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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended September 30, 2003 Commission file number 1-467
------------------
WILSHIRE ENTERPRISES, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-0513668
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
921 Bergen Avenue - Jersey City, New Jersey 07306-4204
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(201) 420-2796
--------------
Wilshire Oil Company of Texas
-----------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No x
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 12, 2003.
Common Stock $1 Par Value ----- 7,809,833
WILSHIRE ENTERPRISES, INC
INDEX
Page No.
--------
Part I 1. Financial Information
Financial Information: 1
Condensed Consolidated Balance Sheets -
September 30, 2003 (Unaudited) and December 31, 2002
Unaudited Condensed Consolidated Statements of Income - 2
Three months ended September 30, 2003 and 2002
Unaudited Condensed Consolidated Statements of Income - 3
Nine months ended September 30, 2003 and 2002
Unaudited Condensed Consolidated Statement of Cash Flows - 4
Nine months ended September 30, 2003 and 2002
Notes to Unaudited Condensed Consolidated Financial Statements 5
2. Management's Discussion and Analysis 12
of Financial Condition and Results of Operations
3. Quantitative and Qualitative Disclosure About Market Risk
4. Controls and Procedures
Part II Other Information 20
4. Submission of Matters to a Vote of Security Holders
6. Exhibits and Reports on Form 8-K
WILSHIRE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS September 30, December 31,
2003 2002
(Unaudited)
---------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 6,237,000 $ 4,164,000
Restricted cash 1,325,000 -
Marketable securities, available-for-sale, at fair value 2,219,000 9,860,000
Accounts receivable net of allowance of $75,000 and $77,000 in 2003
and 2002, respectively 1,418,000 889,000
Prepaid expenses and other current assets 2,066,000 1,638,000
Current assets associated with discontinued operations 701,000 870,000
---------------- -----------------
Total current assets 13,966,000 17,421,000
---------------- -----------------
NONCURRENT ASSETS
Mortgage notes receivable 2,621,000 3,035,000
Other noncurrent 313,000 375,000
PROPERTY AND EQUIPMENT
Oil and gas properties - Held for sale 148,929,000 141,619,000
Real estate properties 63,413,000 61,512,000
Real estate properties - Held for sale 9,060,000 9,833,000
---------------- -----------------
221,402,000 212,964,000
Less:
Accumulated depreciation and amortization 16,920,000 14,972,000
Accumulated depreciation, depletion and amortization- Property held for sale 115,177,000 110,903,000
---------------- -----------------
89,305,000 87,089,000
---------------- -----------------
TOTAL ASSETS $106,205,000 $107,920,000
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 762,000 $7,314,000
Loan payable to shareholder - 500,000
Accounts payable 2,233,000 2,034,000
Income taxes payable - 35,000
Deferred income taxes 188,000 535,000
Accrued liabilities 135,000 119,000
Deferred income 566,000 -
Current liabilities associated with discontinued operations 562,000 999,000
---------------- -----------------
Total current liabilities 4,446,000 11,536,000
NONCURRENT LIABILITIES
Long-term debt, less current portion 52,857,000 51,760,000
Deferred income taxes 7,979,000 7,188,000
Deferred income 944,000 1,611,000
Other Long-term liabilities 14,000 75,000
Non current liabilities associated with discontinued operations 11,356,000 11,511,000
---------------- -----------------
Total liabilities 77,596,000 83,681,000
---------------- -----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value, 1,000,000 shares authorized; none
issued and outstanding in 2003 and 2002
- -
Common stock, $1 par value, 15,000,000 shares authorized; issued
10,013,544 shares in 2003 and 2002 10,014,000 10,014,000
Capital in excess of par value 9,029,000
9,029,000
Treasury stock 2,203,711 and 2,203,710 shares at September 30, 2003
and December 31,2002, respectively, at cost (10,355,000) (10,355,000)
Retained earnings 21,739,000 18,640,000
Accumulated other comprehensive loss ( 1,818,000) (3,089,000)
---------------- -----------------
Total shareholders' equity 28,609,000 24,239,000
---------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $106,205,000 $107,920,000
================ =================
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
1
WILSHIRE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended September 30, 2003 and 2002
September 30, September 30,
2003 2002
---------------------- --------------------
Revenues
Real estate $3,490,000 $ 3,251,000
---------------------- --------------------
Total revenues 3,490,000 3,251,000
---------------------- --------------------
Cost and Expenses
Real estate operating expenses 2,211,000 2,126,000
Depreciation and amortization 725,000 549,000
General and administrative 615,000 370,000
---------------------- --------------------
Total costs and expenses 3,551,000 3,045,000
---------------------- --------------------
Income (loss) from Operations (61,000) 206,000
Other Income
Dividend and interest income 176,000 335,000
Gain on sale of securities 2,361,000 -
Other Income (expense) (6,000) 124,000
Interest Expense (896,000) (1,020,000)
---------------------- --------------------
Income (loss) before provision for income taxes 1,574,000 (355,000)
Provision for Income (Taxes) Benefit (523,000) 142,000
---------------------- --------------------
Net Income (loss) from Continuing Operations 1,051,000 (213,000)
Discontinued Operations - Real Estate, Net of Taxes 632,000 158,000
Discontinued Operations - Oil & Gas, Net of Taxes 95,000 124,000
---------------------- --------------------
Net Income $1,778,000 $ 69,000
====================== ====================
Basic earnings per share:
Earnings (loss) from continuing operations $ 0.13 $ (0.03)
Earnings from discontinued operations 0.09
0.04
Net earnings applicable to common stockholders $ 0.22 $ 0.01
Diluted earnings per share:
Earnings (loss) from continuing operations $ 0.13 $ (0.03)
Earnings from discontinued operations 0.09 0.04
Net earnings applicable to common stockholders $ 0.22 $ 0.01
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
2
WILSHIRE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30, 2003 and 2002
September 30, September 30,
2003 2002
-------------------- --------------------
Revenues
Real estate $ 10,453,000 $ 10,163,000
-------------------- --------------------
Total revenues 10,453,000 10,163,000
-------------------- --------------------
Cost and Expenses
Real estate operating expenses 6,391,000 6,074,000
Depreciation and amortization 2,212,000 1,646,000
General and administrative 1,591,000 1,097,000
-------------------- --------------------
Total costs and expenses 10,194,000 8,817,000
-------------------- --------------------
Income from Operations 259,000 1,346,000
Other Income
Dividend and interest income 545,000 719,000
Gain on sale of securities 2,621,000 717,000
Insurance proceeds 1,000,000 -
Other Income 247,000 625,000
Interest Expense (3,283,000) (3,126,000)
-------------------- --------------------
Income before provision for income taxes 1,389,000 281,000
Provision for Income Taxes 62,000 26,000
-------------------- --------------------
Net Income from Continuing Operations $ 1,327,000 $ 255,000
Discontinued Operations - Real Estate, Net of Taxes 552,000 148,000
Discontinued Operations - Oil & Gas, Net of Taxes 1,220,000 323,000
-------------------- --------------------
Net Income $ 3,099,000 $ 726,000
==================== ====================
Basic earnings per share:
Earnings from continuing operations $ 0.17 $ 0.03
Earnings from discontinued operations 0.23 0.06
Net earnings applicable to common stockholders $ 0.40 $ 0.09
Diluted earnings per share:
Earnings from continuing operations $ 0.17 $ 0.03
Earnings from discontinued operations 0.22 0.06
Net earnings applicable to common stockholders $ 0.39 $ 0.09
Net income for the nine months in 2002 as previously reported has been adjusted
to record the corrected book loss on the sale of a marketable security. This
correction resulted in an adjustment to net income for the six months from
$566,000 or $0.07 per share as originally reported, to $726,000 or $0.09 per
share, as reflected above.
Net income for the first quarter of 2003 as previously reported has been reduced
by $78,000 or $0.01 per share to record the under accrual of certain General and
Administrative expenses.
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
3
WILSHIRE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
---------------------------------------------------
September 30, September 30,
2003 2002
--------------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,099,000 $ 726,000
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation, depletion and amortization 6,221,000 3,305,000
Deferred income tax provision 2,111,000 267,000
(Decrease) Increase in deferred income (111,000) 1,101,000
Gain on sales of real estate assets (992,000) (253,000)
Gain on sales of marketable securities (2,621,000) (717,000)
Changes in operating assets and liabilities -
Increase in accounts receivable (628,000) (985,000)
Decrease in income taxes receivable 208,000 -
Increase in prepaid expenses and other current assets (214,000) (187,000)
Increase in other liabilities 62,000 163,000
Decrease in accounts payable, accrued
liabilities and taxes payable (289,000) (350,000)
--------------------------- ------------------
Net cash provided by operating activities 6,846,000 3,070,000
--------------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - real estate (2,008,000) (1,372,000)
Capital expenditures - oil & gas (7,155,000) (1,511,000)
Purchases of marketable securities - (1,340,000)
Proceeds from sales and redemptions of marketable securities 9,492,000 2,329,000
Proceeds from sales of real estate properties 1,717,000 737,000
Proceeds on mortgage notes receivable 414,000 2,556,000
Increase in restricted cash (1,325,000) -
--------------------------- ------------------
Net cash provided by investing activities 1,135,000 1,399,000
--------------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 35,624,000 4,080,000
Principal payments of long-term debt (42,190,000) (10,869,000)
Purchase of treasury stock - (159,000)
Loan payable to shareholder (500,000) (200,000)
Other 103,000 310,000
Financing Costs (550,000) -
--------------------------- ------------------
Net cash used in financing activities (7,513,000) (6,838,000)
--------------------------- ------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,605,000 (35,000)
--------------------------- ------------------
Net increase (decrease) in cash and cash equivalents 2,073,000 (2,404,000)
CASH AND CASH EQUIVALENTS, beginning of year 4,164,000 4,984,000
--------------------------- ------------------
CASH AND CASH EQUIVALENTS, end of period $6,237,000 $2,580,000
=========================== ==================
SUPPLEMENTAL DISCLOSURES TO THE STATEMENTS OF CASH FLOWS:
Cash paid during the year for -
Interest $ 3,590,000 $ 3,441,000
=========================== ==================
Income taxes, net $ 160,000 $ 322,000
=========================== ==================
The accompanying notes to consolidated financial statements are an integral part
of these financial statements
4
WILSHIRE ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements included
herein have been prepared by the Registrant, without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have
been condensed or omitted pursuant to such rules and regulations,
although the Registrant believes that the disclosures are adequate
to make the information presented not misleading. It is suggested
that these unaudited condensed consolidated financial statements be
read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K.
This condensed financial information reflects, in the opinion of
management, all adjustments necessary to present fairly the results
for the interim periods. In connection with the preparation of the
interim financial statements, the Company estimates oil and gas
operations for the month of September based on prior months actual
results and specific significant transactions which may have
occurred during the month. In the opinion of management these
estimated results approximate actual. The results of operations for
such interim periods are not necessarily indicative of the results
for the full year.
Net income for the first quarter in 2002 as previously reported has
been adjusted to record the corrected book loss on the sale of a
marketable security. This correction, which was made on Form 10-K
when filed for 2002, resulted in an adjustment to net income for the
first quarter from $290,000 or $0.04 per share as originally
reported, to $450,000 or $0.06 per share. Income for the nine months
in 2002 was adjusted from $566,000 or $0.07 per share as originally
reported, to $726,000 or $0.10 per share.
Net income for the first quarter in 2003 as previously reported has
been reduced by $78,000 or $0.01 per share to record the under
accrual of certain General and Administrative expenses.
In July 2003 the Company committed to the sale of its oil and gas
operations. The financial statements have been adjusted to reflect
the oil and gas operations as "Discontinued Operations" in 2002 and
2003.
Pursuant to Statement of Financial Accounting Standard No. 144 (SFAS
144), the Company is required to reflect the gain on the sale of
real estate properties plus the properties' year to date revenue,
operating expenses and related interest expense as "Discontinued
Operations". The net cash from the sales of these properties which
is intended to be reinvested in like-kind property is shown as
"Restricted Cash" on the Balance Sheet. In addition, properties
currently under contract for sale are presented as "Real estate
properties - Held for sale" on the Balance Sheet and the related
property operations are shown as Discontinued on the statement of
income.
Accounting for Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board (FASB)
issued Statement No. 148 to amend alternative methods of transition
for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, Statement No.
148 amends the disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
However, the Company has continued to account for options in
accordance with the provision of APB Opinion No. 25, "Accounting for
Stock Issues to Employees" and related interpretations. Accordingly,
no compensation expense has been recognized for stock option plans.
5
The following tables sets forth the Company's pro forma information for its
common stockholders for the three and nine months ended September 30, 2003 and
2002 (in thousands except earnings per share data):
For Three Months Ended September 30,
------------------------------------
2003 2002
------------- ------------
Net income as reported $ 69
$1,778
Add: Stock option expense included in net income (loss)
- -
Less: Stock option expense determined under fair value recognition
method for all awards (15) (5)
------------- ------------
Pro forma net income $1,763 $ 64
============= ============
Net income per share as reported:
Basic Earnings per share:
Earnings per share from continuing operations $ 0.13 $(0.03)
Earnings per share from discontinued operations 0.09 0.04
Net earnings applicable to common shareholders $0.22 $ 0.01
Diluted Earnings per share:
Earnings per share from continuing operations $0.13 $(0.03)
Earnings per share from discontinued operations 0.09 0.04
Net earnings applicable to common shareholders $0.22 $ 0.01
Pro forma net income per share:
Basic Earnings per share:
Earnings per share from continuing operations $0.13 $(0.03)
Earnings per share from discontinued operations 0.09 0.04
Net earnings applicable to common shareholders $0.22 $ 0.01
Diluted Earnings per share:
Earnings per share from continuing operations $0.13 $(0.03)
Earnings per share from discontinued operations 0.09 0.04
Net earnings applicable to common shareholders $0.22 $ 0.01
For Nine Months Ended September 30,
-----------------------------------
2003 2002
------------- ------------
Net income as reported $3,099 $ 726
Add: Stock option expense included in net income (loss)
- -
Less: Stock option expense determined under fair value recognition
method for all awards (46) (6)
------------- ------------
Pro forma net income $3,053 $ 720
============= ============
Net income per share as reported:
Basic Earnings per share:
Earnings per share from continuing operations $0.17 $0.03
Earnings per share from discontinued operations 0.23 0.06
Net earnings applicable to common shareholders $0.40 $0.09
Diluted Earnings per share:
Earnings per share from continuing operations $0.17 $0.03
Earnings per share from discontinued operations 0.22 0.06
Net earnings applicable to common shareholders $0.39 $0.09
Pro forma net income per share:
Basic Earnings per share:
Earnings per share from continuing operations $0.16 $0.03
Earnings per share from discontinued operations 0.23 0.06
Net earnings applicable to common shareholders $0.39 $0.09
Diluted Earnings per share:
Earnings per share from continuing operations $0.16 $0.03
Earnings per share from discontinued operations 0.23 0.06
Net earnings applicable to common shareholders $0.39 $0.09
The fair value was estimated using the Black-Scholes option-pricing model based
on the weighted average market price at grant date of $3.94 per share in 1999,
$3.32 in 2002 and $3.60 in 2003 and the following weighted average assumptions;
risk-free interest rate of 6.19% for 1999, 3.87% for 2002 and 3.00% for 2003,
volatility of 25.94% for 1999 and 33.1% for 2002 and 2003, no dividend yield for
1999, 2002 or 2003, and an expected option life of 5 years.
Oil and Gas Properties
The Company follows the accounting policy, generally known in the oil and
gas industry as "full cost accounting". Under full cost accounting, the Company
capitalizes all costs, including interest costs, relating to the exploration for
and development of its mineral resources. Under this method, all costs incurred
in the United States and Canada are accumulated in separate cost centers and are
amortized using the gross revenue method based on total future estimated
recoverable oil and gas reserves. In July 2003 the Company committed to the sale
of its oil and gas properties.
6
The determination of oil and gas reserves is a complex and interpretive
process, which is subject to continued revisions as additional information
becomes available. Reserve estimates prepared by different engineers from the
same data can vary. Therefore, the reserve data used herein should not be
construed as being exact. Any reserve estimate, especially when based upon
volume-metric calculations, depends in part on the quality of available data,
engineering and geologic interpretation and judgment, and thus, represents only
an informed professional judgment. Subsequent reservoir performance may justify
upward or downward revision of the estimate.
While it has not been the Company's practice to obtain mid-year reserve
valuations, in connection with the previously announced marketing for sale of
its oil and gas operations, the Company engaged Ryder Scott Company to perform
an engineering reserve study of the Company's entire reserves as of June 1,
2003. In addition, the Company engaged Ryder Scott to roll forward this analysis
to June 30, 2003. The Company has used the reserve valuations in this analysis
for purposes of preparing the financial statements presented herein. For the
year ended December 31, 2002, Ryder Scott was engaged to evaluate all the
Company's reserves other than the Hilda field in Canada, which was separately
evaluated by Citadel Engineering, Ltd.
The following table sets forth summary information with respect to the
estimates of the Company's Proved and Proved Developed Reserves at June 30,
2003:
United States Canada Total
----------------------------- --------------------------- ---------------------------
Proved Proved Proved
Proved Developed Proved Developed Proved Developed
------------- ------------- ------------ ------------- ----------- -------------
(000's Omitted) (000's Omitted)
Oil (Bbls) 571 427 211 211 782 638
Gas (Mcf) 8,849 8,596 10,167 10,167 19,016 18,763
Net present value @ 10% $ 21,745 $ 19,948 $ 24,083 $ 24,083 $ 45,828 $ 44,031
Capitalized costs are subject to a "ceiling" test that limits such costs
to the aggregate of the estimated present value, using a discount rate of 10% of
the future net revenues of proved reserves and the lower of cost or fair value
of unproved properties. Management is of the opinion that, based on reserve
reports of petroleum engineers and geologists, the fair value of the estimated
recoverable oil and gas reserves exceeds the unamortized cost of oil and gas
properties at September 30, 2003.
The Company currently operates 3.6% of the total wells it participates in.
Recently Issued Pronouncements
In May 2002, the FASB issued SFAS No. 145, "Reporting Gains and Losses from
Extinguishment of Debt", which rescinded SFAS No. 4, No. 44 and No. 64 and
amended SFAS No. 13. The new standard addresses the income statement
classification of gains or losses from the extinguishments of debt and criteria
for classification as extraordinary items. The adoption of this pronouncement
did not have a material impact on the Company's results of operations or
financial position.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (effective January 1, 2003). SFAS No. 146
replaces current accounting literature and requires the recognition of costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. The adoption of this
statement did not have any impact on the Company's results of operations or
financial position.
7
In November of 2002, the FASB issued Interpretation No. 45, "Guarantors'
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." The Interpretation elaborates on the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. This Interpretation does not prescribe a specific approach for
subsequently measuring the guarantor's recognized liability over the term of the
related guarantee.
The disclosure provisions of this Interpretation were effective for the
Company's December 31, 2002 financial statements. The initial recognition and
initial measurement provisions of this Interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. The
adoption of this statement did not have any impact on the Company's results of
operations or financial position.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation Transition and Disclosure," which provides guidance on how to
transition from the intrinsic method of accounting for stock-based employee
compensation under APB No. 25 to SFAS No. 123 for the fair value method of
accounting, if a company so elects. The Company does not plan to adopt the
fair-value method of accounting for stock based employee compensation.
In January of 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. This Interpretation clarifies the application of
existing accounting pronouncements to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The provisions of
the Interpretation will be immediately effective for all variable interests in
variable interest entities created after January 31, 2003 and will be effective
in the forth quarter for all variable interest entities created prior to January
31, 2003. The Company does not believe that this Interpretation will have a
significant impact on the Company's financial statements.
2. SEGMENT INFORMATION
The Company is engaged in the exploration of oil and gas, both in its own name
and through several wholly-owned subsidiaries, on the North American continent.
In July 2003 the Company committed to the sale of its oil and gas operations.
The financial statements have been adjusted to present oil and gas operations as
"Discontinued Operations" in 2002 and 2003. The Company also conducts real
estate operations throughout the United States, owning apartment complexes as
well as commercial and retail properties.
Oil and Gas
The Company conducts its oil and gas operations in the United States and Canada.
Oil and gas operations in the United States are located in Arkansas, California,
Kansas, Nebraska, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas and Wyoming.
In Canada, the Company conducts oil and gas operations in the Provinces of
Alberta, British Columbia and Saskatchewan. In July 2003 the Company committed
to the sale of its oil and gas properties.
Real Estate
The Company's real estate operations are conducted in the states of Arizona,
Texas, Florida, Georgia and New Jersey. The Company's properties consist of
apartment complexes as well as commercial and retail properties. During the
third quarter the Company sold two real estate properties. While the Company
plans to reinvest the proceeds of one in a like-kind property, the gains,
revenue, operating expenses and mortgage interest expense have been reflected as
Discontinued Operations - Real Estate as required by FAS 144. The net cash from
the real estate sale, intended to be reinvested in like-kind property to defer
income taxes which would normally be due upon sale of an asset, is shown as
Restricted Cash. In addition, real estate properties currently under contract
for sale are reflected as Real Estate Properties - Held for Sale.
Corporate
The Company holds investments in certain marketable securities, which are
classified as available for sale. From time to time, the Company buys and sells
securities in the open market. Over the years, the Company has decreased its
holding in marketable securities and focused its resources in the oil and gas
and real estate divisions. During the quarter ended September 30, 2003 the
Company sold the majority of its marketable securities in the open market and
used the proceeds to reduce its debt as well as to improve its cash balances.
8
The following segment data is presented based on the Company's internal
management reporting system-
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------
2003 2002
(Unaudited) (Unaudited)
--------------------- ------------------------
Revenues-
Oil and gas - United States $ 3,805,000 $ 2,672,000
Oil and gas - Canada 4,087,000 1,494,000
Real estate 11,018,000 10,989,000
--------------------- ------------------------
$ 18,910,000 $ 15,155,000
--------------------- ------------------------
Income (loss) from operations and reconciliation
to income before provision for income taxes-
Oil and gas - United States (a) $ 850,000 $ (254,000)
Oil and gas - Canada (a) 1,255,000 709,000
Real estate 1,037,000 2,084,000
Corporate (771,000) (452,000)
--------------------- ------------------------
Income from operations 2,371,000 2,087,000
Other income 5,431,000 2,322,000
Interest expense (3,568,000) (3,441,000)
--------------------- ------------------------
Income before provision for income taxes $ 4,234,000 $ 968,000
--------------------- ------------------------
Identifiable assets-
Oil and Gas Properties - United States $ 14,133,000 $ 18,172,000
Oil and Gas Properties - Canada 20,016,000 14,147,000
Real estate properties 55,156,000 58,248,000
Corporate 16,900,000 11,610,000
--------------------- ------------------------
$106,205,000 $102,177,000
--------------------- ------------------------
(a) Represents revenues less all operating costs, including depreciation,
depletion and amortization.
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------
2003 2002
(Unaudited) (Unaudited)
------------------- ------------------------
Revenues-
Oil and gas - United States $ 1,245,000 $ 1,036,000
Oil and gas - Canada 1,342,000 563,000
Real estate 3,663,000 3,695,000
------------------- ------------------------
$ 6,250,000 $ 5,294,000
------------------- ------------------------
Income (loss) from operations and reconciliation
to income before provision for income taxes-
Oil and gas - United States (a) $ (56,000) $ (67,000)
Oil and gas - Canada (a) 268,000 259,000
Real estate 311,000 577,000
Corporate (358,000) (113,000)
------------------- ------------------------
Income from operations 165,000 656,000
Other income 3,549,000 543,000
Interest expense (982,000) (1,123,000)
------------------- ------------------------
Income before provision for income taxes $ 2,732,000 $ 76,000
------------------- ------------------------
(a) Represents revenues less all operating costs, including applicable
depreciation, depletion and amortization.
9
3. COMPREHENSIVE INCOME
Comprehensive income for the nine months ended September 30, 2003 and 2002
is as follows:
2003 2002
(Unaudited) (Unaudited)
--------------- -----------------
Net income $3,099,000 $726,000
--------------- -----------------
Other comprehensive income net of taxes
Foreign currency translation adjustments 1,694,000 498,000
Change in unrealized gain (loss) on marketable securities (423,000) (682,000)
--------------- -----------------
Other comprehensive income 1,271,000 (184,000)
--------------- -----------------
Comprehensive income $4,370,000 $542,000
=============== =================
Changes in the components of Accumulated Other Comprehensive Income (Loss)
for the year 2002 and for the nine months ended September 30, 2003 are as
follows-
Unrealized Gains Cumulative Accumulated
(Losses) on Foreign Currency Other
Available-for-Sale Translation Comprehensive
Securities Adjustment Income (Loss)
------------------------ -------------------- --------------------
BALANCE, December 31, 2001 $1,095,000 $(3,830,000) $(2,735,000)
Change for the year 2002 (442,000) 88,000 (354,000)
------------------------ -------------------- --------------------
BALANCE, December 31, 2002 653,000 (3,742,000) (3,089,000)
Change for the nine months (423,000) 1,694,000 1,271,000
------------------------ -------------------- --------------------
BALANCE, September 30, 2003 (unaudited) $230,000 $(2,048,000) $(1,818,000)
======================== ==================== ====================
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share-
Nine Months Ended September 30, Three Months Ended September 30
------------------------------------- ---------------------------------
2003 2002 2003 2002
Numerator-
Net income from continuing operations $1,327,000 $ 255,000 $1,051,000 $(213,000)
Net income from discontinued operations 1,772,000 471,000 727,000 282,000
--------------- ----------------- ---------------- ---------------
Net Income $3,099,000 $726,000 $1,778,000 $ 69,000
=============== ================= ================ ===============
Denominator-
Weighted average common
shares outstanding - Basic 7,809,833 7,838,987 7,809,833 7,818,281
Incremental shares from assumed
conversions of stock options 86,377 3,987 125,973 10,425
--------------- ----------------- ---------------- ---------------
Weighted average common shares
outstanding - Diluted 7,896,210 7,842,974 7,935,806 7,828,706
=============== ================= ================ ===============
Basic earnings per share:
Earnings (loss) per share from continuing operations $ 0.17 $ 0.03 $ 0.13 $ (0.03)
Earnings per share form discontinued operations 0.23 0.06 0.09 0.04
Net earnings applicable to common shareholders $ 0.40 $ 0.09 $ 0.22 $ 0.01
Diluted earnings per share:
Earnings (loss) per share from continuing operations $ 0.17 $ 0.03 $ 0.13 $ (0.03)
Earnings per share form discontinued operations 0.22 0.06 0.09 0.04
Net earnings applicable to common shareholders $ 0.39 $ 0.09 $ 0.22 $ 0.01
5. OTHER INCOME
Other income for 2003 includes $1,000,000 received as the beneficiary of
life insurance policies on the life of the Company's former Chairman and
President who had been serving as its Senior Consultant up to his death on
January 7, 2003. The receipt of these funds are nontaxable to the Company.
10
6. INTEREST EXPENSE
During the first quarter of 2003 the Company was able to refinance and modify
the majority of its mortgage notes payable reducing its overall effective
interest rate from 7.36% to 6.22% and extending its maturity and terms. During
the next ten years, the Company's interest expense related to its current debt
should decrease approximately $600,000 annually.
The current year's interest expense includes a one time prepayment penalty of
$469,000 to secure the new financing arrangements.
7. COMMITMENTS AND CONTINGENCIES
In June 1996 the Company's Board of Directors adopted the Stockholder Protection
Rights Plan (the Rights Plan). The Rights Plan provides for issuance of one
Right for each share of common stock outstanding as of July 6, 1996. The Rights
are separable from and exercisable upon the occurrence of certain triggering
events involving the acquisition of at least 15% (or, in the case of certain
existing stockholders, 25%) of the Company's common stock by an individual or
group, as defined in the Rights Plan (an Acquiring Person) and may be redeemed
by the Board of Directors at a redemption price of $0.01 per Right at any time
prior to the announcement by the Company that a person or group has become an
Acquiring Person.
On and after the tenth day following such triggering events, each Right would
entitle the holder (other than the Acquiring Person) to purchase $50 in market
value of the Company's Common Stock for $25. In addition, if there is a business
combination between the Company and an Acquiring Person, or in certain other
circumstances, each Right (if not previously exercised) would entitle the holder
(other than the Acquiring Person) to purchase $50 in market value of the common
stock of the Acquiring Person for $25.
As of September 30, 2003 and 2002, 7,809,833 and 7,838,987, respectively, of
Rights were outstanding. Each Right entitles the holder to purchase, for an
exercise price of $25, one one-hundredth of a share of Series A Participating
Preferred Stock. Each one one-hundredth share of Series A Participating
Preferred Stock is designed to have economic terms similar to those of one share
of common stock but will have one one-hundredth of a vote. Because the Rights
are only exercisable under certain conditions, none of which were in effect as
of September 30, 2003 and 2002, the outstanding Rights are not considered in the
computation of basic and diluted earnings per share.
The Company does not have significant lease commitments or post retirement
benefits.
8. INCOME TAXES
On January 7, 2003 the Company's former Chairman and President who had been
serving as its Senior Consultant, passed away. The Company was the beneficiary
of $1,000,000 of life insurance proceeds in the first quarter of 2003 that are
not taxable income.
9. SUBSEQUENT EVENT
During the fourth quarter, the Company sold a real estate property for a pre-tax
gain of $628,000 and realized proceeds of $1,261,000. Said proceeds are intended
to be reinvested in like-kind property.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion addresses material changes in results of
operations for the three month and nine month periods ended September 30, 2003,
compared to the three month and nine month period ended September 30, 2002, and
its financial condition since December 31, 2002. It is presumed that readers
have read or have access to Wilshire's 2002 Annual Report on Form 10-K which
includes disclosures regarding critical accounting policies as part of
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Overview
Net earnings for the three months ended September 30 increased from
$69,000 or $0.01 per share for 2002 to $1,778,000 or $0.23 per share in 2003.
Net earnings for the nine months ended September 30 increased from $726,000 or
$0.09 per share for 2002 to $3,099,000 or $0.40 per share in 2003. Operations
are shown as continuing and discontinued as a result of the Company's announced
plans to sell its oil and gas operations in July 2003 as well as having to
reflect the net income and gain from the sale of two real estate properties sold
in the period as discontinued operations.
Results of Operations
Three Months Ended September 30 - Continuing Operations
Revenues increased from $3,251,000 in 2002 to $3,490,000 in 2003, an
increase of $239,000 or 7.3% in 2003 based on improved occupancies.
Operating expenses increased from $2,126,000 in 2002 to $2,211,000 in
2003, an increase of $85,000 or 4.0% in 2003 due to increased utility, insurance
and maintenance expenses.
Depreciation and amortization increased from $549,000 in 2002 to $725,000
in 2003, an increase of $176,000. Approximately $81,000 of the increase
represents amortization expense applicable to the write off of mortgage costs
incurred for a refinancing that was terminated and additional depreciation
applicable to 2003 and 2002 capital improvements.
General and administrative expense increased from $370,000 in 2002 to
$615,000 in 2003. This increase was primarily due to higher corporate insurance,
professional fees and salary expense in 2003.
Income from operations of $206,000 in 2002 declined to a loss of $(61,000)
in 2003. This change was primarily due to higher depreciation and amortization
applicable to the write off of mortgage costs incurred for a refinancing that
was terminated and additional depreciation applicable to 2003 and 2002 capital
improvements.
Other income increased from $459,000 in 2002 to $2,531,000 in 2003. This
increase was mainly the result of the sale of securities owned by the Company
for a gain of $2,361,000.
Net income (loss) from continuing operations increased from ($213,000) or
($0.03) per share in 2002 to $1,051,000 or $0.13 per share in 2003 due primarily
to the gain on the sale of the securities.
12
Three Months Ended September 30 - Discontinued Operations
Revenues increased from $1,599,000 in 2002 to $2,587,000 in 2003, an
increase of $988,000. This increase is mainly due to increased natural gas
production from the Medicine Hat-Hilda drilling program in Canada completed at
the end of 2002. Average prices for oil and natural gas also increased in the
third quarter of 2003. The average price of a barrel of oil that the Company
received in 2003 was $28.90 compared to $23.12 in 2002, an increase of $5.78.
The average price per MCF of natural gas the Company received was $4.32 in the
third quarter of 2003 compared to $2.60 in 2002, an increase of $1.72.
Production of oil in the third quarter of each year was similar but natural gas
production increased in 2003 to 470,339 MCF from 445,120 MCF in 2002.
Production expenses decreased from $650,000 in 2002 to $624,000 in 2003.
Depletion expense increased from $610,000 in 2002 to $884,000 in 2003 due to a
revision of the Company's reserves due to a new reserve study for Canada and the
United States that was performed as of June 30, 2003 and an increase in oil and
natural gas sales.
Discontinued operations - Real estate, net of taxes includes the sale of
two real estate properties. Income increased from $158,000 in 2002 to $632,000
in 2003. The gain was due to the sale of two properties in Florida in the third
quarter of 2003. Earnings per share increased from $0.02 in 2002 to $0.08 in
2003.
Discontinued operations - Oil and gas, net of taxes decreased from
$124,000 in 2002 to $95,000 in 2003. Earnings per share decreased from $0.02 in
2002 to $0.01 in 2003. The decrease in net income was mainly due to $414,000,
net of tax, in expenses incurred due to the expected sale of oil and gas
properties, offset by increased natural gas production and higher average prices
for oil and gas the Company received in the current quarter.
Income from discontinued operations for the third quarter increased from
$282,000 or $0.04 per share in 2002 to $727,000 or $0.09 per share in 2003,
reflecting the sale of the real estate properties and the increase in production
and prices received in the oil and gas operations discussed above.
Nine Months Ended September 30- Continuing Operations
Revenue increased from $10,163,000 in 2002 to $10,453,000 in 2003, an
increase of $290,000 or 2.9% based on improved occupancies.
Operating expenses increased from $6,074,000 in 2002 to $6,391,000 in
2003, an increase of $317,000 or 5.2%. This increase was due to higher utility,
maintenance and insurance expenses.
Depreciation and amortization increased from $1,646,000 in 2002 to
$2,212,000 in 2003. This increase includes $322,000 of amortization expense
applicable to the write-off of unamortized mortgage costs associated with debt
that was refinanced and additional depreciation applicable to 2003 and 2002
capital improvements.
General and administrative expenses increased from $1,097,000 in 2002 to
$1,591,000 in 2003. This increase was primarily due to higher corporate
insurance, professional fees and salary expense in 2003.
Income from operations decreased from $1,346,000 in 2002 to $259,000 in
2003. This decrease was due to increased expenses in 2003 as noted above.
Other income increased from $2,061,000 in 2002 to $4,413,000 in 2003. This
increase includes $1,000,000 received by the Company in 2003 as a beneficiary of
life insurance policies of the life of the Company's former Chairman and
President Siggi B. Wilzig, who had been serving as its Senior Consultant up to
his death on January 7, 2003. The receipt of these funds are not taxable to the
Company. Also included in other income for 2003 are gains from the sale of
securities of $2,621,000, exceeding gains from 2002 by $1,904,000.
13
Interest expense for the first nine months of 2003 was $3,283,000 compared
to $3,126,000 for the same period in 2002. Interest expense in 2003 includes a
one time prepayment penalty of $469,000 to secure the refinancing of real estate
properties. This refinancing of the mortgage notes payable reduced the effective
rate paid by the Company from 7.36% to 6.22% and extended its maturity and
terms. During the next ten years, the Company's interest expense related to its
current debt should decrease approximately $600,000 annually.
Net income from continuing operation's increased from $255,000 in 2002 to
$1,327,000 in 2003. Earnings per share increased from $0.03 in 2002 to $0.17 in
2003. This increase is primarily due to the increase in other income reduced by
a reduction in income from operations as previously discussed.
Nine Months Ended September 30- Discontinued Operations
Revenues increased from $4,166,000 in 2002 to $7,892,000 in 2003. This
increase was mainly due to increased production from the Medicine Hat-Hilda
drilling program in Canada. Average prices received for oil in the nine months
of 2003 was $28.71 per barrel compared to $20.47 in 2002, an increase of $8.24.
The average price for natural gas received in 2003 was $4.41 per MCF compared to
$2.38 in 2002, an increase of $2.03.
Production of oil in 2003 for the first nine months was 54,000 BBls
compared to 58,000 BBls in 2002. Production of natural gas was 1,425,000 MCF in
2003 compared to 1,183,000 MCF in 2002.
The increase in average price received, combined with the increased
production of natural gas, resulted in the higher revenues in 2003.
Production expense increased from $1,801,000 in 2002 to $1,908,000 in
2003. This increase was due to increased production in 2003. Depletion expense
increased from $1,542,000 in 2002 to $2,447,000 in 2003. This increase was due
to greater production as well as the revised reserve study mentioned previously.
Discontinued operations - Real estate, net of taxes includes the net
income from the operations and gain from the sale of two real estate properties.
Income for the nine months of 2002 was $148,000 or $0.02 per share compared to
$552,000 or $0.07 per share in 2003.
Discontinued operations - Oil and gas, net of taxes increased in the first
nine month of 2003, compared to the same period in 2002. This increase, as
discussed above was mainly due to increased natural gas production and higher
average prices for oil and natural gas in 2003. Net income was reduced by
$414,000, net of tax, relating to expenses incurred due to the expected sale of
oil and gas properties. Net income for 2002 was $323,000 or $0.04 per share
compared to $1,220,000 or $0.17 per share for 2003.
Income from discontinued operations for the nine month ended September 30,
2002 was $471,000 or $0.06 per share compared to $1,772,000 or $0.23 per share
in 2003. This increase was due, as discussed above, to the sale of two real
estate properties and increased production and higher prices for oil and natural
gas in 2003.
14
Liquidity and Capital Resources
At September 30, 2003 the Company had approximately $2.2 million in
marketable securities at market value, down from $9.9 million at December 31,
2002. This reduction resulted from the sale of securities in 2003 for
$9,492,000, realizing a gain of $2,621,000. The Company had $ .8 million in
short-term debt on September 30, 2003 compared to $7.3 million on December 31,
2002. The Company used the proceeds of the sale of securities to pay down its
short term debt. The current ratio was 3.1 to 1 at September 30, 2003 compared
to 1.5 to 1 at December 31, 2002. The Company's working capital was
approximately $9.5 million at September 30, 2003, an increase of $3.6 million
from $5.9 million on December 31, 2002. Management considers these amounts
adequate for the Company's current business.
In July 2003 the Company committed to the sale of its oil and gas
operations and to either reinvest the net proceeds in its ongoing real estate
business or otherwise utilize the proceeds in a manner designed to maximize
shareholder value. On September 4, 2003, the Company announced that several
parties approached the Company's investment banker expressing an interest in
acquiring the Company. As previously stated, the Company's focus remains on
maximizing shareholder value whether by selling one or more portions of the
Company to acquirers willing to pay fair value or remaining independent. The
decision the Company is now embarking on will help to determine in fact whether
shareholder value is best served in Wilshire stock, stock of a potential
acquirer or cash for Wilshire shareholders to invest elsewhere.
In the meantime, the Company continues to participate in oil and gas
prospects and to explore real estate acquisitions as they arise. The timing of
any such acquisitions will depend on, among other things, economic conditions
and the favorable evaluation of specific opportunities presented to the Company.
During the fourth quarter, the Company realized proceeds of $1,261,000 from the
sale of a real estate property generating a pretax gain of $628,000. In
addition, the Company has under contract the sale of another real estate
property that will also generate $2.6 million in net proceeds during the fourth
quarter of this year. However, while the Company anticipates that this sale will
occur and that it will actively explore other real estate acquisition
opportunities, no assurance can be given that the sale or potential acquisitions
will occur.
Net cash provided by operating activities increased from $3,070,000 in
2002 to $6,846,000 in 2003. The increase of $3,776,000 is mainly due to an
increase in net income, depreciation, depletion and amortization expense and an
increase in deferred income taxes, offset by gains on sale of marketable
securities and real estate assets.
Net cash provided by investing activities increased from $1,399,000 in
2002 to $1,135,000 in 2003. The increase principally relates to the sale of
marketable securities and real estate properties reduced by property and
equipment additions in the Medicine Hat drilling program in Canada.
Net cash used in financing activities increased from $6,838,000 in 2002 to
$7,513,000 in 2003. This increase principally relates to the issuance of
long-term debt, the related costs associated with the overall refinancing during
the first quarter of 2003 and the repayment of the loan payable to shareholder
in 2003.
The Company believes it has adequate capital resources to fund operations
for the foreseeable future.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and
results of operations are based upon unaudited consolidated financial statements
prepared in conformity with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
the Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
15
Oil and Gas Properties
The Company follows the accounting policy, generally known in the oil and
gas industry as "full cost accounting". Under full cost accounting, the Company
capitalizes all costs, including interest costs, relating to the exploration for
and development of its mineral resources. Under this method, all costs incurred
in the United States and Canada are accumulated in separate cost centers and are
amortized using the gross revenue method based on total future estimated
recoverable oil and gas reserves.
The determination of oil and gas reserves is a complex and interpretive
process, which is subject to continued revisions as additional information
becomes available. Reserve estimates prepared by different engineers from the
same data can vary. Therefore, the reserve data used herein should not be
construed as being exact. Any reserve estimate, especially when based upon
volume-metric calculations, depends in part on the quality of available data,
engineering and geologic interpretation and judgment, and thus, represents only
an informed professional judgment. Subsequent reservoir performance may justify
upward or downward revision of the estimate.
While it has not been the Company's practice to obtain mid-year reserve
valuations, in connection with the previously announced marketing for sale of
its oil and gas operations, the Company engaged Ryder Scott Company to perform
an engineering reserve study of the Company's entire reserves as of June 1,
2003. In addition, the Company engaged Ryder Scott to roll forward this analysis
to June 30, 2003. The Company has used the reserve valuations in this analysis
for purposes of preparing the financial statements presented herein. For the
year ended December 31, 2002, Ryder Scott was engaged to evaluate all the
Company's reserves other than the Hilda field in Canada, which was separately
evaluated by Citadel Engineering, Ltd.
The following table sets forth summary information with respect to the
estimates of the Company's Proved and Proved Developed Reserves at June 30,
2003:
United States Canada Total
----------------------------- --------------------------- ---------------------------
Proved Proved Proved
Proved Developed Proved Developed Proved Developed
------------- ------------- ------------ ------------- ----------- -------------
(000's Omitted) (000's Omitted)
Oil (Bbls) 571 427 211 211 782 638
Gas (Mcf) 8,849 8,596 10,167 10,167 19,016 18,763
Net present value @ 10% $ 21,745 $ 19,948 $ 24,083 $ 24,083 $ 45,828 $ 44,031
Capitalized costs are subject to a "ceiling" test that limits such costs
to the aggregate of the estimated present value, using a discount rate of 10% of
the future net revenues of proved reserves and the lower of cost or fair value
of unproved properties. Management is of the opinion that, based on reserve
reports of petroleum engineers and geologists, the fair value of the estimated
recoverable oil and gas reserves exceeds the unamortized cost of oil and gas
properties at September 30, 2003.
The Company currently operates 3.6% of the total wells it participates in.
Net acreage under leases totaled 3,875 as of September 30, 2003. During
the remainder of 2003 and the next three calendar years, leases representing the
following net acreage will expire:
Balance of 2003 0
2004 1047
2005 151
2006 0
16
Impairment of Property and Equipment
In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This standard
harmonizes the accounting for impaired assets and resolves some of the
implementation issues as originally described in SFAS 121. SFAS 144, among other
things, will require the Company to classify the operations and cash flow of
properties to be disposed of as discontinued operations. The Company adopted
this pronouncement on January 1, 2002. This adoption impacted how the Company
reported its results of operations and financial position as of September 30,
2003 and 2002.
On a periodic basis, management assesses whether there are any indicators
that the value of the real estate properties may be impaired. A property's value
is considered impaired if management's estimate of the aggregate future cash
flows (undiscounted and without interest charges) to be generated by the
property are less than the carrying value of the property. To the extent
impairment has occurred, the loss shall be measured as the excess of the
carrying amount of the property over the fair value of the property. Management
does not believe at September 30, 2003 that the value of any of its rental
properties is impaired.
Revenue Recognition
Revenue from oil and gas properties is recognized at the time these
products are delivered to third party purchasers. Revenue from real estate
properties is recognized during the period in which the premises are occupied
and rent is due from tenant. Rental revenue is recognized on a straight-line
basis over the term of the lease. The excess of rents recognized over amounts
contractually due pursuant to the underlying leases are included in accounts
receivable. An allowance for uncollectible accounts is maintained based on the
Company's estimate of the inability of its joint interest partners in the oil
and gas division and its tenants in the real estate division to make required
payments.
Foreign Operations
The assets and liabilities of the Company's Canadian subsidiary have been
translated at quarter-end exchange rates. The related revenues and expenses have
been translated at average annual exchange rates. The aggregate effect of
translation gains and losses are reflected as a component of "Accumulated other
comprehensive income (loss)" until the sale or liquidation of the underlying
foreign investment.
Unremitted earnings of the Canadian subsidiary are intended to be
permanently invested in Canada and are subject to foreign taxes substantially
equivalent to United States Federal income taxes. The unremitted earnings on
which the Company has not been required to provide Federal income taxes amounted
to approximately $9,052,000 and $8,187,000 at September 30, 2003 and December
31, 2002, respectively. It is anticipated that if these earnings are remitted to
the Company, such remission will only be subject to a 5% withholding tax which
has been already provided for on the Company's balance sheet.
Accounting for Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123).
17
Forward-Looking Statements
This Report on Form 10-Q for the quarter ended September 30, 2003 contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements included herein other than
statements of historical fact are forward-looking statements. Although the
Company believes that the underlying assumptions and expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. The Company's business and prospects
are subject to a number of risks which could cause actual results to differ
materially from those reflected in such forward-looking statements, including
uncertainties inherent in any attempt to sell a portion or all of the business
at an acceptable price, volatility of oil and gas prices, the need to develop
and replace reserves, risks involved in exploration and drilling, uncertainties
about estimates of reserves, environmental risks relating to the Company's oil
and gas and real estate properties, competition, the substantial capital
expenditures required to fund the Company's oil and gas and real estate
operations, market and economic changes in areas where the Company holds real
estate properties, interest rate fluctuations, government regulation, and the
ability of the Company to implement its business strategy.
Item 3 - Qualitative and Quantative Disclosure About Market Risk
The Company has investments in domestic equity securities for which the
Company has exposure to the risk of market loss.
The Company is exposed to changes in interest rates from its floating rate
debt arrangements. At September 30, 2003, the Company had $59,141,000 of debt
outstanding of which $56,621,000 bears interest at fixed rates. The interest
rate on the Company's revolving credit lines, under which $2,520,000 was
outstanding at September 30, 2003, is at prime for US borrowings and prime plus
..25% for its Canadian revolving demand loan. A hypothetical 100 basis point
adverse move (increase) on short-term interest rates on the floating rate debt
outstanding at September 30, 2003 would adversely affect the Company's annual
interest cost by approximately $25,000 assuming borrowed amounts under the
revolving credit lines remained at $2,520,000.
SUMMARY OF INDEBTNESS
Long-term debt as of September 30, 2003 and December 31, 2002 consists of
the following -
2003 2002
(Unaudited)
--------------- --------------------
Mortgage notes payable $56,621,000 $55,236,000
Note payable - 5,475,000
Revolving line of credit - 4,100,000
Revolving demand loan 2,520,000 895,000
--------------- --------------------
Total 59,141,000 65,706,000
Less-Current portion 3,282,000 7,314,000
--------------- --------------------
Long term portion $55,859,000 $58,392,000
=============== ====================
The aggregate maturities of the long-term debt in each of the five years
subsequent to September 30, 2003 and thereafter are -
2003 $ 3,282,000
2004 834,000
2005 889,000
2006 947,000
2007 1,019,000
Thereafter 52,170,000
------------------
$59,141,000
==================
18
Item 4- Controls and Procedures
(a) Disclosure controls and procedures. As of the end of the Company's most
recently completed fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) covered by this report, the Company
carried out an evaluation, with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures pursuant to Securities Exchange Act Rule 13a-15.
Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls
and procedures are effective in ensuring that information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC's rules and forms.
(b) Changes in internal controls over financial reporting. There have been no
changes in the company's internal control over financial reporting that
occurred during the Company's last fiscal quarter to which this report
relates that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial
reporting.
19
PART II - OTHER INFORMATION
Item 4- Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of the Company's stockholders at
its 2003 Annual Meeting held on June 30, 2003 and the votes cast were as set
forth:
(i) The election of Milton Donnenberg and S. Wilzig Izak to serve as directors
of the Company for three year terms expiring in 2006. The votes cast were
as follows:
For Withheld
Milton Donnenberg 5,913,580 858,558
S. Wilzig Izak 5,927,150 844,988
(ii) A change of the Company's name to "Wilshire Enterprises, Inc." The votes
cast were as follows:
For Against Abstain
6,658,124 78,451 35,563
(iii) Advisory Vote on selection of Ernst & Young LLP as independent auditors.
The votes cast were as follows:
For Against Abstain
6,629,610 103,235 39,293
(iv) Shareholder proposal on shareholder rights plan. The votes cast were as
follows:
For Against Abstain Not Voted
1,253,300 3,810,476 97,448 1,610,914
(v) Shareholder proposal to elect Directors annually. The votes cast were as
follows:
For Against Abstain Not Voted
1,208,401 3,862,274 90,549 1,610,914
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302
of Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302
of Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of Chief Executive Officer Pursuant to Section 906
of Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Chief Financial Officer Pursuant to Section 906
of Sarbanes-Oxley Act of 2002
The Company has filed the following Form 8-K for the quarter ended
September 30, 2003.
Date of Report
(Date of Earliest Event) Filing Dates Subject
- ------------------------ ------------ -------
August 18, 2003 August 19, 2003 Item 9 - Results of fiscal quarter ended June 30, 2003 and press Release.
September 4, 2003 September 4, 2003 Item 9 - Press release announcing that several parties have approached the
Company's investment bankers expressing a preliminary interest in
acquiring the Company.
20
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILSHIRE ENTERPRISES, INC.
--------------------------
(Registrant)
Date: November 14, 2003 /s/S. Wilzig Izak
-----------------
By: S. Wilzig Izak
Chairman of the Board and Chief Executive Officer
/s/Philip G. Kupperman
----------------------
By: Philip G. Kupperman
President and Chief Financial Officer