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, 2021 , 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. We actively explore a diverse range of new, strategic asset management business opportunities for
our portfolio.
InJanuary 2021 ,Adara Enterprises , Corp. ("Adara" or "AEC"), a subsidiary of the Company, received notice fromESW Holdings, Inc. ("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 a Loan and Security Agreement ("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 ESW 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 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. In the ESW Loan 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 toGlassBridge . 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. 14 Table of Contents AEC's prepackaged Chapter 11 plan of reorganization was confirmed at a hearing onJune 9, 2021 and became effective onJune 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 theBankruptcy Court ,GlassBridge shares of AEC were canceled, and shares in reorganized AEC were issued to ESW and an affiliate. Finally, on the Effective Date,GlassBridge received a release of its guaranty obligations to ESW. The Company received distributions from the bankruptcy estate totaling$6,594,703 in 2021. The Company received additional distributions of$17,909 during the nine months endedSeptember 30, 2022 . There are no funds remaining in the bankruptcy estate and any additional distributions, if any, are expected to be immaterial.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.
On
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 March 31, 2022 , 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.
15
Table of Contents
Executive Summary
Consolidated Results of Operations for the Three Months Ended
? Net revenue from continuing operations was
ended
? Operating loss from continuing operations was
the three months ended
? Basic and diluted loss per share from continuing operations was
three months ended
share of$101.56 for the same period last year.
Consolidated Results of Operations for the Nine Months Ended
? Net revenue from continuing operations was
ended
? Operating loss from continuing operations was
ended
same period last year.
? Basic and diluted loss per share from continuing operations was
nine months ended
per share of$285.70 for the same period last year.
Cash Flow/Financial Condition for the Nine Months EndedSeptember 30, 2022
? Cash and cash equivalents totaled
with
$2.2 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 Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2022 2021 Change 2022 2021 Change
Net revenue $ - $ - NM $ - $ - -
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) 2022 2021 Change 2022 2021 Change
Selling, general and administrative $ 0.7 $ 2.8 (75.0 )% $ 2.3 $ 5.2 (55.8 )%
As a percent of revenue NM NM NM NM
SG&A expense decreased for the three months ended September 30, 2022 by $2.1
million (or 75.0%), compared with the same period last year, primarily due to
consulting fees paid to GHI LLC in the prior year.
SG&A expense decreased for the nine months ended September 30, 2022 by $2.9
million (or 55.8%), compared with the same period last year, primarily due to
consulting fees paid to GHI LLC and the Chapter 11 reorganization of Adara in the prior year. 16 Table of Contents
Operating Loss from Continuing Operations
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2022 2021 Change 2022 2021 Change
Operating loss from continuing
operations $ (0.7 ) $ (2.8 ) (75.0 )% $ (2.3 ) $ (5.5 ) (58.2 )%
As a percent of revenue NM NM NM NM
Operating loss from continuing operations was$0.7 million and$2.8 million for the three months endedSeptember 30, 2022 and 2021, respectively. Operating loss from continuing operations decreased by$2.1 million for the three months endedSeptember 30, 2022 , compared with the same period last year, primarily due to consulting fees paid toGHI LLC in the prior year. Operating loss from continuing operations was$2.3 million and$5.5 million for the nine months endedSeptember 30, 2022 and 2021, respectively. Operating loss from continuing operations decreased by$3.2 million for the nine months endedSeptember 30, 2022 , compared with the same period last year, primarily due to consulting fees paid toGHI LLC and the Chapter 11 reorganization ofAdara
in
the prior year.
Other Income
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2022 2021 Change 2022 2021 Change
Interest expense $ (0.1 ) $ (0.2 ) (50.0 )% $ (0.2 ) $ (1.9 ) (89.5 )%
Gain on Chapter 11 reorganization - - NM
- 13.8 (100.0 )%
Bank Loan forgiveness - - NM - 0.4 (100.0 )%
Other income, net - 0.4 (100.0 )% 0.2 0.4 (50.0 )%
Total other income $ (0.1 ) $ 0.2 (150.0 )% $ - $ 12.7 (100.0 )%
As a percent of revenue NM NM NM NM
Total other expense for the three months endedSeptember 30, 2022 was$0.1 million , compared to other income of$0.2 million for the same period last year. Other income for the three months endedSeptember 30, 2021 was primarily related to a duty reimbursement claim from theUS Department of the Treasury . Total other income for the nine months endedSeptember 30, 2022 was$0.0 million , compared to$12.7 million for the same period last year. Other income for the nine months endedSeptember 30, 2021 was primarily related to the gain on the Chapter 11 reorganization and the Bank Loan forgiveness. Income Tax Provision Three Months Ended Nine Months Ended September 30, Percent September 30, Percent (Dollars in millions) 2022 2021 Change 2022 2021 Change
Income tax benefit (provision) $ - $ - NM
$ - $ - NM Effective tax rate 0.0 % 0.0 % 0.0 % 0.0 %
Income tax for the three and nine months ended
Segment Results
The asset management business is our only reportable segment 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. 17 Table of Contents
Information related to our segment is as follows:
Asset Management Business
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2022 2021 Change 2022 2021 Change
Operating loss $ (0.4 ) $ - NM $ (1.1 ) $ (2.0 ) (45.0 )%
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.
Corporate and Unallocated
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(Dollars in millions) 2022 2021 Change 2022 2021 ChangeCorporate and unallocated operating loss$ (0.3 ) $ (2.8 ) (89.3 )%$ (1.2 ) $ (3.5 ) (65.7 )%
For the three months ended
For the nine months endedSeptember 30, 2022 and 2021, corporate and unallocated operating loss consists of$1.2 million and$3.5 million of corporate general and administrative expenses, representing a 65.7% 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 and nine months ended
Financial Position
Our cash and cash equivalents balance as of
Our accounts payable balance as of
Our other current liabilities balance as of
18 Table of Contents
Liquidity and Capital Resources
Cash Flows Provided by (Used in) Operating Activities:
Nine Months Ended
September 30,
(Dollars in millions) 2022 2021
Net income (loss) $ (2.3 ) $ 6.7
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Payment-in-Kind interest 0.2 -
Depreciation and amortization - 0.3Change in non-controlling interest - (0.7 ) Gain on Chapter 11 reorganization -
(13.8 )
Bank Loan forgiveness - (0.4 )
Loss on sale of investments - 0.2Changes in operating assets and liabilities 0.1
3.2
Net cash used in operating activities$ (2.0 )
$ (4.5 ) Cash used in operating activities was$2.0 million for the nine months endedSeptember 30, 2022 , which was related to ordinary operating expenses. Cash used in operating activities was$4.5 million for the nine months endedSeptember 30, 2021 , which was primarily related to a consulting agreement signed withGHI LLC and ordinary operating expenses.
Cash Flows Provided by Investing Activities:
Nine Months Ended
September 30,
(Dollars in millions) 2022 2021
Purchase of investments $ (0.2 ) $ - Proceeds 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 FDC
- 0.4
Net cash provided by (used in) investing activities
Investing activities for the nine months endedSeptember 30, 2022 included a$0.2 million contribution to the Arrive investment. For the nine months endedSeptember 30, 2021 , cash provided by investing activities included the sale of unsecured claims, the collection of notes receivable from related parties pursuant to the Chapter 11 reorganization and proceeds from the assignment of related party notes receivable and accrued interest receivable.
Cash Flows Provided by Financing Activities:
Nine Months Ended
September 30,
(Dollars in millions) 2022 2021
Proceeds from ESW debtor-in-possession note payable $ -
- 3.2
Repayment of 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
Net cash provided by financing activities $ -$ 2.4 The Company had no cash provided by financing activities for the nine months endedSeptember 30, 2022 . 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.
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. 19 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, 2021 .
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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