Wilshire 10QSB 2001 Q3 Quarterly report (small business)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)


[X]		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2001


[ ]		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ____________

Commission File Number 0-20866

WILSHIRE TECHNOLOGIES, INC.

(Exact name of small business issuer as specified in its charter)


California (State or other jurisdiction of incorporation or organization)		33-0433823 (I.R.S. Employer Identification No.)

5861 Edison Place
Carlsbad, California 92008
(Address of principal executive offices)

(760) 929-7200
(Issuer’s telephone number)

Check whether the issuer (1) 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 [ ]

The number of shares outstanding of the registrant’s only class of Common Stock, no par value, were 12,953,385 on October 6, 2001.

Transitional Small Business Disclosure Format. Yes [ ] No [X]

TABLE OF CONTENTS


		Condensed Consolidated Balance Sheets
PART 1
	Item 1.
		Condensed Consolidated Statements of Operations
		Condensed Consolidated Statements of Operations
		Condensed Consolidated Statements of Cash Flows
		Notes to Condensed Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis or Plan of Operation
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings:
	Item 2. Changes in Securities:
	Item 3. Defaults Upon Senior Securities:
	Item 4. Submission of Matters to a Vote of Security Holders:
	Item 5. Other Information:
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 10.199
EXHIBIT 10.200
EXHIBIT 10.201

WILSHIRE TECHNOLOGIES, INC.

INDEX TO FORM 10-QSB


			PAGE

PART 1 - FINANCIAL INFORMATION (UNAUDITED)












Item 1.	Financial Statements:












		Condensed Consolidated Balance Sheets as of August 31, 2001 and November 30, 2000	3












		Condensed Consolidated Unaudited Statements of Operations for the Three Months Ended August 31, 2001 and August 31, 2000	4












		Condensed Consolidated Unaudited Statements of Operations for the Nine Months Ended August 31, 2001 and August 31, 2000	5












		Condensed Consolidated Unaudited Statements of Cash Flows for the Nine Months Ended August 31, 2001 and August 31, 2000	6












		Notes to Condensed Consolidated Unaudited Financial Statements	7












Item 2.	Management’s Discussion and Analysis or Plan of Operation		11












PART II - OTHER INFORMATION












Item 1.	Legal Proceedings		15












Item 2.	Changes in Securities		15












Item 3.	Defaults Upon Senior Securities		15












Item 4.	Submission of Matters to a Vote of Security Holders		15












Item 5.	Other Information		16












Item 6.	Exhibits and Reports on Form 8-K		16












Signatures			16

Wilshire Technologies, Inc.
Condensed Consolidated Balance Sheets
(See Note 2)

PART 1

Item 1.


		August 31,			November 30,
		2001			2000

		(Unaudited)			(Note 1)
Assets
Current assets:
	Cash	$	525,000		$	413,000
	Accounts receivable trade, less allowance for doubtful accounts of $100 at August 31, 2001 and $2,000 at November 30, 2000, respectively		19,000			1,000
	Inventories (Note 3)		100,000			—
	Other current assets		305,000			244,000

Total current assets			949,000			658,000
Property and equipment, net			2,575,000			2,781,000
Patents and trademarks, net			30,000			26,000
Receivable due from sale of division (Note 4)			945,000			945,000

		$	4,499,000		$	4,410,000

Liabilities and shareholders’ deficit
Current liabilities:
	Accounts payable	$	130,000		$	73,000
	Accrued expenses		403,000			226,000
	Interest payable-related party (Note 5)		4,686,000			3,301,000
	Line of credit — related party (Note 5)		17,913,000			14,748,000

Total current liabilities			23,132,000			18,348,000

Commitments and contingencies
Shareholders’ deficit
	Preferred stock, no par value, 2,000,000 shares authorized and none issued or outstanding		—			—
	Common stock, no par value, 50,000,000 shares authorized; 12,953,385 shares issued and outstanding		25,912,000			25,912,000
	Common stock warrants and options		495,000			495,000
	Accumulated deficit		(45,040,000	)		(40,345,000	)

Total shareholders’ deficit			(18,633,000	)		(13,938,000	)

		$	4,499,000		$	4,410,000

See accompanying notes to financial statements.

Wilshire Technologies, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(See Note 2)


		Three-Month Periods Ended

		August 31,			August 31,
		2001			2000

Net sales		$	25,000		$	25,000
Cost of sales			824,000			419,000

Gross loss			(799,000	)		(394,000	)

Operating expenses:
	Marketing and selling		214,000			124,000
	General and administrative		315,000			332,000
	Research and development		10,000			2,000

Total operating expenses			539,000			458,000

Loss from operations			(1,338,000	)		(852,000	)
Other income, net			81,000			80,000
Interest expense, net			(475,000	)		(398,000	)

Loss before provision for income taxes			(1,732,000	)		(1,170,000	)
Provision for income taxes			—			—

Net loss		$	(1,732,000	)	$	(1,170,000	)

Weighted average shares outstanding			12,953,000			12,953,000

Basic and diluted loss per share		$	(0.13	)	$	(0.09	)

See accompanying notes to financial statements.

Wilshire Technologies, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(See Note 2)


		Nine-Month Periods Ended

		August 31,			August 31,
		2001			2000

Net sales		$	155,000		$	1,297,000
Cost of sales			1,991,000			2,540,000

Gross loss			(1,836,000	)		(1,243,000	)

Operating expenses:
	Marketing and selling		504,000			390,000
	General and administrative		1,216,000			1,068,000
	Research and development		34,000			9,000

Total operating expenses			1,754,000			1,467,000

Loss from operations			(3,590,000	)		(2,710,000	)
Other income, net			280,000			90,000
Loss on sale of assets			—			(314,000	)
Interest expense, net			(1,384,000	)		(1,125,000	)

Loss before provision for income taxes			(4,694,000	)		(4,059,000	)
Provision for income taxes			1,000			1,000

Net loss		$	(4,695,000	)	$	(4,060,000	)

Weighted average shares outstanding			12,953,000			12,953,000

Basic and diluted loss per share		$	(0.36	)	$	(0.31	)

See accompanying notes to financial statements.

Wilshire Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(See Note 2)


				Nine-Month Periods Ended

				August 31,			August 31,
				2001			2000

Operating activities
Net loss				$	(4,695,000	)	$	(4,060,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization			486,000			528,000
		Provision for inventory obsolescence			—			118,000
		Loss from sale of assets to Foamex			—			314,000
		Net change in operating assets and liabilities
			Decrease in (increase) in accounts receivable		(18,000	)		303,000
			Decrease in (increase) in inventories		(100,000	)		315,000
			Decrease in (increase) in other current assets		(65,000	)		132,000
			Increase in (decrease) in accounts payable and accrued expenses		234,000			(515,000	)
			Increase in interest payable		1,385,000			1,123,000

Net cash used in operating activities					(2,773,000	)		(1,742,000	)

Investing activities
	Purchases of equipment				(280,000	)		(62,000	)

Net cash used in investing activities					(280,000	)		(62,000	)

Financing activities
	Proceeds from line of credit				3,165,000			1,763,000

Net cash provided by financing activities					3,165,000			1,763,000

Net increase (decrease) in cash					112,000			(41,000	)
Cash — beginning of period					413,000			167,000

Cash — end of period				$	525,000		$	126,000

See accompanying notes to financial statements.

Wilshire Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(See Note 2)

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Wilshire Technologies, Inc. (the “Company”) operates in one business segment, which is to develop, manufacture and market engineered polymer products for industrial cleanroom use. The Company has historically developed, manufactured and marketed engineered polymer products for industrial cleanroom use. In 1996, the Company divested its Medical Products and Transdermal Products divisions and focused primarily on products used in industrial cleanrooms, such as gloves and contamination control products. From 1996 through 2000, substantially all of the Company’s reported historic revenues have been related to sales of its contamination control products. On May 19, 2000 the Company completed the sale of certain assets and selected liabilities of the Company’s Wilshire Contamination Control division (the “division”) to Foamex Asia Co. LTD. (see Note 4). During the third quarter of fiscal 2000, sales of the Company’s polyurethane glove ceased and the Company focused upon securing a strategic partner for the new product development. Effective September 18, 2000, the Company signed a Product Development, Purchase and License Agreement (the “Agreement”) with the Lycra® division of E. I. DuPont de Nemours and Company (“DuPont “). Under the Agreement, DuPont developed and began to supply a new proprietary polyurethane material which is used by Wilshire to manufacture and sell a disposable polyurethane glove for industrial cleanroom applications. The Company, based in Carlsbad, California manufactures its products at the Tijuana, Mexico facility of its wholly owned subsidiary, Wilshire International de Mexico S.A. de C.V.

Basis of Presentation

The Company has incurred substantial losses since its inception in 1990, and has relied on working capital provided by Trilon Dominion Partners, LLC (“Trilon Dominion” -previously Dominion Capital, Inc.) in the form of both debt and equity to fund its operations. Management believes that Trilon Dominion will continue to support the Company as necessary through the end of fiscal year 2001.

The accompanying Condensed Consolidated Unaudited Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB for quarterly reports under Section 13 or 15(d) of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended August 31, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending November 30, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-KSB for the fiscal year ended November 30, 2000.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Significant intercompany amounts and transactions have been eliminated.

NOTE 2. GOING CONCERN

The accompanying Condensed Consolidated Unaudited Financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a working capital deficiency of $22,183,000; shareholders’ deficit of $18,633,000 as of August 31, 2001, has suffered recurring losses from operations and is economically dependent on its majority shareholder to finance operations. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Continuation of the Company is dependent on the Company’s ability to negotiate additional arrangements with its majority shareholder, raise additional capital and to achieve profitability. The Condensed Consolidated Unaudited Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. Although management has been successful in obtaining working capital from its majority shareholder to fund operations to date, there can be no assurances that the Company will be able to raise additional capital in the future.

NOTE 2. GOING CONCERN, continued

The Company anticipates continuing negative cash flow from operating and investing activities through the next 12 months. The Company has projected its cash flow needs to be approximately $3.4 million for the year ending November 2001 and has projected its cash flow needs to be approximately $5 to $7 million for fiscal 2002. Trilon Dominion, the Company’s largest shareholder with over 73% of the shares outstanding, has acknowledged the Company’s cash flow needs and has indicated its commitment to provide financial support to the Company through the next 12 months to the extent of such budgeted cash flow requirements. However given that no written commitment exists, the Company is exposed to the substantial risk that it will not receive the funds from Trilon Dominion to fund present and future working capital needs. In the event that such funds are not received it is unlikely that the Company will be successful in raising capital from other sources. If adequate funds are not available to finance current operations, the Company will be unable to execute its business development efforts and may be unable to continue as a going concern.

The Company’s continuation as a going concern is dependent upon its ability to (a) generate sufficient cash flow to fund working capital and investment activities, (b) to obtain additional outside financing and (c) ultimately sustain profitability. Management’s recent actions in regard to these matters are as follows:

1) During fiscal 2000, the Company sold selected assets and liabilities totaling $945,000 related to the Company’s Wilshire Contamination Control to Foamex Asia Co. LTD. (the “Buyer”), an affiliate of Foamex International (FMX:NASDAQ) for a potential sales price up to $2,500,000. (See Note 4). Payments of the sale price are due from the Buyer on a quarterly basis based on a fixed percentage of sales by the Buyer of certain products. Foamex International is an international developer, manufacturer and supplier of high-quality foam, including key materials utilized in contamination control environments. Foamex Asia Co. Ltd., located in Singapore and in Thailand, is currently a major supplier of specialty foam products to the Asian market.

As part of the sale agreement, Foamex Asia Co. Ltd. agreed to invest $1,000,000 of capital in equipment and machinery in the acquired business which, the Company believes, will lead to lower manufacturing costs of the Buyer over the next three years. The Company further believes the transaction was in its best interests as the likelihood of increased sales due to the lower manufacturing costs may provide not only a return of the initial investment of $945,000, but additional payments from the Buyer up to a total of $2,500,000.

2) In addition to the sale of assets to Foamex Asia Co. Ltd., the Company entered into an agreement with Foamex to provide, for due consideration, certain labor, facilities, services, personnel and other items with respect to Foamex’s ongoing operation of the Division’s business. The agreement, which commenced on May 19, 2000 and will continue until December 31, 2001, will provide additional funds to offset operating expenses of approximately $480,000 for fiscal year 2001.

3) In September 2000, the Company signed a Product Development, Purchase and License Agreement (the “Agreement”) with the Lycra® division of E. I. DuPont de Nemours and Company (“DuPont “). Under the Agreement, DuPont developed and began to supply a new proprietary polyurethane material which is used by Wilshire to manufacture and sell a disposable polyurethane glove for industrial cleanroom applications. The Company began production of the new gloves in the second quarter of 2001.

The Company believes that with the potential of a return of $2.5 million on the sale of its contamination control division to Foamex Asia Co., Ltd., with the cost-sharing agreements in place to lower operating costs, and with the sales of its new glove, the Company will position itself to begin generating sufficient cash flow to fund working capital and investment activities by late 2002. If the Company does attain its sales goals, it believes that it will be able to raise additional capital, as needed in the future. There can be no assurances, however, that the Company will be successful in any of the above mentioned actions or plans on a timely basis, or at all.

NOTE 3. FINANCIAL STATEMENT INFORMATION

Inventories consist of the following:


	August 31,			November 30,
	2001			2000

Raw materials	$	71,000		$	113,000
Work in process		—			—
Finished goods		34,000			5,000
Inventory reserves		(5,000	)		(118,000	)

	$	100,000		$	—

NOTE 4. SALE OF DIVISION

On May 19, 2000 the Company completed the sale of certain assets and selected liabilities of the Company’s Wilshire Contamination Control division (the “division”) to Foamex Asia Co. LTD. (the “Buyer”), an affiliate of Foamex International (FMX:NASDAQ) for a potential sales price up to $2,500,000. Substantially all of the historic revenues reported by the Company related to this division.

Payments are due from the Buyer on a quarterly basis based on a fixed percentage of sales by the Buyer of certain products, as defined in the asset purchase agreement, subject to certain cash flow provisions.

As no proceeds were due to the Company on the date of closing, the Company has recorded a receivable, which equates to the net book value of the net assets sold. Such receivable totals $945,000. The Company has a secured interest in the net assets sold. All payments of the sales price will be applied against the receivable, under the cost recovery method, with no recognition of gain until the receivable is paid in full. The Company believes that the asset recorded is not impaired.

In addition to the sale of assets, the Buyer and Seller entered into an agreement where the Company agreed to provide Foamex, for due consideration, certain labor, facilities, services, personnel and other items with respect to Foamex’s ongoing operation of the Division’s business. The agreement commenced on May 19, 2000 and will continue until December 31, 2001.

The sale agreement gives the Buyer the option to delay payment through November 29, 2001; accordingly to date no payments have been made by the Buyer. The Buyer has made all other payments as required by the sale agreement on a timely basis, and has represented both verbally and in writing to the Company that it has the financial ability to meet its payment obligations. Management has not received any financial information with which to evaluate the Buyer’s ability to pay the receivable, as the Buyer is not obligated to provide the financial statements. As such, while uncertainty exists as to the collectibility of the receivable, management has no reason to believe that the receivable will not be collected on a timely basis.

NOTE 5. LINE OF CREDIT

On March 31, 1998, the Company and Trilon Dominion completed an Amended and Restated Credit Agreement and Revolving Line of Credit (the “Amended Agreement”), secured by the Company’s assets, which included principal of $4,000,000 from a previous agreement, $750,000 from Demand Notes, accrued interest and management fees of $543,297 on the Agreement and Demand Notes, and a new credit line commitment of $2,200,000. Under the terms of the Amended Agreement, the principal of $7,493,297 was due on December 31, 1998, and interest was payable quarterly at an annual rate of 11.5%. From March 1998 to November 1998, the Company issued Demand notes totaling $930,000 at an interest rate of 11.5% under the credit line agreement.

NOTE 5. LINE OF CREDIT, continued

In December of 1998, the Company amended the credit line agreement to extend the terms to January 31, 2000, which was extended to June 30, 2000, January 31, 2001 and January 31, 2002, in December 31, 1999, June 30, 2000 and January 17, 2001 amendments to the credit line agreement. In fiscal 1999, the Company issued demand notes totaling $3,510,000 under the line of credit agreement and capitalized debt issuance costs of $18,000. Of the notes issued in fiscal 1999, $2,010,000 of notes bear interest at a rate of 11.5% annually; the remaining $1,500,000 of demand notes bear interest at a rate of prime plus 3%. In fiscal 2000, the Company issued demand notes totaling $2,813,000 under the line of credit agreement. The notes issued in fiscal 2000 bear interest at a rate of prime plus 3%. For the first nine months of fiscal 2001, the Company issued demand notes totaling $3,165,000 at a rate of prime plus 3% (9.75% at August 31, 2001). All of the notes are due on demand. On October 5, 2001, the Company issued an additional demand note in the amount of $433,000. Such note bears interest at a rate of prime plus 3%.

NOTE 6. COMMITMENTS AND CONTINGENCIES

Breast Implant Litigation

During the first nine months of 2001, there have been no significant developments in the Breast Implant Litigation. For information regarding legal proceedings, refer to the information contained in the Company’s Annual Report on Form 10-KSB for the fiscal year ended November 30, 2000, under Note 7 to the consolidated financial statements included therein.

NOTE 7. SUBSEQUENT EVENT

On October 5, 2001, the Company issued an additional demand note to Trilon Dominion in the amount of $433,000. Such note bears interest at a rate of prime plus 3%. The Company and Trilon Dominion have recently begun negotiation of an option agreement. If an agreement is reached and Trilon Dominion exercises the options, Trilon Dominion would make a substantial new equity investment in the Company in exchange for a substantial increase in its ownership percentage.

Item 2. Management’s Discussion and Analysis or Plan of Operation

With the exception of discussions regarding historical information, “Management’s Discussion and Analysis or Plan of Operation” contains forward looking statements. Such statements are based on current expectations subject to uncertainties and other factors which may involve known and unknown risks that could cause actual results of operations to differ materially from those projected or implied. Further, certain forward-looking statements are based upon assumptions about future events, which may not prove to be accurate.

Risks and uncertainties inherent in forward looking statements include, but are not limited to, the Company’s future cash flows and ability to obtain sufficient financing, timing and volume of sales orders, level of gross margins and operating expenses, lack of market acceptance or demand for new product lines, price competition, conditions in the contamination control industry and the economy in general, as well as legal proceedings. The economic risk associated with material cost fluctuations and inventory obsolescence is significant to the Company. The ability to manage inventories through procurement and utilization of component materials and the ability to generate new glove sales could have a significant impact on future results of operations or financial condition. Historical results are not necessarily indicative of the operating results for any future period.

Subsequent written and oral forward looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by cautionary statements in this Form 10-QSB and in other reports that have been filed with the Securities and Exchange Commission. The following discussion should be read in conjunction with the Condensed Consolidated Unaudited Financial Statements and the Notes thereto included elsewhere in this filing.

Overview

The Company has incurred substantial losses since its inception in 1990, and has relied on working capital provided by Trilon Dominion (previously Dominion Capital, Inc.) in the form of both debt and equity to fund its operations. Management believes that Trilon Dominion will continue to support the Company’s working capital needs as necessary through the end of fiscal year 2001.

Accordingly, the accompanying Condensed Consolidated Unaudited Financial Statements have been prepared assuming the Company will continue to operate as a going concern. Should Trilon Dominion discontinue providing working capital support to the Company, the Company would have insufficient working capital to meet its operational needs for the foreseeable future.

Effective September 18, 2000, the Company signed a Product Development, Purchase and License Agreement (the “Agreement”) with the Lycra® division of E. I. DuPont de Nemours and Company (“DuPont”). Under the agreement, DuPont developed and began to supply a new proprietary polyurethane material which is used by Wilshire to manufacture and sell a disposable polyurethane glove for industrial cleanroom applications.

In the second quarter of fiscal year 2001, the Company began production of the new polyurethane glove and introduced the glove into selected foreign customer accounts for evaluation and testing.

In the third quarter of fiscal 2001, the Company focused on process and yield improvement programs for the new polyurethane glove and expanded the introduction of the glove into selected domestic customer accounts for evaluation and testing.

Net Sales

The Company markets its products directly to end-users through a limited number of internal sales personnel and through international, national and regional distributors. Revenue for all sales is recognized when title transfers, generally when products are shipped.

Net sales of $25,000 for the third quarter of 2001 were comparable to sales of $25,000 for the third quarter of 2000. Net sales decreased by $1,142,000 (88.0%) to $155,000 for the first nine months of 2001 as compared to $1,297,000 for the first nine months of 2000. The decrease in sales for the first nine months was due to the sale of the Wilshire Contamination Control Division to Foamex Asia Co. Ltd. on May 19, 2000. Sales essentially ceased at that time while the Company focused on development of a new polyurethane glove made with proprietary material supplied by DuPont.

Gross Margin

For the third quarter, the Company recorded a negative gross margin of $799,000 as compared to a negative gross margin of $394,000 in the same period of 2000. For the first nine months of 2001, the Company recognized a negative gross margin of $1,836,000 as compared to a negative gross margin of $1,243,000 for the comparable period in 2000. The gross margin losses for the third quarter and first nine months were primarily attributable to high-unabsorbed operating costs of its glove manufacturing plant, in addition to an increased headcount in 2001 as the Company commenced production.

Marketing and Selling Expenses

Marketing and selling expenses increased by $90,000 (73.0%) to $214,000 in the third quarter of 2001 from $124,000 for the comparable period of 2000. The first nine months of expense increased by $114,000 (29.0%) to $504,000 from $390,000 for the first nine months of 2000. The increase for the quarter and first nine months was primarily attributable to an increase in headcount as well as an increase in marketing, tradeshow and travel expenses associated with the introduction of the new glove to customers.

General and Administrative Expenses

General and administrative expenses include costs related to the Company’s administrative costs such as executive and office salaries, related payroll expenses, investor relations, professional fees, supplies and utilities.

General and administrative expenses decreased $17,000 (5.0%) to $315,000 in the third quarter of 2001 from $332,000 in the third quarter of 2000. The decrease for the quarter was primarily due to lower legal and audit fees. For the first nine months of 2001, General and administrative expense increased by $148,000 (14.0%) to $1,216,000 from $1,068,000 for the first nine months of 2000. The increase in expense for the first nine months was due to increases in professional fees, recruiting fees, travel associated with the introduction of the new glove, and an increase of administrative personnel and professional services at the Company’s glove facility in Tijuana, Mexico of its wholly owned subsidiary, Wilshire International de Mexico S.A. de C.V.

Research and Development

Research and development expenses of $10,000 increased by $8,000 (400.0%) as compared to the third quarter of 2000 expenses of $2,000. For the first nine months of 2001, Research and development expense of $34,000 increased by $25,000 as compared to Research and development expense of $9,000 for the comparable period in 2000. The overall increase in Research and development expense was due to outside testing of the Company’s new polyurethane glove.

Other income, Net

The Company recorded other income of $81,000 in the third quarter of 2001 as compared to other income of $80,000 for 2000. Other income of $280, 000 for the first nine months of 2001 increased by $190,000 from other income of $90,000 for the first nine months 2000. The increase in other income is due to an increase of consulting income from the Ongoing Service Agreement with Foamex Asia, which was entered into on May 19, 2000.

The Company recorded royalty expense of $27,000 to DuPont in the third quarter of 2001 related to sales of its new glove as stipulated by the Product Development, Purchase and License Agreement (the “Agreement”) with the Lycra® division of E. I. DuPont de Nemours and Company (“DuPont “).

Interest Expense, Net

The Company reported higher interest expense in the third quarter of 2001 compared with the third quarter of 2000 due to an increase in debt outstanding. Interest expense is related primarily to interest on the line of credit due to Trilon Dominion Partners, LLC. (See Note 5 to the Condensed Consolidated Unaudited Financial Statements).

Income Taxes

For the quarters ended August 31, 2001, and August 31, 2000, the Company sustained losses for both financial reporting and income tax purposes. A tax provision of $1,000 related to state income taxes was recorded in the condensed financial statements for 2000 and 2001.

Liquidity and Capital Resources

The accompanying condensed unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a working capital deficiency of $22,183,000; shareholders’ deficit of $18,633,000 as of August 31, 2001, has suffered recurring losses from operations and is economically dependent on its majority shareholder to finance operations. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Continuation of the Company is dependent on the Company’s ability to negotiate additional arrangements with its majority shareholder, raise additional capital and to achieve profitability. The condensed unaudited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Although management has been successful in obtaining working capital from its majority shareholder to fund operations to date, there can be no assurances that the Company will be able to raise additional capital in the future.

The Company anticipates continuing negative cash flow from operating and investing activities through the next twelve months. The Company has projected its cash flow needs to be approximately $3.4 million for the year ending November 2001 and has projected its cash flow needs to be approximately $5 to $7 million for fiscal 2002. Trilon Dominion, the Company’s largest shareholder with over 73% of the shares outstanding, has acknowledged the Company’s cash flow needs and has indicated its commitment to provide financial support to the Company through the next twelve months to the extent of such budgeted cash flow requirements. However given that no written commitment exists, the Company is exposed to the substantial risk that it will not receive the funds from Trilon Dominion to fund present and future working capital needs. In the event that such funds are not received it is unlikely that the Company will be successful in raising capital from other sources. If adequate funds are not available to finance current operations, the Company will be unable to execute its business development efforts and may be unable to continue as a going concern.

As part of the sale agreement, Foamex Asia Co. Ltd. agreed to invest $1,000,000 of capital in equipment and machinery which, the Company believes, will lead to lower manufacturing costs of the Buyer over the next three years. The Company further believes the transaction was in its best interests as the likelihood of increased sales due to the lower manufacturing costs may provide not only a return of the initial investment of $945,000, but additional payments from the Buyer up to a total of $2,500,000.

Management assesses the Company’s liquidity by its ability to generate cash to fund its operations. Significant factors in the management of liquidity are: funds generated by operations; levels of accounts receivable, inventories, accounts payable and capital expenditures; adequate lines of credit; and financial flexibility to attract long-term capital on satisfactory terms.

During 2000 and the first nine months of 2001, the Company has not generated sufficient cash from operations to fund its working capital and equipment purchase requirements. Net cash used in operating activities was $ 2,773,000 in the first nine months of 2001 versus net cash used in operating activities of $1,742,000 in the first nine months of 2000. The increase in the cash used in operating activities was primarily due to the sale of the Company’s Wilshire Contamination Control division to Foamex Asia, Co. Ltd. in May 2000, which resulted in a substantial reduction in cash generated from operations.

Net cash used in investing activities was $280,000 in the first nine months of 2001, versus net cash used by investing activities of $62,000 in the first nine months of 2000. The higher investing activities for the first nine months of 2001 were related to upgrades to the glove production equipment related to the manufacture of the new glove.

Net cash provided by financing activities was $3,165,000 in the first nine months of 2001 versus $1,763,000 in the first nine months of 2000. The debt financing in both years was obtained from Trilon Dominion Partners, LLC. The Company’s need for financing increased in 2001 due to the sale of the Company’s Wilshire Contamination Control division.

For the first nine months of fiscal 2001, the Company issued additional demand notes totaling $3,165,000 at a rate of prime plus 3% (9.75% at August 31, 2001). All of the notes are due on demand.

For the nine-month period ended August 31, 2001, the Company has used its current credit facilities with Trilon Dominion to fund its continuing negative cash flows from operating and investing activities. The Company expects to continue to have negative cash flow from operating and investing activities through the next 12 months. Management believes that Trilon Dominion, the Company’s largest shareholder with over 73% of the shares outstanding, will continue to support the Company as necessary through the end of fiscal year 2001. However, given that no written commitment exists, the Company is exposed to the substantial risk that it will not receive the funds from Trilon Dominion to fund present and future working capital needs.

Risk Factors

The Company’s business depends on the free flow of products and services through the channels of commerce. Recently, in response to terrorists’ activities and threats aimed at the United States, transportation, mail, financial and other services have been slowed or stopped altogether. Further delays or stoppages in transportation, mail, financial or other services could have a material adverse effect on the Company’s business, results of operations and financial condition. Furthermore, the Company may experience an increase in operating costs, such as costs for transportation, insurance and security as a result of the activities and potential activities. The Company may also experience delays in receiving payments from payers that have been affected by the terrorist activities and potential activities. The U.S. economy in general is being adversely affected by the terrorist activities and potential activities and any economic downturn could adversely impact the Company’s results of operations, impair its ability to raise capital or otherwise adversely affect its ability to grow the business.

New Accounting Pronouncements

In July 2001, The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141 (SFAS 141), Business Combinations, which eliminates the pooling method of accounting for intangible assets and goodwill acquired in a business combinations initiated after June 30, 2001. In addition, SFAS 141 addresses the accounting for intangible assets and goodwill acquired in a business combination. This portion of SFAS 141 is effective for business combinations completed after June 30, 2001. The Company does not expect SFAS 141 will have material impact on our financials position or results of operations.

In July 2001, The FASB issued Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Intangible Assets, which revises the accounting for purchased goodwill and intangible assets. Under SFAS 142, goodwill and intangible assets with indefinite lives will no longer be amortized and will be tested for impairment annually. SFAS 142 is effective for fiscal years beginning after December 15, 2001, with earlier adoption permitted. The Company does not expect SFAS 142 will have a material impact on our financial position or results of operations.

Item 3. Quantitative and qualitative disclosures about market risk

The Company maintains a floating interest rate on its related party line of credit ($17.9 million outstanding balance at August 31, 2001). Therefore, the Company is subject to a certain amount of risk arising from increases to the prime rate.

PART II — OTHER INFORMATION

Item 1.		Legal Proceedings:

		For information regarding legal proceedings, refer to the information contained in the Company’s annual report on Form 10-KSB for the fiscal year ended November 30, 2000 under the heading, “Legal Proceedings” and Note 7 to the financial statements therein.

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) Exhibits:


10.199		Demand Note dated June 28, 2001 between the Registrant and Trilon Dominion Partners, L.L.C.












10.200		Demand Note dated August 1, 2001 between the Registrant and Trilon Dominion Partners, L.L.C.








10.201		Demand Note dated August 28, 2001 between the Registrant and Trilon Dominion Partners, L.L.C.

(b) Reports on Form 8-K:

None.

SIGNATURES

In accordance with requirements of the Securities Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	WILSHIRE TECHNOLOGIES, INC.


Dated: October 12, 2001	By:	/S/ Kathleen E. Terry

		Kathleen E. Terry
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

Wilshire Inactive 10QSB2001 Q3 Quarterly report (small business)

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