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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 May 31, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - ------- ACT OF 1934
For the transition period from to
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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)
5441 AVENIDA ENCINAS, STE. A
CARLSBAD, CALIFORNIA 92008
(Address of principal executive offices)
(619) 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
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The number of shares outstanding of the registrant's only class of
Common Stock, no par value, was 12,931,885 on June 30, 1996.
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
- - --------------------------------------------------------------------------------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
May 31, 1996 and November 30, 1995 3
Condensed Consolidated Statements of Operations
for the Quarter Ended May 31, 1996 and
May 31, 1995 5
Condensed Consolidated Statements of Operations
for the Six Months Ended May 31, 1996 and
May 31, 1995 6
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended May 31, 1996 and
May 31, 1995 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis
or Plan of Operation 12
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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 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
WILSHIRE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
May 31, November 30,
1996 1995
---------- ----------
(Unaudited) (Note)
ASSETS
Current assets:
Cash $ 90,000 $ 18,000
Accounts receivable trade, less allowance for doubtful
accounts of $4,000 and $49,000 at May 31,
1996 and November 30, 1995, respectively 391,000 675,000
Inventories (Note 2) 933,000 1,085,000
Net current assets of the discontinued business (Note 7) 440,000 --
Note Receivable from Advanced Materials, Inc.
plus accrued interest of $45,000 (Note 3) 1,235,000 --
Other current assets 198,000 259,000
---------- ----------
Total current assets 3,287,000 2,037,000
Property and equipment, less accumulated depreciation
of $626,000 and $903,000 at May 31, 1996 and
November 30, 1995, respectively 674,000 931,000
Note Receivable from Advanced Materials, Inc.,
net of $750,000 deferred gain (Note 3) -- 1,000,000
Note Receivable from the sale of discontinued business,
less current portion (Note 7) 369,000 --
License agreements -- 259,000
Goodwill, less accumulated amortization of $631,000
and $350,000 at May 31, 1996 and November 30,
1995, respectively 482,000 763,000
Other assets 147,000 310,000
---------- ----------
$4,959,000 $5,300,000
========== ==========
Note: The condensed consolidated balance sheet at November 30, 1995 has been
derived from the audited financial statements at that date but does
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See accompanying notes.
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WILSHIRE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
May 31, November 30,
1996 1995
------------ ------------
(Unaudited) (Note)
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 879,000 $ 915,000
Accrued expenses 815,000 1,030,000
Interest Payable 10,000 989,000
Line of Credit (Note 4) 1,000,000 --
Current portion of long-term debt (Note 4) -- 2,000
------------ ------------
Total current liabilities 2,704,000 2,936,000
Long-term debt, less current portion (Note 4) -- 7,637,000
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; 12,931,885 shares and 4,490,455 shares
issued and outstanding at May 31, 1996 and
November 30, 1995, respectively. 25,850,000 17,071,000
Common stock warrants 275,000 418,000
Deficit (23,870,000) (22,762,000)
------------ ------------
Total shareholders' equity (net capital deficiency) 2,255,000 (5,273,000)
------------ ------------
$ 4,959,000 $ 5,300,000
============ ============
Note: The condensed consolidated balance sheet at November 30, 1995 has been
derived from the audited financial statements at that date but does
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See accompanying notes.
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WILSHIRE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended May 31,
-------------------------------
1996 1995
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Continuing operations:
Net sales $ 884,000 $ 820,000
Cost of sales 709,000 454,000
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Gross profit 175,000 366,000
Operating expenses:
Marketing and selling 153,000 154,000
General and administrative 508,000 462,000
Research and development 164,000 171,000
Loss from joint venture (Note 6) -- 59,000
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Total operating expenses 825,000 846,000
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Loss from operations (650,000) (480,000)
Other income 191,000 --
Interest income (expense), net 15,000 (185,000)
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Loss before provision
for state income taxes (444,000) (665,000)
Provision for state income taxes - current -- --
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Loss from continuing operations $ (444,000) $ (665,000)
Loss from discontinued operations (Note 7) (24,000) --
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Net loss $ (468,000) $ (665,000)
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Weighted average shares outstanding 12,931,885 4,490,455
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Loss per share:
Loss from continuing operations $ (0.03) $ (0.15)
Loss from discontinued operations -- --
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Net loss per share $ (0.03) $ (0.15)
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See accompanying notes.
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WILSHIRE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended May 31,
-------------------------------
1996 1995
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Continuing operations:
Net sales $ 1,722,000 $ 1,693,000
Cost of sales 1,473,000 1,069,000
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Gross profit 249,000 624,000
Operating expenses:
Marketing and selling 282,000 257,000
General and administrative 935,000 906,000
Research and development 257,000 340,000
Loss from joint venture (Note 6) -- 127,000
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Total operating expenses 1,474,000 1,630,000
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Loss from operations (1,225,000) (1,006,000)
Other income 192,000 1,000
Interest income (expense), net (68,000) (392,000)
------------ ------------
Loss before provision
for state income taxes (1,101,000) (1,397,000)
Provision for state income taxes - current 1,000 1,000
------------ ------------
Loss from continuing operations $ (1,102,000) $ (1,398,000)
Loss from discontinued operations (Note 7) (6,000) --
------------ ------------
Net loss $ (1,108,000) $ (1,398,000)
============ ============
Weighted average shares outstanding 11,271,276 4,490,455
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Loss per share:
Loss from continuing operations $ (0.10) $ (0.31)
Loss from discontinued operations -- --
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Net loss per share $ (0.10) $ (0.31)
============ ============
See accompanying notes.
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WILSHIRE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended May 31,
-----------------------------
1996 1995
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OPERATING ACTIVITIES
Net loss $(1,108,000) $(1,398,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 175,000 322,000
Provision for loss on accounts receivable (25,000) --
Loss on sale of property and equipment -- 5,000
Loss on sale of discontinued operations 6,000 --
Net change in operating assets and liabilities:
Increase in accounts receivable (13,000) (313,000)
(Increase) decrease in inventories (160,000) 19,000
Decrease in other current assets 61,000 94,000
Increase (decrease) in accounts payable and
accrued expenses 9,000 (467,000)
Increase in interest payable 118,000 415,000
Decrease in amounts due to joint venture -- (11,000)
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Net cash used in operating activities (937,000) (1,334,000)
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INVESTING ACTIVITIES
Purchase of equipment (49,000) (3,000)
Proceeds from sale of property and equipment -- 5,000
Decrease in other assets 58,000 42,000
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Net cash provided by (used in) investing activities 9,000 44,000
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FINANCING ACTIVITIES
Proceeds from line of credit and long-term debt 1,000,000 1,700,000
Payments on notes payable and long-term debt -- (16,000)
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Net cash provided by financing activities 1,000,000 1,684,000
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NET INCREASE (DECREASE) IN CASH 72,000 394,000
CASH - BEGINNING OF PERIOD 18,000 75,000
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CASH - END OF PERIOD $ 90,000 $ 469,000
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
In January, 1996, the Company completed an Exchange Agreement with
Trilon Dominion Partners, LLC, pursuant to which the Company exchanged
long-term debt and accrued interest for common stock (See Note 4).
See accompanying notes.
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NOTES TO 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
California and Texas, operates through three divisions - - Wilshire
Contamination Control ("WCC"), Wilshire Medical Products ("WMP"), Wilshire
Transdermal Products ("WTP"), and a wholly-owned subsidiary, Wilshire Gloves,
Ltd. ("WGL"). The Company has divested the Medical Products division, and will
focus primarily on products used in industrial clean rooms, such as gloves and
contamination control products.
The consolidated financial statements include the accounts of the Company's
three divisions and wholly-owned subsidiary. Significant intercompany amounts
and transactions have been eliminated.
BASIS OF PRESENTATION
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 quarter ended May 31, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ending
November 30, 1996. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the fiscal year ended November 30, 1995.
The Company's financial statements have been presented on a going concern basis,
which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business. The Company has incurred substantial losses since
its inception in 1990, including a loss of $468,000 for the quarter ended May
31, 1996. In addition, there exist unsettled claims related to the breast
implant litigation (see Note 5).
In March, 1996, the Board of Directors authorized management to proceed with the
sale of the assets of the Medical Products division which was completed on June
30, 1996, pursuant to a Purchase of Assets and Assumption of Sublease Agreement
with Acacia Laboratories of Texas, Inc. (See Note 7). The disposition of this
business has been accounted for as a discontinued operation. Accordingly, the
financial statements of all prior periods have been restated to exclude the
results of the Medical Products division from the results of continuing
operations.
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In addition to completing the above mentioned transaction, management is
attempting to raise additional capital to fund its ongoing operations. While
management believes it will be successful, there are no assurances that
sufficient funds will be available to meet the Company's requirements to fund
operations beyond November 30, 1996. The ultimate outcome of this uncertainty
cannot be determined and the accompanying consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
2. FINANCIAL STATEMENT INFORMATION
Inventories consist of the following:
MAY 31, NOVEMBER 30,
1996 1995
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Raw materials $434,000 $411,000
Work in process 336,000 159,000
Finished goods 162,000 515,000
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$933,000 $1,085,000
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3. NOTE RECEIVABLE
Pursuant to an Asset Purchase Agreement dated August 4, 1992 (the
"Divestiture"), the Company sold the assets of its foam products division to
Wilshire Advanced Materials, Inc. ("Advanced Materials"), assigned its Carson,
California and Dallas, Texas facilities to Advanced Materials, and subleased a
portion of the Dallas and Carson facilities back from Advanced Materials. In
connection with this purchase, Advanced Materials issued to the Company a
secured subordinated promissory note in the amount of $1.0 million requiring
quarterly payments of interest at prime plus 2% per annum with the principal due
in full on December 3, 1997.
Pursuant to a second Asset Purchase Agreement dated November 23, 1993, the
Company sold its OEM medical division to Advanced Materials for a purchase price
of approximately $2.3 million, of which approximately $1.6 million was payable
shortly following the transfer of the division and $750,000 was represented by
an amendment and restatement of the existing secured subordinated promissory
note to increase the principal amount from $1.0 million to $1.75 million. The
note bears interest at the rate of prime plus 2% per annum, with interest
payable quarterly and principal payable at maturity on December 3, 1997. The
payments aggregating approximately $1.6 million were received in the first and
second quarters of fiscal 1994.
On July 3, 1996, pursuant to a Release Agreement, Advanced Materials, Inc. paid
the Company $1,190,000 in full and final payment of all remaining principal and
interest on the amended and restated secured subordinated promissory note dated
November 23, 1993. Accordingly, the Company has released $190,000 of the reserve
against the note to state the note at its net realizable value, which is
included in other income in the accompanying statement of operations. The note
has been presented as a current asset on the accompanying balance sheet as of
May 31, 1996.
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4. LONG-TERM DEBT
On January 5, 1996, the Company and Trilon Dominion Partners, LLC ("Trilon
Dominion") entered an Exchange Agreement to exchange the note payable dated May
13, 1994, the note payable dated November 18, 1994 including the five
amendments, and the accrued interest on these notes, all of which totaled
approximately $8.8 million, for 8,441,430 shares of common stock valued at
$1.04 per share. In addition, Trilon Dominion surrendered the warrants dated
May 13, 1994 and November 18, 1994, entitling it to purchase 1,507,398 shares
(after dilution adjustments) of the Company's common stock.
Also, on January 5, 1996, the Company and Trilon Dominion entered into a Credit
Agreement (the "Agreement") for a credit line of $1 million secured by the
Company's assets. Under the terms of the Agreement, the principal is due on June
30, 1996 and the interest is payable monthly at a rate of prime plus 3.75%. In
connection with the loan, the Company issued Trilon Dominion a five-year warrant
that entitles Trilon Dominion to purchase 100,000 shares of the Company's
authorized but unissued common stock at an exercise price of $0.75 per share,
subject to adjustment to protect against dilution. The warrant is exercisable
immediately and expires on January 5, 2001. Also, under the terms of the
Agreement, the Company issued Trilon Dominion a second five-year warrant which
only becomes exercisable if the Company does not pay Trilon Dominion the
principal and interest due on June 30, 1996. The second warrant entitles Trilon
Dominion to purchase 25,000 shares of the Company's authorized but unissued
common stock at an exercise price equal to the closing price on June 30, 1996,
which was $1.75 per share and it expires on January 5, 2001. The holder of each
of such five-year warrants may, without payment to the Company, convert the
warrant in whole or in part into shares of the Company's common stock having a
market value equal to the difference between (x) the market value per share of
common stock multiplied by the number of warrants that are converted and (y) the
warrant exercise price, multiplied by the number of warrants that are converted.
Pursuant to the Agreement, the Company used part of the proceeds of the credit
line to repay the $400,000 borrowed from Trilon Dominion under the sixth
amendment to the November 18, 1994 Credit Agreement, plus the interest accrued
on that amount.
On June 30, 1996, the Company and Trilon Dominion entered into an Amendment to
the Agreement whereby the termination date was changed from June 30, 1996, to
December 31, 1996.
5. COMMITMENTS AND CONTINGENCIES
BREAST IMPLANT LITIGATION AND SHAREHOLDER LAWSUITS AND SEC INVESTIGATION
During the first six months of 1996, there have been no significant developments
in the breast implant litigation or the shareholder lawsuits and SEC
investigation. For information regarding these legal proceedings, refer to
the information contained in the Company's annual report on Form 10-KSB for the
fiscal year ended November 30, 1995 under Note 6 to the financial statements
included therein.
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LICENSE AGREEMENTS AND RELOCATION COSTS
In 1993, the Company entered into two ten year worldwide License Agreements for
a proprietary polyurethane material with Innovative Technologies, Ltd., ("IT") a
company based in the United Kingdom.
On April 18, 1996, the Company completed two additional Agreements with IT
related to the License Agreements noted above. Pursuant to these Agreements, the
Company transferred certain rights under the License Agreements back to IT, and
IT cancelled $642,000 in minimum royalties which the Company had accrued under
the License Agreements. As a consequence of these additional Agreements, the
Company has written off the net book value of the License Agreements, and has
deferred the gain against $450,000 of estimated relocation costs of the
developmental glove plant which will be relocated from the IT facility in
the U.K.
6. INVESTMENT IN JOINT VENTURE
On February 17, 1993 the Company and Intelligent Pharmaceuticals Corporation
("IPC") entered into an agreement forming Wilshire Transdermal Products, a 50/50
joint venture (the "JV"). The JV was established primarily to develop and
commercialize, on a worldwide basis, over-the-counter transdermal products in
the non-prescriptive market. In May, 1995, the JV received an approval from the
Mexican Ministry of Health for its first transdermal product, TrimPatch(TM).
TrimPatch(TM) is an appetite suppressant delivered through a transdermal patch
that has been in development for more than two years.
On October 31, 1995, the Company entered a buy-out agreement with IPC, whereby
the Company purchased all of IPC's interest in the joint venture. The purchase
price is equal to the amount of documented costs paid by IPC on behalf of the
joint venture, not to exceed $1,250,000. The total price will be paid as a
percentage of TrimPatch(TM) sales and such payments will be charged against the
results of operations. Through May 31, 1996, there have been no sales of
TrimPatch(TM).
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Prior to the purchase of IPC's interest and the consolidation of Wilshire
Transdermal Products, the Company used the equity method to record the profit
and loss of the JV operation. However, 100% of the JV losses, totaling
$3,506,000 since the formation of JV, including $59,000 in the quarter ended May
31, 1995, were recorded into the net loss of the Company due to the JV partner's
inability to fund its share of the JV losses.
7. DISCONTINUED OPERATIONS
On June 30, 1996, pursuant to a Purchase of Assets and Assumption of Sublease
Agreement, the Company sold certain assets of the Wilshire Medical Products
division ("WMP") to Acacia Laboratories of Texas, Inc. ("Acacia"), a
wholly-owned subsidiary of Acacia Laboratories, Inc., a California corporation,
that does business under the name of Horizon Medical, Inc. The assets sold
consisted of equipment, inventory, accounts receivable, patents, trademarks,
trade names, and regulatory approvals used in the Medical Products business. The
purchase price of $1,082,000 consisted of $200,000 cash at closing, $342,000 in
accounts receivable to be collected by the Company, and $540,000 in a secured,
fully amortized, 36 month promissory note in favor of the Company, bearing
interest at the rate of 5% per annum.
Sales of WMP for the second quarter and six months ended May 31, 1996, and 1995
were as follows:
Three Months Ended May 31, Six Months Ended May 31,
------------------------------------ ------------------------------------
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
Net Sales $558,000 $417,000 $888,000 $716,000
The effect on the results of operations from the sale of the WMP division was as
follows:
Three Months Ended May Six Months Ended May
31, 1996 31, 1996
------------------------- -------------------------
Income from operations of discontinued $ -- $ 18,000
business
Loss on disposal of discontinued $(24,000) $(24,000)
business, net of estimated operating
results of $67,000 during phase-out
period.
------------------------- -------------------------
Total $(24,000) $ (6,000)
Current assets of $706,000 and current liabilities of $266,000 related to WMP
are included in the balance sheet dated May 31, 1996, as net current assets of
the discontinued business.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
NET SALES
WCC and WGL market their 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. WTP did not record
sales in 1995, or the first six months of 1996.
Quarter
Net Sales increased by $64,000 (7.8%) to $884,000 in the second quarter of 1996
from $820,000 in the second quarter of 1995, primarily due to increased sales of
contamination control products.
Six Months
Net Sales increased by $29,000 (1.7%) to $1,722,000 in the first six months of
1996 from $1,693,000 in the first six months of 1995, primarily due to increased
shipments of contamination control products.
GROSS PROFIT
Quarter
Gross profit decreased by $191,000 to $175,000 in the second quarter of 1996
from $366,000 in the second quarter of 1995, primarily due to the start-up costs
of the developmental glove plant in the U.K. Gross profit margin as a percent of
sales decreased to 19.8% in the second quarter of 1996 from 44.6% in the second
quarter of 1995. Excluding the impact of the glove sales and the related cost of
sales on gross profit, the gross profit margin as a percent of sales decreased
to 38.9% in the second quarter of 1996 from 44.6% in the second quarter of 1995.
Six Months
Gross profit decreased $375,000 to $249,000 in the first six months of 1996 from
$624,000 in the first six months of 1995, reflecting the start-up costs of the
developmental glove plant in the U.K. Gross profit margin as a percent of sales
decreased to 14.5% in the first six months of 1996 from 36.9% in the first six
months of 1995. Excluding the impact of the glove sales and cost of sales on
gross profit, the gross profit margin as a percent of sales decreased to 35.7%
in the first six months of 1996 from 36.9% in the first six months of 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include additional costs related to
the Company's marketing activities and administrative costs (such as executive
and office salaries, related payroll expenses, investor relations, professional
fees, supplies and utilities).
Quarter
Selling, general and administrative expenses increased $45,000 (7.3%) to
$661,000 in the second quarter of 1996 from $616,000 in the second quarter of
1995 primarily due to the accrual of relocation costs related to the move of the
developmental glove plant from the U.K. (See Note 5).
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Six Months
Selling, general and administrative expenses increased $54,000 (4.6%) to
$1,217,000 in the first six months of 1996 from $1,163,000 in the first six
months of 1995, primarily due to the accrual of relocation costs related to the
move of the developmental glove plant from the U.K. (See Note 5).
RESEARCH AND DEVELOPMENT
Quarter
Research and development expenses decreased $7,000 (4.1%) to $164,000 in the
second quarter of 1996 from $171,000 in the second quarter of 1995 primarily due
to reduced royalty expense. As a percentage of sales, research and development
expenses were 18.5% in the second quarter of 1996, compared to 20.9% in the
second quarter of 1995.
Six Months
Research and development expenses decreased $83,000 (24.4%) to $257,000 in the
first six months of 1996 from $340,000 in the first six months of 1995 due to
reduced royalty expense.
OTHER INCOME (EXPENSE), NET
The other income in the second quarter and first six months of 1996 was related
primarily to the gain from the payment of the note receivable by Advanced
Materials, Inc. (See Note 3).
INTEREST INCOME (EXPENSE), NET
The Company recognized interest income of $15,000 in the second quarter of 1996
versus interest expense of $185,000 in the second quarter of 1995. For the first
six months of 1996, the Company reported interest expense of $68,000 versus
interest expense of $392,000 in the first six months of 1995. The interest
expense was related primarily to the note payable and line of credit due to
Trilon Dominion Partners, LLC. (see Note 4).
INCOME TAXES
For the quarters ended May 31, 1996 and 1995, 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 1996
and 1995.
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 1995 and the first six months of 1996, the Company has not generated
sufficient cash from operations to fund its working capital requirements. Net
cash used in operating activities was $937,000 in the first six months of 1996
versus $1,334,000 in the first six months of 1995. The decrease in the cash used
in operating activities was primarily due to reduced operating expenses.
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Net cash provided by investing activities was $9,000 in the first six months of
1996, versus net cash provided by investing activities of $44,000 in the first
six months of 1995.
Net cash provided by financing activities was $1,000,000 in the first six months
of 1996 versus $1,684,000 in the first six months of 1995. The debt financing in
1996 was obtained from Trilon Dominion Partners, LLC. The debt financing in 1995
was obtained from Dominion Capital, Inc.
On January 5, 1996, the Company and Trilon Dominion entered an Exchange
Agreement to exchange the note payable dated May 13, 1994, the note payable
dated November 18, 1994 including the five amendments, and the accrued interest
on these notes, all of which totaled approximately $8.8 million, for 8,441,430
shares of common stock valued at $1.04 per share. In addition, Trilon Dominion
surrendered the warrants dated May 13, 1994 and November 18, 1994, entitling it
to purchase 1,507,398 shares (after dilution adjustments) of the Company's
common stock.
Also, on January 5, 1996, the Company and Trilon Dominion entered into a Credit
Agreement (the "Agreement") for a credit line of $1 million secured by the
Company's assets. Under the terms of the Agreement, the principal is due on June
30, 1996 and the interest is payable monthly at a rate of prime plus 3.75%. In
connection with the loan, the Company issued Trilon Dominion a five-year warrant
that entitles Trilon Dominion to purchase 100,000 shares of the Company's
authorized but unissued common stock at an exercise price of $0.75 per share,
subject to adjustment to protect against dilution. The warrant is exercisable
immediately and expires on January 5, 2001. Also, under the terms of the
Agreement, the Company issued Trilon Dominion a second five-year warrant which
only becomes exercisable if the Company does not pay Trilon Dominion the
principal and interest due on June 30, 1996. The second warrant entitles Trilon
Dominion to purchase 25,000 shares of the Company's authorized but unissued
common stock at an exercise price equal to the closing price on June 30, 1996,
which was $1.75 per share, and it expires on January 5, 2001.
Pursuant to the Agreement, the Company used part of the proceeds of the credit
line to repay the $400,000 borrowed from Trilon Dominion under the sixth
amendment to the November 18, 1994 Credit Agreement, plus the interest accrued
on that amount. Also, the Company used an additional $400,000 of the credit line
in January 1996 to pay past due accounts payable.
On June 30, 1996, the Company and Trilon Dominion entered into an Amendment to
the Agreement whereby the termination date was changed from June 30, 1996, to
December 31, 1996.
On July 3, 1996, pursuant to a Release Agreement, Advanced Materials, Inc., paid
the Company $1,190,000 in full and final payment of all remaining principal and
interest on the amended and restated secured subordinated promissory note dated
November 23, 1993.
On June 30, 1996, pursuant to a Purchase of Assets and Assumption of Sublease
Agreement, the Company sold certain assets of the Wilshire Medical Products
division ("WMP") to Acacia Laboratories of Texas, Inc. The purchase price of
$1,082,000 consisted of $200,000 cash at closing, $342,000 in accounts
receivable to be collected by the Company, and $540,000 in a secured, fully
amortized, 36 month promissory note in favor of the Company, bearing interest at
the rate of 5% per annum.
In addition to completing the above mentioned transactions, management is
attempting to raise additional capital to fund its ongoing operations. While
management believes it will be successful, there are no assurances that
sufficient funds will be available to meet the Company's requirements to fund
operations beyond November 30, 1996. The ultimate outcome of this uncertainty
cannot be determined.
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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, 1995 under the heading, "Legal Proceedings"
and Note 5 to the financial statements herein.
ITEM 2. CHANGES IN SECURITIES:
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
The Company has solicited proxies pursuant to Regulation 14 of the
Securities Exchange Act (Proxy statement dated April 12, 1996) for its
Annual Meeting of Shareholders on May 20, 1996. There was no
solicitation in opposition to management's nominees for directors
listed in the Proxy Statement. All such nominees were elected by the
affirmative vote of 12,084,420 shares. The number of shares
outstanding and entitled to vote was 12,931,885.
Two other matters were voted upon:
1. A resolution to approve and adopt, and to ratify the action
of the Board of Directors of adopting, an Amendment of the
Articles of Incorporation to increase the authorized number
of shares of common stock from 20,000,000 to 50,000,000
shares. The vote for the proposal was 11,973,886; the vote
against was 105,330. The holders of 12,375 shares abstained
from voting on this resolution. The resolution was adopted.
2. A resolution to approve an Amendment of Section 2 of the
Wilshire Technologies, Inc. 1995 Stock Option Plan to
increase the number of shares that may be issued under such
Plan by 1,250,000 to 1,750,000 shares. The vote for the
proposal was 11,893,303; the vote against was 185,173; the
holders of 13,115 shares abstained from voting on the
resolution. The resolution was adopted.
ITEM 5. OTHER INFORMATION:
On June 30, 1996, pursuant to a Purchase of Assets and Assumption of
Sublease Agreement, the Company sold certain assets of the Wilshire
Medical Products division ("WMP") to Acacia Laboratories of Texas,
Inc., ("Acacia"), a wholly-owned subsidiary of Acacia Laboratories,
Inc., a California corporation, that does business under the name of
Horizon Medical, Inc. The assets sold consisted of equipment,
inventory, accounts receivable, patents, trademarks, trade names, and
regulatory approvals used in the Medical Products business. The
purchase price of $1,082,000 consisted of $200,000 cash at closing,
$342,000 in accounts receivable to be collected by the Company, and
$540,000 in a secured, fully amortized, 36 month promissory note in
favor of the Company, bearing interest at the rate of 5% per annum.
On July 3, 1996, pursuant to a Release Agreement, Advanced Materials,
Inc. paid the Company $1,190,000 in full and final payment of all
remaining principal and interest on
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the amended and restated secured subordinated promissory note dated
November 23, 1993. The amount of the payment was calculated as 70% of
$1,700,000, the principal due under the note. (See Note 3 to the
Financial Statements.)
The Company sub-contracts foam fabrication work to Advanced Materials.
In fiscal 1995 the Company purchased $1,156,000 of goods and services
from, and paid rents of $108,000 to Advanced Materials. Management
believes that prices and terms from Advanced Materials are competitive
with unrelated foam fabrication suppliers.
Mr. William Hopke, a director of the Company also is a director of
Advanced Materials and Executive Vice-President and the Chief
Operating Officer of Trilon Dominion Partners LLC. The Company has
been informed that Trilon Dominion Partners LLC, whose investments in
the Company are discussed in Note 3 to the Financial Statements, owns
2,340,000 shares of the common stock of Advanced Materials Group, Inc.
("AMG"), the parent company of Advanced Materials and has the right to
acquire an additional 840,000 such shares upon exercise of a warrant.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
10.74 Manufacturing and Supply Agreement dated April 11, 1996,
between Advanced Barrier Technologies, Inc., and the
Registrant.
10.75 Agreement dated April 15, 1996, between Dagal, Inc., and the
Registrant.
10.76 Agreement related to Wound Care Products, dated April 18,
1996, between Innovative Technologies Ltd. and the
Registrant.
10.77 Agreement related to Gloves, dated April 18, 1996, between
Innovative Technologies Ltd. and the Registrant.
10.78 Finder Agreement dated May 1, 1996, between Innovative
Research Associates, Inc., and the Registrant.
10.79 Product Rights Transfer Agreement, dated May 24, 1996,
between Advanced Materials, Inc., and the Registrant.
10.80 Release Agreement dated July 3, 1996, between Advanced
Materials, Inc., and the Registrant.
10.81 Purchase of Assets and Assumption of Sublease Agreement with
certain Exhibits dated June 30, 1996, between Acacia
Laboratories, Inc., (dba Horizon Medical, Inc.,) and the
Registrant.
10.82 Amendment dated June 30, 1996, to Credit Agreement and Grid
Promissory Note dated January 5, 1996, between Trilon
Dominion Partners, LLC, and the Registrant.
(b) REPORTS ON FORM 8-K: None
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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: July 10, 1996 By: /s/ James W. Klingler
---------------------------------
James W. Klingler
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
COMMISSION FILE NUMBER 0-20866
WILSHIRE TECHNOLOGIES, INC.
EXHIBITS
TO
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1996
Under
The Securities Exchange Act of 1934
Exhibits
10.74, 10.75, 10.76, 10.77, 10.78, 10.79, 10.80, 10.81, 10.82
20
EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
10.74 Manufacturing and Supply Agreement dated April 11,
1996, between Advanced Barrier Technologies, Inc.,
and the Registrant.
10.75 Agreement dated April 15, 1996, between Dagal, Inc.,
and the Registrant.
10.76 Agreement related to Wound Care Products, dated
April 18, 1996, between Innovative Technologies Ltd.
and the Registrant.
10.77 Agreement related to Gloves, dated April 18, 1996,
between Innovative Technologies Ltd. and the Registrant.
10.78 Finder Agreement dated May 1, 1996, between
Innovative Research Associates, Inc., and the Registrant.
10.79 Product Rights Transfer Agreement, dated May 24, 1996,
between Advanced Materials, Inc., and the Registrant.
10.80 Release Agreement dated July 3, 1996, between
Advanced Materials, Inc., and the Registrant.
10.81 Purchase of Assets and Assumption of Sublease
Agreement with Exhibits dated June 30, 1996, between
Acacia Laboratories, Inc., (dba Horizon Medical, Inc.,)
and the Registrant.
10.82 Amendment dated June 30, 1996, to Credit Agreement and Grid
Promissory Note dated January 5, 1996 between Trilon Dominion
Partners, LLC, and the Registrant.