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 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 ____ 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
25,989,300 shares outstanding as of May 13, 1998.
- --------------------------------------------------------------------------------
<PAGE>
INDEX TO FORM 10-Q REPORT
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1998 and 3
December 31, 1997
Consolidated Statements of Operations - Three months 4
ended March 31, 1998 and 1997
Consolidated Condensed Statements of Cash Flows - 5
Three months ended March 31, 1998 and 1997
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>
ICC TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $17,289,611 $1,257,483
Accounts receivable, net of allowance for doubtful accounts
of $453,824 1,612,188 0
Inventories 2,269,174 0
Prepaid expenses and other 306,532 406,558
----------- ----------
Total current assets 21,477,505 1,664,041
PROPERTY, PLANT AND EQUIPMENT, net 2,495,488 7,614.83
NOTES RECEIVABLE FROM RARE MEDIUM 1,500,000 350,000
RESTRICTED CASH 750,000 2,500,000
INVESTMENT IN ENGELHARD HEXCORE 249,772 0
OTHER ASSETS, net 31,186 0
----------- -----------
Total assets $26,503,951 $ 4,521,656
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 1,065,188 $ 97,986.24
Short - term loan 2,750,000 0
Accrued liabilities 3,391,713 183,518
----------- -----------
Total current liabilities 7,206,901 281,504
----------- -----------
LONG TERM DEBT 93,678 0
LOSSES OF ENGELHARD/ICC IN EXCESS OF INVESTMENTS 0 7,302,358
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY(DEFICIT):
Common stock, $.01 par value, authorized 50,000,000 shares,
issued 21,519,998 shares at March 31, 1998 and December 31, 1997 215,200 215,200
Additional paid-in capital 51,346,744 51,308,904
Note receivable from officer/director (230,467) (230,467)
Accumulated deficit (31,956,675) (54,184,413)
Less: Treasury common stock, at cost, 66,227 shares (171,430) (171,430)
----------- -----------
Total stockholders' equity (deficit) 19,203,372 (3,062,206)
----------- -----------
Total liabilities and stockholders' equity (deficit) 26,503,951 4,521,656
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
3
<PAGE>
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
----------------------------------
March 31, March 31,
1998 1997
------------ ------------
<S> <C> <C>
REVENUES $ 1,530,561 $ 0
COST OF SALES 1,860,935 0
------------ ------------
Gross loss 330,374 0
OPERATING EXPENSES:
Marketing 480,810 0
Engineering 254,125 0
General and administrative 977,393 429,925
------------ ------------
Total operating expenses 1,712,328 429,925
------------ ------------
Loss from operations 2,042,702 429,925
OTHER INCOME(EXPENSE):
Gain on restructuring of Engelhard/ICC 24,256,769 0
Interest income 102,837 135,144
Interest expense (47,716) 0
Equity interest in net loss of investments (41,450) (1,394,000)
------------ ------------
Other income (expense) 24,270,440 (1,258,856)
------------ ------------
NET INCOME(LOSS) $ 22,227,738 $ (1,688,781)
============ ============
BASIC EARNINGS PER SHARE
Net income (loss) per share $ 1.04 $ (0.08)
============ ============
Weighted average common shares outstanding 21,453,771 21,315,771
============ ============
DILUTED EARNINGS PER SHARE:
Net income (loss) per share $ 1.03 $ (0.08)
============ ============
Weighted average common and common equivalent shares outstanding 21,569,879 21,315,771
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
4
<PAGE>
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------------
1998 1997
------------ ------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net Income (loss) $ 22,227,738 $ (1,688,781)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Gain on Restructuring of Engelhard/ICC (24,256,769) 0
Depreciation and amortization 186,957 982
Equity interest in net loss of investments 41,450 1,394,000
Compensation expense in connection with issuance of
common stock, stock options and warrants 37,837 0
Provision for doubtful accounts 9,000 0
Increase in inventory reserve 50,000 0
(Increase) decrease in:
Receivables (1,019,165) 0
Inventories (217,280) 0
Prepaid expenses and other (391,517) 42,112
Increase (decrease) in:
Accounts payable and accrued expenses 35,647 137,090
------------ ------------
Net cash used in operating activities $ (3,296,102) (114,597)
------------ ------------
Cash Flows from Investing Activities:
Capital contribution to Engelhard/ICC 0 (1,000,000)
Cash received in connection with restructuring 18,864,003 0
Issuance of notes receivable (1,150,000)
Purchase of restricted certificate of deposit (750,000) 0
Redemption of restricted certificate of deposit 2,500,000 0
Purchases of property, plant and equipment, net (30,766) (7,010)
------------ ------------
Net cash provided by (used in) investing activities $ 19,433,237 (1,007,010)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock and warrants, net 0 112,613
Repayments of borrowings (105,007) 0
------------ ------------
Net cash provided by (used in) financing activities $ (105,007) 112,613
------------ ------------
Net increase (decrease) in cash and cash equivalents 16,032,128 (1,008,994)
Cash and cash equivalents, beginning of period 1,257,483 9,641,114
------------ ------------
Cash and cash equivalents, end of period $ 17,289,611 8,632,120
============ ============
Cash paid for interest $ 28,600 $ 0
The accompanying notes are an intergal part of the consolidated financial statements
</TABLE>
5
<PAGE>
ICC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1998
(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 consolidated financial
statements and footnotes thereto for the year ended December 31, 1997
included in ICC Technologies, Inc's ("the Company") Annual Report on
Form 10-K/A for the year then ended. Results of operations for the
three months ended March 31, 1998 include the operations of the
Company's 90% owned partnership, Fresh Air Solutions, L.P. (see Note
3). Accounting policies followed by Engelhard/ICC will be adopted by
the Company. Results of operations for the three months ended March 31,
1998 are not necessarily indicative of results of operations expected
for the full year.
On April 15, 1998, the Company acquired an internet professional
services company, Rare Medium which will be accounted for under the
purchase method of accounting and accordingly the results of operations
and financial position of such acquisition have not been reflected in
the financial statements of the Company as of March 31, 1998 (See Note
7).
(2) BUSINESS AND GOING CONCERN CONSIDERATIONS:
Business
Prior to February 27, 1998, ICC Technologies, Inc. (the "Company" or
"ICC") through its partnership with Engelhard Corporation
("Engelhard"), designed, manufactured and marketed innovative climate
control systems to supplement or replace conventional air conditioning
systems. The Company and Engelhard formed the partnership Engelhard/ICC
(the "Partnership") in February 1994; as a result, the Company had
become principally a holding company, owning a 50% interest in
Engelhard/ICC. In February 1998, Engelhard/ICC was divided into two
separate operating partnerships: Fresh Air Solutions LP ("Fresh Air
Solutions") and Engelhard HexCore LP ("Engelhard HexCore"). Fresh Air
Solutions designs, manufactures and markets innovative climate control
systems to supplement or replace conventional air conditioning systems.
Engelhard HexCore designs, manufactures and markets desiccant coated
and heat-exchange rotors and products manufactured from honeycomb
substrate. ICC owns 90% of Fresh Air Solutions and 20% of Engelhard
HexCore. Engelhard owns 10% of Fresh Air Solutions and 80% of Engelhard
HexCore.
Fresh Air Solutions' climate control systems are designed to address
indoor air quality, energy and environmental concerns and regulations
currently affecting the air conditioning market. Fresh Air Solutions
currently markets its systems to certain targeted applications within
the commercial air conditioning market in North America and
Asia-Pacific. Fresh Air Solutions' climate control systems incorporate
proprietary desiccant technology initially developed by the Company,
Engelhard HexCore's licensed honeycomb rotor technology and Engelhard's
patented titanium silicate desiccant, ETS(TM). Fresh Air Solutions'
climate control systems are designed to address indoor air quality,
energy and environmental concerns and regulations currently affecting
the air conditioning market.
The Company believes that the Fresh Air Solutions' climate control
systems create a more comfortable environment, more effectively control
humidity, improve indoor air quality, address certain environmental
concerns and provide customers a choice from a variety of energy
sources
6
<PAGE>
such as natural gas, steam, waste heat or electricity.
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. The
results of operations of the Company and Fresh Air Solutions, L.P. have
been insufficient to cover costs of operations for the three months
ended March 31, 1998. The Company has incurred cumulative losses since
inception of approximately $32 million through March 31, 1998. 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. 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 activities during the
three months ended March 31, 1998 was financed primarily through the
use of cash on hand and proceeds received in connection with the
restructuring of the partnership. Management believes the Company will
require additional capital during 1998. The Company would expect to
satisfy such requirements by utilizing its cash on hand or in the event
of a shortfall, by seeking equity or debt financing. The Company's
ability to successfully obtain equity or debt financing, if necessary,
in the future is dependent in part on market conditions and the
performance of the Company. There can be no assurance that the Company
will be able to obtain equity or debt financing in the future.
(3) RESTRUCTURING OF THE PARTNERSHIP:
On February 27, 1998, the Company and Engelhard restructured the
Partnership ("the Restructuring'). The Partnership was terminated and
the net assets were divided into two separate operating limited
partnerships, one to manufacture and market complete, active climate
control systems under the name Fresh Air Solutions, LP and the other to
manufacture and market heat-exchange and desiccant coated wheel-shaped
rotors that are components of the climate control systems under the
name Engelhard HexCore, LP. Pursuant to the Restructuring, ICC received
approximately $18,600,000 in cash from Engelhard and 90% ownership and
full control of Fresh Air Solutions. ICC retained a 20% equity interest
in Engelhard HexCore. Fresh Air Solutions will purchase rotors
exclusively from Engelhard HexCore at prices that are lower than the
best prices Engelhard HexCore offers to other customers for such
purchases. Engelhard continues to guarantee the lease on Fresh Air
Solutions' manufacturing facility until 2002 and continues to guarantee
up to $2,000,000 of Fresh Air Solutions' short-term debt. Engelhard's
short-term debt guarantee is reduced to $1,000,000 after one year and
completely terminated after two years. The Company's guarantee of 50%
of the Partnership's $8.5 million indebtedness associated with the
industrial development bonds and the related irrevocable letter of
credit for $2,500,000 was terminated; as a result, $2,500,000 in cash
equivalents previously held as collateral became unrestricted.
The acquisition of Fresh Air Solutions, L.P. was accounted for under
the purchase method of accounting. The sale of the Company's 60%
interest in Engelhard HexCore resulted in a nonrecurring gain of $24.3
million . The Company and an investment banker were unable to determine
the fair market values of either Fresh Air Solution or Engelhard
HexCore within reasonable limits. As a result the nonmonetary
consideration paid and received by the Company were recorded at the
historical carrying amounts reflected in Engelhard/ICC.
Pursuant to the Restructuring, the Company obtained full management
control of Fresh Air Solutions, L.P. as of January 1, 1998 and was
responsible for providing full financial support. Accordingly, the
consolidated financial statements of the Company for the three months
ended March 31, 1998, include the results of operations of Fresh Air
Solutions, L.P.
The following are the summarized unaudited financial results of the
Partnership:
7
<PAGE>
Quarter ended
March 31,
1997
-------------
Results of operations:
Revenues $ 2,678,099
Cost of goods sold 3,312,712
---------
Gross profit(loss) (634,613)
Operating expenses:
Marketing 1,016,655
Engineering 291,357
Research and development 146,315
General and administrative 578,281
-------
Loss from operations (2,667,221)
Interest expense 120,778
-------
Net loss $(2,787,999)
============
As of
Balance sheet information: March 31,
1997
------------
Cash $ 90,038
Receivables 2,395,785
Inventory 4,498,616
Other current assets 310,164
Property, plant and equipment 9,056,120
Cash held in escrow 13,477
Other noncurrent assets 1,984,791
------------
Total Assets $ 18,348,991
============
Current liabilities $ 2,374,600
Revolving credit line 2,750,000
Long term debt 8,693,698
Partners' capital 4,530,693
------------
Total Liabilities and capital $ 18,348,991
============
The Company's investment in Engelhard HexCore, LP is owned by a
subsidiary, ICC Desiccant Technologies, Inc. The investment in the
Engelhard HexCore, LP is accounted for under the equity method of
accounting.
Excluded from the consolidated statement of cash flows for the three
month period ended March 31, 1998 was the effect of certain non-cash
items received as consideration as part of the Restructuring including
approximately $1 million in receivables, $2.3 million in inventory,
$2.6 million in property, plant and equipment, $7.5 million in current
liabilities which included $2.8 million in a short term loan.
(4) STOCK TRANSACTIONS:
Equity Investments
There were no proceeds from the exercise of stock options or warrants
in the three month period ended March 31, 1998. The Company received
proceeds of approximately $113,000 from the exercise of stock options
and warrants to purchase approximately 59,000 shares of Common Stock in
the three month period ended March 31, 1997.
8
<PAGE>
(5) INCOME TAXES:
The Company utilized the benefit of available net operating loss
carryforwards with an equivalent tax benefit of approximately $6.3
million to offset any tax liability that arose as a result of the $18.6
million of taxable income that arose as a result of the Restructuring
of the Partnership in three month period ended March 31, 1998.
(6) EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if stock options or
warrants were exercised or converted into Common Stock. The dilutive
effect of stock options and stock warrants in the three months ended
March 31, 1998 increased weighted average shares outstanding by 116,108
shares. Basic and diluted earnings per share were the same in the three
months ended March 31, 1997 since the effect of all potential dilutive
common shares was antidilutive.
(7) SUBSEQUENT EVENT:
On April 15, 1998, the Company acquired by merger Rare Medium, Inc., a
privately held New York corporation ("Rare Medium"). Rare Medium is an
Internet professional services company engaged in the design, delivery
and implementation of Internet web site applications and strategies
with its principal offices located in New York City and Los Angeles.
The assets of Rare Medium comprise generally of cash, accounts
receivable, prepaid expenses, work in process, equipment and leasehold
improvements. ICC will account for the transaction under the purchase
method for accounting. In consideration for merging with the Company,
the stockholders of Rare Medium received in exchange for all of the
outstanding shares of common stock of Rare Medium total consideration
of approximately $45 million, consisting of a combination of $10
million in cash, $22.2 million in a promissory note and the remainder
in 4,269,300 shares of Common Stock of ICC. On or before June 29, 1998,
the Company intends to file with the Securities and Exchange Commission
an amendment to the Form 8-K, originally filed on April 30, 1998,
related to the acquisition of Rare Medium which will contain the
historical and pro forma financial information related to Rare Medium
and ICC Technologies, Inc. as provided by the Form 8-K requirements.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company, through Fresh Air Solutions, designs, manufactures and markets
innovative climate control systems to supplement or replace conventional air
conditioning systems.
The Company and Engelhard formed Engelhard/ICC (the "Partnership") in February
1994 to pursue the desiccant air conditioning business, which previously had
been conducted by the Company. In exchange for a 50% interest in the
Partnership, the Company transferred to the Partnership substantially all of its
assets relating to its desiccant-based air conditioning business, subject to
certain liabilities. Engelhard, in exchange for a 50% interest in the
Partnership, (i) contributed $8,600,000 in capital to the Partnership, (ii)
entered into the Engelhard Supply Agreement and the Engelhard License Agreement
for ETS(TM) and (iii) agreed to provide credit support to the Partnership in the
amount of $3,000,000. In addition, Engelhard extinguished a $900,000 obligation
due to it by the Company.
On February 27, 1998, the Company and Engelhard restructured the Partnership.
The Partnership was terminated and its net assets were divided into two separate
operating limited partnerships, one to manufacture and market complete, active
climate control systems under the name Fresh Air Solutions, LP and the other to
manufacture and market products fabricated from honeycomb substrate material and
the heat-exchange and desiccant coated wheel-shaped rotors that are components
of the climate control systems under the name Engelhard HexCore, LP. All assets
and liabilities of the Partnership related to or used in the Partnership's
climate control systems business (including all assets and liabilities directly
related to, located at or arising out of the Partnership's Hatboro facility)
were transferred or assigned to Fresh Air Solutions. Under the Restructuring ICC
received approximately $18.6 million in cash, a 90% ownership interest in and
full management control of Fresh Air Solutions, LP. All assets and liabilities
of the Partnership related to or used in the Partnership's honeycomb substrate
and rotor business (including all assets and liabilities directly related to,
located at or arising out of the Partnership's Miami facility) were retained by
Engelhard HexCore. ICC retained a 20% ownership interest in Engelhard HexCore,
LP. Engelhard received an 80% ownership interest in and full management control
of Engelhard HexCore.
The Company accounts for its 20% interest in Engelhard HexCore under the equity
method of accounting for investments.
On April 15, 1998, the Company acquired by merger Rare Medium, Inc., a privately
held New York corporation ("Rare Medium"). Rare Medium is an Internet
professional services company engaged in the design, delivery and implementation
of Internet web site applications and strategies with its principal offices
located in New York City. The assets of Rare Medium comprise generally of cash,
accounts receivable, prepaid expenses, work in process, equipment and leasehold
improvements. ICC will account for the transaction under the purchase method for
accounting. In consideration for merging with the Company, the stockholders of
Rare Medium received in exchange for all of the outstanding shares of common
stock of Rare Medium total consideration of approximately $45 million,
consisting of a combination of $10 million in cash, $22.2 million in a
promissory note and the remainder in 4,269,300 shares of Common Stock of ICC. On
or before June 29, 1998, the Company intends to file with the Securities and
Exchange Commission an amendment to the Form 8-K, originally filed on April 30,
1998, related to the acquisition of Rare Medium which will contain the
historical and pro forma financial information related to Rare Medium and ICC
Technologies, Inc. as provided by the Form 8-K requirements.
10
<PAGE>
Results of Operations
In connection with the Restructuring of the Partnership, effective January 1,
1998 the Company obtained full management control of, absorbed full losses of
and was responsible for the funding of the climate control business of Fresh Air
Solutions; as a result, the results of operations reflect the operations of the
climate control business of Fresh Air Solutions for the three months ended March
31, 1998. Prior to the Restructuring of the Partnership, the Company's sole
activities have related to its participation in the management of the
Partnership.
The Company's revenue for the three months ended March 31, 1998 amounted to
$1,530,561 compared to $0 for the same period in 1997. This increase in revenue
is attributable to consolidation of the results of operations of Fresh Air
Solutions L.P. as a result of the Restructuring. Revenues relate to equipment
sales of approximately $1.5 million in 1998 as compared to the sale of equipment
by Engelhard/ICC of $1.3 in the same period in 1997. The Company recorded a
gross loss of $330,374 compared to $0 for the same period in 1997. This increase
in gross loss is attributable to consolidation of the results of operations of
Fresh Air Solutions L.P. as a result of the Restructuring. The gross loss on
equipment sales decreased for the three months ended March 31, 1998 to
approximately $330,000 as compared to a gross loss by Engelhard/ICC of
approximately $621,000 for the same period in 1997. The reduction in gross loss
was the result of increased efficiencies in labor and material costs.
The Company's operating expenses for the three months ended March 31, 1998
amounted to $1,712,328 compared to $429,925 for the same period in 1997. This
increase in operating expense is attributable to consolidation of the results of
operations of Fresh Air Solutions, L.P. in 1998 as a result of the
Restructuring. The Company's operating expenses in 1997 consisted of general and
administration expenses of ICC which was then a holding company. The operating
expenses decreased to approximately $1,712,000, which also includes ICC
corporate expenses of $370,056, compared to operating expenses by Engelhard/ICC
of $2,032,608 for the same period in 1997. The reduction in operating costs was
the result of cost containment measures initiated in 1998. These cost
containment measures included restrictions on expenditures and reduction in
office staff.
The Company's other income for the three months ended March 31, 1998 amounted to
$24,270,440 compared to other expense of $1,258,856 for the same period in 1997.
The increase in other income is attributable primarily to the gain of
approximately $24.3 million related to the Restructuring of Engelhard/ICC.
The Company's net income for the three months ended March 31, 1998 increased to
$22,227,738 compared with the net loss of $1,688,781 for the same period in
1997. This increase in the net income is attributable to the gain on the
Restructuring of Engelhard/ICC. Basic earnings per share of Common Stock
increased to $1.04 for the three month period ended March 31, 1998, compared
with a loss of $.08 per share for the same period of 1996 as a result of the
aforementioned increase in net income. Excluding the one-time gain on the
restructuring of Engelhard/ICC, the net loss would have been $2,029,031 for the
three month period ending March 31, 1998.
The Partnership's backlog for equipment amounted to approximately $2 million at
May 13, 1998 versus $2.6 million in the comparable period in 1997. The decrease
in backlog is primarily attributable to a significant decline in orders from the
Asia-Pacific market and to customer concerns over component failures and odor
issues. The decline in the Asia-Pacific market activity is largely attributable
to the Asian-Pacific economies experiencing lower economic growth than had been
previously enjoyed resulting in declines in many of the Asia-Pacific currencies
in comparison to the US dollar. Continued weakness in Asian-Pacific currencies
could adversely impact Asian-Pacific market activities. The Company believes
that Fresh Air Solutions has adequately provided for existing and potential
future warranty claims.
The Company is currently evaluating alternatives relating to a possible
disposition of its climate control system business, which includes a possible
spin-off to ICC's stockholders; however, the Company has not approved a formal
plan of disposition.
11
<PAGE>
Liquidity and Capital Resources
The Company's cash and cash equivalents increased $16,032,128 to $17,289,611 as
of March 31, 1998 as compared to $1,257,483 as of December 31, 1997. The
increase in cash is primarily attributable to the approximately $18 million cash
received in connection with the Restructuring of Partnership on February 27,
1998, of which $10 million was used in connection with the acquisition of Rare
Medium.
Net cash used in operating activities by the Company was $3,296,102 for the
three months ended March 31, 1998 due primarily to working capital requirements
of Fresh Air Solutions. Net cash provided from investing activities of
approximately $19.4 million was the result of $18.6 million in cash received
from Engelhard Corporation in connection with the Restructuring of the
Partnership and the redemption of $2.5 million of previously restricted cash and
cash equivalents. In April 1998 $10 million in cash was utilized in the purchase
of Rare Medium.
The Company is currently evaluating the disposition of its climate control
system business, which includes a possible spin-off to ICC's stockholders;
however, the Company has not approved a formal plan of disposition. If ICC does
not or is unable to dispose of the climate control business, the Company
believes that capital will be required to support operations of the climate
control business over the next year. The Company anticipates it will need to
raise capital to retire the $22.2 million debt incurred in connection with the
Rare Medium acquisition, which matures in the years 2000 to 2001. The Company
anticipates it will need to raise capital to retire the $22.2 million debt which
matures in the years 2000 to 2001. The Company would expect to satisfy such
capital 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 Company. There can be no assurance
that the Company will be able to obtain equity financing in the future. The
Company has not yet determined whether or the extent to which it will require
additional funds to finance operations of Rare Medium.
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 1997 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. The Company has incurred cumulative losses since inception
amounting to approximately $31.9 million through March 31, 1998. In order to
continue operations, the Company has had to raise additional capital to offset
cash consumed in operations. 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 or refinancing
as may be required; and (iii) ultimately, attain profitable operations and
positive cash flow.
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 ICC Technologies, Inc. and its
subsidiaries' business, financial position and prospects and cause actual
results to differ materially from these forward-looking statements. Among the
factors that could cause actual results to differ are whether the Company can
obtain sufficient funds to finance working capital and other financing
requirements, market acceptance of the Fresh Air Solutions' products, Rare
Medium's limited operating history; competition; low barrier to entry in the
internet industry; reliance on strategic relationships; rapid technological
changes in the internet industry; and those risks discussed 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 regarding the settlement of the
lawsuit wth Engelhard under the caption Legal Proceedings in
the Company's Form 10-K Report for the year ended December 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
A Special Meeting of Shareholders of the Company was held
February 23, 1998. The record date for the meeting was January
27, 1998. At such meeting, the holders of Common Stock, voting
as a single class, approved the Master Agreement by and among
ICC, Engelhard Corporation and Engelhard/ICC which provides in
substance for a) the division of Engelhard/ICC into two
separate partnerships, one to manufacture and market complete,
active climate control systems ("Fresh Air Solutions, L.P.")
and the other to manufacture and market the heat-exchange and
desiccant coated wheel-shaped rotors that are components of
the climate control systems ("Engelhard HexCore, L.P."); and
the exchange by ICC and Engelhard of certain of their
respective interests in each partnership and the payment, by
Engelhard to ICC of approximately $18.6 million, such that
after the exchange: ICC will own 90% of Fresh Air Solutions,
L.P. and 20% of Engelhard HexCore, L.P.; and Engelhard will
own 80% of Engelhard HexCore, L.P. and 10% of Fresh Air
Solutions, L.P.
There were 21,453,771 shares entitled to vote at the Special
Meeting of Shareholders. The were 11,529,228 votes in favor of
the Master Agreement, 188,587 votes against and 87,510 in
abstention.
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.
Form 8-K dated February 27, 1998, as amended by Form 8-K/A as
filed on April 29, 1998 related to effectuation of
Restructuring of Engelhard/ICC pursuant to the Master
Agreement dated as of November 17, 1997.
Form 8-K dated April 15, 1998 related to the acquisition of
Rare Medium.
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 14, 1998 BY: /s/ Irwin Gross
------------------ ---------------------
Irwin Gross, Chairman
DATE: May 14, 1998 BY: /s/Manfred Hanuschek
------------------ ---------------------
Manfred Hanuschek
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 17,289,611
<SECURITIES> 0
<RECEIVABLES> 2,066,012
<ALLOWANCES> 453,824
<INVENTORY> 2,269,174
<CURRENT-ASSETS> 21,477,505
<PP&E> 4,312,351
<DEPRECIATION> 1,816,863
<TOTAL-ASSETS> 26,503,951
<CURRENT-LIABILITIES> 7,206,901
<BONDS> 0
0
0
<COMMON> 215,200
<OTHER-SE> 18,988,172
<TOTAL-LIABILITY-AND-EQUITY> 26,503,951
<SALES> 1,530,561
<TOTAL-REVENUES> 1,530,561
<CGS> 1,860,935
<TOTAL-COSTS> 1,860,935
<OTHER-EXPENSES> 1,712,328
<LOSS-PROVISION> 59,000
<INTEREST-EXPENSE> 47,716
<INCOME-PRETAX> 22,227,738
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,227,738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,227,738
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.03
</TABLE>
