Wright Investors Service Holdings, Inc. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

Commission File Number: 000-50587

WRIGHT INVESTORS’ SERVICE HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”, in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒  No ☐

Securities registered pursuant to Section 12(b) of the Act:           None 

Securities registered pursuant to Section 12(g) of the Act:

As of November 12, 2020, there were 19,839,777 shares of the registrant’s common stock, $0.01 par value, outstanding. 

WRIGHT INVESTORS’ SERVICE HOLDINGS, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

WRIGHT INVESTORS' SERVICE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

See accompanying notes to condensed consolidated financial statements.

WRIGHT INVESTORS' SERVICE HOLDINGS, INC.

 CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

See accompanying notes to condensed consolidated financial statements.

WRIGHT INVESTORS' SERVICE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

See accompanying notes to condensed consolidated financial statements. 

WRIGHT INVESTORS' SERVICE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

THREE AND NINE MONTHS ENDED September 30, 2020 and 2019

(UNAUDITED)

(in thousands, except per share data)

See accompanying notes to condensed consolidated financial statements.

WRIGHT INVESTORS’ SERVICE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

Three months ended September 30, 2020 and 2019

(unaudited)

Basis of presentation

The accompanying interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  The information and note disclosures normally included in complete financial statements have been condensed or omitted pursuant to such rules and regulations.  The Condensed Consolidated Balance Sheet as of December 31, 2019 has been derived from audited financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2019 as presented in our Annual Report on Form 10-K. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for a fair presentation. The results for the 2020 interim period are not necessarily indicative of results to be expected for the entire year.

Description of activities

The Company has no or nominal operations. As a result, the Company is a “shell company”, as defined in Rule 405 of the Securities Act of 1933, as amended, or the Securities Act, and Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. As a shell company, its stockholders will be unable to utilize Rule 144 of the Securities Act, or Rule 144 to sell “restricted stock” as defined in Rule 144 or otherwise use Rule 144 to sell stock of the Company, and the Company would be ineligible to utilize registration statements on Form S-3 or Form S-8 for so long as the Company remains a shell company and for 12 months thereafter. Among other things, as a consequence, the offering, issuance and sale of its securities is likely to be more expensive and time consuming and may make the Company’s securities less attractive to investors.

The Company is not engaged in the business of investing, reinvesting, or trading in securities, and it does not hold itself out as being engaged in those activities. However, under the Investment Company Act of 1940, as amended (the “Investment Company Act”), a company may fall within the scope of being an “inadvertent investment company” under section 3(a)(1)(C) of such Act if the value of the Company’s investment securities (as defined in the Investment Company Act) is more than 40% of the Company’s total assets (exclusive of government securities and cash and certain cash equivalents). 

The Company intends to evaluate and explore all available strategic options. The Company will continue to work to maximize stockholder value. Such strategic options may include acquisition of an investment advisory business, acquisition of a financial services business, creating partnerships or joint ventures for those or other businesses and investing in other businesses that provide attractive opportunities for growth. The directors will also consider alternatives for distributing some or all of the Company’s cash and cash equivalents. Until such time as a decision is made as to how the proceeds from the Sale and other liquid assets of the Company are so deployed, the Company intends to invest the proceeds of the Sale and its other liquid assets in high-grade, short- term investments (such as cash and cash equivalents) consistent with the preservation of principal, maintenance of liquidity and avoidance of speculation.

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. The standard, as amended, is effective for periods beginning after December 15, 2022 for both interim and annual periods. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-13 to have an impact on its condensed consolidated financial statements.

Loss per share for the three months ended September 30, 2020 and 2019 respectively, is calculated based on 19,873,110 and 19,744,321 weighted average outstanding shares of common stock, including a weighted average 33,333 shares which are issuable at September 30, 2020.

Loss per share for the nine months ended September 30, 2020 and 2019 respectively, is calculated based on 19,867,555 and 19,705,490 weighted average outstanding shares of common stock, including a weighted average 27,778 shares which are issuable at September 30, 2020.

Options for 550,000 shares of common stock, for each of the three and nine months ended September 30, 2020 and 2019, and stock awards for 66,667 and 100,000 shares of common stock for each of the three and nine months ended September 30, 2020 and 2019, respectively, were not included in the diluted computation as their effect would be anti-dilutive since the Company incurred net losses for both periods.

The Company carries its investments at fair value. Fair value is an estimate of the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the measurement date). Fair value measurements are not adjusted for transaction costs. A fair value hierarchy provides for prioritizing inputs to valuation techniques used to measure fair value into three levels:

An asset or liability's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 or Level 2 assets or liabilities.

As of September 30, 2020, and December 31, 2019, the Company held $6,050,000 and $7,144,000 in U.S. government debt securities. U.S. government securities are valued using a model that incorporates market observable data, such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data. Certain securities are valued principally using dealer quotations. Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. U.S. government debt securities are categorized in Level 2 of the fair value hierarchy, depending on the inputs used and market activity levels for specific securities. The U.S. government debt securities, which have maturities of three months or less at time of purchase, are reported as Cash and cash equivalents, and those with longer maturities are reported as investments, on the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019. 

The following table presents the Company’s financial instruments at fair value (in thousands):

The income tax benefit predominantly represents an adjustment to the accrued income tax liability. No tax benefit has been recorded in relation to the pre-tax loss for the three and nine months ended September 30, 2020 and 2019, due to a full valuation allowance to offset any deferred tax asset related to net operating loss carry forwards attributable to the losses.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The Act contains several new or changed income tax provisions, including but not limited to the following: increased limitation threshold for determining deductible interest expense; class life changes to qualified improvements and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years. The Company has evaluated the new tax provisions of the CARES Act and determined the impact to be either immaterial or not applicable.

On May 1, 2020, the Company received $53,000 from Fieldpoint Private Bank pursuant to the Paycheck Protection Program (the “PPP Loan”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on May 4, 2022 (the “Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty. No principal or interest payments are due within the initial six months of the PPP Loan. Thereafter, monthly payments of principal and interest are due. The interest accrued during the initial six-month period is due and payable, together with the remaining principal, on the Maturity Date. As of September 30, 2020, short-term liability related to the loan payable was approximately $32,000 and the long-term liability was approximately $21,000. The Company intends to use all proceeds from the PPP Loan to retain employees, maintain payroll and make operating expense payments to support business continuity throughout the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject to claw back.

The Company’s Board of Directors, without any vote or action by the holders of common stock, is authorized to issue preferred stock from time to time in one or more series and to determine the number of shares and to fix the powers, designations, preferences and relative, participating, optional or other special rights of any series of preferred stock.

The Board of Directors authorized the Company to repurchase up to 5,000,000 outstanding shares of common stock from time to time either in open market or privately negotiated transactions. As of September 30, 2020, the Company had repurchased 2,041,971 shares of its common stock and a total of 2,958,029 of the authorization shares, remained available for repurchase as of September 30, 2020. No such shares were repurchased during any of the three and nine months ended September 30, 2020 and 2019.

Stock awards

On February 13, 2019, 100,000 stock awards were issued to a newly appointed director of the Company. The stock awards vest equally, annually, over 3 years. The stock awards are valued based on the closing price of $0.42 of the Company’s common stock on February 13, 2019. At September 30, 2020, 66,667 stock awards remained unvested and 33,333 shares are to be issued.

The Company recorded compensation expense of approximately $3,000 and $3,000 for the three months ended September 30, 2020 and 2019, respectively, and compensation expense of approximately $9,000 and $7,000 for the nine months ended September 30, 2020 and 2019, respectively, related to those stock awards. The total unrecognized compensation expense related to these unvested stock awards at September 30, 2020 is $18,700, which will be recognized over the remaining vesting period of approximately 1.5 years. 

Common stock options

The Company adopted a stock-based compensation plan for employees and non-employee members of its Board of Directors in November 2003 (the “2003 Plan”), and the National Patent Development Corporation 2007 Incentive Stock Plan in December 2007 (the “2007 NPDC Plan”).  The periods during which additional awards may be granted under the plans have expired and no further awards may be granted under any of these plans after December 20, 2017. As a consequence, any equity compensation awards issued after that time will be on terms determined by the Board of Directors or the Compensation Committee of the Board of Directors and pursuant to exemptions from the registration requirements of the securities laws.

The Company issued 100,000 options to a consultant on March 28, 2016 which vest equally over 3 years and are subject to post vesting restrictions for sale for three years with an exercise price of $1.29, which price was equal to the market value at the date of the grant. 

As of September 30, 2020, all options were vested and there were outstanding options to acquire 550,000 common shares under the 2007 NPDC Plan, all 550,000 options were vested and exercisable, having a weighted average exercise price of $1.35 per share, a weighted average contractual term of 1.75 years and zero aggregate intrinsic value. There were no grants, forfeitures or options exercised during the first, second, and third quarters of 2020.

On September 26, 2014, the Connecticut Department of Energy and Environmental Protection (“DEEP”) issued two Orders requiring the investigation and repair of two dams in which the Company and its subsidiaries have certain ownership interests. The first Order required that the Company investigate and make specified repairs to the ACME Pond Dam located in Killingly, Connecticut. The second Order, as subsequently revised by DEEP on October 10, 2014, required that the Company investigate and make specified repairs to the Killingly Pond Dam located in Killingly, Connecticut. The Company administratively appealed and contested the allegations in both Orders. On July 27, 2017, the Company entered into a Consent Order with the DEEP relative to Killingly Pond Dam. The Killingly Pond Consent Order required the Company to continue to perform routine maintenance and administrative procedures consistent with DEEP’s Dam Safety regulations, the cost of which was not material to the Company’s financial position or results of operations.

On July 27, 2018, the Company entered into a Consent Order with the DEEP relative to Acme Pond Dam. The Acme Pond Dam Consent Order required the Company to investigate and recommend repairs to Acme Pond Dam. Based up on the work performed by the Company’s retained consulting engineering firm, the Company submitted its recommended Action Plan (the “Action Plan”) for Acme Pond Dam pursuant to the Consent Order on November 30, 2017 and such recommended Action Plan was approved by DEEP as submitted on May 23, 2019. Total expenses for the repair work conducted in accordance with the Action Plan during the year ending December 31, 2019 was approximately $150,000. All repair work required for both the ACME Pond Dam and the Killingly Pond Dam was completed as of December 31, 2019. DEEP issued a Certificate of Compliance for Consent Order for the ACME Pond Dam on February 7, 2020, and a Certificate of Compliance for Consent Order for the Killingly Pond Dam was issued on May 22, 2020.

On February 11, 2020, the Company and its representatives met with the Town of Killingly Town Council to discuss a proposed ownership transfer of the properties to the Town of Killingly or a group of interested parties. The proposal is currently under the review of the Town of Killingly Town Council, in conjunction with the Town Manager.

Cautionary Statement Regarding Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward looking statements. Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results. The words “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “could,” “project,” “predict,” “expect,” “estimate,” “continue,” and “intend,” as well as other similar words and expressions of the future, are intended to identify forward-looking statements.

Factors that may cause actual results to differ from those results expressed or implied, include, but are not limited to, those listed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 filed by the Company with the Securities and Exchange Commission (the “SEC”) on March 30, 2020.

These forward-looking statements generally relate to our plans, objectives and expectations for future events and include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts.  These statements are based upon our opinions and estimates as of the date they are made.  Although we believe that the expectations reflected in these forward-looking statements are reasonable, such forward-looking statements are subject to known and unknown risks and uncertainties that may be beyond our control, which could cause actual results, performance and achievements to differ materially from results, performance and achievements projected, expected, expressed or implied by the forward-looking statements.  While we cannot assess the future impact that any of these differences could have on our business, financial condition, results of operations and cash flows or the market price of shares of our common stock, the differences could be significant. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report and you are urged to consider all such risks and uncertainties. In light of the uncertainty inherent in such forward-looking statements, you should not consider their inclusion to be a representation that such forward-looking matters will be achieved. 

General Overview

The Company is a “shell company”, as defined in Rule 12b-2 of the Exchange Act.  Because we are a shell company, our stockholders are unable to utilize Rule 144 to sell “restricted stock” as defined in Rule 144 or to otherwise use Rule 144 to sell our securities, and we are ineligible to utilize registration statements on Form S-3 or Form S-8 for so long as we remain a shell company and for 12 months thereafter.  As a consequence, among other things, the offering, issuance and sale of our securities is likely to be more expensive and time consuming and may make our securities less attractive to investors.

The Company’s Board of Directors is considering strategic uses for its funds to develop or acquire interests in one or more operating businesses.  While we have focused our development or acquisition efforts on sectors in which our management has expertise, we do not wish to limit ourselves to, or to foreclose any opportunities in, any particular industry or sector.  Prior to this use, the Company’s funds have been, and we anticipate will continue to be, invested in high-grade, short-term investments (such as cash and cash equivalents) consistent with the preservation of principal, maintenance of liquidity and avoidance of speculation, until such time as we need to utilize such funds, or any portion thereof, for the purposes described above.   The directors will also consider alternatives for distributing some or all of its cash and cash equivalents to stockholders.

Results of operations

Three months ended September 30, 2020 compared to the three months ended September 30, 2019

For the three months ended September 30, 2020, the Company had a loss from operations before income taxes of $47,000 compared to a loss from operations before income taxes of $458,000 for the three months ended September 30, 2019.

The decreased loss before income taxes of $411,000 was primarily as a result of a decrease in Other operating expenses of $259,000 mainly as the result of decreased professional fees and decreased rent expense, offset by an increase of Compensation and benefits of $59,000 and increase in Interest and other income of $211,000, primarily as the result of the sale of the Company’s former ticker symbol (WISH) for consideration of $250,000.

Compensation and benefits

For the three months ended September 30, 2020, Compensation and benefits were $105,000 as compared to $46,000 for the three months ended September 30, 2019 primarily as the result of a temporary decrease of the CEO compensation during the third quarter of 2019. Effective October 1, 2019, the Company’s Compensation Committee reversed the temporary decrease of the CEO’s compensation to reflect his duties in exploring strategic alternatives for the Company. The increase compensation was offset by a decrease in the health plan expense for the three months ended September 30, 2020 in comparison to the three months ended September 30, 2019.

Other operating expenses

For the three months ended September 30, 2020, Other operating expenses were $193,000 as compared to $452,000 for the three months ended September 30, 2019. The decreased operating expenses of $259,000 were primarily the result of decreased professional fees of $180,000, decreased rent expense of $50,000 and decreased other expenses of $29,000.

Income taxes

The Company recorded an income tax benefit of $19,000 for the three months ended September 30, 2020, which predominantly represents an adjustment to the income tax liability. For the three months ended September 30, 2019, the Company recorded income tax expense from continuing operations of $1,000, which represented minimum state taxes. No tax benefit has been recorded in relation to the pre-tax loss for the three months ended September 30, 2020 and 2019, due to a full valuation allowance to offset any deferred tax asset related to net operating loss carry forwards attributable to the losses. 

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

For the nine months ended September 30, 2020, the Company had a loss from operations before income taxes of $711,000 compared to a loss from operations of $1,438,000 for the nine months ended September 30, 2019.  

The decreased loss before income taxes of $727,000 was the result of a decrease in Other operating expenses of $686,000, offset by an increase in Compensation and benefits of $38,000 and an increase in Interest and other income of $79,000, primarily as the result of the sale of the Company’s former ticker symbol (WISH) for consideration of $250,000.

Compensation and benefits

For the nine months ended September 30, 2020, Compensation and benefits were $364,000 as compared to $326,000 for the nine months ended September 30, 2019 primarily as the result of a temporary decrease of the CEO compensation during the third quarter of 2019. Effective October 1, 2019, the Company’s Compensation Committee reversed the temporary decrease of the CEO’s compensation to reflect his duties in exploring strategic alternatives for the Company. The increase compensation was offset by a decrease in the health plan expense for the nine months ended September 30, 2020 in comparison to the nine months ended September 30, 2019.

Other operating expenses

For the nine months ended September 30, 2020, Other operating expenses were $658,000 as compared to $1,344,000 for the nine months ended September 30, 2019. The decreased operating expenses of $686,000 were primarily the result of decreased professional fees of $409,000, decreased rent expense of $147,000, decrease expenses associated with remediation of the reservoirs of $27,000, and decreased other expenses of $103,000.

Income taxes

The Company recorded an income tax benefit of $19,000 for the nine months ended September 30, 2020, which predominantly represents an adjustment to income tax liability. For the nine months ended September 30, 2019, the Company recorded income tax expense from continuing operations of $26,000, which represented minimum state taxes. No tax benefit has been recorded in relation to the pre-tax loss for the nine months ended September 30, 2020 and 2019, due to a full valuation allowance to offset any deferred tax asset related to net operating loss carry forwards attributable to the losses. 

Financial condition

Liquidity and Capital Resources

At September 30, 2020, the Company had cash and cash equivalents totaling $6,734,000, which it intends to use to acquire interests in one or more operating businesses, to fund the Company’s general and administrative expenses, and the directors will also consider alternatives for distributing some or all of its cash and cash equivalents to stockholders.  The Company believes that its working capital is sufficient to support its operating requirements through November 30, 2021.

Cash equivalents represent short-term, highly liquid investments, which are readily convertible to cash and have maturities of three months or less at time of purchase. Please refer to note 4 for valuation on Investments.

The decrease in cash and cash equivalents of $602,000 for the quarter ended September 30, 2020 was primarily the result of $655,000 used in operating activities, offset by proceeds from a PPP loan of $53,000.

Not required.

The Company’s principal executive officer and principal financial officer, with the assistance of other members of the Company’s management, have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon such evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.

The Company’s principal executive officer and principal financial officer have also concluded that there was no change in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Purchases of Equity Securities

The Board of Directors authorized the Company to repurchase up to 5,000,000 outstanding shares of common stock from time to time either in open market or privately negotiated transactions. At September 30, 2020, the Company had repurchased 2,041,971 shares of its common stock and, a total of 2,958,029 shares remained available for repurchase at September 30, 2020, pursuant to the 5,000,000 shares repurchase plans. The Company did not repurchase shares of common stock during the quarter ended September 30, 2020.

None

________________________

*Filed herewith

**Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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