PROSPECTUS
ASHA CORPORATION
1,250,000 Shares of Common Stock
The 1,250,000 shares of common stock (the "Common Stock") offered hereby
are being sold by ASHA Corporation (the "Company"). Commencing on June 30, 1997,
the Common Stock will be traded on The Nasdaq SmallCap Market under the symbol
"ASHA." Through June 27, 1997, the Common Stock was traded on the OTC Bulletin
Board. On June 27, 1997, the closing bid and ask prices for the Common Stock
were $51/8 and $53/8 per share, respectively. See "PRICE RANGE OF COMMON STOCK."
Concurrently with this offering, the Company is registering for resale, from
time to time, an additional 83,040 shares of Common Stock held by certain
Selling Shareholders. See "CONCURRENT OFFERING."
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THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS
WHO CANNOT AFFORD THE ENTIRE LOSS OF THEIR INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to
Public Discounts (1) Company (2)
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Per Share....................... $4.00 $.40 $3.60
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Total (3) ...................... $5,000,000 $500,000 $4,500,000
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(1) Does not include additional compensation to be received by H.J. Meyers &
Co., Inc. (the "Underwriter") in the form of (i) a nonaccountable expense
allowance of 3% of the gross proceeds of the offering (including proceeds
from the exercise of the Underwriter's over-allotment option discussed
below in footnote (3)); (ii) a warrant to purchase up to 125,000 Shares at
$5.00 per Share, exercisable over a period of four years commencing one
year from the date of this Prospectus (the "Underwriter's Warrant"); and
(iii) a $60,000 fee pursuant to a financial consulting agreement. The
Company has also agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "UNDERWRITING."
(2) Before deducting estimated expenses payable by the Company of $370,000.
(3) The Company has granted the Underwriter an over-allotment option,
exercisable within 30 business days of the date of this Prospectus, to
purchase up to 187,500 additional Shares on the same terms and conditions
as set forth above. If all such Shares are purchased by the Underwriter,
the total Price to Public will be $5,750,000, the total Underwriting
Discount will be $575,000, and the total Proceeds to Company will be
$5,175,000. See "UNDERWRITING."
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The Shares of Common Stock are offered subject to receipt and acceptance by
the Underwriter, to prior sale and to the Underwriter's right to reject orders
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of certificates for the securities will be made at
the offices of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester, New
York 14620, on or about July 3, 1997.
H.J. MEYERS & CO., INC.
The date of this Prospectus is June 27, 1997.
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[GRAPHIC OMITTED]
Artist's renderings of three different views of the taxi being developed by
ASHA/Taisun PTE. LTD, a joint venture between the Company and Taisun Automotive
PTE LTD.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITER AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
THE COMPANY
ASHA Corporation (the "Company" or "ASHA") is an innovative engineering
research and development company serving the global automotive and vehicular
industries. The Company is currently exploiting two proprietary technologies
which it has developed and patented, its GERODISC traction control system, and a
commercially feasible manufacturing process for modularly-based vehicles for
production and use in third world countries.
GERODISC is an automatic hydro-mechanical traction control device which
limits a vehicle's wheel spin and improves its traction and handling. GERODISC
is the only technology known to the Company that is compatible with all cars,
vans, sports utility vehicles and trucks and can be used on all four types of
vehicle platforms: front-wheel drive, rear-wheel drive, four-wheel drive and
all-wheel drive. Management believes that, based on the testing it has
conducted, GERODISC is superior to any other competing technology currently
marketed, including electronic traction control. GERODISC has been and is being
tested by the three major US automobile manufacturers and most major European
automobile manufacturers for use in future model designs. Two of the Company's
licensees (New Venture Gear, Inc. and Dana Corporation) have advised the Company
that they have received production orders from a major U.S. automotive
manufacturer which plans to incorporate GERODISC units in both axles and the
transfer case of two of its most popular four-wheel drive models for the 1999
model year. Actual production is scheduled to commence in July 1998. See
"BUSINESS -- New Venture Gear, Inc. License Agreement" and "Note 12 to the
Financial Statements -- License Agreement."
The Company has developed an innovative technology for building and
assembling vehicles which requires significantly reduced levels of tooling,
assembly and manufacturing costs, greatly reducing initial capital expenditures.
This technology, known as the "ASHA Body Concept" ("ABC"), has been targeted for
use in third world countries to facilitate the production of limited quantities
of vehicles while achieving the cost savings normally associated with the
economies of scale of mass production. Two key components of this manufacturing
process involve the use of thin wall stainless steel tubing for the frame and
the use of a space-age composite fiber material for the body. In July 1994, the
Company established a joint venture relationship with a Singapore-based
manufacturing company to exploit the ABC technology in the Chinese and Southeast
Asian markets (the "ASHA-TAISUN Joint Venture" or the "Joint Venture"). In
furtherance of this joint venture, the Company recently completed its first
pre-production prototype of an ABC vehicle which has successfully undergone
extensive road testing, chassis rigidity testing, handling evaluation,
suspension evaluation and heat testing. Based upon these results, pre-production
tooling has commenced at the joint venture's manufacturing and production
facility in Jiaxing City, China. The Company expects that 100 pre-production ABC
vehicles will be produced in China by the end of 1997.
The Company's strategy is to maximize GERODISC's penetration of the
world-wide automobile and vehicle markets through licensing arrangements which
provide royalty revenue. In addition, the Company intends to exploit the
world-wide market for the ABC production system through joint venture and
license arrangements primarily in third-world countries. Further, the Company
intends to continue to develop products for the world-wide automobile and
vehicle markets through its continuing research and development activities.
The Company does not manufacture GERODISC units for other than prototype
purposes. The Company licenses the manufacture of the GERODISC units to Tier One
suppliers to the automotive original equipment manufacturers (OEM's) and in some
cases may license OEM's on a direct basis. The Company has licensed the largest
axle manufacturer (Dana Corporation) and the largest transfer case manufacturer
(New Venture Gear, Inc.). In addition, Steyr-Daimler-Puch, a leading European
Tier One supplier and the American Axle Corporation have options on three
licenses. License negotiations, for various applications and geographic areas
are ongoing. Royalties commence with the start of production by a Licensee. To
date, the Company has received no royalties. The first such production is
scheduled to commence in July 1998.
The Company was formed under the laws of the State of Delaware on January
28, 1986. The Company's principal executive offices are located at 600 C Ward
Drive, Santa Barbara, California 93111, and its telephone number is (805)
683-2331.
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THE OFFERING
Securities Offered................... 1,250,000 Shares of Common Stock
Common Stock Outstanding
Prior to this Offering............. 7,179,795 Shares
Common Stock to be Outstanding
After this Offering................ 8,429,795 Shares(1)
Use of Proceeds...................... To repay bridge financing notes,
marketing of GERODISC, additional
investments in the ASHA-TAISUN Joint
Venture, and working capital. See
"USE OF PROCEEDS" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS."
Risk Factors......................... Investment in the Common Stock involves
a high degree of risk and immediate
substantial dilution. See "RISK
FACTORS" and "DILUTION."
Nasdaq Small-Cap
Market Symbol...................... ASHA
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(1) Excludes 640,638 Shares issuable under outstanding stock options and
warrants, and 125,000 Shares issuable upon the exercise of the
Underwriter's Warrant. See "MANAGEMENT -- Stock Option Plan," "DESCRIPTION
OF SECURITIES" and "UNDERWRITING."
SUMMARY FINANCIAL DATA
The following table sets forth certain selected financial data with respect
to the Company, which has been extracted from financial statements and is
qualified in its entirety by reference to the financial statements and notes
thereto included in this Prospectus. Balance Sheet Data:
At September 30, At March 31,
--------------------- 1997
1995 1996 (Unaudited)
----- ----- --------------
Current Assets.................. $1,725,072 $1,415,903 $1,440,930
Total Assets.................... $3,131,526 $2,219,874 $3,303,051
Current Liabilities............. $ 332,355 $ 486,247 $1,811,469
Working Capital................. $1,392,717 $ 929,656 $ (370,539)
Long-Term Debt.................. $ -- $ -- $ --
Shareholders' Equity............ $2,799,171 $1,733,627 $1,491,582
Statement of Operations Data:
For the Six Months
For the Year Ended Ended March 31,
September 30, -------------------------
----------------------- 1996 1997
1995 1996 (Unaudited) (Unaudited)
----- ----- ---------- -----------
Revenues................ $4,435,956 $ 1,710,898 $1,466,953 $1,172,095
Operating Expenses...... 2,491,548 2,750,536 1,483,482 1,268,213
Other Income (Expense).. (371,648) (771,884) 12,849 (427,817)
Net Income (Loss)....... 1,531,333 (1,812,322) (17,180) (523,935)
Net Income (Loss)
Per Common Share .... $ .22 $ (.26) -- (.07)
NOTICE TO CALIFORNIA INVESTORS
Common Stock sold pursuant to this Offering may only be sold to California
residents who (1) have a gross annual income, during 1996 and estimated for
1997, of $65,000 or more from all sources plus a liquid net worth (excluding
home, furnishings and automobiles) of $150,000 or more, or (2) have a liquid net
worth (excluding home, furnishings and automobiles) of $250,000 or more. Each
California resident purchasing Common Stock offered hereby will be required to
execute a representation that it comes within one of the aforementioned
categories.
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RISK FACTORS
The securities offered hereby represent a speculative investment and
involve a high degree of risk of a loss of part or all of the investment.
Therefore, prospective investors should read this entire Prospectus and
carefully consider the following risk factors in addition to the other
information set forth elsewhere in this Prospectus prior to making an
investment.
1. Accumulated Deficit; Operating Losses. As of March 31, 1997, the Company
had an accumulated deficit since inception of approximately $4,634,928. The
Company reported a net loss of $1,812,322 for the fiscal year ended September
30, 1996, and a net loss of $523,935 for the six months ended March 31, 1997.
There can be no assurance that the Company will be profitable in the future. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
2. Success Dependent on Management and Brian Chang. Alain Clenet, Jack
McCormack and certain other executive officers have been primarily responsible
for the development and expansion of the Company's business, and Brian Chang,
the President of the Taisun Automotive PTE LTD., has been primarily responsible
for the development of the Company's Chinese joint venture. The loss of the
services of any one or more of these individuals could have a material adverse
effect on the Company. The Company has employment agreements with Alain Clenet,
Jack McCormack and Ken Black, and the Company maintains a $2,000,000 key man
life insurance policy on Mr. Clenet and a $1,000,000 key man life insurance
policy on Mr. McCormack. See "MANAGEMENT."
3. Variability of Quarterly Operations. Results of the Company's operations
have fluctuated significantly in the past and are likely to continue to
fluctuate significantly in future periods as a result of several factors,
including, but not limited to: (i) lack of any royalty revenue related to sales
of vehicles which have GERODISC traction control systems; (ii) uncertainties
associated with signing new license or option agreements relating to GERODISC;
(iii) the long lead time it typically takes large automobile manufacturers to
commit to a new technology; and (iv) the long lead time it takes to incorporate
a new technology into an automobile production line. In addition, the Company
believes that the potential for new GERODISC option or license agreements, and
the potential for revenues from the world car project, all of which are
difficult to predict, have the possibility of significantly increasing the
Company's revenues. Accordingly, the Company's future operating results are
likely to be subject to significant variability from quarter to quarter and
could be adversely affected in any particular quarter. Due to the foregoing
factors, it is possible that the Company's operating results may from time to
time be below the expectations of public market analysts and investors. In such
event, the price of the Company's securities could be adversely affected.
4. Product Acceptance and Market Development. The market for GERODISC is
still relatively new and may not develop as anticipated by the Company. The
Company's success is dependent upon market acceptance of GERODISC in preference
to current competing products and those that may be developed by others. There
can be no assurance that GERODISC will achieve a significant level of market
acceptance to result in profitable operations. The market for the Company's ABC
technology is also new, and the market for the products being developed by the
first joint venture utilizing this technology is new and untested. Although
management believes, based on discussions with representatives for several third
world countries, there is a demand for its ABC technology, there is no assurance
that these or other countries will be willing to adopt this technology. There is
also no assurance that the taxi product of the ASHA-TAISUN Joint Venture will
achieve a significant level of market acceptance and generate profitable
operations for the Joint Venture.
5. Bureaucratic Nature of Automotive Industry. The United States is a
significant market for the Company's GERODISC product, and in order to penetrate
this market it is necessary to convince the major U.S. automobile manufacturers
of the efficacy of the GERODISC technology. These major corporations are very
bureaucratic and reluctant to adopt new technologies. The Company has been
pursuing these automobile manufacturers for several years and at this point in
time only one of the three has committed to use GERODISC on any of its vehicles
and the first of these vehicles will not be manufactured until the late summer
of 1997. The other two have tested GERODISC and are considering its use,
however, no commitments have been made. There can be no assurance that these
other two manufacturers will ever decide to use GERODISC.
6. Patents and Protection of Proprietary Rights. The Company believes that
GERODISC is covered by patents issued in the United States and certain foreign
countries. However, there can be no assurance that any issued patent, or any
patent that may issue from currently pending patent applications, will provide
the Company with significant competitive advantages, or that challenges will not
be instituted against the validity or enforceability of
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any patent which may be owned by the Company, or, if instituted, that such
challenges will not be successful. The cost of litigation to uphold the validity
of a patent and to prevent infringement can be substantial. Furthermore, there
can be no assurance that others will not independently develop similar or more
advanced technologies or design around aspects of the Company's technology.
There is also a significant risk that the Company's patent rights in its ABC
technology will not be protected in China where the ASHA-TAISUN Joint Venture is
conducting its operations. See "BUSINESS -- Patent Rights."
7. Competition. The business of the Company is subject to substantial
competition from other companies in the automobile industry. Substantially all
of such companies have significantly greater financial and technical resources
than the Company.
8. Internal Political and Other Risks of Doing Business in China. The first
joint venture the Company formed for the purposes of exploiting its ABC
technology (the "ASHA-TAISUN Joint Venture") has established its manufacturing
facility in Jiaxing City, China. As a result, this Joint Venture's operations
and assets are subject to significant political, economic, legal and other
uncertainties. Changes in policies by the Chinese government resulting in
changes in laws, regulations or the interpretation thereof, confiscatory
taxation, restrictions on imports and sources of supply, current devaluations or
the expropriation of private enterprise could materially adversely affect the
Company. Under its current leadership, the Chinese government has been pursuing
economic reform policies, including the encouragement of private economic
activity and greater economic decentralization. There can be no assurance,
however, that the Chinese government will continue to pursue such policies, that
such policies will be successfully pursued, that such policies will not be
significantly altered from time to time or that business operations in China
will not become subject to the risk of nationalization, which could result in
the total loss of investments in that country. Economic developments may be
limited as well by the imposition of austerity measures intended to reduce
inflation, the inadequate development of an infrastructure and the potential
unavailability of adequate transportation, adequate power and water supplies,
satisfactory roads and communications and raw materials and parts. If for any
reason the Joint Venture were required to close its manufacturing operation in
China, the Company's profitability would be materially adversely affected.
9. Uncertain Legal System and Application of Laws in China. The legal
system of China relating to foreign investments is both new and continually
evolving, and currently there can be no certainty as to the application of its
laws and regulations in particular instances. China does not have a
comprehensive system of laws. Enforcement of existing laws or agreements may be
sporadic and implementation and interpretation of laws inconsistent. The Chinese
judiciary is relatively inexperienced in enforcing the laws that exist, leading
to a higher than usual degree of uncertainty as to the outcome of any
litigation. Even where adequate laws exist in China, it may not be possible to
obtain swift and equitable enforcement of that law.
10. Dependence on Agreements with Provincial Government. The ASHA-TAISUN
Joint Venture's operations are dependent on its manufacturing operations
conducted in China. Pursuant to a lease in which Zhejiang Province is the
landlord, the Joint Venture occupies a manufacturing facility and a 20,000
square foot three story building in Jiaxing City in Zhejiang Province. The lease
has a 50 year term. This lease is dependent on the Joint Venture's continuing
good relationship with the local government. In the event of a dispute involving
the lease or the Joint Venture's business activities, the current arrangement
under which the Joint Venture conducts its business may be difficult to enforce
in China. The Joint Venture's operations and prospects will be materially and
adversely affected by the failure of the local government to honor the current
lease and working arrangements.
11. Inflation and China's Rapid Economic Growth. Over the last several
years, China's economy has grown at rates which have created problems such as
inflation. The Chinese government has imposed measures attempting to check
inflation which to date have had a limited effect though it is uncertain as to
their effect in the future. The Company believes, because its Chinese operations
are initially intended to involve manufacturing products for customers in China,
that the current economic climate in China and efforts to curb inflation should
not have a direct adverse impact on the Company's business. This could change if
widespread social or political unrest results from the economic climate causing
the government to take actions similar to those that were taken in 1989 which
led to the student uprising in Tiananmen Square.
12. Dependence on Single China Factory Complex; Lack of Insurance. All of
the ASHA-TAISUN Joint Venture products will be manufactured at a single
manufacturing facility located in Jiaxing City, China. Firefighting and disaster
relief or assistance in China are primitive by Western standards. The Joint
Venture does not yet have
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any insurance covering losses from fire, casualty and theft. Material damage to,
or, the loss of, all or material portions of the factory complex due to fire,
severe weather, flood, or other act of God or cause, would have a material
adverse effect on the Joint Venture's financial condition and business. It is
the Company's intention to obtain insurance on this facility, however, there is
no assurance that such insurance can be obtained, or, if so, that it will be on
reasonable terms.
13. Possible Governmental Restrictions on Production and Marketing of
Vehicles in China. The production and marketing of vehicles and the complete
knock down ("CKD") kits in China will require approval of the Central Government
of China. Based on a Memorandum of Understanding ("MOU") between the Central
Government and TAISUN Automotive PTE LTD. (the Company's Joint Venture partner).
Management believes that the Joint Venture will be able to manufacture and
export CKD kits and sell CKD kits to manufacturers in other Chinese provinces.
If the Central Government refuses to recognize the terms of this MOU, or if
sometime in the future the Central Government changes its position, the Joint
Venture's business would be materially adversely affected.
14. Lack of Control of Joint Venture. The first business venture formed to
exploit the Company's ABC technology is ASHA/TAISUN PTE Ltd., a joint venture
formed under the laws of Singapore. The Company owns 50% of the joint venture,
and the joint venture owns an 85% interest in a company formed under the laws of
the Peoples Republic of China. The joint venture will produce and sell in China
vehicles built using the ABC technology. The Company does not exercise complete
control over the joint venture and may be limited from exercising such control
by local law. The Company accounts for its investments in the Joint Venture
using the equity method, which would result in it recognizing its portion of any
net losses incurred by the joint venture. Moreover, changes in foreign
government regulations, political unrest or other disruptions could threaten or
result in the forfeiture of the Company's investments in the joint venture or
further limit the Company's involvement in its governance or access to their
products.
15. Control by Existing Management and Principal Shareholders. Following
this Offering, the current executive officers, directors and principal
shareholders of the Company will continue to own beneficially approximately 48%
of the Company's outstanding Common Stock. Accordingly, it should be anticipated
that the current executive officers, directors and principal shareholders of the
Company will continue to have the ability to significantly influence the outcome
of elections of the Company's directors and other matters presented to a vote of
shareholders. See "PRINCIPAL SHAREHOLDERS."
16. Immediate Dilution to New Investors of 83.3%. The purchasers of the
Common Stock offered hereby will experience immediate and substantial dilution
of $3.33 per share (83.3%) in the pro forma net tangible book value of the
Common Stock. See "DILUTION."
17. Broad Discretion by Management in Application of Proceeds. The net
proceeds from this Offering have only been generally allocated by management. As
a result, management will have broad discretion in the application and
allocation of such proceeds. See "USE OF PROCEEDS."
18. Risks Associated with Forward-Looking Statements Included in this
Prospectus. This Prospectus contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act which are intended to be covered by the safe harbors created thereby. These
statements include the plans and objectives of management for future operations,
including plans and objectives relating to (i) the licensing of the GERODISC
technology to suppliers for the major United States and foreign automotive and
vehicle manufacturers; (ii) licensing and otherwise exploiting the Company's ABC
technology in third world countries; and (iii) researching and developing new
technologies that can be commercially exploited. The forward-looking statements
included herein are based on current expectations that involve numerous risks
and uncertainties. Although the Company expects to grant additional licenses for
the GERODISC technology, there can be no assurance that any additional licenses
will be granted, or if granted, that they will lead to any future royalty
revenues. The Company's plan and objectives relating to GERODISC are also based
on the assumption that automobile and vehicle manufacturers will elect to
incorporate GERODISC in their future models, that competitive conditions within
the industry will not change materially or adversely, and that there will be no
material adverse change in the Company's operations or business. The Company's
plans and objectives relating to the ABC technology are based on assumptions
that there will be a demand in third world countries for vehicles built using
the ABC technology, and that the actual costs of building such vehicles using
the ABC technology will be substantially lower than the costs of building
vehicles using conventional manufacturing methods. Assumptions relating to the
foregoing involve judgments with respect
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to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements included in this
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
19. Limited Public Market for Company's Common Stock. Although there
presently exists a limited market for the Company's Common Stock, there can be
no assurance that such a market can be sustained. The investment community could
show little or no interest in the Company in the future. As a result, purchasers
of the Company's Common Stock may have difficulty in selling such securities
should they desire to do so.
20. Underwriter's Potential Influence on the Market. The Underwriter does
not presently make a market in the Company's Common Stock. In connection with
this offering, or subsequent thereto, the Underwriter may commence certain
market making activities, although it is under no obligation to do so. In the
event the Underwriter commences market making activities, such activities may be
discontinued at any time either in the Underwriter's sole discretion or in
connection with applicable rules, regulations or regulatory or administrative
proceeding. The discontinuance of market making activities by the Underwriter,
if commenced, could adversely impact the market for the Company's Common Stock.
21. Risk of Low-Priced Securities. The Securities and Exchange Commission
(the "Commission") has adopted regulations which generally define "penny stock"
to be any equity security that has a market price (as defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions, including an exception for any equity security that is
quoted on The Nasdaq Stock Market. If the shares of Common Stock offered hereby
are removed or delisted from The Nasdaq SmallCap Market, the security may become
subject to rules that impose additional sales practice requirements on
broker-dealers who sell such securities. For transactions covered by these
rules, the broker-dealer must make a special suitability determination for the
purchaser of such securities and have received the purchaser's written consent
to the transactions prior to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior to
the transaction, of a disclosure schedule prepared by the Commission relating to
the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered Underwriter, current
quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, among other requirements, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Consequently, the "penny stock" rules may restrict the ability of purchasers in
this offering to sell the Common Stock offered hereby in the secondary market.
22. Material Amount of Common Stock Eligible for Resale. Of the 7,179,795
shares of Common Stock presently outstanding, approximately 3,528,225 shares are
"restricted securities" and under certain circumstances may be sold in
compliance with Rule 144 adopted under the Securities Act of 1933, as amended.
Of such shares, approximately 3,463,935 shares may presently be eligible for
resale under Rule 144, and 64,290 shares have been registered for resale by
selling shareholders in a concurrent offering. Officers and directors of the
Company, and Brian Chang, a principal shareholder, own 3,028,497 of the
3,463,935 restricted shares, respectively, and these persons have agreed not to
sell (i.e., to "Lock-up") these shares for 18 months following the closing of
this offering without the consent of the Underwriter. The Company has been
advised by the Underwriter that it has no general policy with respect to
granting releases from Lock-up agreements. The Underwriter may in its discretion
and without notice to the public waive the Lock-up and permit any or all of such
shareholders to sell all or any portion of such shareholders' Common Stock prior
to the expiration of the Lock-up period. It is expected that upon exercise of
the Underwriter's Warrant the Common Stock issued will also be freely
transferable. Sales of substantial amounts of Common Stock by shareholders of
the Company under Rule 144 or otherwise, or even the potential for such sales,
could have a depressive effect on the market price of the Company's securities
and could impair the Company's ability to raise capital through the sale of its
equity securities.
In general under Rule 144, if one year has elapsed since the acquisition of
restricted shares from the Company or any affiliate of the Company, the acquiror
or subsequent holder thereof is entitled to sell in any three-month period, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding Common Shares or (ii)
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the average weekly trading volume during the four calendar weeks immediately
preceding the date on which the notice of the sale is filed with the Commission.
Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not deemed to
have been an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who owns shares that have not been beneficially owned by
an affiliate of the Company for at least two years is entitled to sell such
shares pursuant to Rule 144(k) without regard to certain of the limitations
described above.
23. Preferred Stock Authorized. The Company's Articles of Incorporation
authorize the issuance of up to 10,000,000 shares of Preferred Stock, the terms,
preference, rights and restrictions of which may be established by its Board of
Directors. Other companies on occasion have issued series of such preferred
stock with terms, rights, preferences and restrictions that could be considered
to discourage other persons from attempting to acquire control of such companies
and thereby insulate incumbent management. It is possible the Company could
issue shares of its Preferred Stock for such a purpose. In certain
circumstances, the existence of corporate devices which would inhibit or
discourage takeover attempts could have a depressant effect on the market value
of the stock of a company. See "DESCRIPTION OF SECURITIES -- Preferred Stock."
24. Approximately Twenty-Two Percent of Proceeds To Be Used to Repay
Existing Debt. Approximately twenty-two percent (22%) of the net proceeds of the
offering, or $900,000, will be used to repay the bridge loan which the Company
received during December 1996 and January 1997. See "USE OF PROCEEDS."
25. Dependence on Major Customers. During the last three years most of the
Company's revenues have been derived from up front payments for GERODISC
licenses and for options for GERODISC licenses, in each case from a limited
number of customers. During the six months ended March 31, 1997, the $1 million
license fee earned from Steyr represented 85.3% of the Company's revenues for
that period. During the year ended September 30, 1996, the $1,275,000 which was
received from American Axle represented 74.5% of the Company's revenues for the
fiscal year, and $180,000 which was received from Steyr represented 10.5% of the
revenues for the year. See "BUSINESS."
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<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market and
quotations are carried on the OTC Bulletin Board under the symbol "ASHA." The
following table sets forth the high and low bid price for the Company's Common
Stock for the periods indicated. These prices are believed to be inter-dealer
quotations and do not include retail mark-ups, mark-downs, or other fees or
commissions, and may not necessarily represent actual transactions.
Quarter Ended High Bid Low Bid
------------- ---------- --------
December 31, 1994.......................... $6.50 $2.00
March 31, 1995............................. $6.75 $4.00
June 30, 1995.............................. $6.25 $4.375
September 30, 1995......................... $5.375 $3.50
December 31, 1995.......................... $6.25 $2.25
March 31, 1996............................. $6.00 $4.00
June 30, 1996.............................. $7.25 $5.125
September 30, 1996 ........................ $6.00 $4.00
December 31, 1996 ......................... $4.375 $3.50
March 31, 1997............................. $5.50 $4.625
June 30, 1997
(through June 26, 1997)................. $6.0625 $4.50
The number of holders of record of the Company's Common Stock at June 26,
1997 was 2,531. Many shares are registered in the names of brokerage firms or
other nominee names. As a result the Company estimates that it has in excess of
6,000 shareholders.
DIVIDENDS
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends have been paid with
respect to the Company's Common Stock and no dividends are anticipated to be
paid in the foreseeable future. The Company currently intends to retain all
earnings to finance the development and expansion of its operations. The
declaration of cash dividends in the future will be determined by the Board of
Directors based upon the Company's earnings, financial condition, capital
requirements and other relevant factors.
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<PAGE>
USE OF PROCEEDS
The estimated net proceeds from the sale of the 1,250,000 Shares of Common
Stock offered hereby by the Company will be approximately $4,130,000 after
deducting underwriting discounts and expenses of the offering. Such proceeds
will be applied substantially as follows:
Approximate
Application of Proceeds Dollar Amount Percentage
----------------------- ------------- ----------
Repayment of Private Placement Notes(1).......... $ 900,000 21.8%
Marketing of GERODISC Technology(2).............. 900,000 21.8%
Research and Engineering(3)...................... 630,000 15.3%
Aftermarket Development of GERODISC(4)........... 100,000 2.4%
Additional Investments in ASHA-TAISUN
Joint Venture(5)............................... 1,000,000 24.2%
Working Capital and General
Corporate Purposes(6).......................... 600,000 14.5%
---------- ---
Total........................................ $4,130,000 100%
========== ===
- ----------
(1) The Private Placement Notes bear interest at 8% per annum, are secured by a
$1,000,000 account receivable from New Venture Gear, Inc., and are due on
the earliest of (a) the consummation of this public offering; (b) December
31, 1997; (c) the payment of the $1,000,000 receivable; or (d) the
consummation of any financing or series of financings with gross proceeds
of at least $4,000,000. The proceeds from the sale of the Private Placement
Notes were used for working capital purposes.
(2) Represents amounts to be expended for purchasing test vehicles, licensee
support, advertising and promotion, and public relations. A portion of this
amount will also be spent to hire two additional sales engineers, one for
the Santa Barbara office and one in Detroit.
(3) Represents amounts to be expended on advanced engineering and research
activities for the GERODISC technology and new products. The Company
expects to hire two more product engineers to assist the existing staff in
connection with building prototypes of different GERODISC products.
(4) Represents amounts to be expended developing GERODISC "aftermarket"
products for existing vehicles as opposed to GERODISC products which are
incorporated in the initial design of new vehicles.
(5) Represents additional contributions to be made to the ASHA-TAISUN Joint
Venture. These amounts are intended to be expended by the Joint Venture on
research and development activities related to the taxi and passenger van
carried out at the Company's Santa Barbara facility over the next 12
months.
(6) Includes amounts to be expended on salaries, office expenses and other
general overhead costs. Included among the salaries are the following
annual salaries of the Company's three executive Officers: Jack McCormack
-- $90,000; Alain Clenet -- $152,500; and Ken Black -- $90,000. The Company
may also use some of the proceeds to pay down its existing $750,000 line of
credit with Montecito Bank & Trust.
The amounts set forth above are only an estimate. The Company is unable to
predict precisely what amount will be used for any particular purpose. To the
extent the proceeds received are inadequate in any area of expenditures,
supplemental amounts may be drawn from working capital, if any. Conversely, any
amounts not required for proposed expenditures will be retained and used for
working capital. Should the proceeds actually received, if any, be insufficient
to accomplish the purposes set forth above, the Company may be required to seek
other sources to finance the Company's operations, including individuals and
commercial lenders. The Company believes that the proceeds from the offering,
together with all other sources of financing currently available to the Company,
are sufficient to sustain the Company's proposed activities for at least 12
months.
Pending utilization, management intends to make temporary investment of the
proceeds in bank certificates of deposit, interest-bearing savings accounts,
prime commercial paper or government obligations. Such investment in
interest-bearing assets, if continued for an excessive period of time within the
definition of the Investment Company Act of 1940, could subject the Company to
classification as an "investment company" under the Act and to registration and
reporting requirements thereunder.
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DILUTION
At March 31, 1997, the net tangible book value of the Company was
$1,491,582, or approximately $.209 per share of Common Stock based on 7,144,877
shares of Common Stock outstanding. The net tangible book value per share
represents the amount of the Company's total assets less the amount of its
intangible assets and liabilities, divided by the number of shares of Common
Stock outstanding. After giving effect to the receipt of net proceeds (estimated
to be approximately $4,130,000) from the sale of the shares of Common Stock
offered hereby, the net tangible book value of the Company at March 31, 1997,
would be $5,621,582, or approximately $.670 per share of Common Stock. This
would result in dilution to the public investors (i.e., the difference between
the public offering price per share of Common Stock and the net tangible book
value thereof after giving effect to this offering) of approximately $3.33 per
share. The following table illustrates the per share dilution:
Public offering price......................... $4.00
Net tangible book value per share
at March 31, 1997 ...................... $.209
Increase in net tangible book
value per share attributable
to new investors......................... .461
-----
Net tangible book value per
share after this offering................ .670
-----
Dilution of net tangible book
value per share to new investors......... $3.33
=====
Dilution of net tangible book value
per share expressed as a percentage...... 83.3%
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ended March 31, 1997 Versus Six Months Ended March 31, 1996
During the six months ended March 31, 1997, the Company had $1,172,095 in
revenue compared to $1,466,953 in revenue during the corresponding prior year
period. The decrease in revenue was the result of a $351,000 decrease in license
and option revenue. The decrease is due to the fact that during the six months
ended March 31, 1997, the only license or option revenue received was a $1
million license fee paid by Steyr-Daimler-Puch-Fahrzeugtechnik GMBH, a large
European automotive supplier. During the six months ended March 31, 1996, the
Company received a $1,150,000 payment from American Axle and Manufacturing, Inc.
for an option to acquire certain licenses, and a $150,000 payment from Hall
Racing, Inc. for the right to use GERODISC units for the 1996 Indycar racing
season.
Expenses for the six months ended March 31, 1997 were approximately
$215,269 less than the corresponding prior year period. Research and development
expenses decreased $56,434 because, although the level of research and
development activities remained relatively constant, more of these activities
relate to the ASHA-Taisun Joint Venture and were accordingly charged to the
Joint Venture instead of being recorded as an expense of the Company. Selling,
general and administrative expenses decreased by approximately $154,335 as a
result of reduced travel expenses and the development of cost controls relative
to administrative purchases. The Company has also implemented a centralized
travel coordinator who seeks the best travel arrangements with an emphasis on
advance purchases of airline tickets. Management expects these cost controls to
contribute to a reduction of expenditures for ongoing and future projects.
Officers' salaries declined approximately $98,000 in the six months ended
March 31, 1997, as compared to the six months ended March 31, 1996 for several
reasons. During the six months ended March 31, 1996, the Company paid a total of
$127,045 in bonuses to officers and no bonuses were paid to officers during the
most recent six month period. In addition, the Company's former Executive Vice
President resigned on October 1, 1996. Legal and accounting expenses increased
approximately $75,000 due primarily to increased patent work. Approximately
$12,000 of this amount was due to accrued expenses for the 1997 audit. The
Company did not accrue expenses in advance of the annual audit in the prior
year.
The Company recorded a $237,966 loss from investment in affiliate during
the six months ended March 31, 1997, due to the Company's share of the
ASHA-Taisun Joint Venture's operating losses and writedowns of assets in excess
of their net realizable value. There was no comparable amount for the six months
ended March 31, 1996 because the Joint Venture did not commence significant
operations until the quarter ended September 30, 1996.
Interest expense of $155,356 for the six months ended March 31, 1997 was
due to interest paid and accrued on the Company's bank line of credit, the value
of the warrants issued to the bank in connection with the line of credit, the
value of the stock issued as additional consideration in connection with the
$900,000 bridge loan which was completed during January 1997, and accrued
interest on the bridge loan.
The net loss of $523,935 for the six months ended March 31, 1997 was
substantially more than the net loss of $17,180 for the six months ended March
31, 1996 due to a combination of lower revenues and increases in interest
expense and loss from investment in the ASHA-Taisun Joint Venture. The Company
anticipates licensing revenues for the second six months of the current year to
be sufficient to bring the Company to a profit position for the fiscal year,
however, there is no assurance that any new licenses will be signed. Expenses
for the second six months are not expected to increase significantly from the
level for the first six months of the year.
Year Ended September 30, 1996 Versus Year Ended September 30, 1995
During the year ended September 30, 1996, the Company had revenue of
approximately $1,711,000 as compared to approximately $4,436,000 during the year
ended September 30, 1995. The substantial decrease was due to a reduction of
license and right of first refusal revenue of approximately $2,725,000 as
compared to the prior year. During the year ended September 30, 1996, the
Company only entered into one new option agreement, that being with American
Axle, and renewed one license with an Indycar race team. During the year ended
September 30, 1995, the Company entered into major license agreements with New
Venture Gear and Dana Corporation, and also entered into the license agreement
with the Indycar race team.
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<PAGE>
Revenue from contract services increased in the year ended September 30,
1996 by approximately $49,000, as compared to the prior year. Additional support
services to licensees and optionees resulted in this increase.
Total expenses for the year ended September 30, 1996, increased by
approximately $259,000 over the prior year, primarily due to increased general
and administrative expenses. Research and development expenses decreased by
approximately $23,000 as a result of the Company's decreased use of outside
services due to the purchase of new equipment. Officers' salaries increased
primarily as a result of bonuses. Legal and accounting expenses increased by
approximately $14,000 as a result of matters related to foreign operations.
Patent application expenses decreased by approximately $28,000 due to reduced
patent application activity. Taxes and licenses expenses increased by
approximately $37,000 due primarily to increased payroll tax expense.
Selling, general and administrative expenses for the year ended September
30, 1996 were approximately $871,000 as compared to approximately $705,000
during the prior year. The increase is due to increased marketing activities.
The Company had a loss of approximately $(887,000) on its investment in the
ASHA-TAISUN Joint Venture during the year ended September 30, 1996, as compared
to a loss on its investment of approximately $(470,000) in the prior year. The
Company has an ownership interest in the joint venture and accordingly records
50% of the joint venture's loss in its statement of operations. The increased
net loss was due to the fact that the Joint Venture's activities in China
increased, but no revenues have yet been generated. The Company anticipates that
the net loss from the joint venture will increase slightly during the year ended
September 30, 1997 due to the expenses associated with building the
pre-production vehicles. Joint Venture revenues are not anticipated until the
year ended September 30, 1998.
The net (loss) of $(1,812,322) for the year ended September 30, 1996, was a
substantial change from the net income of $1,531,333 during the year ended
September 30, 1995. The net loss was primarily a result of the reduced license
and right of first refusal revenue recorded during the current year and the loss
from the investment in an affiliate described above.
Liquidity and Capital Resources
As of March 31, 1997, the Company had a negative working capital of
approximately $(371,000) compared to positive working capital of approximately
$930,000 at September 30, 1996. The decrease was due primarily to the net loss
of $(523,935) during the six month period.
In November 1996, the Company obtained an increase in its credit line from
Montecito Bank & Trust from $500,000 to $750,000. At March 31, 1997, the entire
credit line of $750,000 was outstanding. Amounts under the credit line bear
interest at the prime rate plus 1.5% and the loan balance is due on June 5,
1997. As of May 9, 1997, the annual rate of interest for the credit line was
10%. Montecito Bank has verbally agreed to extend this credit line for one year
to June 5, 1998.
In January 1997, the Company received approximately $799,000 in net
proceeds from the private sale of units consisting of promissory notes and
Common Stock. The Company incurred $900,000 of debt against those proceeds, and
as of March 31, 1997 had accrued $16,000 in interest against those notes.
On April 14, 1997, the Company received a cash payment of $1,000,000 for a
licensing agreement from Steyr. With the cash from the Steyr license and the
proceeds of the anticipated public offering and anticipated new license
agreements, the Company believes it will have sufficient liquidity to maintain
continued operations for the next twelve months.
Operating activities for the six months ended March 31, 1997 used
$(941,179) of net cash as compared to $1,501,117 cash provided in the six months
ended March 31, 1996. The decrease in cash from operating activities was
primarily due to the increase in Accounts Receivable for the current period as
compared to a substantial decrease in Accounts Receivable in the prior period,
and the net loss of $(523,935) for the six months ended March 31, 1997, as
compared to a net loss of $(17,180) for the comparable period in 1996.
Investing activities for the six months ended March 31, 1997 used
($240,549) of cash. Activities were attributed to the ASHA-Taisun joint venture
and the sale of short term investments. Approximately $478,110 was attributed to
the investment in ASHA-Taisun joint venture. The Company sold $237,561 of
short-term commercial paper to partially offset the expenditure.
14
<PAGE>
Cash provided from financing activities was $1,290,890 for the six months
ended March 31, 1997, as compared to $620,000 for the six months ended March 31,
1996. Bridge loan proceeds and utilization of the Company's credit line were the
primary sources of financing activities for the six months ended March 31, 1997.
During the year ended September 30, 1996, cash provided by operating
activities was approximately $545,000 as compared to approximately $(22,000)
used in operating activities during the year ended September 30, 1995. The cash
provided by operating activities was primarily a result of a reduction of
receivables totaling approximately $1,426,000. This was partially offset by the
net loss for the year.
Cash used in investing activities during the year ended September 30, 1996,
was approximately $(1,437,000) as compared to approximately $(740,000) used in
investing activities during the year ended September 30, 1995. The increase was
primarily due to increased purchases of short-term investments and also an
increased investment in the ASHA-TAISUN Joint Venture.
Cash provided by financing activities for the year ended September 30,
1996, was approximately $892,000 as compared to approximately $149,000 provided
by financing activities during the year ended September 30, 1995. The increase
was due to the fact that the Company raised $750,000 from the private sale of
Common Stock during the year ended September 30, 1996, and increased borrowings
under its line of credit.
The Company expects to invest an additional $1,100,000 in the ASHA/TAISUN
Joint Venture during calendar year 1997. This investment is expected to be
funded with $1 million from the proceeds of this public offering and with
$100,000 from anticipated revenues from new GERODISC licenses. The Company has
no other commitments to make material capital expenditures.
15
<PAGE>
BUSINESS
General
ASHA Corporation (the "Company" or "ASHA") is an innovative engineering
research and development company serving the global automotive and vehicular
industries. The Company is currently exploiting two proprietary technologies
which it has developed and patented, its GERODISC traction control system, and a
commercially feasible manufacturing process for modularly-based vehicles for
production and use in third world countries.
GERODISC is an automatic hyrdo-mechanical traction control device which
limits a vehicle's wheel spin and improves its traction and handling. GERODISC
is the only technology known to the Company that is compatible with all cars,
vans, sports utility vehicles and trucks and can be used on all four types of
vehicle platforms: front-wheel drive, rear-wheel drive, four-wheel drive and
all-wheel drive. Management believes that, based on the testing it has
conducted, GERODISC is superior to any other competing technologies currently
marketed, including electronic traction control. GERODISC has been and is being
tested by the three major US automobile manufacturers and most major European
automobile manufacturers for use in future model designs. To date, GERODISC has
been specified for inclusion in one 1999 four-wheel drive model of a major US
automobile manufacturer.
The Company has developed an innovative technology for building and
assembling vehicles which requires significantly reduced levels of tooling,
assembly and manufacturing costs, greatly reducing initial capital expenditures.
This technology, known as the "ASHA Body Concept" ("ABC"), has been targeted for
use in third world countries to facilitate the production of limited quantities
of vehicles while achieving the cost savings normally associated with the
economies of scale of mass production. In July 1994, the Company established a
joint venture relationship with a Singapore-based manufacturing company to
exploit the ABC technology in the China and Southeast Asia markets. In
furtherance of this joint venture, the Company recently completed its first
pre-production prototype of an ABC vehicle which has successfully undergone
extensive road testing, chassis rigidity testing, handling evaluation,
suspension evaluation and heat testing. Based upon these results, pre-production
tooling has commenced at the joint venture's manufacturing and production
facility in Jiaxing City, China. The Company expects that 100 pre-production ABC
vehicles will be produced in China by the end of 1997.
The Company's strategy is to maximize GERODISC's penetration in the
world-wide automobile and vehicle markets through licensing arrangements which
provide royalty revenue. In addition, the Company intends to exploit the
world-wide market for the ABC production system through joint venture and
license arrangements primarily in third-world countries. Further, the Company
intends to continue to develop products for the world-wide automobile and
vehicle markets through its continuing research and development activities.
The ASHA GERODISC System
GERODISC is an automatic hydro-mechanical traction control device. It is a
self-activating device that can prevent wheel spin and improve traction and
handling on all four types of vehicle platforms: front-wheel drive, rear-wheel
drive, four-wheel drive and all-wheel drive.
All statements in the following five paragraphs which relate to the
operational superiority and effectiveness of GERODISC represent Management's
beliefs based on testing the Company has conducted and based on discussions with
others who have conducted tests.
GERODISC competes favorably with electronic traction control, a popular but
expensive option, and various less expensive mechanical and hydro-mechanical
limited slip differentials currently available for certain applications. Unlike
electronic traction control systems which reduce wheel spin by limiting power to
a vehicle's driven wheels, GERODISC transmits power to the wheels in proportion
to the traction available at each driven wheel. The ability of GERODISC to
provide a traction patch for each driven wheel also differs from a conventional
mechanical limited slip differential which only provides one traction patch per
axle. GERODISC is also smaller, lighter and quicker acting than conventional
traction control differentials and does not introduce noise, vibration or
harshness into a vehicle. In addition, the engagement of GERODISC is transparent
to the driver.
16
<PAGE>
GERODISC is sensitive to, and controls speed differences between the right
and left wheels of the drive axle of front-wheel and rear-wheel drive vehicles
and speed differences between the front and rear axles of four-wheel drive and
all-wheel drive vehicles.
GERODISC is the only known limited slip technology that is adjustable and
powerful enough to have universal application in all vehicle drive
architectures. GERODISC is compatible with electronic engine management systems
and with antilock braking systems ("ABS"). GERODISC is uniquely adaptable to
front-wheel drive vehicles in that its operation does not induce feedback to the
driver through the steering wheel and does not impart harsh forces into the
vehicle drive train. Conversely, electronic traction control, another form of
traction control, operates by applying the brake to whichever wheel has lost
traction. This technique pulses the brake, which can be felt through the
steering wheel, induces harmful torque spikes into the axles and transmission,
can overheat brakes, and is costly to manufacture and repair.
For rear-wheel drive, GERODISC has proven to be the most powerful, yet
transparent, speed/torque sensitive limited slip device available.
Four-wheel drive (4WD) and all-wheel drive (AWD) vehicles are typically
expensive, heavy, incorporate drive train components that induce drive train/
transmission stresses, and affect fuel economy negatively. The ASHA GERODISC
System eliminates the expensive components, such as two differentials and/or
viscous couplings, as well as the elimination of a large portion of the
associated weight of a typical 4WD or AWD. With less weight, components,
mechanical stress and transmission windup, GERODISC provides better fuel economy
and maximum traction. In these vehicles, GERODISC eliminates a center
differential or viscous coupling. The secondary drive axle differential is
replaced by two GERODISC couplings. GERODISC activates automatically when
needed, without electronics. Similar to the GERODISC system used on front-wheel
drive and rear-wheel drive, the 4WD/AWD coupling system is self-activating and
transparent to the driver.
On May 10, 1994, the Company received patent approval from the U.S. Patent
and Trademark Office for the GERODISC technology. Other U.S. patents are pending
and international patents have been applied for.
As of December 1996, approximately 80 individual GERODISC prototypes have
been built for evaluation by original equipment manufacturers ("OEM's") and Tier
One suppliers (the companies who supply directly to the OEM's) and approximately
25 other prototypes are currently in production.
The Company is a research and development company and therefore does not
intend to engage in manufacturing the GERODISC units; however, it does build the
prototypes which are used for testing the technology for different vehicles. The
Company's strategy is to license the GERODISC technology to the large suppliers
for the major U.S. and foreign automotive manufacturers. Generally, the licenses
will provide for up-front payments on the signing of the license agreements and
royalty payments based on the number of vehicles on which the GERODISC is used.
Following is a summary of the licenses which have been granted by the Company.
New Venture Gear, Inc. License Agreement
On August 19, 1993, ASHA entered into a licensing agreement with New
Venture Gear, Inc. ("NVG") to market GERODISC. NVG is a joint venture that is
wholly owned by Chrysler Corp. ("Chrysler") and General Motors Corp. ("General
Motors"). The agreement provides for NVG to manufacture and sell the device in
the next generation of four- wheel drive transfer case products in North America
and Europe, subject to certain restrictions. The Company received a total of
$950,000 in deposits under this agreement during the three years ended September
30, 1996, which provides NVG with licensed rights throughout the life of ASHA's
patents.
In December 1994, the Company and NVG amended the license agreement to
provide that in the event NVG is awarded a production program by a major OEM,
NVG will pay $1,000,000 to the Company at the commencement of production of the
first model as an advance royalty payment against the first 200,000 units. On
December 24, 1994, NVG was awarded a production program with a major OEM for a
1998 model vehicle for which production was originally scheduled to commence
during August 1997. In April 1997, the Company was notified that the OEM had
made a marketing decision to delay the introduction of the GERODISC until its
1999 model. This decision was made because the OEM is planning to introduce a
totally new model of the vehicle in 1999 and significantly increase the number
of vehicles to be produced as compared to the number of vehicles produced of the
1998 model. Since the
17
<PAGE>
scheduled production of the 1998 model has already been presold to the dealers,
the OEM wanted to save GERODISC for the enhancement and promotion of the new
1999 model. In the event such model does include the GERODISC, the license
agreement provides that the Company will be paid a royalty for each GERODISC
produced after the first 200,000 have been produced. As a result of this
marketing decision, the $1,000,000 payment due from NVG will be delayed from
approximately August 1997 to approximately July 1998, and the receipt of
additional royalty revenues from the NVG License Agreement, if any, will be
delayed until sometime in late 1998. See "Note 12 to the Financial Statements --
Licensing Agreement."
During October 1995, the Company entered into an option agreement with NVG
which granted NVG a twelve month option to acquire non-exclusive licenses for up
to three different GERODISC applications in North America. The three
applications were rear axles, transaxles and twin-disc front axles. This option
expired in October 1996. The Company is currently negotiating with NVG
concerning possible licenses for these applications and management believes,
based on these negotiations, that at least one license will be signed by the end
of July 1997. However, there is no assurance that these negotiations will lead
to additional license agreements.
Dana Corporation License Agreement
On December 28, 1994, the Company entered into an agreement with Dana
Corporation ("Dana") in which the Company licensed Dana to manufacture and
market GERODISC for front axles exclusively and for rear axles non-exclusively
in North America, South America, Europe, South Korea and Taiwan. On February 2,
1995, the Company received a $1,000,000 license fee, and an additional
$1,000,000 license fee payment was made during January 1996. In addition, the
Company will receive a royalty on each unit produced under the agreement. Dana
is the largest axle manufacturer in the world. Dana has been approved for
production of the front and rear axles for the same vehicle that will utilize
the NVG GERODISC transfer case, giving the Company three GERODISC units in one
vehicle model starting with the 1999 model year. Production for this 1999 model
is expected to commence in late summer 1998.
American Axle and Manufacturing, Inc. Option Agreement
On November 1, 1995, the Company entered into an agreement with American
Axle and Manufacturing, Inc. ("American Axle") which granted American Axle an
eighteen month option to acquire non-exclusive licenses for up to three
different GERODISC applications world-wide. The three applications are rear
axles, transaxles and twin-disc front axles. If American Axle exercises any
option, a license fee ranging from $1,000,000 to $2,000,000 will be payable,
depending upon the application, and a per unit royalty will also be due.
American Axle paid $1,150,000 for the option. The option for rear axles has been
extended until August 29, 1997, and American Axle has requested an extension for
the options for transaxles and twin-disc front axles. The Company is currently
in discussions with American Axle regarding possible extensions of the other two
options. American Axle is the second largest axle manufacturer in the world, and
it supplies approximately 95% of the axles used by General Motors. There is no
assurance that American Axle will exercise any portion of this option.
Steyr-Daimler-Puch Fahrzeugtechnik Gmbh License Agreement
Effective March 31, 1997, the Company entered into a Gerodisc Technology
Transfer and License Agreement with Steyr-Daimler-Puch Fahrzeugtechnik GmbH
("Steyr") in which the Company granted Steyr non-exclusive licenses to design,
manufacture and sell GERODISC for specified types of platforms for certain
specific European OEM's and United States OEM's who manufacture in Europe. The
Company received a $1 million license fee and the Company will receive a royalty
on each unit produced and sold under the agreement. Steyr is the largest
European automotive supplier for European OEM's.
High Performance GERODISC Applications
While the Company's goal is to develop products for license to automotive
OEM's or their suppliers, it has also determined to pursue opportunities for the
specialized application of GERODISC technology in high performance and racing
venues. These activities provide validation of the technology, and in Europe
where the major OEM's are more directly engaged in racing activities, they
provide a means of marketing and exposing the technology to the
18
<PAGE>
OEM's. These activities may also provide an avenue to generate ongoing revenues
that do not have contractual delays that are typical of OEM agreements. On May
23, 1994, the Company successfully completed testing of a GERODISC limited slip
differential for race car use. ASHA personnel installed two GERODISC LSD's, one
torque/speed sensitive and one speed sensitive only. The vehicles demonstrated
significant improvements in computer recorded lap times with improved
directional stability in dry and wet conditions. The Company intends to supply
performance units on a lease only basis, thereby protecting its proprietary
technology and providing the Company with an ongoing opportunity to review the
durability of each unit throughout its usefulness.
Currently, the Company is working with two European automobile
manufacturers, Automobile Peugeot ("Peugeot") and Williams Touring Car
Engineering Ltd. ("Williams") which are both interested in using GERODISC in
their cars on the European racing circuit. Williams has verbally agreed to lease
three GERODISC units initially at the rate of $20,000 each for use in the 1997
British BTCC Sedan Racing series. Peugeot has verbally agreed to lease five
GERODISC units initially at the rate of $20,000 each for use in the 1997 German
Supertourisme and Belgian Sedan Racing series. The Company has received payment
from Peugeot for the first two units and a purchase order from Peugeot for three
more units
ABC (ASHA Body Concept)
The second technology which the Company has developed and is now actively
exploiting is the ASHA Body Concept ("ABC"), a method of producing cars in third
world countries which requires significantly reduced levels of tooling, assembly
and other manufacturing costs, greatly reducing the amount of capital required
to set up and operate the manufacturing facility. This manufacturing process is
based on the ability to manufacture very precise space frames, made of thin wall
stainless steel tubing which require a low tooling investment and can be
utilized in either low volume or high volume production. This stainless steel
tubing requires no welding to assemble. The body design uses a lightweight
space-age composite fiber material which does not require painting. The ABC
process allows for the utilization of resources which are most readily available
in the foreign country. For example, the manufacturing process requires only a
limited amount of electrical power and instead relies on natural gas which is
abundant in many third-world countries, including China. The process does not
require robotics and can be learned with only limited training.
The ABC technology is also very environment-friendly which is important in
many third-world countries. The manufacturing process, unlike conventional
automotive manufacturing technology, creates no by-products which require
recycling and the vehicle's components are almost entirely recyclable.
The first application of this technology is being conducted in China. In
July 1994, the Company entered into a joint venture with Singapore based TAISUN
Automotive PTE LTD. ("TAISUN") for the production and sale of vehicles in the
Far East. TAISUN, which is 85% owned by Brian Chang, a principal shareholder of
the Company, is a manufacturer of vehicles, ships, electrical motors, fiberglass
products, and chemicals. The Company has agreed to contribute to the joint
venture the right to use the ABC technology in the design and manufacture of
taxis.
ASHA/TAISUN is an 85% owner of Jiaxing Independence Auto Design &
Development Co. Ltd. ("JIAD&D"), a corporation formed under the laws of the
Peoples Republic of China, for the purpose of engaging in the production and
sale of automobiles in China. Ten percent (10%) of JIAD&D is owned by Walland
Electric Motor Company, a company owned by Brian Chang, and 5% is owned by Jack
Tang, who is a Chinese national and who manages the factory in China.
Following is a diagram showing the parties and ownership in this joint
venture:
------------------------
ASHA TAISUN
50% 50%
------------------------
------------------------ --------------------- ----------------
ASHA/TAISUN PTE LTD WALLAND ELECTRIC JACK TANG
85% MOTOR COMPANY 5%
------------------------ 10% ----------------
---------------------
------------------------------------------------------
JIAD&D
------------------------------------------------------
19
<PAGE>
JIAD&D intends to initially manufacture and sell taxis utilizing the ABC
technology because of the demand for such vehicles in China. The vehicle has
been designed to have a short turning radius with a long suspension to best
accommodate driving conditions in China and Southeast Asian countries.
Approximately 80% of the components for the vehicle will come from China.
The balance will come from sources in the United States and Brazil. There are at
least two sources in China for both the engines and transmissions to be used in
the vehicle.
JIAD&D owns a manufacturing plant facility in Jiaxing City in Zhejiang
province in China, and a new 20,000 square foot three story building has been
completed to house engineering and administrative functions. JIAD&D has the
right to use the land on which these facilities are located for 50 years.
JIAD&D presently has approximately 86 employees.
JIAD&D expects to produce up to 10,000 complete vehicles annually at the
facility in Jiaxing. It is also expected to produce complete knock down kits (or
CKD kits) at the same facility. A CKD kit includes all of the components for one
vehicle.
The joint venture intends to sell assembly franchises to persons in other
provinces and then sell CKD kits to these franchisees for assembly and sale.
JIAD&D also expects to export the CKD kits to assemblers in other countries in
Southeast Asia, where the vehicle will be assembled and sold outside of China.
The Company is building the production tooling and molds for the joint
venture at its Santa Barbara facility before shipping them to the Jiaxing
facility. ASHA has built the first prototype at its facility. This unit has
undergone successful hot weather testing in Death Valley. It has undergone
performance and handling testing and cold weather testing. The pre-production
prototypes and all proof of production models (the first models built using the
final production tooling) will be built in Jiaxing.
The Jiaxing facility is currently building 15 pre-production units which it
intends to complete by June 1997. The Joint Venture then intends to build 100
pre-production units by December 1997. These units will be used by the Joint
Venture to market franchises in the other provinces. The goal is to then build
10,000 units in 1998. However, at this time the Company has no orders for the
vehicles.
The Company has also had discussions with representatives of the Philippine
government regarding the development of a sport utility vehicle to be
manufactured in the Philippines utilizing the ABC technology. The Company
entered into a memorandum of understanding regarding this project in early 1996,
however, there is no assurance that a final agreement will be reached.
Marketing
The Company is marketing its GERODISC technology in the U.S., Europe and
Asia. A full-time Detroit based marketing person was hired in January 1991. This
person has extensive experience in the automotive business. Claude Dubois, a
race car driver and automotive expert in Brussels, Belgium, was retained in
April 1994 as a consultant to market the GERODISC technology to auto makers in
Europe. An automotive import/export consultant was hired in August 1995 to
locate sources for automobile components in South America to eventually be used
in China.
Patent Rights
The Company is aggressively pursuing patent protection for its technologies
in both the U.S. and overseas. ASHA has the following patents or pending patents
relating to its GERODISC and ABC technologies:
1. Vehicle drivetrain coupling - U.S. Patent No. 5,310,388. This
patent application has proceeded into the national and regional phases in
Australia, Europe, Japan and Korea. In addition, applications have been
filed in China and Mexico.
2. Hydraulic coupling for vehicle drivetrain - U.S. Patent No.
5,536,215.
3. Hydraulic coupling for vehicle drivetrain - U.S. Patent No.
5,595,214.
4. Vehicle drivetrain coupling - U.S. Patent No. 5,611,746.
20
<PAGE>
5. Hydraulic coupling for vehicle drivetrain - one other patent
application relating to a variation of this technology has been filed with
the U.S. Patent Office.
6. Vehicle body space frame (ABC technology) - one patent application
has been filed with the U.S. Patent Office.
7. Vehicle body construction (ABC technology) - one patent application
has been filed with the U.S. Patent Office.
Major Customers
During the year ended September 30, 1996, 16% of the Company's revenues
were received from prototype development, 67% from American Axle for an option
to license GERODISC, 6% for licensing and development of a racing GERODISC and
11% from a foreign Tier One supplier for an option to license GERODISC and
prototype development.
During the year ended September 30, 1995, 37% of the Company's revenues
were received or accrued from licenses for research and development and
prototype development, 45% from DANA for licensing of GERODISC, 15% from the
Joint Venture for development of the world car, 2% for development of a racing
GERODISC, and 1% from a foreign OEM for research and development and prototype
development.
Staff
As of March 15, 1997, the Company had 34 employees consisting of 3
executive officers, 27 automotive designers, engineers and fabricators, and 4
administrative support personnel. None of the Company's employees is represented
by a union and the Company has never had any work stoppages.
Facilities
The principal offices of the Company are located at 600 C Ward Drive, Santa
Barbara, California 93111. This space is rented at a monthly rate of $6,556
through January 1999. Beginning in January 1995 and every January thereafter,
the base rent is adjusted in proportion to the percentage increase or decrease
of the official Consumers Price Index of the Bureau of Labor Statistics, United
States Department of Labor. In no event will the rent be increased more than 8%
for any one adjustment period nor will rent be less than the base rent. These
facilities include office space, work areas for designers and a shop and
equipment suitable for performing design, development and styling work.
Approximately 11,300 square feet of space are utilized at this location.
Legal Proceedings
The Company knows of no material pending legal proceedings to which the
Company is a party.
21
<PAGE>
MANAGEMENT
Directors and Executive Officers
The Directors and Executive Officers of the Company are as follows:
Name Age Positions and Offices Held
------- ----- -----------------------
Alain J-M Clenet ............ 52 Chairman of the Board and Chief Executive
Officer
John C. McCormack ........... 65 President, Chief Operations Officer,
Secretary and Treasurer
Kenneth R. Black ............ 50 Vice President of Sales and Marketing
Steven E. Sanderson ......... 44 Chief Financial Officer and Controller
Sheila R. Ronis ............. 46 Director
Robert J. Sinclair .......... 64 Director
Lawrence Cohen .............. 52 Director
There are no family relationships among any of the Directors or executive
officers.
ALAIN J-M CLENET. Mr. Clenet has served as Chairman of the Board of
Directors of the Company since August 1986; he served as President from August
1986 until February 1, 1995; and he has served as Chief Executive Officer since
February 1, 1995. He also served as President and a Director of
Stehrenberger/Clenet, Inc. (S/C), an automotive design company, from its
inception in February 1983 until it was liquidated in early 1988 at the
formation of ASHA Corporation. S/C employed approximately 15 people in design,
engineering and fabricating trades.
From 1983 until the sale of the business in November 1986, Mr. Clenet also
served as President and a Director of Wood, Ltd., a Michigan corporation which
manufactures automotive wood components. From July 1976 until September 1981, he
served as President and a Director of Clenet Coachworks, Inc., a company which
designed, manufactured and sold approximately 500 Clenet automobiles. From 1965
until 1975, Mr. Clenet conducted automotive design, research and development in
France and the United States. Mr. Clenet received a CAFAS Degree from the Ecole
des Beaux Arts, Angers, France in 1963 and an E.N.S.A.D. Degree from the
National Superior School of Design of Paris in 1965.
JOHN C. McCORMACK. Mr. McCormack has served as President and Chief
Operations Officer of ASHA since February 1, 1995, and as Secretary and
Treasurer since January 31, 1996. Mr. McCormack helped start American Honda
Motor Company in 1959, and served as its General Manager until 1964. He has been
described as the driving force in its rise to prominence in the U.S. motorcycle
market. He was co-founder of U.S. Suzuki Motor Corporation in 1964, and by 1967
this company was second in the U.S. market for motorcycles, behind Honda. He
served as President and CEO of McCormack International Motors, Inc. from 1969
until 1975. McCormack International Motors was the first to bring a wide range
of motorized recreational vehicles under one label, and it established some 925
dealers and 10 overseas distributors. From 1975 until 1980, he was a founder and
President of Jacwall Corporation. Mr. McCormack was a founder and served as
President and COO of Hirsch Electronics Corporation from 1980 to 1985, where he
guided product development to successful completion at less than budgeted costs.
These systems are now in use in the White House, Pentagon, IBM, General Motors,
FBI, British Secret Service, as well as many other secure government and
business installations around the world. He was a co-founder and he served as
President and CEO of the Napa Valley Railroad and the Napa Valley Wine Train
from 1985 until April 1991. From April 1991 until April 1994, he served as Vice
President of Marketing and Sales for Mission Industries, an industrial laundry
business, and from April 1994 until January 1995, he was engaged in general
business consulting under the name McCormack and McCormack Consulting.
KENNETH R. BLACK. Mr. Black has served as the Company's Vice President of
Sales and Marketing since July 1992 after having served as the Sales Director
since January 1991. From 1985 until December 1990, he served as President of
Technologies International Ltd., a company he founded and which was involved in
market development and technology licensing for various domestic and foreign
clients. From 1979 until 1985, he served as a Director of New Business
Development for the Paint, Plastics and Vinyl Division of Ford Motor Company.
STEVEN E. SANDERSON. Mr. Sanderson has served as Controller of the Company
since January 1997 and as Chief Financial Officer since March 1997. From 1991
until December 1996, he served as the President and owner of Sanderson
Investments, Inc., a consulting company which prepared financial analyses
encompassing
22
<PAGE>
productivity, variances, standard costs and production bonus plans,
time studies, rate of return, and risk management. From 1985 until 1991, he
served as Controller for the Systems Division of Computer Products Inc., a
public company, where he was responsible for the accounting and management
information systems group for two manufacturing facilities. From 1981 until
1985, he served as Controller of Southeastern Public Service Company, a public
company, where he had complete responsibility for the accounting and management
information systems functions for this multi-state business. From 1977 to 1981,
he was employed by the Solid State Division of RCA where his last position was
cost accounting supervisor. Mr. Sanderson received a B.B.A. Degree in Accounting
from Florida Atlantic University in 1977.
SHEILA R. RONIS, PH.D. Dr. Sheila Ronis has served as a Director of ASHA
since 1989. She has been President of The University Group, Inc., a management
consulting company since 1988. She is also an adjunct professor at the
University of Detroit where she teaches Strategic Management and Business Policy
in the M.B.A. program. Dr. Ronis received a B.S. degree in Physics and
Mathematics in 1972 from Ohio State University. She received M.A. and Ph.D.
degrees in Organizational Behavior from Ohio State University in 1974 and 1976,
respectively. Dr. Ronis consults for many organizations as diverse as General
Motors, Ameritech, The White House, the Pentagon and USCAR.
ROBERT J. SINCLAIR. Mr. Sinclair has served as a Director of the Company
since April 1994. Mr. Robert J. Sinclair is retired Chairman and Chief Executive
Officer of Saab Cars USA, Inc. Early in his automotive career he served as
advertising manager and public relations manager of Saab, before joining Volvo
North America where he rose to President of Volvo's Western US organization. He
rejoined Saab as President in 1979, retiring as Chairman and CEO in 1991. Mr.
Sinclair consults for many organizations, and serves as a director of Hansa
Reinsurance Co. of America, which is publicly-held.
LAWRENCE COHEN. Mr. Cohen has served as a Director of the Company since
January 20, 1995. Mr. Cohen has served as Vice Chairman of the Board, Executive
Vice President and Treasurer of Bristol Technology Systems, Inc. ("Bristol")
since its inception in April 1996. Bristol is in the business of establishing a
national network of full service dealerships of retail automation equipment such
as point of sale systems. From November 1990 to September 1996, Mr. Cohen served
as Chairman of the Board of BioTime, Inc. ("BioTime"), a publicly-held
biotechnology company engaged in the artificial plasma business. Mr. Cohen has
also served as a director of Apollo Genetics Inc., a company founded by Mr.
Cohen which is engaged in the genetic pharmaceutical business, from January 1993
to the present; and a director of Registry Magic Inc., a company founded by Mr.
Cohen which develops voice recognition equipment, from November 1995 to present.
The standing committees of the Board of Directors are the Audit Committee
and the Compensation Committee.
The Audit Committee consists of Sheila Ronis, Robert Sinclair and Lawrence
Cohen, each of whom is an independent Director. The Audit Committee's function
is to review and report to the Board of Directors with respect to the selection
and the terms of engagement of the Company's independent public accountants, and
to maintain communications among the Board of Directors, such independent public
accountants, and the Company's internal accounting staff with respect to
accounting and audit procedures, the implementation of recommendations by such
independent public accountants, the adequacy of the Company's internal controls
and related matters. The Audit Committee also reviews certain related party
transactions and any potential conflict of interest situations involving
officers, directors or stockholders beneficially owning more than 10% of an
equity security of the Company.
The Compensation Committee consists of Sheila Ronis, Robert Sinclair and
Lawrence Cohen. The Compensation Committee's function is to review and approve
annual salaries and bonuses for all executive officers and review, approve and
recommend to the Board of Directors the terms and conditions of all employee
benefit plans or changes thereto, including the granting of stock options
pursuant to the Company's 1994 Option Plan.
The Company has agreed with the Underwriter that, for a period of 36 months
from the date of closing of this offering, the Company will allow an observer
designated by the Underwriter and acceptable to the Company to attend all
meetings of the Board of Directors. Such observer will have no voting rights. He
or she will be reimbursed for out-of-pocket expenses incurred in attending such
meetings, and will be indemnified against any claims arising out of
participation at Board meetings, including claims based on liabilities arising
under the securities laws.
23
<PAGE>
Executive Compensation
The following table sets forth information regarding the executive
compensation for the Company's Chief Executive Officer, President, Executive
Vice President and Vice President of Sales and Marketing. No other executive
officer received compensation in excess of $100,000 for the fiscal years ended
September 30, 1996, 1995 and 1994:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Securities
Other Underlying
Annual Restricted Options/ All
Name and Principal Compen- Stock SARs LTIP Other
Position Year Salary Bonus sation Award(s) (Number) Payouts Compensation
- ------------------ ---- ------ ----- ------- -------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alain J-M Clenet, 1996 $152,500(1) $73,000 -- -- -- -- $7,819(2)
Chief Executive Officer 1995 $152,500 -- -- -- -- -- $3,035(3)
1994 $152,500 -- -- -- -- -- --
John C. McCormack, 1996 $ 90,000 $10,000 -- -- 65,786 -- $ 504(4)
President 1995 $ 60,000 -- -- -- -- -- --
1994 -- -- -- -- -- -- --
Theo E. Shaffer, 1996 $ 92,025 $19,373 -- -- -- -- --
Executive Vice 1995 $ 90,000 -- -- -- 3,098 -- --
President (5) 1994 $ 90,000 -- -- -- -- -- --
Kenneth R. Black, 1996 $100,592(6) $10,000 -- -- 10,524 -- --
Vice President of 1995 $ 85,000 -- -- -- 2,788 -- --
Sales and Marketing 1994 $ 78,000 -- -- -- -- -- --.
</TABLE>
- ----------
(1) Of this amount, $88,958 was paid during the fiscal year ended September 30,
1996, and the remainder was deferred until January 1997.
(2) Represents medical expense reimbursements for Mr. Clenet and his family.
(3) Includes $981 in medical expense reimbursements for Mr. Clenet and his
family, $857 paid for premiums on a $5 million umbrella liability insurance
policy for Mr. Clenet, and other expenses paid on his behalf.
(4) Represents amounts paid by the Company as a matching amount to a 401(k)
plan contribution.
(5) Mr. Shaffer resigned on October 1, 1996.
(6) Includes $15,592 paid to Mr. Black in settlement of unused vacation time.
Options/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in or Base Expiration
Name Granted(#) Fiscal Year Price($/sh) Date
------ ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
Alain J-M Clenet ............... -- -- -- --
John C. McCormack .............. 40,786 27.5% $4.5625 11/01/98
25,000 16.9% $4.50 9/24/99
Theo E. Shaffer ................ -- -- -- --
Kenneth R. Black ............... 10,524 7.1% $4.5625 11/01/98
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Securities Under- Value of Unexer-
Shares lying Unexer- cised-in-the
Acquired cised Options Money/Options/
on SARs at FY-End SARs at FY-End
Exercise Value Exercisable/ Exercisable/
Name (Number) Realized Unexercisable Unexercisable
-------- --------- ------- --------------- ---------------
<S> <C> <C> <C> <C>
Alain J-M Clenet ............... -- -- -- --
John C. McCormack .............. -- -- 65,786 / 0 0 / 0
Theo E. Shaffer ................ -- -- -- --
Kenneth R. Black ............... -- -- 13,312 / 0 $697 / 0
</TABLE>
24
<PAGE>
Subsequent to September 30, 1996, the Company's Board of Directors granted
additional stock options to executive officers under the Company's 1994 Stock
Option Plan. In December 1996, the Board of Directors granted stock options,
exercisable at $3.6875 per share, to John C. McCormack to purchase 6,386 shares
of Common Stock, to Kenneth R. Black to purchase 4,257 shares of Common Stock,
and to Alain J-M Clenet to purchase 8,278 shares of Common Stock. Each of the
options granted in December 1996 expire on December 17, 1999. In January 1997,
the Board of Directors granted stock options, exercisable at $4.00 per share, to
John C. McCormack and Kenneth R. Black each to purchase 100,000 shares of Common
Stock, expiring on January 15, 2002. No options or warrants outstanding on the
date of this Prospectus held by affiliates of the Company may be exercised more
than five years from such date.
Employment Agreements
In April 1995, the Company entered into an Amended and Restated Employment
Agreement with Alain J-M Clenet, the Company's Chairman of the Board and Chief
Executive Officer, pursuant to which he receives a base annual salary of
$152,500. Mr. Clenet's base salary is subject to cost-of-living adjustments and
may be increased by the Board of Directors. The initial term is through April
20, 2000, and will be automatically extended for additional two year terms
unless either party notifies the other at least six months in advance. Mr.
Clenet is entitled to participate in all insurance plans and benefits of the
Company and to also be reimbursed for all of his and his family's medical and
dental expenses not paid for under such programs. Mr. Clenet also receives a $5
million umbrella liability insurance policy paid for by the Company.
On March 1, 1997, the Company entered into employment agreements with Jack
McCormack and Ken Black. Each of the Employment Agreements expires as of
February 28, 1999, however, they will be automatically renewed for additional
two year terms unless either the Company or the employee gives to the other six
months notice that the agreement is to be terminated. Pursuant to the employment
agreements, Mr. Black is entitled to a salary of $90,000 per year and Mr.
McCormack is entitled to a salary of $90,000 per year. Both agreements provide
for cost of living adjustments and participation in all fringe benefits
available to other executive officers. Mr. McCormack's agreement also provides
that he is to be granted options to purchase 25,000 shares annually, in addition
to the 100,000 options he was granted on January 15, 1997.
Effective during the fiscal year ended September 30, 1995, the Company's
Directors do not receive fees for their attendance at Board or committee
meetings, but they have received options under the Company's 1994 Stock Option
Plan. Directors are also reimbursed for their reasonable expenses in attending
meetings of the Board of Directors and any committees thereof.
Directors' Compensation
During the last three years the Company has granted to the independent
members of the Company's Board of Directors options to purchase 25,000 shares of
common stock each year. The most recent options granted under this policy were
granted on December 17, 1996, with an exercise price of $3.6875, when 25,000
options were granted to each of Sheila Ronis, Robert Sinclair and Lawrence
Cohen.
Stock Option Plans
1994 Stock Option Plan
The 1994 Stock Option Plan provides for the grant of options to purchase up
to 750,000 shares of Common Stock to employees, officers, directors and
consultants of the Company. The purpose of this plan is two-fold. First, the
plan will further the interests of the Company and its shareholders by providing
incentives in the form of stock options to employees who contribute materially
to the success and profitability of the Company. Second, the plan will provide
the Company flexibility and the means to reward directors and consultants who
render valuable contributions to the Company. The Board has the power to
determine at the time the option is granted whether the option will be an
incentive stock option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an incentive stock
option. However, incentive stock options will only be granted to persons who are
employees of the Company. The per share exercise price of options may not be
less than the fair market value of the Common Stock on the date the option is
granted. Vesting provisions are determined by the Board at the time options are
granted. The option price must be satisfied by the payment of cash. The Board of
25
<PAGE>
Directors may amend the plan at any time, provided that the Board may not amend
the plan to materially increase the number of shares available under the plan to
materially change the eligible class of employees without shareholder approval.
As of March 15, 1997, there were 656,806 options outstanding under the plan
with exercise prices ranging from $3.6875 to $4.5625.
401(k) Plan
Effective October 1, 1995, the Company implemented a 401(k) Plan pursuant
to which all eligible employees may contribute up to 15% of their compensation.
The Company matches contributions in the amount of 10% of all elective
deferrals, and, at the Company's option, may contribute annually up to 15% of
the total compensation of all eligible employees. Executive Officers of the
Company are eligible to participate in this plan. During the fiscal year ended
September 30, 1996, the Company made $8,047 in matching contributions under this
plan.
CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also
includes a Prospectus with respect to an offering by certain Selling
Shareholders of 83,040 shares of Common Stock issued in connection with the
Company's December 1996 - January 1997 Private Placement. These shares may be
sold in the open market, in privately negotiated transactions, or otherwise
directly by the holders thereof, subject to the following contractual
restrictions. With the exception of a bank which has warrants to purchase 18,750
shares, each Selling Shareholder has agreed not to sell, transfer or otherwise
publicly dispose of the Selling Shareholders' Stock for twelve months from the
date of this Prospectus. The bank has agreed not to sell, transfer or otherwise
publicly dispose of its shares for six months from the date of this Prospectus
without the prior written consent of the Underwriter.
The Company will not receive any proceeds from the sale of any of the
Selling Shareholders' shares. Sales of such stock or the potential of such sales
may have an adverse effect on the market price of the shares of Common Stock
offered hereby.
26
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth the number and percentage of shares of the
Company's Common Stock owned beneficially, as of June 26, 1997, by any person,
who is known to the Company to be the beneficial owner of 5% or more of such
Common Stock, and, in addition, by each Director of the Company and by all
Directors and Executive Officers of the Company as a group. Information as to
beneficial ownership is based upon statements furnished to the Company by such
persons.
Amount and Percent of Class
Name and Address Nature of Before After
Of Beneficial Owner Beneficial Ownership Offering Offering
------------------- -------------------- -------- --------
Alain J-M Clenet ................. 1,977,978(1) 27.5% 23.4%
600 C Ward Drive
Santa Barbara, CA 93111
Sheila R. Ronis .................. 63,596(2) 0.9% 0.8%
640 Rolling Green Circle
Rochester Hills, MI 48309
Robert J. Sinclair ............... 63,377(2) 0.9% 0.8%
1025 North Ontare Road
Santa Barbara, CA 93103
Lawrence Cohen ................... 50,000(3) 0.7% 0.6%
3311 NE 26th Avenue
Lighthouse Point, FL 33064
Brian Chang ...................... 1,217,112 17.0% 14.4%
1 Chatworth Road, No. 2421
Singapore 1024
All Directors and Executive
Officers as a Group (7 persons) . 2,454,692(4) 32.1% 27.6%
- ----------
(1) Includes 8,278 shares underlying stock options held by Mr. Clenet.
(2) Includes 50,000 shares underlying stock options held by such person.
(3) Represents shares underlying stock options held by Mr. Cohen.
(4) Includes shares beneficially owned by the following persons who are
Executive Officers of the Company; 172,172 shares underlying stock options
held by John C. McCormack; 117,569 shares underlying options held by
Kenneth R. Black; and 10,000 shares underlying options held by Steven E.
Sanderson.
CERTAIN TRANSACTIONS
On August 11, 1994, ASHA Corporation entered into a joint venture with
TAISUN Automotive of which Mr. Brian Chang is 85% shareholder. Mr. Chang is a
principal shareholder of the Company. The joint venture was formed as a
Singapore corporation named ASHA/TAISUN PTE LTD. ("ASHA/TAISUN"). The purpose of
this Joint Venture is to exploit the Company's ABC technology in the China and
Southeast Asia markets.
ASHA/TAISUN, through its 85%-owned subsidiary, Jiaxing Independent Auto
Design and Development Co., Ltd., is developing an automobile manufacturing
facility in Jiaxing, China. ASHA/TAISUN has also contracted with the Company for
automobile design work. During the eighteen months ended March 31, 1997, the
Company invested $1,535,491 in the Joint Venture.
In March 1994, Brian Chang purchased 235,294 shares of the Company's
Common Stock for $1,000,000 in cash. On November 2, 1995, Mr. Chang purchased an
additional 181,818 shares of ASHA Common Stock from the Company for $750,000 in
cash.
Management of the Company believes that the above transactions have been
on terms no less favorable to the Company than those that could have been
obtained from unaffiliated parties. Future transactions with affiliated parties
will be approved by a majority of the Company's independent disinterested
Directors and will be on terms no less favorable than those that could be
obtained from unaffiliated parties.
27
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock and 10,000,000 shares of Preferred Stock.
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, if any, the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors in its discretion out of funds
legally available therefor. See "DIVIDENDS." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior rights of Preferred Stock, if any, then outstanding. The Common
Stock has no preemptive or other subscription rights and there are no conversion
rights or redemption or sinking fund provisions with respect to such shares. All
of the outstanding shares of Common Stock are fully paid and nonassessable.
On December 9, 1993, the Company's shareholders approved a proposed reverse
split of the outstanding shares of the Company's Common Stock of 1 for 85. The
reverse split was effective on February 1, 1994. All share data in this
Prospectus gives a retroactive effect to the reverse stock split.
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of undesignated
Preferred Stock. The Board of Directors will have the authority to issue the
undesignated Preferred Stock in one or more series and to determine the powers,
preferences and rights and the qualifications, limitations or restrictions
granted to or imposed upon any wholly unissued series of undesignated Preferred
Stock, as well as to fix the number of shares constituting any series and the
designations of such series, without any further vote or action by the
shareholders. Any issuance of Preferred Stock will be approved by a majority of
the independent directors on the Board of Directors who do not have an interest
in the transaction and who have access, at the Company's expense, to the
Company's, or independent legal counsel. The issuance of any Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the shareholders and may adversely affect the
voting and other rights of the holders of the Common Stock. At present, the
Company has no plans to issue any shares of Preferred Stock.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Company's Common Stock is
TranSecurities International, Inc., 2510 North Pines, Suite 202, Spokane,
Washington 99206.
Bank Warrant
In connection with the increase in the Company's line of credit from
Montecito Bank and Trust (the "Bank") in November 1996, the Company issued a
warrant to the Bank to purchase up to 18,750 shares of Common Stock at $4.00 per
share. The warrant is exercisable until November 24, 2001. The warrant contains
certain registration rights, and the resale of the shares issuable under this
warrant is covered by the Registration Statement of which this Prospectus is a
part. See "CONCURRENT OFFERING."
The Company will not grant warrants to purchase Common Stock at an exercise
price less than 85% of the fair market value on the date of grant.
28
<PAGE>
UNDERWRITING
H.J. Meyers & Co., Inc. (the "Underwriter") has agreed, subject to the
terms and conditions of the Underwriting Agreement between the Company and the
Underwriter, to purchase from the Company 1,250,000 shares of Common Stock. The
Underwriting Agreement provides that the obligations of the Underwriter are
subject to certain conditions precedent and that the Underwriter shall be
obligated to purchase all of the shares of Common Stock if any of the shares are
purchased. The 10% underwriting discount set forth on the cover page of this
Prospectus will be allowed to the Underwriter at the time of delivery to the
Underwriter of the shares of Common Stock so purchased.
The Underwriter has advised the Company that it proposes to offer the
shares of Common Stock to the public at an offering price of $4.00 per Share and
that the Underwriter may allow certain dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") a concession of not in excess
of $.20 per Share. After commencement of the offering, the public offering price
and concession may be changed.
The Underwriter has advised the Company that it does not intend to sell
any of the securities offered hereby to accounts for which they exercise
discretionary authority.
The Company has granted to the Underwriter an option, exercisable during
the 30 business-day period from the date of this Prospectus, to purchase up to a
maximum of 187,500 additional Shares on the same terms set forth above. The
Underwriter may exercise such right only to satisfy over-allotments in the sale
of the Shares.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 3% of the total proceeds of the offering, or $150,000
($172,500 if the Underwriter exercises the over-allotment option in full), of
which $25,000 has already been paid. In addition to the Underwriter's
commissions and Underwriter's expense allowance, the Company is required to pay
the costs of qualifying the shares under federal and state securities laws,
together with legal and accounting fees, printing and other costs in connection
with this offering, estimated to total approximately $220,000.
At the closing of the offering, the Company will issue to the Underwriter,
for $5.00, a warrant (the "Underwriter's Warrant") to purchase for investment a
maximum of 125,000 Shares of Common Stock. The Underwriter's Warrant will be
exercisable for a four year period commencing one year from the date of this
Prospectus. The exercise price of the Underwriter's Warrant is 125% of the
public offering price per Share, or $5.00 per Share. The Underwriter's Warrant
will not be transferable prior to its exercise date except to officers of the
Underwriter and members of the selling group and officers and partners thereof.
The Underwriter's Warrant will contain anti-dilution provisions providing
for adjustment in the event of any stock dividend, stock split,
recapitalization, reclassification or similar transaction. The Underwriter's
Warrant does not entitle the Underwriter to any rights as a shareholder of the
Company until such warrant is exercised and the shares of Common Stock are
purchased thereunder.
The Underwriter's Warrant and the shares of Common Stock thereunder may
not be offered for sale except in compliance with the applicable provisions of
the Securities Act. The Company has agreed that, upon written request by a
holder or holders of 50% or more of the Underwriter's Warrants which is made
during the exercise period of the Underwriter's Warrant, the Company will, on
two separate occasions, register the Underwriter's Warrant and any of the
securities issuable upon exercise thereof. The initial such registration will be
at the Company's expense and the second such registration will be at the expense
of the holder(s) of the Underwriter's Warrant.
For the period during which the Underwriter's Warrant is exercisable, the
holder or holders will have the opportunity to profit from the rise in the
market value of the Company's Common Stock, with a resulting dilution in the
interests of the other shareholders of the Company. The holder or holders of the
Underwriter's Warrant can be expected to exercise it at a time when the Company
would, in all likelihood, be able to obtain any needed capital from an offering
of its unissued Common Stock on terms more favorable to the Company than those
provided for in the Underwriter's Warrant. Such fact may adversely affect the
terms on which the Company can obtain additional financing. To the extent that
the Underwriter realizes any gain from the resale of the Underwriter's Warrant
or the securities issuable thereunder, such gain may be deemed additional
underwriting compensation under the Securities Act.
29
<PAGE>
Officers, directors and holders of five percent or more of the Company's
outstanding capital stock have agreed that they will not sell any shares of
Common Stock owned by them (or subsequently acquired under any option, warrant
or convertible security owned prior to this offering) for eighteen months
following the date of this Prospectus, without the Underwriter's prior written
consent. However, the Underwriter has agreed to allow Alain J-M Clenet, the
Company's Chief Executive Officer and Chairman of the Board, to sell up to
30,000 shares of Common Stock commencing 90 days after the date of this
Prospectus, provided such sales are made through the Underwriter.
In addition, in connection with the qualification for sale in the State of
Michigan of the Common Stock offered by this Prospectus, Mr. Clenet has
deposited into escrow pursuant to an Escrow Agreement with the Company's
transfer agent 1,939,700 shares of Common Stock. The Escrow Agreement provides,
inter alia, that the shares be escrowed for a term of two years with 48,493
released on a quarterly basis commencing September 30, 1998.
During the three year period after the closing date of the Offering, the
Underwriter will have the right to purchase for its own account or sell for the
account of the Company's officers, directors and principal shareholders (any
person holding 5% or more of the Company's voting securities) any securities
sold pursuant to Rule 144 under the Securities Act.
The Company has agreed that for a period of eighteen months from the date
of this Prospectus it will not sell any securities (with the exception of the
shares of Common Stock issued upon the exercise of currently outstanding options
or warrants) without the prior written consent of the Underwriter, which consent
shall not be unreasonably withheld. The Company has also agreed that with
respect to sales of securities to be made pursuant to Regulation S under the
Securities Act such period shall be for twenty-four months.
The Company has also agreed that, for a period of two years from the date
of this Prospectus, if it participates in any merger, consolidation or other
transaction which the Underwriter has brought to the Company (including an
acquisition of assets or stock for which it pays, in whole or in part, with
shares of the Company's Common Stock or other securities) then it will pay for
the Underwriter's services an amount equal to 5% of the first $3,000,000 of
value paid or received in the transaction, 2-1/2% of any consideration paid over
$3,000,000 and not greater than $5,000,000, and 2% of all such value above
$5,000,000. The Company has also agreed that if, during this two-year period,
someone other than the Underwriter brings such a merger, consolidation or other
transaction to the Company, and the Underwriter renders advice in connection
therewith, then upon consummation of the transaction the Company will pay to the
Underwriter as a fee the appropriate amount as set forth above or as otherwise
agreed to between the Company and the Underwriter.
The Company has agreed to enter into a consulting agreement with the
Underwriter under the terms of which the Underwriter will be paid a
non-refundable fee of $5,000.00 per month for 12 months. The Company has agreed
to pay the Underwriter the entire one year fee upon the closing of this
Offering. The Underwriter will perform consulting services related to corporate
finance and other financial service matters, upon the request of the President
of the Company, and will make available qualified personnel for this purpose and
devote such business time and attention to such matters as it shall determine is
required.
The Company has agreed that, for a period of three years from the date of
this Prospectus, it will allow a non-voting observer to the Company's Board of
Directors designated by the Underwriter and acceptable to the Company, who shall
be invited to attend all meetings and shall be compensated in the same manner as
are non-employee directors of the Company.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the registration statement, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the Underwriting Agreement, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
The foregoing is a brief summary of certain provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the Underwriting Agreement is on file with the Commission
as an exhibit to the Registration Statement of which this Prospectus is a part.
See "ADDITIONAL INFORMATION."
30
<PAGE>
The public offering price of the Shares offered hereby has been negotiated
between the Company and the Underwriter. Among the factors considered in
determining the offering price were the market price of the Common Stock, the
Company's financial condition and prospects, market prices of similar securities
of comparable publicly-traded companies, certain financial and operating
information of companies engaged in activities similar to those of the Company
and general conditions of the securities markets.
The rules of the Commission generally prohibit the Underwriter from making
a market in the Common Stock during the two business days prior to commencement
of sales in the offering (the "Cooling Off Period"). The Commission has,
however, adopted Rule 103 under Regulation M ("Regulation M") which provides an
exemption from such prohibition for certain passive market making transactions.
Such passive market making transactions must comply with applicable price and
volume limits and must be identified as passive market making transactions. In
general, pursuant to Regulation M, a passive market maker may display its bid
for a security at a price not in excess of the highest independent bid for the
security. If all independent bids are low or below the passive market maker's
bid, however, such bid must then be lowered when certain purchase limits are
exceeded. Further, net purchases by a passive market maker on each day are
generally limited to a specified percentage of the passive market maker's
average daily trading volume in a security during a specified prior period and
must be discontinued when such limit is reached. Pursuant to the exemption
provided by Regulation M, the Underwriter and certain selling group members may
engage in passive market making in the Common Stock during the Cooling Off
Period. Passive market making may stabilize the market price of the Common Stock
at a level above that which might otherwise prevail, and if commenced, may be
discontinued at any time.
In connection with this Offering, the Underwriter and certain selling
group members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriter also may create a short position for the account of the Underwriter
by selling more Common Stock in connection with the Offering than they are
committed to purchase from the Company, and in such case may purchase Common
Stock in the open market following completion of the Offering to cover all or a
portion of such short position. The Underwriter may also cover all or a portion
of such short position by exercising the over-allotment option referred to
above. In addition, the Underwriter may impose "penalty bids" under contractual
arrangements with dealers participating in the Offering whereby it may reclaim
from a dealer the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
dealer in the open market. Any of the transactions described in this paragraph
may result in the maintenance of the price of the Common Stock at a level above
that which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and, if they are undertaken, they may
be discontinued at any time.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which is filed as an exhibit to the Registration
Statement. See "ADDITIONAL INFORMATION."
LEGAL MATTERS
The legality of the securities of the Company offered will be passed on
for the Company by Krys Boyle Freedman Scott & Sawyer, P.C., Suite 2700 South
Tower, 600 Seventeenth Street, Denver, Colorado 80202. The law firm of Morse,
Zelnick, Rose & Lander, a limited liability partnership, 450 Park Avenue, New
York, New York 10022-2605, has acted as legal counsel to the Underwriter in
connection with certain legal matters relating to this offering.
EXPERTS
The audited financial statements of the Company included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
31
<PAGE>
The financial statements of the Company for the year ended September 30,
1995, included in this Prospectus and in the Registration Statement, have been
included herein in reliance upon the report of McDirmid, Mikkelsen & Secrest,
P.S., Certified Public Accountants, given upon the authority of that firm as
experts in accounting and auditing. The Company's changed its accountants from
McDirmid, Mikkelsen & Secrest, P.S. to Arthur Andersen LLP because of its desire
to retain a nationally recognized accounting firm. There were no disagreements
with the former accountant on any matter or accounting principles or practices.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the securities offered hereby has been filed by the Company with the
Securities and Exchange Commission, Washington, D.C. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto. For further information with respect to the Company and the
securities offered hereby, reference is made to such Registration Statement and
exhibits. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the Commission's principal offices in Washington,
D.C., and copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission.
The Company is subject to the reporting requirements of Section 13(a) and
to the proxy requirements of Section 14 of the Securities Exchange Act of 1934,
as amended, and in accordance therewith files periodic reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information concerning the Company may be inspected or copied at the
public reference facilities at the Commission located at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices in
New York, 7 World Trade Center, New York, New York 10048, and in Chicago,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such documents can be obtained at the public reference
section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Electronic filings made through the Electronic Data Gathering,
Analysis and Retrieval system are publicly available through the Commission's
web site (http.//www.sec.gov).
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Reports of Independent Public Accountants........................ F-2 - F-3
Financial Statements
Balance Sheets............................................... F-4
Statements of Operations..................................... F-5
Statements of Stockholders' Equity........................... F-6
Statements of Cash Flows..................................... F-7
Notes to Financial Statements................................ F-8 - F-15
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of ASHA Corporation:
We have audited the accompanying balance sheet of ASHA CORPORATION (a
Delaware Corporation) as of September 30, 1996, and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of ASHA Corporation at
September 30, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
December 6, 1996 (except with respect
to the matter discussed in Note 5, as
to which the date is June 25, 1997).
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors of
ASHA Corporation
Santa Barbara, California
We have audited the accompanying balance sheet of ASHA CORPORATION as of
September 30, 1995, and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ASHA Corporation at
September 30, 1995, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ McDirmid, Mikkelsen & Secrest, P.S.
MCDIRMID, MIKKELSEN & SECREST, P.S.
Spokane, Washington
January 11, 1996
F-3
<PAGE>
ASHA CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
---------------------------- -------------
1995 1996 1997
------------ ------------ -------------
(unaudited)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 12,804 $ 13,581 $ 122,743
Short-term investments ................................. -- 247,548 9,987
Accounts receivable .................................... 1,624,272 1,089,955 1,132,777
Prepaid expenses and other ............................. 87,996 64,819 175,423
----------- ----------- -----------
Total current assets ............................. 1,725,072 1,415,903 1,440,930
----------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation
and amortization ...................................... 147,407 203,480 169,692
OTHER ASSETS:
Long-term receivable ................................... 829,345 -- 851,794
Investment in affiliate ................................ 429,702 600,491 840,635
----------- ----------- -----------
1,259,047 600,491 1,692,429
----------- ----------- -----------
$ 3,131,526 $ 2,219,874 $ 3,303,051
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings .................................. $ 85,000 $ 275,000 $ 750,000
Notes payable-- bridge financing ....................... -- -- 759,375
Due to related party ................................... 45,000 -- --
Accounts payable ....................................... 74,723 102,262 149,060
Accrued liabilities .................................... 127,632 108,985 153,034
----------- ----------- -----------
Total current liabilities ........................ 332,355 486,247 1,811,469
----------- ----------- -----------
COMMITMENTS (Note 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value
Authorized--10,000,000 shares;
no shares issued or outstanding ................... -- -- --
Common stock, $.00001 par value:
Authorized--20,000,000 shares
Issued and outstanding--6,891,837
shares in 1995, 7,076,217 shares in
1996, and 7,144,877 shares in 1997 ................ 69 71 72
Additional paid-in capital ............................. 5,139,936 5,926,456 6,208,345
Accumulated deficit .................................... (2,298,671) (4,110,993) (4,634,928)
Less: Treasury stock, at cost .......................... (42,163) (81,907) (81,907)
----------- ----------- -----------
2,799,171 1,733,627 1,491,582
----------- ----------- -----------
$ 3,131,526 $ 2,219,874 $ 3,303,051
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-4
<PAGE>
ASHA CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
--------------------------- -------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES:
License and right of refusal ...... $ 4,089,643 $ 1,315,000 $ 1,351,000 $ 1,000,000
Contract and other services ....... 346,313 395,898 115,953 172,095
----------- ----------- ----------- -----------
4,435,956 1,710,898 1,466,953 1,172,095
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Research and development .......... 1,067,795 1,044,873 515,930 459,496
Officers' salaries ................ 414,415 480,900 304,199 205,893
Legal and accounting .............. 82,854 97,149 51,263 125,838
Patent application ................ 73,253 45,537 12,701 12,064
Taxes and licenses ................ 98,946 136,076 53,854 64,244
Selling, general and administrative 705,493 870,529 521,225 366,890
Depreciation and amortization ..... 48,792 75,472 24,310 33,788
----------- ----------- ----------- -----------
2,491,548 2,750,536 1,483,482 1,268,213
----------- ----------- ----------- -----------
Income (loss) from operations ... 1,944,408 (1,039,638) (16,529) (96,118)
OTHER INCOME (EXPENSE):
Revaluation of long-term receivable -- -- -- (39,608)
Loss from investment in affiliate . (470,298) (886,592) -- (237,966)
Interest and investment income .... 100,095 117,322 12,849 5,113
Interest expense .................. (1,445) (2,614) -- (155,356)
----------- ----------- ----------- -----------
(371,648) (771,884) 12,849 (427,817)
----------- ----------- ----------- -----------
Income (loss) before provision
for income taxes ............... 1,572,760 (1,811,522) (3,680) (523,935)
Provision for income taxes .......... 41,427 800 13,500 --
----------- ----------- ----------- -----------
Net income (loss) ................... $ 1,531,333 $(1,812,322) $ (17,180) $ (523,935)
=========== =========== =========== ===========
Net income (loss) per common share .. $ .22 $ (.26) $ -- $ (.07)
=========== =========== =========== ===========
Weighted Average Number of common
shares outstanding ............... 6,838,196 7,057,635 6,924,367 7,103,919
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ASHA CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------ Paid-in Accumulated Treasury Stockholders'
Shares/Amount Capital Deficit Stock Equity
------------------ ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
September 30, 1994............ 6,842,591 $68 $5,009,087 $(3,830,004) $(19,788) $1,159,363
Issuance of common stock
for services.................. 15,104 -- 70,457 -- -- 70,457
Issuance of common stock......... 39,142 1 60,392 -- -- 60,393
Purchase of common
stock for treasury............ (5,000) -- -- -- (22,375) (22,375)
Net income....................... -- -- -- 1,531,333 -- 1,531,333
--------- --- ---------- ----------- -------- ----------
BALANCE,
September 30, 1995............ 6,891,837 69 5,139,936 (2,298,671) (42,163) 2,799,171
Issuance of common stock
for cash...................... 181,818 2 749,998 -- -- 750,000
Issuance of common stock,
due to exercise of
stock options................. 8,921 -- 36,522 -- -- 36,522
Retirement of common
stock for treasury............ (6,359) -- -- -- (39,744) (39,744)
Net loss......................... -- -- -- (1,812,322) -- (1,812,322)
--------- --- ---------- ----------- -------- ----------
BALANCE,
September 30, 1996............ 7,076,217 71 5,926,456 (4,110,993) (81,907) 1,733,627
Issuance of common stock,
due to exercise of stock
options (unaudited)........... 4,370 -- 16,890 -- -- 16,890
Fair value of common stock
issued in connection with the
sale of units (unaudited)..... 64,290 1 224,999 -- -- 225,000
Fair value of warrant issued
to a bank (unaudited)......... -- -- 40,000 -- -- 40,000
Net loss (unaudited)............. -- -- -- (523,935) -- (523,935)
--------- --- ---------- ----------- -------- ----------
BALANCE,
March 31, 1997
(unaudited)................... 7,144,877 $72 $6,208,345 $(4,634,928) $(81,907) $1,491,582
========= === ========== =========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ASHA CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
--------------------------- ---------------------------
1995 1996 1996 1997
----------- ------------ ------------ -----------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................................ $1,531,333 $(1,812,322) $ (17,180) $(523,935)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Interest expense in connection
with issuance of common stock
and stock warrant.......................... -- -- -- 109,375
Depreciation and amortization................ 48,792 75,472 24,310 33,788
Revaluation of long-term receivable.......... -- -- -- 39,608
Issuance of common stock for services........ 70,457 -- -- --
Accrued interest on long-term receivable..... -- (62,057) -- --
Gain on sale of equipment.................... (2,401) -- -- --
Loss on sale of short-term investments....... 1,121 -- -- --
Loss on investment in affiliate.............. 470,298 886,592 -- 237,966
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable...................... (1,434,450) 1,425,719 1,508,628 (934,224)
Officer receivable....................... 20,515 -- -- --
Long-term receivable..................... (829,345) -- -- --
Prepaid expenses and other............... 2,383 23,177 232 5,396
Increase (decrease) in:
Accounts payable......................... 43,220 27,539 (38,392) 46,798
Accrued liabilities...................... 56,006 (18,647) 23,519 44,049
---------- ----------- --------- ---------
Net cash provided by (used in)
operating activities..................... (22,071) 545,473 1,501,117 (941,179)
---------- ----------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of short-term investments.............. (7,782) (247,548) (1,514,784) 237,561
Proceeds from sale of short-term investments..... 253,207 -- -- --
Additions to property and equipment.............. (90,575) (131,545) (56,687) --
Proceeds from sale of property
and equipment................................. 5,500 -- -- --
Investment in affiliate.......................... (900,000) (1,057,381) (447,533) (478,110)
---------- ----------- --------- ---------
Net cash used in investing activities...... (739,650) (1,436,474) (2,019,004) (240,549)
---------- ----------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowing (repayments)
under line of credit agreement................ 85,000 190,000 (85,000) 475,000
Net proceeds from sale of units.................. -- -- -- 799,000
Due to related party............................. 45,000 (45,000) (45,000) --
Proceeds from issuance of common stock........... -- 750,000 750,000 16,890
Proceeds from exercise of stock options.......... 41,813 36,522 -- --
Purchase of common stock for treasury............ (22,375) -- -- --
Repayment of receivable through
retirement of common stock.................... -- (39,744) -- --
Principal payments on obligations under
capital lease................................. (733) -- -- --
---------- ----------- --------- ---------
Net cash provided by
financing activities.................... 148,705 891,778 620,000 1,290,890
---------- ----------- --------- ---------
Net increase (decrease) in cash and
cash equivalents.............................. (613,016) 777 102,113 109,162
Cash and cash equivalents at beginning
of period..................................... 625,820 12,804 12,804 13,581
---------- ----------- --------- ---------
Cash and cash equivalents at end of period....... $ 12,804 $ 13,581 $ 114,917 $ 122,743
========== =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The Company
ASHA Corporation (the Company) is incorporated in the State of Delaware.
The Company's operations include the design, development and marketing of
automobiles, automobile components and accessories. Manufacturing and
distribution are expected to be contracted to other companies through licensing,
joint venture or other arrangements. During fiscal 1996, all of the Company's
revenues were related to its GERODISC product. The GERODISC is an automated
hydromechanical traction control device.
Management is continuing its marketing and development activities with the
goal of generating revenue through prototype and product development and the
eventual sale or license of its products.
Management believes that continuation of its marketing and product
development efforts will produce increasing revenues. Management also believes
it will be able to generate sufficient funds through the issuances of debt or
equity to sustain operations until revenues are sufficient to sustain
operations. During fiscal 1996, the Company raised approximately $787,000
through the sale of common stock. In January 1997, the Company received
approximately $799,000 in net proceeds from the private sale of units consisting
of promissory notes and common stock.
The Company is subject to numerous business risks at this stage of its
development. These risks include, but are not limited to, the Company's
accumulated deficit and recent operating losses, the uncertainty of market
acceptance of the Company's GERODISC product into the U.S. automotive industry,
the dependence upon primarily one product (GERODISC), potential competition and
the uncertainty of doing business in China.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation 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 reported
period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue from license fees over the period the
license fee is earned. Service revenues are recognized as the service is
performed.
Research and Development
Costs associated with developing and testing new concepts and designs are
expensed as incurred. All research and development and patent acquisition costs
have been expensed through September 30, 1996.
Significant Customers
During fiscal 1996, revenues from one customer (see Note 3) represented 75
percent of the Company's total revenues. At September 30, 1996, a receivable
from another customer accounted for 82 percent of the Company's accounts
receivable balance.
During fiscal 1995, revenues from two customers (see Note 3) represented 82
percent of the Company's total revenues. At September 30, 1995, receivables from
these two customers accounted for 89 percent of the Company's accounts
receivable balance.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
F-8
<PAGE>
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
Short-Term Investments
The Company accounts for its investments in debt and equity securities
under the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." As defined
by the new standard, the Company has classified its investments as "trading
securities." The investments are recorded at cost, which approximated their
market values at September 30, 1996.
Investment in Affiliate
Investment in affiliate is accounted for on the equity method (see Note 5).
Foreign currency gains and losses resulting from transactions with the
affiliated company are included in results of operations.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on
straight-line and accelerated methods over estimated useful lives of five to
seven years.
Statements of Cash Flows
Cash paid for income taxes was $41,427 in 1995 and $28,026 in 1996. Cash
paid for interest was $1,445 in 1995 and $2,614 in 1996.
In 1996, the long-term receivable was reclassified into accounts
receivable. This non-cash transaction is excluded from the 1996 Statement of
Cash Flows.
Net Income (Loss) Per Common Share
Net income (loss) per common share amounts are based on the weighted
average number of shares of common stock and common stock equivalents (dilutive
stock options) outstanding during the related periods. The weighted average
number of common stock equivalent shares includes shares issuable upon the
assumed exercise of stock options, less the number of shares assumed purchased
with the proceeds available from such exercise. The effect of dilutive common
share equivalents is not included in the net loss per common share calculation
for fiscal 1996.
Reclassifications
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.
3. Licensing and Right of First Refusal Agreements
In August 1993, the Company entered into a licensing agreement with New
Venture Gear, Inc. (NVG) to manufacture and market one of its products (the
GERODISC). During fiscal 1995, the Company received $250,000 under the agreement
and NVG committed to pay $450,000 to keep the agreement in force through 1996.
The $450,000 was paid in fiscal 1996. The agreement also calls for the Company
to receive a royalty for each unit produced under the agreement. Through
September 30, 1996, no royalties had been earned under the agreement.
In December 1994, the Company and NVG amended the license agreement to
provide that in the event NVG is awarded a production program by a major
original equipment manufacturer (OEM), NVG will pay $1,000,000 to the Company at
the beginning of the first model year of production, in addition to the amounts
discussed above. On December 24, 1994, NVG was awarded a production program with
a major OEM, with the first model year scheduled to begin in August 1997. In May
1997, the production schedule was revised (see Note 12). The $1,000,000 was
recognized as revenue in fiscal 1995 as the amount will be paid in August 1997
(see Note 12) irrespective of any units ever being produced and with no further
performance required on the part of the Company. The long-term receivable in
1995 represents the $1,000,000 payment due discounted to its present value of
$829,345 as of September 30, 1995. At September 30, 1996, this receivable is
included in accounts receivable at its present value of approximately $900,000.
F-9
<PAGE>
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
On December 28, 1994, the Company entered into an agreement with DANA
Corporation in which the Company licensed DANA the right to manufacture and
market GERODISC. The license agreement provides for a licensing fee of
$2,000,000, of which $1,000,000 was paid in February 1995 and $1,000,000 was
paid in January 1996. The $2,000,000 was recorded as license revenue in fiscal
1995 as the license fee was solely for the right to manufacture and market the
product and there was no further performance required on the part of the
Company. In addition, the Company will receive a royalty on each unit produced
under the agreement. Through September 30, 1996, no royalties had been earned
under the agreement.
On November 10, 1995, the Company and Hall Racing entered into an agreement
for the 1996 IndyCar racing season. The November 1995 agreement requires Hall
Racing to pay $65,000 for the right to use GERODISC on an exclusive basis for
the 1996 racing season. This amount has been recorded as revenue in fiscal 1996.
On October 9, 1995, the Company and Steyr-Daimler-Puch Fahrzeugtechnik,
GmbH, (Steyr) entered into an option agreement to use GERODISC applications. In
fiscal 1996, Steyr paid $100,000 for the option. This amount has been recorded
as revenue in fiscal 1996.
On November 1, 1995, the Company entered into an option agreement with
American Axle and Manufacturing, Inc., which granted American Axle an eighteen
month option to acquire non-exclusive licenses for up to three different
applications world-wide. The agreement also calls for the Company to receive a
royalty on each unit produced under the agreement. In November 1995, American
Axle paid $1,150,000 for the option. As of September 30, 1996, no royalties had
been earned under the agreement.
4. Property and Equipment
Property and equipment consisted of the following at September 30, 1995 and
1996:
1995 1996
----- -----
Vehicles......................................... $ 33,196 $ 70,378
Furniture and fixtures........................... 98,945 103,284
Machinery and equipment.......................... 234,974 320,705
Leasehold and improvements....................... 31,374 35,667
-------- --------
398,489 530,034
Accumulated depreciation and amortization........ (251,082) (326,554)
-------- --------
$147,407 $203,480
======== ========
5. Investment in Affiliate
On August 11, 1994, the Company entered into a joint venture agreement with
TAISUN Automotive Pte. Ltd., a Singapore corporation. The joint venture is
operated through ASHA-TAISUN Pte. Ltd. (ASHA-TAISUN), a Singapore corporation,
which is owned 50 percent by the Company and 50 percent by TAISUN Automotive
Pte. Ltd. The purpose of this joint venture is for the licensing of the
Company's GERODISC technology in China and Malaysia and for the development of
an automotive industry for China and Southeast Asia.
ASHA-TAISUN is a holding company, which through its 85 percent-owned
subsidiary, Jiaxing Independence Auto Design and Development Co., Ltd. (Jiaxing
Auto), is developing automobile manufacturing facilities in Jiaxing, China.
The Company has recorded its investment in ASHA-TAISUN at its invested
capital contributions less its share of the operating losses in fiscal years
1995 and 1996 of $470,298 and $886,592, respectively.
F-10
<PAGE>
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
The following is summarized financial information of ASHA-TAISUN as of, and
for the year ended, September 30, 1996:
Assets............................................ $1,201,607
Liabilities....................................... (625)
Shareholders' Equity.............................. 1,200,982
Net Loss.......................................... $(1,773,184)
6. Short-Term Borrowings
The Company has entered into a line of credit agreement with a bank under
which the Company may borrow up to $500,000. Borrowings under this facility bear
interest at the prime rate (8.25 percent at September 30, 1996) plus 1.5
percent. The line is secured by essentially all assets of the Company. The line
expired in November 1996. At September 30, 1996, $275,000 was outstanding on the
line.
In November 1996, the Company renewed its line of credit agreement with the
same bank through June 1997. Under the revised terms, the Company may borrow up
to $750,000 at the borrowing rate of prime plus 1.5 percent. The line is secured
by essentially all assets of the Company. In connection with the renewal, the
Company issued a warrant to the bank to purchase up to 18,750 shares of the
Company's common stock at $4.00 per share. The fair value of the warrant
(approximately $40,000) will be amortized as interest expense through June 1997.
During the six month period ended March 31, 1997, $25,000 of interest expense
was recorded in connection with the warrant. At March 31, 1997, $750,000 was
outstanding on the line.
7. Due to Related Party
The amount due to a related party at September 30, 1995 consisted of an
unsecured note payable of $45,000 to TAISUN Automotive Pte. Ltd., which is 85
percent owned by a major stockholder of the Company. The note was repaid in full
in fiscal 1996.
8. Equity Transactions
Sale of Common Stock for Cash
On November 2, 1995, the Company sold 181,818 shares of its common stock
for $750,000 in cash to the majority shareholder of TAISUN Automotive Pte. Ltd.
Stock Option Plans
In August 1993, the Company's Board of Directors approved the 1993
Nonqualified Stock Option Plan in which any employee, officer, director or
consultant that the Board, in its sole discretion, designates is eligible to
participate. At September 30, 1996, no options were outstanding under this plan.
In May 1994, the Company granted an option to a consultant to purchase up
to 11,765 shares of its common stock at the exercise price of $1.28 per share.
The option expires on September 30, 1997.
In December 1994, the Company's Board of Directors approved the 1994 Stock
Option Plan which provides for the granting of options to purchase up to 750,000
shares of common stock, consisting of both incentive and nonqualified stock
options. Incentive stock options are issuable only to employees of the Company
and may not be granted at an exercise price less than the fair market value of
the common stock on the date the option is granted. Vesting provisions are
determined by the Board at the time the options are granted, and the options
expire three to five years from the date of grant.
F-11
<PAGE>
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
A summary of option activities under the 1994 Stock Option Plan is as
follows:
Number of
Shares Option Price
--------- -----------
Balance, September 30, 1994............. -- $ --
Granted............................... 75,745 4.00
Exercised............................. (5,396) 4.00
Cancelled............................. -- --
------- ---------------
Balance, September 30, 1995............. 70,349 4.00
Granted............................... 198,402 4.125 to 4.625
Exercised............................. (8,921) 4.00 to 4.125
Cancelled............................. (1,239) 4.00
------- ----------------
Balance, September 30, 1996............. 258,591 $4.00 to 4.625
======= ================
Stock Incentive Plans
In December 1988, the Board of Directors approved a stock incentive plan.
Under this plan, 58,824 shares of common stock have been reserved for issuance
to participants, defined as any person or firm providing services to the
Company. The stock will be granted at the discretion of the Board of Directors
and a cash payment equal to twenty percent of the value of the stock granted
will be paid to the participant. Granting of stock under this plan is intended
to encourage a continued relationship and services by the participant and to
reward creative or noteworthy efforts to the participant.
The stock is 100 percent forfeitable if the services of the participant are
terminated within two years of the grant of the stock and 50 percent forfeitable
if services are terminated after two years but less than three years from the
grant of the stock.
A balance of 45,523 shares are available for issuance under this plan at
September 30, 1996. No stock has been issued under this plan since fiscal 1990.
Director Stock Compensation Plan
In June 1994, the Company's Board of Directors approved a Director Stock
Compensation Plan and have reserved 20,000 shares of the Company's common stock
for issuance in exchange for services provided to the Company outside of their
regular duties as directors. All members of the Board of Directors will be
eligible to receive shares under the plan. A balance of 10,000 shares are
available for issuance under this plan at September 30, 1996. No shares have
been issued since fiscal 1994.
9. Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109.
Deferred income tax assets or liabilities are computed based on the
temporary difference between the financial statement and income tax bases of
assets and liabilities using the statutory marginal income tax rate in effect
for the year in which the differences are expected to reverse. Deferred income
tax expenses or credits are based on the changes in the deferred income tax
assets or liabilities from period to period.
The components of the net deferred income tax asset at September 30, 1995
and 1996 are as follows:
1995 1996
----------- -----------
Loss in investment in affiliate ................ $ 203,639 $ 587,534
Capitalized research and development costs ..... 91,307 175,007
Net operating loss carryforwards ............... 611,353 919,389
Other, net ..................................... 11,717 49,371
----------- -----------
918,016 1,731,301
Less: Valuation reserve ........................ (918,016) (1,731,301)
----------- -----------
$ -- $ --
=========== ===========
F-12
<PAGE>
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
Realization of the net deferred income tax asset is dependent on generating
sufficient taxable income during the periods in which temporary differences will
reverse. Due to the Company's limited profitable operating history and the
uncertainty of long-term profitability, management believes it is more likely
than not that the net deferred income tax asset may not be realized. The amount
of the net deferred income tax asset considered realizable, however, may be
adjusted in the future if estimates of future taxable income during the reversal
periods justify such adjustment.
The components of the current provision for income taxes for the years
ended September 30, 1995 and 1996 are as follows:
1995 1996
---- ----
Federal........................................ $35,914 $ --
State.......................................... 5,513 800
------- ----
$41,427 $800
======= ====
There was no deferred provision for income taxes for the years ended
September 30, 1995 and 1996.
A reconciliation of the provision for income taxes to the amount computed
at the federal statutory rate for the years ended September 30, 1995 and 1996 is
as follows:
1995 1996
---- ----
Federal income tax provision (benefit) at the
statutory rate.................................. $ 534,738 $(615,917)
State taxes, net of federal benefit............... 95,938 800
Utilization of net operating loss carryforwards... (625,163) --
Tax benefits not recognized....................... -- 615,917
Other............................................. 35,914 --
--------- --------
$ 41,427 $ 800
========= =========
The net operating loss carryforward as of September 30, 1996 for federal
tax purposes is approximately $2,700,000 and expires beginning in 2006.
10. Commitments
Lease Commitments
The Company leases its facility under an operating lease agreement with
monthly payments of approximately $6,300 through January 1999. Rent expense
under this agreement was $54,562 and $68,389 for the years ended September 30,
1995 and 1996, respectively.
The Company also leases certain equipment under operating lease agreements
that expire in April 2001.
Minimum future obligations under these agreements are as follows:
Years ending September 30,
-----------------------
1997............................................... $119,165
1998............................................... 112,826
1999............................................... 60,860
2000............................................... 41,863
2001............................................... 16,600
--------
$351,314
========
F-13
<PAGE>
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
Employment Agreement
In April 1995, the Company entered into a five-year employment contract
with its Chief Executive Officer providing for an annual salary of $152,500,
subject to annual review by the Board of Directors. In addition, the contract
authorizes health insurance, medical reimbursements, expense accounts, executive
incentives and other fringe benefits.
11. 401(k) Plan
Effective October 1, 1995, the Company implemented a 401(k) Plan pursuant
to which all eligible employees may contribute up to 15 percent of their
compensation. The Company matches contributions in the amount of 10 percent of
all elective deferrals, and, at the Company's option, may contribute annually up
to 15 percent of the total compensation of all eligible employees. During the
year ended September 30, 1996, the Company made $8,047 in matching contributions
under this plan.
12. Unaudited Information
Basis of Presentation
The unaudited financial statements related to December 31, 1996 and the
three month periods ended December 31, 1995 and 1996 have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These unaudited financial statements
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly present the results of
operations, changes in cash flows and financial position as of and for the
periods presented. These unaudited financial statements should be read in
conjunction with the audited financial statements and related notes thereto,
appearing elsewhere herein. The results for the interim periods presented are
not necessarily indicative of results to be expected for the full year.
Short-Term Investments
The Company accounts for its investments in debt and equity securities
under the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." As defined
by the new standard, the Company has classified its investments as "trading
securities." The investments are recorded at cost, which approximated their
market values at March 31, 1997.
Investment in Affiliate
Investment in affiliate is accounted for on the equity method (see Note 5).
Foreign currency gains and losses resulting from transactions with the
affiliated company are included in results of operations. During the six month
period ended March 31, 1997, the Company invested an additional $478,110 into
the joint venture and recorded a loss on their investment in the amount of
$237,966, which represents 50 percent of the loss of the affiliated company. As
the affiliated company is only a holding company, it does not record sales or
gross profits.
Income Taxes
For the six month period ended March 31, 1997, the provision for income
taxes differs from the amount computed by applying the federal statutory income
tax rate to the loss before income taxes as follows:
Expected federal benefit..................... $(178,138) (34.0)%
Benefit not recognized....................... 178,138 34.0
--------- ----
$ -- -- %
========= ====
F-14
<PAGE>
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
Stock Options
In December 1996, the Company granted options to purchase up to 152,999
shares of its common stock at the exercise price of $3.69 per share. In January
1997, the Company granted options to purchase up to 260,000 shares of its common
stock at exercise prices ranging from $3.75 to $4.00 per share. The options
expire three to five years from the date of grant. During the six month period
ending March 31, 1997, options to purchase 4,370 shares of common stock were
exercised.
Bridge Loan Financings
In January 1997, the Company received net proceeds of approximately
$799,000 from the sale of units, each of which consisted of an 8 percent
promissory note and common stock. This sale is in connection with the Company's
signing of a Letter of Intent with an underwriter concerning a proposed public
offering of the Company's common stock. In connection with the sale of the
units, the Company issued 64,290 shares of its common stock (with a fair value
of approximately $225,000) and incurred $900,000 of debt. The fair value of the
stock will be amortized as interest expense during the second and third quarters
of fiscal 1997, as this is the earliest estimated time of repayment of the
promissory notes. During the six month period ended March 31, 1997, $84,375 of
interest expense was recorded in connection with the sale of the units, and
$148,625 was recorded as a reduction to the notes payable. The $148,625 will be
amortized as interest expense in the third quarter.
Stock-Based Compensation Plan
The Company accounts for its 1994 Stock Option Plan under the provisions of
APB Opinion No. 25, under which no compensation cost has been recognized for the
employee and director stock option awards. The Company has elected to follow the
disclosure provisions of Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation." Had compensation cost for
the stock option awards been determined consistent with SFAS 123, the Company's
net loss and loss per common share amounts would have been increased to the
following pro forma amounts for the year ended September 30, 1996 and the six
month period ended March 31, 1997:
September 30, March 31,
1996 1997
----------- -----------
Net loss
As Reported............................ $(1,812,322) $(523,935)
Pro Forma.............................. (2,205,390) (1,243,943)
Net loss per common share
As reported ........................... $ (.26) $ (.07)
Pro Forma.............................. (.31) (.18)
Licensing Agreement
In May 1997, the production schedule relating to the Company's amended
license agreement with NVG (see Note 3) was revised. Due to a marketing decision
effected by the major OEM, the first model year of production was revised to
begin in August 1998, rather than in August 1997. The decision was effected to
introduce the Company's GERODISC product into the 1999 model year, which has
significantly more units scheduled to be produced than for the 1998 model. As
such, the $1,000,000 payment due under the agreement has been reclassified as a
long-term receivable at its discounted value of $851,794 at March 31, 1997.
During the six month period ended March 31, 1997, an expense in the amount of
$39,608 has been recorded to reduce the receivable to its discounted value.
Employment Agreements
In March 1997, the Company entered into two-year employment agreements with
its President and Vice President of Sales and Marketing. Each employee is
entitled to a salary of $90,000 per year. The President's agreement also
provides that he is to be granted options to purchase 25,000 shares annually.
F-15
<PAGE>
[GRAPHIC OMITTED]
Exploded view of an engineering drawing of the GERODISC traction system.
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus and,
if given or made, such information or representations must not be relied upon as
having been authorized by the Company, the Underwriter or by any other person.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any security other than the shares of Common Stock offered hereby
nor does it constitute an offer to sell or a solicitation of an offer to buy any
of the Common Stock offered hereby to any person in any jurisdiction in which it
is unlawful to make such an offer or solicitation to such person. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
----------
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Price Range of Common Stock............................................... 10
Dividends................................................................. 10
Use of Proceeds........................................................... 11
Dilution.................................................................. 12
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............................................... 13
Business.................................................................. 16
Management................................................................ 22
Concurrent Offering....................................................... 26
Principal Shareholders.................................................... 27
Certain Transactions...................................................... 27
Description of Securities................................................. 28
Underwriting.............................................................. 29
Legal Matters............................................................. 31
Experts................................................................... 31
Additional Information.................................................... 32
Index to Financial Statements............................................. F-1
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ASHA CORPORATION
1,250,000 Shares of Common Stock
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PROSPECTUS
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H.J. MEYERS & CO., INC.
June 27, 1997
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