GLASSBRIDGE ENTERPRISES, INC. Forward-Looking Statements and Risk Factors
We may from time to time make written or oral forward-looking statements with respect to our future goals, including statements contained in this Form 10-Q, in our other filings with theSEC and in our reports to shareholders. Certain information which does not relate to historical financial information may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include information concerning the launch of our asset management business and related investment vehicles, strategic initiatives and potential acquisitions, the results of operations of our existing business lines, the impact of legal or regulatory matters on our business, as well as other actions, strategies and expectations, and are identifiable by use of the words "believes," "expects," "intends," "anticipates," "plans," "seeks," "estimates," "projects," "may," "will," "could," "might," or "continues" or similar expressions. Such statements are subject to a wide range of risks and uncertainties that could cause our actual results in the future to differ materially from our historical results and those presently anticipated or projected. We wish to caution investors not to place undue reliance on any such forward-looking statements. Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements to reflect events or circumstances arising after such date. Risk factors include various factors set forth from time to time in our filings with theSEC including the following: our need for substantial additional capital in order to fund our business; our ability to realize the anticipated benefits of our restructuring plan and other recent significant changes; significant costs relating to pending and future litigation; our ability to attract and retain talented personnel; the structure or success of our participation in any joint investments; risks associated with any future acquisition or business opportunities; our need to consume resources in researching acquisitions, business opportunities or financings and capital market transactions; our ability to integrate additional businesses or technologies; the impact of our reverse stock split on the market trading liquidity of our common stock; the market price volatility of our common stock; our need to incur asset impairment charges for intangible assets; significant changes in discount rates, rates of return on pension assets and mortality tables; our reliance on aging information systems and our ability to protect those systems against security breaches; our ability to integrate accounting systems; changes in tax guidance and related interpretations and inspections by tax authorities; our ability to raise capital from third party investors for our asset management business; our ability to comply with extensive regulations relating to the launch and operation of our asset management business; our ability to compete in the intensely competitive asset management business; the performance of any investment funds we sponsor or accounts we manage; difficult market and economic conditions, including changes in interest rates and volatile equity and credit markets; our ability to achieve steady earnings growth on a quarterly basis in our asset management business; the significant demands placed on our resources and employees, and associated increases in expenses, risks and regulatory oversight, resulting from the potential growth of our asset management business; our ability to establish a favorable reputation for our asset management business; the lack of operating history of our asset manager subsidiary and any funds that we may sponsor; our ability to develop and deliver differentiated and innovative products as well as various factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2019 , and from time to time in our filings
with theSEC . Overview
GlassBridge Enterprises, Inc. ("GlassBridge", the "Company", "we", "us" or "our") owns and operates an asset management business and a sports technology platform. We actively explore a diverse range of new, strategic asset management business opportunities for our portfolio. OnJanuary 4, 2019 , for total consideration of$1,000,000 , Sport-BLX issued to the Company shares of Sport-BLX common stock, constituting 9.0% of the common stock outstanding after giving effect to the transaction. Immediately before the transaction,George E. Hall ("Mr. Hall"), SportBLX's Executive Chairman and CEO, held 65.6% of SportBLX's outstanding shares. OnMarch 31, 2019 , the Company sold all of its international subsidiaries ("Imation Subsidiaries") toIMN Capital Holdings, Inc. ("IMN Capital ").Certain Company subsidiaries, including the Imation Subsidiaries, are parties to legal proceedings relating to payments that the Imation Subsidiaries made pursuant toEuropean Union copyright levies (the "Subsidiary Litigation"). As consideration for the sale,IMN Capital paid the Company$280,000 and agreed to pay the Company 25% of all net proceeds from the Subsidiary Litigation. The Company recorded a one-time non-cash gain of approximately$10 million in connection with the sale. See Part II, Item 1, for current status of extant litigation. 18 Table of Contents OnMay 13, 2019 ,GlassBridge and theU.S. Pension Benefit Guaranty Corporation (the "PBGC") entered into an agreement to terminate the Imation Cash Balance Pension Plan based on the PBGC's findings that (i) the Plan did not meet the minimum funding standard required under Section 412 of the Internal Revenue Code of 1986, as amended; (ii) the Plan would be unable to pay benefits when due; and (iii) the Plan should be terminated to protect the interests of the Plan participants.GlassBridge and all other members of the Company's controlled group were liable to the PBGC for all obligations under ERISA in connection with the Plan's termination. OnOctober 1, 2019 , the Company entered into a settlement agreement ("Settlement Agreement") with the PBGC. Pursuant to the terms of the Settlement Agreement,GlassBridge paid$3,000,000 in cash to PBGC onOctober 3, 2019 (the "Settlement Payment"). Per the terms of the Settlement Agreement and following the Settlement Payment onOctober 3, 2019 , the PBGC released all Controlled Group Members as ofJanuary 6, 2020 .
On
OnOctober 1, 2019 , the Company sold toOrix PTP Holdings, LLC ("Orix"), for$17,562,700 , 20.1% of the outstanding stock of Adara, until then a Company wholly owned subsidiary, together with two promissory notes ofAdara Enterprises, Inc. to the Company in total principal amount of$13,000,000 . InJuly 2020 , an Adara wholly owned subsidiary assumed the obligations under the notes, and the subsidiary was sold to George E. Hall for$1.00 , after the subsidiary had distributed to Adara all of the subsidiary's assets, except for its general partnership interest inThe Sports & Entertainment Fund, L.P. , which holds a$17.8 million investment, and the related commodities pool operator registration and$1,790,000 in cash. Also, the Company repurchased the Adara shares from Orix and prepaid a$16 million note that it issued to Orix inMarch 2020 (the proceeds of which were invested inThe Sports & Entertainment Fund, L.P. ), together with$171,000 in interest. As a result of an in-kind distribution from Adara, the Company became the direct owner ofGlassBridge Arrive Investor, LLC , which is the investment arm of Roc Nation, as well as of 50.1% of the outstanding shares ofSport-BLX, Inc. , and preferred interests in the European levies claims. The Company financed the foregoing transactions, in part, from proceeds of an$11,000,00 loan to Adara fromESW Holdings, LLC ("ESW"), which is dueJanuary 20, 2021 , with$1,100,000 interest. Adara granted to ESW a security interest in all of Adara's assets pursuant to the loan agreement, which, in addition to customary representations and warranties and covenants, prohibits Adara from entering into any agreement without ESW's consent, or, subject to exceptions, incur or prepay any indebtedness, incur any liens, or make distributions on or payments with respect to its shares, and requires Adara to maintain at least$500,000 in cash or cash equivalents in controlled accounts. ESW may accelerate the loan upon a payment default; covenant default, in some cases after notice; a material adverse change in Adara's business, assets, financial condition, ability to repay the loan, or in the perfection, value, or priority of ESW's security interests in Adara's assets; attachment of a material part of Adara's assets; Adara's or the Company's insolvency; Adara's default in its obligations under other agreements totaling$100,000 or more; Adara's incurring judgments or settlements totaling$100,000 or more; or a change in Adara's ownership; or if any material representation by Adara under the loan agreement is untrue. The loan agreement provides that, in event of Adara's default other than for a material representation, Adara and ESW will act in good faith to effect a reorganization of Adara in bankruptcy, pursuant to which ESW acquires from the Company all equity in Adara and certain of its assets, for$8,500,000 , and Adara's cash, shares of its subsidiaries, and a right to use Adara software and intellectual property within the sports industry are distributed to the Company. In connection with the loan agreement, the Company pledged to ESW all of the Company's Adara stock and 30% of the outstanding stock ofSport-BLX, Inc. , and, ESW purchased 100 shares of Adara's Series A Preferred Stock for a total purchase price of$25,000 . Upon any liquidation, dissolution, or winding up of Adara, each holder of Series A Preferred Stock is entitled to a liquidation preference of$1,500 per share and no more. OnDecember 12, 2019 , the Company purchased fromJoseph A. De Perio ("Mr. De Perio ") 17,076 shares of SportBLX common stock in exchange for$606,198 in cash and a$5,455,782 principal amount promissory note bearing interest at a 5% annual rate, dueDecember 12, 2022 . On the same date, the Company purchased fromMr. Hall , 37,924 shares of SportBLX common stock in exchange for$1,346,302 in cash and a$12,116,718 principal amount promissory note bearing 5% interest, dueDecember 12, 2022 . Interest under the notes is payable in arrears on the first day of each calendar quarter in cash, or, at the Company's option, in shares of common stock of the Company at a price reflecting market value.Mr. De Perio owns 2.5% of the Company's common stock, is a member of the Board of Directors of the Company, and is SportBLX's president.Mr. Hall beneficially owns approximately 29.1% of our outstanding shares.
On
Important Notices and Disclaimers
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to be read in conjunction with our Condensed
Consolidated Financial Statements and related Notes that appear elsewhere in
this Quarterly Report on Form 10-Q. This MD&A contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated due to various factors discussed
in this MD&A under the caption "Forward-Looking Statements and Risk Factors" and
the information contained in the Company's Annual Report on Form 10-K filed with
the U.S. Securities and Exchange Commission ("SEC") on April 3, 2020 , including
in Part 1 Item 1A. Risk Factors of such Annual Report.
This Quarterly Report on Form 10-Q includes tradenames and trademarks owned by
us or that we have the right to use. Solely for convenience, the trademarks or
tradenames referred to in this Quarterly Report on Form 10-Q may appear without
the ® or ™ symbols, but such references are not intended to indicate in any way
that we will not assert, to the fullest extent under applicable law, our rights
to these trademarks and tradenames.
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Executive Summary
Consolidated Results of Operations for the Three Months Ended
? Net revenue from continuing operations of
ended
same period last year.
? Operating loss from continuing operations was
months ended
in the same period last year. This was an increase of
due to the development of the operations of SportBLX and Adara.
? Basic and diluted loss per share from continuing operations was
the three months ended
loss per share of $19.86 for the same period last year.
Consolidated Results of Operations for the Nine Months Ended
? Net revenue from continuing operations of
ended
same period last year.
? Operating loss from continuing operations was
ended
same period last year. This was an increase of
the development of the operations of SportBLX and Adara.
? Basic and diluted loss per share from continuing operations was
the nine months ended
loss per share of $99.44 for the same period last year.
Cash Flow/Financial Condition for the Nine Months EndedSeptember 30, 2020
? Cash and cash equivalents totaled
with
$3.5 million was primarily due to the development of the operations of SportBLX and Adara. Results of Operations The following discussion relates to continuing operations unless indicated otherwise. The operating results of our former Legacy Businesses and theNexsan Business are presented in our Condensed Consolidated Statements of Operations as discontinued operations and are not included in segment results for all periods presented. See Note 4 - Discontinued Operations in our Notes to Condensed Consolidated Financial Statements in Item 1 for further information on these divestitures. "NM" means that the percentage amount is not meaningful. Net Revenue Three Months Ended Nine Months Ended September 30, Percent September 30, Percent (Dollars in millions) 2020 2019 Change 2020 2019 Change Net revenue$ 0.4 $ - NM$ 0.7 $ 0.1 600.0 %
Net revenue for the three and nine months ended
Selling, General and Administrative ("SG&A")
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2020 2019 Change 2020 2019 Change
Selling, general and
administrative $ 3.0 $ 0.5 500.0 % $ 7.1 $ 2.5 184.0 %
As a percent of revenue 750.0 % NM 1,014.3 % 2,500.0 %
SG&A expense increased for the three months ended September 30, 2020 by $2.5
million (or 500.0%) compared with the same period last year primarily due to the
development of the operations of SportBLX and Adara.
SG&A expense increased for the nine months ended
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Restructuring and Other
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2020 2019 Change 2020 2019 Change
Restructuring and other $ - $ - NM $ - $ 0.1 NM
Restructuring and other expenses were
Restructuring and other expenses were
See Note 7 - Restructuring and Other Expense in our Notes to Condensed Consolidated Financial Statements in Item 1 for further details on our restructuring and other expenses.
Operating Loss from Continuing Operations
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2020 2019 Change 2020 2019 Change
Operating loss from
continuing operations $ (2.6 ) $ (0.5 ) 420.0 % $ (6.4 ) $ (2.5 ) 156.0 %
As a percent of revenue (650.0 )% NM (914.3 )% (2,500.0 )%
Operating loss from continuing operations increased by
Operating loss from continuing operations increased by
Other Expense
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2020 2019 Change 2020 2019 Change
Interest expense $ (0.7 ) $ - NM $ (1.8 ) $ - NM
Realized loss on investments (0.1 ) - NM (1.8 ) - NM
Defined benefit plan adjustment - - NM
(8.5 ) - NM
Other expense, net (0.1 ) - NM - - NM
Total other expense $ (0.9 ) $ - NM $ (12.1 ) $ - NM
As a percent of revenue (225.0 )% NM (1,728.6 )% NM
Total other expense for the three months ended
Total other expense for the nine months ended
Income Tax Benefit (Provision)
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2020 2019 Change 2020 2019 ChangeIncome tax benefit (provision) $ - $ - NM
$ - $ - NM Effective tax rate 0.0 % 0.0 % 0.0 % 0.0 % 21 Table of Contents
Income tax for the three months ended
Income from Discontinued Operations
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in millions) 2020 2019 2020 2019
Net revenue $ - $ - $ - $ 0.1
Cost of goods sold - - - 0.1
Gross profit - - - -
Selling, general and
administrative - - - 0.3
Restructuring and other - 0.2 - -
Other income - - - (0.6 )
Income (loss) from discontinued
operations, before income taxes - (0.2 ) - 0.3
Income on sale of discontinued
businesses, before income taxes - - - 9.6
Income tax benefit - - - 0.9
Income (loss) from discontinued
operations, net of income taxes $ - $ (0.2 ) $ -$ 10.8
Discontinued operations are comprised of results from our Legacy Businesses and the Nexsan Business. For the three months endedSeptember 30, 2020 , loss from discontinued operations decreased by$0.2 million and for the nine months endedSeptember 30, 2020 , income from discontinued operations decreased by$10.8 million compared with the same periods last year due to the Subsidiary Sale
in 2019.
See Note 4 - Discontinued Operations in our Notes to Condensed Consolidated Financial Statements in Item 1 for more information on our discontinued operations.
Segment Results
The asset management business and the sports technology platform, SportBLX, are
our two reportable segments as of
We evaluate segment performance based on revenue and operating loss. The operating loss reported in our segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results, they are included in reported consolidated results. Corporate and unallocated amounts include costs which are not allocated to the business segments in management's evaluation of segment performance such as litigation settlement expense, corporate expense and other expenses.
Information related to our segments is as follows:
Asset Management Business
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2020 2019 Change 2020 2019 Change
Operating income (loss) $ (1.6 ) $ - NM $ (3.9 ) $ 0.1 (4,000.0 )%
The Company operates its diversified private asset management business through a
number of subsidiaries that sponsor our fund offerings. We expect our asset
management business to earn revenues primarily by providing investment advisory
services to third party investors through our managed funds, as well as separate
managed accounts.
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Sports Technology Platform
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2020 2019 Change 2020 2019 Change
Operating income (loss) $ (0.3 ) $ - NM $ (1.0 ) $ - NM
GlassBridge acquired its sports technology platform in 2019, by purchasing a controlling interest in SportBLX, a financial technology company that enables a marketplace for sports assets. SportBLX is focused initially on American professional sports like basketball, baseball and football. Corporate and Unallocated Three Months Ended Nine Months Ended September 30, Percent September 30, Percent (Dollars in millions) 2020 2019 Change 2020 2019 Change Corporate and unallocated operating loss$ (0.7 ) $ (0.5 ) 40.0 %$ (1.5 ) $ (2.5 ) (40.0 )% Restructuring and other - - NM - (0.1 ) NM Total$ (0.7 ) $ (0.5 ) $ (1.5 ) $ (2.6 ) For the three months endedSeptember 30, 2020 , corporate and unallocated operating loss consists of$0.7 million of corporate general and administrative expenses, a 40.0% increase from the prior year. Restructuring and other expenses were$0.0 million for the three months endedSeptember 30, 2020 and 2019. For the nine months endedSeptember 30, 2020 , corporate and unallocated operating loss consists of$1.5 million of corporate general and administrative expenses, a 40.0% decrease from the prior year. Restructuring and other expenses$0.0 million and$(0.1) million for the nine months endedSeptember 30, 2020 and 2019, respectively.
See Note 7 - Restructuring and Other Expense in our Notes to Condensed Consolidated Financial Statements in Item 1 for further details on our restructuring and other expenses.
Impact of Changes in Foreign Currency Rates
The impact of changes in foreign currency exchange rates to worldwide revenue
was immaterial for the three and nine months ended
Financial Position
Our cash and cash equivalents balance as of
Our accounts payable balance as of
Our other current liabilities balance as of
23 Table of Contents
Liquidity and Capital Resources
Cash Flows Provided by (Used in) Operating Activities:
Nine Months Ended
September 30,
(Dollars in millions) 2020 2019
Net income (loss) $ (18.5 ) $ 8.3
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 0.5 -
Gain on sale of assets - (9.9 )
Loss on sale of investments 1.8 -Defined benefit plan adjustment 8.5
-
Other, net - (0.2 ) Changes in operating assets and liabilities 2.3 (2.7 ) Net cash used in operating activities $ (5.4 ) $
(4.5 )
Cash used in operating activities was $5.2 million for the nine months ended
September 30, 2020 , which was primarily due to the development of the operations
of SportBLX and Adara. Cash used in operating activities was $4.5 million for
the nine months ended September 30, 2019 , primarily relating to corporate
expenditures, legal settlements and related costs.
Cash Flows Provided by Investing Activities:
Nine Months Ended
September 30,
(Dollars in millions) 2020 2019
Purchase of property and equipment (1.7 ) -
Investment in securities (1.6 ) (0.6 )
Disbursement related to disposal group (1.8 ) (0.8 ) Proceeds from fund distribution
2.0 -
Proceeds from sale of assets - 1.2
Net cash used in investing activities
For the nine months endedSeptember 30, 2020 cash used in investing activities includes expenditures in connection with the ESW,George Hall and Orix transactions inJuly 2020 . These include a$1.7 million purchase of software and a$1.8 million contribution to AAM which was disposed of during the quarter. For the nine months endedSeptember 30, 2019 cash used in investing activities includes$1.2 million from the sale of IP addresses offset by deconsolidated international cash of$0.8 million in connection with the Subsidiary Sale and$0.6 million invested inSport-BLX, Inc.
Cash Flows Provided by Financing Activities:
Nine Months Ended
September 30,
(Dollars in millions) 2020 2019Proceeds from Orix note payable 16.1 - Repayment of Orix note payable (16.1 ) - Proceeds from ESW note payable 5.4 - Proceeds from Bank Loan 0.4 - Proceeds from other related parties notes payable 0.4 - Net cash provided by financing activities$ 6.2 $
- Cash provided by financing activities for the nine months endedSeptember 30, 2020 relates to an ESW note payable, a note payable issued under the Paycheck Protection Program (the "Bank Loan") and notes payables from other related parties. See Note 6 - Debt and Note 14 - Related Party Transactions for more information. 24 Table of Contents
We have various resources available to us for purposes of managing liquidity and capital needs. Our primary sources of liquidity include our cash and cash equivalents. Our primary liquidity needs relate to funding our operations.
We had
Our operations are expected to be funded over the next twelve months with our cash of$2.0 million as ofSeptember 30, 2020 and redemption of investments, if needed.
Off Balance Sheet Arrangements
As of
Critical Accounting Policies and Estimates
A discussion of the Company's critical accounting policies was provided in Part II - Item 7 in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 .
Recent Accounting Pronouncements
See Note 2 - New Accounting Pronouncements in our Notes to Condensed Consolidated Financial Statements in Part I, Item 1, herein, for further information.
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