What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-09-20 compared with 2022-09-12 · 128 added, 333 removed, 51 unchanged (90% of the section changed)

3 unchanged sentences

Actual results and timing of events could differ from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are a holding company seeking to acquire assets and businesses, where our people and other assets provide a competitive advantage.

We currently have two business operating segments:

durable medical equipment and investment management with general corporate representing unallocated costs and activity to arrive at consolidated operations.

For additional information see “Item 1.

Business.”

The Company continued to experience suppressed revenues relative to its pre-pandemic expectations due to the continuing impact of the COVID-19 pandemic.

In particular, the investment management business continues to experience reduced assets under management in our managed portfolios as compared to pre-pandemic levels.

COVID-19 may continue to impact such managed portfolios as well as the value of the shares of GECC held by the Company in the future.

In addition, COVID-19 may impact our ability to finance and execute new acquisitions or other business opportunities.

At our durable medical equipment business, the impacts of COVID-19 resulted in suppressed referral pipelines for sleep studies and durable medical equipment set-ups relative to pre-COVID levels.

Although we have observed a recovery in demand for these services and products during the current year, global supply chain challenges have impacted our ability to procure sufficient volumes of PAP devices in accordance with our normal procurement process to meet patient demand during the year ended June 30, 2022.

Our equipment allotments from key suppliers has resulted in a patient backlog, resulting in missed revenue opportunities.

The impact of COVID-19 as well as global supply chain challenges continue to evolve and their duration and ultimate disruption to the Company’s customers and to its operations cannot be estimated at this time.

However, the Company expects some level of missed revenue opportunities to continue in the near future due to the continually developing supply chain challenges noted above.

GEG is a publicly-traded alternative asset management company focused on growing a scalable and diversified portfolio of long-duration and permanent capital vehicles across credit, real estate, specialty finance, and other alternative strategies.

GEG and its subsidiaries currently manage GECC, a publicly-traded BDC, and Monomoy UpREIT, an industrial-focused real estate investment trust, in addition to other investments.

The combined assets under management of these entities at June 30, 2023 was approximately $639.8 million.

GEG continues to explore other investment management opportunities, as well as opportunities in other areas that it believes provide attractive risk-adjusted returns on invested capital.

As of the date of this report, GEG had $2.3 million of unfunded binding commitments to make additional investments.

On December 30, 2022, GEG and its wholly-owned subsidiary, FM Acquisition, entered into the Stock Purchase Agreement with JPM to sell 61 shares of the common stock, $0.001 par value per share, of Forest owned by FM Acquisition and GEG, which constituted 61% of the issued and outstanding shares of Forest’s common stock, to JPM for approximately $18.4 million in cash.

In connection with the Stock Purchase Agreement, GEG, JPM and Forest entered into the Stockholders Agreement.

Pursuant to the Stockholders Agreement, from January 17, 2023 until February 17, 2023, GEG had the the Put Option to sell its remaining 19% interest in Forest for its then fair market value.

On January 17, 2023, GEG exercised the Put Option and sold the Investment in Forest for approximately $26.5 million in cash.

On January 3, 2023, GEG’s wholly-owned subsidiary, Great Elm DME Holdings, Inc., along with the minority owners of Great Elm Healthcare, LLC ( HC LLC ), entered into a purchase agreement with QHM Holdings, Inc., a subsidiary of Quipt Home Medical Corp ( Quipt ), to sell 100% of the outstanding membership interests in HC LLC to Quipt (the Sale of HC LLC ) for $80.0 million, consisting of approximately $72.8 million in cash, $5.2 million of indebtedness assumed by Quipt and $2.0 million in shares of Quipt common stock based on the 20-day volume-weighted average price of Quipt’s common stock for the period ending on and including the second business day prior to the closing of the transaction.

After transaction costs of $2.5 million, distributions to non-controlling interests of $5.9 million, and indemnity escrow payment of $0.4 million, cash proceeds to GEG and its subsidiaries were $64.1 million, pending finalization of working capital adjustments.

The disposal group satisfied the criteria for presentation as held for sale and discontinued operations through the date of sale, and as such GEG's historical segment information was recast to reflect its ongoing business as a single reportable segment and to remove the activity of discontinued operations.

In January 2023, MBTS, GEG's wholly-owned subsidiary, completed purchases of certain land parcels.

Contemporaneously with the land purchases, MBTS entered into commercial lease agreements, as a lessor, in respect to the land parcels and build-to-suit improvements to be constructed thereon.

The leases will commence upon substantial completion of the build-to-suit development, which is expected not later than the first calendar quarter of 2024.

GEG intends to sell the land and improvements with the attached leases at or close to the respective lease commencement date.

During the year ended June 30, 2023, GEG capitalized costs of $1.7 million attributed to the cost of land and development and construction costs directly identifiable with the two real estate projects.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ( US GAAP ).

The preparation of these financial statements requires our management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

These items are monitored and analyzed by our management for changes in facts and circumstances, and material changes in these estimates could occur in the future.

Asset Acquisitions and Business Combinations, Acquired Intangible Assets and Goodwill

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ( GAAP ).

The preparation of financial statements in accordance with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.

On an on-going basis, the Company evaluates all of these estimates and assumptions.

Actual results could be different from these estimates.

Previously reported assets and liabilities related to our DME business, primarily consisting of HC LLC and its subsidiaries, have been reclassified as assets and liabilities held for sale on the Company's consolidated balance sheet as of June 30, 2022.

In addition, the historical results of the DME business and related activity have been presented in the accompanying consolidated statements of operations for the years ended June 30, 2023 and 2022 as discontinued operations.

See Note 4 - Assets and Liabilities Held for Sale and Discontinued Operations in the accompanying Notes to the Consolidated Financial Statements.

Following presentation of our DME business as discontinued operations, the Company views its operations and manages its business as one operating segment focused on growing a scalable and diversified portfolio of long-duration and permanent capital vehicles across credit, real estate, specialty finance, and other alternative strategies.

Asset Acquisitions

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.

If determined to be a business combination, the accounting 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 and liabilities acquired.

Goodwill represents the excess of fair value over identifiable tangible and intangible net assets acquired in business combinations.

Goodwill is not amortized.

Instead, goodwill is reviewed for impairment at least annually, or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value.

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

The fair 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 projected financial information, effective income tax rates, present value discount factors, and long-term growth expectations.

The Company utilizes third-party specialists to assist management with the identification and valuation of intangible assets using customary valuation procedures and techniques.

We perform our annual impairment test of goodwill on the first day of the fiscal fourth quarter.

The Company tests long-lived assets, including intangible assets, for impairment if conditions exist that indicate the carrying value may not be recoverable.

All of the Company’s goodwill was acquired in conjunction with the acquisitions of the durable medical equipment businesses and has been recorded within our durable medical equipment reporting unit.

Based on our annual impairment test as of April 1, 2022 the fair value of the durable medical equipment reporting unit exceeded the carrying value by 34.3% and no impairment occurred.

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 13.0%.

Accounts Receivable

Substantially all of the accounts receivable balance relates to the durable medical equipment business.

Accounts receivable are customer obligations due under normal sales and rental terms and represent the amount estimated to be collected from the patient customers and, if applicable, the third-party private insurance provider or government program (collectively, Payors ), based on the contractual agreements.

The Company does not require collateral in connection with its customer transactions and aside from verifying insurance coverage, does not perform credit checks on patient customers.

Revenue and accounts receivable have been constrained to the extent that billed amounts exceed the amounts estimated to be collected.

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

As adjustments to these estimates become necessary, they are reported in earnings in the periods in which they become known.

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

To the extent historical experience is not indicative of future performance, actual collections experience could differ significantly from management’s judgments and expectations, resulting in either increases or decreases to future revenues, as applicable.

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.

The Company does not have significant bad debt experience with Payors, and therefore does not maintain an allowance for doubtful accounts.

Durable Medical Equipment Revenue

Durable medical equipment revenue from a customer consists of any combination of the sale and rental of durable medical equipment and/or the provision of sleep study services.

For durable medical equipment sales and services, the Company recognizes revenue in accordance with Financial Accounting Standards Board ( FASB ) Accounting Standards Codification ( ASC ) Topic 606, Revenue from Contracts with Customers .

For revenue associated with durable medical equipment rentals, the Company recognizes revenue in accordance with ASC Topic 842, Leases .

The Company sells durable medical equipment, replacement parts and supplies to customers and recognizes revenue at the point control is transferred through delivery to the customer.

Each piece of equipment, part or supply is distinct and separately priced;

thus they each represent a single performance obligation.

The revenue is allocated amongst the performance obligations based upon the relative standalone selling price method, however, items are typically all delivered or supplied together.

The customer and, if applicable, the Payors are generally charged at the time that the product is sold, although separate layers of insurance coverage may need to be invoiced before final billings may occur.

The Company also provides sleep study services to customers and recognizes revenue when the results of the sleep study are complete as that is when the performance obligation is met.

The Company leases durable medical equipment to customers for a fixed monthly amount on a month-to-month basis.

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

Due to the nature of the durable medical equipment business, billing adjustments customarily occur during the collections process when explanations of benefits are received by Payors, and as amounts are deferred to secondary Payors or to patient responsibility.

For durable medical equipment sales and services revenue, the Company includes in the transaction price only the amount that the Company expects to be entitled.

Durable medical equipment rental revenue is recognized for amounts where collection from Payors and patients are reasonably assured.

As such, revenue recognized upon satisfaction of the Company’s performance obligations consist of substantially all of the Payor billings at contractual rates as well as estimates of patient co-payments that will ultimately be collected.

Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available.

Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain Payors may result in adjustments to amounts originally recorded.

Such adjustments are typically identified and recorded at the point of cash application or claim denial.

Investment Management Revenue

The Company recognizes revenue from its investment management business at amounts that reflect the consideration to which it expects to be entitled in exchange for providing services to its customer.

Investment management revenue primarily consists of fees based on a percentage of assets under management;

fees based on rents collected;

fees based on the performance of managed assets;

and administrative fees.

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, 2022, the Company had no cumulative earned but constrained incentive fee revenue.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards.

Valuation allowances are established when necessary in order to reduce deferred tax assets to the amounts expected to be recovered.

The Company has established a full valuation allowance for its deferred tax assets that are not recoverable from taxable temporary differences due to historical net operating losses.

To the extent that the Company generates taxable income in the future, the reversal of valuation allowances could generate significant tax benefits to future operations.

As of June 30, 2022, the Company has a valuation allowance of $207.1 million.

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

Revenue Recognition

The Company recognizes revenue at amounts that reflect the consideration to which it expects to be entitled in exchange for providing services to its customers under agreements with each investment product, which may be terminated at any time by either party subject to the specific terms of each respective agreement.

Our revenues primarily consist of fees based on a percentage of assets under management, fees based on rents collected, fees based on the performance of managed assets, and administration and service fees.

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Valuation allowances are established when necessary, in order to reduce deferred tax assets to the amounts more likely than not to be recovered.

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.

These reviews include inquiries regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions.

The Company records estimated reserves for exposures associated with positions that it takes on its income tax returns that do not meet the more likely than not standards.

GAAP provides guidance on the accounting for and disclosure of uncertainty in tax positions and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are "more likely than not" of being sustained by the applicable taxing authority.

The Company recognizes in its consolidated financial statements the impact of a tax position if that position is more likely than not of being sustained upon examination, based on the technical merits of the position.

In making these assessments, the Company determines the accounting recognition based on the technical merits of the position and consults with external tax experts as appropriate.

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.

New Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements.

Results of Operations

The following discussion is reflective of our two business operating segments:

durable medical equipment and investment management.

General corporate represents unallocated costs and activity to arrive at consolidated operations.

Activity not allocated to the segments include, but are not limited to, certain passive investment and corporate financing activities, professional fees, costs associated with being a public company, acquisition costs and costs associated with executive and corporate management departments, including compensation, benefits, rent and insurance.

During the fiscal year ended June 30, 2021 we sold our real estate business.

See “Discontinued Operations”

above for more information.

The following table provides the results of our consolidated operations:

For the years ended June 30,

Percent Change

Total revenue

Operating costs and expenses:

Cost of goods sold

Cost of rentals

Other selling, general and administrative

Depreciation and amortization

Total operating expenses

Operating loss

Other income (expense):

Interest expense

Other income (expense)

Total other expense, net

Total pre-tax loss from continuing operations

NM - not meaningful

Revenues for the year ended June 30, 2022 included $63.5 million from the durable medical equipment business and $4.5 million from the investment management business, while revenues for the year ended June 30, 2021 included $57.6 million from the durable medical equipment business and $3.2 million from the investment management business.

The increase in total revenue for the year ended June 30, 2022 as compared to the year ended June 30, 2021 is primarily attributable to contributions from the acquisition of Advanced Medical DME, LLC and PM Sleep Lab, LLC (collectively, AMPM ) in March 2021 and of MedOne Healthcare LLC ( MedOne ) in August 2021, as well as improvements in revenue reserves resulting from investments in the credit and collections process in the prior years.

Investment management revenues also increased $1.4 million related to increases in assets under management at GECC as compared to the prior periods as well as contributions from the acquisition of the Monomoy REIT management agreement in May 2022.

Operating costs and expenses

The increase in operating expenses of $7.6 million for the year ended June 30, 2022 as compared to the year ended June 30, 2021 consists of increases of $1.8 million at our durable medical equipment business related to the operations of AMPM and MedOne and related transaction and integration costs, as well as increases of $3.4 million at our investment management business related to increased consulting costs on our managed products and the workforce acquired to manage the Monomoy REIT.

In addition, the year ended June 30, 2022 includes $2.4 million in Employee Retention Credits ( ERCs ) claimed during such period under the enhanced CARES Act, primarily at our durable medical equipment business.

This compares to $4.8 million in ERCs claimed during the year ended June 30, 2021.

Other income (expense)

Interest expense increased $0.8 million for the year ended June 30, 2022 as compared to the year ended June 30, 2021 due primarily to current period interest on the $35.8 million face value externally-held preferred stock in Forest and HC LLC which were issued in December 2020.

In conjunction with the issuance of this preferred stock, we extinguished a term loan which had $24.8 million in principal outstanding on December 29, 2020 and paid down outstanding balances on our revolving credit facility of $0.3 million.

Additionally, $0.2 million of the increase relates to recently issued GEGGL Notes and Seller Note (both issued in May 2022 and defined below under "Borrowings").

Other income (expense) typically consists of dividend income and net unrealized gain (loss) on investments.

The year over year net increase is primarily attributable to the net realized and unrealized gains and losses on our investment in GECC and private funds which is discussed under “—Investment Management”

In addition, the Company recognized approximately $0.2 million in losses on extinguishment of redeemable preferred stock during the year ended June 30, 2022, as compared to a loss of $1.9 million on extinguishment of the Corbel Facility during the year ended June 30, 2021.

Durable Medical Equipment

The key metrics of our durable medical equipment business include:

Patients and setup growth –

which drives revenue growth and takes advantage of scalable operations

Earnings before interest, taxes, depreciation and amortization ( EBITDA )

The following table provides the results of our durable medical equipment business:

For the years ended June 30,

Continuing Operations

The following table provides the consolidated results of our continuing operations:

For the twelve months ended June 30,

(in thousands)

Percent Change

Total revenue

Operating costs and expenses:

Cost of goods sold

Cost of rentals

Investment management expenses, excluding non-cash compensation

Non-cash compensation

Transaction costs

1 unchanged sentence

Depreciation and amortization

Total operating expenses

Operating income

Other income (expense):

Interest expense

Other income (expense)

Total other expense, net

Total pre-tax loss from continuing operations

Durable Medical Equipment Revenue

For the year ended June 30, 2022, revenues from the sale of medical equipment and sleep study services were $36.2 million and $5.6 million, respectively, compared to $32.3 million and $5.2 million, respectively, for the year ended June 30, 2021.

The increases are primarily attributable to contributions from the acquisitions of AMPM in March 2021 and of MedOne in August 2021.

Revenue from medical equipment rentals was $21.7 million for the year ended June 30, 2022 as compared to $20.2 million for the year ended June 30, 2021.

The increases relate to contributions from AMPM.

The results for the year ended June 30, 2022 were hindered by global supply chain issues which significantly restricted our ability to procure continuous positive airway pressure ( CPAP ) equipment, resulting in lost revenue opportunities during the periods primarily related to CPAP sales and CPAP rentals.

We expect these global supply chain issues to persist in the near term but continue to work with key suppliers to minimize the impact to our business.

Durable Medical Equipment Costs and Expenses

Cost of goods sold includes inventory costs for medical equipment sold and direct costs associated with running sleep study services, including staff compensation to perform the studies and the purchase of supplies used in the studies.

Cost of rentals includes depreciation on medical equipment held for lease and costs related to maintenance expenses.

Margins on both sales and services as well as rentals increased year over year primarily due to revenue reserve improvements of $2.4 million achieved through strategic investments into our revenue cycle management processes in the prior year.

The benefit of these improvements on rental margins were partially offset by vendor surcharges implemented to address increased costs related to ongoing global supply chain issues.

General and administrative expenses consist of employee-related, facility-related, freight and shipping, information technology and other costs.

For the year ended June 30, 2022 and 2021, general and administrative expenses at our durable medical equipment business include benefits of $2.3 million and $4.6 million, respectively, related to ERCs claimed during each period.

Exclusive of these benefits, employee-related costs were $24.5 million and $22.5 million for the year ended June 30, 2022 and 2021, respectively.

The $2.0 million increase in employee related costs is primarily due to costs relating to acquired AMPM and MedOne employees.

Facility-related expenses for the year ended June 30, 2022 of $3.4 million remained consistent with prior year, as incremental footprint of AMPM acquisition was offset with reduced rental expense on leases renewed office space leases during the COVID-19 pandemic.

Freight and shipping expense also remained consistent with prior year at $1.7 million.

Information technology expense increased by $0.2 million to $2.4 million during the year ended June 30, 2022 as compared to the prior year related to software support for acquired AMPM and MedOne employees.

Other costs of $3.3 million for the year ended June 30, 2022 decreased by $0.3 million as compared to $3.6 million in the prior year primarily attributable to reduced professional fees.

Depreciation and amortization includes the depreciation of fixed assets, excluding depreciation on the equipment held for rental, which is included in the cost of rentals, and amortization of the intangible assets resulting from the acquisition of the durable medical equipment businesses.

Depreciation and amortization for the year ended June 30, 2022 decreased slightly as we reduced discretionary capital expenditures during the year.

Transaction costs increased for the year ended June 30, 2022 as compared to the prior period as they primarily relate to one-time expenses incurred in the acquisition of MedOne in the current year and AMPM in the prior year.

Durable Medical Equipment Other Income (Expense)

Interest expense increased to $5.0 million for the year ended June 30, 2022 as compared to $4.0 million in the prior year.

The increase is attributable primarily to higher outstanding principal balances of the HC LLC preferred stock of $38.1 million as compared to $25.1 million outstanding under the Corbel Facility and DME Revolver (both as defined below under "Borrowings") prior to the refinancing in December 2020.

Other income (expense) includes recurring fair value adjustments of an embedded derivative in the HC LLC Series A-2 preferred stock issued to Forest, as well as debt extinguishment costs.

During the years ended June 30, 2022 and 2021, the durable medical equipment business recognized a charge of $2.1 million and a gain of $0.7 million, respectively, related to the embedded derivative valuation.

These charges and benefits have an off-setting impact in our General Corporate activity and are eliminated in consolidation.

In addition, for the year ended June 30, 2021, our durable medical equipment business recognized a non-cash charge of $0.9 million related to write-offs of unamortized discounts and deferred financing costs upon the redemption of $6.0 million par value HC LLC Series A-1 preferred stock.

$4.2 million of these redemptions related to HC LLC Series A-1 preferred stock held by Forest, and therefore $0.7 million of these non-cash charges are reflected as an offsetting benefit in our General Corporate activity and eliminates in consolidation.

This compares to a debt extinguishment charge of $1.9 million recorded during the year ended June 30, 2021 related to the paydown of the Corbel Facility in December 2020.

Investment Management

The key metrics of our investment management business include:

Assets under management ―

which provides the basis on which our management fees and performance milestones for vesting of certain equity awards are based

Investment performance ―

on which our incentive fees (if any) are based and on which we are measured against our competition

The following table provides the results of our investment management business:

For the years ended June 30,

(in thousands)

Percent Change

Total revenue

Operating costs and expenses:

Non-cash compensation

Other general and administrative

Depreciation and amortization

Total operating expenses

Operating income (loss)

Total operating costs and expenses

Operating loss

Other income (expense):

Interest expense

Other income (expense)

Other income (expense), net

Total other income (expense), net

Total pre-tax income (loss) from continuing operations

Income (loss) before income taxes from continuing operations

*NM - not meaningful

Investment Management Revenue

Investment management revenues include management fees, property management fees and administration fees related to services provided to certain managed investment vehicles.

For the years ended June 30, 2022 and 2021, we recognized $3.6 million and $2.7 million, respectively, of management fee revenue and $0.7 million and $0.6 million, respectively, of administration fee revenue.

The increase in management fee revenue for the year ended June 30, 2022 as compared to the year ended June 30, 2021 is attributable to higher assets under management at GECC related to market recoveries and the successful completion of rights offerings and $0.3 million of management fees earned the Monomoy REIT management agreement, which was acquired in May 2022.

Administration fee revenue for the year ended June 30, 2022 increased as compared to the prior year primarily related to higher administrative costs to manage GECC.

In conjunction with the acquisition of the Monomoy REIT management agreement in May 2022 we began earning property management fees, recognizing $0.2 million for the year ended June 30, 2022.

Investment Management Costs and Expenses

Non-cash compensation costs increased $1.1 million for the year ended June 30, 2022 as compared to the year ended June 30, 2021.

The increase includes $0.6 million in charges upon the final discretionary vesting of 5-year performance awards initially granted in November 2016.

In addition, ad-hoc awards were granted upon the acquisition of the Monomoy REIT management agreement in May 2022 and annual awards were granted to the investment team in September 2021, whereas no awards were granted to the investment team in the prior year.

Other general and administrative costs consist primarily of professional fees, facilities and other overhead costs, and payroll and related costs, excluding non-cash compensation.

The $2.1 million increase in general and administrative costs for the year ended June 30, 2022 is primarily attributable to an increase in allocated payroll costs, bonus accruals and consulting fees including the assembled workforce acquired in conjunction with the Monomoy REIT management agreement.

Investment Management Other Income (Expense)

Other income and expense primarily consisted of dividend income and realized/unrealized gains or losses on the Company’s managed investments in GECC, Monomoy UpREIT and the underlying investments of our consolidated fund GESOF.

Dividend income on managed investments for the years ended June 30, 2022 and 2021 was $2.8 million and $3.0 million, respectively.

In addition, we recognized net realized and unrealized losses of $7.8 million during the year ended June 30, 2022 as compared to net gains of $0.7 million during the year ended June 30, 2021.

We mark-to-market our investment in GECC and underlying investments of GESOF by reference to the closing price of related investments on Nasdaq or other exchanges, as applicable, as of each period end.

Our investment in Monomoy UpREIT is adjusted quarterly based on net asset value as supported by recurring property valuations.

General Corporate

The following table provides the results of our general corporate business:

For the years ended June 30,

(in thousands)

Percent Change

Total revenue

Revenues for the year ended June 30, 2023 increased $4.1 million, as compared to the prior year.

The increase of $2.7 million is attributed to the Monomoy UpREIT investment management agreement acquired in May 2022, and the increase of $1.0 million is attributed to the incentive fees due from GECC.

Operating Costs and Expenses

Non-cash compensation

Transaction costs

Other general and administrative

Depreciation and amortization

Total operating expenses

Operating loss

Other income (expense):

Interest expense

Other income (expense)

Total other expense, net

Total pre-tax loss from continuing operations

General Corporate Revenue

For the years ended June 30, 2022 and 2021, General Corporate revenue consists of fees earned by Great Elm DME Manager, LLC ( DME Manager ), a subsidiary in our general corporate segment, for consulting services provided to HC LLC, a subsidiary in our durable medical equipment segment.

In addition to this revenue, DME Manager earns fees for consulting services provided to our consolidated subsidiary, Forest.

These intercompany revenues and corresponding expenses are eliminated in consolidation.

General Corporate Costs and Expenses

Non-cash compensation of $1.3 million during the year ended June 30, 2022 reflects an increase of $0.3 million as compared to the prior year, and relates primarily to the election by our directors to receive their compensation entirely in the form of shares instead of cash.

Transaction costs primarily consist of professional fees in connection with our acquisitions of businesses as well as diligence for potential future opportunities.

Other general and administrative costs primarily consisted of professional fees, employee-related and facility-related costs for our finance, legal and other administrative functions as well as professional fees and payroll costs in connection with our diligence efforts towards identifying asset and business acquisition opportunities.

These costs remained relatively flat, increasing $0.1 million during the year ended June 30, 2022 as compared to the prior year.

General Corporate Other Income (Expense)

Interest expense primarily consists of interest on the Convertible Notes issued in March 2020, as well as on Forest Preferred Stock, which was issued in December 2020.

Interest expense increased $2.1 million during the year ended June 30, 2022 as compared to the year ended June 30, 2021 primarily due to the fact that the Forest preferred stock was only outstanding for six months during the prior year.

In addition, the Company issued $26.9 million in face value GEGGL Notes in May 2022 which incurred $0.2 million of interest during the year ended June 30, 2022.

Other income (expense) during the years ended June 30, 2022 and 2021 includes intercompany interest income of $4.7 million and $2.4 million, respectively, related to Forest's investments in HC LLC preferred stock.

Changes in the valuation of the embedded derivative in the HC LLC Series A-2 preferred stock resulted in a benefit of $2.1 million and a charge of $0.7 million during the years ended June 30, 2022 and 2021, respectively.

This income has corresponding and offsetting impacts in the durable medical equipment business and such impacts are eliminated in consolidation.

Other income (expense) includes dividends earned and net gains/losses on passive investments.

Prior to the acquisition of the Monomoy REIT management agreement in May 2022, the Company held a passive investment in the Monomoy Fund.

Dividends and gains on this investment were $0.7 million during the year ended June 30, 2022.

Lastly, during the year ended June 30, 2022 General Corporate activity included a $0.8 million benefit related to the redemption of $4.8 million of HC LLC Series A-1 preferred stock held by Forest, which has an offsetting charge in our durable medical equipment business.

We do not expect that we will owe any federal taxes for the years ended June 30, 2022 and 2021, however, we provided for intraperiod taxes allocated between continuing operations and discontinued operations during the year ended June 30, 2021 related to our sale of our real estate business.

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

During 2021, the Company recognized an income tax benefit with respect to discontinued operations of $0.1 million related to intraperiod allocations.

State and local taxes were approximately $0.02 million and $1.7 million for the years ended June 30, 2022 and 2021, respectively.

State tax provisions during the year ended June 30, 2021 are primarily attributable to discrete taxable entity re-organization transactions at HC LLC and Great Elm Capital GP, LLC.

Summary of Discontinued Operations

On June 23, 2021, the Company’s majority-owned indirect subsidiary Great Elm FM Acquisition, Inc., 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.

The Company acquired the real estate business in March 2018 for $2.7 million.

After transaction costs, the gain on the sale was $0.3 million.

The sale of the real estate business, which has historically been disclosed as its own reportable segment, represents a strategic shift away from the direct ownership and operation of real estate properties.

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.

Operating costs and expenses for the year ended June 30, 2023 increased $6.6 million, as compared to the prior year.

Investment management expenses increased $4.2 million, which was mainly attributable to costs associated with servicing the recently acquired Monomoy UpREIT investment management agreement.

Other selling, general and administrative expenses increased $1.5 million, which was mainly attributed to legal, consulting and other professional fees.

Depreciation and amortization increased $0.6 million, primarily due to amortization expense recorded in respect to the intangible assets identified upon acquisition of the Monomoy UpREIT investment management agreement.

Other Expenses and Income

Interest expense for the year ended June 30, 2023 increased by $0.5 million, compared to the prior year, primarily due to interest on the 7.25% notes due in 2027 issued in June 2022 (the GEGGL Notes ) and on the $6.3 million promissory note issued to Imperial Capital Asset Management, LLC ( ICAM) in May 2022 (the Seller Note ) (fully repaid in February 2023), which was partially offset by decrease in interest expense attributed to the 35,010 shares of preferred stock issued by Forest to JPM on December 29, 2020 (the Forest Preferred Stock ) following the Sale of Controlling Interest in Forest on December 30, 2022.

During the year ended June 30, 2023, the Company recognized $32.0 million of other income (net), comprised of gain on Sale of Controlling Interest in Forest of $10.5 million, gain on the Investment in Forest of $24.4 million, and dividends and interest income of $6.2 million, partially offset by net realized and unrealized loss on investments (excluding the Investment in Forest) of $9.2 million.

During the year ended June 30, 2022, the Company recognized $4.9 million of other expense (net), mainly attributed to net realized and unrealized loss on investments of $7.6 million and net realized and unrealized loss on investments of our consolidated fund, Great Elm SPAC Opportunity Fund, LLC ( GESOF ), of $0.5 million, partially offset by dividends and interest income of $3.2 million.

The Company recognized an income tax expense from continuing operations of $0.2 million and $0.1 million for the years ended June 30, 2023 and 2022, respectively.

This expense consisted solely of state and local taxes.

No federal income taxes were incurred for the years ended June 30, 2023 and 2022.

As of June 30, 2022, the Company had NOL carryforwards for federal income tax purposes of approximately $821 million.

Following the Sale of Controlling Interest in Forest, Forest ceased being part of our consolidated tax group and NOL carryforwards attributed to the entity became unavailable for the Company's use going forward.

As of June 30, 2023, we had $16.2 million of net operating loss carryforwards for federal income tax purposes, of which approximately $8.2 million will expire in fiscal years 2024 through 2025 and $8.0 million can be carried forward indefinitely.

Discontinued Operations

The following table provides the consolidated results of our discontinued operations:

For the twelve months ended June 30,

(in thousands)

For the year ended June 30, 2021

Discontinued operations:

Real estate expenses

Durable medical equipment sales and services revenue

Durable medical equipment rental income

Cost of durable medical equipment sold and services

Cost of durable medical equipment rentals

Durable medical equipment other operating expenses

Depreciation and amortization

Operating income from discontinued operations

Transaction costs

Interest expense

Gain on sale of real estate business

Pretax income from discontinued operations

Loss on extinguishment of debt

Other (expense) income, net

Gain on disposal of discontinued operations

Income before income taxes from discontinued operations

Income tax benefit

Net income from discontinued operations

Operations of the discontinued real estate business were relatively flat year over year.

Upon sale of the business on June 23, 2021, we recognized a gain on sale of $0.3 million.

In addition, we also recorded a tax benefit of $0.1 million related to intraperiod tax allocations to the discontinued operations.

During the year ended June 30, 2023, the results of the discontinued DME business only included operations through the date of its sale (January 3, 2023).

Upon sale of the DME business, we initially recognized a gain on sale of $13.6 million.

In the fourth quarter of fiscal 2023, we recorded a loss of $0.3 million following finalization of working capital adjustments to the initial sales price for HC LLC, with the respective payment made to Quipt in September 2023.

Liquidity and Capital Resources

The following table presents selected financial information and statistics:

As of June 30,

The following table presents selected financial information:

(in thousands)

June 30, 2023

June 30, 2022

Current assets

2 unchanged sentences

Long-term liabilities

For the years ended June 30,

As of June 30, 2022, our current assets, current liabilities and long-term liabilities contained $8.5 million, $15.0 million and $2.6 million of current assets held for sale, current liabilities held for sale and non-current liabilities held for sale, respectively, attributed to the DME business.

For the twelve months ended June 30,

(in thousands)

Cash provided by (used in) operating activities

Cash used in investing activities

Cash provided by financing activities

Net decrease in cash and cash equivalents

Working Capital and Cash Flows

As of June 30, 2022, we have cash of $23.6 million and investments with a fair value of $48.0 million.

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

Net cash provided by operating activities - discontinued operations

Net cash (used in) provided by operating activities

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

Net cash provided by (used in) investing activities - discontinued operations

Net cash provided by (used in) investing activities

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

Net cash used in financing activities - discontinued operations

Net cash (used in) provided by financing activities

Net increase (decrease) in cash and cash equivalents, including cash and cash equivalents classified within current assets held for sale

net increase in cash and cash equivalents classified within current assets held for sale

cash received from discontinued operations

Net increase in cash and cash equivalents

As of June 30, 2023, we had an unrestricted cash balance of $60.2 million, short-term investments in marketable securities of $24.6 million and investments with a fair value of $32.6 million, including 1,532,519 shares of GECC common stock with an estimated fair value of $11.9 million.

We intend to make acquisitions that will likely result in our investment of all of our liquid financial resources, the issuance of equity securities and the incurrence of indebtedness.

2 unchanged sentences

Risk Factors.”

Cash Provided by or Used in Operating Activities.

Cash flows provided by operating activities totaled $29.3 million for the year ended June 30, 2022.

Cash flows provided by operating activities are primarily driven by net sales of investments by consolidated funds of approximately $23.2 million and also includes non-cash activity of $8.8 million for depreciation and amortization, $2.8 million in stock-based compensation and $8.1 million in realized loss on investments.

These inflows were partially offset by the net loss of $14.8 million.

Cash flows used in operating activities totaled $19.0 million for the June 30, 2021.

Net cash used in operating activities consisted primarily of the net loss of $7.9 million and net purchases of investments of $25.5 million, partially offset by $8.7 million in non- cash depreciation and amortization, $1.9 million in non-cash interest and amortization and loss on extinguishment of debt of $1.9 million.

Cash Used in Investing Activities.

Cash flows used in investing activities totaled $40.0 million for the year ended June 30, 2022, primarily consisting of $15.0 million in net purchases of interests in Monomoy UpREIT, $17.5 million for participation in the GECC rights offering and $6.4 million in capital expenditures related to purchases of equipment held for rental.

Cash flows used in investing activities totaled $15.5 million for the year ended June 30, 2021.

Net cash used in investing activities primarily consists of $6.7 million in purchases of equipment held for rental, $8.8 million in participation in related party rights offering and $4.7 million purchases of investments, partially offset by $4.4 million in net proceeds received from the sale of the real estate business.

Cash Provided by Financing Activities.

Cash flows provided by financing activities totaled $10.0 million for the year ended June 30, 2022 and primarily consisted of $26.9 million in proceeds from the issuance of the GEGGL baby bonds.

This was partially offset by approximately $11.4 million in cash outflows related to the change in due to broker of the consolidated fund and $3.9 million in distributions made to non-controlling interests of GESOF.

Cash flows provided by financing activities totaled $18.3 million for the year ended June 30, 2021.

Net cash inflows primarily consisted of $37.7 million in gross proceeds from the JPM Transaction, $11.2 million in margin borrowing due to broker from investment purchases in the consolidated funds, capital contributions from non-controlling interests in the consolidated funds of $4.8 million and $3.6 million in proceeds from new equipment financing debt.

Such inflows were partially offset by principal payments of $33.4 million on our debt, $1.6 million in debt extinguishment costs and capitalized issuance costs of $1.3 million in connection with the JPM Transaction.

As of June 30, 2022, the Company had $26.9 million in outstanding aggregate principal of 7.25% Notes due 2027 (the GEGGL Notes ).

Cash flows used in operating activities of our continuing operations for the year ended June 30, 2023 were $3.1 million.

The adjustments to reconcile our net income from continuing operations of $14.5 million to net cash used in operating activities included add-backs for various non-cash charges, such as $2.6 million of stock-based compensation expense, $2.3 million of non-cash interest and amortization of capitalized issuance costs, $1.2 million of depreciation and amortization, and $0.8 million of change in fair value of contingent consideration payable to ICAM, which was partially offset by deduction of $10.9 million of unrealized gain on our investments, $4.3 million of realized gain on our investments, $10.5 million of gain on Sale of Controlling Interest in Forest in December 2022, and the net negative change in our operating assets and liabilities of $0.7 million.

During the year ended June 30, 2023 we also received $1.6 million attributed to sales of investments by GESOF.

Cash flows provided by operating activities of our discontinued operations for the year ended June 30, 2023 were $0.8 million.

Cash flows provided by operating activities of our continuing operations for the year ended June 30, 2022 were $17.1 million.

The net cash inflow was primarily the result of net sales of investments by GESOF of approximately $23.2 million, and non-cash adjustments of $8.2 million in realized loss on investments, $2.8 million in stock-based compensation, $2.0 million in non-cash interest and amortization of capitalized issuance costs, $0.5 million in depreciation and amortization, and $0.5 million in net realized and unrealized loss on investments of GESOF, partially offset by our net loss from continuing operations of $19.3 million and $0.4 million of stock dividends.

The cash flows provided by operating activities of our discontinued operations for the same period were $12.2 million.

Cash flows provided by investing activities of our continuing operations for the year ended June 30, 2023 were $16.7 million which is attributed to the combined proceeds from sale of Forest, net of cash sold, of $44.3 million, partially offset by purchases of investments of $3.1 million and purchases of investments in marketable securities of $24.4 million.

Cash flows provided by investing activities of our discontinued operations for the year ended June 30, 2023 of $67.2 million were primarily attributed to the cash proceeds from the Sale of HC LLC, net of cash sold and before transaction costs and distributions to non-controlling interests, of $71.3 million, partially offset by other investing activities of our DME business.

Cash flows used in investing activities of our continuing operations for the year ended June 30, 2022 were $33.3 million, primarily consisting of $15.0 million in net purchases of interests in Monomoy UpREIT and $17.5 million for participation in the GECC rights offering.

Cash flows used in investing activities of our discontinued operations for the year ended June 30, 2022 were $6.8 million, mainly attributed to capital expenditures related to purchases of equipment held for rental.

Cash flows used in financing activities of our continuing operations for the year ended June 30, 2023 were $42.4 million, which consisted of principal payments of $38.1 million on the promissory note issued to Forest on December 29, 2022 and fully repaid by January 3, 2023, and principal payments of $3.7 million on the Seller Note, as well as distributions to non-controlling interests in GESOF of $0.6 million.

Cash flows used in financing activities of our discontinued operations for the year ended June 30, 2023 of $5.2 million were primarily attributed to distributions to non-controlling interests upon Sale of HC LLC of $5.9 million.

Cash flows provided by financing activities of our continuing operations for the year ended June 30, 2022 were $10.2 million, primarily attributed to $26.9 million in proceeds from the issuance of the GEGGL Notes, partially offset by payments to the broker of GESOF of $11.4 million and distributions to non-controlling interests in GESOF of $3.9 million, while cash flows used in financing activities of our discontinued operations for the same period were $0.2 million.

We believe we have sufficient liquidity available to meet our short-term and long-term obligations for at least the next 12 months.

As of June 30, 2023, the Company had $26.9 million in outstanding aggregate principal of the GEGGL Notes.

The GEGGL Notes are due on June 30, 2027, and interest is paid quarterly.

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.

As of June 30, 2022 the Company had $36.1 million face value in Convertible Notes outstanding.

The Convertible Notes are held by a consortium of investors, including related parties.

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

To date, all interest on these instruments have been paid-in-kind.

The GEGGL Notes include covenants that limit additional indebtedness or the payment of dividends in the event that our net consolidated debt to equity ratio is, or would be on a pro forma basis, greater than 2 to 1.

In addition, if our net consolidated debt to equity ratio is greater than 2 to 1 at the end of any calendar quarter, we must retain no less than 10% of our excess cash flow as cash and cash equivalents until such time as our net consolidated debt to equity ratio is less than 2 to 1 at the end of a calendar quarter.

As of June 30, 2023, the Company had $37.9 million principal balance in outstanding convertible notes (including cumulative interest paid in-kind) held by a consortium of investors, including related parties, that accrue interest at 5.0% per annum, payable semiannually in arrears on June 30 and December 31, in cash or in-kind at the option of the Company (the Convertible Notes ).

The Convertible Notes are due on February 26, 2030, but are convertible at the option of the holders, subject to the terms therein, prior to maturity into shares of our common stock.

Upon conversion of any note, the Company will pay or deliver, as the case may be, to the noteholder, in respect of each $1,000 principal amount of notes being converted, shares of common stock equal to the conversion rate in effect on the conversion date, together with cash, if applicable, in lieu of delivering any fractional share of common stock.

As of June 30, 2022, GECM had a $6.3 million promissory note related to the purchase of the Monomoy REIT investment management agreement (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.

As of June 30, 2022, JPM held $35.0 million face value in shares of Forest Preferred Stock.

The shares provide for a 9% annual dividend, which is payable quarterly.

The shares are mandatorily redeemable by the Company at their face value of $1,000 per share on December 29, 2027, or at a 0-3% premium decreasing over time based upon the occurrence of certain redemption events prior to December 29, 2027.

The redemption events include the occurrence of an ownership change that triggers an IRC § 382 limitation which reduces Forest net operating loss carryforwards to less than $300 million.

The shares are redeemable at any time at the option of Company at a redemption price at face value plus the 0-3% premium then in place.

The shares rank senior and have preference to the common shares of Forest.

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

As of June 30, 2022, Corbel and VHG, both related parties, held a combined $0.8 million in face value of shares of HC LLC Series A-1 Preferred Stock.

The shares provide for a 9% annual dividend, which is payable quarterly.

The shares are mandatorily redeemable by the Company at their face value of $1,000 per share on the earlier of certain redemption events or December 29, 2027.

The redemption events include a bankruptcy, change in control or sale of the durable medical equipment business.

The shares are redeemable at any time at the option of the Company at a redemption price equal to face value.

The shares rank senior and have preference to the common shares of HC LLC.

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

The HC LLC Series A-1 Preferred Stock includes covenants that limit additional indebtedness, liens, asset dispositions and investments, require compliance and maintenance of licenses and government approvals and other customary conditions.

In order to incur certain additional debt, HC LLC must also comply with a leverage ratio and levered free cash flow ratio, which are based in part on the HC LLC EBITDA levels.

As of June 30, 2022, we had an undrawn credit facility with Banc of California that accrues interest at the prime rate plus 0.4% (at June 30, 2022, the effective rate was 5.2%) through maturity on November 29, 2022 (the DME Revolver ).

The DME Revolver allows for borrowings up to $10 million.

The DME Revolver requires monthly interest payments.

The DME Revolver is secured by all of 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 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.

HC LLC must also comply with a fixed-charge coverage and leverage ratio financial covenants, which are based in part on the HC LLC EBITDA levels.

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

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 –

As of June 30, 2022, the Company had $3.0 million in equipment financing debt outstanding.

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.

Off-Balance Sheet Obligations

As of June 30, 2022, we did not invest in any off-balance sheet vehicles that provide financing, liquidity, market or credit risk support or engage in any leasing activities that expose us to any liability that is not reflected in our consolidated financial statements.

New Accounting Pronouncements

See Note 2 –

Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements.

To date, all interest on these instruments has been paid in-kind.

Quantitative and Qualitat ive Disclosures About Market Risk.

2 unchanged sentences

The information required by this Item appears beginning on page F-1 of this Annual Report on Form 10-K and is incorporated in this Item 8 by reference.

Per Rule 3-09 of Regulation S-X, the audited financial statements of GECC for the years ended December 31, 2021 and 2020 included in GECC’s annual report on Form 10-K/A (File No.

814-01211), filed with the SEC on April 19, 2022 are incorporated herein by reference.

Under Rule 3-09 of Regulation S-X, the audited financial statements of GECC for the years ended December 31, 2022 and 2021, included in GECC’s annual report on Form 10-K (File No.

814-01211), filed with the SEC on March 2, 2023 are incorporated herein by reference.

We include the financial statements of GECC because our investment in GECC met the test of significance under Rule 3-09 in Regulation S-X.

1 unchanged sentence

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 as well as the Chief Compliance Officer of GECC.

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

Kleinman is our President as well as the Chief Compliance Officer of GECC, and Keri A.

Davis is our Chief Financial Officer as well as the Chief Financial Officer of GECC.

Changes in and Disagreements With Accou ntants on Accounting and Financial Disclosure.

1 unchanged sentence

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 7. Management’s Discussion and Analysis