Attached files
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EX-32.1 - WILSHIRE ENTERPRISES INC | v193414_ex32-1.htm |
EX-31.1 - WILSHIRE ENTERPRISES INC | v193414_ex31-1.htm |
EX-31.2 - WILSHIRE ENTERPRISES INC | v193414_ex31-2.htm |
EX-32.2 - WILSHIRE ENTERPRISES INC | v193414_ex32-2.htm |
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
quarterly period ended
June 30,
2010
Commission file number 1-4673
WILSHIRE ENTERPRISES,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
84-0513668
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer
Identification
No.)
|
1
Gateway Center, Newark, New Jersey
|
07102
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(201)
420-2796
(Registrant’s telephone
number, including area code)
(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 has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Smaller reporting
|
|
||
Large accelerated filer
¨
|
Accelerated filer
¨
|
Non-accelerated filer
¨
|
Company
|
x
|
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of August 12, 2010.
Common
Stock $1 Par Value —— 4,141,099
WILSHIRE
ENTERPRISES, INC.
INDEX
Page No.
|
|
Part I -Financial
Information
|
3
|
Item
1. Financial Statements
|
3
|
Condensed
Consolidated Balance Sheets -
|
|
June
30, 2010 (Unaudited) and December 31, 2009
|
3
|
Unaudited
Condensed Consolidated Statements of Operations -
|
|
Three
months ended June 30, 2010 and 2009
|
4
|
Unaudited
Condensed Consolidated Statements of Operations -
|
|
Six
months ended June 30, 2010 and 2009
|
5
|
Unaudited
Condensed Consolidated Statement of Stockholders’ Equity -
|
|
Six
months ended June 30, 2010
|
6
|
Unaudited
Condensed Consolidated Statements of Cash Flows -
|
|
Six
months ended June 30, 2010 and 2009
|
7
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
8
|
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
3. Quantitative
and Qualitative Disclosure About Market Risk
|
21
|
4T. Controls
and Procedures
|
22
|
Part II - Other Information
|
23
|
Item
6. Exhibits
|
23
|
Signatures
|
24
|
2
PART I - FINANCIAL
INFORMATION
Item 1. Financial
Statements
WILSHIRE
ENTERPRISES, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
June 30, 2010
(Unaudited)
|
December 31, 2009
(Note 1)
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash and
cash equivalents
|
$ | 3,148,000 | $ | 4,263,000 | ||||
Restricted
cash
|
172,000 | 197,000 | ||||||
Accounts
receivable, net
|
87,000 | 181,000 | ||||||
Income
taxes receivable
|
1,531,000 | 1,086,000 | ||||||
Prepaid
expenses and other current assets
|
1,030,000 | 1,260,000 | ||||||
Total
current assets
|
5,968,000 | 6,987,000 | ||||||
Other
noncurrent assets
|
202,000 | 233,000 | ||||||
Property
and equipment:
|
||||||||
Real
estate properties
|
39,812,000 | 39,432,000 | ||||||
Real
estate properties - held for sale
|
4,645,000 | 4,640,000 | ||||||
44,457,000 | 44,072,000 | |||||||
Less:
|
||||||||
Accumulated
depreciation and amortization
|
19,010,000 | 18,441,000 | ||||||
Accumulated
depreciation and amortization – property held for sale
|
371,000 | 371,000 | ||||||
25,076,000 | 25,260,000 | |||||||
Total
assets
|
$ | 31,246,000 | $ | 32,480,000 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of long-term debt
|
$ | 589,000 | $ | 572,000 | ||||
Accounts
payable
|
1,203,000 | 1,272,000 | ||||||
Income
taxes payable
|
90,000 | 90,000 | ||||||
Accrued
liabilities
|
362,000 | 1,093,000 | ||||||
Deferred
income
|
146,000 | 108,000 | ||||||
Current
liabilities associated with discontinued operations
|
150,000 | 166,000 | ||||||
Total
current liabilities
|
2,540,000 | 3,301,000 | ||||||
Noncurrent
liabilities:
|
||||||||
Long-term
debt, less current portion
|
27,139,000 | 27,444,000 | ||||||
Deferred
income taxes
|
567,000 | 464,000 | ||||||
Deferred
income
|
63,000 | 71,000 | ||||||
Total
liabilities
|
30,309,000 | 31,280,000 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity:
|
||||||||
Preferred
stock, $1 par value, 1,000,000 shares authorized; none issued and
outstanding at June 30, 2010 and December 31, 2009
|
- | - | ||||||
Common
stock, $1 par value, 15,000,000 shares authorized; issued 5,966,164 shares
at June 30, 2010 and at December 31, 2009
|
5,966,000 | 5,966,000 | ||||||
Capital
in excess of par value
|
5,362,000 | 5,340,000 | ||||||
Treasury
stock, 1,825,065 shares at June 30, 2010 and 2,088,130 shares at December
31, 2009, at cost
|
(9,549,000 | ) | (9,867,000 | ) | ||||
Accumulated
deficit
|
(842,000 | ) | (239,000 | ) | ||||
Total
stockholders’ equity
|
937,000 | 1,200,000 | ||||||
Total
liabilities and stockholders' equity
|
$ | 31,246,000 | $ | 32,480,000 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
3
WILSHIRE
ENTERPRISES, INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three
Months Ended June 30, 2010 and 2009
2010
|
2009
|
|||||||
Revenues
|
$ | 2,169,000 | $ | 2,261,000 | ||||
Costs
and Expenses
|
||||||||
Operating
expenses
|
1,362,000 | 1,449,000 | ||||||
Depreciation
and amortization expense
|
272,000 | 265,000 | ||||||
General
and administrative
|
521,000 | 868,000 | ||||||
Total
costs and expenses
|
2,155,000 | 2,582,000 | ||||||
Income
(loss) from operations
|
14,000 | (321,000 | ) | |||||
Other
Income
|
||||||||
Dividend
and interest income
|
2,000 | 9,000 | ||||||
Interest
expense
|
(412,000 | ) | (437,000 | ) | ||||
Loss
before benefit for income taxes
|
(396,000 | ) | (749,000 | ) | ||||
.
|
||||||||
Income
tax benefit
|
(142,000 | ) | (264,000 | ) | ||||
Loss
from continuing operations
|
(254,000 | ) | (485,000 | ) | ||||
Discontinued
Operations - Real Estate, Net of Taxes:
|
||||||||
Loss
from operations
|
(52,000 | ) | (105,000 | ) | ||||
Discontinued
Operations - Oil & Gas, Net of Taxes:
|
||||||||
Income
(loss) from operations
|
21,000 | (73,000 | ) | |||||
Net
loss
|
$ | (285,000 | ) | $ | (663,000 | ) | ||
Basic
net loss per common share:
|
||||||||
Loss
from continuing operations
|
$ | (0.07 | ) | $ | (0.06 | ) | ||
Income
(loss) from discontinued operations -
|
||||||||
Real
estate - loss from operations
|
(0.01 | ) | (0.01 | ) | ||||
Oil
and gas – income (loss) from operations
|
0.01 | (0.01 | ) | |||||
Net
loss applicable to common stockholders
|
$ | (0.07 | ) | $ | (0.08 | ) | ||
Diluted
net loss per common share:
|
||||||||
Loss
from continuing operations
|
$ | (0.07 | ) | $ | (0.06 | ) | ||
Income
(loss) from discontinued operations -
|
||||||||
Real
estate - loss from operations
|
(0.01 | ) | (0.01 | ) | ||||
Oil
and gas - income (loss) from operations
|
0.01 | (0.01 | ) | |||||
Net
loss applicable to common stockholders
|
$ | (0.07 | ) | $ | (0.08 | ) |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
4
WILSHIRE
ENTERPRISES, INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six
Months Ended June 30, 2010 and 2009
2010
|
2009
|
|||||||
Revenues
|
$ | 4,360,000 | $ | 4,540,000 | ||||
Costs
and Expenses
|
||||||||
Operating
expenses
|
2,729,000 | 2,783,000 | ||||||
Depreciation
and amortization expense
|
574,000 | 586,000 | ||||||
General
and administrative
|
1,040,000 | 2,165,000 | ||||||
Total
costs and expenses
|
4,343,000 | 5,534,000 | ||||||
Income
(loss) from operations
|
17,000 | (994,000 | ) | |||||
Other
Income
|
||||||||
Dividend
and interest income
|
5,000 | 25,000 | ||||||
Other
income
|
5,000 | 2,000 | ||||||
Interest
expense
|
(822,000 | ) | (866,000 | ) | ||||
Loss
before benefit for income taxes
|
(795,000 | ) | (1,833,000 | ) | ||||
.
|
||||||||
Income
tax benefit
|
(278,000 | ) | (679,000 | ) | ||||
Loss
from continuing operations
|
(517,000 | ) | (1,154,000 | ) | ||||
Discontinued
Operations - Real Estate, Net of Taxes:
|
||||||||
Loss
from operations
|
(97,000 | ) | (253,000 | ) | ||||
Discontinued
Operations - Oil & Gas, Net of Taxes:
|
||||||||
Income
from operations
|
11,000 | 13,000 | ||||||
Net
loss
|
$ | (603,000 | ) | $ | (1,394,000 | ) | ||
Basic
net loss per common share:
|
||||||||
Loss
from continuing operations
|
$ | (0.13 | ) | $ | (0.14 | ) | ||
Income
(loss) from discontinued operations -
|
||||||||
Real
estate - loss from operations
|
(0.02 | ) | (0.03 | ) | ||||
Oil
and gas – income from operations
|
0.00 | 0.00 | ||||||
Net
loss applicable to common stockholders
|
$ | (0.15 | ) | $ | (0.17 | ) | ||
Diluted
net loss per common share:
|
||||||||
Loss
from continuing operations
|
$ | (0.13 | ) | $ | (0.14 | ) | ||
Income
(loss) from discontinued operations -
|
||||||||
Real
estate - loss from operations
|
(0.02 | ) | (0.03 | ) | ||||
Oil
and gas - income from operations
|
0.00 | 0.00 | ||||||
Net
loss applicable to common stockholders
|
$ | (0.15 | ) | $ | (0.17 | ) |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
5
WILSHIRE
ENTERPRISES, INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Six
Months Ended June 30, 2010
Preferred Stock
|
Common Stock
|
Capital in
Excess of
|
Accumulated
|
Treasury
|
Total
Stockholders'
|
|||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Par
Value
|
Deficit
|
Stock
|
Equity
|
|||||||||||||||||||||||||
Balance,
January 1, 2010
|
- | - | 5,966,164 | $ | 5,966,000 | $ | 5,340,000 | $ | (239,000 | ) | $ | (9,867,000 | ) | $ | 1,200,000 | |||||||||||||||||
Net
loss
|
(603,000 | ) | (603,000 | ) | ||||||||||||||||||||||||||||
Grant
of 263,065 shares of common stock at $1.21 per share
|
318,000 | 318,000 | ||||||||||||||||||||||||||||||
Amortization
of compensation associated with stock and stock option
awards
|
22,000 | 22,000 | ||||||||||||||||||||||||||||||
Balance,
June 30, 2010
|
- | $ | - | 5,966,164 | $ | 5,966,000 | $ | 5,362,000 | $ | (842,000 | ) | $ | (9,549,000 | ) | $ | 937,000 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
6
WILSHIRE
ENTERPRISES, INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six
Months Ended June 30, 2010 and 2009
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (603,000 | ) | $ | (1,394,000 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
574,000 | 586,000 | ||||||
Stock-based
compensation expense
|
22,000 | 87,000 | ||||||
Amortization
of mortgage finance costs
|
31,000 | 32,000 | ||||||
Increase
(decrease) in deferred income taxes, net
|
103,000 | (16,000 | ) | |||||
Increase
in deferred income
|
30,000 | 36,000 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)
decrease in accounts receivable
|
94,000 | (59,000 | ) | |||||
Increase
in income taxes receivable
|
(445,000 | ) | (821,000 | ) | ||||
(Increase)
decrease in prepaid expenses and other current assets
|
230,000 | (251,000 | ) | |||||
Decrease
in accounts payable, accrued liabilities, income taxes payable and current
liabilities associated with discontinued operations
|
(498,000 | ) | (416,000 | ) | ||||
Net
cash used in operating activities
|
(462,000 | ) | (2,216,000 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Capital
expenditures - real estate
|
(390,000 | ) | (102,000 | ) | ||||
Proceeds
from redemptions of marketable securities
|
- | 2,000,000 | ||||||
(Increase)
decrease in restricted cash
|
25,000 | (2,000 | ) | |||||
Net
cash (used in) provided by investing activities
|
(365,000 | ) | 1,896,000 | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from issuance of debt
|
- | 4,582,000 | ||||||
Principal
payments of long-term debt
|
(288,000 | ) | (4,143,000 | ) | ||||
Financing
costs
|
- | (100,000 | ) | |||||
Net
cash (used in) provided by financing activities
|
(288,000 | ) | 339,000 | |||||
Net
increase (decrease) in cash and cash equivalents
|
(1,115,000 | ) | 19,000 | |||||
CASH
AND CASH EQUIVALENTS, beginning of period
|
4,263,000 | 13,023,000 | ||||||
CASH
AND CASH EQUIVALENTS, end of period
|
$ | 3,148,000 | $ | 13,042,000 | ||||
SUPPLEMENTAL
DISCLOSURES TO THE STATEMENTS OF CASH FLOWS:
|
||||||||
Cash
paid during the period for -
|
||||||||
Interest
|
$ | 792,000 | $ | 832,000 | ||||
Income
taxes, net
|
$ | 18,000 | $ | 9,900 |
SUPPLEMENTAL
DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
During
the six months ended June 30, 2010, 247,933 shares of common stock, valued at
$300,000, were issued in lieu of bonuses accrued during 2009 and 2008, and
15,132 shares of common stock, valued at $18,000 were granted to employees and
consultants.
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
7
WILSHIRE
ENTERPRISES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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. Although Wilshire Enterprises, Inc.
(“registrant”, the “Company”, “Wilshire”, “we”, “us”, or “our”) believes that
the disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations. These unaudited condensed consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's latest Annual Report on Form 10-K, as
amended. The accompanying condensed consolidated balance sheet as of December
31, 2009 has been derived from the audited balance sheet as of that date
included in the Form 10-K. In the opinion of management, this condensed
consolidated financial information reflects all adjustments necessary to present
fairly the results for the interim periods. The results of operations for the
three and six months ended June 30, 2010 are not necessarily indicative of the
results to be expected for the year ending December 31, 2010 or any other
subsequent period.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Assets measured at fair
value on a recurring basis:
The
Company follows the accounting guidance in accordance with Accounting Standards
Codification (“ASC”) Topic 820 – “Fair Value Measurements” (“ASC Topic
820”). ASC Topic 820 provides a single definition of fair value and a
common framework for measuring fair value as well as new disclosure requirements
for fair value measurements used in financial statements. Under ASC Topic 820,
fair value is determined based upon the exit price that would be received by a
company to sell an asset or paid a company to transfer a liability in an orderly
transaction between market participants, exclusive of any transaction costs.
Fair value measurements are determined by either the principal market or the
most advantageous market. The principal market is the market with the greatest
level of activity and volume for the asset or liability. Absent a principal
market to measure fair value, the Company has used the most advantageous market,
which is the market where the Company would receive the highest selling price
for the asset or pay the lowest price to settle the liability, after considering
transaction costs. However, when using the most advantageous market, transaction
costs are only considered to determine which market is the most advantageous and
these costs are then excluded when applying a fair value
measurement.
ASC Topic
820 creates a three-level hierarchy to prioritize the inputs used in the
valuation techniques to derive fair values. The basis for fair value
measurements for each level within the hierarchy is described below, with Level
1 having the highest priority and Level 3 having the lowest.
Level 1:
Quoted prices in active markets for identical assets or
liabilities.
Level 2:
Quoted prices for similar assets or liabilities in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations in which all significant inputs are observable in
active markets.
Level 3:
Valuations derived from valuation techniques in which one or more significant
inputs are unobservable.
Following
are the major categories of assets measured at fair value on a recurring basis
as of the six months ended June 30, 2010 using quoted prices in active markets
for identical assets (Level 1); significant other observable inputs (Level 2);
and significant unobservable inputs (Level 3):
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Cash
equivalents and restricted cash
|
$
|
3,320,000
|
$
|
-
|
$
|
-
|
$
|
3,320,000
|
The
Company’s investment in cash equivalents consists of short-term (less than 90
days) investments in money market funds and is priced at fair value, thus
recorded in Level 1 above.
8
Accounting
for Stock-Based Compensation:
The
Company recorded charges of $10,000 and $18,000 during the three months ended
June 30, 2010 and 2009, respectively, and $20,000 and $34,000 during the six
month periods ended June 30, 2010 and 2009, respectively, in connection with the
issuance of stock options to employees and non-employee directors. The effect of
the expense related to the issuance of stock options issued to employees and
non-employee directors on basic and diluted earnings per share was not material
for the three and six months ended June 30, 2010 and 2009.
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model. The Company recognizes the fair value of
each option as compensation expense ratably using the straight-line attribution
method over the service period, which is generally the vesting period. The
Black-Scholes model incorporates the following assumptions:
·
|
Expected
volatility - the Company estimates the volatility of common stock at the
date of grant using historical
volatility.
|
·
|
Expected
term - the Company estimates the expected term of options granted based on
a combination of vesting schedules, term of the option and historical
experience.
|
·
|
Risk-free
interest rate - the Company estimates the risk-free interest rate using
the U.S. Treasury yield curve for periods equal to the expected term of
the options in effect at the time of
grant.
|
·
|
Dividends
- the Company uses an expected dividend yield of zero despite the fact
that the Company paid a one-time distribution of $3.00 per share during
2006. The Company intends to retain any earnings to fund future operations
and potentially invest in additional real estate
activities.
|
Pursuant
to the provisions of the 2004 Non-Employee Directors Stock Option Plan, no stock
options were granted during the three and six months ended June 30, 2010 and
stock options covering 25,000 and 35,000 shares were granted during the three
and six months ended June 30, 2009 to a non-employee director. The
fair value of stock options was estimated using the Black-Scholes option-pricing
model based on the variables presented in the following table.
Six months ended
June 30, 2009
|
Three months ended
June 30, 2009
|
||||
Risk
free interest rate
|
2.41%
- 2.84
|
%
|
2.41%
|
||
%Volatility
|
67.15%
- 68.03
|
%
|
67.15%
|
||
Dividend
yield
|
-
|
%
|
-%
|
||
Expected
option term
|
10
years
|
10
years
|
As of
June 30, 2010, the Company had total unrecognized compensation expense related
to options granted to non-employee directors of $50,000, which will be
recognized over a remaining average period of 2.2 years.
9
2.
|
Segment
Information:
|
The
Company conducts real estate operations in the United States, principally
consisting of residential apartment and condominium complexes and commercial and
retail properties. Continuing real estate revenues, operating expenses, net
operating income (“NOI”) and recurring capital improvements for the reportable
segments are summarized below and reconciled to the consolidated net loss from
continuing operations for the three and six months ended June 30, 2010 and 2009.
Asset information is not reported since Wilshire does not use this measure to
assess performance.
Three Months Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Real
estate revenues:
|
||||||||
Residential
|
$
|
1,900,000
|
$
|
1,899,000
|
||||
Commercial
|
269,000
|
362,000
|
||||||
Totals
|
$
|
2,169,000
|
$
|
2,261,000
|
||||
Real
estate operating expenses:
|
||||||||
Residential
|
$
|
1,196,000
|
$
|
1,267,000
|
||||
Commercial
|
166,000
|
182,000
|
||||||
Totals
|
$
|
1,362,000
|
$
|
1,449,000
|
||||
Net
operating income (“NOI”):
|
||||||||
Residential
|
$
|
704,000
|
$
|
632,000
|
||||
Commercial
|
103,000
|
180,000
|
||||||
Totals
|
$
|
807,000
|
$
|
812,000
|
||||
Capital
improvements:
|
||||||||
Residential
|
$
|
153,000
|
$
|
23,000
|
||||
Commercial
|
31,000
|
36,000
|
||||||
Totals
|
$
|
184,000
|
$
|
59,000
|
||||
Reconciliation
of NOI to consolidated loss from continuing operations:
|
||||||||
Segment
NOI
|
$
|
807,000
|
$
|
812,000
|
||||
Total
other income
|
2,000
|
9,000
|
||||||
Depreciation
and amortization expense
|
(272,000
|
)
|
(265,000
|
)
|
||||
General
and administrative expense
|
(521,000
|
)
|
(868,000
|
)
|
||||
Interest
expense
|
(412,000
|
)
|
(437,000
|
)
|
||||
Income
tax benefit
|
142,000
|
264,000
|
||||||
Loss
from continuing operations
|
$
|
(254,000
|
)
|
$
|
(485,000
|
)
|
10
Six Months Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Real
estate revenues:
|
||||||||
Residential
|
$
|
3,800,000
|
$
|
3,841,000
|
||||
Commercial
|
560,000
|
699,000
|
||||||
Totals
|
$
|
4,360,000
|
$
|
4,540,000
|
||||
Real
estate operating expenses:
|
||||||||
Residential
|
$
|
2,398,000
|
$
|
2,442,000
|
||||
Commercial
|
331,000
|
341,000
|
||||||
Totals
|
$
|
2,729,000
|
$
|
2,783,000
|
||||
Net
operating income (“NOI”):
|
||||||||
Residential
|
$
|
1,402,000
|
$
|
1,399,000
|
||||
Commercial
|
229,000
|
358,000
|
||||||
Totals
|
$
|
1,631,000
|
$
|
1,757,000
|
||||
Capital
improvements:
|
||||||||
Residential
|
$
|
221,000
|
$
|
32,000
|
||||
Commercial
|
159,000
|
65,000
|
||||||
Totals
|
$
|
380,000
|
$
|
97,000
|
||||
Reconciliation
of NOI to consolidated loss from continuing operations:
|
||||||||
Segment
NOI
|
$
|
1,631,000
|
$
|
1,757,000
|
||||
Total
other income
|
10,000
|
27,000
|
||||||
Depreciation
and amortization expense
|
(574,000
|
)
|
(586,000
|
)
|
||||
General
and administrative expense
|
(1,040,000
|
)
|
(2,165,000
|
)
|
||||
Interest
expense
|
(822,000
|
)
|
(866,000
|
)
|
||||
Income
tax benefit
|
278,000
|
679,000
|
||||||
Loss
from continuing operations
|
$
|
(517,000
|
)
|
$
|
(1,154,000
|
)
|
11
3.
|
Loss Per
Share:
|
The
following table sets forth the computation of basic and diluted loss per common
share:
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Numerator-
|
||||||||||||||||
Net
loss – basic and diluted
|
$ | (285,000 | ) | $ | (663,000 | ) | $ | (603,000 | ) | $ | (1,394,000 | ) | ||||
Denominator-
|
||||||||||||||||
Weighted
average common shares outstanding – basic
|
4,141,099 | 8,050,900 | 4,040,815 | 8,048,310 | ||||||||||||
Incremental
shares from assumed conversions of stock options
|
- | - | - | - | ||||||||||||
Weighted
average common shares outstanding – diluted
|
4,141,099 | 8,050,900 | 4,040,815 | 8,048,310 | ||||||||||||
Basic
loss per share:
|
$ | (0.07 | ) | $ | (0.08 | ) | $ | (0.15 | ) | $ | (0.17 | ) | ||||
Diluted
loss per share:
|
$ | (0.07 | ) | $ | (0.08 | ) | $ | (0.15 | ) | $ | (0.17 | ) |
For the
three months ended June 30, 2010 and 2009, 131,859 and 135,000,
respectively, potentially dilutive securities have been excluded from
the calculation of net loss per common share since the effects of such
potentially dilutive securities would be anti-dilutive because the Company
incurred net losses in each period presented. For the six months
ended June 30, 2010 and 2009, 131,859 and 133,971,
respectively, potentially dilutive securities have been excluded from
the calculation of net loss per common share since the effects of such
potentially dilutive securities would be anti-dilutive because the Company
incurred net losses in each period presented.
4.
|
Commitments and
Contingencies:
|
On June
3, 2004, the Company announced a program to purchase up to 1,000,000 shares
of its common stock on the open market, in privately negotiated transactions or
otherwise. This purchasing activity may occur from time to time, in one or more
transactions. From the inception of the authorization through June 30, 2010, the
Company had purchased 138,231 shares under this program at an approximate cost
of $1,017,000. No shares were purchased during the
six months ended June 30, 2010.
5.
|
Fair value of
financial instruments
|
The
following disclosures of estimated fair value were determined by management,
using available market information and appropriate valuation methodologies.
Considerable judgment is necessary to interpret market data and develop
estimated fair values. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize on disposition
of the financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Cash
equivalents, accounts receivable, and accounts payable reasonably approximate
their fair values due to the short maturities of these items.
Mortgage
notes payable have an estimated fair value based on discounted cash flow models
of approximately $28.3 million at June 30, 2010, which is greater than the
carrying value by $600,000.
Disclosure
about fair value of financial instruments is based on pertinent information
available to management as of June 30, 2010.
12
6.
|
Stock Option
Plans:
|
Pursuant
to the provisions of the 2004 Non-Employee Directors Stock Option Plan, no stock
options were granted during the three and six months ended June 30, 2010. A
stock option covering 10,000 shares was granted to a newly appointed independent
director on January 9, 2009 at an exercise price of $1.285 per share with a four
year vesting period and a ten year life. In addition, on April 20,
2009, the independent members of the Company’s Board of Directors were granted
5,000 options each, totaling 25,000 options at an exercise price of $1.50 per
share with a four year vesting period and a ten year life. No options
were granted under the 2004 Stock Option and Incentive Plan during the three and
six months ended June 30, 2010 or 2009.
A summary
of option activity under the option plans as of June 30, 2010 and changes during
the six month period then ended is presented below:
Shares
|
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Options
outstanding at January 1, 2010
|
142,500
|
$
|
5.03
|
6.3
|
$
|
-
|
||||||||||
Options
granted
|
-
|
-
|
-
|
-
|
||||||||||||
Options
exercised
|
-
|
-
|
-
|
-
|
||||||||||||
Options
terminated and expired
|
(15,000
|
)
|
1.36
|
9.1
|
-
|
|||||||||||
Options
outstanding and expected to vest at June 30, 2010
|
127,500
|
$
|
5.46
|
5.5
|
$
|
-
|
||||||||||
Options
exercisable at June 30, 2010
|
102,500
|
$
|
6.03
|
4.8
|
$
|
-
|
A summary
of the status of the Company’s nonvested restricted shares as of June 30, 2010
and changes during the six months ended June 30, 2010 are presented
below:
Nonvested Shares
|
Shares
|
Weighted-Average
Grant-Date Fair
Value
|
||||||
Nonvested
shares at January 1, 2010
|
4,089
|
$
|
3.05
|
|||||
Shares
Granted
|
-
|
-
|
||||||
Shares
Vested
|
2,045
|
3.05
|
||||||
Shares
Forfeited
|
-
|
-
|
||||||
Nonvested
shares at June 30, 2010
|
2,044
|
$
|
3.05
|
13
7.
|
Income
Taxes:
|
The
Company accounts for income taxes in annual periods by applying the asset and
liability approach. The Company’s interim period income tax provisions
(benefits) are recognized based upon projected effective income tax rates for
the fiscal year in its entirety and, therefore, requires management of the
Company to make estimates of future income, expense and differences between
financial accounting and income tax requirements in the jurisdictions in which
the Company is taxed. Material differences between tax rates in the
jurisdictions in which the Company is taxed and the effective income tax rates
are attributable to differences related to financial accounting and tax
depreciation methods, share-based payment arrangements and non-deductible
amortization of intangible assets. The Company’s effective income tax rates are
subject to ongoing evaluation and adjustment based upon facts and circumstances
surrounding our estimation of future income and expense and differences between
financial statement and taxable income (loss).
The
amount of income taxes and related income tax positions taken is subject to
audits by federal and state tax authorities. The Company’s estimate of the
potential outcome of any uncertain tax position is subject to management’s
assessment of relevant risks, facts, and circumstances existing at that time,
pursuant to ASC Topic 740 “Income Taxes” (“ASC Topic 740”) which requires a
more-likely-than-not threshold for financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax return. The
Company’s policy is to record a liability for the difference between the benefit
recognized and measured pursuant to ASC Topic 740 and tax position taken or
expected to be taken on the tax return. Then, to the extent that the assessment
of such tax positions changes, the change in estimate is recorded in the period
in which the determination is made. During the periods reported, management of
the Company has concluded that no significant tax position requires recognition
under ASC Topic 740.
The
Company recognizes interest and penalties related to uncertain tax positions in
income tax expense. The tax years 2006, 2007 and 2008 remain open to examination
by the major taxing jurisdictions to which the Company is subject.
Although
the Company anticipates that future profitability from operations and potential
tax planning strategies will enable it to utilize its state tax loss
carry-forwards, a valuation allowance has been provided for a portion of the
deferred tax asset in the amount of $386,000. During the three and six
months ended June 30, 2010, the Company provided for a valuation allowance
related to state taxes in the amount of $17,000 and $45,000,
respectively. This amount has been provided since the Company
believes it is more likely than not that the deferred tax asset will not be
fully realized. The Company’s position with respect to the likelihood of
recoverability of this deferred tax asset will be evaluated each reporting
period.
14
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
The
following discussion addresses the Company’s results of operations for the three
and six months ended June 30, 2010 compared to the three and six months ended
June 30, 2009 and the Company’s consolidated financial condition as of June 30,
2010. It is presumed that readers have read or have access to Wilshire’s 2009
Annual Report on Form 10-K, as amended, which includes disclosures regarding
critical accounting policies as part of Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
Forward-Looking
Statements
This
Report on Form 10-Q for the quarter ended June 30, 2010 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 environmental risks
relating to the Company’s real estate properties, competition, the substantial
capital expenditures required to fund the Company’s 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. For additional information
regarding risk factors impacting the Company and its forward-looking statements,
see Item 1A of the Company’s Annual Report on Form 10-K, as amended, for the
year ended December 31, 2009.
Effects of Recent Accounting
Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued an amendment to
the accounting and disclosure requirements for transfers of financial assets.
This amendment requires greater transparency and additional disclosures for
transfers of financial assets and the entity’s continuing involvement with them
and changes the requirements for derecognizing financial assets. In addition,
this amendment eliminates the concept of a qualifying special-purpose entity
(“QSPE”). This amendment is effective for financial statements issued for fiscal
years beginning after November 15, 2009. This amendment did not have a material
effect on our consolidated financial position, results of operations or
liquidity.
In June
2009, the FASB also issued an amendment to the accounting and disclosure
requirements for the consolidation of variable interest entities (“VIEs”). The
elimination of the concept of a QSPE, as discussed above, removes the exception
from applying the consolidation guidance within this amendment. This amendment
requires an enterprise to perform a qualitative analysis when determining
whether or not it must consolidate a VIE. The amendment also requires an
enterprise to continuously reassess whether it must consolidate a VIE.
Additionally, the amendment requires enhanced disclosures about an enterprise’s
involvement with VIEs and any significant change in risk exposure due to that
involvement, as well as how its involvement with VIEs impacts the enterprise’s
financial statements. Finally, an enterprise will be required to disclose
significant judgments and assumptions used to determine whether or not to
consolidate a VIE. This amendment is effective for financial statements issued
for fiscal years beginning after November 15, 2009. This amendment did not have
a material effect on our consolidated financial position, results of operations
or liquidity.
Overview
Net loss
for the three months ended June 30, 2010 was $285,000 or $0.07 per diluted share
as compared to a net loss of $663,000 or $0.08 per diluted share for the three
months ended June 30, 2009. For the six months ended June 30, 2010,
the Company recorded a net loss of $603,000 or $0.15 per diluted share as
compared to a net loss of $1,394,000 or $0.17 per diluted share for the six
months ended June 30, 2009. Operations are shown as continuing and
discontinued, with discontinued operations comprised of the results of
operations from the Company’s real estate properties held for sale and the wind
down of the oil and gas businesses.
15
The
following table presents the increases (decreases) in each major statements of
operations category for the three and six months ended June 30, 2010 as compared
to 2009. The following discussion of “Results of Operations” references these
increases (decreases).
Increase
(Decrease) in Consolidated Statements of Operations Categories for the
Periods:
For the three months ended June 30,
|
For the six months ended June 30,
|
|||||||||||||||
2010 vs. 2009
|
2010 vs. 2009
|
|||||||||||||||
Amount ($)
|
%
|
Amount ($)
|
%
|
|||||||||||||
Revenues
|
$ | (92,000 | ) | -4.1 | % | $ | (180,000 | ) | -4.0 | % | ||||||
Costs
and expenses:
|
||||||||||||||||
Operating
expenses
|
(87,000 | ) | -6.0 | % | (54,000 | ) | -1.9 | % | ||||||||
Depreciation
|
7,000 | 2.6 | % | (12,000 | ) | -2.0 | % | |||||||||
General
and administrative
|
(347,000 | ) | -40.0 | % | (1,125,000 | ) | -52.0 | % | ||||||||
Total
costs and expenses
|
(427,000 | ) | (1,191,000 | ) | ||||||||||||
Income
(loss) from Operations
|
335,000 | 1,011,000 | ||||||||||||||
Other
Income
|
||||||||||||||||
Dividend
and interest income
|
(7,000 | ) | -77.8 | % | (20,000 | ) | -80.0 | % | ||||||||
Other
income
|
- | - | 3,000 | 150.0 | % | |||||||||||
Interest
expense
|
25,000 | -5.7 | % | 44,000 | -5.1 | % | ||||||||||
Loss
before benefit for income taxes
|
353,000 | 1,038,000 | ||||||||||||||
Income
tax benefit
|
122,000 | -46.2 | % | 401,000 | -59.1 | % | ||||||||||
Loss
from continuing operations
|
231,000 | 637,000 | ||||||||||||||
Discontinued
operations - real estate
|
||||||||||||||||
Loss
from operations
|
53,000 | -50.5 | % | 156,000 | -61.7 | % | ||||||||||
Discontinued
operations - oil & gas
|
- | |||||||||||||||
Income
(loss) from operations
|
94,000 | -128.8 | % | (2,000 | ) | -15.4 | % | |||||||||
Net
loss
|
$ | 378,000 | -57.0 | % | $ | 791,000 | -56.7 | % | ||||||||
Basic
loss per share:
|
||||||||||||||||
Loss
from continuing operations
|
$ | - | - | $ | 0.02 | -10.8 | % | |||||||||
Income
(loss) from discontinued operations
|
0.02 | -72.39 | % | $ | 0.01 | -23.6 | % | |||||||||
Net
loss applicable to common shareholders
|
$ | 0.02 | -22.5 | % | $ | 0.02 | -12.3 | % | ||||||||
Diluted
loss per share:
|
||||||||||||||||
Loss
from continuing operations
|
$ | - | - | $ | 0.02 | -10.8 | % | |||||||||
Income
(loss) from discontinued operations
|
0.02 | -72.39 | % | $ | 0.01 | -23.6 | % | |||||||||
Net
loss applicable to common shareholders
|
$ | 0.02 | -22.5 | % | $ | 0.02 | -12.3 | % |
Results of
Operations
Three
Months Ended June 30, 2010 as Compared with Three Months Ended June 30,
2009
Continuing
Operations:
Loss from
continuing operations amounted to $254,000 during the three months ended June
30, 2010 as compared to a loss from continuing operations of $485,000 during the
three months ended June 30, 2009. Results per diluted share from continuing
operations amounted to $(0.06) during the three months ended June 30, 2010 and
2009. The 2010 period reflects a decrease in general and administrative expense
of $347,000, which primarily relates to decreased professional fees, a decrease
in real estate operating expenses of $87,000 and a decrease in interest expense
of $25,000, which was partially offset by a decrease in revenue of $92,000 and a
decrease in tax benefit of $122,000. Professional fees for the 2009 period
included fees incurred in connection with the Company’s tender offer in
September 2009.
16
Segment
Information
Wilshire
presently conducts business in the residential (including condominiums that it
owns and rents) and commercial real estate segments. The following table sets
forth comparative data for Wilshire’s real estate segments in continuing
operations:
Residential Real Estate
|
Commercial Real Estate
|
Totals
|
||||||||||||||||||||||||||||||||||||||||||||||
Three months
ended
|
Increase
|
Three months
Ended
|
Three months
ended
|
|||||||||||||||||||||||||||||||||||||||||||||
June
30,
|
(Decrease)
|
June
30,
|
Decrease
|
June
30,
|
Decrease
|
|||||||||||||||||||||||||||||||||||||||||||
2010
|
2009
|
$
|
%
|
2010
|
2009
|
$
|
%
|
2010
|
2009
|
$
|
%
|
|||||||||||||||||||||||||||||||||||||
(In
000's of $)
|
(In
000's of $)
|
(In
000's of $)
|
||||||||||||||||||||||||||||||||||||||||||||||
Total
revenues
|
$ | 1,900 | $ | 1,899 | $ | 1 | 0.1 | % | $ | 269 | $ | 362 | $ | (93 | ) | (25.7 | )% | $ | 2,169 | $ | 2,261 | $ | (92 | ) | (4.1 | )% | ||||||||||||||||||||||
Operating
expenses
|
1,196 | 1,267 | (71 | ) | (5.6 | )% | 166 | 182 | (16 | ) | (8.8 | )% | 1,362 | 1,449 | (87 | ) | (6.0 | )% | ||||||||||||||||||||||||||||||
Net
operating income (“NOI”)
|
$ | 704 | $ | 632 | $ | 72 | 11.4 | % | $ | 103 | $ | 180 | $ | (77 | ) | (42.8 | )% | $ | 807 | $ | 812 | $ | (5 | ) | (0.6 | )% |
Reconciliation to
consolidated loss from continuing operations:
2010
|
2009
|
|||||||
Net
operating income
|
$
|
807
|
$
|
812
|
||||
Depreciation
expense
|
(272
|
)
|
(265
|
)
|
||||
General
and administrative expense
|
(521
|
)
|
(868
|
)
|
||||
Other
income
|
2
|
9
|
||||||
Interest
expense
|
(412
|
)
|
(437
|
)
|
||||
Income
tax benefit
|
142
|
264
|
||||||
Loss
from continuing operations
|
$
|
(254
|
)
|
$
|
(485
|
)
|
The above
table details the comparative net operating income (“NOI”) for Wilshire’s
residential and commercial real estate segments, and reconciles the combined NOI
to consolidated loss from continuing operations. NOI is based on operating
revenue and expenses directly associated with the operations of the real estate
properties, but excludes depreciation and interest expense. Wilshire assesses
and measures segment operating results based on NOI, which is a direct measure
of each property’s contribution to the results of the Company before considering
revenues from treasury activities, overhead expenses and other costs that are
not directly related to the performance of a property. The Company believes NOI
is a more descriptive measure of the Company’s performance than loss from
continuing operations. NOI is not a measure of operating results or cash flow as
measured by accounting principles generally accepted in the United States of
America and is not necessarily indicative of cash available to fund cash needs
and should not be considered an alternative to cash flows as a measure of
liquidity.
Residential
Segment
The
residential segment is comprised of Sunrise Ridge Apartments and Van Buren
Apartments, both in Arizona, Wellington Estates and Summercreek Apartments, both
in Texas and Alpine Village Apartments in New Jersey. During the three months
ended June 30, 2010, NOI increased by $72,000 or 11.4% to $704,000 as compared
to $632,000 during the same period in 2009.
Revenues
increased $1,000 or 0.1% during the quarter ended June 30, 2010 to $1,900,000,
compared to $1,899,000 during the quarter ended June 30, 2009. Operating
expenses decreased $71,000 or 5.6% to $1,196,000. The decrease in operating
expenses was primarily attributable to the implementation of greater cost
controls at the Company’s Arizona and Texas apartment complexes.
Commercial
Segment
The
commercial segment is comprised of Royal Mall Plaza in Mesa, Arizona and Tempe
Corporate Center in Tempe, Arizona. During the three months ended June 30, 2010,
NOI decreased by $77,000 or 42.8% to $103,000 as compared to $180,000 during the
same period in 2009. Revenues during the quarter ended June 30, 2010 as compared
to the quarter ended June 30, 2009 decreased $93,000 or 25.7% to $269,000
andoperating expenses decreased $16,000 or 8.8% to $166,000. The revenue
decrease was primarily attributable to decreased occupancy at both Tempe
Corporate Center (Tempe, AZ) and Royal Mall (Arizona) resulting in decreased
rental revenues in the amounts of $63,000 and $30,000, respectively, at each
property. The decreased operating expenses were primarily attributable to
decreased maintenance costs at Tempe Corporate Center in the amount of $14,000,
as well as decreased overall spending at Royal Mall in the amount of
$2,000.
17
Other
Operating Expenses
Depreciation and amortization
expense amounted to $272,000 during the three months ended June 30, 2010,
an increase of $7,000 from $265,000 during the three months ended June 30, 2009.
The increase in depreciation and amortization expense relates to recent
asset additions and capital improvements.
General and administrative
expense decreased $347,000, or 40.0%, to $521,000 during the three months
ended June 30, 2010 as compared to $868,000 during the same period in 2009. The
decrease in general and administrative expense is primarily attributable to
decreased professional fees which were incurred in connection with the Company’s
tender offer during the 2009 period and a decrease in payroll and payroll
related costs associated with the resignation of the Company’s President in
December 2009.
Other income decreased from
$9,000 in the 2009 quarter to $2,000 during the 2010 quarter, a decrease of
$7,000. The decrease is primarily related to a decrease in interest and dividend
income. The decrease in interest and dividend income during the three months
ended June 30, 2010 is a result of the completed tender offer in September 2009
in which the Company expended approximately $8.1 million.
Interest expense decreased to
$412,000 during the three months ended June 30, 2010 as compared to $437,000
during the three months ended June 30, 2009. The decrease primarily relates to
the reduction in the Company’s mortgage liability and the refinancing of the
Summercreek property in May 2009.
The
benefit for income taxes amounted to $142,000 and $264,000 during the three
months ended June 30, 2010 and 2009, respectively. The change in the benefit for
income taxes is related to a decreased loss from continuing operations before
tax and a valuation allowance related to state taxes of $17,000 and $45,000
during the 2010 and 2009 quarters, respectively.
Discontinued
Operations, Net of Taxes:
Real
Estate
The after
tax loss from discontinued operations for the three months ended June 30, 2010
amounted to $52,000 as compared to an after tax loss of $105,000 during the
three months ended June 30, 2009. The after tax losses during the 2010 and 2009
periods reflects the loss from operations.
Oil
and Gas
During
the quarter ended June 30, 2010, the Company recorded income from the wind down
of its former oil and gas business of $21,000 as compared to a loss of $73,000
during the same period in 2009. The net income and loss from the wind down of
the oil and gas business during the quarters ended June 30, 2010 and 2009,
relates to foreign currency income and losses during the
periods.
18
Six
Months Ended June 30, 2010 as Compared with Six Months Ended June 30,
2009
Continuing
Operations:
Loss from
continuing operations was $517,000 during the six months ended June 30, 2010 as
compared to a loss from continuing operations of $1,154,000 during the six
months ended June 30, 2009. Results per diluted share from continuing operations
amounted to $(0.13) during the six months ended June 30, 2010 as compared to
$(0.14) during the six months ended June 30, 2009. The 2010 period reflects a
decrease in general and administrative expense of $1,125,000, which primarily
relates to decreased professional fees which were incurred in connection with
the Company’s tender offer which was completed in September 2009 and decreased
operating expenses of $54,000, which was partially offset by a decrease in
rental revenue of $180,000 and a decrease in the benefit from income taxes of
$401,000.
Segment
Information
Wilshire
presently conducts business in the residential (including condominiums that it
owns and rents) and commercial real estate segments. The following table sets
forth comparative data for Wilshire’s real estate segments in continuing
operations:
Residential Real Estate
|
Commercial Real Estate
|
Totals
|
||||||||||||||||||||||||||||||||||||||||||||||
Six months
Ended
|
Increase
|
Six months
ended
|
Six months
ended
|
|||||||||||||||||||||||||||||||||||||||||||||
June 30,
|
(Decrease)
|
June 30,
|
Decrease
|
June 30,
|
Decrease
|
|||||||||||||||||||||||||||||||||||||||||||
2010
|
2009
|
$
|
%
|
2010
|
2009
|
$
|
%
|
2010
|
2009
|
$
|
%
|
|||||||||||||||||||||||||||||||||||||
(In
000's of $)
|
(In
000's of $)
|
(In
000's of $)
|
||||||||||||||||||||||||||||||||||||||||||||||
Total
revenues
|
$ | 3,800 | $ | 3,841 | $ | (41 | ) | (1.1 | ) % | $ | 560 | $ | 699 | $ | (139 | ) | (19.9 | )% | $ | 4,360 | $ | 4,540 | $ | (180 | ) | (4.0 | )% | |||||||||||||||||||||
Operating
expenses
|
2,398 | 2,442 | (44 | ) | (1.8 | )% | 331 | 341 | (10 | ) | (2.9 | )% | 2,729 | 2,783 | (54 | ) | (1.9 | )% | ||||||||||||||||||||||||||||||
Net
operating income (“NOI”)
|
$ | 1,402 | $ | 1,399 | $ | 3 | 0.2 | % | $ | 229 | $ | 358 | $ | (129 | ) | (36.0 | )% | $ | 1,631 | $ | 1,757 | $ | (126 | ) | (7.2 | )% |
Reconciliation to
consolidated loss from continuing operations:
2010
|
2009
|
|||||||
Net
operating income
|
$
|
1,631
|
$
|
1,757
|
||||
Depreciation
expense
|
(574
|
)
|
(586
|
)
|
||||
General
and administrative expense
|
(1,040
|
)
|
(2,165
|
)
|
||||
Other
income
|
10
|
27
|
||||||
Interest
expense
|
(822
|
)
|
(866
|
)
|
||||
Income
tax benefit
|
278
|
679
|
||||||
Loss
from continuing operations
|
$
|
(517
|
)
|
$
|
(1,154
|
)
|
The above
table details the comparative net operating income (“NOI”) for Wilshire’s
residential and commercial real estate segments, and reconciles the combined NOI
to consolidated loss from continuing operations. NOI is based on operating
revenue and expenses directly associated with the operations of the real estate
properties, but excludes depreciation and interest expense. Wilshire assesses
and measures segment operating results based on NOI, which is a direct measure
of each property’s contribution to the results of the Company before considering
revenues from treasury activities, overhead expenses and other costs that are
not directly related to the performance of a property. The Company believes NOI
is a more descriptive measure of the Company’s performance than loss from
continuing operations. NOI is not a measure of operating results or cash flow as
measured by accounting principles generally accepted in the United States of
America and is not necessarily indicative of cash available to fund cash needs
and should not be considered an alternative to cash flows as a measure of
liquidity.
Residential
Segment
The
residential segment is comprised of Sunrise Ridge Apartments and Van Buren
Apartments, both in Arizona, Wellington Estates and Summercreek Apartments, both
in Texas and Alpine Village Apartments in New Jersey. During the six months
ended June 30, 2010, NOI increased by $3,000 or 0.2% to $1,402,000 as compared
to $1,399,000 during the same period in 2009.
Revenues
decreased $41,000 or 1.1% during the six months ended June 30, 2010 to
$3,800,000, compared to $3,841,000 during the six months ended June 30, 2009.
Operating expenses decreased $44,000 or 1.8% to $2,398,000. The decrease in
revenues was primarily attributable to decreased renewal rates at the Sunrise
Ridge apartment complex and Summercreek apartments as well as increased vacancy
rates at Alpine Village. The decrease in operating expenses was primarily
attributable to the Company’s Arizona and Texas apartment complexes, which was
partially offset by increased operating and insurance costs at Alpine
Village.
19
Commercial
Segment
The
commercial segment is comprised of Royal Mall Plaza in Mesa, Arizona and Tempe
Corporate Center in Tempe, Arizona. During the six months ended June 30, 2010,
NOI decreased by $129,000 or 36.0% to $229,000 as compared to $358,000 during
the same period in 2009. Revenues during the six months ended June 30, 2010, as
compared to the same period in 2009, decreased $139,000 or 19.9% to $560,000 and
operating expenses decreased $10,000 or 2.9% to $331,000. The revenue decrease
was primarily attributable to decreased occupancy at Tempe Corporate Center
(Tempe, AZ) and Royal Mall (Arizona) resulting in decreased rental revenues in
the amounts of $110,000 and $29,000, respectively at each property. The
decreased operating expenses were primarily attributable to decreased
maintenance costs at Tempe Corporate Center in the amount of $14,000, which was
partially offset by increased real estate and maintenance costs at Royal Mall in
the amount of $4,000.
Other
Operating Expenses
Depreciation and amortization
expense amounted to $574,000 during the six months ended June 30, 2010, a
decrease of $12,000 from $586,000 during the six months ended June 30, 2009. The
decrease in depreciation and amortization expense relates to the retirement
of certain assets during the past year, which was partially offset by recent
asset additions and capital improvements.
General and administrative
expense decreased $1,125,000, or 52.0%, to $1,040,000 during the six
months ended June 30, 2010 as compared to $2,165,000 during the same period in
2009. The decrease in general and administrative expense is primarily
attributable to decreased professional fees which were incurred in connection
with the Company’s tender offer during the 2009 period and a decrease in payroll
and payroll related costs associated with the resignation of the Company’s
President in December 2009.
Other income decreased to
$10,000 during the six months ended June 30, 2010 from $27,000 during the six
months ended June 30, 2009, a decrease of $17,000. The decrease is primarily
related to a decrease in interest and dividend income. The decrease in interest
and dividend income during the six months ended June 30, 2010 is a result of the
completed tender offer in September 2009 in which the Company expended
approximately $8.1 million.
Interest expense decreased to
$822,000 during the six months ended June 30, 2010 as compared to $866,000
during the six months ended June 30, 2009. The decrease primarily relates to the
reduction in the Company’s mortgage liability and the refinancing of the
Summercreek property in May 2009.
The
benefit for income taxes amounted to $278,000 and $679,000 during the six months
ended June 30, 2010 and 2009, respectively. The change in the benefit for income
taxes is related to a decreased loss from continuing operations during the six
months ended June 30, 2010 as compared to the same period during
2009.
Discontinued
Operations, Net of Taxes:
Real
Estate
The after
tax loss from discontinued operations for the six months ended June 30, 2010
amounted to $97,000 as compared to an after tax loss of $253,000 during the six
months ended June 30, 2009. The after tax losses during the 2010 and 2009
periods reflects the loss from operations.
Oil
and Gas
During
the six months ended June 30, 2010, the Company recorded income from the wind
down of its former oil and gas business, of $11,000 as compared to income of
$13,000 during the same period in 2009. The net income from the wind down of the
oil and gas business during the six months ended June 30, 2010 and 2009, relates
to foreign currency income during the periods.
20
Liquidity
and Capital Resources
At June
30, 2010, the Company had working capital, including restricted cash, of $3.4
million, compared to working capital of $3.7 million at December 31,
2009. The decrease in working capital during the period primarily
relates to a reduction in cash and cash equivalents in the amount of $1.1
million, a decrease in prepaid expenses and other current assets in the amount
of $200,000, which was partially offset by an increase in income tax receivables
of $400,000 and a decrease in accrued liabilities of $700,000.
The
Company has $3.3 million of cash and cash equivalents and restricted cash at
June 30, 2010. This balance is comprised of working capital accounts for its
real estate properties and corporate needs. In the short-term, the Company will
continue to invest these funds in high quality investments that are consistent
with its investment policy which includes the following objectives: a) To
maintain liquidity which is sufficient to meet any reasonably forecasted cash
requirements; b) To preserve principal through investment in products and
entities that are consistent with the Company’s risk tolerance; and c) To
maximize income consistent with the Company’s liquidity and risk tolerance
criteria. Consistent with this investment policy, the Company only invests in
approved securities such as obligations of the U.S. Treasury, the U.S.
Government and agencies with obligations guaranteed by the U.S. Government and
highly rated municipal and corporate
issuers.
The
Company continues to explore opportunities to invest in its real estate
properties to enhance value and is investigating corporate and real estate
property transactions, both as buyer and seller, as they arise. The timing of
such transactions, if any, will depend upon, among other criteria, economic
conditions and the favorable evaluation of specific opportunities presented to
the Company. As of June 30, 2010, management considers its liquidity position
adequate to fulfill the Company’s current business plans. The
preceding statement constitutes a forward-looking statement.
Net cash
used in operating activities amounted to $462,000 and $2,216,000 for the six
months ended June 30, 2010 and 2009, respectively. During the
six months ended June 30, 2010, the use of cash resulted from a net loss of
$603,000, which was partially offset by the effect of depreciation of real
estate properties and the changes in receivables, prepaid expenses, payables and
current and deferred tax accounts. During the six months ended June 30, 2009,
the use of cash resulted from a net loss of $1,394,000, which was partially
offset by the effect of depreciation of real estate properties, and the changes
in receivables, prepaid expenses, payables and current and deferred tax
accounts.
Net cash
used in investing activities amounted to $365,000 during the six months ended
June 30, 2010 and net cash provided by investing activities amounted to
$1,896,000 for the six month period ended June 30, 2009. The cash used in
investing activities during the six months ended June 30, 2010 primarily relates
to capital expenditures on real estate properties of $390,000, which was
partially offset by a decrease in restricted cash in the amount of
$25,000. The cash provided by investing activities during the six
months ended June 30, 2009 primarily relates to the proceeds from the redemption
and sale of marketable securities in the amount of $2,000,000, which was
partially offset by an increase in restricted cash in the amount of $2,000 and
capital expenditures on real estate properties in the amount of
$102,000.
Net cash
used in financing activities amounted to $288,000 during the six months ended
June 30, 2010 as compared to net cash provided by financing activities of
$339,000 during the six months ended June 30, 2009. During the six months ended
June 30, 2010, the net cash used was attributable to the repayment of scheduled
long-term debt. During the six months ended June 30, 2009, the cash provided was
primarily attributable to the proceeds related to the refinancing of the
Summercreek property in the amount of $4.6 million, which was partially offset
by the repayment of the existing debt on the Summercreek property of $3.8
million and the repayment of scheduled long-term debt in the amount of $343,000
during the period.
The
Company does not have any sources of working capital outside of its business
operations. It does not have any bank lines of credit or contingently
available sources of funds. The Company is currently evaluating
various bank lines of credit and other financing alternatives. The Company
believes it has adequate capital resources to fund its operations for the
foreseeable future. The preceding sentence constitutes a
forward-looking statement.
The
Company is committed to investing in its properties to maintain their
competitiveness within their markets and for the purposes of upgrading and
repositioning where appropriate.
On June
3, 2004, the Board of Directors approved the repurchase of up to 1,000,000
shares of the Company’s common stock on the open market, in privately negotiated
transactions or otherwise. This purchasing activity may occur from time to time,
in one or more transactions. At June 30, 2010, the Company had purchased 138,231
shares at an aggregate cost of $1,017,000 under this program. There
were no shares repurchased by the Company during the six month period June 30,
2010.
Item
3. Quantitative and Qualitative Disclosure About Market Risk
After the
sale of its Canadian oil and gas assets, the Company held cash and cash
equivalents at its Canadian subsidiary. The value is exposed to fluctuations in
the value of the Canadian dollar / U.S. dollar exchange rate. During 2008, the
Company began repatriating its cash held in its Canadian subsidiary as it was
determined that no additional tax liabilities would be levied with respect to
the Company’s tax examination by the Province of Alberta. At June 30,
2010, the Company maintained no cash balances in its Canadian
subsidiary. It is intended that the remaining assets, net of
liabilities, of its Canadian subsidiary will be repatriated during the remainder
of 2010. However, no assurance can be given as to the specific timing of any
such repatriation.
21
Long-term
debt as of June 30, 2010 and December 31, 2009 consists of the
following:
2010
|
2009
|
|||||||
Mortgage
notes payable
|
$
|
27,728,000
|
$
|
28,016,000
|
||||
Less-current
portion
|
589,000
|
572,000
|
||||||
Long-term
portion
|
$
|
27,139,000
|
$
|
27,444,000
|
The
aggregate maturities of the long-term debt in each of the five years subsequent
to June 30, 2010 and thereafter are:
Year Ended
|
Amount
|
|||
June
30, 2011
|
$
|
589,000
|
||
June
30, 2012
|
619,000
|
|||
June
30, 2013
|
22,194,000
|
|||
June
30, 2014
|
72,000
|
|||
June
30, 2015
|
77,000
|
|||
Thereafter
|
4,177,000
|
|||
$
|
27,728,000
|
At June
30, 2010, the Company had $27,728,000 of mortgage debt outstanding which bears
interest at an average fixed rate of 5.64% and a weighted average remaining life
of approximately 2.93 years. The fixed rate mortgages are subject to repayment
(amortization) schedules that are longer than the term of the mortgages. As
such, the approximate amount of balloon payments for all mortgage debt that will
be required is as follows:
Year
|
Amount
|
|||
2013
|
$
|
21,699,000
|
||
Thereafter
|
3,841,000
|
|||
$
|
25,540,000
|
On May
28, 2009, the Company refinanced the existing mortgage on its Summercreek
property for approximately $4.6 million at an interest rate of 5.55% for a ten
year period. In addition, Wilshire expects to re-finance the
remaining individual mortgages with new mortgages when their terms expire. To
this extent, we have exposure to interest rate risk on our fixed rate mortgage
debt and note obligations. If interest rates, at the time any individual debt
instrument is due, are higher than the current fixed interest rate, higher debt
service may be required, and/or re-financing proceeds may be less than the
amount of mortgage debt or notes being retired.
We
believe that the values of our properties will be adequate to command
re-financing proceeds equal to, or higher than the mortgage debt to be
re-financed. This expectation represents a forward-looking statement. Factors
that could cause actual results to differ materially from the Company’s forward
looking statement include economic conditions in the markets where such
properties are located and the level of market interest rates at the time the
Company is seeking to re-finance the properties.
Item
4T. Controls and Procedures
(a)
Disclosure
controls and procedures. Disclosure controls and procedures (as defined
in Exchange Act Rule 13a-15(e)) are designed only to provide reasonable
assurance that they will meet their objectives that information required to be
disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosures. As
of June 30, 2010, we carried out an evaluation, under the supervision and with
the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e)) pursuant to
Exchange Act Rule 13a-15. Based upon that evaluation and subject to the
foregoing, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were effective as of June
30, 2010.
(b)
Changes in
internal controls over financial reporting. Management has
determined that, as of June 30, 2010, there were no changes in our internal
control over financial reporting that occurred during our fiscal quarter then
ended that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
22
PART
II - OTHER INFORMATION
Item 6. Exhibits
Exhibit
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley
Act
|
Exhibit
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley
Act
|
Exhibit
32.1
|
Certification
of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley
Act
|
Exhibit
32.2
|
Certification
of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley
Act
|
23
SIGNATURES
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:
August 13, 2010
|
|
/s/ S. Wilzig Izak
|
By:
|
S.
Wilzig Izak
|
|
Chairman
of the Board and Chief Executive Officer
|
||
|
/s/ Francis J.
Elenio
|
|
By:
|
Francis
J. Elenio
|
|
Chief
Financial Officer
|
24