GLASSBRIDGE ENTERPRISES, INC. Forward-Looking Statements and Risk Factors
We may from time to time make written or oral forward-looking statements with respect to our future goals, including statements contained in this Form 10-Q, in our other filings with theSEC and in our reports to shareholders. Certain information which does not relate to historical financial information may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include information concerning the launch of our asset management business and related investment vehicles, strategic initiatives and potential acquisitions, the results of operations of our existing business lines, the impact of legal or regulatory matters on our business, as well as other actions, strategies and expectations, and are identifiable by use of the words "believes," "expects," "intends," "anticipates," "plans," "seeks," "estimates," "projects," "may," "will," "could," "might," or "continues" or similar expressions. Such statements are subject to a wide range of risks and uncertainties that could cause our actual results in the future to differ materially from our historical results and those presently anticipated or projected. We wish to caution investors not to place undue reliance on any such forward-looking statements. Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements to reflect events or circumstances arising after such date. Risk factors include various factors set forth from time to time in our filings with theSEC including the following: our need for substantial additional capital in order to fund our business; our ability to realize the anticipated benefits of our restructuring plan and other recent significant changes; significant costs relating to pending and future litigation; our ability to attract and retain talented personnel; the structure or success of our participation in any joint investments; risks associated with any future acquisition or business opportunities; our need to consume resources in researching acquisitions, business opportunities or financings and capital market transactions; our ability to integrate additional businesses or technologies; the impact of our reverse stock split on the market trading liquidity of our common stock; the market price volatility of our common stock; our need to incur asset impairment charges for intangible assets; significant changes in discount rates, rates of return on pension assets and mortality tables; our reliance on aging information systems and our ability to protect those systems against security breaches; our ability to integrate accounting systems; changes in tax guidance and related interpretations and inspections by tax authorities; our ability to raise capital from third party investors for our asset management business; our ability to comply with extensive regulations relating to the launch and operation of our asset management business; our ability to compete in the intensely competitive asset management business; the performance of any investment funds we sponsor or accounts we manage; difficult market and economic conditions, including changes in interest rates and volatile equity and credit markets; our ability to achieve steady earnings growth on a quarterly basis in our asset management business; the significant demands placed on our resources and employees, and associated increases in expenses, risks and regulatory oversight, resulting from the potential growth of our asset management business; our ability to establish a favorable reputation for our asset management business; the lack of operating history of our asset manager subsidiary and any funds that we may sponsor; our ability to develop and deliver differentiated and innovative products as well as various factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , and from time to time in our filings
with theSEC . Overview
GlassBridge Enterprises, Inc. ("GlassBridge", the "Company", "we", "us" or "our") owns and operates an asset management business and a sports technology platform. We actively explore a diverse range of new, strategic asset management business opportunities for our portfolio. OnOctober 1, 2019 , the Company sold toOrix PTP Holdings, LLC ("Orix"), for$17,562,700 , 20.1% of the outstanding stock ofAdara , until then a Company wholly owned subsidiary, together with two promissory notes ofAdara Enterprises, Inc. to the Company in total principal amount of$13,000,000 . InJuly 2020 , anAdara wholly owned subsidiary assumed the obligations under the notes, and the subsidiary was sold to George E. Hall ("Mr. Hall"), a related party, for$1.00 , after the subsidiary had distributed toAdara all of the subsidiary's assets, except for its general partnership interest inThe Sports & Entertainment Fund, L.P. , which holds a$17.8 million investment, and the related commodities pool operator registration and$1,790,000 in cash. Also, the Company repurchased theAdara shares from Orix and prepaid a$16 million note that it issued to Orix inMarch 2020 (the proceeds of which were invested inThe Sports & Entertainment Fund, L.P. ), together with$171,000 in interest. As a result of an in-kind distribution fromAdara , the Company became the direct owner ofGlassBridge Arrive Investor, LLC , which is the investment arm of Roc Nation, as well as of 50.1% of the outstanding shares ofSport-BLX, Inc. , and preferred interests in the European levies claims. The Company financed the foregoing transactions, in part, from proceeds of an$11,000,000 loan (the "ESW Loan Agreement") toAdara fromESW Holdings, LLC ("ESW"), which was dueJanuary 20, 2021 , with$1,100,000 interest. 18 Table of Contents
InJanuary 2021 ,Adara received notice from ESW thatAdara had defaulted on its obligation to pay at maturity all amounts due to ESW under the ESW Loan Agreement. The ESW Loan Agreement provided that, uponAdara's default,Adara may elect to cooperate with ESW to effect a prearranged reorganization ofAdara in bankruptcy, pursuant to which ESW would acquire all equity inAdara , as reorganized, and indirectly certain ofAdara's assets, most notably property and equipment consisting of quantitative trading software, as well as deferred tax assets resulting fromAdara's net operating losses.Adara's prepackaged Chapter 11 plan of reorganization was confirmed at a hearing onJune 9, 2021 and became effective onJune 15, 2021 (the "Effective Date"). On the Effective Date, ESW deposited$8.5 million , less$325,000 that ESW had previously funded in the form of a post-petition debtor-in-possession loan, into a distribution trust established pursuant toAdara's Chapter 11 plan to fund the costs of administration associated withAdara's bankruptcy case and to satisfy valid creditor claims. NeitherGlassBridge norAdara can predict at this time how much, if any, of the$8.5 million will remain after such creditor claims and other administrative expenses. Also on the Effective Date, by order of theBankruptcy Court ,GlassBridge shares ofAdara were cancelled, and shares in reorganizedAdara were issued as follows: 50% of the equity in reorganizedAdara was issued to ESW, and the other 50% of the equity in reorganizedAdara 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, includingArrive LLC ("Arrive"), in other subsidiaries.
Important Notices and Disclaimers
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to be read in conjunction with our Condensed
Consolidated Financial Statements and related Notes that appear elsewhere in
this Quarterly Report on Form 10-Q. This MD&A contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated due to various factors discussed
in this MD&A under the caption "Forward-Looking Statements and Risk Factors" and
the information contained in the Company's Annual Report on Form 10-K filed with
the U.S. Securities and Exchange Commission ("SEC") on August 4, 2021 , including
in Part 1 Item 1A. Risk Factors of such Annual Report.
This Quarterly Report on Form 10-Q includes tradenames and trademarks owned by
us or that we have the right to use. Solely for convenience, the trademarks or
tradenames referred to in this Quarterly Report on Form 10-Q may appear without
the ® or ™ symbols, but such references are not intended to indicate in any way
that we will not assert, to the fullest extent under applicable law, our rights
to these trademarks and tradenames.
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Table of Contents
Executive Summary
Consolidated Results of Operations for the Three Months Ended
? Net revenue was
compared to net revenue of
30, 2020.
? Operating loss was
? Basic and diluted loss per share was
for the same period last year.
Consolidated Results of Operations for the Nine Months Ended
? Net revenue was
compared to net revenue of
? Operating loss was
compared to an operating loss of
? Basic and diluted income per share was
for the same period last year.
Cash Flow/Financial Condition for the Nine Months EndedSeptember 30, 2021
? Cash and cash equivalents totaled
with$1.3 million atDecember 31, 2020 . Results of Operations
The following discussion relates to continuing operations unless indicated otherwise. "NM" means that the percentage amount is not meaningful.
Net Revenue
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2021 2020 Change 2021 2020 Change
Net revenue $ - $ 0.4 (100.0)% $ -$ 0.7 (100.0 )%
Net revenue for the three and nine months ended
Selling, General and Administrative ("SG&A")
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2021 2020 Change 2021 2020 ChangeSelling, general and administrative$ 3.3 $ 3.0 10.0
%$ 6.2 $ 7.1 (12.7 )% As a percent of revenue NM 750.0 % NM 1,014.3 % SG&A expense increased for the three months endedSeptember 30, 2021 by$0.3 million (or 10.0%), compared with the same period last year, primarily due to the consulting agreement signed withGHI LLC . 20 Table of Contents SG&A expense decreased for the nine months endedSeptember 30, 2021 by$0.9 million (or 12.7%), compared with the same period last year, primarily due to an effort to reduce overhead. Restructuring Three Months Ended Nine Months Ended September 30, Percent September 30, Percent (Dollars in millions) 2021 2020 Change 2021 2020 Change Restructuring $ - $ - NM$ 0.3 $ - NM As a percent of revenue NM NM
NM NM
Restructuring expense of
Operating Loss from Operations
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2021 2020 Change 2021 2020 ChangeOperating loss from operations$ (3.3 ) $ (2.6 ) 26.9
%$ (6.5 ) $ (6.4 ) 1.6 % As a percent of revenue NM (650.0 )% NM (914.3 )% Operating loss from operations was$3.3 million and$2.6 million for the three months endedSeptember 30, 2021 and 2020, respectively. Operating loss from operations increased by$0.7 million compared to the same period last year, primarily due to the consulting agreement signed withGHI LLC , partially offset by an effort to reduce overhead.
Operating loss from operations was
Other Expense
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2021 2020 Change 2021 2020 Change
Interest expense $ (0.2 ) $ (0.7 ) (71.4 )% $ (1.9 ) $ (1.8 ) 5.6 %
Realized loss on investments - (0.1 ) (100.0 )% (0.2 ) (1.8 ) (88.9 )%Gain on Chapter 11 reorganization - - NM 13.8 - NM Bank Loan forgiveness - - NM 0.4 - NM Defined benefit plan adjustment - - NM
- (8.5 ) (100.0 )%
Other income (expense), net 0.4 (0.1 ) 500.0 % 0.4 - NM
Total other income (expense) $ 0.2 $ (0.9 ) 122.2 % $ 12.5 $ (12.1 ) 203.3 %
As a percent of revenue NM (225.0 )% NM (1,728.6 )%
Total other income for the three months ended
Total other income for the nine months endedSeptember 30, 2021 was$12.5 million , compared to$12.1 million of other expense for the same period last year. 21 Table of Contents Income Tax Provision Three Months Ended Nine Months Ended September 30, Percent September 30, Percent (Dollars in millions) 2021 2020 Change 2021 2020 Change
Income tax benefit (provision) $ - $ - NM
$ - $ - NM Effective tax rate 0.0 % 0.0 % 0.0 % 0.0 %
Income tax for the three months ended
Income tax for the nine months ended
Segment Results
The asset management business and the sports technology platform, SportBLX, are
our two reportable segments as of
We evaluate segment performance based on revenue and operating loss. The operating loss reported in our segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results, they are included in reported consolidated results. Corporate and unallocated amounts include costs that are not allocated to the business segments in management's evaluation of segment performance, such as litigation settlement expense, corporate expense and other expenses.
Information related to our segments is as follows:
Asset Management Business
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2021 2020 Change
2021 2020 Change
Operating loss $ - $ (1.6 ) (100.0 )% $ (2.0 ) $ (3.9 ) (48.7 )%
The Company operates its diversified private asset management business through a
number of subsidiaries that sponsor our fund offerings. We expect our asset
management business to earn revenues primarily by providing investment advisory
services to third party investors through our managed funds, as well as separate
managed accounts.
Sports Technology Platform
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2021 2020 Change 2021 2020 Change
Operating loss $ (0.5 ) $ (0.3 ) 66.7 % $ (1.0 ) $ (1.0 ) 0.0 %
The Company's sports technology platform enables a marketplace for sports
assets, focusing on American professional sports like basketball, baseball and
football.
Corporate and Unallocated
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2021 2020 Change 2021 2020 ChangeCorporate and unallocated operating loss$ (2.8 ) $ (0.7 ) 300.0 %$ (3.5 ) $ (1.5 ) 133.3 %
For the three months ended
22 Table of Contents
For the nine months ended
Impact of Changes in Foreign Currency Rates
The impact of changes in foreign currency exchange rates to worldwide revenue
was immaterial for the three and nine months ended
Financial Position
Our cash and cash equivalents balance as of
Our accounts payable balance as of
Our current liabilities as of
Our other current liabilities balance as of
Liquidity and Capital Resources
Cash Flows Provided by (Used in) Operating Activities:
Nine Months Ended
September 30,
(Dollars in millions) 2021 2020
Net income (loss) $ 6.0 $ (18.5 )
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 0.3 0.5
Gain on Chapter 11 reorganization (13.8 )
-
Bank Loan forgiveness (0.4 ) -
Loss on sale of investments 0.2 1.8Defined benefit plan adjustment -
8.5
Changes in operating assets and liabilities 3.2
2.3
Net cash used in operating activities$ (4.5 ) $
(5.4 )
Cash used in operating activities was $4.4 million for the nine months ended
September 30, 2021 , which was related to a consulting agreement signed with GHI
LLC and ordinary operating expenses. Cash used in operating activities was $5.4
million for the nine months ended September 30, 2020 , primarily due to the
development of the operations of SportBLX and Adara .
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Table of Contents
Cash Flows Provided by Investing Activities:
Nine Months Ended
September 30,
(Dollars in millions) 2021 2020Proceeds from sale of unsecured claims from related party pursuant to Chapter 11 reorganization
0.5 -
Collection of notes receivable from related party
pursuant to Chapter 11 reorganization 0.7 -
Proceeds received for the assignment of related party
notes receivable and accrued interest receivable to
0.4 -
Purchase of property and equipment - (1.7 )
Investment in securities - (1.6 )
Disbursement related to disposal group - (1.8 )
Proceeds from fund distribution - 2.0
Net cash provided by (used in) investing activities
Investing activities for the nine months endedSeptember 30, 2021 included the sale of unsecured claims and the collection of notes receivable from related parties pursuant to the Chapter 11 reorganization. Also included are proceeds from the assignment of related party notes receivable and accrued interest receivable. For the nine months endedSeptember 30, 2020 , cash used in investing activities includes expenditures in connection with the ESW,George Hall and Orix transactions inJuly 2020 . These include a$1.7 million purchase of software and a$1.8 million contribution to AAM which was disposed of during the quarter.
Cash Flows Provided by Financing Activities:
Nine Months Ended
September 30,
(Dollars in millions) 2021 2020Proceeds from ESW debtor-in-possession note payable 0.3
-
Proceeds fromGHI LLC note payable 3.2
-
Payment to satisfy in full the Stock Purchase Agreement Notes Payable (3.4 )
-
Proceeds from sale of warrants 0.2
-
Proceeds from advance from related party 0.1
-
Advance from bankruptcy trust subject to clawback 2.0
-
Proceeds from Orix note payable -
16.0
Repayment of Orix note payable - (16.0 ) Proceeds from ESW note payable -
5.4
Proceeds fromBank Loan -
0.4
Proceeds from other related parties notes payable -
0.4
Net cash provided by financing activities$ 2.4
$ 6.2 Cash provided by financing activities for the nine months endedSeptember 30, 2021 related to proceeds from a debtor-in-possession note payable, theGHI LLC note payable and the sale of warrants, an advance byMr. Hall to SportBLX and an advance from the bankruptcy trust, subject to clawback, offset by payments to satisfy the Stock Purchase Agreement notes payable. Cash provided by financing activities for the nine months endedSeptember 30, 2020 related to an Orix note payable, a note payable issued under the Paycheck Protection Program (the "Bank Loan") and notes payable from other related parties. See Note 6 - Debt and Note 13 - Related Party Transactions for more information.
We have various resources available to us for purposes of managing liquidity and capital needs. Our primary sources of liquidity include our cash and cash equivalents. Our primary liquidity needs relate to funding our operations.
We had
We expect that our cash, in addition to asset monetization, will provide liquidity sufficient to meet our needs for our operations and our obligations. We also plan to raise additional capital if necessary, although no assurance can be made that we will be able to secure such financing, if needed, on favorable terms or at all. 24 Table of Contents
Off Balance Sheet Arrangements
As of
Critical Accounting Policies and Estimates
A discussion of the Company's critical accounting policies was provided in Part II - Item 7 in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 .
Recent Accounting Pronouncements
See Note 2 - New Accounting Pronouncements in our Notes to Condensed Consolidated Financial Statements in Part I, Item 1, herein, for further information.
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