Background and Basis of Presentation

12 Months Ended

Dec. 31, 2018

Background And Basis Of Presentation

Background and Basis of Presentation

Note 1 — Background and Basis of Presentation

Background

GlassBridge Enterprises, Inc. (“GlassBridge”, the “Company”, “we”, “us” or “our”) is a holding company. We actively explore a diverse range of new, strategic asset management business opportunities for our portfolio. The company’s wholly-owned subsidiary GlassBridge Asset Management, LLC (“GBAM”) is an investment advisor focused on technology-driven quantitative strategies and other alternative investment strategies. Our partially-owned subsidiary NXSN Acquisition Corp. (together with its subsidiaries, “NXSN”) operates a global enterprise data storage business through its subsidiaries.

Basis of Presentation

The financial statements are presented on a consolidated basis and include the accounts of the Company, its wholly-owned subsidiaries, and entities in which the Company owns or controls fifty percent or more of the voting shares and has the right to control. The results of entities disposed of are included in the Consolidated Financial Statements up to the date of the disposal and, where appropriate, these operations have been reflected as discontinued operations. Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). All inter-company balances and transactions have been eliminated in consolidation and, in the opinion of management, all normal recurring adjustments necessary for a fair presentation have been included in the results reported.

The operating results of our legacy business segments, Consumer Storage and Accessories and Tiered Storage and Security Solutions (the “Legacy Businesses”), are presented in our Consolidated Statements of Operations as discontinued operations for all periods presented. Our continuing operations in each period presented represents our global enterprise data storage business with an emerging enterprise-class, private cloud sync and share product line (the “Nexsan Business”, which consists of the products of NXSN’s subsidiaries Nexsan Corporation (together with its subsidiaries other than Connected Data, Inc. (“CDI”), “Nexsan”) and CDI), and our “Asset Management Business,” which consists of our investment advisory business conducted through GBAM, as well as corporate expenses and activities not directly attributable to our Legacy Businesses. Assets and liabilities directly associated with our Legacy Businesses and that are not part of our ongoing operations have been separately presented on the face of our Consolidated Balance Sheets for all periods presented. See Note 4 - Discontinued Operations for further information.

On January 23, 2017, we closed a transaction (the “NXSN Transaction”) with NXSN, pursuant to which all of the issued and outstanding common stock of Nexsan (to which all of the outstanding stock of CDI had been contributed) was transferred to NXSN in exchange for 50% of the issued and outstanding common stock of NXSN and a $25 million senior secured convertible promissory note (the “NXSN Note”). Spear Point Private Equity LP (“SPPE”), an affiliate of Spear Point Capital Management, LLC (“Spear Point”), owns the remaining 50% issued and outstanding shares of NXSN common stock and shares of NXSN non-voting preferred stock.

As a result of the NXSN Transaction, we identified NXSN as a variable interest entity (“VIE”). We consolidate a VIE in our financial statements if we are deemed to be the primary beneficiary of the VIE. The primary beneficiary of a VIE 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. Following January 23, 2017, NXSN’s financial results are included in our Consolidated Financial Statements since we made the determination that we are the primary beneficiary of such VIE. Until January 23, 2017, as we owned 100% of the equity interest of Nexsan and CDI, the financial results of Nexsan and CDI were included in our Consolidated Financial Statements as wholly-owned subsidiaries. See Note 14 - Business Segment Information and Geographic Data for additional information.

On February 2, 2017, we closed a transaction with Clinton Group, Inc. (“Clinton”) which has facilitated the launch of our Asset Management Business, which consists of our investment advisory business conducted through GBAM (the “Capacity and Services Transaction”). See Note 6 - Intangible Assets and Goodwill and Note 16 - Related Party Transactions for further information.

On February 21, 2017, we effected a 1:10 reverse split of our common stock, without any change in the par value per share (the “Reverse Stock Split”) and decreased the number of authorized shares of our common stock from 100,000,000 to 10,000,000. All share and per share values of our common stock for all periods presented are retroactively restated for the effect of the Reverse Stock Split.

In March 2017, ARRIVE was formed through a collaboration with Roc Nation, a full-service entertainment company founded by Shawn “JAY Z” Carter, Primary Venture Partners (“Primary”) and GBAM. Primary will serve as a venture advisor and GlassBridge will provide institutional and operational support. ARRIVE was created to invest alongside entrepreneurs and early stage businesses. Among other things, ARRIVE has launched a traditional venture fund in order to, among other activities, support existing portfolio companies through their subsequent growth stages and anticipates launching other special purpose investment vehicles to invest in private equity transactions.

In June 2017, we launched our first GBAM-managed investment fund (the “GBAM Fund”) which focuses on technology-driven quantitative strategies and other alternative investment strategies. The fund initially performed in-line with expectations for 2017. However, we had a difficult time raising third-party capital due to the overall under-performance of the hedge fund industry. In Q4, 2018, after our internal business review and deliberations, we decided to temporarily close the GlassBridge Quantitative Equity Fund to save operating costs. The GBAM Fund’s financial results are included in our Consolidated Financial Statements as part of the Asset Management Business. See Note 14 - Business Segment Information and Geographic Data for additional information.

On July 20, 2017, the Company notified the NYSE of its intention to voluntarily delist its common stock from the NYSE. After much careful consideration and deliberation, our Board approved resolutions authorizing the Company to initiate voluntary delisting from the NYSE. The Board weighed several material factors in reaching this decision, including avoiding the risks that involuntary suspension of trading could cause and the importance of a controlled transition to the OTCQX to ensure the continuing availability of a market for trading our common stock. The last trading day on the NYSE was August 1, 2017. Our common stock began trading on the OTCQX under the symbol “GLAE” on August 2, 2017.

On August 16, 2018, the Company consummated the NXSN Transaction, wherein the Company, through a series of transactions, sold its partially-owned subsidiary, the Nexsan Business, to StorCentric, Inc., a Delaware company affiliated with Drobo, Inc. For more information regarding the NXSN Transaction, please review the summary of the NXSN Transaction in Note 1 - Basis of Presentation to this report, and the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission as of August 16, 2018.

The Company’s continued operations and ultimate ability to continue as a going concern will depend on its ability to enhance revenue and operating results, enter into strategic relationships or raise additional capital. The Company can provide no assurances that all or any of such plans will occur; and if the Company is unable to return to profitability or otherwise raise sufficient capital, there would be a material adverse effect on its business.

Liquidity and Management Plan

The Company has incurred operating and cash flows losses for several reporting periods and has a negative working capital balance of $0.2 million as of December 31, 2018. Negative working capital includes $4.9 million of remaining cash to fund our operations at least through the first quarter of 2020. These conditions raised substantial doubt about our ability to continue as a going concern. We have undertaken a financial and operation restructuring plan approved by our board prior to this reporting year. Accordingly, we are operating under that plan which includes executing changes to our business model. Management’s plan with respect to these matters, which we believe alleviates the substantial doubt, is as follows:

● Asset Management Business: We expect the Asset Management Business to grow assets under management (AUM) in 2019 and to make progress in the venture and private equity business. The business is targeted to break even.

● Legacy Business: As we settled most of the major litigation, the Legacy Business cash spending is expected to be significantly lower in 2019. Furthermore, in 2018 we finalized a European levy litigation financing agreement which would eliminate levy legal costs going forward. The major operating expenses are accounting, compliance (statutory audit & tax filing), legal fees (non-levy related) and Germany pension funding

● Corporate: We will continue to reduce corporate spending in all areas including the board cost and the corporate personnel. We have decided to outsource the corporate finance, accounting and IT operations to Clinton Group starting in Q1, 2019. This reduces corporate costs by 50%.

● Tax Refund: As a result of the 2017 tax reform, we expect to receive approximately $1.1 million alternative minimum tax refund in mid-2019.

● Pension Liabilities: The Company is currently in discussions with the Pension Benefit Guaranty Corporation seeking relief from the minimum funding requirements of our U.S. pension plan. As of December 31, 2018, required contributions of $2.1 million had not been paid and are included in the Company’s current liabilities.

● Asset Monetization: We sold certain IP addresses to a third party. Proceeds of $950,000 are in escrow, subject to the completion of the terms defined in the purchase agreement and are recorded in other current assets of discontinued operations as of December 31, 2018. The Company expects to receive the cash from escrow in Q1, 2019. See Note 4 – Discontinued Operations for more information on this transaction.

Our cash balance and the short-term investment was $4.9 million as of December 31, 2018. Our liquidity needs for the next 12 months include the following: corporate expenses of approximately $2.0 million, pension obligation funding costs will be approximately $4.0 million (if we do not obtain funding relief from the Pension Benefit Guaranty Corporation and we are required to make the minimum pension contributions), legal settlement payment of $1.0 million to CMC and others of $0.5 million, and any cash shortfall associated with the Asset Management Business.

We expect that our cash and short-term investments and potential cash flow from GBAM and asset monetization (i.e. monetizing $4.0 investment in Arrive) will provide liquidity sufficient to meet our obligations as they become due within one year from the date these financial statements are issued. We also plan to raise additional capital from non-strategic asset sales, or otherwise, 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.