General Overview
The Company is a "shell company", as defined in Rule 12b-2 of the Exchange
Act. Because we are a shell company, our stockholders are unable to utilize Rule
144 to sell "restricted stock" as defined in Rule 144 or to otherwise use Rule
144 to sell our securities, and we are ineligible to utilize registration
statements on Form S-3 or Form S-8 for so long as we remain a shell company and
for 12 months thereafter. As a consequence, among other things, the offering,
issuance and sale of our securities is likely to be more expensive and time
consuming and may make our securities less attractive to investors. See "Item
1A. Risk Factors".
Our Board of Directors is considering strategic uses for the cash and cash
equivalents including, without limitation, using such funds, together with other
funds of the Company, to develop or acquire interests in one or more operating
businesses. While we have focused our development or acquisition efforts on
sectors in which our management has expertise, we do not wish to limit ourselves
to, or to foreclose any opportunities in, any particular industry or
sector. Prior to this use, cash on hand have been, and we anticipate will
continue to be, invested 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, until such time as we need to utilize
such funds, or any portion thereof, for the purposes described above. The
directors will also consider alternatives for distributing some or all of its
cash and cash equivalents to stockholders (see Note 1 to the Consolidated
Financial Statements).
Investments
Investment in undeveloped properties.
The Company owns certain non-strategic assets, which includes an investment in
land and certain flowage rights in undeveloped property (the "properties")
primarily located in Killingly, Connecticut, which were fully impaired as of
December 31, 2018, due to the Company's belief that the value of the land is
nominal as a result of ongoing remediation efforts and no active market for sale
of such land.
Environmental matters
On September 26, 2014, the Connecticut Department of Energy and Environmental
Protection ("DEEP") issued two Orders requiring the investigation and repair of
two dams in which the Company and its subsidiaries have certain ownership
interests. The first Order required that the Company investigate and make
specified repairs to the ACME Pond Dam located in Killingly, Connecticut. The
second Order, as subsequently revised by DEEP on October 10, 2014, required that
the Company investigate and make specified repairs to the Killingly Pond Dam
located in Killingly, Connecticut. The Company administratively appealed and
contested the allegations in both Orders. On July 27, 2017, the Company entered
into a Consent Order with the DEEP relative to Killingly Pond Dam. The Killingly
Pond Consent Order required the Company to continue to perform routine
maintenance and administrative procedures consistent with DEEP's Dam Safety
regulations, the cost of which was not material to the Company's financial
position or results of operations.
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On July 27, 2017, the Company entered into a Consent Order with the DEEP
relative to Acme Pond Dam. The Acme Pond Dam Consent Order required the Company
to investigate and recommend repairs to Acme Pond Dam. Based up on the work
performed by the Company's retained consulting engineering firm, the Company
submitted its recommended Action Plan (the "Action Plan") for Acme Pond Dam
pursuant to the Consent Order on November 30, 2017 and such recommended Action
Plan was approved by DEEP as submitted on May 23, 2019. Total expenses for the
repair work conducted in accordance with the Action Plan during the year ending
December 31, 2019 was approximately $150,000. All repair work required for both
the ACME Pond Dam and the Killingly Pond Dam was completed as of December 31,
2019. DEEP issued a Certificate of Compliance for Consent Order for the ACME
Pond Dam on February 7, 2020, and a Certificate of Compliance for Consent Order
for the Killingly Pond Dam was issued on May 22, 2020.
The Company and its representatives continue to discuss a proposed ownership
transfer with interested parties.
Management discussion of critical accounting policies
The following discussion and analysis of the financial condition and results of
operations are based on the consolidated financial statements and notes to
consolidated financial statements contained in this report that have been
prepared in accordance with the rules and regulations of the SEC and include all
the disclosures normally required in annual consolidated financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates that affect the reported amounts of assets, liabilities,
sales and expenses, and related disclosures of contingent assets and
liabilities. We base these estimates on historical results and various other
assumptions believed to be reasonable, all of which form the basis for making
estimates concerning the carrying values of assets and liabilities that are not
readily available from other sources. Actual results may differ from these
estimates.
Certain of our accounting policies require higher degrees of judgment than
others in their application. These include stock-based compensation and
accounting for income taxes which are summarized below.
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. Stock-based compensation cost for consultants is initially
measured at the grant date based on the fair value of the award, remeasured each
reporting date until the instrument vests, at which time the cost is
established. The cost is recognized as an expense on a straight-line basis, as
adjusted each reporting period, over the requisite service period, which is
generally the vesting period. 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.
Results of Operations
Year ended December 31, 2020 compared to the year ended December 31, 2019
For the year ended December 31, 2020, the Company had a loss from operations
before income taxes of $1,014,000 compared to a loss from operations before
income taxes of $1,978,000 for the year ended December 31, 2019.
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The decreased loss of $964,000 was primarily the result of a decrease in Other
operating expenses of $962,000, offset by an increase in Compensation and
benefits of $47,000 and an increase in Interest and other income of $49,000.
Compensation and benefits
For the year ended December 31, 2020, Compensation and benefits were $496,000 as
compared to $449,000 for the year ended December 31, 2019.
The increased Compensation and benefits of $47,000 in 2020 was primarily as the
result of a temporary decrease in compensation for our CEO during the third
quarter of 2019. Effective October 1, 2019, the Company's Compensation Committee
reversed the temporary decrease of the CEO's compensation to reflect his duties
in exploring strategic alternatives for the Company, offset by a decrease in the
health plan expense for the year ended December 31, 2020 in comparison to the
year ended December 31, 2019.
Other operating expenses
For the year ended December 31, 2020, Other operating expenses were $829,000 as
compared to $1,791,000 for the year ended December 31, 2019.
The decreased operating expenses of $962,000 were primarily the result of
decreased professional fees of $585,000, decreased rent expense of $157,000,
decreased expenses associated with remediation of the reservoirs of $54,000,
decreased insurance expense of $62,000, and decreased other expenses of
$104,000.
Income taxes
For the years ended December 31, 2020 and 2019, the income tax (benefit) expense
of $(21,000) and $25,000, respectively, substantially represents adjustments and
accruals related to state minimum income taxes.
Apart from the deferred tax asset related to the AMT credit carryforward as of
December 31, 2019, the Company recorded a full valuation allowance against its
net deferred tax assets as of December 31, 2020 and 2019. Due to a full
valuation allowance to offset deferred tax assets related to net operating loss
carryforwards attributable to the loss, no tax benefit has been recorded in
relation to the pre-tax loss for the years ended December 31, 2020 and December
31, 2019.
Financial condition, liquidity, and capital resources
Liquidity and Capital Resources
At December 31, 2020, the Company had cash and cash equivalents totaling
$6,469,000, which it intends to use to acquire interests in one or more
operating businesses, to fund the Company's general and administrative expenses,
and the directors will also consider alternatives for distributing some or all
of its cash and cash equivalents to stockholders. The Company believes that its
working capital is sufficient to support its operating requirements through
March 31, 2022.
The decrease in cash and cash equivalents of $867,000 for the year ended
December 31, 2020 was the result of $920,000 used in operating activities,
offset by proceeds from a PPP loan of $53,000.
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