Attached files
file | filename |
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EX-31.1 - America's Suppliers, Inc. | v163761_ex31-1.htm |
EX-31.2 - America's Suppliers, Inc. | v163761_ex31-2.htm |
EX-32.2 - America's Suppliers, Inc. | v163761_ex32-2.htm |
EX-32.1 - America's Suppliers, Inc. | v163761_ex32-1.htm |
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, 2009
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
|
(I.R.S.
Employer Identification No.)
|
or
organization)
|
7575
E. Redfield Road
|
|
Suite
201
|
85260
|
Scottsdale,
AZ
|
|
(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 has submitted electronically and posted on
its corporate Website, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No o
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: 129,254,116 ordinary shares as of October 26,
2009.
i
INSIGNIA
SOLUTIONS PLC dba DOLLARDAYS INTERNATIONAL, INC.
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 Cash Flows (unaudited)
|
4
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
5
|
|
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
|
9
|
|
Item
3. Quantitative and Qualitative Disclosure About Market
Risk
|
13
|
|
Item
4T. Controls and Procedures
|
13
|
|
PART
II – OTHER INFORMATION
|
14
|
|
Item
1. Legal Proceedings.
|
14
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
14
|
|
Item
3. Defaults Upon Senior Securities
|
15
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
15
|
|
Item
5. Other Information.
|
15
|
|
Item
6. Exhibits
|
15
|
|
SIGNATURES
|
15
|
ii
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 included in our Annual Report on Form
10-K for the year ended December 31, 2008.
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 are not historical facts but 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.
1
Item
1. Financial Statements.
Insignia
Solutions plc dba DollarDays International, Inc.
Consolidated
Balance Sheets
(unaudited)
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 259,748 | $ | 20,836 | ||||
Certificates
of deposit
|
1,130,000 | 2,118,933 | ||||||
Accounts
receivable, net
|
104,006 | 75,457 | ||||||
Prepaid
expenses and other current assets
|
209,196 | 78,723 | ||||||
Total
current assets
|
1,702,950 | 2,293,949 | ||||||
Property
and equipment, net
|
227,171 | 160,641 | ||||||
Deposits
and other assets
|
23,899 | 33,899 | ||||||
Total
assets
|
$ | 1,954,020 | $ | 2,488,489 | ||||
Liabilities
and Shareholders' Equity
|
||||||||
Accounts
payable
|
$ | 1,333,993 | $ | 1,176,170 | ||||
Accrued
expenses
|
250,953 | 771,407 | ||||||
Deferred
revenue
|
18,856 | 15,617 | ||||||
Liability
for unauthorized, unissued shares
|
- | 134,252 | ||||||
Other
liabilities
|
5,699 | 4,652 | ||||||
Total
current liabilities
|
1,609,501 | 2,102,098 | ||||||
Shareholders'
equity:
|
||||||||
Ordinary
shares, 1 pence par value, 300,000,000 shares authorized, 129,254,116
shares outstanding
at September 30, 2009 and 126,682,430 to be issued and outstanding
at December 31, 2008 (see Note 1)
|
2,539,175 | 2,503,878 | ||||||
Additional
paid in capital
|
4,044,775 | 3,982,711 | ||||||
Accumulated
deficit
|
(6,239,431 | ) | (6,100,198 | ) | ||||
Total
shareholders' equity
|
344,519 | 386,391 | ||||||
Total
liabilities and shareholders' equity
|
$ | 1,954,020 | $ | 2,488,489 |
See
accompanying notes to unaudited consolidated financial
statements.
2
Insignia
Solutions plc dba DollarDays International, Inc.
Consolidated
Statements of Operations
(unaudited)
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
revenues
|
$ | 3,551,417 | $ | 3,623,771 | $ | 9,266,244 | $ | 8,858,418 | ||||||||
Cost
of goods sold
|
2,359,939 | 2,513,754 | 6,143,135 | 6,222,344 | ||||||||||||
Gross
profit
|
1,191,478 | 1,110,017 | 3,123,109 | 2,636,074 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Sales
and marketing
|
740,343 | 713,281 | 2,006,430 | 1,755,182 | ||||||||||||
General
and administrative
|
499,352 | 733,842 | 1,458,016 | 1,705,395 | ||||||||||||
Total
operating expenses
|
1,239,695 | 1,447,123 | 3,464,446 | 3,460,577 | ||||||||||||
Operating
loss
|
(48,217 | ) | (337,106 | ) | (341,337 | ) | (824,503 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Interest
expense
|
- | (2,641 | ) | (4,500 | ) | (176,874 | ) | |||||||||
Gain
on debt conversion
|
- | - | - | 1,113,849 | ||||||||||||
Mark
to market gains on liability for unauthorized shares
|
- | - | 3,036 | (179,896 | ) | |||||||||||
Advertising
revenue and other
|
60,678 | 85,941 | 203,568 | 182,474 | ||||||||||||
Total
other income (expense)
|
60,678 | 83,299 | 202,104 | 939,553 | ||||||||||||
Net
income (loss)
|
$ | 12,461 | $ | (253,807 | ) | $ | (139,233 | ) | $ | 115,050 | ||||||
Net
income (loss) per share:
|
||||||||||||||||
Basic
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Diluted
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Weighted
average common shares outstanding
|
||||||||||||||||
Basic
|
129,254,116 | 126,682,430 | 128,773,865 | 56,125,006 | ||||||||||||
Diluted
|
134,955,083 | 126,682,430 | 128,773,865 | 58,442,324 |
See
accompanying notes to unaudited consolidated financial
statements.
3
Insignia
Solutions plc dba DollarDays International, Inc.
Consolidated
Statements of Cash Flows
(unaudited)
Nine Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income (loss)
|
$ | (139,233 | ) | $ | 115,050 | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Gain
on debt conversion
|
- | (1,113,849 | ) | |||||
Mark
to market gains /losses on liability for unauthorized
shares
|
(3,036 | ) | 179,896 | |||||
Depreciation
and amortization
|
39,659 | 30,859 | ||||||
Amortization
of debt discount
|
- | 12,480 | ||||||
Bad
debt expense
|
981 | 5,578 | ||||||
Stock-based
compensation
|
31,357 | 137,066 | ||||||
Changes
in assets and liabilities:
|
||||||||
Accounts
receivable
|
(29,530 | ) | (17,621 | ) | ||||
Prepaid
and other current assets
|
(130,473 | ) | (47,125 | ) | ||||
Deposits
and other assets
|
10,000 | 19,496 | ||||||
Accounts
payable
|
157,823 | (173,695 | ) | |||||
Accrued
expenses
|
(520,454 | ) | (9,569 | ) | ||||
Accrued
interest
|
- | 44,168 | ||||||
Deferred
revenue
|
3,239 | 10,867 | ||||||
Other
liabilities
|
1,047 | 3,140 | ||||||
Net
cash used in operating activities
|
(578,620 | ) | (803,259 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Cash
acquired in connection with reverse merger, net of acquisition
costs
|
- | 3,133,692 | ||||||
Maturities
of certificates of deposits
|
988,933 | - | ||||||
Purchases
of equipment
|
(106,189 | ) | (76,674 | ) | ||||
Net
cash provided by investing activities
|
882,744 | 3,057,018 | ||||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from equity issuance, net of offering costs
|
- | 470,000 | ||||||
Proceeds
from line of credit
|
150,000 | - | ||||||
Payments
on line of credit
|
(150,000 | ) | - | |||||
Proceeds
from issuance of long-term debt
|
- | 517,500 | ||||||
Repayments
of debt
|
- | (865,000 | ) | |||||
Shares
repurchased from converted debtholders
|
(65,212 | ) | - | |||||
Net
cash (used in) provided by financing activities
|
(65,212 | ) | 122,500 | |||||
Change
in cash and cash equivalents
|
238,912 | 2,376,259 | ||||||
Cash
and cash equivalents, beginning of period
|
20,836 | 18,265 | ||||||
Cash
and cash equivalents, end of period
|
$ | 259,748 | $ | 2,394,524 | ||||
Supplemental
cash flow disclosures:
|
||||||||
Noncash
financing and investing activities - conversion of convertible debt
and other notes payable to equity
|
$ | - | $ | 6,256,046 | ||||
Conversion
of shareholder advance to equity
|
$ | - | $ | 450,000 | ||||
Net
noncash liabilities assumed in reverse merger
|
$ | - | $ | (363,903 | ) | |||
Reclassification
for liability associated with unauthorized, unissued shares to be
issued
|
$ | (24,717 | ) | $ | - | |||
Reclassification
for liability associated with unauthorized, unissued shares
issued
|
$ | 155,933 | $ | - | ||||
Cash
paid for interest
|
$ | 4,500 | $ | 120,250 |
See
accompanying notes to unaudited consolidated financial
statements.
4
Insignia
Solutions plc dba DollarDays International, Inc.
Notes
to the Consolidated Financial Statements
(unaudited)
Note
1: Background and Basis of Presentation
Background
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”). 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.
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 (“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.
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
consolidated 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.
Basis
of Presentation
In the
opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments, consisting of only normal recurring
accruals, necessary for a fair statement of financial position, results of
operations, and cash flows. The information included in this Quarterly Report on
Form 10-Q should be read in conjunction with the consolidated financial
statements and the accompanying notes included in our Annual Report on Form 10-K
for the year ended December 31, 2008. The accounting policies are described in
the “Notes to the Consolidated Financial Statements” in the 2008 Annual Report
on Form 10-K and updated, as necessary, in this Form 10-Q. The year end
consolidated balance sheet data presented for comparative purposes was derived
from audited financial statements, but does not include all disclosures required
by accounting principles generally accepted in the United States. The results of
operations for the three and nine months ended September 30, 2009 are not
necessarily indicative of the operating results for the full year or for any
other subsequent interim period.
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.
5
The
Company intends to generate operating cash flows through the growth of its
existing business, the improvement of operating margins and by growth through
acquisitions. Although there can be no assurance, management believes
that such measures will provide it with enough liquidity to operate its current
business and continue as a going concern in the short term.
Note
3: Line of Credit
The
Company has a $150,000 revolving line of credit with a financial institution and
during the nine months ended September 30, 2009, the Company repaid all borrowed
amounts under the terms thereof. At September 30, 2009, the balance
outstanding on the line of credit was $0. Interest payments are
due monthly at an annual rate of 6%. The line of credit has no stated
maturity date.
Note
4: Common Stock
At the
Company’s most recent Annual General Meeting shareholders approved a resolution
to increase the authorized capital of the Company so that Insignia can fulfill
its obligations to issue the remaining consideration under the terms of the
Merger and as of September 30, 2009 the Company has fulfilled its
obligations. During the three months ended September 30, 2009 the
Company issued 18,743,731 ADSs to DollarDays Stockholders and
Amorim. As of September 30, 2009, Insignia has issued 61,353,770
American Depository Shares (“ADS”) to DollarDays Stockholders and 7,682,926 ADSs
to Amorim.
The
Company previously recognized a liability for the total number of ordinary
shares to be issued in excess of authorized number of ordinary
shares. As shareholders approved a resolution to increase the
authorized capital of the Company, the Company no longer recognizes a liability
for such shares and this amount was reclassified to additional paid-in capital
in the accompanying balance sheet. The Company has recognized a gain
of $3,036 due to the changes in the fair value of the liability during the nine
months ended September 30, 2009, the date at which the liability was
reclassified.
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:
6
|
Number of
Units
|
Weighted-
Average
Exercise Price
|
Weighted-
Average
Remaining
Contractual Term
(in years)
|
|||||||||
Outstanding
at December 31, 2008
|
6,109,715 | $ | 0.23 | |||||||||
Grants
|
- | - | ||||||||||
Forfeitures
|
(360,453 | ) | 0.23 | |||||||||
Exercises
|
- | - | ||||||||||
Outstanding
at September 30, 2009
|
5,749,262 | $ | 0.23 | 2.3 | ||||||||
Exerciseable
at September 30, 2009
|
5,749,262 | $ | 0.23 | 2.3 |
The
options have no intrinsic value as of September 30, 2009.
The
following table sets forth exercise prices of outstanding options at September
30, 2009:
Exercise Price
|
Number of
Shares
|
|||
$0.09
- $0.20
|
3,850,739 | |||
$0.21
- $0.40
|
1,353,503 | |||
$0.41
- $0.70
|
507,770 | |||
$0.71
- $1.00
|
10,000 | |||
>
$1.00
|
27,250 |
Note
6: Restricted Stock
On
February 25, 2009, the Company’s Board of Directors approved the grant of an
aggregate of 14,756,360 shares of restricted stock with a fair value of $47,220
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;
and
|
|
·
|
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.
|
At
September 30, 2009 the Company included 2,951,272 shares as outstanding in
connection with the grants described above and recognized stock based
compensation of $3,320 and $31,357 for the three and nine months ended September
30, 2009, respectively, based on the vesting schedule and requisite service
period.
7
Note
7: Recently Adopted Accounting Pronouncements
In May
2009, the FASB amended ASC 855, “Subsequent Events” which establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. The changes to ASC 855 were effective for fiscal
periods ending after June 15, 2009. The adoption of the changes in
ASC 855 did not have a material effect on our consolidated financial
statements.
Note
8: 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,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
income (loss)
|
$ | 12,461 | $ | (253,807 | ) | $ | (139,233 | ) | $ | 115,050 | ||||||
Basic
weighted average common shares outstanding
|
129,254,116 | 126,682,430 | 128,773,865 | 56,125,006 | ||||||||||||
Add
incremental shares for:
|
||||||||||||||||
Stock
options
|
- | - | - | - | ||||||||||||
Warrants
|
5,700,967 | - | - | 2,317,318 | ||||||||||||
Diluted
weighted average common shares outstanding
|
134,955,083 | 126,682,430 | 128,773,865 | 58,442,324 | ||||||||||||
Net
income (loss) per share:
|
||||||||||||||||
Basic
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Diluted
|
$ | - | $ | - | $ | - | $ | - |
Note 9: Subsequent
Events
The
Company has evaluated subsequent events through October 27, 2009 which is the
date the financial statements were issued. There are no significant
subsequent events.
8
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
Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed
with the Securities and Exchange Commission on March 31, 2009.
Overview
We
develop software programs that allow us to provide general merchandise for
resale to businesses through our website at www.DollarDays.com. We
have been recognized as a leader in the Internet wholesale market of discounted
merchandise by a leading business periodical and trade
associations. Our objective is to provide a one-stop discount
shopping destination for general merchandise to smaller distributors, retailers
and non-profits nationwide seeking single and small cased-sized lots at bulk
prices. We launched our first website 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 and small case lots,
with no minimum purchase requirements at discounted prices. We
believe the prevailing reason our business has been able to obtain bulk pricing
for single case lots is our 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 grow 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
is smaller businesses.
Our
historical success has resulted largely from the size of our community of active
users. We had approximately 21,000 unique customers place an order
with us in 2008 as compared to approximately 22,000 unique customers who placed
an order with us in 2007. 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 by attracting repeat
customers. In 2007 and 2008, the sales volume of individuals who
purchased through our website four times or more increased to 27% and 38%,
respectively.
9
Reverse
Merger with Insignia Solutions plc
On June
23, 2008, we entered into a series of transactions to effect a reverse merger
with DollarDays (the “Merger”). These transactions consisted of the
following:
• DollarDays
formed a wholly owned Delaware corporation DollarDays International, Inc. (“DDI
Inc.”) and contributed all their 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
ADSs, which are common stock equivalents of Insignia represented by underlying
ordinary shares in exchange for all of the outstanding common stock of DDI
Inc.
• The
combined entity was to issue an aggregate of 7,682,926 ADSs 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.
At the
Company’s most recent Annual General Meeting shareholders approved a resolution
to increase the authorized capital of the Company so that Insignia can fulfill
its obligations to issue the remaining consideration under the terms of the
Merger and as of September 30, 2009 the Company has fulfilled its
obligations. During the three months ended September 30, 2009 the
Company issued 18,743,731 ADSs to DollarDays Stockholders and
Amorim. As of September 30, 2009, Insignia has issued 61,353,770
American Depository Shares (“ADS”) to DollarDays Stockholders and 7,682,926 ADSs
to Amorim.
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
|
2009
|
2008
|
Prior Year
|
from Prior Year
|
||||||||||||
Three
months ended September 30,
|
3,551,417 | 3,623,771 | (72,354 | ) | -2.0 | % | ||||||||||
Nine
months ended September 30,
|
9,266,244 | 8,858,418 | 407,826 | 4.6 | % |
Net revenues decreased during the three
months ended September 30, 2009 as compared to the three months ended September
30, 2008 due to a decrease in average order size attributed to continuing
overall economic difficulties. Net revenues increased for nine months
ended September 30, 2009 as compared to the nine months ended September 30,
2008, as a result our continuing marketing efforts, increased sales initiatives
and resulting organic growth. 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.
10
Cost
of Goods Sold
Change from
|
Percent Change
|
|||||||||||||||
Cost of goods sold
|
2009
|
2008
|
Prior Year
|
from Prior Year
|
||||||||||||
Three
months ended September 30,
|
2,359,939 | 2,513,754 | (153,815 | ) | -6.1 | % | ||||||||||
Nine
months ended September 30,
|
6,143,135 | 6,222,344 | (79,209 | ) | -1.3 | % |
Cost of goods sold decreased during the
three and nine months ended September 30, 2009 as compared to the three and nine
months ended September 30, 2008 due primarily to more favorable vendor pricing
and improved product mix.
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
|
2009
|
2008
|
Prior Year
|
from Prior Year
|
||||||||||||
Three
months ended September 30,
|
740,343 | 713,281 | 27,062 | 3.8 | % | |||||||||||
Nine
months ended September 30,
|
2,006,430 | 1,755,182 | 251,248 | 14.3 | % |
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, 2009 as compared to the three
months ended September 30, 2008 due to increased efforts to generate revenues
through increased pay-per-click advertising, increased search optimization fees,
greater shipping promotions, and increased sales personnel.
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
|
2009
|
2008
|
Prior Year
|
from Prior Year
|
||||||||||||
Three
months ended September 30,
|
499,352 | 733,842 | (234,490 | ) | -32.0 | % | ||||||||||
Nine
months ended September 30,
|
1,458,016 | 1,705,395 | (247,379 | ) | -14.5 | % |
General and administrative expenses
decreased in the three and nine months ended September 30, 2009 as compared to
the three and nine months ended September 30, 2008 due primarily to our cost
containment initiatives and non-recurring merger related charges incurred in the
three months ended September 30, 2008.
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.
11
Interest
Expense
Change from
|
Percent Change
|
|||||||||||||||
Interest expense
|
2009
|
2008
|
Prior Year
|
from Prior Year
|
||||||||||||
Three
months ended September 30,
|
- | (2,641 | ) | 2,641 | -100.0 | % | ||||||||||
Nine
months ended September 30,
|
(4,500 | ) | (176,874 | ) | 172,374 | -97.5 | % |
Interest expense represents interest
incurred on our convertible notes, notes payable and our line of
credit. 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. The remaining $600,000 outstanding debt was paid in full
as of December 31, 2008. As the Company’s outstanding debt has
decreased substantially in the three and nine months ended September 30, 2009,
we incurred substantially less interest expense during the three and nine months
ended September 30, 2009.
Advertising Revenue and
Other
Change from
|
Percent Change
|
|||||||||||||||
Advertising revenue and other
|
2009
|
2008
|
Prior Year
|
from Prior Year
|
||||||||||||
Three
months ended September 30,
|
60,678 | 85,941 | (25,263 | ) | -29.4 | % | ||||||||||
Nine
months ended September 30,
|
203,568 | 182,474 | 21,094 | 11.6 | % |
Advertising revenue and other revenue
increased during the nine months ended September 30, 2009 as compared to the
nine months ended September 30, 2008 due to increased interest revenue from
short-term investments and increased sales of banner and other website
advertising on the Company’s site. We noted a decrease during the
three months ended September 30, 2009 as compared to the three months ended
September 30, 2008 as a result of a decline in the number of advertisers on our
site.
Net Income
(Loss)
Change from
|
Percent Change
|
|||||||||||||||
Net income (loss)
|
2009
|
2008
|
Prior Year
|
from Prior Year
|
||||||||||||
Three
months ended September 30,
|
12,461 | (253,807 | ) | 266,268 | 104.9 | % | ||||||||||
Nine
months ended September 30,
|
(139,233 | ) | 115,050 | (254,283 | ) | 221.0 | % |
The Company recognized a net loss
during the nine months ended September 30, 2009 as compared to net income for
the nine months ended September 30, 2008 due a one-time gain recognized in 2008
related to the Company’s debt conversion in June 2008. We recognized
net income during the three months ended September 30, 2009 as compared to a net
loss during the three months ended September 30, 2008 as a result of improved
operating efficiencies, improved margins and fewer merger related
costs.
Liquidity
and Capital Resources
Our operating cash outflows were
$578,620 for the nine months ended September 30, 2009, as compared to $803,259
for the nine months ended September 30, 2008, constituting an decrease of cash
used in operation of $224,639. This is primarily due to increased
operating efficiencies and improved margins in the current period.
Investing cash inflows for the
nine months ended September 30, 2009 consisted of $988,933 of cash from the sale
of short-term investments, partially offset by $106,189 of investments in
additional equipment to support our business operations. We
acquired cash of $3,133,692 in the reverse merger in June 2008 and had
investments of $76,674 in additional equipment in the nine months ended
September 30, 2008.
Financing
cash outflows were $65,212 for the nine months ended September 30, 2009 due to
the repurchase of shares from certain debtholders. We had financing
inflows of $122,500 for the nine months ended September 30, 2008 primarily due
to debt and equity issuances.
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.
12
The
Company intends to generate operating cash flows through the growth of its
existing business, the improvement of operating margins and by growth through
acqusitions. Although there can be no assurance, management believes
such measures will provide it with enough liquidity to operate its current
business and continue as a going concern in the short term.
Off-balance
sheet arrangements
We did
not have any off-balance sheet arrangements at September 30, 2009.
Recent
Accounting Pronouncements
Readers
are directed to Part I, Item I, Note 7 for a detailed discussion of the Recently
Adopted Accounting Pronouncements
that may be necessary for an understanding of the financial statements as a
whole.
Item
3. Quantitative and Qualitative Disclosure About Market Risk
Not
applicable
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:
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·
|
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.
|
We began
remediation efforts in 2009 to address deficiencies in our disclosure controls
and procedures. We expect most deficiencies to be corrected during
2009.
Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls over financial reporting 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.
13
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, 2009 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.
None.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
Pursuant
to the Merger, Insignia acquired all of the DDI Inc.’s Capital
Stock. In exchange for all of the DollarDays Capital Stock, Insignia
was required to: (1) issue 73,333,333 ADSs, evidenced by ADSs, to DollarDdays’
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.
For the
quarter ended March 31, 2009, Insignia issued 50,292,965 ADSs to DollarDays’
Stockholders which entitled DollarDays’ Stockholders to 50,292,965 ordinary
shares of the Company. Such ordinary shares were deposited with the
Bank of New York Mellon on March 17, 2009 and were issued to DollarDays’
Stockholders on April 23, 2009. The ADSs were issued pursuant to an
exemption from registration requirements of the Securities Act of 1933, as
amended, pursuant to Section 4(2).
On
February 25, 2009, the Company’s Board of Directors approved the grant of an
aggregate of 14,756,360 shares of restricted stock to certain officers and
directors of the Company as consideration for past and future services performed
on behalf of the Company. Such 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;
and
|
|
·
|
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.
|
14
During
July 2009, Insignia issued 18,743,731 ADSs to DollarDays’ Stockholders
DollarDays’ Stockholders to 18,743,731 ordinary shares of the
Company. The ADSs were issued pursuant to an exemption from
registration requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2).
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
|
||
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
|
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)
|
15