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Case Asmo Solutions

THE MOST FAMOUS CHARGER IN THE WORLD

In 2015 Russian prime minister Dmitri Medvedev visits Oulu, Finland on political business
and receives a peculiar device in his gift bag. Curious thing, it seemed like a typical mobile
device charger with a green arrow printed onto its surface accompanied with a name
Asmo. For a time, Medvedev held in his hands the most famous charger in the world.

It all came to be one stormy night in Finland where the home of Asmo Solutions founder
Asmo Salorantas in-laws was set ablaze by a faulty mobile device charger. In Salorantas
mind an idea for an inflammable charger was born and soon after a start-up was formed.
Asmo Solutions reached its crowdfunding goals in record time, but trouble was already
brewing.

WHAT IS THE ASMO CHARGER

Seeing as a charger left connected is a fire-hazard, Asmo Solutions set out to design a
charger that was impervious to ignition. However well was succeeded is yet to be
determined. The Asmo charger is designed so that it shuts itself off when not in use. Thus,
power consumption is a steady zero and the risk of a flaming household is neutralized.

The Asmo charger is a Finnish-manufactured charger which utilizes top quality, well tested
components. Its also the only charger currently manufactured in Finland and it employs
dozens of Finnish professionals in technology.

Asmo charger comes with a cable that is both thicker and longer than a standard charging
cable. It gives out a power of 2A as opposed to new emerging quick charge technologies
which can put out up to 4,5A. The standard cable connector is a micro-USB (see attachment)
but adapters for lightning (apple) and USB-C connectors (see attachment) are available for
purchase and are not included in the Asmo charger package.

Asmo charger has been applied for a patent, but has been unable to obtain one due to there
not being any revolutionary or inventive technologies within it. There have also been
problems in the patent application process itself.
THE STRUCTURE OF THE COMPANY

Asmo Solutions is Oulu based company focused on consumer electronics. Their flagship
product is Asmo Charger. Company was founded by Asmo Saloranta in 2014 and Asmo
Charger was invented by Saloranta himself. Company was founded for bringing the charge
to markets. Saloranta is the largest stakeholder of the company by owning 46% of the
companys shares. Salorantas position at the company is nowadays CVO and he is
responsible of technical features and design of the product. He is also making the final
decisions about the company with the CEO.

Saloranta was running the company on his own in 2014. In 2015 Saloranta realized that he
needs someone who has the knowledge of the industry and startup business. He decided
name his old friend Marc Dillon as the CEO of the company. Dillon also became the second
largest stakeholder of the company by owning 42% of the companys shares. Dillon and
Saloranta are good friends so they are making all the decisions together. Dillon has been
working lot with startup companies so Saloranta knew the whole company would get huge
boost from experience of Dillon.

Saloranta and Dillon are the two individual stakeholders and they own 88% of the companys
shares. Rest of the Asmo Solutions shares are owned by two Finnish companies. Northern
Startup Fund II KY owns 9% of the shares and they have helped Asmo Solutions in fund
raising when the company was founded. Haltian Oy owns 3% of the shares and they have
helped Saloranta in product development work and they have made first prototype of Asmo
Charger.

THE CHARGER INDUSTRY

Asmo believes that you cannot be very successful by only selling mobile accessories. The
purpose is to challenge the biggest manufacturers, for example Apple and Samsung, and to
get these companies to license technology that is used in Asmo charger. This charger is
unique and there are no similar chargers in the market. It is also notable that Chinese online
shops are selling chargers prized at one euro. For a little startup that kind of prizes are
impossible to achieve.
When you buy a new mobile phone, you will get a new charger too. That might not be the
case in the future because European Union has thought about a new legislation which would
stop providing a phone and a charger automatically together when you buy a new phone. It
would be a massive boost for a charger industry because everyone would have to buy a
charger separately. If that change is coming customers would prefer safe Asmo charger.

Asmo Solutions also has new ideas, for example chargers for laptops. The idea is that with
a different program you can set this charger to work in different ways. For example, if the
laptop has only 50% power left the charger would automatically turn on and start charging.
There is also a third device that would be a solution concerning electricity saving at homes
but that is still in early stages of development. Nevertheless, it is easy to say that the charger
industry is living very exciting times.

SUSPICIONS AND POTENTIAL LEGAL ISSUES

Asmo Saloranta have heard rumours about legal issue against him and the company. It has
been claimed that Saloranta has stolen the idea of the charger from another Oulu based
entrepreneur. Saloranta have heard that this entrepreneur is considering of taking this case
to the court. If this case goes to the court Saloranta will face fraud charges. If Saloranta is
found guilty it means the story of Asmo Solutions will end very quickly. Even if Saloranta
wins the case, negative publicity may harm the whole company.

Asmo charger has been marketed to investors with patents of electronics and solutions used
in the charger. There have been numerous of patent applications pending but none of them
have been granted. Patent applications have been refused because there is not anything
inventive in features of charger. Components in the charger are standard electronic parts
and there have not been used any new innovations or solutions. For that reason, Asmo
Charger cannot get patent protection. This not only a bad thing
that charger is built from standard electronic parts. For that reason, it is almost impossible
to prove that idea for charger is stolen from someone else. This fact will protect Saloranta in
possible legal case.

Asmo Charger have also been marketed for the customer and investors with the story of
burned house of Salorantas mother-in-law. The story of burned house has been questioned
about some competitors. It is claimed that this story is only marketing trick for selling the
charger. Police report says that fire of the house may have been started from the grill outside
the house not form the broken mobile charger. According to police report it is impossible to
say where the fire has started. There are no possibilities for legal actions against Asmo
Solutions because the fact of start of the fire is unknown. But if this thing comes up it might
harm the image of the company.

CURRENT FINANCIAL SITUATION

There is only one owner in Asmo Solutions Oy. If the company would cease its actions, the
costs deductible from profits to the owner would be calculated according to presumed
acquisition costs under 5 years or according to stock capital, depending on which is
cheapest for the owner. Liquidation process would be done under the Finnish law and
Finnish tax rates.

In the financial year 2015 Asmo Solutions will make a net loss of 100 000. The business is
currently on the same tracks. Chargers are too expensive; retail prices will not change and
ordering chargers from China is a questionable route for continuing business. No change
for results can be expected without some investment. All investments can be done assuming
that without them, a net loss of 100 000 will be made annually in the period of the
investment. The investment will raise the company profit by their profitableness (for example
300 000 for investment 3) reduced by this base loss of business (in the case of investment
3 it would mean 200 000 profit annually). Current cash flow of the company is 500 000
annually.

The owners of Asmo Solutions have grown to love their company, and they do not like the
idea that they would have to sell their stocks or issue new stocks to raise new capital. They
have invested almost all they have to the company, and they cannot invest more capital
easily. There are currently no institutional investors with deep pockets in the company
owners. No owner works in the company, and they will not receive any money if the company
does not create profit. You are here to consult the owner of the company, no CEO or anyone
else. You should make your presentation and recommendations for company owner.
There are loan institutions that are willing to grant loans backed up by deposits. Companies
can use deposit value of 80% of their all fixed assets. From current long-term liabilities, fixed
assets work as deposits for 750 000 loan. All short-term liabilities are sales exceeding
accounting period, which means that they can be covered with inventory.

The first investment would be made in the beginning of 2015 and they would start to
generate profits from 2016. WACC for company is currently 4%, but from 2021 booming
economy is expected raise the cost of capital. And WACC at 2021 and forward could be
expected to be at 8%.

There are strict limitations when a new loan would be granted to the company by these loan
institutions. For example, there is a ruling that no new loan can be taken if relative
indebtedness exceeds 4. There are no traditional banks that would issue unguaranteed
loans if equity ratio is under 0,4. Traditional banks would not grant loan guaranteed by our
fixed assets because evaluating them is too expensive for them. However, indebtedness
can exceed 4 when taking one large loan from a loan institution, but after this line has been
exceeded once, new loans cant be taken until relative indebtedness is under 4 again.

OPTIONS

The first investment is expected to cost 1 000 000 at year 0 (2015) because required
improvements for the old factory. The investment is expected to create annual cash flow of
1 000 000 for the first 5 years. Then there would be a breakthrough while economy booms
and the investment would generate a cash flow of 1 400 000 for the second 5 years. Yearly
expenses are expected to be 750 000 for the first 5 years, 1 090 000 for the years 6-7
and 1 100 000 for the last three years. Due to a deal made with the city of Kemijrvi, (who
rents their old factory to us) the rent will be royalty calculated by our cash flow. For the first
three years (from 2016) the royalty will be 5% of our cash flow. After that the charity ends
due to the minimums defined in state aid regulation exceeding and the royalty will be market-
based 15% of our cash flow. Due to repair needs, the royalty is expected to be 17 % for the
last two years of the investment period.

The second option is investing in product development. This would cost 1 200 000 at year
0, because we do not have existing product development facilities. This investment is
expected to improve our results by 50 000 at the first and second year due to reduced price
of the components. This will increase to 100 000 at the third year, and after that 300 000
annually until 2025.

The third option is building our own production line from scratch. This would cost
approximately 1 500 000 at the year 0. The investment would generate 300 000 annually
for the period of 10 years.
(https://s3-eu-west-1.amazonaws.com/magnet-wp-avplus/wp-content/uploads/2017/10/09194228/aloitus_asmo_1110141-web.jpg)

(http://mobiili.fi/wp-content/uploads/2015/05/ASMO-600x390.png)
(http://techassimilate.com/wp-content/uploads/2014/06/ASMO-charger-diagram.jpg)
Balance Sheet

Assets
Long-term assets
Fixed assets 1 500 000
Intangible assets 350 000
Total long-term 1 850 000

Current assets 0
Inventory 200 000
Accounts receivable 25 000
Cash and cas equivalents 800 000
Total current 1 025 000

Total assets 2 875 000

Liabilities
Equity
Total shareholders' equity 460 000
Retained earnings 750 000
Profit/loss of financial year -100 000
Short term debt 220 000
Long-term debt 1 545 000
Total liabilities 2 875 000
Global Mobile Phone Accesories Market Share (2014)

Protective Case 20,5 %

Headphone/Earphone 16,9 %

Charger 16,3 %

Battery 12,2 %

Memory Card 11,3 %

Power Bank 10,0 %

Portable Speaker 6,5 %

Others 6,3 %

Global Mobile Phone Accessory Market Share (2014)

Protective case Headphone/earphone Charger Battery


Memory card Power bank Portable speaker Others