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Conformed Without Exhibits
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WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended December
31, 1995, or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
____ to ____
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)
441 North 5th Street, Suite 102
Philadelphia, Pennsylvania 19123
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 625-0700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 22, 1996 was $124,565,779.
As of March 22, 1996, 20,948,876 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Definitive Proxy Statement for its 1996 Annual Meeting to be filed
within 120 days of the Company's fiscal year ended December 31, 1995 is
incorporated by reference in Part III.
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PART I
Item 1. Business
Introduction
ICC Technologies, Inc. (the "Company") through its joint venture Engelhard/ICC
("the Partnership") with Engelhard Corporation ("Engelhard"), designs,
manufactures and markets innovative climate control systems to supplement or
replace conventional air conditioning systems. The Partnership's climate 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 climate control systems are
designed to address indoor air quality, energy and environmental concerns and
regulations currently affecting the air conditioning market. The Partnership
currently markets its systems primarily to certain targeted applications within
the commercial air conditioning market in North America and Asia-Pacific.
The Company believes that the Partnership's climate control systems create a
more comfortable environment, more effectively control humidity, improve indoor
air quality, reduce energy consumption, address certain environmental concerns
and provide customers a choice from a variety of energy sources such as natural
gas, steam, waste heat or electricity.
The Company was incorporated in 1984 under the name "International Cogeneration
Corporation." Initially, the Company designed, manufactured and sold
cogeneration equipment. The Partnership's proprietary desiccant cooling design
was initially developed by the Company as an extension of its cogeneration
business. In 1990, the Company changed its strategy and began to design,
manufacture and market climate control equipment based upon desiccant
technology, at which time the Company also changed its name to "ICC
Technologies, Inc." The Company has since discontinued its cogeneration
business.
In May 1992, the Company entered into a joint development agreement with
Engelhard in order to design a desiccant-based climate control system utilizing
ETS(TM). The Company and Engelhard formed the Partnership in February 1994,
which replaced the joint development agreement and succeeded to the
desiccant-based climate control business which had been conducted by the
Company. In connection with the formation of the Partnership, the Company
granted Engelhard an option to acquire the Company's interest in the Partnership
in installments commencing on December 31, 1997. See "Business -- The
Partnership".
Since December 1994, the Partnership has (i) acquired from Ciba-Geigy
Corporation ("Ciba-Geigy") a honeycomb substrate manufacturing facility in
Miami, Florida, utilized in its proprietary honeycomb desiccant and heat
exchange rotors, (ii) entered into a five year license agreement with Chung-Hsin
Electric and Machinery Corporation ("Chung-Hsin"), Taiwan's largest air
conditioning manufacturer, for Chung-Hsin to manufacture and sell the
Partnership's climate control systems on an exclusive basis in Taiwan and on a
non-exclusive basis in mainland China, (iii) received the "Blue Star"
certification for safety and quality for its natural gas operated systems from
The American Gas Association Laboratory and (iv) hired a new President and Chief
Operating Officer, Vice President of Operations, Vice President of Marketing and
North American Sales, and a Vice President of Market Development. In addition,
in 1995 the Partnership entered into a field demonstration agreement with
Carrier Corporation ("Carrier"), pursuant to which Carrier is testing and
collecting data from multiple units throughout the United States.
Market Overview
The worldwide annual market for residential and commercial air conditioning
systems was approximately $28 billion in 1995 and is expected to grow to
approximately $39 billion by the year 2000, according to a recent study by
DRI/McGraw-Hill (the "DRI Study"). The Asian-Pacific Market is identified as the
fastest growing region for residential and commercial air conditioning systems.
The Partnership has specifically targeted certain applications within the
commercial air conditioning market in North America and Asia-Pacific. The
Company estimates that these targeted applications had annual sales of
approximately $2 billion of the approximately $7 billion combined North-American
and Asian-Pacific commercial air conditioning markets in 1995. According to the
DRI Study, the worldwide commercial air conditioning market is expected to grow
to approximately $13 billion by the year 2000, and the Company expects the
Partnership's desiccant-based systems to compete in a broader segment of this
market as awareness and
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acceptance of the Partnership's systems grow and their initial cost declines.
The Partnership has also entered into two international joint ventures to
develop desiccant-based residential climate control systems, but no such system
has yet been developed and the Partnership cannot reasonably predict if and when
any such system will be developed. See "Business -- Sales and Marketing."
According to the DRI Study, the Asian-Pacific commercial air conditioning market
was approximately $4 billion in 1995 and is expected to increase to
approximately $6 billion by the year 2000. Many of the Asian-Pacific countries
are located in humid climates where the Partnership's climate control systems
are most effective. The Asian-Pacific market is dominated by Japan, which
predominantly utilizes natural gas powered air conditioning systems. As in
Japan, many countries throughout Asia-Pacific are experiencing shortages of
electricity, creating a demand for air conditioning systems powered by
alternative energy sources.
The North American commercial air conditioning market was approximately $3
billion in 1995, according to the DRI Study, and is expected to increase to
approximately $4 billion by the year 2000. Air conditioning systems in North
America predominately utilize electric powered systems. The Partnership's
strategy is to continue to target commercial applications in which humidity
control, indoor air quality and energy consumption are important health issues
or a significant cost of business. Indoor air quality has become an important
issue currently affecting the air conditioning industry in the United States.
Fungal and microbial growth in damp duct work and the build-up of pollutants
from furniture, appliances and other equipment in recirculated air can lead to
unhealthy indoor environments sometimes identified as "Sick Building Syndrome."
To combat this problem, in 1989, American Society of Heating, Refrigeration and
Air Conditioning Engineers ("ASHRAE") issued standards to increase the amount of
fresh air brought into buildings by as much as 200 to 300% as compared to prior
ventilation standards. These standards have been incorporated into many state
and local building codes throughout the United States for new construction. See
"Business -- Government Regulations."
International accords which address various energy and environmental concerns
are also having an impact on air conditioning markets throughout the world.
Under the 1987 Montreal Protocol, as amended, approximately 130 signatory
countries have agreed to halt all production of ozone-destroying CFCs commencing
in 1996. As a result, the Company believes there is an increased demand for new
equipment to replace CFC-based air conditioning equipment. See "Business --
Government Regulations."
Desiccant Technology
Comfort is directly affected by both temperature and humidity. People are
generally more comfortable in less humid environments. Lower humidity allows
water to evaporate from the skin, causing a cooling effect. Conventional air
conditioning systems reduce indoor temperature and humidity by cooling air. In
conventional air conditioning humidity control is principally a by-product of
the cooling process when moisture condenses on the cooling coil. In conditions
where significant humidity reduction is desired, conventional air conditioning
systems must often cool indoor air below desired levels, thereby consuming
additional energy. Desiccant systems, however, remove humidity independently of
cooling without overcooling the air, thereby generally consuming less energy
than conventional air conditioning.
Desiccant technology has been in existence for more than 50 years. A desiccant
is a generic term for any drying agent that removes moisture from the air. Prior
desiccant-based equipment met limited success and market acceptance outside of
industrial drying applications because of less effective desiccants and rotors,
higher maintenance costs, inefficient designs, and high initial and operating
costs. The Company believes that the Partnership's climate control system
design, which incorporates Engelhard's ETS(TM) desiccant and a small cell,
honeycomb substrate material used in the manufacture of the Partnership's
desiccant and heat exchange rotors, has principally overcome these problems and
in many applications is an energy efficient and environmentally safer supplement
or alternative to conventional air conditioning systems.
ETS(TM) is a white crystalline powder, classified as a molecular sieve.
Molecular sieves are capable of differentiating chemicals on a
molecule-by-molecule basis and, therefore, can be designed to remove single
compounds, such as water, from liquids and gases. ETS(TM) is unique in its
capabilities to release moisture at lower regeneration temperatures, thereby
requiring less energy than other desiccants. The heat necessary to remove the
moisture can be provided by almost any source of heat capable of generating
temperatures of at
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least 140(Degrees)F. As a result, the Partnership's systems can use a wider
variety of heat sources, including waste heat, than other desiccant-based
systems.
The Partnership's systems utilize two wheel-shaped rotors with honeycomb
passages. The honeycomb substrate material used to make the rotors is
manufactured through a licensed proprietary process for manufacturing
lightweight structural honeycomb core. This substrate material offers lighter
weight, superior airflow and more efficient heat and moisture transfer than the
corrugated rotors used by the Partnership's competitors. The Company believes
that the Partnership's honeycomb rotors are unique and would be difficult and
costly for competitors to duplicate.
The first rotor in the Partnership's two rotor systems is coated with ETS(TM)
and the second serves as a heat exchange rotor. Recirculated air (air from the
building), or up to 100% fresh air, is first dehumidified by passing it through
a slowly rotating rotor treated with ETS(TM) that adsorbs airborne moisture, and
thereby raises the temperature in proportion to the reduction in humidity. As
the desiccant rotor rotates to the other side of the unit, heated air is blown
through the desiccant rotor which releases the moisture from the ETS(TM),
regenerating the desiccant rotor for further dehumidification. The warm,
dehumidified air is next cooled by passing it through a similar rotor which has
not been coated with ETS(TM). Depending upon climatic conditions, the
temperature of the process air is generally reduced to a temperature
approximately 10% lower than outside air temperature. The heat exchange rotor is
cooled by an evaporative cooler on the other side of the unit. The moderate
temperature, dry air can be cooled further by partially rehumidifying the air
through an evaporative cooler, which does not use any refrigerants, or a smaller
cooling coil than would be required by a conventional air conditioning system.
The process air is then delivered to the building by the normal system of fans
and ducts. To date, approximately 25% of the units sold by the Partnership
have included cooling coils.
The Company believes that the Partnership's systems provide the following
features and benefits:
o More Effective Control of Humidity -- The Partnership's systems are
more effective at controlling humidity than conventional,
refrigerant-based air conditioning systems which control humidity
primarily as a by-product of the cooling process when moisture
condenses on the cooling coil. As a result, in conditions where
significant humidity reduction is desired, conventional air
conditioning systems must often cool air below desired temperature
levels. Drier air is generally more comfortable for a building's
occupants and is more efficient to cool. Humidity control is also
important in a variety of commercial applications, such as
supermarkets, and in certain manufacturing processes.
o Improved Indoor Air Quality --Ventilation standards recommended by
ASHRAE and incorporated into many state and local building codes
throughout the country for new building construction now require that
as much as 200 - 300% more fresh air be circulated into buildings
compared to prior ventilation standards to reduce indoor air pollutants
associated with "Sick Building Syndrome." The Partnership's climate
control systems are designed to process the humidity introduced by
increased ventilation and, accordingly, enable a building to meet or
exceed these standards. In addition, lower humidity levels reduce
airborne bacteria, mold, mildew and fungi, another major source of
indoor air quality problems.
o Energy Efficient and Cost Effective -- Less humid air requires less
energy to cool than more humid air. By dehumidifying air before
cooling, the Partnership's systems, even with a post-cooling option,
consume less energy and are more cost effective to operate than
conventional air conditioning systems alone. As a supplement to
conventional air conditioning, by first dehumidifying the air, the
Partnership's systems are designed to improve the efficiency of
existing conventional air conditioning.
o Versatile and Reliable -- The Partnership's systems are available in
natural gas, electric, steam or waste heat models and in several sizes
which process from 2,000 to 25,000 cubic feet of air per minute. The
ability to choose from a variety of energy sources allows customers to
select the most cost-effective energy source in their area at the time
of purchase. The systems are also expected to require less maintenance
than conventional equipment because of simplicity of design and fewer
moving parts.
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o Environmentally Safer -- Conventional air conditioning systems utilize
refrigerants, such as CFCs, HCFCs and HFCs, which damage stratospheric
ozone or contribute to global warming. Because the Partnership's
systems dehumidify the air before it is cooled by a post-cooling option
in the system or in conjunction with a conventional air conditioning
system, the cooling coil and compressor included generally are smaller,
than would otherwise be required in a conventional air conditioning
system, thereby utilizing less refrigerant.
o Year-round Performance -- The Partnership's natural gas systems provide
year-round indoor climate control. In hot, humid weather they supply
cool, dry air. In cool, "clammy" weather they supply warm, dry air. In
cold weather the natural gas powered systems supply heat. The
Partnership is currently developing heating capability for its electric
powered systems.
Business Strategy
The Partnership's strategy is to target specific applications within the
commercial air conditioning market in which humidity control, indoor air quality
and energy consumption are important health issues or a significant cost of
business. Although the Partnership currently markets its systems primarily as a
supplement to conventional air conditioning systems, the Company believes that
as market awareness and acceptance grows and the initial cost of its systems
declines, the Partnership will market its climate control systems as a
replacement for conventional air conditioning systems in a broader segment of
commercial applications. The Partnership is also attempting to develop a
residential unit with one of its international joint venture partners but
currently does not have a residential unit to offer for sale. The Partnership is
pursuing the following strategies:
o Establish Strategic Relationships with Domestic and International
Manufacturers and Distributors of Air Conditioning Equipment -- The
Partnership has developed strategic relationships with three major
corporations in Asia-Pacific and is in discussions with a number of
domestic and international manufacturers and distributors of air
conditioning equipment. The Partnership plans to enter into additional
licenses or joint venture arrangements. Taiwan's largest air
conditioning manufacturer, Chung-Hsin, has licensed the Partnership's
desiccant-based technology and is attempting to develop a residential
unit. The Partnership has strategic marketing relationships with
Samsung in South Korea and Nichimen in Japan. Japan and South Korea
are the first and sixth largest air conditioning markets,
respectively. The Partnership is also working with AB Air Technologies
Ltd. ("AB Air") in Israel to develop the market in Israel. AB Air is
building systems in Israel using the Partnership's proprietary rotors.
In addition, Carrier is in the process of field-testing a number of
the Partnership's systems in the United States. The Partnership
believes that the reputation and resources of its licensees and joint
venture partners will accelerate market acceptance and awareness for
its products.
o Reduction of Manufacturing Costs -- The Partnership significantly
reduced the cost of its rotors, a major cost component of its systems,
when it acquired it's Miami manufacturing facility and expects to
further reduce manufacturing and material costs through production
innovations and materials improvement and substitutes.
o Acquisition of an Air Conditioning Manufacturer -- The Company believes
that the acquisition of an air conditioning manufacturer is important
to the Partnership's overall strategy of developing market awareness of
its products, increasing production and distribution capabilities and
offering its customers a more complete solution to their climate
control needs. Currently, there are no firm commitments or agreements
to acquire an air conditioning manufacturer and there can be no
assurance that any agreements will be executed or any acquisition will
be consummated.
o Target Specific Commercial Applications -- The Partnership's strategy
is to continue to market its climate control systems to users in which
humidity control, indoor air quality and energy consumption are
important health issues or a significant cost of business. The primary
applications targeted by the Partnership and the benefits that its
systems can provide include:
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Segment Benefits
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Supermarkets Reduces frost and condensation on refrigerated
goods, which improves appearance and extends shelf
life as a result of fewer defrost cycles. Also,
improves comfort in refrigerated aisles and
increases efficiency of refrigerated cases.
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Schools Reduces bacteria and fungus in the building and its
heating, ventilation and air conditioning ("HVAC")
system.
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Restaurants Provides building pressurization to compensate for
concentration of kitchen exhaust and reduces cooking
odors and improves comfort.
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Health Care Reduces bacteria and fungus in the building and
its HVAC system. Allows for warmer temperatures at
lower humidity for greater comfort of patients,
doctors and other health care workers.
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Hotels Reduces mold and mildew and improves comfort.
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Manufacturing Reduces concentration of volatile organic compounds
generated in the manufacturing process and improves
comfort for workers. May be particularly important
to humidity-sensitive manufacturing processes.
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Products
The Partnership currently manufactures and sells three types of desiccant-based
climate control systems, the "DESI/AIR(R)," "Desert Cool(TM)" and "Desert
Breeze(TM)," which differ based upon function and energy source. All of the
systems now incorporate the Partnership's proprietary honeycomb rotors and
Engelhard's ETS(TM). The Partnership's systems are currently being marketed as
energy efficient supplements to enhance the performance of, or partially
replace, existing conventional air conditioning systems. The DESI/AIR(R) and
Desert Cool(TM) systems typically operate on natural gas, but are also available
in steam or waste heat operated models, and also have gas heating capabilities.
Consistent with general industry practices, the Partnership warrants its systems
for one year from the date of installation and warrants its desiccant and heat
exchange rotors for an additional four years. No significant warranty claims
have been experienced by the Partnership or the Company to date.
The DESI/AIR(R) system is larger, customized and more heavy duty than the
Partnership's other systems. These units can displace from 25 to 250 tons of
conventional cooling with the flexibility of utilizing any combination of
circulated or fresh air. The DESI/AIR(R) system was first sold in June 1989, and
has received general acceptance in the supermarket industry. The DESI/AIR(R) can
displace up to 250 tons of conventional cooling with the number of units
required for each application depending on the size and configuration of the
building.
The Desert Cool(TM) system is designed to cool small commercial applications
with the flexibility of utilizing any combination of circulated or fresh air and
can displace as much as 25 tons of conventional cooling. The Desert Cool(TM)
system was successfully field-demonstrated by the Partnership in 1994 in
conjunction with certain members of the natural gas industry and was introduced
commercially in January 1995. The Desert Cool(TM) line will be expanded in 1996
to include a unit which can displace as much as 50 tons of conventional air
conditioning.
The Desert Breeze(TM) system, the first all-electric desiccant-based climate
control system, was first shipped in July 1995. An all-electric model is
important to compete in those markets where electricity is the only or most
practical source of energy. Currently, the majority of air conditioning systems
worldwide are electric powered. The Desert Breeze(TM) system can displace up to
25 tons of conventional cooling and is designed to cool small commercial
applications with the flexibility of utilizing either circulated or fresh air.
The Desert Breeze(TM) line will be expanded in 1996 to include a unit that can
displace as much as 35 tons of conventional air conditioning. Unlike the
Partnership's natural gas systems, the electric units combine desiccant
technology with conventional coils and compressors which provide heat to
regenerate the desiccant rotors and partially cool the process air. An
additional conventional coil may be added to provide
6
further post-cooling as in the natural gas units. An addidtional conventional
coil may be added to provide further post-cooling as in the natural gas units.
The system can use smaller compressors with HCFC refrigerant than conventional
air conditioning equipment, reducing the amount of refrigerant required and
power usage and peak kilowatt demand. The system is also currently designed to
allow for use of HFC refrigerant which is a less efficient alternative to HCFC
refrigerant. The Partnership is currently developing heating capability in the
Desert Breeze(TM) system.
Sales and Marketing
Currently, the Partnership markets its systems to specific applications in the
commercial air conditioning market in which its systems offer the greatest
advantages compared to conventional air conditioning systems. To date, the
Partnership has marketed its systems primarily as a supplement to, or partial
replacement of, conventional air conditioning systems. Since the Partnership's
products utilize an emerging technology, potential customers carefully evaluate
and, in most cases, purchase the Partnership's systems for testing before
committing to further purchases. The Partnership sells its systems principally
to end users either directly or through independent manufacturers
representatives who purchase units at a discount or receive a commission. The
Partnership has developed separate plans and departments for domestic and
international sales and marketing.
United States. The Partnership employs a direct sales staff of five sales people
and approximately 36 independent manufacturers' representatives to market its
systems in the United States. The direct sales staff markets the systems to
supermarket chains and national retailers, and oversees the manufacturers
representatives. The Partnership's manufacturers' representatives market to
regional customers and to national accounts which are not assigned to the direct
sales staff. At present, a majority of the manufacturers' representatives are
located in the southern and eastern regions of the country. The Partnership
plans to increase its sales staff and manufacturers' representative network
throughout the country.
In September 1995, the Partnership entered into a field demonstration agreement
with Carrier pursuant to which Carrier is monitoring and evaluating the
performance of eleven Desert Cool(TM) and Desert Breeze(TM) units in commercial
use throughout the United States. All monitoring equipment costs which are not
paid for by third parties such as local utility companies or the U.S. Department
of Energy, will be shared equally by the Partnership and Carrier. Carrier has
not committed to purchase or distribute any of the Partnership's systems.
Gas and electric utilities have supported the Partnership's efforts to create
market awareness and acceptance for the Partnership's systems. The Gas Research
Institute has funded and endorsed independent testing to validate the
performance of ETS(TM) in the Partnership's natural gas systems and is currently
funding the testing of the Partnership's rotors used in such systems for
validation. In addition, gas utilities sponsored the initial test sites for the
Desert Cool(TM) system, and have formed a consortium, under the auspices of the
American Gas Cooling Center to promote the Partnership's natural gas systems.
The consortium, with 77 utilities currently participating, provides financial
incentives and sponsors training programs for engineers and building owners. In
1995, the Desert Cool(TM) system became the first desiccant-based unit ever to
receive the 'Blue Star' certification for safety and quality from the American
Gas Association.
Similarly, several electric companies and research organizations are promoting
the Desert Breeze(TM) system. Southern Company, a major electric company in the
southeastern United States, assisted in the development of the Desert Breeze(TM)
system, and five electric utilities are participating in various projects that
promote the Desert Breeze(TM) system. The Company has also received financial
support from the Electric Power Research Institute for field trial
demonstration, and marketing support from the Edison Electric Institute, two
electric industry sponsored organizations.
As part of the federal government's program to evaluate two-wheel
desiccant-based air conditioning systems for possible inclusion in future
federal government building specifications, the federal government has purchased
two units to test and evaluate in field demonstrations, including an initial
unit in 1994 at a government-owned Burger King in Aberdeen, Maryland and a
follow-up unit in 1995 in an operating suite in a government-owned hospital in
Tampa, Florida. The Company anticipates that the federal government will
purchase additional units for testing in 1996.
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International. International sales and marketing efforts have focused on the
high humidity, rapidly developing regions of the Asian-Pacific market. In this
region, manufacturing and industrial companies are generally interested in the
Partnership's systems to improve workers' comfort by lowering humidity. The
Partnership has manufactured and sold units assembled in the Partnership's
Philadelphia manufacturing facility to customers in Japan, South Korea and
Taiwan through its licensing and distribution agreements or relationships
described below. The Partnership plans to continue to market, sell and, in
certain situations, assemble its climate control systems through licensing
arrangements or joint ventures with other major companies in Asia-Pacific.
In March 1995, the Partnership entered into a license agreement with Chung-Hsin,
Taiwan's largest air conditioning manufacturer, pursuant to which Chung-Hsin has
been granted an exclusive license to manufacture and sell the Partnership's gas
and electric systems in Taiwan for a period of up to five years based on
achieving certain sales targets, and a non-exclusive license to manufacture and
sell such systems in mainland China. In consideration for such license,
Chung-Hsin paid the Partnership an initial fee of $500,000 and is required to
pay a royalty of 2.5% of Chung-Hsin's sales of all desiccant-based climate
control systems utilizing the Partnership's technology which are manufactured
and sold by Chung-Hsin. Pursuant to a supply agreement, Chung-Hsin is required
to purchase its desiccant and heat-exchange rotors from the Partnership. The
Partnership also has the option to purchase systems manufactured by Chung-Hsin
for resale in other Asian-Pacific countries.
Nichimen, a Japanese trading company with $58 billion in annual sales in 1994,
has been appointed a non-exclusive distributor of the Partnership's systems in
Japan. Nichimen has established relationships with Osaka Gas, Tokyo Gas and Toho
Gas and is in the process of establishing a national distribution network for
the Partnership's systems. In August 1995, Osaka Gas of Japan completed its
initial evaluation and testing of the Partnership's Desert Cool(TM) and
DESI/AIR(R) systems. In November 1995, Osaka Gas began marketing the
Partnership's natural gas systems and will monitor the performance of installed
systems during 1996. No assurance can be given as to whether any significant
number of natural gas systems will be sold through Osaka Gas. Osaka Gas is the
second largest seller of natural gas in Japan and as part of its marketing
program promotes and sells natural gas operated equipment to promote the use of
natural gas.
In July 1995, the Partnership entered into a memorandum of understanding with
Samsung to sell its systems in South Korea which terminated in December 1995.
The Partnership continues to sell and is currently negotiating a formal
distribution agreement with Samsung for the sale of the Partnership's systems in
South Korea. There can be no assurance that a formal distribution agreement will
be executed.
In August 1995, the Partnership entered into a joint development agreement with
AB Air in Israel for the development of a residential desiccant-based, all
electric climate control system. The Partnership has agreed to share equally in
the cost of the development program which is initially estimated to be
approximately $250,000. The Company has agreed to finance 60% of AB Air's
portion of the program costs pursuant to an interest-bearing loan. In addition,
AB Air has been granted the exclusive right to manufacture and sell
desiccant-based climate control systems incorporating the Partnership's
technology in Israel, Turkey, Egypt, Greece and Cyprus. In lieu of a royalty for
such license, AB Air has agreed to pay to the Partnership a mark-up of 10% over
the base price of the desiccant and heat-exchange rotors which the Partnership
is supplying to AB Air. The Partnership's rotors have been incorporated into
systems manufactured and sold by AB Air.
Backlog. As of March 22, 1996, the Partnership's backlog of firm purchase orders
for climate control equipment was approximately $2,000,000, which does not
include a signed memorandum of understanding with Nichimen to purchase
approximately $3 million of equipment in 1996, compared to a backlog of
approximately $700,000 in the prior year.
Manufacturing
At its Miami facility, the Partnership manufactures all of its proprietary
honeycomb desiccant and heat-exchange rotors and coats the desiccant rotors with
ETS(TM). The Partnership also manufactures certain other parts and assembles,
tests and ships completed systems from its leased manufacturing facility in
Philadelphia, Pennsylvania. The Partnership plans to expand the capacity of its
rotor manufacturing facility and move to a larger facility in Philadelphia to
support anticipated growth. See "Business -- Properties."
8
In December 1994, the Partnership acquired, for $8 million in cash, the real
property and substantially all of the assets of Ciba-Geigy's manufacturing
facility in Miami, from which the Partnership had been purchasing the honeycomb
substrate currently used in producing the Partnership's desiccant and
heat-exchange rotors. The Partnership sought to manufacture its own substrate
and rotors to lower production costs, further improve the rotors and expand
production capacity to meet potential market demand. In addition, the
acquisition gives the Partnership more control of a critical technology and
manufacturing process for its current products. The Partnership acquired a
perpetual, exclusive technology license for the proprietary process to
manufacture such small cell, honeycomb substrate for use in air cooling,
conditioning and dehumidification applications, and certain other fluid
applications. In connection with the acquisition of the Miami facility, the
Partnership entered into a five-year requirements contract to continue to supply
Ciba-Geigy with the honeycomb substrate material for the aerospace industry. The
Partnership is required to make available to Ciba-Geigy in each year of the
contract certain percentages of the Miami facility's production capacity,
ranging from 85% in 1995 to 30% in 2000. The contract is subject to early
termination by Ciba-Geigy at any time after 18 months, upon six months' notice.
As described above, the Partnership has entered into several licensing
arrangements with respect to manufacturing or marketing its products. The
Partnership may also license, or otherwise permit, other companies in the United
States or internationally to manufacture its systems but the Partnership expects
to continue to remain the exclusive manufacturer of the desiccant and heat
exchange rotors for such licensees.
Supplies and Materials
Except as described below, the Partnership generally uses standard parts and
components in the manufacture of its systems and obtains such parts and
components from various independent suppliers. The Company believes the
Partnership is not highly dependent on any specific supplier and could obtain
similar components from other suppliers, except for the substrate material used
in its rotors and ETS(TM).
The Partnership purchases a proprietary strong, lightweight material from a
single supplier which is used as the base material in manufacturing the
honeycomb substrate for the Partnership's desiccant and heat-exchange rotors.
While this material is critical in the manufacture of the rotors and the
Partnership does not have a contractual agreement with such supplier, the
Company believes that the Partnership can obtain all of its requirements for
such material from such supplier for the foreseeable future.
ETS(TM) is a patented desiccant material manufactured exclusively by Engelhard.
Pursuant to the Engelhard Supply Agreement, the Partnership has agreed to
purchase exclusively from Engelhard all of the ETS(TM) or any improved desiccant
material developed by Engelhard that the Partnership may require in connection
with the conduct of the Partnership's business. In turn, Engelhard has agreed to
sell to the Partnership its total requirements for ETS(TM) or any improved
desiccant material developed by Engelhard. The price for ETS(TM) is adjusted as
of January 1 of each year during the term of the Engelhard Supply Agreement,
which initially expires December 31, 1997, but may be extended by either party
for additional two-year periods up to December 31, 2003. The Engelhard Supply
Agreement does not include specific purchase prices but does contain a
"competitive offer" provision, whereby the Partnership is able to purchase from
third parties similar desiccant products that are equal to or better than the
products sold by Engelhard should they become available, at a price that is
lower than the price established for ETS(TM) or any improved desiccant material
sold by Engelhard under the Engelhard Supply Agreement, provided, however, that
(i) Engelhard has the right to meet such "competitive offer" in all material
respects and (ii) any such third party offer must be able to meet the
Partnership's requirements for such desiccants in all material respects in order
to be considered a "competitive offer".
The Partnership
The Company and Engelhard formed 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
9
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.
Pursuant to the Partnership Agreement, the Partnership is managed by a
Management Committee comprised of two members, one selected by each of the
Company and Engelhard. At present, such committee is comprised of Irwin L.
Gross, Chairman and President of the Company, and Robert J. Schaffhauser, Vice
President-Technology and Corporate Development of Engelhard. Mr. Gross is also
the Chief Executive Officer of the Partnership and has an employment agreement
with the Partnership that expires in 1999.
In accordance with the Partnership Agreement, the Company has granted Engelhard
options to acquire up to all of the Company's interest in the Partnership at the
rate of 25% of such interest per year, with each such 25% option exercisable on
December 31 of each year commencing in 1997 and extending through and including
2000 (each an "Exercise Date"'), based on a price equal to 95% of the fair
market value of the Partnership as of the Exercise Date in each year in which an
option is exercisable, determined by an investment banking firm selected by the
Company and Engelhard. Each 25% option is exercisable for a limited period of
time after the respective Exercise Date. Upon the occurrence of an event of
default by the Company under the Partnership Agreement (including bankruptcy of
the Company or failure by the Company to comply with, or a violation of, any
material term or condition of the Partnership Agreement which is not cured
within a 45-day period), Engelhard may accelerate the option. In addition,
Engelhard's purchase options are cumulative and any option unexercised as of the
end of the Exercise Period may be exercised as of any future Exercise Period,
provided that all previously unexercised options must be exercised and all
options automatically expire if Engelhard does not elect to exercise both of its
first two options. There can be no assurances as to whether Engelhard will or
will not exercise any or all of its options to purchase the Company's interest
in the Partnership. In the event that Engelhard's interest in the Partnership
increases to more than 70%, Engelhard will be entitled to designate an
additional member to the Management Committee and thereby will control the
management of the Partnership.
The Partnership entered into a Royalty Agreement as of February 7, 1994 with
James Coellner and Dean Calton, engineers and employees of the Partnership and
former employees of the Company. Pursuant to the Royalty Agreement, in exchange
for their patents and trade secrets, Messrs. Coellner and Calton are each
entitled to receive royalty payments from the Partnership equal to 0.5% of the
Partnership's net revenues received from sales of separate components, royalties
and one-time payments for licensed technology and sales of desiccant cooling and
air treatment systems to the extent such revenues result from the utilization of
technology developed by such individual. The royalty payments do not commence
until the first year in which the net revenues of the Partnership exceed $15
million. The maximum amount of combined royalty payments to be made under the
Royalty Agreement shall not exceed $5 million in the aggregate and $300,000 for
any one year. No royalty is payable for any year in which the Partnership had no
net income (or would have had no net income after giving effect to such
payments) or if, after giving effect to such royalty payments, the Partnership
had no net income on a cumulative basis since its inception; provided that to
the extent any royalty payments otherwise payable are not required to be made
due to such restrictions, such payments shall be carried forward and made with
respect to the next subsequent year or years in which the aforementioned
restrictions are satisfied. The Royalty Agreement terminates on December 31,
2010 or, with respect to either employee, the termination of employment of such
individual, voluntarily or for cause, prior to February 7, 1999.
Patents and Proprietary Information
The Partnership's ability to compete effectively with other manufacturers of
climate control equipment is dependent upon, among other things, a combination
of (i) the Partnership's proprietary desiccant system design, (ii) Engelhard's
patented ETS(TM) and (iii) Ciba-Geigy's proprietary process licensed to the
Partnership and utilized in manufacturing the small cell, honeycomb substrate
material used to make the Partnership's rotors. The Partnership has been issued
three United States patents covering certain of its desiccant technology.
Several U.S. and foreign patent applications are pending which are directed to
the products manufactured and sold by the Partnership and additional patent
filings are expected to be made in the future.
10
The Company was granted a U.S. patent expiring in 2010, which it assigned to the
Partnership, related to using a microprocessor to control the desiccant cooling
systems in order to increase the energy efficiency or effectiveness of the
desiccant cooling process. Similar patents have also been issued to the
Partnership in several European countries.
The Partnership was granted a U.S. patent expiring in 2013, related to the use
of an electric heat pump in conjunction with a desiccant climate control system
which can use recirculated air for dehumidification with cooling and heating.
The Partnership was also granted a U.S. patent which expires in 2013 directed to
creating humidity gradients within a supermarket. A low humidity, relatively
warm temperature area is created in the frozen food section of the supermarket,
and a higher humidity, warm temperature area is created near the produce section
of the supermarket. This is accomplished by combining a conventional air
conditioning system with a desiccant unit. Creating a low humidity area in the
frozen food section of the supermarket significantly improves the efficiency of
refrigerated cases and a higher humidity area in the produce section helps to
preserve the fresh produce.
Under the Engelhard License Agreement, Engelhard granted the Partnership an
exclusive, royalty-free license during the existence of the Partnership to use
Engelhard's proprietary technology relating to ETS(TM) for use in the
Partnership's business, including heating, ventilation and air conditioning
applications. The license also includes any new technology conceived by
Engelhard's employees or representatives after execution of the Engelhard
License Agreement, which is developed for use by the Partnership in connection
with the Partnership's business. In turn, the Partnership has agreed not to
license or grant any rights in technology owned by the Partnership to any person
or entity, except that the Partnership will grant Engelhard or the Company, upon
request, a non-exclusive license to make, utilize and sell Partnership
technology in any business other than the Partnership's business at a reasonable
royalty rate to be negotiated at the time of the grant of such license. See
"Business -- Supplies and Materials".
In connection with the acquisition of Ciba-Geigy's manufacturing facility in
Miami, the Partnership acquired an exclusive, perpetual technology license to
use Ciba-Geigy's proprietary process in air cooling, conditioning and
dehumidifying applications, which is currently necessary to manufacture the
small cell, honeycomb substrate material used in manufacturing the Partnership's
proprietary desiccant and heat exchange rotors. See "Business -- Manufacturing."
The Partnership owns the registered trademark for "DESI/AIR(R)" and has filed
trademark applications for "Desert Cool(TM)" and "Desert Breeze(TM)" in the
United States for heating, ventilation and air conditioning systems. Several
foreign trademark applications for "DESI/AIR(R)" and "Desert Breeze(TM)" are
pending.
Engineering, Research and Development
The Partnership's engineering, research and development activities focus on
designing systems for specific applications such as supermarkets, as well as
improving the performance and efficiency and lowering the costs of its climate
control systems. As of December 31, 1995, the Partnership had 21 employees
engaged in engineering, research and development.
Competition
The Partnership competes against other manufacturers of conventional and
desiccant-based air conditioning systems primarily on the basis of capabilities,
performance, reliability, price and operating efficiencies. The Partnership
competes with numerous other manufacturers in the conventional heating,
ventilation and air conditioning equipment industry, including Trane Company,
York International Corporation, Carrier and others that have significantly more
resources and experience in designing, manufacturing and marketing of air
conditioning systems than does the Partnership. The Company believes the
Partnership's systems provide the following advantages over conventional air
conditioning systems: more effectively control humidity; improve indoor air
quality; reduce energy consumption; offer energy versatility; and reduce the
amount of refrigerants required. The Partnership also competes with several
companies selling desiccant-based climate control systems, including Munters
Corporation and Semco Incorporated. However, the Company
11
believes its systems perform better and are more economical to operate than
competing desiccant-based systems due to its honeycomb rotors and Engelhard's
ETS(TM).
Employees
Effective February 7, 1994, substantially all of the employees of the Company
became employees of the Partnership. The Company employed five full-time persons
and the Partnership employed 195 full-time persons as of December 31, 1995, none
of whom are represented by unions.
Government Regulations
In recent years, increasing concern about damage to the earth's ozone layer
caused by ozone depleting substances has resulted in significant legislation
governing the production of products containing CFCs. Under the Montreal
Protocol on Substances that Deplete the Ozone Layer, as amended in 1992 (the
"Montreal Protocol"), the approximately 130 signatory countries have agreed to
cease all production and consumption of CFCs, some of which are utilized in air
conditioning and refrigeration equipment, by the end of 1995. The Montreal
Protocol has been implemented in the United States through the Clean Air Act and
the regulations promulgated thereunder by the Environmental Protection Agency
(the "EPA"). The production and use of refrigerants containing CFCs are subject
to extensive and changing federal and state laws and substantial regulation
under these laws by federal, state and local government agencies. In addition to
the United States, Japan, mainland China, Israel and Thailand are among the
signatories to the Montreal Protocol. The manner in which other countries
implement the Montreal Protocol could differ from the approach taken in the
United States.
As a result of the regulation of CFCs, the air conditioning and refrigeration
industries are turning to substitute substances such as HCFCs, HFCs and light
hydrocarbons. HCFCs have 1 to 10% of the ozone-depleting potential of CFCs.
However, the production of HCFCs for use in new equipment is currently scheduled
to be phased out as of the year 2020 and the production of HCFCs for the
servicing of existing equipment is currently scheduled to be phased out as of
the year 2030 in the United States and other signatory countries pursuant to the
Montreal Protocol. As discussed below, pursuant to the 1992 Rio Accord,
reduction of the use of HFCs is also being considered because of their
substantial global warming potential.
The Framework Convention on Climate Change (the "1992 Rio Accord") and related
conferences and agreements focused on the link between economic development and
environmental protection. Under the Rio Accord, approximately 180 signatory
countries have agreed to establish a process by which they can monitor and
control the emission of "greenhouse gases", defined as gaseous constituents of
the atmosphere that absorb and re-emit infrared radiation, which include HFCs.
Parties to the 1992 Rio Accord must provide national inventories of "sources"
(which release greenhouse gases, aerosols or precursors thereof into the
atmosphere) and "sinks" (which remove greenhouse gases, aerosols or precursors
thereof from the atmosphere), and regular reports on policies and measures which
limit the emissions by sources and enhance the removal by sinks of gases not
controlled by the Montreal Protocol. No given level or specific date for the
control of greenhouse gas emissions have been explicitly provided, although the
United States government submitted a plan to the Rio Standing Committee on its
proposal for achieving this goal by the year 2000 and Articles 2(a) and (b) of
the 1992 Rio Accord indicated there was an initial goal of returning to 1990
levels of greenhouse gas emissions by the year 2000.
The Clean Air Act now requires the recycling and recovery of all refrigerants
used in residential and commercial air conditioning and refrigeration systems.
As a result, there are increasing costs involved in the manufacturing, handling
and servicing of refrigerant-based equipment. In the Partnership's systems, the
cooling coils and compressors included as a post-cooling option in non-electric
models are smaller, and in electric models generally are smaller, than would
otherwise be required in a conventional air conditioning system, and therefore
require less refrigerants.
The indoor air quality standards in the United States, as set forth by ASHRAE
Standard 62-1989 Ventilation for Acceptable Indoor Air Quality, now require that
up to 200-300% more fresh air be introduced into buildings as compared to prior
regulations. The purpose of such standards is to specify minimum ventilation
levels and indoor air quality levels in order to minimize the potential for
adverse health effects typically
12
associated with "Sick Building Syndrome". According to a recent study by the
National Conference of States on Building Codes and Standards, Inc. (the "NCSBCS
Study"), there are 30 states which have incorporated the ASHRAE 62-1989
ventilation standards in one form or another as mandatory building code
requirements into their respective building codes (including energy and
mechanical codes) for new construction of certain and, in some cases, all types
of buildings. Of such states, 18 states require mandatory compliance with ASHRAE
62-1989 by all local jurisdictions and an additional seven states require all
local jurisdictions which elect to adopt a building code to comply, at a
minimum, with ASHRAE 62-1989. According to the NCSBCS Study, there are ten other
states which, while not adopting ASHRAE 62-1989 into their building codes, have
referenced ASHRAE 62-1989 as a recognized industry standard. Of the remaining 10
states, five states have adopted building codes with ventilation requirements
similar to those of ASHRAE 62-1989 and several major cities in the remaining
five states either reference ASHRAE 62-1989 as an industry standard or set
similar ventilation requirements according to the NCSBCS Study. In addition, the
Company believes that due to liability concerns and customer demands, it is an
increasingly standard engineering practice throughout the country to incorporate
the ASHRAE ventilation standards in new commercial building construction even
when not required by applicable building codes, and the Company believes that
the Partnership's business prospects are enhanced because the Partnership's
climate control systems currently enable buildings to meet or exceed such
standards.
Item 2. Properties
The principal executive offices of both the Company and the Partnership are
located at 441 North 5th Street, Suite 102, Philadelphia, Pennsylvania 19123.
The Partnership currently has approximately 15,000 square feet of office space
under a month-to-month lease at this location. The Company occupies office space
within the Partnership's offices and is charged for such space proportionately.
The Partnership's lease requires a monthly rental payment of approximately
$10,000 plus utility and tax costs, of which the Company's share is
approximately $1,000 per month, plus its proportionate share of utility and tax
costs.
The Partnership assembles its systems at a 55,000 square foot manufacturing
facility located in Philadelphia, Pennsylvania leased by the Partnership through
March 31, 1998. Additionally, the Partnership rents various storage facilities
under short-term leases to serve as depots for parts and supplies.
The Partnership currently produces the small cell, honeycomb substrate material
and the desiccant and heat-exchange rotors in its 75,000 square feet
manufacturing facility in Miami, Florida and leases a 24,000 square foot storage
facility and parking lot adjacent to the manufacturing facility.
Although the Partnership's facilities are adequate to meet its current level of
sales, the Company expects that by the end of the first half of 1996 the
Partnership will have to increase its capacity to meet anticipated demand. The
Company expects that a portion of the proceeds from the public offering of
2,500,000 shares of the Company's Common Stock will be used to increase the
Partnership's production capacity.
Item 3. Legal Proceedings
Neither the Company nor the Partnership is a party to any material lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1995.
13
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
ICC's Common Stock is listed on the National Association of Securities Dealers,
Inc. Automatic Quotation System (Nasdaq) National Market listings under the
symbol ICGN. Effective February 15, 1996 the Company's Common Stock was listed
on the Nasdaq National Market, prior to that date it was listed on the Nasdaq
Small Cap Market. Based on reports provided by Nasdaq, the range of high and low
bids for ICC's Common Stock for the two most recent fiscal years are as follows:
1995
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
------- ------- ------- -------
High Bid: $15.38 $18.38 $15.50 $13.63
Low Bid: $10.25 $13.88 $11.50 $7.81
1994
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
------- ------- ------- -------
High Bid: $10.38 $10.00 $5.31 $5.31
Low Bid: $6.94 $4.94 $3.13 $3.38
The above quotations reported by Nasdaq represent prices between dealers and do
not include retail mark-ups, mark-downs or commissions. Such quotations may not
represent actual transactions. On March 22, 1996, the last reported sale price
for the Common Stock was $7.13 per share.
As of March 22, 1996, ICC had approximately 1,400 recordholders of Common Stock.
This number was derived from the Company's stockholder records, and does not
include beneficial owners of the Common Stock whose shares are held in the names
of various dealers, clearing agencies, banks, brokers, and other fiduciaries.
The Company believes that the number of beneficial owners of its Common Stock
exceeds 10,000. Holders of Common Stock are entitled to share ratably in
dividends, if and when declared by the Board of Directors. Other than an in-kind
warrant dividend declared by the Board of Directors in June 1990, the Company
has never paid a dividend on its Common Stock and it is unlikely that any
dividends will be paid in the foreseeable future. The payment of cash dividends
on the Common Stock will depend on, among other things, the earnings, capital
requirements and financial condition of the Company and the Partnership, and
general business conditions. In addition, future borrowings or issuances of
Preferred Stock may prohibit or restrict the Company's ability to pay or declare
dividends.
In connection with the completion of the Company's 2,500,000 share secondary
public offering in February 1996, the Company declared payable the accrued
dividends on the Preferred Stock, which amounted to approximately $1,044,000.
Subsequent to the completion of the secondary offering all outstanding shares of
Preferred Stock were either redeemed in cash or converted into Common Stock.
14
Item 6. Selected Financial Data
The following selected consolildated financial data of the Company for the years
ended December 31, 1995, 1994, 1993, 1992, and 1991 have been derived from the
Company's financial statements, which have been audited by Coopers & Lybrand,
L.L.P., whose reports thereon include an explanatory paragraph regarding
substantial doubt about the Company's ability to continue as a going concern.
There were no cash dividends paid to holders of Common Stock in any of these
years. The data should be read in conjunction with the Company's financial
statements and the notes thereto included elsewhere in this Annual Report in
this Form 10-K.
Years Ended December 31,
- ---------------------------------------------------------------------------------------------
1995(1) 1994(1) 1993 1992 1991
-------- -------- -------- -------- --------
(in thousands, except per share data)
Statement of Operations Data
Revenues $ 9 $ 88 $ 1,201 $ 957 $ 1,354
Cost of goods sold 8 80 1,177 939 1,641
-------- -------- -------- -------- --------
Gross profit (loss) 1 8 24 18 (287)
Operating expenses (1,384) (1,735) (4,072) (2,563) (2,586)
Net interest income (expense) 346 148 (10) (22) (20)
Equity interest in net loss of
Partnership (5,286) (2,812) 0 0 0
-------- -------- -------- -------- --------
Net loss (6,323) (4,391) (4,058) (2,567) (2,893)
Preferred stock dividend
requirements (301) (228) (261) (242) (124)
-------- -------- -------- -------- --------
Net loss applicable to common
stockholders $ (6,624) $ (4,619) $ (4,319) $ (2,809) $ (3,017)
======== ======== ======== ======== ========
Loss per common share $ (0.47) $ (0.41) $ (0.51) $ (0.47) $ (0.57)
Weighted average common shares 14,073 11,391 8,551 5,979 5,292
December 31,
- ---------------------------------------------------------------------------------------------
Balance Sheet Data 1995(1) 1994(1) 1993 1992 1991
-------- -------- -------- -------- --------
(In thousands)
Cash $ 1,573 $ 1,114 $ 1,143 $ 34 $ 182
Working capital (deficit) 1,828 1,072 1,207 (416) 494
Investment in Partnership 0 1,048 0 0 0
Total assets 4,796 2,398 2,564 998 1,990
Losses of Partnership in excess of
investment 2,797 0 0 0 0
Total debt 150 150 800 360 326
Total liabilities 3,262 427 1,521 1,459 1,398
Stockholders' equity (deficit) $ 1,534 $ 1,971 $ 1,044 $ (461) $ 592
(1) - On February 7, 1994, the Company transferred its desiccant climate control
business in exchange for a 50% interest in the Partnership. The data should be
read in conjunction with the Partnership's financial statements and the notes
thereto included elsewhere in this Annual Report in this Form 10-K.
15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company, through the Partnership, designs, manufactures and markets
innovative climate control systems to supplement or replace conventional air
conditioning systems. The Partnership's climate 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 climate 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 the Engelhard Supply
Agreement to sell ETS(TM) to the Partnership and entered into the Engelhard
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 climate 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 sole activities have
related to its participation in the management of the Partnership and the sale
of the Company's remaining cogeneration assets. 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 currently does
not have any plans 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 50% interest in the Partnership under the equity
method of accounting for investments. At February 7, 1994, the date of formation
of the Partnership ('Formation'), the Company's investment in the Partnership
was approximately $0. The Company had no obligation or commitment to provide
additional financing to the Partnership and losses of the Partnership were not
recognized through the period ended September 30, 1994. During the fourth
quarter of 1994, the Company and Engelhard each loaned the Partnership
$4,000,000 to acquire a manufacturing facility in Miami, Florida. As a result,
and because the Company expects to continue to fund the Partnership's
activities, the Company has and will continue to recognize its share of the
losses of the Partnership.
Results of Operations
Years Ended December 31, 1995 and 1994
The Partnership's revenue for the year ended December 31, 1995 increased
$7,323,893 to $8,944,279 from $1,620,386 for the period from Formation to
December 31, 1994 due to the fabrication of substrate for Ciba-Geigy pursuant to
a supply agreement, increased equipment sales and licensing fees. The increase
was attributable to revenue of $5,801,666 from the fabrication of substrate for
Ciba-Geigy and the increase of $1,028,439 in equipment sales and $500,000 in
licensing fees. The Partnership recorded a gross loss of $1,339,716 for the year
ended December 31,1995 compared to a gross profit of $28,565 for the period from
Formation to December 31, 1994. The gross loss was due primarily to increases in
manufacturing costs of equipment in anticipation of future growth without a
corresponding increase in equipment sales, which was partially offset by the
licensing fees.
The Partnership's operating expenses increased $2,794,639 to $8,522,925 in the
year ended December 31, 1995 compared to $5,728,286 for the period from
Formation to December 31, 1994, due to higher marketing, research and
development, and general and administrative costs. Marketing expenses increased
$1,350,981 as a result of increased marketing efforts and increased sales and
marketing personnel.
16
Research and development expenses increased $238,943 due to an increase in the
number of research personnel and increased testing of equipment by independent
laboratories. Engineering costs decreased $296,867 in this period. General and
administrative expenses increased $1,501,582 primarily due to the addition of
general and administrative personnel , amortization of intangibles incurred in
connection with the Miami plant acquired in December 1994 and provision for
reducing inventory to the lower of cost or market recorded in 1995. The loss
from operations for the year ended December 31,1995 increased $4,162,920 to
$9,862,641 compared to $5,699,721 for the period from Formation to December 31,
1994.
The Partnership's net loss increased $4,947,378 to $10,572,223 for the year
ended December 31, 1995 from $5,624,845 for the period from Formation to
December 31, 1994 due to the loss from operations and an increase in net
interest expense of $784,458 from additional borrowings.
The Company generated nominal revenues of $9,000 for the year ended December 31,
1995 which were attributable to the sale of cogeneration spare parts compared to
revenues of $88,360 for the same period in 1994 which were attributable to sales
of desiccant climate control systems prior to the formation of the Partnership
on February 7, 1994.
The Company's expenses relating to marketing, engineering and development
decreased or were eliminated in 1995 as compared to 1994 primarily as a result
of the transfer of substantially all operations to the Partnership on February
7, 1994. The Company's general and administrative expenses decreased $43,726 to
$1,384,203 for the year ended December 31, 1995 compared to $1,427,929 for the
same period in 1994 as a result of a reduction in professional fees offset by
increased payroll expenses and other administrative costs. The Company recorded
an expense of $75,000 in 1995 for services rendered by an investor relations
firm. Pursuant to an agreement with such firm, the obligation was satisfied by
the issuance of 26,653 shares of Common Stock. Consulting expenses of $37,500
were recognized in 1995 for warrants granted in connection with the March 1995
private placement of 300,000 shares of Common Stock.
The Company's net loss for the year ended December 31, 1995 increased $1,932,291
to $6,323,373 from $4,212,046 for the same period in 1994. This increase in loss
was attributable to the Company's 50% interest in the Partnership's loss which
increased by $2,473,689 to $5,286,112 for the year ended December 31, 1995 as
compared to $2,812,423 for the same period in 1994, offset by a decline in
operating costs of the Company primarily as a result of the transfer of
substantially all operations to the Partnership on February 7, 1994. Net loss
per share of Common Stock increased $.06 to $.47 for the year ended December 31,
1995 from $.41 for the same period in 1994.
Years Ended December 31, 1994 and 1993
On February 7, 1994, the Company transferred its desiccant climate control
business in exchange for a 50% interest in the Partnership. The Company
transferred substantially all of its assets, subject to certain liabilities, and
employees to the Partnership, which also agreed to assume certain obligations of
the Company. As a result, the Company ceased to generate revenues and expenses
from its desiccant climate control business. The Partnership generated revenues
of $1,620,000 for the period from Formation to December 31, 1994 primarily from
sales or desiccant climate control systems and reported a gross profit of
$29,000 for the same period. The Partnership incurred marketing, engineering,
research and development, and general and administrative expenses of $2,061,000,
$1,233,000, $895,000 and $1,539,000, respectively, for the period from Formation
to December 31, 1994, and, as a result, reported an operating loss of $5,700,000
and a net loss of $5,625,000.
The Company's revenues declined $1,113,000 to $88,000 for the year ended
December 31, 1994 and cost of goods sold decreased $1,097,000 to $80,000 due to
the transfer of its desiccant climate control business to the Partnership. Total
operating costs, consisting of marketing, engineering and development costs, and
general and administrative expenses, decreased $2,338,000 to $1,734,000 and the
loss from operations decreased $2,321,000 to $1,726,000 for the year ended
December 31, 1994 also as a result of the Company having transferred its
desiccant climate control business to the Partnership.
The Company's net loss increased $333,000 to $4,391,000 for the year ended
December 31, 1994, compared to $4,058,000 for the prior year. In the fourth
quarter of 1994, the Company loaned the Partnership $4,000,000 to acquire the
honeycomb substrate manufacturing facility from Ciba-Geigy and expected to
17
further fund the Partnership's present operations and future expansion.
Consequently, in the fourth quarter of 1994, the Company recognized its 50%
share, or $2,812,000, of the $5,625,000 net loss incurred by the Partnership for
the period from Formation to December 31, 1994. Net loss per share of Common
Stock decreased $.10 to $.41 for the year ended December 31, 1994 compared to
$.51 for the prior year due to the increase in the number of shares of Common
Stock outstanding.
The Company's and the Partnership's operations have not been significantly
affected by inflation.
Liquidity and Capital Resources
The Partnership's cash and cash equivalents decreased to $346,480 at December
31, 1995 from $648,451 at December 31, 1994 and $8,633,000 contributed from
Engelhard at Formation. The decreases were due to the Partnership's net losses,
working capital requirements and capital investments incurred in connection with
the expansion of the Partnership's business since Formation, which were
partially financed by loans and capital contributions from the Company and
Engelhard. The Partnership is expected to require additional financing to
support anticipated growth and will be dependent on the Company and Engelhard to
provide additional financing to support its current operations and future
expansion. There can be no assurance that the Company or Engelhard will be
willing, or able, to provide such additional financing.
Net cash used in operating activities by the Partnership was $12,105,251 for the
year ended December 31,1995 due to the net loss, before depreciation and
amortization, of $9,048,221 and net working capital needs of $3,057,030
primarily to continue to build inventory and for accounts receivable which
increased with sales. Capital expenditures of approximately $1,400,000 were
incurred primarily for machinery and equipment. Net cash used in operating
activities and capital expenditures were primarily financed with borrowings of
$11,250,000 and capital contributions aggregating $6,000,000 from the Company
and Engelhard.
In April 1995, the Partnership obtained financing from the issuance of $8.5
million in industrial development revenue bonds. The proceeds of these bonds
were utilized to repay a portion of the loan provided by the general partners
and to fund improvements and capital expenditures at the Miami facility. The
Company guaranteed 50% of the Partnership's indebtedness associated with the
industrial development revenue bonds and established an irrevocable letter of
credit for $2,500,000 to support its portion of the guarantee, which is
collateralized by a $2,500,000 certificate of deposit. In May 1995, each general
partner was repaid $1,500,000 of the $8,000,000 aggregate loan from the Company
and Engelhard made in December 1994, of which the remaining amount, $2,500,000
for each general partner, was converted into an investment in the Partnership.
During 1995, each partner made capital contributions of $3,000,000 to the
Partnership. In addition, the Partnership borrowed $2,750,000 from a bank
through a short-term loan. Subsequent to December 31, 1995, each partner made
capital contributions of $1,000,000 during January and again in March 1996 for
the general working capital requirements of the Partnership.
In August 1995, the Partnership entered into a joint development agreement with
AB Air in Israel for the development of a residential desiccant-based, all
electric climate control system. The Partnership has agreed to share equally in
the cost of the development program which is initially estimated to be
approximately $250,000. The Company has agreed to finance 60% of AB Air's
portion of the program costs pursuant to an interest-bearing loan. As of March
22, 1996, no funds had been loaned to AB Air.
Net cash used in operating activities by the Partnership was $6,571,000 for the
period from Formation to December 31, 1994 as a result of the net loss, before
depreciation and amortization, of $5,376,000 and net working capital needs of
$1,195,000 primarily to build inventory and for accounts receivable which
increased with sales. Capital expenditures were $9,361,000 for the period from
Formation to December 31, 1994, primarily due to the acquisition of a
manufacturing facility for $8,000,000 in December 1994 and capital expenditures
of $980,000. The Company and Engelhard financed the Partnership's operating and
investing activities in 1994 with the initial capital contribution of $8,633,000
from Engelhard upon the formation of the Partnership and loans of $4,000,000
from each of the Company and Engelhard in December 1994 to acquire the
Ciba-Geigy manufacturing facility.
The Company's cash and cash equivalents amounted to $1,573,475, $1,114,000, and
$1,142,000 at December 31, 1995, 1994 and 1993, respectively. The cash utilized
in the Company's operating and investing activities was financed primarily
through proceeds from the issuance of Common Stock and
18
exercise of stock options and warrants. Management believes the Partnership will
require additional capital contributions during 1996, and the Company plans to
satisfy its 50% portion of such capital contribution requirements from the
proceeds of approximately $15.8 million, after expenses for the offering,
underwriting discounts and commissions, from the public offering and sale of
2,500,000 shares of its Common Stock at $ 7 per share which was completed in
February 1996. To the extent Partnership capital contributions in excess of the
net proceeds from this offering are required, or 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.
Net cash used in operating activities by the Company was $1,297,534 for the year
ended December 31,1995 due to the net loss, before non-cash charges and the
Company's 50% share of the net loss of the Partnership, of $914,170 and net
working capital needs of $383,364 since the Company transferred its desiccant
climate control business to the Partnership in February 1994. The Company was
repaid $1,500,000 (and converted $2,500,000 to a capital contribution to the
Partnership) of the $4,000,000 loan extended to the Partnership to acquire the
Ciba-Geigy manufacturing facility in May 1995. The Company made additional
capital contributions of $3,000,000 to the Partnership and supported a portion
of its guarantee of the $8,500,000 industrial development revenue bonds issued
by the Partnership with a $2,500,000 irrevocable letter of credit collateralized
with a certificate of deposit for a like amount. Net cash used in operating
activities and for investments in the Partnership was financed by issuing
Common Stock for net proceeds of $5,761,445 for the year ended December 31,1995.
In March 1995, the Company raised net proceeds of $3,010,000 in a private
placement of 300,000 shares of Common Stock at $11 per share. The Company
granted warrants to purchase 375,000 shares of Common Stock at $9 per share to
the finder in connection with the private placement. During the year ended
December 31, 1995, the Company received proceeds of approximately $2,781,353
from the exercise of stock options and warrants to purchase approximately
1,151,833 shares of Common Stock.
Net cash used in operating activities by the Company was $1,373,000 for the year
ended December 31, 1994 due to the net loss, before non-cash charges and the
Company's 50% share of the net loss of the Partnership, of $1,239,000 and net
working capital needs of $134,000 since the Company transferred its desiccant
climate control business to the Partnership in February 1994. The Company and
Engelhard each extended a $4,000,000 loan to the Partnership to acquire the
Ciba-Geigy in December 1994. Net cash used in operating activities and for
investments in the Partnership were financed by issuing Common Stock and
warrants for net proceeds of $5,139,000 and from borrowings of $400,000 from
Engelhard.
In June 1994, the Company sold 1,100,000 shares of Common Stock at $3.56 per
share for net proceeds of $3,489,000, and two directors each sold 150,000 shares
of Common Stock at the same price for aggregate cash proceeds to each of
$534,000. Pursuant to an agreement between the Company and the two directors,
the Company agreed to pay all commissions and expenses incurred in connection
with the offering. For financial advisory services related to the offering, the
Company granted to an individual, who subsequently became a director, warrants
to purchase 215,000 shares of Common Stock, which have exercise prices ranging
from of $3.25 to $4.75 per share and expire in 1999. During 1994, the Company
received $1,543,000 in cash for 732,000 shares of Common Stock upon the exercise
of stock options. Also during 1994, the Company received net proceeds of
$286,000 upon the exercise of warrants to acquire 187,000 shares of Common Stock
granted to placement agents in connection with the March and April 1993 private
placements referred to below.
Net cash used in operating activities by the Company was $3,675,000 for the year
ended December 31, 1993 due to the net loss, before non-cash charges, of
$3,575,000 and net working capital needs of $100,000. Capital expenditures for
the year were $300,000 for equipment. Net cash used in operating activities and
for capital expenditures were financed by issuing Common Stock and warrants for
net proceeds of $4,643,000 and from borrowings of $500,000 from Engelhard.
In March and April 1993, the Company sold 374,000 shares of Common Stock at
$1.50 per share for net proceeds of approximately $459,000. In July 1993, the
Company registered under the Securities Act, 1,060,000 shares of Common Stock of
which 950,000 shares were issued upon the exercise of outstanding
19
warrants and 100,000 shares were issued to an equipment vendor in settlement of
approximately $388,000 in accounts payable and 10,000 shares to a former officer
of the Company as severance pay. As of December 31, 1993, the Company had
received net proceeds of $2,088,000 for 950,000 shares of Common Stock purchased
upon the exercise of outstanding warrants.
The independent accountants' report on the audit of the Company's 1995 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 $34 million through December 31, 1995. In order to
continue operations, the Company has had to raise additional capital to offset
cash consumed in operations and 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 or refinancing as may be required; and (iii) ultimately,
attain profitable operations and positive cash flow from its operations and its
investment in the Partnership. The independent accountants' report on the audit
of the Partnership's 1995 financial statements also includes an explanatory
paragraph regarding substantial doubt about the Partnership's ability to
continue as a going concern. 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.
New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
compensation. SFAS No. 123 establishes a fair value based method of accounting
or stock-based compensation plans. It encourages entities to adopt that method
in place of the intrinsic value method currently in place under the provisions
of Opinion No. 25 of the Accounting Principles Board (APB). Under the fair value
method accounting, all arrangements under which employees receive shares of
stock or other equity instruments or under which employers incur liabilities to
employees in amounts based on the price of its stock result in the measurement
of compensation cost at the grant date of the award which is recognized over the
service period, usually the vesting period. Under the intrinsic value method,
compensation cost is measured by the excess of the quoted market price of the
stock, if any, over the amount the employee must pay to acquire the stock. For
example, granting immediately exercisable stock options to an employee at an
exercise price equal to the quoted market price of the stock results in the
recognition of compensation expense at the date of grant under the fair value
method of SFAS No. 123; under the intrinsic value method of APB No. 25, no
compensation expense is recognized. However, SFAS No. 123 allows the Company to
elect to continue its current method of accounting under APB No. 25 for employee
stock-based compensation arrangements. The Company expects to continue its
current method of accounting under APB No. 25 for employee stock-based
compensation arrangements. If the Company continues its current method of
accounting, pro forma disclosures of net income and earnings per share must be
disclosed, as if the Company had adopted the recognition provisions of SFAS No.
123.
Although the Company is permitted to continue accounting for employee
stock-based compensation arrangements under APB No. 25, SFAS No. 123 requires
the Company to utilize the fair value method of accounting for transactions
involving stock options or other equity instruments issued to nonemployees as
consideration for goods or services. Presently, those transactions are accounted
for by the Company under the intrinsic value principles of APB No. 25. The use
of intrinsic value versus fair value did not have a material effect on any
period presented.
The accounting and disclosure requirements of SFAS No. 123 are effective for the
Company in 1996. The Company has not yet determined the impact of SFAS No. 123.
In March 1995, SFAS No. 121 ("SFAS 121"), Accounting for the Impairment of
Long-lived Assets, was issued which establishes guidance beginning in 1996, for
recognizing and measuring impairment losses and would require that the carrying
amount of impaired assets be reduced to fair value. Management does not
20
believe that the adoption of SFAS 121 will have a material effect on the
financial statements of the Company.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary financial data required by this Item
8 are set forth in Item 14 of this Form 10-K Report. All information which has
been omitted is either inapplicable or not required.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
21
PART III
Item 10. Directors and Executive Officers of the Registrant
The required information with respect to each director and executive officer is
contained in the Company 's definitive Proxy Statement in connection with its
Annual Meeting to be filed within 120 days of the Registrant's year end December
31, 1995 ("1996 Annual Meeting"), which is hereby incorporated by reference in
this Form 10-K Annual Report.
Item 11. Executive Compensation
The required information with respect to executive compensation is contained in
the Company's definitive Proxy Statement in connection with its 1996 Annual
Meeting to be filed within 120 days of the Registrant's year end December 31,
1995, which is hereby incorporated by reference in this Form 10-K Annual Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The required information with respect to security ownership of certain
beneficial owners and management is contained in the Company's definitive Proxy
Statement in connection with its 1996 Annual Meeting to be filed within 120 days
of the Registrant's year end December 31, 1995, which is hereby incorporated
by reference in this Form 10-K Annual Report.
Item 13. Certain Relationships and Related Transactions
The required information with respect to certain relationships and related
transactions is contained in the Company's definitive Proxy Statement in
connection with its 1996 Annual Meeting to be filed within 120 days of the
Registrant's year end December 31, 1995, which is hereby incorporated by
reference in this Form 10-K Annual Report.
22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following is a list of certain documents filed as a part
of this Form 10-K Report:
(1) Financial Statements of the Registrant.
(I) Report of Independent Accountants
(ii) Consolidated Balance Sheets at December 31,
1995 and 1994.
(iii) Consolidated Statements of Operations for
the years ended December 31, 1995, 1994 and
1993.
(iv) Consolidated Statements of Changes in
Stockholders' Equity (Deficit) for the years
ended December 31, 1995, 1994 and 1993.
(v) Consolidated Statements of Cash Flows for
the years ended December 31, 1995, 1994
and 1993.
(vii) Notes to Consolidated Financial Statements.
All other schedules specified in Item 8 or Item 14(d) of Form 10-K are omitted
because they are not applicable or not required, or because the required
information is included in the Financial Statements or notes thereto.
(b) Reports on Form 8-K
None
(c) The following table sets forth those exhibits filed pursuant
to Item 601 of Regulation S-K:
Exhibit Description
2.1 Joint Venture Asset Transfer Agreement
between Engelhard and Engelhard DT, Inc. and
the Company and ICC Desiccant Technologies,
Inc., dated September 8, 1993, was filed as
Exhibit A to the Company's Definitive Proxy
Statement dated December 23, 1993 for
Stockholders Meeting held January 17, 1994
and is hereby incorporated by reference.
2.2 Amendment dated December 20, 1993 to Joint
Venture Asset Transfer Agreement between
Engelhard and Engelhard DT, Inc. and the
Company and ICC Desiccant Technologies,
Inc., dated September 8, 1993, was filed as
an exhibit to the Company's registration
statement filed on Form S-2 declared
effective February 14, 1996 (registration
number 33-80223) and is hereby incorporated
by reference.
2.3 Agreement for Purchase and Sale of Assets by
and between the Partnership and Ciba-Geigy
dated November 29, 1994 was filed as Exhibit
10(p) to the Company's Form 10-K for the
year ended December 31, 1994 and is hereby
incorporated by reference.
23
3.1 Articles of Incorporation and Bylaws.
Incorporated by reference from ICC's Form 10
filed on September 16, 1985 .
3.2 Amendment to Articles of Incorporation
changing name to ICC Technologies, Inc.
Incorporated by reference from ICC's Form
8-K dated June 12, 1990 .
4.1 The Company's Certificate of Designation for
Series F Preferred Stock and Series G
Convertible Preferred Stock, was filed as an
Exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1989 and is
hereby incorporated by reference.
4.2 The Company's Certificate of Designation for
Series H Convertible Preferred Stock, was
filed as an Exhibit to the company's Form
8-K dated March 26, 1991 and is hereby
incorporated by reference.
4.3 The Company's Certificate of Designation for
Series I Preferred Stock, was filed as an
Exhibit to the Company's Form 8-K dated
March 12, 1992 and is hereby incorporated by
reference.
4.4 ICC Technologies, Inc. Certificate of
Designation for Series J Preferred Stock.
Incorporated by reference from ICC's Form
8-K dated June 8, 1992.
9.1 Form of voting trust agreement between RIT
Capital Partners, plc, Warburg, Pincus
Capital Company L.P. and ICC Technologies,
Inc. Incorporated by reference from ICC's
Form 10-K for the fiscal year ended December
31, 1989.
10.1 Lease Agreement for the Partnership's
Executive Offices dated June 14, 1989.
Incorporated by reference from ICC's Form
8-K dated June 12, 1990 .
10.2 The Company's Incentive Stock Option Plan,
as amended was filed as Exhibit 4(g) to the
Company's Registration Statement on Form
S-8, No. 33-85636 filed on October 26, 1994
and is hereby incorporated by reference .
10.3 The Company's Nonqualified Stock Option
Plan, as amended and restated, was filed as
Exhibit C to the Company's Definitive Proxy
Statement dated November 18, 1994 for
Stockholders Meeting held December 15, 1994
and is hereby incorporated by reference.
10.4 ICC Technologies, Inc., Equity Plan for
Directors. Incorporated by reference from
ICC's Definitive Proxy Statement dated
November 18, 1994 for Stockholders Meeting
held December 15, 1994.
10.5 Agreement to Restructure and Retire ICC
Technologies, Inc. Lease Financing
Obligations to Textron Financial
Corporation. Incorporated by reference from
ICC's Form 8-K filed June 12, 1990.
24
10.6 Conversion and Waiver Agreement between RIT
Capital Partners, plc, Warburg, Pincus
Capital Company L.P. and ICC Technologies,
Inc. dated June 6, 1990 including all
exhibits thereto. Incorporated by reference
from ICC's Form 8-K filed June 12, 1990.
10.7 Joint Development Program Agreement between
ICC Technologies, Inc., and Engelhard
Corporation dated May 26, 1992. Incorporated
by reference from ICC's Form 10-K for the
fiscal year ended December 31, 1992.
10.8 Employment Agreement between William A.
Wilson and ICC Technologies, Inc., dated
July 2, 1991 Incorporated by reference from
ICC's Quarterly Report on Form 10-Q for
period ended September 30, 1991.
10.9 Amendment dated February 28, 1994 to
Employment Agreement between William A.
Wilson and ICC Technologies, Inc.
incorporated by reference from ICC's Form
10-K for the fiscal year ended December 31,
1994.
10.10 General Partnership Agreement of
Engelhard/ICC ,between Engelhard DT Inc. and
ICC Desiccant Technologies, Inc., dated
February 7, 1994, was filed as an exhibit to
the Company's registration statement filed
on Form S-2 declared effective February 14,
1996 (registration number 33-80223) and is
hereby incorporated by reference.
10.11 Technology License Agreement between
Engelhard Corporation and ICC Technologies,
Inc., and Engelhard/ICC, dated February 7,
1994 was filed as Exhibit 10(j) to the
Company's Form 10-K for the fiscal year
ended December 31, 1993 and is hereby
incorporated by reference.
10.12 Supply Agreement between Engelhard/ICC and
Engelhard Corporation dated February 7,
1994. Incorporated by reference from ICC's
Form 10-K for the fiscal year ended December
31, 1993.
10.13 Employment Agreement between Irwin L. Gross
and the Partnership dated February 8, 1994.
Incorporated by reference from ICC's Form
10-K for the fiscal year ended December 31,
1993.
10.14 Royalty Agreement between Engelhard/ICC and
James Coellner and Dean Calton dated
February 8, 1994. Incorporated by reference
from ICC's Form 10-K for the fiscal year
ended December 31, 1993.
10.15 Lease Agreement for the Partnership's
manufacturing space, dated March 25, 1993.
Incorporated by reference from ICC's Form
10-K for the fiscal year ended December 31,
1993.
10.16 License Agreement by and between the
Partnership and Ciba Composites Anaheim, a
business unit of Ciba Composites, a Division
of Ciba-Geigy, dated November 29, 1994, was
filed as Exhibit 10.1 to the Company's 10-Q
for period ended September 30, 1995 and is
hereby incorporated by reference.
10.17 Manufacturing and Supply Agreement by and
between the Partnership and Ciba Composites
Anaheim, a business unit of Ciba Composites,
a Division of Ciba-Geigy, dated November 29,
1994, was filed as Exhibit 10.2
25
to the Company's 10-Q for period ended
September 30, 1995 and is hereby
incorporated by reference.
10.18 Technical Information, Trademark and Patent
License Agreement by and between the
Partnership and Chung-Hsin, dated March 27,
1995, was filed as Exhibit 10.3 to the
Company's 10-Q for period ended September
30, 1995 and is hereby incorporated by
reference.
10.19 Supply Agreement by and between the
Partnership and Chung-Hsin, dated March 27,
1995, was filed as Exhibit 10.4 to the
Company's 10-Q for period ended September
30, 1995 and is hereby incorporated by
reference.
10.20 Agreement by and among Engelhard, the
Company and the Partnership, dated April 1,
1995 relating to the Dade County Industrial
Development Revenue Bonds, was filed as
Exhibit 10.5 to the Company's 10-Q for
period ended September 30, 1995 and is
hereby incorporated by reference.
10.21 Memorandum of Understanding by and between
the Partnership and Samsung, dated June 30,
1995, was filed as Exhibit 10.6 to the
Company's 10-Q for period ended September
30, 1995 and is hereby incorporated by
reference.
10.22 Form of Amendment dated August 9, 1995 to
Agreement of October 6, 1991 regarding
formation of ICC International by and
between the Partnership and AB Air was filed
as Exhibit 10.7 to the Company's 10-Q for
period ended September 30, 1995 and is
hereby incorporated by reference.
10.23 Agreement Regarding Joint Development
Program between the Partnership and AB Air
dated August 21, 1995 was filed as an
exhibit to the Company's registration
statement filed on Form S-2 declared
effective February 14, 1996 (registration
number 33-80223) and is hereby incorporated
by reference.
21 List of Subsidiaries of ICC Technologies,
Inc.
23 Consent of Coopers & Lybrand L.L.P.,
Independent Accountants
27 Financial Data Schedule
26
(d) The following is a list of certain documents required by Regulation S-X
consisting of financial statements of the fifty percent owned general
partnership Engelhard/ICC included in this Form 10-K Annual Report:
(1) Financial Statements.
(i) Report of Independent Accountants
(ii) Balance Sheet at December 31, 1995 and 1994.
(iii) Statements of Operations for the year ended
December 31, 1995 and the period February 7,
1994 (date of formation) to December 31,
1994.
(iv) Statements of Changes in Partners' Capital
for the year ended December 31, 1995 and for
the period February 7, 1994 (date of
formation) to December 31, 1994.
(v) Statements of Cash Flows for the year ended
December 31, 1995 and for the period
February 7, 1994 (date of formation) to
December 31, 1994.
(vii) Notes to Financial Statements.
27
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders of ICC Technologies
We have audited the accompanying consolidated balance sheets of ICC
Technologies, Inc. as of December 31, 1995 and 1994 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ICC Technologies,
Inc. as of December 31, 1995 and 1994 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
incurred losses accumulating to $33,545,719 through December 31, 1995. This
factor, among others, raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 1. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 25 , 1996
28
ICC TECHNOLOGIES, INC
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1995 1994
------------ ------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 1,573,475 $ 1,114,335
Receivables -
Employees 28,667 28,667
Engelhard/ICC 160,973 124,095
Inventories, net 0 16,960
Prepaid expenses and other 530,131 65,210
------------ ------------
Total current assets 2,293,246 1,349,267
RESTRICTED CASH EQUIVALENTS 2,500,000 0
INVESTMENTS IN NET ASSETS OF AND LOANS TO ENGELHARD/ICC 0 1,048,255
PROPERTY AND EQUIPMENT, net 3,180 0
------------ ------------
Total assets $ 4,796,426 $ 2,397,522
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 28,358 $ 93,838
Current portion of note payable to stockholder 150,000 0
Accrued liabilities 287,091 182,944
------------ ------------
Total current liabilities 465,449 276,782
------------ ------------
LOSSES OF ENGELHARD/ICC IN EXCESS OF INVESTMENTS 2,797,165 0
------------ ------------
NOTES PAYABLE TO STOCKHOLDERS 0 150,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
Series F, authorized, issued and outstanding 135 shares at December 31,
1995 and 6,885 at December 31, 1994 (liquidation value $256,270
at December 31, 1995 and $11,632,063 at December 31, 1994) 1 69
Series G Convertible, authorized and issued 400 shares;
350 shares outstanding (liquidation value $664,404
at December 31, 1995 and $591,318 at December 31, 1994) 4 4
Series H Convertible, authorized, issued and outstanding 1,500 shares
at December 31, 1995 and December 31, 1994 15 15
Series I, authorized, issued and outstanding 500 shares
at December 31, 1995 and December 31, 1994 5 5
Series J, authorized, issued and outstanding 225 shares
at December 31, 1995 and December 31, 1994 2 2
Common stock, $.01 par value, authorized 50,000,000 shares,
issued 14,692,193 shares at December 31, 1995 and 12,288,632
shares at December 31, 1994 146,923 122,887
Additional paid-in capital 35,104,011 29,241,534
Accumulated deficit (33,545,719) (27,222,346)
Less: Treasury common stock, at cost, 66,227 shares (171,430) (171,430)
------------ ------------
Total stockholders' equity 1,533,812 1,970,740
------------ ------------
Total liabilities and stockholders' equity $ 4,796,426 $ 2,397,522
============ ============
The accompanying notes are an integral part of the financial statements.
29
ICC TECHNOLOGIES, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
---------------------------------------------------------
1995 1994 1993
------------ ------------ -----------
REVENUES $ 9,000 $ 88,360 $ 1,201,156
COST OF GOODS SOLD 7,961 80,419 1,176,619
------------ ------------ -----------
Gross Profit 1,039 7,941 24,537
------------ ------------ -----------
OPERATING EXPENSES:
Marketing 0 155,822 878,542
Engineering and development 0 150,523 1,099,575
General and administrative 1,384,203 1,427,929 2,093,733
------------ ------------ -----------
Total operating expenses 1,384,203 1,734,274 4,071,850
------------ ------------ -----------
Loss from operations (1,383,164) (1,726,333) (4,047,313)
INTEREST:
Interest income 362,153 162,285 14,876
Interest expense 0 0 (1,415)
Interest expense on stockholders' loans (16,250) (14,611) (24,000)
------------ ------------ -----------
345,903 147,674 (10,539)
------------ ------------ -----------
EQUITY INTEREST IN NET LOSS OF ENGELHARD/ICC (5,286,112) (2,812,423) --
------------ ------------ -----------
NET LOSS (6,323,373) (4,391,082) (4,057,852)
CUMULATIVE PREFERRED STOCK
DIVIDEND REQUIREMENTS (301,413) (227,750) (261,500)
------------ ------------ -----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (6,624,786) $ (4,618,832) $(4,319,352)
============ ============ ===========
NET LOSS PER COMMON SHARE $ (0.47) $ (0.41) $ (0.51)
============ ============ ===========
WEIGHTED AVERAGE COMMON SHARES 14,072,867 11,390,981 8,550,852
============ ============ ===========
The accompanying notes are an integral part of the financial statements.
30
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 1995, 1994 and 1993
Common Additional
Preferred Stock Paid-in
Stock ($.01 par value) Capital
------------ ---------------- ------------
BALANCE, DECEMBER 31, 1992 $ 101 $ 61,955 $ 18,421,770
Conversion of 50 shares of Series G preferred stock into
408,528 shares of common stock 0 4,085 (4,085)
Issuance of 2,918,998 shares of common stock through
a private placement, net of offering expenses 0 28,200 4,309,924
Issuance of shares of common stock 0 1,875 713,712
Issuance of 357,900 shares of common stock through
exercise of stock options 0 3,578 505,250
Net loss 0 0 0
------------ ------------ ------------
BALANCE, DECEMBER 31, 1993 $ 101 $ 99,693 $ 23,946,571
Conversion of 600 shares Series H preferred stock into
300,000 shares of common stock (6) 3,000 (2,994)
Issuance of 1,100,000 shares of common stock through
a private placement, net of offering expenses 0 11,000 3,477,920
Issuance of 919,354 shares of common stock through
exercise of stock options and warrants 0 9,194 1,640,837
Issuance of warrants to purchase 40,000 shares
of common stock 0 0 179,200
Net loss 0 0 0
------------ ------------ ------------
BALANCE, DECEMBER 31, 1994 95 122,887 $ 29,241,534
Issuance of 925,000 shares of common stock to redeem
6750 shares of Series F preferred stock (68) 9,250 (9,182)
Issuance of 1,151,908 shares of common stock through
exercise of stock options and warrants 0 11,519 2,769,834
Issuance of 300,000 shares of common stock through
a private placement, net of offering expenses 0 3,000 3,027,092
Issuance of 26,653 shares of common stock for
services rendered 0 267 74,733
Net loss 0 0 0
------------ ------------ ------------
BALANCE, DECEMBER 31, 1995 $ 27 $ 146,923 $ 35,104,011
============ ============ ============
Total
Treasury Stockholders
Accumulated Stock, Equity
Deficit at Cost (Deficit)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1992 $(18,773,412) $ (171,430) $ (461,016)
Conversion of 50 shares of Series G preferred stock into
408,528 shares of common stock 0 0 0
Issuance of 2,918,998 shares of common stock through
a private placement, net of offering expenses 0 0 4,338,124
Issuance of shares of common stock 0 0 715,587
Issuance of 357,900 shares of common stock through
exercise of stock options 0 0 508,828
Net loss (4,057,852) 0 (4,057,852)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1993 $(22,831,264) $ (171,430) $ 1,043,671
Conversion of 600 shares Series H preferred stock into
300,000 shares of common stock 0 0 0
Issuance of 1,100,000 shares of common stock through
a private placement, net of offering expenses 0 0 3,488,920
Issuance of 919,354 shares of common stock through
exercise of stock options and warrants 0 0 1,650,031
Issuance of warrants to purchase 40,000 shares
of common stock 0 0 179,200
Net loss (4,391,082) 0 (4,391,082)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1994 $(27,222,346) $ (171,430) $ 1,970,740
Issuance of 925,000 shares of common stock to redeem
6750 shares of Series F preferred stock 0 0 0
Issuance of 1,151,908 shares of common stock through
exercise of stock options and warrants 0 0 2,781,353
Issuance of 300,000 shares of common stock through
a private placement, net of offering expenses 0 0 3,030,092
Issuance of 26,653 shares of common stock for
services rendered 0 0 75,000
Net loss (6,323,373) 0 (6,323,373)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1995 $(33,545,719) $ (171,430) $ 1,533,812
============ ============ ============
The accompanying notes are an integral part of the financial statements.
31
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
Cash Flows from Operating Activities:
Net loss $(6,323,373) $(4,391,082) $(4,057,852)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,591 49,181 107,590
Equity interest in net loss of Engelhard/ICC 5,286,112 2,812,423 0
Common stock and warrants issued for services rendered 112,500 179,200 212,969
Provision for doubtful accounts 0 16,112 15,000
Increase in inventory reserve 9,000 95,000 48,000
Termination expense 0 0 30,000
Write - off of equipment and other assets 0 0 69,819
(Increase) decrease in:
Receivables (36,878) 67,321 (110,588)
Inventories 7,960 (67,664) (164,472)
Prepaid expenses and other (464,921) (23,873) (63,289)
Increase (decrease) in:
Accounts payable (65,480) (53,418) 109,813
Accrued expenses 175,955 (55,918) 128,193
----------- ----------- -----------
Net cash used in operating activities (1,297,534) (1,372,718) (3,674,817)
----------- ----------- -----------
Cash Flows from Investing Activities:
Repayment of loans (loans to) Engelhard/ICC 1,500,000 (4,000,000) 0
Capital contribution to Engelhard/ICC (3,000,000) 0 0
Purchase of restricted certificate of deposit (2,500,000) 0 0
Purchases of property and equipment, net (4,771) (9,300) (300,040)
----------- ----------- -----------
Net cash used in investing activities (4,004,771) (4,009,300) (300,040)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from sale of common stock and warrants, net 5,761,445 5,138,951 4,643,208
Repayments of borrowings from stockholders 0 (185,272) (60,000)
Borrowings from Engelhard Corporation, net 0 400,000 500,000
----------- ----------- -----------
Net cash provided by financing activities 5,761,445 5,353,679 5,083,208
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 459,140 (28,339) 1,108,351
Cash and Cash Equivalents, Beginning of Period 1,114,335 1,142,674 34,323
----------- ----------- -----------
Cash and Cash Equivalents, End of Period $ 1,573,475 $ 1,114,335 $ 1,142,674
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
32
ICC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS
ICC Technologies, Inc. (the "Company" or "ICC") is a Delaware
corporation. On February 7, 1994, the Company and Engelhard
Corporation, through their respective subsidiaries, formed a
Pennsylvania General Partnership named "Engelhard/ICC" (the
"Partnership"). In exchange for a 50% interest in the Partnership, the
Company transferred to the Partnership substantially all of its assets,
with the exception of cash and certain other assets not related to the
desiccant air conditioning business, subject to certain liabilities;
Engelhard Corporation, in exchange for a 50% interest in the
Partnership, (a) contributed to the Partnership approximately
$8,600,000, (b) entered into a Supply Agreement pursuant to which it
agreed to supply desiccants to the Partnership, (c) entered into a
Technology License Agreement pursuant to which Engelhard Corporation
and the Partnership licensed to each other certain technology rights,
and (d) agreed to provide credit support to the Partnership in the
amount of $3,000,000. In addition, Engelhard Corporation extinguished a
$900,000 obligation due to it by the Company.
The Partnership was formed on February 7, 1994 to engage in the
business of designing, manufacturing and marketing climate control
systems to supplement or replace conventional air conditioning systems
('Partnership Business'). The desiccant air conditioning business
conducted by the Company prior to the formation of the Partnership is
now being conducted by the Partnership. As a result, the Company has
become principally a holding company, owning a 50% interest in the
Partnership. Although the Company is not permitted to engage directly
or indirectly in any activities which would conflict with the
Partnership Business as long as the Partnership is in effect, the
Company is not precluded from engaging in other activities.
Prior to the formation of the Partnership, the Company was engaged in
the business of designing, manufacturing and marketing environmentally
beneficial and energy efficient, desiccant cooling systems for climate
control for commercial buildings. The Company's desiccant cooling
products were marketed to chain operators of supermarkets, department
stores, and to manufacturers, schools, health care facilities, federal,
state and local governments, and to users of other types of air
conditioning and dehumidification products. The Company expects the
Partnership to continue such business and to market its products to
such potential users.
The Company believes that the desiccant cooling system it has developed
and which the Partnership is now further developing, is an innovative
and energy efficient technology for providing cooling and heating for
commercial facilities.
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 Engelhard/ICC have
been insufficient to cover costs of operations for the year ended
December 31, 1995. The Company has incurred cumulative losses since
inception of $33,545,719 through December 31, 1995. In order to
continue operations, the Company has had to raise additional capital to
offset cash consumed in operations and the support of the Partnership.
Until the Partnership generates positive cash flows from operations, it
will be primarily dependent upon its 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 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.
33
ICC TECHNOLOGIES, INC./ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
In February 1996, the Company issued 2,500,000 shares of Common Stock
in a secondary offering and received proceeds of approximately $16.3
million. The Company plans to use the net proceeds from the offering
to: (i) fund its half of the estimated future financing requirements of
the Partnership, (ii) to redeem certain of its Preferred Stock for and
payment of accrued dividends and (iii) to fund the Company's working
capital requirements. (See notes 8 and 16). Management intends to raise
additional capital as required to continue operations and to support
the Partnership; however, there can be no assurance that the Company
will be able to raise additional capital.
(2) THE PARTNERSHIP
On February 7, 1994 ICC and Engelhard, through their respective
subsidiaries, formed a Pennsylvania general partnership named
Engelhard/ICC (the "Partnership"). In exchange for a 50% interest in
the Partnership, ICC transferred to the Partnership, through ICC's
wholly-owned subsidiary, ICC Desiccant Technologies Inc., substantially
all of its assets, with the exception of cash and certain other assets
not related to the desiccant air conditioning business, subject to
certain liabilities. The assets and liabilities were transferred by the
Company at historical cost with no gain or loss being recorded by the
Company. The investment in the Partnership is accounted for under the
equity method of accounting.
34
ICC TECHNOLOGIES, INC./ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The following are the summarized financial results of the Partnership:
Year ended Period ended
December 31, 1995 December 31, 1994
----------------- -----------------
Results of operations:
Revenues $ 8,944,279 $ 1,620,386
Loss from operations (9,862,641) (5,699,721)
Net loss $(10,572,223) $ (5,624,845)
Balance sheet information: December 31, 1995 December 31, 1994
------------------ ------------------
Cash $ 346,480 $ 648,451
Receivables 2,057,420 661,801
Inventory 3,385,125 2,439,509
Other current assets 158,939 77,586
Cash held in escrow 865,744 0
Property plant and equipment 8,263,642 7,946,511
Other noncurrent assets 1,802,155 1,612,497
------------ ------------
Total assets $ 16,879,505 $ 13,386,355
============ ============
Accounts payable and accrued expenses $ 1,153,885 $ 1,543,798
Payable to general partners 365,509 186,934
Debt 11,451,755 175,044
Notes payable to general partners 0 8,000,000
Partners' capital 3,908,356 3,480,579
------------ ------------
Total liabilities and equity $ 16,879,505 $ 13,386,355
============ ============
In December 1994, the Partnership acquired for $8 million in cash, the
real property and substantially all other manufacturing assets of an
existing manufacturing facility located in Miami, Florida from
Ciba-Geigy Corporation ("Ciba"), which currently produces the small
cell, honeycomb structures that are the base material of the desiccant
and thermal rotors that are an integral part of the Partnership's
products. The former Ciba plant produced primarily large cell substrate
which the Partnership is prohibited to produce or sell other than to
Ciba. The Partnership also acquired, as part of the transaction, an
exclusive technology license to use Ciba's proprietary process which is
necessary to manufacture such small cell, honeycomb structures. The
Company's and the Partnership's management believe that the acquisition
gives the Partnership complete control of the critical technologies and
manufacturing processes for its current products as well as those in
the foreseeable future. Assets acquired consisted of approximately $6.9
million of plant, property and equipment and $1.1 million of
intangibles.
To finance the acquisition, the Company and Engelhard each lent to the
Partnership $4,000,000 ("General Partners' Bridge Loan"). The loans,
were evidenced by promissory notes with interest payable monthly at the
Prime Rate plus 1%. The General Partners' Bridge Loan resulted in the
Company increasing its investment in the Partnership as well as
recording its proportionate share of previously unrecognized
accumulated losses at that time. In May 1995, $1,500,000 of the bridge
loan was repaid to each general partner. The remaining $2,500,000 for
each general partner was converted into an investment in the
Partnership.
In April 1995, the Partnership obtained financing from the issuance of
$8,500,000 of industrial development revenue bonds. The proceeds of
these bonds were used to repay $3,000,000 of the General Partners'
Bridge Loan, $1,500,000 to each general partner, and provide for
improvements and capital equipment at the Miami facility. As of
December 31, 1995, $865,744 of proceeds were held in escrow and will be
released upon the Partnership's incurring qualified expenditures.
35
ICC TECHNOLOGIES, INC./ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
In May 1995, the Company guaranteed 50% of the Partnership's
indebtedness associated with the industrial development revenue bonds.
The Company has established an irrevocable letter of credit for
$2,500,000 to support its portion of the guarantee. The Company's
letter of credit is collateralized by cash equivalents in the amount of
$2,500,000. Although the bonds do not begin to mature until April 2000,
there can be no assurance that the Partnership will be able to generate
sufficient cash from operations to cover the debt service on the bonds.
If the Partnership defaults on the bonds and they become due, the
Company will become responsible for repayment for at least a portion of
that amount and possibly additional amounts. No amount has been
reported in the financial statements relating to such effects.
During 1995, additional capital contributions of $3,000,000 to the
Partnership were made by each partner. Subsequently, in 1996, an
additional $2 million in capital contributions to the Partnership were
made by each partner.
In connection with the formation of the Partnership, the Company
granted Engelhard options to acquire up to all of the Company's
interest in the Partnership at the rate of 25% of such interest per
year starting on December 31, 1997, with each option exercisable based
upon a price equal to 95% of the fair market value of the Partnership
as determined by an investment banking firm selected by the Company and
Engelhard. Upon the occurrence of an event of default by the Company
under the Partnership Agreement (including bankruptcy of the Company or
violation of or failure by the Company to comply with any material term
or condition of the Partnership Agreement which is not cured within a
45-day period), Engelhard's options can be accelerated. There can be no
assurance whether Engelhard will or will not exercise any or all of its
options to purchase the Company's interest in the Partnership or that
the valuation assigned the Company's interest will be sufficient to
generate an acceptable return to investors..
The Company's proportionate share of losses of the Partnership are
$5,286,112 and $2,812,423 for the year ended December 31, 1995 and
1994, respectively. The Partnership has incurred cumulative losses of
approximately $16,200,000 since inception. The Company's share of the
cumulative losses have resulted in recognition of losses in excess of
the Company's investment in and advances to the Partnership of
$2,797,165, which has been reflected as a liability in the December 31,
1995 balance sheet.
Receivables from the Partnership were $160,973 at December 31, 1995.
Interest income earned from the Partnership amounted to approximately
$164,000 in 1995. In 1994, the Company received $250,000 in connection
with the formation of the Partnership for reimbursement of certain
expenses incurred in connection with the Joint Development Program
efforts which preceded the formation of the Partnership. The
Partnership provided approximately $83,000 and $91,000 in various
administrative office support services to the Company in 1995 and 1994,
respectively. The general partners are guarantors of the Partnership's
long term debt which amounts to approximately $8,701,755 and $175,000
as of December 31, 1995 and 1994, respectively . Engelhard is guarantor
of the Partnership's short-term loan which amounts to $2,750,000 as of
December 31, 1995.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents for the purpose
of determining cash flows.
Inventories
Inventories are valued at the lower of cost (using specific
identification) or market.
36
ICC TECHNOLOGIES, INC./ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Property and Equipment
Property and equipment are stated at cost. Costs of major additions and
improvements are capitalized and replacements, maintenance and repairs,
which do not improve or extend the life of the respective assets, are
charged to operations as incurred.
When an asset is sold, retired or otherwise disposed of, the cost of
the property and equipment and the related accumulated depreciation are
removed from the respective accounts, and any resulting gains or losses
are reflected in operations.
Depreciation is computed using the straight-line method over the
estimated useful lives of three to seven years.
Income Taxes
In 1993, the Company implemented Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". The Statement
requires that deferred income taxes be computed using the asset and
liability method rather than the deferred method previously in effect.
Adoption of SFAS No. 109 did not have a material effect on the
Company's financial statements.
Development Costs
Development costs are expensed as incurred. Development costs amounted
to approximately $24,000 and $1,000,000 in 1994 and 1993, respectively.
Net Loss Per Common Share
The net loss per common share is based on the weighted average number
of shares of Common Stock outstanding during each year. Stock options,
warrants and convertible preferred stock have not been included, since
they are antidilutive. Cumulative dividends on the Series G and H
Convertible Preferred Stock and the Series F, I and J Preferred Stock
amounting to approximately $301,000, $228,000 and $262,000 for the
periods ended December 31, 1995, 1994 and 1993, respectively (see Note
9), have been added to the net loss for determining the net loss
applicable to common stockholders in computing the net loss per common
share for each respective period. The computations of fully diluted
loss per share were antidilutive; therefore, the amounts reported
herein for primary and fully diluted loss per share are the same.
Concentration of Credit Risk
The Company invests its cash primarily in deposits with major banks. At
times, these deposits may be in excess of federally insured limits.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassification
Certain reclassifications have been made to the 1994 and 1993
presentations to conform with the 1995 presentation.
37
ICC TECHNOLOGIES, INC./ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(4) SUPPLEMENTAL CASH FLOWS AND EQUITY DISCLOSURE:
Cash paid during the year for interest was $0, $35,628 and $1,415, in
1995, 1994, and 1993, respectively.
Included in the Statement of Cash Flows for 1995 were net cash proceeds
of $2,980,092 from the issuance of 300,000 shares of Common Stock. Also
included were cash proceeds of $2,781,353 from the issuance of
1,151,833 shares of Common Stock upon exercise of stock options and
warrants. Excluded from the Statement of Cash Flows in 1995 were the
effects of certain non-cash financing transactions related to: the
issuance of 925,000 shares of Common Stock to redeem 6,750 shares of
Series F Preferred Stock; the issuance of 26,653 shares of Common Stock
for $75,000 of investor relation services performed from 1993 through
1995 and $37,500 of compensation expenses related to the grant of
warrants to purchase 375,000 shares of Common Stock in connection with
the private placement of 300,000 shares of Common Stock in March 1995.
Included in the Statement of Cash Flows for 1994 were cash proceeds of
$3,488,920 from the issuance of 1,100,000 shares of Common Stock. Also
included were cash proceeds of $1,650,031 from the issuance of 919,354
shares of Common Stock upon exercise of stock options and warrants.
Excluded from the Statement of Cash Flows in 1994 were the effects of
certain non-cash financing transactions related to the conversion of
600 shares of Series G Convertible Preferred Stock into 300,000 shares
of Common Stock. Also the Company transferred to the Partnership, upon
formation, approximately $60,000 of net liabilities which consisted of
approximately: $240,000 in receivables; $ 490,000 of inventory;
$290,000 of property and equipment; $ 180,000 in other assets; $360,000
in accounts payable and accrued liabilities and $900,000 of notes
payable to Engelhard.
Included in the Statement of Cash Flows for 1993 were cash proceeds of
$4,643,208 from the issuance of 3,144,598 shares of Common Stock.
Excluded from the Statement of Cash Flows in 1993 were the effects of
certain non-cash financing transactions related to: the issuance of
4,000 shares of the Company's Common Stock in settlement of
approximately $43,000 of accounts payable of an equipment vendor; the
issuance of 100,000 shares of Common Stock to an equipment vendor in
settlement of approximately $388,000 of accounts payable and the
establishment of a prepaid equipment account of approximately $45,000;
the issuance of 7,140 shares of Common Stock to a vendor in settlement
of approximately $35,000 of accounts payable; the issuance of 10,000
shares of Common Stock with a fair market value of $30,000 to a former
officer and recorded as severance expense; the issuance of incentive
stock options to purchase 33,300 shares of Common Stock upon exercise
of incentive stock options by an employee borrowing $60,150 from the
Company which was repaid in installments through March 1994; the
issuance of 408,528 shares of common stock upon the conversion of 50
shares of Series G Convertible Preferred Stock. Also, an employee
receivable of approximately $5,000 was offset against the deferred
salaries account included in accrued liabilities.
(5) INVENTORIES:
Inventories comprised of cogeneration equipment and related parts that
have been recorded at their net realizable value. At December 31, 1995
the Company had no inventory. At December 31, 1994 and 1993, the
Company's inventory balance of $16,960 and $533,008, respectively, is
net of a reserve for obsolete inventory of approximately $430,000 and
$383,000, respectively. Obsolete inventory of $439,000 was written off
against the corresponding inventory reserve in 1995. For the years
ended 1995, 1994, and 1993, the Company made provisions of
approximately $9,000, $95,000, and $48,000, respectively, for inventory
obsolescence. The increase in inventory obsolescence reserve was
included in general and administrative expense in 1995 and engineering
and development expense in 1994 and 1993 in the accompanying
Consolidated Statement of Operations. In 1993, the Company disposed of
inventory of approximately $52,000 which was charged directly to
engineering and development expenses.
38
ICC TECHNOLOGIES, INC./ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(6) PROPERTY AND EQUIPMENT:
Property and equipment, net, comprise the following:
December 31,
--------------------------
1995 1994
----------- -----------
Office and computer
equipment $3,815 $ 0
Cogeneration equipment 0 66,106
Furniture and fixtures 956 0
----------- -----------
4,771 66,106
Less- Accumulated depreciation (1,591) (66,106)
----------- -----------
$ 3,180 $ 0
=========== ===========
The Company retired $66,106 and $79,847 of equipment in the years ended
December 31, 1995 and 1993, resulting in a gain on retirement of $0 and
$225, respectively.
Property and equipment included fully depreciated assets of
approximately $66,106 and $145,000 as of December 31, 1994 and 1993,
respectively.
(7) ACCRUED EXPENSES:
Accrued expenses comprise the following:
December 31,
----------------------------
1995 1994
------------ ------------
Offering Costs $160,914 $0
Professional fees 23,000 30,202
Accrued interest 65,392 49,142
Other 37,785 103,600
------------ ------------
$287,091 $182,944
============ ============
(8) NOTES PAYABLE TO STOCKHOLDERS:
Notes payable to stockholders comprise the following:
December 31,
--------------------------
1995 1994
------------ ------------
Notes payable to stockholders $150,000 $150,000
Less- Current portion 150,000 0
------------ ------------
Long-Term portion $0 $150,000
============ ============
In connection with the secondary offering of 2,500,000 shares of Common
Stock in February 1996 (note 16), the note payable to stockholder was
repaid and the note was canceled.
Upon entering into the Joint Venture Asset Transfer Agreement,
Engelhard loaned ICC $500,000, which loan is evidenced by a Promissory
Note, dated September 8, 1993. The loan to ICC,
39
ICC TECHNOLOGIES, INC./ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
together with $500,000 of ICC's own funds, was to be used solely for
(i) funding operations of ICC related to ICC's desiccant air
conditioning business and (ii) to reimburse Engelhard for all costs,
charges and expenses incurred by Engelhard for work conducted by
Engelhard in accordance with the Joint Development Agreement. No
interest was payable on the principal amount of the Promissory Note.
In January 1994, Engelhard loaned to the Company an additional
$400,000, evidenced by a Promissory Note dated January 15, 1994. The
Note has the same terms and conditions as the September 8, 1993
Promissory Note. On February 7, 1994, pursuant to the Joint Venture
Asset Transfer Agreement, the net assets of ICC's desiccant line of
business were transferred to the Engelhard/ICC Partnership and the
Partnership assumed the indebtedness evidenced by the $500,000
Engelhard loan and the $400,000 Engelhard loan and such indebtedness
was converted by Engelhard into a capital contribution of the
Partnership.
Warburg Pincus Capital Company L.P. (WPCC) and RIT Capital Partners plc
(RIT) provided working capital loans of $450,000 each prior to 1991 at
the prime interest rate plus 2 percent. The prime interest rate as of
December 31, 1994, 1993, and 1992, was 8.5%, 6.0%, and 6.0%,
respectively. During 1991, WPCC and RIT purchased 300 shares each of
Series H Convertible Preferred Stock. The Stock was purchased through
the exchange of $600,000 in debt plus accrued interest of approximately
$138,000. The remaining note of $300,000 was scheduled to mature in
April 1996. On February 4, 1994 the Company paid the Warburg Pincus
$150,000 loan plus accrued interest of $35,628.
Interest expense on all stockholder loans were $16,250, $14,611, and
$24,000 in 1995, 1994, and 1993 , respectively.
(9) STOCK TRANSACTIONS:
On March 31, 1995, pursuant to a private placement, the Company issued
300,000 shares of Common Stock for gross proceeds of $3,300,000. At
closing, cash of $1,100,000 was received along with a $2,200,000
promissory note. Costs of the offering amounted to approximately
$320,000. In August 1995, the promissory note was paid. In connection
with the private placement, the Company issued warrants to purchase
375,000 shares of Common Stock at $9 per share to the placement agent.
The Company received proceeds of approximately $1,954,000 from the
exercise of stock options to purchase approximately 912,000 shares of
Common Stock granted under its option plans for 1995. The Company
received proceeds of approximately $828,000 from the exercise of
warrants to purchase approximately 240,000 shares of Common Stock for
1995.
At December 31, 1995 the Company had five classes (Series F,G,H,I and
J)of Preferred Stock outstanding. The shares of Series G and H
Convertible Preferred Stock may be converted into Common Stock at the
demand of the holder of such shares. The conversion rates are 8170.56
shares of Common Stock for each Series G share and 500 shares of Common
Stock for each Series H share. The Company's Series G and H Preferred
Stock, which have voting rights, are convertible into 2,859,696 and
750,000 shares of Common Stock, respectively. The Company may pay the
redemption of Series F Preferred Stock and accrued dividends of the
Series H Preferred Stock in shares of Common Stock. In August 1995, the
6,750 shares of Series F Preferred Stock were redeemed by the issuance
of 925,000 shares of Common Stock. In April 1995, the Series F
Preferred Stock and Series G Convertible Preferred Stock began to
accrue a cash dividend at a rate equal to 15% of their respective
accrued liquidation preference. The Series H, I and J bear a 9%, 10%
and 10% dividend which will accrue, but not be payable until declared
by the Board of Directors of the Company. The five classes of Preferred
Stock outstanding have cumulative undeclared and unpaid dividends of
approximately $994,000 at December 31, 1995.
40
ICC TECHNOLOGIES, INC./ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
In June, 1994, the Company sold 1,100,000 shares of common stock at a
purchase price of $3.56 per share for aggregate cash proceeds of
$3,916,000, and two directors each sold 150,000 shares, at a purchase
price of $3.56 for aggregate cash proceeds to each of $534,000.
Pursuant to an agreement between the Company and the two directors, the
Company agreed to pay all commissions and expenses incurred in
connection with the offering. Accordingly, the net proceeds to the
Company, after payment of such commissions and expenses, were
$3,488,920. In connection with the offering the Company granted to an
individual, who subsequently became a director, for financial advisory
services, warrants for the purchase of 215,000 shares of common stock.
Those warrants have an exercise price of $3.25 - $4.75 per share and
expire in 1999.
In July 1993, the Company registered under the Securities Act of 1933
up to 1,060,000 shares of common stock of which 950,000 shares were to
be issued upon the exercise of outstanding warrants and 110,000 shares
were to be issued in exchange for certain obligations: 100,000 shares
to an equipment vendor in settlement of approximately $388,000 in
accounts payable and 10,000 shares to a former officer of the Company
as severance pay. As of December 31, 1993 the Company had received
$2,087,500 in cash for 950,000 shares of Common Stock purchased upon
the exercise of outstanding warrants. Expenses for this offering for
legal, accounting, and printing costs amounted to approximately
$112,000. This amount was offset against proceeds in the equity
section, reducing net proceeds from the offering to approximately
$1,976,000.
The Company received $1,543,009 in cash for 732,354 shares of Common
Stock upon the exercise of Incentive and Nonqualified Stock Options for
the year ended December 31,1994. Also, the Company received during 1994
net proceeds of $286,222 from the exercise of warrants to acquire
187,000 shares of Common Stock granted to placement agents in
connection with the February and March 1993, private placements,
referred to below.
In March and April, 1993, pursuant to a private placement commenced on
March 30, 1993, the Company sold 374,000 shares of common stock for
gross proceeds of approximately $561,000 and net proceeds, after
payment of commissions and expenses of the offering, of approximately
$459,000.
In March 1993, pursuant to a private placement commenced in February
1993, the Company sold 1,496,000 shares of Common Stock for gross
proceeds of $2,244,000 and net proceeds, after payment of commissions
and expenses of the offering, of approximately $1,903,000.
(10) STOCK OPTIONS AND WARRANTS:
The Company provides an incentive and a nonqualified stock option plan
for directors, officers, and key employees of the Company and others.
Under these plans, options may be granted for the purchase of up to
6,850,000 shares of Common Stock. The number of options to be granted
and the option prices are determined by the Stock Option Committee of
the Board of Directors in accordance with the terms of the plans. Under
the terms of the Incentive Stock Option Plan, the option price cannot
be less than 100% of the fair market value of the Common Stock on the
date of the grant. Incentive stock options are exercisable based on a
vesting schedule from the grant date. Under the Nonqualified Stock
Option Plan, the option price as determined by the Stock Option
Committee may be greater or less than the fair market value of the
Common Stock as of the date of the grant, and the options are generally
exercisable for three to five years subsequent to the grant date. At
December 31, 1995 the Company had 1,750,000 and 5,100,000 shares of
Common Stock reserved for the Company's Incentive Stock Option Plan and
Nonqualified Stock Option Plan, respectively.
The Company also authorized in 1994 the Equity Plan For Directors. The
Equity Plan For Directors is a formula based stock option plan that is
dependent upon the performance of the market price of the Common Stock.
Under the Equity Plan For Directors, options may be granted for the
purchase of up to 500,000 shares of Common Stock to outside directors.
Under the terms of
41
ICC TECHNOLOGIES, INC./ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
the Equity Plan For Directors, the option price cannot be less than
100% of the fair market value of the Common Stock on the date of the
grant.
In 1993 three employees, including an officer of the Company, exercised
options to purchase 54,600 shares of common stock. The employees
borrowed the amount of the exercise price of $82,850 from the Company.
At December 31, 1993, $60,150 was outstanding and was included in
receivable - employees. The outstanding amount was repaid in
installments through March 14, 1994. Compensation expense of $142,969
was recorded on these transactions in 1993.
Information with respect to stock options is summarized as follows:
Available for Outstanding Exercisable
Grant Options Options Price Range
----- ------- ------- -----------
Balance at January 1, 1993 694,878 3,194,877 $ 01 - $4.50
Additional shares Authorized in 1993 1,500,000
Granted (1,367,140) 1,367,140 $1.50 - $4.937
Canceled 375,801 (375,801) $.907 - $2.375
Exercised 0 (435,440) $.01 - $4.937
----------- ---------
Balance at December 31, 1993 1,203,539 3,750,776 $.01 - $4.50
=========== =========
Exercisable at December 31, 1993 1,531,774 $.01 - $4.50
=========
Additional shares Authorized in 1994 1,500,000
Granted (1,295,000) 1,295,000 $4.375 - $9.125
Canceled 502,403 (502,403) $1.00 - $4.50
Exercised 0 (732,354) $.05 - $3.625
----------- ---------
Balance at December 31, 1994 1,910,942 3,811,019 $.05 - $9.125
=========== =========
Exercisable at December 31, 1994 1,219,784 $.01 - $9.125
=========
Granted (10,000) 10,000 $12.75
Canceled 0 0 $ 0
Exercised 0 (909,333) $1.00 - $5.38
----------- ---------
Balance at December 31, 1995 1,900,942 2,911,686 $ 01 - $12.75
----------- ---------
Exerciseble at December 31, 1995 1,242,885 $ .01 - $9.125
=========
42
ICC TECHNOLOGIES, INC./ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
In connection with the settlement of a claim in 1994, Common Stock
warrants to purchase 40,000 shares of Common Stock were issued as
described in Note 12. The Company had the following Common Stock
warrants outstanding at December 31, 1995, 1994, and 1993,
respectively:
Warrants outstanding
Number Price Range
------ -----------
December 31, 1995
Consultants 550,000 $4.75-$13.42
Officers and directors 915,000 $2.00-$4.75
---------
1,465,000
=========
December 31, 1994
Consultants 265,000 $2.25-$4.75
Officers and directors 965,000 $2.00-$4.75
---------
1,230,000
=========
December 31, 1993
Consultants 100,000 $3.00
Investors 187,000 $1.65
Officers and directors 750,000 $2.00-$2.50
---------
1,037,000
=========
(11) 401(k) PROFIT SHARING PLAN:
The Company sponsors for all employees a 401(k) Profit Sharing Plan
("the Plan") which was amended January 1, 1995. Under the Plan, an
employee may elect to contribute on a pre-tax basis to a retirement
account up to 15% of the employee's compensation up to the maximum
annual contributions permitted by the Internal Revenue Code. The
Company matches 50% of each participants contributions up to a maximum
of 4% of the participant's compensation. Each employee is fully vested
at all times with respect to his or her contributions. The Company's
contribution and administration expense was $5,800 for the year ended
December 31, 1995.
(12) COMMITMENTS AND CONTINGENCIES
Net rent expense under operating leases was $20,833 and $145,819 for
the years ended December 31, 1994 and 1993 respectively. The Company
assigned all its leases to the Partnership upon its formation and the
Partnership assumed the lease obligations.
Employment Contracts
At December 31, 1995, the Company has an employment contract with one
officer. The terms of the contract, which were modified in February,
1994, provide for total annual compensation of $50,000, plus certain
other benefits, through December 31, 1996.
Claims and Legal Actions
The Company is not a party to any material lawsuits. In 1994, the
Company settled certain litigation brought against it pursuant to which
the Company granted a warrant to purchase 40,000 shares of its Common
Stock at $2.25 per share.
(13) OTHER RELATED-PARTY TRANSACTIONS:
Employee accounts receivable amounted to $28,667, $28,667 and $90,095
at December 31, 1995, 1994 and 1993, respectively. In April 1993, the
Company loaned $70,000 to the Chairman of the Board, a major
stockholder of the Company, pursuant to the terms of a promissory note,
which provides that such amount is due and payable on demand together
with interest at the rate of 10%. As of December 31, 1995 the balance
remaining on the Note is $28,667 plus accrued interest.
43
ICC TECHNOLOGIES, INC./ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(14) CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES:
Effective January 1, 1993 the Company adopted SFAS No. 109 "Accounting
for Income Taxes". Primarily due to the Company's history of losses,
adoption of Statement No. 109 did not have any significant effect on
its results of operations or financial position. Statement No. 109
requires the use of the liability method in accounting for income
taxes. Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. A
valuation allowance has been provided on the net deferred tax assets
due to the uncertainty of realization. The adoption of Statement No.
109 was immaterial to the Company. Prior to the adoption of Statement
No. 109 the Company utilized the deferred method of accounting for
income taxes.
Temporary differences and carryforwards which give rise to deferred tax
assets at December 31 are as follows:
1995 1994
---- ----
Net operating loss carryforward $ 10,180,000 $ 8,740,000
Inventory reserve and bad debt allowance 0 180,000
Other 10,000 6,000
------------ ------------
$ 10,190,000 $ 8,926,000
Less valuation allowance (10,190,000) (8,926,000)
------------ ------------
Total $ -- $ --
============ ============
The Company has incurred losses since inception. At December 31, 1995
the Company has federal net operating loss carryforwards of
approximately $30 million, which begin to expire in 2000. The
availability and use of losses against future taxable income, if any,
may be limited by Internal Revenue Code Section 382 as a result of
certain changes in ownership that have occurred.
(15) OPERATING STATEMENT INFORMATION:
Selected operating statement information for each of the three years in
the period ended December 31, 1995 is as follows:
December 31,
----------------------
1995 1994 1993
---- ---- ----
Maintenance and repairs $0 $ 1,411 $ 26,119
Advertising $0 $12,031 $109,071
Amortization:
Patent and software $0 $ 1,650 $ 16,278
For the years ended December 31, 1995, 1994 and 1993 the Company's
reserve for doubtful accounts was approximately $0, $19,000 and
$35,000, respectively. During 1994 and 1993 the provision for doubtful
accounts was increased by approximately $18,000 and $10,000,
respectively, which was included in the general and administrative
expense in the accompanying Statement of Operations. In 1995 and 1993
accounts receivable deemed uncollectible and charged to the reserve for
doubtful accounts amounted to approximately $19,000 and $3,000,
respectively. In connection with the formation of the Partnership in
1994, $32,000 of the reserve for doubtful accounts was transferred to
the Partnership along with the related receivables.
44
ICC TECHNOLOGIES, INC./ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(16) SUBSEQUENT EVENT, COMMON STOCK OFFERING
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. Costs incurred with the offering amounted to
approximately $390,000 and are included in prepaid expenses and other
current assets as of December 31, 1995. These offering costs were
applied against the proceeds of $16,275,000 received in February 1996.
In connection with the offering, all outstanding Preferred Stock was
converted into Common Stock pursuant to the terms of the respective
issues or redeemed in cash. A total of 3,609,696 shares of Common Stock
were issued and $981,270 was paid to the holders of the Preferred
Stock. In addition, accrued dividends on the Preferred Stock, amounted
to approximately $1,044,000, were declared and paid, except for
$649,396 of such dividends associated with the Series G Preferred Stock
was paid in accordance with the original terms of such series in the
form of 162,349 shares of Common Stock. The Company plans to use the
net proceeds from the offering to: (i) fund its half of the estimated
future financing requirements of the Partnership, (ii) to fund the
Company's working capital requirements.
(17) NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based compensation. SFAS No. 123 establishes a
fair value based method of accounting or stock-based compensation
plans. It encourages entities to adopt that method in place of the
intrinsic value method currently in place under the provisions of
Opinion No. 25 of the Accounting Principles Board ("APB"). Under the
fair value method accounting, all arrangements under which employees
receive shares of stock or other equity instruments or under which
employers incur liabilities to employees in amounts based on the price
of its stock result in the measurement of compensation cost at the
grant date of the award which is recognized over the service period,
usually the vesting period. Under the intrinsic value method,
compensation cost is measured by the excess of the quoted market price
of the stock, if any, over the amount the employee must pay to acquire
the stock. For example, granting immediately exercisable stock options
to an employee at an exercise price equal to the quoted market price of
the stock results in the recognition of compensation expense at the
date of grant under the fair value method of SFAS No. 123; under the
intrinsic value method of APB No. 25, no compensation expense is
recognized. However, SFAS No. 123 allows the Company to elect to
continue its current method of accounting under APB No. 25 for employee
stock-based compensation arrangements. The Company expects to continue
its current method of accounting under APB No. 25 for employee
stock-based compensation arrangements. If the Company continues its
current method of accounting, pro forma disclosures of net income and
earnings per share must be disclosed, as if the Company had adopted the
recognition provisions of SFAS No. 123.
Although the Company is permitted to continue accounting for employee
stock-based compensation arrangements under APB No. 25, SFAS No. 123
requires the Company to utilize the fair value method of accounting for
transactions involving stock options or other equity instruments issued
to nonemployees as consideration for goods or services. Presently,
those transactions are accounted for by the Company under the intrinsic
value principles of APB No. 25. The use of intrinsic value versus fair
value did not have a material effect on any period presented.
The accounting and disclosure requirements of SFAS No. 123 are
effective for the Company in 1996. The Company has not yet determined
the impact of SFAS No. 123.
In March 1995 SFAS No. 121 ("SFAS 121"), Accounting for the Impairment
of Long-lived Assets, was issued which establishes guidance beginning
in 1996, for recognizing and measuring impairment losses and would
require that the carrying amount of impaired assets be reduced to fair
value. Management does not believe that the adoption of SFAS 121 will
have a material effect on the financial statements of the Company.
45
REPORT OF INDEPENDENT ACCOUNTANTS
The Partners of Engelhard/ICC
We have audited the accompanying balance sheets of Engelhard/ICC as of December
31, 1995 and 1994 and the related statements of operations, changes in partners'
capital and cash flows for the year ended December 31, 1995 and the period
February 7, 1994 (date of formation) to December 31, 1994. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Engelhard/ICC as of December
31, 1995 and 1994 and the results of its operations and its cash flows for the
year ended December 31, 1995 and for the period February 7, 1994 (date of
formation) to December 31, 1994 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 1, the
Partnership incurred losses accumulating to $16,962,885 through December 31,
1995 and the Partnership is primarily dependent upon its partners for financial
support. These factors, among others, raise substantial doubt about the
Partnership's ability to continue as a going concern. Management's plans in
regard to these matters are described in Note 1. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 25, 1996
46
ENGELHARD/ICC
BALANCE SHEET
December 31, December 31,
1995 1994
------------ ------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 346,480 $ 648,451
Accounts receivable, net of allowance for doubtful accounts of $40,000
and $23,179, respectively 2,057,420 661,801
Inventories 3,385,125 2,439,509
Prepaid expenses and other 158,939 77,586
Total current assets 5,947,964 3,827,347
PROPERTY, PLANT AND EQUIPMENT, net 8,263,642 7,946,511
CASH HELD IN ESCROW 865,744 0
PURCHASED INTANGIBLES, net 1,117,631 1,252,613
OTHER ASSETS, net 684,524 359,884
----------- -----------
Total assets $16,879,505 $13,386,355
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Accounts Payable:
Trade $ 800,289 $ 1,309,570
ICC Technologies, Inc. 160,973 124,095
Engelhard Corporation 204,536 62,839
Accrued liabilities 353,596 234,228
Notes Payable to General Partners:
ICC Technologies, Inc. 0 4,000,000
Engelhard Corporation 0 4,000,000
Short-term loan 2,750,000 0
Current portion of long term debt 51,870 28,013
----------- -----------
Total current liabilities 4,321,264 9,758,745
----------- -----------
LONG-TERM DEBT 8,649,885 147,031
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 3,908,356 3,480,579
----------- -----------
Total liabilities and partners' capital $16,879,505 $13,386,355
=========== ===========
The accompanying notes are an integral part of the financial statements.
47
ENGELHARD/ICC
STATEMENT OF OPERATIONS
for the year ended December 31, 1995 and
for the period February 7, 1994 (date of formation) to December 31, 1994
1995 1994
------------ ------------
REVENUES $ 8,944,279 $ 1,620,386
COST OF GOODS SOLD 10,283,995 1,591,821
------------ ------------
Gross Profit (1,339,716) 28,565
------------ ------------
OPERATING EXPENSES:
Marketing 3,412,008 2,061,027
Engineering 936,415 1,233,282
Research and Development 1,133,780 894,837
General and administrative 3,040,722 1,539,140
------------ ------------
Total operating costs 8,522,925 5,728,286
------------ ------------
Loss from operations (9,862,641) (5,699,721)
INTEREST:
Interest income 50,679 138,718
Interest expense (760,261) (63,842)
------------ ------------
(709,582) 74,876
------------ ------------
NET LOSS $(10,572,223) $ (5,624,845)
============ ============
The accompanying notes are an integral part of the financial statements.
48
ENGELHARD/ICC
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the year ended December 31, 1995 and
for the period February 7, 1994 (date of formation) to December 31, 1994
Capital contributed by Engelhard at date of formation, cash $ 8,633,434
Net assets of ICC transferred at date of formation, excluding $900,000 note payable
to Engelhard contributed to partners' capital 839,322
Equalization amount due ICC at formation (389,322)
Residual funds from joint development program contributed to partners'
capital 21,990
Net loss of partnership (5,624,845)
------------
Partners' capital, December 31, 1994 3,480,579
Conversion of general partners' loans to partners' capital 5,000,000
Capital contributions 6,000,000
Net loss of partnership (10,572,223)
------------
Partners' capital, December 31, 1995 $ 3,908,356
============
The accompanying notes are an integral part of the financial statements.
49
ENGELHARD/ICC
STATEMENT OF CASH FLOWS
for the year ended December 31, 1995 and
for the period February 7, 1994 (date of formation) to December 31, 1994
1995 1994
------------ ------------
Cash Flows from Operating Activities:
Net loss $(10,572,223) $ (5,624,845)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 940,333 224,516
Provision for doubtful accounts 31,104 0
Provisions for inventory obsolescence and valuation 992,000 0
Amortization 160,565 24,219
(Increase) decrease in:
Receivables (1,424,973) (426,602)
Inventories (1,937,616) (1,950,797)
Prepaid expenses and other (83,103) (49,346)
Increase (decrease) in:
Accounts payable (509,281) 1,049,231
Payables to ICC Technologies, Inc. 36,878 (15,227)
Payables to Engelhard Corporation 141,697 62,839
Accrued expenses and other liabilities 119,368 134,649
------------ ------------
Net cash used in operating activities (12,105,251) (6,571,363)
------------ ------------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (1,257,464) (7,879,939)
Purchases of intangibles (134,244) (1,480,715)
Cash held in escrow (865,744) 0
------------ ------------
Net cash used in investing activities (2,257,452) (9,360,654)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from long-term debt 69,956 175,044
Repayments of long-term debt (43,245) 0
Proceeds from issuance of bonds 8,500,000 0
Bond issuance costs (215,979) 8,633,434
Capital contributions by general partners 6,000,000 0
Proceeds from short-term debt 2,750,000 0
Proceeds from Joint Development Program (at formation) 0 21,990
Equalization payment to ICC 0 (250,000)
Proceeds from (repayment of) notes payable to general partners (3,000,000) 8,000,000
------------ ------------
Net cash provided by financing activities 14,060,732 16,580,468
------------ ------------
Net increase (decrease) in cash and cash equivalents (301,971) 648,451
Cash and Cash Equivalents, Beginning of Period 648,451 0
------------ ------------
Cash and Cash Equivalents, End of Period $ 346,480 $ 648,451
============ ============
The accompanying notes are an integral part of the financial statements.
50
ENGELHARD/ICC
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS:
Business and Formation and Going Concern
Engelhard/ICC (the "Partnership") is a Pennsylvania general
partnership. The Partnership is engaged in the business of designing,
manufacturing and marketing climate control systems to supplement or
replace conventional air conditioning systems. The Partnership
currently markets its systems to certain targeted applications within
the commercial air conditioning market primarily in North America and
Asia-Pacific. On February 7, 1994, ICC Technologies, Inc. ("ICC") and
Engelhard Corporation ("Engelhard"), through their respective
subsidiaries (the "general partners"), formed the Partnership. The
desiccant air conditioning business conducted by ICC Technologies, Inc.
prior to the formation of the Partnership is now being conducted by the
Partnership.
The general partners both have an equal 50% interest in the
Partnership. In exchange for its 50% interest in the Partnership, ICC
Technologies, Inc. transferred to the Partnership substantially all of
its assets, with the exception of cash and certain other assets not
related to the desiccant air conditioning business, subject to certain
liabilities; Engelhard Corporation, in exchange for a 50% interest in
the Partnership, (a) contributed to the Partnership approximately
$8,600,000, (b) entered into a Supply Agreement pursuant to which it
agreed to supply desiccants to the Partnership, (c) entered into a
Technology License Agreement pursuant to which Engelhard Corporation
and the Partnership licensed to each other certain technology rights,
and (d) agreed to provide credit support to the Partnership in the
amount of $3,000,000. Pursuant to their agreement to provide credit
support, Engelhard has guaranteed the short-term loan of $2,750,000 at
December 31, 1995.
ICC Technologies, Inc. transferred to the Partnership, upon formation,
approximately $60,000 of net liabilities which consisted of
approximately: $240,000 in receivables; $490,000 of inventory; $290,000
of property and equipment; $180,000 in other assets; $360,000 in
accounts payable and accrued liabilities; and $900,000 notes payable to
Engelhard Corporation. The amounts transferred were recorded at ICC
Technologies' historical cost .
Going Concern
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. Until the Partnership generates sufficient cash
flows from operations, it will be primarily dependent upon the partners
to provide any required working capital. Revenues have been
insufficient to cover costs of operations for the Partnership. The
Partnership'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 operations.
The Partnership obtained third party financing through the issuance of
industrial development bonds in April 1995 (see note 7). Additional
financial support continues to be supplied to the Partnership by the
Partners until the Partnership attains sufficient positive cash flow;
however, there can be no assurance that the Partnership will be able to
obtain the additional financing or sufficient cash flows. The financial
statements do not include any adjustments should the Partnership be
unable to continue as a going concern.
51
ENGELHARD/ICC / NOTES TO FINANCIAL STATEMENTS, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The financial statements include the accounts of the Partnership for
the year ended December 31, 1995 and the period from February 7, 1994
(date of formation) to December 31, 1994 (the "period ended December
31, 1994"). Certain reclassifications have been made to the 1994
presentation to conform with the 1995 presentation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents for the purpose
of determining cash flows.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Assets under capital
lease are recorded at the present value of the future lease payments.
Costs of major additions and improvements are capitalized and
replacements, maintenance and repairs, which do not improve or extend
the life of the respective assets, are charged to operations as
incurred.
When an asset is sold, retired or otherwise disposed of, the cost of
the property and equipment and the related accumulated depreciation are
removed from the respective accounts, and any resulting gains or losses
are reflected in operations.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leased assets under capital
leases are amortized over the period of the lease or the service lives
of the improvements, whichever is shorter, using the straight-line
method.
Purchased Intangible Assets
Purchased intangible assets, consisting primarily of a license
agreement acquired in connection with the acquisition of certain assets
( See note 6), are amortized over ten years using the straight-line
method.
Patents
Patents are amortized over their estimated useful lives not exceeding
seventeen years using the straight-line method.
Bond Issuance Costs
Bond issuance costs are deferred and amortized over the life of the
bonds using the straight-line method. Amortization of bond issuance
costs is included in interest expense.
Income Taxes
Partnership income, if any, is taxable to the general partners.
Accordingly, no provision for income taxes has been made by the
Partnership.
52
ENGELHARD/ICC / NOTES TO FINANCIAL STATEMENTS, Continued
Revenue Recognition
Revenues are recognized when equipment is shipped for equipment sales
contracts, and when equipment is installed and operating for
installation contracts. Maintenance service revenue is recognized when
services provided are complete. Processing fees for fabricating raw
materials into substrate are recognized in revenue in the period the
substrate material is shipped.
Research and Development Costs
Research and development costs are expensed as incurred. Research and
development costs amounted to approximately $1,134,000 and $895,000 for
the year ended December 31, 1995 and the period ended December 31,
1994, respectively.
Warranty
The Partnership`s warranty on its equipment is for eighteen months from
date of shipment or one year from date of original installation, except
for desiccant or thermal rotors which are warranted for five years from
the date of shipment. The Partnership records a reserve for the
estimated cost of repairing or replacing any faulty equipment covered
under the Partnership's warranty.
Concentration of Credit Risk
The Partnership invests its cash primarily in deposits with major
banks. At times, these deposits may be in excess of federally insured
limits. The Partnership has sold its equipment and services to
end-users in retail industry, primarily in the continental United
States. Concentration of credit risk with respect to trade receivables
is moderate due to the relatively diverse customer base. At December
31, 1995, the Partnership had trade receivables of approximately $1.2
million from one customer. During 1995, revenues from this customer
amounted to $5 million, which represents approximately 65% of the
Partnership revenues. Trade receivables from this customer were current
at December 31, 1995. Ongoing credit evaluations of customers'
financial condition are performed and generally no collateral is
required. The Partnership maintains reserves for potential credit
losses and such losses, in the aggregate, have not exceeded
management's expectations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(3) INVENTORIES:
Inventories comprise the following:
December 31, December 31,
1995 1994
--------------- ----------------
Raw Materials and purchased parts $ 1,115,561 $1,388,498
Work-in-process 1,212,087 391,818
Finished goods 1,057,477 659,193
--------------- ----------------
$ 3,385,125 $2,439,509
=============== ================
53
ENGELHARD/ICC / NOTES TO FINANCIAL STATEMENTS, Continued
At December 31, 1995, the Partnership recorded a provision of $505,000
to write-down inventory to its estimated net realizable value, which
represents the excess of FIFO cost over market. During 1995, the
Partnership also disposed of inventory of approximately $445,000. These
amounts have been reflected in general and administrative expenses in
the statement of operations.
Inventory is net of an allowance for inventory obsolescence of $ 90,000
and $ 48,000 as of December 31, 1995 and 1994, respectively. Raw
materials purchased from Engelhard amounted to approximately $86,000
and $169,000 for the year ended December 31, 1995 and for the period
ended December 31, 1994, respectively. Inventory in 1995 had been
written down to estimated net realizable value with a $505,000 charge
to general and administrative expenses.
The Partnership designs, manufactures and markets desiccant based
climate control systems which have not yet achieved consistent sales
levels and consistent product mix. The Partnership's products are also
subject to change due to technological improvements. Consequently, the
Partnership may from time to time have inventory levels in excess of
its short-term needs. Items in inventory may become obsolete due to
changes in technology or product design. Management has developed a
program to monitor inventory levels; however, it is possible that a
material loss could ultimately result in the disposal of excess
inventory or due to obsolescence.
(4) PROPERTY, PLANT AND EQUIPMENT:
Property, Plant and equipment, net, consist of the following:
December December 31,
31, 1995 1994
------------- --------------
Land $ 390,000 $ 390,000
Building 1,622,569 1,610,000
Machinery and equipment 7,455,831 6,253,877
Furniture, fixtures and
leasehold improvements 305,169 262,228
------------- --------------
9,773,569 8,516,105
Less- accumulated depreciation (1,509,927) (569,594)
------------- --------------
$ 8,263,642 $7,946,511
============= ==============
The Partnership incurred $ 651,774 of construction and installation
costs in progress associated with equipment which has not been placed
in service as of December 31, 1995. Machinery and equipment purchased
through or from Engelhard amounted to approximately $36,000 in 1995 and
$122,000 in 1994.
(5) OTHER ASSETS:
Other assets consist of the following:
December 31, December
1995 31, 1994
--------------- -------------
Patents and Trademarks $ 531,297 $ 410,373
Bond Issue Costs 215,979 0
Deposits 32,628 25,372
Other 1,200 0
--------------- -------------
781,104 435,745
Accumulated amortization (96,580) (75,861)
--------------- -------------
$ 684,524 $359,884
=============== =============
54
ENGELHARD/ICC / NOTES TO FINANCIAL STATEMENTS, Continued
(6) ASSET ACQUISITION:
On December 1, 1994, the Partnership acquired for $8 million in cash,
real property and substantially all other manufacturing assets of an
existing manufacturing facility located in Miami, Florida from
Ciba-Geigy Corporation ("Ciba"), which currently produces the small
cell, honeycomb structures that are the base material of the desiccant
and thermal rotors that are an integral part of the Partnership's
products. The former Ciba plant produced primarily large cell substrate
which the Partnership is prohibited to produce or sell other than to
Ciba. The Partnership also acquired, as part of the transaction, an
exclusive technology license to use Ciba's proprietary process which is
necessary to manufacture such small cell, honeycomb structures. Assets
acquired consisted of approximately: $6.9 million of Plant, Property
and Equipment and $1.1 million of intangibles.
To finance the acquisition, the general partners each lent to the
Partnership $4,000,000 ("General Partners' Loan") bearing interest
payable monthly at the Prime Rate plus 1%. In April 1995, the
Partnership obtained financing from the issuance of $8,500,000 of
industrial development revenue bonds (see note 7). The proceeds of
these bonds were used to repay $3,000,000 of the General Partners'
Loan, $1,500,000 to each general partner, and provide for improvements
and capital equipment at the Miami facility.
(7) LONG-TERM DEBT:
Long-term debt consists of the following:
December 31, December 31,
1995 1994
---------------- ----------------
Industrial development revenue bonds; interest determined
weekly and payable weekly; bonds mature on April 1, 2020,
but are subject to redemption at the option of the
Partnership from April 1, 2000 $ 8,500,000 $ 0
Notes payable
due April 2000; interest at 2% per annum; interest
payable monthly; interest and principal payable in
equal monthly installments over 60-month period
commencing April 1995 180,642 152,200
Notes payable due February 1998; interest at 3% per annum;
principal and interest payable in equal monthly
installments over 36-month period commencing April 1995 21,113 22,844
---------------- ----------------
8,701,755 175,044
Less- Current portion (51,870) (28,013)
---------------- ----------------
$ 8,649,885 $147,031
================ ================
In connection with the issuance of the industrial revenue bonds (see
note 7), cash of $865,744 is held in escrow pending the Partnership's
incurrence of certain qualified expenditures.
Maturation of long-term debt for the Partnership consists of:
1996 $51,870
1997 53,011
1998 45,370
1999 44,512
2000 6,992
thereafter 8,500,000
-------------
$ 8,701,755
=============
55
ENGELHARD/ICC / NOTES TO FINANCIAL STATEMENTS, Continued
The general partners are guarantors on the long-term debt.
Substantially all of the assets are held as collateral under the
various debt agreements. In addition, Engelhard is the guarantor on
the short-term loan which amounts to $2,750,000 as of December 31,
1995. The short-term loan is payable on demand with the interest rate
adjusted on a weekly basis. The interest rate at December 31, 1995 was
6.28%. The fair value of the Partnership's debt was determined by
reference to quotations available in markets where similar issues are
traded. The interest on the long-term debt is adjusted weekly to
current market rates. The estimated fair values of long-term debt at
December 31, 1995 approximates the carrying amount.
(8) REVENUES:
Revenues comprise of the following:
December 31, December 31,
1995 1994
----------------- ----------------
Equipment sales $ 2,558,250 $ 1,529,811
Substrate processing 5,801,666 35,345
Licensing fees 500,000 0
Maintenance and service 84,363 55,230
----------------- ----------------
$ 8,944,279 $ 1,620,386
================= ================
The Partnership fabricates large cell honeycomb substrate materials at
its Miami facility under a Manufacturing and Supply Agreement with
Ciba-Geigy Corporation ("Ciba"'). Ciba provides the raw materials to be
fabricated into large cell honeycomb substrate and retains title to the
raw materials, work-in-process and finished goods. The Partnership
receives processing fees for fabricating the raw materials into large
cell honeycomb substrate. Processing fees are recognized in revenues in
the period the fabricated substrate material is shipped. The
Manufacturing and Supply Agreement is for a period of five years. The
Partnership is in the second year of performing services under such
Agreement. Export sales of equipment were approximately $643,000 and
$238,000 in 1995 and 1994, respectively.
(9) PARTNERS' CAPITAL:
In conjunction with the General Partners' Loan of $8,000,000 and
issuance of $8,500,000 of industrial development revenue bonds (see
note 7), $3,000,000 was repaid to each general partner and the
remaining $5,000,000 outstanding balance on the loan was converted into
a capital contribution, $2,500,000 for each general partner.
During 1995, $3,000,000 was contributed by each of the general
partners. Subsequently, in 1996, an additional $2 million in capital
contributions to the Partnership were made by each partner.
(10) RELATED PARTY TRANSACTIONS:
The Partnership provided approximately $83,000 and $91,000 in various
administrative office support services to ICC during the year ended
December 31, 1995 and the period ended December 31, 1994, respectively.
Engelhard provided approximately $351,000 and $ 297,000 in various
administrative office support services to the Partnership during the
year ended December 31, 1995 and the period ended December 31, 1994,
respectively. Engelhard provided approximately $162,000 and $ 320,000
in research and development to the Partnership during the year ended
December 31, 1995 and the period ended December 31, 1994, respectively.
ICC provided approximately $72,000 in various administrative office
support services to the Partnership during the year ended December 31,
1995. The Partnership incurred approximately $328,000 and $ 63,000
during the year ended December 31, 1995 and the period ended
56
ENGELHARD/ICC / NOTES TO FINANCIAL STATEMENTS, Continued
December 31, 1994, respectively, of interest expense to the general
partners in connection with the $8,000,000 General Partners' Loan (see
note 6). In accordance with the Transfer Agreement entered into by the
general partners, a distribution of approximately $140,000 was paid to
ICC in 1995.
(10) SUPPLEMENTAL CASH FLOW DISCLOSURES:
Excluded from the Statement of Cash Flows for the year ended December
31, 1995 was the conversion of $5,000,000 of General Partners' Loans to
Partners' Capital and the write-off of $14,283 of bad debts.
Excluded from the Statement of Cash Flows for the period ended December
31, 1994, were the effects of assets and liabilities transferred to the
Partnership from ICC which consisted of approximately $240,000 in
receivables; $490,000 of inventory; $290,000 of property and equipment;
$180,000 in other assets; $360,000 in accounts payable and accrued
liabilities; and $900,000 notes payable to Engelhard.
Cash paid for interest amounted to approximately 823,000 for the year
ended December 31, 1995.
(11) 401(K) PROFIT SHARING PLAN:
Effective January 1, 1995, the Partnership provides for all employees a
401(k) Profit Sharing Plan ("the Plan"). Under the Plan, an employee
may elect to contribute on a pre-tax basis to a retirement account up
to 15% of the employee's compensation up to the maximum annual
contributions permitted by the Internal Revenue Code. The Partnership
matches 50% of each participants contributions up to a maximum of 4% of
the participant's compensation. Each employee is fully vested at all
times with respect to his or her contributions. The Partnership's
contribution and administration expense was approximately $80,000 for
the year ended December 31, 1995.
(11) COMMITMENTS AND CONTINGENCIES:
Lease Commitments
The Partnership has operating lease commitments for its facilities,
vehicles and certain equipment. In certain instances, these leases
contain purchase and renewal options, both of which are at fair market
value. The Partnership's offices are leased on a month-to-month basis.
The future minimum lease payments for these leases at December 31, 1995
are as follows -
1996 $ 245,127
1997 186,122
1998 49,487
1999 1,042
Rent expense under these operating leases was $224,634 and $188,158 for
the year ended December 31, 1995 and for the period ended December 31,
1994, respectively.
The Partnership assumed, at formation, a five-year lease commitment
which began April 1993, for approximately 55,000 square feet of
manufacturing and assembly space. In addition, the Partnership is
responsible for paying its allocable portion of all real estate taxes,
water and sewer rates, and common expenses. The Partnership assumed a
lease, which expires in 1996, in connection with the asset acquisition
(See note 6), for a building with approximately 24,000 square feet and
corresponding parking lot adjacent to the Miami manufacturing facility.
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant): ICC Technologies, Inc.
--------------------------
By: Irwin L. Gross
--------------------------
(Signature)
Name and Title: Irwin L. Gross, Chairman of the Board
Date: March 25, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
- --------- -------- ----
/s/Irwin L. Gross Chairman of the Board March 25, 1996
- ----------------------- and President (Principal
Irwin L. Gross Executive Officer)
/s/William A. Wilson Vice Chairman of the Board March 25, 1996
- ----------------------- and Director
William A. Wilson
/s/Manfred Hanuschek Chief Financial Officer March 25, 1996
- -----------------------
Manfred Hanuschek
/s/Albert Resnick Director and Secretary March 25, 1996
- -----------------------
Albert Resnick
/s/Andrew L. Shapiro Director March 25, 1996
- -----------------------
Andrew L. Shapiro
/s/Stephen Schachman Director March 25, 1996
- -----------------------
Stephen Schachman
/s/Mark Hauser Director March 25, 1996
- -----------------------
Mark Hauser