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, 2001
[_] 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
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AMERIGON INCORPORATED
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(Exact name of registrant as specified in its charter)
California 95-4318554
- ----------------------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5462 Irwindale Avenue, Irwindale, California 91706
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(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 __
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At July 31, 2001, the registrant had 4,717,259 shares of Common Stock, no par
value, issued and outstanding.
(1)
AMERIGON INCORPORATED
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
(2)
PART I
ITEM 1
AMERIGON INCORPORATED
CONSOLIDATED BALANCE SHEET
(In thousands)
June 30, December 31,
ASSETS 2001 2000
----------- ------------
(Unaudited)
Current Assets:
Cash & cash equivalents $ 749 $ 2,852
Restricted cash 873 -
Accounts receivable less allowance of $49 at June 30, 2001 and $55
at December 31, 2000 988 1,375
Inventory 1,233 1,478
Prepaid expenses and other assets 124 487
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Total current assets 3,967 6,192
Property and equipment, net 1,382 1,383
Deferred exclusivity fee 1,024 1,170
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Total assets $ 6,373 $ 8,745
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 104 $ 1,376
Accrued liabilities 831 1,446
Deferred manufacturing agreement - current portion 200 -
Deferred revenue - 170
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Total current liabilities 1,135 2,992
Deferred manufacturing agreement - long term portion 1,750 -
Long term portion of capital lease 3 5
Minority interest in subsidiary 54 -
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Total liabilities 2,942 2,997
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Shareholders' equity:
Preferred stock:
Series A - no par value; convertible; 9 shares authorized, 9 issued
and outstanding at June 30, 2001 and December 31, 2000;
liquidation preference of $10,260 at June 30, 2001 8,267 8,267
Common stock;
No par value; 20,000 shares authorized, 4,717 and 4,428 issued
and outstanding at June 30, 2001 and December 31, 2000 39,192 37,947
Paid-in capital 14,746 14,689
Deferred compensation (55) (1)
Accumulated deficit (58,719) (55,154)
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Total shareholders' equity 3,431 5,748
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Total liabilities and shareholders' equity $ 6,373 $ 8,745
========== ============
See accompanying notes to the condensed consolidated financial statements
(3)
AMERIGON INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Product revenues $ 1,117 $ 944 $ 3,452 $ 1,898
Cost of sales 870 801 2,905 1,646
---------- ---------- ---------- ----------
Gross margin 247 143 547 252
Operating costs and expenses:
Research and development 924 1,093 1,804 1,941
Selling, general and administrative 1,097 1,150 2,356 2,470
---------- ---------- ---------- ----------
Total operating costs and expenses 2,021 2,243 4,160 4,411
Operating loss (1,774) (2,100) (3,613) (4,159)
Interest income 25 31 41 41
Interest expense - (2,592) - (2,607)
Minority interest in net loss of subsidiary 7 - 7 -
---------- ---------- ---------- ----------
Loss before extraordinary item (1,742) (4,661) (3,565) (6,725)
Extraordinary gain from early extinguishment of debt - 707 - 707
---------- ---------- ---------- ----------
Net loss $ (1,742) $ (3,954) $ (3,565) $ (6,018)
========== ========== ========== ==========
Net loss available to common shareholders $ (1,742) $ (3,954) $ (3,565) $ (6,018)
========== ========== ========== ==========
Basic and diluted net loss per share:
Loss before extraordinary item $ (0.37) $ (1.96) $ (0.79) $ (3.13)
Extraordinary gain from early extinguishment of debt - 0.30 - 0.33
---------- ---------- ---------- ----------
Net loss $ (0.37) $ (1.66) $ (0.79) $ (2.80)
========== ========== ========== ==========
Weighted average number of common shares outstanding 4,649 2,382 4,539 2,147
========== ========== ========== ==========
See accompanying notes to the condensed consolidated financial statements
(4)
AMERIGON INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
------------------------------
Operating Activities: 2001 2000
------------ ------------
Net loss $ (3,565) $ (6,018)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 302 314
Extraordinary gain on early extinguishment of debt - (707)
Deferred revenue (170) 126
Non-cash interest - 2,500
Non-cash expense 58 -
Minority interest in subsidiary (7) -
Change in operating assets and liabilities:
Accounts receivable 393 (750)
Inventory 245 (535)
Prepaid expenses and other assets 363 (164)
Accounts payable (1,272) 764
Accrued liabilities (370) (38)
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Net cash used in operating activities (4,023) (4,508)
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Investing Activities:
Purchase of property and equipment (205) (169)
Increase in restricted cash (873) -
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Net cash used in investing activities (1,078) (169)
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Financing Activities:
Proceeds from sale of Common Stock, net 1,000 11,325
Proceeds from exercise of stock options - 54
Proceeds from deferred manufacturing agreement 2,000 -
Repayment of capital lease (2) (8)
Proceeds from bridge financing - 1,500
Repayment of bridge financing - (1,500)
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Net cash provided by financing activities 2,998 11,371
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Net (decrease) increase in cash and cash equivalents (2,103) 6,694
----------- ------------
Cash and cash equivalents at beginning of period 2,852 1,647
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Cash and cash equivalents at end of period $ 749 $ 8,341
=========== ============
See accompanying notes to condensed consolidated financial statements
(5)
AMERIGON INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - The Company
Amerigon Incorporated (the "Company"), incorporated in California in April
1991, 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 its efforts on the
introduction of its Climate Control Seat(TM) ("CCS(TM)"), which provides both
heating and cooling to seat occupants, and the development of the next
generation CCS device.
Note 2 - Basis of Presentation and Summary of Certain Accounting Policies
The accompanying condensed consolidated financial statements as of June 30,
2001 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 consolidated results of
operations for the six-month period ended June 30, 2001 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 consolidated 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,
2000.
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 next one to two years as current sales
volumes are not sufficient to cover the Company's fixed manufacturing, overhead
and operating costs. Sufficient volume will not be reached in the near term, as
automotive industry development timing tends to be relatively long.
Even with the shipments of volume production for the Lincoln Navigator SUV,
Lincoln Blackwood, Lexus LS 430 and Toyota Celsior, the revenue generated from
the initial orders will not be sufficient to meet the Company's operating needs.
There can be no assurance that profitability can be achieved in the future.
Although the Company has begun production on its CCS product, larger orders for
the CCS 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. Future financing will be required and there can be no assurance that
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.
(6)
Note 3 - Going Concern (cont.)
In March 2001, the Company entered into a Manufacturing and Supply
Agreement and a Subscription Agreement with Ferrotec Corporation, a Tokyo based
manufacturer (see Note 8). Ferrotec paid to the Company $2,000,000 and
$1,000,000 in April 2001 in accordance with the Manufacturing and Supply
Agreement and the Subscription Agreement, respectively. The Company is
obligated, under the BSST option agreement (see Note 4), to pay an additional
$1,090,000, in installment payments, to BSST by February 28, 2002. Management
will 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 - Investment in BSST / Restricted Cash
Dr. Lon Bell, the founder of Amerigon, established BSST as a Delaware
limited liability company in August 2000. BSST is engaged in a research and
development effort to improve the efficiency of thermoelectric devices. The
objective of these efforts is to expand the applications of thermoelectric
devices to automotive and non-automotive applications, that could include for
example temperature control and power generation.
In September 2000, the Company entered into an option agreement with BSST
to purchase 2,000 Series A Preferred Shares, which represents a 90% interest in
BSST, for $2,000,000. At June 30, 2001, the Company has paid to BSST $910,000
and is required to pay an additional $1,090,000 in installments of no more than
$400,000 in any three month period, beginning August 31, 2001. No accrual has
been recorded for this commitment. This acquisition was accounted for by the
purchase method of accounting. The Preferred Shares give the Company a 90%
voting interest and a 90% interest in the results of operations of BSST. At the
time of the exercise of its option, the Company recorded a charge to research
and development costs of $357,000 representing the excess of its investment to
date in BSST over the proportional underlying net assets of BSST.
The condensed consolidated financial statements at June 30, 2001 reflect
the consolidated financial position and consolidated operating results of the
Company and, since June 1, 2001, BSST. Intercompany accounts have been
eliminated in consolidation. The 10% of BSST not owned by the Company is
reflected as minority interest. Had the acquisition of BSST occurred as of
January 1, 2001, the pro forma consolidated net loss for the six months ended
June 30, 2001 would not have been significantly different.
Restricted cash represents cash that is available exclusively to BSST.
Note 5 - Inventory
Details of inventory by category, in thousands:
June 30, December 31,
2001 2000
--------------- ------------------
Raw material $ 943 $ 1,118
Work in process 51 76
Finished goods 407 452
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Total inventory 1,401 1,646
Less inventory reserve (168) (168)
--------------- ------------------
Net inventory $ 1,233 $ 1,478
=============== ==================
(7)
Note 6 - 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 six months ended June 30, 2001 and
2000 does not include the effect of:
Six Months
Ended June 30,
---------------------------
2001 2000
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Stock options outstanding for:
1993 and 1997 Stock Option Plans 860,280 873,940
Shares of Common Stock
issuable upon the exercise of warrants 3,997,382 4,018,238
Shares of Common Stock
issuable upon the exercise of an
option to purchase Unit Purchase
Options granted to underwriter 190,400 190,400
Common Stock issuable upon the
conversion of Series A Preferred Stock 5,373,134 5,373,134
----------- -----------
Total 10,421,196 10,455,712
=========== ===========
Note 7 - Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Use of the pooling-of-interest
method will be prohibited. The Company has evaluated this standard and believes
that adoption will not have an impact on its condensed consolidated financial
statements.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No 142, which changes the accounting for goodwill from an
amortization method to an impairment-only approach, will be effective for fiscal
years beginning after December 15, 2001. The Company has evaluated this standard
and believes that adoption will not have an impact on its condensed consolidated
financial statements.
(8)
Note 8 - Manufacturing and Supply Agreement, and Subscription Agreement
On March 28, 2001 the Company entered into a Manufacturing and Supply
Agreement (the "Agreement") with Ferrotec Corporation, a Tokyo based
manufacturer. The Agreement grants to Ferrotec the exclusive right to
manufacture CCS units in certain countries (the "Territory"), for ultimate
distribution by Amerigon to its customers within the Territory, with the
understanding that the parties will enter into good faith negotiations to
establish a joint venture for the purpose of purchasing, marketing, selling and
distributing the CCS units in the Territory. The Territory includes China,
Japan, Taiwan, Korea, India, Thailand, Vietnam, Malaysia, Indonesia and the
Philippines. The initial term of the Agreement begins April 1, 2001 and expires
on April 1, 2011. The $2,000,000 fee is being amortized on a straight-line basis
over the term of the Agreement. Ferrotec also entered into a Subscription
Agreement with the Company, whereby Ferrotec purchased 200,000 shares of
unregistered Common Stock at $5 per share. The Subscription Agreement grants
Ferrotec demand registration rights beginning one year from the closing of the
Subscription Agreement and piggy-back registration rights if the Company
proposes to register any securities before then. The Company received the
$2,000,000 and $1,000,000 payments under the two agreements in April 2001.
Note 9 - Private Placement
On June 14, 2000, the Company completed the sale of 2,200,000 restricted
shares of its Common Stock in the private placement to selected institutional
and accredited investors (the "Private Placement"), resulting in total proceeds
of $11,000,000, less issuance costs of $1,300,000. The $11,000,000 excludes a
$1,500,000 advance on the Bridge Loan (see Note 10) that 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 $1,400,000 was determined using the Black-Scholes model
and was reflected as non-cash offering expense.
Note 10 - 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 $1,500,000. The
Company took a second advance of $1,000,000 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 $1,500,000
and $1,000,000 advances, respectively. The Conversion Price was contingently
adjustable in the event the Company issued in excess of $5,000,000 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 9) 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 $2,500,000, because it met
the definition of a "beneficial conversion feature" in accordance with Emerging
Issues Task Force Consensus 98-5.
(9)
Note 10 - Bridge Loan (cont.)
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 $1,500,000 and $1,000,000 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, $68,000 was offset against
extraordinary gain and $48,000 was offset against paid-in capital during the
quarter ended June 30, 2000.
The Company repaid $1,000,000 of Bridge Loan principal and accrued
interest of $49,000 on June 16, 2000 with proceeds from the Private Placement
(Note 9). The Company's $1,000,000 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 $775,000 extraordinary gain on extinguishment of debt. The
remaining $1,500,000 of Bridge Loan principal was exchanged for 300,000 shares
of Common Stock, which was issued equally to Westar and Big Beaver.
Note 11 - 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 AutoAlliance International, 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 consolidated 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 in June 2000. The fair value of the additional
warrant of $220,000 was determined using the Black-Scholes model and has been
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.
(10)
Note 12 - Segment Reporting
The Company operated primarily one business segment during the three and
six months ended June 30, 2001 and 2000. The Company's Radar segment, which was
discontinued in December 2000, was not significant to the Company's financial
results in 2000.
Revenue information by geographic area (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- ------------------------------------
2001 2000 2001 2000
--------------- -------------- -------------- ---------------
United States $ 557 $ 928 $1,247 $1,882
Asia 560 16 2,205 16
--------------- -------------- -------------- ---------------
Total Revenues $ 1,117 $ 944 $3,452 $1,898
=============== ============== ============== ===============
For the three months ended June 30, 2001, one domestic customer and one
foreign customer represented 41% and 50% of the Company's sales, respectively.
For the three months ended June 30, 2000, one domestic customer represented 98%
of the Company's sales. For the six months ended June 30, 2001, one domestic
customer and one foreign customer represented 33% and 64% of the Company's
sales, respectively. For the six months ended June 30, 2000, one domestic
customer represented 97% of the Company's sales.
Note 13 - Accrued Liabilities
Details of accrued liabilities (in thousands):
June 30, December 31,
2001 2000
----------- -------------
Accrued salaries $ 349 $ 710
Accrued vacation 136 209
Other accrued liabilities 346 527
----------- -------------
Total accrued liabilities $ 831 $ 1,446
=========== =============
Note 14 - 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; previously,
five Class A Warrants were required to purchase one share of Common Stock. The
total number of publicly traded Class A Warrants outstanding was adjusted to
approximately 1,468,778, down from approximately 7,343,890, prior to the
reduction. The Company's Class A Warrants trade under the symbol ARGNW.
The issuance of 2,500,000 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
2,500,000 shares of Common Stock in June 2000, the total exercise price for each
publicly traded warrant has been lowered from $25.00 to $17.795.
(11)
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We design, market and manufacture proprietary high technology electronic
components and systems for sale to car and truck original equipment
manufacturers ("OEMs"). In 2000, we completed our first full year of producing
and selling our Climate Control Seat(TM) ("CCS(TM)"), which provides year-round
comfort by providing both heating and cooling to seat occupants.
We were incorporated in California in 1991 and originally focused our
efforts on developing electric vehicles and high technology automotive systems.
Because the electric vehicle market did not develop as rapidly as anticipated,
we are now focusing our efforts on the CCS system, our only commercial product.
We are now operating as a supplier to the automotive industry. Inherent in
this market are costs and expenses well in advance of the receipt of orders (and
resulting revenues) from customers. This is due in part to OEMs requiring the
coordination and testing of proposed new components and sub-systems. Revenues
from these expenditures may not be realized for two to three years as the OEMs
tend to group new components and enhancements into annual or every two to three
year vehicle model introductions. In addition, we believe that in light of the
current economic conditions, lower industry volumes and other factors, that new
vehicle production volumes for OEMs in 2001 will be lower than levels in 2000.
Reduced demand for new vehicles could have an impact on our financial results
for fiscal year 2001.
Results of Operations
Second Quarter 2001 Compared with Second Quarter 2000
- -----------------------------------------------------
Revenues. Revenues for the three months ended June 30, 2001 (the "Second
Quarter 2001") were $1,117,000 on approximately 16,900 units compared with
revenues of $944,000 on approximately 13,400 units for the three months ended
June 30, 2000 (the "Second Quarter 2000"). This increase of $173,000, or 18%, is
due to higher sales to NHK for the Lexus LS 430, from $16,000 in the Second
Quarter 2000 to $560,000 in Second Quarter 2001. Shipments to NHK began in late
June 2000, therefore, there were very few units shipped in Second Quarter 2000
compared to a full three months of shipments in Second Quarter 2001. The higher
NHK sales were partially offset by lower sales to JCI for the Lincoln Navigator,
from $924,000 in Second Quarter 2000 to $456,000 in Second Quarter 2001. The
lower sales to JCI are due to softening sales of the Lincoln Navigator, a
slowdown in the economy in general, and in the automobile industry in
particular.
Cost of Sales. Cost of sales increased to $870,000 in the Second Quarter
2001 from $801,000 in the Second Quarter 2000. This increase of $69,000, or 9%,
is due to the higher sales volume of CCS units in the Second Quarter 2001. The
gross margin increased to 22.11% compared to 15.15% for 2000 due to higher
tooling reimbursements and fixed costs being spread over the higher production
volume in 2001. We anticipate cost of sales to increase in absolute dollars
while decreasing as a percentage of revenue as sales volume increases. Cost of
sales includes tooling costs and related reimbursements. Net reimbursements of
$95,000 and $3,000 were recorded for the Second Quarter of 2001 and the Second
Quarter of 2000, respectively.
(12)
Results of Operations (cont.)
Research and Development Expenses. Research and development expenses
decreased to $924,000 in Second Quarter 2001 from $1,093,000 in Second Quarter
2000. This $169,000, or 15%, decrease was due primarily to the discontinued
investment in our AmeriGuard product. We also experienced lower costs relating
to our first generation CCS device due to the advanced stage of its development.
The costs reductions were partially offset by development costs relating to the
next generation CCS device and BSST's research and development costs. BSST
research and development costs were $417,000 for the Second Quarter 2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $1,097,000 in Second Quarter 2001 compared
to $1,150,000 in the Second Quarter 2000. This $53,000, or 5%, decrease was due
to lower professional fees, partially offset by an increase in costs for our
office in Europe.
We group development and prototype costs and related reimbursements in
research and development. This is consistent with accounting standards applied
in the automotive industry. Costs for tooling, net of related reimbursements,
are included in cost of sales.
Six Months Ended June 30, 2001 Compared with the Six Months Ended June 30, 2000
- --------------------------------------------------------------------------------
Revenues. Revenues for the six months ended June 30, 2001 were $3,452,000
as compared with revenues of $1,898,000 for the six months ended June 30, 2000.
This increase of $1,554,000, or 82%, is due to the increase in customer
platforms in 2001. We had two primary customers during 2001, Johnson Controls
Incorporated and NHK Spring Company, LTD, and provided CCS for three platforms,
the Lincoln Navigator, Lexus LS 430 and Toyota Celsior as compared to one
customer, Johnson Controls, and one platform, the Lincoln Navigator, in 2000.
The additional customer and platforms resulted in higher sales volume in 2001 as
the number of CCS units shipped increased to 53,000, or 97%, from 27,000 in
2000.
Cost of Sales. Cost of sales increased to $2,905,000 in 2001 from
$1,646,000 in 2000. This increase of $1,259,000, or 77%, is due to the higher
sales volume of CCS units in 2001. The gross margin increased to 15.85% compared
to 13.28% for 2000 due to higher tooling reimbursements and fixed costs being
spread over the higher production volume in 2001. We anticipate cost of sales to
increase in absolute dollars while decreasing as a percentage of revenue as
sales volume increases. Cost of sales includes tooling costs and related
reimbursements. Net reimbursements of $150,000 and $10,000 were recorded for
2001 and 2000, respectively.
Research and Development Expenses. Research and development expenses
decreased to $1,804,000 in 2001 from $1,941,000 in 2000. This $137,000, or 7%,
decrease was due primarily to the discontinued investment in our AmeriGuard
product. We also experienced lower costs relating to our first generation CCS
device due to the advanced stage of its development. The costs reductions were
partially offset by development costs relating to the next generation CCS device
and BSST's research and development costs. BSST research and development costs
were $417,000 for 2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $2,356,000 in 2001 compared to $2,470,000
in the 2000. This $114,000, or 5%, decrease was due primarily to lower
professional fees in 2001, partially offset by costs associated with the opening
of our European office. We also recorded $146,000 in amortization for the
warrants granted to Ford Motor Company relating to the Value Participation
Agreement in 2001, compared to $62,000 in 2000. These higher costs were offset
by a decrease in compensation related expense due to a $415,000 bonus accrued in
2000, compared to no accrual in 2001.
(13)
Liquidity and Capital Resources
As of June 30, 2001, we had net working capital of $2,832,000. We also had
cash and cash equivalents of $749,000 at June 30, 2001. Our principal sources of
operating capital have been the proceeds of our various financing transactions
and, to a lesser extent, CCS product revenues and sale of prototypes to
customers.
As of June 30, 2001, our cash and cash equivalents decreased by $2,103,000
in 2001 from $2,852,000 at December 31, 2000. Cash used in operating activities
amounted to $4,023,000, which was mainly attributable to the net loss of
$3,565,000. Cash used in investing activities amounted to $1,078,000, which is
mainly attributable to the purchase of equipment of $205,000 and the increase in
restricted cash of $873,000 (see Note 4). Financing activities provided
$2,998,000. This is due to Ferrotec payments of $3,000,000 slightly offset by
$2,000 in capital lease payments.
In April 2001, Ferrotec Corporation, a Tokyo-based manufacturer, paid us
$2,000,000 in connection with a 10-year manufacturing and supply agreement for
the exclusive right to manufacture CCS units in China, Japan, Taiwan, Korea,
India, Thailand, Vietnam, Malaysia, Indonesia and the Philippines, for ultimate
distribution by us to our customers within those countries. Concurrently, paid
an additional $1,000,000 for the purchase 200,000 unregistered shares of our
common stock.
In May 2001, we announced that the CCS system has been selected to be
included in four additional automotive platforms, which are expected to be
introduced over the next 18 months and bringing to eight the total number of
automotive platforms where the CCS system has been selected to be included as
either an optional or standard feature. For confidentiality reasons, however, we
are not permitted to identify the four additional automotive platforms and the
automotive and seat manufacturers at this time.
BSST LLC was established in August 2000 by Dr. Lon E. Bell, the founder of
Amerigon. BSST is engaged in a research and development effort to improve the
efficiency of thermoelectric devices. In September 2000, we entered into an
option agreement with BSST to purchase a 90% interest in BSST for an aggregate
of $2,000,000. We paid to BSST $150,000 for the option rights at that time. The
original option agreement was amended to extend the termination date from
January 31, 2001 to May 31, 2001, in exchange for additional option payments
totaling $360,000. On May 31, 2001, we exercised our option by paying $400,000
to BSST. After August 31, 2001, BSST can require us to contribute additional
capital of up to $400,000 in any three month period, until the remaining
$1,090,000 is paid under the Option Agreement. Should we miss any of these
payments, our ownership in BSST would be reduced proportionately. In addition,
we have, as the majority owner of BSST, certain funding obligations to BSST of
up to $500,000 per year.
Until we are selling units in the automotive market with an appropriate
margin and volume, we expect to incur losses for the foreseeable future. There
can be no assurance that profitability can be achieved in the future. The volume
production we expect for the Lincoln Navigator SUV, Lincoln Blackwood, Lexus LS
430 and Toyota Celsior as well as the four new platforms will not generate
sufficient revenue to meet our operating needs. Sufficient volume will not be
reached in the near term, as automotive industry development timing tends to be
relatively long. Although we are working with many automobile manufacturers for
future introduction of our CCS technology, most of them will not introduce the
product until the 2003 model year (2002 calendar year) and beyond, and there is
no guarantee that any manufacturer will introduce the Company's products.
Larger orders for the CCS products will require significant expenses for
tooling and to set up manufacturing and/or assembly processes. We also expect to
require significant capital to fund other near-term production engineering and
manufacturing, as well as research and development and marketing of these
products. We do not intend to pursue any more significant grants or development
contracts to fund operations and therefore are highly dependent on current
working capital sources.
Based on our current operating plan, we believe existing cash and working
capital are not sufficient to meet our anticipated financial requirements. We
believe that current cash balances, together with the funds previously received
from the Ferrotec Corporation, will be sufficient to meet our operating needs
through the end of August 2001.
(14)
Liquidity and Capital Resources (cont.)
We will need to raise additional cash from financing sources before we can
achieve profitability from our operations. We are currently negotiating a bridge
financing while considering pursuit of additional funds through additional debt
or equity financing or through strategic corporate partnerships. We also plan,
in the next 12 months, to attempt to obtain a line of credit secured by the
Company's receivables and to reduce discretionary spending to the extent
feasible. There can be no assurance that any additional financing will be
available on acceptable terms, if at all. Failure to raise additional capital
would have a material adverse effect on our ability to continue as a going
concern and to achieve our intended business objectives.
Other Information
Certain matters discussed or referenced in this report, including our
intention to develop, manufacture and market the CCS product, our expectation of
increased revenues and continuing losses, our financing requirements, our
capital expenditures and our prospects for the development of platforms with
major automotive manufacturers, 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 our 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 our products, our ability to develop, market and manufacture such
products successfully, the viability and protection of our patents and other
proprietary rights, and our ability to obtain new sources of financing.
Additional risks associated with us and our business and prospects are described
in our Annual Report on Form 10-K for the year ended December 31, 2000.
(15)
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relate primarily
to our investment portfolio. We place our investments in debt instruments of the
U.S. government and in high-quality corporate issuers. We seek to ensure the
safety and preservation of its invested funds by limiting default risk and
market risk. We have no investments or transactions denominated in foreign
country currencies and therefore are not subject to foreign exchange risk.
There have been no material changes with respect to market risk since the
Form 10-K was filed for our year ended December 31, 2000.
(16)
PART II
OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
The Annual Meeting of Shareholders was held on May 23, 2001. 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 - -
-------------------------------------------------------------------
John W. Clark 5,373,134 - -
-------------------------------------------------------------------
Paul Oster 5,373,134 - -
-------------------------------------------------------------------
James J. Paulsen 5,373,134 - -
-------------------------------------------------------------------
Elected by the Common Stockholders:
-------------------------------------------------------------------
Nominee For Against Abstain
-------------------------------------------------------------------
Richard A. Weisbart 815,041 - 400
-------------------------------------------------------------------
Lon E. Bell 815,041 - 400
-------------------------------------------------------------------
2. As to approval of an amendment to the 1997 Stock Option Plan to give
the Company the authority to grant awards in the form of stock bonuses
and/or restricted stock to eligible employees under the 1997 Plan (in
addition to options which are already authorized under the Plan).
-------------------------------------------------------
For Against Abstain
-------------------------------------------------------
6,157,817 29,858 900
-------------------------------------------------------
(17)
ITEM 5. Other Information
-----------------
On May 23, 2001, the Board of Directors appointed Francois J. Castaing to
fill a vacancy on the Board. Mr. Castaing was most recently technical advisor to
the Chairman of Chrysler Corporation, now DaimlerChrysler. Prior to that, he
was Executive Vice President and ran Chrysler International Operations outside
of North America. After spending thirteen years with Chrysler, Mr. Castaing
retired in 2000. From 1980 to 1987, he was with American Motors where he was
Vice President of Engineering and later Group Vice President Product and Quality
until Chrysler acquired that company. Mr. Castaing began his career with Renault
in France as Technical Director for Renault Motorsport Programs.
On May 31, 2001, we exercised our option pursuant to an Option Agreement
dated September 4, 2000 to acquire a controlling interest in BSST LLC, a
Delaware limited liability company. BSST was founded by Dr. Lon E. Bell, the
founder and a director of Amerigon, and is engaged in a research and development
effort to improve the efficiency of thermoelectric devices. The objective of
these efforts is to expand the applications of thermoelectric devices to new
applications. Dr. Lon Bell has resigned his position as Chief Technology
Officer of Amerigon in order to devote his attention full-time to BSST. The
Option Agreement gave us the option to purchase 2,000 Series A preferred units
of BSST for $2,000,000, which represented 90 percent ownership in BSST as of May
31, 2001.
We paid BSST a non-refundable option payment of $150,000 for the option on
September 6, 2000. In January 2001, we amended the Option Agreement to extend
the termination date of the option from the initial expiration date of January
31, 2001. In exchange for non-refundable option extension payments of $60,000,
$80,000, $100,000 and $120,000, made at end of January, February, March and
April, respectively, the expiration date was extended to May 31, 2001. The
option extension payments were also applied against the $2,000,000. After August
31, 2001, BSST can require us to contribute additional capital of up to $400,000
in any three month period, until the remaining $1,090,000 is paid under the
Option Agreement. Should we miss any of these payments, our ownership in BSST
would be reduced proportionately. In addition, we have, as the majority owner of
BSST, certain funding obligations to BSST of up to $500,000 per year.
Dr. Bell had previously assigned his intellectual rights to BSST with
respect to thermoelectric devices and an unspecified amount of cash, not to
exceed $50,000, in return for 100,000 common units, which represented 10 percent
ownership of BSST as of May 31, 2001. Dr. Bell serves as the president and
chief executive officer of BSST and has entered into a one-year employment
contract with BSST effective as of June 1, 2001 with a base rate of $180,000 per
year and received an option for 58,824 common units, which vest upon the
achievement of certain milestones. Dr. Bell also received certain anti-dilution
rights, preemptive rights, and equity step-up rights.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.1 BSST Assignment and Subscription Agreement
10.2 BSST Bell Employment Agreement
10.3 BSST Option Agreement
10.4 BSST Revenue Sharing Agreement
10.5 BSST Operating Agreement
10.6 BSST First Amendment to Option Agreement
10.7 BSST Second Amendment to Option Agreement
(b) Reports on Form 8-K
None
-----------------------------------------------------------------------
(18)
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 13, 2001 /s/ Richard A. Weisbart
-------------------------------------
Richard A. Weisbart
President, Chief Executive Officer
and Chief Financial Officer
/s/ Craig P. Newell
-------------------------------------
Craig P. Newell
Vice President, Finance
(Chief Accounting Officer)
(19)