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, 2001
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 7, 2002, was $16,959,480. (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 7,
2002, the registrant had 10,771,230 of its shares of its common stock issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the registrant's definitive proxy statement for its 2002 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Part I
Item 1: Business.......................................................... 1
Item 2: Properties........................................................ 13
Item 3: Legal Proceedings................................................. 13
Item 4: Submission of Matters to a Vote of Security Holders............... 13
Part II
Item 5: Market for the Registrant's Common Stock and Related Stockholder
Matters.................................................................. 14
Item 6: Selected Financial Data........................................... 14
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 15
Item 7A: Quantitative and Qualitative Disclosures About Market Risk....... 20
Item 8: Financial Statements and Supplementary Data....................... 20
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 20
Part III
Item 10: Directors and Executive Officers of the Registrant............... 21
Item 11: Executive Compensation........................................... 21
Item 12: Security Ownership of Certain Beneficial Owners and Management... 21
Item 13: Certain Relationships and Related Transactions................... 21
Part IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-
K........................................................................ 22
AMERIGON INCORPORATED
ITEM 1. BUSINESS
General
We design, develop, market and manufacture proprietary high technology
electronic systems for sale to automobile and truck original equipment
manufacturers. In 2001, we completed our second full year of producing and
selling our Climate Control Seat(TM) ("CCS(TM)") product, which provides year-
round comfort by providing both heating and cooling to seat occupants. Since
we started commercial production, we have shipped more than 200,000 units of
our CCS product through 2001 to three customers, Johnson Controls, Inc., Lear
Corporation 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 sports utility vehicles, while NHK supplies our CCS
product to Toyota Motor Corporation for use in the Lexus LS 430 and Toyota
Celsior luxury automobiles. We began shipments to Lear in November 2001 for
the Lincoln Blackwood luxury utility vehicle, where our CCS product is a
standard feature (100% installation) for the first time.
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 our CCS product, our only
commercial product at the present time.
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:
. Continuing to encourage automobile manufacturers to specify that their
seat suppliers install our CCS product
. Working with first tier seat suppliers to offer our product to their
customers
. Completing development of the next generation of the CCS technology
. Increasing global penetration with automotive companies
. Continuing to expand our intellectual property
Products
Climate Control Seat
Our CCS product utilizes exclusive licensed and patented technology, as well
as three of our own patents, on a variable temperature seat climate control
system to enhance the comfort of vehicle passengers. We have an additional
patent pending for further improvements we have made to the CCS technology.
Our CCS product uses one or more solid-state thermoelectric devices, which
generate heating or cooling depending upon the polarity of the current applied
to the device.
A thermoelectric device is the heart of a compact heat pump built by us for
use in our CCS product. Air is forced through the heat pump and thermally
conditioned in response to switch input from the seat occupant. The
conditioned air circulates by a specially designed fan through ducts in the
seat cushion and seat back, so that the surface can be heated or cooled. Each
seat has individual electronic controls to adjust the level of heating or
cooling. Our CCS product substantially improves comfort from conventional air
conditioners by focusing the cooling directly on the passenger through the
seat, rather than waiting until ambient air cools the seat surface behind the
passenger.
Our CCS product has reached the stage where it can be mass-produced for a
particular automobile manufacturer. Since each vehicle model's seats are not
the same, we must tailor the CCS components to meet each seat design. In the
past three years, we have supplied prototype seats containing our CCS product
to
1
virtually every major automobile manufacturer and seat supplier. If a
manufacturer wishes to integrate our CCS product into a seat, it provides us
with automotive seats to be modified so that we can install a unit in a
prototype. The seat is then returned to the manufacturer for evaluation and
testing. If the manufacturer accepts our CCS product, a program can then be
launched for a particular model on a production basis, but it normally takes
one to two years from the time a manufacturer decides to include our CCS
product in a vehicle model to actual volume production for that vehicle.
During this process, we derive minimal funding from prototype sales but
generally obtain no significant revenue until mass production begins. We have
active development programs on over twenty vehicle platforms, although we
cannot be certain that our CCS product will be implemented on all of these
vehicles.
In March 2000, we entered into an agreement with Ford Motor Company, which
gives us the exclusive right to supply our CCS product 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. Ford is not
obligated to purchase any CCS units, however, under the agreement.
We currently supply our CCS product to the following automobile
manufacturers and seat suppliers:
Number
of
Units
Sold
in Program
Vehicle Seat Supplier 2001 Started
- ------- ---------------- ------ ---------
Lexus LS 430/ Toyota Celsior luxury sedan.... NHK 56,160 June 2001
Lincoln Navigator sports utility vehicle..... Johnson Controls 41,292 Nov 1999
Lincoln Blackwood luxury utility vehicle..... Lear 1,695 Nov 2001
In January 2002, we announced that our CCS product would be available as an
option in the newly-designed 2003 model year Ford Expedition sport utility
vehicle. We expect to commence product shipments to Lear for installation in
the 2003 Ford Expedition in March 2002, which will be available at dealer
showrooms in early summer 2002. We are working with many other automotive
manufacturers and their seat suppliers to have our CCS product included in
other models commencing with the 2003 model year and beyond.
Discontinued Products
We were founded in 1991 to focus on advanced automotive technologies,
including electric vehicles. We suspended funding the electric vehicle program
in August 1998. 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.
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 our CCS product.
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 and electrical system). Vehicle seats are not the
same and each has different configuration requirements. Any related
reimbursements for the costs incurred in this adaptation process are accounted
for as a credit to research and development expense.
2
In May 2001, we formalized our research and development subsidiary, BSST
LLC, to develop much more efficient thermoelectric devices and products using
the improved technology. The limitation on applications for thermoelectrics
has been their relatively poor efficiency. We believe that, through a
combination of proprietary methods for improving thermoelectric efficiency and
improved thermoelectric materials, there are substantial prospects for the
design and development of innovative thermoelectric systems in applications
outside of our present product line.
We are constructing test systems to demonstrate performance and to develop a
comprehensive knowledge of the technology as applied to various potential
market sectors beyond the automotive industry, such as temperature control and
power generation. Ultimately we believe the potential exists for solid state
(thermoelectric) air conditioners to be developed that replace traditional
systems, which use compressors, R134a and other gases. Our objective is that
our unique technology will occupy an important place in this value chain.
The net amounts spent for research and development activities in 2001, 2000
and 1999 were $3,836,000, $4,099,000 and $3,721,000, respectively. Also
included in research and development are expenses associated with BSST of
$991,000 for 2001, and nil for 2000 and 1999, respectively. Because of
changing levels of research and development activity, our research and
development expenses fluctuate from period to period.
Marketing, Customers and Sales
We are a second-tier supplier to automobile and truck manufacturers. As
such, we focus our marketing efforts on automobile and truck manufacturers and
their first-tier suppliers. We have not and do not expect to market directly
to consumers. For our CCS product, our strategy has been to convince the major
automobile companies that our CCS product is an attractive feature that will
meet with consumer acceptance and has favorable economics, including high
profitability to the manufacturers. The manufacturers will then direct us to
work with their seat supplier to incorporate our CCS product into future seat
designs. We also market directly to the major domestic and foreign automotive
seat suppliers. The CCS products we sell are affected by the levels of new
vehicle sales and the general business conditions in the automotive industry.
For our most recent fiscal year, our revenues to NHK, Johnson Controls, and
Lear were $3,578,000, $2,740,000, and $118,000, representing 55.5%, 42.5%, and
1.8% of total revenues, respectively.
Initial customer response to our CCS product has been positive. During 2000,
we engaged an independent polling firm to poll a sample of Lincoln Navigator
owners, some with our CCS product and some without. Results showed that
customer satisfaction with our CCS product was high and that most owners with
CCS product would purchase it as an option in the future.
Replacing the traditional seat heater, our CCS product is currently offered
as an optional feature on the Lincoln Navigator, Lexus LS 430, and Toyota
Celsior and as a standard feature on the Lincoln Blackwood. In January 2002,
our CCS product was selected for installation in the 2003 Ford Expedition.
Approximately 29,500 Lincoln Navigators and 180,000 Ford Expeditions were
produced in the 2001 calendar year.
Outsourcing, Contractors and Suppliers
We currently have limited manufacturing capacity for CCS products. To date,
we have been engaged in manufacturing in California for two years, producing
moderate quantities. We are outsourcing production to lower-cost countries in
order to be price competitive and expand our market beyond the luxury vehicle
segment.
We rely on various vendors and suppliers for the components of our products.
We expect that we will 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 and operations.
3
In March 2001, we entered into a manufacturing and supply agreement with
Ferrotec Corporation, a Tokyo-based manufacturer. In exchange for a $2.0
million fee, we granted Ferrotec the exclusive right to manufacture CCS
products for ultimate distribution to our customers within certain Asian
countries subject to Ferrotec's obligation to be competitive in all important
supplier attributes. The region includes China, Japan, Taiwan, Korea, India,
Thailand, Vietnam, Malaysia, Indonesia and the Philippines. The initial term
of the agreement began April 1, 2001 and expires on April 1, 2011. The $2.0
million fee is being amortized on a straight-line basis over the term of the
agreement and is recorded as an offset to cost of sales.
Proprietary Rights and Patents
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 have historically
acquired developed 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 technologies or furthered
the development of acquired technologies through internal research and
development efforts by our engineers.
We currently have one license arrangement for our CCS product. Feher Design,
Inc. has granted to us an exclusive worldwide license to use specific CCS
technologies covered by three patents held by Feher. The 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. In addition to the aforementioned
license rights to the CCS technology, we hold three issued patents on a
variable temperature seat climate control system. In addition, we jointly own
seven patents and/or patent applications with Honda Motor Co. 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.
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 U.S. patent will
commence on the date of issuance and terminate 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.
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 and ventilated seats. We believe that our products will compete on
the basis of performance , quality, and price.
We are not aware of any competitors that are presently 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
4
cooling function to their seats based upon a technology not covered by
patented technology we own or license. Our CCS product 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.
Financial Information About Industry Segments and Geographic Areas
Our business segment and geographic areas information is incorporated herein
by reference from Note 17 of our financial statements and related financial
information indexed on page F-1 of this report and incorporated by reference
into this report.
Employees
As of December 31, 2001, we had 62 employees and three outside contractors.
None of our 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 uncertainties that 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 that 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
We are only in the early stage of commercialization and marketing of our
products and our sales may not significantly increase
Although we began operations in 1991, we have only engaged in the commercial
manufacturing and marketing of our products since 1999. In December 1997, we
received our first production orders for our CCS product, but shipments of
production units in 1998 were very small. We had product revenues of
$6,447,000 in 2001, $6,886,000 in 2000 and $336,000 in 1999. In 1998, we were
selected by Ford to supply our CCS product to Johnson Controls for
installation in the 2000 model year Lincoln Navigator and our CCS product was
selected by the Toyota Motor Corporation to supply NHK for installation in the
2001 model year Lexus LS 430 and Toyota Celsior luxury automobiles. Our CCS
product is currently being offered as an optional feature on these vehicles.
There can be no assurance that sales will significantly increase or that we
will become profitable.
We have incurred substantial operating losses since our inception and we are
continuing to incur losses
We have incurred substantial operating losses since our inception. We had
operating losses of $7,387,000 in 2001, $9,575,000 in 2000 and $7,644,000 in
1999. As of December 31, 2001, we had accumulated deficits since inception of
$62,845,000. Our accumulated deficits are attributable to the historical costs
of developmental and other start-up activities, including the industrial
design, development and marketing of discontinued products and a significant
loss incurred on a major electric vehicle development contract.
Thus, approximately $33.0 million of our accumulated deficit arose from past
efforts in electric vehicles, integrated voice technology or radar, all
discontinued products as of December 31, 2001. We have been in
5
production of the CCS product for approximately 26 months and have fixed
operating costs that can only be absorbed by higher volumes. Our breakeven
point is considerably above our current production levels. As a result, we
expect to incur significant losses in the near term, although we expect to
generate operating profit in the fourth quarter of 2002. We will not be able
to achieve a quarterly operating profit by year-end unless we are successful
in significantly increasing our CCS product revenues by year-end.
We have suffered net losses of $7,691,000, $11,274,000 and $7,575,000 and we
have used cash in operating activities of $6,677,000, $9,370,000 and
$7,491,000 in 2001, 2000 and 1999, respectively.
We have funded our financial needs from inception primarily through net
proceeds received through our initial public offering as well as other equity
and debt financing. At December 31, 2001, we had cash and cash equivalents of
$456,000 and working capital deficit of $839,000. Based on our current
operating plan, we believe cash at December 31, 2001 along with the net
proceeds from our February 2002 private placement will be sufficient to meet
our operating needs through the end of 2002.
The completion of our February 2002 private placement may have resulted in
an "ownership change" of the Company under Section 382 of the Internal Revenue
Code. As a result, the amount of our future annual income that may be offset
by our prior net losses may be limited. This limit may be equal to our equity
value on the change date multiplied by a "long term tax-exempt rate" which was
5.01% as of the change date.
Our ability to market our products successfully depends on acceptance of our
product by automotive manufacturers and consumers
We have engaged in a lengthy development process on our CCS product which
involved developing a prototype for proof of concept and then adapting the
basic system to actual seats provided by various automotive manufacturers and
their seat suppliers. In the past three years, we have supplied prototype
seats containing our CCS product to virtually every major automobile
manufacturer and seat supplier. As a result of this process, we have been
selected by a number of automotive manufacturers to supply a number of current
vehicles.
Our ability to market our CCS product successfully depends upon the
willingness of automobile manufacturers 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. Our
success depends upon the acceptance of our CCS product by automotive
manufacturers, and ultimately, the automobile consumer. No assurances can be
made that either automotive manufacturers or consumers will accept our CCS
product.
We commenced initial production shipments to Johnson Controls for Ford in
late November 1999. We are working with many other automotive manufacturers
and their seat suppliers in an effort to have the CCS product included in
other models commencing with the 2003 model year and beyond. We currently have
active development programs on over twenty vehicle platforms, but no assurance
can be given that our CCS product will be implemented in all of these
vehicles. While we have the only actively-cooled seat available, competitors
are introducing ventilated seats, which provide some of the cooled-seat
attributes and are very price competitive with our CCS product. Additionally,
heat only devices are readily available from our competitors.
We may need additional financing in the future
We have experienced negative cash flow from operations since our inception
and have expended, and expect to continue to expend, substantial funds to
continue our development and marketing efforts. We have not generated and do
not expect to generate in the near future sufficient revenues from the sales
of our principal products to cover our operating expenses. We had negative
cash flows from operations of $6,677,000 in 2001, $9,370,000 in 2000 and
$7,491,000 in 1999.
6
On February 25, 2002, we completed the sale of 4,333,368 shares of common
stock and warrants to purchase 2,166,684 shares of common stock in a private
placement to selected institutional and accredited investors, resulting in
gross proceeds of $6,500,052. The $6,500,052 excludes $2,580,903 representing
the principal amount of a bridge loan and accrued interest on that loan, which
was exchanged by the holder for 1,720,602 shares of common stock and warrants
to purchase 860,301 shares of common stock. The warrants issued in the private
placement have an exercise price of $2.00 per share and expire on February 25,
2007.
Based on our current plans, we believe that the net funds raised with the
February 2002 private placement will be sufficient to meet our operating needs
until at least the end of 2002. The actual funds that we will need to operate
during this period will be determined by many factors, some of which are
beyond our control, and lower than anticipated sales of our products or higher
than anticipated expenses could require us to need additional financing
sooner.
The disruption or loss of relationships with vendors and suppliers for the
components for our products could materially adversely affect our business
Our ability to market and manufacture our products successfully is dependent
on relationships with both third party vendors and suppliers. 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. 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.
The planned outsourcing of production entails risks of production interruption
and unexpected costs
To date, we have been engaged in manufacturing in California for two years,
producing moderate quantities. We are outsourcing production to lower-cost
countries in order to be price competitive and expand our market beyond the
luxury vehicle segment. The shift of production for North America to a
supplier plant in Chihuahua, Mexico in the first quarter of 2002 entails risk
of production interruption and unexpected costs. Similar risks exist for
planned production shifts to China for Asian production later in 2002.
Automobile manufacturers demand on-time delivery of quality products, and
some have required the payment of 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 other 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 are not sure we will be able to persuade potential customers of the merits
of our products and justify their costs to increase our sales
Because of the sophisticated nature and early stage of development of our
products, we will be required to educate potential customers and demonstrate
that the merits of our products justify the costs associated with such
products. We have relied on, and will continue to rely on, automobile
manufacturers and their dealer networks to market our products. The success of
any such relationship will depend in part on the other party's own
competitive, marketing and strategic considerations, including the relative
advantages of alternative products being developed and/or marketed by any such
party. There can be no assurance that we will be able to continue to market
our products properly so as to generate meaningful product sales increases.
7
The sales cycle for our products is lengthy and the lengthy cycle impedes
growth in our sales
The sales cycle in the automotive components industry is lengthy and can be
as long as five years or more for products that must be designed into a
vehicle, because some companies take that long to design and develop a
vehicle. Even when selling parts that are neither safety-critical nor highly
integrated into the vehicle, there are still many stages that an automotive
supply company must go through before achieving commercial sales. The sales
cycle is lengthy because an automobile manufacturer must develop a high degree
of assurance that the products it buys will meet customer needs, interface as
easily as possible with the other parts of a vehicle and with the automobile
manufacturer's production and assembly process, and have minimal warranty,
safety and service problems. As a result, from the time that a manufacturer
develops a strong interest in our CCS product, it normally will take several
years before our CCS product is available to consumers in that manufacturer's
vehicles.
In the automotive components industry, products typically proceed through
five stages of research and development. Initial research on the product
concept comes first, 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 the program.
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 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
significant amount of time to commercialization.
Our industry is subject to intense competition and our products may be
rendered obsolete by future technological developments in the industry
The automotive component industry is subject to intense competition.
Virtually all of our competitors are substantially larger in size, have
substantially greater financial, marketing and other resources than we do, and
have more extensive experience and records of successful operations than we
do. Several competitors have introduced ventilated seats in an effort to
respond to our proprietary cooled seat technology. Competition extends to
attracting and retaining qualified technical and marketing personnel. 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
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 even be rendered obsolete by future developments in
the industry. Our competitive position would be adversely affected if we were
unable to anticipate such future developments and obtain access to the new
technology.
Any failure to protect our intellectual property could harm our business and
competitive position
As of December 31, 2001, we owned seven U.S. patents and had four U.S.
patents pending and our subsidiary BSST had six U.S. patents pending. We were
also licensees of three patents and joint owners with Honda Motor Co. of two
U.S. patents and five Japanese patent applications. We also owned five foreign
patents and had sixteen foreign patent applications pending. 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 or that our or our licensors' patents and proprietary
rights will not be challenged or circumvented or will provide us with
meaningful competitive advantages or that pending patent applications will
issue.
8
Furthermore, there can be no assurance that others will not independently
develop similar products or will not design around any patents that have been
or may be issued to our licensors or us. Failure to obtain patents in certain
foreign countries may materially adversely affect our ability to compete
effectively in certain international markets. We are aware that an unrelated
party filed a patent application in Japan on March 30, 1992, with respect to
technology similar to our CCS technology. We hold current and future rights to
licensed technology through licensing agreements requiring the payment of
minimum royalties and must continue to comply with those licensing agreements.
Failure to do so or loss of such agreements could materially and adversely
affect our business.
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
Other persons could bring legal actions against us claiming damages and
seeking to enjoin manufacturing and marketing of our products for allegedly
conflicting with patents held by them. Any such litigation could result in
substantial cost to us and diversion of effort by our management and technical
personnel. If any such actions are 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. There can be no
assurance that we would prevail in any such action or that any license
required under any such patent would be made available on acceptable terms, if
at all. Failure to obtain needed patents, licenses or proprietary information
held by others may have a material adverse effect on our business. In
addition, if we become involved in litigation, it could consume a substantial
portion of our time and resources. However, we have not received any notice
that our products infringe on the proprietary rights of third parties.
We rely on trade secret protection through confidentiality agreements and the
agreements could be breached
We also rely on trade secrets that we seek to protect, in part, through
confidentiality and non-disclosure agreements with employees, customers 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. To the extent that 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 that 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 licensed technology, there can be no
assurance that the licensor of the technology will have the resources,
financial or otherwise, or desire to defend against any challenges to the
rights of such licensor to its patents.
Our customers typically reserve the right unilaterally to cancel contracts or
reduce prices, and the exercise of such right could reduce or eliminate any
financial benefit to us anticipated from such contract
Automotive customers typically reserve the right unilaterally to cancel
contracts completely or to require unilateral price reductions. Although they
generally reimburse companies for actual out-of-pocket costs incurred with
respect to the 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 receipt by us. Any unilateral
cancellation of, or price reduction with respect to, any contract that we may
obtain could reduce or eliminate any financial benefits anticipated from such
contract and could have a material adverse effect on our financial condition
and results of operations.
9
Our success will depend in large part on retaining key personnel, which may be
affected by the planned relocation of our corporate offices
Our success will depend to a large extent upon the continued contributions
of key personnel. The loss of the services of Dr. Lon E. Bell, the head of
BSST LLC, our research and development subsidiary, would have a material
adverse effect on the success of Amerigon. We have obtained key-person life
insurance coverage in the amount of $2,000,000 on the life of Dr. Bell.
Our success will also depend, in part, upon our ability to retain qualified
engineering and other technical and marketing personnel. There is significant
competition for technologically qualified personnel in our business and we may
not be successful in recruiting or retaining sufficient qualified personnel.
By December 2002, we will relocate our corporate offices to the Detroit area
while technical development will remain in Southern California. With this
move, key personnel not willing to relocate will need to be replaced and we
may not be successful in recruiting or retaining sufficient qualified
personnel. Also, close coordination between our Detroit corporate offices and
our Southern California team will be required.
Our reliance on outside major contractors may impair our ability to complete
certain projects and manufacture products on a timely basis
We have in the past engaged certain outside contractors to perform product
assembly and other production functions for us, and we anticipate that we may
desire to engage contractors for such purposes in the future. We believe that
there are a number of outside contractors that provide services of the kind
that have been used by us in the past and that we may desire to use in the
future. However, no assurance can be given that any such contractors would
agree to work for us on terms acceptable to us or at all. Our inability to
engage outside contractors on acceptable terms or at all would impair our
ability to complete any development and/or manufacturing contracts for which
outside contractors' services may be needed. Moreover, our reliance upon third
party contractors for certain production functions will reduce our control
over the manufacture of our products and will make us dependent in part upon
such third parties to deliver our products in a timely manner, with
satisfactory quality controls and on a competitive basis.
Our business exposes us to potential product liability risks
Our business will expose us to potential product liability risks which 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 $6,000,000 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. When and if high volume production begins, we may elect to
purchase additional insurance coverage. This is expected to occur with the
current policy renewal period of May 1, 2002. 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.
Because many of the largest automotive manufacturers are located in foreign
countries, our business is subject to the risks associated with foreign sales
Many of the world's largest automotive manufacturers 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.
10
Our use of contractors located in foreign countries will subject us to the
risks of international operations
Furthermore, we are engaging contractors located in foreign countries.
Accordingly, we will be subject to all of the risks inherent in international
operations, including work stoppages, transportation delays and interruptions,
political instability, foreign currency fluctuations, economic disruptions,
the imposition of tariffs and 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
Our significant shareholders control the company
Big Beaver Investments LLC and Westar Capital II LLC each own 4,500 shares
of Series A Preferred Stock, which are convertible into common stock at an
initial conversion price of $1.675 per common share. On February 25, 2002, we
entered into a separate agreement with Big Beaver pursuant to which it
acquired an additional 1,720,602 shares of common stock and warrants to
purchase an additional 860,301 shares of common stock at a price of $2.00 per
share. Big Beaver and Westar Capital have the right to elect a majority of our
directors as well as preemptive rights on future financings, so as to maintain
their percentage ownership and have registration rights. Based upon the terms
of the Series A Preferred Stock, Big Beaver and Westar Capital together in the
aggregate held approximately 46% of our common equity (on an as converted
basis, excluding options and warrants), as of February 28, 2002.
Our quarterly results may fluctuate significantly, and our small public
"float" adversely affects liquidity of our common stock and stock price
Our quarterly operating results may fluctuate significantly in the future
due to such factors as acceptance of our product by automotive manufacturers
and consumers, timing of our product introductions, availability and pricing
of components from third parties, competition, 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 significantly larger number of shares available for trading by the
public, or public "float," our common stock is less liquid than stocks with
broader public ownership, and as a result, trading prices of the common stock
may significantly fluctuate and certain institutional investors may be
unwilling to invest in such a thinly traded security.
We have anti-takeover defenses that could make it more difficult for a third
party to acquire a majority of our outstanding voting stock
The Series A Preferred Stock, which is outstanding, confers upon its holders
the right to elect five of seven members of the Board of Directors. In
addition, the Series A Preferred Stock will vote together with the shares of
common stock on any other matter submitted to shareholders. As of December 31,
2001, the holders of the Series A Preferred Stock had approximately 56% of our
voting shares and had the ability to approve or prevent any subsequent change
of 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 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.
11
Future sales of eligible shares may lower the price of our common stock
On February 25, 2002, we completed the sale of 4,333,368 shares of common
stock and warrants to purchase 2,166,684 shares of common stock in a private
placement to selected institutional and accredited investors, resulting in
gross proceeds of $6,500,052. The $6,500,052 excludes $2,580,903 representing
the principal amount of a bridge loan and accrued interest on that loan, which
was exchanged by the holder for 1,720,602 shares of common stock and warrants
to purchase 860,301 shares of common stock. As partial compensation for
services rendered in the private placement, Roth Capital Partners, LLC, was
granted a warrant to purchase up to 550,005 shares of our common stock. The
warrants issued in the private placement have an exercise price of $2.00 per
share and expire on February 25, 2007. Although the shares issued in the
private placement are restricted under the Securities Act, we have agreed
that, on or before March 27, 2002, we will file with the Securities and
Exchange Commission a registration statement under the Securities Act to
permit the resale of the common stock issued in the private placement
(including those shares issuable upon exercise of the warrants). The shares
will become eligible for resale when the Securities and Exchange Commission
declares the registration statement effective.
In March 2001, Ferrotec acquired 200,000 restricted shares of our common
stock. 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.
Our Series A Preferred Stock is convertible into 5,373,134 shares of common
stock and the holders thereof possess demand and piggyback registration
rights.
As part of the agreement with Ford dated March 2000, we granted warrants to
Ford exercisable for our common stock. Warrants for the right to purchase
108,000 shares of common stock at an exercise price of $2.75 per share were
issued and fully vested in 2000. Additional warrants will be granted and
vested based upon purchases by Ford of a specified number of CCS units
throughout the length of the agreement. If Ford achieves all of the incentive
levels required under the agreement, warrants will be granted and vested for
an additional 1,300,000 shares of common stock.
Employees and directors (who are not deemed affiliates) hold options to buy
830,622 shares of common stock at December 31, 2001. We may issue options to
purchase up to an additional 579,158 shares of common stock at December 31,
2001 under our stock option plans. The common stock to be issued upon exercise
of these options, has been registered, and therefore, may be freely sold when
issued. As of February 28, 2002, we also have outstanding additional warrants
to buy 867,309 shares of common stock with exercise prices ranging from $1.15
to $5.30 and have expiration dates ranging from November 6, 2003 to March 27,
2007.
Future sales of the shares described above could depress the market price of
our common stock.
We do not anticipate paying 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.
Delisting from an active trading market may adversely affect the liquidity and
trading price of our common stock
Although our common stock is quoted on The Nasdaq SmallCap Market, there can
be no assurance that we now, or in the future will be able to, meet all
requirements for continued quotation thereon. In November 2001, we were
informed by Nasdaq that it was reviewing our eligibility for continued listing
on The Nasdaq SmallCap Market. Effective November 1, 2002, we will also need
to comply with a Nasdaq requirement requiring the maintenance of a minimum
stockholders' equity of $2,500,000. In the absence of an active trading market
or if our common stock cannot be traded on The Nasdaq SmallCap Market, our
common stock could instead be traded on secondary exchanges, such as the OTC
Bulletin Board. In such event, the liquidity and trading price of our common
stock in the secondary market may be adversely affected. In addition, if our
common stock is delisted, broker-dealers have certain regulatory burdens
imposed on them which may discourage broker-dealers from effecting
transactions in our common stock, further limiting the liquidity thereof.
12
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
offices in Dearborn, Michigan, Germany and Japan, which collectively cost
approximately $15,000 per month. We believe that these facilities are adequate
for their present requirements, except for Dearborn, which will be expanded.
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.
13
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.
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 from
January 1, 2000 through December 31, 2001. Such prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
High Low
----- ----
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
2001
1st Quarter................................................... 3.63 1.56
2nd Quarter................................................... 4.70 1.95
3rd Quarter................................................... 3.23 1.20
4th Quarter .................................................. 2.46 0.70
As of March 15, 2002, there were approximately 225 holders of record of our
common stock (not including beneficial owners holding shares in nominee
accounts). The closing bid price of our common stock on March 15, 2002 was
$3.49 per share. We have not paid any cash dividends since formation and we do
not expect to pay any cash dividends in the foreseeable future.
On February 25, 2002, we completed the sale of 4,333,368 shares of common
stock and warrants to purchase 2,166,684 shares of common stock in a private
placement to selected institutional and accredited investors, resulting in
gross proceeds of $6,500,052. The $6,500,052 excludes $2,580,903 representing
the principal amount of a bridge loan and accrued interest on that loan, which
was exchanged by the holder for 1,720,602 shares of common stock and warrants
to purchase 860,301 shares of common stock. The warrants issued in the private
placement have an exercise price of $2.00 per share and expire on February 25,
2007.
The securities sold were exempt from registration under Section 4(2) and
Regulation D of the Securities Act of 1933, as amended, for non-public
offerings to accredited investors. The proceeds from the sale of securities
will be used for working capital, product development and general corporate
purposes.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31,
-------------------------------------------
(In thousands except per share data)
1997 1998 1999 2000 2001
------- ------- ------- ------- -------
Product revenues................. $ -- $ 18 $ 336 $ 6,886 $ 6,447
Net loss......................... (5,417) (7,704) (7,575) (11,274) (7,691)
Net loss per basic and diluted
share(1)........................ (3.08) (4.03) (8.29) (3.43) (1.66)
Accumulated deficit.............. (28,601) (36,305) (43,880) (55,154) (62,845)
As of December 31,
-------------------------------------------
(In thousands)
1997 1998 1999 2000 2001
------- ------- ------- ------- -------
Working capital (deficit)........ $ 8,826 $ 1,190 $ 1,481 $ 3,200 $ (839)
Total assets..................... 10,568 2,644 3,721 8,745 5,836
Long term obligations and
redeemable preferred stock...... 41 26 8,278 5 1,694
Capitalized lease obligations.... 41 65 27 12 5
- ---------------------
(1) Numbers adjusted to give effect to the 1-for-5 reverse stock split that
became effective on January 26, 1999. Our common stock began trading on
the adjusted basis on The Nasdaq SmallCap Market on January 28, 1999.
14
Unaudited Quarterly Financial Data Schedule
For the Years Ended December 31, 2001 and 2000
(In thousands)
For the three months ended,
---------------------------------------------
March 31, June 30, September 30, December 31,
2001 2001 2001 2001
--------- -------- ------------- ------------
Net sales....................... $2,335 $1,117 $1,506 $1,489
Gross profit.................... 300 247 226 224
Net loss........................ (1,823) (1,742) (1,786) (2,340)
Basic and diluted net loss per
share.......................... $(0.41) $(0.37) $(0.38) $(0.50)
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)
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 design, develop market and manufacture proprietary high technology
electronic systems for sale to automobile and truck original equipment
manufacturers. In 2001, we completed our second full year of producing and
selling our CCS product, which provides year-round comfort by providing both
heating and cooling to seat occupants. Since we started commercial production,
we have shipped more than 200,000 units of our CCS product through 2001 to
three customers, Johnson Controls, Lear and NHK. Johnson Controls supplies the
Lincoln Mercury division of Ford with our CCS product for installation in the
Lincoln Navigator, while NHK supplies our CCS product to Toyota for use in the
Lexus LS 430 and Toyota Celsior luxury automobiles. We began shipments to Lear
in November 2001 for the Lincoln Blackwood luxury utility vehicle, where our
CCS product is a standard feature (100% installation) for the first time.
We operate 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 automotive manufacturers
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 manufacturers tend to group new components and enhancements into
annual or every two to three year vehicle model introductions.
Critical Accounting Policies
The Securities and Exchange Commission ("SEC") recently issued disclosure
guidance for "critical accounting policies." The SEC defines "critical
accounting policies" as those that require application of management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and
may change in subsequent periods.
Our significant accounting policies are described in Note 3 in the Notes to
the Consolidated Financial Statements. Not all of these significant accounting
policies require management to make difficult, subjective or complex judgments
or estimates. However, the following policies could be deemed to be critical
within the SEC definition.
15
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States of America. The preparation of these consolidated financial
statements requires us to make estimates and judgments that affect the
reported amount of assets and liabilities, revenues and expenses, and related
disclosures at the date of our financial statements. Actual results may differ
from these estimates under different assumptions or conditions. These
estimates and assumptions include, but are not limited to:
. Warranty reserves
. Allowances for doubtful accounts
. Inventory reserves
Revenue Recognition
We recognize revenue when persuasive evidence of a sale. This evidence
includes proof that delivery of product has occurred or services have been
rendered, the price of the product delivered or service performed has been
fixed or determined with the acceptance of a customer purchase order, and
collection of the receivable for the product or service is reasonably assured.
Provision for estimated future cost of warranty for product delivered is
recorded when revenue is recognized. While we believe our warranty reserve is
adequate and that the judgment applied is appropriate, such amount estimated
to be due and payable could differ materially from what will actually
transpire in the future.
Income Taxes
Our income taxes are determined under guidelines prescribed by SFAS No. 109,
"Accounting for Income Taxes." Under the liability method specified by SFAS
No. 109, our 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 we
consider it more likely than not that the asset will not be realized. Because
of our net losses generated since inception, we have not recognized any of
this net deferred tax asset. It is possible, however, that we could be
profitable in the future at levels which may cause us to conclude that it is
more likely than not that we will realize all or a portion of our accumulated
net losses. Upon reaching such a conclusion, we would immediately record the
estimated net realizable value of the deferred tax asset at that time.
Results of Operations Year Ended December 31, 2001 Compared to Year Ended
December 31, 2000
Revenues. Revenues were $6,447,000 in 2001 as compared with revenues of
$6,886,000 in 2000. The decrease was due to a planned price reduction in 2001
for a design change to the CCS product installed on the Lincoln Navigator. The
year ended 2001 marked our second year as an operating company producing and
selling a commercial product. In 2000, we had two customers and three vehicle
lines: Johnson Controls with the Lincoln Navigator and NHK with the Lexus LS
430 and Toyota Celsior. Late in 2001, we also began shipments to Lear for the
Lincoln Blackwood.
Product Costs. Product costs decreased from $6,274,000 in 2000 to $5,450,000
in 2001. The decrease is due to the reduction of material, labor and freight
expenses in 2001 from 2000 caused by the startup of production for the
Navigator and Lexus product lines in 2000. Material, labor and freight
expenses were $5,782,000 and $6,268,000 for 2001 and 2000, respectfully. In
April 2001, the amortization of the Ferrotec manufacturing and supply
agreement began. The amortization is an offset to product cost, with $150,000
and nil recorded for 2001 and 2000, respectively. We anticipate future product
costs to increase in absolute dollars while decreasing as a percentage of
revenue. Product costs include tooling costs and related reimbursements; net
reimbursements of $203,000 and $34,000 were recorded for 2001 and 2000,
respectively.
Research and Development Expenses. Research and development expenses
decreased to $3,836,000 in 2001 from $4,099,000 in 2000. The change was caused
by a decrease in salaries and benefits of $883,000 due to
16
lower staffing in the CCS engineering departments and the discontinued
staffing of the radar engineering department, along with a $371,000 decrease
in overhead in 2001. These decreases were offset by $991,000 for research and
development expense incurred by our subsidiary, BSST LLC in 2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $4,548,000 in 2001 compared to $6,088,000
in 2000. The change was due to a net decrease in salaries, bonuses and
benefits of $850,000 and professional fees of $506,000. These decreases are
slightly offset by the amortization of the deferred Ford value participation
agreement benefit of $293,000 and $199,000 in 2001 and 2000, respectively (see
Note 6 to the consolidated financial statements). We also experienced
decreases in recruiting and general supplies of $174,000 and $102,000,
respectively.
Interest Income. Net interest income in 2001 decreased to $54,000 due to
lower cash levels. We also incurred interest expense of $377,000 in 2001
compared to $2,607,000 in 2000. The primary cause for this decrease was due to
an interest charge of $226,000 in 2001 for the amortized debt discount
associated with our 2001 bridge loan compared to a non-cash charge of
$2,500,000 in 2000 relating to the beneficial conversion feature of 2000
bridge loan (see Note 7 to the consolidated financial statements). We also
incurred $37,000 and $49,000 in interest as a result of the bridge loans in
2001 and 2000, respectively. Due to the consolidation of financial statements
with our 90% owned subsidiary BSST LLC in 2001, we recognized a $19,000
adjustment to minority interest in 2001 (see Note 16 to the consolidated
financial statements).
Results of Operations Year Ended December 31, 2000 Compared to Year Ended
December 31, 1999
Revenues. Revenues were $6,886,000 in 2000 as compared with revenues of
$336,000 in 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. Product costs
include 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.
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
Ford value participation agreement benefit of $199,000 (see Note 6 to the
consolidated 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.
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
consolidated 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 consolidated financial statements). We also incurred $49,000 in
bridge loan interest and $57,000 in amortized bridge loan discount.
17
Liquidity and Capital Resources
As of December 31, 2001, we had a working capital deficit of $839,000. As of
December 31, 2001, our cash and cash equivalents decreased by $2,396,000 from
$2,852,000 at December 31, 2000, primarily due to the cash used in operating
activities of $6,677,000, which mainly reflected the net loss of $7,691,000.
Investing activities used $714,000 in the purchase of manufacturing equipment
and tooling for CCS production and the addition of restricted cash held by
BSST LLC. Financing activities provided $4,995,000 due primarily to Ferrotec
payments of $3,000,000 and bridge loan advances of $2,000,000.
On February 25, 2002, we completed the sale of 4,333,368 shares of common
stock and warrants to purchase 2,166,684 shares of common stock in a private
placement to selected institutional and accredited investors, resulting in
gross proceeds of $6,500,052. The $6,500,052 excludes $2,580,903 representing
the principal amount of a bridge loan and accrued interest on that loan, which
was exchanged by the holder for 1,720,602 shares of common stock and warrants
to purchase 860,301 shares of common stock. We agreed to file a registration
statement relating to the resale of the securities offered in the private
placement with the Securities and Exchange Commission as soon as reasonably
practical and we are subject to monetary penalties in the event such
registration statement is not filed by March 27, 2002 and declared effective
by May 26, 2002 (June 10, 2002 if the SEC selects the registration statement
for review).
In April 2001, we received a total of $3,000,000 from Ferrotec, consisting
of a $2,000,000 fee in connection with a manufacturing and supply agreement
and $1,000,000 for the purchase of restricted shares of our common stock.
On June 14, 2000, we completed a privately placed financing with accredited
investors, pursuant to which we sold shares of our common stock for gross
proceeds of $11,000,000. In addition, Westar and Big Beaver elected to convert
$1,500,000 of the debt under an earlier bridge loan into shares of our common
stock.
BSST LLC was established in August 2000 by Dr. Lon E. Bell, the founder of
Amerigon. BSST is engaged in a research and product development effort to
improve the efficiency of thermoelectric devices. In September 2000, we
entered into an option agreement with BSST to purchase a 90% interest in BSST
for an aggregate of $2,000,000 payable over time. We paid $150,000 to BSST for
the option rights at that time. The original option agreement was amended to
extend the termination date from January 31, 2001 to May 31, 2001, in exchange
for additional option payments totaling $360,000. On May 31, 2001, we
exercised our option by paying $400,000 to BSST. As of December 31, 2001, the
Company had paid to BSST $1,369,000 and is required to pay an additional
$631,000 in installments of no more than $133,333 in any month pursuant to the
Option Agreement. In addition, we have, as the majority owner of BSST, certain
funding obligations to BSST of up to $500,000 per year.
We expect to incur losses until we are selling units in the automotive
market with appropriate volumes and margin. The production volumes that we
presently expect for the Lincoln Navigator, Lincoln Blackwood, Lexus LS 430
and Toyota Celsior will not be sufficient to break even. The addition of the
high-volume Ford Expedition, plus four to five new vehicle lines, is expected
to generate sufficient volume by the fourth quarter to obtain break even
results on an on-going basis. We are working with many automobile
manufacturers for future introduction of our CCS technology in the 2004 model
year (2003 calendar year) and beyond, but there is no guarantee these
manufacturers will introduce our products.
In May 2001, we announced that our CCS product was selected to be included
in four to five additional automotive vehicle lines, which we are expecting to
introduce over the next 12 months. These additional vehicle lines will bring
to nine the total number of vehicle lines where our CCS product has been
selected to be included as either an optional or standard feature. Because of
confidentiality restrictions, however, we are not permitted to identify the
additional vehicle lines and the automotive and seat manufacturers at this
time. Larger orders for the CCS products may require significant expenses for
tooling and to set up manufacturing and/or assembly processes.
18
We have suffered net losses of $7,691,000, $11,274,000 and $7,575,000 and
have used cash in operating activities of $6,677,000, $9,370,000 and
$7,491,000 for the years ended December 31, 2001, 2000 and 1999, respectively,
and had an accumulated deficit of $62,845,000 as of December 31, 2001. We
expect to incur losses for the near term, but anticipated revenues and net
proceeds from our February 2002 private placement should be sufficient to
cover our fixed manufacturing, overhead and operating costs through the end of
2002.
We have funded our financial needs from inception primarily through net
proceeds received through our initial public offering as well as other equity
and debt financing. At December 31, 2001, we had cash and cash equivalents of
$456,000 and working capital deficit of $839,000. Based on our current
operating plan, we believe cash at December 31, 2001 along with the net
proceeds from the February 2002 private placement (see Note 18 of the
consolidated financial statements) will be sufficient to meet our operating
and investment needs through the end of 2002.
In the event that unfavorable conditions in the automotive industry or other
factors adversely affect our cash and working capital position, we would seek
to implement measures to mitigate the impact of such events on our ability to
satisfy our operating needs. Key elements of our contingency plan could
include, but probably would not be limited to:
. obtaining asset-based financing from banks or other financial
institutions;
. implementing internal cash conservation measures to limit discretionary
spending; and
. seeking outside financing for BSST's operating needs.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which became effective for the
Company in 2001. SFAS No. 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 have not experienced, and do not expect, any significant impact
on our financial results from SFAS No. 133.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the pooling-of-
interest method is prohibited. We have evaluated this standard and believe
that adoption will not have an impact on our consolidated financial
statements.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach and will be effective for fiscal years
beginning after December 14, 2001. We have evaluated this standard and believe
that adoption will not have an impact on our consolidated financial
statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation to be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made and
will be effective for fiscal years beginning after June 15, 2002. We have
evaluated this standard and believe that adoption will not have an impact on
its consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, broaden the presentation
of discontinued operations to include more disposal transactions and will be
effective for fiscal years beginning after December 14, 2001. We have
evaluated this standard and believe that adoption will not have an impact on
its consolidated financial statements.
19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates 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 none is subject to foreign exchange
risk.
The table below presents the carrying value and related weighted average
interest rates for our investment portfolio. The carrying value approximates
fair value at December 31, 2001.
Average Rate of
Return at
Carrying December 31,
Value 2001
Marketable Securities (in thousands) (Annualized)
--------------------- ------------- ---------------
Cash equivalents.............................. $456 5.47%
Had the 2002 Private Placement occurred on December 31, 2001, the proforma
basic and diluted net loss per share reported would have been $0.48.
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.
20
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 SEC in
connection with our 2002 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 SEC in
connection with our 2002 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" in our definitive proxy statement to
be filed with the SEC in connection with our 2002 Annual Meeting of
Stockholders.
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 SEC in connection with our
2002 Annual Meeting of Stockholders.
21
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 Financial Statements....................................... F-6
Report of Independent Accountants................................... F-22
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 filed with the
California Secretary of State on April 23, 1993 (previously filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 2000 and incorporated herein by reference)
3.1.2 Certificate of Amendment of Articles of Incorporation filed with the
California Secretary of State on December 5, 1996 (previously filed
as Exhibit 3.1.2 to the Company's Registration Statement on Form S-2,
as amended, File No. 333-17401, and incorporated herein by reference)
3.1.3 Certificate of Amendment of Articles of Incorporation filed with the
California Secretary of State on January 26, 1999 (previously filed
as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1999 and incorporated herein by reference)
3.1.4 Certificate of Amendment of Articles of Incorporation filed with the
California Secretary of State on May 31, 2000
3.2 Certificate of Determination of Rights, Preferences and Privileges of
the Series A Convertible Preferred Stock filed with the California
Secretary of State on May 26, 1996, as amended on August 22, 2000
(previously filed as Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 2000 and incorporated herein
by reference)
3.3 Amended and Restated Bylaws of the Company (previously filed as
Exhibit 3.1 to the Company's Current Report on Form 8-K filed on June
16, 1997 and incorporated herein by reference)
4.1 Form of Specimen Certificate of Company's Common Stock
4.2.1 Contingent Warrant dated June 8, 1999 from the Company to Westar
Capital II LLC relating to warrants issued to Spencer Trask
Securities Incorporated and affiliates (previously filed as
Exhibit 5.3.5 to the Company's Registration Statement on Form S-8,
File No. 333-44007, and incorporated herein by reference)
22
Exhibit
Number Description
------- ----------------------------------------------------------------------
4.2.2 Contingent Warrant dated June 8, 1999 from the Company to Big Beaver
Investments LLC relating to warrants issued to Spencer Trask
Securities Incorporated and affiliates (previously filed as
Exhibit 5.3.6 to the Company's Registration Statement on Form S-8,
File No. 333-44007, and incorporated herein by reference)
4.2.3 Contingent Warrant dated June 8, 1999 from the Company to Westar
Capital II LLC relating to warrants issued to Lido Consulting and
Sutro and Company (previously filed as Exhibit 5.3.7 to the Company's
Registration Statement on Form S-8, File No. 333-44007, and
incorporated herein by reference)
4.2.4 Contingent Warrant dated June 8, 1999 from the Company to Big Beaver
Investments LLC relating to warrants issued to Lido Consulting and
Sutro and Company (previously filed as Exhibit 5.3.8 to the Company's
Registration Statement on Form S-8, File No. 333-44007, and
incorporated herein by reference)
4.3 Bridge Loan Warrant dated March 16, 2000 (previously filed as Exhibit
10.26 to the Company's Annual Report on Form 10-K for the period
ended December 31, 1999 and incorporated herein by reference)
4.4 Ford Warrant dated March 27, 2000 (previously filed as Exhibit 4.2 to
the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 2000 and incorporated herein by reference)
4.5 Second Amended and Restated Bridge Loan Warrant dated February 12,
2002 with Big Beaver Investments LLC
4.6 Form of Warrant issued on February 25, 2002 to Special Situations
Funds
4.7 Form of Warrant issued on February 25, 2002 to MicroCapital Funds
4.8 Warrant issued on February 25, 2002 to Big Beaver Investments LLC
4.9 Placement Agent Warrant issued on February 25, 2002 to Roth Capital
Partners LLC
10.1* 1993 Stock Option Plan, together with Form of Incentive Stock Option
Agreement and Nonqualified Stock Option Agreement (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)
10.2* Stock Option Agreement, effective May 13, 1993, between Lon E. Bell
and Roy A. Anderson (previously filed as Exhibit 10.6.1 to the
Company's Registration Statement on Form S-2, as amended, File No.
333-17401 and incorporated herein by reference)
10.3* Form of Indemnity Agreement between the Company and each of its
officers and directors (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)
10.4.1 Option and License Agreement dated as of November 2, 1992 between the
Company and Feher Design, Inc. (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)
10.4.2 Amendment to Option and License Agreement between the Company and
Feher Design dated September 1, 1997 (previously filed as Exhibit
10.14 to the Company's Annual Report on Form 10-K for the period
ended December 31, 1997 and incorporated herein by reference)
10.5 Standard Lease dated January 1, 1998 between the Company and
Dillingham Partners (previously filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the period ended December
31, 1997and incorporated herein by reference)
23
Exhibit
Number Description
------- ---------------------------------------------------------------------
10.6 Securities Purchase Agreement dated March 29, 1999 by and among the
Company, Westar Capital II LLC and Big Beaver Investments LLC
(previously filed as Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the period ended December 31, 1998 and incorporated
herein by reference)
10.7 Reserved
10.8 Value Participation Agreement dated March 27, 2000 between the
Company and Ford Motor Company (previously filed as Exhibit 10.5 to
the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 2000 and incorporated herein by reference)
10.9 Manufacturing and Supply Agreement with Ferrotec Corporation dated
March 28, 2001 (previously filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 2001
and incorporated herein by reference)
10.10 Subscription Agreement with Ferrotec Corporation dated March 28, 2001
(previously filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the period ended March 31, 2001 and incorporated
herein by reference)
10.11.1* Amended and Restated 1997 Stock Incentive Plan (previously filed as
Appendix A to the Company's Definitive Proxy Statement on Schedule
14A filed on April 30, 2001, as amended, and incorporated herein by
reference)
10.11.2* Form of Employee Incentive Stock Option Agreement (previously filed
as Exhibit 4.2 to the Company's Registration Statement on Form S-8
filed on January 9, 1998, File No. 333-44007, and incorporated
herein by reference)
10.11.3* Form of Non-Employee Nonqualified Stock Option Agreement (previously
filed as Appendix A to the Company's Definitive Proxy Statement on
Schedule 14A filed on April 30, 2001, as amended, and incorporated
herein by reference)
10.12 Assignment and Subscription Agreement dated September 4, 2000 between
Dr. Lon E. Bell and BSST LLC (previously filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 2001 and incorporated herein by reference)
10.13* Employment Agreement dated May 30, 2001 between Dr. Lon E. Bell and
BSST LLC (previously filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 2001 and
incorporated herein by reference)
10.14.1 Option Agreement dated September 4, 2000 among the Company, BSST LLC
and Dr. Lon E. Bell (previously filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the period ended June
30, 2001 and incorporated herein by reference)
10.14.2 First Amendment dated January 29, 2001 to Option Agreement among the
Company, BSST LLC and Dr. Lon E. Bell (previously filed as Exhibit
10.6 to the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 2001 and incorporated herein by reference)
10.14.3 Second Amendment dated March 19, 2001 to Option Agreement among the
Company, BSST LLC and Dr. Lon E. Bell (previously filed as Exhibit
10.7 to the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 2001 and incorporated herein by reference)
10.14.4 Third Amendment dated September 20, 2001 to Option Agreement among
the Company, BSST LLC and Dr. Lon E. Bell (previously filed as
Exhibit 10.8 to the Company's Current Report on Form 8-K filed on
September 25, 2001 and incorporated herein by reference)
10.15* Revenue Sharing Agreement dated September 4, 2000 between BSST LLC
and Dr. Lon E. Bell (previously filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the period ended June
30, 2001 and incorporated herein by reference)
24
Exhibit
Number Description
------- ----------------------------------------------------------------------
10.16 Amended and Restated Operating Agreement of BSST LLC dated May 30,
2001 (previously filed as Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 2001 and
incorporated herein by reference)
10.17.1 Credit Agreement dated September 20, 2001 between the Company and Big
Beaver Investments LLC (previously filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on September 25, 2001)
10.17.2 First Amendment dated December 1, 2001 to Credit Agreement between the
Company and Big Beaver Investments LLC
10.17.3 Security Agreement dated September 20, 2001 between the Company and
Big Beaver Investments LLC (previously filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K filed on September 25, 2001)
10.17.4 Patent and Trademark Security Agreement dated September 20, 2001
between the Company and Big Beaver Investments LLC (previously filed
as Exhibit 10.3 to the Company's Current Report on Form 8-K filed on
September 25, 2001)
10.17.5 Membership Interest Pledge Agreement dated September 20, 2001 between
the Company and Big Beaver Investments LLC (previously filed as
Exhibit 10.7 to the Company's Current Report on Form 8-K filed on
September 25, 2001)
10.17.6 Convertible Promissory Note dated September 20, 2001 issued to Big
Beaver Investments LLC (previously filed as Exhibit 10.4 to the
Company's Current Report on Form 8-K filed on September 25, 2001)
10.18 Purchase Agreement dated February 12, 2002 with Special Situation
Funds
10.19 Purchase Agreement dated February 12, 2002 with MicroCapital Funds
10.20 Exchange Agreement dated February 12, 2002 with Big Beaver Investments
LLC
10.21 Form of Registration Rights Agreement dated February 25, 2002 with
Special Situations Funds, MicroCapital Funds, and Big Beaver
Investments LLC
10.22.1 Investors' Rights Agreement dated June 8, 1999 among the Company, Big
Beaver Investments LLC, and Westar Capital II LLC (previously filed
as Exhibit 5.2 to the Company's Current Report on Form 8-K filed on
June 18, 1999 and incorporated herein by reference)
10.22.2 First Amendment to Investors' Rights Agreement dated March 16, 2000
among the Company, Big Beaver Investments LLC, and Westar Capital II
LLC
10.22.3 Second Amendment to Investors' Rights Agreement dated September 20,
2001 among the Company, Big Beaver Investments LLC, and Westar
Capital II LLC (previously filed as Exhibit 10.6 to the Company's
Current Report on Form 8-K filed on September 25, 2001 and
incorporated herein by reference)
21 List of Subsidiaries
23 Consent of PricewaterhouseCoopers LLC
(b)Reports on Form 8-K.
On October 26, 2001, the Company filed a Current Report on Form 8-K (event
date October 25, 2000) to report under Items 5 (other events) and 7
(exhibits).
On December 11, 2001, the Company filed a Current Report on Form 8-K
(event date November 27, 2001) to report under Item 5 (other events).
- ---------------------
* Indicates management contract or compensatory plan or arrangement.
25
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 Financial Statements.............................................. F-6
Report of Independent Accountants.......................................... F-24
F-1
AMERIGON INCORPORTED
BALANCE SHEETS
(In thousands, except share data)
December 31,
----------------------------
Pro Forma
2001
2001 2000 (Note 19)
------- ------- ----------
(unaudited)
ASSETS
Current Assets:
Cash & cash equivalents........................ $ 456 $ 2,852 $ 6,900
Restricted cash................................ 496 -- 496
Accounts receivable less allowance of $50, and
$55, respectively............................. 1,268 1,375 1,268
Inventory...................................... 1,163 1,478 1,163
Prepaid expenses and other assets.............. 383 487 185
------- ------- -------
Total current assets......................... 3,766 6,192 10,012
Property and equipment, net...................... 1,192 1,383 1,192
Deferred exclusivity fee, net.................... 878 1,170 878
------- ------- -------
Total assets................................. $ 5,836 $ 8,745 $12,082
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable............................... $ 1,446 $ 1,376 $ 1,446
Accrued liabilities............................ 922 1,446 922
Bridge loan payable............................ 2,037 -- --
Deferred manufacturing agreement--current
portion....................................... 200 -- 200
Deferred revenue............................... -- 170 --
------- ------- -------
Total current liabilities.................... 4,605 2,992 2,568
Deferred manufacturing agreement--long term
portion......................................... 1,650 -- 1,650
Long term portion of capital lease............... -- 5 --
Minority interest in subsidiary.................. 44 -- 44
------- ------- -------
Total liabilities............................ 6,299 2,997 4,262
------- ------- -------
Commitments (Note 15)
Shareholders' equity (deficit):
Preferred stock:
Series A--no par value; convertible; 9,000
shares authorized, 9,000 issued and
outstanding at December 31, 2001, 2000 and
pro forma; liquidation preference of $10,575
(Note 9)..................................... 8,267 8,267 8,267
Common stock:
No par value; 20,000,000 shares authorized,
4,717,000 and 4,428,000 issued and
outstanding at December 31, 2001 and 2000;
10,771,000 issued and outstanding at December
31, 2001 pro forma........................... 39,192 37,947 41,842
Paid-in capital................................ 14,945 14,689 20,858
Deferred compensation............................ (22) (1) (22)
Accumulated deficit.............................. (62,845) (55,154) (63,125)
------- ------- -------
Total shareholders' equity (deficit)......... (463) 5,748 7,820
------- ------- -------
Total liabilities and shareholders' equity
(deficit)................................... $ 5,836 $ 8,745 $12,082
======= ======= =======
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,
---------------------------
2001 2000 1999
------- -------- --------
Product revenues................................... $ 6,447 $ 6,886 $ 336
Cost of sales...................................... 5,450 6,274 778
------- -------- --------
Gross margin....................................... 997 612 (442)
Operating costs and expenses:
Research and development.......................... 3,836 4,099 3,721
Selling, general and administrative............... 4,548 6,088 3,481
------- -------- --------
Total operating costs and expenses.............. 8,384 10,187 7,202
------- -------- --------
Operating loss..................................... (7,387) (9,575) (7,644)
Interest income.................................... 54 201 135
Interest expense................................... (377) (2,607) (30)
Minority interest in subsidiary.................... 19 -- --
Loss on disposal of property and equipment......... -- -- (36)
------- -------- --------
Loss before extraordinary item..................... (7,691) (11,981) (7,575)
Extraordinary gain from extinguishment of debt..... -- 707 --
------- -------- --------
Net loss........................................... (7,691) (11,274) (7,575)
Deemed dividend to preferred shareholders.......... -- -- (8,267)
------- -------- --------
Net loss attributable to common shareholders....... $(7,691) $(11,274) $(15,842)
======= ======== ========
Basic and diluted net loss per share:
Loss before extraordinary item.................... $ (1.66) $ (3.65) $ (8.29)
Extraordinary gain from extinguishment of debt.... -- 0.22 --
------- -------- --------
Net loss........................................... $ (1.66) $ (3.43) $ (8.29)
======= ======== ========
Weighted average number of shares outstanding...... 4,629 3,283 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,
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
Unearned compensation
relating to stock
option granted......... -- -- -- 30 (21) -- 9
Issuance of Common Stock
for cash, Ferrotec
Agreement.............. -- 200 1,000 -- -- -- 1,000
Issuance of Common Stock
for bonus awards....... -- 89 245 -- -- -- 245
Issuance of warrants to
purchase Common Stock
in conjunction with
Bridge Loan financing.. -- -- -- 226 -- -- 226
Net Loss............... -- -- -- -- -- (7,691) (7,691)
------ ----- ------- ------- ---- -------- -------
Balance at December 31,
2001................... $8,267 4,717 $39,192 $14,945 $(22) $(62,845) $ (463)
====== ===== ======= ======= ==== ======== =======
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,
--------------------------
2001 2000 1999
------- -------- -------
Operating Activities:
Net loss.......................................... $(7,691) $(11,274) $(7,575)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization.................... 576 562 344
Amortization of debt discount.................... 226 57 --
Extraordinary gain on extinguishment of debt..... -- (707) --
Deferred revenue................................. (170) 170 (44)
Non-cash interest................................ -- 2,500 --
Provision for doubtful accounts.................. (5) (3) (43)
Minority interest in subsidiary.................. 19 -- --
Loss from sale of assets......................... -- -- 36
Compensation from grant of non-employee stock
options and warrants............................ 9 (4) 15
Change in operating assets and liabilities:
Accounts receivable............................. 112 (1,090) (65)
Inventory....................................... 315 (988) (385)
Prepaid expenses and other assets............... 104 (236) (115)
Accounts payable................................ 70 784 229
Accrued liabilities............................. (242) 859 112
------- -------- -------
Net cash used in operating activities.......... (6,677) (9,370) (7,491)
Investing Activities:
Purchase of property and equipment................ (243) (695) (869)
Other investing activities........................ 25 -- --
Increase in restricted cash....................... (496) -- --
Purchase of short term investments................ -- -- (1,854)
Sale of short term investments.................... -- -- 1,854
------- -------- -------
Net cash used in investing activities............ (714) (695) (869)
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 deferred manufacturing agreement.... 2,000 -- --
Proceeds from issuance of common stock............ 1,000 11,056 --
Cost of issuance of common stock.................. -- (1,270) --
Repayment of capital lease........................ (5) (16) (15)
Proceeds from Bridge Financing.................... 2,000 2,500 1,200
Repayment of Bridge Financing..................... -- (1,000) (1,200)
Sale of shares in consolidated subsidiary......... -- -- 88
------- -------- -------
Net cash provided by financing activities........ 4,995 11,270 8,340
------- -------- -------
Net increase (decrease) in cash and cash
equivalents..................................... (2,396) 1,205 (20)
Cash and cash equivalents at beginning of
period.......................................... 2,852 1,647 1,667
------- -------- -------
Cash and cash equivalents at end of period....... $ 456 $ 2,852 $ 1,647
======= ======== =======
The accompanying notes are an integral part of these financial statements
F-5
AMERIGON INCORPORATED
NOTES TO THE FINANCIAL STATEMENTS
Note 1 -- The Company
The Company designs, develops, markets and manufactures proprietary high
technology electronic components and systems for sale to car and truck
original equipment manufacturers ("OEMs"). In 2001, the Company completed its
second consecutive year of producing and selling its Climate Control Seat(TM)
("CCS(TM)"), which provides year-round comfort by providing both heating and
cooling to seat occupants. The Company has shipped more than 200,000 units of
its CCS product through 2001 to three customers, Johnson Controls, Inc.
("JCI"), Lear Corporation ("Lear") and NHK Spring Company, Ltd ("NHK"). JCI
supplies the Lincoln Mercury division of Ford Motor Company ("Ford") with its
CCS product for installation in the Lincoln Navigator Sport Utility Vehicle
("SUV"), while NHK supplies its CCS product to Toyota Motor Corporation for
use in the Lexus LS 430 and Toyota Celsior luxury automobiles. The Company
began shipments to Lear in November 2001 for the Lincoln Mercury Blackwood
sport utility truck where its product is standard for the first time.
The Company was incorporated in California in 1991 and originally focused
its efforts on developing electric vehicles and high technology automotive
systems. The Company is now focusing its efforts on its CCS product, its only
commercial product. The Company suspended funding the electric vehicle program
in August 1998.
Ceasing Development of AmeriGuard(TM)
In December 2000, the Company's Board of Directors decided to cease funding
the development of AmeriGuard, a radar-based speed and distance sensor system,
in order to focus the Company's resources on the marketing of the CCS product
and development of the next generation CCS device.
Note 2 -- Basis of Presentation
Liquidity and Capital Resources
The Company has suffered net losses of $7,691,000, $11,274,000 and
$7,575,000 and has used cash in operating activities of $6,677,000, $9,370,000
and $7,491,000 for the years ended December 31, 2001, 2000 and 1999,
respectively, and the Company had an accumulated deficit of $62,845,000 as of
December 31, 2001. The Company expects to incur losses for the near term, but
management believes anticipated revenues and net proceeds from the 2002
Private Placement (Note 18) should be sufficient to cover the Company's fixed
manufacturing, overhead and operating costs through the end of 2002.
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, 2001, the Company had cash and cash
equivalents of $456,000 and working capital deficit of $839,000. Based on the
Company's current operating plan, management believes cash at December 31,
2001 along with the net proceeds from the 2002 Private Placement (Note 18)
will be sufficient to meet operating and investment needs through the end of
2002.
On February 25, 2002, the Company completed the sale of 4,333,368 shares of
common stock and warrants to purchase 2,166,684 shares of common stock in a
private placement to selected institutional and accredited investors,
resulting in gross proceeds of $6,500,052. The $6,500,052 excludes $2,580,903
representing the principal amount of a bridge loan and accrued interest on
that loan, which was exchanged by the holder for 1,720,602 shares of common
stock and warrants to purchase 860,301 shares of common stock. The Company
agreed to file a registration statement relating to the resale of the
securities offered in the private placement with the Securities and Exchange
Commission as soon as reasonably practical and it is subject to monetary
penalties in the event such registration statement is not filed by March 27,
2002 and declared effective by May 26, 2002 (June 10, 2002 if the SEC selects
the registration statement for review).
F-6
In the event that unfavorable conditions in the automotive industry or other
factors adversely affect the cash and working capital position, the Company
would seek to implement measures to mitigate the impact of such events on its
ability to satisfy its operating needs. Key elements of the Company's
contingency plan could include, but probably would not be limited to:
.obtaining asset-based financing from banks or other financial
institutions;
.implementing internal cash conservation measures to limit discretionary
spending; and
.seeking outside financing for BSST's operating needs.
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.
Note 3 -- Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements at December 31, 2001, reflect the
consolidated financial position and consolidated operating results of the
Company and, since June 1, 2001, BSST. Intercompany accounts have been
eliminated in consolidation. The 10% of BSST not owned by the Company is
reflected as minority interest. Had the acquisition of BSST occurred as of
January 1, 2001, the pro forma consolidated net loss for the year ended
December 31, 2001, would not have been significantly different.
Restricted cash represents cash that is available exclusively to BSST.
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, approximates 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.
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
F-7
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 (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 (the "VPA") is 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 might not be recoverable. Management does not believe that there are
any material impairments at December 31, 2001.
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
The Company recognizes revenue when persuasive evidence of an arrangement
exists including:
.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 reimbursements for
2001, 2000 and 1999 were:
Years ended December 31,
-------------------------
2001 2000 1999
-------- ------- --------
Net tooling reimbursement......................... $202,848 $34,158 $184,116
F-8
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
2001, 2000 and 1999 were:
Years ended December 31,
-------------------------
2001 2000 1999
-------- ------- --------
Net development and prototype costs............... $456,173 $24,472 $150,661
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.
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.
F-9
Because their effects are anti-dilutive, net loss per share for the years
ended December 31, 2001, 2000 and 1999 do not include the effect of:
December 31,
-------------------------------
2001 2000 1999
---------- ---------- ---------
Stock options outstanding for:
1993 and 1997 Stock Option Plans.......... 830,622 921,447 871,180
Shares of Common Stock issuable upon the
exercise of warrants..................... 4,681,447 3,997,382 2,705,374
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 5,373,134
---------- ---------- ---------
Total................................... 11,075,603 10,482,363 9,140,088
========== ========== =========
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 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Use of the pooling-of-interest
method is prohibited. The Company has evaluated this standard and believes
that adoption will not have an impact on its consolidated financial
statements.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment-only approach and will be effective for fiscal years
beginning after December 14, 2001. The Company has evaluated this standard and
believes that adoption will not have an impact on its consolidated financial
statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation to be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made and
will be effective for fiscal years beginning after June 15, 2002. The Company
has evaluated this standard and believes that adoption will not have an impact
on its consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, broaden the presentation
of discontinued operations to include more disposal transactions and will be
effective for fiscal years beginning after December 14, 2001. The Company has
evaluated this standard and believes that adoption will not have an impact on
its consolidated financial statements.
F-10
Note 4 -- Details of Certain Financial Statement Components (in thousands)
December 31,
----------------
2001 2000
------- -------
Inventory:
Raw material.............................................. $ 866 $ 1,118
Work in Process........................................... 53 76
Finished goods............................................ 244 452
------- -------
1,163 1,646
Less: inventory allowance.................................. -- (168)
------- -------
$ 1,163 $ 1,478
======= =======
Prepaid Expenses and Other Assets:
Deposits.................................................. $ 289 $ 404
Prepaid insurance......................................... 94 83
------- -------
$ 383 $ 487
======= =======
Property and Equipment:
Equipment................................................. $ 1,902 $ 1,851
Computer equipment........................................ 745 739
Leasehold improvements.................................... 317 316
Production tooling........................................ 851 666
------- -------
3,815 3,572
Less: accumulated depreciation and amortization............ (2,623) (2,189)
------- -------
$ 1,192 $ 1,383
======= =======
Accrued liabilities:
Accrued salaries.......................................... $ 310 $ 710
Accrued vacation.......................................... 138 209
Other accrued liabilities................................. 474 527
------- -------
$ 922 $ 1,446
======= =======
Property and equipment includes assets acquired under capital leases of
approximately $60,000 at December 31, 2001 and 2000, and accumulated
amortization of $57,000 and $49,000 at December 31, 2001 and 2000,
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,
----------------------------
2001 2000 1999
-------- -------- --------
Deferred tax assets:
Net operating loss............................ $ 19,928 $ 18,520 $ 14,746
Credits....................................... 1,512 884 798
Depreciation.................................. 343 343 238
Deferred Revenue.............................. 933 -- --
Other......................................... 375 590 157
-------- -------- --------
23,091 20,337 15,939
Less: valuation allowance...................... (23,091) (20,337) (15,939)
-------- -------- --------
Net deferred tax asset....................... $ -- $ -- $ --
======== ======== ========
F-11
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,
2001 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, 2001 is as follows:
December 31,
---------------------
2001 2000 1999
----- ----- -----
Statutory Federal income
tax rate................. (34.0%) (34.0%) (34.0%)
Increase (decrease) in
taxes resulting from:
State tax, net of federal
benefit................. (3.4%) (5.8%) (5.8%)
Nondeductible expenses... 0.1% 0.1% --
Change in valuation
allowance.............. 37.3% 39.7% 39.8%
----- ----- -----
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 $54,393,000 at December 31, 2001, which expire
between 2013 and 2022. Approximately $35,556,000 of these NOL's were incurred
prior to the Preferred Financing during 1999, 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 mentioned above, totaling
approximately $18,837,000 may also be subject to an annual limitation under
Section 382 of the Internal Revenue Code as a result of the 2002 Private
Placement (Note 18).
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 $293,000 and $199,000 were
recorded as selling, general and administrative expense in 2001 and 2000,
respectively. 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
F-12
their 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. As of
December 31, 2001, 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
2001 Bridge Loan
On September 30, 2001, the Company obtained a Bridge Loan facility from Big
Beaver Investments LLC (one of the Company's two holders of preferred stock
and then representing 28.1% ownership on an as converted basis) for an
aggregate principal amount of up to $1,500,000 (the "Bridge Loan"). The Bridge
Loan accrued interest at 10% per annum, payable at maturity, December 1, 2001
or on the date of the repayment. On December 1, 2001, Big Beaver and the
Company amended the Bridge Loan to increase the aggregate principal amount to
$2,500,000 and with this amendment increased the accrued interest to 12.5% per
annum. The amended Bridge Loan was due on the earlier of March 1, 2002 or upon
the occurrence of a Trigger Event, defined to have occurred when the Company
(or its Board of Directors) shall have authorized, recommended, proposed or
publicly announced its intention to enter into (or failed to recommend
rejection of) any tender or exchange offer, merger, consolidation,
liquidation, dissolution, business combination, recapitalization, acquisition,
or disposition of a material amount of the assets of securities or any
comparable transaction which has not been consented to in writing by Big
Beaver. This loan was collateralized by substantially all of the Company's
assets. As of December 30, 2001, the Company had drawn $2,000,000 of the
Bridge Loan and accrued interest of $37,153.
In connection with entering into the Bridge Loan, the Company issued a
warrant for the right to purchase 652,174 shares (this number was reduced to
326,087 concurrent with completion of the 2002 Private Placement (Note 18)) of
the Company's Common Stock at a price of $1.15 per share. 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 warrant is
$226,000 which was amortized to interest expense as of December 31, 2001.
On February 25, 2002, the Company completed the sale of 4,333,368 shares of
Common Stock and warrants to purchase 2,166,684 shares of Common Stock in a
private placement to selected institutional and accredited investors,
resulting in gross proceeds of $6,500,052 (Note 18). The $6,500,052 excludes
$2,580,903 representing the principal amount of the Bridge Loan and accrued
interest on that loan, which was exchanged by the holder for 1,720,602 shares
of Common Stock and warrants to purchase 860,301 shares of Common Stock. The
warrants issued in the private placement have an exercise price of $2.00 per
share and expire on February 25, 2007.
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 aggregate principal amount of
$2.5 million. The loan accrued interest at 10% per annum. Upon completion of
the 2000 Private Placement (Note 8), the Company repaid $1.0 million of bridge
loan principal and accrued interest of $49,000. 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 and
warrants to purchase 50,000 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 (the
"Investors") for the sale of Series A Preferred Stock (Note 9). In connection
with the Preferred Financing, prior to the close of the Preferred Financing,
the Investors extended to
F-13
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.
Note 8 -- 2000 Private Placement
On June 14, 2000, the Company completed the sale of 2.2 million shares of
its Common Stock to selected institutional and accredited investors, resulting
in gross proceeds of $11.0 million, with issuance costs of $1.3 million ("2000
Private Placement"). The $11.0 million excludes a $1.5 million advance on a
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 2000 Private
Placement, Roth Capital Partners, Inc., was granted a warrant to purchase up
to 188,000 shares of the Company's Common Stock at $5.00 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 has been reserved
for issuance in the event of the conversion of Series A Convertible Preferred
Stock.
Voting Rights
The holder of each share of Series A 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.
F-14
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, 2001, the
liquidation preference was $10,575,000.
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, 2001), Amerigon may redeem the Series A
Redeemable and Convertible Preferred Stock for an amount equal to the Series A
Redemption Price, which was $10,575,000 at December 31, 2001.
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".
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 consisting of 56 shares of Common Stock and 56
Class A Warrants. As of December 31, 2001, the underwriter's option had not
been exercised and this option expired unexercised on February 12, 2002.
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 to purchase 423,946 were issued due to certain
anti-dilution provisions in the contingent warrants. In addition, contingent
warrants for 8,856 shares of Common Stock expired in 2000. At December 31,
2001, the Company had outstanding contingent warrants to issue 1,644,454
shares of Common Stock. The warrants could only be exercised to the extent
that Class A Warrants were 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 less than $1,000. The Class A
Warrants expired on February 12, 2002 without any being exercised and
accordingly the contingent warrants are no longer exercisable.
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, 2001.
In conjunction with the 2000 Bridge Loan (Note 7), Big Star (Big Beaver and
Westar Capital) received a warrant to purchase an aggregate of 50,000 shares
of Common Stock at an exercise price of $5.00 per share, which was assigned a
relative fair value of $173,000 (Note 7) and reflected as additional paid in
capital. The warrant expires in 2005 if not exercised. The number of shares of
Common Stock issuable upon exercise of this warrant and the exercise price of
this warrant were adjusted in connection with the 2002 Private Placement
(Note 18).
F-15
In conjunction with the 2001 Bridge Loan (Note 7), Big Beaver received a
warrant that is exercisable for 326,087 shares of Common Stock at an exercise
price of $1.15 per share, which were assigned a relative fair value of
$226,000 (Note 7) and reflected as additional paid in capital. The warrant
expires in 2006 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 represents 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 has 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 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, 2001, the Company had not exercised
this option and none of these warrants had been exercised. Pursuant to the
terms of the Class A Warrants, on February 12, 2002, these warrants expired
unexercised.
Note 12 -- Stock Options
1997 and 1993 Stock Option Plans
Under the Company's 1997 and 1993 Stock Option Plans (the "Plans"), as
amended in May 2001, 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.
F-16
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.
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.
The following table summarizes stock option activity:
1997 and 1993 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, 1998................ 121,583 198,250 12.35 118,422 13.25
Authorized............... 1,150,000 -- -- -- --
Granted.................. (760,000) 760,000 3.14 -- --
Canceled................. 90,990 (90,990) 10.98 (118,422) 13.25
--------- -------- ----- -------- -----
Outstanding at December
31, 1999................ 602,573 867,260 4.63 -- $ --
======== =====
Granted.................. (95,000) 95,000 5.25
Expired.................. (25,168) -- --
Exercised................ -- (17,885) 3.10
Canceled................. 22,927 (22,927) 8.79
--------- -------- -----
Outstanding at December
31, 2000................ 505,332 921,448 4.62
Granted.................. (99,000) 99,000 1.73
Expired.................. (17,000) -- --
Canceled................. 189,826 (189,826) 5.60
--------- -------- -----
Outstanding at December
31, 2001................ 579,158 830,622 $4.05
========= ======== =====
The following table summarizes information concerning currently outstanding
and exercisable stock options for the 1993 and 1997 Stock Option Plans as of
December 31, 2001:
Options Outstanding at Options Exercisable
December 31, 2001 at December 31, 2001
-------------------------------------- ---------------------
Weighted- Weighted-
Weighted-Average Average Number Average
Range of Number Remaining Exercise Vested and Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ----------- ---------------- --------- ----------- ---------
$1.05-- 2.91 95,000 5.66 $1.50 80,783 $1.30
3.06-- 3.31 546,946 5.19 3.06 431,446 3.06
3.45--11.40 141,881 7.56 4.96 84,231 5.39
13.15--21.90 46,795 0.63 17.98 45,994 18.05
------- -------
830,622 642,454
======= =======
F-17
The Company accounts for these plans under APB Opinion No. 25. Had
compensation expense for these plans been determined consistent with SFAS No.
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,
--------------------------
2001 2000 1999
------- -------- -------
(In thousands,
except per share data)
Net loss
As reported.................................. $(7,691) $(11,274) $(7,575)
Pro Forma.................................... (8,578) (12,149) (8,409)
Basic and diluted loss per share
As reported.................................. $ (1.66) $ (3.43) $ (8.29)
Pro Forma.................................... $ (1.85) (3.70) (8.73)
The fair value of each stock option grant has been estimated pursuant to
SFAS No. 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
--------------------------
2001 2000 1999
-------- -------- --------
Risk-free interest rates........................ 6.75% 6.5% 6%
Expected dividend yield......................... none none none
Expected lives.................................. 5.0 yrs. 5.0 yrs. 4.5 yrs.
Expected volatility............................. 96% 96% 96%
The weighted average grant date fair values of options granted under the
1993 and 1997 Stock Option Plans during 2001, 2000 and 1999 were $1.43, $4.73
and $2.39, respectively.
Note 13 -- Supplemental Disclosure of Cash Flow Information and Non-Cash
Activity
Significant non-cash items:
Years ended
December 31,
---------------
2001 2000 1999
---- ----- ----
Issuance of warrants to underwriter of
private placement....................................... -- 1,440 --
Exchange of bridge note payable for common stock......... -- 1,452 --
Issuance of stock options to non-employees............... 3 47 --
Issuance of common stock for bonus awards................ 245 -- --
Issuance of warrants to underwriter in conjunction with
the bridge loan -- 173 --
Issuance of warrants to consultants for
exclusivity rights...................................... -- 1,369 --
Cash paid for interest in 2001, 2000 and 1999 were $2,000, $51,000 and
$21,000, respectively.
Note 14 -- Licenses
In 1992, the Company obtained the worldwide license to manufacture and sell
technology for a CCS product 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 incurred royalty expense
under this license agreement of $46,000, $33,000 and $43,000 in 2001, 2000 and
1999, respectively. These royalties are recorded as cost of goods sold.
F-18
Note 15 -- Commitments
The Company leases its current facility in Irwindale, California from a
partnership controlled by Dr. Bell, a shareholder of the Company. The lease
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 $476,000, $348,000 and $328,000 for 2001, 2000 and 1999, respectively.
Future minimum lease payments under all operating leases are $402,000,
$152,000, $159,000 and $73,000 in 2002, 2003, 2004 and 2005, respectively, and
nil thereafter.
The Company entered into an office and computer equipment lease under a
long-term lease arrangement in 1997 which is reported as capital lease. The
terms of this lease is five years with an interest rate of 13.3%. The final
payment for this lease is November 2002. Lease payments under this capital
lease are $6,000 for the year ending December 31, 2002 of which $1,000
represents total interest to be paid and $5,000 was included in liabilities at
December 31, 2001.
On March 28, 2001, the Company entered into a Manufacturing and Supply
Agreement (the "Agreement") with Ferrotec Corporation ("Ferrotec"), a Tokyo-
based manufacturer. The Agreement grants to Ferrotec the exclusive right to
manufacture CCS units in certain countries primarily located in the Far East
(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 began April 1, 2001 and expires on April 1, 2011. The
$2,000,000 fee paid by Ferrotec to the Company in connection with the
Agreement has been recorded as a deferred manufacturing agreement liability on
the consolidated financial statements and is being amortized as an offset to
cost of sales expense on a straight-line basis over the term of the Agreement
at a rate of $200,000 a year. Ferrotec also entered into a Subscription
Agreement with the Company, whereby Ferrotec purchased 200,000 shares of
unregistered Common Stock at $5.00 per share. The Subscription Agreement
grants Ferrotec demand registration rights beginning one year from the closing
of the Subscription Agreement and piggy-back registration rights if the
Company proposes to register any securities before then. The Company received
the $2,000,000 and $1,000,000 payments under the two agreements in April 2001.
Note 16 -- Related Party Transactions
Investment in BSST / Restricted Cash
Dr. Lon Bell, the founder and Vice Chairman of Amerigon, established BSST as
a Delaware limited liability company in August 2000. BSST is engaged in a
research and development effort to improve the efficiency of thermoelectric
devices. The objective of these efforts is to expand the applications of
thermoelectric devices to automotive and non-automotive applications that
could include, for example, temperature control and power generation.
In September 2000, the Company entered into an option agreement with BSST to
purchase 2,000 Series A Preferred Shares, which represents a 90% interest in
BSST, for $2,000,000. At December 31, 2001, the Company has paid to BSST
$1,369,000 and is required to pay an additional $631,000 in installments of no
more than $133,000 in any month. This acquisition was accounted for by the
purchase method of accounting. The Preferred Shares give the Company a 90%
voting interest and a 90% interest in the results of operations of BSST. At
the time of the exercise of its option, the Company recorded a charge to
research and development costs of $357,000 representing the excess of its
investment to date in BSST over the proportional underlying net assets of
BSST. In addition, the Company recorded $136,900, which reflects 10% of the
installments paid to BSST per the option agreement, as research and
development expense.
F-19
The consolidated financial statements at December 31, 2001, reflect the
consolidated financial position and consolidated operating results of the
Company and, since June 1, 2001, BSST. Intercompany accounts have been
eliminated in consolidation. The 10% of BSST not owned by the Company is
reflected as minority interest. Had the acquisition of BSST occurred as of
January 1, 2001, the pro forma consolidated net loss for the year ended
December 31, 2001, would not have been significantly different.
Restricted cash represents cash that is available exclusively to BSST.
Outsourcing of Production
In January 2002, the Company began outsourcing production of product for its
North American customers to a supplier plant in Chihuahua, Mexico. The
supplier is an affiliate of Big Beaver Investments LLC (one of the Company's
two major shareholders). A significant cost reduction was achieved by the
outsourcing of production to this plant. The Company anticipates the first
shipments from this supplier plant in March 2002.
EV
On March 23, 1999, the Company's Board of Directors agreed to form a
subsidiary to hold the Company's electric vehicle (EV) operations. Pursuant to
discussions held among the Company's Board of Directors and Dr. Bell, Vice
Chairman of the Board and a 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.
Lease of Building in Irwindale, California
The Company leases its current facility in Irwindale, California from a
partnership controlled by Dr. Bell, the founder and Vice Chairman of the
Company (Note 15).
Note 17 -- Segment Reporting
The Company has adopted SFAS No. 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.
. BSST LLC (BSST) -- a subsidiary engaged in a research and development
effort to improve the efficiency of thermoelectric devices and develop
products based on this new technology.
. 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.
F-20
The table below presents information about the reported revenues and
operating loss of Amerigon for the years ended December 31, 2001, 2000 and
1999 (in thousands, except footnote). Asset information by reportable segment
is not reported, since management does not produce such information.
Reconciling As
CCS BSST AmeriGuard Items Reported
------ ---- ---------- ----------- --------
2001
Revenue.................... $6,447 $ -- $ -- $ -- $6,447
Operating loss............. (1,848) (991) -- (4,548)(/1/) (7,387)
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)
- ---------------------
(1) Represents selling, general and administrative costs of $4,330,000,
$5,859,000 and $3,255,000, respectively, and depreciation expense of
$218,000, $229,000 and $226,000, respectively, for years ended December
31, 2001, 2000 and 1999.
Revenue information by geographic area (in thousands):
2001 2000 1999
------ ------ ----
United States........................................... $2,868 $4,271 $336
Asia.................................................... 3,579 2,615 --
------ ------ ----
Total Revenues.......................................... $6,447 $6,886 $336
====== ====== ====
In 2001, two customers, one foreign (NHK) and one domestic (JCI),
represented 56% and 43%, respectfully, of the Company's sales. 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.
Note 18 -- Subsequent Events
In January 2002, Ford announced that our CCS product would be offered as an
option in the 2003 Expedition SUV. The 2003 Expedition will be available to
the public in early summer 2002.
In January 2002, the Company began outsourcing production of product for its
North American customers to a supplier plant in Chihuahua, Mexico. The
supplier is an affiliate of Big Beaver Investments LLC (one of the Company's
two major shareholders). A significant cost reduction was achieved by the
outsourcing of production to this plant. The Company anticipates the first
shipments from this supplier plant in March 2002.
On February 12, 2002, the Class A warrants to purchase 1,993,264 shares of
Common Stock (Note 11) expired without any being exercised and, as a result,
the contingent warrants issued by the Company are no longer exercisable as
these contingent warrants were only exercisable to the extent that the Class A
Warrants were exercised.
On February 25, 2002, the Company completed the sale of 4,333,368 shares of
Common Stock and warrants to purchase 2,166,684 shares of Common Stock in a
Private Placement (the "2002 Private Placement") to selected institutional and
accredited investors, resulting in total proceeds of $6,500,052, less issuance
costs of $652,000. The $6,500,052 excludes $2,580,903 of a bridge loan and
accrued interest (Note 7), which was exchanged by Big Beaver, the lender of
the bridge loan, for 1,720,602 shares of Common Stock and warrants to
F-21
purchase 860,301 shares of Common Stock. As partial compensation for service
rendered in the Private Placement, Roth Capital Partners, LLC, was granted a
warrant to purchase up to 550,005 shares of the Company's Common Stock at
$2.00 per share. The value of such warrant of $985,000 was determined using
the Black-Scholes model and will be recorded as a non-cash offering cost to
paid in capital. The pro forma effect of the 2002 Private Placement is
reflected in the Company's consolidated financial statements. The warrants
issued in the private placement have an exercise price of $2.00 per share and
expire on February 25, 2007. The expiration date of the warrants may be
extended if the Company fails to maintain the effectiveness of a registration
statement to be filed with the Securities and Exchange Commission in
accordance with the terms of a registration rights agreement with the
investors.
Upon completion of the 2002 Private Placement:
. a "change of ownership" under applicable federal tax statutes and
regulations may have occurred, potentially subjecting approximately $18.8
million of the Company's current net operating losses (Note 5) to annual
limitations against income in future periods; and
. the number of shares of Common Stock issuable upon exercise, and the
exercise price, of the warrant (Note 11) issued in conjunction with the
2000 Bridge Loan (Note 7) were adjusted to 166,667 and $1.50,
respectively.
Note 19 -- Unaudited Pro Forma Balance Sheet Information
The consolidated unaudited pro forma balance sheet reflects the completion
of the 2002 Private Placement as if this transaction, as discussed in Note 18,
had occurred on December 31, 2001. If the 2002 Private Placement had occurred
on December 31, 2001, the basic and diluted net loss per share would have been
$0.48.
F-22
AMERIGON INCORPORATED
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2001, 2000 and 1999
(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,
1999.................... 101 16 -- (59) 58
Year Ended December 31,
2000.................... 58 -- -- (3) 55
Year Ended December 31,
2001.................... 55 -- -- (5) 50
Allowance for Inventory
Year Ended December 31,
1999.................... 100 121 -- (101) 120
Year Ended December 31,
2000.................... 120 60 -- (12) 168
Year Ended December 31,
2001.................... 168 -- (168) -- --
Allowance for Deferred
Income Tax Assets
Year Ended December 31,
1999.................... 13,067 2,872 -- -- 15,939
Year Ended December 31,
2000.................... 15,939 4,398 -- -- 20,337
Year Ended December 31,
2001.................... 20,337 2,754 -- -- 23,091
F-23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Amerigon Incorporated
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 22 present fairly, in all material
respects, the financial position of Amerigon Incorporated at December 31, 2001
and 2000, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2001 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 22 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.
PRICEWATERHOUSECOOPERS LLP
Orange County, California
March 20, 2002
F-24
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
By: /s/ Oscar B. Marx III _____
Oscar B. Marx III
Chief Executive Officer
March 22, 2002
_____________________________
(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.
Each person whose signature appears below hereby authorizes Oscar B. Marx
III and Sandra L. Grouf, or any of them, as attorneys-in-fact to sign on his
or her behalf, individually, and in each capacity stated below, and to file
all amendments and/or supplements to this Annual Report on Form 10-K.
Signature Capacity Date
--------- -------- ----
/s/ Oscar B. Marx, III Chief Executive Officer and March 22, 2002
____________________________________ Director (Principal
Oscar B. Marx, III Executive Officer)
/s/ Sandra L. Grouf Chief Financial Officer, March 22, 2002
____________________________________ Treasurer and Secretary
(Principal Financial
Sandra L. Grouf Officer and Principal
Accounting Officer)
/s/ Lon E. Bell Director March 22, 2002
____________________________________
Lon E. Bell
/s/ Francois J. Castaing Director March 22, 2002
____________________________________
Francois J. Castaing
/s/ John W. Clark Director March 22, 2002
____________________________________
John W. Clark
/s/ Paul Oster Director March 22, 2002
____________________________________
Paul Oster
/s/ James J. Paulsen Director March 22, 2002
____________________________________
James J. Paulsen
S-1