GlassBridge Enterprises, Inc. - Annual Report: 2018 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

     (Mark One)

Commission file number: 1-14310

GLASSBRIDGE ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

(651) 704-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share

Preferred Stock Purchase Rights

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one).

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

Aggregate market value of voting and non-voting stock of the registrant held by non-affiliates of the registrant, based on the closing price of $0.95 as reported on the New York Stock Exchange on June 30, 2018 (the last business day of the registrant’s most recently completed second fiscal quarter), was $3.2 million.

The number of shares outstanding of the registrant’s common stock on February 28, 2019 was 5,137,487.

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the registrant’s definitive proxy statement on Schedule 14A for the registrant’s 2019 annual meeting of stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.

GLASSBRIDGE ENTERPRISES, INC.

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2018

TABLE OF CONTENTS

Cautionary Statements Regarding Forward-Looking Statements

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-K, in our other filings with the U.S. Securities and Exchange Commission (“SEC”) 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 the SEC including the following: our need for substantial additional capital in order to fund our business; our ability to realize the anticipated benefits of the Restructuring Plan (as defined herein), the NXSN Sale (as defined herein) and other recent significant changes; the negative impacts of our delisting from the New York Stock Exchange (“NYSE”), including reduced liquidity and market price of our common stock and the number of investors willing to hold or acquire our common stock; 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 (as defined herein) 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 and goodwill; 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; the efforts of the key personnel of Clinton Relational Opportunity Master Fund, L.P. (“Clinton”) and the performance of its overall 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, including any fund or account managed by Clinton; 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 realize the anticipated benefits of the third-party investment in our partially-owned data storage business; decreasing revenues and greater losses attributable to our partially-owned data storage products; our ability to quickly develop, source and deliver differentiated and innovative products; our dependence on third parties for new product introductions or technologies; our dependence on third-party contract manufacturing services and supplier-provided parts, components and sub-systems; our dependence on key customers, partners and resellers; foreign currency fluctuations and negative or uncertain global or regional economic conditions as well as various factors set forth from time to time in Item 1A of this Form 10-K and from time to time in our filings with the SEC.

PART I

Item 1. Business.

General

GlassBridge Enterprises, Inc. (“GlassBridge”) is a holding company. Our wholly-owned subsidiary GlassBridge Asset Management, LLC (“GBAM”) is an investment advisor focused on technology-driven and quantitative strategies.

As used in this document, the terms “GlassBridge”, “the Company”, “we”, “us”, and “our” mean GlassBridge Enterprises, Inc. and its subsidiaries and consolidated entities unless the context indicates otherwise.

Asset Management Business

Our Asset Management business is currently comprised of two distinct businesses. One of these businesses focuses on liquid equity strategies that employ primarily technology-driven and quantitative strategies. The other business, our joint venture with Roc Nation, focuses on venture capital and private equity. Within the liquid investment space, we intend to use algorithms and other quantitative strategies with the goal of achieving consistent, competitive risk-adjusted returns for GBAM’s investors. In February 2017, we closed a transaction with Clinton Relational Opportunity Master Fund, L.P. (“Clinton”) which facilitated the launch of our asset management business (the “Capacity and Services Transaction”). The Capacity and Services Transaction allows for GBAM to initially place up to $1 billion of investment capacity under Clinton’s management within Clinton’s quantitative equity strategy for a five-year term. We have the option of expanding such investment capacity to $1.5 billion and to extend the term for two subsequent one-year periods, subject to certain conditions.

The Capacity and Services Transaction was structured to provide for the quick and efficient scaling of an asset management business and designed to provide investors with access to quantitative equity strategies.

From late in 2016 through early 2017 we took steps to build our own independent organizational foundation, which we intend to utilize together with Clinton’s abilities 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.

In June 2017, we launched our first GBAM-managed investment fund (the “GBAM Fund”) which focuses primarily on technology-driven quantitative equity strategies. As of December 31, 2018, we did not have any assets invested in the GBAM Fund.

We intend to earn revenues in our Asset Management Business primarily by providing investment advisory services to third party investors through GlassBridge managed funds as well as separate managed accounts. Investment advisory services include managing the composition of each fund’s portfolio (including the purchase, retention and disposition of portfolio securities in accordance with the fund’s investment objectives, policies and restrictions), conducting investment research, monitoring compliance with each fund’s investment restrictions and applicable laws and regulations, overseeing the selection and continued employment of sub-advisors and monitoring such sub-advisors’ investment performance and adherence to investment policies, risk management and compliance procedures, overseeing other service providers, maintaining public relations and marketing programs for each of the funds, preparing and distributing regulatory reports and overseeing distribution through third party financial intermediaries. We anticipate that our revenues will increase or decrease as our average assets under management rises or falls. The percentage amount of the investment advisory fees may vary from fund to fund.

We have delegated day-to-day portfolio management responsibilities to Clinton as sub-advisor to our initial quantitative fund pursuant to the Capacity and Services Transaction. Clinton will not collect a fee for such services going forward as we issued 1,250,000 shares of common stock of the Company to Clinton’s affiliate in connection with the closing of the Capacity and Services Transaction.

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 traditional venture funds in order to, among other activities, support existing portfolio companies through their subsequent growth stages and other special purpose investment vehicles to invest in private equity transactions.

We believe that GlassBridge’s status as a public reporting company is an ideal platform from which to grow our Asset Management Business. The existing reporting, compliance and other regulatory requirements to which GlassBridge is subject provide transparency which is intended to provide investors with insight, scrutiny and comfort.

The success of our Asset Management Business will depend in large part on our ability to create investment products and raise capital from third party investors. If we are unable to raise capital from third party investors, we would be unable to collect management fees or deploy their capital into investments and potentially collect performance fees, which would adversely affect our ability to generate revenue and cash flow from this business.

The investment advisory industry is intensely competitive. We compete with many domestic and global competitors that may provide investment products with similar features and objectives to those we offer. These institutions range from small boutique firms to large financial institutions.

Poor performance of any investment funds we sponsor or accounts we manage, including, without limitation, any fund or account managed or sub advised by Clinton pursuant to the Capacity and Services Transaction, would adversely affect our ability to generate revenue, income and cash flow, and could adversely affect our ability to raise capital for future investment funds and accounts.

The ability of Clinton to perform services under the Capacity and Services Transaction will depend on the efforts of its key personnel and the performance of its overall business. There is no guarantee that Clinton’s key personnel will remain available to devote sufficient time, or any time at all, to the performance of these services, or that Clinton’s business overall will not experience other adverse events. If Clinton’s key personnel are not available, or Clinton’s business experiences other adverse events, Clinton may not be able to perform adequately, or at all, the services it is required to perform, and our business, prospects, financial condition and results of operations could be materially adversely affected.

Difficult market and economic conditions, including, without limitation, changes in interest rates and volatile equity and credit markets, can adversely affect our asset management business in many ways; including by reducing the value or performance of the investments made by any investment funds we sponsor or accounts we manage, including, without limitation, any fund managed by Clinton, and reducing our ability to raise or deploy capital; each of which could adversely affect our revenue, earnings and cash flow and adversely affect our financial prospects and condition.

Any revenue, earnings, net income and cash flow attributable to our Asset Management Business is likely to be highly variable, which may make it difficult for us to achieve steady earnings growth on a quarterly basis and may cause the price of shares of our common stock to decline and be volatile.

We are subject to extensive federal and state laws and regulations intended to protect investors of investment advisors, including the Investment Advisers Act of 1940 and related SEC regulations.

Please see Risk Factors in Item 1A of this Annual Report on Form 10-K for a further discussion of the risks relating to the launch and growth of our Asset Management Business.

Nexsan Business

The Nexsan Business consisted of products of Nexsan and Connected Data, Inc. (“CDI”). We acquired the Nexsan brand at the end of 2012 and began operations in 2013. In October 2015, we acquired substantially all the equity of CDI as well as the Transporter brand. As described in the section below titled The NXSN Sale and in more detail in Note 4 – Discontinued Operations, the Company completely divested itself of the Nexsan Business and all related obligations, liabilities and interests in or to any part of that business.

At December 31, 2018, we employed approximately 5 people worldwide, with approximately 4 employed in the United States and 1 employed internationally.

The NXSN Sale

On August 16, 2018, the Company completed the disposition of its entire interest in the Nexsan Business, as described herein.

On August 16, 2018, we simultaneously acquired all of the capital stock of NXSN Acquisition Corp. (together with its subsidiaries, “NXSN”) from Humilis Holdings Private Equity LP f/k/a Spear Point Private Equity LP (“Humilis”) and sold all of the capital stock of the Nexsan Group (as defined herein) (collectively the “NXSN Sale”) to StorCentric, Inc. (the “Buyer”), a newly-incorporated Delaware company affiliated with Drobo, Inc., a Delaware corporation (“Drobo”) for $5,675,000.

The Legacy Businesses

Following the completion of the Restructuring Plan (as defined below), we no longer operate our Legacy Businesses. The wind down of our Legacy Businesses was completed in early 2016. During the execution of the Restructuring Plan, our strategy was to maximize cash flows, extract working capital from these businesses and manage our cost structure efficiently as we wound down the businesses.

When we conducted our Legacy Businesses, the Imation brand was for many years at the forefront of data storage and digital technology. Imation brand products included magnetic tape media, recordable CDs, DVDs and Blu-ray discs, flash products and hard disk drives.

Company History

GlassBridge was incorporated as Imation Corp. in Delaware in 1996 from the spin-off of substantially all the businesses that comprised the data storage and imaging systems groups of 3M Company. Until 2015, we primarily provided data storage and security solutions through our two legacy business segments: Consumer Storage and Accessories and Tiered Storage and Security Solutions, which we refer to as our “Legacy Businesses.”

We have, however, undergone a period of significant changes. Beginning with the proxy contest led by Clinton in connection with the annual meeting of stockholders in 2015 and continuing until February 2017, we underwent a restructuring plan (the “Restructuring Plan”) led by our management, our Board of Directors (the “Board”) and its Strategic Alternatives Committee. Since the proxy contest, our evolution has included a re-composition of the Board, changes in the compensation structures of the Board and management and the execution of the Restructuring Plan which included the elimination of unprofitable businesses and the harvesting of capital from the liquidation of non-core assets.

Beginning in September 2015, the Board, management and the Strategic Alternatives Committee adopted the Restructuring Plan to begin the process of discontinuing our Legacy Businesses, a decision which resulted from continued losses due to secular declines and which was aimed to reduce our cost structure and streamline our organization. Following the wind down of our Legacy Businesses, we then developed and explored strategies and alternatives to create stockholder value by deploying our excess capital. The Restructuring Plan also called for the rapid rationalization of our corporate overhead. We incurred approximately $120 million in total charges for the Restructuring Plan, excluding tax impact. The charges were mostly non-cash, with cash charges of approximately $34 million.

We closed a transaction in January 2017 with NXSN, an affiliate of Spear Point Capital Management LLC (“Spear Point”), pursuant to which all of the issued and outstanding common stock of Nexsan was sold 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 Transaction” and the “NXSN Note” respectively). Prior to the consummation of the NXSN Transaction, we contributed all the issued and outstanding stock of CDI to Nexsan. The NXSN Transaction was designed to provide for third-party investment in the Nexsan business to enhance Nexsan’s growth and support its recent product developments, minimize our need to make this investment in Nexsan ourselves and preserve the potential for equity value upside from Nexsan’s ongoing development and market penetration. While the results of the NXSN Transaction initially met our expectations, Spear Point’s management of and investment in NXSN and Nexsan proved to be both inadequate and in violation of the NXSN Transaction agreements. Accordingly, on November 14th, 2017, we invoked the rights resulting from such violations to exercise the voting rights created thereby and re-take management control of the Nexsan subsidiaries and business.

In February 2017, we closed a transaction with Clinton which has facilitated the launch of our asset management business (the “Capacity and Services Transaction”). The Capacity and Services Transaction allows for GBAM to place investment capacity under Clinton’s management within Clinton’s quantitative equity strategy. The Capacity and Services Transaction was structured to provide for the quick and efficient scaling of an asset management business and designed to provide investors with access to quantitative equity strategies. We intend to use algorithms and other quantitative strategies with the goal of achieving consistent, competitive risk-adjusted returns for GBAM’s investors. In addition, we have recently taken steps to build our own independent organizational foundation while utilizing Clinton’s abilities 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.

In February 2017, the Company 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.

In February 2017, we changed our name to GlassBridge Enterprises, Inc. to reflect our new primary focus on asset management.

In June 2017, we launched the GBAM Fund as described above under “Asset Management Business.”

On July 20, 2017, the Company notified the NYSE of its intention to voluntarily delist its common stock from the NYSE. After much careful discussion and deliberation, our Board approved resolutions authorizing the Company to initiate voluntarily 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 marketplace (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.

As described above, on August 16, 2018, the Company closed the NXSN Sale, and all related transactions contemplated therein, completely divesting itself of all related businesses, opportunities, liabilities and obligations related to.

As of December 31, 2018, the Asset Management Business is our only operating business segment.

Executive Officers

As of April 1, 2019, the company has three executive officers.

Joseph De Perio, age 40, is our Chairman and principal executive officer. Mr. De Perio joined our Board on May 20, 2015. On March 22, 2017, the Board appointed Joseph De Perio to serve as its Chairman and as the Company’s principal executive officer, effective on the same day. Previously, Mr. De Perio served as the Board’s Non-Executive Chairman. Mr. De Perio has served as a Senior Portfolio Manager of Clinton since October 2010; he also served in a similar capacity from 2006 until December 2007. From December 2007 until October 2010, Mr. De Perio was a Vice President at Millennium Management, L.L.C., a global investment management firm. Mr. De Perio was a Private Equity Associate at Trimaran Capital Partners, a private investment firm, from 2004 until 2006 and an analyst and associate in the mergers and acquisitions department at CIBC Oppenheimer, a national investment boutique, from 2000 until 2004. Mr. De Perio also served on the board of directors of Viking Systems, Inc., a leading worldwide developer, manufacturer and marketer of 3D and 2D visualization solutions for complex minimally invasive surgery, from June 2011 until its sale to Conmed Corporation in October 2012, and Overland Storage, Inc. (f/k/a Overland Data, Inc.), a provider of data protection appliances, from April 2011 until its sale to Sphere 3D Corporation in December 2014. Mr. De Perio also served on the board of directors of EveryWare Global, Inc., a provider of tabletop and food preparation products for the consumer and foodservice markets, from May 2013 until April 2015 when the company filed for protection under Chapter 11 of the United States Bankruptcy Code pursuant to a pre-packaged plan of reorganization. Mr. De Perio received a B.A. in business economics and organizational behavior management with honors from Brown University.

Danny Zheng, age 49, is our Interim Chief Executive Officer and Chief Financial Officer. Mr. Zheng joined the Company in 2008 to lead the Company’s Electronic Products segment. In 2011 he was appointed as Corporate Treasurer. In 2014, Mr. Zheng was appointed Vice President, Corporate Controller. On April 26, 2016, Mr. Zheng was appointed as our Chief Financial Officer and on February 2, 2017 was appointed as our Interim Chief Executive Officer. Prior to Mr. Zheng’s employment with the Company, he served as Chief Financial Officer and Interim CEO of The Singing Machine Company (OTCQB: SMDM), a consumer electronics company. Mr. Zheng is a Certified Public Accountant, received his bachelor’s degree in Accounting from Nankai University in Tianjin, China and holds a Master of Business Administration from the Wharton School of the University of Pennsylvania.

Daniel A. Strauss, age 34, is our Chief Operating Officer. Mr. Strauss has been a Portfolio Manager at Clinton since 2010. Mr. Strauss has over ten years of experience in corporate finance as a portfolio manager and investment analyst in private and public equity through which he has developed a deep understanding of corporate finance and strategic planning activities. At Clinton, Mr. Strauss is responsible for evaluating and executing private equity transactions across a range of industries. Post-investment, Mr. Strauss is responsible for the ongoing management and oversight of Clinton’s portfolio investments. From 2008 to 2010, he worked for Angelo, Gordon & Co. as a member of the firm’s private equity and special situations area. Mr. Strauss was previously with Houlihan Lokey, where he focused on mergers and acquisitions from 2006 to 2008. Mr. Strauss has served on the boards of directors of Pacific Mercantile Bancorp (NASDAQ: PMBC) from August 2011 until December 2015 and Community Financial Shares, Inc. (OTC: CFIS) from December 2012 until its sale to Wintrust Financial Corporation in July 2015. Mr. Strauss received a Bachelor of Science in Finance and International Business from the Stern School of Business at New York University.

Availability of SEC Reports

Our SEC filings are available to the public from the SEC’s internet site at www.sec.gov. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and our proxy statements are available on the SEC’s internet site. These reports are available through the SEC’s internet site as soon as they are published by the SEC, after we electronically file the material with, or furnish it to, the SEC. You may read and copy any document we file at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. We do not make the foregoing reports available free of charge on an internet site as we do not currently maintain an internet site for GlassBridge’s filings.

A copy of the GlassBridge code of ethics and charters for the committees of our Board may be obtained, free of charge, by sending a written request to Corporate Secretary, GlassBridge Enterprises, Inc., 1099 Helmo Ave. N., Suite 250, Oakdale, Minnesota 55128. Our code of ethics is part of our broader Business Conduct Policy, which may be obtained by written request to the Corporate Secretary, as above. If we make any amendments to our code of ethics other than technical, administrative or other non-substantive amendments, or grant any waiver, including any implicit waiver, from a provision of the code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions requiring disclosure under applicable SEC rules, we intend to disclose the nature of such amendment or waiver via current report of Form 8-K and/or a separate release, as necessary. No information furnished via any website is incorporated by reference into this Annual Report on Form 10-K.

Item 1A. Risk Factors.

Our business is subject to numerous risks, uncertainties and other factors that could have a material and adverse impact on our business, prospects, financial condition, results of operations or cash flow. These risks, uncertainties and other factors, including the ones discussed below, elsewhere in this Annual Report on Form 10-K and in our other filings with the SEC, could materially and adversely affect our business, prospects, financial condition, results of operations or cash flow. Investors should carefully consider such risks, together with all the other information included in this Annual Report on Form 10-K, in evaluating us and our common stock.

Risks Related to our Company and Common Stock

We may need substantial additional capital in order to fund our business in the near term. If we cannot access additional capital when we need it and on acceptable terms, our business may fail.

We had $4.9 million in cash as of December 31, 2018. Based on these capital resources and given the new launch of our Asset Management Business, we cannot guarantee that we will have sufficient capital to fund our operations if the new direction of our business does not generate sufficient capital on our expected timeline or if we are required to satisfy all of our potential liabilities.

We expect our future capital requirements to be substantial, particularly with respect to corporate expenses, our Asset Management Business, and potential litigation-related costs. We anticipate that for 2019 our corporate expenses will be 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), a vendor settlement payment of $1 million and any cash shortfall associated with the Asset Management Business. As discussed in Note 15 to the financial statements included in this Annual Report on Form 10-K and the risk factor entitled “Pending and future litigation may lead us to incur significant costs,” below, there has been a judgment by a lower French court against our subsidiary in the Netherlands, Imation Europe B.V. (“IEBV”), in the amount of approximately 14 Million Euros (approximately $15,900,000 at current exchange rates), which the Company is vigorously appealing and believes it will be successful in overturning. This, among other actual and potential litigation-related expenses could have a material impact, both negatively and positively, in the Company’s financial results.

In addition, our need for additional capital will depend on many factors, including:

With our current cash position and potential costs, investors or other financing sources may be unwilling to provide funding on acceptable terms or at all. If we cannot obtain additional financing when we need it and on terms acceptable to us, our business may fail. If we fail to raise sufficient funds or incur losses, our ability to fund our operations, take advantage of strategic opportunities, develop products or technologies, operate our Asset Management Business or otherwise respond to competitive pressures could be significantly limited. If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business. If future financings involve the issuance of equity securities, our existing stockholders would suffer dilution. If we raise debt financing, we may be subject to restrictive covenants that limit our ability to conduct our business. If our business fails, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and investors will likely lose a substantial part or all their investment.

Pending and future litigation may lead us to incur significant costs.

We are subject to various pending or threatened legal actions in the ordinary course of our business. With respect to our Legacy Business and Nexsan Business, claims have and may continue to arise from time to time alleging that we infringe on the intellectual property rights of others. If we are not successful in defending ourselves against those claims, we could incur substantial costs in implementing remediation actions, such as redesigning our products or processes, paying for license rights, paying to settle disputes or paying damages. The related costs or the disruption to our operations could have a material adverse effect on our results. In addition, we utilize valuable non-patented technical know-how and trade secrets in our product development. There can be no assurance that confidentiality agreements and other measures we utilize to protect such proprietary information will be effective, that these agreements will not be breached or that our competitors will not acquire the information as a result of or through independent development. We enforce our intellectual property rights against others who infringe those rights. Additionally, we are subject to allegations of patent infringement by our competitors as well as by non-practicing entities, sometimes referred to as “patent trolls,” who may seek monetary settlements from us.

Litigation is always subject to many uncertainties and outcomes that are not predictable. Even when not merited, the defense of these lawsuits may divert our management’s attention, and we may incur significant expenses in defending these lawsuits. In addition, we may be required to pay damage awards or settlements or become subject to injunctions or other equitable remedies, which could have a material adverse effect on our business, financial condition, results of operations or liquidity. We use legal and appropriate means to contest litigation threatened or filed against us, but we have found there is a strong tendency toward litigation in the patent area in our industry and this litigation environment poses a business risk. The outcome of litigation is often difficult to predict, and the outcome of pending or future litigation may have a material adverse effect on our business, financial condition, results of operations or liquidity.

We may be unable to realize the anticipated benefits of the Restructuring Plan, the NXSN Sale and our other recent significant changes.

Beginning with the proxy contest in connection with the annual meeting of stockholders in 2015 and continuing until February 2017, we underwent the Restructuring Plan led by our management, our Board and its Strategic Alternatives Committee. The Restructuring Plan included the termination of our Legacy Businesses and the entry into the NXSN Transaction and the Capacity and Services Transaction.

As described in Note 4 – Discontinued Operations herein, the Company sold all right, title and interest in and to the Nexsan Business to the Buyer during the NXSN Sale completed August 16, 2018. The purpose of our divestment in Nexsan and all associated business units was to streamline our corporate holdings and continue to focus on our Asset Management Business.

While the NXSN Sale and Restructuring Plan were conducted to address continued losses due to secular declines in our Legacy Businesses and Nexsan Business, to reduce our cost structure and streamline our organization and to explore strategic alternatives including the launch of our Asset Management Business, we may be unable to ultimately realize some or all of the anticipated benefits of such actions and such actions may not enhance, or may decrease, stockholder value or the value of our business. If our new strategy of focusing on our Asset Management Business is not successful, it could have a material and adverse impact on our business, prospects, financial condition, results of operations or cash flow. In addition, the continuing process of reviewing strategic alternatives and implementing any courses of action selected may be disruptive to our business operations, may distract management from its day-to-day responsibilities and could make it more difficult to retain customers, vendors and employees.

The future success of the Company is dependent in part on our ability to attract and retain talented personnel.

Following the completion of the Restructuring Plan, the success of our business strategy will depend in part on the abilities and expertise of our management, including a Chief Executive Officer, and other personnel in interpreting and responding to economic, market and other conditions and data in order to, among other things, locate and adopt appropriate opportunities and acquire, monitor and divest businesses and investments, and in particular, guide the Company’s new strategy focused on the Asset Management Business. The loss of, or inability to attract, talented individuals to execute our new business strategy could adversely impact our business, prospects, financial condition, results of operations or cash flow.

Our participation in any joint investment could be adversely affected by our lack of sole decision-making authority, our reliance on a partner’s financial condition and disputes between us and our partners.

We may hold partial ownership interests in businesses or otherwise acquire businesses jointly or establish joint ventures with third parties, including equity positions that are not readily liquid. In such circumstances, we may not be in a position to exercise significant decision-making authority regarding a target business, partnership or other entity if we do not own a substantial majority of the equity interests of the target. These investments may involve risks not present were a third party not involved, including the possibility that partners might become insolvent or fail to fund their shares of required capital contributions. In addition, partners may have economic or other business interests or goals that are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives. Such partners, some of which may possess more industry or technical knowledge or have better access to capital and other resources, may also seek similar acquisition targets as us and we may be in competition with them for such business combination targets. Disputes between us and partners may result in litigation or arbitration that would increase our costs and expenses and divert a substantial amount of our management’s time and effort away from our business. Consequently, actions by, or disputes with, partners might result in subjecting assets owned by the partnership to additional risk. We may also, in certain circumstances, be liable for the actions of our third-party partners. For example, in the future, we may agree to guarantee indebtedness incurred by a partnership or other entity. Such a guarantee may be on a joint and several basis with our partner, in which case, we may be liable in the event such partner defaults on its guarantee obligation.

Future acquisitions or business opportunities could involve unknown risks that could harm our business and adversely affect our financial condition.

As part of our strategic plan to use excess capital, including through acquisitions, we may acquire interests in a number of different businesses, some of which may be outside of industries that have comprised our historical focus. We have in the past, and may in the future, acquire businesses or make acquisitions, directly or indirectly through our subsidiaries, that involve unknown risks, some of which will be particular to the industry in which the business or acquisition targets operate, including risks in industries with which we are not familiar or experienced. Although we intend to conduct extensive business, financial and legal due diligence in connection with the evaluation of future business or acquisition opportunities, there can be no assurance our due diligence investigations will identify every matter that could have a material adverse effect on us. We may be unable to adequately address the financial, legal and operational risks raised by such businesses or acquisitions, especially if we are unfamiliar with the relevant industry. The realization of any unknown risks could expose us to unanticipated costs and liabilities and prevent or limit us from realizing the projected benefits of the businesses or acquisitions, which could adversely affect our financial condition and liquidity. In addition, our financial condition and results of operations may be adversely impacted depending on the specific risks applicable to any business or company we acquire and our ability to address those risks.

We could consume resources in researching acquisitions, business opportunities or financings and capital market transactions that are not ultimately consummated, which could materially adversely affect our financial condition and subsequent attempts to locate and acquire or invest in another business.

We anticipate that the investigation of each specific acquisition or business opportunity and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments with respect to such transaction will require substantial management time and attention and substantial costs for financial advisors, accountants, attorneys and other advisors. If a decision is made not to consummate a specific acquisition, business opportunity or financing and capital market transaction, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific acquisition, investment target or financing, we may fail to consummate the investment or acquisition for any number of reasons, including those beyond our control. Any such event could consume significant management time and result in a loss to us of the related costs incurred, which could adversely affect our financial position and our ability to consummate other acquisitions and investments.

Additional businesses or technologies we acquire could prove difficult to integrate, disrupt our ongoing business, dilute stockholder value or have an adverse effect on our results of operations.

We may engage in further acquisitions of businesses or technologies to augment our growth. Acquisitions involve challenges and risks in negotiation, execution, valuation and integration. Even if successfully negotiated, closed and integrated, certain acquisitions may not advance our business strategy, may fall short of expected return-on-investment targets or may fail. Any past or future acquisition could also involve additional risks, including:

In the event that we enter into any acquisition agreements, closing of the transactions could be delayed or prevented by regulatory approval requirements, including antitrust review or other conditions. We may not be successful in addressing these risks or any other problems encountered in connection with any attempted acquisitions, and we could assume the economic risks of such failed or unsuccessful acquisitions. We may not realize the expected benefits of any acquisitions as rapidly as, or to the extent anticipated by, the marketplace, investors, financial analysts or industry analysts. Any such failure may have a material adverse impact on our financial condition, results of operations and stock price.

The market price of our common stock is volatile, and you may lose part or all your investment.

The market price of our common stock has been, and may continue to be, volatile. Any of the factors discussed herein or such as the following may affect the market price of our common stock:

In addition, general economic conditions may cause the stock market to experience extreme price and volume fluctuations from time to time. In the past, stockholders have instituted securities class action litigation against various companies following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and attention of management could be diverted from our business.

We may incur asset impairment charges for intangible assets and goodwill in the future.

We evaluate assets on our balance sheet, including such intangible assets and goodwill, annually in connection with our fiscal year end reporting or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We monitor factors or indicators, such as unfavorable variances from forecasted cash flows, established business plans or volatility inherent to external markets and industries that would require an impairment test. The test for impairment of intangible assets 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. The test for impairment of goodwill requires a comparison of the carrying value of the reporting unit for which goodwill is assigned with the fair value of the reporting unit calculated based on discounted future cash flows. If the carrying value of the reporting unit is greater than the fair value a second step is performed to calculate any impairment. During the fourth quarter of 2018, the Company incurred impairment charges of $6.2 million related to intangible assets that were acquired when we closed the Capacity and Services Transaction with Clinton on February 2, 2017 (see Note 6 – Intangible Assets for more information). As of December 31, 2018, the Company does not have any intangible assets or goodwill.

Significant changes in discount rates, rates of return on pension assets, mortality tables and other factors could affect our future earnings, equity and pension funding requirements.

Pension obligations and related costs are determined using actual investment results as well as actuarial valuations that involve several assumptions. Our funding requirements are based on these assumptions in addition to the performance of assets in the pension plans. The most critical assumptions are the discount rate, the long-term expected return on assets and mortality. Some of these assumptions, such as the discount rate, are largely outside of our control. Changes in these assumptions could affect our future earnings, equity and funding requirements.

The outcome of litigation based on the imposition of optical levies in France and The Netherlands could adversely affect us.

As discussed in the section on Copyright Levies in Critical Accounting Policies and Estimates below, many countries around the world have levy collection societies that impose levies on the sale of optical products and other products to compensate copyright owners for legal private copying. The Company has for many years been involved in litigation in several of those countries related to its obligation to pay levies on sales of our products to customers in those countries. In general, based primarily upon a favorable decision of the European Court of Justice, the highest court in the European Union, the Company has prevailed or favorably settled disputes (or is in the process of documenting such a settlement) in each jurisdiction where there was material litigation except for France and the Netherlands. See [Note 15 - Litigation, Commitments and Contingencies] in the Notes to Consolidated Financial Statements for a discussion of the material litigation related to these levies. As of the date hereof, the only judgment issued by a trial court in either France or The Netherlands has been, as noted above, adverse to the Company’s subsidiary IEBV. If that judgment is not reversed on appeal, it would be materially adverse to the Company’s financial condition.

Our results of operations include our determinations of the amount of taxes owed in the various tax jurisdictions in which we operate and are subject to changes in tax laws and regulations, and to inspection by various tax authorities.

Changes in tax guidance and related interpretations as well as inspections by tax authorities could materially impact our tax receivables and payables and our deferred tax assets and deferred tax liabilities. Additionally, in the ordinary course of business we are subject to examinations by tax authorities in multiple jurisdictions. Investigations launched in the future by governmental authorities in various jurisdictions and existing investigations could be expanded. While we believe we have adopted appropriate risk management and compliance programs to address and reduce these risks, the global and diverse nature of our operations means that these risks will continue to exist, and additional issues will arise from time to time. Our results may be affected by the outcome of such proceedings and other contingencies that cannot be predicted with certainty.

Risks Related to our Asset Management Business

Our Asset Management Business depends in large part on our ability to raise capital from third party investors. If we are unable to raise capital from third party investors, we will be unable to collect management fees or deploy their capital into investments and potentially collect performance fees, which would materially affect our ability to generate revenue and cash flow from our Asset Management Business.

Our ability to raise capital from third party investors depends on a number of factors, including certain factors that are outside our control. Certain factors, such as the performance of the stock market and the asset allocation rules or investment policies to which such third-party investors are subject, could inhibit or restrict the ability of third party investors to make investments in our funds or the asset classes in which our funds invest. There are no assurances that we can find or secure commitments from investors. If economic conditions were to deteriorate or if we are unable to find enough investors, we might raise less than our desired amount for a given fund. If we are unable to successfully raise enough capital, it could materially affect our ability to generate revenue and cash flow from our Asset Management Business, which could adversely affect our financial prospects and condition.

In addition, we intend to negotiate terms for our funds and investments with potential investors. The outcome of such negotiations could result in our agreement to terms that are materially less favorable to us than funds managed by our competitors. Such terms could restrict our ability to raise funds with objectives or strategies that compete with existing funds, add additional expenses and obligations for us in managing the fund or increase our potential liabilities, all of which could ultimately reduce our revenues.

The anticipated benefits of the Capacity and Services Transaction and the success of our Asset Management Business depend on the efforts of Clinton’s key personnel.

The ability of Clinton to perform services under the Capacity and Services Transaction will depend on the efforts of its key personnel and the performance of its overall business. There is no guarantee that Clinton’s key personnel will remain available to devote sufficient time, or any time at all, to the performance of these services, or that Clinton’s business overall will not experience other adverse events. If Clinton’s key personnel are not so available, or Clinton’s business experiences other adverse events, Clinton may not be able to perform adequately, or at all, the services it is required to perform, and our business, prospects, financial condition and results of operations could be materially adversely affected.

Our Asset Management Business is subject to extensive regulation, which increases our costs of doing business, and our failure to comply with regulatory requirements may harm our financial condition.

Our Asset Management Business is subject to extensive regulation in the United States, particularly by the SEC. We are or may become subject to regulation under the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940 and various other statutes, regulations and rules. As a result of launching our Asset Management Business, we face increased costs in complying with newly applicable regulations, and we could continue to experience higher costs if new rules and regulatory actions or legislation require us to spend more time, hire additional personnel or buy new technology to comply with these rules and laws. The changes in laws or regulations could also have a material adverse effect on us by limiting the sources of our revenues and increasing our costs. Our business may be materially affected not only by securities regulations, but also by regulations of general application. For example, existing and proposed tax legislation and other governmental regulations and policies, including the interest rate policies of the Federal Reserve Board or cybersecurity regulation, could increase our compliance and other costs.

Although we will strive to conduct our business in accordance with applicable laws or regulations, if we were found to have violated an applicable law or regulation, we could be subject to fines, suspensions of personnel or other sanctions, including revocation of our registration as an investment advisor. If a sanction were imposed against us or our personnel, even if only for a small monetary amount, the adverse publicity related to such a sanction could harm our reputation, result in redemptions by investors in the funds we may launch and impede our ability to attract new investors, all of which could result in a material adverse effect to our business, results of operations and financial condition.

The asset management business is intensely competitive.

The asset management business is intensely competitive, with competition based on a variety of factors, including investment performance, the quality of service provided to clients, investor liquidity and willingness to invest, fund terms, fees, brand recognition and business reputation. Our Asset Management Business competes with many domestic and global competitors that may provide investment products with similar features and objectives to those we offer. These institutions range from small boutique firms to large financial institutions. We expect that competition will continue to increase. A number of factors serve to increase our competitive risks:

This competitive pressure could adversely affect our ability to make successful investments and may limit our ability to raise future investment funds, any of which would adversely impact our business, revenue, results of operations and cash flow.

Poor performance of any investment funds we sponsor or accounts we manage, including, without limitation, any fund or account managed or sub advised by Clinton pursuant to the Capacity and Services Transaction, would adversely affect our ability to generate revenue, income and cash flow, and could adversely affect our ability to raise capital for future investment funds and accounts.

In the event that any of our investment funds or accounts we manage, including, without limitation, any fund or account managed or sub advised by Clinton pursuant to the Capacity and Services Transaction, were to perform poorly, our ability to generate revenue, income and cash flow, and our ability to raise capital for future investment funds and accounts, would be adversely affected. Moreover, we could experience losses on our investments of our own principal as a result of poor investment performance by our investment funds. Poor performance of our investment funds could make it more difficult for us to raise new capital. Potential investors in our funds will assess our investment funds’ performance and our ability to raise capital and avoid excessive redemption levels will depend on our investment funds’ satisfactory performance. Accordingly, poor fund performance may deter future investment in our funds and thereby decrease the capital invested in our funds and ultimately, our management fee revenue. Alternatively, in the face of poor fund performance, investors could demand lower fees or fee concessions which would likewise decrease our revenue.

Difficult market and economic conditions, including, without limitation, changes in interest rates and volatile equity and credit markets, can adversely affect our Asset Management Business in many ways, including by reducing the value or performance of the investments made by any investment funds we may sponsor or accounts we manage, including, without limitation, any fund managed by Clinton, and reducing our ability to raise or deploy capital, each of which could adversely affect our revenue, earnings and cash flow and adversely affect our financial prospects and condition.

Our Asset Management Business is materially affected by conditions in the global financial markets and economic conditions or events throughout the world that are outside our control, including but not limited to changes in interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws (including laws relating to taxation), trade barriers, commodity prices, currency exchange rates and controls and national and international political circumstances (including wars, terrorist acts or security operations). These factors may affect the level and volatility of securities prices and the liquidity and the value of investments, and we may not be able to or may choose not to manage our exposure to these market conditions and/or other events. In the event of a market downturn, each of our businesses could be affected in different ways. We are unable to predict whether and to what extent uncertainty surrounding economic and market conditions will be reduced, and even in the absence of uncertainty, adverse conditions and/or other events in particular sectors may cause our performance to suffer further.

Challenging market and economic conditions may make it more difficult and competitive to find suitable investments for any investment funds we may sponsor or accounts we manage, including, without limitation, any fund managed by Clinton, or to effectively raise or deploy capital. This could adversely affect our performance and ability to raise new funds. During periods of difficult market conditions or slowdowns (which may be across one or more industries, sectors or geographies), the value or performance of the investments made by any investment funds we may sponsor or accounts we manage may be reduced, which could adversely affect our revenue, earnings and cash flow and adversely affect our financial prospects and condition.

Any revenue, earnings, net income and cash flow attributable to our Asset Management Business is likely to be highly variable, which may make it difficult for us to achieve steady earnings growth on a quarterly basis and may cause the price of shares of our common stock to decline and be volatile.

Any revenue, earnings, net income and cash flow attributable to our Asset Management Business is likely to be highly variable. We may also experience fluctuations in our results, including our revenue and net income, from quarter to quarter due to a number of factors, including changes in the valuations of our funds’ investments, changes in the amount of distributions, dividends or interest paid in respect of investments, changes in our operating expenses, the degree to which we encounter competition and general economic and market conditions. The valuations of investments made by our funds could also be subject to high volatility as a result of uncertainty regarding governmental policy with respect to, among other things, tax reform, financial services regulation, international trade, immigration, healthcare, labor, infrastructure and energy. Achieving steady earnings growth on a quarterly basis may be difficult, which could in turn cause the price of shares of our common stock to decline and be volatile.

The potential future growth of our Asset Management Business may place significant demands on our resources and employees, and may increase our expenses, risks and regulatory oversight.

The potential future growth of our Asset Management Business may place significant demands on our infrastructure and our investment team and other employees, which may increase our expenses. The potential inability of our systems to accommodate an increasing volume of transactions could constrain our ability to expand our Asset Management Businesses. We may face significant challenges in maintaining and developing adequate financial and operational controls, implementing new or updated information and financial systems, managing and appropriately sizing our work force, and updating other components of our business on a timely and cost-effective basis. There can be no assurance that we will be able to manage the growth of our Asset Management Business effectively, or that we will be able to continue to grow, and any failure to do so could adversely affect our ability to generate revenue and control our expenses.

If we are unable to establish a favorable reputation our ability to grow our Asset Management Business could be limited, and any damage to our or Clinton’s reputation could harm our Asset Management Business.

Our success depends, in part, on establishing and maintaining a strong reputation in the investment community, which in part is based on Clinton’s reputation due to the structure of the Capacity and Services Transaction. Our and Clinton’s reputation is vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate even if they are without merit or satisfactorily addressed. Our and Clinton’s reputation may be impacted by many factors, including but not limited to, litigation, regulatory inquiries or investigations, conflicts of interest, employee misconduct or rumors. Any damage to our or Clinton’s reputation could result in redemptions by investors in any funds we may sponsor or accounts we may manage, including, without limitation, any fund managed by Clinton, impede our ability to attract new investors or negatively impact our relationships with third party intermediaries, all of which could result in a material adverse effect to our business, results of operations and financial condition.

GBAM is a newly formed entity and any funds we may sponsor are in their formation stage and have no operating history upon which prospective investors can evaluate their performance.

GBAM and the funds we may sponsor have no operating history upon which prospective investors can evaluate their performance. The past investment performance of Clinton, or entities with which it has been associated, should not be construed as an indication of the future results of any funds we may sponsor. Any funds we may sponsor should be evaluated on the basis that there can be no assurance that Clinton’s assessment of the short-term or long-term prospects of investments will prove accurate or that any fund we may sponsor will achieve its investment objective. Poor performance of any funds we may sponsor could have a material adverse effect on our business, results of operations and financial condition.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our worldwide headquarters is in New York City. Our facility is in good operating condition suitable for the respective use and is adequate for our current needs.

Item 3. Legal Proceedings.

The Company is subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business (including litigation relating to our Legacy Businesses and discontinued operations). All such matters involve uncertainty and, accordingly, outcomes that cannot be predicted with assurance. As of December 31, 2018, we are unable to estimate with certainty the ultimate aggregate amount of monetary liability or financial impact that we may incur with respect to these matters. It is reasonably possible that the ultimate resolution of these matters, individually or in the aggregate, could materially affect our financial condition, results of the operations and cash flows. Similarly, the Company is the plaintiff in a number of matters in the United States and elsewhere where the potential outcomes could be materially beneficial to the Company. These outcomes are also uncertain.

As noted above, the most significant legal proceedings involving the Company are those concerning the claims and counterclaims resulting from the levies on the sale of optical media in France and The Netherlands. See the section on Copyright Levies in Critical Accounting Policies and Estimates below and [Note 15 - Litigation, Commitments and Contingencies] in the below Notes to Consolidated Financial Statements for a discussion of the material litigation related to these levies.

On March 29, 2017, three former Legacy Business employees, who were among the approximately 100 similarly situated employees terminated as a result of the Restructuring plan, filed a lawsuit in the Minnesota State District Court of Ramsey County asserting state law claims for non-payment of allegedly promised severance benefits. On February 27, 2019, the Company settled the claim for a gross payment of $86,000.

On November 21, 2018, the Company was served by forty-five former Imation employees who are asserting claims for unpaid severance allegedly promised to them by the Company. The Plaintiffs allege that the Company promised them and other employees a severance package that they claim is separate from severance under Imation’s discretionary ERISA severance plan called the Income Assistance Plan. The case has not been filed and no schedule is set. We believe these state law claims are without merit and are vigorously defending our position. While an unfavorable outcome is reasonably possible, an estimate of such loss cannot be made at this time.

IEBV is the defendant in four separate lawsuits in trial courts in Versailles and Bordeaux, France, brought by former employees based on the alleged failure to have provided them, in accordance with the French labor laws in effect at the time of their termination, with employment opportunities elsewhere in the world commensurate with their abilities and positions prior to termination. The plaintiffs in the IEBV lawsuits are seeking an aggregate of approximately 560,000 Euros (approximately $633,000 at current exchange rates). IEBV believes these claims are entirely without merit and is vigorously defending its position.

Imation do Brasil Ltda. is the plaintiff in three unrelated lawsuits in Brazil. We have agreed on a contingency arrangement with local counsel to minimize litigation costs going forward. While we believe each case is entirely meritorious and will result in substantial net recoveries for the Company, there is no assurance as to either the amounts or timing of any such recoveries. The largest matter was settled on or about August 1, 2018, resulting in a net cash recovery for Imation do Brasil of approximately $750,000.

Item 4. Mine Safety Disclosures.

Not Applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

As of February 28, 2019, there were 5,137,487 shares of our common stock, $0.01 par value, outstanding and held by 3,843 shareholders of record. As of August 1, 2017, our common stock is listed on the OTCQX Exchange under the symbol “GLAE” and was previously listed on the NYSE and the Chicago Stock Exchange under the symbols “GLA” or “IMN”. No dividends were declared or paid during 2019 or 2018. Future dividend payments will depend on our earnings, capital requirements, financial condition and other factors considered relevant by our Board. On February 21, 2017, we effected a 1:10 reverse split of our common stock, without any change in the par value per share and decreased the number of authorized shares of our common stock from 100,000,000 to 10,000,000.

Market for our Common Stock

The following table presents the high and low sales or bid prices, as applicable, for our common stock as reported by the OTCQX and the NYSE, adjusted to reflect the Reverse Stock Split. The bid quotations reported by the OTCQX reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Issuer Purchases of Equity Securities

(a) The purchases in this column were shares that were surrendered to GlassBridge by participants in our stock-based compensation plans (the “Plans”) to satisfy the tax obligations related to the vesting of restricted stock awards.

(b) The average price paid in this column related to shares that were surrendered to GlassBridge by participants in the Plans to satisfy the tax obligations related to the vesting of restricted stock awards.

(c) On November 14, 2016, our Board authorized a share repurchase program under which we may repurchase up to 0.5 million of our outstanding shares of common stock. Under the share repurchase program, we may repurchase shares from time to time using a variety of methods, which may include open market transactions and privately negotiated transactions. This authorization replaces the Board’s previous share repurchase authorization from May 2, 2012. To the extent we repurchase shares, and the timing and manner of such repurchases, will depend on a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by the Audit and Finance Committee of our Board. We are not obligated to repurchase any specific number of shares under the repurchase program and repurchases may be suspended or discontinued at any time without prior notice. We expect to finance the repurchases with existing cash balances. The authorization has no expiration date.

See Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for additional information regarding the Company’s equity compensation plan.

Item 6. Selected Financial Data.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

GlassBridge Enterprises, Inc. 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 is an investment advisor focused on technology-driven quantitative strategies and other alternative investment strategies.

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 [Note 2 - Summary of Significant Accounting Policies] in our Notes to Consolidated Financial Statements for further information regarding consolidation. References to “GlassBridge,” the “Company,” “we,” “us” and “our” are to GlassBridge 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 in the United States of America (“GAAP”).

Overview

GlassBridge was incorporated as Imation Corp. in Delaware in 1996 from the spin-off of substantially all the businesses that comprised the data storage and imaging systems groups of 3M Company. Until recently, we primarily provided data storage and security solutions through our two legacy business segments: Consumer Storage and Accessories and Tiered Storage and Security Solutions, which we refer to as our “Legacy Businesses.”

We have, however, recently undergone a period of significant changes. Beginning with the proxy contest in connection with the annual meeting of stockholders in 2015 and continuing until February 2017, we underwent the Restructuring Plan led by our management, our Board and its Strategic Alternatives Committee. Since the proxy contest, our evolution has included a re-composition of the Board, changes in the compensation structures of the Board and management and the execution of the Restructuring Plan which included the elimination of unprofitable businesses and the harvesting of capital from the liquidation of non-core assets.

Beginning in September 2015, the Board, management and the Strategic Alternatives Committee adopted the Restructuring Plan to begin the process of discontinuing our Legacy Businesses, a decision which resulted from continued losses due to secular declines and which was aimed to reduce our cost structure and streamline our organization. Following the winding down of our Legacy Businesses, we then developed and explored strategies and alternatives to create stockholder value by deploying our excess capital. The Restructuring Plan also called for the rapid rationalization of our corporate overhead. We incurred approximately $120 million in total charges for the Restructuring Plan, excluding tax impact. The charges were mostly non-cash, with cash charges of approximately $34 million.

In January 2017, we closed a transaction with NXSN, an affiliate of Spear Point Capital Management LLC, pursuant to which all of the issued and outstanding common stock of Nexsan Corporation, the parent company of the Nexsan Business, was sold 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 “NSXN Note”). Prior to the consummation of the NXSN Transaction, we contributed all the issued and outstanding stock of CDI to Nexsan. The NXSN Transaction provides for third-party investment in the Nexsan Business to enhance Nexsan’s growth and support its recent product developments, minimizes our need to make this investment in Nexsan ourselves and preserves the potential for equity value upside from the Nexsan Business’s ongoing development and market penetration.

In February 2017, we closed a transaction with Clinton as described below under “Asset Management Business.”

On February 21, 2017, the Company effected a 1:10 reverse split of our common stock, without any change in the par value per share 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 the Company’s common stock for all periods presented are retroactively restated for the effect of the Reverse Stock Split.

In June 2017, we launched our first GBAM-managed investment fund as described in Item 1. Business under “Asset Management Business”

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.

With the wind down of our legacy business segments, Consumer Storage and Accessories and Tiered Storage and Security Solutions (the “Legacy Businesses”) substantially completed in the first quarter of 2016, the sale of our IronKey business in February 2016 and the sale of our Nexsan Business in August 2018, we have one operating business segment remaining: the “Asset Management Business”. Following the launch of GBAM, we have transitioned to become a publicly-traded alternative asset manager. In February 2017, we changed our name to GlassBridge Enterprises, Inc. to reflect our new primary focus on asset management.

Asset Management Business

Our Asset Management Business is focused on technology-driven and quantitative strategies. We intend to use algorithms and other quantitative strategies with the goal of achieving consistent, competitive risk-adjusted returns for GBAM’s investors. In February 2017, we closed the Capacity and Services Transaction with Clinton. The Capacity and Services Transaction allows for GBAM to initially place up to $1 billion of investment capacity under Clinton’s management within Clinton’s quantitative equity strategy for a five-year term. We have the option of expanding such investment capacity to $1.5 billion and to extend the term for two subsequent one-year periods, subject to certain conditions.

The Capacity and Services Transaction was structured to provide for the quick and efficient scaling of an asset management business and designed to provide investors with access to quantitative equity strategies. By partnering with Clinton and leveraging Clinton’s proven technology-driven strategy, we intend for GBAM to bypass traditional seeding models, which typically include a lengthy roll out and substantial costs.

From late in 2016 through early 2017 we took steps to build our own independent organizational foundation, which we intend to utilize together with Clinton’s abilities 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.

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. As of December 31, 2018, there was no capital invested in the GBAM Fund.

Nexsan Business

The Nexsan Business consisted of Nexsan’s and CDI’s products. We acquired the Nexsan brand at the end of 2012 and began operations in 2013. In October 2015, we acquired substantially all the equity of CDI as well as the Transporter brand. On August 16, 2018, we sold the Nexsan Business to the Buyer as described in Note 4 – Discontinued Operations.

Executive Summary

Consolidated Results of Continuing Operations for the Year Ended December 31, 2018

Cash Flow/Financial Condition for the Year Ended December 31, 2018

See Analysis of Cash Flows section below for further information.

Results of Operations

Net Revenue

“NM” - Indicates the Percent Change is not meaningful

Following the sale of the Nexsan Business as described in Note 1 - Basis of Presentation, the Company does not have any revenue in continuing operations for the periods presented.

Gross Profit

Following the sale of the Nexsan Business as described in Note 1 - Basis of Presentation, the Company does not have any gross profit in continuing operations for the periods presented.

Selling, General and Administrative (SG&A)

SG&A expense decreased in 2018 compared with 2017 by $2.0 million (or 23.8%) due to corporate cost reductions. The cost reductions primarily relate to headcount reductions and legal costs.

Research and Development (R&D)

Following the sale of the Nexsan Business as described in Note 1 - Basis of Presentation, the Company does not have any R&D in continuing operations for the periods presented.

Litigation

The Company is subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business (including litigation relating to our Legacy Businesses and discontinued operations). All such matters involve uncertainty and, accordingly, outcomes that cannot be predicted with assurance. As of December 31, 2018, we are unable to estimate with certainty the ultimate aggregate amount of monetary liability or financial impact that we may incur with respect to these matters. It is reasonably possible that the ultimate resolution of these matters, individually or in the aggregate, could materially affect our financial condition, results of the operations and cash flows. Similarly, the Company is the plaintiff in a number of matters in the United States and elsewhere where the potential outcomes could be materially beneficial to the Company. These outcomes are also uncertain.

The most significant legal proceedings involving the Company are those concerning the claims and counterclaims resulting from the levies on the sale of optical media in France and The Netherlands. See the section on Copyright Levies in Critical Accounting Policies and Estimates below and Note 15 - Litigation, Commitments and Contingencies in the below Notes to Consolidated Financial Statements for a discussion of the material litigation related to these levies.

On December 31, 2014, IOENGINE, an NPE, filed suit in the District Court for the District of Delaware alleging infringement of United States Patent No. 8,539,047 by certain products we formerly sold under the IronKey brand. On February 17, 2017, following a trial, the jury returned a verdict against us in the patent infringement case brought by IOENGINE against the Company in the United States District Court for the District of Delaware. The jury awarded the IOENGINE $11.0 million in damages. As previously disclosed in the Current Report on Form 8-K we filed with the SEC on September 28, 2017, we entered into a settlement agreement with IOENGINE on September 28, 2017 resolving all claims relating to the IOENGINE lawsuit. Pursuant to the settlement agreement, (i) we paid IOENGINE $3.75 million in cash on October 3, 2017, (ii) issued the IOENGINE Note in the principal amount of $4 million under which no cash payments were due until June 30, 2019 (except in connection with acceleration upon an event of default), and (iii) we pledged certain of our assets to secure our obligations under the IOENGINE Note, notably the NXSN Note. The Company fulfilled its obligations under the IOENGINE note with the IOENGINE Pre-Payment Agreement dated August 13, 2018, under which the Company paid IOENGINE $2.25 million in connection with the NXSN Sale.

On January 26, 2016, CMC, a supplier of our Legacy Businesses, filed a suit in the District Court of Ramsey County Minnesota, seeking damages from the Company and the Company’s wholly-owned subsidiary Imation Latin America Corp. (“ILAC”) for alleged breach of contract. CMC also brought similar claims in Japan and the Netherlands against other of our subsidiaries. As previously disclosed in the Current Report on Form 8-K we filed with the SEC on September 18, 2017, we entered into a settlement agreement with CMC on September 15, 2017, resolving all claims relating to the CMC lawsuits. Pursuant to the settlement agreement, (i) we agreed that our subsidiary Imation Corporation Japan (“ICJ”) will cause the release and payment to CMC of approximately $9.2 million in attached assets, (ii) ICJ made a payment to CMC of $1.5 million on October 10, 2017, (iii) our subsidiary Imation Europe B.V. will cause the release and payment to CMC of approximately $825,000 in attached assets, (iv) ICJ issued to CMC the CMC Note in the amount of $1.5 million, and (v) the Company guaranteed ICJ’s obligations under the CMC Note. The company paid $0.5 million of the CMC Note during 2018 and $1.0 million of the obligation is remaining as of December 31, 2018.

Restructuring and Other

The components of our restructuring and other expense included in our Consolidated Statements of Operations were as follows:

Restructuring

Total restructuring expense of $0.2 million recorded for the year ended December 31, 2018 relates to severance. Total restructuring income of $1.2 million recorded for the year ended December 31, 2017 related to severance and a $1.5 million net income from an asset sale and $0.4 million reversal of other employee costs. See Note 7- Restructuring and Other Expense in our Notes to Consolidated Financial Statements for information on Other expense.

Other

Certain amounts recorded in Other are discussed elsewhere in our Notes to Consolidated Financial Statements. See note references in the table above.

Operating Loss From Continuing Operations

Operating loss from continuing operations decreased in 2018 compared with 2017 due to reduced SG&A of $2.0 million, the impairment of intangible assets acquired when the Company closed the Capacity and Services Transaction with Clinton on February 2, 2017 of $6.2 million partially offset by a gain on a German levy settlement of $5.0 million. See Note 6 – Intangible Assets for additional information on the impairment of intangible assets.

Other Income and (Expense)

NM - Not meaningful

Total other income (expense) was $0.5 million in 2018 compared to other income of $0.7 million in 2017. Other expense in 2018 primarily related to losses on GBAM Fund activities. Other income in 2017 primarily related to income in the GBAM Fund.

See Asset Management Business discussion within the Segment Results section for additional information on net income from GBAM Fund activities.

Income Tax Benefit (Provision)

NM - Not meaningful

We maintain a valuation allowance related to our U.S. deferred tax assets and the majority of our foreign deferred tax assets. Because of the valuation allowances, the tax provision generally represents taxes outside of the U.S. plus discrete tax events that may occur from time to time. The effective tax rate for 2018 was not meaningful.

The income tax benefit was $0.1 million in 2018 as compared to $5.7 million in 2017. The 2018 benefit, and $2.1 million of the 2017 benefit, is attributable to the minimum tax credit refund that was part of the 2017 U.S. tax reform legislation. The remainder of the 2017 tax benefit was a reallocation of income taxes between continuing operations and discontinued operations.

As of December 31, 2018, and 2017, we had valuation allowances of $253.0 million and $237.9 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

Discontinued operations represent the results of operations from our Legacy Businesses and Nexsan Business. For the year ended December 31, 2018, income from discontinued operations primarily relate to income on the sale of the Nexsan business and lower operating expenses. For the year ended December 31, 2017, loss from discontinued operations primarily relates Nexsan expenses and intangible and goodwill impairments, offset by litigation settlement gains. See Note 15 - Litigation, Commitments and Contingencies in the Notes to Consolidated Financial Statements for additional information on these litigation settlements.

For the year ended December 31, 2018, our European subsidiary recorded revenue of $3.8 million due from a French purchaser and cost of goods sold of $3.2 million due to a Dutch counterparty. For the year ended December 31, 2017, our European subsidiary recorded revenue of $0.3 million due from a French purchaser and cost of goods sold of $0.2 million due to the Dutch counterparty.

See Note 4 - Discontinued Operations in our Notes to Consolidated Financial Statements for more information.

Segment Results

With the wind down of our Legacy Businesses substantially completed by the first quarter of 2016 and the sale of the Nexsan Business in the third quarter of 2018 and following the launch of GBAM, the Asset Management Business is our only reportable segment as of December 31, 2018. The Legacy Businesses and Nexsan Business 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

NM - Not meaningful

GBAM is an SEC registered investment advisor focused on technology-driven quantitative strategies and other alternative investment strategies. Revenue from our Asset Management Business would primarily consist of management and performance fees paid by the funds under our management. Since we closed the Capacity and Services Transaction in February 2017, we jump-started the Asset Management Business by leveraging Clinton’s resources. We are executing our business development plan and have been in contact with over one hundred potential strategic investors. Obtaining third party investment for similarly situated funds can take time, particularly in light of recent headwinds resulting from industry trends of under performance of our initial fund’s strategy.

The operating loss for the year ended December 31, 2018 included marketing, operating personnel and consulting costs of $1.2 million. We retained and utilized various consultants and outside legal counsel to assist in the development of policies, procedures and compliance functionality tailored to the launch of GBAM. These outside resources were tasked with building and launching an asset management platform designed to comply with all applicable laws and regulations. Because we intend for the scope of our Asset Management Business to increase substantially, management instructed our consultants and counsel to focus on developing a platform that is well-positioned to scale up in an efficient manner as our business grows.

The operating loss for the year ended December 31, 2018 included $1.9 million of amortization costs related to the 1,250,000 shares of our common stock issued as consideration under the Capacity and Services Transaction. See Note 6 - Intangible Assets and Note 16 - Related Party Transactions in our Notes to Condensed Consolidated Financial Statements in Item 1 for additional information.

The operating loss for the year ended December 31, 2018 also included fund expenses of $0.4 million related to the GBAM Fund.

Net losses from GBAM Fund activities were $0.9 million for the year ended December 31, 2018. Net losses from GBAM Fund activities primarily represent realized and unrealized income and losses for the GBAM Fund.

Corporate and Unallocated

The corporate and unallocated operating loss decreased by $1.3 million from 2017 to 2018, primarily due to reductions in corporate spending and legal expenses. Restructuring and other decreased in 2018 compared with 2017 by $4.6 million primarily due to a German levy settlement.

Financial Position

Our cash and cash equivalents balance as of December 31, 2018 was $4.9 million compared to cash of $8.7 million and $0.7 million of short-term investments as of December 31, 2017. See the Analysis of Cash Flows section below for more information.

Our accounts payable balance as of December 31, 2018 was $0.4 million, an increase of $0.1 million from $0.3 million as of December 31, 2017.

Our other current liabilities balance as of December 31, 2018 was $3.3 million compared to $7.6 million as of December 31, 2017. The decrease of $4.3 million was mainly due to a German levy settlement gain of $5.0 offset by a pension accrual of $2.1 million.

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.

We had $4.9 million cash on hand as of December 31, 2018.

Our liquidity needs for the next 12 months include the following: corporate expenses of approximately $2.0 million, pension funding of approximately $4.0 million (if we do not obtain funding relief from PBGC and we are required to make the minimum pension contributions), a vendor settlement payment of $1 million and any cash shortfall associated with the Asset Management Business.

We expect that our cash, an anticipated tax refund (approximately $1.1 million) and proceeds from an asset monetization of $0.9 million 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 or non-current assets on our Consolidated Balance Sheets depending on the timing of the restrictions. The restricted cash balance in other current assets as of December 31, 2018 was $0.0 million in continuing operations. The restricted cash balance in other current assets as of December 31, 2017 was $0.2 million in continued operations related to bank deposits for certain guarantees. The restricted cash balance in non-current assets of discontinued operations as of December 31, 2018 was $0.4 million and as of December 31, 2017 was $1.7 million which relates to cash set aside as indemnification for certain customers.

Analysis of Cash Flows

Cash Flows Used in Operating Activities:

Cash flows from operating activities can fluctuate from period to period as many items can impact cash flows. Cash used in operating activities for 2018 was primarily driven by changes in operating assets and liabilities. Cash used in operating activities for 2017 was primarily driven by operating loss, $5.3 million in litigation settlement payments to IOENGINE and CMC, slightly offset by redemptions of our investment in Clinton Lighthouse and other short-term investments.

See Note 15 - Litigation, Commitments and Contingencies in the Notes to Consolidated Financial Statements for additional information on IOENGINE and CMC settlements.

Cash Flows Provided by (Used in) Investing Activities:

Cash provided by investing activities in 2018 was primarily related to the proceeds on the sale of the Nexsan business. Cash used in investing activities in 2017 was primarily related to our strategic investment in equity securities.

See Note 4 - Discontinued Operations in our Notes to Consolidated Financial Statements for further information regarding sale of our discontinued businesses.

Cash Flows Provided by (Used in) Financing Activities:

Cash provided by financing activities in 2017 relate to the purchase of treasury stock.

No dividends were declared or paid during 2018 or 2017. Any future dividends are at the discretion of and subject to the approval of our Board.

Related Party Transactions

See Note 16 - Related Party Transactions in our Notes to Consolidated Financial Statements for information on related party transactions between the Company and GlassBridge’s Board of Directors and Executive Officers.

Off-Balance Sheet Arrangements

Other than the operating lease commitments discussed in Note 15 - 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 in the 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 U.S. and foreign 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.

The total amount of unrecognized tax benefits as of December 31, 2018 was $0.6 million. If the unrecognized tax benefits were recognized in our Consolidated Financial Statements, $0.6 million would affect income tax expense and our related effective tax rate.

Our U.S. federal income tax returns for 2015 through 2018 are subject to examination by the Internal Revenue Service. With few exceptions, we are no longer subject to examination by foreign tax jurisdictions or state and local tax jurisdictions for years before 2012.

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 certain U.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. See Note 6 - Intangible Assets in our Notes to Consolidated Financial Statements for information on our 2018 and 2017 intangible assets.

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. See Note 6 - Intangible Assets in our Notes to Consolidated Financial Statements for information on our 2018 and 2017 goodwill.

Copyright Levies. In many European Union (“EU”) member countries, the sale of recordable optical media is subject to a private copyright levy. The levies are intended to compensate copyright holders with “fair compensation” for the harm caused by private copies made by natural persons of protected works under the European Copyright Directive, which became effective in 2002 (the “Directive”). Levies are generally charged directly to the importer of the product upon the sale of the products. Payers of levies remit levy payments to collecting societies which, in turn, are expected to distribute funds to copyright holders. Levy systems of EU member countries must comply with the Directive, but individual member countries are responsible for administering their own systems. Since implementation, the levy systems have been the subject of numerous litigation and law-making activities. On October 21, 2010, the Court of Justice of the European Union (“CJEU”) ruled that fair compensation is an autonomous European law concept that was introduced by the Directive and must be uniformly applied in all EU member states. The CJEU stated that fair compensation must be calculated based on the harm caused to the authors of protected works by private copying. The CJEU ruling made clear that copyright holders are only entitled to fair compensation payments (funded by levy payments made by importers of applicable products, including the Company) when sales of optical media are made to natural persons presumed to be making private copies. Within this disclosure, we use the term “commercial channel sales” when referring to products intended for uses other than private copying and “consumer channel sales” when referring to products intended for uses including private copying.

Since the Directive was implemented in 2002, we estimate that we have paid in excess of $100 million in levies to various ongoing collecting societies related to commercial channel sales. Based on the CJEU’s October 2010 ruling and subsequent litigation and law-making activities, we believe that these payments were not consistent with the Directive and should not have been paid to the various collecting societies. Accordingly, subsequent to the October 21, 2010 ECJ ruling, we began withholding levy payments to the various collecting societies and, in 2011, we reversed our existing accruals for unpaid levies related to commercial channel sales. However, we continued to accrue, but not pay, a liability for levies arising from consumer channel sales, in all applicable jurisdictions except France due to certain court rulings. See Note 15 - Litigation, Commitments and Contingencies in the Notes to Consolidated Financial Statements for discussion of these court rulings. As of December 31, 2018, and 2017, we had accrued liabilities of $0.3 million and $5.6 million, respectively, associated with levies related to consumer channel sales for which we are withholding payment. In addition, various decisions and enactments have established that the levy rates in various countries improperly excluded from their calculations and assessments the private copying performed using computers and smartphones. This in turn meant that to the extent levy rates were determined to be retroactively excessive, the Company would be entitled to a rebate on that basis as well.

Since the October 2010 CJEU ruling, for as long as sales were made in these countries, we evaluated quarterly on a country-by-country basis whether (i) levies should be accrued on current period commercial and/or consumer channel sales; and, (ii) accrued, but unpaid, copyright levies on prior period consumer channel sales should be reversed. Our evaluation is made on a jurisdiction-by-jurisdiction basis and considers ongoing and cumulative developments related to levy litigation and law-making activities within each jurisdiction as well as throughout the EU. See Note 15 - Litigation, Commitments and Contingencies in the Notes to Consolidated Financial Statements for discussion of reversals of copyright levies.

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. Our current estimated range of liability related to pending litigation is based on claims for which we can estimate the amount or range of loss. Based upon information presently available, we believe that accruals for these claims are adequate. Due to uncertainties related to both the amount and range of loss on the remaining pending litigation, we are unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. While these matters could materially affect our financial condition, results of operations and cash flows in future periods depending on the final resolution, it is our opinion that after final disposition, any monetary liability to us beyond that provided in our Consolidated Balance Sheet as of December 31, 2018, would not be material to our financial condition, results of operations and cash flows. As additional information becomes available, the potential liability related to pending litigation will be assessed and estimates will be revised as necessary.

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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of GlassBridge Enterprises, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of GlassBridge Enterprises, Inc. and Subsidiaries (the “Company”) at December 31, 2018 and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity (deficit) and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Turner, Stone & Company, L.L.P.

We have served as the Company’s auditor since 2018.

Dallas, Texas

April 1, 2019

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

GlassBridge Enterprises, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of GlassBridge Enterprises, Inc. and Subsidiaries (the “Company”) as of December 31, 2017, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for of the year ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit[s]. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Marcum LLP

Marcum LLP

We served as the Company’s auditor from 2016 to 2018.

New York, New York

April 2, 2018, except for Note 4 as to

which the date is April 1, 2019.

GLASSBRIDGE ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these Consolidated Financial Statements.

GLASSBIRDGE ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

The accompanying notes are an integral part of these Consolidated Financial Statements.

GLASSBRIDGE ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these Consolidated Financial Statements.

GLASSBRIDGE ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)