$2,930,548 in total liabilities.
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 years
ended January 31, 2008 and 2007, the Company incurred net losses of
$2,469,599 and $2,065,462, respectively. In addition, the Company
had negative cash flows in operating activities amounting to $448,036
and $109,343, respectively for the years then ended. The Company's
accumulated deficit was $4,885,554 as of January 31, 2008.
Liquidity and Capital Resources - As of January 31, 2008, we had a
cash balance of $25,107 and a working capital deficit of $(2,230,321)
as compared to a cash balance of $21,286 and a working capital deficit
of $(2,208,719) at January 31, 2007.
The Company's future capital requirements will depend on many
factors: the scope and results of customer testing and installations,
especially for the larger customers, research and development
activities, and the continued establishment of the marketing and sales
organizations. There is no guarantee that without additional revenue
or financing, the Company will be able to meet its future working
capital needs.
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. 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.
Off Balance Sheet Arrangements.
There are no off balance sheet arrangements between us and any
other entity that have, or are reasonably likely to have, a current
or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to the
Company's stockholders.
Item 7. Financial Statements
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, 2008 and the
related consolidated statements of operations, stockholders' deficit,
and cash flows for the years ended January 31, 2008 and 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 audits 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, 2008, and the consolidated
results of their operations and their consolidated cash flows for the
years ended January 31, 2008 and 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
years ended January 31, 2008 and 2007, the Company incurred net losses
of $2,509,599 and $2,065,462, respectively. In addition, the Company
had negative cash flow in operating activities amounting to $448,036 and
$109,343, respectively for the years then ended. The Company's
accumulated deficit was $4,925,554 as of January 31, 2008. These
factors, among others, as discussed in Note 2 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 2. 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
April 30, 2008
PROPALMS, INC.
CONSOLIDATED BALANCE SHEET
As of January 31, 2008
ASSETS
Current assets:
Cash and cash equivalents $ 25,107
Accounts receivable, net of allowance
of doubtful accounts of $34,224 91,622
Prepaid expenses and other current assets 70,734
----------
Total current assets 187,463
Property and equipment, net of
accumulated depreciation of $11,859 (note 3) 22,223
Intangible assets, net of accumulated
amortization of $557,445 (note 5) 792,971
----------
Total assets $1,002,657
==========
LIABILITIES & STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable & accrued expenses $ 457,314
Notes payable (note 6) 801,232
Loans from shareholders (note 7) 74,806
Deferred revenue 94,432
Shares to be issued 990,000
----------
Total current liabilities 2,417,784
Long term liabilities:
Deferred revenue 537,324
Notes payable (note 6) 105,882
----------
Total long term liabilities 643,206
----------
Total liabilities 3,060,990
Commitments and Contingencies (Note 8) -
Stockholders' deficit:
Common stock, $0.0001 par value; 500,000,000
shares authorized; 438,237,924
issued and 328,335,385 outstanding 32,835
Additional paid in capital 3,480,985
Prepaid consulting (703,500)
Accumulated deficit (4,885,554)
Comprehensive gain 16,901
----------
Total deficit in stockholders' deficit (2,058,333)
----------
Total liabilities and
stockholders' deficit $1,002,657
==========
The accompanying notes are an integral part of these consolidated
financial statements.
PROPALMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended January 31, 2008 AND 2007
2008 2007
(restated)
---------- ----------
Net revenue $ 1,076,715 $ 708,434
Cost of revenue 517,243 422,358
----------- -----------
Gross profit 559,472 286,076
Expenses:
Research and development 379,273 184,570
Sales and marketing 379,900 350,017
General & administrative 2,472,517 1,564,817
Impairment loss - 67,700
----------- -----------
Total operating expenses 3,231,690 2,167,104
----------- -----------
Net operating loss (2,672,218) (1,881,028)
Other (income) expenses:
Interest income (5,079) (2,525)
Interest expense 90,926 70,197
Change in fair value of
derivative liability (191,962) 116,762
Tax credit refund (88,757) -
Other income ( 7,747) -
----------- -----------
Total other (income) expenses (202,619) 184,434
----------- -----------
Net loss (2,469,599) (2,065,462)
Other comprehensive income (loss):
Foreign currency translation 3,445 13,456
----------- -----------
Comprehensive loss $(2,466,154) $(2,052,006)
=========== ===========
Basic and diluted loss per share:
Net loss $(0.01) $(0.01)
======= =======
Weighted average shares used in
calculating net loss per share
Basic and diluted 306,875,266 234,210,783
=========== ===========
Weighted average shares of dilutive securities has not been calculated
since the effect of dilutive securities is anti-dilutive.
The accompanying notes are an integral part of these consolidated
financial statements.
PROPALMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended January 31, 2008 and 2007
2008 2007
(restated)
---------- ----------
Cash flows from operating activities:
Net loss $(2,469,599) $(2,065,462)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization 246,623 186,358
Depreciation 5,490 4,609
Stock issued for services 377,464 852,500
Stock to be issued for services 720,000 270,000
Impairment loss - 67,700
Provision for bad debt 34,224 53,286
Options expense 941,615 4,700
Contributed services 105,150 -
Change in fair value of derivative liability (191,962) 116,762
(Increase) decrease in assets
Accounts receivables (28,780) (86,415)
Increase in prepaid expenses and
other current assets 89,061 (70,571)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (176,052) 357,643
Deferred revenue (101,289) 168,387
Increase in customer support - 31,160
----------- ----------
Net cash used in
operating activities (448,036) (109,343)
----------- ----------
Cash flows used in investing activities:
Purchases of property and equipment ( 14,438) ( 4,546)
Restricted cash 121,360 (119,714)
----------- -----------
Net cash provided by (used in)
investing activities 106,922 (286,173)
------------ -----------
Cash flows from financing activities:
Repayment of note payable (262,338) -
Proceeds from issuance of note payable 148,061 289,036
Repayment of loans from shareholders (74,396) 27,845
Issuance of common stock for cash 523,450 10,000
------------ ----------
Net cash provided by
financing activities 334,777 326,881
----------- -----------
Effect of exchange rate on
cash & cash equivalents 10,159 11,798
Net increase (decrease) in cash &
cash equivalents 3,822 (56,837)
Cash & cash equivalents beginning of period 21,285 78,123
----------- -----------
Cash & cash equivalents end of period $ 25,107 $ 21,285
=========== ==========
Supplemental disclosures:
Interest paid $ 90,926 $ 70,197
Income tax paid $ - $ -
The accompanying notes are an integral part of these consolidated
financial statements.
PROPALMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For The Years Ended January 31, 2008 and 2007
Additional
Common Common Paid-In Prepaid Subscription
Shares Par Capital Consulting Receivable
----------- ------- ---------- ---------- ------------
Balance as of
Jan. 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
(restated) 33,250,000 3,325 849,175 - -
Comprehensive loss - - - - -
Net loss for
year ended
Jan. 31, 2007
(restated) - - - - -
----------- ------- ---------- --------- ---------
Balance as of
Jan. 31, 2007 286,297,448 28,630 844,011 - (10,000)
Shares issued
for cash 16,430,795 1,644 511,806 - 10,000
Stock issued
for services 25,607,142 2,561 1,078,403 (703,500) -
Stock options
granted - - 941,615 - -
Contributed
Services - - 105,150 - -
Comprehensive
gain - - - - -
Net loss for
year ended
Jan. 31, 2008 - - - - -
----------- ------- ---------- --------- ---------
Balance as of
Jan. 31, 2008 328,335,835 $ 32,835 $3,480,985 $(703,500) $ -
=========== ======== ========== ========= =========
Compre-
hensive Accum. Total
Gain Deficit Equity
---------- ----------- ---------
Balance as of
Jan. 31, 2006 $ - $(350,493) $(350,352)
Recapitalization
as a result of
reverse merger - - -
Shares issued for
cash - - (10,000)
Stock issued for
services
(restated) - - 852,500
Comprehensive loss 13,456 - 14,360
Net loss for
year ended
Jan. 31, 2007
(restated) - (2,065,462)(2,065,462)
------- ----------- ----------
Balance as of
Jan. 31, 2007 13,456 (2,415,955)(1,539,858)
Shares issued
for cash - - 523,450
Stock issued
for services - - 377,464
Stock options
granted - - 941,615
Contributed
Services - - 105,150
Comprehensive
gain 3,445 - 3,445
Net loss for
year ended
Jan. 31, 2008 - (2,469,599)(2,469,599)
------- ----------- ----------
Balance as of
Jan. 31, 2008 $16,901 $(4,885,554)$(2,058,333)
======= =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
PROPALMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Years Ended January 31, 2008 and 2007
Note 1. 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
intercompany 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. As of January 31, 2008, the allowance for
doubtful debts amounted to $34,244.
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 $5,417 and
$4,609 for the years ended January 31, 2008 and 2007, 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 $67,700 to the value of the
software. There was no further impairment as of January 31, 2008.
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 andm 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, 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, 2008 and 2007 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, 2008 and 2007 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 years
ended January 31, 2008 and 2007 from the product was $1,076,715 and
$708,434, respectively.
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, 2008. The January 31, 2008 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
deficit as other comprehensive income or (loss). Foreign currency
transaction gains and losses are included in consolidated income
(loss).
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, 2008 and 2007, 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, 2008 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,
2008 and 2007:
2008 2007
---------- ----------
Net Operating Loss
Carryforward $2,815,875 $1,492,138
Total Deferred Tax
Assets 978,734 462,530
Less: Valuation
Allowance (978,734) (462,530)
---------- ----------
Net Deferred Tax
Asset $ 0 $ 0
========== ==========
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:
1/31/08 1/31/07
---------- ----------
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
In December 2004, the FASB issued SFAS No. 123 (Revised 2004),
"Share-Based Payment" ("SFAS 123R"), which requires the
measurement of all employee share-based payments to employees,
including grants of employee stock options, using a fair value
based method and the recording of such expense in the consolidated
statements of operations. In March 2005, the SEC issued Staff
Accounting Bulletin No. 107 ("SAB 107") regarding the SEC's
interpretation of SFAS 123R and the valuation of share-based
payments for public companies. The Company has adopted SFAS 123R and
related FASB Staff Positions ("FSPs") as of January 1, 2006 and will
recognize stock-based compensation expense using the modified
prospective method.
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.
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 years
ended January 31, 2008 and 2007, the Company incurred net losses of
$2,469,599 and $2,065,462, respectively. In addition, the Company
had negative cash flow in operating activities amounting to
$448,036 and $109,343, respectively for the years then ended. The
Company's accumulated deficit was $4,885,554 as of January 31, 2008.
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.
Recent Accounting Pronouncements:
In September 2006, FASB issued SFAS 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:
a. A brief description of the provisions of this Statement
b. The date that adoption is required
c. 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.
The 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. Therefore, calendar-year companies may be able to
adopt FAS 159 for their first quarter 2007 financial statements.
The new Statement 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.
In December 2007, the FASB issued SFAS No. 160, "Non-controlling
Interests in Consolidated Financial Statements". This Statement
amends ARB 51 to establish accounting and reporting standards for
the non-controlling (minority) interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling
interest in a subsidiary is an ownership interest in the consolidated
entity that should be reported as equity in the consolidated financial
statements. SFAS No. 160 is effective for the Company's fiscal year
beginning October 1, 2009. Management is currently evaluating the
effect of this pronouncement on financial statements.
In December 2007, the FASB issued SFAS No. 141(R), "Business
Combinations". This Statement replaces SFAS No. 141, Business
Combinations. This Statement retains the fundamental requirements
in Statement 141 that the acquisition method of accounting
(which Statement 141 called the purchase method) be used for
all business combinations and for an acquirer to be identified
for each business combination. This Statement also establishes
principles and requirements for how the acquirer: a) recognizes
and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest
in the acquiree; b) recognizes and measures the goodwill acquired
in the business combination or a gain from a bargain purchase and
c) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of
the business combination. SFAS No. 141(R) will apply prospectively to
business combinations for which the acquisition date is on or after
Company's fiscal year beginning October 1, 2009. While the Company has
not yet evaluated this statement for the impact, if any, that SFAS
No. 141(R) will have on its consolidated financial statements, the
Company will be required to expense costs related to any acquisitions
after September 30, 2009.
In March 2008, the FASB issued FASB Statement No. 161, Disclosures
about Derivative Instruments and Hedging Activities. The new standard
is intended to improve financial reporting about derivative instruments
and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entity's financial
position, financial performance, and cash flows. The new standard also
improves transparency about the location and amounts of derivative
instruments in an entity's financial statements; how derivative
instruments and related hedged items are accounted for under Statement
133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows. It is
effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application
encouraged. Management is currently evaluating the effect of this
pronouncement on financial statements.
Reclassifications
Certain reclassifications have been made to the 2007 financial
statements to conform to the 2008 presentation.
Note 3. Property and Equipment
Property and equipment at January 31, 2008 are as follows:
Computer and office equipment $ 26,027
Computer software 2,977
Furniture and fixtures 5,078
--------
Total Property and Equipment 34,082
Less: Accumulated Depreciation (11,859)
--------
Net Property & Equipment 22,223
Depreciation expense amounts to $5,490 and $4,609 for the years ended
January 31, 2008 and 2007, respectively.
Note 4. Acquisitions
Concurrent with the acquisition of the TSE server product 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 was 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 was amortized
during the year ended January 31, 2008.
Note 5. 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, 2008 are summarized
as follows:
2008 Est. Life
------ ---------
Developed Software Technology $ 675,866 5 years
Customer Relationships 452,068 10 years
Software Development Costs 222,482 2 years
Less: Accumulated Amortization (557,445)
---------
Net intangible assets $ 792,971
=========
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, 2008 and 2007 amounted
to $246,6230 and $209,542, respectively.
Amortization schedule for the next five years ended January 31:
2009 $246,623
2010 153,300
2011 90,240
2012 45,207
2013 45,207
The Company determined as of January 31, 2007, that the value of
software was impaired and recognized an impairment loss of $67,700.
No further impairment was recognized as of January 31, 2008.
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 were 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 did not have a fixed exercise price, therefore, these
options were separately presented as a derivative liability as of
January 31, 2007 having a value of $191,962. The value of the option
was calculated using the Black-Scholes model.
The fair value of the options at inception was $75,200 which was
charged to consulting fee and was being amortized over the term of
the agreement, which was renegotiated during December 2007. The
options were cancelled during the year ended January 31, 2008 and the
derivative liability as well as the prepayment was reversed.
The Company recorded income of $191,962 for the change in derivative
liability during the year ended January 31, 2008.
Note 7. Debt
To finance the acquisition of the assets and liabilities related to
the TSE server product 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 was due
and payable. The note is non-interest bearing. In recording this
liability, the Company imputed approximately $135,000 of interest using
a rate of 8%. At December 31, 2007, the parties extended the length of
the agreement and leaving the quarterly payment obligation of $50,000
unchanged.
At January 31, 2008, the note is in default and the remaining obligation
owed to the seller was $760,000. The COmpany has also accrued interest
at the rate of 8% on this note and included it in the accrued liabilities
in the accompanying financials. This note has been presented as a
current liability in the accompanying balance sheet.
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, 2008 was $147,114. 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.
$41,232 of the balance is presented as a current liability and
$105,882 is presented as a long term liability in the accompanying
financial statements. Interest is at 2.2% margin over the bank's base
rate. Prior to December 2007, a proportion of the initial sum advanced
(40%) was held on deposit with HSBC Plc and was included in restricted
cash assets and the remainder of the original loan (60%) was secured
by the personal guarantee of the Company's CEO. During December
2007, the Company applied the restricted cash balance of $114,000
against the balance of the loan.
The maturity schedule of the loan over the next five years ending
January 31 is as follows:
2009 41,232
2010 41,232
2011 41,232
2012 23,418
Note 8. Loans from Shareholders
As part of the Company's July 2005 reorganization and recapitalization
discussed in Note 1, the Company's CEO and CFO each loaned to
Propalms, Ltd. $53,205 as a down payment on the TSE acquisition price.
These notes are unsecured, 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. As of December 31, 2008, the balance owed to
the shareholders amounted to $74,806.
Note 9. Deferred Revenue
The Company recognizes as deferred revenue, payments received before
all relevant criteria for revenue recognition are satisfied. The Company
renders maintenance services which often extend over a period of more
than one year and the revenue pertaining to the period after one year is
presented as long term liability. As of January 31, 2008, the current
portion of deferred revenue amounted to $94,432 and the long term portion
amounted to $537,324.
Note 10. Shares to be Issued
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. The Company agreed to issue the investor
relation firm 18,000,000 shares as fee for the year, pursuant to the
agreement. As of January 31, 2008, the shares have not been issued and
are recorded as shares to be issued on the accompanying balance sheet.
These shares were valued at the fair market value of $990,000 pursuant to
EITF 96-18. During the year ended January 31, 2007, the Company had
agreed to issue 13,500,000 shares to a consultant as a fee for merger.
The shares had not been issued as of January 31, 2007 and had been
recorded as a liability. The shares were issued during the year ended
January 31, 2008 and are included in the shares issued for services
in the accompanying financials.
Note 11. Stockholders Deficit
On December 12, 2006, Jenna Lane, Inc. 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
Jenna Lane, Inc. 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 Jenna Lane, Inc. (the "Shares")
to the Shareholders of Propalms Ltd. In March 2007, Jenna Lane, Inc.
changed its name to Propalms USA, Inc. In June 2007 Propalms USA, Inc.
merged into the Company.
During the year ended January 31, 2008, the Company issued
12,000,000 shares to its investor relation firm. These shares were
valued at the fair market value of $804,000, pursuant to EITF 96-18.
During the year ended January 31, 2008, the Company issued 107,142
shares to its investor relation firm. These shares were valued
at the fair market value of $6,964, pursuant to EITF 96-18.
During the year ended January 31, 2007, the Company had agreed to
isue 13,500,000 shares to a consultant as a fee for merger. The
shares had not been issued as of January 31, 2007 and had been
recorded as a liability. The shares were issued during the year
ended January 31, 2008 and are included in the shares issued for
servicesin the accompanying financials.
During the year ended January 31, 2008, the Company raised $513,450
cash, net of the finders' fee, by issuing 16,430,975 shares. The shares
were issued out of the escrow account maintained by the investor
relation firm.
During the year, the Company also received the subscription receivable
of $10,000 for the 1,666,666 shares issued during the year ended
January 31, 2007.
During the year ended January 31, 2008, the CEO and President of the
COmpnay agreed to waive off their salary for part of the year for
their services rendered. The fair value of these services are
accounted for as a contribution by the officers in the
accompanying financials.
Note 12. Stock Options
During the year ended January 31, 2008, the Company granted ten million
options each to the CEO and President as part of the Equity Compensation
Plan. The options have an exercise price of $0.05 and will expire on
January 11, 2018. The options vest over a five year period at the rate
of 2 million options at the end of each year. The options were valued at
$1,380,000 on the date of grant pursuant to the black scholes option
pricing model. The expense for the options is being recorded pursuant
to SFAS 123R. During the year ended January 31, 2008, the Company recorded
expense of $276,000.
Also during January 2008, the Company granted one million options each to
the CEO and President and a Director to compensate them for their services
as members of the Board of Directors. The options had an exercise price
of $0.07 and vested on the date of grant. The options are expire on
January 11, 2018. The options were valued at the grant date for $207,000
pursuant to the black scholes option pricing model.
Also during January 2008, the Company granted additional one million
options to the Director to compensate him for his services as member of
the Board of Directors. The options had an exercise price of $0.05 and
vested on the date of grant. The options are expire on January 11, 2018.
The options were valued at the grant date for $69,000 pursuant to the
black scholes option pricing model.
During the year ended January 31, 2008, the Company granted six million
options to the investor relation firm pursuant to the investor relation
agreement with them. The options have an exercise price of $0.05, $0.07
and $0.10 and will expire on December 17, 2009. The options were valued
at $388,974 on the date of grant pursuant to the black scholes option
pricing model.
The following assumptions have been used:
Risk-free interest rate 2.12% - 4.13%
Expected life of the options 2-10 year
Expected volatility 305%
Expected dividend yield 0%
A summary of the status of the plan is presented below:
Aggregate
Weighted Intrinsic
Total Price Value
------- ---------- ----------
Outstanding,
January 31, 2007 4,000,000 $0.00 -
Granted in 2008 30,000,000 0.06 -
Cancelled in 2008 4,000,000 0.00 -
Exercised in 2008 - - -
---------- ------ -------
Outstanding,
January 31, 2008 30,000,000 $0.06 -
========== ====== =======
Options outstanding at January 31, 2008 and related weighted average
price and intrinsic value is as follows:
Weighted Total
Total Average Weighted Weighted
Options Remaining Average Average Aggregate
Exercise Out- Life Exercise Options Exercise Intrinsic
Prices standing (Years) Price Exercisable Price Value
----------------------------------------------------------------------
$0.05-
0.10 30,000,000 8.34 $0.06 14,000,000 $0.06 -
Note 13. Commitments and Contingencies
At January 31, 2008 there were no material commitments or contingencies.
The Company leases office spare in the United Kingdom on a three year
lease. This lease is accounted for as an operating lease. Rental
expense for this leases consisted of approximately $1,600 for the year
ended January 31, 2008. The rent commitment for the next five years
ended January 31 is as follows:
2009 $19,100
2010 29,850
2011 29,850
The Company has a 2 year agreement with an investor relations firm.
The agreement entails for a cash fee of $37,500 per month or one million
common shares per month. Twelve million shares were issued to the firm
in December 2007 and the Company has recorded a prepayment for the first
year services. The agreement is through December 11, 2009.
The Company also has executive agreements with each of the President and
the CEO of the Company for an annual salary of $65,000 per annum. These
agreements can be cancelled at the age of 65 years of the executive or
after giving six (6) months notice.
Note 14. Related Party Transactions
During the years ended January 31, 2008 and 2007, the Company paid
$65,000 and $60,000, respectively, as annual compensation to the CEO and
President of the Company who are also the major shareholders of the
Company. The Company has retained Katherine Dukes as the Operations
Manager. During these periods, she was compensated $70,000 and $66,968,
respectively. Ms. Dukes is the wife to the CEO of the Company.
Since the original TSE acquisition in 2005, the Company has expanded the
development team from a core group of 5 to a team of 18 people. That
development activity is contracted to India based Aloha Technologies, the
Managing Director being Nakul Sood, a Director of the Company. All
development work is performed by Aloha Technologies on a work for hire
basis and the Company owns all rights title and interest in any work
developed by Aloha Technologies.
Note 15. Restatement
Subsequent to the issuance of the Company's financial statements for
the year ended January 31, 2007, the management discovered that certain
transactions had not been accounted for. Specifically, the shares
issued/to be issued as consulting fee for acquisition, were not accounted
for. The financial statements for the year ended January 31, 2007 have
been restated to give effect to the changes.
The effect of the restatements is as follows:
CONSOLIDATED BALANCE SHEET
--------------------------
Reported Restated
---------- ----------
Shares to be issued $ - $ 270,000
Total current liabilities 2,358,470 2,628,470
Total liabilities 2,660,549 2,930,549
Common stock 27,280 28,630
Additional paid in capital 575,361 844,011
Accumulated deficit (1,875,955) (2,415,955)
Total stockholders' deficit $ (1,269,858) $ (1,539,585)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Reported Restated
---------- ----------
General and administrative expenses $ 1,024,817 $ 1,564,817
Total operating expenses 1,627,104 2,167,104
Net operating loss (1,341,028) (1,881,028)
Net loss (1,525,462) (2,065,462
Comprehensive loss $ (1,512,006) $ (2,052,006)
Weighted average shares-
basic and diluted 233,031,170 234,023,796
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Reported Restated
---------- ----------
Net loss $ (1,525,462) $ (2,065,462)
Shares issued for services 582,500 852,500
Shares to be issued for services $ 270,000 $ -
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY/(DEFICIT)
-------------------------------------
Reported Restated
---------- ----------
Common stock $ - $ -
Shares issued for services 19,750,000 33,250,000
Balance January 31, 2007 272,797,448 286,297,448
Common par $ - $ -
Shares issued for services 1,975 3,325
Balance January 31, 2007 27,280 28,630
Additional paid in capital - -
Shares issued for services 580,525 849,175
Balance January 31, 2007 575,361 844,011
Net loss for the year
ended January 31, 2007 (1,525,462) (2,065,462)
Total stockholders' equity/(deficit) $ (1,269,858) $ (1,539,858)
Note 16. Subsequent Events
On April 4, 2008, the board of directors and an approximately 80%
majority of the stockholders entitled to vote of Propalms, Inc. adopted
by written consent an Amendment to Propalms' Articles of Incorporation
changing the Corporation's fiscal year to end from December 31 of each
year to January 31 of each year. The effective date of the amendment
was April 4, 2008.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
The Company 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 or events, as described in Item 304(a)(1)(iv) of
Regulation S-B of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), with the previous accountants.
There have been no disagreements with current accountants on accounting
and financial disclosure.
Item 8A(T). Controls and Procedures.
The Securities and Exchange Commission defines the term disclosure
controls and procedures to mean a Company's controls and other
procedures that are designed to ensure that information required to be
disclosed in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange
Commissions rules and forms. The Company maintains such a system of
controls and procedures in an effort to ensure that all information
which it is required to disclose in the reports it files under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified under the SEC's rules and
forms.
Based on an evaluation performed, the Company's certifying officers have
concluded that the disclosure controls and procedures were effective as
of January 31, 2008, to provide reasonable assurance of the achievement
of these objectives.
There was no change in the Company's internal control over financial
reporting during the fiscal year ended January 31, 2008, that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
Item 8B. Other Information.
None.
PART III
Item 9. Directors, Executive Officers, Promoters, Control Persons and
Corporate Governance; Compliance with Section 16(a) of the Exchange Act.
Executive Officers and Directors.
The following table sets forth the information regarding our executive
officers and directors as of the date of this filing:
Name Age Position
------- --- ----------
Owen Dukes 40 CEO; Chairman; Director
Robert Zysblat 51 President; CFO; 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, Chairman and Director. In July 2005, Mr. Dukes became
a director of Propalms Ltd. and upon its formation in 2006, he was
appointed CEO of the Company. Mr. Dukes has twenty years of 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. Also in 2000, he launched Arc Technology Distribution Ltd,
and purchased two other distributors, Unidirect Ltd and IPconnect Ltd.
Mr. Dukes resigned from ARC in 2006. Mr. Dukes was appointed CEO and
a director of Jenna Lane in December 2006 and assumed those same
positions as part of the merger with the Company in June 2007.
Robert Zysblat: President and 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% of the shares of Computer Communications Ltd,
becoming its CEO, and successfully sold this business in an management
buyout in July 2001. In December 2000, he purchased 5th Generation
Messaging, becoming its CEO and sold all his stock in July 2002. In
September 2002, he purchased MSS communications becoming its Chairman,
and sold the business in 2004. Mr. Zysblat has been with Propalms Ltd.
since July 2005. He was appointed CFO and became a director of Jenna
Lane in December 2006 and assumed the positions of President and Chief
Financial Officer as part of the merger with the Company in June 2007.
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 has dual MBAs in Marketing and Information Systems and a
Bachelor's degree in Mechanical Engineering. Mr. Sood was appointed a
director of the Company in May 2007.
Significant Employees
The Company has retained Katherine Dukes as the operations Manager in
the United Kingdom office. Ms. Dukes is the wife to the CEO of the
Company.
Meetings and Committees of the Board
The Board of Directors currently consists of three members and the
entire board of directors' acts as the Company's audit committee. Mr.
Zysblat is the financial expert for the Company's board. There are
no other committees of the Board. The Board meets as needed.
Section 16(a) Beneficial Owner Reporting Compliance
Section 16(a) of the Exchange Act requires that the Company's directors,
executive officers, and persons who own more than 10% percent of a
registered class of the Company's equity securities, file with the SEC
initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company. Officers,
directors, and greater than 10% beneficial owners are required by SEC
regulation to furnish the Company with copies of all Section 16(a)
reports they file. As of the date of this report, all of the initial
reports of ownership has been made by the Company's directors.
Code of Ethics
The Company has adopted a code of ethics for all of the employees,
directors and officers which is attached to this Form 10-KSB as Exhibit
14.1. This code of ethics is available on our Internet website,
http://www.propalms.com. The Company will provide a copy of our code
of ethics in print without charge to any stockholder who makes a
written request to: President Robert Zysblat, Unit 4, Park Farm
Courtyard, Easthorpe, Malton N. Yorkshire, United Kingdom. Any
waivers of, and any amendments to, our code of ethics will be
disclosed promptly on our Internet website, http://www.propalms.com.
ITEM 10. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
Summary Compensation Table.
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 ended January 31, 2008, for services
rendered in all capacities to us. The listed individuals shall be
hereinafter referred to as the "Named Executive Officers."
Summary Compensation Table
--------------------------
Non- Non-
Equity Qualified
Incentive Deferred All
Name and Plan Compen- other
Principal Stock Option Compen- sation compen-
Position Year Salary Bonus Award Award sation Earnings sation Total
(1) ($) ($) ($) ($) ($) ($) ($) ($)
------------------------------------------------------------------------
Owen
Dukes,
CEO 2007 65,000 - - - - - - 65,000
Robert
Zysblat
Pres. 2007 65,000 - - - - - - 65,000
1. Amounts for 2007 are for the fiscal year ended January 31, 2008.
Employment agreements
The Company has Employment Agreements with its Named 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.
Outstanding Equity Awards at Fiscal Year End
--------------------------------------------
Option Awards Stock Awards
-----------------------------------------------------------------------
Equity
Incentive
Plan
Equity Awards:
Incentive Market
Equity Plan or
Incentive Awards: Payout
Plan Number Value
Awards: Market of of
Number Number Number Number Value Un- Un-
of of of of of earned earned
Secur- Secur- Secur- Shares Shares Shares Shares,
ities ities ities or or Units Units
Under- Under- Under- Units Units or or
lying lying lying of of Other Other
Unexer- Unexer- Unexer- Stock Stock Rights Rights
cised cised cised Option Option That That That That
Options Options Un- Exer- Expir- Have Have Have Have
Exer- Unexer- earned cise ation Not Not Not Not
Name cisable cisable Options Price Date Vested Vested Vested Vested
(1) ($) ($)
-------------------------------------------------------------------------
Owen
Dukes 2,000,000 8,000,000 .05 1/17/17
Robert
Zysblat 2,000,000 8,000,000 .05 1/17/17
(1) As part of the 2007 Equity Compensation Plan, CEO Dukes and CFO
Zysblat each received options to purchase 10,000,000 shares of the
Company's common stock. The options expire 10 years from the
January 17, 2007 issue date, vest equally over a five period from
the date of issuance, and were issued at an exercise price of $.05.
Compensation of Directors
As of January 31, 2008, the directors had received no renumeration for
serving on the board.
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
The following table sets forth as of January 31, 2008, information with
respect to (a) each person known to the Company to be a beneficial owner
of more than 5% of outstanding common stock of the Company, (b) each of
the directors and the executive officers of the Company and (c) all of
the directors and executive officers of the Company as a group. The
Company believes that unless otherwise indicated, each of the
shareholders has sole voting and investment power with respect to the
shares beneficially owned.
Title of Name and address of Amount and nature Percent of
Class Beneficial owner (1) of Beneficial owners Ownership
-------- --------------------- -------------------- ----------
Common Owen Dukes, CEO, Director
Stock Unit 7, The Maltings
Castlegate, Malton
N. Yorkshire, UK 115,475,000 (1) 29%
Common Robert Zysblat, President,
Stock CFO, Director
Unit 7, The Maltings
Castlegate, Malton
N. Yorkshire, UK 114,475,000 29%
Common Nakul Sood, Director
Stock Unit 7, The Maltings
Castlegate, Malton
N. Yorkshire, UK 10,000,000 2%
----------- ---
Common All directors and
Stock executive officers
as a group (3 persons) 239,950,000 60%
1. Addresses are given for holders with a beneficial ownership of
more than 5% of the outstanding common stock of the Company.
Item 12. Certain Relationships and Related Transactions, and
Director Independence.
Related Party Transactions.
Uther than as set forth in Note 12 to the Financial Statements, there
were no related party transactions for the period ended
January 31, 2008.
Director Independence.
The Company does not have a majority of Independent directors. The
Company is actively seeking to recruit independent directors.
Currently the Company has three (3) directors and Mr. Dukes,
Mr. Zysblat are insider directors, Mr. Sood is the only independent
director.
Item 13. Exhibits
a) The exhibits included in this report are indicated below.
Exhibit
No. Description of Exhibit
------- ----------------------
3.1 Articles of Incorporation of the Company
(incorporated by reference to Exhibit 2.1 to the Company's
Form 10SB filed with the SEC on December 13, 2007).
3.2 Certificate of Amendment to the Articles of Incorporation
of the Company (incorporated by reference to Exhibit 3.1 to
the Company's Form 10SB filed with the SEC on
December 13, 2007).
3.3 Certificate of Amendment to the Articles of Incorporation of
the Company (incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed with the SEC on
April 9, 2008).
3.4 Bylaws of the COmpany (incorporated by reference to Exhibit
2.3 to the Company's Form 10SB filed with the SEC on December
13, 2007).
4.1 Articles of Incorporation of the Company, as amended, is
included in Exhibits 3.1, 3.2 and 3.3.
4.2 Bylaws of the Company are included in Exhibit 3.4.
10.1 The 2007 Equity Compensation Plan.
10.2 The TSE acquisition Note and related documentation.
10.3 The HSBC credit document.
14.1 Code of Ethics (filed herewith).
21.1 List of subsidiaries of the Company (filed herewith).
23.1 Consent of Kabani & Company, Inc. (filed herewith).
31.1 Certification of CEO Pursuant to Rule 13a-14(a) or Rule 15d-14(a),
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
31.2 Certification of CEO Pursuant to Rule 13a-14(a) or Rule 15d-14(a),
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
32.1 Certification of CEO and CFO pursuant to 18 USC Section 1350,
as adopted pursuant to Section 906 of the Sarbances Oxley Act
of 2002 (filed herewith).
Item 14. Principal Accountant Fees and Services.
Audit Fees.
The aggregate fees billed for the fiscal years ended January 31, 2008
and 2007 for the audit of the Company's financial statements, review
of the interim financial statements and services provided in
connection with regulatory filings totaled $25,000 and $25,000,
respectively.
Audit Related Fees.
The aggregate fees billed for the fiscal years ended January 31, 2008
and 2007 for assurance and related services by the Company's principal
accountant that are reasonably related to performance of the audit or
review totaled $25,000 and $25,000, respectively.
Tax Fees.
The aggregate fees billed for the fiscal years ended January 31, 2008
and 2007 for professional services rendered by the principal accountant
for tax compliance, tax advice and tax planning totaled $0.00 and $0.00,
respectively.
All Other Fees.
The aggregate fees billed for the fiscal years ended January 31, 2008
and 2007 for all other products and services provided by the principal
accountant totaled $0.00 and $0.00, respectively.
Policy for Pre-Approval of Audit and Non-Audit Services.
The Company's entire Board of Directors acts as the Audit Committee
of the Company. The Board of Directors has selected the Company
Auditors and approved the terms of the Auditors engagement.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROPALMS, INC.
(Registrant)
Date: June 2, 2008 By:/s/ Owen Dukes
------------------
Owen Dukes
CEO and Director
In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
Date: June 2, 2008 By: /s/ Owen Dukes
------------------
Owen Dukes
CEO and Director
(Principal Executive Officer)
Date: June 2, 2008 By: /s/ Robert Zysblat
----------------------
Robert Zysblat
President, CFO and Director
(Principal Financial Officer)
Date: June 2, 2008 By: /s/ Nakul Sood
------------------
Nakul Sood
Director
Date: June 2, 2008 By: /s/ Mark Murphy
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Mark Murphy, CPA
Principal Accounting Officer