Segment Information

Beginning in the fourth quarter of 2015, in conjunction with our accelerated wind-down of the Company’s Legacy Businesses, the Company changed the manner in which it evaluates the operations of the Company and makes decisions with respect to the allocation of resources. The Company operated in three reportable segments as of December 31, 2015: Storage Media and Accessories; IronKey (which, together with Storage Media and Accessories, we now refer to as our Legacy Businesses); and the Nexsan Business. We sold our IronKey business in February 2016 and have substantially completed the wind-down of the Legacy Businesses as of March 31, 2016. The Legacy Businesses are presented in our Condensed Consolidated Statements of Operations as discontinued operations and are not included in segment results for all periods presented. See Note 4 - Discontinued Operations for further information about these divestitures.

In connection with the NXSN Transaction (See Note 1 - Basis of Presentation for further information about the NXSN Transaction), all of the issued and outstanding common stock of Nexsan and CDI was transferred to NXSN in exchange for 50% of the issued and outstanding common stock of NXSN and the $25 million NXSN Note. SPPE, an affiliate of Spear Point, owns the remaining 50% issued and outstanding shares of NXSN common stock and shares of NXSN non-voting preferred stock. We entered into a stockholders agreement (the “NXSN Stockholders Agreement”) with SPPE and NXSN providing for certain oversight, management and veto rights with respect to NXSN. As a result, we have the right to designate, individually, two of the five directors serving on the NXSN board of directors (the “NXSN Board”), and to designate jointly, with SPPE, an additional independent director to serve on the NXSN Board, until the NXSN Note is paid in full. We also have approval rights with respect to certain actions proposed to be taken by NXSN, including the issuance of additional amendments to its organizational documents and issuances of additional capital stock.

As a result of the terms and conditions of the NXSN Transaction (including the NXSN Stockholders Agreement and NXSN Note), we identified NXSN as a VIE. We consolidate a VIE in our financial statements if we are deemed to be the primary beneficiary of the VIE. The primary beneficiary is the party that has the power to direct activities that most significantly impact the activities of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE. Although we and SPPE share the power to direct NXSN’s activities until the NXSN Note is paid in full, we have approval rights under the NXSN Note and NXSN Stockholders Agreement with respect to certain actions proposed to be taken by NXSN. Therefore, we are determined to be the primary beneficiary and following January 23, 2017, NXSN’s financial results are included in our Condensed Consolidated Financial Statements. Until January 23, 2017, we owned 100% of the equity interests of Nexsan and CDI. Their financial results were included in our Condensed Consolidated Financial Statements as wholly-owned subsidiaries.

Pursuant to the terms of the NXSN Transaction, if, on the six month anniversary of the Closing Date, the aggregate Funded Equity Commitments are less than $10 million, then the aggregate principal amount of the NXSN Note shall be increased by an amount equal to $10 million, minus the aggregate Funded Equity Commitments. On May 1, 2017, we amended the terms of the NXSN Transaction to extend the Funded Equity Commitments to August 15, 2017. As of August 15, 2017, NXSN had sold $5.3 million of NXSN non-voting preferred stock and as a result, the aggregate principal amount of the NXSN Note was increased by $4.7 million and remains subject to further working capital adjustments pursuant to the terms of the NXSN Note. Although the time period during which NXSN was permitted to sell NXSN non-voting preferred stock has lapsed under the terms of the NXSN Transaction, we are continuing to work with SPPE to find capital solutions to sufficiently fund the continuing operations of the Nexsan Business. In the event NXSN does not raise sufficient capital to fund its continuing operations, we will continue to explore options to preserve the enterprise value of the Nexsan Business.

On February 2, 2017, we closed the Capacity and Services Transaction with Clinton. The Capacity and Services Transaction allows GBAM to access investment capacity within Clinton’s quantitative equity strategy. In addition, we have recently taken steps to build our own independent organizational foundation while leveraging Clinton’s capabilities and infrastructure. While our intention is to primarily engage in the management of third-party assets, we may make opportunistic proprietary investments from time to time that comply with applicable laws and regulations. Going forward, we will focus on our Asset Management Business as our primary operating business segment. See Note 16 - Related Party Transactions for additional information.

In June 2017, we launched the GBAM Fund which focuses on technology-driven quantitative strategies and other alternative investment strategies. As of September 30, 2017, we invested $10.0 million in the GBAM Fund. We have made the determination to consolidate the GBAM Fund and, accordingly, its financial results were included in our Condensed Consolidated Financial Statements as part of the Asset Management Business shown below.

As of September 30, 2017, the Nexsan Business and Asset Management Business are our reportable segments.

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.

For our Asset Management Business, we include net gains from GBAM Fund activities in our performance evaluation. Net gains from GBAM Fund activities represent realized and unrealized gains and losses for the GBAM Fund.

Net revenue and operating loss from continuing operations by segment were as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions)	2017		2016		2017		2016
Net revenue
Nexsan Business	$	9.3	$	11.5	$	27.7	$	32.8
Asset Management Business	—		—		—		—
Total net revenue	$	9.3	$	11.5	27.7		$	32.8



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions)	2017			2016			2017			2016
Operating loss from continuing operations
Nexsan Business	$	(2.5	)	$	(4.3	)	$	(10.4	)	$	(14.3	)
Asset Management Business	(1.2		)	—			(2.9		)	—
Total segment operating loss	(3.7		)	(4.3		)	(13.3		)	(14.3		)
Corporate and unallocated	(1.4		)	(2.1		)	(4.4		)	(8.5		)
Restructuring and other	(1.2		)	(1.3		)	(1.1		)	(7.1		)
Total operating loss	(6.3		)	(7.7		)	(18.8		)	(29.9		)
Interest income	—			—			—			0.2
Net gains from GBAM Fund activities	1.0			—			1.0			—
Other income (expense), net	0.1			0.2			(0.6		)	(0.8		)
Loss from continuing operations before income taxes	$	(5.2	)	$	(7.5	)	$	(18.4	)	$	(30.5	)