GLASSBRIDGE ENTERPRISES, INC. The following discussion is intended to be read in conjunction with Item 1. Business and our Consolidated Financial Statements and related Notes that appear elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties.GlassBridge's actual results could differ materially from those anticipated due to various factors discussed under "Cautionary Statements Regarding Forward-Looking Statements" and in Item 1A. Risk Factors of this Annual Report on Form 10-K. The financial statements in this Annual Report on Form 10-K are presented on a consolidated basis and include the accounts of the Company and our subsidiaries. See, Notes to Consolidated Financial Statements-Note 2 - Summary of Significant Accounting Policies, for further information regarding consolidation. References to "GlassBridge ," the "Company," "we," "us" and "our" are toGlassBridge Enterprises Inc. , and its subsidiaries and consolidated entities unless the context indicates otherwise. Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted inthe United States of America ("GAAP"). IntroductionGlassBridge has, during recent periods, undergone significant changes. Until 2015, we primarily provided data storage and security solutions through our two legacy business segments. OnAugust 16, 2018 , the Company sold itsNexsan business. During 2019, the Company sold its international subsidiaries and acquired a controlling interest in SportBLX. OnDecember 30, 2021 , the Company sold its interest in SportBLX.
As a result of these transactions, the Company now operates a single segment, an asset management business.
InJanuary 2021 ,Adara received notice from ESW thatAdara had defaulted on its obligation to pay at maturity, i.e., onJanuary 20, 2021 ,$11,000,000 in principal and all other amounts due to ESW under the ESW Loan Agreement. Pursuant to the ESW Loan Agreement, AEC gave to ESW a security interest in all of AEC's assets, andGlassBridge pledged to ESW all ofGlassBridge's AEC stock and 30% ofGlassBridge's 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 acquires fromGlassBridge all equity in AEC and certain of its assets, most notably property and equipment consisting of quantitative trading software, as well as deferred tax assets resulting from net operating losses, for consideration of$8,500,000 , which amount would be used to satisfy the claims of all valid creditors and certain administrative expenses associated with the bankruptcy case, with all residual funds to be paid toGlassBridge . OnApril 22, 2021 , AEC filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in theBankruptcy Court for the District of Delaware . AEC's prepackaged chapter 11 plan of reorganization was confirmed at a hearing onJune 9, 2021 and became effective onJune 15, 2021 . On the effective date, ESW paid$8.5 million , less$325,000 that ESW had previously funded in the form of a postpetition debtor-in-possession loan to fund the costs of administration associated with AEC's bankruptcy case. Also on the effective date, all shares in reorganized AEC were issued to ESW and an affiliate. In addition,GlassBridge received a release of its guaranty obligations to ESW. The Company received a distribution from the bankruptcy estate of$2,017,238 , inSeptember 2021 , and final, additional distributions totaling$4,577,465 inDecember 2021 . The total amount distributed to the Company from the bankruptcy estate was$6,594,703 . As ofDecember 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, includingArrive LLC ("Arrive"), in other subsidiaries Executive Summary
Consolidated Results of Continuing Operations for the Year Ended
? Revenue of
? Selling, general and administrative expense was
is primarily due to an effort to reduce overhead.
? Operating loss from continuing operations was
to an operating loss of
? Other income was
million in 2020.
? Income tax was $0.0 million in 2021 and 2020.
? Basic and diluted income per share from continuing operations was
2021 compared with loss share of $782.16 for 2020.
14
Consolidated Cash Flow/Financial Condition for the Year Ended
? Cash and cash equivalents totaled
compared with
? Cash used in operating activities was
used in operating activities of
activities in 2021 was primarily related to corporate expenditures. Cash used
in operating activities in 2020 was primarily related to the development of
the operations of SportBLX and
? Cash provided by investing activities was
primarily related to the distribution of funds from the bankruptcy trust. Cash
used in investing activities in 2020 was primarily related to a
purchase of software and a
("AAM") which was disposed of during that year.
? Cash provided by financing activities was
proceeds of the GHI note payable, compared with $6.2 million in 2020,
primarily from proceeds of the ESW note payable.
See Analysis of Cash Flows section below for further information.
Results of Operations
Net Revenue
Years Ended December 31, Percent Change
2021 vs.
2021 2020 2020
(In millions)
Net revenue $ 0.1 $ - NM
"NM" - Indicates the Percent Change is not meaningful
Net revenue was
Selling, General and Administrative (SG&A)
Years Ended December 31, Percent Change
2021 vs.
2021 2020 2020
(In millions)Selling, general and administrative$ 6.0 $
6.7 (10.4 )% As a percent of revenue NM NM
SG&A expense decreased in 2021 compared with 2020 by
15
Restructuring
Years Ended December 31, Percent Change
2021 vs.
2021 2020 2020
(In millions)
Restructuring $ 0.3 $ - NM
As a percent of revenue 300.0 % NM
Total restructuring 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.
Operating Loss From Continuing Operations
Years Ended December 31, Percent Change
2021 vs.
2021 2020 2020
(In millions)
Operating loss $ (6.2 ) $ (6.7 ) (7.5 )%
As a percent of revenue (6,200.0 )% NM
Operating loss from continuing operations of
Other Income and (Expense)
Years Ended December 31, Percent Change
2021 vs.
2021 2020 2020
(In millions)
Interest expense $ (2.0 ) $ (2.6 ) (26.9 )%Gain on Chapter 11 reorganization 20.4 -
NM
Bank Loan forgiveness 0.4 - NM
Realized loss on investments - (1.9 ) (100.0 )Defined benefit plan adjustment - (8.5 )
(100.0 )
Other income (expense), net 0.4 0.1 1,000.0
Total other income (expense) $ 19.2 $ (12.9 ) (248.8 )%
As a percent of revenue 19,200.0 % NM
NM - Not meaningful
Total other income was$19.2 million in 2021, compared to other expense of$12.9 million in 2020. Other income in 2021 primarily related to the gain on Chapter 11 reorganization ofAdara and forgiveness a note payable issued under the Paycheck Protection Program (the "Bank Loan"). Other expense in 2020 primarily related to the settlement of the Company's pension liability. 16
Income Tax Benefit (Provision)
Years Ended December 31,
2021 2020
(In millions)
Income tax benefit (provision) $ - $ -
Effective tax rate NM NM
NM - Not meaningful
The income tax provision was $0.0 million in 2021 and 2020. Because we maintain
a valuation allowance related to our U.S. deferred tax assets, the tax provision
generally represents discrete tax events that may occur from time to time.
As of December 31, 2021 and 2020, we had valuation allowances of $157.2 million
and $232.0 million , respectively, to account for deferred tax assets we have
concluded are not considered to be more-likely-than-not to be realized in the
future due to our cumulative losses in recent years. The deferred tax assets
subject to valuation allowance include certain operating loss carryforwards,
deferred tax deductions, capital loss carryforwards and tax credit
carryforwards.
Income (loss) from discontinued operations
For the Years Ended
December 31,
2021 2020
(In millions)
Net revenue - 0.5
Operating expenses:Selling, general and administrative 1.1
2.2
Impairment of goodwill - 42.3
Restructuring and other (0.6 ) (1.3 )
Total operating expenses 0.5 43.2Operating loss from discontinued operations (0.5 )
(42.7 )
Other expense:
Interest expense (0.2 ) -
Total other expense (0.2 ) -Loss from discontinued operations, before income taxes (0.7 ) (42.7 ) Gain on sale and deconsolidation of discontinued business 16.7 - Income tax - - Income (loss) from discontinued operations, net of income taxes$ 16.0 $ (42.7 )
Discontinued operations represent the results of operations from our Sports Technology Platform.
For the year endedDecember 31, 2020 , loss from discontinued operations primarily relates to a goodwill impairment. 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 endedDecember 31, 2020 . The impairment of goodwill was driven by a number of factors affecting our Sports Technology Business in 2020 including, but not limited to, the outbreak of COVID-19 and its impact on sports globally, the performance of the business
and its capital position. Restructuring and other includes the net loss attributable to noncontrolling interest of$0.6 million for the year endedDecember 31, 2021 and$1.3 million or the year endedDecember 31, 2020 . These amounts were reclassified to discontinued operations due to the sale of the Sports Technology Platform in the period endingDecember 31, 2021 . OnDecember 30, 2021 , in a series of transactions, the Company completed the disposition of its entire interest in SportBLX. 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 endedDecember 31, 2021 .
See Note 4 - Discontinued Operations in our Notes to Consolidated Financial Statements for more information.
17 Segment Results With the sale of the Sport Technology Platform business onDecember 30, 2021 , the asset management business is our only reportable segment as ofDecember 31, 2021 . Results from the Sports Technology Platform were reported within discontinued operations. 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
Years Ended December 31, Percent Change
2020 vs.
2021 2020 2019
(In millions)
Net revenue $ 0.1 $ - NM %
Operating loss $ (2.0 ) $ (5.2 ) (61.5 )%
As a percent of revenue (2,000.0 )% NM
NM - Not meaningful
Revenue from our asset management business primarily consists of management and performance fees paid by the funds under our management.
Corporate and Unallocated
Years Ended December 31, Percent Change
2021 vs.
2021 2020 2020
(In millions)
Corporate and unallocated operating loss $ (4.2 ) $ (1.5 ) 180.0 %
Restructuring and other - - NM %
Total $ (4.2 ) $ (1.5 ) 180.0 %
For the year ended December 31, 2021 , the corporate and unallocated operating
loss increased by $2.7 million compared to 2020. For the year ended December 31,
2021 , the $0.3 million of restructuring expense presented on the Consolidated
Statements of Operations was allocated to the Asset Management Business.
Financial Position
Our cash and cash equivalents balance, as of
Our accounts payable balance, as of
Our other current liabilities balance, as of
Liquidity and Capital Resources
Our primary sources of liquidity include our cash and cash equivalents. Our primary operating liquidity needs relate to our working capital and funding our operations.
18
We had
Our liquidity needs for the next 12 months include the following: corporate
expenses of approximately
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. Cash and Cash Equivalents Cash equivalents consist of highly liquid investments purchased with original maturities of three months or less. Restricted cash is related to contractual obligations or restricted by management and is included in other current assets on our Consolidated Balance Sheets depending on the timing of the restrictions. The restricted cash balance in other current assets as ofDecember 31, 2021 was$0.0 million and as ofDecember 31, 2020 was$0.5 million . Analysis of Cash Flows
Cash Flows Used in Operating Activities:
Years Ended December 31,
2021 2020
(In millions)
Net income (loss) $ 29.0
(37.8 ) 53.5
Changes in operating assets and liabilities 2.2
2.6
Net cash used in operating activities$ (6.6 )
$ (7.5 )
Cash flows from operating activities can fluctuate from period to period as many items can impact cash flows. Cash used in operating activities for 2021 was primarily driven by corporate expenditures. Cash used in operating activities for 2020 was primarily driven the development of the operations ofAdara .
Cash Flows (Used in) Investing Activities:
Years Ended December 31,
2021 2020
(In millions)Proceeds from sale of unsecured claims from related party pursuant to Chapter 11 reorganization
$ 0.5 $ -
Proceeds from sale of platform code to a related party 0.2 -
Proceeds from sale of SportBLX to a related party 0.2 -
Collection of notes receivable from related party
pursuant to Chapter 11 reorganization 0.7 -
Proceeds from bankruptcy trust pursuant to Chapter 11
reorganization 6.6 -
Proceeds received for the assignment of related party
notes receivable and accrued interest to
0.4 -
Purchase of property and equipment - (1.7 )
Purchases of investments - (1.1 )
Proceeds from sale of investments - 0.2
Proceeds from fund distribution - 2.0
Disbursement related to disposal group - (1.8 )
Net cash (used in) investing activities $ 8.6 $ (2.4 ) Cash used in investing activities in 2021 included proceeds distributed from the bankruptcy trust of$6.6 million and proceeds from related party transactions in connection with the disposition of SportBLX. See Note 6 - Debt and Note 14 - Related Party Transactions for more information. Cash provided by investing activities in 2020 was primarily related to expenditures in connection with the ESW,George Hall andOrix PTP Holdings, LLC ("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 year. 19
Cash Flows Provided by Financing Activities:
Years Ended December 31,
2021 2020
(In millions)
Proceeds from ESW debtor-in-possession note payable
-
Proceeds from GHI LLC note payable 3.3 -
Payment to satisfy in full the Stock Purchase
Agreement notes payable (3.4 ) -
Payment to satisfy $1,500,000 of related party debt (0.1 ) -
Proceeds from sale of warrants 0.2 -
Proceeds from Orix notes payable - 16.0
Repayment of Orix note payable - (16.0 ) Proceeds from ESW note payable -
5.4
Proceeds fromBank Loan -
0.4
Proceeds from other related parties notes payable -
0.4
Net cash provided by financing activities$ 0.3
$ 6.2 Cash provided by financing activities in 2021 relates to a debtor-in-possession note payable, the GHI note payable and payments related to the Stock Purchase Agreement notes payable. Cash provided by financing activities in 2020 primarily relates an ESW note payable, the Bank Loan and notes payable from other related parties. See Note 6 - Debt and Note 14 - Related Party Transactions for more information.
No dividends were declared or paid during 2021 or 2020. Any future dividends are at the discretion of and subject to the approval of our Board.
Related Party Transactions See Note 14 - Related Party Transactions in our Notes to Consolidated Financial Statements for information on related party transactions between the Company andGlassBridge's Board of Directors and Executive Officers.
Off-Balance Sheet Arrangements
Other than the operating lease commitments discussed in Note 13 - Litigation, Commitments and Contingencies in the Notes to Consolidated Financial Statements, we are not using off-balance sheet arrangements, including special purpose entities.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates to ensure they are consistent with historical experience and the various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and could materially impact our results of operations.
We believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our Consolidated Financial Statements:
Uncertain Tax Positions. 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 more-likely-than-not 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. AtDecember 31, 2020 and 2021, our accrual related to uncertain tax positions and unrecognized tax benefits was$0.0 million . 20
Our
The ultimate outcome of tax matters may differ from our estimates and assumptions. Unfavorable settlement of any particular issue may require the use of cash and could result in increased income tax expense. Favorable resolution could result in reduced income tax expense. It is reasonably possible that our unrecognized tax benefits could increase or decrease significantly during the next twelve months due to the resolution of certainU.S. and international tax uncertainties; however, it is not possible to estimate the potential change
at this time. Intangibles. We record all assets and liabilities acquired in purchase transactions, including intangibles, at estimated fair value. Intangible assets with a definite life are amortized based on a pattern in which the economic benefits of the assets are consumed, typically with useful lives ranging from one to 30 years. The initial recognition of intangible assets, the determination of useful lives and, if necessary, subsequent impairment analysis require management to make subjective judgments concerning estimates of how the acquired assets will perform in the future using certain valuation methods including discounted cash flow analysis. We evaluate assets on our balance sheet, including such intangible assets, whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors such as unfavorable variances from forecasted cash flows, established business plans or volatility inherent to external markets and industries may indicate a possible impairment that would require an impairment test. The test for impairment requires a comparison of the carrying value of the asset or asset group with their estimated undiscounted future cash flows. If the carrying value of the asset or asset group is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the asset or asset group exceeds its fair value.Goodwill . We record all assets and liabilities acquired in purchase acquisitions, including goodwill, at fair value. The initial recognition of goodwill and subsequent impairment analysis require management to make subjective judgments concerning estimates of how the acquired assets will perform in the future using valuation methods including discounted cash flow analysis.Goodwill is the excess of the cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination.Goodwill is not amortized. We test the carrying amount of a reporting unit's goodwill for impairment on an annual basis during the fourth quarter of each year or if an event occurs or circumstances change that would warrant impairment testing during an interim period.Goodwill is considered impaired when its carrying amount exceeds its implied fair value. The Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill. If we determine in this assessment that the fair value of the reporting unit is more than its carrying amount, we may conclude that there is no need to perform Step 1 of the impairment test. We have an unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing Step 2 of the goodwill impairment test. Step 1 of the impairment test involves comparing the fair value of the reporting unit to which goodwill was assigned to its carrying amount. If fair value is deemed to be less than carrying value, Step 2 of the impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of the reporting unit's goodwill. If the carrying amount of the reporting unit's goodwill is greater than the implied fair value of the reporting unit's goodwill, an impairment loss must be recognized for the excess. This involves measuring the fair value of the reporting unit's assets and liabilities (both recognized and unrecognized) at the time of the impairment test. The difference between the reporting unit's fair value and the fair values assigned to the reporting unit's individual assets and liabilities is the implied fair value of the reporting unit's goodwill.
Claims and Litigation. We record a liability when a loss from a pending or threatened claim or litigation is known or considered probable and the amount can be reasonably estimated.
Recently Issued Accounting Standards
See Note 2 - Summary of Significant Accounting Policies in our Notes to Consolidated Financial Statements for disclosure related to recently issued accounting standards.
© Edgar Online, source
