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EX-31.1 - EXHIBIT 31.1 - Wright Investors Service Holdings, Inc.ex31_1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended March 31, 2014
or
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from _____ to _____

Commission File Number: 000-50587

WRIGHT INVESTORS’ SERVICE HOLDINGS, INC.
 (Exact Name of Registrant as Specified in its Charter)

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)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
(Do not check if a smaller reporting company)
o
Smaller reporting company
 
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o    No  x   
 
As of May 12, 2014, there were 18,484,210 shares of the registrant’s common stock, $0.01 par value, outstanding.
 


 
 

 
 
WRIGHT INVESTORS’ SERVICE HOLDINGS, INC.

TABLE OF CONTENTS
 
 
 
Part I.  Financial Information
Page No.
     
1
     
   
 
1
     
   
 
2
     
   
 
3
     
   
 
4
     
 
5
     
     
     
 
 
24
     
28
     
28
 
 
Part II. Other Information
 
 
29
     
30
   
31
 
 
 

 
 
PART I. FINANCIAL INFORMATION
 
 
WRIGHT INVESTORS' SERVICE HOLDINGS, INC.
(unaudited)
(in thousands, except per share amounts)
 
   
Three Months Ended March 31,
 
   
2014
   
2013
 
Revenues
           
Investment management services
  $ 689     $ 664  
Other investment advisory services
    628       687  
Financial research and related data
    155       163  
      1,472       1,514  
Expenses
               
Selling, general and administrative
    2,291       2,521  
      2,291       2,521  
                 
Operating loss
    (819 )     (1,007 )
                 
Investment and other income,  net
    10       29  
                 
Gain on sale of investment in MXL
    719       -  
                 
Change in fair value of contingent consideration
    (26 )     (35 )
Loss from continuing operations before income
taxes
    (116 )     (1,013 )
                 
Income tax expense
    (9 )     (3 )
Loss from continuing operations
    (125 )     (1,016 )
                 
Loss from discontinued operations, net of taxes
    -       (266 )
                 
Net loss
  $ (125 )   $ (1,282 )
                 
Basic and diluted loss per share
               
     Continuing operations
  $ (0.01 )   $ (0.06 )
     Discontinued operations
    -       (0.01 )
Net loss
  $ (0.01 )   $ (0.07 )
 
See accompanying notes to condensed consolidated financial statements.
 
 
1

 
 
WRIGHT INVESTORS' SERVICE HOLDINGS, INC.
(in thousands)
 
   
March 31,
   
December 31,
 
   
2014
   
2013
 
Assets
 
(unaudited)
       
Current assets
           
Cash and cash equivalents
  $ 12,636     $ 12,566  
Short-term investments
    136       132  
Accounts receivable, net
    356       322  
Refundable and prepaid income taxes
    33       16  
Prepaid expenses and other current assets
    266       393  
                 
Total current assets
    13,427       13,429  
                 
Property and equipment, net
    43       49  
Intangible assets, net
    3,759       3,918  
Goodwill
    3,364       3,364  
Investment in undeveloped land
    355       355  
Other assets
    50       325  
Total assets
  $ 20,998     $ 21,440  
                 
Liabilities and stockholders’ equity
               
Current liabilities
               
Accounts payable and accrued expenses
  $ 999     $ 1,402  
Deferred revenue
    7       14  
Current portion of officers retirement bonus liability
    100       100  
Total current liabilities
    1,106       1,516  
                 
                 
Liability for contingent consideration
    532       506  
                 
Officers retirement bonus liability, net of current portion
    797       802  
Total liabilities
    2,435       2,824  
                 
Stockholders’ equity
               
Common stock
    190       190  
Additional paid-in capital
    33,183       33,111  
Accumulated deficit
    (13,451 )     (13,326 )
Treasury stock, at cost
    (1,359 )     (1,359 )
Total stockholders' equity
    18,563       18,616  
Total liabilities and stockholders’ equity
  $ 20,998     $ 21,440  
 
See accompanying notes to condensed consolidated financial statements.
 
 
2

 
 
WRIGHT INVESTORS' SERVICE HOLDINGS, INC.
(unaudited)
(in thousands)
 
   
Three Months Ended March 31,
 
   
2014
   
2013
 
Cash flows from operating activities
           
             
Net loss
  $ (125 )   $ (1,282 )
Adjustments to reconcile net loss to cash used in operating activities:
               
Gain on sale of investment in MXL
    (719 )     -  
Depreciation and amortization
    165       164  
Change in liability for contingent consideration
    26       35  
Equity based compensation, including issuance of stock to directors
    72       95  
Changes in other operating items, net :
               
       Accounts  receivable
    (34 )     30  
       Short-term investments
    (4 )     (15 )
       Deferred revenue
    (7 )     (16 )
       Officers retirement bonus
    (5 )     5  
       Refundable and prepaid income taxes
    (17 )     6  
       Prepaid expenses and other current assets
    127       15  
       Accounts payable and accrued expenses
    (403 )     115  
Net cash used in operating activities
    (924 )     (848 )
                 
Cash flows from investing activities
               
Proceeds from sale of investment in MXL
    994       -  
Additions to property and equipment
    -       (1 )
Net cash provided by (used in)  investing activities
    994       (1 )
                 
Net increase (decrease) in cash and cash equivalents
    70       (849 )
Cash and cash equivalents at the beginning of the period
    12,566       18,883  
Cash and cash equivalents at the end of the period
  $ 12,636     $ 18,034  
                 
Supplemental disclosures of cash flow information
               
Net cash paid during the period for
               
Income taxes
  $ 23     $ 3  
 
See accompanying notes to condensed consolidated financial statements.
 
 
3

 
 
WRIGHT INVESTORS' SERVICE HOLDINGS, INC.
THREE MONTHS ENDED MARCH 31, 2014
(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, 2013
    19,040,416     $ 190     $ 33,111     $ (13,326 )   $ (1,359 )   $ 18,616  
Net loss
    -       -       -       (125 )     -       (125 )
Equity based compensation expense
    -       -       72       -       -       72  
                                                 
Balance at March 31, 2014
    19,040,416     $ 190     $ 33,183     $ (13,451 )   $ (1,359 )   $ 18,563  
 
See accompanying notes to condensed consolidated financial statements.
 
 
 
 
 
 
 
4

 
 
WRIGHT INVESTORS’ SERVICE HOLDINGS, INC. AND SUBSIDIARIES
 
 
Three months ended March 31, 2014 and 2013
 
(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, 2013 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, 2013 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 2014 interim period are not necessarily indicative of results to be expected for the entire year.

 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.
 

Reclassification

The Company has reclassified $260,000 of legal expenses incurred in the quarter ended March 31, 2013 related to Merit litigation (See Note 12 (a)) from continuing operations to discontinued operations consistent with the presentation for the year ended December 31, 2013.

 
5

 
 
2.
Liability for Contingent Consideration

In connection with the Company’s acquisition of Winthrop on December 19, 2012, 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 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.
 
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 per share 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 are being recognized in earnings until the liability is eliminated or settled. The fair value of the liability was $532,000 on March 31, 2014.  The Company recognized an expense of $25,000 and $35,000, respectively, for the change in the value for the period ended March 31, 2014 and 2013.
 
 
3. 
Sale of MXL investment

At December 31, 2013, the Company held a 19.9% equity investment in a privately-held company, MXL, which is engaged in the plastic molding and precision coating businesses. At December 31, 2013, this investment was included in other assets at cost of $275,000.

On February 3, 2014 the privately-held company exercised its right to purchase the Company’s 19.9% interest.  The Company received $994,000 for its 19.9% interest on March 26, 2014, resulting in a gain of $719,000.

 
4. 
Per share data
        
Loss per share for the three months ended March 31, 2014 and 2013 respectively, is calculated based on 19,081,000 and 18,950,000 weighted average outstanding shares of common stock.  Included in these share numbers are vested RSUs of 608,526 and 479,280 for the quarters ended March 31, 2014 and 2013, respectively.

Options for 3,250,000 and 3,300,000 shares of common stock for the quarters ended March 31, 2014 and 2013, respectively and unvested RSUs for 258,492 and 387,738 shares of common stock, respectively, for the quarters ended March 31, 2014 and 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.
 
5. 
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 March 31, 2014 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 March 31, 2014.

  
6.
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:
    
 
·
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;
 
 
6

 
 
 
·
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and are unobservable.
 
Short-term investments, in 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.  All investments are classified as Level 1 investments.
 
The following is a summary of current trading marketable securities at March 31, 2014 (in thousands):
 
   
Cost
   
Unrealized
Gains
   
Estimated
Fair Value
 
Mutual funds
 
$
91
   
$
45
   
$
136
 
   
$
91
   
$
45
   
$
136
 
 
 
 
 
 
 
 
7

 
 
7.
Incentive stock plans and stock based compensation
        
The Company has a stock-based compensation plan for employees and non-employee members of its Board of Directors. The plan provides for discretionary grants of stock options, restricted shares, and other stock-based awards. The Company’s plan is administered by the Compensation Committee of the Board of Directors, which consists solely of non-employee directors. No stock options were granted during the three months ended March 31, 2014.
 
Information with respect to the Company’s outstanding stock options for the three months ended March 31, 2014 is as follows:

   
Stock
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Contractual
Term
   
Aggregate
Intrinsic
Value
 
Options outstanding at January 1, 2014
   
3,250,000
   
$
2.31
     
3.6
   
$
0
*
Options outstanding  at March 31, 2014
   
3,250,000
   
$
2.31
     
3.4
   
$
177,000
*
Options exercisable at March 31, 2014
   
3,250,000
   
$
2.31
     
3.4
   
$
177,000
*
 
 
 
 
*
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.
 
Compensation expense related to option grants amounted to $0 and $20,000 for the quarters ended March 31, 2014 and 2013, respectively.   As of March 31, 2014, there was no additional unrecognized compensation cost related to non-vested options.
 
 
 
Restricted stock units

As a result of the Winthrop acquisition, the Company issued a total of 867,018 RSUs to be settled in shares of Company common stock as follows:

 
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 for the quarters ended March 31, 2014 and 2013 related to these RSUs. As of March 31, 2014, the total unrecognized compensation expense related to these unvested RSUs is $460,000, which will be recognized over the remaining vesting period of approximately 2 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 $2,000, respectively, for the quarters ended March 31, 2014 and 2013 related to these RSUs. As of March 31, 2014, the total unrecognized compensation expense related to these unvested RSUs is $24,000, which will be recognized over the remaining vesting period of approximately 2 years.
 
 
8

 
 
8. 
Intangible Assets
 
At March 31, 2014, intangible assets subject to amortization which were recorded in connection with the acquisition of Winthrop consisted of the following (in thousands):

Intangible
Estimated
useful life
 
Gross
carrying
amount
   
Accumulated
Amortization
   
Net carrying
amount
 
                     
Investment management and Advisory  Contracts
  
 9 years
 
$
3,181
   
$
453
   
$
2,728
 
Trademarks
   10 years
   
 433
     
55
     
378
 
Proprietary software and
technology
   
4 years
   
   960
     
 307
     
  653
 
     
$
4,574
   
$
815
   
$
3,759
 
 
For the period ended March 31, 2014 amortization expense was $159,000. Estimated amortization expense for each of the five succeeding years and thereafter is as follows (in thousands):

Year ending December 31,
 
 
2014 (remainder)
 
$477
2015
 
  637
2016
 
  630
2017
 
  397
2018
 
  397
2019-2023
1,221
 
 
$3,759
 

 
9

 
 
9. 
Related party transactions
 
Effective June 1, 2010, the Company relocated its headquarters to the offices of Bedford Oak in Mount Kisco, New York. Bedford Oak is controlled by Harvey P. Eisen, Chairman, Chief Executive Officer and a director of the Company. From June 1, 2010 through August 31, 2012, the Company had been subleasing a portion of the Bedford Oak space and had access to various administrative support services on a month-to-month basis at a rate of approximately $19,700 per month.

On October 31, 2012, the Company’s Audit Committee approved an increase to approximately $40,700 per month (effective as of September 1, 2012) in the monthly sublease and administrative support services rate, which increased rate the Company believes is necessary to provide for the increased personnel and space requirements necessary for an operating company.    Selling general and administrative expenses for the three months ended March 31, 2014 and 2013, includes $122,000 related to the sublease arrangement with Bedford Oak.

On May 13, 2014, the Company’s Audit Committee approved a decrease to approximately $27,600 per month (effective as of June 1, 2014) in the monthly sublease and administrative support services rate, which decreased rate is part of the Company’s effort to control and reduce costs.
 
Wright acts as an investment advisor, its subsidiary acts as a principal underwriter and one officer of Winthrop is also an officer for a family of mutual funds from which investment management and distribution fees are earned based on the net asset values of the respective funds.  Such fees amounted to $206,000 and $259,000 for the three months ended March 31, 2014 and March 31, 2013, respectively.
 


10. 
Income taxes
 

For the three months ended March 31, 2014 and 2013, the Company recorded income tax expense from continuing operations of $9,000 and $3,000, respectively, which represents minimum state taxes. No tax benefit has been recorded in relation to the pre-tax loss from continuing operations for the three months ended March 31, 2014 and 2013, due to a full valuation allowance to offset any deferred tax asset related to net operating loss carry forwards attributable to the loss.
 
 

11. 
Retirement plans
 
 
Winthrop maintains an officer retirement bonus plan (the “Bonus Plan”) that is an unfunded deferred compensation program providing retirement benefits equal to 10% of annual compensation, as defined, to those officers upon their retirement.   Effective December 1, 1999, the Plan was frozen so that no additional benefits will be earned.  The total obligation under the Bonus Plan at March 31, 2014 is $1,688,000, of which $100,000 is estimated to be payable over the next twelve months.  The liability is payable to individual retired employees at the rate of $50,000 per year in equal monthly amounts commencing upon retirement.  The liability was recorded at $885,000 at the date of acquisition, representing its estimated fair value computed based on its present value, utilizing a discount rate of 14%, which was estimated to be the acquired company’s weighted average cost of capital on such date from the perspective of a market participant.  The calculated discount of $945,000 at the date of acquisition is being amortized as interest expense over the period the obligation is outstanding by use of the effective interest method.  For the three months ended March 31, 2014 and 2013, interest expense, (included in investment and other income) amounted to $20,000 and $30,000, respectively. At March 31, 2014, the present value of the obligation under the Bonus Plan was $897,000, and the unamortized discount was $791,000.

 
10

 
 
12. 
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 sought, 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.
 
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 was 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 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 Bankruptcy Court entered an order approving the Settlement Agreement on September 4, 2013, and the Settlement Agreement required the Company to make the Settlement Payment within fifteen days of the Approval Order becoming a final, non-appealable order (a “Final Order”).  On October 3, 2013, the Company made a payment of $2,375,000 to the Plan Administrator pursuant to the terms of the Settlement Agreement.
 

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 became effective upon entry of the Final Order and receipt of the Settlement Payment by the Plan Administrator. In addition, pursuant to the terms of the Settlement Agreement, on October 9, 2013 the Plan Administrator made the requisite filings to dismiss, with prejudice, the Avoidance Action and a second pending adversary complaint against the Company.    Upon entry of the Final Order by the Bankruptcy Court, the Company 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 third quarter ended September 30, 2013, the Company recorded a loss in discontinued operations of $2,375,000 in connection with the Avoidance Action.  In April 2014, the Company agreed to a settlement of its insurance claim related to this matter, and will receive a net payment of $525,000, which will be recorded as income in discontinued operations during the second quarter of 2014.

 
  (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.
 
 
11

 
 
 
Cautionary Statement Regarding Forward-Looking Statements
 
This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward looking statements. Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results. The words “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “could,” “project,” “predict,” “expect,” “estimate,” “continue,” and “intend,” as well as other similar words and expressions of the future, are intended to identify forward-looking statements.
 
Factors that may cause actual results to differ from those results expressed or implied, include, but are not limited to, those listed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013 filed by the Company with the Securities and Exchange Commission (the “SEC”) on March 27, 2014.
 
These forward-looking statements generally relate to our plans, objectives and expectations for future events and include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts.  These statements are based upon our opinions and estimates as of the date they are made.  Although we believe that the expectations reflected in these forward-looking statements are reasonable, such forward-looking statements are subject to known and unknown risks and uncertainties that may be beyond our control, which could cause actual results, performance and achievements to differ materially from results, performance and achievements projected, expected, expressed or implied by the forward-looking statements.  While we cannot assess the future impact that any of these differences could have on our business, financial condition, results of operations and cash flows or the market price of shares of our common stock, the differences could be significant. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report and you are urged to consider all such risks and uncertainties. In light of the uncertainty inherent in such forward-looking statements, you should not consider their inclusion to be a representation that such forward-looking matters will be achieved.
 
 

Results of Operations

Assets Under Management (AUM)
 
Winthrop earns revenue primarily by charging fees based upon AUM.  At March 31, 2014, AUM was $1.40 billion, as compared to $1.39 billion at December 31, 2013.  The change in AUM was due to deposits of $38 million and increased market value of $17 million, offset by redemptions and withdrawals of $49 million.

 
Three months ended March 31, 2014 compared to the three months ended March 31, 2013
 
For the three months ended March 31, 2014, the Company had a loss from continuing operations before income taxes of $116,000 compared to a loss from continuing operations before income taxes of $1,013,000 for the three months ended March 31, 2013.   The reduced loss of $897,000 was primarily the result of the $719,000 gain realized on the sale of the Company’s 19.9% interest in MXL in March 2014.  In addition,  there were reduced  General and administrative expenses at the corporate level of $115,000 as a result of reduced personnel costs of $50,000 and reduced professional fees.  Included in the loss incurred for the quarters ended March 31, 2014 and 2013, respectively,  for Winthrop are amortization of intangibles of $159,000 and $159,000 , amortization of stay and retention bonuses of $34,000 and $34,000 and compensation expense of $73,000 and $71,000 related to RSU’s issued to Winthrop employees.

 
12

 

Revenue
 
Winthrop markets its investment management products and services to plan sponsors, trade unions, endowments, corporations, state and local governments, municipalities and foundations.  The Winthrop products include equity, fixed income and balanced portfolios for various plan types, including defined benefit, annuity, self-directed and 401(k), health and welfare and education and training plans. In addition, Wright helps bank trust departments and trust companies satisfy part or all of their investment management functions.  Winthrop delivers fiduciary level investment management services to these institutions’ clients by providing active oversight of each account's asset allocation and security selection.  Its offerings include investment management solutions utilizing individual securities or mutual funds. Mutual fund models developed by Winthrop utilize a combination of Wright Mutual Funds as well as mutual funds from other investment managers.
 
WPAM offers programs to support high net worth investors and other individual investors.  WPAM manages a variety of accounts including: discretionary investment accounts, individual retirement accounts (IRAs), 401k plans and accounts for non-corporate fiduciaries, such as trustees, executors, guardians, personal representatives, attorneys and other professionals who are responsible for the assets of others and must manage those assets in accordance with the Prudent Investor Act.  This investment process, developed and monitored by the Wright Investment Committee, and related investment strategies, are utilized to address the objectives of WPAM clients.
 
Winthrop, through its WISDI affiliate, offers a diversified family of mutual funds. Wright Mutual Funds are utilized by the Wright Companies and others to build or supplement managed investment portfolios designed to address clients’ financial objectives.
 
Revenue from Investment Management Services was $689,000 and $664,000 for the quarters ended March 31, 2014 and 2013, respectively. Within this category, Winthrop primarily bills clients based on AUM values as of calendar quarters.  Revenues are primarily from fees from; (i) Taft-Hartley clients, (ii) Personal Investment Managed Accounts, (iii) and other client serviced accounts.  The increased revenue of $25,000 was attributable to increased AUM of $12,000,000 within the Personal Managed Accounts, which maintains a higher fee structure than the Taft-Hartley business, which business had reduced AUM for the comparable periods of $12,000,000.
 
Revenue from Other investment advisory services was $628,000 and $687,000 for the quarters ended March 31, 2014 and 2013, respectively.   The decreased revenues were due to reduced AUM of approximately $32,000,000 for the comparable periods.  Other investment advisory service revenue includes: (i) revenue from Mutual Funds; (ii) fees from services provided to Bank Trust Departments; and (iii) investment income.  Revenue from Mutual Funds includes distribution fees for both Winthrop-sponsored mutual funds as well as other mutual funds and investment management fees from Winthrop-sponsored mutual funds.
 
Revenue from the sale of Financial research information and related data was $155,000 and $163,000 for the quarter ended March 31, 2014 and 2013, respectively.  Revenues are also derived from the distribution of investment research directly and through several third parties who act as distributors of such research content.  The fees paid by the end client are divided between Winthrop and the distributor.  Existing agreements in place with third party distributors, primarily Thomson Reuters, allow for the renegotiation of the revenue split, which could result in a decline in revenue to Winthrop.   In addition, the underlying data we utilize to produce our financial research and related data is primarily obtained from a third-party, Worldscope, at no cost to us.  However in June 2014, the Company will have to start paying for updates to the data (at most favored vendor cost) and in 2024 such agreement will terminate.  The revised terms of such agreement, which are currently being negotiated may alter our ability to produce investment research on favorable terms and may cause our revenue from the sale of such research products to decline.
 
 
13

 
 
Selling, general and administrative expenses
 
For the three months ended March 31, 2014 selling, general and administrative expenses were $2,291,000 as compared to $2,521,000 for the quarter ended March 31, 2013.  The reduced selling, general and administrative expenses of $230,000 was the result reduced expenses at the corporate level of $415,000, primarily due to  reduced personnel costs of $50,000 and reduced professional fees.   In addition, Winthrop had reduced selling, general and administrative expenses of $75,000 for the quarter ended March 31, 2014.  Winthrop’s selling, general and administrative expenses are primarily comprised of personnel related costs.   Included in Winthrop’s selling, general and administrative expenses are the following; (i) amortization of intangibles of $159,000 for the quarters ended March 31, 2014 and 2013, (ii) amortization of stay and retention bonuses of $34,000 for the quarters ended March 31, 2014 and 2013 and (iii) compensation expense of $73,000 and $71,000 related to RSU’s issued to Winthrop employees for the quarters ended March 31, 2014 and 2013, respectively.  

 
 
Income taxes
 
 For the three months ended March 31, 2014 and 2013, the Company recorded income tax expense from continuing operations of $9,000 and $3,000, respectively, which represents minimum state taxes. No tax benefit has been recorded in relation to the pre-tax loss from continuing operations for the three months ended March 31, 2014 and 2013, due to a full valuation allowance to offset any deferred tax asset related to net operating loss carry forwards attributable to the loss.

Discontinued operation

The Company has reclassified $260,000 of legal expenses incurred in the quarter ended March 31, 2013 from continuing operations to discontinued operations consistent with the presentation for the year ended December 31, 2013.

 Other Assets
 
The Company owns certain non-strategic assets, including interests in land and flowage rights in undeveloped property in Killingly, Connecticut.  The Company had a 19.9% interest in MXL carried at its cost of $275,000 under ASC 325, Investments- Other. On February 3, 2014 MXL exercised its right to purchase the Company’s 19.9% interest.  The Company received $994,000 for its 19.9% interest on March 26, 2014, resulting in a gain of $719,000.

The Company monitors these investments for impairment by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, and records impairments in carrying values when necessary.   


Financial condition
 
Liquidity and Capital Resources

At March 31, 2014, the Company had cash and cash equivalents totaling $12,636,000, which it intends to use to acquire interests in one or more operating businesses and to fund the Company’s operating activities.
 
The increase in cash and cash equivalents of $70,000 for the quarter ended March 31, 2014 was the result of proceeds from investing activities of $994,000 related to the sale of the Company’s 19.9% interest in MXL, offset by $924,000 used in operations.

 
14

 
 
 
Not required.
 
 
The Company’s principal executive officer and principal financial officer, with the assistance of other members of the Company’s management, have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon such evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.
 
The Company’s principal executive officer and principal financial officer have also concluded that there was no change in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
 
 
 
 
 
15

 
 
PART II. OTHER INFORMATION
 
 
Issuances of Equity Securities
 
None

 
Purchases of Equity Securities
 
On December 15, 2006, the Board of Directors authorized the Company to repurchase up to 2,000,000 shares, or approximately 11%, of its outstanding shares of common stock from time to time either in open market or privately negotiated transactions. On August 13, 2008, the Company’s Board of Directors authorized an increase of 2,000,000 common shares to be repurchased, and on March 29, 2011 the Company’s Board of Directors authorized an increase of an additional 1,000,000 shares to be repurchased. At March 31, 2012, the Company had repurchased 1,791,821 shares of its common stock and, a total of 3,208,179 shares remained available for repurchase.   There were no common stock repurchases made by or on behalf of the Company during the quarter ended March 31, 2014.
 
 
 
 
 
 
 
16

 
 
 
Exhibit No.     
 
 Description
     
     
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
___________________________
 
*Filed herewith
  
**Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.
 
 
17

 
 

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

 
   
WRIGHT INVESTORS’ SERVICE HOLDINGS, INC.
     
     
Date: May 13, 2014
 
/s/ HARVEY P. EISEN
   
Name: Harvey P. Eisen
   
Title: Chairman of the Board and Chief Executive Officer
     
     
     
Date: May 13, 2014
 
/s/ IRA J. SOBOTKO
   
Name: Ira J. Sobotko
   
Title: Vice President, Chief Financial Officer
 
 
 
 
 
 18