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As filed with the Securities and Exchange Commission on
October 13, 2005
Registration No. 333-128346
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INSIGNIA SOLUTIONS PLC
(Exact Name of Registrant as Specified in Its Charter)
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England and Wales |
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7372 |
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Not Applicable |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification Number) |
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41300 Christy Street
Fremont, California 94538
United States of America
(510) 360-3700 |
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The Mercury Centre, Wycombe Lane
Wooburn Green
High Wycombe, Bucks HP10 0HH; United Kingdom
(44) 1628-539500 |
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant’s Principal Executive Offices)
Mark E. McMillan, Chief Executive Officer,
Insignia Solutions plc
41300 Christy Street, Fremont, California 94538,
(510) 360-3700
(Name, Address Including Zip Code, and Telephone Number;
Including Area Code, of Agent for Service)
Copies to:
Laird H. Simons III
David K. Michaels
Fenwick & West LLP
801 California Street, Mountain View, CA 94041;
(650) 988-8500
Approximate date of commencement of proposed sale to the
public: From time to time after the effective date of this
Registration Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. þ
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following
box. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Amount of |
Title of Each Class of |
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Amount to be |
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Offering |
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Aggregate |
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Registration |
Securities to be Registered |
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Registered(1) |
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Price per Unit(2) |
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Offering Price(2) |
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Fee |
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Ordinary Shares, 20 pence nominal value per share, represented
by American depository shares(1)
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40,028,530 |
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$0.43 |
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$17,212,268 |
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$2,026(3) |
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(1) |
A separate Registration Statement on Form F-6 is effective
with respect to the American depository shares represented by
American depository receipts issuable on a one-for-one basis
with the ordinary shares being registered hereby upon deposit of
such ordinary shares. |
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(2) |
Estimated solely for the purpose of calculating the amount of
the registration fee, pursuant to Rule 457(c) under the
Securities Act, based on the average of the high and low prices
of the ADSs on the Nasdaq SmallCap Market on October 11,
2005. |
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(3) |
Pursuant to Rule 457(p) under the Securities Act, the
registration fee of $2,026 is being offset by $409, representing
the dollar amount of the registration fee previously paid by the
Registrant under Registration Statement on Form S-3 (File
No. 333-121299) initially filed with the Securities and Exchange
Commission on December 15, 2004 with respect to 4,215,223
of the shares registered hereby. Accordingly, the adjusted
registration fee for this filing is $1,617. Of such amount,
$1,413 was paid by the Registrant in connection with the filing
of the original Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on September 15, 2005. |
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The information in
this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and we are
not soliciting offers to buy these securities in any state where
the offer or sale is not
permitted.
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SUBJECT TO COMPLETION, DATED
OCTOBER 13, 2005
PROSPECTUS
INSIGNIA SOLUTIONS PLC
40,028,530 AMERICAN DEPOSITORY SHARES
EACH REPRESENTING ONE ORDINARY SHARE OF
20 PENCE NOMINAL VALUE
This prospectus relates to the resale of the following American
Depositary Shares, (“ADSs”), representing ordinary
shares of Insignia Solutions plc:
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up to 16,000,000 ADSs that may from time to time be issued to
Fusion Capital Fund II, LLC (“Fusion Capital”)
under a securities subscription agreement dated
February 10, 2005 and 4,000,000 ADSs issuable pursuant
to warrants issued to Fusion Capital in connection with such
agreement; |
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3,220,801 ADSs issued to Fusion Capital in a private financing
in February 2005; |
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3,959,588 ADSs issued and issuable to the former shareholders of
Mi4e Device Management AB (“Mi4e”) in connection with
our acquisition of Mi4e in March 2005; |
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3,208,499 ADSs issued in a private financing in October 2004 and
1,006,724 ADSs issuable under warrants that we issued to the
investors and certain placement agents at the closing of a
private financing in October 2004, and an additional 192,522
ADSs issuable under warrants that we issued to these investors
in July 2005 as a penalty because a registration statement
relating to the shares issued in such private financing had not
yet become effective; and |
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up to 4,762,326 ADSs that are issuable on exchange of
Series A Preferred Stock issued on June 30, 2005 and
July 5, 2005 by our subsidiary Insignia Solutions Inc., and
an additional 3,678,070 ADSs issuable on exercise of warrants
issued to the investors and certain placement agents in such
private financing. |
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The investors to whom we issued the ADSs and warrants described
above are referred to in this prospectus as the selling
shareholders.
The shares are quoted on the Nasdaq SmallCap Market under the
symbol “INSG.” On October 12, the last reported
sale price as reported on the Nasdaq SmallCap Market was
$0.45 per share. We have applied to have the shares offered
pursuant to this prospectus approved for trading on the Nasdaq
SmallCap Market.
Investing in the shares involves certain risks. See
“Risk Factors” beginning on page 3 for a
discussion of these risks.
Fusion Capital is an “underwriter” within the meaning
of the Securities Act of 1933, as amended, with respect to the
ADSs that may from time to time be sold to it under the
securities subscription agreement dated February 10, 2005,
and the selling shareholders may be deemed to be
“underwriters” within the meaning of the Securities
Act of 1933, as amended, with respect to the other shares
included in this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this Prospectus
is ,
2005.
PROSPECTUS SUMMARY
You should read the following summary together with the more
detailed information regarding Insignia Solutions plc and
consolidated financial statements appearing elsewhere in this
prospectus.
This prospectus contains forward-looking statements. The
outcome of the events described in these forward-looking
statements is subject to risks and actual results could differ
materially. The sections entitled “Risk Factors,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and
“Business,” as well as those discussed elsewhere in
this prospectus, contain a discussion of some of the factors
that could contribute to those differences.
In this prospectus, “Insignia,” “Company,”
“we,” “us,” and “our” refer to
Insignia Solutions plc.
The Company
We commenced operations in 1986 and currently develop, market
and support software technologies that enable mobile operators
and phone manufacturers to better update, configure and manage
today’s more complex mobile phones using standard
over-the-air (“OTA”) data networks. Before 2003, our
principal product line was the
Jeodetm
platform, based on our Embedded Virtual Machine
(“EVM”tm)
technology. The Jeode platform was our implementation of Sun
Microsystems, Inc.’s (“Sun”) Java®
technology tailored for smart devices. During 2001, we began
development of a range of products (“Secure System
Provisioning” or “SSP” products) for the mobile
phone and wireless operator industry. The SSP products build on
our position as a Virtual Machine (“VM”) supplier for
manufacturers of mobile devices and allow wireless operators and
phone manufacturers to reduce customer care and software recall
costs, as well as increase subscriber revenue by deploying new
mobile services based on dynamically provisioning of new
capabilities. With the sale of our Jeode product line in April
2003, our sole product line then consisted of our SSP products.
We shipped our first SSP product in December 2003. In March
2005, we acquired Mi4e Device Management AB (“Mi4e”),
a private company headquartered in Stockholm, Sweden. Mi4e was
founded in 2003 and had $646,000 of revenues in 2004.
Mi4e’s main product, a Device Management Server
(“DMS”) is a mobile device management infrastructure
solution for mobile operators that supports the Open Mobile
Alliance (“OMA”) client provisioning specification.
DMS was first deployed at Telstra in Australia in 2000 and has
since been deployed at more than ten carriers around the world.
By integrating the Mi4e products with existing Insignia
applications, we are able to deliver a more comprehensive
solution to mobile network operators and handset manufacturers.
Insignia Solutions plc was incorporated under the laws of
England and Wales on November 20, 1985 under the name
Diplema Ninety Three Limited, changed its name to Insignia
Solutions Limited on March 5, 1986 and commenced operations
on March 17, 1986. On March 24, 1995, the Company was
re-registered as a public limited company under the name
Insignia Solutions plc. Our principal executive offices in the
United States are located at 41300 Christy Street, Fremont,
California 94538. Our telephone number at that location is
(510) 360-3700. Our registered office in the United Kingdom
is located at The Mercury Centre, Wycombe Lane, Wooburn Green,
High Wycombe, Bucks HP10 0HH. Our telephone number at that
location is (44) 1628-539500.
The Offering
On February 10, 2005, we entered into a securities
subscription agreement (the “2005 Fusion Capital securities
subscription agreement”) with Fusion Capital Fund II,
LLC, an Illinois limited liability company (“Fusion”
or “Fusion Capital”) pursuant to which Fusion Capital
has agreed to purchase, on each trading day after the
commencement of funding, under the 2005 Fusion Capital
securities subscription agreement, $20,000 of our American
Depository Shares (“ADSs”), for an aggregate of up to
$12.0 million. The $12.0 million in ADSs are to be
subscribed for over a 30-month period, subject to earlier
termination at our discretion. The subscription price of the
ADSs will be based on a market-based formula at the time of
purchase. However, Fusion shall not have the right nor the
obligation to subscribe for any ADSs under the agreement on any
trading day where the subscription price per share for any
subscriptions of the ADSs would be less than $0.40 (subject to
adjustment for stock splits, dividends and the like). We have
authorized the sale
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and issuance of up to $12.0 million of our shares to Fusion
Capital under the 2005 Fusion Capital securities subscription
agreement, of which we are registering 20,000,000 shares
(including 4,000,000 shares for issuance on exercise of
warrants issued to Fusion as a commitment fee) under this
prospectus. The commencement of funding under the 2005 Fusion
Capital securities subscription agreement is subject to certain
conditions, including the declaration of effectiveness by the
Securities and Exchange Commission of the registration statement
covering the ADSs of which this prospectus forms a part.
In addition to the 16,000,000 ADSs that may be sold under
the 2005 Fusion Capital subscription agreement with Fusion
Capital and 4,000,000 ADSs that may be sold to Fusion
Capital upon exercise of related warrants, selling stockholders
may sell up to a further 20,028,530 ADSs under this prospectus.
These ADSs consist of the following:
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3,959,588 ADSs issued and issuable to the former shareholders of
Mi4e in connection with our acquisition of Mi4e in
March 2005, including up to 989,896 ADSs that are issuable
on March 31, 2006; |
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3,208,499 ADSs issued in a private financing on October 18,
2004, an additional 1,006,724 ADSs issuable under warrants that
we issued to the investors and certain placement agents at the
closing of such private financing, and an additional 192,522
ADSs issuable under warrants that we issued to the investors in
July 2005 as a penalty because a registration statement relating
to the shares issued in such private financing had not yet
become effective; |
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3,220,801 ADSs that we sold to Fusion Capital on
February 9, 2005; and |
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Up to 4,762,326 ADSs that are issuable on exchange of
Series A Preferred Stock issued to Fusion Capital and other
investors by our subsidiary, Insignia Solutions Inc., on
June 30, 2005 and July 5, 2005, and an additional
3,678,070 ADSs issuable on exercise of warrants issued to the
investors and certain placement agents in such financing. |
The selling shareholders may sell the ADSs from time to time on
the Nasdaq SmallCap Market, or otherwise, at prices and at terms
then prevailing or at prices related to the then current market
price or in private sales at negotiated prices directly or
through a broker or brokers, who may act as agent or principal
or by a combination of such methods of sale. For additional
information on the method of sale, you should refer to the
section entitled “Plan of Distribution.”
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RISK FACTORS
You should carefully consider the risks and uncertainties
described below and the other information in this prospectus
before deciding whether to invest in shares of our common stock.
If any of the following risks actually occur, our business,
financial condition or operating results could be materially
adversely affected. This could cause the trading price of our
common stock to decline, and you may lose part or all of your
investment.
This prospectus also contains certain forward-looking
statements that involve risks and uncertainties. These
statements refer to our future plans, objectives, expectations
and intentions. These statements may be identified by the use of
words such as “expects,” “anticipates,”
“intends,” “plans” and similar expressions.
Our actual results could differ materially from those discussed
in these statements. Factors that could contribute to these
differences include those discussed below and elsewhere in this
prospectus.
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We may need additional financing to sustain our
operations, and we may not be able to continue to operate as a
going concern. |
In the six months ended June 30, 2005 we incurred a net
loss of $3.5 million and had net cash used in operations of
$2.4 million. We had cash, cash equivalents, and restricted
cash of $0.9 million at June 30, 2005. In addition, we
had recurring net losses of $7.1 million,
$4.3 million, and $8.4 million for the years ended
December 31, 2004, 2003, and 2002, respectively, and we
also had net cash used in operations of $7.6 million,
$4.2 million, and $8.4 million for the years ended
December 31, 2004, 2003, and 2002, respectively. These
conditions raise substantial doubt about our ability to continue
as a going concern.
Based upon our current forecasts and estimates, including
sufficient funding from the 2005 Fusion Capital securities
subscription agreement and the achievement of our target
revenues, cost-cutting and accounts receivable collection goals,
our current forecasted cash and cash equivalents should be
sufficient to meet our operating and capital requirements
through June 30, 2006. If cash currently available from all
sources is insufficient to satisfy our liquidity requirements,
we may seek additional sources of financing including selling
additional equity or debt securities. If additional funds are
raised through the issuance of equity or convertible debt
securities, the percentage ownership of our shareholders would
be reduced, and our shareholders could experience substantial
dilution. In addition, any equity or debt securities could have
rights, preferences and privileges senior to holders of our
shares, and the terms of such securities could impose
restrictions on our operations. The sale of additional equity or
debt securities could result in additional dilution to our
shareholders. We may not be able to obtain additional financing
on acceptable terms, if at all. If we are unable to obtain
additional financing as and when needed and on acceptable terms
our business may be jeopardized.
On February 10, 2005, Insignia entered into the 2005 Fusion
Capital securities subscription agreement with Fusion Capital to
sell ADSs, representing ordinary shares having an aggregate
purchase price of up to $12.0 million, to Fusion Capital
over a period of 30 months. The shares will be priced based
on a market-based formula at the time of purchase. The
commencement of funding under the 2005 Fusion Capital securities
subscription agreement is subject to the declaration of
effectiveness by the Securities and Exchange Commission of a
registration statement covering the ADSs to be purchased by
Fusion Capital under the 2005 Fusion Capital securities
subscription agreement. Any delay in the commencement of funding
under the 2005 Fusion Capital securities subscription agreement
could jeopardize Insignia’s business.
We only have the right to receive $20,000 per trading day
under the agreement with Fusion Capital unless our stock price
equals or exceeds $1.00, in which case the daily amount may be
increased under certain conditions as the price of our common
stock increases. Fusion Capital shall not have the right nor be
obligated to purchase any shares of our common stock on any
trading days that the market price of our common stock is less
than $0.40. Under the laws of England and Wales, we are not
permitted to sell our ADSs at a purchase price that is less than
the nominal value of our ordinary shares. Currently, the nominal
value per ordinary share is 20 pence. At our general
meeting of shareholders held on September 30, 2005, our
shareholders approved a reduction of the nominal value of our
ordinary shares from 20 pence per share to 1 pence per share.
Such reduction will become effective once the order of the
English High Court confirming it is registered with
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the U.K. Registrar of Companies, which we expect to be completed
by the end of January 2006. In addition, Insignia will not
effect any issuance of ordinary shares (or have its transfer
agent or depository issue any ADSs) on any trading day where the
purchase price for any subscriptions would be less than the
U.S. dollar equivalent of 102.5% of the then nominal value
of the ordinary shares.
We have a total of 75,000,000 ordinary shares authorized for
issuance, of which 42,503,025 shares were outstanding as of
September 30, 2005, 14,713,294 shares were reserved for
issuance upon the exercise of outstanding warrants and options
and 4,762,326 shares were reserved for issuance upon exchange of
Series A Preferred Stock of our subsidiary Insignia
Solutions Inc. in connection with the June 30 and July 5,
2005 Securities Subscription Agreements. At our general meeting
of shareholders held on September 30, 2005, our
shareholders approved an increase of 35,000,000 ordinary shares
to our authorized share capital. This increase in our authorized
share capital is conditional upon the reduction of the nominal
value of our ordinary shares to 1 pence per share becoming
effective, which we expect to take place by the end of January
2006. Accordingly, we currently have a total of 13,021,355
shares available and authorized for issuance in connection with
future financing and strategic transactions.
If we sell 16,000,000 shares to Fusion Capital under the
2005 Fusion Capital securities subscription agreement that are
offered pursuant to this prospectus, the selling price of our
ADSs will have to average at least $0.75 per share for us
to receive the maximum proceeds of $12,000,000.
Assuming an average purchase price of $0.41 per share (the
closing sale price of our ADSs on September 30, 2005) and
the purchase by Fusion Capital of 16,000,000 shares under
the 2005 Fusion Capital securities subscription agreement that
are offered pursuant to this prospectus, proceeds to us would be
$6,560,000, plus up to approximately $1,540,000 from the
exercise of warrants. In addition, even if we are able to access
the full $12,000,000 under the 2005 Fusion Capital securities
subscription agreement with Fusion Capital, we may still need
additional capital to implement our business, operating and
development plans. Should the financing we require to sustain
our working capital needs be unavailable or prohibitively
expensive when we require it, our business could be jeopardized.
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Our stock could be delisted from Nasdaq. |
The Company has received a Nasdaq Staff Determination indicating
that the Company was not, at December 31, 2004, in
compliance with the stockholders’ equity requirement for
continued listing set forth in MarketPlace
Rule 4310(c)(2)(B) and that its securities were, therefore,
subject to delisting from the Nasdaq SmallCap Market. The
Company had a hearing scheduled before a Nasdaq Listing
Qualifications Panel to review the Staff Determination, which
was subsequently cancelled because as of March 31, 2005 the
Company’s shareholders’ equity exceeded $2,500,000.
There is no assurance the that the Company will be able to
continue to maintain stockholders’ equity of at least
$2,500,000 as required for continued listing on the Nasdaq
SmallCap Market.
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The sale of our shares to Fusion Capital will cause
dilution, and the sale of shares by Fusion Capital and others
could cause the price of our shares to decline. |
The number of shares to be issued to Fusion Capital pursuant to
the 2005 Fusion Capital securities subscription agreement with
Fusion Capital will fluctuate based on the price of our shares.
Shares sold to Fusion Capital under the 2005 Fusion Capital
securities subscription agreement will be freely tradable.
Fusion Capital may sell none, some or all of the shares
purchased from us at any time. We expect that the shares to be
sold to Fusion Capital will be sold over a period of up to
30 months from the effective date of the registration
statement filed in connection with the transaction.
In addition, we are registering via this prospectus for resale
the shares issued and issuable in connection with our October
2004 and our 2005 private placement transactions and the Mi4e
acquisition. Depending upon market liquidity at the time, a sale
of such shares at any given time could cause the trading price
of our shares to decline. The sale of a substantial number of
shares, or anticipation of such sales, could make it more
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difficult for us to sell equity or equity-related securities in
the future at a time and at a price that we might otherwise wish
to effect sales.
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We have achieved minimal sales of our products to
date. |
Our future performance depends upon sales of our SSP, DMS and
Open Management Client (“OMC”) products. We began
shipping the SSP product in December 2003 and the OMC product
line in October 2004. We have achieved only minimal sales to
date, including revenues of only $450,000 relating to sales of
the SSP product in 2004. The DMS product line was acquired as
part of Mi4e in March 2005 and we thus have limited experience
in selling this product. If we are unable to gain the necessary
customer acceptance of our products, our business may be
jeopardized.
Our SSP, DMS and OMC products represent the
“next-generation” products that enable carriers to
repair and update mobile phones “over-the-air” without
having their customers send back their handsets to the carrier
for repair or update. To the extent that carriers continue to
use the current generation of “over-the-air” products,
such as those offered by Bitfone, InnoPath, Openwave and
mFormation, to make repairs and updates and do not believe that
the next generation products, such as our SSP product, offer a
sufficiently important improvement at a reasonable cost, then we
may not achieve our targeted sales and our business could fail.
Conversely our newly acquired DMS product represents the current
generation of technology in the market place.
In addition, some prospective customers have been reticent to
buy our products because of our current financial position. To
the extent that prospective customers believe that we are
under-capitalized, they may be hesitant to buy our products.
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The long and complex process of licensing our products
makes our revenue unpredictable. |
Our revenue is dependent upon our ability to license our
products to third parties. Licensing our products has to date
been a long and complex process, typically being a six to nine
months sales cycle. Before committing to license our products,
potential customers must generally consider a wide range of
issues including product benefits, infrastructure requirements,
functionality, reliability and our ability to work with existing
systems. The process of entering into a development license with
a company typically involves lengthy negotiations. Because of
the sales cycle, it is difficult for us to predict when, or if,
a particular prospect might sign a license agreement. License
fees may be delayed or reduced because of this process.
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We rely on third parties for software development tools,
which we distribute with some of our products. |
We license software development tool products from other
companies to distribute with some of our products. These third
parties may not be able to provide competitive products with
adequate features and high quality on a timely basis or to
provide sales and marketing cooperation. Furthermore, our
products compete with products produced by some of our
licensors. When these licenses terminate or expire, continued
license rights might not be available to us on reasonable terms,
or at all. We might not be able to obtain similar products to
substitute into our tool suites.
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If handset manufacturers (and other third parties) do not
achieve substantial sales of their products that incorporate our
technology, we will not receive royalty payments on our
licenses. |
Our success depends upon the use of our technology by our
licensees in their smart devices. Our licensees undertake a
lengthy process of developing systems that use our technology.
Until a licensee has sales of its systems incorporating our
technology, they are not obligated to pay us royalties. We
expect that the period of time between entering into a
development license and actually recognizing commercial use
royalties will be lengthy and difficult to predict.
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We have a history of losses and we must generate
significantly greater revenue if we are to achieve
profitability. |
We have experienced operating losses in each quarter since the
second quarter of 1996. To achieve profitability, we will have
to increase our revenue significantly. Our ability to increase
revenue depends upon the success of our products, and to date we
have received only minimal revenue. If we are unable to create
revenue in the form of development license fees, maintenance and
support fees, commercial use royalties and nonrecurring
engineering services, our current revenue will be insufficient
to sustain our business.
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We need to increase our sales and marketing expenditures
in order to achieve sales of our products; however, this
increase in expenses is expected to decrease our cash
position. |
In the six months ended June 30, 2005, we spent 111% of our
total revenues on sales and marketing. We expect to continue to
incur disproportionately high sales and marketing expenses in
the future. To market our products effectively, we must develop
client and server channel markets. We will continue to incur the
expenses for a sales and marketing infrastructure before we
recognize significant revenue from sales of the product. Because
customers in the smart device market tend to remain with the
same vendor over time, we believe that we must devote
significant resources to each potential sale. If potential
customers do not design our products into their systems, the
resources we have devoted to the sales prospect would be lost.
If we fail to achieve and sustain significant increases in our
quarterly sales, we may not be able to continue to increase our
investment in these areas. With increased expenses, we must
significantly increase our revenue if we are to become
profitable.
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If we are unable to stay abreast of technological changes,
evolving industry standards and rapidly changing customer
requirements, our business reputation will likely suffer and
revenue may decline. |
The market for mobile devices is fragmented and characterized by
technological change, evolving industry standards and rapid
changes in customer requirements. Our products will need to be
continually improved to meet emerging market conditions, such as
new interoperability standards, new methods of wireless
notifications, new flash silicon technologies and new telecom
infrastructure elements. Our existing products will become less
competitive or obsolete if we fail to introduce new products or
product enhancements that anticipate the features and
functionality that customers demand. The success of our new
product introductions will depend on our ability to:
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• |
accurately anticipate industry trends and changes in technology
standards; |
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• |
complete and introduce new product designs and features in a
timely manner; |
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• |
continue to enhance our existing product lines; and |
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• |
respond promptly to customers’ requirements and preferences. |
Development delays are commonplace in the software industry. We
have experienced delays in the development of new products and
the enhancement of existing products in the past and are likely
to experience delays in the future. We may not be successful in
developing and marketing, on a timely basis or at all,
competitive products, product enhancements and new products that
respond to technological change, changes in customer
requirements and emerging industry standards.
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Our targeted market is highly competitive. |
Our products are targeted for the mobile operator and mobile
device market. The market for these products is fragmented and
highly competitive. This market is also rapidly changing, and
there are many companies creating products that compete or will
compete with ours. As the industry develops, we expect
competition to increase in the future. This competition may come
from existing competitors or other companies that we do not yet
know about. Our main competitors include Bitfone, IBM, InnoPath,
4thPass, mFormation, Openwave and Red Bend.
6
If these competitors develop products that are less expensive or
provide better capabilities or functionality than do our
products, we will be unable to gain market share. Many of our
current competitors and potential competitors have greater
resources, including larger customer bases and greater financial
resources than we do, and we might not be able to compete
successfully against these companies. A variety of other
potential actions by our competitors, including increased
promotion and accelerated introduction of new or enhanced
products, could also harm our competitive position.
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Our revenue model may not succeed. |
Competition could force us to reduce the prices of our products,
which would result in reduced gross margins and could harm our
ability to provide adequate service to our customers and our
business. Our pricing model for our software products is a
combination of (1) initial license fees, (2) activated
subscriber fees, (3) support and maintenance fees,
(4) hosting services and (5) engineering service fees,
any of which may be subject to significant pricing pressures.
Also, the market may demand alternative pricing models in the
future, which could decrease our revenues and gross margins.
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Fluctuations in our quarterly results could cause the
market price of our shares to decline. |
Our quarterly operating results can vary significantly depending
on a number of factors. These factors include:
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the volume and timing of orders received during the quarter; |
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• |
the mix of and changes in customers to whom our products are
sold; |
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• |
the mix of product and service revenue received during the
quarter; |
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• |
the mix of development license fees and commercial use royalties
received; |
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• |
the timing and acceptance of new products and product
enhancements by us or by our competitors; |
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• |
changes in product pricing; |
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• |
foreign currency exchange rate fluctuations; and |
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• |
ability to recognize revenue on orders received. |
All of these factors are difficult to forecast. Our future
operating results may fluctuate due to these and other factors,
including our ability to continue to develop innovative and
competitive products. Due to all of these factors, we believe
that period-to-period comparisons of our results of operations
are not necessarily meaningful and should not be viewed as an
indication of our future performance.
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We have engineering and other operations both in the
United States and foreign countries, which is expensive and can
create logistical challenges. |
We currently have 14 employees in the United States, 8 employees
in the United Kingdom and 15 employees in Sweden. In the
past, the geographic distance between our engineering personnel
in the United Kingdom and our principal offices in
California and primary markets in Asia, Europe and the
United States has led to logistical and communication
difficulties. In the future, we may experience similar
difficulties, which may have an adverse impact on our business.
Further, because a substantial portion of our research and
development operations is located in the United Kingdom and
Sweden, our operations and expenses are directly affected by
economic and political conditions in the United Kingdom and
Sweden.
Economic conditions in Europe and fluctuations in the value of
the U.S. dollar against the Euro, Swedish Krona and
British pound sterling could impair our revenue and results of
operations. International operations are subject to a number of
other special risks. These risks include foreign government
regulation, reduced protection of intellectual property rights
in some countries where we do business, longer receivable
collection periods and greater difficulty in accounts receivable
collection, unexpected changes in, or imposition of, regulatory
requirements, tariffs, import and export restrictions and other
barriers and restrictions,
7
potentially adverse tax consequences, the burdens of complying
with a variety of foreign laws and staffing and managing foreign
operations, general geopolitical risks, such as political and
economic instability, hostilities with neighboring countries and
changes in diplomatic and trade relationships, and possible
recessionary environments in economies outside the United States.
In March 2005, we acquired Mi4e, a company headquartered in
Sweden. We now have 15 employees and an office in Sweden. It
takes substantial management time and financial resources to
integrate operations in connection with an acquisition, and the
potential logistical, personnel and customer challenges are
exacerbated when, as in this case, the acquirer and target
company are separated by great geographic distance.
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International sales of our products, which we expect to
comprise a significant portion of total revenue, expose us to
the business and economic risks of international
operations. |
Sales from outside of the United States accounted for
approximately 81% and 72% of our total revenue for the six
months ended June 30, 2005 and year ended December 31,
2004, respectively. We expect to market SSP, DMS and OMC to
mobile operators and handset manufacturers in Europe. Economic
conditions in Europe and fluctuations in the value of the Euro,
British pounds sterling and Swedish Krona against the
U.S. dollar could impair our revenue and results of
operations. International operations are subject to a number of
other risks. These risks include:
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|
• |
longer receivable collection periods and greater difficulty in
accounts receivable collection; |
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• |
foreign government regulation; |
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• |
reduced protection of intellectual property rights in some
countries where we do business; |
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|
• |
unexpected changes in, or imposition of, regulatory
requirements, tariffs, import and export restrictions and other
barriers and restrictions; |
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|
• |
potentially adverse tax consequences; |
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|
• |
the burdens of complying with a variety of foreign laws and
staffing and managing foreign operations; |
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|
• |
general geopolitical risks, such as political and economic
instability, terrorism, hostilities with neighboring countries
and changes in diplomatic and trade relationships; and |
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• |
possible recessionary environments in economies outside the
United States. |
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|
Our technology depends on the adoption of standards such
as those set forth by the Open Mobile Alliance
(“OMA”). If such standards are not effectively
established our business could suffer. Use of open industry
standards, however, may also make us more vulnerable to
competition. |
We promote open standards in our technology in order to support
open competition and interoperability. We do not exercise
control over the development of open standards. Our products are
integrated with communication service providers’ systems
and mobile phones. If we are unable to continue to successfully
integrate our platform products with these third-party
technologies, our business could suffer. In addition, large
wireless operators sometimes create detailed service
specifications and requirements, such as Vodafone Live or DoCoMo
iMode, and such operators are not required to share those
specifications with us. Failure or delay in the creation of
open, global specifications could have a negative impact on our
sales and operating results.
The widespread adoption of open industry standards, however, may
make it easier for new market entrants and existing competitors
to introduce products that compete with our software products.
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Product defects can be expensive to fix and may cause us
to lose customers. |
The software we develop is complex and must meet the stringent
technical requirements of our customers. We must develop our
products quickly to keep pace with the rapidly changing Internet
software and telecommunications markets. Software products and
services as complex as ours are likely to contain
8
undetected errors or defects. Software errors are particularly
common when a product is first introduced or a new version is
released. Despite thorough testing, our products might be
shipped with errors. If this were to happen, customers could
reject our products, or there might be costly delays in
correcting the problems, and we could face damage to our
reputation. Our products are increasingly used in systems that
interact directly with the general public, such as in
transportation and medical systems. In these public-facing
systems, the failure of our product could cause substantial
property damage or personal injury, which could expose us to
product liability claims. Our products are used for applications
in business systems where the failure of our product could be
linked to substantial economic loss. Our agreements with our
customers typically contain provisions designed to limit our
exposure to potential product liability and other claims. It is
likely, however, that these provisions are not effective in all
circumstances and in all jurisdictions. We may not have adequate
insurance against product liability risks, and renewal of our
insurance may not be available to us on commercially reasonable
terms. Further, our errors and omissions insurance may not be
adequate to cover claims. If we ever had to recall our product
due to errors or other problems, it would cost us a great deal
of time, effort and expense.
Our operations depend on our ability to protect our computer
equipment and the information stored in our databases against
damage by fire, natural disaster, power loss, telecommunications
failure, unauthorized intrusion and other catastrophic events.
The measures we have taken to reduce the risk of interruption in
our operations may not be sufficient. To date, we have not
experienced any major interruptions in our operations because of
a catastrophic event.
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If we lose key personnel or are unable to hire additional
qualified personnel as necessary, we may not be able to
successfully manage our business or sell our products. |
Our future performance depends to a significant degree upon the
continued contributions of our key management, product
development, sales, marketing and operations personnel. We do
not have agreements with any of our key personnel that obligates
them to work for us for a specific term, and we do not maintain
any key person life insurance policies. We currently intend to
hire additional salespeople and believe our future success will
depend in large part upon our ability to attract and retain
highly skilled managerial, engineering, sales, marketing and
operations personnel, many of whom are in great demand.
Competition for qualified personnel can be intense in the
San Francisco Bay Area, where our U.S. operations are
headquartered.
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|
Our performance depends significantly on our ability to
protect our intellectual property and proprietary rights in the
technologies used in our products. If we are not adequately
protected, our competitors could use the technologies that we
have developed to enhance their products and services, which
could harm our business. |
We rely on a combination of patent, copyright, trademark, trade
secret laws, confidentiality provisions and other contractual
provisions to protect our intellectual property and proprietary
rights, but these legal means afford only limited protection.
Despite the measures we take to protect our intellectual
property rights, unauthorized parties may attempt to copy
aspects of our products or to obtain and use information which
we regard as proprietary. In addition, the laws of some
countries may not protect our intellectual property and
proprietary rights as fully as do the laws of the United States.
Thus, the measures we take to protect our intellectual property
and proprietary rights in the United States and abroad may not
be adequate. In addition, our competitors may independently
develop similar technologies.
The market for wireless communications and the delivery of
Internet-based services are characterized by the existence of a
large number of patents and frequent litigation based on
allegations of patent infringement. As the number of entrants
into our market increases, the possibility of infringement
claims against us grows. In addition, because patents can take
many years to issue, there may be one or more patent
applications now pending of which we are unaware, and which we
may be accused of infringing when patent(s) issue from the
application(s) in the future. To address any patent infringement
claims, we may need to enter into royalty or licensing
agreements on disadvantageous commercial terms. We may also have
to incur significant legal expenses to ascertain the risk of
infringing a patent and the likelihood of that patent being
valid. A successful claim of patent infringement against us, and
our failure to license the infringing or similar technology,
could
9
harm our business. In addition, any infringement claims, with or
without merit, would be time consuming and expensive to litigate
or settle and could divert management attention from
administering our core business.
As a member of several groups involved in setting standards for
the industry, we have agreed to license our intellectual
property to other members of those groups on fair and reasonable
terms to the extent that the intellectual property is essential
to implementing the specifications promulgated by those groups.
Each of the other members of the groups has agreed to similar
provisions.
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|
|
Our products may infringe the intellectual property rights
of third parties, which may result in lawsuits and prevent us
from selling our products. |
As the number of patents, copyrights, trademarks and other
intellectual property rights in our industry increases, products
based on our technology may increasingly become the subject of
infringement claims. Third parties could assert infringement
claims against us in the future. For example, other companies
have asked us to evaluate the need for a license of patents they
hold, and we cannot assure you that patent infringement claims
will not be filed against us in the future. Infringement claims,
with or without merit, could be time consuming, result in costly
litigation, cause product shipment delays or require us to enter
into royalty or licensing agreements. Royalty or licensing
agreements, if required, might not be available on terms
acceptable to us. We may initiate claims or litigation against
third parties for infringement of our proprietary rights or to
establish the validity of our proprietary rights. Litigation to
determine the validity of any claims, whether or not the
litigation is resolved in our favor, could result in significant
expense to us and divert the efforts of our technical and
management personnel from productive tasks. If there is an
adverse ruling against us in any litigation, we may be required
to pay substantial damages, discontinue the use and sale of
infringing products, expend significant resources to develop
non-infringing technology or obtain licenses to infringing
technology. Our failure to develop or license a substitute
technology could prevent us from selling our products.
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|
|
We are at risk of securities litigation which, regardless
of the outcome, could result in substantial costs and divert
management attention and resources. |
Stock market volatility has had a substantial effect on the
market prices of securities issued by us and other high
technology companies, often for reasons unrelated to the
operating performance of the specific companies. Following
periods of volatility in the market price of a company’s
securities, securities class action litigation has often been
instituted against high technology companies. We have in the
past been, and may in the future be, the target of similar
litigation. Regardless of the outcome, securities litigation may
result in substantial costs and divert management attention and
resources.
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|
If we are unable to favorably assess the effectiveness of
our internal control over financial reporting, or if our
independent registered public accounting firm is unable to
provide an unqualified attestation report on our assessment our
stock price could be adversely affected. |
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
and beginning with our Annual Report on Form 10-K for the
year ending December 31, 2006, our management will be
required to report on, and our independent registered public
accounting firm to attest to, the effectiveness of our internal
control over financial reporting. The rules governing the
standards that must be met for management to assess our internal
controls over financial reporting are new and complex, and
require significant documentation, testing and possible
remediation. The process of reviewing, documenting and testing
our internal control over financial reporting, will result in
substantial increased expenses and the devotion of significant
management and other internal resources.
We may encounter problems or delays in completing the assessment
and the implementation of any changes necessary to make a
favorable assessment of our internal control over financial
reporting, including having the necessary financial resources to
conduct the assessment and implementation. If we cannot
favorably assess the effectiveness of our internal control over
financial reporting, or if our independent
10
registered public accounting firm is unable to provide an
unqualified attestation report on our assessment, investor
confidence and our stock price could be adversely affected.
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|
Our investors may have difficulty enforcing judgments
against us in U.S. courts because many of our assets and
some of our directors and management are located in England and
Sweden. |
Insignia is incorporated under the laws of England and Wales.
Two of our directors reside in England. All or a substantial
portion of the assets of these persons, and a portion of our
assets, are located outside of the United States. It may not be
possible for investors to serve a complaint within the United
States upon these persons or to enforce against them or against
us, in U.S. courts, judgments obtained in U.S. courts
based upon the civil liability provisions of
U.S. securities laws. There is doubt about the
enforceability outside of the United States, in original actions
or in actions for enforcement of judgments of U.S. courts,
of civil liabilities based solely upon U.S. securities
laws. The rights of holders of our shares are governed by
English law, including the Companies Act 1985, and by our
memorandum and articles of association. The rights of holders of
our ADSs are also affected by English law. These rights differ
from the rights of security holders in typical
U.S. corporations.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements 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. Such forward-looking statements include
statements regarding, among other things, (a) our projected
sales and profitability, (b) our growth strategies,
(c) anticipated trends in our industry, (d) our future
financing plans, and (e) our anticipated needs for working
capital. Forward-looking statements, which involve assumptions
and describe our future plans, strategies, and expectations, are
generally identifiable by use of the words “may,”
“will,” “should,” “expect,”
“anticipate,” “estimate,”
“believe,” “intend,” or “project”
or the negative of these words or other variations on these
words or comparable terminology. This information may involve
known and unknown risks, uncertainties, and other factors that
may cause our actual results, performance, or achievements to be
materially different from the future results, performance, or
achievements expressed or implied by any forward-looking
statements. These statements may be found under
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and
“Business,” as well as in this prospectus generally.
Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various
factors, including, without limitation, the risks outlined under
“Risk Factors” and matters described in this
prospectus generally. In light of these risks and uncertainties,
there can be no assurance that the forward-looking statements
contained in this filing will in fact occur. In addition to the
information expressly required to be included in this filing, we
will provide such further material information, if any, as may
be necessary to make the required statements, in light of the
circumstances under which they are made, not misleading.
USE OF PROCEEDS
This prospectus relates to shares that may be offered and sold
from time to time by selling shareholders. We will receive no
proceeds from the sale of shares pursuant to this prospectus.
However, we may receive up to $12.0 million in proceeds
from the sale of our shares to Fusion Capital under the 2005
Fusion Capital securities subscription agreement and up to
$6.9 million in proceeds from the exercise of warrants
issued to the selling shareholders. Any proceeds we receive
under the 2005 Fusion Capital securities subscription agreement
or upon the exercise of warrants will be used for working
capital and general corporate purposes.
PRICE RANGE OF ORDINARY SHARES
Our American Depositary Shares (“ADSs”), each
representing one ordinary share of 20 pence nominal value, have
been traded under the symbol “INSGY” from
Insignia’s initial public offering in November 1995 to
December 24, 2000, and “INSG” since then. Our
stock traded on the Nasdaq National Market from
11
November 1995 to January 2003 and has traded on the Nasdaq
SmallCap Market since then. The following table sets forth, for
the periods indicated, the high and low sales prices for our
ADSs as reported by the Nasdaq National Market or Nasdaq
SmallCap Market as applicable:
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2005 Quarters Ended | |
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Sept 30 | |
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June 30 | |
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Mar 31 | |
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| |
|
| |
|
| |
Quarterly per share stock price:
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|
|
|
|
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|
|
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High
|
|
$ |
0.69 |
|
|
$ |
1.29 |
|
|
$ |
1.04 |
|
|
Low
|
|
$ |
0.40 |
|
|
$ |
0.25 |
|
|
$ |
0.43 |
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|
|
|
|
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|
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|
|
|
|
|
|
|
|
2004 Quarters Ended | |
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| |
|
|
Dec 31 | |
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Sept 30 | |
|
June 30 | |
|
Mar 31 | |
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| |
|
| |
|
| |
|
| |
Quarterly per share stock price:
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
1.30 |
|
|
$ |
0.92 |
|
|
$ |
2.14 |
|
|
$ |
3.47 |
|
|
Low
|
|
$ |
0.68 |
|
|
$ |
0.50 |
|
|
$ |
0.75 |
|
|
$ |
0.88 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 Quarters Ended | |
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|
| |
|
|
Dec 31 | |
|
Sept 30 | |
|
June 30 | |
|
Mar 31 | |
|
|
| |
|
| |
|
| |
|
| |
Quarterly per share stock price:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
1.62 |
|
|
$ |
1.79 |
|
|
$ |
0.80 |
|
|
$ |
0.45 |
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|
Low
|
|
$ |
0.80 |
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|
$ |
0.39 |
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|
$ |
0.19 |
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|
$ |
0.20 |
|
The closing sales price of our shares as reported on the Nasdaq
SmallCap Market on October 12, 2005 was $0.45 per
share. As of that date, there were approximately 222 holders of
record of our ordinary shares and ADSs, excluding those ADSs
that are held in nominee or street name by brokers.
DIVIDENDS
We have not declared or paid any cash dividends on our ordinary
shares. We anticipate that we will retain any future earnings
for use in our business and do not anticipate paying any cash
dividends in the foreseeable future. Any payment of dividends
would be subject, under English law, to the Companies Act 1985,
and to our Memorandum and Articles of Association, and may only
be paid from our retained earnings, determined on a
pre-consolidated basis. As of June 30, 2005, Insignia
Solutions plc (excluding all subsidiaries) had an accumulated
deficit of $75.0 million on a pre-consolidated basis.
12
SELECTED FINANCIAL AND OPERATING DATA
The tables that follow present portions of our consolidated
financial statements and are not complete. You should read the
following selected financial data in conjunction with our
consolidated financial statements and the related notes thereto
and with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” included
elsewhere in this prospectus. The consolidated statements of
operations data for the six months ended June 30, 2005 and
the years ended December 31, 2004, 2003 and 2002 and the
consolidated balance sheet data as of June 30, 2005 and
December 31, 2004 and 2003 are derived from our audited
consolidated financial statements, which are included elsewhere
in this prospectus. The consolidated statements of operations
data for the years ended December 31, 2001 and 2000 and the
consolidated balance sheet data as of December 31, 2002,
2001 and 2000 are derived from audited consolidated financial
statements that are not included in this prospectus. The
consolidated statement of operations data for the six months
ended June 30, 2004 is derived from unaudited consolidated
financial statements that are included in this prospectus. The
historical results presented below are not necessarily
indicative of the results to be expected for any future fiscal
year. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
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|
|
|
|
|
|
|
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|
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Six Months Ended | |
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|
June 30, | |
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Year Ended December 31, | |
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| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
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| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
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(Unaudited) | |
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(In thousands, except per share data) | |
Consolidated Statements of Operations Data
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$ |
1,196 |
|
|
$ |
426 |
|
|
$ |
541 |
|
|
$ |
710 |
|
|
$ |
7,256 |
|
|
$ |
10,273 |
|
|
$ |
10,766 |
|
Cost of net revenues
|
|
|
99 |
|
|
|
28 |
|
|
|
42 |
|
|
|
340 |
|
|
|
2,584 |
|
|
|
4,275 |
|
|
|
3,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,097 |
|
|
|
398 |
|
|
|
499 |
|
|
|
370 |
|
|
|
4,672 |
|
|
|
5,998 |
|
|
|
7,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating expenses:
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|
|
|
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|
|
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|
|
|
|
|
|
|
|
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|
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|
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|
Sales and marketing
|
|
|
1,329 |
|
|
|
1,345 |
|
|
|
2,511 |
|
|
|
1,757 |
|
|
|
5,558 |
|
|
|
7,058 |
|
|
|
5,376 |
|
|
Research and development
|
|
|
1,591 |
|
|
|
1,472 |
|
|
|
2,807 |
|
|
|
3,373 |
|
|
|
5,640 |
|
|
|
6,220 |
|
|
|
5,960 |
|
|
General and administrative
|
|
|
1,484 |
|
|
|
1,261 |
|
|
|
2,579 |
|
|
|
2,676 |
|
|
|
3,356 |
|
|
|
4,155 |
|
|
|
3,733 |
|
|
Amortization of intangible assets
|
|
|
110 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Restructuring
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
498 |
|
|
|
296 |
|
|
|
292 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,514 |
|
|
|
4,078 |
|
|
|
7,897 |
|
|
|
8,304 |
|
|
|
14,850 |
|
|
|
17,725 |
|
|
|
15,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,417 |
) |
|
|
(3,680 |
) |
|
|
(7,398 |
) |
|
|
(7,934 |
) |
|
|
(10,178 |
) |
|
|
(11,727 |
) |
|
|
(7,594 |
) |
Interest and other income (expense), net
|
|
|
(36 |
) |
|
|
253 |
|
|
|
255 |
|
|
|
3,101 |
|
|
|
(356 |
) |
|
|
567 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(3,453 |
) |
|
|
(3,427 |
) |
|
|
(7,143 |
) |
|
|
(4,833 |
) |
|
|
(10,534 |
) |
|
|
(11,160 |
) |
|
|
(7,599 |
) |
Provision for (benefit from) income taxes
|
|
|
36 |
|
|
|
(213 |
) |
|
|
(81 |
) |
|
|
(510 |
) |
|
|
(2,114 |
) |
|
|
(152 |
) |
|
|
(785 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,489 |
) |
|
|
(3,214 |
) |
|
|
(7,062 |
) |
|
|
(4,323 |
) |
|
|
(8,420 |
) |
|
|
(11,008 |
) |
|
|
(6,814 |
) |
Deemed dividend related to beneficial conversion feature of
preferred stock
|
|
|
(415 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ordinary shareholders
|
|
$ |
(3,904 |
) |
|
$ |
(3,214 |
) |
|
$ |
(7,062 |
) |
|
$ |
(4,323 |
) |
|
$ |
(8,420 |
) |
|
$ |
(11,008 |
) |
|
$ |
(6,814 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
|
|
June 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) | |
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(0.10 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.42 |
) |
|
$ |
(0.57 |
) |
|
$ |
(0.47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares and ordinary share equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
40,956 |
|
|
|
28,928 |
|
|
|
30,191 |
|
|
|
21,231 |
|
|
|
19,937 |
|
|
|
19,248 |
|
|
|
14,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
June 30, | |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, short-term investments and restricted
cash
|
|
$ |
892 |
|
|
$ |
952 |
|
|
$ |
2,232 |
|
|
$ |
976 |
|
|
$ |
8,893 |
|
|
$ |
17,351 |
|
Working capital (deficit)
|
|
|
(198 |
) |
|
|
900 |
|
|
|
2,254 |
|
|
|
1,964 |
|
|
|
10,633 |
|
|
|
11,377 |
|
Total assets
|
|
|
5,030 |
|
|
|
2,587 |
|
|
|
6,794 |
|
|
|
6,453 |
|
|
|
17,768 |
|
|
|
22,336 |
|
Mandatory redeemable warrants
|
|
|
— |
|
|
|
— |
|
|
|
38 |
|
|
|
1,440 |
|
|
|
1,440 |
|
|
|
1,440 |
|
Total shareholders’ equity
|
|
$ |
2,835 |
|
|
$ |
1,341 |
|
|
$ |
2,589 |
|
|
$ |
2,673 |
|
|
$ |
9,895 |
|
|
$ |
15,749 |
|
14
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained in this
prospectus, the matters discussed herein are forward-looking
statements. Words such as “anticipates,”
“believes,” “expects,” “future,”
and “intends,” and similar expressions are used to
identify forward-looking statements. These and other statements
regarding matters that are not historical are forward-looking
statements. These matters involve risks and uncertainties that
could cause actual results to differ materially from those in
the forward-looking statements. Factors that could cause or
contribute to such differences in results and outcomes include
without limitation those discussed below as well as those
discussed elsewhere in this prospectus. Readers are cautioned
not to place undue reliance on these forward-looking statements,
which reflect management’s analysis only as of the date
hereof. We assume no obligation to update these forward-looking
statements to reflect actual results or changes in factors or
assumptions affecting such forward-looking statements.
Overview
We commenced operations in 1986, and currently develop, market
and support software technologies that enable mobile operators
and phone manufacturers to update the firmware of mobile devices
using standard over-the-air data networks. Before 2003, our
principal product line was the
Jeodetm
platform, based on our Embedded Virtual Machine
(“EVM”tm)
technology.
During 2001, we began development of a range of products
(“Secure System Provisioning” or “SSP”
products) for the mobile phone and wireless operator industry.
These SSP products build on our position as a Virtual Machine
(“VM”) supplier for manufacturers of mobile devices
and allow wireless operators and phone manufacturers to reduce
customer care and software recall costs as well as increase
subscriber revenue by deploying new mobile services based on
dynamically provisional capabilities. With the sale of our Jeode
product line in April 2003, our sole product line then consisted
of our SSP product. We shipped our first SSP product in December
2003, and in October 2004 we launched our Open Management Client
(“OMC”) product.
On March 16, 2005, we closed our acquisition of Mi4e Device
Management AB (“Mi4e”), a private company
headquartered in Stockholm, Sweden. The consideration paid in
the transaction was 2,969,692 American depositary shares
(“ADSs”) representing ordinary shares, and another
989,896 ADSs are issuable on March 31, 2006, subject to
potential offset for breach of representations, warranties and
covenants. In addition, up to a maximum of 700,000 Euros is
payable in a potential earn-out based on a percentage of future
revenue collected from sales of existing Mi4e products. Mi4e
develops, markets and supports software technologies that enable
mobile operators and phone manufacturers to update firmware of
mobile devices using standards over-the-air data networks. Its
main product, a Device Management Server (“DMS”), is a
mobile device management infrastructure solution for mobile
operators that support the Open Mobile Alliance
(“OMA”) client provisioning specification. DMS was
first deployed at Telstra in Australia in 2000 and has since
been deployed at more than ten carriers around the world. By
integrating the Mi4e capabilities with existing Insignia
applications, our strategy is to deliver comprehensive solutions
across multiple generations of technology and therefore resolve
firmware update and compatibility issues for current and future
users who require over-the-air repair.
Currently we primarily offer the SSP, DMS and OMC product lines.
Our revenues from these products are derived from:
|
|
|
|
• |
initial licensing fees; |
|
|
• |
royalties paid based on volume of users; |
|
|
• |
support and maintenance fees; |
|
|
• |
trial and installation; |
15
|
|
|
|
• |
subscription fees for hosting services; and |
|
|
• |
engineering services. |
Our operations outside of the United States are primarily in the
United Kingdom and Sweden, where part of our research and
development operations and our European sales activities are
located. We sell our products directly to operators,
distributors and original equipment manufacturers
(“OEMs”). Our revenues from customers outside the
United States are derived primarily from Europe and Asia and are
generally affected by the same factors as our revenues from
customers in the United States. The operating expenses of our
operations outside the United States are mostly incurred in
Europe and relate to our research and development and European
sales activities. Such expenses consist primarily of ongoing
fixed costs and consequently do not fluctuate in direct
proportion to revenues. Our revenues and expenses outside the
United States can fluctuate from period to period based on
movements in currency exchange rates. Historically, movements in
currency exchange rates have not had a material effect on our
revenues and expenses.
We operate with the U.S. dollar as our functional currency,
with a majority of revenues and operating expenses denominated
in Euros, U.S. dollars, British pounds sterling and Swedish
Krona. Exchange rate fluctuations against the dollar can cause
U.K. and Swedish expenses, which are translated into dollars for
financial statement reporting purposes, to vary from
period-to-period.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States of America. Certain of our accounting policies require
the application of significant judgment by management in
selecting the appropriate assumptions for calculating financial
estimates. These estimates affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. By their nature, these judgments are subject to an
inherent degree of uncertainty. The most significant estimates
and assumptions relate to revenue recognition, the adequacy of
allowances for doubtful accounts, impairment of intangible
assets and goodwill, and the valuation allowance on deferred tax
assets. Actual amounts could differ from these estimates.
We recognize revenue in accordance with Statement of Position
No. 97-2 (“SOP 97-2”), “Software
Revenue Recognition” and Statement of Position
No. 98-9, “Modification of SOP No 97-2.” These
Statements of Position require that four basic criteria must be
met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has
occurred or services rendered; (3) the fee is fixed or
determinable; and (4) collectibility is probable.
Determination of criteria (3) and (4) are based on
management’s judgments regarding the fixed nature of the
fee charged for services rendered and products delivered and the
collectibility of those fees. Should changes in conditions cause
management to determine these criteria are not met for certain
future transactions, revenue recognized for any reporting period
could be adversely affected.
At the time of the transaction, we assess whether the fee
associated with our revenue transaction is fixed or determinable
and whether or not collection is probable. We assess whether the
fee is fixed or determinable based on the payment terms
associated with the transaction. If a significant portion of a
fee is due after the normal payment terms, which are 30 to
90 days from invoice date, we account for the fee as not
being fixed or determinable. In these cases, we recognize
revenue on the earlier of due date or the date on which cash is
collected.
We assess collectibility based on a number of factors, including
past transaction history with the customer and the
credit-worthiness of the customer. We do not request collateral
from our customers. If we determine that collection of a fee is
not probable, we will defer the fee and recognize revenue at the
time collection becomes probable, which is generally upon
receipt of cash.
16
For all sales, we use either a signed license agreement or a
binding purchase order (primarily for maintenance renewals) as
evidence of an arrangement.
For arrangements with multiple obligations (for example,
undelivered maintenance and support), we will allocate revenue
to each component of the arrangement using the residual value
method based on the fair value of the undelivered elements,
which is specific to us. This means that we will defer revenue
from the arrangement fee equivalent to the fair value of the
undelivered elements. Fair value for the ongoing maintenance and
support obligation is based upon separate sales of renewals to
other customers or upon renewal rates quoted in the contracts.
Fair value of services such as training or consulting, is based
upon separate sales by us for these services to other customers.
Our arrangements do not generally include acceptance clauses.
However, if an arrangement includes an acceptance provision,
acceptance occurs upon the earlier of receipt of written
customer acceptance or expiration of the acceptance period.
We recognize revenue for maintenance and hosting services
ratably over the contract term. Our training and consulting
services are billed based on hourly rates, and we will generally
recognize revenue as these services are performed. However, at
the time of entering into a transaction, we will assess whether
or not any services included within the arrangement require us
to perform significant work either to alter the underlying
software or to build additional complex interfaces so that the
software performs as the customer requests. If these services
are included as part of an arrangement, we recognize the entire
fee using the percentage of completion method. We estimate the
percentage of completion based on our estimate of the total
costs estimated to complete the project as a percentage of the
costs incurred to date and the estimated costs to complete.
|
|
|
Accounts receivable and allowance for doubtful
accounts |
We perform ongoing credit evaluations of our customers and will
adjust credit limits based upon payment history and the
customer’s current creditworthiness, as determined by our
review of their current credit information. We continuously
monitor collections and payments from our customers and maintain
an allowance for doubtful accounts based upon historical
experience and any specific customer collection issues that we
have identified. While such credit losses have historically been
within expectations and the allowance established, credit loss
rates may increase. Since our accounts receivable are
concentrated in a relatively few number of customers, a
significant change in the liquidity or financial position of any
one of these customers could have a material adverse impact on
the collectibility of accounts receivables and future operating
results.
The preparation of financial statements requires us to make
estimates of the uncollectibility of our accounts receivables.
We specifically analyze accounts receivable and analyze
historical bad debts, customer concentrations, customer
creditworthiness, current economic trends and changes in our
customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts.
We periodically review our property and equipment and
identifiable intangible assets for possible impairment whenever
facts and circumstances indicate that the carrying amount may
not be fully recoverable. Assumptions and estimates used in the
evaluation of impairment may affect the carrying value of
long-lived assets, which could result in impairment charges in
future periods. Significant assumptions and estimates include
the projected cash flows based upon estimated revenue and
expense growth rates and the discount rate applied to expected
cash flows. In addition, our depreciation and amortization
policies reflect judgments on the estimated useful lives of
assets.
We currently have significant deferred tax assets, which are
subject to periodic recoverability assessments. We record a
valuation allowance to reduce our deferred tax assets to the
amount that we believe to be more likely than not realizable. We
have recorded a valuation allowance in an amount equal to the net
17
deferred tax assets to reflect uncertainty regarding future
realization of these assets based on past performance and the
likelihood of realization of our deferred tax assets.
In accordance with the provisions of Statement of Financial
Accounting Standards No. 141, “Business
Combinations”, the purchase price of an acquired company is
allocated between the intangible assets and the net tangible
assets of the acquired business with the residual of the
purchase price recorded as goodwill. Our future operating
performance will be impacted by the future amortization of these
acquired intangible assets and potential impairment charges
related to goodwill if indicators of potential impairment exist.
As a result of business acquisitions, the allocation of the
purchase price to goodwill and intangible assets could have a
significant impact on our future operating results. The
allocation of the purchase price of the acquired companies to
goodwill and intangible assets requires us to make significant
estimates and assumptions, including estimates of future cash
flows expected to be generated by the acquired assets and the
appropriate discount rate for these cash flows. Should
conditions be different from management’s current
estimates, material write-downs of intangible assets or goodwill
may be required, which would adversely affect our operating
results.
In accordance with the provisions of Statement of Financial
Accounting Standards No. 142, “Goodwill and Other
Intangible Assets”, we assess goodwill and intangible
assets with indefinite lives for impairment at least annually,
or more frequently if events and changes in circumstances
suggest that the carrying amount may not be recoverable. To the
extent the carrying amount exceeds its fair value, an impairment
charge to operations is recorded. At June 30, 2005, the
carrying value of goodwill was $416,000.
Sale of Jeode Product Line and Java Virtual Machine Assets
In 2003, we sold our Jeode product line to Esmertec A.G.
(“Esmertec”) and transitioned our product focus to our
SSP product line. This change in product focus has resulted in a
redirection of available resources from our historical revenue
base towards the development and marketing efforts associated
with the SSP product.
On February 7, 2003, we entered into a loan agreement with
Esmertec whereby Esmertec loaned Insignia $1.0 million at
an interest rate of prime plus two percent. The principal amount
of $1.0 million was repaid on January 15, 2004 by
offsetting that amount with a receivable relating to the product
line purchase. All remaining accrued interest of $55,161 was
repaid on March 15, 2004 by offsetting the accrued interest
against prepaid royalties. Accordingly, there were no
outstanding balances or future amounts due to Esmertec under the
loan agreement as of December 31, 2004.
On March 4, 2003, we entered into several agreements with
Esmertec, a Swiss software company focused on Java technologies,
including a definitive agreement to sell certain assets relating
to our Jeode product line in exchange for $3.5 million due
in installments through April 2004. The transaction closed on
April 23, 2003. The assets sold primarily included the
fixed assets, customer agreements and employees related to the
Jeode product line. Under the terms of the agreements, Esmertec
also became the exclusive master distributor of the Jeode
technology in exchange for $3.4 million in minimum
guaranteed royalties through October 2004.
Under these agreements, Insignia could have earned up to an
additional $4.0 million over the subsequent three-year
period from the effective date of the agreement based on a
percentage of Esmertec’s sales of the Jeode product during
the period. Additionally, the parties entered into a cooperative
agreement whereas Esmertec agreed to
promote Insignia’s SSP software product to
Esmertec’s mobile platform customers.
As part of this transaction, we transferred 42 employees to
Esmertec, of which 31 were development engineers. In addition,
as part of the sale, Esmertec entered into an agreement with our
U.K. building landlord in order to assume the lease on one of
the two buildings leased by Insignia.
On February 13, 2004, Insignia and Esmertec executed an
agreement transferring the intellectual property of Jeode and
the title for Insignia’s remaining prepaid royalties to
Esmertec.
18
On June 30, 2004, Insignia and Esmertec executed a
Termination and Waiver Agreement that effectively concluded the
remaining business between the two companies and dissolved any
ties going forward between Insignia and the product line it sold
to Esmertec in April 2003. The agreement offset Esmertec related
liabilities and deferred revenue totaling $853,000 against
$600,000 of remaining guaranteed royalty payments due from
Esmertec in exchange for final cash payment to Insignia of
$185,000 (which was made in July 2004). The resulting net gain
of $302,000 was recorded as other income in the second quarter
of 2004 and is net of expenses. This agreement resulted in the
full and final satisfaction of the deferred consideration and
waiver of all future outstanding obligations pursuant to the
2003 asset purchase agreement.
Results of operations
|
|
|
Six months ended June 30, 2005 and 2004 |
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
(In thousands) | |
License revenue
|
|
$ |
917 |
|
|
$ |
421 |
|
Service revenue
|
|
|
279 |
|
|
|
5 |
|
|
|
|
|
|
|
|
Total net revenue
|
|
$ |
1,196 |
|
|
$ |
426 |
|
|
|
|
|
|
|
|
The SSP product line, which we launched in 2003, was expanded by
our introduction of additional products in October 2004 and
March 2005. These products include Open Management Client
(“OMC”) and Device Management Server
(“DMS”). The DMS product was acquired through the
acquisition of Mi4E in March 2005. In 2005, our license revenues
were derived from initial licensing fees and royalties and
service fees came from support and maintenance, trials and
installations, hosting services and engineering services. In
2004, revenues were derived from initial licensing fees, support
and maintenance, and engineering service.
The 181% increase in total revenues from the six months ended
June 30, 2004 to the same period in 2005 was primarily due
to six new operators becoming customers combined with the
benefits of acquiring Mi4e in March 2005. License revenue and
service revenue accounted for 77% and 23%, respectively, of
total revenues in the six months ended June 30, 2005
compared to 99% and 1%, respectively, in the same period of the
prior year.
The 118% increase in license revenues from the first half of
2004 to the first half of 2005 was primarily due to increased
revenues from our SSP products, and new in 2005, DMS and OMC
products and with the adoption of our new products by a number
of system operators. The SSP, DMS and OMC products made up 48%,
15% and 37%, respectively, of license revenues in the first half
of 2005. In the first half of 2004, the SSP product line made up
100% of total license revenues.
The $274,000 increase in service revenue from the first half of
2004 to the first half of 2005 was primarily due to the increase
in agreements for set up, hosting, and support and maintenance
services for the DMS and SSP products.
Sales to customers outside the United States, derived mainly
from customers in Europe, the Middle East, Asia Pacific, and
Africa represented approximately 81% of total revenues in the
six months ended June 30, 2005 and 65% of total revenues in
the six months ended June 30, 2004.
19
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, | |
|
|
except percentages) | |
Cost of net revenues
|
|
$ |
99 |
|
|
$ |
28 |
|
|
Percentage of total revenues
|
|
|
8 |
% |
|
|
7 |
% |
Sales and marketing
|
|
$ |
1,329 |
|
|
$ |
1,345 |
|
|
Percentage of total revenues
|
|
|
111 |
% |
|
|
316 |
% |
Research and development
|
|
$ |
1,591 |
|
|
$ |
1,472 |
|
|
Percentage of total revenues
|
|
|
133 |
% |
|
|
346 |
% |
General and administrative
|
|
$ |
1,484 |
|
|
$ |
1,261 |
|
|
Percentage of total revenues
|
|
|
124 |
% |
|
|
296 |
% |
Amortization of intangible assets
|
|
$ |
110 |
|
|
$ |
— |
|
|
Percentage of total revenues
|
|
|
9 |
% |
|
|
— |
|
Cost of net revenues consist of the cost of providing service
revenue, primarily representing the cost of support and
engineering for customer specific projects. In the six months
ended June 30, 2005, cost of net revenues also included
approximately $60,000 for providing third party products to
customers purchasing licenses. This accounted for most of the
increase in cost of net revenues in the six months ended
June 30, 2005.
Sales and marketing expenses consist primarily of personnel and
related overhead costs, salespersons commissions, advertising
and promotional expenses and expenses relating to trade shows.
Sales and marketing expenses remained level in the six months
ended June 30, 2005 compared to the same period in the
prior year. In the future we anticipate a moderate increase in
sales and marketing expenses as we seek to increase our revenues.
Research and development costs consist primarily of personnel
costs, professional consulting and travel expenses. Research and
development expenses increased by 8% in the six months ended
June 30, 2005, compared to the same period of 2004. This
increase was primarily due to the addition of engineers from the
Mi4e acquisition in March 2005.
General and administrative expenses consist primarily of
personnel and related overhead costs for finance, information
systems, human resources and general management. General and
administrative expenses increased by 18% in the six months ended
June 30, 2005 compared to the same period of 2004. The
increase in the six months ended June 30, 2005 over the
same period in the prior year is due to additional
administrative costs associated with Mi4e which was acquired in
March 2005 and an increase of $195,000 in the reserve for
doubtful accounts for three customers in the six months ended
June 30, 2005.
Amortization of intangible assets in the six months ended
June 30, 2005 represents the amortization of acquired
customer relationships and technology from Mi4e which we
purchased in March 2005.
|
|
|
Interest and other income (expense), net |
Interest and other income (expense), net for the six months
ended June 30, 2005 was expense of $36,000 represented
primarily by a $68,000 write-down of Insignia’s investment
in its Insignia Asia joint venture, $46,000 of interest expense,
and $15,000 related to foreign exchange loss, partially off-set
by $90,000 of income from a trademark infringement lawsuit
settlement. For the six months ended June 30, 2004, we had
income of $253,000 represented primarily by a portion of the
gain on the 2003 sale of the Jeode product line.
|
|
|
Provision for (benefit from) income taxes |
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
(In thousands, | |
|
|
except percentages) | |
Provision for (benefit from) income taxes
|
|
$ |
36 |
|
|
$ |
(213 |
) |
Effective income tax rate
|
|
|
1 |
% |
|
|
(6 |
)% |
20
The tax provision in the six months ended June 30, 2005
related to our operations in Sweden. Our benefit from income
taxes of $213,000 for the six months ended June 30, 2004
primarily represented a refund received from the United Kingdom
for research and development claims. We have recorded a full
valuation allowance against all deferred income tax assets,
primarily comprised of net operating losses, on the basis that
significant uncertainty exists with respect to their realization.
|
|
|
Three years ended December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change | |
|
|
|
% Change | |
|
|
|
|
2004 | |
|
2003 to 2004 | |
|
2003 | |
|
2002 to 2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ in thousands) | |
License revenues
|
|
$ |
521 |
|
|
|
0 |
% |
|
$ |
522 |
|
|
|
(91 |
)% |
|
$ |
5,714 |
|
Service revenues
|
|
|
20 |
|
|
|
(89 |
)% |
|
|
188 |
|
|
|
(88 |
)% |
|
|
1,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$ |
541 |
|
|
|
(24 |
)% |
|
$ |
710 |
|
|
|
(90 |
)% |
|
$ |
7,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The SSP product line was our primary business for 2004. The
Jeode product line was our primary business for 2003 and 2002.
Both the SSP product line and the Jeode product line derive
revenue from four main sources: the sale of software licenses,
the sale of annual maintenance and support contracts as well as
services, per unit royalties and non-recurring engineering or
consulting activities. Revenues from the sale of development
licenses, packaged products and royalties received from OEMs are
classified as license revenue, while revenues from non-recurring
engineering activities, training, and annual maintenance
contracts are classified as service revenue.
In 2004, the SSP platform accounted for 83% of total revenue
while the Jeode product line accounted for 17% of total revenue.
In 2003 and 2002, the Jeode platform accounted for 94% and 100%,
respectively, of total revenues. The SSP platform became
available for sale in December 2003 and the Jeode platform
became available for sale in 1999. Total revenues in 2004
decreased 24% from 2003 due to the transition from the Jeode
product line to the SSP product line. The Jeode product line was
sold in April 2003, and the service revenue from the support and
maintenance agreements associated with the Jeode product line
were also transferred at the time of the sale. Since that time
we have focused our efforts to develop and sell SSP products and
services on a full-time basis. In 2004, 2003 and 2002, license
revenue from the sale of SSP and Jeode accounted for 96%, 74%
and 79% respectively, of total revenues. Service revenue from
the SSP and Jeode platforms accounted for 4%, 26%, and 21% of
total revenues for 2004, 2003, and 2002 respectively. No future
revenues are expected from the Jeode product line.
License revenues did not change materially in 2004 compared to
2003 as the Company began its initial introduction of the new
SSP product in 2004. License revenues decreased 91% in 2003
compared to 2002 due to the sale of the Jeode product line in
March 2003.
Service revenue decreased by 89% in 2004 compared to 2003 due to
the decrease in the number of support and maintenance agreements
under the Jeode and SSP product lines. Service revenues
decreased 88% in 2003 compared to 2002. The decrease was
primarily due to the sale of the Jeode product line.
|
|
|
Cost of revenues and gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change | |
|
|
|
% Change | |
|
|
|
|
2004 | |
|
2003 to 2004 | |
|
2003 | |
|
2002 to 2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ in thousands) | |
Cost of license revenues
|
|
$ |
28 |
|
|
|
(90 |
)% |
|
$ |
288 |
|
|
|
(85 |
)% |
|
$ |
1,943 |
|
Gross margin: license revenues
|
|
|
95 |
% |
|
|
|
|
|
|
45 |
% |
|
|
|
|
|
|
66 |
% |
Cost of service revenues
|
|
$ |
14 |
|
|
|
(73 |
)% |
|
$ |
52 |
|
|
|
(92 |
)% |
|
$ |
641 |
|
Gross margin: service revenues
|
|
|
30 |
% |
|
|
|
|
|
|
72 |
% |
|
|
|
|
|
|
58 |
% |
Total cost of revenues
|
|
$ |
42 |
|
|
|
(88 |
)% |
|
$ |
340 |
|
|
|
(87 |
)% |
|
$ |
2,584 |
|
Gross margin: total revenues
|
|
|
92 |
% |
|
|
|
|
|
|
52 |
% |
|
|
|
|
|
|
64 |
% |
21
The cost of license revenue for 2004 consisted mainly of
commission paid to sales representatives on sales of our SSP
product line. The cost of license revenue for 2003 and 2002 was
mainly comprised of royalties to third parties on sales of our
Jeode product line. In all three years the cost of service
revenue was a result of costs associated with non-recurring
engineering activities and end-user support under maintenance
contracts.
The gross margin on sales of our SSP platform is typically
affected by whether we are using internal or external
representatives to sell the SSP product line and the percentage
commission negotiated with the sales people or companies selling
the SSP software.
We believe that the significant factors affecting the Jeode
platform gross margin in 2002 and 2003 included pricing of the
technology license, the unit usage and royalties to third
parties, in particular Sun Microsystems. License revenue
gross margins in 2004 were 95% compared to 45% in 2003. The
increase in gross margin was due to lower sales of our Jeode
product in 2004, and hence lower royalties paid to
Sun Microsystems, as a result of our sale of the Jeode
business to Esmertec in April 2003. License revenue gross
margins in 2003 were 45% compared to 66% in 2002. The decrease
was due to lower margins on 2003 revenue due to the sale of the
Jeode product line to Esmertec.
Gross margin for services revenue is impacted by the level of
and pricing terms of non-recurring engineering activities, which
can vary from customer to customer, from contract to contract
and based on the level of maintenance contracts sold. Service
revenue gross margins in 2004 were 30% compared to 72% in 2003.
The decrease in service revenue gross margin is primarily a
result of introducing our new SSP product during 2004 and
amortizing the cost of service employees over a lower sales
level. Service revenue gross margins in 2003 were 72% compared
to 58% in 2002. The increase was primarily a result of the
transfer of customers, employees and related costs with the sale
of the Jeode product line.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change | |
|
|
|
% Change | |
|
|
|
|
2004 | |
|
2003 to 2004 | |
|
2003 | |
|
2002 to 2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ in thousands) | |
Sales and marketing
|
|
$ |
2,511 |
|
|
|
43 |
% |
|
$ |
1,757 |
|
|
|
(68 |
)% |
|
$ |
5,558 |
|
|
Percentage of total revenues
|
|
|
464 |
% |
|
|
|
|
|
|
247 |
% |
|
|
|
|
|
|
77 |
% |
Research and development
|
|
$ |
2,807 |
|
|
|
(17 |
)% |
|
$ |
3,373 |
|
|
|
(40 |
)% |
|
$ |
5,640 |
|
|
Percentage of total revenues
|
|
|
519 |
% |
|
|
|
|
|
|
475 |
% |
|
|
|
|
|
|
78 |
% |
General and administrative
|
|
$ |
2,579 |
|
|
|
(4 |
)% |
|
$ |
2,676 |
|
|
|
(20 |
)% |
|
$ |
3,356 |
|
|
Percentage of total revenues
|
|
|
477 |
% |
|
|
|
|
|
|
377 |
% |
|
|
|
|
|
|
46 |
% |
Restructuring
|
|
|
0 |
|
|
|
(100 |
)% |
|
$ |
498 |
|
|
|
68 |
% |
|
$ |
296 |
|
|
Percentage of total revenues
|
|
|
0 |
% |
|
|
|
|
|
|
70 |
% |
|
|
|
|
|
|
4 |
% |
Sales and marketing expenses consist primarily of personnel and
related overhead costs, salesperson commissions, advertising and
promotional expenses and trade shows. Sales and marketing
expenses increased by 43% in 2004 from 2003. The increase in
sales and marketing expenditures from $1,757,000 in 2003 to
$2,511,000 in 2004 was primarily due to a non-cash charge of
$353,000 for warrants that were issued to outside partners
supporting the Company’s SSP product launch, $271,000 of
expenses related to a strategic sales partner promoting our
product line in the Asian markets, $51,000 in additional travel
expenses and $70,000 for recruitment fees. Sales and marketing
expenses decreased by 68% in 2003 compared to 2002 primarily due
to decreased personnel costs, decreased recruiting costs and
decreased employee travel. Costs for sales and marketing
personnel decreased by $2.6 million due to a decrease in
sales and marketing employees in 2003 as a result of a reduction
in force program. The decreased headcount resulted in a decrease
in sales and marketing travel of $546,000 and a $186,000
decrease in facility and telephone costs, as well as a $50,000
decrease in recruiting costs. Allocated overhead costs also
decreased by $374,000 due to the resulting headcount decrease.
In addition, marketing programs and public relations costs
decreased by $454,000 as a result of cost cutting measures.
These costs decreases were offset by a $216,000 increase in
costs for the French sales office and a $75,000 increase in
costs to an outside sales firm targeting the Asian markets. Both
22
the increase in the French office and costs for the outside
sales firm were a result of increased sales efforts for the SSP
product.
Research and development expenses consist primarily of personnel
costs, overhead costs relating to occupancy, software support
and maintenance and equipment depreciation. In accordance with
Statement of Financial Accounting Standards No. 86,
software development costs are expensed as incurred until
technological feasibility is established, after which any
additional costs are capitalized. In 2004, 2003 and 2002, no
development expenditures were capitalized because there were no
amounts that qualified for capitalization. Research and
development expenses in 2004 decreased 17% from 2003. The
decrease in research and development costs from $3,373,000 in
2003 to $2,807,000 in 2004 was primarily due to $346,000 of
lower salary related expenses as a result of a reduction in
employees in the United Kingdom after the sale of our Jeode
product line in April of 2003 and a $200,000 decrease in support
and maintenance costs as a result of our transfer of support
agreements to Esmertec with the sale of our Jeode product line.
Research and development expenses in 2003 decreased 40% from
2002. The decrease of $2.3 million was due to a reduction
in personnel related costs resulting from the transferring of
employees to Esmertec with the sale of the Jeode product line
and a $236,000 decrease from the nonrenewal of our related Java
support and maintenance contract. Recruiting costs and
professional consulting costs decreased by $57,000 and $90,000,
respectively. In addition, overhead costs for management
information systems and facilities decreased by $449,000. These
decreases were offset by $590,000 in engineering consulting
services and technical support services, which were retained as
engineering expenses and not allocated to cost of sales as a
result of lower sales in 2003.
General and administrative expenses consist primarily of
personnel and related overhead costs for finance, information
systems, human resources and general management. General and
administrative expenses decreased by 4%, or approximately
$100,000 from 2003 to 2004 primarily as a result of higher legal
costs of approximately $95,000 in 2003 associated with the sale
of our Jeode product line, lower rent expense in 2004 of
approximately $100,000 resulting from the sublease of part of
our facility in the United Kingdom, and $31,000 of lower salary
related costs in the United Kingdom from reduced headcount as a
result of the sale of the Jeode product line. These decreases
were offset in part by an increase in 2004 recruiting costs of
$40,000 and a $74,000 increase in printing and documentation
costs. General and administrative expenses decreased by 20% in
2003 from 2002. The decrease was a result of a $665,000 decrease
in compensation expenses due to headcount reductions and a
$478,000 decrease in facility costs primarily as a result of
$292,000 of expenses incurred in 2002 in order to restore our
vacated United Kingdom facility to its original condition and
lower rent costs in 2003 due to a reduction in office space.
Travel costs decreased by $105,000 in 2003 compared to 2002 due
to decreased headcount and cost-cutting measures, and insurance
costs decreased by $121,000. These decreases were partially
offset by $837,000 of expenses which was a result of fewer
overhead costs being allocated out to other departments in 2003.
In the third quarter of 2002, we completed a worldwide reduction
of headcount of approximately 11% of our staff. Restructuring
expenses of $296,000 consisted of severance payments made during
the third and fourth quarters of 2002. On February 11,
2003, we announced a restructuring of the organization to focus
on the SSP technology. The restructuring charges for 2003 were
$498,000 for employee termination benefits. Restructuring
expenses represented 70% of total revenues for 2003. There were
no restructuring costs in 2004.
|
|
|
Interest income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change | |
|
|
|
% Change | |
|
|
|
|
2004 | |
|
2003 to 2004 | |
|
2003 | |
|
2002 to 2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ in thousands) | |
Interest income (expense), net
|
|
$ |
6 |
|
|
|
115 |
% |
|
$ |
(40 |
) |
|
|
(153 |
)% |
|
$ |
75 |
|
Percentage of total revenues
|
|
|
1 |
% |
|
|
|
|
|
|
(6 |
)% |
|
|
|
|
|
|
1 |
% |
23
Net interest income (expense) changed from net interest
expense of $40,000 in 2003 to net interest income of $6,000 in
2004. This change was primarily due to interest expense that was
paid in 2003 on a $1,000,000 loan from Esmertec which was
settled in the first quarter of 2004.
Net interest income decreased from net interest income of
$75,000 in 2002 to net interest expense of $40,000 in 2003. The
change from net interest income to net interest expense was
primarily due to a combination of lower interest earned on cash
and cash equivalent balances and interest expense on a loan
received from Esmertec in February 2003. Our cash, cash
equivalents and restricted cash increased from $1.0 million
at December 31, 2002 to $2.2 million at
December 31, 2003 as a result of continued financing to
fund our business operations.
|
|
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change | |
|
|
|
% Change | |
|
|
|
|
2004 | |
|
2003 to 2004 | |
|
2003 | |
|
2002 to 2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ in thousands) | |
Other income (expense), net
|
|
$ |
249 |
|
|
|
92 |
% |
|
$ |
3,141 |
|
|
|
829 |
% |
|
$ |
(431 |
) |
Percentage of total revenues
|
|
|
46 |
% |
|
|
|
|
|
|
442 |
% |
|
|
|
|
|
|
6 |
% |
Other income (expense), net decreased from $3,141,000 of net
other income in 2003 to $249,000 of net other income in 2004.
The decrease was primarily due to a gain on the sale of our
Jeode product line in 2003. Other income (expense), net changed
from net other expense of $431,000 in 2002 to net other income
of $3,141,000 in 2003. The change was primarily due to the gain
of $3.1 million recognized on the sale of the Jeode product
line in 2003.
We have, at times, an investment portfolio of fixed income
securities that are classified as
“available-for-sale-securities”. These securities,
like all fixed income instruments, are subject to interest rate
risk and will fall in value if market interest rates increase.
We attempt to limit this exposure by investing primarily in
short-term securities.
|
|
|
Benefit from income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change | |
|
|
|
% Change | |
|
|
|
|
2004 | |
|
2003 to 2004 | |
|
2003 | |
|
2002 to 2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
($ in thousands) | |
|
|
Benefit from income taxes
|
|
$ |
(81 |
) |
|
|
(84 |
)% |
|
$ |
(510 |
) |
|
|
(76 |
)% |
|
$ |
(2,114 |
) |
Effective income tax rate
|
|
|
(1 |
)% |
|
|
|
|
|
|
(11 |
)% |
|
|
|
|
|
|
(20 |
)% |
The benefit from income taxes for 2004 primarily represented two
significant items. The first item was a net benefit of $187,000
due to a reduction for potential tax liabilities related to our
former Jeode product line. The booked liability was no longer
necessary due to our accumulated operating loss carry forwards,
tax receivables and the lack of tax assessments or expenses.
In addition, in 2004 there was an offsetting write down of tax
benefit of $104,000. This write down of tax benefit was related
to the reduction of expected benefit relating to the 2003 and
2004 refunds to be received from the United Kingdom for research
and development claims. The tax credit for United Kingdom
research and development expenditures was a tax refund for
qualifying research and development expenditures and not an
offset against a tax liability.
At December 31, 2004, we recorded a full valuation
allowance against all deferred income tax assets, primarily
comprised of net operating losses, on the basis that significant
uncertainty exists with respect to their realization.
From 2000 through 2002, certain research and development
expenditures incurred in the United Kingdom qualified for a
tax credit. The tax credit did not offset any tax liability but
rather was a refund. The estimated refund for 2004 is $134,000.
The estimated refund for 2003 reported in the 2003
Form 10-K was $391,000. The actual amount received for 2003
was $188,000 and was received in January of 2005. The difference
of $203,000 between estimated United Kingdom tax credit and the
actual refund
24
received for 2003 was due to the research and development
expenses for SSP incurred in the United States were disallowed
as the office in the United Kingdom was not leading the research
and development process. Our estimates have since been updated
for future years.
Quarterly financial data
The following table has been derived from unaudited consolidated
financial statements that, in the opinion of management, include
all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of this
information when read in conjunction with our annual audited
consolidated financial statements and notes thereto appearing
elsewhere in this Report. These operating results are not
necessarily indicative of results of any future period.
The following table provides selected quarterly consolidated
financial data (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended | |
|
|
| |
|
|
March 31 | |
|
June 30 | |
|
September 30 | |
|
December 31 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
462 |
|
|
$ |
734 |
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
457 |
|
|
|
640 |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,889 |
) |
|
|
(1,600 |
) |
|
|
|
|
|
|
|
|
|
Net loss attributable to ordinary shareholders
|
|
|
(1,889 |
) |
|
|
(2,015 |
) |
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$ |
(0.05 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
319 |
|
|
$ |
107 |
|
|
$ |
107 |
|
|
$ |
8 |
|
|
Gross profit (loss)
|
|
|
296 |
|
|
|
102 |
|
|
|
107 |
|
|
|
(6 |
) |
|
Net loss
|
|
|
(1,910 |
) |
|
|
(1,304 |
) |
|
|
(1,729 |
) |
|
|
(2,119 |
) |
|
Basic and diluted net loss per share
|
|
$ |
(0.07 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.06 |
) |
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
379 |
|
|
$ |
— |
|
|
$ |
201 |
|
|
$ |
130 |
|
|
Gross profit (loss)
|
|
|
212 |
|
|
|
(36 |
) |
|
|
131 |
|
|
|
63 |
|
|
Net income (loss)
|
|
|
(3,199 |
) |
|
|
2,273 |
|
|
|
(1,656 |
) |
|
|
(1,741 |
) |
|
Basic and diluted net income (loss) per share
|
|
$ |
(0.16 |
) |
|
$ |
0.11 |
|
|
$ |
(0.08 |
) |
|
$ |
(0.07 |
) |
Liquidity and capital resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
|
|
December 31, | |
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash, cash equivalents and restricted cash
|
|
$ |
892 |
|
|
$ |
952 |
|
|
$ |
2,232 |
|
|
$ |
976 |
|
Working capital (deficit)
|
|
$ |
(198 |
) |
|
$ |
900 |
|
|
$ |
2,254 |
|
|
$ |
1,964 |
|
Net cash used in operating activities in the period
|
|
$ |
(2,376 |
) |
|
$ |
(7,583 |
) |
|
$ |
(4,235 |
) |
|
$ |
(8,446 |
) |
Six months ended June 30, 2005
Cash used in operating activities in the six months ended
June 30, 2005 totaled $2,376,000 compared to $2,673,000 for
the same period in 2004. For the six months ended June 30,
2005, cash used in operating activities resulted primarily from
a net loss of $3,489,000, an increase in accounts receivable of
$496,000 and a decrease of deferred revenue of $113,000,
partially offset by a decrease in other receivables and prepaid
expenses of $583,000 and an increase of accounts payable and
accruals of $644,000.
Cash provided by investing activities for the six months ended
June 30, 2005 was $137,000, which consisted of cash
received with the purchase of Mi4e of $303,000, net acquisition
and issuance costs paid of $154,000, less $12,000 for the
purchase of fixed assets.
25
Cash provided by financing activities for the six months ended
June 30, 2005 was $2,179,000, resulting from share
issuances to investors with net proceeds of $1,858,000, proceeds
from issuance of convertible notes payable of $275,000, and
proceeds from exercise of stock options and employee stock
purchase plan of $90,000, less $44,000 for repayment of notes
payable.
Our cash, cash equivalents and restricted cash were $892,000 at
June 30, 2005, a decrease of $60,000 from $952,000 at
December 31, 2004. At June 30, 2005 and
December 31, 2004, we had a working capital deficit of
$198,000 and surplus of $900,000, respectively. The working
capital deficit arose from the Company’s operating losses
in the six months ended June 30, 2005 exceeding cash equity
investments in the Company during the period. The principal use
of working capital was funding the operating loss and financing
of accounts receivable. We have no material commitments for
capital expenditures. Our commitments for expenditures consist
of building leases in the U.K. and U.S.
Years ended December 31, 2004, 2003, and 2002
Cash used in operating activities totaled $7.6 million
during 2004, compared to $4.2 million during 2003, and
$8.4 million in 2002. The $7.6 million in cash used in
operations in 2004 was primarily the result of our
$7.1 million net loss. There was a $353,000 non-cash charge
for warrant issuances as well as $82,000 equity in the net loss
of our Korean affiliate and a gain on the sale of the Jeode
product line of $302,000. In addition, the decrease of accounts
payable resulted in a use of cash of $155,000 as did the
decrease of accrued liabilities of $392,000. An additional use
of cash resulted from an increase in trade accounts receivable
of $125,000. The cash used in operations in 2003 resulted
primarily from a net loss of $4.3 million, the gain on the
sale of the Jeode product line of $3.1 million and a
decrease of accounts payable of $187,000. Partially offsetting
these uses of cash were an increase in deferred revenue of
$1,085,000, a decrease of accounts receivable of $931,000, a
decrease of other noncurrent assets of $319,000, and a decrease
of tax receivable of $311,000. In fiscal 2002, cash used in
operations resulted primarily from a net loss of
$8.4 million, an increase of tax receivable of $702,000, an
increase of prepaid royalties of $1.2 million and a
reduction of deferred revenue of $3.5 million.
Cash provided by investing activities in 2004 was $998,000 which
consisted primarily of $1.3 million in proceeds received
from the sale of the Jeode product line. The $1.3 million
in proceeds received from the sale of the Jeode product line was
offset in part by $150,000 of investments in our Korean joint
venture affiliate and $90,000 of purchased property and
equipment. Cash provided by investing activities in 2003 was
$2.0 million, which consisted primarily of
$1.9 million of net proceeds from the sale of the Jeode
product line and $230,000 being released from restricted cash.
Cash used in investing activities in 2002 was $125,000, which
consisted primarily of purchases of property and equipment.
Cash provided by financing activities in 2004 was
$5.3 million, which consisted primarily of
$4.3 million, net of transaction costs, in proceeds from
two private placements and issuance of shares under the Fusion
Capital securities subscription agreement, $610,000 in proceeds
from the exercise of options and $390,000 in proceeds from the
exercise of warrants. Cash provided by financing activities in
2003 was $3.7 million, which consisted primarily of
proceeds from the issuance of shares under the Fusion Capital
securities subscription agreement of $1.9 million, net of
transaction costs, proceeds from the exercise of warrants of
$841,000 and proceeds from a note payable of $1.0 million.
Cash provided by financing activities in 2002 was $654,000,
which consisted primarily of proceeds from exercise of warrants
of $480,000 and from the issuance of common stock under employee
benefit plans of $175,000.
26
As of June 30, 2005, we had the following contractual
obligations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Notes | |
|
Operating | |
|
|
Payable | |
|
Leases | |
|
|
| |
|
| |
Year ending December 31, 2005(July 1, 2005 through
December 31, 2005)
|
|
$ |
20 |
|
|
$ |
107 |
|
2006
|
|
|
40 |
|
|
|
226 |
|
2007
|
|
|
4 |
|
|
|
198 |
|
2008
|
|
|
— |
|
|
|
198 |
|
2009
|
|
|
— |
|
|
|
198 |
|
|
Thereafter
|
|
|
— |
|
|
|
918 |
|
|
|
|
|
|
|
|
|
|
$ |
64 |
|
|
$ |
1,845 |
|
|
|
|
|
|
|
|
As of June 30, 2005, three customers accounted for 82% of
our total accounts receivable.
We have granted extended payment terms to customers from time to
time depending on various factors, including the length of the
requested payment extension and the creditworthiness of the
customer. We report these future payments as accounts receivable
and either recognized revenue or deferred revenue. Deferred
revenue decreased by $1,450,000 for 2004. The decrease was
primarily the result of assigning our Jeode support and
maintenance contracts to Esmertec in early 2004.
Insignia warrants its software products against defects in
material and workmanship under normal use and service for a
period of ninety days. There is no warranty accrual recorded
because potential future payments either are not probable or we
have yet to incur the expense.
On October 17, 2002, we entered into a securities
subscription agreement with Fusion Capital, pursuant to which
Fusion Capital agreed to purchase, on each trading day following
the effectiveness of a registration statement covering the ADSs
to be purchased by Fusion Capital, $10,000 of our ADSs up to an
aggregate of $6.0 million over a period of 30 months.
During 2003, we sold 3,380,132 ADSs to Fusion Capital resulting
in proceeds of approximately $1.9 million, net of
transaction costs, under the 2002 Fusion Capital securities
subscription agreement. In 2004, we sold 3,100,060 shares
to Fusion Capital for aggregate proceeds of $1.5 million,
net of transaction costs, under the 2002 Fusion Capital
securities subscription agreement. At December 31, 2004,
$190,000 was due from Fusion Capital for stock purchases made
and the amount was included in other receivables in our
accompanying consolidated balance sheet. Payment was received in
January 2005. In the first quarter of 2005, we issued and sold
to Fusion Capital 3,519,808 ADSs for approximately
$1.5 million under the 2002 Fusion Capital agreement, and
on February 9, 2005, we and Fusion Capital entered into a
mutual termination agreement pursuant to which the 2002 Fusion
Capital securities subscription agreement was terminated.
In addition to the shares purchased by Fusion Capital under the
2002 Fusion Capital securities subscription agreement, we also
issued warrants to purchase an aggregate of
2,000,000 shares to Fusion Capital, with a per share
exercise price of the United States dollar equivalent of 20.5
pence. As of December 31, 2002, the estimated value of the
warrants, using the Black-Scholes model was $544,000. Upon
Fusion’s exercise of these warrants in 2003, we issued
Fusion Capital 2,000,000 ADSs for a total of $668,000, net of
issuance costs.
In early January 2004, Insignia Solutions issued and sold to
certain institutional and other accredited investors, in a
private placement, 2,262,500 newly issued ADSs, and warrants to
purchase 565,625 ADSs, for a total purchase price of
approximately $1.8 million.
On October 18, 2004, we closed a private placement
financing with certain institutional and other accredited
investors pursuant to which we sold newly issued ADSs and
warrants to purchase ADSs, for a total purchase price of
approximately $1.5 million, or $1.3 million net of
transaction costs.
On February 10, 2005, we entered into the 2005 Fusion
Capital securities subscription agreement with Fusion Capital to
sell ADSs having an aggregate purchase price of up to
$12 million, to Fusion Capital over a period of
30 months (subject to daily maximum purchase amounts). The
shares will be priced based on a market-based formula at the
time of purchase. The commencement of funding under the 2005
Fusion Capital securities subscription agreement is subject to
certain conditions, including the declaration of effectiveness
by the Securities and Exchange Commission of a registration
statement covering the ADSs to be purchased by Fusion Capital
under the 2005 Fusion Capital securities subscription agreement.
Under the rules and regulations of the
27
Nasdaq SmallCap Market, the Company would be required to obtain
shareholder approval to sell more than 19.99% of the issued and
outstanding shares as of February 10, 2005 under this
agreement. Insignia currently expects that commencement of
funding under the 2005 Fusion Capital securities subscription
agreement will begin during the second half of 2005, however the
timing and certainty of the commencement of funding under the
2005 Fusion Capital securities subscription agreement are not
within Insignia’s control. Any delay in the commencement of
funding under the 2005 Fusion Capital securities subscription
agreement would jeopardize Insignia’s business. As a
commitment fee for this facility, Fusion Capital received
warrants for 2,000,000 shares exercisable at the greater of
£0.205 or $0.40 per share and for 2,000,000
exercisable at £0.205 each. These warrants are exercisable
immediately and expire on February 28, 2010.
On March 16, 2005, we closed our acquisition of Mi4e, a
private company headquartered in Stockholm, Sweden. The
consideration paid in the transaction was 2,969,692 ADSs
representing ordinary shares and another 989,896 ADSs will be
issuable on March 31, 2006, subject to potential offset for
breach of representations, warranties and covenants. In addition
up to a maximum of 700,000 euros is payable in a potential earn
out based on a percentage of future revenue collected from sales
of existing Mi4e products. As of June 30, 2005, $22,000 of
this earn out was earned.
In June 2005, the Company issued convertible notes to three
shareholders in exchange for a bridge financing of $275,000.
These notes were converted into the Series A preferred
stock described below on June 30, 2005. In consideration of
this bridge financing we accrued loan fees in the form of ADSs
representing 45,833 ordinary shares and warrants to purchase an
aggregate of 45,833 ADSs at an exercise price of $0.58 per
share were issued; these shares were valued at a market value of
$25,200 and the warrants had a fair value, calculated using the
Black-Scholes model, of approximately $17,000. These warrants
are exercisable on December 21, 2005 and expire on
June 30, 2010.
On June 30, 2005 and July 5, 2005, we and our
wholly-owned subsidiary Insignia Solutions Inc. entered into
securities subscription agreements with Fusion Capital and other
investors. Pursuant to these subscription agreements, we
completed a closing for an aggregate of $1,000,000 on
June 30, 2005 (including exchange of the $275,000 bridge
notes), and we completed a second closing on July 5, 2005
for an additional $440,400. Pursuant to these subscription
agreements, the subsidiary issued its Series A preferred
stock, to the investors. This preferred stock is non-redeemable.
The shares of preferred stock (plus all accrued and unpaid
dividends thereon) held by each investor are exchangeable for
ADSs (i) at any time at the election of investor,
(ii) automatically upon written notice by us to the
investor in the event that the sale price of the ADSs on the
Nasdaq SmallCap Market is greater than $1.50 per share for
a period of ten consecutive trading days, and certain other
conditions are met, and (iii) automatically to the extent
any shares of the preferred stock have not been exchanged prior
to June 30, 2007. The preferred stock in the first two
years will accrue dividends at a rate of 15% per year
compounded annually, payable in the form of additional ADSs.
Including accruable dividends, the shares of preferred stock
issued on June 30, 2005, together with the additional
shares issued on July 5, 2005, will be exchangeable for
3,306,251 and 1,456,075 ADSs, respectively, representing an
initial purchase price of $0.40 per ADS. Pursuant to the
above subscription agreements, we also issued to the investors
on June 30, 2005 and July 5, 2005, warrants to
purchase 2,500,000 and 1,101,000 ADSs, respectively, at an
exercise price per share equal to the greater of $0.50 or the
U.S. Dollar equivalent of 20.5 U.K. pence. These warrants
are immediately exercisable and expire on June 30, 2010.
The issuance of the Series A preferred stock resulted in a
beneficial conversion feature, calculated in accordance with
EITF No. 00-27, “Application of Issue No. 98-5,
Accounting for Convertible Securities with Beneficial Conversion
Features of Contingently Adjustable Conversion Ratios to Certain
Convertible Instruments” based upon the conversion price of
the preferred stock into ADSs, and the fair value of the ADSs at
the date of issue. Accordingly, the warrants issued on
June 30, 2005 were valued at $585,000, using a
Black-Scholes model and the Company recognized $415,000 as a
charge to additional paid-in-capital to account for the deemed
dividend on the preferred stock as of the issuance date, which
represented the amount of the proceeds allocated to the
preferred stock. The amount of the deemed dividend related to
the beneficial conversion feature was recorded upon the issuance
of the preferred stock, as the preferred stock can be converted
to ADSs by the holder at any time.
28
Our cash, cash equivalents and restricted cash totaled
$0.9 million at June 30, 2005, $1.0 million at
December 31, 2004, and $2.2 million at
December 31, 2003. We had recurring net losses of
$3.5 million, $7.1 million, $4.3 million, and
$8.4 million for the six months ended June 30, 2005,
and the years ended December 31, 2004, 2003, and 2002,
respectively, and we also had net cash used in operations of
$2.4 million, $7.6 million, $4.2 million, and
$8.4 million for the six months ended June 30, 2005
and the years ended December 31, 2004, 2003, and 2002,
respectively. These conditions raise substantial doubt about our
ability to continue as a going concern. Based upon our current
forecasts and estimates, including the timely funding of the
2005 Fusion Capital securities subscription agreement and the
achievement of our target revenues, cost-cutting and accounts
receivable collection goals, our current forecasted cash and
cash equivalents should be sufficient to meet our operating and
capital requirements through June 30, 2006. If cash
currently available from all sources is insufficient to satisfy
our liquidity requirements, we may seek additional sources of
financing, including selling additional equity or debt
securities. If additional funds are raised through the issuance
of equity or debt securities, these securities could have
rights, preferences and privileges senior to holders of our
shares, and the terms of such securities could impose
restrictions on our operations. The sale of additional equity or
debt securities could result in additional dilution to our
shareholders. We may not be able to obtain additional financing
on acceptable terms, if at all. If we are unable to obtain
additional financing as and when needed and on acceptable terms
our business may be jeopardized.
New accounting pronouncements
In March 2004, the Emerging Issues Task Force (“EITF”)
reached a consensus on Issue No. 03-01, “The Meaning
of Other-Than-Temporary Impairment and Its Application to
Certain Investments” (“EITF 03-01”).
EITF 03-01 provides guidance on other-than-temporary
impairment models for marketable debt and equity securities
accounted for under Statements of Financial Accounting Standards
(“SFAS”) No. 115, “Accounting for Certain
Investments in Debt and Equity Securities,” and
SFAS No. 124, “Accounting for Certain Investments
Held by Not-for-Profit Organizations,” and non-marketable
equity securities accounted for under the cost method. The EITF
developed a basic three-step model to evaluate whether an
investment is other-than-temporarily impaired. The Financial
Accounting Standards Board (“FASB”) issued
EITF 03-01-1 in September 2004 which delayed the effective
date of the recognition and measurement provisions of
EITF 03-01; however, the disclosure requirements remain
effective for annual periods ending after June 15, 2004. We
do not expect the adoption of EITF 03-01 to have a material
impact on our results of operations or financial condition.
In April 2004, the EITF issued Statement No. 03-06,
“Participating Securities and the Two-Class Method Under
FASB Statement No. 128, Earnings Per Share”
(“EITF 03-06”). EITF 03-06 addresses a
number of questions regarding the computation of earnings per
share by companies that have issued securities other than common
stock that contractually entitle the holder to participate in
dividends and earnings of the company when, and if, it declares
dividends on its common stock. The issue also provides further
guidance in applying the two-class method of calculating
earnings per share, clarifying what constitutes a participating
security and how to apply the two-class method of computing
earnings per share once it is determined that a security is
participating, including how to allocate undistributed earnings
to such a security. EITF 03-06 is effective for fiscal
periods beginning after March 31, 2004. The adoption of
EITF 03-06 did not have a material effect on
Insignia’s results of operations or financial position.
In December 2004, the FASB issued SFAS No. 123
(revised 2004) “Share-Based Payment”
(“SFAS 123R”), a revision to SFAS 123.
SFAS 123R addresses all forms of share-based payment
(“SBP”) awards, including shares issued under the 1995
Incentive Stock Option Plan (“Purchase Plan”), stock
options, restricted stock, restricted stock units and stock
appreciation rights. SFAS 123R will require the Company to
record compensation expense for SBP awards in our statements of
operations based on the fair value of the SBP awards. Under
SFAS 123R, restricted stock and restricted stock units will
generally be valued by reference to the market value of freely
tradable shares of the Company’s ordinary shares. Stock
options, stock appreciation rights and shares issued under the
Purchase Plan will generally be valued at fair value determined
through an option valuation model, such as a lattice model or
the Black-Scholes model (the model that Insignia currently uses
for its footnote disclosure). SFAS 123R is effective for
annual periods beginning after June 15, 2005 and,
accordingly, Insignia must adopt the new accounting provisions
effective
29
January 1, 2006. The Company will adopt the provisions of
SFAS 123R using a modified prospective application. Under a
modified prospective application, SFAS 123R will apply to
new awards and to awards that are outstanding on the effective
date and are subsequently modified or cancelled. Compensation
expense for outstanding awards for which the requisite service
had not been rendered as of the effective date will be
recognized over the remaining service period using the
compensation cost calculated for pro forma disclosure purposes
under SFAS 123. The Company is in the process of
determining how the new method of valuing stock-based
compensation as prescribed in SFAS 123R will be applied to
valuing stock-based awards granted after the effective date and
the impact the recognition of compensation expense related to
such awards will have on its consolidated financial statements.
In December 2004, the FASB issued SFAS 153, “Exchanges
of Nonmonetary Assets, an amendment of APB Opinion
No. 29” (“SFAS 153”). SFAS 153
addresses the measurement of exchanges of nonmonetary assets and
redefines the scope of transactions that should be measured
based on the fair value of the assets exchanged. SFAS 153
is effective for nonmonetary asset exchanges beginning in our
first quarter of fiscal 2006. We do not believe adoption of
SFAS 153 will have a material impact on our results of
operations or financial condition.
In June 2005, the FASB issued SFAS No. 154,
“Accounting changes and Error Corrections, a replacement of
APB Opinion No. 20, Accounting Changes, and Statement
No. 3, Reporting Accounting Changes in Interim Financial
Statements” (“SFAS 154”). SFAS 154 will
require companies to account for and apply changes in accounting
principles retrospectively to prior periods’ financial
statements, instead of recording a cumulative effect adjustment
within the period of the change, unless it is impracticable to
determine the effects of the change to each period being
presented. SFAS 154 is effective for accounting changes
made in annual periods beginning after December 15, 2005
and, accordingly, we must adopt the new accounting provisions
effective January 1, 2006. We do not expect the adoption of
SFAS 154 to have a material effect on our financial
position, results of operations or cash flows.
Quantitative and Qualitative Disclosures about Market Risk
At December 31, 2004, we had $109,000 in cash held in
foreign currencies as translated at period end foreign currency
exchange rates. Most of our foreign currencies are British pound
sterling and are primarily used for paying the local operating
expenses of our U.K. office. The effect of foreign exchange
rate fluctuations on operations resulted in income of $21,000
and $35,000 for the years ended December 31, 2004 and 2003,
respectively. For the years ended December 31, 2004 and
2003, we did not engage in any foreign currency hedging
activities.
We have, at times, an investment portfolio of fixed income
securities that are classified as
“available-for-sale-securities.” These securities,
like all fixed income instruments, are subject to interest rate
risk and will fall in value if market interest rates increase.
We attempt to limit this exposure by investing primarily in
short-term securities.
Internal Controls
In connection with its audit for the six-month period ended
June 30, 2005, Burr, Pilger & Mayer LLP
(“BPM”), our independent registered public accounting
firm, identified a material weakness in our internal control
over financial reporting. Deficiencies noted related to our
failure to complete, on a timely basis, a proper analysis of,
accounting for, and management review of (i) certain
complex equity transactions, (ii) our acquisition of Mi4e,
and (iii) activity related to Mi4e subsequent to the
closing of our acquisition. In response to the internal control
matters identified above, we recruited in August 2005 a
controller in Sweden to oversee the accounting for Mi4e and plan
to obtain appropriate professional assistance at the time we
engage in unusual and/or complex financial transactions.
The existence of the above deficiencies in the design or
operation of our internal control could adversely affect our
ability to record, process, summarize and report financial data
consistent with the assertions of management in the consolidated
financial statements. Such deficiencies primarily related to our
lack of maintenance of effective controls over the financial
reporting process because we did not have a sufficient
complement of personnel with technical accounting and financial
reporting expertise commensurate with our financial reporting
requirements, as a result of employee turnover, transition, and
limited resources.
30
BUSINESS
Overview
We commenced operations in 1986 and currently develop, market
and support software technologies that enable mobile operators
and phone manufacturers to better update, configure and manage
today’s more complex mobile phones using standard
over-the-air data networks. Before 2003, our principal product
line was the
Jeodetm
platform, based on our Embedded Virtual Machine technology. The
Jeode platform was our implementation of Sun Microsystems,
Inc.’s Java® technology tailored for smart devices.
During 2001, we began development of a range of products
(“SSP” products) for the mobile phone and wireless
operator industry. The SSP products build on our position as a
Virtual Machine supplier for manufacturers of mobile devices and
allow wireless operators and phone manufacturers to reduce
customer care and software recall costs, as well as increase
subscriber revenue by deploying new mobile services based on
dynamically provisioning of new capabilities. With the sale of
our Jeode product line in April 2003, our sole product line then
consisted of our SSP products. We shipped our first SSP product
in December 2003. In March 2005, we acquired Mi4e, a private
company headquartered in Stockholm, Sweden. Mi4e was founded in
2003 and had $646,000 of revenues in 2004. Mi4e’s main
product, a device management server, is a mobile device
management infrastructure solution for mobile operators that
supports the Open Mobile Alliance client provisioning
specification. DMS was first deployed at Telstra in Australia in
2000 and has since been deployed at more than ten carriers
around the world. By integrating the Mi4e products with existing
Insignia applications, we are able to deliver a more
comprehensive solution to mobile network operators and handset
manufacturers.
Industry Overview
The telecommunications industry is moving very quickly towards
providing sophisticated data services on a wide variety of
different mobile terminals. Mobile phones, terminals and other
portable devices are becoming more sophisticated and accordingly
the software within them is becoming more complex and hence less
reliable. Operators want to introduce additional services, but
are limited by the capabilities of the existing phones.
|
|
|
The Trend Towards More Complex Software |
As more and more advanced features are packed into mobile
phones, the software becomes more complex, leading to more
software problems. However, consumers have come to expect the
same level of reliability and performance as that to which they
are accustomed from their traditional voice-only fixed phones.
Thus, the addition of more software on the mobile phones creates
a new critical challenge for operators and device
manufacturers — ensuring consistent reliability and
performance.
Due to increased software functionality and hence complexity,
manufacturers are experiencing a high incidence of problems with
feature phones, adding a significant maintenance expense for the
telecommunications industry. Mobile phone recalls can be
expensive. Manufacturers are often responsible for the entire
recall operation, ranging from notification and taking customer
calls to re-flashing and administering the entire process.
Curbing these costs through a comprehensive “Over-The-Air
Repair”tm
system will significantly reduce the manufacturers’ costs
by minimizing the need for in-store and through-the-mail repairs
and by reducing customer service personnel.
|
|
|
Evolution of Mobile Terminals |
In the 1980’s, when the first large scale commercial mobile
services were launched in the United States, the mobile handsets
or “terminals” available for services were analog
voice-only terminals. Even when the first digital terminals came
into the market, they were voice-only terminals. As the global
subscriber base for mobile services grew exponentially in the
1990’s, static applications such as address books and games
as well as communication applications such as short message
service text messaging (“SMS”) were packed into the
terminals. With the Internet boom in the mid to late
1990’s, mobile terminals evolved into sophisticated data
31
terminals as well by integrating them with web browsers. As the
need for data bandwidth grew, high-speed data technologies such
as General Packet Radio Service (“GPRS”) and Code
Division Multiple Access (“CDMA”) emerged, and the new
models of mobile phones incorporated these high-speed data
technologies. Toward the end of the 1990’s, the mobile
terminals took another leap with the introduction of the concept
of downloadable applications. In addition, evolving standards
were introduced which allowed the transfer and synchronization
of data in the mobile terminals with other devices such as
personal computers and personal data assistants. With the wider
deployment of an enhanced phone for photo imaging, game playing
and more messaging technologies, as well as the increasing
coverage of more robust networks, the number of features built
into mobile phones has further increased.
The result of this rapid transformation of mobile terminals from
voice-only terminals to sophisticated all-purpose consumer
devices is that the software running on the mobile terminal has
become extremely complex and hence vulnerable to problems.
In response to this need, mobile device management
(“MDM”) solutions have emerged to enable users to
remotely configure, update and monitor mobile connected devices.
More specifically, MDM solutions today enable mobile operators
to configure and update settings, install new capabilities,
query a device to determine its status, upgrade or update
software components or the entire software load, monitor a
device for errors and automatically respond to those errors with
corrective measures.
These capabilities enable a wide range of powerful new functions
including;
|
|
|
|
• |
Highly targeted configuration of devices to suit a mobile
subscriber’s interests, including downloading audio and
video, graphics, applications and games, all capabilities that
mobile operators around the world are seeking to increase
revenues; |
|
|
• |
Automatic monitoring and corrective response to failures, which
reduce technical support costs and subscriber frustration with
ever-more complex devices; |
|
|
• |
Automatic device configuration to eliminate the need for
subscriber intervention to insure that the supported data
services work out of the box; and |
|
|
• |
Enterprise control over their dispersed work force mobile
devices to remotely deploy and update mobile applications,
insure that they work, and to insure that the correct security
measures are in place and that only authorized applications are
being used. |
When deployed correctly, mobile device management technologies
can improve the subscriber’s experience, reduce costs of
support and increase data services revenues for the operator,
decrease handset vendor support and warranty costs and enable
corporations to deploy and manage new mobile applications to
their workforce.
Initial interest in MDM solutions came from handset vendors that
were focused on controlling escalating support costs. We believe
that mobile operators are now becoming interested in the ability
to use MDM solutions to drive increased data revenues. In
addition, we, are now beginning to see early signs of interest
from large enterprises deploying applications to a mobile
workforce, who are beginning to recognize the ability to use MDM
solutions to manage mobile applications deployed on smart phones.
For example, mobile operators are not maximizing data revenues
or subscriber experience if a 14-year-old boy’s phone is
configured the same way as the phone for a 40-year-old
professional in the field. However, today, that is generally
what happens. If the phones were configured with meaningful home
pages, bookmarks, MP3 content, games, etc., the new data
services could be merchandised in a compelling way to interested
subscribers. We believe that mobile operators are beginning to
recognize this opportunity and are now moving to adopt solutions
that enable a dynamic approach to their subscriber base.
The Open Mobile Alliance or “OMA”, the leading
standards body for the GSM world, has codified standards over
the past year to support new and higher levels of manageability
of mobile devices. The OMA has progressed from simple
configuration of data services, like SMS, MMS and GPRS, to the
ability to create customized managed objects and to be able to
both read and write these settings. More recently, they
32
introduced specifications for the updating of firmware. We
believe that the OMA plans to release new specifications for
diagnostics and alerts, and the ability to install new bundled
capabilities and content in a seamless transaction, opening the
way for fast evolving innovations in mobile content similar to
what has been seen in the personal computer.
As a result, we believe that there is an opportunity to lead in
the development of standards based mobile device management
solutions and in so doing deliver significant value to
subscribers, the mobile operators, handset vendors and the
enterprises who will be deploying these applications. We have
delivered a powerful solution based on current OMA standards and
we intend to support future standards as they evolve.
Products and Support
The SSP product line has been available since December 2003. The
SSP product line revenue model is based on a combination of
indirect sales to customers through OEMs as well as direct sales
to customers. SSP product line revenues accounted for 83% and 3%
of total Insignia revenues in 2004 and 2003, respectively, and
39% of total Insignia revenues in the six months ended
June 30, 2005. In June 2005, Insignia ceased using the SSP
brand name, upon the release of an integrated server solution
that incorporated SSP and Mi4e’s DMS. The integrated server
solution is now marketed under the Insignia Device Management
Suite (“IDMS”) brand.
|
|
|
Insignia’s Device Management Suite |
Insignia’s IDMS brings intelligence to device management to
enhance subscriber satisfaction with increasingly complex mobile
services. The IDMS allows mobile operators to remotely
provision, update, and manage devices and services throughout
the device lifecycle.
ICEtm,
IDMS includes providing intelligent targeted provisioning and
automated device management to further enhance the
subscriber’s experience, drive new revenue generating
services, and reduce customer care costs.
Insignia’s IDMS removes the complexity of configuring new
service parameters and enables more flexible and dynamic service
offerings. The system can automatically configure bundled
services when the network detects the device, and new
personalized services can be added quickly and simply. We
believe that these benefits can help mobile operators achieve
increased service usage and loyalty from their subscribers.
Automatic configuration eliminates factory provisioning costs,
and ensures that subscribers have up-to-date service
configurations right out of the box. As a result, mobile
operators can have greater control and improved management of
devices and subscriber satisfaction.
|
|
|
Insignia’s Open Management Client |
Insignia’s Open Management Client (“OMC”) works
with any server infrastructure compatible with the latest OMA DM
standard. OMA DM defines a framework for remotely managing
today’s complex mobile devices. It enables device
manufacturers and mobile operators to remotely:
|
|
|
|
• |
Configure device and service parameters; |
|
|
• |
Install and update firmware and applications; and |
|
|
• |
Retrieve device management information. |
The OMC implements the complete OMA DM specification including
the FUMO (Firmware Update Management Object) enabler. The OMC
supports download of firmware by both DL and in-session download
methods. The OMC consists of two main modules — the
OMA DM client and the update agent. An optional OMA DS (Data
Sync) capability is also available.
33
We offer both pre-sales and post-sales support to our customers.
Pre-sales support is provided at no charge. After the sale of a
license, each customer is offered a renewable one year annual
maintenance contract which entitles the customer to receive
standard support, including: web-based support, access to
frequently asked questions (“FAQs”), on-line
publications and documentation, email assistance, limited
telephone support, and critical bug fixes and product updates
(collective bug fixes and minor enhancements) on an “if and
when available” basis. We also have a professional services
group based in Stockholm which provides consulting,
implementation and training services for our customers.
Research and Development
In the six months ended June 30, 2005 and calendar 2004 and
2003, we spent approximately $1.6 million,
$2.8 million and, $3.4 million, respectively, on
research and development. At June 30, 2005, we had
15 full-time employees engaged in research and development,
of which 7 were located at our facility in the
United Kingdom, 5 in Sweden and 3 were located at our
facility in Fremont, California.
Proprietary Rights
We rely on a combination of copyright, trademark and trade
secret laws and confidentiality procedures to protect our
proprietary rights. We have filed in the United Kingdom and the
United States patent applications for innovative technologies
incorporated into our SSP product. As part of our
confidentiality procedures, we generally enter into
non-disclosure agreements with our employees, consultants,
distributors and corporate partners, and we limit access to and
distribution of our software, documentation and other
proprietary information. Despite these precautions, it may be
possible for a third party to copy or otherwise to obtain and
use our products or technology without authorization, or to
develop similar technology independently. In addition, effective
protection of intellectual property rights may be unavailable or
limited in certain countries. We license technology from various
third parties.
We may, from time to time, receive communications from third
parties asserting that our products infringe, or may infringe,
on their proprietary rights. Licenses to disputed third-party
technology may not be available on reasonable commercial terms,
if at all. In addition, we may initiate claims or litigation
against third parties for infringement of our proprietary rights
or to establish the validity of our proprietary rights.
Litigation to determine the validity of any claims could result
in significant expense to us and divert the efforts of our
technical and management personnel from productive tasks,
whether or not such litigation is determined in our favor. In
the event of an adverse ruling in any such litigation, we may be
required to pay substantial damages, discontinue the use and
sale of infringing products, and expend significant resources to
develop non-infringing technology or obtain licenses to
infringing technology. In the event of a successful claim
against us and our failure to develop or license a substitute
technology, our business, financial condition and results of
operations would suffer. As the number of software products in
the industry increases and the functionality of these products
further overlaps, we believe that software developers may become
increasingly subject to infringement claims. Any such claims
against us, with or without merit, as well as claims initiated
by us against third parties, can be time consuming and expensive
to defend or prosecute and to resolve.
Sales and Marketing
Our products are being sold and marketed to mobile operators and
device manufacturers through direct and indirect channels. Our
direct sales force is based in the United States, covering Asia,
and Sweden, covering Europe. Our sales force consists of direct
sales representatives and sales engineers. Our indirect sales
channels include distributors and original equipment
manufacturers (“OEMs”).
34
Sales to distributors and OEMs, representing more than 10% of
total revenue in each period accounted for the following
percentages of total revenue:
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Esmertec A.G
|
|
|
17 |
% |
|
|
* |
|
Hewlett Packard Company
|
|
|
— |
|
|
|
26 |
% |
Insignia Asia Corporation
|
|
|
14 |
% |
|
|
— |
|
Qindao Haier Telecom Company Limited
|
|
|
21 |
% |
|
|
— |
|
Sophast Inter Corporation Company Limited
|
|
|
18 |
% |
|
|
— |
|
Telemobile Corporation
|
|
|
28 |
% |
|
|
— |
|
In an effort to accelerate the acceptance of our products, we
have developed cooperative alliances and entered into reseller
agreements with leading enterprise software vendors, OEMs, and
system integrators. We believe these alliances have the
potential to provide additional marketing and sales channels for
our products, help enable us to raise awareness of our products
among OEMs and mobile operators, and facilitate market
acceptance for our products. To date, however, these alliances
have not proven to be a reliable source of revenue, and we
continue to depend upon our direct sales force for the
significant part of our revenue. We typically have very little
backlog and, accordingly, generate substantially all of our
revenue for a given quarter in that quarter.
Our marketing efforts are directed at creating market awareness
and generating sales leads. In 2004 and 2005, our marketing
efforts were focused on the operator market, with the goal of
establishing Insignia as a leading provider of software to
update and configure mobile devices. During this time, we have
worked to educate industry analysts, OEMs, distributors and
mobile operators about our technology and its competitive
advantages. Marketing activities include: inside sales, Web
seminars, e-marketing techniques and opportunity generation
prospecting activities. In addition, our public relations
programs are designed to build market awareness by establishing
and maintaining relationships with key trade press, business
press, and industry analysts.
Competition
Our products are targeted for the mobile operator and mobile
device market. The market for these products is fragmented and
highly competitive. This market is also rapidly changing, and
there are many companies creating products that compete or will
compete with ours. As the industry develops, we expect
competition to increase in the future. This competition may come
from existing competitors or other companies that we do not yet
know about. Our main competitors include Bitfone, IBM, InnoPath,
4thPass, mFormation, Openwave and Red Bend.
If these competitors develop products that are less expensive or
provide better capabilities or functionality than our products,
we will be unable to gain market share. Many of our current
competitors and potential competitors have greater resources,
including larger customer bases and greater financial resources
than we do, and we might not be able to compete successfully
against these companies. A variety of other potential actions by
our competitors, including increased promotion and accelerated
introduction of new or enhanced products, could also harm our
competitive position.
Employees
As of June 30, 2005, we employed 37 regular full-time
persons of which 14 were located in the United States, 8 in
the United Kingdom and 15 in Sweden. Of the 14 people in the
United States, 5 were in sales and marketing, 3 in research and
development and 6 in administration and finance. Of the 8 people
in the United Kingdom, 7 were in research and development
and 1 was in administration and finance. Of the
35
15 people in Sweden, 5 were in research and development, 4
in customer support, 4 in sales and marketing and 2 in
administration. None of our employees are represented by a labor
union, and we have experienced no work stoppages. We believe
that our employee relations are good.
Facilities
Our headquarters and principal management, sales and marketing
and support facility is located in Fremont, California. On
April 8, 2003, we entered into a three-year contract lease
renewal for approximately 9,500 square feet. Our principal
European sales, research and development and administrative
facility is located in High Wycombe, in the United Kingdom, and
consists of approximately 5,000 square feet under a lease
that will expire in August 2013. In April 2003, as part of the
sale of the Jeode product line to Esmertec, Esmertec entered
into an agreement with our U.K. building landlord to take over
the leasehold property on one of the two buildings located in
High Wycombe. Effective February 1, 2004, we subleased half
of our remaining U.K. office space until December 31, 2005.
In addition, we have a sales, research and development facility
in Sweden, which we have occupied since August 2005 under a
three-year lease.
36
MANAGEMENT
Executive Officers and Directors of the Registrant
The executive officers and directors of Insignia as of
October 1, 2005 are as follows:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position |
|
|
| |
|
|
Nicholas, Viscount Bearsted(1)(2)
|
|
|
55 |
|
|
Chairman of the Board of Directors |
David G. Frodsham(2)
|
|
|
49 |
|
|
Director |
Vincent S. Pino(1)(2)
|
|
|
57 |
|
|
Director |
Mark E. McMillan
|
|
|
42 |
|
|
Chief Executive Officer, President and a Director |
Richard M. Noling
|
|
|
56 |
|
|
Interim Chief Financial Officer and Director |
Anders Furehed
|
|
|
36 |
|
|
Senior Vice President of European Operations |
|
|
(1) |
Members of Compensation Committee. |
|
|
(2) |
Members of Audit Committee. |
|
Nicholas, Viscount Bearsted has served as Chairman and
Director of Insignia since December 1987. He was Insignia’s
Chief Executive Officer from September 1988 until September
1993. He received a Bachelors degree in chemistry from Oxford
University in 1972. He also serves as a Director of Mayborn
Group plc.
David G. Frodsham was appointed a director of Insignia in
August 1999. Since February 2000, he has served as Chief
Executive Officer of Argo Interactive Group plc, a British
software company specializing in device intelligence from
wireless internet. He received a B. Sc. from Kings College,
London and an MBA from INSEAD in France.
Vincent S. Pino was appointed a director of Insignia in
October 1998. From February 1998 until his retirement in
November 2000, he served as President of Alliance Imaging, a
provider of diagnostic imaging and therapeutic services.
Mr. Pino began his association with Alliance in 1988 as
Chief Financial Officer. From 1991 through 1993 Mr. Pino
held the position of Executive Vice President and Chief
Financial Officer. Mr. Pino received an MBA and a B.S.
degree in finance from the University of Southern California in
1972 and 1970, respectively.
Mark E. McMillan was named Chief Executive Officer and a
director of Insignia in February 2003. Mr. McMillan joined
Insignia in November 1999 as Senior Vice President of Worldwide
Sales and Marketing, was promoted to Executive Vice President of
Worldwide Sales and Marketing in May 2000 and Chief Operating
Officer in October 2000. Mr. McMillan was promoted to
President in July 2001. Before joining Insignia,
Mr. McMillan served as Vice President of Sales, Internet
Division, for Phoenix Technologies Ltd. Prior to that,
Mr. McMillan served as Phoenix’s Vice President and
General Manager of North American Operations.
Richard M. Noling has served as a director of Insignia
since March 1997. Mr. Noling was appointed Interim Chief
Financial Officer of Insignia effective as of October 1,
2005. From August 2003 to August 2005, he served as Chief
Executive Officer of ThinGap, a California company that develops
innovative electromotive coil technology. He was Insignia’s
Chief Executive Officer from March 1997 to February 2003 and
President from March 1997 to July 2001. He also served as Chief
Financial Officer, Senior Vice President of Finance and
Operations and Company Secretary between April 19, 1996 and
October 1, 1997 and Chief Operations Officer between
February and March 1997. He received a Bachelor of Arts degree
in aerospace and mechanical engineering science from the
University of California (San Diego) in 1970. He received
an M.A. degree in theology from the Fuller Theological Seminary
in 1972, and an M.S. degree in business administration in 1979
from the University of California (Irvine).
37
Anders Furehed joined Insignia in March 2005 as Senior
Vice President of European Operations in connection with the
closing of Insignia’s acquisition of Mi4e Device Management
AB, (“Mi4e”) a Swedish provider of client-provisioning
device management software and services to mobile phone
operators. In July 2003, Mr. Furehed co-founded Mi4e and
served as CEO of Mi4e from July 2003 until March 2005 when
Insignia acquired Mi4e. From February 2001 until March 2003,
Mr. Furehed was the founder of Syrei AB, a Swedish
telecommunications consulting company. From 1999 until February
2001, Mr. Furehed was a technical manager for Netcom
Consultant, a telecommunications consulting company.
Board Composition
Our Articles of Association stipulate that the minimum number of
directors is two, but do not set any maximum number. Directors
may be elected by the shareholders, or appointed by the Board,
and remain in office until they resign or are removed by the
shareholders. In addition, at each Annual General Meeting
one-third of the directors who have been in office longest since
their last election, as well as any directors appointed by the
Board during the preceding year, are required to resign and are
then considered for re-election, assuming they wish to stand for
re-election. In the election of directors, each shareholder is
entitled on a poll to one vote for each ordinary share held.
Shares may not be voted cumulatively. The executive officers
serve at the discretion of the Board of Directors. There are no
family relationships among any of the directors or executive
officers of Insignia.
Board Meetings and Committees
The Board met 13 times, including telephone conference meetings,
during 2004. No director attended fewer than 90% of the
aggregate of the total number of meetings of the Board (held
during the period for which he was a director) and the total
number of meetings held by all committees of the Board on which
such director served (during the period that such director
served).
The Board has determined that the following directors are
“independent” under current Nasdaq Marketplace Rules:
Nicholas, Viscount Bearsted, Vincent Pino and David Frodsham.
Standing committees of the Board include an Audit Committee and
a Compensation Committee. The Board does not have a nominating
committee or a committee performing similar functions.
Nicholas, Viscount Bearsted, Mr. Frodsham and Mr. Pino
are the current members of the Audit Committee, which met five
times during 2004. Mr. Pino is considered to be a financial
expert under NASDAQ Marketplace Rules. The Audit Committee meets
with Insignia’s independent registered public accounting
firm to review the adequacy of Insignia’s internal control
systems and financial reporting procedures; reviews the general
scope of Insignia’s annual audit and the fees charged by
the independent registered public accounting firm; reviews and
monitors the performance of non-audit services by
Insignia’s independent registered public accounting firm,
reviews the fairness of any proposed transaction between any
officer, director or other affiliate of Insignia and Insignia,
and after such review, makes recommendations to the full Board;
and performs such further functions as may be required by any
stock exchange or over-the-counter market upon which
Insignia’s shares may be listed.
Nicholas, Viscount Bearsted and Mr. Pino are the current
members of the Compensation Committee. In 2004, the Compensation
Committee consisted of John Fogelin and Vincent Pino. Nicholas,
Viscount Bearsted was appointed to the Compensation Committee in
April 2005, following Mr. Fogelin’s resignation in
December 2004. The Compensation Committee met once during 2004.
The Compensation Committee
38
recommends compensation for officers and employees of Insignia,
grants options under Insignia’s employee option plans
(other than grants to non-officers of options pursuant to
guidelines established by the Board, which may be made by
Nicholas, Viscount Bearsted, Insignia’s Chairman, and Mark
E. McMillan, Insignia’s Chief Executive Officer) and
reviews and recommends adoption of and amendments to share
option and employee benefit plans.
Director Compensation
Insignia pays each outside director $1,000 for every regular
meeting attended, $2,500 per quarter of service on the
Board, $500 per quarter for service on each committee, plus
$500 for each committee meeting attended, and reimburses outside
directors for reasonable expenses in attending meetings of the
Board. The Chairman of the Board receives an additional
$1,500 per quarter. In addition, each new outside director
is granted an option to purchase 25,000 shares and
each outside director is granted an option to
purchase 10,000 shares annually for so long as he
serves as an outside director.
With effect from April 1, 1997, Nicholas, Viscount
Bearsted, Chairman of Insignia, entered into a Consulting
Agreement with Insignia whereby he acts as consultant to
Insignia providing advice and assistance as the Board may from
time to time request. The agreement was amended April 20,
1998 and deleted his commitment to provide services to the
Company and the Company’s commitment to pay him a minimum
amount. He has agreed to remain available to perform services as
requested by the Company. The agreement is terminable by either
party upon six months’ advance written notice and by
Insignia for cause at any time. In the event of any business
combination resulting in a change of control of Insignia or in
the event of disposal of a majority of the assets of Insignia,
and termination or constructive termination of his consultancy,
Viscount Bearsted will be entitled to receive an additional
twenty-six weeks’ consultancy fees. No fees have been paid
under this agreement in the past three fiscal years or in 2005.
For information concerning the compensation of
Mr. McMillan, see “Executive Compensation.”
Communications with Directors
Shareholders or other interested parties may communicate with
any director or committee of the Board by writing to them
c/o Audit Committee of the Board of Directors, Insignia
Solutions plc, 41300 Christy Street, Fremont, CA, USA
94538-3115, or by sending an e-mail to insgshareholder.com.
Comments or questions regarding the Company’s accounting,
internal controls or auditing matters will be referred to
members of the Audit Committee. Comments or questions regarding
the nomination of directors and other corporate governance
matters will be referred to members of the Board of Directors.
The Company has a policy of encouraging all directors to attend
the annual shareholder meetings. One director attended the 2004
annual meeting due to cost saving considerations.
Code of Ethics
The Company has adopted a code of ethics that applies to all
officers and employees, including its principal executive
officer, principal financial officer and controller. This code
of ethics is filed as Exhibit 14.0 to the Company’s
Annual Report on Form 10-K for the fiscal year ended
December 31, 2004 filed with the Securities and Exchange
Commission.
Compensation Committee Interlocks and Insider
Participation
The Compensation Committee of the Board makes all decisions
involving the compensation of our executive officers. The
Compensation Committee consists of the following non-employee
directors: Vincent S. Pino and Nicholas, Viscount
Bearsted. In 2004, the Compensation Committee consisted of John
Fogelin and Vincent Pino. Nicholas, Viscount Bearsted was
appointed to the Compensation Committee in April 2005, following
Mr. Fogelin’s resignation in December 2004.
39
EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth all compensation awarded to or
paid for services rendered in all capacities to Insignia and its
subsidiaries during each of 2004, 2003 and 2002 by
Insignia’s Chief Executive Officer and each of
Insignia’s three most highly compensated executive officers
who were serving as executive officers at the end of 2004, as
well as one former executive officer who left Insignia during
2004 (the “Named Officers”). This information includes
the dollar values of base salaries and bonus awards, the number
of shares subject to options granted and certain other
compensation, whether paid or deferred.
Summary Compensation Table
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Long Term Compensation | |
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Annual Compensation | |
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Securities | |
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Other Annual | |
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Underlying | |
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All Other | |
Name and Principal Positions |
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Year | |
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Salary ($) | |
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Bonus ($)(1) | |
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Compensation ($) | |
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Options (#) | |
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Compensation ($)(2) | |
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Mark E. McMillan
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2004 |
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230,000 |
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60,248 |
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— |
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— |
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1,080 |
(2) |
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Chief Executive Officer |
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2003 |
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230,000 |
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9,607 |
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— |
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500,000 |
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1,080 |
(2) |
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and President |
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2002 |
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223,683 |
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— |
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— |
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50,000 |
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1,080 |
(2) |
Robert E. Collins(3)
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2004 |
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167,708 |
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8,728 |
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— |
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300,000 |
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1,035 |
(2) |
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Chief Financial Officer, |
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2003 |
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— |
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— |
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— |
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— |
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— |
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Vice President and Secretary |
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2002 |
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— |
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— |
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— |
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— |
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— |
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Peter Bernard(4)
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2004 |
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177,879 |
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17,350 |
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— |
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— |
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1,080 |
(2) |
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Vice President, Product |
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2003 |
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140,000 |
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40,000 |
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— |
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150,000 |
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1,080 |
(2) |
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Marketing |
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2002 |
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140,228 |
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40,000 |
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— |
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25,000 |
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810 |
(2) |
Paul Edmonds(5)
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2004 |
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140,000 |
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6,923 |
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— |
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— |
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— |
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Vice President, Engineering |
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2003 |
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140,000 |
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15,986 |
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— |
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112,500 |
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— |
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2002 |
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100,397 |
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8,308 |
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— |
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25,000 |
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— |
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Mark Stevenson(6)
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2004 |
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137,238 |
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10,657 |
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— |
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— |
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1,035 |
(2) |
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Vice President of Sales |
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2003 |
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60,000 |
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— |
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— |
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150,000 |
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540 |
(2) |
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2002 |
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— |
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— |
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— |
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— |
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— |
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(1) |
Bonuses paid to the executive officers are based on a target
bonus set for each officer each quarter, adjusted by
Insignia’s operating results over plan and the executive
officer’s performance against quarterly qualitative goals.
All executive officer bonuses are at the discretion of the
Compensation Committee of the Board. |
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(2) |
Represents Insignia contributions to defined contribution
employee benefit plans. |
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(3) |
Mr. Collins joined Insignia in January 2004 and resigned on
April 20, 2005. |
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(4) |
Mr. Bernard resigned on March 15, 2005. |
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(5) |
Mr. Edmonds joined Insignia in April 2002 and resigned on
April 22, 2005. |
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(6) |
Mr. Stevenson joined Insignia in June 2003 and resigned on
December 6, 2004. |
40
The following table sets forth further information regarding
individual option grants to purchase ordinary shares during 2004
to each of the Named Officers. In accordance with the rules of
the SEC, the table sets forth the hypothetical gains or
“option spreads” that would exist for the options at
the end of their respective ten-year terms. These gains are
based on assumed rates of annual compounded share price
appreciation of 5% and 10% from the dates the options were
granted to the end of the respective option terms. Actual gains,
if any, on option exercises depend upon the future performance
of the ordinary shares and ADSs. There can be no assurance that
the potential realizable values shown in this table will be
achieved.
Option Grants in 2004
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Potential Realizable | |
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Percent of | |
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Value at Assumed Annual | |
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Number of | |
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Total | |
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Rates of Share Price | |
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Securities | |
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Options | |
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Appreciation for | |
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Underlying | |
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Granted to | |
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Exercise | |
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Option Term(1) | |
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Options | |
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Employees | |
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Price | |
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Expiration | |
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Name |
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Granted (#) | |
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in 2004 | |
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($/Sh) | |
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Date | |
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5% ($) | |
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10% ($) | |
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Robert E. Collins(4)
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200,000 |
(3) |
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15% |
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$ |
2.68 |
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01/19/14 |
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$ |
337,088 |
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$ |
854,246 |
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100,000 |
(2) |
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8% |
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$ |
1.02 |
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05/21/14 |
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$ |
64,147 |
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$ |
162,562 |
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(1) |
The 5% and 10% assumed annual compound rates of share price
appreciation are mandated by rules of the SEC and do not
represent Insignia’s estimate or projection of future
ordinary share or ADS prices. |
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(2) |
These incentive options were granted pursuant to Insignia’s
1995 Incentive Stock Option Plan for U.S. Employees. These
options vest and become exercisable at the rate of 2.0833% of
the shares for each full month that the optionee renders service
to Insignia. The option exercise price is equal to the fair
market value of Insignia’s ordinary shares on the date of
grant and the options expire ten years from the date of grant,
subject to earlier termination upon termination of employment. |
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(3) |
These incentive options were granted pursuant to Insignia’s
1995 Incentive Stock Option Plan for U.S. Employees. These
options vest and become exercisable as to 25% of the shares on
the first anniversary of the date of the grant and thereafter at
the rate of 2.0833% of the shares for each full month that the
optionee renders service to Insignia. The option exercise price
is equal to the fair market value of Insignia’s ordinary
shares on the date of grant and the options expire ten years
from the date of grant, subject to earlier termination upon
termination of employment. |
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(4) |
Mr. Collins resigned on April 20, 2005. |
The following table sets forth certain information concerning
the exercise of options by each of the Named Officers during
2004, including the aggregate amount of gains on the date of
exercise. In addition, the table includes the number of shares
covered by both exercisable and unexercisable options to acquire
shares as of December 31, 2004. Also reported are values of
“in-the-money” options, which represents the positive
spread between the respective exercise prices of outstanding
options to acquire shares and $0.87 per share, which was
the closing price of the ADSs as reported on the Nasdaq SmallCap
Market on December 31, 2004.
Aggregated Option Exercises in 2004 and Year-End Option
Values
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Number of Securities | |
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Value of Unexercised | |
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Underlying Unexercised | |
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In-the-Money | |
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Shares | |
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Options at Year-End (#) | |
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Options at Year-End ($)(2) | |
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Acquired on | |
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Value | |
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Name |
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Exercise (#) | |
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Realized ($)(1) | |
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Exercisable | |
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Unexercisable | |
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Exercisable | |
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Unexercisable | |
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Mark E. McMillan
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— |
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— |
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635,542 |
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273,958 |
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106,884 |
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89,881 |
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Robert E. Collins(3)
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— |
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— |
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14,583 |
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285,417 |
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— |
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— |
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Peter Bernard(4)
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60,000 |
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44,171 |
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72,083 |
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72,917 |
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15,281 |
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28,149 |
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Paul Edmonds(5)
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51,562 |
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53,109 |
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33,855 |
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52,083 |
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8,294 |
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21,112 |
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Mark Stevenson(6)
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— |
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— |
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53,125 |
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— |
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23,906 |
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— |
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41
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(1) |
“Value Realized” represents the fair market value of
the shares underlying the options on the date of exercise less
the aggregate exercise price of the options. |
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(2) |
For purposes of the table, all amounts in pounds sterling were
converted to U.S. dollars using $1.89 per pound
sterling, the exchange rate in effect as of December 31,
2004. |
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(3) |
Mr. Collins joined Insignia in January 2004 and resigned on
April 20, 2005. |
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(4) |
Mr. Bernard resigned on March 15, 2005. |
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(5) |
Mr. Edmonds joined Insignia in April 2002 and resigned on
April 22, 2005. |
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(6) |
Mr. Stevenson joined Insignia in June 2003 and resigned on
December 6, 2004. |
Employment agreements
In connection with the termination of Mr. Noling’s
employment in February 2003, Insignia entered into a separation
agreement with Mr. Noling pursuant to which Insignia agreed
to pay as severance to Mr. Noling his regular monthly base
salary for a six-month period, which severance would be reduced
to 50% of his base salary in the event that Mr. Noling
commenced new employment during such period. All stock options
held by Mr. Noling will continue to vest for so long as he
continues to serve as a member of the board of directors.
We have entered into a change of control severance agreement
with Mark E. McMillan pursuant to which we will continue to pay
his salary for up to six months if he is terminated in
connection with a change of control of the Company.
RELATED PARTY TRANSACTIONS
On February 13, 2001, Insignia entered into a promissory
note with Richard M. Noling, President and Chief Executive
Officer of Insignia whereby Mr. Noling borrowed $150,000
from the U.S.-based subsidiary of Insignia.
Mr. Noling’s employment was terminated with Insignia
effective February 14, 2003. We forgave, effective
March 6, 2003 the balance of the loan, $125,362.50, in lieu
of any bonus compensation.
On October 17, 2002, we entered into a securities
subscription agreement with Fusion Capital Fund II, LLC
(“Fusion Capital”), pursuant to which Fusion Capital
agreed to purchase, on each trading day following the
effectiveness of a registration statement covering the ADSs to
be purchased by Fusion Capital, $10,000 of our ADSs up to an
aggregate of $6.0 million over a period of 30 months.
The purchase price of the ADSs was based on a formula based on
the market price at the time of each purchase. During 2003, we
issued and sold to Fusion Capital 3,380,132 ADSs resulting in
proceeds of $1.9 million, net of transaction costs, under
the 2002 Fusion Capital securities subscription agreement In
2004, we sold 3,100,060 shares to Fusion Capital for
aggregate proceeds of $1.5 million, net of transaction
costs, under the 2002 Fusion Capital securities subscription
agreement. During January 2005, we sold 299,007 ADSs for
$200,000 under the 2002 Fusion Capital agreement.
In addition to the shares purchased by Fusion Capital under the
2002 Fusion Capital securities subscription agreement, we also
issued warrants to purchase an aggregate of 2,000,000 ADSs to
Fusion Capital on February 10, 2005, with a per share
exercise price of the United States dollar equivalent of
20.5 pence. Upon Fusion’s exercise of the warrants in
2003, we issued Fusion Capital 2,000,000 ADSs for a total of
$668,000, net of issuance costs.
Two investors in the private placement on October 18, 2004
were related parties of Insignia. Mark McMillan, our Chief
Executive Officer, invested $25,000 to purchase 52,083 ADSs
and warrants to purchase 13,021 ADSs. In addition Vincent
Pino, one of our directors, and his immediate family invested
$200,000 to purchase 416,667 ADSs and warrants to
purchase 104,167 ADSs.
On February 9, 2005, Insignia sold to Fusion Capital
3,220,801 ADSs at a purchase price of $0.40 per share,
resulting in proceeds of approximately $1.3 million. These
shares were issued to Fusion Capital in a private placement.
42
On February 9, 2005, Insignia and Fusion Capital entered
into a mutual termination agreement pursuant to which the 2002
Fusion Capital securities subscription agreement was terminated.
On February 10, 2005, Insignia entered into the 2005 Fusion
Capital securities subscription agreement with Fusion Capital to
sell up to $12 million in ADSs, representing ordinary
shares, to Fusion Capital over a period of 30 months. The
shares will be priced based on a market-based formula at the
time of purchase. The commencement of funding under the 2005
Fusion Capital securities subscription agreement is subject to
certain conditions, including the declaration of effectiveness
by the Securities and Exchange Commission of the registration
statement covering the ADSs to be purchased by Fusion Capital
under the 2005 Fusion Capital securities subscription agreement,
of which this prospectus is a part.
On March 16, 2005, we closed our acquisition of Mi4e. The
consideration paid in the transaction was 2,969,692 ADSs
representing ordinary shares and another 989,896 ADSs will be
issuable on March 31, 2006, subject to potential offset for
breach of representations, warranties and covenants. In addition
up to a maximum of 700,000 euros is payable in a potential earn
out based on a percentage of future revenue collected from sales
of existing Mi4e products. Anders Furehed, an indirect 50%
shareholder of Mi4e who thus received 1,484,846 ADSs on the
closing of the acquisition, became our senior vice president of
European operations upon the closing.
THE 2005 FUSION CAPITAL TRANSACTION
General
On February 10, 2005 we entered into the 2005 Fusion
Capital securities subscription agreement with Fusion Capital
pursuant to which Fusion Capital agreed to purchase on each
trading day after the commencement of funding under the 2005
Fusion Capital securities subscription agreement, $20,000 of our
ADSs, for an aggregate of up to $12.0 million. The
$12.0 million in ADSs is to be subscribed for over a
30-month period, subject to earlier termination at our
discretion. The subscription price of the ADSs will be based on
a market-based formula at the time of purchase. However, Fusion
shall not have the right nor the obligation to subscribe for any
ADSs under the agreement on any trading day where the
subscription price per share for any subscriptions of the ADSs
would be less than $0.40 (subject to adjustment for stock
splits, dividends and the like). We have authorized the sale and
issuance of up to $12.0 million of our shares to Fusion
Capital under the 2005 Fusion Capital securities subscription
agreement, of which we are registering 20,000,000 shares
(including 4,000,000 shares for issuance on exercise of
warrants issued to Fusion as a commitment fee) under this
prospectus. The commencement of funding under the 2005 Fusion
Capital securities subscription agreement is subject to certain
conditions, including the declaration of effectiveness by the
Securities and Exchange Commission of the registration statement
covering the ADSs of which this prospectus forms a part.
Purchase of Shares under the 2005 Fusion Capital Securities
Subscription Agreement
Under the 2005 Fusion Capital securities subscription agreement,
on each trading day after the effective date of the registration
statement of which this prospectus is a part, Fusion Capital is
obligated to purchase $20,000 of our shares so long as the
market price of our shares remains above $0.40. Subject to our
right to suspend such sales at any time, and our right to
terminate the agreement with Fusion Capital at any time, each as
described below, Fusion Capital shall purchase on each trading
day during the term of the agreement $20,000 of our shares. We
may decrease this daily purchase amount at any time. We also
have the right to incrementally increase the daily purchase
amount as the trading price of our shares increases, provided
however, we may not increase the daily purchase amount above
$20,000 unless our stock price is above $1.00 per share for
five consecutive trading days. The purchase price per share is
equal to the lesser of:
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• |
the lowest sale price of our shares on the purchase date; or |
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• |
the average of the five lowest closing sale prices of our shares
during the 15 consecutive trading days prior to the date of a
purchase by Fusion Capital. |
43
The purchase price will be adjusted for any reorganization,
recapitalization, non-cash dividend, stock split, or other
similar transaction occurring during the trading days in which
the closing sale price is used to compute the purchase price.
Fusion Capital may not purchase shares under the 2005 Fusion
Capital securities subscription agreement if Fusion Capital,
together with its affiliates, would beneficially own more than
9.9% of our shares outstanding at the time of the purchase by
Fusion Capital. If the 9.9% limitation is ever reached, we have
the option to increase the limit above 9.9% upon twenty
(20) trading days notice to Fusion. Fusion Capital has the
right at any time to sell any shares purchased under the 2005
Fusion Capital securities subscription agreement, which would
allow it to avoid the 9.9% limitation. Therefore, we do not
believe that Fusion Capital will ever exceed the 9.9% limitation.
The following table sets forth the total number of shares that
would be sold to Fusion Capital under the 2005 Fusion Capital
securities subscription agreement at varying purchase prices:
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Proceeds from the Sale of | |
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Percentage Outstanding | |
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Shares to Fusion Capital at | |
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Number of Shares to | |
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After Giving Effect to the | |
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the Assumed Average Price | |
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be Issued if Full | |
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Issuance to Fusion | |
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and the Share Amounts set | |
Assumed Average Purchase Price |
|
Purchase | |
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Capital(1) | |
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Forth | |
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| |
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| |
$0.40
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16,000,000 |
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27 |
% |
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$ |
6,400,000 |
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$0.50
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16,000,000 |
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27 |
% |
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$ |
8,000,000 |
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$0.65
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16,000,000 |
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27 |
% |
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$ |
10,400,000 |
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$0.75
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16,000,000 |
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27 |
% |
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$ |
12,000,000 |
|
$1.00
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12,000,000 |
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22 |
% |
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$ |
12,000,000 |
|
$2.00
|
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|
6,000,000 |
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|
12 |
% |
|
$ |
12,000,000 |
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|
|
(1) |
Based on 42,503,025 shares outstanding as of August 1,
2005 plus the shares issuable to Fusion Capital under the 2005
Fusion Capital securities subscription agreement. Does not
include the issuance of 4,000,000 shares issuable to Fusion
Capital under warrants pursuant to the 2005 Fusion Capital
securities subscription agreement, which result in proceeds of
approximately $1,540,000. |
We will issue no more than 20,000,000 shares to Fusion
Capital under the 2005 Fusion Capital securities subscription
agreement, including 4,000,000 shares issuable upon the
exercise of warrants as described in the section entitled
“Fusion Transaction — Warrants Issued to Fusion
Capital.”
We only have the right to receive $20,000 per trading day
under the agreement with Fusion Capital unless our stock price
equals or exceeds $1.00, in which case the daily amount may be
increased under certain conditions as the price of our common
stock increases. Fusion Capital shall not have the right nor be
obligated to purchase any shares of our common stock on any
trading days that the market price of our common stock is less
than $0.40. Because we are registering 20,000,000 shares
under the 2005 Fusion Capital securities subscription agreement
for sale by Fusion Capital pursuant to this prospectus (of which
4,000,000 shares are purchasable upon exercise of warrants
issued to Fusion Capital), the selling price of our ADSs will
have to average at least $0.75 per share for us to receive the
maximum proceeds of $12,000,000. Assuming a purchase price of
$0.41 per share (the closing sale price of our ADSs on
September 30, 2005) and the purchase by Fusion Capital of
16,000,000 shares under the 2005 Fusion Capital securities
subscription agreement that are offered pursuant to this
prospectus, proceeds to us would be $6,560,000, plus up to
approximately $1,540,000 from exercise of warrants.
Minimum Purchase Price
We will not issue any ADSs under the 2005 Fusion Capital
securities subscription agreement on any trading day on which
the purchase price (as calculated in the preceding section)
would be less than $0.40 (subject to adjustment for stock
splits, dividends and the like). Our closing share price from
April 25 to 28,
44
2005 was between $0.32 and $0.37 which is below this minimum
amount. Thus if our share price is not above $0.40 per
share, we will not be able to sell shares to Fusion under this
subscription agreement.
Compliance with Nasdaq Market Rules and the Laws of England
and Wales
Our shares are listed on the Nasdaq SmallCap Market. Under
Nasdaq Marketplace Rule 4350(i)(1)(D), shareholder approval
is required in connection with a transaction other than a public
offering involving the sale, issuance or potential issuance by
the issuer of common stock at a price less than the greater of
book or market value, which equals 20% or more of the common
stock outstanding before the issuance. Thus, to ensure
compliance with Nasdaq Marketplace Rule 4350(i)(1)(D) we
held an extraordinary general meeting of shareholders on
May 24, 2005 at which shareholders approved the 2005 Fusion
Capital securities subscription agreement.
Under the laws of England and Wales, we are not permitted to
sell our ADSs at a purchase price that is less than the nominal
value of our ordinary shares. Currently, the nominal value per
ordinary share is 20 pence. At our general meeting of
shareholders held on September 30, 2005, our shareholders
approved a reduction of the nominal value of our ordinary shares
from 20 pence per share to 1 pence per share. Such reduction
will become effective once the order of the English High Court
confirming it is registered with the U.K. Registrar of
Companies, which we expect to be completed by the end of January
2006. In addition, Insignia will not effect any issuance of
ordinary shares (or have its transfer agent or depository issue
any ADSs) on any trading day where the purchase price for any
subscriptions would be less than the U.S. dollar equivalent
of 102.5% of the then nominal value of the ordinary shares.
Our Right to Suspend Sales
We have the unconditional right to suspend sales under the 2005
Fusion Capital securities subscription agreement at any time for
any reason effective upon one trading day’s notice. Any
suspension would remain in effect until our revocation of the
suspension. To the extent we need to use the cash proceeds of
the sales of shares under the 2005 Fusion Capital securities
subscription agreement for working capital or other business
purposes, we do not intend to restrict purchases under the 2005
Fusion Capital securities subscription agreement.
Our Right to Increase and Decrease the Purchase Amount
We have the unconditional right to decrease the daily amount to
be purchased by Fusion Capital at any time for any reason
effective upon one trading day’s notice. We also have the
right to increase the daily purchase amount effective upon five
trading days notice as the market price of our shares increases.
Specifically, for every $0.10 increase in the threshold price
above $0.90, we will have the right to increase the daily
purchase amount by up to an additional $5,000. For example, if
the threshold price is $1.00 we would have the right to increase
the daily purchase amount to up to an aggregate of $25,000. The
“threshold price” is the lowest sale price of our
shares during the five trading days immediately preceding our
notice to Fusion Capital to increase the daily purchase amount.
If at any time during any trading day the sale price of our
shares is below the threshold price, the applicable increase in
the daily purchase amount will be void.
In addition to the daily purchase amount, we may elect to
require Fusion to purchase on any single trading day shares in
an amount up to $500,000, provided that the Insignia share price
is above $0.75 during the five trading days prior thereto. The
price at which such shares would be purchased will be the lowest
purchase price during the previous fifteen (15) trading
days prior to the date that such purchase notice was received by
Fusion. We may increase this amount to up to $1,000,000 if the
Insignia share price is above $1.50 during the five trading days
prior to Insignia’s delivery of the purchase notice to
Fusion. The amount may also be increased to up to $2,000,000 if
the Insignia share price is above $3.00 during the five trading
days prior to Insignia’s delivery of the purchase notice to
Fusion. Insignia may deliver multiple purchase notices; however
at least ten (10) trading days must have passed since the
most recent non-daily purchase was completed.
45
Our Termination Rights
We have the unconditional right at any time for any reason to
give notice to Fusion Capital terminating the 2005 Fusion
Capital securities subscription agreement. Such notice shall be
effective one trading day after Fusion Capital receives such
notice.
Registration of the Shares Issued and Sold to Fusion
Capital
We have filed the registration statement of which this
prospectus is a part in order to register the sale of the shares
to be issued to Fusion Capital pursuant to the 2005 Fusion
Capital securities subscription agreement. The commencement of
funding under the 2005 Fusion Capital securities subscription
agreement is subject to the SEC’s declaration of
effectiveness of this registration statement. After this
registration statement is declared effective by the SEC, all
shares registered will be freely tradable. It is anticipated
that shares registered under the registration statement will be
sold over a period of up to 30 months from the effective
date of the registration statement. The sale of a significant
number of shares at any given time could cause the trading price
of our shares to decline and to be highly volatile. Fusion
Capital may ultimately purchase up to $12.0 million of our
shares under the 2005 Fusion Capital securities subscription
agreement, of which we are registering under this prospectus
20,000,000 shares (including 4,000,000 shares issuable
on exercise of the warrants), and it may sell some, none or all
of the shares it acquires upon purchase. Therefore, the
purchases under the 2005 Fusion Capital securities subscription
agreement may result in substantial dilution to the interests of
other holders of our securities.
No Short-Selling or Hedging by Fusion Capital
Fusion Capital has agreed that neither it nor any of its
affiliates shall engage in any direct or indirect short-selling
or hedging of our shares during any time prior to the
termination of the 2005 Fusion Capital securities subscription
agreement.
Events of Default
Generally, Fusion Capital may terminate the 2005 Fusion Capital
securities subscription agreement without any liability or
payment to us upon the occurrence of any of the following events
of default:
|
|
|
|
• |
the effectiveness of the registration statement of which this
prospectus is a part lapses for any reason (including, without
limitation, the issuance of a stop order) or is unavailable to
Fusion Capital for sale of the shares sold to Fusion Capital
pursuant to the 2005 Fusion Capital securities subscription
agreement (including shares issuable on exercise of warrants)
and such lapse or unavailability continues for a period of five
consecutive trading days or for more than an aggregate of 20
trading days in any 365-day period; |
|
|
• |
suspension of our shares from trading on our principal market
(currently the Nasdaq SmallCap Market) for a period of three
consecutive trading days; |
|
|
• |
the delisting of our shares from the Nasdaq SmallCap Market,
provided our shares are not immediately thereafter trading on
the New York Stock Exchange, the Nasdaq National Market or the
American Stock Exchange; |
|
|
• |
the transfer agent’s failure for five trading days to issue
to Fusion Capital any shares to which Fusion Capital is entitled
under the 2005 Fusion Capital securities subscription agreement; |
|
|
• |
any breach of the representations, warranties or covenants
contained in the 2005 Fusion Capital securities subscription
agreement or any related agreements which has or which could
have a material adverse affect on us subject to a cure period
(for any breach of a covenant that is reasonably curable) of
five trading days; |
|
|
• |
any participation or threatened participation in insolvency or
bankruptcy proceedings by or against us; or |
|
|
• |
a material adverse change in our business. |
46
Warrants Issued to Fusion Capital
Under the terms of the 2005 Fusion Capital securities
subscription agreement we issued to Fusion Capital two warrants
for ADSs, each for 2,000,000 ADSs. The exercise price per share
of the ADSs subject to one warrant is 20.5 pence, which equaled
$0.36 on August 1, 2005 (to be adjusted for any
reorganization, recapitalization, non-cash dividend, share
split, or other similar transaction). The exercise price per
share of the ADSs subject to the other warrant is the greater of
the U.S. dollar equivalent of 20.5 pence or $0.40 (to be
adjusted for any reorganization, recapitalization, non-cash
dividend, share split, or other similar transaction). Each
warrant expires on February 28, 2010. The warrants are
immediately exercisable; however, Fusion Capital may not
exercise the warrants if Fusion Capital, together with its
affiliates, would beneficially own more than 9.9% of our shares
outstanding at the time of the exercise by Fusion Capital.
No Variable Priced Financings
Until the termination of the 2005 Fusion Capital securities
subscription agreement, we have agreed not to issue, or enter
into any agreement with respect to the issuance of, any variable
priced equity or variable priced equity-like securities unless
we have delivered prior written notice of such proposed
financing to Fusion Capital.
THE OCTOBER 2004 PRIVATE PLACEMENT
On October 18, 2004, we issued 3,208,499 ADSs at a purchase
price of $0.48 per share and warrants to
purchase 802,127 ADSs at an exercise price of
$1.06 per share to certain purchasers. In addition, in July
2005, we issued to each of these purchasers a warrant (a
“Penalty Warrant”) to purchase ADSs equal to 6% of the
shares purchased by such purchaser at the closing. The exercise
price for the penalty warrants is $1.11 per share. In
connection with the October 2004 private placement, we paid our
placement agent, Nash Fitzwilliams Ltd., a customary fee, and
also issued a warrant to Novelstack Ltd. and warrants to Alan
Nash and Duncan Fitzwilliams, the two principals of Nash
Fitzwilliams Ltd., to purchase an aggregate of 204,597 of our
ADSs at an exercise price of $1.06 per share, as
compensation for services as placement agent to us. The warrants
expire if unexercised on the earlier of April 18, 2010 or
an acquisition or other change of control of Insignia.
THE FEBRUARY 2005 PRIVATE PLACEMENT
On February 9, 2005, Insignia sold to Fusion Capital
3,220,801 ADSs at a purchase price of $0.40 per share,
resulting in proceeds of approximately $1.3 million. These
shares were issued to Fusion Capital in a private placement.
THE JUNE/ JULY 2005 PRIVATE PLACEMENT
On June 30, 2005 and July 5, 2005, we and our
wholly-owned subsidiary, Insignia Solutions Inc., entered into
securities subscription agreements with Fusion Capital and other
investors. Pursuant to these subscription agreements, we
completed a closing for an aggregate of $1,000,000 on
June 30, 2005 (including exchange of the $275,000 bridge
notes), and we completed a second closing on July 5, 2005
for an additional $440,400. Pursuant to these subscription
agreements, our subsidiary issued its Series A preferred
stock, to the investors. This preferred stock is non-redeemable.
The shares of preferred stock (plus all accrued and unpaid
dividends thereon) held by each investor are exchangeable for
ADSs (i) at any time at the election of investor,
(ii) automatically upon written notice by us to the
investor in the event that the sale price of the ADSs on the
Nasdaq SmallCap Market is greater than $1.50 per share for
a period of ten consecutive trading days, and certain other
conditions are met, and (iii) automatically to the extent
any shares of the preferred stock have not been exchanged prior
to June 30, 2007. The preferred stock will accrue dividends
at a rate of 15% per year compounded annually until
June 30, 2007, at which time no further dividends will
accrue, and are payable in the form of additional ADSs.
Including accruable dividends, the shares of preferred stock
issued on June 30, 2005, together with the additional
shares issued on July 5, 2005, will be exchangeable for a
total of 4,762,326 ADSs, representing an initial purchase price
of $0.40 per ADS. Pursuant to the above subscription
agreements, we also
47
issued to the investors on June 30, 2005 and July 5,
2005, warrants to purchase an aggregate of 3,601,000 ADSs at an
exercise price per share equal to the greater of $0.50 or the
U.S. Dollar equivalent of 20.5 U.K. pence. These warrants
are immediately exercisable and expire on June 30, 2010. In
connection with the second closing of the private placement, we
also agreed to issue warrants to purchase an aggregate of 77,070
ADSs to Anthony Fitzgerald and Next Level Capital, Inc., as
compensation for services as placement agents, on substantially
similar terms as the warrants issued to the investors in such
private placement. In addition, we entered into registration
rights agreements with the investors pursuant to which we agreed
to file a registration statement with the Securities and
Exchange Commission covering the resale of (i) the ADSs
issued to the Investors upon exchange of the preferred stock
under their subscription agreements and (ii) the ADSs
issuable upon exercise of their warrants.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information, as of
August 1, 2005 with respect to the beneficial ownership of
Insignia’s ordinary shares by (i) each shareholder
known by Insignia (based on filings with the Securities and
Exchange Commission) to be the beneficial owner of more than 5%
of Insignia’s ordinary shares, (ii) each director,
(iii) each Named Officer as of December 31, 2004, and
(iv) all current directors and executive officers as a
group. The number of shares outstanding on August 1, 2005
was 42,503,025 shares. The address for each of the
directors and officers of Insignia is: c/o Insignia
Solutions plc, Apollo House, the Mercury Centre, Wycombe Lane,
Wooburn Green, High Wycombe, Buckinghamshire, HP10 0HH,
United Kingdom.
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of | |
|
|
Name of Beneficial Owner |
|
Beneficial Ownership** | |
|
Percent of Class | |
|
|
| |
|
| |
Fusion Capital Fund II LLC(1)
|
|
|
4,178,805 |
|
|
|
9.8 |
% |
|
222 Merchandise Mart Plaza, Suite 9-112
|
|
|
|
|
|
|
|
|
|
Chicago, IL 60654
|
|
|
|
|
|
|
|
|
Nicholas, Viscount Bearsted(2)
|
|
|
846,696 |
|
|
|
2.0 |
% |
Mark E. McMillan(3)
|
|
|
827,304 |
|
|
|
1.9 |
% |
Vincent S. Pino(4)
|
|
|
522,665 |
|
|
|
1.2 |
% |
Richard M. Noling(5)
|
|
|
661,088 |
|
|
|
1.5 |
% |
David G. Frodsham(6)
|
|
|
148,650 |
|
|
|
* |
|
Peter Bernard(7)
|
|
|
— |
|
|
|
* |
|
Robert E. Collins(8)
|
|
|
— |
|
|
|
* |
|
Paul Edmonds(9)
|
|
|
— |
|
|
|
* |
|
All current directors and executive officers as group
(7 persons)(10)
|
|
|
4,491,249 |
|
|
|
10.1 |
% |
|
|
|
|
** |
Unless otherwise indicated below, the persons and entities named
in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community
property laws where applicable. Shares subject to options that
are currently exercisable or exercisable within 60 days of
August 1, 2005 are deemed to be outstanding and to be
beneficially owned by the person holding such option for the
purpose of computing the percentage ownership of such person but
are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. |
|
|
|
|
(1) |
Does not include 2,397,031 ADSs issuable on exchange of
preferred stock of Insignia Solutions Inc. (which number
reflects accruable dividends at a rate of 15% per year
compounded annually until June 30, 2007, at which time no
further dividends will accrue) that was issued at the first
closing of the private placement that took place on
June 30, 2005 and a warrant issued at such closing to
purchase 1,812,500 ADSs at an exercise price equal to the
greater of the U.S. Dollar equivalent of
20.5 U.K. pence or U.S. $0.50 per share
calculated upon exercise of such warrant. Also excludes up to
$12 million of ADSs that may from time to time be sold and
issued to Fusion Capital under the 2005 Fusion Capital
securities subscription agreement and two warrants to purchase
an aggregate of |
48
|
|
|
|
|
4,000,000 ADSs issued to Fusion Capital under the 2005
Fusion Capital securities subscription agreement. Fusion Capital
may not purchase shares under the 2005 Fusion Capital securities
subscription agreement if Fusion Capital, together with its
affiliates, would beneficially own more than 9.9% of our shares
outstanding at the time of the purchase by Fusion Capital. If
the 9.9% limitation is ever reached, we have the option to
increase the limit above 9.9% upon twenty (20) trading days
notice to Fusion Capital. Fusion Capital has the right at any
time to sell any shares purchased under the 2005 Fusion Capital
securities subscription agreement, which would allow it to avoid
the 9.9% limitation. In addition, Fusion Capital may not
exercise the two warrants to purchase an aggregate of
4,000,000 ADSs if Fusion Capital, together with its
affiliates, would beneficially own more than 9.9% of our shares
outstanding at the time of the exercise. Steven G. Martin
and Joshua B. Scheinfeld, the principals of Fusion Capital, are
deemed to be beneficial owners of all of the shares owned by
Fusion Capital. Messrs. Martin and Scheinfeld have shared
voting and disposition power over the shares held by Fusion
Capital. |
|
|
(2) |
Includes 209,750 shares subject to options that are
exercisable within 60 days after August 1, 2005. |
|
|
(3) |
Includes 747,000 shares subject to options that are
exercisable within 60 days after August 1, 2005 and a
warrant issued at the closing of the private placement that took
place on October 18, 2004 to purchase 13,021 ADSs at an
exercise price of $1.06 per share. |
|
|
(4) |
Includes 104,126 shares subject to options that are
exercisable within 60 days after August 1, 2005. |
|
|
(5) |
Includes 649,100 shares subject to options that are
exercisable within 60 days after August 1, 2005. |
|
|
(6) |
Includes 107,250 shares subject to options that are
exercisable within 60 days after August 1, 2005. |
|
|
(7) |
Mr. Bernard resigned on March 15, 2005. |
|
|
(8) |
Mr. Collins joined Insignia in January 2004 and resigned on
April 20, 2005. |
|
|
(9) |
Mr. Edmonds joined Insignia in April 2002 and resigned on
April 22, 2005. |
|
|
(10) |
Includes 1,817,226 shares subject to options exercisable
within 60 days after August 1, 2005. |
49
SELLING SHAREHOLDERS
The number of ADSs that may actually be sold by each selling
shareholder will be determined by the selling shareholder.
Because each selling shareholder may sell all, some or none of
the ADSs that they hold, no precise estimate can be given for
the number of ADSs that will be held by the selling shareholders
at the termination of the offering.
The selling shareholders have advised us that they are the
beneficial owners of the shares being offered. The following
table provides information known to us about the beneficial
ownership of our ADSs on or about August 1, 2005 by the
selling shareholders. The following table assumes that the
selling shareholders sell all of the ADSs being offered.
We have determined beneficial ownership in accordance with the
rules of the Securities and Exchange Commission. Except as
indicated by the footnotes below, we believe, based on the
information furnished to us, that the persons and entities named
in the tables below have sole voting and investment power with
respect to all American depositary shares that they beneficially
own, subject to applicable community property laws. We have
based our calculation of the percentage of beneficial ownership
on 42,503,025 American depositary shares outstanding on
August 1, 2005.
Asterisks represent beneficial ownership of less than one
percent. Except as indicated by the footnotes below, no selling
shareholder has had any material relationship with us or any of
our predecessors or affiliates within the last three years. To
our knowledge, none of the selling shareholders are
broker-dealers or affiliates of broker-dealers. Except as
described below, each of the selling shareholders acquired the
shares being offered in this prospectus in the ordinary course
of business and at the time of acquisition no selling
shareholder had direct or indirect agreements or understandings
with any person to distribute such shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially | |
|
|
|
Shares Beneficially | |
|
|
Owned Before | |
|
|
|
Owned After | |
|
|
the Offering | |
|
Shares Offered | |
|
Offering | |
|
|
| |
|
Under This | |
|
| |
Selling Shareholder |
|
Number | |
|
% | |
|
Prospectus | |
|
Number(1) | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Fusion Capital Fund II, LLC(2)
|
|
|
4,178,805 |
(3) |
|
|
9.83 |
% |
|
|
27,430,332 |
|
|
|
0 |
|
|
|
0 |
% |
|
222 Merchandise Mart Plaza, Suite 9-112
Chicago, IL 60654
Attn: Steven G. Martin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hare & Co.
|
|
|
1,267,227 |
(4) |
|
|
2.98 |
|
|
|
272,914 |
|
|
|
994,313 |
|
|
|
2.34 |
|
|
c/o Finsbury Technology Trust
Close Finsbury Asset Management
10 Crown Place
London, UK EC2A 4BT
Attn: Luke Kennedy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Glatman
|
|
|
175,941 |
(5) |
|
|
0.41 |
|
|
|
122,816 |
|
|
|
53,125 |
|
|
|
0.12 |
|
|
c/o Abstract Securities Ltd.
Queens House,
34 Wellington Street
Leeds, UK LS1 2DE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Kirkland
|
|
|
175,941 |
(6) |
|
|
0.41 |
|
|
|
122,816 |
|
|
|
53,125 |
|
|
|
0.12 |
|
|
c/o Bowmer & Kirkland
High Edge Court,
Heage Belper
Derbyshire, UK DE56 2BW |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Willbro Nominees
|
|
|
27,289 |
(7) |
|
|
0.06 |
|
|
|
27,289 |
|
|
|
0 |
|
|
|
0 |
|
|
c/o William de Broe
6 Broadgate
London, UK EC2M 2RP
Attn: Terry Davis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially | |
|
|
|
Shares Beneficially | |
|
|
Owned Before | |
|
|
|
Owned After | |
|
|
the Offering | |
|
Shares Offered | |
|
Offering | |
|
|
| |
|
Under This | |
|
| |
Selling Shareholder |
|
Number | |
|
% | |
|
Prospectus | |
|
Number(1) | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Intercontinental Services Limited
|
|
|
77,605 |
(8) |
|
|
0.18 |
|
|
|
68,230 |
|
|
|
9,375 |
|
|
|
0.02 |
|
|
c/o Pinnacle Trustees
1 Britannia Place
Limited, Bath
Saint Helier, Jersey,
UK JE2 4SU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Ensor
|
|
|
42,914 |
(9) |
|
|
0.10 |
|
|
|
27,289 |
|
|
|
15,625 |
|
|
|
0.04 |
|
|
1 Hampstead Hill Mansions
Downshire Hill
London, UK NW3 1NY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Katherine Meadows
|
|
|
818,750 |
(10) |
|
|
1.93 |
|
|
|
818,750 |
|
|
|
0 |
|
|
|
0 |
|
|
Stanford Wood, Tutts Clump
Bradfield Berks, UK RG7 6JU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony W. Fitzgerald
|
|
|
79,658 |
(11) |
|
|
0.19 |
|
|
|
79,658 |
|
|
|
0 |
|
|
|
0 |
|
|
91 Myrtle Avenue
Milburn, New Jersey 07041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tameen Auchi
|
|
|
54,586 |
(12) |
|
|
0.13 |
|
|
|
54,586 |
|
|
|
0 |
|
|
|
0 |
|
|
Dijla, Coombe Park
Kingston upon Thames
Surrey, UK KT2 7JB |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boston Fidelity Corporation PLC
|
|
|
272,914 |
(13) |
|
|
0.64 |
|
|
|
272,914 |
|
|
|
0 |
|
|
|
0 |
|
|
3rd Floor, Windsor House
55 St. James Street
London, UK SW1A 1LA
Attn: Lindsay Sanford |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vincent and Rosemary Pino
|
|
|
535,163 |
(14) |
|
|
1.26 |
|
|
|
220,831 |
|
|
|
314,332 |
|
|
|
0.74 |
|
|
31441 Island Drive
Evergreen, CO 80439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Pino
|
|
|
677,720 |
(15) |
|
|
1.59 |
|
|
|
525,393 |
|
|
|
152,327 |
|
|
|
0.36 |
|
|
31441 Island Drive
Evergreen, CO 80439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tiffany Pino
|
|
|
677,720 |
(16) |
|
|
1.59 |
|
|
|
525,394 |
|
|
|
152,326 |
|
|
|
0.36 |
|
|
31441 Island Drive
Evergreen, CO 80439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard & Barbara Zehner co-trustees,
|
|
|
1,646,321 |
(17) |
|
|
3.87 |
|
|
|
1,485,004 |
|
|
|
161,317 |
|
|
|
0.38 |
|
|
Zehner Family Trust dated 01/15/99
3 Oceancrest
Newport Coast, CA 92657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark McMillan
|
|
|
830,430 |
(18) |
|
|
1.95 |
|
|
|
68,230 |
|
|
|
762,200 |
|
|
|
1.79 |
|
|
2346 Belaire Court
Los Gatos, CA 95033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Waley Cohen
|
|
|
336,771 |
(19) |
|
|
0.79 |
|
|
|
136,461 |
|
|
|
200,310 |
|
|
|
0.47 |
|
|
18 Gilston Road
London, UK SW10 9SR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher Harding
|
|
|
13,755 |
(20) |
|
|
0.03 |
|
|
|
13,755 |
|
|
|
0 |
|
|
|
0 |
|
|
c/o Nomura International plc
Nomuras House
1 St. Martin’s-le-Grande
London, UK EC1A 4 NP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially | |
|
|
|
Shares Beneficially | |
|
|
Owned Before | |
|
|
|
Owned After | |
|
|
the Offering | |
|
Shares Offered | |
|
Offering | |
|
|
| |
|
Under This | |
|
| |
Selling Shareholder |
|
Number | |
|
% | |
|
Prospectus | |
|
Number(1) | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Novelstack Ltd
|
|
|
22,095 |
(21) |
|
|
0.05 |
|
|
|
22,095 |
|
|
|
0 |
|
|
|
0 |
|
|
c/o W H Ireland Limited
24 Bennetts Hill
Birmingham, UK B2 5QP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basso Multi-Strategy Holding Fund Ltd.
|
|
|
315,217 |
(22) |
|
|
0.74 |
|
|
|
315,217 |
|
|
|
0 |
|
|
|
0 |
|
|
1266 East Main Street
Stamford, CT 06902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basso Private Opportunity Holding Fund Ltd.
|
|
|
94,158 |
(23) |
|
|
0.22 |
|
|
|
94,158 |
|
|
|
0 |
|
|
|
0 |
|
|
1266 East Main Street
Stamford, CT 06902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SRG Capital, LLC
|
|
|
788,524 |
(24) |
|
|
1.86 |
|
|
|
788,524 |
|
|
|
0 |
|
|
|
0 |
|
|
120 Broadway, 40th Floor
New York, NY 10003
Attn: Yoav Roth and May Lee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcus Edwards-Jones
|
|
|
136,461 |
(25) |
|
|
0.32 |
|
|
|
136,461 |
|
|
|
0 |
|
|
|
0 |
|
|
C.S.S.P. Dame 63 Aiola
52044 Cortona Italy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan Fitzwilliams
|
|
|
152,409 |
(26) |
|
|
0.36 |
|
|
|
98,128 |
|
|
|
54,281 |
|
|
|
0.13 |
|
|
Byron House, 7 St. James’s Street
London, UK SW1A 1EE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan Nash
|
|
|
152,410 |
(27) |
|
|
0.36 |
|
|
|
98,129 |
|
|
|
54,281 |
|
|
|
0.13 |
|
|
Byron House, 7 St. James’s Street
London, UK SW1A 1EE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orin Z. Hirschman
|
|
|
1,067,189 |
(28) |
|
|
2.51 |
|
|
|
1,067,189 |
|
|
|
0 |
|
|
|
0 |
|
|
6006 Berkeley Avenue
Baltimore, MD 21209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hershel Berkowitz
|
|
|
196,252 |
(29) |
|
|
0.46 |
|
|
|
196,252 |
|
|
|
0 |
|
|
|
0 |
|
|
441 Yeshiva Lane, Apt. 1A
Baltimore, MD 21208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joshua Hirsch
|
|
|
43,547 |
(30) |
|
|
0.10 |
|
|
|
43,547 |
|
|
|
0 |
|
|
|
0 |
|
|
1 Longfellow Place, Suite 3407
Boston, MA 02114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unity Capital
|
|
|
435,469 |
(31) |
|
|
1.02 |
|
|
|
435,469 |
|
|
|
0 |
|
|
|
0 |
|
|
436 Chestnut Street
West Hempstead, NY 11552
Attn: Eli Schick |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Marketing Limited
|
|
|
435,469 |
(32) |
|
|
1.02 |
|
|
|
435,469 |
|
|
|
0 |
|
|
|
0 |
|
|
P. O. Box 3236
Ramal-Gan, 52131
Israel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Next Level Capital, Inc.
|
|
|
65,642 |
(33) |
|
|
0.15 |
|
|
|
65,642 |
|
|
|
0 |
|
|
|
0 |
|
|
86 Park Ave.
Passaic, NJ 07055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noel David Mulkeen
|
|
|
1,484,846 |
(34) |
|
|
3.49 |
|
|
|
1,979,794 |
|
|
|
0 |
|
|
|
0 |
|
|
Erstagatan 18, 1tr
116 36 Stockholm
Sweden |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially | |
|
|
|
Shares Beneficially | |
|
|
Owned Before | |
|
|
|
Owned After | |
|
|
the Offering | |
|
Shares Offered | |
|
Offering | |
|
|
| |
|
Under This | |
|
| |
Selling Shareholder |
|
Number | |
|
% | |
|
Prospectus | |
|
Number(1) | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Anders Furehed
|
|
|
1,484,846 |
(35) |
|
|
3.49 |
|
|
|
1,979,794 |
|
|
|
0 |
|
|
|
0 |
|
|
Bivägen 13
125 58 Älvsjö
Sweden |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18,764,044 |
|
|
|
|
|
|
|
40,028,530 |
|
|
|
2,976,937 |
|
|
|
|
|
|
|
|
|
(1) |
Assumes each selling shareholder will sell all shares offered by
such selling shareholder under this prospectus. |
|
|
(2) |
Does not include 2,397,031 ADSs issuable on exchange of
preferred stock of Insignia Solutions Inc. (which number
reflects accruable dividends at a rate of 15% per year
compounded annually until June 30, 2007, at which time no
further dividends will accrue) that was issued at the first
closing of the private placement that took place on
June 30, 2005 and a warrant issued at such closing to
purchase 1,812,500 ADSs at an exercise price equal to the
greater of the U.S. Dollar equivalent of
20.5 U.K. pence or U.S. $0.50 per share
calculated upon exercise of such warrant. Also excludes up to
$12 million of ADSs that may from time to time be sold and
issued to Fusion Capital under the 2005 Fusion Capital
securities subscription agreement and two warrants to purchase
an aggregate of 4,000,000 ADSs issued to Fusion Capital
under the 2005 Fusion Capital securities subscription agreement.
Fusion Capital may not purchase shares under the 2005 Fusion
Capital securities subscription agreement if Fusion Capital,
together with its affiliates, would beneficially own more than
9.9% of our shares outstanding at the time of the purchase by
Fusion Capital. If the 9.9% limitation is ever reached, we
have the option to increase the limit above 9.9% upon twenty
(20) trading days notice to Fusion Capital. Fusion Capital
has the right at any time to sell any shares purchased under the
2005 Fusion Capital securities subscription agreement, which
would allow it to avoid the 9.9% limitation. In addition,
Fusion Capital may not exercise the two warrants to purchase an
aggregate of 4,000,000 ADSs if Fusion Capital, together
with its affiliates, would beneficially own more than 9.9% of
our shares outstanding at the time of the exercise. |
|
|
(3) |
Steven G. Martin and Joshua B. Scheinfeld, the principals of
Fusion Capital, are deemed to be beneficial owners of all of the
shares owned by Fusion Capital. Messrs. Martin and
Scheinfeld have shared voting and disposition power over the
shares being offered under this prospectus. |
|
|
(4) |
Includes a warrant issued at the closing of Insignia’s
private placement that took place in January 2004 (each such
warrant, a “January 2004 Closing Warrant”) to
purchase 207,813 ADSs at an exercise price of
$1.04 per share and a warrant issued at the closing
of the private placement that took place on October 18,
2004 (each such warrant, an “October 2004 Closing
Warrant”) to purchase 52,083 ADSs at an exercise price
of $1.06 per share. Also includes a penalty warrant
issued in July 2005 (each such warrant, a “Penalty
Warrant”) to purchase 12,498 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. Hare & Co. is the
nominee for Finsbury Technology Trust, the beneficial owner of
the shares. Reabourne is the fund advisor to the Finsbury
Technology Trust. Michael Bourne, Jeremy Gleeson and Graham
Morton are employees of Reabourne and share dispositive and
voting power over the shares. Each of Mr. Bourne,
Mr. Gleason and Mr. Morton disclaims beneficial
ownership in the shares held by the Finsbury Technology Trust
except to the extent of his pecuniary interest therein. |
|
|
(5) |
Includes a January 2004 Closing Warrant to purchase 15,625
ADSs at an exercise price of $1.04 per share, an
October 2004 Closing Warrant to purchase 23,438 ADSs at an
exercise price of $1.06 per share, and a Penalty
Warrant to purchase 5,628 shares at an exercise price
equal to the greater of $1.11 per share or the
U.S. Dollar equivalent of 20 pence per ADS calculated upon
exercise of such warrant. |
|
|
(6) |
Includes a January 2004 Closing Warrant to purchase 15,625
ADSs at an exercise price of $1.04 per share, an
October 2004 Closing Warrant to purchase 23,438 ADSs at an
exercise price of $1.06 per |
53
|
|
|
|
|
share, and a Penalty Warrant to purchase 5,628 shares
at an exercise price equal to the greater of $1.11 per
share or the U.S. Dollar equivalent of 20 pence per ADS
calculated upon exercise of such warrant. |
|
|
(7) |
Includes an October 2004 Closing Warrant to purchase 5,208
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 1,248 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. John Paterson Millar, Peter
Cartwright, Andrew Darke, Bruce Evans, Raymond Bruce Fitch,
Richard Anthony Charnock, Michael Charles Gaston, Mark Trevor
Harris, Nicholas Charles Spearing, Robin Hugh Walker-Arnott,
Richard Andrew Warburton and David John Whistance, each of whom
is a managing director of Willbro Nominees, Ltd., and David
Montgomery Langshaw and David John Heigham, each of whom is
an officer of Willbro Nominees, Ltd., share dispositive and
voting power over the shares. |
|
|
(8) |
Includes a January 2004 Closing Warrant to purchase 9,375
ADSs at an exercise price of $1.04 per share, an
October 2004 Closing Warrant to purchase 13,021 ADSs at an
exercise price of $1.06 per share, and a Penalty
Warrant to purchase 3,126 shares at an exercise price
equal to the greater of $1.11 per share or the
U.S. Dollar equivalent of 20 pence per ADS calculated upon
exercise of such warrant. Colin Vibert, Iain Moodie and Kerry
Carter, each of whom is a director of Intercontinental Services
Ltd., share dispositive and voting power over the shares. Each
of Messrs. Vibert, Moodie and Carter disclaim beneficial
ownership in the shares held by Intercontinental Services Ltd.
except to the extent of his pecuniary interest therein. |
|
|
(9) |
Includes a January 2004 Closing Warrant to purchase 3,125
ADSs at an exercise price of $1.04 per share, an
October 2004 Closing Warrant to purchase 5,208 ADSs at an
exercise price of $1.06 per share, and a Penalty
Warrant to purchase 1,248 shares at an exercise price
equal to the greater of $1.11 per share or the
U.S. Dollar equivalent of 20 pence per ADS calculated upon
exercise of such warrant. |
|
|
(10) |
Includes an October 2004 Closing Warrant to
purchase 156,250 ADSs at an exercise price of
$1.06 per share and a Penalty Warrant to
purchase 37,500 shares at an exercise price equal to
the greater of $1.11 per share or the U.S. Dollar
equivalent of 20 pence per ADS calculated upon exercise of such
warrant. |
|
(11) |
Includes an October 2004 Closing Warrant to purchase 13,021
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 3,126 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. Also includes a July 2005 Closing
Warrant to purchase 11,428 ADSs at an exercise price equal
to the greater of the U.S. Dollar equivalent of 20.5 U.K.
pence or U.S. $0.50 per share calculated upon exercise
of such warrant. Mr. Fitzgerald acted as placement agent in
the second closing of the private placement transaction that
took place on July 5, 2005. |
|
(12) |
Includes an October 2004 Closing Warrant to purchase 10,417
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 2,502 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. |
|
(13) |
Includes an October 2004 Closing Warrant to purchase 52,083
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 12,498 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. Lindsay Sanford, chairman of
Boston Fidelity Corporation, has dispositive and voting power
over the shares. Mr. Sanford disclaims beneficial ownership
of the shares held by Boston Fidelity Corporation except to the
extent of his pecuniary interest therein. |
|
(14) |
Includes 104,126 shares subject to options held by
Mr. Pino that are exercisable within 60 days after
August 1, 2005 and a Penalty Warrant to
purchase 12,498 shares at an exercise price equal to
the greater of $1.11 per share or the U.S. Dollar
equivalent of 20 pence per ADS calculated upon exercise of such
warrant. Mr. Pino is a managing director of Insignia
Solutions. |
|
(15) |
Includes an October 2004 Closing Warrant to purchase 52,083
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 6,252 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. Also |
54
|
|
|
includes 206,641 ADSs issuable on exchange of preferred stock of
Insignia Solutions Inc. (which number reflects accruable
dividends at a rate of 15% per year compounded annually until
June 30, 2007, at which time no further dividends will
accrue) that was issued at the first closing of the private
placement that took place on June 30, 2005 and a June 2005
Closing Warrant to purchase 156,250 ADSs at an exercise
price equal to the greater of the U.S. Dollar equivalent of
20.5 U.K. pence or U.S. $0.50 per share calculated
upon exercise of such warrant. |
|
(16) |
Includes an October 2004 Closing Warrant to purchase 52,084
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 6,252 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. Also includes 206,641 ADSs
issuable on exchange of preferred stock of Insignia Solutions
Inc. (which number reflects accruable dividends at a rate of 15%
per year compounded annually until June 30, 2007, at which
time no further dividends will accrue) that was issued at the
first closing of the private placement that took place on
June 30, 2005 and a June 2005 Closing Warrant to
purchase 156,250 ADSs at an exercise price equal to the
greater equal of the U.S. Dollar equivalent of 20.5 U.K.
pence or U.S. $0.50 per share calculated upon exercise
of such warrant. |
|
(17) |
Includes an October 2004 Closing Warrant to
purchase 117,188 ADSs at an exercise price of
$1.06 per share and a Penalty Warrant to
purchase 28,128 shares at an exercise price equal to
the greater of $1.11 per share or the U.S. Dollar
equivalent of 20 pence per ADS calculated upon exercise of such
warrant. Also includes 495,938 ADSs issuable on exchange of
preferred stock of Insignia Solutions Inc. (which number
reflects accruable dividends at a rate of 15% per year
compounded annually until June 30, 2007, at which time no
further dividends will accrue) that was issued at the first
closing of the private placement that took place on
June 30, 2005 and a June 2005 Closing Warrant to
purchase 375,000 ADSs at an exercise price equal to the
greater of the U.S. Dollar equivalent of
20.5 U.K. pence or U.S. $0.50 per share
calculated upon exercise of such warrant. Richard Zehner and
Barbara Zehner, co-trustees of the Zehner Family Trust dated
1/15/99, share dispositive and voting power over the shares.
Mr. Zehner and Mrs. Zehner disclaim beneficial
ownership in the shares held by the Zehner Family Trust dated
01/15/99 except to the extent of their pecuniary interest
therein. |
|
(18) |
Includes an October 2004 Closing Warrant to purchase 13,021
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 3,126 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. Also includes 747,000 shares
subject to options that are exercisable within 60 days
after August 1, 2005. Mr. McMillan is a managing
director, and the chief executive officer, of Insignia Solutions. |
|
(19) |
Includes an October 2004 Closing Warrant to purchase 26,042
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 6,252 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. |
|
(20) |
Includes an October 2004 Closing Warrant to purchase 2,625
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 630 shares at an exercise
price equal to the greater of $1.11 per share or the
U.S. Dollar equivalent of 20 pence per ADS calculated upon
exercise of such warrant. |
|
(21) |
Includes an October 2004 Closing Warrant to purchase 2,625
ADSs at an exercise price of $1.06 per share and an
October 2004 Closing Warrant to purchase 8,340 ADSs at an
exercise price of $1.06 per share as allocated to
Novelstack Ltd. as part of the placement agent fee arrangement.
Also includes a Penalty Warrant to purchase 630 shares
at an exercise price equal to the greater of $1.11 per
share or the U.S. Dollar equivalent of 20 pence per ADS
calculated upon exercise of such warrant. David Michael Billings
and John Anthony Hoskinson, managing directors, share
dispositive and voting power over the shares. Mr. Billings
and Mr. Hoskinson disclaim beneficial ownership in the
shares held by Novelstack Ltd. except to the extent of their
pecuniary interest therein. |
|
(22) |
Includes an October 2004 Closing Warrant to purchase 60,156
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 14,436 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. Basso Asset Management, L.P.
(“Basso”) is the Investment Manager to Basso
Multi-Strategy Holding Fund Ltd. Howard I. Fischer is a
managing member of Basso GP, LLC, the General Partner of |
55
|
|
|
Basso, and as such has investment power and voting control over
these securities. Mr. Fischer disclaims beneficial
ownership of these securities. |
|
(23) |
Includes an October 2004 Closing Warrant to purchase 17,969
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 4,314 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. Basso Capital Management, L.P. is
the Investment Manager to Basso Private Opportunity Holding
Fund Ltd. Howard I. Fischer is a managing member of Basso
GP, LLC, the General Partner of Basso, and as such has
investment power and voting control over these securities.
Mr. Fischer disclaims beneficial ownership of these
securities. |
|
(24) |
Includes an October 2004 Closing Warrant to purchase 78,125
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 18,750 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. Also includes 215,899 ADSs
issuable on exchange of preferred stock of Insignia Solutions
Inc. (which number reflects accruable dividends at a rate of 15%
per year compounded annually until June 30, 2007, at which
time no further dividends will accrue) that was issued at the
first closing of the private placement that took place on
June 30, 2005 and a June 2005 Closing Warrant to
purchase 163,250 ADSs at an exercise price equal to the
greater of the U.S. Dollar equivalent of 20.5 U.K. pence or
U.S. $0.50 per share calculated upon exercise of such
warrant. Edwin Mecabe, a managing director, and Tai May Lee, an
employee of SRG Capital, LLC, share dispositive and voting power
over the shares. Mr. Mecabe and Ms. Lee disclaim
beneficial ownership in the shares held by SRG Capital, LLC
except to the extent of their pecuniary interest therein. |
|
(25) |
Includes an October 2004 Closing Warrant to purchase 26,042
ADSs at an exercise price of $1.06 per share and a
Penalty Warrant to purchase 6,252 shares at an
exercise price equal to the greater of $1.11 per share or
the U.S. Dollar equivalent of 20 pence per ADS calculated
upon exercise of such warrant. |
|
(26) |
Consists of a January 2004 Closing Warrant to
purchase 54,281 ADSs at an exercise price of
$0.92 per share and an October 2004 Closing Warrant
to purchase 98,128 ADSs at an exercise price of
$1.06 per share. Mr. Fitzwilliams is a
principal of Nash Fitzwilliams, Ltd., which acted as placement
agent in the October 2004 private placement transaction. |
|
(27) |
Consists of a January 2004 Closing Warrant to
purchase 54,281 ADSs at an exercise price of
$0.92 per share and an October 2004 Closing Warrant
to purchase 98,129 ADSs at an exercise price of
$1.06 per share. Mr. Nash is a principal of
Nash Fitzwilliams, Ltd., which acted as placement agent in the
October 2004 private placement transaction and in the second
closing of the private placement transaction that took place on
July 5, 2005. |
|
(28) |
Consists of 607,689 ADSs issuable on exchange of preferred stock
of Insignia Solutions Inc. (which number reflects accruable
dividends at a rate of 15% per year compounded annually until
June 30, 2007, at which time no further dividends will
accrue) that was issued at the second closing of the private
placement that took place on July 5, 2005 and a July 2005
Closing Warrant to purchase 459,500 ADSs at an exercise
price equal to the greater of the U.S. Dollar equivalent of
20.5 U.K. pence or U.S. $0.50 per share calculated
upon exercise of such warrant. |
|
(29) |
Consists of 111,752 ADSs issuable on exchange of preferred stock
of Insignia Solutions Inc. (which number reflects accruable
dividends at a rate of 15% per year compounded annually until
June 30, 2007, at which time no further dividends will
accrue) that was issued at the second closing of the private
placement that took place on July 5, 2005 and a July 2005
Closing Warrant to purchase 84,500 ADSs at an exercise
price equal to the greater of the U.S. Dollar equivalent of
20.5 U.K. pence or U.S. $0.50 per share calculated
upon exercise of such warrant. |
|
(30) |
Consists of 24,797 ADSs issuable on exchange of preferred stock
of Insignia Solutions Inc. (which number reflects accruable
dividends at a rate of 15% per year compounded annually until
June 30, 2007, at which time no further dividends will
accrue) that was issued at the second closing of the private
placement that took place on July 5, 2005 and a July 2005
Closing Warrant to purchase 18,750 ADSs at an exercise
price equal to the greater of the U.S. Dollar equivalent of
20.5 U.K. pence or U.S. $0.50 per share calculated
upon exercise of such warrant. |
56
|
|
|
(31) |
Consists of 247,969 ADSs issuable on exchange of preferred stock
of Insignia Solutions Inc. (which number reflects accruable
dividends at a rate of 15% per year compounded annually until
June 30, 2007, at which time no further dividends will
accrue) that was issued at the second closing of the private
placement that took place on July 5, 2005 and a July 2005
Closing Warrant to purchase 187,500 ADSs at an exercise
price equal to the greater of the U.S. Dollar equivalent of
20.5 U.K. pence or U.S. $0.50 per share calculated
upon exercise of such warrant. Eli Schick and Zvi Raskin share
voting and dispositive power over the securities held by Unity
Capital. |
|
|
|
(32) |
Consists of 247,969 ADSs issuable on exchange of preferred stock
of Insignia Solutions Inc. (which number reflects accruable
dividends at a rate of 15% per year compounded annually until
June 30, 2007, at which time no further dividends will
accrue) that was issued at the second closing of the private
placement that took place on July 5, 2005 and a July 2005
Closing Warrant to purchase 187,500 ADSs at an exercise
price equal to the greater of the U.S. Dollar equivalent of
20.5 U.K. pence or U.S. $0.50 per share calculated
upon exercise of such warrant. Adv. André Zolty has sole
voting and dispositive power over the securities held by Asia
Marketing Limited. |
|
|
|
(33) |
Consists of a July 2005 Closing Warrant to purchase 65,642
ADSs at an exercise price equal to the greater of the
U.S. Dollar equivalent of 20.5 U.K. pence or
U.S. $0.50 per share calculated upon exercise of such
warrant. Next Level Capital, Inc. acted as placement agent
in the second closing of the private placement transaction that
took place on July 5, 2005. Daniel Schneierson has sole
voting and dispositive power over the securities held by Next
Level Capital, Inc. |
|
|
(34) |
Does not include 494,948 ADSs that are issuable on
March 31, 2006 in connection with our acquisition of Mi4e,
subject to potential offset for breach of representations,
warranties and covenants. |
|
(35) |
Does not include 494,948 ADSs that are issuable on
March 31, 2006 in connection with our acquisition of Mi4e,
subject to potential offset for breach of representations,
warranties and covenants. |
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF SHARES
The total number of authorized shares of Insignia is 78,000,000,
consisting of 75,000,000 ordinary shares, each of 20 pence
nominal value and 3,000,000 preferred shares, each of
20 pence nominal value. At our general meeting of
shareholders held on September 30, 2005, our shareholders
approved an increase of 35,000,000 ordinary shares to our
authorized share capital and a reduction of the nominal value of
our ordinary shares from 20 pence per share to 1 pence per
share. The reduction in the nominal value of our ordinary shares
will become effective once the order of the English High Court
confirming it is registered with the U.K. Registrar of
Companies, which we expect to be completed by the end of January
2006. The increase in our authorized share capital is
conditional upon the reduction of the nominal value of our
ordinary shares becoming effective.
Ordinary Shares
All our outstanding and issued ordinary shares are, and all
ordinary shares to be resold by Fusion Capital under this
prospectus will be, fully paid or credited as fully paid and not
subject to calls for additional payments of any kind. The
ordinary shares are issued in registered form.
In the following description, a “shareholder” is the
person registered in Insignia’s register of members as the
holder of the relevant share. The Depositary will be the
shareholder in respect of those ordinary shares represented by
ADSs against which American Depository Receipts
(“ADRs”) are issued pursuant to the Deposit Agreement.
See “Description of American Depository Receipts” for
a description of the rights attaching to ADRs.
Holders of ordinary shares are entitled to receive such
dividends as may be declared by Insignia. Dividends may either
be interim dividends, declared by resolution of the Board of
Directors, or final dividends,
57
which are declared by resolution of the members on the
recommendation of the board. To date, there have been no
dividends paid to the holders of ordinary shares.
Holders of ordinary shares are entitled to participate in any
distribution of assets upon a liquidation, subject to the
satisfaction of creditors’ claims and the prior
distribution rights of any outstanding preferred shares.
Voting at any general meeting of shareholders is decided by a
poll. The necessary quorum for a shareholder meeting shall be a
minimum of two persons (present in person or by representative
in the case of a corporate member) or by proxy holding not less
than one-third of the ordinary shares outstanding and issued at
the relevant time. For a description of the method by which the
ordinary shares held by the Depositary will be voted, see
“Description of American Depository Receipts —
Voting of Deposited Securities.” Unless otherwise required
by law or our Articles of Association, voting in a general
meeting is by ordinary resolution (e.g., resolutions for
the election of directors, the approval of financial statements,
the declaration of final dividends, the appointment of auditors,
the increase of authorized shares or the grant of authority to
issue shares). An ordinary resolution requires the affirmative
vote of a majority of the votes cast at a meeting at which there
is a quorum. A special resolution (e.g., relating to
certain matters concerning an alteration of Insignia’s
Memorandum or Articles of Association or a winding-up of
Insignia) or an extraordinary resolution (e.g., modifying
the rights of any class of shares at a meeting of the holders of
such class) requires the affirmative vote of not less than
three-fourths of the votes cast. Meetings are generally convened
upon advance notice of 21 or 14 days (not including the
days of delivery or receipt of the notice) depending on the
nature of the business to be transacted.
The Companies Act 1985, as amended (the “Companies
Act”), confers upon shareholders, to the extent not
disapplied, pre-emptive rights in respect of the allotment of
equity securities that are or are to be paid up wholly in cash.
These provisions may be disapplied by a special resolution of
the shareholders, either generally or specifically, for a period
not exceeding five years. At Insignia’s Annual General
Meeting on September 30, 2005, Insignia’s shareholders
authorized Insignia’s Board of Directors, conditional upon
the reduction in the nominal value of Insignia’s ordinary
shares becoming effective (which we expect to occur by the end
of January 2006), to allot securities having an aggregate
nominal value of up to £1,110,000, or 51,000,000 ordinary
shares of 1 pence nominal value (including the increase of
35 million authorized ordinary shares approved by the
shareholders at such meeting) and 3,000,000 preferred shares of
20 pence nominal value, without first offering the shares
to existing shareholders, for a period ending September 29,
2010. Insignia intends to propose the renewal of the
disapplication of such pre-emptive rights at each annual general
meeting of shareholders.
If at any time Insignia’s share capital is divided into
different classes of shares, the rights attached to any class
may be varied or abrogated, subject to the provisions of the
Companies Act 1985, with the written consent of the holders of
three-fourths of the issued shares of the class, or with the
sanction of an extraordinary resolution passed at a separate
meeting of the holders of the shares of that class. At every
such separate meeting the quorum is a minimum of two persons
holding or representing by proxy not less than one-third in
nominal amount of the issued shares of the class, unless all the
shares of any class are registered in the name of a single
shareholder, in which case the quorum is one person, and each
holder of shares of the class will have one vote in respect of
every share of the class held by such person.
The Companies Act 1985 gives Insignia power, by notice in
writing, to require persons whom it knows are, or has reasonable
cause to believe to be, or at any time during the 3 years
immediately preceding the date on which the notice is issued by
Insignia, to have been interested in shares comprised in its
relevant share capital to disclose prescribed particulars of
those interests to Insignia. For this purpose “relevant
share capital” means
58
Insignia’s issued share capital of a class carrying the
right to vote in all circumstances at a general meeting of
Insignia. Failure to provide in a timely manner the information
requested may result in the imposition of sanctions against the
holder of the relevant shares as provided in the Companies Act
1985 and Insignia’s Articles of Association. Sanctions
currently include the withdrawal of voting rights of such shares
and the imposition of restrictions on the rights to receive
dividends on and to transfer such shares. In this context, the
term “interest” is broadly defined and will generally
include an interest of any kind in shares, including the
interest of a holder of an ADS. In addition, under the Companies
Act 1985, any person who acquires (alone or, in certain
circumstances, with others) a direct or indirect interest in
Insignia’s relevant share capital in excess of the
“notifiable percentage” (currently 3%, or 10% for
certain types of interest) comes under an obligation to disclose
prescribed information to us in respect of those shares within a
period of two days following the date on which the obligation to
notify arises. An obligation of disclosure also arises where
such person’s notifiable interest subsequently falls below
the notifiable percentage or where, above that level, the
percentage of Insignia’s relevant capital in which such
person is interested (rounded down to the nearest whole number)
increases or decreases. See also “Description of American
Depository Receipts — Disclosure of Interests.”
There are currently no U.K. foreign exchange controls on the
payment of dividends on the ordinary shares or the conduct of
our operations. There are no restrictions under our Memorandum
and Articles of Association or under English law that limit the
right of non-resident or foreign owners to hold or
vote Insignia’s ordinary shares.
Preferred Shares
As of June 30, 2005, there are authorized but unissued
3,000,000 preferred shares, nominal value of 20 pence per
share. At Insignia’s Annual General Meeting on
September 30, 2005, Insignia’s shareholders authorized
Insignia’s Board of Directors, conditional upon the
reduction in the nominal value of Insignia’s ordinary
shares becoming effective (which we expect to occur by the end
of January 2006), to allot the 3,000,000 preferred shares,
without first offering the shares to existing shareholders, for
a period ending September 29, 2010. The preferred shares
rank in priority to the ordinary shares as regards capital and,
if the directors so resolve on the first occasion on which
preferred shares are issued, as regards income. The directors
have discretion, on the occasion of the first issue of preferred
shares, to specify the percentage rate at which dividends will
be paid on the capital paid up in respect of the preferred
shares, alternatively, if no such percentage rate is specified,
the preferred shares will rank equally with the ordinary shares
as regards dividends. The directors also have discretion to
specify the number of votes per share to which a holder of
preferred shares will be entitled on a poll taken at a
shareholder meeting. The Board of Directors may authorize the
issue of preferred shares with voting and/or dividend rights
that could adversely affect the rights of the holders of
ordinary shares. The issue of preferred shares may have the
effect of delaying, deferring or preventing a change in control
of Insignia. Insignia has no current plan to issue any preferred
shares.
Registration Rights
Under registration rights agreements between Insignia and the
investors who participated in our private placements, Insignia
is obligated to register for resale all the ADSs and the shares
issuable on exercise of warrants issued to investors in the
private placements under the Securities Act and to use
reasonable best efforts to keep the registration effective for
certain periods of time. All expenses incurred in connection
with such registrations (other than underwriters’ and
brokers’ discounts and commissions) will be borne by
Insignia.
Warrants
As of June 30, 2005, there were warrants outstanding to
subscribe for an aggregate of 8,869,266 ordinary shares in ADS
form, which were issued to certain investors by us in private
placement transactions. In addition, we issued on July 5,
2005, warrants to purchase an aggregate of 1,101,000 ADSs at an
exercise price per share equal to the greater of $0.50 or the
U.S. Dollar equivalent of 20.5 U.K. pence. These warrants
are immediately exercisable. These warrants contain provisions
for the adjustment of the exercise price and the aggregate
number of shares issuable upon the exercise of the warrant under
certain circumstances, including
59
stock dividends, share splits, reorganizations,
reclassifications, consolidations and certain dilutive issuances
of securities at prices below the then existing warrant exercise
price. Specifically, if we issue our securities in a
transaction, such as a private placement financing, for a price
that is lower than the ten day average price of our ADSs before
the transaction or if the warrants issued in those private
placement transactions are exercised at a price less than the
ten day average price of our ADSs at the time of exercise, the
number of shares which the investors may subscribe with their
warrants will increase.
Further, some of the holders of these warrants have rights to be
issued additional ADSs by Insignia if the registration
statements covering their shares and the shares underlying their
warrants are not declared effective within certain deadlines or
suspended for more than 60 days in any 12 month period
by Insignia.
If we issue additional ADSs or if the adjustment provisions of
these warrants are triggered, the ownership interest of existing
security holders will be diluted.
Transfer Agent and Registrar
The Transfer Agent for the ADSs is The Bank of New York. The
Transfer Agent’s address and telephone number of its
principal executive office is located at 48 Wall Street, New
York, New York 10286, (212) 815-4305. The Registrar is
Capita IRG plc. The Registrar’s address of its principal
executive office is Bourne House, 34 Beckenham Road, Beckenham,
Kent BR 3 4TU, United Kingdom.
DESCRIPTION OF AMERICAN DEPOSITORY RECEIPTS
The following is a summary of certain provisions of the Deposit
Agreement (the “Deposit Agreement”) between Insignia
and The Bank of New York, as depositary (the
“Depositary,” such term to include any successor
Depositary), and all owners and beneficial owners from time to
time of ADRs, pursuant to which the ADRs are to be issued. The
Deposit Agreement is governed by the laws of the State of New
York.
This summary does not purport to be complete and is subject to
and qualified in its entirety by reference to the Deposit
Agreement, including the form of ADRs. Copies of the Deposit
Agreement and the Memorandum and Articles of Association of
Insignia are available for inspection at the Corporate
Trust Office of the Depositary, currently located at 101
Barclay Street, New York, New York 10286, and at the London
office of the Depositary (the “Custodian”), currently
located at 46 Berkeley Street, London W1X 6AA, England. The
Depositary’s principal executive office is located at 48
Wall Street, New York, New York 10286.
American Depository Receipts
ADRs evidencing ADSs are issuable by the Depositary pursuant to
the Deposit Agreement. Each ADS will represent one ordinary
share or evidence of the right to receive one ordinary share
(together with any additional ordinary shares at any time
deposited or deemed deposited under the Deposit Agreement and
any and all other securities, cash and property received by the
Depositary or the Custodian in respect thereof and at such time
held under the Deposit Agreement). Only persons in whose names
ADRs are registered on the books of the Depositary will be
treated by the Depositary and Insignia as owners.
Deposit, Transfer and Withdrawal
The Depositary has agreed, subject to the terms and conditions
of the Deposit Agreement, that upon delivery to the Custodian of
ordinary shares (or evidence of rights to receive ordinary
shares) and pursuant to appropriate instruments of transfer in a
form satisfactory to the Custodian, the Depositary will, upon
payment of the fees, charges and taxes (including, without
limitation, amounts in respect of any applicable stamp taxes)
provided in the Deposit Agreement, execute and deliver at its
corporate trust office to, or upon the written order of, the
person or persons named in the notice of the Custodian delivered
to the Depositary or requested by the person depositing such
ordinary shares with the Depositary, an ADR or ADRs, registered
in the name or names of such person or persons, and evidencing
any authorized number of ADSs requested by such person or
persons.
60
The Depositary has no obligation to accept ordinary shares for
deposit from any person or entity identified by Insignia as
holding Restricted Securities (as defined below) except upon
compliance with the provisions of the Deposit Agreement. The
term “Restricted Securities” means ordinary shares, or
ADRs representing such ordinary shares, which are
“restricted securities” as such term is defined in
Rule 144(a)(3) of the Securities Act, or which would
require registration under the Securities Act in connection with
the offer and sale thereof in the United States, or which are
subject to other restrictions on sale or deposit under the laws
of the United States or England, or under a shareholder
agreement or Insignia’s Memorandum or Articles of
Association.
Upon surrender at the corporate trust office of the Depositary
of an ADR for the purpose of withdrawal of the ordinary shares
represented by the ADSs evidenced by such ADR, and upon payment
of the fee of the Depositary for the surrender of ADRs and
payment of all governmental charges and taxes (including,
without limitation, amounts in respect of any applicable stamp
taxes) provided in the Deposit Agreement, and subject to the
terms and conditions of the Deposit Agreement, the owner of such
ADR will be entitled to delivery, to him or upon his order, of
the amount of ordinary shares at the time represented by the ADS
or ADSs evidenced by such ADR. The forwarding of share
certificates, other securities, property, cash and other
documents of title for such delivery will be at the risk and
expense of the owner.
Subject to the terms and conditions of the Deposit Agreement and
any limitations established by the Depositary, the Depositary
may deliver ADRs prior to the receipt of ordinary shares (a
“Pre-Release”) and deliver ordinary shares upon the
receipt and cancellation of ADRs which have been delivered prior
the receipt of ordinary shares, whether or not such cancellation
is prior to the termination of such Pre-Release or the
Depositary knows that such ADR has been Pre-Released. The
Depositary may receive ADRs in lieu of ordinary shares in
satisfaction of a Pre-Release. Each Pre-Release must be
(i) preceded or accompanied by a written representation
from the person to whom the ADRs or ordinary shares are to be
delivered that such person, or its customer, owns the ordinary
shares or ADRs to be remitted, as the case may be, (ii) at
all times fully collateralized with cash or such other
collateral as the Depositary deems appropriate,
(iii) terminable by the Depositary on not more than five
business days’ notice and (iv) subject to such further
indemnities and credit regulations as the Depositary deems
appropriate.
Dividends, Other Distributions and Rights
Subject to any restrictions imposed by English law, regulations
or applicable permits, the Depositary is required to convert or
cause to be converted into U.S. dollars, to the extent that
in its judgment it can do so on a reasonable basis and can
transfer the resulting dollars to the United States, all cash
dividends and other cash distributions denominated in a currency
other than dollars, including pounds sterling, that it receives
in respect of the deposited ordinary shares, and to distribute
the resulting dollar amount (net of reasonable and customary
expenses incurred by the Depositary in converting such foreign
currency) to the owners entitled thereto, in proportion to the
number of ADSs representing such deposited securities evidenced
by ADRs held by them, respectively. Such distribution may be
made upon an averaged or other practicable basis without regard
to any distinctions among owners on account of exchange
restrictions or the date of delivery of any ADR or ADRs or
otherwise. The amount distributed to the owners of ADRs will be
reduced by any amount on account of taxes to be withheld by
Insignia or the Depositary. See “— Liability of
Owner for Taxes.” If such conversion or distribution can be
effected only with the approval or license of any government or
agency thereof, the Depositary will file such applications for
approval or license, if any, as it deems desirable.
If the Depositary determines that in its judgment any foreign
currency received by the Depositary or the Custodian cannot be
converted an a reasonable basis into dollars transferable to the
United States, any approval or license of any government or
agency thereof that is required for such conversion is denied or
in the opinion of the Depositary is not obtainable or if any
such approval or license is not obtained within a reasonable
period as determined by the Depositary, the Depositary may
distribute the foreign currency received by the Depositary or
the Custodian to, or in its discretion may hold such foreign
currency uninvested and without liability for interest thereon
for the respective accounts of, the owners entitled to receive
the same. If any such conversion of foreign currency, in whole
or in part, cannot be effected for distribution to some of the
owners entitled thereto, the Depositary may in its discretion
make such conversion and distribution in dollars to the extent
permissible to the owners entitled thereto, and may distribute
the balance of the foreign
61
currency received by the Depositary to, or hold such balance
uninvested and without liability for interest thereon for, the
respective accounts of the owners entitled thereto, and will if
Insignia so requests.
If Insignia declares a dividend in, or free distribution of,
ordinary shares, the Depositary may distribute to the owners of
outstanding ADRs entitled thereto, in proportion to the number
of ADSs evidenced by the ADRs held by them, respectively,
additional ADRs evidencing an aggregate number of ADSs that
represents the amount of ordinary shares received as such
dividend or free distribution, subject to the terms and
conditions of the Deposit Agreement with respect to the deposit
of ordinary shares and the issuance of ADSs evidenced by ADRs,
including the withholding of any tax or other governmental
charge and the payment of fees and expenses of the Depositary.
The Depositary may withhold any such distribution of ADRs if it
has not received satisfactory assurances from Insignia that such
distribution does not require registration or is exempt from
registration under the Securities Act. In lieu of delivering
ADRs for fractional ADSs in the event of any such dividend or
free distribution, the Depositary will sell the amount of
ordinary shares represented by the aggregate of such fractions
and distribute the net proceeds in accordance with the Deposit
Agreement. If additional ADRs are not so distributed, each ADS
will thenceforth also represent the additional ordinary shares
distributed upon the deposited securities represented thereby.
If Insignia offers or causes to be offered to the holders of any
deposited securities any rights to subscribe for additional
ordinary shares or any rights of any other nature, the
Depositary will have discretion as to the procedure to be
followed in making such rights available to any owners of ADRs
or in disposing of such rights for the benefit of any owners and
making the net proceeds available to such owners or, if by the
terms of such rights offering or for any other reason, the
Depositary may not either make such rights available to any
owners or dispose of such rights and make the net proceeds
available to such owners, then the Depositary shall allow the
rights to lapse. If at the time of the offering of any rights
the Depositary determines in its discretion that it is lawful
and feasible to make such rights available to all or certain
owners but not to other owners, the Depositary may distribute to
any owner to whom it determines the distribution to be lawful
and feasible, in proportion to the number of ADSs held by such
owner, warrants or other instruments therefor in such form as it
deems appropriate. If the Depositary determines in its
discretion that it is not lawful and feasible to make such
rights available to all or certain owners, it may sell the
rights, warrants or other instruments in proportion to the
number of ADSs held by the owners to whom it has determined it
may not lawfully or feasibly make such rights available, and
allocate the net proceeds of such sales for the account of such
owners otherwise entitled to such rights, warrants or other
instruments, upon an averaged or other practical basis without
regard to any distinctions among such owners because of exchange
restrictions or the date of delivery of any ADR or ADRs, or
otherwise.
In circumstances in which rights would not otherwise be
distributed, if an owner of ADRs requests the distribution of
warrants or other instruments in order to exercise the rights
allocable to the ADSs of such owner, the Depositary will make
such rights available to such owner upon written notice from
Insignia to the Depositary that (i) Insignia has elected in
its sole discretion to permit such rights to be exercised and
(ii) such owner has executed such documents as Insignia has
determined in its sole discretion are reasonably required under
applicable law. Upon instruction pursuant to such warrants or
other instruments to the Depositary from such owner to exercise
such rights, upon payment by such owner to the Depositary for
the account of such owner of an amount equal to the purchase
price of the ordinary shares to be received upon exercise of the
rights and upon payment of the fees and expenses of the
Depositary and any other charges as set forth in such warrants
or other instruments, the Depositary will, on behalf of such
owner, exercise the rights and purchase the ordinary shares, and
Insignia shall cause the ordinary shares so purchased to be
delivered to the Depositary on behalf of such owner. As agent
for such owner, the Depositary will cause the ordinary shares so
purchased to be deposited, and will execute and deliver ADRs to
such owner, pursuant to the Deposit Agreement.
The Depositary will not offer rights to owners having an address
in the United States unless both the rights and the securities
to which such rights relate are either exempt from registration
under the Securities Act with respect to a distribution to all
owners or are registered under the provisions of the Securities
Act; provided, that nothing in the Deposit Agreement will
create, or be construed to create, any obligation on the part of
Insignia to file a registration statement with respect to such
rights or underlying securities or to
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endeavor to have such a registration statement declared
effective. If an owner of ADRs requests the distribution of
warrants or other instruments, notwithstanding that there has
been no such registration under the Securities Act, the
Depositary will not effect such distribution unless it has
received an opinion from recognized counsel in the United States
for Insignia upon which the Depositary may rely that such
distribution to such owner is exempt from such registration. The
Depositary will not be responsible for any failure to determine
that it may be lawful or feasible to make such rights available
to owners in general or any owner in particular.
Whenever the Depositary receives any distribution other than
cash, ordinary shares or rights in respect of the deposited
securities, the Depositary will cause the securities or property
received by it to be distributed to the owners entitled thereto,
after deduction or upon payment of any fees and expenses of the
Depositary or any taxes or other governmental charges, in
proportion to their holdings, respectively, in any manner that
the Depositary may deem equitable and practicable for
accomplishing such distribution; provided, however, that if in
the opinion of the Depositary such distribution cannot be made
proportionately among the owners entitled thereto, or if for any
other reason (including, but not limited to, any requirement
that Insignia or the Depositary withhold an amount on account of
taxes or other governmental charges or that such securities must
be registered under the Securities Act to be distributed to
owners or beneficial owners) the Depositary deems such
distribution not to be feasible, the Depositary may adopt such
method as it may deem equitable and practicable for the purpose
of effecting such distribution, including, but not limited to,
the public or private sale of the securities or property thus
received, or any part thereof, and the net proceeds of any such
sale (net of the fees and expenses of the Depositary) will be
distributed by the Depositary to the owners entitled thereto as
in the case of a distribution received in cash.
If the Depositary determines that any distribution of property
(including ordinary shares and rights to subscribe therefor) is
subject to any taxes or other governmental charges which the
Depositary is obligated to withhold, the Depositary may, by
public or private sale, dispose of all or a portion of such
property in such amount and in such manner as the Depositary
deems necessary and practicable to pay such taxes or charges and
the Depositary will distribute the net proceeds of any such sale
after deduction of such taxes or charges to the owners entitled
thereto in proportion to the number of ADSs held by them,
respectively.
Upon any change in nominal or par value, split-up, consolidation
or any other reclassification of deposited securities, or upon
any recapitalization, reorganization, merger or consolidation or
sale of assets affecting Insignia or to which it is a party, any
securities which shall be received by the Depositary or
Custodian in exchange for, in conversion of, or in respect of
deposited securities will be treated as new deposited securities
under the Deposit Agreement, and the ADSs will thenceforth
represent, in addition to the existing deposited securities, the
right to receive the new deposited securities so received in
exchange or conversion unless additional ADRs are delivered
pursuant to the following sentence. In any such case, the
Depositary may execute and deliver additional ADRs as in the
case of a dividend in ordinary shares, or call for the surrender
of outstanding ADRs to be exchanged for new ADRs specifically
describing such new deposited securities.
Record Dates
Whenever any cash dividend or other cash distribution becomes
payable or any distribution other than cash is made, whenever
rights are be issued with respect to the deposited securities,
whenever for any reason the Depositary causes a change in the
number of ordinary shares that are represented by each ADS,
whenever the Depositary receives notice of any meeting of
holders of ordinary shares or other deposited securities or
whenever the Depositary finds it necessary or convenient, the
Depositary will fix a record date as close as practicable to the
record date fixed by Insignia with respect to the ordinary
shares (i) for the determination of the owners who will be
(a) entitled to receive such dividend, distribution or
rights, or the net proceeds of the sale thereof or
(b) entitled to give instructions for the exercise of
voting rights at any such meeting or (ii) an or after which
each ADS will represent the changed number of ordinary shares,
all subject to the provisions of the Deposit Agreement.
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Voting at Deposited Securities
Upon receipt of notice of any meeting or solicitation of
consents or proxies of holders of ordinary shares or other
deposited securities, if requested in writing by Insignia, the
Depositary will, as soon as practicable thereafter, mail to all
owners a notice, the form of which will be in the sole
discretion of the Depositary, containing (i) the
information included in such notice of meeting received by the
Depositary from Insignia, (ii) a statement that the owners
as of the close of business on a specified record date as close
as practicable to the record date fixed by Insignia with respect
to the ordinary shares will be entitled, subject to any
applicable provision of English law and of the Memorandum and
Articles of Association of Insignia, to instruct the Depositary
as to the exercise of the voting rights, if any, pertaining to
the amount of ordinary shares or other deposited securities
represented by their respective ADSs and (iii) a statement
as to the manner in which such instructions may be given. Upon
the written request of an owner on such record date, received on
or before the date established by the Depositary for such
purpose, the Depositary will endeavor, insofar as practicable,
to vote or cause to be voted the amount of ordinary shares or
other deposited securities represented by the ADSs evidenced by
such ADRs in accordance with the instructions act forth in such
request. The Depositary will not vote or attempt to exercise the
right to vote that attaches to the ordinary shares or other
deposited securities, other than in accordance with such
instructions.
There can be no assurance that the owners generally or any owner
in particular will receive such notice sufficiently in advance
of the date established by the Depositary for the receipt of
instructions to ensure that the Depositary will in fact receive
such instructions on or before such date.
Disclosure of Interests
Each owner and beneficial owner of an ADR agrees to provide such
information as Insignia may request in a disclosure notice given
pursuant to the Companies Act and the Memorandum and Articles of
Association of Insignia. Failure of an owner or beneficial owner
to provide in a timely fashion the information requested in any
disclosure notice may result in the imposition of sanctions
against the holder of the ordinary shares represented by ADSs in
inspect of which the non-complying person is or was, or appears
to be or have been, interested as provided in the Companies Act
and the Memorandum and Articles of Association of Insignia,
which currently include, without limitation, the withdrawal of
the voting rights of such ordinary shares and the imposition of
restrictions on the rights to receive dividends on and to
transfer such ordinary shares. In addition, each owner or
beneficial owner of an ADR who is or becomes directly or
indirectly interested (within the meaning of the Companies Act)
in 3% or more of the issued ordinary shares (or 10% or more for
certain types of interest), or is aware that another person for
whom it holds ADRs is so interested, must within two days after
becoming so interested, or so aware, and thereafter in certain
circumstances upon any changes in the percentage interest in the
issued ordinary shares, notify Insignia as required by the
Companies Act.
Reports and Other Communications
The Depositary will make available for inspection by owners at
its Corporate Trust Office any reports and communications,
including any proxy soliciting material, received from Insignia,
which are both (i) received by the Depositary as the holder
of the deposited securities and (ii) made generally
available to the holders of such deposited securities by
Insignia. The Depositary will also send to the owners copies of
such reports when furnished by Insignia pursuant to the Deposit
Agreement. All such reports and communications, including any
proxy soliciting material, furnished to the Depositary by
Insignia will be furnished in English.
Amendment and Termination of the Deposit Agreement
The form of ADRs and any provisions of the Deposit Agreement may
at any time and from time to time be amended by agreement
between Insignia and the Depositary in any respect which they
may deem necessary or desirable without that consent of the
owners and beneficial owners; provided, however, that any
amendment that imposes or increases any fees or charges (other
than taxes and other governmental charges, registration fees,
cable, telex or facsimile transmission costs, delivery costs or
other such expenses), or that otherwise prejudices any
substantial existing right of owners, will not take effect as to
outstanding ADRs until
64
the expiration of 30 days after notice of any amendment has
been given to the owners of outstanding ADRs. Every owner, at
the time any amendment becomes effective, will be deemed, by
continuing to hold such ADR, to consent and agree to such
amendment and to be bound by the Deposit Agreement as amended
thereby. In no event will any amendment impair the right of the
owner to surrender such ADR and receive therefor the deposited
securities represented thereby, except to comply with mandatory
provisions of applicable law. In the event the Depositary
resigns or is removed and a successor depositary is appointed in
accordance with the provisions of the Deposit Agreement, owners
of outstanding ADRs will be notified of such appointment by the
successor Depositary.
The Depositary will at any time at the direction of Insignia
terminate the Deposit Agreement by mailing notice of such
termination to the owners of the ADRs than outstanding at least
90 days prior to the date fixed in such notice for such
termination. The Depositary may likewise terminate the Deposit
Agreement by mailing notice of such termination to Insignia and
the owners of all ADRs then outstanding if, any time after
90 days have expired after the Depositary has delivered to
Insignia a written notice of its election to resign, a successor
depositary has not been appointed and accepted its appointment
in accordance with the terms of the Deposit Agreement. On and
after the date of termination, the owner of an ADR will, upon
(i) surrender of such ADR at the Corporate
Trust Office, (ii) payment of the fee of the
Depositary for the surrender of ADRs as provided in the Deposit
Agreement and (iii) payment of any applicable taxes or
governmental charges, be entitled to delivery to such owner or
upon such owner’s order, of the amount of deposited
securities represented by the ADSs evidenced by such ADRs. If
any ADRs remain outstanding after the data of termination of the
Deposit Agreement, the Depositary thereafter will discontinue
the registration of transfers of ADRs, will suspend the
distribution of dividends to the owners thereof and will not
give any further notices or perform any further acts under the
Deposit Agreement, except the collection of dividends and other
distributions pertaining to the deposited securities, the sale
of rights send other property and the delivery of underlying
deposited securities, together with any dividends or other
distributions received with respect thereto and the net proceeds
of the sale of any rights or other property, in exchange for
surrendered ADRs (after deducting, in each case, the fee of the
Depositary for the surrender of ADRs, other expenses set forth
in the Deposit Agreement and any applicable taxes or
governmental charges). At any time after the expiration of one
year from the date of termination, the Depositary may sell the
deposited securities then held under the Deposit Agreement and
hold uninvested the net proceeds of such sale, together with any
other cash, unsegregated and without liability for interest, for
the pro rata benefit of the owners that have not surrendered
their ADRs, such owners thereupon becoming general creditors of
the Depositary with respect to such net proceeds. After making
such sale, the Depositary will be discharged from all
obligations under the Deposit Agreement, except to account for
net proceeds and other cash (after deducting, in each case, the
fee of the Depositary for the surrender of ADRs, other expenses
set forth in the Deposit Agreement and any applicable taxes or
governmental charges).
Charges of Depositary
Insignia will pay the fees, reasonable expenses and
out-of-pocket charges of the Depositary and those of any
registrar, in accordance with written agreements entered into
between the Depositary and Insignia from time to time. The
Depositary will charge any party depositing or withdrawing
ordinary shares or any party surrendering ADRs or to whom ADRs
are issued (including, without limitation, issuance pursuant to
a stock dividend or stock split declared by Insignia or an
exchange of stock regarding the ADRs or deposited securities, or
a distribution of ADRs pursuant to the Deposit Agreement) where
applicable: (i) taxes (including, without limitation,
amounts in respect of any applicable stamp taxes) and other
governmental charges; (ii) such registration fees as may
from time to time be in effect for the registration of transfers
of ordinary shares generally on the share register of Insignia
or the appointed agent of Insignia for transfer and registration
of ordinary shares and applicable to transfers of ordinary
shares to the name of the Depositary or its nominee or the
Custodian or its nominee on the making of deposits or
withdrawals; (iii) such cable, telex and facsimile
transmission expenses as are expressly provided in the Deposit
Agreement to be at the expense of persons depositing ordinary
shares or owners; (iv) such expenses as are incurred by the
Depositary in the conversion of foreign currency pursuant to the
Deposit Agreement; (v) a fee not in excess of
$5.00 per 100 ADSs (or portion thereof) for the
issuance and surrender, respectively, of ADRs pursuant to the
Deposit Agreement; (vi) a fee not in excess of
$0.02 per ADS (or portion thereof) for any cash
distribution made
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pursuant to the Deposit Agreement; (vii) a fee for the
distribution of securities pursuant to the Deposit Agreement,
such fee being in an amount equal to the fee for the execution
and delivery of ADSs referred to above that would have been
charged as a result of the deposit of such securities (for
purposes of this clause (vii) treating all such securities
as if they were ordinary shares), but which securities are
instead distributed by the Depositary to owners; and
(viii) a fee not in excess of $1.50 per certificate
for an ADR at ADRs for transfers made pursuant to the Deposit
Agreement.
The Depositary may own and deal in any class of securities of
Insignia and its affiliates and in ADRs.
Liability of Owner for Taxes
If any tax, duty or other governmental charge (including,
without limitation, any stamp tax) becomes payable by the
Custodian, the Depositary or any nominee of either as registered
holder of any deposited securities underlying any ADR with
respect to any ADR or any deposited securities represented by
the ADSs evidenced by such ADR, such tax or other governmental
charge will be payable by the owner or beneficial owner of such
ADR to the Depositary. The Depositary may refuse to effect any
transfer of such ADR or any withdrawal of deposited securities
underlying such ADR until such payment is made, and may withhold
any dividends or other distributions, or may sell for the
account of the owner or beneficial owner thereof any part or all
of the deposited securities underlying such ADR and may apply
such dividends, other distributions or the proceeds of any such
sale to pay any such tax or other governmental charge and the
owner or beneficial owner of such ADR will remain liable for any
deficiency.
General
Neither the Depositary nor Insignia nor any of their respective
directors, employees, agents or affiliates will be liable to any
owner or beneficial owner of ADRs, if by reason of any provision
of any present or future law or regulation of the United States,
England or any other country, or of any other governmental or
regulatory authority, stock exchange or automated quotation
system, or by reason of any provision, present or future, of the
Memorandum or Articles of Association of Insignia, or by reason
of any provision of any securities issued or distributed by
Insignia, or any offering or distribution thereof, or by reason
of any act of God or war or other circumstances beyond its
control, the Depositary or Insignia shall be prevented, delayed
or forbidden from, or be subject to any civil or criminal
penalty on account of, doing or performing any act or thing
which by the terms of the Deposit Agreement or the deposited
securities is provided will be done or performed; nor will the
Depositary or Insignia or any of their respective directors,
employees, agents or affiliates incur any liability to any owner
or beneficial owner of any ADR by reason of any nonperformance
or delay, caused as aforesaid, in the performance of any act or
thing which by the terms of the Deposit Agreement is provided
will or may be done or performed, or by reason of any exercise
of, or failure to exercise, any discretion provided for under
the Deposit Agreement. Where, by the terms of a distribution
pursuant to the Deposit Agreement, or an offering or
distribution pursuant to the Deposit Agreement, or for any other
reason, such distribution or offering may not be made available
to owners, and the Depositary may not dispose of such
distribution or offering on behalf of such owners and make the
net proceeds available to such owners, then the Depositary will
not make such distribution or offering, and will allow the
rights, if applicable, to lapse.
Insignia and the Depositary assume no obligation nor will they
be subject to any liability under the Deposit Agreement to
owners or beneficial owners of ADRs, except that they agree to
perform their respective obligations specifically set forth
under the Deposit Agreement without negligence or bad faith.
The ADRs are transferable on the books of the Depositary,
provided that the Depositary may close the transfer books at any
time or from time to time when deemed expedient by it in
connection with the performance of its duties or at the written
request of Insignia. As a condition precedent to the execution
and delivery, registration of transfer, split-up, combination or
surrender of any ADR or withdrawal of any deposited securities,
the Depositary, the Custodian or the registrar may require
payment from the person presenting the ADR or the depositor of
the ordinary shares of a sum sufficient to reimburse is for any
tax (including, without limitation, amounts in respect of any
applicable stamp tax) at other governmental charge and any stock
transfer or registration fee with respect thereto (including any
such tax or charge and fee with
66
respect to ordinary shares being deposited or withdrawn) and
payment of any applicable fees as provided in the Deposit
Agreement. The Depositary may refuse to deliver ADRs, to
register the transfer of any ADR or to make any distribution on,
or related to, ordinary shares until it has received such proof
of citizenship or residence, exchange control approval or other
information as it may deem necessary or proper. The delivery,
transfer, registration of transfer of outstanding ADRs and
surrender of ADRs generally may be suspended or refused during
any period when the transfer books of the Depositary are closed
or if any such action is deemed necessary or advisable by the
Depositary or Insignia, at any time or from time to time.
Notwithstanding anything to the contrary in the Deposit
Agreement, the surrender of outstanding ADRs and the withdrawal
of deposited securities may not be suspended, subject only to
(i) temporary delays caused by closing the transfer books
of the Depositary or Insignia or the deposit of ordinary shares
in connection with voting at a shareholders’ meeting or the
payment of dividends, (ii) the payment of fees, taxes and
similar charges and (iii) compliance with any U.S. or
other laws or governmental regulations relating to the ADRs or
to the withdrawal of the deposited securities.
The Depositary will keep books, at its Corporate
Trust Office, for the registration and transfer of ADRs,
which at all reasonable times will be open for inspection by the
owners, provided that such inspection will not be for the
purpose of communicating with owners in the interest of a
business or object other than the business of Insignia or a
matter related to the Deposit Agreement or the ADRs.
The Depositary may appoint one or more co-transfer agents for
the purpose of effecting transfers, combinations and split-ups
of ADRs at designated transfer offices on behalf of the
Depositary. In carrying out its functions, a co-transfer agent
may require evidence of authority and compliance with applicable
laws and other requirements by owners or persons entitled to
ADRs and will be entitled to protection and indemnity to the
same extent as the Depositary.
Listing
The ADSs have been approved for listing on the Nasdaq SmallCap
Market under the trading symbol INSG.
PLAN OF DISTRIBUTION
The shares offered by this prospectus are being offered by the
selling shareholders. The shares may be sold or distributed from
time to time by the selling shareholders directly to one or more
purchasers or through brokers, dealers, or underwriters who may
act solely as agents at market prices prevailing at the time of
sale, at prices related to the prevailing market prices, at
negotiated prices, or at fixed prices, which may be changed. The
sale of the shares offered by this prospectus may be effected in
one or more of the following methods:
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ordinary brokers’ transactions; |
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transactions involving cross or block trades; |
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through brokers, dealers, or underwriters who may act solely as
agents; |
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“at the market” into an existing market for the shares; |
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in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents; |
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in privately negotiated transactions; |
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through put or call options transactions relating to the shares,
or through short sales of shares; or |
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any combination of the foregoing. |
In order to comply with the securities laws of certain states,
if applicable, the shares may be sold only through registered or
licensed brokers or dealers. In addition, in certain states, the
shares may not be sold unless they have been registered or
qualified for sale in the state or an exemption from the
registration or qualification requirement is available and
complied with.
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Brokers, dealers, underwriters, or agents participating in the
distribution of the shares as agents may receive compensation in
the form of commissions, discounts, or concessions from the
selling shareholder and/ or purchasers of the shares for whom
the broker-dealers may act as agent. The compensation paid to a
particular broker-dealer may be less than or in excess of
customary commissions.
Fusion Capital is an “underwriter” within the meaning
of the Securities Act with respect to the up to
$12.0 million of our ADSs that may from time to time be
sold to it under the 2005 Fusion Capital securities subscription
agreement, and the selling shareholders may be deemed to be
“underwriters” within the meaning of the Securities
Act of 1933, as amended with respect to the other shares
included in this prospectus. Accordingly, any commission
received by them and any profit on the resale of the shares of
ADSs as principal might be deemed to be underwriting discounts
and commissions under the Securities Act.
None of the selling shareholders nor we can presently estimate
the amount of compensation that any agent will receive. We know
of no existing arrangements between any selling shareholder, any
other shareholder, broker, dealer, underwriter, or agent
relating to the sale or distribution of the shares offered by
this prospectus. At the time a particular offer of shares is
made, a prospectus supplement, if required, will be distributed
that will set forth the names of any agents, underwriters, or
dealers and any compensation from the selling shareholder and
any other required information.
We will pay all of the expenses incident to the registration,
offering, and sale of the shares to the public other than
commissions or discounts of underwriters, broker-dealers, or
agents. We have also agreed to indemnify the selling
shareholders and related persons against specified liabilities,
including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers, and
controlling persons, we have been advised that in the opinion of
the SEC this indemnification is against public policy as
expressed in the Securities Act and is therefore, unenforceable.
Fusion Capital and its affiliates have agreed not to engage in
any direct or indirect short selling or hedging of our shares
during the term of the 2005 Fusion Capital securities
subscription agreement.
We have advised Fusion Capital that while it is engaged in a
distribution of the shares included in this prospectus it is
required to comply with Regulation M promulgated under the
Securities Exchange Act of 1934, as amended. With certain
exceptions, Regulation M precludes the selling shareholder,
any affiliated purchasers, and any broker-dealer or other person
who participates in the distribution from bidding for or
purchasing, or attempting to induce any person to bid for or
purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M
also prohibits any bids or purchases made in order to stabilize
the price of a security in connection with the distribution of
that security. All of the foregoing may affect the marketability
of the shares offered hereby this prospectus.
Before any selling shareholder proposes to sell any shares
acquired in connection with the October 2004 private placement,
the selling shareholder must notify us of their intent to do so
prior to the sale. By providing us with such notice of sale, the
selling shareholder agrees to comply with the registration
provisions as described in the Registration Rights Agreement
dated as of October 18, 2004. The notice of sale is also a
representation made by the selling shareholder that any
information provided by that selling shareholder is accurate as
of the date of such notice. We may refuse to permit the selling
shareholder to resell any shares for a period of time not to
exceed 30 days, provided that we deliver a written
certificate to the selling shareholder to the effect that the
Registration Statement in its then current form contains an
untrue statement of material fact or omits to state a material
fact necessary in order to the make the statements made therein,
in light of the circumstances under which they were made, not
misleading.
The selling shareholders will act independently of us in making
decisions with respect to the timing, manner and size of each
sale.
In connection with distributions of the shares or otherwise, the
selling shareholders (other than Fusion Capital) may enter into
hedging transactions with broker-dealers or other financial
institutions. In connection with those transactions,
broker-dealers or other financial institutions may engage in
short sales of the ADSs in
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the course of hedging the positions they assume with the selling
shareholders. After the date of this prospectus, the selling
shareholders (other than Fusion Capital) also may sell the ADSs
short and redeliver the shares to close out those short
positions. The selling shareholders also may enter into option
or other transactions or the creation of one or more derivative
securities with broker-dealers or other financial institutions
that require the delivery to the broker-dealer or other
financial institution of shares offered by this prospectus,
which shares the broker-dealer or other financial institution
may resell pursuant to this prospectus (as supplemented or
amended to reflect those transactions). The selling shareholders
also may pledge or hypothecate shares to a broker-dealer or
other financial institution, and, upon a default, that
broker-dealer or other financial institution may effect sales of
the pledged shares pursuant to this prospectus (as supplemented
or amended to reflect that transaction). In effecting sales,
broker-dealers or agents engaged by the selling shareholders may
arrange for other broker-dealers to participate.
We have advised the selling shareholders that the
anti-manipulation rules under the Securities Exchange Act of
1934 (the “Exchange Act”) may apply to sales of the
shares offered under this prospectus in the market, and to their
own activities and those of their affiliates. With respect to
the shares issued in connection with the October 2004 private
placement, the selling shareholders have advised us that during
the time they are engaged in attempting to sell the shares
offered under this prospectus, they will:
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not engage in any stabilization activity in connection with any
of our securities; |
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provide a copy of the final prospectus to each person to whom
shares may be offered, and to each broker-dealer, if any,
through which any shares may be offered; |
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not bid for or purchase any of our securities or any rights to
acquire our securities, or attempt to induce any person to
purchase any of our securities or any rights to acquire our
securities other than as permitted under the Exchange
Act; and |
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not effect any sale or distribution of the shares until after
the prospectus has been appropriately amended or supplemented,
if required. |
LEGAL MATTERS
The validity, under English law, of the shares offered under
this prospectus will be opined upon for Insignia by Macfarlanes,
London.
EXPERTS
The consolidated financial statements as of June 30, 2005
and December 31, 2004 and 2003 and for the six months ended
June 30, 2005 and for each of the two years in the period
ended December 31, 2004 included in this Prospectus have
been so included in reliance on the report (which contains an
explanatory paragraph relating to the Company’s ability to
continue as a going concern as described in Note 1 to the
consolidated financial statements) of Burr, Pilger &
Mayer LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements for the year ended
December 31, 2002 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
The financial statements of Mi4e Device Management AB as of
March 16, 2005 and June 30, 2004 and for the
8.5 months ended March 16, 2005 and the year ended
June 30, 2004 included in this Prospectus have been
included in reliance on the report of Öhrlings
PricewaterhouseCoopers, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
69
ADDITIONAL INFORMATION AVAILABLE TO YOU
We file reports, proxy statements and other information with the
Securities and Exchange Commission. Copies of our reports, proxy
statements and other information may be inspected and copied at
the public reference facilities maintained by the SEC:
|
|
|
|
|
Judiciary Plaza
|
|
Citicorp Center |
|
|
Room 1024 |
|
5000 West Madison Street |
|
233 Broadway |
450 Fifth Street, N.W |
|
Suite 1400 |
|
Suite 1300 |
Washington, D.C. 20549 |
|
Chicago, Illinois 60661 |
|
New York, New York 10279 |
Copies of these materials can also be obtained by mail for a fee
from the public reference section of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549 or by calling the SEC
at 1-800-SEC-0330. The SEC maintains a website that contains
reports, proxy statements and other information about us. The
address of the SEC website is http://www.sec.gov.
Insignia has filed a registration statement under the Securities
Act with the Securities and Exchange Commission for the shares
to be sold by the selling security holders. This prospectus has
been filed as part of the registration statement. This
prospectus does not contain all of the information in the
registration statement because some parts of the registration
statement are omitted according to the rules and regulations of
the SEC. The registration statement is available for inspection
and copying as described above.
70
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page | |
|
|
| |
Insignia Solutions Plc and Subsidiaries
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-30 |
|
|
|
|
F-31 |
|
|
|
|
F-32 |
|
Mi4e Device Management AB
|
|
|
|
|
|
|
|
F-33 |
|
|
|
|
F-34 |
|
|
|
|
F-35 |
|
|
|
|
F-36 |
|
|
|
|
F-41 |
|
Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements
|
|
|
|
|
|
|
|
P-1 |
|
|
|
|
P-2 |
|
|
|
|
P-4 |
|
F-1
INSIGNIA SOLUTIONS PLC
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
June 30, | |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands, | |
|
|
except share and per share data) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
842 |
|
|
$ |
902 |
|
|
$ |
2,212 |
|
|
Restricted cash
|
|
|
50 |
|
|
|
50 |
|
|
|
20 |
|
|
Accounts receivable, net of allowances of $195, $0, and $0
respectively
|
|
|
617 |
|
|
|
175 |
|
|
|
50 |
|
|
Other receivables
|
|
|
66 |
|
|
|
241 |
|
|
|
1,153 |
|
|
Tax receivable
|
|
|
137 |
|
|
|
322 |
|
|
|
391 |
|
|
Prepaid royalties
|
|
|
— |
|
|
|
— |
|
|
|
2,185 |
|
|
Prepaid expenses
|
|
|
261 |
|
|
|
456 |
|
|
|
410 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,973 |
|
|
|
2,146 |
|
|
|
6,421 |
|
Property and equipment, net
|
|
|
123 |
|
|
|
140 |
|
|
|
154 |
|
Intangible assets, net
|
|
|
2,290 |
|
|
|
— |
|
|
|
— |
|
Goodwill
|
|
|
416 |
|
|
|
— |
|
|
|
— |
|
Investment in affiliate
|
|
|
— |
|
|
|
68 |
|
|
|
— |
|
Other noncurrent assets
|
|
|
228 |
|
|
|
233 |
|
|
|
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,030 |
|
|
$ |
2,587 |
|
|
$ |
6,794 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, MANDATORILY REDEEMABLE WARRANTS AND
SHAREHOLDERS’ EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
779 |
|
|
$ |
241 |
|
|
$ |
428 |
|
|
Accrued liabilities
|
|
|
1,234 |
|
|
|
995 |
|
|
|
1,279 |
|
|
Notes payable - current portion
|
|
|
40 |
|
|
|
— |
|
|
|
1,000 |
|
|
Deferred revenue
|
|
|
118 |
|
|
|
10 |
|
|
|
1,460 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,171 |
|
|
|
1,246 |
|
|
|
4,167 |
|
Notes payable, net of current portion
|
|
|
24 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,195 |
|
|
|
1,246 |
|
|
|
4,167 |
|
|
|
|
|
|
|
|
|
|
|
Mandatorily redeemable warrants
|
|
|
— |
|
|
|
— |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares, £0.20 par value:
3,000,000 shares authorized; no shares issued
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Ordinary shares, £0.20 par value:
75,000,000 shares authorized; 42,433,025, 35,722,205 and
25,169,494 shares issued and outstanding in 2005, 2004 and
2003, respectively
|
|
|
14,470 |
|
|
|
11,939 |
|
|
|
8,111 |
|
|
Additional paid-in capital
|
|
|
66,199 |
|
|
|
64,459 |
|
|
|
61,898 |
|
|
Ordinary share subscription
|
|
|
712 |
|
|
|
— |
|
|
|
575 |
|
|
Accumulated deficit
|
|
|
(78,085 |
) |
|
|
(74,596 |
) |
|
|
(67,534 |
) |
|
Other accumulated comprehensive loss
|
|
|
(461 |
) |
|
|
(461 |
) |
|
|
(461 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
2,835 |
|
|
|
1,341 |
|
|
|
2,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,030 |
|
|
$ |
2,587 |
|
|
$ |
6,794 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
INSIGNIA SOLUTIONS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
|
|
June 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Unaudited | |
|
|
|
|
|
|
|
|
(Amounts in thousands, except per share data) | |
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$ |
917 |
|
|
$ |
421 |
|
|
$ |
521 |
|
|
$ |
522 |
|
|
$ |
5,714 |
|
|
Service
|
|
|
279 |
|
|
|
5 |
|
|
|
20 |
|
|
|
188 |
|
|
|
1,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
1,196 |
|
|
|
426 |
|
|
|
541 |
|
|
|
710 |
|
|
|
7,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
|
83 |
|
|
|
28 |
|
|
|
28 |
|
|
|
288 |
|
|
|
1,943 |
|
|
Service
|
|
|
16 |
|
|
|
— |
|
|
|
14 |
|
|
|
52 |
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of net revenues
|
|
|
99 |
|
|
|
28 |
|
|
|
42 |
|
|
|
340 |
|
|
|
2,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,097 |
|
|
|
398 |
|
|
|
499 |
|
|
|
370 |
|
|
|
4,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,329 |
|
|
|
1,345 |
|
|
|
2,511 |
|
|
|
1,757 |
|
|
|
5,558 |
|
|
Research and development
|
|
|
1,591 |
|
|
|
1,472 |
|
|
|
2,807 |
|
|
|
3,373 |
|
|
|
5,640 |
|
|
General and administrative
|
|
|
1,484 |
|
|
|
1,261 |
|
|
|
2,579 |
|
|
|
2,676 |
|
|
|
3,356 |
|
|
Amortization of intangible assets
|
|
|
110 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Restructuring
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
498 |
|
|
|
296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,514 |
|
|
|
4,078 |
|
|
|
7,897 |
|
|
|
8,304 |
|
|
|
14,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,417 |
) |
|
|
(3,680 |
) |
|
|
(7,398 |
) |
|
|
(7,934 |
) |
|
|
(10,178 |
) |
Interest income (expense), net
|
|
|
(42 |
) |
|
|
2 |
|
|
|
6 |
|
|
|
(40 |
) |
|
|
75 |
|
Other income (expense), net
|
|
|
6 |
|
|
|
251 |
|
|
|
249 |
|
|
|
3,141 |
|
|
|
(431 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(3,453 |
) |
|
|
(3,427 |
) |
|
|
(7,143 |
) |
|
|
(4,833 |
) |
|
|
(10,534 |
) |
Provision for (benefit from) income taxes
|
|
|
36 |
|
|
|
(213 |
) |
|
|
(81 |
) |
|
|
(510 |
) |
|
|
(2,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,489 |
) |
|
|
(3,214 |
) |
|
|
(7,062 |
) |
|
|
(4,323 |
) |
|
|
(8,420 |
) |
Deemed dividend related to beneficial conversion feature of
preferred stock
|
|
|
(415 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ordinary shareholders
|
|
$ |
(3,904 |
) |
|
$ |
(3,214 |
) |
|
$ |
(7,062 |
) |
|
$ |
(4,323 |
) |
|
$ |
(8,420 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(0.10 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and ordinary share equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
40,956 |
|
|
|
28,928 |
|
|
|
30,191 |
|
|
|
21,231 |
|
|
|
19,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
INSIGNIA SOLUTIONS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
Ordinary Shares | |
|
Additional | |
|
Ordinary | |
|
|
|
Other | |
|
Total | |
|
|
| |
|
Paid-In | |
|
Share | |
|
Accumulated | |
|
Comprehensive | |
|
Shareholders’ | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Subscription | |
|
Deficit | |
|
Loss | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands, except share data) | |
Balances, December 31, 2001
|
|
|
19,500,313 |
|
|
$ |
6,278 |
|
|
$ |
58,869 |
|
|
|
— |
|
|
$ |
(54,791 |
) |
|
$ |
(461 |
) |
|
$ |
9,895 |
|
|
Shares issued under employee stock plans
|
|
|
183,226 |
|
|
|
53 |
|
|
|
122 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
175 |
|
|
Shares issued upon exercise of warrants
|
|
|
400,000 |
|
|
|
113 |
|
|
|
367 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
480 |
|
|
Warrant issue costs per Black-Scholes model
|
|
|
— |
|
|
|
— |
|
|
|
544 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
544 |
|
|
Shares issued under private placement, net of issuance costs
|
|
|
60 |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,420 |
) |
|
|
— |
|
|
|
(8,420 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2002
|
|
|
20,083,599 |
|
|
|
6,444 |
|
|
|
59,901 |
|
|
|
— |
|
|
|
(63,211 |
) |
|
|
(461 |
) |
|
|
2,673 |
|
|
Shares issued under employee stock plans
|
|
|
25,673 |
|
|
|
8 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
Shares issued upon exercise of warrants
|
|
|
2,446,677 |
|
|
|
796 |
|
|
|
45 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
841 |
|
|
Warrant issue costs per Black-Scholes model
|
|
|
— |
|
|
|
— |
|
|
|
121 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
121 |
|
|
Reclassification of mandatorily redeemable warrants
|
|
|
— |
|
|
|
— |
|
|
|
1,407 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,407 |
|
|
Shares issued under private placement, net of issuance costs
|
|
|
2,613,545 |
|
|
|
863 |
|
|
|
423 |
|
|
|
575 |
|
|
|
— |
|
|
|
— |
|
|
|
1,861 |
|
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,323 |
) |
|
|
— |
|
|
|
(4,323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2003
|
|
|
25,169,494 |
|
|
|
8,111 |
|
|
|
61,898 |
|
|
|
575 |
|
|
|
(67,534 |
) |
|
|
(461 |
) |
|
|
2,589 |
|
|
Shares issued under employee stock plans
|
|
|
142,079 |
|
|
|
52 |
|
|
|
24 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
76 |
|
|
Shares issued upon exercise of warrants
|
|
|
470,000 |
|
|
|
172 |
|
|
|
218 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
390 |
|
|
Warrant issue costs per Black-Scholes model
|
|
|
— |
|
|
|
— |
|
|
|
353 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
353 |
|
|
Shares issued upon the exercise of employee stock options
|
|
|
602,906 |
|
|
|
220 |
|
|
|
314 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
534 |
|
|
Shares issued under private placement, net of issuance costs
|
|
|
9,337,726 |
|
|
|
3,384 |
|
|
|
1,614 |
|
|
|
(575 |
) |
|
|
— |
|
|
|
— |
|
|
|
4,423 |
|
|
Reclassification of expired mandatorily redeemable warrants
|
|
|
— |
|
|
|
— |
|
|
|
38 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
38 |
|
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,062 |
) |
|
|
— |
|
|
|
(7,062 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2004
|
|
|
35,722,205 |
|
|
|
11,939 |
|
|
|
64,459 |
|
|
|
— |
|
|
|
(74,596 |
) |
|
|
(461 |
) |
|
|
1,341 |
|
|
Shares issued under employee stock plans
|
|
|
45,369 |
|
|
|
17 |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
Shares issued for acquired business net of issuance costs
|
|
|
2,969,692 |
|
|
|
1,117 |
|
|
|
892 |
|
|
|
687 |
|
|
|
— |
|
|
|
— |
|
|
|
2,696 |
|
|
Shares issuable in connection with convertible notes payable
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
Warrant issue costs per Black-Scholes model
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
Shares issued upon the exercise of employee stock options
|
|
|
175,951 |
|
|
|
67 |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
69 |
|
|
Options issued to consultants
|
|
|
— |
|
|
|
— |
|
|
|
22 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22 |
|
|
Shares issued under private placements and converted debt, net
of issuance costs
|
|
|
3,519,808 |
|
|
|
1,330 |
|
|
|
803 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,133 |
|
|
Beneficial conversion feature related to issuance of preferred
stock
|
|
|
— |
|
|
|
— |
|
|
|
415 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
415 |
|
|
Deemed dividend related to issuance of preferred stock
|
|
|
— |
|
|
|
— |
|
|
|
(415 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(415 |
) |
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,489 |
) |
|
|
— |
|
|
|
(3,489 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2005
|
|
|
42,433,025 |
|
|
$ |
14,470 |
|
|
$ |
66,199 |
|
|
$ |
712 |
|
|
$ |
(78,085 |
) |
|
$ |
(461 |
) |
|
$ |
2,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
INSIGNIA SOLUTIONS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
|
|
June 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
|
|
|
|
(Amounts in thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(3,489 |
) |
|
$ |
(3,214 |
) |
|
$ |
(7,062 |
) |
|
$ |
(4,323 |
) |
|
$ |
(8,420 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
53 |
|
|
|
53 |
|
|
|
104 |
|
|
|
143 |
|
|
|
242 |
|
|
Amortization of intangible assets
|
|
|
110 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Allowance for doubtful accounts
|
|
|
195 |
|
|
|
— |
|
|
|
— |
|
|
|
(50 |
) |
|
|
(438 |
) |
|
Gain on sale of product line
|
|
|
— |
|
|
|
(298 |
) |
|
|
(302 |
) |
|
|
(3,056 |
) |
|
|
— |
|
|
Non-cash charge for warrants, shares and stock options
|
|
|
64 |
|
|
|
353 |
|
|
|
353 |
|
|
|
126 |
|
|
|
544 |
|
|
Gain on sale of property and equipment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
Equity in net loss of affiliate
|
|
|
68 |
|
|
|
40 |
|
|
|
82 |
|
|
|
— |
|
|
|
— |
|
Net changes in assets and liabilities, net of acquired assets
and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(496 |
) |
|
|
(195 |
) |
|
|
(125 |
) |
|
|
931 |
|
|
|
5,522 |
|
|
Other receivables
|
|
|
187 |
|
|
|
(428 |
) |
|
|
(40 |
) |
|
|
(53 |
) |
|
|
— |
|
|
Tax receivable
|
|
|
190 |
|
|
|
(45 |
) |
|
|
69 |
|
|
|
311 |
|
|
|
(702 |
) |
|
Prepaid royalties
|
|
|
— |
|
|
|
2,185 |
|
|
|
— |
|
|
|
196 |
|
|
|
(1,242 |
) |
|
Prepaid expenses
|
|
|
206 |
|
|
|
61 |
|
|
|
(46 |
) |
|
|
163 |
|
|
|
156 |
|
|
Other current assets
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
|
Other noncurrent assets
|
|
|
5 |
|
|
|
(7 |
) |
|
|
(14 |
) |
|
|
319 |
|
|
|
— |
|
|
Accounts payable
|
|
|
457 |
|
|
|
(251 |
) |
|
|
(155 |
) |
|
|
(187 |
) |
|
|
(346 |
) |
|
Accrued liabilities
|
|
|
187 |
|
|
|
(106 |
) |
|
|
(392 |
) |
|
|
160 |
|
|
|
(229 |
) |
|
Deferred revenue
|
|
|
(113 |
) |
|
|
(821 |
) |
|
|
(55 |
) |
|
|
1,085 |
|
|
|
(3,520 |
) |
|
Income taxes payable
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,376 |
) |
|
|
(2,673 |
) |
|
|
(7,583 |
) |
|
|
(4,235 |
) |
|
|
(8,446 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of property and equipment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
Investment in affiliate
|
|
|
— |
|
|
|
(75 |
) |
|
|
(150 |
) |
|
|
— |
|
|
|
— |
|
|
Acquisition of business, net of cash acquired
|
|
|
149 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
(Increase) decrease in restricted cash
|
|
|
— |
|
|
|
(30 |
) |
|
|
(30 |
) |
|
|
230 |
|
|
|
— |
|
|
Purchases of property and equipment
|
|
|
(12 |
) |
|
|
(58 |
) |
|
|
(90 |
) |
|
|
(89 |
) |
|
|
(127 |
) |
|
Proceeds from sale of product line, net
|
|
|
— |
|
|
|
— |
|
|
|
1,268 |
|
|
|
1,869 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
137 |
|
|
|
(163 |
) |
|
|
998 |
|
|
|
2,010 |
|
|
|
(125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
275 |
|
|
|
— |
|
|
|
— |
|
|
|
1,000 |
|
|
|
— |
|
|
Repayment of notes payable
|
|
|
(44 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Proceeds from issuance of shares, net of issuance costs
|
|
|
1,858 |
|
|
|
1,604 |
|
|
|
4,275 |
|
|
|
1,861 |
|
|
|
(1 |
) |
|
Proceeds from exercise of warrants, net of issuance costs
|
|
|
— |
|
|
|
389 |
|
|
|
390 |
|
|
|
841 |
|
|
|
480 |
|
|
Proceeds from exercise of stock options and employee stock
purchase plan, net
|
|
|
90 |
|
|
|
581 |
|
|
|
610 |
|
|
|
9 |
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,179 |
|
|
|
2,574 |
|
|
|
5,275 |
|
|
|
3,711 |
|
|
|
654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(60 |
) |
|
|
(262 |
) |
|
|
(1,310 |
) |
|
|
1,486 |
|
|
|
(7,917 |
) |
|
Cash and cash equivalents at beginning of the period
|
|
|
902 |
|
|
|
2,212 |
|
|
|
2,212 |
|
|
|
726 |
|
|
|
8,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$ |
842 |
|
|
$ |
1,950 |
|
|
$ |
902 |
|
|
$ |
2,212 |
|
|
$ |
726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of mandatorily redeemable warrants to
additional paid-in capital
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
38 |
|
|
$ |
1,407 |
|
|
$ |
— |
|
|
Non-cash issuance of shares for acquired business
|
|
|
2,749 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Non-cash issuance of shares upon conversion of notes payable
|
|
|
275 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Non-cash settlement of assets and liabilities related to sale of
product line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in assets
|
|
|
— |
|
|
|
— |
|
|
|
2,400 |
|
|
|
— |
|
|
|
— |
|
|
Change in liabilities
|
|
|
— |
|
|
|
— |
|
|
|
(2,904 |
) |
|
|
— |
|
|
|
— |
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Note 1 — |
Summary of Significant Accounting Policies: |
|
|
|
Organization and business |
Insignia Solutions plc (“Insignia,” “we,”
“us,” and “our” refer to Insignia Solutions
plc and its subsidiaries) commenced operations in 1986, and
currently develops, markets and supports software technologies
that enable mobile operators and phone manufacturers to update
the firmware of mobile devices using standard over-the-air data
networks. Before 2003, our principal product line was the
Jeodetm
platform, based on our Embedded Virtual Machine
(“EVM”tm)
technology. The Jeode platform was our implementation of Sun
Microsystems, Inc.’s (“Sun”) Java®
technology tailored for smart devices. The product became
available for sale in March 1999 and had been our principal
product line since the third quarter of 1999. The Jeode product
line was sold in April 2003.
During 2001, we began development of a range of products
(“Secure System Provisioning” or “SSP”
products) for the mobile phone and wireless operator industry.
These SSP products build on our position as a Virtual Machine
(“VM”) supplier for manufacturers of mobile devices
and allow wireless operators and phone manufacturers to reduce
customer care and software recall costs as well as increase
subscriber revenue by deploying new mobile services based on
dynamically provisional capabilities. With the sale of our Jeode
product line in April 2003, our sole product line consisted of
our SSP product. We shipped our first SSP product in December
2003. In October 2004, we launched our Open Management Client
(“OMC”) product. In March 2005, we acquired Mi4e
Device Management AB (“Mi4e”), a private company
headquartered in Stockholm, Sweden. Mi4e was founded in 2003 and
had $646,000 of sales in 2004. Mi4e’s main product, a
Device Management Server (“DMS”), is a mobile device
management infrastructure solution for mobile operators that
support the Open Mobile Alliance (“OMA”) client
provisioning specification.
|
|
|
Liquidity — going concern |
The consolidated financial statements contemplate the
realization of assets and satisfaction of liabilities in the
normal course of business. We have had recurring net losses of
$3.5 million for the six months ended June 30, 2005
and $7.1 million, $4.3 million, and $8.4 million
for the years ended December 31, 2004, 2003, and 2002,
respectively, and net cash used in operations of
$2.4 million for the six months ended June 30, 2005
and $7.6 million, $4.2 million, and $8.4 million
for the years ended December 31, 2004, 2003, and 2002,
respectively. These conditions raise substantial doubt about our
ability to continue as a going concern. The consolidated
financial statements do not contain any adjustments that might
result from the outcome of this uncertainty.
We have sustained significant losses for the last several years
and there can be no assurance that we will attain profitability.
During the two years ended June 30, 2005, we incurred an
aggregate loss from operations and negative operating cash flows
of $14.5 million and $12.0 million, respectively. At
June 30, 2005, we had an accumulated deficit of
$78.1 million. We have undertaken measures to reduce
operating expenses and redesign our commercial efforts to adapt
to new developments.
On February 10, 2005, Insignia entered into a new
securities subscription agreement with Fusion Capital to sell up
to $12 million in ADSs, representing ordinary shares, to
Fusion Capital over a period of 30 months (subject to daily
maximum purchase amounts) (the “2005 Fusion Capital
securities subscription agreement”). The shares will be
priced based on a market-based formula at the time of purchase.
The closing of the 2005 Fusion Capital securities subscription
agreement is subject to certain closing conditions and the
declaration of effectiveness by the Securities and Exchange
Commission of a registration statement covering the ADSs to be
purchased by Fusion Capital under the 2005 Fusion Capital
securities subscription agreement. The timing and certainty of
the closing of the 2005 Fusion Capital securities subscription
agreement are not within Insignia’s control. Any delay in
the closing of the 2005 Fusion Capital securities subscription
agreement could jeopardize our business.
F-6
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Our cash, cash equivalents and restricted cash totaled
$0.9 million at June 30, 2005, $1.0 million at
December 31, 2004, and $2.2 million at
December 31, 2003. Based upon our current forecasts and
estimates, including the timely closing of the 2005 Fusion
Capital securities subscription agreement and the achievement of
our target revenues, cost-cutting and accounts receivable
collection goals, our current forecasted cash and cash
equivalents should be sufficient to meet our operating and
capital requirements through June 30, 2006. If cash
currently available from all sources is insufficient to satisfy
our liquidity requirements, we may seek additional sources of
financing including selling additional equity or debt
securities. If additional funds are raised through the issuance
of equity or debt securities, these securities could have
rights, preferences and privileges senior to holders of our
shares, and the terms of such securities could impose
restrictions on our operations. The sale of additional equity or
debt securities could result in additional dilution to our
shareholders. We may not be able to obtain additional financing
on acceptable terms, if at all. If we are unable to obtain
additional financing as and when needed and on acceptable terms
our business may be jeopardized.
|
|
|
Unaudited Interim Results |
The statements of operations and of cash flows for the six
months ended June 30, 2004 are unaudited. The unaudited
interim financial statements have been prepared on the same
basis as the annual financial statements and, in the opinion of
management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the
Company’s results of operations and of cash flows for the
six months ended June 30, 2004. The financial data and
other information disclosed in these notes to financial
statements related to the six months ended June 30, 2004
are unaudited.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
|
|
|
Principles of consolidation |
The consolidated financial statements include the accounts of
Insignia and its wholly owned subsidiaries. All significant
intercompany accounts and transactions are eliminated in
consolidation. Investments in business entities in which we do
not have control, but have the ability to exercise significant
influence over operating and financial policies (generally
20-50% ownership), are accounted for by the equity method.
We consider all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Restricted cash aggregated $50,000, $50,000 and $20,000 at
June 30, 2005 and December 31, 2004 and 2003,
respectively. In 2003, restricted cash of $20,000 represented a
letter of credit for a building deposit and in 2004 and 2005
restricted cash of $50,000 represented deposits for the building
and a credit card account.
Amounts reported for cash and cash equivalents, receivables,
accounts payable and accrued liabilities are considered to
approximate fair value primarily due to their short maturities.
We recognize revenue in accordance with Statement of Position
97-2 (“SOP 97-2”), “Software Revenue
Recognition”, as amended. SOP 97-2 requires that four
basic criteria must be met before revenue can be
F-7
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services rendered;
(3) the fee is fixed or determinable; and
(4) collectibility is probable. Determination of criteria
(3) and (4) are based on management’s judgments
regarding the fixed nature of the fee charged for services
rendered and products delivered and the collectibility of those
fees. Should changes in conditions cause management to determine
these criteria are not met for certain future transactions,
revenue recognized for any reporting period could be adversely
affected.
At the time of the transaction, we assess whether the fee
associated with our revenue transaction is fixed or determinable
and whether or not collection is probable. We assess whether the
fee is fixed or determinable based on the payment terms
associated with the transaction. If a significant portion of a
fee is due after the normal payment terms, which are 30 to
90 days from invoice date, we account for the fee as not
being fixed or determinable. In these cases, we recognize
revenue on the earlier of due date or cash collected.
We assess collectibility based on a number of factors, including
past transaction history with the customer and the
credit-worthiness of the customer. We do not request collateral
from our customers. If we determine that collection of a fee is
not reasonably assured, we will defer the fee and recognize
revenue at the time collection becomes probable, which is
generally upon receipt of cash.
For all sales, we use either a signed license agreement or a
binding purchase order (primarily for maintenance renewals) as
evidence of an arrangement.
For arrangements with multiple obligations (for example,
undelivered maintenance and support), we will allocate revenue
to each component of the arrangement using the residual value
method based on the fair value of the undelivered elements,
which is specific to us. This means that we will defer revenue
equivalent to the fair value of the undelivered elements. Fair
value for the ongoing maintenance and support obligation is
based upon separate sales of renewals to other customers or upon
renewal rates quoted in the contracts. Fair value of services,
such as training or consulting, is based upon separate sales by
us of these services to other customers.
Our arrangements do not generally include acceptance clauses.
However, if an arrangement includes an acceptance provision,
recognition occurs upon the earlier of receipt of written
customer acceptance or expiration of the acceptance period.
We recognize revenue for maintenance and hosting services
ratably over the contract term. Our training and consulting
services are billed based on hourly rates, and we will generally
recognize revenue as these services are performed. However, at
the time of entering into a transaction, we will assess whether
or not any services included within the arrangement require us
to perform significant work either to alter the underlying
software or to build additional complex interfaces so that the
software performs as the customer requests. If these services
are included as part of an arrangement, we recognize the entire
fee using the percentage of completion method. We estimate the
percentage of completion based on our estimate of the total
costs estimated to complete the project as a percentage of the
costs incurred to date and the estimated costs to complete.
|
|
|
Accounts receivable and allowance for doubtful
accounts |
We perform ongoing credit evaluations of our customers and will
adjust credit limits based upon payment history and the
customer’s current credit worthiness, as determined by our
review of their current credit information. We continuously
monitor collections and payments from our customers and maintain
an allowance for estimated credit losses based upon historical
experience and any specific customer collection issues that we
have identified. While such credit losses have historically been
within expectations and the allowance established, we cannot
guarantee that we will continue to experience the same credit
loss rates as in the past. Since our accounts receivable are
concentrated in a relatively few number of customers, a
significant
F-8
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
change in the liquidity or financial position of any one of
these customers could have a material adverse impact on the
collectibility of accounts receivables and future operating
results.
The preparation of financial statements requires us to make
estimates of the uncollectibility of our accounts receivables.
We specifically analyze accounts receivable and analyze
historical bad debts, customer concentrations, customer
credit-worthiness, current economic trends and changes in
customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts.
|
|
|
Intangible Assets and Goodwill |
Consideration paid in connection with acquisitions is required
to be allocated to the acquired assets, including identifiable
intangible assets, and liabilities acquired. Acquired assets and
liabilities are recorded based on an estimate of fair value,
which requires significant judgment with respect to future cash
flows and discount rates. Goodwill represents the excess of the
purchase price over the fair value of the net tangible and
identifiable intangible assets acquired in a business
combination. Intangible assets are comprised of customer
relationships and technology and are being amortized using the
straight-line method over the estimated useful lives of ten and
five years, respectively. For intangible assets other than
goodwill, we are required to estimate the useful life of the
asset and recognize its cost as an expense over the useful life.
We are required to test goodwill for impairment at least
annually and more frequently if events or changes in
circumstances suggest that the carrying amount may not be
recoverable. We have determined that our consolidated results
comprise one reporting unit for the purpose of impairment
testing.
As of June 30, 2005, we performed our test for impairment
of intangible assets and goodwill as required by Statement of
Financial Accounting Standards (“SFAS”) No. 142
“Goodwill and other Intangible Assets” and
No. 144 “Accounting for the Impairment or Disposal of
Long-Lived Assets”. We completed our evaluation and
concluded that they were not impaired as of June 30, 2005
as the fair value of Insignia’s equity securities exceeded
their carrying value. The amount of intangible assets and
goodwill as of June 30, 2005 was $2.3 million and
$0.4 million, respectively. Future events could cause us to
conclude that impairment indicators exist and that intangible
assets and goodwill associated with our acquired business are
impaired.
Property and equipment is recorded at cost, or if leased, at the
lesser of the fair value or present value of the minimum lease
payments, less accumulated depreciation and amortization.
Depreciation and amortization is provided using the
straight-line method over the estimated useful lives which range
from three to four years or the lease term. When property and
equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are relieved from the accounts and the
net gain or loss is included in the determination of income
(loss). Improvements that extend the life of a specific asset
are capitalized while normal repairs and maintenance costs are
charged to operations as incurred.
|
|
|
Impairment of long-lived assets |
We evaluate our long-lived assets for indicators of possible
impairment when events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. Should an
impairment exist, the impairment loss would be measured based on
the excess carrying value of the asset over the asset’s
fair value or discounted estimates of future cash flows. We have
not identified any such impairment losses to date.
|
|
|
Foreign currency translation |
Our functional currency for our non-U.S. operations is the
U.S. dollar. Certain monetary assets and liabilities of the
non-U.S. operating subsidiaries are denominated in local
currencies (i.e. not the U.S. dollar). Upon a change in the
exchange rate between the non-U.S. currency and the
U.S. dollar, we must remeasure
F-9
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the local non-U.S. denominated assets and liabilities to
avoid carrying unrealized gains or losses on our balance sheet.
Non-U.S. dollar denominated monetary assets and liabilities
are remeasured using the exchange rate in effect at the balance
sheet date, while nonmonetary items are remeasured at historical
rates. Revenues and expenses are translated at the average
exchange rates in effect during each period, except for those
expenses related to balance sheet amounts, which are translated
at historical exchange rates. Remeasurement adjustments and
transaction gains or losses are recognized in the statement of
operations during the period of occurrence. In the six months
ended June 30, 2005 and in the year ended December 31,
2004, the aggregate foreign exchange loss recorded on the
statements of operations was $15,000 and $21,000, respectively.
In 2003 and 2002, the aggregate foreign exchange gains recorded
on the statements of operations were $35,000 and $113,000,
respectively. During our early years of existence, we used the
pound sterling as the functional currency for our
non-U.S. operations. Accordingly, translation gains and
losses recognized during such periods have been included in the
accumulated comprehensive loss account.
We conduct our business in U.S. dollars, Euros (since
2005), Pounds sterling and Swedish Krona (since 2005). All
amounts included in the financial statements and in the notes
herein are in U.S. dollars unless designated
“£” in which case they are in British pound
sterling. The exchange rates used between the U.S. dollar
and the British pound sterling were $1.82, $1.89, $1.78 and
$1.56 (expressed in U.S. dollars per British pound
sterling) at June 30, 2005 and December 31, 2004, 2003
and 2002, respectively. At June 30, 2005, the exchange
rates used between the U.S. dollar and Euro and Swedish
Krona were $1.21 and $0.13 per Euro and Swedish Krona,
respectively.
|
|
|
Foreign currency financial instruments |
We have, in prior years, entered into foreign currency option
contracts to hedge against exchange risks associated with the
British pound sterling denominated operating expenses of our
U.K. operations. The gains and losses on these contracts are
generally included in the statement of operations when the
related operating expenses are recognized. At June 30, 2005
and December 31, 2004, 2003 and 2002, there were no
outstanding currency options. From time to time, we also entered
into short-term forward exchange contracts, although we did not
enter into any such contracts in 2005, 2004, 2003 or 2002. To
date, we do not use hedge accounting for the forward exchange
contracts. No forward exchange contracts were outstanding at
June 30, 2005 and December 31, 2004, 2003 and 2002.
|
|
|
Software development costs |
We capitalize internal software development costs incurred after
technological feasibility has been demonstrated. We define
establishment of technological feasibility as the completion of
a working model. Such capitalized amounts are amortized
commencing with the introduction of that product at the greater
of the straight-line basis utilizing its estimated economic
life, generally six months to one year, or the ratio of actual
revenues achieved to the total anticipated revenues over the
life of the product. At June 30, 2005 and December 31,
2004, 2003 and 2002, no software development costs were
capitalized.
We expense the cost of research and development as incurred.
Research and development expenses consist primarily of personnel
costs, overhead costs relating to occupancy, software support
and maintenance and equipment depreciation.
F-10
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Insignia accounts for stock-based employee compensation using
the intrinsic value method under Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”), and related
interpretations and complies with the disclosure provisions of
SFAS No. 148, “Accounting for Stock-Based
Compensation, Transition and Disclosure — an Amendment
of FASB Statement No. 123”. The following table
illustrates the effect on net loss and net loss per share if we
had applied the fair value recognition provisions of
SFAS No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”) to stock-based
compensation, (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
|
|
June 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
|
|
|
|
Net loss attributable to ordinary shareholders — as
reported
|
|
$ |
(3,904 |
) |
|
$ |
(3,214 |
) |
|
$ |
(7,062 |
) |
|
$ |
(4,323 |
) |
|
$ |
(8,420 |
) |
Less stock-based compensation expense determined under fair
value based method
|
|
|
(101 |
) |
|
|
(390 |
) |
|
|
(636 |
) |
|
|
(1,131 |
) |
|
|
(2,469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss — pro forma
|
|
$ |
(4,005 |
) |
|
$ |
(3,604 |
) |
|
$ |
(7,698 |
) |
|
$ |
(5,454 |
) |
|
$ |
(10,899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share-basic and diluted — as reported
|
|
$ |
(0.10 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.42 |
) |
Net loss per share-basic and diluted — pro forma
|
|
$ |
(0.10 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.55 |
) |
In accordance with the disclosure provisions of SFAS 123,
the fair value of employee stock options granted during 2005,
2004, 2003 and 2002 were estimated at the date of grant using
the Black-Scholes model and the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
|
|
|
|
Stock Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility range
|
|
|
272 - 276% |
|
|
|
139 - 198% |
|
|
|
139% - 276% |
|
|
|
47% - 264% |
|
|
|
68% |
|
Risk-free interest rate range
|
|
|
4.21 - 4.28% |
|
|
|
3.75 - 4.07% |
|
|
|
1.11% - 4.07% |
|
|
|
1.05% - 3.16% |
|
|
|
1.8 - 4.4% |
|
Dividend yield
|
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
Expected life (years)
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
Employee Stock Purchase Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility range
|
|
|
84% |
|
|
|
198% |
|
|
|
66% - 198% |
|
|
|
59% |
|
|
|
68% |
|
Risk-free interest rate range
|
|
|
2.93% |
|
|
|
1.13% |
|
|
|
1.13% - 1.25% |
|
|
|
1.17% |
|
|
|
1.1 - 1.2% |
|
Dividend yield
|
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
Expected life (years)
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
We account for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of
events that have been recognized in our financial statements or
tax returns. In estimating future tax consequences, we generally
consider all expected future events other than enactments of
changes in the tax law or rates.
F-11
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash, cash
equivalents, restricted cash and trade accounts receivable. We
place our cash, cash equivalents and restricted cash in bank
accounts and certificates of deposit with high credit quality
financial institutions.
We sell our products primarily to original equipment
manufacturers and distributors. We perform ongoing credit
evaluations of our customers’ financial condition and
generally require no collateral from our customers. We maintain
an allowance for doubtful accounts based upon the expected
collectibility of all accounts receivable. At June 30,
2005, our allowance for doubtful accounts was $195,000. At
December 31, 2004 and 2003, our allowance for doubtful
accounts was zero. At December 31, 2003, one customer
accounted for 100% of our accounts receivables. For the year
ended December 31, 2003, one customer accounted for 26% of
total revenues. In 2004, four customers accounted for 81% of
total revenues. At December 31, 2004, two customers
accounted for 100% of our accounts receivables. For the six
months ended June 30, 2005, five customers accounted for
83% of total revenues. At June 30, 2005, three customers
accounted for 82% of our accounts receivable.
The Jeode platform had been our principal product line since the
third quarter of 1999. With the completion of the sale of our
Jeode product line to Esmertec in February 2004 and the
termination and waiver agreement dated June 30, 2004,
Insignia’s sole product line then consisted of its SSP
products for the mobile handset and wireless carrier industry.
In October 2004, we launched our OMC product. The DMS product
line was added in March 2005 through Insignia’s acquisition
of Mi4e.
The Jeode platform generated 94% of our total revenues for 2003.
For 2004, SSP revenue accounted for 83% of our total revenues.
For the six months ended June 30, 2005 our SSP, DMS and OMC
product lines accounted for 39%, 31% and 30% of our revenues,
respectively.
|
|
|
Comprehensive income (loss) |
SFAS No. 130, “Reporting Comprehensive
Income” (“SFAS 130”) requires that all items
recognized under accounting standards as components of
comprehensive income (loss), be reported in an annual statement
that is displayed with the same prominence as other annual
financial statements. SFAS 130 also requires that an entity
classify items of other comprehensive income (loss) by their
nature in an annual financial statement. Comprehensive income
(loss), as defined, includes all changes in equity during a
period from non-owner sources. The comprehensive loss is equal
to the net loss for all periods presented.
|
|
|
Net income (loss) per share |
Net income (loss) per share is presented on a basic and diluted
basis, and is computed by dividing net income (loss)
attributable to ordinary shareholders by the weighted average
number of ordinary shares and ordinary equivalent shares
outstanding during the period. Ordinary equivalent shares
consist of warrants and stock options (using the treasury stock
method). Under the basic method of calculating net income (loss)
per share, ordinary equivalent shares are excluded from the
computation. Under the diluted method of calculating net income
(loss) per share, ordinary equivalent shares are excluded from
the computation only if their effect is anti-dilutive.
At June 30, 2005, 4,300,958 stock options and 8,869,266
warrants were excluded from the calculation of diluted net loss
per share because their inclusion would have been anti-dilutive.
At December 31, 2004, 4,461,074 stock options and 2,130,911
warrants were excluded from the calculation of diluted net loss
per share because their inclusion would have been anti-dilutive.
At December 31, 2003 and 2002, the excluded stock options
were 4,525,105 and 3,585,339, respectively. The excluded
warrants at December 31, 2003 and 2002 were 739,657 and
4,191,334, respectively.
F-12
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
New accounting pronouncements |
In March 2004, the Emerging Issues Task Force (“EITF”)
reached a consensus on Issue No. 03-01, “The Meaning
of Other-Than-Temporary Impairment and Its Application to
Certain Investments” (“EITF 03-01”).
EITF 03-01 provides guidance on other-than-temporary
impairment models for marketable debt and equity securities
accounted for under Statement of Financial Accounting Standards
(“SFAS”) No. 115, “Accounting for Certain
Investments in Debt and Equity Securities,” and
No. 124, “Accounting for Certain Investments Held by
Not-for-Profit Organizations,” and non-marketable equity
securities accounted for under the cost method. The EITF
developed a basic three-step model to evaluate whether an
investment is other-than-temporarily impaired. The Financial
Accounting Standards Board (“FASB”) issued
EITF 03-01-1 in September 2004 which delayed the effective
date of the recognition and measurement provisions of
EITF 03-01; however, the disclosure requirements remain
effective for annual periods ending after June 15, 2004. We
do not expect the adoption of EITF 03-01 to have a material
impact on our results of operations or financial condition.
In April 2004, the EITF issued Statement No. 03-06,
“Participating Securities and the Two —
Class Method Under FASB Statement No. 128, Earnings
Per Share” (“EITF 03-06”). EITF 03-06
addresses a number of questions regarding the computation of
earnings per share by companies that have issued securities
other than common stock that contractually entitle the holder to
participate in dividends and earnings of the company when, and
if, it declares dividends on its common stock. The issue also
provides further guidance in applying the two-class method of
calculating earnings per share, clarifying what constitutes a
participating security and how to apply the two-class method of
computing earnings per share once it is determined that a
security is participating, including how to allocate
undistributed earnings to such a security. EITF 03-06 is
effective for fiscal periods beginning after March 31,
2004. The adoption of EITF 03-06 did not have a material
effect on Insignia’s results of operations or financial
position.
In December 2004, the FASB issued SFAS No. 123
(revised 2004) “Share-Based Payment”
(“SFAS 123R”), a revision to SFAS 123.
SFAS 123R addresses all forms of share-based payment
(“SBP”) awards, including shares issued under our 1995
Incentive Stock Option Plan (“Purchase Plan”), stock
options, restricted stock, restricted stock units and stock
appreciation rights. SFAS 123R will require Insignia to
record compensation expense, in our statements of operations,
for SBP awards based on the fair value of the SBP awards. Under
SFAS 123R, restricted stock and restricted stock units will
generally be valued by reference to the market value of freely
tradable shares of the Company’s ordinary shares. Stock
options, stock appreciation rights and shares issued under the
Purchase Plan will generally be valued at fair value determined
through an option valuation model, such as a lattice model or
the Black-Scholes model (the model that Insignia currently uses
for its footnote disclosure). SFAS 123R is effective for
annual periods beginning after June 15, 2005 and,
accordingly, Insignia must adopt the new accounting provisions
effective January 1, 2006. The Company will adopt the
provisions of SFAS 123R using a modified prospective
application. Under a modified prospective application,
SFAS 123R will apply to new awards and to awards that are
outstanding on the effective date and are subsequently modified
or cancelled. Compensation expense for outstanding awards for
which the requisite service had not been rendered as of the
effective date will be recognized over the remaining service
period using the compensation cost calculated for pro forma
disclosure purposes under SFAS 123. Insignia is in the
process of determining how the new method of valuing stock-based
compensation as prescribed in SFAS 123R will be applied to
valuing share-based awards granted after the effective date and
the impact the recognition of compensation expense related to
such awards will have on its consolidated financial statements.
In December 2004, the FASB issued SFAS 153, “Exchanges
of Nonmonetary Assets,” an amendment of APB Opinion
No. 29 (“SFAS 153”). SFAS 153 addresses
the measurement of exchanges of nonmonetary assets and redefines
the scope of transactions that should be measured based on the
fair value of the assets exchanged. SFAS 153 is effective
for nonmonetary asset exchanges beginning in our first quarter
of fiscal
F-13
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
2006. We do not expect the adoption of SFAS 153 will have a
material impact on our results of operations or financial
condition.
In June 2005, the FASB issued SFAS No. 154,
“Accounting Changes and Error Corrections, a replacement of
APB Opinion No. 20, Accounting Changes, and Statement
No. 3, Reporting Accounting Changes in Interim Financial
Statements” (“SFAS 154”). SFAS 154 will
require companies to account for and apply changes in accounting
principles retrospectively to prior periods’ financial
statements, instead of recording a cumulative effect adjustment
within the period of the change, unless it is impracticable to
determine the effects of the change to each period being
presented. SFAS 154 is effective for accounting changes
made in annual periods beginning after December 15, 2005
and, accordingly, we must adopt the new accounting provisions
effective January 1, 2006. We do not expect the adoption of
SFAS 154 to have a material effect on our financial
position, results of operations or cash flows.
|
|
Note 2 — |
Mi4e Acquisition: |
On March 16, 2005, we acquired 100% of Mi4e, a private
company headquartered in Stockholm, Sweden. The consideration
paid in the transaction was 2,969,692 American depositary shares
(“ADSs”) representing ordinary shares, and another
989,896 ADSs issuable on March 31, 2006, subject to
potential offset for breach of representations, warranties and
covenants. In addition, up to a maximum of 700,000 Euros is
payable in cash in a potential earn-out based on a percentage of
future revenue collected from sales of existing Mi4e products.
As of June 30, 2005, $22,000 has been earned. Mi4e
develops, markets and supports software technologies that enable
mobile operators and phone manufacturers to update firmware of
mobile devices using standards over-the-air data networks. Its
main product DMS is a mobile device management infrastructure
solution for mobile operators that support the OMA Client
Provisioning Specification.
The initial purchase price of approximately $3.0 million
consisted of 3,959,588 ordinary shares (including the shares
issuable in March 2006) with a value of approximately $2,749,000
and acquisition costs of approximately $267,000. The fair value
of Insignia’s ordinary shares was determined using an
average value of $0.6943 per share, which was the average
closing price of Insignia’s ordinary shares three days
before and after the measurement date of February 10, 2005.
The shares issuable in March 2006 have been recorded as an
ordinary share subscription on the consolidated balance sheet.
Any earn-out amounts payable by Insignia to Mi4e’s
shareholders will be recorded as additional purchase price and
an increase to goodwill, and such amounts are not included in
the initial purchase price. Insignia allocated the initial
purchase price to the tangible and intangible assets acquired
and liabilities assumed, based on their estimated fair values.
The initial purchase price is allocated as follows (in
thousands):
|
|
|
|
|
Allocation of Purchase Price:
|
|
|
|
|
Tangible assets acquired
|
|
$ |
497 |
|
Liabilities assumed
|
|
|
(275 |
) |
Goodwill(a)
|
|
|
394 |
|
Customer relationships(b)
|
|
|
900 |
|
Technology(c)
|
|
|
1,500 |
|
|
|
|
|
Total purchase price
|
|
$ |
3,016 |
|
|
|
|
|
|
|
|
(a) |
|
Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired and liabilities assumed. |
|
(b) |
|
Customer relationships will be amortized over 10 years, the
period of time Insignia estimates it will benefit from the
acquired customer relationship. |
F-14
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
(c) |
|
Technology will be amortized over 5 years, the period of
time Insignia estimates it will benefit from the technology
acquired. |
In performing the purchase price allocation of acquired
intangible assets, Insignia considered its intention for future
use of the assets, analysis of historical financial performance
and estimates of future performance of Mi4e’s products,
among other factors. The amounts allocated to the intangible
assets were determined through established valuation techniques
established in the technology industry. Insignia determined the
fair values of the above intangible technology assets using the
“residual income” method, and for the customer
relationships the “income approach” method was used.
The excess of the purchase price over the fair value of the
identifiable tangible and intangible net assets acquired and
liabilities assumed of $394,000 was assigned to goodwill. In
accordance with SFAS No. 142, goodwill will not be
amortized but will be tested for impairment at least annually.
This amount is not deductible for tax purposes.
The following table presents unaudited summarized combined
results of operation of Insignia and Mi4e, on a pro forma basis,
as though the companies had been combined as of the beginning of
each period presented after giving effect to certain purchase
accounting adjustments. The operating results of Mi4e have been
included in Insignia’s consolidated financial statements
after March 16, 2005, the date of acquisition. The
following unaudited pro forma amounts are in thousands, except
the per share amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
Year Ended | |
|
|
June 30, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
Net revenues
|
|
$ |
1,409 |
|
|
$ |
674 |
|
|
$ |
1,187 |
|
Net loss attributable to ordinary shareholders
|
|
$ |
(4,065 |
) |
|
$ |
(3,521 |
) |
|
$ |
(7,519 |
) |
Net loss per share — Basic and diluted
|
|
$ |
(0.10 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.22 |
) |
The above unaudited pro forma summarized results of operations
are intended for informational purposes only and, in the opinion
of management, are neither indicative of the results of
operations of Insignia had the acquisition actually taken place
as of the beginning of the periods presented, nor indicative of
Insignia’s future results of operations. In addition, the
above unaudited pro forma summarized results of operations do
not include potential cost savings from operating efficiencies
or synergies that may result from Insignia’s acquisition of
Mi4e.
F-15
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
Note 3 — |
Balance Sheet Detail: |
The following table provides details of the major components of
the indicated balance sheet accounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Property and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers and other equipment
|
|
$ |
1,738 |
|
|
$ |
1,692 |
|
|
$ |
1,604 |
|
|
Leasehold improvements
|
|
|
381 |
|
|
|
381 |
|
|
|
380 |
|
|
Furniture and fixtures
|
|
|
75 |
|
|
|
75 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,194 |
|
|
|
2,148 |
|
|
|
2,059 |
|
|
Less accumulated depreciation and amortization
|
|
|
(2,071 |
) |
|
|
(2,008 |
) |
|
|
(1,905 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
123 |
|
|
$ |
140 |
|
|
$ |
154 |
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued legal and professional services
|
|
$ |
821 |
|
|
$ |
666 |
|
|
$ |
559 |
|
|
Accrued compensation and payroll taxes
|
|
|
279 |
|
|
|
242 |
|
|
|
301 |
|
|
Accrued interest on note payable
|
|
|
— |
|
|
|
— |
|
|
|
58 |
|
|
Accrued income taxes payable
|
|
|
— |
|
|
|
— |
|
|
|
187 |
|
|
Other
|
|
|
134 |
|
|
|
87 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,234 |
|
|
$ |
995 |
|
|
$ |
1,279 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill
During the first quarter of 2005, Insignia recorded $394,000 of
goodwill associated with the purchase of Mi4e. During the second
quarter of 2005, Insignia increased the goodwill balance by
$22,000 due to payment of part of the earn-out provision. At the
time of the acquisition, Insignia had no other goodwill on its
balance sheet.
Intangible Assets
The components of intangible assets as of June 30, 2005 are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying | |
|
Accumulated | |
|
Net Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
Technology
|
|
$ |
1,500 |
|
|
$ |
(85 |
) |
|
$ |
1,415 |
|
Customer relationships
|
|
|
900 |
|
|
|
(25 |
) |
|
|
875 |
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$ |
2,400 |
|
|
$ |
(110 |
) |
|
$ |
2,290 |
|
|
|
|
|
|
|
|
|
|
|
The identifiable intangible assets are subject to amortization
and have approximate original estimated useful lives as follows:
technology — five years and customer
relationships — ten years.
The future amortization of the identifiable intangible assets is
as follows (in thousands):
|
|
|
|
|
|
Years Ending December 31, | |
| |
2005 (July 1, 2005 through December 31, 2005)
|
|
$ |
195 |
|
2006
|
|
|
390 |
|
2007
|
|
|
390 |
|
2008
|
|
|
390 |
|
2009
|
|
|
390 |
|
Thereafter
|
|
|
535 |
|
|
|
|
|
|
Total
|
|
$ |
2,290 |
|
|
|
|
|
F-16
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
We have four stock option plans, which provide for the issuance
of stock options to employees and outside consultants of
Insignia to purchase ordinary shares. At June 30, 2005 and
December 31, 2004, 2003, and 2002, 1,756,312, 1,772,147,
1,311,022 and 2,271,351 ordinary shares were available for
future grants of stock options, respectively. Stock options are
generally granted at prices of not less than 100% of the fair
market value of the ordinary shares on the date of grant.
Options granted under our option plans generally vest over a
four year period. Options are exercisable until the tenth
anniversary of the date of grant unless they lapse before that
date.
The following table summarizes activity on stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1986 and 1996 | |
|
1988 and 1995 | |
|
|
|
|
|
|
U.K. | |
|
U.S. | |
|
|
|
Weighted Average | |
|
|
Share Option Schemes | |
|
Stock Option Plans | |
|
Total | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
|
| |
Outstanding at December 31, 2001
|
|
|
936,123 |
|
|
|
2,955,577 |
|
|
|
3,891,700 |
|
|
$ |
3.15 |
|
Granted
|
|
|
89,000 |
|
|
|
503,000 |
|
|
|
592,000 |
|
|
$ |
1.49 |
|
Exercised
|
|
|
(3,124 |
) |
|
|
(71,352 |
) |
|
|
(74,476 |
) |
|
$ |
1.06 |
|
Lapsed
|
|
|
(277,291 |
) |
|
|
(546,594 |
) |
|
|
(823,885 |
) |
|
$ |
2.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2002
|
|
|
744,708 |
|
|
|
2,840,631 |
|
|
|
3,585,339 |
|
|
$ |
3.04 |
|
Granted
|
|
|
611,400 |
|
|
|
1,687,700 |
|
|
|
2,299,100 |
|
|
$ |
0.43 |
|
Exercised
|
|
|
(9,896 |
) |
|
|
(10,667 |
) |
|
|
(20,563 |
) |
|
$ |
0.39 |
|
Lapsed
|
|
|
(633,199 |
) |
|
|
(705,572 |
) |
|
|
(1,338,771 |
) |
|
$ |
2.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2003
|
|
|
713,013 |
|
|
|
3,812,092 |
|
|
|
4,525,105 |
|
|
$ |
1.69 |
|
Granted
|
|
|
229,962 |
|
|
|
1,080,038 |
|
|
|
1,310,000 |
|
|
$ |
1.23 |
|
Exercised
|
|
|
(48,958 |
) |
|
|
(553,948 |
) |
|
|
(602,906 |
) |
|
$ |
0.89 |
|
Lapsed
|
|
|
(62,423 |
) |
|
|
(708,702 |
) |
|
|
(771,125 |
) |
|
$ |
2.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
831,594 |
|
|
|
3,629,480 |
|
|
|
4,461,074 |
|
|
$ |
1.59 |
|
Granted
|
|
|
— |
|
|
|
945,000 |
|
|
|
945,000 |
|
|
$ |
0.55 |
|
Exercised
|
|
|
— |
|
|
|
(175,951 |
) |
|
|
(175,951 |
) |
|
$ |
0.39 |
|
Lapsed
|
|
|
(170,128 |
) |
|
|
(759,037 |
) |
|
|
(929,165 |
) |
|
$ |
0.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2005
|
|
|
661,466 |
|
|
|
3,639,492 |
|
|
|
4,300,958 |
|
|
$ |
1.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average | |
|
|
|
|
Number | |
|
Remaining | |
|
Weighted Average | |
Range of Exercise Prices |
|
Outstanding | |
|
Contractual Life | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
$0.01-$2.00
|
|
|
3,163,261 |
|
|
|
7.96 years |
|
|
$ |
0.71 |
|
$2.01-$4.00
|
|
|
690,947 |
|
|
|
4.91 years |
|
|
$ |
2.80 |
|
$4.01-$6.00
|
|
|
438,750 |
|
|
|
3.95 years |
|
|
$ |
5.13 |
|
$6.01-$8.00
|
|
|
8,000 |
|
|
|
4.47 years |
|
|
$ |
6.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,300,958 |
|
|
|
7.05 years |
|
|
$ |
1.51 |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
Number | |
|
Weighted Average | |
Range of Exercise Prices |
|
Exercisable | |
|
Exercise Price | |
|
|
| |
|
| |
$0.01-$2.00
|
|
|
1,646,610 |
|
|
$ |
0.82 |
|
$2.01-$4.00
|
|
|
660,843 |
|
|
$ |
2.80 |
|
$4.01-$6.00
|
|
|
438,750 |
|
|
$ |
5.13 |
|
$6.01-$8.00
|
|
|
8,000 |
|
|
$ |
6.86 |
|
|
|
|
|
|
|
|
|
|
|
2,754,203 |
|
|
$ |
1.99 |
|
|
|
|
|
|
|
|
F-17
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
Exercisable options
|
|
|
2,754,203 |
|
|
|
2,520,507 |
|
|
|
2,644,401 |
|
|
|
2,534,047 |
|
Weighted average exercise price of exercisable options
|
|
$ |
1.99 |
|
|
$ |
2.09 |
|
|
$ |
2.41 |
|
|
$ |
3.03 |
|
Weighted average fair value of options granted
|
|
$ |
0.53 |
|
|
$ |
0.89 |
|
|
$ |
0.26 |
|
|
$ |
1.29 |
|
In March 1995, Insignia’s shareholders adopted the 1995
Employee Share Purchase Plan (the “Purchase Plan”)
with 275,000 ordinary shares reserved for issuance thereunder.
On July 21, 1998, the number of shares reserved for
issuance was increased to 525,000. On May 27, 1999, the
number was increased to 900,000 and on June 30, 2004 the
number was further increased to 1,200,000. The Purchase Plan
enables employees to purchase ordinary shares at approximately
85% of the fair market value of the ordinary shares at the
beginning or end of each six-month offering period. The Purchase
Plan qualifies as an “employee stock purchase plan”
under section 423 of the U.S. Internal Revenue Code.
During the six months ended June 30, 2005, and years ended
December 31, 2004, 2003 and 2002 we issued 45,369, 142,079,
5,110 and 108,750 shares under the Purchase Plan,
respectively. At June 30, 2005 and December 31, 2004
and 2003 approximately 289,430, 334,799 and 176,878 ordinary
shares were reserved for future Purchase Plan issuances,
respectively.
In June 2003, we approved the issuance of options to purchase up
to 250,000 ordinary shares to an outside consultant. The options
are issued and exercisable upon achievement of certain
milestones. The exercise price is $0.47 per share and the
options expire 3 years from the date of issuance. As of
December 31, 2003, 75,000 options were earned and
exercisable. An additional 50,000 options were earned in January
2004 and the balance lapsed with the expiration of the contract
in January 2004. In November 2003, we also entered into another
agreement with an outside partner to purchase up to 500,000
warrants based upon the achievement of certain milestones. In
January 2004, the partner achieved the first milestone and
earned 200,000 warrants at a price of $1.03. None of the
remaining milestones have been achieved to date. In accordance
with Emerging Issues Task Force 96-18 “Accounting for
Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services” (“EITF 96-18”), we recorded a
charge of approximately $121,000 and $353,000 in 2003 and 2004,
respectively, to operations and an increase to additional
paid-in capital, based on the number of options earned and
vested. The remaining warrant will be revalued as it vests and
future charges will be recorded based on the number of options
that vest using the Black-Scholes pricing model.
|
|
Note 5 — |
Employee Benefit and Pension Plans: |
We have a 401(k) plan covering all of our U.S. employees
and a defined contribution pension plan covering all our United
Kingdom employees. Under both of these plans, employees may
contribute a percentage of their compensation and we make
certain matching contributions. Both the employees’ and
Insignia’s contributions are fully vested and
nonforfeitable at all times. The assets of both these plans are
held separately from those of Insignia in independently managed
and administered funds. Our contributions to these plans
aggregated $29,000 in the six months ended June 30, 2005,
$50,000 in 2004, $98,000 in 2003 and $227,000 in 2002.
F-18
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The components of loss before income taxes are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
June 30, | |
|
June 30, | |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
|
|
|
|
United States
|
|
$ |
(2,254 |
) |
|
$ |
(1,884 |
) |
|
$ |
(4,288 |
) |
|
$ |
(3,798 |
) |
|
$ |
(5,149 |
) |
United Kingdom and other countries
|
|
|
(1,199 |
) |
|
|
(1,543 |
) |
|
|
(2,855 |
) |
|
|
(1,035 |
) |
|
|
(5,385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,453 |
) |
|
$ |
(3,427 |
) |
|
$ |
(7,143 |
) |
|
$ |
(4,833 |
) |
|
$ |
(10,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the provision (benefit) from income taxes are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
June 30, | |
|
June 30, | |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$ |
— |
|
|
$ |
(185 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
U.S. state and local
|
|
|
— |
|
|
|
— |
|
|
|
(182 |
) |
|
|
2 |
|
|
|
20 |
|
|
United Kingdom and other countries
|
|
|
36 |
|
|
|
(28 |
) |
|
|
101 |
|
|
|
(512 |
) |
|
|
(2,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$ |
36 |
|
|
$ |
(213 |
) |
|
$ |
(81 |
) |
|
$ |
(510 |
) |
|
$ |
(2,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our actual provision (benefit) from income taxes differs from
the provision (benefit) computed by applying the statutory
federal income tax rate to loss before income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
June 30, | |
|
June 30, | |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
|
|
|
|
U.S. federal statutory rate
|
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
State and local taxes, net of U.S. federal benefit
|
|
|
— |
|
|
|
— |
|
|
|
(2.5 |
) |
|
|
— |
|
|
|
— |
|
Foreign income taxes at other than U.S. rate
|
|
|
1.0 |
|
|
|
(6.2 |
) |
|
|
1.4 |
|
|
|
(10.6 |
) |
|
|
(20.1 |
) |
Valuation allowance for net deferred income tax assets
|
|
|
34.0 |
|
|
|
34.0 |
|
|
|
34.0 |
|
|
|
34.0 |
|
|
|
34.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
1.0% |
|
|
|
(6.2 |
)% |
|
|
(1.1 |
)% |
|
|
(10.6 |
)% |
|
|
(20.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net deferred income tax assets are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
June 30, | |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net operating loss carry forwards
|
|
$ |
19,485 |
|
|
$ |
18,846 |
|
|
$ |
15,998 |
|
Tax credit carry forwards
|
|
|
444 |
|
|
|
452 |
|
|
|
402 |
|
Accrued expenses, allowance and other temporary differences
|
|
|
105 |
|
|
|
109 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets before valuation allowance
|
|
|
20,034 |
|
|
|
19,407 |
|
|
|
16,498 |
|
Deferred income tax asset valuation allowance
|
|
|
(20,034 |
) |
|
|
(19,407 |
) |
|
|
(16,498 |
) |
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2005, we had available net operating loss
(“NOL”) carry forwards of approximately
$54.1 million for U.S. federal tax purposes, which
expire in various years from 2016 to 2024.
F-19
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of June 30, 2005, we had available NOL carry forwards of
approximately $18.9 million for California tax purposes,
which expire in various years from 2005 to 2014. As a result of
the suspension of the use of NOLs for 2002 and 2003, California
extended the carryover terms for NOLs created in 2000 and 2001
from 10 years to 12 years and for NOL’s
originating in 2002, the carryover period extended from
10 years to 11 years.
Based on the available objective evidence, management believes
it is more likely than not that the net deferred income tax
assets will not be fully realizable. Accordingly, the Company
has provided a full valuation allowance against its net deferred
tax assets at June 30, 2005 and December 31, 2004 and
2003.
The tax reform act of 1986 limits the use of net operating loss
and tax credit carry forwards in certain situations where
changes occur in stock ownership of a company. In the event we
have a change in ownership, utilization of the federal and state
carry forwards could be restricted.
Starting for tax years 2002 and retroactive to 2000, certain
research and development expenditures incurred in the United
Kingdom qualified for a tax credit. The tax credit does not
offset tax liability but rather is a refund. The estimated
refund for 2004 was $134,000. The estimated refund for 2003
reported in the 2003 Form 10-K was $391,000. The actual
amount received was $188,000 and was received in January of
2005. The difference of $203,000 between the actual United
Kingdom tax credit and the actual refund received for 2003 was
due to the research and development expenses for SSP incurred in
the United States, which were disallowed as the office in the
United Kingdom was not leading the research and development
process. Our estimates have since been updated for future years.
|
|
Note 7 — |
Commitments and Contingencies: |
The following are future minimum lease payments under operating
leases as of June 30, 2005 (in thousands):
|
|
|
|
|
|
|
|
Operating | |
|
|
Leases | |
|
|
| |
Year ending December 31, 2005 (July 1, 2005 through
December 31, 2005)
|
|
$ |
107 |
|
2006
|
|
|
226 |
|
2007
|
|
|
198 |
|
2008
|
|
|
198 |
|
2009
|
|
|
198 |
|
|
Thereafter
|
|
|
918 |
|
|
|
|
|
|
|
$ |
1,845 |
|
|
|
|
|
Operating lease commitments above are net of sublease income of
$52,000 for the remainder of 2005. Rent expense under all
operating leases was $135,000, $334,000, $425,000 and $822,000
for the six months ended June 30, 2005, and for the years
ended December 31, 2004, 2003 and 2002, respectively. Rent
expense was net of sublease rental income of $58,000 for the six
months ended June 30, 2005, $94,000 in 2004, $0 in 2003 and
$13,000 in 2002.
Insignia, as permitted under Delaware law and in accordance with
our Bylaws, indemnifies our officers and directors for certain
events or occurrences, subject to certain limits, while the
officer is or was serving at our request in such capacity. The
term of the indemnification period is for the officer’s or
director’s lifetime. The maximum amount of potential future
indemnification is unlimited; however, we do have a Director and
F-20
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Officer Insurance Policy that limits our exposure and enables us
to recover a portion of any future amounts paid. As a result of
the insurance policy coverage we believe the fair value of these
indemnification agreements is minimal.
In our sales agreements, we typically agree to indemnify our
customers for any expenses or liability resulting from claimed
infringements of patents, trademarks or copyrights of third
parties. The terms of these indemnification agreements are
generally perpetual any time after execution of the agreement.
The maximum amount of potential future indemnification is
unlimited. To date we have not paid any amounts to settle claims
or defend lawsuits.
Insignia, on a limited basis, has granted price protection for
the Jeode product line. The terms of these agreements were
generally perpetual. We have not recorded any liabilities for
these potential future payments either because they are not
probable or we have yet to incur the expense.
Insignia warrants its software products against defects in
material and workmanship under normal use and service for a
period of ninety days. There is no warranty accrual recorded
because potential future payments either are not probable or we
have yet to incur any expense.
|
|
|
Change of Control Severance Arrangements |
We have entered into change of control severance arrangements
with three of our executive officers, pursuant to which we will
continue to pay salary for up to six months if any of these
employees are terminated in connection with a change of control
of the Company.
During 1998, we sublet, until March 2002, facilities that we
previously occupied in the United Kingdom, on substantially the
same terms as those applicable to us. In January 2002, we
entered into an agreement with the landlord to terminate the
lease on April 13, 2002. The termination agreement required
us to pay, on April 3, 2002, a surrender payment of
approximately $470,000.
From time to time, the Company may become involved in litigation
relating to claims arising from the ordinary course of business.
Management is not currently aware of any matters that could have
a material adverse effect on the financial position, results of
operations or cash flows of the Company.
|
|
Note 8 — |
Segment Reporting: |
Statement of Financial Accounting Standards 131,
“Disclosures about Segments of an Enterprise and Related
Information” (“SFAS 131”) provides for
segment reporting based upon the “management”
approach. The management approach designates the internal
organization that is used by management for making operating
decisions and assessing performance as the source of
Insignia’s reportable segments. SFAS 131 also requires
disclosures about products and services, long-lived assets,
geographic areas, and major customers.
We are in a single industry segment providing software
technologies that enable mobile operators and phone
manufacturers to manage mobile devices using standard
over-the-air data networks. 83% of our revenues in the six
months ended June 30, 2005 were from five customers with
20%, 18%, 17%, 16% and 12% of revenue from each. In 2004, the
SSP and Jeode product lines accounted for 83% and 17%,
respectively, of the total revenue. The Jeode revenue related to
royalties received from Esmertec. Esmertec accounted for 100% of
the Jeode revenue. The SSP revenue generated in 2004 was from
four customers each accounting for 28%, 21%, 18% and 14%,
respectively. In 2003, the Jeode product line accounted for 94%
of the total revenue
F-21
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of which Hewlett Packard Company accounted for 26% of total
revenues. In 2002, Phoenix Technologies, Ltd.
(“Phoenix”) accounted for 58% of total revenues. No
other customer accounted for 10% or more of our total revenues
during the six months ended June 30, 2005 or the fiscal
years ended December 31, 2004, 2003 or 2002.
Revenue by product is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
|
|
June 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
|
|
|
|
SSP
|
|
$ |
470 |
|
|
$ |
335 |
|
|
$ |
450 |
|
|
$ |
20 |
|
|
$ |
— |
|
DMS
|
|
|
369 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
OMC
|
|
|
357 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Jeode
|
|
|
— |
|
|
|
91 |
|
|
|
91 |
|
|
|
670 |
|
|
|
7,256 |
|
SoftWindows
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,196 |
|
|
$ |
426 |
|
|
$ |
541 |
|
|
$ |
710 |
|
|
$ |
7,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by geographic area is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
Year Ended | |
|
|
June 30, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
|
|
|
|
U.S.
|
|
$ |
225 |
|
|
$ |
150 |
|
|
$ |
150 |
|
|
$ |
410 |
|
|
$ |
6,745 |
|
Asia Pacific
|
|
|
255 |
|
|
|
185 |
|
|
|
300 |
|
|
|
59 |
|
|
|
311 |
|
EMEA
|
|
|
716 |
|
|
|
91 |
|
|
|
91 |
|
|
|
241 |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,196 |
|
|
$ |
426 |
|
|
$ |
541 |
|
|
$ |
710 |
|
|
$ |
7,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
19 |
% |
|
|
35 |
% |
|
|
28 |
% |
|
|
58 |
% |
|
|
93 |
% |
Asia Pacific
|
|
|
21 |
% |
|
|
43 |
% |
|
|
55 |
% |
|
|
8 |
% |
|
|
4 |
% |
EMEA
|
|
|
60 |
% |
|
|
22 |
% |
|
|
17 |
% |
|
|
34 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues are attributed to countries based on the principal
address of the customer.
As of June 30, 2005, the majority of our long-lived assets
are located outside the United States, principally in Sweden.
All of our net intangible assets ($2,290,000), goodwill
($416,000) and other non-current assets ($228,000) are located
outside the United States. $44,000 of our net fixed assets are
located outside the United States. At December 31, 2004 and
2003, substantially all of our long-lived assets were located in
the United States.
|
|
Note 9 — |
Equity Transactions and Warrants: |
|
|
|
Recent Sales of Unregistered Securities |
In 1999, a private placement transaction resulted in an
allocation of $1.4 million to mandatorily redeemable
warrants, of which $590,000 was allocated to the warrants
issued, and $850,000 was allocated to additional warrants
issuable under certain circumstances. During the quarter ended
June 30, 2003, $850,000, which represented the relative
fair value of the additional warrants issuable in connection
with the 1999 private placement, was reclassified from
manditorily redeemable warrants to additional paid-in capital.
The reclassification was a result of the expiration of our
obligation to issue these warrants.
F-22
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Amounts classified as warrants will remain outside of
shareholders’ equity for the life of the warrant or until
they are exercised, whichever occurs first. This classification
reflects certain potential cash payments that may occur, should
we complete a major transaction, such as a takeover, during the
life of the warrants.
In August 2003, warrants issued in the 1999 private placement
were modified to reduce their exercise price to $0.40 per
share. The modification was accounted for in accordance with
SFAS 123 and resulted in a charge of approximately $88,000
to earnings and an increase in the value of the mandatorily
redeemable warrants. In September 2003 and November 2003,
warrants to purchase 334,177 and 112,500 ordinary shares
were exercised for net proceeds of approximately $128,000 and
$92,000, respectively. In connection with the exercise of the
warrants, $640,000 was reclassified from mandatorily redeemable
warrants to additional paid-in capital. In December 2004, the
remaining warrants outstanding expired and $38,000 was
reclassified from mandatorily redeemable warrants to additional
paid-in capital. Fusion Capital exercised warrants to
purchase 2,000,000 ordinary shares in September 2003
resulting in net proceeds of approximately $668,000.
On November 24, 2000, we issued a total of 3,600,000
ordinary shares at a price of $5.00 per unit. Each share
comprises one ADS and one half of one warrant to purchase one
ADS. The registration statement became effective on
December 24, 2000. The warrants expired on
November 24, 2004. As compensation for services in
connection with this private placement, we (i) issued five
year warrants to purchase 225,000 of our ADSs at an
exercise price of $5.00 per share, and (ii) paid a
cash compensation equal to 6% of the gross proceeds received by
us in the private placement to the placement agent. These
warrants remain outstanding and expire November 24, 2005.
On February 12, 2001, we entered into agreements whereby we
issued 940,000 ordinary shares in ADS form at a price of
$5.00 per share to a total of 4 investors, including Wind
River Systems, Inc., and a member of our board of directors. We
also issued warrants to purchase 470,000 ADSs to the
investors, at an exercise price per share of the lower of the
average quoted closing sale price of our ADSs for the ten
trading days ending on the day preceding the date of the warrant
holder’s intent to exercise less a 10% discount, and
$6.00 per share. We received $4.7 million less
offering expenses totaling $0.5 million. All of these
warrants were exercised in January 2004, resulting in proceeds
of approximately $400,000 with $10,000 of issuance costs. We
also issued warrants to purchase 25,000 ADSs to the
placement agent exercisable at a price of $5.00 per share.
These warrants are exercisable and expire on February 12,
2006. The securities were issued in reliance upon the exemption
from registration provided under Regulation D promulgated
under the Securities Act.
In September 2003, 1,613,465 ordinary shares in ADS form were
purchased under the 2002 Fusion Capital securities subscription
agreement resulting in proceeds of $827,000 less offering
expenses of $89,000. In November 2003, Fusion Capital purchased
1,766,667 ordinary shares in ADS form. We received
$1.3 million less offering expenses totaling $114,000. In
accordance with the subscription agreement, Fusion Capital may
not beneficially own more than 9.9% of the total ordinary
shares. As a result, Fusion Capital requested that we only issue
1,000,000 shares and issue the balance at a later date.
This resulted in $575,000 recorded as an ordinary share
subscription in the equity section of the balance sheet as of
December 31, 2003. In January 2004, new ordinary shares of
766,667 were issued to Fusion Capital, for $575,000 net of
issuance expenses of $10,000, pursuant to a binding commitment
to deliver such shares entered into in November 2003.
In November 2003, we issued a warrant to purchase up to 500,000
ADSs to a strategic partner. The warrant becomes exercisable
upon achievement of certain milestones and terminates on the
third anniversary of the final milestone. The exercise price is
$1.03 per share with respect to the first milestone, and
the average of $1.03 per share and the then-current market
price with respect to the other milestones. At June 30,
2005, 200,000 of the warrants were vested, exercisable, and
resulted in a charge of $129,000 to expense and additional
paid-in capital in the first quarter of 2004. The warrant will
be valued as it vests and future charges will be recorded based
on the amount of the warrant that vests using the Black-Scholes
pricing model.
F-23
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On January 5, 2004, we issued 2,262,500 ordinary shares in
ADS form at a price of $0.80 to a total of 10 investors. We
also issued warrants to purchase 565,625 ADSs to the
investors at an exercise price of $1.04. The warrants are
exercisable immediately and expire January 5, 2009. We
received $1.8 million less offering expenses totaling
approximately $0.2 million in this transaction. We also
issued warrants to purchase 108,562 ADSs to the two principals
of the placement agent, half of which are exercisable at a price
of $1.09 per share and the other half at $0.92 per
share. These warrants are exercisable immediately and expire
January 5, 2009.
On October 18, 2004, Insignia closed two equity financing
transactions in which we raised over $2.3 million, net of
transaction costs. We closed a private placement financing with
certain institutional and other accredited investors pursuant to
which we issued and sold 3,208,499 newly issued ADSs and
warrants to purchase 802,127 ADSs, for a total purchase
price of approximately $1.5 million, or $1.3 million
net of transaction costs. The shares were priced at
$0.48 per share, and the warrants have an exercise price of
$1.06 per share. The warrants may be exercised any time
after the date that is six months after the closing of the
private placement until the earlier of April 18, 2010 or a
change of control of Insignia. Nash Fitzwilliams Ltd. served as
the private placement agent in the private placement. We issued
warrants to purchase an aggregate of 204,597 ADSs to the two
principals of Nash Fitzwilliams Ltd. as placement agent. The
warrants issued to the Nash Fitzwilliams’ Ltd.’s
principals have the same exercise price and terms as the
warrants issued to the investors in the private placement. Two
investors in this private placement were related parties of
Insignia. Mark McMillan, our Chief Executive Officer, invested
$25,000 to purchase 52,083 ADSs and warrants to
purchase 13,021 ADSs. In addition Vincent Pino, one of our
directors, and his immediate family invested $200,000 to
purchase 416,667 ADSs and warrants to purchase 104,167
ADSs. As part of the transaction, we agreed to file a resale
registration statement with the Securities and Exchange
Commission for the purpose of registering the resale of the
shares, and the shares underlying the warrants, issued in the
private placement. Additionally, under a previously executed
securities subscription agreement, we sold to Fusion Capital
2,500,000 shares of newly issued ADSs at a purchase price
of $0.40 per share, resulting in proceeds of approximately
$1.0 million, net of transaction costs. As of
October 18, 2004, we had sold an aggregate of
$3.152 million of Insignia’s ADSs (out of a total
potential issuance of $6 million under the securities
subscription agreement) to Fusion Capital.
During January 2005, we sold 299,007 shares for $200,000
under the 2002 Fusion Capital agreement. On February 9,
2005, Insignia sold to Fusion Capital 3,220,801 ADSs at a
purchase price of $0.40 per share, resulting in proceeds of
approximately $1.3 million. These shares were issued to
Fusion Capital in a private placement. Insignia intends to file
a registration statement in order to register the resale of
these shares.
On February 9, 2005, Insignia and Fusion Capital entered
into a mutual termination agreement pursuant to which the 2002
Fusion Capital securities subscription agreement was terminated.
As a result of this termination, the 2,000,000 shares
issued on exercise of the warrants (described above) may be
resold by Fusion Capital under the Company’s
existing S-1 registration statement.
On February 10, 2005, Insignia entered into the 2005 Fusion
Capital securities subscription agreement with Fusion Capital to
sell ADSs up to an aggregate purchase price of $12 million
(subject to daily maximum purchase amounts) to Fusion Capital
over a period of 30 months (the “2005 Fusion Capital
securities subscription agreement”). The shares will be
priced based on a market-based formula at the time of purchase.
The commencement of funding under the 2005 Fusion Capital
securities subscription agreement is subject to certain
conditions, including the declaration of effectiveness by the
Securities and Exchange Commission of a registration statement
covering the ADSs to be purchased by Fusion Capital under the
2005 Fusion Capital securities subscription agreement. The
timing of a registration statement covering the ADSs to be
purchased by Fusion Capital being declared effective is not
within Insignia’s control. Any delay in the commencement of
funding under the 2005 Fusion Capital securities subscription
agreement could jeopardize Insignia’s business. As a
commitment fee for this facility Fusion Capital received
warrants for 2,000,000 shares exercisable at the
F-24
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
greater of £0.205 or $0.40 per share and for
2,000,000 shares exercisable at £0.205 each. These
warrants are exercisable immediately and expire on
February 28, 2010.
On March 16, 2005, we closed our acquisition of Mi4e, a
private company headquartered in Stockholm, Sweden. The
consideration paid in the transaction was 2,969,692 ADSs
representing ordinary shares and another 989,896 ADSs will be
issuable on March 31, 2006, subject to potential offset for
breach of representations, warranties and covenants. In addition
up to a maximum of 700,000 Euros is payable in a potential earn
out based on a percentage of future revenue collected from sales
of existing Mi4e products. At June 30, 2005, $22,000 of
this earn out was earned.
In June 2005, the Company issued convertible notes to three
shareholders in exchange for a bridge financing of $275,000.
These notes were converted into the Series A preferred
stock described below on June 30, 2005. In consideration of
this bridge financing we accrued loan fees in the form of ADSs
representing 45,833 ordinary shares and warrants to purchase an
aggregate of 45,833 ADSs at an exercise price of $0.58 per
share were issued; these shares were valued at a market value of
$25,200 and the warrants had a fair value, calculated using the
Black-Scholes model, of approximately $17,000. These warrants
are exercisable on December 21, 2005 and expire on
June 30, 2010.
On June 30, 2005 and July 5, 2005, we and our
wholly-owned subsidiary Insignia Solutions Inc. (the
“Subsidiary”) entered into Securities Subscription
Agreements with Fusion Capital and other investors (each, an
“Investor” and collectively, the
“Investors”). Pursuant to these subscription
agreements, Investors invested an aggregate of $1,000,000 on
June 30, 2005 (including exchange of the $275,000 bridge
notes), and we completed a second closing on July 5, 2005
for an additional $440,400. Pursuant to these subscription
agreements, the Subsidiary issued its Series A preferred
stock, no par value per share, to the Investors. The preferred
stock is non-redeemable. The shares of preferred stock (plus all
accrued and unpaid dividends thereon) held by each Investor are
exchangeable for ADSs (i) at any time at the election of
such Investor, (ii) automatically upon written notice by us
to such Investor in the event that the sale price of the ADSs on
the Nasdaq SmallCap Market is greater than $1.50 per share
for a period of ten consecutive trading days, and certain other
conditions are met, and (iii) automatically to the extent
any shares of the preferred stock have not been exchanged prior
to June 30, 2007. The preferred stock will accrue dividends
for two years at a rate of 15% per year compounded
annually, payable in the form of additional ADSs. Including
accruable dividends, the shares of preferred stock issued on
June 30, 2005, together with the additional shares issued
on July 5, 2005, will be exchangeable for 3,306,251 and
1,456,075 ADSs, respectively, at an initial purchase price of
$0.40 per ADS. Pursuant to the above subscription
agreements, we also issued to the Investors on June 30,
2005 and July 5, 2005, warrants to purchase an aggregate of
2,500,000 and 1,101,000 ADSs, respectively, at an exercise price
per share equal to the greater of $0.50 or the U.S. Dollar
equivalent of 20.5 U.K. pence. These warrants are immediately
exercisable and expire on June 30, 2010. We also entered
into registration rights agreements with the Investors pursuant
to which we agreed to file a registration statement with the
Securities and Exchange Commission covering the resale of
(i) the ADSs issued to the Investors upon exchange of the
Preferred Stock under their subscription agreements and
(ii) the ADSs issuable upon exercise of their warrants.
The issuance of the Series A preferred stock resulted in a
beneficial conversion feature, calculated in accordance with
EITF No. 00-27, “Application of Issue No. 98-5,
Accounting for Convertible Securities with Beneficial Conversion
Features of Contingently Adjustable Conversion Ratios to Certain
Convertible Instruments” based upon the conversion price of
the preferred stock into ADSs, and the fair value of the ADSs at
the date of issue. Accordingly, the warrants issued on
June 30, 2005 were valued at $585,000, using a
Black-Scholes model, and the Company recognized $415,000, as a
charge to additional paid-in-capital to account for the deemed
dividend on the preferred stock as of the issuance date, which
represented the amount of the proceeds allocated to the
preferred stock. The amount of the deemed dividend related to
the beneficial
F-25
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
conversion feature was recorded upon the issuance of the
preferred stock, as the preferred stock can be converted to ADSs
by the holder at any time.
On October 17, 2002, we entered into a securities
subscription agreement (“Agreement”) with Fusion
Capital, pursuant to which Fusion Capital has agreed to
purchase, on each trading day following the effectiveness of a
registration statement covering the American Depository Shares
to be purchased by Fusion Capital, $10,000 of our American
Depository Shares up to an aggregate of $6.0 million over a
period of 30 months. The purchase price of the American
Depository Shares will be equal to a price based upon the future
market price of the shares without any fixed discount to the
market price. In order to be in compliance with Nasdaq rules, we
could not sell our ordinary shares to Fusion Capital at a price
below $0.38, which represents the greater of the book value per
share of our ordinary shares as of September 30, 2002 or
the closing sale price per share of our ADSs on October 16,
2002. If we elect to sell our shares to Fusion Capital at a
price per share below $0.38, we first would be required to
obtain shareholder approval in order to be in compliance with
applicable Nasdaq rules. Under the laws of England and Wales, we
are not permitted to sell our ADSs at a purchase price that is
less than the nominal value of our ordinary shares. Currently,
the nominal value per ordinary share is the U.S. dollar
equivalent of 20.5 pence. As of December 31, 2004, new
ordinary shares of 6,480,192 were purchased under the Fusion
Capital securities subscription agreement for a total of
$3.6 million, net of issuance costs. Of this amount,
$190,000 was recorded as an other receivable on the consolidated
balance sheet at December 31, 2004 as payment was not
received until January 2005.
Under the terms of the Agreement, we issued to Fusion Capital
one redeemable warrant for ADSs representing 1,000,000 ordinary
shares, and one non-redeemable warrant for ADSs representing
1,000,000 ordinary shares. The exercise price per share of each
warrant was the U.S. dollar equivalent of 20.5 pence. Each
warrant expires on September 30, 2007. The fair value of
the warrants was estimated at $544,000 on the date of grant
using the Black-Scholes pricing model with the following
assumptions: no dividend yield; risk-free rate of 2.5%;
volatility of 101%; and expected life of five years. The fair
value of the warrants have been expensed in other expense
entirely in the year-ended December 31, 2002. Unless an
event of default (including termination of the agreement) occurs
under the Agreement, the shares issuable upon exercise of these
warrants must be held by Fusion Capital until 30 months
from the date of the Agreement or the date the Agreement is
terminated. Fusion Capital exercised their 2,000,000 warrants
for $668,000, net of issuance costs.
The following table summarizes activity on warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding | |
|
Warrants Outstanding | |
|
|
and Exercisable | |
|
Exercise Price | |
|
|
| |
|
| |
Balance, December 31, 2001
|
|
|
2,591,334 |
|
|
$ |
4.77 |
|
|
- |
|
$ |
6.00 |
(1) |
|
Granted
|
|
|
2,000,000 |
|
|
|
par value |
|
|
|
|
|
|
|
|
Exercised
|
|
|
(400,000 |
) |
|
|
|
|
|
|
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
4,191,334 |
|
|
|
par value |
|
|
- |
|
$ |
6.00 |
(1) |
|
Granted
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
Exercised
|
|
|
(2,446,677 |
) |
|
$ |
0.345 |
|
|
- |
|
$ |
0.8371 |
|
|
Lapsed
|
|
|
(1,005,000 |
) |
|
|
|
|
|
|
|
$ |
6.00 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
739,657 |
|
|
$ |
4.77 |
|
|
- |
|
$ |
6.00 |
(1) |
|
Granted
|
|
|
1,880,911 |
|
|
$ |
0.92 |
|
|
- |
|
$ |
1.09 |
|
|
Exercised
|
|
|
(470,000 |
) |
|
|
|
|
|
|
|
$ |
6.00 |
(1) |
|
Lapsed
|
|
|
(19,657 |
) |
|
|
|
|
|
|
|
$ |
4.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding | |
|
Warrants Outstanding | |
|
|
and Exercisable | |
|
Exercise Price | |
|
|
| |
|
| |
Balance, December 31, 2004
|
|
|
2,130,911 |
|
|
$ |
0.92 |
|
|
- |
|
$ |
5.00 |
|
|
Granted
|
|
|
6,738,355 |
|
|
|
0.37 |
|
|
- |
|
$ |
1.11 |
(2) |
|
Exercised
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Balance, June 30, 2005
|
|
|
8,869,266 |
|
|
$ |
0.37 |
|
|
- |
|
$ |
5.00 |
(2) |
|
|
|
|
|
|
|
|
(1) |
The $6.00 warrants are the lesser of $6.00 or 90% of 10-day
average market value. |
|
(2) |
2,000,000 of the warrants are exercisable at £0.205 ($0.37
as of June 30, 2005), 2,000,000 of the warrants are
exercisable at the greater of £0.205 or $0.40 and 2,500,000
of the warrants are exercisable at the greater of £0.205 or
$0.50. |
|
|
Note 10 — |
Sale of Java Virtual Machine Assets: |
On February 7, 2003, we entered into a loan agreement with
Esmertec whereby Esmertec loaned Insignia $1.0 million at
an interest rate of prime plus two percent. The principal amount
of $1.0 million was repaid on January 15, 2004 by
offsetting that amount with a receivable from Esmertec relating
to the product line purchase. All remaining accrued interest of
$55,161 was repaid on March 15, 2004 by offsetting the
accrued interest against prepaid royalties. Accordingly, there
are no outstanding balances or future amounts due to Esmertec
under the loan agreement as of December 31, 2004.
On March 4, 2003, we entered into several other agreements
with Esmertec including a definitive agreement to sell certain
assets relating to our Jeode product in exchange for
$3.5 million due in installments through April 2004. The
transaction closed on April 23, 2003 and was amended on
June 30, 2004. The assets sold primarily included the fixed
assets, customer agreements and employees related to the Jeode
product. Under the terms of the Agreements, Esmertec also became
the exclusive master distributor of the Jeode technology in
exchange for $3.4 million in minimum guaranteed royalties
through October 2004.
Under the original agreements, Insignia could have earned up to
an additional $4.0 million over the subsequent three year
period from the effective date of the agreement based on a
percentage of Esmertec’s sales of the Jeode product during
the period. Additionally, the parties entered into a cooperative
agreement whereas Esmertec would promote Insignia’s
SSP software product to Esmertec’s mobile platform
customers.
As part of the sale of our Jeode product, we transferred 42
employees to Esmertec, of which 31 were development engineers.
In addition, as part of the sale, Esmertec entered into an
agreement with our U.K. building landlord in order to assume the
lease on one of the two buildings leased by Insignia.
On February 13, 2004, Insignia and Esmertec executed the
final purchase agreement upon signing the Limited Assignment of
Rights of Technology License and Distribution Agreement. The
final purchase agreement transferred the intellectual property
of Jeode and the title for Insignia’s remaining prepaid
royalties to Esmertec.
On June 30, 2004, Insignia and Esmertec executed a
Termination and Waiver Agreement. The Agreement offset Esmertec
related liabilities and deferred revenue totaling $853,000
against $600,000 of remaining guaranteed royalty payments due
from Esmertec in exchange for a final cash payment of $185,000.
The resulting net gain of $302,000 was recorded as other income
in the second quarter of 2004 and is net of expenses. The final
payment was received from Esmertec on July 8, 2004.
The Jeode platform had been our principal product line since the
third quarter of 1999. With the completion of the sale of our
Jeode product line to Esmertec in February 2004, Insignia’s
sole product line consisted of its SSP products for the mobile
handset and wireless carrier industry. We began shipment of our
SSP product to customers in the fourth quarter of 2003. In
October 2004, we launched our OMC product. In
F-27
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
March 2005, we acquired Mi4e, a private company headquartered in
Stockholm, Sweden. Mi4e was founded in 2003 and had $646,000 of
sales in 2004. Mi4e’s main product, DMS, is a mobile device
management infrastructure solution for mobile operators that
support the OMA client provisioning specification.
|
|
Note 11 — |
Notes Payable and Line of Credit: |
With the March 16, 2005 acquisition of Mi4e, Insignia
assumed two notes payable. The largest note is to ALMI
Företags Partner (“ALMI”) and is referred to as a
“regional development loan”. The total loan amount was
for Swedish Krona (“SEK”) 700,000 or approximately
$90,000. This note is to be repaid by February 28, 2007 in
quarterly installments of approximately SEK 54,000 or
approximately $7,000. The interest rate on this note from
July 1, 2005 is 8.75% per annum. As of June 30,
2005, the outstanding balance of the ALMI note was approximately
SEK 345,000 or approximately $44,000. This loan is secured
by a chattel mortgage in the amount of SEK 700,000 or
approximately $90,000.
In addition to the ALMI note payable, there is a note payable to
Skandinaviska Enskilda Banken (“SEB”). The total note
amount was SEK 300,000 or approximately $39,000. The interest
rate on the SEB note is approximately 6.75% per annum. As
of June 30, 2005, the outstanding balance was approximately
SEK 158,000 or approximately $20,000. This note is to be repaid
by January 2007 in monthly installments of approximately SEK
8,000 or approximately $1,000. This loan is secured by a chattel
mortgage in the amount of SEK 500,000 or approximately
$64,000.
We also have a line of credit of SEK 200,000 or
approximately $25,500 with SEB. As of June 30, 2005 there was no
balance outstanding under this line. There is a commitment fee
of 1.5% per annum on this line of credit and the borrowings bear
interest at the rate of 5% per annum.
On March 28, 2002, Insignia’s U.S. subsidiary,
Insignia Solutions, Inc. (“Insignia U.S.”) entered
into an accounts receivable financing agreement with Silicon
Valley Bank. The financing agreement allowed Insignia
U.S. to borrow an amount up to 80% of eligible receivables
not to exceed $1,200,000 with interest at the bank’s prime
rate plus two percentage points. Borrowings are subject to
compliance with certain covenants, including a requirement to
maintain specific financial ratios. Borrowings were secured by
substantially all of the assets of Insignia U.S. There were
no outstanding borrowings under this credit facility, and the
credit line was cancelled on February 12, 2003.
On February 13, 2001, we entered into a promissory note
with Richard M. Noling, then President and Chief Executive
Officer (and currently a director) of Insignia whereby
Mr. Noling borrowed $150,000 from the U.S.-based subsidiary
of Insignia. The promissory note was due in three equal
installments, on each annual anniversary from the date of the
note. The note was amended on January 24, 2002 to extend
the first and subsequent installments one year. The first
installment was due on February 13, 2003.
Mr. Noling’s employment was terminated with Insignia
effective February 14, 2003. We forgave, effective
March 6, 2003 the balance of the loan, $125,363, in lieu of
any bonus compensation. Interest accrued on the unpaid principal
balance at a rate per annum equal to the prime lending rate of
interest as listed in the Wall Street Journal plus 1%.
Accrued interest was due and payable monthly in arrears on the
last calendar day of each month.
Two investors in the private placement on October 18, 2004
were related parties of Insignia. Mark McMillan, our Chief
Executive Officer, invested $25,000 to purchase 52,083 ADSs
and warrants to purchase 13,021 ADSs. In addition Vincent
Pino, one of our directors, and his immediate family invested
$200,000 to purchase 416,667 ADSs and warrants to
purchase 104,167 ADSs.
At December 31, 2004, the Company had $190,000 of other
receivables due from Fusion Capital relating to the purchase of
ADSs under the October 17, 2002 subscription agreement.
This amount was received in January 2005.
F-28
INSIGNIA SOLUTIONS PLC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On March 16, 2005, we closed our acquisition of Mi4e. The
consideration paid in the transaction was 2,969,692 ADSs
representing ordinary shares and another 989,896 ADSs issuable
on March 31, 2006, subject to potential offset for breach
of representations, warranties and covenants. In addition up to
a maximum of 700,000 Euros is payable in a potential earn-out
based on a percentage of future revenue collected from sales of
existing Mi4e products. As of June 30, 2005, $22,000 was
earned. Anders Furehed, our senior vice president of European
operations, was an indirect 50% shareholder of Mi4e and thus
received 1,484,846 ADSs on the closing of the acquisition.
|
|
Note 13 — |
Joint Venture Agreement: |
On December 31, 2003, we entered into a joint venture
agreement with J-Tek Corporation to form Insignia Asia
Chusik Hoesa (“Insignia Asia”). We own 50% of the
entity and are accounting for this investment under the equity
method of accounting. In 2004, we made two investments of
$75,000 each and shared in losses recognized of approximately
$82,000. During the year ended December 31, 2004, Insignia
recognized license revenue of $75,000 from Insignia Asia. In the
six months ended June 30, 2005, we shared in losses
recognized of $68,000 and Insignia recognized license revenue of
$188,000 from Insignia Asia. At June 30, 2005, our
investment in the joint venture has been written down to $0.
In February 2003, we announced a restructuring of the
organization to focus on the device management technology. We
restructured in both March and June resulting in a 62% headcount
reduction and restructuring charges and payments of $498,000
from March through December 2003. In the third quarter of 2002,
we completed a worldwide reduction of headcount of approximately
11% of our staff. Restructuring expenses of $296,000 consisted
of severance payments made during the third and fourth quarters
of 2002. Restructuring expenses which represented 70% and 4% of
total revenues in 2003 and 2002, respectively, consisted of
costs related to terminated employees, including severance
payments as well as national insurance costs where legally
required. At June 30, 2005 we had no future liability to
any of the terminated employees.
|
|
Note 15 — |
Subsequent Events: |
At our general meeting of shareholders held on
September 30, 2005, our shareholders approved an increase
of 35,000,000 ordinary shares to our authorized share capital
and a reduction of the nominal value of our ordinary shares from
20 pence per share to 1 pence per share. The reduction in the
nominal value of our ordinary shares will become effective once
the order of the English High Court confirming it is registered
with the U.K. Registrar of Companies, which we expect to be
completed by the end of January 2006. The increase in our
authorized share capital is conditional upon the reduction of
the nominal value of our ordinary shares becoming effective.
Insignia entered into a bank loan agreement on
September 30, 2005. This agreement allows Insignia to
finance certain eligible accounts receivable. The bank, at its
sole discretion, may advance for each receivable the advance
rate multiplied by the receivable. Insignia can receive as a
cash advance up to 80% of the eligible receivables up to a total
of $1.0 million on qualified receivables of
$1.25 million. The agreement has a one year term and all
assets and intellectual property of the Company is collateral on
this agreement.
On September 22, 2005, Insignia received an advance of
$150,000 from Fusion Capital. This advance is intended to be an
advance on the 2005 Fusion Capital securities subscription
agreement (see Note 9) and, as such, will be used by Fusion
Capital to purchase ordinary shares of Insignia. If the
registration of securities does not become final with the
Securities and Exchange Commission, the $150,000 advance will
become a loan payable.
F-29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Insignia Solutions
plc:
We have audited the accompanying consolidated balance sheets of
Insignia Solutions plc and subsidiaries as of June 30, 2005
and December 31, 2004 and 2003, and the related
consolidated statements of operations, shareholders’
equity, and cash flows for the six months ended June 30,
2005 and for each of the two years in the period ended
December 31, 2004. The consolidated financial statements
are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Insignia Solutions plc and subsidiaries as of
June 30, 2005 and December 31, 2004 and 2003, and the
results of their operations and their cash flows for the six
months ended June 30, 2005 and for each of the two years in
the period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of
America.
As discussed in Note 1 to the consolidated financial
statements, the Company’s recurring losses from operations
raise substantial doubt about its ability to continue as a going
concern. Management’s plans as to these matters are also
described in Note 1. The consolidated financial statements
do not include any adjustments that might result from the
outcome of this uncertainty.
|
|
|
/s/ Burr, Pilger & Mayer LLP |
Palo Alto, California
August 16, 2005, except as to Note 15,
which
is as of September 30, 2005
F-30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Insignia Solutions
plc
In our opinion, the accompanying consolidated financial
statements of operations, cash flows and changes in
shareholders’ equity for the year ended December 31,
2002 present fairly, in all material respects, the results of
the operations and the cash flows of Insignia Solutions plc and
its subsidiaries for the year ended December 31, 2002 in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
|
|
|
/s/ PRICEWATERHOUSECOOPERS LLP |
San Jose, California
March 28, 2003
F-31
INSIGNIA SOLUTIONS PLC
Ten Quarters ended June 30, 2005
The following tables set forth selected statement of operations
data for each of the ten quarters ended June 30, 2005. This
unaudited quarterly information has been prepared on the same
basis as our audited consolidated financial statements and, in
the opinion of management, reflects all adjustments (consisting
only of normal recurring entries) necessary for a fair
presentation of the information for the periods presented. The
operating results for any quarter are not necessarily indicative
of results for any future period.
INSIGNIA SOLUTIONS PLC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 31, | |
|
Jun 30, | |
|
Sep 30, | |
|
Dec 31, | |
|
Mar 31, | |
|
Jun 30, | |
|
Sep 30, | |
|
Dec 31, | |
|
Mar 31, | |
|
Jun 30, | |
|
|
2003 | |
|
2003 | |
|
2003 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited, in thousands, except per share amounts) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License and royalties
|
|
$ |
192 |
|
|
$ |
— |
|
|
$ |
201 |
|
|
$ |
129 |
|
|
$ |
316 |
|
|
$ |
105 |
|
|
$ |
100 |
|
|
$ |
— |
|
|
$ |
417 |
|
|
$ |
500 |
|
|
Service and other
|
|
|
187 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
3 |
|
|
|
2 |
|
|
|
7 |
|
|
|
8 |
|
|
|
45 |
|
|
|
234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
379 |
|
|
|
— |
|
|
|
201 |
|
|
|
130 |
|
|
|
319 |
|
|
|
107 |
|
|
|
107 |
|
|
|
8 |
|
|
|
462 |
|
|
|
734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License and royalties
|
|
|
115 |
|
|
|
36 |
|
|
|
70 |
|
|
|
67 |
|
|
|
23 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
78 |
|
|
Service and other
|
|
|
52 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
167 |
|
|
|
36 |
|
|
|
70 |
|
|
|
67 |
|
|
|
23 |
|
|
|
5 |
|
|
|
— |
|
|
|
14 |
|
|
|
5 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
212 |
|
|
|
(36 |
) |
|
|
131 |
|
|
|
63 |
|
|
|
296 |
|
|
|
102 |
|
|
|
107 |
|
|
|
(6 |
) |
|
|
457 |
|
|
|
640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
645 |
|
|
|
261 |
|
|
|
423 |
|
|
|
428 |
|
|
|
816 |
|
|
|
529 |
|
|
|
578 |
|
|
|
588 |
|
|
|
662 |
|
|
|
667 |
|
|
Research and development
|
|
|
1,306 |
|
|
|
719 |
|
|
|
670 |
|
|
|
678 |
|
|
|
811 |
|
|
|
661 |
|
|
|
654 |
|
|
|
681 |
|
|
|
824 |
|
|
|
767 |
|
|
General and administrative
|
|
|
1,144 |
|
|
|
386 |
|
|
|
665 |
|
|
|
481 |
|
|
|
591 |
|
|
|
670 |
|
|
|
603 |
|
|
|
715 |
|
|
|
781 |
|
|
|
703 |
|
|
Amortization of intangible assets
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13 |
|
|
|
97 |
|
|
Restructuring
|
|
|
326 |
|
|
|
173 |
|
|
|
(19 |
) |
|
|
18 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,421 |
|
|
|
1,539 |
|
|
|
1,739 |
|
|
|
1,605 |
|
|
|
2,218 |
|
|
|
1,860 |
|
|
|
1,835 |
|
|
|
1,984 |
|
|
|
2,280 |
|
|
|
2,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(3,209 |
) |
|
|
(1,575 |
) |
|
|
(1,608 |
) |
|
|
(1,542 |
) |
|
|
(1,922 |
) |
|
|
(1,758 |
) |
|
|
(1,728 |
) |
|
|
(1,990 |
) |
|
|
(1,823 |
) |
|
|
(1,594 |
) |
Other income (expense), net
|
|
|
12 |
|
|
|
3,517 |
|
|
|
(138 |
) |
|
|
(290 |
) |
|
|
(14 |
) |
|
|
267 |
|
|
|
1 |
|
|
|
1 |
|
|
|
(30 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
(3,197 |
) |
|
|
1,942 |
|
|
|
(1,746 |
) |
|
|
(1,832 |
) |
|
|
(1,936 |
) |
|
|
(1,491 |
) |
|
|
(1,727 |
) |
|
|
(1,989 |
) |
|
|
(1,853 |
) |
|
|
(1,600 |
) |
Provision (benefit) for income taxes
|
|
|
2 |
|
|
|
(331 |
) |
|
|
(90 |
) |
|
|
(91 |
) |
|
|
(26 |
) |
|
|
(187 |
) |
|
|
2 |
|
|
|
130 |
|
|
|
36 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(3,199 |
) |
|
|
2,273 |
|
|
|
(1,656 |
) |
|
|
(1,741 |
) |
|
|
(1,910 |
) |
|
|
(1,304 |
) |
|
|
(1,729 |
) |
|
|
(2,119 |
) |
|
|
(1,889 |
) |
|
|
(1,600 |
) |
Deemed dividend related to beneficial conversion feature of
preferred stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(415 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ordinary shareholders
|
|
$ |
(3,199 |
) |
|
$ |
2,273 |
|
|
$ |
(1,656 |
) |
|
$ |
(1,741 |
) |
|
$ |
(1,910 |
) |
|
$ |
(1,304 |
) |
|
$ |
(1,729 |
) |
|
$ |
(2,119 |
) |
|
$ |
(1,889 |
) |
|
$ |
(2,015 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share — basic and diluted
|
|
$ |
(0.16 |
) |
|
$ |
0.11 |
|
|
$ |
(0.08 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and ordinary share equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
20,089 |
|
|
|
20,089 |
|
|
|
20,634 |
|
|
|
24,539 |
|
|
|
28,616 |
|
|
|
29,240 |
|
|
|
29,384 |
|
|
|
33,495 |
|
|
|
39,490 |
|
|
|
42,407 |
|
Diluted
|
|
|
20,089 |
|
|
|
20,347 |
|
|
|
20,634 |
|
|
|
24,539 |
|
|
|
28,616 |
|
|
|
29,240 |
|
|
|
29,384 |
|
|
|
33,495 |
|
|
|
39,490 |
|
|
|
42,407 |
|
F-32
MI4E DEVICE MANAGEMENT AB
BALANCE SHEETS AS OF MARCH 16, 2005 AND JUNE 30,
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 16, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
Swedish Krona | |
|
US Dollars* | |
|
Swedish Krona | |
|
|
| |
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
|
|
(Amounts in thousands) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
SEK |
2,053 |
|
|
$ |
303 |
|
|
SEK |
330 |
|
|
Accounts receivable
|
|
|
957 |
|
|
|
141 |
|
|
|
521 |
|
|
Unbilled revenue
|
|
|
75 |
|
|
|
11 |
|
|
|
127 |
|
|
Income tax receivable
|
|
|
33 |
|
|
|
5 |
|
|
|
12 |
|
|
Other receivables
|
|
|
78 |
|
|
|
12 |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,196 |
|
|
|
472 |
|
|
|
1,136 |
|
Property and equipment
|
|
|
170 |
|
|
|
25 |
|
|
|
206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
SEK |
3,366 |
|
|
$ |
497 |
|
|
SEK |
1,342 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
SEK |
556 |
|
|
$ |
81 |
|
|
SEK |
50 |
|
|
Accrued liabilities
|
|
|
166 |
|
|
|
25 |
|
|
|
146 |
|
|
Deferred revenue
|
|
|
1,493 |
|
|
|
221 |
|
|
|
— |
|
|
Related party liabilities
|
|
|
— |
|
|
|
— |
|
|
|
109 |
|
|
Current portion of long term liabilities to credit institutions
|
|
|
455 |
|
|
|
67 |
|
|
|
455 |
|
|
Other current liabilities
|
|
|
181 |
|
|
|
27 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,851 |
|
|
|
421 |
|
|
|
807 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities to credit institutions
|
|
|
275 |
|
|
|
41 |
|
|
|
449 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
100 |
|
|
|
15 |
|
|
|
100 |
|
|
Additional paid-in capital
|
|
|
409 |
|
|
|
60 |
|
|
|
— |
|
|
Accumulated deficit
|
|
|
(269 |
) |
|
|
(40 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
240 |
|
|
|
35 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
SEK |
3,366 |
|
|
$ |
497 |
|
|
SEK |
1,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Convenience translation at March 16, 2005 using exchange
rate of US$1.00 = 6.77 Swedish Krona. |
The accompanying notes are an integral part of these
consolidated financial statements.
F-33
MI4E DEVICE MANAGEMENT AB
STATEMENTS OF OPERATIONS FOR THE 8.5 MONTHS ENDED
MARCH 16, 2005
AND THE YEAR ENDED JUNE 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 16, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
Swedish Krona | |
|
US Dollars* | |
|
Swedish Krona | |
|
|
| |
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
|
|
(Amounts in thousands) | |
|
Net revenues
|
|
SEK |
3,616 |
|
|
$ |
534 |
|
|
SEK |
3,890 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,278 |
|
|
|
189 |
|
|
|
1,566 |
|
|
Research and development
|
|
|
1,314 |
|
|
|
194 |
|
|
|
1,248 |
|
|
General and administrative
|
|
|
1,235 |
|
|
|
182 |
|
|
|
1,035 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,827 |
|
|
|
565 |
|
|
|
3,849 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(211 |
) |
|
|
(31 |
) |
|
|
41 |
|
|
Interest (expense)
|
|
|
(44 |
) |
|
|
(7 |
) |
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
|
(255 |
) |
|
|
(38 |
) |
|
|
(14 |
) |
|
Income taxes
|
|
|
4 |
|
|
|
1 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
SEK |
(251 |
) |
|
$ |
(37 |
) |
|
SEK |
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
* |
Convenience translation at March 16, 2005 using exchange
rate of US$1.00 = 6.77 Swedish Krona. |
The accompanying notes are an integral part of these
consolidated financial statements.
F-34
MI4E DEVICE MANAGEMENT AB
STATEMENTS OF CASH FLOW FOR THE 8.5 MONTHS ENDED
MARCH 16, 2005
AND THE YEAR ENDED JUNE 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 16, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
Swedish Krona | |
|
US Dollars* | |
|
Swedish Krona | |
|
|
| |
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
|
|
(Amounts in thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
SEK |
(251 |
) |
|
$ |
(37 |
) |
|
SEK |
(18 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
36 |
|
|
|
6 |
|
|
|
52 |
|
|
Expenses having no cash flow effect**
|
|
|
— |
|
|
|
— |
|
|
|
109 |
|
|
Increase (decrease) in accrued interest liabilities***
|
|
|
(18 |
) |
|
|
(2 |
) |
|
|
20 |
|
|
Deferred income taxes
|
|
|
(4 |
) |
|
|
(1 |
) |
|
|
4 |
|
Net changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(436 |
) |
|
|
(64 |
) |
|
|
(521 |
) |
|
Unbilled revenue
|
|
|
52 |
|
|
|
8 |
|
|
|
(127 |
) |
|
Other receivable
|
|
|
47 |
|
|
|
7 |
|
|
|
(158 |
) |
|
Accounts payable
|
|
|
506 |
|
|
|
75 |
|
|
|
50 |
|
|
Other short-term liabilities
|
|
|
134 |
|
|
|
20 |
|
|
|
47 |
|
|
Accrued expenses
|
|
|
38 |
|
|
|
6 |
|
|
|
126 |
|
|
Deferred revenue
|
|
|
1,493 |
|
|
|
222 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
1,597 |
|
|
|
240 |
|
|
|
(416 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
— |
|
|
|
— |
|
|
|
(258 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
— |
|
|
|
— |
|
|
|
(258 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares
|
|
|
— |
|
|
|
— |
|
|
|
100 |
|
|
Capital contribution
|
|
|
300 |
|
|
|
44 |
|
|
|
— |
|
|
Proceeds from note payable
|
|
|
— |
|
|
|
— |
|
|
|
904 |
|
|
Repayment of note payable
|
|
|
(174 |
) |
|
|
(25 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
126 |
|
|
|
19 |
|
|
|
1,004 |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
1,723 |
|
|
|
259 |
|
|
|
330 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
330 |
|
|
|
44 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
SEK |
2,053 |
|
|
$ |
303 |
|
|
SEK |
330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Convenience translation at March 16, 2005 using exchange
rate of US$1.00 = 6.77 Swedish Krona. |
|
|
|
|
** |
Non-cash transactions: During the year ended June 30, 2004
the shareholders paid expenses on behalf of Mi4e in the amount
of SEK 109,000 with the intention that they would be repaid.
Because of Mi4e’s cash requirements such payment could not
be made and the debt was converted into additional paid-in
capital on March 16, 2005. |
|
|
*** |
Interest paid during the 8.5 month period ended
March 16, 2005 and the year ended June 30, 2004
amounted to SEK 62,000 and SEK 35,000, respectively.
Taxes paid during the 8.5 month period ended March 16,
2005 and the year ended June 30, 2004 amounted to
SEK 21,000 and SEK 12,000, respectively. |
The accompanying notes are an integral part of these
consolidated financial statements.
F-35
MI4E DEVICE MANAGEMENT AB
NOTES TO FINANCIAL STATEMENTS
|
|
Note 1 — |
Summary of Significant Accounting Policies: |
|
|
|
Convenience translation (unaudited) |
The company maintains its accounting records and prepares its
financial statements in Swedish Krona. The United States dollar
amounts disclosed in the accompanying financial statements are
presented solely for the convenience of the reader at the
March 16, 2005 rate of SEK 6.77 to the dollar. Such
translations should not be construed as representations that the
Swedish Krona amounts represent, or have been or could be
converted into, United States dollars at that or any other rate.
|
|
|
Organization and business |
Mi4e Device Management AB was registered on July 1, 2003
and commenced operations on September 9, 2003, at which
date the assets and liabilities of an unrelated bankruptcy
estate having operated under the name of Mi4e Global AB were
acquired. The Company currently develops, markets and supports
software technologies that enable mobile operators and phone
manufacturers to update the firmware of mobile devices using
standard over-the-air data networks.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
We consider all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Amounts
reported for cash and cash equivalents, receivables, accounts
payable and accrued liabilities are considered to approximate
fair value primarily due to their short maturities.
We primarily entered into license arrangements for the sale of
our products to OEMs and distributors. Service revenues were
derived from non-recurring engineering activities, from training
and from annual maintenance contracts.
Revenue from licenses is recognized when persuasive evidence of
an agreement exists, delivery of the product has occurred, the
fee is fixed or determinable, and collectibility is probable.
For contracts with multiple elements, and for which
vendor-specific objective evidence of fair value for the
undelivered elements exists, we recognize revenue for the
delivered elements using the residual method as prescribed by
Statement of Position (“SOP”) No 98-9,
“Modification of SOP No 97-2 with Respect to Certain
Transactions”. If vendor-specific objective evidence does
not exist for all undelivered elements, all revenue is deferred
until evidence exists, or all elements have been delivered.
Generally we have vendor-specific objective evidence of fair
value for the maintenance element of software arrangements based
on the renewal rates for maintenance in future years as
specified in the contracts. In such cases, we invoice the
maintenance revenue periodically in arrears and recognize it
ratably over the period during which the maintenance is
provided, which generally commences on the date the software is
delivered. Vendor-specific objective evidence of fair value for
the service element is determined based on the price charged
when those services are sold separately.
We do not grant return rights or price protection under license
agreements for our products.
F-36
MI4E DEVICE MANAGEMENT AB
NOTES TO FINANCIAL STATEMENTS — (Continued)
Property and equipment is recorded at the lesser of cost or fair
value, less accumulated depreciation and amortization.
Depreciation and amortization is provided using the
straight-line method over the estimated useful lives of five
years. When property and equipment is retired or otherwise
disposed of, the cost and accumulated depreciation are relieved
from the accounts and the net gain or loss is included in the
determination of income.
|
|
|
Foreign currency translation |
Our functional currency for our operations is the Swedish Krona.
We conduct most of our business in Euros and Swedish Krona. All
amounts included in the financial statements and in the notes
herein are in Swedish Krona. The exchange rate used between the
Euro and the Swedish Krona was 9.09 and 9.14 per Euro at
March 16, 2005 and June 30, 2004, respectively.
|
|
|
Software development costs |
We capitalize internal software development costs incurred after
technological feasibility has been demonstrated. We define
establishment of technological feasibility as the completion of
a working model. Such capitalized amounts are amortized
commencing with the introduction of that product at the greater
of the straight-line basis utilizing its estimated economic
life, generally six months to one year, or the ratio of actual
revenues achieved to the total anticipated revenues over the
life of the product. At March 16, 2005 and June 30,
2004 no software development costs were capitalized.
We expense the cost of research and development as incurred.
Research and development expenses consist primarily of personnel
costs, contractors, overhead costs relating to occupancy,
software support and maintenance and equipment depreciation.
We account for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of
events that have been recognized in our financial statements or
tax returns. In estimating future tax consequences, we generally
consider all expected future events other than enactments of
changes in the tax law or rates.
Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash, cash
equivalents and trade accounts receivable. We place our cash and
cash equivalents in bank accounts and certificates of deposit
with high credit quality financial institutions.
We sell our products primarily to mobile network operators,
original equipment manufacturers and distributors. We perform
ongoing credit evaluations of our customers’ financial
condition and generally require no collateral from our
customers. We maintain an allowance for uncollectible accounts
receivable based upon the expected collectibility of all
accounts receivable. At March 16, 2005 and June 30,
2004 our allowances for uncollectible accounts were
SEK 157,000 and SEK 0, respectively. At March 16, 2005
and June 30, 2004, two customers accounted for 89% and 96%
of our accounts receivables, respectively. For the
8.5 month period ended March 16, 2005 70% of our
revenues were from our four largest customers and the balance
was from a further six customers. For the year ended
June 30, 2004 75% of our revenues were from our three
largest customers and the balance was from a further six
customers.
F-37
MI4E DEVICE MANAGEMENT AB
NOTES TO FINANCIAL STATEMENTS — (Continued)
Statement of Financial Accounting Standards No. 130,
“Reporting Comprehensive Income”
(“SFAS 130”), requires that all items recognized
under accounting standards as components of comprehensive income
(loss), be reported in an annual statement that is displayed
with the same prominence as other annual financial statements.
SFAS 130 also requires that an entity classify items of
other comprehensive income (loss) by their nature in an annual
financial statement. Comprehensive income (loss), as defined,
includes all changes in equity during a period from non-owner
sources. The comprehensive loss is equal to the net loss for the
period presented.
|
|
Note 2 — |
Balance Sheet Detail: |
The following table provides details of major components of the
indicated balance sheet accounts:
|
|
|
|
|
|
|
|
|
|
|
|
March 16, | |
|
June 30, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Thousands of | |
|
|
Swedish Krona) | |
Property and Equipment, net:
|
|
|
|
|
|
|
|
|
|
Computers and other equipment
|
|
|
10 |
|
|
|
10 |
|
|
Furniture and fixtures
|
|
|
248 |
|
|
|
248 |
|
|
Less accumulated depreciation
|
|
|
(88 |
) |
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
170 |
|
|
|
206 |
|
|
|
|
|
|
|
|
Other receivables:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
12 |
|
|
|
13 |
|
|
Prepaid expenses
|
|
|
22 |
|
|
|
8 |
|
|
Value added tax
|
|
|
44 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
78 |
|
|
|
146 |
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
|
Accrued compensation
|
|
|
128 |
|
|
|
— |
|
|
Accrued social security expenses
|
|
|
— |
|
|
|
43 |
|
|
Accrued rent for premises
|
|
|
— |
|
|
|
60 |
|
|
Accrued professional services
|
|
|
20 |
|
|
|
20 |
|
|
Accrued interest on long-term liabilities
|
|
|
2 |
|
|
|
20 |
|
|
Other
|
|
|
16 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
166 |
|
|
|
146 |
|
|
|
|
|
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
|
Employee withholding taxes
|
|
|
— |
|
|
|
47 |
|
|
Other
|
|
|
181 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
181 |
|
|
|
47 |
|
|
|
|
|
|
|
|
For the 8.5 month period ended March 16, 2005 and the
year ended June 30, 2004, the company had no taxable income.
F-38
MI4E DEVICE MANAGEMENT AB
NOTES TO FINANCIAL STATEMENTS — (Continued)
Operating losses for the 8.5 months ended March 16,
2005 have resulted in a deferred tax receivable of
SEK 67,000. Because of the company’s situation a
valuation allowance has been made for the full amount of this
deferred tax asset. Accordingly as of March 16, 2005 the
net deferred tax asset is zero.
The company did not have any net operating loss carry forwards
as of June 30, 2004.
Deferred income tax applicable to temporary differences amounts
to SEK 4,000 as of June 30, 2004.
|
|
Note 4 — |
Shareholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares | |
|
|
|
|
|
Total | |
|
|
| |
|
Additional | |
|
Accumulated | |
|
Shareholders’ | |
|
|
Shares | |
|
Amount | |
|
Paid-In Capital | |
|
Deficit | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Issuance of shares
|
|
|
1,000 |
|
|
S |
EK100 |
|
|
|
|
|
|
|
|
|
|
SEK |
100 |
|
Net loss for the year ended June 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEK |
(18 |
) |
|
|
(18 |
) |
Net loss for the 8.5 month period ended March 16, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251 |
) |
|
|
(251 |
) |
Capital contribution
|
|
|
|
|
|
|
|
|
|
SEK |
409 |
|
|
|
|
|
|
|
409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 16, 2005
|
|
|
1,000 |
|
|
S |
EK100 |
|
|
SEK |
409 |
|
|
SEK |
(269 |
) |
|
SEK |
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5 — |
Stock Option Plans: |
As of March 16, 2005 and June 30, 2004, there were no
stock option plans.
|
|
Note 6 — |
Liabilities to credit institutions: |
The company has borrowings of SEK 192,000 from SE-Banken
and SEK 538,000 from ALMI Företagspartner AB as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, | |
|
Amortization | |
|
|
|
|
per Annum | |
|
per Annum | |
|
Security | |
|
|
| |
|
| |
|
| |
SE-Banken
|
|
|
6.75 |
% |
|
SEK |
100,000 |
|
|
|
Chattel mortgage, SEK 500,000 |
|
ALMI Företagspartner AB
|
|
|
9.25 |
% |
|
SEK |
215,000 |
|
|
|
Chattel mortgage, SEK 700,000 |
|
Accordingly, as of March 16, 2005 the loans will be repaid
as follows in the future periods and years ending June 30:
|
|
|
|
|
2005
|
|
|
SEK 230,000 |
|
2006
|
|
|
SEK 315,000 |
|
2007
|
|
|
SEK 185,000 |
|
|
|
|
|
|
|
|
SEK 730,000 |
|
|
|
|
|
In addition, the company has been granted a credit line of
SEK 200,000 by SE-Banken. The company has reclassified a
portion of the above borrowings to reflect amounts due within
one year.
As of March 16, 2005 and June 30, 2004, there were no
outstanding borrowings under this credit facility.
F-39
MI4E DEVICE MANAGEMENT AB
NOTES TO FINANCIAL STATEMENTS — (Continued)
|
|
Note 7 — |
Employee Benefit and Pension Plans: |
As of March 16, 2005 and June, 30, 2004, the company
did not have any employee benefit or pension plans.
|
|
Note 8 — |
Commitments and Contingencies: |
As of March 16, 2005 and June 30, 2004, the company
did not have any operating lease agreements and no outstanding
guarantee agreements.
|
|
Note 9 — |
Related Party Transactions: |
The company’s Chief Executive Officer, Anders Furehed and
its Chairman of the Board, Noël Mulkeen, each have granted
the company a loan of SEK 55,000. The loans were not
interest-bearing and were contributed to its capital of the
company on March 16, 2005.
|
|
Note 10 — |
Subsequent event: |
On March 16, 2005 all of the company’s shares were
acquired by Insignia Solutions plc.
F-40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Mi4e Device
Management AB:
In our opinion, the accompanying balance sheets and the related
operating statements and cash flow statements present fairly, in
all material respects, the financial position of Mi4e Device
Management AB at March 16, 2005 and June 30, 2004, and
the results of its operations and its cash flows for the eight
and a half months ended March 16, 2005 and for the year
ended June 30, 2004, the Company’s first year of
operations, in conformity with accounting principles generally
accepted in the United States of America. These financial
statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally
accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
|
|
|
/s/ Öhrlings PricewaterhouseCoopers AB |
Stockholm, Sweden
June 27, 2005
F-41
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Effective March 16, 2005, Insignia Solutions plc
(“Insignia”) acquired all of the outstanding shares of
Mi4e Device Management AB (“Mi4e”). The acquisition
was accounted for using the purchase method of accounting and
accordingly, the purchase price was allocated to the tangible
and intangible assets acquired and liabilities assumed on the
basis of their estimated fair market values on the acquisition
date.
The purchase price of approximately $3.0 million consisted
of 3,959,588 shares with a value of approximately
$2,749,000 and acquisition costs of approximately $267,000.
The following unaudited pro forma combined condensed
consolidated statements of operations are derived from the
historical consolidated financial statements of Insignia and
Mi4e. The unaudited pro forma combined condensed consolidated
statements of operations for the year ended December 31,
2004 and the six months ended June 30, 2005 give effect to
the acquisition of Mi4e as if it occurred on January 1,
2004. For purposes of the unaudited pro forma combined condensed
consolidated statement of operations for the year ended
December 31, 2004, Insignia’s results of operations
have been combined with Mi4e’s results of operations for
such respective period as calculated by adding the results of
operations of Mi4e for the six month period ended
December 31, 2004 to the year ended June 30, 2004 and
subtracting the six month period ended December 31, 2003.
For the purposes of the unaudited pro forma combined condensed
consolidated statement of operations for the six months ended
June 30, 2005, Insignia’s results of operations,
including the operating results of Mi4e since March 17,
2005, have been combined with Mi4e’s results of operations
for the period from January 1, 2005 to March 16, 2005.
The unaudited pro forma combined condensed consolidated
financial statements presented are based on the assumptions and
adjustments described in the accompanying notes. The unaudited
pro forma combined condensed consolidated statements of
operations do not purport to represent what Insignia’s
results of operations would have been or would be if the
transaction that gave rise to the pro forma adjustments had
occurred on the date assumed and are not necessarily indicative
of future results. The unaudited pro forma combined condensed
consolidated financial statements should be read in conjunction
with the historical consolidated financial statements and
related notes of Mi4e included elsewhere herein.
P-1
INSIGNIA SOLUTIONS PLC
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma | |
|
|
|
|
|
|
|
|
Adjustment | |
|
Pro Forma | |
|
|
Insignia | |
|
Mi4e | |
|
(Note 2) | |
|
Combined | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Net revenues
|
|
$ |
541 |
|
|
$ |
646 |
|
|
$ |
— |
|
|
$ |
1,187 |
|
Cost of net revenues
|
|
|
42 |
|
|
|
— |
|
|
|
— |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
499 |
|
|
|
646 |
|
|
|
— |
|
|
|
1,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
2,511 |
|
|
|
192 |
|
|
|
— |
|
|
|
2,703 |
|
|
Research and development
|
|
|
2,807 |
|
|
|
274 |
|
|
|
— |
|
|
|
3,081 |
|
|
General and administrative
|
|
|
2,579 |
|
|
|
236 |
|
|
|
— |
|
|
|
2,815 |
|
|
Amortization of intangible assets
|
|
|
— |
|
|
|
— |
|
|
|
390 |
|
|
|
390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,897 |
|
|
|
702 |
|
|
|
390 |
|
|
|
8,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(7,398 |
) |
|
|
(56 |
) |
|
|
(390 |
) |
|
|
(7,844 |
) |
|
Interest income (expense), net
|
|
|
6 |
|
|
|
(11 |
) |
|
|
— |
|
|
|
(5 |
) |
|
Other income (expense), net
|
|
|
249 |
|
|
|
— |
|
|
|
— |
|
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(7,143 |
) |
|
|
(67 |
) |
|
|
(390 |
) |
|
|
(7,600 |
) |
|
Income tax benefit
|
|
|
(81 |
) |
|
|
— |
|
|
|
— |
|
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(7,062 |
) |
|
$ |
(67 |
) |
|
$ |
(390 |
) |
|
$ |
(7,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
$ |
(0.22 |
) |
Weighted average shares and ordinary share equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
30,191 |
|
|
|
|
|
|
|
|
|
|
|
34,151 |
|
P-2
INSIGNIA SOLUTIONS PLC
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma | |
|
|
|
|
|
|
|
|
Adjustment | |
|
Pro Forma | |
|
|
Insignia | |
|
Mi4e | |
|
(Note 2) | |
|
Combined | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Net revenues
|
|
$ |
1,196 |
|
|
$ |
136 |
|
|
$ |
— |
|
|
$ |
1,332 |
|
Cost of net revenues
|
|
|
99 |
|
|
|
— |
|
|
|
— |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,097 |
|
|
|
136 |
|
|
|
— |
|
|
|
1,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,329 |
|
|
|
103 |
|
|
|
— |
|
|
|
1,432 |
|
|
Research and development
|
|
|
1,591 |
|
|
|
54 |
|
|
|
— |
|
|
|
1,645 |
|
|
General and administrative
|
|
|
1,484 |
|
|
|
114 |
|
|
|
— |
|
|
|
1,598 |
|
|
Amortization of intangible assets
|
|
|
110 |
|
|
|
— |
|
|
|
85 |
|
|
|
195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,514 |
|
|
|
271 |
|
|
|
85 |
|
|
|
4,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,417 |
) |
|
|
(135 |
) |
|
|
(85 |
) |
|
|
(3,637 |
) |
|
Interest income (expense), net
|
|
|
(42 |
) |
|
|
(3 |
) |
|
|
— |
|
|
|
(45 |
) |
|
Other income (expense), net
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(3,453 |
) |
|
|
(138 |
) |
|
|
(85 |
) |
|
|
(3,676 |
) |
|
Income tax provision
|
|
|
36 |
|
|
|
— |
|
|
|
— |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,489 |
) |
|
|
(138 |
) |
|
|
(85 |
) |
|
|
(3,712 |
) |
Deemed dividend related to beneficial conversion feature of
preferred stock
|
|
|
(415 |
) |
|
|
— |
|
|
|
— |
|
|
|
(415 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ordinary shareholders
|
|
$ |
(3,904 |
) |
|
$ |
(138 |
) |
|
$ |
(85 |
) |
|
$ |
(4,127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(0.10 |
) |
|
|
|
|
|
|
|
|
|
$ |
(0.10 |
) |
Weighted average shares and ordinary share equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
40,956 |
|
|
|
|
|
|
|
|
|
|
|
41,613 |
|
P-3
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS
|
|
1. |
SUMMARY OF TRANSACTION |
The purchase price of approximately $3.0 million consisted
of 3,959,588 ordinary shares with a value of approximately
$2,749,000 and acquisition costs of approximately $267,000. The
consideration paid in the transaction was 2,969,692 American
depositary shares (“ADSs”) representing ordinary
shares, and another 989,896 ADSs issuable on March 31,
2006, subject to potential offset for breach of representations,
warranties and covenants. The fair value of Insignia’s
ordinary notes was determined using an average value of
$0.6943 per share, which was the average closing price of
the Company’s ordinary shares three days before and after
the measurement date of February 10, 2005. In addition, up
to a maximum of 700,000 euros is payable in a potential earn-out
based on a percentage of future revenue collected from sales of
existing Mi4e products. Any earn-out amounts paid by Insignia to
Mi4e’s shareholders will be recorded as additional purchase
price and an increase to goodwill. Insignia allocated the
initial purchase price to the tangible net assets and intangible
assets acquired and liabilities assumed, based on their
estimated fair values. Under the purchase method of accounting,
the initial purchase price does not include the contingent
earn-out amount described above.
The initial purchase price is allocated as follows (in
thousands):
|
|
|
|
|
Allocation of Purchase Price: |
|
|
|
|
|
Tangible assets acquired
|
|
$ |
497 |
|
Liabilities assumed
|
|
|
(275 |
) |
Goodwill(a)
|
|
|
394 |
|
Customer relationships(b)
|
|
|
900 |
|
Technology(c)
|
|
|
1,500 |
|
|
|
|
|
Total purchase price
|
|
$ |
3,016 |
|
|
|
|
|
|
|
|
(a) |
|
Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired and liabilities assumed
and will be periodically reviewed for impairment. |
|
(b) |
|
Customer relationships will be amortized over 10 years, the
period of time Insignia estimates it will benefit from the
acquired customer relationships. |
|
(c) |
|
Technology will be amortized over 5 years, the period of
time Insignia estimates it will benefit from the technology
acquired. |
To record the amortization of intangible assets as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Six Months Ended | |
|
|
December 31, 2004 | |
|
June 30, 2005 | |
|
|
| |
|
| |
Customer relationships
|
|
$ |
90 |
|
|
$ |
45 |
|
Technology
|
|
|
300 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
390 |
|
|
|
195 |
|
Less amount recorded in post-acquisition period
|
|
|
— |
|
|
|
(110 |
) |
|
|
|
|
|
|
|
Pro forma adjustment
|
|
$ |
390 |
|
|
$ |
85 |
|
|
|
|
|
|
|
|
|
|
3. |
UNAUDITED PRO FORMA COMBINED NET LOSS PER SHARE |
The unaudited pro forma basic and diluted combined net loss per
share is based on the historical weighted average number of
shares of Insignia ordinary shares outstanding during the period
plus the number of shares issued in connection with the
acquisition. Shares used in computing diluted combined net loss
per share exclude ordinary share equivalents as their inclusion
would be anti-dilutive due to the net loss incurred.
P-4
No
dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the
shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in the prospectus is current only as of its date.
TABLE OF CONTENTS
40,028,530 AMERICAN
DEPOSITORY SHARES
EACH REPRESENTING
ONE ORDINARY SHARE OF
20 PENCE NOMINAL VALUE
PROSPECTUS
,
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
Item 24. |
Indemnification of Directors and Officers |
Insignia’s Articles of Association contain a provision to
the effect that, so far as permitted by the statutory provisions
of English law, Insignia shall indemnify the directors and
secretary against liabilities incurred by them in relation to
the affairs of Insignia. However, the Companies Act 1985 makes
this indemnity ineffective to the extent it applies to such
director’s or secretary’s neglect, default, breach of
duty or breach of trust in relation to Insignia, except to the
extent that it is a qualifying third party indemnity provision
within the meaning of the Companies Act 1985.
Insignia’s policy is to enter into indemnity agreements
with each of its directors and executive officers. In addition,
Insignia Solutions, Inc., a Delaware corporation and a wholly
owned subsidiary of Insignia, enters into indemnity agreements
with each of Insignia’s directors and executive officers.
The indemnity agreements provide that directors and executive
officers will be indemnified and held harmless to the fullest
possible extent permitted by law, including against all expenses
and attorneys’ fees, judgments, fines and settlement
amounts paid or reasonably incurred by them in any action, suit
or proceeding, including any derivative action by or in the
right of Insignia, on account of their services as directors,
officers, employees or agents of Insignia or as directors,
officers, employees or agents of any other company or enterprise
when they are serving in their capacities at the request of
Insignia. Neither Insignia nor Insignia Solutions, Inc. will be
obligated pursuant to the agreements to indemnify or advance
expenses to an indemnified party with respect to proceedings or
claims:
|
|
|
|
• |
initiated by the indemnified party and not by way of defense,
except with respect to a proceeding authorized by the Board of
Directors and successful proceedings brought to enforce a right
to indemnification under the indemnity agreements; |
|
|
• |
for any amounts paid in settlement of a proceeding unless
Insignia consents to the settlement; |
|
|
• |
on account of any suit in which judgment is rendered against the
indemnified party for an accounting of profits made from the
purchase or sale by the indemnified party of securities of
Insignia under section 16(b) of the Exchange Act and
related laws; on account of conduct by an indemnified party that
is finally adjudged to have been in bad faith or conduct that
the indemnified party did not reasonably believe to be in, or
not opposed to, the best interests of Insignia; |
|
|
• |
on account of any criminal action or proceeding arising out of
conduct that the indemnified party has reasonable cause to
believe was unlawful; or |
|
|
• |
if a final decision by a court having jurisdiction in the matter
shall determine that indemnification is not lawful. |
The indemnity agreements are not exclusive of any rights a
director or executive officer may have under the Articles of
Association, other agreements, any majority-in-interest vote of
the shareholders or vote of disinterested directors and
applicable law.
The indemnification provision in the Articles of Association,
and the indemnity agreements, may be sufficiently broad to
permit indemnification of Insignia’s directors and
executive officers for liabilities arising under the Securities
Act. In addition, Insignia has director and officer liability
insurance.
II-1
|
|
Item 25. |
Other Expenses of Issuance and Distribution |
The following table sets forth the costs and expenses, other
than underwriting discounts and commissions, payable by Insignia
in connection with the sale of common stock being registered.
All amounts are estimates except the SEC registration fee.
|
|
|
|
|
|
|
|
Amount to | |
|
|
be Paid | |
|
|
| |
SEC registration fee
|
|
$ |
1,617 |
(1) |
Printing and engraving expenses
|
|
|
30,000 |
|
Legal fees and expenses
|
|
|
100,000 |
|
Accounting fees and expenses
|
|
|
150,000 |
|
ADS Issuance costs
|
|
|
240,000 |
|
Stamp duty tax
|
|
|
77,000 |
|
|
|
|
|
|
Total
|
|
$ |
598,617 |
|
|
|
|
|
|
|
(1) |
Pursuant to Rule 457(p) under the Securities Act, the
registration fee of $2,026 is being offset by $409, representing
the dollar amount of the registration fee previously paid by the
Registrant under Registration Statement on Form S-3 (File
No. 333-121299) initially filed with the Securities and
Exchange Commission on December 15, 2004 with respect to
4,215,223 of the shares registered hereby. Accordingly, the
adjusted registration fee for this filing is $1,617. |
|
|
Item 26. |
Recent Sales of Unregistered Securities |
In September 2003, 1,613,465 ADSs were purchased under the
Fusion Capital 2002 securities subscription agreement resulting
in proceeds of $827,000 less offering expenses of $89,000. In
November 2003, Fusion Capital purchased 1,766,667 ADSs. We
received $1.3 million less offering expenses totaling
$114,000.
In November 2003, we issued a warrant to purchase up to 500,000
ADSs to a strategic partner. The warrant becomes exercisable
upon achievement of certain milestones and terminates on the
third anniversary of the final milestone. The exercise price is
$1.03 per share with respect to the first milestone, and
the average of $1.03 and the then-current market price with
respect to the other milestones. At December 31, 2004,
200,000 of the warrants were vested, exercisable, and were
recorded with a charge of $129,000 to expense and additional
paid-in capital in the first quarter of 2004. The warrant will
be valued as it vests and future charges will be recorded based
on the amount of the warrant that vests using the Black-Scholes
pricing model.
On January 5, 2004, we issued 2,262,500 ADSs at a price of
$0.80 to a total of 10 investors in a private placement exempt
from registration under Regulation S and Section 4(2)
of the Securities Act. We also issued warrants to
purchase 565,625 ADSs to the investors at an exercise price
of $1.04. The warrants are exercisable immediately and expire
January 5, 2009. We received $1.81 million less
offering expenses totaling approximately $0.2 million in
this transaction. We also issued warrants to
purchase 108,562 ADSs to the two principals of the
placement agent, half of which are exercisable at a price of
$1.09 per share and the other half at $0.92 per share.
These warrants are exercisable immediately and expire
January 5, 2009.
On October 18, 2004, Insignia closed two equity financing
transactions in which we raised over $2.3 million, net of
transaction costs. We closed a private placement financing with
certain institutional and other accredited investors pursuant to
which we issued and sold 3,208,499 newly issued ADSs and
warrants to purchase 802,127 ADSs, for a total purchase
price of approximately $1.5 million, or $1.3 million
net of transaction costs. The shares were priced at
$0.48 per share, and the warrants have an exercise price of
$1.06 per share. The warrants may be exercised any time
after the date that is six months after the closing of the
private placement until the earlier of April 18, 2010 or a
change of control of Insignia. Nash Fitzwilliams Ltd. served as
the private placement agent in the private placement. We issued
warrants to purchase an aggregate of 204,597 ADSs to the two
principals of Nash Fitzwilliams Ltd. as placement agent. The
warrants
II-2
issued to the Nash Fitzwilliams’ Ltd.’s principals
have the same exercise price and terms as the warrants issued to
the investors in the private placement. In July 2005, we issued
warrants to purchase 192,522 ADSs, at an exercise price of
$1.11 per share, to the investors in the October 18,
2004 private placement as a penalty because the registration
statement relating to the shares issued in this transaction had
not become effective. Additionally, in October 2004 under the
2002 Fusion securities subscription agreement, we sold to Fusion
Capital 2,500,000 ADSs at a purchase price of $0.40 per
share, resulting in proceeds of approximately $1.0 million,
net of transaction costs. As of October 18, 2004, we had
sold an aggregate of $3.152 million of Insignia’s ADSs
to Fusion Capital.
Two investors in the private placement on October 18, 2004
were related parties of Insignia. Mark McMillan, our Chief
Executive Officer, invested $25,000 to purchase 52,083 ADSs
and warrants to purchase 13,021 ADSs. In addition Vincent
Pino, one of our directors, and his immediate family invested
$200,000 to purchase 416,667 ADSs and warrants to
purchase 104,167 ADSs.
On February 8, 2005, Insignia sold 3,220,801 ADSs for
$1.3 million pursuant to a private placement with Fusion
Capital.
On June 30, 2005 and July 5, 2005 we and our
wholly-owned subsidiary Insignia Solutions Inc. (the
“Subsidiary”) entered into Securities Subscription
Agreements with Fusion Capital and other investors (each, an
“Investor” and collectively, the
“Investors”). Pursuant to these subscription
agreements, Investors invested an aggregate of $1,000,000 on
June 30, 2005 (including exchange of the $275,000 bridge
notes), and we completed a second closing on July 5, 2005
for an additional $440,400. Pursuant to these subscription
agreements, the Subsidiary issued its Series A Preferred
Stock, no par value per share (the “Preferred Stock”)
to the Investors. The Preferred Stock is non-redeemable. The
shares of Preferred Stock (plus all accrued and unpaid dividends
thereon) held by each Investor are exchangeable for ADSs
(i) at any time at the election of such Investor,
(ii) automatically upon written notice by us to such
Investor in the event that the sale price of the ADSs on the
Nasdaq SmallCap Market is greater than $1.50 per share for
a period of ten consecutive trading days, and certain other
conditions are met, and (iii) automatically to the extent
any shares of the Preferred Stock have not been exchanged prior
to June 30, 2007. The Preferred Stock will accrue dividends
at a rate of 15% per year compounded annually, payable in
the form of additional ADSs. Including accruable dividends, the
shares of Preferred Stock issued on June 30, 2005, together
with the additional shares issued on July 5, 2005, will be
exchangeable for a total of 4,762,326 ADSs, representing an
initial purchase price of $0.40 per ADS. Pursuant to the
above subscription agreements, we also issued to the Investors
on June 30, 2005 and July 5, 2005, warrants to
purchase an aggregate of 3,601,000 ADSs at an exercise price per
share equal to the greater of $0.50 or the U.S. Dollar
equivalent of 20.5 U.K. pence. These warrants are immediately
exercisable and expire on June 30, 2010. We also entered
into registration rights agreements with the Investors pursuant
to which we agreed to file a registration statement with the
Securities and Exchange Commission covering the resale of
(i) the ADSs issued to the Investors upon exchange of the
Preferred Stock under their subscription agreements and
(ii) the ADSs issuable upon exercise of their warrants.
|
|
Item 27. |
Exhibits and Financial Statement Schedules |
(a) Exhibits.
The following exhibits are filed as part of this Report:
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Title |
|
|
|
|
3 |
.02(1) |
|
Registrant’s Articles of Association. |
|
|
3 |
.04(1) |
|
Registrant’s Memorandum of Association. |
|
|
4 |
.01(1) |
|
Form of Specimen Certificate for Registrant’s Ordinary
Shares. |
|
|
4 |
.02(2) |
|
Deposit Agreement between Registrant and The Bank of New York. |
|
|
4 |
.03(2) |
|
Form of American Depositary Receipt (included in
Exhibit 4.02). |
|
|
4 |
.04(3) |
|
American Depositary Shares Purchase Agreement dated
January 5, 2004. |
|
|
4 |
.05(3) |
|
Registration Rights Agreement dated January 5, 2004. |
II-3
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Title |
|
|
|
|
|
4 |
.06(3) |
|
Form of Warrant to Purchase American Depositary Shares dated
January 5, 2004 and issued to the purchasers of American
Depositary Shares. |
|
|
4 |
.07(3) |
|
Form of Warrant to Purchase American Depositary Shares dated
January 5, 2004 and issued to the principals of Nash
Fitzwilliams, Ltd., as placement agent. |
|
|
5 |
.01 |
|
Opinion of Macfarlanes. |
|
|
10 |
.01(1) |
|
Registrant’s 1986 Executive Share Option Scheme, as
amended, and related documents. |
|
|
10 |
.02(1) |
|
Registrant’s 1988 U.S. Stock Option Plan, as amended,
and related documents. |
|
|
10 |
.03(5) |
|
Registrant’s 1995 Incentive Stock Option Plan for
U.S. Employees and related documents, as amended. |
|
|
10 |
.05(1) |
|
Insignia Solutions Inc. 401(k) Plan. |
|
|
10 |
.06(1) |
|
Registrant’s Small Self-Administered Pension Plan
Definitive Deed and Rules. |
|
|
10 |
.14(1) |
|
Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers such
obligations are immediately accelerated, with no required
notice, if the default results from the dissolution, winding up
or liquidation of Hartford Life. |
|
|
10 |
.28(6) |
|
Registrant’s U.K. Employee Share Option Scheme 1996, as
amended. |
|
|
10 |
.34(4) |
|
Consulting Agreement effective April 1, 1997 between
Registrant and Nicholas, Viscount Bearsted. |
|
|
10 |
.38(7) |
|
Lease Agreement between Insignia Solutions, Inc. and
Lincoln-Whitehall Pacific, LLC, dated December 22, 1997. |
|
|
10 |
.42(5) |
|
Registrant’s 1995 Employee Share Purchase Plan, as amended. |
|
|
10 |
.44(8) |
|
Lease agreement between Registrant and Comland Industrial and
Commercial Properties Limited dated August 12th, 1998 for
the Apollo House premises and the Saturn House premises. |
|
|
10 |
.62(9) |
|
Warrant Agreement, dated as of November 24, 2000, between
Registrant and Jefferies & Company, Inc. |
|
|
10 |
.63(10) |
|
Form of ADSs Purchase Warrant issued November 24, 2000. |
|
|
10 |
.64(11) |
|
ADSs Purchase Warrant issued to Jefferies & Company,
Inc., dated November 24, 2000. |
|
|
10 |
.67(12) |
|
Warrant Agreement, dated as of February 12, 2001, between
Registrant and Jefferies & Company, Inc. |
|
|
10 |
.68(13) |
|
Form of ADSs Purchase Warrant issued February 12, 2001. |
|
10 |
.69(14) |
|
ADSs Purchase Warrant issued to Jefferies & Company,
Inc., dated February 12, 2001. |
|
|
10 |
.85(15) |
|
Warrant Agreement between the Registrant and International
Business Machines Corporation dated November 24, 2003.** |
|
|
10 |
.87(16) |
|
American Depositary Shares Purchase Agreement between the
Registrant and the Purchasers, as defined therein, dated
October 18, 2004 (the “October 2004 ADS Purchase
Agreement”). |
|
|
10 |
.88(16) |
|
Form of Warrant issued to Purchasers, as defined in the October
2004 ADS Purchase Agreement. |
|
|
10 |
.89(16) |
|
Registration Rights Agreement between the Registrant and the
Purchasers, as defined in the October 2004 ADS Purchase
Agreement, dated October 18, 2004. |
|
|
10 |
.90(17) |
|
Stock Purchase and Sale Agreement dated February 9, 2005
between, among others, the Registrant, Kenora Ltd and the
Sellers (as defined therein). |
|
|
10 |
.91(18) |
|
Securities Subscription Agreement by and between the Registrant
and Fusion Capital II, LLC dated February 10, 2005. |
|
|
10 |
.92(18) |
|
Registration Rights Agreement by and between the Registrant and
Fusion Capital II, LLC dated February 10, 2005. |
|
|
10 |
.93(18) |
|
Warrant, dated as of February 10, 2005, by and between the
Registrant and Fusion Capital II, LLC. |
II-4
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Title |
|
|
|
|
|
10 |
.94(18) |
|
Warrant, dated as of February 10, 2005, by and between the
Registrant and Fusion Capital II, LLC. |
|
|
10 |
.96(19) |
|
Termination and Waiver Agreement dated June 30, 2004
between the Registrant and Esmertec A.G. |
|
|
10 |
.97(20) |
|
Registration Rights Agreement, dated March 16, 2005,
between the Registrant, Noel Mulkeen and Anders Furehed. |
|
|
10 |
.98(21) |
|
Agreement, dated May 17, 2005, amending the Securities
Subscription Agreement by and between the Registrant and Fusion
Capital II, LLC dated February 10, 2005 and related
warrants. |
|
|
10 |
.99(22) |
|
Form of Securities Subscription Agreement, dated as of
June 30, 2005, by and among the Registrant, Insignia
Solutions Inc. and the investors in the closings of the private
placement that took place on June 30, 2005 and July 5,
2005 (the “June/ July 2005 Private Placement”). |
|
|
10 |
.100(23) |
|
Form of Warrant, dated as of June 30, 2005, issued by the
Registrant to each of the investors in the June/July 2005
Private Placement. |
|
|
10 |
.101(24) |
|
Form of Registration Rights Agreement, dated as of June 30,
2005, by and between the Registrant and each of the investors in
the June/July 2005 Private Placement. |
|
|
10 |
.102(25) |
|
Agreement, dated June 30, 2005, amending the Securities
Subscription Agreement by and between the Registrant and Fusion
Capital Fund II, LLC dated February 10, 2005. |
|
|
10 |
.103(26) |
|
Agreement, dated August 31, 2005, amending the Securities
Subscription Agreement by and between the Registrant and Fusion
Capital Fund II, LLC dated February 10, 2005. |
|
|
21 |
.01(27) |
|
List of Registrant’s subsidiaries. |
|
|
23 |
.01 |
|
Consent of Burr, Pilger & Mayer LLP, Independent
Registered Public Accounting Firm. |
|
|
23 |
.02 |
|
Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm. |
|
|
23 |
.03 |
|
Consent of Öhrlings PricewaterhouseCoopers AB, Independent
Accountants. |
|
23 |
.04 |
|
Consent of Macfarlanes (included in Exhibit 5.01). |
|
|
24 |
.01 |
|
Power of Attorney (included on signature page). |
|
|
|
|
** |
Confidential treatment has been granted with respect to certain
portions of this agreement. Such portions were omitted from this
filing and filed separately with the Securities and Exchange
Commission. |
|
|
(1) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Registration Statement on Form F-1 (File
No. 33-98230) declared effective by the Commission on
November 13, 1995. |
|
(2) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Annual Report on Form 10-K for the year
ended December 31, 1995. |
|
(3) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Registration Statement on Form S-3 (File
No. 333-112607) filed on February 9, 2004. |
|
(4) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Annual Report on Form 10-K for the year
ended December 31, 1997. |
|
(5) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004. |
|
(6) |
Incorporated by reference to Exhibit 4.05 from
Registrant’s Registration Statement on Form S-8 (File
No. 333-51760) filed on December 13, 2000. |
|
|
|
|
(7) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998. |
|
|
(8) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Annual Report on Form 10-K for the year
ended December 31, 1998. |
II-5
|
|
(9) |
Incorporated by reference to Exhibit 10.53 from
Registrant’s Current Report on Form 8-K filed on
November 29, 2000. |
|
|
(10) |
Incorporated by reference to Exhibit 4.11 from
Registrant’s Current Report on Form 8-K filed on
November 29, 2000. |
|
(11) |
Incorporated by reference to Exhibit 4.12 from
Registrant’s Current Report on Form 8-K filed on
November 29, 2000. |
|
(12) |
Incorporated by reference to Exhibit 10.55 from
Registrant’s Current Report on Form 8-K filed on
February 15, 2001. |
|
(13) |
Incorporated by reference to Exhibit 4.13 from
Registrant’s Current Report on Form 8-K filed on
February 15, 2001. |
|
(14) |
Incorporated by reference to Exhibit 4.14 from
Registrant’s Current Report on Form 8-K filed on
February 15, 2001. |
|
(15) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2003. |
|
(16) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Current Report on Form 8-K filed on
October 22, 2004. |
|
(17) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Current Report on Form 8-K filed on
February 10, 2005 (Items 1.01 and 9.01). |
|
(18) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Current Report on Form 8-K filed on
February 10, 2005 (Items 1.01, 1.02 and 9.01). |
|
(19) |
Incorporated by reference to Exhibit 10.87 from
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004. |
|
(20) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Current Report on Form 8-K filed on
March 22, 2005, as amended on July 1, 2005. |
|
(21) |
Incorporated by reference to Exhibit 10.97 from
Registrant’s Current Report on Form 8-K filed on
May 20, 2005. |
|
(22) |
Incorporated by reference to Exhibit 10.01 from
Registrant’s Current Report on Form 8-K filed on
July 7, 2005. |
|
(23) |
Incorporated by reference to Exhibit 10.02 from
Registrant’s Current Report on Form 8-K filed on
July 7, 2005. |
|
(24) |
Incorporated by reference to Exhibit 10.03 from
Registrant’s Current Report on Form 8-K filed on
July 7, 2005. |
|
(25) |
Incorporated by reference to Exhibit 10.04 from
Registrant’s Current Report on Form 8-K filed on
July 7, 2005. |
|
(26) |
Incorporated by reference to Exhibit 10.01 from
Registrant’s Current Report on Form 8-K filed on
September 7, 2005. |
|
(27) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Annual Report on Form 10-K filed on
March 30, 2005. |
(b) Financial Statement Schedules.
All schedules have been omitted because they are either
inapplicable or the required information has been provided in
the consolidated financial statements or notes thereto.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the
event
II-6
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid
by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
|
|
|
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of
the time it was declared effective. |
|
|
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof. |
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned in the
city of Fremont, State of California on October 13, 2005.
|
|
|
|
|
Mark E. McMillan |
|
Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Mark E.
McMillan as his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign
any or all amendments to this Registration Statement of Insignia
Solutions plc, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities
and Exchange Commission, grant unto said attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about
the foregoing, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by
the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Capacity |
|
Date |
|
|
|
|
|
|
/s/ MARK E. MCMILLAN
Mark
E. Mcmillan |
|
Chief Executive Officer, President, and a Director (Principal
Executive Officer) |
|
October 13, 2005 |
|
*
Richard
M. Noling |
|
Interim Chief Financial Officer and a Director (Principal
Financial Officer and Principal Accounting Officer) |
|
October 13, 2005 |
|
Additional Directors: |
|
*
Nicholas,
Viscount Bearsted |
|
Director |
|
October 13, 2005 |
|
*
Vincent
S. Pino |
|
Director |
|
October 13, 2005 |
|
*
David
G. Frodsham |
|
Director |
|
October 13, 2005 |
|
*By: |
|
/s/ Mark E. McMillan
Mark
E. McMillan |
|
Attorney-in-Fact |
|
October 13, 2005 |
II-8
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Title |
|
|
|
|
3 |
.02(1) |
|
Registrant’s Articles of Association. |
|
|
3 |
.04(1) |
|
Registrant’s Memorandum of Association. |
|
|
4 |
.01(1) |
|
Form of Specimen Certificate for Registrant’s Ordinary
Shares. |
|
|
4 |
.02(2) |
|
Deposit Agreement between Registrant and The Bank of New York. |
|
|
4 |
.03(2) |
|
Form of American Depositary Receipt (included in
Exhibit 4.02). |
|
|
4 |
.04(3) |
|
American Depositary Shares Purchase Agreement dated
January 5, 2004. |
|
|
4 |
.05(3) |
|
Registration Rights Agreement dated January 5, 2004. |
|
|
4 |
.06(3) |
|
Form of Warrant to Purchase American Depositary Shares dated
January 5, 2004 and issued to the purchasers of American
Depositary Shares. |
|
|
4 |
.07(3) |
|
Form of Warrant to Purchase American Depositary Shares dated
January 5, 2004 and issued to the principals of Nash
Fitzwilliams, Ltd., as placement agent. |
|
|
5 |
.01 |
|
Opinion of Macfarlanes. |
|
|
10 |
.01(1) |
|
Registrant’s 1986 Executive Share Option Scheme, as
amended, and related documents. |
|
|
10 |
.02(1) |
|
Registrant’s 1988 U.S. Stock Option Plan, as amended,
and related documents. |
|
|
10 |
.03(5) |
|
Registrant’s 1995 Incentive Stock Option Plan for
U.S. Employees and related documents, as amended. |
|
|
10 |
.05(1) |
|
Insignia Solutions Inc. 401(k) Plan. |
|
|
10 |
.06(1) |
|
Registrant’s Small Self-Administered Pension Plan
Definitive Deed and Rules. |
|
|
10 |
.14(1) |
|
Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers such
obligations are immediately accelerated, with no required
notice, if the default results from the dissolution, winding up
or liquidation of Hartford Life. |
|
|
10 |
.28(6) |
|
Registrant’s U.K. Employee Share Option Scheme 1996, as
amended. |
|
|
10 |
.34(4) |
|
Consulting Agreement effective April 1, 1997 between
Registrant and Nicholas, Viscount Bearsted. |
|
|
10 |
.38(7) |
|
Lease Agreement between Insignia Solutions, Inc. and
Lincoln-Whitehall Pacific, LLC, dated December 22, 1997. |
|
|
10 |
.42(5) |
|
Registrant’s 1995 Employee Share Purchase Plan, as amended. |
|
|
10 |
.44(8) |
|
Lease agreement between Registrant and Comland Industrial and
Commercial Properties Limited dated August 12th, 1998 for
the Apollo House premises and the Saturn House premises. |
|
|
10 |
.62(9) |
|
Warrant Agreement, dated as of November 24, 2000, between
Registrant and Jefferies & Company, Inc. |
|
|
10 |
.63(10) |
|
Form of ADSs Purchase Warrant issued November 24, 2000. |
|
|
10 |
.64(11) |
|
ADSs Purchase Warrant issued to Jefferies & Company,
Inc., dated November 24, 2000. |
|
|
10 |
.67(12) |
|
Warrant Agreement, dated as of February 12, 2001, between
Registrant and Jefferies & Company, Inc. |
|
|
10 |
.68(13) |
|
Form of ADSs Purchase Warrant issued February 12, 2001. |
|
|
10 |
.69(14) |
|
ADSs Purchase Warrant issued to Jefferies & Company,
Inc., dated February 12, 2001. |
|
|
10 |
.85(15) |
|
Warrant Agreement between the Registrant and International
Business Machines Corporation dated November 24, 2003.** |
|
|
10 |
.87(16) |
|
American Depositary Shares Purchase Agreement between the
Registrant and the Purchasers, as defined therein, dated
October 18, 2004 (the “October 2004 ADS Purchase
Agreement”). |
|
|
10 |
.88(16) |
|
Form of Warrant issued to Purchasers, as defined in the October
2004 ADS Purchase Agreement. |
|
|
10 |
.89(16) |
|
Registration Rights Agreement between the Registrant and the
Purchasers, as defined in the October 2004 ADS Purchase
Agreement, dated October 18, 2004. |
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Title |
|
|
|
|
|
10 |
.90(17) |
|
Stock Purchase and Sale Agreement dated February 9, 2005
between, among others, the Registrant, Kenora Ltd and the
Sellers (as defined therein). |
|
|
10 |
.91(18) |
|
Securities Subscription Agreement by and between the Registrant
and Fusion Capital II, LLC dated February 10, 2005. |
|
|
10 |
.92(18) |
|
Registration Rights Agreement by and between the Registrant and
Fusion Capital II, LLC dated February 10, 2005. |
|
|
10 |
.93(18) |
|
Warrant, dated as of February 10, 2005, by and between the
Registrant and Fusion Capital II, LLC. |
|
|
10 |
.94(18) |
|
Warrant, dated as of February 10, 2005, by and between the
Registrant and Fusion Capital II, LLC. |
|
|
10 |
.96(19) |
|
Termination and Waiver Agreement dated June 30, 2004
between the Registrant and Esmertec A.G. |
|
|
10 |
.97(20) |
|
Registration Rights Agreement, dated March 16, 2005,
between the Registrant, Noel Mulkeen and Anders Furehed. |
|
|
10 |
.98(21) |
|
Agreement, dated May 17, 2005, amending the Securities
Subscription Agreement by and between the Registrant and Fusion
Capital II, LLC dated February 10, 2005 and related
warrants. |
|
|
10 |
.99(22) |
|
Form of Securities Subscription Agreement, dated as of
June 30, 2005, by and among the Registrant, Insignia
Solutions Inc. and the investors in the closings of the private
placement that took place on June 30, 2005 and July 5,
2005 (the “June/ July 2005 Private Placement”). |
|
|
10 |
.100(23) |
|
Form of Warrant, dated as of June 30, 2005, issued by the
Registrant to each of the investors in the June/July 2005
Private Placement. |
|
|
10 |
.101(24) |
|
Form of Registration Rights Agreement, dated as of June 30,
2005, by and between the Registrant and each of the investors in
the June/July 2005 Private Placement. |
|
|
10 |
.102(25) |
|
Agreement, dated June 30, 2005, amending the Securities
Subscription Agreement by and between the Registrant and Fusion
Capital Fund II, LLC dated February 10, 2005. |
|
|
10 |
.103(26) |
|
Agreement, dated August 31, 2005, amending the Securities
Subscription Agreement by and between the Registrant and Fusion
Capital Fund II, LLC dated February 10, 2005. |
|
|
21 |
.01(27) |
|
List of Registrant’s subsidiaries. |
|
|
23 |
.01 |
|
Consent of Burr, Pilger & Mayer LLP, Independent
Registered Public Accounting Firm. |
|
|
23 |
.02 |
|
Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm. |
|
|
23 |
.03 |
|
Consent of Öhrlings PricewaterhouseCoopers AB, Independent
Accountants. |
|
23 |
.04 |
|
Consent of Macfarlanes (included in Exhibit 5.01). |
|
|
24 |
.01 |
|
Power of Attorney (included on signature page). |
|
|
|
|
** |
Confidential treatment has been granted with respect to certain
portions of this agreement. Such portions were omitted from this
filing and filed separately with the Securities and Exchange
Commission. |
|
|
|
|
(1) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Registration Statement on Form F-1 (File
No. 33-98230) declared effective by the Commission on
November 13, 1995. |
|
|
(2) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Annual Report on Form 10-K for the year
ended December 31, 1995. |
|
|
(3) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Registration Statement on Form S-3 (File
No. 333-112607) filed on February 9, 2004. |
|
|
(4) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Annual Report on Form 10-K for the year
ended December 31, 1997. |
|
|
(5) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004. |
|
|
(6) |
Incorporated by reference to Exhibit 4.05 from
Registrant’s Registration Statement on Form S-8 (File
No. 333-51760) filed on December 13, 2000. |
|
|
|
|
(7) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998. |
|
|
(8) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Annual Report on Form 10-K for the year
ended December 31, 1998. |
|
|
(9) |
Incorporated by reference to Exhibit 10.53 from
Registrant’s Current Report on Form 8-K filed on
November 29, 2000. |
|
|
(10) |
Incorporated by reference to Exhibit 4.11 from
Registrant’s Current Report on Form 8-K filed on
November 29, 2000. |
|
(11) |
Incorporated by reference to Exhibit 4.12 from
Registrant’s Current Report on Form 8-K filed on
November 29, 2000. |
|
(12) |
Incorporated by reference to Exhibit 10.55 from
Registrant’s Current Report on Form 8-K filed on
February 15, 2001. |
|
(13) |
Incorporated by reference to Exhibit 4.13 from
Registrant’s Current Report on Form 8-K filed on
February 15, 2001. |
|
(14) |
Incorporated by reference to Exhibit 4.14 from
Registrant’s Current Report on Form 8-K filed on
February 15, 2001. |
|
(15) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2003. |
|
(16) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Current Report on Form 8-K filed on
October 22, 2004. |
|
(17) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Current Report on Form 8-K filed on
February 10, 2005 (Items 1.01 and 9.01). |
|
(18) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Current Report on Form 8-K filed on
February 10, 2005 (Items 1.01, 1.02 and 9.01). |
|
(19) |
Incorporated by reference to Exhibit 10.87 from
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004. |
|
(20) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Current Report on Form 8-K filed on
March 22, 2005, as amended on July 1, 2005. |
|
(21) |
Incorporated by reference to Exhibit 10.97 from
Registrant’s Current Report on Form 8-K filed on
May 20, 2005. |
|
(22) |
Incorporated by reference to Exhibit 10.01 from
Registrant’s Current Report on Form 8-K filed on
July 7, 2005. |
|
(23) |
Incorporated by reference to Exhibit 10.02 from
Registrant’s Current Report on Form 8-K filed on
July 7, 2005. |
|
(24) |
Incorporated by reference to Exhibit 10.03 from
Registrant’s Current Report on Form 8-K filed on
July 7, 2005. |
|
(25) |
Incorporated by reference to Exhibit 10.04 from
Registrant’s Current Report on Form 8-K filed on
July 7, 2005. |
|
(26) |
Incorporated by reference to Exhibit 10.01 from
Registrant’s Current Report on Form 8-K filed on
September 7, 2005. |
|
(27) |
Incorporated by reference to the exhibit of the same number from
Registrant’s Annual Report on Form 10-K filed on
March 30, 2005. |