See accompanying notes to consolidated financial
statements.
Notes to Consolidated Financial Statements
December 31, 2022
1. |
Description of activities |
Wright Investors’
Service Holdings, Inc. (the “Company”) has nominal operations and nominal assets aside from its cash and cash equivalents
and investments in U.S. Treasury Bills, and is therefore considered a shell company, as defined in U.S. securities laws and regulations.
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.
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 liquid assets of the Company are so deployed, the Company intends to invest its 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.
The Company may be classified
as an inadvertent investment company if the Company acquires investment securities in excess of 40% of its total assets, exclusive of
government securities. As of December 31, 2022, the Company is not considered an inadvertent investment company.
2. |
Summary of significant accounting policies |
Principles of consolidation.
The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, all of which are inactive. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America (“GAAP”), requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results
could differ from these estimates.
Cash and cash equivalents
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. Cash
equivalents, which are carried at fair value or amortized cost, as applicable, consist of holdings in a money market fund and in U.S.
Treasury Bills. Cash and cash equivalents amounted to approximately $90,000 and $5,396,000 at December 31, 2022 and 2021, respectively.
WRIGHT INVESTORS’ SERVICE HOLDINGS,
INC.
Notes to Consolidated Financial Statements
December 31, 2022
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 December 31,
2022, and 2021, the Company held $4,130,000 and $5,250,000 in U.S. government 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 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 securities, which
have maturities of three months or less at time of purchase, are reported as Cash and cash equivalents on
the consolidated balance sheets as of December 31, 2022 and 2021.
Short-term investments in marketable
securities have a stated maturity of twelve months or less from the balance sheet date. These securities are considered as available for
sale and are reported at fair value. Unrealized gains and losses would be recorded net of tax as a component of Accumulated other comprehensive
income within Shareholders' equity. Declines in market value from the original cost deemed to be "other-than-temporary" are
charged to Interest and other income, net, in the period in which the loss occurs. The Company considers both the duration for which
a decline in value has occurred and the extent of the decline in its determination of whether a decline in value has been “other
than temporary.” Realized gains and losses are calculated based on the specific identification method and are included in Interest
and other income, net, in the Consolidated Statement of Operations.
The following table presents the
Company’s financial instruments at fair value (in thousands):
| |
Fair Value Measurements as of December 31, 2022 | |
| |
Total | | |
Quoted Prices in Active Markets for Identical Assets (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Unobservable Inputs (Level 3) | |
| |
| | | |
| | | |
| | | |
| | |
Investments in U.S. Treasury bills | |
$ | 4,130 | | |
$ | - | | |
$ | 4,130 | | |
| - | |
| |
Fair Value Measurements as of December 31, 2021 | |
| |
Total | | |
Quoted Prices in Active Markets for Identical Assets (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Unobservable Inputs (Level 3) | |
| |
| | | |
| | | |
| | | |
| | |
U.S. Treasury bills included in cash and cash equivalents | |
$ | 5,250 | | |
$ | - | | |
$ | 5,250 | | |
| - | |
WRIGHT INVESTORS’ SERVICE HOLDINGS, INC.
Notes to Consolidated Financial Statements
December 31, 2022
Investments
in debt securities as of December 31, 2022 are summarized by type below (in thousands).
| |
Amortized Cost | | |
Gross Unrealized Gains | | |
Gross Unrealized Losses | | |
Fair Value | |
U.S. Treasury bills | |
$ | 4,098 | | |
$ | 32 | | |
$ | - | | |
$ | 4,130 | |
Total | |
$ | 4,098 | | |
$ | 32 | | |
$ | - | | |
$ | 4,130 | |
All investments
in debt securities are due in one year or less as of December 31, 2022.
Investment in undeveloped land
The Company owns certain non-strategic assets,
including an investment in land and certain flowage rights in undeveloped property (the “properties”) primarily located Killingly,
Connecticut. The properties were fully impaired as of December 31, 2018.
Per share data
Loss per share for the year ended December
31, 2022 and 2021, respectively, is calculated based on 20,504,457 and 20,286,936 weighted average outstanding shares of
common stock, including weighted average issuable shares of 182,905 and 276,043 at December 31, 2022 and 2021, respectively.
Stock awards
Unvested Stock awards for 33,334 shares
of common stock for the year ended December 31, 2021 were not included in the diluted computation as their effect would be anti-dilutive
since the Company incurred net losses for that year. At December 31, 2022, all shares had vested and were issued.
Stock-based compensation
Stock-based compensation cost for employees is
measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite
service period, which is generally the vesting period. In accordance with ASU 2016-09, the Company has made the accounting policy election
to continue to estimate forfeitures based upon historical occurrences. See Note 8 to the Consolidated Financial Statements for further
information regarding the Company’s stock-based compensation assumptions and expense.
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. The Company had no income tax uncertainties at December 31, 2022 and 2021.
Concentrations of credit risk
Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of cash and investments. Investments in cash and money market
funds are insured up to $250,000 per depositor, per insured bank. Investments in U.S. Treasury Bills are insured up to $500,000. For the
years ended December 31, 2022 and 2021, a substantial portion of the Company's investments in cash and U.S. Treasury Bills are in excess
of these limits.
WRIGHT INVESTORS’ SERVICE HOLDINGS, INC.
Notes to Consolidated Financial Statements
December 31, 2022
3. |
Certain 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 consolidated financial statements.
4. |
Accounts payable and accrued expenses |
Accounts payable and accrued expenses consist
of the following (in thousands):
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Accrued professional fees | |
$ | 55 | | |
$ | 40 | |
Other | |
| 57 | | |
| 53 | |
Total | |
$ | 112 | | |
$ | 93 | |
The components of income tax expense (benefit) are as follows
(in thousands):
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | |
Current | |
| | |
| |
Federal | |
$ |
- | | |
$ |
- | |
State and local | |
| - | | |
| 2 | |
Total current | |
| - | | |
| 2 | |
| |
| | | |
| | |
Deferred | |
| | | |
| | |
Federal | |
$ | - | | |
$ | - | |
State and local | |
| - | | |
| - | |
Total deferred | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Total income tax expense | |
$ | - | | |
$ | 2 | |
For the year ended December 31, 2021, current income tax expense
related to operations represents accruals of minimum state income taxes.
The difference between
the benefit for income taxes computed at the statutory rate and the reported amount of tax expense (benefit) from operations is as follows:
| |
Year ended December 31, | |
| |
2022 | | |
2021 | |
Federal income tax rate | |
| (21.0 | )% | |
| (21.0 | )% |
State income tax (net of federal effect) | |
| (0.6 | ) | |
| (5.0 | ) |
Change in valuation allowance | |
| 3.1 | | |
| 26.4 | |
Deferred tax adjustment | |
| 17.0 | | |
| - | |
Non-deductible expenses / (non-taxable income) | |
| 1.5 | | |
| (0.2 | ) |
Effective tax rate | |
| - | % | |
| 0.2 | % |
WRIGHT INVESTORS’ SERVICE HOLDINGS, INC.
Notes to Consolidated Financial Statements
December 31, 2022
The deferred tax assets and liabilities are summarized as follows (in
thousands):
| |
December 31, | |
| |
2022 | | |
2021 | |
Deferred tax assets: | |
| | | |
| | |
Net operating loss carryforwards | |
$ | 5,030 | | |
$ | 4,770 | |
Capital loss carryforwards | |
| 620 | | |
| 703 | |
Equity-based compensation | |
| 16 | | |
| 157 | |
Unrealized loss on investments | |
| 89 | | |
| 98 | |
Other | |
| 2 | | |
| - | |
Gross deferred tax assets | |
| 5,757 | | |
| 5,728 | |
Less: valuation allowance | |
| (5,757 | ) | |
| (5,728 | ) |
Deferred tax assets after valuation allowance | |
| - | | |
| - | |
| |
| | | |
| | |
Net Deferred tax assets | |
$ | - | | |
| - | |
A valuation allowance
is provided when it is more likely than not that some portion of deferred tax assets will not be realized. The valuation allowance increased
by approximately $29,000 and $294,000 respectively, during the years ended December 31, 2022 and 2021. The increases in the valuation
allowance during the years ended December 31, 2022 and 2021 were mainly due to increases in the net operating loss carryforward and other
deferred tax assets.
The Company files a consolidated
federal tax return with its subsidiaries. As of December 31, 2022, the Company has a federal net operating loss carryforward of approximately
$22,395,000, of which $15,177,000 expires from 2031 through 2037, and $7,218,000 does not expire. The Company
also has various state and local net operating loss carryforwards totaling approximately $6,239,000, which expire between 2025 and 2043,
and a capital loss carryforward of approximately $2,371,000, which expires in 2023.
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 year
ended December 31, 2021.
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. On April 5, 2022, in accordance with the Board of Directors’ prior authorization, the Company purchased 192,750 shares
of its common stock in a privately negotiated transaction at a price of $0.25 per share for an amount of approximately $48,000. The
Company did not repurchase any common stock during the year ended December 31, 2021. At December 31, 2022, the Company had repurchased 2,234,721 shares
of its common stock and a total of 2,765,279 of the authorized shares, remained available for repurchase as of December 31,
2022. At December 31, 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 at December 31, 2021.
During the year ended December 31, 2022, the Company
issued 217,932 shares of Company common stock to directors, 100,000 stock awards vested and were issued and there were 285,000 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 2022. 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.
WRIGHT INVESTORS’ SERVICE HOLDINGS, INC.
Notes to Consolidated Financial Statements
December 31, 2022
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 December 31, 2022, all shares had vested
and were issued.
The Company recorded compensation expense of approximately
$1,750 and $13,800 for the years ended December 31, 2022 and 2021, respectively, related to those stock awards.
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.
As of December 31, 2022, all options were vested
and there were no outstanding options under the 2007 NPDC Plan. There were no grants, forfeitures or exercises of options during the year
of 2022.
As of December 31, 2021, all options were vested and there were no
outstanding options under the 2007 NPDC Plan. There were no grants, forfeitures or exercises of options during the year of 2021. During
2021, 100,000 options with a weighted average exercise price of $1.29, a weighted average contractual term of 1 year, and zero aggregate
intrinsic value per share had expired.
Capital Stock
The Company’s Director Compensation Program
(the “Compensation Program”) provided for payment to Directors who are not employees of the Company of (i) annual stock compensation
for serving as a member of the Board or committee of the Board, and (ii) cash compensation for attendance in person or by telephone of
meetings of the Board or committee of the Board.
During the year ended December 31, 2022, the Company
incurred $80,000 of director fees payable in 353,966 shares of its common stock, of which 68,966 were issued and 285,000
are issuable as of December 31, 2022. As of December 31, 2022, there were 285,000 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 2022.
In March 2023, the Company amended its Directors’
Compensation Program for Directors who are not employees of the Company to provide that effective January 1, 2023 for (i) the termination
of the issuance of any annual stock compensation for Directors serving as a member of the Board or a committee of the Board and (ii) the
termination of the payment of any cash compensation for attendance in person or by telephone of meetings of the Board or committees of
the Board as long as the Company remains a Shell Company.
9. |
Commitments, Contingencies, and Other |
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.