Great Elm Group, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Overview GEG is a publicly-traded alternative asset management company focused on growing a scalable and diversified portfolio of long-duration and permanent capital vehicles across credit, real estate, specialty finance, and other alternative strategies. GEG and its subsidiaries currently manage GECC, a publicly-traded BDC, and Monomoy UpREIT, an Industrial Outdoor Storage ( IOS ) focused real estate investment trust, in addition to other investment vehicles. The combined assets under management of these entities at December 31, 2025 was approximately $740 million. GEG continues to explore other investment management opportunities, as well as opportunities in other areas that it believes provide attractive risk-adjusted returns on invested capital. As of the date of this report, GEG had no unfunded binding commitments to make additional investments. Change in Segments During the first quarter of fiscal 2026, the Company realigned the information that the Chief Operating Decision Maker ( CODM ) regularly reviews to evaluate performance for operating decision-making purposes, including performance assessment and allocation of resources. As a result of this change in segment reporting, the Company retrospectively recast prior period results, by segment, to conform to the current period presentation. This structure includes two reportable segments: Alternative Credit and Real Estate. The structure is based on the Company’s various investment strategies. As a result of the change noted above, effective for the quarter ended September 30, 2025, the Company began reporting the following business segments: • Alternative Credit - focused on income generation and capital preservation through investment in debt and income-generating securities, direct lending, CLOs, and specialty finance businesses including Factoring, Asset Based Lending and Healthcare • Real Estate - full service, end-to-end real estate platform combining investment expertise and turnkey execution capabilities for IOS sector The Company has a corporate office that is included in “Corporate & Other”. The corporate office supports the segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, legal, compliance and human resources. 28 Results of Operations The following table provides the results of our consolidated operations: For the three months ended December 31, For the six months ended December 31, (in thousands) 2025 Percent Change 2024 2025 Percent Change 2024 Revenues $ 3,011 (14)% $ 3,507 $ 13,799 84% $ 7,499 Cost of Revenues 16 (97)% 458 6,764 NM* 1,093 Operating costs and expenses: Compensation and benefits 4,919 44% 3,425 10,156 45% 6,988 Selling, general and administrative 1,977 51% 1,312 4,143 47% 2,813 Depreciation and amortization 312 10% 284 654 17% 557 Expenses of Consolidated Funds 20 NM 5 41 95% 21 Total operating costs and expenses 7,228 5,026 14,994 10,379 Operating loss (4,233 ) (1,977 ) (7,959 ) (3,973 ) Other (expense) income: Interest expense (1,022 ) (1)% (1,030 ) (2,050 ) (0)% (2,058 ) Other (expense) income, net (11,347 ) *NM 4,361 (14,426 ) NM* 10,359 Total other (expense) income, net (12,369 ) 3,331 (16,476 ) 8,301 (Loss) income before income taxes (16,602 ) 1,354 (24,435 ) 4,328 Income tax benefit (expense) 54 0% - (17 ) 0% - Net (loss) income $ (16,548 ) $ 1,354 $ (24,452 ) $ 4,328 *NM - not meaningful Revenue Revenues for the three months ended December 31, 2025 decreased $0.5 million as compared to the three months ended December 31, 2024, driven by a decrease in Incentive Fees from the corresponding prior year period. Cost of revenues decreased $0.4 million compared to the three months ended December 31, 2024 due to a decrease in Real Estate cost of revenues as the prior year period had activity related to a property sale, with similar activity not occurring in the current year. Revenues and cost of revenues for the six months ended December 31, 2025 increased $6.3 million and $5.7 million, respectively, as compared to the six months ended December 31, 2024, primarily due to an increase in Real Estate property sales revenues and related cost of revenues due to a September 2025 property sale. The increase in revenues were partially offset by a reduction in Incentive fees of $1.4 million and an increase in Project management fees of $1.0 million compared to the prior year period. Operating Costs and Expenses Compensation and benefits expenses for the three months ended December 31, 2025 increased $1.5 million as compared to the corresponding prior year period primarily driven by increased personnel due to the Greenfield acquisition. Selling, general and administrative expenses for the three months ended December 31, 2025 increased $0.7 million as compared to the corresponding prior year period, which was mainly attributable to an increase in expenses due to the acquisition of Greenfield. Compensation and benefits expenses for the six months ended December 31, 2025 increased $3.2 million as compared to the corresponding prior year period primarily driven by increased personnel due to the Greenfield acquisition. Selling, general and administrative expenses for the six months ended December 31, 2025 increased $1.3 million as compared to the corresponding prior year period, which was mainly attributable to an increase in selling, general and administrative expenses due to the acquisition of Greenfield. Depreciation and amortization increased $0.1 million as compared to the prior year period, primarily due to an increase in depreciation and amortization related to the Greenfield Acquisition. 29 Other Income (Expense) Other income (expense), net includes dividend and interest income and net realized and unrealized gains and losses. For the three months ended December 31, 2025, net realized and unrealized gains decreased $13.8 million to a net realized and unrealized loss as compared to the corresponding prior year period primarily driven by a notable unrealized loss being recognized on one of our investments in a private fund in the current year period, along with a reduction in stock price for another of our investments during the current year period. For the three months ended December 31, 2025, interest income decreased $0.1 million as compared to the corresponding prior year period, due to changes in the investment portfolio shifting away from interest earning marketable securities into other strategic private investments. For the three months ended December 31, 2025, dividend income decreased $0.1 million as compared to the corresponding prior year period, primarily due to a special dividend from a fund investment that was received in the prior year period while a similar dividend was not received in the current year period. Other income (expense), net includes dividend and interest income and net realized and unrealized gains and losses. For the six months ended December 31, 2025, net realized and unrealized gains decreased $20.4 million to a net realized and unrealized loss as compared to the corresponding prior year period due to a notable unrealized loss being recognized on one of our investments in a private fund in the current year period along with a reduction in stock price for another of our investments during the current year period, as opposed to an increase in stock price for this investment in the prior year period. For the six months ended December 31, 2025, interest income decreased $0.4 million as compared to the corresponding prior year period, due to changes in the investment portfolio shifting away from interest earning marketable securities into other strategic private investments. For the six months ended December 31, 2025, dividend income remained flat as compared to the corresponding prior year period. Segment Analysis We conduct our operations through two business segments: Alternative Credit and Real Estate. Effective for the quarter ended September 30, 2025, we began reporting the following business segments. • Alternative Credit - focused on income generation and capital preservation through investment in debt and income-generating securities, direct lending, CLOs, and specialty finance businesses including Factoring, Asset Based Lending and Healthcare • Real Estate - full service, end-to-end real estate platform combining investment expertise and turnkey execution capabilities for IOS sector The Company has a corporate office that is included in “Corporate & Other”. The corporate office supports the segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, legal, compliance and human resources. The primary measure used by CODM in measuring performance and allocating resources to the segments is net income, as reported on our condensed consolidated statements of operations, predominantly in the annual budget and forecasting process. The CODM considers budget-to-actual variances on a quarterly basis when making decisions about internal operations, such as staffing and related compensation, and planning for future investments. 30 Alternative Credit Segment The following table provides the results of our Alternative Credit segment: For the three months ended December 31, For the six months ended December 31, (in thousands) 2025 Percent Change 2024 2025 Percent Change 2024 Revenues $ 1,494 (25)% $ 1,989 $ 3,074 (31)% $ 4,465 Operating costs and expenses: Compensation and benefits 1,398 (16)% 1,655 3,005 (3)% 3,092 Selling, general and administrative 517 40% 370 933 35% 691 Depreciation and amortization 69 3% 67 138 4% 133 Total operating costs and expenses 1,984 2,092 4,076 3,916 Operating (loss) income $ (490 ) $ (103 ) $ (1,002 ) $ 549 Other income: Interest expense - 0% - - 0% - Other income, net - 0% - - 0% - Total other income, net - - - - (Loss) income before income taxes $ (490 ) $ (103 ) (1,002 ) 549 Income tax expense - 0% - - 0% - Net (loss) income $ (490 ) $ (103 ) $ (1,002 ) $ 549 *NM - not meaningful Alternative Credit Revenue Alternative Credit Revenues for the three months ended December 31, 2025 decreased $0.5 million as compared to the three months ended December 31, 2024 due to a reduction in Incentive Fee revenue compared to the prior year period. Alternative Credit Revenues for the six months ended December 31, 2025 decreased $1.4 million as compared to the six months ended December 31, 2024 due to a reduction in Incentive Fee revenue compared to the prior year period. Alternative Credit Expenses Alternative Credit compensation and benefits expense decreased $0.3 million for the three months ended December 31, 2025 as compared to the corresponding prior year period primarily driven by a decrease in non-cash compensation due to a decline in the price of GECC common shares during the current period compared to the prior year period. Alternative Credit segment selling, general and administrative expenses increased $0.1 million as compared to the three months ended December 31, 2024 primarily driven by an increase in miscellaneous general and administrative expenses. Alternative Credit compensation and benefits expense decreased $0.1 million for the six months ended December 31, 2025 as compared to the corresponding prior year period primarily driven by a decrease in non-cash compensation due to a decline in the price of GECC common shares during the current period compared to the prior year period. Alternative Credit segment selling, general and administrative expenses increased $0.2 million as compared to the six months ended December 31, 2024 primarily driven by an increase in miscellaneous general and administrative expenses. . 31 Real Estate Segment The following table provides the results of our Real Estate segment: For the three months ended December 31, For the six months ended December 31, (in thousands) 2025 Percent Change 2024 2025 Percent Change 2024 Revenues $ 1,517 (0)% $ 1,518 $ 10,725 NM* $ 3,034 Cost of Revenues 16 (97)% 458 6,764 NM* 1,093 Operating costs and expenses: Compensation and benefits 2,707 136% 1,146 5,500 137% 2,316 Selling, general and administrative 559 118% 257 1,241 NM* 390 Depreciation and amortization 243 12% 217 516 22% 424 Total operating costs and expenses 3,509 1,620 7,257 3,130 Operating loss $ (2,008 ) $ (560 ) $ (3,296 ) $ (1,189 ) Other income: Interest expense - 0% - - 0% - Other income, net 26 0% - 41 0% - Total other income, net 26 - 41 - Loss before income taxes $ (1,982 ) $ (560 ) (3,255 ) (1,189 ) Income tax expense (116 ) 0% - (116 ) 0% - Net loss $ (2,098 ) $ (560 ) $ (3,371 ) $ (1,189 ) *NM - not meaningful Real Estate Revenue Real Estate revenues for the three months ended December 31, 2025 remained flat as compared to the three months ended December 31, 2024. Related costs of revenues for the three months ended December 31, 2025 decreased by $0.4 million compared to the three months ended December 31, 2024 due to the prior year period having costs of revenues related to a property sale, which did not occur in the current period. Real Estate revenues for the six months ended December 31, 2025 increased $7.7 million as compared to the six months ended December 31, 2024 due to a property sale occurring in September 2025 which did not occur in the prior year period. Related costs of revenues for the six months ended December 31, 2025 increased by $5.7 million compared to the six months ended December 31, 2024 due to this sale. Further, $1.1 million of revenue was recognized in the six months ended December 31, 2025 related to our construction business which was not incurred in the corresponding prior year period. Real Estate Expenses Real Estate segment compensation and benefits expenses for the three months ended December 31, 2025 increased $1.6 million as compared to the corresponding prior year period driven by increased personnel expense due to the Greenfield acquisition. Real Estate segment selling, general and administrative expenses increased $0.3 million for the three months ended December 31, 2025 compared to the three months ended December 31, 2024 primarily due to an increase in expenses related to the Greenfield Acquisition. Real Estate segment compensation and benefits expenses for the six months ended December 31, 2025 increased $3.2 million as compared to the corresponding prior year period driven by increased personnel expense due to the Greenfield acquisition. Real Estate segment selling, general and administrative expenses increased $0.9 million for the six months ended December 31, 2025 compared to the six months ended December 31, 2024 primarily due to increased legal, accounting, insurance, software and other expenses due to increased activity at these entities and the Greenfield acquisition. Depreciation and amortization increased $0.1 million for the six months ended December 31, 2025, as compared to the corresponding prior year period due to amortization of intangible assets related to the Greenfield acquisition, along with depreciation related to a building owned which was not complete in the prior year period. 32 Corporate & Other The following table provides the results of Corporate & Other: For the three months ended December 31, For the six months ended December 31, (in thousands) 2025 Percent Change 2024 2025 Percent Change 2024 Operating costs and expenses: Compensation and benefits $ 814 30% $ 624 1,651 4% 1,580 Selling, general and administrative 901 32% 685 1,969 14% 1,732 Expenses of Consolidated Funds 20 NM 5 41 95% 21 Total operating costs and expenses 1,735 1,314 3,661 3,333 Operating loss (1,735 ) (1,314 ) (3,661 ) (3,333 ) Other income (expense): Interest expense (1,022 ) (1)% (1,030 ) (2,050 ) (0)% (2,058 ) Other (expense) income, net (11,373 ) *NM 4,361 (14,467 ) NM* 10,359 Total other (expense) income, net (12,395 ) 3,331 (16,517 ) 8,301 (Loss) income before income taxes $ (14,130 ) $ 2,017 (20,178 ) 4,968 Income tax benefit 170 0% - 99 0% - Net (loss) income $ (13,960 ) $ 2,017 $ (20,079 ) $ 4,968 *NM - not meaningful Corporate & Other Operating Costs and Expenses Compensation and benefits expenses related to Corporate & Other for the three months ended December 31, 2025 increased $0.2 million as compared to the corresponding prior year period due to an increase in personnel at the Corporate office. Compensation and benefits expenses related to Corporate & Other for the six months ended December 31, 2025 increased $0.1 million as compared to the corresponding prior year period due to an increase in personnel at the Corporate office. Corporate & Other Expenses For the three months ended December 31, 2025, net realized and unrealized gains decreased $13.8 million to a net realized and unrealized loss as compared to the corresponding prior year period due to a significant unrealized loss on one of our investments in a private fund, along with a reduction in stock price for another of our investments during the current year period, as opposed to an increase in stock price for this investment in the prior year period. Additionally, in the corresponding prior year period $1.0 million of unrealized gains were recorded for our special purpose vehicles, whereas in current year period unrealized losses of $3.0 million were recorded on these entities. For the three months ended December 31, 2025, interest income decreased $0.1 million as compared to the corresponding prior year period, due to changes in the investment portfolio shifting away from interest earning marketable securities into other strategic private investments. For the six months ended December 31, 2025, net realized and unrealized gains decreased $20.4 million to a net realized and unrealized loss as compared to the corresponding prior year period due to a significant unrealized loss on one of our investments in a private fund, along with a decrease in stock price for another of our investments during the current year period, whereas the stock price increased for this investment in the prior year period. Additionally, in the corresponding prior year period $4.5 million of unrealized gains were recorded for our special purpose vehicles due to a change in valuation technique for these entities during the three months ended September 30, 2024, whereas in the current year period unrealized losses of $3.4 million were recorded on these entities. For the six months ended December 31, 2025, interest income decreased $0.4 million as compared to the corresponding prior year period, due to changes in the investment portfolio shifting away from interest earning marketable securities into other strategic private investments. 33 Liquidity and Capital Resources Cash Flows Net cash from operating activities increased $11.8 million, from net cash used of $9.8 million for the six months ended December 31, 2024 to net cash provided of $1.9 million for the six months ended December 31, 2025, driven by proceeds from sale of real estate in September 2025 and changes in operating assets and liabilities period-over-period. Net cash from investing activities increased $2.0 million, from net cash provided of $9.9 million for the six months ended December 31, 2024 to net cash provided of $11.9 million for the six months ended December 31, 2025, driven by settlement of related party loan receivable and net sales of investments for the six months ended December 31, 2025. Net cash from financing activities increased $12.3 million, from net cash used of $5.5 million for the six months ended December 31, 2024 to net cash provided of $6.8 million for the six months ended December 31, 2025, driven by proceeds from issuance of common stock and lower stock repurchases during the six months ended December 31, 2025. Financial Condition As of December 31, 2025, we had an unrestricted cash balance of $51.2 million, as compared to an unrestricted cash balance of $30.6 million as of June 30, 2025. We also held 1,356,125 shares of GECC common stock with an estimated fair value of $9.6 million as of December 31, 2025, as compared to 1,438,079 shares of GECC common stock with an estimated fair value of $15.3 million as of June 30, 2025. We believe we have sufficient liquidity available to meet our short-term and long-term obligations. Borrowings As of December 31, 2025, the Company had $26.9 million in outstanding aggregate principal amount of the GEGGL Notes. The GEGGL Notes are due on June 30, 2027, and interest is paid quarterly. The GEGGL Notes include covenants that limit additional indebtedness or the payment of dividends in the event that our net consolidated debt to equity ratio is, or would be on a pro forma basis, greater than 2 to 1. In addition, if our net consolidated debt to equity ratio is greater than 2 to 1 at the end of any calendar quarter, we must retain no less than 10% of our excess cash flow as cash and cash equivalents until such time as our net consolidated debt to equity ratio is less than 2 to 1 at the end of a calendar quarter. As of December 31, 2025, the Company had $35.9 million principal balance in outstanding Convertible Notes (including cumulative interest paid in-kind) held by a consortium of investors, including related parties, that accrue interest at 5.0% per annum, payable semiannually in arrears on June 30 and December 31, in cash or in-kind at the option of the Company. The Convertible Notes are due on February 26, 2030, but are convertible at the option of the holders, subject to the terms therein, prior to maturity into shares of our common stock. Upon conversion of any note, the Company will pay or deliver, as the case may be, to the noteholder, in respect of each $1,000 principal amount of notes being converted, shares of common stock equal to the conversion rate in effect on the conversion date, together with cash, if applicable, in lieu of delivering any fractional share of common stock. To date, all interest on these instruments has been paid in-kind. Critical Accounting Policies During the six months ended December 31, 2025 we did not make material changes in our critical accounting policies or underlying assumptions as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025 as it relates to normal and recurring transactions. Critical accounting policies and estimates are those that require management’s most difficult, subjective or complex judgments and would therefore be deemed the most critical to an understanding of our results of operations and financial condition. Recent Accounting Developments See discussion of Recent Accounting Developments in Note 2 of the accompanying condensed consolidated financial statements. 34 Item 3. Quantitative and Qualitati ve Disclosures About Market Risk. There have been no material changes in the market risks discussed in Item 7A. of our Annual Report on Form 10-K for the fiscal year ended June 30, 2025.