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 June 30, 1997
Commission File No. 0-16176
ASHA CORPORATION
-----------------------------------------------------------------
(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
-----------------------------------------------------------
(Address of Principal Executive Offices including zip code)
(805) 683-2331
------------------------------
(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 8,621,410 shares of the Registrant's Common Stock outstanding as of
August 15, 1997.
ASHA CORPORATION
FORM 10-QSB
INDEX
-----
Part I. Financial Information
Item 1. Financial Statements Page
Balance Sheets - June 30, 1997 and September 30, 1996 3-4
Statement of Operations for the three and nine
month periods ended June 30, 1996 and 1997 5
Statement of Cash Flows for the nine months
June 30, 1997 and 1996 6-7
Notes to 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
Signatures 12
-2-
ASHA CORPORATION
BALANCE SHEETS
JUNE 30, 1997 AND SEPTEMBER 30, 1996
June 30, September 30,
1997 1996
------------- -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 354,059 $ 13,581
Short-term investments - 247,548
Accounts receivable 194,220 1,089,955
Prepaid expenses and other 190,662 64,819
TOTAL CURRENT ASSETS 738,941 1,415,903
Property and equipment, at cost
net of accumulated depreciation
and amortization 152,797 203,480
Other Assets:
Market securities 885,995 -
Investments in affiliates 942,339 600,491
TOTAL ASSETS $ 2,720,072 $ 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-
ASHA CORPORATION
BALANCE SHEETS
JUNE 30, 1997 AND SEPTEMBER 30, 1996
June 30, September 30,
1997 1996
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowing $ 750,000 $ 275,000
Notes payable-bridge financing 843,750 -
Accounts payable 78,447 102,262
Accrued liabilities 158,626 108,985
TOTAL CURRENT LIABILITIES 1,830,823 486,247
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 - 7,179,792
and 7,076,217 shares 72 71
Additional paid-in capital 6,343,397 5,926,456
Accumulated deficit (5,372,313) (4,110,993)
Less: Treasury Stock at Cost (81,907) (81,907)
TOTAL STOCKHOLDERS' EQUITY 889,249 1,733,627
$ 2,720,072 $ 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-
ASHA CORPORATION
STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS PERIODS ENDED JUNE 30, 1997 AND 1996
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
--------- --------- ----------- -----------
REVENUES:
License and right of refusal $ - $ 30,000 $ 1,000,000 $ 1,381,000
Contract and other services 123,036 252,448 295,131 368,401
Interest - 38,002 - 50,851
Total 123,036 320,450 1,295,131 1,800,252
EXPENSES:
Research and development 252,872 175,527 712,368 691,457
Officers' salaries 100,625 60,836 306,518 365,035
Legal and accounting 77,476 31,068 203,314 82,331
Patent application 18,983 25,757 31,047 38,458
Taxes and licenses 38,283 43,850 102,527 97,704
General and administrative 175,567 264,276 542,457 785,501
Depreciation and amortization 16,894 32,559 50,682 56,869
Total 680,700 633,873 1,948,913 2,117,355
(Loss) from operations (557,664) (313,423) ( 653,782) ( 317,103)
Revaluation of long term receivable 34,201 - ( 5,407) -
Loss from investment in affiliate (101,705) - ( 339,671) -
Interest and investment income 5,631 - 10,744 -
Interest expense (130,763) - ( 286,119) -
Gain from sale of securities 12,915 - 12,915 -
Total (179,721) - ( 607,538) -
(Loss) before income tax provision: (737,385) (313,423) (1,261,320) ( 317,103)
Provision for income taxes - - - -
Net (loss) $(737,385) $(313,423) $(1,261,320) $( 317,103)
Net (loss) per share $( .102) $( .044) $( .177) $( .045)
Weighted average number of shares
outstanding 7,203,238 7,065,752 7,117,057 7,036,061
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-
ASHA CORPORATION
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
June 30, June 30,
1997 1996
------------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) $(1,261,320) $( 317,103)
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 208,750 -
Gain on sale of securities ( 12,915) -
Depreciation and amortization 50,682 56,869
Revaluation of long-term receivable 5,407 -
Loss on investment in affiliate 339,671 -
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable ( 5,270) 1,327,827
Prepaid expense and other ( 15,239) ( 14,859)
Increase (decrease) in:
Accounts payable ( 23,815) 3,627
Accrued liabilities 49,641 ( 33,335)
Net cash (used in) operating
activities ( 664,408) 1,023,026
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of short-term
investments 260,463 ( 247,548)
Additions to property and equipment - ( 120,549)
Investment in affiliate ( 681,519) ( 666,561)
Loan to officer ( - ) ( 18,356)
Net cash (used in) investing
activities ( 421,056) (1,053,014)
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-
ASHA CORPORATION
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(CONTINUED)
June 30, June 30,
1997 1996
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayments) under
line of credit agreements 475,000 ( 85,000)
Proceeds from underwriter bridge
financing 799,000 -
Payment on related party debt - ( 45,000)
Proceeds from issuance of common stock 151,942 750,000
Principal payment on obligation under
capital lease - ( 1,230)
Net cash provided by financing
activities 1,425,942 618,770
Net increase in cash and cash equivalents 340,478 588,782
Cash and cash equivalents at beginning
of period 13,581 12,804
Cash and cash equivalents at end of
period $ 354,059 $ 601,586
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-
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-
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 JUNE 30, 1997 VERSUS THREE MONTHS ENDED JUNE 30, 1996
During the three months ended June 30, 1997, the Company had $123,036 in
revenue compared to $320,450 in revenue during the corresponding prior year
period. The decrease in revenue was primarily attributed to timing relative to
contract services and license agreements.
Expenses for the three months ended June 30, 1997, were approximately
$46,827 more than the corresponding prior year period. Research and
development expenses increased $77,345 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 June 30, 1996. General selling
and other administrative expenses decreased by approximately $88,709 as a
result of reduced travel expenses and the development of cost controls
relative to administrative purchases. Management expects these cost controls
to contribute to a reduction of expenditures for ongoing and future projects.
Legal and accounting expenses increased approximately $46,400 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 $101,705 loss from investment in affiliate during
the three months ended June 30, 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 June 30, 1996, because the Joint Venture did not commence
significant operations until the quarter ended September 30, 1996.
Interest expense of $130,763 for the three months ended June 30, 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 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 loss of $(737,385) for the three months ended June 30, 1997, was
worse than the net loss of $(313,423) for the three months ended June 30,1996
primarily due to a reduced amount of contract service revenues as compared to
the prior year, interest expense, and the loss from the ASHA-Taisun joint
venture.
NINE MONTHS ENDED MARCH 31, 1997 VERSUS NINE MONTHS ENDED JUNE 30, 1997
During the nine months ended June 30, 1997, the Company had $1,295,131
in revenue compared to $1,800,252 in revenue during the corresponding prior
year period. The decrease in revenue was primarily the result of a $381,000
decrease in license and option revenue. The decrease is due to the fact that
during the nine months ended June 30, 1997, the only license or option revenue
-9-
received was a $1 million license fee paid by Steyr-Daimler-Puch-
Fahrzeugtechnik GMBH, a large European automotive supplier. During the nine
months ended June 30, 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. plus additional
contract fees.
Expenses for the nine months ended June 30, 1997, were approximately
$168,442 less than the corresponding prior year period. General and
administrative expenses decreased by approximately $243,044 as a result of
reduced travel expenses and development of cost controls relative to
administrative purchases. Management expects these cost controls to contribute
to a reduction of expenditures for ongoing and future projects.
Officers, salaries declined approximately $58,517 in the nine months
ended June 30, as compared to the six months ended June 30, 1996 for several
reasons. During the nine months ended June 30, 1996, the Company paid a total
of $127,045 in bonuses to officers and no bonuses were paid to officers during
the most recent nine month period. In addition, the Company's former Executive
Vice President resigned on October 1, 1996. Legal and accounting expenses
increased approximately $120,983 due primarily to increased patent work.
Approximately $24,000 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 $339,671 loss from investment in affiliate during
the nine months ended June 30, 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
nine months ended June 30, 1996, because the Joint Venture did not commence
significant operations until the quarter ended September 30, 1996.
Interest expense of $286,119 for the nine months ended June 30, 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 loss of $1,261,320 for the nine months ended June 30, 1997, was
substantially more than the net loss of $317,103 for the nine months ended
June 30, 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 last quarter 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 last quarter are not expected to increase significantly from
the level for the first nine months.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997 the company had working capital of approximately
$(1,091,882) compared to approximately $930,000 at September 30, 1996. The
decrease was due primarily to the net loss of $(1,261,320), extensive
borrowing against the company's credit line, and bridge loan debt for the nine
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 June 30, 1997, The
entire credit line of $750,000 was outstanding. Amounts under the credit line
-10-
bear interest at the prime rate plus 1.5% and were due on June 5, 1997. The
company received a 30 day extension of the due date. The credit line was paid
down to zero on July 24th, 1997, from the proceeds of the Company's public
offering.
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 June 30, 1997 had accrued $34,378 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 additional cash from the Steyr
license and the proceeds from the public offering the Company believes it has
sufficient liquidity to maintain continued operations for at least the next
twelve months.
Operating activities for the nine months ended June 30, 1997 used
approximately $(664,408) of net cash as compared to $1,023,026 cash provided
in the nine months ended June 30, 1996. The decrease in cash from operating
activities was primarily due to the increase in Accounts Receivable for the
current year period as compared to a substantial decrease in Accounts
Receivable in the prior period, and the net loss of $(1,261,320) for the
current period as compared to a net loss of $(317,103) in the prior year
period.
Investing activities for the nine months ended June 30, 1997 used
$(421,056) as compared to $(1,053,014) which was used in the corresponding
prior year period. Approximately $681,519 was attributed to the investment in
the AHSA-TAISUN joint venture. The Company sold $260,463 of short term
commercial paper to partially offset the expenditure.
Cash provided from financing activities was $1,425,942 for the nine
months ended June 30, 1997, as compared to $618,770 for the nine months ended
June 30, 1996. Bridge loan proceeds and utilization of the Company's credit
line were the primary sources of financing activities for the nine months
ended June 30, 1997.
In July of 1997 the Company closed its Secondary Offering. Gross
proceeds of the offering totaled approximately $5,750,000. After commissions
and expenses the Company received net cash of approximately $4,954,000. The
Company used approximately $935,000 of the proceeds to retire the bridge loan
debt and used $753,000 to pay the credit line down to zero. Net available cash
from the offering for operating expenses after repayment of debt is
approximately $3,266,000. The Company intends to use the secondary funding to
support the continued development and marketing of GERODISC, and for the
future development of its ASHA-TAISUN Joint Venture.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES. None.
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. None.
-11-
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: August 22, 1997 By/s/ John C. McCormack
John C. McCormack, President
By/s/ Steve Sanderson
Steve Sanderson, Chief Financial
Officer
-12-
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- ------------------------------
27. Financial Data Schedule Filed herewith electronically