Item 1. Business
This report contains “forward-looking statements” within the meaning of the federal securities laws. These statements relate to future economic performance, plans and objectives of management for future operations and projections of revenues and other financial items that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. The words “expect,” “estimate,” “anticipate,” “believe” and similar expressions are intended to identify forward-looking statements. Those statements involve risks, uncertainties and assumptions, including industry and economic conditions, competition and other factors discussed in this and our other filings with the SEC. If one or more of these risks or uncertainties materialize or underlying assumptions prove incorrect, actual outcomes could vary materially from those indicated. We have made forward-looking statements in Items 1, 2, 5, 7 and 7A of this report. See Item 1A
Item 1A.Risk Factors
In the normal course of operating our business and executing our business strategies, we are subject to several risks and uncertainties that could impede our ability to achieve our goals, including the risks described below. If any of the following risks actually occurs, our financial condition and results of operations and / or the market price of our common stock could be materially and adversely affected.
Prolonged disruptions in the financial markets could affect our ability to obtain financing on reasonable terms and have other adverse effects on us and the market price of our common stock.
Global stock and credit markets have experienced significant price volatility, dislocations and liquidity disruptions, which have caused market prices of many stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity in the financial markets, making terms for certain financings less attractive, and, in certain cases, have resulted in the unavailability of certain types of financing. If these conditions persist, additional lending institutions may be forced to exit markets such as repurchase lending, become insolvent or further tighten their lending standards or increase the amount of equity capital required to obtain financing, and in such event, could make it more difficult for us to obtain financing on favorable terms or at all. Our profitability will be adversely affected if we are unable to obtain cost-effective financing for our investments. If the current downturn in the stock or credit markets is prolonged, it may cause us to seek alternative sources of potentially less attractive financing to purchase new properties or re-finance existing debt when due, and may require us to adjust our business plan accordingly. These events in the stock and credit markets may also make it more difficult or unlikely for us to raise capital through the issuance of our common stock or preferred stock. These disruptions in the financial markets also have had, and may continue to have, a material adverse effect on the market value of our common stock and other adverse effects on us or the economy generally.
Our properties held for sale may not realize the sales prices anticipated by us.
We are holding various properties that are available for sale. It is our intent to sell such properties at a price that we have determined represents their intrinsic value. However, there is no guarantee that a buyer will be found to purchase such properties at prices we will set. In this event, our options include continuing to operate the properties, with potentially significant capital expenditures, or to reduce the selling price of the property.
Environmental concerns may limit our ability to operate our real estate properties.
Our ability to operate our continuing real estate operations and sell our discontinued operations are impacted by potential environmental issues including: asbestos removal at certain properties, clean-up of spills from leaking heating oil tanks, faulty sewerage treatment, disposal of cleaning, painting and other potential contaminants and other items. Laws protecting the environment typically are strictly enforced and carry with them substantial monetary penalties for non-compliance. Any action by a federal or state agency could result in substantial penalties and other enforcement measures which could materially and adversely affect us.
Competition in our markets limits rental income from tenants.
The rental income that we may earn from our properties is limited to the local market conditions where the properties are located. This impacts actual rent that may be charged and concessions that may be granted to entice new tenants and tenants renewing their leases to continue to occupy our properties.
Certain properties may require substantial capital expenditures to remain competitive.
As our properties age, they require capital expenditures to remain competitive in their marketplaces. Such capital expenditures could be significant and could include but are not limited to, roofing, replacement of boilers and air conditioning equipment and paving of parking lots.
Changes in market conditions could adversely affect the market price of our common stock.
As with other publicly traded equity securities, the value of our common stock depends on various market conditions which may change from time to time. Among the market conditions that may affect the value of our common stock are the following:
•
the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;
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our financial performance; and
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general stock and bond market conditions.
The market value of our common stock is based primarily upon the market’s perception of our growth potential and our current and potential future earnings and cash dividends. Consequently, our common stock may trade at prices that are higher or lower than our book value per share of common stock. If our future earnings are less than expected, it is likely that the market price of our common stock will diminish.
Economic change in our marketplaces may impact our ability to locate suitable tenants.
Our properties are concentrated in the Southwest and New Jersey. A continuing or prolonged decline in the economic environment in those areas, including but not limited to sustained unemployment in the submarket regions, and throughout the country may impact the ability of existing tenants to remain current on their rental payments and our ability to attract qualified new tenants.
Interest rate fluctuations impact our ability to raise funds for investment and the desire of tenants to rent versus buy housing.
We are susceptible to changes in interest rates. Increasing interest rates are detrimental to our ability to raise capital for investment purposes at suitable interest rates. Declining interest rates generally make home ownership more affordable than renting for tenants and may cause vacancy rates at our properties to increase. Continuing or prolonged decline in general economic conditions may cause an increase in vacancy rates at our office and retail properties.
Government regulations may hinder our ability to dispose of our properties held for sale and may limit our ability to construct improvements at our existing properties.
Government regulations concerning zoning, property use, environmental regulations and taxation, among other things, could affect our decisions to sell various properties and to attempt to construct improvements to make the properties more desirable for tenants and investors.
Item 1B.
Item 1B.Unresolved Staff Comments
None.
Item 2.
Item 2.Properties
The executive and administrative office of the Company consists of approximately 3,354 square feet, located at 100 Eagle Rock Avenue, East Hanover, New Jersey. Beginning on July 1, 2010, Wilshire leased this office pursuant to a sixty three month lease, with one five year option to renew. The base monthly rental is $5,450 during the initial term of the lease.
The following table provides summary information regarding the Company’s apartment and condominium properties as of December 31, 2010.
(a) Classified by the Company as Discontinued Operations. See Note 2 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K
(b) The Jefferson Gardens condominium complex has a total of 50 units, 34 one bedroom and 16 two bedroom, of which the Company owned 10 units as of December 31, 2010.
The following table provides summary information regarding the Company’s commercial properties and vacant land as of December 31, 2010.
(a) Classified by the Company as Discontinued Operations. See Note 2 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Discontinued operations contain properties that may have sustainable cash flow or solid valuation characteristics but may not be in a geographic region that is currently being targeted by the Company. Discontinued operations include properties that either is under contract for sale or the Company has identified as properties potentially for sale depending on market conditions, including Jefferson Gardens (NJ), Amboy Towers (NJ), and the Alpine Village and West Orange land parcels also in New Jersey. The Company may or may not sell some or all of such assets.
The following table provides summary financial information for the Company’s properties that are not carried as discontinued operations:
Item 3.
Item 3. Legal Proceedings
On or about July 31, 2009, James Robert Soprito, individually and as successor-in-interest to Josephine Soprito, as Decedent; Cindy Maguglin and Donna Tryon (collectively, "Plaintiffs"), filed a Complaint for Damages in the Superior Court of the State of California for the County of San Francisco against numerous defendants, including the Company. Plaintiffs are seeking damages based on claims of, among other things, wrongful death, negligence, strict liability, enterprise liability, and premises liability. These claims are based on the allegation that the decedent and others suffered injuries as a result of exposure to asbestos materials at certain unspecified times in the past. The Company sold its oil and gas business in 2004 and does not believe it should be named as a party in the case. The Company was granted an extension of time to answer, move or otherwise respond to the Complaint pending the Plaintiff's evaluation of materials submitted by the Company in support of its position that it should not be named as a party. In March 2010, this case against the Company was entirely dismissed without reservation.
Item 4.
Item 4. [Removed and Reserved.]
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s common stock was traded on the American Stock Exchange until January 26, 2010 under the symbol “WOC”. Effective January 27, 2010, the Company’s common stock is quoted on the Over the Counter (“OTC”) Electronic Bulletin Board maintained by the National Association of Securities Dealers, Inc. (“NASD”) under the symbol “WLSE.PK”. The following table indicates the high and low sales prices of the Company’s common stock for the quarters indicated during the years ended December 31, 2010 and 2009:
As of December 31, 2010, there were 3,225 common shareholders of record.
On August 10, 2009 the Company announced the commencement of a tender offer to purchase shares of its common stock. The Company was offering to purchase up to 4,000,000 shares of its common stock at a price of $2.00 per share for a maximum aggregate purchase price of $8,000,000. The tender offer expired at 12:00 midnight, New York City time, on Friday, September 4, 2009. As a result of the tender offer, the Company purchased and retired 4,047,380 shares of its common stock at a purchase price of $2.00 per share, for an aggregate purchase price of $8,094,760. The 4,047,380 shares purchased pursuant to the tender offer are comprised of the 4,000,000 shares the Company offered to purchase and 47,380 shares purchased pursuant to the Company’s right under applicable securities laws to purchase up to an additional 2% of the Company’s outstanding shares without extending the tender offer.
In June 2004, the Company’s Board of Directors authorized management to conduct a buyback of up to 1,000,000 common shares. The authorization to repurchase common shares has no expiration date and the Company has not determined when, or if, the program will be discontinued. Under this authorization, the Company conducted an odd-lot share repurchase program, which offered shareholders who owned a small number of common shares the opportunity to sell their shares without paying a broker’s commission. The Company also benefited under the odd-lot share repurchase program by lowering its administrative costs through the closing of approximately 1,900 shareholder accounts. Under the Board authorization, the Company also allowed other shareholders the opportunity to sell their shares to the Company. No shares were repurchased during the period January 1, 2010 through December 31, 2010.
As described in “Termination of SEC Registration” above, as a result of the Transaction approved by the Company’s stockholders on February 25, 2011, the number of our stockholders of record has been reduced below 300, which will allow us to terminate the registration of our Common Stock under the Exchange Act. We expect to terminate the registration of our Common Stock under the Exchange Act promptly following the filing of this Annual Report on Form 10-K with the SEC. Effective on, and following the termination of the registration of our Common Stock under the Exchange Act, we will no longer be subject to any reporting requirements under the Exchange Act or the rules of the SEC applicable to SEC reporting companies and will be able to eliminate most of the expenses related to the disclosure, reporting and compliance requirements of the Sarbanes-Oxley Act. The cash impact of the transaction was $374,000 in reverse stock split costs, and $142,000 in legal counsel review costs.
Equity Compensation Plan Information
The following table provides information as of December 31, 2010 with respect to shares of the Company’s common stock that may be issued under the Company’s existing equity compensation plans, which consist of the (i) 1995 Stock Option and Incentive Plan, (ii) 1995 Non-Employee Director Stock Option Plan, (iii) 2004 Stock Option and Incentive Plan, and (iv) 2004 Non-Employee Director Stock Option Plan, each of which has been approved by the Company’s shareholders.
Issuance of Common Stock in Settlement of Bonus
During the year ended December 31, 2010 the Company issued 263,065 shares of common stock, valued at $318,000 in settlement of bonuses accrued during 2009 and 2008, as well as stock awards that were granted to employees and consultants in 2010.
Item 6.
Item 6. Selected Financial Data
The selected consolidated financial data for the Company for each of the five (5) fiscal years in the period ended December 31, 2010 are derived from the consolidated financial statements that have been audited. J.H. Cohn LLP, an Independent Registered Public Accounting Firm, has reported upon the consolidated financial statements as of and for the years ended December 31, 2010, 2009, 2008, 2007 and 2006.
The following table sets forth the Company’s selected financial data and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8, “Financial Statements and Supplementary Data” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In 2010, Wilshire primarily engaged in the real estate business. During 2010, 2009, and 2008 the Company also conducted activities, including disposing of all remaining oil and gas unclaimed property, and filing vacating of company operations notices to applicable state entities, all related to winding up its oil and gas business which was sold in April 2004.
The real estate business consists of residential and commercial properties in Arizona, New Jersey and Texas. Within this portfolio of properties, certain properties have been designated as being held for sale and have been classified as discontinued operations. Discontinued operations contain properties that may have positive cash flow or valuation characteristics but that may be positioned for sale at an optimal valuation or may no longer fit into the core investment strategy that is currently being pursued by the Company. The following discussion takes an income statement approach and discusses the results of operations first for the properties comprising “continuing operations” and then discusses the discontinued operations.
The assets comprising Wilshire’s oil and gas business were sold in April 2004, effective March 1, 2004. Oil and gas operations for all periods presented in this report have been classified as discontinued operations.
The Company’s activities are reviewed and analyzed in the following discussion, which should be read in conjunction with the financial statements and notes contained in Item 8 of this Annual Report on Form 10-K. Certain statements in this discussion may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Wilshire’s current expectations regarding future results of operations, economic performance, financial condition and achievements of Wilshire, and do not relate strictly to historical or current facts. Wilshire has tried, wherever possible, to identify these forward looking statements by using words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning. Although Wilshire believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which may cause the actual results to differ materially from those projected. Such factors include, but are not limited to the risks described in Item 1A of this Annual Report.
Critical Accounting Policies
Pursuant to the Securities and Exchange Commission (“SEC”) disclosure guidance for “Critical Accounting Policies” which are listed below, the SEC defines Critical Accounting Policies as those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods.
Wilshire’s discussion and analysis of its financial condition and results of operations is based upon Wilshire’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Wilshire to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Wilshire bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Impairment of Property and Equipment
On a periodic basis, the Company assesses whether there are any indicators that the value of its real estate properties may be impaired. A property’s value is considered impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair value of the property. The Company does not believe that at December 31, 2010 or 2009 the value of any of its properties was impaired.
Revenue Recognition
Revenue from real estate properties is recognized during the period in which the premises are occupied and rent is due from tenants. For commercial properties, rental revenue is recognized on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in accounts receivable. For residential properties where lease agreements are almost exclusively for one-year terms, rental revenue is recognized in accordance with the contractual terms of the underlying leases. The Company follows a policy of aggressively pursuing its rental tenants to ensure timely payment of amounts due. When a tenant becomes 30 days in arrears on paying rent, the amount is written-off and turned over to a collection agency for action. Accordingly, no allowance for uncollectible accounts is maintained for the Company’s real estate tenants.
Foreign Operations
The assets and liabilities of Wilshire’s substantially liquidated Canadian subsidiary have been translated at year-end exchange rates. The related revenues and expenses have been translated at average annual exchange rates. Translation gains or losses are included in the Company’s results of operations.
Stock-Based Compensation
Wilshire records stock-based compensation expense at the grant date fair value of the related stock-based award. The Company measures the compensation costs for these shares as of the date of the grant, with subsequent remeasurement for any unvested shares granted to non-employees with such amounts expensed against earnings, at the grant date (for the portion that vest immediately) or ratably over the respective vesting periods. The cost of these grants is amortized over the vesting term. Dividends are paid on the restricted shares as dividends are paid on shares of our common stock whether or not they are vested.
Recent Accounting Standards Updates
In April 2010, the FASB issued Accounting Standard Update ‘ASU’ 2010-17 related to revenue recognition under the milestone method. The objective of the accounting standard update is to provide guidance on defining a milestones and determining when it may be appropriate to apply the milestones method of revenue recognition for research or development transactions. This update is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption of this standard did not have a significant impact on the Company’s results of operations, cash flows, or financial position.
In February 2010, the FASB issued ASU 2010-09 to amend certain recognition and disclosure requirements. Under this update, an entity that is either (1) a Securities and Exchange Commission (“SEC”) filer or (2) a conduit bond obligor for conduit debt securities that are traded in a public market, must evaluate subsequent events through the date the financial statements are issued. All other entities are required to evaluate subsequent events through the date the financial statements are available to be issued. In addition, SEC filers are not required to disclose in their financial statements the date through which subsequent events have been evaluated. However, all other entities, including conduit bond obligors, must both disclose the date and indicate whether it is when the financial statements were issued or were available to be issued. The adoption of this standard did not have a significant impact on the Company’s results of operations, cash flows or financial position.
In June 2009, the Financial Accounting Standards Board (“The 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. The adoption of 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. The adoption of this amendment did not have a material effect on our consolidated financial position, results of operations or liquidity.
In June 2009, the FASB issued the FASB Accounting Standards Codification (“Codification” or “ASC”). The Codification has become the single source for all authoritative Generally Accepted Accounting Principal (“GAAP”) recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The Codification did not change GAAP and did not have an effect on our consolidated financial position, results of operations or liquidity.
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, which was primarily codified into Topic 855 - Subsequent Events in the ASC. This standard establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued and shall be applied to subsequent events not addressed in other applicable accounting principles generally accepted in the United States of America. ASC Topic 855, among other things, sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures an entity should make about events or transactions that occurred after the balance sheet date. ASC Topic 855 was effective for the fiscal quarter ended June 30, 2009. The Company’s adoption of ASC Topic 855 did not have a material impact on the interim or annual consolidated financial statements or the disclosures in those financial statements.
Accounting Standard Updates Recently Issued and Not Yet Effective
In March 2011, accounting standards update on “Troubled Debt Restructuring” was issued. The update clarified which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructuring. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011. The Company does not believe that this new pronouncement will have a material impact on its operations.
Results of Operations
The following table presents the increases (decreases) in each major statement of operations category for the year ended December 31, 2010 (“2010”) compared with the year ended December 31, 2009 (“2009”) and 2009 compared with the year ended December 31, 2008 (“2008”).
Results of Operations - For the year ended December 31, 2010 as compared to the year ended December 31, 2009
Overview
Net loss for the year ended December 31, 2010 was $1,469,000 or $(0.36) per basic and diluted share, a decrease of $1,290,000 from a net loss of $2,759,000 or $(0.41) per basic and diluted share for the year ended December 31, 2009. 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 results of the sale of the oil and gas properties, 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 year.
Continuing Operations:
Loss from continuing operations was $1,245,000 during 2010 as compared to a loss of $2,512,000 during 2009. Results per basic and diluted share from continuing operations were $(0.30) for the year ended December 31, 2010 as compared to $(0.37) per basic and diluted share during 2009. The decrease in loss from continuing operations during 2010 as compared to 2009 primarily relates to a decrease in general and administrative expense of $1,867,000, and tax a benefit of $480,000 during the year ended December 31, 2010.
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:
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 exclude 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.
Revenues from rental properties amounted to $8,649,000 in 2010, a decrease of $271,000 from $8,920,000.
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 2010, NOI increased by $99,000 to $2,619,000 as a result of a decrease in revenues of $67,000 to $7,596,000 which was offset by a decrease in operating expenses of $166,000 to $4,977,000.
The decrease in revenues is due to a $115,000 decline in Texas and New Jersey, offset by a $48,000 increase revenue in Arizona due to positive vacancy absorption in the Tucson sub - market.
The decrease in operating expenses was primarily attributable to a focused effort by the Company to reduce costs, coupled with overall economic conditions that allowed for more competitive bidding of services and diminished requirement for “make ready” apartment preparation.
Commercial Segment
The commercial segment is comprised of Red Mountain Professional Plaza in Mesa, Arizona and Tempe Corporate Center in Tempe, Arizona. During 2010, NOI decreased $192,000 to $351,000, primarily due to a decrease in revenues of $204,000 to $1,053,000 and a slight decrease in operating expenses of $12,000 to $702,000. The revenue decrease was attributable to a $39,000 decrease in revenue at Red Mountain Professional Plaza (Arizona) and a $165,000 decrease at Tempe Corporate Center (Arizona). The decrease in revenue is directly related to increased market vacancy levels throughout the Phoenix commercial sub-market during part of 2010 as compared to 2009, as well as the impact of reduced tenant commercial space demands.
Revenues
Operating Expenses
Operating expenses were $5,679,000 in 2010, which is a decrease of $178,000 compared to $5,857,000 during 2009. The overall decrease in operating expenses during 2010 was primarily related to a focused effort of greater cost controls coupled with overall economic conditions allowing for more competitive bidding and reduced “make ready” apartment turns throughout the Company’s real estate portfolio.
Depreciation and amortization expense amounted to $1,125,000 in 2010, a decrease of $23,000 as compared to $1,148,000 during 2009. The decrease relates to fully depreciated assets in 2010.
General and administrative expense decreased $1,867,000, to $1,998,000 in 2010 as compared to $3,865,000 during 2009. The decrease in general and administrative expense is primarily attributable to the following significant reductions in 2010 expenses: reduced office rent of $38,000 due to the relocation to East Hanover in September 2010; reduction of outside consulting costs related to the 2009 completed issuer tender offer of $111,000; reduced legal fees of $628,000 primarily related to the completed issuer tender offer in 2009; $262,000 less accounting, tax and Sarbanes Oxley fees in 2010 and $637,000 less payroll and payroll related costs associated with the additional salary and severance accrual in December 2009 for the Company’s President and Chief Operating Officer combined with the vacancy in the Vice President of Operations position during the second half of 2010.
Other income decreased by $21,000 to $15,000 in 2010 as compared to $36,000 in 2009. The decrease primarily relates to a decline in interest and dividend income as a result of the completed issuer tender offer in September 2009.
Interest expense decreased to $1,587,000 in 2010 from $1,708,000 during 2009. The decrease primarily relates to the reduction in the Company’s mortgage liability and the refinancing of the mortgage on Summercreek in May 2009.
The provision for income taxes amounted to a tax benefit of $480,000 in 2010 compared to a tax benefit of $1,110,000 during 2009. The change in the provision for income taxes is related to the level of loss from continuing operations in 2010 compared to 2009 and the recording of a valuation allowance related to the utilization of certain state net operating losses during 2009.
Discontinued Operations, Net of Taxes:
Real Estate
Discontinued operations amounted to an after tax loss from operations of $240,000 during 2010 as compared to an after tax loss from operations of $465,000 during 2009 due to strict cost controls at the properties.
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 2010, the Company recognized after-tax income from the wind down of its former oil and gas business of $16,000 as compared to $218,000 during 2009. The net income from the wind down of the oil and gas business during 2010 and 2009 relates to a foreign currency gain and interest income during those years. The Company completed the wind down of its Canadian subsidiary during the first quarter of 2010.
Results of Operations - For the year ended December 31, 2009 as compared to the year ended December 31, 2008
Overview
Net loss for the year ended December 31, 2009 was $2,759,000 or $0.41 per basic and diluted share, an increase of $1,398,000 from a net loss of $1,361,000 or $0.17 per basic and diluted share for the year ended December 31, 2008. 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 results of the sale of the oil and gas properties, 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 year.
Continuing Operations:
Loss from continuing operations was $2,512,000 during 2009 as compared to a loss of $1,899,000 during 2008. Results per basic and diluted share from continuing operations were $(0.37) for the year ended December 31, 2009 as compared to $(0.24) per basic and diluted share during 2008. The increased loss from continuing operations during 2009 as compared to 2008 primarily relates to a decrease in revenue of $283,000, an increase in general and administrative expense of $49,000, and a decrease in dividend and interest income of $382,000 offset by a reduction in interest expense of $68,000 during the year end December 31, 2009 and the loss on sale of marketable securities of $188,000 during 2008.
Reported loss from continuing operations in 2009 compared with 2008 reflects an increased loss from operations (defined as revenues reduced by operating expenses, depreciation and general and administrative expenses), that was partially offset by the other factors described herein. These factors are discussed below.
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.
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 exclude 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 2009, NOI decreased by $58,000 or 2.2% to $2,520,000 as a result of a decrease in revenues of $107,000 or 1.4% to $7,663,000 which was partially offset by a decrease in operating expenses of $49,000 or .9% to $5,143,000.
The decrease in revenues primarily relates to increased vacancy rates at the Company’s Sunrise Ridge apartment complex. Through successful marketing efforts at the New Jersey property, the Company has seen an increase in occupancy which partially offset the decreased revenues.
The decrease in operating expenses was primarily attributable to reduced insurance costs as a result of effective risk management control at the properties and the implementation of greater cost controls at the Company’s Arizona and Texas apartment complexes.
Commercial Segment
The commercial segment is comprised of Red Mountain in Mesa, Arizona and Tempe Corporate Center in Tempe, Arizona. During 2009, NOI decreased $190,000 or 25.9% to $543,000, primarily due to a decrease in revenues of $176,000 or 12.3% to $1,257,000 and a slight increase in operating expenses of $14,000 or 2% to $714,000. The revenue decrease was attributable to a $113,000 decrease in revenue at Red Mountain (Arizona) and a $63,000 decrease at Tempe Corporate Center (Arizona). The decrease in revenue is directly related to increased vacancy levels during part of 2009 as compared to 2008, as well as the impact of tenant space reductions.
Revenues
Revenues from rental properties amounted to $8,920,000 in 2009, a decrease of $283,000 or 3.1%, from $9,203,000 in 2008. The decrease during 2009 is primarily attributable to Sunrise Ridge Apartments, which had a decrease in rental revenues of $164,000 or 6.0%, Red Mountain, which had a decrease in rental income of $113,000 or 19.6% and Tempe Corporate Center which had a decrease in rental income of $63,000 or 7.4% which was partially offset by increased rental income at Van Buren Apartments which experienced a $25,000 increase in rental income of $11,000 or 0.9%.
Operating Expenses
Operating expenses were $5,857,000 in 2009, which is a decrease of $35,000 or 0.6% as compared to $5,892,000 during 2008. The overall decrease in operating expenses during 2009 was primarily related to reduced insurance costs at our residential properties.
Depreciation and amortization expense amounted to $1,148,000 in 2009, a decrease of $40,000 or 3.4% as compared to $1,188,000 during 2008. The decrease relates to fully depreciated assets in 2009.
General and administrative expense increased $49,000 or 1.3% to $3,865,000 in 2009 as compared to $3,816,000 during 2008. The increase in general and administrative expense is primarily attributable to the increased payroll and payroll related costs, which is partially associated with the appointment of the Company’s new President and Chief Operating Officer in January 2009, an increase in payroll taxes associated with the additional salary and recording of a severance accrual in December 2009 in connection with the resignation of such individual, all of which amount to $507,000, an increase in shareholder reports and solicitations primarily related to the Company’s annual meeting and completed issuer tender offer of $326,000, which was partially offset by a decrease in accounting fees of $213,000, legal fees of $198,000 and consulting fees of $288,000 which were incurred in connection with the proposed merger during the 2008 period.
Other income decreased by $191,000 to $36,000 in 2009 as compared to $227,000 in 2008. The decrease primarily relates to a decline in interest and dividend income as a result of the declining interest rates during 2009 and the completed issuer tender offer in September 2009.
Interest expense decreased to $1,708,000 in 2009 from $1,776,000 during 2008. The decrease primarily relates to the reduction in the Company’s mortgage liability and the refinancing of the mortgage on Summercreek in May 2009.
The provision for income taxes amounted to a tax benefit of $1,110,000 in 2009 compared to a tax benefit of $1,343,000 during 2008. The change in the provision for income taxes is related to the level of loss from continuing operations in 2009 compared to 2008 and the recording of a valuation allowance related to the utilization of certain state net operating losses during 2009.
Discontinued Operations, Net of Taxes:
Real Estate
Discontinued operations amounted to an after tax loss from operations of $465,000 during 2009 as compared to an after tax loss from operations of $592,000 during 2008. The after tax loss during 2008 was offset by a gain on sale of properties of $806,000 for net income from discontinued operations of $214,000. The gain on the sale of properties during the 2008 period reflects the sales of two condominium units at Jefferson Gardens and the sale of the Tamarac Office Plaza resulting in gross proceeds of $2.3 million and an after tax gain of $806,000.
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 2009, the Company recognized after-tax income from the wind down of its former oil and gas business of $218,000 as compared to $324,000 during 2008. The net income from the wind down of the oil and gas business during 2009 and 2008 relates to a foreign currency gain and interest income during those years.
Effects of Inflation
The effects of inflation on the Company’s financial condition are not considered to be material by management.
Liquidity and Capital Resources
At December 31, 2010 and 2009, the Company had working capital, including restricted cash, of $2.1, and $3.7 million, respectively. The decrease in working capital during the period primarily relates to the continuing deterioration of occupancy levels in the real estate markets in which the Company’s real assets are located. Additionally, ongoing operating costs increased at some properties and the need for capital expenditure re -investments were necessary to maintain competitiveness in the marketplace in 2010.
The Company had $3.8 and $4.5 million of cash and cash equivalents, including restricted cash at December 31, 2010 and 2009, respectively. This balance is comprised of working capital accounts for its real estate properties and corporate needs and money market and securities accounts. In the short-term, the Company will continue to invest in highly liquid investments that are consistent with its investment policy.
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. Management considers its liquidity position adequate to fulfill the Company’s current business plans.
Net cash provided by operating activities amounted to $624,000 during 2010; cash flow used in operating activities during 2009 was $2.2 million, while $42,000 was provided by operating activities during 2008. The 2010 net cash provided by operating activities primarily relates to the net loss of $1.5 million, a decrease in deferred income tax of $358,000, a decrease in income taxes receivable of $1.1 million, and depreciation of $1.1 million. The 2009 use of net cash primarily relates to the net loss of $2.8 million, a decrease in deferred income tax liabilities of $133,000, and an increase in income tax receivables of $313,000, which was partially offset by depreciation expense of $1.2 million. The 2008 net cash provided primarily relates to a decrease in prepaid income taxes and income tax receivables of $877,000 and depreciation of $1.2 million, which was partially offset by the gain on real estate assets of $1.3 million.
Net cash used in investing activities amounted to $723,000 in 2010, $1.4 million in 2009 and $9.2 million in 2008. The cash used in investing activities during 2010 primarily relates to capital expenditures on real estate properties and the corporate office of $744,000, offset by a decrease in restricted cash of $21,000. Net cash provided by investing activities in 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 capital expenditures on real estate properties of $558,000 and an increase in restricted cash in the amount of $2,000. The cash provided by investing activities during 2008 is primarily due to the sale and redemption of marketable securities of $7.3 million and the net proceeds from the sale of real estate assets of $2.2 million.
Net cash used in financing activities amounted to $573,000 in 2010, $8.0 million in 2009, and $1.1 million in 2008. The 2010 use of cash represents the annual amortization of long-term debt from debt service payments. The 2009 use of cash was primarily attributable to the completed issuer tender offer in September 2009 in the amount of $8.1 million, the repayment of the existing debt on the Summercreek property of $3.9 million and the repayment of scheduled long-term debt in the amount of $541,000 during the period, which was partially offset by the proceeds related to the refinancing of the Summercreek property in the amount of $4.6 million. The 2008 use of cash reflects the normal annual amortization of long-term debt from debt service payments.
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 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 or where a return on the capital investment can be realized in the short term.
The following table sets forth the amounts of capital expenditures made in each property within the past three years, exclusive of those properties which were sold.
(a)
Alpine Land represents land and a residential building bought in 2007.
(b)
Tamarac Office Plaza was sold in May 2008.
On June 3, 2004, the Company’s Board of Directors approved the repurchase of 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. At December 31, 2010, the Company had purchased 138,231 shares at an aggregate cost of $1,017,000 under this program.
In January 2008 and December 2008, the Company closed on the sale of two 1 bedroom condominiums at Jefferson Gardens, New Jersey for gross proceeds of approximately $150,000 and $154,000, respectively. After payments of closing costs and providing for taxes, the Company realized a gain during the first quarter of 2008 of approximately $62,000 and a gain during the fourth quarter of 2008 of approximately $61,000 from these sales.
In May 2008, the Company closed on the sale of its Tamarac Office Plaza, Florida, office complex for gross proceeds of $2 million. After payments of closing costs and providing for taxes, the Company realized a net gain of approximately $683,000 from this sale.
The executive and administrative office of the Company consists of approximately 3.354 square feet, located at 100 Eagle Rock Avenue, East Hanover, New Jersey. Beginning on July 1, 2010, Wilshire leased this office pursuant to a sixty three month lease, with one five year option to renew. The base monthly rental is $5,450 during the initial term of the lease.
See Item 7A
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
After the sale of its Canadian oil and gas assets, 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 the Statement of Operations. The Company repatriated substantially all of its assets, net of liabilities, during 2009. The Company has completed the wind down of its Canadian subsidiary during the first quarter of 2010.
Long-term debt, consisting solely of mortgage notes payable, totaled the following as of December 31, 2010 and December 31, 2009:
The aggregate maturities of the long-term debt in each of the five years subsequent to December 31, 2010 are -
At December 31, 2010, the Company had $27,443,000 of mortgage debt and notes outstanding which all bear interest at an average fixed rate of 5.62% and an average remaining life of approximately 2.4 years. The fixed rate mortgages and notes 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 and notes that will be required is as follows:
Wilshire expects to refinance the individual mortgages and notes with new mortgages and notes 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 refinancing 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 refinancing proceeds equal to, or higher than, the mortgage debt to be refinanced. 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 and the loan to value limitations that might be imposed by potential lenders.
Item 8.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Wilshire Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Wilshire Enterprises, Inc. and Subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity and cash flows and the financial statement schedule listed in the index at Item 15 for each of the three years in the period ended December 31, 2010. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wilshire Enterprises, Inc. and Subsidiaries as of December 31, 2010 and 2009, and their results of operations and cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
/s/ J.H. Cohn LLP
Roseland, New Jersey
July 29, 2011
WILSHIRE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2010 and 2009
The accompanying notes are an integral part of these consolidated financial statements.
WILSHIRE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2010, 2009 and 2008
The accompanying notes are an integral part of these consolidated financial statements.
WILSHIRE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2010, 2009 and 2008
The accompanying notes are an integral part of these consolidated financial statements.
WILSHIRE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2010, 2009 and 2008
WILSHIRE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and significant accounting policies:
Wilshire Enterprises, Inc. (“Wilshire” or the “Company”) is engaged in acquiring, owning and managing real estate properties and real estate related securities. The Company’s real estate holdings are located in the states of Arizona, New Jersey and Texas. The Company’s real estate holdings are owned both in its own name and through holding companies and limited liability companies. The Company also maintained investments in marketable securities, which were classified as available-for-sale.
The Company had been engaged in oil and gas exploration and production in the United States and Canada. In April 2004, the Company sold its oil and gas operations and received net proceeds of $28,131,000, recording a gain of $567,000 (after taxes) on the transaction. Since the sale was effective as of March 1, 2004, the 2010, 2009 and 2008 consolidated financial statements include the continuing reconciliation process between the Company and its joint interest partners, final assessments from various governmental bodies for tax audits and other matters and changes in estimates for the remaining obligations related to the wind-up of the oil and gas businesses. The Company completed the wind down of its Canadian subsidiary during the first quarter of 2010.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its subsidiaries for the years ended December 31, 2010, 2009 and 2008. All significant intercompany account balances and transactions have been eliminated in consolidation.
Use of estimates:
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.
Cash and cash equivalents and marketable debt securities:
Financial instruments that potentially subject Wilshire to concentrations of credit risk consist primarily of cash and cash equivalents and marketable investments. Wilshire considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. At December 31, 2010, Wilshire maintained its cash in the United States in bank accounts (in the amount of $2,803,000) and brokerage and securities accounts (in the amount of $964,000). The balances maintained in bank accounts may, at times, exceed federally insured limits. At December 31, 2010, cash balances in banks that exceeded federally insured limits amounted to $2,160,000. Investments in accounts maintained at brokerage houses consist of funds held in highly liquid money market accounts.
Restricted cash at December 31, 2010 and 2009 represents $176,000 and $197,000, respectively, of residential tenant deposits for Company properties located in New Jersey.
Marketable equity securities:
The Company formerly held investments in certain marketable equity securities and short-term marketable debt securities, including auction rate securities (“ARS”) with interest rate resets ranging from every seven days to every 45 days. As of December 31, 2008, the Company held $2.0 million of auction rate securities, classified as available-for-sale. During the first quarter of 2009, the Company redeemed its remaining investment of $2.0 million of ARS at par.
During June 2008, the Company sold its investment in marketable equity securities which consisted of common shares in one real estate company for gross proceeds of $1.3 million. As a result of this sale, the Company recognized a loss from the sale of securities of $188,000.
Assets measured at fair value on a recurring basis:
On January 1, 2008, the Company adopted Topic 820 - “Fair Value Measurements” (“ASC Topic 820”) in the Accounting Standards Codification (“ASC”). 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. Adoption of ASC Topic 820 did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
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 December 31, 2010 and 2009 using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):
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.
Deferred loan costs:
Other noncurrent assets include deferred loan costs of $117,000 at December 31, 2010 and $172,000 at December 31, 2009. Deferred loan costs are amortized on the straight-line method by annual charges to operations over the terms of the loans. Amortization of such costs is included in interest expense and amounted to approximately $55,000 in 2010, $63,000 in 2009 and $57,000 in 2008. Deferred loan costs relate to mortgage loans for continuing real estate properties.
Real estate and other properties:
Real estate properties and other property and equipment are stated at cost. Costs incurred to maintain and repair the property are expensed as incurred. Depreciation is provided on the straight-line method using an estimated useful life of 30 to 35 years for real estate buildings and seven years for furniture, fixtures and equipment at the properties, which approximates their estimated useful life.
The Company has designated certain real estate properties as held for sale and reports results of operating the properties, including interest expense, and the gain or loss on the sale of such real estate properties as “Discontinued Operations”. The Company ceases depreciating a property when it is designated as held for sale.
The composition of the Company’s real estate and other properties follows:
On a periodic basis, management assesses whether there are any indicators that the value of the real estate properties may be impaired. A property’s value is considered impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair value of the property.
Management does not believe at December 31, 2010 and 2009 that the value of any of its properties is impaired.
Revenue recognition:
Revenue from real estate properties is recognized during the period in which the premises are occupied and rent is due from tenants. For commercial properties, rental revenue is recognized on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in accounts receivable. For residential properties where lease agreements are almost exclusively for one-year terms, rental revenue is recognized in accordance with the contractual terms of the underlying leases. The Company follows a policy of aggressively pursuing its rental tenants to ensure timely payment of amounts due. When a tenant becomes 30 days in arrears on paying rent, the amount is generally written-off and turned over to a collection agency for action. Accordingly, no allowance for uncollectible accounts is maintained for the Company’s real estate tenants.
An allowance for uncollectible accounts was maintained based on the Company’s estimate of the inability of its joint interest partners in the oil and gas division to make required payments. With the sale of the oil and gas division, the Company no longer maintains an allowance for uncollectible accounts.
Income taxes:
Deferred taxes are provided for the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The primary temporary differences are those related to tax over book depreciation, capital loss carryovers, state net operating loss carryovers, accruals and deferred income.
Deferred tax benefits are evaluated for realizability and a determination is made, taking into account tax planning strategies, on whether the deferred tax benefit is more likely than not to be realized. Based upon this evaluation, a valuation allowance is established to reduce the deferred tax benefit to the level where it is more likely than not to be ultimately realized. At December 31, 2010 and 2009, the Company had a valuation allowance for a portion of state tax loss carry-forward in the amount of $273,000 and $222,000, respectively.
The Company had a valuation allowance for a portion of federal tax loss carry-forward in the amount of $409,000 and $0 at December 31, 2010 and 2009, respectively.
The tax years ended December 31, 2009, 2008 and 2007 remain open to examination by the major taxing jurisdictions to which the Company is subject.
Foreign operations:
The assets and liabilities of the Company’s substantially liquidated Canadian subsidiary have been translated at year-end exchange rates. The related revenues and expenses have been translated at average annual exchange rates. In 2010, 2009 and 2008, foreign currency translation income totaling $16,000, $188,000 and $82,000, respectively were included in the statements of operations.
Loss per share:
Basic loss per share is calculated by dividing net loss by the weighted average number of shares outstanding during each period. The calculation of diluted loss per share is similar to that of basic loss per share, except that the denominator is increased to include the number of additional shares that would have been outstanding if all potentially dilutive shares, such as those issuable upon the exercise of stock options, were issued during the period.
For the years ended December 31, 2010, 2009 and 2008, 394,256, 178,628 and 110,880 of potentially dilutive securities, respectively, have been excluded from the calculation of net loss per share since the effects of such potentially dilutive securities would be anti-dilutive because the Company incurred net losses.
Stock-based compensation:
During 2010, 2009 and 2008, the Company recorded charges of $40,000, $69,000 and $90,000 respectively, in connection with the issuance of stock options to employees and non-employee directors.
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.
The following table outlines the variables used in the Black-Scholes option-pricing model for options granted in 2009. There were no stock options granted during 2010 and 2008.
As of December 31, 2010 and 2009, the Company had total unrecognized compensation expense related to options granted to non-employee directors of $34,000 and $76,000, respectively, which will be recognized over a remaining average period of 1.9 years. The expected future amortization expense for unrecognized compensation expense for stock option grants to non-employee directors at December 31, 2010 is as follows:
Year ending December 31, 2011
$
23,000
Year ending December 31, 2012
11,000
$
34,000
Accumulated other comprehensive income (loss):
Changes in the components of accumulated other comprehensive income (loss); net of taxes for 2008 is as follows:
Advertising expense:
The Company advertises for tenants for its properties through various media, including print and Internet. Advertising costs are expensed as incurred and amounted to $105,000 in 2010, $113,000 in 2009 and $141,000 in 2008.
Reclassifications:
Certain amounts in the accompanying consolidated balance sheet as of December 31, 2009 have been reclassified to be consistent with the presentation as of December 31, 2010. The reclassification had no effect on 2009 stockholders’ equity, cash flows, or net loss. The reclassification relates primarily to including the current portion of deferred mortgage costs, previously included in other noncurrent assets, in prepaid and other current assets.
2.
Discontinued operations:
During 2008, the Company sold two condominiums at Jefferson Gardens in Sussex, New Jersey and its Tamarac Office Plaza in Florida for a gross sales price of $2,303,000 and an after tax-tax gain of $806,000.
During 2007, the Company sold its 1.8 acres of land in Lake Hopatcong, New Jersey and six condominium units at Jefferson Gardens Condominiums in Sussex, New Jersey for a gross sales price of $1,814,000 and an after-tax gain of $688,000.
The Company has designated certain of its properties as held for sale, which under accounting principles generally accepted in the United States requires that the Company report the results of operating these properties as discontinued operations. At December 31, 2010, the Company’s residential apartment complex known as Jefferson Gardens Condominiums (Sussex, New Jersey) and its office buildings Amboy Towers (Perth Amboy, New Jersey) and several parcels of undeveloped land in New Jersey have been classified as discontinued operations.
During 2010, 2009 and 2008, the Company recorded income, net of taxes from operating its oil and gas businesses of $0, $218,000 and $324,000, respectively. The income from operating the oil and gas business in 2009 and 2008 reflects the foreign currency exchange gains which were partially offset by professional fees associated with the wind down of the oil and gas businesses, the continuing reconciliation process between the Company and its partners for periods prior to the effective date of the sale and adjustments to the accruals recorded in prior years for the liquidation of the oil and gas business. The Company completed the wind down of its Canadian subsidiary during the first quarter of 2010.
3.
Long-term debt:
Long-term debt as of December 31 consists of the following:
(a)
Mortgage note payable to Capital One NA payable in monthly installments, bearing interest at a weighted average effective rate of 5.125%. This mortgage note is secured by a first mortgage interest in a commercial real estate property in Arizona. The note is being amortized over a 25-year period and matures in February 2013, with a balloon principal payment due at maturity. At December 31, 2010, the property securing this note had an approximate net book value of $2,195,000.
(b)
Mortgage notes payable to four real estate mortgage conduits arranged by Wells Fargo Bank (formerly Wachovia Bank) that are payable in monthly installments of principal and interest, bearing interest at a weighted average effective rate of 5.75%, a 30-year amortization and a ten year term, maturing in March 2013, with a balloon principal payment due at maturity. The residential properties securing the mortgage conduit loans are located in Arizona, New Jersey and Texas and at December 31, 2010, had an approximate net book value of $12,081,000.
(c)
Mortgage note payable to Orix Real Estate Capital Markets was refinanced under Gemsa Loan Services, LP effective June 2009, and is payable in monthly installments of principal and interest, bearing interest at 5.55%. The note is being amortized over a 30-year period and matures in June 2019, with a balloon principal payment due at maturity. The note is secured by residential property located in Texas that at December 31, 2010 had an approximate net book value of $4,898,000.
The aggregate maturities of the long-term debt in each of the five years subsequent to December 31, 2010 and thereafter are as follows:
4.
Commitments and contingencies:
Commercial leases:
Wilshire leases commercial space to tenants for periods of up to seven years. Most of the leases contain clauses for reimbursement of real estate taxes, maintenance, insurance and certain other operating expenses of the properties. Minimum rental income to be received from non-cancelable operating leases in the five years subsequent to December 31, 2010 is as follows:
The above amounts assume that all leases which expire are not renewed and, accordingly, neither minimum rentals nor rentals from replacement tenants are included.
Minimum future rentals do not include contingent or percentage rentals, which may be received under certain leases on the basis of the percentage of tenants’ reported sales volume or other factors. Rental income that is contingent on future events is not included in income until the contingency is resolved. Contingent rentals included in income for each of the three years in the period ended December 31, 2010 were not material.
Residential leases:
Lease terms for residential tenants are usually one year or less, which may or may not include incentive concessions to lease.
Headquarters lease:
Wilshire entered into an agreement to lease office space for its headquarters at 100 Eagle Rock Avenue, East Hanover, New Jersey. The lease term is five years and three months commencing September 1, 2010. The future minimum lease payments for the five years subsequent to December 31, 2010 are as follows:
Rental expense for all of the Company’s offices amounted to approximately $119,000 in 2010, $157,000 in 2009 and $148,000 in 2008.
Rights plan:
On December 3, 2008, the Board of Directors of the Company declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock. The dividend was paid on December 15, 2008 to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $1.00 per share, of the Company (the “Preferred Stock”) at a price of $6.50 per one one-thousandth of a share of Preferred Stock, subject to adjustment. The description and terms of the Rights are set forth in a Qualified Offer Plan Rights Agreement dated as of December 4, 2008, as the same may be amended from time to time (the “Rights Agreement”), between the Company and Continental Stock Transfer & Trust Company, as Rights Agent (the “Rights Agent”). The Rights Agreement provided that the Rights would expire on December 4, 2018 (the “Final Expiration Date”), unless the Final Expiration Date is advanced or extended or unless the Rights are earlier redeemed or exchanged by the Company.
Under the Rights Agreement, the rights are exercisable upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons has become an "Acquiring Person" or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated or associated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 20% or more of the outstanding shares of common stock. Except in certain situations, a person or group of affiliated or associated persons becomes an Acquiring Person upon acquiring beneficial ownership of 20% or more of the outstanding shares of common stock. Subject to certain exceptions, any person or group of affiliated or associated persons owning 20% or more of such shares as of the time the execution of the Rights Agreement was announced in December 2008 shall not be deemed to be an Acquiring Person unless and until such time as such person or group shall, after the time of such announcement, become the beneficial owner of any additional shares of common stock.
In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a Right that number of shares of common stock having a market value of two times the exercise price of the Right.
The Rights will not become exercisable in connection with a “Qualified Offer,” which is an all-cash tender offer for all outstanding common stock that is fully financed, remains open for a period of at least 60 business days, results in the offer or owning at least 85% of the common stock after consummation of the offer, assures a prompt second-step acquisition of shares not purchased in the initial offer at the same price as the initial offer and meets certain other requirements.
In connection with the adoption of the Rights Agreement, the Board of Directors also adopted an annual independent director evaluation mechanism. Under this mechanism, an independent Board committee will review, on an ongoing basis, the Rights Agreement and developments in rights plans generally, and, if it deems appropriate, recommend modification or termination of the Rights Agreement. This independent committee will report to the Company’s Board at least once each year as to whether the Rights Agreement continues to be in the best interests of the Company’s stockholders.
The Company's prior rights plan expired on August 31, 2008, pursuant to its terms.
Issuer Tender Offer:
On August 10, 2009, the Company announced the commencement of a tender offer to purchase shares of its common stock. The Company offered to purchase up to 4,000,000 shares of its common stock at a price of $2.00 per share for a maximum aggregate purchase price of $8,000,000. As a result of the tender offer, the Company purchased and retired 4,047,380 shares of its common stock at a purchase price of $2.00 per share, for an aggregate purchase price of $8,094,760. The 4,047,380 shares purchased pursuant to the tender offer are comprised of the 4,000,000 shares the Company offered to purchase and 47,380 shares purchased pursuant to the Company’s right under applicable securities laws to purchase up to an additional 2% of the Company’s outstanding shares without extending the tender offer.
Shares repurchase authorization:
On June 3, 2004, the Company announced that the Board of Directors had authorized the purchase of 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. Through December 31, 2010, the Company had purchased 138,231 shares under this program at an approximate cost of $1,017,000 or $7.35 per share.
5.
Stock option plans:
In June 2004, the Company’s stockholders approved the 2004 Stock Option and Incentive Plan (the “2004 Incentive Plan”). The purpose of the 2004 Incentive 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 Incentive Plan may be granted in any one or all of the following forms, as those terms are defined under the 2004 Incentive 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 Incentive Plan is 600,000, subject to adjustment under the terms of the 2004 Incentive 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 at fair market value on the date of grant and on each anniversary date of the 2004 Director Plan’s adoption will receive an additional 5,000 options to purchase common shares of the Company at fair market value on the date of grant.
In June 1995, the Company adopted two stock-based compensation plans (1995 Stock Option and Incentive Plan, the “Incentive Plan”; and 1995 Non-employee Director Stock Option Plan, the “Director Plan”) under which, up to 450,000 and 150,000 shares, respectively were available for grant. In 2003, 50,000 options were granted under the Incentive Plan and 5,000 options were granted under the Director Plan. In 2004, 5,000 options were granted under the Director Plan. The Incentive Plan and Director Plan expired ten years after their date of adoption. Accordingly, no additional awards may be granted under either of these plans.
Stock option grants under the 2004 Director Plan amounted to 35,000 options in 2009 and 25,000 in 2007. No options were granted under the 2004 Incentive Plan in 2010 and 2008.
The number and terms of the options granted under these plans are determined by the Company’s Compensation Committee (the Committee) based on the fair market value of the Company’s common stock on the date of grant. The period during which an option may be exercised varies, but no option may be exercised after ten years from the date of grant.
The number of shares available for future issuance of stock options or grants is 32,500 at December 31, 2010.
A summary of option activity under the option plans as of December 31, 2010, 2009 and 2008, during the years then ended is presented below:
Options for 35,000 shares were granted during 2009 with a weighted average grant date fair value of $1.01 per share.
Options for 15,000, 16,000 and 33,250 shares had vested during 2010, 2009, 2008, respectively, with a weighted average remaining contractual life of 6.7, 6.7 and 7.7 and a weighted average grant date fair value of $5.43, $2.04 and $1.93 per share.
Options for 7,500 shares will vest during 2011 with a weighted average grant date fair value of $3.55 per share.
A summary of the status of the Company’s nonvested restricted shares as of December 31, 2010, and changes during the year ended December 31, 2010, is presented below:
The Company recognized compensation expense associated with the issuance of restricted shares of $2,000, $9,000 and $35,000 for the years ended December 31, 2010, 2009 and 2008, respectively.
6.
Income taxes
The Company did not have any foreign operations included in continuing operations for the years ended December 31, 2010 and 2009.
Provision (benefit) for income taxes consists of the following:
A reconciliation of the differences between the effective tax rate and the statutory U.S. income tax rate from continuing operations is as follows:
Significant components of net deferred tax liabilities as of December 31, 2010 and 2009 were as follows:
The Company has net operating loss carry forwards of $2,363,149 for federal tax purposes and $11,849,686 for state tax purposes.
Although the Company anticipates that future profitability from operations and potential tax planning strategies will enable it to utilize its tax loss carry-forwards, a valuation allowance has been provided for a portion of this deferred tax asset in the amount of $277,000 and $414,000 for the state and federal tax loss carry forwards, 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.
The Company believes that there are no uncertain tax positions that fail to meet the more likely than not recognition threshold to be sustained upon examination. As such, a tabular presentation of those tax benefits taken that do not qualify for recognition is not presented.
From time to time, the Company may be assessed interest or penalties by its tax jurisdictions, although, historically, there have been no such assessments and the Company believes that any potential future assessments would be minimal and immaterial to the Company’s results of operations and financial position. In the event the Company receives an assessment for interest and/or penalties, it would be classified in the consolidated financial statements as general and administrative expense.
7.
Segment information:
Wilshire has determined that it has two reportable segments within its continuing operations: residential properties and commercial properties. These reportable segments have different types of customers and are managed separately because each requires different operating strategies and management expertise. The residential property segment has two separate properties and the commercial segment has three properties. The accounting policies of the segments are the same as those described in Note 1.
Wilshire assesses and measures segment operating results based on net operating income (“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 generally accepted accounting principles, 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.
Continuing real estate revenue, operating expenses, NOI and recurring capital improvements for the reportable segments are summarized below and reconciled to consolidated income (loss) from continuing operations for each of the three years in the period ended December 31, 2010. Asset information is not reported since Wilshire does not use this measure to assess performance.
8.
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of preferred stock, par value $1.00 per share. At December 31, 2010 and 2009, there were no shares of preferred stock outstanding. The preferred stock may be issued in one or more series, from time to time, with each such series to have such designation, powers, preferences and relative participating, optional or other special rights, and qualifications, limitations or restriction thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Company, subject to the limitations prescribed by law and in accordance with the provisions set forth in the Certificate of Incorporation of the Company.
9.
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 $27.5 million at December 31, 2010, which is greater than the carrying value by $63,000. At December 31, 2009, mortgage notes payable had an estimated fair value based on discounted cash flow models of approximately $28.3 million at December 31, 2009, which is greater than the carrying value by $300,000.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of December 31, 2010.
10.
Other matters
Legal Matters
On or about July 31, 2009, James Robert Soprito, individually and as successor-in-interest to Josephine Soprito, as Decedent; Cindy Maguglin and Donna Tryon (collectively, "Plaintiffs"), filed a Complaint for Damages in the Superior Court of the State of California for the County of San Francisco against numerous defendants, including the Company. Plaintiffs are seeking damages based on claims of, among other things, wrongful death, negligence, strict liability, enterprise liability, and premises liability. These claims are based on the allegation that the decedent and others suffered injuries as a result of exposure to asbestos materials at certain unspecified times in the past. The Company sold its oil and gas business in 2004 and does not believe it should be named as a party in the case. The Company was granted an extension of time to answer, move or otherwise respond to the Complaint pending the Plaintiff's evaluation of materials submitted by the Company in support of its position that it should not be named as a party. In March 2010, this case against the Company was entirely dismissed without reservation.
11.
Quarterly data (Unaudited)
The following represents the Company’s consolidated results of operations for each quarter for the years ended December 31, 2010 and 2009. The earnings (loss) per share amounts may not total to the earnings (loss) per share for the full year.
12.
Subsequent Events
The Company’s Board of Directors adopted an amendment to the Rights Plan, which has the effect of terminating the Rights Plan as of March 11, 2010. Accordingly, the Rights Plan has no further force or effect.
As described in the definitive proxy statement filed with the SEC on February 2, 2011 (the “Proxy Statement”), the Company’s Board of Directors (the “Board of Directors”), based upon the recommendation of a special committee of the Board of Directors comprised solely of independent directors, unanimously authorized and recommended that shareholders approve a 1-for-500 reverse stock split (the “Reverse Stock Split”) of our common stock, par value $1.00 per share (“Common Stock”), followed immediately by a 500-for-1 forward stock split (the “Forward Stock Split” and, together with the Reverse Stock Split, the “Transaction”). The Reverse Stock Split and Forward Stock Split together enable the Company to cease its periodic reporting obligations under the Exchange and thereby forgo many of the expenses associated with operating as a public company subject to SEC reporting obligations. On February 25, 2011, the Company held its annual meeting of stockholders (the “Meeting”) as described in the Proxy Statement. At the Meeting the Company’s stockholders approved two amendments to the Company’s Certificate of Incorporation to affect the Reverse Stock Split and Forward Stock Split. On February 28, 2011, the Company filed certificates of amendment to Wilshire's Certificate of Incorporation, effecting the Reverse Stock Split and Forward Stock Split, each effective as of March 2, 2011. The company expects to terminate the registration of the Common Stock under the Exchange Act promptly following the filing of this Annual Report on Form 10-K with the SEC. The cash impact of the transaction was $374,000 in reverse stock split costs, and $142,000 in legal counsel review costs, which had no impact on the financial statements for the years ended December 31, 2010 and 2009.
Real Estate and Accumulated Depreciation
December 31, 2010
($ in 000s)
The changes in real estate for the three years ended December 31, 2010, are as follows ($ in 000s) :
The aggregate cost of land, buildings and improvements, before depreciation, for Federal income tax purposes at December 31, 2010 was $44,002.
The changes in accumulated depreciation, for the three years ended December 31, 2010, are as follows:
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A.
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 the end of the period covered by this report, 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 December 31, 2010.
Changes in internal control over financial reporting
Management has determined that, as of December 31, 2010, there were no changes in our internal control over financial reporting that occurred during the quarter then ended that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee.
Based on this assessment, management determined that, as of December 31, 2010, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
This Annual Report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Annual Report.
Item 9B.
Item 9B.
Other Information
On March 2, 2011, David Morrow, the Company’s Executive Vice President and Chief Operating Officer, was appointed to the additional position of Principal Accounting Officer of the Company.
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance
Board of Directors
The following table provides information regarding the members of our Board of Directors:
(a) Except as indicated above, no director is a director of any other company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of that Act or any company registered as an investment company under the Investment Company Act of 1940.
Director Profiles
Miles Berger, Chairman and Chief Executive Officer of the Berger Organization LLC, has been with the Berger Organization for over 30 years and is responsible for leading the Berger Organization’s residential, hospitality and commercial operations that encompass more than 1 million square feet of space. Through his experience as a major real estate owner and developer in the New York-New Jersey metropolitan area, Mr. Berger brings to the Board decades of expertise in the real estate industry, including his close familiarity with the challenges of real estate development.
Milton Donnenberg was formerly the President of Milton Donnenberg Associates and, prior to that, from 1972 to 1976, was President of Albert M. Greenfield of N.J., a firm that marketed and managed commercial and multi-family properties as well as shopping centers in New Jersey. Mr. Donnenberg is an experienced real estate appraiser. His knowledge of the value of real estate contributes to the Board’s understanding of the real estate industry and assists the Board in properly evaluating and making decisions regarding its real property inventory.
S. Wilzig Izak has been the Chairman of the Board of Wilshire Enterprises, Inc. since September 1990 and has been Wilshire’s Chief Executive Officer since May 1991. Ms. Izak’s service as CEO and as a director on the Board creates a critical link between management and the Board, enabling the Board to perform its oversight function with the benefit of management’s perspectives on the business. In addition, having the CEO on our Board provides our Company with decisive and effective leadership. In addition, Ms. Izak brings her strategic vision for our Company to the Board.
W. Martin Willschick is Manager of Capital Markets for the City of Toronto. He is responsible for the investment management of the City’s short-term and reserve funds’ portfolios of approximately $4.0 billion in assets and debt issuance between $250 to $500 million annually as well as alternative financing and the letters of credit function. Mr. Willschick, with an MBA from the University of Pennsylvania, the Wharton School of Business, brings extensive knowledge of the financial and capital markets with 25 years experience to the Board, as well as essential familiarity with banking practices and processes.
Executive Officers
The following table sets forth the name and age of each executive officer of the Company. Each officer is appointed by the Company’s Board of Directors. Unless otherwise indicated, the persons named below have held the position indicated for more than the past five years.
Name and Age
Executive Officer of The
Company Since
Position with the Company
and Business Experience
S. Wilzig Izak, Age 52
Chairman of the Board of the Company since September 20, 1990; Chief Executive Officer since May 1991; Executive Vice President (1987-1990); prior thereto, Senior Vice President
David Morrow, Age 51
November 2010
Executive Vice President and Chief Operating Officer of the Company since November 30, 2011 and Principal Accounting Officer of the Company since March 2, 2011; President, Berkeley Management, Inc. May 2009 - October 2010; Director, Asset Management DRA Advisors, LLC August 2002 - April 2009; Director, Retail Operations, The Rouse Company March 1993 - August 2002.
Francis J. Elenio, Age 44*
September 2006
Chief Financial Officer, Secretary and Treasurer of the Company since September 2006; Chief Financial Officer of Premier Wealth Management, Inc. since September 2007; Chief Financial Officer of Webcollage, Inc. (March 2006 - August 2006); Interim Chief Financial Officer of TWS Holdings, Inc. (November 2005 - March 2006); Chief Financial Officer and Director of Roomlinx, Inc. (April 2004 - November 2005); Chief Financial Officer, Secretary and Treasurer of GoAmerica, Inc. (January 1999 - August 2003)
*Resigned 2/28/11
Relationships Among Directors or Executive Officers
Mr. Donnenberg is Ms. Izak’s uncle by marriage and Mr. Willschick is Ms. Izak’s first cousin; otherwise, there are no family relationships existing between the officers and directors of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, officers, and stockholders who beneficially own more than 10% of any class of our equity securities registered pursuant to Section 12 of the Exchange Act, to file initial reports of ownership and reports of changes in ownership with respect to our equity securities with the Securities and Exchange Commission. All reporting persons are required to furnish us with copies of all reports that such reporting persons file with the SEC pursuant to Section 16(a). Based on our records and other information, we believe that in 2010 our directors and our executive officers who are subject to Section 16 met all applicable filing requirements.
The Audit Committee
The Audit Committee of the Board of Directors serves to: (a) oversee the accounting and financial reporting processes of the Company, internal controls of the Company, and audits of the financial statements of the Company; (b) assist the Board of Directors in its oversight of (i) the integrity of the Company’s financial statements, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the independent auditors’ qualifications and independence, (iv) the performance of the Company’s internal audit functions and its independent auditors, and (v) the accounting and financial reporting processes of the Company; and (c) prepare the Audit Committee report for inclusion in the proxy statement as required by the SEC.
The members of the Audit Committee are Mr. Willschick (Chair) and Mr. Donnenberg.
The Board of Directors has determined that W. Martin Willschick constitutes an “audit committee financial expert”, as such term is defined by the SEC. Mr. Willschick has been determined to be “independent” within the meaning of SEC and NYSE Amex regulations.
Code of Ethics
The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions. A copy of the Code of Ethics is available on the Company’s website (http:// www.wilshireenterprisesinc.com) under the caption “Corporate Policies.”
The Company has adopted a Code of Conduct for its officers and employees. A copy of the Code of Conduct is available on the Company’s website (http://www.wilshireenterprisesinc.com) under the caption “Corporate Policies.”
Item 11.
Item 11.
Executive Compensation
EXECUTIVE COMPENSATION
Summary of Cash and Certain other Compensation
The following table sets forth, for the years ended December 31, 2010, and 2009, a summary of the compensation earned by our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, who were our only executive officers during the years ended December 31, 2010 and December 31, 2009 (in the case of our Chief Executive Officer and Chief Financial Officer). We refer to the executive officers named in this table as the “Named Officers.” See the narrative following the table for information concerning the dollar amounts in the table.
SUMMARY COMPENSATION TABLE
Name and Principal Position
Year
Salary ($)
Bonus ($)
All Other Compensation ($)
Total ($)
S. Wilzig Izak
Chairman of the Board (Chief Executive Officer)
300,000
266,671
200,000
41,957
29,818
341,957
496,489
David Morrow (1)
Chief Operating Officer
15,231
16,154
Francis J. Elenio (2)
Chief Financial Officer
50,000
61,988
5,000 (3)
2,400
57,400
61,988
____________________________________________
(1)
On November 24, 2010, the Company entered into a letter agreement with Mr. Morrow under which, effective November 30, 2010, Mr. Morrow will serve as the Company’s Executive Vice President and Chief Operating Officer at an annual salary of $165,000.
(2)
Mr. Elenio joined the Company in September 2006 as its Chief Financial Officer. On September 4, 2007, the Company entered into a letter agreement with Mr. Elenio, under which he continues to serve as the Company's Senior Vice President and Chief Financial Officer at a reduced annual salary of $50,000, and also provides services to an unaffiliated company. His 2009 salary includes an additional $10,000 for additional work he performed in connection with the Company’s tender offer and the Company’s proxy solicitations. On February 15, 2011, Frank Elenio submitted his resignation from his position as Chief Financial Officer of the “Company, effective as of February 28, 2011.
(3)
On March 11, 2010, the Compensation Committee of the Board of Directors determined that Mr. Elenio should receive a one-time payment of $5,000 for work performed during 2010, payable in the Company’s common stock, which represented 4,132 shares at the time of the grant.
In the table above:
·
except as set forth below, no stock awards or option awards were granted to the Named Officers in 2010 or 2009 and they did not receive any non-equity incentive plan compensation or non-qualified deferred compensation earnings for those years;
·
“all other compensation” for Ms. Izak for (1) 2010 consists of $12,000 for travel expenses, $23,077 for unused vacation pay and a $6,880 match on her 401(k) contribution and (2) 2009 consists of $12,477 for an automobile allowance and $17,341 for unused vacation pay;
·
“all other compensation” for Mr. Morrow for 2010 consists of $923.06 for automobile expenses; and
·
“all other compensation” for Mr. Elenio consists of $2,400 match on his 401(k) contribution.
In March 2010, the Compensation Committee of the Board of Directors took the following actions affecting 2008 and 2009 compensation, which are reflected in the table above:
·
The Committee decided, based in part upon Ms. Izak’s extraordinary efforts during the proposed merger with NWJ Apartment Holdings Corp., that Ms. Izak’s bonus for 2008 would be $200,000. (Although the Committee had discussed Ms. Izak’s bonus for 2008 in the past during several Board meetings, a formal vote was not previously taken.) The Committee granted Ms. Izak a 2008 bonus as follows: $100,000 in cash compensation and $100,000 in shares of the Company’s Common Stock, which equated to 82,644 shares of Common Stock, based upon the closing stock price of $1.21 on March 15, 2010, which is currently valued at $28,925 based upon the Company’s closing price on December 9, 2010. This amount is included in the 2008 Bonus column as it was earned in 2008.
·
The Committee decided, based upon its review of Ms. Izak’s continued extraordinary efforts during 2009 related to a shareholder proxy dispute, the completed tender offer during 2009 and the resignation of the Company’s President and Chief Operating Officer, to grant Ms. Izak a $200,000 bonus for 2009. The bonus was paid entirely in stock, on account of the desire of the Compensation Committee to preserve cash for the Company, and equated to 165,289 shares of Common Stock based upon the closing stock price of $1.21 on March 15, 2010, which is currently valued at $57,851 based upon the Company’s closing price on December 9, 2010. This amount is included in the 2009 Bonus column as it was earned in 2009.
·
The Committee decided that Ms. Izak’s salary for 2009 should have been increased to $265,000 per year, which is less than the recommendation of an independent compensation consultant that Ms. Izak’s salary for 2009 be $300,000. Although the Committee had discussed increasing Ms. Izak's salary for 2009 during that year, they did not take formal action until 2010. Accordingly, the Committee decided to grant Ms. Izak a $40,000 retroactive pay increase for 2009, which was paid in cash during 2010. This amount has been included in the 2009 Salary column as it was earned in 2009.
·
The Committee granted Mr. Elenio, the Company’s former Chief Financial Officer, a payment of $5,000, payable in the Company’s common stock (representing 4,132 shares of common stock), for work performed during 2010. The $5,000 payment to Mr. Elenio has been included in the 2010 Bonus column as it was earned in 2010.
Grants of Plan Based Awards
Except as set forth above, none of the Named Officers received an option grant or a grant of restricted stock in 2010 or 2009.
Outstanding Equity Awards at December 31, 2010
The following table sets forth, for each of the Named Officers, information regarding stock options outstanding at December 31, 2010. All of the restricted stock awards previously granted to the Named Officers were fully vested as of December 31, 2010.
In the table above, we are disclosing:
·
in column (b), the number of shares of our Common Stock underlying unexercised stock options that were exercisable as of December 31, 2010;
·
in column (c), the number of shares of our Common Stock underlying unexercised stock options that were not exercisable as of December 31, 2010; and
·
in columns (e) and (f), respectively, the exercise price and expiration date for each stock option that was outstanding as of December 31, 2010.
Options Exercised and Stock Awards Vested
No Named Officer exercised stock options during 2010 or 2009, and none had stock awards that vested during 2010 or 2009.
Employment Agreements and Other Arrangements with Executive Officers
On March 29, 2004, the Company provided S. Wilzig Izak, the Chairman of the Board and Chief Executive Officer, with a severance agreement. The agreement provides that on termination of her employment for any reason other than termination for Cause (as defined); she will receive a payment equal to $200,000. The agreement was amended on December 31, 2008 in order to comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended.
Mr. Elenio joined the Company in September, 2006 as its Chief Financial Officer. On September 4, 2007, the Company entered into a letter agreement with Mr. Elenio, under which he continues to serve as the Company's Senior Vice President and Chief Financial Officer at a reduced annual salary of $50,000, and also provides services to an unaffiliated company.
On November 24, 2010, the Company entered into a letter agreement with Mr. Morrow under which Mr. Morrow will serve as the Company’s Executive Vice President and Chief Operating Officer at an annual salary of $165,000.
Compensation of Directors
The following table sets forth certain information regarding the compensation we paid to those persons who served as directors during 2010, other than Ms. Izak, as she did not receive compensation for serving as director of the Company during 2010. Mr. Orphanides joined the Board on January 9, 2009, and resigned effective January 15, 2010. None of our non-employee directors received a restricted stock award during 2010 and 2009.
In the table above:
·
when we refer to “Fees Earned or Paid in Cash”, we are referring to all cash fees that we paid or were accrued in 2010, including annual retainer fees, committee and/or chairmanship fees and meeting fees;
·
when we refer to amounts under “Option Awards”, we are referring to the aggregate grant date fair value in accordance with FASB ASC Topic 718, in accordance with current SEC rules;
·
the aggregate number of stock options outstanding at December 31, 2010 for each director in the table above is as follows: for Mr. Berger, 32,500; for Mr. Donnenberg, 27,500; for Mr. Schmertz, 27,500; and for Mr. Willschick, 30,000. Mr. Orphanides’ options expired in connection with his resignation in 2010.
Ernest Wachtel served the Company as a director from 1970 until his retirement in January 2009. He did not receive any fees in 2009. Mr. Wachtel currently serves as Director Emeritus, and does not receive Board fees.
Each non-employee director receives an annual fee of $11,000. Non-employee members of the Executive Committee also receive an annual fee of $4,000. Members of the Audit Committee and the Strategic Planning Committee also receive an annual fee of $5,000 and members of the Compensation Committee and Nominating Committee also receive an annual fee of $2,000. Effective in June 2009, the Chairpersons of the Strategic Planning, Audit and Compensation Committees receive an additional $1,000 per year for serving as such, the Chairperson of the Nominating Committee receives an additional $750 per year for serving as such and the presiding director receives an additional $2,000 for serving as such. (These new additional fees were paid to the appropriate persons in 2010, and are not included in the table above.) Each non-employee director also receives an additional fee of $750 for each meeting of the Board and each Committee thereof which such director attends. Ms. Izak does not receive any annual or per meeting fees for attending Board or Committee meetings.
Pursuant to the Company’s 2004 Non-employee Director Stock Option Plan (the “Outside Director Plan”), each of the Company’s non-employee directors received, on the date of the 2004 Annual Meeting, a stock option grant covering 10,000 shares of Common Stock, at an exercise price equal to the fair market value of the Common Stock on such date. The Outside Director Plan provides that any new non-employee director will receive a grant of 10,000 options at fair market value upon becoming a director and that on each Annual Meeting date after the 2004 Annual Meeting, each non-employee director will be granted an option covering 5,000 shares of Common Stock, at fair market value, so long as he or she continues to serve on the Board on the Annual Meeting date. The options vest in 25% installments beginning one year after the grant date. The Company did not hold an Annual Meeting in calendar 2010 and no additional options were granted pursuant to the Outside Director Plan in 2010.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Maters
The following tables set forth certain information, as of December 31, 2010, with respect to holdings of the Company’s Common Stock by (i) each person the Company believes beneficially owned more than 5% of the Company’s Common Stock as of December 31, 2010, (ii) each of the Company’s current directors and Named Officers, and (iii) all current directors and current executive officers as a group.
Name and Address of Beneficial Owner
Amount and Nature of
Beneficial Ownership(1)
Percent
of Class(2)
5% or Greater Holders*:
Estate of Siggi B. Wilzig
c/o Irene Tafel
Vista Tax Group, LLC
120 Columbia Turnpike, Suite 3
Florham Park, NJ 07932
1,660,792 (2)
40.1%
*
See “Directors and Named Executive Officers” for the shares beneficially owned by S. Wilzig Izak, the Company’s Chairman of the Board and Chief Executive Officer.
(1)
Each beneficial owner’s percentage ownership of Common Stock is determined by assuming that options, warrants and other convertible securities that are held by such person (but not those held by any other person) and that are exercisable or convertible within 60 days of December 31, 2010 have been exercised or converted. Options, warrants and other convertible securities that are not exercisable within 60 days of December 31, 2010 have been excluded. Unless otherwise noted, the Company believes that all persons named in the above table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them.
(2)
Mr. Wilzig, former Chairman and President of the Company, served as the Senior Consultant to the Company until his death on January 7, 2003. The table above reflects the Estate’s ownership as reported by the Estate.
Name of Beneficial Owner
Amount and Nature of Beneficial Ownership(1)
Percent
of Class
Directors and Named Executives:
Miles Berger
35,000 (2)
*
Milton Donnenberg
43,962 (3)
1.1%
S. Wilzig Izak
791,701 (4)
19.1%
W. Martin Willschick
32,060 (5)
*
Francis J. Elenio
30,925
*
All directors and current executive officers as a
group (5 persons)
933,648 (6)
22.1%
*
Less than one percent.
(1)
Each beneficial owner’s percentage ownership of Common Stock is determined by assuming that options, warrants and other convertible securities that are held by such person (but not those held by any other person) and that are exercisable or convertible within 60 days of December 31, 2010 have been exercised or converted. Options, warrants and other convertible securities that are not exercisable within 60 days of December 31, 2010 have been excluded. Unless otherwise noted, the Company believes that all persons named in the above table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them.
(2)
Includes 27,500 shares of stock that could be obtained by Mr. Berger upon the exercise of stock options exercisable within 60 days of December 31, 2010.
(3)
Includes 22,500 shares of stock that could be obtained by Mr. Donnenberg upon the exercise of stock options exercisable within 60 days of December 31, 2010.
(4)
Includes 10,000 shares of stock that could be obtained by Ms. Izak upon the exercise of stock options exercisable within 60 days of December 31, 2010.
(5)
Includes 25,000 shares of stock that could be obtained by Mr. Willschick upon the exercise of stock options exercisable within 60 days of December 31, 2010.
(6)
Includes 85,000 shares of stock that could be obtained by the current directors and current executive officers upon the exercise of stock options exercisable within 60 days of December 31, 2010.
Item 13.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Related Party Transactions Policy and Procedure
Our Audit Committee is responsible for the review, approval or ratification of “related-person transactions” between us or our subsidiaries and related persons. “Related person” refers to a person or entity that is, or at any point since the beginning of the last fiscal year was a director, officer, nominee for director or 5% stockholder of us or is or was an immediate family member of such person or entity. The Audit Committee does not have a written policy regarding the approval of related party transactions. The Audit Committee applies its review procedures as a part of its standard operating procedures. In the course of its review and approval or ratification of a related-party transaction, the Audit Committee will consider:
·
the nature of the related party’s interest in the transaction;
·
the material terms of the transaction, including, the amount involved and type of transaction;
·
the importance of the transaction to the related person and to us;
·
whether the transaction would impair the judgment of a director or executive officer to act in our best interest and the best interest of our stockholders; and
·
any other matters the Audit Committee deems appropriate.
Any member of the Audit Committee who is a related party with respect to a transaction under review may not participate in the deliberations or vote on the approval or ratification of the transaction. However, such a director may be counted in determining the presence of a quorum at a meeting of the Audit Committee at which the transaction is considered.
Since January 1, 2010, we have not been a party to, and we have no plans to be a party to, any transaction or series of similar transactions in which the amount involved exceeded or will exceed $120,000 and in which any current director, executive officer, holder of more than 5% of our capital stock, or any member of the immediate family of any of the foregoing, had or will have a direct or indirect material interest, other than in connection with compensation as described in “Executive Compensation” above.
Director Independence
Since the adoption of the Sarbanes-Oxley Act in July 2002, there has been a growing public and regulatory focus on the independence of directors. Additional requirements relating to independence are imposed by the Sarbanes-Oxley Act with respect to members of the Audit Committee. The NYSE Amex (formerly the American Stock Exchange) has its own definition of independence. The Company’s Common Stock was traded on the NYSE Amex until January 26, 2010, under the symbol “WOC”. Effective January 27, 2010, the Company’s Common Stock is quoted on the Over the Counter (“OTC”) Electronic Bulletin Board maintained by the National Association of Securities Dealers, Inc. (“NASD”) under the symbol “WLSE”. Although the Company’s Common Stock is no longer listed on the NYSE Amex, pursuant to SEC regulations, the Company is required to disclose whether its directors are “independent” according to a specified definition. The Company has determined to utilize the NYSE Amex definition for these purposes along with SEC Rule 10A-3. All of the non-employee members of the Board, and, accordingly, all members of the Audit Committee, Compensation Committee and Nominating Committee of the Board, have been determined to be “independent” pursuant to the definition contained in the NYSE Amex’s Corporate Governance Rules and under the SEC’s Rule 10A-3.
Item 14.
Item 14.
Principal Accounting Fees and Services
Audit Fees and Related Matters
In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the Audit Committee’s charter, all audit and audit-related work and all non-audit work performed by the Company’s independent accountants is approved in advance by the Audit Committee, including the proposed fees for such work. The Audit Committee is informed of each service actually rendered and differences between the proposed fees and the final fees, if any.
Audit Fees
The aggregate fees incurred by the Company for the fiscal years ended December 31, 2010 and 2009, respectively, for professional services rendered by J.H. Cohn LLP, the Company’s Independent Registered Public Accounting Firm, in connection with (i) the audit of the Company’s annual financial statements and (ii) the review of the financial statements included in the Company’s Quarterly Reports on Form 10-Q were 130,730 and $139,500, respectively.
Audit-Related Fees
The Company incurred $15,996 for fiscal year 2010 for Life Cycle Testing, IT audit review, workpapers and indexing review, and Internal Audit/Sox 404 of accounting controls procedures rendered by Conor Donnelly, individual, as consultant.
The Company did not incur any fees for the fiscal years ended December 31, 2010 and 2009, respectively, for assurance and related services by J.H. Cohn, LLP in connection with the performance of the audit and review of the Company’s financial statements.
Tax Fees
The Company did not incur any fees for the fiscal years ended December 31, 2010 and 2009, respectively, for professional services rendered by J.H. Cohn, LLP for tax compliance, tax advice or tax planning.
The Company incurred $40,000 and $103,550 for the fiscal years ended December 31, 2010 and 2009, respectively, for professional services rendered by WithumSmith & Brown, PC and Grant Thornton LLP for tax return preparation, respectively. The Company incurred an additional $33,947 for the fiscal year ended December 31, 2010 for services rendered by WithumSmith & Brown, PC for quarterly and year-end review of the Company’s tax provision, and an additional $17,026 and $58,475 for the fiscal year ended December 31, 2010 and 2009 respectively for professional services rendered by an independent consultant in 2010 and Grant Thornton LLP in 2009, for a review under Section 304 of the Sarbanes Oxley Act of 2002.
All Other Fees
The Company incurred $0 and $7,700 for the fiscal years ended December 31, 2010 and 2009, respectively, for other services rendered by J.H. Cohn, LLP including work related to their attendance at Audit Committee meetings and the Annual Meeting of Shareholders.
Of the time expended by the Company’s principal accountants to audit the Company’s financial statements for the year ended December 31, 2010, less than 50% of such time involved work performed by persons other than the principal accountant’s full-time, permanent employees.
Other Matters
The Audit Committee of the Board of Directors has considered whether the provision of the Audit-Related Fees, Tax Fees and All Other Fees are compatible with maintaining the independence of the Company’s principal accountant.
Applicable law and regulations provide an exemption that permits certain services to be provided by the Company’s outside auditors even if they are not pre-approved by the Audit Committee. The Company has not relied on this exemption since the Sarbanes-Oxley Act was enacted.
PART IV
Item 15.
Item 15.
Exhibits and Financial Statement Schedules
(a)
Financial Statements
(i)
Report of Independent Registered Public Accounting Firm
(ii)
Consolidated Balance Sheets as of December 31, 2010 and 2009
(iii)
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008
(iv)
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010, 2009 and 2008
(v)
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
(vi)
Notes to Consolidated Financial Statements
Financial Statement Schedules:
(i)
Real Estate and Accumulated Depreciation December 31, 2010
(b)
Exhibits
Exhibit #
Description
3.1
Restated Certificate of Incorporation of Wilshire Enterprises, Inc., as amended. (Incorporated by referenced to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on December 8, 2008.)
3.2
By-laws, as amended and restated through August 7, 2009. (Incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K filed with the SEC on August 7, 2009.)
3.3
Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on February 28, 2011
4.1
Qualified Offer Plan Rights Agreement, dated as of December 4, 2008, between Wilshire Enterprises, Inc. and Continental Stock Transfer & Trust Company, as Rights Agent. (Incorporated by referenced to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on December 4, 2008.)
10.2
Wilshire Enterprises, Inc. 1995 Stock Option and Incentive Plan. (Incorporated by reference to Exhibit A of the Company’s Definitive Proxy Statement for its 1995 Annual Meeting of Stockholders.)
10.3
Wilshire Enterprises, Inc. 1995 Non-Employee Director Stock Option Plan. (Incorporated by reference to Exhibit B of the Company’s Definitive Proxy Statement for its 1995 Annual Meeting of Stockholders.)
10.4
Wilshire Enterprises, Inc. 2004 Stock Option and Incentive Plan. (Incorporated by reference to Appendix C of the Company’s Definitive Proxy Statement for its 2004 Annual Meeting of Stockholders.)
10.5
Wilshire Enterprises, Inc. 2004 Non-Employee Director Stock Option Plan. (Incorporated by reference to Appendix D of the Company’s Definitive Proxy Statement for its 2004 Annual Meeting of Stockholders.)
10.6
Promissory Note given by Alpine Village Apartments, L.L.C., a subsidiary of Wilshire Enterprises, Inc., to Merrill Lynch Mortgage Lending, Inc. dated February 28, 2003. (Incorporated by reference to Exhibit 10.74 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.7
Environmental Indemnity Agreement between Alpine Village Apartments, L.L.C., a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage Lending, Inc. dated February 28, 2003. (Incorporated by reference to Exhibit 10.75 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.8
Indemnity and Guaranty Agreement between Alpine Village Apartments, L.L.C., a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage Lending, Inc. dated February 28, 2003. (Incorporated by reference to Exhibit 10.76 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.9
Multifamily Mortgage, Security Agreement, Assignment of Rents and Fixture Filing between Alpine Village Apartments, L.L.C., a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage Lending, Inc. dated February 28, 2003. (Incorporated by reference to Exhibit 10.77 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.10
Promissory Note given by Sunrise Ridge, L.L.C., a subsidiary of Wilshire Enterprises, Inc., to Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003. (Incorporated by reference to Exhibit 10.78 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.11
Environmental Indemnity Agreement between Sunrise Ridge, L.L.C., a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003. (Incorporated by reference to Exhibit 10.79 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.12
Indemnity and Guaranty Agreement between Sunrise Ridge, L.L.C., a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003. (Incorporated by reference to Exhibit 10.80 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.13
Multifamily Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing between Sunrise Ridge, L.L.C., a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003. (Incorporated by reference to Exhibit 10.81 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.14
Promissory Note given by Van Buren, L.L.C., a subsidiary of Wilshire Enterprises, Inc., to Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003. (Incorporated by reference to Exhibit 10.82 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.15
Environmental Indemnity Agreement between Van Buren, L.L.C., a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003. (Incorporated by reference to Exhibit 10.83 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.16
Indemnity and Guaranty Agreement between Van Buren, L.L.C., a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003. (Incorporated by reference to Exhibit 10.84 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.17
Multifamily Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing between Van Buren, L.L.C., a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003. (Incorporated by reference to Exhibit 10.85 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.18
Promissory Note given by Wellington Apartments, L.L.C., a subsidiary of Wilshire Enterprises, Inc., to Merrill Lynch Mortgage Lending, Inc. dated
February 27, 2003. (Incorporated by reference to Exhibit 10.86 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.19
Environmental Indemnity Agreement between Wellington Apartments, L.L.C., a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003. (Incorporated by reference to Exhibit 10.87 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.20
Indemnity and Guaranty Agreement between Wellington Apartments, L.L.C., a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003. (Incorporated by reference to Exhibit 10.88 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.21
Multifamily Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing between Wellington Apartments, L.L.C., a subsidiary of Wilshire Enterprises, Inc., and Merrill Lynch Mortgage Lending, Inc. dated February 27, 2003. (Incorporated by reference to Exhibit 10.89 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
10.22
Letter Agreement, dated as of September 4, 2007, between Wilshire Enterprises, Inc. and Frank Elenio. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on September 5, 2007.)
10.23
Severance Letter Agreement between the Company and Sherry Wilzig Izak dated as of March 29, 2004. (Incorporated by reference to Exhibit 10.94 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.)
10.24
Amendment to Severance Letter Agreement between the Company and Sherry Wilzig Izak dated December 31, 2008, in order to comply with Section 409A of the Internal Revenue Code of 1986, as amended. (Incorporated by reference to Exhibit 10.26 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.)
10.25
Form of Indemnification Agreement of Directors and Chief Financial Officer (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the SEC on January 18, 2007).
10.26
Settlement Agreement, dated as of April 2, 2009, among Wilshire Enterprises, Inc., Bulldog Investors, Full Value Partners, L.P. and certain of their affiliates. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on April 3, 2009.)
10.27
Amendment No. 1 to Qualified Offer Plan Rights Agreement, dated as of March 11, 2010, between Wilshire Enterprises, Inc. and Continental Stock Transfer & Trust Company, as Rights Agent. (Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on March 12, 2010.)
10.28
Office Lease, dated July 1, 2010 and amended September 2, 2010, between The Realty Associates Fund VII, LP (as “Landlord”) and Wilshire Enterprises, Inc. (as “Tenant) (filed herewith).
10.29
Letter Agreement, dated as of November 24, 2010, between the Company and David Morrow (filed herewith).
List of significant subsidiaries of the Company.
23.1
Consent of J.H. Cohn LLP, Independent Registered Public Accounting Firm.
Power of Attorney.
31.1
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The Company agrees to furnish the Commission upon request any agreements with respect to long-term debt not referenced herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: July 29, 2011
By:
/s/ S. Wilzig Izak
S. Wilzig Izak
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Directors:
By:
*
Date: July 29, 2011
Miles Berger
By:
*
Date: July 29, 2011
Milton Donnenberg
By:
Date: July 29, 2011
S. Wilzig Izak
By:
*
Date: July 29, 2011
Martin Willschick
By:
*
Date: July 29, 2011
Officers:
By:
/s/ S. Wilzig Izak
Date: July 29, 2011
S. Wilzig Izak
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
By:
/s/ David Morrow
Date: July 29, 2011
David Morrow
Principal Accounting Officer and Chief Operating Officer
(Principal Accounting Officer and Principal Financial Officer)
* Signed under power of attorney dated March 30, 2010 and filed herewith as Exhibit 24.
Exhibit Index
Exhibit #
Description
List of significant subsidiaries.
23.1
Consent of J.H. Cohn LLP, Independent Registered Public Accounting Firm.
Power of attorney.
31.1
Certification of the Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2
Certification of the Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.