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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 December 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
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(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 8,663,158 shares of the Registrant's Common Stock outstanding as of
December 31, 1997.
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ASHA CORPORATION
FORM 10-QSB
INDEX
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Part I. Financial Information
Item 1. Financial Statements Page
Balance Sheets - December 31, 1997 and September 30, 1997 3-4
Statement of Operations for the three month periods ended
December 31, 1997 and 1996 5
Statement of Cash Flows for the three month period ended
December 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
Signatures
2
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ASHA CORPORATION
BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
December 31, September 30,
1997 1997
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,961,721 $2,617,354
Accounts receivable 1,166,680 898,006
Prepaid expenses and other 74,390 73,856
TOTAL CURRENT ASSETS 3,202,791 3,589,216
Property and equipment, at cost
net of accumulated depreciation
and amortization 196,864 192,273
Other Assets:
Investments in affiliates 609,557 609,557
Notes Receivable - NVA
TOTAL OTHER ASSETS 609,557 609,557
TOTAL ASSETS $4,009,212 $4,391,046
The accompanying notes are an integral part of the financial statements
3
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ASHA CORPORATION
BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
December 31, September 30,
1997 1997
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(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 148,870 $ 114,843
Accrued liabilities 146,638 130,623
TOTAL CURRENT LIABILITIES 295,508 245,466
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 - 8,663,158
shares 87 87
Additional paid-in capital 11,262,349 11,247,348
Accumulated deficit (7,466,825) (7,019,948)
Less: Treasury Stock at Cost ( 81,907) ( 81,907)
TOTAL STOCKHOLDERS' EQUITY 3,713,704 4,145,580
$4,009,212 $4,391,046
The accompanying notes are an integral part of the financial statements.
4
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ASHA CORPORATION
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
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REVENUES:
Contract and other services $ 440,392 $ 52,212
440,392 52,212
OPERATING EXPENSES:
Research and development 294,929 256,899
Officers' salaries 105,748 106,300
Legal and accounting 79,638 59,301
Patent application -- 1,124
Taxes and licenses 16,505 17,896
General and administrative 251,749 196,692
Depreciation and amortization 20,884 16,894
769,453 655,106
(Loss) income from operations (329,061) (602,894)
OTHER INCOME (EXPENSES):
Loss from investments in affiliates (180,616) (108,606)
Interest income 63,193 29,902
Interest expense ( 394) ( 10,182)
(117,817) ( 88,886)
(Loss) income before provision for
income taxes (446,878) (691,780)
PROVISION FOR INCOME TAXES -- --
NET (LOSS) INCOME (446,878) (691,780)
NET (LOSS) INCOME PER COMMON SHARE ( .052) ( .098)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 8,674,156 7,074,673
The accompanying notes are an integral part of the financial statements
5
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ASHA CORPORATION
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
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CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $(446,878) $(691,780)
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation and amortization 20,884 16,894
Accrued interest on long-term
receivable ( 33,743) ( 29,617)
Gain on sale of equipment
Loss on investment in affiliate 180,616 108,606
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (234,931) 14,405
Prepaid expenses and other ( 534) 54,780
Increase (decrease) in:
Accounts payable 34,027 78,551
Accrued liabilities 16,015 97,590
Net cash (used in) provided
by operating activities (464,544) (350,571)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments -- --
Additions to property and equipment ( 25,474) --
Investment in affiliate (180,616) (217,213)
Net cash (used in) investing
activities (206,090) (217,213)
The accompanying notes are an integral part of the financial statements.
6
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ASHA CORPORATION
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
December 31, December 31,
1997 1996
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayments) under
credit agreements $ -- $ 556,163
Proceeds from issuance of common stock 15,001 --
Net cash provided by financing
activities 15,001 556,163
Net (decrease) increase in cash and
cash equivalents (655,633) ( 11,621)
Cash and cash equivalents at beginning
of period 2,617,354 13,581
Cash and cash equivalents at end of
period 1,961,721 1,960
The accompanying notes are an integral part of the financial statements.
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, 1997. 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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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following should be read in conjunction with the attached Financial
Statements and Notes of the Company.
The following discussion contains forward-looking statements that involve a
number of risks and uncertainties. While this outlook represents the
Company's current judgment in the future direction of the business, such risks
and uncertainties could cause actual results to differ materially from any
future performance suggested herein. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Factors that
could causae results to differ materially from those projected in the forward-
looking statements include: market acceptance of both Gerodisc and the world
car, variability of quarterly operations, dependence on management,
competition, political and economic risks of doing business in China, and the
bureaucratic nature of the automobile industry.
THREE MONTHS ENDED DECEMBER 31, 1997 VERSUS THREE MONTHS ENDED DECEMBER 31,
1996
During the three months ended December 31, 1997, the Company had revenue of
approximately $440,392 as compared to approximately $52,212 during the
corresponding period last year. The increase was due to additional contract
services to develop prototypes for licensees. During the quarter ended
December 31, 1997 the Company was extensively involved in tier one and OEM
testing of its Gerodisc technology. The testing and extensive prototype
development is progressing toward production. On January 5, 1998, the Company
entered into an additional license agreement with New Venture Gear, a tier one
supplier.
Operating expenses for the three months ended December 31, 1997, increased by
approximately $114,000 over the prior period, primarily due to increased
general and administrative expenses. Approximately $17,000 of the increase is
related to the company's heightened public relations effort. Also, the
corporation acquired a "key-man" insurance policy at a cost of $15,000 on
certain officers. The policy premium was not in effect in the prior year.
Consulting fees increased approximately $22,000 in the three months ended
December 31, 1997 due to studies the Company had completed concerning the
global marketability of its Gerodisc product and world car project. Research
and development expenses increased by approximately $38,000 as a result of the
Company's increased support of its European based new licensee, and
substantial travel related to its racing program. Legal and accounting
expenses increased by approximately $20,000 as a result of increased audit
fees associated with the Company's foreign operation and legal review.
The Company recorded a loss of approximately $(181,000) on its investment in
the ASHA-TAISUN Joint Venture during the three months ended December 31, 1997
as compared to a loss on its investment of approximately $(108,606) in the
comparable quarter last fiscal year. The Company has a 50% ownership interest
in the Joint Venture. Management has opted to be conservative and consistent
with the fiscal year ended September 30, 1997 accounting method and write the
investment off as incurred. During the three months ended December 31, 1996
the Company only wrote off 50% of its investment and held 50% of the
investment on the balance sheet in anticipation of pending current production.
The actual expenses associated with the China operation have been reduced by
approximately $37,000 ($108,606 capitalized and $108,607 expensed in 1996
totaling $217,213) less ($180,616 expensed in 1997) for the three months ended
December 31, 1997 as compared to December 31, 1996. The continued loss was
due to the fact that the Joint Venture has not generated any revenue.
9
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The decreased net (loss) of $(446,878) for the three months ended December 31,
1997, compared to a net (loss) of $(691,780) during the three months ended
December 31, 1996 was directly attributed to the increased revenues from in
contract services in the most recent period.
Liquidity and Capital Resources
As of December 31, 1997, the Company had a positive working capital of
approximately $2,907,000 compared to positive working capital of approximately
$3,344,000 at September 30, 1997. The decrease was due to the net operating
loss the company recorded in the quarter ended December 31, 1997. The
Company's working capital is primarily attributed to the proceeds of the
public offering that the Company completed in July of 1997.
In November 1996, the Company obtained an increase in its credit line from
Montecito Bank & Trust from $500,000 to $750,000. As of December 31, 1997 the
entire credit line of $750,000 was paid down to zero. The credit line is
under negotiation to be renewed. Amounts under the credit line bear interest
at the prime rate plus 1.5% and the credit line is renewable on an annual
basis. As of February 10, 1997, the annual rate of interest for the credit
line was 10%. Montecito Bank has verbally agreed to extend this credit line
for one year and management does not anticipate a problem in obtaining an
approval in February of 1998.
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.
Operating activities for the three months ended December 31, 1997 used
$(464,544) of net cash as compared to $(350,571)of cash used in the three
months ended December 31, 1996. The increase in cash used in operating
activities was primarily due to the substantial increase in Accounts
Receivable for the current period as compared to a decrease in Accounts
Receivable for the prior period. The net (loss) of $(446,878) for the three
months ended December 31, 1997, as compared to a net loss of $(691,780) for
the comparable period in 1996 had a significant effect on operating cash
activities.
Investing activities for the three months ended December 31, 1997 used
$(206,090) of cash. Approximately $(181,000)was attributed to the investment
in ASHA-Taisun joint venture as compared to $(217,213)in the corresponding
period for the three months ended December 31, 1996. The reduction in
expenditures for the Joint Venture is due to the fact that the transfer of
technology is being shifted to the Chinese Operation, thus reducing staff and
support expenses at the Santa Barbara location.
The decrease in cash was $(655,663) for the three months ended December 31,
1997 as compared to a decrease of $(11,621)for the three months ended December
31, 1996. The remaining proceeds from the public offering that closed in
July of 1997 were the primary source of funds. The offering cash enabled the
Company to provide working capital for its operating expenses for the most
recent fiscal quarter. In the corresponding period last year, the Company
relied primarily on its Bank credit line to fund operating expenses.
10
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The Company expects to invest approximately $725,000 in the Joint Venture and
its ABC technology for the year ending September 30, 1998. The expenditures
are for extensive dynamic evaluation and testing of the Chinese pre-production
vehicles. Limited production is expected to start at the completion and
evaluation of the tests.
The Company also will to continue to develop its ABC technology. The
manufacturing process is based on the ability to manufacture very precise
space frames made of thin-wall stainless steel tubing which requires a low
tooling investment. The stainless steel tubing requires no welding to
assemble Complete Knock Down Kits (CKD). The CKD assembly process requires
only a limited amount of electrical power and relies on natural gas which is
abundant in many third world countries.
The Joint-Venture expects to produce up to 10,000 vehicles annually, some of
which are complete vehicles and some CKD kits all at the same facility. A CKD
kit includes all of the components for one vehicle.
The Joint-Venture also expects to export the CKD kits of the taxi to
assemblers in other countries in Southeast Asia, where the vehicle will be
assembled and sold outside of China. However, recent economic events in
Southeast Asia could adversely effect such a strategy.
The Company has built the production tooling and molds for the joint venture
at its Santa Barbara facility. The Jiaxing facility is currently building 15
pre-production units. These units will undergo various dynamic tests to proof
durability and performance. JIAD then intends to build up to 1,000 production
units by December 1998. These units will be used for limited sale and to
further test for performance and durability.
The Company has also had discussions with representatives of the Philippine
government regarding the development of a sport utility vehicle. However,
recent economic events in Asia have caused delays. The significance and
duration of these delays are difficult to determine at this time.
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS. None.
ITEM 2.CHANGES IN SECURITIES. During the quarter ended December 31,
1997, the Company issued securities in a transaction which was not registered
under the Securities Act of 1933, as amended (the "Act"), as follows:
During the quarter ended December 31, 1997, the Company issued
11,765 shares of its Common Stock in a private transaction to Mark Depew, a
consultant to the Company, upon the exercise of an option for $15,000 in cash.
With respect to this sale, the Company relied on Section 4(2) of the Act. The
Purchaser is a sophisticated investor and represented that he was purchasing
the shares for investment only and not for the purpose of resale or
distribution. The appropriate restrictive legend was placed on the
certificate 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.
11
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ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K. None.
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: February 17, 1998 By /s/ John C. McCormack
John C. McCormack, President
By /s/ Steve Sanderson
Steve Sanderson, Chief Financial
Officer
12
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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>
<CIK> 0000789547
<NAME> ASHA CORPORATION
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,961,721
<SECURITIES> 0
<RECEIVABLES> 1,166,680
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,202,791
<PP&E> 196,864
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,009,212
<CURRENT-LIABILITIES> 295,508
<BONDS> 0
<COMMON> 87
0
0
<OTHER-SE> 3,713,617
<TOTAL-LIABILITY-AND-EQUITY> 4,009,212
<SALES> 440,392
<TOTAL-REVENUES> 440,392
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 769,453
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 394
<INCOME-PRETAX> (446,878)
<INCOME-TAX> 0
<INCOME-CONTINUING> (446,878)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (446,878)
<EPS-PRIMARY> (.052)
<EPS-DILUTED> (.052)
</TABLE>