GlassBridge Enterprises, Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2022

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) 220-3300

(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. ☒ 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). ☒ 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 ☒ 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 11, 2022.

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 BALANCE SHEETS

(In millions, except share and 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, except 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 CASH FLOWS

(In millions)

(Unaudited)

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”) owns and operates an asset management business through various subsidiaries.

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 interim 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 or interest in such entity, 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 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, 2021 Condensed Consolidated Balance Sheet data were derived from the audited Consolidated Financial Statements, but do 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, 2021, as filed with the U.S. Securities and Exchange Commission on March 31, 2022.

The Company completed the disposition of its entire interest in SportBLX on December 30, 2021, and the operating results of the Sports Technology Platform are presented in our Consolidated Statements of Operations as discontinued operations for all periods presented. Our continuing operations for each period presented represents our asset management business as well as corporate expenses. Assets and liabilities directly associated with our legacy businesses and Nexsan business and that are not part of our ongoing operations are included in other assets and other investments.

Note 2 — New Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not listed below were assessed and determined to be not applicable to the Company’s consolidated results of operations and financial condition.

Adoption of New Accounting Pronouncements

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 was effective as of January 1, 2021. As this ASU relates only to disclosures, there was no impact to the Company’s consolidated results of operations and financial condition.

Note 3 —Income (Loss) per Common Share

Basic income 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 weighted average number of common shares outstanding in all cases. Once restricted stock vests, it is included in our common shares outstanding.

Diluted income 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 per share because the effect would have been anti-dilutive.

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

 Schedule of computation of Weighted Average Basic and Diluted Income (Loss) Per Share 

Note 4 — Discontinued Operations

On December 30, 2021, the Company completed the disposition of its entire interest in Sport-BLX. The operating results for the Sports Technology Platform 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 the business that were eliminated from our ongoing operations.

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

Schedule of Key Components of Discontinued Operations  

Restructuring and other includes the net loss attributable to the noncontrolling interest of $0.3 million and $0.7 million for the three and nine months ended September 30, 2021, respectively, which was reclassified to discontinued operations due to the sale of the Sports Technology Platform.

Note 5 — Supplemental Balance Sheet Information

Additional supplemental balance sheet information is provided as follows:

Total assets as of September 30, 2022 and December 31, 2021 include a $12.8 million investment in Arrive LLC (“Arrive”). Historically, we accounted for such investments 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, 2022, there were no indicators of impairment for this investment. The Company will assess the investment for potential impairment, quarterly.

Other assets as of September 30, 2022 and December 31, 2021 include a separate investment in Arrive of $0.4 million and $0.2 million, respectively. The Company uses the same method of accounting for this investment as its other investment in Arrive, described in the prior paragraph.

Other current liabilities, as of September 30, 2022 and December 31, 2021, include accruals for payroll expense of $0.2 million and insurance and corporate liability accruals of $0.2 million.

Note 6 — Debt

Debt and notes payable consists of the following:

Schedule of Debt and Notes Payable  

The Company entered into a Term Loan and Security Agreement (“GHI Loan Agreement”) with Gazellek Holdings I, LLC (“GHI LLC”), pursuant to which GHI LLC lent $3,450,000 to the Company on August 6, 2021. The loan bears in-kind interest, quarterly, at the annual rate of 7%, which has the effect of compounding the interest and adding it to the principal amount. The loan is secured by substantially all of the Company’s assets and those of all of its subsidiaries, which are required to guarantee the loan, and matures August 2, 2024.

The Company is required to prepay the loan upon receiving proceeds from future indebtedness exceeding $5,000,000 (other than indebtedness that is junior to the loan), or if the Company issues any capital stock (provided that the Company is allowed to retain up to 20% of the proceeds from such issuance). The GHI Loan Agreement contains customary representations and warranties, covenants and events of default. Upon the occurrence of an event of default, the loan bears interest at a rate 5% above the then-effective interest rate and, at GHI LLC’s option, is payable either in cash or in cash and shares of Company common stock, valued at market, equal to up to 10% of the outstanding principal amount of the loan. A default fee equal to 0.5% of the outstanding principal applies if any default exists for 10 days or more.

Scheduled maturities of the Company’s long-term debt, as they exist as of September 30, 2022, in each of the next five fiscal years and thereafter are as follows:

Schedule of Long-term Debt Maturities  

Note 7 — Stock-Based Compensation

We have stock-based compensation awards consisting of stock options under the 2011 Incentive Plan, which is described in detail in our Annual Report on Form 10-K for the year ended December 31, 2021. As of September 30, 2022, there are no remaining shares available for grant under the 2011 Incentive Plan. No further shares were available for grant under any other stock incentive plan. The Company did not have any stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021.

Stock Options

The following table summarizes our stock option activity:

Summary of Stock Option Activity  

As of September 30, 2022, options to purchase 1,360 shares are outstanding and 1,360 shares are exercisable, and the aggregate intrinsic value of all outstanding stock options was $0.0 million. No options were granted or exercised during the three months or nine months ended September 30, 2022.

As of September 30, 2022, unrecognized compensation expense related to outstanding stock options was immaterial.

Note 8 — 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, 2022, we recorded income tax from continuing operations of $0.0 million, on a loss of $0.8 million. For the three months ended September 30, 2021, we recorded income tax from continuing operations of $0.0 million on a loss of $2.6 million. The effective income tax rate for the three months ended September 30, 2022 differs from the U.S. federal statutory rate of 21% primarily due to a valuation allowance on various deferred tax assets.

The Company received an income tax refund in February 2021 of approximately $0.6 million related to the Tax Reform Act’s elimination of corporate alternative minimum tax and the ability to receive refunds of AMT credit carryovers. This was the final AMT credit refund due to the Company, as $1.6 million of the total $2.2 million tax benefit recorded in 2017 through 2018 had already been received in prior years.

We file income tax returns in multiple jurisdictions that are subject to review by various U.S and state taxing authorities. Our U.S. federal income tax returns for 2018 through 2021, and certain state returns from 2016 to present, are open to examination.

Note 9 — Shareholders’ Equity

Treasury Stock

On November 14, 2016, our Board authorized a share repurchase program under which we may repurchase up to 2,500 shares of common stock, 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 and nine months ended September 30, 2022. Since the November 14, 2016 authorization, we have repurchased 780 shares of common stock for $0.3 million, and, as of September 30, 2022, we had remaining authorization to repurchase 1,720 additional shares.

As of September 30, 2022 and December 31, 2021, the Company has 2,927 shares of treasury stock, acquired at an average price of $8,496.47 per share.

Stock Warrants

In connection with the GHI Loan Agreement, the Company issued to GHI LLC, for $120,000, a Common Stock Purchase Warrant entitling GHI LLC to purchase 4.8% of GLAE’s outstanding common stock, at the price of $0.01 per share, and a second Common Stock Purchase Warrant entitling GHI LLC to purchase 5.2% of GLAE’s outstanding common stock, at the price of $169.62 per share. The second warrant is automatically canceled if the Company consummates a Sale Transaction that is sourced other than by GHI LLC or its affiliates. A “Sale Transaction” is a merger, consolidation, combination or similar transaction (in one or a series of related transactions), such that the beneficial owners of shares of Company common stock immediately prior to the transaction or transactions will, immediately after such transaction or transactions, beneficially own less than a majority of the shares of common stock or outstanding equity of the surviving corporation (on a fully diluted basis). Each warrant expires August 2, 2026, is exercisable net of proceeds received; entitles its holder to receive certain distributions on the Company’s common stock, as if the warrant had been exercised; and bears registration rights respecting the underlying common stock. The first warrant purports to give its holder voting rights, as if the warrant had been exercised. The sale was exempt from registration under the Securities Act pursuant to Sec. 4(a)(2), as not involving any public offering, because no general solicitation was involved, and GHI LLC is an accredited professional investor, which agreed to accept restricted securities. See Note 6 – Debt for more information on the GHI Loan Agreement.

Note 10 — Segment Information

As of September 30, 2022, 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 that are not allocated to the business segments in management’s evaluation of segment performance, such as litigation settlement expense, corporate expense and other expenses.

Net revenue, operating loss from operations and assets by segment were as follows (unaudited):

Schedule of Net Revenue, Operating Loss from Continuing Operations and Assets by Segment  

Note 11 — Litigation, Commitments and Contingencies

In an action removed, on February 14, 2022, from New York Supreme Court to the Southern District of New York, Cypress Holdings, III L.P. v. Sport-BLX, Inc. et al., 1:22-cv-01243-LGS (S.D.N.Y.), plaintiff Cypress Holdings, III L.P. purports to assert claims against SportBLX, Mr. Hall, and Mr. De Perio for securities fraud and related issues and seeks compensatory damages, punitive damages and attorneys’ fees, in connection with solicitations of investments in SportBLX. Plaintiff also purports to allege that the Company is liable for unjust enrichment and tortious interference with contract. Defendants filed motions seeking to disqualify Plaintiff’s counsel, which were granted.

Plaintiff subsequently obtained new counsel and has indicated its intention to amend its complaint, purporting to add claims against the Company for aiding and abetting a breach of fiduciary duty and minority shareholder oppression. The Company intends to defend this matter vigorously and its motion to dismiss the causes of action asserted against it will be forthcoming.

As of September 30, 2022, the Company believes that an outcome resulting in a loss is remote and does not have any accruals related to the matter.

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 has historically been no material losses related to such indemnifications. As of September 30, 2022 and December 31, 2021, 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 Company (“3M”) subject us to 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, 2022. Compliance with environmental regulations has not had a material adverse effect on our financial results.

Note 12 — Related Party Transactions

On July 31, 2021, George E. Hall and Joseph A. De Perio agreed to accept $2,354,736 and $1,060,264, respectively, from the Company in satisfaction of its obligations arising from a stock purchase agreement in the amounts of $12,116,718 and $5,455,782, respectively. The obligations were due December 12, 2022 and bore interest at a 5% annual rate. Accordingly, GLAE’s obligations in the amounts of $12,116,718 and $5,455,782 have been paid in full.

Also on July 31, 2021, as part of the settlement of the stock purchase agreement, the Company assigned obligations owed to it from SportBLX, totaling $4,176,102.11, to Fintech Debt Corp (“FDC”), which is controlled by George E. Hall, the owner of 30.1% of the Company’s outstanding stock, and Joseph A. De Perio, a director, for $400,000.

The net gain on the settlement of the stock purchase agreement and the assignment of obligations to FDC were related party gains, and, as such, were recorded as equity transactions in the Condensed Consolidated Balances Sheets, rather than recognized as income in the Condensed Consolidated Statements of Operations.

On December 30, 2021, the Company completed a series of transactions for the purpose of disposing of its interest in SportBLX, described below:

● On December 21, 2021, SportBLX sold proprietary code to S-BLX Securities, which is controlled by Messrs. Hall and De Perio, for $225,000.

● On December 24, 2021, SportBLX repurchased $1,500,000 of its debt from FDC for $126,404.

● Finally, on December 30, 2021, the Company completed the disposition of its entire interest in SportBLX, selling all of its shares to FDC for $137,038.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements and Risk Factors

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-Q, in our other filings with the 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 our restructuring plan and other recent significant changes; 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 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; 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; 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; 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 develop and deliver differentiated and innovative products as well as various factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, and from time to time in our filings with the SEC.

Overview

GlassBridge Enterprises, Inc. (“GlassBridge”, the “Company”, “we”, “us” or “our”) owns and operates an asset management business. We actively explore a diverse range of new, strategic asset management business opportunities for our portfolio.

In January 2021, Adara Enterprises, Corp. (“Adara” or “AEC”), a subsidiary of the Company, received notice from ESW Holdings, Inc. (“ESW”) that Adara had defaulted on its obligation to pay at maturity, i.e., on January 20, 2021, $11,000,000 in principal and all other amounts due to ESW under a Loan and Security Agreement (“ESW Loan Agreement”). Pursuant to the ESW Loan Agreement, AEC gave to ESW a security interest in all of AEC’s assets, and GlassBridge pledged to ESW all of GlassBridge’s AEC stock and 30% of GlassBridge’s SportBLX stock. The ESW Loan Agreement provided that, upon AEC’s default, AEC may elect to cooperate with ESW to effect a prearranged reorganization of AEC in bankruptcy, pursuant to which ESW would acquire all equity in AEC, as reorganized, and indirectly certain of AEC’s assets, most notably, property and equipment consisting of quantitative trading software, as well as deferred tax assets resulting from AEC’s net operating losses. In the ESW Loan Agreement, ESW agreed to provide $8.5 million to the bankruptcy estate to cover costs of administering the AEC bankruptcy case and to satisfy the claims of valid creditors, with any residual funds to be paid to GlassBridge. The $8.5 million was to be paid upon the effectiveness of AEC’s Chapter 11 plan (less any amounts advanced to AEC in the form of a DIP loan) and maintained awaiting outside creditor claims.

AEC’s prepackaged Chapter 11 plan of reorganization was confirmed at a hearing on June 9, 2021 and became effective on June 15, 2021 (the “Effective Date”). Upon the occurrence of the Effective Date, ESW deposited $8.5 million, less $325,000 that ESW had previously funded in the form of a post-petition debtor-in-possession loan, into a distribution trust established pursuant to AEC’s Chapter 11 plan to fund the costs of administration associated with AEC’s bankruptcy case and to satisfy valid creditor claims. Also on the Effective Date, by order of the Bankruptcy Court, GlassBridge shares of AEC were canceled, and shares in reorganized AEC were issued to ESW and an affiliate. Finally, on the Effective Date, GlassBridge received a release of its guaranty obligations to ESW.

The Company received distributions from the bankruptcy estate totaling $6,594,703 in 2021. The Company received additional distributions of $17,909 during the nine months ended September 30, 2022. There are no funds remaining in the bankruptcy estate and any additional distributions, if any, are expected to be immaterial.

Adara has historically been one of the subsidiaries through which the Company has operated its asset management business. The Company, however, remains committed to its asset management business and holds various investments and assets, including Arrive LLC (“Arrive”), in other subsidiaries.

On December 30, 2021, the Company completed the disposition of its entire interest in SportBLX, selling all of its shares to Fintech Debt Corp (“FDC”) for $137,038. FDC is controlled by George E. Hall, the owner of 30.1% of the Company’s outstanding common stock, and Joseph A. De Perio, a director.

Important Notices and Disclaimers

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to be read in conjunction with our Condensed Consolidated Financial Statements and related Notes that appear elsewhere in this Quarterly Report on Form 10-Q. This MD&A contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those anticipated due to various factors discussed in this MD&A under the caption “Forward-Looking Statements and Risk Factors” and the information contained in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 31, 2022, including in Part 1 Item 1A. Risk Factors of such Annual Report.

This Quarterly Report on Form 10-Q includes tradenames and trademarks owned by us or that we have the right to use. Solely for convenience, the trademarks or tradenames referred to in this Quarterly Report on Form 10-Q may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames.

Executive Summary

Consolidated Results of Operations for the Three Months Ended September 30, 2022

Consolidated Results of Operations for the Nine Months Ended September 30, 2022

Cash Flow/Financial Condition for the Nine Months Ended September 30, 2022

Results of Operations

The following discussion relates to continuing operations unless indicated otherwise. “NM” means that the percentage amount is not meaningful.

Net Revenue

Net revenue for the three and nine months ended September 30, 2022 and 2021 was $0.0 million.

Selling, General and Administrative (“SG&A”)

SG&A expense decreased for the three months ended September 30, 2022 by $2.1 million (or 75.0%), compared with the same period last year, primarily due to consulting fees paid to GHI LLC in the prior year.

SG&A expense decreased for the nine months ended September 30, 2022 by $2.9 million (or 55.8%), compared with the same period last year, primarily due to consulting fees paid to GHI LLC and the Chapter 11 reorganization of Adara in the prior year.

Operating Loss from Continuing Operations

Operating loss from continuing operations was $0.7 million and $2.8 million for the three months ended September 30, 2022 and 2021, respectively. Operating loss from continuing operations decreased by $2.1 million for the three months ended September 30, 2022, compared with the same period last year, primarily due to consulting fees paid to GHI LLC in the prior year.

Operating loss from continuing operations was $2.3 million and $5.5 million for the nine months ended September 30, 2022 and 2021, respectively. Operating loss from continuing operations decreased by $3.2 million for the nine months ended September 30, 2022, compared with the same period last year, primarily due to consulting fees paid to GHI LLC and the Chapter 11 reorganization of Adara in the prior year.

Other Income

Total other expense for the three months ended September 30, 2022 was $0.1 million, compared to other income of $0.2 million for the same period last year. Other income for the three months ended September 30, 2021 was primarily related to a duty reimbursement claim from the US Department of the Treasury.

Total other income for the nine months ended September 30, 2022 was $0.0 million, compared to $12.7 million for the same period last year. Other income for the nine months ended September 30, 2021 was primarily related to the gain on the Chapter 11 reorganization and the Bank Loan forgiveness.

Income Tax Provision

Income tax for the three and nine months ended September 30, 2022 and 2021 was $0.0 million, due to losses in the period or loss carryovers from prior periods.

Segment Results

The asset management business is our only reportable segment as of September 30, 2022.

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 that 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 segment is as follows:

Asset Management Business