Conformed Copy
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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 March 31, 1997, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____ or ____
Commission file number 0-13865
ICC TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2368845
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
330 South Warminster Road
Hatboro, Pennsylvania 19040
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 682-6600
Former name, former address and former fiscal
year if changed since last report:
441 North Fifth Street, Suite 102
Philadelphia, PA 19123
----------------------
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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share
--------------------------------------
21,347,654 shares outstanding as of May 13, 1997.
-------------------------------------------------
===============================================================================
<PAGE>
INDEX TO FORM 10-Q REPORT
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1997 and 3
December 31, 1996
Consolidated Statements of Operations - Three months 4
ended March 31, 1997 and 1996
Consolidated Condensed Statements of Cash Flows - 5
Three months ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II OTHER INFORMATION
Item 1. Legal proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
Item 1. Financial Statements (Unaudited)
ICC TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- --------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 8,632,120 $ 9,641,114
Prepaid expenses and other 66,049 108,161
------------ ------------
Total current assets 8,698,169 9,749,275
RESTRICTED CASH 2,500,000 2,500,000
PROPERTY, EQUIPMENT AND SOFTWARE, net 7,618 1,590
------------ ------------
Total assets $ 11,205,787 $ 12,250,865
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 204,356 $ 70,437
Payable to Engelhard/ICC 20,207 17,035
------------ ------------
Total current liabilities 224,563 87,472
------------ ------------
LOSSES OF ENGELHARD/ICC IN EXCESS OF INVESTMENTS 2,485,997 2,091,997
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized
50,000,000 shares, issued
21,341,654 shares at March 31, 1997
and 21,282,354 shares at December 31, 1996 213,416 212,824
Additional paid-in capital 50,842,350 50,730,330
Accumulated deficit (42,389,109) (40,700,328)
Less: Treasury common stock, at cost, 66,227 shares (171,430) (171,430)
------------ ------------
Total stockholders' equity 8,495,227 10,071,396
------------ ------------
Total liabilities and stockholders' equity $ 11,205,787 $ 12,250,865
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
- 3 -
<PAGE>
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
----------------------------------
March 31, March 31,
1997 1996
---------------- ----------------
<S> <C> <C>
REVENUES:
Interest and Other income $ 135,144 $ 83,031
EXPENSES:
Equity interest in net loss of Engelhard/ICC 1,394,000 1,597,654
General and administrative 429,925 371,261
------------ ------------
Total expenses 1,823,925 1,968,915
------------ ------------
NET LOSS (1,688,781) (1,885,884)
CUMULATIVE PREFERRED STOCK
DIVIDEND REQUIREMENTS 0 (49,655)
------------ ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (1,688,781) $ (1,935,539)
============ ============
NET LOSS PER COMMON SHARE $ (0.08) $ (0.11)
============ ============
WEIGHTED AVERAGE COMMON SHARES 21,315,771 17,781,239
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
- 4 -
<PAGE>
ICC TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
1997 1996
-------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,688,781) $(1,855,884)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 982 443
Equity interest in net loss of Engelhard/ICC 1,394,000 1,597,654
(Increase) decrease in:
Receivables 0 112,606
Prepaid expenses and other 42,112 60,054
Increase (decrease) in:
Accounts payable and accued expenses 137,090 5,380
----------- -----------
Net cash used in operating activities (114,597) (79,747)
----------- -----------
Cash Flows from Investing Activities:
Capital contributions to Engelhard/ICC (1,000,000) (2,000,000)
Purchases of property, equipment and software (7,010) 0
----------- -----------
Net cash used in investing activities (1,007,010) (2,000,000)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common
stock and warrants, net 112,613 16,028,930
Cash redemption of Preferred Stock 0 (981,270)
Cash dividend on Preferred Stock 0 (394,610)
Repayments of borrowings from stockholder 0 (150,000)
----------- -----------
Net cash provided by financing activities 112,613 14,503,050
----------- -----------
Net increase in cash and cash equivalents (1,008,994) 12,423,303
Cash and Cash Equivalents, Beginning of Period 9,641,114 1,573,475
----------- -----------
Cash and Cash Equivalents, End of Period $ 8,632,120 $13,996,778
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
- 5 -
<PAGE>
ICC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1997
(1) BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1996
included in the Company's Annual Report on Form 10-K for the year then
ended. Results of operations for the three months ended March 31, 1997
are not necessarily indicative of results of operations expected for
the full year.
(2) BUSINESS AND GOING CONCERN CONSIDERATIONS:
Business
ICC Technologies, Inc. ("ICC" or the "Company") is a Delaware
Corporation. ICC through its joint venture Engelhard/ICC ("the
Partnership") with Engelhard Corporation ("Engelhard"), designs,
manufactures and markets innovative active humidity control systems to
supplement or replace conventional air conditioning systems. The
Partnership's active humidity control systems are based on proprietary
desiccant technology initially developed by the Company, licensed
honeycomb rotor technology and Engelhard's patented titanium silicate
desiccant, ETS(TM). The Partnership's active humidity control systems
are designed to address indoor air quality, energy and environmental
concerns and regulations currently affecting the air conditioning
market.
The Partnership was formed on February 7, 1994 pursuant to the terms
and conditions under the Joint Venture Asset Transfer Agreement
("Transfer Agreement") whereby the Partnership succeeded to the
desiccant air conditioning business conducted by ICC prior to the
formation of the Partnership and the activities of ICC and Engelhard
under the Joint Development Agreement dated May 26, 1992. Since the
formation of the Partnership, the Company has become principally a
holding company whose activities have related primarily to its
participation in the management of the Partnership in which it owns a
50% interest. The Company is not permitted to engage directly or
indirectly in any activities which would conflict with the
Partnership's business as long as the Partnership is in effect, but the
Company is not precluded from engaging in other activities. The Company
investigates from time to time other opportunities; however, the
Company currently does not have any commitments to engage in other
activities and, therefore, is not expected to generate any significant
revenues, although it will continue to incur general and administrative
expenses.
Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Revenues
and the Company's share of results of operations of the Partnership
have been insufficient to cover costs of operations for the three
months ended March 31, 1997. The Company has incurred cumulative losses
since inception of $42,389,109 through March 31, 1997. In order to
continue operations, the Company has had to raise additional capital to
offset cash consumed in operations and support of the Partnership.
Until the Partnership generates positive cash flows from operations, it
will be primarily dependent on the partners to provide any
6
<PAGE>
required working capital. The Company's continuation as a going
concern is dependent on its ability to: (i) generate sufficient cash
flows to meet its obligations on a timely basis, (ii) obtain
additional financing as may be required, and (iii) ultimately attain
profitable operations and positive cash flows from its operations and
its investment in the Partnership. The accompanying financial
statements do not include any adjustments that may result from the
Company's inability to continue as a going concern.
The cash utilized in the Company's operating and investing activities
during the three months ended March 31, 1997 was financed primarily
through the use of cash on hand and the proceeds from the exercise of
stock options and warrants. Management believes the Partnership will
require additional capital contributions during 1997. To the extent
Partnership capital contributions exceed cash on hand, or if the
Company requires additional funds to continue its operations, the
Company would expect to satisfy such requirements by seeking equity
financing. The Company's ability to successfully obtain equity
financing in the future is dependent in part on market conditions and
the performance of the Partnership. There can be no assurance that the
Company will be able to obtain equity financing in the future.
(3) THE PARTNERSHIP:
The following are the summarized unaudited financial results of the
Partnership:
Quarter ended Quarter ended
March 31, March 31,
1997 1996
---- ----
Results of operations:
Revenues $ 2,678,099 $ 2,076,099
Cost of goods sold 3,312,712 2,903,733
------------ ------------
Gross profit (loss) (634,613) (827,634)
Operating expenses:
Marketing 1,016,655 873,721
Engineering 291,357 278,855
Research and development 146,315 296,985
General and administrative 578,281 813,964
------------ ------------
Loss from operations (2,667,221) (3,091,159)
Interest expense 120,778 104,149
------------ -----------
Net loss $(2,787,999) $(3,195,308)
============ ============
As of As of
Balance sheet information: March 31, December 31,
1997 1996
---- ----
Cash $ 90,038 $ 1,192,997
Receivables 2,395,785 2,640,804
Inventory 4,498,616 4,570,952
Other current assets 310,164 278,762
Property, plant and equipment 9,056,120 7,990,125
Cash held in escrow 13,477 307,476
Other noncurrent assets 1,984,791 1,978,115
------------ ------------
Total Assets $ 18,348,991 $ 18,959,231
============ ============
Current liabilities $ 2,374,600 $ 2,248,209
Revolving credit line 2,750,000 2,750,000
Long term debt 8,693,698 8,642,330
Partners' capital 4,530,693 5,318,692
------------ ------------
Total Liabilities and capital $ 18,348,991 $ 18,959,231
============ ============
7
<PAGE>
The Company's investment in the Partnership is owned by a subsidiary,
ICC Desiccant Technologies, Inc., whose principal asset is the
Partnership investment. The investment in the Partnership is accounted
for under the equity method of accounting. The Company's proportionate
share of losses in the Partnership are $1,394,000 and $1,597,654 for
the three months ended March 31, 1997 and 1996, respectively. The
Partnership has incurred cumulative losses of approximately $31.6
million since inception through March 31, 1997. The Company's share of
the cumulative losses have resulted in the recognition of losses in
excess of the Company's investment in the amount of $2,485,996 and
$2,091,997 as of March 31, 1997 and December 31, 1996, respectively.
Payables to the Partnership were $20,207 and $17,035 at March 31, 1997
and December 31, 1996, respectively. The general partners are
guarantors of the Partnership's long term debt which totals
approximately $ 8.7 million as of March 31, 1997.
The Company and Engelhard made additional capital contributions of $1
million each to the Partnership in the three months ended March 31,
1997. Subsequent to March 31, 1997, each partner made an additional
capital contribution of $1 million to the Partnership.
In April 1997, the Company and the Partnership relocated their
principal executive offices and related manufacturing facilities in
Philadelphia to a 138,000 square foot facility located in Hatboro,
Pennsylvania.
(4) STOCK TRANSACTIONS:
Equity Investments
The Company received proceeds of approximately $53,000 and $47,000 from
the exercise of stock options to purchase approximately 29,000 and
33,000 shares of Common Stock granted under its option plans in the
three month period ended March 31, 1997 and 1996, respectively. The
Company received proceeds of approximately $60,000 and $17,000 from the
exercise of warrants to purchase approximately 30,000 and 3,500 shares
of Common Stock in the three month period ended March 31, 1997 and
1996, respectively.
In February 1996, the Company issued 2,500,000 shares of Common Stock
in a secondary offering at $7 per share less underwriting discounts and
commissions of $.49 per share. Proceeds of approximately $16.3 million
were offset by costs of approximately $600,000 incurred in connection
with the offering. In connection with the offering, all outstanding
Preferred Stock was converted into 3,609,696 shares of Common Stock and
redeemed in cash for $981,270. In addition, accrued dividends on the
Preferred Stock amounting to approximately $1,044,000 were declared and
paid in cash, except for $649,396 of such dividends associated with the
Series G Preferred Stock which were paid in the form of 162,349 shares
of Common Stock in accordance with the original terms of such series.
As a result of such conversion and redemption of Preferred Stock, there
are currently no shares of Preferred Stock outstanding. The Company
plans to use the remaining net proceeds from the offering to: (i) fund
its half of the estimated future financing requirements of the
Partnership and (ii) to fund the Company's working capital
requirements.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company, through the Partnership, designs, manufactures and markets
innovative active humidity control systems to supplement or replace conventional
air conditioning systems. The Partnership's active humidity control systems are
based on proprietary desiccant technology initially developed by the Company, a
licensed honeycomb rotor technology and Engelhard's patented titanium silicate
desiccant, ETS(TM).
Pursuant to the formation of the Partnership on February 7, 1994, the Company
transferred its assets related to its desiccant active humidity control
business, subject to certain liabilities, to the Partnership in exchange for a
50% interest in the Partnership through its wholly-owned subsidiary, ICC
Desiccant Technologies, Inc. Engelhard, in exchange for a 50% interest in the
Partnership, contributed capital to the Partnership, entered into a supply
agreement to sell ETS(TM) to the Partnership and entered into a license
agreement granting the Partnership an exclusive royalty-free license to use
ETS(TM) in the Partnership's business, including heating, ventilation and air
conditioning. The desiccant active humidity control business conducted by the
Company prior to the formation of the Partnership is now being conducted by the
Partnership, and the Company has become principally a holding company. Further,
substantially all of the employees of the Company have become employees of the
Partnership and the leases for the space occupied by, and certain other
obligations of, the Company have been assumed by the Partnership.
Since the formation of the Partnership, the Company's activities have related
primarily to its participation in the management of the Partnership in which it
owns a 50% interest. The Company is not permitted to engage directly or
indirectly in any activities which would conflict with the Partnership's
business as long as the Partnership is in effect, but the Company is not
precluded from engaging in other activities. The Company investigates from time
to time other opportunities; however, the Company currently does not have any
commitments to engage in other activities and, therefore, is not expected to
generate any significant revenues, although it will continue to incur general
and administrative expenses.
The Company accounts for its interest in the Partnership under the equity method
of accounting for investments. Although the Company has no obligation to provide
additional financing to the Partnership, because the Company has, and expects to
continue to fund its share of the Partnership's activities, the Company
recognizes its share of the losses of the Partnership.
Results of Operations
As described above, since the formation of the Partnership, the Company's sole
activities have related to its participation in the management of the
Partnership. The Company's general and administrative expenses increased $58,664
to $429,925 for the three month period ended March 31, 1997 compared to $371,261
for the same period in 1996, primarily as a result of increased shareholder
relations activities and payroll costs.
The Company's net loss for the three months ended March 31, 1997 decreased
$197,103 to $1,688,781 compared with the net loss of $1,885,884 for the same
period in 1996. This decrease in the net loss is attributable to the Company's
50% share of the Partnership's loss of $ 2,787,999 for the three months ended
March 31, 1997 as compared to $3,195,308 recognized for the same period ended in
1996. Net loss per share of Common Stock decreased to $.08 for the three month
period ended March 31, 1997, compared with $.11 per share for the same period of
1996 as a result of the decrease in the net loss and the additional weighted
average shares outstanding.
The Partnership's revenue for the three months ended March 31, 1997 increased
$602,000 to $2,678,099 compared to $2,076,099 for the same period in 1996. The
increase in revenue is attributable to increased
9
<PAGE>
sales of substrate from the Partnership's Miami plant to Hexcel pursuant to
a supply contract and increased equipment sales. Sales of substrate from the
Miami plant increased to approximately $1.4 million for the three months ended
March 31, 1997 compared to approximately $900,000 for the three months ended
March 31, 1996. Equipment sales increased to $1.3 million compared to
approximately $1.1 million for the three months ended March 31, 1996. The
Partnership recorded a gross loss of approximately $635,000 for the three months
ended March 31, 1997 compared to a gross loss of approximately $828,000 for the
same period in 1996. The reduction in gross loss was the result of increased
efficiencies in labor and material costs.
The Partnership's operating expenses decreased $230,917 to $2,032,608 for the
three months ended March 31, 1997 compared to $2,263,525 for the same period in
1996 due primarily to lower general and administrative and research and
development operating costs offsetting increased marketing costs. General and
administrative expenses have decreased primarily as a result of decreased
severance and inventory obsolescence costs. Research and development costs
decreased the result of decreased staff size. Marketing costs increased due
primarily to the increase in sales personnel. As a result of the reduction in
gross loss and decreased operating expenses, the loss from operations decreased
$423,938 to $2,667,221 for the three months ended March 31, 1997 as compared to
$3,091,159 for the same period in 1996.
The Partnership's net loss decreased $407,309 to $2,787,999 for the three months
ended March 31, 1997 compared to $3,195,308 for the same period in 1996 as a
result of increased revenues and reduction in operating costs.
The Partnership's backlog for equipment amounted to approximately $2.6 million
at May 13, 1997.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased $1,008,994 to $8,632,120 as of
March 31, 1997 as compared to $9,641,114 as of December 31, 1996. The decrease
in cash is primarily attributable to the $1 million capital contribution made to
the Partnership in the three month period ended March 31, 1997.
Net cash used in operating activities by the Company was $114,597 for the three
months ended March 31, 1997 due to the net loss, before non-cash charges and the
Company's 50% share of the net loss of the Partnership, of $293,799 offset by
net working capital provided of $179,202. The Company and Engelhard made
additional capital contributions of $1,000,000 each to the Partnership in the
three months ended March 31, 1997. Subsequent to March 31, 1997, each partner
made an additional capital contribution of $1 million to the Partnership. Net
cash used in operating activities and for investments in the Partnership by the
Company were financed by existing cash and proceeds from the issuance of Common
Stock and exercise of stock options and warrants.
The Partnership's cash and cash equivalents decreased to $90,038 at March 31,
1997 from $1,192,997 at December 31, 1996. The decrease was due to cash used in
operating activities of approximately $2 million, resulting from the
Partnership's net losses and working capital requirements, and cash used in
investing activities of approximately $1.4 million related to purchases of
machinery and equipment related primarily to the new production facility in
Hatboro, Pennsylvania. Operating and investing activities were primarily
financed by $2 million in capital contributions from the Company and Engelhard.
The Partnership is expected to require and will be dependent on the Company and
Engelhard, to provide additional financing to support its current operations and
any future expansion. There can be no assurance that the Company or Engelhard
will be willing, or able, to provide such additional financing.
Management believes the Partnership will require additional capital
contributions during 1997. To the extent Partnership capital contributions in
excess of available cash of the Company are required or if the Company requires
additional funds to continue its operations, the Company would expect to satisfy
such requirements by seeking equity financing. The Company's ability to
successfully obtain equity financing in the future is dependent in part on
market conditions and the performance of the Partnership. There can be no
assurance that the Company will be able to obtain equity financing in the
future.
10
<PAGE>
In February 1996, the Company issued 2,500,000 shares in a secondary offering at
$7 per share less underwriting discounts and commissions of $.49 per share.
Proceeds of approximately $16.3 million were offset by costs of approximately
$600,000 incurred in connection with the offering. In connection with the
offering, all outstanding Preferred Stock was converted into 3,609,696 shares of
Common Stock and redeemed in cash for $981,270. In addition, accrued dividends
on the Preferred Stock amounting to approximately $1,044,000 were declared and
paid in cash, except for $649,396 of such dividends associated with the Series G
Preferred Stock which were paid in the form of 162,349 shares of Common Stock in
accordance with the original terms of such series. As a result of such
conversion and redemption of Preferred Stock, there are currently no shares of
Preferred Stock outstanding. The Company plans to use the remaining net proceeds
from the offering to: (i) fund its half of the estimated future financing
requirements of the Partnership and (ii) to fund the Company's working capital
requirements. In April 1996, the underwriters of the secondary offering
exercised their overallotment option and purchased 186,813 for proceeds of
approximately $1.2 million after underwriting discounts and commissions.
The Company received proceeds of approximately $53,000 and $47,000 from the
exercise of stock options to purchase approximately 29,000 and 33,000 shares of
Common Stock granted under its option plans in the three month period ended
March 31, 1997 and 1996, respectively. The Company received proceeds of
approximately $60,000 and $17,000 from the exercise of warrants to purchase
approximately 30,000 and 3,500 shares of Common Stock in the three month period
ended March 31, 1997 and 1996, respectively.
ICC has not declared any dividends on Common Stock and does not expect to
declare dividends in the foreseeable future. Payment of future dividends will
rest within the discretion of the Board of Directors and will depend, among
other things, on ICC's earnings, capital requirements and financial condition.
The independent accountants' report on the audit of the Company's 1996 financial
statements includes an explanatory paragraph regarding substantial doubt about
the Company's ability to continue as a going concern. The Company's financial
statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. Revenues and the Company's share of results of operations of the
Partnership have been insufficient to cover costs of operations for the three
months ended March 31, 1997. The Company has suffered recurring losses
accumulating to approximately $42 million as of March 31, 1997. In order to
continue operations, the Company has had to raise additional capital to offset
cash consumed in operations and in port of the Partnership. The Company's
continuation as a going concern is dependent upon its ability to: (i) generate
sufficient cash flows to meet its obligations on a timely basis, (ii) obtain
additional financing as may be required and (iii) ultimately, attain profitable
operations and positive cash flow from its operations and its investment in the
Partnership. The accompanying financial statements do not include any
adjustments that may result from the Company's inability to continue as a going
concern.
The independent accountants' report on the audit of the Partnership's 1996
financial statements also includes an explanatory paragraph regarding
substantial doubt about the Partnership's ability to continue as a going
concern. The Partnership has incurred cumulative losses of approximately $32
million since inception through March 31, 1997. The Partnership's continuation
as a going concern will remain dependent upon its ability to: (i) generate
sufficient cash flows to meet its obligations on a timely basis, (ii) obtain
additional financing or refinancing as may be required and (iii) ultimately,
attain profitable operations and positive cash flow from operations.
Safe Harbor for Forward-Looking Statements
Except for historical matters contained herein, the matters discussed in this
Form 10-Q are forward-looking and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned that these forward-looking statements reflect numerous assumptions and
involve risks and uncertainties which may affect the Company's or the
Partnership's business, financial position and prospects and cause actual
results to differ materially from these forward-looking statements. The
assumptions and risks include sufficient funds to finance working capital and
other financing
11
<PAGE>
requirements of the Company and the Partnership, market acceptance of the
Partnership's products, dependence on proprietary technology, competition in the
air conditioning industry and others set forth in the Company's filings with the
Securities and Exchange Commission.
12
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Refer to the information under the caption Legal Proceedings
in the Company's Form 10-K Report for the year ended December
31, 1996 for a discussion of legal proceedings instituted in
the quarter ended March 31, 1997.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) The following reports have been filed with the
Securities and Exchange Commission.
None
13
<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.
DATE: May 13, 1997 BY: /s/ Irwin L. Gross
-------------------- ----------------------------
Irwin L. Gross, Chairman
and President
DATE: May 13, 1997 BY: /s/ Manfred Hanuschek
-------------------- ----------------------------
Manfred Hanuschek
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 8,632,120
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,205,787
<PP&E> 11,781
<DEPRECIATION> 11,205,787
<TOTAL-ASSETS> 4,163
<CURRENT-LIABILITIES> 224,563
<BONDS> 0
0
0
<COMMON> 213,416
<OTHER-SE> 8,281,811
<TOTAL-LIABILITY-AND-EQUITY> 11,205,787
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
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</TABLE>
