Conformed Copy
- --------------------------------------------------------------------------------
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, 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: not applicable
--------------
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
--------------------------------------
21,519,999 shares outstanding as of November 10, 1997.
------------------------------------------------------
================================================================================
<PAGE>
INDEX TO FORM 10-Q REPORT
-------------------------
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 1997 and 3
December 31, 1996
Consolidated Statements of Operations - Three months and
nine months ended September 30, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows - Nine 5
months ended September 30, 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
2
<PAGE>
Item 1. Financial Statements (Unaudited)
- ----------------------------------------
ICC TECHNOLOGIES, INC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,389,474 $ 9,641,114
Prepaid expenses and other 159,415 108,161
------------ ------------
Total current assets 4,548,889 9,749,275
RESTRICTED CASH 2,500,000 2,500,000
PROPERTY, EQUIPMENT AND SOFTWARE, net 8,596 1,590
------------ ------------
Total assets $ 7,057,485 $ 12,250,865
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 133,509 $70,437
Payable to Engelhard/ICC 27,394 17,035
------------ ------------
Total current liabilities 160,903 87,472
------------ ------------
LOSSES OF ENGELHARD/ICC IN EXCESS OF INVESTMENTS 2,255,488 2,091,997
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 50,000,000 shares, issued
21,470,998 shares at September 30, 1997 and 21,282,354
shares at December 31, 1996 214,711 212,824
Additional paid-in capital 51,169,325 50,730,330
Note receivable from officer/director (230,467) 0
Accumulated deficit (46,341,045) (40,700,328)
Less: Treasury common stock, at cost, 66,227 shares (171,430) (171,430)
------------ ------------
Total stockholders' equity 4,641,094 10,071,396
------------ ------------
Total liabilities and stockholders' equity $ 7,057,485 $ 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 Nine months ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Interest income $ 112,825 $ 192,100 $ 411,897 $ 500,990
EXPENSES:
Equity interest in net loss of Engelhard/ICC 1,724,916 1,294,727 4,538,491 4,390,715
General and administrative 516,085 329,387 1,514,123 1,141,630
------------ ------------ ------------ ------------
Total expenses 2,241,001 1,624,114 6,052,614 5,532,345
------------ ------------ ------------ ------------
NET LOSS (2,128,176) (1,432,014) (5,640,717) (5,031,355)
CUMULATIVE PREFERRED STOCK
DIVIDEND REQUIREMENTS 0 0 0 (49,655)
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (2,128,176) $ (1,432,014) $ (5,640,717) $ (5,081,010)
============ ============ ============ ============
NET LOSS PER COMMON SHARE $ (0.10) $ (0.07) $ (0.26) $ (0.25)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES 21,383,464 21,192,241 21,304,645 20,027,611
============ ============ ============ ============
</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>
Nine Months Ended
September 30,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (5,640,717) $ (5,031,355)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,945 1,192
Equity interest in net loss of Engelhard/ICC 4,538,491 4,390,715
(Increase) decrease in:
Receivables 0 144,276
Prepaid expenses and other (51,254) 136,272
Increase (decrease) in:
Accounts payable and accued expenses 73,431 (274,947)
------------ ------------
Net cash used in operating activities (1,077,104) (633,847)
------------ ------------
Cash Flows from Investing Activities:
Capital contributions to Engelhard/ICC (4,375,000) (6,000,000)
Purchases of property, equipment and software (9,951) 0
------------ ------------
Net cash used in investing activities (4,384,951) (6,000,000)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock and warrants, net 210,415 17,249,578
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 210,415 15,723,698
------------ ------------
Net (decrease) increase in cash and cash equivalents (5,251,640) 9,089,851
Cash and Cash Equivalents, Beginning of Period 9,641,114 1,573,475
------------ ------------
Cash and Cash Equivalents, End of Period $ 4,389,474 $ 10,663,326
============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
-5-
<PAGE>
ICC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 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 and
nine months ended September 30, 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. 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 and nine months ended September 30,
1997. The Company has incurred cumulative losses since inception of
approximately $46 million through September 30, 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 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.
6
<PAGE>
The source of the cash utilized in the Company's operating and investing
activities during the three and nine months ended September 30, 1997 was
cash on hand and proceeds from the exercise of stock options and warrants.
Management believes the Partnership will require additional capital
contributions. 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) INVESTMENT IN ENGELHARD/ICC PARTNERSHIP
The following are the summarized unaudited financial results of the
Partnership:
<TABLE>
<CAPTION>
Quarter Quarter Nine months Nine months
ended ended ended ended
September September September September
30, 1997 30, 1996 30, 1997 30, 1996
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Results of operations:
Revenues $ 3,775,407 $ 2,891,779 $ 10,084,346 $ 7,688,527
Cost of goods sold 4,832,556 3,073,232 12,106,775 9,303,479
----------- ----------- ------------ -----------
Gross profit(loss) (1,057,149) (181,453) (2,022,429) (1,614,952)
Operating expenses:
Marketing 943,715 887,566 2,952,452 2,603,764
Engineering 515,010 274,006 1,324,797 813,931
Research and development 142,980 215,389 449,977 799,235
General and administrative 690,407 934,712 1,990,954 2,639,111
----------- ----------- ------------ -----------
Loss from operations 3,349,261 2,493,126 8,740,609 8,470,993
Interest expense 100,570 96,327 336,373 310,436
----------- ----------- ------------ -----------
Net loss $ 3,449,831 $ 2,589,453 $ 9,076,982 $ 8,781,429
=========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
As of As of
Balance sheet information: September December
30, 1997 31, 1996
----------- -------------
<S> <C> <C>
Cash $ 12,204 $ 1,192,997
Receivables 3,529,147 2,640,804
Inventory 4,310,810 4,570,952
Other current assets 262,891 278,762
Property, plant and equipment 9,784,690 7,990,125
Cash held in escrow 14,248 307,476
Other noncurrent assets 1,973,818 1,978,115
----------- ------------
Total assets $19,887,808 $ 18,959,231
=========== ============
Current liabilities $ 3,438,474 $ 2,248,209
Short-term loan 2,750,000 2,750,000
Long-term debt 8,707,624 8,642,330
Partners' capital 4,991,710 5,318,692
----------- -----------
Total liabilities and capital $19,887,808 $18,959,231
=========== ===========
</TABLE>
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 $1,724,916 and $1,294,727 for the three months ended
September 30, 1997 and 1996, respectively and $4,538,491 and $4,390,715 for
the nine months ended September 30, 1997 and 1996, respectively. The
Partnership has incurred cumulative losses of approximately $38 million
since inception (February 7, 1994) through September 30, 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 $2,255,488
and $2,091,997 as of September 30, 1997 and December 31, 1996,
respectively. Payables to the Partnership were $27,394 and $17,035 at
September 30, 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 September 30, 1997.
The Company and Engelhard made capital contributions of $1,125,000 each to
the Partnership during the three months ended September 30, 1997 raising
the total capital contributions contributed to the Partnership during the
nine months ended September 30, 1997 to $4,375,000 each. Subsequent to
September 30, 1997, additional capital contributions made by ICC and
Engelhard were $1 million and $ 250,000, respectively.
In August 1997, the Company reached an agreement, in principle, with
Engelhard Corporation to restructure the Partnership (the "Restructuring").
The Restructuring will provide that the Partnership will be split into two
separate companies: one to manufacture and market complete, active, climate
control equipment systems ("Box Business"); the other to manufacture and
market the desiccant-coated rotors that are a critical component of the
systems ("Wheel Business"). Pursuant to the Restructuring, the Company will
receive approximately $18.6 million and own 90 percent and have full
management control of Box Business while Engelhard will retain a 10 percent
equity interest in Box Business. Engelhard will own 80 percent and have
full management control of Wheel Business and the Company will own a 20%
interest in Wheel Business. The Partnership's $8.5 million loan will be
assumed by the Wheel Business and accordingly the Company's corresponding
guarantee will be eliminated which will make available $2.5 million in cash
which is currently restricted. The Box Business will purchase desiccant
rotors exclusively from the Wheel Business and will have preferential
pricing for such purchases. The Box Business will also maintain on an
exclusive basis certain vertical markets and marketing relationships
subject to certain conditions. Engelhard will continue to guarantee the
lease commitment of the Box Business. The Restructuring is subject to
negotiation of definitive contracts and approval by the Boards of Directors
of the Company and Engelhard and the stockholders of the Company.
(4) STOCK TRANSACTIONS:
-------------------
The Company received proceeds of approximately $89,000 and $64,000 from the
exercise of stock options and warrants to purchase approximately 37,600 and
14,000 shares of Common Stock in the three month periods ended September
30, 1997 and 1996, respectively. The Company received proceeds of
approximately $210,000 and $254,000 from the exercise of stock options and
warrants to purchase approximately 105,900 and 117,000 shares of Common
Stock in the nine month period ended September 30, 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 the offering. In
April 1996, the underwriters of the secondary offering exercised their
overallotment option and purchased 186,813 shares of Common Stock for
proceeds of approximately $1.2 million after underwriting discounts and
commissions.
The Company loaned $230,467 to its chairman in July 1997 in connection with
the exercise of an option to acquire 82,753 shares of Common Stock. The
loan was in the form of a full recourse note which matures in five years.
Such note bears a market rate of interest equal to the prime rate of 8.5%
with such rate to be adjusted to the current prime rate at each annual
anniversary date.
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 is principally a holding company.
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.
In August 1997, the Company reached an agreement, in principle, with
Engelhard Corporation to restructure the Partnership interests (the
"Restructuring"). The Restructuring will provide that the Partnership be
split into two separate companies: one to manufacture and market complete,
active, climate control equipment systems ("Box Business"); the other to
manufacture and market the desiccant-coated rotors that are a critical
component of the systems ("Wheel Business"). Pursuant to the Restructuring,
the Company will receive approximately $18.6 million and own 90 percent and
have full management control of Box Business while Engelhard will retain a
10 percent equity interest in Box Business. Engelhard will own 80 percent
and have full management control of Wheel Business and the Company will own
a 20% interest in Wheel Business. The Partnership's $8.5 million loan will
be assumed by the Wheel Business and accordingly the Company's
corresponding guarantee will be eliminated which will make available $2.5
million in cash which is currently restricted. The Box Business will
purchase desiccant rotors exclusively from the Wheel Business and will have
preferential pricing for such purchases. The Box Business will also
maintain on an exclusive basis certain vertical markets and marketing
relationships subject to certain conditions. Engelhard will continue to
guarantee the lease commitment on the systems business. The Restructuring
is subject to negotiation of definitive contracts and approval by the
Boards of Directors of the Company and Engelhard and the stockholders of
the Company.
9
<PAGE>
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
$186,698 to $516,085 for the three month period ended September 30, 1997,
compared to $329,387 for the same period in 1996, and increased $372,493 to
$1,514,123 for the nine month period ended September 30, 1997, compared to
$1,141,630 for the same period in 1996. Such increase was primarily related
to increased professional and consulting fees. The Company's interest
income decreased $79,275 to $112,825 for the three month period ended
September 30, 1997, compared to $192,100 for the same period in 1996, and
decreased $89,093 to $411,897 for the nine month period ended September 30,
1997, compared to $500,990 for the same period in 1996. The decrease in
interest income is the result of a decrease in average cash and cash
equivalents balances in 1997 as compared to 1996.
The Company's net loss for the three months ended September 30, 1997
increased $696,162 to $2,128,176, compared with the net loss of $1,432,014
for the same period in 1996, and increased $609,362 to $5,640,717 for the
nine month period ended September 30, 1997, compared to $5,031,355 for the
same period in 1996. The increase in the net loss is primarily attributable
to the increase in the Company's 50% share of the Partnership's loss,
general and administrative expenses and the reduction in interest income.
Net loss per share of Common Stock increased to $.10 and $.26 for the three
and nine month periods ended September 30, 1997, respectively, as compared
with $.07 and $.25 per share for the same periods in 1996. Such increase
was attributable to the increase in net loss for the three and nine month
periods ended September 30, 1997.
The Partnership's revenue increased to $3,775,407 and $10,084,346 for the
three and nine months ended September 30, 1997, respectively, compared to
$2,891,779 and $7,688,527 for the same periods in 1996 respectively. The
increase in revenue was attributable to increased equipment sales and the
sale of substrate from the Miami plant pursuant to a supply contract.
Equipment sales increased to approximately $2.2 and $5.6 million for the
three and nine months ended September 30, 1997, respectively, compared to
approximately $2.0 and $4.5 million for the three and nine months ended
September 30, 1996, respectively. Sales of substrate increased to
approximately $1.5 and $4.4 million for the three and nine months ended
September 30, 1997, respectively, as compared to approximately $900,000 and
$3.1 million for the three and nine months ended September 30, 1996,
respectively. The Partnership recorded an increase in the gross loss to
approximately $1,057,000 and $2,022,000 for the three and nine months ended
September 30, 1997, respectively, as compared to a gross loss of
approximately $181,000 and $1,615,000 for the same period in 1996 due to
increased warranty costs. During the quarter ended September 30, 1997 a
provision of approximately $900,000 was recorded for a special warranty
program. In order to ensure high quality standards the Partnership
developed a special warranty program. The special warranty program is
designed to repair or replace certain equipment components in the field to
conform to current high quality design standards. The special warranty
program relates to certain components that have failed or potentially could
fail to meet such current quality standards.
The Partnership's operating expenses decreased to $2,292,112 and $6,718,180
for the three and nine months ended September 30, 1997, respectively,
compared to $2,311,673 and $6,856,041 for the same periods in 1996,
respectively, due primarily to lower general and administrative and
research and development costs offset by higher engineering and marketing
costs. Marketing and engineering costs increased due to increases in
related staff levels and activities. General and administrative expenses
have decreased primarily as the result of decreased inventory obsolescence
and severance costs. Research and development expenses decreased as the
result of decreased staff size. The increase in gross loss, primarily
related to increased warranty costs, more than offset the decrease in
operating expenses resulting in a increase in the loss from operations to
$3,349,261 and $8,740,609 for the three and nine months ended September 30,
1997, respectively, as compared to $2,493,126 and $8,470,993 for the same
periods in 1996, respectively. As a result of the aforementioned factors,
the Partnership's net loss increased to $3,449,831 and $9,076,982 for the
three and nine months ended September 30, 1997, respectively, compared to
$2,589,453 and $8,396,204 the same periods in 1996, respectively.
10
<PAGE>
The Partnership's backlog for equipment amounted to approximately $1.4
million at November 10, 1997.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased $5,251,640 to $4,389,474
as of September 30, 1997 as compared to $9,641,114 as of December 31, 1996.
The decrease in cash is primarily attributable to the $4,375,000 capital
contribution made to the Partnership in the nine month period ended
September 30, 1997.
Net cash used in operating activities by the Company was $1,077,104 for the
nine months ended September 30, 1997 due to the net loss, before non-cash
charges and the Company's 50% share of the net loss of the Partnership, of
$1,099,281 offset by net working capital provided of $22,177. The Company
and Engelhard made capital contributions of $4,375,000 each to the
Partnership in the nine months ended September 30, 1997. Subsequent to
September 30, 1997, the Company and Engelhard made capital contributions of
$1,000,000 and $250,000 to the Partnership, respectively. 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 $12,204 at
September 30, 1997 from $1,192,997 at December 31, 1996. The decrease was
due to cash used in operating activities of approximately $7.3 million,
resulting from the Partnership's net losses and working capital
requirements, and cash used in investing activities of approximately $2.8
million related to purchases of machinery and equipment related primarily
to the new production facility in Hatboro, Pennsylvania. Financing
activities provided approximately $9 million which consisted primarily of
$8,750,000 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. 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.
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 April 1996, the underwriters of the secondary offering exercised their
overallotment option and purchased 186,813 of Common Stock for proceeds of
approximately $1.2 million after underwriting discounts and commissions.
The Company received proceeds of approximately $89,000 and $64,000 from the
exercise of stock options and warrants to purchase approximately 37,600 and
14,000 shares of Common Stock in the three month period ended September 30,
1997 and 1996, respectively. The Company received proceeds of approximately
$210,000 and $254,000 from the exercise of stock options and warrants to
purchase approximately 105,900 and 117,000 shares of Common Stock in the
nine month period ended September 30, 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,
11
<PAGE>
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 doubts about the Company's ability to continue as a going
concern. The Company's 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 nine months ended
September 30, 1997. The Company has suffered recurring losses accumulating
to approximately $46 million since inception through September 30, 1997. In
order to continue operations, the Company has had to raise additional
capital to offset cash consumed in operations and in support 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 doubts about the Partnership's ability to continue as a going
concern. The Partnership has incurred cumulative losses of approximately
$38 million since inception through September 30, 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 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
No legal proceedings by, or against, the Company were
initiated in the quarter ended September 30, 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: 27 Financial Data Schedule
(b) The following reports have been filed with the Securities and
Exchange Commission.
Current report on Form 8-K dated August 27, 1997 relating to
the Company's announcement of an agreement, in principle, with
Engelhard Corporation to restructure the Partnership.
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: November 10, 1997 BY: /s/ Irwin L. Gross
--------------------------------------- -------------------------
Irwin L. Gross, Chairman
DATE: November 10, 1997 BY: /s/ Manfred Hanuschek
--------------------------------------- -------------------------
Manfred Hanuschek,
Chief Financial Officer
14
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