Back to GetFilings.com
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21810
---------------------
AMERIGON INCORPORATED
(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, CA 91706-2058
---------------------------------------- ----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 815-7400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
- -------------------------------------------------------------------------------
(Title of Class)
- -------------------------------------------------------------------------------
Class A Warrants
- -------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter 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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average bid and asked prices of such
stock as of March 2, 2001, was $12,008,427. (For purposes of this computation,
the registrant has excluded the market value of all shares of its Common Stock
reported as being beneficially owned by executive officers and directors of
the registrant; such exclusion shall not be deemed to constitute an admission
that any such person is an "affiliate" of the registrant). As of March 2,
2001, the registrant had 4,427,975 of its shares of its common stock issued
and outstanding and 1,993,264 of its Class A Warrants outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the registrant's definitive proxy statement for its 2001 Annual
Meeting of Shareholders to be filed with the Commission within 120 days after
the close of the registrant's fiscal year are incorporated by reference into
Part III.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AMERIGON INCORPORATED
ITEM 1. BUSINESS
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
shipped more than 100,000 units of our CCS product during 2000 to two
customers, Johnson Controls, Inc., and NHK Spring Company, Ltd. Johnson
Controls supplies the Lincoln Mercury division of Ford Motor Company with our
CCS product for installation in the Lincoln Navigator SUV, while NHK supplies
our CCS product to Toyota Motor Corporation for use in the Lexus LS 430 and
Toyota Celsior luxury automobiles.
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.
Financial Information About Industry Segments
Our business segment information is incorporated herein by reference from
Note 18 of our financial statements and related financial information indexed
on page F-1 of this report and incorporated by reference into this report.
Business Strategy
Our strategy is to build upon our existing relationships with automobile
manufacturers and their suppliers and to become the leading provider of
climate controlled seating to the automotive marketplace. Our strategy
includes the following key elements:
. Increasing market penetration with global automotive companies;
. Continuing to partner with major automotive seat companies;
. Completing the next generation of the CCS technology; and
. Expanding our intellectual property.
Products
Climate Control Seat System
Our CCS system utilizes an exclusive, licensed, patented technology, as well
as three of our own patents on a variable temperature seat climate control
system to enhance the temperature comfort of automobile passengers. We have an
additional patent pending for certain improvements we have made to the CCS
technology. The CCS uses one or more small thermoelectric modules, which are
solid-state devices that generate heat or cooling depending upon the polarity
of the current applied to the circuit. The CCS product is currently offered as
an optional feature on the Lincoln Navigator, Lexus LS 430, and Toyota
Celsior, replacing traditional seat heaters. We are working with many other
automotive OEMs and their seat suppliers in an effort to have the CCS included
in other models commencing with the 2002 model year and beyond. We have active
development programs on over twenty other vehicle platforms, although we
cannot assure you that CCS will be implemented on any of these vehicles.
The thermoelectric module is the heart of a compact heat pump built by
Amerigon. Air is forced through the heat pump and thermally conditioned in
response to switch inputs from the seat occupant. A specially designed fan
circulates the conditioned air through ducts in the seat, so that the surface
of the seat grows warm
1
or cool. Each seat has individual electronic controls to adjust the level of
heating or cooling. The CCS uses substantially less energy than conventional
air conditioners by focusing the cooling directly on the passenger through the
seat, rather than cooling the entire ambient air volume and the interior
surfaces of the vehicle.
In the past three years, we have supplied prototype seats containing our CCS
system to virtually every major automobile manufacturer and seat supplier. In
1999, we were selected by Ford to supply the CCS product to Johnson Controls
for installation in the Lincoln Navigator SUV. In March 2000, we entered into
a Value Participation Agreement ("VPA") with Ford, which gives us the
exclusive right to manufacture and supply CCS units to Ford's first tier
suppliers for installation in Ford, Lincoln and Mercury branded vehicles
produced and sold in North America (other than Ford branded vehicles produced
by AutoAlliance International, Inc.) through December 31, 2004; however, Ford
is not obligated to purchase any CCS units under the VPA. Later in 2000, Ford
decided to make our CCS product a standard feature in the 2002 model year
Lincoln Blackwood luxury utility vehicle. We expect CCS product shipments to
Lear Corporation for installation in the Lincoln Blackwood to begin in 2001.
In September 2000, we were selected by Toyota to supply the CCS product for
the Lexus LS 430 and Toyota Celsior luxury vehicles, and we commenced
providing CCS units to NHK for installation in seats for those vehicles.
The CCS product has reached the stage where it can be mass-produced for a
particular OEM. However, since each vehicle model's seats are not the same, we
must tailor the CCS components to meet each seat design. If an OEM wishes to
integrate the CCS unit into a seat, it will provide us with one of its
automotive seats to be modified so that a CCS unit may be installed as a
prototype. The seat is then returned to the OEM for evaluation and testing. If
the OEM accepts the product, a program can then be launched to put the CCS in
a particular model on a production basis, but it normally takes one to two
years from the time an OEM decides to include the CCS in a car model to actual
volume production for that model vehicle. During this process, we derive
minimal funding from prototype sales but generally obtain no significant
revenue until volume production begins.
Discontinued Products
We were founded in 1991 to focus on advanced automotive technologies,
including electric vehicles. We incurred substantial losses from electric
vehicle activities and, by the end of 1997, we had completed substantially all
work on our electric vehicle development contracts. We decided to suspend
funding the electric vehicle program in August 1998 because it was generating
continuing losses and utilizing resources that we felt would be better
utilized in development of CCS and radar products. In March 1999, we formed a
subsidiary to hold our electric vehicle activities and then sold to Dr. Lon
Bell, a significant shareholder, officer and director of our company, a 15%
interest in the electric vehicle subsidiary for $88,000. In May 1999, our
shareholders voted to sell the remaining 85% interest of the electric vehicle
subsidiary to Dr. Bell in exchange for all of his Class B stock of the
company.
In 1997, we entered into a joint venture agreement with Yazaki Corporation
to develop and market our voice activated navigation technology. Under the
terms of the agreement, IVS, Inc. was created with Yazaki owning a majority
interest and Amerigon owning a 16% minority interest on a fully diluted basis.
We received $1,800,000 in cash and a note receivable for $1,000,000 in
consideration for net assets related to our voice-interactive technology
totaling approximately $89,000. We incurred costs of $348,000 associated with
the sale. At the end of 1998, due to delays in product development, Yazaki
decided to discontinue funding for the joint venture. IVS declared bankruptcy
on September 30, 1999.
During 2000, we had another product under development, the AmeriGuard(TM)
radar-based speed and distance sensor system, designed to alert drivers to the
presence of objects near the vehicle. We decided to cease funding the
development of AmeriGuard in December 2000 to focus our resources on marketing
of the CCS product and developing the next generation CCS device.
2
Research and Development
Our research and development activities are an essential component of our
efforts to develop products for introduction in the marketplace. Our research
and development activities are expensed as incurred. These expenses include
direct expenses for wages, materials and services associated with the
development of our products and reimbursements from customers. Research and
development expenses do not include any portion of general and administrative
expenses.
We continue to do additional research and development to advance the design
of the CCS product with the goal of making the unit less complex, easier to
package and less expensive to manufacture and install. There can be no
assurance that this development program will result in improved products. A
broad patent has been approved (but not yet been issued) for the next
generation of the CCS.
Research and development expenses for our CCS technology include not only
development of next generation technologies but also application engineering
meaning engineering to adapt CCS components to meet the design criteria of a
particular vehicle's seat. Vehicle seats are not the same and each has
different configuration requirements. The costs incurred in this adaptation
process, and any related reimbursements, are accounted for as research and
development expense.
The net amounts spent for research and development activities in the years
ended December 31, 2000, 1999 and 1998 were $4,099,000, $3,721,000 and
$3,814,000, respectively. Included in research and development are prototype
expenses, net of reimbursements, of $24,000, $151,000 and $95,000 for 2000,
1999, and 1998, respectively. Our research and development expenses fluctuate
significantly from period to period, because of changing levels of research
and development activity and changes in the amount of such activities that are
covered by customer contracts or purchase orders.
Marketing, Customers and Sales
We are a second-tier supplier to car and truck OEMs. As such, we focus our
marketing efforts on car and truck OEMs and their first-tier suppliers. We
have not and do not expect to market directly to consumers. For the CCS
system, our strategy has been to convince the major automobile companies that
CCS is an attractive feature which will meet with consumer acceptance and has
favorable economics, including high gross margins to the OEM. The OEM then
directs us to work with their seat supplier to incorporate CCS into future
seat designs. We also market directly to the major domestic and foreign
automotive seat suppliers. Our sales of CCS are affected by the levels of new
vehicle sales and the general business conditions in the automotive industry.
For the year ended December 31, 2000, sales to Johnson Controls ( a domestic
customer) and NHK (a foreign customer) represented 61% and 38% of our
revenues, respectively.
In the automotive components industry, products typically proceed through
five stages of research and development. Initial research on the product
concept comes first, in order to assess its technical feasibility and economic
costs and benefits. This stage often includes development of an internal
prototype for the component supplier's own evaluation. If the product appears
feasible, the component supplier manufactures a functioning prototype to
demonstrate and test the product's features. These prototypes are then
marketed and sold to automotive companies for testing and evaluation. If an
automobile manufacturer shows interest in the product, it typically works with
the component supplier to refine the product, then purchases second and
subsequent generation engineering prototypes for further evaluation. Finally,
the automobile manufacturer either decides to purchase the component for a
production vehicle or terminates interest in the component.
The time required to progress through these five stages to commercialization
varies widely. Generally, the more a component must be integrated with other
vehicle systems, the longer the process takes. Further, products that are
installed by the factory usually require extra time for evaluation because
other vehicle systems are
3
affected and a decision to introduce the product into the vehicle is not
easily reversed. Because our CCS product affects other vehicle systems and is
a factory-installed item, the process takes a medium amount of time to
commercialization.
We have engaged in a lengthy development process on the CCS product which
involved developing a prototype for proof of concept and then adapting the
basic system to actual seats provided by various automotive OEMs and their
seat suppliers. In the last two years, we have supplied prototype seats
containing our CCS system to virtually every major car manufacturer. As a
result of this process, Ford selected us to supply our CCS product to Johnson
Controls for installation in the Lincoln Navigator SUV. Ford also selected us
to supply Lear with the CCS product for installation as a standard feature in
the 2002 model year Lincoln Blackwood. Toyota chose us to supply our CCS
product to NHK for installation in the Lexus LS 430 and Toyota Celsior luxury
automobiles.
Our ability to market our CCS product successfully will in large part depend
upon the willingness of automobile manufacturers and other OEMs to incur the
substantial expense involved in the purchase and installation of our products
and systems, and, ultimately, upon the acceptance of our product by consumers.
Automobile manufacturers may be reluctant to purchase key components from a
small, development stage company with limited financial and other resources.
On the other hand, initial customer response to our CCS has been positive.
During 2000, we engaged an independent polling firm to poll a sample of
Lincoln Navigator owners, some with the CCS product and some without. Results
showed that customer satisfaction with the CCS product was high, and that most
owners with CCS would purchase it as an option in the future.
Manufacturing, Contractors and Suppliers
We currently have sufficient manufacturing capacity for CCS systems. We
intend to further develop our manufacturing capability in order to implement
our business plan, control product quality and delivery, shorten product
development cycle times, and protect and further develop proprietary
technologies and processes. We expect to develop this capability internally by
purchasing new equipment and hiring additional personnel. We purchased a
second production line in 2000 in anticipation of increased production for
model year 2002 vehicles.
We rely on various vendors and suppliers for the components of our products.
We procure these components through purchase orders with no guaranteed supply
arrangements. While we believe that there are a number of alternative sources
for most of these components, certain components, including the thermoelectric
devices, are only available from a limited number of suppliers.
Backlog
On March 23, 2001, we had a backlog of orders for the CCS of approximately
$442,000, compared to a backlog of $328,000 at March 24, 2000. Our backlog
only includes firm orders that we expect to ship within the next five weeks.
Our backlog is generally subject to a number of risks and uncertainties, such
as the actual volume and timing of vehicle production upon which orders are
based.
Proprietary Rights and Patents
We have historically acquired existing technologies through licenses and
joint development contracts in order to optimize our expenditure of capital
and time, and sought to adapt and commercialize such technologies in
automotive products which were suitable for mass production. We also developed
new technologies or furthered the development of acquired technologies through
internal research and development efforts by our engineers.
We have adopted a policy of seeking to obtain, where practical, the
exclusive rights to use technology related to our products through patents or
licenses for proprietary technologies or processes. We currently have one
license arrangement for our CCS product.
Pursuant to an Option and License Agreement with Feher Design, Inc.
("Feher"), Feher has granted to us an exclusive worldwide license to use
specific CCS technologies covered by three patents held by Feher. The
4
license with respect to technology subject to a Feher patent expires upon the
expiration of the Feher patent covering the relevant technology. The first of
these three patents expires on November 17, 2008. As part of the agreement,
all intellectual property developed by us related to variable temperature
seats is owned by us.
In addition to the license rights granted by Feher, we hold three issued
patents on a variable temperature seat climate control system. We also have
one additional patent pending with respect to the next generation of the CCS.
We are aware that an unrelated party filed a patent application in Japan on
March 30, 1992 with respect to technology similar to the CCS technology.
However, to date, this application remains subject to examination and
therefore no patent has been issued to the party filing such application. If
such patent were to issue and be upheld, it could have a material adverse
effect upon our intellectual property position in Japan.
We are also aware of a patent issued in Japan on November 10, 1998 and in
the U.S. on July 20, 1999 regarding a temperature conditioner that is similar
to one component of our CCS technology. These are in the name of affiliates of
Honda Motor Co., Ltd. and, if upheld, could have a material adverse effect on
our intellectual property position. We are in the process of negotiating an
agreement with the holder of the patents that would allow Amerigon a royalty
free license to the patents.
Competition
The automotive components and systems business is highly competitive. We may
experience competition directly from automobile manufacturers or other major
suppliers, most of which have the capability to manufacture competing
products. Many of our existing and potential competitors have considerably
greater financial and other resources than we do, including, but not limited
to, an established customer base, greater research and development capability,
established manufacturing capability and greater marketing and sales
resources. We also compete indirectly with related products that do not offer
equivalent features to our products, but can substitute for our products, such
as heated seats and ventilated seats. We believe that our products will
compete on the basis of price, performance and quality.
We are not aware of any competitors that are offering systems for both
active heating and cooling of automotive car seats, although substantial
competition exists for the supply of heated-only seats and several companies
are offering a product that circulates ambient air through a seat without
active cooling. In addition, Mercedes Benz and Saab offer options on certain
new models that combine heated seats with circulation of ambient air. It is
possible that competitors will be able to expand or modify their current
products by adding a cooling function to their seats based upon a technology
not covered by patented technology we own or license. CCS competes indirectly
with alternative methods of providing passenger climate control in a vehicle
such as heating and air conditioning systems, which are currently available
for almost all vehicles.
Employees
As of December 31, 2000, we had 86 employees and 4 outside contractors. None
of the employees are subject to collective bargaining agreements. We consider
our employee relations to be satisfactory.
Risk Factors
This Report contains forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Reference is made in particular to the description of our plans and
objectives for future operations, assumptions underlying such plans and
objectives and other forward-looking statements included in this section,
"Item 1 Business," "Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations," and in other places in this Report. Such
statements may be identified by the use of forward-looking terminology such as
"may," "will" "expect" "believe," "estimate," "anticipate" "intend,"
"continue," or similar terms, variations of such terms or the negative of such
terms. Such statements are based on management's current expectations and are
subject to a number of factors and
5
uncertainties which could cause actual results to differ materially from those
described in the forward-looking statements. We expressly disclaim any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the our
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based. Factors which could cause
such results to differ materially from those described in the forward-looking
statements include those set forth below.
Risks Relating to our Business
Our Core Product is at an Early Stage of Commercialization
Although we began operations in 1991, we are only in the early stage of
commercial manufacturing and marketing of our CCS product.
In 2000, we experienced our first full year of CCS production and sales,
shipping over 100,000 units. In addition, we increased the number of platforms
that offer CCS from one in 1999 to four in 2000, including the Lincoln
Blackwood (which will begin production in 2001). However, we will require
greater sales and additional platforms before we become profitable. There can
be no assurance that sales will significantly increase, or that we will become
profitable.
We originally focused our efforts on developing electric vehicles and other
automotive systems. Because the electric vehicle market did not develop as
rapidly as we anticipated, we substantially scaled back our efforts in that
area beginning in 1997 and completely disposed of our electric vehicle
business in June 1999 to focus completely on our CCS and AmeriGuard products.
In December 2000, we decided to cease funding of our AmeriGuard product in
order to direct our resources toward marketing the CCS product and developing
the next generation CCS device.
We Have Incurred and Expect to Incur Substantial Operating Losses
We have incurred substantial operating losses since our inception. As of
December 31, 2000 and December 31, 1999, we had accumulated deficits since
inception of $55,154,000 and $43,880,000, respectively. These accumulated
deficits are attributable to the costs of development and other start-up
activities, including the industrial design, development and marketing of our
products, and a significant loss we incurred on a major electric vehicle
development contract. As is typical for a company in the early stages of
production, we have continued to incur losses due to continuing expenses
without sufficient revenues or profit margins on the sale of products. We
expect to incur significant losses for the next one or two years.
We Need Additional Financing to Finance Planned Operations
As is customary for a company in the early stages of production, and
formerly a development stage company, we have experienced negative cash flow
from operations since our inception. We have expended, and expect to continue
to expend, substantial funds to continue in our development and marketing
efforts. In addition, as the CCS product now requires production in larger
quantities, we will incur increased manufacturing costs. We have not
generated, and do not expect to generate in the near future, sufficient
revenues from the sales of our product to cover our operating expenses. We
will require additional financing through bank borrowings, debt or equity
financing or otherwise to finance our planned operations. No assurance can be
given that we can obtain alternate funding sources or that they will provide
sufficient, if any, financing for us.
At this time, funds from operations are not sufficient to meet our
anticipated financial requirements. Based upon current plans, we believe that
the net funds raised from the sale of common stock offered in our June 2000
private placement, funds provided by Ferrotec Corporation (see Note 19 to the
financial statements), and funds from operations, will be sufficient to meet
our operating needs through the end of the second quarter of 2001. Our
independent accountants have issued an opinion on our financial statements
that raises substantial doubt as to Amerigon's ability to continue as a going
concern.
6
Time Lag from Prototype to Commercial Sale Delays Our Time to Market
The sales cycle in the automotive components industry is lengthy. For
products that must be designed into a vehicle, this cycle can take as long as
five years or more, since some companies take up to five years to design and
develop a car. Even when selling parts that are neither safety-critical nor
highly integrated into a vehicle, an automotive supply company must go through
many stages before achieving commercial sales. This is true because automobile
manufacturers must develop a high degree of confidence that components will
meet customer needs, integrate easily with the other parts of their vehicles,
interface with their production and assembly process, and have minimal
warranty, safety and service problems. As a result, it normally takes several
years from the time that an OEM develops a strong interest in our CCS product
until it is available to consumers in that OEM's vehicles.
Nevertheless, no assurance can be given that our CCS system will be
implemented in any other vehicles. Furthermore, there is no assurance that a
significant number of consumers will accept or desire our CCS product. This
may limit demand for the CCS product.
We are Dependent on Relationships with Our Customers and Suppliers
Our ability to successfully market and manufacture our products is dependent
on relationships with both third party suppliers and customers.
Our success in marketing the CCS product is dependent on its acceptance by
automotive OEMs and their seat suppliers. The CCS product is offered as an
optional feature on the Lincoln Navigator SUV, Lexus LS 430 and Toyota Celsior
luxury vehicles and we are working with many other automotive OEMs and their
seat suppliers in an effort to have the CCS product included in other models
commencing with the 2002 model year and beyond. However, there is no assurance
that automotive OEMs will accept our product. Even if we are successful in
obtaining favorable responses from automotive manufacturers, we may need to
license our technology to potential competitors to ensure adequate additional
sources of supply in light of automobile manufacturers' reluctance to purchase
products from a sole-source supplier particularly where the continued
viability of the supplier is in doubt, as may be in our case.
We rely on various vendors and suppliers for the components of our products
and procure these components through purchase orders, with no guaranteed
supply arrangements. While we believe that there are a number of alternative
sources for most of these components, certain components, including
thermoelectric devices, are only available from a limited number of suppliers.
The loss of any significant supplier, in the absence of a timely and
satisfactory alternative arrangement, or an inability to obtain essential
components on reasonable terms or at all, could materially adversely affect
our business, operations and cash flows. Our business and operations could
also be materially adversely affected by delays in deliveries from suppliers.
We have Limited Manufacturing Experience
To date, we have only one full year of manufacturing operations. There can
be no assurance that our efforts to increase our manufacturing operations will
not exceed estimated costs or take longer than expected or that other
unanticipated problems will not arise. These events could materially adversely
affect our operations, financial condition and/or business prospects.
Automobile manufacturers demand on-time delivery of quality products, and some
have imposed substantial financial penalties for failure to deliver components
to their plants on a timely basis. Such penalties, as well as costs to avoid
them, such as working overtime and overnight air freighting parts that
normally are shipped by less expensive means of transportation, could have a
material adverse effect on our business and financial condition. Moreover, the
inability to meet demand for our products on a timely basis would materially
adversely affect our reputation and prospects.
We Face Uncertain Market Acceptance; We Have Limited Marketing Capabilities
Because our products are sophisticated and in an early stage of development,
we must educate potential customers and prove that our product's quality
justifies its cost. We are likely to meet resistance from potential
7
customers reluctant to make the modifications necessary to incorporate our
product into their products and production processes. In some cases, we may
need to rely on our distributors or other strategic partners to market our
products. The success of these relationships will depend in part on the other
party's own competitive, marketing and strategic goals, including the relative
advantages of alternative products they may be developing and/or marketing. In
light of these facts, there can be no assurance that we will be able to market
our products properly so as to generate meaningful product sales.
We Face Intense Competition; It is Possible Our Technology Will Become
Obsolete
The automotive component industry is intensely competitive. Component
manufacturers compete over price and quality of products, and to retain and
attract qualified technical and marketing personnel. Virtually all of our
competitors are substantially larger in size, have significantly greater
financial, marketing and other resources, have more extensive industry
experience, and have a longer record of successful operations. There can be no
assurance that we will successfully differentiate our products from those of
our competitors, that the marketplace will consider our current or proposed
products to be superior, or even comparable, to those of our competitors, or
that we can succeed in establishing relationships with automobile
manufacturers. Furthermore, no assurance can be given that the competitive
pressures we face will not adversely affect our financial performance.
Due to the rapid pace of technological change, as with any technology-based
product, our products may be rendered obsolete by future developments in the
industry. Our competitive position would be adversely affected if we became
unable to anticipate such future developments and obtain access to the new
technology.
Our Patents and Proprietary Rights Offer Us Limited Protection From
Competitors
As of December 31, 2000, we own four patents and had one patent pending. We
are also the licensee of three patents. We believe that patents and
proprietary rights have been and will continue to be very important in
enabling us to compete. There can be no assurance that any new patents will be
granted to us or that our pending patent application will issue. There also
can be no assurance that our (or our licensor's) patents and proprietary
rights will not be challenged or circumvented, or that they will provide us
with any meaningful competitive advantages. Furthermore, there can be no
assurance that others will not independently develop similar products or
design around any patents that have been or may be issued to our licensors or
to us. Failure to obtain patents in certain foreign countries may materially
adversely affect our ability to compete effectively in certain international
markets.
Because of rapid technological developments in the automotive industry and
the competitive nature of the market, the patent position of any component
manufacturer is subject to uncertainties and may involve complex legal and
factual issues. Consequently, although we either own or have licenses to
certain patents, and are currently processing several additional patent
applications, it is possible that no patents will issue from any pending
applications or that claims allowed in any existing or future patents issued
or licensed to us will be challenged, invalidated, or circumvented, or that
any rights granted thereunder will not provide us adequate protection. There
is an additional risk that we may be required to participate in interference
proceedings to determine the priority of inventions or may be required to
commence litigation to protect our rights, which could result in substantial
costs.
Our products may conflict with patents that have been or may be granted to
competitors or others. They could bring legal actions against us claiming
damages and seeking to enjoin manufacturing and marketing of our products.
This kind of litigation could result in substantial cost to us and diversion
of effort by our management and technical personnel. If any such actions were
successful, in addition to any potential liability for damages, we could be
required to obtain a license in order to continue to manufacture or market the
affected products. If that were to happen, there can be no assurance that we
could obtain the necessary license on acceptable terms, if at all. Our failure
to obtain needed patents, licenses or proprietary information held by others
could have a material adverse effect on our business. However, we have not
received any notice that our products infringe on the proprietary rights of
third parties.
8
The enactment of the legislation implementing the General Agreement on Trade
and Tariffs has resulted in certain changes to United States patent laws that
became effective on June 8, 1995. Most notably, the term of patent protection
for patent applications filed on or after June 8, 1995 is no longer a period
of 17 years from the date of grant. The new term of a United States patent
commences on the date of issuance and terminates 20 years from the earliest
effective filing date of the application. Because the time from filing to
issuance of an automotive technology patent application is often more than
three years, a 20-year term from the effective date of filing may result in a
substantially shortened term of patent protection, which may adversely impact
our patent position. If this change results in a shorter period of patent
coverage, our business could be adversely affected to the extent that the
duration and/or level of the royalties we may be entitled to receive from a
collaborative partner, if any, is based on the existence of a valid patent.
We are aware that an unrelated party filed a patent application in Japan on
March 30, 1992 with respect to certain improvements to the CCS technology. No
patent has been issued on this application. We are also aware of a patent
issued in Japan on November 10, 1998 and in the U.S. on July 20, 1999
regarding a temperature conditioner that is similar to one component of our
CCS technology. These are in the name of affiliates of Honda Motor Co., Ltd.
and, if upheld, could have a material adverse effect on our intellectual
property position. We are in the process of negotiating an agreement with
Honda and the patent holder that would allow Amerigon a royalty free license
to use the patents, but we cannot assure you that an agreement, if reached,
will be favorable to us.
We hold current and future rights to licensed technology through licensing
agreements requiring the payment of minimum royalties and must continue to
comply with these licensing agreements. Failure to do so or loss of such
agreements could materially and adversely affect our business.
We rely on trade secrets that we seek to protect, in part, through
confidentiality and non-disclosure agreements with employees, customers,
suppliers and other parties. There can be no assurance that these agreements
will not be breached, that we would have adequate remedies for any such breach
or that our trade secrets will not otherwise become known to or independently
developed by competitors. If consultants, key employees or other third parties
apply technological information independently developed by them or by others
to our proposed projects, disputes may arise as to the proprietary rights to
such information which may not be resolved in our favor. We may be involved
from time to time in litigation to determine the enforceability, scope and
validity of proprietary rights. Any such litigation could result in
substantial cost and diversion of effort by our management and technical
personnel. Additionally, with respect to our licensed technology, there can be
no assurance that the licensors will have the desire or the resources,
financial or otherwise, to defend against any challenges to their patent
rights.
Our Customers May Unilaterally Cancel Contracts or Require Price Reductions
Automotive customers typically reserve the right to unilaterally cancel
contracts completely or to require unilateral price reductions. Although they
generally reimburse companies for actual out-of-pocket costs incurred with
respect to a particular contract up to the point of cancellation, these
reimbursements typically do not cover costs associated with acquiring general-
purpose assets such as facilities and capital equipment, and may be subject to
negotiation and substantial delays in receipts. If any of our customers were
to unilaterally cancel a contract, or impose a unilateral price reduction, we
might lose some or all of the financial benefits we anticipated from such
contract. This could have a material adverse effect on our financial condition
and the results of our operations.
We Are Dependent on Key Personnel and Need to Retain Our Technical Personnel
Our success will depend to a large extent upon the continued contributions
of Richard A. Weisbart, President and Chief Executive Officer, and other
executives of the Company. The loss of the services of Mr. Weisbart or any of
our executive personnel could have a material adverse effect on us. Our
success will also depend, in part, upon our ability to retain qualified
engineering and other technical and marketing personnel. There is significant
9
competition for technologically qualified personnel in southern California,
where our operations are located, and we may not be successful in recruiting
or retaining sufficient qualified personnel.
We Rely on Independent Contractors
In the past, we engaged outside contractors to perform certain product-
assembly and other production functions, and we anticipate that we may desire
to engage contractors for such purposes in the future. We believe there are a
number of outside contractors that provide the kinds of services we have used
in the past and may desire to use in the future. However, no assurance can be
given that any contractors would agree to work for us on acceptable terms, or
at all. Our inability to engage outside contractors would impair our ability
to complete any development and/or manufacturing contracts for which outside
contractors' services may be needed. Even if we are able to hire outside
contractors, our reliance on them for certain production functions will reduce
our control over the manufacture of our products and will make us partly
dependent on them to deliver our products in a timely manner, with
satisfactory quality controls, and on a competitive basis.
We Face Potential Product Liability
Our business will expose us to potential product liability risks that are
inherent in the manufacturing, marketing and sale of automotive components. In
particular, there may be substantial warranty and liability risks associated
with our products. If available, product liability insurance generally is
expensive. While we presently have $8,000,000 of product liability coverage
with an additional $2,000,000 in product recall coverage, there can be no
assurance that we will be able to obtain or maintain such insurance on
acceptable terms with respect to other products we may develop, or that any
insurance obtained will provide adequate protection against any potential
liabilities. In the event of a successful claim against us, a lack or
insufficiency of insurance coverage could have a material adverse effect on
our business and operations.
We Face the Risks of Foreign Sales and Operations
Many of the world's largest automotive OEMs are located in foreign
countries. Accordingly, our business is subject to many of the risks of
international operations, including governmental controls, tariff
restrictions, foreign currency fluctuations and currency control regulations.
However, historically, substantially all of our sales to foreign countries
have been denominated in U.S. dollars. As such, our historical net exposure to
foreign currency fluctuations has not been material. No assurance can be given
that future contracts will be denominated in U.S. dollars, however.
Furthermore, we may engage contractors located in foreign countries.
Accordingly, we will be subject to additional risks inherent in international
operations, including work stoppages, transportation delays and interruptions,
political instability, economic disruptions, the imposition of import and
export controls, changes in governmental policies, and other factors which
could have an adverse effect on our business.
Risks Relating to Share Ownership
We Have Controlling Shareholders Whose Interests May Differ from Other
Shareholders
On March 29, 1999, we entered into a Securities Purchase Agreement with
Westar Capital II LLC and Big Beaver Investments LLC (together, the
"Controlling Shareholders") pursuant to which the Controlling Shareholders
invested $9 million in Amerigon in return for contingent warrants and 9,000
shares of our Series A Preferred Stock (which are convertible into shares of
our common stock at an initial conversion price of $1.675 per common share).
The contingent warrants are exercisable only to the extent certain other
warrants to purchase common stock are exercised, and then only to purchase a
number of shares in proportion to the shares purchased by the exercise of such
other warrants in an amount equal to the percentage interest in us that they
had in us after the initial investment (on an as-converted basis). In
connection with this transaction, the Controlling Shareholders obtained the
right to elect a majority of our directors as well as rights of first refusal
on future financing and registration rights. In addition, based upon the terms
of the Series A Preferred Stock, at December 31, 2000, the Controlling
Shareholders own approximately 58.3% of our common equity (on an as-
10
converted basis, excluding options and warrants). The interests of the
controlling shareholders may differ from those of other shareholders.
Anti-Takeover Effects of Preferred Stock Make Acquisition More Difficult
Our outstanding Series A Preferred Stock confers upon the controlling
shareholders the right to elect five of seven members of our Board of
Directors. In addition, the Series A Preferred Stock votes together with the
shares of our common stock on any other matter submitted to shareholders.
Based on the terms of our Series A Preferred Stock, at December 31, 2000, the
Controlling Shareholders own approximately 58.3% of our common equity (on an
as-converted basis, excluding options and warrants) and have the ability to
approve or prevent any subsequent change in control.
In addition, our Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action
by the shareholders. The rights of the holders of our common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
shares of preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock.
Ford has a Significant Number of Warrants That May Dilute Shareholder
Interests
As part of the VPA, we granted Ford warrants exercisable for shares of our
common stock. A warrant for the right to purchase 82,197 shares of our common
stock at an exercise price of $2.75 per share was issued and fully vested on
March 27, 2000. In September 2000, an additional warrant for 26,148 shares of
our common stock at an exercise price of $2.75 was issued due to certain anti-
dilution provisions in the VPA which were triggered by the sale of 2.5 million
shares of our common stock in June 2000. Additional warrants will be granted
and vested based upon purchases by Ford of a specified number of CCS units in
a given year throughout the length of the VPA. The exercise price of these
additional warrants depends on when they 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 our common stock. The exercise of these warrants could cause
significant dilution to existing shareholders. The Ford warrants contain a
cashless exercise provision, which allows Ford to exercise its warrants and
receive a number of shares equal in value to the difference between the then
market price of the common stock and the exercise price of the warrant,
multiplied by the number of warrant shares being exercised.
Fluctuations in Our Quarterly Results and Our Small "Float" May Result in a
Volatile Stock Price
Our quarterly operating results may fluctuate significantly in the future
due to such factors as acceptance of our product by OEMs and consumers, timing
of our product introductions, availability and pricing of components from
third parties, timing of orders, foreign currency exchange rates,
technological changes, and economic conditions generally. Broad market
fluctuations in the stock markets can, obviously, adversely affect the market
price of our common stock. In addition, failure to meet or exceed analysts'
expectations of financial performance may result in immediate and significant
price and volume fluctuations in our common stock.
Without a considerably larger public float, our common stock will be less
liquid than stocks with broader public ownership. As a result, trading prices
for the our stock may fluctuate significantly and certain institutional
controlling shareholders may be unwilling to invest in such a thinly traded
security.
11
Future Sales of Eligible Shares May Lower Price of Common Shares
Sales of substantial amounts of our common stock into the public market
could lower our common stock's market price. As of the close of trading on
March 2, 2001, we had 4,427,975 shares of our common stock outstanding. Future
sales of substantial amounts are possible due to any of the following:
. Employees (who are not deemed affiliates) hold options to buy 921,447
shares of our common stock. The common stock to be issued upon exercise
of these options has been registered, and therefore, may be freely sold
when issued.
. We have outstanding warrants to buy 4,187,782 shares of our common stock.
Any shares registered will be eligible for resale. If these shares are
not sold, they may be included in certain registration statements to be
filed by us in the future.
. We have registered the resale of 2,740,400 restricted shares, including
shares underlying warrants (subject to adjustment in certain
circumstances), of our common stock by filing a registration statement on
Form S-3 with the Securities and Exchange Commission.
. We may issue options to purchase up to an additional 470,667 shares of
our common stock under our 1993 and 1997 stock option plans. These
options will be fully transferable when issued.
. The holders of our Series A Convertible Preferred Stock may convert it
into 5,373,134 shares of our common stock. These holders possess demand
and piggyback registration rights.
We Have Not Paid And Do Not Expect to Pay Dividends on Our Common Stock
We have never paid any cash dividends on our common stock and do not
anticipate paying dividends in the near future.
ITEM 2. PROPERTIES
We maintain our corporate headquarters, manufacturing and research and
development facilities in leased space of approximately 40,000 square feet in
Irwindale, California. Our lease expires December 31, 2002. The current
monthly rent under the lease is approximately $20,000. We have other leased
sales offices in Detroit, Germany and Japan which collectively cost
approximately $15,000 per month. We believe that these facilities are adequate
for their present requirements.
ITEM 3. LEGAL PROCEEDINGS
We are subject to litigation from time to time in the ordinary course of our
business, but there is no current pending litigation to which we are a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Our Common Stock trades on the Nasdaq SmallCap Market under the symbol ARGN.
Our Class A Warrants trade on the Nasdaq Bulletin Board under the symbol
ARGNW. The following table sets forth the high and low bid prices for our
Common Stock as reported on the Nasdaq SmallCap Market for each quarterly
period (or part thereof) from the beginning of the first quarter of 1999
through the fourth quarter of 2000. Such prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
High(1) Low(1)
------- ------
1999
1st Quarter................................................ 3.44 0.81
2nd Quarter................................................ 6.22 0.75
3rd Quarter................................................ 5.25 3.00
4th Quarter................................................ 4.91 2.00
2000
1st Quarter................................................ 25.50 2.50
2nd Quarter................................................ 15.00 7.25
3rd Quarter................................................ 9.00 5.00
4th Quarter................................................ 5.13 1.81
- ---------------------
(1) Numbers adjusted to give effect to the 1-for-5 reverse stock split that
became effective on January 26, 1999, upon the filing of an amendment to
our Articles of Incorporation. Our Common Stock began trading on the
adjusted basis on the Nasdaq SmallCap Market on January 28, 1999.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31,
------------------------------------------------
(In thousands except per share data)
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
Product revenues............ $ -- $ -- $ 18 $ 336 $ 6,886
Net loss.................... (9,997) (5,417) (7,704) (7,575) (11,274)
Net loss per basic and
diluted share(1)........... (12.30) (3.08) (4.03) (8.29) (3.43)
Accumulated deficit......... (23,184) (28,601) (36,305) (43,880) (55,154)
As of December 31,
------------------------------------------------
(In thousands)
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
Working capital (deficit)... $ (3,315) $ 8,826 $ 1,190 $ 1,481 $ 3,200
Total assets................ 3,922 10,568 2,644 3,721 8,745
Long term obligations and
redeemable preferred
Stock...................... 43 41 26 8,278 5
Capitalized lease
obligations................ 43 41 65 27 12
- ---------------------
(1) Numbers adjusted to give effect to the 1-for-5 reverse stock split that
became effective on January 26, 1999, upon the filing of an amendment to
our Articles of Incorporation. Our common stock began trading on the
adjusted basis on the Nasdaq SmallCap Market on January 28, 1999.
13
Unaudited Quarterly Financial Data Schedule
For the Years Ended December 31, 2000 and 1999
(In thousands)
For the three months ended,
----------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
--------- -------- ------------- ------------
Net sales...................... $ 954 $ 944 $ 1,779 $ 3,209
Gross profit................... 109 143 143 217
Loss before extraordinary
item.......................... (2,064) (4,661) (2,376) (2,880)
Net loss....................... (2,064) (3,954) (2,376) (2,880)
Basic and diluted net loss per
share......................... $ (1.08) $ (1.66) $ (0.54) $ (0.65)
For the three months ended,
----------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
Net sales...................... $ 17 $ 10 $ 20 $ 289
Gross profit................... 17 42 (75) (426)
Loss before extraordinary
item.......................... (1,639) (1,612) (1,994) (2,330)
Net loss....................... (1,639) (1,612) (1,994) (2,330)
Basic and diluted net loss per
share......................... $ (0.86) $ (5.17) $ (1.04) $ (1.22)
The net sales amounts differ from those originally reported due to a change
in the way we group certain costs and reimbursements. We group prototype
materials costs and related reimbursements in research and development. We
group tooling costs and related reimbursements in cost of goods sold. These
costs were formerly included in development contract revenues and development
contract costs. The present grouping is consistent with accounting standards
in the automotive industry. The change did not affect net loss or basic and
diluted net loss per share for any of the periods.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with,
and is qualified in its entirety by, our financial statements (and notes
related thereto) and other more detailed financial information appearing
elsewhere in this report.
Overview
We are in the business of developing and manufacturing vehicle components
for automotive OEMs. We were incorporated in California on April 23, 1991 as a
research and development entity focused on creating electric vehicles. During
1998, we decided to suspend funding activities associated with electric
vehicles and directed our resources to developing and commercializing the
Climate Control Seat ("CCS") and our AmeriGuard radar for maneuvering and
safety. In May 1999, our shareholders voted to discontinue electric vehicle
operations and in December 2000, we decided to cease funding for AmeriGuard.
As a result, we are now focused solely on the manufacture and marketing of the
CCS product and the development of the next generation CCS device.
Accordingly, we have incurred significant sales and marketing, prototype, and
engineering expenses to gain orders for production vehicles.
We are now operating as a supplier to 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 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.
14
Results of Operations Year Ended December 31, 2000 Compared to Year Ended
December 31, 1999
Revenues. Revenues for year ended December 31, 2000 were $6,886,000 as
compared with revenues of $336,000 in the year ended December 31, 1999. The
large increase was due to an increase in CCS units shipped from about 5,000 in
1999 to over 100,000 in 2000. The year 2000 marked our first full year as an
operating company producing and selling a commercial product.
Product Costs. Product costs increased from $778,000 in 1999 to $6,274,000
in 2000. The increase is due to the much larger shipments of CCS product in
2000 compared to 1999. We experienced a positive gross margin of $612,000 in
2000 compared to a negative gross margin of $442,000 in 1999, due to fixed
costs being spread over the higher production volume in 2000. We anticipate
product costs to increase in absolute dollars while decreasing as a percentage
of revenue. Product costs includes tooling costs and related reimbursements;
net reimbursements of $34,000 and $184,000 were recorded for 2000 and 1999,
respectively.
Research and Development Expenses. Research and development expenses
increased to $4,099,000 in 2000 from $3,721,000 in 1999. The change was due to
an increase in salaries and benefits of $530,000 due to higher staffing in the
engineering departments, and a $373,000 increase in overhead. These increases
were offset by a $348,000 decrease in consulting/temporary help and a $126,000
decrease in prototype costs (net of reimbursements). Consulting/temporary help
was higher in 1999 due to expenditures on a consultant to the radar department
and a greater reliance on temporary workers. The decrease in prototype costs
is due to greater reimbursements in 2000 compared to 1999.
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 product costs. This classification has been made for all years
presented.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $6,088,000 in 2000 compared to $3,481,000
in 1999. The change was due to an increase in salaries, bonuses and benefits
of $1,119,000, professional fees of $819,000, and amortization of the deferred
exclusivity fee of $199,000 (see Note 6 to the financial statements). We also
experienced increases in travel and recruiting of $145,000 and $103,000,
respectively. The increases in 2000 related to the launch of the CCS product
on the Lincoln Navigator, Lexus LS 430, Toyota Celsior and Lincoln Blackwood
vehicles. We expect SG&A expenses to decrease in 2001 as we seek to reduce
expenses throughout the company.
Interest Income. Net interest income in 2000 increased to $201,000 due to
cash provided by the sale of our common stock in June 2000 (see Note 8 to the
financial statements). We also incurred interest expense of $2,607,000 in
2000. The primary cause was a non-cash interest charge of $2.5 million
relating to the beneficial conversion feature of the bridge loan (see Note 7
to the financial statements). We also incurred $49,000 in interest as a result
of the bridge loan of $2,500,000, $57,000 in amortized bridge loan discount
and $2,000 associated with the amortization of deferred financing costs.
Results of Operations Year Ended December 31, 1999 Compared to Year Ended
December 31, 1998
Revenues. Product revenues for the year ended December 31, 1999 were
$336,000, compared to $18,000 for the year ended December 31, 1998. The
revenues in 1999 reflect the first commercial shipments of our CCS product for
use in the Lincoln Navigator.
Research and Development. Research and development expenses decreased by
$93,000 in 1999 to $3,721,000 from $3,814,000 in 1998. These expenses
represent research and development expenses, net of reimbursements, relating
to the CCS and AmeriGuard products in 1999, and the CCS, AmeriGuard and
electrical vehicle products in 1998. The slight decrease reflects the
suspension of expenditures on the electrical vehicle product in 1999, offset
by increases in spending on AmeriGuard and CCS.
15
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 product costs. This classification has been made for all years
presented.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $617,000 in 1999 to $3,481,000 from
$4,098,000 in 1998. The change was due to a decrease in recruiting and other
outside consulting services in 1999.
Interest Income. Net interest income in 1999 decreased to $105,000 from
$238,000 in 1998 due to a decline in cash balances before the completion of
the sale of Series A Preferred Stock (see Note 9 to the financial statements).
We also incurred interest expense of $14,000 as a result of a bridge loan of
$1,200,000 and $9,000 associated with the amortization of deferred financing
costs.
Liquidity and Capital Resources
As of December 31, 2000, we had working capital of $3,200,000.
On March 16, 2000, Big Star, an affiliate of our controlling shareholders,
Westar and Big Beaver, provided us with a secured bridge loan for up to $4.0
million which bore interest at 10% per annum and matured on August 31, 2000.
As additional consideration for the credit facility, we issued warrants to
purchase 18,109 shares of our common stock at $5 per share. The warrant
expires after five years if not exercised. The credit facility was secured by
a lien on virtually all of our assets. The bridge loan was necessary to allow
us to continue operations pending the closing of a subsequent equity
financing.
On June 14, 2000, we completed a privately placed financing with accredited
investors, pursuant to which we sold 2,200,000 shares of our common stock for
$11,000,000. In addition, Westar and Big Beaver elected to convert $1,500,000
of the debt under the bridge loan into 300,000 shares of our common stock. Due
to anti-dilution provisions in various warrants triggered by the June 2000
private placement, we issued additional warrants to purchase up to 1,125,698
shares of our common stock. Of those warrants, 387,064 are contingent warrants
that are exercisable only to the extent certain other warrants to purchase
common stock are exercised, and then only to purchase a number of shares in
proportion to the shares purchased by the exercise of such other warrants in
an amount equal to the percentage interest in us that they had in us after the
initial investment (on an as-converted basis).
Our principal sources of operating capital have been the proceeds of our
various financing transactions and, to a lesser extent, revenues from the sale
of CCS units to Johnson Controls and NHK and reimbursements of prototype
material and tooling costs from customers.
As of December 31, 2000, our cash and cash equivalents increased by
$1,205,000 from $1,647,000 at December 31, 1999, primarily due to the cash
raised by the June 2000 private placement offset by the cash used in operating
activities of $9,370,000, which was mainly attributable to the net loss of
$11,274,000. Investing activities used $695,000 as we purchased production
equipment and tooling for CCS production. Financing activities provided
$11,270,000 due primarily to $9,730,000 in net proceeds from the June 2000
private placement and $1,500,000 from the bridge loan which was converted into
our common stock.
Until we are selling units in the automotive market with an appropriate
margin and volume, we expect to incur losses for the foreseeable future. Even
the volume production we expect for the four Ford and Toyota platforms will
not generate sufficient revenue to meet our operating needs. We will need to
raise additional cash from financing sources before we can achieve
profitability from our operations. There can be no assurance that
profitability can be achieved in the future. Although we have begun production
on our CCS product, larger orders for the seat product 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
16
current working capital sources. On March 28, 2001 we entered into a
manufacturing and supply agreement with Ferrotec Corporation, a Tokyo based
manufacturer. The agreement grants to Ferrotec the exclusive right to
manufacture CCS units in certain countries, for ultimate distribution by us to
our customers within those countries, with the understanding that we will
enter into good faith negotiations with Ferrotec to establish a joint venture
for the purpose of purchasing, marketing, selling and distributing the CCS
units in those countries. The countries 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.
Ferrotec has agreed to pay us $2,000,000 for the exclusive manufacturing
rights. Ferrotec has also entered into a subscription agreement with us,
whereby Ferrotec will purchase 200,000 unregistered shares of our 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 we propose to register any
securities before then.
At December 31, 2000, we had cash and cash equivalents of $2,852,000 and
working capital of $3,200,000. 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 anticipated funds from the manufacturing and supply agreement with
Ferrotec Corporation, will be sufficient to meet our operating needs through
the end of the second quarter of 2001.
We are currently attempting to obtain a line of credit secured by
receivables, and are considering pursuit of additional funds through
additional debt or equity financing or through strategic corporate
partnerships. We also plan 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.
ITEM 7A. 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. As stated in our
policy, we seek to ensure the safety and preservation of our invested funds by
limiting default risk and market risk. We have no investments denominated in
foreign country currencies and therefore are not subject to foreign exchange
risk.
The table below presents the carrying value and related weighted average
interest rates for the Company's investment portfolio. The carrying value
approximates fair value at December 31, 2000.
Average Rate of
Return at
December 31,
Carrying Value 2000
Marketable Securities (in thousands) (Annualized)
--------------------- -------------- ---------------
Cash equivalents.............................. $2,852 7.6%
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities", which will become effective
for the Company in fiscal 2001. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. We are still assessing the impact of SFAS 133 on the
reported financial condition and results of operations.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information required to be
filed hereunder are indexed on page F-1 of this report and are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
information contained under the captions entitled "Election of Directors,"
"Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in our definitive proxy statement to be filed with the Commission
in connection with our 2001 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information contained under the captions entitled "Executive Compensation,"
"Executive Compensation Table," "Compensation Committee Interlocks and Insider
Participation," "Option Grant Table," and "Aggregate Options Exercised and
Year-End Values" in our definitive proxy statement to be filed with the
Commission in connection with the Company's 2001 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information contained under the caption entitled "Security Ownership of
Certain Beneficial Owners and Management" and in our definitive proxy
statement to be filed with the Commission in connection with the Company's
2001 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
information contained under the caption entitled "Certain Transactions" in our
definitive proxy statement to be filed with the Commission in connection with
our 2001 Annual Meeting of Stockholders.
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements.
The following financial statements of the Company and report of
independent accountants are included in Item 8 of this Annual Report:
Page
----
Balance Sheets...................................................... F-2
Statements of Operation............................................. F-3
Statements of Shareholders' Equity (Deficit)........................ F-4
Statements of Cash Flows............................................ F-5
Notes to the Financial Statements................................... F-6
Report of Independent Accountants................................... F-23
2. Financial Statement Schedule.
The following Schedule to Financial Statements is included herein:
Schedule II--Valuation and Qualifying Accounts.
3. Exhibits.
The following exhibits are filed as a part of this report:
Exhibit
Number Description
------- ----------------------------------------------------------------------
3.1.1 Amended and Restated Articles of Incorporation (the "Articles") of the
Company(9)
3.1.2 Certificate of Amendment of Articles filed with the California
Secretary of State on December 5, 1996(2)
3.1.3 Certificate of Amendment of Articles filed with the California
Secretary of State on January 26, 1999(6)
3.2 Amended and Restated Bylaws of the Company(2)
4.1.1 Form of Warrant Agreement among the Company, the Underwriter and U.S.
Stock Transfer Corporation as Warrant Agent(2)
4.2.1 Form of Warrant Certificate for Class A Warrant(2)
4.2.2 Certificate of Designation of Series A Convertible Preferred Stock(9)
4.3 Form of Specimen Certificate of Company's Class A Common Stock(1)
4.4 Escrow Agreement among the Company, U.S. Stock Transfer Corporation
and the shareholders named therein(1)
10.1 1993 Stock Option Plan, together with Form of Incentive Stock Option
Agreement and Nonqualified Stock Option Agreement(1)
10.4 Form of Underwriter's Unit Purchase Option(2)
10.6 Form of Indemnity Agreement between the Company and each of its
officers and directors(1)
10.8 Option and License Agreement dated as of November 2, 1992 between the
Company and Feher Design, Inc.(1)
10.9 Shareholders Agreement, dated May 13, 1993, by and among the Company
and the shareholders named therein(1)
20
Exhibit
Number Description
------- ----------------------------------------------------------------------
10.13 Joint Venture Agreement between Yazaki Corporation and Amerigon
Incorporated, dated July 22, 1997(3)
10.14 Amendment to Option and License Agreement between Amerigon and Feher
Design dated September 1, 1997(4)
10.15 Standard Lease dated January 1, 1998 between Amerigon and Dillingham
Partners(4)
10.17 Securities Purchase Agreement dated March 29, 1999 by and among the
Company, Westar Capital II LLC and Big Beaver Investments LLC(5)
10.22 Share Exchange Agreement dated March 29, 1999 between the Company and
Lon E. Bell(5)
10.23 Credit Agreement dated March 16, 2000 between the Company and Big Star
Investments LLC(7)
10.24 Security Agreement dated March 16, 2000 between the Company and Big
Star Investments LLC(7)
10.25 Patent and Trademark Security Agreement dated March 16, 2000 between
the Company and Big Star Investments LLC(7)
10.26 Bridge Loan Warrant dated March 16, 2000(7)
10.27 Letter to Amerigon Incorporated Regarding Series A Preferred Stock(7)
10.28 Ford Warrant dated March 27, 2000(8)
10.29 Value Participation Agreement dated March 27, 2000 between the Company
and Ford Motor Company(8)
23.1 Consent of PricewaterhouseCoopers LLP
(b)Reports on Form 8-K.
On November 8, 2000, the Company filed a Current Report on Form 8-K (event
dated October 20, 2000) to report under Item 5 (other events).
- ---------------------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2, as amended, File No. 33-61702-LA, and incorporated by
reference.
(2) Previously filed as an exhibit to the Company Registration Statement on
Form S-2, as amended, File No. 333-17401, and incorporated by reference.
(3) Previously filed as an exhibit to the Company's Current Report on Form 8-
K, event date July 22, 1997, and incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Current Report on Form
10-K for the period ended December 31, 1997, and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Company's Current Report on Form
10-K for the period ended December 31, 1998 and incorporated herein by
reference.
(6) Previously filed as an exhibit to the Company's Current Report on Form
10-Q for the period ended June 30, 1999 and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Current Report on Form
10-K for the period ended December 31, 1999 and incorporated herein by
reference.
(8) Previously filed as an exhibit to the Company's Current Report on Form
10-Q for the period ended March 31, 2000 and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Company's Current Report on Form
10-Q for the period ended June 30, 2000 and incorporated herein by
reference.
21
INDEX TO FINANCIAL STATEMENTS
Page
----
Balance Sheets............................................................. F-2
Statements of Operations................................................... F-3
Statements of Shareholders' Equity (Deficit)............................... F-4
Statements of Cash Flows................................................... F-5
Notes to the Financial Statements.......................................... F-6
Report of Independent Accountants.......................................... F-23
F-1
AMERIGON INCORPORATED
BALANCE SHEETS
(In thousands)
December 31,
------------------
2000 1999
-------- --------
ASSETS
Current Assets:
Cash & cash equivalents.................................. $ 2,852 $ 1,647
Accounts receivable less allowance of $55, and $58,
respectively............................................ 1,375 282
Inventory................................................ 1,478 490
Prepaid expenses and other assets........................ 487 251
-------- --------
Total current assets................................... 6,192 2,670
Property and equipment, net................................ 1,383 1,051
Deferred exclusivity fee, net.............................. 1,170 --
-------- --------
Total Assets........................................... $ 8,745 $ 3,721
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable......................................... $ 1,376 $ 592
Accrued liabilities...................................... 1,446 597
Deferred revenue......................................... 170 --
-------- --------
Total current liabilities.............................. 2,992 1,189
Long term portion of capital lease......................... 5 11
-------- --------
Total liabilities...................................... 2,997 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 December 31, 2000 and 1999; liquidation
preference of $9,315 (Note 9)........................... -- 8,267
-------- --------
Commitments (Note 15)
Shareholders' equity (deficit):
Preferred stock:
Series A--no par value; convertible; 9 shares
authorized, 9 and none issued and outstanding at
December 31, 2000 and 1999; liquidation preference of
$9,945 (Note 9)........................................ 8,267 --
Common stock:
No par value; 20,000 shares authorized, 4,428 and 1,910
issued and outstanding at December 31, 2000 and 1999... 37,947 28,149
Paid-in capital.......................................... 14,689 10,059
Deferred compensation.................................... (1) (74)
Accumulated deficit...................................... (55,154) (43,880)
-------- --------
Total shareholders' equity (deficit)................... 5,748 (5,746)
-------- --------
Total liabilities and shareholders' equity (deficit)... $ 8,745 $ 3,721
======== ========
The accompanying notes are an integral part of these financial statements
F-2
AMERIGON INCORPORATED
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
---------------------------
2000 1999 1998
-------- -------- -------
Product revenues................................... $ 6,886 $ 336 $ 18
Cost of sales...................................... 6,274 778 48
-------- -------- -------
Gross margin....................................... 612 (442) (30)
Operating costs and expenses:
Research and development.......................... 4,099 3,721 3,814
Selling, general and administrative............... 6,088 3,481 4,098
-------- -------- -------
Total operating costs and expenses.............. 10,187 7,202 7,912
-------- -------- -------
Operating loss..................................... (9,575) (7,644) (7,942)
Interest income.................................... 201 135 255
Interest expense................................... (2,607) (30) (17)
Loss on disposal of property and equipment......... -- (36) --
-------- -------- -------
Loss before extraordinary item..................... (11,981) (7,575) (7,704)
-------- -------- -------
Extraordinary gain from extinguishment of debt..... 707 -- --
-------- -------- -------
Net loss........................................... (11,274) (7,575) (7,704)
Deemed dividend to preferred shareholders.......... -- (8,267) --
-------- -------- -------
Net loss available to common shareholders.......... $(11,274) $(15,842) $(7,704)
======== ======== =======
Basic and diluted net loss per share:
Loss before extraordinary item.................... $ (3.65) $ (8.29) $ (4.03)
Extraordinary gain from extinguishment of debt.... 0.22 -- --
-------- -------- -------
Net loss........................................... $ (3.43) $ (8.29) $ (4.03)
======== ======== =======
Weighted average number of shares outstanding...... 3,283 1,910 1,910
======== ======== =======
The accompanying notes are an integral part of these financial statements
F-3
AMERIGON INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands)
Preferred Common Stock Paid-in Deferred Accumulated
Stock Shares Amount Capital Compensation Deficit Total
--------- ------ ------- ------- ------------ ----------- --------
Balance at December 31,
1997................... -- 1,910 $28,149 $ 9,882 -- $(28,601) $ 9,430
Net loss............... -- -- (7,704) (7,704)
------ ----- ------- ------- --- -------- --------
Balance at December 31,
1998................... -- 1,910 28,149 9,882 -- (36,305) 1,726
Issuance of warrants to
purchase Common Stock
in conjunction with
Bridge Loan
Financing............. -- -- -- 9 -- -- 9
Issuance of warrants to
purchase Common Stock
in exchange for
services.............. -- -- -- 1 -- -- 1
Issuance of shares in
consolidated
subsidiary to
Shareholder........... -- -- -- 88 -- -- 88
Issuance of option to
purchase Common
Stock................. -- -- -- 79 (74) -- 5
Net loss............... -- -- -- -- -- (7,575) (7,575)
------ ----- ------- ------- --- -------- --------
Balance at December 31,
1999................... -- 1,910 28,149 10,059 (74) (43,880) ( 5,746)
Reclassification of
Preferred Stock from
mezzanine in
conjunction with
amendment to remove
change in control
provision.............. 8,267 -- -- -- -- -- 8,267
Issuance of warrants to
purchase Common Stock
in conjunction with
Bridge Loan
Financing............. -- -- -- 173 -- -- 173
Issuance of warrants to
purchase Common Stock
in conjunction with
Value Participation
Agreement............. -- -- -- 1,369 -- -- 1,369
Issuance of Common
Stock for cash, net of
cash expenses of
$1,270................ -- 2,200 8,242 1,440 -- -- 9,682
Conversion of Bridge
Loan to Common Stock.. -- 300 1,500 -- -- -- 1,500
Exercise of Common Stock
options for cash....... -- 18 56 -- -- -- 56
Beneficial conversion
feature recorded in
conjunction with Bridge
Loan financing......... -- -- -- 2,500 -- -- 2,500
Unearned compensation
relating to stock
option granted......... -- -- -- 70 (66) -- 4
Fair value adjustment
relating to non-
employee stock
options................ -- -- -- (147) 139 -- (8)
Repurchase of beneficial
conversion feature..... -- -- -- (775) -- -- (775)
Net Loss............... -- -- -- (11,274) (11,274)
------ ----- ------- ------- --- -------- --------
Balance at December 31,
2000................... $8,267 4,428 $37,947 $14,689 $(1) $(55,154) $ 5,748
====== ===== ======= ======= === ======== ========
The accompanying notes are an integral part of these financial statements
F-4
AMERIGON INCORPORATED
STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
--------------------------
2000 1999 1998
-------- ------- -------
Operating Activities:
Net loss.......................................... $(11,274) $(7,575) $(7,704)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization.................... 562 344 582
Amortization of debt discount.................... 57 -- --
Extraordinary gain on extinguishment of debt..... (707) -- --
Deferred revenue................................. 170 (44) (53)
Non-cash interest................................ 2,500 -- --
Provision for doubtful accounts.................. (3) (43) 21
Loss from sale of assets......................... -- 36 --
Compensation from grant of non-employee stock
options and warrants............................ (4) 15 --
Change in operating assets and liabilities:
Accounts receivable............................. (1,090) (65) 60
Inventory....................................... (988) (385) (70)
Prepaid expenses and other assets............... (236) (115) 60
Accounts payable................................ 784 229 (287)
Accrued liabilities............................. 859 112 164
-------- ------- -------
Net cash used in operating activities.......... (9,370) (7,491) (7,227)
Investing Activities:
Purchase of property and equipment................ (695) (869) (449)
Proceeds from sale of assets...................... -- -- 971
Purchase of short term investments................ -- (1,854) --
Sale of short term investments.................... -- 1,854 2,400
-------- ------- -------
Net cash (used in) provided by investing
activities.................................... (695) (869) 2,922
Financing Activities:
Proceeds from Series A Preferred Stock and
Warrants......................................... -- 9,001 --
Cost of issuance of Series A Preferred Stock and
Warrants......................................... -- (734) --
Proceeds from sale of common stock................ 11,056 -- --
Cost of issuance of common stock.................. (1,270) -- --
Repayment of capital lease........................ (16) (15) (65)
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 (used in) financing
activities.................................... 11,270 8,340 (65)
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................... 1,205 (20) (4,370)
Cash and cash equivalents at beginning of
period........................................ 1,647 1,667 6,037
-------- ------- -------
Cash and cash equivalents at end of period..... $ 2,852 $ 1,647 $ 1,667
======== ======= =======
The accompanying notes are an integral part of these financial statements
F-5
AMERIGON INCORPORATED
NOTES TO THE 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
the majority of its efforts on the introduction of its Climate Control
Seat(TM) ("CCS(TM)"), which provides both heating and cooling to seat
occupants.
The Company experienced its first full year as an operating company in 2000,
after having been a development stage company from inception through September
30, 1999. During 2000, the Company added a major customer in Asia and
increased the number of automotive platforms using the CCS product. Prior to
September 30, 1999, the Company's operations have focused on the research and
development of technologies to adapt them for a variety of uses in the
automotive industry. During the fourth quarter of 1999, the Company's planned
principal operations commenced with the first significant sales and production
of CCS systems.
In the automotive components industry, products typically proceed through
five stages of research and development and commercialization. Initial
research on the product concept comes first, in order to assess its technical
feasibility and economic costs and benefits, and often includes the
development of an internal prototype for the supplier's own evaluation of the
product. If the product appears feasible, a functioning prototype or
demonstration prototype is manufactured by the component supplier to
demonstrate and test the features of the product. This prototype is then
marketed to automotive companies to generate sales of evaluation prototypes
for internal evaluation by the automobile manufacturer. If the automobile
manufacturer remains interested in the product after testing initial
evaluation prototypes, it typically works with the component supplier to
refine the product and then purchase second and subsequent generation
engineering prototypes for further evaluation. Finally, the automobile
manufacturer determines to either purchase the component for a production
vehicle or terminate interest in the component.
Disposition of Electric Vehicle Operations
The Company was originally founded to focus on advanced automotive
technologies, including electric vehicle systems ("EV"). As a recipient of a
number of federal and state government grants relating to the development of
EV, the Company spent many years developing and conducting research on EV, and
had research and development contracts with commercial companies relating to
EV. The Company incurred substantial losses from EV activities, including
significant cost overruns on an EV development contract. By December 31, 1997,
the Company had completed substantially all work on its EV contracts.
During 1997, the Company's Board of Directors decided to focus primarily on
the CCS and AmeriGuard radar products. After trying and failing to obtain
either a strategic partner who would provide financing for an EV joint
venture, or to purchase its EV assets, the Board of Directors decided to
suspend funding the EV program (effective August 1998) because it was
generating continuing losses and utilizing resources that the Board felt would
be better utilized in development of the CCS and radar products. In June 1999,
the Company disposed of its electric vehicle operations (Note 16).
Ceasing Development of Ameriguard
In December 2000, the Company's Board of Directors decided to cease funding
the development of AmeriGuard in order to focus the Company's resources on the
marketing of the CCS product and development of the next generation CCS
device.
F-6
Note 2 -- Basis of Presentation
Liquidity and Capital Resources
The Company has suffered net losses of $11,274,000, $7,575,000 and
$7,704,000 and has used cash in operating activities of $9,370,000, $7,491,000
and $7,227,000 for the years ended December 31, 2000, 1999, and 1998,
respectively, and the Company has an accumulated deficit of $55,154,000 as of
December 31, 2000. The Company expects to incur losses for the next one to two
years as anticipated sales volumes in the near term are not sufficient to
cover the Company's fixed manufacturing, overhead and operating cost.
The Company has funded its financial needs from inception primarily through
net proceeds received through its initial public offering as well as other
equity and debt financing. At December 31, 2000, the Company had cash and cash
equivalents of $2,852,000 and working capital of $3,200,000. Based on the
Company's current operation plan, management believes existing cash and
working capital are not sufficient to meet the Company's anticipated financial
requirements. Management believes that current cash balances, together with
the anticipated funds from the Manufacturing and Supply agreement (Note 19),
will be sufficient to meet their operating needs through the end of the second
quarter of 2001.
Management is currently attempting to obtain a line of credit secured by
receivables, and is considering pursuit of additional funds through additional
debt or equity financing or through strategic corporate partnerships.
Management also plans 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 the Company's ability to continue as a going
concern and to achieve its intended business objectives.
The Company's financial statements have been prepared on the basis of
accounting principles applicable to a going concern. Accordingly, they do not
include any adjustments relating to the recoverability of the carrying amount
of recorded assets or the amount of liabilities that might result from the
outcome of these uncertainties.
Reverse Stock Split
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.
Reclassifications
Certain prior year amounts have been reclassified to conform with current
period presentation.
Note 3 -- Summary of Significant Accounting Policies
Disclosures About Fair Value of Financial Instruments
The carrying amount of all financial instruments, comprising cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and
capital leases, approximate fair value because of the short maturities of
these instruments.
Use of Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
Note 3 -- Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of less than 90 days to be cash equivalents.
Concentration of Credit Risk
Financial instruments, which subject the Company to concentration of credit
risk, consist primarily of cash equivalents and accounts receivable. Cash
equivalents are invested in a money market fund managed by a major U.S.
financial services company and the credit risk is considered limited. Credit
risk associated with accounts receivable is limited by the large size and
creditworthiness of the Company's commercial customers. The Company maintains
an allowance for uncollectible accounts receivable based upon expected
collectibility and generally does not require collateral.
Inventory
Inventory is valued at the lower of cost, based on the first-in, first-out
basis, or market.
Deferred Exclusivity Fee
The deferred exclusivity fee created by the warrants granted to Ford
relating to the Value Participation Agreement are being amortized on a
straight line basis through December 31, 2004.
Property and Equipment
Property and equipment, including additions and improvements, are recorded
at cost. Expenditures for repairs and maintenance are charged to expense as
incurred. When property or equipment is retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts. Gains
or losses from retirements and disposals are recorded as other income or
expense. Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the related carrying
amount may not be recoverable. Management does not believe that there are any
material impairments at December 31, 2000 and 1999.
Depreciation and amortization are computed using the straight-line method.
The estimated useful lives of the Company's property and equipment is as
follows:
Useful Life
-------------------------
Description of property and equipment:
Equipment....................................... 5 years
Computer equipment.............................. 1 to 3 years
Leasehold improvements.......................... Shorter of estimated life
or term of lease
Production tooling.............................. Estimated life of tool
Product Revenues
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. The Company
adopted SAB 101 in the fourth quarter of 2000. Adopting SAB 101 did not have a
material impact on the Company's financial position or results of operations.
F-8
Note 3 -- Summary of Significant Accounting Policies (Continued)
The Company recognizes revenue in accordance with SAB 101, which requires the
following criteria be met before revenue is recognized:
. Persuasive evidence of an arrangement must exist;
. Delivery has occurred or services have been rendered;
. The seller's price to the buyer is fixed or determinable; and
. Collectibility is reasonably assured.
Provision for estimated future cost of warranty is recorded when revenue is
recognized.
Customer Owned Tooling
Costs for tooling developed for and owned by the Company's customers, net of
reimbursements, are included in product costs. Net tooling expense
(reimbursement) for 2000, 1999 and 1998 were:
Years ended December 31,
----------------------------
2000 1999 1998
-------- --------- -------
Net tooling reimbursement...................... $(34,158) $(184,116) $ --
Research and Development Expenses
Research and development activities are expensed as incurred. The Company
groups development and prototype costs and related reimbursements in Research
and Development. Development and prototype costs, net of reimbursements, for
2000, 1999 and 1998 were:
Years ended December 31,
----------------------------
2000 1999 1998
-------- --------- -------
Net development and prototype costs............ $ 24,472 $ 150,661 $95,199
Accounting for Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," the Company accounts for its
stock-based compensation arrangements for stock option grants to employees
pursuant to Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and complies with the disclosure provisions of
SFAS No. 123. Under APB No. 25, compensation cost is recognized based on the
difference, if any, on the date of grant between the fair value of the
Company's stock and the amount an employee must pay to acquire the stock.
The Company accounts for non-employee stock-based awards in which goods or
services are the consideration received for the equity instruments issued in
accordance with the provision of SFAS No. 123 and Emerging Issues Task Force
No. 96-18, "Accounting for Equity Instruments that are Issued to other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
Income Taxes
Income taxes are determined under guidelines prescribed by SFAS No. 109,
"Accounting for Income Taxes." Under the liability method specified by SFAS
109, deferred tax assets and liabilities are measured each year based on the
difference between the financial statement and tax bases of assets and
liabilities at the applicable enacted Federal and State tax rates. A valuation
allowance is provided for the portion of net deferred tax assets when
management considers it more likely than not that the asset will not be
realized.
F-9
Note 3 -- Summary of Significant Accounting Policies (Continued)
Net Loss per Share
Basic loss per share ("Basic EPS") is computed by dividing net loss
available to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share ("Diluted
EPS") gives effect to all dilutive potential common shares outstanding during
a period. In computing Diluted EPS, the treasury stock method is used in
determining the number of shares assumed to be purchased from the conversion
of Common Stock equivalents.
Because their effects are anti-dilutive, net loss per share for the years
ended December 31, 2000, 1999 and 1998 do not include the effect of:
December 31,
------------------------------
2000 1999 1998
---------- --------- ---------
Stock options outstanding for:
1993 and 1997 Stock Option Plans............ 921,447 871,180 203,170
Options granted by an officer to directors
and officers............................... -- -- 118,422
Shares of Common Stock issuable upon the
exercise of warrants....................... 3,997,382 2,705,374 1,430,800
Shares of Common Stock issuable upon the
exercise of an option for Unit Purchase
Options granted to underwriter............. 190,400 190,400 190,400
Common Stock issuable upon the conversion of
Series A Preferred Stock................... 5,373,134 5,373,134 --
---------- --------- ---------
Total..................................... 10,482,363 9,140,088 1,942,792
========== ========= =========
In 1999, net loss available to common shareholders represents the net loss
for the year ended December 31, 1999, increased by a deemed non-cash dividend
of $8,267,000, to the holders of Series A Preferred Stock (Note 9) resulting
from the beneficial difference between the conversion price and the fair
market value of Common Stock on the date of issuance of the Series A Preferred
Stock.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities", which will become effective
for the Company in fiscal 2001. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. The Company is still assessing the impact of SFAS 133 on
the reported financial condition and results of operations.
F-10
Note 4 -- Details of Certain Financial Statement Components (in thousands)
December 31,
----------------
2000 1999
------- -------
Inventory:
Raw material.............................................. $ 1,118 $ 398
Work in Process........................................... 76 20
Finished goods............................................ 452 192
------- -------
1,646 610
Less: inventory allowance.................................. (168) (120)
------- -------
$ 1,478 $ 490
======= =======
Prepaid Expenses and Other Assets:
Deposits.................................................. $ 404 $ 171
Prepaid insurance......................................... 83 80
------- -------
$ 487 $ 251
======= =======
Property and Equipment:
Equipment................................................. $ 1,851 $ 1,426
Computer equipment........................................ 739 672
Leasehold improvements.................................... 316 252
Production tooling........................................ 666 527
------- -------
3,572 2,877
Less: accumulated depreciation and amortization............ (2,189) (1,826)
------- -------
$ 1,383 $ 1,051
======= =======
Accrued liabilities:
Accrued salaries.......................................... $ 710 $ 220
Accrued vacation.......................................... 209 187
Other accrued liabilities................................. 527 190
------- -------
$ 1,446 $ 597
======= =======
Property and equipment includes assets acquired under capital leases of
approximately $60,000 at December 31, 2000 and 1999, and accumulated
amortization of $49,000 and $42,000 at December 31, 2000 and 1999,
respectively.
Note 5 -- Income Taxes
There are no assets or liabilities for income taxes, or income tax expense
included in the financial statements because the Company has losses since
inception for both book and tax purposes. The deferred tax assets and related
valuation allowance were comprised of the following at December 31 (in
thousands):
December 31,
----------------------------
2000 1999 1998
-------- -------- --------
Deferred tax assets:
Net operating loss............................ $ 18,520 $ 14,746 $ 12,031
Credits....................................... 884 798 718
Depreciation.................................. 343 238 203
Other......................................... 590 157 115
-------- -------- --------
20,337 15,939 13,067
Less: valuation allowance...................... (20,337) (15,939) (13,067)
-------- -------- --------
Net deferred tax asset....................... $ -- $ -- $ --
======== ======== ========
F-11
Note 5 -- Income Taxes (Continued)
Realization of the future tax benefits related to the deferred tax assets is
dependent on the Company's ability to generate taxable income within the net
operating loss carryforward period. Management has considered these factors in
reaching its conclusion that the Company's deferred tax assets at December 31,
2000 require a full valuation allowance.
A reconciliation between the statutory Federal income tax rate of 34% and
the effective rate of income tax expense for each of the three years in the
period ended December 31, 2000 is as follows:
December 31,
---------------------
2000 1999 1998
----- ----- -----
Statutory Federal income
tax rate................. (34.0%) (34.0%) (34.0%)
Increase (decrease) in
taxes resulting from:
State tax, net of federal
benefit................. (5.8%) (5.8%) (5.8%)
Nondeductible expenses... 0.1% -- 0.1%
Change in valuation
allowance.............. 39.7% 39.8% 39.7%
----- ----- -----
Effective rate............ --% --% --%
===== ===== =====
Because of the "change of ownership" provision of the Tax Reform Act of
1986, utilization of the Company's net operating loss and research credit
carryforwards is subject to annual limitation against income in future
periods. As a result of the annual limitation, a portion of these
carryforwards may expire before ultimately becoming available to reduce future
tax liabilities. The Company has Federal Net Operating Loss (NOL)
carryforwards of approximately $50,101,000 at December 31, 2000 which expire
between 2013 and 2021. Approximately $35,556,000 of these NOLs were incurred
prior to the preferred financing, which qualified as a change in ownership
under the Internal Revenue Code. The change in ownership limits the amount of
the NOL which may be used to approximately $591,000 per year. The NOL incurred
after the change in ownership, totaling approximately $14,544,000, has no
annual limitations as of December 31, 2000.
Note 6 -- 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 branded 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 granted 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. In addition, Ford received an additional
fully vested warrant to purchase 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. This fee is being
amortized on a straight-line basis from April 2000 to December 2004, the
initial term of the Agreement, amortization of $199,000 was recorded as
selling, general and administrative expense in 2000. 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 Ford warrants contain a
cashless exercise provision, which allows Ford to exercise their warrants and
receive a number
F-12
Note 6 -- Ford Agreement (Continued)
of shares equal in value to the difference between the then market price of
the Common Stock and the exercise price of the warrant, multiplied by the
number of warrant shares being exercised. As of December 31, 2000, no warrants
had been issued related to incentive levels and none of the warrants issued to
Ford had been exercised.
Note 7 -- Bridge Loan Financing
2000 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, $68,000 was offset against extraordinary gain on extinguishments of
debt and $48,000 was offset against Common Stock.
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 $775,000 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.
1999 Bridge Loan
On March 29, 1999, the Company entered into a Security Purchase Agreement
(the "Preferred Financing") with Westar Capital II and Big Beaver (Note 9) for
the sale of Series A Preferred Stock. In connection with the Preferred
Financing, prior to the close of the Preferred Financing, the investors
extended to the Company $1,200,000 in bridge notes bearing interest at 10% per
annum which were due and payable upon the earlier of the closing of the
Preferred Financing or September 30, 1999. At the close of the sale of the
Preferred Financing, the Company repaid the bridge notes and $14,000 in
interest to the investors with proceeds received from the sale of Series A
Preferred Stock.
F-13
Note 8 -- Private Placement
On June 14, 2000, the Company completed the sale of 2.2 million shares of
its Common Stock in the Private Placement to selected institutional and
accredited investors, resulting in total proceeds of $11.0 million, less
issuance costs of $1.3 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 and 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 non-cash offering expense.
Note 9 -- Convertible Preferred Stock
Under the terms of the Preferred Financing, on June 8, 1999, the Company
issued 9,000 shares of Series A Preferred Stock and warrants to purchase, as
adjusted, up to 1,644,664 shares of Common Stock (Note 11) in exchange for
$9,001,000. Costs in connection with the financing were $734,000, resulting in
net proceeds of $8,267,000. The Series A Preferred Stock is convertible into
5,373,134 shares of Common Stock.
Also in conjunction with the Preferred Financing, in accordance with
Emerging Issues Task Force Consensus No. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios", the Company recorded a non-cash deemed dividend to the
Series A Preferred shareholders of $8,267,000, or $4.33 per weighted average
common share outstanding for the year ended December 31, 1999, resulting from
the difference between the conversion price of $1.675 and the closing price of
Common Stock on the date of issuance, June 8, 1999 of $4.31.
The following summarizes the terms of the convertible preferred stock:
Conversion
Each issued share of Series A Preferred Stock is immediately convertible, in
full and not in part, into shares of Class A Common Stock based on the formula
of $1,000 of the face value 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 Common Stock have 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 Preferred Stock has the right to one
vote for each share of Common Stock into which such Series A Preferred Stock
could then be converted. The holders of this Series A Preferred Stock, as a
class, have the right to elect five of the seven seats on the Board of
Directors of the Company.
Dividends
The Series A Preferred Stock will receive dividends on an "as-converted"
basis with the 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 Redeemable and 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 Common Stock, which will
receive the remaining assets of Amerigon. As of December 31, 2000, the
liquidation preference was $9,945,000.
F-14
Note 9 -- Convertible Preferred Stock (Continued)
Mandatory Redemption
The Company's original Certificate of Determination of Rights, Preferences
and Privileges of the Series A Preferred Stock ("Certificate") dated May 24,
1999, stated that a liquidation, dissolution or winding up of the Company
shall be deemed to be occasioned by (A) the acquisition of the corporation by
another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
or (B) a sale of all or substantially all of the assets of the corporation
unless the corporation's shareholders will immediately after such acquisition
or sale hold at least 50% of the voting power of the surviving or acquiring
entity. This provision was deemed to be a condition of redemption that was not
solely within the control of the issuer. As such, the Company classified the
Series A Preferred Stock as mandatorily redeemable or mezzanine equity at
December 31, 1999. In March 2000, the holders of the Series A Preferred Stock
agreed to amend the Certificate to eliminate this provision and on May 24,
2000, the shareholders ratified this amendment. Accordingly, at December 31,
2000, the Series A Preferred Stock is no longer mandatorily redeemable and has
been classified as equity in the accompanying balance sheet.
Redemption
On or after January 1, 2003, if the closing price of the Common Stock for
the past 60 days has been at least four times the then Conversion Price
($1.675 per share at December 31, 2000), Amerigon may redeem the Series A
Redeemable and Convertible Preferred Stock for an amount equal to the Series A
Redemption Price, which was $9,945,000 at December 31, 2000.
Note 10 -- Common Stock
On May 24, 2000, the shareholders approved the elimination of the Class B
Common Stock and the renaming of the Class A Common Stock to "Common Stock".
At December 31, 1999, no shares of Class B Common Stock were issued and
outstanding. As discussed below, 600,000 shares were held in escrow as Class A
Common Stock at December 31, 1998 of which 518,580 were released as Class B
Common Stock on April 30, 1999. These Class B shares were reacquired and
canceled as part of the sale of the EV subsidiary in 1999 (Note 16).
In conjunction with the 1997 public offering, fees to the underwriter
included an option until February 12, 2002, to purchase 1,700 Units (the "Unit
Purchase Option") at $1,493.50 each. Each unit consists of 56 shares of Common
Stock and 56 Class A Warrants. As of December 31, 2000, the underwriter's
option had not been exercised.
Note 11 -- Stock Warrants
Warrants Issued in Connection with the Preferred Financing and Bridge
Financing
In conjunction with the Preferred Financing (Note 9) the Company issued
contingent warrants to purchase 1,229,574 shares of Common Stock at exercise
prices ranging from $2.67 to $51.25 in exchange for $1,000. During 2000,
additional contingent warrants were issued due to certain anti-dilution
provisions in the contingent warrants. During 2000, additional contingent
warrants were issued to purchase 36,882 shares of Common Stock in March and
warrants to purchase 387,064 shares of Common Stock in June due to certain
anti-dilution provisions of the preferred financing which were triggered by
the Company's issuance of warrants to Ford (Note 6) and the private placement
(Note 8), respectively. In addition, contingent warrants for 8,856 shares of
Common Stock expired in 2000. At December 31, 2000, the Company had
outstanding contingent warrants to issue 1,644,664 shares of Common Stock. The
warrants can only be exercised to the extent that certain other warrants to
purchase 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. The proceeds of the preferred
financing were allocated between the preferred stock and the warrants based on
the relative fair values of the preferred stock and the warrants. The fair
value allocated to the warrants granted was
F-15
Note 11 -- Stock Warrants (Continued)
less than $1,000. The warrants are exercisable at any time prior to dates
ranging from May 13, 2002 to September 8, 2004. None of the warrants had been
exercised as of December 31, 2000.
Also in conjunction with the Preferred Financing (Note 9), the Company
granted to financial advisors warrants to purchase 45,000 shares of Common
Stock at exercise prices ranging from $2.67 to $5.30 per share. The relative
fair value of the warrants granted was $1,000 and was reflected as paid in
capital. The warrants are exercisable at any time prior to dates ranging from
November 6, 2003 to June 10, 2004 and none had been exercised as of December
31, 2000.
In conjunction with the 2000 Bridge Loan as described in Note 7, Big Star
received warrants to purchase 18,109 shares of Common Stock at an exercise
price of $5 per share, which were assigned a relative fair value of $173,000
(Note 7) and reflected as additional paid in capital. The warrants expire in
five years if not exercised.
Warrants Issued in Connection with Public Offerings
In connection with debt financing obtained in 1996 and the follow-on public
offering completed in 1997, at December 31, 1999, the Company had in the
aggregate 7,094,000 outstanding warrants to issue 1,418,800 shares of Common
Stock (324,000 shares related to the 1996 debt financing and 1,094,800 shares
related to the 1997 public offering). At December 31, 1999, each registered
warrant holder was entitled to convert five warrants for one share of Common
Stock at an exercise price of $25.00.
Effective March 27, 2000, due to certain anti-dilution provisions in the
Class A warrants which were triggered by the issuance of a warrant to Ford
(Note 6), additional warrants were issued to the Class A warrant
holders to purchase 49,976 shares of Common Stock. As a result of the issuance
of the additional Class A warrants, the Company had in the aggregate 7,343,880
outstanding warrants to issue 1,468,776 shares of Common Stock. As of such
date, each registered warrant holder was entitled to convert five warrants for
one share of Common Stock at an exercise price of $24.149.
On March 30, 2000, the Company announced its election to reduce by a factor
of five the number of outstanding warrants, rather than continue to require
five warrants to be exercised in order to acquire one share of Common Stock.
Each warrant outstanding after making this adjustment will represent the same
interest as five outstanding warrants. As a result of this election and
subject to the surrender by holders of existing warrant certificates and the
cancellation of any warrants to acquire less than one share of Common Stock,
the Company will have in the aggregate 1,468,776 outstanding warrants to issue
1,468,776 shares of Common Stock, with each registered warrant holder entitled
to convert one warrant for one share of Common Stock at an exercise price of
$24.149.
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 the Class A warrant holders to
purchase 524,488 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.
The Company may, upon 30 days' written notice, redeem each Class A Warrant
in exchange for $.05 per Class A Warrant, provided that before any such
redemption, the closing bid price of the Common Stock as reported by the
NASDAQ SmallCap Market or the closing bid price on any national exchange (if
the Company's Common Stock is listed thereon) shall have, for 30 consecutive
days ending within 15 days of the date of the notice of redemption, averaged
in excess of $43.75 (subject to adjustment in the event of any stock splits or
other similar events). As of December 31, 2000, the Company had not exercised
this option and none of these warrants had been exercised.
F-16
Note 12 -- Stock Options
1993 and 1997 Stock Option Plans
Under the Company's 1997 and 1993 Stock Option Plans (the "Plans"), as
amended in June 1999, 1,300,000 and 110,000 shares, respectively, of the
Company's Common Stock are reserved for issuance, pursuant to which officers
and employees of the Company as well as other persons who render services to
or are otherwise associated with the Company are eligible to receive qualified
("incentive") and/or non-qualified stock options.
The Plans, which expire in April 2007 and 2003, respectively, are
administered by the Board of Directors or a stock option committee designated
by the Board of Directors. The selection of participants, allotment of shares,
determination of price and other conditions are determined by the Board of
Directors or stock option committee at its sole discretion, in order to
attract and retain personnel instrumental to the success of the Company.
Incentive stock options granted under both Plans are exercisable for a period
of up to ten years from the date of grant at an exercise price which is not
less than the fair market value of the Common Stock on the date of the grant,
except that the term of an incentive stock option granted under the Plans to a
shareholder owning more than 10% of the voting power of the Company on the
date of grant may not exceed five years and its exercise price may not be less
than 110% of the fair market value of the Common Stock on the date of the
grant.
Options granted generally vest 20% per year over five years and expire after
ten years. However, option vesting may be accelerated at the discretion of the
Board of Directors.
Options Granted by Vice Chairman ("Bell Options")
Dr. Lon E. Bell, the Vice Chairman and founder of the Company, had granted
options to purchase shares of his Class A Common Stock, 75% of which were
Escrowed Contingent Shares (Note 10). The holder of these options could
exercise the portions of his options related to Escrowed Contingent Shares
only upon release of these shares from escrow as Class A Common Stock. As
discussed in Note 10, shares held in escrow were released on April 30, 1999 as
Class B Common Stock. As such, all options to purchase shares of Dr. Bell's
Class A Common Stock were canceled. In conjunction with the sale of the EV
subsidiary (Notes 1 and 16), all shares of Class B Common Stock were canceled.
The following table summarizes stock option activity:
1993 and 1997 Stock
Option Plans Bell Options
-------------------- --------------------
Weighted Weighted
Shares Number of Average Number of Average
Available Options Exercise Options Exercise
For Grant Outstanding Price Outstanding Price
--------- ----------- -------- ----------- --------
Outstanding at December
31, 1997................ 144,363 115,637 $18.45 119,768 $13.55
Granted.................. (120,995) 120,995 6.15 -- --
Canceled................. 33,462 (33,462) 13.15 (1,346) 5.75
--------- ------- ------ -------- ------
Outstanding at December
31, 1998................ 56,830 203,170 11.95 118,422 13.25
Authorized............... 1,150,000 -- -- -- --
Granted.................. (759,000) 759,000 3.16 -- --
Canceled................. 90,990 (90,990) 8.03 (118,422) 13.25
--------- ------- ------ -------- ------
Outstanding at December
31, 1999................ 538,820 871,180 8.43 -- $ --
======== ======
Granted.................. (96,000) 96,000 5.22
Exercised................ -- (17,886) 3.10
Canceled................. 27,847 (27,847) 10.24
--------- ------- ------
Outstanding at December
31, 2000................ 470,667 921,447 $ 8.15
========= ======= ======
F-17
Note 12 -- Stock Options (Continued)
The following table summarizes information concerning currently outstanding
and exercisable stock options for the 1993 and 1997 Stock Option Plans as of
December 31, 2000:
Options Outstanding at Options Exercisable
December 31, 2000 at December 31, 2000
-------------------------------------- ---------------------
Weighted- Weighted-
Weighted-Average Average Number Average
Range of Number Remaining Exercise Vested and Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ----------- ---------------- --------- ----------- ---------
$ 1.55-
3.06 639,080 6.49 $ 3.05 289,189 $ 3.04
3.31- 3.88 86,000 7.86 3.60 58,950 3.49
4.00-11.40 129,801 8.83 6.38 26,731 8.87
13.15-18.15 61,333 1.62 17.34 60,332 17.40
20.30-51.85 5,233 1.45 20.97 5,232 20.97
------- -------
921,447 440,434
======= =======
The Company accounts for these plans under APB Opinion No. 25. Had
compensation expense for these plans been determined consistent with SFAS 123,
the Company's net loss and net loss per share would have been increased to the
pro forma amounts in the following table. The pro forma compensation costs may
not be representative of that to be expected in future years.
Years ended December 31,
--------------------------
2000 1999 1998
-------- ------- -------
(In thousands,
except per share data)
Net loss
As reported.................................. $(11,274) $(7,575) $(7,704)
Pro Forma.................................... (11,646) (9,401) (8,274)
Basic and diluted loss per share
As reported.................................. $ (3.43) $ (8.29) $ (4.03)
Pro Forma.................................... (3.55) (9.25) (4.33)
The fair value of each stock option grant has been estimated pursuant to
SFAS 123 on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:
1993 and 1997
Stock Option plans
--------------------------
2000 1999 1998
-------- -------- --------
Risk-free interest rates........................ 6.5% 6% 6%
Expected dividend yield......................... none none none
Expected lives.................................. 5.0 yrs. 4.5 yrs. 4.3 yrs.
Expected volatility............................. 96% 96% 60%
The weighted average grant date fair values of options granted under the
1993 and 1997 Stock Option Plan during 2000, 1999 and 1998 were $4.04, $3.14
and $6.26, respectively.
F-18
Note 13 -- Supplemental Disclosure of Cash Flow Information and Non-Cash
Activity
Significant non-cash Items:
Years ended
December 31,
---------------
2000 1999 1998
----- ---- ----
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............... 47 -- --
Issuance of warrants to underwriter in conjunction with
the bridge loan......................................... 173 -- --
Issuance of warrants to consultants for exclusivity
rights.................................................. 1,369 -- --
Purchase of equipment under capital lease................ -- -- 50
Cash paid for interest in 2000, 1999 and 1998 were $51,000, $21,000 and
$17,000, respectively.
Note 14 -- Licenses
In 1992, the Company obtained the worldwide license to manufacture and sell
technology for a CCS system to individual automotive OEMs. Under the terms of
the license agreement, royalties are payable based on cumulative net sales and
do not require minimum payments. The Company has recorded net royalty expense
under this license agreement of $33,000, $43,000 and $43,000 in 2000, 1999 and
1998, respectively. These royalties are recorded as cost of goods sold.
Note 15 -- Commitments
The Company leases its current facility in Irwindale, California from a
partnership controlled by Dr. Bell, a significant shareholder of the Company.
The agreement expires on December 31, 2002, and requires the Company to pay
$20,000 per month. The Company also leases certain equipment under operating
leases, which expire through 2002. Rent expense under all of the Company's
operating leases was $348,000, $328,000 and $266,000 for 2000, 1999 and 1998,
respectively. Future minimum lease payments under all operating leases are
$413,000, $383,000, $68,000, $70,000 and $35,000 in 2001, 2002, 2003, 2004 and
2005, respectively, and nil thereafter.
The Company has entered into certain office and computer equipment leases
under long-term lease arrangements, which are reported as capital leases. The
terms of the leases range from three to five years with interest rates ranging
from 11.8% to 19.7%. Future minimum lease payments under these capital leases
are $6,000 in each of the years ending December 31, 2001 and 2002 of which
$1,500 represents total interest to be paid and $10,500 was included in
liabilities at December 31, 2000.
Note 16 -- Related Party Transactions
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, Vice 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 $88,000. On March 29,
1999, the 15% was sold to Dr. Bell and was reflected as paid-in 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
(Note 10). The Company recorded a loss of $36,000 on the transfer of related
assets to Dr. Bell.
The Company leases its current facility in Irwindale, California from a
partnership controlled by Dr. Bell, a significant shareholder of the Company
(Note 15).
F-19
Note 17 -- Joint Venture Agreement
On July 24, 1997, the Company entered into a joint venture agreement with
Yazaki Corporation ("Yazaki") to develop and market the Company's Interactive
Voice System (IVS(TM)), a voice-activated navigation system. Under the terms
of the agreement, the Company received $1,800,000 in cash and a note
receivable for $1,000,000 in consideration for the net assets related to
Amerigon's voice interactive technology totaling $89,000. In addition, the
Company incurred costs of $348,000 associated with the sale. In 1998, the
Company received $971,000 in payment of the remaining $1,000,000 noted above.
The $971,000 is net of approximately $29,000 of prior year navigation system
related expenses owed by Amerigon to IVS. At the end of 1998, due to delays in
product development, Yazaki decided to discontinue funding for the joint
venture. The Company did not provide any further funds to continue IVS'
operations in 1999. IVS declared bankruptcy on September 30, 1999.
Note 18 -- Segment Reporting
The Company has adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" which requires the Company to disclose
certain segment information used by management for making operating decisions
and assessing the performance of the Company. Essentially, management
evaluates the performance of its segments based primarily on operating results
before depreciation and selling, general and administrative costs. Such
accounting policies used are the same as those described in Note 3.
The Company's reportable segments are as follows:
. Climate Control Seats (CCS) -- variable temperature seat climate control
system designed to improve the temperature comfort of automobile
passengers.
. Radar (AmeriGuard) -- radar-based sensing system that detects objects
that reflect radar signals near the automobile and provides an audible or
visual signal as the driver approaches the object. In December 2000, the
Company's Board of Directors decided to cease funding the development of
AmeriGuard in order to focus the Company's resources on marketing the CCS
product and developing the next generation CCS device.
. Electric Vehicle Systems (EV) -- design and development of electric
vehicles and related components. As discussed in Notes 1 and 16, all EV
related assets were sold to Dr. Bell, a significant shareholder of the
Company. Also, as discussed in Note 1, the Company's Board of Directors
decided to suspend funding of the EV program in August 1998.
The table below presents information about the reported revenues and
operating loss of Amerigon for the years ended December 31, 2000, 1999 and
1998 (in thousands). Asset information by reportable segment is not reported,
since management does not produce such information.
Reconciling As
CCS Radar EV Items Reported
------- ----- ----- ----------- --------
2000
Revenue...................... $ 6,886 $ -- $ -- $ -- $ 6,886
Operating loss............... (2,798) (689) -- (6,088)(1) (9,575)
1999
Revenue...................... $ 336 $ -- $ -- $ -- $ 336
Operating loss............... (3,316) (847) -- (3,481)(1) (7,644)
1998
Revenue...................... $ 18 $ -- $ -- -- $ 18
Operating loss............... (2,844) (455) (545) (4,098)(1) (7,942)
- ---------------------
(1) Represents selling, general and administrative costs of $5,859,000,
$3,255,000 and $3,752,000, respectively, and depreciation expense of
$229,000, $226,000 and $346,000, respectively, for years ended December
31, 2000, 1999 and 1998.
F-20
Note 18 -- Segment Reporting (Continued)
Revenue information by geographic area (in thousands):
2000 1999 1998
------ ---- ----
United States............................................. $4,271 $336 $18
Asia...................................................... 2,615 -- --
------ ---- ---
Total Revenues............................................ $6,886 $336 $18
====== ==== ===
In 2000, two customers, one foreign (NHK) and one domestic (JCI),
represented 38% and 61%, respectively, of the Company's sales. In 1999, one
customer (JCI) represented 87% of the Company's sales. In 1998 one customer
(Mark IIII) represented 100% of the Company's sales.
Note 19--Subsequent Event
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. Ferrotec has agreed to pay the Company $2,000,000
for the exclusive manufacturing rights. Ferrotec has also entered into a
Subscription Agreement with the Company, whereby Ferrotec will purchase
200,000 shares of unregistered Amerigon 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 its securities
before then.
F-21
AMERIGON INCORPORATED
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2000, 1999 and 1998
(In thousands)
Balance at Charged to Charged Deductions Balance at
Beginning Costs and to Other from End of
Description of Period Expenses Accounts Reserves Period
- ----------- ---------- ---------- -------- ---------- ----------
Allowance for Doubtful
Accounts
Year Ended December 31,
1998.................... 80 27 -- (6) 101
Year Ended December 31,
1999.................... 101 16 -- (59) 58
Year Ended December 31,
2000.................... 58 -- -- (3) 55
Allowance for Inventory
Year Ended December 31,
1998.................... -- 100 -- -- 100
Year Ended December 31,
1999.................... 100 121 -- (101) 120
Year Ended December 31,
2000.................... 120 60 -- (12) 168
Allowance for Deferred
Income Tax Assets
Year Ended December 31,
1998.................... 10,046 3,021 -- -- 13,067
Year Ended December 31,
1999.................... 13,067 2,872 -- -- 15,939
Year Ended December 31,
2000.................... 15,939 4,398 -- -- 20,337
F-22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Amerigon Incorporated
In our opinion, the financial statements listed in the index appearing under
Item 14 (a) (1) on page 20 present fairly, in all material respects, the
financial position of Amerigon Incorporated at December 31, 2000 and 1999, and
the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the index appearing under
Item 14 (a) (2) on page 20 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 2 to the
financial statements, the Company has suffered net losses of $11,274,000,
$7,575,000 and $7,704,000 and has used cash in operating activities of
$9,370,000, $7,491,000 and $7,227,000 for the years ended December 31, 2000,
1999 and 1998, respectively, and the Company has an accumulated deficit of
$55,154,000 as of December 31, 2000, expects to continue to incur losses for
the next one to two years, and presently anticipates it has insufficient
liquidity and capital resources to fund its operations beyond the second
quarter of 2001. Management's plans in regard to these matters are also
described in Note 2. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Orange County, California
February 9, 2001, except for Note 19,
as to which the date is March 28, 2001
F-23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Amerigon Incorporated
/s/ Richard A. Weisbart
By: ___________________________
Richard A. Weisbart
President, Chief Executive
Officer
and Chief Financial Officer
March 30, 2001
_______________________________
(Date)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ Richard A. Weisbart President, Chief Executive March 30, 2001
____________________________________ Officer and Chief Financial
Officer
Richard A. Weisbart
/s/ Lon E. Bell, Ph. D. Vice Chairman of the Board March 30, 2001
____________________________________
Lon E. Bell, Ph. D.
/s/ John W. Clark Director March 30, 2001
____________________________________
John W. Clark
/s/ Oscar B. Marx, III Chairman of the Board March 30, 2001
____________________________________
Oscar B. Marx, III
/s/ Paul Oster Director March 30, 2001
____________________________________
Paul Oster
/s/ James J. Paulsen Director March 30, 2001
____________________________________
James J. Paulsen
/s/ Craig Newell Vice President of Finance March 30, 2001
____________________________________ (Principal Accounting
Craig Newell Officer)
S-1