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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, 2000
[ ] 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 33-0433823
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 September 19, 2000.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
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WILSHIRE TECHNOLOGIES, INC.
INDEX TO FORM 10-QSB
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PART 1 - FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of 3
August 31, 2000 and November 30, 1999
Condensed Consolidated Statements of Operations 4
for the Three Months Ended August 31, 2000 and
August 31, 1999
Condensed Consolidated Statements of Operations 5
for the Nine Months Ended August 31, 2000 and
August 31, 1999
Condensed Consolidated Statements of Cash Flows 6
for the Nine Months Ended August 31, 2000 and
August 31, 1999
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis 9
or Plan of Operation
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PART II - OTHER INFORMATION
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Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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WILSHIRE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
August 31, November 30,
2000 1999
------------ ------------
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash $ 126,000 $ 167,000
Accounts receivable trade, less allowance for doubtful
accounts of $7,000 at August 31, 2000
and $7,000 at November 30, 1999, respectively 2,000 305,000
Inventories (Note 2) -- 1,222,000
Other current assets 341,000 313,000
------------ ------------
Total current assets 469,000 2,007,000
Receivable due from sale of Division (Note 3) 945,000 --
Property and equipment, less accumulated depreciation 2,915,000 3,436,000
of $1,935,000 at August 31, 2000
and $1,631,000 at November 30, 1999, respectively
Goodwill, less accumulated amortization of $407,000 at
November 30, 1999 -- 335,000
Patents and trademarks, net 26,000 125,000
------------ ------------
$ 4,355,000 $ 5,903,000
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 81,000 $ 260,000
Accrued expenses 223,000 418,000
Interest payable 2,881,000 1,758,000
Line of credit and Demand notes (Note 4) 13,698,000 11,935,000
------------ ------------
Total current liabilities 16,883,000 14,371,000
------------ ------------
Shareholders' equity (net capital deficiency):
Preferred stock, no par value, 2,000,000 shares authorized
and none issued and outstanding -- --
Common stock, no par value, 50,000,000 shares
authorized; 12,953,385 shares issued and
outstanding at August 31, 2000 and
November 30, 1999 25,912,000 25,912,000
Common stock warrants 387,000 387,000
Accumulated deficit (38,827,000) (34,767,000)
------------ ------------
Total shareholders' deficit (12,528,000) (8,468,000)
------------ ------------
$ 4,355,000 $ 5,903,000
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See accompanying notes.
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WILSHIRE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended August 31,
--------------------------------
2000 1999
------------ ------------
Net sales (Note 3) $ 25,000 $ 567,000
Cost of sales 419,000 1,021,000
------------ ------------
Gross margin (394,000) (454,000)
------------ ------------
Operating expenses:
Marketing and selling 124,000 186,000
General and administrative 332,000 470,000
Research and development 2,000 56,000
------------ ------------
Total operating expenses 458,000 712,000
------------ ------------
Loss from operations (852,000) (1,166,000)
Other income 80,000 1,000
Interest expense, net (398,000) (310,000)
------------ ------------
Loss before provision
for state income taxes (1,170,000) (1,475,000)
Provision for state income taxes -- --
------------ ------------
Net loss $ (1,170,000) $ (1,475,000)
============ ============
Weighted average shares outstanding 12,953,000 12,953,000
============ ============
Basic and diluted loss per share $ (0.09) $ (0.11)
============ ============
See accompanying notes.
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WILSHIRE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended August 31
--------------------------------
2000 1999
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Net sales (Note 3) $ 1,297,000 $ 2,010,000
Cost of sales 2,540,000 2,532,000
------------ ------------
Gross margin (1,243,000) (522,000)
------------ ------------
Operating expenses:
Marketing and selling 390,000 491,000
General and administrative 1,068,000 1,358,000
Research and development 9,000 164,000
------------ ------------
Total operating expenses 1,467,000 2,013,000
------------ ------------
Loss from operations (2,710,000) (2,535,000)
Other income 90,000 6,000
(Loss) on sale of assets (Note 3) (314,000) --
Interest expense, net (1,125,000) (885,000)
------------ ------------
Loss before provision
for state income taxes (4,059,000) (3,414,000)
Provision for state income taxes 1,000 1,000
------------ ------------
Net loss $ (4,060,000) $ (3,415,000)
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Weighted average shares outstanding 12,953,000 12,948,000
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Basic and diluted loss per share $ (0.31) $ (0.26)
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See accompanying notes.
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WILSHIRE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended August 31,
-----------------------------
2000 1999
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OPERATING ACTIVITIES
Net loss $(4,060,000) $(3,415,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 528,000 562,000
Provision for loss on accounts receivable -- 2,000
Provision for inventory obsolescence 118,000 --
Loss from sale of assets to Foamex 314,000 --
Net change in operating assets and liabilities:
Decrease in accounts receivable 303,000 76,000
(Increase) decrease in inventories 315,000 (174,000)
Decrease in other current assets 132,000 74,000
(Decrease) in accounts payable and
accrued expenses (515,000) (66,000)
Increase in interest payable 1,123,000 845,000
----------- -----------
Net cash used in operating activities (1,742,000) (2,096,000)
----------- -----------
INVESTING ACTIVITIES
Purchases of equipment (62,000) (488,000)
Increase in other assets -- (14,000)
----------- -----------
Net cash used in investing activities (62,000) (502,000)
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FINANCING ACTIVITIES
Proceeds from line of credit 1,763,000 2,629,000
Exercise of Stock Options -- 5,000
----------- -----------
Net cash provided by financing activities 1,763,000 2,634,000
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NET INCREASE (DECREASE) IN CASH (41,000) 36,000
CASH - BEGINNING OF PERIOD 167,000 42,000
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CASH - END OF PERIOD $ 126,000 $ 78,000
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See accompanying notes.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Wilshire Technologies, Inc. (the "Company") develops, manufactures and markets
engineered polymer products for industrial clean room use. The Company, based in
Carlsbad, California, manufactures its products in its wholly owned Mexican
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 (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 2000.
Accordingly, the accompanying condensed consolidated 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.
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 nine months ended August 31, 2000 are not necessarily
indicative of the results that may be expected for the fiscal year ending
November 30, 2000. 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, 1999.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. Significant intercompany amounts and transactions
have been eliminated.
2. FINANCIAL STATEMENT INFORMATION
Inventories consist of the following:
August 31, November 30,
2000 1999
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Raw materials $ 111,000 $ 479,000
Work in process 4,000 233,000
Finished goods 3,000 660,000
Inventory reserve (118,000) (150,000)
----------- -----------
$ -- $ 1,222,000
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3. SALE OF WILSHIRE CONTAMINATION CONTROL 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 of $2,500,000 or more.
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, subject to certain cash flow
provisions, as defined in the asset purchase agreement.
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 conjunction with the sale of the Division, the Company recorded a loss of
$314,000 associated with the write-off of Goodwill on the books of the Company
related to Wilshire Contamination Control products.
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, 2000.
4. 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")
which included principal of $4,000,000 from a previous agreement, $750,000 from
Demand Notes, accrued interest 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.
In December of 1998, the Company amended the credit line agreement to extend the
terms to January 31, 2000. The Company further extended the credit line
agreement to June 30, 2000 and to January 31, 2001 in a December 31, 1999 and
June 30, 2000 amendments, respectively. 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% (11.5% at
November 30, 1999 and 13.0% at August 31, 2000, respectively).
During the first three months of fiscal 2000, the Company issued demand notes
totaling $450,000 at an interest rate of prime plus 3% (13.0% at August 31,
2000). For the second quarter of fiscal 2000, the Company issued demand notes
totaling $801,000 at an interest rate of prime plus 3% (13% at August 31, 2000).
In the third quarter of fiscal 2000, the Company issued demand notes totaling
$514,000 at an interest rate of prime plus 3% (13.0% as of August 31, 2000).
Debt outstanding at August 31, 2000 totaled $13,698,000.
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5. COMMITMENTS AND CONTINGENCIES
BREAST IMPLANT LITIGATION
During the first nine months of 2000, 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, 1999, under Note 5 to the
financial statements included therein.
6. SUBSEQUENT EVENTS
Effective September 18, 2000, the Company signed a Product Development, Purchase
and License Agreement (the "Agreement") with the Lycra(R) division of E. I.
DuPont de Nemours and Company ("DuPont "). Under the Agreement, DuPont will
develop and supply a new proprietary polyurethane material and Wilshire will use
the material to manufacture and sell a disposable polyurethane glove for
industrial cleanroom applications.
The Agreement grants the Company an exclusive two-year license to manufacture
and sell gloves using the new polyurethane material into the clean room,
non-medical glove markets of North America, Asia (ex-Japan) and Japan. The
Agreement allows for up to three annual extensions of the exclusivity period for
the purchasing rights and for the selling rights into North America and Asia
(ex-Japan) upon the Company meeting certain performance criteria. In addition,
the Company can obtain annual non-exclusive rights in these markets upon
achievement of lesser performance criteria.
Under the Agreement, the Company is required to purchase all its polyurethane
requirements from DuPont through the end of 2005. In conjunction with the
Agreement, the Company also entered into a Trademark License Agreement with
Dupont that allows the Company to market the new polyurethane glove under the
Lycra(R) trademark.
As partial consideration, the Company granted an stock option to Dupont to
purchase up to 2,000,000 shares of its common stock at an exercise price of $.50
a share. The right to exercise the option terminates on December 31, 2003. If
the option is exercised as to less than all the underlying shares,it expires as
to the remaining shares.
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.
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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-Q and in other reports
that have been filed with the Securities and Exchange Commission. The following
discussion should be read in conjunction with the Consolidated 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 2000.
Accordingly, the accompanying condensed consolidated 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.
In the second quarter of fiscal year 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 of
$2,500,000 or more. 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 (the "Ongoing Service 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, 2000.
The Company believes the transaction was in its best interests due to the
likelihood of increased sales over the next three years from lower manufacturing
costs that could be achieved by Foamex Asia Co. Ltd. The Company acknowledges
that the sale of the Division will increase the negative cash flow through at
least the remainder of fiscal year 2000. However Trilon Dominion, the Company's
largest shareholder with over 73% of the shares outstanding, has advised the
Company that it will continue to support the Company as necessary through the
end of fiscal year 2000, although no assurance of their support can be given.
Furthermore, the sale of the Division to Foamex Asia Co. Ltd., allows the
Company to better focus its efforts on the polyurethane glove business.
During the third quarter of fiscal 2000, the Company continued to pursue
development of a second generation of its polyurethane glove and 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(R) division of E. I.
DuPont de Nemours and Company ("DuPont"). Under the Agreement, DuPont will
develop and supply a new proprietary
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polyurethane material and Wilshire will use the material to manufacture and sell
a disposable polyurethane glove for industrial cleanroom applications.
The Agreement grants the Company an exclusive two-year license to manufacture
and sell gloves using the new polyurethane material into the clean room,
non-medical glove markets of North America, Asia (ex-Japan) and Japan. The
Agreement allows for up to three annual extensions of the exclusivity period for
the purchasing rights and for the selling rights into North America and Asia
(ex-Japan) upon the Company meeting certain performance criteria. In addition,
the Company can obtain annual non-exclusive rights in these markets upon
achievement of lesser performance criteria.
Under the Agreement, the Company is required to purchase all its polyurethane
requirements from DuPont through the end of 2005. In conjunction with the
Agreement, the Company also entered into a Trademark License Agreement with
Dupont that allows the Company to market the new polyurethane glove under the
Lycra(R) trademark.
As partial consideration, the Company granted an stock option to Dupont to
purchase up to 2,000,000 shares of its common stock at an exercise price of $.50
a share. The right to exercise the option terminates on December 31, 2003. If
the option is exercised as to less than all the underlying shares,it expires as
to the remaining shares.
NET SALES
The Company markets its products directly to end users through an internal sales
force utilizing outside distributors. Revenue for all sales is recognized when
title transfers, generally when products are shipped.
Net sales decreased by $542,000 (96.0%) to $25,000 in the third quarter of 2000
as compared to $567,000 in the third quarter of 1999. Net sales decreased by
$713,000 (35.0%) to $1,297,000 for the first nine months of 2000 as compared to
$2,010,000 for the first nine months of 1999. Sales for the third quarter were
comprised of glove sales. The decrease in sales for the quarter and first nine
months was due to the sale of the Wilshire Contamination Control Division to
Foamex Asia Co. Ltd. on May 19, 2000.
In the fourth quarter of 2000, the Company expects to recognize little or no
sales of its DuraCLEAN glove, which is its only remaining product, as it will
focus its efforts on the development of the new polyurethane glove with DuPont.
GROSS MARGIN
For the third quarter ended August 31, 2000, the Company recorded a negative
gross margin of $394,000 as compared to a negative gross margin of $454,000 in
the same period of 1999. For the first nine months of 2000, the Company
recognized a negative gross margin of $1,243,000 as compared to a negative gross
margin of $522,000 for the comparable period in 1999. The losses for the quarter
and the nine months were primarily attributable to high-unabsorbed operating
costs of its glove manufacturing plant.
MARKETING AND SELLING EXPENSES
Marketing and selling expenses decreased by $62,000 (33.0%) to $124,000 in the
third quarter of 2000 from $186,000 for the comparable period of 1999. The first
nine months of expense decreased by $101,000 (21.0%) to $390,000 from $491,000
for the first nine months of 1999. The quarter and year to date decreases, as
compared to comparable periods in 1999, was primarily attributable to lower
travel and certain other expenses previously associated with the Company's
Wilshire Contamination Control division, which was sold to Foamex Asia Co. LTD.
in the second quarter of fiscal year 2000.
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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 $138,000 (29.0%) to $332,000 in
the third quarter of 2000 from $470,000 in the third quarter of 1999. For the
first nine months of 2000, General and Administrative expenses decreased by
$290,000 (21.0%) to $1,068,000 from $1,358,000 for the first nine months of
1999. The decrease in expense was due to reductions in professional services
associated with the Company's glove manufacturing plant, decreases in executive
headcount and the sharing of certain expenses under the Ongoing Service
Agreement with Foamex Asia Co. LTD.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased by $54,000 (96%) to $2,000 in the
third quarter of 2000 as compared to $56,000 in the third quarter of 1999. The
first nine months of expense decreased by $155,000 (95%) to 9,000 from expense
of $164,000 for the same period of 1999. The decline was primarily due to
decreased project expenses.
OTHER INCOME
Other income increased by $79,000 to $80,000 in the third quarter of 2000 as
compared to $1,000 in the third quarter of 1999. The first nine months of other
income increased by $84,000 to $90,000 from income of $6,000 for the same period
of 1999. The increase in other income for the quarter and first nine months is
due to consulting income of $78,000 in the third quarter from the Ongoing
Service Agreement with Foamex Asia.
INTEREST EXPENSE, NET
The Company reported higher interest expense in the third quarter and for the
first nine months of 2000 versus the same period of 1999 due to an increase in
prime rate as well as to increased debt outstanding. The interest expense was
related primarily to the line of credit due to Trilon Dominion Partners, LLC.
(See Note 4).
INCOME TAXES
For the quarters ended August 31, 2000 and August 31, 1999, 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 financial
statements for 1999 and 2000.
LIQUIDITY AND CAPITAL RESOURCES
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 1999 and the first nine months of 2000, 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 $ 1,742,000 in
the first nine months of 2000 versus net cash used in operating activities of
$2,096,000 in the first nine months of 1999. The decrease in the cash used in
operating activities was primarily due to the sale of certain assets and
liabilities to Foamex Asia, Co. Ltd. in May, 2000.
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Net cash used in investing activities was $62,000 in the first nine months of
2000, versus net cash used by investing activities of $502,000 in the first nine
months of 1999. The higher investing activities in the first quarter of the
prior year was due to major purchases of glove production equipment that
occurred in the first part of fiscal 1999.
Net cash provided by financing activities was $1,763,000 in the first nine
months of 2000 versus $2,634,000 in the first nine months of 1999. The debt
financing in both years was obtained from Trilon Dominion Partners, LLC.
On March 31, 1998, the Company and Trilon Dominion completed an Amended and
Restated Credit Agreement and Revolving Line of Credit (the "Amended Agreement")
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.
In December of 1998, the Company amended the credit line agreement to extend the
terms to January 31, 2000. The Company further extended the credit line
agreement to June 30, 2000 and to January 31, 2001 in December 31, 1999 and June
30, 2000 amendments, respectively. 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% (11.5% at November 30,
1999 and 13.0% at August 31, 2000, respectively).
During the first three months of fiscal 2000, the Company issued demand notes
totaling $450,000 at an interest rate of prime plus 3% (13.0% at August 31,
2000). For the second quarter of fiscal 2000, the Company issued demand notes
totaling $801,000 at an interest rate of prime plus 3% (13% at August 31, 2000).
In the third quarter of fiscal 2000, the Company issued demand notes totaling
$514,000 at an interest rate of prime plus 3% (13.0% as of August 31, 2000).
As of September 20, 2000, the Company has used its current credit facilities and
anticipates continuing negative cash flow from operating and investing
activities through fiscal year 2000. 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
2000. 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.
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, 1999 under the heading, "Legal Proceedings" and
Note 5 to the financial statements therein.
ITEM 2. CHANGES IN SECURITIES:
None.
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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:
10.178 Demand Note dated July 5, 2000 between the Registrant and
Trilon Dominion Partners, L.L.C.
10.179 Demand Note dated August 7, 2000 between the Registrant and
Trilon Dominion Partners, L.L.C.
10.180 Demand Note dated September 6, 2000 between the Registrant
and Trilon Dominion Partners, L.L.C.
10.181 Product Development, Purchase & License Agreement dated
September 18, 2000 between E. I. DuPont de Nemours and
Wilshire Technologies Inc.
10.182 Stock Option Agreement dated September 18, 2000 between E.
I. DuPont de Nemours and Wilshire Technologies Inc.
10.183 Trademark License Agreement dated September 18, 2000 between
E. I. DuPont de Nemours and Wilshire Technologies Inc.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
On June 28,2000, the Registrant filed a report on Form 8-K dated June
23, 2000 which described in Item 4 the change in the Registrant's
Certifying Accountant, with the replacement of Ernst and Young LLP the
Company's independent accounting firm with BDO Seidman, LLP.
On July 14, 2000, the Registrant filed a report on Form 8-K dated May
19,2000 which described in Item 2 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 (FMXI:NASDAQ).
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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, 2000 By: /s/ Kathleen E. Terry
------------------------------------
Kathleen E. Terry
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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