Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended: September 30, 2008
Or
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ____________ to _____________
Commission
File Number: 0-27012
Insignia
Solutions plc
|
(Exact
name of small business issuer as specified in its
charter)
|
|
England
and Wales
|
Not
applicable
|
(State
or other jurisdiction of incorporation
or
organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
7575 E.
Redfield Road
Suite
201
Scottsdale,
AZ
|
85260
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
(480)
922-8155
|
(Issuer's
telephone number)
|
|
|
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.) Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: 101,227,045 as of March 17,
2009.
INSIGNIA
SOLUTIONS PLC
Table
of Contents
|
Page
|
|
|
PART
I – FINANCIAL INFORMATION
|
1
|
Item
1. Financial Statements:.
|
2
|
Consolidated
Balance Sheets (unaudited)
|
2
|
Consolidated
Statements of Operations (unaudited)
|
3
|
Consolidated
Statements of Shareholders’ Equity (Deficit) (unaudited)
|
4
|
Consolidated
Statements of Cash Flows (unaudited)
|
5
|
Notes
to Consolidated Financial Statements (unaudited)
|
6
|
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
|
11
|
Item
4T. Controls and Procedures
|
15
|
PART
II – OTHER INFORMATION
|
16
|
Item
1. Legal Proceedings.
|
16
|
Item
1A. Risk Factors
|
16
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
16
|
Item
3. Defaults Upon Senior Securities
|
16
|
Item
4. Submission of Matters to a Vote of Security Holders
|
16
|
Item
5. Other Information.
|
16
|
Item
6. Exhibits
|
17
|
SIGNATURES
|
18
|
PART
I – FINANCIAL INFORMATION
Forward-Looking
Information
Unless
otherwise indicated, the terms “Insignia,” the “Company,” “we,” “us,” and “our”
refer to Insignia Solutions plc and its subsidiaries. In this Quarterly Report
on Form 10-Q, we may make certain forward-looking statements, including
statements regarding our plans, strategies, objectives, expectations, intentions
and resources that are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. We do not undertake to update,
revise or correct any of the forward-looking information. The following
discussion should also be read in conjunction with the audited consolidated
financial statements and the notes thereto.
The
statements contained in this Quarterly Report on Form 10-Q that are not
historical fact are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995), within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The forward-looking statements contained
herein are based on current expectations that involve a number of risks and
uncertainties. These statements can be identified by the use of forward-looking
terminology such as “believes,” “expects,” “may,” “will,” “should,” “intend,”
“plan,” “could,” “is likely,” or “anticipates,” or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. The Company wishes to caution the reader that
these forward-looking statements that are not historical facts are only
predictions. No assurances can be given that the future results indicated,
whether expressed or implied, will be achieved. While sometimes presented with
numerical specificity, these projections and other forward-looking statements
are based upon a variety of assumptions relating to the business of the Company,
which, although considered reasonable by the Company, may not be realized.
Because of the number and range of assumptions underlying the Company’s
projections and forward-looking statements, many of which are subject to
significant uncertainties and contingencies that are beyond the reasonable
control of the Company, some of the assumptions inevitably will not materialize,
and unanticipated events and circumstances may occur subsequent to the date of
this report. These forward-looking statements are based on current expectations
and the Company assumes no obligation to update this information. Therefore, the
actual experience of the Company and the results achieved during the period
covered by any particular projections or forward-looking statements may differ
substantially from those projected. Consequently, the inclusion of projections
and other forward-looking statements should not be regarded as a representation
by the Company or any other person that these estimates and projections will be
realized, and actual results may vary materially. There can be no assurance that
any of these expectations will be realized or that any of the forward-looking
statements contained herein will prove to be accurate.
Item
1.
|
Financial
Statements.
|
Insignia
Solutions plc
Consolidated
Balance Sheets
(unaudited)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
2,394,524 |
|
|
$ |
18,265 |
|
Accounts
receivable, net
|
|
|
62,270 |
|
|
|
50,227 |
|
Prepaid
expenses and other current assets
|
|
|
115,005 |
|
|
|
22,475 |
|
Total
current assets
|
|
|
2,571,799 |
|
|
|
90,967 |
|
Property
and equipment, net
|
|
|
173,102 |
|
|
|
127,287 |
|
Deposits
and other assets
|
|
|
42,352 |
|
|
|
45,199 |
|
Total
assets
|
|
$ |
2,787,253 |
|
|
$ |
263,453 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
1,131,019 |
|
|
$ |
1,230,674 |
|
Accrued
expenses
|
|
|
438,779 |
|
|
|
96,432 |
|
Accrued
interest
|
|
|
- |
|
|
|
732,926 |
|
Deferred
revenue
|
|
|
44,126 |
|
|
|
33,259 |
|
Convertible
debt and other notes payable (including $0 and $5,569,525 due to related
parties), net of discount
|
|
|
- |
|
|
|
6,263,972 |
|
Liability
for unauthorized, unissued shares
|
|
|
521,485 |
|
|
|
- |
|
Other
liabilities
|
|
|
3,838 |
|
|
|
698 |
|
Total
current liabilities
|
|
|
2,139,247 |
|
|
|
8,357,961 |
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity (deficit):
|
|
|
|
|
|
|
|
|
Ordinary
shares, 1 pence par value, 110,000,000 shares authorized, 126,682,430
shares to be issued and outstanding at September 30 and 16,209,663 issued
and outstanding at December 31 (see Note 1)
|
|
|
2,503,878 |
|
|
|
320,384 |
|
Additional
paid in capital
|
|
|
4,232,272 |
|
|
|
(2,211,698 |
) |
Accumulated
deficit
|
|
|
(6,088,144 |
) |
|
|
(6,203,194 |
) |
Total
shareholders' equity (deficit)
|
|
|
648,006 |
|
|
|
(8,094,508 |
) |
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity (deficit)
|
|
$ |
2,787,253 |
|
|
$ |
263,453 |
|
See
accompanying notes to unaudited consolidated financial statements.
Consolidated
Statements of Operations
(unaudited)
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
3,623,771 |
|
|
$ |
2,789,314 |
|
|
$ |
8,858,418 |
|
|
$ |
7,927,923 |
|
Cost
of goods sold
|
|
|
2,513,754 |
|
|
|
1,999,457 |
|
|
|
6,222,344 |
|
|
|
5,600,730 |
|
Gross
profit
|
|
|
1,110,017 |
|
|
|
789,857 |
|
|
|
2,636,074 |
|
|
|
2,327,193 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
713,281 |
|
|
|
447,674 |
|
|
|
1,755,182 |
|
|
|
1,364,890 |
|
General
and administrative
|
|
|
733,842 |
|
|
|
465,884 |
|
|
|
1,705,395 |
|
|
|
1,658,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
1,447,123 |
|
|
|
913,558 |
|
|
|
3,460,577 |
|
|
|
3,023,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(337,106 |
) |
|
|
(123,701 |
) |
|
|
(824,503 |
) |
|
|
(695,987 |
) |
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(2,641 |
) |
|
|
(302,917 |
) |
|
|
(176,874 |
) |
|
|
(737,453 |
) |
Gain
on debt conversion
|
|
|
- |
|
|
|
- |
|
|
|
1,113,849 |
|
|
|
- |
|
Mark
to market gains (losses) on liability for unauthorized
shares
|
|
|
- |
|
|
|
|
|
|
|
(179,896 |
) |
|
|
|
|
Advertising
revenue and other
|
|
|
85,941 |
|
|
|
30,657 |
|
|
|
182,474 |
|
|
|
69,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
83,299 |
|
|
|
(272,260 |
) |
|
|
939,553 |
|
|
|
(667,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(253,807 |
) |
|
$ |
(395,961 |
) |
|
$ |
115,050 |
|
|
$ |
(1,363,883 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
- |
|
|
$ |
(0.02 |
) |
|
$ |
- |
|
|
$ |
(0.08 |
) |
Diluted
|
|
$ |
- |
|
|
$ |
(0.02 |
) |
|
$ |
- |
|
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
126,682,430 |
|
|
|
16,209,663 |
|
|
|
56,125,006 |
|
|
|
16,209,663 |
|
Diluted
|
|
|
132,383,397 |
|
|
|
16,209,663 |
|
|
|
58,442,324 |
|
|
|
16,209,663 |
|
See
accompanying notes to unaudited consolidated financial
statements.
Insignia
Solutions plc
Consolidated
Statement of Shareholders’ Equity (Deficit)
(unaudited)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Ordinary Shares
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
16,209,663 |
|
|
$ |
320,384 |
|
|
$ |
(2,211,698 |
) |
|
$ |
(6,203,194 |
) |
|
$ |
(8,094,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
115,050 |
|
|
|
115,050 |
|
Shares
issued in connection with debt conversion
|
|
|
51,855,761 |
|
|
|
1,024,929 |
|
|
|
4,117,268 |
|
|
|
- |
|
|
|
5,142,197 |
|
Recapitalization
from reverse merger - shares retained by Insignia’s
shareholders
|
|
|
50,934,080 |
|
|
|
1,006,712 |
|
|
|
1,763,078 |
|
|
|
- |
|
|
|
2,769,790 |
|
Shares
issued for cash, net of offering costs of $80,000
|
|
|
6,146,341 |
|
|
|
121,482 |
|
|
|
348,518 |
|
|
|
- |
|
|
|
470,000 |
|
Shares
issued as satisfaction of shareholder advance
|
|
|
1,536,585 |
|
|
|
30,371 |
|
|
|
419,629 |
|
|
|
- |
|
|
|
450,000 |
|
Amortization
of stock based compensation awards
|
|
|
- |
|
|
|
- |
|
|
|
137,066 |
|
|
|
- |
|
|
|
137,066 |
|
Reclassification
for liability associated with unauthorized, unissued
shares
|
|
|
- |
|
|
|
- |
|
|
|
(341,589 |
) |
|
|
- |
|
|
|
(341,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2008
|
|
|
126,682,430 |
|
|
$ |
2,503,878 |
|
|
$ |
4,232,272 |
|
|
$ |
(6,088,144 |
) |
|
$ |
648,006 |
|
See
accompanying notes to unaudited consolidated financial
statements.
Insignia
Solutions plc
Consolidated
Statements of Cash Flows
(unaudited)
|
|
Nine
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
115,050 |
|
|
$ |
(1,363,883 |
) |
Adjustments
to reconcile net income (loss )to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Interest
paid-in-kind
|
|
|
- |
|
|
|
140,973 |
|
Gain
on debt conversion
|
|
|
(1,113,849 |
) |
|
|
- |
|
Mark
to market gains /losses on liability for unauthorized
shares
|
|
|
179,896 |
|
|
|
- |
|
Depreciation
and amortization
|
|
|
30,859 |
|
|
|
39,269 |
|
Amortization
of debt discount
|
|
|
12,480 |
|
|
|
19,132 |
|
Bad
debt expense
|
|
|
5,578 |
|
|
|
42,901 |
|
Stock-based
compensation
|
|
|
137,066 |
|
|
|
45,576 |
|
Stock
options issued for interest expense
|
|
|
- |
|
|
|
102,694 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(17,621 |
) |
|
|
(58,812 |
) |
Inventory
|
|
|
- |
|
|
|
124,630 |
|
Prepaid
and other current assets
|
|
|
(47,125 |
) |
|
|
7,830 |
|
Deposits
and other assets
|
|
|
19,496 |
|
|
|
7,250 |
|
Accounts
payable
|
|
|
(173,695 |
) |
|
|
(399,921 |
) |
Accrued
expenses
|
|
|
(9,569 |
) |
|
|
(83,804 |
) |
Accrued
interest
|
|
|
44,168 |
|
|
|
348,987 |
|
Deferred
revenue
|
|
|
10,867 |
|
|
|
43,276 |
|
Other
liabilities
|
|
|
3,140 |
|
|
|
9,895 |
|
Net
cash used in operating activities
|
|
|
(803,259 |
) |
|
|
(974,007 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Cash
acquired in connection with reverse merger, net of acquisition
costs
|
|
|
3,133,692 |
|
|
|
- |
|
Purchases
of equipment
|
|
|
(76,674 |
) |
|
|
(20,545 |
) |
Net
cash provided by investing activities
|
|
|
3,057,018 |
|
|
|
(20,545 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from equity issuance, net of offering costs
|
|
|
470,000 |
|
|
|
- |
|
Advances
on line of credit
|
|
|
- |
|
|
|
56,580 |
|
Proceeds
from issuance of debt
|
|
|
517,500 |
|
|
|
997,528 |
|
Repayments
of long-term debt
|
|
|
(865,000 |
) |
|
|
(250,000 |
) |
Net
cash provided by financing activities
|
|
|
122,500 |
|
|
|
804,108 |
|
|
|
|
|
|
|
|
|
|
Change
in cash and cash equivalents
|
|
|
2,376,259 |
|
|
|
(190,444 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
18,265 |
|
|
|
202,668 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$ |
2,394,524 |
|
|
$ |
12,224 |
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow disclosures:
|
|
|
|
|
|
|
|
|
Noncash
financing and investing activities -
|
|
|
|
|
|
|
|
|
conversion
of convertible debt and other notes payable to
equity
|
|
$ |
6,256,046 |
|
|
$ |
- |
|
Conversion
of advance to equity
|
|
$ |
450,000 |
|
|
$ |
- |
|
Net
noncash liabilities assumed in reverse merger
|
|
$ |
(363,903 |
) |
|
$ |
- |
|
Cash
paid for interest
|
|
$ |
120,250 |
|
|
$ |
125,667 |
|
See
accompanying notes to unaudited consolidated financial statements.
Note 1: Background and Basis
of Presentation
Until
June 23, 2008, Insignia Solutions plc, a corporation organized under the laws of
England and Wales (“Insignia”) operated as a shell company. On June
23, 2008, DollarDays International LLC (“DollarDays”) entered into a series of
transactions to effect a reverse merger with Insignia (the
“Merger”). These transactions consisted of the
following:
·
|
DollarDays
formed a wholly owned Delaware corporation DollarDays International, Inc.
(“DDI Inc.”) and contributed all its assets and liabilities in exchange
for 100% of the stock of DDI Inc.
|
·
|
DDI
Inc. merged with Joede, Inc., a Delaware corporation and a wholly-owned
subsidiary of Insignia, whereby DDI Inc. was the surviving corporation and
a wholly-owned subsidiary of Insignia and Insignia agreed to issue
73,333,333 American Depository Receipts (“ADRs”), which are common stock
equivalents of Insignia in exchange for all of the outstanding common
stock of DDI Inc.
|
·
|
The
combined entity was to issue an aggregate of 7,682,926 ADRs to a new
investor in exchange for cash of
|
$550,000 and the conversion of note
payable of $450,000.
Under the
agreement and plan of merger, Insignia shareholders maintained approximately
37.1% ownership of the combined company, DDI Inc. shareholders obtained 56.7%,
and a new investor obtained 6.2% of the combined company stock. The
Merger is accounted for as a reverse merger whereby DDI Inc. is the accounting
acquirer resulting in a recapitalization of DDI Inc.
equity. Accordingly, the Company has retroactively restated all
equity and per share amounts for periods prior to the Merger to reflect the
equivalent amounts based on the exchange ratio set forth in the Merger. See Note
3 for a complete description of these transactions.
DDI Inc.,
through its website, www.DollarDays.com is an Internet based wholesaler of
general merchandise to small independent resellers. Orders are placed
by customers through the website where, upon successful payment, the merchandise
is shipped directly from the vendors’ warehouses.
The
financial statements set forth herein include the accounts and results of DDI
Inc and include the results of Insignia and its subsidiaries beginning with the
date of acquisition (collectively the “Company”). Because DDI Inc. is
the accounting acquirer, all historical financial information for periods prior
to June 23, 2008 are those of DDI Inc. and do not reflect the activities of
Insignia. All intercompany amounts are eliminated in
consolidation.
As
indicated in Note 3, the Company has not issued all of the consideration
required to be issued in connection with the Merger. However, the
accompanying financial statements reflect as shares outstanding all amounts that
are to be issued under the terms of the Merger and the Company is presenting a
liability for the shares in excess of the authorized shares.. The
Company believes this presentation provides the most meaningful information to
investors with respect to the Company’s financial position, capitalization and
per share financial information.
Certain
reclassifications have been made to prior period reported amounts to conform to
current year presentation.
Note
2: Going Concern
The
accompanying unaudited consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has a recent history of operating losses and
negative operating cash flows. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. The financial
statements do not include any adjustments that might result from this
uncertainty.
Note
3: Business Combinations
On June
23, 2008, Insignia and its wholly-owned subsidiary, Joede, Inc., a Delaware
corporation (“Joede”), entered into an agreement and plan of merger (the “Merger
Agreement”) with DDI Inc and all of the stockholders of DollarDays (the
“DollarDays Stockholders”), whereby Joede was merged with and into DollarDays,
with DollarDays being the surviving entity.
Pursuant
to the Merger, Insignia acquired all of the issued and outstanding capital stock
of DDI Inc. (the “DollarDays Capital Stock”). In exchange
for all of the DollarDays Capital Stock, Insignia was required to: (1) issue
73,333,333 American Depository Shares (“ADSs”), as evidenced by American
Depository Receipts (“ADRs”), of Insignia to DollarDays’ Stockholders, with each
ADS representing one ordinary share of Insignia, (2) issue a warrant for
8,551,450 ADSs at a price of $0.01 per ADS to Peter Engel, the chief executive
officer of DDI Inc. , (3) issue a warrant for 3,603,876 ADSs at a price of $0.13
per ADS to a financial advisor to DDI Inc. , and (4) issue options to purchase
7,360,533 ADSs, in replacement of outstanding DDI
Inc. options. In addition, Insignia agreed to issue
7,682,926 ADSs at a price of $0.13 to an investor in DollarDays (“Amorim”) in
repayment of a note of $450,000 and for cash of $550,000. Also, the
Company intends to issue warrants to purchase 570,962 shares at an exercise
price of $0.12 per share to an investment bank for merger related
services.
As a
result of Insignia not having enough authorized capital to issue all of the
consideration due pursuant to the Merger Agreement, as a closing condition to
the Merger Agreement, Insignia was required to (1) issue 46,978,375 ADSs to
Dollardays’ Stockholders at the time of the closing of the Merger, (2) issue
4,921,791 ADSs to Amorin and (3) take all necessary actions, including obtaining
stockholder approval as may be necessary, to authorize and deliver the remaining
consideration due under the terms of the Merger Agreement.
As of the
date of this Report on Form 10-Q, Insignia has issued 44,695,981 ADSs to
DollarDays Stockholders and 5,596,984 ADSs to Amorim, representing approximately
49.7% of the issued and outstanding ordinary shares of
Insignia. Insignia intends to propose to stockholders, for their
approval, a resolution to increase the authorized capital of the Company at its
next Annual General Meeting so that Insignia can fulfill its obligations to
issue the remaining consideration under the terms of the Merger
Agreement. On November 12, 2008, our Board of Directors approved an
increase of the authorized capital from 110,000,000 ordinary shares to
300,000,000 ordinary shares, which it intends to submit for stockholder
approval. Assuming the increased authorized share capital is approved
and the remaining Merger consideration is issued, the DollarDays Stockholders
will own approximately 63% of the issued and outstanding ordinary shares of
Insignia.
As the
total number of ordinary shares to be issued, 126,682,430, exceeds the currently
authorized number of ordinary shares, the Company recognized a liability of
$521,485 at September 30, 2008 for the fair value of unauthorized, unissued
shares. The fair value of the liability for unauthorized, unissued
shares has been recorded at market value as of September 30, 2008 and a
corresponding loss of $179,896 has been recognized due to the changes in the
fair value of the liability during the nine months ended September 30,
2008.
In
connection with accounting for the Merger as a reverse merger whereby DDI Inc is
the accounting acquirer resulting in a recapitalization of DDI Inc. equity, the
Company has retroactively recast all equity and per share amounts for periods
prior to the Merger to reflect DDI Inc. shares of 16,209,663 and Insignia shares
of 50,943,080. The Insignia shares were recast at a value of
$2,769,790.
Note
4: Net Income (Loss) Per Share
Basic
income (loss) per share is computed based on the weighted average number of
common shares outstanding and excludes any potential dilution. Diluted per share
reflect potential dilution from the exercise or conversion of securities into
common stock. The effects of certain stock options and warrants are excluded
from the determination of the weighted average common shares outstanding for
diluted income per share in each of the periods presented as the effects were
antidilutive or the exercise price for the outstanding options exceeded the
average market price for the Company’s common stock. The
following table includes the stock options and warrants that are dilutive for
each of the periods presented and are therefore included in the Company’s
diluted earnings per share calculation.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(253,807 |
) |
|
$ |
(395,961 |
) |
|
$ |
115,050 |
|
|
$ |
(1,363,883 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
126,682,430 |
|
|
|
16,209,663 |
|
|
|
56,125,006 |
|
|
|
16,209,663 |
|
Add
incremental shares for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Warrants
|
|
|
5,700,967 |
|
|
|
- |
|
|
|
2,317,318 |
|
|
|
- |
|
Diluted
weighted average common shares outstanding
|
|
|
132,383,397 |
|
|
|
16,209,663 |
|
|
|
58,442,324 |
|
|
|
16,209,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
- |
|
|
$ |
(0.02 |
) |
|
$ |
- |
|
|
$ |
(0.08 |
) |
Diluted
|
|
$ |
- |
|
|
$ |
(0.02 |
) |
|
$ |
- |
|
|
$ |
(0.08 |
) |
Note 5: Stock
Options
The
Company has historically granted stock options to certain vendors and employees
as well as in connection with certain financing transactions.
The
following table summarizes the Company’s stock option activity:
|
|
Number of
Units
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual Term
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
7,360,533 |
|
|
$ |
0.22 |
|
|
|
|
Grants
|
|
|
2,778,376 |
|
|
|
0.90 |
|
|
|
|
Forfeitures
|
|
|
(4,019,818 |
) |
|
|
0.67 |
|
|
|
|
Exercises
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2008
|
|
|
6,119,091 |
|
|
$ |
0.23 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exerciseable
at September 30, 2008
|
|
|
6,119,091 |
|
|
$ |
0.23 |
|
|
|
3.1 |
|
The
7,360,533 options outstanding at December 31, 2007 represents the replacement
options granted to existing option holders of DDI Inc. as set forth in the
Merger Agreement.
The
grants set forth in the table above represent the existing pre-Merger
outstanding options of Insignia that are reflected as grants beginning with the
date of the Merger. As these represent existing outstanding awards
for which the requisite service period has already been rendered, no
compensation expense has been recorded during the nine months ended September
30, 2008.
The
options have no intrinsic value as of September 30, 2008.
The
following table sets forth exercise prices of outstanding options at September
30, 2008:
Exercise Price
|
|
Number of
Options
|
|
|
|
|
|
$0.09
- $0.20
|
|
|
3,914,244 |
|
$0.21
- $0.40
|
|
|
1,647,951 |
|
$0.41
- $0.70
|
|
|
517,146 |
|
$0.71
- $1.00
|
|
|
10,000 |
|
>
$1.00
|
|
|
29,750 |
|
Note
6: Warrants
The
following table summarizes the Company’s warrant activity:
|
|
Number of
Units
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual Term
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
- |
|
|
$ |
- |
|
|
|
|
Grants
|
|
|
17,074,499 |
|
|
|
0.15 |
|
|
|
|
Forfeitures
|
|
|
- |
|
|
|
- |
|
|
|
|
Exercises
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2008
|
|
|
17,074,499 |
|
|
$ |
0.15 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exerciseable
at September 30, 2008
|
|
|
17,074,499 |
|
|
$ |
0.15 |
|
|
|
4.0 |
|
Grants
for the nine months ended September 30, 2008 include the following:
|
·
|
Warrants to purchase 4,348,211
shares that represent existing pre-Merger outstanding warrants that are
reflected as grants as of the date of Merger. As these
represent existing outstanding awards for which the requisite service
period has already been rendered, no compensation expense has been
recorded during the nine months ended September 30,
2008.
|
|
·
|
Warrants to purchase 8,551,450
shares at an exercise price of $0.01 per share that were granted to the
Company’s Chairman in connection with Merger related
services. All warrants were fully vested at the date of
grant. The Company recorded stock based compensation expense of
$115,445 during the nine months ended September 30, 2008
associated with this award based on the following assumptions used in the
Black Scholes model:
|
|
·
|
Warrants to purchase 3,603,876
shares at an exercise price of $0.13 per share that were granted to an
investment bank for Merger related services. As these amounts
were consideration associated with the recapitalization, they were
recorded as part of the recapitalization accounting and no expense was
recognized during the three or nine months ended September 30,
2008.
|
|
·
|
Warrants to purchase 570,962
shares at an exercise price of $0.12 per share that were granted to an
investment bank for Merger related services. As these amounts
were consideration associated with the recapitalization, they were
recorded as part of the recapitalization accounting and no expense was
recognized during the three or nine months ended September 30,
2008.
|
All
warrants granted during the nine months ended September 30, 2008 are immediately
vested. All pre-Merger outstanding warrants expire between February
2010 and December 2010, and the warrants granted for Merger related services
expire on June 23, 2013.
The
warrants had an intrinsic value of $171,029 at September 30,
2008.
Note
7: Debt Conversion
During
the nine months ended September 30, 2008 certain noteholders of the Company
converted their principal and accrued interest to ordinary shares of the
Company. The conversion of debt to equity resulted in a conversion of
$6,256,046 debt to 51,855,761 of ordinary shares of the Company. The
Company also recognized a gain of $1,113,849 related to the conversion of debt
to equity from non-related parties.
Note
8: Subsequent Events
On
February 25, 2009, the Company’s Board of Directors approved the
grant of an aggregate of 14,756,360 shares of restricted stock vesting as
follows:
|
·
|
Twenty percent at the date of
grant
|
|
·
|
Twenty percent on the first
anniversary of the date of grant conditional upon the achievement of a
closing price not less than $0.06 and daily volume of 50,000 shares for 25
days of the 30 day period immediately prior to the anniversary
date
|
|
·
|
Thirty percent on the second
anniversary of the date of grant conditional upon the achievement of a
closing price not less than $0.10 and daily volume of 50,000 shares for 25
days of the 30 day period immediately prior to the anniversary
date
|
|
·
|
Thirty percent on the third
anniversary of the date of grant conditional upon the achievement of a
closing price not less than $0.15 and daily volume of 50,000 shares for 25
days of the 30 day period immediately prior to the anniversary
date
|
As
the Company did not have available authorized shares available for the grant of
restricted stock, the Company will issue the shares at a future date when shares
are available.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The
following discussion and analysis provides information that management believes
is relevant for an assessment and understanding of our results of operations and
financial condition. The following selected financial information is
derived from our historical financial statements and should be read in
conjunction with such financial statements and notes thereto set forth elsewhere
herein and the “Forward-Looking Statements” explanation included
herein. This information should also be read in conjunction with our
audited historical consolidated financial statements which are included in our
Form 10-K for the fiscal year ended December 31, 2007 filed with the Securities
and Exchange Commission on December 23, 2008..
Overview
We
provide general merchandise for resale to smaller, independent businesses
through our Internet website at www.DollarDays.com, and have been recognized as
a leader in the Internet wholesale market of discount brand name merchandise by
a leading business periodical and trade associations. Our objective
is to provide a one-stop discount shopping destination for general merchandise
for distributors, retailers and non-profits nationwide seeking case-sized lots
at bulk pricing. We launched our first website through which
customers could purchase products in October 2001. The site offers
customers an opportunity to shop for bargains conveniently, while offering our
suppliers an alternative sales channel. We believe our website offers
a unique benefit to smaller businesses in that they are able to purchase goods
from wholesalers and importers in single discounted case lots, with no minimum
purchase requirements. We believe the prevailing reason our business
has been able to obtain bulk pricing for single case lots is our sales channel
and ability to reach smaller distributors, retailers and non-profits that most
general merchandise suppliers cannot economically reach. We provide all the
logistics and customer support to serve this sales channel and are responsible
for growing our customer base.
We
continually add new, limited inventory products to our website in order to
create an atmosphere that encourages customers to visit frequently and purchase
products before the inventory sells out. Through our Internet
catalog, we offer approximately 25,000 products, including up to 10,000 closeout
items at further discounted prices. Closeout merchandise is typically
available in inconsistent quantities and prices.
We accept orders, either online or via
telephone sales staff, collect payment in the form of credit or debit card,
PayPal or similar means, and coordinate with manufacturers, importers and
close-out specialists regarding delivery particulars. PayPal refers
to the online payment platform located at www.paypal.com and its localized
counterparts. Our proprietary software and service procedures allow
us to sell merchandise to a single customer, and bill as a singer order, items
purchased and delivered from multiple suppliers. We do not take
possession of inventory, but we are responsible for processing customer claims
and returns.
Our
website has a registered base of approximately 1,250,000 small businesses and
receives approximately 2 million monthly page views. We receive an
average of approximately 3,000 orders per month. Our target audience,
typically smaller businesses, accounts for approximately 20% of overall US
retail market.
Our
historical success has resulted largely from the size of our community of active
users. We had approximately 29,000 active users at the end of 2007,
compared to approximately 26,000 users at the end of 2006. We define
an active user as any user who bought or sold an item during the most recent
12-month period. We
believe our sales and marketing efforts make inefficient markets more efficient
because:
• Our
website includes more than 25,000 items on any given day and makes available to
our users a wide variety of goods; and
• We
bring buyers and sellers together for lower costs than traditional
intermediaries.
We have
had increased success throughout the years attracting repeat
customers. In 2006, approximately 27% of our sales volume was
purchased by individuals who purchased through our website four times or
more. In 2007 and 2008, the sales volume of individuals who purchased
through our website four times or more increased to 31% and 40%,
respectively.
Reverse
Merger with Insignia Solutions plc
On June
23, 2008, we entered into a series of transactions to effect a reverse merger
with Insignia (the “Merger”). These transactions consisted of the
following:
• We
formed a wholly owned Delaware corporation DollarDays International, Inc. (“DDI
Inc.”) and contributed all our assets and liabilities in exchange for 100% of
the stock of DDI Inc.
• DDI
Inc. merged with Joede, Inc., a Delaware corporation and a wholly-owned
subsidiary of Insignia, whereby DDI Inc. was the surviving corporation and a
wholly-owned subsidiary of Insignia and Insignia agreed to issue 73,333,333
American Depository Receipts (“ADRs”), which are common stock equivalents of
Insignia in exchange for all of the outstanding common stock of DDI
Inc.
• The
combined entity was to issue an aggregate of 7,682,926 ADRs to Amorim in
exchange for cash of $550,000 and the conversion of note payable of
$450,000.
Under the
agreement and plan of Merger, Insignia shareholders maintained approximately
37.1% ownership of the combined company, DDI Inc. shareholders obtained 56.7%,
and Amorin obtained 6.2% of the combined company stock. The Merger is
accounted for as a reverse merger whereby DDI Inc is the accounting acquirer
resulting in a recapitalization of DDI Inc. equity. Accordingly, the
Company has retroactively restated all equity and per share amounts for periods
prior to the Merger to reflect the equivalent amounts based on the exchange
ratio set forth in the Merger Agreement.
As a
result of Insignia not having enough authorized capital to issue all of the
consideration due pursuant to the Merger Agreement, as a closing condition to
the Merger Agreement, Insignia was required to (1) issue 46,978,375 ADSs to
Dollardays’ Stockholders at the time of the closing of the Merger, (2) issue
4,921,791 ADSs to Amorin and (3) take all necessary actions, including obtaining
stockholder approval as may be necessary, to authorize and deliver the remaining
consideration due under the terms of the Merger Agreement.
As of the
date of this Report on Form 10-Q, Insignia has issued 44,695,981 ADSs to
DollarDays Stockholders and 5,596,984 ADSs to Amorim, representing approximately
49.7% of the issued and outstanding ordinary shares of
Insignia. Insignia intends to propose to stockholders, for their
approval, to increase the authorized capital of the Company at its next Annual
General Meeting so that Insignia can fulfill its obligations to issue the
remaining consideration under the terms of the Merger Agreement. On
November 12, 2008, our Board of Directors approved an increase of the authorized
capital from 110,000,000 ordinary shares to 300,000,000 ordinary shares, which
it intends to submit for stockholder approval. Assuming the increased
authorized share capital is approved and the remaining Merger consideration is
issued, the DollarDays Stockholders will own approximately 63% of the issued and
outstanding ordinary shares of Insignia.
Because
DDI Inc. is the accounting acquirer, all historical financial information for
periods prior to June 23, 2008 are those of DDI Inc. and do not reflect the
activities of Insignia.
Results
of Operations
Net
Revenues
|
|
|
|
|
|
|
|
Change from
|
|
|
Percent Change
|
|
Net revenues
|
|
2008
|
|
|
2007
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Three
months ended September 30,
|
|
|
3,623,771 |
|
|
|
2,789,314 |
|
|
|
834,457 |
|
|
|
29.9 |
% |
Nine
months ended September 30,
|
|
|
8,858,418 |
|
|
|
7,927,923 |
|
|
|
930,495 |
|
|
|
11.7 |
% |
Net revenues increased during the three
and nine months ended September 30, 2008 as compared to the three and nine
months ended September 30, 2007, as a result of increased marketing efforts,
more favorable vendor pricing and improved economic conditions. The
Company increased marketing in several different areas including pay-per-click,
search optimization and shipping incentives. Factors that influence future
revenue growth include general economic conditions, our ability to attract
vendors that offer compelling products and the impact of our marketing
activities.
Cost
of Goods Sold
|
|
|
|
|
|
|
|
Change from
|
|
|
Percent Change
|
|
Cost of goods sold
|
|
2008
|
|
|
2007
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Three
months ended September 30,
|
|
|
2,513,754 |
|
|
|
1,999,457 |
|
|
|
514,297 |
|
|
|
25.7 |
% |
Nine
months ended September 30,
|
|
|
6,222,344 |
|
|
|
5,600,730 |
|
|
|
621,614 |
|
|
|
11.1 |
% |
Cost of goods sold increased during the
three and nine months ended September 30, 2008 as compared to the three and nine
months ended September 30, 2007 due primarily to increased revenues generated by
the Company.
Factors which may influence the cost of
goods sold include our general sales volumes, negotiated terms with vendors and
general economic conditions.
Sales
and Marketing
|
|
|
|
|
|
|
|
Change from
|
|
|
Percent Change
|
|
Sales and marketing
|
|
2008
|
|
|
2007
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Three
months ended September 30,
|
|
|
713,281 |
|
|
|
447,674 |
|
|
|
265,607 |
|
|
|
59.3 |
% |
Nine
months ended September 30,
|
|
|
1,755,182 |
|
|
|
1,364,890 |
|
|
|
390,292 |
|
|
|
28.6 |
% |
Sales and marketing expenses include
fees for attracting users to our site, including search engine optimization,
telemarketing and other marketing efforts as well as promotional activities to
increase sales by end users. Sales and marketing expenses increased
in the three and nine months ended September 30, 2008 as compared to the three
and nine months ended September 30, 2007 due to increased efforts to generate
revenues through increased pay-per-click advertising, increased search
optimization fees and greater shipping promotions.
Factors influencing sales and marketing
expenses include strategic decisions with respect to the cost-effectiveness of
each of our marketing activities.
General
and Administrative
|
|
|
|
|
|
|
|
Change from
|
|
|
Percent Change
|
|
General and administrative
|
|
2008
|
|
|
2007
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Three months
ended September 30,
|
|
|
733,842 |
|
|
|
465,884 |
|
|
|
267,958 |
|
|
|
57.5 |
% |
Nine
months ended September 30,
|
|
|
1,705,395 |
|
|
|
1,658,290 |
|
|
|
47,105 |
|
|
|
2.8 |
% |
General and administrative expenses
increased in the three and nine months ended September 30, 2008 as compared to
the three months and nine months ended September 30, 2007 based on the
following:
|
·
|
Transaction
costs incurred related to the merger between Insignia Solutions and
DollarDays. These costs include legal fees, consulting fees,
severance costs and other professional fees and totaled approximately
$313,000 and $606,000 for the three and nine months ended September 30,
2008.
|
|
·
|
An
increase in stock based compensation
expense
|
Factors that influence the amount of
general and administrative expenses include the amount and extent by which we
compensate our consultants, executives and directors with stock-based or other
compensation, the rate of growth of our business and the extent to which we
outsource or bring certain activities in-house.
Interest
Expense
|
|
|
|
|
|
|
|
Change from
|
|
|
Percent Change
|
|
Interest expense
|
|
2008
|
|
|
2007
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Three
months ended September 30,
|
|
|
(2,641 |
) |
|
|
(302,917 |
) |
|
|
300,276 |
|
|
|
-99.1 |
% |
Nine
months ended September 30,
|
|
|
(176,874 |
) |
|
|
(737,453 |
) |
|
|
560,579 |
|
|
|
-76.0 |
% |
Interest expense represents interest
incurred on our convertible notes and other notes payable. In
June 2008, our debtholders agreed to convert all but $600,000 of our outstanding
debt into shares of common stock in connection with Merger. As part
of this transaction, the participating debtholders agreed to waive interest
incurred after February 29, 2008.
Advertising
Revenue and Other
|
|
|
|
|
|
|
|
Change from
|
|
|
Percent Change
|
|
Advertising revenue and other
|
|
2008
|
|
|
2007
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Three
months ended September 30,
|
|
|
85,941 |
|
|
|
30,657 |
|
|
|
55,283 |
|
|
|
180.3 |
% |
Nine
months ended September 30,
|
|
|
182,474 |
|
|
|
69,557 |
|
|
|
112,916 |
|
|
|
162.3 |
% |
Advertising revenue and other increased
during the three and nine months ended September 30, 2008 as compared to the
three and nine months ended September 30, 2007 as the Company increased its
promotion and sale of banner and other website advertising on its
site.
Net
Income (Loss)
|
|
|
|
|
|
|
|
Change from
|
|
|
Percent Change
|
|
Net income (loss)
|
|
2008
|
|
|
2007
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Three
months ended September 30,
|
|
|
(253,807 |
) |
|
|
(395,961 |
) |
|
|
142,154 |
|
|
|
35.9 |
% |
Nine
months ended September 30,
|
|
|
115,050 |
|
|
|
(1,363,883 |
) |
|
|
1,478,932 |
|
|
|
108.4 |
% |
The Company recognized net income
during the nine months ended September 30, 2008 as compared to a net loss the
three and nine months ended September 30, 2007 due primarily to a gain of
$1,113,849 recognized related to the Company’s debt conversion.
Liquidity
and Capital Resources
Our operating cash outflows were
$803,259 for the nine months ended September 30, 2008, as compared to $974,007
for the nine months ended September 30, 2007, a decrease of
$170,748. Our operating cash flows improved as gains in operating
efficiencies were realized.
Investing cash inflows for the
nine months ended September 30, 2008 consisted of $3,133,692 of cash acquired in
connection with our reverse merger with Insignia Solutions plc, net of
acquisition costs of approximately $308,000, partially offset by $76,674 of
investments in additional equipment to support our business
operations. We had investments of $20,545 in additional
equipment in the nine months ended September 30, 2007
Financing cash inflows were $122,500
for the nine months ended September 30, 2008 as compared to $804,108 for the
nine months ended September 30, 2007. Financing cash inflows in the
nine months ended September 30, 2008 consisted of $470,000 of proceeds from
equity issuances (net of offering costs of $80,000) and $517,500 of proceeds
from the issuance of long term debt, offset by $865,000 of repayments of long
term debt. Financing cash flows in the nine months ended September
30, 2007 consisted of proceeds from the issuance of long term debt and advances
on our line of credit offset by repayments of long-term debt.
Our
financial statements have been prepared assuming we will continue as a going
concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. We have a recent
history of operating losses and operating cash outflows. These
factors raise substantial doubt about our ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from this uncertainty.
Off-balance
sheet arrangements
We did
not have any off-balance sheet arrangements at September 30, 2008.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141 (revised
2007) “Business Combinations” (“SFAS 141R”). SFAS 141R
establishes the requirements for how an acquirer recognizes and measures the
identifiable assets acquired, the liabilities assumed, any non-controlling
interest in the acquiree and the goodwill acquired. SFAS 141R requires
acquisition costs be expensed instead of capitalized as is required currently
under SFAS 141 and also establishes disclosure requirements for business
combinations. SFAS 141R applies to business combinations for which the
acquisition date is on or after fiscal years beginning on or after
December 15, 2008 and, as such, SFAS 141R is effective beginning in
the Company’s fiscal year 2009. We are still evaluating the potential
impact on our consolidated financial statements upon adoption of
SFAS 141R.
In
September 2006, the FASB issued SFAS No. 157, “ Fair Value
Measurements ” (“SFAS 157”), which defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. SFAS 157 does not
require any new fair value measurements, but provides guidance on how to measure
fair value by providing a fair value hierarchy used to classify the source of
the information. In February 2008, the FASB issued FASB Staff Position 157-1, “
Application of FASB Statement No. 157 to FASB Statement No. 13 and
Other Accounting Pronouncements That Address Fair Value Measurements for
Purposes of Lease Classification or Measurement under Statement 13. ”
(“FSP 157-1”). FSP 157-1 amends SFAS 157 to exclude leasing
transactions accounted for under SFAS 13 and related guidance from the
scope of SFAS 157. In February 2008, the FASB issued FASB Staff Position
157-2 (“FSP 175-2”), “ Effective Date of FASB Statement 157, ” which delays
the effective date of SFAS 157 for all non-financial assets and
non-financial liabilities, except for items that are recognized or disclosed as
fair value in the financial statements on a recurring basis (at least annually).
SFAS 157 is effective for fiscal year 2009, however, FSP 157-2 delays
the effective date for certain items to fiscal year 2010. We are evaluating the
potential impact on our consolidated financial statements upon adoption of
SFAS 157.
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain
Hybrid Financial Instruments — an Amendment of FASB Statements No. 133
and 140” (“SFAS 155”). SFAS 155 allows financial instruments that
contain an embedded derivative and that otherwise would require bifurcation to
be accounted for as a whole on a fair value basis, at the holders’ election.
SFAS 155 also clarifies and amends certain other provisions of
SFAS 133 and SFAS 140. SFAS 155 was effective beginning with our
2007 fiscal year. The adoption of SFAS 155 did not have a material effect
on our consolidated financial statements.
Item
4T. Controls and Procedures.
Disclosure Controls and
Procedures
We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)). Based upon that evaluation, our principal executive
officer and principal financial officer concluded that, as of the end of the
period covered in this report, our disclosure controls and procedures were not
effective to ensure that information required to be disclosed in reports filed
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the required time periods and is accumulated and communicated to
our management, including our principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure. These controls were not effective based on the following
factors:
|
·
|
We
have recently merged with an entity that maintains accounts in foreign
countries with which we are unfamiliar in doing
business
|
|
·
|
Because
of our small size and limited financial resources, we have limited finance
staff, who are not likely to be able to maintain a comprehensive knowledge
of all relevant elements of changing reporting and accounting
requirements, and who may not provide adequate resources in all
circumstances to manage the complex accounting of a software company with
operations in several countries.
|
|
·
|
We
have had to rely on contract consulting staff who are less likely to
remain with us over the long term.
|
|
·
|
Our
accounting system and related infrastructure was acquired or built to
handle the finances of a company significantly larger than we are
currently, and any turnover in our finance staff may lead us to lose the
ability to operate the system
effectively.
|
Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures of our
internal controls will prevent all error or fraud. A control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met. Further, the design of a control system must reflect the fact
that there are resource constraints and the benefits of controls must be
considered relative to their costs. Due to the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, have been
detected.
We began
remediation efforts in 2009 to address deficiencies in our disclosure controls
and procedures. We expect most deficiencies to be corrected during
2009.
Changes in Internal Controls
Over Financial Reporting
There
have not been any changes in our internal controls over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that
occurred during the fiscal quarter ending September 30, 2008 that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings.
As of the
date of this report, the Company is not currently involved in any legal
proceedings.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
Pursuant
to the Merger, Insignia acquired all of the DollarDays Capital
Stock. In exchange for all of the DollarDays Capital Stock, Insignia
was required to: (1) issue 73,333,333 ADSs, evidenced by ADRs, to Dollardays’
Stockholders, with each ADS representing one ordinary share of Insignia, (2)
issue a warrant for 8,551,450 ADSs at a price of $0.01 per ADS to Peter Engel,
the chief executive officer of Dollardays, (3) issue a warrant for 3,603,876
ADSs at a price of $0.13 per ADS to a financial advisor to Dollardays, and (4)
issue options to purchase 7,360,533 ADSs, in replacement of outstanding
Dollardays options. In addition, Insignia agreed to issue 7,682,926
ADSs at a price of $0.13 to Amorim in repayment of a note. Also, the
Company will issue warrants to purchase 570,962 shares at an exercise price of
$0.12 per share to an investment bank for merger related services.
As a
result of Insignia not having enough authorized capital to issue all of the
consideration due pursuant to the Merger Agreement, as a closing condition to
the Merger Agreement, Insignia was required to (1) issue 46,978,375 ADSs to
Dollardays’ Stockholders at the time of the closing of the Merger, (2) issue
4,921,791 ADSs to Amorim and (3) take all necessary actions, including obtaining
stockholder approval as may be necessary, to authorize and deliver the remaining
consideration due under the terms of the Merger Agreement.
As of the
date of this Report on Form 10-Q, Insignia has issued 44,695,981 ADSs to
DollarDays Stockholders and 5,596,984 ADSs to Amorim, representing approximately
49.7% of the issued ordinary shares of Insignia.
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
Item
5. Other Information.
None.
Item
6. Exhibits.
Exhibit
Number
|
|
Description
|
|
By
Reference
from
Document
|
|
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934
|
|
*
|
|
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934
|
|
*
|
|
|
|
|
|
32.1
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
*
|
|
|
|
|
|
32.2
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
*
|
* Filed
herewith
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.
INSIGNIA
SOLUTIONS PLC
|
|
|
By:
|
/s/ Peter
Engel
|
|
Peter
Engel
|
|
President,
Chairman and Chief Executive Officer
|
|
(Principal
Executive Officer)
|
|
|
By:
|
/s/ Michael
Moore
|
|
Michael
Moore
|
|
Chief
Financial Officer
|
|
(Principal
Financial
Officer)
|