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Article by DailyStocks_admin    (01-05-09 03:56 AM)

Filed with the SEC from Dec 18 to Dec 24:

Wilshire Enterprises (WOC)
A group including Bulldog Investors sent a letter to Wilshire saying that it will propose, for a shareholder vote, that Wilshire pursue a "liquidity event" rather than a growth strategy. Bulldog believes Wilshire is too small to continue absorbing the costs of remaining a public company. Also, shareholders are subject to double taxation as WOC is is a C-corporation, not a real-estate investment trust. Bulldog said it's "not convinced that growing Wilshire is preferable to pursuing a liquidity event, and the market has not responded favorably to Wilshire's new direction." The Bulldog group currently holds 1,734,456 shares (21.9% of total outstanding).

BUSINESS OVERVIEW

This report contains “forward-looking statements” within the meaning of the federal securities laws. These statements relate to future economic performance, plans and objectives of management for future operations and projections of revenues and other financial items that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. The words “expect,” “estimate,” “anticipate,” “believe” and similar expressions are intended to identify forward-looking statements. Those statements involve risks, uncertainties and assumptions, including industry and economic conditions, competition and other factors discussed in this and our other filings with the SEC. If one or more of these risks or uncertainties materialize or underlying assumptions prove incorrect, actual outcomes could vary materially from those indicated. We have made forward-looking statements in Items 1, 2, 5, 7 and 7A of this report. See Item 1A “Risk Factors” for a description of some of the important risk factors that may affect actual outcomes.

Background

Wilshire Enterprises, Inc. (“Wilshire” or the “Company”) is a Delaware corporation founded on December 7, 1951. The Company changed its name from Wilshire Oil Company of Texas to its current name on June 30, 2003. The Company’s principal executive offices are located at 1 Gateway Center, Newark, New Jersey 07102. Its main telephone number is (201) 420-2796. Wilshire maintains a website at www.wilshireenterprisesinc.com .

Wilshire is principally engaged in acquiring, owning and operating real estate properties. As further described below, the Company currently owns multi-family properties, office space, retail space, and land located in the states of Arizona, Texas, Florida and New Jersey.

As previously discussed, the Company is actively exploring opportunities to sell or merge its business. The Company has negotiated with and provided significant due diligence to certain bidders. The Company continues to negotiate a transaction and is hopeful a definitive agreement will be executed, although no assurance can be given in that regard. The Company’s investment banker, Friedman, Billings, Ramsey & Co., Inc. (“FBR”), is assisting the Company in its sales process.

Business Strategy

Wilshire’s principal investment objective is to increase the net asset value of its investment portfolio through effective management, growth, financing and investment strategies. Wilshire is currently focused on optimizing the valuation potential and cash flow from many of its assets, repositioning or selling select assets, and potentially acquiring assets in targeted geographic regions. The Company is also focused on increasing long-term growth in cash and cash equivalents generated from operations and cash and cash equivalents available for possible distribution. On May 4, 2006, the Company’s Board of Directors declared a special cash dividend of $3.00 per common share that was paid on June 29, 2006 to stockholders of record on May 25, 2006. In accordance with the American Stock Exchange rules, the ex-dividend date was June 30, 2006. The aggregate dividend amounted to $23,697,000. See Item 5 of this Annual Report on Form 10-K.

As previously discussed, the Company is actively exploring opportunities to sell or merge its business. The Company has negotiated with and provided significant due diligence to certain bidders. The Company continues to negotiate a transaction and is hopeful a definitive agreement will be executed, although no assurance can be given in that regard. The Company’s investment banker, Friedman, Billings, Ramsey & Co., Inc. (“FBR”), is assisting the Company in its sales process.

The Company may acquire assets that offer attractive financial returns. In general, it seeks multifamily properties with 200 units or more in geographic regions in which the Company or its contracted property management company (see below) has operations. However, the Company may evaluate other asset classes such as office buildings, senior independent living facilities, retail centers and real estate securities and other geographic regions and may invest in one or more of these asset classes in lieu of a multifamily property. During 2007, the Company purchased two parcels of land totaling .71 acres adjacent to the Alpine Village land parcel for an aggregate purchase price of $170,000. The purchase of such parcels is considered strategic as it provides greater access to the Company’s existing 18 acres at Alpine Village.

Employees

As of December 31, 2007, the Company had a total of six employees in its corporate office.

Property Management

Wilshire contracts with a property management company (the “PMC”) located in Phoenix, Arizona to assist in the management of the Company’s properties, including providing onsite personnel, regional supervision, and bookkeeping functions. The PMC has managed nearly all of Wilshire’s properties located outside of New Jersey since 1998. In January of 2005 Wilshire contracted with the PMC to assist in the management of the Company’s New Jersey properties obligating the PMC to provide onsite personnel and bookkeeping functions and regional supervision for the New Jersey properties. Wilshire believes that the PMC can provide cost-efficient bookkeeping functions in part because it is located in Arizona, a state that generally has lower wage expense than that experienced in New Jersey. As of December 31, 2007 the PMC employed 511 full time and 27 part time people and managed property on behalf of Wilshire in the states of Arizona, Florida, New Jersey, and Texas. To Wilshire’s knowledge, the PMC does not currently own real estate assets for its own investment purposes. PMC has advised Wilshire that in 2007, Wilshire accounted for approximately 8.1% of PMC’s total revenues.

Insurance

The Company carries comprehensive property, general liability, fire, extended coverage and rental loss insurance on all of its existing properties, with policy specifications, insured limits and deductibles customarily carried for similar properties. The Terrorism Risk Insurance Act of 2002 was signed into law on November 26, 2002. The law provides that losses resulting from certified acts of terrorism will be partially reimbursed by the United States after the insurance company providing coverage pays a statutory deductible amount. The law also requires that the insurance company offer coverage for terrorist acts for an additional premium. We accepted the offer to include this coverage in our property and casualty policies.

We believe that our properties are adequately covered by insurance. There are, however, some types of losses (such as losses arising from mold and acts of war) that are not generally insured because they are either uninsurable or not economically insurable. If an uninsured loss or a loss in excess of insured limits occurs, we could lose our capital invested in a property, as well as the anticipated future revenues from the property, and we would continue to be obligated on any mortgage indebtedness or other obligations related to the property. Any loss of that kind could materially adversely affect us.

Competition

All of the properties owned by the Company are in areas where there is substantial competition with other multifamily properties, with single-family housing that is either owned or leased by potential tenants and with other commercial properties. The principal method of competition is to offer competitive rental rates. In order to maintain occupancy rates and attract quality tenants, the Company may offer rental concessions, such as free rent to new tenants for a stated period. The Company also competes by offering properties in attractive locations and providing residential and commercial tenants with amenities such as covered parking, recreational facilities, garages and pleasant landscaping. The Company intends to continue upgrading and improving the physical condition of its existing properties and will consider selling existing properties, which the Company believes have realized their potential, and re-investing in properties that may require renovation but that offer greater appreciation potential.

Environmental Matters

The Company believes that each of its properties is in compliance, in all material respects, with federal, state and local regulations regarding hazardous waste and other environmental matters and is not aware of any environmental contamination at any of its properties that would require any material capital expenditure by the Company for the remediation thereof. No assurance can be given that environmental regulations will not, in the future, have a materially adverse effect on the Company’s operations.

Investment in Marketable Securities

The Company holds investments in certain marketable equity securities and short-term marketable debt instruments, including auction rate securities with interest rate resets ranging from every seven days to every 45 days. Consistent with our policy, all ARS investments were rated at the time of purchase and are still currently rated AAA or the equivalent thereto. Beginning in February 2008, auctions for the resale of such securities have ceased to reliably support the liquidity of these securities. We expect to continue to receive interest according to the stated terms of the investments, including above market interest rates related to the auction failures. Although such loss of liquidity will most likely be short-term in nature as a secondary market for the securities emerges or successful auctions resume, we cannot be certain that liquidity will be restored in the foreseeable future and we may not be able to access cash by selling these securities for which there is insufficient demand without a loss of principal until a future auction for these investments is successful , a secondary market emerges, they are redeemed by their issuer or they mature. If liquidity is not reestablished in the short term, we may be required to reclassify these investments as long-term assets based on the nominal maturity date of the underlying securities. The Company’s investments in marketable securities are accounted for as securities available for sale.

MANAGEMENT DISCUSSION FROM LATEST 10K

In 2007, Wilshire primarily engaged in the real estate business. During 2007, 2006 and 2005, the Company also conducted activities related to winding up its oil and gas business which was sold in April 2004.

The real estate business consists of residential and commercial properties in Arizona, Florida, New Jersey and Texas. Within this portfolio of properties, certain properties have been designated as being held for sale and have been classified as discontinued operations. Discontinued operations contain properties that may have excellent cash flow or valuation characteristics but that may be positioned for sale at an optimal valuation or may not be in a geographic region that is currently being targeted by the Company. The following discussion takes an income statement approach and discusses the results of operations first for the properties comprising “continuing operations” and then discusses the discontinued operations.

The assets comprising Wilshire’s oil and gas business were sold in April 2004, effective March 1, 2004. Oil and gas operations for all periods presented in this report have been classified as discontinued operations.

The Company’s activities are reviewed and analyzed in the following discussion, which should be read in conjunction with the financial statements and notes contained in Item 8 of this Annual Report on Form 10-K. Certain statements in this discussion may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Wilshire’s current expectations regarding future results of operations, economic performance, financial condition and achievements of Wilshire, and do not relate strictly to historical or current facts. Wilshire has tried, wherever possible, to identify these forward looking statements by using words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning. Although Wilshire believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which may cause the actual results to differ materially from those projected. Such factors include, but are not limited to the risks described in Item 1A of this Annual Report.

Critical Accounting Policies

Pursuant to the Securities and Exchange Commission (“SEC”) disclosure guidance for “Critical Accounting Policies,” the SEC defines Critical Accounting Policies as those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods.

Wilshire’s discussion and analysis of its financial condition and results of operations is based upon Wilshire’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Wilshire to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Wilshire bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Impairment of Property and Equipment

On a periodic basis, management assesses whether there are any indicators that the value of its real estate properties may be impaired. A property’s value is considered impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair value of the property. Management does not believe at December 31, 2007 or 2006 that the value of any of its properties was impaired.

Revenue Recognition

Revenue from real estate properties is recognized during the period in which the premises are occupied and rent is due from tenants. For commercial properties, rental revenue is recognized on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in accounts receivable. For residential properties where lease agreements are almost exclusively for one-year terms, rental revenue is recognized in accordance with the contractual terms of the underlying leases. The Company follows a policy of aggressively pursuing its rental tenants to ensure timely payment of amounts due. When a tenant becomes 30 days in arrears on paying rent, the amount is written-off and turned over to a collection agency for action. Accordingly, no allowance for uncollectible accounts is maintained for the Company’s real estate tenants.

Foreign Operations

The assets and liabilities of Wilshire’s substantially liquidated Canadian subsidiary have been translated at year-end exchange rates. The related revenues and expenses have been translated at average annual exchange rates. Translation gains or losses are included in the Company’s results of operations.

As a result of the sale of the Canadian oil and gas assets in 2004, Wilshire provided for at December 31, 2005 and paid during 2006, $2.1 million of United States taxes. During 2005, the Company’s Canadian affiliate declared and paid to Wilshire dividends amounting to $11.5 million, resulting in the payment of $576,000 of Canadian taxes. See Note 1 “Foreign Operations” of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Stock-Based Compensation

Wilshire followed the disclosure-only provisions of Statement of Financial Accounting Standards (“SFAS”) 123 and SFAS 148. In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Accounting for Stock-Based Compensation.” The provisions of SFAS 123R were adopted commencing January 1, 2006. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS 123R, only certain pro forma disclosures of fair value were required. The adoption of this new accounting pronouncement did not have a material impact on Wilshire’s consolidated financial statements with respect to previously granted equity compensation.

Effects of Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company’s adoption of SFAS 157 in 2008 is not expected to have a material impact on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115” (“SFAS 159”), which is effective for fiscal years beginning after November 15, 2007. SFAS 159 permits entities to measure eligible financial assets, financial liabilities and firm commitments at fair value, on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other U.S. generally accepted accounting principles. The fair value measurement election is irrevocable and subsequent changes in fair value must be recorded in earnings. The Company’s adoption of SFAS 159 in 2008 is not expected to have a material impact on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (R), “Business Combinations” (“SFAS 141(R)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). The standards are intended to improve, simplify, and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. SFAS 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS 141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited.

SFAS 160 is designed to improve the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way—as equity in the consolidated financial statements. Moreover, SFAS 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. In addition, SFAS 160 shall be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. The Company does not have an outstanding noncontrolling interest in one or more subsidiaries and therefore, SFAS 160 is not applicable to the Company at this time.

Results of Operations - For the year ended December 31, 2007 as compared to the year ended December 31, 2006

Overview

Net loss for the year ended December 31, 2007 was $892,000 or $0.11 per basic and diluted share, a decrease of $3,177,000 from net income of $2,285,000 or $0.28 per diluted share for the year ended December 31, 2006. Results of operations are shown as continuing and discontinued, with discontinued operations comprised of the results of operations from the Company’s oil and gas businesses, the results of the sale of the oil and gas properties, the operating results from real estate properties held for sale and the gain from real estate properties held for sale that were sold during the period.

Continuing Operations:

Loss from continuing operations was $1,368,000 during 2007 as compared to a loss of $1,042,000 during 2006. Results per diluted share from continuing operations were $(0.17) for the year ended December 31, 2007 as compared to $(0.13) per diluted share during 2006. The increased loss from continuing operations during 2007 as compared to 2006 primarily relates to an increase in general and administrative expense of $1,142,000, which primarily relates to the legal costs associated with the matters described above in Item 3 - Legal Proceedings which amounted to $569,000 during 2007 and professional fees incurred in connection with negotiating merger agreements with potential bidders which amounted to $367,000, which was partially offset by a decrease in personnel related costs, and a decrease in depreciation expense of $619,000 related to the reclassification of Alpine Village Apartments, New Jersey, Summercreek Apartments, Texas and Wellington Estates, Texas, into continuing operations from discontinued operations during the second quarter of 2006.

Reported loss from continuing operations in 2007 compared with 2006 reflects an increased loss from operations (defined as revenues reduced by operating expenses, depreciation and general and administrative expenses), that was partially offset by the other factors described herein. These factors are discussed below.

Residential Segment

The residential segment is comprised of Sunrise Ridge Apartments and Van Buren Apartments, both in Arizona, Wellington Estates and Summercreek Apartments, both in Texas, and Alpine Village Apartments in New Jersey. During 2007 NOI decreased by $224,000 or 8.0% to $2,591,000 as a result of an increase in operating expenses of $602,000 or 13.2% to $5,174,000 which was partially offset by an increase in revenues of $378,000 or 5.1% to $7,765,000.

The increase in operating expenses was related to all residential properties and was comprised of increased upgrades and maintenance costs related to occupancy turnover and required repairs to the properties. In addition, during the first quarter of 2007 operating expense increased at our Texas properties resulting from severe weather damage requiring non-recurring repairs of approximately $60,000 and increased real estate taxes of $24,000.

The increase in revenues primarily relates to an overall increase in rental rates. Significant and successful efforts have been made at the Texas properties to increase occupancy and related revenues. The Arizona and New Jersey properties have maintained steady results by maintaining high occupancy levels and obtaining modest rental increases.

Commercial Segment

The commercial segment is comprised of Royal Mall Plaza in Mesa, Arizona and Tempe Corporate Center in Tempe, Arizona. During 2007 NOI increased $222,000 or 29.8% to $966,000 primarily due to an increase in revenues of $208,000 or 14.4% to $1,655,000 and a slight decrease in operating expenses of $14,000 or 2.0% to $689,000. The revenue increase was primarily attributable to a $141,000 increase in revenue at Tempe Corporate Center (Arizona) and a $67,000 increase at Royal Mall (Arizona).

Operating Expenses

Operating expenses were $5,863,000 in 2007, which is an increase of $588,000, or 11.1% as compared to $5,275,000 during 2006. The increase for 2007 was primarily related to all residential properties and was comprised of increased upgrades and maintenance costs related to occupancy turnover and required repairs to the properties. In addition, during the first quarter of 2007 operating expense increased at our Texas properties resulting from severe weather damage requiring non-recurring repairs of approximately $60,000 and increased real estate taxes of $24,000.

Depreciation expense amounted to $1,368,000 in 2007, a decrease of $619,000 or 31.2% as compared to $1,987,000 during 2006. The decrease primarily relates to the reclassification in 2006 of Alpine Village Apartments, New Jersey, Summercreek Apartments, Texas, and Wellington Estates, Texas, into continuing operations from discontinued operations. Additionally, during 2006 the Company invested in capital expenditures throughout its network of residential and commercial properties. These expenditures were undertaken as part of a program to reposition and strengthen the Company’s properties within their targeted markets. Depreciation expense is not included in the operating expenses shown in the preceding table and discussion.

General and administrative expense increased $1,142,000, or 46.1%, to $3,617,000 in 2007 as compared to $2,475,000 during 2006. This increase was primarily the result of the legal costs associated with the matters described above in Item 3 - Legal Proceedings which amounted to $569,000 and professional fees associated with the contemplated sale or merger of the Company which amounted to $367,000, which was partially offset by a decrease in personnel related costs .

Other income decreased by $267,000 to $576,000 in 2007 as compared to $843,000 in 2006. The decrease primarily relates to a decline in interest and dividend income as a result of the payment of a special distribution on June 29, 2006 to stockholders of $3.00 per share or $23.7 million, which was partially offset by increased interest rates during 2007.

Interest expense increased to $1,837,000 in 2007 from $1,811,000 during 2006. The increase primarily relates to the amortization of deferred financing costs associated with the mortgages on the properties.

The provision for income taxes amounted to a tax benefit of $1,321,000 in 2007 compared to a tax benefit of $829,000 during 2006. The change in the provision for income taxes is related to the level of loss from continuing operations in 2007 compared to 2006 and the change in the mix between taxable and tax-exempt income.

Discontinued Operations, Net of Taxes:

Real Estate

Income from discontinued operations amounted to after tax income of $176,000 during 2007 and $3,212,000 during 2006. The income during the 2007 period reflects the sale of six condominium units at Jefferson Gardens and the sale of the Lake Hopatcong land resulting in gross proceeds of $1.8 million and after tax gain of $699,000.

During 2006, the Company sold all its condominium units at Galsworthy Arms in Long Branch, New Jersey, for gross proceeds of $7,197,000 which resulted in an after-tax gain of $2,975,000, and its triple net lease on a bank branch in Rutherford, New Jersey, for gross proceeds of $1,603,000 which resulted in an after-tax gain of $550,000. The Company also sold its Twelve Oaks apartment complex in Riverdale, Georgia, for gross proceeds of $2,180,000, which resulted in an after-tax gain of $444,000. Additionally, the Company sold the Wilshire Grand Hotel during 2006. The Wilshire Grand Hotel was owned by WO Grand Hotel, L.L.C., which is 50% owned by the Company and 50% owned by Proud Three, L.L.C. The hotel was sold for gross proceeds of $12.8 million, including adjustments to the purchase price for fees extending the closing date. The sale resulted in an after-tax gain to the Company of $264,000 and approximately $6.0 million of proceeds from the transaction, including the repayment of debt.

The loss on operating discontinued real estate properties decreased to $512,000 during 2007 from $1,021,000 during 2006. The decreased loss is primarily attributable to the operating losses at the Company’s office building in Perth Amboy, New Jersey and Jefferson Gardens Condominiums where many units were left vacant in 2006 in anticipation of their sale to private investors.

Oil and Gas

The Company announced in July 2003 its intention to sell its oil and gas businesses. The Canadian oil and gas business was sold in April 2004 to Addison Energy Inc., a wholly owned subsidiary of Exco Resources, Inc., for $15 million in gross proceeds. The United States oil and gas business was sold in April 2004 to Crow Creek Energy LLC, a Tulsa, Oklahoma based privately held portfolio company of Natural Gas Partners of Dallas, Texas, for $13.3 million in gross proceeds. During 2007, the Company recognized after-tax income from the wind down of its former oil and gas business, of $300,000 as compared to $115,000 during 2006. The net income from the wind down of the oil and gas business during 2007 relates to a foreign currency gain and interest income during the period. The income in 2006 is a result of an over provision of withholding taxes related to cash maintained in Canada.

Results of Operations - For the year ended December 31, 2006 as compared to the year ended December 31, 2005

Overview

Net income for the year ended December 31, 2006 was $2,285,000 or $0.28 per diluted share, a decrease of $4,606,000 from net income of $6,891,000 or $0.87 per diluted share for the year ended December 31, 2005. Results of operations are shown as continuing and discontinued, with discontinued operations comprised of the results of operations from the Company’s oil and gas businesses, the results of the sale of the oil and gas properties, the operating results from real estate properties held for sale and the gain from real estate properties held for sale that were sold during the period.

Continuing Operations:

Loss from continuing operations was $1,042,000 during 2006 as compared to a loss of $581,000 during 2005. Results per diluted share from continuing operations were $(0.13) for the year ended December 31, 2006 as compared to $(0.07) per diluted share during 2005. The increased loss from continuing operations during 2006 as compared to 2005 primarily relates to an increase in depreciation expense of $772,000 related to the reclassification of Alpine Village Apartments, New Jersey, Summercreek Apartments, Texas, and Wellington Estates, Texas, into continuing operations. Additionally, during 2005 the Company recognized a gain of $675,000 as a result of a settlement from a mortgage receivable. This was offset by decreased General and Administrative expenses of approximately $1,018,000 during 2006. This decrease was primarily the result of a $1,029,000 expense related to the termination of a consulting contract and the exercise of stock options by the former President of the Company during 2005.

Reported loss from continuing operations in 2006 compared with 2005 reflects a decreased loss from operations (defined as revenues reduced by operating expenses, depreciation and general and administrative expenses), that was partially offset by higher depreciation expense and the other factors described herein. These factors are discussed below.

Residential Segment

The residential segment is comprised of Sunrise Ridge Apartments and Van Buren Apartments, both in Arizona, Wellington Estates and Summercreek Apartments, both in Texas, and Alpine Village Apartments in New Jersey. During 2006 NOI increased modestly by $51,000 or 1.8% to $2,815,000 based upon a revenue increase of $480,000 or 6.9% to $7,387,000 which was primarily offset by an operating expense increase of $429,000 or 10.4% to $4,572,000.

The increase in revenues was primarily attributable to the Sunrise Ridge Apartments, Wellington Estates and Alpine Village Apartments, which have generally experienced an increase in occupancy and rental rates during 2006. The increase in operating expenses is reflective of increased labor costs and increased marketing and maintenance expenses to attract new tenants. In addition, the properties have experienced increased utility costs.

Commercial Segment

The commercial segment is comprised of Royal Mall Plaza in Mesa, Arizona and Tempe Corporate Center in Tempe, Arizona. During 2006 NOI increased $30,000 or 4.2% to $744,000 due to an increase in revenues of $168,000 or 13.1% to $1,447,000 and an increase in operating expenses of $138,000 or 24.4% to $703,000.

The revenue increase was related to increased occupancy and rents at Tempe Corporate Center. The Royal Mall Plaza is a mixed use commercial/retail property with an emphasis on medical services tenants. This property has experienced difficulty attracting tenants as many medical services entities prefer to buy condominiums or buildings versus renting. The Company is evaluating investing in refurbishing the property, including painting and potential exterior renovations, and has retained a leasing agent to seek to attract new tenants to this property.


Operating Expenses

Operating expenses were $5,275,000 in 2006, which is an increase of $567,000, or 12.0% as compared to $4,708,000 during 2005. The increase for 2006 is primarily attributable to higher costs that are sensitive to the warm weather experienced in our market areas, such as water, electric and landscaping and to increased maintenance costs related to new tenants and turnover of units.

Depreciation expense amounted to $1,987,000 in 2006, an increase of $772,000 or 63.5% as compared to $1,215,000 during 2005. The increase primarily relates to the reclassification of Alpine Village Apartments, New Jersey, Summercreek Apartments, Texas, and Wellington Estates, Texas, into continuing operations from discontinued operations. Additionally, during 2006 the Company invested in capital expenditures throughout its network of residential and commercial properties. These expenditures were undertaken as part of a program to reposition and strengthen the Company’s properties within their targeted markets. Depreciation expense is not included in the operating expenses shown in the preceding table and discussion.

General and administrative expense decreased $1,018,000, or 29.1%, to $2,475,000 in 2006 as compared to $3,493,000 during 2005. This decrease was primarily the result of a $1,029,000 expense related to the termination of a consulting contract and the exercise of stock options by the former President of the Company during 2005.

Other income decreased by $698,000 to $843,000 in 2006 as compared to $1,541,000 in 2005. The decrease primarily relates to $134,000 of gains from the sale of marketable securities in 2005 and $675,000 of gain from the settlement of a mortgage receivable during 2005.

Interest expense decreased to $1,811,000 in 2006 from $1,911,000 during 2005. The decrease primarily relates to the retirement of debt related to the sale of properties during 2006.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

The following discussion addresses the Company’s results of operations for the three and nine month period ended September 30, 2008 compared to the three and nine month period ended September 30, 2007 and the Company’s consolidated financial condition as of September 30, 2008. It is presumed that readers have read or have access to Wilshire’s 2007 Annual Report on Form 10-K which includes disclosures regarding critical accounting policies as part of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Report on Form 10-Q for the quarter and nine months ended September 30, 2008 contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included herein other than statements of historical fact are forward-looking statements. Although the Company believes that the underlying assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. The Company’s business and prospects are subject to a number of risks which could cause actual results to differ materially from those reflected in such forward-looking statements, including uncertainties relating to the closing of the proposed merger described herein, environmental risks relating to the Company’s real estate properties, competition, the substantial capital expenditures required to fund the Company’s real estate operations, market and economic changes in areas where the Company holds real estate properties, interest rate fluctuations, government regulation, and the ability of the Company to implement its business strategy. For additional information regarding risk factors impacting the Company and its forward-looking statements, see Item 1A of the Company’s Annual Report on Form 10-K, as amended for the year ended December 31, 2007.

Effects of Recent Accounting Pronouncements

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and provides entities with a framework for selecting the principles used in preparation of financial statements that are presented in conformity with Generally Accepted Accounting Principles (“GAAP”). The current GAAP hierarchy has been criticized because it is directed to the auditor rather than the entity, it is complex, and it ranks FASB Statements of Financial Accounting Concepts, which are subject to the same level of due process as FASB Statements of Financial Accounting Standards, below industry practices that are widely recognized as generally accepted but that are not subject to due process. The FASB believes the GAAP hierarchy should be directed to entities because it is the entity (not its auditors) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. The adoption of FASB 162 is not expected to have a material impact on the Company’s consolidated financial position

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” , which requires additional disclosures about the objectives of the derivative instruments and hedging activities, the method of accounting for such instruments under SFAS No. 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our consolidated financial position, financial performance and cash flows. SFAS No. 161 is effective beginning January 1, 2009. The Company does not have any derivative instruments or utilize any hedging activities and therefore, SFAS No. 161 is not applicable to the Company at this time.

In December 2007, the FASB issued SFAS No. 141-R, “Business Combinations” (“SFAS 141-R”). SFAS 141-R changes the accounting for acquisitions specifically eliminating the step acquisition model, changing the recognition of contingent consideration from being recognized when it is probable to being recognized at the time of acquisition, disallowing the capitalization of transaction costs and changes when restructurings related to acquisition can be recognized. The standard is effective for fiscal years beginning on or after December 15, 2008 and will only impact the accounting for acquisitions that are made after adoption. The Company believes the adoption of SFAS 141-R will not have an effect on the Company’s consolidated financial position or results of operations as there are no current acquisitions being contemplated.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51”. This statement is effective for fiscal years beginning on or after December 15, 2008, with earlier adoption prohibited. This statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the Company’s equity. The amount of net income attributable to the noncontrolling interest will be included in the consolidated net income on the face of the consolidated income statement. It also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS 141-R. This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The Company believes the adoption of SFAS 160 will not have an effect on the Company’s consolidated financial position or results of operations.

Overview

On June 13, 2008, the Company entered into an Agreement and Plan of Merger among the Company, NWJ Apartment Holdings Corp. (the "Parent") and NWJ Acquisition Corp., a wholly-owned subsidiary of the Parent ("Merger Sub"). Both the Parent and Merger Sub are affiliates of NWJ Companies, Inc. ("NWJ"), a privately owned real estate development company based in New York, New York. The merger agreement provides that at the closing of the merger, the Merger Sub will merge with and into the Company, and each outstanding share of the Company's common stock will be converted into the right to receive $3.88 per share in cash, without interest. On September 17, 2008, a special meeting of stockholders was held at which the Company’s stockholders approved the proposal to adopt the merger agreement.

The Company has been informed by the Parent that unless there is a significant improvement in the current economic and lending environment in the United States, the Parent will not be able to secure the financing of the Company's residential properties required to close the merger with the Company. If the merger is not consummated by December 13, 2008, as a result of the failure to obtain such financing, either party may terminate the merger agreement without liability to the other, provided that the terminating party has not breached the merger agreement in a manner that caused the merger not to close by December 13, 2008. Under the terms of the merger agreement, the Parent is obligated to use its commercially reasonable best efforts to arrange the financing of the Company's residential properties unless and until the merger agreement is terminated.

Net loss for the three months ended September 30, 2008 was $296,000 or $0.04 per diluted share as compared to a net loss of $206,000 or $0.03 per diluted share for the three month period ended September 30, 2007. For the nine months ended September 30, 2008, the Company recorded a net loss of $1,088,000 or $0.14 per diluted share as compared to a net loss of $577,000 or $0.07 per diluted share during the nine months ended September 30, 2007. Operations are shown as continuing and discontinued, with discontinued operations comprised of the results of operations from the Company’s real estate properties held for sale, the gain from real estate properties held for sale that were sold during the period and the wind down of the oil and gas businesses.

In January 2008, the Company closed on the sale of a one bedroom condominium at Jefferson Gardens, New Jersey for gross proceeds of approximately $150,000. After payments of closing costs and providing for taxes, the Company realized a net gain during the nine months ended September 30, 2008 of approximately $61,000 from this sale.

In May 2008, the Company closed on the sale of its Tamarac Office Plaza, Florida, office complex for gross proceeds of $2 million. After payments of closing costs and providing for taxes, the Company realized a net gain during the nine months ended September 30, 2008 of approximately $686,000 from this sale.

During the three and nine months ended September 30, 2007, the Company sold the following real estate assets:



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In January and February 2007, the Company closed on the sale of a one bedroom and a two bedroom condominium unit at Jefferson Gardens for gross proceeds of $144,300 and 195,000, respectively.



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In February 2007, the Company closed on the sale of a parcel of land located in Lake Hopatcong, New Jersey for gross proceeds of $850,000.



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In April 2007, the Company closed on the sale of a one bedroom condominium unit at Jefferson Gardens for gross proceeds of $150,000.



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In July 2007, the Company closed on the sale of a one bedroom condominium unit at Jefferson Gardens for gross proceeds of $150,000.



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In August 2007, the Company closed on the sale of a one bedroom condominium unit at Jefferson Gardens for gross proceeds of $154,500.

After payment of closing costs and providing for taxes, the Company realized net gains from sales of properties of $123,000 and $610,000, respectively, during the three and nine months ended September 30, 2007. A portion of the taxes payable was deferred as a result of an Internal Revenue Service Section 1031 tax deferred exchange for which the Company has identified a replacement property. These gains were included in the statements of operations in discontinued operations – real estate – gain from sales.

Results of Operations

Three Months Ended September 30, 2008 as Compared with Three Months Ended September 30, 2007

Continuing Operations:

Loss from continuing operations amounted to $453,000 during the three months ended September 30, 2008 as compared to a loss from continuing operations of $366,000 during the three months ended September 30, 2007. Results per diluted share from continuing operations amounted to $(0.06) during the three months ended September 30, 2008 as compared to $(0.05) during the three months ended September 30, 2007. The 2008 period included the following charges to expense: an increase in general and administrative expense of $159,000, which primarily relates to professional fees incurred related to the proposed sale of the Company, as well as an increase in operating expenses of $34,000 partially offset by a decrease in depreciation expense of $80,000 and an increased income tax benefit of 205,000 resulting from an increased operating loss for the period.

Residential Segment

The residential segment is comprised of Sunrise Ridge Apartments and Van Buren Apartments, both in Arizona, Wellington Estates and Summercreek Apartments, both in Texas, and Alpine Village Apartments in New Jersey. During the three month period ended September 30, 2008, NOI increased by $8,000 or 1.1% to $725,000 as compared to $717,000 during the same period in 2007.

Revenues increased $35,000 or 1.8% during the quarter ended September 30, 2008 to $2,004,000, compared to $1,969,000 during the quarter ended September 30, 2007. Operating expenses increased $27,000 or 2.2% to $1,279,000. The increase in revenues was primarily attributable to the Company’s Texas and New Jersey apartment complexes, which experienced a slight increase in occupancy during the period. The increase in operating expenses was primarily attributable to the Company’s Arizona and Texas apartment complexes.

Commercial Segment

The commercial segment is comprised of Royal Mall Plaza in Mesa, Arizona and Tempe Corporate Center in Tempe, Arizona. Revenues during the quarter ended September 30, 2008, as compared to the quarter ended September 30, 2007, decreased $113,000 or 25.5% to $330,000 and operating expenses increased $7,000 or 3.8% to $190,000. The revenue decrease was primarily attributable to decreased occupancy at both Tempe Corporate Center and Royal Mall (Arizona) resulting in decreased rental revenues in the amounts of $43,000 and $70,000, respectively.

The increase in operating expenses is primarily attributable to increased costs at Royal Mall (Arizona).

Other Operating Expenses

Depreciation expense amounted to $284,000 during the three months ended September 30, 2008, a decrease of $80,000 from $364,000 during the three months ended September 30, 2007. The decrease in depreciation expense relates to the retirement of certain assets during the past year.

General and administrative expense increased $159,000, or 17.8%, to $1,051,000 during the three months ended September 30, 2008 as compared to $892,000 during the same period in 2007. The increase in general and administrative expense is primarily attributable to professional fees incurred related to the proposed sale of the Company.

Other income (loss) decreased from income of $185,000 in the 2007 quarter to $80,000 in the 2008 quarter, a decrease of $105,000. The decrease is primarily relates to declining interest rates and reduced dividend income during the three months ended September 30, 2008 as compared to the same period in 2007.

Interest expense decreased to $443,000 during the three months ended September 30, 2008 as compared to $447,000 during the three months ended September 30, 2007. The decrease primarily relates to the reduction in the Company’s mortgage liability and the payoff of the mortgage on the Tamarac Office Plaza which was sold in May 2008.

The benefit for income taxes amounted to $380,000 and $175,000 during the three month period ended September 30, 2008 and 2007, respectively. The change in the benefit for income taxes is related to an increased loss from continuing operations during the 2008 quarter as compared to the 2007 quarter.
Discontinued Operations, Net of Taxes:

Real Estate

The after tax loss from discontinued operations for the three months ended September 30, 2008 amounted to $120,000 as compared to an after tax loss of $45,000 during the three months ended September 30, 2007. The loss during the 2008 period reflects the loss from operations of $120,000. The loss during the 2007 period is comprised of a loss from discontinued operations of $168,000 which was partially offset by a gain from the sale of a two condominium units at Jefferson Gardens for gross proceeds of $305,000 that resulted in an after tax gain of $123,000.

The loss from operating properties classified as discontinued operations decreased by $48,000 to a loss of $120,000 during the quarter ended September 30, 2008 as compared to a loss of $168,000 during the same period in 2007.

Oil and Gas

During the quarter ended September 30, 2008, the Company recorded income from the wind down of its former oil and gas business, of $277,000 as compared to income of $205,000 during the same period in 2007. The net income from the wind down of the oil and gas business during the quarter ended September 30, 2008 relates to foreign currency gain during the period and a tax refund in the amount of $85,000. The net income from the wind down of the oil and gas business during the quarter ended September 30, 2007 relates to a foreign currency gain and interest income during the period.

Nine Months Ended September 30, 2008 as Compared with Nine Months Ended September 30, 2007

Continuing Operations:

Loss from continuing operations amounted to $1,632,000 during the nine months ended September 30, 2008 as compared to a loss from continuing operations of $1,142,000 during the nine months ended September 30, 2007. Results per diluted share from continuing operations amounted to $(0.21) during the nine months ended September 30, 2008 as compared to $(0.14) during the nine months ended September 30, 2007. The 2008 period included the following charges to expense: an increase in general and administrative expense of $211,000, increased operating expenses of $32,000, which was offset by a decrease in depreciation expense of $196,000 and an increase in income tax benefit of $352,000 resulting from an increase in the loss from operations.

Residential Segment

Revenues from the residential segment increased $18,000 or 0.3% to $5,815,000 during the nine months ended September 30, 2008 as compared to $5,797,000 during the same period in 2007. In addition, operating expenses increased $30,000 or 0.8% to $3,854,000 during the nine months ended September 30, 2008 as compared to the nine month period ended September 30, 2007. The slight increase in revenues was primarily attributable to increased rental revenues at the Company’s Texas and New Jersey locations of $132,000, which was partially offset by a decrease in rental revenues at the Arizona properties of $114,000.

Commercial Segment

Commercial segment revenues decreased $154,000 or 12.3% for the nine months ended September 30, 2008 to $1,093,000 as compared to $1,247,000 for the nine months ended September 30, 2007. Operating expenses increased $2,000 or 0.4% to $519,000 for the nine months ended September 30, 2008 as compared to $517,000 for the same period in 2007. The revenue decrease was primarily attributable to decreases in occupancy rates at both Tempe Corporate Center and Royal Mall (Arizona) resulting in decreased rental revenues of $83,000 and $70,000, respectively.

Other Operating Expenses

Depreciation expense amounted to $902,000 during the nine months ended September 30, 2008, a decrease of $196,000 or 17.9% from $1,098,000 during the nine months ended September 30, 2007. The decrease in depreciation expense primarily relates to the retirement of certain assets during the past year.

General and administrative expense increased $211,000, or 8.0%, to $2,848,000 during the nine month period ended September 30, 2008 as compared to $2,637,000 during the same period in 2007. The increase is primarily related to professional fees incurred related to the proposed sale of the Company which was partially offset by the absence of costs associated with the preliminary investigation described in the Company’s Form 10-K for the year ended December 31, 2007.

Other income (loss) decreased from income of $458,000 during the nine months ended September 30, 2007 to a loss of $200,000 during the nine months ended September 30, 2008, a decrease of $658,000. The decrease is primarily related to the $553,000 loss on the sale of the Company’s marketable securities in the 2008 period.

Interest expense increased slightly to $1,336,000 during nine months ended September 30, 2008 as compared to $1,335,000 during the nine months ended September 30, 2007.

The benefit for income taxes increased to $1,119,000 during the nine months ended September 30, 2008 as compared to $767,000 during the nine months ended September 30, 2007. The change in the benefit for income taxes is related to the increased loss from continuing operations during the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007.

Discontinued Operations, Net of Taxes:

Real Estate

Income from discontinued operations amounted to after tax income of $357,000 for the nine months ended September 30, 2008 as compared to after tax income of $89,000 for the same period in 2007. The income during the 2008 period reflects the sales of one condominium unit at Jefferson Gardens in January 2008 for an after-tax gain of approximately $61,000 and the sale of the Tamarac Office Plaza in May 2008 for an after-tax gain of approximately $686,000, which was partially offset by a loss from operations of $390,000 during the nine months ended September 30, 2008. The income during the 2007 period reflects the sale of five condominium units at Jefferson Gardens and the sale of the Lake Hopatcong land resulting in gross proceeds of $1.6 million and after tax gain of $610,000, partially offset by a loss from operations of $521,000.

The loss from operating properties classified as discontinued operations decreased to a loss of $390,000 during the nine months ended September 30, 2008 as compared to a loss of $521,000 during the nine month period ended September 30, 2007.

Oil and Gas

During the nine months ended September 30, 2008, the Company recorded income from the wind down of its former oil and gas business, of $187,000 as compared to income of $476,000 during the nine months ended September 30, 2007. The net income from the wind down of the oil and gas business during the nine months ended September 30, 2008 relates to a foreign currency gain during the period and a tax refund in the amount of $85,000. The net income from the wind down of the oil and gas business during the nine months ended September 30, 2007 relates to a foreign currency gain and interest income during the period.

Liquidity and Capital Resources

At September 30, 2008, the Company had working capital, including restricted cash, of $10.4 million, compared to working capital of $14.7 million at December 31, 2007. The decline in working capital during the period is primarily attributable to the inclusion of $3.9 million of long-term mortgage debt which has been reclassified to current debt as such amount is due in June 2009.

The Company has $13.4 million of cash and cash equivalents, restricted cash and short-term marketable debt securities at September 30, 2008. This balance is comprised of working capital accounts for its real estate properties and corporate needs, short-term investments in government and corporate securities, including $2.8 million of auction rate debt securities and money market funds. In the short-term, the Company will continue to invest these funds in high quality investments that are consistent with its investment policy.

Regarding the investments in short-term marketable debt securities, the Company invests its available funds in high quality investments that are consistent with the Company’s investment policy which includes the following objectives: a) to maintain liquidity which is sufficient to meet any reasonably forecasted cash requirements; b) to preserve principal through investment in products and entities that are consistent with the Company’s risk tolerance; and c) to maximize income consistent with the Company’s liquidity and risk tolerance. Consistent with this investment policy, the Company only invests in approved securities such as obligations of the U.S. Treasury, the U.S. Government and agencies with obligations guaranteed by the U.S. Government and highly rated municipal and corporate issuers. As it relates to the Company's investment in marketable equity securities, the Company had invested in a publicly traded real estate company. In June 2008, the Company sold its investment of marketable equity securities which consisted of common shares in one real estate company for gross proceeds of $1.3 million. As a result of this sale, the Company recognized a loss from the sale of securities of $188,000. The Company generally does not invest in marketable equity securities.

The Company holds investments in certain marketable equity securities and short-term marketable debt instruments, including auction rate securities (“ARS”) with interest rate resets ranging from every seven days to every 45 days. As of September 30, 2008, the Company held $2.8 million of auction rate securities, classified as available-for-sale. These securities were then and are currently valued at par. Available-for-sale securities are carried at estimated fair value, based on available information. Consistent with our policy, all ARS investments were rated at the time of purchase and are still currently rated AAA or the equivalent thereto. Beginning in February 2008, with the liquidity issues in the global credit and capital markets, the Company was informed that there was insufficient demand at auction for its ARS investments. As a result, auctions for these securities began to fail and by March 31, 2008, all normal market activity had essentially ceased. During the second and third quarters of 2008, the Company sold $1.2 million and $250,000 of its ARS at par value through successful redemptions. In addition, the Company sold $3.7 million of its ARS in a private transaction for $3.3 million. As a result of this transaction, the Company recorded a $365,000 loss on the sale of these securities. The sale of the ARS in a private transaction is considered a one-time transaction by the Company. As a result of recent settlements between government entities and our investment advisor related to the sale of ARS, the Company may be entitled to recover its $365,000 loss incurred on the sale of its $3.7 million of ARS during the second quarter 2008. The Company is currently providing its investment advisor with the necessary documentation in order to process its claim to recover such loss. If the Company did not sell these ARS in a private transaction, the Company would not have recorded an unrealized loss as such securities would have been recorded at par similar to the remaining ARS which the Company currently holds. The Company has been notified by its investment advisor as a result of recent settlements between government entities and our investment advisor that effective December 15, 2008 the Company can submit for redemption the ARS it currently holds and that such securities can be redeemed by the investment advisor on the next scheduled redemption date after December 15, 2008. However, in the event we are unable to sell the investments through the investment advisor after December 15, 2008 or sell the investments at or above our carrying value, these securities may not provide us a liquid source of cash or might require us to record an impairment to the asset value.

On June 13, 2008, the Company entered into an Agreement and Plan of Merger among the Company, NWJ Apartment Holdings Corp. (the "Parent") and NWJ Acquisition Corp., a wholly-owned subsidiary of the Parent ("Merger Sub"). Both the Parent and Merger Sub are affiliates of NWJ Companies, Inc. ("NWJ"), a privately owned real estate development company based in New York, New York. The merger agreement provides that at the closing of the merger, Merger Sub will merge with and into the Company, and each outstanding share of the Company's common stock will be converted into the right to receive $3.88 per share in cash, without interest. On September 17, 2008 a special meeting of stockholders was held at which the Company’s stockholders approved the proposal to adopt the merger agreement.

The Company has been informed by the Parent that unless there is a significant improvement in the current economic and lending environment in the United States, the Parent will not be able to secure the financing of the Company's residential properties required to close the merger with the Company. If the merger is not consummated by December 13, 2008, as a result of the failure to obtain such financing, either party may terminate the merger agreement without liability to the other, provided that the terminating party has not breached the merger agreement in a manner that caused the merger not to close by December 13, 2008. Under the terms of the merger agreement, the Parent is obligated to use its commercially reasonable best efforts to arrange the financing of the Company's residential properties unless and until the merger agreement is terminated.

Net cash used in operating activities amounted to $1,494,000 and $560,000 during the nine month periods ended September 30, 2008 and 2007, respectively. During the nine months ended September 30, 2008, the use of cash resulted from a net loss of $1,088,000, the effect of the sale and depreciation of real estate properties, and the changes in receivables, prepaid expenses, payables and current and deferred tax accounts. During the nine months ended September 30, 2007, the use of cash resulted from a net loss of $577,000, the effect of the sale of real estate properties with their related changes in receivables, payables and current and deferred tax accounts.

Net cash provided by investing activities amounted to $8,054,000 for the nine month period ended September 30, 2008 while net cash used in investing activities amounted to $3,018,000 during the nine month period ended September 30, 2007. The cash provided by investing activities during the nine months ended September 30, 2008 primarily relates to the proceeds from the redemption and sale of marketable securities in the amount of $6,142,000, proceeds from the sale of real estate properties of $2,044,000, a decrease in restricted cash of $45,000 which was partially offset by capital expenditures on real estate properties of $177,000. The cash used in investing activities during the nine months ended September 30, 2007 primarily relates to an increase in short-term marketable securities of $3,650,000, capital expenditures on real estate properties of $606,000, an increase in restricted cash of $286,000 which was partially offset by the proceeds from the sale of real estate properties of $1,524,000.

Net cash used in financing activities amounted to $976,000 and $508,000 during the nine month periods ended September 30, 2008 and 2007, respectively. During the nine months ended September 30, 2008, the use of cash primarily reflects the repayment of long-term debt due to the normal amortization of long-term debt from monthly debt service payments and the payoff of the debt related to the Tamarac Office Plaza in May 2008 in the amount of $566,000. During the nine months ended September 30, 2007, the use of cash reflects the repayment of long-term debt due to the sales of real estate properties and normal amortization of long-term debt from monthly debt service payments in the amount of $543,000 which was partially offset by the proceeds received from the exercise of stock options in the amount of $33,000.

On June 3, 2004, the Board of Directors approved the repurchase of up to 1,000,000 shares of the Company’s common stock on the open market, in privately negotiated transactions or otherwise. This purchasing activity may occur from time to time, in one or more transactions. At September 30, 2008, the Company had purchased 138,231 shares at an aggregate cost of $1,017,000 under this program. There were no shares repurchased by the Company during the nine month period ended September 30, 2008.

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