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 ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] 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
---------------------
(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 July 1, 1999 the registrant had 1,910,089 shares of Class A Common Stock, no
par value; and 9,000 shares of Preferred 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 11
Item 3. Quantitative and Qualitative Disclosures About 16
Market Risk
Part II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
(2)
PART I
ITEM 1.
FINANCIAL STATEMENTS
AMERIGON INCORPORATED
(A Development Stage Enterprise)
BALANCE SHEET
(In thousands)
(Unaudited)
December 31, June 30,
1998 1999
------------ ----------
ASSETS
Current Assets:
Cash & cash equivalents $1,667 $4,895
Short-term investments - 1,854
Accounts receivable less allowance of $101 and $42, respectively 174 185
Inventory, primarily raw materials 105 168
Prepaid expenses and other assets 136 391
------------ ----------
Total current assets 2,082 7,493
Property and equipment, net 562 612
------------ ----------
Total Assets $2,644 $8,105
------------ ----------
------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilites:
Accounts payable $363 $748
Deferred revenue 44 -
Accrued liabilities 485 386
------------ ----------
Total current liabilities 892 1,134
Long term portion of capital lease 26 20
Shareholders' Equity:
Convertible Preferred Stock;
Series A - no par value; 9,000 shares authorized,
none and 9,000 issued and outstanding at
December 31, 1998 and June 30, 1999 - 8,279
Common Stock;
Class A - no par value; 20,000 shares authorized,
1,910 issued and outstanding at
December 31, 1998 and June 30, 1999 28,149 28,149
Contributed capital 9,882 10,031
Deficit accumulated during development stage (36,305) (39,508)
------------ ----------
Total shareholders' equity 1,726 6,951
------------ ----------
Total Liabilities and Shareholders' Equity $2,644 $8,105
------------ ----------
------------ ----------
See accompanying notes to the condensed financial statements
(3)
AMERIGON INCORPORATED
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
From
April 23,1991
Three Months Ended Six Months Ended (inception)
June 30, June 30, to June 30,
1998 1999 1998 1999 1999
------------ ----------- ----------- ------------ ------------------
Revenues:
Product $7 $10 $7 $27 $45
Development contracts and
related grants 274 83 312 385 4,906
Grants - - - - 2,572
------- ------- ------- -------- --------
Total revenues 281 93 319 412 7,523
Costs and expenses:
Product 33 11 33 43 91
Direct development contract and
related grant costs 322 439 592 886 16,755
Grants - - - - 1,980
Research and development 587 472 1,105 1,007 3,204
Selling, general and administrative,
including reimbursable expenses 957 741 1,970 1,600 20,265
------- ------- ------- -------- --------
Total costs and expenses 1,899 1,663 3,700 3,536 42,295
------- ------- ------- -------- --------
Operating loss (1,618) (1,570) (3,381) (3,124) (34,772)
Interest income 78 2 174 16 1,316
Interest expense - (76) - (76) (377)
Gain on disposal of assets 62 - 62 - 2,363
------- ------- ------- -------- --------
Net loss from continuing operations and
before extraordinary item (1,478) (1,644) (3,145) (3,184) (31,470)
Loss from discontinued operations (197) (19) (387) (19) (7,698)
------- ------- ------- -------- --------
Net loss before extraordinary item (1,675) (1,663) (3,532) (3,203) (39,168)
Extraordinary loss from extinguishment
of indebtedness - - - - (340)
------- ------- ------- -------- --------
Net loss ($1,675) ($1,663) ($3,532) ($3,203) ($39,508)
------- ------- ------- -------- --------
------- ------- ------- -------- --------
Net loss available to common shareholders ($1,675) ($1,730) ($3,532) ($3,270) ($39,575)
------- ------- ------- -------- --------
------- ------- ------- -------- --------
Basic and diluted net loss per share:
Loss from continuing operations ($0.77) ($0.90) ($1.65) ($1.70)
Discontinued operations (0.10) (0.01) (0.20) (0.01)
------- ------- ------- --------
Available to common shareholders ($0.88) ($0.91) ($1.85) ($1.71)
------- ------- ------- --------
------- ------- ------- --------
Weighted average number of shares outstanding 1,910 1,910 1,910 1,910
------- ------- ------- --------
------- ------- ------- --------
See accompanying notes to the condensed financial statements
(4)
AMERIGON INCORPORATED
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
From
April 23, 1991
Six Months (inception) to
Ended June 30, June 30,
1998 1999 1999
-------------- ---------- ---------------
Operating Activities:
Net loss ($ 3,532) ($ 3,203) ($39,508)
Adjustments to reconcile net loss to cash used in
operating activities of continuing operations:
Loss from discontinued operations 387 19 7,698
Depreciation and amortization 241 210 1,866
Provision for doubtful account - (59) 152
Stock option compensation - - 712
Gain from sale of assets (62) - (2,363)
Contributed capital-founders'
services without cash compensation - - 300
Change in operating assets and liabilities:
Accounts receivable 120 48 (337)
Inventory (54) (63) (188)
Prepaid expenses and other assets 63 (255) (391)
Accounts payable (186) 40 55
Deferred revenue - (44) -
Accrued liabilities (5) (99) 451
-------- -------- --------
Net cash used in operating activities of continuing (3,028) (3,406) (31,553)
operations
-------- -------- --------
Investing Activities:
Purchase of property and equipment (398) (199) (2,394)
Proceeds from sale of assets - - 2,800
Receivable from sale of assets - - (1,000)
Proceeds from receivable from sale of assets - - 971
Short term investments purchased - (1,854) (1,854)
Short term investments sold 1,840 - -
Net cash (used in) provided by investing activities of
continuing operations -------- -------- --------
1,442 (2,053) (1,477)
-------- -------- --------
Financing Activities:
Proceeds from sale of preferred stock, net - 8,624 8,624
Proceeds from sale of common stock units, net - - 34,772
Proceeds from exercise of stock options - - 160
Repurchase of common stock - - (15)
Borrowing under line of credit - - 6,280
Repayment of line of credit - - (6,280)
Repayment of capital lease (10) (6) (108)
Proceeds from Bridge Financing - 1,200 4,200
Repayment of Bridge Financing - (1,200) (4,200)
Proceeds of notes payable to shareholder - - 450
Repayment of notes payable to shareholder - - (450)
Contributed to capital - 88 2,190
Net cash (used in) provided by financing activities of
continuing operations -------- -------- --------
(10) 8,706 45,623
-------- -------- --------
Cash used in discontinued operations (387) (19) (7,698)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (1,983) 3,228 4,895
-------- -------- --------
Cash and cash equivalents at beginning of period 6,037 1,667 -
-------- -------- --------
Cash and cash equivalents at end of period $ 4,054 $ 4,895 $ 4,895
-------- -------- --------
-------- -------- --------
See accompanying notes to the condensed financial statements
(5)
AMERIGON INCORPORATED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY:
Amerigon Incorporated (the "Company") is in the business of
developing and manufacturing vehicle components for automotive original
equipment manufacturer's ("OEMs"). The Company was incorporated in California
on April 23, 1991 as a research and development entity focused on creating
electric vehicles ("EV"). During 1998, the Company decided to suspend funding
activities associated with EV and directed its resources to developing and
commercializing the Climate Control Seat ("CCS-TM-") and Radar for
Maneuvering and Safety ("Radar"), which are both products of the Company's
research. On May 26, 1999, the Shareholders of the Company voted to
discontinue EV operations. As a result, the Company is now principally
positioned to bring to market the CCS and Radar product lines and accordingly
has incurred significant sales and marketing, prototype and engineering
expenses to gain orders for production vehicles.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF CERTAIN ACCOUNTING POLICIES:
The accompanying financial statements as of June 30, 1999 have been
prepared by the Company without audit. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation have been included. The results of operations for the three and six
month periods ended June 30, 1999 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, 1998.
Certain amounts have been reclassified from the prior year Form 10-Q to
conform with current period presentation.
On January 28, 1999, the Company effected a 1 for 5 reverse stock
split. Share information for all periods has been retroactively adjusted to
reflect the split.
NOTE 3 - EV SUBSIDIARY
On March 23, 1999, the Company's Board of Directors agreed to form a
subsidiary to hold the Company's EV operations. Pursuant to discussions held
among the Company's Board of Directors and Dr. Bell, Chairman of the Board
and a significant shareholder of the Company, the Company agreed to sell to
Dr. Bell a 15% interest in the EV subsidiary for
(6)
NOTE 3 - EV SUBSIDIARY (CONT.)
$88,000. On March 29, 1999, the 15% was sold to Dr. Bell and was reflected as
contributed capital.
On May 26, 1999, the shareholders voted to sell the remaining interest,
85%, of the EV subsidiary to Dr. Bell in exchange for all of his Class B Common
Stock (see Note 6). The financial statements of the Company have been
reclassified to reflect the dispositions of the EV operations as a discontinued
operation. Accordingly, the revenues, costs and expenses, and cash flows of the
EV operations have been excluded from the respective captions in the Statements
of Operations and Statements of Cash Flows. The results of the EV operations
have been reported separately as discontinued operations in such statements. The
EV related assets were nil at December 31, 1998 and June 30,1999 and sales were
nil for the three and six months ended June 30, 1999 and 1998.
NOTE 4 - GOING CONCERN
The Company has suffered recurring losses and negative cash flows from
operations since inception and has a significant accumulated deficit.
Consequently, in order to fund continuing operations and complete product
development, the Company will need to raise additional financing. In this
regard, the Company completed the sale of 9,000 shares of Series A Convertible
Preferred Stock on June 8, 1999 with an investor group (Note 5). Management
believes that the proceeds from the equity financing, together with existing
cash balances will be sufficient to meet its cash needs of the Company through
the end of 1999.
To fund its operations, the Company will need to raise additional cash
from financing sources before the Company can achieve profitability from its
operations. The Company's ability to raise additional financing or achieve
profitability cannot be assured. As such, there is substantial doubt about the
Company's ability to continue as a going concern.
NOTE 5 -CONVERTIBLE PREFERRED STOCK
On March 29, 1999, the Company entered into a Securities Purchase
Agreement (the "Financing") with an investor group. Under the terms of the
Financing, on June 8, 1999, the Company issued 9,000 shares of Series A
Convertible Preferred Stock and warrants to purchase up to 1,214,814 shares of
Class A Common Stock in exchange for $9,001,000. The Series A Convertible
Preferred Stock will initially be convertible into 5,373,134 shares of Class A
Common Stock. The warrants can only be exercised to the extent that certain
other warrants to purchase Class A Common Stock are exercised by existing
warrant holders and then only in the proportion of the Company's equity
purchased and at the same exercise price as the exercising warrant holders.
(7)
NOTE 5 -CONVERTIBLE PREFERRED STOCK (CONT.)
In connection with the above Financing, the Company granted to
financial advisors warrants to purchase 45,000 shares of Class A Common Stock at
exercise prices ranging from $2.67 to $5.30. The warrants are exercisable at
various dates ranging from March to June 2004.
Also in conjunction with the above Financing, the Company recorded a
dividend to the Series A Convertible Preferred Stockholders of $67,000 or $0.04
per weighted average common shares outstanding resulting from the beneficial
difference between the conversion price and the fair market value of Class A
Common Stock on the date of commitment, May 26, 1999.
CONVERSION
Each issued share of Series A Convertible Preferred Stock is
immediately convertible, in full and not in part, into shares of Class A Common
Stock equal to $1,000 divided by the Conversion Price. The Conversion Price is
$1.675, subject to proportional adjustments for certain dilutive issuance,
splits and combinations and other recapitalizations or reorganizations. A total
of 5,373,134 shares of Class A Common Stock has been reserved for issuance in
the event of the conversion of Series A Convertible Preferred Stock.
VOTING RIGHTS
The holder of each share of Series A Convertible Preferred Stock will
have the right to one vote for each share of Class A Common Stock into which
such Series A Convertible Preferred Stock could then be converted.
DIVIDENDS
The Series A Convertible Preferred Stock will receive dividends on an
"as-converted" basis with the Class A Common Stock when and if declared by the
Board of Directors. The dividends are noncumulative and are payable in
preference to any dividends on common stock.
LIQUIDATION PREFERENCE
Upon liquidation, dissolution or winding up of Amerigon, each share of
Series A Convertible Preferred Stock is entitled to a liquidation preference of
$1,000 plus 7% of the original issue price ($1,000) annually for up to four
years after issuance plus any declared but unpaid dividends in priority to any
distribution to the Class A Common Stock, which will receive the remaining
assets of Amerigon. On June 30, 1999, the liquidation preference was $9,000,000.
(8)
NOTE 5 -CONVERTIBLE PREFERRED STOCK (CONT.)
REDEMPTION
On or after January 1, 2003, if the closing price of the Class A Common
Stock for the past 60 days has been at least four times the then Conversion
Price ($1.675 per share at June 30, 1999), Amerigon may redeem the Series A
Convertible Preferred Stock for an amount equal to the liquidation preference.
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 periods ended June 30,
1998 and 1999 do not include the effect of:
Three and Six Months Ended
June 30,
--------------------------------------
1998 1999
------------ ------------
Stock options outstanding for:
1993 Stock Option Plan 99,232 81,154
1997 Stock Option Plan 116,333 698,334
(as amended)
Options granted by Lon Bell
to directors and officers 118,768 10,245
Warrants to purchase outstanding
shares of Class A Common Stock 1,471,751 2,731,565
Series A Preferred Stock - 5,373,134
------------ ------------
Total 1,806,084 8,894,432
------------ ------------
------------ ------------
(9)
NOTE 7 - SEGMENT REPORTING
The following tables present segment information about the reported
revenues and operating loss of Amerigon for the three and six months ended June
30, 1998 and 1999 (in thousands). Asset information by reportable segment is not
reported since management does not produce such information.
- --------------------------------------------------------------------------------------------------------------------------
For The Three Months Ended June 30, Climate Control Seats Radar Reconciling Items As Reported
- --------------------------------------------------------------------------------------------------------------------------
1998
Revenue $ 224 $ 57 $ - $ 281
Operating Loss (507) (154) (1)(957) (1,618)
1999
Revenue 93 - - 93
Operating Loss (631) (198) (1)(741) (1,570)
- --------------------------------------------------------------------------------------------------------------------------
(1) Represents selling, general and administrative costs of $894,000 and
$684,000, respectively, and depreciation expense of $63,000 and
$57,000, respectively, for the three months ended June 30, 1998 and
1999.
- --------------------------------------------------------------------------------------------------------------------------
For The Six Months Ended June 30, Climate Control Seats Radar Reconciling Items As Reported
- --------------------------------------------------------------------------------------------------------------------------
1998
Revenue $ 239 $ 80 $ - $ 319
Operating Loss (1,095) (316) (1)(1,970) (3,381)
1999
Revenue 313 99 - 412
Operating Loss (1,215) (309) (1)(1,600) (3,124)
- --------------------------------------------------------------------------------------------------------------------------
(1) Represents selling, general and administrative costs of $1,807,000 and
$1,487,000, respectively, and depreciation expense of $163,000 and
$113,000, respectively, for the six months ended June 30, 1998 and
1999.
Revenue information by geographic area (in thousands);
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- --------------------------------
1998 1999 1998 1999
----------- ----------- ----------- ----------
United States - Commercial $ 7 $34 $ 7 $160
United States - Government - - 24 99
Asia 260 14 259 103
Europe 14 45 29 50
----------- ----------- ----------- ----------
Total Revenues $281 $93 $319 $412
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
For the three months ended June 30, 1998, two foreign customers represented 72%
and 20% of the Company's sales. For the quarter ended June 30, 1999, one foreign
customer represented 48% of the Company's sales. For the six months ended June
30, 1998, one foreign customer represented 64% of the Company's sales. For the
six months ended June 30, 1999, three customers, two domestic and one foreign,
represented 27%, 24% and 25%, respectively, of the Company's sales.
(10)
PART 1
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Amerigon Incorporated (the "Company") is in the business of
developing and manufacturing vehicle components for automotive original
equipment manufacturer's ("OEMs"). The Company was incorporated in California
on April 23, 1991 as a research and development entity focused on creating
electric vehicles ("EV"). During 1998, the Company decided to suspend funding
activities associated with EV and directed its resources to developing and
commercializing the Climate Control Seat ("CCS-TM-") and Radar for
Maneuvering and Safety ("Radar"), which are both products of the Company's
research. On May 26, 1999, the Shareholders of the Company voted to
discontinue EV operations. As a result, the Company is now principally
positioned to bring to market the CCS and Radar product lines and accordingly
has incurred significant sales and marketing, prototype and engineering
expenses to gain orders for production vehicles.
AUTO INDUSTRY. The Company is now operating in the auto 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 the OEM
requiring the coordination and testing of proposed new components and
sub-systems. Revenues from these expenditures may not be realized for 2 to 3
years as the OEMs tend to group new components and enhancements into annual or
every 2 to 3 year vehicle model introductions.
RESULTS OF OPERATIONS
SECOND QUARTER 1999 COMPARED WITH SECOND QUARTER 1998
REVENUES. Revenues for the three months ended June 30, 1999 ("Second
Quarter 1999") were $93,000 as compared with revenues of $281,000 in the three
months ended June 30, 1998 ("Second Quarter 1998"). The decrease in revenues was
due primarily to the decrease in development programs for various Climate
Control Seats ("CCS-TM-") and Radar prototype programs. The Company is currently
in pre-production development of its CCS systems.
COST OF PRODUCT SALES. Cost of product sales decreased to $11,000 in
the Second Quarter 1999 from $33,000 in the Second Quarter 1998 due to the
decrease in shipments of CCS units in the Second Quarter 1999.
DIRECT DEVELOPMENT CONTRACT AND RELATED GRANT COSTS. Direct development
contract and related grant costs incurred in the Second Quarter 1999 were
$439,000 compared to $322,000 in
(11)
RESULTS OF OPERATIONS (CONT.)
the Second Quarter 1998. This is primarily due to the costs incurred in
conjunction with the pre-production of the Climate Control Systems which are
anticipated to be in production in late 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased to $472,000 in Second Quarter 1999 from $587,000 in Second Quarter
1998. The decrease was primarily due to the completion of prototype tooling
associated with the Climate Control Seats in early 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses decreased to $741,000 in Second Quarter 1999
compared to $957,000 in Second Quarter 1998. The change was due to a decrease in
recruiting expenses and other outside services/consultants in the Second Quarter
1999. The Company expects SG&A expenses to increase as it hires additional
employees in connection with the development of Radar products and the
commencement of production and marketing of Climate Control Seats.
INTEREST INCOME. Net interest income in 1999 decreased due to a
decline in cash balances as a result of those funds being used in operations.
The Company also incurred interest expense of $14,000 as a result of a bridge
loan of $1,200,000 and $62,000 associated with the amortization of deferred
financing costs.
SIX MONTHS 1999 COMPARED WITH SIX MONTHS 1998
REVENUES. Revenues for the six months ended June 30, 1999 ("1999") were
$412,000 as compared with revenues of $319,000 in the six months ended June 30,
1998 ("1998"). The increase was due to an increase in direct development
contracts associated with the Radar program and increased product shipments for
the Climate Control Seat program in the beginning of 1999.
DIRECT DEVELOPMENT CONTRACT AND RELATED GRANT COSTS. Direct development
contract and related grant costs increased to $886,000 in 1999 from $592,000 in
1998. This is primarily due to the costs incurred in conjunction with the
pre-production of the Climate Control Seats anticipated to be in production in
late 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased to $1,007,000 in 1999 from $1,105,000 in 1998. The decrease was due to
the Company's shift of emphasis from research and development to direct
development contracts and pre-production efforts associated with the anticipated
contracts with Climate Control Seats.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses decreased to $1,600,000 in 1999 compared to
$1,970,000 in 1998. The change was due to a decrease in recruiting expenses and
other outside services/consultants in 1999. The Company expects SG&A expenses to
increase as it hires additional employees in connection
(12)
RESULTS OF OPERATIONS (CONT.)
with the development of Radar products and the commencement of production and
marketing of Climate Control Seats.
INTEREST INCOME. Net interest income in 1999 decreased to an expense
due to a decline in cash balances as a result of those funds being used in
operations. The Company also incurred interest expense of $14,000 as a result of
a bridge loan of $1,200,000 and $62,000 associated with the amortization of
deferred financing costs.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had working capital of $6,359,000. On
June 8, 1999 the Company completed a financing (the "1999 Financing") with an
investor group pursuant to which the Company sold 9,000 shares of Series A
Convertible Preferred Stock for $9,000,000. The Preferred Stock is convertible
into Class A Common Stock. In addition, the Company issued warrants to purchase
up to 1,214,814 shares of Class A Common Stock. The warrants are exercisable
only to the extent certain other warrants to purchase Class A Common Stock are
exercised and then only in an amount that will enable the Investors to maintain
the same percentage interest in the Company that they have in the Company after
the initial investment on a fully converted basis. This transaction was approved
by the shareholders at the 1999 Annual Meeting.
The Company's principal sources of operating capital have been the
proceeds of its various financing transactions and, to a lesser extent, revenues
from grants, development contracts and sale of prototypes to customers.
The Company is expecting to enter into a production contract with
Johnson Controls for the Climate Control Seats by the end of 1999. The Company
has spent to date $892,000 for tooling, equipment and materials needed for this
anticipated contract. The Company expects to spend an additional $400,000 for
this product line in 1999. These expenses have been offset by reimbursements of
$144,000 from Johnson Controls, to date.
Cash and cash equivalents increased by $3,228,000 in 1999 primarily due
to the cash raised by the 1999 Financing. This was offset by the cash used in
operating activities of $3,406,000, which was mainly attributable to the net
loss of $3,184,000 before loss from discontinued operations of $19,000
associated with the electric vehicle program. Investing activities used
$2,053,000 as the Company made short term investments in government securities
of $1,854,000. Financing activities provided $8,706,000 due primarily to
$8,624,000 from net proceeds of the 1999 Financing.
Until the Company is selling units in the automotive market with an
appropriate margin and volume, the Company expects to incur losses for the
foreseeable future. Even with the anticipation of volume production for a
model 2000 luxury 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
(13)
LIQUIDITY AND CAPITAL RESOURCES (CONT.)
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 Climate
Control Seat product, larger orders for the seat product and the ability to
begin production on the Radar 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
grants or development contracts to fund operations and therefore is highly
dependent on its current working capital sources. Future financing may be
required in any case and there can be no assurance that additional financing
will be available in the future.
YEAR 2000 IMPACT
An issue affecting Amerigon and others is the ability of many computer
systems and applications to process the Year 2000 and beyond ("Y2K"). To address
this problem, in 1998, Amerigon initiated a Y2K program to manage the Company's
overall Y2K compliance effort. A team of internal staff is managing the program
with assistance of some outside consultants. The team's activities are designed
to ensure that there are no material adverse effects on the Company.
The Company has completed the assessment phase of its internal information
services computer systems associated with the Year 2000. The Company is
currently assessing Y2K issues related to its non-information technology systems
used in product development, engineering, manufacturing and facilities. The
Company expected that updates to existing systems for Y2K compliance would be
completed by July 1, 1999. Due to the limited resources available during the
second quarter 1999, the scheduled completion date has been moved to September
1, 1999.
The Company is also working with its significant suppliers and financial
institutions to ensure that those parties have appropriate plans to address Y2K
issues where their systems interface with the Company's systems or otherwise
impact its operations. The Company has communicated in writing with all of its
principal suppliers to confirm their status in regards to Y2K issues. The
Company is assessing the extent to which its operations are vulnerable should
those organizations fail to properly remedy their computer systems. The Company
does not anticipate that potential Y2K issues at the customer level will have a
material adverse effect on its ability to conduct normal business.
The Company's Y2K program is well under way and, based on the results of
its assessment to date, is expected to be complete by September 1999. While the
Company believes its planning efforts are adequate to address its Y2K concerns,
there can be no assurance that the systems of other companies on which the
Company's systems and operations rely will be converted on a timely basis and
will not have a material adverse effect on the Company. The Company has not
identified a need to develop an extensive contingency plan for non-remediation
issues at this time. The need for such a plan is evaluated on an ongoing basis
as part of the Company's overall Year 2000 initiative.
(14)
YEAR 2000 IMPACT (CONT.)
Based on the Company's assessment to date, the costs of the Year 2000
initiative (which are expensed as incurred) are estimated to be approximately
$20,000.
The cost of the project and the date on which the Company believes it will
complete its Year 2000 initiative are forward-looking statements and are based
on management's best estimate, according to information available through the
Company's assessments to date. However, there can be no assurance that these
estimates will be achieved, and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the retention of these professions, the ability to locate and
correct all relevant computer codes, and similar uncertainties. At present, the
Company has not experienced any significant problems in these areas.
OTHER INFORMATION
Certain matters discussed or referenced in this report, including the
Company's intention to develop, manufacture and market Climate Control Seats and
Radar 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, 1998.
(15)
PART 1
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
There have been no material changes since the Form 10-K was filed for
the Company's year ended December 31, 1998.
(16)
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(b) The Series A Convertible Preferred Stock votes with Common Stock of the
Company on an "as converted" basis and, under certain circumstances, also has a
separate class vote. As of June 8, 1999, the Series A Convertible Preferred
Stock purchased by Westar Capital LLC and Big Beaver Investments LLC (the
"Investors") represented approximately 74% of the voting power of the Company on
an as-converted basis.
Pursuant to the terms of the Series A Convertible Preferred Stock, the
size of the Board of Directors was fixed at 7 and the holders of the Series A
Convertible Preferred Stock have the right to elect 5 of the 7 Directors. As
part of the 1999 Financing, all then-current members of the Board of Directors
except Lon E. Bell, Richard A. Weisbart and John W. Clark were required to
resign. Michael R. Peevey resigned. Roy A. Anderson did not since he was
designated as a continuing director by one of the holders of the Series A
Convertible Preferred Stock. On June 23, 1999 Oscar (Bud) Marx III, Paul Oster
and James J. Paulsen were appointed to the Board of Directors, joining Lon E.
Bell, Richard A. Weisbart, John W. Clark and Roy A. Anderson.
(c) On June 8, 1999 the Company completed a private placement of 4,500
shares of Convertible Preferred Stock designated as Series A Convertible
Preferred Stock as well as five contingent warrants to each of the two
Investors. The Investors paid consideration in an aggregate amount of $9,001,000
for the Series A Convertible Preferred Stock and the contingent warrants. The
net proceeds to the Company were approximately $6,901,000, reflecting
transaction costs and the repayment of a $1.2 million bridge loan from an
affiliate of the Investors and were applied to general corporate purposes.
The Series A Convertible Preferred Stock has voting rights equal to the
number of shares the Series A Convertible Preferred Stock is convertible into
and the Series A Convertible Preferred Stock can convert into a number of shares
of Common Stock of the Company, no par value, equal to the Series A Convertible
Preferred Stock's liquidation preference divided by the conversion price. Each
share of Series A Convertible Preferred Stock has a liquidation preference equal
to $1,000 plus accrued but unpaid dividends and an initial conversion price of
$1.675, subject to anti-dilution adjustment. The contingent warrants are
exercisable only to the extent that warrants held by entities other than the
Investors are exercised, at an exercise price equivalent to those entities and
each contingent warrant expires shortly after the warrant which it tracks
expires. The Series A Convertible Preferred Stock and the contingent warrants
were exempt from registration under Section 4(2) of the Securities Act of 1933.
(17)
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (CONT.)
On June 8, 1999 the Company issued six warrants to purchase up to an
aggregate of 20,000 shares of Common Stock of the Company to affiliates of
Spencer Trask Securities, Inc. pursuant to the terms of the Engagement Letter
dated November 6, 1998. The warrants, which expire in June 2004, allow the
various holders to purchase shares of Common Stock of the Company at $2.67 per
share. The warrants were exempt from registration under Section 4(2) of the
Securities Act of 1933.
Effective June 23, 1999 the Company granted to Michael R. Peevey an
option to purchase up to 4,000 shares of Common Stock of the Company in
compensation for services to be rendered to the Company as a consultant. The
option, which will expire in June 2004, allows Michael R. Peevey to purchase
Common Stock of the Company at $3.06 per share. The option was exempt from
registration under Section 4(2) of the Securities Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on May 26, 1999. 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:
- -------------------------------- ----------------------------- ----------------------------- --------------------
Nominee For Against Abstain
- -------------------------------- ----------------------------- ----------------------------- --------------------
Lon. E. Bell 2,292,103 0 7,992
- -------------------------------- ----------------------------- ----------------------------- --------------------
Richard A. Weisbart 2,292,103 0 7,992
- -------------------------------- ----------------------------- ----------------------------- --------------------
Roy A. Anderson 2,292,103 0 7,992
- -------------------------------- ----------------------------- ----------------------------- --------------------
John W. Clark 2,292,103 0 7,992
- -------------------------------- ----------------------------- ----------------------------- --------------------
Michael R. Peevey 2,292,103 0 7,992
- -------------------------------- ----------------------------- ----------------------------- --------------------
2. As to approval of the transactions contemplated by the Securities
Purchase Agreement, including the issuance of shares of Series A
Convertible Preferred Stock and Contingent Warrants and the Investors'
Rights Agreement:
- -------------------------------- ----------------------------- ----------------------------- --------------------
For Against Abstain Broker Non-Votes
- -------------------------------- ----------------------------- ----------------------------- --------------------
1,257,201 28,188 6,580 1,008,126
- -------------------------------- ----------------------------- ----------------------------- --------------------
3. As to approval of the exchange of Amerigon's shares in its Electrical
Vehicle subsidiary for the shares of Class B Common Stock held by Dr.
Lon Bell pursuant to the Share Exchange Agreement:
- -------------------------------- ----------------------------- ----------------------------- ---------------------
For Against Abstain Broker Non-Votes
- -------------------------------- ----------------------------- ----------------------------- ---------------------
554,837 39,949 7,540 1,008,126
- -------------------------------- ----------------------------- ----------------------------- ---------------------
(18)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation, as amended
3.2 Certificate of Determination of Preferences of Rights,
Preferences and Privileges of The Series A Preferred Stock of
Amerigon Incorporated
10.1 Investors' Rights Agreement (1)
27. Financial Data Schedule
(b) Reports on Form 8-K
1. Current Report on Form 8-K, event date June 8, 1999 (items 1
and 7).
- ----------------------------
(1) Incorporated by reference to exhibit 5.2 on the Company's Current
Report on Form 8-K, event date June 8, 1999.
(19)
SIGNATURE
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, 1999 /s/ Richard A. Weisbart
-------------------------------
Richard A. Weisbart
Chief Executive Officer
/s/ Sandra L. Grouf
-------------------------------
Sandra L. Grouf
Controller
(Principal Accounting Officer)
(20)