UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
For the quarterly period ended June 30, 2000
[ ] 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 - 21810
---------
AMERIGON INCORPORATED
---------------------
(Exact name of registrant as specified in its charter)
California 95-4318554
- ----------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5462 Irwindale Avenue, Irwindale, California 91706
- --------------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 815-7400
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 X No __
---
At August 4, 2000, the registrant had 4,427,482 shares of Class A Common Stock,
no par value, issued and outstanding.
(1)
AMERIGON INCORPORATED
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About 17
Market Risk
Part II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 18
Item 4. Submission of Matters to a vote of security holders 19
Item 6 Exhibits and Reports on Form 8-K 21
Signatures 22
(2)
AMERIGON INCORPORATED
CONDENSED BALANCE SHEET
(In thousands)
June 30, December 31,
ASSETS 2000 1999
---------- -------------
(Unaudited)
Current Assets:
Cash & cash equivalents $ 8,341 $ 1,647
Accounts receivabel less allowance of $55 at June 30, 2000 and $58 at
December 31, 1999 1,035 282
Inventory 1,025 490
Prepaid expenses and other assets 415 251
-------- --------
Total current assets 10,816 2,670
Property and equipment, net 1,025 1,051
Deferred exclusivity fee 1,307 -
-------- --------
Total assets $ 13,148 $ 3,721
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 1,356 $ 592
Accrued Liabilities 554 597
Deferred Revenue 126 -
-------- --------
Total current liabilities 2,036 1,189
Long term portion of captial lease 8 11
-------- --------
Total liabilities 2,044 1,200
-------- --------
Mandatorily redeemable preferred stock:
Series A-Preferred Stock-no par value; redeemable and convertible;
9 shares authorized, none and 9 issued and outstanding at June 30, 2000
and December 31, 1999 - 8,267
-------- --------
Shaeholders' equity (deficit):
Preferred Stock:
Series A -no par value; convertible; 9 shares authorized, 9 and none
issued and outstanding at June 30, 2000 and December 31, 1999;
liquidation preference of $9,630 8,267 -
Common Stock:
No par value;20,000 shares authorized, 4,427 and 1,910 issued
and outstanding at June 30, 2000 and December 31, 1999 38,040 28,149
Paid-in capital 14,797 10,059
Deferred compensation (102) (74)
Accumulated deficit (49,898) (43,880)
-------- --------
Total shareholders' equity (deficit) 11,104 (5,746)
-------- --------
Total liabilities and shareholders' equity (deficit) $ 13,148 $ 3,721
======== ========
See accompanying notes to the unaudited condensed financial statements
(3)
AMERIGON INCORPORATED
CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
------------- ------------- ------------ --------------
(Restated-Note 4) (Restated-Note 4)
Revenues:
Product sales $ 944 $ 10 $ 1,898 $ 27
Development contracts 79 83 159 286
-------- -------- -------- ---------
Total revenues 1,023 93 2,057 313
Costs and expenses:
Product 811 11 1,663 43
Development contracts 551 439 825 886
Research and development 611 472 1,258 1,006
Selling, general and administrative 1,150 741 2,470 1,601
-------- -------- -------- ---------
Total costs and expenses 3,123 1,663 6,216 3,536
Operating loss (2,100) (1,570) (4,159) (3,223)
Interest income 31 - 41 16
Interest expense (2,592) (23) (2,607) (25)
Loss on disposal of assets - (19) - (19)
-------- -------- -------- ---------
Loss before extraordinary item (4,661) (1,612) (6,725) (3,251)
Extraordinary gain from extinguishment of debt 707 - 707 -
-------- -------- -------- ---------
Net loss $(3,954) $(1,612) $(6,018) $ (3,251)
======== ======== ======== =========
Net loss available to common shareholders $(3,954) $(9,879) $(6,018) $(11,518)
======== ======== ======== =========
Basic and diluted net loss per share:
Loss before extraordinary gain $ (1.96) $(5.17) $ (3.13) $(6.03)
Extraordinary gain from extinguishment of debt 0.30 - 0.33 -
-------- -------- -------- ---------
Net loss $ (1.66) $(5.17) $ (2.80) $(6.03)
======== ======== ======== =========
Weighted average number of common shares outstanding 2,382 1,910 2,147 1,910
======== ======== ======== =========
See accompanying notes to the unaudited condensed financial statements
(4)
AMERIGON INCORPORATED
CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
-----------------------------
Operating Activities: 2000 1999
-----------------------------
(RESTATED
-NOTE 4)
Net loss $(6,018) $(3,251)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 257 159
Amortization of debt discount 57 -
Extraordinary gain from extinguishment of debt (707) -
Deferred revenue 126 (44)
Non-cash interest due to beneficial conversion feature 2,500 -
Provision for doubtful accounts (3) (59)
Compensation from grant of non-employee stock options and Warrants 3 -
Loss from sale of assets - 19
Change in operating assets and liabilities:
Accounts receivable (750) 98
Inventory (535) (63)
Prepaid expenses and other assets (164) (255)
Accounts payable 764 40
Accrued liabilities (38) (50)
-------- --------
Net cash used in operating activities (4,508) (3,406)
-------- --------
Investing Activities:
Purchase of property and equipment (169) (218)
Short-term investments purchased - (1,854)
-------- --------
Net cash used in investing activities (169) (2,072)
-------- --------
Financing Activities:
Proceeds from sale of Preferred Stock - 9,001
Proceeds from sale of Common Stock 11,000 -
Cost of equity issuances (1.175) (377)
Proceeds from exercise of stock options 54 -
Repayment of capital lease (8) (6)
Proceeds from bridge financing 2,500 1,200
Repayment of bridge financing (1,000) (1,200)
Sale of shares in consolidated subsidiary - 88
-------- --------
Net cash provided by financing activities 11,371 8,706
-------- --------
Net decrease (increase) in cash and cash equivalents 6,694 3,228
-------- --------
Cash and cash equivalents at beginning of period 1,647 1,667
-------- --------
Cash and cash equivalents at end of period $ 8,341 $ 4,895
======== ========
See accompanying notes to unaudited condensed financial statements
(5)
AMERIGON INCORPORATED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 - The Company
Amerigon Incorporated (the "Company") was incorporated in California in April
1991 and is a developer, marketer and manufacturer of proprietary, high
technology electronic components and systems for sale to car and truck original
equipment manufacturers ("OEMs"). The Company is currently focusing the
majority of its efforts on the introduction of its primary product, a Climate
Control Seat(TM) ("CCS(TM)"), which provides both heating and cooling to seat
occupants. The Company has one other product under development, the
AmeriGuard(TM) radar-based speed and distance sensor system, which alerts
drivers to the presence of objects near the vehicle.
Note 2 - Basis of Presentation and Summary of Certain Accounting Policies
The accompanying financial statements as of June 30, 2000 have been prepared
by the Company without audit. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for fair
presentation have been included. The results of operations for the three-month
and six-month periods ended June 30, 2000 are not necessarily indicative of the
operating results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Form 10-K for the year ended December 31, 1999.
Certain amounts have been reclassified from the prior year Form 10-Q to
conform to current period presentation.
Note 3 - Going Concern
The Company has suffered recurring losses and negative cash flows from
operations since inception and has a significant accumulated deficit. The
Company expects to incur losses for the foreseeable future, until it begins
selling units in the automotive market with an appropriate margin and volume.
Even with the shipments of volume production for the Lincoln Navigator SUV
platform, the revenue generated from the initial orders will not be sufficient
to meet the Company's operating needs. The Company will need to raise
additional cash from financing sources before the Company can achieve
profitability from its operations. There can be no assurance that profitability
can be achieved in the future. Although the Company has begun limited production
on its CCS product, larger orders for the CCS product and the ability to begin
production on the AmeriGuard product will require significant expenses for
tooling and to set up manufacturing and/or assembly processes. The Company also
expects to require significant capital to fund other near-term production
engineering and manufacturing, as well as research and development and marketing
of these products. The Company does not intend to pursue any more significant
development contracts to fund operations and therefore is highly dependent on
its current working capital sources. Future financing may be required and
there can be no assurance that
(6)
additional financing will be available in the future or that it will be
available on favorable terms. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
On June 14, 2000, the Company completed the sale of 2.2 million of the
Company's common shares in a private placement (the "Private Placement") to
institutional and accredited investors for $11.0 million. Management may need
to seek additional sources of permanent equity or long-term financing to fund
its operations. The outcome of such efforts to obtain additional financing
cannot be assured.
Note 4 - Restatement
The Company determined that it was necessary to revise its unaudited results
of operations as of and for the three and six month periods ended June 30, 1999.
A summary of the impact of such restatements on the unaudited financial
statements as of and for the three and six month periods ended June 30, 1999 is
as follows (in thousands, except per share information):
Three Months Six Months
Ended June 30, 1999 Ended June 30, 1999
---------------------------- ----------------------------
As As
Previously Previously
Reported Restated Reported Restated
------------- ------------ ------------- -----------
Shareholders' equity $ 6,951 $ (1,415) $ 6,951 $ (1,415)
Revenue 93 93 412 313
Net loss (1,663) (1,612) (3,203) (3,251)
Net loss available to Common shareholders (1,730) (9,879) (3,270) (11,518)
Basic & diluted net loss per share (0.91) (5.17) (1.71) (6.03)
In June, 1999, the Company issued 9,000 shares of Series A Preferred Stock
for total. Net proceeds of $8,267,000. The revision to shareholders' equity at
June 30, 1999 included the reclassification of the Preferred Stock from
Stockholders Equity to Mezzanine Equity due to a provision of the Preferred
Stock that was deemed to be a condition of redemption that is not solely within
the control of the issuer. In addition, the Company increased its net loss
available to Common shareholders by $8,200,000 to reflect the beneficial
difference between the conversion price of $1,675 and the closing price of the
Common Stock on the date of issuance of $4.31. The revision to revenue and net
loss for the six month period ended June 30, 1999 includes the reclassification
of $99,000 of revenue recorded in the first quarter of 1999 to liabilities. The
amount related to a research and development arrangement with New Mexico
Department of Transportation and was offset against research and development
expenses in the quarter ended March 31, 2000. The revision to net loss for the
three and six month period ended June 30, 1999 includes a decrease in
amortization of debt issuance costs of $51,000 due to a change in the estimated
valuation of warrants issued in conjunction with a bridge financing. The
revisions also include a change in the way the Company reported the disposal of
its Electric Vehicle Unit. In the three and six month periods ended June 30,
1999, the Electric Vehicle Unit disposition was classified as a discontinued
operation for historical financial reporting purposes. In the three and six
month period ended June 30, 2000 the disposition is no longer reported as a
discontinued operation for historical financial purposes and the Company
reported the loss on disposition of $19,000 as a loss on disposal of assets.
In March 2000, the holders of the Series A Preferred Stock entered into an
agreement, subsequently approved by the Company's stockholders, whereby the
holders agreed to amend the Company's Certificate of Determination of the Series
A Preferred Stock to eliminate the provision which defined a merger, acquisition
or sale of assets where there is change in control as a liquidation event.
Accordingly, the Series A Preferred Stock is no longer considered mandatorily
redeemable and was reclassified from the mezzanine to equity.
(7)
Note 5 - Net Loss per Share
The Company's net loss per share calculations are based upon the weighted
average number of shares of Common Stock outstanding. Because their effects are
anti-dilutive, net loss per share for the three and six months ended June 30,
2000 and 1999, does not include the effect of:
Three and Six Months
Ended June 30,
---------------------------------------
2000 1999
----------------- -----------------
Stock options outstanding for:
1993 and 1997 Stock Option Plans 873,940 779,488
Options granted by an officer to
directors and officers - 10,245
Shares of Common Stock
issuable upon the exercise of warrants 2,555,118 1,666,200
Shares of Common Stock
issuable upon the exercise of
contingent warrants 1,653,520 1,229,574
Common Stock issuable upon the
conversion of Series A Preferred Stock 5,373,134 5,373,134
----------------- -----------------
Total 10,455,712 9,058,641
================= ==================
The net loss available to common shareholders for the three and six months
ended June 30, 1999, represents net loss increased by a non-cash deemed dividend
of $8,267,000 to the holders of the Series A Preferred Stock resulting from the
beneficial difference between the conversion price and the fair market value of
the Common Stock on the date of issuance of the Series A Preferred Stock.
Note 6 - Non-cash Supplemental Disclosure
June 30, December 31,
2000 1999
----------------- ------------------
Issuance of warrants to underwriter of
private placement $1,440 -
Exchange of bridge note payable for
Common Stock 1,452 -
Issuance of stock options to non-employees 31 -
Issuance of warrants to underwriter
in conjunction with the bridge loan 173 -
Issuance of warrants to Ford for
exclusivity rights 1,369 -
(8)
Note 7 - Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued staff
accounting bulletin No. 101 ("SAB 101"), Revenue Recognition, which outlines
the basic criteria that must be met to recognize revenue and provides guidance
for presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the SEC. We believe that adopting
SAB 101 will not have a material impact on our financial position or results of
operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions Involving
Stock Compensation", which is an interpretation of Accounting Principal Board
No. 25. This interpretation clarifies:
. the definition of employee for purposes of applying Opinion 25, which
deals with stock compensation issues;
. the criteria for determining whether a plan qualifies as a
noncompensatory plan;
. the accounting consequence of various modifications to the terms of a
previously fixed stock option or award; and
. the accounting for an exchange of stock compensation awards in a
business combination.
This interpretaion is effective July 1, 2000, but certain conclusions in this
interpretation cover specific events that occur after either December 31, 1998
or January 12, 2000. To the extent that this interpretation covers events
during the period after December 31, 1998 or January 12, 2000, but before the
effective date of July 1, 2000, the effects of applying this interpretation are
recognized on a prospective basis from July 1, 2000. We believe that the
adoption of FIN 44 will not have a material impact on our financial statements.
Note 8 - Private Placement
On June 14, 2000, the Company completed the sale of 2.2 million restricted
shares of its Common Stock in the Private Placement to selected institutional
and accredited investors, resulting in total proceeds of $11.0 million. The
$11.0 million excludes a $1.5 million advance on the Bridge Loan which was
exchanged for 300,000 shares of Common Stock and issued to Westar Capital II LLC
("Westar") and Big Beaver Investments LLC ("Big Beaver"), the owners of Big
Star, the lender on the Bridge Loan. As partial compensation for services
rendered in the Private Placement, Roth Capital Partners, Inc., was granted a
warrant to purchase up to 188,000 shares of the Company's Common Stock at $5 per
share. The value of such warrant of $1.4 million was determined using the
Black-Scholes model and was reflected as a non-cash offering expense.
(9)
Note 9 - Bridge Loan
On March 16, 2000, the Company obtained a Bridge Loan from Big Star
Investments LLC (a limited liability company owned by Westar and Big Beaver, the
Company's two principal shareholders) for an initial advance of $1.5 million.
The Company took a second advance of $1.0 million on May 10, 2000. The loan
accrued interest at 10% per annum.
The terms of the Bridge Loan specified that the principal and accrued
interest were convertible at any time into Common Stock at a conversion price
(the "Conversion Price") equal to the average daily closing bid price of the
Common Stock during the ten day period preceding the date of each Bridge Loan
advance. This Conversion Price was $18.84 and $9.86 per share for the $1.5
million and $1.0 million advances, respectively. The Conversion Price was
contingently adjustable in the event the Company issued in excess of $5 million
of equity securities in an offering at an issuance price less than the initial
Conversion Price with respect to the Bridge Loan. Due to the Company's Private
Placement of equity securities in June 2000 (Note 8) at an issuance price of $5
per share, the Conversion Price of the Bridge Loan was adjusted to $5 per share.
This adjustment of the Conversion Price resulted in a non-cash charge to
interest expense and a credit to additional paid in capital of $2.5 million,
because it met the definition of a "beneficial conversion feature" in accordance
with Emerging Issues Task Force Consensus 98-5.
In connection with entering into the Bridge Loan, the Company issued
warrants for the right to purchase 7,963 and 10,146 shares of the Company's
Common Stock relating to the $1.5 million and $1.0 million Bridge Loan advances,
respectively (an amount equal to 10% of the principal amount of the advance
divided by the original Conversion Price of $18.84 and $9.86, respectively.) The
Conversion Price of the warrants was adjustable in the same manner as the Bridge
Loan. The proceeds of the Bridge Loan were allocated between the Bridge Loan and
the warrants based upon their estimated relative fair values. The allocated
value of the warrants resulted in a discount of $173,000 to the Bridge Loan, of
which $57,000 was amortized to interest expense during the quarter ended
June 30, 2000.
The Company repaid $1.0 million of Bridge Loan principal and accrued
interest of $49,000 on June 16, 2000 with proceeds from the Private Placement
(Note 8). The Company's $1.0 million payment was allocated for accounting
purposes between reacquiring the beneficial conversion feature and the debt. Due
to this allocation, the debt was extinguished for less than its net book value,
resulting in a $707,000 extraordinary gain on extinguishment of debt. The
remaining $1.5 million of Bridge Loan principal was exchanged for 300,000 shares
of Common Stock, which was issued equally to Westar and Big Beaver.
(10)
Note 10 - Ford Agreement
On March 27, 2000, the Company entered into a Value Participation Agreement
("VPA") with Ford Motor Company ("Ford"). Pursuant to the VPA, Ford agreed
that, through December 31, 2004, the Company has the exclusive right to
manufacture and supply CCS units to Ford's Tier 1 suppliers for installation in
Ford, Lincoln and Mercury branded vehicles produced and sold in North America
(other than Ford badged vehicles produced by Auto Alliance, Inc.). Ford is not
obligated to purchase any CCS units under the VPA.
As part of the VPA, the Company will grant to Ford warrants exercisable for
Common Stock. A warrant for the right to purchase 82,197 shares of Common Stock
at an exercise price of $2.75 per share was issued and fully vested on March 27,
2000. The fair value of the warrant of $1,148,000 was determined using the
Black-Scholes valuation model and was recorded as a deferred exclusivity fee on
the balance sheet. This fee is being amortized on a straight-line basis from
April 2000 to December 2004, the initial term of the Agreement. In addition,
Ford received an additional warrant for 26,148 shares of Common Stock due to
certain anti-dilution provisions of the VPA that were triggered by the Company's
Private Placement after June 2000. The fair value of the additional warrant of
$220,000 was determined using the Black-Scholes model and will be accounted for
in the same manner as the deferred exclusivity fee. Additional warrants will be
granted and vested based upon purchases by Ford's Tier 1 suppliers of a
specified number of CCS units throughout the length of the VPA. The exercise
price of these additional warrants depends on when such warrants vest, with the
exercise price increasing each year. If Ford does not achieve specific goals in
any year, the VPA contains provisions for Ford to make up the shortfall in the
next succeeding year. If Ford achieves all of the incentive levels required
under the VPA, warrants will be granted and vested for an additional 1,300,140
shares of Common Stock. The total number of shares subject to warrants which may
become vested will be adjusted in certain circumstances for anti-dilution
purposes, including an adjustment for equity issuances of up to $15 million on
or before September 30, 2000, so that the percentage interest in the Company
represented by the aggregate number of shares subject to warrants is not diluted
by such issuances.
Note 11 - Segment Reporting
The tables below present segment information about the reported revenues and
operating loss of Amerigon for the three and six months ended June 30, 2000 and
1999 (in thousands). Asset information by reportable segment is not reported
since management does not produce such information.
For the Three Months Reconciling As
Ended June 30, CCS Radar Items Reported
- --------------------------------------------------------------------- -------------------
2000
Revenue $1,023 $ - $ - $ 1,023
Operating Loss (762) (188) (1,150)(1) (2,100)
1999
Revenue 93 - - 93
Operating Loss (631) (198) (741)(1) (1,570)
(1) Represts selling, general and administrative costs of $1,098,000 and
$684,000, respectively, and depreciation expense of $52,000 and $57,000,
respectively, for the three months ended June 30, 2000 and 1999.
(11)
For the Six Months Reconciling As
Ended June 30, CCS Radar Items Reported
- ------------------------------------------------------------------------ ----------------
2000
Revenue $ 2,057 $ - $ - $ 2,057
Operating Loss (1,425) (264) (2,470)(1) (4,159)
1999
Revenue 313 - - 313
Operating Loss (1,214) (408) (1,601)(1) (3,223)
(1) Represents selling, general and administrative costs of $2,349,000 and
$1,488,000, respectively, and depreciation expense of $121,000 and
$113,000, respectively, for the six months ended June 30, 2000 and 1999.
Revenue information by geographic area (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- ----------- ----------
Unites States - Commercial $ 975 $79 $1,997 $205
Asia 47 14 59 103
Europe 1 - 1 5
--------- --------- ----------- ----------
Total Revenues $1,023 $93 $2,057 $313
========= ========= =========== ==========
For the three months ended June 30, 2000, one commercial customer (CCS)
represented 91% of the Company's sales. For the three months ended June 30,
1999, one commercial customer represented 51% of the Company's sales. For the
six months ended June 30, 2000, one domestic customer (CCS) represented 90% of
the Company's sales. For the six months ended June 30, 1999, one domestic
customer (CCS) and one foreign customer (CCS) represented 34% and 33% of the
Company's sales, respectively.
(12)
Note 12 - Class A Warrants
On April 19, 2000, the Company effected a one-for-five reduction in its
outstanding, publicly traded, Class A Warrants. Due to this reduction, only one
Class A Warrant is required to purchase one share of Common Stock. The total
number of publicly traded Class A Warrants oustanding was adjusted to
approximately 1,468,778, down from approximately 7,343,890, prior to the
reduction.
The issuance of 2.5 million shares of Common Stock in June, 2000 triggered
certain anti-dilution provisions in the Class A Warrants which required the
Company to issue additional warrants to purchase 524,486 shares of Common Stock.
As a result, the number of Class A Warrants outstanding increased to 1,993,264.
As a result of the warrant issued to Ford in March, 2000, and the issuance of
the 2.5 million shares of Common Stock in June, the total exercise price for
each publicly traded warrant has been lowered from $25.00 to $17.795. The
Company's Class A Warrants trade under the symbol ARGNW.
(13)
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Amerigon Incorporated (the "Company"), was incorporated in California in
April 1991, and is a developer, marketer and manufacturer of proprietary, high
technology electronic components and systems for sale to car and truck original
equipment manufacturers ("OEMs"). The Company is currently focusing the
majority of its efforts on the introduction of its primary product, a Climate
Control Seat(TM) ("CCS(TM)"), which provides both heating and cooling to seat
occupants. The Company has one other product under development, the
AmeriGuard(TM) radar-based speed and distance sensor system, which alerts
drivers to the presence of objects near the vehicle.
Results of Operations
First Quarter 2000 Compared with First Quarter 1999
- ---------------------------------------------------
Revenues. Revenues for the three months ended June 30, 2000 (the "Second
Quarter") were $1,023,000. Revenues for the three months ended June 30, 1999
were $93,000. The increase in revenues was due primarily to product shipments
to Johnson Controls Incorporated ("JCI") of the Company's CCS systems.
Product Cost. Product cost increased to $811,000 in the Second Quarter 2000
from $11,000 in the Second Quarter 1999. The increase is due to the shipments
to JCI of CCS units in the Second Quarter 2000. The Company anticipates product
costs to increase in absolute dollars while decreasing as a percentage of
revenue.
Development Contracts. Development contract costs incurred in the Second
Quarter 2000 were $551,000 compared to $439,000 in the Second Quarter 1999. The
increase is due to development activity for new CCS platforms in the Second
Quarter 2000.
Research and Development Expenses. Research and development expenses
increased to $611,000 in Second Quarter 2000 from $472,000 in Second Quarter
1999. The increase was due to higher levels of research and development
activity on the Company's CCS.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased to $1,165,000 in Second Quarter 2000
compared to $741,000 in the Second Quarter 1999. The change was due to marketing
costs associated with the Company's pursuit of additional automotive platforms
for the CCS in the U.S., Asia and Europe.
First Six Months of 2000 Compared with First Six Months of 1999
- ---------------------------------------------------------------
Revenues. Revenues for the six months ended June 30, 2000 were $2,057,000.
Revenues for the six months ended June 30, 1999 were $313,000. The increase in
revenues was due primarily to product shipments to JCI of the Company's CCS
systems.
(14)
Product Cost. Product cost increased to $1,663,000 in the first six months
of 2000 from $43,000 in the first six months of 1999. The increase is due to
shipments to JCI of CCS units in the first six months of 2000. The Company
anticipates product costs to increase in absolute dollars while decreasing as a
percentage of revenue.
Development Contracts. Development contract costs incurred in the first six
months of 2000 were $826,000 compared to $886,000 in the first six months of
1999. The decrease is due to the reclassification of $99,000 of revenue recorded
in the first quarter of 1999 to liabilities. The amount related to a research
and development arrangement with the New Mexico Department of Transportation and
was offset against development contract costs in the quarter ended March 31,
2000. This reclassification was partially offset by increased costs related to
prototype sales.
Research and Development Expenses. Research and development expenses
increased to $1,258,000 in the first six months of 2000 from $1,006,000 in the
first six months of 1999. The increase was due to higher levels of research and
development activity on the Company's CCS.
Selling, General and Administrative Expenses. SG&A expenses increased to
$2,470,000 in the first six months of 2000 compared to $1,601,000 in the first
six months of 1999. The change was due to costs associated with the launch of
the Lincoln Navigator CCS program and increased marketing expenses associated
with the Company's pursuit of additional automotive platforms for the CCS in the
U.S., Asia and Europe.
Liquidity and Capital Resources
As of June 30, 2000, the Company had net working capital of $8,780,000. The
Company also had cash and cash equivalents of $8,341,000 at June 30, 2000. On
June 14, 2000, the Company completed the sale of 2.2 million restricted shares
of its Common Stock in a private placement (the "Private Placement") to selected
institutional and accredited investors, resulting in net proceeds to the Company
of $9.8 million.
The Company's principal sources of operating capital have been the proceeds
of its various financing transactions and, to a lesser extent, CCS product
revenues, development contracts and sale of prototypes to customers.
Cash and cash equivalents increased by $6,694,000 in 2000 primarily due to
the Private Placement. This was offset by cash used in operating activities of
$4,508,000, which was mainly attributable to the net loss of $6,018,000. The
loss includes net non-cash charges of $1,793,000 relating to the beneficial
conversion feature associated with the Bridge Loan. Investing activities used
$169,000 to purchase equipment. Financing activities provided $11,371,000. The
Company received $2.5 million in advances on its Bridge Loan from Big Star. The
owners of Big Star, Westar Capital II LLC and Big Beaver Investments LLC
exchanged $1.5 million of the bridge loan for 300,000 Common shares in the
Private Placement. The Company received $9,825,000 in net proceeds from the
Private Placement, and exchanged $1.5 million from the bridge loan for 300,000
shares of Common Stock. The remaining $1.0 million owed on the Bridge Loan was
repaid with funds from the Private Placement.
The Company expects to incur losses for the foreseeable future, until it
begins selling CCS units in the automotive market with an appropriate margin and
volume. Even with the shipments of volume production for the Lincoln Navigator
SUV platform, the revenue generated from the initial orders will not be
sufficient to meet the Company's operating needs. The Company may need to
raise additional
(15)
cash from financing sources before the Company can achieve profitability from
its operations. There can be no assurance that profitability can be achieved in
the future. Although the Company has begun limited production on its CCS
product, larger orders for the CCS product and the ability to begin production
on the AmeriGuard product will require significant expenses for tooling and to
set up manufacturing and/or assembly processes. The Company also expects to
require significant capital to fund other near-term production engineering and
manufacturing, as well as research and development and marketing of these
products. The Company does not intend to pursue any more significant development
contracts to fund operations and therefore is highly dependent on its current
working capital sources. Future financing may be required and there can be no
assurance that additional financing may be available in the future or that it
will be available on favorable terms.
Other Information
Certain matters discussed or referenced in this report, including the
Company's intention to develop, manufacture and market the CCS and AmeriGuard
products and the Company's expectation of reduced revenues and continuing losses
for the foreseeable future, are forward-looking statements. Other forward-
looking statements may be identified by the use of forward-looking terminology
such as "may", "will", "expect", "believe", "estimate", "anticipate",
"continue", or similar terms, variations of such terms or the negative of such
terms. Such statements are based upon management's current expectations and are
subject to a number of risks and uncertainties which could cause actual results
to differ materially from those described in the forward looking statements.
Such risks and uncertainties include the market demand for and performance of
the Company's products, the Company's ability to develop, market and manufacture
such products successfully, the viability and protection of the Company's
patents and other proprietary rights, and the Company's ability to obtain new
sources of financing. Additional risks associated with the Company and its
business and prospects are described in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.
(16)
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relate
primarily to the Company's investment portfolio. The Company places its
investments in debt instruments of the U.S. government and in high-quality
corporate issuers. As stated in its policy, the Company seeks to ensure the
safety and preservation of its invested funds by limiting default risk and
market risk. The Company has no investments denominated in foreign country
currencies and therefore is not subject to foreign exchange risk.
There have been no material changes since the Form 10-K was filed for the
Company's year ended December 31, 1999.
(17)
PART II
OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds
-----------------------------------------
On May 10, 2000, the Company issued a warrant to purchase up to 10,146 shares
of Common Stock of the Company to Big Star Investments LLC ("Big Star") in
connection with the $1.0 million advance on the secured Bridge Loan with Big
Star dated March 27, 2000. The warrant expires in five years and allows Big
Star to purchase Common Stock of the Company at $5.00 per share. The warrant
was exempt from registration under Section 4(2) of the Securities Act of 1933.
On June 14, 2000, the Company issued 2,500,000 shares of its Common Stock at
$5 per share to institutional and accredited investors in a Private Placement.
In connection with the Private Placement, the Company issued a warrant to
purchase up to 188,000 shares of Common Stock in the Company to Roth Capital
Partners, Inc., for services as placement agent. The warrant expires in five
years and allows Roth Capital Partners, Inc. to purchase Common Stock of the
Company at $5 per share. The shares of Common Stock and the warrant were exempt
from registration under section 4(2) of the Securities Act of 1933.
On June 14, 2000, the Company issued a warrant to purchase up to 26,148
shares of Class A Common Stock of the Company to Ford Motor Company ("Ford")
pursuant to the terms of the Value Participation Agreement dated March 27, 2000,
between Ford and the Company in which the total number of shares subject to
warrants will be adjusted for anti-dilution puposes. The Warrant, which expires
in March 2007, allows Ford to purchase shares of Common Stock of the Company at
$2.75 per share. The warrant was exempt from registration under Section 4(2) of
the Securities Act of 1933.
(18)
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Shareholders was held on May 24, 2000. The following
summarizes each matter voted upon at the meeting and the number of votes cast
for or against and the number of abstentions.
1. As to the election of directors, the number of votes cast as to each
nominee was as follows:
Elected by the Preferred Stockholders:
Nominee For Against Abstain
- ----------------------------------------------------------------------------------------------------
Oscar B. Marx, III 5,373,134 0 0
- ----------------------------------------------------------------------------------------------------
Roy A. Anderson 5,373,134 0 0
- ----------------------------------------------------------------------------------------------------
John W. Clark 5,373,134 0 0
- ----------------------------------------------------------------------------------------------------
Paul Oster 5,373,134 0 0
- ----------------------------------------------------------------------------------------------------
James J. Paulsen 5,373,134 0 0
- ----------------------------------------------------------------------------------------------------
Elected by the Common Stockholders:
Nominee For Against Abstain
- ----------------------------------------------------------------------------------------------------
Richard A. Weisbart 1,799,186 0 3,570
- ----------------------------------------------------------------------------------------------------
Lon E. Bell 1,802,756 0 3,630
- ----------------------------------------------------------------------------------------------------
2. As to approval of an amendment to the Certificate of Determination of the
Series A Preferred Stock, deleting subsection 2(c), thereof, which
specifies certain events deemed to trigger preferential rights of the
holders of Series A Preferred Stock in a liquidation, dissolution or
winding up of the Company, the number of votes cast was as follows:
For Against Abstain Broker Non-Votes
- ----------------------------------------------------------------------------------------------------
5,773,663 4,685 320 1,397,222
- ----------------------------------------------------------------------------------------------------
3. As to approval of an amendment to the Articles of Incorporation,
eliminating the Class B Stock and renaming the Class A Common Stock as
"Common Stock", the number of votes cast was as follows:
For Against Abstain Broker Non-Votes
- ----------------------------------------------------------------------------------------------------
7,171,870 3,800 220 0
- ----------------------------------------------------------------------------------------------------
(19)
4. As to approval of an amendment to the 1997 Stock Option Plan to increase
the number of shares of Class A Common Stock authorized under the plan from
150,000 to 1,300,000, the number of votes cast was as follows:
For Against Abstain Broker Non-Votes
- ----------------------------------------------------------------------------------------------------
5,724,719 53,829 120 1,397,222
- ----------------------------------------------------------------------------------------------------
(20)
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
3.1 Articles of Incorporation (as amended)
4.1 Ford Warrant dated March 27, 2000 (1)
4.2 Certificate of Designation of Series A Convertible Preferred
Stock
27. Financial Data Schedule
(b) Reports on Form 8-K
On May 24, 2000, the Company filed a Current Report on Form 8-K
(event date May 22, 2000) to report under Item 5 (other events).
On June 20, 2000, the Company filed a Current Report on Form 8-K
(event date June 14, 2000) to report under Item 5 (other events).
- --------------------------------------------------------------------------------
(1) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-
Q for the period ended March 31, 2000 and incorporated by reference.
(21)
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.
Amerigon Incorporated
---------------------
Registrant
Date: August 14, 2000 /s/ Richard A. Weisbart
-----------------------
Richard A. Weisbart
Chief Executive Officer
and Chief Financial Officer
/s/ Craig P. Newell
-------------------
Craig P. Newell
Vice President, Finance
(Chief Accounting Officer)
(22)