NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 — Background and Basis of Presentation
Background
GlassBridge
Enterprises, Inc. owns and operates an asset management business and a sports technology platform through wholly owned Adara Enterprises,
Corp. (“Adara” or “AEC”), formerly known as Imation Enterprises Corp, and Sport-BLX, Inc. (“SportBLX”),
among other subsidiaries.
As
used in this document, the terms “GlassBridge”, “the Company”, “we”, “us”, and “our”
mean GlassBridge Enterprises, Inc. and its subsidiaries unless the context indicates otherwise.
On
March 31, 2019, the Company entered into a securities purchase agreement (the “IMN Capital Agreement”) with IMN Capital Holdings,
Inc., a Delaware corporation (“IMN Capital”) whereby the Company sold its entire ownership of its international subsidiaries
together with its entire ownership in Imation Latin America Corp., a Delaware corporation (the “Imation Subsidiaries”). Certain
subsidiaries of the Company, including the Imation Subsidiaries, are parties to certain lawsuits, claims, and other legal proceedings
concerning claims and counterclaims relating to excess payments made by the Imation Subsidiaries relating to copyright levies in European
Union (“EU”) member states (the “Subsidiary Litigation”). Pursuant to the terms and subject to the conditions
of the IMN Capital Agreement, IMN Capital acquired from the Company the Company’s shares representing the Company’s ownership
interests in each of the Imation Subsidiaries (the “Subsidiary Sale”). Following the Subsidiary Sale, the Imation Subsidiaries
are no longer affiliates of the Company, and the Company has no interest in or to the Imation Subsidiaries except as explicitly described
in the IMN Capital Agreement. In consideration for the Subsidiary Sale, the Company shall receive certain compensation from IMN Capital.
As defined in the IMN Capital Agreement, a payment occurrence is the settlement or final adjudication as to all demands, claims, counter-claims,
cross-claims, third-party claims, damages, fees, costs and expenses, brought and raised on any matters arising from or related to the
Subsidiary Litigation (a “Payment Occurrence”). In connection with the Subsidiary Sale, the purchase price furnished by IMN
Capital to the Company (the “Purchase Price”) shall consist of (i) $277,900 payable upon the execution of the IMN Capital
Agreement and (ii) 75% of all net proceeds from Subsidiary Litigation (which, for the avoidance of doubt, shall be calculated after the
payment of (i) the retirement of the Germany pension liability; (ii) contingency fees payable to attorneys engaged in connection with
the Subsidiary Litigation; (iii) fees payable to Mach 5, the litigation financing company and (iv) the payment of all applicable taxes
including income taxes in connection with the Subsidiary Litigation) (such payment, the “Contingent Payment”). The Company
recorded a one-time non-cash gain of approximately $10 million in connection with IMN Capital Agreement transaction.
The
Company’s continued operations and ultimate ability to continue as a going concern will depend on its ability to enhance revenue
and operating results, enter into strategic relationships or raise additional capital. The Company can provide no assurances that all
or any of such plans will occur; and if the Company is unable to return to profitability or otherwise raise sufficient capital, there
would be a material adverse effect on its business.
On
August 20, 2019, the Company effected a reverse split of our common stock, par value $0.01 per share at a ratio of 1:200 (the “Reverse
Stock Split”). On August 21, 2019 (the “Effective Date”), our common stock began trading on the Reverse Stock Split-adjusted
basis on the OTCQB at the opening of trading. In connection with the Reverse Stock Split, our common stock began trading with a new CUSIP
number at such time. There was no change to the Company’s stock symbol. All prior periods have been retroactively adjusted to give
effect to the reverse stock split. See Note 13 - Shareholders’ Equity for further information.
On
October 1, 2019, the Company sold to Orix PTP Holdings, LLC (“Orix”), for $17.6 million, 20.1% of the outstanding stock of
Adara, until then a Company wholly owned subsidiary, together with two promissory notes of Adara to the Company in total principal amount
of $13 million.
On
December 12, 2019, the Company acquired a controlling interest of 50.7% in SportBLX in two separate stock purchase agreements.
In
July 2020, the Company and certain of its subsidiaries completed a series of transactions that resulted among other things, in the Company’s
reacquiring shares of Adara sold in October 2019; disposing of obligations incurred in connection with the sale; and entering into a
Loan and Security Agreement (the “ESW Loan Agreement”). In addition, Adara acquired, from an affiliate of the Company, certain
quantitative trading software, which is included in the assets in which ESW Holdings, Inc. (“ESW”) has a security interest.
In
January 2021, Adara Enterprises, Corp. (“Adara” or “AEC”) received notice from ESW Holdings, Inc. (“ESW”)
that Adara had defaulted on its obligation to pay at maturity, i.e., on January 20, 2021, $11,000,000 in principal and all other amounts
due to ESW under a Loan and Security Agreement (“ESW Loan Agreement”), dated July 21, 2020. Pursuant to the ESW Loan Agreement,
AEC gave to ESW a security interest in all of AEC’s assets, and GlassBridge pledged to ESW all of GlassBridge’s AEC stock
and 30% of GlassBridge’s SportBLX stock. The Loan Agreement provides that, upon AEC’s default, AEC may elect to cooperate
with ESW to effect a prearranged reorganization of AEC in bankruptcy, pursuant to which ESW acquires from GlassBridge all equity in AEC
and certain of its assets, most notably property and equipment consisting of quantitative trading software, as well as deferred tax assets
resulting from net operating losses, for consideration of $8,500,000, which amount would be used to satisfy the claims of all valid creditors
and certain administrative expenses associated with the bankruptcy case, with all residual funds to be paid to GlassBridge. On April
22, 2021, AEC filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for
the District of Delaware. AEC’s prepackaged chapter 11 plan of reorganization was confirmed at a hearing on June 9, 2021 and became
effective on June 15, 2021 (the “Effective Date”). Upon the occurrence of the Effective Date, ESW paid $8.5 million in consideration,
less $325,000 that ESW had previously funded in the form of a postpetition debtor-in-possession loan to AEC to fund the costs of administration
associated with AEC’s bankruptcy case. Also on the Effective Date, 50% of the equity in reorganized AEC was issued to ESW, and
the other 50% of the equity in reorganized AEC was issued to ESW’s affiliate, ESW Capital LLC. Finally, on the Effective Date,
GlassBridge received a release of its guaranty obligations to ESW as well as a license to use AEC’s quantitative trading software
in connection with the sports industry.
Adara
has historically been one of the subsidiaries through which the company has operated its asset management business. The Company, however,
remains committed to its asset management business and holds various investments and assets, including Arrive LLC (“Arrive”),
in other subsidiaries. The default on the ESW loan agreement is expected to provide additional liquidity for the Business though the
prearranged bankruptcy plan described above.
Basis
of Presentation
The
financial statements are presented on a consolidated basis and 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 and has the right to control. The results of
entities disposed of are included in the Consolidated Financial Statements up to the date of the disposal and, where appropriate, these
operations have been reflected as discontinued operations. Our Consolidated Financial Statements are prepared in conformity with accounting
principles generally accepted in the United States of America (“GAAP”). 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 results reported.
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 Consolidated Statements of Operations as discontinued operations for
all periods presented. Our continuing operations in each period presented represents our “Asset Management Business” and
our “Sports Technology Platform”, 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 have been separately presented on the face of our Consolidated Balance Sheets for all periods presented. See
Note 5 - Discontinued Operations for further information.
Note
2 — Summary of Significant Accounting Policies
Use
of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported asset and liability amounts and the contingent asset and liability disclosures at the date of the financial
statements, as well as the revenue and expense amounts reported during the period. Actual results could differ from those estimates.
Foreign
Currency. For our international operations, where the local currency has been determined to be the functional currency, assets and
liabilities are translated at year-end exchange rates with cumulative translation adjustments included as a component of shareholders’
equity. Income and expense items are translated at average foreign exchange rates prevailing during the year. Income and losses from
foreign currency transactions are included in our Consolidated Statements of Operations.
Cash
Equivalents. Cash equivalents consist of highly liquid investments with an original maturity of three months or less at the time
of purchase. The carrying amounts reported in our Consolidated Balance Sheets for cash equivalents approximate fair value.
Restricted
Cash. Cash related to contractual obligations or restricted by management for specific use is classified as restricted and is included
in other current assets on our Consolidated Balance Sheets depending on the timing of the restrictions. As of December 31, 2020, and
December 31, 2019, we had $0.5 million and $0.0 million, respectively, of restricted cash included in other current assets which relates
to the ESW note payable. Pursuant to the ESW Loan and Security Agreement, AEC is required to maintain at least $500,000 cash
in controlled accounts.
Investments.
Investment securities are classified into one of three categories: (1) held-to-maturity, (2) available-for-sale, or (3) trading.
The Company’s short-term investment balances as of December 31, 2020 and 2019 included trading securities, which are measured at
fair value. The corresponding income or loss associated with these trading securities is reported in our Consolidated Statements of Operations
as a component of “Other income (expense), net”. Trading securities are bought and held principally for the purpose of selling
them in the near term therefore are only held for a short period of time.
Fair
Value Measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability,
or the exit price in an orderly transaction between market participants on the measurement date. A three-level hierarchy is used for
fair value measurements based upon the observability of the inputs to the valuation of an asset or liability as of the measurement date.
Level 1 measurements consist of unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 measurements
include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially
the full term of the asset or liability. Level 3 measurements include significant unobservable inputs. A financial instrument’s
level within the hierarchy is based on the highest level of any input that is significant to the fair value measurement. The Company
measures certain assets and liabilities including cash and cash equivalents, and investments in trading securities at their estimated
fair value on a recurring basis. The Company’s non-financial assets such as goodwill and intangible assets are recorded at fair
value on a nonrecurring basis.
Trade
Accounts Receivable and Allowances. Trade accounts receivable are stated net of estimated allowances, which primarily represent estimated
amounts associated with customer returns, discounts on payment terms and the inability of certain customers to make the required payments.
When determining the allowances, we take several factors into consideration, including prior history of accounts receivable credit activity
and write-offs, the overall composition of accounts receivable aging, the types of customers and our day-to-day knowledge of specific
customers. Changes in the allowances are recorded as reductions of net revenue or as bad debt expense (included in selling, general and
administrative expense), as appropriate, in our Consolidated Statements of Operations. In general, accounts which have entered into an
insolvency action, have been returned by a collection agency as uncollectible or whose existence can no longer be confirmed are written
off in full and both the receivable and the associated allowance are removed from our Consolidated Balance Sheet. If, subsequent to the
write-off, a portion of the account is recovered, it is recorded as a reduction of bad debt expense in our Consolidated Statements of
Operations at the time cash is received.
Intangible
Assets. We record all assets and liabilities acquired in purchase acquisitions, including intangibles, at estimated fair value. The
initial recognition of intangible assets, the determination of useful lives and, if necessary, subsequent impairment analyses require
management to make subjective estimates of how the acquired assets will perform in the future using certain valuation methods.
Impairment
of Long-Lived Assets. We periodically review the carrying value of our property and equipment and our intangible assets, including
goodwill, to test whether current events or circumstances indicate that such carrying value may not be recoverable. For the testing of
long-lived assets that are “held for use,” if the tests indicate that the carrying value of the asset group that contains
the long-lived asset being evaluated is greater than the expected undiscounted cash flows to be generated by such asset or asset group,
an impairment loss would be recognized. The impairment loss is determined by the amount by which the carrying value of such asset group
exceeds its estimated fair value. We generally measure fair value by considering sale prices for similar assets or by discounting estimated
future cash flows from such assets using an appropriate discount rate. Management judgment is necessary to estimate the fair value of
assets and, accordingly, actual results could vary significantly from such estimates.
Restructuring.
Restructuring generally includes significant actions involving employee-related severance charges, contract termination costs, and
impairment or accelerated depreciation/amortization of assets associated with such actions. These charges are reflected in the quarter
when the actions are probable and the amounts are estimable, which is typically when management approves the associated actions. Contract
termination and other charges primarily reflect costs to terminate a contract before the end of its term or costs that will continue
to be incurred under the contract for its remaining term without economic benefit to the Company. Asset impairment charges related to
intangible assets and property, plant and equipment reflect the excess of the assets’ carrying values over their fair values.
Revenue
Recognition. The Company recognizes revenue in light of the guidance of Accounting Standards Codification (ASC) 606, Revenue from
Contracts with Customers. Revenue is recognized when control of goods has transferred to customers. For the majority of the Company’s
customer arrangements, control transfers to customers at a point-in-time when goods/services have been delivered as that is generally
when legal title, physical possession and risks and rewards of goods/services transfers to the customer. Revenue is recognized at the
transaction price which the Company expects to be entitled. The majority of the Company’s customer arrangements, for both the
Asset Management Business and Sports Technology Platform, contain a single performance obligation for services as the promise for
services is not separately identifiable from other promises in the contracts and, therefore, not distinct. The Company may also enter
into customer arrangements that involve intellectual property out-licensing, multiple performance obligations, services and non-standard
terms and conditions.
Income
Taxes. We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating
our actual current tax obligations based on expected taxable income, statutory tax rates and tax credits allowed in the various jurisdictions
in which we operate. Tax laws require certain items to be included in our tax returns at different times than the items are reflected
in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and
some are temporary differences that will reverse over time. Temporary differences result in deferred tax assets and liabilities, which
are included in our Consolidated Balance Sheets. We must assess the likelihood that our deferred tax assets will be realized and establish
a valuation allowance to the extent necessary.
We
record income taxes using the asset and liability approach. Under this approach, deferred tax assets and liabilities are recognized for
the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. We measure deferred
tax assets and liabilities using the enacted statutory tax rates that are expected to apply in the years in which the temporary differences
are expected to be recovered or paid.
We
regularly assess the likelihood that our deferred tax assets will be recovered in the future. In accordance with accounting rules, a
valuation allowance is recorded to the extent we conclude a deferred tax asset is not considered to be more-likely-than-not to be realized.
We consider all positive and negative evidence related to the realization of the deferred tax assets in assessing the need for a valuation
allowance. If we determine it is more-likely-than-not that we will not realize all or part of our deferred tax assets, an adjustment
to the deferred tax asset will be charged to earnings in the period such determination is made.
Our
income tax returns are subject to review by various taxing authorities. As such, we record accruals for items that we believe may be
challenged by these taxing authorities. The threshold for recognizing the benefit of a tax return position in the financial statements
is that the position must be more-likely-than-not to be sustained by the taxing authorities based solely on the technical merits of the
position. If the recognition threshold is met, the tax benefit is measured and recognized as the largest amount of tax benefit that,
in our judgment, is greater than 50 percent likely to be realized.
Treasury
Stock. Our repurchases of shares of common stock are recorded at cost as treasury stock and are presented as a reduction of shareholders’
equity. When treasury shares are reissued, we use a last-in, first-out method, and the difference between repurchase cost and fair value
at reissuance is treated as an adjustment to equity.
Stock-Based
Compensation. Stock-based compensation awards classified as equity awards are measured at fair value at the date of grant and expensed
over their vesting or service periods.
The
fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The assumptions used
in the valuation model are supported primarily by historical indicators and current market conditions. Expected volatilities are based
on historical volatility of our stock and are calculated using the historical weekly close rate for a period of time equal to the expected
term. The risk-free rate for the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time
of grant. We use historical data and management judgment to estimate option exercise and employee termination activity within the valuation
model. The expected term of stock options granted is based on historical data and represents the period of time that stock options granted
are expected to be outstanding. It is calculated on an aggregated basis and estimated based on an analysis of options already exercised
and any foreseeable trends or changes in recipients’ behavior. In determining the expected term, we consider the vesting period
of the awards, the contractual term of the awards, historical average holding periods, stock price history, impacts from recent restructuring
initiatives and the relative weight for each of these factors. The dividend yield, if applicable, is based on the latest dividend payments
made on or announced by the date of the grant. Forfeitures are estimated based on historical experience and current demographics. See
Note 10 - Stock-Based Compensation for further information regarding stock-based compensation.
Income
(Loss) per Common Share. Basic income (loss) per common share is calculated using the weighted average number of shares outstanding
during the year. Unvested restricted stock and treasury shares are excluded from the calculation of basic weighted average number of
common shares outstanding. Once restricted stock vests, it is included in our common shares outstanding.
Diluted
income (loss) per common share is computed on the basis of the weighted average basic 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 income (loss) per common share because the effect would be anti-dilutive. See Note 3
- Income (Loss) per Common Share for our calculation of weighted average basic and diluted shares outstanding.
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. The Company adopted this ASU in the first quarter of 2020. As this ASU relates only to disclosures,
there was no impact to the Company’s consolidated results of operations or financial condition.
In
August 2018, the FASB issued ASU No. 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans, which makes minor
changes to the disclosure requirements related to defined benefit pension and other postretirement plans. The ASU requires a retrospective
transition approach. For the Company, the ASU is effective as of January 1, 2021. As this ASU relates only to disclosures, there
will be no impact to the Company’s consolidated results of operations and financial condition.
Note
3 — Income (Loss) per Common Share
The
following table sets forth the computation of the weighted average basic and diluted income (loss) per share:
|
|
|
Years
Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(In millions,
except per share amounts)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Income (loss)
from continuing operations
|
|
$
|
(63.6
|
)
|
|
$
|
11.4
|
|
|
Less:
loss attributable to noncontrolling interest
|
|
|
(1.3
|
)
|
|
|
—
|
|
|
Net income (loss) from
continuing operations attributable to GlassBridge Enterprises, Inc.
|
|
|
(62.3
|
)
|
|
|
11.4
|
|
|
Income
from discontinued operations, net of income taxes
|
|
|
—
|
|
|
|
11.7
|
|
|
Net
income
|
|
$
|
(62.3
|
)
|
|
$
|
23.1
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted
average number of diluted shares outstanding during the period - basic and diluted (in thousands)
|
|
|
25.2
|
|
|
|
25.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share attributable
to GlassBridge common shareholders — basic and diluted:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(2,472.77
|
)
|
|
$
|
330.15
|
|
|
Discontinued
operations
|
|
|
—
|
|
|
|
461.45
|
|
|
Net
income
|
|
$
|
(2,472.77
|
)
|
|
$
|
791.60
|
|
|
Anti-dilutive shares excluded from calculation
|
|
|
—
|
|
|
|
—
|
|
Note
4 – Business Combination
During
the first ten months of 2019, the Company entered into three Common Stock Purchase Agreements (the “SportBLX Purchase Agreement”)
with SportBLX, Inc., a Delaware corporation (“SportBLX”), purchasing a total of 13,519 shares of SportBLX common stock for
total consideration of $1,788,379.
On
December 12, 2019, the Company acquired a controlling interest of 50.7% in SportBLX by purchasing an additional 55,000 shares for total
consideration of $19.5 million, in two separate stock purchase agreements. The Company entered into a Common Stock Purchase Agreement
with Joseph A. De Perio (the “De Perio Agreement”) pursuant to which the Company purchased 17,076 shares of SportBLX common
stock in exchange for consideration of $6,061,980. On the same date, the Company entered into a Common Stock Purchase Agreement with
George E. Hall (the “Hall Agreement” and, together with the De Perio Agreement, the “Stock Purchase Agreements”)
pursuant to which the Company purchased 37,924 shares of SportBLX common stock for consideration of $13,463,020. Joseph De Perio is a
member of the Board of Directors of the Company, owns 2.47% of the Company’s outstanding common stock and is SportBLX’s president.
George E. Hall is the beneficial holder of approximately 31.1% of the Company’s outstanding common stock and is the Executive Chairman
and CEO of SportBLX.
The
aggregate consideration paid by the Company in the business combination is $21,313,378.72.
|
Date
|
|
Description
|
|
Shares
Acquired
|
|
|
Per
Share Price
|
|
|
Consideration
|
|
|
January 4, 2019
|
|
SportBLX Purchase Agreement
|
|
|
10,526
|
|
|
$
|
95.0029
|
|
|
$
|
1,000,000
|
|
|
September 16, 2019
|
|
SportBLX Purchase Agreement
|
|
|
679
|
|
|
|
263.4074
|
|
|
|
178,854
|
|
|
October 18, 2019
|
|
SportBLX Purchase Agreement
|
|
|
2,314
|
|
|
|
263.4074
|
|
|
|
609,525
|
|
|
|
|
|
|
|
13,519
|
|
|
|
|
|
|
|
1,788,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 12, 2019
|
|
De Perio Agreement
|
|
|
17,076
|
|
|
|
355.0000
|
|
|
|
6,061,980
|
|
|
December 12, 2019
|
|
Hall Agreement
|
|
|
37,924
|
|
|
|
355.0000
|
|
|
|
13,463,020
|
|
|
|
|
|
|
|
55,000
|
|
|
|
|
|
|
|
19,525,000
|
|
|
Total shares
and consideration
|
|
|
68,519
|
|
|
|
|
|
|
$
|
21,313,379
|
|
The
following table presents the fair value of the assets acquired and liabilities assumed at the date of acquisition:
|
Cash and cash equivalents
|
|
$
|
3,365
|
|
|
Sundry receivable
|
|
|
14,772
|
|
|
Investment – Race Horses
|
|
|
220,000
|
|
|
Investment – BLX
Trading Corp
|
|
|
4,600
|
|
|
TANGIBLE
ASSETS ACQUIRED
|
|
|
242,737
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
712,160
|
|
|
Accrued expenses
|
|
|
50,000
|
|
|
Accrued interest payable
|
|
|
27,796
|
|
|
Note payable
|
|
|
2,000,000
|
|
|
LIABILITIES
ASSUMED
|
|
|
2,789,956
|
|
|
NET
LIABILITIES ASSUMED
|
|
|
(2,547,219
|
)
|
|
|
|
|
|
|
|
Goodwill
|
|
|
50,552,094
|
|
|
INTANGIBLE
ASSETS ACQUIRED
|
|
|
50,552,094
|
|
|
|
|
|
|
|
|
Consideration
|
|
|
21,313,379
|
|
|
Unrealized gain
|
|
|
3,010,866
|
|
|
Total GlassBridge Enterprises, Inc. interest
|
|
|
24,324,245
|
|
|
Noncontrolling interests
|
|
|
23,680,630
|
|
|
|
|
$
|
48,004,875
|
|
The
following table provides unaudited pro forma information for the periods presented as if the SportBLX acquisition had occurred January
1, 2019:
|
|
|
Year
ended December 31,
|
|
|
|
|
2019
|
|
|
|
|
|
(in
millions)
|
|
|
Revenues
|
|
$
|
(0.1
|
)
|
|
Loss from continuing operations
|
|
$
|
(10.6
|
)
|
As
a result of the acquisition, the Company, will seek revenues by creating an online marketplace for sports assets, including revenue share
interests in player and racehorse earnings and equity interests in teams. SportBLX partners with a registered broker-dealer to effect
transactions in sports assets constituting securities. SportBLX enables enthusiasts to use their knowledge to engage passionately and
invest in the athletes and sports teams they love, giving investors opportunities to participate in the value creation that success in
sports brings.
SportBLX
is offering a new asset class and is the first company to bring it to the market. Sports are a multi-billion dollar industry with economic
and non-economic factors that make it very unique. The leadership at SportBLX brings over thirty years of experience in the financial
industry with experience in securitizing, structuring and trading. This unique combination accounts for the goodwill of $50,552,094 arising
from the acquisition.
None
of the goodwill recognized is expected to be deductible for income tax purposes. The fair value allocation was completed and it
was determined that $50.6 million was attributable to goodwill.
In
December 2020, the Company recorded an impairment charge of $42.3 million to goodwill. See Note 7 – Goodwill for more information.
Note
5 — Discontinued Operations
The
Nexsan Business
On
August 16, 2018, the Company completed the disposition of its entire interest in the Nexsan Business. Escrowed funds of $610,760, net
of claims, that were held for indemnifiable costs or liabilities arising within 18 months of the transaction were remitted to the Company
on February 19, 2020.
The
Legacy Businesses
As
of December 31, 2016, the wind-down of the Company’s Legacy Businesses was substantially complete, having effectively terminated
all associated employees and ceased all operations.
On
March 31, 2019, the Company entered into a securities purchase agreement with IMN Capital Holdings, Inc., a Delaware company (“IMN
Capital”) to sell its entire ownership of its international subsidiaries and Imation Latin America Corp., a Delaware corporation
(the “Imation Subsidiaries”) (the “Subsidiary Sale”). In connection with the sale, the purchase price furnished
by IMN Capital to the Company consisted of (i) $277,900 payable upon the execution of the IMN Capital Agreement and (ii) 75% of all net
proceeds from subsidiary litigation (which, for the avoidance of doubt, shall be calculated after the payment of (i) the retirement of
the Germany pension liability; (ii) contingency fees payable to attorneys engaged in connection with the Subsidiary Litigation; (iii)
fees payable to Mach 5, the litigation financing company and (iv) the payment of all applicable taxes including income taxes in connection
with the subsidiary litigation). The Company recorded a one-time non-cash gain of approximately $10.0 million in connection with IMN
Capital Agreement transaction.
As
of December 31, 2019, we have substantially collected all our outstanding receivables and settled all of our outstanding payables associated
with these businesses.
Results
of Discontinued Operations
The
operating results for the Legacy Businesses and the Nexsan Business are presented in our Consolidated Statements of Operations as discontinued
operations for all periods presented and reflect 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:
|
|
|
For
the Years Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(In millions)
|
|
|
Other income
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
Income from discontinued operations, before
income taxes
|
|
|
—
|
|
|
|
1.3
|
|
|
Gain on sale of discontinued businesses, before
income taxes
|
|
|
—
|
|
|
|
9.4
|
|
Income tax benefit
|
|
|
—
|
|
|
|
1.0
|
|
|
Income from discontinued
businesses, net of income taxes
|
|
$
|
—
|
|
|
$
|
11.7
|
|
Net
income of discontinued operations for year ended December 31, 2020 decreased by $11.7 million compared to the year ended December 31,
2019, due to the Subsidiary Sale.
The
income tax benefit related to discontinued operations was $0.0 million and $1.0 million for the years ended December 31, 2020 and 2019,
respectively. See Note 12 - Income Taxes for additional information.
The
Company no longer has any assets or liabilities of discontinued operations as of December 31, 2019.
Note
6 — Supplemental Balance Sheet Information
Additional
supplemental balance sheet information is provided below.
Other
current assets of $1.0 million as of December 31, 2020 consists of restricted cash of $0.5 million and a minimum tax refund that was
received in the first quarter of 2021. Other current assets of $2.8 million as of December 31, 2019 include $1.7 million of prepaid professional
service fees to a related party, $0.5 million for a tax refund received in 2020 and $0.6 million of escrowed funds related to the disposition
of the Nexsan Business.
Property
and equipment consists of quantitative trading software purchased from GEH Capital, LLC (“GEH”), a related party.
The asset is depreciated on a straight-line basis over a useful life of three years. Net property and equipment of $1.5 million as of
December 31, 2020 consists of the purchased cost of $1.7 million less accumulated depreciation of $0.2 million. The residual values,
useful life and depreciation method are reviewed at each financial year end to ensure that the amount, method and period of depreciation
are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items
of property and equipment. See Note 16 – Related Party Transactions for more information on the software purchase.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use
or disposal. The difference between the net disposal proceeds, if any and the net carrying amount is recognized in income statement.
In
January 2021, AEC received notice from ESW that Adara had defaulted on its obligations under the ESW Loan Agreement. On April 22, 2021,
AEC filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the District
of Delaware. As part of AEC’s prepackaged chapter 11 plan of reorganization which became effective on June 15, 2021, ESW acquired
the Company’s interest in the quantitative trading software and GlassBridge received a license to use the software in connection
with the sports industry. See Note 17 – Subsequent Events for more information.
Total
assets of as of December 31, 2020 include a $12.8 million investment in Arrive LLC (“Arrive”), down $2.0 million as a result
of distributions. The Arrive investment was $14.8 million as of December 31, 2019. Historically, we accounted for such investment 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 December 31, 2020, there were no indicators of impairment for this investment. The
Company will assess the investment for potential impairment, quarterly.
Other
assets of $0.4 million as of December 31, 2020 include a separate investment in Arrive. Other assets and other investments of
$2.4 million as of December 31, 2019, include a $0.9 million investment in the Möbius Fund SCA SICAV-RAIF. In 2020, the Company
contributed an additional $0.5 million to the investment due to market downturn. The investment subsequently ended and resulted
in a $1.4 million loss that was realized in 2020. Another $0.5 million minimum tax refund, separate from the tax refund recorded
in other current assets, is also included in other assets and other investments as of December 31, 2019.
Other
current liabilities (included as a separate line item in our Consolidated Balance Sheets) include the following:
|
|
|
December
31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(In millions)
|
|
|
Accrued payroll
|
|
$
|
0.5
|
|
|
$
|
0.1
|
|
|
Other current liabilities
|
|
|
1.3
|
|
|
|
1.4
|
|
|
Total
other current liabilities
|
|
$
|
1.8
|
|
|
$
|
1.5
|
|
Other
current liabilities as of December 31, 2020, include accruals for interest expense of $1.2 million of which $0.1 million is related
party.
Other
current liabilities as of December 31, 2019, included accruals for professional services fees of $0.7 million and fees related to insurance
and other claims of $0.4 million.
Stock
purchase agreements as of December 31, 2020, include notes payable
of $12.1 million and $5.5 million to George E. Hall and Joseph A. De Perio, respectively, in conjunction with the Stock Purchase Agreement
for shares of SportBLX common stock. See Note 16 – Related Party Transactions for additional information.
As
of December 31, 2020, the Company has a note payable of $11.0
million to ESW Holdings, LLC (“ESW”) and a $0.4 million Bank loan from Signature Bank pursuant
to the Paycheck Protection Program (the “PPP”). See Note 8 – Debt for additional information on the ESW note
payable and the Bank loan.
As
of December 31, 2019, pension liabilities were $13.5 million. Following a payment made on October 3, 2019 in fulfillment of a settlement
agreement with the Pension Benefit Guaranty Corporation, the Company is no longer obligated for this liability, as of January 6, 2020.
See Note 11 – Retirement Plans for additional information on the pension liability.
As
of December 31, 2019, the Company had notes payable of $13.0 million in connection with a Securities Purchase Agreement with Orix
which were assigned from Adara Enterprises Corp. to Adara Asset Management, LLC, which, also on July 21, 2020, was sold to GEH
Sport LLC, a related party, and, in effect, no longer an obligation of the Company. See Note 16 – Related Party
Transactions for additional information.
Note
7 — Goodwill
As
a result of acquiring a controlling interest in SportBLX, we recorded goodwill of $50.6 million as part of the purchase price allocation.
The goodwill acquired was fully allocated to our Sports technology platform. In December 2020, we recorded an impairment charge of $42.3
million. See the 2020 Goodwill Analysis below for additional information.
The
following table presents the changes in goodwill:
|
|
|
SportBLX
|
|
|
|
|
(in millions)
|
|
|
Balance as of December
31, 2018
|
|
$
|
—
|
|
|
Acquisition
|
|
|
50.6
|
|
|
Balance as of December 31, 2019
|
|
|
50.6
|
|
|
Impairment
charges
|
|
|
42.3
|
|
|
Balance as of December 31, 2020
|
|
$
|
8.3
|
|
2020
Goodwill Analysis
During
the fourth quarter of 2020, management engaged in a strategic and financial assessment of the Sports Technology Business. In assessing
recoverability of the goodwill recorded as part of the purchase price allocation from the SportBLX acquisition, we compared the carrying
amount of the goodwill with its implied fair value. To determine the estimated fair value, we used the cost approach, a valuation technique
that involves determining the total asset value of a business and reducing that value by the amount of its outstanding liabilities. As
a result of this assessment, we determined the carrying value of the goodwill exceeded its fair value. Consequently, we recorded an impairment
charge of $42.3 million in the Consolidated Statements of Operations for the year ended December 31, 2020. The impairment of goodwill
was driven by a number of factors affecting our Sports Technology Business in 2020 including, but not limited to, the outbreak of COVID-19
and its impact on sports globally, the performance of the business and its capital position.
See
Note 2 - Summary of Significant Accounting Policies as well as Critical Accounting Policies and Estimates within the Management’s
Discussion and Analysis section for further background and information on goodwill impairments.
Note
8 — Debt
Debt
and notes payable consists of the following:
|
|
|
Years
Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(In millions)
|
|
|
Pension liability
|
|
$
|
—
|
|
|
$
|
13.5
|
|
|
Stock purchase agreement notes
payable (see Note 16 – Related Party Transactions)
|
|
|
17.6
|
|
|
|
17.6
|
|
|
Orix notes payable
|
|
|
—
|
|
|
|
13.0
|
|
|
ESW note payable
|
|
|
11.0
|
|
|
|
—
|
|
|
Deferred financing costs
|
|
|
—
|
|
|
|
(2.7
|
)
|
|
Bank loan
|
|
|
0.4
|
|
|
|
—
|
|
|
Other related parties notes payable
|
|
|
0.2
|
|
|
|
—
|
|
|
Other liabilities
|
|
|
0.2
|
|
|
|
0.2
|
|
|
Total long term debt
|
|
|
29.4
|
|
|
|
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. Interest of $508,000 due under the agreement is offset due to the termination of a Credit Facility Letter
Agreement with Clinton Special Opportunities Fund LLC (“CSO”). See Note 16 – Related Party Transactions
for more information.
The
Company had multiple notes payable with Orix. Notes payable of $16.0 million issued in March 2020 bear interest at a 5.0% annual rate
and mature on September 18, 2021.
On
July 21, 2020, pursuant to a loan prepayment and security termination agreement, the Company prepaid the $16 million notes payable issued
to Orix in March 2020, together with accrued interest of $171,112. The prior Orix notes payable of $13.0 million, which bear interest
at a 7.5% annual rate, were assigned from Adara Enterprises Corp. to Adara Asset Management LLC, which, also on July 21, 2020, was sold
to GEH Sport LLC, a related party, and, in effect, no longer an obligation of the Company.
Also
on July 21, 2020, the Company borrowed $11.0 million from ESW, the proceeds of which were applied, among other things, to finance the
transactions referred to in the preceding paragraph and the Company’s purchase of Orix’s shares of Adara Enterprises Corp.
(“AEC”), 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 ESW Loan Agreement, 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 ESW Loan Agreement is untrue. The ESW Loan Agreement 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 ESW Loan Agreement, 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 $1,500 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.
In
January 2021, AEC received notice from ESW that Adara had defaulted on its obligation to pay at maturity, i.e., on January 20, 2021,
$11,000,000 in principal and all other amounts due to ESW under the ESW Loan Agreement. Pursuant to the ESW Loan Agreement, AEC gave
to ESW a security interest in all of AEC’s assets, and GlassBridge pledged to ESW all of GlassBridge’s AEC stock and 30%
of GlassBridge’s SportBLX stock. The Loan Agreement provides that, upon AEC’s default, AEC may elect to cooperate with ESW
to effect a prearranged reorganization of AEC in bankruptcy, pursuant to which ESW acquires from GlassBridge all equity in AEC and certain
of its assets, most notably property and equipment consisting of quantitative trading software, as well as deferred tax assets resulting
from net operating losses, for consideration of $8,500,000, which amount would be used to satisfy the claims of all valid creditors and
certain administrative expenses associated with the bankruptcy case, with all residual funds to be paid to GlassBridge. On April 22,
2021, AEC filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the
District of Delaware. AEC’s prepackaged chapter 11 plan of reorganization was confirmed at a hearing on June 9, 2021 and became
effective on June 15, 2021 (the “Effective Date”). Upon the occurrence of the Effective Date, ESW paid $8.5 million in consideration,
less $325,000 that ESW had previously funded in the form of a postpetition debtor-in-possession loan to AEC to fund the costs of administration
associated with AEC’s bankruptcy case. Also on the Effective Date, 50% of the equity in reorganized AEC was issued to ESW, and
the other 50% of the equity in reorganized AEC was issued to ESW’s affiliate, ESW Capital LLC. Finally, on the Effective Date,
GlassBridge received a release of its guaranty obligations to ESW as well as a license to use AEC’s quantitative trading software
in connection with the sports industry.
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 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 to 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 used the entire
Bank Loan amount for qualifying expenses.
Other
related parties notes payable of $0.2 million is comprised of Demand Notes 4 and 5 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 December 31, 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 December 31, 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 December 31, 2020 SportBLX borrowed $213,793 under
the Demand Note-6, which was offset by amounts owed to SportBLX.
Scheduled
maturities of the Company’s long-term debt, as they exist as of December 31, 2020, in each of the next five fiscal years and thereafter
are as follows:
|
Fiscal years ending in
|
|
(in
millions)
|
|
|
2021
|
|
$
|
11.2
|
|
|
2022
|
|
|
18.2
|
|
|
2023
|
|
|
—
|
|
|
2024
|
|
|
—
|
|
|
2025
|
|
|
—
|
|
|
2026 and thereafter
|
|
|
—
|
|
|
Total
|
|
|
29.4
|
|
Note
9 — 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 and $0.1 million for the years ended December 31, 2020 and 2019, respectively. Restructuring expense
of $0.1 million for the year ended December 31, 2019 was related to severance payments.
Note
10 — Stock-Based Compensation
Stock
compensation consisted of the following:
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
|
(In
millions)
|
|
|
Stock compensation expense
|
|
$
|
—
|
|
|
$
|
—
|
|
The
2011 Incentive Plan was approved and adopted by our shareholders on May 4, 2011 and became effective immediately. The 2011 Incentive
Plan was amended and approved by our shareholders on May 8, 2013. The 2011 Incentive Plan permits the grant of stock options, stock appreciation
rights (“SARs”), restricted stock, restricted stock units, dividend equivalents, performance awards, stock awards and other
stock-based awards. The aggregate number of shares of our common stock that may be issued under all stock-based awards made under the
2011 Incentive Plan is 4,671. The number of shares available for awards, as well as the terms of outstanding awards, is subject to adjustments
as provided in the 2011 Incentive Plan for stock splits, stock dividends, recapitalization and other similar events. Awards may be granted
under the 2011 Incentive Plan until the earlier to occur of May 3, 2021 or the date on which all shares available for awards under the
2011 Incentive Plan have been granted; provided, however, that incentive stock options may not be granted after February 10, 2021.
Stock-based
compensation awards issued under the 2011 Incentive Plan generally have a term of ten years and, for employees, vest over a three-year
period. Exercise prices of awards issued under these plans are equal to the fair value of the Company’s stock on the date of grant.
As
of December 31, 2020, there were 1,360 outstanding stock-based compensation awards under the 2011 Incentive Plan. As of December 31,
2020, there were no shares available for grant under our 2011 Incentive Plan.
Stock
Options
The
following table summarizes our stock option activity:
|
|
|
Stock
Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average
Remaining Contractual
Life
(Years)
|
|
|
Outstanding December 31, 2018
|
|
|
113
|
|
|
$
|
16,734.00
|
|
|
|
0.2
|
|
|
Forfeited
|
|
|
(113
|
)
|
|
|
16,734.00
|
|
|
|
|
|
|
Granted
|
|
|
1,360
|
|
|
|
106.00
|
|
|
|
|
|
|
Outstanding December 31, 2019
|
|
|
1,360
|
|
|
$
|
106.00
|
|
|
|
9.7
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Outstanding December 31, 2020
|
|
|
1,360
|
|
|
$
|
106.00
|
|
|
|
8.7
|
|
|
Exercisable as of December 31, 2020
|
|
|
873
|
|
|
$
|
106.00
|
|
|
|
8.7
|
|
The
Company did not grant any options during the year ended December 31, 2020, and granted 1,360 options during the year ended December 31,
2019. There were no options exercised in 2019 or 2020. As of December 31, 2020 there are 1,360 shares outstanding and 873 shares are
exercisable. The aggregate intrinsic value of all outstanding stock options was $0.0 million as of December 31, 2020.
Total
stock-based compensation expense associated with stock options related to continuing operations recognized in our Consolidated Statements
of Operations for the years ended December 31, 2020 and 2019 was $0.0 million. As of December 31, 2020, unrecognized compensation
expense related to outstanding stock options was immaterial.
No
related stock-based compensation was capitalized as part of an asset for the years ended December 31, 2020 or 2019.
Restricted
Stock
The
following table summarizes our restricted stock activity:
|
|
|
Restricted
Stock
|
|
|
Weighted
Average Grant Date Fair Value Per Share
|
|
|
Nonvested as of December 31, 2018
|
|
|
150
|
|
|
$
|
1,406.00
|
|
|
Vested
|
|
|
(75
|
)
|
|
|
1,406.00
|
|
|
Forfeited
|
|
|
(75
|
)
|
|
|
1,406.00
|
|
|
Nonvested as of December 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
Nonvested as of December 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
No
shares of restricted stock were granted during the years ended December 31, 2019 or 2020.
The
total fair value of shares that vested during the years 2020 and 2019 was $0.0 million and $0.1 million, respectively.
Total
stock-based compensation expense associated with restricted stock relating to continuing operations recognized in our Consolidated Statements
of Operations for the years ended December 31, 2020 and 2019 was $0.0 million. As of December 31, 2020, the Company does not
have any outstanding restricted stock or related unrecognized compensation expense.
No
related stock-based compensation was capitalized as part of an asset for the years ended December 31, 2020 or 2019.
Note 11 — Retirement Plans
Pension
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 Seller’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 will be deemed to have released all Controlled Group Members from the
Lien as of January 6, 2020.
Note
12 — Income Taxes
The
components of income (loss) from continuing operations before income taxes were as follows:
|
|
|
Years
Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(In millions)
|
|
|
U.S.
|
|
$
|
(63.6
|
)
|
|
$
|
11.4
|
|
|
International
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
(63.6
|
)
|
|
$
|
11.4
|
|
The
components of the income tax (provision) benefit from continuing operations were as follows:
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
|
(In
millions)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
International
|
|
|
—
|
|
|
|
—
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
International
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
The
income tax provision from continuing operations differs from the amount computed by applying the statutory United States income tax rate
(21 percent) because of the following items:
|
|
|
Years
Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(In millions)
|
|
|
Tax at statutory U.S. tax rate
|
|
$
|
(13.3
|
)
|
|
$
|
2.4
|
|
|
State income taxes, net of federal benefit
|
|
|
(2.5
|
)
|
|
|
0.5
|
|
|
Valuation allowances
|
|
|
(4.5
|
)
|
|
|
(28.6
|
)
|
|
Goodwill impairment
|
|
|
10.6
|
|
|
|
—
|
|
|
Pension and debt forgiveness
|
|
|
9.7
|
|
|
|
—
|
|
|
Tax on unremitted earnings of foreign subsidiaries
|
|
|
—
|
|
|
|
(0.4
|
)
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
0.3
|
|
|
Net effect of subsidiary sale
|
|
|
—
|
|
|
|
25.0
|
|
|
Reclassification to
discontinued operations and other
|
|
|
—
|
|
|
|
0.8
|
|
|
Income tax (provision)
benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
The
2020 tax law change that had the most significant impact was in the CARES Act, which accelerated the refund schedule for alternative
minimum tax credit carryovers. The Company had recorded a tax benefit of $2.2 million in 2017-2018 which was originally scheduled to
be received as cash refunds in 2019 through 2022. The CARES Act allowed the Company to file a refund claim for the entire remaining balance
of $0.6 million which was received (with interest) in February 2021.
Tax
laws require certain items to be included in our tax returns at different times than the items are reflected in our results of operations.
Some of these items are temporary differences that will reverse over time. We record the tax effect of temporary differences as deferred
tax assets and deferred tax liabilities in our Consolidated Balance Sheets.
In
2020 and 2019 the net cash paid for income taxes, relating to both continuing and discontinued operations, was $0.0 million and $0.0
million, respectively.
The
components of net deferred tax assets and liabilities were as follows:
|
|
|
As
of December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(In millions)
|
|
|
Tax credit carryforwards
|
|
|
20.3
|
|
|
|
21.4
|
|
|
Net operating loss carryforwards
|
|
|
134.2
|
|
|
|
144.1
|
|
|
Accrued liabilities and other reserves
|
|
|
0.1
|
|
|
|
—
|
|
|
Pension
|
|
|
—
|
|
|
|
3.4
|
|
|
Capital losses
|
|
|
33.1
|
|
|
|
26.9
|
|
|
Other, net
|
|
|
44.2
|
|
|
|
40.6
|
|
|
Total deferred tax assets
|
|
|
231.9
|
|
|
|
236.4
|
|
|
Valuation allowance
|
|
|
(231.9
|
)
|
|
|
(236.4
|
)
|
|
Net deferred tax assets
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Unremitted earnings
of foreign subsidiaries
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
Total deferred tax liabilities
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
Valuation allowance
|
|
|
—
|
|
|
|
—
|
|
|
Total deferred tax liabilities
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
Net deferred tax liabilities
|
|
$
|
(0.2
|
)
|
|
$
|
(0.2
|
)
|
We
regularly assess the likelihood that our deferred tax assets will be recovered in the future. A valuation allowance is recorded to the
extent we conclude a deferred tax asset is not considered more-likely-than-not to be realized. We consider all positive and negative
evidence related to the realization of the deferred tax assets in assessing the need for a valuation allowance.
Our
accounting for deferred tax consequences represents our best estimate of future events. A valuation allowance established or revised
as a result of our assessment is recorded through income tax provision in our Consolidated Statements of Operations. Changes in our current
estimates due to unanticipated events, or other factors, could have a material effect on our financial condition and results of operations.
We
maintain a valuation allowance related to our deferred tax assets. The valuation allowance was $231.9 million and $236.4 million
as of December 31, 2020 and 2019, respectively. The deferred tax asset changes and corresponding valuation allowance changes in 2020
compared to 2019 were due primarily to a decrease in net operating loss carryovers.
The
net deferred tax liability not offset by valuation allowance of $0.2 million relates to foreign tax withholding on unremitted foreign
earnings.
The
table below shows the components of our deferred tax balances as they are recorded on our Consolidated Balance Sheets:
|
|
|
As
of December 31
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(In millions)
|
|
|
Deferred
tax liability - non-current
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
Total
|
|
$
|
(0.2
|
)
|
|
$
|
(0.2
|
)
|
Federal
net operating loss carryforwards totaling $594.0 million will begin expiring in 2029. The Company’s $584.0 million in federal
net operating loss carryforwards generated through 2017 continue to be subject to historical tax rules that allow carryforward for 20
years from origin, with the ability to offset 100 percent of future taxable income. Subsequent year tax losses have an indefinite life.
The
Company performed an analysis to confirm that none of the federal net operating loss carryovers should be limited by Section 382.
This limitation could result if there is a more than 50 percent ownership shift in the GlassBridge shares within a three-year testing
period. No such ownership shift has occurred through December 31, 2020.
However,
on the Effective Date of AEC’s prepackaged chapter 11 plan of reorganization, 100% of the equity in AEC, as reorganized, was issued
to ESW and its affiliate ESW Capital LLC. Accordingly, the deferred tax assets resulting from AEC’s standalone net operating losses
effectively became an asset of ESW and its affiliate, ESW Capital LLC, as of June 15, 2021, reducing GlassBridge’s federal net
operating loss carryforwards from $594.0 million to $158.8 million as a result of the reorganization. See Note 8 – Debt
for additional information regarding the ESW Loan Agreement.
We
have state income tax loss carryforwards of $156.0 million, which will expire at various dates up to 2037. GlassBridge’s state
loss carryforwards would be reduced to approximately $42 million after a 2021 AEC reorganization. GlassBridge has U.S. and foreign
tax credit carryforwards of $20.3 million, $16.6 million of which will expire between 2021 and 2023, and the remainder of which will
expire between 2024 and 2033. Federal capital losses of $132.3 million will expire between 2021 and 2025.
Our
income tax returns are subject to review by various U.S. and foreign taxing authorities. As such, we record accruals for items that we
believe may be challenged by these taxing authorities. The threshold for recognizing the benefit of a tax return position in the financial
statements is that the position must be more-likely-than-not to be sustained by the taxing authorities based solely on the technical
merits of the position. If the recognition threshold is met, the tax benefit is measured and recognized as the largest amount of tax
benefit that, in our judgment, is greater than 50 percent likely to be realized.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(In Millions)
|
|
|
Beginning Balance
|
|
$
|
0.2
|
|
|
$
|
0.6
|
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
Additions for tax positions
of current years
|
|
|
—
|
|
|
|
—
|
|
|
Additions for tax positions
of prior years
|
|
|
—
|
|
|
|
—
|
|
|
Reductions:
|
|
|
|
|
|
|
|
|
|
Reductions for tax positions
of prior years
|
|
|
—
|
|
|
|
(0.4
|
)
|
|
Settlements with taxing
authorities
|
|
|
—
|
|
|
|
—
|
|
|
Reductions due to lapse
of statute of limitations
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
|
0.2
|
|
|
|
0.2
|
|
Our
federal income tax returns for 2017 through 2020 are subject to examination by the Internal Revenue Service. For state purposes, the
statutes of limitation vary by jurisdiction. With few exceptions, we are no longer subject to examination for years before 2014.
Note
13 — Shareholders’ Equity
Reverse
Stock Split
On
August 20, 2019, the Company filed an Amendment (the “Amendment”) to the Restated Certificate of Incorporation, as amended,
of the Company (the “Articles”) with the Secretary of State of the State of Delaware to: (i) effect a reverse split of our
common stock at a ratio of 1:200 (the “Reverse Stock Split”) and (ii) effect an amendment allowing the stockholders of the
Company to act by written consent in lieu of meeting, subject to certain limitations (the “Written Consent Amendment”).
On
August 21, 2019 (the “Effective Date”), our common stock began trading on the Reverse Stock Split-adjusted basis on the OTCQB
at the opening of trading. In connection with the Reverse Stock Split, our common stock began trading with a new CUSIP number at such
time. There was no change to the Company’s stock symbol.
No
fractional shares of common stock were issued in connection with the Reverse Stock Split. If, as a result of the Reverse Stock Split,
a stockholder would otherwise have held a fractional share, a stockholder, in lieu of the issuance of such fractional share, was entitled,
upon surrender to the exchange agent of a certificate(s) representing its pre-split shares or upon conversion of its shares held in book-entry,
to receive a cash payment equal to the fraction to which the stockholder would otherwise be entitled, multiplied by $106, which is the
closing price per share (as adjusted to give effect to the Reverse Stock Split) on the OTCQB on the closing date immediately prior to
the Effective Date.
EQ
by Equiniti (“EQ”), the Company’s transfer agent, acted as the exchange agent for the Reverse Stock Split, and provided
instructions to stockholders of record regarding the process for exchanging shares. EQ issued all of the post-Reverse Stock Split shares
through its paperless Direct Registration System (“DRS”).
Treasury
Stock
On
November 14, 2016, our Board authorized a share repurchase program under which we may repurchase up to 2,500 shares of our outstanding
shares of common stock. 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.
Since
the inception of the November 14, 2016 authorization, we have repurchased 780 shares of common stock for $0.3 million and, as of December 31,
2020, we had authorization to repurchase 1,720 additional shares.
During
the year ended December 31, 2020, the Company did not purchase any treasury shares. During the year ended 2019, the Company purchased
450 treasure shares for $28,434. The treasury stock held as of December 31, 2020 was acquired at an average price of $8,496.47 per
share. The following is a summary of treasury share activity:
|
|
|
Treasury
Shares
|
|
|
Balance as of December 31, 2018
|
|
|
2,402
|
|
|
Purchases
|
|
|
450
|
|
|
Forfeitures
and other
|
|
|
75
|
|
|
Balance as of December 31, 2019
|
|
|
2,927
|
|
|
Purchases
|
|
|
—
|
|
|
Forfeitures
and other
|
|
|
—
|
|
|
Balance as of December 31, 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 loss, net of tax
|
|
|
20.6
|
|
|
Balance as of December 31, 2020
|
|
$
|
—
|
|
Details
of amounts reclassified from Accumulated other comprehensive loss and the line item in our Consolidated Statement of Operations for the
year ended December 31, 2020 are as follows:
|
|
|
Amounts
Reclassified
from Accumulated
Other
Comprehensive
Loss
|
|
|
Affected
Line Item in the Statement Where Net Loss is Presented
|
|
|
|
|
(In
millions)
|
|
|
|
|
Reclassification
of pension liability, net of taxes
|
|
|
20.6
|
|
|
Other
Income (Expense)
|
|
Total reclassifications
for the period
|
|
$
|
20.6
|
|
|
|
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 Consolidated Statements of Comprehensive Income (Loss).
Non-Controlling
Interest
On
October 1, 2019, the Company sold to Orix 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 of Adara to the Company in total principal amount
of $13,000,000 (the “Orix Transaction”). Adara issued the notes in consideration for the assignment by the Company to Adara
of the right to receive payments from IMN Capital described above and transfer by the Company to Adara of some of Company’s SportBLX
shares. In connection with the transaction, Adara’s Board of Directors was expanded to five directors, including one director designated
by Orix. In addition, GlassBridge, Orix, and Adara entered into a Stockholders’ Agreement pursuant to which Orix may, among other
things, during the three months beginning April 1, 2021, sell back its Adara stock to GlassBridge, at book value, and, during the term
of the Stockholders Agreement, has the right to purchase all or a portion of GlassBridge’s Adara shares, at book value plus 20%,
subject to GlassBridge’s right to respond to the notice by purchasing all of Orix’s Adara shares at that price. The Company
repurchased the Adara shares, and these arrangements terminated, in connection with the July 21, 2020 transactions described in Note
8.
382
Rights Agreement
On
August 6, 2015, the Board of Directors adopted a rights plan intended to avoid an “ownership change” within the meaning of
Section 382 of the Code, and thereby preserve the current ability of the Company to utilize certain net operating loss carryforwards
and other tax benefits of the Company and its subsidiaries (the “Tax Benefits”). If the Company experiences an “ownership
change,” as defined in Section 382 of Code, the Company’s ability to fully utilize the Tax Benefits on an annual basis will
be substantially limited, and the timing of the usage of the Tax Benefits and such other benefits could be substantially delayed, which
could therefore significantly impair the value of those assets. The rights plan is intended to act as a deterrent to any person or group
acquiring “beneficial ownership” of 4.9% or more of the Company’s outstanding shares of common stock, without the approval
of the Board. The description and terms of the Rights (as defined below) applicable to the rights plan are set forth in the 382 Rights
Agreement, dated as of August 7, 2015 (the “Rights Agreement”), by and between the Company and Wells Fargo Bank, N.A., as
Rights Agent.
As
part of the Rights Agreement, the Board authorized and declared a dividend distribution of one right (a Right) for each outstanding share
of the Company’s common stock, to stockholders of record at the close of business on September 10, 2015. Each Right entitles the
holder to purchase from the Company a unit consisting of one one-hundredth of a share (a “Unit”) of Series A Participating
Preferred Stock, par value $0.01 per share, of the Company (the “Preferred Stock”) at a purchase price of $15.00 per Unit,
subject to adjustment (the “Purchase Price”). Until a Right is exercised, the holder thereof, as such, will have no separate
rights as a stockholder of the Company, including the right to vote or to receive dividends in respect of Rights.
Under
the Rights Agreement, an Acquiring Person is any person or group of affiliated or associated persons (a “Person”) who is
or becomes the beneficial owner of 4.9% or more of the outstanding shares of the Company’s common stock other than as a result
of repurchases of stock by the Company, dividends or distribution by the Company, stock issued under certain benefit plans or certain
inadvertent actions by stockholders. For purposes of calculating percentage ownership under the Rights Agreement, outstanding shares
of the Company’s common stock include all of the shares of common stock actually issued and outstanding. Beneficial ownership is
determined as provided in the Rights Agreement and generally includes, without limitation, any ownership of securities a Person would
be deemed to actually or constructively own for purposes of Section 382 of the Code or the Treasury Regulations promulgated thereunder.
The Rights Agreement provides that the following shall not be deemed an Acquiring Person for purposes of the Rights Agreement: (i) the
Company or any subsidiary of the Company and any employee benefit plan of the Company, or of any subsidiary of the Company, or any Person
or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan or (ii) any Person that, as
of August 7, 2015, is the beneficial owner of 4.9% or more of the shares of Common Stock outstanding (such Person, an “Existing
Holder”) unless and until such Existing Holder acquires beneficial ownership of additional shares of common stock (other than pursuant
to a dividend or distribution paid or made by the Company on the outstanding shares of common stock or pursuant to a split or subdivision
of the outstanding shares of common stock) in an amount in excess of 0.5% of the outstanding shares of common stock.
The
Rights Agreement provides that a Person shall not become an Acquiring Person for purpose of the Rights Agreement in a transaction that
the Board determines is exempt from the Rights Agreement, which determination shall be made in the sole and absolute discretion of the
Board, upon request by any Person prior to the date upon which such Person would otherwise become an Acquiring Person, including, without
limitation, if the Board determines that (i) neither the beneficial ownership of shares of common stock by such Person, directly or indirectly,
as a result of such transaction nor any other aspect of such transaction would jeopardize or endanger the availability to the Company
of the Tax Benefits or (ii) such transaction is otherwise in the best interests of the Company.
Initially,
the Rights will not be exercisable and will be attached to all common stock representing shares then outstanding, and no separate Rights
certificates will be distributed. Subject to certain exceptions specified in the Rights Agreement, the Rights will separate from the
common stock and become exercisable and a distribution date (a “Distribution Date”) will occur upon the earlier of (i) 10
business days (or such later date as the Board shall determine) following a public announcement that a Person has become an Acquiring
Person or (ii) 10 business days (or such later date as the Board shall determine) following the commencement of a tender offer, exchange
offer or other transaction that, upon consummation thereof, would result in a Person becoming an Acquiring Person.
Until
the Distribution Date, common stock held in book-entry form, or in the case of certificated shares, common stock certificates, will evidence
the Rights and will contain a notation to that effect. Any transfer of shares of common stock prior to the Distribution Date will constitute
a transfer of the associated Rights. After the Distribution Date, the Rights may be transferred on the books and records of the Rights
Agent as provided in the Rights Agreement.
If
on or after the Distribution Date, a Person is or becomes an Acquiring Person, each holder of a Right, other than certain Rights including
those beneficially owned by the Acquiring Person (which will have become void), will have the right to receive upon exercise common stock
(or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the Purchase Price.
In
the event that, at any time following the first date of a public announcement that a Person has become an Acquiring Person or that discloses
information which reveals the existence of an Acquiring Person or such earlier date as a majority of the Board becomes aware of the existence
of an Acquiring Person (any such date, the Stock Acquisition Date), (i) the Company engages in a merger or other business combination
transaction in which the Company is not the surviving corporation, (ii) the Company engages in a merger or other business combination
transaction in which the Company is the surviving corporation and the common stock of the Company is changed or exchanged or (iii) 50%
or more of the Company’s assets, cash flow or earning power is sold or transferred, each holder of a Right (except Rights which
have previously been voided as set forth above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring
company having a value equal to two times the Purchase Price.
At
any time following the Stock Acquisition Date and prior to an Acquiring Person obtaining shares that would lead to a more than 50% change
in the outstanding common stock, the Board may exchange the Rights (other than Rights owned by such Person which have become void), in
whole or in part, for common stock or Preferred Stock at an exchange ratio of one share of common stock, or one one-hundredth of a share
of Preferred Stock (or of a share of a class or series of the Company’s preferred stock having equivalent rights, preferences and
privileges), per Right, subject to adjustment.
The
Rights and the Rights Agreement will expire on the earliest of (i) 5:00 P.M. New York City time on August 7, 2021, which was extended
by stockholder approval on June 18, 2018, pursuant to a Resolution of the Board of Directors at its Meeting on April 13, 2018, (ii) the
time at which the Rights are redeemed or exchanged pursuant to the Rights Agreement, (iii) the date on which the Board determines that
the Rights Agreement is no longer necessary for the preservation of material valuable Tax Benefits or is no longer in the best interest
of the Company and its stockholders, (iv) the beginning of a taxable year to which the Board determines that no Tax Benefits may be carried
forward and (v) the first anniversary of the adoption of the Agreement if stockholder approval has not been received by or on such date.
At
any time until the earlier of the Distribution Date or the expiration date of the Rights, the Company may redeem the Rights in whole,
but not in part, at a price of $0.001 per Right. Immediately upon the action of the Board ordering redemption of the Rights, the Rights
will terminate and the only right of the holders of Rights will be to receive the $0.001 redemption price.
Note
14 — Business Segment Information and Geographic Data
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 5 - Discontinued Operations for further information about these
divestitures.
As
of December 31, 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 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.
|
|
|
Years
Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(In millions)
|
|
|
Operating income (loss)
from continuing operations
|
|
|
|
|
|
|
|
|
|
Asset management
business
|
|
$
|
(5.2
|
)
|
|
$
|
0.1
|
|
|
Sports
technology platform
|
|
|
(44.0
|
)
|
|
|
(0.2
|
)
|
|
Total segment operating loss
|
|
|
(49.2
|
)
|
|
|
(0.1
|
)
|
|
Corporate and unallocated
|
|
|
(1.5
|
)
|
|
|
(3.2
|
)
|
|
Restructuring and other
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
Total operating loss
|
|
|
(50.7
|
)
|
|
|
(3.4
|
)
|
|
Interest expense
|
|
|
(2.6
|
)
|
|
|
(0.3
|
)
|
|
Realized losses on investments
|
|
|
(1.9
|
)
|
|
|
—
|
|
|
Defined benefit plan adjustment
|
|
|
(8.5
|
)
|
|
|
—
|
|
|
Other income (expense),
net
|
|
|
0.1
|
|
|
|
15.1
|
|
|
Income
(loss) from continuing operations before income taxes
|
|
$
|
(63.6
|
)
|
|
$
|
11.4
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Asset management
business
|
|
$
|
15.8
|
|
|
$
|
16.8
|
|
|
Sports
technology platform
|
|
|
8.4
|
|
|
|
50.8
|
|
|
Total segment assets
|
|
|
24.2
|
|
|
|
67.6
|
|
|
Corporate and unallocated
|
|
|
1.2
|
|
|
|
8.8
|
|
|
Total
consolidated assets
|
|
$
|
25.4
|
|
|
$
|
76.4
|
|
Note
15 — Litigation, Commitments and Contingencies
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 December 31, 2020, and 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 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 December 31, 2020. Compliance with environmental regulations has not had a material adverse
effect on our financial results.
Operating
Leases
The
Company does not have any long-term lease obligations as of December 31, 2020.
Note
16 - 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 December 31, 2020, the Company paid Clinton $2,400,000 under the Amended Services Agreement and the Management Service Agreement,
recorded $312,500 and $1,170,833 within “Selling, general and administrative” in our Consolidated Statements of Operations
for the twelve months ended December 31, 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 31.1% 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
bore interest at a 10% annual rate and was to mature November 15, 2020 (the “Note”). CSO’s obligations under the loan
were 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. In July 2020, the facility was terminated, and the Fund’s obligation of $500,000 principal amount
and accrued interest thereunder were set off against the Company’s interest obligation under the promissory note to Mr. Hall referred
to in the preceding paragraph.
On
June 5, 2020, SportBLX entered into a subscription agreement (the “Securities Subscription”) with S-BLX 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 December 31, 2020, SportBLX invoiced
approximately $500,000 in fees to S-BLX Securities under the Securities Subscription which was recorded as revenue and had
been collected as of December 31, 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 December 31, 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 December 31, 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 December 31, 2020
SportBLX borrowed $213,793 under the Demand Note-6 which was offset by amounts owed to SportBLX.
On
October 1, 2019, the Company sold to 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 of Adara Enterprises, Inc. to the Company in total principal amount of $13,000,000. In
July 2020, an Adara wholly owned subsidiary assumed the obligations under the notes, and the subsidiary was sold to GEH Sport LLC,
wholly owned by Mr. Hall, for $1.00, after the subsidiary had distributed to Adara all of the subsidiary’s assets, except for
its general partnership interest in The Sports & Entertainment Fund, L.P. and the related commodities pool operator registration
and $1,790,000 in cash.
On
July 20, 2020, pursuant to a Software Assignment Agreement, 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.
In
connection with the closing of certain transactions in the third quarter of 2020, 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.
On
August 1, 2020, the Company entered into a Management Services Agreement (“the Agreement”) to provide certain back
office services, including accounting, treasury, payroll and benefits and other administration services to S-BLX Securities. The agreement
has a six month initial term and will automatically renew for successive renewal terms of three months unless either party provides notice
of nonrenewal. In exchange for the services, S-BLX Securities will pay the Company at a rate of $15,000 each month. As of December 31,
2020, the Company has not provided any significant services or billed S-BLX Securities under the agreement and does not have
any related outstanding receivables.
On
December 30, 2020, SportBLX paid $40,000 to Mr. Hall for the temporary use of office space during the Covid-19 pandemic.
As
of December 31 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 Consolidated Financial Statements.
The
compensation for the Board of Directors of GlassBridge for their board services totaled $655,000 and $232,905 for the years Ended December
31, 2020 and 2019, respectively.
The
non-wage compensation for the officers of GlassBridge for their services totaled $505,000 for the year ended December 31, 2019. There
was no non-wage compensation for the officers of GlassBridge for their services for the Year Ended December 31, 2020.
Note
17 – Subsequent Events
In
January 2021, Adara received notice from ESW that Adara had defaulted on its obligation to pay at maturity $11,000,000 in principal and
all other amounts due to ESW under the ESW Loan Agreement. Pursuant to the Loan Agreement, AEC gave to ESW a security interest in all
of AEC’s assets, and GlassBridge pledged to ESW all of GlassBridge’s AEC stock and 30% of GlassBridge’s SportBLX stock.
The Loan Agreement provides that, upon AEC’s default, AEC may elect to cooperate with ESW to effect a prearranged reorganization
of AEC in bankruptcy, pursuant to which ESW acquires from GlassBridge all equity in AEC and certain of its assets, most notably property
and equipment consisting of quantitative trading software, as well as deferred tax assets resulting from net operating losses, which
amount would be used to satisfy the claims of all valid creditors and certain administrative expenses associated with the bankruptcy
case, with all residual funds to be paid to GlassBridge. On April 22, 2021, AEC filed a voluntary petition for relief under chapter 11
of the United States Bankruptcy Code in the Bankruptcy Court for the District of Delaware. AEC’s prepackaged chapter 11 plan of
reorganization was confirmed at a hearing on June 9, 2021 and became effective on June 15, 2021 (the “Effective Date”). Upon
the occurrence of the Effective Date, ESW paid $8.5 million in consideration, less $325,000 that ESW had previously funded in the form
of a postpetition debtor-in-possession loan to AEC to fund the costs of administration associated with AEC’s bankruptcy case. Also
on the Effective Date, 50% of the equity in reorganized AEC was issued to ESW, and the other 50% of the equity in reorganized AEC was
issued to ESW’s affiliate, ESW Capital LLC. Finally, on the Effective Date, GlassBridge received a release of its guaranty obligations
to ESW as well as a license to use AEC’s quantitative trading software in connection with the sports industry. The license is world-wide,
non-exclusive, transferable, assignable, perpetual, irrevocable, fully-paid, royalty-free and sublicensable, subject to certain limitations
and conditions.
On
May 20, 2021, the Company received notice from OTCMarkets that, because we had not yet filed Form 10-K for 2020, quotation of the Company’s
shares would be moved from the OTCQB market to Pink at market open on May 21, 2021. Upon the filing of this Form 10-K and our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2021, the Company will seek to restore quotation of the Company’s shares to
the OTCQB market.
On
June 30, 2021, the Company received notice that the $0.4 million Bank Loan from Signature Bank pursuant to the Paycheck Protection Program
was forgiven in full.
