-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HviV6FiEsohm9ZrSJzX2Qxuj3zZfQXL6JxyB8ANreTFcF5DeKdVMK791B+W+b19/ YP4bIBuS0aoc5OMAf4SusA== 0000950110-99-000507.txt : 19990415 0000950110-99-000507.hdr.sgml : 19990415 ACCESSION NUMBER: 0000950110-99-000507 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILSHIRE OIL CO OF TEXAS CENTRAL INDEX KEY: 0000107454 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 840513668 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04673 FILM NUMBER: 99593334 BUSINESS ADDRESS: STREET 1: 921 BERGEN AVE CITY: JERSEY CITY STATE: NJ ZIP: 07306-4204 BUSINESS PHONE: 2014202796 MAIL ADDRESS: STREET 1: 921 BERGEN AVENUE STREET 2: 921 BERGEN AVENUE CITY: JERSEY CITY STATE: NJ ZIP: 07306 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM ____________ TO ___________ COMMISSION FILE NUMBER 1-4673 WILSHIRE OIL COMPANY OF TEXAS ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 84-0513668 - ------------------------------- -------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 921 BERGEN AVENUE JERSEY CITY, NEW JERSEY 07306 - --------------------------------------- ------------- (Address of principal executive offices) (Zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 420-2796 ----------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each exchange (Title of each class) on which registered -------------------- ----------------------- COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE - ------------------------------------------------------------------------ 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 AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ----- ----- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ] THE AGGREGATE MARKET VALUE OF THE SHARES OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $38,307,717 BASED UPON THE CLOSING SALE PRICE OF THE STOCK, WHICH WAS $4.38 ON MARCH 16, 1999. THE NUMBER OF SHARES OF THE REGISTRANT'S $1 PAR VALUE COMMON STOCK OUTSTANDING AS OF MARCH 16, 1999 WAS 8,993,096. DOCUMENTS INCORPORATED BY REFERENCE THE INFORMATION CALLED FOR BY PART III IS INCORPORATED BY REFERENCE TO THE DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS. ================================================================================ WILSHIRE OIL COMPANY OF TEXAS ANNUAL REPORT ON FORM 10-K DECEMBER 31, 1998 TABLE OF CONTENTS PART I PAGE ----- ITEM 1. BUSINESS .............................................. 1 ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT .................. 7 ITEM 2. PROPERTIES ............................................ 8 ITEM 3. LEGAL PROCEEDINGS ..................................... 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........................... 15 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS .................... 16 ITEM 6. SELECTED FINANCIAL DATA ............................... 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................. 20 ITEM 8. FINANCIAL STATEMENTS .................................. F-1 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ................ 29 PART III ITEM 10. DIRECTORS OF THE REGISTRANT ........................... 29 ITEM 11. EXECUTIVE COMPENSATION ................................ 29 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .............................. 29 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........ 29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ................................ 30 PART I ITEM 1. BUSINESS BACKGROUND Wilshire Oil Company of Texas (the "Company", "Registrant" or "Wilshire") was incorporated under the laws of the State of Delaware on December 7, 1951. The Company's principal executive offices are located at 921 Bergen Avenue, Jersey City, New Jersey 07306, (201) 420-2796. The Company is engaged in the exploration and development of oil and gas, both in its own name and through several wholly-owned subsidiaries in the United States and Canada. The Company's real estate division owns investment real estate properties in Arizona, Texas, Florida, Georgia and New Jersey. The Company also holds investments in certain marketable securities. This Report on Form 10-K for the year ended December 31, 1998 contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in such forward-looking statements. Certain factors which could materially affect such results and the future performance of the Company are described herein under Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations." FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS For financial segment information please see Note 8, "Segment Information" of the "Notes to Consolidated Financial Statements", presented elsewhere herein. The Company has no export sales or sales to affiliated customers. DESCRIPTION OF BUSINESS OIL AND GAS OPERATIONS For a glossary of oil and gas terms, see "Properties - Oil and Gas Properties - Glossary." The Company conducts its oil and gas operations on the North American continent. 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. As of March 16, 1999, 14 people are employed by the Company. Nine employees are directly engaged in the search for new oil and gas properties. In addition, the Company also has consultants. 1 Prospects for lease acquisitions are developed by staff geologists or acquired from various co-venturers and/or consultants. Once a property is acquired, the Company subcontracts for surveying and drilling operations. Many of the Company's present producing oil and gas properties are operated by independent contractors or under operating agreements with other companies pursuant to which the Company pays a proportionate share of operating expenses based upon its interests. The Company also acts as operator of various properties, charging joint venture partners for their proportionate share of expenses. The Company does not engage in the refining of crude oil or the distribution of petroleum products. Crude oil and natural gas productions are sold to oil refineries and natural gas pipeline companies. The Company participated in the drilling of 38 wells (8.1 net) in 1998 compared to 28 (5.40 net) in 1997. The United States program in 1998 consisted of the drilling of 8 development wells (2.1 net). Two (.5 net) of these wells were successfully completed as oil wells and 4 (.1 net) were successfully completed as gas wells. The Canadian drilling program in 1998 consisted of the drilling of 30 development wells (6.0 net), with all of these wells successfully completed as gas wells. Overall, the Company's drilling program had a success ratio of 94%. The Company's crude oil and condensate production is sold at posted field prices, primarily to major crude oil and condensate purchasers. For average posted field prices, for both oil and gas, see "Properties - Oil and Gas Properties - Production." The Company has no one purchaser that purchased in excess of 10% of its 1998 consolidated oil and gas revenues. The loss of any one customer in the domestic hydrocarbon market is not considered material. The Company is not dependent on any patent, trademark or license. The Company's oil and gas business is subject to all of the operating risks normally associated with the exploration for and production of oil and gas. In accordance with customary industry practices, the Company maintains insurance coverage limiting financial loss resulting from certain of these operating hazards. 2 COMPETITION The oil and gas industry is intensely competitive and competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual customers. The principal method of competition in the production of oil and gas is the successful location and acquisition of properties which produce commercially profitable quantities of oil and gas. The Company competes with many other companies in the search for and acquisition of oil and gas properties and leases for exploration and development. Many of these companies have substantially greater financial, technical and other resources than the Company. Competition among petroleum companies for favorable oil and gas prospects can be expected to continue. The Company is not a significant factor in the oil and gas industry. The principal raw materials and resources necessary for the exploration for, and the acquisition, development, production and sale of, crude oil and natural gas are leasehold or freehold prospects under which oil and gas reserves may be discovered, drilling rigs and related equipment to explore for and develop such reserves, casing and other capital assets required for the development and production of the reserves and knowledgeable personnel to conduct all phases of oil and gas operations. The Company must compete for such raw materials and resources with both major oil companies and independent operators and also with other industries for certain personnel and materials. Although the Company believes its current inventories of raw materials and resources are adequate to preclude any significant disruption of operations in the immediate future, the continued availability of such materials and resources to the Company cannot be assured. SEASONALITY The oil business is generally not seasonal in nature. Gas demand and prices paid for gas have become seasonal, showing a decrease during the summer and fall. 3 ENVIRONMENTAL MATTERS The petroleum industry is subject to numerous federal, state and provincial environmental statutes, regulations and other pollution controls in both the United States and Canada. In general, the Company is and will continue to be subject to present and future environmental statutes and regulations. The Company's expenses relating to preserving the environment during 1998 were not significant in relation to operating costs and the Company expects no material changes in 1999. Environmental regulations have had no materially adverse effect on the Company's petroleum operations to date, but no assurance can be given that environmental regulations will not, in the future, result in a curtailment of production or otherwise have materially adverse effects on the Company's operations or financial condition. REGULATION - UNITED STATES OPERATIONS The Company's operations are affected from time to time, in varying degrees, by political developments, laws and regulations. In particular, oil and gas production operations are affected by changes in taxes and other laws relating to the petroleum industry and by constantly changing administrative regulations. The long-term effects of all the federal enactments and programs, whether beneficial or detrimental to the future operations and income of the Company, cannot be predicted at this time. Rates of production of oil and gas have for many years been subject to conservation laws and regulations. State regulatory agencies set allowable rates of production and limit the number of days a month a well can produce. The petroleum industry has also been subject to tax laws dealing specifically with it, such as the Crude Oil Windfall Profit Tax Act. In addition, oil and gas operations are subject to extensive regulation or termination by government authorities on account of ecological and other considerations. All of the jurisdictions in which the Company operates have statutes and administrative regulations governing the drilling and production of oil and gas. REGULATION - CANADIAN OPERATIONS The Company's Canadian subsidiary, Wilshire Oil of Canada, Ltd., operates primarily in the Province of Alberta, with some activity in the Province of British Columbia and Saskatchewan. The petroleum and natural gas industry operates under federal and provincial legislation and regulations which govern land tenure, royalties, production rates, environmental protection, exports and other matters. Federal legislation monitors the price of oil and gas in export trade and the quantities of such products exportable from Canada. Provincial legislation has been enacted for the purpose of regulating operations in the Provinces. 4 OIL PRICES Oil prices actually being paid by purchasers in the United States are publicly announced throughout the country and vary depending on locality and qualitative specifications of the crude oil. All prices are subject to future modification by appropriate agency action. INVESTMENT IN MARKETABLE SECURITIES The Company holds investments in certain marketable securities. From time to time, the Company buys and sells securities in the open market. The Company over the years has decreased its holdings in marketable securities and focused its resources in the oil & gas and real estate divisions. Holdings of marketable securities, at market value, amounted to $5,162,000 at December 31, 1998 and $17,947,000 at December 31, 1997. The Company realized gains from the sales of marketable securities of $4,932,000 in 1998, $9,595,000 in 1997, and $8,462,000 in 1996. 5 REAL ESTATE OPERATIONS The Company's real estate operations are conducted, both in its own name and through several wholly owned subsidiaries, in the states of Arizona, Texas, Florida, Georgia and New Jersey. They are not seasonal in nature. The Company's Arizona properties include the following: |X| 378 unit garden apartment complex |X| 340 unit garden apartment complex |X| 70 unit midrise apartment building |X| 53,000 sq. ft. multi-tenant two story office building |X| 65,000 sq. ft. retail/medical use complex The Texas property is a 228 unit apartment complex. The Company's operations in Florida consists of two office buildings having a combined area of 28,000 square feet and apartment properties having 62 units. The Georgia property is a 72 unit apartment complex. The Company's properties in New Jersey consists of apartment properties having 482 units. In addition, the Company holds various commercial/retail properties, including a 75,000 sq. ft. office building. The Company utilizes property management companies to assist in the management of its properties. Expenses incurred in operating the properties include, among other things, administrative costs, utilities, repairs and maintenance and property taxes. During the twelve months ended December 31, 1998, the Company acquired five real estate properties, four of which were acquired from The Trust Company of New Jersey ("TCNJ") at an aggregate purchase price of approximately $5.6 million. These transactions were financed by first-mortgage loans from TCNJ. The Company will explore other 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 currently planning further acquisitions of investment properties during the next several months. Accordingly, 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. The real estate industry is intensely competitive in nature. The Company competes with many other real estate operators and is not a significant factor in the market it operates in. 6 The Company's real estate operations are subject to existing federal and state laws regarding environmental quality and pollution control. Environmental regulations had no materially adverse effect on the Company's real estate operations during 1998, but no assurance can be given that environmental regulations will not, in the future, have a materially adverse effect on the Company's operations. 7 ITEM 1a - EXECUTIVE OFFICERS OF THE REGISTRANT The table below sets forth the names and ages of all executive officers of the Registrant and the position(s) and offices with the Registrant presently held by each and the periods during which each has served in such position(s) and offices. There are no "family relationships" as defined in Item 401(d) of Regulation S-K between any of these persons and any other executive officer or director of the Company. All executive officers have been elected or appointed to hold office until their respective successors have been elected or appointed and qualified or until their earlier resignation or removal. Executive Officers of Registrant Name Age Position with Registrant - ----- --- ------------------------ S. Wilzig Izak (a) 40 Chairman of the Board and Chief Executive Officer - ---------- a) Ms. Izak was appointed Chairman of the Board on September 20, 1990. She served as Executive Vice President of the Company from August 10, 1987 through September 20, 1990. 8 ITEM 2. PROPERTIES Offices The executive and administrative office of the Company consists of approximately 2,000 square feet, located at 921 Bergen Avenue, Jersey City, New Jersey. This office is leased at a monthly rental of $2,683. The Company maintains its principal office for the United States oil and gas operations in Oklahoma City, Oklahoma, leasing 3,618 square feet, at a monthly cost of $2,111. The Company also owns a storage yard of approximately five acres, situated near Will Rogers Airport in Oklahoma City. The Company's Canadian subsidiary maintains an exploration office in Calgary, Alberta, Canada. The Company leases 1,583 square feet at a monthly rental of $2,537 Canadian. OIL AND GAS PROPERTIES GLOSSARY The terms defined in this section are used throughout this report. BBL. One stock tank barrel, or 42 U.S. gallons liquid volume, usually used herein in reference to crude oil or other liquid hydrocarbons. BOE. Equivalent barrels of oil in reference to natural gas. Natural gas equivalents are determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids. DEVELOPED ACREAGE. The number of acres which are allocated or assignable to producing wells or wells capable of production. DEVELOPMENT WELL. A well drilled as an additional well to the same reservoir as other producing wells on a lease, or drilled on an offset Lease not more than one location away from a well producing from the same reservoir. EXPLORATORY WELL. A well drilled in search of a new undiscovered pool of oil or gas, or to extend the known limits of a field under development. GROSS ACRES OR WELLS. The total acres or wells, as the case may be, in which an entity has an interest, either directly or through an affiliate. LEASE. Full or partial interests in an oil and gas lease, oil and gas mineral rights, fee rights or other rights, authorizing the owner thereof to drill for, reduce to possession and produce oil and gas upon payment of rentals, bonuses and/or royalties. Oil and gas leases are generally acquired from private landowners and federal, provincial and state governments. 9 MCF. One thousand cubic feet. Expressed, where gas sales contracts are in effect, in terms of contractual temperature and pressure bases and, where contracts are nonexistent, at 60 degrees Fahrenheit and 14.65 pounds per square inch absolute. MMCF. One million cubic feet. Expressed, where gas sales contracts are in effect, in terms of contractual temperature and pressure bases and, where contracts are nonexistent, at 60 degrees Fahrenheit and 14.65 pounds per square inch absolute. NET ACRES OR WELLS. A party's interest in acres or a well calculated by multiplying the number of gross acres or gross wells in which such party has an interest by the fractional interest of such party in such acres or wells. PRODUCTION COSTS. The expenses of producing oil or gas from a formation, consisting of the costs incurred to operate and maintain wells and related equipment and facilities, including labor costs, repair and maintenance, supplies, insurance, production, severance and other production excise taxes. PRODUCING PROPERTY. A property (or interest therein) producing oil and gas in commercial quantities or that is shut-in but capable of producing oil and gas in commercial quantities, to which Producing Reserves have been assigned by an independent petroleum engineer. Interests in a property may include working interests, production payments, royalty interests and other nonworking interests. PRODUCING RESERVES. Proved Developed reserves expected to be produced from existing completion intervals open for production in existing wells. PROSPECT. An area in which a party owns or intends to acquire one or more oil and gas interests, which is geographically defined on the basis of geological data and which is reasonably anticipated to contain at least one reservoir of oil, gas or other hydrocarbons. PROVED DEVELOPED RESERVES. Proved Reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. PROVED RESERVES. The estimated quantities of crude oil, natural gas and other hydrocarbons which, based upon geological and engineering data, are expected to be produced from known oil and gas reservoirs under existing economic and operating conditions, and the estimated present value thereof based upon the prices and costs on the date that the estimate is made and any price changes provided for by existing conditions. PROVED UNDEVELOPED RESERVES. Proved Reserves which can be expected to be recovered from new wells on undeveloped acreage or from existing wells where a relatively major expenditure is required for recompletion. 10 UNDEVELOPED ACRES. Oil and gas acreage (including, in applicable instances, rights in one or more horizons which may be penetrated by existing well bores, but which have not been tested) to which proved reserves have not been assigned by independent petroleum engineers. WORKING INTEREST. The operating interest under a lease which gives the owner the rights to drill, produce and conduct operating activities on the property ;and a share of production, subject to all royalty interests and other burdens and to all costs of exploration, development and operations and all risks in connection therewith. * * * Following are certain tables and other statistical data concerning the Company's reserves, production, acreage and other information with regard to the Company's oil and gas properties and operations. For information regarding costs incurred in 1998, please refer to the "Segment Information" in Note 8 of the Notes to Consolidated Financial Statements, presented elsewhere herein. For information regarding capitalized costs relating to oil and gas producing activities, please refer to Note 9 of the Notes to Consolidated Financial Statements, presented elsewhere herein. Future revenues, net of development and production expenditures (Net Revenues), from estimated production of proved and proved developed reserves, based on existing economic conditions for each of the next three succeeding years, are estimated as follows: United States Canada (000's Omitted) (000's Omitted) -------------------------------------------------- Proved Proved Proved Proved Reserves Developed Reserves Reserves Developed Reserves -------- ------------------ -------- ------------------ 1999 $ 2,719 $ 1,533 $ 2,350 $ 2,565 2000 2,182 1,230 3,425 3,409 2001 1,799 1,015 4,110 3,429 Remainder $10,184 $ 5,681 $55,934 $51,227 11 RESERVES The quantities of natural gas and crude oil Proved and Proved Developed Reserves presented herein include only those amounts which the Company reasonably expects to recover in the future from known oil and gas reservoirs under existing economic and operating conditions. Therefore, Proved and Proved Developed Reserves are limited to those quantities which are recoverable commercially at current prices and costs, under existing technology. Accordingly, any changes in the future oil and gas prices, operating and development costs, regulations, technology and other factors could significantly increase or decrease estimates of Proved and Proved Developed Reserves. The Company's net Proved and Proved Developed Reserves of oil and gas and the present values thereof at December 31, 1996 and 1997 and 1998 were estimated by the independent professional engineering consultants referred to on page 28. Such estimates were utilized in the preparation of the Company's consolidated financial statements for the applicable fiscal years and for reporting purposes. Set forth below are estimates of the Company's Proved and Proved Developed Reserves and the present value of estimated future net revenues from such reserves based upon the standardized measure of discounted future net cash flows relating to proved oil and gas reserves in accordance with the provisions of Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing Activities" (SFAS No. 69). The standardized measure of discounted future net cash flows is determined by using estimated quantities of Proved Reserves and the periods in which they are expected to be developed and produced based on period-end economic conditions. The estimated future production is priced at period-end prices, except where fixed and determinable price escalations are provided by contract. The resulting estimated future cash inflows are reduced further by estimated future costs to develop and produce reserves based on period-end cost levels. No deduction has been made for depletion, depreciation or income taxes or for indirect costs, such as general corporate overhead. Present values were computed by discounting future net revenues by 10 percent per annum. 12 The following table sets forth summary information with respect to the estimates of the Company's Proved and Proved Developed Reserves at December 31 of the years indicated: United States Canada -------------------- ------------------------ Proved Proved Proved Developed Proved Developed -------- --------- ------- ------------ (000's Omitted) (000's Omitted) 1998 Oil (Bbls) 1,412 430 1,153 755 Gas (Mcf) 6,315 6,315 39,029 32,799 Net present value @ 10% $10,516 $ 5,891 $28,300 $23,111 1997 Oil (Bbls) 1,405 423 1,194 834 Gas (Mcf) 6,731 6,731 33,629 31,387 Net present value @ 10% $17,921 $ 8,515 $24,119 $20,341 1996 Oil (Bbls) 1,545 607 1,201 867 Gas (Mcf) 6,798 6,798 26,000 25,364 Net present value @ 10% $24,001 $14,660 $22,194 $18,461 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 presented herein should not be construed as being exact. Any reserve estimate, especially when based upon volummetric calculations, depends in part on the quality of available data, engineering and geologic interpretation and judgement, and thus, represents only an informed professional judgement. Subsequent reservoir performance may justify upward or downward revision of the estimate. No Proved or Proved Developed Reserve estimates for oil and gas were filed with or included in reports to any other federal or foreign governmental authority or agency since the beginning of fiscal 1998, other than with the Securities and Exchange Commission. PRODUCTION WELLS The following tabulations indicate the number of productive wells (gross and net) as of December 31, 1998: Gas Oil Developed Acreage ----------------- -------------- ----------------- Gross Net Gross Net Gross Net --------- ----- ------ ----- ------ ------ United States 563 68.7 235 71.8 50,048 20,446 Canada 235 56.9 90 10.2 164,820 20,460 13 PRODUCTION The following table shows the Company's net production in barrels ("Bbls") of crude oil and in thousands of cubic feet ("Mcf") of natural gas (computed after deducting all outstanding interests, including basic royalties and overriding royalties) for the past three years (note - all $ dollar amounts presented are in U.S. dollars). Oil and Condensate (Bbls) Gas (Mcf) ----------------------------- -------------------------- United States Canada United States Canada ------------- ------- -------------- --------- 1998 88,000 53,000 1,039,000 1,021,000 1997 101,000 60,000 1,047,000 813,000 1996 121,000 44,000 857,000 726,000 Average sales price per unit of oil or gas produced: Oil Gas ----------------------- -------------------------- U.S. Canada U.S. Canada ------- -------- --------- ----------- 1998 $12.35 $10.27 $1.78 $1.23 1997 $19.10 $14.65 $2.01 $1.39 1996 $20.01 $17.98 $1.92 $1.22 Production as shown in the table, which is net after royalty interests due others, is determined by multiplying the gross production volume of properties in which the Company has an interest by the percentage of the leasehold or other property interest owned by the Company. The relative energy content of oil and gas (six Mcf of gas equals one barrel of oil) was used to obtain a conversion factor to convert natural gas production into equivalent barrels of oils. There are no agreements with foreign governments. Average Production Cost Per Equivalent Barrel of Oil in the United States and Canada: - ---------------------------------------------- 1998 1997 1996 ---- ---- ---- United States $6.34 $6.32 $6.78 Canada $2.87 $2.78 $2.54 Unit cost is computed on equivalent barrels of oil equating gas to oil based on BTU content. This method is appropriate for the Registrant since several properties produce both oil and gas and production costs are not segregated. 14 The components of production costs may vary substantially among wells depending on the methods of recovery employed and other factors, but generally include severance taxes, administrative overhead, maintenance and repair, labor and utilities. OIL AND GAS LEASES The following tabulation indicates the undeveloped acreage leased by the Registrant as of December 31 of the years indicated: 1998 1997 ---- ---- Undeveloped Acres Undeveloped Acres --------------------- --------------------- Gross Net Gross Net ------- ------ -------- -------- United States 23,804 8,622 10,530 4,598 Canada 21,128 3,592 21,128 3,592 A "gross" acre is an acre in which the Company owns a working interest. A "net" acre is deemed to exist when the sum of the fractional working interests owned by the Company in gross acres equals one. DRILLING The following table sets forth the results of the Registrant's drilling programs for the years covered: Exploratory Wells Development Wells -------------------------------- ------------------------------------ Net Productive Net Dry Net Productive Net Dry -------------- --------------- ------------------ ----------------- U.S. Canada U.S. Canada U.S. Canada U.S. Canada --- -------- ----- -------- ------- -------- ------ -------- 1998- -- -- -- -- .6 6.0 1.5 -- 1997- -- -- .1 -- .4 4.9 -- -- 1996- -- -- -- -- .9 -- .1 -- 1995- -- -- -- .3 1.0 -- -- -- 1994- -- .7 -- .2 1.4 .4 -- -- A dry hole is an exploratory or development well which is found to be incapable of producing oil or gas in sufficient quantities to justify completion. A productive well is an exploratory or development well that is capable of commercial production. The number of wells drilled refers to the number of wells completed during the fiscal year, regardless of when drilling was initiated. 15 REAL ESTATE PROPERTIES The following table sets forth the location and general character of the principal physical properties owned by the Company as part of its real estate operations. Most of the properties are subject to mortgages. For further information with respect to these properties, see "Business - Real Estate Operations." Location General Character -------- ----------------- Arizona 378 Unit Apartment Complex Arizona 340 Unit Apartment Complex Arizona 70 Unit Apartment Building Arizona Office Building Arizona Retail/Medical use Complex Texas 228 Unit Apartment Complex Florida Office Building Florida Apartment Properties (62 units) Georgia 72 Unit Apartment Complex New Jersey Apartment Properties (482 units), including a 132 unit apartment complex New Jersey Commercial/Retail Properties, including a 75,000 sq. ft. office building The Company considers all of its properties both owned and leased, together with the related furniture, fixtures and equipment contained therein, to be well maintained, in good operating condition, and adequate for its present and foreseeable future needs. ITEM 3. LEGAL PROCEEDINGS At December 31, 1998, the Company was not a party to any actions or proceedings which management believes are reasonably likely to have a material adverse effect upon the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted by the Company to a vote of its security holders during the fourth quarter of the year ended December 31, 1998. 16 PART II ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York Stock Exchange. The following table indicates the high and low sales prices of the Company's common stock for the quarters indicated during the past two years: (All in ($) Dollars) Quarter 1 Quarter 2 Quarter 3 Quarter 4 ------------------ ------------------- --------------- ---------------- High - Low High - Low High - Low High - Low ------------------ ------------------- --------------- ---------------- 1998 6 - 5-7/16 6-1/8 - 5-3/4 6-5/16 - 5 5-3/8 - 4-1/16 1997 6-1/8 - 5-1/4 5-5/8 - 5-1/8 7-1/16 - 5-1/4 7-1/16 - 5-1/4 As of March 15, 1999 there were 8,716 common shareholders of record. The Company declared a 3% stock dividend on December 22, 1997. This stock dividend had a record date of January 16, 1998 and was paid on February 20, 1998. The Company declared a $.10 per common share cash dividend on June 21, 1996, payable semi-annually. The first payment of $.05 to shareholders of record on August 21, 1996 was paid on September 20, 1996. The second payment of $.05 had a record date of April 2, 1997 and was paid April 23, 1997. 17 ITEM 6. SELECTED FINANCIAL DATA (Not covered by Report of Independent Public Accountants) (In thousands of dollars except per share amounts) For the Year Ended December 31 ----------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Oil/Gas Revenues $ 4,759 $ 5,917 $ 5,720 $ 5,672 $ 7,926 -------- -------- -------- -------- Real Estate Revenues $ 11,546 $ 9,730 $ 9,296 $ 8,600 $ 7,885 -------- -------- -------- -------- -------- Total Revenues $ 16,305 $ 15,647 $ 15,016 $ 14,272 $ 15,811 -------- -------- -------- -------- -------- Gross Profit Oil/Gas(a) $ (927) $ 1,316 $ 1,575 $ 747 $ 1,930 -------- -------- -------- -------- -------- Gross Profit Real Estate(b) $ 2,684 $ 2,420 $ 2,600 $ 2,712 $ 2,415 -------- -------- -------- -------- -------- Total Gross Profit $ 1,757 $ 3,736 $ 4,175 $ 3,459 $ 4,345 -------- -------- -------- -------- -------- Net Income $ 1,007 $ 5,536 $ 4,709 $ 4,300 $ 3,577 -------- -------- -------- -------- -------- Net income per share of common stock(c) $ .11 $ .58 $ .49 $ .44 $ .35 -------- -------- -------- -------- -------- Total assets at year-end $ 94,601 $102,029 $ 98,378 $104,186 $103,198 -------- -------- -------- -------- -------- Long-term obligations $ 47,764 $ 51,587 $ 46,299 $ 47,298 $ 50,160 -------- -------- -------- -------- -------- Cash dividends per share $ .00 $ .00 $ .10 $ .07 $ .06 -------- -------- -------- -------- -------- - ------------- (a) Gross profit relating to oil and gas represents oil and gas revenues less production costs and related depreciation, depletion and amortization. (b) Gross profit relating to real estate represents total real estate revenues less real estate operating costs and related depreciation. (c) Restated to give effect to stock dividends. 18 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES QUARTERLY FINANCIAL DATA (Unaudited) (In thousands $ except per share amounts) 1998 -------------------------------------------- 1st 2nd 3rd 4th Year ------ ------ ------- ------- ------- Oil/Gas Revenues $1,326 $1,207 $1,275 $ 951 $ 4,759 Real Estate Revenues $2,727 $2,895 $3,003 $2,921 $11,546 ------ ------- ------ ------ ------- Total Revenues $4,053 $4,102 $4,278 $3,872 $16,305 ------ ------- ------ ------ ------- Gross Profit Oil/Gas(a) $ 233 $ (106) $ (88) $ (966) $ (927) Gross Profit Real Estate(b) $ 768 $ 702 $ 893 $ 321 $ 2,684 ------ ------ ------ ------ ------- Total Gross Profit $1,001 $ 596 $ 805 (645) $ 1,757 ------ ------ ------ ------ ------- Net Income $ 780 $1,064 $ 163 (1,000) $ 1,007 ------ ------ ------ ------ ------- Net Income Per Share $ .08 $ .11 $ .02 (.10) $ .11 ------ ------ ------ ------ ------- Cash Dividends Per Share $ -0- $ -0- $ -0- $ -0- $ -0 ------ ------ ------ ------ ------- 19 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES QUARTERLY FINANCIAL DATA (Unaudited) (In thousands $ except per share amounts) 1997 ------------------------------------------------ 1st 2nd 3rd 4th Year ------- ------- ------- ------- ------- Oil/Gas Revenues $ 1,420 $ 1,422 $ 1,552 $ 1,523 $ 5,917 Real Estate Revenues $ 2,341 $ 2,450 $ 2,460 $ 2,479 $ 9,730 ------- ------- ------- ------- ------- Total Revenues $ 3,761 $ 3,872 $ 4,012 $ 4,002 $15,647 ------- ------- ------- ------- ------- Gross Profit Oil/Gas(a) $ 347 $ (98) $ 389 $ 678 $ 1,316 Gross Profit Real Estate(b) $ 664 $ 696 $ 652 $ 408 $ 2,420 ------- ------- ------- ------- ------- Total Gross Profit $ 1,011 $ 598 $ 1,041 $ 1,086 $ 3,736 ------- ------- ------- ------- ------- Net Income $ 1,716 $ 1,766 $ 1,261 $ 793 $ 5,536 ------- ------- ------- ------- ------- Net Income Per Share(c) $ .18 $ .19 $ .13 $ .08 $ .58 ------- ------- ------- ------- ------- Cash Dividends Per Share $ -0- $ -0- $ -0- $ -0- $ -0- ------- ------- ------- ------- ------- - ---------- (a) Gross profit relating to oil and gas represents oil and gas revenues less production costs and related depreciation, depletion and amortization. (b) Gross profit relating to real estate represents total real estate revenues less real estate operating costs and related depreciation. (c) Restated to give effect to Stock dividends. 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. From time to time, the Company buys and sells securities in the open market. Over the years, the Company has decreased its holdings in marketable securities and focused its resources in its oil & gas and real estate divisions. GENERAL - OIL AND GAS The Company's oil and gas operating performance is influenced by several factors. The most significant are the prices received for the sale of oil and gas and the sales volume. For 1998, the average price of oil that the Company received was $11.57 compared to $17.42 for 1997, a price decrease of 34%. Average gas prices received by the Company in 1998 were 13% lower than 1997 average gas prices. The average price of gas for 1998 was $1.51 compared to $1.74 for 1997. 21 The following table reflects the average prices received by the Company for oil and gas, the average production cost per BOE, and the amount of the Company's oil and gas production for the fiscal years presented: Fiscal Year Ended December 31 ------------------------------------------ 1998 1997 1996 Crude Oil and Natural ---- ----- ---- Gas Production: Oil (Bbls) 141,000 161,000 165,000 Gas (Mcf) 2,060,000 1,860,000 1,583,000 Average sales prices: Oil (per Bbl) $11.57 $17.42 $19.47 Gas(per MCF) $ 1.51 1.74 $ 1.60 Average production costs per BOE $ 4.75 $ 4.85 $ 5.15 Sales prices received by the Company for oil and gas have fluctuated significantly from period to period. The fluctuations in oil prices during these periods primarily reflected market uncertainty regarding the inability of the Organization of Petroleum Exporting Countries ("OPEC") to control the production of its member countries, as well as concerns related to global supply and demand for crude oil. Gas prices received by the Company fluctuate generally with changes in the spot market price for gas. It is impossible to predict future price movements with certainty. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 ("1998") COMPARED WITH YEAR ENDED DECEMBER 31, 1997("1997") Net income for the year ended December 31 was $1,007,000 in 1998 as compared to $5,536,000 in 1997. Oil and gas revenues decreased from $5,917,000 in 1997 to $4,759,000 in 1998. This decrease was attributable to sharp declines in the price of crude oil in 1998. Average crude oil prices in 1998 were approximately 34% lower in 1998 than 1997. Real estate revenues increased from $9,730,000 in 1997 to $11,546,000 in 1998. This increase was principally due to higher rents and the operations of the properties acquired in 1998 and during the fourth quarter of 1997. Oil and gas production expense was comparable in 1998 and 1997. Oil and gas production expense amounted to $2,297,000 in 1998 and $2,274,000 in 1997. Depreciation, depletion and amortization of oil and gas assets amounted to $2,367,000 in 1998 compared to $2,327,000 in 1997. Also , the Company additionally provided a depreciation, depletion and amortization ceiling charge of $1,022,000 in 1998 to reflect the substantial declines in the price of crude oil. Real estate depreciation was $1,729,000 in 1998 compared to $1,404,000 in 1997. 22 General and administrative expense was comparable in 1998 and 1997. General and administrative expense amounted to $1,601,000 in 1998 compared to $1,646,000 in 1997. The Company realized approximately $4.7 million less in securities gains in 1998 than in 1997. The Company realized gains on sales of marketable securities of $4,932,000 in 1998 compared to $9,595,000 in 1997. Interest expense increased from $3,331,000 in 1997 to $3,937,000 in 1998. This increase is attributable to new first-mortgage indebteness on the Company's recent real estate acquisitions. The provision for income taxes includes Federal, state and Canadian taxes. Differences between the effective tax rate and the statutory income tax rates are due to foreign resource tax credits in Canada, additional provision to cover the settlement of a tax examination, and the dividend exclusion in the United States. 23 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 ("1997") COMPARED WITH YEAR ENDED DECEMBER 31, 1996 ("1996") Net income for the year ended December 31 increased from $4,709,000 in 1996 to $5,536,000 in 1997, an increase of 18%. Oil and gas revenues increased from $5,720,000 in 1996 to $5,917,000 in 1997. This increase is attributable to production from the Company's active drilling program for natural gas. Real estate revenues increased from $9,296,000 in 1996 to $9,730,000 in 1997. This increase was principally due to higher rents and the operations of the properties acquired in 1997. Oil and gas production expense was comparable in 1997 and 1996. Oil and gas production expense amounted to $2,274,000 in 1997 and $2,209,000 in 1996. Depreciation, depletion and amortization of oil and gas assets amounted to $2,327,000 in 1997 compared to $1,936,000 in 1996. This increase is principally attributable to a decrease in the estimated value of the Company's domestic oil & gas pool in 1997 compared to 1996. Real estate depreciation was $1,404,000 in 1997 compared to $1,157,000 in 1996. General and administrative expense amounted to $1,646,000 in 1997 compared to $1,447,000 in 1996. This increase is principally attributable to amounts related to the Company's non-qualified stock option plan. The Company realized gains on sales of marketable securities of $9,595,000 in 1997 compared to $8,462,000 in 1996. Interest expense decreased from $3,939,000 in 1996 to $3,331,000 in 1997. This decrease is attributable to a reduction in long-term debt during 1997 and lower interest rates during 1997. The provision for income taxes includes Federal, state, and Canadian taxes. Differences between the effective tax rate and the statutory income tax rates are due to foreign resource tax credits in Canada and the dividend exclusion in the United States. 24 EFFECTS OF INFLATION The effects of inflation on the Company's financial condition are not considered to be material by management. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board recently issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." Both SFAS No. 130 and SFAS No. 131 have been adopted in the Company's 1998 financial statements. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1998 the Company had approximately $5.0 million in marketable securities at cost, with a market value of approximately $5.2 million. The current ratio at December 31, 1998 was 1.5 to 1 on a market basis, which management considers adequate for the Company's current business. The Company's working capital was approximately $5 million at December 31, 1998. The Company anticipates that cash provided by operating activities and investing activities will be sufficient to meet its capital requirements to acquire oil and gas properties and to drill and evaluate these and other oil and gas properties presently held by the Company. The level of oil and gas capital expenditures will vary in future periods depending on market conditions, including the price of oil and the demand for natural gas, and other related factors. As the Company has no material long-term commitments with respect to its oil and gas capital expenditure plans, the Company has a significant degree of flexibility to adjust the level of its expenditures as circumstances warrant. The Company plans to actively continue its exploration and production activities as well as search for the acquisition of oil and gas producing properties and of companies with desirable oil and gas producing properties. There can be no assurance that the Company will in fact locate any such acquisitions. During the year ended December 31, 1998, the Company acquired five real estate properties, four of which were acquired from The Trust Company of New Jersey ("TCNJ") at an aggregate purchase price of approximately $5.6 million. These transactions were financed with first-mortgage loans from TCNJ. The Company will explore other 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 currently planning further acquisitions of investment properties during the next year. Accordingly, 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. 25 During the year ended December 31, 1998, the Company refinanced with Criimi Mae and Citicorp the original 1992 mortgage loans on the Company's Arizona apartment building and Texas apartment complex. These funds were borrowed on a long-term basis at favorable rates. The proceeds of these loans were used to pay off the higher-rate original first-mortgage loans and for investment and working capital purposes. Net cash provided by (used in) operating activities was $(3,549,000), $(268,000), and $(486,000) in 1998, 1997 and 1996, respectively. The variations in the three years principally relate to changes in accounts receivable and accounts payable and accrued liabilities. Net cash provided by (used in) investing activities was $4,690,000, $133,000 and $3,456,000 in 1998, 1997 and 1996, respectively. The variations principally relate to purchases of real estate properties and transactions in securities. Purchases of real estate properties amounted to $5,700,000 in 1998, $9,300,000 in 1997 and $3,000,000 1996. Proceeds from sales and redemptions of securities amounted to $18,186,000 in 1998, $15,078,000 in 1997 and $10,044,000 in 1996. Additionally, purchases of marketable securities amounted to $3,223,000 in 1998, $2,428,000 in 1997, and $294,000 in 1996. Net cash provided by (used in) financing activities was $(2,100,000), $4,483,000 and ($3,374,000) in 1998, 1997 and 1996, respectively. The variations principally relate to the issuance, refinance, and repayments of long-term debt. See Footnote No. (4) to the consolidated financial statements for a schedule of long-term debt. The Company believes it has adequate capital resources to fund operations for the foreseeable future. YEAR 2000 COMPLIANCE Many businesses and government organizations use computers and other electronic equipment that read and process dates. This equipment falls into two categories-information technology ("IT"), such as ordinary computers and "non-IT" equipment, such as process controllers and devices with embedded microprocessors. Some IT and non-IT equipment currently in use cannot accurately read and process certain dates, including several dates in the year 1999 and/or all dates in the Year 2000 and afterwards (collectively, "Year 2000 Problem"). The Company has implemented a formal Year 2000 program (the "Year 2000 Program") to address its Year 2000 Problem and to investigate the Year 2000 Problem of third parties significant to the Company's business. The Company's Year 2000 Program has three general components: (i) addressing Year 2000 Problems in the Company's IT and non-IT equipment; (ii) investigating the Year 2000 Problems of such significant third parties; and (iii) contingency planning. The Company has evaluated its current systems with respect to oil and gas operations and management feels that it is Year 2000 compliant. With respect to real estate, management is in the process of evaluating its systems and also believes the 26 current systems are Year 2000 compliant. With respect to its non-IT equipment, the Company and its consultants are presently inventorying, evaluating, remediating and testing this equipment. The Company expects to complete its Year 2000 Program for IT and non-IT equipment by mid-1999. The Company is also requesting information on the Year 2000 Problems of third parties significant to the Company's business, including banks, major suppliers and customers. The Company has received and is evaluating the responses from many of these entities and is in the process of requesting more information as appropriate. Based on these responses, the Company's obligations to its customers, and the information gathered from its Year 2000 Program, the Company is developing contingency plans to minimize the impact of Year 2000 Problems on its business should any such problems occur. The Company expects to substantially complete its investigation of the Year 2000 Problems of its major suppliers, third party service providers and customers and form contingency plans by mid-1999, but also expects that these activities will continue through 1999 as more information becomes available to the Company. The Company has incurred costs of approximately $27,000 in connection with evaluating Year 2000 compliance of its IT Systems. The Company does not believe that the costs of its Year 2000 Program will be material to its financial condition or results of operations. Costs incurred in connection with evaluating Year 2000 compliance of its non-IT systems have not been material to date. The Company does not believe that future costs, if any, of addressing the Year 2000 Problems of its non-IT systems will have a material effect on its financial condition or results of operations. The Company also intends to continue to use its personnel in evaluating the Year 2000 Problems of those third parties who the Company believes are significant to the Company's business, including its suppliers, third party service providers and customers, and to formulate contingency plans. The Company expects that the source of any funds that may be necessary to pay the costs of addressing its Year 2000 Problems will be provided from cash balances or cash generated from operations. The Company intends to charge such costs against earnings as the costs are incurred. Management believes that it has taken reasonable steps to address its Year 2000 Problems and to evaluate the Year 2000 compliance status of key third parties with whom the Company does business. Notwithstanding these actions, however, the Company cannot ensure that all of its Year 2000 Problems or those of its key suppliers, service providers or customers will be resolved or addressed satisfactorily before the Year 2000 commences. Management believes that the "most reasonably likely worst case scenario" could involve the failure of such third parties to address their Year 2000 Problems. If the Company's key suppliers, service providers, customers and other third parties fail to address their Year 2000 Problems, and there are no alternates available to the Company, then the Company's usual channels of supply and distribution would be disrupted, in which event the Company could experience a material adverse impact on its business, results of operations or financial condition. 27 FORWARD-LOOKING STATEMENTS This Report on Form 10-K for the year ended December 31, 1998 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 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. 28 FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 69 DISCLOSURES The following disclosures are those required to be made by publicly traded enterprises under Financial Accounting Standards Board Statement No. 69, Disclosures About Oil and Gas Producing Activities. The SEC defines proved oil and gas reserves as those estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are those that can be recovered through existing wells with existing equipment and operating methods. 29 Estimated quantities of proved oil and gas reserves are as follows: Disclosures of Oil and Gas Producing Activities as Required by Financial Accounting Standards Board Statement No. 69 (000's Omitted)
Crude Oil, Condensate and Natural Gas Liquids (Barrels) ---------------------------------------------------- United States Canada ---------------------- ------------------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Proved Reserves-Beginning of Year 1,405 1,545 1,803 1,194 1,201 1,296 Revisions of previous estimates 60 (52) (176) 12 (24) (51) Sale of minerals in place -0- -0- -0- -0- -0- -0- Extensions and discoveries 35 13 39 -- 77 -0- Production (88) (101) (121) (53) (60) (44) ----- ----- ----- ----- ----- ----- Proved Reserves-End of Year 1,412 1,405 1,545 1,153 1,194 1,201 ----- ----- ----- ----- ----- ----- Proved Developed Reserves- Beginning of Year 423 607 855 834 867 915 ----- ----- ----- ----- ----- ----- End of Year 430 423 607 755 834 867 ===== ===== ===== ===== ===== =====
Natural Gas --------------------------------------------------------- (MCF) --------------------------------------------------------- United States Canada ------------------------- -------------------------- 1998 1997 1996 1998 1997 1996 ---- --- ---- ---- ---- ---- Proved Reserves-Beginning of Year 6,731 6,798 6,778 33,629 26,000 26,212 Revisions of previous estimates 610 856 750 (6,037) (1,968) 514 Sale of minerals in place -0- -0- -0- -0- -0- -0- Extensions and discoveries 13 124 127 12,458 10,410 -0- Production 1,039) 1,047) (857) (1,021) (813) (726) ------- ------- ------- ------- ------- ------- Proved Reserves-End of Year 6,315 6,731 6,798 39,029 33,629 26,000 ------- ------- ------- ------- ------- ------- Proved Developed Reserves- Beginning of Year 6,731 6,798 6,778 31,378 25,364 24,819 ------- ------- ------- ------- ------- ------- End of Year 6,315 6,731 6,798 32,799 31,387 25,364 ======= ======= ======= ======= ======= =======
30 Standardized Measure of Discounted Future Net Cash Flows Related to Proved Oil and Gas Reserves For The Years Ended December 31 (000's Omitted) United States Canada ------------- --------------- 1998 1997 1998 1997 ---- ---- ---- ---- Future cash flows 28,587 $41,648 $86,948 $77,242 ------- ------- ------- ------- Future costs: Production 10,100 13,540 19,056 18,053 Development, dismantlement & abandonment 1,603 1,603 2,073 1,822 ------- ------- ------- ------- Total Future Costs $11,703 $15,143 $21,129 $19,875 ------- ------- ------- ------- Future net inflows-Before income tax $16,884 $26,505 $65,819 $57,367 Future income taxes $ 4,282 $ 6,888 $22,352 $19,407 ------- ------- ------- ------- Future net cash flows $12,602 $19,617 $43,467 $37,960 10% Discount factor 4,753 6,353 24,777 22,000 ------- ------- ------- ------- Standardized measure of discounted future net cash flows $ 7,849 $13,264 $18,690 $15,960 ======= ======= ======= ======= Estimated future cash inflows are computed by applying year-end prices of oil and gas to year-end quantities of proved reserves. Future price changes are considered only to the extent provided by contractual arrangements. Estimated future development and production costs are determined by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. Estimated future income tax expenses are calculated by applying year-end statutory tax rates (adjusted for permanent differences and tax credits) to estimated future pretax net cash flows related to proved oil and gas reserves, less the tax basis of the properties involved. These estimates are furnished and calculated in accordance with requirements of the Financial Accounting Standards Board and the SEC. Due to unpredictable variances in expenses and capital forecasts, crude oil and natural gas price changes and the fact that the basis for such estimates vary significantly, management believes the usefulness of these projections is limited. Estimates of future net cash flows do not represent management's assessment of future profitability or future cash flow to the Company. Management's investment and operating decisions are based upon reserve estimates that include proved reserves prescribed by the SEC as well as probable reserves, and upon different price and cost assumptions from those used here. It should be recognized that applying current costs and prices at a 10 percent standard discount rate allows for 31 comparability but does not convey absolute value. The discounted amounts arrived at are only one measure of financial quantification of proved reserves. There were no oil and gas estimates filed with or included in reports to any other federal or foreign governmental authority or agency within the last twelve months. Reserves in the United States were estimated by Ramsey Engineering Inc. and the Company. Reserves in Canada were estimated by Citidal Engineering, Ltd. "Total Costs Both Capitalized and Expensed, Incurred in Oil and Gas Producing Activities" (including capitalized interest), "Cost Incurred in Property Acquisition, Exploration and Development Activities" and "Results of Operations from Oil and Gas Producing Activities" during the three years ended December 31, 1998, 1997 and 1996 are included in Note 9 of the Notes to Consolidated Financial Statements, presented elsewhere herein. The standardized measure of discounted estimated future net cash flows and changes therein related to proved oil and gas reserves is as follows: Changes in Standardized Measure of Discounted Future Net Cash Flow from Proved Reserve Quantities (000's Omitted) 1998 1997 1996 ---- ---- ---- Standardized Measure - Beginning of Year $ 29,224 $ 31,405 $ 29,095 Sales and transfers - Net of Production Costs (2,785) (3,643) (3,490) Extensions and discoveries 6,116 4,421 690 Net change in sales price (3,917) (4,554) 10,899 Revision of quantity estimates (2,831) (1,184) (1,424) Proceeds from Sales of Minerals in Place -0- -0 -0- Accretion of discount 2,730 2,984 2,463 Net change in income taxes (357) 1,639 (2,010) Change in production rates- Other (1,641) (1,844) (4,818) -------- -------- -------- Standardized measure - End of year $ 26,539 $ 29,224 $ 31,405 -------- -------- -------- 32 ITEM 8 -- FINANCIAL STATEMENTS WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- CONSOLIDATED FINANCIAL STATEMENTS: Report of Independent Public Accountants F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 F-4 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-6 Notes to Consolidated Financial Statements F-8 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Wilshire Oil Company of Texas: We have audited the accompanying consolidated balance sheets of Wilshire Oil Company of Texas (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wilshire Oil Company of Texas and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Roseland, New Jersey March 26, 1999 F-2 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997
ASSETS ------ 1998 1997 ------------ -------------- CURRENT ASSETS: Cash and cash equivalents $ 4,444,000 $ 5,534,000 Marketable securities, available for sale, at fair value (Notes 2, 3 and 4) 5,162,000 17,947,000 Accounts receivable (Note 2) 2,515,000 1,061,000 Income taxes receivable (Note 6) 746,000 0 Prepaid expenses and other current assets 1,359,000 949,000 ------------- ------------- Total current assets 14,226,000 25,491,000 ------------- ------------- PROPERTY AND EQUIPMENT (Notes 2, 4, 8 and 9): Oil and gas properties, using the full cost method of accounting 133,804,000 133,509,000 Real estate properties 58,773,000 50,901,000 Other property and equipment 446,000 421,000 ------------- ------------- 193,023,000 184,831,000 Less- Accumulated depreciation, depletion and amortization 112,648,000 108,293,000 ------------- ------------- 80,375,000 76,538,000 ------------- ------------- $ 94,601,000 $ 102,029,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt (Note 4) $ 6,502,000 $ 3,324,000 Accounts payable 1,782,000 1,856,000 Income taxes payable (Note 6) 0 1,517,000 Dividends payable 0 18,000 Accrued liabilities (Note 7) 928,000 1,575,000 ------------- ------------- Total current liabilities 9,212,000 8,290,000 ------------- ------------- LONG-TERM DEBT, less current portion (Note 4) 47,764,000 51,587,000 ------------- ------------- DEFERRED INCOME TAXES (Notes 2 and 6) 11,891,000 13,415,000 ------------- ------------- COMMITMENTS AND CONTINGENCIES (Note 7) SHAREHOLDERS' EQUITY (Notes 2 and 7): Preferred stock, $1 par value, 1,000,000 shares authorized; none issued and outstanding in 1998 and 1997 0 0 Common stock, $1 par value, 15,000,000 shares authorized; issued 10,013,544 shares in 1998 and 1997 10,014,000 10,014,000 Capital in excess of par value 9,146,000 9,522,000 Treasury stock, 878,348 and 618,147 shares in 1998 and 1997, respectively, at cost (5,303,000) (3,857,000) Retained earnings 15,274,000 14,267,000 Accumulated other comprehensive loss (3,397,000) (1,209,000) ------------- ------------- 25,734,000 28,737,000 ------------- ------------- $ 94,601,000 $ 102,029,000 ============= =============
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-3 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ------------ ------------ ------------ REVENUES (Notes 2, 8 and 9): Oil and gas $ 4,759,000 $ 5,917,000 $ 5,720,000 Real estate 11,546,000 9,730,000 9,296,000 ------------ ------------ ------------ Total revenues 16,305,000 15,647,000 15,016,000 ------------ ------------ ------------ COSTS AND EXPENSES (Notes 5, 8 and 9): Oil and gas production expenses 2,297,000 2,274,000 2,209,000 Real estate operating expenses 7,133,000 5,906,000 5,539,000 Depreciation and amortization 1,752,000 1,435,000 1,179,000 Depreciation, depletion and amortization of oil and gas properties 2,367,000 2,327,000 1,936,000 Depreciation depletion and amortization ceiling charge (Note 2) 1,022,000 0 0 General and administrative 1,601,000 1,646,000 1,447,000 ------------ ------------ ------------ Total costs and expenses 16,172,000 13,588,000 12,310,000 ------------ ------------ ------------ Income from operations 133,000 2,059,000 2,706,000 GAIN ON SALES OF MARKETABLE SECURITIES 4,932,000 9,595,000 8,462,000 OTHER INCOME, net (Note 3) 636,000 463,000 362,000 INTEREST EXPENSE (Note 4) (3,937,000) (3,331,000) (3,939,000) ------------ ------------ ------------ Income before provision for income taxes 1,764,000 8,786,000 7,591,000 PROVISION FOR INCOME TAXES (Note 6) 757,000 3,250,000 2,882,000 ------------ ------------ ------------ Net income $ 1,007,000 $ 5,536,000 $ 4,709,000 ============ ============ ============ BASIC AND DILUTED EARNINGS PER SHARE $ 0.11 $ 0.58 $ 0.49 ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements. F-4 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Preferred Stock Common Stock --------------- ----------------------- Capital in Shares Shares Excess of Par Issued Amount Issued Amount Value ------- ------- --------- ----------- ---------- - BALANCE, December 31, 1995 0 $ 0 10,013,544 $10,014,000 $9,925,000 Comprehensive income, year ended December 31, 1996- Net income 0 0 0 0 0 Other comprehensive income- Net translation adjustment 0 0 0 0 0 Change in unrealized gain on marketable securities, net of income taxes of $4,071,000 0 0 0 0 0 Comprehensive income Amortization of deferred compensation (Note 5) 0 0 0 0 (237,000) Exercise of stock options (Note 5) 0 0 0 0 12,000 Purchase of treasury stock 0 0 0 0 0 Payment of cash dividends, $.10 per common share 0 0 0 0 0 ---- ---- ----------- ----------- ---------- BALANCE, December 31, 1996 0 0 10,013,544 10,014,000 9,700,000 Comprehensive income, year ended December 31, 1997- Net income 0 0 0 0 0 Other comprehensive income- Net translation adjustment, current year 0 0 0 0 0 Change in unrealized gain on marketable securities, net of income taxes of $1,324,000 0 0 0 0 0 Comprehensive income Stock dividend (Notes 2 and 5) 0 0 0 0 (206,000) Amortization of deferred compensation (Note 5) 0 0 0 0 82,000 Exercise of stock options (Note 5) 0 0 0 0 (54,000) Purchase of treasury stock 0 0 0 0 0 ---- ---- ----------- ----------- ---------- BALANCE, December 31, 1997 0 0 10,013,544 10,014,000 9,522,000 Comprehensive loss, year ended December 31, 1998- Net income 0 0 0 0 0 Other comprehensive income- Net translation adjustment, current year 0 0 0 0 0 Change in unrealized gain on marketable securities, net of income taxes of $97,000 0 0 0 0 0 Comprehensive loss Amortization of deferred compensation (Note 5) 0 0 0 0 (366,000) Exercise of stock options (Note 5) 0 0 0 0 (10,000) Purchase of treasury stock 0 0 0 0 0 ---- ---- ----------- ----------- ---------- BALANCE, December 31, 1998 0 $ 0 $10,013,544 $10,014,000 $9,146,000 ==== ==== =========== =========== ==========
Accumulated Other Treasury Comprehensive Retained Comprehensive Stock Income (Loss) Earnings Income (Loss) ------------ ------------- ------------ ------------- BALANCE, December 31, 1995 ($ 4,010,000) $ 7,086,000 $ 6,459,000 Comprehensive income, year ended December 31, 1996- Net income 0 0 4,709,000 $ 4,709,000 ----------- Other comprehensive income- Net translation adjustment 0 (88,000) 0 (88,000) Change in unrealized gain on marketable securities, net of income taxes of $4,071,000 0 (4,470,000) 0 (4,470,000) Comprehensive income $ 151,000 =========== Amortization of deferred compensation (Note 5) 0 0 0 Exercise of stock options (Note 5) 5,000 0 0 Purchase of treasury stock (846,000) 0 0 Payment of cash dividends, $.10 per common share 0 0 (931,000) ------------ ------------ ------------ ----------- BALANCE, December 31, 1996 (4,851,000) 2,528,000 10,237,000 Comprehensive income, year ended December 31, 1997- Net income 0 0 5,536,000 $ 5,536,000 ----------- Other comprehensive income- Net translation adjustment, current year 0 (380,000) 0 (380,000) Change in unrealized gain on marketable securities, net of income taxes of $1,324,000 0 (3,357,000) 0 (3,357,000) ----------- Comprehensive income $ 1,799,000 =========== Stock dividend (Notes 2 and 5) 1,694,000 0 (1,506,000) Amortization of deferred compensation (Note 5) 0 0 0 Exercise of stock options (Note 5) 163,000 0 0 Purchase of treasury stock (863,000) 0 0 ------------ ------------ ------------ ----------- BALANCE, December 31, 1997 (3,857,000) (1,209,000) 14,267,000 Comprehensive loss, year ended December 31, 1998- Net income 0 0 1,007,000 $ 1,007,000 =========== Other comprehensive income- Net translation adjustment, current year 0 (687,000) 0 (687,000) Change in unrealized gain on marketable securities, net of income taxes of $97,000 0 (1,501,000) 0 (1,501,000) ----------- Comprehensive loss ($1,181,000) =========== Amortization of deferred compensation (Note 5) 0 0 0 Exercise of stock options (Note 5) 17,000 0 0 Purchase of treasury stock (1,463,000) 0 0 ------------ ------------ ------------ BALANCE, December 31, 1998 ($ 5,303,000) ($ 3,397,000) $ 15,274,000 ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements. F-5 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,007,000 $ 5,536,000 $ 4,709,000 Adjustments to reconcile net income to net cash used in operating activities- Depreciation, depletion and amortization 5,141,000 3,762,000 3,115,000 Deferred income tax (benefit) provision (204,000) 740,000 1,168,000 Adjustment of deferred and unearned compensation in connection with nonqualified stock option plan, net (105,000) (22,000) (119,000) Gain on sales of marketable securities (4,932,000) (9,595,000) (8,462,000) Foreign currency transactions 410,000 0 (83,000) Changes in operating assets and liabilities- Decrease (increase) in accounts receivable (1,454,000) 794,000 (842,000) Increase income taxes receivable (746,000) 0 0 Increase in prepaid expenses and other current assets (410,000) (507,000) (101,000) (Decrease) increase in dividends payable (18,000) (445,000) 463,000 (Decrease) increase in other liabilities 0 (814,000) 814,000 (Decrease) increase in accounts payable, accrued liabilities and taxes payable (2,238,000) 283,000 (1,148,000) ------------ ------------ ------------ Net cash used in operating activities (3,549,000) (268,000) (486,000) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (10,273,000) (12,517,000) (6,294,000) Purchases of marketable securities (3,223,000) (2,428,000) (294,000) Proceeds from sales and redemptions of marketable securities 18,186,000 15,078,000 10,044,000 ------------ ------------ ------------ Net cash (used in) provided by investing activities 4,690,000 133,000 3,456,000 ------------ ------------ ------------
F-6
1998 1997 1996 ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt $ 12,179,000 $ 36,790,000 $ 18,670,000 Principal payments of long-term debt (12,823,000) (31,090,000) (20,272,000) Purchase of treasury stock (1,463,000) (863,000) (846,000) Cash dividends 0 (463,000) (931,000) Exercise of stock options 7,000 109,000 5,000 ------------ ------------ ------------ Net cash provided by (used in) financing activities (2,100,000) 4,483,000 (3,374,000) ------------ ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH (131,000) (6,000) (5,000) ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents (1,090,000) 4,342,000 (409,000) CASH AND CASH EQUIVALENTS, beginning of year 5,534,000 1,192,000 1,601,000 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, end of year $ 4,444,000 $ 5,534,000 $ 1,192,000 ============ ============ ============ SUPPLEMENTAL DISCLOSURES TO THE STATEMENTS OF CASH FLOWS: Cash paid during the year for- Interest $ 4,303,000 $ 3,623,000 $ 4,019,000 Income taxes, net 3,058,000 2,449,000 3,318,000 ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements. F-7 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) DESCRIPTION OF BUSINESS: Wilshire Oil Company of Texas (the Company) is a diversified corporation engaged in oil and gas exploration and production and real estate operations. The Company's oil and gas operations are conducted, both in its own name and through several wholly-owned subsidiaries, 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. Crude oil and natural gas production is sold to oil refineries and natural gas pipeline companies. The Company's real estate holdings are located in the states of Arizona, Florida, New Jersey, Georgia and Texas. The Company also maintains investments in marketable securities, which are available for sale. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Significant accounting policies followed by the Company and its subsidiaries are as follows- Basis of Presentation- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany account balances and transactions among subsidiaries have been eliminated. Use of Estimates- The preparation of these financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash And Cash Equivalents- The Company considers cash and cash equivalents to include deposits with banks having a maturity of three months or less from date of purchase. F-8 Marketable Securities, Available for Sale- As of December 31, 1998 and 1997, the marketable securities of the Company consist primarily of equity securities, all of which are classified as available for sale. These securities are carried at fair value based upon quoted market prices. Differences between an investment's cost and its fair value are charged (credited) directly to shareholders' equity, net of related income taxes. The cost of securities sold is determined on a specific identification basis. As of December 31, 1998 and 1997, the unrealized holding gains, net of any losses, of these securities were $215,000 and $2,943,000, respectively. The net unrealized holding gains are included as a credit to shareholders' equity, net of income taxes of $97,000 and $1,324,000 for 1998 and 1997, respectively. Included in accounts receivable at December 31, 1998 is approximately $1.4 million due from broker, related to sales of marketable securities in 1998 which settled in 1999. Property And Equipment- Oil And Gas Properties- The Company follows the accounting policy, generally known in the oil industry as "full cost accounting," of capitalizing 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. Capitalized costs are subject to a "ceiling" test that limits such costs to the aggregate of the estimated present value of the future net revenues of proved reserves and the lower of cost or fair value of unproved properties. Due to this limitation, during 1998 the Company provided an additional charge for depreciation, depletion and amortization of $1,022,000 to reflect substantial declines in the prices received for oil and gas. This additional charge is included in depreciation, depletion and amortization in the accompanying consolidated statements of income. 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, after the additional charge discussed above, exceeds the unamortized cost of oil and gas properties at December 31, 1998 and 1997. Real Estate And Other Properties- Real estate properties and other property and equipment are stated at cost. Depreciation is provided on the straight-line method using an estimated useful life of 30 to 35 years for real estate buildings and at various rates based upon the estimated useful lives of the other property and equipment. As of December 31, 1998 and 1997, real estate properties consist of land with an aggregate cost of $14,952,000 and $11,627,000, buildings with an aggregate cost of $38,218,000 and $35,724,000 and furniture and fixtures with an aggregate cost of $5,603,000 and $3,550,000, respectively. F-9 Impairment of Property and Equipment- The Company has adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets" (SFAS 121) for their non oil and gas producing assets. The adoption of this standard did not have an impact on the Company's financial condition or results of operations. In addition, as of December 31, 1998, the Company has determined that no impairment has occurred in accordance with the measurement criteria prescribed by SFAS 121. 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 the tenant. Because revenues from both oil and gas and real estate operations are collected in a relatively short period, no allowance is required for uncollectible accounts. Deferred Income Taxes- Certain transactions are recorded on the books of the Company in a period different from that in which these transactions are reported for income tax purposes. These transactions, as well as other temporary differences between the basis in assets and liabilities for financial reporting and income tax purposes, result in deferred income taxes. The principal transactions are those related to intangible drilling costs, exploration costs, expired leases, depreciation and nonproducing well costs (see Note 6). Foreign Operations- The assets and liabilities of the Company's Canadian subsidiary have been translated at current exchange rates, and related revenues and expenses have been translated at average annual exchange rates. The aggregate effect of translation losses has been reflected as a component of accumulated other comprehensive 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 $15,139,000 at December 31, 1998. Accounting for Stock-Based Compensation- The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). As of December 31, 1998 and 1997, there are several stock option plans subject to the provisions of SFAS 123. The adoption of this pronouncement had no impact on the Company's financial condition or results of operations, however, additional disclosures have been included in the financial statements (see Note 5). F-10 Net Income Per Common Share- On December 22, 1997, the Company declared a 3% stock dividend to shareholders of record on January 16, 1998. The dividend was paid on February 20, 1998. The Company has adopted FASB Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share gives effect to all potentially dilutive common shares that were outstanding during the period. The following table sets forth the computation of basic and diluted earnings per share- 1998 1997 1996 ----------- ----------- ----------- Numerator- Net income - Basic and Diluted $1,007,000 $5,536,000 $4,709,000 ========== ========== ========== Denominator- Weighted average common shares outstanding - Basic 9,297,119 9,522,167 9,568,502 Incremental shares from assumed conversions of stock options 47,628 89,182 89,695 ---------- ---------- ---------- Weighted average common shares outstanding - Diluted 9,344,747 9,611,349 9,658,197 ========== ========== ========== Basic earnings per share $ 0.11 $ 0.58 $ 0.49 Diluted earnings per share $ 0.11 $ 0.58 $ 0.49 Accumulated Other Comprehensive Income- In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," (SFAS 130) which establishes standards for reporting comprehensive income and its components in annual and interim financial statements. The Company adopted SFAS 130 as of January 1, 1998. In the Company's case, comprehensive income includes net income, unrealized gains on available-for-sale securities and foreign currency transaction adjustments. The Company has chosen to disclose Comprehensive Income in the Consolidated Statement of Shareholders' Equity. Changes in the components of Accumulated Other Income (Loss) for the years 1996, 1997 and 1998 are as follows-
Unrealized Gains on Cumulative Accumulated Other Available-for-Sale Foreign Currency Comprehensive Income Securities Translation Adjustment (Loss) ------------------ ------------------------- ---------------------- BALANCE, December 31, 1995 $ 9,446,000 ($2,360,000) $ 7,086,000 Change for the year 1996 (4,470,000) (88,000) (4,558,000) ----------- ----------- ----------- BALANCE, December 31, 1996 4,976,000 (2,448,000) 2,528,000 Change for the year 1997 (3,357,000) (380,000) (3,737,000) ----------- ----------- ----------- BALANCE, December 31, 1997 1,619,000 (2,828,000) (1,209,000 Change for the year 1998 (1,501,000) (687,000) (2,188,000) ----------- ----------- ----------- BALANCE, December 31, 1998 $ 118,000 ($3,515,000) ($3,397,000) =========== =========== ===========
Reclassifications- Certain reclassifications have been made to the 1997 and 1996 financial information to conform to the 1998 presentation. (3) INVESTMENT IN PREFERRED STOCK OF THE TRUST COMPANY OF NEW JERSEY: At December 31, 1997, the Company owned 37,500 shares of The Trust Company of New Jersey's (The Trust Company) 9-3/4% preferred stock, stated at its original cost, which approximated market value. As of December 31, 1997, 37,500 shares, or $3,750,000 of preferred stock is included in marketable securities, available for sale in the accompanying consolidated balance sheet. During 1997, The Trust Company redeemed 22,500 shares of preferred stock at its stated value of $2,250,000. During 1998, the Trust Company redeemed the remaining 37,500 shares of preferred stock at its stated value of $3,750,000 and accordingly, no preferred stock is held by the Company at December 31, 1998. Annual dividends of approximately $201,000, $475,000 and $585,000 were received on the preferred shares in 1998, 1997 and 1996, respectively, and are included in other income. (4) LONG-TERM DEBT: Long-term debt as of December 31 consisted of the following- 1998 1997 ----------- ----------- Mortgage notes payable (a) $25,094,000 $25,824,000 Mortgage notes payable (b) 23,098,000 17,527,000 Note payable (c) 3,074,000 8,560,000 Promissory note (d) 2,000,000 2,000,000 Revolving line of credit (e) 1,000,000 1,000,000 ----------- ----------- 54,266,000 54,911,000 Less - Current portion 6,502,000 3,324,000 ----------- ----------- $47,764,000 $51,587,000 =========== =========== F-12 - ------------------ (a) At December 31, 1998, the Company had mortgage notes payable to The Trust Company totaling $25,094,000 payable in installments, bearing interest at a weighted average effective interest rate of 7.75%. These mortgage notes are secured by a first mortgage interest in the Company's real estate properties and mature at various dates through January 2009. (b) The Company paid in full, prior to maturity, two mortgage notes in each 1998 and 1997 to The Trust Company, discussed in (a), and refinanced these four loans with Criimi Mae/Citicorp Real Estate (Criimi Mae). The Criimi Mae notes are payable in monthly installments, bear a weighted average interest at a rate of 7.37% and mature between November 2007 and July 2008. (c) The note payable to The Trust Company bears interest at the prime lending rate (7.75% at December 31, 1998), matures in July 1999 and is secured by certain marketable securities. (d) The promissory note at December 31, 1998 bears interest at the bank's certificate of deposit rate plus one percent (5.27% at December 31, 1998 and is payable in full in June 1999). The promissory note at December 31, 1997 was paid in full during 1998. (e) During 1997, the Company obtained an unsecured $1,000,000 revolving line of credit from The Trust Company. During 1998, the revolving line of credit was increased to $2,000,000. This loan bears interest at the prime lending rate and matures in June, 1999. At December 31, 1998 the unused portion of the revolving line of credit was $1,000,000. The aggregate maturities of the long-term debt in each of the five years subsequent to 1998 and thereafter are- 1999 $ 6,502,000 2000 712,000 2001 2,630,000 2002 558,000 2003 3,309,000 Thereafter 40,555,000 ----------- $54,266,000 =========== (5) STOCK OPTIONS: Under various stock option plans adopted prior to 1995, stock options to purchase an aggregate of 338,877 shares of common stock were outstanding to officers, key consultants and employees at December 31, 1998. No additional options may be granted under these plans. In June 1995, the Company adopted two new stock-based compensation plans (1995 Stock Option and Incentive Plan "Incentive Plan"; and 1995 Non-employee Director Stock Option Plan "Director Plan") under which, up to 450,000 and 150,000 shares, respectively, are available for grant. During 1996 and 1998, the Company granted 35,000 and 5,000 options, respectively, to purchase common stock under the Director Plan. No options were granted under either plan during 1997. At December 31, 1998, 3,090 and 77,170 options were outstanding under the Incentive Plan and Director Plan, respectively. F-13 The number and terms of the options granted under these plans are determined by the Company's Stock Option Committee (the Committee) based on the fair market value of the Company's common stock on the date of grant. The period during which an option may be exercised varies, but no option may be exercised after ten years from the date of grant. The Company has adopted the provisions of SFAS 123, "Accounting For Stock-Based Compensation." As permitted by the statement, the Company has chosen to continue to account for stock-based compensation using the intrinsic value method. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Had the fair value method of accounting been applied to the Company's stock option plans, which requires recognition of compensation cost ratably over the vesting period of the underlying equity instruments, net income would have been reduced by $52,000 with $.01 per share effect in 1998, $41,000 with no per share effect in 1997 and $96,000 with $.01 per share effect in 1996. This pro forma impact only takes into account options granted since January 1, 1995 and is likely to increase in future years as additional options are granted and amortized ratably over the vesting period. The average fair value of options granted during 1998 and 1996 was $3.14 and $2.66. There were no options granted during 1997. The fair value was estimated using the Black-Scholes option-pricing model based on the weighted average market price at grant date of $6.00 in 1998 and $6.31 in 1996 and the following weighted average assumptions; risk-free interest rate of 5.78% for 1998 and 6.87% for 1996, volatility of 26.07% for 1998 and 24.26% for 1996, and no dividend yield for 1998 and a dividend yield of 1.6% for 1996. The following table summarizes stock option activity for 1998 and 1997-
1998 1997 -------------------- --------------------- Price Price Shares Low-High Shares Low-High -------- --------- -------- ---------- Options outstanding at beginning of year 420,839 $1.00-6.71 440,188 $1.00-6.71 Options granted 5,000 6.31 0 -- Adjustment for stock dividend (b) 0 -- 12,239 -- Options exercised (2,798) 1.49-2.37 (25,725) 2.98-3.99 Options terminated and expired (3,974) 3.87-4.31 (5,863) 3.49 -------- ---------- -------- ---------- Options outstanding at end of year (a) 419,067 $1.00-6.71 420,839 $1.00-6.71 ======== ========== ======== ========== Options exercisable at end of year (b) 376,781 $1.00-6.71 357,800 $1.00-6.71 ======== ========== ======== ==========
- ---------- (a) At December 31, 1998, options outstanding include 231,616 options ($1.00 to $4.44 per share) granted to certain employees and key consultants whereby the initial option price as determined by the Committee is subject to reduction (to a minimum of $1.00) by an amount equal to the increase in market value from the date of grant. Included in these options are 219,226 options with attached stock appreciation rights, pursuant to which the Company may elect to grant cash, stock or a combination of cash and stock in lieu of F-14 the stock appreciation value. Additional compensation attributable to these options is charged to income or capitalized as exploration and development costs over calculated periods of employment based on the duties performed by the individuals awarded the options. During 1998, 1997 and 1996, $105,000, $22,000 and $119,000, respectively, was credited to operations, and $261,000, $60,000 and $118,000, respectively, was credited to oil and gas properties relating to such options. As of December 31, 1998 and 1997, included in accrued liabilities is $814,000 payable to certain individuals for stock appreciation rights. These amounts are currently payable under certain conditions. (b) Option prices in 1997 have been adjusted to reflect the 3% stock dividend declared in 1997. (6) INCOME TAXES: Income taxes consist of the following- 1998 1997 1996 ----------- ----------- ----------- Federal- Current $ 900,000 $ 2,234,000 $ 1,304,000 Deferred (377,000) 350,000 1,105,000 ----------- ----------- ----------- 523,000 2,584,000 2,409,000 ----------- ----------- ----------- Foreign- Current 42,000 $ 104,000 $ 110,000 Deferred 173,000 166,000 63,000 ----------- ----------- ----------- 215,000 270,000 173,000 ----------- ----------- ----------- State 19,000 396,000 300,000 ----------- ----------- ----------- Total $ 757,000 $ 3,250,000 $ 2,882,000 =========== =========== =========== A reconciliation of the differences between the effective tax rate and the statutory U. S. income tax rate is as follows- 1998 1997 1996 ---------- ---------- ---------- Federal income tax provision at statutory rate $ 600,000 $3,075,000 $2,657,000 State income tax provision, net of Federal benefit 13,000 257,000 195,000 Impact of foreign operations (176,000) 80,000 17,000 Dividend exclusion (90,000) (162,000) (191,000) Provision for Internal Revenue Service review (Note 7) 410,000 0 204,000 ---------- ---------- ---------- $ 757,000 $3,250,000 $2,882,000 ========== ========== ========== Effective tax rate 42.9% 37.0% 38.0% ========== ========== ========== F-15 Significant components of deferred tax liabilities as of December 31, 1998 and 1997 were as follows- 1998 1997 ----------- ----------- Tax over book depreciation, depletion and amortization- Oil and gas and real estate properties -- U. S $ 7,840,000 $ 8,046,000 Oil and gas properties -- Canada 3,954,000 4,045,000 Unrealized gain on marketable securities 97,000 1,324,000 ----------- ----------- Total deferred tax liabilities $11,891,000 $13,415,000 =========== =========== (7) COMMITMENTS AND CONTINGENCIES: During 1998, Federal income tax returns of the Company and its subsidiaries for the years 1994 through 1996 were under review by the IRS. During 1998, the Company received a notice of assessment from the IRS and completed full settlement of this Federal tax liability of $430,000, including accrued interest. The Company's income tax returns for the State of Arizona are currently under review by the IRS for the years 1993 through 1998. The Company believes that final settlement of its state tax liability for those years will not have a significant impact on its consolidated financial position or results of operations. 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. As of December 31, 1998 and 1997, 9,248,375 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 are in effect as of December 31, 1998 and 1997, the outstanding Rights are not considered in the computation of net income per share. The Company does not have significant lease commitments or post retirement benefits. (8) SEGMENT INFORMATION: The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," (SFAS 131), which establishes standards for companies to report information about operating segments in annual financial statements, based on the approach that management utilizes to organize the segments within the Company for management reporting and decision making. Business segment and geographic disclosures (see Note 9) for prior periods have been restated to comply with SFAS 131. 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. 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. The following segment data is presented based on the Company's internal management reporting system- 1998 1997 1996 ----------- ----------- ----------- Gross revenues- Oil and gas-United States $ 2,964,000 $ 4,004,000 $ 4,086,000 Oil and gas-Canada 1,795,000 1,913,000 1,634,000 Real estate 11,546,000 9,730,000 9,296,000 ----------- ----------- ----------- $16,305,000 $15,647,000 $15,016,000 =========== =========== =========== Income (loss) from operations- Oil and gas-United States (a) ($3,011,000) ($ 609,000) $ 75,000 Oil and gas-Canada (a) 707,000 853,000 546,000 Real estate (a) 2,684,000 2,420,000 2,600,000 Corporate (a) (247,000) (605,000) (515,000) ----------- ----------- ----------- $ 133,000 $ 2,059,000 $ 2,706,000 =========== =========== =========== F-17 1998 1997 1996 ------------ ------------ ------------ Depreciation, depletion and amortization- Oil and gas-United States $ 3,062,000 $ 1,945,000 $ 1,481,000 Oil and gas-Canada 327,000 382,000 455,000 Real estate 1,729,000 1,404,000 1,157,000 Corporate 23,000 31,000 22,000 ------------ ------------ ------------ $ 5,141,000 $ 3,762,000 $ 3,115,000 ============ ============ ============ Identifiable assets- Oil and gas-United States $ 16,920,000 $ 18,690,000 $ 18,761,000 Oil and gas-Canada 12,727,000 13,286,000 13,116,000 Real estate 54,354,000 48,580,000 37,403,000 Corporate 10,600,000 21,473,000 29,098,000 ------------ ------------ ------------ $ 94,601,000 $102,029,000 $ 98,378,000 ============ ============ ============ Capital expenditures- Oil and gas-United States $ 1,510,000 $ 1,381,000 $ 2,108,000 Oil and gas-Canada 1,160,000 1,165,000 625,000 Real estate 7,809,000 10,367,000 3,998,000 Corporate 21,000 18,000 19,000 ------------ ------------ ------------ $ 10,500,000 $ 12,931,000 $ 6,750,000 ============ ============ ============ (a) Represents revenues less all operating costs, including depreciation, depletion and amortization. (9) GEOGRAPHIC INFORMATION: The following is a description by geographic location- 1998 1997 1996 ------------ ------------ ------------ Gross revenues- United States $ 14,510,000 $ 13,734,000 $ 13,382,000 Canada 1,795,000 1,913,000 1,634,000 ------------ ------------ ------------ $ 16,305,000 $ 15,647,000 $ 15,016,000 ============ ============ ============ Income (loss) from operations- United States ($ 574,000) $ 1,206,000 $ 2,160,000 Canada 707,000 853,000 546,000 ------------ ------------ ------------ $ 133,000 $ 2,059,000 $ 2,706,000 ============ ============ ============ Depreciation, depletion and amortization- United States $ 4,814,000 $ 3,380,000 $ 2,660,000 Canada 327,000 382,000 455,000 ------------ ------------ ------------ $ 5,141,000 $ 3,762,000 $ 3,115,000 ============ ============ ============ F-18 1998 1997 1996 ------------ ------------ ------------ Identifiable assets- United States $ 81,874,000 $ 88,743,000 $ 85,262,000 Canada 12,727,000 13,286,000 13,116,000 ------------ ------------ ------------ $ 94,601,000 $102,029,000 $ 98,378,000 ============ ============ ============ Capital expenditures- United States $ 9,340,000 $ 11,766,000 $ 6,125,000 Canada 1,160,000 1,165,000 625,000 ------------ ------------ ------------ $ 10,500,000 $ 12,931,000 $ 6,750,000 ============ ============ ============ (10) OIL AND GAS PRODUCING ACTIVITIES: The following data represents the Company's oil and gas producing activities for 1998 and 1997- 1998 1997 ------------ ------------ Capitalized costs (all being amortized)- Productive and nonproductive properties $128,522,000 $128,434,000 Unevaluated properties 5,282,000 5,075,000 ------------ ------------ Total capitalized costs being amortized 133,804,000 133,509,000 ----------- ------------ Less- Accumulated depreciation, depletion and amortization 105,609,000 102,984,000 ------------ ------------ Net capitalized costs $ 28,195,000 $ 30,525,000 ============ ============ The following data summarizes the costs incurred in property acquisition, exploration and development activities and the results of operations from oil and gas producing activities-
United States Canada ------------------------------------------------------- ------------------------- 1998 1997 1996 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- ----------- Acquisition of unproved properties $ 336,000 $ 72,000 $ 89,000 $ 93,000 $ 73,000 $ 75,000 Exploration 459,000 500,000 1,139,000 99,000 116,000 119,000 Development 736,000 809,000 880,000 565,000 976,000 431,000 ----------- ----------- ----------- ----------- ----------- ----------- Total costs incurred $ 1,531,000 $ 1,381,000 $ 2,108,000 $ 757,000 $ 1,165,000 $ 625,000 =========== =========== =========== =========== =========== =========== Revenues from oil and gas producing activities $ 2,964,000 $ 4,004,000 $ 4,086,000 $ 1,795,000 $ 1,913,000 $ 1,634,000 ----------- ----------- ----------- ----------- ----------- ----------- Production costs 1,656,000 1,822,000 1,790,000 641,000 452,000 419,000 Technical support and other 1,257,000 846,000 740,000 120,000 226,000 214,000 Depreciation, depletion and amortization 3,062,000 1,945,000 1,481,000 327,000 382,000 455,000 ----------- ----------- ----------- ----------- ----------- ----------- Total expenses 5,975,000 4,613,000 4,011,000 1,088,000 1,060,000 1,088,000 ----------- ----------- ----------- ----------- ----------- ----------- Pretax income (loss) from oil and gas producing activities (3,011,000) (609,000) 75,000 707,000 853,000 546,000 Income tax provision (benefit) (1,053,000) (213,000) 26,000 92,000 111,000 72,000 ----------- ----------- ----------- ----------- ----------- ----------- Results of oil and gas producing activities ($1,958,000) ($ 396,000) $ 49,000 $ 615,000 $ 742,000 $ 474,000 =========== =========== =========== =========== =========== ===========
F-19 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS OF THE REGISTRANT Information required under this Item with respect to Directors is incorporated by reference from the Company's Definitive Proxy Statement for the 1999 Annual Meeting of Shareholders. Information regarding executive officers is found in Part I, Item 1 (a) ITEM 11. EXECUTIVE COMPENSATION Information required under this Item is incorporated by reference from the Company's Definitive Proxy Statement for the 1999 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this Item is incorporated by reference from the Company's Definitive Proxy Statement for the 1999 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this Item is incorporated by reference from the Company's Definitive Proxy Statement for the 1999 Annual Meeting of Shareholders. 33 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The Financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements on page F-1. (a) 2. FINANCIAL STATEMENT SCHEDULES All schedules are omitted because they are not required, inapplicable or the information is otherwise shown in the financial statements or notes thereto. (a) 3. EXHIBITS Exhibit Number Description 3.1 Restated Certificate of Incorporation of Wilshire Oil Company of Texas, as amended. (Incorporated by reference to Exhibit 3.1 of Item 14 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 3.2 Amended By-Laws, as of June 11, 1998, of Wilshire Oil Company of Texas (Incorporated by reference to Exhibit 3 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). 4.1 Stockholder Protection Rights Agreement, dated as of June 21, 1996, between Wilshire Oil Company of Texas and Continental Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 1 to the Company's current report on Form 8-K dated June 21, 1996). 4.2 Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing between a subsidiary of Wilshire Oil Company of Texas and Criimi Mae, Inc. dated October 28, 1997. 4.3 Multifamily Promissory Note given by a subsidiary of Wilshire Oil Company of Texas to Criimi Mae, Inc. dated October 28, 1997. 4.4 Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing between a subsidiary of Wilshire Oil Company of Texas and Criimi Mae, Inc. dated October 28, 1997. 34 4.5 Multifamily Promissory Note given by a subsidiary of Wilshire Oil Company of Texas to Criimi Mae, Inc. dated October 28, 1997. 10.1 General Assignments and Assignments of Leases dated March 31, 1992 with respect to the purchase of income producing real estate properties (incorporated by reference to Exhibit 1 and 2 of Form 8 dated December 9, 1992, filed with the Commission). 10.2 General Assignments, Assignments of Leases, and Escrow Agreements and Early Possession Agreements with respect to the purchase of four income producing real estate properties, (incorporated by reference to Exhibits 1 (a) through 4(c) on the Company's Form 8-K dated December 31, 1992 filed with the Commission). 10.3 Wilshire Oil Company of Texas 1980 Stock Option Plan. (Incorporated by reference to Exhibit 10.4 of Item 14 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 10.4 Wilshire Oil Company of Texas 1984 Stock Option Plan. (Incorporated by reference to Exhibit 10.5 of Item 14 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 10.5 Wilshire Oil Company of Texas 1995 Stock Option and Incentive Plan. (incorporated by reference to Exhibit A of the Registrant's Definitive Proxy Statement for its 1995 Annual Meeting of Stockholders). 10.6 Wilshire Oil Company of Texas 1995 Non-Employee Director Stock Option Plan. ( incorporated by reference to Exhibit B of the Registrant's Definitive Proxy Statement for its 1995 Annual Meeting of Stockholders). 11. Computation of Earnings Per Share 21. List of significant subsidiaries of the Registrant 23. Consent of Arthur Andersen LLP 27. Financial Data Schedule 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. WILSHIRE OIL COMPANY OF TEXAS ------------------------------------ (Registrant) Directors: By: /s/ S. WILZIG IZAK ---------------------------------- S. Wilzig Izak, Director By: /s/ WILLIAM SCHWARTZ, M.D. ---------------------------------- William Schwartz, M.D., Director By: /s/ MILTON DONNENBERG --------------------------------- Milton Donnenberg, Director By: /s/ ERNEST WACHTEL ---------------------------------- Ernest Wachtel, Director Officers: By: /s/ S. WILZIG IZAK ----------------------------------- S. Wilzig Izak Chairman of the Board and Chief Executive Officer (Duly Authorized Officer and Chief Financial Officer) Date: March 27, 1999 36 EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 14(b) REPORTS ON FORM 8 There were no Form 8-K filings by the Company during the fourth quarter of 1998. Exhibit 11 - Statement re: Computation of Per Share Earnings: Net Income Per Common Share: In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" which makes certain changes to the manner in which earnings per share is reported. The Company has adopted this standard for the year ended December 31, 1997. 1998 1997 1996 ---------- ---------- ---------- Numerator- Net income - Basic & Diluted $1,007,000 $5,536,000 $4,709,000 Denominator - Weighted average common shares outstanding - Basic 9,297,119 9,522,167 9,568,502 Incremental shares from assumed conversions of stock options 47,628 89,182 89,695 ---------- ---------- ---------- Weighted average common shares outstanding - Diluted 9,344,747 9,611,349 9,658,197 Basic earnings per share $ 0.11 $ 0.58 $ 0.49 Diluted earnings per share $ 0.11 $ 0.58 $ 0.49 37 EX-21 3 LIST OF SUBSIDIARIES Exhibit 22 - List of Subsidiaries Jurisdiction of Incorporation ----------------- Wilshire Oil of Canada, Ltd. Alberta, Canada Calgary, Alberta, Canada Britalta Venezolano, Ltd. Alberta, Canada Calgary, Alberta, Canada Sunrise Ridge Holding, Inc. State of Delaware Jersey City, NJ Sunrise Ridge, L. L. C. State of Delaware Jersey City, NJ Biltmore Club Holding, Inc. State of Delaware Jersey City, NJ Biltmore Club Apartments, L. L. C. State of Delaware Jersey City, NJ 350 Pleasant Valley Corp State of New Jersey Jersey City, NJ Global Equities Management Corp. State of Delaware Jersey City, NJ Wellington Apartments, L.L.C. State of Delaware Jersey City, NJ Van Buren, L.L.C. State of Delaware Jersey City, NJ 38 EX-23 4 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT (23) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Wilshire Oil Company of Texas: As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File No. 33-40324. /s/ ARTHUR ANDERSEN LLP Roseland, New Jersey April 12, 1999 EX-27 5 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1998 DEC-31-1998 4,444,000 5,162,000 2,515,000 0 0 14,226,000 193,023,000 112,648,000 94,601,000 9,212,000 0 10,014,000 0 0 15,720,000 94,601,000 4,759,000 16,305,000 2,297,000 16,172,000 0 0 3,937,000 1,764,000 757,000 1,007,000 0 0 0 1,007,000 .11 .11
-----END PRIVACY-ENHANCED MESSAGE-----