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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to __________
Commission File No. 0-16176
ASHA CORPORATION
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Name of Small Business Issuer in its Charter
Delaware 84-1016459
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State or Other Jurisdiction I.R.S. Employer Identification
of Incorporation or Organization Number
600 C Ward Drive, Santa Barbara, California 93111
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Address of Principal Executive Offices, Including Zip Code
Registrant's telephone number, including area code: (805) 683-2331
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.00001 par value
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ---
The Issuer's revenues for the most recent fiscal year were $1,710,898.
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ___
As of December 6, 1996, 7,076,217 shares of the Registrant's Common Stock were
outstanding, and the aggregate market value of the shares held by
non-affiliates was approximately $14,800,000.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (Check One:) Yes-- No-X-
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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GENERAL DEVELOPMENT OF BUSINESS
ASHA Corporation (the "Company") was formed under the laws of the State
of Delaware on January 28, 1986, under the name "Capital Equity Resources,
Inc." to seek and acquire a business opportunity.
In May 1986, the Company completed a public offering of units consisting
of Common Stock and Warrants. The net proceeds of the offering to the
Company was approximately $163,000. On August 20, 1986, the Company's
shareholders approved, among other things, a change in the name of the
Corporation to ASHA Corporation.
On August 27, 1986, the Company acquired 100% of the outstanding shares
of ASHA Enterprises, Inc. ("ASHA") in exchange for 4,612,848 shares of the
Company's $0.00001 par value Common Stock. ASHA initially devoted all of its
efforts to the development of a full-time all-wheel drive, four passenger
sport utility automobile (Life Style Vehicle - LSV) which was developed around
a new automotive architecture invented by ASHA's President, Alain J-M Clenet.
During the last three years, the Company has devoted most of its efforts
developing an automatic hydromechanical traction control device named the ASHA
GERODISC[TM] SYSTEM ("GERODISC"), and marketing this system for licensing
primarily to automotive parts manufacturers.
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 report gives a retroactive effect to the reverse stock split.
On March 9, 1994, Brian Chang, an international businessman, purchased
235,924 of newly issued shares of the Company's Common Stock for $1,000,000.
Chang is currently a major shareholder in TAISUN Automotive, a Singapore based
company, which has formed a joint venture with ASHA. On July 29, 1994, Brian
Chang purchased 800,000 shares of ASHA Common Stock from an outside
shareholder at a negotiated price, and in October 1995, he purchased an
additional newly issued 181,181 shares for $750,000. Mr. Chang currently owns
approximately 17.2% of the Company's Common Stock.
On August 11, 1994, ASHA entered into a joint venture for the production
and sale of vehicles and for the licensing of GERODISC technology in China and
Malaysia and other activities. This joint venture has been formed as
ASHA/TAISUN PTE. LTD., a Singapore corporation, which is owned 50% by the
Company and 50% by TAISUN Automotive. The Company has contributed a license
agreement to the joint venture valued at $100,000. The Company and TAISUN
Automotive verbally agreed that the Company would contribute $900,000 in cash
and TAISUN Automotive would contribute $1,000,000 in cash to the joint
venture, and these contributions were made during the fiscal year ended
September 30, 1995. During the year ended September 30, 1996, the Company
invested an additional $1,057,000 in this joint venture.
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PRODUCT DEVELOPMENT
THE ASHA GERODISC SYSTEM
The Company's primary product line is an automatic hydromechanical
traction control device which has been named The ASHA GERODISC System. 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.
GERODISC competes favorably with electronic traction control, a popular
but expensive option, and various less expensive mechanical and
hydromechanical 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 because of its
transparent engagement.
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 tunable and
powerful enough to have universal application in all vehicle drive
architectures. GERODISC is compatible with electronic engine management
systems and with 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 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 Limited Slip
Differential, the 4WD/AWD coupling system is self-activating and transparent
to the driver.
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On May 10, 1994, the Company received GERODISC patent approval from the
U.S. Patent and Trademark Office. Other 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 OEM's or first tier suppliers and another 9
prototypes are currently in production.
NEW VENTURE GEAR, INC. LICENSE AGREEMENT
On August 19, 1993, ASHA Corporation 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 and General Motors. The agreement
allows 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 good faith deposit under this
agreement during the year ended September 30, 1993. The Company received two
$250,000 payments from NVG to keep the agreement in force through 1994 and
1995, and NVG paid $450,000 in February 1996, to keep the agreement in force
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 beginning of the first model
year of production. On December 24, 1994, NVG was awarded a production
program with a major OEM and the first model year is anticipated to be 1998.
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 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.
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 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, giving the Company three GERODISC units in one vehicle model
starting with the 1999 model year production in mid-1998.
AMERICAN AXLE AND MANUFACTURING, INC. OPTION AGREEMENT
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 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 payable. American Axle paid
$1,150,000 for the option. American Axle is the second largest axle
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manufacturer in the world, and it supplies approximately 95% of the axles
used by General Motors.
STEYR-DAIMLER-PUCH FAHRZEUGTECHNIK GMBH OPTION AGREEMENT
On October 9, 1995, the Company entered into an option agreement with
Steyr-Daimler-Puch Fahrzeugtechnik GmbH ("Steyr") which granted Steyr an
option to acquire, on a right of first refusal basis, licenses for up to five
different applications for the European market. The five applications are
rear axles, transaxles for FWD, AWD front axles, twin-disc front axles, and
AWD couplings. If Steyr exercises its option, a license fee will be payable
in an amount to be agreed upon, and a per unit royalty may also be payable.
Steyr paid $100,000 for the option which expired on June 30, 1996. The
Company also agreed to fabricate, assemble and test a GERODISC prototype for
Steyr for which the Company was paid $80,000. Steyr is the largest European
automotive supplier for European OEM's. The Company is continuing the
technical development of the prototype and is currently negotiating with Steyr
for a possible license agreement.
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 are expected to provide an avenue to generate
ongoing revenues that do not have contractual delays that are typical of OEM
agreements. To that end, ASHA offered GERODISC units to several Indycar teams
for consideration in their 1994 and 1995 racing programs. 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.
In August 1994, the race car team of Newmann-Haas used the GERODISC in
association with the Mid-Ohio race.
On April 19, 1995, the Company entered into an agreement with Hall
Racing, Inc., which granted Hall Racing the right to use GERODISC units on an
exclusive basis for the 1995 Indycar racing season on the Reynard chassis
vehicles owned by Hall Racing. On November 10, 1995, the Company and Hall
Racing entered into a similar agreement for the 1996 Indycar racing season.
Effective for 1997, Hall Racing has disbanded due to the retirement of Jim
Hall.
The Company is presently in negotiations with several racing teams, both
domestic and foreign, for the use of GERODISC for the 1997 race season.
ABC (ASHA BODY CONCEPT)
ABC, a system for assembling automobiles that reduces weight by allowing
lighter gauge steel while eliminating welding, is being developed by the
Company. This process for assembling and rust proofing steel space frames is
a long-term project with potential for improving the assembly of automobiles.
ASHA/TAISUN plans to manufacture and assemble vehicles specifically designed
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for the Chinese and Southeast Asian markets utilizing this proprietary
manufacturing process. This process should allow ASHA/TAISUN to significantly
reduce the cost and start-up time of manufacturing automobiles in China and
Southeast Asia. ABC's lightweight space-frame technology requires a limited
amount of electrical power, a scarce commodity in many less developed areas.
It relies mostly on natural gas for manufacturing which is abundant in China
and other countries.
WORLD CAR PROJECT
The Company has 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 is a manufacturer of vehicles, ships, electrical motors,
fiberglass products, chemicals and properties. As part of the agreement, the
Company will provide exclusive marketing rights to ASHA/TAISUN PTE LTD.
("ASHA/TAISUN") to license GERODISC technology to automotive and bus
manufacturers in China and Malaysia. The license was granted as a
contribution of capital to the joint venture valued at $100,000. The license
agreement grants ASHA/TAISUN an exclusive license to use the GERODISC
technology in the Republic of China and Malaysia. The Company is to receive a
royalty of $5.00 per unit. Beginning in 1997, there was to be a minimum
royalty of $250,000 per year. However, in 1996 it was determined that present
conditions of the automotive industry in China will not require the use of
GERODISC for at least three years. As a result, the license agreement is
being reviewed.
ASHA/TAISUN is a majority 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. ASHA/TAISUN presently holds an 85% interest in
JIAD&D, which includes a 25% interest being held in trust for the provincial
government of Zhejiang province.
JIAD&D intends to initially manufacture and sell taxis because of the
demand for such vehicles in China. The vehicle is being designed to have a
short turning radius with a long suspension to best accommodate driving
conditions in China and Southeast Asian countries.
The body design of the car will utilize the ASHA Body Concept ("ABC")
which is based on the use of a lightweight space-age composite fiber material
which does not require painting. Building a car with this material requires
very little electrical power, which is scarce in most China provinces.
Instead, natural gas, which is abundant in China, will be used. The frame of
the vehicle is made from tubular stainless steel which requires no welding to
assemble.
The engines to be used in the cars are already being manufactured in
China by another business and transmissions will also be available in China.
In all, approximately 80% of the components for the vehicle will come from
China. The balance will come from sources in the United States and Brazil.
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.
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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.
It is the intention of JIAD&D to sell CKD kits to businesses in other
provinces of China. The CKD kits will be shipped from the Jiaxing facility to
such businesses 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 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 will undergo cold weather testing in the Sierras this winter. The
pre-production prototypes and all proof of production models will be built in
Jiaxing. The Company expects that the first taxis will be produced and
available for sale in mid 1998.
JIAD&D's strategy is to design a vehicle that can be produced in China by
the Chinese in a manner in which they are accustomed to building products and
utilizing the resources which are most readily available, e.g., manual labor.
The frame of the vehicle will be made from tubular stainless steel and the
body will be made from a composite fiber. These materials can be assembled
using manual labor and they do not require the expensive process of painting.
CIELO
CIELO is an all glass roof with retractable headliner, suitable for use
in a wide variety of vehicles including sedans, sports cars, vans, sport
utility vehicles and limousines and designed to compete in the sunroof market.
Development work related to controlling and venting heat build-up within
the automobile, a common problem, was conducted in 1989 and 1990.
A prototype was developed and delivered to a European OEM in 1991.
Another prototype was made in the Spring of 1991 for a vehicle in production
in the U.S. This vehicle was shown at two marketing clinics in order to
obtain consumer reaction. These clinics revealed that CIELO is being compared
to sunroofs. Since CIELO does not open, it was perceived as unfavorable
compared to sunroofs.
As of December 1996, the CIELO technology is being offered for sale to
sunroof manufacturers and other automotive suppliers.
SOLARVENT [TM]
SolarVent is a solar powered flush mount ventilation system that is
unique as it allows for super heated air to escape, while restricting water
from entering the vehicle. The water management system is proprietary. It is
temperature controlled and totally passive, even when the vehicle is
unattended. Due to the design's simplicity, SolarVent can be offered as an
after market product and also can be offered as an option with a low retail
price to the consumer. SolarVent has been adapted to work on automobiles and
has applications with sun roofs, RV's, boats and other uses. No contracts
have been obtained to date, although a prototype was completed in December
1991, and another prototype contract was completed in December 1992, both for
OEM's.
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As of December 1996, the SolarVent technology is being offered for sale
to OEM suppliers.
MARKETING
The Company is marketing its GERODISC technology in Detroit, 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
ASHA has the following patents or pending patents:
1. Vehicle Drive train - All wheel drive system, U.S. patent 4,805,720,
11/27/88, U.S. patent pending 11/16/90, foreign patents applied for.
2. Life Style Vehicle Design - U.S. patent 307,247, Great Britain
patent 1,050,134, applied for in other foreign countries.
3. CIELO-Electric - U.S. patent 4,923,244, foreign patents applied for.
4. CIELO-Manual - U.S. patent 5,005,899.
5. SolarVent [TM] - U.S. patent 5,081,912.
6. SolarVent [TM] - U.S. registered trademark 1,662,384.
7. GERODISC [TM] - Issued patent and pending patents.
8. GERODISC [TM] - U.S. registered trademark 1,755,203.
Patent applications are in progress in most industrial countries.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
A GERODISC prototype was completed during the last fiscal year for a
European OEM. Revenue was less than one hundred thousand dollars.
ASHA/TAISUN completed negotiations for the acquisition of an existing
Chinese automotive company in early 1995. The initial prototype of
ASHA/TAISUN's newly developed vehicle was initially test driven in the summer
of 1996. ASHA/TAISUN opened an office in Beijing on June 2, 1994, for
licensing of GERODISC technology in China and Malaysia. However, through
September 30, 1996, no revenues have been produced from these activities.
In October 1995, the Company entered into an option agreement with
Steyr-Daimler-Puch Fahrzeugtechnik GmbH ("Steyr"), for which the Company
received $100,000. The Company also developed a prototype for Steyr for which
it received $80,000 during the fiscal year ended September 30, 1996. The
Company continues technical development of the prototype and is currently
negotiating with Steyr for a possible license agreement.
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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 license 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, 39% of the Company's revenues
were received or accrued from licenses for research and development and
prototype development, 43% from DANA for licensing of GERODISC, 15% from
ASHA/TAISUN 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
The Company has a staff of 35 people consisting of the Company's Chief
Executive Officer, automotive designers, engineers and fabricators, one full-
time marketing person based in Detroit, and three administrative support
personnel.
ITEM 2. DESCRIPTION OF PROPERTY
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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 shall 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 13,667 square feet of space are utilized at
this location.
ITEM 3. LEGAL PROCEEDINGS
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The Company knows of no material pending legal proceedings to which the
Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the three months ended September
30, 1996.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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PRINCIPAL MARKET OR MARKETS. The Company's Common Stock is traded in the
over-the-counter market and quotations are carried on the NASD's OTC Bulletin
Board. 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
APPROXIMATE NUMBER OF SHAREHOLDERS OF COMMON STOCK. The number
of holders of record of the Company's $.00001 par value Common Stock at
December 18, 1996, was 2,602. 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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RESULTS OF OPERATIONS
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
$2,775,000 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.
Revenue from contract services was up 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.
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Total expenses for the year ended September 30, 1996, were up 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 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 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 September 30, 1996, the Company had working capital of
approximately $930,000.
In November 1996, the Company obtained an increase in its line of credit
from a commercial bank from $500,000 to $750,000.
In January 1997, the Company received approximately $180,000 in net
proceeds from the private sale of units consisting of promissory notes and
common stock.
With the additional cash made available from the increase in the line of
credit and the private offering, along with additional debt financing of
approximately $700,000, the Company expects to receive in January 1997, the
Company believes that it has sufficient liquidity to maintain the Company's
current level of activities for the next twelve months. However, the Company
intends to raise additional funds to finance additional marketing and other
activities.
In December 1996, the Company entered into a Letter of Intent with an
underwriter concerning a proposed public offering of the Company's Common
Stock. Under the terms of the Letter of Intent, the proposed offering would
be for at least $6 million on a "firm commitment" basis. Such offering is
expected to occur during the first half of 1997, subject to a number of
contingencies including a registration statement to be filed with the
Securities and Exchange Commission becoming effective.
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
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receivables totalling 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. The Company has no other
commitments to make material capital expenditures.
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
The Independent Auditors' Reports appear at pages F-1 and F-2 and the
Financial Statements and Notes to Financial Statements appear at pages F-3
through F-15 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- ------------------------------------------------------------------------------
No response required.
-12-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- ------------------------------------------------------------------------------
The Directors and Executive Officers of the Company are as follows:
NAME AGE POSITION
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
Sheila R. Ronis 46 Director
Robert J. Sinclair 64 Director
Lawrence Cohen 52 Director
There is no family relationship between any Director, executive Officer or
person nominated or chosen by the Company to become a Director or executive
Officer. The Company has no audit or nominating committee, but does have a
compensation committee which consists of Robert J. Sinclair, Sheila R. Ronis
and John C. McCormack.
ALAIN J-M CLENET. Mr. Clenet has served as President and a Director of
ASHA Enterprises, Inc. since its inception in June, 1986, and became President
and Chairman of the Board of Directors of ASHA Corporation on the date of the
acquisition of ASHA Enterprises, Inc. 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, until it filed for bankruptcy under Chapter 7 in September 1981.
Mr. Clenet founded Clenet Coachworks in 1976, created the products and the
tools and built it up to 185 employees at its peak. The 1979-1981 economic
downturn and very high interest rates as well as a dispute between Mr. Clenet
and the company's single financial backer resulted in the liquidation of the
company under Chapter 7 in 1982. The company was reactivated independent of
Mr. Clenet in Carpenteria, California, and is no longer in existence. 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.
-13-
<PAGE>
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 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.
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 technical
and managerial services 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. Her B.S. is in Physics and
Mathematics. She received an M.A. and Ph.D. degree in Organizational Behavior
from Ohio State University in 1976. Dr. Ronis consults for many organizations
as diverse as General Motors, Amertech, The White House, USCAR and the Center
for Strategic and International Studies in Washington.
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.
LAWRENCE COHEN. Mr. Cohen has served as a Director of the Company since
January 20, 1995. Mr. Cohen is Chairman of BioTime, Inc. He is the founder
and board member of Apollo Genetics, a research and development company
engaged in creating compounds to prevent brain cells from dying. Mr. Cohen's
experience includes 13 years as a corporate finance consultant specializing in
private placements, public offerings and mergers and acquisitions.
-14-
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
Director, Officer or beneficial owner of more than 10% of the Company's Common
Stock, failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year, except as follows:
Kenneth R. Black, Vice President of Sales and Marketing of the Company,
filed one Form 4 reporting the grant of a stock option late; Sheila R. Ronis
and Robert J. Sinclair, Directors of the Company, each filed one Form 4 late
reporting the grant of a stock option; John C. McCormack, President of the
Company filed one Form 4 late reporting the grant of two stock options; and
Brian Chang, a greater than 10% shareholder, filed one Form 4 late reporting
one stock purchase.
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------
The following table sets forth information regarding the executive
compensation for the Company's Chief Executive Officer, President and
Executive Vice President. No other executive Officer received compensation in
excess of $100,000 for the fiscal years ended September 30, 1996, 1995 and
1994:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
SECURI-
TIES
UNDERLY-
OTHER RE- ING
ALL
ANNUAL STRICTED OPTIONS/
OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP
COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER)
PAYOUTS
SATION
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Alain J-M Clenet, 1996 $152,500 $73,000 -0- -0- -0- -0-
$7,819<FN2>
<FN1>
Chief Executive 1995 $152,500 -0- -0- -0- -0- -0-
$3,035<FN3>
Officer 1994 $152,500 -0- -0- -0- -0- -0-
-0-
John C. McCormack, 1996 $ 90,000 $10,000 -0- -0- 65,786 -0-
$ 504<FN4>
President 1995 60,000 -0- -0- -0- -0- -0-
-0-
1994 -0- -0- -0- -0- -0- -0-
-0-
Theo E. Shaffer, 1996 $ 92,025 $19,373 -0- -0- -0- -0-
-0-
Executive Vice 1995 $ 90,000 -0- -0- -0- 3,098 -0-
-0-
President<FN5> 1994 $ 90,000 -0- -0- -0- -0- -0-
-0-
Kenneth R. Black, 1996 $100,592 $10,000 -0- -0- 10,524 -0-
-0-
Vice President of <FN6>
Sales and Marketing 1995 $ 85,000 -0- -0- -0- 2,788 -0-
-0-
1994 $ 78,000 -0- -0- -0- -0- -0-
-0-
- -------------------
<FN>
<FN1>
-15-
<PAGE>
Of this amount, $88,958 was paid during the fiscal year ended September 30,
1996, and the remainder was deferred until January 1997.
<FN2>
Represents medical expense reimbursements for Mr. Clenet and his family.
<FN3>
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.
<FN4>
Represents amounts paid by the Company as a matching amount to a 401(k) plan
contribution.
<FN5>
Mr. Shaffer resigned on October 1, 1996.
<FN6>
Includes $15,592 paid to Mr. Black in settlement of unused vacation time.
</FN>
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARs EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE
Alain J-M Clenet -- -- -- --
John C. McCormack 40,786 33.1% $4.625 11/01/98
25,000 20.3% $4.50 9/24/99
Theo E. Shaffer -0- -- -- --
Kenneth R. Black 10,524 8.5% $4.625 11/01/98
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
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
Alain J-M Clenet -- -- -- --
John C. McCormack -- -- 65,786 / 0 0 / 0
Theo E. Shaffer -- -- -- --
Kenneth R. Black -- -- 13,312 / 0 $ 697 / 0
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
-16-
<PAGE>
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.
No other Executive Officers have employment agreements with the Company.
John C. McCormack, the Company's President and Chief Operations Officer,
presently receives a salary of $90,000 per year, and Kenneth R. Black, the
Company's Vice President of Sales and Marketing, receives a salary of $85,000
per year. Each of these persons also received a $10,000 bonus during the
fiscal year ending September 30, 1996.
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.
STOCK OPTION PLANS
1994 STOCK OPTION PLAN
On December 20, 1994, the Board of Directors approved the Company's 1994
Stock Option Plan. As approved by the Company's shareholders in April 1995,
240,000 shares of Common Stock were reserved for issuance upon the exercise of
options under the plan. In April 1996, the Company's shareholders approved an
increase in the number of reserved shares to 750,000. 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. 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 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.
On December 20, 1994, the Board of Directors granted incentive stock
options to purchase an aggregate of 75,745 shares of Common Stock. These
options were exercisable at $4.00 per share and are fully vested. They expire
three years after the date of grant. Included in the options granted on
December 20, 1994, were incentive stock options granted to Theo E. Shaffer (a
former Officer of the Company) and Kenneth R. Black (an Officer of the
Company), to purchase 3,098 and 2,788 shares, respectively. Mr. Shaffer
exercised his option on June 21, 1995. In addition, non-qualified stock
options were granted to Lawrence Cohen (a Director of the Company) and Neil
McCarthy (a former Director of the Company), each to purchase up to 25,000
shares of Common Stock.
On October 31, 1995, the Board of Directors granted incentive stock
options to purchase an aggregate of 72,092 shares of Common Stock to 16
employees of the Company. These options are exercisable at $4.125 per share,
are fully vested, and expire three years after the date of grant.
-17-
<PAGE>
On November 1, 1995, incentive stock options were granted to John C.
McCormack and Kenneth R. Black, Officers of the Company, to purchase 15,786
and 10,524 shares, respectively. In addition, non-qualified stock options
were granted to Sheila R. Ronis and Robert J. Sinclair, Directors of the
Company, and John C. McCormack each to purchase up to 25,000 shares of Common
Stock. The options granted on November 1, 1995, are all exercisable at $4.625
per share, are fully vested, and expire three years from the date of grant.
On September 24, 1996, a non-qualified stock option was granted to John
C. McCormack, an Officer of the Company, to purchase 25,000 shares of Common
Stock at $4.50 per share. This option is fully vested and expires five years
from the date of grant.
On December 17, 1996, non-qualified stock options were granted to Sheila
R. Ronis, Robert J. Sinclair and Lawrence Cohen, each to purchase 25,000
shares at $3.6875 per share. These options expire five years after the date
of grant.
Also on December 17, 1996, incentive stock options were granted to
employees of the Company to purchase an aggregate of 69,721 shares of Common
Stock at an exercise price of $3.6875 per share. These options are fully
vested and will expire three years after the date of grant. Included in these
options are an option to John C. McCormack to purchase 6,386 shares and an
option to Kenneth R. Black to purchase 4,257 shares of Common Stock. In
addition, a non-qualified option was granted to Alain J-M Clenet to purchase
8,278 shares of Common Stock on the same terms and conditions.
1993 STOCK OPTION PLAN
On August 12, 1993, the Company's Board of Directors approved a non-
qualified stock option plan in which any employee, officer, director or
consultant that the Board, in its sole discretion, designates is eligible to
participate. During the year ended September 30, 1993, options to purchase
64,706 shares of the Company's Common Stock at $1.28 per share were granted
to three officers. Theo E. Shaffer, a former Officer of the Company, received
an option of 23,530 shares. This option was exercised on June 21, 1995.
Kenneth R. Black exercised the option he received for 17,648 shares on March
30, 1994. Valarie Valencia, former Secretary/Treasurer of the Company,
exercised 50% of her original option to purchase 23,530 shares in February
1995, pursuant to a provision in the plan that if the holder of the option
terminates employment with the Company, the option is reduced by one-half and
expires two months after the termination of employment.
Prior to the grant of the above options, Alain J-M Clenet, the Company's
Chief Executive Officer, had granted the same three officers options to
purchase 64,706 shares of his Common Stock at $1.28 per share. The Board of
Directors determined it was more appropriate for the Corporation to recognize
and reward the services of its officers and the shareholder options were
canceled upon grant of options by the Company.
There are no options currently outstanding under this Plan.
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
-18-
<PAGE>
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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- ------------------------------------------------------------------------
The following table sets forth the number and percentage of shares of the
Company's $.00001 par value Common Stock owned beneficially, as of December
27, 1996, 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 Officers of the Company as a group.
Information as to beneficial ownership is based upon statements furnished to
the Company by such persons. Each person has sole voting and investment power
with respect to the shares shown except as noted.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNERS BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C>
Alain J-M Clenet 2,019,742 <FN1> 28.5%
600 C Ward Drive
Santa Barbara, CA 93111
Sheila R. Ronis 63,596 <FN2> 0.9%
640 Rolling Green Circle
Rochester Hills, MI 48309
Robert J. Sinclair 63,377 <FN2> 0.9%
1025 North Ontare Road
Santa Barbara, CA 93103
Lawrence Cohen 50,000 <FN3> 0.7%
3311 NE 26th Avenue
Lighthouse Point, FL 33064
Brian Chang 1,217,113 17.2%
1 Chatworth Road, No. 2421
Singapore 1024
All Directors and Executive 2,286,456 <FN4> 31.2%
Officers as a Group (7 persons)
- --------------------
<FN>
<FN1>
Includes 8,278 shares underlying stock options held by Mr. Clenet.
<FN2>
Includes 50,000 shares underlying stock options held by such person.
<FN3>
Represents shares underlying stock options held by Mr. Cohen.
<FN4>
Includes shares beneficially owned by the following persons who are Executive
Officers of the Company; 72,172 shares underlying stock options held by John
C. McCormack; and 17,569 shares underlying options held by Kenneth R. Black.
</FN>
</TABLE>
-19-
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
In August 1993, the Company loaned $53,000 to Valarie Valencia, who was
then an Officer of the Company, with principal and interest of 6% due on
February 15, 1994, collateralized by a second deed of trust on her personal
residence. Her debt to the Company was reduced to $32,485, with principal and
interest of 6% due April 2, 1996, collateralized by a second deed of trust on
her personal residence and a pledge of shares of the Company's Common Stock.
In April 1996, this obligation was settled through the transfer to the Company
of 6,359 shares held by Ms. Valencia.
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 for the licensing of the GERODISC technology in China
and Malaysia and also for the development of an automotive industry for China
and Southeast Asia. The Company, by entering into a licensing agreement,
received an initial credit of $100,000 for its investment in ASHA/TAISUN
during the year ended September 30, 1994. On February 23, 1995, the Company
invested an additional $900,000 in cash in ASHA/TAISUN.
ASHA/TAISUN, through its 60%-owned subsidiary, Jiaxing Independent Auto
Design and Development Co., Ltd., is developing automobile manufacturing
facilities in Jiaxing, China. ASHA/TAISUN has also contracted with the
Company for automobile design work. The Company was paid $705,000 during the
year ended September 30, 1995, for design work. Additional fees earned of
$110,000 were offset against capital investment requirements of the Company to
ASHA/TAISUN. Subsequent to September 30, 1995, design work fees of $185,000,
as earned, will be offset against the Company's capital investment
requirements.
In March 1994, Brian Chang purchased 235,924 shares of the Company's
Common Stock for $1,000,000 in cash. In July of 1994 Mr. Chang purchased
800,000 shares of ASHA Common Stock from a principal shareholder. On November
2, 1995, Mr. Chang purchased an additional 181,818 shares of ASHA Common Stock
from the Company for $750,000 in cash.
-20-
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------------
(a) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
3.1 Articles of Incorporation Incorporated by reference to the
Company's Registration Statement on
Form S-18 (SEC File No. 33-3135D)
3.2 Bylaws Incorporated by reference to the
Company's Registration Statement on
Form S-18 (SEC File No. 33-3135D)
10.1 License Agreement with Incorporated by reference to Exhibit
New Venture Gear, Inc.* 10.2 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1993
10.2 License Agreement with Incorporated by reference to Exhibit
Dana Corporation 10.3 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1993 and year
ended September 30, 1994
10.3 1994 Stock Option Plan Incorporated by reference to Exhibit
10.4 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1994
10.4 License Agreement with Incorporated by reference to Exhibit
ASHA/TAISUN Pte. Ltd. 10.4 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1995
10.5 Amended and Restated Incorporated by reference to Exhibit
Employment Agreement 10.5 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1995
10.6 Lease Agreement, as amended Incorporated by reference to Exhibit
10.6 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1995
10.7 Option Agreement with Amer- Incorporated by reference to Exhibit
ican Axle and Manufacturing, 10.7 to the Company's Annual Report
Inc. on Form 10-K for the fiscal year
ended September 30, 1995
23.1 Consent of Arthur Andersen Filed herewith e4lectronically
23.2 Consent of McDirmid, Filed herewith electronically
Mikkelsen & Secrest,
P.S.
-21-
<PAGE>
27. Financial Data Schedule Filed herewith electronically
___________________
* Portions of the this document have been excluded pursuant to a confidential
agreement request.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this Report.
-22-
<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-1
<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.
Los Angeles, California
January 11, 1996
F-2
<PAGE>
ASHA CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1996
ASSETS
1995 1996
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 12,804 $ 13,581
Short-term investments - 247,548
Accounts receivable 1,624,272 1,089,955
Prepaid expenses and other 87,996 64,819
----------- -----------
Total current assets 1,725,072 1,415,903
----------- -----------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 147,407 203,480
OTHER ASSETS:
Long-term receivable 829,345 -
Investment in affiliate 429,702 600,491
----------- -----------
1,259,047 600,491
----------- -----------
$ 3,131,526 $ 2,219,874
CURRENT LIABILITIES:
Short-term borrowings $ 85,000 $ 275,000
Due to related party 45,000 -
Accounts payable 74,723 102,262
Accrued liabilities 127,632 108,985
----------- -----------
Total current liabilities 332,355 486,247
----------- -----------
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 and 7,076,217 shares
in 1996 69 71
Additional paid-in capital 5,139,936 5,926,456
Accumulated deficit (2,298,671) (4,110,993)
Less: Treasury stock, at cost (42,163) (81,907)
----------- -----------
2,799,171 1,733,627
----------- -----------
$ 3,131,526 $ 2,219,874
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
ASHA CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1996
1995 1996
----------- -----------
REVENUES:
License and right of refusal $4,089,643 $ 1,315,000
Contract and other services 346,313 395,898
----------- -----------
4,435,956 1,710,898
----------- -----------
OPERATING EXPENSES:
Research and development 1,067,795 1,044,873
Officers' salaries 414,415 480,900
Legal and accounting 82,854 97,149
Patent application 73,253 45,537
Taxes and licenses 98,946 136,076
Selling, general and administrative 705,493 870,529
Depreciation and amortization 48,792 75,472
----------- -----------
2,491,548 2,750,536
----------- -----------
Income (loss) from operations 1,944,408 (1,039,638)
OTHER INCOME (EXPENSE):
Loss from investment in affiliate (470,298) (886,592)
Interest and investment income 100,095 117,322
Interest expense (1,445) (2,614)
----------- -----------
(371,648) (771,884)
----------- -----------
Income (loss) before provision for
income taxes 1,572,760 (1,811,522)
PROVISION FOR INCOME TAXES 41,427 800
----------- -----------
NET INCOME (LOSS) $1,531,333 $(1,812,322)
NET INCOME (LOSS) PER COMMON SHARE $ .22 $ (.26)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 6,838,196 7,057,635
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ASHA CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Addi-
tional
Stock-
Common Stock Paid-In Accumulated Treasury
holders'
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, due to exer-
cise of stock options 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 exer-
cise 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
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ASHA CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1996
1995 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,531,333 $(1,812,322)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 48,792 75,472
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
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (1,434,450) 1,425,719
Officer receivable 20,515 -
Long-term receivable (829,345) -
Prepaid expenses and other 2,383 23,177
Increase (decrease) in:
Accounts payable 43,220 27,539
Accrued liabilities 56,006 (18,647)
----------- -----------
Net cash provided by (used
in) operating activities (22,071) 545,473
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (7,782) (247,548)
Proceeds from sale of short-term investments 253,207 -
Additions to property and equipment (90,575) (131,545)
Proceeds from sale of property and equipment 5,500 -
Investment in affiliate (900,000) (1,057,381)
----------- -----------
Net cash used in investing
activities (739,650) (1,436,474)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing under line of
credit agreement 85,000 190,000
Due to related party 45,000 (45,000)
Proceeds from issuance of common stock - 750,000
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
----------- -----------
F-6
<PAGE>
Net increase (decrease) in cash
and cash equivalents (613,016) 777
Cash and cash equivalents at
beginning of period 625,820 12,804
----------- -----------
Cash and cash equivalents at
end of period $ 12,804 $ 13,581
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
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 $800,000 through the sale
of common stock.
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 until the economic viability of the product has been
established. 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.
F-8
<PAGE>
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
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
F-9
<PAGE>
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.
The $1,000,000 was recognized as revenue in fiscal 1995 as the amount will be
paid in August 1997 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.
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:
F-10
<PAGE>
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 60 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.
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
F-11
<PAGE>
line expires in November 1996. At September 30, 1996, $275,000 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.
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
F-12
<PAGE>
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-13
<PAGE>
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:
F-14
<PAGE>
YEARS ENDING SEPTEMBER 30,
1997 $119,165
1998 112,826
1999 60,860
2000 41,863
2001 16,600
--------
$351,314
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. SUBSEQUENT EVENTS
LINE OF CREDIT
In November 1996, the Company renewed its line of credit agreement with the
same bank through November 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.
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. The options
expire three to five years from the date of grant.
BRIDGE LOAN FINANCING
In January 1997, the Company received net proceeds of approximately $180,000
from the sale of units, each of which consisted of a promissory note and
common stock. The Company expects to receive approximately $660,000 of
additional proceeds from the sale in January 1997. 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. The
notes are repayable at the earlier of the closing of the proposed public
offering or the receipt of the $1,000,000 receivable due from NVG (see Note
3).
F-15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized.
ASHA CORPORATION
Dated: June 25, 1997 By /s/ Alain J-M Clenet
Alain J-M Clenet, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Alain J-M Clenet Chairman of the Board, June 25, 1997
Alain J-M Clenet Chief Executive Officer
(Principal Financial and
Accounting Officer), and
Director
/s/ Sheila R. Ronis Director June 25, 1997
Sheila R. Ronis
- --------------------------- Director
Robert J. Sinclair
/s/ Lawrence Cohen Director June 25, 1997
Lawrence Cohen
