x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2013
|
|
or
|
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from _____ to _____
|
Delaware
|
13-4005439
|
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
100 South Bedford Road, Suite 2R, Mount Kisco, NY
|
10549
|
(Address of principal executive offices)
|
(Zip code)
|
(914) 242-5700
|
(Registrant’s telephone number, including area code)
|
Large accelerated filer
|
o
|
Accelerated filer
|
o
|
Non-accelerated filer
(Do not check if a smaller reporting company)
|
o
|
Smaller reporting company
|
x
|
Part I. Financial Information
|
Page No.
|
|
1 | ||
1
|
||
2
|
||
3
|
||
4
|
||
5
|
||
Financial Statements of The Winthrop Corporation and Subsidiaries
|
||
14
|
||
15
|
||
16
|
||
17
|
||
18
|
||
25
|
||
30
|
||
30
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||
Part II. Other Information
|
||
31
|
||
32
|
||
33
|
WRIGHT INVESTORS' SERVICE HOLDINGS, INC.
|
||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||||||||||
(unaudited)
|
||||||||||||||||
(in thousands, except per share amounts)
|
||||||||||||||||
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Revenues
|
||||||||||||||||
Investment management services
|
$ | 668 | $ | - | $ | 1,332 | $ | - | ||||||||
Other investment advisory services
|
715 | - | 1,402 | - | ||||||||||||
Financial research and related data
|
114 | - | 277 | - | ||||||||||||
1,497 | - | 3,011 | - | |||||||||||||
Expenses
|
||||||||||||||||
Selling, general and administrative
|
2,358 | 444 | 4,883 | 926 | ||||||||||||
Acquisition related costs
|
- | 736 | - | 736 | ||||||||||||
2,358 | 1,180 | 4,883 | 1,662 | |||||||||||||
Operating loss
|
(861 | ) | (1,180 | ) | (1,872 | ) | (1,662 | ) | ||||||||
Investment and other income (expense), net
|
1 | (11 | ) | 30 | (28 | ) | ||||||||||
Change in fair value of contingent consideration
|
(53 | ) | - | (88 | ) | - | ||||||||||
Loss from continuing operations before income taxes
|
(913 | ) | (1,191 | ) | (1,930 | ) | (1,690 | ) | ||||||||
Income tax benefit (expense)
|
4 | (29 | ) | 1 | (195 | ) | ||||||||||
Loss from continuing operations
|
(909 | ) | (1,220 | ) | (1,929 | ) | (1,885 | ) | ||||||||
Loss from discontinued operations, net of taxes (Notes 9 and 11 (a))
|
(2,492 | ) | (34 | ) | (2,754 | ) | (40 | ) | ||||||||
Net loss
|
$ | (3,401 | ) | $ | (1,254 | ) | $ | (4,683 | ) | $ | (1,925 | ) | ||||
Basic and diluted loss per share
|
||||||||||||||||
Continuing operations
|
$ | (0.05 | ) | $ | (0.07 | ) | $ | (0.10 | ) | $ | (0.11 | ) | ||||
Discontinued operations
|
(0.13 | ) | - | (0.15 | ) | - | ||||||||||
Net loss
|
$ | (0.18 | ) | $ | (0.07 | ) | $ | (0.25 | ) | $ | (0.11 | ) | ||||
See accompanying notes to condensed consolidated financial statements.
|
WRIGHT INVESTORS' SERVICE HOLDINGS, INC.
|
||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
|
||||||||
(in thousands, except per share amounts)
|
||||||||
June 31,
|
December 31,
|
|||||||
2013
|
2012
|
|||||||
(unaudited)
|
||||||||
Assets
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$ | 16,812 | $ | 18,883 | ||||
Short-term investments
|
132 | 190 | ||||||
Accounts receivable
|
387 | 462 | ||||||
Refundable and prepaid income taxes
|
38 | 40 | ||||||
Prepaid expenses and other current assets
|
177 | 262 | ||||||
Total current assets
|
17,546 | 19,837 | ||||||
Property and equipment, net of accumulated amortization of $72 and $58
|
44 | 52 | ||||||
Intangible assets, net
|
4,236 | 4,555 | ||||||
Goodwill
|
3,364 | 3,364 | ||||||
Investment in undeveloped land
|
355 | 355 | ||||||
Other assets
|
325 | 325 | ||||||
Total assets
|
$ | 25,870 | $ | 28,488 | ||||
Liabilities and stockholders’ equity
|
||||||||
Current liabilities
|
||||||||
Accounts payable and accrued expenses
|
$ | 1,504 | $ | 1,875 | ||||
Settlement payable (Note 11 (a))
|
2,375 | - | ||||||
Income taxes payable
|
- | 227 | ||||||
Deferred revenue
|
35 | 16 | ||||||
Current portion of officers retirement bonus liability
|
100 | 100 | ||||||
Total current liabilities
|
4,014 | 2,218 | ||||||
Liability for contingent consideration
|
509 | 421 | ||||||
Officers retirement bonus liability, net of current portion
|
792 | 781 | ||||||
Total liabilities
|
5,315 | 3,420 | ||||||
Stockholders’ equity
|
||||||||
Common stock
|
190 | 190 | ||||||
Additional paid-in capital
|
32,958 | 32,788 | ||||||
Accumulated deficit
|
(11,234 | ) | (6,551 | ) | ||||
Treasury stock, at cost
|
(1,359 | ) | (1,359 | ) | ||||
Total stockholders' equity
|
20,555 | 25,068 | ||||||
Total liabilities and stockholders’ equity
|
$ | 25,870 | $ | 28,488 | ||||
See accompanying notes to condensed consolidated financial statements.
|
WRIGHT INVESTORS' SERVICE HOLDINGS, INC.
|
||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(unaudited)
|
||||||||
(in thousands, except per share amounts)
|
||||||||
Six Months Ended June 30,
|
||||||||
2013
|
2012
|
|||||||
Cash flows from operating activities
|
||||||||
Net loss
|
$ | (4,683 | ) | $ | (1,925 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities:
|
||||||||
Depreciation and amortization
|
329 | - | ||||||
Change in liability for contingent consideration
|
88 | - | ||||||
Equity based compensation, including issuance of stock to directors
|
170 | 51 | ||||||
Changes in other operating items:
|
||||||||
Accounts receivable
|
75 | - | ||||||
Investment securities
|
58 | - | ||||||
Deferred revenue
|
19 | - | ||||||
Officers retirement bonus liability
|
11 | - | ||||||
Refundable and prepaid income tax
|
- | (2 | ) | |||||
Income tax payable
|
(225 | ) | (6 | ) | ||||
Prepaid expenses and other current assets
|
85 | (16 | ) | |||||
Settlement payable
|
2,375 | - | ||||||
Accounts payable and accrued expenses
|
(371 | ) | 719 | |||||
Net cash used in operating activities
|
(2,069 | ) | (1,179 | ) | ||||
Cash flows from investing activities
|
||||||||
Additions to property and equipment
|
(2 | ) | - | |||||
Net cash used in investing activities
|
(2 | ) | - | |||||
Net decrease in cash and cash equivalents
|
(2,071 | ) | (1,179 | ) | ||||
Cash and cash equivalents at the beginning of the period
|
18,883 | 27,247 | ||||||
Cash and cash equivalents at the end of the period
|
$ | 16,812 | $ | 26,068 | ||||
Supplemental disclosures of cash flow information
|
||||||||
Net cash paid during the period for
|
||||||||
Income taxes
|
$ | 13 | $ | 247 | ||||
See accompanying notes to condensed consolidated financial statements.
|
WRIGHT INVESTORS' SERVICE HOLDING, INC.
|
||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||
SIX MONTHS ENDED JUNE 30, 2013
|
||||||||||||||||||||||||
(unaudited)
|
||||||||||||||||||||||||
(in thousands, except per share data)
|
||||||||||||||||||||||||
Total
|
||||||||||||||||||||||||
Additional
|
Treasury
|
stock-
|
||||||||||||||||||||||
Common stock
|
paid -in
|
Accumulated
|
stock , at
|
holders
|
||||||||||||||||||||
shares
|
amount
|
capital
|
deficit
|
cost
|
equity
|
|||||||||||||||||||
Balance at December 31, 2012
|
19,034,834 | $ | 190 | $ | 32,788 | $ | (6,551 | ) | $ | (1,359 | ) | $ | 25,068 | |||||||||||
Net loss
|
- | - | - | (4,683 | ) | - | (4,683 | ) | ||||||||||||||||
Equity based compensation expense
|
- | - | 164 | - | - | 164 | ||||||||||||||||||
Issuance of common stock to director
|
2,532 | - | 6 | - | - | 6 | ||||||||||||||||||
Balance at June 30, 2013
|
19,037,366 | $ | 190 | $ | 32,958 | $ | (11,234 | ) | $ | (1,359 | ) | $ | 20,555 | |||||||||||
See accompanying notes to condensed consolidated financial statements.
|
1.
|
Basis of presentation and description of activities
|
2.
|
Acquisition
|
(a) Cash paid
|
$
|
4,852
|
||
(b) Issuance of 881,206 common shares based on the closing price of $2.52 per share on
December 19, 2012 and a 20% discount to reflect the three-year transfer restriction
|
1,776
|
|||
(c)Fair value of contingent consideration related to guarantee of a value of certain common
shares issued
|
441
|
|||
$
|
7,069
|
|||
Three Months
Ended
June 30, 2012
|
Six Months Ended
June 30,2012
|
|||||||
Total revenue
|
$ | 1,689 | $ | 3,424 | ||||
Net loss
|
(1,180) | (2,581) | ||||||
Basic and diluted loss per share
|
$ | (0.06) | $ | (0.14) | ||||
Weighted average common shares outstanding –
basic and diluted (a)
|
19,069 | 19,069 |
(a)
|
Reflects common shares issued in the acquisition in addition to RSUs to be settled with common shares which vested on the closing date.
|
3.
|
Per share data
|
4.
|
Capital Stock
|
5.
|
Short-term investments:
|
|
·
|
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
·
|
Level 2 – Quoted prices in active markets for similar assets and liabilities or quoted prices in less active, dealer or broker markets;
|
|
·
|
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and are unobservable.
|
June 30, 2013
|
||||||||||||
Cost
|
Unrealized
Gains
|
Estimated
Fair Value
|
||||||||||
Mutual funds
|
$
|
21
|
$
|
-
|
$
|
21
|
||||||
Equity securities
|
93
|
18
|
111
|
|||||||||
$
|
114
|
$
|
18
|
$
|
132
|
6.
|
Incentive stock plans and stock based compensation
|
Stock
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Options outstanding at January 1, 2013
|
3,300,000
|
$
|
2.29
|
4.7
|
$
|
0
|
*
|
|||||||||
Options cancelled
|
50,000
|
$
|
1.50
|
|||||||||||||
Options outstanding at June 30, 2013
|
3,250,000
|
$
|
2.31
|
4.1
|
$
|
311,000
|
*
|
|||||||||
Options exercisable at June 30, 2013
|
3,250,000
|
|
$
|
2.31
|
4.1
|
$
|
311,000
|
*
|
|
*
|
The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.
|
|
a)
|
479,280 RSUs were granted to four key executives of Winthrop, which vested as of the Closing Date and are subject to post-vesting restrictions on sale for three years. The RSUs were valued at the closing price of the Company’s common stock of $2.52, less a 20% discount for post vesting restrictions on sale, or $2.02 per share. The total value of these RSUs of $966,000, were accounted for as compensation and charged to retention bonus expense on the closing date.
|
|
b)
|
370,000 RSUs were granted to four key executives, which vest equally over three years, with the first third vesting one year from the Closing Date. The RSUs are valued based on the closing price of the Company’s common stock on the Closing Date of $2.52, less an average discount of 11% for post-vesting restrictions on sale until the three year anniversary of the grant date, or an average price per share of $2.25. The Company recorded compensation expense of $69,000 and $139,000, respectively, for the quarter and six months ended June 30, 2013 related to these RSUs. The total unrecognized compensation expense related to these unvested RSUs at June 30, 2013 is $668,000, which will be recognized over the vesting period of approximately 3 years.
|
|
c)
|
17,738 RSUs were granted to certain employees of the Company on February 4, 2013, which vest equally over three years, with the first third vesting on February 4, 2014. The RSUs are valued based on the closing price of the Company’s common stock on February 4, 2013 of $2.40, less an average discount of 11% for post-vesting restrictions on sale until the three year anniversary of the grant date, or an average price per share of $2.25. The Company recorded compensation expense of $3,000 and $5,000, respectively, for the quarter and six months ended June 30, 2013 related to these RSUs. The total unrecognized compensation expense related to these unvested RSUs at June 30, 2013 is $34,000, which will be recognized over the vesting period of approximately 3 years.
|
7.
|
Intangible Assets
|
Intangible
|
Estimated
useful life
|
Gross
carrying
amount
|
Accumulated
Amortization
|
Net carrying
amount
|
|||||||||
Investment management and Advisory Contracts
|
9 years
|
$
|
3,181
|
$
|
188
|
$
|
2,993
|
||||||
Trademarks
|
10 years
|
433
|
23
|
410
|
|||||||||
Proprietary software and
technology
|
4 years
|
960
|
127
|
833
|
|||||||||
$
|
4,574
|
$
|
338
|
$
|
4,236
|
Year ending December 31,
|
|
2013 (remainder)
|
$317
|
2014
|
637
|
2015
|
637
|
2016
|
630
|
2017
|
397
|
2018-2023
|
1,618
|
$4,236
|
8.
|
Related party transactions
|
9.
|
Income taxes
|
10.
|
Retirement plans
|
11.
|
Contingencies and other
|
|
(a)
|
On or about May 17, 2011, the Merit Group, Inc. (“Merit”) filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of South Carolina. On or about December 14, 2011, the Official Committee of Unsecured Creditors of TMG Liquidation Company (formerly known as The Merit Group, Inc.) filed in that court an adversary proceeding against the Company (the “Avoidance Action”) now captioned CohnResnick LLP, as Plan Administrator v. National Patent Development Corp. (In re TMG Liquidation Co.). The Avoidance Action seeks, among other things, to avoid and recover the consideration paid by Merit to the Company for the purchase of Five Star Products, Inc. (“Five Star”) from the Company under the Stock Purchase Agreement, dated November 24, 2009 (the “Agreement”), as a constructive fraudulent transfer under sections 548, 550, and 551 of the Bankruptcy Code.
|
(b)
|
The Company entered into employment agreements with four key executives of Winthrop. The Company has a call right to acquire any shares of Company common stock held by the four key executives of Winthrop received as merger consideration who terminate employment without “good reason” prior to the third anniversary of the Closing Date, at a purchase price per share equal to the fair market value of Company Common Stock as of the date of the notice of the exercise of the call right.
|
June 30,
2012
|
||||
Assets
|
||||
Cash and cash equivalents
|
$ | 487,529 | ||
Short-term investments
|
331,744 | |||
Accounts receivable
|
569,787 | |||
Property and equipment
|
61,745 | |||
Prepaid costs and other
|
264,343 | |||
Total Assets
|
$ | 1,715,148 | ||
Liabilities and Shareholders’ Deficiency
|
||||
Liabilities:
Accounts payable and accrued expenses
|
$ | 568,701 | ||
Deferred revenue
|
23,547 | |||
Accrued compensation and bonuses
|
7,790 | |||
Officer retirement bonus payable
|
1,210,540 | |||
Total liabilities
|
1,810,578 | |||
Shareholders’ deficiency
|
( 95,430 | ) | ||
Total Liabilities and Shareholders’ Equity (Deficiency)
|
$ | 1,715,148 |
Three Months
|
Six Months Ended
|
|||||||
Ended June 30,
|
June 30,
|
|||||||
2012
|
2012
|
|||||||
Revenues:
|
||||||||
Investment management services
|
$ | 723,666 | $ | 1,446,147 | ||||
Other investment advisory services
|
717,374 | 1,454,273 | ||||||
Financial research and related data
|
247,361 | 523,502 | ||||||
Total revenues
|
1,688,401 | 3,423,922 | ||||||
Costs and expenses:
|
||||||||
Salaries and employee benefits
|
1,146,068 | 2,277,967 | ||||||
Other selling and administrative
|
253,237 | 490,168 | ||||||
Facilities
|
150,861 | 308,739 | ||||||
Professional and outside services
|
127,941 | 241,341 | ||||||
Total costs and expenses
|
1,678,107 | 3,318,215 | ||||||
Income from operations before income taxes
|
10,294 | 105,707 | ||||||
Income tax expense:
|
||||||||
Current
|
250 | |||||||
250 | ||||||||
Net income
|
$ | 10,294 | $ | 105,457 |
Treasury Stock
|
||||||||||||||||||||||||||||||||||||||||||||
Class A Common
|
Class B Common
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||||||||||||
Additional
|
||||||||||||||||||||||||||||||||||||||||||||
Paid-In
|
Accumulated
|
|||||||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit |
Class A
|
Class B
|
Class A
|
Class B
|
Total
|
||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2012
|
57,077 | $ | 57,077 | 19,070 | $ | 19,070 | $ | 1,110,593 | $ | ( 984,717 | ) | 11,953 | 6,695 | $ | ( 341,868 | ) | $ | ( 61,042 | ) | $ | ( 200,887 | ) | ||||||||||||||||||||||
Net income
|
105,457 | 105,457 | ||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2012
|
57,077 | $ | 57,077 | 19,070 | $ | 19,070 | $ | 1,110,593 | $ | ( 879,260 | ) | 11,953 | 6,695 | $ | ( 341,868 | ) | $ | ( 61,042 | ) | $ | ( 95,430 | ) |
Six Months Ended
June 30,
2012
|
||||
Cash flows from operating activities:
Net income
|
$ | 105,457 | ||
Adjustments to reconcile net income to net
|
||||
cash used in operating activities:
|
||||
Depreciation and amortization
|
17,594 | |||
Gain on short-term investments
|
( 14,421 | ) | ||
Changes in operating assets and liabilities:
|
||||
Accounts receivable
|
( 82,575 | ) | ||
Prepaid costs and other
|
( 5,094 | ) | ||
Accounts payable and accrued expenses
|
( 16,560 | ) | ||
Deferred revenue
|
10,730 | |||
Deferred compensation and bonuses
|
( 38,051 | ) | ||
Net cash used in operating activities
|
( 22,920 | ) | ||
Cash flows from investing activities:
Additions to property and equipment
|
( 1,451 | ) | ||
Net cash used in investing activities
|
( 1,451 | ) | ||
Net change in cash and cash equivalents
|
( 24,371 | ) | ||
Cash and cash equivalents, beginning
|
511,900 | |||
Cash and cash equivalents, ending
|
$ | 487,529 |
1.
|
Summary of significant accounting policies:
|
1.
|
Summary of significant accounting policies (continued):
|
2.
|
Short-term investments:
|
|
·
|
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measure ment date for identical, unrestricted assets or liabilities;
|
|
·
|
Level 2 – Quoted prices in active markets for similar assets and liabilities or quoted prices in less active, dealer or broker markets;
|
|
·
|
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and are unobservable.
|
2.
|
Short-term investments (continued):
|
2012
|
||||||||||||
Amortized
Cost
|
Unrealized
Gains (Losses)
|
Estimated
Fair Value
|
||||||||||
Cash
|
$ | 188,519 | $ | 188,519 | ||||||||
Mutual funds (See Note 6)
|
19,858 | $ | ( 2,293 | ) | 17,565 | |||||||
Equity securities
|
110,468 | 14,692 | 125,160 | |||||||||
Bonds
|
500 | 500 | ||||||||||
$ | 319,345 | $ | 12,399 | $ | 331,744 |
4.
|
Property and equipment:
|
June 30,
2012
|
||||
Computer software
|
$ | 363,251 | ||
Computer equipment
|
213,225 | |||
Office furniture and equipment
|
462,832 | |||
Leasehold improvements
|
279,079 | |||
Publishing machinery
|
42,834 | |||
Automobiles
|
58,018 | |||
1,419,239 | ||||
Less accumulated depreciation and amortization
|
( 1,357,494 | ) | ||
$ | 61,745 |
5.
|
Retirement programs:
|
6.
|
Related party transactions:
|
7.
|
Commitments:
|
7.
|
Commitments (continued):
|
Year Ending December 31:
|
Lease
|
Sublease
|
||||||
2012
|
$ | 237,140 | $ | 53,142 | ||||
2013
|
212,245 | 48,708 | ||||||
$ | 449,385 | $ | 101,850 |
8.
|
Common stock and treasury stock:
|
2012
|
||||||||
Current
|
Deferred
|
|||||||
Tax expense (benefit) before
application of operating loss
carryforward
|
$ | 36,250 | ||||||
Benefit of loss carryforward
|
( 36,000 | ) | $ | 36,000 | ||||
Change in valuation allowance
|
- | ( 36,000 | ) | |||||
$ | 250 | $ | - |
10.
|
Supplemental disclosures of cash flow information:
|
11.
|
Stock plans:
|
Shares
Subject
To option
|
Weighted
Average
Exercise
Price
Per Share
|
Weighted
Average
Remaining
Contractual
Life
(In Years)
|
||||||||||
Outstanding and exercisable at
December 31, 2011
|
6,964 | $ | 151.59 | 6.24 |
Exhibit No.
|
Description
|
|
10.1
|
Settlement Agreement and Release, between CohnReznick LLP, in its capacity as Plan Administrator, and Wright Investors’ Service Holdings, Inc. Incorporated herein by reference to Exhibit 10.1 of the Registrants Form 8-K filed on August 2, 2013.
|
|
31.1
|
*
|
Certification of principal executive officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a)
|
31.2
|
*
|
Certification of principal financial officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a)
|
32.1
|
*
|
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by the principal executive officer of the Company and the principal financial officer of the Company
|
101.INS
|
**
|
XBRL Instance Document
|
101.SCH
|
**
|
XBRL Taxonomy Extension Schema Document
|
101.CAL
|
**
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
**
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
**
|
XBRL Extension Labels Linkbase Document
|
101.PRE
|
**
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
WRIGHT INVESTORS’ SERVICE HOLDINGS, INC.
|
||
Date: August 14, 2013
|
/s/ HARVEY P. EISEN
|
|
Name: Harvey P. Eisen
|
||
Title: Chairman of the Board and Chief Executive Officer
|
||
Date: August 14, 2013
|
/s/ IRA J. SOBOTKO
|
|
Name: Ira J. Sobotko
|
||
Title: Vice President, Chief Financial Officer
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Wright Investors’ Service Holdings, Inc.
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
/s/ HARVEY P. EISEN
|
||
Name:
|
Harvey P. Eisen
|
|
Title:
|
Chief Executive Officer
(Principal Executive Officer)
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Wright Investors’ Service Holdings, Inc.
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
/s/ IRA J. SOBOTKO
|
||
Name:
|
Ira J. Sobotko
|
|
Title:
|
Vice President, Chief Financial Officer
(Principal Financial Officer)
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ HARVEY P. EISEN
|
||
Name:
|
Harvey P. Eisen
|
|
Title:
|
Chief Executive Officer
(Principal Executive Officer)
|
|
Date:
|
August 14, 2013
|
/s/ IRA J. SOBOTKO
|
||
Name:
|
Ira J. Sobotko
|
|
Title:
|
Vice President, Chief Financial Officer
(Principal Financial Officer)
|
|
Date:
|
August 14, 2013
|
Contingencies and other
|
6 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
||||||||
Commitments and other [Abstract] | ||||||||
Contingencies and other |
On August 2, 2013, the Company entered into a Settlement Agreement and Release (the "Settlement Agreement") with CohnReznick LLP (the "Plan Administrator") to settle the Avoidance Action. Under the terms of the Settlement Agreement, the Plan Administrator is required to file with the Bankruptcy Court, no later than August 9, 2013, a motion to approve the Settlement Agreement (the "Settlement Motion") and a proposed order approving relief to be requested in the Settlement Motion (the "Proposed Order"). Pursuant to the Settlement Agreement, the Company has agreed to make a settlement payment of $2,375,000 (the "Settlement Payment") to the Plan Administrator conditioned upon the entry of an order (the "Approval Order") by the Bankruptcy Court approving the Settlement Motion, that is in a form acceptable to the Company and in substantially the same form as the Proposed Order. The Settlement Agreement requires the Company to make the Settlement Payment within fifteen days of the Approval Order becoming a final, non-appealable order (a "Final Order"). If the Bankruptcy Court does not enter an order approving the Settlement Agreement by October 1, 2013, then the Settlement Agreement shall automatically be null and void and of no legal effect. The Settlement Agreement also provides for general mutual releases by each of the parties, including a general release in favor of the Company and its affiliates, and the Company's and its affiliates' officers, directors, employees, agents, and professionals. The mutual releases become effective upon entry of a Final Order and receipt of the Settlement Payment by the Plan Administrator. In addition, pursuant to the terms of the Settlement Agreement, the Plan Administrator must make the requisite filings to dismiss, with prejudice, the Avoidance Action and a second pending adversary complaint against the Company no later than ten (10) days after receipt of the Settlement Payment by the Plan Administrator. Upon entry of a Final Order by the Bankruptcy Court, the Company will have resolved all claims and causes of action that have been or could have been asserted against it by the Plan Administrator. As a result of entering into the Settlement Agreement, during the quarter ended June 30, 2013, the Company recorded a loss of $2,375,000 in connection with the Avoidance Action, which has been charged to discontinued operations. In addition, legal expenses of $716,000 incurred during the six months ended June 30, 2013, in connection with the matter have also been charged to discontinued operations, of which $256,000 incurred in the quarter ended March 31, 2013 have been reclassified from continuing operations in the results of operations for six months ended June 30, 2013.
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
CONDENSED CONSOLIDATED BALANCE SHEETS [Abstract] | ||
Property and equipment, accumulated depreciation and amortization | $ 72 | $ 58 |
Capital Stock
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2013
|
|||
Capital Stock [Abstract] | |||
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. At June 30, 2013, the Company had repurchased 1,791,821 shares of its common stock and a total of 3,208,179 shares, remained available for repurchase at June 30, 2013. |
Acquisition (Purchase Price) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified |
1 Months Ended | |
---|---|---|
Jun. 30, 2013
|
Dec. 19, 2012
Winthrop [Member]
|
|
Purchase price: | ||
Cash paid | $ 4,852 | |
Issuance of 881,206 common shares based on the closing price of $2.52 per share on December 19, 2012 and a 20% discount to reflect the three-year transfer restriction | 1,776 | |
Fair value of contingent consideration related to guarantee of a value of certain common shares issued | 509 | 441 |
Purchase price | $ 7,069 | |
Issuance of common stock in connection with acquisition, shares | 881,206 | |
Stock price | $ 2.52 | |
Restriction discount | 20.00% |
Basis of presentation and description of activities (Policies)
|
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Basis of presentation and description of activities [Abstract] | |
Basis of presentation | 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, 2012 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, 2012 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 2013 interim periods are not necessarily indicative of results to be expected for the entire year. |
Description of activities | Description of activities On February 4, 2013, National Patent Development Corporation changed its name to Wright Investors' Service Holdings, Inc. (hereinafter referred to as the "Company" or "Wright Holdings"). On January 15, 2010, the Company completed the sale to The Merit Group, Inc. ("Merit") of all of the issued and outstanding stock of the Company's wholly-owned subsidiary, Five Star Products, Inc., the holding company and sole stockholder of Five Star Group, Inc., for cash. Upon the consummation of the sale, the Company became a "shell company", as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended. As used herein, references to "Five Star" refer to Five Star Products Inc. or Five Star Group Inc., or both, as the context requires. On December 19, 2012 (the "Closing Date"), the Company, completed the acquisition of The Winthrop Corporation, a Connecticut corporation ("Winthrop") pursuant to that certain Agreement and Plan of Merger (the "Merger Agreement") dated June 18, 2012. Winthrop, through its wholly-owned subsidiaries Wright Investors' Service, Inc. ("Wright"), Wright Investors' Service Distributors, Inc. ("WISDI") and Wright's wholly-owned subsidiary, Wright Private Asset Management, LLC ("WPAM") (collectively, the "Wright Companies"), offers investment management services, financial advisory services and investment research to large and small investors, both taxable and tax exempt. WISDI is a registered broker dealer with the Financial Industry Regulatory Authority, Inc. ('FINRA") and the Securities and Exchange Commission. In accordance with the Merger Agreement, a wholly-owned newly formed subsidiary of the Company, was merged with and into Winthrop and Winthrop became a wholly-owned subsidiary of the Company (see Note 2). As a result of the completion of the Merger described above, the Company is no longer a "shell company" and substantially all of the Company's business operations are carried out through Winthrop and its subsidiaries, the Wright Companies. |
Capital Stock (Details)
|
Jun. 30, 2013
|
---|---|
Capital Stock [Abstract] | |
Number of shares authorized to be repurchased | 5,000,000 |
Number of shares repurchased | 1,791,821 |
Remaining number of shares available for repurchase | 3,208,179 |
Per share data (Details)
|
3 Months Ended | 6 Months Ended | 1 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Dec. 19, 2012
Restricted Stock Units (RSUs) [Member]
|
Jun. 30, 2013
Restricted Stock Units (RSUs) [Member]
|
Jun. 30, 2013
Restricted Stock Units (RSUs) [Member]
|
Jun. 30, 2013
Stock Options [Member]
|
Jun. 30, 2012
Stock Options [Member]
|
Jun. 30, 2013
Stock Options [Member]
|
Jun. 30, 2012
Stock Options [Member]
|
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||||||||||
Weighted average number of common shares outstanding | 18,951,000 | 17,586,000 | 18,951,000 | 17,586,000 | |||||||
Number of RSUs, Vested | 479,280 | ||||||||||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 387,738 | 387,738 | 3,250,000 | 3,300,000 | 3,250,000 | 3,300,000 |
Income taxes (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | 1 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Apr. 30, 2013
Internal Revenue Service (IRS) [Member]
|
Jun. 30, 2013
Internal Revenue Service (IRS) [Member]
Minimum [Member]
|
Jun. 30, 2013
Internal Revenue Service (IRS) [Member]
Maximum [Member]
|
Jun. 30, 2013
Internal Revenue Service (IRS) [Member]
Five Star [Member]
|
Jun. 30, 2013
Internal Revenue Service (IRS) [Member]
Five Star [Member]
Minimum [Member]
|
Jun. 30, 2013
Internal Revenue Service (IRS) [Member]
Five Star [Member]
Maximum [Member]
|
Jun. 30, 2013
New York State [Member]
Minimum [Member]
|
Jun. 30, 2013
New York State [Member]
Maximum [Member]
|
|
Income Tax Examination [Line Items] | ||||||||||||
Income tax expense related to continuing operations | $ (4) | $ 29 | $ (1) | $ 195 | $ (5) | |||||||
Income Tax Examination, Year under Examination | 2009 | 2010 | 2007 | 2008 | 2008 | 2010 | ||||||
Income Tax Examination, Amount written off for potential federal and state tax defiencies and related interest | 350 | |||||||||||
Income Tax Examination, Additional tax written off | 212 | |||||||||||
Income Tax Examination, Interest written off | 138 | |||||||||||
Income Tax Examination, Settlement amount | 10 | |||||||||||
Income Tax Examination Settlement amount, interest | 1 | |||||||||||
Decrease in liability for uncertain tax positions | $ 15 |
Intangible Assets (Intangible Assets) (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Finite-Lived Intangible Assets [Line Items] | |
Gross carrying amount | $ 4,574 |
Accumulated Amortization | 338 |
Net carrying amount | 4,236 |
Investment Management and Advisory Contracts [Member]
|
|
Finite-Lived Intangible Assets [Line Items] | |
Estimated useful life | 9 years |
Gross carrying amount | 3,181 |
Accumulated Amortization | 188 |
Net carrying amount | 960 |
Trademarks [Member]
|
|
Finite-Lived Intangible Assets [Line Items] | |
Estimated useful life | 10 years |
Gross carrying amount | 433 |
Accumulated Amortization | 23 |
Net carrying amount | 127 |
Proprietary Software and Technology [Member]
|
|
Finite-Lived Intangible Assets [Line Items] | |
Estimated useful life | 4 years |
Gross carrying amount | 960 |
Accumulated Amortization | 410 |
Net carrying amount | $ 833 |
Acquisition (Pro Forma Results) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2012
|
|||||
Acquisition [Abstract] | ||||||
Total revenue | $ 1,689 | $ 3,424 | ||||
Net loss | $ (1,180) | $ (2,581) | ||||
Basic and diluted loss per share | $ (0.06) | $ (0.14) | ||||
Weighted average common shares outstanding - basic and diluted | 19,069 | [1] | 19,069 | [1] | ||
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $)
In Thousands, except Share data |
Total
|
Common Stock [Member]
|
Additional paid-in capital [Member]
|
Accumulated deficit [Member]
|
Treasury stock, at cost [Member]
|
---|---|---|---|---|---|
Balance at Dec. 31, 2012 | $ 25,068 | $ 190 | $ 32,788 | $ (6,551) | $ (1,359) |
Balance, shares at Dec. 31, 2012 | 19,034,834 | ||||
Net loss | (4,683) | (4,683) | |||
Equity based compensation expense | 164 | 164 | |||
Issuance of common stock to directors | 6 | 6 | |||
Issuance of common stock to directors, shares | 2,532 | ||||
Balance at Jun. 30, 2013 | $ 20,555 | $ 190 | $ 32,958 | $ (11,234) | $ (1,359) |
Balance, shares at Jun. 30, 2013 | 19,037,366 |
Acquisition
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition |
As described in Note 1, on December 19, 2012, the Company acquired 100% of the equity interests of Winthrop for 881,206 shares of Company Common Stock issued to those holders of Winthrop Common Stock who elected to receive Company Common Stock as merger consideration and the Company paid cash totaling $4,852,000 to those holders of Winthrop Common Stock who elected to receive cash as merger consideration. Pursuant to the Merger Agreement and an Investors' Rights Agreement, holders of Winthrop Common Stock who elected to receive Company Common Stock as merger consideration are subject to a three-year transfer restriction on such Company Common Stock. Further, the Company has agreed to pay contingent consideration in cash to a holder of Winthrop common stock who received 852,228 shares of Company Common Stock to the extent that such shares have a value of less than $1,900,000 ($2.23 per share) on the expiration of the three year period based on the average closing price of the Company's Common Stock for the ten trading days prior to such date. Pursuant to the Merger Agreement, the Company has entered into employment agreements with four key Winthrop employees having initial terms of five years for one employee and three years for three employees which provide for compensation in the form of base salary, various bonuses and restricted stock units, representing Company Common Stock ("RSUs"). The employment agreements provide for automatic annual renewals unless notice of non-renewal is given at least six months prior to the applicable employment period. See Note 11 (b). The purchase price is comprised of the following (in thousands):
A liability was recognized for an estimate of the acquisition date fair value of the acquisition-related contingent consideration which may be paid. The fair value was calculated by applying a lattice model, which takes into account the potential for the Company's stock price being less than $2.23 per share at the end of the 3 year lock-up period. The fair value measurement is based on significant unobservable inputs that are supported by little market activity and reflect the Company's own assumptions. Key assumptions include expected volatility (50%) in the Company's common stock and the risk free interest rate (0.36%) during the above period. Changes in the fair value of the contingent consideration subsequent to the acquisition date will be recognized in earnings until the liability is eliminated or settled. The fair value of the liability was $509,000 on June 30, 2013 and accordingly, the Company recognized an expense of $53,000 and $88,000 for the change in the value for the quarter and six months ended June 30, 2013, respectively. The allocation of the purchase price to Winthrop's tangible and identifiable intangible assets acquired and liabilities assumed was based on their estimated fair values. The excess of the purchase price over the tangible and identifiable intangible assets acquired and liabilities assumed has been allocated to goodwill. Factors that contributed to a purchase price resulting in the recognition of goodwill primarily relates to the Company's effort to transition from a shell company and the belief that Winthrop's platform will provide the Company the opportunity to grow into a significantly larger asset management franchise over time. For tax purposes, the Merger was treated as a taxable acquisition of Winthrop's stock with no changes in the tax basis of Winthrop's assets and liabilities. A net deferred tax liability was recorded for the excess of the fair values over the tax bases of the acquired assets and assumed liabilities with a corresponding increase to goodwill. The following unaudited pro forma information presents the Company's combined results of operations as if the acquisition of Winthrop had occurred as of January 1, 2012. The pro forma net loss reflects amortization of the amounts ascribed to intangible assets acquired in the acquisition, compensation related to employment contracts and RSU's granted to certain employees and adjustments to reflect increases in charges from a related party (see Note 8). The pro forma results exclude acquisition related expenses and deferred tax benefits resulting from the acquisition and reflect retention bonuses as if they were incurred on January 1, 2012 instead of December 19, 2012 (in thousands, except for per share data).
The pro forma financial information is not intended to represent or be indicative of the Company's consolidated results of operations that would have been reported had the acquisition been completed as of the beginning of 2012, nor should it be taken as indicative of the Company's future consolidated results of operations. |
Short-term investments:
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-term investments: [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-term investments: |
The Financial Accounting Standards Board has issued authoritative accounting guidance that defines fair value, establishes a framework for measuring fair value and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques. The guidance clarifies that fair value should be based on assumptions that market participants would use when pricing an asset or liability. The three levels of fair value hierarchy are described below:
Short-term investments, which consist of mutual funds managed by a subsidiary of Winthrop and separate securities accounts, are stated at the net asset value of the funds or the year-end closing price of the underlying security (Level 1) The following is a summary of current trading marketable securities at June 30, 2013 (in thousands):
|
Per share data
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2013
|
|||
Per share data [Abstract] | |||
Per share data |
Loss per share for the three months ended June 30, 2013 and 2012 respectively, is calculated based on 18,951,000 and 17,586,000 weighted average outstanding shares of common stock. Loss per share for the six months ended June 30, 2013 and 2012 respectively, is calculated based on 18,951,000 and 17,586,000 weighted average outstanding shares of common stock. In connection with the Winthrop acquisition on December 19, 2012, 479,280 RSUs vested on such date and are included in the weighted average outstanding shares of common stock for the quarter and six months ended June 30, 2013. Options for 3,250,000 shares of common stock for the quarter and six months ended June 30, 2013 and options for 3,300,000 shares of common stock for the quarter and six months ended June 30, 2012, respectively and unvested RSUs for 387,738 shares of common stock for the quarter and six months ended June 30, 2013 were not included in the diluted computation as their effect would be anti-dilutive since the Company has losses from continuing operations for both periods. |
Short-term investments: (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Schedule of Available-for-sale Securities [Line Items] | |
Cost | $ 114 |
Unrealized Gains | 18 |
Estimated Fair Value | 132 |
Mutual Funds [Member]
|
|
Schedule of Available-for-sale Securities [Line Items] | |
Cost | 21 |
Unrealized Gains | |
Estimated Fair Value | 21 |
Equity Securities [Member]
|
|
Schedule of Available-for-sale Securities [Line Items] | |
Cost | 93 |
Unrealized Gains | 18 |
Estimated Fair Value | $ 111 |
Intangible Assets (Estimated Amortization Expense) (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Intangible Assets [Abstract] | |
2013 (remainder) | $ 317 |
2014 | 637 |
2015 | 637 |
2016 | 630 |
2017 | 397 |
2018-2023 | 1,618 |
Finite-Lived Intangible Assets, Net, Total | 4,236 |
Amortization expense related to intangible assets | $ 319 |