What changed in this filing

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Item 9A. Controls and Procedures

2022-09-12 compared with 2021-09-21 · 563 added, 444 removed, 1222 unchanged (45% of the section changed)

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Disclosure Controls and Procedures

The Company’s management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective as of June 30, 2022.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for preparation of the accompanying consolidated financial statements in accordance with US GAAP.

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Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2021 as required by the Exchange Act.

In making this assessment, we used the criteria set forth in the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on management’s evaluation under the framework, management concluded that Great Elm Group, Inc.’s internal control over financial reporting was effective as of June 30, 2021.

In making this assessment, we used the criteria set forth in the framework in Internal Control –

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on management’s evaluation under the framework, management concluded that Great Elm Group, Inc.’s internal control over financial reporting was effective as of June 30, 2022.

Changes in Internal Control Over Financial Reporting

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The information required by Item 9(e) of Schedule 14A will be contained in our Proxy Statement and is hereby incorporated by reference thereto.

Exhibits, Financial Statement Schedules.

Exhibits, Financ ial Statement Schedules.

Financial Statements

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We charge $0.50 per page to cover expenses of copying and mailing.

EXHIBIT INDEX

EXH IBIT INDEX

We will furnish any exhibit upon request made to our Corporate Secretary, 800 South Street, Suite 230, Waltham, MA 02453.

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Bylaws of the Registrant, dated October 23, 2020 (incorporated by reference to the Exhibit 3.2 to the Form 8-K filed on December 29, 2020)

Form of the Registrant’s Common Stock Certificate (incorporated by reference to the Exhibit 4.1 to the Form 8-K filed on December 29, 2020)

Certificate of Designation of Series A Junior Participating Cumulative Preferred Stock of the Registrant, dated December 23, 2020 (incorporated by reference to the Exhibit 4.2 to the Form 8-K filed on December 29, 2020)

Stockholders’ Rights Agreement, dated December 29, 2020, by and between the Registrant and Computershare Trust Company, N.A.

Stockholders’

Rights Agreement, dated December 29, 2020, by and between the Registrant and Computershare Trust Company, N.A.

(incorporated by reference to the Exhibit 4.3 to the Form 8-K filed on December 29, 2020)

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and certain accredited investors party thereto (incorporated by reference to the Exhibit 4.5 to the Form 8-K filed on December 29, 2020)

Description of Securities (incorporated by reference to the Exhibit 4.6 to the Form 8-K filed on December 29, 2020)

Description of Securities

Base Indenture, dated as of June 9, 2022, by and between Great Elm Group, Inc.

and American Stock and Transfer & Trust Company, LLC, as Trustee (incorporated by reference to the Exhibit 4.1 to the Form 8-K filed on June 9, 2022)

First Supplemental Indenture, dated as of June 9, 2022, by and between Great Elm Group, Inc.

and American Stock and Transfer & Trust Company, LLC, as Trustee (incorporated by reference to the Exhibit 4.2 to the Form 8-K filed on June 9, 2022)

Form of 7.25% Note Due 2027 (incorporated by reference to the Exhibit 4.3 to the Form 8-K filed on June 9, 2022)

Offer Letter, dated December 29, 2020 between Peter A.

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Form of 2006 Stock Incentive Plan Restricted Stock Unit Grant Notice (incorporated by reference to Exhibit 10.9 to the Form 10-Q filed on February 8, 2012 by Great Elm Capital Group, Inc.

Second Amended and Restated 1999 Directors’ Equity Compensation Plan, amended and restated effective September 13, 2013 and November 12, 2013 (incorporated by reference to Exhibit 10.2 to the Form 10-Q filed on February 7, 2014 by Great Elm Capital Group, Inc.

Form of Notice of Stock Option Grant and Form of Stock Option Agreement under the Registrant’s Amended and Restated 1999 Directors’ Equity Compensation Plan (incorporated by reference to Exhibit 99.2 to the Form S-8 filed on December 4, 2009 by Great Elm Capital Group, Inc.

Second Amended and Restated 1999 Directors’

Equity Compensation Plan, amended and restated effective September 13, 2013 and November 12, 2013 (incorporated by reference to Exhibit 10.2 to the Form 10-Q filed on February 7, 2014 by Great Elm Capital Group, Inc.

Form of Notice of Stock Option Grant and Form of Stock Option Agreement under the Registrant’s Amended and Restated 1999 Directors’

Equity Compensation Plan (incorporated by reference to Exhibit 99.2 to the Form S-8 filed on December 4, 2009 by Great Elm Capital Group, Inc.

(Registration Statement No.

Form of Notice of Restricted Stock Bonus Grant and Form of Restricted Stock Bonus Agreement under the Registrant’s Amended and Restated 1999 Directors’ Equity Compensation Plan (incorporated by reference to Exhibit 99.3 to the Form S-8 filed on December 4, 2009 by Great Elm Capital Group, Inc.

Form of Notice of Restricted Stock Bonus Grant and Form of Restricted Stock Bonus Agreement under the Registrant’s Amended and Restated 1999 Directors’

Equity Compensation Plan (incorporated by reference to Exhibit 99.3 to the Form S-8 filed on December 4, 2009 by Great Elm Capital Group, Inc.

(Registration Statement No.

Amended and Restated 2016 Long-Term Incentive Compensation Plan (incorporated by reference to Annex A to the Proxy Statement filed on September 20, 2018 by Great Elm Capital Group, Inc.

Great Elm Group, Inc.

Amended and Restated 2016 Long-Term Incentive Compensation Plan (As Amended, Effective November 17, 2021) (incorporated by reference to Exhibit 10.1 to the Form 8-K of Great Elm Group, Inc.

filed on November 17, 2021)

2016 Employee Stock Purchase Plan (incorporated by reference to Annex E to the Proxy Statement filed on May 25, 2016 by Great Elm Capital Group, Inc.

Form of Amended and Restated Notice of Performance Stock Award (incorporated by reference to Exhibit 10.5 to the Form 8-K filed on September 20, 2017 by Great Elm Capital Group, Inc.

Form of Restricted Stock Unit Award (Directors) under the Registrant’s Amended and Restated 2016 Long-Term Incentive Compensation Plan

Form of Restricted Stock Unit Award (Employees) under the Registrant’s Amended and Restated 2016 Long-Term Incentive Compensation Plan

Form of Restricted Stock Unit Award (Directors) under the Registrant’s Amended and Restated 2016 Long-Term Incentive Compensation Plan (incorporated by reference to Exhibit 10.16 to the Form 10-K of Great Elm Group, Inc.

filed on September 21, 2021)

Form of Restricted Stock Unit Award (Employees) under the Registrant’s Amended and Restated 2016 Long-Term Incentive Compensation Plan (incorporated by reference to Exhibit 10.17 to the Form 10-K of Great Elm Group, Inc.

filed on September 21, 2021)

Amended and Restated Great Elm Capital Management Performance Bonus Plan, dated February 6, 2019, (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on February 8, 2019 by Great Elm Capital Group, Inc.

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and Great Elm Capital GP, LLC (formerly GECC GP Corp.) (incorporated by reference to Exhibit 10.6 to the Form 8-K filed on November 9, 2016)

Promissory Note, by and between Great Elm Capital Management, Inc.

and Imperial Capital Asset Management, LLC, dated May 4, 2022 (incorporated by reference to Exhibit 10.1 to the Form 8-K of Great Elm Group, Inc.

filed on May 5, 2022)

Code of Conduct of Great Elm Group, Inc.

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Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certifications of the Principal Executive Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certifications of the Principal Financial Officer pursuant to 18 U.S.C.

Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Audited financial statements of Great Elm Capital Corp.

(incorporated by reference to the annual report on Form 10-K filed on March 16, 2021 by Great Elm Capital Corp.

Materials from the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021, formatted in inline Extensible Business Reporting Language (XBRL):

(i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Stockholders’ Equity and Contingently Redeemable Non-Controlling Interest, (iv) Condensed Consolidated Statements of Cash Flows, and (v) related Notes to the Condensed Consolidated Financial Statements, tagged in detail (furnished herewith).

The cover page from the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021, formatted in inline XBRL (included as Exhibit 101).

(incorporated by reference to the annual report on Form 10-K/A filed on April 19, 2022 by Great Elm Capital Corp.

Materials from the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021, formatted in inline Extensible Business Reporting Language (XBRL):

(i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Stockholders’

Equity and Contingently Redeemable Non-Controlling Interest, (iv) Condensed Consolidated Statements of Cash Flows, and (v) related Notes to the Condensed Consolidated Financial Statements, tagged in detail (furnished herewith).

The cover page from the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021, formatted in inline XBRL (included as Exhibit 101).

* Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K.

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of September 12, 2022.

Chief Executive Officer and Director

Chief Executive Officer

(Principal Executive Officer)

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/s/ Thomas S.

/s/ David Matter

/s/ Jeffrey S.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

INDEX TO FINANC IAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets at June 30, 2022 and 2021

Consolidated Statements of Operations for the years ended June 30, 2022 and 2021

Consolidated Statements of Stockholders’ Equity and Contingently Redeemable Non-Controlling Interest for the years ended June 30, 2021 and 2020

Consolidated Statements of Cash Flows years for the years ended June 30, 2021 and 2020

Consolidated Statements of Stockholders’

Equity and Contingently Redeemable Non-Controlling Interest for the years ended June 30, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended June 30, 2022 and 2021

Notes to the Consolidated Financial Statements

Report of Independent Registered PUBLIC Accounting Firm

Report of Independent Regist ered PUBLIC Accounting Firm

Board of Directors and Shareholders

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We have audited the accompanying consolidated balance sheets of Great Elm Group, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of June 30, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity and contingently redeemable non-controlling interest, and cash flows for each of the two years in the period ended June 30, 2021, 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 June 30, 2021, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

(a Delaware corporation) and subsidiaries (the “Company”) as of June 30, 2022 and 2021, the related consolidated statements of operations, stockholders’

equity and contingently redeemable non-controlling interest, and cash flows for each of the two years in the period ended June 30, 2022, 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 June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2022, 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 audits.

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.

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 audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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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 audits 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 audits 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 supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Durable Medical Equipment Revenue Recognition – Variable Consideration

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Durable Medical Equipment Revenue Recognition –

Variable Consideration

As described further in notes 2 and 3 to the financial statements, and disclosed in the consolidated statement of operations, the Company recorded $68.0 million of total revenues for the year ended June 30, 2022, of which $63.5 million related to the Durable Medical Equipment operating segment.

The Company’s revenue is recorded based on the amount that the Company expects to receive in exchange for the goods or services provided, which consists of the transaction price net of estimates for variable consideration.

Actual amounts of consideration ultimately received may differ from the Company’s initial estimates.

We identified the estimation of the variable consideration within the Durable Medical Equipment revenue streams as a critical audit matter.

The principal considerations for our determination that variable consideration is a critical audit matter are (i) the significant judgment exercised by the Company in estimating variable consideration and (ii) the volume and variability of information necessary to evaluate of the initial amounts recorded that are subject to the Company’s estimate of variable consideration.

Our audit procedures related to variable consideration included the following, among others:

For a sample of revenue transactions, we (i) performed detailed transaction testing by agreeing the amount recognized to source documentation, which included fee schedules, explanation of benefits, or cash payments, as available and (ii) evaluated the rate of adjustment from our sample relative to the Company’s incremental constraints for variable consideration

Tested management’s process for determining the reasonableness of constraints for variable consideration, including testing of the inputs to the calculation and reperformance of management’s analysis to evaluate the reasonableness of rates applied to those inputs

We have served as the Company’s auditor since 2020.

The principal considerations for our determination that variable consideration is a critical audit matter are (i) the significant judgment exercised by the Company in estimating variable consideration and (ii) the volume and variability of information necessary to evaluate the initial amounts recorded that are subject to the Company’s estimate of variable consideration.

Our audit procedures related to the variable consideration constraint included the following, among others:

/s/ Grant Thornton LLP

We have served as the Company’s auditor since 2019.

Boston, Massachusetts

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GREAT ELM GROUP, INC.

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED B ALANCE SHEETS

Dollar amounts in thousands, except per share amounts

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Assets of consolidated funds:

Investments, at fair value (cost $ 26,814 )

Investments, at fair value (cost $ 2,432 and $ 26,814 , respectively)

Prepaid expenses

Current assets of discontinued operations

Total current assets

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Right of use assets

Noncurrent assets of discontinued operations

LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS' EQUITY

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Deferred revenue

Current portion of related party payables

Current portion of lease liabilities

Current portion of long term debt

Current portion of related party notes payable

Current portion of equipment financing debt

Liabilities of consolidated funds - accrued expenses and other

Current liabilities of discontinued operations

Total current liabilities

Lease liabilities, net of current portion

Long term debt (face value $ 26,945 and $ 0 , respectively)

Related party payables

Related party notes payable, net of current portion

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Equipment financing debt, net of current portion

Redeemable preferred stock of subsidiaries (held by related parties, face value $ 37,018 )

Redeemable preferred stock of subsidiaries (held by related parties, face value $ 35,824 and $ 37,018 , respectively)

Other liabilities

Noncurrent liabilities of discontinued operations

Total liabilities

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GREAT ELM GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEM ENTS OF OPERATIONS

Dollar amounts in thousands, except per share data

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Dividends and interest income

Net realized/ unrealized gain (loss) on investments

Net realized/ unrealized gain on investments of consolidated funds

Net realized and unrealized gain (loss) on investments

Net realized and unrealized gain (loss) on investments of consolidated funds

Interest expense

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net income attributable to non-controlling interest, discontinued operations

Net loss attributable to Great Elm Group

Net loss attributable to Great Elm Group, Inc.

Basic income (loss) per share

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Discontinued operations

Net loss per share

Diluted income (loss) per share from:

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Discontinued operations

Net loss per share

Weighted average shares outstanding

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GREAT ELM GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND CONTINGENTLY REDEEMABLE NON-CONTROLLING INTEREST

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY AND CONTINGENTLY REDEEMABLE NON-CONTROLLING INTEREST

Dollar and share amounts in thousands

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Issuance of common stock related to vesting of restricted stock

Issuance of convertible notes

Stock-based compensation

BALANCE, June 30, 2020

Issuance of common stock related to vesting of restricted stock

Distributions to non-controlling interest holders of DME Inc.

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BALANCE, June 30, 2021

Issuance of common stock related to vesting of restricted stock

Repurchase of interests in subsidiary

Issuance of common stock related to asset purchase

Issuance of interests in Consolidated Fund

Distribution of interests in Consolidated Fund

Stock-based compensation

BALANCE, June 30, 2022

The accompanying notes are an integral part of these consolidated financial statements.

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Net income from discontinued operations

Adjustments to reconcile net loss to net cash provided by operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

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Purchases of investments by consolidated funds

Stock dividends received from GECC

Unrealized (gain) loss on investments

Stock dividends received

Unrealized gain on investments

Realized loss on investments

Unrealized (gain) on investments of consolidated funds

Realized (gain) on investments of consolidated funds

Unrealized loss (gain) on investments of consolidated funds

Realized loss (gain) on investments of consolidated funds

Non-cash interest and amortization of capitalized issuance costs

Loss on extinguishment of debt

Deferred tax expense

Deferred tax (benefit) expense

Other non-cash expense, net

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Operating leases

Related party payable

Deferred revenues

Related party payable

Accounts payable, accrued liabilities and other liabilities

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Cash flows from investing activities:

Proceeds from settlement with seller

Acquisition of business, net of cash acquired

Acquisition of businesses, net of cash acquired

Acquisition of assets

Purchases of investments

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Purchases of property and equipment

Proceeds from sale of property and equipment

Net cash used in investing activities - continuing operations

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Cash flows from financing activities:

Proceeds on revolving line of credit

Proceeds of issuance of baby bond

Principal payments on revolving line of credit

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Proceeds from equipment financing

Redemption of redeemable preferred stock of subsidiary

Capitalized issuance costs

Due to broker of consolidated funds

Payments made to non-controlling interest holders

Proceeds from convertible notes

Repurchase of interests in subsidiary

Payments of debt extinguishment costs

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Issuance of Forest preferred stock

Proceeds from subscriptions of non-controlling interests in consolidated funds

Capital contributions from non-controlling interests in consolidated funds

Distributions to non-controlling interests in consolidated funds

Proceeds from issuance of Forest common stock, gross

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Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

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Non-cash investing and financing activities

Deferred financing costs incurred but not yet paid

Non-cash consideration transferred and debt issued in asset acquisition

Lease liabilities and right of use assets arising from operating leases

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Investment Management

On September 27, 2016, the Company’s wholly-owned SEC-registered investment advisor subsidiary Great Elm Capital Management, Inc.

( GECM ), a Delaware corporation, entered into an investment management agreement (the IMA ) with Great Elm Capital Corp., a publicly-traded business development company incorporated in Maryland ( GECC ).

On November 3, 2016, Full Circle Capital Corporation merged with and into GECC and GECM hired the employees of MAST Capital Management, LLC ( MAST Capital ), a Delaware limited liability company, to manage the assets of GECC.

Through the Company’s majority-owned subsidiary, GECC GP Corp.

), the Company acquired assets and assumed related liabilities associated with the on-going operations of GECM.

A portion of the non-controlling interest of GP Corp.

was owned by MAST Capital, and its affiliates and officers.

In March 2021, the Company purchased all interests in GP Corp.

held by MAST Capital and its affiliates.

On June 29, 2021, GP Corp assigned the rights to the Profit Sharing Agreement (as defined in Note 7 – Related Party Transactions) with GECM, their intercompany obligation under the GP Corp.

Note (as defined in Note 13 – Borrowings) and other assets and liabilities to their wholly-owned subsidiary Great Elm Capital GP, LLC ( GEC GP ).

Subsequent to the assignment, the Company exchanged their 98.2 % interests in GP Corp.

for an identical 98.2 % direct interest in GP Corp.’s wholly-owned subsidiary GEC GP.

Following the consummation of the taxable reorganization, the Company no longer has an interest in GP Corp.

On May 4, 2022, GECM acquired the investment management agreement of Monomoy Properties REIT, LLC ( Monomoy REIT ) from Imperial Capital Asset Management, LLC ( ICAM ).

Formed in 2014, Monomoy REIT is a private real estate investment trust founded by ICAM, with a 108-property portfolio of diversified net leased industrial assets.

The Company earns revenue through the investment management agreements of these and other private investment vehicles which provide for management fees, property management fees, incentive fees and administrative fees.

Durable Medical Equipment

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On May 31, 2021, our wholly-owned subsidiary DME Holdings exchanged their 80.1 % interests in DME Inc.

for an identical 80.1 % direct interest in DME Inc.’s subsidiary Great Elm Healthcare, LLC ( HC LLC ), which is the sole owner of the durable medical equipment operating subsidiaries.

Following the consummation of the taxable reorganization, the Company no longer has an interest in DME Inc.

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( Forest ) and became a wholly owned subsidiary of a new holding company, Great Elm Group, Inc ( GEG ).

Outstanding shares of Forest under the ticker symbol “GEC” were automatically converted into shares of common stock of Great Elm Group, Inc., ticker symbol “GEG”.

Outstanding shares of Forest under the ticker symbol “GEC”

were automatically converted into shares of common stock of Great Elm Group, Inc., ticker symbol “GEG”.

Forest common stock was then delisted from the Nasdaq Global Select Market and subsequently deregistered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act ).

The Holding Company Reorganization (as defined in Note 4 – Holding Company Reorganization and Financing Transaction) was a tax-free transaction for U.S.

federal income tax purposes for the Company’s shareholders.

The Holding Company Reorganization (as defined in Note 4 –

Holding Company Reorganization and Financing Transaction) was a tax-free transaction for U.S.

federal income tax purposes for the Company’s shareholders.

Discontinued Operations

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Wholly-owned subsidiaries include GECM, Great Elm Opportunities GP, Inc.

( GEO GP ), Great Elm FM Acquisition, Inc.

( GEO GP ), Great Elm Capital GP, LLC ( GEC GP ), Great Elm FM Acquisition, Inc.

( FM Acquisition ), DME Holdings and Great Elm DME Manager, LLC ( DME Manager ).

Majority-owned subsidiaries (including those divested during the year) include Forest, GEC GP, GP Corp., Great Elm FM Holdings, Inc.

( FM Holdings ), CRIC IT Fort Myers, LLC, DME Inc.

and HC LLC and its seven wholly-owned subsidiaries.

Majority-owned subsidiaries include Forest, HC LLC and its seven wholly-owned subsidiaries.

In addition, we have determined that the Company is the primary beneficiary of certain variable interest entities, and therefore the operations of those entities have been included in our consolidated results for the relevant periods.

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Although these and other estimates and assumptions are based on the best available information, actual results could be different from these estimates.

Assets and liabilities related to the real estate business operating segment on the Company’s consolidated balance sheet as of June 30, 2020 have been reclassified as assets and liabilities of discontinued operations.

All assets and liabilities related to discontinued operations are excluded from the notes unless otherwise noted.

In addition, the historical results of the real estate business operating segment have been reflected in the accompanying consolidated statements of operations for the years ended June 30, 2021 and 2020 as discontinued operations.

See Note 5 – Discontinued Operations.

In addition, the historical results of the real estate business operating segment have been reflected in the accompanying consolidated statements of operations for the year ended June 30, 2021 as discontinued operations.

See Note 5 –

Discontinued Operations.

Principles of Consolidation

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All intercompany accounts and transactions have been eliminated in consolidation.

Non-controlling interests in the Company’s subsidiaries are reported as a component of equity, separate from the parent company’s equity or outside of permanent equity for non-controlling interests that are contingently redeemable.

See Note 16 – Non-Controlling Interests and Preferred Stock of Subsidiary.

Results of operations attributable to the non-controlling interests are included in the Company’s consolidated statements of operations.

See Note 16 –

Non-Controlling Interests and Preferred Stock of Subsidiary.

Results of operations attributable to the non-controlling interests are included in the Company’s consolidated statements of operations.

The Company has two business operating segments:

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The constrained transaction price relates primarily to expected billing adjustments with the Payors and patient customers.

Management’s evaluation of variable consideration takes into account such factors as past experience, information about specific receivables, Payors and patient customers.

The revenue reserves related to constraints on variable consideration were $ 1.9 million and $ 2.5 million as of June 30, 2022 and 2021 , respectively.

The Company recognized a reduction to revenue of $ 3.5 million and $ 5.9 million related to such constraints during the years ended June 30, 2022 and 2021.

See Note 3 – Revenue.

See Note 3 –

The assessment of variable consideration to be constrained is based on estimates, and ultimate losses may vary from current estimates.

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Changes in variable consideration are recorded as a component of net revenues.

The Company generally does not allow returns from providers for reasons not covered under the manufacturer’s standard warranty.

Therefore, there is no provision for sales return reserves.

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Such contract assets are included in accounts receivable in the consolidated balance sheets.

Investments include investments in GECC and other private funds, which are carried at fair value.

Investments include investments in GECC, Monomoy Properties UpREIT, the operating partnership of Monomoy REIT ( Monomoy UpREIT ), and other private funds, which are carried at fair value.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under US GAAP.

See Note 8 – Fair Value Measurements.

See Note 8 –

Fair Value Measurements.

Property, Equipment and Rental Equipment

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As of June 30, 2022, all of our leases are operating leases.

Operating leases are included in right of use assets ( ROU ), current portion of lease liabilities and lease liabilities net of current portion in the consolidated balance sheets.

Operating leases are included in right of use ( ROU ) assets, current portion of lease liabilities and lease liabilities net of current portion in the consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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in investment management expenses in the accompanying consolidated statements of operations.

The Company had a contractual arrangement through November 2019 with a third party to provide services in exchange for 26 % of the fees earned from the management of GECC, excluding incentive fees.

This arrangement was not renewed upon expiration.

Depreciation and Amortization

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The Company has established a valuation allowance for its deferred tax assets that are not recoverable from taxable temporary differences because the Company is unable to conclude that future utilization of a portion of its net operating loss carryforwards and other deferred tax assets is more likely than not.

The calculation of the Company’s tax positions involves dealing with uncertainties in the application of complex tax regulations for federal and several different state tax jurisdictions.

The Company is periodically reviewed by tax authorities regarding the amount of taxes due.

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The Company does not recognize income tax benefits for positions that it takes on its income tax returns that do not meet the more likely than not standard on its technical merits.

Business Combinations

Business combinations are accounted for at fair value.

Acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses;

Asset Acquisitions and Business Combinations

Asset acquisitions are accounted for using the cost accumulation method while business combinations are accounted for at fair value.

Determining whether the acquired set represents an asset acquisition or a business combination requires quantitative and qualitative assessments that require judgment.

In an asset acquisition, acquisition costs are capitalized as part of the acquired set.

The accounting for asset acquisitions requires estimates and judgment to allocate the costs incurred to acquire the assets among the assets acquired using their relative fair value.

As such, the values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.

In a business combination, acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses;

previously held equity interests are valued at fair value upon the acquisition of a controlling interest;

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The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired and liabilities assumed.

The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.

If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of finite-lived intangible assets, or the recognition of additional consideration which would be expensed.

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net income attributable to non-controlling interest discontinued operations

Net loss attributable to Great Elm Group

Net loss attributable to Great Elm Group, Inc.

Weighted average shares basic and diluted:

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Income from discontinued operations

Net loss per share

When calculating earnings per share, we are required to adjust for the dilutive effect of common stock equivalents.

As of June 30, 2021 the Company had 13,289,022 potential shares of common stock, including 9,891,734 shares of common stock issuable upon the conversion of the Company’s convertible notes, that are not included in the diluted net income (loss) per share calculation because to do so would be anti-dilutive.

As of June 30, 2020, the Company had 12,206,044 potential shares of common stock, including 8,790,049 shares of common stock issuable upon the conversion of the Company’s convertible notes, that are not included in the diluted net income (loss) per share calculation because to do so would be antidilutive.

As of June 30, 2021 and 2020, the Company had an aggregate of 732,909 issued shares that are subject to forfeiture by the employee at a nominal price if service and performance milestones are not met.

As of June 30, 2022 the Company had 13,839,273 potential shares of common stock, including 10,392,545 shares of common stock issuable upon the conversion of the Company’s convertible notes, that are not included in the diluted net income (loss) per share calculation because to do so would be anti-dilutive.

As of June 30, 2021, the Company had 13,289,022 potential shares of common stock, including 9,891,734 shares of common stock issuable upon the conversion of the Company’s convertible notes, that are not included in the diluted net income (loss) per share calculation because to do so would be antidilutive.

As of June 30, 2022 and 2021, the Company had an aggregate of 1,216,481 and 732,909 issued shares, respectively, that are subject to forfeiture by the employee at a nominal price if service and/or performance milestones are not met.

The Company does not account for such shares as being outstanding for accounting purposes since they are unvested and subject to forfeiture.

Restrictions on Subsidiary Dividends

The ability of HC LLC.

to pay dividends is subject to compliance with the restricted payment covenants under the DME Revolver.

The ability of HC LLC to pay dividends is subject to compliance with the restricted payment covenants under the DME Revolver.

Concentration of Risk

The Company’s net investment revenue and receivables from continuing operations are primarily attributable to the management of one investment vehicle, GECC.

See Note 7 – Related Party Transactions.

The Company’s durable medical equipment revenue and related accounts receivable are concentrated with third-party Payors.

The Company’s net investment revenue and receivables from continuing operations are primarily attributable to the management of one investment vehicle, GECC.

See Note 7 –

Related Party Transactions.

The Company’s durable medical equipment revenue and related accounts receivable are concentrated with third-party Payors.

The following table summarizes customer concentrations as a percentage of revenues:

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Third-party Payor

Revenue concentration percentages have been recast from those previously reported to reflect the presentation of the real estate business within discontinued operations.

The following table summarizes customer concentrations as a percentage of accounts receivable:

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Recently Adopted Accounting Standards

Fair Value Measurements In August 2018, the Financial Accounting Standards Board ( FASB ) issued Accounting Standards Updated ( ASU ) 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement , resulting in various disclosures related to fair value measurements being eliminated, modified or supplemented.

ASU 2018-13 is effective for interim and annual periods beginning after December 15, 2019, with an option to early adopt any eliminated or modified disclosures, and to delay adoption of the additional disclosures, until the effective date.

The Company early adopted the eliminated and modified disclosures of ASU 2018-13 during the three months ended September 30, 2018 and adopted the supplemental disclosures related to level 3 fair value measurements as of July 1, 2020 .

Accounting for Convertible Instruments In August 2020, the Financial Accounting Standards Board ( FASB ) issued Accounting Standards Update ( ASU ) 2020-06 , Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for convertible instruments by eliminating certain separation models.

Under ASU 2020-06, a convertible debt instrument will generally be reported as a single liability at its amortized cost with no separate accounting for embedded conversion features.

Consequently, the interest rate of convertible debt instruments will be closer to the coupon interest rate.

In addition, ASU 2020-06 eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method.

The guidance in this ASU is effective for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company adopted this ASU on July 1, 2021 under the full retrospective method.

When our Convertible Notes were originally issued on February 29, 2020, we recorded a $ 12.6 million discount to additional paid-in capital and against the Convertible Notes due to the existence of a cash conversion feature.

Upon adoption we reversed this entry to additional-paid in capital and the Convertible Notes in all periods presented, and reversed any life-to-date interest expense and deferred tax expense associated with the amortization of the discount as an adjustment to beginning retained earnings of the prior year.

As a result of the application of the retrospective adoption of ASU 2020-06, certain line items in our consolidated financial statements and related notes were adjusted as follows:

As of June 30, 2021

Consolidated Balance Sheet Impact

As Reported (1)

ASU 2020-06 Adjustment

As Adjusted (1)

Convertible notes

Other liabilities

Total Liabilities

Stockholders' equity

Additional paid-in-capital

Accumulated deficit

Total Great Elm Group, Inc Stockholder's Equity

Total Stockholder's Equity

For the year ended June 30, 2021

Consolidated Statement of Operations Impact

As Reported (1)

ASU 2020-06 Adjustment

As Adjusted (1)

Non-operating expenses

Interest expense

Net loss from continuing operations

Loss from continuing operations, before income taxes

Income tax expense

Loss from continuing operations

Discontinued operations:

Income from discontinued operations, net of tax

net loss attributable to non-controlling interest, continuing operations

net income attributable to non-controlling interest, discontinued operations

Net loss attributable to Great Elm Group

Net loss per share (basic and diluted)

For the year ended June 30, 2021

Consolidated Statements of Stockholders' Equity Impact

As Reported (1)

ASU 2020-06 Adjustment

As Adjusted (1)

Accumulated Deficit

Total Great Elm Group, Inc.

Stockholder's Equity

Total Stockholder's Equity

For the year ended June 30, 2021

Consolidated Statement of Cash Flows Impact

As Reported (1)

ASU 2020-06 Adjustment

As Adjusted (1)

Non-cash interest and amortization of capitalized issuance costs

Deferred tax expense

Net cash provided by (used in) operating activities - continuing operations

Net cash provided by operating activities - discontinued operations

Net cash provided by (used in) operating activities

Net cash used in investing activities - continuing operations

Net cash provided by investing activities - discontinued operations

Net cash used in investing activities

Net cash provided by financing activities - continuing operations

Net cash used in financing activities - discontinued operations

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

(1) The As Reported column refects amounts originally reported in our Form 10-K filed on September 21, 2021.

The As Adjusted column reflects recast amounts reported in our Form 8-K filed on May 5, 2022.

Recently Issued Accounting Standards

Current Expected Credit Losses In June 2016, the FASB issued ASU 2016-13 , Financial Instruments – Credit Losses (Topic 326) , which changes the impairment model for financial instruments, including trade receivables from an incurred loss method to a new forward looking approach, based on expected losses.

Current Expected Credit Losses In June 2016, the FASB issued ASU 2016-13 , Financial Instruments –

Credit Losses (Topic 326) , which changes the impairment model for financial instruments, including trade receivables from an incurred loss method to a new forward looking approach, based on expected losses.

The estimate of expected credit losses will require entities to incorporate considerations of historical experience, current information and reasonable and supportable forecasts.

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The Company is considering the optionality of ASU 2020-04 and is evaluating the potential impact that the adoption of this ASU will have on its consolidated financial statements.

Accounting for Convertible Instruments In August 2020, the FASB issued ASU 2020-06 , Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for convertible instruments by eliminating certain separation models.

Under ASU 2020-06, a convertible debt instrument will generally be reported as a single liability at its amortized cost with no separate accounting for embedded conversion features.

Consequently, the interest rate of convertible debt instruments will be closer to the coupon interest rate.

In addition, ASU 2020-06 eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method.

The guidance in this ASU are effective for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company determined to adopt this ASU on July 1, 2021 under the full retrospective method.

As such, upon adoption we will reverse this entry to additional-paid in capital and the Convertible Notes in all periods presented, and will reverse any life-to-date interest expense associated with the amortization of the discount as an adjustment to beginning retained earnings of the prior year.

Had this ASU been adopted in the current year, our interest expense and net losses for the years ended June 30, 2021 and 2020 would have been lower by $ 0.7 million and $ 0.2 million, respectively.

The revenues from each major source of revenue are summarized in the following table:

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Management Fees

Property Management Fees

Administration Fees

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The Company includes in the transaction price only the amount that the Company expects to be entitled, which is substantially all of the Payor billings at contractual rates.

T he transaction price is initially constrained by the amount of customer co-payments we estimate will not be collected .

The transaction price is initially constrained by the amount of customer co-payments we estimate will not be collected.

Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenue and accounts receivable.

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Returns and refunds are not accepted on either equipment sales or sleep study services.

The Company does not offer warranties to customers in excess of the manufacturer’s warranty.

Any taxes due upon sale of the products or services are not recognized as revenue.

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However, during the quarter ended June 30, 2020, the Company applied for and received $ 4.4 million in advanced payments from the Centers for Medicare and Medicaid Services (CMS) under their Accelerated and Advance Payment Program, which was expanded to increase cash flow to providers of services and suppliers impacted by the 2019 Novel Coronavirus (COVID-19) pandemic.

We have issued recoupments of $ 0.9 million during the year ended June 30, 2021, leaving a remaining balance of $ 3.5 million.

CMS began recoupments during our fiscal year 2021.

We have issued recoupments of $ 3.2 million and $ 0.9 million during the years ended June 30, 2022 and 2021, respectively, leaving a remaining balance of $ 0.3 million as of June 30, 2022.

These amounts are included within deferred revenue on the condensed consolidated balance sheet.

The Company has no other contract liabilities as of June 30, 2022 or 2021.

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Management Fees

The Company earns management fees based on the investment management agreement GECM has with GECC and other private funds managed by GECM (collectively, the Funds ).

The performance obligation is satisfied over time as the services are rendered, since GECC simultaneously receives and consumes the benefits provided as GECM performs services.

The Company earns management fees based on the investment management agreement GECM has with GECC, Monomoy REIT and other private funds managed by GECM (collectively, the Funds).

The performance obligation is satisfied over time as the services are rendered, since the managed vehicles simultaneously receive and consume the benefits provided as GECM performs services.

Management fee rates range from 1 % to 1.50 % of the management fee assets specified within each agreement.

Based on the terms of the specific agreement, management fees may be calculated and billed in advance or in arrears of the period, no less frequently than quarterly.

Based on the terms of the specific agreement, management fees may be calculated and billed in arrears of the period, either monthly or quarterly.

Management fee revenue is recognized over time as the services are provided.

Property Management Fees

Under the Monomoy REIT agreement, GECM is also entitled to 4 % of rent collected.

These fees are collected monthly in arrears.

Property management fee revenue is recognized over time as the services are provided.

Incentive Fees

The Company earns incentive fees based on the investment management agreements GECM has with GECC and separately managed accounts.

The Company earns incentive fees based on the investment management agreements GECM has with GECC, Monomoy Properties II, LLC (a feeder fund of the Monomoy REIT) and separately managed accounts.

Where an investment management agreement includes both management fees and incentive fees, the performance obligation is considered to be a single obligation for both fees.

Incentive fees are variable consideration associated with the GECC investment management agreement.

Incentive fees are variable consideration associated with the investment management agreements.

Incentive fees are earned based on investment performance during the period, subject to the achievement of minimum return levels or high-water marks, in accordance with the terms of the respective investment management agreements.

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Because of the uncertainty of when incentive fees will be collected due to market conditions and investment performance, incentive fees are fully constrained and not recorded until received and the probability of significant reversal of the fees is eliminated in accordance with the respective investment management agreements.

As of June 30, 2021, there is $ 9.7 million in incentive fees which have been earned per the terms of the investment management agreements but not recorded as they are still subject to the constraints described above.

Effective March 31, 2022, the Company unconditionally waived all accrued incentive fees for GECC through March 31, 2022.

As of June 30, 2022 , there are no incentive fees which have been earned per the terms of the investment management agreements.

Administration Fees

The Company earns administration fees based on the administration agreement GECM has with GECC whereby GECC reimburses GECM for costs incurred in performing administrative functions for GECC.

The Company earns administration fees based on the administration agreement GECM has with GECC and Monomoy REIT whereby the vehicles reimburse GECM for costs incurred in performing administrative functions.

This revenue is recognized over time as the services are performed.

Administrative fees are billed quarterly in arrears, which is consistent with the timing of the delivery of services and reflect agreed upon rates for the services provided.

The services are accounted for as a single performance obligation for each vehicle that is a series of distinct services with substantially the same pattern of transfer as the services are provided on a daily basis.

The Company also earns service fees based on a shared services agreement with certain portfolio companies of GECC.

This revenue is recognized over time as the services are performed.

Service fees are billed quarterly in arrears, which is consistent with the timing of the delivery of services and reflect agreed upon rates for the services provided.

The services are accounted for as a single performance obligation that is a series of distinct services with substantially the same pattern of transfer as the services are provided on a daily basis.

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In the case of capped rental agreements, title to the equipment transfers to the customer at the end of the contractual rental period.

The customer has the right to cancel the lease at any time during the rental period for a subsequent month’s rental and payments are generally billed in advance on a month-to-month basis.

Under Topic 842, rental income from operating leases is recognized on a month-to-month basis, based on contractual lease terms when collectability is reasonably assured.

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cash of $ 1.9 million and reimbursed GEG $ 1.3 million to cover deal costs;

Forest distributed to the Company, its sole stockholder, all of the assets and liabilities of Forest other than certain excluded assets and related liabilities, including Forest’s real estate business, and a preferred investment in the Company’s durable medical equipment business;

JPM acquired 20 % of Forest’s common stock for a purchase price of $ 2.7 million.

The Company’s wholly-owned subsidiary, DME Manager, concurrently entered into an agreement with Forest to provide advisory services in exchange for annual consulting fees of $ 0.45 million.

JPM acquired 20 % of Forest’s common stock for a purchase price of $ 2.7 million.

The Company’s wholly-owned subsidiary, DME Manager, concurrently entered into an agreement with Forest to provide advisory services in exchange for annual consulting fees of $ 0.45 million.

(each collectively noted above, the JPM Transactions ).

See Note 16 – Non-Controlling Interests and Preferred Stock of Subsidiary.

See Note 16 –

Non-Controlling Interests and Preferred Stock of Subsidiary.

Using proceeds from the JPM Transactions, DME Inc.

paid off the term loan with Corbel (the Corbel Facility ).

See Note 13 – Borrowings.

See Note 13 –

Subsidiary Reorganizations

On May 31, 2021, our wholly-owned subsidiary DME Holdings exchanged their 80.1 % interests in DME Inc.

for an identical 80.1 % direct interest in DME Inc.’s subsidiary HC LLC, which is the sole owner of the durable medical equipment operating subsidiaries.

Following the consummation of the taxable reorganization, the Company no longer has an interest in DME Inc.

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exchanged their 98.2 % interests in GP Corp.

for an identical 98.2 % direct interest in GP Corp.’s wholly-owned subsidiary GEC GP.

Following the consummation of the taxable reorganization, the Company no longer has an interest in GP Corp.

During the year ended June 30, 2022, the Company purchased the remaining non-controlling interests in GEC GP.

As of June 30, 2022, no non-controlling interest remains outstanding.

See Note 16 - Non-Controlling Interests and Preferred Stock of Subsidiary.

Discontinued Operations

On June 23, 2021, the Company’s majority-owned indirect subsidiary FM Acquisition, entered into an agreement with Monomoy Properties Fort Myers, LLC ( Monomoy FM ) to sell the Company’s real estate business to Monomoy FM for $ 4.6 million in cash.

The real estate business consists of majority-interests in two Class A office buildings totaling 257,000 square feet situated on 17 acres of land in Fort Myers, Florida.

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Accordingly, our historical financial information has been recast to present the activities of the real estate business within discontinued operations, and the assets and liabilities of the real estate business as assets and liabilities of discontinued operations.

As a passive investor in Monomoy Fund and with a membership interest of approximately 5 %, we have determined that we have no significant continuing involvement with the real estate business.

The following table provides a reconciliation of the Company’s net income from discontinued operations presented in the consolidated statements of operations:

For the years ended June 30,

As a passive investor in Monomoy Fund and with a membership interest of approximately 5 %, we determined that we had no significant continuing involvement with the real estate business upon disposition.

The following table provides a reconciliation of the Company’s net income from discontinued operations presented in the consolidated statements of operations for the year ended June 30, 2021:

(in thousands)

For the year ended June 30, 2021

Discontinued operations:

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Net income from discontinued operations

The following table provides a reconciliation of the assets and liabilities of discontinued operations presented in the consolidated balance sheet:

(in thousands)

As of June 30, 2020

Cash and cash equivalents

Restricted cash

Prepaid and other current assets

Total current assets of discontinued operations

Real estate assets, net

Identifiable intangible assets, net

Accrued expenses and other liabilities

Current portion of long term debt

Total current liabilities of discontinued operations

Long term debt, net of current portion

Other liabilities

Total Liabilities

There was no activity from discontinued operations in the consolidated statement of operations for the year ended June 30, 2022.

Investment Management Acquisitions

Acquisition of Monomoy REIT Investment Management Agreement

On May 4, 2022 , through its wholly-owned subsidiary, GECM, the Company acquired the investment management agreement for Monomoy Properties REIT, LLC and certain other related assets from ICAM.

Monomoy REIT is a private real estate investment trust founded by ICAM, with a 108-property portfolio of diversified net leased industrial assets.

The acquisition significantly increases and diversifies GECM’s assets under management.

In addition to the investment management agreement, GECM acquired the assembled workforce including eleven ICAM personnel involved in the operations of the REIT, as well as the Charleston, South Carolina office lease where these employees were based.

In conjunction with the acquisition, the Company made an investment of $ 15.0 million into Monomoy UpREIT, the operating partnership of Monomoy REIT.

The purchase consideration included an upfront purchase price of $ 10 million financed with a combination of:

(i) $ 2.5 million in newly issued shares of GEG common stock, which equals 1,369,984 shares issued at $ 1.81 per share, which is the 30 -calendar day volume-weighted average of the closing sales price ending on April 14, 2022;

(ii) $ 1.25 million in shares of common stock of Great Elm Capital Corp.

(“GECC”) owned by GEG and valued at the subscription price of the next GECC rights offering;

and (iii) a promissory note issued by GECM in an aggregate principal amount of approximately $ 6.3 million, which bears interest at 6.5 % per annum and is payable at GECM’s option with either cash, GECC shares owned by GEG, or newly issued GEG shares (subject to shareholder approval).

The Company also incurred $ 0.8 million in direct transaction costs consisting primarily of professional fees.

In addition, a contingent consideration agreement requires the Company to pay up to $ 2.0 million of addition consideration to the seller if certain fee revenue thresholds are achieved during the fiscal years ending June 30, 2023 and 2024.

The fair value of the contingent consideration arrangement at the acquisition date was $ 1.1 million.

The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation model.

The key assumptions in applying the Monte Carlo simulation model include volatility of 19.6 % and a discount rate of 6.5 %.

The contingent consideration is included within accrued expenses and other liabilities in the consolidated balance sheets.

The transaction was accounted for as an asset acquisition because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable intangible asset related to the investment management agreement.

The value of the investment management agreement was estimated under the income approach using a multi-period excess earnings method.

The key inputs in the valuation included forecasted assets under management, revenue and expenses, and a discount rate of 19.5 %.

The $ 11.9 million cost of the acquisition was allocated to assets acquired on the basis of their relative fair values.

Specifically, the Company recognized $ 11.3 million and $ 0.6 million of intangible assets representing the acquired investment management agreement and assembled workforce with estimated useful lives of 15 years and 10 years , respectively.

Durable Medical Equipment Acquisitions

Acquisition of MedOne Healthcare LLC

On August 31, 2021 , through its majority-owned subsidiary, HC LLC, the Company acquired the power mobility assets of MedOne Healthcare LLC (MedOne) high service power mobility provider in Arizona.

The acquisition is accounted for as a business combination.

The Company expects this acquisition to achieve synergies through integrating these operations into our existing durable medical equipment operations.

Operating results of the acquired businesses have been included in the consolidated statements of operations since August 31, 2021.

The purchase consideration was $ 2.0 million, comprised of $ 1.25 million paid at closing, $ 0.25 million of amounts due to seller pending satisfaction of certain indemnification obligations, and $ 0.5 million representing the acquisition date fair value of contingent consideration.

The allocation of the purchase price for MedOne resulted in goodwill of $ 1.9 million.

Goodwill was assigned to the durable medical equipment segment and is attributable primarily to expected synergies and the assembled workforce of the acquired business.

All of the goodwill is expected to be deductible for income tax purposes.

The presentation of pro forma financial disclosures are not required in connection with the MedOne acquisition.

The contingent consideration arrangement requires the Company to pay up to $ 1.0 million of additional consideration to the seller if certain revenue thresholds are achieved for each of the 12 month periods ending September 1, 2022, and 2023.

The fair value of the contingent consideration arrangement at the acquisition date was $ 0.5 million.

The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation model.

The key assumptions in applying the Monte Carlo simulation model include volatility of 23.3 % and a discount rate of 10.3 %.

The contingent consideration is included within accrued expenses and other liabilities in the consolidated balance sheets.

Acquisition of Advanced Medical DME, LLC and PM Sleep Lab, LLC

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The contingent consideration arrangement requires the Company to pay up to $ 2.1 million of additional consideration to the seller if certain revenue thresholds are achieved for the 12 months ended September 1, 2022.

The fair value of the contingent consideration arrangement at the acquisition date was $ 0.4 million.

The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation model.

The key assumptions in applying the Monte Carlo simulation model as of the acquisition date include volatility of 40.0 % and a discount rate of 10.3 %.

Related Party Transactions

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Consideration paid for such services in each case is the negotiated value.

Durable Medical Equipment

In connection with the acquisition of the durable medical equipment businesses in September 2018, DME Inc.

and its subsidiaries entered into the Corbel Facility.

Serota, a member of the Company’s Board of Directors, serves as Vice Chairman to Corbel Capital Partners, an affiliate of Corbel.

Corbel previously held an interest in Northwest and was one of the sellers in our acquisition of the business.

As a result of the acquisition, at June 30, 2021 Corbel holds a non-controlling interest in HC LLC.

Pursuant to the Corbel Facility, Corbel was paid a structuring fee and a quarterly monitoring fee.

In conjunction with the JPM Transactions, the Corbel Facility was repaid early on December 29, 2020, and DME Inc.

paid a deferred structuring fee as well as a prepayment penalty.

See Note 13 - Borrowings for additional information on the Corbel Facility and Note 16 – Non-Controlling Interests and Preferred Stock of Subsidiaries.

In connection with the acquisition of the durable medical equipment businesses, the Company issued non-controlling interests in DME Inc.

to the former owners, including Corbel discussed above.

These non-controlling interests in DME Inc.

became non-controlling interests in HC LLC in May 2021.

See Note 4 – Reorganization and Financing Transactions.

See Note 16 – Non-Controlling Interests and Preferred Stock of Subsidiary.

Investment Management

The Company’s wholly-owned subsidiary, GECM, has agreements to provide administrative services and manage the investment portfolio for GECC and other investment products.

Under these agreements, GECM receives administrative fees, management fees based on the managed assets (other than cash and cash equivalents) and incentive fees based on the performance of those assets.

See Note 3 – Revenue for additional discussions of the fee arrangements.

The Company’s wholly-owned subsidiary, GEO GP serves as the general partner of Great Elm Opportunities Fund I, LP ( GEOF ), a Delaware multi-series limited partnership.

The Company’s wholly-owned subsidiary, GECM, has agreements to provide administrative services and manage the investment portfolio for GECC, Monomoy REIT and other investment products.

Under these agreements, GECM receives administrative fees, management fees based on the managed assets (other than cash and cash equivalents) and rent collected, and incentive fees based on the performance of those assets.

See Note 3 –

Revenue for additional discussions of the fee arrangements.

The Company’s wholly-owned subsidiary, GEO GP serves as the general partner of Great Elm Opportunities Fund I, LP ( GEOF ), a Delaware multi-series limited partnership.

GECM serves as the investment manager of GEOF.

As the general partner, GEO GP provides administrative services and oversees GECM’s management of the investment portfolio of GEOF.

The Company’s wholly-owned subsidiary, GECM, serves as the managing member of Great Elm SPAC Opportunity Fund, LLC ( GESOF ), a Delaware limited liability company, and provides administrative services and manages the investment portfolio of GESOF.

The Company has determined that GEOF, each series of GEOF , and GESOF are VIEs and that the criteria for consolidation are met for one series of GEOF .

This series was launched in December 2020 and began liquidation in February 2021 when the net assets of the series, which included of an interest in GESOF, were distributed to such series’ sole limited partner, the Company.

The Company has determined that the criteria for consolidation are met for GESOF, which was launched in February 2021.

As the general partner, GEO GP provides administrative services and oversees GECM’s management of the investment portfolio of GEOF.

The Company has determined that GEOF, each series of GEOF, and GESOF are VIEs and that the criteria for consolidation are met for GEOF Series C, which was launched in November 2020 and subsequently merged into GESOF, which was launched in February 2021.

The operations of each of these consolidated funds (the Consolidated Funds ) are included in our consolidated financial statements.

See Note 2 – Summary of Significant Accounting Policies for additional details.

See Note 2 –

Summary of Significant Accounting Policies for additional details.

In July 2022, GESOF liquidated and the Company received a distribution of cash and equity investments.

The Company has retained the specialized investment company accounting guidance under US GAAP with respect to the Consolidated Funds.

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Non-controlling interests in these Consolidated Funds are included in net loss attributable to non-controlling interest.

As of June 30, 2021 no single issuer or investment of the Consolidated Funds had a fair value greater than 5 % of the Company’s total consolidated assets.

Additionally, the Company receives dividends from its investment in GECC and earns unrealized profits and losses based on the mark-to-market performance of its investment in GECC.

See Note 8 – Fair Value Measurements.

As of June 30, 2022 no single issuer or investment of the Consolidated Funds had a fair value greater than 5 % of the Company’s total consolidated assets.

Additionally, the Company receives dividends from its investment in GECC and Monomoy UpREIT and earns unrealized profits and losses based on the mark-to-market performance of its investments in GECC and Monomoy UpREIT.

See Note 8 –

Fair Value Measurements.

The following tables summarize activity and outstanding balances between the managed investment products and the Company.

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(in thousands)

Net unrealized gain (loss) on investments

Net unrealized gain on investments of consolidated funds

Net realized and unrealized gain (loss) on investments

Net realized and unrealized gain (loss) on investments of consolidated funds

Dividend income

As of As of June 30,

As of June 30,

(in thousands)

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Outstanding receivables from the Consolidated Funds are eliminated in consolidation.

As of June 30, 2021, the Company had $ 0.1 million in receivable for reimbursable expenses paid on behalf of the Consolidated Funds.

The Company owns approximately 23.6 % of the outstanding shares (or 5,539,724 shares) of GECC, and the Company’s Chief Executive Officer is also the Chief Executive Officer of GECC and Chief Investment Officer of GECM, in addition to being a member of the Board of Directors of the Company and chairman of the board of GECC.

The Company’s President and Chief Operating Officer is also the Chief Operating Officer, Chief Compliance Officer and General Counsel of GECM and the Chief Compliance Officer of GECC.

On October 1, 2020, GECC completed a non-transferable rights offering in which the Company received 2,966,531 shares at a price of $ 2.95 per share for an aggregate total of $ 8.8 million.

GECM has a profit sharing agreement with the Company’s majority-owned subsidiary GEC GP ( Profit Sharing Agreement ).

Under the Profit Sharing Agreement, GECM’s profit from GECC is paid to GEC GP.

Since its inception in November 2016, GECM has operated at a cumulative loss through June 30, 2021;

correspondingly, no profits were available to GEC GP under the Profit Sharing agreement.

See Note 16 – Non-Controlling Interests and Preferred Stock of Subsidiary.

MAST Capital is the beneficial owner of approximately 7.5 % of the Company’s outstanding common stock as of June 30, 2021.

On March 10, 2021, the Company purchased from MAST Capital all of its previously-held shares of GP Corp., the previously-held GP Corp.

Note and its previously-held board appointment rights in exchange for $ 2.3 million in newly issued Convertible Notes (as defined below).

See Note 13 - Borrowings for additional discussion of the GP Corp.

Note and Note 14 – Convertible Notes for additional discussion of the convertible notes.

As of June 30, 2022 and 2021, the Company had $ 0.1 million and $ 0.1 million, respectively, in receivable for reimbursable expenses paid on behalf of the Consolidated Funds.

The Company owns approximately 35.4 % of the outstanding shares (or 2,687,487 shares) of GECC.

Certain officers and directors of GECC are also officers and directors of GEG.

Drapkin is a director of our Board and also the Chairman of GECC's Board of Directors, and Adam M.

Kleinman is our President and Chief Operating Officer as well as the Chief Compliance Officer of GECC.

On June 13, 2022, GECC completed a non-transferable rights offering in which the Company and its subsidiaries received 1,400,000 shares at a price of $ 12.50 per share for an aggregate total of $ 17.5 million.

On May 4, 2022 the Company purchased the investment management agreement of the Monomoy REIT and other assets from ICAM for consideration of $ 11.1 million, inclusive of a $ 6.3 million 6.5 % promissory note ( Seller Note ) and potential earnout payments.

Interest accrued on the Seller Note for the year ended June 30, 2022 was $ 0.1 million .

The assembled workforce acquired in the transaction consisted of former ICAM employees.

In conjunction with the transaction, GECM entered into a services agreement with ICAM.

Reese, the Executive Chairman of the Company’s Board of Directors, is the Chief Executive Officer of ICAM.

Costs incurred under this agreement are reimbursed by the Monomoy REIT.

For the year ended June 30, 2022 , such costs were $ 0.1 million.

Shortly after the transaction, our existing investment in Monomoy Fund (which continues to be managed by ICAM) was redeemed and proceeds reinvested in Monomoy UpREIT.

In October 2020, GECM entered into a shared personnel and reimbursement agreement with Imperial Capital Asset Management, LLC ( ICAM ).

Reese, the Executive Chairman of the Company’s Board of Directors, is the Chief Executive Officer of ICAM.

Costs incurred under this agreement are included in investment management expenses in the condensed consolidated statement of operations.

For the year ended June 30, 2021, such costs were $ 0.4 million.

For the years ended June 30, 2022 and 2021 , such costs were $ 1.1 million and $ 0.4 million, respectively.

The Company also granted restricted stock awards to an employee of ICAM with a grant date fair value of $ 0.2 million during the year ended June 30, 2022 as additional compensation for consulting services performed under the shared personnel and reimbursement agreement with ICAM.

Durable Medical Equipment

In connection with the acquisition of the durable medical equipment businesses in September 2018, DME Inc.

and its subsidiaries entered into the Corbel Facility.

Serota, a member of the Company’s Board of Directors, serves as Vice Chairman to Corbel Capital Partners, an affiliate of Corbel.

Corbel previously held an interest in Northwest and was one of the sellers in our acquisition of the business.

As a result of the acquisition, at June 30, 2022 Corbel holds a non-controlling interest in HC LLC.

Pursuant to the Corbel Facility, Corbel was paid a structuring fee and a quarterly monitoring fee.

In conjunction with the JPM Transactions, the Corbel Facility was repaid early on December 29, 2020, and DME Inc.

paid a deferred structuring fee as well as a prepayment penalty.

See Note 13 - Borrowings for additional information on the Corbel Facility and Note 16 –

Non-Controlling Interests and Preferred Stock of Subsidiaries.

In connection with the acquisition of the durable medical equipment businesses, the Company issued non-controlling interests in DME Inc.

to the former owners, including Corbel discussed above.

These non-controlling interests in DME Inc.

became non-controlling interests in HC LLC in May 2021.

See Note 4 –

Reorganization and Financing Transactions.

See Note 16 –

Non-Controlling Interests and Preferred Stock of Subsidiary.

General Corporate

On August 31, 2021, the Company entered into a financial advisory agreement with Imperial Capital, LLC.

The agreement included a retainer fee of $ 0.1 million which was paid during the current fiscal period as well as certain success-based fees related to potential future transactions.

Additionally, the Company received dividends and realized gain on its investment in Monomoy Properties, which it held for a portion of the year ended June 30, 2022 Monomoy Properties is managed by ICAM.

The following table summarizes the Company's activity related to Monomoy Properties

(in thousands)

For the year ended June 30, 2022

Net realized gain on investment

Dividend income

In conjunction with the JPM Transactions, on December 29, 2020 Forest sold Forest Preferred Stock and the Company sold common stock in Forest to JPM for cash consideration of $ 35.0 million and $ 2.7 million, respectively.

As a result of these transactions, JPM holds a non-controlling interest in Forest.

See Note 16 – Non-Controlling Interests and Preferred Stock of Subsidiaries.

See Note 16 –

Non-Controlling Interests and Preferred Stock of Subsidiaries.

On December 18, 2020, the Company purchased from JPM a 21 % common stock interest in Ligado Networks, LLC ( Ligado ), a privately-held Company.

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Monomoy Fund is managed by ICAM.

See Note 5 – Discontinued Operations.

See Note 5 –

Discontinued Operations.

Fair Value Measurements

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or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value.

These assumptions are required to be consistent with market participant assumptions that are reasonably available.

All financial assets or liabilities that are measured at fair value on a recurring and non-recurring basis have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

The assets and liabilities measured at fair value on a recurring and non-recurring basis are summarized in the tables below:

All financial assets or liabilities that are measured at fair value on a recurring and no n-recurring basis have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

The assets and liabilities measured at fair value on a recurring and no n-recurring basis are summarized in the tables below:

Fair Value as of June 30, 2022

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Equity investments

Equity investments of Consolidated Funds

Investments valued at net asset value

Participation feature of HC LLC Series A-2 Preferred Stock

Contingent consideration liability

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Investments in private funds

The Company values investments in private funds using net asset value ( NAV ) as reported by each fund’s investment manager.

The private funds calculate NAV in a manner consistent with the measurement principles of FASB Topic 946, Financial Services – Investment Companies , as of the valuation date.

The Company values investments in private funds using net asset value ( NAV ) as reported by each fund’s investment manager.

The private funds calculate NAV in a manner consistent with the measurement principles of FASB Topic 946, Financial Services –

Investment Companies , as of the valuation date.

Investments valued using NAV as a practical expedient are not categorized within the fair value hierarchy.

As of June 30, 2021 investments in private funds consist of our investment in the Monomoy Fund, an industrial real estate-focused fund.

As of June 30, 2022, investments in private funds consist of our investment in Monomoy UpREIT and Sharp Alpha Fund I, LP ( Sharp Alpha ), a closed-end limited partnership focused on gaming technologies.

Monomoy UpREIT allows redemptions annually with 90 days’

notice subject to a one-year lockup from the date of initial investment.

Sharp Alpha does not allow for redemptions.

Distributions will be received as the underlying assets are liquidated over the life of the fund, which is expected to be approximately 10 years.

As of June 30, 2022 there are no unfunded commitments.

As of June 30, 2021, investments in private funds consisted of our investment in Monomoy Fund, an industrial real estate-focused fund.

Redemptions are allowed annually with 90 days' notice subject to a one-year lockup from the date of initial investment.

There are no unfunded commitments.

There were no unfunded commitments.

Contingent consideration

The previous contingent consideration arrangement required the Company to pay up to $ 2.1 million of additional consideration to the former shareholders of the durable medical equipment businesses if certain earnings before interest, taxes, depreciation and amortization ( EBITDA ) thresholds, as adjusted per the terms of the purchase agreement, were achieved for the 12 months ended December 31, 2019.

The Company determined that the EBITDA achieved, as adjusted per terms of the contract, for the 12 months ended December 31, 2019 was below the earnout threshold for payout.

As such, during the year ended June 30, 2020, the fair value of the contingent consideration was updated to zero .

This determination of the earnout was finalized and agreed to with the former shareholders of the durable medical equipment businesses during the quarter ended December 31, 2020.

In conjunction with the acquisition of AMPM on March 1, 2021, the Company entered into a separate contingent consideration agreement that requires the Company to pay up to $ 2.1 million if certain revenue thresholds of the acquired business are achieved for the 12 months ending September 1, 2022.

In conjunction with the acquisition of AMPM on March 1, 2021, the Company entered into a contingent consideration agreement that requires the Company to pay up to $ 2.1 million if certain revenue thresholds of the acquired business are achieved for the 12 months ending September 1, 2022.

As of June 30, 2022, projected revenues through September 1, 2022 are not expected to be achieved and the fair value of the contingent consideration has been updated to zero , resulting in a $ 0.3 million benefit which is included in durable medical equipment other operating expenses.

In conjunction with the acquisition of MedOne on August 31, 2021, the Company entered into a contingent consideration agreement that requires the Company to pay up to $ 1.0 million if certain revenue thresholds of the acquired business are achieved for the 12 months ending September 1, 2022 and September 1, 2023.

The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation model.

The key assumptions in applying the Monte Carlo simulation model as of the acquisition date include volatility of 40.0 % and a discount rate of 10.3 %.

The key assumptions in applying the Monte Carlo simulation model as of June 30, 2022 include volatility of 27.6 % and a discount rate of 7.6 %.

The fair value adjustments during the year ended June 30, 2022 resulted in a $ 0.2 million charge which is included in durable medical equipment other operating expenses.

In conjunction with the acquisition of the Monomoy REIT investment management agreement, the Company entered into a contingent consideration agreement that requires the Company to pay up to $ 2.0 million if certain fee revenue thresholds are achieved during fiscal years ended June 30, 2023 and 2024.

The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation model.

The key assumptions in applying the Monte Carlo simulation model as of June 30, 2022 include revenue forecasts, volatility of 19.6 % and a discount rate of 6.5 %.

The contingent consideration is included within the other liabilities in the consolidated balance sheets.

Participation feature of HC LLC Series A-2 Preferred Stock

On December 29, 2020, in conjunction with the JPM Transactions, the Company issued HC LLC Series A-2 Preferred Stock to our consolidated subsidiary, Forest.

See Note 16 – Non-Controlling Interests and Preferred Stock of Subsidiaries.

See Note 16 –

Non-Controlling Interests and Preferred Stock of Subsidiaries.

An embedded derivative was identified in the instrument requiring bifurcation from the host instrument as a derivative to be carried at fair value.

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This fair value is derived from a discounted cash flow income approach and a guideline public company market approach.

The key assumptions in applying the valuation approach as of June 30, 2021 include financial forecasts of the durable medical equipment business, a discount rate of 14.5 % and a volatility rate of 50.4 % (level 3 inputs in accordance with the US GAAP fair value hierarchy).

The fair value of the embedded derivative as of the issuance date and as of June 30, 2021 was $ 6.5 million and $ 5.8 million, respectively.

The key assumptions in applying the valuation approach as of June 30, 2022 and 2021, include financial forecasts of the durable medical equipment business, a discount rate of 13.0 % and 14.5 %, respectively, and a volatility rate of 59.1 % and 50.4 %, respectively (level 3 inputs in accordance with the US GAAP fair value hierarchy).

The fair value of the embedded derivative as of June 30, 2022 and 2021 was $ 7.9 million and $ 5.8 million, respectively.

Since the HC LLC Series A-2 Preferred Stock are issued to Forest, a consolidated subsidiary, the instruments and their effects on our operations have been eliminated in consolidation and therefore the valuation of the participation feature is reflected as zero within the table above.

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The carrying value of all other financial assets and liabilities approximate their fair values.

The Company’s fixed assets consist of its medical equipment held for rental, furniture and fixtures, and leasehold improvements used in its operations.

The following tables detail the Company’s fixed assets:

The Company’s fixed assets consist of its medical equipment held for rental, furniture and fixtures, and leasehold improvements used in its operations.

The following tables detail the Company’s fixed assets:

(in thousands)

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Goodwill and Other Intangible Assets

The Company’s investment management and durable medical equipment segments include identifiable intangible assets acquired through acquisitions in prior years.

Goodwill presented on the consolidated balance sheet consists only of the goodwill acquired as part of the acquisitions of the durable medical equipment businesses.

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Ending Balance

The Company’s annual impairment assessment date for goodwill is April 1.

No impairment triggering events have been identified since our prior year annual impairment analysis.

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The fair value of this reporting unit was derived using a combination of present value of estimated cash flows and the valuations and prices of comparable businesses.

The discount rate used in this analysis was 15.5 %.

The following tables provide additional detail related to the Company’s acquired identifiable intangible assets:

The discount rate used in this analysis was 13.0 % and revenue and EBITDA multiples averaged 1.2 x and 7.5 x, respectively.

The following tables provide additional detail related to the Company’s acquired identifiable intangible assets:

As of June 30, 2022

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Investment Management

Investment management agreement

Assembled workforce

Investment management agreements

Assembled workforces

Aggregate Amortization Expense (in thousands) :

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Through its majority-owned subsidiary HC LLC, and the subsidiaries of HC LLC, the Company owns medical equipment which is leased to customers.

The Company’s customers consist primarily of patients through their clinical providers including medical centers, clinics and hospices and the Company has lease arrangements with these patients.

In addition, the arrangements between the Company and its customers are impacted by arrangements between the Company and Payors.

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Lessee Operating Leases

All of the Company’s leases are operating leases.

Certain of the leases have both lease and non-lease components.

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Cash paid for operating leases

The following table summarizes the Company’s undiscounted cash payment obligations for its operating leases:

(in thousands)

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The vehicles leases have original lease terms of 60 months from the commencement date of each lease with no option to extend.

Each lease may be terminated by the lessee with 30-days’ notice after the first 13 months of the lease subject to certain early termination costs, including residual value guarantees.

Each lease may be terminated by the lessee with 30-days’

notice after the first 13 months of the lease subject to certain early termination costs, including residual value guarantees.

The lease costs include variable payments for taxes and other fees.

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Certain of these leases include additional rental costs for taxes, insurance and additional fees in addition to the base rental costs.

Investment Management and General Corporate

Investment Management

A lease for office space located in Charleston, South Carolina was assumed as part of the acquisition of the Monomoy REIT investment management agreement in May 2022.

The non-cancellable lease term expires October 1, 2024 , and lease payments are approximately $ 3 thousand per month.

General Corporate

The Company entered into a lease for office space located in Waltham, MA.

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On an annual basis, the lease payments increase at an average rate of approximately 2.4 % from $ 28 to $ 32 thousand per month.

Related party borrowings of the Company’s subsidiaries are summarized in the following table:

As of June 30,

(in thousands)

Corbel Facility

HC LLC and subsidiaries

Total principal

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*Balance eliminates in consolidation.

The Company’s subsidiaries’ other outstanding borrowings are summarized in the following table:

The Company’s and subsidiaries’

other outstanding borrowings are summarized in the following table:

As of June 30,

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Other outstanding borrowings, net of current portion

The Company incurred interest expense of $ 3.2 million and $ 3.8 million for the years ended 2021 and 2020, respectively.

The Company’s aggregate future required principal debt repayments are summarized in the following table:

The Company incurred interest expense on these borrowings of $ 4.0 million and $ 3.2 million for the years ended June 30, 2022 and 2021, respectively.

The Company’s aggregate future required principal debt repayments are summarized in the following table:

(in thousands)

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For the year ending June 30, 2024

For the year ending June 30, 2025

For the year ending June 30, 2026

For the year ending June 30, 2027

Additional details of each borrowing by operating segment are discussed below.

Durable Medical Equipment

In connection with the acquisition of DME Inc., the Company assumed a secured note ( Corbel Facility ) with a principal balance of $ 8.5 million, which was amended and increased to $ 25 million concurrent with the closing of the acquisition described in Note 6 – Acquisitions.

In addition, the Company assumed and expanded a revolving line of credit agreement with Pacific Mercantile Bank ( DME Revolver ) with a principal balance of $ 0.8 million, which was amended and increased to $ 6.3 million at the date of acquisition.

Acquisitions.

In addition, the Company assumed and expanded a revolving line of credit agreement with Banc of California (formerly Pacific Mercantile Bank) ( DME Revolver ) with a principal balance of $ 0.8 million, which was amended and increased to $ 6.3 million at the date of acquisition.

The Corbel Facility was repaid on December 29, 2020.

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and HC LLC Series A-1 Preferred Stock.

See Note 7 – Related Party Transactions and Note 16 – Non-Controlling Interests and Preferred Stock of Subsidiary.

Principal payments and interest expense incurred on the Corbel Facility are summarized in the following table:

For the years ended June 30,

(in thousands)

Principal payments

Interest expense

See Note 7 –

Related Party Transactions and Note 16 –

Non-Controlling Interests and Preferred Stock of Subsidiary.

Principal payments and interest expense incurred on the Corbel Facility for the year ended June 30, 2021 were $ 25.1 million and $ 1.3 million, respectively.

There were no borrowings outstanding under the DME Revolver at June 30, 2022 .

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The borrowings under the DME Revolver are collateralized by the assets of the durable medical equipment business and the Company is required to meet certain financial covenants.

The DME Revolver includes covenants that restrict HC LLC’s and its subsidiaries’ business operations to its current business, limit additional indebtedness, liens, asset dispositions and investments, require compliance and maintenance of licenses and government approvals and other customary conditions.

The DME Revolver includes covenants that restrict HC LLC’s and its subsidiaries’

business operations to its current business, limit additional indebtedness, liens, asset dispositions and investments, require compliance and maintenance of licenses and government approvals and other customary conditions.

Events of default include the failure to pay amounts when due, bankruptcy, or violation of covenants, including a change in control of HC LLC.

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The Company was in compliance with all material covenants and restrictions at June 30, 2022.

Beginning in April 2019, HC LLC’s operating subsidiaries also utilize equipment financing debt to fund certain inventory and equipment purchases from suppliers.

HC LLC’s operating subsidiaries also utilize equipment financing debt to fund certain inventory and equipment purchases from suppliers.

These equipment financing debt agreements are entered into with 3rd party banks and are generally payable in equal installments over terms of one to three years , depending on the nature of the underlying purchases being financed.

The debt is secured by the inventory and equipment, as applicable, of the operating subsidiaries entering into the agreements, and the long-term agreements have implicit interest rates between 7 – 8 %.

The Company financed $ 3.6 million and $ 3.6 million in inventory and equipment through such financing agreements during the years ended June 30, 2021 and June 30, 2020, respectively.

The debt is secured by the inventory and equipment, as applicable, of the operating subsidiaries entering into the agreements, and the long-term agreements have implicit interest rates between 7 –

The Company financed $ 6.4 million and $ 3.6 million in inventory and equipment through such financing agreements during the years ended June 30, 2022 and 2021, respectively.

Investment Management

As part of the entry into the investment management business, the Company acquired certain assets from MAST Capital and in consideration for those assets, GP Corp.

On May 4, 2022 as part of the consideration paid to acquire the Monomoy REIT asset management agreement, GECM issued ICAM a $ 6.3 million promissory note (the Seller Note ).

The Seller Note is due on August 4, 2023 and is payable at GECM’s option with either cash, GECC shares owned by GEG, or newly issued GEG shares (subject to shareholder approval).

There are no prepayment penalties.

The Seller Note bears interest at 6.5 %, which is paid quarterly.

During the year ended June 30, 2022, the Company incurred $ 0.1 million in interest expense on the Seller Note.

There were no principal payments made during the year ended June 30, 2022.

As part of the entry into the investment management business, the Company acquired certain assets from MAST Capital Management, LLC ( MAST Capital ) and in consideration for those assets, GP Corp.

issued a senior secured note payable (the GP Corp.

Note matures in November 2026 , accrues interest at a variable rate of three-month LIBOR plus 3.0 % per annum and is secured by a profit sharing agreement related to GECM’s management of GECC.

On March 10, 2021, GEG purchased the GP Corp.

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In exchange, GEG issued $ 2.3 million of Convertible Notes.

As MAST Capital is a related party, no gain was recorded on the transaction.

As MAST Capital was a related party, no gain was recorded on the transaction.

The difference in carrying value between the instruments purchased (including the GP Corp.

Note and MAST Capital’s non-controlling interests) and that of the newly issued convertible notes was treated as a capital contribution and recorded to additional paid in capital in the amount of $ 0.6 million.

Payments and interest expense incurred on the GP Corp.

Note are summarized in the following table:

For the years ended June 30,

(in thousands)

Principal payments

Interest expense

(1) Principal and interest amounts incurred after GEG’s purchase of the GP Corp.

note are not reported in this table, as they eliminate in consolidation.

During the year ended June 30, 2021, the Company incurred interest expense of $ 0.1 million on the GP Corp.

Principal payments made and interest expense accrued after March 10, 2021 are eliminated in consolidation.

General Corporate

On June 9, 2022, we issued $ 26.9 million in aggregate principal amount of 7.25 % Notes due 2027 (the GEGGL Notes ), which included $ 1.9 million of GEGGL Notes issued in connection with the partial exercise of the underwriters’

over-allotment option.

The aggregate principal balance of the GEGGL Notes outstanding as of June 30, 2022 is $ 26.9 million .

The GEGGL Notes are unsecured obligations and rank equal with all of our outstanding and future unsecured unsubordinated indebtedness.

The unsecured notes are effectively subordinated, or junior in right of payment, to indebtedness under our Convertible Notes and any other future secured indebtedness that we may incur and structurally subordinated to all future indebtedness and other obligations of our subsidiaries.

We pay interest on the GEGGL Notes on March 31, June 30, September 30 and December 31 of each year.

The GEGGL Notes will mature on June 30, 2027 .

The GEGGL Notes can be called on, or after, June 30, 2024.

Holders of the Notes do not have the option to have the Notes repaid prior to the stated maturity date.

The Notes were issued in minimum denominations of $ 25 and integral multiples of $ 25 in excess thereof.

The GEGGL Notes include covenants that limit additional indebtedness or the payment of dividends subject to compliance with a net consolidated debt to equity ratio of 2 :1.

As of June 30, 2022 our consolidated debt to equity ratio is 1.2:1.

Convertible Notes

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The Convertible Notes are held by a consortium of investors, including $ 15.1 million issued to certain related parties.

Such Convertible Notes issued to related parties include:

As of June 30, 2022, such Convertible Notes issued to related parties include:

$ 6.7 million issued to entities associated with Matthew A.

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( Northern Right ), a significant shareholder.

Drapkin, a member of the Company’s Board of Directors, is the Chief Executive Officer of Northern Right.

$ 7.2 million issued to entities associated with Jason W.

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$ 0.7 million issued to entities associated with Eric J.

Scheyer, a member of the Company’s Board of Directors.

$ 2.3 million issued to MAST Capital, owner of 7.5 % of our outstanding company stock.

Scheyer, a member of the Company’s Board of Directors.

$ 0.5 million issued to MAST Capital.

The Convertible Notes accrue interest at 5.0 % per annum, payable semiannually in arrears on June 30 and December 31, commencing June 30, 2020, in cash or in kind at the option of the Company.

Each $1,000 principal amount of the Convertible Notes are convertible into 288.0018 shares of the Company’s common stock, subject to the terms therein, prior to maturity at the option of the holder.

The Company may, subject to compliance with the terms of the Convertible Notes, effect the conversion of some or all of the Convertible Notes into shares of common stock, subject to certain liquidity and pricing requirements, as specified in the Convertible Notes.

The embedded conversion feature in the Convertible Notes qualifies for the scope exception to derivative accounting in ASC Topic 815, Derivatives and Hedging, for certain contracts involving a reporting entity’s own equity.

However, due to a Company option to settle any conversion request by holders prior to July 1, 2020 in either cash or in shares, the conversion option is bifurcated and recorded to additional paid-in-capital within equity, creating a debt

In valuing the conversion option, we estimated that the yield on an identical non-convertible instrument would be 12.5 % , and the expected term of the Convertible Notes would be equal to their contractual term of 10 years , resulting in a debt discount of $ 12.6 million.

In determining the effective yield, we considered the effective yield of the Company’s existing debt agreements as well as those of market comparables based on our credit rating analysis.

The Company incurred $ 1.2 million in issuance costs, which were allocated ratably between the debt and equity portions of the instrument.

Both the debt discount and debt issuance costs are being amortized over the 10 -year Convertible Notes term and are netted with the principal balance within convertible debt on our condensed consolidated balance sheet.

The embedded conversion feature in the Convertible Notes qualifies for the scope exception to derivative accounting in ASC Topic 815, Derivatives and Hedging , for certain contracts involving a reporting entity’s own equity.

The Company incurred $ 1.2 million in issuance costs on the original issuance.

The debt issuance costs are being amortized over the 10-year Convertible Notes term and are netted with the principal balance within convertible debt on our consolidated balance sheet.

The Company incurred interest expense of $ 1.8 million and $ 1.7 million related to the Convertible Notes for the years ended June 30, 2022 and 2021, respectively, inclusive of non-cash interest related to amortization of discount.

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Convertible Notes principal

Unamortized debt discounts and issuance costs

Unamortized issuance costs

Total Convertible Notes

On March 27, 2020, the President of the United States passed into law the Coronavirus Aid, Relief, and Economic Security Act ( CARES Act ).

Section 1102 of the CARES Act, the Paycheck Protection Program Loan ( PPP Loan ) provided additional funding for small businesses, as defined by the Small Business Act, to keep workers employed during through the COVID-19 crisis.

In April 2020, our 80.1 % owned subsidiary Great Elm DME, Inc.

applied for and received $ 3.6 million in PPP Loans.

Proceeds can only be used for specified covered purposes including payroll, rent and utilities in accordance with the CARES Act.

Between funding and June 30, 2020, the Company spent these proceeds on covered purposes and has recognized the proceeds as a reduction to operating expenses.

During the year ended June 30, 2021, the Company submitted a forgiveness application to the lender seeking full forgiveness of the PPP Loan, which was approved by the U.S.

Small Business Administration.

Additionally, pursuant to the CARES Act, Congress appropriated $ 100 billion in relief funds for hospitals and healthcare providers through grants administered by the U.S.

Department of Health and Human Services ( HHS ).

Qualified providers of healthcare, services and support may receive HHS grants for healthcare-related expenses or lost revenue due to the COVID-19 pandemic.

Retention and use of the HHS grants are subject to certain terms and conditions including that such grant funds may only be used to prevent, prepare for, and respond to COVID-19 and such grant funds will reimburse only healthcare-related expenses or lost revenues that are attributable to the COVID-19 pandemic.

If these terms and conditions are met, HHS grants do not need to be repaid.

In April 2020, subsidiaries of Great Elm DME Inc.

received $ 1.4 million in HHS grants to continue providing health care treatment to patients during the COVID-19 pandemic.

Between the date of funding and June 30, 2020, the Company used these funds as authorized by the HHS grant and has recognized the proceeds as a reduction to operating expenses.

We will continue to monitor our compliance with the terms and conditions of the HHS grant and any additional requirements if and when they become applicable.

We have accounted for such proceeds as in-substance government grants by analogizing to International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance .

On December 27, 2020, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 expanded certain benefits made available under the CARES Act, including modifying and extending the Employee Retention Credit ( ERC ).

As modified, the ERC provides eligible employers with less than 500 employees a refundable tax credit against the employer’s share of social security taxes.

The ERC is equal to 70 % of qualified wages paid to employees during calendar 2021 for a maximum credit per employee of $ 7,000 per employee for each calendar quarter through June 30, 2021.

On December 27, 2020, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 expanded certain benefits made available under the enhanced Coronavirus Aid, Relief, and Economic Security Act, including modifying and extending the Employee Retention Credit (ERC).

As modified, the ERC provides eligible employers with less than 500 employees a refundable tax credit against the employer’s share of social security taxes.

The ERC is equal to 70 % of qualified wages paid to employees during calendar 2021 for a maximum credit per employee of $ 7,000 per employee for each calendar quarter through September 30, 2021.

During the year ended June 30, 2021, the Company claimed ERCs of $ 5.0 million, consisting of $ 4.8 million recognized as a reduction to operating expenses and $ 0.2 million acquired in purchase accounting.

Such claimed ERCs not settled prior to year end in the amount of $ 2.8 million are expected to be settled shortly thereafter and are disclosed within prepaid and other current assets on our consolidated balance sheet.

Such claimed ERCs not settled prior to June 30, 2021 in the amount of $ 2.8 million were settled shortly thereafter and are disclosed within prepaid and other current assets on our consolidated balance sheet.

In addition to claiming ERC’s during the prior fiscal year, the Company claimed and collected additional ERCs of $ 2.4 million during the year ended June 30, 2022.

Non-Controlling Interests and Preferred Stock of Subsidiary

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Permanent equity

Total DME Inc.

Temporary equity

Permanent equity

Consolidated Funds

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Permanent equity

The following table summarizes the net income (loss) attributable to the non-controlling interests on the consolidated statements of operations:

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at the price for such shares implied by such marketing process.

The Company also has the right to call the holder’s common shares at such price.

The holder of the non-controlling interest is entitled to participate in earnings of DME Inc.

and is not required to fund losses.

As the redemption is contingent upon future events outside of the Company’s control which are not probable, the Company has classified the non-controlling interest as temporary equity and its fair value on the date of issuance, adjusted for any earnings in DME Inc.

As a result of the reorganization discussed in Note 4 – Reorganization and Financing Transactions the non-controlling interests in DME Inc.

As a result of the reorganization discussed in Note 4 –

Reorganization and Financing Transactions the non-controlling interests in DME Inc.

became non-controlling interests in HC LLC on May 31, 2021.

The holder of this non-controlling interest, Corbel, is also the holder of the Series A-1 Preferred Stock and previously was the holder of the Corbel Facility.

See Note 7 – Related Party Transactions and Note 13 – Borrowings.

See Note 7 –

Related Party Transactions and Note 13 –

HC LLC and DME Inc.

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Accordingly, Company has classified the non-controlling interest as permanent equity at its fair value on the date of issuance, adjusted for any earnings in DME Inc.

As a result of the reorganization discussed in Note 4 – Reorganization and Financing Transactions the non-controlling interests in DME Inc.

As a result of the reorganization discussed in Note 4 –

Reorganization and Financing Transactions the non-controlling interests in DME Inc.

became non-controlling interests in HC LLC on May 31, 2021.

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as of June 29, 2021.

Great Elm Group, Inc’s 98.2 % interest in GP Corp was then exchanged for a direct interest in GP Corp’s wholly-owned GEC GP.

Following the consummation of the reorganization on June 29, 2021, the Company no longer has an interest in GP Corp.

GEC GP – Non-controlling interest classified as permanent equity

GEC GP –

Non-controlling interest classified as permanent equity

As described above, on June 29, 2021 Great Elm Group, Inc.

exchanged their 98.2 % interests in GP Corp for an identical 98.2% direct interest in GP Corp’s wholly-owned subsidiary GEC GP.

exchanged their 98.2 % interests in GP Corp for an identical 98.2 % direct interest in GP Corp’s wholly-owned subsidiary GEC GP.

GEC GP owns the rights to the Profit Sharing Agreement with GECM as well as an intercompany obligation under the GP Corp.

The holder of the non-controlling interest is an employee of GECM and is entitled to participate in the cumulative earnings generated by the IMA.

Forest – Non-controlling interest classified as permanent equity

During the year ended June 30, 2022, the Company purchased the remaining shares of in GEC GP.

As of June 30, 2022, no non-controlling interest remains outstanding.

Forest –

Non-controlling interest classified as permanent equity

In connection with the JPM Transactions on December 29, 2020, the Company sold JPM a 20.0 % common stock interest in Forest in exchange for $ 2.7 million.

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The holder of this non-controlling interest, JPM, is also the holder of Forest Preferred Stock discussed below.

See Note 7 – Related Party Transactions.

Consolidated Funds – Non-controlling interest classified as permanent equity

As of June 30, 2021, GEG held 71.3 % of the capital in GESOF.

See Note 7 –

Related Party Transactions.

Consolidated Funds –

Non-controlling interest classified as permanent equity

As of June 30, 2022 and 2021 , GEG held 73.4 % and 71.3 %, respectively, of the capital in GESOF.

The remaining capital in GESOF is recorded as a non-controlling interest.

These non-controlling interests of GESOF include affiliated individuals and entities.

FM Holdings – Non-controlling interest classified as permanent equity

FM Holdings –

Non-controlling interest classified as permanent equity

In connection with the acquisition of the real estate business in March 2018, the Company issued the former owner a 19.9 % interest in FM Holdings.

The real estate business was sold in June 2021.

See Note 5 – Discontinued Operations.

See Note 5 –

Discontinued Operations.

Redeemable Preferred Stock of Subsidiaries

The following table summarizes the preferred stock activity for the year ended June 30, 2021:

The following table summarizes the preferred stock activity:

Balance, as of June 30, 2021

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Balance, as of June 30, 2021

Issuance of Preferred Stock

Redemption of Preferred Stock

Balance, as of June 30, 2022

Series A-1 Preferred Stock

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Forest Preferred Stock

There was no preferred stock activity during the year ended June 30, 2020.

HC LLC - Series A-1 Preferred Stock classified as a liability

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The shares are non-voting, do not participate in the earnings of HC LLC and contain standard protective rights.

During the year ended June 30, 2022, the Company optionally redeemed 6,000 shares of Series A-1 Preferred Stock on a pro-rata basis with holders.

As the shares of Series A-1 Preferred Stock are mandatorily redeemable at a specified date, the security has been classified as a liability in the consolidated balance sheet.

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discussed above.

See Note 7 – Related Party Transactions.

See Note 7 –

Related Party Transactions.

Such shares of Series A-1 Preferred Stock issued to consolidated subsidiaries and their effects on our operations have been eliminated in consolidation.

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The holder of the Forest Preferred Stock is JPM, who is also the holder of the non-controlling interests in Forest discussed above.

See Note 7 – Related Party Transactions.

See Note 7 –

Related Party Transactions.

Stockholders' Equity

Tax Benefits Preservation Agreement

On January 28, 2018, the Board of Directors of the Company adopted a Tax Benefits Preservation Agreement, between the Company and Computershare Trust Company, N.A., as Rights Agent (the Rights Plan ) to replace the Company’s existing Tax Benefits Preservation Agreement, which expired on January 29, 2018, (the Expired Agreement ).

The Rights Plan is substantially the same as the Expired Agreement.

In October 2017, the original Rights Plan was approved by the Company’s stockholders.

The Rights Plan is designed to reduce the possibility that certain changes in ownership could result in limitations on the use of the tax attributes, by restricting the ability of a person or entity from acquiring ownership (including through attribution under the tax law) of 4.99 % or more of the Company’s common stock and the ability of persons or entities now owning 5 % or more of the outstanding common shares from acquiring additional common shares.

Pursuant to the terms of the Rights Plan, the Company’s Board of Directors declared a dividend distribution of one Preferred Stock Purchase Right (a Tax Right ) for each outstanding share of common stock, par value $ 0.001 per share of the Company (the Common Stock ), to stockholders of record as of the close of business on January 29, 2018 (the Record Date ).

In October 2017, the original Rights Plan was approved by the Company’s stockholders.

In addition, one Tax Right will automatically attach to each share of Common Stock issued between the Record Date and the Distribution Date (as defined in the Rights Plan).

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(d) the repeal of Section 382 of the Code if the Independent Directors (as defined in the Rights Plan) determine that the Rights Plan is no longer necessary for the preservation of Tax Benefits (as defined in the Rights Planet);

(e) the beginning of the taxable year of the Company to which the Company’s Board of Directors determines that no Tax Benefits may be carried forward, unless previously redeemed or exchanged by the Company.

In November 2013, the Company’s stockholders approved the Amended and Restated 1999 Directors’ Equity Compensation Plan (the Directors’ Plan ).

Options and awards granted to new or existing Outside Directors (as defined in the Directors’ Plan) under the Directors’ Plan vest ratably over a period of one to three years .

The Directors’ Plan also provides for the acceleration of options upon the dismissal of an Outside Director from the Board of Directors of the Company upon or within 24 months following a change in control of the Company.

The exercise price of options granted under the Directors’ Plan is equal to the fair market value of the Company’s common stock on the date of grant.

Under the Directors’ Plan, stock option grants have a term of ten years .

As of June 30, 2021, the Company had a total of 2,000 shares outstanding under the Directors’ Plan.

In November 2013, the Company’s stockholders approved the Amended and Restated 2006 Stock Incentive Plan (the 2006 Plan ) to provide incentive stock options, non-statutory stock options, restricted stock purchase rights and stock appreciation rights to employees and consultants of the Company and its affiliates.

The plan also provides restricted stock bonus, phantom stock units, restricted stock units, performance shares bonus and performance share units.

Each share of Company common stock issued pursuant to a stock award issued under this Plan shall reduce the Share Reserve by one share;

provided, however that for each Full-Value Stock Award, the share reserve shall be reduced by one and one-half shares.

The exercise price of options granted under the 2006 Plan approximates the fair market value of the Company’s common stock on the date of grant.

Options issued under the 2006 Plan generally expire ten years from the date of grant.

Vesting periods are determined by the plan administrator and generally provide for shares to vest ratably over a period of three to four years , with options for new employees generally including a one-year cliff period.

As of June 30, 2021, the Company had a total of 214,685 shares outstanding under the 2006 Stock Plan.

In June 2016, the Company’s stockholders approved the Great Elm Group, Inc.

In November 2013, the Company’s stockholders approved the Amended and Restated 1999 Directors’

Equity Compensation Plan (the Directors’

Options and awards granted to new or existing Outside Directors (as defined in the Directors’

Plan) under the Directors’

Plan vest ratably over a period of one to three years .

The Directors’

Plan also provides for the acceleration of options upon the dismissal of an Outside Director from the Board of Directors of the Company upon or within 24 months following a change in control of the Company.

The exercise price of options granted under the Directors’

Plan is equal to the fair market value of the Company’s common stock on the date of grant.

Under the Directors’

Plan, stock option grants have a term of ten years .

As of June 30, 2022 , the Company had no shares outstanding under the Directors’

In June 2016, the Company’s stockholders approved the Great Elm Group, Inc.

2016 Long-Term Incentive Plan (the 2016 Long-Term Incentive Plan ) and the Great Elm Group, Inc.

2016 Employee Stock Purchase Plan (the 2016 Employee Stock Purchase Plan ).

In October 2018, the Company’s stockholders approved amendments to the 2016 Long-Term Incentive Plan.

In November 2021, the Company’s stockholders approved an increase to the number of shares available for issuance under the Long-Term Incentive Plan.

As of June 30, 2022, the Company had a total of 3,446,728 shares outstanding under the 2016 Long-Term Incentive Plan and no shares were outstanding under the 2016 Employee Stock Purchase Plan.

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In December 2020, the Company established the Great Elm Group, Inc.

Non-Employee Directors Deferred Compensation Plan allowing non-employee directors to defer their cash and/or equity compensation under a non-revokable election for each calendar year.

Non-Employee Directors Deferred Compensation Plan allowing non-employee directors to defer their cash and/or equity compensation under a non-revocable election for each calendar year.

Such compensation is deferred until the earlier of 3 years from the original grant date of such compensation, termination of service or death, and is payable in common stock shares.

As of June 30, 2021, there were 29,875 RSUs that had vested but were deferred under the plan.

Restricted Stock Awards (Performance Shares) and Restricted Stock Units

During the year ended June 30, 2021, there were no awards or forfeitures of restricted stock awards included in the below table and 732,909 remain outstanding as of June 30, 2021.

Restricted stock awards granted have both performance and service requirements in connection with the formation of the investment management business.

The vesting of these awards is subject to a five-year service requirement and an investment management cumulative revenue collection target of $ 40 million for the five-year period ended November 3, 2021.

To the extent this target is not achieved in full, awards will vest ratably based on the percentage of the target achieved.

Additionally, in September 2017, the Company modified the restricted stock awards to include a provision for changes in control.

This modification did not result in the recognition of additional compensation cost.

In order to recognize compensation expense over the vesting period, the Company estimates the probability of the performance target being met on an on-going basis.

As of June 30, 2021, the Company estimates that approximately 248,529 of the restricted stock awards are probable of vesting under the performance condition.

The Company accounts for forfeitures of the restricted stock awards in the period incurred.

There were no forfeitures during the year ended June 30, 2021.

As of June 30, 2022 , there were 110,008 restricted stock units and restricted stock awards that had vested but were deferred under the plan.

Restricted Stock Awards and Restricted Stock Units

In November 2021, the Compensation Committee of the Board of Directors (the Compensation Committee) in its discretion determined that an aggregate of 580,023 performance shares previously awarded to certain employees had vested.

These restricted stock awards granted had both performance and service requirements in connection with the formation of the investment management business.

The vesting of these awards was subject to a five-year service requirement and an investment management cumulative revenue collection target of $ 40 million for the five-year period ended November 3, 2021.

The discretionary vesting of shares, as determined by the Compensation Committee resulted in a charge to stock-based compensation expense of $ 0.6 million during the year ended June 30, 2022.

During the year ended June 30, 2022 , the Company granted 1,524,896 additional restricted stock awards that have only service requirements.

Restricted stock units granted are subject to service requirements.

The Company accounts for forfeitures of the restricted stock units in the period incurred.

During the year ended June 30, 2020 the Company granted 358,568 shares of restricted stock units to employees and directors and 23,104 shares were forfeited related to the resignation of certain directors.

The aggregate grant date fair value of restricted stock granted during the 2021 and 2020 fiscal years was $ 0.9 million and $ 1.0 million, respectively.

During the year ended June 30, 2022 the Company granted 148,139 shares of restricted stock units to employees and directors.

The aggregate grant date fair value of restricted stock granted during the years ended June 30, 2022 and 2021 was $ 3.1 million and $ 0.9 million, respectively.

For the years ended June 30, 2022 and 2021, the total intrinsic value of restricted stock vested was $ 2.2 million and $ 1.1 million, respectively.

The activity of the Company’s restricted stock awards and units for the year ended June 30, 2021 was as follows:

The activity of the Company’s restricted stock awards and units for the year ended June 30, 2022 was as follows:

Restricted Stock Awards and Restricted Stock Units

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The Company estimates the expected term for new grants based upon actual historical experience.

The Company’s expected volatility for the expected term of the option is based upon the historical volatility experienced in the Company’s stock price.

The risk-free rate for the expected term of the option is based on the U.S.

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Vested and expected to vest as of June 30, 2022

The weighted average grant date fair value of options, per share, granted during the 2021 and 2020 fiscal years was $ 1.14 and $ 1.52 , respectively.

No options were exercised during the year ended June 30, 2021.

During the year ended June 30, 2020, the total intrinsic value of options exercised was approximately $ 0.0 million.

The weighted average grant date fair value of options, per share, granted during the years ended June 30, 2022 and 2021 was $ 1.02 and $ 1.14 , respectively.

No options were exercised during the year ended June 30, 2022 or 2021.

Stock-based compensation expense totaled $ 2.8 million and $ 1.8 million for the years ended June 30, 2022 and 2021, respectively.

As of June 30, 2022 and 2021, the Company had unrecognized compensation cost related to all unvested share awards and options totaling $ 2.3 million and $ 1.4 million, respectively, expected to be recognized as the awards and options vest over the next 1.2 years.

The Company had loss from continuing operations before provision for income taxes of $ 7.5 million and $ 13.3 million for the years ended 2021 and 2020, respectively.

During the year ended June 30, 2022, the Company issued compensation to certain employees in the form of GECC common shares to be settled with GECC shares currently held by the Company.

The total grant date value of GECC shares awarded for the year ended June 30, 2022 was $ 0.9 million, of which $ 0.2 million vested immediately, and the balance will vest annually pro-rata over a three year period.

Related compensation expense was $ 0.4 million for the year ended June 30, 2022 .

The Company had loss from continuing operations before provision for income taxes of $ 15.0 million and $ 6.8 million for the years ended June 30, 2022 and 2021, respectively.

There was no foreign activity during these years.

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(in thousands)

The Company recognized an income tax expense from continuing operations of $ 1.8 million and $ 0.04 million for the year ended June 30, 2021 and 2020, respectively.

The Company recognized an income tax expense from continuing operations of $ 0.02 million and $ 1.7 million for the years ended June 30, 2022 and 2021 , respectively.

This expense consists solely of state and local income taxes.

No federal income taxes were incurred for the year ended June 30, 2021 and 2020.

No federal income taxes were incurred for the years ended June 30, 2022 and 2021.

There were no intraperiod allocations during the year ended June 30, 2022.

The Company recognized an income tax benefit with respect to discontinued operations of $ 0.1 million during the year ended June 30, 2021 related to intraperiod allocations.

No intraperiod allocations were made in 2020.

The following table reconciles the expected corporate federal income tax, computed by multiplying the Company's loss before income taxes by the statutory tax rate of 21 % to the total tax expense.

The following table reconciles the expected corporate federal income tax expense (benefit), computed by multiplying the Company's loss before income taxes by the statutory tax rate of 21 % to the total tax expense.

For the years ended June 30,

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Accruals and allowances not deductible for tax purposes

Acquired intangibles

Stock based compensation

1 unchanged sentence

Lease liability

Deferred Gain

Investment in partnerships

Interest expense carryforward

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Convertible debt discount

Lease receivable

Acquired indefinite lived assets

Total deferred tax liabilities

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The Company will establish the related federal deferred tax liability for the benefit of the state deduction in conjunction with its analysis of the realizability of its state deferred tax assets.

The Company has a net deferred tax liability due to indefinite-lived goodwill that is not amortizable for US GAAP purposes.

The Company has a net deferred tax liability due to indefinite-lived goodwill that is not amortizable for US GAAP purposes and forecasted future state income due to the reversal of taxable temporary differences in states where the Company has no net operating losses.

As of June 30, 2022, the Company has net operating loss ( NOL ) carryforwards for federal and state income tax purposes of approximately $ 821 million and $ 211 million, respectively.

1 unchanged sentence

The federal NOL carryforwards generated in fiscal year 2018 or later may be carried forward indefinitely.

The California NOL carryforwards of $ 185 million will expire from 2029 through 2037 .

The Massachusetts NOL carryforwards of $ 13 million will expire from 2031 to 2038 .

The California NOL carryforwards of will expire from 2029 through 2037 .

The Massachusetts NOL carryforwards will expire from 2031 to 2038 .

The following table reflects federal NOL carryforwards that will expire beginning in the fiscal year ended June 30, 2023 (in thousands):

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2026 through 2037

Under Code Section 382, the utilization of a corporation's NOL carryforwards is limited following a change in ownership (as defined by the Code) of greater than 50 % within a rolling three-year period.

Under Internal Revenue Code Section 382, the utilization of a corporation's NOL carryforwards is limited following a change in ownership (as defined by the Internal Revenue Code) of greater than 50 % within a rolling three-year period.

If it is determined that prior equity transactions limit the Company's NOL carryforwards, the annual limitation will be determined by multiplying the market value of the Company on the date of the ownership change by the federal long-term tax-exempt rate.

Any amount exceeding the annual limitation may be carried forward to future years for the balance of the NOL carryforward period.

During the 2021 and 2020 fiscal years, the total amount of gross unrecognized tax benefit activity was as follows (in thousands):

During the years ended June 30, 2022 and 2021, the total amount of gross unrecognized tax benefit activity was as follows (in thousands):

Balance as of June 30, 2020

Addition for tax positions of prior years

Reductions for tax positions of prior years

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Balance as of June 30, 2022

During the years ended June 30, 2021, and 2020, the Company’s unrecognized tax benefits decreased by $ 8.4 and $ 6.1 million respectively due to the expiration of the Company’s historical research and development credits for which an unrecognized tax benefit had been established.

During the year ended June 30, 2021, the Company’s unrecognized tax benefits decreased by $ 3.7 million primarily due to the expiration of the Company’s historical research and development credits for which an unrecognized tax benefit had been established.

As of June 30, 2022 and 2021 , the Company had approximately $ 32.3 million and $ 36.0 million, respectively, of unrecognized tax benefits.

The unrecognized tax benefits, if recognized, would impact the effective tax rate by a corresponding amount without considering the impact of the valuation allowance.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits in tax expense on the Company’s consolidated statements of operations.

As of June 30, 2022 and 2021 , no amount is accrued for interest associated with tax liabilities.

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Because of NOL carryforwards, substantially all of the Company's tax years, from the 1995 through 2022 fiscal years, remain open to IRS examinations with the exception of the 2010 and 2009 fiscal years for which IRS examinations have been completed.

Substantially all of the Company’s tax years, from the 1995 through 2021 fiscal years, remain open to state tax examination.

Substantially all of the Company’s tax years, from the 1995 through 2022 fiscal years, remain open to state tax examination.

Segment Information

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Depreciation and amortization

Stock-based compensation (3)

Non-cash compensation (3)

Transaction costs (4)

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Depreciation and amortization

Stock-based compensation (3)

Non-cash compensation (3)

Transaction costs (4)

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(1) Previously reported non-operating activity including dividend income and unrealized gains/losses related to managed investments has been reclassified from General Corporate to Investment Management to conform with current segment organization.

The Company’s wholly-owned subsidiary, DME Manager, provides advisory services to HC LLC (formerly to DME, Inc) and receives consulting fees for those services.

(2) The Company’s wholly-owned subsidiary, DME Manager, provides advisory services to HC LLC (formerly to DME, Inc) and receives consulting fees for those services.

DME Manager is considered part of the general corporate operations while HC LLC is part of the durable medical equipment segment.

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The corresponding interest expense to HC LLC and interest income to Forest are eliminated in consolidation.

Stock-based compensation attributable to the investment management segment is included in investment management expenses in the consolidated statements of operations.

Stock-based compensation attributable to the general corporate segment is included in selling, general and administrative expense in the consolidated statements of operations.

(3) Non-cash compensation includes stock-based compensation and compensation in the form of stock in portfolio companies held by the Company.

Non-cash compensation attributable to the investment management segment is included in investment management expenses in the consolidated statements of operations.

Non-cash compensation attributable to the general corporate segment is included in selling, general and administrative expense in the consolidated statements of operations.

(4) Transaction costs, which consist of legal and other professional services, are included in selling, general and administrative expense in the consolidated statements of operations.

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The Company is not a named party in any other pending or threatened litigation that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.

Quarterly Financial Results (Unaudited)

The following table sets forth a summary of the Company’s unaudited quarterly operating results for each of the eight quarters in the period ended June 30, 2021.

The information has been derived from the Company’s unaudited consolidated financial statements that, in management’s opinion, have been prepared on a basis consistent with the accompanying consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation.

Fiscal Year Ended June 30, 2021

Fiscal Year Ended June 30, 2020

Operating costs and expenses

Operating loss from continuing

Income (loss) from continuing

Income (loss) from

discontinued operations

Net income (loss) attributable

to Great Elm Group, Inc.

Basic income (loss) from

continuing operations per

Basic income (loss) from

discontinued operations per

Basic income (loss) per share

Diluted income (loss) from

continuing operations per

Diluted income (loss) from

discontinued operations per

Diluted income (loss) per

Shares used in computing:

Basic income (loss) per share

Diluted income (loss) per

Subsequent Events

On August 31, 2021, through its majority-owned subsidiary, HC LLC, the Company acquired the power mobility assets of MedOne Healthcare LLC ( MedOne ) for cash consideration of $ 1.5 million plus contingent consideration of up to $ 1.0 million.

Prior to acquisition, MedOne was the largest independent, high service power mobility provider in Arizona.

The acquisition adds over 400 new referral sources and expands our existing power mobility business in Arizona.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures