Gentherm - 10-Q quarterly report FY

At May 9, 2002, the registrant had 10,771,230 shares of Common Stock, no par value, issued and outstanding.

The Company has a 90% interest in BSST LLC (“BSST”). BSST is engaged in a research and development effort to improve the efficiency of thermoelectric devices. Since June 1, 2001, the consolidated financial position and consolidated operating results of the Company have included BSST and are reflected in the condensed consolidated financial statements at March 31, 2002. Intercompany accounts are eliminated in consolidation.

The accompanying condensed consolidated financial statements as of March 31, 2002 have been prepared by the Company without audit. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for fair presentation have been included. The consolidated results of operations for the three-month period ended March 31, 2002 are not necessarily indicative of the operating results for the full year.

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 (Note 3). At March 31, 2002, we had cash and cash equivalents of $4,209,000 and working capital of $5,306,000. Based on our current operating plan, management believes cash at March 31, 2002, along with proceeds from future revenues, will be sufficient to meet operating 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 are prepared 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:

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 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 (the “Private Placement”) to selected institutional and accredited investors, resulting in total proceeds of $6,500,052, less issuance costs of $778,000. The value of the warrants issued with the Private Placement of $3,433,000 was determined using the Black-Scholes model and is recorded as paid-in capital. 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 is recorded as a non-cash offering cost charged to paid-in capital. The warrants issued in the Private Placement have an exercise price of $2.00 per share and expire on February 25, 2007. We filed a registration statement relating to the resale of the securities offered in the Private Placement with the Securities and Exchange Commission on March 25, 2002 and the registration statement was declared effective on April 3, 2002.

Upon completion of the Private Placement:

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.

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 Private Placement [Note 3]) 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 was $226,000 and was amortized to interest expense as of December 31, 2001. 

On February 25, 2002, a trigger event occurred with the completion of the Private Placement (Note 3) allowing the Company to exchange $2,580,903 of Bridge Loan debt, representing the principal amount of the Bridge Loan and accrued interest on that loan, for 1,720,602 shares of Common Stock and warrants to purchase 860,301 shares of Common Stock. The warrants issued with this exchange have an exercise price of $2.00 per share and expire on February 25, 2007.

Details of inventory by category, in thousands:

In January 2002, the Company began outsourcing production of product for its North American customers to a supplier plant in Chihuahua, Mexico. This supplier is an affiliate of Big Beaver Investments, LLC (one of the Company’s two preferred shareholders). As of March 2002, the components held at this supplier plant are reported as raw material inventory. Completed CCS systems held by the supplier plant before shipment to the customer are reported as finished goods inventory.

The Company’s net loss per share calculations are based upon the weighted average number of shares of Common Stock outstanding. Because their effects are anti-dilutive, net loss per share for the three months ended March 31, 2002 and 2001, does not include the effect of:

The Company consolidates research and development expense with BSST. The following table details research and development expense by division, in thousands:

The tables below present segment information about the reported revenues and operating loss of the Company for the three months ended March 31, 2002 and 2001 (in thousands). Asset information by reportable segment is not reported because the Company does not produce such information.

Product revenue information by geographic area (in thousands):

Product revenue information by customer, as a percent of total product revenues:

Details of accrued liabilities (in thousands):

On February 12, 2002, the Class A Warrants to purchase 1,993,264 shares of Common Stock 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.

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 225,000 units of our CCS product through March 2002 for installation in the Lincoln Navigator, Lexus LS 430 and Toyota Celsior luxury automobiles, and the Lincoln Blackwood luxury utility truck, 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.

Revenues.    Revenues for the three months ended March 31, 2002 (“First Quarter 2002”) were $1,525,000 as compared with revenues of $2,335,000 for the three months ended March 31, 2001 (“First Quarter 2001”). This decrease of $810,000, or 35%, is due to market conditions in certain segments of the automotive industry in First Quarter 2002 and the shipment in First Quarter 2001 of larger numbers of CCS units to meet the stocking levels required by one of our customers for the introduction of two new vehicles. We anticipate the level of shipments to our current customer base to remain constant with volume increases occurring when new platforms are introduced in 2002.

Cost of Sales.    Cost of sales decreased to $1,324,000 in First Quarter 2002 from $2,035,000 in First Quarter 2001. This decrease of $711,000, or 35%, is due to the shipment in First Quarter 2001 of larger numbers of CCS units to meet the stocking levels required by one of our customers for the introduction of two new vehicles. We anticipate cost of sales to increase in absolute dollars while decreasing as a percentage of revenue. Cost of sales includes tooling costs and related reimbursements.

Research and Development Expenses.    Research and development expenses increased to $903,000 in First Quarter 2002 from $735,000 in First Quarter 2001. This $168,000, or 23%, increase was due primarily to the development efforts of our BSST subsidiary. We exercised our option in BSST in June 2001. This increase was partially offset by a reduction in headcount and decreased usage of outside computer aided design firms in First Quarter 2002.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses decreased to $1,233,000 in First Quarter 2002 compared to $1,404,000 in First Quarter 2001. This $171,000, or 12%, decrease was due to travel and professional fees associated with the opening of our European office and completion of the Ferrotec Manufacturing and Supply Agreement in April 2001. In addition, selling, general and administrative expenses included investment expense in BSST before we exercised our option in BSST in June 2001.

We group development and prototype costs and related reimbursements in research and development. This is consistent with accounting standards applied in the automotive industry. Costs for tooling, net of related reimbursements, are included in cost of sales.

As of March 31, 2002, we had working capital of $5,306,000. We also had cash and cash equivalents of $4,209,000 at March 31, 2002. Our principal sources of operating capital have been the proceeds of our various financing transactions and CCS product revenues.

As of March 31, 2002, our cash and cash equivalents increased by $3,753,000 from $520,000 at December 31, 2001. Cash used in operating activities amounted to $2,282,000, which was mainly attributable to the net loss of $2,099,000. Cash used in investing activities amounted to $187,000, which is mainly attributable to the purchase of equipment of $169,000. Financing activities provided $6,222,000, which net of expenses and repayment of the 2001 bridge loan, is due to the completion of a private placement.

On February 25, 2002, we completed the sale of 4,333,368 shares of common stock and 2,166,684 warrants to purchase 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 filed a registration statement relating to the resale of the securities offered in the private placement with the Securities and Exchange Commission on March 25, 2002 and the registration statement was declared effective on April 3, 2002.

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. 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 March 31, 2002, we have paid to BSST $1,584,000 and are required to pay an additional $416,000 in installments of no more than $133,000 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.

Until we are selling units in the automotive market with adequate volumes and margins, we expect to incur losses. 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, the all-new 2003 Lincoln Aviator SUV, the new 2003 Infiniti Q45 full-sized luxury sedan, the newly introduced 2003 Infiniti M45 mid-sized luxury sports sedan plus one new vehicle line, are expected to generate sufficient volume by the end of 2002 for us to at least 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.

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 March 31, 2002, we had cash and cash equivalents of $4,209,000 and working capital of $5,306,000. Based on our current operating plan, management believes cash at March 31, 2002 along with proceeds from future revenues will be sufficient to meet operating 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 are prepared 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:

Certain matters discussed or referenced in this report, including our expectation of increased revenues and continuing losses, our financing requirements, our capital expenditures and our prospects for the development of platforms with major automotive manufacturers for our CCS product, are forward-looking statements. Other forward-looking statements may be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “believe”, “estimate”, “anticipate”, “continue”, or similar terms, variations of such terms or the negative of such terms. Such statements are based upon our current expectations and are subject to a number of risks and uncertainties which could cause actual results to differ materially from those described in the forward looking statements. Such risks and uncertainties include the market demand for and performance of our products, our ability to develop, market and manufacture such products successfully, the viability and protection of our patents and other proprietary rights, and our ability to obtain new sources of financing. Additional risks associated with us and our business and prospects are described in our Annual Report on Form 10-K for the year ended December 31, 2001.

Our exposure to market risk for changes in interest rates relate primarily to our cash equivalents. We place our investments in debt instruments of the U.S. government and in high-quality corporate issuers. We seek to ensure the safety and preservation of our invested funds by limiting default risk and market risk. We have no investments or transactions denominated in foreign country currencies and therefore are not subject to foreign exchange risk.

There have been no material changes with respect to market risk since the Form 10-K was filed for our year ended December 31, 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 under Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933 to selected institutional and accredited investors, resulting in gross cash 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 Company filed a registration statement relating to the resale of the securities offered in the private placement with the Securities and Exchange Commission on March 25, 2002 and the registration statement was declared effective on April 3, 2002.

(a)    Exhibits

(b)    Reports on Form 8-K

On February 14, 2002, the Company filed a Current Report on 8-K (event date February 12, 2002) to report under item 5 (other events).

On March 1, 2002, the Company filed a Current Report on Form 8-K (event date February 25, 2002) to report under item 5 (other events).

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 14, 2002