General

Amerigon Incorporated ("we," the "Company" or the "registrant") designs, develops and markets products based on our advanced, proprietary, efficient thermoelectric device ("TED") technologies for a wide range of global markets and heating and cooling applications. Our current principal product is our proprietary Climate Control Seat™ ("CCS™" or "CCS") which we sell to automobile and truck original equipment manufacturers or their tier one suppliers. The CCS provides year-round comfort to automotive seat occupants by producing both active heating and cooling. As of September 2009, we have shipped more than 5.0 million units of our CCS product to customers since 2000. Our CCS product is currently offered as an optional feature on 44 automobile models produced by Ford Motor Company, General Motors Corporation, Toyota Motor Corporation, Nissan Motors, Honda Motor Company, Hyundai Corporation and Kia Motors. Tata Motors, Ltd. features CCS on its Jaguar and Land Rover luxury brands which it acquired from Ford Motor Company in 2008.

Since the initial introduction of CCS, we have introduced new designs that incorporated improvements in electrical efficiency, size, weight, and noise and are more versatile. These include our Micro Thermal Module™("MTM™" or "MTM") technology and our CCS II configuration. Further improvements in engineering design are currently in development and are expected to be introduced on future vehicle models.

In 2008, we launched a heated and ventilated only variant of the CCS. This product works in a similar fashion to our CCS, only there is no active cooling capability and no TED. In the cooling mode, the vent only system will use the ambient cabin air to provide a degree of cooling comfort to the seat occupant. In the heating mode, the vent only system will be supplemented with more traditional resistive heating elements. This system has a lower price and is targeted to certain lower cost vehicle models and certain geographical markets.

In 2008, we entered into development agreement to develop a suite of heated and cooled bedding products with Sealy Corporation, the largest bedding manufacturer in the world, using Amerigon's advanced TED technology.

On September 1, 2009 the Company's subsidiary BSST and 5N Plus, a developer and producer of high-purity metals and compounds for electronic applications, formed a joint venture called ZT Plus. ZT Plus has been formed as a general partnership with each BSST and 5N Plus holding 50% ownership. BSST along with its university partners have performed extensive research into the development of the next generation of thermoelectric ("TE") materials. They have successfully developed materials that, in small quantities and under certain specific conditions, significantly outperform the best presently available TE materials. The partnership between BSST and 5N Plus is intended to allow for the completion of the development of these advanced materials and the creation of innovative manufacturing capabilities to produce the materials in volume, and in a cost-efficient manner. These materials are intended to enable the use of TE technology in a wide variety of heating and cooling and power generation applications for the industrial, consumer, medical, electronics and automotive markets.

Results of Operations

Third Quarter 2009 Compared with Third Quarter 2008

Product Revenues. Product revenues for the three months ended September 30, 2009 ("Third Quarter 2009"), were $18,442,000 compared with product revenues of $16,631,000 for the three months ended September 30, 2008 ("Third Quarter 2008"), an increase of $1,811,000, or 11%. Higher sales resulting from new model introductions and the addition of a rear seat option on certain existing programs were partially offset by lower volumes on existing programs. Unit shipments were 268,000 for the Third Quarter 2009 compared with unit shipments of 237,000 in the Third Quarter 2008, an increase of 31,000 units or 13%. New vehicles equipped with CCS and launched since the end of the Third Quarter 2008 included the Lincoln MKT, Ford Taurus, Jaguar XK, Toyota Crown Majesta, Nissan 370Z Roadster and the Infiniti G Convertible. Two of our existing programs, the Jaguar XJ and Land Rover Range Rover, began offering CCS in the rear seating position for the first time during the Third Quarter 2009. Several programs including the Ford F150 Pickup, Chevrolet Suburban, Chevrolet Tahoe, Chevrolet Avalanche, GMC Yukon, GMC Yukon XL, GMC Yukon Denali, GMC Sierra Pickup and the Nissan Maxima, which were launched during the Third Quarter 2008 had higher revenue during the Third Quarter 2009 due to the impact of shipments being made during the full quarterly period. The lower product revenues and unit volumes on existing programs were due to a significant decline in the overall automotive market. Automotive production and sales volumes, impacted by slowing worldwide economic activity and decreasing availability of consumer credit, were significantly lower during the Third Quarter 2009 as compared to the Third Quarter 2008. In North America, one of our most important markets, the Seasonally Adjusted Annual Rate ("SAAR") for vehicle sales, was 11.5 million, down 11%, from 12.9 million during the Third Quarter 2008. Vehicle production levels have been reduced even further as OEM's have cut production in order to reduce new vehicle inventory levels. During the Third Quarter 2009, production of light vehicles in North America decreased by 21% to 2.4 million from 3.0 million during the Third Quarter 2008.

Cost of Sales. Cost of sales increased to $13,897,000 in the Third Quarter 2009 from $11,798,000 in the Third Quarter 2008. This increase of $2,099,000, or 18%, is attributable to higher sales volumes and by a lower gross profit percentage. The gross profit percentage during the Third Quarter 2009 was 25% and was 29% during the Third Quarter 2008. This decrease is primarily attributable to higher raw material costs and unfavorable change in the mix of products sold which favored programs having a lower gross margin percentage offset partially by higher coverage of fixed cost at the higher volume levels. TED's, which represent the key component of the CCS system, contain the metal Tellurium ("Te"). Higher costs for Te represent the most significant portion of our higher raw material cost. During the early months of 2008, the market for Te experienced a significant increase. The average price of a kilogram of Te in 2007 was approximately $100 and increased to a peak of $286 in April 2008. Since that time, the average market price has decreased to a current average of $165 per kilogram during September 2009. We do not purchase Te directly, but have agreed to price increases from our TED suppliers as a

result of the increase in their Te costs. Existing Te supply contracts and on-hand inventory resulted in a delay in the impact of higher Te market prices to us until the Third Quarter 2008. Although the market for Te has moderated, the lower levels did not result in reduced costs to Amerigon because of our supplier's need to use up inventory until late in the Third Quarter 2009.

Net Research and Development Expenses. Net research and development expenses decreased to $1,322,000 in the Third Quarter 2009 from $1,974,000 in the Third Quarter 2008. This $652,000, or 33%, decrease was due to the formation of ZT Plus, higher research and development reimbursements, lower costs to support a smaller number of new vehicle programs launched during 2009 as compared to 2008 and lower costs associated with certain new product applications of our CCS technology that are currently in development. When we formed ZT Plus, certain ongoing expenses associated with our advanced TE materials program were transferred to the new partnership and were therefore partially funded by our partner, 5N Plus. The portion of ZT Plus' expenses associated with BSST's ownership percentage are now classified as loss from equity investment in ZT Plus and not included in net research and development expenses. We are in the process of developing certain new products, such as the heated and cooled bed, heated and cooled cup holder and cold storage box and developing improvements in our current CCS system. The costs associated with these projects were lower during the Third Quarter 2009 primarily due to many of the projects reaching a less costly phase of development. Finally, our research and development reimbursements fluctuate from period to period due to the timing of different phases of the various underlying projects. During the Third Quarter 2009, the research and development reimbursements were higher as compared with the Third Quarter 2008.

We classify development and prototype costs and related reimbursements as research and development. This is consistent with accounting standards applied in the automotive industry. Depreciation costs for tooling are included in cost of sales.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were to $2,004,000 in the Third Quarter 2009 and were substantially the same during the Third Quarter 2008.

Loss from Equity Investment. Our new investment in the ZT Plus joint venture by our subsidiary BSST was initiated on September 1, 2009. BSST's investment in ZT Plus will be accounted for using the equity method which requires that BSST record a portion of ZT Plus's income or loss equal to its ownership percentage to the extent of BSST's investment balance. BSST's initial contribution and initial investment balance, which was comprised of certain intellectual property, intellectual property rights and laboratory equipment, along with organizational and formation costs totaled $508,000. 5N Plus' initial contribution is represented by a commitment to fund ZT Plus' operating expenditures. During the period from September 1, 2009 through the end of the Third Quarter 2009, BSST recorded a loss from equity investment in ZT Plus totaling $123,000 representing BSST's share of ZT Plus's loss for the period.

5N Plus has recently raised concerns over the probability of achieving the venture's objectives in the planned time frame. The company is reviewing 5N Plus' concerns. If there are any significant changes in the Company's relationship with 5N Plus, it could impact the amount of ZT Plus expenses borne by Amerigon and the method it uses for accounting for those expenses.

Interest Income (Expense). We had interest expense of $7,000 for the Third Quarter 2009 compared with interest income of $199,000 for the Third Quarter 2008. This unfavorable change of $206,000 resulted from significantly lower average yields on our cash equivalents and short-term investments. Our interest expense relates to the fees associated with our revolving line of credit agreement.

Income Tax Expense. We recorded an income tax expense of $333,000 during the Third Quarter 2009. This reflected an estimated effective tax rate of approximately 30% on pre-tax income of $1,122,000. During the Third Quarter 2008, we recorded an income tax expense totaling $430,000 reflecting a 40% effective tax rate on pretax income of $1,078,000. Our effective tax rate is estimated based upon a forecast for our full year results. As these results approach a break even status, our tax rate will be higher due to certain expenses that are not fully deductible for tax purposes.

Nine Months Ending September 30, 2009 Compared with Nine Months Ending September 30, 2008

Product Revenues. Product revenues for the nine months ended September 30, 2009 ("YTD 2009"), were $39,327,000 compared with product revenues of $50,787,000 for the nine months ended September 30, 2008 ("YTD 2008"), a decrease of $11,460,000, or 23%. Lower sales resulting from lower volumes on existing programs were partially offset by higher sales from new model introductions. Unit shipments were 565,000 units for YTD 2009 compared with unit shipments of 743,000 in YTD 2008, a decrease of 178,000 units or 24%. The lower product revenues and unit volumes on existing programs were due to a significant decline in the overall automotive market. Automotive production and sales volumes, impacted by slowing worldwide economic activity and decreasing availability of consumer credit, were significantly lower during the YTD 2009 as compared to YTD 2008. In North America, one of our most important markets, the SAAR for vehicle sales was 11.5 million during the Third Quarter 2009, down 11% from 12.9 million during the Third Quarter 2008. Additionally, the SAAR for the first and second quarters of 2009 were down 38% and 32%, respectively, as compared with their prior year quarters. Vehicle production levels have been reduced even further as OEM's have cut production in order to reduce new vehicle inventory levels. During YTD 2009, production of light vehicles in North America decreased by 41% to 5.8 million from 9.9 million during YTD 2008. New vehicles equipped with CCS and launched since the end of the Third Quarter 2008 included the Lincoln MKT, Ford Taurus, Jaguar XK, Toyota Crown Majesta, Nissan 370Z Roadster and the Infiniti G Convertible. Two of our existing programs, the Jaguar XJ and Land Rover Range Rover, began offering CCS in the rear seating position for the first time during the Third Quarter 2009. Several programs including the Ford F150 Pickup, Chevrolet Suburban, Chevrolet Tahoe, Chevrolet Avalanche, GMC Yukon, GMC Yukon XL, GMC Yukon Denali, GMC Sierra Pickup and the Nissan Maxima, which were launched during YTD 2008 had higher revenue during YTD 2009 due to the impact of shipments being made during the full period.

Cost of Sales. Cost of sales decreased to $29,833,000 in YTD 2009 from $35,116,000 in YTD 2008. This decrease of $5,283,000, or 15%, is attributable to lower sales volumes offset partially by a lower gross profit percentage. The gross profit percentage during YTD 2009 was 24% and was 31% during YTD 2008. This decrease is primarily attributable to higher raw material costs, an unfavorable change in the mix of products sold which favored programs having a lower gross margin percentage during YTD 2009 compared with YTD 2008 and lower coverage of fixed cost at the lower volume levels. TED's, which represent the key component of the CCS system, contain the metal Tellurium ("Te"). Higher costs for Te represent the most significant portion of our higher raw material cost. During the early months of 2008, the market for Te experienced a significant increase. The average price of a kilogram of Te in 2007 was approximately $100 and increased to a peak of $286 in April 2008. Since that time, the average market price has decreased to a current average of $165 per kilogram during September 2009. We do not purchase Te directly, but have agreed to price increases from our TED suppliers as a result of the increase in their Te costs. Existing Te supply contracts and on-hand inventory resulted in a delay in the impact of higher Te market prices to us until the Third Quarter 2008. Although the market for Te has moderated, the lower levels did not result in reduced costs to Amerigon because of our supplier's need to use up inventory until late in the Third Quarter 2009.

Net Research and Development Expenses. Net research and development expenses decreased to $4,642,000 in YTD 2009 from $5,061,000 in YTD 2008. This $419,000, or 8%, decrease was due to the formation of ZT Plus, lower costs to support a smaller number of new vehicle programs launched during 2009 as compared to 2008 and lower costs associated with certain new product applications of our CCS technology that are currently in development. When we formed ZT Plus, certain ongoing expenses associated with our advanced TE materials program were transferred to the new partnership and were therefore partially funded by our partner, 5N Plus. The portion of ZT Plus' expenses associated with BSST's ownership percentage are now classified as loss from equity investment in ZT Plus and not included in net research and development expenses. We are in the process of developing certain new products, such as the heated and cooled bed, heated and cooled cup holder and cold storage box and developing improvements in our current CCS system. The costs associated with these projects were lower during YTD 2009 primarily due to many of the projects reaching a less costly phase of development.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $6,319,000 in YTD 2009 compared with $6,164,000 in YTD 2008. This $155,000, or 3%, increase is primarily attributable to higher stock option compensation expense and higher legal fees during YTD 2009 as compared with YTD 2008. The higher stock option compensation relates to options issued to employees on two separate grant dates; 485,000 option shares on July 23, 2008 and 724,000 option shares on March 11, 2009. Our higher legal fees are associated with legal support activities surrounding the adoption of a Shareholder Rights Plan, the 2009 Proxy filing and other legal review activities.

Loss from Equity Investment. Our new investment in the ZT Plus joint venture by our subsidiary BSST was initiated on September 1, 2009. BSST's investment in ZT Plus will be accounted for using the equity method which requires that BSST record a portion of ZT Plus's income or loss equal to its ownership percentage to the extent of BSST's investment balance. BSST's initial contribution and initial investment balance, which was comprised of certain intellectual property, intellectual property rights and laboratory equipment, along with organizational and formation costs totaled $508,000. 5N Plus' initial contribution is represented by a commitment to fund ZT Plus' operating expenditures. During the period from September 1, 2009 through the end of YTD 2009, BSST recorded a loss from equity investment in ZT Plus totaling $123,000 representing BSST's share of ZT Plus's loss for the period.

5N Plus has recently raised concerns over the probability of achieving the venture's objectives in the planned time frame. The company is reviewing 5N Plus' concerns. If there are any significant changes in the Company's relationship with 5N Plus, it could impact the amount of ZT Plus expenses borne by Amerigon and the method it uses for accounting for those expenses.

Interest Income. We had interest income of $19,000 for YTD 2009 compared with $714,000 for YTD 2008. The decrease of $695,000, or 97%, resulted from lower average yields on our cash equivalents and short-term investments.

Income Tax Expense. We recorded an income tax benefit of $425,000 during YTD 2009. This reflected an estimated effective tax rate of approximately 29% on a pretax loss of $1,441,000 for YTD 2009. During YTD 2008, we recorded an income tax expense totaling $1,999,000 reflecting a 38% effective tax rate on pretax income of $5,272,000. Our effective tax rate is estimated based upon a forecast for our full year results. As these results approach a break even status, our tax rate will be higher due to certain expenses that are not fully deductible for tax purposes.

Liquidity and Capital Resources

We had cash and cash equivalents of $24,904,000 at September 30, 2009 and $25,303,000 at December 31, 2008. We manage our cash, cash equivalents and short-term investments to fund operating requirements.

We believe that our current working capital of $30,606,000 and our $10.0 million revolving line of credit will be adequate to fund our current business needs.

On August 6, 2009 we amended our Revolving Credit Line with Comerica Bank. The amendment decreased the amount available to $10,000,000 from $20,000,000. Under the terms of the amendment, a Borrowing Base limiting the loans available under the Revolving Credit Line is effective for any outstanding loans. The Borrowing Base is equal to 85% of Eligible Domestic accounts receivable (as defined by the agreement), plus the lesser of 60% of Eligible Foreign accounts receivable (as defined by the agreement) or $3,000,000, plus 50% of Eligible Inventory (as defined by the agreement), plus 70% of the market value of Eligible Securities (as defined by the agreement). Prime-based loans and Eurodollar-based loans were eliminated and replaced by Base Rate Advances. Base Rate Advances bear interest at a variable rate plus an applicable margin as outline in the amendment. The applicable margin is 3.0%. The amendment also changed requirements to maintain certain financial ratios including the elimination of the maximum ratio of funded debt to EBITDA, as defined by the credit agreement, and the inclusion of a minimum rolling four quarter EBITDA level. All other terms of the Revolving Credit Line were substantially unaffected by the amendment. As of September 30, 2009, we had no outstanding loans under the Revolving Credit Line and one letter of credit was outstanding totaling $165,000. Total availability under the line as of September 30, 2009, as amended, was $9,835,000.

Cash provided by operating activities during YTD 2009 was $262,000. Our net loss for YTD 2009 of $1,016,000 resulted in favorable operating cash flow after considering the positive non-cash adjustments for depreciation and amortization totaling $1,149,000, stock option compensation totaling $937,000, defined benefit plan expense totaling $142,000 and loss from equity investment in ZT Plus totaling $123,000. These amounts were offset partially by a negative adjustment for the deferred tax benefit of $587,000 and for a $486,000 use of cash associated with a net increase in operating assets and liabilities.

As of September 30, 2009, working capital was $30,606,000 and was $30,471,000 at December 31, 2008, an increase of $135,000. An increase in accounts receivable of $6,441,000 was nearly offset by an increase in accounts payable of $5,437,000 and a decrease in inventory of $503,000. Accounts receivable increased due to an increase in product revenues during the Third Quarter 2009 as compared to the Fourth Quarter 2008, amounts due from Lear Corporation ("Lear"), our largest customer, totaling $687,000 that are subject to its Chapter 11 bankruptcy filing (discussed further below) and a change in the mix of product revenue favoring customers with longer payment terms during the Third Quarter 2009 as compared with that of the Fourth Quarter 2008. Accounts payable increased due to the increased purchases required to support our higher product revenues.

Our largest customer, Lear Corporation ("Lear"), filed to reorganize its U.S. and Canadian businesses under Chapter 11 of the United States Bankruptcy Code on July 7, 2009, in the U.S. Bankruptcy Court for the Southern District of New York. Lear's subsidiaries outside of the U.S. and Canada are not part of the Chapter 11 filings. During the three and nine months periods ended September 30, 2009, our revenue from Lear totaled $6,641,000 and $13,540,000, respectively, and our accounts receivable balances due from Lear on September 30, 2009 were as follows:

                   Balances due from:
                   Pre-bankruptcy accounts receivable    $   687
                   Post-bankruptcy accounts receivable     5,718

                   Total                                 $ 6,405

In conjunction with the filing, Lear announced that it had received support from its lenders to implement a restructuring plan. Under the proposed restructuring plan, which needs to be approved by the Bankruptcy Court, Lear's trade creditors, such as Amerigon, will be paid in full, subject to certain limited exceptions. On July 8, 2009, Lear received interim court approval to use its cash reserves to support ongoing business operations including regular payments to its suppliers such as Amerigon. The court also issued a variety of orders that are intended to ensure that Lear will continue to operate uninterrupted throughout the reorganization process. Under these circumstances, Amerigon management does not expect any significant impact on its current operations and has not recorded a bad debt provision for the outstanding Lear accounts receivable balances. If the proposed restructuring plan is not implemented as proposed, there is a risk that Amerigon will be unable to fully collect certain outstanding amounts due from Lear.

Cash used in investing activities was $1,481,000 during YTD 2009, reflecting purchases of property and equipment totaling $420,000, the cost to acquire new patents and patent application filings of $686,000, cash used in corporate owned life insurance of $271,000 and the cash portion of the equity investment in ZT Plus of $104,000. Purchases of property and equipment for the period are primarily related to new equipment purchases needed to maintain current production programs and other operational facilities.

Cash provided by financing activities was $816,000 during YTD 2009, reflecting the proceeds of Common Stock option exercises.

New Accounting Pronouncements

Noncontrolling Interests

(Included in ASC 810 "Consolidation", previously SFAS No. 160 "Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51")

In December 2007 the Financial Accounting Standards Board ("FASB") issued Statement of financial Accounting Standard No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51" ("SFAS 160"). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the retained interest in a gain or loss when a subsidiary is deconsolidated. We adopted this statement effective January 1, 2009 and it had no impact on our operating results and financial position. SFAS 160 requires that a noncontrolling interest, previously referred to as a minority interest, be reported as part of equity in the Consolidated Financial Statements and that losses be allocated to the noncontrolling interest even when such allocation might result in a deficit balance, reducing the losses attributable to the controlling interest. A 15 percent noncontrolling interest in Amerigon's subsidiary BSST is held by BSST President and CEO Dr. Lon Bell. The change, which was effective on January 1, 2009, was not included in the first and second quarters, and as a result, the 2009 third quarter reflects the year to date benefit for this adjustment which increased net income attributable to Amerigon by $342,000, or $0.01 and $0.02 per share for the three and nine months periods ended September 30, 2009, respectively. The amount of the benefit related to the first and second quarters was $116,000 and $125,000, respectively.

Determination of the Useful Life of Intangible Assets

(Included in ASC 350 "Intangibles - Goodwill and Other", previously FSP SFAS No. 142-3 "Determination of the Useful Lives of Intangible Assets")

In April 2008, the FASB issued FASB Staff Position ("FSP") FAS 142-3, "Determination of the Useful Life of Intangible Assets". FSP FAS 142-3 amends . . .