GLASSBRIDGE ENTERPRISES : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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 the SEC 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 the SEC 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 ended December 31, 2020, and from time to time in our filings with the SEC.

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.

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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 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 George E. Hall ("Mr. Hall"), a related party, 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., which holds a $17.8 million investment, and the related commodities pool operator registration and $1,790,000 in cash. Also, the Company repurchased the Adara shares from Orix and prepaid a $16 million note that it issued to Orix in March 2020 (the proceeds of which were invested in The Sports & Entertainment Fund, L.P.), together with $171,000 in interest. As a result of an in-kind distribution from Adara, the Company became the direct owner of GlassBridge Arrive Investor, LLC, which is the investment arm of Roc Nation, as well as of 50.1% of the outstanding shares of Sport-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") to Adara from ESW Holdings, LLC ("ESW"), which is due January 20, 2021, with $1,100,000 interest. Adara granted to ESW a security interest in all of Adara's assets pursuant to the loan agreement, which, in addition to customary representations and warranties and covenants, prohibits Adara from entering into any agreement without ESW's consent, or, subject to exceptions, incur or prepay any indebtedness, incur any liens, or make distributions on or payments with respect to its shares, and requires Adara to maintain at least $500,000 in cash or cash equivalents in controlled accounts. ESW may accelerate the loan upon a payment default; covenant default, in some cases after notice; a material adverse change in Adara's business, assets, financial condition, ability to repay the loan, or in the perfection, value, or priority of ESW's security interests in Adara's assets; attachment of a material part of Adara's assets; Adara's or the Company's insolvency; Adara's default in its obligations under other agreements totaling $100,000 or more; Adara's incurring judgments or settlements totaling $100,000 or more; or a change in Adara's ownership; or if any material representation by Adara under the loan agreement is untrue. The loan agreement provides that, in event of Adara's default other than for a material representation, Adara and ESW will act in good faith to effect a reorganization of Adara in bankruptcy, pursuant to which ESW acquires from the Company all equity in Adara and certain of its assets, and Adara's cash, shares of its subsidiaries, and a right to use Adara software and intellectual property within the sports industry are distributed to the Company. Within 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 all residual funds to be paid to GlassBridge. In connection with the loan agreement, the Company pledged to ESW all of the Company's Adara stock and 30% of the outstanding stock of Sport-BLX, Inc., and, ESW purchased 100 shares of Adara's Series A Preferred Stock for a total purchase price of $25,000. Upon any liquidation, dissolution, or winding up of Adara, each holder of Series A Preferred Stock is entitled to a liquidation preference of $1,500 per share and no more.

In January 2021, Adara Enterprises, Corp. ("Adara" or "AEC") received notice from ESW Holdings, Inc. ("ESW") that Adara had defaulted on its obligation to pay at maturity, i.e., on January 20, 2021, $11,000,000 in principal and all other amounts due to ESW under a Loan and Security Agreement ("ESW Loan Agreement"), dated July 21, 2020. Pursuant to the ESW Loan Agreement, AEC gave to ESW a security interest in all of AEC's assets, and GlassBridge pledged to ESW all of GlassBridge's AEC stock and 30% of GlassBridge's SportBLX stock. The Loan Agreement provides that, upon AEC's default, AEC may elect to cooperate with ESW to effect a prearranged reorganization of AEC in bankruptcy, pursuant to which ESW would acquire all equity in AEC, as reorganized, and indirectly certain of AEC's assets, most notably property and equipment consisting of quantitative trading software, as well as deferred tax assets resulting from AEC's net operating losses. Within 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 all residual funds to be paid to GlassBridge. The $8.5 million was to be paid upon the effectiveness of AEC's Chapter 11 plan (less any amounts advanced to AEC in the form of a DIP loan) and maintained awaiting outside creditor claims. Neither GlassBridge nor AEC can predict at this time how much, if any, of the $8.5 million will remain after such creditor claims and other administrative expenses.

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 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 to AEC's Chapter 11 plan 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 terminated, and shares in reorganized AEC were issued as follows: 50% of the equity in reorganized AEC was issued to ESW, and the other 50% of the equity in reorganized AEC was issued to ESW's affiliate, ESW Capital LLC. Finally, on the Effective Date, GlassBridge received a release of its guaranty obligations to ESW as well as a license to use AEC's quantitative trading software in connection with the sports industry. See Note 14 - Subsequent Events, for more information.

Adara has historically been one of the subsidiaries through which the company has operated its asset management business. The Company, however, remains committed to its asset management business and holds various investments and assets, including Arrive LLC ("Arrive"), in other subsidiaries. The default on the ESW loan agreement is expected to provide additional liquidity for the Business though the prearranged bankruptcy plan described above.

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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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Executive Summary

Consolidated Results of Operations for the Three Months Ended March 31, 2021

  ? Net revenue from continuing operations was $0.0 million for the three months
    ended March 31, 2021 and 2020.




  ? Operating loss from operations was $1.4 million for the three months ended
    March 31, 2021 compared to an operating loss of $2.1 million in the same
    period last year. This was a decrease of $0.7 million, primarily due to an
    effort to reduce overhead.




  ? Basic and diluted loss per share from continuing operations was $88.04 for the
    three months ended March 31, 2021, compared with a basic and diluted loss per
    share of $507.69 for the same period last year.

Cash Flow/Financial Condition for the Three Months Ended March 31, 2021

  ? Cash and cash equivalents totaled $0.7 million at March 31, 2021 compared with
    $1.3 million at December 31, 2020. The decrease in the cash balance of $0.6
    million was primarily due to operating expenses.




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
                                March 31,            Percent
(Dollars in millions)      2021           2020       Change
Net revenue             $      -       $     -            NM

Net revenue for the three months ended March 31, 2021 and 2020 was $0.0 million.

Selling, General and Administrative ("SG&A")

                                         Three Months Ended
                                              March 31,             Percent
(Dollars in millions)                   2021            2020         Change

Selling, general and administrative $ 1.4 $ 2.1 (33.3 )% As a percent of revenue

                      NM              NM

SG&A expense decreased for the three months ended March 31, 2021 by $0.7 million (or 33.3%) compared with the same period last year primarily due to an effort to reduce overhead.

Operating Loss from Operations

                                   Three Months Ended
                                        March 31,            Percent
(Dollars in millions)              2021           2020        Change

Operating loss from operations $ (1.4 ) $ (2.1 ) (33.3 )% As a percent of revenue

                 NM            NM




Operating loss from operations decreased by $0.7 million for the three months
ended March 31, 2021 compared with the same period last year primarily due to an
effort to reduce overhead.



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Other Expense



                                    Three Months Ended
                                         March 31,            Percent
(Dollars in millions)               2021           2020        Change
Interest expense                  $    (0.9 )     $  (0.5 )       80.0 %
Realized loss on investments              -          (2.2 )     (100.0 )%
Defined benefit plan adjustment           -          (8.5 )     (100.0 )%
Other expense, net                        -           0.1       (100.0 )%
Total other expense               $    (0.9 )     $ (11.1 )      (91.9 )%
As a percent of revenue                  NM            NM

Total other expense for the three months ended March 31, 2021 was $0.9 million compared to $11.1 million for the same period last year.

Income Tax Provision



                           Three Months Ended
                                March 31,              Percent
(Dollars in millions)     2021            2020         Change
Income tax provision    $       -       $       -          NM
Effective tax rate            0.0 %           0.0 %

Income tax for the three months ended March 31, 2021 and 2020 was $0.0 million, due to losses in both periods.

Segment Results

The asset management business and the sports technology platform, SportBLX, are our two reportable segments as of March 31, 2021.

We evaluate segment performance based on revenue and operating loss. The operating loss reported in our segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results, they are included in reported consolidated results. Corporate and unallocated amounts include costs which are not allocated to the business segments in management's evaluation of segment performance such as litigation settlement expense, corporate expense and other expenses.

Information related to our segments is as follows:

Asset Management Business



                          Three Months Ended
                               March 31,             Percent
(Dollars in millions)     2021           2020        Change
Operating loss          $    (1.2 )     $  (1.1 )         9.1 %

The Company operates its diversified private asset management business through a number of subsidiaries that sponsor our fund offerings. We expect our asset management business to earn revenues primarily by providing investment advisory services to third party investors through our managed funds, as well as separate managed accounts.

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Sports Technology Platform



                          Three Months Ended
                               March 31,            Percent
(Dollars in millions)     2021           2020        Change
Operating loss          $    (0.1 )     $  (0.5 )      (80.0 )%




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
                                                  March 31,            Percent
(Dollars in millions)                        2021           2020        Change

Corporate and unallocated operating loss $ (0.1 ) $ (0.5 ) (80.0 )%

For the three months ended March 31, 2021, corporate and unallocated operating loss consists of $0.1 million of corporate general and administrative expenses, an 80.0% decrease from the prior year.

Impact of Changes in Foreign Currency Rates

The impact of changes in foreign currency exchange rates to worldwide revenue was immaterial for the three months ended March 31, 2021.

Financial Position

Our cash and cash equivalents balance as of March 31, 2021 was $0.7 million compared to $1.3 million as of December 31, 2020.

Our accounts payable balance as of March 31, 2021 was $1.4 million compared to $1.8 million as of December 31, 2020.

Our other current liabilities balance as of March 31, 2021 was $2.7 million compared to $1.8 million as of December 31, 2020.

Liquidity and Capital Resources

Cash Flows Provided by (Used in) Operating Activities:

                                                               Three Months Ended
                                                                   March 31,
(Dollars in millions)                                       2021                2020
Net loss                                               $         (2.3 )     $       (13.2 )

Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization

                                     0.2                 0.1
Loss on sale of investments                                         -                 0.2
Defined benefit plan adjustment                                     -                 8.5
Changes in operating assets and liabilities                       1.0                 1.5
Net cash used in operating activities                  $         (1.1 )     $        (2.9 )

Cash used in operating activities was $1.1 million for the three months ended March 31, 2021, which was related to ordinary operating expenses. Cash used in operating activities was $2.9 million for the three months ended March 31, 2020, primarily due to the development of the operations of SportBLX and Adara.

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Cash Flows Provided by Investing Activities:

                                          Three Months Ended
                                               March 33,
(Dollars in millions)                       2021           2020

Net cash used in investing activities $ - $ -

The company had no cash used in investing activities for the three months ended March 31, 2021 and 2020.

Cash Flows Provided by Financing Activities:

                                              Three Months Ended
                                                   March 31,
(Dollars in millions)                       2021           2020
Proceeds from Orix note payable                 -              16.0

Net cash provided by financing activities $ - $ 16.0

Cash provided by financing activities for the three months ended March 31, 2020 related to an Orix note payable. See Note 6 - Debtfor 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 $0.7 million cash and cash equivalents on hand as of March 31, 2021.

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.

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Off Balance Sheet Arrangements

As of March 31, 2021, we did not have any material off-balance sheet arrangements.

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 ended December 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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