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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, 1998
[ ] 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 $5,684,883.
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 November 5, 1998, 8,798,223 shares of the Registrant's Common Stock were
outstanding, and the aggregate market value of the shares held by non-
affiliates was approximately $21,764,173.
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 drive systems: 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 Chrysler
Corporation. Chrysler has announced the GERODISC technology as QUADRADRIVE and
is utilizing the technology in the 1999 model year Jeep Grand Cherokee
(standard equipment in the limited model and an option in the Laredo model).
The Company has developed an innovative technology for building and
assembling the chassis and body components of automotive vehicles (cars, light
trucks and vans). This technology 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 thermoformed polycarbonate 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. The Company has completed its transfer of
the developed technology to the Chinese factory in Jiaxing City and has been
advised that the factory, Jiaxing Independent Automotive Development ("JIAD"),
has satisfactorily completed 125,000 kilometer tests with six prototype units.
These tests are under the auspices of the Chinese central government for the
purposes of certification.
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 license arrangements
primarily in third-world countries. Further, the Company intends to continue
to develop products for the world-wide automobile and vehicle markets through
its continuing research and development activities.
The Company does not manufacture GERODISC units for other than prototype
purposes. The Company licenses the manufacture of the GERODISC units to Tier
One suppliers to the automotive original equipment manufacturers ("OEM's") and
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in some cases may license OEM's on a direct basis. The Company has licensed
the largest transfer case manufacturer (New Venture Gear, Inc.)and Steyr-
Daimler-Puch, a leading European Tier One supplier. License negotiations, for
various applications and geographic areas are ongoing. Royalties commence with
the start of production by a Licensee. To date, the Company recently received
its first royalties, in the form of a $1,000,000 advanced royalty payment from
New Venture Gear. This payment covers the first 200,000 transfer cases
provided by New Venture Gear. Commencing with the 200,001 unit royalties are
paid at the rate of $4.80 per unit.
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 tooling to build such vehicles using
the ABC technology will be substantially lower than the costs of tooling for
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.
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 drive trains: front-wheel drive, rear-
wheel drive, four-wheel drive and all-wheel drive.
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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 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, cause premature wear, 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 reduced manufacturing costs,
better fuel economy, and maximum traction. In these vehicles, GERODISC
eliminates a center differential or viscous coupling. The secondary drive axle
differential is replaced by two GERODISC couplings. GERODISC activates
automatically when needed, without electronics. Similar to the GERODISC system
used on front-wheel drive and rear-wheel drive, the 4WD/AWD coupling system is
self-activating and transparent to the driver.
On May 10, 1994, the Company received patent approval from the U.S.
Patent and Trademark Office for the GERODISC technology. Other U.S. patents
are pending and international patents have been applied for.
As of November 1998, approximately 130 individual GERODISC prototypes
have been built for evaluation by original equipment manufacturer's or first
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tier suppliers (the companies who supply directly to the OEM's) and
approximately 24 other prototypes are scheduled for development.
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 are currently in effect.
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 Chrysler for
the 1998 model year Jeep Grand Cherokee. 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 year. This decision was made because the OEM
planned to introduce a totally new model of the Jeep Grand Cherokee in 1999
and significantly increase the number of vehicles to be produced as compared
to the number of vehicles produced of the 1998 model year.
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
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
agreed to pay the Company a license fee of $5,100,000 of which $2,550,000 was
paid 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
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$1,000,000 license fee payment was made during January 1996. In addition, the
Company was to receive a royalty on each unit produced under the agreement. In
June 1998, Dana terminated this agreement. In September 1998 ASHA filed suit,
in federal court for breach of contract among other causes of action. (See
ITEM 3. - LEGAL PROCEEDINGS.)
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 is the second largest axle manufacturer in the
world, and it supplies approximately 95% of the axles used by General Motors.
There is no assurance that American Axle will exercise any portion of this
option.
STEYR-DAIMLER-PUCH FAHRZEUGTECHNIK GMBH LICENSE AGREEMENT
Effective March 31, 1997, the Company entered into a Gerodisc Technology
Transfer and License Agreement with Steyr-Daimler-Puch Fahrzeugtechnik GmbH
("Steyr") in which the Company granted Steyr non-exclusive licenses to design,
manufacture and sell GERODISC for specified types of platforms for certain
specific European OEM's and United States OEM's who manufacture in Europe.
The Company received a $1 million license fee and the Company will receive a
royalty on each unit produced and sold under the agreement. Steyr is the
largest European automotive supplier for European OEM's.
HIGH PERFORMANCE GERODISC APPLICATIONS
While the Company's goal is to develop products for license to automotive
OEM's or their suppliers, it has also determined to pursue opportunities for
the specialized application of GERODISC technology in high performance and
racing venues. These activities provide validation of the technology, and in
Europe where the major OEM's are more directly engaged in racing activities,
they provide a means of marketing and exposing the technology to the 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, and with Penske
Racing for the 1999 Cart series.
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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 little welding to assemble. The body design
uses a lightweight space-age thermoformed 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 limited
training.
The ABC technology is also very environment-friendly which is important
in many third-world countries. The manufacturing process, unlike conventional
automotive manufacturing technology, creates no by-products which require
recycling and the vehicle's components are almost entirely recyclable.
The first application of this technology is being conducted in China. In
July 1994, the Company entered into a joint venture with Singapore based
TAISUN Automotive PTE LTD. ("TAISUN") for the production and sale of vehicles
in the Far East. TAISUN, which is 85% owned by Brian Chang, a principal
shareholder of the Company, is a manufacturer of vehicles, ships, electrical
motors, fiberglass products, and chemicals. The Company has agreed to
contribute to the joint venture the right to use the ABC technology in the
design and manufacture of taxis. ASHA/TAISUN is an 85% owner of Jiaxing
Independence Auto Design & Development Co. Ltd. ("JIAD&D"), a corporation
formed under the laws of the Peoples Republic of China, for the purpose of
engaging in the production and sale of automobiles in China. Ten percent (10%)
of JIAD&D is owned by Walland Electric Motor Company, a company owned by Brian
Chang, and 5% is owned by Jack Tang, who is a Chinese national and who manages
the factory in China.
The Company initially owned 50% of ASHA/TAISUN. In September 1998, the
Company reduced its ownership to 18%. In return, the Company will receive a
royalty of $100 per vehicle produced by the joint venture. However, the
royalty will not commence until another person or entity has purchased most of
the interest given up by the Company. The Company has an option to repurchase
any unsold interests after two years.
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Following is a diagram showing the parties and ownership in this joint
venture as of September 30, 1998:
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ASHA TAISUN
18% 82%
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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 movement
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.
The joint venture intends to sell assembly franchises to persons and/or
entities 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. JIAD also will build complete vehicles for sale in its
own province.
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.
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
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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. Vehicle design patent - U.S. Patent No. DES-307,247.
6. Vehicle drive train - U.S. Patent No. 4,805,720.
7. Transparent vehicle roof having sunshade - U.S. Patent No.
4,923,244.
8. Manually operative roof having sunshade - U.S. Patent No. 5,005,899.
9. Vehicle vent - U.S. Patent No. 5,081,912.
10. Hydraulic coupling for vehicle drive train - U.S. Patent No.
5,735,764.
11. Vehicle body construction (ABC technology) - U.S. Patent No.
5,800,003.
12. Hydraulic coupling for vehicle drivetrain - five other patent
applications relating to variations of this technology have been filed with
the U.S. Patent Office.
13. Vehicle body space frame (ABC technology) - one patent application
has been filed with the U.S. Patent Office.
14. Differential speed sensitive and torque sensitive limited slip
coupling - one patent application has been filed with the U.S. Patent Office.
15. Check valve - one patent application has been filed with the U.S.
Patent Office.
MAJOR CUSTOMERS
During the year ended September 30, 1998, 95% of the Company's revenues
were received from license agreements from New Venture Gear, Inc., and 5% from
Steyr Daimler Puch for 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 September 30, 1998, the Company had 31 employees consisting of 3
executive officers, 23 automotive designers, engineers and fabricators, and 5
administrative support personnel. None of the Company's employees are
represented by a union and the Company has never had any work stoppages.
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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
$10,435 through May 2003. 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 30,000 square feet of space are utilized at
this location.
ITEM 3. LEGAL PROCEEDINGS
In June 1998, Dana terminated a license agreement with the Company to
manufacture and market the Company's GERODISC System Technology for front and
rear axles, just prior to the start of volume production for the 1999 Jeep
Grand Cherokee vehicle program.
On September 9, 1998, the Company filed a lawsuit against Dana in the
United States District Court for the Eastern District of Michigan, Southern
Division. The Company's complaint, as amended, alleges that Dana breached its
obligations under the license agreement and that Dana has been unjustly
enriched by the information it obtained concerning the GERODISC System. The
Company is seeking compensatory and punitive damages and attorneys' fees from
Dana and preliminary and permanent injunctions against Dana from using the
GERODISC technology.
Dana filed a motion to dismiss certain claims included in the original
complaint to which the Company responded and amended its complaint. The court
has not yet ruled on the motion, and Dana has not yet filed its answer in this
lawsuit.
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, 1998.
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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, 1996 $4.375 $3.50
March 31, 1997 $5.50 $4.625
June 30, 1997* $6.0625 $4.50
* Through June 27, 1997
The following table sets forth the high and low closing sales prices for
the Company's Common Stock as reported on the Nasdaq Small-Cap Market for the
periods indicated.
QUARTER ENDED HIGH LOW
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June 30, 1997* $4.25 $4.25
September 30, 1997 $7.375 $4.375
December 31, 1997 $7.375 $5.25
March 31, 1998 $7.875 $6.00
June 30, 1998 $7.813 $5.563
September 30, 1998 $6.50 $3.813
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* One day
APPROXIMATE NUMBER OF SHAREHOLDERS OF COMMON STOCK. The approximate
number of holders of record of the Company's Common Stock at November 4, 1998,
was 2,317. 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, 1998 VERSUS YEAR ENDED SEPTEMBER 30, 1997
During the year ended September 30, 1998, the Company had revenue of
approximately $5.6 million as compared to approximately $1.3 million for the
year ended September 30, 1997. The majority of the revenue for the latest
fiscal year was the result of signing a license agreement for $5.1 million
with New Venture Gear, a major Tier One supplier. The revenue for the prior
fiscal year was primarily due to the $1 million license fee earned from Steyr,
a large European automotive supplier.
Other revenue from contract services was approximately $185,000 for the
latest fiscal year as compared to $295,000 for the prior fiscal period. This
decrease was a direct result of an increase in the lead time needed for
prototype development.
Total operating expenses were approximately $3.6 million for the fiscal
year ended September 30, 1998 as compared to approximately $3.0 million for
the prior fiscal year. The increase of $521,000 in overall operating expenses
was a combination of: decreased administrative costs of approximately $58,000;
increased domestic marketing efforts of approximately $19,000; increased
international marketing efforts of approximately $12,000; implementation of an
after marketing program which resulted in increased expenses of approximately
$39,000; increased advanced engineering activities of approximately $80,000;
increased engineering activities of approximately $418,000, which resulted in
fabrication expenditures being decreased by approximately $55,000.
Research and development costs increased by $418,000 during fiscal year
ended September 30, 1998 as compared to the prior year. The reasons relating
to the increase are due to several factors. Salaries increased by $420,000
primarily due to retaining the services of four additional engineers with
expertise in project management and development. Related employment and hiring
fees consequently increased by $20,000 in the latest year. Worker's
compensation insurance expense also increased by $38,000 as a direct result of
the increase in salaries and wages. Depreciation expense increased $46,000
because of additional engineering hardware and software acquired during the
year. In addition, $16,000 was expended for personnel training on the new
software. Travel related to support existing licensees, as well as continued
support, increased travel expenses by $37,000 for the year ended September 30,
1998. Direct materials and supplies related to fabrication decreased by
$20,000 as a direct result of the decrease in contract support services.
Expenditures associated with the contractual employment agreement and
separation agreement for the former CEO accounted for approximately $34,000.
Legal fees associated with patents increased by $85,000. Approximately $50,000
of the increase was directly attributed to legal fees associated with the
defense of the GERODISC patent in connection with the Company's dispute with
Dana. Investor related expenses increased by $41,000 due to the increased
number of shareholders and mailings related to the annual shareholder meeting.
The Company recorded a net loss of $534,000 from investment in affiliate
during the fiscal year ended September 30, 1998 as compared to a net loss of
$861,000 for the prior fiscal year. The decrease was primarily due to the
transfer of technology to the affiliate. The Company reduced its ownership in
the latest fiscal year to 18% from 50% in exchange for royalties to be given
per unit produced.
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Interest income of $270,000 was substantially higher for the year ended
September 30, 1998 as compared to the interest income and gain on sale of
short-term investments of $61,000 for the prior year. The remaining proceeds
from the Company's public offering coupled with the first installment of
$2,550,000 from New Venture Gear received January 31, 1998 enabled the Company
to earn substantial interest for the latest fiscal year.
Interest expense of $29,000 for the latest fiscal year was substantially
less than the $359,000 for the prior year. The most significant interest item
for the latest year was points and fees associated with the renewal of the
Company's $750,000 credit line, points and fees associated with new $300,000
note to finance engineering hardware and software, and a new $70,000 note to
finance fabrication hardware and software. Interest expense for the year ended
September 30, 1997 was due to interest paid and accrued on the Company's bank
line of credit, the value of the stock issued as additional consideration in
connection with the $900,000 bridge loan and accrued interest on the bridge
loan.
The net income of $1,790,000 was significantly more that the prior year's
net loss of $2,909,000. The $5,100,000 revenue from the NVG license agreement
signed in the second quarter of the latest fiscal year was the primary
contributor to the profits where as there was only $1,000,000 in revenue from
the Steyr license agreement in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had a positive working capital of
approximately $5,665,000 as compared to positive working capital of
approximately $3,344,000 at September 30, 1997. The Company's working capital
is primarily attributed to the $2,550,000 first installment from New Venture
Gear license agreement and the remaining proceeds of the public offering that
the Company closed in July, 1997.
On February 20, 1998, the Company renewed its $750,000 credit line with
Montecito Bank & Trust. As of September 30, 1998 no advances were made on this
credit line, nor was any amount due. Amounts drawn under the credit line bear
interest at the prime rate, which is currently 8.5%, plus 1.0% and the credit
line is renewable on an annual basis. As of September 30, 1998, the annual
rate of interest for the credit line was 9.5% On February 20, 1998, the
Company negotiated a 60 month $300,000 long-term note to partially finance the
acquisition of engineering Computer-Aided-Design software and hardware.
Amounts under the note bear interest at the prime rate plus 1.0%. On April 21,
1998, the Company negotiated a 60 month $70,000 long-term note to partially
finance the acquisition of fabrication hardware and software. Amounts under
this note bear interest at 8.75% for the life of the loan.
On January 5, 1998, the Company signed a license agreement with New
Venture Gear, a major Tier One supplier. The agreement called for a $5,100,000
fee payable in two equal installments due respectively on January 31, 1998 and
January 31, 1999. The Company received the first installment of $2,550,000 on
January 31, 1998 as per the payment schedule.
With the cash from the NVG license and the remaining proceeds of the
public offering, the Company believes it will have sufficient liquidity to
maintain continued operations for the next twelve months. Net cash decreased
approximately $269,000 during fiscal year ended September 30, 1998 and
increased approximately $2,617,000 during fiscal year ended September 30,
1997.
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Operating activities for the year ended September 30, 1998 used $195,000
of net cash as compared to $1,266,000 in the fiscal year ended September 30,
1997. The increase in cash provided in operating activities was primarily due
to the receipt of the first installment of $2,550,000 from the New Venture
Gear license agreement as compared to an increase in accounts receivable for
the prior fiscal year. The net income of $1,790,000 for the fiscal year ended
September 30, 1998, as compared to a net loss of $2,909,000 for the fiscal
year ended September 30, 1997 also had a significant effect on year ended 1997
operating cash activities.
Investing activities for the year ended September 30, 1998 used
$1,031,000 of cash. Approximately $534,000 was attributed to the investment in
ASHA-Taisun joint venture as compared to $859,000 for the prior year. The
reduction in expenditures for the joint venture is due to continuing transfer
of production responsibility to the Chinese operation, thus reducing staff and
support expenses at the Santa Barbara location. Investments in fixed assets
utilized approximately $512,000 of cash in the fiscal year ended September 30,
1998 as compared to $59,000 in the prior year. The Company sold $260,000 of
short-term commercial paper in the year ended September 30, 1997 to pay for
investment expenditures.
Cash provided from financing activities increased cash by $973,000 in
fiscal year ended September 30, 1998 as compared to $4,528,000 in fiscal year
ended September 30, 1997. The increase in 1998 was due to the net borrowings
from bank financing of $336,000 and employees stock options being exercised
for $637,000. The increase in 1997 was primarily proceeds from the public
offering that closed in July, 1997.
THE YEAR 2000 ("Y2K") ISSUE
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Systems at risk include
information technology (IT) and non-IT systems. IT systems are computer
hardware, software, and related networking equipment. Non-IT systems include
telecommunication equipment, manufacturing and test equipment, HVAC, and
security access. ASHA is addressing potential Year 2000 Issues, and believes
that significant additional costs will not be incurred because of this
circumstance.
THE COMPANY'S STATE OF READINESS
Based on a recent assessment, ASHA has determined that it will be
required to modify or replace minor portions of its hardware and software so
that its computer systems will properly utilize dates beyond December 31,
1999.
The Company is initiating formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate their own
Year 2000 Issue. However, there can be no guarantee that the systems of other
companies on which ASHA's systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible
with ASHA Corporation's systems, would not have material adverse effect on the
Company.
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The Company will utilize both internal and external resources to
reprogram, or replace, and test systems for Year 2000 modifications. The
Company plans to complete the Year 2000 project within one year or not later
than September 30, 1999.
THE COSTS OF ADDRESSING OF COMPANY'S Y2K ISSUES
The Company expects the costs of its Year 2000 project to be
approximately $20,000. Of the total project cost, approximately 80% is
attributable to the purchase of new hardware and/or software which will be
capitalized. The remaining 20%, which will be expensed as incurred over the
current year, is not expected to have a material effect on the results of
operations. To date, ASHA has incurred insignificant expenses related to the
assessment of, and preliminary efforts in connection with, its Year 2000
project and the development of a remediation plan.
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including
the continued availability of certain resources, third party modification
plans and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from
those plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant computer
codes, and similar uncertainties.
THE RISKS OF THE COMPANY'S Y2K ISSUES
ASHA is in the process of determining the impact of the Y2K issue. Worst
case scenarios have not yet been explored. The Company is uncertain what, if
any, material effects the Y2K issue will have on its financial condition. A
formal assessment of the company's Y2K risks is expected to be completed by
mid-1999.
THE COMPANY'S CONTINGENCY PLANS
ASHA will develop contingency plans as needed based on the examination if
Y2K issues and worst case scenarios.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income." This statement, which is effective for
all reporting periods beginning in 1998, requires the prominent disclosure of
all components of Comprehensive Income, as defined. For the years ended
September 30, 1997 and 1998, the Company had no Comprehensive Income items.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
This statement, which is effective for all reporting periods beginning in
1998, redefines the way publicly held companies report information about
segments. Based upon the Company's assessment of this pronouncement, it has
determined that it will continue to report on an integrated one segment basis.
15
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ITEM 7. FINANCIAL STATEMENTS
The Report of Independent Public Accountants appears at page F-1 and the
Financial Statements and Notes to Financial Statements appear at pages F-2
through F-17 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No response required.
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 ............ 67 Chairman of the Board, President, Chief
Executive Officer, and Director
Kenneth R. Black ............. 52 Vice President of Sales and Marketing
Steven E. Sanderson .......... 45 Chief Financial Officer, Secretary and
Treasurer
Robert J. Sinclair ........... 66 Director
Lawrence Cohen ............... 54 Director
Nick P. Bartolini............. 62 Director
Erick A. Reickert............. 63 Director
David D. Jones................ 55 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. 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,
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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. He also served as a Director of the Company from
January 1998 to July 1998. 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 Chief Financial Officer
since March 1997. He also served as Controller of the Company from January
1997 to January 1998. 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.
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 Principal of Bartolini
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Associates with offices in Santa Barbara, California. Bartolini Associates
has provided process re-engineering new product and business development and
sales consultant services to automotive suppliers in the United States and
Europe. It also engages in venture investments and pro bono association with
RAND. Mr. Bartolini was previously employed by the Ford Motor Company for
over 30 years, and retired from the position of Vice President, Ford Parts and
Service Operations for Ford in Europe from 1989 to 1994. Prior to that time,
he held senior operation positions in sales, new product and business
development in Ford's Asia-Pacific and European operations. Mr. Bartolini was
also a Director of several foreign subsidiaries of Ford Motor Company in Asia
and Europe, including the Supervisory Board of Ford Werke AG. Mr. Bartolini
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
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.
DAVID D. JONES. Mr. Jones has been a Director since January 1998. Since
September 1997, Mr. Jones has served as President and Chief Executive Officer
and a Director of Outboard Marine Corporation, which manufactures and markets
outboard marine engines, boats and marine parts with annual sales of
approximately $1 billion. Outboard Marine Corp. is privately owned but has
publicly-held debt and files reports under the Securities Exchange Act of
1934. From 1990 through August 1997, he served as president of the Mercury
Marine Division of the Brunswick Corporation, a manufacturer of boats,
outboard motors, stern drives and other recreational products. Mr. Jones is
also a Director of National Exchange Bank, Fond du Lac, Wisconsin.
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
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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:
Alain J-M Clenet (a former Officer and Director) filed one Form 4
reporting one transaction three days late; Robert J. Sinclair filed a Form 5
one day late reporting one exempt stock option grant; David D. Jones filed a
Form 3 three days late; Nick P. Bartolini reported five Form 4 transactions
late in a Form 5; and Erick A. Reickert filed a Form 5 reporting one exempt
stock option grant late.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information regarding the executive
compensation for the Company's Chief Executive Officer and each other
Executive Officer who received compensation in excess of $100,000 for the
fiscal years ended September 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------- -------------------- --------------
SECURI-
TIES
UNDERLY-
OTHER RE- ING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS SATION
- ------------------ ---- -------- ------- ------ -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alain J-M Clenet, 1998 $ 38,125 -0- -0- -0- 11,450 -0- $33,926
Officer<FN1> <FN2>
1997 $152,500 $ -0- -0- -0- 8,278 -0- $ 5,953
<FN3>
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1996 $152,500 $73,000 -0- -0- -0- -0- $ 7,819
<FN4> <FN5>
John C. McCormack, 1998 $123,603 -0- -0- -0- 49,414 -0- $ 1,250
President <FN6> <FN7>
1997 $ 90,000 -0- -0- -0- 106,386 -0- $ -0-
1996 $ 90,000 $10,000 -0- -0- 65,786 -0- $ 504
<FN8>
Kenneth R. Black, 1998 $119,167 -0- -0- -0- 17,374 -0- -0-
Vice President <FN9>
of Sales and 1997 $ 90,000 -0- -0- -0- 104,257 -0- -0-
Marketing 1996 $100,592 $10,000 -0- -0- 10,524 -0- -0-
<FN10>
Steven E. 1998 $104,418 -0- -0- -0- 9,781 -0- -0-
Sanderson, <FN11>
Chief Financial 1997 $ 51,468 -0- -0- -0- 10,000 -0- -0-
Officer
Theo E. Shaffer, 1996 $ 92,025 $19,373 -0- -0- -0- -0- -0-
Executive Vice
President<FN12>
- -------------------
<FN>
<FN1>
Mr. Clenet resigned as an Officer and Director of the Company on January 8, 1998.
<FN2>
Represents automobile purchased for $28,000 for Mr. Clenet as part of termination
agreement, legal expenses of $5109 in connection to termination, and $816 for additional
medical expenses.
<FN3>
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 Chief Executive behalf.
<FN4>
Of this amount, $88,958 was paid during the fiscal year ended September 30, 1996, and the
remainder was deferred until January 1997.
<FN5>
Represents medical expense reimbursements for Mr. Clenet and his family.
<FN6>
Effective January 1, 1998 Mr. McCormack's compensation was increased from $90,000 per year
to $140,000 per year.
<FN7>
Represents amounts paid by the Company as a matching amount to a 401(k) plan contribution.
<FN8>
Represents amounts paid by the Company as a matching amount to a 401 (k) plan
contribution.
<FN9>
Effective January 1, 1998 Mr. Black's compensation was increased from $90,000 per year to
$130,000 per year.
<FN10>
Includes $15,592 paid to Mr. Black in settlement of unused vacation time.
<FN11>
Mr. Sanderson was hired on January, 1997 as Controller and Chief Financial Officer
effective March, 1997. Effective January 1, 1998 his annual salary increased from $85,000
per year to $110,000 per year.
<FN12>
Mr. Shaffer resigned on October 1, 1996.
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</FN>
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARs EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE
- ----------------- ------------ ------------ ---------- ----------
Alain J-M Clenet 11,450 3.2% $5.4375 12/16/00
John C. McCormack 49,414 13.7% 5.4375 12/16/00
Kenneth R. Black 17,374 4.8% 5.4375 12/16/00
Steven E. Sanderson 9,781 2.7% 5.4375 12/16/00
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 -- - 19,728 / 0 $2,587 / 0
John C. McCormack -- - 221,586 / 0 $1,996 / 0
Kenneth R. Black -- - 134,943 / 0 $1,330 / 0
Steven E. Sanderson -- - 19,781 / 0 $2,500 / 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. Both agreements
provide for cost of living adjustments and participation in all fringe
benefits available to other executive officers. Mr. McCormack's agreement also
provides that he is to be granted options to purchase 25,000 shares annually,
in addition to the 100,000 options he was granted on January 15, 1997.
Effective January 1, 1998 Mr. McCormack's salary increased to $140,000 per
year and Mr. Black's salary increased to $130,000 per year. In August, 1998
the Company entered into negotiations for the extension of their employment
agreements.
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DIRECTORS' COMPENSATION
Effective during the fiscal year ended September 30, 1998, the Company's
Directors receive fees of $1,250 per meeting for their attendance at Board or
committee meetings, and receive 12,500 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.
During fiscal year ended September 30, 1997, the Company's Directors received
25,000 options under the Company's 1994 Stock Option Plan in lieu of cash
fees.
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.
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.
In October 1998, stock options to purchase 12,500 shares each were
granted to Robert J. Sinclair, Lawrence Cohen, Nick Bartolini, Erick Reickert
and David D. Jones. These options are contingent on shareholder approval of
the October 1998 amendment to the Company's 1994 Stock Option Plan. These
options will be exercisable at $3.25 per share.
Certain of the Company's Directors receive fees for consulting services
to the Company in addition to the fees they receive as Directors. During the
fiscal year ended September 30, 1998, the Company paid Lawrence Cohen $52,174
and Nick Bartolini $7,900 for such consulting services.
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
the exercise price of options to be paid by means other than cash; and to
allow options to be granted with reload option provisions. On December 16,
22
<PAGE>
<PAGE>
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. These amendments were approved by the
Company's shareholders on April 3, 1998. On October 28, 1998, the 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
1,800,000.
As of September 30, 1998, there were 1,146,556 options outstanding under
the plan with exercise prices ranging from $3.69 to $6.28.
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, 1997 and 1998, the Company made $5,030 and
$8,231, 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 November 5, 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 and Executive Officer 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.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNERS BENEFICIAL OWNERSHIP OF CLASS
- -------------------------- -------------------- --------
John C. McCormack 221,586 (1) 2.5%
600 C Ward Drive
Santa Barbara, CA 93111
Robert J. Sinclair 88,377 (2) 1.0%
1025 North Ontare Road
Santa Barbara, CA 93105
Lawrence Cohen 494,406 (3) 5.4%
3311 NE 26th Avenue
Lighthouse Point, FL 33064
Nick P. Bartolini 23,840 (4) 0.3%
1026 Santa Barbara Street
Santa Barbara, CA 93101
Erick A. Reickart 6,250 (5) 0.1%
5128 Woodland Drive
Bloomfield Hills, MI 48302
23
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<PAGE>
David D. Jones -0- --
100 Seahorse Drive
Wankegan, IL 60085
Kenneth R. Black 134,943 (5) 1.5%
600 C Ward Drive
Santa Barbara, CA 93111
Steven E. Sanderson 19,781 (5) 0.2%
600 C Ward Drive
Santa Barbara, CA 93111
Brian Chang 1,217,113 13.8%
1 Chatworth Road, No. 2421
Singapore 1024
Greenmotors, L.L.C. 1,118,652 12.7%
277 Park Avenue, 27th Floor
New York, NY 10172
All Directors and Executive 989,453 10.3%
Officers as a Group (8 persons)
__________________
(1) Represents shares underlying currently exercisable stock options held by
Mr. McCormack.
(2) Represents 13,377 shares held directly and 75,000 shares underlying
currently exercisable stock options held by Mr. Sinclair.
(3) Represents 219,406 shares held by Mr. Cohen's wife and 275,000 shares
underlying currently exercisable stock options held by Mr. Cohen.
(4) Represents 11,340 shares held directly and 12,500 shares underlying
currently exercisable stock options held by Mr. Bartolini.
(5) Represents shares underlying currently exercisable stock options.
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.
24
<PAGE>
<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, 1997 and
1998, the Company invested $870,323 and $534,467, 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.
25
<PAGE>
<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)
26
<PAGE>
<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 Incorporated by reference to Exhibit
Venture Gear, Inc. dated 10.11 to the Company's Annual Report
January 5, 1998* on Form 10-KSB for the fiscal year
ended September 30, 1997
10.12 Stock Purchase Agreement Incorporated by reference to Exhibit
among Greenmotors LLC, 10.12 to the Company's Annual Report
Alain Clenet and the Company on Form 10-KSB for the fiscal year
dated January 8, 1998 ended September 30, 1997
10.13 Separation Agreement with Incorporated by reference to Exhibit
Alain Clenet dated January 10.13 to the Company's Annual Report
8, 1998 on Form 10-KSB for the fiscal year
ended September 30, 1997
10.14 ASHA/TAISUN Board of Filed herewith electronically
Directors Resolution
(Agreement)
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.
27
<PAGE>
<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, 1997 and 1998, 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, 1997 and 1998, 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
October 27, 1998
F-1
<PAGE>
<PAGE>
ASHA CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1998
ASSETS
1997 1998
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 2,617,354 $ 2,348,540
Accounts receivable 898,006 3,653,200
Prepaid expenses and other 73,856 64,183
----------- -----------
Total current assets 3,589,216 6,065,923
----------- -----------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 192,273 570,382
INVESTMENT IN AFFILIATE 609,557 609,557
----------- -----------
TOTAL ASSETS 4,391,046 7,245,862
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 114,843 78,000
Payroll and related 105,890 198,111
Accrued professional fees 17,250 30,000
Other accrued liabilities 7,483 31,163
Current portion of long term debt -- 63,638
----------- -----------
Total current liabilities 245,466 400,912
----------- -----------
LONG TERM LIABILITIES:
Notes payable - net of current portion 272,842
----------- -----------
Total long term liabilities 272,842
----------- -----------
TOTAL LIABILITIES 245,466 673,754
----------- -----------
COMMITMENTS(NOTE 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value
Authorized - 10,000,000 shares:
no shares issued or outstanding -- --
Common stock, $.00001 par value:
Authorized - 20,000,000 shares
Issued and outstanding - 8,651,393
shares in 1997 and 8,798,223 shares
in 1998 87 88
Additional paid-in capital 11,247,348 11,884,000
Accumulated deficit (7,019,948) (5,230,073)
Less: Treasury stock, at cost (81,907) (81,907)
----------- -----------
4,145,580 6,572,108
----------- -----------
$ 4,391,046 $ 7,245,862
=========== ===========
The accompanying notes are an integral part of these balance sheets.
F-2
<PAGE>
<PAGE>
ASHA CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1998
1997 1998
----------- -----------
REVENUES:
Licenses $ 1,000,000 $ 5,500,000
Contract and other services 295,131 184,883
---------- ----------
1,295,131 5,684,883
---------- ----------
OPERATING EXPENSES:
Research and development 1,187,411 1,604,964
Officers salaries 358,537 392,697
Legal and accounting 251,458 81,119
Patent application 28,338 185,477
Taxes and licenses 36,469 130,483
General and administrative 1,122,752 1,064,748
Depreciation and amortization 58,933 104,912
---------- ----------
3,043,898 3,564,400
---------- ----------
Income (Loss) from operations (1,748,767) 2,120,483
OTHER INCOME (EXPENSE):
Loss from investment in affiliate (861,257) (534,467)
Interest income 47,698 270,196
Interest expense (358,744) (29,038)
Gain on disposal of equipment -- 7,126
Gain on sale of short-term investments 12,915 --
---------- ----------
(1,159,388) (286,183)
---------- ----------
Income (Loss) before provision for
income taxes (2,908,155) 1,834,300
PROVISION FOR INCOME TAXES 800 44,425
----------- -----------
NET INCOME (LOSS) $(2,908,955) $ 1,789,875
=========== ===========
BASIC EARNINGS (LOSS) PER SHARE $ (.39) $ .21
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 7,492,454 8,725,168
=========== ===========
DILUTED EARNINGS(LOSS)PER SHARE $ (.39) $ .20
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND EQUIVALENTS OUTSTANDING 7,492,454 9,044,216
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<PAGE>
ASHA CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1998
<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,
Sept. 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 con-
nection with issuance
of stock options -- -- 152,138 -- -- 152,138
Net loss -- -- -- (2,908,955) -- (2,908,955)
--------- ---- ---------- ----------- -------- ----------
BALANCE,
Sept.30, 1997 8,651,393 87 11,247,348 (7,019,948) (81,907) 4,145,580
Issuance of
common stock,
due to exercise
of stock
options 146,830 1 636,652 -- -- 636,653
Net income -- -- -- 1,789,875 -- 1,789,875
--------- ---- ----------- --------- -------- -----------
BALANCE,
Sept.30, 1998 8,798,223 $88 $11,884,000$(5,230,073) $(81,907)$6,572,108
========= ==== =========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<PAGE>
ASHA CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1998
<TABLE>
<CAPTION>
Statement of Cash Flows 1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,908,955) $ 1,789,875
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 58,933 118,539
Interest expense in connection with
stock and warrants 265,000 --
Commission expense relating to units 101,000 --
Consultant expense relating to issuance of
stock options 152,138 --
Gain on sale of short-term investments (12,915) --
Loss on investment in affiliate 861,257 534,467
Changes in operating assets and liabilities:
Accounts receivable 191,949 (2,755,194)
Prepaid expenses and other (9,037) 9,673
Accounts payable 12,581 (36,843)
Payroll and related 18,522 92,221
Accrued professional fees -- 12,750
Other accrued liabilities 3,117 23,680
---------- ----------
Net cash provided used in
operating activities (1,266,410) (210,832)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term investments 260,463 --
Proceeds from sale of property and equipment -- 15,671
Purchases of property and equipment (58,678) (512,319)
Investment in affiliate (859,372) (534,467)
---------- ----------
Net cash used in investing activities (657,587) (1,031,115)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under line of credit (275,000) --
Borrowings of long-term debt -- 370,000
Repayments of long-term debt -- (33,520)
Proceeds from issuance of common stock 4,616,391 --
Proceeds from exercise of stock options 287,379 636,653
Proceeds from sale of units 799,000 --
Repayment of notes relating to units (900,000) --
----------- ----------
Net cash provided by financing
activities 4,527,770 973,133
---------- ----------
Net increase (decrease)in cash and cash equivalents 2,603,773 (268,814)
Cash and cash equivalents at beginning of year 13,581 2,617,354
----------- -----------
Cash and cash equivalents at end of year $2,617,354 $2,348,540
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 94,000 $ 29,000
========== ==========
Cash paid for income taxes $ 800 $ 47,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<PAGE>
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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 1997 and 1998,
all of the Company's revenues were related to its GERODISC product. The
GERODISC is an automated hydro-mechanical traction control device.
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.
2. BUSINESS RISKS AND FUTURE OPERATION
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, the uncertainty of market acceptance of the Company's
GERODISC product into the U.S. automotive industry, the dependence upon
primarily one product(GERODISC) and one customer, and potential competition.
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 in the period the license fee
is earned. Service revenues are recognized as the service is performed.
RESEARCH AND DEVELOPMENT
Costs associated with developing and testing new concepts and designs are
expensed as incurred. All research and development and patent acquisition
costs have been expensed through September 30, 1998.
F-6
<PAGE>
<PAGE>
SIGNIFICANT CUSTOMERS
During fiscal 1998, revenues from one customer (see Note 4) represented 95
percent of the Company's total revenues. At September 30, 1998, receivables
from the same customer accounted for 99 percent of the Company's accounts
receivable balance.
During fiscal 1997, revenues from one customer (see Note 4) represented 79
percent of the Company's total revenues. At September 30, 1997, a receivable
from another customer accounted for 99 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.
The Company maintains cash balances in highly qualified financial
institutions. At various times such amounts are in excess of insured limits.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, including significant
expenditures that increase the asset lives. Ordinary maintenance and repairs
are charged to operations as incurred. When assets are sold or otherwise
disposed of, the cost and accumulated deprecation or amortization are removed
from the accounts and any resulting gain or loss is recognized. Realization of
property and equipment is periodically reviewed in accordance with Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets."
Depreciation and amortization is computed on straight-line and accelerated
methods over estimated useful lives of five to seven years.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed in accordance with SFAS No. 128,
"Earnings per share." Earnings (loss) per share for the years ended September
30, 1997 and 1998 are based on the weighted average number of shares
outstanding plus the dilutive effects of stock options. For the year ended
September 30, 1997, stock options were not included as their effect would be
anti-dilutive.
The weighted average number of shares outstanding for the years ended
September 30, 1997 and 1998 were 7,492,454 and 8,725,168, respectively. The
options to purchase approximately 5,500 shares were not included in the
computation of 1998 diluted net income per share because such options would be
anti-dilutive.
F-7
<PAGE>
<PAGE>
NEW AUTHORITATIVE PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This statement, which is effective for all
reporting periods beginning in 1998, requires the prominent disclosure of all
components of Comprehensive Income, as defined. For the years ended September
30, 1997 and 1998, the Company had no Comprehensive Income items.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement, which is effective for all reporting periods beginning in 1998,
redefines the way publicly held companies report information about segments.
Based upon the Company's assessment of this pronouncement, it has determined
that it will continue to report on an integrated one segment basis.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the
current year's presentation.
4. LICENSING 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). The agreement also calls for the Company to receive a royalty for
each unit produced 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. 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,
1997 and 1998, this receivable is included in accounts receivable at its
discounted present value of $885,995 and $1,000,000, respectively. In October
1998, this receivable was paid in full by NVG.
On January 5, 1998, the Company entered into a license agreement with NVG
granting a worldwide nonexclusive license to GERODISC. Under the terms of the
agreement, NVG is obligated to pay the Company a license fee of $5,100,000
payable in two equal installments. The first installment was paid in January
1998, with the remaining installment due in January 1999. The agreement also
provides for royalty payments on each unit produced under this agreement. The
Company recorded $5,100,000 as license revenue in fiscal 1998 as the license
fee was solely for the right to manufacture and market the GERODISC with no
additional performance requirements. The license revenue is included in the
accompanying statements of operations.
F-8
<PAGE>
<PAGE>
On December 29, 1994, the Company entered into an agreement with DANA
Corporation (DANA) 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. In fiscal 1998, the Company was entitled to
approximately $600,000 in royalties from DANA; however DANA has refused
payment and the Company is enforcing the agreement through legal actions. Due
to the pending litigation, the Company did not record these royalties in the
accompanying statement of operations.
In October 1995, the Company and Steyr-Daimler-Puch Fahrzeugtechnik, GmbH,
(Steyr) entered into an option agreement to use GERODISC applications. 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.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 1997 and
1998:
1997 1998
-------- ----------
Vehicles $ 70,378 $ 72,186
Furniture and fixtures 103,284 356,082
Machinery and equipment 379,383 602,510
Leasehold improvements 35,667 35,667
-------- ----------
588,712 1,066,445
Accumulated depreciation and
amortization (396,439) (496,063)
-------- ----------
$192,273 $ 570,382
======== ==========
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.
This investment was recorded on the equity method.
F-9
<PAGE>
<PAGE>
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 in
Jiaxing Auto to 95%.
In 1997, the Company has recorded its investment in ASHA-TAISUN at its
invested capital contributions less its share of the operating losses. In 1997
and 1998 the Company recorded its share of losses relating to this investment
of $861,257 and $534,467, respectively. As of September 30, 1998, management
believes the investment of $609,560 represents the realizable value of this
investment.
During fiscal 1998, the Company reduced its ownership in ASHA-TAISUN to 18
percent. As the Company owns less than 20 percent of ASHA-TAISUN and does not
believe they exercise significant influence, the investment is now recorded on
the cost method. Furthermore, the Company has no additional financial
commitments related to this investment. In exchange for the decreased
ownership, the Company will receive royalty payments in the amount of $100 per
unit produced going forward.
7. NOTES PAYABLE AND SHORT TERM BORROWINGS
In February 1998 the Company renewed its line of credit with a bank. Under
the revised terms, the Company may borrow up to $750,000 at the prime rate
plus 1 percent (9.5 percent at September 30, 1998). This line is secured by
substantially all of the assets of the Company. The line of credit provides
for monthly interest payments, with the outstanding principal due in full at
maturity. No amounts were outstanding on the line as of September 30, 1997
and 1998.
In April 1998, the Company entered into an agreement with a bank providing for
a term loan, bearing interest at 8.75 percent. The loan provides for monthly
payments of principal and interest expiring in April 2003. The loan is
secured by all of the equipment of the Company. Borrowings outstanding under
this loan were $63,936 as of September 30, 1998.
In February 1998, the Company entered into an agreement with a bank providing
for a term loan, bearing interest at the prime rate plus 1 percent (9.5
percent at September 30, 1998). The loan provides for monthly payments of
principal and interest expiring in March 2003. The note is secured by all of
the Company's computer hardware and software. Borrowings outstanding under
this loan were $272,544.
F-10
<PAGE>
<PAGE>
The following summarizes the required principal debt payments as of September
30, 1998:
Year ending September 30:
1999 $ 63,638
2000 70,101
2001 77,197
2002 84,916
2003 40,628
--------
$336,480
========
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, net
of related expenses. 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.
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, 1998, 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.
F-11
<PAGE>
<PAGE>
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 the
exercise price of options to be paid by means other than cash; and to allow
the exercise price of options to be paid by means other than cash; and to
allow options to be granted with reload options provisions. 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. These amendments were approved by the
Company's shareholders on April 3, 1998. On October 28, 1998, the 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
1,800,000.
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.
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.
Under the provision of SFAS 123, equity instruments granted to non-employees
are excluded from the pro forma disclosure requirements and are recorded as
compensation 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.
The Company adopted SFAS No. 123, "Accounting for Stock Based Compensation" in
1996. As allowed by SFAS No. 123, the Company has elected to continue to
measure compensation cost under Accounting Principles Board Opinion (APB) No.
25, "Accounting for Stock Issued to Employees" and comply with the pro forma
disclosure requirements of the new standard.
F-12
<PAGE>
<PAGE>
A summary of the Company's outstanding stock options and activity follows for
the years ended September 30, 1997 and 1998:
1997 1998
------------------- ---------------------
Shares Weighted Shares Weighted
under Average under Average
options Ex. Price options Ex. Price
Outstanding at beginning ------- --------- --------- ----------
of year 270,356 $ 4.01 933,872 $ 4.60
Granted 750,736 4.74 360,029 5.45
Exercised (73,386) 3.92 (146,830) 4.35
Forfeited (13,834) 4.06 (515) 3.69
------- ------ --------- ------
Outstanding at end of year 933,872 $ 4.60 1,146,556 $ 4.90
======= ====== ========= ======
Exercisable at end of year 864,572 $ 4.28 1,102,456 $ 4.73
======= ====== ========= ======
Weighted average fair value
of options granted $ 1.87 $ 2.98
====== ======
The following table summarizes information about stock options outstanding at
September 30, 1998:
Weighted Average
Remaining
Exercise Price Number Outstanding Contractual Life Exercisable
---------------- -------------------- ------------------ -------------
$3.69-$5.44 1,132,306 1.44 years 1,088,206
$5.88-$6.28 14,250 2.01 years 14,250
-------------------- -------------
1,146,556 1,102,456
==================== =============
As permitted by SFAS 123, the Company continues to apply the accounting
rules of APB 25 governing the recognition of compensation expense from its
stock option plans. Such accounting rules measure compensation expense on
the first date at which both the number of shares and the price are known.
Under the Company's plans, this would typically be the grant date. To the
extent that the exercise price equals or exceeds the market value of the
stock on the grant date, no expense is recognized. Compensation expense is
recognized for options where the market value of the stock on the grant date
exceeds the exercise price. The compensation expense is recognized
immediately if vesting is at issuance or ratably over the vesting period if
the options vest over time.
F-13
<PAGE>
<PAGE>
Had the Company applied the fair value based method of accounting, which is
not required, to all grants of stock options, under SFAS 123, the Company
would have recorded additional compensation expense and computed pro forma net
income (loss) and earnings (loss) per share amounts as follows for 1997 and
1998:
1997 1998
----------- -----------
Additional compensation expense $ 1,136,095 $ 1,073,802
Pro forma net income (loss) $(3,657,778) $ 1,081,166
Pro forma earnings (loss) per share
Basic $ (.49) $ .12
Diluted $ (.49) $ .12
The pro forma effect on net income (loss) for fiscal years 1997 and 1998 may
not be representative of the effect on net income (loss) of future years
because the SFAS 123 method of accounting for pro forma compensation expense
has not been applied to options granted prior to October 1, 1995.
These pro forma amounts were determined by estimating the fair value of each
option on its grant date using the Black-Scholes option-pricing model. The
following assumptions were applied: (I) risk-free interest rates ranging from
5.3 percent to 6.3 percent for all years, (ii) expected lives of 3 years for
all periods, (iii) expected volatility of 60 percent for 1997 and 79 percent
in 1998, and (iv) no expected dividends.
STOCK WARRANTS
A summary of the Company's outstanding warrants and activity for the years
ended September 30, 1997 and 1998 follows:
1997 1998
-------------------- -------------------
Shares Weighted Shares Weighted
Under Average Under Average
Options Ex. Price Options Ex. Price
-------------------- -------------------
Outstanding at beginning
of year - - 143,750 $4.87
Granted 143,750 $4.87 - -
Exercised - - - -
Forfeited - - - -
------------------ -------------------
Outstanding at end of year 143,750 $4.87 143,750 $4.87
================== ===================
Exercisable at end of year 18,750 $4.00 143,750 $4.87
================== ===================
The weighted average fair value of warrants granted in fiscal 1997 was $2.18.
As of September 30, 1998, all outstanding warrants have a weighted average
contractual remaining life of 1.6 years.
F-14
<PAGE>
<PAGE>
STOCK INCENTIVE PLANS
In December 1988, the Board of Directors approved a stock incentive plan.
Under this plan, 58,824 shares of common stock have been reserved for issuance
to participants, defined as any person or firm providing services to the
Company. The stock will be granted at the discretion of the Board of
Directors and a cash payment equal to twenty percent of the value of the stock
granted will be paid to the participant. Granting of stock under this plan is
intended to encourage a continued relationship and services by the participant
and to reward creative or noteworthy efforts to the participant.
The stock is 100 percent forfeitable if the services of the participant are
terminated within two years of the grant of the stock and 50 percent
forfeitable if services are terminated after two years but less than three
years from the grant of the stock.
A balance of 45,523 shares are available for issuance under this plan at
September 30, 1998. 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, 1998. No shares have
been issued since fiscal 1994.
9. INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." Under SFAS 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
current marginal income tax rate. Deferred income tax expenses or credits are
based on the changes in the deferred income tax assets or liabilities from
period to period.
F-15
<PAGE>
<PAGE>
The provisions for income taxes for the years ended September 30, 1997 and
1998 are as follows:
1997 1998
---------- ----------
Current:
Federal $ - $ 43,625
State 800 800
---------- ----------
800 44,425
---------- ----------
Deferred - -
---------- ----------
Provision for income taxes $ 800 $ 44,425
========== ==========
Differences between the provision for income taxes and income taxes at the
statutory federal income tax rate for the years ended September 30, 1997 and
1998 are as follows:
1997 1998
----------------- ----------------
Income tax provision(benefit)
at statutory federal rates $(988,773) (34%) $623,662 34%
State income taxes, net of
federal benefit 800 - 107,020 6%
Tax benefits not recognized 988,773 34% - -
Net operating loss carryforward - - (686,257) (38%)
----------------- ----------------
$ 800 0% $ 44,425 2%
================= ================
Under SFAS No. 109, deferred tax assets are recognized for temporary
differences that will result in deductible amounts in future periods. The
components of the deferred income tax assets at September 30, 1997 and 1998
are as follows:
1997 1998
---------- ----------
Loss in investment $ 946,371 $1,179,220
Capitalized research and
development costs 271,281 102,844
Net operating loss carryforwards 1,645,969 817,964
Other, net 46,093 28,153
---------- ----------
Less: Valuation reserve 2,909,714 2,128,181
(2,909,714) (2,128,181)
---------- ----------
$ - $ -
========== ==========
F-16
<PAGE>
<PAGE>
Realization of the net deferred income tax asset is dependent on generating
sufficient taxable income during the periods in which temporary differences
will reverse. Due to the Company's limited operating history and the
uncertainty of long-term profitability, a valuation reserve equal to the
deferred income tax asset has been recorded.
The net operating loss carryforward as of September 30, 1998 for federal tax
purposes is approximately $2,400,000, and expires beginning in 2010.
10. COMMITMENTS
LEASE COMMITMENTS
The Company leases its facility under an operating lease agreement with
monthly payments of approximately $10,435 through May, 2003. Rent expense
under this agreement was approximately $68,000 and $96,000 for the years ended
September 30, 1997 and 1998 respectively.
The Company also leases certain equipment under operating lease agreements
that expire at various dates through April 2001.
Minimum future obligations under these agreements are as follows:
Years ending September 30,
1999 $172,000
2000 165,000
2001 152,000
2002 145,000
2003 97,000
--------
$731,000
========
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,
1997 and 1998, the Company made $5,030 and $8,230, respectively, in matching
contributions under this plan.
F-17
<PAGE>
<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: December 22, 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, December 22, 1998
John C. McCormack President and Chief
Executive Officer and
Director
/s/ Steven E. Sanderson Chief Financial Officer December 22, 1998
Steven E. Sanderson (Principal Financial and
Accounting Officer)
___________________________ Director
Robert J. Sinclair
/s/ Lawrence Cohen Director December 22, 1998
Lawrence Cohen
/s/ Nick P. Bartolini Director December 22, 1998
Nick P. Bartolini
/s/ Erick A. Reickert Director December 22, 1998
Erick A. Reickert
/s/ David D. Jones Director December 22, 1998
David D. Jones
ASHA - TAISUN
BOARD OF DIRECTORS
RESOLUTION
WHEREAS, ASHA Corporation has made available Asha-Taisun Common Shares in an
amount equal to 32% of the outstanding shares of the company so that such
shares are available for sale to a person or entity in order to bring
additional equity and operational capital into the company, and
WHEREAS, Taisun has agreed to purchase such shares from ASHA for future
production royalties in the amount of $100.00 U.S. per vehicle produced, and
WHEREAS, ASHA has agreed that such royalty shall not commence until such time
as at least 80% of the transferred shares have been sold, and
WHEREAS, both parties agree that any shares remaining unsold after two years
may be repurchased by Asha, at its option, at a price not to exceed $0.50 per
share.
RESOLVED: That this resolution, when signed by two Directors of Asha-Taisun,
will serve to validate the above-delineated agreement.
DIRECTORS:
/s/ Brian Chang September 23, 1998
Brian Chang
/s/ John C. McCormack September 23, 1998
John C. McCormack
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated October 27, 1998, included in this Form 10-KSB, into the
Company's previously filed Registration Statement File No. 33-81688 and File
No. 333-53461.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
December 21, 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, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,348,540
<SECURITIES> 0
<RECEIVABLES> 3,653,200
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,065,920
<PP&E> 570,382
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,245,862
<CURRENT-LIABILITIES> 400,912
<BONDS> 0
<COMMON> 88
0
0
<OTHER-SE> 6,572,108
<TOTAL-LIABILITY-AND-EQUITY> 7,245,862
<SALES> 5,684,883
<TOTAL-REVENUES> 5,684,883
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,564,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,038
<INCOME-PRETAX> 1,834,300
<INCOME-TAX> 44,425
<INCOME-CONTINUING> 1,789,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,789,875
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
</TABLE>
