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, 1998
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 8,667,358 shares of the Registrant's Common Stock outstanding as of
March 31, 1998.
ASHA CORPORATION
FORM 10-QSB
INDEX
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Part I. Financial Information
Item 1. Financial Statements Page
Balance Sheets - March 31, 1998 and September 30, 1997 3-4
Statement of Operations for the three and six
month periods ended March 31, 1998 and 1997 5
Statement of Cash Flows for the six month periods
ended March 31, 1998 and 1997 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Part II. Other Information and Signatures 12
Signatures 12
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ASHA CORPORATION
BALANCE SHEETS
MARCH 31, 1998 and SEPTEMBER 30, 1997
March 31, September 30,
1998 1997
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $3,596,400 $2,617,354
Accounts receivable-Trade 3,845,573 898,006
Prepaid expenses and other 338,612 73,856
TOTAL CURRENT ASSETS 7,780,585 3,589,216
Property and equipment, at cost,
net of accumulated depreciation
and amortization 299,507 192,273
Other Assets:
Investments in affiliates 609,557 609,557
Deposits 1,497 --
TOTAL OTHER ASSETS 611,054 609,557
TOTAL ASSETS $8,691,146 $4,391,046
See accompanying notes to financial statements.
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ASHA CORPORATION
BALANCE SHEETS
MARCH 31, 1998 AND SEPTEMBER 30, 1997
March 31, September 30,
1998 1997
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LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
Current liabilities:
Accounts payable $ 153,485 $ 114,843
Accrued vacation payable 168,577 --
Accrued liabilities 124,476 130,623
Insurance payable 22,952 --
Lease payable 5,786 --
Current portion of long term debt 48,230 --
TOTAL CURRENT LIABILITIES 523,506 245,466
Long term liabilities
Note payable - net of current portion $ 248,513 --
TOTAL LONG TERM LIABILITIES 248,513 --
TOTAL LIABILITIES 772,019 245,466
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 -
8,667,358 shares at March 31, 1998
and 8,651,393 at September 30, 1997 87 87
Additional paid-in capital 11,281,071 11,247,348
Accumulated deficit (3,280,124) (7,019,948)
Less: Treasury Stock at cost ( 81,907) ( 81,907)
TOTAL STOCKHOLDERS' EQUITY 7,919,127 4,145,580
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $8,691,146 $4,391,046
See accompanying notes to financial statements.
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ASHA CORPORATION
STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1998 AND 1997
For the three months For the six months
Ended March 31 Ended March 31
1998 1997 1998 1997
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REVENUES
License and right of refusal $5,214,461 $1,000,000 $5,652,187 $1,000,000
Miscellaneous income, contract
and other services -- 119,883 2,666 172,095
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TOTAL REVENUE 5,214,461 1,119,883 5,654,853 1,172,095
OPERATING EXPENSES
Research and development 434,041 202,597 750,996 459,496
Officer's salaries 95,487 99,593 201,236 205,893
Legal and accounting 28,158 66,537 43,716 125,838
Patent application 25,554 10,940 81,062 12,064
Taxes and licenses 42,867 46,348 60,575 64,244
Selling, General and
administrative 298,116 170,198 523,367 366,955
Depreciation and amortization 14,952 16,894 33,098 33,788
TOTAL OPERATING EXPENSES 939,175 613,107 1,694,050 1,268,278
INCOME (LOSS) FROM OPERATIONS 4,275,286 506,776 3,960,803 (96,183)
OTHER INCOME (EXPENSES)
Other income (expense) -- (69,225) -- (39,608)
Investments in affiliate (135,341) (129,360) (330,536) (237,966)
Interest income 64,237 4,829 127,431 5,113
Interest expense (13,859) (145,174) (14,253) (155,357)
TOTAL OTHER INCOME (EXPENSES) (84,963) (338,930) (217,358) (427,818)
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAX 4,190,323 167,846 3,743,445 (524,001)
PROVISION FOR INCOME TAX 3,620 -- 3,620 --
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NET INCOME (LOSS) $4,186,703 $167,846 $3,739,825 $(524,001)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 8,664,184 7,133,815 8,663,665 7,103,919
NET INCOME (LOSS) PER SHARE
BASIC AND DILUTED .483 .024 .432 (.074)
See accompanying notes to financial statements.
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ASHA CORPORATION
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
March 31, March 31,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,739,825 $(524,001)
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 warrants. -- 109,375
Depreciation and amortization 39,792 33,788
Revaluation of long-term
receivables (65,212) 39,608
Loss on investment in affiliate 330,537 237,966
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (2,870,328) (934,159)
Prepaid expenses (277,982) 5,397
Increase (decrease) in:
Accounts payable 38,449 46,798
Accrued liabilities 191,360 44,049
Net cash (used in) provided
by operating activities 1,126,441 (941,179)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short term investments -- 237,561
Additions to property and equipment (145,928) --
Investment in affiliate (330,537) (478,110)
Net cash (used in) investing
activities (476,465) (240,549)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayments) under
credit agreement 296,743 475,000
Proceeds from issuance of common stock 32,326 16,890
Net proceeds from sale of units -- 799,000
Net cash provided by financing
activities 329,069 1,290,890
Net (decrease) increase in cash and
cash equivalents 979,046 109,162
Cash and cash equivalents at beginning
of period 2,617,354 13,581
Cash and cash equivalents at end
of period $3,596,400 $ 122,743
See accompanying notes to financial statements.-6-
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
PRESENTATION
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 these financial statements
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.
CONCENTRATION OF CREDIT RISK
As of March 31, 1998, accounts receivable from New Venture Gear represented
96.1 percent of accounts receivable. For the six months ended March 31, 1998
revenue from New Venture Gear represented 92.9 percent of revenue.
MARKETABLE SECURITIES
As of March 31, 1998, marketable securities consisted of 30 day interest
bearing commercial notes with a yield of 5.46%.
INCOME TAX
Provisions for income taxes are minimal due to the utilization of net
operating loss carryforwards.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following should be read in conjunction with the Company's Annual Report
on Form 10-KSB and 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 cause
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 MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31, 1997
During the three months ended March 31, 1998, the Company had revenue of
$5,214,461 as compared to approximately $1,119,883 during the corresponding
period last year. The increase was due to the signing of a $5,100,000 license
agreement with New Venture Gear, a major tier one supplier. The agreement,
signed on January 5, 1998, calls for a $5,100,000 fee payable in two equal
installments due respectively on January 31, 1998 and January 31, 1999. During
the quarter ended March 31, 1997 the company had signed a $1,000,000 license
agreement with Steyr-Daimler-Puch-Fahrzeugtechnik.
Operating expenses for the three months ended March 31, 1998, as compared to
the corresponding period last year increased by approximately $326,000. The
addition of increased technical personnel and project management, to enhance
the Gerodisc product accounted for approximately a $102,000 increase in salary
expenses included in Research and Development for the most recent quarter as
compared to March 31, 1997. Relocation and moving expenses associated with the
hiring of the engineering staff accounted for $20,000 of the increase. General
and Administrative expenses increased by approximately $128,000. Contractual
employment agreement and separation expenses for the former CEO accounted for
approximately $21,000 of the General and Administrative increase for the
Quarter ended March 31, 1998 as compared to the Quarter ended March 31, 1997.
Consulting fees increased by approximately $13,000 due to the Company's
increased effort in the international market place. Additional accounting fees
were incurred or accrued of approximately $10,000 relating to the Chinese
operation. Investor mailings and stockholders expenses increased for the most
recent period by $26,000, due to additional shareholders of record as a
result of the public offering completed in July of 1997.
The company recorded a loss of approximately ($135,000) on its investment in
the ASHA-TAISUN Joint Venture during the three months ended March 31, 1998.
Management has elected to be consistent with it s current practice of writing
off the investment in the Joint Venture as incurred. During the three months
ended March 31, 1997 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 for the
quarter ended March 31, 1998 were decreased by approximately $123,000 as
compared to the quarter ended March 31, 1997. $129,360 was capitalized in
1997 and $129,360 was expensed in 1997 totaling $258,720, less $135,341
expensed for the three months ended March 31, 1998.
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The net profit of $ 4,186,703 for the three months ended March 31, 1998
compared to a net profit of $167,846 during the year ended March 31, 1997.
The increase was a result of the January 1998 $5,100,000 license agreement
signed by New Venture Gear, a major tier one supplier. Revenue for the
corresponding period last fiscal year was primarily due to the $1,000,000
license fee earned from Steyr, a large European automotive supplier.
Interest income was substantially higher for the three months ended March 31,
1998 as compared to the three months ended March 31, 1997. The remaining
proceeds from the Company's public offering in July 1997, coupled with the
first installment of $2,550,000 from New Venture Gear on January 31, 1998
enabled the Company to earn interest of $64,237 for the most recent fiscal
quarter, as compared to $4,829 interest earned for the period ending March 31,
1997.
Interest expense of $13,859 for the most recent quarter was substantially
less than the $145,174 for the period ended March 31, 1997. The most
significant interest item for the period ended March 31, 1998 was points and
fees associated with the renewal of the Company's $750,000 credit line, and
points and fees associated with a new $300,000 equipment note. Interest
expense 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 stock issued
as additional consideration in connection with a $900,000 bridge loan and
accrued interest on the bridge loan.
SIX MONTHS ENDED MARCH 31, 1998 VERSUS SIX MONTHS ENDED MARCH 31, 1997
During the six months ended March 31, 1998, the Company had $5,654,853 in
revenue compared to $1,172,095 in revenue during the corresponding prior year
period. The increase in revenue was the result of an increase in license and
contract service revenue relating to the signing of a $5,100,000 license
agreement with New Venture Gear ,a major tier one supplier. During the six
months ended March 31, 1997 the license revenue received was a $1,000,000 fee
paid by Steyr-Daimler-Puch-Fahrzeugtechnik GMBH, a large European automotive
supplier.
Operating expenses for the six months ended March 31, 1998, were approximately
$426,000 greater than the corresponding prior year period. Research and
development expenses increased by approximately $291,000 for the six months
ended March 31, 1998 as compared to the corresponding six months ended March
31, 1997. The reasons for the increases are related to several factors. First,
the New Venture Gear license agreement requires substantial prototype
development. Expenses directly related to the NVG project increased material
expenditures by $47,000 as compared to the corresponding period in the
previous year.
Fabrication wages and overtime increased by approximately $60,000 from the
previous corresponding period due to the contractual schedule of prototype
development as specified in the New Venture Gear license agreement. Travel
related to meet the contractual New Venture Gear prototype development
schedule as well as continued support of the European licensees increased
travel expenses by $36,000 for the six months ended March 31,1998 as compared
to the six months ended March 31, 1997. Engineering salaries increased
approximately $80,000 for the current fiscal period as compared to the
previous period, due to the hiring of additional experienced engineering
staff with expertise in project management. Expenses associated with
relocation, benefits and moving of new research and development engineers were
approximately $20,000.
Selling and General and Administrative expenses increased by approximately
$156,000 for the six months ended March 31, 1998 as compared to the six
months ended March 31, 1997. Expenditures associated with the contractual
employment agreement and separation agreement for the former CEO accounted for
approximately
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$21,000. Consulting fees increased by approximately $13,000 due to the
Company's increased effort in the international market place. Increased
expenses associated with the shareholders meeting and mailings due to
additional shareholders of record, and additional board members accounted for
$37,000 of the increase. Rent increased by $12,000 due to an increase in rent
expense for the sales office in Detroit. Salaries increased by $16,000 due to
the addition of a network administrator. Increased travel expenses associated
with additional board members and sales and marketing effort accounted for
approximately $13,000. Approximately $40,000 of the increase is attributed to
the Company's heightened public relations effort.
The Company recorded a net loss of $(330,536) from investment in affiliate
during the six months ended March 31, 1998 as compared to a net loss of
$(237,966) for the six months ended March 31, 1997. For the prior
corresponding period the total investment was approximately $476,000 of which
50% was held on the balance sheet pending the start of production. Actual
expenditures for the joint venture have decreased by approximately $146,000
($476,000 less $330,000)as compared to the same period last year. The decrease
is primarily due to the transfer of operational and production responsibility
to the Chinese operation.
Interest income of $127,431 was substantially higher for the six months ended
March 31, 1998 as compared to the interest income of $5,113 for the six
months ended March 31, 1997. 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 first six months of the current fiscal year.
Interest expense of $14,253 for the six months ended March 31, 1998 was
substantially less than the $155,357 paid for the six months ended March 31,
1997. The most significant interest item for the current period is points and
fees associated with the renewal of the Company's $750,000 credit line and
points and fees associated with a new $300,000 note to finance engineering
hardware and software. Interest expense 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 stock issued as additional consideration in connection with
$900,000 bridge loan and accrued interest on the bridge loan.
The net income of $3,739,825 for the six months ended March 31, 1998 was
substantially more than the net loss of $(524,001) for the six months ended
March 31, 1997. The $5,100,000 revenue from the license agreement signed in
the second quarter of the current fiscal year was the primary contributor to
current year profits. For the corresponding period last year revenues were
only $1,172,095. The Company anticipates the current licensing agreement to be
sufficient to maintain a profit position for the fiscal year, however there
are no assurances that any new licenses will be signed. Expenses for the
second six months are not expected to increase substantially from the level
for the first six months.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had a positive working capital of
approximately $7,257,000 compared to positive working capital of approximately
$3,344,000 at September 30, 1997. The increase was due to the net operating
profit the Company recorded in the quarter ended March 31, 1998. The Company's
working capital is primarily attributed to the $5,100,000 revenue recorded for
the New Venture Gear license agreement and the remaining proceeds of the
public offering that the Company closed in July of 1997.
On February 20,1998, the Company renewed its $750,000 credit line with
Montecito Bank & Trust. As of March 31, 1998 the entire credit line of
$750,000 was paid down to zero. Amounts under the credit line bear interest at
the prime rate plus
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1.0% and the credit line is renewable on an annual basis. As of May 4, 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. Amounts under
the note bear interest at the prime rate plus 1.0%. As of May 4, 1998 the
annual rate of interest for the note is 9.5%. As of March 31, 1998, no
amounts were outstanding on the line of credit.
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 six months ended March 31, 1998 provided
$1,126,441 of net cash as compared to $(941,179) cash used in the six months
ended March 31, 1997. The increase in cash provided by operating activities
was primarily due to the first installment of $2,550,000 from the New Venture
Gear license agreement as compared to a increase in accounts receivable for
the prior corresponding period. The net profit of $3,739,825 for the six
months ended March 31, 1998, as compared to a net loss of $(524,001) for the
comparable period in 1997 had an significant effect on year ended 1997
operating cash activities.
Investing activities for six months ended March 31, 1998 used $(476,465) of
cash. Approximately $(330,000) was attributed to the investment in ASHA-Taisun
joint venture as compared to $(478,110)in the corresponding period for the six
months ended March 31, 1997. 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.
The increase in cash was $979,046 for the six months ended March 31, 1998 as
compared to a increase of $109,162 for the six months ended March 31, 1997.
The increase in cash and cash equivalents was the initial installment of
$2,550,000 from the New Venture Gear license agreement. In the corresponding
period last year the company relied on its credit line and proceeds of the
$900,000 bridge loan.
The Company expects to invest approximately $550,000 in its ABC technology for
the year ended September 30, 1998. The expenditures are for the continuing
development of the ABC technology and to technically support the Chinese
factory in its testing of the pre-production vehicles. Limited production is
expected to start at the completion and evaluation of the tests.
The Company plans to further refine the ABC technology and solicit potential
licensees for their technology in second and third world niche markets.
The Chinese operation expects to eventually produce up to 10,000 vehicles
annually. Original export expectations may be effected by recent economic
events in Southeast Asia. The Company has completed its build of the
production tooling and molds for JIAD. The Jiaxing facility have built 15
pre-production units. These units are undergoing various dynamic tests to
prove durability and performance. Upon successful completion of such tests
JIAD intends to commence production.
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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.
(a) EXHIHITS. The following exhibit is filed herewith electronically:
EXHIBIT 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. The Company filed a Report on Form 8-K dated
January 8, 1998, reporting information under Item 1 - Changes in Control of
the Registrant and Item 7 - Financial Statements, Pro Forma Financial
Information and Exhibits.
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 14, 1998 By /s/ John C. McCormack
John C. McCormack, President
By /s/ Steve Sanderson
Steve Sanderson, Chief Financial
Officer
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