UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) Of The Securities
Exchange Act of 1934
For the Quarterly Period ended April 30, 2008
[ ] Transition Report pursuant to 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period to
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Commission file number 000-52980
Propalms, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada 22-3351399
(State or other jurisdiction of (IRS 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)
011-44-1653-696060
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(Issuer's telephone number)
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 [ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 438,237,924 shares
of $0.001 par value common stock outstanding as of June 1, 2008.
PROPALMS INC.
QUARTER ENDED APRIL 30, 2008
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheet as of April 30, 2008 (unaudited).
Consolidated Statements of Operations for the three months ended
April 30, 2008 and 2007 (unaudited).
Consolidated Statements of Cash Flows for the three months ended
April 30, 2008 and 2007 (unaudited).
Consolidated Statement of Deficit in Stockholders' Equity (unaudited).
Notes to Financial Statements.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations and Risk Factors.
ITEM 3. Controls and Procedures.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities
ITEM 3. Defaults upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
FORWARD LOOKING STATEMENT INFORMATION
Certain statements made in this Form 10QSB 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 10-QSB. 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. FINANCIAL INFORMATION
ITEM 1. Financial Statements
PROPALMS, INC.
BALANCE SHEET
ASSETS
April 30,
2008
(Unaudited)
-----------
Current assets:
Cash and cash equivalents $ 27,659
Accounts receivable 154,195
Prepaid expenses and other current assets 71,221
-----------
Total current assets 253,075
Property and equipment, net of accumulated
depreciation of $14,255 24,885
Other assets:
Intangible assets, net of accumulated
amortization of $617,431 727,013
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Total assets $ 1,004,973
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LIABILITIES & DEFICIT IN STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 365,876
Notes payable 801,232
Loans from shareholders 19,199
Deferred revenue 259,559
Shares to be issued 990,000
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Total current liabilities 2,435,866
Long term liabilities:
Deferred revenue 563,676
Note payable 105,882
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Total long term liabilities 669,558
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Total liabilities 3,105,424
Commitments and Contingencies -
Stockholders' deficit:
Common stock, $0.0001 par value; 500,000,000
shares authorized; 438,237,924 issued
and 328,335,385 outstanding 33,750
Additional paid in capital 3,665,672
Prepaid consulting (502,500)
Accumulated deficit (5,314,429)
Comprehensive gain 17,056
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Total (deficit) in stockholders' deficit (2,100,451)
-----------
Total liabilities and stockholders' (deficit) $ 1,004,973
===========
The accompanying notes are an integral part of these consolidated
financial statements.
PROPALMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended
April 30, April 30,
2008 2007
------ ------
Net revenue $ 256,167 $ 256,519
Cost of Sales 216,812 160,582
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Gross profit 39,355 95,937
Operating expenses:
Research and development 16,250 29,335
Sales and marketing 128,364 43,842
General and administrative 305,868 155,490
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Total operating expenses 450,482 228,667
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Net operating loss (411,127) (132,730)
Other (income) expenses:
Interest income (117) (910)
Interest expense 17,320 21,963
Foreign currency 545 (1,769)
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Total other (income) expenses 17,748 19,284
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Net Loss (428,875) (152,014)
Other comprehensive income:
Foreign currency translation 155 -
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Comprehensive loss $ (428,720) $ (152,014)
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Basic and diluted loss per share:
Loss from operations $(0.00) $(0.00)
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Net loss per share
Basic and diluted $(0.00) $(0.00)
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Weighted average shares used in
calculating net loss per share
Basic and diluted 304,864,945 273,418,859
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The accompanying notes are an integral part of these consolidated
financial statements.
PROPALMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
April 30, April 30,
2008 2007
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Cash flows from operating activities:
Net loss $( 428,875) $( 152,014)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Amortization 62,505 75,873
Depreciation 2,449 1,450
Stock issued for services - 84,963
Prepaid services 201,000 -
(Increase) decrease in assets
Accounts receivables (62,573) ( 4,877)
Prepaid expenses and
other current assets ( 487) (25,485)
Increase (decrease) in liabilities
Accounts payable & accrued expenses (91,438) (105,821)
Deferred revenue 191,479 ( 57,470)
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Net cash used in
operating activities (125,940) (183,381)
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Cash flows used in investing activities:
Purchases of property and equipment ( 1,658) ( 47,201)
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Net cash provided by (used in)
investing activities ( 1,658) ( 47,201)
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Cash flows from financing activities:
Repayment of note payable - -
Proceeds from issuance of note payable - 171,593
Repayment of loans from shareholders (55,607) -
Issuance of common stock for cash 185,602 72,513
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Net cash provided by
financing activities 129,995 244,106
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Effect of exchange rate on
cash & cash equivalents 155 -
Net increase (decrease) in cash & cash
equivalents 2,552 13,524
Cash & cash equivalents beginning of period 25,107 141,000
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Cash & cash equivalents end of period $ 27,659 $ 154,524
=========== ============
Supplemental disclosures:
Interest paid $ 17,320 $ 21,963
Income tax paid $ - $ -
The accompanying notes are an integral part of these consolidated
financial statements.
PROPALMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (Unaudited)
For the Three Months Ended April 30, 2008
Additional
Common Common Paid-In Prepaid
Shares Par Capital Consulting
----------- -------- ---------- ----------
Balance as of
Jan. 31, 2008 328,335,385 $ 32,835 $3,480,985 $(703,500)
Shares issued
for cash 9,146,819 915 184,687 -
Shares issued
for services - - - 201,000
Comprehensive
gain - - - -
Net loss - - - -
----------- -------- ---------- ---------
Balance as of
April 30, 2008 337,482,204 $ 33,750 $3,665,672 $(502,500)
Comprehensive Accumulated Total
Gain Deficit Equity
------------ ----------- -----------
Balance as of
Jan. 31, 2008 $16,901 $(4,885,554) $(2,058,333)
Shares issued
for cash - - 185,602
Shares issued
for services - - 201,000
Comprehensive
gain 155 - 155
Net loss - ( 428,875) ( 428,875)
------- ----------- -----------
Balance as of
April 30, 2008 $17,056 $(5,314,429) $(2,100,451)
The accompanying notes are an integral part of these consolidated
financial statements.
PROPALMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Three Months Ended April 30, 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
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements have been
prepared in accordance with United States generally accepted
accounting principles ("US GAAP") for interim financial information
and with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with US GAAP
have been condensed or omitted pursuant to such rules and regulations.
However, except as disclosed herein, there has been no material
change in the information disclosed in the notes to the financial
statements for the year ended January 31, 2008 included in the
Company's annual report filed with the Securities and Exchange
Commission on June 3, 2008. The interim unaudited financial
statements should be read in conjunction with those financial
statements included in the Form 10KSB. In the opinion of
Management, all adjustments considered necessary for a fair
presentation, consisting solely of normal recurring adjustments,
have been made. Operating results for the three months ended
April 30, 2008 are not necessarily indicative of the results that
may be expected for the year ending January 31, 2009.
Use of Estimates
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
For purposes of the cash flow statements, the Company considers
all highly liquid investments with original maturities of three
months or less at the time of purchase to be cash equivalents.
Accounts Receivable
The Company's customer base consists of a geographically dispersed
customer base. The Company maintains reserves for potential credit
losses on accounts receivable. Management reviews the composition
of accounts receivable and analyzes historical bad debts, customer
concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy
of these reserves. Reserves are recorded primarily on a specific
identification basis.
Property and Equipment
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to earnings as incurred;
additions, renewals and betterments are capitalized. When property
and equipment are retired or otherwise disposed of, the related cost
and accumulated depreciation are removed from the respective accounts,
and any gain or loss is included in operations. Depreciation is
computed using various methods over the estimated useful lives of
the assets, which is four years. Depreciation expense was $2,449 and
$1,450 for the three month periods ended April 30, 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 April 30, 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 three month periods ended April 30, 2008 and 2007,
respectively, 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 three month periods ended April 30, 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 for the three
month periods ended April 30, 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 April 30,
2008 and 2007:
2008 2007
---------- ----------
Net Operating Loss
Carryforward $2,996,627 $2,027,969
Total Deferred Tax
Assets 1,041,028 704,516
Less: Valuation
Allowance (1,041,734) (704,516)
---------- ----------
Net Deferred Tax
Asset $ 0 $ 0
========== ==========
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 three
month periods ended April 30, 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
$125,940 and $183,381, respectively for the periods then ended. The
Company's accumulated deficit was $5,314,429 as of April 30, 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 April 30, 2008 are as follows:
Computer and office equipment $ 25,912
Computer software 7,760
Furniture and fixtures 5,468
--------
Total Property and Equipment 39,140
Less: Accumulated Depreciation (14,255)
--------
Net Property & Equipment 24,885
Depreciation expense amounts to $2,449 and $1,450 for the three
month periods ended April 30, 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 April 30, 2008 are summarized
as follows:
2008 Est. Life
------ ---------
Developed Software Technology $ 538,078 5 years
Customer Relationships 450,068 10 years
Software Development Costs 356,298 2 years
Less: Accumulated Amortization (617,431)
---------
Net intangible assets $ 727,013
=========
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 three month periods ended April 30, 2008 and 2007
amounted to $62,505 and $75,873, respectively.
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 April 30, 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 April 30, 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 April 30, 2008, the balance owed to
the shareholders amounted to $19,199.
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 April 30, 2008, the current
portion of deferred revenue amounted to $259,559 and the long term portion
amounted to $563,676.
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 April 30, 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.
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 were
accounted for as a contribution by the officers.
During the three month period ended April 30, 2008, the Company
rasied $185,604 cash, net of finders' fee, by issuing 9,146,819
shares. The shares were issued out of the escrow account
maintained by the investor relations firm.
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. Amendment
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 2
Management's Discussion and Analysis or Plan of Operation.
----------------------------------------------------------
The Management's Discussion and Analysis of the Financial Condition
and Results of Operations reviews past performance and, where
appropriate, states expectations about future activities in forward
looking statements. Future results may differ from expectations.
Operating Highlights:
Revenues
Sales for the quarter ended April 30, 2008 ("2008 Quarter") showed
no change from the quarter ended April 30, 2007 ("2007 Quarter").
However, for the same periods, deferred revenue increased approximately
30% due to the Company continuing to develop its international sales
and marketing activities as well continuing its product enhancements
and modifications. It is anticipated that sales will continue to
develop in the short term as a result of these activities.
Research and development
Expenses decreased 45% to $16,250 for the 2008 Quarter as compared
to $29,335 for the 2007 Quarter. The decrease was due to a
reallocation of costs to other operational activities.
Sales and marketing
Sales and marketing expenses have increased approximately 200%
to $128,364 for the 2008 Quarter as compared to $43,842 for
the 2007 Quarter. This significant increase was due to
the continued development of the Company's international marketing
activities and the focus on continuing the growth of its international
distribution network.
General and administrative
Expenses increased 100% to $305,868 for the 2008 Quarter as
compared to $155,490 for the 2007 Quarter. The increase was
primarily due to increased staffing and professional fees
associated with capital fund raising activities.
Interest Expense
Interest expense decreased 19% to $17,320 for the 2008 Quarter
as compared to $21,963 for the 2007 Quarter. The decrease was
due to interest charges accruing as small principal balances
as the Company continues to extinguish its overall debt
levels.
Total Operating Expenses
In summary, operating expenses increased 97% to $450,482 for the
2008 Quarter as compared to $228,667 for the 2007 Quarter. The
Company has controlled its administrative costs while funding
significant increase for sale and marketing and capital
fund raising activities.
Income (Loss) from Operations
The loss from operations for the 2008 Quarter was $(428,875)
as compared to a net loss from operations of $(152,014 for the
2007 Quarter. The unfavorable variance is a direct result of
the increase in international sales and marketing activities
as well as fund raising activities.
Liquidity and Capital Resources
As of April 30, 2008, the Company had a cash balance of $27,659 and
a working capital deficit of $(2,182,791). However, the most
significant short term liability continues to be $990,000 as a result
of investor relation activities that will be satisfied in full with
an equity issuance.
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 the 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 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 3
Controls and Procedures
Propalms management, including the Chief Executive Officer and
Chief Financial Officer, conducted an evaluation of the effectiveness
of controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) as of the end of the period covered by this quarterly
report (the "Evaluation Date"). Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that,
as of the Evaluation Date, the controls and procedures are effective
in ensuring that all material information required to be filed in
this quarterly report has been made known to them in a timely fashion.
There have been no significant changes in internal controls over
financial reporting (as defined in Rule 13a-15(f)) during the three
months ended April 30, 2008 that materially affected, or are
reasonably likely to materially affect, our internal controls over
financial reporting.
PART II
-----------
OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is party to other litigation. The
Company and its counsel believe this litigation is not material.
Item 2. Changes in Securities
Pursuant to its Private Placement Memorandum dated January 1, 2007,
MJMM Investments, LLC ("MJMM") 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.
From January 1, 2007 to January 31, 2008, MJMM has purchased a total
of 42,174,687 of the reserved shares. Out of the 93,500,000 reserved
shares, MJMM was granted 13,500,000 shares in exchange for services
provided in acquiring Jenna Lane, the public shell company; MJMM
received payment of 12,000,000 for future services to be rendered on
behalf of the Company; and MJMM purchased 16,674,687 shares for an
average purchase price of $0.03 per share. For the three month
period ending April 30, 2008, MJMM purchased 9,146,819 for an average
purchase price of $1.02 per share.
Pursuant to its Private Placement Memorandum dated January 1, 2007,
Ivest Group, LLC ("Ivest") 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. From that date to November 1, 2007, Ivest
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.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
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 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports
None.
SIGNATURES
------------
In accordance with the requirements of the Exchange Act, the registrant,
Propalms, Inc., caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: June 16, 2008
/s/ Owen Dukes
----------------------
Owen Dukes, CEO
/s/ Robert Zysblat
-----------------------
Robert Zysblat, CFO