Basis of Presentation

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Note 1 — Basis of Presentation

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.

The interim Condensed Consolidated Financial Statements of GlassBridge are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair statement of financial position, results of operations, comprehensive loss and cash flows for the periods presented. Except as otherwise disclosed herein, these adjustments consist of normal and recurring items. The results of operations for any interim period are not necessarily indicative of full year results. The Condensed Consolidated Financial Statements and Notes are presented in accordance with the requirements for Quarterly Reports on Form 10-Q and do not contain certain information included in our annual Consolidated Financial Statements and Notes presented in accordance with the requirements of Annual Reports on Form 10-K.

The unaudited Condensed Consolidated Financial Statements 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 unaudited Condensed Consolidated Financial Statements up to the date of the disposal and, where appropriate, these operations have been reflected as discontinued operations. 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 interim results reported.

The preparation of the interim Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim Condensed Consolidated Financial Statements and the reported amounts of revenue and expenses for the reporting periods. Despite our intention to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates.

The December 31, 2018 Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Financial Statements but does not include all disclosures required by GAAP. This Form 10-Q should be read in conjunction with our Consolidated Financial Statements and Notes included in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the U.S. Securities and Exchange Commission on April 1, 2019.

The operating results of our legacy business segments, Consumer Storage and Accessories and Tiered Storage and Security Solutions (the “Legacy Businesses”) and the Nexsan Business (which includes the “Nexsan Group” as defined below), are presented in our Condensed Consolidated Statements of Operations as discontinued operations for all periods presented. Our continuing operations in each period presented represents 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 or the Nexsan Business. Assets and liabilities directly associated with our Legacy Businesses and Nexsan Business and that are not part of our ongoing operations have been separately presented on the face of our Condensed Consolidated Balance Sheet as of both June 30, 2019 and December 31, 2018. See Note 4 - Discontinued Operations for further information.

Sale of international subsidiaries and Imation Latin America Corp.

As previously disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) as of April 2, 2019, on March 31, 2019, the Company entered into a securities purchase agreement (the “IMN Capital Agreement”) with IMN Capital Holdings, Inc., a Delaware corporation (“IMN Capital”) whereby the Company sold its entire ownership of its international subsidiaries together with its entire ownership in Imation Latin America Corp., a Delaware corporation (the “Imation Subsidiaries”). As previously disclosed, certain subsidiaries of the Company, including the Imation Subsidiaries, are parties to certain lawsuits, claims, and other legal proceedings concerning claims and counterclaims relating to excess payments made by the Imation Subsidiaries relating to copyright levies in European Union (“EU”) member states (the “Subsidiary Litigation”). Pursuant to the terms and subject to the conditions of the IMN Capital Agreement, IMN Capital acquired from the Company the Company’s shares representing the Company’s ownership interests in each of the Imation Subsidiaries (the “Subsidiary Sale”). Following the Subsidiary Sale, the Imation Subsidiaries are no longer affiliates of the Company, and the Company has no interest in or to the Imation Subsidiaries except as explicitly described in the IMN Capital Agreement. In consideration for the Subsidiary Sale, the Company shall receive certain compensation from IMN Capital. As defined in the IMN Capital Agreement, a payment occurrence is the settlement or final adjudication as to all demands, claims, counter-claims, cross-claims, third-party claims, damages, fees, costs and expenses, brought and raised on any matters arising from or related to the Subsidiary Litigation (a “Payment Occurrence”). In connection with the Subsidiary Sale, the purchase price furnished by IMN Capital to the Company (the “Purchase Price”) shall consist of (i) $277,900 payable upon the execution of the IMN Capital Agreement and (ii) 75% of all net proceeds from Subsidiary Litigation (which, for the avoidance of doubt, shall be calculated after the payment of (i) the retirement of the Germany pension liability; (ii) contingency fees payable to attorneys engaged in connection with the Subsidiary Litigation; (iii) fees payable to Mach 5, the litigation financing company and (iv) the payment of all applicable taxes including income taxes in connection with the Subsidiary Litigation) (such payment, the “Contingent Payment”). The Company expects to record a one-time non-cash gain of approximately $10 million in connection with IMN Capital Agreement transaction.

Liquidity and Management Plan

The Company incurred operating and cash flow losses for several reporting periods and had a working capital deficit of $1.2 million as of June 30, 2019. These losses raised substantial doubt about our ability to continue as a going concern. Although the working capital deficit is $1.2 million, it included $1.0 million of cash as of June 30, 2019, which, in addition to a $1.1 million tax refund received in July 2019, is expected to fund our operations for the next twelve months. As a result, we have undertaken a financial and operational restructuring plan approved by our Board of Directors (the “Board”) prior to the 2018 fiscal year (the “Restructuring Plan”). Operating under the Restructuring Plan includes executing changes to our business model. Management’s execution of the Restructuring Plan, which we believe will alleviate the substantial doubt about our ability to continue as a going concern, 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.

● 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 In connection with the Subsidiary Sale, the Company shall have no further obligations regarding certain entities which were, prior to the Subsidiary Sale, affiliates or subsidiaries of the Company, including Imation Argentina S.A.C.I.F.I, Imation Holdings Pte Ltd., Imation Latin America Corp., Imation Holdings B.V., Imation Corp. Japan, Imation Canada, Inc., Imation Polska Sp Z.O.O. and Global Data Media FZ LLC.

● 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 received approximately a $1.1 million alternative minimum tax refund in July 2019.

● Pension Liabilities: The Company’s application for termination of the GlassBridge Enterprises Cash Balance Pension Plan (the “Plan”) was approved by the Pension Benefit Guaranty Corporation. The termination was effective as of April 30, 2019, and will relieve the Company of the minimum funding requirements of the Plan.

● Asset Monetization: We sold certain IP addresses to a third party. The Company received proceeds of approximately $1.2 million in the first six months of 2019.

Our cash balance was $1.0 million as of June 30, 2019. Our liquidity needs for the next 12 months include the following: corporate expenses of approximately $1.6 million and investments of $0.4 million.

Our cash of $1.0 million as of June 30, 2019, which, in addition to a $1.1 million tax refund received in July 2019 is expected to fund our operations for the next twelve months.