10-Q 1 propalms_1q10.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Under Section 13 or 15(d) Of The Securities Exchange Act of 1934 For the Quarterly Period ended April 30, 2009 [ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period __________ to __________ Commission file number 000-52980 Propalms, Inc. --------------------------------------------------------------- (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 ---------------------------------------- (Address of principal executive offices) 011-44-1653-696060 ------------------------- (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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] 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: 487,845,650 shares of $0.001 par value common stock outstanding as of May 31, 2009. PROPALMS INC. QUARTER ENDED April 30, 2009 INDEX PART I. FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements 4 Consolidated Balance Sheets as of April 30, 2009 (unaudited)and January 31, 2009 4 Consolidated Statements of Operations for the three months ended April 30, 2009 and 2008 (unaudited) 5 Consolidated Statements of Cash Flows for the three months ended April 30, 2009 and 2008 (unaudited) 6 Notes to Financial Statements (unaudited) 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors. 19 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 23 ITEM 4. Controls and Procedures 23 PART II. OTHER INFORMATION 24 ITEM 1. Legal Proceedings 24 ITEM 2. Changes in Securities 24 ITEM 3. Defaults upon Senior Securities 24 ITEM 4. Submission of Matters to a Vote of Security Holders 24 ITEM 5. Other Information 24 ITEM 6. Exhibits and Reports on Form 8-K 24 2 FORWARD LOOKING STATEMENT INFORMATION Certain statements made in this Form 10Q 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-Q. 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. 3 PART I. FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements

Weighted average for the dilutive shares has not been calculated since the dilutive shares are anti-dilutive 5

6 PROPALMS, INC NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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 Delaware. Propalms, Ltd was a UK registered company incorporated in October 2001 with a fiscal year end of January 31. On July 12, 2005 Propalms, Ltd purchased from Tarantella, Inc. a license and purchase option agreement for the world wide intellectual property rights, including the entire customer base and all the ongoing maintenance revenue, of a software product called Terminal Services Edition ("TSE"). Jenna Lane was a Delaware 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. Jenna Lane moved from Delaware a and was reincorporated in Nevada. 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. In October 2008 Propalms, Inc. received from FINRA clearance to begin quotations on the OTC Bulletin Board, and its ticker symbol changed to PRPM.OB Propalms Inc., through Propalms, Ltd., develops TSE which offers users a systems 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. 7 PROPALMS, INC NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 2. Summary of Significant Accounting Policies Unaudited Interim Financial Statements The accompanying unaudited consolidated financial statements have been prepared by Propalms, Inc., pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") Form 10-Q and Item 310 of Regulation S-B, and generally accepted accounting principles for interim financial reporting. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K. The results of the three month period ended April 30, 2009 are not necessarily indicative of the results to be expected for the full year ending January 31, 2010. Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Company's functional currency is the Great Britain Pound (GBP); however the accompanying consolidated financial statements have been translated and presented in United States Dollars ($). Foreign currency transaction and comprehensive income (loss) As of April 30, 2009, the accounts of Propalms, Ltd were maintained, and its financial statements were expressed, in Great Britain Pound (GBP). Such financial statements were translated into U.S. Dollars (USD) in accordance with Statement of Financial Accounts Standards ("SFAS") No. 52, "Foreign Currency Translation," with the GBP as the functional currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholder's equity are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income" as a component of shareholders' equity. 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. 8 PROPALMS, INC NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Principles of Consolidation The consolidated financial statements include the accounts of Propalms, Inc. and its wholly owned subsidiary Propalms, Ltd, collectively referred to within as the Company. All material inter-company accounts and transactions have been eliminated in consolidation. 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 straight line method over the estimated useful lives of the assets, which is four years. Depreciation expense was $2,004 and $1,235 for the three month periods ended April 30, 2009 and 2008, respectively. The Company accounts for the costs of computer software developed or obtained for internal use in accordance with Statement of Position 98-5, "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 9 PROPALMS, INC NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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. 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 vendor 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. 10 PROPALMS, INC NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Services Revenue: Revenue from consulting services is recognized as the services are performed for time and materials contracts. Revenue from training and development services is recognized as the services are performed. Revenue from maintenance agreements is recognized ratably over the term of the maintenance agreement, which in most instances is one to two years. The Company markets and licenses its products, 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 Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for assets and liabilities qualifying as financial instruments are a reasonable estimate of fair value. Basic and Diluted Earnings Per Share Earnings per share are calculated in accordance with the Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net income (loss) per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net income (loss) per share is based upon the weighted average number of common shares outstanding. Diluted net loss 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. Basic and diluted loss per share were $0.00 and $0.00 for the three month periods ended April 30, 2009 and 2008 respectively. 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 adopted SFAS 123R and related FASB Staff Positions ("FSPs") as of February 1, 2006 and recognized stock-based compensation expense using the modified prospective method. 11 PROPALMS, INC NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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, 2009 and 2008,the Company incurred net losses of $319,805 and $711,514, respectively. In addition, the Company had accumulated deficit was $8,477,800 as of April 30, 2009. If the Company is unable to generate profits and is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether. The Company has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included, but were not limited to: 1) focus on sales to minimize the need for capital at this stage; 2) financial restructuring by converting part of the outstanding accounts payable to equity; 3) raising equity financing; 4) continuous focus on reductions in cost where possible. Recent Accounting Pronouncements: In May of 2008, FSAB issued SFASB No.162, The Hierarchy of Generally Accepted Accounting Principles. The pronouncement mandates the GAAP hierarchy reside in the accounting literature as opposed to the audit literature. This has the practical impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP hierarchy. This pronouncement will become effective 60 days following SEC approval. The company does not believe this pronouncement will impact its financial statements. In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60." The scope of this Statement is limited to financial guarantee insurance (and reinsurance) contracts, as described in this Statement, issued by enterprises included within the scope of Statement 60. Accordingly, this Statement does not apply to financial guarantee contracts issued by enterprises excluded from the scope of Statement 60 or to some insurance contracts that seem similar to financial guarantee insurance contracts issued by insurance enterprises (such as mortgage guaranty insurance or credit insurance on trade receivables). This Statement also does not apply to financial guarantee insurance contracts that are derivative instruments included within the scope of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement will not have an impact on the Company's financial statements On December 30, 2008 FASB issued FIN 48-3, "Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises". This FSP defers the effective date of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, for certain non-public enterprises as defined in paragraph 289, as 12 PROPALMS, INC NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS amended, of FASB Statement No. 109, Accounting for Income Taxes, including non-public not-for-profit organizations. However, non-public consolidated entities of public enterprises that apply U. S. GAAP are not eligible for the deferral. Nonpublic enterprises that have applied the recognition, measurement, and disclosure provisions of Interpretation 48 in a full set of annual financial statements issued prior to the issuance of this FSP also are not eligible for the deferral. This FSP shall be effective upon issuance. The Company does not believe this pronouncement will impact its financial statements. In April 2009, the FASB issued FSP No. FAS 157-4, "Determining Fair Values When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly." This FSP provides guidance on (1) estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly declined and (2) identifying transactions that are not orderly. The FSP also amends certain disclosure provisions of SFAS No. 157 to require, among other things, disclosures in interim periods of the inputs and valuation techniques used to measure fair value. This pronouncement is effective prospectively beginning April 1, 2009. The Company is currently evaluating the impact of this standard, but would not expect it to have a material impact on the Company's consolidated results of operations or financial condition. In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" (FSP 115-2). This FSP modifies the requirements for recognizing other-than-temporarily impaired debt securities and changes the existing impairment model for such securities. The FSP also requires additional disclosures for both annual and interim periods with respect to both debt and equity securities. Under the FSP, impairment of debt securities will be considered other-than-temporary if an entity (1) intends to sell the security, (2) more likely than not will be required to sell the security before recovering its cost, or (3) does not expect to recover the security's entire amortized cost basis (even if the entity does not intend to sell). The FSP further indicates that, depending on which of the above factor(s) causes the impairment to be considered other-than-temporary, (1) the entire shortfall of the security's fair value versus its amortized cost basis or (2) only the credit loss portion would be recognized in earnings while the remaining shortfall (if any) would be recorded in other comprehensive income. FSP 115-2 requires entities to initially apply the provisions of the standard to previously other-than-temporarily impaired debt securities existing as of the date of initial adoption by making a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The cumulative-effect adjustment potentially reclassifies the noncredit portion of a previously other-than-temporarily impaired debt security held as of the date of initial adoption from retained earnings to accumulated other comprehensive income. This pronouncement is effective April 1, 2009. The Company is currently evaluating the impact of this standard, but would not expect it to have a material impact on the Company's consolidated results of operations or financial condition. 13 PROPALMS, INC NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments." This FSP essentially expands the disclosure about fair value of financial instruments that were previously required only annually to also be required for interim period reporting. In addition, the FSP requires certain additional disclosures regarding the methods and significant assumptions used to estimate the fair value of financial instruments. These additional disclosures will be required beginning with the quarter ending June 30, 2009. The Company is currently evaluating the requirements of these additional disclosures. Reclassifications Certain reclassifications have been made to the 2008 financial statements to conform to the 2009 presentation. Note 3. Intangible Assets Intangible assets consist of acquired developed software technology, acquired customer relationship, and capitalized software development costs. The components of intangible assets at April 30, 2009 and January 31, 2009 are summarized as follows: April 30 January 31 Est. Life ------------ ------------ ------------ Developed Software Technology $ 564,276 $ 485,672 5 years Customer Relationships 334,349 324,853 10 years Software Development Costs 100,139 159,874 2 years Less: Accumulated Amortization (599,179) (554,893) ------------ ------------ Net intangible assets $ 399,586 $ 415,982 ============ ============ 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, 2009 and 2008 amounted to $27,825 and $63,715, respectively. The amortization schedule for the next five years ending April 30, is as follows: 2010 $ 133,409 2011 33,435 2012 33,435 2013 33,435 2014 33,435 ------------ $ 267,148 ============ 14 PROPALMS, INC NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 4. Accounts payable & accrued expenses The accounts payable and accrued expenses as of April 30, 2009 and January 31, 2009 comprised of the following: April 30 January 31 ------------ ------------ Trade creditors $ 358,064 $ 265,834 Accrued expenses 106,440 106,511 Accrued payroll taxes 147,583 95,750 Accrued payroll 361,749 301,759 ------------ ------------ Total $ 973,836 $ 784,843 ============ ============ Note 5. Debt To finance the acquisition of the assets and liabilities related to the TSE server product in July 2005, the Company made a 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, 2009, the note is in default and the remaining obligation owed to the seller was $760,000. The Company has also accrued interest 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, 2009 was $95,437. 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 $53,371 is presented as a long term liability in the accompanying financial statements. Interest is at 2.2% margin over the bank's base rate. The maturity schedule of the loan over the next five years ending April 30 is as follows: 2010 $ 41,232 2011 $ 41,232 2012 $ 12,139 15 PROPALMS, INC NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 6. 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, 2009, the current portion of deferred revenue amounted to $46,470 and the long term portion amounted to $459,899. As of April 30, 2009, the current portion of deferred revenue amounted to $513,223 and the long term portion amounted to $73,427. Note 7. Stockholders Deficit During the three month period ended April 30, 2009, the President & CEO voluntarily surrendered 10 million shares held by them. The Board authorized to cancel these shares. During the year ended January 31, 2009, the Company issued 4,700,000 shares to an independent outside contractor. These shares were valued at the fair market value of $188,000, pursuant to EITF 96-18. During the year ended January 31, 2009, the Company raised $485,626 cash, net of finders' fee, by issuing 41,813,146 shares. The shares were issued out of the escrow account maintained by the investor relations firm. The Company issued 81,090,560 shares during the year ended January 31, 2009 for the part payment of accrued compensation of the President & CEO of the Company. These shares were valued at the fair market value of $561,951, pursuant to EITF 96-18. The Company agreed to issue the investor relations firm 18,000,000 shares as its fee for the year ended January 31, 2007, pursuant to the agreement. As of January 31, 2008, they were recorded as shares to be issued. The shares were issued during the year ended January 31, 2009. These shares were valued at the fair market value of $990,000 pursuant to EITF 96-18. The Company agreed to issue the investor relations firm 5,000,000 shares as prepaid fee for the period from January 1, 2009 to May 31, 2009, pursuant to the agreement. The Company terminated the agreement with the firm in February 2009 and the whole amount was expensed to consulting services for the year. These shares were valued at the fair market value of $100,000 pursuant to EITF 96-18. The Company also issued the investor relations firm 18,406,559 shares as fee for the year ended January 31, 2009. The Company terminated the agreement with the firm in February 2009 and the whole amount was expensed to consulting services for the year. These shares were valued at the fair market value of $165,659 pursuant to EITF 96-18. Note 8. Loans Payable- Officer As of April 30, 2009, the Company had payables of $10,831 to officers of the Company for loans raised for working capital. These loans are non-interest bearing, unsecured and due on demand. 16 PROPALMS, INC NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 9. 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 three month periods ended April 30, 2009 and 2008, the Company recorded expense of $69,000 and $69,000. 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, 2009 29,500,000 $ 0.06 -- Granted -- -- -- Cancelled -- -- -- Exercised -- -- -- ------------ ------------ ------------ Outstanding, April 30, 2009 29,500,000 $ 0.06 -- ============ ============ ============ Options outstanding at April 30, 2009 and related weighted average price and intrinsic value are as follows:

Note 10. Related Party transactions The Company has contracted certain development activity with India based Aloha Technologies, a related party. Mr. Nakul Sood is the the Managing Director of Aloha Technologies as well as a Director of the Company. All development work is 17 PROPALMS, INC NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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. During the three month period ended April 30, 2009, the Company contracted services worth $70,612. As of April 30, 2009 the payable amounted to $126,198. The Company has executive agreements with each of the President and the CEO of the Company for an annual salary of $65,000 per annum. From October 27, 2008, the salary was increased to $120,000 per annum as the Company became registered on the Bulletin Board. These agreements can be cancelled when the executives reach the age of 65 years or after giving six (6) months notice. On August 1, 2008 the Company extended the executive agreement with each of the President and the CEO for a period of three years. The purpose was to provide a commitment and long term stability to the growth of the Company. The Company agreed to pay the President and the CEO the sum of $400,000 each for this extension. The President and CEO have agreed to accept this payment in either cash or restricted stock. The company issued 81,090,560 free trading shares during the year ended January 31, 2009 for the part payment of accrued compensation of the President & CEO of the Company. These shares were valued at the fair market value of $561,951, pursuant to EITF 96-18. Note 11. Commitments and Contingencies At April 30, 2009 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 lease consisted of approximately $26,104 for the three month period ended April 30, 2009. The rent commitment for the next three years ended April 30 is as follows: 2010 $ 6,682 2011 29,850 2012 29,850 The Company also has executive agreements with each of the President and the CEO of the Company for an annual salary of $120,000 per annum. These agreements can be cancelled when the executives reach the age of 65 years or after giving six (6) months notice. 18 ITEM 2. Management's Discussion and Analysis. Forward-Looking Statements -------------------------- The following discussion of the financial condition and results of operation of the Company for the three month periods ended April 30, 2009 and 2008 should be read in conjunction with the selected consolidated financial data, the financial statements and the notes to those statements that are included elsewhere in this Current Report on Form 10-Q ("Form 10-Q"). Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Form 10-Q. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements. The following discussions of our financial conditions and results of operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Actual results and the timing of certain events could differ materially from those anticipated in these forward- looking statements as a result of certain factors, including: We have a history of operating losses, and expect that such losses will continue in the future Our stock price has been volatile and the investors could lose all of their investment Overview Propalms, Inc. (the "Company"), formerly Jenna Lane, Inc. (Jenna Lane), was incorporated in 1995 under the laws of the State of Delaware. 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. Jenna Lane moved from Delaware to be incorporated in Nevada. 19 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 system 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. In October 2008 Propalms, Inc. received from FINRA clearance to begin quotations on the OTC Bulletin Board, and its ticker symbol changed to PRPM.OB Propalms, Inc on May 12, 2008 in an all cash transaction, completed its acquisition of the source code and the customer lists of a Virtual Private Network (VPN) solution from an Indian company called vFortress. The addition of VPN capability to the Company's product offerings should result in additional revenue generation. 20 Comparison of Three Month Periods Ended April 30, 2009 and 2008. The following table sets forth the results of our operations for the periods indicated: 2009 2008 ------------ ------------ NET REVENUES $ 205,821 $ 235,086 COST OF SALES 80,696 180,218 GROSS PROFIT 125,125 54,827 OPERATING EXPENSES: Research and development 66,248 60,258 Sales and marketing 117,718 115,105 General and administrative 252,489 569,109 Total Operating Expenses 436,455 744,472 LOSS FROM OPERATIONS (311,330) (689,645) OTHER INCOME (EXPENSE): Other income (expense) 6,005 (545) Interest expense (14,479) (21,324) Total Other Expenses (8,474) (21,869) NET LOSS (319,805) (711,514) OTHER COMPREHENSIVE ITEM: Foreign currency translation (2,437) 14,373 COMPREHENSIVE LOSS $ (322,242) $ (697,141) Net Revenues. For the three month period ended April 30, 2009, our net revenues decreased approximately 12% from $235,046 to $205,821 relative to the same period ended April 30, 2008 due to the decrease in the currency translation rate. Cost of Sales. Cost of sales decreased 55% from $180,218 for the three month period ended April 30, 2008, to $80,696 for the three month period ended April 30, 2009. The decrease was due to decrease in the currency translation rate and better cost control. The Company has controlled its cost incurred in India. Also, with the modification to the software, the dependence on outside provider has reduced significantly. Gross Profit. Gross profit increased approximately 128% from $54,827 for the three month period ended April 30, 2008 to $125,125 for the three month period ended April 30, 2009. This increase in gross profit was primarily due to the decrease in the cost of sales during the period. Operating Expenses. For the three month period ended April 30, 2009, overall operating expenses decreased approximately 41% from $744,472 to $436,455 relative to the three month period ended April 30, 2008. This decrease was mainly due to the following: Research and Development. Research and development expenses increased marginally by approximately 10% from $60,258 for the three month period ended April 30, 2008 to $66,248 for the same period in 2009 due to increase in the developmental activities. 21 Sales and Marketing Expenses. Sales and Marketing expenses increased marginally by approximately 2% from $115,105 for the three month period ended April 30, 2008 to $117,718 for the same period in 2009. General and Administrative Expenses. General and administrative expenses were $569,109 for the three month period ended April 30, 2008, as compared to $252,489 for the three month period ended April 30, 2009, a decrease of 56%. This decrease is due to decrease in the investor relation fee and consulting fee during this period. Net Loss. Net loss decreased approximately 55% from a net loss of $711,514 for the three month period ended April 30, 2008 to a net loss of $319,805 for the three month period ended April 30, 2009. Liquidity and Capital Resources At April 30, 2009, we had cash on hand of $12,665 and a working capital deficit of 1,815,799. At April 30, 2009, we had loans payable to various unrelated parties amounting to $ 854,603. 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 is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether. Cash Flows Three month period Ended April 30, 2009 and 2008 Net cash flow provided by operating activities was $56,254 for the three month period ended April 30, 2009 and the net cash used in operations was $109,336 for the three month period ended April 30, 2008. For the three month period ended April 30, 2009, the increase in cash flows provided by operating activities was mainly attributable to a decrease in the net loss. The Company incurred cash outflows of $5,213 in investing activities during the three month period ended April 30, 2008 as compared to none incurred in investing activities for the same period in 2009 for the purchase of property & equipment during the last year. 22 We raised a loan of $10,970 from unrelated parties and $10,632 from officers during the three month period ended April 30, 2009. For the same period in 2008, we raised $14,817 from unrelated parties and repaid $60,674 to related parties. We also raised $185,626 through our investor relation firm by selling shares for cash during the three month period ended April 30, 2008. Contractual Obligations and Off-Balance Sheet Arrangements 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 are material to the Company's stockholders. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk. Pursuant to Item 305 of Regulation S-K, the Company is not required to provide the information required by this Item, as it is a smaller reporting company, as defined by Rule 229.10(f)(1) of Regulation S-K. ITEM 4. Controls and Procedures. We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC=C 3(euro)(TM)s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As required by Securities and Exchange Commission Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of April 30, 2009. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of April 30, 2009. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and that our management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management is responsible for establishin g and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of April 30, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based upon its assessment, management concluded that, as of April 30, 2009, our internal control over financial reporting was effective. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the quarter ended April 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 23 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. The Company is not a party to any legal proceeding which would be material to its business, financial condition or results of operations other than the ordinary course, routine litigation. ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds. During the quarter ending April 30, 2009, the Company did not sell any shares. No shares of the Company were purchased by or on behalf of the issuer or any "affiliated purchaser," of shares or other units f any class of the issuer's equity securities that is registered by the issuer pursuant to Section 12 of the Securities Exchange Act. ITEM 3. Defaults Upon Senior Securities. None. ITEM 4. Submission of Matters to a Vote of Security Holders. During the fourth quarter of the fiscal year ended January 31, 2009, our annual meeting of security holders was held on January 31, 2009. 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. Also voted on at the Annual Meeting was the ratification of the appointment of the Company's independent auditor Kabani & Company, Los Angeles, CA for 2009. ITEM 5. Other Information. None. ITEM 6. Exhibits. Exhibits Description 31.1 Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Propalms, Inc. June 22, 2009 /s/ Robert Zysblat ----------------------- ----------------------------------------- Date Robert Zysblat, President June 22, 2009 /s/ Owen Dukes ----------------------- ----------------------------------------- Date Owen Dukes, CEO 25

Propalms, Inc. 10-Q