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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[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, 1997
[ ] 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 22, 1997, 8,663,158 shares of the Registrant's Common Stock
were outstanding, and the aggregate market value of the shares held by
non-affiliates was approximately $30,031,000.
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
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 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.
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 China and Southeast Asian 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.
During 1997, 10 pre-production vehicles were built, and management expects
that an additional 15 pre-production vehicles will be built by the end of
February 1998. Limited production is expected to start in March or April
1998.
The Company's strategy is to maximize GERODISC's penetration of the
worldwide 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.
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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), the largest transfer case
manufacturer (New Venture Gear, Inc.); Steyr-Daimler-Puch, a leading European
Tier One supplier and the American Axle Corporation has 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.
FORWARD-LOOKING STATEMENTS
This Report contains certain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
which are intended to be covered by the safe harbor 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 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 Report 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.
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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.
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.
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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 1997, approximately 110 individual GERODISC prototypes
have been built for evaluation by original equipment manufacturer's ("OEM's")
or first tier suppliers (the companies who supply directly to the OEM's) and
approximately 17 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 United States 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 Agreements
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 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.
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. Effective January 5, 1998, the Company
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entered into a license agreement with NVG in which the Company licensed NVG to
manufacture and market GERODISC non-exclusively (but exclusively to certain
automobile manufacturers on certain applications) on a worldwide basis for
rear axles, transaxles, twin-disc front axles and twin-disc rear axles. NVG
has agreed to pay the Company a license fee of $5,100,000 of which $2,550,000
is due on January 31, 1998, and $2,550,000 is due on January 31, 1999. In
addition, the Company will receive a royalty on each unit produced under the
agreement.
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. 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 was extended until
August 29, 1997, and American Axle requested an extension for the options for
transaxles and twin-disc front axles. No further extensions have been
formally granted. American Axle (now named "American Drive Line") continues
to test under informal extensions of the original agreements. 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
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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 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.
Racing activities for 1998 include testing with Williams Touring Company
LTD ("Williams") for inclusion in the 1998 BMW Racing Sedans, contractual
arrangements with Xtrac LTD of England for the manufacture of GERODISC units
for European and American racing teams. These teams include Peugeot Sport, as
well as two prominent Indy Car Teams. The Contract with Xtrac allows the
Company to participate with more teams and to concentrate on development.
Xtrac will build the units keeping the Company out of the manufacturing
process.
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
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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:
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ASHA TAISUN
50% 50%
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ASHA/TAISUN PTE LTD WALLAND ELECTRIC JACK TANG
85% MOTOR COMPANY 5%
------------------------ 10% ---------------
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JIAD&D
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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.
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The Jiaxing facility is currently building 15 pre-production units which
it intends to complete by March 1998. The joint venture then intends to build
up to 1,000 production units by December 1998. These units will be used by
the joint venture to test for performance and driveability as well as to
market franchises in the other provinces. The goal is to then build 10,000
units in 1999. However, at this time the Company has limited 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.
A joint venture - Pacific Asia Motor Corp. ("PAMCOR") has been formed in the
Philippines and is now being capitalized. PAMCOR will be owned by the
Philippine Retirement Benefits System and several private capital sources
including Almazora Motors. This joint venture intends to acquire a license
from the Company to produce a sport utility vehicle in the Philippines using
the ABC technology.
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 United States 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.
5. Hydraulic coupling for vehicle drivetrain - three other
patent applications relating to variations of this technology have 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.
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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 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, 1997, 22.8% of the Company's
revenues were received from prototype development, 77.2% from
Steyr-Daimler-Puch Fahrzeugtechnik Gmbh for a license to use the GERODISC
technology.
Staff
As of December 31, 1997, the Company had 30 employees consisting of 3
executive officers, 24 automotive designers, engineers and fabricators, and 3
administrative support personnel. None of the Company's employees are
represented by a union and the Company has never had any work stoppages.
ITEM 2. DESCRIPTION OF PROPERTY
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 11,300 square feet of space are utilized at
this location.
ITEM 3. LEGAL PROCEEDINGS
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
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the three months ended September
30, 1997.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRINCIPAL MARKET OR MARKETS. The Company's Common Stock is traded in the
over-the-counter market and since June 30, 1997, has been listed on the Nasdaq
Small-Cap Market under the symbol "ASHA." Prior to that time, quotations were
carried on the OTC Bulletin Board.
The following table sets forth the high and low bid price for the
Company's Common Stock for the periods indicated as reported on the OTC
Bulletin Board. 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
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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* $6.0625 $4.50
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* Through June 27, 1997
The following table sets forth the high and low sales prices for the
Company's Common Stock as reported on the Nasdaq Small-Cap Market for the
period indicated.
QUARTER ENDED HIGH LOW
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June 30, 1997* $4.75 $4.00
September 30, 1997 $6.75 $6.00
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*One day
APPROXIMATE NUMBER OF SHAREHOLDERS OF COMMON STOCK. The number of
holders of record of the Company's Common Stock at December 17, 1997, was
2,467. 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 beneficial owners of its Common Stock.
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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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997 VERSUS YEAR ENDED SEPTEMBER 30, 1996
During the year ended September 30, 1997, the Company had revenue of
approximately $1,295,000 as compared to approximately $1,711,000 during the
year ended September 30, 1996. The decrease was due to a reduction of license
and right of first refusal revenue of approximately $416,000 as compared to
the prior year. During the year ended September 30, 1997, the Company entered
into one new license agreement, that being with Stey-Daimler-Puch-
Fahrzeugtechnik. During the year ended September 30, 1996 the Company
entered into four option agreements with American Axle and Manufacturing,
Inc. and renewed one license with an Indycar race team.
Revenues for the year ended September 30, 1998 will be higher than the prior
year, since NVG has agreed to pay the Company $2,550,000 on January 31, 1998
pursuant to a new license agreement. (See Item 1. DESCRIPTION OF BUSINESS -
New Venture Gear, Inc. License Agreements above)
Revenue from contract services decreased in the year ended September 30,
1997 by approximately $101,000, as compared to the prior year. A reduction in
support services to licensees and optionees resulted in this decrease.
Total operating expenses for the year ended September 30, 1997, increased
by approximately $293,000 over the prior year. Research and development
expenses increased by approximately $143,000 as a result of the Company's
increased support of its European based new licensee. Officers' salaries
decreased primarily as a result of bonuses paid in 1996 and none were paid in
1997. Legal and accounting expenses increased by approximately $154,000 as a
result of matters related to foreign operations. Patent application expenses
decreased by approximately $17,000 due to reduced patent application activity.
Selling, general and administrative expenses for the year ended September 30,
1997 were approximately $1,123,000 as compared to approximately $871,000
during the prior year. The increase is due to increased marketing activities
and administrative travel to the Company's Joint Venture China operation.
The Company had a loss of approximately $861,000 on its investment in the
ASHA-TAISUN Joint Venture during the year ended September 30, 1997, as
compared to a loss on its investment of approximately $887,000 in the prior
year. The Company has a 50% ownership interest in the joint venture.
Management has opted to be conservative and consistent with the prior year
accounting method and write the investment down to the estimated net
realizable asset value until such time as the facility begins production. The
continued loss was due to the fact that the Joint Venture's activities in
China increased, but no revenues have yet been generated. Joint Venture
revenues are not anticipated until the year ended September 30, 1998.
The net (loss) of $(2,908,955) for the year ended September 30, 1997,
compared to a net (loss) of $(1,811,322) during the year ended September 30,
1996 was directly attributed to increased operating expenses, significant
interest charges and reduced sales. Revenue reduction was primarily a result
of the reduced licenses and right of first refusal recorded during the current
year. Interest expense for the period ended September 30, 1997 includes a new
accounting requirement, FASB 123, that required a non-cash interest charge of
$265,000 for stock based compensation.
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<PAGE>
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.
Revenue from contract services increased in the year ended September 30,
1996 by approximately $50,000, 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 September 30, 1997, the Company had a positive working capital of
approximately $3,344,000 compared to positive working capital of approximately
$930,000 at September 30, 1996. The increase was due substantially to the
public offering the Company closed in July of 1997. Gross proceeds of the
offering totaled approximately $5,750,000. After commissions, offering costs,
and related expenses the net proceeds were approximately $4,616,000. The
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<PAGE>
Company used approximately $935,000 to retire the bridge loan debt and pay
associated interest. The Company also used $753,000 to pay the credit line
down to zero. The Company intends to use the secondary funding to support the
continued development and marketing of GERODISC and for the development and
support of its ASHA-TAISUN Joint Venture.
In November 1996, the Company obtained an increase in its credit line
from Montecito Bank & Trust from $500,000 to $750,000. As of September 30,
1997 the entire credit line of $750,000 was paid down to zero. The credit
line is under negotiation to be renewed. Amounts under the credit line bear
interest at the prime rate plus 1.5% and the credit line is renewable on an
annual basis. As of September 30, 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 and management does not anticipate a problem with renewing
the credit line in early 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 September 30, 1997 the Company had paid off all the interest and
debt associated with the sale of the units. Prior to the public offering the
Company financed its operating expenses with the bridge loan notes and maximum
use of its credit line.
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 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 year ended September 30, 1997 used
$(1,266,410) of net cash as compared to $545,473 cash provided in the year
ended September 30, 1996. The decrease in cash from operating activities was
primarily due to the substantial decrease in accounts receivable for the prior
period as compared to a lesser decrease in accounts receivable for the current
period. The net loss of $(2,908,955) for the year ended September 30, 1997, as
compared to a net loss of $(1,812,322) for the comparable period in 1996 had
an significant adverse effect on the year ended 1997 operating cash
activities.
Investing activities for the year ended September 30, 1997 used
$(657,587) of cash. Activities were attributed to the ASHA-Taisun joint
venture and the sale of short term investments. Approximately $859,000 was
attributed to the investment in ASHA-Taisun joint venture. The Company sold
$260,463 of short-term commercial paper to partially offset the expenditure.
Cash provided from financing activities was $4,527,770 for the year
ended September 30, 1997, as compared to $891,778 for the year ended September
30, 1996. Proceeds from the public offering that closed in July of 1997 were
the primary source of funds. The offering cash enabled the corporation to pay
off its then existing debt as well as provide for future working capital.
The Company has entered into a new license agreement with New Venture
Gear. This new agreement expands New Venture Gear's license rights for
GERODISC applications from its original transfer case license to now include
certain axle and coupling applications. The agreement which takes effect
January 5, 1998 calls for a license fee of $5,100,000 and royalties on
produced products. The license fee is payable $2,550,000 on January 31, 1998
and $2,550,000 on January 31, 1999.
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<PAGE>
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 $(1,436,000) 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, as 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 $780,000 in the ASHA/TAISUN
Joint Venture during the fiscal year ended September 30, 1998. This
investment is expected to be funded from revenues received from license fees.
The Company has no other commitments to make material capital expenditures.
ITEM 7. FINANCIAL STATEMENTS
The Independent Auditors' Report appears at page F-1 and the Financial
Statements and Notes to Financial Statements appear at pages F-2 through F-14
hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No response required.
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<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
- ------------------------------ --- ----------------------------------------
John C. McCormack ............ 66 Chairman of the Board, President, Chief
Executive Officer, Chief Operations
Officer, Secretary, Treasurer and
Director
Kenneth R. Black ............. 51 Vice President of Sales and Marketing
Steven E. Sanderson .......... 45 Chief Financial Officer and Controller
Robert J. Sinclair ........... 65 Director
Lawrence Cohen ............... 53 Director
Nick P. Bartolini............. 61 Director
Erick A. Reickert............. 62 Director
There are no family relationships among any of the Directors or Executive
Officers.
JOHN C. McCORMACK. Mr. McCormack has served as President and Chief
Operations Officer of ASHA since February 1, 1995, as Secretary and Treasurer
since January 31, 1996, and as Chairman of the Board, Chief Executive Officer
and a Director since January 8, 1998. 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.
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<PAGE>
From 1991 until December 1996, he served as the President and owner of
Sanderson Investments, Inc., a consulting company which prepared financial
analyses encompassing 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.
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.
NICK P. BARTOLINI. Mr. Bartolini has served as a Director of the
Company since October 1997. Since 1994, Mr. Bartolini has been President of
Bartolini Associates with offices in Santa Barbara, California and London,
England. Bartolini Associates provides process re-engineering and sales
consultant services to automotive suppliers in the United States and Europe.
Mr. Bartolini was previously employed by the Ford Motor Company for over 30
years, and served as Vice President of Parts and Service Operations for Ford
of Europe from 1989 to 1994. He received a B.S. Degree from the University of
Notre Dame, and a MBA Degree from the University of Detroit.
ERICK A. REICKERT. Mr. Reickert has served as a Director of the Company
since October 1997. Mr. Reickert is currently retired. From September 1992
to January 1996 he was President and CEO of New Venture Gear, Inc. which is
jointly owned by Chrysler Corp. and General Motors Corp., and is a licensee of
the Company's GERODISC technology. From 1984 to 1992, Mr. Reickert was
employed by Chrysler Corporation, and served as Chairman and Chief Executive
Officer of Chrysler De Mexico from May 1987 to January 1990, and Acustar, Inc.
from May 1990 to April 1991. In addition, he was Vice President of Powertram
Operations for Chrysler from April 1991 to December 1992 where he was
responsible for 12 manufacturing plants producing engines, transmission and
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<PAGE>
automotive parts. From 1965 to 1984 Mr. Reickert worked for Ford Motor
Company in various capacities. He received a B.S. Degree in Electrical
Engineering from Northwestern University and a MBA Degree from Harvard
Business School.
The standing committees of the Board of Directors are the Audit Committee
and the Compensation Committee.
The Audit Committee consists of Lawrence Cohen and Nick Bartolini, each
of whom is an independent Director, and John C. McCormack. 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 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 agreed with the Representative of the Underwriters in the
Company's 1997 Public Offering that, for a period of 36 months from the date
of closing of this offering, the Company will allow an observer designated by
the Representative 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.
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 and John C. McCormack each filed two Form 4's late
reporting the grant of two stock options; and Alain J-M Clenet (a former
Officer and Director), Sheila R. Ronis (a former Director), Robert J.
Sinclair, and Lawrence Cohen each filed one Form 4 reporting the grant of a
stock option late.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information regarding the executive
compensation for the Company's Chief Executive Officer, President and
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<PAGE>
Executive Vice President. No other executive Officer received compensation in
excess of $100,000 for the fiscal years ended September 30, 1997, 1996 and
1995:
SUMMARY COMPENSATION TABLE
<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
- ------------------- ---- -------- ------- ------- --------- -------- -------
- ----------
<C> <S> <S> <S> <S> <S> <S> <S>
<S>
Alain J-M Clenet, 1997 $152,500 $ -0- -0- -0- 8,278 -0-
$5,953<FN2>
Chief Executive 1996 $152,500 $73,000 -0- -0- -0- -0-
$7,819<FN4>
Officer<FN1> <FN3>
1995 $152,500 -0- -0- -0- -0- -0-
$3,035<FN5>
John C. McCormack, 1997 $ 90,000 -0- -0- -0- 106,386 -0-
$ -0-
President 1996 $ 90,000 $10,000 -0- -0- 65,786 -0-
$ 504<FN6>
1995 $ 60,000 -0- -0- -0- -0- -0-
-0-
Kenneth R. Black, 1997 $ 90,000 -0- -0- -0- 104,257 -0-
-0-
Vice President of 1996 $100,592 $10,000 -0- -0- 10,524 -0-
-0-
Sales and Marketing <FN7>
1995 $ 85,000 -0- -0- -0- 2,788 -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<FN8>
- --------------------
<FN>
<FN1>
Mr. Clenet resigned as an Officer and Director of the Company on January 8,
1998.
<FN2>
Represents contractual employment agreement for estate and trust planning for
Mr. Clenet and his family of $2,600, premiums of $371 on a $5 million umbrella
liability insurance policy and $2,982 for additional medical expenses paid on
his behalf.
<FN3>
Of this amount, $88,958 was paid during the fiscal year ended September 30,
1996, and the remainder was deferred until January 1997.
<FN4>
Represents medical expense reimbursements for Mr. Clenet and his family.
<FN5>
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.
<FN6>
Represents amounts paid by the Company as a matching amount to a 401(k) plan
contribution.
<FN7>
Includes $15,592 paid to Mr. Black in settlement of unused vacation time.
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<PAGE>
<FN8>
Mr. Shaffer resigned on October 1, 1996.
</FN>
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARs EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE
- ----------------- ------------ ------------ ---------- ----------
Alain J-M Clenet 8,278 2.4% $3.6875 12/17/99
John C. McCormack 100,000 29.5% 4.00 1/15/02
6,386 1.9% 3.6875 12/17/99
Kenneth R. Black 100,000 29.5% 4.00 1/15/02
4,257 1.3% 3.6875 12/17/99
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 -- - 8,278 / 0 $ 20,178 / 0
John C. McCormack -- - 172,172 / 0 $332,419 / 0
Kenneth R. Black -- 117,569 / 0 $245,245 / 0
Employment Agreements
In April 1995, the Company entered into an Amended and Restated
Employment Agreement with Alain J-M Clenet, who was then the Company's
Chairman of the Board and Chief Executive Officer, pursuant to which he
received a base annual salary of $152,500. Mr. Clenet was 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 received a $5 million umbrella
liability insurance policy paid for by the Company. On January 8, 1998, Mr.
Clenet resigned as an officer and Director of the Company, and this employment
agreement was terminated by mutual agreement.
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.
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<PAGE>
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 fiscal year ended September 30, 1998, the Company will begin
paying independent members of the Board of Directors $1,250 per meeting
attended.
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 options granted under this policy during the
fiscal year ended September 30, 1997 were granted on December 17, 1996, when
25,000 options were granted to each of Sheila Ronis, Robert Sinclair and
Lawrence Cohen with an exercise price of $3.6875.
In addition, in July 1997, Lawrence Cohen was granted a stock option to
purchase 200,000 shares of Common Stock at $4.375 per share. This option is
contingent on shareholder approval of certain amendments to the Company's 1994
Stock Option Plan described below.
In December 1997, the Company's Directors were granted options as
follows: Sheila Ronis, Robert Sinclair and Lawrence Cohen each received
options to purchase 25,000 shares of Common Stock; Nick Bartolini received
options to purchase 12,500 shares; and Erick Reickert received options to
purchase 6,250 shares. These options are exercisable at $5.4375 per share,
but are contingent on shareholder approval of certain amendments to the
Company's 1994 Stock Option Plan.
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. 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 July 1, 1997, the Company's Board of Directors adopted amendments to
the 1994 Stock Option Plan to increase the number of shares of Common Stock
which may be subject to options granted under the plan to 1,000,000; to allow
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the exercise price of options to be paid by means other than cash; and to
allow options to be grated with reload option provisions. These amendments are
contingent on the approval of the Company's shareholders prior to July 1,
1998. On December 16, 1997, the Company's Board of Directors adopted an
additional amendment to increase the number of shares of Common Stock which
may be subject to options granted under the plan to 1,400,000. This amendment
is also subject to shareholder approval.
As of September 30, 1997, there were 623,677 options outstanding under
the plan with exercise prices ranging from $3.6875 to $5.125. This does not
include options which are contingent on shareholder approval of the amendments
to the 1994 Stock Option Plan described above.
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 and 1997, the Company made $8,047 and
$5,030, respectively, 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 Common Stock owned beneficially, as of January 9, 1998 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> <S> <C>
Greenmotors, L.L.C. 1,118,652 12.9%
277 Park Avenue, 27th Floor
New York, NY 10172
John C. McCormack 172,172<FN1> 1.9%
600 C Ward Drive
Santa Barbara, CA 93111
Robert J. Sinclair 63,377<FN2><FN4> 0.7%
1025 North Ontare Road
Santa Barbara, CA 93103
Lawrence Cohen 269,406<FN3> 3.1%
3311 NE 26th Avenue
Lighthouse Point, FL 33064
Nick P. Bartolini -0-<FN4> --
1026 Santa Barbara Street
Santa Barbara, CA 93101
-22-
<PAGE>
Erick A. Reickart -0-<FN4> --
5128 Woodland Drive
Bloomfield Hills, MI 48302
Brian Chang 1,217,113 17.2%
1 Chatworth Road, No. 2421
Singapore 1024
All Directors and Executive 1,849,637<FN4> 20.4%
Officers as a Group (7 persons)
- --------------------
<FN>
<FN1>
Represents shares underlying currently exercisable stock options held by Mr.
McCormack. Does not include shares underlying options granted to Mr.
McCormack in December 1997 which are contingent on shareholder apprival of
amendments to the Company's 1994 Stock Option Plan.
<FN2>
Includes 50,000 shares underlying stock options held by Mr. Sinclair.
<FN3>
Represents 219,406 shares held by Mr. Cohen's wife and 50,000 shares
underlying currently exercisable stock options held by Mr. Cohen. Does not
include 225,000 shares underlying stock options granted to Mr. Cohen in July
1997 and December 1997 which are contingent on shareholder approval of
amendments to the Company's 1994 Stock Option Plan.
<FN4>
Does not include stock options granted to these persons in December 1997 which
are contingent on shareholder approval of amendments to the Company's 1994
Stock Option Plan.
<FN5>
Includes shares beneficially owned by the following persons who are Executive
Officers of the Company: 117,569 shares underlying options held by Kenneth R.
Black; and 10,000 shares underlying options held by Steven E. Sanderson.
Excludes shares underlying options granted to these persons in December 1997
which are contingent on shareholder approval of amendments to the Company's
1994 Stock Option Plan.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 8, 1998, the Company was a party to two agreements in which
Alain Clenet, who was the Company's Chairman of the Board and Chief Executive
Officer, sold a total of 1,677,978 shares of the Company's common stock. In
one agreement Mr. Clenet sold 1,118,652 shares to Greenmotors LLC, which as a
result of this purchase, now owns 12.9% of the Company's shares outstanding.
In the other agreement, Mr. Clenet sold a total of 559,326 to four investors,
including the wife of Lawrence Cohen, one of the Company's Directors, who
purchased 219,406 shares. Simultaneously with the closing of these two
transactions, the Company and Mr. Clenet entered into a Separation Agreement
pursuant to which Mr. Clenet agreed to resign as an Officer and Director of
the Company, effective immediately.
On August 11, 1994, the Company 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.
-23-
<PAGE>
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 years ended September 30, 1996 and
1997, the Company invested $1,057,381 and $870,323, respectively, 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.
-24-
<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 Incorporated by reference to Exhibit
America Axle and Manufac- 10.7 to the Company's Annual Report
turing, Inc. on Form 10-K for the fiscal year
ended September 30, 1995
10.8 Employment Agreement with Incorporated by reference to Exhibit
John McCormack 10.8 to the Company's Registration
Statement on Form SB-2 (File No.
333-23891)
-25-
<PAGE>
10.9 Employment Agreement with Incorporated by reference to Exhibit
Ken Black 10.9 to the Company's Registration
Statement on Form SB-2 (File No.
333-23891)
10.10 GERODISC Technology Transfer Incorporated by reference to Exhibit
and License Agreement with 10.11 to the Company's Registration
Steyr-Daimler-Puch- Statement on Form SB-2 (File No.
Fahrgeugtechnik, AG&KOKG 333-23891)
dated March 31, 1997*
10.11 License Agreement with New Filed herewith electronically
Venture Gear, Inc. dated
January 5, 1998*
10.12 Stock Purchase Agreement Filed herewith electronically
among Greenmotors LLC,
Alain Clenet and the Company
dated January 8, 1998
10.13 Separation Agreement with Filed herewith electronically
Alain Clenet dated January 8,
1998
23.1 Consent of Arthur Andersen Filed herewith electronically
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.
-26-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
ASHA Corporation:
We have audited the accompanying balance sheets of ASHA CORPORATION (a
Delaware Corporation) as of September 30, 1996 and 1997, and the related
statements of operations, stockholders' equity and cash flows for the years
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 audits.
We conducted our audits 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 audits provide 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 as of
September 30, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
December 22, 1997
F-1
<PAGE>
ASHA CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1997
ASSETS
1996 1997
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 13,581 $ 2,617,354
Short-term investments 247,548 --
Accounts receivable 1,089,955 898,006
Prepaid expenses and other 64,819 73,856
----------- -----------
Total current assets $ 1,415,903 3,589,216
----------- -----------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 203,480 192,273
INVESTMENT IN AFFILIATE 600,491 609,557
----------- -----------
$ 2,219,874 $ 4,391,046
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 275,000 $ --
Accounts payable 102,262 114,843
Accrued liabilities 108,985 130,623
----------- -----------
Total current liabilities 486,247 245,466
----------- -----------
COMMITMENTS AND CONTINGENCIES (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 - 7,076,217
shares in 1996 and 8,651,393 shares
in 1997 71 87
Additional paid-in capital 5,926,456 11,247,348
Accumulated deficit (4,110,993) (7,019,948)
Less: Treasury stock, at cost (81,907) ( 81,907)
----------- -----------
1,733,627 4,145,580
----------- -----------
$ 2,219,874 $ 4,391,046
----------- -----------
The accompanying notes are an integral part of these balance sheets.
F-2
<PAGE>
ASHA CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
1996 1997
----------- -----------
REVENUES:
License and right of refusal $ 1,315,000 $ 1,000,000
Contract and other services 395,898 295,131
---------- -----------
1,710,898 1,295,131
---------- -----------
OPERATING EXPENSES:
Research and development 1,044,873 1,187,411
Officers salaries 480,900 358,537
Legal and accounting 97,149 251,458
Patent application 45,537 28,338
Taxes and licenses 136,076 36,469
General and administrative 870,529 1,122,752
Depreciation and amortization 75,472 58,933
---------- ----------
2,750,536 3,043,898
---------- ----------
Loss from operations (1,039,638) (1,748,767)
OTHER INCOME (EXPENSE) :
Loss from investment in affiliate (886,592) (861,257)
Interest income 117,322 47,698
Interest expense (2,614) (358,744)
Gain on sale of short-term investments - 12,915
--------- -----------
(771,884) (1,159,388)
--------- -----------
Loss before provision for
income taxes (1,811,522) (2,908,155)
PROVISION FOR INCOME TAXES 800 800
----------- -----------
NET LOSS $(1,812,322) $(2,908,955)
----------- -----------
NET LOSS PER COMMON SHARE $ (.26) $ (.39)
----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 7,057,635 7,492,454
----------- -----------
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
ASHA CORPORATION
STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
Additional
Total
Common Stock Paid-in Accumulated Treasury
Stockholders
Shares Amount Capital Deficit Stock
Equity
--------- ------ ---------- ----------- ---------
- -----------
<S> <C> <C> <C> <C> <C>
<C>
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
Public offering of common
stock, net of related
expenses 1,437,500 14 4,616,377 -- --
4,616,391
Issuance of common stock,
due to exercise of stock
options 73,386 1 287,378 -- --
287,379
Fair value of common stock
issued in connection with
the sale of units 64,290 1 224,999 -- --
225,000
Fair value of warrant
issued to a bank -- -- 40,000 -- --
40,000
Consultant expense incurred
in connection with issuance
of stock options -- -- 152,138 -- --
152,138
Net loss -- -- -- (2,908,955) --
(2,908,955)
--------- --- ----------- ---------- --------
- -----------
BALANCE,
September 30, 1997 8,651,393 $87 $11,247,348 $(7,019,948)
$(81,907)$(4,145,580)
--------- --- ----------- ----------- --------
- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ASHA CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------
Net loss $(1,812,322) $(2,908,955)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Interest expense in connection with
issuance of common stock and stock warrant - 265,000
Commission expense relating to units - 101,000
Consultant expense relating to issuance of
stock options - 152,138
Depreciation and amortization 75,472 58,933
Accrued interest on long-term receivable (62,057) -
Loss on investment in affiliate 886,592 861,257
Gain on sale of short-term investments - (12,915)
Changes in operating assets and liabilities:
Accounts receivable 1,425,719 191,949
Prepaid expenses and other 23,177 (9,037)
Accounts payable 27,539 12,581
Accrued liabilities (18,647) 21,639
---------- -----------
Net cash provided by (used in)
operating activities 545,473 (1,266,410)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (247,548) -
Proceeds from sale of short-term investments - 260,463
Additions to property and equipment (131,545) (58,678)
Investment in affiliate (1,057,381) (859,372)
---------- ---------
Net cash used in investing activities (1,436,474) (657,587)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of
credit agreement 190,000 (275,000)
Due to related party (45,000) -
Proceeds from issuance of common stock 750,000 4,616,391
Proceeds from exercise of stock options 36,522 287,379
Proceeds from sale of units - 799,000
Repayment of notes relating to units - (900,000)
Repayment of receivable through
retirement of common stock (39,744) -
---------- ---------
Net cash provided by financing
activities 891,778 4,527,770
---------- ---------
Net increase in cash and cash equivalents 777 2,603,773
Cash and cash equivalents at beginning of year 12,804 13,581
---------- ----------
Cash and cash equivalents at end of year $ 13,581 $2,617,354
---------- ----------
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
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 and 1997,
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.
2. BUSINESS RISKS AND FUTURE OPERATION
Management believes that continuation of its marketing and product development
efforts will produce increasing revenue. 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 fiscal 1997, the Company received approximately
$4,904,000 in net proceeds from the sale of its common stock through a public
offering and the exercise of stock options. Also, effective January 1998, the
Company entered into a new license agreement with a customer under which the
Company will receive a license fee of $5,100,000. The customer has agreed to
pay 50 percent of the license fee in January 1998 and 50 percent in January
1999 (see Note 12).
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.
3. 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.
F-6
<PAGE>
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, 1997.
SIGNIFICANT CUSTOMERS
During fiscal 1997, revenues from one customer (see Note 4) represented 79
percent of the Company's total revenues. At September 30, 1997, receivables
from another customer accounted for 99 percent of the Company's accounts
receivable balance.
During fiscal 1996, revenues from one customer (see Note 4) 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.
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. All of the Company's
investments were sold in fiscal 1997. A gain of $12,915 was recorded on the
sales.
INVESTMENT IN AFFILIATE
Investment in affiliate is accounted for on the equity method (see Note 6).
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 approximately $28,000 in 1996 and $800 in 1997.
Cash paid for interest was approximately $2,600 in 1996 and $94,000 in 1997.
NET LOSS PER COMMON SHARE
Net loss per common share amounts are based on the weighted average number of
shares of common stock outstanding during the related periods. The effect of
dilutive common share equivalents is not included in the net loss per common
share calculations for fiscal years 1996 and 1997.
F-7
<PAGE>
4. 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 1996, the Company received $450,000 under the
agreement. The agreement also calls for the Company to receive a royalty for
each unit produced under the agreement. Through September 30, 1997, 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, due to a marketing decision implemented by the major OEM, the
first model year of production was revised to begin in July 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. The $1,000,000 was recognized as
revenue in fiscal 1995 as the amount will be paid irrespective of any units
ever being produced and with no further performance required on the part of
the Company. At September 30, 1996 and 1997, this receivable is included in
accounts receivable at its discounted present value of $891,401 and $885,995,
respectively.
On December 29, 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. In addition, the Company will receive a royalty on each
unit produced under the agreement. Through September 30, 1997, no royalties
had been earned under the agreement.
In November 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.
In October 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. In March 1997, the Company entered into
an agreement with Steyr in which the Company licensed Steyr the right to
manufacture and market GERODISC. The license agreement provides for a
licensing fee of $1,000,000, all of which was paid in fiscal 1997. The
$1,000,000 was recorded as license revenue in fiscal 1997 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.
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, 1997, no
royalties had been earned under the agreement.
F-8
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 1996 and
1997:
1996 1997
-------- --------
Vehicles $ 70,378 $ 70,378
Furniture and fixtures 103,284 103,284
Machinery and equipment 320,705 379,383
Leasehold and improvements 35,667 35,667
-------- --------
530,034 588,712
Accumulated depreciation and
amortization (326,554) (396,439)
-------- --------
$203,480 $192,273
-------- --------
6. INVESTMENT IN AFFILIATE
On August 11, 1994, the Company entered into a joint venture agreement with
TAISUN Automotive Pte. Ltd., a Singapore corporation, which is 85 percent
owned by a principal shareholder of the Company. 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. In December 1997, ASHA-TAISUN increased its ownership interest to 95
percent.
The Company has recorded its investment in ASHA-TAISUN at its invested capital
contributions less its share of the operating losses in fiscal years 1996 and
1997 of $886,592 and $861,257, respectively.
The following is summarized financial information of ASHA-TAISUN as of, and
for the years ended, September 30, 1996 and 1997:
1996 1997
----------- ------------
Assets $ 1,201,607 $ 1,225,669
Liabilities (625) (6,536)
Shareholders Equity 1,200,982 1,219,133
Net Loss $(1,773,184) $(1,722,514)
7. SHORT-TERM BORROWINGS
Through October 1997, the Company had entered into a line of credit agreement
with a bank under which the Company could borrow up to $500,000. At September
30, 1996, $275,000 was outstanding on the line. The line expired in November
1996.
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 prime rate (8.5 percent at September 30, 1997)
plus 1.5 percent. The line is secured by essentially all assets of the
Company. At September 30, 1997, no amounts were outstanding on the line. In
F-9
<PAGE>
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 ($40,000) was amortized as interest expense in
fiscal 1997. The Company expects to renew its line of credit for an
additional year in early 1998.
8. EQUITY TRANSACTIONS
PUBLIC OFFERING
In June 1997, the Company completed a public offering of its common stock.
The Company sold 1,437,500 shares at a price of $4.00 per share. The gross
and net proceeds relating to the offering were $5,750,000 and $4,616,391,
respectively. In connection with the offering, the Company issued to the
representatives of the underwriter a warrant to purchase up to 125,000 shares
of common stock at $5.00 per share. The warrant is exercisable beginning in
June 1998 and expires in June 2002.
In January 1997, in connection with the public offering, the Company received
net proceeds of approximately $799,000 from the sale of units, each of which
consisted of a promissory note and one share of common stock. In connection
with the financing, 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 was amortized as interest expense during fiscal 1997.
The notes were repaid in fiscal 1997 from the proceeds of the public offering.
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, 1997, 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 was exercised in October 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.
In July 1997, the Company granted, under no specific plan, an option to a
consultant to purchase up to 93,100 shares of its common stock at the exercise
price of $4.375 per share. The options vest at the rate of 2,100 per month
plus 17,500 at the date of grant.
F-10
<PAGE>
In August 1997, the Company granted, under the 1994 Plan, an option to another
consultant to purchase 35,000 shares of its common stock at the exercise price
of $5.125 per share. The options vest at the date of grant.
A summary of the status of the Company's outstanding stock options at
September 30, 1996 and 1997 and changes during the years then ended is as
follows:
1996 1997
------------------- -------------------
Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price
Outstanding at beginning -------- --------- -------- ---------
of year 82,114 $ 3.62 270,356 $ 4.18
Granted 198,402 4.40 541,986 4.05
Exercised (8,921) 4.01 (73,386) 3.91
Forfeited (1,239) 4.00 (10,414) 4.03
------- ------- ------- -------
Outstanding at end of year 270,356 $ 4.18 728,542 $ 4.05
------- ------- ------- -------
Exercisable at end of year 270,356 $ 4.18 659,242 $ 4.06
------- ------- ------- -------
Weighted average fair value
of options granted $ 1.97 $ 1.87
------- -------
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 follows 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 years ended September 30, 1996 and
1997:
1996 1997
----------- -----------
Net loss As Reported $(1,812,322) $(2,908,955)
Pro Forma (2,205,390) (3,630,445)
Net loss per As Reported $ (.26) $ (.39)
common share Pro Forma (.31) (.48)
Under the provisions of SFAS 123, options granted to non-employees are
excluded from the pro forma disclosure requirements and must be recorded as an
expense at fair value in the accompanying statements of operations. During
fiscal 1997, the Company recorded consulting expense of $152,138 in connection
with stock options granted to two non-employees. Because the SFAS 123 method
of accounting has not been applied to options granted prior to October 1,
1995, the resulting pro forma compensation cost may not be representative of
that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using an
option pricing model with the following weighted-average assumptions used for
grants in 1996 and 1997: risk-free interest rates of 5.6 to 7.0 percent; no
expected dividend yield; expected life of three years; expected volatility of
approximately 60 percent.
F-11
<PAGE>
STOCK WARRANTS
A summary of warrant activities for the year ending September 30, 1997 is as
follows (no warrants were issued prior to fiscal 1997):
Shares Price
-------- -------------
Balance, September 30,1996 - $ -
Granted 143,750 4.00 to 5.00
Exercised - -
Canceled - -
------- -------------
Balance, September 30,1997 143,750 $4.00 to 5.00
------- -------------
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, 1997. 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, 1997. 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 basis 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.
F-12
<PAGE>
The components of the net deferred income tax asset at September 30, 1996 and
1997 are as follows:
1996 1997
---------- ----------
Loss in investment in affiliate $ 587,534 $ 946,371
Capitalized research and
development costs 174,007 271,281
Net operating loss carryforwards 919,389 1,645,969
Other, net 49,371 46,093
---------- ----------
Less: Valuation reserve 1,731,301 2,909,714
(1,731,301) (2,909,714)
---------- ----------
$ - $ -
---------- ----------
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 operating history and the
uncertainty of long-term profitability, a valuation reserve equal to the
deferred income tax asset has been recorded.
The provision for income taxes for the years ended September 30, 1996 and 1997
relates solely to the California minimum state tax.
There was no deferred provision for income taxes for the years ended September
30, 1996 and 1997.
A reconciliation of the provision for income taxes to the amount computed at
the federal statutory rate for the years ended September 30, 1996 and 1997 is
as follows:
1996 1997
--------- ----------
Federal income tax benefit at
the statutory rate $(615,917) $(988,773)
State taxes, net of
federal benefit 800 800
Tax benefits not recognized 615,917 988,773
--------- ---------
$ 800 $ 800
--------- ---------
The net operating loss carryforward as of September 30, 1997 for federal and
state tax purposes is approximately $4,733,000 and $414,000, respectively, and
expires beginning in 2003.
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 approximately $68,000 for the years ended September
30, 1996 and 1997.
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-13
<PAGE>
Years ending September 30
-------------------------
1998 $118,00
1999 68,000
2000 45,000
2001 7,000
--------
$238,000
--------
EMPLOYMENT AGREEMENTS
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 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.
11. 401(k) PLAN
The Company has a 401(K) Plan under 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 years ended September 30,
1996 and 1997, the Company made $8,047 and $5,030, respectively, in matching
contributions under this plan.
l2. SUBSEQUENT EVENT
Effective January 1998, the Company entered into a new license agreement with
NVG. This agreement expands NVG's license rights for GERODISC application to
include certain axle and coupling applications. The agreement calls for a
license fee for $5,100,000 and for the Company to receive a royalty for each
unit produced under the agreement.
F-14
<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: January 13, 1998 By /s/ John C. McCormack
John C. McCormack, Chairman of the Board,
President and 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/ John C. McCormack Chairman of the Board, January 13, 1998
John C. McCormack President and Chief
Executive Officer and
Director
/s/ Steven E. Sanderson Chief Financial Officer January 13, 1998
Steven E. Sanderson (Principal Financial and
Accounting Officer) and
Controller
___________________________ Director
Robert J. Sinclair
/s/ Lawrence Cohen Director January 13, 1998
Lawrence Cohen
/s/ Nick P. Bartolini Director January 13, 1998
Nick P. Bartolini
__________________________ Director
Erick E. Reickert
LICENSE AGREEMENT
THIS AGREEMENT, effective this 5th day of January 1998, is made
between ASHA CORPORATION, a corporation of the State of Delaware, having an
office and place of business at 600 C Ward Drive, Santa Barbara, California
93111, (hereinafter referred to as "ASHA") and NEW VENTURE GEAR, INC., a
corporation of the State of Delaware having an office and place of business at
1650 Research Drive, Troy, Michigan 48083 (hereinafter referred to as "NVG").
WITNESSETH:
WHEREAS, ASHA owns certain technology and patents relating to
hydromechanical limited slip mechanisms for use in motor vehicle driveline
applications;
WHEREAS, NVG is in the business of, among other things, designing and
manufacturing driveline products for installation in motor vehicles;
WHEREAS, NVG desires to obtain rights to the technology and patents
for its driveline products; and
WHEREAS, ASHA is willing to grant such rights to NVG upon the terms
and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
When used in this Agreement, each of the following terms shall have
the meaning indicated, such meaning to be equally applicable to both the
singular and plural form of the term defined.
1.1 "Gerodisc Devices" shall mean all passively or actively
controlled differential and coupling devices which utilize the fluid pressure
generated by a gerotor pump to control relative rotary motion and/or torque
transfer between two components, and which may include a clutch actuated by
fluid from the gerotor pump.
1.2 "Licensed Technology" shall mean all technology developed or
acquired by ASHA at any time prior to termination of this Agreement (which
ASHA is not prevented by a third party agreement from disclosing to NVG)
including, but not limited to, all technical information, inventions (whether
patentable or not), knowhow, product and process developments and all
improvements thereto relating to Gerodisc Devices.
1.3 "Licensed Patents" shall mean all U.S. and foreign patent
applications and patents relating to Gerodisc Devices which are owned or
controlled by ASHA as well as all divisions, continuations,
continuation-in-part, substitutions, reissues and extensions thereof. All
patent and patent applications existing at the time of execution of this
Agreement are listed in an Appendix I hereto. The list will be supplemented
periodically as new patent applications are filed and patents issued, with all
such new patents and patent applications considered as Licensed Patents.
1.4 "Vehicles" shall mean passenger automobiles, vans, light trucks
and other sport utility vehicles used on public highways and for occasional
use off-road.
1.5 "Rear Axle Products" shall mean rear axle assemblies, modules,
in-line couplings, and axle differentials equipped with or utilizing a
Gerodisc Device.
1.6 "Transaxle Products" shall mean automatic, continuously-variable
and manual transaxles, power take-off couplings, and transaxle differentials
equipped with or utilizing one or more Gerodisc Devices.
1.7 "Front Twindisc Products" shall mean front axle assemblies,
modules and axle differentials equipped with or utilizing a pair of Gerodisc
Devices.
1.8 "Rear Twindisc Products" shall mean rear axle assemblies,
modules, in-line couplings and axle differentials equipped with or utilizing a
pair of Gerodisc Devices.
1.9 "Developed Product" shall be used to refer to Rear Axle Products,
Transaxle Products, Front Twindisc Products and Rear Twindisc Products.
ARTICLE 2. WARRANTIES
2.1 ASHA represents and warrants that it is the owner of the Licensed
Technology and the Licensed Patents and has the authority to enter into this
Agreement and to grant the licenses and rights set forth hereinafter.
2.2 ASHA represents and warrants that it will not assert any of the
Licensed Patents against NVG in a manner that would interfere with NVG's
business under this Agreement.
2.3 ASHA represents and warrants that it will not itself practice the
licensed rights for Developed Products and Gerodisc Devices granted to NVG
under this Agreement, nor will ASHA grant a license to, or otherwise
authorize, a third party to use the Licensed Technology and/or the Licensed
Patents in a manner which conflicts with the rights granted to NVG under this
Agreement.
2.4 ASHA represents and warrants that it will diligently seek and
maintain U.S. and foreign patent protection required to cover the Licensed
Technology under this Agreement.
2.5 ASHA represents and warrants that, to the best of its knowledge,
Developed Products and Gerodisc Devices using the Licensed Technology and/or
the Licensed Patents within the scope of this Agreement do not infringe any
patents or other intellectual property rights owned by third parties.
2.6 ASHA represents and warrants that it will use its best efforts to
license any third party brought to ASHA's attention who is infringing or will
be infringing one or more of the Licensed Patents or who is using the Licensed
Technology without authorization.
ARTICLE 3. GRANTS
3.1 ASHA hereby grants to NVG, subject to Paragraphs 3.2 and 3.3 of
this Article, the following licenses under the Licensed Technology and the
Licensed Patents with rights to make, have made, use, have used, lease, and
sell Developed Products for Vehicles and Gerodisc Devices for Developed
Products as described immediately below:
Developed Product Territory License Basis
- ----------------- --------- -------------
(a) Rear Axle Products Worldwide Nonexclusive
(b) Transaxle Products Worldwide Nonexclusive
* Exclusive
(c) Front Twindisc Products Worldwide Nonexclusive
* Exclusive
(d) Rear Twindisc Products Worldwide Nonexclusive
* Exclusive
*THIS INFORMATION HAS BEEN OMITTED AS CONFIDENTIAL AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
3.2 NVG shall have the right to convert any exclusive license into a
nonexclusive license upon written notice to ASHA anytime subsequent to two
years following the effective date of this Agreement, with a royalty reduction
as provided for in Paragraph 4.3 of Article 4.
3.3 Effective January 31, 2002 and each January 31st thereafter, if
the total royalties paid to ASHA under the exclusive license for a Developed
Product is less than $250,000 for the prior calendar year, ASHA shall have the
right, upon thirty (30) days written notice to NVG, to convert the exclusive
license to a nonexclusive license with a corresponding royalty reduction as
provided in Paragraph 4.3 of Article 4. However, NVG shall have the right to
maintain the exclusive license by paying ASHA the deficiency, within thirty
(30) days of receiving notice, such that the total royalty payment for the
prior calendar year equals $250,000.
3.4 ASHA hereby grants NVG a worldwide nonexclusive license to use
the terms "ASHA," "GERODISC" and any other trademark or tradename owned or
used by ASHA relating to Gerodisc Devices in any manner of publicity,
advertising, or similar activity with the prior consent of ASHA which will not
be unreasonably withheld.
3.5 Upon written notice to ASHA anytime prior to January 31, 1999,
NVG shall have the right to grant ASHA a worldwide, nonexclusive, royalty-free
license to use any improvements to Gerodisc Devices, whether patentable or
not, which are developed by NVG during the term of this Agreement. If granted,
this license shall permit ASHA to grant sublicenses to its other licensees
subject, however, to the conditions that:
(a) the sublicense shall not become effective for a period of
three (3) years following the grant of the underlying license;
(b) the other licensee has granted similar cross license and/or
grant-back rights to ASHA; and
(c) ASHA grants NVG a worldwide, nonexclusive, royalty-free
license with rights to use all improvements which result from the other
licensee's cross license or grant-backs.
ARTICLE 4. PAYMENTS AND ROYALTIES
4.1 Under the terms of this Agreement, NVG agrees to pay ASHA:
(a) A license fee of $5,100,000 payable in two equal
installments due respectively on January 31, 1998 and January 31, 1999;
(b) A royalty of $* for each Rear Axle Product covered under
the worldwide nonexclusive license granted in Paragraph 3.1 (a) of Article 3;
(c) A royalty of $* for each Transaxle Product covered under
the worldwide nonexclusive license granted in Paragraph 3.1 (b) of Article 3;
(d) A royalty of $* for each Transaxle Product covered under
the exclusive license to * granted in Paragraph 3.1 (b) of Article 3;
(e) A royalty of $* for each Transaxle Product covered under
the exclusive license to * granted in Paragraph 3.1 (b) of Article 3 for the
first three (3) years following the start of production of the initial model
and a royalty of $* for each Transaxle Product thereafter;
(f) A royalty of $* for each Front Twindisc Product covered
under the worldwide nonexclusive license granted in Paragraph 3.1 (c) of
Article 3;
(g) A royalty of $* for each Front Twindisc Product covered
under the exclusive license to * granted in Paragraph 3.1 (c) of Article 3;
(h) A royalty of $* for each Front Twindisc Product covered
under the exclusive license to * granted in Paragraph 3.1 (c) of Article 3 for
the first three (3) years following the start of production of the initial
model and a royalty of $5.00 for each Front Twindisc Product thereafter;
(i) A royalty of $* for each Rear Twindisc Product covered
under the worldwide nonexclusive license granted in Paragraph 3.1 (d) of
Article 3;
(j) A royalty of $* for each Rear Twindisc Product covered
under the exclusive license to * granted in Paragraph 3.1 (d) of Article 3 for
the first three (3) years following the start of production of the initial
model and a royalty of $* for each Rear Twindisc Product thereafter.
*THIS INFORMATION HAS BEEN OMITTED AS CONFIDENTIAL AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
4.2 The applicable royalty for each exclusive license set forth in
Paragraph 4.1 above shall be reduced by $* per Developed Product sold after
each one million units produced until the royalty to be paid is equal to the
nonexclusive royalty for that license.
*THIS INFORMATION HAS BEEN OMITTED AS CONFIDENTIAL AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
4.3 In the event that an exclusive license is converted to a
nonexclusive license under either of Paragraphs 3.2 and 3.3 of Article 3
hereof, NVG thereafter agrees to pay ASHA:
(a) A royalty of $* for each Transaxle Product;
(b) A royalty of $* for each Front Twindisc Product; and
(c) A royalty of $* for each Rear Twindisc Product.
*THIS INFORMATION HAS BEEN OMITTED AS CONFIDENTIAL AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
4.4 NVG agrees to pay ASHA the applicable royalty, as set forth in
Paragraphs 4.1, 4.2 and 4.3 above, for each Developed Product which, when sold
or leased, is covered by an unexpired U.S. patent owned by ASHA. Expiration of
the patent shall not relieve NVG of its obligation to make royalty payments to
ASHA for Developed Products sold or leased prior to the date of expiration.
ARTICLE 5. ACCOUNTING AND PAYMENT
5.1 NVG will keep complete and orderly records showing the number of
Developed Products sold, leased or sublicensed by it and royalty due therefor.
NVG will deliver to ASHA a written report setting forth the number of
Developed Products sold, leased or sublicensed during the four month periods
of January through April, May through August, and September through December
so long as royalties remain owing by NVG to ASHA. Each report and payment will
be due within thirty (30) days of the end of the applicable four month period.
5.2 Each report will be accompanied by a remittance of the royalties
due for the time period covered by the report.
5.3 NVG will make its records pertaining to the sale or lease of the
Developed Products available during normal business hours for ASHA's review,
at ASHA's expense. Any inspection will be performed by a certified public
accountant paid by ASHA, and only to the extent necessary to determine the
accuracy of NVG's reports. NVG will keep copies of the records necessary to
substantiate a report for twenty-four months following the end of the period
covered by the report.
ARTICLE 6. VALIDITY OF THE PATENTS
If any U.S. patent owned by ASHA and licensed hereunder is held
invalid, unenforceable, or of limited scope (which would render it
inapplicable when applied to the Developed Products) by any court of competent
jurisdiction from which no appeal is possible or taken, NVG's obligation
hereunder with regard to the patent shall thereupon permanently cease to the
extent of such holding of invalidity, unenforceability, or limitation of
scope, but such holding shall not relieve NVG of its obligation to make such
payments of royalties that have accrued hereunder prior to the date of such
holding or may accrue under other U.S. patents licensed hereunder.
ARTICLE 7. ENFORCEMENT OF LICENSED PATENTS
So long as an exclusive license under this Agreement remains in
effect, NVG shall have the right to sue any infringer of a Licensed Patent at
its own expense, in the name of ASHA if necessary. NVG and ASHA will divide
equally any damages after payment of all litigation expenses up to twice the
total royalty which would have been paid if the infringer were sublicensed
under Paragraph 4.1 of Article 4. NVG will retain all further damages awarded
in such a suit. ASHA agrees to execute any necessary papers for such suit, and
NVG agrees to keep ASHA fully informed as to the progress of such suit and to
indemnify and defend ASHA for any counterclaim or award resulting from NVG's
conduct, including any assessed costs or sanctions.
ARTICLE 8. MOST FAVORED LICENSEE
8.1 In the event that ASHA hereafter grants a license to a third
party under the Licensed Patents and/or the Licensed Technology which includes
a royalty provision which (when considered with the other terms and conditions
therein) is more favorable than the royalty rate set forth in Article 4 of
this Agreement, ASHA agrees to advise NVG of such a royalty provision and
shall, at the option of NVG, amend this Agreement to grant NVG a royalty rate
which is equally favorable considering the terms and conditions herein in
their entirety.
8.2 ASHA agrees to advise NVG of all licenses to be offered to any
third parties under the Licensed Technology and/or the Licensed Patents and to
grant NVG a "first right of refusal" option with respect to such license
offerings.
ARTICLE 9. DURATION
Unless otherwise terminated early in accordance with Article 10
hereof, this Agreement shall remain in force and effect until expiration, or
final judicial judgement of invalidity or unenforceability, of all U.S.
patents owned by ASHA and licensed hereunder.
ARTICLE 10. TERMINATION
10.1 Subject to the provisions of Article 21, should either party
fail to faithfully observe and perform each of the obligations assumed by it
under this Agreement for sixty (60) days after its attention has been directed
thereto by notice in writing, then the other party shall have right to
terminate this Agreement by serving notice in writing of such termination on
or after the expiration of such period of sixty (60) days.
10.2 NVG may terminate this Agreement at any time after July 1, 1999
on ninety (90) days prior written notice to ASHA.
10.3 Termination of this Agreement shall not act to (a) prevent NVG
from fulfilling all contracts in effect on the termination date; (b) relieve
NVG of its obligation to pay royalties to ASHA that have accrued up to the
termination date; or (c) relieve NVG of its obligation to pay royalties to
ASHA that have accrued after the termination date as a result of NVG
fulfilling the contracts.
ARTICLE 11. CONFIDENTIALITY
During the term of this Agreement and for five years thereafter, each
party agrees to treat the work performed hereunder and all proprietary
information received from the other party or its customers including, without
limitation, competitively sensitive data, trade secrets, strategic business
plans, and other information relating to the Licensed Technology and the
Developed Products, regardless of format or notice, as confidential and will
not use, disclose or exploit such information in any way, directly or
indirectly, except as authorized herein or in writing by the disclosing party.
Such information may only be disclosed to those employees who have a need to
know and to the extent necessary to perform work hereunder. Each party agrees
to take all reasonable steps to maintain the secrecy of the information at
least as stringent as that party uses to safeguard its own confidential
information. The foregoing obligations will not apply to information which is
or becomes available to the public through no fault of the recipient, is
previously known or developed independently by the receipt as evidenced by
prior written and dated documentation, or is received from a third party
without a secrecy obligation to either party, or is information that would be
disclosed to NVG's parents or to potential customers in the ordinary course of
business.
ARTICLE 12. BEST EFFORTS
So long as this Agreement is in force, ASHA shall use its best
efforts to advance NVG's commercialization of Developed Products by providing
market development and sales assistance, technical assistance, engineering
research and development and engineering field support without charge to NVG.
NVG shall pay for all prototyping costs, first authorized in writing by NVG,
at ASHA's then normal rates charged to other customers for similar or
identical services. ASHA will attempt to secure payment from clients for
initial prototype development.
ARTICLE 13. MERGER AND INTEGRATION
This Agreement constitutes the entire agreement among the parties and
supersedes and annuls any and all other or former agreements, contracts,
promises or representations, whether oral or written, expressed or implied,
among the parties, with respect to the Licensed Technology and Licensed
Patents as applicable to the Developed Products.
ARTICLE 14. NO IMPLIED WAIVER
The failure of either party at any time to require performance by the
other party of any provision of this Agreement shall in no way affect the
right to require such performance at the time thereafter, nor shall the waiver
of either party of a breach of any provision of this Agreement constitute a
waiver of any succeeding breach of the same or any other provision.
ARTICLE 15. RELATIONSHIP OF PARTIES
NVG and ASHA are independent contracting parties and nothing in this
Agreement, except as provided in Article 7, is intended to make, or shall make
either party the agent or legal representative of the other for any purpose
whatsoever, nor does it grant either party any authority to assume or to
create any obligation on behalf of or in the name of the other party.
ARTICLE 16. AMENDMENT
This Agreement may be modified only by a written amendment which is
signed by authorized representatives from ASHA and NVG.
ARTICLE 17. APPLICABLE LAW
This Agreement shall be construed, interpreted, and governed by the
laws of the State of Michigan and both parties consent to exclusive personal
jurisdiction in the State and Federal Courts located in the State of Michigan
for resolution of all conflicts and legal matters arising from this Agreement.
ARTICLE 18. DISPUTE RESOLUTION
If a dispute arises between the parties relating to this Agreement,
the parties will meet within ninety days in a good faith effort to resolve the
dispute. If the meeting is not successful, the parties will meet within thirty
days at a more senior level in another good faith effort to resolve the
dispute. Each meeting must be attended by employees and representatives of
each party with authority to agree on reasonably anticipated actions to
resolve the dispute, but neither party shall be obligated to include its chief
executive officer in a meeting.
ARTICLE 19. SEVERABILITY
If any provision of this Agreement is declared void or unenforceable
by any competent judicial or administrative authority, then any such provision
shall be severed and all remaining provisions of this Agreement shall remain
in full force and effect.
ARTICLE 20. ASSIGNMENT
This Agreement is personal in nature and shall not be assigned or
transferred without the written consent of the other party except in
connection with the sale of the entire line of business relating to Gerodisc
Devices.
ARTICLE 21. NOTICES
Notices required by this Agreement shall be effective only when a
writing is actually received by the designated representative of the parties
as follows:
To ASHA: Mr. Jack McCormack, President
ASHA Corporation
600 C Ward Drive Santa Barbara, CA 93111
To NVG: Mr. James Lanzon, VP
New Venture Gear, Inc.
1650 Research Drive, Suite 350
Troy, MI 48083
With copy to:
Philip E. Rettig, Esq.
Harness, Dickey & Pierce, P.L.C.
5445 Corporate Drive, Suite 400
Troy, Michigan 48098
unless written notice of change shall have been previously given.
IN WITNESS WHEREOF, the parties hereto execute this Agreement by duly
authorized representatives.
NEW VENTURE GEAR, INC. ASHA CORPORATION
By: /s/ Fred L. Hubacker By: /s/ Jack McCormack
Fred L. Hubacker Jack McCormack
Its: President and CEO Its: President and CEO
<PAGE>
APPENDIX 1
ASHA GERODISC
PATENTS & APPLICATIONS
ASHA NO. TITLE SERIAL NO. PATENT ISSUE DATE
0134PUS Vehicle Drivetrain 08/016,168 5,310,388 5/10/94
Coupling
0134PCT Vehicle Drivetrain PCT/US93/01098
Coupling
(This PCT application has proceeded into
the national and regional phases in Australia,
Europe, Japan, and Korea)
0134PCN Vehicle Drivetrain 9410564.5
Coupling 02/09/94
0134PMX Vehicle Drivetrain 940391
Coupling 01/11/94
0135PUS Hydraulic Coupling 08/205,900 5,536,215 7/16/96
For Vehicle Drivetrain
0137PUS Hydraulic Coupling 08/482,761 5,595,214 1/21/97
For Vehicle Drivetrain 06/07/95
0137PCT Hydraulic Coupling PCT/US96/07987
For Vehicle Drivetrain 05/30/96
0138PUS Vehicle Drivetrain 08/496,250 5,611,746 3/18/97
Coupling 06/28/95
0138PCT Vehicle Drivetrain PCT/US96/07988
Coupling
0147PUS Hydraulic Coupling 08/733,3562
For Vehicle Drivetrain 01/07/96
0151PUS Hydraulic Coupling 08/882,363
For Vehicle Drivetrain
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT is made and entered into this 8th day of
January 1998, by and between Alain J-M Clenet ("Clenet") and ASHA Corporation
(the "Corporation").
W I T N E S S E T H :
WHEREAS, Clenet has agreed to resign as an officer and director of
the Corporation effective on the sale of 1,677,978 shares of common stock of
the Corporation held by him; and
WHEREAS, Clenet desires to continue to support the business
activities of the Corporation; and
WHEREAS, the Corporation desires to protect the Corporation from any
competition from Clenet.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, THE PARTIES AGREE AS FOLLOWS:
1. Resignation. Clenet hereby resigns as a Director of the
Corporation and as Chief Executive Officer and any and all other offices held
by him with the Corporation effective immediately on the effectiveness of this
Agreement.
2. Prior Agreements. This Agreement replaces and supersedes all
prior agreements, oral or written, between the Corporation and Clenet
including, but not limited to, an employment agreement dated November 6, 1991,
as amended on April 21, 1995.
3. Assignment of Rights. Clenet hereby assigns to the Corporation
all patent and other rights to intellectual properties currently held in his
name, or jointly with the Corporation or others. Clenet agrees to execute
additional assignments and/or other documents necessary or prudent to
effectuate the transfer of these rights.
4. Non-Compete. During the five year period commencing on the
effective date of this Agreement, Clenet shall not, without the prior written
consent of the Corporation, compete with the Corporation in its business areas
which are hereby defined to include designing, manufacturing and marketing
traction control systems for all vehicles worldwide and developing and
exploiting a commercially feasible manufacturing process for modularly-based
vehicles worldwide. Notwithstanding the foregoing sentence, if Clenet
determines to engage in any of the business areas set forth therein and he
offers a right of first refusal to the Corporation in accordance with the
provisions of paragraph 8 below, and the Corporation does not accept the offer
within 30 days of such offer, then Clenet shall be free to engage in such
business. Clenet will be deemed to be in competition with the Corporation if
he directly or indirectly, owns, manages, operates, or participates in the
ownership, management, operation or control of, or is a director or 5% or
greater stockholder or an employee of, or a consultant to, any business,
corporation or entity which is conducting any business which competes with the
Corporation's business areas defined above. As a violation by Clenet of this
paragraph 4 could cause irreparable injury to the Corporation, the Corporation
shall have the right, in addition to any other remedies available to it at law
or in equity, to enjoin Clenet in a court of equity for violating such
provision.
5. Confidentiality. During the five year period commencing on the
effective date of this Agreement, Clenet shall not, without the prior written
consent of the Corporation, disclose to any person or entity any of the
Corporation's trade secrets or use to any person's benefit other than that of
the Corporation, information gained as a result of being an employee, officer
or director of the Corporation. As a violation by Clenet of the provisions of
this paragraph 5 could cause irreparable injury to the Corporation and there
is no adequate remedy at law for such violation, the Corporation shall have
the right, in addition to any other remedies available to it, at law or in
equity, to enjoin Clenet in a court of equity for violating such provisions.
6. No Contacts with Customers. Clenet agrees that he will not
contact any licensees, customers or clients of the Corporation for a period of
five years commencing on the effective date of this Agreement, without the
prior written consent of the Corporation, which consent will not be
unreasonably withheld.
7. No Contacts with Other Businesses. Without the prior written
consent of the Corporation, which consent will not be unreasonably withheld,
Clenet agrees that for a period of five years from the effective date of this
Agreement he will not contact, or attempt to do business with or for any
business or entity with which the Corporation has had contact during the
twelve month period prior to the effective date of this Agreement for the
purpose of considering a merger or acquisition or for the purpose of engaging
in any business activity in the areas of business described in paragraph 4
above.
8. Right of First Refusal. During the five year period commencing
on the effective date of this Agreement, the Corporation shall have a right of
first refusal to purchase, license or otherwise acquire rights to any
automotive related concepts, inventions, and/or product designs that Clenet
may, from time to time, conceive or develop. Prior to selling, licensing or
otherwise granting rights to any third parties during such period, Clenet
shall first offer such rights to the Corporation. If the Corporation does not
accept the offer within 30 days of such offer, Clenet may develop and market
such automotive related concepts, inventions and/or product designs himself
(directly or through dealers or distributors) or may offer such concepts,
inventions and/or product designs to third parties provided that the terms
offered third parties, considered as a whole, are not materially less
favorable to the third party than the terms last offered by Clenet to the
Corporation, unless the Corporation is offered the third party terms for at
least 20 days. The non-compete provisions of paragraph 4 of this agreement
and the no contact provisions of paragraphs 6 and 7 of this Agreement shall
not apply to Clenet contacting and negotiating with third parties in
accordance with the terms of this paragraph.
9. Consulting Agreement. Clenet agrees that if the Corporation
desires his consulting services in the future for advanced engineering design
in automotive related areas, he will make a reasonable good faith effort to
make himself available to perform such services. Such services will be
performed pursuant to a consulting agreement and for compensation to be
negotiated in good faith by the parties hereto.
10. Salary Extension; Other Benefits. The Corporation shall pay
Clenet a salary and provide other benefits as follows:
a. The Corporation shall continue to pay Clenet his full
salary through December 31, 1997.
b. The Corporation shall transfer its ownership in the 1997
Tahoe to Clenet effective January 1, 1998, and make the lease payments for the
remaining term of the lease. At the completion of the lease on this vehicle,
the Corporation will pay the "buy out" on the lease. Clenet shall be
responsible for insurance on the vehicle effective January 1, 1998.
c. The Corporation will end its participation in Clenet's
membership in the La Cumbre Country Club after December 31, 1997.
d. The Corporation will cease all insurance payments on life,
medical, automobile, key man and other insurance policies for the benefit of
Clenet after December 31, 1997.
e. The Corporation will transfer ownership to Clenet of the
computer which he currently uses.
f. Clenet shall retain his option to purchase 8,278 shares of
common stock.
11. Effective Date. This Agreement shall become effective on the
closing of the sale of 1,677,978 shares of Common Stock to several investors
including Donna Cohen.
12. Representation. Once this Agreement is effective, Clenet shall
not, without the prior written consent of the Corporation, hold himself out as
being a representative of the Corporation.
13. No Disparagement. Clenet shall not make any disparaging or
derogatory statements, whether verbal or written, regarding the Corporation or
its shareholders, directors, officers, employees, agents or products; and the
Corporation, and its officers and directors shall not make any disparaging or
derogatory statements, whether verbal or written, regarding Clenet.
14. Release by Clenet. Clenet hereby releases and discharges the
Corporation (its officers, directors, and agents) from all claims, demands,
rights, liabilities, charges and causes of action (hereinafter referred to as
"claims") which he ever had, now has, or hereafter may have arising out of or
related to his employment with the Corporation, this Separation Agreement, or
any other matter through the date this Agreement is signed, including, but not
limited to, all tort claims, contract claims, employment discrimination
claims, and claims under the Age Discrimination in Employment Act or any other
federal, state, or local law.
15. Release by Corporation. The Corporation hereby releases and
discharges Clenet from all claims, demands, rights, liabilities, charges and
causes of action (hereinafter referred to as "claims") which it ever had, now
has, or hereafter may have arising out of or related to Clenet's employment
with the Corporation, this Separation Agreement, or any other matter through
the date this Agreement is signed, including, but not limited to, all tort
claims and contract claims except that Clenet shall not be released from any
liability for any intentional misconduct or gross negligence.
16. Corporation Property. After the Effective Date, Clenet shall
deliver to the Corporation any of the Corporation's credit cards he holds and
any other property belonging to the Corporation, including designs, drawings
or other documents.
17. Enforceability. The parties hereto covenant and agree that to
the extent any provisions or portion of this Agreement shall be held, found or
deemed to be unreasonable, unlawful or unenforceable, then the parties hereto
expressly covenant and agree that any such provision or portion thereof shall
be modified to the extent necessary in order that any such provision or
portion thereof shall be legally enforceable to the fullest extent permitted
by applicable law and that any court of competent jurisdiction shall, and the
parties hereto do hereby expressly authorize any court of competent
jurisdiction to, enforce any such provision or portion thereof or to modify
any such provision or portion thereof in order that any such provision or
portion thereof shall be enforced by such court to the fullest extent
permitted by applicable law.
18. Binding Effect. The terms of this Agreement shall inure to the
benefit of and be binding upon the Corporation, its successors and assigns,
and upon Clenet, his heirs and personal and legal representatives.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the
day and year first above written.
WITNESS:
/s/ William R. Rogers /s/ Alain J-M Clenet
William R. Rogers Alain J-M Clenet
WITNESS: ASHA CORPORATION, a Delaware
Corporation
/s/ William R. Rogers By: /s/ John C. McCormack
William R. Rogers John C. McCormack
STOCK PURCHASE AGREEMENT
BY AND AMONG
ASHA CORPORATION,
ALAIN J-M CLENET,
AND
GREENMOTORS LLC
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT, made as of the 8th day of January 1998, by and among ASHA
Corporation, a Delaware corporation (the "Company"), Alain J-M Clenet
("Seller"), and Greenmotors LLC, a Delaware limited liability company
("Purchaser").
WHEREAS, Purchaser desires to purchase 1,118,652 shares of the Common
Stock, $.00001 par value per share, of the Company (the "Common Stock") held
by the Seller, and the Seller desires to sell to Purchaser 1,118,652 shares
of Common Stock of the Company, in exchange for the consideration and upon the
terms described herein; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with such sale of Common
Stock and also desire to prescribe various conditions precedent to such sale.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
provisions, and representations contained herein, THE PARTIES HERETO AGREE AS
FOLLOWS:
ARTICLE 1
SALE
1.1 Sale and Delivery of Common Stock. Subject to all the terms and
conditions of this Agreement, the Seller shall transfer and convey to
Purchaser at the Closing (as defined in paragraph 1.3 hereof) good, valuable
and marketable title to 1,118,652 shares of Common Stock, free and clear of
all liens, claims and encumbrances (except as described in Sections 1.2 and
2.2 hereof) in exchange for the consideration described in paragraph 1.4
hereof. The consideration described in paragraph 1.4 hereof shall be wired at
the Closing to whatever account is designated by the Seller in writing to the
Purchaser at least 3 business days prior to the Closing.
1.2 The parties understand and agree that the certificates for the
shares being sold in this transaction are being held in escrow as described in
paragraph 2.2 below, and on the Closing, certificates representing 1,118,652
shares in the name of Seller will be canceled and one new certificate will be
issued in the name of Purchaser in the amount of 1,118,652 shares. The new
certificate for the Purchaser and any certificates for shares of the Seller
not being sold in this transaction will remain in escrow subject to the terms
of separate promotional share escrow agreements.
1.3 Effective Date and Closing. The Closing of the transaction
contemplated herein (the "Closing") shall occur on January 8, 1998, at a
mutually agreeable time and place or as soon thereafter as reasonably
practicable (the "Closing Date") following the date on which all of the
obligations and conditions precedent contained herein are complied with.
1.4 Purchase Price. Subject to all of the other terms and
conditions set forth in the Agreement and in reliance on the representations,
warranties and covenants hereinafter set forth, Purchaser shall deliver to
Seller cash in the amount of $3,000,000 ($2.6818 per share) (hereinafter
referred to as the "Purchase Price").
1.5 Termination Date. If this transaction has not closed by January
9, 1998, this Agreement shall be automatically terminated and none of the
parties shall have any obligations hereunder except that such termination
shall not waive any breaches of the terms of this Agreement arising prior
thereto.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Purchaser to enter into this Agreement, Seller
hereby represents and warrants to Purchaser that:
2.1 Share Ownership. The 1,118,652 shares of Common Stock to be
sold hereunder are owned of record and beneficially by the Seller, and such
shares are not subject to any claim, lien, encumbrance or pledge, except as
set forth in Section 2.2 hereof. Seller has authority to sell and exchange
such shares pursuant to this Agreement. After the Closing and the
simultaneous sale of another 559,326 shares by the Seller to four other
parties, Seller will continue to have record and beneficial ownership of
291,722 shares of the Common Stock and options to purchase 19,728 shares of
the Common Stock.
2.2 Restriction of Shares. The 1,118,652 shares of Common Stock to
be sold by Seller are presently held in an escrow account with TranSecurities
International, Inc. subject to the terms of a Promotional Shares Escrow
Agreement dated June 26, 1997, true copies of which, and amendments thereto,
if any, are attached hereto as Exhibit A. In addition, the 1,118,652 shares
of Common Stock are subject to a lock-up agreement between the Seller and H.J.
Meyers & Co., Inc., true copies of which, and amendments thereto, if any, are
attached hereto as Exhibit B.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY
As an inducement to Purchaser to enter into this Agreement, Seller
and the Company hereby represent and warrant to the Purchaser that:
3.1 Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock of which 8,663,158 shares of
Common Stock are currently issued and outstanding, and 10,000,000 shares of
$.001 par value Preferred Stock of which no shares are issued and outstanding.
All of the issued and outstanding shares of Common Stock are duly authorized,
validly issued, fully paid and nonassessable. Other than 1,162,827 shares of
Common Stock underlying options granted under the Company's Stock Option Plan,
125,000 shares of Common Stock underlying warrants issued to H.J. Meyers &
Co., Inc., 93,100 shares of Common Stock underlying options granted to Elliott
Goldberg, and 18,750 shares of Common Stock underlying warrants to Montecito
Bank, there are no outstanding subscriptions, options, rights, warrants,
convertible securities, or other agreements or commitments obligating the
Company to issue or to transfer from treasury any additional shares of its
capital stock of any class.
3.2 SEC Filings. Since January 1, 1995, the Company has filed with
the Securities and Exchange Commission ("SEC") all registration statements,
financial statements, reports, schedules, forms, proxy statements and all
other documents and written information (collectively "SEC filings") required
to have been filed by the Company under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended. As the date
hereof, none of the SEC filings contains, or, at the Closing Date, will
contain any untrue statement of a material fact or omits or will omit to state
a material fact necessary in order to make the statements contained therein,
in light of the circumstances in which they were made, not misleading.
3.3 Undisclosed Liabilities. Neither the Company nor any of its
properties or assets are subject to any material liabilities or obligations of
any nature, whether absolute, accrued, contingent or otherwise and whether due
or to become due, that are not reflected in the Company's financial statements
included in the Form 10-QSB for the three months ended June 30, 1997, other
than liabilities incurred in the normal course of operations since June 30,
1997. This Warranty by Seller is to the best of Seller's knowledge.
3.4 Authority. The Company has full corporate power and authority
to enter into this Agreement, the Registration Rights Agreement and any other
agreements, documents or instruments to be executed and delivered by the
Company pursuant to the provisions hereof or thereof (collectively the
"Transaction Documents") and to consummate the transactions contemplated by
the Transaction Documents. The Board of Directors of the Company has taken all
action required to authorize the execution and delivery of the Transaction
Documents by or on behalf of the Company and the performance of the
obligations of the Company under the Transaction Documents. No other
corporate proceedings on the part of the Company are necessary to authorize
the execution and delivery of the Transaction Documents by the Company or the
performance of its obligations under the Transaction Documents. The
Transaction Documents are, and when executed and delivered by the Company will
be, valid and binding agreements of the Company, enforceable against the
Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity, bankruptcy,
insolvency, moratorium and similar laws relating to creditors' rights
generally.
3.5 Ability to Carry Out Obligations. Neither the execution and
delivery of the Transaction Documents, the performance by the Company of its
obligations under the Transaction Documents, nor the consummation of the
transactions contemplated under the Transaction Documents will, to the best of
the Company's knowledge: (a) violate any provision of the Company's articles
of incorporation or bylaws; (b) with or without the giving of notice or the
passage of time, or both, violate, or be in conflict with, or constitute a
default under, or cause or permit the termination or the acceleration of the
maturity of, any debt, contract, agreement or obligation of the Company, or
require the payment of any prepayment or other penalties; (c) other than the
consent of the Securities Examination Division of the State of Michigan (the
"Division") and the consent of H.J. Meyers & Co., Inc., true and correct
copies of which are attached hereto as Exhibits C and D, respectively, and the
waiver by the parties to the Promotional Shares Escrow Agreement dated June
26, 1997, of the conditions to the transfer of the Common Stock pursuant to
this Agreement, all of which have been obtained, require notice to, or the
consent of, any party to any agreement or commitment, lease or license, to
which the Company is bound; (d) result in the creation or imposition of any
security interest, lien or other encumbrance upon any property or assets of
the Company; or (e) violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority to which the Company
is bound or subject.
3.6 Consents and Approvals. Other than the consent of the Division,
the consent of H.J. Meyers & Co., Inc., and the consent of the Seller's
spouse, all of which have been obtained and the entering into of new
Promotional Share Escrow Agreements by the Seller and the Purchaser in the
forms of Exhibits G and J, respectively, no consent, approval or authorization
of, or declaration, filing or registration with, any governmental or
regulatory authority or any other person is required to be made or obtained by
the Company and the Seller in connection with: (a) the execution and delivery
by the Company and the Seller of the Transaction Documents; (b) the
performance by the Company and the Seller of their obligations under the
Transaction Documents; or (c) the consummation by the Company and the Seller
of the transactions contemplated by the Transaction Documents.
3.7 Status of Shares. Upon the sale and transfer of the shares
being sold hereunder, the Purchaser will be the record and beneficial owner of
1,118,652 shares of the Common Stock, and such shares will be fully paid and
non-assessable, free and clear of all mortgages, pledges, liens, security
interests, encumbrances, and, except as set forth in Exhibits G and I hereto,
restrictions of every nature.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to the Company and the Seller to enter into this
Agreement, the Purchaser represents and warrants to the Company and Seller
that:
4.1 Purchaser's Status. Purchaser represents that it is a
sophisticated investor with experience in making investments of this type and
is an Accredited Investor as that term is defined in Rule 501(a) under the
Securities Act of 1933, as amended.
4.2 Investment Intent. Purchaser is purchasing the Common Stock for
its own account for investment purposes and not with a view to public
distribution. Purchaser has the capacity to evaluate the merits and risks of
the acquisition of the Common Stock and understands that the Common Stock is
subject to resale restrictions under various state and federal securities
laws.
4.3 Information Provided. Purchaser represents that it has not been
provided any information concerning the Company by the Seller, except for
information set forth or referred to in this Agreement, and Purchaser is not
relying on any representations or warranties of the Seller except for those
set forth in this Agreement.
ARTICLE 5
COVENANTS
5.1 Investigative Rights. From the date of this Agreement until the
Closing Date, the Company shall provide to Purchaser, and its counsel,
accountants, auditors, and other authorized representatives, reasonable access
to all of the Company's properties, books, contracts, commitments, and
records for the purpose of examining the same. The Company shall furnish
Purchaser with all information concerning its affairs as Purchaser may
reasonably request. Without in any manner reducing or otherwise mitigating
the representations contained herein, Purchaser and/or its representatives
shall have the opportunity to meet with accountants and attorneys to discuss
the financial condition of the Company. If the transaction contemplated
hereby is not completed, all documents received by Purchaser and/or its
attorneys and accountants shall be returned to the Company upon request.
5.2 Seller's Cooperation After the Closing; Further Action. At any
time and from time to time after the Closing, the Seller shall execute and
deliver to Purchaser such other instruments and take such other actions as the
Purchaser may reasonably request to more effectively vest title to the Common
Stock in the Purchaser. Each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all appropriate action, do or cause to
be done all things necessary, proper or advisable under applicable laws, and
execute and deliver such documents and other papers, as may be required to
carry out the provisions of this Agreement and to consummate and make
effective the transactions contemplated hereby.
5.3 Undertaking Regarding Becoming "Covered Securities." The
Company undertakes and agrees that, as soon as the Company meets the
requirements, it will take all reasonable steps necessary to have the Common
Stock being purchased by the Purchaser pursuant to this Agreement become
"Covered Securities" as such term is defined by the National Securities
Markets Improvement Act of 1996.
ARTICLE 6
CONDITIONS PRECEDENT TO PURCHASER'S PERFORMANCE
6.1 Conditions. Purchaser's obligations hereunder shall be subject
to the satisfaction, at or before the Closing, of all the conditions set forth
in this Article 6. Purchaser may waive any or all of these conditions in
whole or in part without prior notice, so long as such waiver is in writing;
and provided, however, that no such waiver of a condition shall constitute a
waiver by Purchaser of any other condition or any of Purchaser's other rights
or remedies, at law or in equity, if the Company and/or Seller shall be in
default of any of their representations, warranties, or covenants under this
Agreement.
6.2 Accuracy of Representations. Except as otherwise permitted by
this Agreement, all representations and warranties by the Company and Seller
in this Agreement or in any written statement that shall be delivered to
Purchaser by the Seller or the Company under this Agreement shall be true and
accurate when made and on and as of the Closing Date with the same force and
affect as if made at the Closing. The Company and the Seller shall deliver a
certificate to such effect dated the Closing Date.
6.3 Performance. The Company and Seller shall have performed,
satisfied, and complied with all covenants, agreements, and conditions
required by this Agreement to be performed or complied with by them, on or
before the Closing Date.
6.4 Absence of Litigation. No action, suit, or proceeding before
any court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened against any party hereto on or before the Closing
Date.
6.5 Closing Documents. The Company and the Seller shall deliver the
closing documents to be delivered by them as set forth in Article 9 of this
Agreement.
6.6 Separation Agreement. The Company and the Seller shall have
entered into the Separation Agreement substantially in the form attached
hereto as Exhibit E.
6.7 Due Diligence. The Purchaser shall be satisfied in its
reasonable discretion with the results of its due diligence investigation of
the Company.
6.8 Legal Opinion. Purchaser shall have received the written
opinion of Krys Boyle Freedman & Sawyer, P.C., counsel for the Company, dated
the Closing Date, substantially in the form attached hereto as Exhibit F.
6.9 Promotional Shares Escrow Agreement. All actions required by
the December 12, 1997, letter from Ronald C. Jones, the Director of the
Division, shall have been taken and all documents required thereby shall have
been executed and delivered to the Division pursuant to such letter, except
that the new escrow agreements, in the form attached hereto as Exhibit G, may
be provided to the Division within three (3) business days after the Closing.
6.10 H.J. Meyers Consent. The Company shall have provided a letter
from H.J. Meyers & Co., Inc., pursuant to which H.J. Meyers & Co., Inc.
consents to the sale of a total of 1,677,978 shares of Common Stock which
includes the 1,118,652 shares of Common Stock being sold by Seller to
Purchaser pursuant to this Agreement. A true copy of that letter is attached
hereto as Exhibit D.
6.11 Registration Rights Agreement. The Company shall have executed
and delivered the Registration Rights Agreement attached hereto as Exhibit H.
ARTICLE 7
CONDITIONS PRECEDENT TO THE SELLER'S PERFORMANCE
7.1 Conditions. The Seller's obligations hereunder shall be subject
to the satisfaction, at or before the Closing, of all the conditions set forth
in this Article 7. The Seller may waive any or all of these conditions in
whole or in part without prior notice; so long as such waiver is in writing;
and provided, however, that no such waiver of a condition shall constitute a
waiver by the Seller of any other condition of or any of the Seller's rights
or remedies, at law or in equity, if Purchaser shall be in default of any of
its representations, warranties, or covenants under this Agreement.
7.2 Accuracy of Representations. Except as otherwise permitted by
this Agreement, all representations and warranties by Purchaser in this
Agreement or in any written statement that shall be delivered to the Seller
by Purchaser under this Agreement shall be true and accurate on and as of the
Closing Date as through made at that time.
7.3 Performance. Purchaser shall have performed, satisfied, and
complied with all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by it, on or before the Closing
Date.
7.4 The conditions set forth in Sections 6.9 and 6.10 shall have
been met.
ARTICLE 8
BOARD SEAT FOR PURCHASER
8.1 Immediately after the Closing, Purchaser shall have the right to
select one member of the Company's Board of Directors. The director to be
selected by Purchaser shall serve until the next annual meeting of the
Company's shareholders. Thereafter, the Company will have such member
renominated for an additional three terms of office, and the Company's
officers and directors will agree to vote their shares to re-elect such
member. If such person is unable to continue serving on the Board for any
reason during this period, Purchaser shall be entitled to select a substitute
and the Company will use its best efforts to add the substitute to the Board,
and the Company's officers and directors will agree to vote their shares to
re-elect such member during the period described in the sentence above. If
for any reason during this period a person selected by Purchaser is not then
serving, Purchaser shall have the right to designate one representative to be
a non-voting observer to receive notice of and to attend all meetings of the
Company's Board of Directors, and to receive copies of any written consents or
minutes. Such individual shall be reimbursed by the Company for all
out-of-pocket expenses incurred in connection with attending such meetings.
ARTICLE 9
CLOSING
9.1 Closing. The Closing of this transaction shall be held at the
offices of Rogers, Sheffield & Herman, Santa Barbara, California, or such
other place as shall be mutually agreed upon, and on such date as shall be
mutually agreed upon by the parties. At the Closing:
(a) Purchaser shall deliver wired funds for the Purchase Price.
(b) Seller shall deliver to TranSecurities International, Inc.,
the Company's transfer agent a medallion guaranteed stock power authorizing
the transfer of 1,118,652 shares of the Common Stock to Purchaser.
(c) The Company and Seller shall deliver an executed copy of
the Separation Agreement between the Seller and the Company.
(d) Krys Boyle Freedman & Sawyer, P.C. shall deliver to
Purchaser the legal opinion referred to in paragraph 6.8 hereof.
(e) The Company shall provide the written consent from H.J.
Meyers & Co., Inc. required in Seller's lock-up letter, a true and correct
copy of which, together with all amendments, if any, is attached hereto as
Exhibit D.
(f) Purchaser shall deliver an executed copy of a new
Promotional Shares Escrow Agreement, a copy of which is attached hereto as
Exhibit G.
(g) Purchaser shall deliver an executed lock-up letter
addressed to H.J. Meyers & Co., Inc. in the form attached hereto as Exhibit I.
(h) Each party shall deliver such other documents or
information required to be furnished by Closing pursuant to this Agreement.
(i) The Company shall deliver an executed copy of the
Registration Rights Agreement which is attached hereto as Exhibit H.
(j) The Company and the Seller shall each deliver a
certificate, as described in Section 6.2 hereof, dated the Closing Date, that
all representations and warranties by the Company and the Seller set forth in
this Agreement or in any written statement that shall be delivered to
Purchaser by the Seller or the Company under this Agreement are true and
accurate when made and on the Closing Date with the same force and effect as
if made at the Closing.
(k) Seller shall deliver an executed copy of a new Promotional
Shares Escrow Agreement, a copy of which is attached hereto as Exhibit J.
(l) Seller shall deliver a document executed by the Seller's
spouse in form satisfactory to Purchaser in which Seller's spouse consents to
this transaction.
(m) Rogers, Sheffield & Herman shall deliver to Purchaser a
legal opinion in the form attached hereto as Exhibit K.
ARTICLE 10
MISCELLANEOUS
10.1 Captions and Headings. The Article and paragraph/section
headings through this Agreement are for convenience and reference only, and
shall in no way be deemed to define, limit, or add to the meaning of any
provision of this Agreement.
10.2 No Oral Change. This Agreement and any provision hereof, may
not be waived, changed modified, or discharged orally, but it can be changed
by an agreement in writing signed by the parties hereto.
10.3 Entire Agreement. This Agreement contains the entire Agreement
and understanding between the parties hereto, and supersedes all prior
agreements and understandings of the parties relating to the subject matter
hereof.
10.4 Choice of Law. This Agreement and its application shall be
governed by the laws of the State of Delaware.
10.5 Counterparts. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
10.6 Notices. All notices, requests, demands, and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of receipt if served personally on the party
to whom notice is to be given, by telecopy or telegram, or mailing if mailed
to the party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and properly addressed as follows:
Purchaser:
Greenmotors LLC
c/o Greenway Partners
277 Park Avenue, 27th Floor
New York, New York 10172
Attention: President and Chief Executive Officer
The Company:
ASHA Corporation
600 C Ward Drive
Santa Barbara, California 93111
Attention: Jack McCormack
Seller:
Alain J-M Clenet
3105 Calle Fresno
Santa Barbara, California 93105
10.7 Binding Effect. This Agreement shall inure to and be binding
upon the heirs, executors, personal representatives, successors and assigns of
each of the parties to this Agreement.
10.8 Brokers. The parties hereto represent that no broker has
brought about this transaction. Each of the parties hereto shall indemnify
and hold the other harmless against any and all claims, losses, liabilities or
expenses which may be asserted against it as a result of its dealings,
arrangements or agreements with any broker, finder or person.
10.9 Announcements. Purchaser, Seller and the Company will consult
and cooperate with each other as to the timing and content of any
announcements of the transactions contemplated hereby to the general public or
to employees, customers or suppliers.
10.10 Survival of Representations and Warranties. The
representations, warranties, covenants and agreements of the parties set forth
in this Agreement or in any instrument, certificate, opinion, or other writing
providing for in it, shall survive the Closing for a period of five
years irrespective of any investigation made by or on behalf of any party.
10.11 Assignment. This Agreement may not be assigned by
operation of law or otherwise by the Seller, the Company or the Purchaser.
10.12 No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other person, including, without limitation, any
employee or former employee of the Company, any legal or equitable right,
benefit or remedy of any nature whatsoever.
10.13 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or equity without the necessity of demonstrating the
inadequacy of monetary damages.
AGREED TO AND ACCEPTED as of the date first above written.
THE COMPANY: THE SELLER:
ASHA CORPORATION
By /s/ John C. McCormack /s/ Alain J-M Clenet
John C. McCormack, President Alain J-M Clenet
PURCHASER:
GREENMOTORS LLC
By:/s/ Gary K. Duberstein
Gary K. Duberstein, Vice President
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated December 22, 1997, included in this Form 10-KSB, into the
Company's previously filed Registation Statement File No. 33-81688 and File
No. 33-93678.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
January 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on page F-2 and F-3 of the
Company's Form 10-KSB for the fiscal year ended September 30, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,617,354
<SECURITIES> 0
<RECEIVABLES> 898,006
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,589,216
<PP&E> 192,271
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,391,046
<CURRENT-LIABILITIES> 245,466
<BONDS> 0
<COMMON> 87
0
0
<OTHER-SE> 4,145,493
<TOTAL-LIABILITY-AND-EQUITY> 4,391,046
<SALES> 1,295,131
<TOTAL-REVENUES> 1,295,131
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,043,898
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 358,744
<INCOME-PRETAX> (2,908,155)
<INCOME-TAX> 800
<INCOME-CONTINUING> (2,908,955)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,908,955)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
