Wright Investors Service Holdings, Inc. 10-Q

Item 1. Financial Statements. WRIGHT INVESTORS' SERVICE HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020   Expenses Compensation and benefits $ 111 $ 105 $ 335 $ 364 Other operating 187 193 558 658   298 298 893 1,022 Loss from operations ( 298 ) ( 298 ) ( 893 ) ( 1,022 ) Interest and other income, net - 251 53 311 Loss from operations before income taxes ( 298 ) ( 47 ) ( 840 ) ( 711 ) Income tax benefit / (expense) ( 1 ) 19 ( 2 ) 19 Net loss $ ( 299 ) $ ( 28 ) $ ( 842 ) $ ( 692 )   Basic and diluted loss per share $ ( 0.01 ) $ ( 0.00 ) $ ( 0.04 ) $ ( 0.03 ) See accompanying notes to condensed consolidated financial statements. 1 Table of Contents WRIGHT INVESTORS' SERVICE HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) September 30, 2021 December 31, 2020 (unaudited) Assets Current assets Cash and cash equivalents $ 5,634 $ 6,469 Income tax receivable 73 73 Prepaid expenses and other current assets 42 40 Total current assets 5,749 6,582   Other assets 8 8 Total assets $ 5,757 $ 6,590   Liabilities and stockholders’ equity Current liabilities Accounts payable and accrued expenses $ 75 $ 83 Loan payable - 53 Total current liabilities 75 136   Stockholders’ equity Preferred stock, par value $ 0.01 per share, authorized 10,000,000 shares; none issued - - Common stock, par value $ 0.01 per share, authorized 30,000,000 shares; issued 21,025,748 and 20,654,996 as of September 30, 2021 and December 31, 2020; outstanding 20,210,529 and 19,839,777 at September 30, 2021 and December 31, 2020; and 146,666 and 227,160 shares issuable as of September 30, 2021 and December 31, 2020 210 206 Additional paid-in capital 34,292 34,226 Accumulated deficit ( 27,121 ) ( 26,279 ) Treasury stock, at cost ( 815,219 shares at September 30, 2021 and December 31, 2020) ( 1,699 ) ( 1,699 ) Total stockholders' equity 5,682 6,454 Total liabilities and stockholders’ equity $ 5,757 $ 6,590 See accompanying notes to condensed consolidated financial statements. 2 Table of Contents WRIGHT INVESTORS' SERVICE HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Nine Months Ended September 30, 2021 2020 Cash flows from operating activities   Net loss $ ( 842 ) $ ( 692 ) Adjustments to reconcile net loss to net cash used in operating activities: Equity based compensation, including vesting of stock to directors 70 69 Gain on extinguishment of debt ( 53 ) - Changes in other operating items: Deferred tax asset - 37 Income taxes receivable - ( 55 ) Prepaid expenses and other current assets ( 2 ) 114 Accounts payable and accrued expenses ( 8 ) ( 128 ) Net cash used in operating activities ( 835 ) ( 655 )   Cash flows from investing activities Investments in U.S. Treasury Bills - ( 250 ) Proceeds from redemptions of U.S. Treasury Bills - 250 Net cash used in investing activities - -   Cash flows from financing activities Proceeds from loan - 53 Net cash from financing activities - 53   Net decrease in cash and cash equivalents ( 835 ) ( 602 ) Cash and cash equivalents at the beginning of the period 6,469 7,336 Cash and cash equivalents at the end of the period $ 5,634 $ 6,734     Supplemental disclosures of cash flow information Net cash paid during the period for Income taxes $ 3 $ 1 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents WRIGHT INVESTORS' SERVICE HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY THREE AND NINE MONTHS ENDED September 30, 2021 and 2020 (UNAUDITED) (in thousands, except per share data) Total Additional Treasury stock- Common stock (Issued) paid-in Accumulated stock, at Holders shares amount capital deficit cost Equity Balance at December 31, 2019 20,654,996 $ 206 $ 34,134 $ ( 25,286 ) $ ( 1,699 ) $ 7,355 Net loss - - - ( 318 ) - ( 318 ) Equity based compensation expense - - 3 - - 3 Stock based compensation expense to directors - - 20 - - 20 Balance at March 31, 2020 20,654,996 $ 206 $ 34,157 $ ( 25,604 ) $ ( 1,699 ) $ 7,060 Net loss - - - ( 346 ) - ( 346 ) Equity based compensation expense - - 3 - - 3 Stock based compensation expense to directors - - 20 - - 20 Balance at June 30, 2020 20,654,996 $ 206 $ 34,180 $ ( 25,950 ) $ ( 1,699 ) $ 6,737 Net loss - - - ( 28 ) - ( 28 ) Equity based compensation expense - - 3 - - 3 Stock based compensation expense to directors - - 20 - - 20 Balance at September 30, 2020 20,654,996 $ 206 $ 34,203 $ ( 25,978 ) $ ( 1,699 ) $ 6,732     Balance at December 31, 2020 20,654,996 $ 206 $ 34,226 $ ( 26,279 ) $ ( 1,699 ) $ 6,454 Net loss - - - ( 249 ) - ( 249 ) Equity based compensation expense - - 3 - - 3 Stock based compensation expense to directors - - 20 - - 20 Balance at March 31, 2021 20,654,996 $ 206 $ 34,249 $ ( 26,528 ) $ ( 1,699 ) $ 6,228 Net loss - - - ( 294 ) - ( 294 ) Equity based compensation expense - - 4 - - 4 Stock based compensation expense to directors - - 20 - - 20 Balance at June 30, 2021 20,654,996 $ 206 $ 34,273 $ ( 26,822 ) $ ( 1,699 ) $ 5,958 Net loss - - - ( 299 ) - ( 299 ) Equity based compensation expense - - 3 - - 3 Stock based compensation expense to directors 370,752 4 16 - - 20 Balance at September 30, 2021 21,025,748 $ 210 $ 34,292 $ ( 27,121 ) $ ( 1,699 ) $ 5,682 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents WRIGHT INVESTORS’ SERVICE HOLDINGS, INC. Notes to Condensed Consolidated Financial Statements Three months ended September 30, 2021 and 2020 (unaudited) 1. Basis of presentation and description of activities 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, 2020 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, 2020 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 2021 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. 2. New accounting guidance not yet adopted 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. 5 Table of Contents 3. Per share data Loss per share for the three months ended September 30, 2021 and 2020 respectively, is calculated based on 20,357,195 and 19,873,110 weighted average outstanding shares of common stock, including weighted average issuable shares of 146,666 and 33,333 at September 30, 2021 and 2020, respectively. Loss per share for the nine months ended September 30, 2021 and 2020 respectively, is calculated based on 20,245,169 and 19,867,555 weighted average outstanding shares of common stock, including weighted average issuable shares of 294,166 and 27,778 at September 30, 2021 and 2020, respectively. Stock awards for 33,334 and 66,667 shares of common stock for the three and nine months ended September 30, 2021 and 2020, respectively, were not included in the diluted computation as their effect would be anti-dilutive since the Company incurred net losses for both periods. 4. Investment valuation 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: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company. Level 3 Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability. 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, 2021, and December 31, 2020, the Company held $ 5,525,000 and $ 5,950,000 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, 2021 and December 31, 2020. 6 Table of Contents The following table presents the Company’s financial instruments at fair value (in thousands): Fair Value Measurements as of September 30, 2021 9/30/2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)   Cash and cash equivalents $ 5,634 $ 109 $ 5,525 $ -   Fair Value Measurements as of December 31, 2020 12/31/2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)   Cash and cash equivalents $ 6,469 $ 519 $ 5,950 $ - 5. Income taxes Income tax expense represents minimum state taxes. No tax benefit has been recorded in relation to the pre-tax loss for the three and nine months ended September 30, 2021 and 2020, 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. 6. Loan Payable 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 Company used 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. The total amount of the PPP Loan was forgiven as of January 7, 2021 and the gain on extinguishment of debt of $ 53,000 was recorded as Other Income for the nine month period ended September 30, 2021. 7. Capital Stock 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, 2021, the Company had repurchased 2,041,971 shares of its common stock and a total of 2,958,029 of the authorized shares, remained available for repurchase as of September 30, 2021. No such shares were repurchased during any of the three and nine months ended September 30, 2021 and 2020. 7 Table of Contents 8. Incentive stock plans and stock-based compensation 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, 2021, 33,334 stock awards remained unvested and 66,666 shares are to be issued. The Company recorded compensation expense of approximately $ 3,000 for each of the three months ended September 30, 2021 and 2020, and compensation expense of approximately $ 10,300 and $ 9,000 for the nine months ended September 30, 2021 and 2020, respectively, related to those stock awards. The total unrecognized compensation expense related to these unvested stock awards at September 30, 2021 is $ 5,200 , which will be recognized over the remaining vesting period of approximately 0.4 years. Capital Stock During the quarter ended September 30, 2021, a) the Company incurred $ 20,000 of director fees payable in 80,000 shares of its common stock which were not issued as of September 30, 2021, b) issued 370,752 shares of Company common stock to directors, and c) 66,666 stock awards vested which were not issued at September 30, 2021. As of December 31, 2020, there were 193,828 shares of Company common stock to be issued to the independent directors of the Company, in payment of quarterly directors’ fees due to them for services in 2020 and 33,333 stock awards to be issued to a director of the Company. The equity compensation awards were issued pursuant to the exemption from the registration requirements of Section 5 of the Securities Act of 1933 (“1933 Act”) provided by Section 4(a)(2) of the 1933 Act. 9. Commitments, Contingencies, and Other a) The extent of the impact and effects of the recent outbreak of the coronavirus (COVID-19) on the operation and financial performance of our Company are unknown. However, the Company does not expect that the outbreak will have a material adverse effect on financial results at this time. b) In July 2019, the Company entered into a six-month lease for office space in a building located in Mt. Kisco, NY. The lease commenced on September 1, 2019 and expired on February 29, 2020, after which it is being renewed on a monthly basis for $ 3,800 per month. c) The Company has interests in land and certain flowage rights in undeveloped property (the “properties”) primarily located in Killingly, Connecticut. The properties were fully impaired as of December 31, 2018.   In September 2014, the Connecticut Department of Energy and Environmental Protection (“DEEP”) issued two Consent Orders requiring the investigation and repair of two dams, Acme Pond Dam and Killingly Pond Dan, in which the Company and its subsidiaries have certain ownership interests. Both matters have been fully resolved. In February 2020 and May 2020 DEEP issued to the Company Certificates of Compliance for the Consent Orders relating to Acme Pond Dam and Killingly Pond Dam, respectively. 8 Table of Contents