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: June 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 issued 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
|
16
|
|
|
PART
II – OTHER INFORMATION
|
16
|
|
|
Item
1. Legal Proceedings.
|
16
|
|
|
Item
1A. Risk Factors
|
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
16
|
|
|
Item
3. Defaults Upon Senior Securities
|
17
|
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
17
|
|
|
Item
5. Other Information.
|
17
|
|
|
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)
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
3,444,350 |
|
|
$ |
18,265 |
|
Accounts
receivable, net
|
|
|
45,901 |
|
|
|
50,227 |
|
Prepaid
expenses and other current assets
|
|
|
51,792 |
|
|
|
22,475 |
|
Total
current assets
|
|
|
3,542,043 |
|
|
|
90,967 |
|
Property
and equipment, net
|
|
|
170,182 |
|
|
|
127,287 |
|
Deposits
and other assets
|
|
|
61,848 |
|
|
|
45,199 |
|
Total
assets
|
|
$ |
3,774,073 |
|
|
$ |
263,453 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
1,100,631 |
|
|
$ |
1,230,674 |
|
Accrued
expenses
|
|
|
519,368 |
|
|
|
96,432 |
|
Accrued
interest
|
|
|
81,185 |
|
|
|
732,926 |
|
Deferred
revenue
|
|
|
53,072 |
|
|
|
33,259 |
|
Convertible
debt and other notes payable (including $0 and $5,569,525 due to related
parties), net of discount
|
|
|
600,000 |
|
|
|
6,263,972 |
|
Liability
for unauthorized, unissued shares
|
|
|
521,485 |
|
|
|
- |
|
Other
liabilities
|
|
|
2,452 |
|
|
|
698 |
|
Total
current liabilities
|
|
|
2,878,193 |
|
|
|
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 June 30 and 16,209,663 issued and
outstanding at December 31 (see Note 1)
|
|
|
2,503,878 |
|
|
|
320,384 |
|
Additional
paid in capital
|
|
|
4,226,339 |
|
|
|
(2,211,698 |
) |
Accumulated
deficit
|
|
|
(5,834,337 |
) |
|
|
(6,203,194 |
) |
Total
shareholders' equity (deficit)
|
|
|
895,880 |
|
|
|
(8,094,508 |
) |
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity (deficit)
|
|
$ |
3,774,073 |
|
|
$ |
263,453 |
|
See
accompanying notes to unaudited consolidated financial
statements.
Insignia
Solutions plc
Consolidated
Statements of Operations
(unaudited)
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$ |
2,863,477 |
|
|
$ |
2,852,759 |
|
|
$ |
5,234,647 |
|
|
$ |
5,138,609 |
|
Cost
of goods sold
|
|
|
2,035,087 |
|
|
|
1,958,944 |
|
|
|
3,708,590 |
|
|
|
3,601,273 |
|
Gross
profit
|
|
|
828,390 |
|
|
|
893,815 |
|
|
|
1,526,057 |
|
|
|
1,537,336 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
549,631 |
|
|
|
506,685 |
|
|
|
1,041,902 |
|
|
|
917,217 |
|
General
and administrative
|
|
|
573,159 |
|
|
|
595,027 |
|
|
|
971,551 |
|
|
|
1,192,404 |
|
Total
operating expenses
|
|
|
1,122,790 |
|
|
|
1,101,712 |
|
|
|
2,013,453 |
|
|
|
2,109,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(294,400 |
) |
|
|
(207,897 |
) |
|
|
(487,396 |
) |
|
|
(572,285 |
) |
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
86,529 |
|
|
|
(191,164 |
) |
|
|
(174,233 |
) |
|
|
(434,536 |
) |
Gain
on debt conversion
|
|
|
1,113,849 |
|
|
|
- |
|
|
|
1,113,849 |
|
|
|
- |
|
Mark
to market gains (losses) on liability for unauthorized
shares
|
|
|
(179,896 |
) |
|
|
|
|
|
|
(179,896 |
) |
|
|
|
|
Advertising
revenue and other
|
|
|
59,229 |
|
|
|
35,100 |
|
|
|
96,533 |
|
|
|
38,900 |
|
Total
other income (expense)
|
|
|
1,079,711 |
|
|
|
(156,064 |
) |
|
|
856,253 |
|
|
|
(395,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
785,311 |
|
|
$ |
(363,961 |
) |
|
$ |
368,857 |
|
|
$ |
(967,921 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.03 |
|
|
$ |
(0.02 |
) |
|
$ |
0.02 |
|
|
$ |
(0.06 |
) |
Diluted
|
|
$ |
0.03 |
|
|
$ |
(0.02 |
) |
|
$ |
0.02 |
|
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,707,568 |
|
|
|
16,209,663 |
|
|
|
20,458,616 |
|
|
|
16,209,663 |
|
Diluted
|
|
|
25,146,104 |
|
|
|
16,209,663 |
|
|
|
20,705,292 |
|
|
|
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
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
368,857 |
|
|
|
368,857 |
|
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
|
|
|
4,225,609 |
|
|
|
83,519 |
|
|
|
386,481 |
|
|
|
- |
|
|
|
470,000 |
|
Shares
issued as satisfaction of shareholder advance
|
|
|
3,457,317 |
|
|
|
68,334 |
|
|
|
381,666 |
|
|
|
- |
|
|
|
450,000 |
|
Amortization
of stock based compensation awards
|
|
|
- |
|
|
|
- |
|
|
|
131,133 |
|
|
|
- |
|
|
|
131,133 |
|
Reclassification
for liability associated with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unauthorized,
unissued shares
|
|
|
- |
|
|
|
- |
|
|
|
(341,589 |
) |
|
|
- |
|
|
|
(341,589 |
) |
Balance
at June 30, 2008
|
|
|
126,682,430 |
|
|
$ |
2,503,878 |
|
|
$ |
4,226,339 |
|
|
$ |
(5,834,337 |
) |
|
$ |
895,880 |
|
See
accompanying notes to unaudited consolidated financial
statements.
Insignia
Solutions plc
Consolidated
Statements of Cash Flows
(unaudited)
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
368,857 |
|
|
$ |
(967,921 |
) |
Adjustments
to reconcile net income (loss )to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Interest
paid-in-kind
|
|
|
- |
|
|
|
138,756 |
|
Gain
on debt conversion
|
|
|
(1,113,849 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Mark
to market gains /losses on liability for unauthorized
shares
|
|
|
179,896 |
|
|
|
- |
|
Depreciation
and amortization
|
|
|
19,036 |
|
|
|
25,693 |
|
Amortization
of debt discount
|
|
|
12,480 |
|
|
|
3,358 |
|
Bad
debt expense
|
|
|
3,236 |
|
|
|
26,786 |
|
Stock-based
compensation
|
|
|
131,133 |
|
|
|
30,681 |
|
Stock
options issued for interest expense
|
|
|
- |
|
|
|
64,096 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,090 |
|
|
|
(72,280 |
) |
Inventory
|
|
|
- |
|
|
|
124,630 |
|
Prepaid
and other current assets
|
|
|
(12,670 |
) |
|
|
11,768 |
|
Deposits
and other assets
|
|
|
28,757 |
|
|
|
- |
|
Accounts
payable
|
|
|
(204,083 |
) |
|
|
(307,254 |
) |
Accrued
expenses
|
|
|
71,021 |
|
|
|
(55,333 |
) |
Accrued
interest
|
|
|
125,354 |
|
|
|
190,129 |
|
Deferred
revenue
|
|
|
19,813 |
|
|
|
17,689 |
|
Other
liabilities
|
|
|
1,754 |
|
|
|
6,596 |
|
Net
cash used in operating activities
|
|
|
(368,175 |
) |
|
|
(762,606 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Cash
acquired in connection with reverse merger, net of acquisition
costs
|
|
|
3,133,692 |
|
|
|
- |
|
Purchases
of equipment
|
|
|
(61,932 |
) |
|
|
- |
|
Net
cash provided by investing activities
|
|
|
3,071,760 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from equity issuance, net of offering costs
|
|
|
470,000 |
|
|
|
- |
|
Advances
on line of credit
|
|
|
- |
|
|
|
34,581 |
|
Proceeds
from issuance of debt
|
|
|
517,500 |
|
|
|
546,278 |
|
Repayments
of debt
|
|
|
(265,000 |
) |
|
|
- |
|
Net
cash provided by financing activities
|
|
|
722,500 |
|
|
|
580,859 |
|
|
|
|
|
|
|
|
|
|
Change
in cash and cash equivalents
|
|
|
3,426,085 |
|
|
|
(181,747 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
18,265 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$ |
3,444,350 |
|
|
$ |
(181,747 |
) |
|
|
|
|
|
|
|
|
|
Supplemental
cash flow disclosures:
|
|
|
|
|
|
|
|
|
Noncash
financing and investing activities - conversion of convertible debt and
other notes payable to equity
|
|
$ |
6,256,046 |
|
|
$ |
202,668 |
|
|
|
|
|
|
|
|
|
|
Conversion
of shareholder advance to equity
|
|
$ |
450,000 |
|
|
$ |
20,921 |
|
|
|
|
|
|
|
|
|
|
Net
noncash liabilities assumed in reverse merger
|
|
$ |
(363,903 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
36,423 |
|
|
$ |
102,294 |
|
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 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 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 June 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 June 30, 2008, and a
corresponding loss of $179,896 has been recognized due to changes in the fair
value of the liability during the period presented.
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 restated 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 June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
785,311 |
|
|
$ |
(363,961 |
) |
|
$ |
368,857 |
|
|
$ |
(967,921 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
24,707,568 |
|
|
|
16,209,663 |
|
|
|
20,458,616 |
|
|
|
16,209,663 |
|
Add
incremental shares for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Warrants
|
|
|
438,536 |
|
|
|
- |
|
|
|
246,676 |
|
|
|
- |
|
Diluted
weighted average common shares outstanding
|
|
|
25,146,104 |
|
|
|
16,209,663 |
|
|
|
20,705,292 |
|
|
|
16,209,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.03 |
|
|
$ |
(0.02 |
) |
|
$ |
0.02 |
|
|
$ |
(0.06 |
) |
Diluted
|
|
$ |
0.03 |
|
|
$ |
(0.02 |
) |
|
$ |
0.02 |
|
|
$ |
(0.06 |
) |
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
|
|
|
2,788,376 |
|
|
|
0.90 |
|
|
|
|
Forfeitures
|
|
|
(1,345,568 |
) |
|
|
0.24 |
|
|
|
|
Exercises
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
8,803,341 |
|
|
$ |
0.43 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exerciseable
at June 30, 2008
|
|
|
8,803,341 |
|
|
$ |
0.43 |
|
|
|
2.4 |
|
The
7,360,533 options outstanding at December 31, 2007 represent 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 six months ended June 30,
2008.
The
options have no intrinsic value as of June 30, 2008.
The
following table sets forth exercise prices of outstanding options at June 30,
2008:
Exercise Price
|
|
Number of
Shares
|
|
|
|
|
|
$0.09 - $0.20
|
|
|
5,234,244 |
|
$0.21 - $0.40
|
|
|
2,052,951 |
|
$0.41 - $0.70
|
|
|
917,146 |
|
$0.71 - $1.00
|
|
|
120,000 |
|
> $1.00
|
|
|
479,000 |
|
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 June 30, 2008
|
|
|
17,074,499 |
|
|
$ |
0.15 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exerciseable
at June 30, 2008
|
|
|
17,074,499 |
|
|
$ |
0.15 |
|
|
|
4.2 |
|
Grants
for the six months ended June 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 six months ended June 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 three and six months ended June 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 six months ended June 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 six months ended June 30,
2008.
|
All
warrants granted during the six months ended June 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 June 30, 2009.
Note
7: Debt Conversion
During
the quarter 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. 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 Amorim 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 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 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 June 30,
|
|
|
2,863,477 |
|
|
|
2,852,759 |
|
|
|
10,718 |
|
|
|
0.4 |
% |
Six
months ended June 30,
|
|
|
5,234,647 |
|
|
|
5,138,609 |
|
|
|
96,038 |
|
|
|
1.9 |
% |
Net revenues increased slightly during
the three and six months ended June 30, 2008 as compared to the three and six
months ended June 30, 2007, but could not be traced to any single defining
factor.
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 June 30,
|
|
|
2,035,087 |
|
|
|
1,958,944 |
|
|
|
76,143 |
|
|
|
3.9 |
% |
Six
months ended June 30,
|
|
|
3,708,590 |
|
|
|
3,601,273 |
|
|
|
107,317 |
|
|
|
3.0 |
% |
Cost of goods sold increased during the
three and six months ended June 30, 2008 as compared to the three and six months
ended June 30, 2007 due primarily to increased shipping costs related to higher
fuel costs.
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 June 30,
|
|
|
549,631 |
|
|
|
506,685 |
|
|
|
42,946 |
|
|
|
8.5 |
% |
Six
months ended June 30,
|
|
|
1,041,902 |
|
|
|
917,217 |
|
|
|
124,685 |
|
|
|
13.6 |
% |
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 six months ended June 30, 2008 as compared to the three and six
months ended June 30, 2007 due to an increase in promotional campaigns and
increased search engine optimization fees. We believe that this shift
in marketing activities provides a more focused, cost-efficient means of
attracting customers.
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 June 30,
|
|
|
573,159 |
|
|
|
595,027 |
|
|
|
(21,868 |
) |
|
|
-3.7 |
% |
Six
months ended June 30,
|
|
|
971,551 |
|
|
|
1,192,404 |
|
|
|
(220,853 |
) |
|
|
-18.5 |
% |
General and administrative expenses
decreased in the three and six months ended June 30, 2008 as compared to the
three months ended June 30, 2007 based on the following:
|
·
|
A
decrease in management, IT salaries, and management fees as we streamlined
our organizational structure and brought certain activities in-house;
partially offset by
|
|
·
|
An
increase in stock based compensation expense primarily attributable to
$1,041,567 incurred in the three months ended June 30, 2008 related to the
granting of warrants to our Chairman in connection with the Merger
transaction; partially offset by $115,445 recorded as stock based
compensation expenses.
|
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 June 30,
|
|
|
86,529 |
|
|
|
(191,164 |
) |
|
|
277,694 |
|
|
|
-145.3 |
% |
Six
months ended June 30,
|
|
|
(174,233 |
) |
|
|
(434,536 |
) |
|
|
260,303 |
|
|
|
-59.9 |
% |
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 the Merger. As
part of this transaction, the participating debtholders agreed to waive interest
incurred after February 29, 2008, resulting in a reversal of approximately
$138,679 of interest expense in the three and six months ended June 30,
2008.
Advertising
Revenue and Other
|
|
|
|
|
|
|
|
Change
from
|
|
|
Percent
Change
|
|
Advertising
revenue and other
|
|
2008
|
|
|
2007
|
|
|
Prior
Year
|
|
|
from
Prior Year
|
|
Three
months ended June 30,
|
|
|
59,229 |
|
|
|
35,100 |
|
|
|
24,129 |
|
|
|
68.7 |
% |
Six
months ended June 30,
|
|
|
96,533 |
|
|
|
38,900 |
|
|
|
57,633 |
|
|
|
148.2 |
% |
Advertising revenue and other increased
during the three and six months ended June 30, 2008 as compared to the three and
six months ended June 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
loss
|
|
2008
|
|
|
2007
|
|
|
Prior
Year
|
|
|
from
Prior Year
|
|
Three
months ended June 30,
|
|
|
785,311 |
|
|
|
(363,961 |
) |
|
|
1,149,272 |
|
|
|
-315.8 |
% |
Six
months ended June 30,
|
|
|
368,857 |
|
|
|
(967,921 |
) |
|
|
1,336,778 |
|
|
|
-138.1 |
% |
The Company recognized net income
during the three and six months ended June 30, 2008 as compared to a net loss
for the three and six months ended June 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
$368,175 for the six months ended June 30, 2008, as compared to $762,606 for the
six months ended June 30, 2007, a decrease of $394,431. We
experienced a smaller amount of net cash outflows in 2007 as we improved our
operating profit margins based on cost-containment initiatives.
Investing cash inflows for the
six months ended June 30, 2008 consisted of $3,071,760 of cash acquired in
connection with the Merger, net of acquisition costs of approximately $388,000,
partially offset by $61,932 of investments in additional equipment to support
our business operations. There were no investing cash outflows
in the six months ended June 30, 2007
Financing cash inflows were $722,500
for the six months ended June 30, 2008 as compared to $580,859 for the six
months ended June 30, 2007. Financing cash inflows in the six months
ended June 30, 2008 consisted of $920,000 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 $265,000 of repayments of long term
debt. Financing cash flows in the six months ended June 30, 2007
consisted of proceeds from the issuance of long term debt and advances on our
line of credit.
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 June 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
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
Statement No. 115” (“SFAS 159”). SFAS 159 provides companies with an option to
report selected financial assets and liabilities at fair value. The standard
requires companies to provide additional information that will help investors
and other users of financial statements to more easily understand the effect of
the company’s choice to use fair value on its earnings. It also requires
entities to display the fair value of those assets and liabilities for which the
company has chosen to use fair value on the face of the balance sheet. This
Statement is effective as of the beginning of an entity’s first fiscal year
beginning after November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes that choice
in the first 120 days of that fiscal year and also elects to apply the
provisions of Statement 157. The Company is currently evaluating whether the
adoption of SFAS 159 will have a material effect on its
consolidated financial position, results of operations or cash
flows.
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 June 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
|
|
(Principal
Financial
Officer)
|