UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2007

OR

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________. to  _________.

Commission File Number 0-10068

ICO, Inc.

(Exact name of registrant as specified in its charter)

Texas	76-0566682
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1811 Bering Drive, Suite 200
Houston, Texas	77057
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number (713) 351-4100

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 period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

YES   xNO  .o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

    Large accelerated filer   o                         Accelerated filer  x                Non-accelerated filer .o

Indicate by check mark whether the registrant is a shell company as defined in (Rule 12b-2 of the Exchange Act).

YES  o    NO  x

There were 26,238,904 shares of common stock without par value

outstanding as of July 26, 2007

ICO, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

Part I.  Financial Information		Page
	Item 1.  Financial Statements
	Consolidated Balance Sheets as of June 30, 2007 and September 30, 2006	3
	Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2007 and 2006	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2007 and 2006	5
	Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2007 and 2006	6
	Notes to Consolidated Financial Statements	7
	Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3.  Quantitative and Qualitative Disclosures About Market Risk	30
	Item 4.  Controls and Procedures	31
Part II.  Other Information
	Item 1.  Legal Proceedings	31
	Item 1A.  Risk Factors	31
	Item 6.  Exhibits	31

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PART  I ― FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

ICO, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except share data)

	June 30, 2007			September 30, 2006
ASSETS
Current assets:
Cash and cash equivalents	$	3,989		$	17,427
Trade receivables (less allowance for doubtful accounts
of $2,538 and $2,509, respectively)		88,292			67,742
Inventories		43,962			41,961
Deferred income taxes		1,661			2,195
Prepaid and other current assets		6,747			6,775
Total current assets		144,651			136,100
Property, plant and equipment, net		54,824			50,884
Goodwill		9,325			8,585
Other assets		3,747			2,392
Total assets	$	212,547		$	197,961
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings under credit facilities	$	15,860		$	17,214
Current portion of long-term debt		13,701			4,696
Accounts payable		47,033			35,809
Accrued salaries and wages		6,265			5,360
Income taxes payable		1,401			4,188
Other current liabilities		12,069			11,332
Total current liabilities		96,329			78,599
Long-term debt, net of current portion		25,311			21,559
Deferred income taxes		4,444			4,210
Other long-term liabilities		2,098			1,876
Total liabilities		128,182			106,244
Commitments and contingencies	─			─
Stockholders’ equity:
Convertible preferred stock, without par value –
345,000 shares authorized; 48,537 and 322,500 shares issued
and outstanding, respectively, with a liquidation preference of
$6,082 and $40,410, respectively		2			13
Undesignated preferred stock, without par value –
105,000 shares authorized; no shares issued and outstanding	─			─
Common stock, without par value – 50,000,000 shares authorized;
26,233,844 and 25,792,168 shares issued
and outstanding, respectively		46,657			45,087
Additional paid-in capital		76,340			104,844
Accumulated other comprehensive income (loss)		4,304			(154	)
Accumulated deficit		(42,938	)		(58,073	)
Total stockholders’ equity		84,365			91,717
Total liabilities and stockholders’ equity	$	212,547		$	197,961

The accompanying notes are an integral part of these financial statements.

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ICO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except share data)

	Three Months Ended June 30,						Nine Months Ended June 30,
	2007			2006 (as restated)			2007			2006 (as restated)
Revenues:
Sales	$	102,963		$	73,186		$	265,443		$	211,334
Services		10,415			9,258			28,915			25,766
Total revenues		113,378			82,444			294,358			237,100
Cost and expenses:
Cost of sales and services (exclusive of depreciation
shown below)		92,836			66,330			241,976			190,035
Selling, general and administrative		9,727			8,278			27,440			25,663
Depreciation and amortization		1,855			1,917			5,466			5,501
Impairment, restructuring and other costs (income)		-			-			(654	)		118
Operating income		8,960			5,919			20,130			15,783
Other income (expense):
Interest expense, net		(799	)		(505	)		(2,301	)		(1,601	)
Other		(129	)		167			(296	)		313
Income from continuing operations before income taxes		8,032			5,581			17,533			14,495
Provision for income taxes		2,400			1,470			3,819			4,307
Income from continuing operations		5,632			4,111			13,714			10,188
Income (loss) from discontinued operations, net of
provision (benefit) for income taxes of ($10), ($10),
$765 and ($28), respectively		(18	)		(19	)		1,421			(52	)
Net income		5,614			4,092			15,135			10,136
Undeclared and unpaid Preferred Stock dividends, as restated		-			(544	)		(226	)		(1,632	)
Preferred Stock dividends declared		(82	)		-			(246	)		-
Net gain on redemption of Preferred Stock		-			-			6,023			-
Net income applicable to Common Stock, as restated	$	5,532		$	3,548		$	20,686		$	8,504
Basic income per share:
Income from continuing operations, as restated	$	.21		$	.14		$	.74		$	.33
Income from discontinued operations		.00			.00			.06			.00
Net income per common share, as restated	$	.21		$	.14		$	.80		$	.33
Diluted income per share:
Income from continuing operations, as restated	$	.20		$	.13		$	.49		$	.33
Income from discontinued operations		.00			.00			.05			.00
Net income per common share, as restated	$	.20		$	.13		$	.54		$	.33
Basic weighted average shares outstanding		26,056,000			25,739,000			25,934,000			25,653,000
Diluted weighted average shares outstanding		27,598,000			26,512,000			27,892,000			26,159,000

The accompanying notes are an integral part of these financial statements.

-4-

ICO, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited and in thousands)

	Three Months Ended June 30,						Nine Months Ended June 30,
	2007			2006			2007			2006
Net income	$	5,614		$	4,092		$	15,135		$	10,136
Other comprehensive income (loss)
Foreign currency translation adjustment		1,638			1,505			4,739			516
Unrealized gain (loss) on foreign currency hedges		(12	)		(83	)		(281	)		84
Comprehensive income	$	7,240		$	5,514		$	19,593		$	10,736

The accompanying notes are an integral part of these financial statements.

-5-

ICO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

	Nine Months Ended
	June 30,
	2007			2006
Cash flows from operating activities:
Net income	$	15,135		$	10,136
(Income) loss from discontinued operations		(1,421	)		52
Depreciation and amortization		5,466			5,501
Gain on sale of fixed assets		(654	)		-
Stock option compensation expense		442			639
Changes in assets and liabilities providing/(requiring) cash:
Receivables		(15,965	)		(7,510	)
Inventories		1,021			(2,815	)
Other assets		(109	)		(753	)
Income taxes payable		(2,662	)		3,021
Deferred taxes		(806	)		81
Accounts payable		8,507			586
Other liabilities		3,568			294
Net cash provided by operating activities by continuing operations		12,522			9,232
Net cash provided by (used for) operating activities by discontinued operations		1,068			(287	)
Net cash provided by operating activities		13,590			8,945
Cash flows provided by (used for) investing activities:
Capital expenditures		(7,611	)		(6,994	)
Proceeds from dispositions of property, plant and equipment		937			10
Net cash used for investing activities for continuing operations		(6,674	)		(6,984	)
Cash flows provided by (used for) financing activities:
Common stock transactions		818			288
Redemption of Preferred Stock		(28,531	)		-
Payment of dividend on Preferred Stock		(164	)		-
Increase (decrease) in short-term borrowings under credit facilities, net		(2,904	)		1,842
Proceeds from long-term debt		14,895			9,970
Repayments of long-term debt		(4,410	)		(10,095	)
Debt financing costs		(252	)		(290	)
Net cash provided by (used for) financing activities for continuing operations
operations		(20,548	)		1,715
Effect of exchange rates on cash		194			122
Net increase (decrease) in cash and equivalents		(13,438	)		3,798
Cash and cash equivalents at beginning of period		17,427			3,234
Cash and cash equivalents at end of period	$	3,989		$	7,032

The accompanying notes are an integral part of these financial statements.

-6-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. BASIS OF FINANCIAL STATEMENTS

The interim financial statements furnished reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of the interim period presented and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”).  All such adjustments are of a normal recurring nature.  The fiscal year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.  The results of operations for the three and nine months ended June 30, 2007 are not necessarily indicative of the results expected for the fiscal year ended September 30, 2007.  The accounting policies for the periods presented are the same as described in Note 1 – Summary of Significant Accounting Policies to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006.

NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting and disclosure for uncertain tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes.  FIN 48 requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions.  The Company will adopt FIN 48 effective October 1, 2007.  The cumulative effect of initially adopting FIN 48 will be recorded as an adjustment to opening retained earnings in the year of adoption and will be presented separately.  Only tax positions that meet the more likely than not recognition threshold at the effective date may be recognized on adoption of FIN 48.  The Company is currently evaluating the impact this new standard will have on its future results of operations and financial position.

In September 2006, the FASB issued SFAS No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of SFAS Nos. 87, 88, 106, and 132(R) (“SFAS No. 158”).  SFAS No. 158 contains a number of amendments to current accounting for defined benefit plans; however, the primary change is the requirement to recognize in the balance sheet the overfunded or underfunded status of a defined benefit plan measured as the difference between the fair value of plan assets and the projected benefit obligation. Stockholders’ equity will also be increased or decreased (through “other comprehensive income”) for the overfunded or underfunded status. SFAS No. 158 does not change the determination of pension plan liabilities or assets, or the income statement recognition of periodic pension expense.  The recognition and disclosure provisions of SFAS No. 158 are effective for fiscal years ending after December 15, 2006.  The Company will adopt these provisions of the standard as of September 30, 2007.  The Company has separate defined benefit plans in its Holland and France subsidiaries.  At June 30, 2007, the projected benefit obligations of the Company’s plans exceeded plan assets by approximately $1.8 million. Had the Company adopted the provisions of SFAS No. 158 as of June 30, 2007, the Company’s liabilities would have been increased by approximately $0.8 million, assets increased by approximately $0.2 million and Stockholders’ Equity reduced by approximately $0.6 million.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, rather, its application will be made pursuant to other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years.  This standard will be effective for the Company starting with our interim period ending December 31, 2008.  The provisions of SFAS No. 157 are to be applied prospectively upon adoption, except for limited specified exceptions. The Company does not expect the adoption of SFAS No. 157 to have a material impact on its financial position or results of operations.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB No. 108”). SAB No. 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. The SEC staff, in SAB No. 108, established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of a company’s financial statements and the related financial statement disclosures. SAB No. 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements as if SAB No. 108 had always been used or (ii) recording the cumulative effect of initially applying SAB No. 108. The Company will initially apply the provisions of SAB No. 108 in connection with the preparation of its annual financial statements for the fiscal year ending September 30, 2007.  The Company does not expect the initial application of SAB No. 108 to result in a restatement of prior financial statements or the recording by the Company of a cumulative adjustment.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 (“SFAS 159”).  Under SFAS 159, a company may elect to measure eligible financial assets and financial liabilities at fair value.  Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date.  If elected, SFAS 159 is effective for fiscal years beginning after November 15, 2007.  We are currently assessing whether fair value accounting is appropriate for any of the Company’s eligible items and have not yet determined the impact, if any, on our financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3.  EARNINGS PER SHARE (“EPS”)

The Company presents both basic and diluted EPS amounts.  Basic EPS is computed by dividing income applicable to common stock by the weighted-average number of common shares outstanding for the period.  Diluted EPS assumes the conversion of all dilutive securities.

Basic and diluted earnings per share for the three and nine months ended June 30, 2007, and 2006 are presented below:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Basic income per share:
Income from continuing operations, as restated	$	.21	$	.14	$	.74	$	.33
Income from discontinued operations		-		-		.06		-
Basic net income per common share, as restated	$	.21	$	.14	$	.80	$	.33
Diluted income per share:
Income from continuing operations, as restated	$	.20	$	.13	$	.49	$	.33
Income from discontinued operations		-		-		.05		-
Diluted net income per common share, as restated	$	.20	$	.13	$	.54	$	.33

See Note 14 – “Restatement of Previously Reported Earnings per Share” for discussion of the restatement of previously reported earnings per share for fiscal year 2006.

For the nine months ended June 30, 2007, there is a substantial difference in the net income applicable to common stock used in computing basic and diluted earnings per share.  For basic earnings per share, the Company includes the net gain on redemption of 84.9% of the Company’s outstanding $6.75 Convertible Exchangeable Preferred Stock (the “Preferred Stock”) of $6.0 million while, for diluted earnings per share, the Company does not include the net gain on redemption of Preferred Stock (see Note 4 – “Stockholders’ Equity” for more discussion of the Preferred Stock repurchase).  Refer to the following tables for a reconciliation of the amounts used in computing basic and diluted earnings per share.

The following presents the reconciliation from net income to net income applicable to Common Stock used in computing basic earnings per share:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
	(Dollars in thousands)
Net income	$	5,614		$	4,092		$	15,135		$	10,136
Undeclared and unpaid Preferred Stock dividends		-			(544	)		(226	)		(1,632	)
Preferred Stock dividends declared		(82	)		-			(246	)		-
Net gain on redemption of Preferred Stock		-			-			6,023			-
Net income applicable to Common Stock	$	5,532		$	3,548		$	20,686		$	8,504

The net gain on redemption of Preferred Stock of $6.0 million is the difference between the liquidation value of the Preferred Stock of $31.53 per Depositary Share compared to the $26.00 per Depositary Share paid by the Company.  The shares of Preferred Stock are evidenced by Depositary Shares, each representing ¼ of a share of Preferred Stock.  The liquidation value includes the unpaid and undeclared Preferred Stock dividends that were in arrears at the date of the Preferred Stock repurchases of $7.2 million, which reduced net income for common shareholders in prior years (except for $226,000 dividends earned in the first quarter of fiscal 2007 which reduced net income applicable to Common Stock for fiscal year 2007).

In computing diluted earnings per share, the Company follows the if-converted method.  Under this method, the Company separates the Preferred Stock that was redeemed from the outstanding Preferred Stock at June 30, 2007 and treats each separately to determine if conversion would be dilutive.  In doing so, the Preferred Stock redeemed is more dilutive to assume it was converted at the beginning of the nine months ended June 30, 2007.  Consequently, the net gain on redemption of Preferred Stock and the undeclared and unpaid Preferred Stock dividends are not included in computing net income applicable to Common Stock for the nine months ended June 30, 2007 for purposes of calculating diluted earnings per share.  This also resulted in the addition of 481,000 incremental common shares in the calculation of earnings per share.

For the three and nine months ended June 30, 2007, it was more dilutive to assume the conversion of the outstanding 194,147 Preferred Stock Depositary Shares as of the beginning of the period.  This resulted in the addition of 532,000 incremental Common Shares in the calculation of the diluted weighted average shares outstanding and adding back the Preferred Stock dividends

-8-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

declared to net income applicable to Common Stock for the three and nine months ended June 30, 2007.  The following presents the reconciliation from net income to net income applicable to common stock used in computing diluted earnings per share:

	Three Months Ended					Nine Months Ended
	June 30,					June 30,
	2007		2006			2007		2006
	(Dollars in thousands)
Net income	$	5,614	$	4,092		$	15,135	$	10,136
Undeclared and unpaid Preferred Stock dividends		-		(544	)		-		(1,632	)
Net income applicable to Common Stock	$	5,614	$	3,548		$	15,135	$	8,504

The difference between basic and diluted weighted-average common shares results from the assumed exercise of outstanding stock options calculated using the treasury stock method, assumed conversion of the outstanding Preferred Stock during the three and nine months ended June 30, 2007 and assumed conversion of the Preferred Stock redeemed during the nine months ended June 30, 2007.  The following presents the number of incremental weighted-average shares used in computing diluted per share amounts:

	Three Months Ended		Nine Months Ended
	June 30,		June 30,
Weighted-average shares outstanding:	2007	2006	2007	2006
Basic	26,056,000	25,739,000	25,934,000	25,653,000
Incremental shares from assumed conversion
of outstanding Preferred Stock	532,000	-	532,000	-
Incremental shares from assumed conversion of
Preferred Stock redeemed	-	-	481,000	-
Incremental shares from stock options	1,010,000	773,000	945,000	506,000
Diluted	27,598,000	26,512,000	27,892,000	26,159,000

The total amount of anti-dilutive securities for the three and nine months ended June 30, 2007 and 2006 were as follows:

	Three Months Ended		Nine Months Ended
	June 30,		June 30,
	2007	2006	2007	2006
Stock options	777,000	1,390,000	841,000	1,657,000
Outstanding Preferred Stock	-	3,534,600	-	3,534,600
Total shares of anti-dilutive securities	777,000	4,924,600	841,000	5,191,600

NOTE 4. STOCKHOLDERS’ EQUITY

During November 1993, the Company completed its initial offering of the $6.75 Convertible Exchangeable Preferred Stock (the “Preferred Stock”).  The shares of Preferred Stock are evidenced by Depositary Shares, each representing 1/4 of a share of Preferred Stock.  A total of 1,290,000 Depositary Shares were sold at a price of $25 per share.  Each share of Preferred Stock is convertible into 10.96 shares of the Company’s Common Stock (equivalent to 2.74 shares of Common Stock per Depositary Share) at a conversion price of $9.125 per common share subject to adjustment upon the occurrence of certain events.  The Board of Directors approved the recording of the Preferred Stock offering by allocating $.01 per Depositary Share to Preferred Stock and the remainder to Additional Paid-In Capital.  Preferred Stock dividends of $1.6875 per Depositary Share were paid quarterly through December 31, 2002.  Quarterly dividends (in an aggregate amount of $544,000 per quarter prior to the reduction in outstanding shares of the Preferred Stock following the recent repurchases described herein) were not paid or declared on the Preferred Stock through September 30, 2006, and dividends in arrears through September 30, 2006 aggregated $8.2 million, or $6.33 per Depositary Share.  Dividends on Preferred Stock are cumulative and missed dividends accrue to the liquidation preference of the Preferred Stock.  During the fourth quarter of fiscal 2004, the holders of the Preferred Stock elected two additional directors to the Company’s Board of Directors because the Company had not declared a dividend on the Preferred Stock for six consecutive quarters.  Any undeclared or unpaid Preferred Stock dividends must be declared and paid before the Company can pay a dividend on the Company’s Common Stock.  

On October 3, 2006, the holders of approximately 80.9% of the voting power of the Preferred Stock proposed and approved amendments to the Company’s Statement of Designations for its Preferred Stock, which became effective November 13, 2006.  The amendments authorize the Company to repurchase shares of Preferred Stock while dividends on shares of Preferred Stock are in arrears.  The amendments also terminate the right of holders of Preferred Stock to elect up to two directors while dividends payable to holders of Preferred Stock are in arrears, when there are fewer than 80,000 shares of Preferred Stock outstanding (or 320,000 Depositary Shares).  The Company determined that these amendments did not modify the fair value of the Preferred Stock.

-9-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

On October 10, 2006, the Company’s Board of Directors authorized the repurchase of up to 1,160,000 out of 1,290,000 outstanding Depositary Shares subject to the amendments discussed above becoming effective.  During the quarter ended December 31, 2006, the Company repurchased 1,095,853 Depositary Shares, or 84.9% of the authorized and outstanding Preferred Stock for $26.00 per Depositary Share, for total consideration of $28.5 million.  The dividends that were in arrears on these 1,095,853 Depositary Shares of $7.2 million (including $226,000 dividends earned in the first quarter of fiscal 2007) were extinguished by the repurchase.  Therefore, dividends in arrears on the remaining outstanding Preferred Stock as of June 30, 2007 aggregate $1.2 million, or $6.33 per Depositary Share.  See Note 15 – “Subsequent Events” regarding the declaration by the Company’s Board of Directors to pay the cumulative dividends in arrears.

The repurchase described in the preceding paragraph left 48,537 shares of Preferred Stock (represented by 194,147 Depositary Shares) outstanding, and thus, terminated the right of the holders of the Preferred Stock to elect special directors.  Except as described in the preceding paragraphs, the referenced amendments to the Statement of Designations for the Preferred Stock do not affect the rights of the holders of Preferred Stock or the Common Stock.  The number of authorized shares of Preferred Stock and Common Stock are not affected by the foregoing; however, the Company retired the Preferred Stock that was repurchased.  Preferred Stock dividends of $1.6875 per Depositary Share were declared for the first nine months of fiscal year 2007 for a total of $246,000 and $164,000 was paid through June 30, 2007.

A summary of the changes in the stockholders’ equity accounts for the nine months ended June 30, 2007 is as follows:

											Accumulated
				Common		Common		Additional			Other
	Preferred			Stock		Stock		Paid-In			Comprehensive			Accumulated
	Stock			Shares		Amount		Capital			Income (Loss)			Deficit			Total
	(Dollars in thousands)
Balance at September 30, 2006	$	13			25,792,168	$	45,087	$	104,844		$	(154	)	$	(58,073	)	$	91,717
Issuance of shares in connection with employee benefit plans		–			68,765		455		–			–			–			455
Issuance of stock options		–			–		–		442			–			–			442
Exercise of employee stock options		–			372,911		1,115		(180	)		–			–			935
Preferred Stock redemption		(11	)		–		–		(28,520	)		–			–			(28,531	)
Preferred Stock dividends		–			–		–		(246	)		–			–			(246	)
Translation adjustment		–			–		–		–			4,739			–			4,739
Unrealized net loss on foreign currency hedges		–			–		–		–			(281	)		–			(281	)
Net income		–			–		–		–			–			15,135			15,135
Balance at June 30, 2007	$	2			26,233,844	$	46,657	$	76,340		$	4,304		$	(42,938	)	$	84,365

NOTE 5. EQUITY BASED COMPENSATION

The Company has five active stock option plans, one for non-employee directors and four for employees.

Total stock option compensation expense included in selling, general and administrative expense in the Consolidated Statement of Operations for the three and nine months ended June 30, 2007 was $0.2 million and $0.4 million, respectively, compared to $0.2 million and $0.6 million for the three and nine months ended June 30, 2006, respectively.  All of our stock option compensation expense relates solely to employees whose cash compensation is classified as selling, general and administrative expense.  The total income tax benefit recognized related to stock option activity in the consolidated statement of operations was $0.1 million and $0.2 million for the three and nine months ended June 30, 2007, respectively, compared to $0.1 million and $0.3 million for the three and nine months ended June 30, 2006, respectively.

In the first quarter of fiscal year 2006, the Company granted Options to purchase 360,000 Shares to A. John Knapp, Jr., the Company’s President and Chief Executive Officer.  The Options granted to Mr. Knapp vest over fiscal years 2006 and 2007, and 180,000 of the referenced Options contain certain performance conditions that must be met in order for the Options to vest.  Furthermore, in the first quarter of fiscal year 2006 the Company granted Options to purchase 60,000 Shares to the Chairman of the Company’s Board of Directors, Gregory T. Barmore.  Options granted to Mr. Barmore will vest over fiscal years 2006 and 2007 and 30,000 of those Options contain certain performance conditions that must be met in order for the Options to vest.

As of June 30, 2007, the Company has 210,000 Options outstanding that contain performance conditions, of which 105,000 have vested.  The nonvested Options vest based on the financial performance of the Company in fiscal year 2007.  The performance conditions related to fiscal year 2006 were achieved, and on December 15, 2006, 105,000 of the 210,000 performance-based Options

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

vested.  The weighted average exercise price of the performance-based Options is $2.40, and the weighted average remaining contractual term of the referenced Options is 5 years as of June 30, 2007.  The weighted average grant date fair value of the referenced performance-based Options was $1.34.  Aggregate intrinsic value of the outstanding Options with performance conditions as of June 30, 2007 was $1.7 million.

The following is a summary of stock option activity for the nine months ended June 30, 2007:

	Option	Weighted Average	Weighted Average	Aggregate
	Shares	Exercise	Remaining	Intrinsic
	(000's)	Price	Contractual Term	Value
Outstanding at beginning of year	2,121	$2.71
Granted	58	$5.93
Exercised	(373)	$2.22
Forfeited/cancelled	(20)	$5.94
Outstanding as of June 30, 2007	1,786	$2.89	5 years	$13.7 million
Options exercisable as of June 30, 2007	1,242	$2.47	5 years	$10.1 million

A summary of the status of the Company’s nonvested Options as of June 30, 2007 and changes during the nine months ended June 30, 2007, is presented below:

Nonvested Stock Options	Shares (000’s)	Weighted-Average Grant-Date Fair Value	Weighted-Average Exercise Price
Nonvested at October 1, 2006	836	$1.87	$3.45
Granted	52	$2.94	$5.94
Vested	(337)	$1.64	$2.98
Forfeited	(7)	$2.55	$5.12
Nonvested at June 30, 2007	544	$2.10	$3.95

Effective March 5, 2007, the Company amended the 1998 ICO, Inc. Stock Option Plan (the “Plan”), which is the only one of the Company’s stock option plans that currently allows for Option grants to employees.  The Plan amendments are summarized as follows:  (1) the Plan name was changed to the “ICO, Inc. Equity Incentive Plan;” (2) in addition to Options, the Plan now allows for grants of restricted shares of Common Stock (“Restricted Shares”); (3) the shares of Common Stock available for grant of Options or Restricted Shares were increased by 500,000; (4) the per-person annual grant limitations were reduced to 400,000 (from 500,000) shares per fiscal year; and (5) the Plan’s expiration date was extended from January 12, 2008 to January 25, 2017.  The Plan provides that Restricted Share awards must include vesting provisions, with a minimum vesting period (or performance period if the vesting is contingent on satisfying performance conditions) of one year.

NOTE 6.  INVENTORIES

Inventories consisted of the following:

	June 30, 2007		September 30, 2006
	(Dollars in Thousands)
Raw materials	$	26,787	$	21,722
Finished goods		15,923		19,286
Supplies		1,252		953
Total inventory	$	43,962	$	41,961

NOTE 7.  INCOME TAXES

The amounts of income before income taxes attributable to domestic and foreign continuing operations are as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2007		2006		2007		2006
	(Dollars in Thousands)
Domestic	$	3,453	$	3,943	$	8,801	$	9,115
Foreign		4,579		1,638		8,732		5,380
Total	$	8,032	$	5,581	$	17,533	$	14,495

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The provision (benefit) for income taxes consists of the following:

	Three Months Ended June 30,					Nine Months Ended June 30,
	2007		2006			2007			2006
	(Dollars in Thousands)
Current	$	1,893	$	1,698		$	4,594		$	4,570
Deferred		507		(228	)		(775	)		(263	)
Total	$	2,400	$	1,470		$	3,819		$	4,307

A reconciliation of the income tax expense for continuing operations at the federal statutory rate of 35% to the Company's effective rate for the three and nine months ending June 30, 2007 and 2006 is as follows:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2007			2006			2007			2006
	(Dollars in Thousands)
Tax expense at statutory rate	$	2,811		$	1,953		$	6,136		$	5,073
Change in the deferred tax assets valuation allowance		50			(45	)		(1,595	)		(316	)
Foreign tax rate differential		(227	)		(86	)		(159	)		(14	)
Adjustment to tax contingency		-			(140	)		(350	)		(140	)
State taxes, net of federal benefit		21			(50	)		115			(50	)
Other, net		(255	)		(162	)		(328	)		(246	)
	$	2,400		$	1,470		$	3,819		$	4,307
Effective income tax rate		30%			26%			22%			30%

During the nine months ended June 30, 2007, the Company reversed the valuation allowance against the deferred tax asset of the Italian subsidiary in the amount of $1.4 million based on the Company’s analysis of the profitability of the Italian subsidiary.  This was based on the fact that the Italian subsidiary had taxable income in fiscal year 2006 and is projecting taxable income for fiscal years 2007 and 2008 that would utilize all of the remaining net operating loss carryforwards of $1.3 million.  In addition, the Company reversed $0.4 million of the tax contingency reserve in the first quarter of fiscal 2007 based on the Company’s quarterly assessment of its tax contingency reserve.  These items resulted in an effective tax rate of 22% for the nine months ended June 30, 2007.

The Company does not provide for U.S. income taxes on foreign subsidiaries’ undistributed earnings intended to be permanently reinvested in foreign operations. It is not practicable to estimate the amount of additional tax that might be payable should the earnings be remitted or should the Company sell its stock in the subsidiaries.  The Company has unremitted earnings from foreign subsidiaries of approximately $15.3 million. The Company has determined that the undistributed earnings of foreign subsidiaries, exclusive of those repatriated under the American Jobs Creation Act, will be permanently reinvested.

NOTE 8.  COMMITMENTS AND CONTINGENCIES

                The Company has letters of credit outstanding in the United States of approximately $1.9 million and $2.1 million as of June 30, 2007 and September 30, 2006, respectively, and foreign letters of credit outstanding of $9.8 million and $2.6 million as of June 30, 2007 and September 30, 2006, respectively.

Thibodaux Litigation.  Since September 2004, the Company has been a defendant in litigation pending in District Court in the Parish of Orleans, Louisiana (the “Thibodaux Lawsuit”) filed by C.M. Thibodaux Company (“Thibodaux”).  Other defendants in the case include Intracoastal Tubular Services, Inc. (“ITCO”), thirty different oil companies (the “Oil Company Defendants”), several insurance companies and four trucking companies.  Thibodaux, the owner of industrial property located in Amelia, Louisiana that has historically been leased to tenants conducting oilfield services businesses, contends that the property has been contaminated with naturally occurring radioactive material (“NORM”).  NORM is found naturally occurring in the earth, and when pipe is removed from the ground it is not uncommon for the corroded rust on the pipe to contain very small amounts of NORM.  The Company’s former Oilfield Services business leased a portion of the subject property from Thibodaux.  Thibodaux contends that the subject property was contaminated with NORM generated during the servicing of oilfield equipment by the Company and other tenants, and further alleges that the Oil Company Defendants (customers of Thibodaux’s tenants) and trucking companies (which delivered tubular goods and other oilfield equipment to the subject property) allowed or caused the uncontrolled dispersal of NORM on Thibodaux’s property.  Thibodaux seeks recovery from the Defendants for clean-up costs, diminution or complete loss of property values, and other damages.  Discovery in the Thibodaux Lawsuit is ongoing, and the Company intends to assert a vigorous defense in this litigation.  At this time, the Company does not believe it has any liability in this matter.  In the event the Company is found to have liability, the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Company believes it has insurance coverage applicable to this claim subject to a $1.0 million self-insured retention.  An adverse judgment against the Company, combined with a lack of insurance coverage, could have a material adverse effect on the Company's financial condition, results of operations and/or cash flows.

Environmental Remediation.  The Comprehensive Environmental Response, Compensation, and Liability Act, as amended (“CERCLA”), also known as “Superfund,” and comparable state laws impose liability without regard to fault or the legality of the original conduct on certain classes of persons who are considered to be responsible for the release of a “hazardous substance” into the environment.  These persons include the owner or operator of the disposal site or the site where the release occurred, and companies that disposed or arranged for the disposal of the hazardous substances at the site where the release occurred.  Under CERCLA, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources, and for the costs of certain health studies, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances into the environment.  The Company, through acquisitions that it has made, is identified as one of many potentially responsible parties (“PRPs”) under CERCLA in four claims relating to the following sites: (i) the French Limited site northeast of Houston, Texas; (ii) the Sheridan Disposal Services site near Hempstead, Texas; (iii) the Combe Fill South Landfill site in Morris County, New Jersey; and (iv) the Malone Service Company (MSC) Superfund site in Texas City, Texas.

Active remediation of the French Limited site was concluded in 1996.  If the Company is required to contribute to the costs of additional remediation at that site, it is not expected to have a material adverse effect on the Company.  With regard to the three remaining Superfund sites, the Company believes it remains responsible for only de minimus levels of wastes contributed to those sites, and that there are numerous other PRPs identified at each of these sites that contributed significantly larger volumes of wastes to the sites.  The Company expects that its share of any allocated liability for cleanup of the Sheridan Disposal Services site, and the Combe Fill South Landfill site will not be significant, and based on the Company’s current understanding of the remedial status of each of these sites, together with its relative position in comparison to the many other PRPs at those sites, the Company does not expect its future environmental liability with respect to those sites to have a material adverse effect on the Company’s financial condition, results of operation, and/or cash flows.  With regard to the MSC site, in fiscal year 2005 the Company estimated the Company’s exposure and accrued a liability in that amount, based on settlement offers made to PRP’s by the Environmental Protection Agency (“EPA”) in fiscal year 2005 and the Company’s settlement discussions at that time.  The EPA subsequently withdrew its settlement offers to PRP’s, in order to process additional evidence of transactions at the MSC site, and the EPA is expected to issue a new allocation to the PRP’s, upon which revised settlement offers are expected.  The Company does not expect the eventual outcome with respect to the MSC site to have a material adverse effect on the Company’s financial condition, results of operations and/or cash flows.

Other Legal Proceedings.  The Company is also named as a defendant in certain other lawsuits arising in the ordinary course of business. The outcome of these lawsuits cannot be predicted with certainty, but the Company does not believe they will have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

NOTE 9.  DEBT

     On October 27, 2006, the Company entered into a five-year Credit Agreement (the “Credit Agreement”) with KeyBank National Association and Wells Fargo Bank National Association (collectively referred to herein as “KeyBank”), establishing a $45.0 million domestic credit facility (the “Credit Facility”) and terminated its existing $25.0 million senior credit facility with Wachovia Bank, National Association (“Wachovia Bank”), including the repayment of a $0.8 million term loan.  In conjunction with the termination, the Company incurred $0.2 million of debt termination costs including unamortized debt issuance costs and an early termination fee.

The borrowing capacity made available to the Company under the KeyBank Credit Facility consists of a five-year $15.0 million term loan (as of June 30, 2007 the amount available under the term loan was $14.2 million) and a five-year $30.0 million revolving credit facility.  The KeyBank Credit Facility was utilized to replace commitments and outstanding borrowings under the Company’s $25.0 million credit facility with Wachovia Bank.  Proceeds of the KeyBank Credit Facility are being used for working capital and for general corporate purposes, and have been used to fund repurchases of the Company’s Preferred Stock.  The $45.0 million KeyBank Credit Facility contains a variable interest rate equal to either (at the Company’s option depending on borrowing levels) zero percent (0%) or one quarter percent (¼%) per annum in excess of the prime rate or one and one quarter percent (1¼%), one and one half percent (1½%) or two percent (2%) per annum in excess of the adjusted Eurodollar rate, and is based upon the Company’s leverage ratio, as defined in the Credit Agreement.  The borrowing capacity of the $30.0 million revolving credit facility varies based upon the levels of domestic cash, receivables and inventory.

     There was $10.2 million of outstanding borrowings under the Company’s domestic Credit Facility with KeyBank as of June 30, 2007 and there were $0.8 million of outstanding borrowings under the Company’s domestic credit facility with Wachovia Bank as of September 30, 2006.  The amount of available borrowings under the Company’s domestic Credit Facility with KeyBank was $30.1 million as of June 30, 2007, including the $14.2 million term loan the Company has not drawn down as of June 30, 2007.  The

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Company and KeyBank extended the time period the Company has to draw down the term loan from June 25, 2007 to September 25, 2007.  Because the Company expects to draw down the $14.2 million term loan on or before September 25, 2007, the Company classified the $10.2 million outstanding borrowings under the revolving credit facility as term debt at June 30, 2007.  The Company classified $6.9 million of the $10.2 million as long-term debt and $3.3 million as current debt because the term loan will have quarterly principal payments of $0.8 million beginning September 30, 2007.

Long-term debt at June 30, 2007 and September 30, 2006 consisted of the following:

	June 30,		September 30,
	2007			2006
	(Dollars in Thousands)
Domestic credit facility borrowings expected to be replaced with a $14.2 million term loan prior to September 25, 2007 under the terms of the existing KeyBank credit agreement.  The term loan will have quarterly principal payments and carry a variable interest rate.  Interest rate as of June 30, 2007 was 6.8%.	$	10,225		$	–
Term loan of the Company’s Italian subsidiary, collateralized by a mortgage over the subsidiary’s real estate. Principal and interest paid quarterly with a fixed interest rate of 5.2% through June 2016.		6,230			6,222
Term loans of two of the Company’s U.S. subsidiaries, collateralized by a mortgage over the subsidiaries’ real estate.  Principal and interest paid monthly with a fixed interest rate of 6.0% through April 2020.		3,995			4,146
Term loans of one of the Company’s U.S. subsidiaries, collateralized by a mortgage over the subsidiary’s real estate. Principal and interest paid monthly with a fixed interest rate of 6.0% through May 2021.		3,168			3,274
Term loan of the Company’s U.K. subsidiary, collateralized by property, plant and equipment of the subsidiary.  Interest paid monthly with a fixed interest rate (due to an interest rate swap with same terms as the debt) of 7.2% through March 2015.  Principal repayments made monthly.		2,021			2,068
Term loan of the Company’s Malaysian subsidiary, collateralized by property, plant and equipment of the subsidiary.  Principal and interest paid monthly at a fixed interest rate of 6.6% through July 2013.		1,775			–
Term loan of the Company’s Dutch subsidiary, collateralized by property, plant and equipment of the subsidiary. Principal and interest paid quarterly with a fixed interest rate of 5.4% through October 2014.		1,690			1,681
Term loan of the Company’s French subsidiary.  Principal and interest paid quarterly with a variable interest rate through September 2010.  Interest rate as of June 30, 2007 was 3.8%.		1,648			1,903
Term loan of one of the Company’s U.S. subsidiaries, collateralized by a mortgage over the subsidiary’s real estate.  Principal and interest paid monthly at a fixed interest rate of 6.5% through April 2020.		1,366			–
Term loan of the Company’s Malaysian subsidiary, collateralized by a mortgage over the subsidiary’s real estate.  Principal and interest paid monthly at a fixed interest rate of 6.2% through July 2014.		1,218			–
Term loan of the Company’s Australian subsidiary, collateralized by a mortgage over the subsidiary’s assets.  Interest rates as of June 30, 2007 and September 30, 2006 were 8.9% and 8.2%, respectively.  Interest rate is adjusted quarterly and limited to a minimum rate of 7.7% and a maximum rate of 9.0% through July 2007.		1,155			1,574
Term loan of the Company’s U.K. subsidiary, collateralized by property, plant and equipment of the subsidiary. Principal and interest paid monthly with a fixed interest rate of 6.7% through March 2010.		1,071			1,241
Various others loans and capital leases collateralized by mortgages on certain land and buildings and other assets of the Company.  As of June 30, 2007, interest rates range between 3.0% and 10.25% with maturity dates between October 2007 and May 2021.  The interest and principal payments are made monthly or quarterly.		3,450			4,146
Total term debt	$	39,012		$	26,255

At June 30, 2007, the Company’s Australian subsidiary was in violation of a financial debt covenant related to $1.4 million of term debt and $4.0 million of short-term borrowings under its credit facility with its lender, National Australia Bank Limited (“NAB”).  The Australian covenant that was not met related to equity as a percentage of total assets.  Our Australian subsidiary has grown rapidly due to strong market conditions and has been increasingly profitable.  The covenant was not satisfied due to the expansion in working capital outpacing the increase in retained earnings.  In July 2007, the Company repaid all existing loans with NAB and obtained new financing with a different lender in Australia, Westpac Banking Corporation (“Westpac”).  Under the terms of the loan agreements with Westpac, the Company is currently in compliance with all financial covenants.  The Company’s Malaysian subsidiary was in violation of a financial debt covenant with one of its lenders in Malaysia related to $1.0 million of short term borrowings.  The Malaysian covenant that was not met was related to total debt as a percentage of equity.  The covenant was not satisfied due to the expansion in Malaysian resulting in assets outpacing and, as a consequence, debt outpacing the increase in retained earnings.  The Company has requested a waiver from the Malaysian bank and is also working to modify the debt covenant.  Because of that violation, the Malaysian subsidiary was in violation of a financial debt covenant with its other lender in Malaysia related to $1.3 million of short term borrowings and $3.1 million of term loans.  Because the Company’s Australian and Malaysian subsidiaries were in violation of debt covenants at June 30, 2007, and the total debt in each country was over $5.0 million, the Company was in violation of its Credit Agreement with KeyBank.  The Company obtained a waiver from KeyBank for these violations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As discussed above, in July 2007, the Company repaid its existing loans with NAB and obtained new financing from Westpac.  The Westpac agreement provides for a credit facility up to $11.0 million, representing an increase of $5.5 million, and term loans in the amount of $3.4 million, representing an increase of $2.0 million.

The Company maintains several lines of credit.  The facilities are collateralized by certain assets of the Company.  The following table presents the borrowing capacity, outstanding borrowings and net availability under the various credit facilities in the Company’s domestic and foreign operations.

	Domestic				Foreign				Total
	As of				As of				As of
	June 30,		September 30,		June 30,		September 30,		June 30,		September 30,
	2007		2006		2007		2006		2007		2006
	(Dollars in thousands)
Borrowing Capacity (a)	$	40,300	$	21,559	$	41,300	$	37,560	$	81,600	$	59,119
Outstanding Borrowings		10,225		800		15,860		17,214		26,085		18,014
Net availability	$	30,075	$	20,759	$	25,440	$	20,346	$	55,515	$	41,105
(a) Based on the credit facility limits less outstanding letters of credit.

 The Company has various foreign credit facilities in eight foreign countries. The available credit under these facilities varies based on the levels of accounts receivable within the foreign subsidiary, or is a fixed amount. The foreign credit facilities are collateralized by assets owned by the foreign subsidiaries and also carry various financial covenants.  In addition to the debt covenant violations in Australia and Malaysia discussed above, the Company’s New Zealand subsidiary was in violation of a financial debt covenant as of June 30, 2007 related to $2.3 million in short term borrowings.  However, the Company received a waiver from its lender in New Zealand.  The aggregate amount of available borrowings under the foreign credit facilities, based on the credit facility limits, current levels of accounts receivables, outstanding letters of credit and borrowings, was $25.4 million as of June 30, 2007 ($1.9 million of which relates to the Company’s New Zealand subsidiary, $1.5 million of which relates to the Company’s Australian subsidiary and $1.1 million of which relates to the Company’s Malaysian subsidiary, for which each had a financial debt covenant violation) and $20.3 million as of September 30, 2006, respectively.

The Credit Agreement establishing the KeyBank Credit Facility contains financial covenants including minimum tangible net worth, leverage ratio, fixed charge coverage ratio, and a required level of profitability.  In addition, the Credit Agreement contains a number of limitations on the ability of the Company and its restricted U.S. subsidiaries to (i) incur additional indebtedness, (ii) pay dividends or redeem any Common Stock, (iii) incur liens or other encumbrances on their assets, (iv) enter into transactions with affiliates, (v) merge with or into any other entity or (vi) sell any of their assets.

In addition, any “Change of Control” of the Company or its restricted U.S. subsidiaries will constitute a default under the KeyBank Credit Agreement.  “Change of Control,” as defined in the Credit Agreement, is summarized as follows: (i) the acquisition of, or, if earlier, the shareholder or director approval of the acquisition of, ownership or voting control, directly or indirectly, beneficially or of record, by any person, entity, or group (within the meaning of Rule 13d-3 of the SEC under the 1934 Act, as then in effect), of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Common Stock of the Company; (ii) the occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by individuals who were neither (A) nominated by the Company’s board of directors nor (B) appointed by directors so nominated; (iii) the occurrence of a change in control, or other similar provision, under or with respect to any “Material Indebtedness Agreement” (as defined in the Credit Agreement); or (iv) the failure of the Company to own directly or indirectly, all of the outstanding equity interests of the Company’s Bayshore Industrial L.P. and ICO Polymers North America, Inc. subsidiaries.

NOTE 10.  EMPLOYEE BENEFIT PLANS

 We maintain several defined contribution plans that cover domestic and foreign employees that meet certain eligibility requirements related to age and period of service with the Company. The plan in which an employee may be eligible to participate depends upon the subsidiary for which the employee works. All plans have a salary deferral feature that enables employees to contribute up to a certain percentage of their earnings, subject to governmental regulations. Many of the foreign plans require the Company to match employees’ contributions in cash.  Foreign employees’ interests in Company matching contributions are generally vested immediately.  The Company’s matching contributions in our 401(k) plan made in calendar year 2006 and thereafter are mandatory and vest immediately.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

  The Company maintains a defined benefit plan for employees of our Dutch operating subsidiary.  Participants contribute a portion of the cost associated with the benefit plan.  The plan provides retirement benefits at the normal retirement age of 65.  This plan is insured by a participating annuity contract with Aegon Levensverzekering N.V. ("Aegon"), located in The Hague, The Netherlands.  The participating annuity contract guarantees the funding of the Company’s future pension obligations for its defined benefit pension plan.  In accordance with the contract, Aegon will pay all future obligations under the provisions of this plan, while the Company pays annual insurance premiums.  Payment of the insurance premiums by the Company constitutes an unconditional and irrevocable transfer of the related pension obligation from the Company to Aegon.  Aegon has a Standard and Poor’s financial strength rating of AA.  The premiums for the participating annuity contracts are included in pension expense.

  We also maintain several termination plans, usually mandated by law, within certain of our foreign subsidiaries that provide a one time payment if a covered employee is terminated.

  The amount of defined contribution plan expense for the three and nine months ended June 30, 2007 was $0.2 million and $0.8 million compared to $0.3 million and $0.7 million for the three and nine months ended June 30, 2006. The amount of defined benefit plan pension expense for the three and nine months ended June 30, 2007 was $0.2 million and $0.5 million compared to $0.2 million and $0.5 million for the three and nine months ended June 30, 2006.

NOTE 11.  DISCONTINUED OPERATIONS

On September 6, 2002, the Company completed the sale of substantially all of its Oilfield Services business to National Oilwell Varco, Inc., formerly Varco International, Inc. (“NOV”).  On July 31, 2003, the Company sold its remaining Oilfield Services business to Permian Enterprises, Ltd.  The Oilfield Services results of operations are presented as discontinued operations, net of income taxes, in the Consolidated Statement of Operations.  Legal fees or other expenses incurred related to discontinued operations are expensed as incurred to discontinued operations.

  Between May 2003 and March 2004, NOV asserted approximately 30 claims for contractual indemnity ranging from $16.4 million to $22.0 million against the Company in connection with the September 2002 sale of substantially all of the Company's Oilfield Services business.  On November 21, 2006, the Company entered into an agreement settling all of the pending indemnity claims asserted by NOV for $7.5 million in exchange for a complete release of claims and indemnity agreement.  The $7.5 million settlement consisted of: a cash payment of approximately $1.1 million; release to NOV of the approximately $5.4 million held in escrow; and a $1.0 million note payable in November 2007.  The funds in escrow were set aside on September 6, 2002, and consisted of $5.0 million of the sale proceeds plus interest.  The escrowed funds were deemed to be a doubtful collection and a reserve was recorded against the $5.0 million during fiscal year 2004 through discontinued operations.  As a result of the settlement, the Company recorded a pre-tax charge through discontinued operations of $2.1 million ($1.4 million after taxes) during its fiscal fourth quarter ended September 30, 2006.  During March 2007, the Company entered into a settlement agreement with its insurance carrier related to the indemnity claims asserted by NOV for $2.3 million, which was received in April 2007.  The insurance recovery was recorded through discontinued operations during the three months ended March 31, 2007 and was the primary reason for the income from discontinued operations for the nine months ended June 30, 2007.  The loss from discontinued operations during the three months ended June 30, 2007 and the three and nine months ended June 30, 2006 relates to legal fees and other expenses incurred by the Company associated with discontinued operations.

NOTE 12.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s primary market risk exposures include debt obligations that carry variable interest rates, foreign currency exchange risk and resin price risk.  As of June 30, 2007, the Company had $60.5 million of net investment in foreign wholly-owned subsidiaries.  The Company does not hedge the foreign exchange rate risk inherent in this non-U.S. Dollar denominated investment. The Company does enter into forward currency exchange contracts related to future purchase obligations denominated in a nonfunctional currency.  These forward currency exchange contracts qualify as cash flow hedging instruments and are highly effective. The Company recognizes the amount of hedge ineffectiveness in the Consolidated Statement of Operations.  The hedge ineffectiveness was not a significant amount for the three and nine months ended June 30, 2007 and 2006, respectively.  The Company’s principle foreign currency exposures relate to the Euro, British Pound, Australian Dollar, New Zealand Dollar, Malaysian Ringgit and Brazilian Real. The following table includes the total foreign exchange contracts outstanding on June 30, 2007 and September 30, 2006:

	As of
	June 30, 2007			September 30, 2006
	(Dollars in thousands)
Notional value	$	8,396		$	3,565
Fair market value		8,677			3,565
Maturity Dates	July 2007 through October 2007		October 2006 through December 2006

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

  The Company’s revenues and profitability are impacted by the change in resin prices.  The Company uses various resins (primarily polyethylene) to make its products.  As the price of resin increases or decreases, market prices for the Company’s products will generally also increase or decrease.  This will typically lead to higher or lower average selling prices and will impact the Company’s operating income and operating margin.  The impact on operating income is due to a lag in matching the change in raw material cost of goods sold and the change in product sales prices.  As of June 30, 2007 and September 30, 2006, the Company had $26.8 million and $21.7 million of raw material inventory and $15.9 million and $19.3 million of finished goods inventory, respectively.  The Company attempts to minimize its exposure to resin price changes by monitoring and carefully managing the quantity of its inventory on hand and product sales prices.

 Foreign Currency Intercompany Accounts and Notes Receivable.  From time-to-time, the Company’s U.S. subsidiaries provide capital to foreign subsidiaries of the Company through U.S. dollar denominated interest bearing promissory notes.  In addition, certain of the Company’s foreign subsidiaries also provide access to capital to other foreign subsidiaries of the Company through foreign currency denominated interest bearing promissory notes.  Such funds are generally used by the Company’s foreign subsidiaries to purchase capital assets and/or for general working capital needs.  In addition, the Company’s U.S. subsidiaries sell products to the Company’s foreign subsidiaries in U.S. dollars on trade credit terms.  The Company’s foreign subsidiaries also sell products to other foreign subsidiaries of the Company denominated in foreign currencies that may not be the functional currency of the foreign subsidiaries.  Because these intercompany debts are accounted for in the local functional currency of the foreign subsidiary, any appreciation or depreciation of the foreign currencies the transactions are denominated in will result in a gain or loss, respectively, to the Consolidated Statement of Operations.  These intercompany loans are eliminated in the Company’s Consolidated Balance Sheet.  At June 30, 2007, the Company had the following significant outstanding intercompany amounts as described above:

Country of subsidiary with	Country of subsidiary with	Amount in US$ as of	Currency denomination
intercompany receivable	intercompany payable	June 30, 2007	of receivable
New Zealand	Malaysia	$1.4 million	New Zealand Dollar
United States	Malaysia	$1.3 million	United Stated Dollar
United States	Italy	$1.2 million	United States Dollar
New Zealand	Australia	$1.1 million	New Zealand Dollar

NOTE 13.  SEGMENT INFORMATION

Our management structure and reportable segments are organized into five business segments defined as ICO Polymers North America, ICO Brazil, Bayshore Industrial, ICO Europe and ICO Courtenay - Australasia.  This organization is consistent with the way information is reviewed and decisions are made by executive management.

  ICO Polymers North America, ICO Brazil, ICO Europe and ICO Courtenay - Australasia primarily produce competitively priced engineered polymer powders for the rotational molding industry as well as other specialty markets for powdered polymers, including masterbatch and concentrate producers, users of polymer-based metal coatings, and non-woven textile markets.  Additionally, these segments provide specialty size reduction services on a tolling basis (“tolling” refers to processing customer owned material for a service fee).  The Bayshore Industrial segment designs and produces proprietary concentrates, masterbatches and specialty compounds, primarily for the plastic film industry, in North America and in selected export markets. The Company’s European segment includes operations in France, Holland, Italy and the U.K.  The Company’s Australasian segment includes operations in Australia, Malaysia, New Zealand and the United Arab Emirates.

Nine Months Ended June 30, 2007	Revenue From External Customers		Inter- Segment Revenues		Operating Income (Loss) (a)			Depreciation and Amortization		Impairment, Restructuring and Other Costs (Income)(b)			Expenditures for Additions to Long-Lived Assets
	(Dollars in thousands)
ICO Europe	$	124,178	$	403	$	6,559		$	2,054	$	(625	)	$	912
Bayshore Industrial		69,465		99		9,642			1,117		-			1,219
ICO Courtenay-Australasia		59,624		16		4,161			819		(29	)		4,037
ICO Polymers North America		31,486		3,153		4,313			1,139		-			1,218
ICO Brazil		9,605		-		267			185		-			124
Total from Reportable Segments		294,358		3,671		24,942			5,314		(654	)		7,510
Corporate		-		-		(4,370	)		152		-			101
Stock Option Expense		-		-		(442	)		-		-			-
Total	$	294,358	$	3,671	$	20,130		$	5,466	$	(654	)	$	7,611

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Nine Months Ended June 30, 2006	Revenue From External Customers		Inter- Segment Revenues		Operating Income (Loss)			Depreciation and Amortization		Impairment, Restructuring and Other Costs (b)		Expenditures for Additions to Long-Lived Assets
	(Dollars in thousands)
ICO Europe	$	95,162	$	335	$	4,931		$	2,288	$	63	$	723
Bayshore Industrial		67,437		22		10,879			1,245		-		3,220
ICO Courtenay-Australasia		34,528		-		1,700			725		-		646
ICO Polymers North America		33,079		2,976		3,717			979		55		1,986
ICO Brazil		6,894		-		(450	)		156		-		73
Total from Reportable Segments		237,100		3,333		20,777			5,393		118		6,648
Corporate		-		-		(4,355	)		108		-		346
Stock Option Expense		-		-		(639	)		-		-		-
Total	$	237,100	$	3,333	$	15,783		$	5,501	$	118	$	6,994

Three Months Ended June 30, 2007	Revenue From External Customers		Inter- Segment Revenues		Operating Income (Loss)			Depreciation and Amortization		Impairment, Restructuring and Other Costs (b)		Expenditures for Additions to Long-Lived Assets
	(Dollars in thousands)
ICO Europe	$	47,797	$	361	$	3,376		$	707	$	-	$	408
Bayshore Industrial		25,684		9		3,329			371		-		432
ICO Courtenay-Australasia		25,528		16		2,315			273		-		1,967
ICO Polymers North America		11,083		1,061		1,553			387		-		612
ICO Brazil		3,286		-		63			66		-		44
Total from Reportable Segments		113,378		1,447		10,636			1,804		-		3,463
Corporate		-		-		(1,511	)		51		-		51
Stock Option Expense		-		-		(165	)		-		-		-
Total	$	113,378	$	1,447	$	8,960		$	1,855	$	-	$	3,514

Three Months Ended June 30, 2006	Revenue From External Customers		Inter- Segment Revenues		Operating Income (Loss)			Depreciation and Amortization		Impairment, Restructuring and Other Costs (b)		Expenditures for Additions to Long-Lived Assets
	(Dollars in thousands)
ICO Europe	$	35,181	$	170	$	1,659		$	810	$	-	$	229
Bayshore Industrial		22,574		-		3,720			421		-		1,404
ICO Courtenay-Australasia		10,356		-		340			254		-		92
ICO Polymers North America		12,261		1,448		1,862			346		-		852
ICO Brazil		2,072		-		(114	)		53		-		45
Total from Reportable Segments		82,444		1,618		7,467			1,884		-		2,622
Corporate		-		-		(1,361	)		33		-		281
Stock Option Expense		-		-		(187	)		-		-		-
Total	$	82,444	$	1,618	$	5,919		$	1,917	$	-	$	2,903

Total Assets	As of June 30, 2007 (d)		As of September 30, 2006 (d)
	(Dollars in thousands)
ICO Europe	$	88,887	$	81,330
Bayshore Industrial		41,591		39,421
ICO Courtenay-Australasia		53,048		31,859
ICO Polymers North America		22,593		23,702
ICO Brazil		5,498		4,412
Total from Reportable Segments	$	211,617	$	180,724
Other (c)		930		17,237
Total	$	212,547	$	197,961

(a) ICO Europe’s operating income includes severance expense of $0.5 million for the nine months ended June 30, 2007.

(b) Impairment, restructuring and other costs (income) are included in operating income (loss).

(c) Consists of unallocated Corporate assets.

(d) Includes goodwill of $4.8 million and $4.1 million for ICO Courtenay – Australasia as of June 30, 2007 and September 30, 2006, respectively, and $4.5 million for Bayshore Industrial as of June 30, 2007 and September 30, 2006.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

A reconciliation of total reportable segment operating income to income from continuing operations before income taxes is as follows:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
	(Dollars in thousands)
Reportable segments operating income	$	10,636		$	7,467		$	24,942		$	20,777
Corporate and stock option expense		(1,676	)		(1,548	)		(4,812	)		(4,994	)
Consolidated operating income		8,960			5,919			20,130			15,783
Other income (expense):
Interest expense, net		(799	)		(505	)		(2,301	)		(1,601	)
Other		(129	)		167			(296	)		313
Income from continuing operations before income taxes	$	8,032		$	5,581		$	17,533		$	14,495

NOTE 14.  RESTATEMENT OF PREVIOUSLY REPORTED EARNINGS PER SHARE

In December 2006, the Company restated its previously issued financial statements related to the computation of earnings per share for the fiscal years ended September 30, 2005 and 2004 and for each of the quarters ended December 31, 2005 and 2004, March 31, 2006 and 2005, June 30, 2006 and 2005, and September 30, 2005.  The restatement did not impact previously reported revenues, cash flow, net income (loss) or balance sheet components.  See the Company’s 2006 Form 10-K for complete disclosures relating to this restatement.

The Company previously reported basic earnings per share by not deducting the unpaid and undeclared Preferred Stock dividends of $544,000 per quarter from net income in deriving basic earnings per share.  In computing diluted earnings per share, the Company did not deduct the unpaid and undeclared Preferred Stock dividends from net income, and incorrectly assumed the conversion of the Preferred Stock by including the resultant common equivalent shares in the diluted earnings per share computation.

The following table presents the effect of the restatement on earnings per share for the three and nine months ended June 30, 2006:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2006						2006
	As Reported			As Restated			As Reported			As Restated
	(in thousands, except share data)
Total revenues	$	82,444		$	82,444		$	237,100		$	237,100
Operating income		5,919			5,919			15,783			15,783
Income from continuing operations		4,111			4,111			10,188			10,188
Loss from discontinued operations		(19	)		(19	)		(52	)		(52	)
Net income		4,092			4,092			10,136			10,136
Undeclared and unpaid Preferred Stock dividends		-			(544	)		-			(1,632	)
Net income applicable to common stock	$	4,092		$	3,548		$	10,136		$	8,504
Basic and diluted income per share:
Basic income from continuing operations	$	.16		$	.14		$	.40		$	.33
Basic net income per common share	$	.16		$	.14		$	.40		$	.33
Diluted income from continuing operations	$	.14		$	.13		$	.34		$	.33
Diluted net income per common share	$	.14		$	.13		$	.34		$	.33
Basic weighted average shares outstanding		25,739,000			25,739,000			25,653,000			25,653,000
Diluted weighted average shares outstanding		30,046,600			26,512,000			29,693,600			26,159,000

NOTE 15. SUBSEQUENT EVENTS

                On July 2, 2007, the Company’s facility in the State of New Jersey incurred a fire which damaged several pieces of grinding equipment within one of the buildings at the facility.  The Company is in the process of evaluating the damage to the plant and the equipment at this time.  The Company expects to make claims for recovery under its insurance policy which is subject to a deductible of $0.1 million.  Additionally, the Company will make claims under an insurance policy for business interruption to compensate for additional expenses and lost production following the fire.  The amount of the claims cannot be estimated at this time.

On August 7, 2007, the Company announced that its Board of Directors declared the cumulative dividends in arrears (totaling approximately $1.2 million) on the Company’s Preferred Stock, in the amount of $6.33 per depositary share (each “Depositary Share” representing ¼ share of Preferred Stock).  The record date for determining holders of record of the Depositary Shares who will be entitled to receive payment of the cumulative dividends is September 21, 2007.  As of August 7, 2007, there were 194,147 Depositary Shares outstanding.

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

How We Generate Our Revenues

The Company’s revenues are primarily derived from product sales and toll processing services in the polymer processing industry.

Product sales result from the sale of finished products to the customer. The creation of such products begins with the Company purchasing resin (primarily polyethylene) and other raw materials that are further processed by the Company.  The further processing of the material may involve size reduction and/or compounding.  Compounding involves melt blending various resins and additives to produce a homogeneous material. Compounding includes the manufacture and sale of concentrates.  Concentrates are polymers loaded with high levels of chemical and organic additives that are melt blended into base resins to give plastic films and other finished products desired physical properties.  After processing, the Company sells the finished products to customers.  The finished products produced by the Company are most often used to manufacture household items (such as toys, household furniture and trash receptacles), automobile parts, agricultural products (such as fertilizer and water tanks), paint and metal and fabric coatings.  Currently, the largest powder sales markets of the Company include Western Europe, Australia, New Zealand, Malaysia, the United States and Brazil.  The Company also exports its powders into Africa, the Middle East, and Asia.

The Company’s concentrate products are primarily used by third parties to produce plastic films.  These products are mostly sold throughout North America.

Toll processing services involve both size reduction and compounding whereby these services are performed on customer owned material for a fee.  We consider our toll processing services to be completed when we have processed the customer owned material and no further services remain to be performed.  Pursuant to the service arrangements with our customers, we are entitled to collect our agreed upon toll processing fee upon completion of our toll processing services.  Shipping of the product to and from our facilities is determined by and paid for by the customer.  The revenue we recognize for toll processing services is net of the value of our customer’s product as we do not take ownership of our customer’s material during any stage of the process.

Demand for the Company’s products and services tends to be driven by overall economic factors and, particularly, consumer spending.  The trend of applicable resin prices also impacts customer demand.  As resin prices are falling, customers tend to reduce their inventories and, therefore, reduce their need for the Company’s products and services as customers choose to purchase resin on a just-in-time basis rather than building large levels of inventory.  Conversely, as resin prices are rising, customers often increase their inventories and accelerate their purchases of products and services from the Company to help lower their raw material costs.  Additionally, demand for the Company’s products and services tends to be seasonal, with customer demand historically being weakest during the Company’s first fiscal quarter due to the holiday season.  The Company’s fourth fiscal quarter also tends to be weaker compared to the Company’s second and third fiscal quarters, in terms of customer demand, due to vacation periods in the Company’s European markets.  However, demand during the Company’s fourth fiscal quarter of 2006 and 2005 was the strongest demand of all quarters within fiscal years 2006 and 2005 due, in part, to rising resin prices.

Cost of Sales and Services

Cost of sales and services is primarily comprised of raw materials (resins and various additives), compensation and benefits to non-administrative employees, electricity, repair and maintenance, occupancy costs and supplies.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of compensation and related benefits paid to the sales and marketing, executive management, information technology, accounting, legal, human resources and other administrative employees of the Company, other sales and marketing expenses, communications costs, systems costs, insurance costs, consulting costs and legal and professional accounting fees.

How We Manage Our Operations

The Company’s management structure and reportable segments are organized into five business segments defined as ICO Polymers North America, ICO Brazil, Bayshore Industrial, ICO Europe and ICO Courtenay - Australasia.  This organization is consistent with the way information is reviewed and decisions are made by executive management.

ICO Polymers North America, ICO Brazil, ICO Europe and ICO Courtenay - Australasia primarily produce competitively priced polymer powders for the rotational molding industry as well as other specialty markets for powdered polymers, including masterbatch and concentrate producers, users of polymer-based metal coatings, and non-woven textile markets.  Masterbatches are concentrates that incorporate all of the additives a customer needs into a single package for a particular product manufacturing

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process, as opposed to requiring numerous packages.  Additionally, these segments provide specialty size reduction services on a tolling basis.  The Bayshore Industrial segment designs and produces proprietary concentrates, masterbatches and specialty compounds, primarily for the plastic film industry, in North America and in selected export markets. The Company’s ICO Europe segment includes operations in France, Holland, Italy and the U.K.  The Company’s ICO Courtenay - Australasia segment includes operations in Australia, Malaysia, New Zealand and the United Arab Emirates.

Results of Operations

Three and nine months ended June 30, 2007 compared to the three and nine months ended June 30, 2006

Executive Summary

Strong demand within the Company’s European and Australasian regions resulted in a very strong third quarter with operating income of $9.0 million for the Company, which exceeded the prior year’s third quarter by $3.0 million or 51%.  Our Australasian and European regions experienced an increase in volumes of 98% and 22%, respectively for the comparative period.  As a result of our strong second and third quarters, our operating income for the nine months ending June 30, 2007 was up $4.3 million or 28% over the prior year period.

	Summary Financial Information
	Three Months Ended June 30,												Nine Months Ended June 30,
	2007			2006			Change			%			2007			2006			Change			%
	(Dollars in Thousands)
Total revenues	$	113,378		$	82,444		$	30,934			38	%	$	294,358		$	237,100		$	57,258			24	%
SG&A (1)		9,727			8,278			1,449			18	%		27,440			25,663			1,777			7	%
Operating income		8,960			5,919			3,041			51	%		20,130			15,783			4,347			28	%
Income from continuing operations		5,632			4,111			1,521			37	%		13,714			10,188			3,526			35	%
Net income	$	5,614		$	4,092		$	1,522			37	%	$	15,135		$	10,136		$	4,999			49	%
Volumes (2)		88,150			81,900			6,250			8	%		246,150			238,700			7,450			3	%
Gross margin (3)		18.1	%		19.5	%		(1.4	%)					17.8	%		19.9	%		(2.1	%)
SG&A as a percentage of revenues		8.6	%		10.0	%		(1.4	%)					9.3	%		10.8	%		(1.5	%)
Operating income as a percentage of revenues		7.9	%		7.2	%		0.7	%					6.8	%		6.7	%		0.1	%
(1)“SG&A” is defined as selling, general and administrative expense (including stock option compensation expense).
(2) “Volumes” refers to total metric tons sold either selling proprietary products or toll processing services.
(3) Gross margin is calculated as the difference between revenues and cost of sales and services, divided by revenues.

 Revenues. Total revenues increased $30.9 million or 38% to $113.4 million during the three months ended June 30, 2007, compared to the same period of fiscal 2006. During the nine month period, revenues increased $57.3 million or 24%.  The increase in revenues was a result of an increase in volumes sold by the Company (“volume”), changes in selling prices and mix of finished products sold or services performed (“price/product mix”) and the impact from changes in foreign currencies relative to the U.S. Dollar (“translation effect”).

 The components of the increase in revenue are:

	Three Months Ended June 30, 2007					Nine Months Ended June 30, 2007
	%			$			%			$
	(Dollars in Thousands)
Volume		20	%	$	16,519		10	%	$	24,528
Price/product mix		11	%		8,909		8	%		18,460
Translation effect		7	%		5,506		6	%		14,270
Total increase		38	%	$	30,934		24	%	$	57,258

 An increase in volumes sold of 8% and 3% for the three and nine months ended June 30, 2007 led to increases in revenues of $16.5 million and $24.5 million, respectively. The volume increase was most notable at the Company’s European and Australasian regions primarily due to an increase in customer demand. The translation effect of changes in foreign currencies relative to the U.S. Dollar caused an increase in revenues of $5.5 million for the three months ended June 30, 2007 and $14.3 million for the nine months ended June 30, 2007 due primarily to a stronger Euro compared to the U.S. Dollar.

 The Company’s revenues are impacted by the change in raw material prices (“resin” prices) as well as product sales mix.  As the price of resin increase or decreases, market prices for our products will generally also increase or decrease.  This will typically lead to higher or lower average selling prices.  Our average selling prices were higher than the prior year in our Australasian and European regions for both the three and nine months ended June 30, 2007 due in large part to higher average resin prices.  This fact, as well as a change in product sales mix primarily for Bayshore Industrial, caused an increase in our revenues of approximately $8.9 million for the

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three months ended June 30, 2007 and $18.5 million for the nine months ended June 30, 2007.  Although the Company participates in numerous markets, the graph below illustrates the trend in our resin prices.

  

     A comparison of revenues by segment and discussion of the significant segment changes is provided below.

Revenues by segment for the three months ended June 30, 2007 compared to the three months ended June 30, 2006:

	Three Months Ended June 30,
	2007		% of Total			2006		% of Total			Change			%
	(Dollars in Thousands)
ICO Europe	$	47,797		42	%	$	35,181		43	%	$	12,616			36	%
Bayshore Industrial		25,684		23	%		22,574		27	%		3,110			14	%
ICO Courtenay - Australasia		25,528		22	%		10,356		13	%		15,172			147	%
ICO Polymers North America		11,083		10	%		12,261		15	%		(1,178	)		(10	%)
ICO Brazil		3,286		3	%		2,072		2	%		1,214			59	%
Total	$	113,378		100	%	$	82,444		100	%	$	30,934			38	%

Three Months Ended June 30, 2007	Three Months Ended June 30, 2006
Revenues by Segment	Revenues by Segment

                                                                                                             

ICO Europe’s revenues increased $12.6 million or 36% due to higher volumes sold of 22% which increased revenues by $8.8 million.  The higher volumes were seen throughout the Company’s European subsidiaries due to improved economic and market conditions and improved market share.  Additionally, the translation effect of stronger European currencies compared to the U.S. Dollar caused an increase in revenues of $3.7 million.

Bayshore’s revenues increased $3.1 million or 14% due to a change in mix of products sold.

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  ICO Courtenay - Australasia’s revenues increased $15.2 million or 147% primarily due to an increase in volumes sold which increased 98%.  The higher sales volumes were primarily in the Company’s Australian plants resulting from an increase in customer demand in the water tank segment of the market.  In addition, growth in the Company’s Malaysian subsidiary also contributed to the increased volumes sold within the region.

Revenues by segment for the nine months ended June 30, 2007 compared to the nine months ended June 30, 2006:

	Nine Months Ended June 30,
	2007		% of Total			2006		% of Total			Change			%
	(Dollars in Thousands)
ICO Europe	$	124,178		42	%	$	95,162		40	%	$	29,016			30	%
Bayshore Industrial		69,465		24	%		67,437		28	%		2,028			3	%
ICO Courtenay - Australasia		59,624		20	%		34,528		15	%		25,096			73	%
ICO Polymers North America		31,486		11	%		33,079		14	%		(1,593	)		(5	%)
ICO Brazil		9,605		3	%		6,894		3	%		2,711			39	%
Total	$	294,358		100	%	$	237,100		100	%	$	57,258			24	%

Nine Months Ended June 30, 2007	Nine Months Ended June 30, 2006
Revenues by Segment	Revenues by Segment

                                                                                 

ICO Europe’s revenues increased $29.0 million or 30% due to higher volumes sold of 15% which increased revenues by $18.3 million.  The higher volumes were caused by an increase in customer demand throughout the Company’s European subsidiaries due to improved economic and market conditions and improved market share.  Additionally, the translation effect of stronger European currencies compared to the U.S. Dollar caused an increase in revenues of $9.9 million.

  ICO Courtenay - Australasia’s revenues increased $25.1 million or 73% primarily due to an increase in sales volumes of 42% which increased revenues by $16.9 million.  In addition, higher average selling prices in part due to higher average resin prices caused revenues to increase $4.4 million and stronger foreign currencies caused revenues to increase $3.8 million.  The higher sales volumes were primarily in the Company’s Australian plants resulting from an increase in customer demand in the water tank segment of the market.  In addition, growth in the Company’s Malaysian subsidiary also contributed to the increased volumes sold within the region.

Gross Margins.  Consolidated gross margins (calculated as the difference between revenues and cost of sales and services, divided by revenues) decreased from 19.5% to 18.1% for the three months ended June 30, 2007.  Part of the reason for the decline in gross margin was due to the fact that 90% of the revenue growth in the three months ended June 30, 2007 compared to the three months ended June 30, 2006 was derived from our European and Australasian segments which typically have lower gross margins than the other segments of the Company.   Additionally, lower volumes sold at Bayshore had the effect of reducing gross margins.  These items were partially offset by the growth in toll service revenues.

  For the nine month period comparisons, gross margins decreased from 19.9% to 17.8%.  Similar to the three month comparisons, a major part of the cause of this decline was due to the fact that 95% of the revenue growth for the period was derived from our European and Australasian segments which typically have lower gross margins than the other segments of the Company.   Also, the increase in resin prices in Europe and Australasia for the nine months ended June 30, 2007 compared to the prior periods had the effect of increasing our average selling prices and revenue base without a corresponding increase in gross profit by the same percentage, which results in a lower gross margin.  Additionally, during the nine months ended June 30, 2007, lower feedstock margins on products sold as a result of the different resin pricing environments in fiscal year 2007 compared to fiscal year 2006 had the effect of reducing gross margins, particularly in our European segment.  These items were partially offset by the improvement in toll service revenues.

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Selling, General and Administrative.  Selling, general and administrative expenses (“SG&A”) increased $1.4 million or 18% and $1.8 million or 7% for the three and nine months ended June 30, 2007, respectively.  The increase in SG&A for the three month comparison was primarily due to higher employee compensation and benefits cost of $0.9 million and the impact from stronger foreign currencies of $0.4 million.  As a percentage of revenues, SG&A decreased from 10.0% to 8.6% for the three month comparison as a result of the increase in revenues.  For the nine month comparison, the increase of $1.8 million was caused by higher employee compensation and benefits cost of $0.9 million, higher severance expense of $0.5 million in the Company’s European segment and impact from stronger foreign currencies of $1.1 million.  These increases were partially offset by reductions in external accounting fees ($0.2 million) and bad debt expense ($0.2 million).  As a percentage of revenues, SG&A decreased from 10.8% to 9.3% for the nine month comparison as a result of the growth in revenues.

Impairment, restructuring and other costs (income).  During the second quarter of fiscal year 2007, the Company recorded a pre-tax gain of $0.6 million related to the sale of a building in the Company’s Dutch subsidiary.

In the first quarter of fiscal year 2006, the Company incurred $55,000 of costs as a result of Hurricane Rita which caused minor damage to the Company’s China, Texas plant and lease cancellation costs of $63,000 associated with the former location of its European technical center, which was relocated in fiscal 2005.

  On July 2, 2007, the Company’s facility in the State of New Jersey incurred a fire which damaged several pieces of grinding equipment within one of the buildings at the facility.  The Company is in the process of evaluating the damage to the plant and the equipment at this time.  The Company expects to make claims for recovery under its insurance policy which is subject to a deductible of $0.1 million.  Additionally, the Company will make claims under an insurance policy for business interruption to compensate for additional expenses and lost production following the fire.  The amount of the claims cannot be estimated at this time.

Operating income (loss) by segment and discussion of significant segment changes for the three months ended June 30, 2007 compared to the three months ended  June 30, 2006 follows.

Operating income (loss)	Three Months Ended June 30,
	2007			2006			Change
	(Dollars in Thousands)
ICO Europe	$	3,376		$	1,659		$	1,717
Bayshore Industrial		3,329			3,720			(391	)
ICO Courtenay – Australasia		2,315			340			1,975
ICO Polymers North America		1,553			1,862			(309	)
ICO Brazil		63			(114	)		177
Subtotal		10,636			7,467			3,169
General Corporate Expense		(1,511	)		(1,361	)		(150	)
Unallocated Stock Option Expense		(165	)		(187	)		22
Consolidated	$	8,960		$	5,919		$	3,041

Operating income (loss) as a percentage of revenues	Three Months Ended June 30,
	2007	2006	Change
ICO Europe	7%	5%	2%
Bayshore Industrial	13%	16%	(3%)
ICO Courtenay – Australasia	9%	3%	6%
ICO Polymers North America	14%	15%	(1%)
ICO Brazil	2%	(6%)	8%
Consolidated	8%	7%	1%

ICO Europe’s operating income increased $1.7 million or 103% caused primarily by an increase in volumes sold.

Bayshore Industrial’s operating income decreased $0.4 million or 11% due to a decline in volumes sold as a result of a decrease in customer demand.

ICO Courtenay-Australasia’s operating income increased $2.0 million or 581% due to the growth in volumes sold.

ICO Polymers North America’s operating income decreased $0.3 million or 17% primarily due to higher employee benefit expenses for medical and workers compensation.

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Operating income (loss) by segment and discussion of significant segment changes for the nine months ended June 30, 2007 compared to the nine months ended June 30, 2006 follows.

Operating income (loss)	Nine Months Ended
	June 30,
	2007			2006			Change
	(Dollars in Thousands)
ICO Europe	$	6,559		$	4,931		$	1,628
Bayshore Industrial		9,642			10,879			(1,237	)
ICO Courtenay – Australasia		4,161			1,700			2,461
ICO Polymers North America		4,313			3,717			596
ICO Brazil		267			(450	)		717
Subtotal		24,942			20,777			4,165
General Corporate Expense		(4,370	)		(4,355	)		(15	)
Unallocated Stock Option Expense		(442	)		(639	)		197
Consolidated	$	20,130		$	15,783		$	4,347

Operating income (loss) as a	Nine Months Ended
percentage of revenues	June 30,
	2007	2006	Change
ICO Europe	5%	5%	-
Bayshore Industrial	14%	16%	(2%)
ICO Courtenay – Australasia	7%	5%	2%
ICO Polymers North America	14%	11%	3%
ICO Brazil	3%	(7%)	10%
Consolidated	7%	7%	-

ICO Europe’s operating income increased $1.6 million or 33%.  This was primarily a result of the growth in volumes sold, which increased operating income by approximately $2.7 million.  Additionally, the $0.6 million gain on the real estate sold and stronger foreign currencies ($0.5 million) increased operating income.  These items were partially offset by severance expense of $0.5 million and lower feedstock margins.

Bayshore Industrial’s operating income declined $1.2 million or 11% due to a decline in volumes sold due to lower customer demand partially offset by a more favorable product mix.

ICO Courtenay-Australasia’s operating income increased $2.5 million or 145% due to the growth in volumes sold partially offset by a less favorable product mix.

ICO Polymers North America’s operating income increased $0.6 million due to growth in toll service revenues of $2.0 million, partially offset by a reduction in product sales volumes and higher operating costs.

ICO Brazil’s operating income improved $0.7 million to income of $0.3 million due to a 16% increase in product sales volumes, as well as an improvement in feedstock margins per metric ton sold.

Interest Expense, Net.  For the three and nine months ended June 30, 2007, net interest expense increased $0.3 million or 58% and $0.7 million or 44%, respectively, as a result of an increase in borrowings and lower cash balances due to the repurchase of Preferred Stock in the first quarter of fiscal 2007.

Income Taxes (from continuing operations).  The Company’s effective income tax rates were provisions of 30% and 22% during the three and nine months ended June 30, 2007, respectively, compared to the U.S. statutory rate of 35%. The Company’s effective income tax rate of 22% during the nine months ended June 30, 2007 was primarily due to the reversal of the valuation allowance against the deferred tax assets in the Company’s Italian subsidiary of $1.4 million in the second quarter.  In addition, the reduction of the tax contingency reserve in the first quarter of 2007 of $0.4 million further reduced the effective tax rate for the nine month period.

The Company’s effective income tax rates were provisions of 26% and 30% during the three and nine months ended June 30, 2006, respectively, compared to the U.S. statutory rate of 35%.  The difference between the Company’s effective tax rate and the statutory rate was primarily due to the utilization of part of the previously reserved tax asset in the amount of $0.3 million largely due to the Company’s Italian subsidiary for the nine months ended June 30, 2006.  Additionally, other tax benefits including the release of a portion of the tax reserve contributed to the lower tax rate.

Income (Loss) From Discontinued Operations.  The income from discontinued operations during the nine months ended June 30, 2007 relates to the settlement the Company entered into with its insurance carrier related to the indemnity claims asserted by National Oilwell Varco, Inc. for $2.3 million.

Net Income.  For the three and nine months ended June 30, 2007, the Company had net income of $5.6 million and $15.1 million, respectively, compared to net income of $4.1 million and $10.1 million for the comparable periods in fiscal 2006, due to the factors discussed above.

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 Foreign Currency Translation.  The fluctuations of the U.S. Dollar against the Euro, British Pound, New Zealand Dollar, Brazilian Real, Malaysian Ringgit and the Australian Dollar have impacted the translation of revenues and expenses of our international operations.  The table below summarizes the impact of changing exchange rates for the above currencies for the three and nine months ended June 30, 2007.

	Three Months Ended June 30, 2007		Nine Months Ended June 30, 2007
	(Dollars in Thousands)
Net revenues	$	5,506	$	14,270
Operating income		430		850
Pre-tax income		385		730
Net income		390		650

Recently Issued Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting and disclosure for uncertain tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes.  FIN 48 requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions.  The Company will adopt FIN 48 effective October 1, 2007.  The cumulative effect of initially adopting FIN 48 will be recorded as an adjustment to opening retained earnings in the year of adoption and will be presented separately.  Only tax positions that meet the more likely than not recognition threshold at the effective date may be recognized on adoption of FIN 48.  The Company is currently evaluating the impact this new standard will have on its future results of operations and financial position.

In September 2006, the FASB issued SFAS No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of SFAS Nos. 87, 88, 106, and 132(R) (“SFAS No. 158”).  SFAS No. 158 contains a number of amendments to current accounting for defined benefit plans; however, the primary change is the requirement to recognize in the balance sheet the overfunded or underfunded status of a defined benefit plan measured as the difference between the fair value of plan assets and the projected benefit obligation. Stockholders’ equity will also be increased or decreased (through “other comprehensive income”) for the overfunded or underfunded status. SFAS No. 158 does not change the determination of pension plan liabilities or assets, or the income statement recognition of periodic pension expense.  The recognition and disclosure provisions of SFAS No. 158 are effective for fiscal years ending after December 15, 2006.  The Company will adopt these provisions of the standard as of September 30, 2007.  The Company has a defined benefit plan in its Holland and France subsidiaries.  At June 30, 2007, the projected benefit obligations of the Company’s plans exceeded plan assets by approximately $1.8 million. Had the Company adopted the provisions of SFAS No. 158 as of June 30, 2007, the Company’s liabilities would have been increased by approximately $0.8 million, assets increased by approximately $0.2 million and Stockholders’ Equity reduced by approximately $0.6 million.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, rather, its application will be made pursuant to other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years.  This standard will be effective for the Company starting with our interim period ending December 31, 2008.  The provisions of SFAS No. 157 are to be applied prospectively upon adoption, except for limited specified exceptions. The Company does not expect the adoption of SFAS No. 157 to have a material impact on its financial position or results of operations.

  In September 2006, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB No. 108”). SAB No. 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. The SEC staff, in SAB No. 108, established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of a company’s financial statements and the related financial statement disclosures. SAB No. 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements as if SAB No. 108 had always been used or (ii) recording the cumulative effect of initially applying SAB No. 108. The Company will initially apply the provisions of SAB No. 108 in connection with the preparation of its annual financial statements for the fiscal year ending September 30, 2007.  The Company does not expect the initial application of SAB No. 108 to result in a restatement of prior financial statements or the recording by the Company of a cumulative adjustment.

  In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 (“SFAS 159”).  Under SFAS 159, a company may elect to measure eligible financial assets and financial liabilities at fair value.  Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date.  If elected, SFAS 159 is effective for fiscal years beginning after November 15, 2007.  We are currently assessing whether fair value accounting is appropriate for any of the Company’s eligible items and have not yet determined the impact, if any, on our financial statements.

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Liquidity and Capital Resources

 The following are considered by management as key measures of liquidity applicable to the Company:

	June 30, 2007	September 30, 2006
Cash and cash equivalents	$4.0 million	$17.4 million
Working capital	$48.3 million	$57.5 million

 Cash and cash equivalents declined $13.4 million and working capital declined $9.2 million during the nine months ended June 30, 2007 due to the factors described below.

Cash Flows

	Nine Months Ended
	June 30,
	2007			2006
Net cash provided by operating activities by continuing operations	$	12,522		$	9,232
Net cash provided by (used for) operating activities by discontinued operations		1,068			(287	)
Net cash used for investing activities by continuing operations		(6,674	)		(6,984	)
Net cash provided by (used for) financing activities by continuing operations		(20,548	)		1,715
Effect of exchange rate changes		194			122
Net increase (decrease) in cash and equivalents	$	(13,438	)	$	3,798

Cash Flows From Operating Activities

During the nine months ended June 30, 2007, the Company generated $12.5 million of cash from operating activities by continuing operations.   The $12.5 million cash flow was an increase of $3.3 million compared to the nine months ended June 30, 2006.  Contributing to the increase was an increase in the income from continuing operations of $3.5 million during the nine months ended June 30, 2007.  Inventory was a source of cash during the current year of $1.0 million compared to a use of cash of $2.8 million in the prior year period.  This was caused by a change in the mix between raw materials (which increased) and finished goods (which decreased) in the current year period which led to a source of cash whereas in the prior year period average prices increased which led to a use of cash for inventory.  Additionally, accounts payable was a source of cash in the current year of $8.5 million compared to a source of cash of $0.6 million in the prior year period due to the timing of inventory purchases.  Offsetting these inflows was an increase in the use of cash for accounts receivable from $7.5 million to $16.0 million as a result of the growth in revenues.  Additionally, income taxes payable was a use of cash in the current year of $2.7 million primarily due to a U.S. tax payment related to taxable earnings in fiscal year 2006 paid during the nine months ended June 30, 2007.

Cash provided by (used for) discontinued operations during the nine months ended June 30, 2007 improved to cash provided of $1.1 million from cash used of $0.3 million.  This improvement was due primarily to the receipt of $2.3 million from the Company’s insurance carrier in the third quarter of fiscal 2007 related to the Company’s settlement with National Oilwell Varco, Inc., formerly Varco International, Inc. (“NOV”) related to indemnity claims.  On November 21, 2006, the Company entered into an agreement settling all of the pending indemnity claims asserted by NOV for $7.5 million in exchange for a complete release of claims and indemnity agreement.  The $7.5 million settlement consisted of: a cash payment of approximately $1.1 million; release to NOV of the approximately $5.4 million held in escrow; and a $1.0 million note payable due in November 2007.

The Company expects that its working capital, over time, will continue to grow due to an increase in sales revenues which requires the Company to purchase raw materials and maintain inventory, and therefore increases the Company’s accounts receivables and inventory.  In addition, rising resin prices would also have the effect of increasing working capital.

Cash Flows Used for Investing Activities

Capital expenditures totaled $7.6 million during the nine months ended June 30, 2007 and were related primarily to expanding the Company’s production capacity as well as the purchase of the factory formerly leased by our Malaysian operation and the construction of a new office building at the Company’s Bayshore plant.  Approximately $4.0 million of the $7.6 million of capital expenditures was spent at the Company’s ICO Courtenay-Australasian segment (which includes operations in Australia, Malaysia, New Zealand and United Arab Emirates).  The Company expects capital expenditures to be approximately $5.0 million for the remainder of the fiscal year.  The Company expects to receive reimbursement for a portion of these expenditures as provided for under our insurance policy related to the July 2007 fire that occurred at our New Jersey plant.

During the second quarter of fiscal 2007, the Company completed the sale of a building at its Dutch subsidiary for net proceeds of $0.9 million and recorded a pre-tax gain of $0.6 million.

Cash Flows Used For Financing Activities

Cash used for financing activities increased to $20.5 million during the nine months ended June 30, 2007 compared to cash provided of $1.7 million during the nine months ended June 30, 2006.  The change was primarily due to the repurchase of the

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Company’s $6.75 Convertible Exchangeable Preferred Stock (“Preferred Stock”) for total consideration of $28.5 million. This was partially offset by an increase in debt of $7.6 million during the current fiscal year due to the repurchase of the Preferred Stock.  Through June 30, 2007, the Company has repurchased 1,095,853 Depositary Shares (194,147 Depositary Shares remain outstanding).  The repurchase was funded using cash on hand plus borrowings under the Company’s domestic Credit Agreement.

On August 7, 2007, the Company announced that its Board of Directors declared the cumulative dividends in arrears (totaling approximately $1.2 million) on the Company’s Preferred Stock, in the amount of $6.33 per depositary share (each “Depositary Share” representing ¼ share of Preferred Stock).  The record date for determining holders of record of the Depositary Shares who will be entitled to receive payment of the cumulative dividends is September 21, 2007.  The Company expects to fund the dividend payment from borrowings under its domestic credit facility.

Financing Arrangements

The Company maintains several lines of credit.  The facilities are collateralized by certain assets of the Company.  The following table presents the borrowing capacity, outstanding borrowings and net availability under the various credit facilities in the Company’s domestic and foreign operations.

	Domestic				Foreign				Total
	As of				As of				As of
	June 30,		September 30,		June 30,		September 30,		June 30,		September 30,
	2007		2006		2007		2006		2007		2006
	(Dollars in thousands)
Borrowing Capacity (a)	$	40,300	$	21,559	$	41,300	$	37,560	$	81,600	$	59,119
Outstanding Borrowings		10,225		800		15,860		17,214		26,085		18,014
Net availability	$	30,075	$	20,759	$	25,440	$	20,346	$	55,515	$	41,105
(a) Based on the credit facility limits less outstanding letters of credit.

    On October 27, 2006, the Company entered into a five-year Credit Agreement (the “Credit Agreement”) with KeyBank National Association and Wells Fargo Bank National Association (collectively referred to herein as “KeyBank”), establishing a $45.0 million domestic credit facility (the “Credit Facility”) and terminated its existing $25.0 million senior credit facility with Wachovia Bank, National Association (“Wachovia Bank”), including the repayment of a $0.8 million term loan.  In conjunction with the termination, the Company incurred $0.2 million of debt termination costs including unamortized debt issuance costs and an early termination fee.

The borrowing capacity available to the Company under the KeyBank Credit Facility consists of a five-year $15.0 million term loan (as of June 30, 2007 the amount available under the term loan was $14.2 million) and a five-year $30.0 million revolving credit facility.  The KeyBank Credit Facility was utilized to replace commitments and outstanding borrowings under the Company’s $25.0 million credit facility with Wachovia Bank.  Proceeds of the KeyBank Credit Facility are being used for working capital and for general corporate purposes, and have been used to fund repurchases of the Company’s Preferred Stock.  The $45.0 million KeyBank Credit Facility contains a variable interest rate equal to either (at the Company’s option depending on borrowing levels) zero percent (0%) or one quarter percent (¼%) per annum in excess of the prime rate or one and one quarter percent (1¼%), one and one half percent (1½%) or two percent (2%) per annum in excess of the adjusted Eurodollar rate, and is based upon the Company’s leverage ratio, as defined in the Credit Agreement.  The borrowing capacity of the $30.0 million revolving credit facility varies based upon the levels of domestic cash, receivables and inventory.

     There was $10.2 million of outstanding borrowings under the Company’s domestic Credit Facility with KeyBank as of June 30, 2007 and there were $0.8 million of outstanding borrowings under the Company’s domestic credit facility with Wachovia Bank as of September 30, 2006.  The amount of available borrowings under the Company’s domestic Credit Facility with KeyBank was $30.1 million as of June 30, 2007, including the $14.2 million term loan the Company has not drawn down as of June 30, 2007.  The Company and KeyBank extended the time period the Company has to draw down the term loan from June 25, 2007 to September 25, 2007.  Because the Company expects to draw down the $14.2 million term loan on or before September 25, 2007, the Company classified the $10.2 million outstanding borrowings under the revolving credit facility as term debt at June 30, 2007.  The Company classified $6.9 million of the $10.2 million as long-term debt and $3.3 million as current debt because the term loan will have quarterly principal payments of $0.8 million beginning September 30, 2007.

At June 30, 2007, the Company’s Australian subsidiary was in violation of a financial debt covenant related to $1.4 million of term debt and $4.0 million of short-term borrowings under its credit facility with its lender, National Australia Bank Limited (“NAB”).  The Australian covenant that was not met related to equity as a percentage of total assets.  Our Australian subsidiary has grown rapidly due to strong market conditions and has been increasingly profitable.  The covenant was not satisfied due to the expansion in working capital outpacing the increase in retained earnings.  In July 2007, the Company repaid all existing loans with NAB and obtained new financing with a different lender in Australia, Westpac Banking Corporation (“Westpac”).  Under the terms of the loan agreements with Westpac, the Company is currently in compliance with all financial covenants.  The Company’s Malaysian subsidiary was in violation of a financial debt covenant with one of its lenders in Malaysia related to $1.0 million of short term borrowings.  The Malaysian covenant that was not met was related to total debt as a percentage of equity.  The covenant was

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not satisfied due to the expansion in Malaysia resulting in assets outpacing and, as a consequence, debt outpacing the increase in retained earnings.  The Company has requested a waiver from the Malaysian bank and is also working to modify the debt covenant.  Becauseof that violation, the Malaysian subsidiary was in violation of a financial debt covenant with its other lender in Malaysia related to $1.3 million of short term borrowings and $3.1 million of term loans.  Because the Company’s Australian and Malaysian subsidiaries were in violation of debt covenants at June 30, 2007, and the total debt in each country was over $5.0 million, the Company was in violation of its Credit Agreement with KeyBank.  The Company obtained a waiver from KeyBank for these violations.

The Company has various foreign credit facilities in eight foreign countries. The available credit under these facilities varies based on the levels of accounts receivable within the foreign subsidiary, or is a fixed amount. The foreign credit facilities are collateralized by assets owned by the foreign subsidiaries and also carry various financial covenants.  In addition to the debt covenant violations in Australia and Malaysia discussed above, the Company’s New Zealand subsidiary was in violation of a financial debt covenant as of June 30, 2007 related to $2.3 million in short term borrowings.  However, the Company received a waiver from its lender in New Zealand.  The aggregate amount of available borrowings under the foreign credit facilities, based on the credit facility limits, current levels of accounts receivables, outstanding letters of credit and borrowings, was $25.4 million as of June 30, 2007 ($1.9 million of which relates to the Company’s New Zealand subsidiary, $1.5 million of which relates to the Company’s Australian subsidiary and $1.1 million of which relates to the Company’s Malaysian subsidiary, for which each had a financial debt covenant violation) and $20.3 million as of September 30, 2006, respectively.

As discussed above, in July 2007, the Company repaid its existing loans with NAB and obtained new financing from Westpac.  The Westpac agreement provides for a credit facility up to $11.0 million, representing an increase of $5.5 million, and term loans in the amount of $3.4 million, representing an increase of $2.0 million.

The Credit Agreement establishing the KeyBank Credit Facility contains financial covenants including minimum tangible net worth, leverage ratio, fixed charge coverage ratio and a required level of profitability.  In addition, the Credit Agreement contains a number of limitations on the ability of the Company and its restricted U.S. subsidiaries to (i) incur additional indebtedness, (ii) pay dividends or redeem any Common Stock, (iii) incur liens or other encumbrances on their assets, (iv) enter into transactions with affiliates, (v) merge with or into any other entity or (vi) sell any of their assets.

In addition, any “Change of Control” of the Company or its restricted U.S. subsidiaries will constitute a default under the KeyBank Credit Agreement.  “Change of Control,” as defined in the Credit Agreement, is summarized as follows: (i) the acquisition of, or, if earlier, the shareholder or director approval of the acquisition of, ownership or voting control, directly or indirectly, beneficially or of record, by any person, entity, or group (within the meaning of Rule 13d-3 of the SEC under the 1934 Act, as then in effect), of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Common Stock of the Company; (ii) the occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by individuals who were neither (A) nominated by the Company’s board of directors nor (B) appointed by directors so nominated; (iii) the occurrence of a change in control, or other similar provision, under or with respect to any “Material Indebtedness Agreement” (as defined in the Credit Agreement); or (iv) the failure of the Company to own directly or indirectly, all of the outstanding equity interests of the Company’s Bayshore Industrial L.P. and ICO Polymers North America, Inc. subsidiaries.

Contractual Obligations

The following summarizes our contractual obligations as of June 30, 2007.  Interest on variable rate indebtedness was computed using the interest rate in effect for each loan at June 30, 2007.

			Less than						After
	Total		1 year		1-3 years		3-5 years		5 years
	(Dollars in thousands)
Term debt	$	39,012	$	13,701	$	11,487	$	3,618	$	10,206
Operating leases		5,110		1,566		1,772		780		992
Short-term borrowings under credit facilities		15,860		15,860		–		–		–
Other long-term liabilities		2,098		–		200		200		1,698
Purchase obligations (a)		23,513		23,513		–		–		–
Interest expense on total debt		9,278		2,606		2,544		1,562		2,566
	$	94,871	$	57,246	$	16,003	$	6,160	$	15,462

(a)  Includes purchase obligations related to inventory.

Presently, the Company anticipates that cash flow from operations and borrowing availability under credit facilities will be sufficient to meet its short and long-term operational requirements.

Off-Balance Sheet Arrangements. The Company does not have any financial instruments classified as off-balance sheet (other than operating leases) as of June 30, 2007 and September 30, 2006.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s primary market risk exposures include debt obligations carrying variable interest rates, foreign currency exchange risk and resin price risk.  As of June 30, 2007, the Company had $60.5 million of net investment in foreign wholly-owned subsidiaries.  The Company does not hedge the foreign exchange rate risk inherent in this non-U.S. Dollar denominated investment. The Company does enter into forward currency exchange contracts related to future purchase obligations denominated in a nonfunctional currency.  These forward currency exchange contracts qualify as cash flow hedging instruments and are highly effective. The Company recognizes the amount of hedge ineffectiveness in the Consolidated Statement of Operations.  The hedge ineffectiveness was not a significant amount for the three and nine months ended June 30, 2007 and 2006, respectively.  The Company’s principle foreign currency exposures relate to the Euro, British Pound, Australian Dollar, New Zealand Dollar, Malaysian Ringgit and Brazilian Real. The following table includes the total foreign exchange contracts outstanding on June 30, 2007 and September 30, 2006:

	As of
	June 30,	September 30,
	2007	2006
	(Dollars in thousands)
Notional value	$8,396	$3,565
Fair market value	8,677	3,565
Maturity Dates	July 2007	October 2006
	through October 2007	through December 2006

The Company’s revenues and profitability are impacted by the change in resin prices.  The Company uses various resins (primarily polyethylene) to make its products.  As the price of resin increases or decreases, market prices for the Company’s products will generally also increase or decrease.  This will typically lead to higher or lower average selling prices and will impact the Company’s gross profit and gross margin.  The impact on gross profit is due to a lag in matching the change in raw material cost of goods sold and the change in product sales prices.  As of June 30, 2007 and September 30, 2006, the Company had $26.8 million and $21.7 million of raw material inventory and $15.9 million and $19.3 million of finished goods inventory, respectively.  The Company attempts to minimize its exposure to resin price changes by monitoring and carefully managing the quantity of its inventory on hand and product sales prices.

The Company’s variable interest rates subject the Company to the risks of increased interest costs associated with any upward movements in market interest rates.  As of June 30, 2007, the Company had $29.6 million of variable interest rate debt.  The Company’s variable interest rates are tied to various bank rates.  At June 30, 2007, based on our current level of borrowings, a 1% increase in interest rates would increase interest expense annually by approximately $0.3 million.

Foreign Currency Intercompany Accounts and Notes Receivable.  From time-to-time, the Company’s U.S. subsidiaries provide capital to foreign subsidiaries of the Company through U.S. dollar denominated interest bearing promissory notes.  In addition, certain of the Company’s foreign subsidiaries also provide access to capital to other foreign subsidiaries of the Company through foreign currency denominated interest bearing promissory notes.  Such funds are generally used by the Company’s foreign subsidiaries to purchase capital assets and/or for general working capital needs.  In addition, the Company’s U.S. subsidiaries sell products to the Company’s foreign subsidiaries in U.S. dollars on trade credit terms.  The Company’s foreign subsidiaries also sell products to other foreign subsidiaries of the Company denominated in foreign currencies that may not be the functional currency of the foreign subsidiaries.  Because these intercompany debts are accounted for in the local functional currency of the foreign subsidiary, any appreciation or devaluation of the foreign currencies the transactions are denominated in will result in a gain or loss, respectively, to the Consolidated Statement of Operations.  These intercompany loans are eliminated in the Company’s Consolidated Balance Sheet.  At June 30, 2007, the Company had the following significant outstanding intercompany amounts as described above:

Country of subsidiary with	Country of subsidiary with	Amount in US$ as of	Currency denomination
intercompany receivable	intercompany payable	June 30, 2007	of receivable
New Zealand	Malaysia	$1.4 million	New Zealand Dollar
United States	Malaysia	$1.3 million	United Stated Dollar
United States	Italy	$1.2 million	United States Dollar
New Zealand	Australia	$1.1 million	New Zealand Dollar

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ITEM 4.      CONTROLS AND PROCEDURES

As of June 30, 2007, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b).  Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

There were no changes in the Company’s internal controls over financial reporting during our third fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II   OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

For a description of the Company’s legal proceedings, see Note 8 to the Consolidated Financial Statements included in Part I, Item 1 of this quarterly report on Form 10-Q and Part I, Item 3 of the Company’s Form 10-K filed December 14, 2006.

ITEM 1A.  RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 7, under the heading "Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006, which could materially affect our business, financial condition or future results.  There have been no material changes in our Risk Factors as disclosed in our Annual Report on Form 10-K.  The risks described in our Annual Report on Form 10-K are not the only risks facing our Company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 6.  EXHIBITS

The following instruments and documents are included as Exhibits to this Form 10-Q:

Exhibit No.		Exhibit
10.1*	—	First Amended and Restated ICO, Inc. 2007 Equity Incentive Plan dated August 7, 2007.
31.1*	—	Certification of Chief Executive Officer and ICO, Inc. pursuant to 15 U.S.C. Section 7241.
31.2*	—	Certification of Chief Financial Officer and ICO, Inc. pursuant to 15 U.S.C. Section 7241.
32.1**	—	Certification of Chief Executive Officer of ICO, Inc. pursuant to 18 U.S.C. Section 1350.
32.2**	—	Certification of Chief Financial Officer of ICO, Inc. pursuant to 18 U.S.C. Section 1350.
*Filed herewith **Furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ICO, Inc.
	(Registrant)
August 8, 2007	/s/ A. John Knapp, Jr.
	A. John Knapp, Jr.
	President, Chief Executive Officer, and
	Director (Principal Executive Officer)
	/s/ Jon C. Biro
	Jon C. Biro
	Chief Financial Officer, Treasurer, and
	Director (Principal Financial Officer)

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