What changed in this filing

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Item 9A. Controls and Procedures

2023-09-20 compared with 2022-09-12 · 630 added, 1298 removed, 487 unchanged (80% of the section changed)

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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.

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 Securities Exchange Act of 1934 (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.

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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.

Based on management’s evaluation under the framework, management concluded that our internal control over financial reporting was effective as of June 30, 2023.

Changes in Internal Control Over Financial Reporting

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Directors, Executive Officers and Corporate Governance.

The information required by Items 401, 405, 406, and 407(c)(3), 407(d)(4) and 407(d)(5) of Regulation S-K will be contained in our definitive proxy statement (our Proxy Statement) and is hereby incorporated by reference thereto.

The information required by this item will be contained in our definitive proxy statement ( Proxy Statement ) and is hereby incorporated by reference thereto.

Executive Compensation.

The information required by Items 402, 407(e)(4) and 407(e)(5) of Regulation S-K will be contained in our Proxy Statement and is hereby incorporated by reference thereto.

The information required by this item will be contained in our Proxy Statement and is hereby incorporated by reference thereto.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by Item 201(d) and Item 403 of Regulation S-K will be contained in our Proxy Statement and is hereby incorporated by reference thereto.

The information required by this item will be contained in our Proxy Statement and is hereby incorporated by reference thereto.

Certain Relationships and Related Transactions, and Director Independence.

The information required by Item 404 and Item 407(a) of Regulation S-K will be contained in our Proxy Statement and is hereby incorporated by reference thereto.

The information required by this item will be contained in our Proxy Statement and is hereby incorporated by reference thereto.

Principal Accountant Fees and Services.

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

The information required by this item will be contained in our Proxy Statement and is hereby incorporated by reference thereto.

Exhibits, Financ ial Statement Schedules.

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The exhibit index attached hereto is incorporated by reference.

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

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

EXH IBIT INDEX

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

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

Unless otherwise indicated, all references are to filings by Great Elm Group, Inc.

(the Registrant ) with the Securities and Exchange Commission under File No.

Agreement and Plan of Merger, dated December 21, 2020, by and among Great Elm Capital Group, Inc., the Registrant and Forest Merger Sub, Inc.

(incorporated by reference to the Exhibit 2.1 to the Form 8-K filed on December 29, 2020)

Purchase Agreement by and among Great Elm FM Acquisition, Inc.

and Monomoy Properties Fort Myers FL, LLC, dated June 23, 2021 (incorporated by reference to the Exhibit 2.1 to the Form 8-K filed on June 24, 2021)

Certificate of Incorporation of the Registrant, dated October 23, 2020 (incorporated by reference to the Exhibit 3.1 to the Form 8-K filed on December 29, 2020)

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)

Amended and Restated Bylaws of the Registrant, dated November 14, 2022 (incorporated by reference to the Exhibit 3.1 to the Form 8-K filed on November 14, 2022)

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)

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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

Description of Securities (incorporated by reference to the Exhibit 4.7 to the Form 10-K filed on September 12, 2022)

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

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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.

Reed and the Registrant (incorporated by reference to the Exhibit 10.1 to the Form 8-K filed on December 29, 2020)

Amended and Restated Stockholders Agreement of Forest Investments, Inc., dated December 30, 2022, among Forest Investments, Inc., the Registrant and J.P.

Morgan Broker-Dealer Holdings, Inc.

(incorporated by reference to the Exhibit 4.2 to the Form 8-K filed on January 3, 2023)

Severance Agreement, dated May 4, 2023, by and between the Registrant and Peter A.

Reed (incorporated by reference to the Exhibit 10.1 to the Form 8-K filed on May 5, 2023)

Consulting Agreement, dated May 4, 2023, by and between the Registrant and Peter A.

Reed (incorporated by reference to the Exhibit 10.2 to the Form 8-K filed on May 5, 2023)

Offer Letter, dated May 4, 2023, by and between the Registrant and Jason W.

Reese (incorporated by reference to the Exhibit 10.3 to the Form 8-K filed on May 5, 2023)

Offer Letter, dated December 29, 2020 between Adam Kleinman and the Registrant (incorporated by reference to the Exhibit 10.2 to the Form 8-K filed on December 29, 2020)

Offer Letter, dated December 29, 2020 between Brent Pearson and the Registrant (incorporated by reference to the Exhibit 10.3 to the Form 8-K filed on December 29, 2020)

Separation and General Release Agreement, dated May 15, 2023, by and between the Registrant and Brent J.

Pearson (incorporated by reference to the Exhibit 10.1 to the Form 8-K filed on May 15, 2023)

Offer Letter, dated May 15, 2023, by and between the Registrant and Keri A.

Davis (incorporated by reference to the Exhibit 10.2 to the Form 8-K filed on May 15, 2023)

Employment Letter, dated August 30, 2022, between Great Elm Capital Management, Inc.

and Nichole Milz (incorporated by reference to the Exhibit 10.1 to the Form 8-K filed on September 6, 2022)

Compensation Plan Agreement, dated December 29, 2020, by and between Great Elm Capital Group, Inc.

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Form of Director and Officer Indemnification Agreement (incorporated by reference to the Exhibit 10.5 to the Form 8-K filed on December 29, 2020)

Form of Performance Stock Award (incorporated by reference to Exhibit 10.8 to the Form 8-K filed on November 9, 2016 by Great Elm Capital Group, Inc.

Form of US Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Form 10-Q filed on May 12, 2004 by Great Elm Capital Group, Inc.

Second Amended and Restated 2006 Stock Incentive Plan, amended and restated effective November 12, 2013 (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed on February 7, 2014 by Great Elm Capital Group, Inc.

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.

(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.

(Registration Statement No.

Great Elm Group, Inc.

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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 (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)

Form of Stock Option Award 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

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

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

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

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.

Transaction Agreement, dated March 10, 2021, by and among the Registrant, MAST Capital Management, LLC and David Steinberg (incorporated by reference to the Exhibit 10.1 to the Form 10-Q filed on May 14, 2021)

Investment Management Agreement, dated as of September 27, 2016, by and between Great Elm Capital Corp.

Amended and Restated Investment Management Agreement (As Amended, Effective August 1, 2022), by and between Great Elm Capital Corp.

and Great Elm Capital Management, Inc.

(incorporated by reference to Exhibit 10.1 to the Form 8-K filed on November 7, 2016 by Great Elm Capital Corp.

(incorporated by reference to Exhibit g to the Form N-2 filed on June 16, 2023 by Great Elm Capital Corp.

Administration Agreement, dated as of September 27, 2016, by and between Great Elm Capital Corp.

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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.

(incorporated by reference to the Exhibit 14.1 to the Form 8-K filed on December 29, 2020)

(incorporated by reference to the Exhibit 14.1 to the Form 8-K filed on September 20, 2023)

Subsidiaries of the Registrant.

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Audited financial statements of Great Elm Capital Corp.

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

(incorporated by reference to the annual report on Form 10-K filed on March 2, 2023 by Great Elm Capital Corp.

Materials from the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, 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).

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

Equity and Contingently Redeemable Non-Controlling Interest, (iv) Consolidated Statements of Cash Flows, and (v) related Notes to the 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, 2023, formatted in inline XBRL (included as Exhibit 101).

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GREAT ELM GROUP, INC.

Chief Executive Officer

Chief Executive Officer & Chairman

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 20, 2023.

Chief Executive Officer

Chief Executive Officer & Chairman

(Principal Executive Officer)

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/s/ Matthew A.

/s/ Thomas S.

/s/ David Matter

/s/ Jeffrey S.

INDEX TO FINANC IAL STATEMENTS

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We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

Critical audit matter

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:

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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 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:

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

Taxable Gain on Certain Divestitures

As discussed in Note 2 to the consolidated financial statements, the Company recognizes in its 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.

Certain divestitures involve complex tax matters in determining the taxable gain that require the evaluation of the recognition and measurement of the tax position taken.

The accounting for the recognition and measurement of such tax position requires management to make significant judgments and interpretations to determine whether available information supports the assertion that the more-likely-than-not recognition threshold is met.

As a result, we have determined that the evaluation of the more-likely-than-not threshold for the tax position related to the determination of the taxable gain on certain divestitures is a critical audit matter.

The principal consideration for our determination that this is a critical audit matter is management’s significant judgments about and complex considerations of the Internal Revenue Code (Code), related Treasury regulations, and Internal Revenue Service (IRS) rulings.

The complexity and subjective nature of management’s conclusions required a high degree of auditor judgment.

Our audit procedures related to the Company’s evaluation of the tax positions related to the determination of the taxable gain on certain divestitures included the following, among others:

We obtained and inspected the support for the more-likely-than-not tax conclusion provided to the Company by its external tax experts, and we discussed the conclusion with said experts;

We evaluated the reasonableness of the conclusions reached in the aforementioned support based on the facts and circumstances of the transaction, the Code, Treasury regulations, and IRS rulings considered by management and their external tax experts as well as our independent research of the Code, Treasury regulations, and IRS rulings;

We utilized firm tax professionals with specialized skill and knowledge to assist in the performance of these audit procedures.

/s/ Grant Thornton LLP

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Dollar amounts in thousands, except per share amounts

June 30, 2023

June 30, 2022

Current assets

Cash and cash equivalents

Accounts receivable

Related party receivables

Receivables from managed funds

Investments in marketable securities

Investments, at fair value (cost $ 40,387 and $ 68,766 , respectively)

Prepaid and other current assets

Assets of consolidated funds:

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

Assets of Consolidated Fund:

Investments, at fair value (cost $ 2,432 )

Prepaid expenses

Real estate under development

Current assets held for sale

Total current assets

Property and equipment, net

Equipment held for rental, net

Identifiable intangible assets, net

Right-of-use assets

Non-current assets held for sale

LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS' EQUITY

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Accounts payable

Accrued expenses and other liabilities

Deferred revenue

Accrued expenses and other current liabilities

Current portion of related party payables

Current portion of lease liabilities

Current portion of equipment financing debt

Liabilities of consolidated funds - accrued expenses and other

Liabilities of Consolidated Fund - accrued expenses and other

Current liabilities held for sale

Total current liabilities

Lease liabilities, net of current portion

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

Related party payables

Long-term debt (face value $ 26,945 )

Related party payables, net of current portion

Related party notes payable, net of current portion

Convertible Notes (face value $ 36,085 and $ 34,346 , respectively, including $ 15,133 and $ 16,231 , respectively, held by related parties)

Equipment financing debt, net of current portion

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

Convertible notes (face value $ 37,912 and $ 36,085 , including $ 15,395 and $ 15,133 held by related parties, respectively)

Redeemable preferred stock of subsidiaries (held by related parties, face value $ 35,010 )

Other liabilities

Non-current liabilities held for sale

Total liabilities

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stockholders' equity

Non-controlling interests

Non-controlling interest

Total stockholders' equity

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CONSOLIDATED STATEM ENTS OF OPERATIONS

Dollar amounts in thousands, except per share data

For the years ended June 30,

Durable medical equipment sales and services revenue

Durable medical equipment rental income

Investment management revenues

Total revenues

Amounts in thousands, except per share data

For the twelve months ended June 30,

Operating costs and expenses:

Cost of durable medical equipment sold and services

Cost of durable medical equipment rentals (1)

Durable medical equipment other operating expenses (2)

Investment management expenses

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Selling, general and administrative

Expenses of consolidated funds

Expenses of Consolidated Fund

Total operating costs and expenses

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Net realized and unrealized gain (loss) on investments

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

Net realized and unrealized loss on investments of Consolidated Fund

Gain on sale of controlling interest in subsidiary

Interest expense

Extinguishment of debt

Other income, net

Loss from continuing operations, before income taxes

Income (loss) before income taxes from continuing operations

Income tax expense

Loss from continuing operations

Net income (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, Inc.

Basic income (loss) per share

Net income from discontinued operations

Net income (loss)

net (loss) income attributable to non-controlling interest, continuing operations

net income (loss) attributable to non-controlling interest, discontinued operations

Net income (loss) attributable to Great Elm Group, Inc.

Basic net income (loss) per share from:

Continuing operations

Discontinued operations

Net loss per share

Diluted income (loss) per share from:

Basic net income (loss) per share

Diluted net income (loss) per share from:

Continuing operations

Discontinued operations

Net loss per share

Diluted net income (loss) per share

Weighted average shares outstanding

(1) Includes depreciation expense of:

(2) Net of CARES Act Stimulus of:

(3) Net of CARES Act Stimulus of:

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

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EQUITY AND CONTINGENTLY REDEEMABLE NON-CONTROLLING INTEREST

Dollar and share amounts in thousands

Total Great Elm Group, Inc.

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BALANCE, June 30, 2021

Net loss (income)

Issuance of common stock related to vesting of restricted stock

Distributions to non-controlling interest holders of DME Inc.

Repurchase of interests in subsidiary

Issuance of Forest common stock

Deemed capital contribution related to issuance of convertible notes

Issuance of common stock related to asset purchase

Issuance of interests in Consolidated Fund

Sale of real estate business

Distributions of interests in Consolidated Fund

Stock-based compensation

BALANCE, June 30, 2022

Net income (loss)

Distributions to non-controlling interests in Consolidated Fund

Redemption of non-controlling interests upon sale of subsidiaries

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

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Dollar amounts in thousands

For the years ended June 30,

For the twelve months ended June 30,

Cash flows from operating activities:

Net income from discontinued operations

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

Net income (loss) from continuing operations

Adjustments to reconcile net income (loss) to net cash from operating activities:

Depreciation and amortization

Stock-based compensation

Sales of investments by consolidated funds

Purchases of investments by consolidated funds

Sales of investments by Consolidated Fund

Purchases of investments by Consolidated Fund

Stock dividends received

Unrealized loss on investments from Consolidated Fund

Realized loss on investments from Consolidated Fund

Unrealized gain on investments

Realized loss on investments

Unrealized loss (gain) on investments of consolidated funds

Realized loss (gain) on investments of consolidated funds

Realized (gain) loss on investments

Gain on sale of controlling interest in subsidiary

Non-cash interest and amortization of capitalized issuance costs

Loss on extinguishment of debt

Deferred tax (benefit) expense

Other non-cash expense, net

Gain on sale of equipment held for rental

Change in fair value of contingent consideration

Other non-cash expense, net

Changes in operating assets and liabilities:

Related party receivable

Accounts receivable

Receivables from managed funds

Prepaid assets, deposits, and other assets

Real estate under development

Operating leases

Deferred revenues

Related party payable

Accounts payable, accrued liabilities and other liabilities

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

Related party payables

Accounts payable, accrued expenses and other liabilities

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

Net cash provided by operating activities - discontinued operations

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

Acquisition of businesses, net of cash acquired

Acquisition of assets

Proceeds from sale of controlling interest in subsidiary, net of cash sold

Purchases of investments

Purchases of investments in marketable securities

Sales of investments

Participation in related party rights offering

Purchases of equipment held for rental

Proceeds from sale of equipment held for rental

Purchases of property and equipment

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 (used in) investing activities - continuing operations

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

Net cash provided by (used in) investing activities

GREAT ELM GROUP, INC.

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Dollar amounts in thousands

For the years ended June 30,

For the twelve months ended June 30,

Cash flows from financing activities:

Proceeds of issuance of baby bond

Principal payments on revolving line of credit

Principal payments on note payable to seller

Principal payments on equipment financing

Proceeds from equipment financing

Redemption of redeemable preferred stock of subsidiary

Proceeds from issuance of debt

Capitalized issuance costs

Due to broker of consolidated funds

Repurchase of interests in subsidiary

Payments of debt extinguishment costs

Dividends paid to non-controlling interest holders of DME Inc.

Issuance of Forest preferred stock

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

Net cash provided by financing activities - continuing operations

Principal payments on related party notes payable

Repurchases of interests in subsidiary

Distributions to non-controlling interests in Consolidated Fund

Due to broker of Consolidated Fund

Capital contributions from non-controlling interests in Consolidated Fund

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

Net cash used in financing activities - discontinued operations

Net cash provided by financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

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

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Cash paid for interest

Non-cash investing and financing activities

Non-cash consideration transferred and debt issued in asset acquisition

Lease liabilities and right-of-use assets arising from operating leases

Contingent consideration

Distribution of HC LLC (as defined below) preferred stock to non-controlling interest holders of DME Inc.

Repurchase of GP Corp.

Issuance of convertible notes

Partial settlement of Seller Note in exchange for GECC stock

Non-cash distributions received from Consolidated Fund

Equity consideration upon Sale of HC LLC

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

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Great Elm Group, Inc.

(referred to as the Company ) is a holding company incorporated in Delaware.

The Company currently has two business operating segments:

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

The Company is pursuing business development opportunities in durable medical equipment, investment management and other industries.

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 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

On September 7, 2018, the Company, through its majority-owned subsidiary, Great Elm DME Holdings, Inc.

( DME Holdings ), acquired an 80.1 % equity interest in Great Elm DME, Inc.

) an entity formed to acquire and combine two companies, Valley Healthcare Holding, LLC and Northwest Medical, LLC.

( Northwest ), which both specialize in the distribution of respiratory care equipment, including primarily positive air pressure equipment and supplies, ventilators and oxygen equipment and operate in Arizona, Nebraska Oregon, Washington and Alaska.

The Company has subsequently expanded its durable medical equipment business through acquisitions in 2019 and 2021.

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.

General Corporate

On December 29, 2020, the Company completed a non-taxable reorganization of the Company's corporate structure, where Great Elm Capital Group, Inc.

( GEC ) changed its name to Forest Investments, Inc.

( 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”.

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.

Discontinued Operations

We launched our real estate business in March 2018 with an investment of $ 2.7 million in a majority-interest in two Class A office buildings totaling 257,000 square feet situated on 17 acres of land in Fort Myers, Florida (collectively, the Property).

The Property was fully-leased, on a triple-net basis, to a single tenant through March 31, 2030.

On June 23, 2021, the Company sold its real estate business for $ 4.6 million in cash.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries.

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

(referred to as the Company or GEG ) is an alternative asset management company incorporated in Delaware.

The Company focuses on growing a scalable and diversified portfolio of long-duration and permanent capital vehicles across credit, real estate, specialty finance, and other alternative strategies.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including Great Elm Capital Management, Inc.

( GECM ), Great Elm Opportunities GP, 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 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.

( FM Acquisition ), Great Elm DME Holdings, Inc.

( DME Holdings ), Great Elm DME Manager, LLC ( DME Manager ), and Monomoy BTS Corporation ( MBTS ), as well as its majority-owned subsidiaries Forest Investments, Inc.

( Forest ) (through December 30, 2022), and Great Elm Healthcare, LLC ( HC LLC ) and its wholly-owned subsidiaries (through January 3, 2023).

In addition, we have determined that the Company was 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.

Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The preparation of these financial statements in accordance with accounting principles generally accepted in the United States of America ( US GAAP ) requires the Company to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingent assets and liabilities.

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.

The most important of these estimates and assumptions relate to revenue recognition, the valuation of excess and obsolete inventories, depreciable lives of equipment, impairment of long lived tangible and intangible assets, valuation allowance for deferred tax assets, fair value measurements including stock-based compensation and contingent consideration, estimates associated with the application of acquisition accounting, and the value of lease liabilities and corresponding right to use assets.

The most important of these estimates and assumptions relate to revenue recognition, valuation allowance for deferred tax assets, estimates associated with accounting for asset acquisitions, and fair value measurements, including stock-based compensation.

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

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.

Previously reported assets and liabilities related to our Durable Medical Equipment ( 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 and cash flows for the years ended June 30, 2023 and 2022 as discontinued operations.

Further, the historical segment information was recast to reflect our ongoing business as a single reportable segment and to remove the activity of discontinued operations.

See Note 4 - Assets and Liabilities Held for Sale and Discontinued Operations.

Unless otherwise specified, disclosures in these consolidated financial statements reflect continuing operations only.

Certain prior period amounts have been reclassified to conform to current period presentation.

Principles of Consolidation

The Company consolidates the assets, liabilities, and operating results of its wholly-owned subsidiaries, majority-owned subsidiaries, and subsidiaries in which we hold a controlling financial interest as of the financial statement date.

In most cases, a controlling financial interest often reflects ownership of a majority of the voting interests.

We consolidate a variable interest entity ( VIE ) when we possess both the power to direct the activities of the VIE that most significantly impacts its economic performance and we are either obligated to absorb the losses that could potentially be significant to the VIE or we hold the right to receive benefits from the VIE that could potentially be significant to the VIE.

In most cases, a controlling financial interest reflects ownership of a majority of the voting interests.

We consolidate a variable interest entity ( VIE ) when we possess both the power to direct the activities of the VIE that most significantly impact its economic performance and the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE.

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.

See Note 15 - Non-Controlling Interests and Redeemable Preferred Stock of Subsidiaries .

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:

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

The Company regularly reviews each segment for purposes of allocating resources and assessing performance.

Cash and Cash Equivalents

Cash and cash equivalents are comprised of cash and highly liquid investments with original maturities of 90 days or less at the date of purchase.

Cash equivalents consist primarily of exchange-traded money market funds.

Cash equivalents consist primarily of exchange-traded money market funds and the U.S.

treasury bills.

The Company is exposed to credit risk in the event of default by the financial institutions or the issuers of these investments to the extent the amounts on deposit or invested are in excess of amounts that are insured.

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 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 –

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.

There were no material adjustments to revenues made in the year ended June 30, 2022 relating to prior periods.

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.

The Company does not have significant bad debt experience with Payors, and therefore the allowance for doubtful accounts is immaterial.

As of June 30, 2022 the Company had unbilled receivables of approximately $ 0.4 million that relate to transactions where the Company has the ultimate right to invoice a Payor under the terms of the arrangement, but are not currently billed and are therefore contract assets.

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

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.

Property, Equipment and Rental Equipment

The Company records property and equipment acquired at cost.

The costs of property acquired from asset acquisitions or business combinations is recorded at fair value at the date of acquisition based on its estimated replacement costs.

Within the durable medical equipment businesses, the Company capitalizes the cost of equipment predominantly leased out to patient customers within equipment held for rental, net.

These purchases are classified as cash outflows from investing activities when they are paid.

The Company capitalizes the cost of equipment predominantly sold to patient customers within inventories.

These purchases are classified as cash outflows from operating activities when they are paid.

A portion of equipment recorded within equipment held for rental, net, could ultimately be sold.

A portion of equipment recorded within inventories could ultimately be leased.

Management is not able to accurately project the ultimate use of equipment, which in many cases is determined by Payor reimbursement terms, and has therefore adopted the above stated policy.

Management has estimated the useful lives of equipment leased to customers where title ultimately transfers to customers (e.g., capped rentals, typically 13 months with title transfer) based upon an analysis of ultimate disposition of rental equipment, some of which is returned to the Company and either re-leased or sold.

The Company recognizes depreciation in amounts sufficient to match the cost of depreciable assets to operations over their estimated service lives, which considers the term of lease for any leased assets.

The Company capitalizes expenditures for improvements that significantly extend the useful life of an asset.

The Company charges expenditures for maintenance and repairs to operations in the periods incurred.

When assets are sold, the asset and accumulated depreciation are eliminated, and a gain or loss is recognized in operating income.

Depreciation is recognized using the straight-line method over their estimated useful lives as follows:

Life in Years

Property and Equipment

Leasehold improvements

lesser of 7 years or life of the lease

Sleep study equipment

Furniture and fixtures

Computer equipment and software

Rental Equipment

Medical equipment for lease

Inventories, which principally consist of durable medical equipment and related supplies that are predominantly sold, are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.

The Company reduces the carrying value of inventories for items that are potentially excess, obsolete, or slow-moving based on changes in customer demand, technology developments or other economic factors.

The Company bases its provisions for excess, expired and obsolete inventory primarily on purchasing activity and usage.

A significant change in the timing or level of demand for our products as compared with forecasted amounts may result in recording additional provisions for excess, expired and obsolete inventory in the future.

As the Company purchases all of its inventories, all inventories are categorized as finished goods.

There were no significant write-offs during the year ended June 30, 2022 .

Goodwill and Other Identifiable Intangible Assets

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

Goodwill is not amortized for US GAAP purposes.

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.

We perform our annual impairment test on the first day of the fiscal fourth quarter, or as required when impairment triggering events are identified.

The Company amortizes its identifiable intangible assets over their estimated useful lives using a discounted cash flow attribution or straight-line methods as determined appropriate for each identifiable intangible asset.

The Company amortizes its identifiable intangible assets over periods ranging from five to fifteen years .

Long-lived Assets

Long-lived assets include property and equipment, intangible assets and the right to use asset.

These assets are evaluated for potential impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable based on undiscounted cash flows.

If an impairment is indicated, the Company records the impaired asset at fair value and records a charge to operations.

Leases and Right of Use Assets

We determine if an arrangement is a lease at inception.

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

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.

ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As most of our leases do not provide a readily determinable implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

We use the implicit rate when readily determinable.

The ROU assets also include any lease payments made and adjustments recorded in acquisition accounting.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, primarily consisting of common area maintenance charges, and have elected the practical expedient to account for lease and non-lease components together as a single lease component.

Cost of Durable Medical Equipment Sold and Services

Cost of durable medical equipment sold and services is comprised of costs included in inventory for medical equipment sold and direct costs associated with providing sleep study services, including staff to perform the studies and supplies used in the studies.

Cost of Durable Medical Equipment Rentals

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

Durable Medical Equipment Other Operating Expenses

The Company classifies direct expenses of its durable medical equipment segment, including payroll, facilities and equipment costs, professional fees and other administrative costs, in durable medical equipment other operating expenses in the accompanying consolidated statements of operations.

Investments in Marketable Securities

Investments in marketable securities consist of debt securities, such as the U.S.

treasury bills with original maturity exceeding 90 days.

The Company classifies investments in debt securities as either trading, held-to-maturity, or available-for-sale.

Securities are classified as trading if they are purchased and held principally for the purpose of selling in the near term and as held-to-maturity when the Company has both the positive intent and ability to hold the security to maturity.

Investments in debt securities not classified as either trading or held-to-maturity are classified as available-for-sale securities.

Trading securities are measured at fair value with unrealized gains and losses reported within net realized and unrealized gain (loss) on investments.

Held-to-maturity securities are measured at amortized cost with realized gains and losses reported within net realized and unrealized gain (loss) on investments.

Available-for-sale securities are measured at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss).

As of June 30, 2023 all investments in marketable securities were classified as held-to-maturity and had original maturities (at the time of purchase) of six months.

As of June 30, 2023 , the amortized cost basis for these securities approximated their fair value.

Investments, at Fair Value

Investments, at fair value, consist of equity and equity-related securities carried at fair value, as well as investments in private funds measured using the 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 the Financial Accounting Standards Board ( FASB ) Accounting Standards Codification ( ASC ) Topic 946, Financial Services –

Investment Companies , as of the valuation date.

Changes in the fair value and NAV are recorded within net realized and unrealized gain (loss) on investments.

Dividends received are recorded within dividends and interest income on the consolidated statements of operations.

Real Estate under Development

Real estate under development is classified as follows:

(i) real estate under development (current), which includes real estate projects that are in the process of being developed and expected to be completed and disposed of within one year of the balance sheet date;

(ii) real estate under development (non-current), which includes real estate projects that are in the process of being developed and expected to be completed and disposed of more than one year from the balance sheet date;

and (iii) real estate held for sale, which includes land and completed improvements thereon that meet all of the “held for sale”

Real estate under development is carried at cost less impairment, if applicable.

We capitalize costs that are directly identifiable with the specific real estate projects, including pre-acquisition and pre-construction costs, development and construction costs, taxes, and insurance.

We do not capitalize any general and administrative or overhead costs, regardless of whether the costs are internal or paid to third parties.

Capitalization begins when the activities related to development have begun and ceases when activities are substantially complete and the asset is available for occupancy.

Real estate held for sale is recorded at the lower of cost or fair value less cost to sell.

If an asset’s fair value less cost to sell, based on discounted future cash flows, management estimates or market comparisons, is less than its carrying amount, an allowance is recorded against the asset.

Identifiable Intangible Assets, Net

The Company's identifiable intangible assets consist of investment management agreements and assembled workforce.

These intangible assets arise primarily from the determination of their respective fair market values at the date of acquisition.

Amounts assigned to identifiable intangible assets, and their related useful lives, are derived from established valuation techniques and management estimates.

The Company’s definite-lived intangible assets are amortized over their estimated useful lives based upon the pattern of future cash flows attributable to the asset or using the straight-line method as determined for each asset.

The Company amortizes its definite-lived intangible assets over periods ranging from ten to fifteen years .

Impairment of Long-Lived Assets

Long-lived assets include real estate under development, property and equipment, definite-lived intangible assets, and lease right-of-use assets.

The Company evaluates the recoverability of long-lived asset assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable based on undiscounted cash flows.

Impairment losses are recorded when undiscounted cash flows estimated to be generated by an asset are less than the asset’s carrying amount.

The amount of the impairment loss, if any, is calculated as the excess of the asset’s carrying value over its fair value, which is determined using a discounted cash flow analysis, management estimates or market comparisons.

We determine if an arrangement contains a lease at the inception of a contract considering all relevant facts and circumstances, which normally does not require significant judgment.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Right-of-use assets and lease liabilities are recognized at the commencement date of the lease based on the present value of the remaining future minimum lease payments.

As the interest rate implicit in our leases is generally not readily determinable, we utilize the incremental borrowing rate, determined by class of underlying asset, to discount the lease payments.

The operating lease right-of-use assets also include lease payments made before commencement and are reduced by lease incentives.

Certain of the Company’s office leases contain options that permit extensions for additional periods.

If we are not reasonably certain to exercise the option to extend at lease commencement, the respective extension period is not included within the lease term and the associated payments are not included in the measurement of the right-of-use asset and lease liability.

Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet, and lease expense is recognized on a straight-line basis over the term of the short-term lease.

The Company’s office leases typically require reimbursements to the lessor for real estate taxes, common area maintenance and other operating costs, which are expensed as incurred as variable lease costs.

The Company accounts for lease and nonlease components as a single lease component.

See Note 11 - Leases for additional information about the Company’s leases.

Investment Management Expenses

The Company classifies all direct expenses of its investment management segment including:

payroll, stock-compensation, and related taxes and benefits;

The Company classifies all direct expenses incurred under its investment management agreements, such as payroll, stock-based compensation, and related taxes and benefits;

facilities costs;

and consulting;

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

Depreciation and Amortization

The Company has separately presented depreciation and amortization expense, except for depreciation expense which is included in cost of durable medical equipment rentals as described above.

Such depreciation and amortization expense is based on the estimated useful lives of the underlying assets.

and consulting fees in investment management expenses in the consolidated statements of operations.

Stock-Based Compensation

Stock-based compensation costs for eligible employees and directors are measured at fair value on the date of grant and are expensed over the requisite service period using a straight-line attribution method for the entire award that are subject to only service vesting conditions.

Awards with both performance and service requirements are expensed using a graded vesting attribution method over the requisite service periods.

We issue equity awards to eligible employees and directors, generally in the form of stock options, restricted stock awards and restricted stock units.

The compensation cost for all equity awards is measured at their grant-date fair value.

For the awards that do not contain performance or market conditions, the related compensation expense is recognized on a straight-line basis over the employee’s requisite service period, which is generally the vesting period, or the non-employee’s vesting period.

For the awards that contain both performance and service conditions, the Company recognizes compensation expense over the requisite service period using the accelerated vesting attribution method when achievement of the performance condition is probable.

For the awards that contain both market and service conditions, the Company recognizes compensation expense over the requisite service period using the accelerated vesting attribution method.

The grant-date fair value of stock options that do not contain market conditions is estimated using the Black-Scholes-Merton option pricing model, which requires management to make the following assumptions:

Risk-free interest rate is based on the U.S.

Treasury instruments, the terms of which are consistent with the expected term of the Company’s stock options.

Expected dividend is based on the Company’s history and expectation of dividend payouts.

Expected term represents the number of years the options are expected to be outstanding from grant date based on historical option exercise experience.

Expected volatility is estimated based on the historical volatility of the Company’s stock price over a period equal to the expected life of each option grant.

The Company estimates the grant-date fair value and requisite service period of stock options with market conditions using a combination of the Monte Carlo simulation and Black-Scholes-Merton option pricing models, applying the assumptions discussed above.

The Company measures the grant-date fair value of restricted stock awards and restricted stock units using the Company’s stock price on the date of grant.

The Company accounts for forfeitures when they occur.

The stock-based compensation expense is classified in the consolidated statements of operations in the same manner in which the award recipient’s salary and related costs are classified or in which the award recipient’s service payments are classified.

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

7 unchanged sentences

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

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.

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.

Asset Acquisitions

Asset acquisitions are accounted for using the cost accumulation method.

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

The accounting for asset acquisitions requires estimates and judgment to allocate the incurred costs 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;

restructuring costs associated with a business combination are expensed subsequent to the acquisition date;

and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense.

Measurement period adjustments are made in the period in which the amounts are determined and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date.

All changes that do not qualify as measurement period adjustments are also included in current period earnings.

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.

The fair value of contingent consideration is remeasured each period based on relevant information and changes to the fair value are included in the operating results for the period within general and administrative expense.

Net Income (Loss) Per Share

The following table presents the calculation of basic and diluted earnings (loss) per share:

For the years ended June 30,

The following table presents the calculation of basic and diluted net income (loss) per share:

For the twelve months ended June 30,

(in thousands except per share amounts)

Loss from continuing 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, Inc.

Weighted average shares basic and diluted:

Weighted average shares of common stock outstanding

Weighted average shares used in computing income (loss) per share

Basic and diluted income (loss) per share from:

Loss from continuing operations

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, 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.

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 following table summarizes customer concentrations as a percentage of revenues:

For the years ended June 30,

Government Payor

Third-party Payor

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

As of June 30,

Government Payor

Third-party Payor

Recently Adopted Accounting Standards

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)

Net income (loss) from continuing operations

net (loss) income attributable to non-controlling interest, continuing operations

Numerator for basic EPS - Net income (loss) from continuing operations attributable to Great Elm Group, Inc.

Net income from discontinued operations

net income (loss) attributable to non-controlling interest, discontinued operations

Numerator for basic EPS - Net income from discontinued operations, attributable to Great Elm Group, Inc.

Effect of dilutive securities:

Interest expense associated with Convertible Notes, continuing operations

Numerator for diluted EPS - Net income (loss) from continuing operations attributable to Great Elm Group, Inc., after the effect of dilutive securities

Numerator for diluted EPS - Net income from discontinued operations, attributable to Great Elm Group, Inc.

Denominator for basic EPS - Weighted average shares of common stock outstanding

Effect of dilutive securities:

Restricted stock

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

Denominator for diluted EPS - Weighted average shares of common stock outstanding after the effect of dilutive securities

Basic net income (loss) per share 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.

Basic net income (loss) per share

Diluted net income (loss) per share from:

Continuing operations

Discontinued operations

Diluted net income (loss) per share

As of June 30, 2023 the Company had 3,264,424 potential shares of common stock issuable upon the exercise of stock options that are not included in the diluted net income (loss) per share calculation because to do so would be anti-dilutive for the twelve months ended June 30, 2023.

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 Convertible Notes (as defined below), 1,312,436 potential shares issuable upon vesting of restricted stock units and restricted stock awards, and 2,134,292 potential shares of common stock issuable upon the exercise of stock options that are not included in the diluted net income (loss) per share calculation for the twelve months ended June 30, 2022 because to do so would be anti-dilutive.

As of June 30, 2023 and 2022, the Company had an aggregate of 1,151,430 and 1,216,481 issued shares, respectively, that are not considered outstanding for accounting purposes since they are unvested and subject to forfeiture by the employees at a nominal price if service milestones are not met.

Concentration of Risk

The Company’s revenues from continuing operations and related receivables are primarily attributable to the management of Great Elm Capital Corp.

( GECC ) and Monomoy UpREIT, LLC ( Monomoy UpREIT ) investment vehicles.

See Note 7 - Related Party Transactions .

Recently Issued Accounting Standards

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

Current Expected Credit Losses.

In June 2016, the FASB issued Accounting Standards Update ( 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.

2 unchanged sentences

The Company is evaluating the potential impact that the adoption of this ASU will have on its consolidated financial statements.

Reference Rate Reform In March 2020, the FASB issued ASU 2020-04 , Reference Rate Reform (Topic 848):

facilitation of the Effects of Reference Rate Reform on Financial Reporting, in response to the United Kingdom Financial Conduct Authority which announced the desire to phase out the use of London Interbank Offered Rate ( LIBOR ) by the end of 2021.

The provisions provide optional expedients and exceptions for applying US GAAP to contracts, hedging relationships and other transactions affected by reference rate reform on financial reporting due to the cessation of LIBOR if certain criteria are met.

If LIBOR ceases to exist, we may need to renegotiate outstanding notes payable outstanding which extend beyond 2021 with the respective counterparties.

Adoption of the provisions in ASU 2020-04 are optional and effective from March 12, 2020 through December 31, 2022.

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.

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

For the years ended June 30,

(in thousands)

Product and Services Revenue

Investment Management

Management Fees

Property Management Fees

Administration Fees

Durable Medical Equipment

Equipment Sales

Service Revenues

Total product and services revenue

Rental Revenues

Durable Medical Equipment

Medical Equipment Rental Income

Total rental revenue

Revenue Accounting Under Topic 606

In determining the appropriate amount of revenue to be recognized under FASB Accounting Standards Codification Topic 606, Revenues, ( Topic 606 ), the Company performed the following steps:

(i) identified the promised goods or services in the contract;

(ii) determined whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract;

(iii) measured the transaction price, including the constraint on variable consideration;

(iv) allocated the transaction price to the performance obligations;

and (v) recognized revenue when (or as) the Company satisfies each performance obligation.

Durable Medical Equipment Revenue

Equipment Sales and Services Revenues

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 transaction price on both equipment sales and sleep studies is the amount that the Company expects to receive in exchange for the goods and services provided.

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.

As such, we constrain the transaction price for the difference between the amounts billed and what we believe we will collect from Payors and from patients.

The transaction price therefore is predominantly based on contractual payment rates determined by the Payors.

The Company does not generally contract with uninsured customers.

We determine our estimates of billing adjustments based upon contractual agreements, our policies and historical experience.

While the rates are fixed for the product or service with the customer and the Payors, such amounts typically include co-payments, co-insurance and deductibles, which vary in amounts, from the patient customer.

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.

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.

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.

The Company constrains revenue for these estimated adjustments.

During the year ended June 30, 2022, there were no material changes in estimates relating to prior periods.

The payment terms and conditions of customer contracts vary by customer type and the products and services offered.

The Company may provide shipping services prior to the point of delivery and has concluded that the services represent a fulfilment activity and not a performance obligation.

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.

The Company does not incur contract acquisition costs.

The Company generally does not have any partially or unfilled performance obligations related to contracts with customers.

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.

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.

Included in sales and services revenue are unbilled amounts for which the revenue recognition criteria had been met as of period-end but were not yet billed to the Payor.

The estimate of net unbilled sales and service revenue recognized is based on historical trends and estimates of future collectability.

As of June 30, 2022 and 2021, net unbilled sales and service revenue is approximately $ 0.3 million and $ 0.2 million, respectively, and is included in accounts receivable.

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 the performance of managed assets, and administrative fees.

Fees are based on agreements with each investment products and may be terminated at any time by either party subject to the specific terms of each respective agreement.

Management Fees

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 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, 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 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.

Incentive fees range from 5.0 % to 25.0 % of the performance-based metric specified within each agreement.

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.

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 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.

Revenue Accounting Under Topic 842

Durable Medical Equipment Revenue

Equipment Rental Revenue

Under FASB Accounting Standards Codification Topic 842, Leases, ( Topic 842 ) rental income from operating leases is recognized on a straight-line basis, based on contractual lease terms with fixed and determinable increases over the non-cancellable term of the related lease when collectability is reasonably assured.

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

The contractual length of the lease term varies based on the type of equipment that is rented to the customer, but generally is from 10 to 36 -months.

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.

Certain customer co-payments are included in revenue to the extent they are considered probable of payment.

The lease term begins on the date products are delivered to patients and are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including Medicare, private payors, and Medicaid.

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 at their net realizable values.

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

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

There were no material changes in estimates recorded in the year ended June 30, 2022, relating to prior periods.

Although invoicing typically occurs at the beginning of the monthly rental period, we recognize revenue from rentals on a daily basis.

Since rental agreements can commence at any time during a given month, we defer revenue related to the remaining monthly rental period as of period end.

Deferred revenue related to rentals was $ 0.9 million and $ 1.0 million as of June 30, 2022 and 2021, respectively.

Included in rental revenue are unbilled amounts for which the revenue recognition criteria had been met as of period-end but were not yet billed to the Payor.

Net unbilled rental revenue is recognized to the extent payment is probable.

As of June 30, 2022 and 2021, net unbilled rental revenue is approximately $ 0.1 million and $ 0.1 million, respectively, and is included in accounts receivable.

Reorganization and Financing Transactions

Holding Company Reorganization

On December 21, 2020 , GEC announced plans to create a new public holding company, Great Elm Group, Inc.

(the Company ) by implementing a non-taxable holding company reorganization (the Holding Company Reorganization ).

Following the Holding Company Reorganization, the Company became the successor issuer to GEC.

On December 29, 2020, pursuant to the terms of the Agreement and Plan of Merger, dated as of December 21, 2020, among Forest (formerly GEC), the Company and Forest Merger Sub, Inc., a newly created entity for the purpose of facilitating the Merger, (as it may be amended from time to time, the Merger Agreement ), the transactions contemplated by the Merger Agreement (the Transactions ) were consummated.

As a result of the Transactions, and subject to the same terms and conditions as applied immediately prior to the Transactions, each share of Forest's outstanding common stock, common stock options, restricted stock units and restricted shares were exchanged for identical instruments of the Company .

Financing Transaction

Following the consummation of the Holding Company Reorganization, J.P.

Reference Rate Reform.

In March 2020 and January 2021, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , and ASU 2021-01, Reference Rate Reform (Topic 848):

Scope , which provide optional expedients and exceptions for applying US GAAP to contracts, hedging relationships and other transactions affected by reference rate reform on financial reporting due to the cessation of the London Interbank Offered Rate ( LIBOR ) if certain criteria are met.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 , extending the sunset date under Topic 848 from December 31, 2022 to December 31, 2024 to align the temporary accounting relief guidance with the expected LIBOR cessation date of June 30, 2023.

The Company adopted these ASUs as of July 1, 2023 , which did no t have any impact on its consolidated financial statements.

Forest Note and Transactions with JPM

On December 29, 2022, in connection with the Stock Purchase Agreement and Stockholders Agreement, each defined below, GEG and FM Acquisition issued a promissory note in favor of Forest in an aggregate principal amount equal to $ 38.1 million (the Forest Note ), in exchange for the transfer to FM Acquisition of $ 3.3 million of Series A-1 preferred interests and $ 34.0 million of S eries A-2 preferred interests held by Forest in HC LLC plus, in each case, accrued dividends thereon to the date of transfer.

The Forest Note had a maturity date of March 1, 2023 and bore interest at a fixed rate of 9 % per annum.

On December 30, 2022, in connection with the Transactions with JPM, as defined below, t he Company partially repaid the Forest Note in the amount of $ 18.4 million.

The remaining balance, inclusive of accrued interest, due to

Forest under the Forest Note of $ 19.7 million was subsequently paid in full on January 3, 2023 using the proceeds from the Sale of HC LLC (see Note 4 - Assets and Liabilities Held for Sale and Discontinued Operations).

During the year ended June 30, 2023 , the Company recorded interest expense of $ 19 thousand with respect to the Forest Note.

Sale of Controlling Interest in Forest

On December 30, 2022, GEG and FM Acquisition, entered into a stock purchase agreement (the Stock Purchase Agreement ) with J.P.

Morgan Broker-Dealer Holdings Inc.

( JPM ), a Delaware corporation and affiliate of JPMorgan Chase & Co., Forest and the Company agreed to effect certain transactions pursuant to which JPM provided financing in an aggregate amount of $ 37.7 million.

In connection with such financing, among other things:

Forest issued to JPM 35,010 newly issued shares of 9.0 % preferred stock (the Forest Preferred Stock ) for $ 1,000.00 per share;

HC LLC issued 10,090 newly issued shares of 9.0 % Series A-1 preferred stock (the Series A-1 Preferred Stock ) to DME Inc.

as a distribution, which in turn distributed such preferred stock pro rata to the holders of its common stock such that 80.1 % of such preferred stock is held by Forest, 9.95 % is held by Corbel Capital Partners SBIC, L.P.

( Corbel ), and 9.95 % is held by Valley Healthcare Group, LLC ( VHG ).

HC LLC, issued to Forest 34,010 newly issued shares of 9.0 % Series A-2 preferred stock (the Series A-2 Preferred Stock ) for $ 1,000.00 per share.

HC LLC distributed to the owners of DME Inc.

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.

(each collectively noted above, the JPM Transactions ).

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 –

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.

On June 29, 2021, GP Corp assigned the rights to the Profit Sharing Agreement with GECM, their intercompany obligation under the GP Corp.

Note and other assets and liabilities to their wholly-owned subsidiary GEC GP.

Subsequent to the assignment, 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.

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.

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.

Pursuant to the terms of the Purchase Agreement, the proceeds of the sale were subsequently reinvested in newly issued membership interests of Monomoy Properties, LLC ( Monomoy Fund ), a privately-held fund comprised of a portfolio of net leased industrial real estate assets.

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.

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:

( 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 (the Sale of Controlling Interest in Forest ).

Upon execution of the Stock Purchase Agreement, the Company deconsolidated Forest and recognized an investment in respect to its retained 19 % non-controlling interest in Forest (the Investment in Forest ) in the amount of $ 2.1 million .

The following table shows calculation of the recorded gain on sale of controlling interest in subsidiary of $ 10.5 million on the Company's consolidated statement of operations for the year ended June 30, 2023:

(in thousands)

For the year ended June 30, 2021

December 30, 2022

Cash proceeds

Fair value of retained 19 % non-controlling interest in Forest

Carrying value of non-controlling interest prior to sale

Carrying value of net assets disposed

Gain on Sale of Controlling Interest in Forest

The Investment in Forest was determined to be an equity security measured at fair value within Level 3 of the fair value hierarchy.

As a result of Forest joining the JPM consolidated group, we recognized a gain on our Investment in Forest of $ 24.4 million during the year ended June 30, 2023 (prior to exercise of the Put Option as defined below) within net realized and unrealized gain (loss) on investments on the consolidated statement of operations.

The Sale of Controlling Interest in Forest did not meet the criteria for presentation as discontinued operations.

The following table shows loss before income taxes of Forest, as well as loss before income taxes of Forest attributable to the Company:

For the twelve months ended June 30,

(in thousands)

Loss before income taxes

Loss before income taxes attributable to Great Elm Group, Inc.

In connection with the Stock Purchase Agreement, GEG, JPM and Forest entered into an amended and restated stockholders’

agreement (the Stockholders Agreement ).

Pursuant to the Stockholders Agreement, from January 17, 2023 until February 17, 2023, GEG had the right (the Put Option , together with the Sale of Controlling Interest in Forest referred to as the Transactions with JPM ) to sell the Investment in Forest for the then fair market value.

On January 17, 2023, the Company exercised the Put Option and sold the Investment in Forest for $ 26.5 million in cash, resulting in an additional gain on our Investment in Forest for the year ended June 30, 2023 of $ 25 thousand recorded within net realized and unrealized gain (loss) on investments on the consolidated statement of operations.

Assets and Liabilities Held for Sale and Discontinued Operations

On January 3, 2023, DME Holdings along with the minority owners of 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 ( 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 subsidiaries were $ 64.1 million , pending finalization of working capital adjustments.

The following table shows calculation of the initial gain on Sale of HC LLC of $ 13.6 million :

(in thousands)

January 3, 2023

Net cash proceeds, after transaction costs and distributions to non-controlling interests

Fair value of shares of Quipt stock

Indemnity escrow receivable attributable to GEG and subsidiaries

Carrying value of non-controlling interest prior to sale (permanent equity)

Carrying value of non-controlling interest prior to sale (temporary equity)

Estimated future distributions of proceeds to non-controlling interests

Carrying value of net assets disposed

Gain on Sale of HC LLC

The Company concluded that the disposal group satisfied the criteria for presentation as held for sale and discontinued operations.

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 to Quipt made in September 2023.

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

For the twelve months ended June 30,

(in thousands)

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

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 following table provides a reconciliation of the assets and liabilities held for sale presented in the consolidated balance sheet as of June 30, 2022:

(in thousands)

June 30, 2022

Cash and cash equivalents

Accounts receivable

Prepaid and other current assets

Current assets held for sale

Property and equipment, net

Equipment held for rental, net

Identifiable intangible assets, net

Right-of-use assets

Non-current assets held for sale

Accounts payable

Accrued expenses and other current liabilities

Deferred revenue

Current portion of lease liabilities

Current portion of equipment financing debt

Current liabilities held for sale

Lease liabilities, net of current portion

Redeemable preferred stock of subsidiaries

Non-current liabilities held for sale

Acquisition of Monomoy UpREIT Investment Management Agreement

On May 4, 2022 , the Company, through GECM, acquired the investment management agreement for Monomoy UpREIT and certain other related assets from Imperial Capital Asset Management, LLC ( ICAM ).

Monomoy UpREIT is the operating partnership of Monomoy Properties REIT, LLC, a private real estate investment trust founded by ICAM, with a portfolio of diversified net leased industrial assets.

The acquisition significantly increased and diversified 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 Monomoy UpREIT, as well as the lease for office space in Charleston, South Carolina, where these employees are based.

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

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).

(ii) $ 1.25 million in shares of GECC common stock owned by GEG and valued at the subscription price of the next GECC rights offering;

and (iii) the Seller Note (as defined in Note 13 - Related Party Notes Payable and Long-Term Debt ) issued by GECM in an aggregate principal amount of approximately $ 6.3 million.

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.

3 unchanged sentences

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

On March 1, 2021 , through its majority-owned subsidiary, DME Inc., the Company acquired Advanced Medical DME, LLC and PM Sleep Lab, LLC (collectively, AMPM ), providers of sleep testing, Positive Air Pressure ( PAP ), and other respiratory products and services in nine locations throughout Kansas and Missouri.

The acquisition is accounted for as a business combination.

The Company expects to achieve synergies and costs reductions 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 March 1, 2021.

The original purchase consideration was $ 1.1 million, comprised of $ 0.4 million paid upon closing net of cash acquired, $ 0.3 placed in escrow for potential satisfaction of certain indemnification obligations, and $ 0.4 million representing the acquisition date fair value of contingent consideration.

Subsequent to the acquisition, we finalized the working capital adjustment with the seller resulting in a return of $ 0.1 million to the Company from escrow.

We have recorded a preliminary allocation of the purchase price for AMPM, which resulted in goodwill of $ 0.6 million and intangible assets, including trade names of $ 0.4 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.

None 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 AMPM acquisition.

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 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 %.

See Note 9 - Identifiable Intangible Assets, Net for additional details on the Company's intangible assets.

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

As of June 30, 2023, the Company determined that the fee revenue threshold for the year ending June 30, 2023 was achieved and the amount payable to ICAM was approximately $ 1.0 million, which was paid in July 2023.

Further, the Company determined that the fee revenue threshold for the year ending June 30, 2024 was expected to be achieved as well, and the related amount payable to ICAM was recorded at present value of approximately $ 0.9 million, using a discount rate of 8.0 %.

Consequently, as of June 30, 2023 , the contingent consideration of $ 1.9 million was included within the current portion of related party payables and related party payables, net of current portion, in the consolidated balance sheet.

As of June 30, 2022, the contingent consideration of $ 1.1 million was included within the related party payables, net of current portion, in the consolidated balance sheet.

The Company's revenues are summarized in the following table:

For the twelve months ended June 30,

(in thousands)

Management fees

Incentive fees

Property management fees

Administration and service fees

Total revenues

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.

Management Fees

The Company earns management fees based on the investment management agreements between GECM and GECC, Monomoy UpREIT, and other private funds (collectively, the Funds ).

The performance obligation is satisfied and management fee revenue is recognized over time as the services are rendered, since the Funds simultaneously receive and consume the benefits provided as GECM performs services.

Management fee rates range from 1.0 % to 1.5 % of the management fee assets specified within each agreement and are calculated and billed in arrears of the period, either monthly or quarterly.

Property Management Fees

Under the Monomoy UpREIT property management agreement, GECM is entitled to 4.0 % of monthly 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 Monomoy Properties II, LLC ( MP II ), a feeder fund of Monomoy Properties REIT, LLC.

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 investment management agreements.

Incentive fees are typically 20 % of the performance-based metric specified within each agreement.

Incentive fees are recognized when it is determined that they are no longer probable of significant reversal.

During the year ended June 30, 2023, the Company recorded revenue in respect to the incentive fees due from GECC of $ 1.0 million .

Administration and Service Fees

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

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

Administration 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 investment vehicle that is a series of distinct services with substantially the same pattern of transfer as the services are provided on a daily basis.

Related Party Transactions

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

Investment Management

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 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.

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.

As such, investments of the Consolidated Funds are included in the condensed consolidated balance sheets at fair value and the net unrealized gain (loss) on those investments is included as a component of other income on the condensed consolidated income statement.

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

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:

For the years ended June 30,

For the twelve months ended June 30,

(in thousands)

Net realized and unrealized gain (loss) on investments

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

Net realized and unrealized loss on investments

Net realized and unrealized loss on investments of Consolidated Fund

Dividend income

As of June 30,

(in thousands)

June 30, 2023

June 30, 2022

Dividends receivable

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Receivable for reimbursable expenses paid

Outstanding receivables are included in related party receivables in the consolidated balance sheets.

Outstanding receivables from the Consolidated Funds are eliminated in consolidation.

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.

Receivables from managed funds

Investment Management

GECM has agreements to manage the investment portfolios for GECC, Monomoy UpREIT and other investment products, as well as to provide administrative services.

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

See Note 6 - Revenue for additional discussions of the fee arrangements.

Consolidated Funds

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 determined that GEOF and Series A, Series B and Series C of GEOF are VIEs, and that the criteria for consolidation were only met for GEOF Series C, which was launched in November 2020 and subsequently merged into GESOF (as defined below).

GEOF Series D was launched on January 1, 2023 and the Company determined that it was not a VIE.

The contribution in the amount of $ 3.0 million made by GEG into GEOF Series D, representing 43 % ownership of the partnership interests in the fund, was determined to be an equity method investment and the Company elected the fair value option using the net asset value ( NAV ) practical expedient for this instrument with all changes in NAV reported in net realized and unrealized gain (loss) on investments on the consolidated statements of operations.

GECM also served as the managing member of Great Elm SPAC Opportunity Fund, LLC ( GESOF or the Consolidated Fund ), a Delaware limited liability company, which was launched in February 2021, and managed the investment portfolio of GESOF.

The Company determined that GESOF was a VIE and that the criteria for consolidation were met during the years ended June 30, 2023 and 2022.

The operations of the Consolidated Fund were included in our consolidated financial statements.

In July 2022, GESOF began to wind down and the Company received final distributions of cash and equity investments (in-kind) during the year ended June 30, 2023.

The Company retained the specialized investment company accounting guidance under GAAP with respect to the Consolidated Fund during the periods it was consolidated.

As such, investments of the Consolidated Fund were included in the consolidated balance sheets at fair value and the net realized and unrealized gain or loss on those investments was included as a component of other income on the consolidated statements of operations.

Non-controlling interests in the Consolidated Fund were included in net (loss) income attributable to non-controlling interest, continuing operations.

There are no consolidated funds as of June 30, 2023.

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

The Company owns 1,532,519 shares of GECC (approximately 20.2 % of the outstanding shares).

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 ).

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

Drapkin is a director of our Board of Directors 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.

The Company receives dividends from its investments in GECC and Monomoy UpREIT and earns unrealized gains and losses based on the mark-to-market performance of those investments.

See Note 8 - Fair Value Measurements.

Other Transactions

GECM has shared personnel and reimbursement agreements with ICAM.

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

Certain costs incurred under these agreements relate to human resources, investment management, and other administrative services provided by ICAM employees, for the benefit of the Company and its subsidiaries, and are included in investment management expenses in the consolidated statements of operations.

For the years ended June 30, 2023 and 2022 such costs were $ 1.5 million and $ 1.1 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

Other costs include operational or administrative services performed on behalf of the funds managed by GECM and are included in receivables from managed funds in the consolidated balance sheets.

As of June 30, 2023 and 2022, costs of $ 0.1 million and $ 0.1 million related to the shared services agreements were included in receivables from managed funds, respectively.

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.

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

The common stock interest does not convey the ability to exercise significant influence over Ligado, and therefore does not require accounting in accordance with the equity method.

We have elected to account for this investment, which does not have a readily-determinable fair value, at cost minus impairment.

This investment is included in prepaid and other current assets on our consolidated balance sheet.

Discontinued Operations

On June 23, 2021, the Company sold its real estate business to Monomoy FM.

Monomoy FM is a majority-owned subsidiary of Monomoy Fund, and pursuant to the purchase agreement the Company subsequently invested the proceeds of the sale in Monomoy Fund.

Monomoy Fund is managed by ICAM.

See Note 5 –

Discontinued Operations.

The agreement included a retainer fee of $ 0.1 million which was paid in October 2021.

In addition, the agreement included a success-based fee upon a sale of HC LLC.

Upon completion of the Sale of HC LLC on January 3, 2023, a success fee of $ 0.7 million was paid to Imperial Capital, LLC.

Reese is the Co-Founder of Imperial Capital, LLC.

Additionally, the Company received dividends of $ 0.4 million and realized gain of $ 0.3 million on its investment in Monomoy Properties, LLC, which it held for a portion of the year ended June 30, 2022.

Monomoy Properties, LLC is managed by ICAM.

See Note 3 - Forest Note and Transactions with JPM for details on the Forest Note and Investment in Forest, Note 5 - Acquisitions for details on the contingent consideration payable to ICAM following the acquisition of the Monomoy UpREIT investment management agreement, and Note 14 - Convertible Notes for details on the Convertible Notes issued to related parties.

Fair Value Measurements

Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

US GAAP provides a framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

GAAP provides a framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

The following are the hierarchical levels of inputs to measure fair value:

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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 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.

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 no n-recurring basis are summarized in the tables below:

Fair Value as of June 30, 2023

(in thousands)

Equity investments

Equity investments of Consolidated Funds

Total assets within the fair value hierarchy

Investments valued at net asset value

Participation feature of HC LLC Series A-2 Preferred Stock

Contingent consideration liability

Total liabilities

* Balance eliminates in consolidation.

Fair Value as of June 30, 2022

1 unchanged sentence

Equity investments

Equity investments of Consolidated Funds

Equity investments of Consolidated Fund

Total assets within the fair value hierarchy

Investments valued at net asset value

Participation feature of HC LLC Series A-2 Preferred Stock

Contingent consideration liability

2 unchanged sentences

The following is a reconciliation of changes in contingent consideration, a Level 3 liability:

For the years ended June 30,

For the twelve months ended June 30,

(in thousands)

2 unchanged sentences

Ending balance

The valuation techniques applied to investments held by the Company and by the Consolidated Funds vary depending on the nature of the investment.

The valuation techniques applied to investments held by the Company and by the Consolidated Fund vary depending on the nature of the investment.

Equity and equity-related securities

Securities traded on a national securities exchange are stated at the close price on the valuation date.

Securities traded on a national securities exchanges are stated at the close price on the valuation date.

To the extent these securities are actively traded and valuation adjustments are not applied, they are classified as Level 1.

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 NAV as reported by each fund’s investment manager.

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

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.

As of June 30, 2023, investments in private funds primarily consisted of our investment in Monomoy UpREIT and GEOF Series D.

As of June 30, 2022 , investments in private funds primarily consisted of our investment in Monomoy UpREIT.

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 were no unfunded commitments.

Contingent consideration

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 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.

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

The value of the derivative related to a participation feature upon the sale of the durable medical equipment business.

As of the issuance date, the fair value was determined using an option pricing model based on the transaction price.

The key assumptions used in the option pricing model include a volatility rate of 72.7 % and an option term of 3 years.

Subsequent to the issuance date, the fair value of this derivative is determined at each balance sheet date using an option pricing model based on the estimated value of HC LLC.

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, 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.

However, this valuation does impact our segment results and non-controlling interest accounts.

See Note 13 - Borrowings for additional discussion related to the fair value of notes payable.

notice, subject to a one-year lockup from the date of initial investment, which are capped at 5 % of its NAV.

GEOF Series D allows withdrawals annually and there is no set duration for the private fund.

As of June 30, 2023, there were no unfunded commitments.

See Note 5 - Acquisitions for additional discussion related to the fair value of the contingent consideration payable in conjunction with the acquisition of the Monomoy UpREIT investment management agreement and Note 13 - Related Party Notes Payable and Long-Term Debt for additional discussion related to the fair value of our notes payable and other long-term debt.

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:

(in thousands)

June 30, 2022

June 30, 2021

Property and Equipment

Leasehold improvements

Computer equipment and software

Furniture and fixtures

Sleep study equipment

Accumulated depreciation

Net carrying amount

Medical Equipment Held for Rental

Medical equipment held for rental

Accumulated depreciation

Net carrying amount

The following table reconciles depreciation expense included in the following lines of the consolidated statements of operations to total depreciation expense for each period presented.

For the years ended June 30,

(in thousands)

Depreciation and amortization

Cost of durable medical equipment rentals

Total depreciation expense

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.

The changes in the carrying value of goodwill are as follows:

For the years ended June 30,

(in thousands)

Beginning Balance

Purchase accounting adjustment

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.

In the current year, we performed a quantitative impairment test for our annual impairment assessment.

Based on the analyses performed, the fair value of the durable medical equipment reporting unit exceeded the carrying value by 34 % and no impairment was noted.

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 % 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:

Identifiable Intangible Assets, Net

The following table is a summary of the Company’s intangible assets as of June 30, 2023 and 2022:

As of June 30, 2023

1 unchanged sentence

(in thousands)

Durable Medical Equipment

Hospital Contracts

Non-compete agreements

Investment Management

Gross Carrying

Investment management agreements

Assembled workforces

Aggregate Amortization Expense (in thousands) :

For the year ended June 30, 2022

For the year ended June 30, 2021

Estimated Future Amortization Expense (in thousands) :

Assembled workforce

Identifiable intangible assets, net

During the years ended June 30, 2023 and 2022, the Company recorded amortization expense of $ 1.1 million and $ 0.5 million , respectively, within depreciation and amortization on the consolidated statements of operations.

The following table provides the estimated aggregate amortization expense for each of the five succeeding fiscal years and thereafter:

(in thousands)

Estimated Future Amortization Expense

For the year ending June 30, 2024

3 unchanged sentences

For the year ending June 30, 2028

Lessor Operating Leases

Medical Equipment Leases

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.

The Payors may cover a portion or all of the rental payments under the agreements between the Company and its customers.

The patient is responsible for any residual co-payments.

The lease terms may be for a pre-determined time period, generally 10 months to 36 months ;

however, the customer may cancel the lease at any time and for any reason without penalty and therefore, the Company treats all leases as month-to-month leases.

Upon termination of the lease, the equipment, if not aged beyond its useful life, may be refurbished and subsequently sold or leased to another customer.

As the leases are month-to-month, there are no future lease receivables under the terms of the current leases.

Lessee Operating Leases

All of the Company’s leases are operating leases.

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

The Company has elected to account for the lease component and the non-lease components as a single combined lease component for all classes of underlying assets.

The following table provides additional details of the leases presented in the balance sheets:

Real Estate Under Development

In January 2023, MBTS 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.

The Company 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 , the Company capitalized costs of $ 1.7 million within real estate under development (current) on its balance sheet, representing the cost of land and development and construction costs directly identifiable with the two real estate projects.

The Company leases office spaces in Waltham, Massachusetts, and Charleston, South Carolina, under operating leases.

The following table summarizes operating and variable lease cost and cash paid for amounts included in the measurement of lease liabilities for the years ended June 30, 2023 and 2022:

For the twelve months ended June 30,

(in thousands)

Operating lease cost

Variable lease cost

Cash paid for operating leases

The following table provides details on the leases presented in the consolidated balance sheets as of June 30, 2023 and 2022:

June 30, 2023

June 30, 2022

Right of use assets

Current portion of lease liabilities

Lease liabilities, net of current portion

Total liabilities

Weighted-average remaining life

Weighted-average discount rate

Right of use assets

Current portion of lease liabilities

Lease liabilities, net of current portion

Total liabilities

Weighted-average remaining life

Weighted-average discount rate

Right of use assets

Current portion of lease liabilities

Lease liabilities, net of current portion

Total liabilities

Weighted-average remaining life

Weighted-average discount rate

As of June 30, 2022, the Company had total right of use assets of $ 3.7 million and lease liabilities of $ 3.9 million (consisting of $ 1.5 million in current portion of lease liabilities and $ 2.4 million in lease liabilities, net of current portion) on the consolidated balance sheet related to the leases discussed herein.

As of June 30, 2021, the Company had total right of use assets of $ 5.2 million and lease liabilities of $ 5.5 million (consisting of $ 1.9 million in current portion of lease liabilities and $ 3.6 million in lease liabilities, net of current portion) on the consolidated balance sheet related to the leases discussed herein.

The discount rate for each lease is based on the collateralized borrowing rate at the inception of the lease.

Operating lease costs are included in the operating expense associated with the business segment leasing the asset on the statements of operations and are included in cash flows from operating activities on the statements of cash flows.

Certain operating leases include variable lease costs which are not material and are included in operating lease costs.

Additional details are presented in the following table:

For the years ended June 30,

(in thousands)

Operating lease cost

Cash paid for operating leases

Operating lease cost

Cash paid for operating leases

Operating lease cost

Cash paid for operating leases

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

The following table provides a maturity analysis of the Company's operating lease liabilities as of June 30, 2023:

(in thousands)

For the year ending June 30, 2023

For the year ending June 30, 2024

June 30, 2023

For the year ending June 30, 2024

4 unchanged sentences

Total lease liabilities

Durable Medical Equipment

The facility leases include offices, retail and warehouse space and sleep labs.

The facility leases have original or amended terms ranging from 12 to 96 months , some of which include an additional option to extend the lease for up to 120 months.

Certain of these leases have variable rental payments tied to a consumer price index or include additional rental payments for maintenance costs, taxes and insurance, which are accounted for as variable rent.

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.

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

Equipment leases consist of office equipment with original lease terms ranging from 36 to 48 months from the commencement date of each lease and may include an option to extend or purchase at the end of the lease term.

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

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.

This office space is allocated between the investment management and general corporate segments.

On the commencement date of the lease, the non-cancellable term was for eighty-eight months from the occupancy date of June 1, 2017 and contains an option to extend for an additional sixty-month period.

The lease payments commenced on October 1, 2017, four months after the Company began to occupy the space.

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,

The Company’s office leases in Waltham, Massachusetts, and Charleston, South Carolina, provide a five-year and a three-year optional extension periods, respectively.

As the Company is not reasonably certain to exercise the options, the periods covered by the options are not included in the respective lease terms or the measurement of the respective lease liabilities.

Accrued Expenses and Other Current Liabilities

As of June 30, 2023 and 2022, accrued expenses and other current liabilities consisted of the following:

(in thousands)

Total principal

Unamortized debt issuance cost

Total long-term related party notes payable

Less current portion of related party notes payable

Related party notes payable, net of current portion

*Balance eliminates in consolidation.

The Company’s and subsidiaries’

other outstanding borrowings are summarized in the following table:

As of June 30,

June 30, 2023

June 30, 2022

Payroll and other employee-related costs

Estimated future distributions to non-controlling interests in HC LLC

Professional fees

Estimated working capital adjustment

Accrued expenses and other current liabilities

See Note 4 - Assets and Liabilities Held for Sale and Discontinued Operations for additional information on the estimated future distributions of proceeds to non-controlling interests in HC LLC, as well as the estimated working capital adjustment.

Related Party Notes Payable and Long-Term Debt

As of June 30, 2023 , the Company did no t have any outstanding related party notes payable.

As of June 30, 2022 , related party notes payable consisted of the Seller Note (as defined below) with a total principal and outstanding amount of $ 6.3 million recorded within related party notes payable, net of current portion, on the consolidated balance sheet.

The Company’s long-term debt is summarized in the following table:

(in thousands)

HC LLC and subsidiaries

Equipment Financing

HC LLC and subsidiaries

June 30, 2023

June 30, 2022

Total principal

Unamortized debt discounts and issuance costs

Total other outstanding borrowings

Less current portion of other outstanding borrowings

Other outstanding borrowings, net of current portion

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)

Principal Due

For the year ending June 30, 2023

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 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.

The repayment included deferred structuring fees of $ 0.6 million, prepayment premiums and settlement fees of $ 1.0 million, and lender legal fees of $ 0.1 million.

In addition, upon repayment, the Company wrote off the remaining unamortized debt issuance costs of $ 0.2 million, resulting in an aggregate $ 1.9 million loss on extinguishment of debt.

The Corbel Facility was held by Corbel, a related party, which also holds a non-controlling interest in DME Inc.

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 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 .

The DME Revolver allows for borrowings up to $ 10 million, subject to a fixed percentage of qualifying accounts receivables and inventories related to the durable medical equipment business operations.

Borrowings under the line of credit are due on November 29, 2022 and accrue interest at a variable rate of the prime rate plus 0.40 % per annum .

At June 30, 2022 the interest rate was 5.2 % .

Interest is payable monthly in arrears.

The Company has the option to prepay the borrowings without any penalty.

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.

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 –

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

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.

Note as well as non-controlling interests in GP Corp.

and certain board appointment rights from MAST Capital.

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

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.

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’

Long-term debt

During the years ended June 30, 2023 and 2022, the Company incurred interest expense of $ 2.5 million and $ 0.2 million , respectively, on related-party notes payable and long-term debt.

See Note 14 - Convertible Notes for interest expense on the Convertible Notes and Note 15 - Non-Controlling Interests and Redeemable Preferred Stock of Subsidiaries for interest expense on the preferred stock of subsidiaries.

Additional details of each borrowing are discussed below.

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

The Seller Note was due on August 4, 2023 and had no prepayment penalties.

The Seller Note bore interest of 6.5 % per annum, which was paid quarterly.

In August and December 2022, the Company settled the principal amount of $ 0.6 million and $ 2.0 million by transferring 50,000 and 200,000 shares of GECC stock, respectively.

In February 2023, the Company repaid the remaining principal of $ 3.7 million in full.

On June 9, 2022, the Company issued $ 26.9 million in aggregate principal amount of 7.25 % notes due on June 30, 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 are unsecured obligations and rank:

(i) pari passu, or equal, with the Convertible Notes and any future outstanding unsecured unsubordinated indebtedness of the Company;

(ii) senior to any of the Company's indebtedness that expressly provides it is subordinated to the GEGGL Notes;

(iii) effectively subordinated to any future secured indebtedness of the Company;

and (iv) structurally subordinated to any future indebtedness and other obligations of any of the Company's current and future subsidiaries.

The Company pays interest on the GEGGL Notes on March 31, June 30, September 30 and December 31 of each year.

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.

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

The GEGGL 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.

As of June 30, 2023 our net consolidated debt to equity ratio is 0.07 :1.00.

Convertible Notes

On February 26, 2020, the Company issued Convertible Notes at par with an aggregate principal balance of $ 30 million due February 26, 2030 (the Convertible Notes ).

In addition, on March 10, 2021, the Company issued additional Convertible Notes to MAST Capital in an aggregate principal amount of $ 2.3 million.

On February 26, 2020, the Company issued notes at par with an aggregate principal balance of $ 30 million due on February 26, 2030 that 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 , with each $1,000 principal amount 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 Convertible Notes ).

In addition, on March 10, 2021, the Company issued additional Convertible Notes in an aggregate principal amount of $ 2.3 million.

As of June 30, 2023, the total principal balance of Convertible Notes outstanding was $ 37.9 million , including cumulative interest paid in-kind.

9 unchanged sentences

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.

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.

Interest payments were paid-in-kind by issuing $ 1.7 million and $ 1.6 million of additional Convertible Notes to holders for the years ended June 30, 2022 and 2021, respectively.

As of June 30,

The embedded conversion feature in the Convertible Notes qualifies for the scope exception to derivative accounting in FASB 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 that are amortized over the 10-year term.

Convertible Notes recorded on the Company's consolidated balance sheets as of June 30, 2023 and 2022 are summarized in the following table:

(in thousands)

June 30, 2023

June 30, 2022

Convertible Notes principal

Unamortized issuance costs

Total Convertible Notes

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 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.

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 .

Non-Controlling Interests and Preferred Stock of Subsidiary

Holders of non-controlling interests ( NCI ) or preferred stock in a subsidiary of the Company hold certain rights, which result in the classification of the securities as either liability, temporary equity or permanent equity.

Unamortized debt issuance costs

Convertible Notes

The Company incurred interest expense of $ 1.9 million and $ 1.8 million related to the Convertible Notes for the years ended June 30, 2023 and 2022, respectively, inclusive of non-cash interest related to amortization of debt issuance costs.

Interest was paid in-kind by issuing $ 1.8 million and $ 1.7 million of additional Convertible Notes to holders for the years ended June 30, 2023 and 2022 , respectively.

Non-Controlling Interests and Redeemable Preferred Stock of Subsidiaries

Non-Controlling Interests

Holders of non-controlling interests in a subsidiary of the Company hold certain rights, which result in the classification of the securities as either liability, temporary equity, or permanent equity.

The following table summarizes the non-controlling interest balances on the consolidated balance sheets:

As of June 30,

(in thousands)

June 30, 2023

June 30, 2022

Temporary equity

Permanent equity

Consolidated Funds

Consolidated Fund

Permanent equity

Total non-controlling interests

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

For the years ended June 30,

For the twelve months ended June 30,

(in thousands)

1 unchanged sentence

Permanent equity

Total DME Inc.

Temporary equity

Permanent equity

Consolidated Funds

Permanent equity

Consolidated Fund

Permanent equity

HC LLC and DME Inc.

Net loss attributable to non-controlling interest

HC LLC –

Non-controlling interest classified as temporary equity

In connection with the acquisition of the acquired businesses on September 7, 2018, the Company issued a 9.95 % common stock equity ownership in DME Inc.

The holder of the interest has a board observer rights for the DME Inc.

board of directors, but no voting rights.

has the right of first offer if the holder desires to sell the security and in the event of a sale of DME Inc., the holder must sell their securities (drag along rights) and has the right to participate in sales of DME Inc.

securities (tag along rights).

In addition, upon the seventh anniversary of issuance date, if (i) the holder owns at least 50% of the common shares issued to it at the closing of the transaction, (ii) an initial public offering of DME Inc.

has not commenced and (iii) the holder has not had an earlier opportunity to sell its shares at their fair market value, the holder has the right to request a marketing process for a sale of DME Inc.

and has the right to put its common shares to DME Inc.

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.

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 –

HC LLC and DME Inc.

Non-controlling interest classified as permanent equity

In connection with the acquisition of the acquired businesses on September 7, 2018, the Company issued one of the former owners, a 9.95 % common stock equity ownership in DME Inc.

The rights are consistent with the non-controlling interest classified as temporary equity, other than the holder does not have a contingent put right.

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.

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

The Company issued a 9.95 % common stock equity ownership in HC LLC.

The holder of the interest had board observer rights for the HC LLC board of directors, but no voting rights.

HC LLC had the right of first offer if the holder desired to sell the security and in the event of a sale of HC LLC, the holder was obligated to sell their securities (drag along rights) and had the right to participate in sales of HC LLC securities (tag along rights).

In addition, upon the seventh anniversary of issuance date, if (i) the holder owned at least 50% of the common shares issued to it at the closing of the transaction, (ii) an initial public offering of HC LLC had not commenced and (iii) the holder had not had an earlier opportunity to sell its shares at their fair market value, the holder had the right to request a marketing process for a sale of HC LLC and had the right to put its common shares to HC LLC at the price for such shares implied by such marketing process.

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

The holder of the non-controlling interest was entitled to participate in earnings of HC LLC and was not required to fund losses.

As the redemption was contingent upon future events outside of the Company’s control which were not probable, the Company classified the non-controlling interest as temporary equity at its fair value on the date of issuance, adjusted for any earnings in HC LLC.

As of June 30, 2023 , no non-controlling interest was outstanding following the Sale of HC LLC on January 3, 2023.

Refer to Note 4 - Assets and Liabilities Held for Sale and Discontinued Operations for details on the Sale of HC LLC to Quipt.

HC LLC –

Non-controlling interest classified as permanent equity

In connection with the acquisition of the investment management business in November 2016, the Company issued certain affiliates and employees of the Company a 19.9 % interest in GP Corp.

During the year ended June 30, 2021, the Company repurchased 18.1 % of such interests, leaving a 1.8 % non-controlling interest in GP Corp.

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.

The Company issued a 9.95 % common stock equity ownership in HC LLC.

The rights were consistent with the non-controlling interest classified as temporary equity, other than the holder not having a contingent put right.

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

As of June 30, 2023 , no non-controlling interest was outstanding following the Sale of HC LLC on January 3, 2023.

Refer to Note 4 - Assets and Liabilities Held for Sale and Discontinued Operations for details on the Sale of HC LLC to Quipt.

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.

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

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.

JPM has a representative on the Forest board of directors and the right to designate a number of directors commensurate with their common stock ownership interest.

Forest has the right of first offer if the holder desires to sell the security and in the event of a sale of Forest, the holder must sell their securities (drag along rights) and has the right to participate in sales of Forest securities (tag along rights).

The holder of the non-controlling interest is entitled to participate in earnings of Forest and is not required to fund losses.

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 –

GEC GP owned the rights to the profit sharing agreement with GECM as well as an intercompany obligation under a senior secured note payable issued by Great Elm GECC GP Corp in consideration for the assets acquired from MAST Capital Management, LLC.

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

As of June 30, 2023 , no non-controlling interest was outstanding.

Consolidated Fund –

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 –

As of June 30, 2022, the Company held 73.4 % of the capital in the Consolidated Fund and the remaining capital was recorded as a non-controlling interest that included affiliated individuals and entities.

In July 2022, the Consolidated Fund began to wind down and distributed its remaining assets to non-controlling interests in the total amount of $ 0.6 million.

Forest –

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.

In December 2020, the Company sold to JPM a 20.0 % common stock interest in Forest in exchange for $ 2.7 million.

As of June 30, 2023 , no non-controlling interest was outstanding following the Sale of Controlling Interest in Forest on December 30, 2022.

See Note 3 - Forest Note and Transactions with JPM.

Redeemable Preferred Stock of Subsidiaries

The following table summarizes the preferred stock activity:

Balance, as of June 30, 2021

Issuance of Preferred Stock

Redemption of Preferred Stock

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

Series A-2 Preferred Stock

Forest Preferred Stock

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

In connection with the JPM Transactions, the Company issued 10,090 shares of Series A-1 Preferred Stock with a face value of $ 1,000 per share at issuance.

The shares were issued pro-rata to the stockholders of DME Inc.

in the form of a distribution and no consideration was provided in exchange for such instruments.

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 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.

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.

The dividends on the shares are included in interest expense in the consolidated statement of operations.

The fair value of each share of Series A-1 Preferred Stock on the issuance date was determined to be $ 801 per share.

The difference between the fair value and the redemption value of $ 1,000 per share as well as debt issuance costs of $ 0.2 million is accounted for as a debt discount and accretion of the discount will be charged to interest expense over the 7 -year period to redemption using the effective interest method.

The holders of the Series A-1 Preferred Stock include our majority-owned consolidated subsidiary Forest ( 3,276 shares), as well as Corbel and VHG (each 407 shares), who are also the holders of non-controlling interests in DME Inc.

discussed above.

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.

HC LLC Series A-2 Preferred Stock classified as a liability

In connection with the JPM Transactions, the Company issued 34,010 shares of Series A-2 Preferred Stock with a face value of $ 1,000 per share at issuance.

The shares were issued to Forest in exchange for cash equal to the face value of such shares.

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 a bankruptcy, change in control or sale of the durable medical equipment business.

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 HC LCC.

The shares are non-voting and contain standard protective rights.

In addition, upon a sale of the durable medical equipment business, the holders of HC LLC Series A-2 Preferred Stock are entitled to the greater of their liquidation preference or 33 % of proceeds arising from such sale.

As the shares of Series A-2 Preferred Stock are mandatorily redeemable at a specified date, the security has been classified as a liability in the consolidated balance sheet.

The dividends on the shares are included in interest expense in the consolidated statement of operations.

We have identified the feature allowing holders of the HC LLC Series A-2 Preferred Stock to participate in up to 33% of proceeds arising from a sale of the durable medical equipment business as an embedded derivative.

We have bifurcated this embedded derivative from the mandatorily redeemable preferred stock host and have recorded the derivative liability at fair value.

The fair value of the derivative liability on the issuance date was $ 6.5 million, and will be marked to fair value at each reporting date going forward.

The fair value of each share of Series A-2 Preferred Stock on the issuance date was determined to be $ 810 per share.

The difference between the fair value and the redemption value of $ 1,000 per share as well as debt issuance costs of $ 1.1 million is accounted for as a debt discount and accretion of the discount will be charged to interest expense over the 7 -year period to redemption using the effective interest method.

The holder of the Series A-2 Preferred Stock is our majority-owned consolidated subsidiary Forest.

Such shares and related embedded derivatives issued to consolidated subsidiaries and their effects on our operations have been eliminated in consolidation.

Forest Preferred Stock classified as a liability

In connection with the JPM Transactions, Forest issued 35,010 shares of preferred stock in Forest with a face value of $ 1,000 per share at issuance.

The preferred shares were sold to JPM in exchange for cash equal to the face value of such shares.

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

The preferred 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 preferred 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 preferred 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 the preferred shares are mandatorily redeemable at a specified date, the security has been classified as a liability in the consolidated balance sheet.

The dividends on the preferred stock are included in interest expense in the consolidated statement of operations.

The fair value of each share of Forest Preferred Stock on the issuance date was determined to equal its face value based on the transaction price.

Debt issuance costs of $ 1.2 million is accounted for as a debt discount and accretion of the discount will be charged to interest expense over the 7 -year period to redemption using the effective interest method.

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.

Stockholders' Equity

On December 29, 2020, Forest issued 35,010 shares of preferred stock in Forest with a face value of $ 1,000 per share at issuance ( Forest Preferred Stock ).

The preferred shares provided for a 9 % annual dividend, which was payable quarterly.

As the preferred shares were 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 security was classified as a liability in the consolidated balance sheet as of June 30, 2022.

Following the Sale of Controlling Interest in Forest on December 30, 2022, there was no outstanding balance in respect to Forest Preferred Stock.

See Note 3 - Forest Note and Transactions with JPM.

The dividends on Forest Preferred Stock were included in interest expense in the consolidated statements of operations.

During the years ended June 30, 2023 and 2022, the Company recorded interest expense, inclusive of non-cash interest related to amortization of discounts and debt issuance costs, of $ 1.7 million and $ 3.5 million , respectively, related to Forest Preferred Stock.

Share-Based and Other Non-Cash Compensation

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.

On December 29, 2020, 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 ).

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.

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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 Long-Term Incentive Plan (the 2016 Long-Term Incentive Plan ), as subsequently amended, 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.

In November 2022, the Company’s stockholders approved an increase to the number of shares available for issuance under the 2016 Long-Term Incentive Plan by 2,900,000 shares.

The 2016 Long-Term Incentive Plan is administered by the Compensation Committee of the Board of Directors (the Compensation Committee ) and provides for the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares, cash-based awards and other stock-based awards.

As of June 30, 2023, the Company had a total of 4,392,713 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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2016 Employee Stock Purchase Plan

Non-Employee Director Deferred Compensation Plan

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-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, 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, 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, 2022 was as follows:

The following table presents activity related to the Company’s restricted stock awards and restricted stock units for the year ended June 30, 2023:

Restricted Stock Awards and Restricted Stock Units

Restricted Stock

(in thousands)

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Outstanding at June 30, 2023

Restricted stock awards and restricted stock units have vesting terms between 1 - 4 years and are subject to service requirements.

During the year ended June 30, 2023, the Company granted 1,006,825 restricted stock awards and did no t grant any restricted stock units.

The aggregate grant date fair value of restricted stock awards and restricted stock units granted during the years ended June 30, 2023 and 2022 was $ 2.2 million and $ 3.1 million, respectively.

For the years ended June 30, 2023 and 2022, the total intrinsic value of restricted stock vested was $ 2.0 million and $ 2.2 million, respectively.

Stock Options

The fair value of each option grant is estimated on the date of grant using the Black-Scholes-Merton option pricing model and assumptions noted in the following table.

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.

Treasury yield curve in effect at the time of grant.

The Company determines the fair value of non-vested shares based on the Nasdaq closing stock price on the date of grant.

The ranges of assumptions used to value options granted were as follows:

For the years ended June 30,

Expected volatility

69.8 % - 69.8 %

63.8 % - 66.5 %

Expected dividends

Expected term (years)

Risk-free rate

60.30 % - 60.30 %

0.23 % - 0.40 %

The option activity for the year ended June 30, 2022 was as follows:

The following table presents activity related to the Company’s stock options for the year ended June 30, 2023:

Stock Options

(in thousands)

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Exercisable at June 30, 2023

Vested and expected to vest as of June 30, 2022

The weighted average grant date fair value of options, per share, granted during the years ended June 30, 2023 and 2022 was $ 0.23 and $ 1.02 , 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 ranges of assumptions used to value options granted were as follows:

As of June 30,

Expected volatility

30.0 % - 70.5 %

Expected dividends

Expected term (years)

Risk-free rate

3.4 % - 3.9 %

Stock-Based Compensation Expense

Stock-based compensation expense related to all restricted stock awards, restricted stock units, and stock options totaled $ 2.6 million and $ 2.8 million for the years ended June 30, 2023 and 2022, respectively.

As of June 30, 2023 and 2022, the Company had unrecognized compensation cost related to all unvested restricted stock awards, restricted stock units, and stock options totaling $ 2.3 million and $ 2.3 million, respectively, expected to be recognized as the awards and options vest over the next 1.7 years.

In November 2021, 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 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.

Non-Employee Director Deferred Compensation Plan

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-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, 2023, there were 167,939 restricted stock awards and restricted stock units that were deferred under this plan (and thus included in the number of restricted stock awards and restricted stock units outstanding as of that date), including 57,931 restricted stock awards, for which the service condition was met during the twelve months ended June 30, 2023.

Other Non-Cash Compensation

During the year ended June 30, 2023, 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.

The total value of GECC shares awarded for the year ended June 30, 2023 was $ 0.4 million, of which $ 0.1 million vested immediately, and the balance will vest annually pro-rata over a three year period.

Related compensation expense was $ 0.3 million for the year ended June 30, 2023.

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.

During the year ended June 30, 2023, the Company issued compensation to certain employees in the form of restricted membership interest rights in MP II to be settled with the membership interest currently held by the Company.

The total value of the MP II restricted membership interests awarded for the year ended June 30, 2023 was $ 0.1 million, which will vest on the third anniversary of the grant date.

Related compensation expense was $ 22 thousand for the year ended June 30, 2023 .

The Company had income (loss) before income taxes from continuing operations of $ 14.7 million and $( 19.2 ) million , respectively, for the years ended June 30, 2023 and 2022.

There was no foreign activity during these years.

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(in thousands)

Income tax expense

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 consists solely of state and local income taxes.

This expense consisted solely of state and local taxes.

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

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.

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.

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

For the years ended June 30,

(in thousands)

Federal tax benefit at statutory rate

Federal tax expense (benefit) at statutory rate

State taxes net of federal impact

Permanent adjustments

Sale of Controlling Interest in Forest

Change in valuation allowance

Provision to return true-up

Deferred remeasurement

Adjustment to prior years

Interest expense on Forest Preferred Stock

Net operating loss and credit expirations

Stock compensation adjustment

Total tax expense

Income tax expense

The tax effect of temporary differences that give rise to significant portions of the Company's deferred tax assets and liabilities are as follows:

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Accruals and allowances not deductible for tax purposes

Acquired intangibles

Stock based compensation

Unrealized loss on investment

Lease liability

Identifiable intangible assets

Unrealized loss on investments

Investment in partnerships

Interest expense carryforward

Total deferred tax assets, gross

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Deferred Tax Liabilities:

Right to use asset

Acquired intangibles

Convertible debt discount

Total deferred tax liabilities

Total deferred tax liabilities, net (indefinite-lived assets)

In light of the Company's history of cumulative operating losses, the Company recorded a valuation allowance for all of its federal and state deferred tax assets, as it is presently unable to conclude that it is more likely than not that the federal and state deferred tax assets in excess of deferred tax liabilities will be realized.

The decrease of $ 27.6 million in the overall valuation allowance relates primarily to the expiration of federal tax attributes.

The state deferred amounts reflected in the above table were calculated using the enacted tax rates.

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 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.

The federal NOL carryforwards generated prior to fiscal year 2018 will expire from 2023 through 2037 .

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

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):

Fiscal Year of Expiration

carryforwards

2026 through 2037

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.

Total deferred tax liabilities, net

In light of the history of cumulative operating losses, the Company recorded a valuation allowance for all of its federal and state deferred tax assets, as it is presently unable to conclude that it is more likely than not that the federal and state deferred tax assets in excess of deferred tax liabilities will be realized.

The decrease of $ 195.0 million in the overall valuation allowance relates primarily to the expiration of federal tax attributes, as well as the Sale of Controlling Interest in Forest and Sale of HC LLC.

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

As of June 30, 2023, the Company also had $ 25.5 million of state NOL carryforwards, principally in Massachusetts, Arizona, and Nebraska, that will expire from 2031 to 2043 .

The utilization of a corporation's NOL carryforwards is limited following a change in ownership (as defined by Internal Revenue Code section 382) 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 years ended June 30, 2022 and 2021, the total amount of gross unrecognized tax benefit activity was as follows (in thousands):

During the years ended June 30, 2023 and 2022, the total amount of gross unrecognized tax benefit activity was as follows:

(in thousands)

Balance as of June 30, 2021

Addition for tax positions of prior years

Reductions for tax positions of prior years

1 unchanged sentence

Balance as of June 30, 2022

Addition for tax positions of prior years

Reductions for tax positions of prior years

1 unchanged sentence

Balance as of June 30, 2023

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, 2023 and 2022, the Company had approximately $ 0.5 million and $ 32.3 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 reduction for tax positions of prior years of $ 27.7 million was attributable to unrecognized tax benefits of Forest that was sold during the year ended June 30, 2023, as discussed in Note 3 - Forest Note and Transactions with JPM.

These unrecognized tax benefits, if recognized, would ordinarily impact the effective tax rate by a corresponding amount.

However, because of the Company’s history of cumulative operating losses, any recognized tax benefits would be fully offset by a valuation allowance without any impact on our consolidated results.

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.

As of June 30, 2023 and 2022, the accrual for interest and penalties associated with tax liabilities was immaterial.

Although timing of the resolution and/or closure on the Company's unrecognized tax benefits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next 12 months.

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federal and U.S.

state tax returns.

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 2022 fiscal years, remain open to state tax examination.

Segment Information

The Company allocates resources based on two business operating segments:

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

Activity not allocated to the segments include, but are not limited to, certain investment and 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.

All operations and assets are based in the United States.

In June 2021, the Company sold our real estate business.

Due to its classification as a discontinued operation, our historical segment information has been recast to remove real estate as a reportable segment.

The following tables summarize the results of operations by segment.

For the year ended June 30, 2022

(in thousands)

Durable Medical Equipment

Investment Management (1)

General Corporate (1)

Intercompany Eliminations (2)

Consolidated Total

Total revenue

Operating costs and expenses:

Cost of durable medical equipment sold and services

Cost of durable medical equipment rentals

Depreciation and amortization

Non-cash compensation (3)

Transaction costs (4)

Other selling, general and administrative

Total operating expenses

Other income (expense):

Interest expense

Other income (expense)

Total other income (expense), net

Total pre-tax income (loss) from continuing operations

For the year ended June 30, 2021

(in thousands)

Durable Medical Equipment

Investment Management (1)

General Corporate (1)

Intercompany Eliminations (2)

Consolidated Total

Total revenue

Operating costs and expenses:

Cost of durable medical equipment sold and services

Cost of durable medical equipment rentals

Depreciation and amortization

Non-cash compensation (3)

Transaction costs (4)

Other selling, general and administrative

Total operating expenses

Other income (expense):

Interest expense

Other income (expense)

Total other income (expense), net

Total pre-tax income (loss) from continuing operations

(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.

(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.

The corresponding expense to HC LLC and revenue to DME Manager are eliminated in consolidation.

Beginning December 29, 2020, DME Manager also provides advisory services to Forest and receives a consulting fee from Forest for those services.

Both DME Manager and Forest are part of general corporate operations, and the corresponding revenue and expense are eliminated in consolidation.

Additionally, Forest owns Series A-1 Preferred Stock and Series A-2 Preferred Stock of HC LLC.

Forest is part of general corporate operations while HC LLC is part of the durable medical equipment segment.

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

(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.

The following tables summarize assets by segments:

As of June 30, 2022

(in thousands)

Durable Medical Equipment

Investment Management (1)

General Corporate (1)

Fixed assets, net

Identifiable intangible assets, net

As of June 30, 2021

(in thousands)

Durable Medical Equipment

Investment Management (1)

General Corporate (1)

Fixed assets, net

Identifiable intangible assets, net

(1) Managed investment balances have been reclassified from General Corporate to Investment Management to conform with current segment organization.

state tax returns in several states.

Tax years remain open to examination to the extent that NOLs generated in those years are utilized in a later year.

Accordingly, the Company's fiscal years 2004, 2005, 2018 , and 2020 through 2023 remain open to examination by federal tax authorities.

State tax returns generally remain open to examination for fiscal years 2017 through 2023 .

Commitments and Contingencies

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The Company maintains insurance to mitigate losses related to certain risks.

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.

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

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