GlassBridge Enterprises, Inc. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

or

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934

For the transition period from ____________ to ____________

Commission File Number: 1-14310

GLASSBRIDGE ENTERPRISES, INC.

 (Exact name of registrant as specified in its charter)

(212) 825-0400

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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.[X] Yes [  ] 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [X] Yes [  ] No

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.

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 [X] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 25,170 shares of Common Stock, par value $0.01 per share, were outstanding as of November 8, 2019.

GLASSBRIDGE ENTERPRISES, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

GLASSBRIDGE ENTERPRISES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except for share and per share amounts)

(Unaudited)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

GLASSBRIDGE ENTERPRISES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

(Unaudited)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

GLASSBRIDGE ENTERPRISES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

GLASSBRIDGE ENTERPRISES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(In millions)

(Unaudited)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

GLASSBRIDGE ENTERPRISES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Total cash, cash equivalents and restricted cash as of December 31, 2018 includes $4.1 million cash and cash equivalents, $0.8 million cash and cash equivalents included in current assets of discontinued operations and $0.4 million of restricted cash included in non-current assets of discontinued operations.

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

GLASSBRIDGE ENTERPRISES, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

Note 1 — Basis of Presentation

GlassBridge Enterprises, Inc. (“GlassBridge”, the “Company”, “we”, “us” or “our”) is a holding company. We actively explore a diverse range of new, strategic asset management business opportunities for our portfolio. The company’s wholly-owned subsidiary GlassBridge Asset Management, LLC (“GBAM”) is an investment advisor focused on technology-driven quantitative strategies and other alternative investment strategies.

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

The unaudited Condensed Consolidated Financial Statements include the accounts of the Company, its wholly-owned subsidiaries, and entities in which the Company owns or controls fifty percent or more of the voting shares and has the right to control. The results of entities disposed of are included in the unaudited Condensed Consolidated Financial Statements up to the date of the disposal and, where appropriate, these operations have been reflected as discontinued operations. All inter-company balances and transactions have been eliminated in consolidation and, in the opinion of management, all normal recurring adjustments necessary for a fair presentation have been included in the interim results reported.

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

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

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

Sale of international subsidiaries and Imation Latin America Corp.

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

Reverse Stock Split

As previously disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) as of August 22, 2019, on August 20, 2019, the Company effected a reverse split of our common stock, par value $0.01 per share at a ratio of 1:200 (the “Reverse Stock Split”). On August 21, 2019 (the “Effective Date”), our common stock began trading on the Reverse Stock Split-adjusted basis on the OTCQB at the opening of trading. In connection with the Reverse Stock Split, our common stock began trading with a new CUSIP number at such time. There was no change to the Company’s stock symbol. All prior periods have been retroactively adjusted to give effect to the reverse stock split. See Note 10 - Shareholders’ Equity for further information.

Liquidity and Management Plan

The Company incurred operating and cash flow losses for several reporting periods and had a working capital deficit of $1.4 million as of September 30, 2019. These losses raised substantial doubt about our ability to continue as a going concern. Although the working capital deficit is $1.4 million, it included $0.6 million of cash as of September 30, 2019, which in addition to proceeds of $17,562,700 from the Orix transaction on October 1, 2019, are expected to fund our operations for the next twelve months and beyond. See Note 14 – Subsequent Events for further information on the Orix transaction.

Note 2 — New Accounting Pronouncements

Adoption of New Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU No. 2016-02 is effective for the Company beginning January 1, 2019, and does not have a material impact on its consolidated results of operations or financial condition.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU seeks to help entities reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”), enacted on December 22, 2017. ASU 2018-02 was issued in response to concerns regarding current guidance in GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income, rather than net income, and as a result the stranded tax effects would not reflect the appropriate tax rate. The amendments of this ASU allow an entity to make a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects, which is the difference between the historical corporate income tax rate of 35.0% and the newly enacted corporate income tax rate of 21.0%. The amendments in this ASU are effective for the Company beginning January 1, 2019, and do not have a material impact on its consolidated results of operations or financial condition.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which largely aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees. The ASU also clarifies that any share-based payment issued to a customer should be evaluated under ASC 606, Revenue from Contracts with Customers. The ASU requires a modified retrospective transition approach. For the Company, the ASU is effective as of January 1, 2019 and does not have a material impact on its consolidated results of operations or financial condition.

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which amends ASU No. 2016-02, Leases. The new ASU includes certain clarifications to address potential narrow-scope implementation issues which the Company is incorporating into its assessment and adoption of ASU No. 2016-02. This ASU has the same transition requirements and effective date as ASU No. 2016-02, which for the Company is January 1, 2019. This standard does not have a material impact on the Company’s consolidated results of operations or financial condition.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which amends ASU No. 2016-02, Leases. The new ASU offers an additional transition method by which entities may elect not to recast the comparative periods presented in financial statements in the period of adoption and allows lessors to elect a practical expedient to not separate lease and nonlease components when certain conditions are met. This ASU has the same transition requirements and effective date as ASU No. 2016-02, which for the Company is January 1, 2019. This standard does not have a material impact on the Company’s consolidated results of operations or financial condition.

New Accounting Pronouncements To Be Adopted

In August 2018, the FASB issued ASU No. 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, amends, and adds disclosure requirements for fair value measurements. The amended and new disclosure requirements primarily relate to Level 3 fair value measurements. For the Company, the ASU is effective as of January 1, 2020. The removal and amendment of certain disclosures may be early adopted with retrospective application while the new disclosure requirements are to be applied prospectively. As this ASU relates only to disclosures, there will be no impact to the Company’s consolidated results of operations and financial condition.

In August 2018, the FASB issued ASU No. 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans, which makes minor changes to the disclosure requirements related to defined benefit pension and other postretirement plans. The ASU requires a retrospective transition approach. For the Company, the ASU is effective as of January 1, 2021. As this ASU relates only to disclosures, there will be no impact to the Company’s consolidated results of operations and financial condition.

Note 3 — Income (Loss) per Common Share

Basic income (loss) per common share is calculated using the weighted average number of shares outstanding for the period. Unvested restricted stock and treasury shares are excluded from the calculation of basic weighted average number of common shares outstanding. Once restricted stock vests, it is included in our common shares outstanding.

Diluted income (loss) per common share is computed on the basis of the weighted average shares outstanding plus the dilutive effect of our stock-based compensation plans using the “treasury stock” method. Since the exercise price of our stock options is greater than the average market price of the Company’s common stock for the period, we did not include dilutive common equivalent shares for these instruments in the computation of diluted net income (loss) per share because the effect would have been anti-dilutive.

The following table sets forth the computation of the weighted average basic and diluted income (loss) per share:

Note 4 — Discontinued Operations

On March 31, 2019, the Company entered into a securities purchase agreement with IMN Capital Holdings, Inc., a Delaware company (“IMN Capital”) to sell its entire ownership of its international subsidiaries and Imation Latin America Corp., a Delaware corporation (the “Imation Subsidiaries”) (the “Subsidiary Sale”). In connection with the sale, the purchase price furnished by IMN Capital to the Company consisted of (i) $277,900 payable upon the execution of the IMN Capital Agreement and (ii) 75% of all net proceeds from subsidiary litigation (which, for the avoidance of doubt, shall be calculated after the payment of (i) the retirement of the Germany pension liability; (ii) contingency fees payable to attorneys engaged in connection with the Subsidiary Litigation; (iii) fees payable to Mach 5, the litigation financing company and (iv) the payment of all applicable taxes including income taxes in connection with the subsidiary litigation). The Company recorded a one-time non-cash gain of approximately $10.0 million in connection with IMN Capital Agreement transaction.

The operating results for the Legacy Businesses and the Nexsan Business are presented in our Condensed Consolidated Statements of Operations as discontinued operations for all periods presented and reflect revenues and expenses that are directly attributable to these businesses that were eliminated from our ongoing operations.

The key components of the results of discontinued operations were as follows:

Net income of discontinued operations for the three months ended September 30, 2019 decreased by $9.2 million compared to the same period last year mainly due to the sale of the Imation Subsidiaries. Net income of discontinued operations for the nine months ended September 30, 2019 increased by $1.0 million compared to the same period last year mainly due to the sale of the Imation Subsidiaries.

Current assets of discontinued operations were $0.0 million as of September 30, 2019. Current assets of discontinued operations as of December 31, 2018 of $3.2 million included $0.7 million of accounts receivable, $1.0 million related to funds held in escrow and $0.7 million of other current assets. The decrease of the current assets in 2019 was due to the sale of the Imation Subsidiaries.

Current liabilities of discontinued operations were $0.9 million as of September 30, 2019. Current liabilities of discontinued operations of $4.9 million as of December 31, 2018 included $1.7 million of accounts payable, $1.0 million due to CMC and $2.2 million of other current liabilities. The decrease of the current liabilities in 2019 was due to the sale of the Imation Subsidiaries.

Other liabilities of discontinued operations were $0.2 million as of September 30, 2019. Other liabilities of discontinued operations of $2.2 million as of December 31, 2018 included $0.3 million of withholding tax and $1.1 million of other liabilities. The decrease of the other liabilities in 2019 was due to the sale of the Imation Subsidiaries.

Note 5 — Supplemental Balance Sheet Information

Additional supplemental balance sheet information is provided as follows:

Other assets primarily included a $4.0 million strategic investment in equity securities. The strategic investment in equity securities is consistent with our stated strategy of exploring a diverse range of new strategic asset management business opportunities for our portfolio. Historically, we accounted for such investment under the cost method of accounting. The adoption of ASU No. 2016-01 in the first quarter of 2018 effectively eliminated the cost method of accounting and the carrying value of this investment is written down, or impaired, to fair value when a decline in value is considered to be other-than-temporary. Our strategic investment in equity securities does not have a readily determinable fair value therefore the new guidance was adopted prospectively. As of September 30, 2019, there were no indicators of impairment for this investment. The Company will assess the investment for potential impairment on a quarterly basis. In addition, other assets as of September 30, 2019 also include escrowed funds related to the NXSN transaction of $0.6 million and $0.2 million of other assets. For more information regarding the NXSN Transaction, please review the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission as of August 16, 2018.

Other current liabilities primarily included pension minimum contributions of $1.9 million and $1.9 million and accrued payroll of $0.0 million and $0.2 million as of September 30, 2019 and December 31, 2018, respectively.

Other liabilities included pension liabilities of $14.4 million and $23.0 million as of September 30, 2019 and December 31, 2018, respectively. The change in the pension liabilities was due to the Subsidiary Sale.

Note 6 — Restructuring and Other Expense

Restructuring and other expense was $0.0 million and $0.1 million for the three and nine months ended September 30, 2019, respectively. Restructuring and other expense was $0.0 million and $0.1 million for the three and nine months ended September 30, 2018, respectively.

Activity related restructuring accruals was as follows:

Note 7 — Stock-Based Compensation

Stock-based compensation for continuing operations consisted of the following:

We have stock-based compensation awards consisting of stock options, restricted stock and stock appreciation rights under four plans (collectively, the “Stock Plans”) which are described in detail in our Annual Report on Form 10-K for the year ended December 31, 2018. As of September 30, 2019, there were 315,251 shares available for grant under the 2011 Incentive Plan. No further shares were available for grant under any other stock incentive plan.

Stock Options

The following table summarizes our stock option activity:

The weighted average assumptions used in the valuation of options are not applicable for the periods ending September 30, 2019 and 2018 as no options were granted over this time.

As of September 30, 2019, there was no unrecognized compensation expense related to non-vested stock options granted under our Stock Plans.

Restricted Stock

The following table summarizes our restricted stock activity:

The cost of the awards is determined using the fair value of the Company’s common stock on the date of the grant, and compensation is recognized on a straight-line basis over the requisite vesting period.

As of September 30, 2019, the company did not have any unrecognized compensation expense related to non-vested restricted stock granted under our Stock Plans.

Note 8 — Retirement Plans

Pension Plans

Beginning in September 2018, the Company entered into discussions with the U.S. Pension Benefit Guaranty Corporation (the “PBGC”), a United States government agency established by Title IV of the Employee Retirement Income Security Act of 1974 (“ERISA”) which insures certain pension plans, for the purpose of obtaining certain relief from the Company’s obligations under the Plan. The Company and the PBGC entered into an agreement on May 13, 2019 to terminate the Imation Cash Balance Pension Plan (the “Plan”) based on the PBGC’s findings that (i) the Plan did not meet the minimum funding standard required under Section 412 of the Internal Revenue Code of 1986, as amended; (ii) the Plan would be unable to pay benefits when due and (iii) the Plan should be terminated in order to protect the interests of the Plan participants. GlassBridge and all other members of GlassBridge’s (as seller) controlled group (within the meaning of 29 U.S.C. §1301(a)(14))  (the “Controlled Group Members”) were jointly and severally liable to the PBGC for all liabilities under Title IV of ERISA in connection with the Plan’s termination, including unfunded benefit liabilities, due and unpaid Plan contributions, premiums, and interest on each of the foregoing, as a result of which a lien in favor of the Plan, on all property of each Controlled Group Member, arose and was perfected by PBGC. On October 1, 2019, the Company entered into a settlement agreement with the PBGC (the “Settlement Agreement”). Pursuant to the terms and subject to the conditions set forth in the Settlement Agreement, on October 3, 2019, GlassBridge paid $3,000,000 in cash to the PBGC, which was within five days of the date of the execution of the Settlement Agreement (the “Settlement Payment”). On the 95th day following payment of the Settlement Payment to the PBGC, the PBGC will be deemed to have released all Controlled Group Members from the PBGC’s lien (the “Release Date”).

The Company had one remaining international employee-eligible retirement plan in Germany (the “German Plan” and all international plans the “International Plans”). Following the Subsidiary Sale in the first quarter of 2019, the Company no longer has any obligations under the German Plan or any other prior International Plans.

Note 9 — Income Taxes

For interim income tax reporting, we are required to estimate our annual effective tax rate and apply it to year-to-date pre-tax income/loss excluding unusual or infrequently occurring discrete items.

For the three months ended September 30, 2019, we recorded income tax from continuing operations of $0.0 million on a loss of $0.5 million. For the three months ended September 30, 2018, we recorded income tax of $0.0 million on a loss of $2.1 million. The effective income tax rate for the three months ended September 30, 2019 differs from the U.S. federal statutory rate of 21% primarily due to a valuation allowance on various deferred tax assets.

During July 2019, the Company received an income tax refund of approximately $1.1 million related to the Tax Reform Act’s elimination of corporate alternative minimum tax and the ability to receive refunds of AMT credit carryovers. Another $1.1 million is still receivable over a period of three years, in 2020 through 2022.

We accrue for the effects of uncertain tax positions and the related potential penalties and interest. Our historical liability was assumed by the buyer of the foreign entities in March 2019; there is no remaining liability as of September 30, 2019.

We file income tax returns in multiple jurisdictions which are subject to review by various U.S and state taxing authorities. Our U.S. federal income tax returns for 2016 through 2019, and certain state returns from 2013 to present, are open to examination.

Note 10 — Shareholders’ Equity

Reverse Stock Split

As previously disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) as of August 22, 2019, on August 20, 2019, the Company filed an Amendment (the “Amendment”) to the Restated Certificate of Incorporation, as amended, of the Company (the “Articles”) with the Secretary of State of the State of Delaware to: (i) effect the previously announced reverse split of our common stock, par value $0.01 per share at a ratio of 1:200 (the “Reverse Stock Split”) and (ii) effect an amendment allowing the stockholders of the Company to act by written consent in lieu of meeting, subject to certain limitations (the “Written Consent Amendment”).

On August 21, 2019 (the “Effective Date”), our common stock began trading on the Reverse Stock Split-adjusted basis on the OTCQB at the opening of trading. In connection with the Reverse Stock Split, our common stock began trading with a new CUSIP number at such time. There was no change to the Company’s stock symbol.

No fractional shares of common stock were issued in connection with the Reverse Stock Split. If, as a result of the Reverse Stock Split, a stockholder would otherwise have held a fractional share, a stockholder, in lieu of the issuance of such fractional share, was entitled, upon surrender to the exchange agent of a certificate(s) representing its pre-split shares or upon conversion of its shares held in book-entry, to receive a cash payment equal to the fraction to which the stockholder would otherwise be entitled, multiplied by $106, which is the closing price per share (as adjusted to give effect to the Reverse Stock Split) on the OTCQB on the closing date immediately prior to the Effective Date.

EQ by Equiniti (“EQ”), the Company’s transfer agent, acted as the exchange agent for the Reverse Stock Split, and provided instructions to stockholders of record regarding the process for exchanging shares. EQ issued all of the post-Reverse Stock Split shares through their paperless Direct Registration System (“DRS”), also known as “book entry form.” Eligible book-entry or other electronic positions representing issued and outstanding shares of the Company’s common stock were automatically adjusted. Stockholders who held certificated shares were mailed a letter of transmittal to be completed for the exchange of all of their shares. Those stockholders holding common stock in “street name” received instructions from their brokers.

Treasury Stock

On May 2, 2012, the Board authorized a share repurchase program that allowed for the repurchase of 2,500 shares of common stock. On November 14, 2016, our Board authorized a new share repurchase program under which we may repurchase up to 2,500 shares of common stock. This authorization replaces the Board’s prior May 2, 2012 share repurchase authorization. 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.

The Company did not purchase any shares during the three months ended September 30, 2019. Since the inception of the November 14, 2016 authorization, we have repurchased 779 shares of common stock for $0.3 million and, as of September 30, 2019, we had remaining authorization to repurchase 1,721 additional shares. The treasury stock held as of September 30, 2019 was acquired at an average price of $8,496.47 per share.

Following is a summary of treasury share activity:

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss and related activity consisted of the following:

Details of amounts reclassified from accumulated other comprehensive loss and the line item in the Condensed Consolidated Statements of Operations are as follows:

Income taxes are not provided for cumulative translation adjustment relating to permanent investments in international subsidiaries. Reclassification adjustments are made to avoid double counting in comprehensive income (loss) items that are also recorded as part of net income (loss) and are presented net of taxes in the Consolidated Statements of Comprehensive Income (Loss).

Note 11 — Segment Information

The Legacy Businesses and the Nexsan Business are presented in our Condensed Consolidated Statements of Operations as discontinued operations and are not included in segment results for all periods presented. See Note 4 - Discontinued Operations for further information about these divestitures.

On February 2, 2017, we closed the Capacity and Services Transaction with Clinton. The Capacity and Services Transaction allows GBAM to access investment capacity within Clinton’s quantitative equity strategy. In addition, we have recently taken steps to build our own independent organizational foundation while leveraging Clinton’s capabilities and infrastructure. While our intention is to primarily engage in the management of third-party assets, we may make opportunistic proprietary investments from time to time that comply with applicable laws and regulations. Since the closing of the Capacity and Services Transaction, we have focused on our Asset Management Business as our primary operating business segment. See Note 13 - Related Party Transactions for additional information.

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

In June 2017, we launched our first GBAM-managed investment fund (the “GBAM Fund”) which focuses on technology-driven quantitative strategies and other alternative investment strategies. The fund initially performed in-line with the expectation for 2017. However, we had a difficult time raising third-party capital due to the overall under-performance of the hedge fund industry. In Q4, 2018, after an internal business review and deliberations, we decided to temporarily close the GBAM Fund to save operating costs.

We have made the determination to consolidate the GBAM Fund and, accordingly, its financial results were included in our Consolidated Financial Statements as part of the Asset Management Business shown below.

As of September 30, 2019, the Asset Management Business is our only reportable segment.

We evaluate segment performance based on revenue and operating loss. The operating loss reported in our segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results, they are included in reported consolidated results. The corporate and unallocated operating loss includes costs which are not allocated to the business segments in management’s evaluation of segment performance such as litigation settlement expense, corporate expense and other expenses.

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

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

Note 12 — Litigation, Commitments and Contingencies

The Company is a party, as either a sole or joint defendant or plaintiff, in 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 September 30, 2019, 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 operations and cash flows.

Intellectual Property Litigation

The Company is subject to allegations of patent infringement by our competitors as well as non-practicing entities (“NPEs”) - sometimes referred to as “patent trolls” - who may seek monetary settlements from us, our competitors, suppliers and resellers. The nature of such litigation is complex and unpredictable and, consequently, the Company is not able to reasonably estimate with precision the amount of any monetary liability or financial impact that may be incurred with respect to these matters. As of November 14, 2019, given the exits from the Legacy Businesses, the Company believes that the ultimate resolution of these matters in the aggregate will not materially adversely affect our financial condition, results of operations and cash flows.

Trade Related Litigation

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, (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. (“IEBV”) will cause the release and payment to CMC of approximately $825,000 in attached assets, (iv) ICJ issued to CMC an unsecured promissory note (the “CMC Note”) in the amount of $1.5 million, and (v) we guaranteed CMC ICJ’s obligations under the CMC Note. As of December 31, 2017, both ICJ and Europe B.V. had released the required payments to CMC. In January 2018, ICJ made a $0.5 million payment to CMC in relation to the $1.5 million CMC Note discussed above. On March 28, 2019, the Company, together with its subsidiaries, including IJC, entered into a pre-pay agreement (the “Pre-Pay Agreement”) with CMC providing that the Company shall pre-pay the remaining balance of $1,000,000 due and payable under the CMC Note for a one-time cash payment of $325,000, and CMC accepted such pre-payment in full satisfaction of the Company’s obligations under the settlement agreement and the CMC Note. The $325,000 payment was made on March 28, 2019.

The Company has various trade disputes with vendors related to the Legacy Businesses. The Company believes it has made adequate accruals with respect to the disputes for which such is appropriate according to our accounting policy.

Employee Matters

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 $86,000.

On November 21, 2018, the Company was served by forty-five former Legacy Business employees who were asserting claims for unpaid severance allegedly promised to them by the Company. The Company entered into a settlement agreement as of July 25, 2019, to settle the claim for $150,000.

Copyright Levies

We had previously disclosed various copyright levy litigations related to our former subsidiary – IEBV. In connection with the Subsidiary Sale, the Company is no longer liable for adverse outcomes and may receive Contingent Payouts should IEBV prevail in litigation.

Indemnification Obligations

In the normal course of business, we periodically enter into agreements that incorporate general indemnification language. Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a supportable third-party claim. There have historically been no material losses related to such indemnifications. As of September 30, 2019 and December 31, 2018, estimated liability amounts associated with such indemnifications were not material.

Environmental Matters

Our Legacy Business operations and indemnification obligations resulting from our spinoff from 3M subject us liabilities arising from a wide range of federal, state and local environmental laws. For example, from time to time we have received correspondence from 3M notifying us that we may have a duty to defend and indemnify 3M with respect to certain environmental claims such as remediation costs. Environmental remediation costs are accrued when a probable liability has been determined and the amount of such liability has been reasonably estimated. These accruals are reviewed periodically as remediation and investigatory activities proceed and are adjusted accordingly. We did not have any environmental accruals as of September 30, 2019. Compliance with environmental regulations has not had a material adverse effect on our financial results.

Note 13 — Related Party Transactions

Certain Arrangements

On January 31, 2017, the Company held a special meeting of the stockholders of the Company at which the stockholders approved the issuance of up to 1,500,000 shares (the “Capacity Shares”) of the Company’s common stock (as adjusted to reflect the Reverse Stock Split), par value $0.01 per share, pursuant to the Subscription Agreement, dated as of November 22, 2016, by and between the Company and Clinton, as amended by Amendment No. 1 to the Subscription Agreement, dated as of January 9, 2017 (as so amended, the “Subscription Agreement”). Pursuant to the terms of the Subscription Agreement, on February 2, 2017 (the “Initial Closing Date”), the Company entered into the Capacity and Services Transaction with Clinton Group and GBAM (the “Capacity and Services Transaction”). As consideration for the capacity and services Clinton has agreed to provide under the Capacity and Services Transaction and pursuant to the terms of the Subscription Agreement, the Company issued 1,250,000 shares of the Company’s common stock (as adjusted to reflect the Reverse Stock Split) to Madison Avenue Capital Holdings, Inc. (“Madison”), an affiliate of Clinton, on the Initial Closing Date. The closing price of the Company’s common stock on the Initial Closing Date was $8.10. The Company also entered into a Registration Rights Agreement with Madison on the Initial Closing Date, relating to the registration of the resale of the Capacity Shares as well as a letter agreement with Madison pursuant to which Madison has agreed to a three-year lockup with respect to any Capacity Shares issued to it.

The Company did not have a short term investment balance in Clinton Lighthouse as of September 30, 2019 and December 31, 2018, and as such did not have any unrealized gains for the three months ended September 30, 2019. Pursuant to the Capacity and Services Agreement, the Company will no longer incur management or performance fees related to our investment in Clinton Lighthouse.

Management of the Company

On January 1, 2019, the Company and Clinton entered into a management service agreement (the “Management Service Agreement”), pursuant to which Clinton agreed to provide certain services to the Company, including accounting and treasury services, service of managing the third party fund administrator, IT services, payroll and benefit services and other administration services as reasonably requested by the Company. The initial term of this Management Service Agreement is six (6) months (the “Initial Term”) and shall renew for successive renewal terms of three (3) calendar months (each, a “Renewal Term”) unless either Party provides notice of nonrenewal to the other Party prior to the conclusion of the then current initial term or renewal term. The Company shall pay Clinton at the rate of $68,750 each quarter for the Initial Term and each Renewal Term.

Daniel A. Strauss serves as our Chief Executive Officer and Chief Operating Officer, and Francis Ruchalski serves as our Chief Financial Officer, pursuant to the terms of a the Amended and Restated Services Agreement we entered into with Clinton on March 31, 2019 (the “Amended Services Agreement”) replacing in its entirety that certain Services Agreement we entered into with Clinton on March 2, 2017 (the “Services Agreement”). The Amended Services Agreement provides that Clinton will make available certain of its employees to provide services to the Company, including CEO services, COO services and CFO services (the “Executive Services”). In addition to the Executive Services, Clinton will make available other employees of Clinton as necessary to manage certain business functions as deemed necessary in the sole discretion of Clinton to provide other management services (the “Management Services”). Under the Amended Services Agreement, Clinton may designate substitutes for Mr. Strauss or Mr. Ruchalski or any other employee providing any Management Services. In consideration for the Executive Services and Management Services, the Company shall provide to Clinton a rate of $243,750 for the initial term, such term being the first three (3) months following the execution date of the Amended Services Agreement, and to automatically renew for successive renewal terms of three (3) calendar months each, the fee for each renewal term being $243,750. Clinton will continue to pay Mr. Strauss’s and Mr. Ruchalski’s compensation and benefits and we have agreed to pay or reimburse their reasonable expenses. Pursuant to the terms of the Amended Services Agreement, we have also agreed to indemnify Mr. Strauss, Mr. Ruchalski, Clinton, any substitute for Mr. Strauss, Mr. Ruchalski, or any other Clinton employee providing services under the Master Services Agreement for certain losses. As of September 30, 2019, the Company paid Clinton $2,087,500 under the Services Agreement and recorded $858,333 and $375,000 within “Selling, general and administrative” in our Condensed Consolidated Statements of Operations for the nine months ended September 30, 2019 and 2018, respectively.

On September 30, 2019, Imation entered into an Employment Agreement with Mr. Strauss, effective October 1, 2019 (the “Strauss Agreement”), providing for, among other things, a base salary to be paid to Mr. Strauss of $175,000 in accord with Imation’s normal payroll practices, as well as eligibility to participate in the compensation and benefit programs generally available to Imation’s executive officers.

Sport-BLX, Inc.

During 2019, the Company entered into three Common Stock Purchase Agreements (the “Sport-BLX Purchase Agreement”) together with Sport-BLX, Inc., a Delaware corporation, where George E. Hall, the holder of approximately 25.78% of the Company’s outstanding common stock, is Executive Chairman and CEO (“Sport-BLX”). As per the January 4, 2019 Sport-BLX Purchase Agreement, the Company agreed to purchase from Sport-BLX 10,526 shares of Sport-BLX common stock, par value $0.001 per share, at a price equal to $95 per share, for aggregate consideration of $1,000,000. As per the September 16, 2019 Sport-BLX Purchase Agreement, the Company agreed to purchase from Sport-BLX 679 shares of Sport-BLX common stock, par value $0.001 per share, at a price equal to $263.4074 per share for aggregate consideration of $178,854. As of September 30, 2019, the Company funded the total consideration due of $1,178,854.

As per the October 18, 2019 Sport-BLX Purchase Agreement, Imation agreed to purchase from Sport-BLX 2,314 shares of Sport-BLX common stock, par value $0.001 per share, at a price equal to $263.4074 per share for aggregate consideration of $609,524.72. Imation funded the total consideration due of $609,524.72 on November 5, 2019.

On October 1, 2019, the Company made a $1,000,000 demand loan to Sport-BLX.

Note 14 — Subsequent Events

As previously disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) as of October 7, 2019, on October 1, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Orix PTP Holdings, LLC, a Delaware limited liability company (“Orix”). The Purchase agreement provides for the sale of 201 shares of common stock, par value $0.01 per share (the “Purchased Stock”), constituting 20.1% of all issued and outstanding stock of Imation Enterprises Corp., a Delaware corporation and formerly wholly owned subsidiary of GlassBridge (“Imation”) to Orix. The Purchase Agreement further provides for the sale and assignment from GlassBridge to Orix of (i) that certain promissory note, dated as of September 30, 2019, originally issued by Imation in favor of GlassBridge in consideration for the assignment by GlassBridge to Imation of the Levy Claims (defined below), in the original principal amount of $9,000,000 (“Levy Note”) and (ii) that certain promissory note, dated as of September 30, 2019, originally issued by Imation in favor of GlassBridge in connection with the assignment of 11,154 shares of Common Stock, par value 0.0001 per share of Sport-BLX, Inc., a Delaware corporation, in the original principal amount of $4,000,000 (“Sport-BLX Note” and collectively with the Levy Note, the “Notes”). Orix acquired the Purchased Stock and the Notes for a total consideration of $17,562,700 (“Cash Consideration”).

The “Levy Claims” mean the right to receive payments from IMN Capital Holding Inc. in connection with the settlement or final adjudication (without any ability to further appeal by any party) as to all demands, claims, counterclaims, cross-claims, third-party-claims, damages, fees (including attorney’s fees), costs and expenses, brought and raised on any matters arising from the following claims and causes of action:

Under the terms of the Purchase Agreement, the Board of Directors of Imation was expanded from three to five directors, which includes one director designated by Orix.

Also pursuant to the terms of the Purchase Agreement, GlassBridge, Orix and Imation entered into a Stockholders’ Agreement dated as of October 1, 2019 (the “Stockholders Agreement”) pursuant to which Orix may, among other rights and obligations set forth in the Stockholders Agreement, sell back all of its Purchased Shares to GlassBridge at book value after April 1, 2021 and during the three-month period after such date and shall, during the term of the Stockholders Agreement, have the right to purchase all or a portion of the shares owned by GlassBridge in Imation at book value plus 20%, subject to the right of GlassBridge to respond to the notice by Orix to exercise such right by purchasing all of the shares of Orix.

The foregoing transactions, consummated by the Company, Imation and Orix, as evidenced by the Purchase Agreement, the Notes, the Stockholders Agreement, and the assignment agreements shall altogether be referred to as the Orix Transactions.

The following unaudited pro forma condensed consolidated balance sheet for the nine months ended September 30, 2019, which gives effect to the Orix Transactions and the Settlement Agreement with the PBGC has been prepared to give effect to the Orix Transactions and the Settlement Agreement as if they had been completed and entered into, respectively, on September 30, 2019, and if the Release Date (see Note 8 – Retirement Plans) had occurred on September 30, 2019.

The unaudited pro forma condensed consolidated balance sheet is for informational purposes only and is not necessarily indicative of what our financial performance or financial position would have been had the transactions been completed on the dates assumed nor is such unaudited pro forma financial information necessarily indicative of the results expected in any future period.

GLASSBRIDGE ENTERPRISES, INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(unaudited) (In millions, except per share amounts)