10-Q 1 b324888_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 March 31, 2003 Commission file ------------------------------ number 1-467 WILSHIRE OIL COMPANY OF TEXAS -------------------------------------------------------- (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 ------------------------------------------------------------------------------- NO CHANGE ------------------------------------------------------------------------------- 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 the number of shares outstanding of each of the issuer's classes of common stock, as of May 13, 2003. Common Stock $1 Par Value -----7,809,834 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes No x --- --- WILSHIRE OIL COMPANY OF TEXAS INDEX Page No. -------- Part I 1. Financial Information Financial Information: 1 Condensed Consolidated Balance Sheets - March 31, 2003 (Unaudited) and December 31, 2002 Unaudited Condensed Consolidated Statements of Income - 2 Three months ended March 31, 2003 and 2002 Unaudited Condensed Consolidated Statement of Cash Flows - 3 Three months ended March 31, 2003 and 2002 Notes to Unaudited Condensed Consolidated Financial Statements 4 2. Management's Discussion and Analysis 9 of Financial Condition and Results of Operations 3. Quantitative and Qualitative Disclosure About Market Risk 4. Controls and Procedures Part II Other Information 15 6. Exhibits and Reports on Form 8-K WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

March 31, December 31, 2003 2002 (Unaudited) ------------- ------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,541,000 $ 4,164,000 Marketable securities, available-for-sale, at fair value 9,696,000 9,860,000 Accounts receivable net of allowance of $59,000 and $77,000 in 2003 and 2002, respectively 1,985,000 1,094,000 Income taxes receivable 1,703,000 626,000 Prepaid expenses and other current assets 2,485,000 1,677,000 ------------- ------------- Total current assets 18,410,000 17,421,000 ------------- ------------- NONCURRENT ASSETS Mortgage notes receivable 2,884,000 3,035,000 Other noncurrent 375,000 375,000 PROPERTY AND EQUIPMENT Oil and gas properties, using the full cost method of accounting 144,876,000 141,243,000 Real estate properties 72,001,000 71,355,000 Other property and equipment 366,000 366,000 ------------- ------------- 217,243,000 212,964,000 Less-Accumulated depreciation, depletion and amortization 127,964,000 125,875,000 ------------- ------------- 89,279,000 87,089,000 ------------- ------------- TOTAL ASSETS $ 110,948,000 $ 107,920,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 10,311,000 $ 7,314,000 Loan payable to shareholder 500,000 500,000 Accounts payable 2,012,000 3,033,000 Income taxes payable - 35,000 Deferred income taxes 695,000 535,000 Accrued liabilities 178,000 119,000 ------------- ------------- Total current liabilities 13,696,000 11,536,000 NONCURRENT LIABILITIES Long-term debt, less current portion 56,498,000 58,392,000 Deferred income taxes 13,362,000 12,051,000 Deferred income 1,397,000 1,627,000 Other Long-term liabilities - 75,000 ------------- ------------- Total liabilities 84,953,000 83,681,000 ------------- ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock, $1 par value, 1,000,000 shares authorized; none issued and outstanding in 2003 and 2002 - - Common stock, $1 par value, 15,000,000 shares authorized; issued 10,013,544 shares in 2003 and 2002 10,014,000 10,014,000 Capital in excess of par value 9,029,000 9,029,000 Treasury stock, 2,203,710 shares at March 31, 2003 and December 31,2002 respectively, at cost (10,355,000) (10,355,000) Retained earnings 19,762,000 18,640,000 Accumulated other comprehensive loss (2,455,000) (3,089,000) ------------- ------------- Total shareholders' equity 25,995,000 24,239,000 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 110,948,000 $ 107,920,000 ============= =============

The accompanying notes to consolidated financial statements are an integral part of these financial statements. 1 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME For the three months ended March 31, 2003, and 2002

March 31, March 31, 2003 2002 ----------- ----------- REVENUES Oil and gas $ 2,513,000 $ 1,248,000 Real estate 3,637,000 3,769,000 ----------- ----------- Total revenues 6,150,000 5,017,000 ----------- ----------- COST AND EXPENSES Oil and gas production expenses 687,000 457,000 Real estate operating expenses 2,286,000 2,107,000 Depreciation and amortization 899,000 562,000 Depreciation, depletion and amortization of oil and gas properties 645,000 424,000 General and administrative 561,000 461,000 ----------- ----------- Total costs and expenses 5,078,000 4,011,000 ----------- ----------- INCOME FROM OPERATIONS 1,072,000 1,006,000 OTHER INCOME Dividend and interest income 245,000 166,000 Gain on sale of securities 261,000 615,000 Insurance proceeds 1,000,000 - Other Income 126,000 - INTEREST EXPENSE (1,627,000) (1,135,000) ----------- ----------- Income before provision for income taxes 1,077,000 652,000 PROVISION FOR INCOME TAXES (BENEFIT) (45,000) 202,000 ----------- ----------- NET INCOME $ 1,122,000 $ 450,000 =========== =========== Basic earnings per share $ 0.14 $ 0.06 =========== =========== Diluted earnings per share $ 0.14 $ 0.06 =========== ===========

Net income for the first quarter in 2002 as previously reported has been adjusted to record the corrected book loss on the sale of a marketable security. This correction resulted in an adjustment to net income for the first quarter from $290,000 as originally reported, to $450,000, as reflected above. Such change adjusted net income per share from $0.04 to $0.06. The accompanying notes to consolidated financial statements are an integral part of these financial statements. 2 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended ------------------------------ March 31, March 31, 2003 2002 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,122,000 $ 450,000 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation, depletion and amortization 1,544,000 986,000 Deferred income tax (benefits) provision 1,311,000 1,429,000 Deferred income (230,000) - Gain on sales of marketable securities (261,000) (615,000) Changes in operating assets and liabilities - Increase in accounts receivable (891,000) (1,703,000) Increase in income taxes receivable (1,077,000) - Increase (decrease) in prepaid expenses and other current assets (410,000) 933,000 Increase in other liabilities 470,000 Decrease in accounts payable, accrued liabilities and taxes payable (997,000) (930,000) ------------ ------------ Net cash provided by operating activities 581,000 550,000 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,279,000) (675,000) Purchases of marketable securities - (537,000) Proceeds from sales and redemptions of marketable securities 781,000 1,453,000 Proceeds on mortgage notes receivable 151,000 1,396,000 ------------ ------------ Net cash provided by (used in) investing activities (3,347,000) 1,637,000 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of debt 35,471,000 4,080,000 Principal payments of long-term debt (34,368,000) (7,896,000) Purchase of treasury stock - (19,000) Loan payable to shareholder - (50,000) Financing Costs (398,000) - ------------ ------------ Net cash provided by (used in) financing activities 705,000 (3,885,000) ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH 438,000 (71,000) ------------ ------------ Net increase (decrease) in cash and cash equivalents (1,623,000) (1,769,000) CASH AND CASH EQUIVALENTS, beginning of year 4,164,000 4,984,000 ------------ ------------ CASH AND CASH EQUIVALENTS, end of year $ 2,541,000 $ 3,215,000 ============ ============ SUPPLEMENTAL DISCLOSURES TO THE STATEMENTS OF CASH FLOWS: Cash paid during the year for - Interest $ 1,744,000 $ 1,135,000 ============ ============ Income taxes, net $ 160,000 $ 62,000 ============ ============

The accompanying notes to consolidated financial statements are an integral part of these financial statements 3 WILSHIRE OIL COMPANY OF TEXAS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2003 1. FINANCIAL STATEMENTS The unaudited condensed consolidated financial statements included herein have been prepared by the Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. This condensed financial information reflects, in the opinion of management, all adjustments necessary to present fairly the results for the interim periods. In connection with the preparation of the interim financial statements, the Company estimates oil and gas operations for the month of March based on prior months actual results and specific significant transactions which may have occurred during the month. In the opinion of management these estimated results approximate actual. The results of operations for such interim periods are not necessarily indicative of the results for the full year. Net income for the first quarter in 2002 as previously reported has been adjusted to record the corrected book loss on the sale of a marketable security. This correction, which was made on Form 10-K when filed for 2002, resulted in an adjustment to net income for the first quarter from $290,000 as originally reported, to $450,000, as reflected above. Such change adjusted net income per share from $0.04 to $0.06. Recently Issued Pronouncements In May 2002, the FASB issued SFAS No. 145, "Reporting Gains and Losses from Extinguishment of Debt", which rescinded SFAS No. 4, No. 44 and No. 64 and amended SFAS No. 13. The new standard addresses the income statement classification of gains or losses from the extinguishments of debt and criteria for classification as extraordinary items. The adoption of this pronouncement did not have a material impact on the Company's results of operations or financial position. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (effective January 1, 2003). SFAS No. 146 replaces current accounting literature and requires the recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The adoption of this statement did not have any impact on our results of operations or financial position. In November of 2002, the FASB issued Interpretation No. 45, "Guarantors' Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." The Interpretation elaborates on the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This Interpretation does not prescribe a specific approach for subsequently measuring the guarantor's recognized liability over the term of the related guarantee. 4 The disclosure provisions of this Interpretation were effective for the Company's December 31, 2002 financial statements. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of this statement did not have any impact on our results of operations or financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure," which provides guidance on how to transition from the intrinsic method of accounting for stock-based employee compensation under APB No. 25 to SFAS No. 123 for the fair value method of accounting, if a company so elects. The Company does not plan to adopt the fair-value method of Accounting for stock based employee compensation. In January of 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. This Interpretation clarifies the application of existing accounting pronouncements to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of the Interpretation will be immediately effective for all variable interests in variable interest entities created after January 31, 2003, and we will need to apply its provisions to any existing variable interests in variable interest entities by no later than September 30, 2003. We do not believe that this Interpretation will have a significant impact on our financial statements. 2. SEGMENT INFORMATION The Company is engaged in the exploration and development of oil and gas, both in its own name and through several wholly-owned subsidiaries, on the North American continent. The Company also conducts real estate operations throughout the United States. Oil and Gas The Company conducts its oil and gas operations in the United States and Canada. Oil and gas operations in the United States are located in Arkansas, California, Kansas, Nebraska, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas and Wyoming. In Canada, the Company conducts oil and gas operations in the Provinces of Alberta, British Columbia and Saskatchewan. Real Estate The Company's real estate operations are conducted in the states of Arizona, Texas, Florida, Georgia and New Jersey. The Company's properties consist of apartment complexes as well as commercial and retail properties. Corporate The Company holds investments in certain marketable securities, which are classified as held for sale. From time to time, the Company buys and sells securities in the open market. Over the years, the Company has decreased its holding in marketable securities and focused its resources in the oil and gas and real estate divisions. 5 The following segment data is presented based on the Company's internal management reporting system-

FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------------ 2003 2002 (Unaudited) (Unaudited) ------------- --------------- Revenues Oil and gas - United States $ 1,253,000 $ 728,000 Oil and gas - Canada 1,260,000 520,000 Real estate 3,637,000 3,769,000 ------------- ------------- $ 6,150,000 $ 5,017,000 ------------- ------------- Income (loss) from operations and reconciliation to income before provision for income taxes Oil and gas - United States (a) $ 139,000 $ (413,000) Oil and gas - Canada (a) 555,000 317,000 Real estate (a) 452,000 1,100,000 Corporate (74,000) 2,000 ------------- ------------- Income from operations 1,072,000 1,006,000 Other income 1,632,000 781,000 Interest expense (1,627,000) (1,135,000) ------------- ------------- Income from operations before provision for income taxes $ 1,077,000 $ 652,000 ------------- ------------- Identifiable assets Oil and gas - United States $ 14,418,000 $ 14,110,000 Oil and gas - Canada 20,041,000 13,529,000 Real estate 59,482,000 58,671,000 Corporate 17,007,000 20,721,000 ------------- ------------- $ 110,948,000 $ 107,031,000 ------------- -------------

(a) Represents revenues less all operating costs, including depreciation, depletion and amortization. 6 3. COMPREHENSIVE INCOME Comprehensive income for the three months ended March 31, 2003 and 2002 is as follows:

2003 2002 (Unaudited) (Unaudited) ---------- ---------- Net income $1,122,000 $ 450,000 ---------- ---------- Other comprehensive income (loss), net of taxes Foreign currency translation adjustments 438,000 (242,000) Change in unrealized (loss) gain on marketable securities 196,000 216,000 ---------- ---------- Other comprehensive (loss) income 634,000 (26,000) ---------- ---------- Comprehensive income $1,756,000 $ 424,000 ========== ==========

Changes in the components of Accumulated Other Comprehensive Income (Loss) for the year 2002 and for the Three months ended March 31, 2003 are as follows-

Unrealized Gains Cumulative Accumulated (Losses) on Foreign Currency Other Available-for Sale Translation Comprehensive Securities Adjustment Income (Loss) -------------------- ----------------- ----------------- BALANCE, December 31, 2001 $ 1,095,000) $(3,830,000) $(2,735,000) Change for the year 2002 (442,000) 88,000 (354,000) ----------- ----------- ----------- BALANCE, December 31, 2002 653,000 (3,742,000) (3,089,000) Change for the three months 196,000 438,000 634,000 ----------- ----------- ----------- BALANCE, March 31, 2003 (unaudited) $ 849,000 $(3,304,000) $(2,455,000) =========== =========== ===========

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

Three Months Ended March 31 ----------------------------- 2003 2002 (Unaudited) (Unaudited) ---------- ----------- Numerator- Net income $1,122,000 $ 450,000 ========== ========== Denominator- Weighted average common shares outstanding - Basic 7,809,834 7,875,888 Incremental shares from assumed conversions of stock options 37,461 - ---------- ---------- Weighted average common shares outstanding - Diluted 7,847,295 7,875,888 ========== ========== Basic earnings per share $ 0.14 $ 0.06 Diluted earnings per share $ 0.14 $ 0.06

5 OTHER INCOME Other income for 2003 includes $1,000,000 received as the beneficiary of life insurance policies on the life of the Company's former Chairman and President who had been serving as its Senior Consultant up to his death on January 7, 2003. The receipt of these funds are nontaxable to the Company. 7 6. INTEREST EXPENSE Interest expense increased to $1,627,000 in 2003 from $1,135,000 in 2002. As of March 1, 2003 the Company was able to refinance and modify the majority of its mortgage notes payable reducing its overall effective interest rate from 7.36% to 6.22% and extending its maturity and terms. During the next ten years, the Company's interest expense related to its current debt should decrease approximately $600,000 annually. The current period's interest expense includes a one time prepayment penalty of $492,000 to secure the new financing arrangements. 7. COMMITMENTS AND CONTINGENCIES In June 1996 the Company's Board of Directors adopted the Stockholder Protection Rights Plan (the Rights Plan). The Rights Plan provides for issuance of one Right for each share of common stock outstanding as of July 6, 1996. The Rights are separable from and exercisable upon the occurrence of certain triggering events involving the acquisition of at least 15% (or, in the case of certain existing stockholders, 25%) of the Company's common stock by an individual or group, as defined in the Rights Plan (an Acquiring Person) and may be redeemed by the Board of Directors at a redemption price of $0.01 per Right at any time prior to the announcement by the Company that a person or group has become an Acquiring Person. On and after the tenth day following such triggering events, each Right would entitle the holder (other than the Acquiring Person) to purchase $50 in market value of the Company's Common Stock for $25. In addition, if there is a business combination between the Company and an Acquiring Person, or in certain other circumstances, each Right (if not previously exercised) would entitle the holder (other than the Acquiring Person) to purchase $50 in market value of the common stock of the Acquiring Person for $25. As of March 31, 2003 and 2002, 7,809,834 and 7,880,888, respectively, of Rights were outstanding. Each Right entitles the holder to purchase, for an exercise price of $25, one one-hundredth of a share of Series A Participating Preferred Stock. Each one one-hundredth share of Series A Participating Preferred Stock is designed to have economic terms similar to those of one share of common stock but will have one one-hundredth of a vote. Because the Rights are only exercisable under certain conditions, none of which were in effect as of March 31, 2003 and 2002, the outstanding Rights are not considered in the computation of basic and diluted earnings per share. The Company does not have significant lease commitments or post retirement benefits. 8. INCOME TAXES The Company received a benefit as a result of receiving $1,000,000 in life insurance proceeds in the first quarter of 2003 that is not taxable income. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net income for the three months ended March 31, 2003 was $1,122,000 compared to $450,000 for the same period in 2002. Income from operations increased to $1,072,000 in 2003 from $1,006,000 in 2002. The improvement in operating income is a result of an increase in the average price of gas and oil and gas production offset by a slight decrease in real estate revenue and an increase in real estate operating expenses and amortization expense mainly due to one-time charge resulting from our successful refinancing efforts. For the quarter ended March 31, oil and gas revenues increased from $1,248,000 in 2002 to $2,513,000 in 2003. This increase is attributable in part to an increase in the average prices received for oil and gas produced as well as a substantial increase in gas production. Average prices received for a barrel of oil increased to $29.72 for the quarter ended in 2003 as compared to $16.94 for the same period in 2002. Average prices received for gas increased to $4.07 per MCF in 2003 as compared to $1.88 per MCF in 2002. The balance of the increase in oil and gas revenue is attributable to the favorable production results from the Company's investment in late 2002 in Medicine Hat Field in Alberta Canada. The additional 211 development wells were operational for the full quarter and resulted in the Company's Canadian production increasing from 164,000 MCFs in 2002 to 272,000 MCFs in 2003. Oil and gas production expense increased in the first quarter of 2003 to $687,000 from $457,000 due to increased production. Depreciation, depletion and amortization also increased as a result of increased production to $645,000 in 2003 from $424,000 in 2002. General and administrative expenses increased in the first quarter of 2003 compared to 2002 from $461,000 to $561,000 due to higher legal, accounting, salary and liability insurance expenses. Real estate revenue declined slightly in the first quarter from $3,769,000 in 2002 to $3,637,000 in 2003. Real estate operating expenses increased to $2,286,000 in the first quarter of 2003 from $2,107,000 in 2002, mainly due to increases in heating costs attributed to more severe weather this year plus increases in property insurance and repairs and maintenance. Other income for 2003 includes $1,000,000 received as the beneficiary of life insurance policies on the life of the Company's former Chairman and President who had been serving as its Senior Consultant up to his death on January 7, 2003. The receipt of these funds are nontaxable to the Company. Interest expense increased to $1,627,000 in 2003 from $1,135,000 in 2002. As of March 1, 2003 the Company was able to refinance and modify the majority of its mortgage notes payable reducing its overall effective interest rate from 7.36% to 6.22% and extending its maturity and terms. During the next ten years, the Company's interest expense related to its current debt should decrease approximately $600,000 annually. The current period's interest expense includes a one time prepayment penalty of $492,000 to secure the new financing arrangements. 9 Liquidity and Capital Resources At March 31, 2003 the Company had approximately $9,696,000 in marketable securities at market value. The current ratio at March 31, 2003 was 1.3 to 1, which management considers adequate at this time. The Company's working capital was approximately $4,714,000 at March 31, 2003. On May 6, 2003 the Company announced that it plans to pursue the sale of its oil and gas business and to either reinvest the net proceeds in its ongoing real estate business or otherwise utilize in a manner designed to maximize shareholder value. As previously noted in the 2001 Annual Report letter To Our Shareholders, the Board of Directors will analyze and determine which of the numerous attractive alternatives will reap the greatest rewards for Wilshire shareholders. The decision the Company is now embarking on will help to determine in fact whether shareholder value is best served in Wilshire stock, stock of a potential acquirer or cash for Wilshire shareholders to invest elsewhere. In the meantime, the Company continues to explore real estate acquisitions as they arise. The timing of any such acquisition will depend on, among other things, economic conditions and the favorable evaluation of specific opportunities presented to the Company. The Company is negotiating the sale of certain real estate investment properties and intends to replace those properties during the year. However, while the Company anticipates that it will actively explore these and other real estate acquisition opportunities, no assurance can be given that any such acquisition will occur. Net cash provided by operating activities was $581,000 in 2003 and $550,000 in 2002. The change is mainly due to net income increasing $672,000 in 2003 providing cash offset by an increase in income tax receivable of $1,077,000 and prepaid expenses of $410,000. Depreciation, depletion and amortization provided cash of $1,544,000, deferred income taxes provided cash of $1,311,000, while accounts payable decreased by $997,000 reflecting a use of cash in the period. Net cash (used in) provided by investing activities was ($3,347,000) in 2003 and $1,637,000 in 2002. The variations principally relate to property and equipment additions in the Medicine Hat drilling program in Canada. The redemption of mortgage notes receivable and the sale of marketable securities in 2003 also provided cash in the first quarter of both periods. Net cash provided by (used in) financing activities was $705,000 in 2003 and $(3,885,000) in 2002. The variation principally relates to the issuance of long-term debt and the related costs associated with the overall refinancing during the first quarter of 2003. The Company believes it has adequate capital resources to fund operations for the foreseeable future. Capital resources are principally provided by net income, marketable securities, income taxes receivable and other assets of the Company. Critical Accounting Policies Wilshire's discussion and analysis of its financial condition and results of operations are based upon Wilshire's 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 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. 10 Oil and Gas Properties The Company follows the accounting policy, generally known in the oil and gas industry as "full cost accounting". Under full cost accounting, the Company capitalizes all costs, including interest costs, relating to the exploration for and development of its mineral resources. Under this method, all costs incurred in the United States and Canada are accumulated in separate cost centers and are amortized using the gross revenue method based on total future estimated recoverable oil and gas reserves. The determination of oil and gas reserves is a complex and interpretive process, which is subject to continued revisions as additional information becomes available. Reserve estimates prepared by different engineers from the same data can vary widely. Therefore, the reserve data used herein should not be construed as being exact. Any reserve estimate, especially when based upon volume-metric calculations, depends in part on the quality of available data, engineering and geologic interpretation and judgment, and thus, represents only an informed professional judgment. Subsequent reservoir performance may justify upward or downward revision of the estimate. Capitalized costs are subject to a "ceiling" test that limits such costs to the aggregate of the estimated present value, using a discount rate of 10% of the future net revenues of proved reserves and the lower of cost or fair value of unproved properties. Management is of the opinion that, based on reserve reports of petroleum engineers and geologists, the fair value of the estimated recoverable oil and gas reserves exceeds the unamortized cost of oil and gas properties at March 31, 2003 and 2002. Impairment of Property and Equipment In October 2001, the FASB issued Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This standard harmonizes the accounting for impaired assets and resolves some of the implementation issues as originally described in SFAS 121. SFAS 144, among other things, will require the Company to classify the operations and cash flow of properties to be disposed of as discontinued operations. The Company adopted this pronouncement on January 1, 2002. This adoption had no impact on the Company's results of operations or financial position. 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 March 31, 2003 and 2002 that the value of any of its rental properties is impaired. Revenue Recognition Revenue from oil and gas properties is recognized at the time these products are delivered to third party purchasers. Revenue from real estate properties is recognized during the period in which the premises are occupied and rent is due from tenant. Rental revenue is recognized on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in accounts receivable. An allowance for uncollectible accounts is maintained based on the Company's estimate of the inability of its joint interest partners in the oil and gas division and its tenants in the real estate division to make required payments. 11 Foreign Operations The assets and liabilities of the Company's Canadian subsidiary have been translated at year-end exchange rates. The related revenues and expenses have been translated at average annual exchange rates. The aggregate effect of translation losses are reflected as a component of accumulated other comprehensive income (loss) until the sale or liquidation of the underlying foreign investment. Unremitted earnings of the Canadian subsidiary are intended to be permanently invested in Canada and are subject to foreign taxes substantially equivalent to United States Federal income taxes. The unremitted earnings on which the Company has not been required to provide Federal income taxes amounted to approximately $8,576,000 and $8,187,000 at March 31, 2003, and December 31, 2002, respectively. Accounting for Stock-Based Compensation The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). 12 Forward-Looking Statements This Report on Form 10-Q for the quarter ended March 31, 2003 contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included herein other than statements of historical fact are forward-looking statements. Although the Company believes that the underlying assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. The Company's business and prospects are subject to a number of risks which could cause actual results to differ materially from those reflected in such forward-looking statements, including uncertainties inherent in any attempt to sell a portion of the business at an acceptable price, volatility of oil & gas prices, the need to develop and replace reserves, risks involved in exploration and drilling, uncertainties about estimates of reserves, environmental risks relating to the Company's oil & gas and real estate properties, competition, the substantial capital expenditures required to fund the Company's oil & gas and real estate operations, market and economic changes in areas where the Company holds real estate properties, interest rate fluctuations, government regulation, and the ability of the Company to implement its business strategy. Item 3 - Qualitative and Quantative Disclosure About Market Risk The Company has investments in domestic equity securities for which the Company has exposure to the risk of market loss. The Company is exposed to changes in interest rates from its floating rate debt arrangements. At March 31, 2003, the Company had $66,809,000 of debt outstanding of which $57,185,000 bears interest at fixed rates. The interest rate on the Company's revolving credit lines, under which $9,624,000 was outstanding at March 31, 2003, is at prime for US borrowings and prime plus .25% for its Canadian revolving demand loan. A hypothetical 100 basis point adverse move (increase) on short-term interest rates on the floating rate debt outstanding at March 31, 2003 would adversely affect the Company's annual interest cost by approximately $96,000 assuming borrowed amounts under the revolving credit lines remained at $9,624,000. SUMMARY OF INDEBTNESS Long-term debt as of March 31, 2003 and December 31, 2002 consists of the following - 2003 2002 (Unaudited) ------------ ------------ Mortgage notes payable $57,185,000 $55,236,000 Note payable 1,975,000 5,475,000 Revolving line of credit 3,600,000 4,100,000 Revolving demand loan 4,049,000 895,000 ----------- ----------- Total 66,809,000 65,706,000 Less-Current portion 10,311,000 7,314,000 ----------- ----------- Long term portion $56,498,000 $58,392,000 =========== =========== The aggregate maturities of the long-term debt in each of the five years subsequent to March 31, 2003 and thereafter are - 2003 $ 6,690,000 2004 5,841,000 2005 849,000 2006 903,000 2007 961,000 Thereafter 51,565,000 ----------- $66,809,000 =========== 13 Item 4- Controls and Procedures Within the 90 days prior to the date of this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation's management, including the Corporation's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14. Based upon that evaluation, the Corporation's Chief Executive Officer and Chief Financial Officer concluded that the Corporation's disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation's periodic SEC filings. There have been no significant changes in the Corporation's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 14 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K -------------------------------------------------- The Company has filed the following Form 8-K's for the quarter ended March 31, 2003. Date of Report (Date of Earliest Event) Filing Dates Subject ------------------------ ------------ ------- February 13, 2002 February 13, 2003 Item 5 - Beneficial Ownership of Estate of Siggi B. Wilzig March 31, 2003 April 1, 2003 Item 9 - 2002 Financial Results May 6, 2003 May 6, 2003 Item 9 - Plans to Pursue Sale of Oil and Gas Business 15 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 OIL COMPANY OF TEXAS ----------------------------------------- (Registrant) Date: May 14, 2003 /s/ S. Wilzig Izak ----------------- ----------------------------------------- By: S. Wilzig Izak Chairman of the Board and Chief Executive Officer /s/ Philip G. Kupperman ----------------------------------------- By: Philip G. Kupperman President and Chief Financial Officer I, S. Wilzig Izak, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Wilshire Oil Company of Texas; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ S. Wilzig Izak ----------------------- S. Wilzig Izak Chief Executive Officer I, Philip Kupperman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Wilshire Oil Company of Texas; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Philip G. Kupperman ----------------------- Philip Kupperman Chief Financial Officer