NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1 — Basis of Presentation
GlassBridge
Enterprises, Inc. (“GlassBridge”, the “Company”, “we”, “us” or “our”)
owns and operates an asset management business and a technology platform through majority owned Adara Enterprises, Corp. f/k/a
Imation Enterprises Corp. (“Adara”) and Sport-BLX, Inc. (“SportBLX”). Adara owns all of our asset management
business, operated by Adara Asset Management, LLC (“AAM”) and holds part of our equity interest in SportBLX. GlassBridge
Asset Management, LLC changed its name to Adara Asset Management, LLC in 2020.
The
interim Condensed Consolidated Financial Statements of GlassBridge are unaudited but, in the opinion of management, reflect all
adjustments necessary for a fair statement of financial position, results of operations, comprehensive loss and cash flows for
the periods presented. Except as otherwise disclosed herein, these adjustments consist of normal and recurring items. The results
of operations for any interim period are not necessarily indicative of full year results. The Condensed Consolidated Financial
Statements and Notes are presented in accordance with the requirements for Quarterly Reports on Form 10-Q and do not contain certain
information included in our annual Consolidated Financial Statements and Notes presented in accordance with the requirements of
Annual Reports on Form 10-K.
The
interim Condensed Consolidated Financial Statements include the accounts of the Company, its wholly-owned subsidiaries, and entities
in which the Company owns or controls fifty percent or more of the voting shares or interest in such entity, and has the right
to control. The results of entities disposed of are included in the unaudited Condensed Consolidated Financial Statements up to
the date of the disposal and, where appropriate, these operations have been reflected as discontinued operations. All inter-company
balances and transactions have been eliminated in consolidation and, in the opinion of management, all normal recurring adjustments
necessary for a fair presentation have been included in the interim results reported.
The
preparation of the interim Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted
in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim Condensed Consolidated
Financial Statements and the reported amounts of revenue and expenses for the reporting periods. Despite our intention to establish
accurate estimates and use reasonable assumptions, actual results may differ from our estimates.
The
December 31, 2019 Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Financial Statements, but
does not include all disclosures required by GAAP. This Form 10-Q should be read in conjunction with our Consolidated Financial
Statements and Notes included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the U.S. Securities
and Exchange Commission on April 3, 2020.
The
operating results of our legacy business segments, Consumer Storage and Accessories and Tiered Storage and Security Solutions
(the “Legacy Businesses”) and the Nexsan Business, are presented in our Condensed Consolidated Statements of Operations
as discontinued operations for all periods presented. Our continuing operations in each period presented represents our “Asset
Management Business,” which consists of our investment advisory business conducted through AAM, as well as corporate expenses
and activities not directly attributable to our Legacy Businesses or the Nexsan Business. Assets and liabilities directly associated
with our Legacy Businesses and Nexsan Business and that are not part of our ongoing operations are included in other assets and
other investments. See Note 4 - Discontinued Operations for further information.
Note
2 — New Accounting Pronouncements
The
Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial
Accounting Standards Board (“FASB”). ASUs not listed below were assessed and determined to be not applicable to the
Company’s consolidated results of operations and financial condition.
Adoption
of New Accounting Pronouncements
In
August 2018, the FASB issued ASU No. 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates,
amends, and adds disclosure requirements for fair value measurements. The amended and new disclosure requirements primarily relate
to Level 3 fair value measurements. For the Company, the ASU was effective as of January 1, 2020. The removal and amendment of
certain disclosures may be early adopted with retrospective application while the new disclosure requirements are to be applied
prospectively. As this ASU relates only to disclosures, there was no impact to the Company’s consolidated results of operations
and financial condition.
Note
3 — Income (loss) per Common Share
Basic
income per common share is calculated using the weighted average number of shares outstanding for the period. Unvested restricted
stock and treasury shares are excluded from the calculation of weighted average number of common shares outstanding in all cases.
Once restricted stock vests, it is included in our common shares outstanding.
Diluted
income per common share is computed on the basis of the weighted average shares outstanding plus the dilutive effect of our stock-based
compensation plans, using the “treasury stock” method. Since the exercise price of our stock options is greater than
the average market price of the Company’s common stock for the period, we did not include dilutive common equivalent shares
for these instruments in the computation of diluted net income per share because the effect would have been anti-dilutive.
The
following table sets forth the computation of weighted average basic and diluted income per share:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(In millions, except
for per share amounts)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(1.8
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
(15.0
|
)
|
|
$
|
(2.0
|
)
|
Less:
loss attributable to noncontrolling interest
|
|
|
(0.3
|
)
|
|
|
—
|
|
|
|
(0.7
|
)
|
|
|
—
|
|
Net loss from continuing
operations attributable to GlassBridge Enterprises, Inc.
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
(14.3
|
)
|
|
|
|
|
Income
from discontinued operations, net of income taxes
|
|
|
—
|
|
|
|
0.5
|
|
|
|
—
|
|
|
|
11.0
|
|
Net
income (loss) attributable to GlassBridge Enterprises, Inc.
|
|
$
|
(1.5
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(14.3
|
)
|
|
$
|
9.0
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding during the period - basic and diluted (in thousands)
|
|
|
25.2
|
|
|
|
25.7
|
|
|
|
25.2
|
|
|
|
25.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share attributable
to GlassBridge Enterprises, Inc. common shareholders— basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(59.37
|
)
|
|
$
|
(42.80
|
)
|
|
$
|
(567.06
|
)
|
|
$
|
(77.82
|
)
|
Discontinued
operations
|
|
|
—
|
|
|
|
19.46
|
|
|
|
—
|
|
|
|
428.02
|
|
Net
income (loss)
|
|
$
|
(59.37
|
)
|
|
$
|
(23.34
|
)
|
|
$
|
(567.06
|
)
|
|
$
|
350.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from calculation
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Note
4 — Discontinued Operations
The
operating results for the Legacy Businesses and the Nexsan Business are presented in our Condensed Consolidated Statements of
Operations as discontinued operations for all periods presented, reflecting revenues and expenses that are directly attributable
to these businesses that were eliminated from our ongoing operations.
The
key components of the results of discontinued operations were as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(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
|
)
|
|
|
—
|
|
|
|
(0.2
|
)
|
Other income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.6
|
)
|
Income from discontinued operations,
before income taxes
|
|
|
—
|
|
|
|
0.2
|
|
|
|
—
|
|
|
|
0.5
|
|
Income on sale of discontinued businesses,
before income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9.6
|
|
Income tax benefit
|
|
|
—
|
|
|
|
0.3
|
|
|
|
—
|
|
|
|
0.9
|
|
Income from discontinued
operations, net of income taxes
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
11.0
|
|
Net
income of discontinued operations for the six months ended June 30, 2020 decreased by $11.0 million compared to the same period
last year due to the sale of the Imation Subsidiaries.
Note
5 — Supplemental Balance Sheet Information
Additional
supplemental balance sheet information is provided as follows:
As
of June 30, 2020, approximately $9.0 million of the $9.1 million of cash is restricted.
Other
current assets of $1.7 million as of June 30, 2020 include a $0.8 million minimum tax refund of which $0.5 million
was received in July 2020.
Total
assets of as of June 30, 2020 include a $14.8 million investment in Arrive LLC (“Arrive”). Historically, we accounted
for such investments under the cost method of accounting. The adoption of ASU No. 2016-01 in the first quarter of 2018 effectively
eliminated the cost method of accounting, and the carrying value of this investment is written down, or impaired, to fair value
when a decline in value is considered to be other-than-temporary. Our strategic investment in equity securities does not have
a readily determinable fair value; therefore, the new guidance was adopted prospectively. As of June 30, 2020, there were no indicators
of impairment for this investment. The Company will assess the investment for potential impairment, quarterly.
Other
assets of $1.1 million as of June 30, 2020 include a $0.3 million minimum tax refund.
Note
6 — Debt
Debt
and notes payable consists of the following:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In
millions)
|
|
Pension liability
|
|
$
|
—
|
|
|
$
|
13.5
|
|
Stock purchase agreement
notes payable (see Note 14 – Related Party Transactions)
|
|
|
17.6
|
|
|
|
17.6
|
|
Orix notes payable
|
|
|
29.0
|
|
|
|
13.0
|
|
Deferred financing costs
|
|
|
(2.4
|
)
|
|
|
(2.7
|
)
|
Bank loan
|
|
|
0.4
|
|
|
|
—
|
|
Other related parties notes payable
|
|
|
0.4
|
|
|
|
—
|
|
Other liabilities
|
|
|
0.1
|
|
|
|
0.2
|
|
Total long term
debt
|
|
|
45.1
|
|
|
|
41.6
|
|
Stock
purchase agreement notes payable bear interest at a 5% annual rate and mature on December 12, 2022. The interest under the notes
is payable in arrears on the first day of each calendar quarter, or, at the Company’s option, in shares of common stock
of the Company at a price reflecting market value.
The
Company has multiple notes payable with Orix. Notes payable of $16 million issued in March 2020 bear interest at a 5.0% annual
rate and mature on September 18, 2021.
Prior
Orix notes payable of $13 million bear interest at a 7.5% annual rate and mature on September 30, 2026. Principal payments are
due annually, commencing on March 31, 2021, and thereafter on March 31 of each year until maturity. The first two principal installments
are $5,000,000 each and the remaining installments are $750,000 each. All accrued interest is due and payable in
arrears, commencing on September 30, 2020, and thereafter on September 30 of each year until maturity.
On July 21,
2020, pursuant to a loan prepayment and security termination agreement, the Company prepaid the $16 million notes payable issued
in March 2020 to Orix, together with accrued interest of $171,112. The prior Orix notes payable of $13 million was assigned from
Adara Enterprises Corp. to Adara Asset Management LLC, which was ultimately sold to GEH Sport LLC, a related party, and,
in effect, no longer an obligation of the Company. See Note 15 – Subsequent Events, for further information about
these transactions.
On
May 5, 2020, the Company received funds under a loan (the “Bank Loan”) from Signature Bank (the “Lender”)
in the aggregate amount of $374,065, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title
I of the CARES Act, which was enacted March 27, 2020. The Bank Loan, which was in the form of a note, dated April 30, 2020, issued
by the Lender, matures on April 30, 2022 and bears interest at a rate of 1.00% per annum, payable monthly commencing on November
30, 2020. The note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of
the PPP, certain amounts of the Bank Loan may be forgiven as long as the Company uses the proceeds for eligible purposes, including
payroll, benefits, rent and utilities. The Company intends to use the entire Bank Loan amount for qualifying expenses.
Other
related parties notes payable of $0.4 million is comprised of Demand Notes 4, 5 and 6 described below.
On June 30, 2020, SportBLX
issued an unsecured demand note to Clinton Special Opportunities Fund LLC (“CSO”), a related party, in the
aggregate principal amount of $150,000 (the Demand Note-4”). The Demand Note-4 bears interest at an 8% annual rate and matures
upon the earlier to occur of (a) demand by CSO, or (b) July 1, 2021. As of June 30, 2020 SportBLX borrowed $150,000 under the
Demand Note-4.
On June 30,
2020, SportBLX issued an unsecured demand note to Mr. De Perio, a related party, in the aggregate principal amount of $40,000
(the Demand Note-5”). The Demand Note-5 bears interest at an 8% annual rate and matures upon the earlier to occur of (a)
demand by Mr. De Perio, or (b) July 1, 2021. As of June 30, 2020 SportBLX borrowed $40,000 under the Demand Note-5.
On
June 30, 2020, SportBLX issued an unsecured demand note to Sport-BLX Securities, Inc. (“Securities”), a
related party, in the aggregate principal amount of $213,793 (the Demand Note-6”). The Demand Note-6 bears
interest at an 8% annual rate and matures upon the earlier to occur of (a) demand by Securities, or (b) July 1, 2021. As of
June 30, 2020 SportBLX borrowed $213,793 under the Demand Note-6.
Scheduled
maturities of the Company’s long-term debt, as they exist as of June 30, 2020, in each of the next five fiscal years and
thereafter are as follows:
Fiscal years ending
in
|
|
(in
millions)
|
|
2020
|
|
$
|
—
|
|
2021
|
|
|
21.4
|
|
2022
|
|
|
22.9
|
|
2023
|
|
|
0.8
|
|
2024
|
|
|
0.8
|
|
2025
and thereafter
|
|
|
1.5
|
|
Total
|
|
|
47.4
|
|
Note
7 — Restructuring and Other Expense
Restructuring
expenses generally include severance and related charges, lease termination costs and other costs related to restructuring programs.
Employee-related severance charges are largely based upon distributed employment policies and substantive severance plans. Generally,
these charges are reflected in the period in which the Board approves the associated actions, the actions are probable, and the
amounts are estimable, which may occur prior to the communication to the affected employee(s). This estimate considers all information
available as of the date the financial statements are issued.
Restructuring
and other expense was $0.0 million for the three and six months ended June 30, 2020. Restructuring and other expense was $0.0
million and $0.1 million for the three and six months ended June 30, 2019, respectively.
Note
8 — Stock-Based Compensation
We
have stock-based compensation awards consisting of stock options under the 2011 Incentive Plan, which is described in detail in
our Annual Report on Form 10-K for the year ended December 31, 2019. As of June 30, 2020, there are no remaining shares available
for grant under the 2011 Incentive Plan. No further shares were available for grant under any other stock incentive plan. The
Company did not have any stock-based compensation expenses for the three and six months ended June 30, 2020 and 2019.
Stock
Options
The
following table summarizes our stock option activity:
|
|
Stock
Options
|
|
|
Weighted
Average Exercise Price
|
|
Outstanding December 31, 2019
|
|
|
879
|
|
|
$
|
106.00
|
|
Vested
|
|
|
(196
|
)
|
|
|
106.00
|
|
Outstanding June 30, 2020
|
|
|
683
|
|
|
$
|
106.00
|
|
Exercisable as of June 30, 2020
|
|
|
677
|
|
|
$
|
106.00
|
|
As
of June 30, 2020, options to purchase 683 shares are outstanding, of which options to purchase 677 shares are exercisable, and
the aggregate intrinsic value of all outstanding stock options was $0.0 million. No options were granted or exercised during the
three and six months ended June 30, 2020.
As
of June 30, 2020, unrecognized compensation expense related to outstanding stock options was immaterial.
Note
9 — Retirement Plans
GlassBridge
and the U.S. Pension Benefit Guaranty Corporation (the “PBGC”) entered into an agreement on May 13, 2019 to terminate
the Imation Cash Balance Pension Plan (the “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 in order to protect the interests of the Plan participants.
GlassBridge and all other members of the Company’s controlled group (within the meaning of 29 U.S.C. §1301(a)(14))
(collectively, and including the Company, the “Controlled Group Members”)) were jointly and severally liable to the
PBGC for all liabilities under Title IV of ERISA in connection with the Plan’s termination, including unfunded benefit liabilities,
due and unpaid Plan contributions, premiums, and interest on each of the foregoing (the “Pension Liabilities”), as
a result of which a lien in favor of the Plan, on all property of each Controlled Group Member, arose and was perfected by PBGC
(the “Lien”). On October 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 on October 3, 2019
(the “Settlement Payment”). Per the terms of the Settlement Agreement and following the Settlement Payment on October
3, 2019, the PBGC released all Controlled Group Members from the Lien, as of January 6, 2020.
Note
10 — Income Taxes
For
interim income tax reporting, we are required to estimate our annual effective tax rate and apply it to year-to-date pre-tax income
(loss) excluding unusual or infrequently occurring discrete items. For the three months ended June 30, 2020, we recorded income
tax from continuing operations of $0.0 million on a loss of $1.8 million. For the three months ended June 30, 2019, we recorded
income tax from continuing operations of $0.0 million on a loss of $1.1 million. The effective income tax rate for the three months
ended June 30, 2020 differs from the U.S. federal statutory rate of 21% primarily due to a valuation allowance on various deferred
tax assets.
The
Company received income tax refunds of approximately
$1.1 million and $0.5 million related to the Tax Reform Act’s elimination of corporate alternative minimum tax and the
ability to receive refunds of AMT credit carryovers in July 2019 and July 2020, respectively. The Company expects to receive
additional income tax refunds of $0.3 million in 2021 and $0.3 million in 2022.
We
file income tax returns in multiple jurisdictions that are subject to review by various U.S and state taxing authorities. Our
U.S. federal income tax returns for 2016 through 2019, and certain state returns from 2014 to present, are open to examination.
Note
11 — Shareholders’ Equity
Treasury
Stock
On
May 2, 2012, the Board authorized a share repurchase program that allowed for the repurchase of 2,500 shares of common stock.
On November 14, 2016, our Board authorized a new share repurchase program under which we may repurchase up to 2,500 shares of
common stock. This authorization replaces the Board’s prior May 2, 2012 share repurchase authorization. Under the share
repurchase program, we may repurchase shares from time to time using a variety of methods, which may include open market transactions
and privately negotiated transactions.
The
Company did not purchase any shares during the three months ended June 30, 2020. Since the inception of the November 14, 2016
authorization, we have repurchased 780 shares of common stock for $0.3 million, and, as of June 30, 2020, we had remaining authorization
to repurchase 1,720 additional shares. The treasury stock held as of June 30, 2020 was acquired at an average price of $8,496.47
per share.
Following
is a summary of treasury share activity:
|
|
Treasury
Shares
|
|
Balance as of December 31, 2019
|
|
|
2,927
|
|
Purchases
|
|
|
—
|
|
Restricted stock
grants
|
|
|
—
|
|
Forfeitures
and other
|
|
|
—
|
|
Balance as of June 30, 2020
|
|
|
2,927
|
|
Accumulated
Other Comprehensive Loss
Accumulated
other comprehensive loss and related activity consisted of the following:
(In millions)
|
|
Defined
Benefit Plans
|
|
Balance as of December 31, 2019
|
|
$
|
(20.6
|
)
|
Amounts reclassified
from accumulated other comprehensive income, net of tax
|
|
|
20.6
|
|
Balance as of June 30, 2020
|
|
$
|
—
|
|
Details
of amounts reclassified from accumulated other comprehensive loss and the line item in the Condensed Consolidated Statements of
Operations are as follows:
|
|
Amounts
Reclassified from Accumulated Other Comprehensive Loss
|
|
|
Affected
Line Item in the Condensed Consolidated Statements of Operations Where
|
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
(Income)
Loss is Presented
|
(In millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
Amortization of net actuarial
loss
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
Other income (expense)
|
Reclassification
of pension liability, net of taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
20.6
|
|
|
|
—
|
|
|
Other income
(expense)
|
Total reclassifications
for the period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20.6
|
|
|
$
|
0.1
|
|
|
|
Reclassification
adjustments are made to avoid double counting in comprehensive income (loss) items that are also recorded as part of net income
(loss) and are presented net of taxes in the Condensed Consolidated Statements of Comprehensive Income (Loss).
Note
12 — Segment Information
The
Legacy Businesses and Nexsan Business are presented in our Consolidated Statements of Operations as discontinued operations and
are not included in segment results for all periods presented. See Note 4 - Discontinued Operations for further information
about these divestitures.
As
of June 30, 2020, the asset management business and sports technology platform are our reportable segments.
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. The corporate and unallocated operating loss includes costs that are not allocated to the business segments
in management’s evaluation of segment performance, such as litigation settlement expense, corporate expense and other expenses.
Net
revenue, operating loss from continuing operations and assets by segment were as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
management business
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
Sports
technology platform
|
|
|
0.3
|
|
|
|
—
|
|
|
|
0.3
|
|
|
|
—
|
|
Total net revenue
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
0.1
|
|
Operating income
(loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management
business
|
|
|
(1.2
|
)
|
|
|
0.1
|
|
|
|
(2.3
|
)
|
|
|
0.1
|
|
Sports
technology platform
|
|
|
(0.2
|
)
|
|
|
—
|
|
|
|
(0.7
|
)
|
|
|
—
|
|
Total segment operating income (loss)
|
|
|
(1.4
|
)
|
|
|
0.1
|
|
|
|
(3.0
|
)
|
|
|
0.1
|
|
Corporate and unallocated
|
|
|
(0.3
|
)
|
|
|
(1.2
|
)
|
|
|
(0.8
|
)
|
|
|
(2.0
|
)
|
Restructuring
and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
Total operating
loss
|
|
|
(1.7
|
)
|
|
|
(1.1
|
)
|
|
|
(3.8
|
)
|
|
|
(2.0
|
)
|
Interest expense
|
|
|
(0.6
|
)
|
|
|
—
|
|
|
|
(1.1
|
)
|
|
|
—
|
|
Realized losses on investments
|
|
|
0.5
|
|
|
|
—
|
|
|
|
(1.7
|
)
|
|
|
—
|
|
Defined benefit plan adjustment
|
|
|
—
|
|
|
|
|
|
|
|
(8.5
|
)
|
|
|
|
|
Other income
(expense), net
|
|
|
—
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
—
|
|
Loss
from continuing operations before income taxes
|
|
$
|
(1.8
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
(15.0
|
)
|
|
$
|
(2.0
|
)
|
|
|
June
30,
|
|
|
December
31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Asset
management business
|
|
$
|
33.0
|
|
|
$
|
16.8
|
|
Sports
technology platform
|
|
|
50.9
|
|
|
|
50.8
|
|
Total segment assets
|
|
|
83.9
|
|
|
|
67.6
|
|
Corporate and
unallocated
|
|
|
2.2
|
|
|
|
8.8
|
|
Total
consolidated assets
|
|
$
|
86.1
|
|
|
$
|
76.4
|
|
Note
13 — Litigation, Commitments and Contingencies
The
Company may be a party, as either a sole or joint defendant or plaintiff, in various lawsuits, claims and other legal matters
that arise in the ordinary course of conducting business (including litigation relating to our Legacy Businesses and discontinued
operations). All such matters involve uncertainty and accordingly, outcomes that cannot be predicted with assurance. As of August
14, 2020, we are unable to estimate with certainty the ultimate aggregate amount of monetary liability or financial impact that
we may incur with respect to these matters. It is reasonably possible that the ultimate resolution of these matters, individually
or in the aggregate, could materially affect our financial condition, results of operations and cash flows.
Indemnification
Obligations
In
the normal course of business, we periodically enter into agreements that incorporate general indemnification language. Performance
under these indemnities would generally be triggered by a breach of terms of the contract or by a supportable third-party claim.
There have historically been no material losses related to such indemnifications. As of June 30, 2020 and December 31, 2019, estimated
liability amounts associated with such indemnifications were not material.
Environmental
Matters
Our
Legacy Business operations and indemnification obligations resulting from our spinoff from 3M subject us to liabilities arising
from a wide range of federal, state and local environmental laws. For example, from time to time we have received correspondence
from 3M notifying us that we may have a duty to defend and indemnify 3M with respect to certain environmental claims such as remediation
costs. Environmental remediation costs are accrued when a probable liability has been determined and the amount of such liability
has been reasonably estimated. These accruals are reviewed periodically as remediation and investigatory activities proceed and
are adjusted accordingly. We did not have any environmental accruals as of June 30, 2020. Compliance with environmental regulations
has not had a material adverse effect on our financial results.
Note
14 — Related Party Transactions
On
January 1, 2019, the Company and Clinton Group Inc. (“Clinton”) entered into a management service agreement (the “Management
Service Agreement”), pursuant to which Clinton agreed to provide certain services to the Company.
Prior
to being appointed our Chief Executive Officer and Chief Financial Officer, respectively, Daniel A. Strauss served as our Chief
Executive Officer, and Francis Ruchalski served as our Chief Financial Officer, pursuant to the terms of the Amended and Restated
Services Agreement we entered into with Clinton on March 31, 2019 (the “Amended Services Agreement”) Clinton also
made available other employees of Clinton as necessary to manage certain business functions as deemed necessary in the sole discretion
of Clinton to provide other management services. The Amended Services Agreement was terminated effective March 31, 2020.
Clinton
paid Mr. Strauss and Mr. Ruchalski compensation and benefits under the Amended Services Agreement through December 15, 2019, and
they became employees of the Company on December 18, 2019 and December 16, 2019, respectively.
As
of June 30, 2020, the Company paid Clinton $2,400,000 under the Amended Services Agreement and the Management Service Agreement,
recording $312,500 and $775,000 within “Selling, general and administrative” in our Condensed Consolidated
Statements of Operations for the six months ended June 30, 2020 and 2019, respectively.
In
January 2019, for total consideration of $1,000,000, Sport-BLX Inc. 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. Mr.
Hall owns beneficially approximately 29.1% of the Company’s outstanding common stock.
On
September 13, 2019, the Board approved a success fee to Clinton, in connection with the completion of the Orix Transaction and
the pension settlement. The Board approved a fee equal to 15% of the cash consideration, for Clinton’s work on the Orix
Transaction and 10% of the difference between the gross pension liabilities and the settlement payment. Accordingly, the Company
paid Clinton a success fee of $2,635,000 related to the Orix Transaction and $1,348,385 related to the pension settlement.
On
December 12, 2019, the Company purchased from Mr. 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 interest at a 5% annual rate, due December 12, 2022. On the same date,
the Company purchased from Joseph 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 5% interest, due December 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.
In
connection with the successful consummation of a settlement with the PBGC, the Board voted on May 3, 2019 to furnish to Clinton
a one-time cash payment of $250,000 in consideration of Clinton’s efforts regarding the same.
On
November 15, 2019, the Company, and CSO entered into a Credit Facility Letter Agreement (the “Letter Agreement”) pursuant
to which the Company extended to CSO a one-year revolving credit facility in the aggregate principal amount up to $1,000,000.
The loan is evidenced by a grid note bearing interest at a 10% annual rate, which matures November 15, 2020 (the “Note”).
CSO’s obligations under the Letter Agreement and the Note are secured by security interests in all of CSO’s assets,
including all of CSO’s Company common stock, and guaranteed by Mr. Hall, CSO’s sole member. As of June 30, 2020 and
December 31, 2019, CSO borrowed $780,000 and $250,000, respectively (for a total $750,000 principal amount outstanding,
as of June 30, 2020), under the Letter Agreement.
On
June 5, 2020, SportBLX entered into a subscription agreement (the “Securities Subscription”) with Securities for SportBLX’s
proprietary sports-based alternative asset trading platform (the “Platform”) via which the customer, Securities, may
issue sports-related securities that are tradeable by investors. Mr. Hall and Mr. De Perio own 65.5% and 28.1% of Securities,
respectively. As consideration for the Securities Subscription, SportBLX received a one-time upfront subscription fee of $150,000
and will receive a monthly subscription fee of $100,000 during the first year of the contract. The fee increases to $137,500,
monthly, for the remaining year of the initial term. Thereafter, upon renewal, SportBLX may increase the fee by an amount not
to exceed five percent of the previous year’s fee. The agreement also provides fees of $75,000 for each new tradable asset
listed by the customer on the Platform. The Securities Subscription is effective for a two year term and automatically renews
for consecutive one-year renewal terms unless either party provides notice to the other party of its intention not to renew prior
to the end of the initial or renewal term. Either party may terminate the agreement for convenience upon 30 days’ notice
to the other party. As of June 30, 2020, SportBLX invoiced $250,000 in fees from Securities under the Securities Subscription
which was recorded as revenue. $175,000 of this revenue was collected as June 30, 2020, and the remaining $75,000 is payable
in August 2020.
On
June 30, 2020, SportBLX issued Demand Note-4 to CSO in the aggregate principal amount of $150,000. The Demand Note-4 bears interest
at an 8% annual rate and matures upon the earlier to occur of (a) demand by CSO, or (b) July 1, 2021. As of June 30, 2020 SportBLX
borrowed $150,000 under the Demand Note-4.
On
June 30, 2020, SportBLX issued Demand Note-5 to Mr. De Perio in the aggregate principal amount of $40,000. The Demand Note-5 bears
interest at an 8% annual rate and matures upon the earlier to occur of (a) demand by Mr. De Perio, or (b) July 1, 2021. As of
June 30, 2020 SportBLX borrowed $40,000 under the Demand Note-5.
On
June 30, 2020, SportBLX issued Demand Note-6 to Securities in the aggregate principal amount of $213,793. The Demand Note-6 bears
interest at an 8% annual rate and matures upon the earlier to occur of (a) demand by Securities, or (b) July 1, 2021. As of June
30, 2020 SportBLX borrowed $213,793 under the Demand Note-6.
As
of June 30 2020, SportBLX owns 6 shares of Series B Common Tokens of SportBLX Thoroughbreds Corp. (“SportBLX Thoroughbreds”),
which represented 100% of the voting shares of SportBLX Thoroughbreds. At this time, the activity of SportBLX Thoroughbreds
is immaterial and is not included in these Condensed Consolidated Financial Statements.
Note
15 — Subsequent Events
The
Company and certain of its subsidiaries completed the following actions, pursuant to the agreements identified below, each dated
July 21, 2020, except as otherwise noted. As a result of these transactions, the Company became the sole stockholder of Adara
Enterprises Corp. (“AEC”), 100% owner of GlassBridge Arrive Investor, LLC, which is the investment arm of Roc Nation,
and owner of 50.1% of the outstanding shares of Sport-BLX, and the Company and AEC disposed of their obligations under the Orix
notes payable.
|
●
|
Pursuant
to a Loan Prepayment and Security Termination Agreement, among the Company, its wholly owned subsidiary Glassbridge Athlete,
LLC (“Athlete”), and ORIX PTP Holdings, LLC (“Orix”), Athlete prepaid the $16,000,000 principal amount
of a loan made to it by Orix pursuant to a Secured Promissory Note Agreement, dated March 17, 2020 (the “Note Agreement”),
together with accrued interest of $171,112. The Note Agreement, except with respect to certain indemnification obligations,
and a Security Agreement and a Pledge Agreement, each of even date with the Note Agreement, pursuant to which, respectively,
Athlete granted to Orix a security interest in substantially all of Athlete’s assets, and the Company pledged to Orix
all of the Company’s membership interest in Athlete, were terminated. Until the transactions described below, Orix owned
20.1% of AEC, of which the Company had owned the remaining 79.9%.
|
|
|
|
|
●
|
Pursuant
to an Asset Distribution Agreement, Adara Asset Management, LLC, a wholly owned subsidiary of AEC (“AAM”), AAM
distributed to AEC all of AAM’s 100% membership interests in GlassBridge Arrive Investor, LLC, GlassBridge Multi Strategy
GP, LLC, and GlassBridge Quant Strategy GP, LLC. As a result, AAM’s only asset was its ownership of the general partner
interest in The Sports & Entertainment Fund, L.P., which holds a $17.8 million investment, and the related commodities
pool operator registration. Thereafter, pursuant to an Asset Contribution Agreement between the Company and AEC, the Company
contributed $1,790,000 to AEC, and, pursuant to an Asset Contribution Agreement, between AEC and Adara AAM, AEC contributed
the same amount to AAM.
|
|
|
|
|
●
|
Pursuant
to an Assignment and Assumption of Promissory Notes among AEC, AAM, and Orix (“Assignment Agreement”), AAM assumed
AEC’s obligations under the two Orix notes payable, each dated September 30, 2019 and maturing September 30, 2026, in
principal amounts totaling $13,000,000 made by AEC to the Company, which the Company assigned to Orix pursuant to an Agreement
Relating to the Assignment and Assumption of Promissory Notes, dated October 1, 2019, among AEC, the Company, and Orix (“2019
Assignment”). Also pursuant to the Assignment Agreement, the 2019 Assignment terminated, and Orix released security
interests granted to it by AEC under the 2019 Assignment, effective with execution of a Debt Exchange and Secured Loan Agreement,
among AAM, GEH Sport LLC (“GEH”), and Orix, described below.
|
|
|
|
|
●
|
Pursuant
to a Membership Purchase Agreement between AEC and GEH, AEC sold 100% of AAM’s membership interests to GEH for $1.00.
GEH is wholly owned by Mr. Hall, the beneficial owner of 29.1% of the Company’s outstanding stock.
|
|
|
|
|
●
|
Pursuant
to a Debt Exchange and Secured Loan Agreement among GEH, AAM, and Orix, Orix exchanged the Orix notes payable for a new loan
to and a $13,000,000 principal amount promissory note from AAM and a warrant to purchase Class A Units of AAM.
|
|
|
|
|
●
|
Pursuant
to a Loan and Security Agreement among ESW Holdings, LLC (“ESW”), AEC, and the Company (the “LSA”),
AEC borrowed $11,000,000 from ESW, the proceeds of which were applied, among other things, to finance the transactions referred
to in the third preceding paragraph and the Company’s purchase of Orix’s AEC shares, as described below. The loan
is due January 20, 2021, with $1,100,000 interest. Also, AEC granted to ESW a security interest in all of AEC’s assets
pursuant to the LSA, which, in addition to customary representations and warranties and covenants, prohibits AEC 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 AEC 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 AEC’s business, assets, financial condition, ability to repay the loan, or
in the perfection, value, or priority of ESW’s security interests in AEC’s assets; attachment of a material part
of AEC’s assets; AEC’s or the Company’s insolvency; AEC’s default in its obligations under other agreements
totaling $100,000 or more; AEC’s incurring judgments or settlements totaling $100,000 or more; or a change in AEC’s
ownership; or if any material representation by AEC under the LSA is untrue. The LSA provides that, in event of AEC’s
default other than for a material representation, AEC and ESW will act in good faith to effect a reorganization of AEC in
bankruptcy, pursuant to which ESW acquires from the Company all equity in AEC and certain of its assets, for $8,500,000, and
AEC’s cash, shares of its subsidiaries, including Sport-BLX, Inc., and a right to use AEC software and intellectual
property within the sports industry are distributed to the Company. In connection with the LSA, pursuant to a Limited Recourse
Stock Pledge Agreement, the Company pledged to ESW all of the Company’s AEC stock and 30% of the outstanding stock of
SportBLX, and, pursuant to a Subscription Agreement, ESW purchased 100 shares of AEC’s Series A Preferred Stock for
a total purchase price of $25,000. Upon any liquidation, dissolution, or winding up of AEC, each holder of Series A Preferred
Stock is entitled to a liquidation preference of $1500 per share and no more. Holders of Series A Preferred Stock vote together
with holders of common stock on all matters, and each share of Series A Preferred Stock entitles the holder to one vote.
|
|
●
|
Pursuant
to a Software Assignment Agreement, dated July, 20, 2020, AEC purchased from GEH Capital, LLC, wholly owned by Mr. Hall, certain
of that company’s quantitative trading software, for $1,750,000. The software is included in the assets in which ESW
has a security interest.
|
|
|
|
|
●
|
Pursuant
to a Stock Purchase Agreement between Orix and the Company, the Company bought all of Orix’s AEC shares for $4,562,700.
Pursuant to a Termination of Stockholders’ Agreement, the Company and Orix terminated the Stockholders Agreement, dated
October 1, 2019, between them relating to their AEC shares, which, among other things, entitled Orix to appoint one director,
to put Orix’s AEC shares to the Company at book value, or purchase the Company’s AEC shares at book value plus
20%, subject to the Company’s right to buy Orix’s AEC shares at that price.
|
In
connection with the closing of the above-described transactions, the Company paid a $250,000 consulting fee to Mr. Hall and a
$200,000 consulting fee to Alexander Fletcher. Alex Spiro, a Company director who introduced Alexander Fletcher to the Company,
will receive $120,000 of the consulting fee.
In
addition, the Company, Clinton, and CSO agreed to terminate a Credit Facility Letter Agreement, dated November 15, 2019, between
the Company and CSO, and to offset CSO’s obligation of $520,000 principal amount and accrued interest thereunder against
the Company’s interest obligations under a $12,116,718 Promissory Note, dated December 15, 2019, made by the Company to
Mr. Hall.
The
following unaudited pro forma condensed consolidated balance sheet for the six months ended June 30, 2020, has been prepared to
give effect to the transactions as if they had been completed and entered into, respectively, on June 30, 2020.
The
unaudited pro forma condensed consolidated balance sheet is for informational purposes only and is not necessarily indicative
of what our financial performance or financial position would have been had the transactions been completed on the dates assumed
nor is such unaudited pro forma financial information necessarily indicative of the results expected in any future period.
GLASSBRIDGE
ENTERPRISES, INC.
PRO
FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
(In millions, except per share amounts)
|
|
June 30, 2020
|
|
|
Orix
|
|
|
ESW
|
|
|
Hall
|
|
|
Other
|
|
|
|
|
|
|
As
Reported
|
|
|
Agreements
|
|
|
Agreements
|
|
|
Agreements
|
|
|
Agreements
|
|
|
Pro
Forma
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
9.1
|
|
|
$
|
(13.0
|
)
|
|
$
|
10.8
|
|
|
$
|
(3.8
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
2.9
|
|
Short term investments
|
|
|
8.6
|
|
|
|
(8.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Accounts receivable,
net
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Other
current assets
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
Total current assets
|
|
|
19.6
|
|
|
|
(21.6
|
)
|
|
|
10.8
|
|
|
|
(3.8
|
)
|
|
|
(0.2
|
)
|
|
|
4.8
|
|
Goodwill (provisional)
|
|
|
50.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50.6
|
|
Arrive LLC long term investment
|
|
|
14.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.8
|
|
Software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
1.7
|
|
Other assets
and other investments
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
0.6
|
|
Total
assets
|
|
$
|
86.1
|
|
|
$
|
(21.6
|
)
|
|
$
|
10.8
|
|
|
$
|
(2.6
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
72.5
|
|
Liabilities and Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.0
|
|
ESW note payable
|
|
|
—
|
|
|
|
|
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
11.0
|
|
Other
current liabilities
|
|
|
2.1
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
0.6
|
|
Total current liabilities
|
|
|
4.1
|
|
|
|
(1.0
|
)
|
|
|
11.0
|
|
|
|
(0.5
|
)
|
|
|
—
|
|
|
|
13.6
|
|
Stock purchase agreement notes payable
|
|
|
17.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.6
|
|
Orix notes payable
|
|
|
26.6
|
|
|
|
(16.0
|
)
|
|
|
|
|
|
|
(10.6
|
)
|
|
|
|
|
|
|
—
|
|
Bank loan
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Other related parties notes payable
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Other liabilities
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Total
liabilities
|
|
|
49.2
|
|
|
|
(17.0
|
)
|
|
|
11.0
|
|
|
|
(11.1
|
)
|
|
|
—
|
|
|
|
32.1
|
|
Shareholders’ deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in
capital
|
|
|
1,053.9
|
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
8.5
|
|
|
|
|
|
|
|
1,059.4
|
|
Accumulated deficit
|
|
|
(1,017.0
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
(1,017.4
|
)
|
Treasury
stock
|
|
|
(24.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24.9
|
)
|
Total GlassBridge
Enterprises, Inc. shareholders’ equity (deficit)
|
|
|
12.0
|
|
|
|
(3.0
|
)
|
|
|
(0.2
|
)
|
|
|
8.5
|
|
|
|
(0.2
|
)
|
|
|
17.1
|
|
Noncontrolling
interest
|
|
|
24.9
|
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.3
|
|
Total
shareholders’ equity
|
|
|
36.9
|
|
|
|
(4.6
|
)
|
|
|
(0.2
|
)
|
|
|
8.5
|
|
|
|
(0.2
|
)
|
|
|
40.4
|
|
Total
liabilities and shareholders’ equity (deficit)
|
|
$
|
86.1
|
|
|
$
|
(21.6
|
)
|
|
$
|
10.8
|
|
|
$
|
(2.6
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
72.5
|
|