<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR,
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FROM THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-27012
INSIGNIA SOLUTIONS PLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ENGLAND AND WALES NOT APPLICABLE
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
----------------------
41300 CHRISTY STREET THE MERCURY CENTRE, WYCOMBE LANE
FREMONT WOOBURN GREEN
CALIFORNIA 94538 HIGH WYCOMBE, BUCKS HP10 0HH
UNITED STATES OF AMERICA UNITED KINGDOM
(510) 360-3700 (44) 1628-539500
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACES OF BUSINESS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of November 11, 1999, there were 12,944,313 Ordinary shares of L0.20
each nominal value, outstanding.
<PAGE>
INSIGNIA SOLUTIONS PLC
PART 1 - FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheet at September 30,
1999 and December 31, 1998 (Unaudited).............................3
Condensed Consolidated Statement of Operations for the
three months and nine months ended September 30, 1999
and 1998 (Unaudited)...............................................4
Condensed Consolidated Statement of Cash Flows for the
nine months ended September 30, 1999 and 1998 (Unaudited)..........5
Notes to Unaudited Condensed Consolidated
Financial Statements...............................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........21
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................22
SIGNATURES ..................................................................23
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSIGNIA SOLUTIONS PLC
CONDENSED CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------------- -------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,116 $ 6,798
Restricted cash 120 186
Cash and cash equivalents held in escrow 5,990 9,100
Accounts receivable, net of allowances
of $131 and $1,449, respectively 314 1,706
Prepaid and other current assets 1,227 1,515
-------------------- -------------------
Total current assets 9,767 19,305
Property and equipment, net 716 1,074
Restricted cash 250 250
Other noncurrent assets 325 382
-------------------- -------------------
$ 11,058 $ 21,011
-------------------- -------------------
-------------------- -------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 582 $ 1,608
Accrued liabilities 1,529 2,265
Accrued royalties 2,040 4,309
Income taxes payable 478 994
Deferred revenue 2,284 262
Customer deposits 137 104
Capital lease obligations - 51
-------------------- -------------------
Total current liabilities 7,050 9,593
-------------------- -------------------
Contingencies (Note 6)
Shareholders' equity:
Preferred shares - -
Ordinary shares 4,287 4,164
Additional paid-in capital 35,049 34,725
Accumulated deficit (34,867) (27,010)
Cumulative currency translation adjustment (461) (461)
-------------------- -------------------
Total shareholders' equity 4,008 11,418
-------------------- -------------------
$ 11,058 $ 21,011
-------------------- -------------------
-------------------- -------------------
</TABLE>
See accompanying notes.
Page 3
<PAGE>
INSIGNIA SOLUTIONS PLC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- ----------------------------------
1999 1998 1999 1998
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net revenues:
License $ 1,672 $ 3,325 $ 5,270 $ 10,123
Service 82 295 299 813
---------------- --------------- ---------------- ----------------
Total net revenues 1,754 3,620 5,569 10,936
---------------- --------------- ---------------- ----------------
Cost of net revenues:
License 658 2,154 2,573 6,308
Service 116 170 424 859
---------------- --------------- ---------------- ----------------
Total cost of net revenues 774 2,324 2,997 7,167
---------------- --------------- ---------------- ----------------
Gross profit 980 1,296 2,572 3,769
---------------- --------------- ---------------- ----------------
Operating expenses:
Sales and marketing 1,292 1,743 4,352 6,344
Research and development 1,459 1,407 4,477 4,593
General and administrative 822 794 2,325 3,229
---------------- --------------- ---------------- ----------------
Total operating expenses 3,573 3,944 11,154 14,166
---------------- --------------- ---------------- ----------------
Operating loss (2,593) (2,648) (8,582) (10,397)
Interest income, net 101 263 357 772
Other income (expense), net (3) 6 (53) 14,837
---------------- --------------- ---------------- ----------------
Income (loss) before income taxes (2,495) (2,379) (8,278) 5,212
Provision (benefit) for income taxes (465) (1,712) (421) 1,924
---------------- --------------- ---------------- ----------------
Net income (loss) $ (2,030) $ (667) $ (7,857) $ 3,288
---------------- --------------- ---------------- ----------------
---------------- --------------- ---------------- ----------------
Net income (loss) per share:
Basic $ (0.16) $ (0.05) $ (0.62) $ 0.27
---------------- --------------- ---------------- ----------------
---------------- --------------- ---------------- ----------------
Diluted $ (0.16) $ (0.05) $ (0.62) $ 0.27
---------------- --------------- ---------------- ----------------
---------------- --------------- ---------------- ----------------
Weighted average equivalent shares:
Basic 12,853 12,164 12,775 12,118
---------------- --------------- ---------------- ----------------
---------------- --------------- ---------------- ----------------
Diluted 12,853 12,164 12,775 12,352
---------------- --------------- ---------------- ----------------
---------------- --------------- ---------------- ----------------
</TABLE>
See accompanying notes.
Page 4
<PAGE>
INSIGNIA SOLUTIONS PLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,857) $ 3,288
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation 463 533
Other (63) (14,731)
Net changes in assets and liabilities:
Restricted cash 66 -
Accounts receivable, net 1,392 4,168
Prepaid and other current assets 288 (81)
Prepaid income taxes - 864
Other noncurrent assets 57 (416)
Accounts payable (1,026) (519)
Accrued liabilities (736) (144)
Customer deposits 33 (498)
Accrued royalties (2,269) (4,319)
Deferred revenue 2,022 (559)
Income taxes (516) 1,253
Noncurrent liabilities - 78
--------------- ---------------
Net cash used in operating activities (8,146) (11,083)
--------------- ---------------
Cash flows from investing activities:
Proceeds from sale of property and equipment 137 86
Purchases of property and equipment (179) (645)
Purchases of short-term investments, net - 1,320
Proceeds from sale of product line - 15,862
Product line sale proceeds held in escrow (250) (9,000)
Product line sale proceeds released from escrow 3,360 -
--------------- ---------------
Net cash provided by investing activities 3,068 7,623
--------------- ---------------
Cash flows from financing activities:
Payments made under capital leases (51) (80)
Proceeds from issuance of shares, net 447 219
--------------- ---------------
Net cash provided by financing activities 396 139
--------------- ---------------
Net decrease in cash and cash equivalents (4,682) (3,321)
Cash and cash equivalents at beginning of the period 6,798 10,641
--------------- ---------------
Cash and cash equivalents at end of the period $ 2,116 $ 7,320
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes.
Page 5
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements are unaudited. However, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) which are necessary for a fair presentation of the financial
position and results for the interim period have been included.
The results of operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the entire fiscal year,
which ends on December 31, 1999.
These unaudited condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1998 included in Insignia Solutions plc's ("Insignia") 1998 Annual
Report and Form 10-K.
NOTE 2. INCOME TAX PROVISION (BENEFIT)
Insignia's benefit for income taxes for the three months and nine months ended
September 30, 1999, primarily represents certain non-U.S. taxes offset against
taxable profit, net of operating losses, arising upon the disposal of the
Company's NTRIGUE product line in the prior year. Insignia accounts 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 Insignia's financial statements or tax
returns. In estimating future tax consequences, Insignia generally considers all
expected future events other than enactments of changes in the tax law or rates.
NOTE 3. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is presented on a Basic and Diluted basis, and is
based upon the weighted average number of ordinary and ordinary equivalent
shares outstanding during the period. Ordinary equivalent shares consist of
warrants and stock options (using the modified 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 share equivalents are excluded
from the computation if their effect is anti-dilutive.
NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. This statement
becomes effective for all fiscal quarters of fiscal years beginning after June
15, 1999. In June 1999, the FASB issued Statement of Financial Accounting
Standard No. 137 "Accounting for Derivative Instruments - Deferral of the Effect
Page 6
<PAGE>
Date of FAS Statement No. 133" ("FAS 137"). FAS 137 defers the effective date of
FAS 133 until June 15, 2000. Insignia will adopt FAS 133 in 2001. Insignia
expects the adoption of FAS 133 will not affect results of operations.
In March 1998, the AICPA issued Statement of Position No. 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 provides guidance on accounting for the costs of computer
software developed or obtained for internal use and is effective for financial
statements for fiscal years beginning after December 15, 1998. Insignia has
adopted SOP 98-1 in 1999. The adoption of SOP 98-1 did not have a material
impact on the results of operations.
NOTE 5. COMPREHENSIVE INCOME (LOSS)
In 1998, Insignia adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"). FAS 130 requires that all items
recognized under accounting standards as components of comprehensive earnings be
reported in an annual statement that is displayed with the same prominence as
other annual financial statements. FAS 130 also requires that an entity classify
items of other comprehensive earnings by their nature in an annual financial
statement. The accumulated other comprehensive loss at December 31, 1998 related
to cumulative currency translation adjustments.
Total comprehensive loss was not different from the net loss reported for the
nine months ended September 30, 1999.
NOTE 6. CONTINGENCIES
CITRIX
In February 1998, Insignia disposed of its NTRIGUE technology for $17.687
million. A substantial portion of the total purchase price paid by the Buyer
("Citrix") was placed in escrow to secure Insignia's agreement to indemnify
Citrix with respect to certain matters.
On January 29, 1999, Insignia received an indemnity claim from Citrix for an
amount estimated by Citrix to not exceed $6.25 million. The claim was made
pursuant to the Asset Purchase Agreement between Insignia and Citrix under which
Citrix purchased Insignia's NTRIGUE product line in February 1998.
Citrix' indemnity claim is based on a declaratory relief action that Citrix
filed against GraphOn Corporation ("GraphOn") in November 1998 in the United
States District Court, Southern District of Florida. Citrix' action against
GraphOn seeks a declaratory judgement that Citrix does not infringe any GraphOn
proprietary rights and that Citrix has not misappropriated any trade secrets or
breached an agreement to which GraphOn is a party. Citrix filed the action in
response to and to resolve assertions first made by GraphOn, and disclosed to
Citrix in January 1998, that Insignia used GraphOn's confidential information to
develop certain of Insignia's products, possibly including products Insignia
sold to Citrix in February 1998. The Court dismissed the complaint, but Citrix
has subsequently filed an appeal. GraphOn has not filed an action against either
Insignia or Citrix relating to its assertions and Insignia believes such
assertions by GraphOn are without merit or basis. Accordingly, Insignia
contests Citrix' indemnity claim.
Page 7
<PAGE>
On October 4, 1999, Insignia filed a suit against Citrix and GraphOn in the
Superior Court of the State of California, County of Santa Clara.
MICROSOFT
Insignia had a non-exclusive, worldwide license from Microsoft ("Microsoft
Distribution Agreement") to reproduce, adapt and distribute the currently
available versions of Windows and MS-DOS that were included as a component of
Insignia's SoftWindows products. Insignia paid Microsoft a per unit royalty for
copies of Insignia's products sold that included a version of Windows and
MS-DOS. The Microsoft Distribution Agreement expired on October 31, 1999.
Insignia did not renew the Agreement.
In January 1999, pursuant to this agreement, Microsoft began an audit of the
royalties paid in 1997 and 1998. The audit was completed and in November, 1999,
Insignia settled all open issues with Microsoft.
NOTE 7. SEGMENT INFORMATION
In 1998, Insignia adopted Statement of Financial Accounting Standards 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). FAS 131 supersedes FAS 14, "Financial Reporting for Segments of a
Business Enterprise", replacing the "industry segment" approach with 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. FAS 131
also requires disclosures about products and services, geographic areas, and
major customers. The adoption of FAS 131 did not affect results of operations
but did affect the disclosure of segment information.
Insignia operates in a single industry segment providing virtual machine
technology which enables software applications and operating systems to be run
on various computer platforms. In the third quarter of 1999, Quantum Corporation
and Silicon Graphics Inc. accounted for 43% and 28% of total revenues,
respectively. In the third quarter of 1998, Sun Microsystems, Inc. and
Mitsubishi Corporation accounted for 31% and 26% of total revenues,
respectively. No other customer accounted for 10% or more of Insignia's total
revenues during the third quarter of 1999 and 1998.
Page 8
<PAGE>
GEOGRAPHIC INFORMATION
Financial information by geographical region is summarized below (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers:
United States $ 1,598 $ 3,308 $ 4,952 $ 9,282
International 156 312 617 1,654
------------- ------------ ------------ -------------
Consolidated $ 1,754 $ 3,620 $ 5,569 $ 10,936
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Intercompany revenues:
United States $ 76 $ 94 $ 411 $ 645
International 61 (2,455) 224 (1,465)
------------- ------------ ------------ -------------
Consolidated $ 137 $ (2,361) $ 635 $ (820)
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Operating loss:
United States $ (377) $ 1,762 $ (2,171) $ (1,438)
International (2,216) (4,410) (6,411) (8,959)
------------- ------------ ------------ -------------
Consolidated $ (2,593) $ (2,648) $ (8,582) $ (10,397)
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Identifiable assets:
United States $ 2,526 $ 6,673
International 20,043 26,580
Intercompany items and eliminations (11,511) (9,171)
------------ -------------
Consolidated $ 11,058 $ 24,082
------------ -------------
------------ -------------
</TABLE>
All of the international revenues and substantially all of the international
identifiable assets relate to Insignia's operations in the United Kingdom.
Intercompany sales are accounted for at prices intended to approximate those
that would be charged to unaffiliated customers.
Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto included
in Part I - Item 1 of this Form 10-Q and the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" set forth in
Insignia's Form 10-K for the year ended December 31, 1998 (the "Form 10-K").
FUTURE OPERATING RESULTS
This Form 10-Q contains forward looking statements. These forward looking
statements concern matters which include the revenue model and market for Jeode,
international sales, gross margins, operating expenses, the availability of
licenses to third-party proprietary rights, Year 2000 compliance, exchange rate
fluctuations and Insignia's liquidity and capital needs and other statements
regarding matters that are not historical. These matters involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward looking statements. In addition to the factors discussed above,
among the other factors that could cause actual results to differ materially are
the following: the demand for Jeode; the performance and functionality of Jeode;
Insignia's ability to deliver on time, and market acceptance of new products or
upgrades of existing products; the timing of, or delay in, large customer
orders; continued availability of technology and intellectual property license
rights; product life cycles; quality control of products sold; competitive
conditions in the industry; economic conditions generally or in various
geographic areas; and the risks listed from time to time in the reports that
Insignia files with the U.S. Securities and Exchange Commission.
Insignia's future performance depends upon sales of products within Insignia's
Jeode product line, which is a new product. Jeode became available for sale in
March 1999. Jeode may not achieve or sustain market acceptance or provide the
desired revenue levels. The failure of the Jeode product to provide an adequate
level of performance and functionality, or the lack of market acceptance of this
product for any reason, would harm Insignia's business, financial condition and
results of operations. If the Jeode product is successful and developed on a
timely basis, Insignia will be required to further develop direct sales channels
in the embedded systems market and to hire and train more direct sales
personnel. Competition for qualified sales personnel is intense and Insignia may
not be able to attract the personnel needed to market and sell products in the
embedded systems market. Insignia anticipates increased operating expenses as it
develops the organization to market, sell and support the product, before any
revenue is recognized from sales of the product. Insignia may not experience
growth in revenues in any particular period when compared to prior periods. Any
quarterly or annual shortfall in net revenues in relation to expectations would
harm Insignia's operating results and financial condition. Insignia may not be
able to achieve or sustain profitability. If Insignia's revenues grow more
slowly than anticipated, or if Insignia's operating expenses exceed expectations
and cannot be adjusted, Insignia's operating losses would continue or increase.
In future periods, Insignia's operating results may fall below the levels
expected by securities analysts and shareholders, which would result in a
substantial decline in the trading price of Insignia's shares and could have an
adverse effect on the liquidity of Insignia's shares.
Insignia's Annual Report on Form 10-K for 1998 includes an analysis of certain
risks of Insignia's business, including risks which are inherent to software
development, as well as
Page 10
<PAGE>
specific risks relating to the competitive environment in which Insignia
operates. Although Insignia has sought to identify the most significant risks to
its business, Insignia cannot predict whether, or to what extent any such risks
may be realized. Also, Insignia may not have identified all possible issues
which Insignia might face. Potential risks and uncertainties include, without
limitation, those mentioned in Insignia's Form 10-K; and in particular the
continued acceptance by the marketplace of Insignia's products and Insignia's
ability to successfully develop new products in the future. Investors should
carefully read Insignia's filings with the Securities and Exchange Commission,
together with this Form 10-Q, and consider all trends and uncertainties
concerning Insignia's business before making an investment decision with respect
to Insignia's stock.
The following table sets forth the unaudited condensed consolidated results of
operations as a percentage of total revenues for the three and nine month
periods ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------------- ------------------------------------
1999 1998 1999 1998
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net revenues:
License 95.3% 91.9% 94.6% 92.6%
Service 4.7% 8.1% 5.4% 7.4%
----------------- ----------------- ---------------- -----------------
Total net revenues 100.0% 100.0% 100.0% 100.0%
----------------- ----------------- ---------------- -----------------
Cost of net revenues:
License 37.5% 59.5% 46.2% 57.7%
Service 6.6% 4.7% 7.6% 7.9%
----------------- ----------------- ---------------- -----------------
Total cost of net revenues 44.1% 64.2% 53.8% 65.6%
----------------- ----------------- ---------------- -----------------
Gross profit 55.9% 35.8% 46.2% 34.4%
----------------- ----------------- ---------------- -----------------
Operating expenses:
Sales and marketing 73.6% 48.1% 78.2% 58.0%
Research and development 83.2% 38.9% 80.4% 42.0%
General and administrative 46.9% 21.9% 41.7% 29.5%
----------------- ----------------- ---------------- -----------------
Total operating expenses 203.7% 108.9% 200.3% 129.5%
----------------- ----------------- ---------------- -----------------
Operating loss (147.8%) (73.1%) (154.1%) (95.1)%
Interest income, net 5.8% 7.3% 6.4% 7.1%
Other income (expense), net (0.2%) 0.2% (0.9%) 135.7%
----------------- ----------------- ---------------- -----------------
Income (loss) before income taxes (142.2%) (65.6%) (148.6%) 47.7%
Provision (benefit) for income taxes (26.5%) (47.3%) (7.5%) 17.6%
----------------- ----------------- ---------------- -----------------
Net income (loss) (115.7%) (18.3%) (141.1%) 30.1%
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
</TABLE>
Page 11
<PAGE>
OVERVIEW
Insignia, which commenced operations in 1986, develops, markets and supports
virtual machine technology which enables software applications and operating
systems to be run on various computer platforms.
In late 1997, Insignia began a strategic review of its business and explored new
markets that would leverage Insignia's 10 years of emulation software
development experience.
In January 1998, Insignia announced its intention to launch a new product
line. This product line, called Jeode-TM-, is based on Insignia's Embedded
Virtual Machine ("EVM"-TM-) technology. Jeode is Insignia's implementation of
Sun Microsystems, Inc.'s ("Sun") Java-Registered Trademark- technology
developed specifically for embedded systems. The Jeode platform is enabled by
Insignia's EVM and is designed to enable software developers to create
reliable, efficient and predictable embedded products. The product became
available for sale in March 1999 and generated 43% of the total revenues for
the three months ending September 30, 1999. The Jeode product is now the
principal product line in the foreseeable future. The Jeode product line
revenue model is based on original equipment manufacturer's ("OEMs") customer
transactions. Insignia expects that revenue from the Jeode product line will
generally be derived from four main sources: the sale of a development
license, the sale of annual maintenance and support, a commercial use royalty
based on shipments of products that include Jeode technology, and
customer-funded engineering activities.
Insignia's principal product line in recent years has been SoftWindows-TM-.
This product enables Microsoft Windows ("Windows"-Registered Trademark-)
applications to be run on most Apple Computer Inc. ("Apple"-Registered
Trademark-) Macintosh computers and many UNIX workstations. Revenues from
this product line have been declining since 1995. On October 18, 1999,
Insignia signed an exclusive licensing arrangement of its SoftWindows and
RealPC product lines to FWB Software. This allows Insignia to focus
exclusively on its Jeode platform business strategy. The proceeds Insignia
will receive from the license arrangement are based on an earn-out of FWB's
future revenues from the product line and will be paid to Insignia as those
revenues are achieved. Upon achieving a certain revenue threshold, FWB will
purchase the SoftWindows and RealPC product line at no additional
consideration.
Between December 1995 and May 1998, Insignia shipped NTRIGUE-TM-, a Windows
compatibility client/server product that supported multiple X-terminals,
workstation clients, Macintosh computers, PCs, network computers and Net PCs
from a Windows NT-based server. Insignia disposed of its NTRIGUE technology
in February 1998 for $17.687 million.
REVENUES
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- ----------------------------
1999 1998 1999 1998
-------------- --------------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C>
License revenue $ 1,672 $ 3,325 $ 5,270 $ 10,123
Service revenue 82 295 299 813
-------------- --------------- ------------- ------------
Total net revenue $ 1,754 $ 3,620 $ 5,569 $ 10,936
-------------- --------------- ------------- ------------
-------------- --------------- ------------- ------------
</TABLE>
Page 12
<PAGE>
Insignia derives its Jeode revenue from the sale of development licenses and
annual maintenance contracts. Insignia derives its SoftWindows revenues from the
sale of packaged software products and annual maintenance contracts. Revenues
from the sale of development licenses, packaged products and royalties received
from OEMs are classified as license revenue, while revenues from customer-funded
engineering activities, training, and annual maintenance contracts are
classified as service revenue.
In the third quarter of 1999, total revenues declined by 52% compared to total
revenues for the third quarter of 1998. In the nine months ended September 30,
1999, total revenues declined by 49% compared to revenues for the first nine
months of 1998. The decline is primarily due to reduced demand for SoftWindows.
License revenues in the three months ended September 30, 1999 were 95% of total
revenues. License revenues in the three months ended September 30, 1998 were 92%
of total revenues. In the nine months ended September 30, 1999 license revenues
were 95% of total revenues. In the nine months ended September 30, 1998, license
revenues were 93% of total revenues. In the third quarter of 1999, license
revenues declined 50% compared to license revenues in the third quarter of 1998.
For the nine months ended September 30, 1999, license revenue declined 48%
compared to the same period in 1998. The decline is primarily due to the reduced
demand for SoftWindows.
Service revenue in the third quarter of 1999 was 72% lower than service revenue
in the third quarter of 1998. Service revenue for the nine months ended
September 30, 1999 was 63% lower than service revenue for the same period in
1998, primarily as a result of a decreased number of UNIX support contracts
resulting from lower sales of SoftWindows products for UNIX.
Jeode license revenue accounted for 43% of total revenues for the three months
ended September 30, 1999, and 14% of total revenues in the nine months ended
September 30, 1999. Jeode became available for sale in March 1999, and accounted
for less than 1% of total revenues in the second quarter of 1999.
Sales of Macintosh-based products in the third quarter of 1999 decreased by 87%
compared to sales in the third quarter of 1998. For the nine months ended
September 30, 1999, sales of Macintosh-based products decreased 53% compared to
the same period in 1998. Revenue from the sale of Insignia's products for
Macintosh computers accounted for 14% of total revenues in the three months
ended September 30, 1999 and 54% of total revenues in the three months ended
September 30, 1998. Revenue from the sale of Insignia's products for Macintosh
computers accounted for 46% of total revenues in the nine months ended
September 30, 1999 and 50% of total revenues in the nine months ended
September 30, 1998.
Revenues from the sale of Insignia's SoftWindows products for UNIX computers
accounted for 43% of total revenues in the three months ended September 30, 1999
and September 30, 1998. Revenues from the sale of Insignia's products for UNIX
computers accounted for 40% of total revenues in the nine months ended
September 30, 1999 and 42% of total revenues in the nine months ended
September 30, 1998. In the third quarter of 1999, sales of UNIX-based products
decreased by 52% compared to sales in the third quarter of 1998. For the nine
months ended September 30, 1999, UNIX sales decreased by 52% compared to the
same period in 1998.
Page 13
<PAGE>
In the three months ended September 30, 1998, revenue from the sale of NTRIGUE
products accounted for 4% of total revenues. In the nine months ended
September 30, 1998, revenue from the sale of NTRIGUE products accounted for 8%
of total revenues. There was no NTRIGUE revenue in 1999 as Insignia's NTRIGUE
product line was sold in early 1998.
Insignia distributes its packaged products within the United States and
internationally through multiple distributors and resellers. Insignia offers
certain return privileges to its customers including product exchange privileges
and price protection. Insignia recognizes revenues from packaged products upon
shipment with provisions for estimated future returns, exchanges and price
protection being recorded as a reduction of total revenues.
Sales to distributors and OEM's representing more than 10% of total revenue in
each period accounted for the following percentages of total revenue.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Distributors:
Sun Microsystems * 31% * 26%
Mitsubishi * 26% * 10%
Ingram Micro * * * 17%
All Distributors: 6% 83% 46% 73%
OEM's:
Quantum Corporation 43% * 13% *
Silicon Graphics 28% * * *
</TABLE>
* Less than 10%
Sales to customers outside the United States, derived mainly from customers in
Europe and Asia, represented approximately 9% of total revenues in the three
months ended September 30, 1999 and 35% of total revenues in the three months
ended September 30, 1998, and 18% of total revenues in the nine months ended
September 30, 1999 and 26% of total revenues in the nine months ended
September 30, 1998. Movements in currency exchange rates did not have a
material impact on total revenues in the three or nine months ended
September 30, 1999. However, movements in currency exchange rates could affect
Insignia's future revenues and results of operations.
Page 14
<PAGE>
COST OF REVENUES AND GROSS MARGIN
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- --------------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Cost of license revenue $ 658 $ 2,154 $ 2,573 $ 6,308
Gross margin: license revenue 61% 35% 51% 38%
Cost of service revenue 116 170 424 859
Gross margin: service revenue (41%) 42% (42%) (6%)
Total cost of revenues $ 774 $ 2,324 $ 2,997 $ 7,167
Gross margins: total revenues 56% 36% 46% 34%
</TABLE>
Cost of license revenue comprises mostly royalties to third parties, along with
the costs of documentation, duplication and packaging. Cost of service revenue
includes costs associated with customer-funded engineering activities and
end-user support under maintenance contracts.
Insignia believes that the significant factors affecting the Jeode gross margin
will include pricing of the development license, pricing of the unit usage and
royalties to third parties such as Sun Microsystems. In early 1999, Insignia
signed a five-year agreement with Sun Microsystems under which Sun established
Insignia as an authorized Virtual Machine provider. Under this agreement
Insignia will pay Sun a per unit royalty on each Jeode-enabled embedded product
shipped by Insignia's customers, plus a royalty on all development licenses put
in place between Insignia and its customers.
Insignia's gross margin for license revenue is significantly affected by many
factors, including pricing of Insignia's products, royalties paid to third
parties, the mix of products licensed, the channels through which Insignia's
products are distributed and product maturity. Insignia's gross margin for
license revenue can also be affected in particular periods by pricing strategies
and return privileges employed in connection with new product introductions and
upgrades. License revenue gross margins in the quarter ended September 30, 1999
were 61%, compared to 35% for the same period in 1998. The prior year quarterly
gross margin was low due to increased returns on the NTRIGUE product line. For
the nine months ended September 30, 1999, license revenue gross margins were 51%
compared to 38% for the same period in 1998.
Gross margin for service revenue decreased in the third quarter of 1999 to (41%)
from 42% in the same period of 1998, and decreased for the nine months ending
September 30, 1999 to (42%) from (6%) in the same period of 1998. The decline
is a result of the decreased UNIX service revenue.
In the event that Jeode license increase in future periods, service revenue
gross margins are expected to increase due to the required maintenance and
upgrade contracts for each Jeode product sale.
Page 15
<PAGE>
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- --------------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Sales and marketing $ 1,292 $ 1,743 $ 4,352 $ 6,344
Percentage of total revenues 74% 48% 78% 58%
Research and development $ 1,459 $ 1,407 $ 4,477 $ 4,593
Percentage of total revenues 83% 39% 80% 42%
General and administrative $ 822 $ 794 $ 2,325 $ 3,229
Percentage of total revenues 47% 22% 42% 30%
</TABLE>
Sales and marketing expenses include advertising and promotional expenses, trade
shows, personnel and related overhead costs, and salesperson commissions. Sales
and marketing expenses decreased by 26% in the quarter ended September 30, 1999
from the quarter ended September 30, 1998, and by 31% for the nine months ended
September 30, 1999 from the same period of 1998. The decrease is due to reduced
spending on SoftWindows advertising programs and staffing. Insignia anticipates
sales and marketing expenses to increase in the last quarter of 1999 as Insignia
continues to increase its marketing and direct sales organization for its Jeode
product line. Insignia has established a direct sales force in the United
States, Europe and Japan.
Research and development expenses consist primarily of personnel costs, overhead
costs relating to occupancy and equipment depreciation. Research and development
expenses increased by 4% in the three months ended September 30, 1999 over the
same period in 1998. Research and development expenses decreased by 3% in the
nine months ended September 30, 1999 over the nine months ended September 30,
1998. 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
1999 and 1998, no development expenditures were capitalized.
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 4% in the three
months ended September 30, 1999 over the same period of 1998. General and
administrative expenses decreased by 28% in the nine months ended September 30,
1999 over the same period of 1998. The decline is due to reduced headcount,
reduced legal fees and a reduction in bad debt provisions.
Page 16
<PAGE>
INTEREST INCOME, NET
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- --------------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Interest income, net $ 101 $ 263 $ 357 $ 772
Percentage of total revenues 6% 7% 6% 7%
</TABLE>
Interest income, net decreased from $263,000 in the three months ended
September 30, 1998 to $101,000 in the three months ended June 30, 1999 due
primarily to decreased interest income earned on Insignia's cash and cash
equivalents. For the nine months ended September 30, 1999, interest income,
net decreased from $772,000 to $357,000.
OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- --------------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Other income (expense), net $ (3) $ 6 $ (53) $ 14,837
Percentage of total revenues -% -% (1%) 136%
</TABLE>
Other income (expense), net decreased from income of $6,000 in the three months
ended September 30, 1998 to an expense of $3,000 in the three months ended
September 30, 1999, and primarily comprised foreign exchange gains (losses) in
both periods. In the nine months ended September 30, 1999, other income
(expense), net decreased from income of $14.837 million, for the same period
last year, to an expense of $53,000. The income in the first nine months of 1998
was a result of the gain on disposal of the NTRIGUE product line of $14.731
million in the first quarter of 1998. This gain comprised gross disposal
proceeds of $17.687 million less $2.956 million of transaction expenses,
employment terminations and costs and losses related to the property and
equipment sold or written down in value.
In the nine months ended September 30, 1999, Insignia realized a foreign
exchange loss of $53,000 compared to a gain of $137,000 in the nine months ended
September 30, 1998.
Approximately 85% of Insignia's total revenues and over 40% of its operating
expenses are denominated in United States dollars. Most of the remaining
revenues and expenses of Insignia are pound sterling denominated and
consequently Insignia is exposed to fluctuations in pound sterling exchange
rates. To hedge against this currency exposure, Insignia enters into foreign
currency options and forward exchange contracts for periods and amounts
consistent with the amounts and timing of its anticipated pound sterling
denominated operating cash flow requirements. Unrealized gains and losses on
foreign currency option contracts are deferred and were not material at
September 30, 1999 and December 31, 1998. However, currency fluctuations could
harm Insignia's results of operations in the future.
Page 17
<PAGE>
Insignia has, 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. Insignia attempts to limit this
exposure by investing primarily in short-term securities.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Provision (benefit) for income $ (465) $ (1,712) $ (421) $ 1,924
taxes
Effective income tax rate - - - -
</TABLE>
Insignia's benefit for income taxes for the three and nine months ended
September 30, 1999 primarily represents certain non-U.S. taxes arising from
sales to customers in Japan and the benefit of offsetting net operating losses
against provisions arising from the disposal of the Company's NTRIGUE product
line in 1998. Insignia's income tax benefit for the three months ended
September 30, 1998 primarily represents a reduction in its income tax liability
due to anticipated net operating losses. The provision for income taxes for the
nine months ended September 30, 1998 primarily represents certain non-U.S.
taxes arising upon the disposal of the Company's NTRIGUE product line, net of
offsetting operating losses. Insignia has recorded a full valuation allowance
against all deferred tax assets, primarily comprising net operating losses, on
the basis that significant uncertainty exists with respect to realization.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------- ------------------
(in thousands)
<S> <C> <C>
Cash, cash equivalents and investments $ 2,236 $ 6,984
Cash and cash equivalents held in escrow $ 5,990 $ 9,100
Working capital $ 2,717 $ 9,712
Net cash used in operating activities $ (8,146) $ (13,687)
</TABLE>
Insignia is in the process of transitioning its product focus from compatibility
products to its Jeode product line based on Insignia's EVM technology. This
change in product focus has resulted in a redirection of available resources
from Insignia's historical revenue base towards the development and marketing
efforts associated with the Jeode platform, which was not released for general
availability until March 1999. As a result of this change in product strategy
and associated redirection of resources to new product development, Insignia's
financial position weakened during the first nine months of 1999.
Insignia's cash, cash equivalents and short-term investments, including cash and
cash equivalents of $5.99 million held in escrow, were $8.2 million at
September 30, 1999, a decrease of $7.9 million from $16.1 million at
December 31, 1998, and an increase of $0.1 million from June 30, 1999. Working
capital decreased to $2.7 million at September 30, 1999, from $9.7 million at
Page 18
<PAGE>
December 31, 1998. The principal source of cash funding came from receivable
collections and NTRIGUE product line sales proceeds released from escrow.
On October 20, 1999, Insignia signed a convertible promissory note to Quantum
Corporation for $1,000,000. The note is convertible at Quantum's option to
Insignia stock any time during the lifetime of the note. All unpaid principal
with any unpaid interest, at 8% per annum, is due and payable on December 31,
2000.
Insignia continues to face significant risks associated with the successful
execution of its new product strategy. These risks include, but are not limited
to continued technology and product development, introduction and market
acceptance of new products, changes in the marketplace, liquidity, competition
from existing and new competitors which may enter the marketplace and retention
of key personnel. Due to the generally longer sales cycles expected to be
associated with the Jeode platform, Insignia does not currently have accurate
visibility of future order rates and demand for its products generally. Jeode
platform products may never achieve market acceptance.
Insignia believes that additional financing will be necessary, as its existing
cash and cash equivalents are insufficient to meet Insignia's future operating
and capital requirements. Insignia is currently considering various financing
alternatives. Insignia may not be able to obtain adequate funding when needed,
on acceptable terms or at all. The failure to raise additional funds on a timely
basis and on sufficiently favorable terms would jeopardize Insignia's business.
Insignia's liquidity may be reduced in the future by factors such as higher
interest rates, inability to borrow without collateral, outcome of pending
claims, availability of capital financing and continued operating losses.
Further, significant fluctuations in quarterly operating results has had and, in
the future, may continue to have a negative affect on Insignia's liquidity.
Factors such as price reductions, the introduction and market acceptance of new
products and product returns have contributed to this quarterly variability.
Moreover, Insignia's expense levels are based in part on expectations of future
sales levels, and a shortfall in expected sales could therefore result in a
disproportionate decrease in results of operations. As such, the revenues or
results of operations in some future period may be below the expectations of
investors, which would likely result in a significant reduction in the market
price of Insignia's shares. A decline in the market price of Insignia's shares
would have a negative effect on Insignia's ability to raise needed capital on
acceptable terms and conditions.
YEAR 2000 COMPLIANCE
It is generally anticipated that many organizations will experience operational
difficulties at the beginning of the Year 2000 as a result of the fact that many
currently installed computer systems, embedded systems, and software products
are coded to accept only two digit entries in the date code field. Significant
uncertainty exists in the software and other industries concerning the scope and
magnitude of problems associated with the century change.
Insignia's assessment of the impact of this issue has encompassed 1) software
held for resale; 2) internally utilized systems; 3) computerized information and
software provided by third parties which might be integral to customer usage of
Insignia's products; 4) compliance issues related entirely to the state of
readiness by customers and vendors and 5) Year 2000 cost. Set forth below is the
status of each review and the estimated impact, to the extent management can
determine at this time.
Page 19
<PAGE>
SOFTWARE HELD FOR RESALE
Based on Insignia's assessment to date, Insignia believes that all versions of
Jeode, SoftWindows 98 products, SoftWindows95 products, RealPC and NTRIGUE are
Year 2000 compliant. Earlier versions of SoftWindows and all versions of Soft PC
are not Year 2000 compliant, but all such versions are upgradable to Year 2000
compliant products. However, all of Insignia's customers may not install the
Year 2000 compliant version of Insignia's products in a timely manner, which
could lead to failure of customer systems and product liability claims against
Insignia. Even if Insignia's products are Year 2000 compliant, Insignia may in
the future be subject to claims based on Year 2000 issues in the products of
other companies, or issues arising from the integration of multiple products
within a system. The costs of defending and resolving Year 2000 related
disputes, and any liability of Insignia for Year 2000 damages, including
consequential damages, could harm Insignia's financial condition and results of
operations.
INTERNAL SYSTEMS
Insignia has carried out an assessment of its own internal systems and believes
that they are all Year 2000 compliant.
THIRD-PARTY SYSTEMS
Insignia has reviewed its material third-party relationships such as key
suppliers and distributors. Insignia believes all computerized information and
software provided by third parties that might be integral to customer usage of
Insignia's products is Year 2000 compliant.
Although Insignia believes that its internal critical processes are Year 2000
ready, Insignia also recognizes that it is vulnerable, as are most
organizations, to the inability of third-party external interface suppliers and
utility organizations to achieve Year 2000 readiness. The most reasonable worst
case scenario could include failure of power and water supplies, major
transportation disruptions, and failures of communications and financial systems
- - any one of which could have a major and material effect on Insignia's ability
to produce its products and deliver services to its customers. While Insignia
has contingency plans in place to address most issues under its control, a
problem outside its control could result in a delay in product shipments
depending on the nature and severity of the problems.
CUSTOMERS AND VENDORS
Insignia's products are generally used with systems and software involving
complicated software products developed by other vendors, which may not be
Year 2000 compliant. Failure of the information systems of Insignia's customers
because of the failure of such noncompliant systems or software or for any other
reason, could also affect the perceived performance of Insignia's products,
which could have a negative effect on Insignia's competitive position. In
addition, Insignia believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products such as those offered by Insignia, which could
result in a material adverse effect on Insignia's business, financial condition
and results of operations.
Page 20
<PAGE>
YEAR 2000 COST
The total cost associated with preparation for the Year 2000 has not been, and
is not expected to be, material to Insignia's business, financial condition or
results of operations. Nevertheless, Insignia may not timely identify and
remediate all significant Year 2000 problems and remedial efforts may involve
significant time and expense.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Insignia enters into derivative financial instruments such as currency option
contracts to hedge certain anticipated, but not yet committed, transactions
expected to be denominated in foreign currencies. Insignia does not use
derivative financial instruments for trading or speculative purposes. Insignia's
downside risk with respect to currency option contracts (British pounds) is
limited to the premium paid for the right to exercise the option. Premiums paid
for options outstanding as of September 30, 1999 were not material.
Pge 21
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this Report:
Exhibit 11.1 Statement Regarding Computation of Basic and Diluted Net
Income (Loss) Per Share
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
Page 22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSIGNIA SOLUTIONS PLC
(Registrant)
Date: November 15, 1999
s/STEPHEN M. AMBLER
--------------------
STEPHEN M. AMBLER
Chief Financial Officer
Page 23
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------------------------------------------------------------------------
<S> <C>
Exhibit 11.1 Statement Regarding Computation of Basic and Diluted Net
Income (Loss) Per Share
Exhibit 27.1 Financial Data Schedule
</TABLE>
Page 24
<PAGE>
EXHIBIT 11.1
INSIGNIA SOLUTIONS PLC
STATEMENT REGARDING COMPUTATION OF BASIC AND DILUTED
NET INCOME (LOSS) PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income (loss) $ (2,030) $ (677) $ (7,857) $ 3,288
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
CALCULATION OF BASIC NET INCOME (LOSS) PER SHARE:
Weighted average number of ordinary shares
outstanding used in computation 12,853 12,164 12,775 12,118
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Basic net income (loss) per share $ (0.16) $ (0.05) $ (0.62) $ 0.27
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
CALCULATION OF DILUTED NET INCOME (LOSS) PER SHARE:
Weighted average number of ordinary shares
outstanding used in computation 12,853 12,164 12,775 12,118
Net effect of dilutive stock options outstanding - - - 234
--------------- --------------- --------------- ---------------
12,853 12,164 12,775 12,352
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Diluted net income (loss) per share $ (0.16) $ (0.05) $ (0.62) $ 0.27
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,476
<SECURITIES> 0
<RECEIVABLES> 445
<ALLOWANCES> (131)
<INVENTORY> 13
<CURRENT-ASSETS> 9,767
<PP&E> 2,825
<DEPRECIATION> (2,109)
<TOTAL-ASSETS> 11,058
<CURRENT-LIABILITIES> 7,050
<BONDS> 0
0
0
<COMMON> 4,287
<OTHER-SE> (279)
<TOTAL-LIABILITY-AND-EQUITY> 11,058
<SALES> 5,270
<TOTAL-REVENUES> 5,569
<CGS> 2,573
<TOTAL-COSTS> 14,151
<OTHER-EXPENSES> (304)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,278)
<INCOME-TAX> (421)
<INCOME-CONTINUING> (7,857)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,857)
<EPS-BASIC> (.62)
<EPS-DILUTED> (.62)
</TABLE>
