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 March 31, 2005 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 (IRS Employer
incorporation or organization) Identification No.)
921 Bergen Avenue, Jersey City, New Jersey 07306-4204
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(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 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 May 6, 2005.
Common Stock $1 Par Value ----- 7,875,006
WILSHIRE ENTERPRISES, INC.
INDEX
Page No.
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Part I -- Financial Information
- -------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--
March 31, 2005 (Unaudited) and December 31, 2004 3
Unaudited Condensed Consolidated Statements of Income --
Three months ended March 31, 2005 and 2004 4
Unaudited Condensed Consolidated Statements of Cash Flows --
Three months ended March 31, 2005 and 2004 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
2. Management's Discussion and Analysis of Financial Condition and 11
Results of Operations
3. Quantitative and Qualitative Disclosure About Market Risk 18
4. Controls and Procedures 19
Part II -- Other Information
- ----------------------------
2. Unregistered Sales of Equity Securities and Use of Proceeds 20
6. Exhibits 20
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WILSHIRE ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2005 2004
ASSETS (UNAUDITED) (NOTE 1)
----------- ------------
CURRENT ASSETS
Cash and cash equivalents $28,736,000 $ 31,110,000
Restricted cash 4,047,000 4,082,000
Marketable securities, available for sale, at fair value 2,173,000 2,754,000
Accounts receivable, net 180,000 189,000
Income taxes receivable 4,289,000 4,389,000
Prepaid expenses and other current assets 1,901,000 1,827,000
----------- ------------
Total current assets 41,326,000 44,351,000
----------- ------------
NONCURRENT ASSETS
Mortgage notes receivable --- 957,000
----------- ------------
Other noncurrent assets --- 208,000
----------- ------------
PROPERTY AND EQUIPMENT
Real estate properties 46,975,000 46,769,000
Real estate properties - Held for sale 12,271,000 12,168,000
----------- ------------
59,246,000 58,937,000
Less:
Accumulated depreciation and amortization 13,744,000 13,292,000
Accumulated depreciation, depletion and amortization - Property held for sale 3,608,000 3,608,000
----------- ------------
41,894,000 42,037,000
----------- ------------
TOTAL ASSETS $83,220,000 $ 87,553,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 580,000 $ 573,000
Accounts payable 1,278,000 1,624,000
Income taxes payable 776,000 3,623,000
Deferred income taxes 2,326,000 2,465,000
Accrued liabilities 258,000 606,000
Deferred income 38,000 373,000
Current liabilities associated with discontinued operations 555,000 521,000
----------- ------------
Total current liabilities 5,811,000 9,785,000
NONCURRENT LIABILITIES
Long-term debt, less current portion 35,175,000 35,579,000
Deferred income taxes 1,850,000 1,855,000
Deferred income 195,000 621,000
Noncurrent liabilities associated with discontinued operations 10,531,000 10.602,000
----------- ------------
Total liabilities 53,562,000 58,442,000
----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued
and outstanding in 2005 and 2004 --- ---
Common stock, $1 par value, 15,000,000 shares authorized; issued 10,013,544
shares in 2005 and 2004 10,014,000 10,014,000
Capital in excess of par value 9,524,000 9,524,000
Retained earnings 20,223,000 19,905,000
Unearned compensation (646,000) (431,000)
Treasury stock, 2,122,914 and 2,234,732 shares at March 31, 2005 and
December 31, 2004, respectively, at cost (9,783,000) (10,491,000)
Accumulated other comprehensive income 326,000 590,000
----------- ------------
Total stockholders' equity 29,658,000 29,111,000
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $83,220,000 $ 87,553,000
=========== =============
The accompanying notes to condensed consolidated financial statements are an
integral part of these financial statements.
3
WILSHIRE ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
MARCH 31, 2005 MARCH 31, 2004
-------------- --------------
REVENUES $ 2,254,000 $2,429,000
-------------- --------------
COSTS AND EXPENSES
Operating expenses 1,339,000 1,322,000
Depreciation expense 454,000 427,000
General and administrative 563,000 329,000
-------------- --------------
Total costs and expenses 2,356,000 2,078,000
-------------- --------------
INCOME (LOSS) FROM OPERATIONS (102,000) 351,000
OTHER INCOME
Dividend and interest income 102,000 194,000
Gain on sale of marketable securities 134,000 ---
Gain on sale of real estate and real estate related assets 887,000 ---
Other income 7,000 53,000
INTEREST EXPENSE (564,000) (616,000)
-------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES 464,000 (18,000)
INCOME TAX EXPENSE (BENEFIT) 170,000 (27,000)
-------------- --------------
INCOME FROM CONTINUING OPERATIONS 294,000 9,000
DISCONTINUED OPERATIONS - REAL ESTATE, NET OF TAXES INCOME (LOSS) FROM OPERATIONS 46,000 (55,000)
GAIN FROM SALES --- 2,902,000
DISCONTINUED OPERATIONS - OIL & GAS, NET OF TAXES LOSS FROM OPERATIONS (22,000) (257,000)
-------------- --------------
NET INCOME $ 318,000 $ 2,599,000
============== ==============
BASIC EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ 0.04 $ ---
Income (loss) from discontinued operations
Real estate - income from operations --- ---
Real estate - gain on sales --- 0.36
Oil and gas - income (loss) from operations --- (0.03)
-------------- --------------
Net income applicable to common stockholders $ 0.04 $ 0.33
============== ==============
DILUTED EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ 0.04 $ ---
Income (loss) from discontinued operations
Real estate - income from operations --- ---
Real estate - gain on sales --- 0.36
Oil and gas - income (loss) from operations --- (0.03)
-------------- --------------
Net income applicable to common stockholders $ 0.04 $ 0.33
============== ==============
The accompanying notes to condensed consolidated financial statements are an
integral part of these financial statements.
4
WILSHIRE ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
MARCH 31, 2005 MARCH 31, 2004
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 318,000 $ 2,599,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities -
Depreciation, depletion and amortization 454,000 1,342,000
Amortization of compensation expense 316,000 ---
Deferred income tax (benefit) provision (5,000) 344,000
Increase (decrease) in deferred income (761,000) 43,000
Gain on sales of real estate assets (212,000) (4,897,000)
Gain on sale of marketable securities (133,000) ---
Changes in operating assets and liabilities:
Decrease in accounts receivable 9,000 445,000
Decrease (increase) in income taxes receivable 100,000 (312,000)
Decrease in prepaid expenses and other current assets 134,000 125,000
Increase (decrease) in accounts payable, accrued liabilities and other liabilities (694,000) 796,000
Increase (decrease) in taxes payable (2,847,000) 980,000
-------------- --------------
Net cash provided by (used in) operating activities (3,321,000) 1,465,000
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - real estate (357,000) (340,000)
Deposits on sale of oil & gas --- 146,000
Proceeds from sale of real estate properties 258,000 10,909,000
Proceeds on mortgage notes receivable 957,000 654,000
Proceeds from sales of marketable securities 374,000 ---
Decrease in restricted cash 35,000 143,000
-------------- --------------
Net cash provided by investing activities 1,267,000 11,512,000
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (434,000) (8,767,000)
Purchase of treasury stock (20,000) ---
Proceeds from exercise of stock options 3,000 ---
-------------- --------------
Net cash used in financing activities (451,000) (8,767,000)
-------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 131,000 (484,000)
-------------- --------------
Net increase (decrease) in cash and cash equivalents (2,374,000) 3,726,000
CASH AND CASH EQUIVALENTS, beginning of period 31,110,000 7,763,000
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 28,736,000 $11,489,000
============== ==============
SUPPLEMENTAL DISCLOSURES TO THE STATEMENTS OF CASH FLOWS:
Cash paid during the period for -
Interest $ 713,000 $ 756,000
============== ==============
Income taxes, net $ 2,825,000 $ 76,000
============== ==============
The accompanying notes to condensed consolidated financial statements are an
integral part of these financial statements.
5
WILSHIRE ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
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
the Registrant 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. In the opinion of management, this condensed financial
information reflects all adjustments necessary to present fairly the
results for the interim periods. The results of operations for the three
months ended March 31, 2005 are not necessarily indicative of the results
to be expected for the year ending December 31, 2005 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.
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 2004 and 2005.
In April 2004, the Company sold its oil and gas operations and received
net proceeds of $28,131,000. An escrow holdback of $600,000 was
established to allow for any potential post closing adjustments relating
to its United States operations. This escrow was paid in full to the
Company on June 22, 2004 and the condensed consolidated statements of
income for the three months ended June 30, 2004 include a gain of
$567,000 (after taxes) on the transaction. Since the sale was effective
as of March 1, 2004, the financial statements as presented reflect in
discontinued operations oil and gas operations for the first two months
of 2004. The 2005 period includes residual costs related to the oil and
gas properties.
The Company has designated certain real estate properties as held for
sale and reports the gain on the sale of such real estate properties plus
the year to date operations and related interest expense of such real
estate properties as "Discontinued Operations". During the three months
ended March 31, 2005, the Company did not sell any of its properties
designated as discontinued operations. For the three months ended March
31, 2004, the Company sold eleven real estate properties located in
Jersey City, New Jersey for gross proceeds of $11 million and recorded an
after tax gain on the sale of $2.9 million.
Basis of Presentation
---------------------
Certain amounts in the 2004 condensed consolidated financial statements
have been reclassified to conform to the 2005 presentation.
Accounting for Stock-Based Compensation
---------------------------------------
In December 2002, the Financial Accounting Standards Board 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
6
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. The Company has continued to account for options in
accordance with the provision of APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations. Accordingly, no
compensation expense has been recognized in the statements of income for
stock option plans.
The pro forma impact of expensing stock options for the three months
ended March 31, 2005 and 2004 was insignificant to both reported net
income and earnings per share. No stock options were granted during the
three months ended March 31, 2005 and 2004.
In December 2004, the FASB issued SFAS No. 123R, "Accounting for Stock-
Based Compensation." SFAS 123R establishes standards for the accounting
for transactions in which an entity exchanges its equity instruments for
goods or services. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based
payment transactions. SFAS 123R requires that the fair value of such
equity instruments be recognized as an expense in the historical
financial statements as services are performed. Prior to SFAS 123R, only
certain pro forma disclosures of fair value were required. SFAS 123R
shall be effective for Wilshire as of the beginning of the first interim
or annual reporting period that begins after December 15, 2005. The
adoption of this new accounting pronouncement is not expected to have a
material impact on Wilshire's consolidated financial statements.
At the time of his retirement on June 30, 2004, the former President of
the Company had 300,000 stock options outstanding with a weighted average
exercise price of $3.35 per share. As part of the three year consulting
arrangement between the former President and the Company, the term of his
stock options were extended for the length of his consulting arrangement.
This arrangement has resulted in the Company valuing his stock options at
$495,000, which is the difference between the intrinsic value of the
stock options at their date of grant and the market value of the
Company's common stock at June 30, 2004. This value has been recorded as
an increase to capital in excess of par value and an increase to unearned
compensation, both separate components of stockholders' equity. The
unearned compensation amount was being amortized into general and
administrative expense over the term of the three year consulting
arrangement. At March 31, 2005, $371,000 was remaining to be amortized
into general and administrative expense over the balance of the term of
the consulting agreement and $41,000 was recognized in expense during the
three months ended March 31, 2005.
On April 19, 2005, the Company reached a mutual agreement with the former
President to terminate his consulting agreement with the Company. The
Company agreed to provide him with a final lump sum payment in the amount
of $50,625 and the former President agreed to forego an additional
$75,000 of consulting fees due to him under the terms of his consulting
arrangement. Also, at the Company's request, the former President agreed
to exercise his 300,000 stock options at the applicable exercise prices
for a total sum of $1,005,500 and then sell to the Company all of the
exercised shares at a purchase price per share of $7.00 for an aggregate
payment of $2,100,000, or a net cash payment of $1,094,500. The
transaction was completed on April 20, 2005 and will result in the
Company recording an after-tax charge of approximately $600,000 in the
second quarter of 2005.
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. For the first two months of 2004
the Company was 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 and consummated the sale in April 2004, effective
March 1, 2004. The financial statements have been adjusted to present oil
and gas operations as "Discontinued Operations" in 2004 and 2005.
Accordingly, the Company only conducts real estate operations in the
United States.
Continuing real estate revenue, operating expenses, net operating income
("NOI") and recurring capital improvements for the reportable segments
are summarized below and reconciled to consolidated net income (loss)
from continuing operations for each of the three month periods ended
March 31, 2005 and 2004. Asset information is not reported since Wilshire
does not use this measure to assess performance.
7
March 31, 2005 March 31, 2004
-------------- --------------
Real estate revenue:
Residential $1,838,000 $1,882,000
Commercial 416,000 547,000
-------------- --------------
Total $2,254,000 $2,429,000
-------------- --------------
Real estate operating expenses:
Residential $1,046,000 $1,027,000
Commercial 293,000 295,000
-------------- --------------
Total $1,339,000 $1,322,000
-------------- --------------
Net operating income:
Residential $ 792,000 $ 855,000
Commercial 123,000 252,000
-------------- --------------
Total $ 915,000 $1,107,000
-------------- --------------
Capital improvements:
Residential $ 268,000 $ 249,000
Commercial 89,000 91,000
-------------- --------------
Total $ 357,000 $ 340,000
-------------- --------------
Reconciliation of NOI to consolidated net income
from continuing operations:
Segment NOI $ 915,000 $ 1,107,000
Total other income, including net investment income 1,130,000 247,000
Depreciation expense (454,000) (427,000)
General and administrative expense (563,000) (329,000)
Interest expense (564,000) (616,000)
Income tax provision (benefit) (170,000) 27,000
-------------- --------------
Income from continuing operations $ 294,000 $ 9,000
============== ==============
3. COMPREHENSIVE INCOME
--------------------
Comprehensive income for the three months ended March 31, 2005 and 2004
is as follows:
3 Months Ended March 31,
------------------------
2005 2004
(Unaudited) (Unaudited)
----------- -----------
Net income $318,000 $2,599,000
----------- -----------
Other comprehensive income (loss) net of taxes:
Foreign currency translation adjustments (63,000) (484,000)
Change in unrealized gain on marketable securities -
Reclassification adjustment for gains on marketable
securities sold, net of tax of $(53,000) in 2005 (76,000) ---
Change in unrealized gain on marketable securities (125,000) 41,000
----------- -----------
Other comprehensive income (loss) (264,000) (443,000)
----------- -----------
Comprehensive income $ 54,000 $2,156,000
=========== ===========
8
Changes in the components of Accumulated Other Comprehensive Income
(Loss) for the three months ended March 31, 2005 and the year ended
December 31, 2004 are as follows-
Cumulative
Unrealized Gains Foreign Accumulated
(Losses) on Currency Other
Available-for-Sale Translation Comprehensive
Securities Adjustment Income (Loss)
------------------ ---------------- -------------
BALANCE, December 31, 2003 $ 108,000 $ (1,536,000) $ (1,428,000)
Change for the year 2004 456,000 1,562,000 2,018,000
------------------ ---------------- -------------
BALANCE, December 31, 2004 564,000 26,000 590,000
Change for the three months (201,000) (63,000) (264,000)
------------------ ---------------- -------------
BALANCE, March 31, 2005 $ 363,000 $ (37,000) $ 326,000
================== ================ =============
4. EARNINGS PER SHARE
------------------
The following table sets forth the computation of basic and diluted
earnings per share-
3 Months Ended March
31,
---------------------
2005 2004
--------- ----------
Numerator-
Net Income $ 318,000 $2,599,000
========= ==========
Denominator-
Weighted average common
shares outstanding - Basic 7,876,358 7,802,831
Incremental shares from assumed
conversions of stock options 231,169 184,396
--------- ----------
Weighted average common shares
outstanding - Diluted 8,107,527 7,987,227
========= ==========
Basic earnings per share: $ 0.04 $ 0.33
========= ==========
Diluted earnings per share: $ 0.04 $ 0.33
========= ==========
5. 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 March 31, 2005, the Company had purchased 41,403
shares under this program at an approximate cost of $218,000 or $5.27 per
share, with 2,900 shares being purchased during the three months ended
March 31, 2005.
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
9
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 March 31, 2005 and 2004, 7,890,630 and 7,802,831, 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 March 31, 2005 and 2004, the
outstanding Rights are not considered in the computation of basic and
diluted earnings per share.
6. STOCK OPTION PLANS
------------------
In June 2004, the Company's stockholders approved the 2004 Stock Option
and Incentive Plan (the "2004 Plan"). The purpose of the 2004 Plan is to
encourage stock ownership by key employees and consultants of the
Company, to provide additional incentive for them to promote the
successful business operations of the Company, to encourage them to
continue providing services to the Company, and to attract new employees
and consultants to the Company. Awards under the 2004 Plan may be granted
in any one or all of the following forms, as those terms are defined
under the 2004 Plan: (i) incentive stock options; (ii) non-qualified
stock options; (iii) stock appreciation rights; (iv) restricted shares of
common stock; (v) performance shares; (vi) performance units; and (vii)
unrestricted shares of common stock. The maximum aggregate number of
shares of common stock available for award under the 2004 Plan is
600,000, subject to adjustment under the terms of the 2004 Plan. As of
March 31, 2005, 115,529 shares of stock had been granted to employees and
significant vendors under the 2004 Plan, of which 48,929 shares had
restrictions under which the employee's right to receive these restricted
shares vest serially over a three-year period. During the three months
ended March 31, 2005, the Company issued 44,400 shares under the Plan and
recognized compensation expense of approximately $23,000 related to
shares issued under the Plan.
In June 2004, the Company's stockholders approved the 2004 Non-Employee
Director Stock Option Plan (the "2004 Director Plan"). The purpose of the
2004 Director Plan is to attract qualified personnel to accept positions
of responsibility as directors of the Company, to provide incentives for
persons to remain on the Board and to induce such persons to maximize the
Company's performance during the terms of their options. Only non-
qualified stock options may be granted under the 2004 Director Plan. The
maximum aggregate number of shares of common stock available for grant
under the 2004 Director Plan is 150,000, subject to adjustment under the
terms of the 2004 Director Plan. Upon adoption of the 2004 Director Plan,
each non-employee director was granted 10,000 options to purchase common
shares of the Company. As of March 31, 2005, 50,000 options had been
granted at market value under the 2004 Director Plan. No options were
granted during the three months ended March 31, 2005.
7. MORTGAGE RECEIVABLE
-------------------
In February 2005, the Company and the borrower negotiated a settlement of
the outstanding mortgage notes receivable for $1.1 million, which was
paid during the first quarter of 2005. The Company
10
recognized a gain in the first quarter of 2005 of approximately $675,000
before taxes ($400,000 after taxes) on this transaction.
8. SUBSEQUENT EVENTS
-----------------
On May 5, 2005, the Company sold a one-bedroom condominium unit at
Galsworthy Arms for gross proceeds of $240,000, resulting in an
approximate $80,000 after-tax gain that will be recorded in the second
quarter 2005 statement of income. After the sale, the Company continues
to operate 43 condominium units at Galsworthy.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion addresses material changes in the Company's results of
operations for the three month period ended March 31, 2005 compared to the three
month period ended March 31, 2004 and changes in its financial condition since
December 31, 2004. It is presumed that readers have read or have access to
Wilshire's 2004 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.
FORWARD-LOOKING STATEMENTS
- --------------------------
This Report on Form 10-Q for the quarter ended March 31, 2005 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, 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.
OVERVIEW
- --------
Net income for the three months ended March 31, 2005 amounted to $318,000 or
$0.04 per diluted share, a decrease of $2,281,000 from net income totaling
$2,599,000 or $0.33 per diluted share reported for the three months ended March
31, 2004. Operations are shown as continuing and discontinued, with discontinued
operations comprised of the results of operations from the Company's oil and gas
businesses, the net income (loss) from real estate properties held for sale and
the gain from real estate properties held for sale that were sold during the
period.
During the three months ended March 31, 2004, the Company sold eleven real
estate properties in Jersey City, New Jersey for gross proceeds of $11 million,
realizing an after-tax gain of $2.9 million. This gain was included in the
statement of income in discontinued operations real estate gain from sales.
During the three months ended March 31, 2005, the Company sold one (1) two-
bedroom condominium unit at its Galsworthy Arms, New Jersey, property for gross
proceeds of $270,000 that resulted in an after-tax gain of approximately
$125,000 that has been included in the three month net income from continuing
operations.
Also during the three months ended March 31, 2005, the Company settled a
mortgage receivable that had a gross carrying value of $1,165,000 and $727,000
of unearned income as of December 31, 2004 for $1,100,000 in cash. Security for
the mortgage was a first lien on in excess of 100 condominium units in two
contiguous buildings
11
located in Jersey City, New Jersey As a result of this transaction, the Company
recognized an after tax gain of approximately $400,000 in the first quarter of
2005 that was included in net income from continuing operations.
The Company announced in July 2003 its intention to sell its oil and gas
businesses. The Canadian oil and gas business was sold in April 2004 to Addison
Energy Inc., a wholly owned subsidiary of Exco Resources, Inc., for $15 million
in gross proceeds. The United States oil and gas business was sold in April 2004
to Crow Creek Energy LLC, a Tulsa, Oklahoma based privately held portfolio
company of Natural Gas Partners of Dallas, Texas, for $13.3 million in gross
proceeds. During the three months ended March 31, 2005 and 2004, respectively,
the Company recorded losses, net of taxes from its oil and gas businesses of
$(22,000) and $(257,000), respectively. The net loss from operating the oil and
gas business during the three months ended March 31, 2005 resulted from the
continuing reconciliation process between the Company and its partners for
periods prior to the effective date of the sale and the allocation of senior
management bonus expense to this activity.
The following table presents the increases (decreases) in each major statement
of income category for the three months ended March 31, 2005 and 2004,
respectively. The following discussion of "Results of Operations references
these increases (decreases).
12
INCREASE (DECREASE)
IN CONSOLIDATED
STATEMENTS OF
INCOME CATEGORIES
FOR THE PERIOD:
3 Months Ended
March 31, 2005 v.
March 30, 2004
-------------------
Amount (S) %
----------- ------
REVENUES $ (175,000) (7.2)
-----------
COSTS AND EXPENSES
Operating expenses 17,000 1.3
Depreciation expense 27,000 6.3
General and administrative 234,000 71.1
-----------
Total costs and expenses 278,000 13.4
-----------
LOSS FROM OPERATIONS (453,000) (129.1)
OTHER INCOME
Dividend and interest income (92,000) (47.4)
Gain on sale of marketable securities 134,000 100.0
Gain on sale of real estate and real estate related assets 887,000 100.0
Other income (46,000) (86.8)
INTEREST EXPENSE (52,000) (8.4)
-----------
INCOME BEFORE INCOME TAXES 482,000 ---
INCOME TAX EXPENSE 197,000 729.6
-----------
INCOME FROM CONTINUING OPERATIONS 285,000 ---
-----------
DISCONTINUED OPERATIONS - REAL ESTATE, NET OF TAXES
LOSS FROM OPERATIONS 101,000 183.6
GAIN FROM SALES (2,902,000) (100.0)
DISCONTINUED OPERATIONS - OIL & GAS, NET OF TAXES
LOSS FROM OPERATIONS 235,000 91.4
-----------
NET INCOME $(2,281,000) (87.8)
===========
BASIC EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ 0.04 100.0
Loss from discontinued operations (0.33) (100.0)
-----------
Net loss applicable to common stockholders $(0.29) (87.9)
===========
DILUTED EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ 0.04 100.0
Loss from discontinued operations (0.33) (100.0)
-----------
Net loss applicable to common stockholders $(0.29) (87.9)
===========
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED MARCH 31, 2005 ("Q1 2005") COMPARED WITH THREE MONTHS ENDED
MARCH 31, 2004 ("Q1 2004")
OVERVIEW
Net income for Q1 2005 amounted to $318,000 or $0.04 per diluted share, a
decline of $2,281,000 from the net income of $2,599,000 or $0.33 per diluted
share reported for Q1 2004. Results of operations are shown as continuing and
discontinued, with discontinued operations comprised of the results of
operations from the Company's oil and gas businesses, the operating results from
real estate properties held for sale and the gain from real estate properties
held for sale that were sold during the period.
13
CONTINUING OPERATIONS:
Income from continuing operations was $294,000 in Q1 2005 compared with $9,000
in Q1 2004. Results per diluted share from continuing operations amounted to
$0.04 in Q1 2005 and $0.00 in Q1 2004. The 2005 period included approximately
$625,000 of after tax ($1,021,000 before taxes) gains on the sale of marketable
securities and real estate and real estate related assets.
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 Total
-------------------------- ------------------------ ----------------------------
3 months
3 months ended Increase ended Increase 3 months ended Increase
March 31 (Decrease) March 31 (Decrease) March 31 (Decrease)
2005 2004 $ % 2005 2004 $ % 2005 2004 $ %
------ ------ ---- ---- ---- ---- ----- ----- ------ ------ ----- -----
(In 000s of $) (In 000s of $) (In 000s of $)
Total revenues $1,838 $1,882 $(44) (4.5) $416 $547 $(131) (23.9) $2,254 $2,429 $(175) (7.2)
Operating expenses 1,046 1,027 19 2.8 293 295 (2) (0.7) 1,339 1,322 17 1.3
------ ------ ---- ---- ---- ---- ----- ----- ------ ------ ----- -----
Net operating income $ 792 $ 855 $(63) (7.4) $123 $252 $(129) (51.2) $ 915 $1,107 $(192) (17.3)
====== ====== ==== ==== ==== ==== ===== ===== ====== ====== ===== =====
Reconciliation to
consolidated income from
continuing operations:
Net operating income $ 915 $1,107
Depreciation expense (454) (427)
General and administrative expenses (563) (329)
Other income 1,130 247
Interest expense (564) (616)
Income tax (expense) benefit (170) 27
----- ------
Income from continuing operations $ 294 $ 9
===== ======
The above table details the comparative revenue, expenses and net operating
income ("NOI") for Wilshire's residential and commercial real estate segments,
and reconciles the combined NOI to consolidated income (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 income (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
Q1 2005 revenues, as compared to Q1 2004 revenues, decreased $44,000 or 4.5% to
$1,838,000 and operating expenses increased $19,000 or 2.8% to $1,046,000. The
decrease in revenues was largely attributable to the Company's two condominium
complexes in New Jersey (Galsworthy Arms and Jefferson Gardens) and its
Wellington Estates apartment complex in Texas. The New Jersey condominium
complexes combined had a decline of $29,000 or 65.9% of the total revenue
decline. Several units at these two condominium complexes were left vacant in
the second half of 2004 while the Company evaluated the sale of these units due
to attractive selling prices. Some of these units remain vacant and are
available for rent. Revenues for Wellington Estates,
14
located in San Antonio, Texas decreased by $16,000, primarily due to the Company
imposing stricter qualifying criteria regarding the credit profile of potential
tenants resulting in a lower occupancy percentage.
The increase in operating expense in Q1 2005 over Q1 2004 was principally
related to Wellington Estates. This complex is undergoing a concentrated
improvements program to enhance the appearance of this property that has
resulted in higher operating costs.
COMMERCIAL SEGMENT
Q1 2005 revenues, as compared to Q1 2004 revenues, decreased $131,000 or 23.9%
to $416,000 and operating expenses decreased $2,000 or 2.0% to $293,000. The
bulk of the revenue decrease, $104,000 or 79.4% of the total decrease is
attributable to the Wilshire Grand Hotel, which ceased making rental payments
beginning in January 2005. As a result of the hotel operator's delinquency,
Wilshire is evaluating alternatives for its investment including participating
in a settlement agreement in which Wilshire would assume control of the Wilshire
Grand Hotel.
Depreciation expense amounted to $454,000 in Q1 2005, an increase of 6.3% from
the $427,000 in Q1 2004, reflecting increased capital expenditures throughout
the Company's network of residential and commercial properties. These
expenditures were undertaken as part of a program to reposition and strengthen
the Company's properties within their targeted markets. Depreciation expense is
not included in the operating expenses included in the preceding table and
discussion.
General and administrative expense increased $234,000, or 71.1%, to $563,000 in
Q1 2005 from $329,000 in Q1 2004. This increase in general and administrative
expense is related to the method of allocating corporate expenses among the
Company's lines of business and the accounting for incentive and stock
compensation expense. In Q1 2004, a high percentage of corporate salaries and
related expenses were allocated to the Company's oil and gas businesses. In Q1
2005, this allocation was significantly lowered as only accrual adjustments
related to prior periods were allocated to the oil and gas business.
Additionally, prior to the third quarter of 2004, incentive compensation awards
were not recorded as an expense until they were paid and Q1 2004 did not include
incentive compensation expense. Thus, a large portion of the increase was
related to recording incentive compensation expense for bonuses to be paid in
the future that are being earned by individual and Company performance during
the current period and for past awards of restricted stock and other stock
compensation whose expense is allocated over the vesting period of the award.
Included in stock compensation expense for Q1 2005 (but not Q1 2004) is $41,000
related to stock options granted to the former President of Wilshire who retired
on June 30, 2004.
On April 19, 2005, the Company reached a mutual agreement with the former
President to terminate his consulting agreement with the Company. The Company
agreed to provide him with a final lump sum payment in the amount of $50,625 and
the former President agreed to forego an additional $75,000 of consulting fees
due to him under the terms of his consulting arrangement. Also, at the Company's
request, the former President agreed to exercise his 300,000 stock options at
the applicable exercise prices for a total sum of $1,005,500 and then sell to
the Company all of the exercised shares at a purchase price per share of $7.00
for an aggregate payment of $2,100,000, or a net cash payment of $1,094,500
before withholding taxes. The transaction was completed on April 20, 2005 and
will result in the Company recording an after-tax charge of approximately
$600,000 in the second quarter of 2005.
Other income increased $883,000 to $1,130,000 in the 2005 quarter from $247,000
in the 2004 quarter, principally related to $675,000 of gain from the settlement
of a mortgage receivable, $212,000 gain from the sale of one two- bedroom
condominium at Galsworthy Arms and $134,000 gain from the sale of marketable
securities. No marketable securities or real estate properties from the
Company's portfolio of continuing operations were sold in 2004.
15
Interest expense decreased to $564,000 from $616,000 in the 2004 quarter, mainly
related to the payoff of approximately $200,000 of mortgage debt related to the
sale of condominiums at Jefferson Gardens in the second half of 2004 and
$250,000 of mortgage debt related to the sale of one condominium in January 2005
at Galsworthy Arms and normal principal amortization payments.
The provision for income taxes amounted to a tax expense of $170,000 in the 2005
quarter and a benefit of $(27,000) in the 2004 quarter. The change in the
provision for income taxes is related to the level of income from continuing
operations in the 2005 quarter compared to the 2004 quarter and the change in
the mix between taxable and tax-exempt income.
DISCONTINUED OPERATIONS, NET OF TAXES:
REAL ESTATE
Income from discontinued operations amounted to after tax income of $46,000 in
Q1 2005 and $2,847,000 in Q1 2004. The decreased income reflects the high level
of sales of properties in Q1 2004 compared to none sold in Q1 2005. During Q1
2004, the Company sold eleven properties in Jersey City, New Jersey for gross
proceeds of $11 million that resulted in after-tax gains of $2,902,000.
Included in Q1 2005 income from discontinued operations is a nonrefundable fee
of $100,000 that the Company received in February 2005 when it signed an
agreement to sell its Biltmore Club apartment complex (Phoenix, Arizona) to GDG
Partners L.L.C., an independent third party, for $20,956,000. The agreement is
expected to close no later than December 23, 2005. In addition to the $100,000
fee already paid, GDG Partners L.L.C. paid to escrow an additional nonrefundable
deposit of $150,000 on April 3, 2005 and owes $250,000 as a nonrefundable
deposit to be paid by July 2, 2005, respectively. We expect to report, when the
sale is completed, a gain on the sale after taxes of approximately $8.5 million
and have net proceeds after transaction costs and paying off the mortgage of
approximately $10.0 million.
OIL AND GAS
The Company announced in July 2003 its intention to sell its oil and gas
businesses. The Canadian oil and gas business was sold in April 2004 to Addison
Energy Inc., a wholly owned subsidiary of Exco Resources, Inc., for $15 million
in gross proceeds. The United States oil and gas business was sold in April 2004
to Crow Creek Energy LLC, a Tulsa, Oklahoma based privately held portfolio
company of Natural Gas Partners of Dallas, Texas, for $13.3 million in gross
proceeds. During Q1 2005 and Q1 2004, respectively, the Company recorded losses
from operating it oil and gas business, net of taxes, of $22,000 and $257,000,
respectively. The net loss from operating the oil and gas business in Q1 2004
includes the operating results of the oil and gas business for January and
February and both periods include the continuing reconciliation process between
the Company and its partners for periods prior to the effective dates of the
sales and the allocation of certain incentive compensation amounts from awards
made in January 2005 that relate to efforts that these individuals put forth in
consummating the sale of the oil and gas business.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005, the Company had working capital of $35.5 million, compared to
working capital of $34.6 million at December 31, 2004. The Company has $28.7
million of cash and cash equivalents at March 31, 2005 and $4.0 million of
restricted cash that becomes available to Wilshire with the expiration of its
Section 1031 election in June 2005, for a total of $32.7 million of cash and
cash equivalents. This balance is comprised of working capital accounts for its
real estate properties and corporate needs and short-term investments in
government and corporate securities and money market funds. The Company
estimates that it has approximately $2.5 million of taxes remaining to be paid
relating to the sale of the oil and gas business, including U.S. and
16
Canadian taxes on the repatriation of earnings from its Canadian subsidiary.
These obligations will be satisfied in 2005, partly through the application of
an approximate $2.9 million estimated overpayment of 2004 U.S. Federal taxes.
After considering these tax payments, Wilshire expects to have $33.0 million of
cash and cash equivalents for working capital and other purposes.
The Company continues to explore corporate and real estate property acquisitions
as they arise. The timing of such acquisitions, if any, will depend upon, among
other criteria, economic conditions and the favorable evaluation of specific
opportunities presented to the Company. In the short- term, the Company will
continue to invest these funds in high quality investments that are consistent
with its investment policy. Management considers its liquidity position adequate
to fulfill the Company's current business plans.
Net cash used in operating activities amounted to $3.3 million in Q1 2005, while
Q1 operating activities provided net cash of $1.5 million. The Q1 2005 use of
cash resulted from net income of $0.3 million, the sale of real estate
properties and marketable securities with their related changes in receivables,
payables and current and deferred tax accounts. The Q1 2004 provision of cash
was mainly related to a net income of $2.6 million and non-cash charges for
depreciation and amortization expense ($1.3 million) and changes in other
current asset and liability and income tax accounts related to normal business
activity, partly offset by gains on the sales of real estate properties in
Jersey City, New Jersey.
Net cash provided by investing activities amounted to $1.3 million in Q1 2005
and $11.5 million in Q1 2004. The cash provided by investing activities in Q1
2005 is due mainly to the sale of real estate assets and marketable securities,
partly offset by capital expenditures on real estate properties. The Q1 2004
provision of cash from investing activities is related to proceeds from the sale
of real estate properties partly offset by capital expenditures on real estate
properties.
Net cash used in financing activities amounted to $0.5 million in Q1 2005 and
$8.8 million in Q1 2004. The Q1 2005 and Q1 2004 uses of cash reflects the
repayment of long term debt due to the sales of real estate properties and
normal annual amortization of long term debt from monthly debt service payments.
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 March 31, 2005, the Company had
purchased 41,403 shares at an aggregate cost of $218,000 under this program. The
majority of the shares acquired were from stockholders who at the time owned
less than 100 shares of the Company's common stock.
During March 2005, Wilshire negotiated a long-term lease for new offices in
Newark, New Jersey, effective April 1, 2005. The lease is for a sixty-five month
term with two renewal options each for a five-year term and covers 4,502
rentable square feet at a base rate of $29.00 per square foot. The Company has
an option to early terminate the lease after two years, subject to a termination
fee. The Company expects to move into its new space by the end of May 2005.
The Company has concluded negotiations with the city of Perth Amboy, New Jersey
concerning the redevelopment zone status of its office building (Amboy Towers).
The City has agreed to exclude Amboy Towers from the redevelopment zone and the
Company has agreed to invest $750,000 in capital improvements in the building
over the next 18 months.
In March 2005, the Company signed an agreement to sell its Twelve Oaks apartment
complex (Atlanta, Georgia) to Interstate East Management, Inc., an independent
third party, for $1,725,000. The agreement contains a "time is of the essence
clause" and is expected to close as soon as practicable. The property is highly
leveraged with an outstanding mortgage balance of approximately $1,602,000. We
expect to report a gain on the sale after taxes of approximately $440,000 and we
estimate taxes related to this gain to be approximately $285,000. The
transaction, if completed, will generate net proceeds of approximately
$1,379,000 after taxes and transaction costs
17
and before debt retirement. The shortfall in the net proceeds to retire the debt
will be made up from general corporate sources of funds.
Also in March 2005 the Company was evaluating alternatives for optimizing its
investment in the Wilshire Grand Hotel and Banquet Facility (the "Wilshire
Hotel"). The Company leases the Wilshire Hotel under two 25-year operating
leases, one for the hotel and one for the banquet facility, to an experienced
hotel operator (the "Hotel Operator"). The Hotel Operator has encountered
financial adversity and in 2004 ceased payment on its mortgage obligations,
which are held by a third party (the "Mortgagor"). As of March 2005, the Hotel
Operator was also delinquent on lease payments to Wilshire for the months of
January, February and March 2005. The Mortgagor is required to cure any defaults
of the Hotel Operator (i.e., pay any amounts due Wilshire under the lease) in
order to protect its mortgage and cannot impair Wilshire's ownership interest in
the property. As a result of the Hotel Operator's delinquency, Wilshire is
evaluating alternatives for its investment including assisting in the
consummation of a settlement agreement by which Wilshire would assume
operational control of the Wilshire Hotel and in the event of a subsequent sale
of the hotel, would receive an agreed upon value prior to any proceeds being
distributed to the Mortgagor or Hotel Operator. At this time, Wilshire does not
expect to incur a loss on this property.
On May 5, 2005, the Company sold a one-bedroom condominium unit at Galsworthy
Arms for gross proceeds of $240,000, resulting in an approximate $80,000 after-
tax gain that will be recorded in the second quarter 2005 statement of income.
After the sale, the Company continues to operate 43 condominium units at
Galsworthy and expects to sell an additional two units (a one-bedroom and a
two-bedroom) in 2005.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The Company has an investment in the common stock of one publicly traded real
estate company in the United States in which the Company has exposure to the
risk of market value fluctuation. The Company accounts for this investment as
securities that are available for sale and marks them to market at each period-
end. The change in value in the investment, net of tax impact, is reported in
Accumulated Other Comprehensive Income, a separate component of stockholders'
equity. The Company also evaluates its investment to determine if it has
suffered a decline in market value that is permanent, which would require a
charge to the Statement of Income. At March 31, 2005, in the opinion of
management, there has been no permanent decline in value in the Company's
holdings of equity securities.
After the sale of its Canadian oil and gas assets in April 2004, the Company has
cash and cash equivalents at its Canadian subsidiary whose value is exposed to
fluctuations in the value of the Canadian dollar / U.S. dollar exchange rate.
The change in value in the Canadian dollar denominated accounts is reported in
Accumulated Other Comprehensive Income, a separate component of stockholders'
equity. The Company will be repatriating all assets, net of liabilities, of its
Canadian subsidiary during 2005. At that time, the foreign exchange component
previously reported in Accumulated Other Comprehensive Income will be recognized
as a component of net income. At March 31, 2005, the unrealized foreign exchange
component of Accumulated Other Comprehensive Income was a loss of $37,000.
Long-term debt as of March 31, 2005 and December 31, 2004 consists of the
following --
2005 2004
----------- -----------
Mortgage notes payable $46,421,000 $46,855,000
Less-current portion (1) 739,000 729,000
----------- -----------
Long term portion (2) $45,682,000 $46,126,000
=========== ===========
(1) Includes mortgage debt associated with discontinued operations of $159,000
in 2005 and $156,000 in 2004.
(2) Includes mortgage debt associated with discontinued operations of
$10,507,000 in 2005 and $10,547,000 in 2004.
The aggregate maturities of the long-term debt in each of the five years
subsequent to March 31, 2005 and thereafter are --
18
Year Ended Amount
- -------------- -----------
March 31, 2006 $ 739,000
March 31, 2007 795,000
March 31, 2008 852,000
March 31, 2009 923,000
March 31, 2010 4,778,000
Thereafter 38,334,000
-----------
$46,421,000
===========
The Company is not exposed to changes in interest rates. At March 31, 2005, the
Company had $46,421,000 of mortgage debt outstanding which all bears interest at
an average fixed rate of 6.098% and an average remaining life of approximately
7.7 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
- ---- -----------
2009 $ 3,861,000
2013 36,289,000
-----------
$40,150,000
-----------
Wilshire expects to re-finance the 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 obligations. If interest rates, at the time any
individual mortgage note 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 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.
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. As of the end of the Company's most
recently completed fiscal quarter 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, except for the correction of a material weakness noted in the
Company's Annual Report on Form 10-K for the year ended December 31, 2004
concerning the recording of a transaction involving equity compensation
for one former employee.
19
PART II -- OTHER INFORMATION
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents the total share repurchase activity for the period
January 1 through March 31, 2005 under the Board's authorization. The program,
for the repurchase of up to 1,000,000 shares of the Company's common stock, was
announced on June 3, 2004. No repurchase activity took place from the date of
the announcement of the Board's authorization through June 30, 2004. For the
period July 1 through December 31, 2004, the Company purchased 38,478 shares
under this authorization. The authorization to repurchase common shares has no
expiration date and the Company has not determined when, or if, the program will
be discontinued.
(c) Total number of (d) Maximum number (or
shares (or units) approximate dollar value)
(a) Total number of purchased as part of of shares (or units) that
shares (or units) (b)Average price paid publicly announced may yet be purchased under
Period purchased per share (or unit) plans or programs the plans or programs
- ------------- ------------------------ ------------------------ ------------------------ -------------------------
January 1 -- 31, 2005 2,900 $6.91 2,900 958,622 common shares
February 1 -- 28, 2005 None
March 1 -- 31, 2005 None
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
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: May 13, 2005 /s/ S. Wilzig Izak
------------ ------------------
By: S. Wilzig Izak
Chairman of the Board and Chief Executive Officer
/s/ Seth H. Ugelow
------------------
By: Seth H. Ugelow
Chief Financial Officer
21