NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 — Background and Basis of Presentation
Background
GlassBridge
Enterprises, Inc. owns and operates an asset management business through various 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.
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.
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 Enterprises, Corp. (“Adara” or “AEC”) 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
January 2021, Adara 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 had given
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 Sport-BLX, Inc. (“SportBLX”) stock. The Loan Agreement provided 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 would acquire from
GlassBridge all equity in AEC, as reorganized, 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 post-petition
debtor-in-possession loan to AEC to fund the costs of administration associated with AEC’s bankruptcy case and to satisfy valid
creditor claims Also on the Effective Date, by order of the Bankruptcy Court, GlassBridge shares of AEC were canceled, and shares in
reorganized AEC were issued to ESW and an affiliate. In addition, on the Effective Date, GlassBridge received a release of its guaranty
obligations to ESW.
The
Company received a distribution from the bankruptcy estate of $2,017,238, in September 2021, and final, additional distributions totaling
$4,577,465 in December 2021. The total amount distributed to the Company from the bankruptcy estate was $6,594,703. As of December 31,
2021, there are no funds remaining in the bankruptcy estate.
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.
On
December 30, 2021 the Company completed the disposition of its entire interest in SportBLX, selling all of its shares to Fintech Debt
Corp (“FDC”) for $137,038. FDC is controlled by George E. Hall and Joseph A. De Perio, who are beneficial owners of the Company.
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 the Sports Technology Platform, 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”
as well as corporate expenses and activities not directly attributable to the Sports Technology Platform. Assets and liabilities directly
associated with the Sports Technology Platform 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 4 - 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, 2021, and
December 31, 2020, we had $0.0 million and $0.5 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 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 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 8 - 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 was effective as of January 1, 2021. There was no impact to the Company as it terminated and settled
its only remaining plan in 2019.
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:
Schedule
of computation of Weighted Average Basic and Diluted Income (Loss) Per Share
| | |
2021 | | |
2020 | |
| | |
Years
Ended December 31, | |
| | |
2021 | | |
2020 | |
| | |
(In
millions, except share and per
share
amounts) | |
| Numerator: | |
| | |
| |
| Income
(loss) from continuing operations | |
$ | 13.0 | | |
$ | (19.6 | ) |
| Loss
from discontinued operations, net of income taxes | |
| (0.7 | ) | |
| (42.7 | ) |
| Gain
on sale and deconsolidation of discontinued business, net of income taxes | |
| 16.7 | | |
| — | |
| Net
income (loss) | |
$ | 29.0 | | |
$ | (62.3 | ) |
| Denominator: | |
| | | |
| | |
| Weighted
average number of diluted shares outstanding during the period - basic and diluted (in thousands) | |
| 25.4 | | |
| 25.2 | |
| | |
| | | |
| | |
| Income
(loss) per common share attributable to GlassBridge common shareholders — basic and diluted: | |
| | | |
| | |
| Continuing
operations | |
$ | 511.81 | | |
$ | (782.16 | ) |
| Discontinued
operations | |
| 629.92 | | |
| (1,690.61 | ) |
| Net
income | |
$ | 1,141.73 | | |
$ | (2,472.77 | ) |
| Anti-dilutive
shares excluded from calculation | |
| — | | |
| — | |
Note
4 — Discontinued Operations
The
Sports Technology Platform
On
December 30, 2021, the Company completed a series of transactions for the purpose of disposing of its interest in SportBLX, as
described below:
| |
● |
On
December 21, 2021, SportBLX sold proprietary code to S-BLX Securities, a related party, for $225,000. |
| |
|
|
| |
● |
On
December 24, 2021, SportBLX repurchased $1,500,000 of
its debt from FDC, a related party, for $126,000.
FDC is controlled by George E. Hall and Joseph A. De Perio, who are beneficial owners of the Company. |
| |
|
|
| |
● |
Finally,
on December 30, 2021, the Company completed the disposition of its entire interest in SportBLX, selling all of its shares to FDC for
$137,038. |
As
a result of these transactions, the Company recorded a net gain on the sale and deconsolidation of SportBLX of $16.7
million for the year ended December 31, 2021,
the components of which are described in the table below.
Schedule
of Discontinued Operations
| | |
(in millions) | |
| Sale of proprietary code to S-BLX Securities | |
$ | 0.2 | |
| Gain on repurchase of SportBLX debt from FDC | |
| 1.4 | |
| Sale of SportBLX to FDC | |
| | |
| Proceeds | |
| 0.1 | |
| Basis in SportBLX | |
| 1.3 | |
| Goodwill | |
| (8.3 | ) |
| Non-controlling interest | |
| 22.0 | |
| Net gain on the sale and deconsolidation of SportBLX | |
| 16.7 | |
Results
of Discontinued Operations
The
operating results for the Sports Technology Platform 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:
Schedule of Key Components of Discontinued Operations
| | |
2021 | | |
2020 | |
| | |
For
the Years Ended
December
31, | |
| | |
2021 | | |
2020 | |
| | |
(In
millions) | |
| Net
revenue | |
| — | | |
| 0.5 | |
| Operating
expenses: | |
| | | |
| | |
| Selling,
general and administrative | |
| 1.1 | | |
| 2.2 | |
| Impairment
of goodwill | |
| — | | |
| 42.3 | |
| Restructuring
and other | |
| (0.6 | ) | |
| (1.3 | ) |
| Total
operating expenses | |
| 0.5 | | |
| 43.2 | |
| Operating
loss from discontinued operations | |
| (0.5 | ) | |
| (42.7 | ) |
| Other
expense: | |
| | | |
| | |
| Interest
expense | |
| (0.2 | ) | |
| — | |
| Total
other expense | |
| (0.2 | ) | |
| — | |
| Loss
from discontinued operations, before income taxes | |
| (0.7 | ) | |
| (42.7 | ) |
| Gain
on sale and deconsolidation of discontinued business | |
| 16.7 | | |
| — | |
| Income
tax | |
| — | | |
| — | |
| Income
(loss) from discontinued operations, net of income taxes | |
$ | 16.0 | | |
$ | (42.7 | ) |
For
the year ended December 31, 2020, loss from discontinued operations primarily relates to the impairment of goodwill. 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.
Restructuring
and other includes the net loss attributable to the noncontrolling interest of $0.6 million for the year ended December 31, 2021 and
$1.3 million or the year ended 0.4December 31, 2020. These amounts were reclassified to discontinued operations due to the sale of the Sports
Technology Platform in the period ending December 31, 2021.
The
income tax benefit related to discontinued operations was $0.0 million for the years ended December 31, 2021 and 2020, respectively.
See Note 10 - Income Taxes for additional information.
Non-current
assets of discontinued operations of $8.4 million as of December 31, 2020, consisted primarily of goodwill. Current liabilities of discontinued
operations of $1.3 million as of December 31, 2020, included trade payables of $0.6 million, accrued payroll of $0.4 million and related
party notes payable of $0.2 million.
Note
5 — Supplemental Balance Sheet Information
Additional
supplemental balance sheet information is provided below.
Other
current assets were $0.0 million as of December 31, 2021. Other current assets of $1.0 million as of December 31, 2020, consisted of
restricted cash of $0.5 million and a minimum tax refund that was received in the first quarter of 2021.
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 14 – 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.
Total
assets of as of December 31, 2021 and 2020 include a $12.8 million investment in Arrive. 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, 2021, there were no indicators of impairment for this investment. The
Company will assess the investment for potential impairment, quarterly.
Other
assets of $0.2 and $0.3 million as of December 31, 2021 and 2020, respectively, include a separate investment in Arrive.
Other
current liabilities (included as a separate line item in our Consolidated Balance Sheets) include the following:
Schedule of Other Current Liabilities
| | |
2021 | | |
2020 | |
| | |
December
31, | |
| | |
2021 | | |
2020 | |
| | |
(In
millions) | |
| Accrued
payroll | |
$ | 0.2 | | |
$ | 0.1 | |
| Other
current liabilities | |
| 0.2 | | |
| 1.2 | |
| Total
other current liabilities | |
$ | 0.4 | | |
$ | 1.3 | |
Other
current liabilities, as of December 31, 2021, include insurance and corporate liability accruals.
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.
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 6 – Debt
and Note 14 – Related Party Transactions for additional information.
As
of December 31, 2020, the Company had a note payable of $11.0 million to ESW and a $0.4 million bank loan from Signature Bank (“Bank
Loan”) pursuant to the Paycheck Protection Program (the “PPP”). See Note 6 – Debt for additional information
on the ESW note payable and the Bank Loan.
Note
6 — Debt
Debt
and notes payable consists of the following:
Schedule of Debt and Notes Payable
| | |
2021 | | |
2020 | |
| | |
Years
Ended December 31, | |
| | |
2021 | | |
2020 | |
| | |
(In
millions) |
| GHI
LLC note payable | |
$ | 3.4 | | |
$ | — | |
| Stock
purchase agreement notes payable (see Note 14 – Related Party Transactions) | |
| — | | |
| 17.6 | |
| ESW
note payable | |
| — | | |
| 11.0 | |
| Bank
loan | |
| — | | |
| 0.4 | |
| Other
related parties notes payable | |
| — | | |
| 0.2 | |
| Other
liabilities | |
| 0.2 | | |
| 0.2 | |
| Total
long term debt | |
| 3.6 | | |
| 29.4 | |
The
Company entered into a Term Loan and Security Agreement (“GHI Loan Agreement”) with Gazellek Holdings I, LLC (“GHI
LLC”), pursuant to which GHI LLC lent $3,450,000 to the Company on August 6, 2021. The loan bears in-kind interest at the annual
rate of 7% and interest is compounded with, and added to the outstanding amount quarterly. The loan is secured by substantially all of
the Company’s assets and those of all of its subsidiaries, which are required to guarantee the loan, and matures August 2, 2024.
The
Company is required to prepay the loan upon receiving proceeds from future indebtedness exceeding $5,000,000 (other than indebtedness
that is junior to the loan), or if the Company issues any capital stock (provided that the Company is allowed to retain up to 20% of
the proceeds from such issuance). The GHI Loan Agreement contains customary representations and warranties, covenants and events of default.
Upon the occurrence of an event of default, the loan bears interest at a rate 5% above of the then-effective interest rate and, at GHI
LLC’s option, is payable either in cash or in cash and shares of Company common stock, valued at market, equal to up to 10% of
the outstanding principal amount of the loan. A default fee equal to 0.5% of the outstanding principal applies if any default exists
for 10 days or more.
In
2019, the Company purchased from Messrs. Hall and De Perio, both of whom are related parties, shares of SportBLX common stock in exchange
for cash and promissory notes (the “Stock Purchase Agreement”). The 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”), a related party. See Note 14 – Related Party Transactions for more information.
On
July 31, 2021, Messrs. Hall and De Perio agreed to accept $2,354,736 and $1,060,264, respectively, from the Company in satisfaction of
its obligations to them under the notes, in the amounts of $12,116,718 and $5,455,782, respectively. Accordingly, the Company’s
obligations totaling $17.6 million under the Stock Purchase Agreement have been paid in full.
Also,
on July 31, 2021, as part of the settlement of the Stock Purchase Agreement, the Company assigned obligations owed to it from Sport-BLX,
totaling $4,176,102.11, to Fintech Debt Corp., of which Messrs. Hall and De Perio are controlling stockholders, for $400,000.
The
Company had multiple notes payable with Orix PTP Holdings, LLC (“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 to
Orix, 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 AEC 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 AEC, as described below.
The loan was 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, and AEC’s cash, shares of its subsidiaries, including Sport-BLX, Inc., and a right to
use AEC software and intellectual property in connection with the sports industry are distributed to the Company. In the agreement, ESW
agreed to provide $8.5 million to the bankruptcy estate to cover costs of administering the AEC bankruptcy case and to satisfy the claims
of valid creditors, with any residual funds to be paid to GlassBridge. 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 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, GlassBridge
received a release of its guaranty obligations to ESW.
In
connection with the Chapter 11 reorganization, the Company received $325,000 from ESW in the form of a debtor-in-possession loan. The
debtor-in-possession loan was included in the bankruptcy estate and not a liability of the Company.
On
May 5, 2020, the Company received funds under the Bank Loan from the Bank 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 Bank, 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 and, on June 30, 2021, received notice
that the Bank Loan was forgiven in full.
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 CSO 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 30, 2021, the date that the Company disposed of SportBLX, it had 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 demand
by Mr. De Perio or July 1, 2021. As of December 30, 2021, SportBLX borrowed $40,000 under the Demand Note-5.
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:
Schedule of Long-term Debt Maturities
| Fiscal
years ending in | |
(in
millions) | |
| 2022 | |
$ | 0.2 | |
| 2023 | |
| — | |
| 2024 | |
| 3.4 | |
| 2025 | |
| — | |
| 2026 | |
| — | |
| 2027
and thereafter | |
| — | |
| Total | |
| 3.6 | |
Note
7 — Restructuring and Other Expense
Restructuring
expenses generally include severance and related charges, lease termination costs and other costs related to restructuring programs.
Employee-related severance charges are largely based upon distributed employment policies and substantive severance plans. Generally,
these charges are reflected in the period in which the Board approves the associated actions, the actions are probable, and the amounts
are estimable which may occur prior to the communication to the affected employee(s). This estimate considers all information available
as of the date the financial statements are issued.
Restructuring
and other expense was $0.3 million and $0.0 million for the years ended December 31, 2021 and 2020, respectively. Restructuring expense
of $0.3 million for the year ended December 31, 2021, was attributable to post petition fees in connection with the bankruptcy and was
allocated to the asset management business.
Note
8 — Stock-Based Compensation
Stock
compensation consisted of the following:
Schedule of Stock-Based Compensation for Continuing Operations
| | |
2021 | | 2020 | |
| | |
Years
Ended December 31, | |
| | |
2021 | | 2020 | |
| | |
(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, 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, 2021, there were 1,360 outstanding stock-based compensation awards under the 2011 Incentive Plan. As of December 31,
2021, there were no shares available for grant under our 2011 Incentive Plan.
Stock
Options
The
following table summarizes our stock option activity:
Summary of Stock Option Activity
| | |
Stock
Options | | |
Weighted
Average Exercise Price | | |
Weighted
Average Remaining Contractual Life (Years) | |
| Outstanding
December 31, 2019 | |
| 1,360 | | |
$ | 106.00 | | |
| 9.7 | |
| Outstanding December
31, 2020 | |
| 1,360 | | |
$ | 106.00 | | |
| 8.7 | |
| Outstanding December
31, 2021 | |
| 1,360 | | |
$ | 106.00 | | |
| 7.7 | |
| Exercisable as of
December 31, 2021 | |
| 1,213 | | |
$ | 106.00 | | |
| 7.7 | |
The
Company did not grant any options during the year ended December 31, 2021 and 2020. There were no options exercised in 2020 or 2021.
As of December 31, 2021 there are 1,360 shares outstanding and 1,213 shares are exercisable. The aggregate intrinsic value of all outstanding
stock options was $0.0 million as of December 31, 2021.
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, 2021 and 2020 was $0.0 million. As of December 31, 2021, 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, 2021 or 2020.
Note
9 — 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, 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
10 — Income Taxes
The
components of income (loss) from continuing operations before income taxes were as follows:
Schedule of Loss from Continuing Operations Before Income Taxes
| | |
2021 | | |
2020 | |
| | |
Years
Ended December 31, | |
| | |
2021 | | |
2020 | |
| | |
(In
millions) | |
| U.S. | |
$ | 13.0 | | |
$ | (19.6 | ) |
| International | |
| — | | |
| — | |
The
components of the income tax (provision) benefit from continuing operations were as follows:
Schedule of Components of Income Tax Expense (Benefit)
| | |
| 2021 | | |
| 2020 | |
| | |
| Years
Ended December 31, | |
| | |
| 2021 | | |
| 2020 | |
| | |
| (In
millions) | |
| Current | |
| | | |
| | |
| Federal | |
$ | — | | |
$ | — | |
| International | |
| — | | |
| — | |
| Deferred | |
| | | |
| | |
| International | |
| — | | |
| — | |
| Total | |
$ | — | | |
$ | — | |
The
income tax provision differs from the amount computed by applying the statutory United States income tax rate
(21 percent) because of the following items:
Schedule of Income Tax Rate Reconciliation
| | |
2021 | | |
2020 | |
| | |
Years
Ended December 31, |
| | |
2021 | | |
2020 | |
| | |
(In
millions) | |
| Tax
at statutory U.S. tax rate | |
$ | 6.1 | | |
$ | (13.4 | ) |
| State
income taxes, net of federal benefit | |
| 1.2 | | |
| (2.5 | ) |
| Net
effect of subsidiary deconsolidations – Adara reorganization and SportBLX sale | |
| 67.4 | | |
| — | |
| Valuation
allowances | |
| (74.7 | ) | |
| (4.4 | ) |
| Goodwill
impairment | |
| — | | |
| 10.6 | |
| Pension
and debt forgiveness | |
| — | | |
| 9.7 | |
| 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
2021 and 2020 the net cash paid for income taxes, relating to both continuing and discontinued operations, was $0.0 million.
The
components of net deferred tax assets and liabilities were as follows:
Schedule of Deferred Tax Assets and Liabilities
| | |
2021 | | |
2020 | |
| | |
As of December 31, | |
| | |
2021 | | |
2020 | |
| | |
(In millions) | |
| Tax credit carryforwards | |
| 4.1 | | |
| 20.3 | |
| Net operating loss carryforwards | |
| 72.9 | | |
| 134.2 | |
| Accrued liabilities and other reserves | |
| — | | |
| 0.1 | |
| Intangible assets and investments | |
| 0.4 | | |
| — | |
| Capital losses | |
| 35.5 | | |
| 33.1 | |
| Other, net | |
| 44.3 | | |
| 44.2 | |
| Total deferred tax assets | |
| 157.2 | | |
| 231.9 | |
| Valuation allowance | |
| (157.2 | ) | |
| (231.9 | ) |
| 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 $157.2 million and $231.9 million as of
December 31, 2021 and 2020, respectively. The deferred tax asset changes and corresponding valuation allowance changes in 2021 compared
to 2020 were due primarily to a decrease in net operating loss carryovers when Adara Enterprises Corp and Sport-BLX Inc. left the group
during 2021, as a result of Chapter 11 reorganization and a sale, respectively.
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:
Schedule of Components of Deferred Tax Balances
| | |
2021 | |
2020 |
| | |
As
of December 31 |
| | |
2021 | |
2020 |
| | |
(In
millions) |
| Deferred
tax liability - non-current | |
| (0.2 | ) | |
| (0.2 | ) |
| Total | |
$ | (0.2 | ) | |
$ | (0.2 | ) |
Federal
net operating loss carryforwards totaling $303.7
million will begin expiring in 2029.
This net operating loss includes a $146 million worthless stock deduction for the 2021 Adara Chapter 11 reorganization which is being
reviewed. The
Company’s $142.1 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, 2021.
We
have federal capital losses of $142 million that will expire between 2022 and 2026. General business credits totaling $3.6 million will
expire between 2024 and 2032. Various state income tax losses and tax credits are also available to offset future profits in six states.
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:
Schedule of Unrecognized Tax Benefits Reconciliation
| | |
2021 | | |
2020 | |
| | |
(In
Millions) | |
| Beginning
Balance | |
$ | 0.2 | | |
$ | 0.2 | |
| Additions: | |
| | | |
| | |
| Additions
for tax positions of current years | |
| — | | |
| — | |
| Additions
for tax positions of prior years | |
| — | | |
| — | |
| Reductions: | |
| | | |
| | |
| Reductions
for tax positions of prior years | |
| — | | |
| — | |
| Settlements
with taxing authorities | |
| — | | |
| — | |
| Reductions
due to lapse of statute of limitations | |
| — | | |
| — | |
| Total | |
| 0.2 | | |
| 0.2 | |
Our
federal income tax returns for 2018 through 2021 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 2015.
Note
11 — Shareholders’ Equity
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, 2021, we had authorization to repurchase 1,720 additional shares.
During
the years ended December 31, 2021 and 2020, the Company did not purchase any treasury shares. The treasury stock held as of December
31, 2021 was acquired at an average price of $8,496.47 per share. The following is a summary of treasury share activity:
Schedule of Treasury Stock
| | |
Treasury Shares | |
| Balance as of December 31, 2019 | |
| 2,927 | |
| Purchases | |
| — | |
| Forfeitures and other | |
| — | |
| Balance as of December 31, 2020 | |
| 2,927 | |
| Purchases | |
| — | |
| Forfeitures and other | |
| — | |
| Balance as of December 31, 2021 | |
| 2,927 | |
Accumulated
Other Comprehensive Loss
Accumulated
other comprehensive loss was $0.0 million as of December 31, 2021 and 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:
Schedule of Reclassification Out of Accumulated Other Comprehensive Loss
| | |
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 July 21, 2020.
382
Rights Agreement
On
November 30, 2021, 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 December 1, 2021 (the “Rights Agreement”), by and between the Company and Equiniti Trust Company,
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 December 1, 2021. 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 $1,000.00 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 December 1, 2021, 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 December 1, 2024, (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, and (iv) the beginning of a taxable year to which the Board determines that no Tax Benefits may be carried forward.
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
12 — Business Segment Information and Geographic Data
The
Sports Technology Platform business is presented in our Consolidated Statements of Operations as discontinued operations and is not included
in segment results for all periods presented. See Note 4 - Discontinued Operations for further information about these divestitures.
As
of December 31, 2021, the asset management business is our only reportable segment.
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. Restructuring expenses
of $0.3 million associated with the Adara bankruptcy were allocated to the asset management business.
Schedule of Net Revenue, Operating Loss from Continuing Operations and Assets by Segment
| | |
|
2021 |
|
|
|
| |
| | |
Years
Ended December 31, | |
| | |
2021 | | |
2020 | |
| | |
(In
millions) | |
| Asset
management business | |
$ | (2.0 | ) | |
$ | (5.2 | ) |
| Total
segment operating loss | |
| (2.0 | ) | |
| (5.2 | ) |
| Corporate
and unallocated | |
| (4.2 | ) | |
| (1.5 | ) |
| Total
operating loss | |
| (6.2 | ) | |
| (6.7 | ) |
| Interest
expense | |
| (2.0 | ) | |
| (2.6 | ) |
| Gain
on Chapter 11 reorganization | |
| 20.4 | | |
| (1.9 | ) |
| Bank
Loan forgiveness | |
| 0.4 | | |
| (8.5 | ) |
| Realized
losses on investments | |
| — | | |
| (1.9 | ) |
| Defined
benefit plan adjustment | |
| — | | |
| (8.5 | ) |
| Other
income (expense), net | |
| 0.4 | | |
| 0.1 | |
| | |
December
31, | | |
December
31, | |
| | |
2021 | | |
2020 | |
| | |
(In
millions) | |
| Assets | |
| | |
| |
| Asset
management business | |
$ | 13.2 | | |
$ | 15.8 | |
| Total
segment assets | |
| 13.2 | | |
| 15.8 | |
| Corporate
and unallocated | |
| 4.0 | | |
| 1.2 | |
| Non-current
assets of discontinued operations | |
| — | | |
| 8.4 | |
| Total
consolidated assets | |
$ | 17.2 | | |
$ | 25.4 | |
Note
13 — Litigation, Commitments and Contingencies
In
an action removed, on February 14, 2022, from New York Supreme Court to the Southern District of New York, Cypress Holdings, III L.P.
v. Sport-BLX, Inc. et al., 1:22-cv-01243-LGS (S.D.N.Y.), plaintiff Cypress Holdings, III L.P. purports to assert claims against SportBLX,
the Company, Mr. Hall, and Mr. De Perio for securities fraud, RICO and related issues and seeks compensatory damages, punitive damages
and attorneys’ fees, in connection with solicitations of investments in SportBLX. We have notified the Court that we believe that
the complaint, as against the Company, is legally deficient and that we intend to seek dismissal.
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, 2021, and 2020, 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 Company 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, 2021. 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, 2021.
Note
14 — Related Party Transactions
On
January 1, 2019, the Company and Clinton Group Inc. (“Clinton”) entered into a management service agreement (the “Management
Service Agreement”), pursuant to which Clinton agreed to provide certain services to the Company.
Prior
to being appointed our Chief Executive Officer and Chief Financial Officer, respectively, Daniel A. Strauss served as our Chief Executive
Officer, and Francis Ruchalski served as our Chief Financial Officer, pursuant to the terms of the Amended and Restated Services Agreement
we entered into with Clinton on March 31, 2019 (the “Amended Services Agreement”). Clinton also made available other employees
of Clinton as necessary to manage certain business functions as deemed necessary in the sole discretion of Clinton to provide other management
services. The Amended Services Agreement was terminated effective March 31, 2020.
Clinton
paid Mr. Strauss and Mr. Ruchalski compensation and benefits under the Amended Services Agreement through December 15, 2019, and they
became employees of the Company on December 18, 2019 and December 16, 2019, respectively.
As
of December 31, 2021, the Company paid Clinton $2,400,000 under the Amended Services Agreement and the Management Service Agreement,
recorded $0 and $312,500 within “Selling, general and administrative” in our Consolidated Statements of Operations for the
12 months ended December 31, 2021 and 2020, respectively.
On
June 5, 2020, SportBLX entered into a subscription agreement (the “Securities Subscription”) with Sport-BLX Securities (“S-BLX
Securities”) for SportBLX’s proprietary sports-based alternative asset trading platform (the “Platform”) via
which the customer, S-BLX Securities, may issue sports-related securities that are tradeable by investors. Mr. Hall and Mr. De Perio
own 65.5% and 28.1% of S-BLX 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. The Securities Subscription was terminated effective January 1, 2021.
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 30, 2021, the date
that the Company disposed of SportBLX, it had 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 30, 2021,
SportBLX borrowed $40,000 under the Demand Note-5.
On
June 30, 2020, SportBLX issued Demand Note-6 to S-BLX 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 S-BLX Securities, or (b) July 1, 2021. As of December
30, 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, wholly owned by Mr. Hall, certain of that company’s
quantitative trading software, for $1,750,000.
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 Services Agreement”) to provide certain back
office services, including accounting, treasury, payroll and benefits and other administration services to S-BLX Securities. The Services
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, 2021, the Company has not provided any significant services or billed S-BLX Securities under the Services Agreement and
does not have any related outstanding receivables. The Services Agreement was terminated in conjunction with the disposition of the Company’s
interest in SportBLX, described below, except that the registrant will continue to provide certain services for 30 days from the date
of that agreement.
On
July 31, 2021, Mr. Hall and Mr. De Perio agreed to accept $2,354,736 and $1,060,264, respectively, from the Company in satisfaction of
its obligations to them in the amounts of $12,116,718 and $5,455,782, respectively. The obligations were due December 12, 2022 and bore
interest at a 5% annual rate. Accordingly, GLAE’s obligations in the amounts of $12,116,718 and $5,455,782 have been paid in full.
Also
on July 31, 2021, as part of the settlement of the Stock Purchase Agreement, the Company assigned obligations owed to it from SportBLX,
totaling $4,176,102.11, to FDC, of which Mr. Hall and Mr. De Perio are controlling stockholders, for $400,000.
The
net gain on the settlement of the Stock Purchase Agreement and the assignment of obligations to Fintech Debt Corp. are related party
gains, and, as such, were recorded as equity transactions in the Condensed Consolidated Balances Sheets, rather than recognized as income
in the Condensed Consolidated Statements of Operations.
On
December 30, 2021, the Company completed a series of transactions for the purpose of disposing of its interest in SportBLX, described
below:
| |
● |
On
December 21, 2021, SportBLX sold proprietary code to S-BLX Securities for $225,000. |
| |
|
|
| |
● |
On
December 24, 2021, SportBLX repurchased $1,500,000 of its debt from FDC for $126,000 |
| |
|
|
| |
● |
Finally,
on December 30, 2021, the Company completed the disposition of its entire interest in SportBLX, selling all of its shares to FDC
for $137,038. |
During
the period ended December 30, 2021, Mr. Hall advanced approximately $132,000 to SportBLX. As of December 30, 2021, approximately $82,000
had been repaid.
SportBLX
paid $25,000 to Rumson Properties, owned 100% by Mr. Hall, and $40,000 to Mr. Hall, for the temporary use of office space during the
Covid-19 pandemic during the period ended December 30, 2021 and the year ended December 31, 2020, respectively.
The
compensation for the Board of Directors of GlassBridge for their board services totaled $425,000 and $655,000 for the years ended December
31, 2021 and 2020, respectively.
There
was no non-wage compensation for the officers of GlassBridge for the year ended December 31, 2021 and 2020, respectively.
Note
15 — Subsequent Events
In
an action removed, on February 14, 2022, from New York Supreme Court to the Southern District of New York, Cypress Holdings, III L.P.
v. Sport-BLX, Inc. et al., 1:22-cv-01243-LGS (S.D.N.Y.), plaintiff Cypress Holdings, III L.P. purports to assert claims against SportBLX,
the Company, Mr. Hall, and Mr. De Perio for securities fraud, RICO and related issues and seeks compensatory damages, punitive damages
and attorneys’ fees, in connection with solicitations of investments in SportBLX. We have notified the Court that we believe that
the complaint, as against the Company, is legally deficient and that we intend to seek dismissal.
