Wright Investors Service Holdings, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. General Overview The Company is a “shell company”, as defined in Rule 12b-2 of the Exchange Act. Because the Company is a shell company, its stockholders are unable to utilize Rule 144 to sell “restricted stock” as defined in Rule 144 or to otherwise use Rule 144 to sell its securities, and the Company is ineligible to utilize registration statements on Form S-3 or Form S-8 for so long as the Company remains a shell company. As a consequence, among other things, the offering, issuance and sale of its securities is likely to be more expensive and time consuming and may make its securities less attractive to investors. See “Item 1A. Risk Factors”. 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 the Company has focused its development or acquisition efforts on sectors in which its management has expertise, the Company does not wish to limit itself to, or to foreclose any opportunities in, any particular industry or sector. Prior to this use, the Company’ anticipate will continue to be, invested in high-grade, short-term investments (such as cash and cash equivalents, U.S. Treasury Bills, and mutual funds) consistent with the preservation of principal, maintenance of liquidity and avoidance of speculation, until such time as the Company needs 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, and investments to stockholders (see Note 1 to the Consolidated Financial Statements). Investments Investment in undeveloped properties. The Company owns certain non-strategic assets, which includes an investment in land and certain flowage rights in undeveloped property (the “properties”) primarily located in Killingly, Connecticut, which were fully impaired as of December 31, 2018, due to the Company's belief that the value of the land is nominal as there is no active market for sale of such land. The Company and its representatives continue to discuss a proposed ownership transfer with interested parties. Management discussion of critical accounting policies The following discussion and analysis of the financial condition and results of operations are based on the consolidated financial statements and notes to consolidated financial statements contained in this report that have been prepared in accordance with the rules and regulations of the SEC and include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates. Certain of our accounting policies require higher degrees of judgment than others in their application. These include accounting for income taxes and fair value measurements of investments which are summarized below. 7 Table of Contents Income taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to carryforwards and to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The accounting for uncertain tax positions guidance requires that the Company recognize the financial statement benefit of a tax position only after determining that the Company would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest and penalties on income taxes, including those related to uncertain tax positions as interest and other expenses, respectively. See Note 5 to the Consolidated Financial Statements for further information regarding the Company’s income taxes. Fair value measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy is required to prioritize the inputs used to measure fair value. The three levels of the fair value hierarchy are described as follows: 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. Results of Operations Year ended December 31, 2023 compared to the year ended December 31, 2022 For the year ended December 31, 2023, the Company had a loss from operations before income taxes of $1,006,000 compared to a loss from operations before income taxes of $1,207,000 for the year ended December 31, 2022. The decreased loss of $201,000 was primarily the result of a decrease in Other operating expenses of $54,000 and an increase in Interest and other income of $145,000. Other operating expenses For the year ended December 31, 2023, Other operating expenses were $714,000 as compared to $768,000 for the year ended December 31, 2022. The decreased operating expenses of $54,000 was primarily the result of decreased directors’ fees of $85,000, decreased professional fees of $6,000, and decreased other expenses of $6,000, offset by increased expenses related to the repair and maintenance and legal fees incurred in relation to the Company owned dam properties of $43,000. The properties were fully impaired as of December 31, 2018. Interest and other income For the year ended December 31, 2023, Interest and other income was $166,000 as compared to $21,000 for the year ended December 31, 2022. The increased interest and other income, including net realized gains and losses on U.S. Treasury bills, of $145,000 was primarily the result of the higher yields related to the investments in U.S. Treasury securities and mutual funds, and related interest income of $161,000 during the year ended December 31, 2023. Income taxes For the years ended December 31, 2023 and 2022, the Company recorded no income tax expense. The Company recorded a full valuation allowance against its net deferred tax assets as of December 31, 2023 and 2022. Due to a full valuation allowance on the deferred tax assets related to net operating loss carryforwards, no tax benefit has been recorded in relation to the pre-tax loss for the years ended December 31, 2023 and 2022. Financial condition, liquidity, and capital resources Liquidity and Capital Resources At December 31, 2023, the Company had cash and cash equivalents totaling $125,000 and short-term investments in U.S. Treasury Bills, and mutual funds totaling $3,144,000 which it intends to use to acquire interests in one or more operating businesses and to fund the Company’s general and administrative expenses. The directors will also consider alternatives for distributing some or all of its cash and cash equivalents and investments to stockholders. The Company believes that its working capital is sufficient to support its operating requirements through March 31, 2025. The increase in cash and cash equivalents of $35,000 for the year ended December 31, 2023 was primarily the result of $965,000 used in operating activities and proceeds from redemptions of investments in U.S. Treasury Bills of $1,735,000, offset by the purchase of mutual funds of $735,000. 8 Table of Contents Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Not required. 9 Table of Contents