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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(MARK ONE)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1996.
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.
(Name of small business issuer in its charter)
CALIFORNIA 33-0433823
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5441 AVENIDA ENCINAS, SUITE A
CARLSBAD, CALIFORNIA 92008
(Address of principal executive offices)
(619) 929-7200
(Issuer's telephone number)
Securities registered under Section 12(b)
of the Exchange Act: None
Securities registered under Section 12(g)
of the Exchange Act: Common Stock, no par value -
Quoted on the OTC Bulletin Board
(Title of Class)
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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $3,403,000.
The aggregate market value of the voting stock held by non-affiliates of
the registrant on January 31, 1997 was approximately $2.3 million.
The number of shares outstanding of the registrant's only class of Common
Stock, no par value, was 12,943,385 on January 31, 1997.
Transitional Small Business Disclosure Format. Yes X No
--- ---
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WILSHIRE TECHNOLOGIES, INC.
Annual Report on Form 10-KSB - November 30, 1996
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PART I PAGE
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Item 1. Description of Business 2
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 6
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PART II
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Item 5. Market for Common Equity and Related Stockholder Matters 7
Item 6. Management's Discussion and Analysis or Plan of Operation 7
Item 7. Financial Statements 11
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 27
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Part III
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Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 28
Item 10. Executive Compensation 29
Item 11. Security Ownership of Certain Beneficial Owners and Management 30
Item 12. Certain Relationships and Related Transactions 31
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Part IV
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Item 13. Exhibits, List and Reports on Form 8-K 32
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
THE COMPANY
Wilshire Technologies, Inc. (the "Company"), incorporated in California on
October 17, 1990, develops, manufactures and markets engineered polymer products
for industrial clean room use. The Company, based in Carlsbad, California,
operates through two divisions - - Wilshire Contamination Control ("WCC"), and
Wilshire Gloves ("WGL") and a wholly-owned subsidiary, Wilshire Gloves (UK) Ltd.
During 1996, the Company divested its Medical Products and Transdermal Products
divisions, and will focus primarily on products used in industrial clean rooms,
such as gloves and contamination control products.
MARKET OVERVIEW
The need for extraordinary cleanliness in various manufacturing and
high-technology processes has resulted in a requirement for products to be
manufactured in Class 1, 10 and 100 clean rooms. WCC markets swabs wipes and
other disposable products used to help reduce particulate contamination in the
semiconductor, disk drive and microelectronics industry clean rooms, which help
to increase the yield and effectiveness of the manufactured products. WGL
manufactures and markets a proprietary synthetic glove for use in clean rooms in
both the electronics and medical industries. Disposable supplies used in clean
rooms consist predominantly of garments, gloves, swabs and wipes. Traditionally,
most clean room suppliers have adapted existing products from other
applications, e.g., medical, which may have inherent limitations. The Company
intends to satisfy the needs of clean room operators with advanced products
designed and manufactured specifically for clean room use.
WILSHIRE CONTAMINATION CONTROL
WCC specializes in the development, manufacture and marketing of disposable
cleaning and contamination control products for use in clean rooms. A "clean
room" is an environment in which particulate fluid and biological contaminants
are monitored and controlled. In the microelectronics, semiconductor and
aerospace industries, clean rooms are essential to the manufacturing process to
prevent minute particles from contaminating sensitive and expensive products. In
the pharmaceutical biotechnology and medical device industries, clean rooms are
used to reduce the level of particulate and biological contamination
("bioburden") or to ensure the sterility and pyrogen-free nature of products.
Clean rooms are classified according to the allowable level of particulate
contamination per cubic foot. A "Class I" clean room may have just one particle
of more than 0.5 microns per cubic foot.
WCC uses engineered materials and proprietary polyurethane formulations to
produce products specifically for the requirements of Class I, 10 and 100 clean
rooms. For these clean rooms, the particulate compliance requirements are
extremely stringent, and the total cost of disposables represents only a small
percentage of the total cost of the customer's manufactured product. Clean room
users are generally willing to pay premium prices for products which reduce
particulate contamination, thereby reducing labor costs and increasing the
yields of their manufactured products. All of WCC's products are sold under its
brand names, including UltraSORB(R) and UltraSOLV(TM). WCC has received one
patent and applied for a second patent on hydrophilic foam articles and cleaning
methods for clean rooms including all UltraSOLV(TM) and UltraSORB(R) products.
Also, WCC has filed for a patent for the manufacture of hydrophilic polyurethane
foams.
Wipes. Clean room personnel use wipes for many applications, including the
cleaning of manufacturing and processing equipment and production components,
the decontamination of work surfaces and the removal of solvent or acid spills.
The most important considerations in the selection of the proper wipe are the
level of potential contamination contributed by the wipe, the wipe's absorbency
and its cost. Since no wipe material is best for all purposes, WCC markets a
variety of clean room wipes made of polyester, cellulose and polyurethane,
covering a wide range of characteristics, under its various brand names such as
UltraSORB(R), UltraSOLV(TM) and PolyClean(TM).
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During 1993, WCC introduced its first wipe made of its UltraSORB(R) material.
Management believes that UltraSORB(R) is the first polyurethane foam wipe that
is hydrophilic. i.e., able to absorb water and other aqueous solutions. These
wipes provide the highly-absorbent, particle-trapping performance and
abrasion-resistance of the UltraSORB(R) material at a price competitive with
that of other foam wipes. The UltraSORB(R) wipes are processed and packaged
using proprietary methods in a Class 10 clean room to ensure that the wipes have
an initial low-particulate level.
Swabs. WCC markets a broad range of clean room swabs fabricated from various
materials including polyurethane foam. Swabs are used to clean surface areas
when a wipe is too large or when a wipe would add more particulate contamination
than a swab. The important considerations in swab selection are the level of
particulate contamination, absorbency and cost. Although cotton swabs dominate
the market due to lower cost and higher absorbency, cotton tends to degenerate
during use, thereby increasing the likelihood of contaminating the clean room
and the materials being produced in the clean room. Typically, users in Class I
and 10 clean rooms purchase synthetic swabs because their non-shedding,
non-friable nature offers superior cleanliness, while users in Class 100-10,000
clean rooms purchase significantly more cotton swabs due to their lower cost and
higher absorbency.
To meet the demand for an absorbent, clean, synthetic swab, WCC has developed a
line of swabs fabricated from its UltraSORB(R) polyurethane material. Similar to
the UltraSORB(R) wipe, the UltraSOLV(TM) swab is the first polyurethane-foam
swab that is hydrophilic and meets Class 1 and Class 10 specifications.
UltraSORB(R) has an open cellular structure which is highly-absorbent and has
excellent particle trapping capability. Also, because of its abrasion
resistance, the UltraSORB(R) material does not generate particulate
contamination during use.
WILSHIRE GLOVES
Virtually all of the gloves purchased in the United Sates for use in Class 1, 10
and 100 clean rooms during 1995 were latex or polyvinyl chloride ("PVC") medical
gloves post-processed to be cleaner than the typical hospital or surgeon's
glove. Latex-based and PVC-based gloves have several disadvantages: (1) the
gloves are prone to deterioration during use, thereby generating excessive
particulate contamination; (2) the gloves are not breathable; and (3) users may
suffer from latex sensitivity. WGL has developed the DuraCLEAN(R) clean room
glove composed of a proprietary polyurethane material which the Company believes
addresses these problems. WGL has been testing these gloves with several major
semiconductor customers and is currently operating a small glove plant in
Tijuana, Mexico to supply test sites. The Company recorded sales of the glove in
1995 and 1996.
The Company markets these gloves through its own sales force and through major
distributors. Although these gloves are premium priced, management believes they
are cost effective for clean room users because they can be worn longer and
changed less frequently than less expensive latex gloves. In addition, the
Company has received a 510(k) approval to market from the FDA for medical use of
its PolyDERM(TM) glove. Non-latex exam gloves sell at a premium over latex exam
gloves due to more rigorous product requirements. The Company believes that
polyurethane medical gloves will be superior to latex gloves in many ways,
including breathability, durability, biocompatibility and resistance to tearing,
yet will be less expensive to manufacture than other non-latex medical gloves.
For semiconductor markets, the added benefit of the glove's electrostatic
dissipative (ESD) properties is a great advantage. Also, the gloves have the
lowest total non-volatile residues and total organic carbon levels in the
industry.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company has applied for four patents on various products and one of those
patents has been issued. The Company will apply for additional patents where
deemed appropriate.
The Company also relies upon trade secrets, technical know-how and continuing
technological innovation to develop and maintain its competitive position. The
Company typically requires its employees and consultants
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to execute appropriate confidentiality and assignment of inventions agreements
in connection with their employment or consulting relationships with the
Company.
No assurance can be given that competitors will not independently develop
substantially equivalent or superior proprietary materials and techniques or
otherwise gain access to the Company's proprietary technology, or that the
Company can meaningfully protect its rights in unpatented proprietary
technology.
TECHNOLOGY
Many of the Company's current products use polymers, particularly polyurethane.
Polyurethane is a versatile synthetic material which can be produced to exhibit
a wide range of characteristics. By varying the underlying molecular structure
and manufacturing methods, polyurethane materials may be created with varying
degrees of absorbency, moisture vapor transfer, flexibility, elasticity,
structural integrity and stability. Polyurethane may also be fabricated with a
variety of techniques, including injection, extrusion or blow molding, which
allows easy variation of the physical form of products.
MANUFACTURING
WCC. The Company purchases UltraSORB(R), the breathable, hydrophilic
polyurethane foam currently used in its swabs and wipes, from Time Release
Sciences, Inc. Management believes that it can secure an alternative source of
supply if required. Further, Management believes that satisfactory substitutes
can be developed, over time, for use in its UltraSORB(R) products should the
foam cease to be available.
Certain of the Company's products are made for the Company by Advanced Materials
Group, Inc. ("Advanced Materials") an affiliated Company (see Note 9 of the
notes to the Financial Statements) at prices comparable to those that could be
obtained from other sources. Although the Company expects to encounter no
difficulties in obtaining products from Advanced Materials, it believes that it
could manufacture those products itself or have them manufactured by any of a
number of other foam fabricators. The foam products industry has several major
fabrication suppliers, one of which is Advanced Materials. Because competition
among these companies is intense, the prices charged by Advanced Materials to
the Company must be competitive. As a result, the Company believes that (a) the
prices charged to it by Advanced Materials are, and will continue to be,
comparable to those charged by unaffiliated third parties and (b) if It became
necessary for the Company to obtain foam products from another source, it could
do so with minimal disruption and cost. Similarly, products manufactured by
third party vendors could be obtained from other sources.
WGL. The Company manufactures the DuraCLEAN(R) gloves on its own equipment,
using a proprietary process and polymer. The Company leases a facility in
Tijuana, Mexico and uses contract labor from Advanced Barrier Technologies, Inc.
(ABT), under a three-year Manufacturing and Supply Agreement, dated April 11,
1996. Certain processes required to finish the product are performed in the U.S.
by third party vendors in accordance with Company procedures.
Raw Materials. The materials that the Company uses, such as polypropylene,
polyurethane, plastic and metal, are generally available from multiple sources.
The Company has not experienced difficulty in obtaining raw materials.
Quality Assurance. Under the Company's quality assurance program, visual,
dimensional and functional inspections are performed and recorded on all raw
materials and finished goods based on product specifications as governed by the
Device Master Record. Additionally, Statistical Process Control and other Total
Quality Management methods are used in the manufacturing process.
SALES, MARKETING AND DISTRIBUTION
WCC. WCC's swabs, wipes and other specialty products are marketed directly to
end-users through a limited number of internal sales personnel and are sold
through international, national and regional distributors. During 1996, WCC sold
approximately 33% of its products to Baxter Scientific Products, a division of
Baxter, International, Inc. and approximately 10% of its products through
international distributors.
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WGL. WGL markets its DuraCLEAN(R) clean room gloves directly to end-users
through the WCC sales personnel, and also through international distributors.
WGL recorded sales of the DuraCLEAN(R) clean room gloves in 1996, and did not
record sales of its PolyDERM(R) medical gloves in 1996.
COMPETITION
The Company is engaged in rapidly-evolving and highly-competitive fields. Many
major clean room companies in the United States and abroad currently produce and
will seek to develop competitive products. Competition from contamination
control manufacturers and others is intense and expected to increase. Many of
these companies have substantially greater capital resources and facilities, and
more experience in marketing and distributing products than the Company. In
addition, many of these companies employ large research and development staffs,
while the Company has traditionally had a small research and development budget.
WCC. The Company believes the clean room market has a large number of
competitors, some of which, such as Johnson & Johnson are much larger than the
Company. Other competitors include Texwipe, Berkshire Corporation, Kimberly
Clark Corp., VWR Scientific and Edmont Fab Tek.
WGL. A number of major corporations manufacture and sell latex and non-latex
gloves to the clean room and medical markets. These include Baxter
International, Johnson and Johnson, Smith and Nephew, and Ansell.
EMPLOYEES
As of November 30, 1996, the Company had 18 full-time employees, of whom 4 were
employed in manufacturing and shipping, 6 in sales and marketing, 2 in research,
development and engineering, and 6 in administration.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company subleases 16,500 square feet of warehouse and office space in
Dallas, Texas from Acacia Laboratories of Texas, Inc. ("Acacia") under the terms
of a Purchase of Assets and Assumption of Sublease Agreement described in Note
10 to the Financial Statements. The Company subleases its portion of the
facility for approximately $4,500 per month. The sublease expires on May 31,
1997, and can be renewed by mutual agreement of the parties.
In March 1993, the Company signed a five-year lease for a 19,000-square-foot
facility in Carlsbad, California. The building included office space for the
Company's administration functions, warehouse space, and space for future
manufacturing of clean room products. Under the terms of the lease, the Company
paid rent of approximately $12,400 per month. In September, 1994, the Company
moved to a 5,000 square-foot facility in Carlsbad under a three-year lease and
sublet the original facility for approximately $11,400 per month. Under the
terms of the lease, the Company pays approximately $4,500 per month for the
smaller facility.
The Company leases 10,000 square feet of manufacturing space in Tijuana, Mexico
from Advanced Barrier Technologies Inc. ("ABT"). The Company pays rent,
utilities, and related service charges for the space of $7,500 per month, based
on a manufacturing and supply agreement with ABT.
ITEM 3. LEGAL PROCEEDINGS
BREAST IMPLANT LITIGATION
The Company and its alleged predecessor company, Wilshire Foam Products, Inc.
("Wilshire Foam"), have been named as defendants in hundreds of bodily injury
lawsuits involving breast implants pending in Alabama, Arizona, California,
Connecticut, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana,
Kansas, Louisiana, Michigan, Mississippi, Missouri, Nevada, New Jersey, New
Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South
Carolina, Tennessee, Texas, Utah and Washington, and in a federal multi-district
litigation ("MDL") venued in Birmingham, Alabama. These suits seek compensatory
and punitive damages under a variety of legal theories. The allegations against
Wilshire Foam concern the use by
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some implant manufacturers of polyurethane products purportedly supplied by
Wilshire Foam which were apparently incorporated into the implants and placed in
the plaintiffs' bodies. Plaintiffs allege that they have suffered adverse
effects of having polyurethane in their bodies, in addition to the alleged
adverse effects of silicone and other components of the implants.
The Company believes it has several layers of protection from exposure in these
cases. First, the Company and Wilshire Foam carried insurance. Second, recent
developments in the MDL and in related negotiations have resulted in the
probable resolution of most of the pending and possible future claims against
the Company. Third, there are a great number of co-defendants, some of which are
large corporations with significant resources, that may be required to
contribute to any award or indemnify the Company. Fourth, the Company has
asserted a number of legal defenses in the lawsuits as described below. Fifth,
these claims relate to products sold prior to the acquisition of Wilshire Foam,
in which product liabilities were expressly not assumed and the Company was
indemnified by the shareholders of Wilshire Foam. In many, if not most of the
cases, the Company believes it did not sell any product to the implant
manufacturers in question or during the relevant time period. The Company has
been dismissed by approximately 1500 plaintiffs because it was shown that a
Wilshire Foam product was not involved or in connection with a related
resolution of the case. This litigation is discussed fully in Note 6 of the
notes to the financial statements, which is hereby incorporated by reference.
SHAREHOLDER LAWSUIT
In August 1994, an "Amended Consolidated Class Action Complaint" was filed in
the United States District Court (the "Court") for the Southern District of
California (Master File 94-0400-B(AJB)) against the Company; Michael W. Crow,
its former Chairman, President and Chief Executive Officer; Peter F. Kuebler,
its former Chief Financial Officer; and certain other parties.
The Complaint alleges violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and of Sections 11 and 12(2) of the Securities Act of 1933
by publication of misleading earnings reports, projections and other information
about the Company's transactions. The Complaint seeks unspecified compensatory
damages, interest and costs.
On May 16, 1995, Judge Rudi Brewster of the United States District Court for the
Southern District of California entered a final judgment dismissing the
Complaint against the Company and approving a Settlement Agreement between the
Company and the Plaintiffs (the "Settling Parties"). Thereupon, on January 25,
1996, the United States District Court for the Southern District of California
entered a final judgment ordering that the Complaint be dismissed in its
entirety. This litigation including the Settlement Agreement is discussed fully
in Note 6 of the notes to the financial statements, which is hereby incorporated
by reference.
SUPPLIER LAWSUIT
On October 22, 1996, Powell Products, Inc. ("Powell") sued the Company in state
court in Dallas County, Texas alleging a variety of claims, all centered upon
Powell's assertion that the Company has wrongfully obtained and used Powell's
trade secrets for manufacturing foam-tipped applicators. On the same day, Powell
obtained an ex parte temporary restraining order, which required temporary
cessation of the Company's automated foam-tipped swab manufacturing process. On
November 4, 1996 the parties negotiated an agreed temporary injunction, which
places certain limits on the Company's operations through June 4, 1997, but
which allows the Company to continue in its business of manufacturing
foam-tipped swabs. The agreed temporary injunction also protects the Company
from liability to Powell that might arise from foam-tipped swab manufacturing
during the term of the agreed injunction. On November 5, 1996, the Company
removed the case to the U.S. District Court for the Northern District of Texas,
where the case remains pending. The Company has denied Powell's allegations, and
counterclaimed for wrongful injunction. The Company has defeated Powell's
attempts to transfer the case to Colorado and Powell's request that the Court
stay the case in favor of arbitration. The Company plans to continue to
vigorously defend this litigation. The case is set on the trial docket of the
U.S. District court for the Northern District of Texas for February 2,1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock was initially quoted on NASDAQ under the trading
symbol "WITE". On March 9, 1993, the Company began trading on the American Stock
Exchange ("AMEX") under the trading symbol "WIL". On December 19, 1996, the AMEX
filed an application to delist the Company's common stock from the AMEX because
the Company had not met certain financial guidelines necessary for continued
listing. The final day of trading was Friday, January 17, 1997. On Monday,
January 20, 1997, the Company's common stock was quoted and traded on the OTC
Bulletin Board under the symbol "WILK". On January 31, 1997, there were
approximately 125 holders of record of the Company's Common Stock and in excess
of 500 beneficial holders. The Company has not paid any cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future.
The following table sets forth by fiscal quarters the high and low daily closing
sales prices quoted on the AMEX for one share of the Company's Common Stock
since December 1, 1994.
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1995 HIGH LOW
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First Quarter 1-3/4 7/8
Second Quarter 1-5/8 1/2
Third Quarter 1-3/4 1-1/4
Fourth Quarter 1-1/2 1/2
1996
First Quarter 1-5/16 1/2
Second Quarter 1-5/8 1
Third Quarter 2-1/4 1-1/4
Fourth Quarter 1-3/4 1
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS.
OVERVIEW
The Company completed major steps in 1996 to focus on businesses where it has a
technological competitive advantage and to structure those businesses for
improved profitability. The strategic divestitures of the medical products and
transdermal products businesses effectively remove the Company from the highly
regulated pharmaceutical and medical device industries with their related high
research and development costs. In addition, the relocation of the developmental
glove plant from the United Kingdom to Tijuana, Mexico greatly improves the
operating efficiency of that business and significantly reduces costs.
Although revenues have increased and operating costs have been reduced
significantly in the past year, the Company is not yet cash flow positive.
Trilon Dominion Partners, LLC ("Trilon Dominion") the Company's largest
shareholder with over 72% of the shares outstanding, has continued to provide
financial support to the Company during 1996, and management believes that
support will continue through the end of fiscal year 1997. As a result, the
Company's independent auditors have removed the "going concern" paragraph from
their report on the Company's financial statements for the year ended November
30, 1996.
In 1997, the Company will focus on expanding its core business of contamination
control products (WCC) used in the clean rooms of electronic component
manufacturers and on significantly increasing the production and sales of its
proprietary synthetic glove (WGL). WCC will focus on geographic expansion
especially in Southeast Asia, and on new customers for its proprietary swabs and
wipes. In addition, product cost reduction efforts will continue with the
transfer of some WCC production to Mexico. WGL will focus on maximizing
production from the existing glove manufacturing equipment in Mexico and on
completing the purchase and installation of the first full-scale glove
production line to increase capacity to over 5 million pairs of gloves per year.
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From time to time the Company may report, through its press releases and/or
Securities and Exchange Commission filings, certain forward-looking statements
that are subject to risks and uncertainties. Important factors that could cause
actual results to differ materially from those projected by such forward-looking
statements are set forth in Exhibit 99 to this Annual Report on Form 10-KSB for
the year ended November 30, 1996. These include operating losses, liquidity,
reliance on major distributors, new product development, competition,
technological change, patents, trade secrets, product liability, dependence on
key suppliers, and dependence on key personnel.
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.
Net Sales increased by $410,000 (13.7%) to $3,403,000 in 1996 from $2,993,000 in
1995, due to increased sales of contamination control products. Sales of swabs
increased by 26.4% and sales of wipes increased by 13.4%, in 1996 versus 1995.
GROSS PROFIT
Gross profit decreased by $205,000 to $538,000 in 1996 from $743,000 in 1995,
due to increased indirect labor in WCC and costs of the developmental glove
plant. Gross profit margin as a percent of sales decreased to 15.8% in 1996 from
24.8% in 1995. Excluding the impact of the glove sales and cost of sales on
gross profit, the gross profit margin as a percentage of sales is 27.5% in 1996,
and 31.5% in 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).
Selling, general and administrative expenses increased $116,000 (4.8%) to
$2,514,000 1996 from $2,398,000 in 1995. The primary cause of this increase was
the hiring of an additional sales representative in WCC and the full-year impact
of WGL management hired in 1995.
RESEARCH AND DEVELOPMENT
Research and development expenses increased $20,000 (4.2%) to $501,000 in 1996
from $481,000 in 1995, primarily related to increased project expense in WGL. As
a percentage of sales, research and development expenses were 14.7% in 1996,
compared to 16.1% in 1995.
OTHER INCOME (EXPENSE), NET
The other income in 1996 was related to the gain recognized from the payment of
the note receivable by Advanced Materials (see Note 3).
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INTEREST INCOME (EXPENSE), NET
The Company recognized net interest expense of $125,000 in 1996 and $742,000 in
1995. The interest expense was related primarily to the notes payable to Trilon
Dominion Partners, LLC (see Note 4).
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INCOME TAXES
For the fiscal years ended November 30, 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 1996, the Company has not generated sufficient cash from
operations to fund its working capital requirements. Net cash used in operating
activities was $3,035,000 in 1996 versus $2,272,000 in 1995. The increase in the
cash used in operating activities was primarily due to payment of past due
accounts payable.
Net cash provided by investing activities was $509,000 in 1996 versus $39,000 in
1995, primarily due the write-off of the license agreements.
Net cash provided by financing activities was $2,697,000 in 1996 versus
$2,176,000 in 1995. Debt financing in 1995 was obtained from Dominion Capital,
Inc., and in 1996 from Trilon Dominion Partners, LLC. The details of the debt
financing are provided in Note 4 to the financial statements.
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 was due on
June 30, 1996 and the interest is payable monthly at a rate of prime plus 3.75%.
See Note 4 for details of the Agreement.
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, and the final $200,000
available under the credit line in February 1996 to fund working capital
requirements.
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 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.
11
<PAGE> 13
On September 30, 1996, the Company and Trilon Dominion entered into a Second
Amendment to the Agreement ("Second Amendment") whereby the amount of the credit
line referred to above was increased from $1,000,000 to $2,000,000 and the
termination date was extended from December 31,1996 to June 30, 1997. Pursuant
to the Second Amendment, the Company can draw on the additional credit line upon
achievement of certain milestones. See Note 4 for details of the Amendment.
As of January 31, 1997, the Company has $250,000 remaining on its credit
facilities and anticipates continuing negative cash flow through at least the
first half of fiscal year 1997. In addition to completing the above mentioned
transactions, the Company is attempting to raise additional capital to fund its
ongoing operations. Trilon Dominion, the Company's largest shareholder with over
72% of the shares outstanding, has continued to provide financial support to the
Company during 1996, and management believes that Trilon Dominion will continue
to support the Company as necessary through the end of fiscal year 1997.
12
<PAGE> 14
ITEM 7. FINANCIAL STATEMENTS.
Index to Consolidated Financial Statements
Years ended November 30, 1996 and 1995
Index
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.........................................12
Audited Financial Statements
Consolidated Balance Sheets...............................................................13
Consolidated Statements of Operations.....................................................14
Consolidated Statements of Shareholders' Equity (Net Capital Deficiency).................15
Consolidated Statements of Cash Flows.....................................................16
Notes to Consolidated Financial Statements................................................17
</TABLE>
13
<PAGE> 15
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
Wilshire Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Wilshire
Technologies, Inc. as of November 30, 1996 and 1995 and the related consolidated
statements of operations, shareholders' equity (net capital deficiency) and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Wilshire
Technologies, Inc. at November 30, 1996 and 1995, and the consolidated results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
January 31, 1997
14
<PAGE> 16
WILSHIRE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 189,000 $ 18,000
Accounts receivable trade, less allowance for doubtful
accounts of $17,000 and $49,000 at November 30,
1996 and November 30, 1995, respectively 571,000 675,000
Inventories (Note 2) 591,000 1,085,000
Current portion of note receivable (Note 10) 204,000 --
Other current assets 231,000 259,000
------------ ------------
Total current assets 1,786,000 2,037,000
Property and equipment, less accumjulated depreciation
of $637,000 and $903,000 at November 30, 1996 and
November 30, 1995, respectively 723,000 931,000
Note Receivable from the sales of discontinued business
less current portion (Note 10) 280,000 --
Note Receivable from Advanced Materials, Inc.
net of $750,000 deferred gain (Note 3) -- 1,000,000
License agreements (Note 6) -- 259,000
Goodwill, less accumulated amortization of $281,000
and $350,000 at November 30, 1996 and November 30,
1995, respectively 461,000 763,000
Other assets 104,000 310,000
------------ ------------
$ 3,354,000 $ 5,300,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 393,000 $ 915,000
Accrued expenses 454,000 1,030,000
Interest payable 31,000 989,000
Line of credit (Note 4) 1,500,000 --
Current portion of long-term debt (Note 4) -- 2,000
------------ ------------
Total current liabilities 2,378,000 2,936,000
Long-term debt, less current portion (Note 4) -- 7,637,000
Commitments and contingencies (Note 6)
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; 12,943,385 shares and 4,490,455 shares
issued and outstanding at November 30, 1996 and
November 30, 1995, respectively 25,857,000 17,071,000
Common stock warrants 275,000 418,000
Accumulated deficit (25,156,000) (22,762,000)
------------ ------------
Total shareholders' equity (net capital deficiency) 976,000 (5,273,000)
------------ ------------
$ 3,354,000 $ 5,300,000
============ ============
</TABLE>
See independent auditor's report and accompanying notes.
15
<PAGE> 17
WILSHIRE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended November 30,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Continuing operations:
Net sales $ 3,403,000 $ 2,993,000
Cost of sales 2,865,000 2,250,000
-------------- --------------
Gross profit 538,000 743,000
Operating expenses:
Marketing and selling 589,000 564,000
General and administrative 1,925,000 1,834,000
Research and development 501,000 481,000
Loss from joint venture (Note 7) -- 40,000
-------------- --------------
Total operating expenses 3,015,000 2,919,000
-------------- --------------
Loss from operations (2,477,000) (2,176,000)
Other income (Note 3) 190,000 --
Interest income (expense), net (125,000) (742,000)
-------------- --------------
Loss before provision
for state income taxes (2,412,000) (2,918,000)
Provision for state income taxes - current 1,000 1,000
-------------- --------------
Loss from continuing operations (2,413,000) (2,919,000)
Gain (loss) from discontinued operations (Note 10) 19,000 (681,000)
-------------- --------------
Net loss $ (2,394,000) $ (3,600,000)
============== ==============
Weighted average shares outstanding 12,102,366 4,490,455
============== ==============
Loss per share:
Loss from continuing operations $ (0.20) $ (0.65)
Loss from discontined operations -- (0.15)
-------------- --------------
Net loss per share $ (0.20) $ (0.80)
============== ==============
</TABLE>
See independent auditor's report and accompanying notes.
16
<PAGE> 18
WILSHIRE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
YEARS ENDED NOVEMBER 30, 1996 AND 1995
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Common Stock Common Stock Warrants
-------------------------- ----------------------- Accumulated
Shares Amount Warrants Amount deficit Total
---------- ----------- --------- -------- ------------ -----------
Balances - November 30, 1994 4,490,455 $17,071,000 4,180,000 $418,000 $(19,162,000) $(1,673,000)
Net loss -- -- -- -- (3,600,000) (3,600,000)
---------- ----------- --------- -------- ------------ -----------
Balances - November 30, 1995 4,490,455 17,071,000 4,180,000 418,000 (22,762,000) (5,273,000)
Exchange Agreement 8,441,430 8,779,000 (1,430,000) (143,000) -- 8,636,000
Exercise of options 11,500 7,000 -- -- -- 7,000
Net loss -- -- -- -- (2,394,000) (2,394,000)
---------- ----------- --------- -------- ------------ -----------
Balances - November 30, 1996 12,943,385 $25,857,000 2,750,000 $275,000 $(25,156,000) $ 976,000
========== =========== ========= ======== ============ ===========
</TABLE>
17
<PAGE> 19
WILSHIRE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended November 30,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,394,000) $ (3,600,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 425,000 647,000
Provision for loss on accounts receivable (12,000) (95,000)
Gain on sale of property and equipment -- (12,000)
Gain on sale of discontinued operations (19,000) --
Gain on settlement of note receivable (190,000) --
Net change in operating assets and liabilities:
Increase in accounts receivable (206,000) (102,000)
Decrease in inventories 182,000 250,000
(Increase) decrease in other current assets (1,000) 12,000
Increase (decrease) in accounts payable and
accrued expenses (851,000) 132,000
Increase in interest payable 31,000 799,000
Decrease in amounts due to joint venture -- (303,000)
-------------- --------------
Net cash used in operating activities (3,035,000) (2,272,000)
-------------- --------------
INVESTING ACTIVITIES
Purchase of equipment (201,000) (24,000)
Proceeds from sale of property and equipment -- 27,000
Proceeds from sale of discontinued operations 256,000 --
Decrease in other assets 454,000 36,000
-------------- --------------
Net cash provided by investing activities 509,000 39,000
-------------- --------------
FINANCING ACTIVITIES
Proceeds from line of credit and long-term debt 1,500,000 2,204,000
Proceeds from settlement of note receivable 1,190,000 --
Proceeds from exercise of stock options 7,000 --
Payments on notes payable and long-term debt -- (28,000)
-------------- --------------
Net cash provided by financing activities 2,697,000 2,176,000
-------------- --------------
NET INCREASE (DECREASE) IN CASH 171,000 (57,000)
CASH - BEGINNING OF PERIOD 18,000 75,000
-------------- --------------
CASH - END OF PERIOD $ 189,000 $ 18,000
============== ==============
</TABLE>
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 (Note 4).
In June, 1996, the Company completed the sale of certain assets of the Medical
Products division (Note 10).
See independent auditor's reports and accompanying notes.
18
<PAGE> 20
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
Carlsbad, California, operates through two divisions - - Wilshire Contamination
Control ("WCC"), and Wilshire Gloves ("WGL") and a wholly-owned subsidiary,
Wilshire Gloves (UK) Ltd. During 1996, the Company divested its Medical Products
and Transdermal Products divisions, 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 two
divisions and its wholly-owned subsidiary. Significant intercompany amounts and
transactions have been eliminated.
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)
in the form of both debt and equity to fund its operations. The Company is
attempting to raise additional capital to fund its ongoing operations, and
management believes that Trilon Dominion will continue to support the Company
as necessary through the end of fiscal year 1997.
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 10). 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.
INVENTORIES
Inventories are stated at the lower of first in, first out cost or market.
REVENUE RECOGNITION
Sales are recognized when the product is shipped and customer acceptance is
received pursuant to applicable customer contracts or purchase orders.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
about the future that affect the amounts reported in the financial statements
and disclosures made in the accompanying notes of the financial statements. The
actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are being depreciated on a
straight-line basis over their estimated useful lives, which range from three to
seven years. Property and equipment under capital leases are amortized over the
life of the asset or the term of the lease, whichever is shorter.
19
<PAGE> 21
INTANGIBLE ASSETS
Goodwill is being amortized over 17 years. For the years ended November 30, 1996
and 1995, amortization was $61,000 and $81,000, respectively.
CONCENTRATION OF CREDIT RISK
Sales to a national distributor accounted for 33% and 37% of total sales during
1996 and 1995, respectively. Otherwise, the Company's customers are dispersed
across different industries and geographic locations. The Company reviews a
potential customer's credit history before extending credit. The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
Management does not believe significant credit risks exist.
LOSS PER SHARE
Net loss per common share in fiscal 1996 and 1995 was computed using the
weighted average number of common shares outstanding during the period which
excludes all common equivalent shares that are antidilutive.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS" ) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", effective for
fiscal years beginning after December 15, 1995. SFAS 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairments are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS 121
also addresses the accounting for long-lived assets that are expected to be
disposed of. The Company adopted SFAS 121 during 1996. The adoption of this
statement did not have a material impact in the Company's consolidated financial
statements.
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock-Based Compensation", effective for fiscal years beginning
after December 15, 1995. SFAS 123 establishes the fair value based method of
accounting for stock-based compensation arrangements, under which compensation
cost is determined using the fair value of the stock option at the grant date
and the number of options vested, and is recognized over the periods in which
the related services are rendered. The Company has made the decision to continue
with the current intrinsic value based method, as allowed by SFAS 123, but it
will be disclosing the pro forma effect of applying the fair value based method
beginning with the year ended November 30, 1997.
2. FINANCIAL STATEMENTS INFORMATION
Inventories consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Raw materials $ 141,000 $ 411,000
Work in process 175,000 159,000
Finished goods 275,000 515,000
============== ==============
$ 591,000 $ 1,085,000
============== ==============
</TABLE>
20
<PAGE> 22
Property and equipment consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Machinery and equipment $ 885,000 $ 1,022,000
Furniture and office equipment 350,000 446,000
Leasehold improvements 87,000 366,000
Construction in progress 38,000 --
-------------- --------------
1,360,000 1,834,000
Less accumulated depreciation
and amortization (637,000) (903,000)
============== ==============
$ 723,000 $ 931,000
============== ==============
</TABLE>
Other assets includes the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Debt issue costs, net $ -- $ 95,000
Patents and trademarks, net 104,000 192,000
Various other assets -- 23,000
============== ==============
$ 104,000 $ 310,000
============== ==============
</TABLE>
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. The amended note of $1.75 million was originally
shown in the Balance Sheet net of the $750,000 deferred gain on the transaction.
On July 3, 1996, pursuant to a Release Agreement, Advanced Materials, 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 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.
Pursuant to the sale of its Medical Products division, the Company received a
$540,000 secured note payable over 36 months, and bearing interest at a rate of
5% per annum (see Note 10).
4. LONG-TERM DEBT
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.
21
<PAGE> 23
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 was 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 became exercisable when the Company extended the termination date of the
Agreement to June 30, 1997. The second warrant entitles Trilon Dominion to
purchase 25,000 shares of the Company's authorized but unissued common stock at
an exercise price of $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 ("First Amendment") whereby the termination date was changed from
June 30, 1996, to December 31, 1996.
On September 30, 1996, the Company and Trilon Dominion entered into a Second
Amendment to the Agreement ("Second Amendment") whereby the amount of the credit
line was increased from $1,000,000 to $2,000,000 and the termination date was
extended from December 31,1996 to June 30, 1997. Pursuant to the Second
Amendment, the Company can draw on the additional credit line upon achievement
of certain milestones. In addition, two warrants were issued in connection with
the Second Amendment. The first warrant entitles Trilon Dominion to purchase
100,000 shares of the Company's authorized but unissued common stock at an
exercise price of $1.31 per share, subject to adjustment to protect against
dilution. The warrant is exercisable immediately and expires on September 30,
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, 1997. 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, 1997, and it expires on September 30, 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.
5. INCOME TAXES
At November 30, 1996, the Company had federal net operating loss carryforwards
of approximately $15,399,000 which will begin to expire in 2008 unless
previously utilized. In addition, the Company had California and Texas net
operating loss carryforwards of approximately $12,996,000 which will begin to
expire in 1997, unless previously utilized. Research and development tax credits
of $60,000 will begin to expire in 2009.
As a result of ownership changes that occurred in February 1993 from a private
placement of common stock and in January 1996 from the exchange of common stock
for the outstanding debt and accrued interest, the Company's federal net
operating loss carryforwards will be subject to an annual limitation regarding
utilization against taxable income in future periods. Because of "change of
ownership" provisions of the Tax Reform Act of 1986, the Company's net operating
loss and tax credit carryforwards will be subject to annual limitations
regarding utilization against taxable income in future periods. The Company
estimates that approximately
22
<PAGE> 24
$6,800,000 of its federal net operating loss carryforward will be unavailable
for future tax benefit. Accordingly, the federal tax net operating loss
carryforward has been reduced, including the related deferred tax asset.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes. Due to the uncertainty
surrounding future realization of favorable tax attributes, a valuation
allowance was recorded against deferred tax assets. Significant components of
the Company's deferred tax assets and liabilities for federal and state income
taxes as of November 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1996 1995
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Depreciation and amortization $ 44,000 $ 156,000
Loss from joint venture -- 515,000
Installment Sale 1,007,000 --
Warrants 108,000 108,000
Accrued liabilities 32,000 318,000
Allowance for doubtful accounts 23,000 19,000
Inventory reserves 180,000 697,000
Sale of OEM medical supply division -- 180,000
Other 118,000 59,000
Net operating loss carryforwards 5,959,000 6,862,000
-------------- --------------
Total deferred assets 7,471,000 8,914,000
Valuation allowance for deferred assets (7,471,000) (8,914,000)
-------------- --------------
Net deferred tax assets $ -- $ --
============== ==============
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
BREAST IMPLANT LITIGATION
The Company and its alleged predecessor company, Wilshire Foam, have been named
as defendants in thousands of bodily injury lawsuits involving breast implants
pending in Alabama, Arizona, California, Colorado, Connecticut, District of
Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Louisiana,
Massachusetts, Michigan, Mississippi, Missouri, Nevada, New Jersey, New Mexico,
New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina,
Tennessee, Texas, Utah and Washington, and in a federal multi-district
litigation ("MDL") venued in Birmingham, Alabama. These suits seek compensatory
and punitive damages under a variety of legal theories. The allegations against
Wilshire Foam concern the use by some implant manufacturers of polyurethane
products purportedly supplied by Wilshire Foam which were apparently
incorporated into the implants and placed in the plaintiffs' bodies. Plaintiffs
allege that they have suffered adverse effects of having polyurethane in their
bodies, in addition to the alleged adverse effects of silicone and other
components of the implants.
The Company believes it has several layers of protection from exposure in these
cases. First, as described in greater detail below, the Company and Wilshire
Foam carried insurance. Second, also discussed below, recent developments in the
MDL and in related negotiations have resulted in the probable resolution of most
of the pending and possible future claims against the Company. Third, there are
a great number of co-defendants, some of which are large corporations with
significant resources, that may be required to contribute to any award or
indemnify the Company. Fourth, the Company has asserted a number of legal
defenses in the lawsuits as described below. Fifth, these claims relate to
products sold prior to the acquisition of Wilshire Foam, in which product
liabilities were expressly not assumed and the Company was indemnified by the
shareholders of Wilshire Foam. In many, if not most of the cases, the Company
believes it did not sell any product to the implant manufacturers in question or
during the relevant time period. The Company has been dismissed by approximately
1500 plaintiffs because it was shown that a Wilshire Foam product was not
involved or in connection with a related resolution of the case.
23
<PAGE> 25
Management believes the Company is adequately covered by insurance for these
suits under one or more commercial general liability ("CGL") and excess
liability insurance policies. Between 1974 and 1980, Fireman's Fund Insurance
Company provided the CGL coverage; from 1980 through 1987, affiliates of the
Chubb Group provided both CGL and excess coverage. The CGL policies for
1987-1992 were underwritten by Allstate Insurance Company affiliates; excess
coverage for those years has been provided by Fireman's Fund. While Wilshire
Foam's greatest number of relevant sales appear to have taken place during the
early to mid-1980's, there appears to be over $100 million in combined potential
insurance coverage for the Company and/or Wilshire Foam during and after that
time period. To date, all of the claims have been tendered to the insurance
carriers, who have accepted defense of the litigation, subject to customary
reservations of rights. No assurance can be given that any future lawsuits will
be accepted by carriers. The cost of defense of the suits is generally not
applied toward the policy limits. The Company and its insurers are exploring
additional excess coverage which appears to have been in place during the 1970's
until 1980.
Many of the lawsuits have only recently been filed, and therefore all of the
facts and circumstances surrounding the various allegations have yet to be
determined. Consequently, it is difficult to predict the ultimate outcome and
extent of the Company's involvement. Nevertheless, the Company presently
believes that numerous legal defenses to potential liability exist, including,
but not limited to, the absence of causation, lack of identification, fault of
others, absence of defect, superseding cause, the component manufacturer
defense, statutes of limitations, the absence of successor liability, learned
intermediary, contribution and indemnity, and has in fact included these
defenses in its answers to the lawsuits. As with any litigation, there is a risk
of adverse judgments against the Company. The Company is actively cooperating
with its insurers and counsel in the defense of these lawsuits.
Previously, a number of defendants, including the Company, entered into a global
settlement agreement ("Global Settlement") in the MDL. Under the terms of the
Global Settlement, the Company would be required to contribute $8 million to the
global settlement fund, which the Company's insurers have agreed to pay. The
judge presiding over the MDL approved the Global Settlement and found it to be
fair; however, in September of 1995 that judge announced that the Global
Settlement is under funded, in part due to an unexpected number of registrants
and other reasons. The Company understands that efforts to resurrect or replace
the Global Settlement are ongoing but that the Global Settlement may not become
effective. The Company is to be a released party in the current draft of the
replacement for the Global Settlement without any additional funding
requirements from the Company or its insurers.
Separately, the Company has reached agreement with Medical Engineering
Corporation and Bristol-Myers Squibb ("MEC"), whereby, in essence, MEC has
agreed to indemnify the Company in all cases where a plaintiff, whose implant is
within MEC's chain of distribution, opts out of the Global Settlement. The MEC
indemnification also covers Wilshire for plaintiffs who opted into the Global
Settlement in the event that the Global Settlement does not become effective, so
that the Company remains protected in most cases even if the Global Settlement
cannot be resurrected. The Company's insurers have funded the initial amount the
Company agreed to pay to MEC in consideration of MEC's providing such
indemnification, and have agreed to pay the balance which would become due to
MEC if the Global Settlement does not become effective. These funding payments
reduced the limits of coverage under various CGL policies, but none of these
payments or funding commitments exhausted or will exhaust any of the policies'
limits or reached any excess policy.
The Company believes that the indemnification by MEC, with or without the Global
Settlement, would eliminate the great majority of implant-related cases pending
against the Company. However, even if the Global Settlement is finally approved,
cases will remain pending against the Company involving plaintiffs who opt out
of the Global Settlement and whose implants are outside of the MEC chain of
distribution and hence not covered by the MEC indemnification.
SHAREHOLDER LAWSUITS AND SEC INVESTIGATION
In August 1994, an "Amended Consolidated Class Action Complaint" was filed in
the United States District Court (the "Court") for the Southern District of
California (Master File 94-0400-B(AJB)) against the Company; Michael W. Crow,
its former Chairman, President and Chief Executive Officer; Peter F. Kuebler,
its former Chief Financial Officer; and certain other parties.
24
<PAGE> 26
The Complaint alleges violations of Sections 10(b), and 20(a) of the Securities
Exchange Act of 1934 and of Sections 11 and 12(2) of the Securities Act of 1933
by publication of misleading earnings reports, projections and other information
about the Company's transactions. The complaint seeks unspecified compensatory
damages, interest and costs.
On May 16, 1995, Judge Rudi Brewster of the United States District Court for the
Southern District of California entered a final judgment dismissing the
Complaint against the Company and approving a Settlement Agreement between the
Company and the Plaintiffs (the "Settling Parties"). Thereupon, on January 25,
1996, the United States District Court for the Southern District of California
entered a final judgment ordering that the Complaint be dismissed in its
entirety.
Under the Settlement Agreement, the Company is to issue 2,750,000 Warrants (the
"Settlement Warrants") to the Settlement Class and their counsel. "Settlement
Class" is generally defined in the Settlement Agreement as all persons who
purchased common stock of the Company between November 24, 1992 and March 14,
1994 and suffered a loss thereby.
Each Settlement Warrant will entitle the holder to purchase one share of the
Company's common stock for $4 per share, subject to adjustment for changes in
the Company's stock price prior to the issuance of the Settlement Warrants and
subject to antidilution adjustments. The Company valued the warrants at $0.10
per underlying common share and recorded a charge to earnings of $275,000 in
fiscal 1994. The Settlement Warrants are exercisable between the second and
fifth anniversaries of the date of their issue, but only after the Company's
common stock underlying the Settlement Warrants has been registered under the
Securities Act of 1933. The Company has agreed to use its best efforts to
achieve such registration, but not before the second anniversary of the Warrant
issuance date and has also agreed, at the time of such registration, to attempt
to obtain listing and trading rights for the Settlement Warrants and the
underlying common stock on the Exchange on which the Company's common stock is
then traded. The Company has agreed to pay certain costs associated with the
distribution of the Settlement Warrants. Currently, the Company is waiting for a
list of the members of the Settlement Class from the Plaintiff's attorneys in
order to issue the Settlement Warrants.
The Securities and Exchange Commission also has investigated the events that
gave rise to the above-described lawsuit. On September 24, 1996, the Securities
and Exchange Commission ("SEC") entered an order pursuant to Section 21(c) of
the Securities Exchange Act ordering the Company to cease and desist from
committing or causing violation of certain antifraud, reporting, record-keeping,
and internal control provisions of the Securities Exchange Act. The Company
consented to the Order without admitting or denying the SEC's findings.
SUPPLIER LAWSUIT
On October 22, 1996, Powell Products, Inc. ("Powell") sued the Company in state
court in Dallas County, Texas alleging a variety of claims, all centered upon
Powell's assertion that the Company has wrongfully obtained and used Powell's
trade secrets for manufacturing foam-tipped applicators. On the same day, Powell
obtained an ex parte temporary restraining order, which required temporary
cessation of the Company's automated foam-tipped swab manufacturing process. On
November 4, 1996 the parties negotiated an agreed temporary injunction, which
places certain limits on the Company's operations through June 4, 1997, but
which allows the Company to continue in its business of manufacturing
foam-tipped swabs. The agreed temporary injunction also protects the Company
from liability to Powell that might arise from foam-tipped swab manufacturing
during the term of the agreed injunction. On November 5, 1996, the Company
removed the case to the U.S. District Court for the Northern District of Texas,
where the case remains pending. The Company has denied Powell's allegations, and
counterclaimed for wrongful injunction. The Company has defeated Powell's
attempts to transfer the case to Colorado and Powell's request that the Court
stay the case in favor of arbitration. The Company plans to continue to
vigorously defend this litigation. The case is set on the trial docket of the
U.S. District court for the Northern District of Texas for February 2,1998.
25
<PAGE> 27
CONTINGENT LIABILITIES RELATED TO THE SALE OF THE GENERAL FOAM DIVISION
The Company remains contingently liable for certain deferred compensation due
through 2025 aggregating $1,238,000 in connection with the sale of the general
foam division to Advanced Materials effective on November 30, 1992.
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 the rights under one License Agreement back to IT, and IT
canceled $642,000 in minimum royalties which the Company had accrued under both
License Agreements. Under the terms of the remaining License Agreement, the
minimum royalty payments are $112,000 in 1997, $240,000 in 1998, and $320,000
per year from January, 1999, through June, 2003.
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
was relocated from the IT facility in the United Kingdom to Tijuana, Mexico.
LEASE COMMITMENTS
The following is a schedule of the future minimum rental payments required under
the leases which have remaining non cancelable lease terms in excess of one year
at November 30, 1996:
<TABLE>
<CAPTION>
OPERATING
LEASES
--------------
<S> <C>
1997 $ 175,000
1998 28,000
--------------
Total minimum payments $ 203,000
==============
</TABLE>
Rent expense was $301,000 and $277,000 for the years ended November 30, 1996 and
1995, respectively. During 1996, the Company received $145,000 of sublease
rental income.
7. 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 was 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 would have been paid as
a percentage of TrimPatch(TM) sales and such payments charged against the
results of operations.
On September 30, 1996, the Company completed an Agreement of Purchase and Sale
of TrimPatch(TM) Business and Assets with IPC whereby IPC purchased from the
Company certain assets of its transdermal products business related to
TrimPatch(TM). The sale price of $3,130,000 will be paid out based on future
sales of TrimPatch(TM). The assets sold include all equipment, inventory,
patents, trademarks, trade names, and regulatory approvals used in the
TrimPatch(TM) business, which Wilshire previously has expensed in its financial
statements. If Intelligent Pharmaceuticals Corporation cannot sell the existing
inventory, the sale price will be
26
<PAGE> 28
adjusted to $1,868,000. Wilshire will recognize the revenue from the sale, if
any, over the period the proceeds are received.
27
<PAGE> 29
8. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
COMMON STOCK
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.
In November, 1996, stock options for 11,500 shares of common stock were
exercised, and the Company received proceeds of approximately $7,000.
PREFERRED STOCK
On December 3, 1992, 2,000,000 shares of undesignated Preferred Stock were
authorized. The Board of Directors is authorized to provide for the issuance of
the undesignated Preferred Stock in one or more series, to establish from time
to time the number of shares to be included in each series, to fix or alter the
rights, preferences and privileges of the shares of each wholly unissued series
and any restrictions thereon, and to increase or decrease the number of shares
of any series.
WARRANTS AND STOCK OPTIONS
As mentioned in Note 6 above, the Company has entered into a Settlement
Agreement with the plaintiffs in the shareholder litigation authorizing the
issuance of 2,750,000 warrants with an exercise price of $4.00 per share subject
to adjustment to protect against dilution. The warrants are exercisable between
the second and fifth anniversaries of the date the warrants are ultimately
issued and were valued at $0.10 per share.
On April 27, 1992, the Company's Board of Directors approved a stock option plan
for 150,000 options and on December 1, 1993, approved a second stock option plan
for 250,000 options. On December 6, 1994, the Board of Directors approved a
third stock option plan (The 1995 Stock Option Plan) for options on 500,000
shares. The 1995 Stock Option Plan was approved by the shareholders at the
Annual Meeting on August 1, 1995. An amendment to the 1995 Stock Option Plan was
approved by the shareholders at the Annual Meeting on May 20, 1996, to increase
the number of shares that may be issued under such plan to 1,750,000 shares. As
of November 30, 1996, the following options were outstanding under each
respective Stock Option Plan: 22,600 under the 1992 plan, 223,000 under the 1993
plan, and 515,000 under the 1995 plan.
Under the Plans, the Company may grant incentive stock options ("ISOs"), as
defined under the Internal Revenue Code or nonqualified stock options ("NQOs").
Options may be granted at not less than 100% of the fair market value on the
date of grant for ISOs. The option period cannot exceed 10 years from the date
an option is granted or five years in the case in which an option is granted to
a 10% shareholder of both classes of stock at the time the option is granted. No
option shall be exercisable before nine months after the date of grant of such
option. Generally, if an optionee's employment is terminated, all unvested
options granted to such employee under the Plans shall terminate and may no
longer be exercised.
On September 16, 1994, the five non-management members of the Company's Board of
Directors each were granted 15,000 stock options at an exercise price of $2.63
per share, and the Chairman and Chief Executive Officer was granted 200,000
stock options at an exercise price of $2.63 per share. These 275,000 options
were not granted under any of the above mentioned plans, and were approved by
the shareholders at the Annual Meeting on August 1, 1995.
On December 6, 1994, Mr. William Hopke, who became a Director in November, 1994,
was granted 15,000 stock options at an exercise price of $1.38 per share. These
options were not granted under any of the above mentioned plans, and were
approved by the shareholders at the Annual Meeting on August 1, 1995.
On April 17, 1995 the five non-management members of the Company's Board of
Directors each were granted 15,000 stock options at an exercise price of $0.63
per share, and the Chairman and Chief Executive Officer
28
<PAGE> 30
was granted 200,000 stock options at an exercise price of $0.63 per share. These
275,000 options were not granted under any of the above mentioned plans, and
were approved by the shareholders at the Annual Meeting on August 1, 1995.
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 was 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 became exercisable when the Company extended the termination date of the
Agreement to December 31, 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 of $1.75 per share, and it expires on January 5, 2001.
On September 30, 1996, the Company and Trilon Dominion entered into a Second
Amendment to the Agreement ("Second Amendment") whereby the amount of the credit
line was increased from $1,000,000 to $2,000,000 and the termination date was
extended from December 31,1996 to June 30, 1997. Pursuant to the Second
Amendment, the Company can draw on the additional credit line upon achievement
of certain milestones. In addition, two warrants were issued in connection with
the Second Amendment. The first warrant entitles Trilon Dominion to purchase
100,000 shares of the Company's authorized but unissued common stock at an
exercise price of $1.31 per share, subject to adjustment to protect against
dilution. The warrant is exercisable immediately and expires on September 30,
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, 1997. 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, 1997, and it expires on September 30, 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.
A summary of option and warrant activity is as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
--------------------------------
1996 1995
--------------------------------
<S> <C> <C>
Granted 595,000 640,000
Exercised 11,500 --
Terminated 1,801,770 165,929
Outstanding 4,388,632 5,606,902
Available for grant 1,262,000 268,000
Exercise price of options outstanding $0.50-$15.63 $0.63-$16.75
</TABLE>
The options and warrants outstanding on November 30 expire as follows:
<TABLE>
<CAPTION>
Fiscal Year
- -----------
<S> <C>
1997 481,000
1998 26,032
1999 50,000
2000 200,000
2001 225,000
2002 2,870,600
2003 21,000
2005 215,000
2006 300,000
</TABLE>
29
<PAGE> 31
<TABLE>
<S> <C>
---------------
4,388,632
===============
</TABLE>
At November 30, 1996, 4,388,632, shares were reserved for the issuance of
options and warrants.
9. RELATED PARTY TRANSACTIONS
On November 30, 1996, the Company had short-term debt outstanding to Trilon
Dominion Partners, LLC ("Trilon Dominion") of $1,500,000 plus accrued interest
(see Note 4). In addition, Trilon Dominion owned 9,381,430 shares, or 72.8%, of
the Company's common stock and warrants entitling it to purchase an additional
225,000 shares (before dilution adjustments). Mr. Ronald Cantwell, who is
President of Trilon Dominion, has been a director and Chairman of the Board of
the Company since December 6, 1996.
The Company has been informed that Trilon Dominion also owns 3,600,807 shares of
the common stock of Advanced Materials or 34% of the total shares outstanding on
November 30, 1996, and has the right to acquire an additional 965,000 such
shares upon exercise of a warrant. Since January 24, 1997, Mr. Cantwell has been
a director of Advanced Materials. During 1996, the Company purchased $605,000 of
goods and services and paid rents of $59,000 to Advanced Materials.
10. 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 were as follows:
<TABLE>
<CAPTION>
Years Ended November 30,
----------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
Net Sales $888,000 $1,347,000
</TABLE>
The effect on the results of operations from the sale of the WMP division was as
follows:
<TABLE>
<CAPTION>
Years Ended November 30,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Income (loss) from operations of $ 18,000 $ (681,000)
discontinued business
Loss on disposal of discontinued (24,000)
business, net of estimated operating
results of $67,000 during phase-out
period
Gain from reversal of excess accrued
expenses related to disposal of
discontinued business 33,000
Additional expenses related to disposal
of discontinued business (8,000)
-------------- --------------
Total $ 19,000 $ (681,000)
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
30
<PAGE> 32
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS
Directors are elected annually and hold office until the next annual meeting of
shareholders or until their respective successors are elected and qualify.
RONALD W. CANTWELL (age 53) has been a Director and Chairman of the Board of the
Company since December 1996, and has served as President of Trilon Dominion
Partners, LLC since its inception in June 1995. Prior to joining Trilon
Dominion, Mr. Cantwell served as the President of The Catalyst Group, Inc. where
he successfully executed a variety of merchant banking activities and managed
the operations of a diverse mix of utility assets. Approximately $2 billion of
these assets were successfully divested under Mr. Cantwell's direction. In
addition, he has been involved in advising numerous mergers and acquisitions and
restructuring matters for the Edper Group, the principal investor in Catalyst.
Prior to joining Catalyst, Mr. Cantwell spent 19 years in the practice of public
accounting, most recently with Ernst & Young where he was a tax partner and
headed the Dallas-based Mergers and Acquisitions practice. While at Ernst &
Young, Mr. Cantwell was instrumental in structuring mergers, acquisitions,
recapitalizations, and dispositions on behalf of several Fortune 500 and many of
the Southwest's most acquistion-oriented entities. Mr. Cantwell is a Certified
Public Accountant. Since January 24, 1997, Mr. Cantwell has been a director of
Advanced Materials.
JOHN VAN EGMOND (age 47) has been President and Chief Executive Officer and a
Director of the Company since December 1996. Mr. Van Egmond is affiliated with
Trilon Dominion Partners, LLC and has been President and Chief Executive Officer
of Century Power Corporation since 1989. Prior to 1989, Mr. Van Egmond was Vice
President and Controller of Century. Prior to joining Century, Mr. Van Egmond
held various financial positions from 1972 to 1984 with Tucson Electric Power
Company. Mr. Van Egmond is a Certified Public Accountant and holds a B.S. from
Montana State University.
At January 31, 1997, there were three vacancies on the Board of Directors.
OTHER EXECUTIVE OFFICERS
JAMES W. KLINGLER (age 49) has been Vice President, Secretary and Chief
Financial Officer since October, 1994. Previously, Mr. Klingler was Vice
President, Controller of the Optical Division of Allergan, Inc. Prior to joining
Allergan, Mr. Klingler held various financial positions with Pepsico, Inc.,
Schering-Plough Corp., and Continental Group, Inc. Mr. Klingler is a Certified
Management Accountant and holds a B.A. from Ohio State University, and an M.B.A.
from Columbia University.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent of the Company's Common Stock, to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than ten percent beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the Company
and written representations from the Company's executive officers and directors,
the Company believes that during the fiscal year ended November 30, 1996 all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than ten percent beneficial owners were complied with,
except that Mr. John Hunter, a director of the Company from August 8, 1996 to
November 18, 1996, inadvertently was one month late in filing his Initial Report
of Ownership on Form 3.
31
<PAGE> 33
ITEM 10. EXECUTIVE COMPENSATION.
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal year
ended November 30, 1996 of the person who was, until his resignation on
September 9, 1996, the chief executive officer of the Company. After Mr.
Scibelli's resignation, Mr. William Hopke, a director, served as interim chief
executive officer until December, 1996, when Mr. John Van Egmond was elected as
president and chief executive officer of the Company. Neither Mr. Hopke nor Mr.
Van Egmond received any compensation from the Company for their services. No
other executive officer of the Company had salary and bonus in excess of
$100,000 during the fiscal year ended November 30, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------------------------------------------------
AWARDS PAYOUTS
---------------------------------------------------------------------------------
Securities
Other Under-
Annual Restricted Lying All Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (I)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stephen P. 1996 $131,058 --- --- --- 2,000 --- $57,398 (1)
Scibelli, Jr.
Chief 1995 $175,000 --- --- --- 200,000 --- $25,565
Executive
Officer and 1994 $175,000 --- --- --- 200,000 --- $25,863
President
</TABLE>
(1) Of the amount shown for 1996, $18,314 represents one-half of
the premium paid by the Company during fiscal 1996 on an insurance policy with
present death benefits of $1,263,000 on the life of Mr. Scibelli, of which Mr.
Scibelli is the beneficiary. The other one-half of the premium is paid by
Advanced Materials, pursuant to the Asset Purchase Agreement dated November 30,
1990. The remaining $39,084 represent $31,848 in accrued vacation paid on Mr.
Scibelli's resignation and $7,236 in medical payments not covered by the
Company's group medical insurance plan in which Mr. Scibelli participated.
Under Mr. Scibelli's employment contract described below,
Advanced Materials has purchased an automobile for use by Mr. Scibelli for which
it pays the operating and maintenance costs.
OPTION GRANTS
Shown below is information on grants of stock options pursuant to the Stock
Option Plans and otherwise during the fiscal year ended November 30, 1996, to
the named executive officer reflected in the Summary Compensation Table above.
No stock appreciation rights were granted under the Stock Option Plans or
otherwise.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
OPTIONS GRANTED TO
EMPLOYEES IN FISCAL
OPTIONS YEAR EXERCISE PRICE EXPIRATION
NAME GRANTED (PER SHARE) DATE
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen P. Scibelli, Jr. 2,000 --- $1.75 9/9/97
</TABLE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to the number of shares of the Company's
Common Stock acquired upon exercise of options, the value realized therefor, the
number of unexercised options at November 30, 1996 and the value of unexercised
in-the-money options at November 30, 1996 (based on a closing price of
32
<PAGE> 34
$1.25) for the named executive officer in the Summary Compensation Table above.
The named officer did not hold any stock appreciation rights during fiscal 1996.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS OF NOVEMBER 30, 1996 OPTIONS AT NOVEMBER 30, 1996
------------------------------- -------------------------------------
Shares Acquired on Value
Name Exercise (Number) Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ -------------------- ------------- --------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen P. Scibelli, Jr. 0 $ --- 410,000 --- $125,000 $ ---
</TABLE>
COMPENSATION OF DIRECTORS
All directors are reimbursed for out-of-pocket expenses in connection with
attendance at Board of Directors' meetings and receive $500 for each meeting
attended plus annual non-qualified stock options to purchase 2,000 shares of the
Company's Common Stock, which options are granted every June 30 at fair market
value pursuant to the Company's Stock Option Plans. In addition, on September
16, 1994 and on April 17, 1995 each of the non-management directors was granted
an option to purchase 15,000 shares of the Company's Common Stock (See Note 8.).
EMPLOYMENT AGREEMENTS
In 1994, the Company entered into an employment agreement with Mr. Scibelli as
Chief Executive Officer for a term of two years from July 1994, to July 1996,
and entered into a consulting agreement with Mr. Scibelli for the one year
thereafter. Compensation during the employment period was $175,000 per annum;
compensation during the consulting period was $50,000. The employment agreement
also provided for the grant of an option covering 200,000 shares with an
exercise price of $2.63, being fair market value on the effective date of the
contract. In August, 1995 the Company and Mr. Scibelli agreed to restate the
employment agreement to extend Mr. Scibelli's employment period to July 1997 and
eliminate the previously agreed to consulting period. The restated agreement
provides for the grant of an option covering 200,000 shares with an exercise
price of $0.63, being the fair market value on the effective date of the
contract. On September 9, 1996, Mr. Scibelli resigned as Chief Executive Officer
and a director of the Company.
On October 3, 1994, the Company entered into an employment agreement with Mr.
Klingler as Chief Financial Officer, for a term of one year with a provision for
one-year renewals. Compensation during the year ended November 30, 1996 was
$99,000 per annum. Pursuant to the contract Mr. Klingler was granted an option
covering 50,000 shares with an exercise price of $2.00, being the fair market
value on the effective date of the agreement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL SHAREHOLDERS
The following table sets forth as of January 31, 1997, the identity of each
person known to the Company to be the beneficial owner of more than 5% of the
Company's Common Stock and the respective beneficial ownerships of those
persons.
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------- --------------------------------------
Name and Address of Beneficial Amount and Nature of Beneficial
Owner Ownership of Common Stock Percent of Class of Common Stock
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Trilon Dominion Partners, LLC (1)
245 Park Avenue, 28th Floor
New York, NY 10167 9,416,430 72.75%
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
- ------------------
(1) In addition, Trilon Dominion Partners, LLC owns three warrants
entitling it to purchase 225,000 shares of the Company's common stock
as shown below, and a warrant entitling it to purchase 25,000 shares
if the Company does not pay the principal and interest due on June
30, 1997 (see Note 8).
<TABLE>
<CAPTION>
Exercise Date Expiration Date Shares
-------------- --------------- --------
<S> <C> <C>
January 5, 1996 January 5, 2001 100,000
July 1, 1996 January 5, 2001 25,000
September 30, 1996 September 30, 2001 100,000
</TABLE>
33
<PAGE> 35
DIRECTORS AND MANAGEMENT
The following table sets forth certain information with respect to all directors
and executive officers of the Company as a group at January 31, 1997, including
the number of shares of Common Stock beneficially owned.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF PERCENT OF CLASS OF
NAME OR IDENTIFY OF GROUP COMMON STOCK COMMON STOCK
- ------------------------------------------ ------------------------------- ----------------------
<S> <C> <C>
All Directors and Executive Officers of 113,333 (1) Less than 1%
the Company as a Group (3 persons)
</TABLE>
- ------------------
(1) Includes 98,333 shares which may be issued upon exercise of options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On November 30, 1996, the Company had short-term debt outstanding to Trilon
Dominion Partners, LLC ("Trilon Dominion") of $1,500,000 plus accrued interest
(see Note 4). In addition, Trilon Dominion owned 9,381,430 shares, or 72.8%, of
the Company's common stock and warrants entitling it to purchase an additional
225,000 shares (before dilution adjustments). Mr. Ronald Cantwell, who is
President of Trilon Dominion, has been a director and Chairman of the Board of
the Company since December 6, 1996.
The Company has been informed that Trilon Dominion also owns 3,600,807 shares of
the common stock of Advanced Materials, or 34% of the total shares outstanding
on November 30, 1996, and has the right to acquire an additional 965,000 such
shares upon exercise of a warrant. Since January 24, 1997, Mr. Cantwell has been
a director of Advanced Materials. During 1996, the Company purchased $605,000 of
goods and services and paid rents of $59,000 to Advanced Materials.
34
<PAGE> 36
<PAGE> 37
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
<TABLE>
<S> <C>
10.1 Settlement Agreement dated November 23, 1993 between the Company
and Wilshire Advanced Materials, Inc. ("Advanced Materials") (1)
10.2 Asset Purchase Agreement dated November 23, 1993, between
the Company and Advanced Materials (forms of bill of sale and
assignment, secured promissory note, amended and restated
secured subordinated promissory note, and amendment to security
agreement attached thereto) (1)
10.2 Asset Purchase Agreement dated November 23, 1993, between the
Company and Advanced Materials (forms of bill of sale and
assignment, secured promissory note, amended and restated
secured subordinated promissory note, and amendment to security
agreement attached thereto (1)
10.3 Maturity Date Extension to Secured Promissory Note dated January
24, 1994 between the Company and Advanced Materials (1)
10.4 Amendment to Manufacturers Sales Representative Agreement dated
January 27, 1994 between the Company and Professional Health
Sales, Inc. (1)
10.5 Mutual Release to terminate Joint Venture Agreement dated August
2, 1993 between the Company and Tillotson Healthcare Corporation
(1)
10.6 Release by the Company to terminate License and Sales Agreement
dated August 1, 1993 between the Company and Tyndale
Plains-Hunter, Ltd. ("TPH") (1)
10.7 Release by the Company to terminate Evaluation Agreement dated
August 19, 1993 between the Company and TPH (1)
10.8 Release by the TPH to terminate License and Sales Agreement
dated August 23, 1993 between the Company and TPH (1)
10.9 Release by the TPH to terminate Evaluation Agreement dated
August 23, 1993 between the Company and TPH (1)
10.10 Product Development and License Agreement dated May 25, 1993
between the Company and Innovative Technologies Limited ("IT")
(1)
10.11 Product Development and License Agreement for Gloves dated June
20, 1993 between the Company and IT (1)
10.12 Amendment to Joint Venture Agreement dated January 5, 1994
between the Company and Intelligent Pharmaceuticals Corporation
(1)
10.13 Lease Agreement dated January 14, 1993 among the Company,
Ridgecrest Properties, R and B Properties and Hindry West
Development (1)
10.14 Lease Amendment dated June 30, 1993 among the Company,
Ridgecrest Properties, R and B Properties and Hindry West
Development (1)
10.15 International Distribution Agreement dated July 16, 1993 between
WTP and B&R Consulting Limited, Inc. (1)
10.16 International Distribution Agreement dated August 11, 1993
between WTP and Dagal, Inc. (1)
10.17 International Distribution Agreement dated January 3, 1994
between WTP and Windsor Group, Ltd. (1)
</TABLE>
35
<PAGE> 38
<TABLE>
<S> <C>
10.18 First Amendment to Credit and Security Agreement dated January
11, 1994 between the Company and City National Bank ("CNB") (1)
10.19 Revolving Credit Note dated January 11, 1994 between the Company
and CNB (1)
10.20 Equipment Acquisition Note dated January 11, 1994 between the
Company and CNB (1)
10.21 Credit Agreement dated May 13, 1994 between the Company and
Dominion (2)
10.22 Warrant to Purchase Common Stock of Company dated May 13, 1994
(3)
10.23 Security Agreement dated May 13, 1994 between the Registrant and
Dominion (4)
10.24 Promissory Note in the principal amount of $5,000,000 dated May
13, 1994 made by the Registrant to the order of Dominion (5)
10.25 Fairness Opinion dated November 24, 1993 regarding the sale by
the Company of certain assets related to WMP's OEM private-label
business to Advanced Materials prepared for the Company by
Laidlaw Holdings, Inc. (6)
10.26 Settlement Agreement and Release dated November 1, 1994 between
Coating Sciences, Inc. and the Registrant. (7)
10.27 Settlement Agreement dated May 12, 1994 between Time Release
Sciences, Inc. and the Registrant. (7)
10.28 Amendment thereto dated September 17, 1994. (7)
10.29 Agreement dated as of January 16, 1995 among Medical Engineering
Corporation, Wilshire Advanced Materials, Inc. and the
Registrant, concerning breast implant claims. (7)
10.30 Stipulation of Partial Settlement dated as of October 26, 1994
in re Wilshire Technologies Securities Litigation Master File
94-0400-B (AJB), United States District Court for the Southern
District of California among the Registrant and the
Representative Plaintiffs named therein, exclusive of the
exhibits thereto. (7)
10.31 Articles of Incorporation (8)
10.32 Credit Agreement dated November 18, 1994 between the Registrant
and Dominion Capital, Inc., including form of Warrant and form
of Note. (9)
10.33 First Amendment, dated December 30, 1994 to such Credit
Agreement, including form of Promissory Note. (10)
10.34 Second Amendment, dated February 14, 1995, to such Credit
Agreement, including form of Promissory Note. (11)
10.35 1995 Stock Option Plan (12)
10.36 Form of Non-Qualified Stock Option Agreement. (13)
10.37 Third Amendment, dated May 23, 1995, to the Credit Agreement
dated November 18, 1994 between the Registrant and Dominion
Capital, Inc. (14)
10.38 Agreement between the Registrant and Dominion Capital, Inc.
dated June 29, 1995, on payment of interest. (15)
</TABLE>
36
<PAGE> 39
<TABLE>
<S> <C>
10.39 Second Amendment dated May 17, 1995, to the Settlement Agreement
dated May 12, 1994 between Time Release Sciences, Inc. and the
Registrant. (16)
10.40 Letter Agreement dated June 29, 1995 between Dominion Capital,
Inc. ("Dominion") and the Registrant notifying Registrant of
Dominion's intent to transfer certain securities to Venture
Capital Equities, LLC (the "LLC"). (17)
10.41 Agreement dated June 30, 1995 among Dominion, the LLC and the
Registrant referred to in the preceding Letter Agreement with
the following Exhibits:
(a) Lender Assignment and Assumption Agreement
dated June 30, 1995.
(b) Grid Promissory Note dated May 23, 1995.
(c) Assignment of Warrant by Dominion to the LLC. (18)
10.42 Amendment dated June 30, 1995 to Warrant Agreement dated May 13,
1994 between Wilshire and Dominion. (19)
10.43 Advice by Dominion and the LLC to the Registrant of the transfer
of the securities by Dominion to the LLC and of the proposed
name change of the LLC to Trilon Dominion Partners, LLC. (20)
10.44 Bylaw Amendment, effective July 31, 1995, fixing exact number of
directors at five. (21)
10.45 Registrant's Bylaws as in effect on October 9, 1995. (22)
10.46 Letter dated May 12, 1995 by Ministry of Health of the Republic
of Mexico granting Sanitary Registration No. 245M95 SSA for the
appetite suppressant ("TrimPatch(TM)"). (23)
10.47 English translation of Exhibit 10.7. (24)
10.48 Employment Agreement dated August 31, 1995 and effective April
17, 1995 between the Registrant and Mr. Stephen P. Scibelli, Jr.
(25)
10.49 Amendment to Asset Purchase Agreement, dated May 19, 1995
between the Registrant and Wilshire Advanced Materials, Inc.
(26)
10.50 Form of stock option granted on September 16, 1994 to directors
Black, Davis, Landry and Widder. (27)
10.51 Form of stock option granted on December 6, 1994 to director
William J. Hopke. (28)
10.52 Form of stock option granted on April 17, 1995 to directors
Black, Davis, Hopke, Landry and Widder. (29)
10.53 Form of stock option granted on September 16, 1994 to Mr.
Stephen P. Scibelli, Jr. (30)
10.54 Form of stock option granted on April 17, 1995 to Mr. Stephen P.
Scibelli, Jr. (31)
10.55 Technology and Peripheral Technology Rights Agreement dated June
30, 1995, among the Registrant, James A. Eisenstock, and Mikki
Rossin, relating to Bloodstopper products. (32)
10.56 Fourth Amendment, dated September 1, 1995, to the Credit
Agreement dated November 18, 1994 between the Registrant and
Trilon Dominion Partners, LLC. (33)
10.57 Industrial Sublease Agreement dated August 31, 1995 between the
Registrant and Advanced Materials, Inc. (34)
</TABLE>
37
<PAGE> 40
<TABLE>
<S> <C>
10.58 Fifth Amendment dated as of November 1, 1995 to the Credit
Agreement dated November 18, 1994 (the "Credit Agreement")
between the Registrant and Trilon Dominion Partners LLC
("Trilon"). (35)
10.59 Sixth Amendment dated as of December 5, 1995 to the
above-mentioned Credit Agreement. (36)
10.60 Exchange Agreement dated as of January 5, 1996 between the
Registrant and Trilon. (37)
10.61 Credit Agreement (the "Trilon Agreement") dated January 5, 1996
between the Registrant and Trilon, exclusive of certain
schedules. (38)
10.62 Grid Promissory Note for not to exceed $1,000,000 to evidence
borrowings under the Trilon Agreement. (39)
10.63 Amendment No. 1 dated January 5, 1996 to Security Agreement
dated May 13, 1995 which secures borrowings under the Trilon
Agreement. (40)
10.64 Warrant dated January 5, 1996 to purchase 100,000 shares of the
Registrant's Common Stock, issued to Trilon pursuant to the
Trilon Agreement. (41)
10.65 Springing Warrant dated January 5, 1996 to purchase 25,000
shares of the Registrant's Common Stock, issued to Trilon
pursuant to the Trilon Agreement. (42)
10.66 Consulting Agreement dated January 5, 1996 between the
Registrant and Trilon. (43)
10.67 Form of Stock Option granted on December 12, 1995 to Mr. James
W. Klingler. (44)
10.68 Agreement of Purchase and Sale of Joint Venture Interest and
Terminating Joint Venture, between the Company and Intelligent
Pharmaceuticals Corporation, dated November 1, 1995. (45)
10.69 Employment Agreement, dated October 3, 1994 between the Company
and James W. Klingler. (45)
10.70 Employment Agreement, dated August 15, 1995 between the Company
and David R. Byck. (45)
10.71 Bylaw Amendment adopted February 19, 1996. (45)
10.72 Bylaws as in effect on February 20, 1996. (45)
10.73 Principal/Agent Agreement dated March 13, 1996 between
Intelligent Pharmaceuticals Corporation and the Registrant. (46)
10.74 Manufacturing and Supply Agreement dated April 11, 1996, between
Advanced Barrier Technologies, Inc., and the Registrant. (47)
10.75 Agreement dated April 15, 1996, between Dagal, Inc., and the
Registrant. (47)
10.76 Agreement related to Wound Care Products, dated April 18, 1996,
between Innovative Technologies Ltd. and the Registrant. (47)
10.77 Agreement related to Gloves, dated April 18, 1996, between
Innovative Technologies Ltd. and the Registrant. (47)
</TABLE>
38
<PAGE> 41
10.78 Finder Agreement dated May 1, 1996, between Innovative Research
Associates, inc., and the Registrant. (47)
10.79 Product Rights Transfer Agreement, dated May 24, 1996, between
Advanced Materials, inc., and the Registrant. (47)
10.80 Release Agreement dated July 3, 1996, between Advanced
Materials, Inc., and the Registrant. (47)
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. (47)
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. (47)
10.83 Addendum Agreement dated July 26, 1996 to the Manufacturing and
Supply Agreement dated April 11, 1996 between Advanced Barrier
Technologies, Inc. and the Registrant. (48)
10.84 Bailment Agreement dated September 6, 1996 between Coastline de
Mexico S.A. de C.V., Advanced Barrier Technologies, Inc. and the
Registrant. (48)
10.85 Offer of Settlement of Wilshire Technologies, Inc. dated August
5, 1996 to the U.S. Securities and Exchange Commission. (48)
10.86 Order Instituting Proceedings Pursuant to Section 21C of the
Securities Exchange Act of 1934, Making Findings and Imposing a
Cease and desist Order, dated September 24, 1996 entered by the
U.S. Securities and Exchange Commission against the Registrant.
(48)
10.87 Agreement of Purchase and Sale of TrimPatch(TM) Business and
Assets dated September 30, 1996 between Intelligent
Pharmaceuticals Corporation and the Registrant. (48)
10.88 Restated Articles of Incorporation filed in the office of the
Secretary of State of California on May 24, 1996. (49)
10.89 Certificate of Amendment of Articles of Incorporation filed in
the office of the Secretary of State of California on June 10,
1996. (50)
10.90 Second Amendment dated September 30, 1996 to Credit Agreement
and Grid Promissory Note dated January 5, 1996, between Trilon
Dominion Partners, LLC, and the Registrant.
21 Subsidiaries of the Registrant. (7)
99 Risks and Uncertainties in Forward-Looking Statements
----------------------
NOTE: Certain of the Exhibits listed above are incorporated herein by
reference to other documents previously filed with the
Commission as follows:
<TABLE>
<CAPTION>
Exhibit
Document to which Designation
Note Cross Reference in such
Reference is Made Document
--------- ----------------- -------------
<S> <C> <C>
1 Incorporated to the identically
numbered Exhibit to Form 10-KSB
for fiscal 1993
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
Exhibit
Document to which Designation
Note Cross Reference in such
Reference is Made Document
--------- ------------------ ------------
<S> <C> <C>
2 Form 8-K dated May 23, 1994 1
(the "1994 8-K")
3 1994 8-K 4
4 1994 8-K 2
5 1994 8-K 3
6 Form 10-KSB for 28
fiscal 1993
7 Incorporated to the
identically numbered
Exhibit in Form 10-KSB
for fiscal 1994
(the "1994 KSB")
8 1994 KSB 3(i)
9 1994 KSB 4(a)
10 1994 KSB 4(b)
11 1994 KSB 4(c)
12 1994 KSB 4(d)
13 1994 KSB 4(e)
14 Form 10-QSB dated 10.1
July 12, 1995
(the "July QSB")
15 July QSB 10.2
16 July QSB 10.3
17 Form 10-QSB dated 10.1
October 10, 1995
(the "October QSB")
18 October QSB 10.2
19 Form 8-K dated 2
August 7, 1995
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
Exhibit
Document to which Designation
Note Cross Reference in such
Reference is Made Document
--------- ------------------ ------------
<S> <C> <C>
20 October QSB 10.4
21 October QSB 10.5
22 October QSB 10.6
23 October QSB 10.7
24 October QSB 10.8
25 October QSB 10.9
26 October QSB 10.10
27 October QSB 10.11
28 October QSB 10.12
29 October QSB 10.13
30 October QSB 10.14
31 October QSB 10.15
32 October QSB 10.16
33 October QSB 10.17
34 October QSB 10.18
35 Form 8-K dated 1
January 10, 1996
(the "January, 1996 8-K")
36 January, 1996 8-K 2
37 January, 1996 8-K 3
38 January, 1996 8-K 4
39 January, 1996 8-K 5
40 January, 1996 8-K 6
41 January, 1996 8-K 7
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
Exhibit
Document to which Designation
Note Cross Reference in such
Reference is Made Document
--------- ------------------ ------------
<S> <C> <C>
42 January, 1996 8-K 8
43 January, 1996 8-K 9
44 January, 1996 8-K 10
45 Incorporated to the
identically numbered Exhibit
in Form 10-KSB for fiscal 1995
46 Incorporated to the
identically numbered Exhibit
in Form 10-QSB dated April 10, 1996
47 Incorporated to the
identically numbered Exhibit
in Form 10-QSB dated July 10, 1996
48 Incorporated to the
identically numbered Exhibit
in Form 10-QSB dated
October 11, 1996
49 Form 8-K dated May 24, 1996 3 (i) (a)
(the "May, 1996 8-K")
50 May, 1996 8-K 3 (i) (b)
</TABLE>
(B) REPORTS ON FORM 8-K.
None
42
<PAGE> 45
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WILSHIRE TECHNOLOGIES, INC.
Dated: February 24, 1997 By: /s/ John Van Egmond
---------------------
John Van Egmond,
President and Chief Executive
Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Ronald W. Cantwell Director and
- -------------------------------------- Chairman of the Board February 24, 1997
Ronald W. Cantwell
Director, and
/s/ John Van Egmond President and Chief Executive Officer
- -------------------------------------- (Principal Executive Officer) February 24, 1997
John Van Egmond
/s/ James W. Klingler Chief Financial Officer,
- -------------------------------------- Treasurer and Secretary February 24, 1997
James W. Klingler (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
43
<PAGE> 46
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Sequential Page No.
---------- ------------------
<S> <C> <C>
10.1 Settlement Agreement dated November 23, 1993 between the
Company and Wilshire Advanced Materials, Inc. ("Advanced
Materials") (1)
10.2 Asset Purchase Agreement dated November 23, 1993, between the
Company and Advanced Materials (forms of bill of sale and
assignment, secured promissory note, amended and restated
secured subordinated promissory note, and amendment to
security reement attached thereto) (1)
10.3 Maturity Date Extension to Secured Promissory Note dated
January 24, 1994 between the Company and Advanced
Materials (1)
10.4 Amendment to Manufacturers Sales Representative Agreement
dated January 27, 1994 between the Company and Professional
Health Sales, Inc. (1)
10.5 Mutual Release to terminate Joint Venture Agreement dated
August 2, 1993 between the Company and Tillotson Healthcare
Corporation (1)
10.6 Release by the Company to terminate License and Sales
Agreement dated August 1, 1993 between the Company and
Tyndale Plains-Hunter, Ltd. ("TPH") (1)
10.7 Release by the Company to terminate Evaluation Agreement dated
August 19, 1993 between the Company and TPH (1)
10.8 Release by the TPH to terminate License and Sales Agreement
dated August 23, 1993 between the Company and TPH (1)
10.9 Release by the TPH to terminate Evaluation Agreement dated
August 23, 1993 between the Company and TPH (1)
10.10 Product Development and License Agreement dated May 25, 1993
between the Company and Innovative Technologies Limited
("IT") (1)
10.11 Product Development and License Agreement for Gloves dated
June 20, 1993 between the Company and IT (1)
10.12 Amendment to Joint Venture Agreement dated January 5, 1994
between the Company and Intelligent Pharmaceuticals
Corporation (1)
10.13 Lease Agreement dated January 14, 1993 among the Company,
Ridgecrest Properties, R and B Properties and Hindry West
Development (1)
10.14 Lease Amendment dated June 30, 1993 among the Company,
Ridgecrest Properties, R and B Properties and Hindry West
Development (1)
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
Exhibit No. Sequential Page No.
---------- ------------------
<S> <C> <C>
10.15 International Distribution Agreement dated July 16, 1993
between WTP and B&R Consulting Limited, Inc. (1)
10.16 International Distribution Agreement dated August 11, 1993
between WTP and Dagal, Inc. (1)
10.17 International Distribution Agreement dated January 3, 1994
between WTP and Windsor Group, Ltd. (1)
10.18 First Amendment to Credit and Security Agreement dated
January 11, 1994 between the Company and City National Bank
("CNB") (1)
10.19 Revolving Credit Note dated January 11, 1994 between the
Company and CNB (1)
10.20 Equipment Acquisition Note dated January 11, 1994 between the
Company and CNB (1)
10.21 Credit Agreement dated May 13, 1994 between the Company and
Dominion (2)
10.22 Warrant to Purchase Common Stock of Company dated
May 13, 1994 (3)
10.23 Security Agreement dated May 13, 1994 between the Registrant
and Dominion (4)
10.24 Promissory Note in the principal amount of $5,000,000 dated
May 13, 1994 made by the Registrant to the order of Dominion
(5)
10.25 Fairness Opinion dated November 24, 1993 regarding the sale by
the Company of certain assets related to WMP's OEM
private-label business to Advanced Materials prepared for the
Company by Laidlaw Holdings, Inc. (6)
10.26 Settlement Agreement and Release dated November 1, 1994
between Coating Sciences, Inc. and the Registrant. (7)
10.27 Settlement Agreement dated May 12, 1994 between Time Release
Sciences, Inc. and the Registrant. (7)
10.28 Amendment thereto dated September 17, 1994. (7)
10.29 Agreement dated as of January 16, 1995 among Medical
Engineering Corporation, Wilshire Advanced Materials, Inc. and the
Registrant, concerning breast implant claims. (7)
10.30 Stipulation of Partial Settlement dated as of October 26, 1994
in re Wilshire Technologies Securities Litigation Master File
94-0400-B (AJB), United States District Court for the Southern
District of California among the Registrant and the
Representative Plaintiffs named therein, exclusive of the
exhibits thereto. (7)
10.31 Articles of Incorporation (8)
</TABLE>
45
<PAGE> 48
<TABLE>
<CAPTION>
Exhibit No. Sequential Page No.
---------- ------------------
<S> <C> <C>
10.32 Credit Agreement dated November 18, 1994 between the
Registrant and Dominion Capital,Inc., including form of
Warrant and form of Note. (9)
10.33 First Amendment, dated December 30, 1994 to such Credit
Agreement, including form of Promissory Note. (10)
10.34 Second Amendment, dated February 14, 1995, to such Credit
Agreement, including form of Promissory Note. (11)
10.35 1995 Stock Option Plan (12)
10.36 Form of Non-Qualified Stock Option Agreement. (13)
10.37 Third Amendment, dated May 23, 1995, to the Credit Agreement
dated November 18, 1994 between the Registrant and
Dominion Capital, Inc. (14)
10.38 Agreement between the Registrant and Dominion Capital, Inc.
dated June 29, 1995, on payment of interest. (15)
10.39 Second Amendment dated May 17, 1995, to the Settlement
Agreement dated May 12, 1994 between Time Release Sciences,
Inc. and the Registrant. (16)
10.40 Letter Agreement dated June 29, 1995 between Dominion Capital,
Inc. ("Dominion") and the Registrant notifying Registrant of
Dominion's intent to transfer certain securities to Venture
Capital Equities, LLC (the "LLC"). (17)
10.41 Agreement dated June 30, 1995 among Dominion, the LLC and the
Registrant referred to in the preceding Letter Agreement with
the following Exhibits:
(a) Lender Assignment and Assumption Agreement dated
June 30, 1995.
(b) Grid Promissory Note dated May 23, 1995.
(c) Assignment of Warrant by Dominion to the LLC. (18)
10.42 Amendment dated June 30, 1995 to Warrant Agreement dated May
13, 1994 between Wilshire and Dominion. (19)
10.43 Advice by Dominion and the LLC to the Registrant of the
transfer of the securities by Dominion to the LLC and of the
proposed name change of the LLC to Trilon Dominion Partners,
LLC. (20)
10.44 Bylaw Amendment, effective July 31, 1995, fixing exact number
of directors at five. (21)
10.45 Registrant's Bylaws as in effect on October 9, 1995. (22)
10.46 Letter dated May 12, 1995 by Ministry of Health of the
Republic of Mexico granting Sanitary Registration No. 245M95
SSA for the appetite suppressant ("TrimPatch(TM)"). (23)
10.47 English translation of Exhibit 10.7. (24)
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
Exhibit No. Sequential Page No.
---------- ------------------
<S> <C> <C>
10.48 Employment Agreement dated August 31, 1995 and effective April
17, 1995 between the Registrant and Mr. Stephen P. Scibelli,
Jr. (25)
10.49 Amendment to Asset Purchase Agreement, dated May 19, 1995
between the Registrant and Wilshire Advanced Materials, Inc.
(26)
10.50 Form of stock option granted on September 16, 1994 to
directors Black, Davis, Landry and Widder. (27)
10.51 Form of stock option granted on December 6, 1994 to director
William J. Hopke. (28)
10.52 Form of stock option granted on April 17, 1995 to directors
Black, Davis, Hopke, Landry and Widder. (29)
10.53 Form of stock option granted on September 16, 1994 to Mr.
Stephen P. Scibelli, Jr. (30)
10.54 Form of stock option granted on April 17, 1995 to Mr. Stephen
P. Scibelli, Jr. (31)
10.55 Technology and Peripheral Technology Rights Agreement dated
June 30, 1995, among the Registrant, James A. Eisenstock, and
Mikki Rossin, relating to Bloodstopper products. (32)
10.56 Fourth Amendment, dated September 1, 1995, to the Credit
Agreement dated November 18, 1994 between the Registrant and
Trilon Dominion Partners, LLC. (33)
10.57 Industrial Sublease Agreement dated August 31, 1995 between
the Registrant and Advanced Materials, Inc. (34)
10.58 Fifth Amendment dated as of November 1, 1995 to the Credit
Agreement dated November 18, 1994 (the "Credit Agreement")
between the Registrant and Trilon Dominion Partners LLC
("Trilon"). (35)
10.59 Sixth Amendment dated as of December 5, 1995 to the
above-mentioned Credit Agreement. (36)
10.60 Exchange Agreement dated as of January 5, 1996 between the
Registrant and Trilon. (37)
10.61 Credit Agreement (the "Trilon Agreement") dated January 5,
1996 between the Registrant and Trilon, exclusive of certain
schedules. (38)
10.62 Grid Promissory Note for not to exceed $1,000,000 to evidence
borrowings under the Trilon Agreement. (39)
10.63 Amendment No. 1 dated January 5, 1996 to Security Agreement
dated May 13, 1995 which secures borrowings under the Trilon
Agreement. (40)
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
Exhibit No. Sequential Page No.
---------- ------------------
<S> <C> <C>
10.64 Warrant dated January 5, 1996 to purchase 100,000 shares of
the Registrant's Common Stock, issued to Trilon pursuant to
the Trilon Agreement. (41)
10.65 Springing Warrant dated January 5, 1996 to purchase 25,000
shares of the Registrant's Common Stock, issued to Trilon
pursuant to the Trilon Agreement. (42)
10.66 Consulting Agreement dated January 5, 1996 between the
Registrant and Trilon. (43)
10.67 Form of Stock Option granted on December 12, 1995 to Mr. James
W. Klingler. (44)
10.68 Agreement of Purchase and Sale of Joint Venture Interest and
Terminating Joint Venture, between the Company and Intelligent
Pharmaceuticals Corporation, dated November 1, 1995. (45)
10.69 Employment Agreement, dated October 3, 1994 between the
Company and James W. Klingler. (45)
10.70 Employment Agreement, dated August 15, 1995 between the
Company and David R. Byck. (45)
10.71 Bylaw Amendment adopted February 19, 1996. (45)
10.72 Bylaws as in effect on February 20, 1996. (45)
10.73 Principal/Agent Agreement dated March 13, 1996 between
Intelligent Pharmaceuticals Corporation and the Registrant.
(46)
10.74 Manufacturing and Supply Agreement dated April 11, 1996,
between Advanced Barrier Technologies, Inc., and the
Registrant. (47)
10.75 Agreement dated April 15, 1996, between Dagal, Inc., and the
Registrant. (47)
10.76 Agreement related to Wound Care Products, dated April 18,
1996, between Innovative Technologies Ltd. and the Registrant.
(47)
10.77 Agreement related to Gloves, dated April 18, 1996, between
Innovative Technologies Ltd. and the Registrant. (47)
10.78 Finder Agreement dated May 1, 1996, between Innovative
Research Associates, inc., and the Registrant. (47)
10.79 Product Rights Transfer Agreement, dated May 24, 1996, between
Advanced Materials, inc., and the Registrant. (47)
10.80 Release Agreement dated July 3, 1996, between Advanced
Materials, Inc., and the Registrant. (47)
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. (47)
</TABLE>
48
<PAGE> 51
<TABLE>
<CAPTION>
Exhibit No. Sequential Page No.
---------- ------------------
<S> <C> <C>
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. (47)
10.83 Addendum Agreement dated July 26, 1996 to the Manufacturing
and Supply Agreement dated April 11, 1996 between Advanced
Barrier Technologies, Inc. and the Registrant. (48)
10.84 Bailment Agreement dated September 6, 1996 between Coastline
de Mexico S.A. de C.V., Advanced Barrier Technologies, Inc.
and the Registrant. (48)
10.85 Offer of Settlement of Wilshire Technologies, Inc. dated
August 5, 1996 to the U.S. Securities and Exchange Commission.
(48)
10.86 Order Instituting Proceedings Pursuant to Section 21C of the
Securities Exchange Act of 1934, Making Findings and Imposing
a Cease and desist Order, dated September 24, 1996 entered by
the U.S. Securities and Exchange Commission against the
Registrant. (48)
10.87 Agreement of Purchase and Sale of TrimPatch(TM) Business and
Assets dated September 30, 1996 between Intelligent
Pharmaceuticals Corporation and the Registrant. (48)
10.88 Restated Articles of Incorporation filed in the office of the
Secretary of State of California on May 24, 1996. (49)
10.89 Certificate of Amendment of Articles of Incorporation filed in
the office of the Secretary of State of California on June 10,
1996. (50)
10.90 Second Amendment dated September 30, 1996 to Credit Agreement
and Grid Promissory Note dated January 5, 1996, between Trilon
Dominion Partners, LLC, and the Registrant.
21 Subsidiaries of the Registrant. (7)
99 Risks and Uncertainties in Forward-Looking Statements.
</TABLE>
NOTE: Certain of the Exhibits listed above are incorporated herein by
reference to other documents previously filed with the Commission as
follows:
<TABLE>
<CAPTION>
Exhibit
Document to which Designation
Note Cross Reference in such
Reference is Made Document
- --------- ------------------ -----------
<S> <C> <C>
1 Incorporated to the
identically numbered Exhibit
to Form 10-KSB for fiscal 1993
2 Form 8-K dated May 23, 1994 1
(the "1994 8-K")
</TABLE>
49
<PAGE> 52
<TABLE>
<CAPTION>
Exhibit
Document to which Designation
Note Cross Reference in such
Reference is Made Document
- --------- ------------------ -----------
<S> <C> <C>
3 1994 8-K 4
4 1994 8-K 2
5 1994 8-K 3
6 Form 10-KSB for 28
fiscal 1993
7 Incorporated to the
identically numbered
Exhibit in Form 10-KSB
for fiscal 1994
(the "1994 KSB")
8 1994 KSB 3(i)
9 1994 KSB 4(a)
10 1994 KSB 4(b)
11 1994 KSB 4(c)
12 1994 KSB 4(d)
13 1994 KSB 4(e)
14 Form 10-QSB dated 10.1
July 12, 1995
(the "July QSB")
15 July QSB 10.2
16 July QSB 10.3
17 Form 10-QSB dated 10.1
October 10, 1995
(the "October QSB")
18 October QSB 10.2
19 Form 8-K dated 2
August 7, 1995
20 October QSB 10.4
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
Exhibit
Document to which Designation
Note Cross Reference in such
Reference is Made Document
- --------- ------------------ -----------
<S> <C> <C>
21 October QSB 10.5
22 October QSB 10.6
23 October QSB 10.7
24 October QSB 10.8
25 October QSB 10.9
26 October QSB 10.10
27 October QSB 10.11
28 October QSB 10.12
29 October QSB 10.13
30 October QSB 10.14
31 October QSB 10.15
32 October QSB 10.16
33 October QSB 10.17
34 October QSB 10.18
35 Form 8-K dated 1
January 10, 1996
(the "January, 1996 8-K")
36 January, 1996 8-K 2
37 January, 1996 8-K 3
38 January, 1996 8-K 4
39 January, 1996 8-K 5
40 January, 1996 8-K 6
41 January, 1996 8-K 7
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
Exhibit
Document to which Designation
Note Cross Reference in such
Reference is Made Document
- --------- ------------------ -----------
<S> <C> <C>
42 January, 1996 8-K 8
43 January, 1996 8-K 9
44 January, 1996 8-K 10
45 Incorporated to the
identically numbered Exhibit
in Form 10-KSB for fiscal 1995
46 Incorporated to the
identically numbered Exhibit
in Form 10-QSB dated April 10,
1996
47 Incorporated to the
identically numbered Exhibit
in Form 10-QSB dated July 10,
1996
48 Incorporated to the
identically numbered Exhibit
in Form 10-QSB dated
October 11, 1996
49 Form 8-K dated May 24, 1996 3 (i) (a)
(the "May, 1996 8-K")
50 May, 1996 8-K 3 (i) (b)
</TABLE>
52
<PAGE> 1
EXHIBIT 10.90
SECOND AMENDMENT TO
CREDIT AGREEMENT
This Second Amendment to the Credit Agreement ("Second Amendment") is
made and entered into as of September 30, 1996, by and between Trilon Dominion
Partners L.L.C. ("Trilon Dominion") and Wilshire Technologies, Inc.
("Borrower").
W I T N E S S E T H
WHEREAS, the parties hereto have entered into a Credit Agreement dated
as of January 5, 1996 (the "Agreement"); and the Amendment to the Credit
Agreement ("Amendment") as of June 30, 1996;
WHEREAS, the parties hereto wish to further amend the Agreement as set
forth in this Second Amendment;
NOW THEREFORE, in consideration of the above premises and the mutual
covenants and agreements herein, the parties agree as follows:
1. Amendment.
1.1 Section 1.1 of the Agreement is hereby amended by replacing the
phrase "not exceeding $1,000,000" in the fifth line of such section with the
phrase "not exceeding $2,000,000, such amounts to be made available upon
completion of the milestones listed in Schedule 1.1" .
1.2 Section 1.4 of the Agreement is hereby amended to read as
follows:
Warrant and Springing Warrant. In consideration of the Lender's providing the
Commitment dated January 5, 1996 and the Commitment as amended by the Second
Amendment dated September 30, 1996, the Borrower hereby agrees to issue to the
Lender (i)two warrants in the form of Exhibit B attached hereto (the "Warrant")
each to purchase 100,000 shares of common stock of the Borrower, no par value
per share (the
<PAGE> 2
"Common Stock"), at an exercise price per share equal to the closing price per
share of Common Stock on January 5, 1996 for the first warrant and on September
30, 1996 for the second warrant, exercisable from the date hereof through
January 5, 2001 for the first warrant and through September 30, 2001 for the
second warrant; and (ii) two springing warrants in the form of Exhibit C
attached hereto (the "Springing Warrant") each to purchase 25,000 shares of
Common Stock, exercisable in the event that the principal and interest on the
Note (as defined in Section 1.5 of the Agreement) shall not be paid in full on
or before June 30, 1996 for the first Springing Warrant and on or before June
30, 1997 for the second Springing Warrant.
1.3 Section 1.5 of the Agreement is hereby amended by replacing the
phrase "not to exceed $1,000,000" in the fifth line of such section with the
phrase "not to exceed $2,000,000, such amounts to be made available upon
completion of the milestones listed in Schedule 1.1" .
1.4 Section 1.7 of the Agreement is hereby amended by replacing the
phrase, "or, (ii) December 31, 1996" in the fifth line of such section with the
phrase, "or, (ii) June 30, 1997".
1.5 Except as specifically set forth in this Amendment the Agreement
and all other documents and agreements entered into in connection with the
Agreement including without limitation the Warrants and Springing Warrants shall
remain unchanged and in full force and effect.
2. Governing Law. Except as otherwise expressly provided, this
Amendment shall be governed and construed in accordance with the laws of the
State of Delaware applicable to contracts made in such State and without regard
to conflicts of law doctrines.
3. Counterparts. This Amendment may be executed in one or more
counterparts and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same agreement and shall become
effective when one or more counterparts have been signed by each party and
delivered to the other party.
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first written above.
THE BORROWER: WILSHIRE TECHNOLOGIES, INC.
By: /s/ James W. Klingler
----------------------------
Name: James W. Klingler
Title: Chief Financial Officer
THE LENDER: TRILON DOMINION PARTNERS, L.L.C.
By: /s/ William P. Gendron
----------------------------
Name: William P. Gendron
Title: Treasurer
<PAGE> 4
SCHEDULE 1.1
<TABLE>
<CAPTION>
DRAWDOWN
MILESTONES AMOUNT
- ---------- ---------
<S> <C>
1) Complete sale of Medical Products $250,000
and Transdermal Products Divisions.
2) Complete development of Second $250,000
Generation glove polymer and issue
production purchase order.
3) Complete agreements and obtain licenses $250,000
and permits necessary to operate the glove
pilot plant in Mexico.
4) Produce gloves in the glove pilot plant in $250,000
Mexico at the rate of 20,000 pairs per month.
</TABLE>
<PAGE> 5
SECOND AMENDMENT TO
GRID PROMISSORY NOTE
This Second Amendment to the Grid Promissory Note ("Note") issued
pursuant to the Credit Agreement ("Second Amendment") is made and entered into
as of September 30, 1996, by and between Trilon Dominion Partners L.L.C.
("Trilon Dominion") and Wilshire Technologies, Inc. ("Borrower").
W I T N E S S E T H
WHEREAS, the parties hereto have entered into a Credit Agreement dated
as of January 5, 1996 (the "Agreement") and the Amendment to the Grid Promissory
Note ("Amendment") as of June 30, 1996: and pursuant to the Agreement Note was
issued.
WHEREAS, the parties hereto wish to further amend the Note as set forth
in this Second Amendment;
NOW THEREFORE, in consideration of the above premises and the mutual
covenants and agreements herein, the parties agree as follows:
1. Amendment.
1.1 Section 1 of the Note is hereby amended by replacing the phrase,
"principal sum of ONE MILLION DOLLARS ($1,000,000):" in the sixth line of such
section with the phrase, "principal sum of TWO MILLION DOLLARS ($2,000,000)".
1.2 Section 4 of the Note is hereby amended by replacing the phrase,
"or (ii) December 31, 1996" in the fifth line of such section with the phrase,
"or (ii) June 30, 1997".
1.3 Except as specifically set forth in this Amendment the Agreement
and all other documents and agreements entered into in connection with the
Agreement shall remain unchanged and in full force and effect.
<PAGE> 6
2. Governing Law. Except as otherwise expressly provided, this
Amendment shall be governed and construed in accordance with the laws of the
State of Delaware applicable to contracts made in such State and without regard
to conflicts of law doctrines.
3. Counterparts. This Amendment may be executed in one or more
counterparts and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same agreement and shall become
effective when one or more counterparts have been signed by each party and
delivered to the other party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first written above.
THE BORROWER: WILSHIRE TECHNOLOGIES, INC.
By: /s/ James W. Klingler
----------------------------
Name: James W. Klingler
Title: Chief Financial Officer
THE LENDER: TRILON DOMINION PARTNERS, L.L.C.
By: /s/ William P. Gendron
----------------------------
Name: William P. Gendron
Title: Treasurer
<PAGE> 1
EXHIBIT 99
WILSHIRE TECHNOLOGIES, INC.
RISKS AND UNCERTAINTIES IN FORWARD-LOOKING STATEMENTS
HISTORY OF LOSSES; LIQUIDITY
The Company has incurred substantial losses since its inception in 1990,
including a loss of $2,394,000 for the year ended November 30, 1996. 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 through fiscal year 1997.
RELIANCE ON MAJOR DISTRIBUTORS; SMALL SALES FORCE
During 1996, the Company sold most of its products through regional and national
distributors. Various divisions of Baxter International, Inc. and VWR Scientific
Products, Inc. accounted for 33% and 20% of net sales in 1996, respectively. No
other distributor or customer in gloves and contamination control products
accounted for more than 10% of the Company's sales in 1996. The Company has few
formal agreements, written or otherwise, with any of its customers requiring
that they continue to buy the Company's products or, in the case of
distributors, not to carry competing products. The Company's business could be
materially adversely affected if a significant customer or distributor ceased or
significantly reduced purchases of the Company's products. The Company has four
sales representatives in contamination control products and gloves who service
customers in conjunction with the distributors. Because of the small sales
force, the Company must rely more heavily upon distributors and outside sales
representatives whose commitment to the Company's products may be less intensive
than that of Company-employed sales representatives.
NEW PRODUCT DEVELOPMENT AND MARKETING
The Company's future growth prospects will depend largely on the success of new
products using exclusive supply arrangements and various patented materials. A
number of new products have been introduced in the past three years, while
others are being tested and some are still under development. There can be no
assurance that any of the newly introduced products can be successfully marketed
or that product testing and development will result in new products that are
accepted in the marketplace. If the Company's new product development and
marketing efforts are unsuccessful, the Company's growth will be materially and
adversely affected.
COMPETITION; TECHNOLOGICAL CHANGE; INDUSTRY RISKS
The Company faces substantial competition from other manufacturers of gloves and
contamination control products. The clean room products industry is
characterized by intense competition. The Company may need to adjust its
operation periodically and, in some cases, significantly, in response to rapidly
changing market conditions prevalent in the industry. Such adjustments could
prove costly and adversely affect the Company's profitability. There also can be
no assurance that advances in competing products or processes which improve
performance or lower product cost or both and other discoveries or developments
will not render certain of the Company's products or product lines obsolete.
The Company sells a significant portion of its products through independent
distributors, who also sell products manufactured by competitors of the Company.
Competitive pressures could cause the Company's distributors to focus their
sales efforts on products manufactured by others or could result in industry
wide or individual competitor price competition or the introduction of new
products by the Company's competition, any of which could have an adverse impact
on the Company's revenues and profitability. The Company's ability to compete
will depend to a great extent on technological advantages in a number of its new
products. Many of the companies with which the Company now competes have
extensive marketing and manufacturing capabilities and significantly greater
financial, technical and personnel resources than the Company and may be better
positioned to compete.
<PAGE> 2
PATENTS AND TRADE SECRETS
The Company's success will depend, in part, on its ability to obtain patents and
licenses, maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. There can be no assurance that any patent
application, when filed, will result in an issued patent. In addition, there can
be no assurance that any issued patents will provide the Company with
significant protection against competitors. Moreover, there can be no assurance
that any patents issued to or licensed to the Company by third parties will not
be infringed upon or designed around by others. The Company also relies to a
lesser extent on unpatented proprietary technology and no assurance can be given
that others will not independently develop substantially equivalent proprietary
information, techniques or processes or that the Company can meaningfully
protect its rights to such unpatented proprietary technology.
RISK OF PRODUCT LIABILITY
The Company is a defendant in a number of lawsuits resulting from the alleged
use of Wilshire Foam's products in breast implants. The Company believes that,
because of the level of insurance coverage maintained by the Company in relation
to its size and the amount of the policy limits, it would be unlikely that any
plaintiff in the lawsuits would seek recourse against the Company in excess of
the policy limits. As a result, the Company believes it has adequate insurance
to cover any liability arising from the lawsuits. In addition, the Company
believes it has a number of valid lines of defense and indemnity. Nevertheless,
there can be no assurance that the Company will incur no liability as a result
of these lawsuits. The Company maintains primary product liability insurance
with limits of $1 million per occurrence and $5 million per policy year, and
excess coverage of $10 million per policy year. Even if the Company's insurance
is adequate to cover the breast implant claims, there can be no assurance that
it will be adequate to cover future product liability claims, or that the
Company will be able to maintain its product liability insurance at acceptable
premiums. Any losses that the Company may suffer from future liability claims,
and the effect that such litigation may have upon the reputation and
marketability of the Company's products, may have a material adverse effect on
the Company's financial condition.
DEPENDENCE ON KEY SUPPLIERS
Certain materials used by the Company in its existing and proposed products are
purchased from single source suppliers and manufacturers. While the Company
maintains an inventory of materials and believes that alternative suppliers and
manufacturers for all such materials are available at comparable prices and
terms, an interruption in the delivery of these materials may have a material
adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon certain key management and technical personnel,
and its future success will depend partially upon its ability to retain these
persons. The Company must compete with other companies and organizations to
attract and retain highly qualified personnel. There can be no assurances that
the Company will be able to retain or attract such highly qualified personnel.
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-KSB FOR THE YEAR ENDED NOVEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-KSB AND THE ACCOMPANYING NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<CASH> 189
<SECURITIES> 0
<RECEIVABLES> 588
<ALLOWANCES> 17
<INVENTORY> 591
<CURRENT-ASSETS> 1,786
<PP&E> 1,360
<DEPRECIATION> 637
<TOTAL-ASSETS> 3,354
<CURRENT-LIABILITIES> 2,378
<BONDS> 0
0
0
<COMMON> 25,857
<OTHER-SE> (24,881)
<TOTAL-LIABILITY-AND-EQUITY> 3,354
<SALES> 3,403
<TOTAL-REVENUES> 3,403
<CGS> 2,865
<TOTAL-COSTS> 5,880
<OTHER-EXPENSES> (190)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125
<INCOME-PRETAX> (2,412)
<INCOME-TAX> 1
<INCOME-CONTINUING> (2,413)
<DISCONTINUED> 19
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,394)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-KSB FOR THE YEAR ENDED NOVEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-KSB AND THE ACCOMPANYING NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 724
<ALLOWANCES> 49
<INVENTORY> 1,085
<CURRENT-ASSETS> 2,307
<PP&E> 1,834
<DEPRECIATION> 903
<TOTAL-ASSETS> 5,300
<CURRENT-LIABILITIES> 2,936
<BONDS> 7,637
0
0
<COMMON> 17,071
<OTHER-SE> (22,344)
<TOTAL-LIABILITY-AND-EQUITY> 5,300
<SALES> 2,993
<TOTAL-REVENUES> 2,993
<CGS> 2,250
<TOTAL-COSTS> 5,169
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 742
<INCOME-PRETAX> (2,918)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,919)
<DISCONTINUED> (681)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,600)
<EPS-PRIMARY> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FORM 10-QSB FOR THE PERIOD ENDED AUGUST 31, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERNECE TO SUCH FORM 10-QSB AND THE ACCOMPANYING NOTES
THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 48
<SECURITIES> 0
<RECEIVABLES> 524
<ALLOWANCES> 93
<INVENTORY> 1,452
<CURRENT-ASSETS> 2,190
<PP&E> 1,847
<DEPRECIATION> 817
<TOTAL-ASSETS> 5,613
<CURRENT-LIABILITIES> 2,659
<BONDS> 7,295
0
0
<COMMON> 17,071
<OTHER-SE> (21,412)
<TOTAL-LIABILITY-AND-EQUITY> 5,613
<SALES> 2,377
<TOTAL-REVENUES> 2,377
<CGS> 1,635
<TOTAL-COSTS> 4,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 598
<INCOME-PRETAX> (2,229)
<INCOME-TAX> 1
<INCOME-CONTINUING> (2,230)
<DISCONTINUED> (438)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,668)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FORM 10-QSB FOR THE PERIOD ENDED MAY 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB AND THE ACCOMPANYING NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 107
<SECURITIES> 0
<RECEIVABLES> 935
<ALLOWANCES> 144
<INVENTORY> 1,316
<CURRENT-ASSETS> 2,391
<PP&E> 1,829
<DEPRECIATION> 730
<TOTAL-ASSETS> 5,932
<CURRENT-LIABILITIES> 2,257
<BONDS> 7,108
0
0
<COMMON> 17,071
<OTHER-SE> (20,504)
<TOTAL-LIABILITY-AND-EQUITY> 5,932
<SALES> 1,693
<TOTAL-REVENUES> 1,693
<CGS> 1,069
<TOTAL-COSTS> 2,699
<OTHER-EXPENSES> (1)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 392
<INCOME-PRETAX> (1,397)
<INCOME-TAX> 1
<INCOME-CONTINUING> (1,398)
<DISCONTINUED> (362)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,760)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
