10-Q 1 b400290_10q.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter period ended June 30, 2004 Commission file number 1-4673 ----------------- WILSHIRE ENTERPRISES, INC. (Exact name of registrant as specified in its charter) Delaware 84-0513668 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 921 Bergen Avenue - Jersey City, New Jersey 07306-4204 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (201) 420-2796 -------------- -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ____ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes____ No x Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 6, 2004. Common Stock $1 Par Value ----- 7,806,053 WILSHIRE ENTERPRISES, INC. INDEX

Page No. -------- Part I 1. Financial Information Financial Information: Condensed Consolidated Balance Sheets - June 30, 2004 (Unaudited) and December 31, 2003 3 Unaudited Condensed Consolidated Statements of Income - Three months ended June 30, 2004 and 2003 4 Unaudited Condensed Consolidated Statements of Income - Six months ended June 30, 2004 and 2003 5 Unaudited Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 2004 and 2003 6 Notes to Unaudited Condensed Consolidated Financial Statements 7 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 3. Quantitative and Qualitative Disclosure About Market Risk 16 4. Controls and Procedures 16 Part II Other Information 4. Submission of Matters to a Vote of Security Holders 17 6. Exhibits and Reports on Form 8-K 17

2 WILSHIRE ENTERPRISES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS June 30, December 31, 2004 2003 (Unaudited) ----------------- ----------------- CURRENT ASSETS Cash and cash equivalents $ 37,173,000 $ 7,763,000 Restricted cash 168,000 327,000 Marketable securities, available-for-sale, at fair value 2,058,000 1,996,000 Accounts receivable, net of allowance of $55,000 in 2004 and $65,000 in 2003 311,000 1,802,000 Prepaid expenses and other current assets 1,349,000 1,870,000 ------------- ------------- Total current assets 41,059,000 13,758,000 ------------- ------------- NONCURRENT ASSETS Mortgage notes receivable 1,317,000 2,504,000 Other noncurrent 825,000 860,000 PROPERTY AND EQUIPMENT Oil and gas properties - Held for sale -- 143,601,000 Real estate properties 53,136,000 52,700,000 Real estate properties - Held for sale 7,868,000 19,369,000 ------------- ------------- 61,004,000 215,670,000 Less: Accumulated depreciation and amortization 15,315,000 14,315,000 Accumulated depreciation, depletion and amortization- Property held for sale 657,000 119,480,000 ------------- ------------- 45,032,000 81,875,000 ------------- ------------- TOTAL ASSETS $ 88,233,000 $ 98,997,000 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 674,000 $ 3,645,000 Accounts payable 1,656,000 1,894,000 Income taxes payable 5,117,000 154,000 Deferred income taxes 117,000 10,489,000 Accrued liabilities 798,000 800,000 Deferred income 589,000 419,000 Current liabilities associated with discontinued operations 502,000 3,520,000 ------------- ------------- Total current liabilities 9,453,000 20,921,000 NONCURRENT LIABILITIES Long-term debt, less current portion 45,089,000 47,719,000 Deferred income taxes 2,624,000 1,058,000 Deferred income 583,000 725,000 Other Long-term liabilities 275,000 227,000 Noncurrent liabilities associated with discontinued operations 1,623,000 3,820,000 ------------- ------------- Total liabilities 59,647,000 74,470,000 ------------- ------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, $1 par value, 1,000,000 shares authorized; none issued and outstanding in 2004 and 2003 -- -- Common stock, $1 par value, 15,000,000 shares authorized; issued 10,013,544 shares in 2004 and 2003 10,014,000 10,014,000 Capital in excess of par value 9,024,000 9,029,000 Treasury stock, 2,206,811 and 2,210,713 shares at June 30, 2004 and December 31, 2003, respectively, at cost (10,336,000) (10,355,000) Retained earnings 20,889,000 17,267,000 Accumulated other comprehensive loss (1,005,000) (1,428,000) ------------- ------------- Total stockholders' equity 28,586,000 24,527,000 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 88,233,000 $ 98,997,000 ============= =============

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements. 3 WILSHIRE ENTERPRISES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003

June 30, 2004 June 30, 2003 --------------- ---------------- REVENUES $ 3,008,000 $ 2,858,000 --------------- --------------- COST AND EXPENSES Operating expenses 1,645,000 1,614,000 Depreciation and amortization 491,000 513,000 General and administrative 543,000 537,000 --------------- --------------- Total costs and expenses 2,679,000 2,664,000 --------------- --------------- INCOME FROM OPERATIONS 329,000 194,000 OTHER INCOME Dividend and interest income 46,000 145,000 Other income 185,000 127,000 INTEREST EXPENSE (703,000) (810,000) --------------- --------------- Loss before provision for income taxes (143,000) (344,000) INCOME TAX BENEFIT (78,000) (157,000) --------------- --------------- NET LOSS FROM CONTINUING OPERATIONS (65,000) (187,000) --------------- --------------- DISCONTINUED OPERATIONS - REAL ESTATE, NET OF TAXES LOSS FROM OPERATIONS (225,000) (4,000) GAIN FROM SALES 471,000 -- DISCONTINUED OPERATIONS - OIL & GAS, NET OF TAXES INCOME FROM OPERATIONS 275,000 457,000 GAIN FROM SALES 567,000 -- --------------- --------------- NET INCOME $ 1,023,000 $ 266,000 =============== =============== BASIC EARNINGS PER SHARE: Loss from continuing operations $ (0.01) $ (0.03) Earnings from discontinued operations 0.14 0.06 --------------- --------------- Net earnings applicable to common stockholders $ 0.13 $ 0.03 =============== =============== DILUTED EARNINGS PER SHARE: Loss from continuing operations $ (0.01) $ (0.03) Earnings from discontinued operations 0.14 0.06 --------------- --------------- Net earnings applicable to common stockholders $ 0.13 $ 0.03 =============== ===============

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements. 4 WILSHIRE ENTERPRISES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003

June 30, 2004 June 30, 2003 --------------- ---------------- REVENUES $ 5,941,000 $ 5,657,000 --------------- --------------- COST AND EXPENSES Operating expenses 3,318,000 3,193,000 Depreciation and amortization 1,032,000 1,256,000 General and administrative 872,000 981,000 --------------- --------------- Total costs and expenses 5,222,000 5,430,000 --------------- --------------- INCOME FROM OPERATIONS 719,000 227,000 OTHER INCOME Dividend and interest income 240,000 369,000 Gain on sale of marketable securities -- 261,000 Other Income 238,000 253,000 Insurance Proceeds -- 1,000,000 INTEREST EXPENSE (1,440,000) (2,221,000) --------------- --------------- Loss before provision for income taxes (243,000) (111,000) INCOME TAX BENEFIT (137,000) (410,000) --------------- --------------- NET INCOME (LOSS) FROM CONTINUING OPERATIONS (106,000) 299,000 DISCONTINUED OPERATIONS - REAL ESTATE, NET OF TAXES LOSS FROM OPERATIONS (216,000) (123,000) GAIN FROM SALES 3,359,000 -- DISCONTINUED OPERATIONS - OIL & GAS, NET OF TAXES INCOME FROM OPERATIONS 18,000 1,103,000 GAIN FROM SALES 567,000 -- --------------- --------------- NET INCOME $ 3,622,000 $ 1,279,000 =============== =============== BASIC EARNINGS PER SHARE: Earnings (loss) from continuing operations $ (0.02) $ 0.04 Earnings from discontinued operations 0.48 0.12 --------------- --------------- Net earnings applicable to common stockholders $ 0.46 $ 0.16 =============== =============== DILUTED EARNINGS PER SHARE: Earnings (loss) from continuing operations $ (0.01) $ 0.04 Earnings from discontinued operations 0.47 0.12 --------------- --------------- Net earnings applicable to common stockholders $ 0.46 $ 0.16 =============== ===============

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements. 5 WILSHIRE ENTERPRISES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED ------------------------ June 30, 2004 June 30, 2003 ----------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,622,000 $ 1,279,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities - Depreciation, depletion and amortization 1,101,000 3,133,000 Deferred income taxes (8,834,000) 1,407,000 (Decrease) in deferred income (10,000) (106,000) Gain on sales of real estate assets (5,678,000) -- Gain on sale of oil/gas properties (768,000) -- Gain on sale of marketable securities -- (261,000) Changes in operating assets and liabilities - Decrease (Increase) in accounts receivable 1,491,000 (464,000) Increase in income taxes receivable -- (890,000) Decrease (Increase) in prepaid expenses and other current Assets 556,000 (538,000) Increase (Decrease) in other liabilities 48,000 (75,000) Increase (Decrease) in accounts payable, accrued liabilities and taxes payable 5,053,000 (871,000) ---------------- ---------------- Net cash provided by (used in) operating activities (3,419,000) 2,614,000 ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net Capital expenditures - real estate (547,000) (8,243,000) Proceeds from sale of oil/gas properties 28,131,000 -- Proceeds from sales of real estate properties 14,604,000 -- Proceeds on mortgage notes receivable 1,187,000 273,000 Proceeds from sales and redemptions of marketable securities -- 781,000 Decrease in restricted cash 159,000 -- ---------------- ---------------- Net cash provided by (used in) investing activities 43,534,000 (7,189,000) ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Loan payable to shareholders -- (500,000) Proceeds from issuance of debt -- 35,625,000 Principal payments of long-term debt (11,108,000) (35,091,000) Financing costs -- (533,000) Proceeds from exercise of stock options 14,000 -- ---------------- ---------------- Net cash used in financing activities (11,094,000) (499,000) ---------------- ---------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 389,000 3,428,000 ---------------- ---------------- Net increase (decrease) in cash and cash equivalents 29,410,000 (1,646,000) CASH AND CASH EQUIVALENTS, beginning of period 7,763,000 4,164,000 ---------------- ---------------- CASH AND CASH EQUIVALENTS, end of period $ 37,173,000 $ 2,518,000 ================ ================ SUPPLEMENTAL DISCLOSURES TO THE STATEMENTS OF CASH FLOWS: Cash paid during the year for - Interest $ 1,566,000 $ 2,739,000 ================ ================ Income taxes, net $ 4,448,000 $ 160,000 ================ ================

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements 6 WILSHIRE ENTERPRISES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 1. FINANCIAL STATEMENTS The unaudited condensed consolidated financial statements included herein have been prepared by the Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Registrant believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. In the opinion of management, this condensed financial information reflects all adjustments necessary to present fairly the results for the interim periods. In July 2003, the Company committed to the sale of its oil and gas operations. The financial statements have been adjusted to reflect the oil and gas operations as "Discontinued Operations" in 2003 and 2004. In April 2004, the Company sold its oil and gas operations and received net proceeds of $28,131,000. An escrow holdback of $600,000 was established to allow for any potential post closing adjustments relating to its United States operations. This escrow was paid in full to the Company on June 22, 2004 and the condensed consolidated statements of income include a gain of $567,000 (after taxes) on the transaction for the three months and six months ended June 30, 2004. Since the sale was effective as of March 1, 2004, the financial statements as presented reflect in discontinued operations oil and gas operations for the first two months of 2004, compared to a full six months of operations in 2003. The Company reports the gain on the sale of real estate properties plus the year to date operations and related interest expense for any real estate property sold or held for sale as "Discontinued Operations". During the three and six months ended June 30, 2004, the Company consummated the sale of two and thirteen real estate properties in Jersey City, New Jersey for a net gain of $471,000 and $3,359,000 (after taxes), respectively. Basis of Presentation Certain amounts in the 2003 consolidated financial statements have been reclassified to conform to the 2004 presentation. Accounting for Stock-Based Compensation In December 2002, the Financial Accounting Standards Board issued Statement No. 148 to amend alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement No. 148 amends the disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. However, the Company has continued to account for options in accordance with the provision of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Accordingly, no compensation expense has been recognized in the statements of income for stock option plans. 7 The following tables set forth the pro forma impact of expensing stock options for the three and six months ended June 30, 2004 and 2003 (in thousands, except earnings per share data):

For Three Months Ended June 30, ------------------------------- 2004 2003 ------------- ------------ Net income as reported $ 1,023 $ 266 Less: Stock option expense determined under fair value recognition method for all awards (5) (15) --------- --------- Pro forma net income $ 1,018 $ 251 ========= ========= Net income per share as reported: Basic Earnings per share: Loss per share from continuing operations $ (0.01) $ (0.03) Earnings per share from discontinued operations 0.14 0.06 --------- --------- Net earnings applicable to common stockholders $ 0.13 $ 0.03 ========= ========= Diluted Earnings per share: Loss per share from continuing operations $ (0.01) $ (0.03) Earnings per share from discontinued operations 0.14 0.06 --------- --------- Net earnings applicable to common stockholders $ 0.13 $ 0.03 ========= ========= Pro forma net income per share: Basic Earnings per share: Loss per share from continuing operations $ (0.01) $ (0.03) Earnings per share from discontinued operations 0.14 0.06 --------- --------- Net earnings applicable to common stockholders $ 0.13 $ 0.03 ========= ========= Diluted Earnings per share: Loss per share from continuing operations $ (0.01) $ (0.03) Earnings per share from discontinued operations 0.14 0.06 --------- --------- Net earnings applicable to common stockholders $ 0.13 $ 0.03 ========= ========= For Six Months Ended June 30, ----------------------------- 2004 2003 --------- --------- Net income as reported $ 3,622 $ 1,279 Less: Stock option expense determined under fair value recognition method for all awards (11) (31) --------- --------- Pro forma net income $ 3,611 $ 1,248 ========= ========= Net income per share as reported: Basic Earnings per share: Earnings (loss) per share from continuing operations $ (0.02) $ 0.04 Earnings per share from discontinued operations 0.48 0.12 --------- --------- Net earnings applicable to common stockholders' $ 0.46 $ 0.16 ========= ========= Diluted Earnings per share: Earnings (loss) per share from continuing operations $ (0.01) $ 0.04 Earnings per share from discontinued operations 0.47 0.12 --------- --------- Net earnings applicable to common stockholders' $ 0.46 $ 0.16 ========= ========= Pro forma net income per share: Basic Earnings per share: Earnings (loss) per share from continuing operations $ (0.01) $ 0.04 Earnings per share from discontinued operations 0.47 0.12 --------- --------- Net earnings applicable to common stockholders' $ 0.46 $ 0.16 ========= ========= Diluted Earnings per share: Earnings (loss) per share from continuing operations $ (0.01) $ 0.04 Earnings per share from discontinued operations 0.46 0.12 --------- --------- Net earnings applicable to common stockholders' $ 0.45 $ 0.16 ========= =========

The fair value of stock options was estimated using the Black-Scholes option-pricing model based on the variables presented in the following table.

Three Months Ended Six Months Ended June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003 ------------- ------------- ------------- ------------- Weighted Average Market Price $5.18 $4.55 $5.18 $3.60 Risk free Interest rate 3.97% 3.00% 3.97% 3.00% Volatility 36.4% 33.1% 36.4% 33.1% Dividend yield -% -% -% -% Expected option life 5 years 5 years 5 years 5 years

8 2. SEGMENT INFORMATION The Company conducts real estate operations in the United States, principally consisting of apartment complexes and to a much lesser extent commercial and retail properties. Management of the Company views its real estate operations as a single segment. For the first two months of 2004 the Company was engaged in the exploration of oil and gas, both in its own name and through several wholly-owned subsidiaries, on the North American continent. In July 2003 the Company committed to the sale of its oil and gas operations and consummated the sale in April 2004, effective March 1, 2004. The financial statements have been adjusted to present oil and gas operations as "Discontinued Operations" in 2003 and 2004. Accordingly, the Company only conducts real estate operations in the United States. 3. COMPREHENSIVE INCOME Comprehensive income for the three and six months ended June 30, 2004 and 2003 is as follows:

3 Months Ended June 30, 6 Months Ended June 30, ----------------------- ----------------------- 2004 2003 2004 2003 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- ----------- Net income $1,023,000 $266,000 $3,622,000 $1,279,000 ---------- -------- ---------- ---------- Other comprehensive income net of taxes: Foreign currency translation adjustments 873,000 - 389,000 438,000 Change in unrealized gain on marketable securities (7,000) - 34,000 196,000 ---------- -------- ---------- ---------- Other comprehensive income 866,000 266,000 423,000 634,000 ---------- -------- ---------- ---------- Comprehensive income $1,889,000 $266,000 $4,045,000 $1,913,000 ========== ======== ========== ==========

Changes in the components of Accumulated Other Comprehensive Income (Loss) for the year 2003 and for the six months ended June 30, 2004 are as follows-

Unrealized Gains Cumulative Accumulated (Losses) on Foreign Currency Other Available-for-Sale Translation Comprehensive Securities Adjustment Income (Loss) ------------------------ -------------------- -------------------- BALANCE, December 31, 2002 $ 653,000 $(3,742,000) $(3,089,000) Change for the year 2003 (545,000) 2,206,000 1,661,000 --------- ------------ ------------ BALANCE, December 31, 2003 108,000 (1,536,000) (1,428,000) Change for the six months 34,000 389,000 423,000 --------- ------------ ------------ BALANCE, June 30, 2004 $ 142,000 $(1,147,000) $(1,005,000) ========= ============ ============

4. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share-

Six Months Ended June 30, Three Months Ended June 30, 2004 2003 2004 2003 ---------------- --------------- ------------- -------------- Numerator- Net Income $3,622,000 $1,279,000 $1,023,000 $266,000 ================ =============== ============= ============== Denominator- Weighted average common shares outstanding - Basic 7,803,995 7,809,834 7,805,156 7,809,834 Incremental shares from assumed conversions of stock options 144,582 61,420 148,128 82,328 ---------------- --------------- ------------- -------------- Weighted average common shares outstanding - Diluted 7,948,577 7,871,254 7,953,284 7,892,162 ================ =============== ============= ============== Basic earnings per share: $0.46 $0.16 $0.13 $0.03 ================ =============== ============= ============== Diluted earnings per share: $0.46 $0.16 $0.13 $0.03 ================ =============== ============= ==============

9 5. OTHER INCOME Other income for 2003 includes $1,000,000 the Company received as the beneficiary of life insurance policies on the life of the Company's former Chairman and President who had been serving as its Senior Consultant up to his death on January 7, 2003. This income was not subject to income taxes. 6. COMMITMENTS AND CONTINGENCIES In June 1996, the Company's Board of Directors adopted the Stockholder Protection Rights Plan (the "Rights Plan"). The Rights Plan provides for issuance of one Right for each share of common stock outstanding as of July 6, 1996. The Rights are separable from and exercisable upon the occurrence of certain triggering events involving the acquisition of at least 15% (or, in the case of certain existing stockholders, 25%) of the Company's common stock by an individual or group, as defined in the Rights Plan (an "Acquiring" Person) and may be redeemed by the Board of Directors at a redemption price of $0.01 per Right at any time prior to the announcement by the Company that a person or group has become an Acquiring Person. On and after the tenth day following such triggering events, each Right would entitle the holder (other than the Acquiring Person) to purchase $50 in market value of the Company's Common Stock for $25. In addition, if there is a business combination between the Company and an Acquiring Person, or in certain other circumstances, each Right (if not previously exercised) would entitle the holder (other than the Acquiring Person) to purchase $50 in market value of the common stock of the Acquiring Person for $25. As of June 30, 2004 and 2003, 7,806,733 and 7,809,833, respectively, of Rights were outstanding. Each Right entitles the holder to purchase, for an exercise price of $25, one one-hundredth of a share of Series A Participating Preferred Stock. Each one one-hundredth share of Series A Participating Preferred Stock is designed to have economic terms similar to those of one share of common stock but will have one one-hundredth of a vote. Because the Rights are only exercisable under certain conditions, none of which were in effect as of June 30, 2004 and 2003, the outstanding Rights are not considered in the computation of basic and diluted earnings per share. On June 3, 2004, the Company announced a program to purchase up to 1,000,000 shares of its common stock on the open market, in privately negotiated transactions or otherwise. This purchasing activity may occur from time to time, in one or more transactions. 7. STOCK OPTION PLANS In June 2004, the Company's stockholders approved the 2004 Stock Option and Incentive Plan (the "2004 Plan"). The purpose of the 2004 Plan is to encourage stock ownership by key employees and consultants of the Company, to provide additional incentive for them to promote the successful business operations of the Company, to encourage them to continue providing services to the Company, and to attract new employees and consultants to the Company. Awards under the 2004 Plan may be granted in any one or all of the following forms, as those terms are defined under the 2004 Plan: (i) incentive stock options; (ii) non-qualified stock options; (iii) stock appreciation rights; (iv) restricted shares of common stock; (v) performance shares; (vi) performance units; and (vii) unrestricted shares of common stock. The maximum aggregate number of shares of common stock available for award under the 2004 Plan is 600,000, subject to adjustment under the terms of the 2004 Plan. As of June 30, 2004, no awards have been granted under the 2004 Plan. In June 2004, the Company's stockholders approved the 2004 Non-Employee Director Stock Option Plan (the "2004 Director Plan"). The purpose of the 2004 Director Plan is to attract qualified personnel to accept positions of responsibility as directors of the Company, to provide incentives for persons to remain on the Board and to induce such persons to maximize the Company's performance during the terms of their options. Only non-qualified stock options may be granted under the 2004 Director Plan. The maximum aggregate number of shares of common stock available for grant under the 2004 Director Plan is 150,000, subject to adjustment under the terms of the 2004 Director Plan. Upon adoption of the 2004 Director Plan, each non-employee director was granted 10,000 options to purchase common shares of the Company. As of June 30, 2004, 50,000 options had been granted at market value under the 2004 Director Plan. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion addresses material changes in the Company's results of operations for the three month period ended June 30, 2004 compared to the three month period ended June 30, 2003, and the six month period ended June 30, 2004 compared to the six month period ended June 30, 2003 and changes in its financial condition since December 31, 2003. It is presumed that readers have read or have access to Wilshire's 2003 Annual Report on Form 10-K which includes disclosures regarding critical accounting policies as part of Management's Discussion and Analysis of Financial Condition and Results of Operations. OVERVIEW Net income for the three months ended June 30, 2004 amounted to $1,023,000 or $0.13 per diluted share, an increase of $757,000 from $266,000 or $0.03 per diluted share reported for the three months ended June 30, 2003. Net income for the six months ended June 30, 2004, amounted to $3,622,000 or $0.46 per diluted share, compared to $1,279,000 or $0.16 per diluted share for the 2003 period. 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 gain from the sale of the oil and gas properties, the net income from real estate properties held for sale and the gain from real estate properties sold during the period. The Company announced in July 2003 its intention to sell its oil and gas businesses. The Canadian oil and gas business was sold in April 2004 to Addison Energy Inc., a wholly owned subsidiary of Exco Resources, Inc., for $15 million in gross proceeds. The United States oil and gas business was sold in April 2004 to Crow Creek Energy LLC, a Tulsa, Oklahoma based privately held portfolio company of Natural Gas Partners of Dallas, Texas, for $13.3 million in gross proceeds. During the three and six months ended June 30, 2004, respectively, the Company recorded income, net of taxes from its oil and gas businesses of $842,000 and $585,000, respectively. During the three months ended June 30, 2004, the Company sold two real estate properties in New Jersey for gross proceeds of $3,740,000 that resulted in an after-tax gain of $471,000. For the six months ended June 30, 2004, the Company sold thirteen New Jersey real estate properties for gross proceeds of $14,740,000 and a net gain after taxes of $3,359,000. Also during the three months ended June 30, 2004, the Company classified the Twelve Oaks 72-unit apartment complex located in Riverdale, Georgia as held for sale. Accordingly, the results of operations for Twelve Oaks, in all periods presented, have been reclassified as discontinued operations and has resulted in an improvement in net income from continuing operations of approximately $25,000 and $33,000 for the three months and six months ended June 30, 2004, respectively, and $22,000 and $40,000 for the three months and six months ended June 30, 2003, respectively. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2004 ("2004") COMPARED WITH THREE MONTHS ENDED JUNE 30, 2003 ("2003") CONTINUING OPERATIONS: Net loss from continuing operations was $(65,000) in 2004 compared with a loss of $(187,000) in 2003. Loss per diluted share from continuing operations improved to $(0.01) from $(0.03) in 2003. This improvement is primarily due to higher income from operations (defined as real estate revenues reduced by real estate, depreciation and general and administrative expenses) and lower interest expense partly offset by lower other income and a lower income tax benefit. These factors are discussed below. Revenue from real estate operations amounted to $3,008,000 in 2004, an increase of $150,000 or 5.2%, from $2,858,000 in 2003. The increase for the 2004 period is primarily attributable to higher rent due to improved occupancy and reduced rental concessions and higher reimbursement of real estate tax expenses applicable to the Company's triple net leased hotel and conference facility. Real Estate operating expenses modestly increased to $1,645,000 in 2004 from $1,614,000 in 2003, an increase of 1.9%. The majority of the increase was due to the previously mentioned increase in real estate tax expense at the Company's triple net leased hotel and conference facility. Depreciation and amortization expense and general and administrative expenses were comparable with the 2003 levels. Other income decreased $41,000 to $231,000 in 2004 from $272,000 in 2003, related to lower dividend and interest income that was partly offset by fee income received in 2004 of $64,000 under a contract to sell a parcel of land. 11 Interest expense decreased to $703,000 from $810,000 in 2003, mainly related to the payoff of approximately $6.1 million of mortgage debt ($5.8 million during the three months ended March 31, 2004 and $0.3 million during the three months ended June 30, 2004) related to real estate properties sold. The provision for income taxes amounted to a tax benefit of $(78,000) in 2004 compared to a tax benefit of $(157,000) in 2003. The decrease in income tax benefits is related to the lower loss from continuing operations in 2004 compared to 2003. DISCONTINUED OPERATIONS, NET OF TAXES: REAL ESTATE Discontinued operations amounted to an after tax loss of $(225,000) in 2004 and $(4,000) in 2003. The loss for each quarter reflects the results of operating the properties in the respective quarters. The large increase in the 2004 loss is due to a change in the mix of properties operated as discontinued related to the large amount of sales during the first three months of 2004. Gains from the sale of real estate properties were $471,000 after taxes in 2004. During 2004, the Company sold two real estate properties in New Jersey for gross proceeds of $3,740,000. There were no sales in the 2003 period. OIL AND GAS Discontinued operations for 2004 had a net after tax profit of $842,000 in 2004 and $457,000 in 2003. The 2004 period includes the profit and expenses of the sale of the oil and gas divisions of the Company. It does not include any oil and gas sales. The 2003 period reflects a full three months of oil and gas production. SIX MONTHS ENDED JUNE 30, 2004 ("2004") COMPARED WITH SIX MONTHS ENDED JUNE 30, 2003 ("2003") CONTINUING OPERATIONS: Net income from continuing operations decreased to a loss of $(106,000) in 2004 from net income of $299,000 in 2003. (Loss) earnings per diluted share from continuing operations was $(0.02) in 2004 and $0.04 in 2003. The decrease was primarily due to a lower level of other income and an increased provision for income taxes, partly offset by increased income from operations and lower interest expense. The changes in these factors are explained in the following discussion. Revenue from real estate operations amounted to $5,941,000 in 2004, an increase of $284,000 or 5.0%, from $5,657,000 in 2003. The increase for the 2004 period is primarily attributable to higher rent due to improved occupancy and reduced rental concessions and higher reimbursement of real estate tax expenses applicable to the Company's triple net leased hotel and conference facility. Real Estate operating expenses modestly increased to $3,318,000 in 2004 from $3,193,000 in 2003, an increase of 3.9%. The majority of the increase was due to higher real estate tax expense applicable to the Company's triple net leased hotel and conference facility as discussed in the preceding paragraph. Depreciation and amortization decreased to $1,032,000 in 2004 from $1,256,000 in 2003. The decrease is primarily attributable to a reduction in the level of assets subject to amortization. General and administrative expenses decreased to $872,000 from $981,000 in 2003. This reduction was primarily due to lower expense for corporate insurance. Other income decreased $1,405,000 to $478,000 in 2004 from $1,883,000 in 2003. In 2003, other income included $1,000,000 received by the Company as beneficiary of life insurance policies on the life of the Company's former Chairman and President Siggi B. Wilzig, who had been serving as its Senior Consultant up to his death on January 7, 2003. In addition, the Company sold marketable securities and recognized gains of $261,000 in 2003, whereas no marketable securities were sold in 2004. These 2003 items were partly offset by $128,000 of fee income received in 2004 under a contract to sell a parcel of land. No fee income was received in 2003. Interest expense decreased to $1,440,000 from $2,221,000 in 2003. Interest expense in 2003 includes a one-time prepayment penalty of $469,000 to secure the refinancing of the Company's real estate properties. The refinancing of the mortgage notes payable in the first quarter of 2003 reduced the effective rate paid by the Company from 7.36% to 6.10% and extended its maturity and terms. As a result of this refinancing, during the next ten years, the Company's annual interest expense related to its current debt should decrease by approximately $600,000. In addition, the Company paid down approximately $6.1 million of mortgage debt during 2004 related to real estate properties sold. 12 The provision for income taxes amounted to a benefit of $(137,000) in 2004 and a benefit of $(410,000) in 2003. The calculation of the 2003 income tax benefit was impacted by the tax-exempt status of the $1,000,000 of previously mentioned life insurance proceeds. DISCONTINUED OPERATIONS, NET OF TAXES: REAL ESTATE Discontinued operations amounted to a loss of $(216,000) in 2004 and $(123,000) in 2003. The loss for each period reflects the results of operating the properties. The increase in the loss is related to a reduction in operating income attributable to the large number of properties sold subsequent to the 2003 period. Gains from the sale of real estate properties were $3,359,000 after taxes in 2004. During 2004, the Company sold thirteen real estate properties in New Jersey for gross proceeds of $14,740,000. There were no sales in the 2003 period. OIL AND GAS Discontinued operations reflects a profit of $585,000 in 2004 and $1,103,000 in 2003. The 2003 profit includes six months of oil and gas sales while the 2004 figures only include sales from January and February. The 2004 results also include the net after tax gain of $567,000 from the sale of the oil and gas divisions. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2004, the Company had working capital of $31.6 million, compared to $(7.2) million at December 31, 2003. The change reflects the receipt of approximately $28.1 million from the sale of the oil and gas business and approximately $14.7 million from the sale of real estate properties, partly offset by the payment of a portion of the income taxes related to those sales and the repayment of $8.8 million of mortgage debt related to the real estate properties sold. The Company has $37.2 million of cash and cash equivalents at June 30, 2004. This balance is comprised of working capital accounts for its real estate properties and corporate needs and short-term investments in highly liquid, high quality government and corporate securities and money market funds. The Company estimates that it has approximately $8.0 million of taxes remaining to be paid relating to the sale of the oil and gas business and the sales of real estate properties. These obligations will be satisfied by the end of the first quarter 2005. The remaining cash and cash equivalents will be either reinvested in the Company's ongoing real estate business or utilized in a manner designed to maximize shareholder value. The Company continues to explore corporate and real estate property acquisitions as they arise. The timing of any such acquisitions will depend upon, among other criteria, economic conditions and the favorable evaluation of specific opportunities presented to the Company. In the short-term, the Company will continue to invest these funds in high quality investments that are consistent with its investment policy. Management considers its liquidity position adequate to fulfill the Company's current business plans. Net cash used by operating activities amounted to $(3.4 million) in 2004, while in 2003 operating activities provided net cash of $2.6 million. The 2004 use of cash resulted from net income of $3.6 million and the sale of the oil and gas business and the sale of real estate properties with their related changes in receivables, payables and current and deferred tax accounts. The 2003 provision of cash was mainly related to net income of $1.3 million and depreciation and amortization expense (a non-cash expense), partly offset by changes in other current asset and liability and income tax accounts related to normal business activity. Net cash provided by (used in) investing activities amounted to $43.5 million in 2004 and $(7.2 million) in 2003. This increase is due mainly to the sale of real estate assets and oil and gas assets in 2004 compared with $8.2 million of capital expenditures on real estate properties in 2003. Net cash used in financing activities increased to $(11.1 million) from $(499,000) in 2003. This increased use of funds principally relates to the repayment of long-term debt associated with the thirteen real estate properties sold and the repayment of a note payable of $2.7 million. In addition to the generation of funds from its operations, the Company has a $2.0 million line of credit with a major financial institution. The Company believes it has adequate capital resources to fund its operations for the foreseeable future. 13 On June 3, 2004, the Company announced a program to purchase up to 1,000,000 shares of its common stock on the open market, in privately negotiated transactions or otherwise. This purchasing activity may occur from time to time, in one or more transactions. Critical Accounting Policies The Company's discussion and analysis of its financial condition and results of operations are based upon unaudited consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146") (effective January 1, 2003). SFAS No. 146 replaces current accounting literature and requires the recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The adoption of this pronouncement in 2003 had an immaterial impact on the Company's financial statements. Impairment of Property and Equipment In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This standard harmonizes the accounting for impaired assets and resolves some of the implementation issues as originally described in SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144, among other things, requires the Company to classify the operations and cash flow of properties to be disposed of as discontinued operations. The Company adopted this pronouncement on January 1, 2002. This adoption impacted how the Company reported its results of operations and financial position as of June 30, 2004 and 2003. 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 June 30, 2004, that the value of any of its rental 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 the tenant. Rental revenue is recognized on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in accounts receivable. An allowance for uncollectible accounts is maintained based on the Company's estimate of the inability of its joint interest partners in the oil and gas division and its tenants in the real estate division to make required payments. Foreign Operations The assets and liabilities of the Company's Canadian subsidiary have been translated at quarter-end exchange rates. The related revenues and expenses have been translated at average exchange rates for the applicable reported period. The aggregate effect of translation gains and losses are reflected as a component of "Accumulated other comprehensive income (loss)" until the sale or liquidation of the underlying foreign investment. As a result of the sale of its Canadian oil and gas assets in April 2004, the Company intends to dissolve its Canadian subsidiary and remit all prior years' earning to the U. S. The Company has provided approximately $1.2 million of Federal income taxes that will result from the receipt of such funds. Accounting for Stock-Based Compensation In December 2002, the Financial Accounting Standards Board issued Statement No. 148 to amend alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement No. 148 amends the disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. However, the Company has continued to account for options in accordance with the provision of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Accordingly, no compensation expense has been recognized in the statements of income for stock option plans and the Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." 14 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity In May 2003, the Financial Accounting Standards Board issued Statement No. 150 that establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. As of June 30, 2004, the Company did not have any financial instruments outstanding that were within the scope of Statement No. 150. Consolidation of Variable Interest Entities FIN 46(R), "Consolidation of Variable Interest Entities," applies at different dates to different types of enterprises and entities, and special provisions apply to enterprises that have fully or partially applied Interpretation 46 prior to issuance of Interpretation 46(R). Application of Interpretation 46 or Interpretation 46(R) is required in financial statements of public entities that have interests in variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application by public entities (other than small business issuers) for all other types of entities is required in financial statements for periods ending after March 15, 2004. Application by small business issuers to entities other than special-purpose entities and by nonpublic entities to all types of entities is required at various dates in 2004 and 2005. In some instances, enterprises have the option of applying or continuing to apply Interpretation 46 for a short period of time before applying Interpretation 46(R). As of June 30, 2004, the Company does not have any variable interest entities that fall within the provisions of FIN 46(R). Forward-Looking Statements This Report on Form 10-Q for the quarter and six months ended June 30, 2004 contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included herein other than statements of historical fact are forward-looking statements. Although the Company believes that the underlying assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. The Company's business and prospects are subject to a number of risks which could cause actual results to differ materially from those reflected in such forward-looking statements, including uncertainties inherent in any attempt to sell a portion or all of the business at an acceptable price, environmental risks relating to the Company's real estate properties, competition, the substantial capital expenditures required to fund the Company's real estate operations, market and economic changes in areas where the Company holds real estate properties, interest rate fluctuations, government regulation, and the ability of the Company to implement its business strategy. 15 Item 3 - Qualitative and Quantative Disclosure About Market Risk The Company has investments in domestic equity securities for which the Company has exposure to the risk of market value fluctuation. The Company accounts for these investments as securities that are available for sale and marks them to market at each period-end. The change in value in the investments, net of tax impact, is reported in Accumulated Other Comprehensive Income, a separate component of shareholders' equity. The Company also evaluates it investments to determine if they have suffered a decline in market value that is permanent, which would require a charge to the Statement of Income. At June 30, 2004, in the opinion of management, there has been no permanent decline in value in the Company's holdings of equity securities. The Company is not exposed to changes in interest rates. The Company had no floating rate debt outstanding under its $2.0 million U.S. credit line as of June 30, 2004. At June 30, 2004 the Company had $47,386,000 of mortgage debt outstanding which all bears interest at fixed rates. SUMMARY OF INDEBTEDNESS Long-term debt as of June 30, 2004 and December 31, 2003 consists of the following -

2004 2003 (Unaudited) ---------------- ---------------- Mortgage notes payable $47,386,000 $53,824,000 Note payable - 2,700,000 Revolving demand loan - 1,970,000 ---------------- ---------------- Total 47,386,000 58,494,000 Less-Current portion 674,000 6,989,000 ---------------- ---------------- Long term portion (1) $46,712,000 $51,505,000 ================ ================

(1) Includes long-term debt associated with discontinued operations of $1,623,000 in 2004 and $7,130,000 in 2003. The aggregate maturities of the long-term debt in each of the five years subsequent to June 30, 2004 and thereafter are - 2004 $ 674,000 2005 726,000 2006 773,000 2007 819,000 2008 4,735,000 Thereafter 39,659,000 ------------------ $47,386,000 ================== Item 4- Controls and Procedures (a) Disclosure controls and procedures. As of the end of the Company's most recently completed fiscal quarter covered by this report, the Company carried out an evaluation, with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. (b) Changes in internal controls over financial reporting. There have been no changes in the company's internal control over financial reporting that occurred during the Company's last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 16 PART II - OTHER INFORMATION Item 4- Submission of Matters to a Vote of Security Holders --------------------------------------------------------------------- The following matters were submitted to a vote of the Company's stockholders at its 2004 Annual Meeting held on June 16, 2004 and the votes cast were as set forth: (i) The election of Ernest Wachtel and Martin Willschick to serve as directors of the Company for three year terms expiring in 2007. The votes cast were as follows: For Withheld Ernest Wachtel 6,162,519 1,106,645 Martin Willschick 6,246,533 1,022,631 (ii) To adopt the Company's 2004 Stock Option and Incentive Plan. The votes were as follows: For Against Abstained 3,719,584 1,787,743 38,211 (iii) To adopt the Company's 2004 Non-Employee Director Stock Option Plan. The votes cast were as follows: For Against Abstained 3,844,184 1,644,713 56,641 Item 6 - Exhibits and Reports on Form 8-K -------------------------------------------------- Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act Exhibit 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act Exhibit 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act The Company has filed the following Form 8-Ks for the quarter ended June 30, 2004.

Date of Report (Date of Earliest Event) Filing Dates Subject ------------------------ ------------ ------- May 17, 2004 May 18, 2004 Item 9 - Press release announcing the Company's Results for the quarter ended March 31, 2004 March 30, 2004 May 27, 2004 Item 5,7- The Company reported the sale of its Canadian and United States oil and gas businesses in April 2004 and presented pro forma financial statements as of March 31, 2004. June 3, 2004 June 4, 2004 Item 5- Press release announcing the Company's stock repurchase program. June 17, 2004 June 17, 2004 Item 5 - Press release announcing the voting results of the Annual Meeting. June 22, 2004 June 22, 2004 Item 9- Press release announcing employment of a new executive officer.

17

Date of Report (Date of Earliest Event) Filing Dates Subject ------------------------ ------------ -------- May 14, 2004 June 28, 2004 Item 4- The Company reported that Ernst & Young, LLP had declined to stand for re-election as the Company's independent auditors. July 5, 2004 July 7, 2004 Item 4- The Company reported the engagement of J.H. Cohn LLP as the Company's new Independent Registered Public Accounting Firm. July 19, 2004 July 20, 2004 Item 4- The Company reported the termination of its relationship with Ernst & Young, LLP effective July 5, 2004. July 29, 2004 July 29, 2004 Item 5 - Press release announcing that the Company will initiate investor Presentations during September 2004.

18 S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WILSHIRE ENTERPRISES, INC. -------------------------- Registrant) Date: August 11, 2004 /s/ S. Wilzig Izak -------------------- ------------------ By: S. Wilzig Izak Chairman of the Board and Chief Executive Officer /s/ Seth H. Ugelow ------------------ By: Seth H. Ugelow Chief Financial Officer 19