UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-21899
ICON SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 87-0565018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4835 North O'Connor, Suite 134-136, Irving, Texas 75062
(Address of principal executive offices)
Registrant's telephone no., including area code: (817) 267-1866
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding as of March 31, 1999
Common Stock, $.001 par value 5,431,654
TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements. . . . . . . . . . . . 3
Consolidated Balance Sheets -- March 31, 1999
and June 30, 1998. . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations -- three and
nine months ended March 31, 1999 and 1998. . . . . . . 5
Consolidated Statements of Stockholders' Equity. . . . . 6
Consolidated Statements of Cash Flows -- nine
months ended March 31, 1999 and 1998 . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . 8
Item 2. Management's Discussion and Analysis and
Results of Operations. . . . . . . . . . . . . . . . . 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 24
Item 2. Changes In Securities and Use of Proceeds. . . . . . . . 24
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . 24
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . . . . . 24
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 24
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 25
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 26
PART I
Item 1. Financial Statements
The following unaudited Financial Statements for the period
ended March 31, 1999, have been prepared by the Icon Systems, Inc.
(the "Company").
ICON SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and June 30, 1998
ICON SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, March 31,
1998 1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 21,410 $ 18,238
Inventory 50,407 27,522
Notes and Accounts Receivable (net of allowance) 14,681 15.833
TOTAL CURRENT ASSETS 86,498 61,593
PROPERTY AND EQUIPMENT NET 20,886 20,083
Goodwill Net 31,445 30,060
OTHER ASSETS 2,042 355
TOTAL ASSETS $ 140,871 $ 112,091
LIABILITY AND STOCKHOLDERS' EQUITY
LIABILITIES
Total Current Liabilities Cash $ 34,294 $ 23,782
Bond, Mortgages and Similar Debts 47,107 31,430
Amount due to Parent Company 51,794 49,143
Other Liabilities 3,138 2,841
TOTAL CURRENT LIABILITIES 136,333 107,196
COMMITMENT __ ____0 _____ _0
TOTAL LIABILITIES 136,333 107,196
STOCKHOLDERS' EQUITY
Common Stock, Par value $0.001, authorized
100,000,000 shares; Issued 5,431,654 shares $ 1,668 $ 5
Additional paid-in capital - 2,063
Retained earnings 2,870 2,827
TOTAL STOCKHOLDERS' EQUITY 4,538 4,895
TOTAL LIABILITY AND
STOCK-HOLDERS' EQUITY $ 140,871 $ 112,091
See accompanying notes.
ICON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED (Unaudited) MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED (Unaudited) MARCH 31, 1999 AND 1998
(In Thousands)
Three Months Ended Nine Months Ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE $ 44,795 $ 48,106 $ 165,779 $ 195,240
Cost of Goods Sold 33,847 35,083 128,732 139,940
GROSS PROFIT 10,948 13,023 37,047 55,300
Selling, general and
administrative 9,476 11,250 33,602 50,330
OPERATING INCOME
CONTINUING OPERATIONS 1,472 1,773 3,445 4,970
DISCONTINUING OPERATIONS __ (412) ______ (2,862) _____
1,060 1,773 583 4,970
PROVISION FOR TAXES
ON INCOME 73 117 218 _394
NET INCOME $ 987 $ 1,656 $ 365 $ 4,576
NET INCOME PER SHARE $ 0.18 $ 0.17 $ 0.15 $ 0.23
WEIGHTED AVERAGE OF
COMMON SHARES
AND COMMON SHARES
EQUIVALENT
OUTSTANDING 5,432 9,660 2,477 19,664
See accompanying notes.
ICON SYSTEMS, INC.
STATEMENT OF STOCKHOLDER EQUITY
(In Thousands)
Retained
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit) Total
BALANCE, June 30, 1997 38,328 $ 7,786 $ 7,025 $ 2,911 $ 17,722
Sale of Stock 375 61 1,032 - 1,093
Recapitalization (37,703) (6,173) (8,057) (4,986) (19,216)
Net Income - - - 4,576 4,576
BALANCE, March 31, 1998
(unaudited) 1,000 1,674 - 2,501 4,175
Net income - - - 363 363
Foreign Currency translation
difference - (6) - 6 -
BALANCE, June 30, 1998 1,000 1,668 - 2,870 4,538
New Shares (995) (1,663) 1,663 - -
Recapitalization - - 400 (408) (8)
Net Income - - - 365 365
BALANCE, March 31, 1999
(unaudited) 5 $ 5 $ 2,063 $ 2,827 $ 4,895
See accompanying notes.
ICON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED (Unaudited) MARCH 31, 1999 AND 1998
(In Thousands)
March 31, March 31,
1999 1998
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from operations $ 365 $ 4,576
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Depreciation and amortization 912 1,219
Increase in accounts receivables -net (1,152) (3,339)
Decrease inventory 22,885 15,268
Decrease in other current assets 1,687 1,162
Increase in other assets - (338)
Decrease in current liability (10,512) (12,285)
Decrease in other current liabilities 297 (187)
Total Adjustments 14,117 1,500
NET CASH PROVIDED BY
OPERATING ACTIVITIES 14,482 6,076
CASH FLOWS FROM FINANCING ACTIVITIES
Loan from parent - 51,983
Other borrowing (repayment) (15,681) 7,568
NET CASH PROVIDED BY
FINANCING ACTIVITIES (15,681) 59,551
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of S R Gent - (47,942)
Loan to affiliate - (2,651)
Purchase of property and equipment (1,977) (2,060)
Sale of Stock - 1,093
NET CASH PROVIDED BY
INVESTING ACTIVITIES (1,977) (51,560)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (3,176) 14,067
CASH AT BEGINNING OF PERIOD 21,414 2,619
CASH AND CASH EQUIVALENT
AT END OF PERIOD $ 18,238 $ 16,686
See accompanying notes.
ICON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
MARCH 31, 1999 AND 1999 (UNAUDITED)
NOTE A ORGANIZATION AND ACCOUNTING BASIS
Icon Systems, Inc., incorporated under the Laws of Utah on November
19, 1980, was a development stage company until January 7, 1999
when it acquired in exchange for substantially 100% all of its
outstanding shares. See Note B.
The wholly owned subsidiary is Prospero Investment Limited,
incorporated under the laws of United Kingdom on 14th May 1997.
The Company
On January 7, 1999 our company acquired Prospero Investment Limited
The consolidated financial statements of Prospero consolidate the
position and operations of the following companies which are 100%
owned:
Name of Company Country of Operation
S.R. Gent plc England
S.R. Gent (Manufacturing) Limited England
S.R. Gent (UK) Limited England
S.R. Gent (International) Limited England
S.R. Gent (Retail) Limited England
S.R.G. Limited England
S.R. Gent (Canada), Inc. Canada
S.R. Gent (Hong Kong) Limited Hong Kong
Onella (Private) Limited Sri Lanka
Significant Accounting Policies:
Accounting Method
The Company maintains its books on the accrual basis of accounting.
Cash and Cash Equivalents
The Company considers all purchases from financial institutions of
highly liquid debt instruments with maturities of three months or
less to be cash equivalents.
ICON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
MARCH 31, 1999 AND 1999 (UNAUDITED)
NOTE A ORGANIZATION AND ACCOUNTING BASIS (Continued)
Net Income Per Share
Net income per share is computed using the weighted average number
of common shares and common share equivalents outstanding during
the respective periods. Common shares equivalents consist of The
Company's preferred stock and shares issuable upon the exercise of
stock options. All stock options have been treated as if they were
outstanding for all periods.
Turnover
Turnover when used here is a term that means sales, less returns of
the company and its subsidiaries and excludes value added tax
Fixed Assets and Depreciation
Fixed assets are stated at cost . Depreciation is calculated to
write down the cost of tangible fixed assets to their residual
values over the period of their estimated useful lives using the
straight line method as follows:
Land and Building 50 years
Machinery and Vehicles 3-10 years
Furniture, Fixtures and Fittings 10 years
Leasehold properties are amortized over the length of the lease.
Investments
Investments available for sale are stated at cost less provision
for any permanent diminution in value.
Leases
A finance lease is one which transfers substantially all the risks
and rewards of ownership of an asset to the group. Assets acquired
under finance leases are recorded in the balance sheet as assets
and are depreciated over their expected useful lives.
The outstanding capital portion of finance lease is included in the
balance sheet
as a liability and the interest thereon is charged to the profit
and loss account in proportion to the outstanding capital balance.
Operating lease costs are charged to the profit and loss account as
incurred.
ICON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
MARCH 31, 1999 AND 1999 (UNAUDITED)
NOTE A ORGANIZATION AND ACCOUNTING BASIS (Continued)
Pensions
The expected costs of pensions in respect of the group's defined
benefit pension scheme is charged to the profit and loss account so
as to spread the cost of pensions over the service lives of the
employees. Variations from the regular cost are spread over the
expected remaining lives of current employees in the scheme.
Pension costs are assessed in accordance with the advice of an
actuary. Contributions payable in respect of other pension schemes
are charged to the profit and loss account when incurred.
Inventory
Inventory are valued at the lower of costs and net realizable
value. The cost of manufactured products consist of direct
materials, labor and related overheads
Deferred Taxation
No provision is made for taxation deferred by depreciation and
other timing differences unless there is reasonable probability
that payment will be made in the foreseeable future.
Rates of Exchange
Overseas Investments are stated in U.S. Dollars at rates at the
dates of acquisition
Other assets and liabilities covered by foreign exchange contracts
are transferred at the rates in those contracts Assets and
liabilities not covered are translated at rates applicable at the
balance sheet. The results of overseas operations are stated at the
average rates applicable during the year.
Exchange gains or losses arising in the ordinary course of business
are included in operating profit and those on the translation of
assets; liabilities and reserves of overseas group companies are
shown as a movement on reserves.
Goodwill
Goodwill arising on acquisitions, representing the difference
between the consideration paid and the fair value of net assets
acquired is written off directly against reserves in the year of
acquisition. Goodwill relating to business which are closed or
disposed of is reflected in the profit and loss account in
determine the profit and loss on disposal.
NOTE B REORGANIZATION
Following are the principal terms with respect to the exchange of
shares of capital stock of Icon Systems, Inc. a Utah corporation
for the shares of Prospero Investment Limited, a United Kingdom
corporation.
ICON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
MARCH 31, 1999 AND 1999 (UNAUDITED)
NOTE B REORGANIZATION (Continued)
Pre Exchange Capitalization
Prospero Investments Limited issued 1 million common shares for cash
on 5th June 1997.
On 7th January 1999 the company declared a stock split of 1 for 50
of the outstanding shares as a result 16.5 million outstanding
shares were reduced to 332,000 outstanding shares.
Equity Conversion Mechanics
At the closing of the exchange, The Company issued and exchanged
5.1 million shares of restricted Rule 144 common stock for all of
the outstanding common shares of Prospero Investments Ltd.
The Company will hold the shares of Prospero Investment Limited,
which will continue to operate as a subsidiary.
Post Exchange Capitalization
After the exchange and the subsequent offering of 5 million shares
of common stock, the capitalization consisted of 5.4 million shares
of common stock of which 5.1 million are restricted.
NOTE C BASIS OF CONSOLIDATION
Basis of Consolidation
The consolidated financial statements include the accounts of the
company and its wholly owned subsidiaries. The company is engaged
in a single line of business as a supplier of fashion garments.
Any pre-consolidation inter-company balances have been eliminated.
The accompanying financial statements have been prepared to give
effect to the exchange completed on 7th January 1999. The two
companies in the exchange are:
Icon Systems, Inc., a Utah corporation, "The Company"
Prospero Investment Company Limited
a United Kingdom corporation, "Prospero"
After the exchange, The Company owned all of the outstanding shares
of Prospero. The exchange is accounted for as if The Company
purchased Prospero for stock. All assets are reflected at
historical cost. For purposes of the proforma statement of
stockholders' equity, multiple transactions are considered to have
taken place concurrently.
ICON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
MARCH 31, 1999 AND 1999 (UNAUDITED)
NOTE D INVESTMENTS IN AFFILIATES AT EQUITY
Investments in companies in which we generally have a 20 to 50
percent ownership interest are as follows:
Value of %
Equity at
Company Domicile Currency Shares Held June 30,1998
Tri-Star Apparel
Exports (Pte)
Limited Sri Lanka Rupees 28.8 million 23.2% $-0
Tri-Star Apparel
Exports (Singapore)
Pte Limited Singapore Singapore 100 thousand 25.0% $-0
Both companies are involved in the manufacture of garments. While
we own more than 10% of the net assets at the reporting date, we do
not exercise a significant influence over either of these two
companies either in strategy or financial operating policies.
Furthermore, the Company does not report its balance sheet or
operating statement to us.
In addition management believes that the economic crisis in Asia
may have eliminated any value of these investments on the equity
method.
NOTE E INVENTORIES
The major classes of inventories at June 30, 1998 are approximately:
Raw Material and consumables 31 %
Work-in-Process 13 %
Finished Goods _56 %
Total 100%
All inventories are produced for specific contracts and are
therefore priced on the specific identification method by contract.
ICON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
MARCH 31, 1999 AND 1999 (UNAUDITED)
NOTE F PROPERTY PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1998 are summarized
below (in thousands):
Property plant and equipment, excluding assets under capital leases
000's
Land and building $ 16,491
Machinery and Vehicles 16,445
Furniture tools and equipment 12,207
Total 45,143
Accumulated Depreciation 33,036
Net property plant and equipment 12,107
Assets under Capital lease
Machinery and Vehicles 9,324
Furniture tools and equipment 2,454
Total $ 11,778
NOTE G GOODWILL
Goodwill represents the excess of acquisition costs over the fair
market value of the net assets of acquired business, and is being
amortized on a straight line basis over the estimated life of 20
years. In accordance with APB 17 'Intangible Assets' the company
regularly evaluates the amortization period to determine whether
events or circumstances warrant revision. Similar evaluation is
made of the carrying value.
NOTE H STOCKHOLDERS' EQUITY
Acquisitions
On January the 7, 1999 We entered into negotiations to acquire
controlling interests in two other businesses in the Texmaco group.
In anticipation of the acquisitions, we issued 14,600,000 shares of
restricted 144 stock. The shares have not been transferred, pending
the completion of negotiations.
ICON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
MARCH 31, 1999 AND 1999 (UNAUDITED)
NOTE H STOCKHOLDERS' EQUITY (Continued)
Sale of Securities
In December 1998, the company subscribed 5,000,000 shares of its
common stock in a private placement exempt under 506. The proceeds
of the placement are being collected outside of the company, and
will be transferred in total when the subscription is complete. No
shares will be issued until the proceeds are deposited with the
company. The offering price of the shares in the private placement
was $.05 per share. All of the shares in the private placement have
been subscribed.
NOTE I MINIMUM FUTURE RENTALS
Operating Leases
The Company leases office factory and warehouse space under various
operating leases that expire at various times beyond fiscal 2003.
Rental under these leases for the three and nine months ended March
31, 1999 was approximately $ 122,000 and $ 344,000 respectively.
Approximate minimum future lease payments under these operating
leases at June 30, 1998 were:
Year ending
June 30, ($ 000's)
1999 122
2000 242
2001 242
2002 242
2003 242
thereafter 794
Capital Leases
Approximate minimum future lease payments under these capital
leases at June 30, 1998 were: $ 702,000
There have been no material changes in the operating or capital
leases since June 30, 1998 except payment of minimum monthly
payments.
ICON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
MARCH 31, 1999 AND 1999 (UNAUDITED)
NOTE J RELATED PARTIES
Ultimate Control
None of the Directors has an interest in the shares of the Company.
The shares are substantially owned by Baleine Investment Holdings
Limited "Baleine " a company incorporated in the British Virgin
Islands.
The Company is ultimately controlled by The Sterling Securities
Trust which has been set-up in the British Virgin Islands. The
Settlor of the trust is Mr. M. Sinivasan, an Indonesian
businessman. The beneficiaries of the trust are his children.
Management believes that Mr. Sinivasan is the controlling party.
Related party transactions
During the year ended June 30, 1998 the following transactions
occurred between the company and
Tri-Star Apparel Exports Limited "Tri-Star". See Note D.
Total for Balance
The Year June 30, 1998
($000's)
Charged by Tri-Star for manufacture $ 7,263 $ 0
Charged by the company to Tri-Star for support 220 0
ICON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
MARCH 31, 1999 AND 1999 (UNAUDITED)
NOTE J RELATED PARTIES (Continued)
During the year ended June 30, 1998 the following transactions
occurred between the company and companies controlled by Mr.
Sinivasan.
Total for Balance
the Year June 30, 1998
($ 000's) ($ 000's)
Purchase of garments manufactured
By the company from:
PT Ungaran Sari Garments $ 7,409 $ 701
PT Citra Abadi Sejati 645 0
Sales of fabric by the company to:
PT Texmaco Jaya 1,672 560
PT Ungaran Sari Garments 170 5
PT Citra Abadi Sejati 144 7
Expenses incurred by the Company were
reimbursed by:
PT Polysindo Perkasa 22 22
Corresponding numbers are not available at March 31, 1999, but
management represents that the same relationships continue to
exist.
Advances to related companies are non-interest bearing, unsecured
and due on demand.
The balances at March 31, 1999 were
Company Name Amount
(000's)
Norfil Limited $ 492
Polysindo (U.K.) Limited 492
$ 984
A loan of 50 million from Baleine is unsecured and pays no interest.
ICON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
MARCH 31, 1999 AND 1999 (UNAUDITED)
NOTE K LONG-TERM DEBT
Long term debt consists of the following (in thousands)
Bank loans $ 41,051
Capitalized finance lease obligations 1,401
42,452
Related party 49,978
Less Current maturities (81,904)
$ 10,526
Notes payable to banks are term borrowings by the Company from
several commercial banks
and secured by the company's tangible assets. Notes are at
variable rates over Eurodollar rate.
Under its various loan agreement, the Company must maintain a
minimum levels of tangible net worth and a leverage ratio of total
liabilities divided by tangible net worth. The company was in
compliance with these covenants as at June 30, 1999.
The related party loan of is from Baleine is unsecured and pays no
interest.
Maturities of the long term debt at June 30,.1998 are as follows (
in thousands)
1999 $ 82,384
2000 9,840
2001 205
Thereafter 0
$ 92,429
NOTE L INCOME TAXES
The income tax provision is comprised of the United Kingdom income
tax at the statutory rate of 31%, less Net operating losses, plus
other country taxes at their appropriate rate. At June 30, 1998 the
provision for income taxes was as follows:
United Kingdom $ 2
Deferred 105
Non-UK tax on net
income of subsidiaries 104
$ 211
ICON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
MARCH 31, 1999 AND 1999 (UNAUDITED)
NOTE M PENSION COMMITMENTS
The group operates three principal pension plans:
Defined benefit plan
The group operates a pension plan for the majority of the senior
staff providing benefits based on final pensionable pay. The
assets of the plan are held separately from those of the group,
being invested with a major United Kingdom insurance group.
Contributions to the plan are charged to the profit and loss
account so as to spread the costs of pensions over employees'
working lives with the group. The contribution rate is determined
by a qualified actuary at intervals not exceeding three years using
the projected unit method. The most recent valuation in December
1996, referred to above, was as at 1 July 1995. The assumptions
which have the most significant effect on the results of the
valuation are those relating to the rate of return on investments
and the rates of increase in salaries. It was assumed that the
investment returns will be 2% per annum higher than salary
increases. These are typical of those used for long-term funding.
The pension charge for the period was $ 1,200,006.
The most recent actuaries valuation, referred to above, showed that
the market value of the plan's assets was $21 million and that the
actuarial value of those assets represented 122.9% of the benefits
that had accrued to members after allowing for expected future
increases in earnings. A long term funding rate of 24% was
indicated. The group contributed at a rate of 21.4% from July 1997
until June 1998. The average remaining service life of employees
is 15 years. From 1 July 1998 the group intends to contribute at
24.0%.
The cost of company contributions to the plan is offset by
contributions of 6% of pensionable salary for members who joined
the plan after 1 September 1991.
Defined contribution plan
The group operates a defined contribution pension plan for a
restricted number of senior employees. The assets of the plan are
held separately from those of the group in an independently
administered fund. The charge to the accounts represents
contributions payable by the group to the fund and amounted to
$147,000. There were no amounts outstanding at the year end.
The plan was reduced in September 1998 and now operates on behalf
of only two senior employees.
ICON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
MARCH 31, 1999 AND 1999 (UNAUDITED)
NOTE M PENSION COMMITMENTS (Continued)
Money purchase plans
The contracted out money purchase plan was intended for all
employees not covered by other plans, and the assets of the plan
are held separately from the group. The charge for the period,
representing amounts payable by the group, was $68,000. There were
no amounts outstanding at the year end.
This plan closed to new entrants during the year and is now a paid
up plan with no active members. All former active members are now
either a member of the group personal pension plan, or have decided
not to contribute further. The group personal group plan has no
employer contribution other than the cost of death in service
benefit, which for the period ended 30 June 1998, cost 4,500.
In due course, assets will be transferred out of the contracted out
money purchase plan into the members group personal pension plans,
and will be wound up. All employer liabilities to the contracted
out money purchase plan have ceased.
There is also a plan for a limited number of individuals working
overseas. The cost of death in active benefit for these employees
falls within the $17,000 premium mentioned earlier. Employers'
contributions into this plan amounted to $3,000 during the period
ended 30 June 1998.
NOTE N COMMITMENTS
The Company had commitments to buy new equipment at June 30, 1998
and March 31, 1999 of $563,000 and $164,000 respectively.
At March 31, 1999,the company had available letters of credit of
$7.4 million to meet purchase commitments during the fourth fiscal
quarter.
NOTE O CONCENTRATIONS
Substantially all of the Company's sales arise from contracts with
Marks and Spencer Plc.
NOTE P SUBSEQUENT EVENTS
In April 1999 the company announced the closure of two factories in
the UK. Management believes that no more than 400 jobs would be
eliminated. Cost estimates related to plant closure are being
prepared by management and will be available at June 30, 1999.
Item 2. Management's Discussion and Analysis or Plan of Operation
Plan of Operation
The Company did not engage in any material operations since
its inception or during the quarterly period ended December 31,
1998. On December 22, 1998 the Company entered into an Acquisition
Agreement and Plan of Reorganization with Prospero Investments
Limited, a United Kingdom company ("Prospero"), and the
shareholders of Prospero. Under the terms of the acquisition, the
Company acquired 100% of the issued and outstanding capital stock
of Prospero in exchange for 5,100,000 shares of the Company's
authorized but previously unissued common stock, post-split as set
forth below. The acquisition was completed in January 1999. The
5,100,000 shares (post-split) were issued to the shareholders of
Prospero in exchange for all of their Prospero shares.
In connection with the acquisition, the Company effected on
December 28, 1998 a reverse stock split of its issued and
outstanding shares of common stock on a one (1) share for fifty
(50) shares basis.
Prospero is the owner of SR Gent PLC ("SR Gent"), a clothing
manufacturer and supplier located in Barnsley, South Yorkshire,
England. Prospero, through its subsidiary SR Gent, designs,
manufactures and distributes apparel for women and children.
SR Gent has been engaged in fashion design and apparel
manufacturing for more than fifty years and is a major supplier of
ladieswear and childrenswear to Marks & Spencer. SR Gent employs
an experienced design team in London that creates ladies formal
blouses, ladies tops, sportswear and girlswear. SR Gent also
manufactures and markets formal skirts, trousers, boyswear and
babywear.
As a result of the acquisition, the Company has become engaged
in the clothing manufacturing and distribution business. During
the next twelve months, the Company will endeavor to develop and
expand its operation and the market for its products. The Company
is also presently investigating the possibility of making
additional acquisitions. The Company is interested in acquiring
additional companies in the clothing and textile business which
management believes to be undervalued in the current economic
environment. The Company may acquire private companies or
interests in publicly traded companies. Such interest may be
minority ownership interests.
Results of Operations
For the three and nine month periods ended March 31, 1999
compared to the three and nine month periods ended March 31, 1998.
Information set forth below includes the operations of S.R.
Gent. Comparative data of results of operations for the nine
months ended March 31, 1999 is as follows:
1999 1998
$ 000's $ 000's
Revenues $ 165,779 $ 195,240
Cost of Goods Sold 128,732 139,940
Gross Profit 37,047 55,300
Selling, general and administrative
expenses 33,602 50,330
Operating Income-Continuing Operations 3,445 4,970
Discounting Operations (2,862) -
583 4,970
Provision for Taxes on Income 218 394
$ 365 $ 4,576
For the three month period ended March 31, 1999 ("third
quarter of fiscal 1999"), total revenues decreased 7% and
operating income decreased 17% when compared to the same 1998
periods. For the nine months ended March 31, 1999 ("first nine
months of fiscal 1999"), total revenues decreased 15% and
operating income decreased 31% from the comparable 1998 periods.
The results are attributed to a difficult textile market due to
continuous reduction in prices in marketplace because of cheaper
imports from the Far East. Also, because of these conditions,
the Company's major customer experienced a decrease in demand for
products.
Gross margins decreased to 24% for the third quarter of 1999
from 27% in the comparable 1998 period, and also decreased to 22%
for the first nine months of fiscal 1999 from 28% in the same
1998 period. As the Company strives to maintain its factory
output at 1998 levels, lower prices in the market price will
continue to adversely affect gross margins. Net income for the
third quarter of 1999 decreased 40% and decreased 92% for the
first nine months of 1999. Net income results reflect the loss
from discontinuing operations of $412 thousand and $2.8 million
for the third quarter and first nine months of fiscal 1999,
respectively.
Because the majority of the Company's sales are to one major
customer, Marks and Spencer, Plc., the demand for the Company's
products is closely related to the results of its major customer.
Management anticipates that sales will continue to be depressed
for the remainder of fiscal 1999. Management is actively looking
to other, more competitive suppliers in order to maintain the
Company's market share. Meaningful cost reductions by the
Company became full effective during the third quarter of fiscal
1999 and cost savings have been realized in the areas of
personnel and compensation coupled with operational efficiencies
and product mix. With its current mix of commercial verses
government projects and recent contract bookings, the Company
expects to realize similar if not improved profit margins for the
remainder of the fiscal 1999.
Selling, general and administrative expenses decreased 16%
for the third quarter of fiscal 1999, and decreased 33% for the
first nine months of 1999. The decreases are a direct result of
the Company's cost reductions program wherein the Company reduced
the number of administrative personnel, cut insurance costs and
improved operating efficiencies.
Liquidity and Capital Resources
Working capital as of March 31, 1999 was a negative $45.6
million compared to a negative $49.8 million at June 30, 1998.
This improvement in working capital is primarily attributable to
the 31% decrease in current cash liabilities and 33% decrease in
other current debts, mortgages and bonds. Working capital was
also affected by the $22.8 million (45%) decrease in inventory
due to the decline in demand for the Company's products.
Net cash provided by operating activities for the first nine
months of fiscal 1999 was $14.4 million compared to $1.5 for the
comparable 1998 period. This change is primarily attributable
to the $22.8 million decrease in inventory which was partially
offset by the $10.5 million increase in current liabilities. Net
cash used by financing activities was $15.6 million for the first
nine months of fiscal 1999 compared to $59.6 million provided in
the 1998 period. This represents the repayment of certain loans
during the 1999 period and a $51.9 million loan received in 1998.
Net cash used by financing activities for the first nine months
of fiscal 1999 was $1.9 million related to the purchase of
property and equipment, compared to net cash used of $51.6
million in the same 1998 period, primarily attributed to the
purchase of S.R. Gent.
Seasonality and Quarterly Fluctuations
The Company's business is affected by seasonal trends, with
higher levels of wholesale sales in the second fiscal quarter.
This trend result primarily from the timing of seasonal wholesale
shipments to retail customers. Inventory purchases from contract
manufacturers in the Far East are primarily denominated in UK
Sterling; however, purchase prices for the Company's products may
be affected by fluctuations in the exchange rate between the
United States dollar and the local currencies of the contract
manufacturers, which may have the effect of increasing the
Company's cost of goods sold in the future. During the last two
years, exchange rate fluctuations have not had a material impact
on the Company's inventory cost.
Inflation
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
Year 2000
Year 2000 issues may arise if computer programs have been
written using two digits (rather than four) to define the
applicable year. In such case, programs that have time-sensitive
logic may recognize a date using "00" as the year 1900 rather than
the year 2000, which could result in miscalculations or system
failures.
Prior to its recent acquisitions, the Company did not believe
that it had Year 2000 issues. However, because of its recent
acquisitions of operating businesses, the Company must reassess its
position. Because its acquisitions have just recently been
completed, the Company has not had sufficient time to assess
potential issues or problems, or make a determination as to the
possible cost to the Company to become Year 2000 compliant, if
necessary. Also, the Company had not yet made a determination
whether Year 2000 issues could lead to accounting problems,
business interruption and loss of revenues. As of December 31,
1998, the Company has not incurred any costs related to addressing
the Year 2000 issue. The Company intends to begin a thorough
review of its business operations and existing computer systems and
software to determine whether it may need to upgrade or replace its
existing systems to mitigate Year 2000 issues. Until such a review
has been completed, the Company is unable to determine whether it
will have material issues or whether it will be required to make
material expenditures to upgrade or replace its computers systems
and software.
The Company is also aware that it may have to implement a
contingency plan in the event a problem arises. However, the
Company will not decide whether a contingency plan is necessary
until such time as it has had ample time and opportunity to
investigate and review its present systems and determine whether a
potential problem exists. The Company must also determine whether
third parties with whom it has material relationships will be
materially affected by the Year 2000 issues. Problems with third
parties could also present the Company with material risks and
potential loss of revenue. The Company has not yet had the
opportunity to investigate whether third parties with whom it
transacts business may have any year 2000 issues
Risk Factors and Cautionary Statements
Forward-looking statements in this report are made pursuant to
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The Company wishes to advise readers that
actual results may differ substantially from such forward-looking
statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially
from those expressed in or implied by the statements, including,
but not limited to, the following: Changing economic conditions,
interest rate trends, acceptance of the Company's products in the
marketplace, competitive factors, potential success of the
Company's acquired businesses, economic developments and other
risks detailed in the Company's periodic report filings with the
Securities and Exchange Commission.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
PART II
Item 1. Legal Proceedings
There are presently no other material pending legal
proceedings to which the Company or any of its subsidiaries is a
party or to which any of its property is subject and, to the best
of its knowledge, no such actions against the Company are
contemplated or threatened.
Item 2. Changes In Securities and Use of Proceeds
This Item is not applicable to the Company.
Item 3. Defaults Upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
In addition to the acquisition of Prospero, the Company is
continuing negotiations to acquire a thirty five and four-tenths
percent (35.4%) interest in Coastal Group Limited ("Coastal"),
a South African company based in Durban, South Africa.
The Company is looking to acquire the interest in Coastal by
acquiring TTI Maritius, a private Maritius company,
that holds an 88.5% interest in Coastal, in exchange
for 5,400,000 shares (post-split) of the Company's common stock.
Coastal's securities are listed on the Johannesburg Stock Exchange
and is a manufacturer of fashion oriented textile apparel fabrics
in South Africa. The Company does not presently intend to
acquire a controlling interest in Coastal.
The Company is also negotiating to acquire an aggregate
15.3% interest in PT Super Mitory Utama ("PTSM"), an Indonesian
company, by acquiring a 100% interest in two private companies,
Chemech (HK) Ltd, an Indonesian company and New World Synthetic
Limited, a British Virgin Islands company, for an aggregate of
1,300,000 shares (post-split) of the Company's common stock.
These two entities hold the 15.3% interest in PTSM. PTSM is an
export-oriented sports shoe producer in Indonesia, located in
Sidoarjo, East Java. PTSM's securities are traded on the Jakarta
and Surabaya stock exchanges. The Company does not presently
intend to acquire more than the 15.3% interest in PTSM. Neither
of the two acquisitions have been finalized.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
On January 8, 1999 a report on Form 8-K was filed by the
Company reporting under Items 1 and 2 the acquisition of
Prospero Investments Limited.
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ICON SYSTEMS, INC.
Date: June 9, 1999 By /S/ P. Manohar
P. MANOHAR
President and Director
Date: June 9, 1999 By /S/ A. PARISE
A. PARISE, Secretary,
Treasurer, Chief
Financial Officer and
Director
(Principal Accounting
Officer)
Date: June 9, 1999 By /S/ R. Sridhar
R. SRIDHAR, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE ICON SYSTEMS, INC. FINANCIAL
STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> MAR-31-1999
<CASH> 18,238
<SECURITIES> 0
<RECEIVABLES> 15,833
<ALLOWANCES> 0
<INVENTORY> 27,522
<CURRENT-ASSETS> 61,593
<PP&E> 20,083
<DEPRECIATION> 0
<TOTAL-ASSETS> 112,091
<CURRENT-LIABILITIES> 107,196
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 2,063
<TOTAL-LIABILITY-AND-EQUITY> 113,091
<SALES> 165,779
<TOTAL-REVENUES> 165,779
<CGS> 128,732
<TOTAL-COSTS> 33,602
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,445
<INCOME-TAX> 218
<INCOME-CONTINUING> 3,445
<DISCONTINUED> 2,862
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<CHANGES> 0
<NET-INCOME> 365
<EPS-BASIC> .73
<EPS-DILUTED> .73
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