<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period Ended March 31, 1997
Commission File No. 0-16176
ASHA CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware 84-1016459
- ------------------------------ ----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
600 C Ward Drive, Santa Barbara, California 93111
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(Address of Principal Executive Offices including zip code)
(805) 683-2331
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(Issuer's telephone number)
Indicate by check mark whether the Issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
There were 7,179,795 shares of the Registrant's Common Stock outstanding as of
May 13, 1997.
<PAGE>
ASHA CORPORATION
FORM 10-QSB
INDEX
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Part I. Financial Information
Item 1. Financial Statements Page
Balance Sheets - March 31, 1997 and September 30, 1996 . . . . 3-4
Statement of Operations for the three and six month periods
ended March 31, 1997 and 1996 . . . . . . . . . . . . . . . . 5
Statement of Cash Flows for the six month periods ended
March 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . . 6-7
Notes to Consolidated Financial Statements . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 9-11
Part II. Other Information and Signatures . . . . . . . . . . . . . . 11-12
Signatures. . . . . . . . . . . . . . .. . . . . . . . . . . . 13
2
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ASHA CORPORATION
BALANCE SHEETS
MARCH 31, 1997 AND SEPTEMBER 30, 1996
March 31, September 30,
1997 1996
------------- -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 122,743 $ 13,581
Short-term investments 9,987 247,548
Accounts receivable 1,132,777 1,089,955
Prepaid expenses and other 175,423 64,819
TOTAL CURRENT ASSETS 1,440,930 1,415,903
Property and equipment, at cost
net of accumulated depreciation
and amortization 169,692 203,480
Other Assets:
Long-term receivable 851,794 --
Investment in affiliate 840,635 600,491
TOTAL ASSETS $ 3,303,051 $ 2,219,874
The accompanying notes are an integral part of the financial statements.
Notes to the financial statements for the year ended September 30, 1996
substantially apply to these interim financial statements and are not repeated
here.
3
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ASHA CORPORATION
BALANCE SHEETS
MARCH 31, 1997 AND SEPTEMBER 30, 1996
March 31, September 30,
1997 1996
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(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowing $ 750,000 $ 275,000
Notes payable-bridge financing 759,375 --
Accounts payable 149,060 102,262
Accrued liabilities 153,034 108,985
TOTAL CURRENT LIABILITIES 1,811,469 486,247
Stockholders' Equity:
Preferred stock, $.0001 par value:
Authorized - 10,000,000 shares,
no shares issued or outstanding
Common stock, $.00001 par value:
Authorized - 20,000,000 shares,
Issued and outstanding - 7,144,877
and 7,076,217 shares 72 71
Additional paid-in capital 6,208,345 5,926,456
Accumulated deficit (4,634,928) (4,110,993)
Less: Treasury Stock at Cost (81,907) (81,907)
TOTAL STOCKHOLDERS' EQUITY 1,491,582 1,733,627
$ 3,303,051 $ 2,219,874
The accompanying notes are an integral part of the financial statements.
Notes to the financial statements for the year ended September 30, 1996
substantially apply to these interim financial statements and are not repeated
here.
4
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ASHA CORPORATION
STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
License and right of refusal $ 1,000,000 $ 25,000 $ 1,000,000 $ 1,351,000
Contract and other services 119,883 115,953 172,095 115,953
Total 1,119,883 140,953 1,172,095 1,466,953
EXPENSES:
Research and development 202,597 94,353 459,496 515,930
Officers' salaries 99,593 193,286 205,893 304,199
Legal and accounting 66,537 20,475 125,838 51,263
Patent application 10,940 193 12,064 12,701
Taxes and licenses 46,348 32,746 64,244 53,854
Selling, general and
administrative 170,198 238,631 366,890 521,225
Depreciation and amortization 16,894 12,155 33,788 24,310
Total 613,107 591,839 1,268,213 1,483,482
Income (loss) from operations 506,776 (450,886) (96,118) (16,529)
Revaluation of long-term receivable (69,225) - (39,608) -
Loss from investment in affiliate (129,360) - (237,966) -
Interest and investment income 4,829 9,877 5,113 12,849
Interest expense (145,174) - (155,356) -
Total (338,930) 9,877 (427,817) 12,849
Income (loss) before income tax
provision: 167,846 (441,009) (523,935) (3,680)
Provision for income taxes - 13,500 - 13,500
Net income (loss) $ 167,846 $ (454,509) $ (523,935) $ (17,180)
Net income (loss) per share $ .024 $ (.064) $ (.074) $ (.002)
Weighted average number of
shares outstanding 7,133,815 7,072,111 7,103,919 6,924,367
</TABLE>
The accompanying notes are an integral part of the financial statements.
Notes to the financial statements for the year ended September 30, 1996
substantially apply to these interim financial statements and are not repeated
here.
5
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ASHA CORPORATION
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
March 31, March 31,
1997 1996
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CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (523,935) $ (17,180)
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Interest expense in connection with
issuance of common stock and stock
warrant 109,375 -
Depreciation and amortization 33,788 24,310
Revaluation of long-term receivable 39,608 -
Loss on investment in affiliate 237,966 -
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (934,224) 1,508,628
Prepaid expenses and other 5,396 232
Increase (decrease) in:
Accounts payable 46,798 (38,392)
Accrued liabilities 44,049 23,519
Net cash (used in) provided
by operating activities (941,179) 1,501,117
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of short-term investments 237,561 (1,514,784)
Additions to property and equipment - (56,687)
Investment in affiliate (478,110) (447,533)
Net cash (used in) investing
activities (240,549) (2,019,004)
The accompanying notes are an integral part of the financial statements.
Notes to the financial statements for the year ended September 30, 1996
substantially apply to these interim financial statements and are not repeated
here.
6
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ASHA CORPORATION
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(CONTINUED)
March 31, March 31,
1997 1996
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayments) under
line of credit agreement 475,000 (85,000)
Net proceeds from sale of units 799,000 -
Payment on related party debt - (45,000)
Proceeds from issuance of common stock 16,890 750,000
Net cash provided by financing
activities 1,290,890 620,000
Net increase in cash and cash equivalents 109,162 102,113
Cash and cash equivalents at beginning
of period 13,581 12,804
Cash and cash equivalents at end of
period $ 122,743 $ 114,917
The accompanying notes are an integral part of the financial statements.
Notes to the financial statements for the year ended September 30, 1996
substantially apply to these interim financial statements and are not repeated
here.
7
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ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
The financial statements included herein have been prepared by ASHA
Corporation, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and include all adjustments which are, in
the opinion of management, necessary for a fair presentation. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes that the disclosures are adequate to make the information presented
not misleading; however, it is suggested that these financial statements and
the accompanying notes be read in conjunction with the financial statements
and notes thereto in the Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1996. The financial data for the interim periods may
not necessarily be indicative of results to be expected for the year.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following should be read in conjunction with the attached Financial
Statements and Notes thereto of the Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 VERSUS THREE MONTHS ENDED MARCH 31,
1996
During the three months ended March 31, 1997, the Company had $1,119,883
in revenue compared to $140,953 in revenue during the corresponding prior year
period. The increase in revenue was the result of a $1 million license fee
paid during the three months ended March 31, 1997, by Steyr-Daimler-Puch-
Fahrzeugtechnik GMBH, a large European automotive supplier.
Expenses for the three months ended March 31, 1997, were approximately
$21,268 more than the corresponding prior year period. Research and
development expenses increased $108,244 in the most recent period, however,
the increase is primarily due to an unusually low level of research and
development expenses in the three months ended March 31, 1996. General
selling and other administrative expenses decreased by approximately $68,433
as a result of reduced travel expenses and the development of cost controls
relative to administrative purchases. The Company has also implemented a
centralized travel coordinator who seeks the best travel arrangements with an
emphasis on advance purchases of airline tickets. Management expects these
cost controls to contribute to a reduction of expenditures for ongoing and
future projects.
Officers' salaries declined approximately $93,693 in the three months
ended March 31, 1997, as compared to the three months ended March 31, 1996 for
several reasons. During the three months ended March 31, 1996, the Company
paid a total of $69,538 in bonuses to officers and no bonuses were paid to
officers during the most recent three month period. In addition, the
Company's former Executive Vice President resigned on October 1, 1996. Legal
and accounting expenses increased approximately $46,062 due primarily to
increased patent work. Approximately $12,000 of this amount was due to
accrued expenses for the 1997 audit. The Company did not accrue expenses in
advance of the annual audit in the prior year.
The Company recorded a $129,360 loss from investment in affiliate during
the three months ended March 31, 1997, due to the Company's share of the ASHA-
Taisun Joint Venture's operating losses and writedowns of assets in excess of
their net realizable value. There was no comparable amount for the three
months ended March 31, 1996, because the Joint Venture did not commence
significant operations until the quarter ended September 30, 1996.
Interest expense of $145,174 for the three months ended March 31, 1997,
was due to interest paid and accrued on the Company's bank line of credit, the
value of the warrants issued to the bank in connection with the line of
credit, the value of the stock issued as additional consideration in
connection with the $900,000 bridge loan which was completed during January
1997, and accrued interest on the bridge loan.
The net income of $167,846 for the three months ended March 31, 1997,
was substantially better than the net loss of $441,009 for the three months
ended March 31, 1996, due primarily to the $1,000,000 license fee earned from
9
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Steyr during the three months ended March 31, 1997. The Company anticipates
licensing revenues for the second six months of the current year to be
sufficient to bring the Company to a profit position for the fiscal year,
however, there is no assurance that any new licenses will be signed. Expenses
for the second six months are not expected to increase significantly from the
level for the first six months of the year.
SIX MONTHS ENDED MARCH 31, 1997 VERSUS SIX MONTHS ENDED MARCH 31, 1996
During the six months ended March 31, 1997, the Company had $1,172,095
in revenue compared to $1,466,953 in revenue during the corresponding prior
year period. The decrease in revenue was the result of a $351,000 decrease in
license and option revenue. The decrease is due to the fact that during the
six months ended March 31, 1997, the only license or option revenue received
was a $1 million license fee paid by Steyr-Daimler-Puch-Fahrzeugtechnik GMBH,
a large European automotive supplier. During the six months ended March 31,
1996, the Company received a $1,150,000 payment from American Axle and
Manufacturing, Inc. for an option to acquire certain licenses, and a $150,000
payment from Hall Racing, Inc. for the right to use GERODISC units for the
1996 Indycar racing season.
Expenses for the six months ended March 31, 1997, were approximately
$215,269 less than the corresponding prior year period. Research and
development expenses decreased $56,434 because, although the level of research
and development activities remained relatively constant, more of these
activities relate to the ASHA-Taisun Joint Venture and are accordingly charged
to the Joint Venture instead of being recorded as an expense of the Company.
General selling and other administrative expenses decreased by approximately
$154,335 as a result of reduced travel expenses and the development of cost
controls relative to administrative purchases. The Company has also
implemented a centralized travel coordinator who seeks the best travel
arrangements with an emphasis on advance purchases of airline tickets.
Management expects these cost controls to contribute to a reduction of
expenditures for ongoing and future projects.
Officers' salaries declined approximately $98,000 in the six months
ended March 31, 1997, as compared to the six months ended March 31, 1996 for
several reasons. During the six months ended March 31, 1996, the Company paid
a total of $127,045 in bonuses to officers and no bonuses were paid to
officers during the most recent six month period. In addition, the Company's
former Executive Vice President resigned on October 1, 1996. Legal and
accounting expenses increased approximately $75,000 due primarily to increased
patent work. Approximately $12,000 of this amount was due to accrued expenses
for the 1997 audit. The Company did not accrue expenses in advance of the
annual audit in the prior year.
The Company recorded a $237,966 loss from investment in affiliate during
the six months ended March 31, 1997, due to the Company's share of the ASHA-
Taisun Joint Venture's operating losses and writedowns of assets in excess of
their net realizable value. There was no comparable amount for the six months
ended March 31, 1996, because the Joint Venture did not commence significant
operations until the quarter ended September 30, 1996.
Interest expense of $155,356 for the six months ended March 31, 1997,
was due to interest paid and accrued on the Company's bank line of credit, the
value of the warrants issued to the bank in connection with the line of
credit, the value of the stock issued as additional consideration in
connection with the $900,000 bridge loan which was completed during January
1997, and accrued interest on the bridge loan.
10
<PAGE>
The net loss of $523,935 for the six months ended March 31, 1997, was
substantially more than the net loss of $17,180 for the six months ended March
31, 1996, due to a combination of lower revenues and increases in interest
expense and loss from investment in the ASHA-Taisun Joint Venture. The
Company anticipates licensing revenues for the second six months of the
current year to be sufficient to bring the Company to a profit position for
the fiscal year, however, there is no assurance that any new licenses will be
signed. Expenses for the second six months are not expected to increase
significantly from the level for the first six months of the year.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had negative working capital of
approximately ($370,539) compared to approximately $930,000 at September 30,
1996. The decrease was due primarily to the net loss of $(523,935) during the
six month period.
In November of 1996, the Company obtained an increase in its credit line
from Montecito Bank & Trust from $500,000 to $750,000. At March 31, 1997, the
entire credit line of $750,000 was outstanding. Amounts under the credit line
bear interest at the prime rate plus 1.5% and the loan balance is due on June
5, 1997. As of May 9, 1997, the annual rate of interest for the credit line
was 10%.
In January 1997, the Company received approximately $799,000 in net
proceeds from the private sale of units consisting of promissory notes and
common stock. The Company incurred $900,000 of debt against those proceeds,
and as of March 31, 1997, had accrued $16,000 in interest against those notes.
On April 14, 1997, the Company received a cash payment of $1,000,000 for
a licensing agreement from Steyr. With the cash from the Steyr license and
the proceeds of the anticipated public offering and anticipated new license
agreements, the Company believes it will have sufficient liquidity to maintain
continued operations for the next twelve months.
Operating activities for the six months ended March 31, 1997 (used)
approximately $(941,179) of net cash as compared to $1,501,117 cash provided
in the six months ended March 31, 1996. The decrease in cash from operating
activities was primarily due to the increase in Accounts Receivable for the
current year as compared to a substantial decrease in Accounts Receivable in
the prior year, and the net loss of $(523,935) for the six months ended March
31, 1997, as compared to a net loss of $(17,180) for the comparable period in
1996.
Investing activities for the six months ended March 31, 1997 used
($240,549). Activities were attributed to the ASHA-Taisun joint venture and
the sale of short term investments. Approximately $478,110 was attributed to
the investment in ASHA-Taisun joint venture. The Company sold $237,561 of
short-term commercial paper to partially offset the expenditure.
Cash provided from financing activities was $1,290,890 for the six month
ended March 31, 1997, as compared to $620,000 for the six months ended March
31, 1996. Bridge loan proceeds and utilization of the Company's credit line
were the primary sources of financing activities for the six months ended
March 31, 1997.
The Company expects to invest an additional $1,100,000 in the
ASHA/Taisun joint venture during calendar year 1997. The Company has no other
commitments to make material capital expenditures.
11
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities
In December 1996 and January 1997, the Company sold 24 Units, each
Unit consisting of a $37,500 principal amount 8% Secured Promissory Note and
2,678.57 shares of Common Stock, to eight accredited investors for an
aggregate of $880,000 in cash. In connection with such sales the Company paid
H.J. Meyers & Co., Inc. a commission of $62,500 and a non-accountable expense
allowance of $18,000 for its services as placement agent.
With respect to these sales, the Company relied on Section 4(2) of
the Securities Act of 1933, as amended, and Rule 506 of Reguation D
promulgated thereunder. Each investor was given a copy of a Private Placement
Memorandum containing complete information concerning the Company, a Form D
was filed with the SEC and the company complied with the other applicable
requirements of Rule 506. Each investor signed a subscription agreement in
which he represented that he was purchasing the shares for investment only and
not for the purpose of resale or distribution. The appropriate restrictive
legends were placed on the certificates and stop transfer instructions were
issued to the transfer agent.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule Filed herewith
electronically
(b) Reports on Form 8-K. None
12
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SIGNATURES
Pursuant to the requirements of the Securities and 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
Date: May 19, 1997 By /s/ Alain J-M Clenet
Alain J-M Clenet
Chief Executive Officer
By /s/ John C. McCormack
John C. McCormack
President and Treasurer
<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
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27. Financial Data Schedule Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages 3-5 of the
Company's Form 10-QSB for the year to date, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 122,743
<SECURITIES> 0
<RECEIVABLES> 1,984,571
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,440,930
<PP&E> 169,692
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,301,051
<CURRENT-LIABILITIES> 1,811,469
<BONDS> 0
<COMMON> 72
0
0
<OTHER-SE> 1,491,510
<TOTAL-LIABILITY-AND-EQUITY> 3,303,051
<SALES> 1,172,095
<TOTAL-REVENUES> 1,172,095
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,268,213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155,356
<INCOME-PRETAX> (525,024)
<INCOME-TAX> 0
<INCOME-CONTINUING> (525,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (525,024)
<EPS-PRIMARY> (.074)
<EPS-DILUTED> (.074)
</TABLE>
