What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-10 compared with 2021-11-12 · 114 added, 90 removed, 199 unchanged (51% of the section changed)

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( GECC ), a credit-focused private fund, Great Elm Opportunities Fund I, LP, a Special Purpose Acquisition Company (SPAC)-focused fund, Great Elm SPAC Opportunity Fund, LLC, and separate accounts for an institutional investor.

The combined assets under management of these entities at September 30, 2021 was approximately $291.9 million.

The combined assets under management of these entities at December 31, 2021 was approximately $239.2 million.

The operations of our general corporate segment encompass our corporate headquarters operations, in addition to management consulting services provided to certain of our subsidiaries.

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

During the three months ended September 30, 2021, the Company continued to experience suppressed revenues relative to its pre-pandemic expectations due to the continuing impact of the COVID-19 pandemic.

During the three and six months ended December 31, 2021, the Company continued to experience suppressed revenues relative to its pre-pandemic expectations due to the continuing impact of the COVID-19 pandemic.

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

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

In addition, the durable medical equipment business continues to experience a suppressed referral pipeline for sleep studies and durable medical equipment set-ups.

In addition, indirectly attributable to the COVID-19 pandemic the durable medical equipment industry has been impacted by global supply chain challenges most notably shortages in semiconductor microchips.

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

The durable medical equipment business continues to experience a suppressed referral pipeline for sleep studies and durable medical equipment set-ups relative to pre-COVID levels, though the demand for these services and products has increased from prior quarters.

More significantly however, and indirectly attributable to the COVID-19 pandemic the durable medical equipment industry has been impacted by global supply chain challenges most notably shortages in semiconductor microchips.

These shortages have impacted our ability to purchase positive air pressure ( PAP ) devices during the most recent quarter in accordance with our normal procurement process.

Although we were able to meet patient demand for such devices during the quarter, our on-hand inventory of PAP devices decreased during the quarter.

The impact of COVID-19 continues to evolve and its duration and ultimate disruption to the Company’s customers and to its operations cannot be estimated at this time.

However, the Company expects to continue to experience decreased durable medical equipment rental revenues in the near future due to the reduction in new patient set-ups during the pandemic and due to the supply chain issues noted above.

Should the disruption continue for an extended period of time, the impact could have a more severe adverse effect on our business and operations.

In addition, COVID-19 may impact our ability to act on new acquisitions or other business opportunities.

During the quarter ended December 31, 2021, our equipment allotments from key suppliers were not sufficient to keep up with recovering demand, resulting in missed revenue opportunities.

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

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

The Company prioritizes the health and safety of employees and customers.

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moved to a remote-working model.

We have since transitioned to a hybrid working model to maximize efficiency while managing risk.

In addition, the officers of the Company have maintained regular communications with key service providers, including legal and accounting professionals, other consultants and vendors, noting that those firms have similarly moved to remote-working models to the extent possible.

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we invested in virtual patient set-ups which allow our respiratory therapists to interact with patients by video to maintain social distance.

Certain other employees whose responsibilities have been impacted by social distancing have been temporarily redeployed within the organization.

has experienced increased operating expenses related to paid employee absences due to COVID-19 illnesses and exposures, costs related to cleaning and disinfecting workspaces, and additional shipping costs for remote set-ups.

We cannot predict the full impact of the COVID-19 pandemic, including its duration in the United States and worldwide and the magnitude of the economic impact of the outbreak, particularly with respect to the travel restrictions, business closures and other quarantine measures imposed on our employees, suppliers and service providers by various local, state, and federal governmental authorities, as well as non-U.S.

We cannot predict the full impact of any existing or new variants of COVID-19 and related supply chain challenges, including their duration and the magnitude of their economic impact, particularly with respect to the travel restrictions, business closures and other quarantine measures imposed on our employees, suppliers and service providers by various local, state, and federal governmental authorities, as well as non-U.S.

governmental authorities.

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

During the three months ended September 30, 2021, 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, 2021 as it relates to recurring transactions, except as follows:

During the six months ended December 31, 2021, 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, 2021 as it relates to recurring transactions, except as follows:

On July 1, 2021 the Company adopted the Financial Accounting Standards Board’s Accounting Standard Update 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.

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The following table provides the results of our consolidated operations:

For the three months ended September 30,

For the three months ended December 31,

For the six months ended December 31,

Percent Change

Total revenue

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Total pre-tax income (loss)

Revenues for the three months ended September 30, 2021 increased $1.2 million as compared to the corresponding period in the prior year.

The increase is primarily attributable to a $1.0 million increase in durable medical equipment revenues.

The growth reflects revenue contributions from the acquisitions of Advanced Medical DME, LLC and PM Sleep Lab, LLC (collectively, AMPM ) in March 2021 and of MedOne Healthcare LLC ( MedOne ) in August 2021.

In addition, we noted organic growth in resupply sales within the durable medical equipment business, which was partially offset by decreases in durable medical equipment rentals due to the continued suppressed referral pipeline for new equipment set-ups.

Investment management revenues also increased $0.2 million related to increases in assets under management as compared to the prior period.

Revenues for the three and six months ended December 31, 2021 increased $1.4 million and $2.6 million, respectively, as compared to the corresponding periods in the prior year.

The increase is primarily attributable to $1.2 million and $2.1 million increases in durable medical equipment revenues for the corresponding periods.

The increase reflects revenue contributions from the acquisitions of Advanced Medical DME, LLC and PM Sleep Lab, LLC (collectively, AMPM ) in March 2021 and of MedOne Healthcare LLC ( MedOne ) in August 2021, as well as improvements in revenue reserves resulting from investments in the credit and collections process in the prior year.

Investment management revenues also increased $0.3 million and $0.5 million related to increases in assets under management as compared to the prior periods.

Operating costs and expenses

Operating costs for the three months ended September 30, 2021 decreased $1.0 million as compared to the corresponding period in the prior year.

The decrease is primarily related to $2.4 million in Employee Retention Credits claimed during the quarter under the enhanced Coronavirus Aid, Relief, and Economic Security Act ( CARES Act ).

This decrease was partially offset by increases of $0.8 million in other durable medical equipment costs primarily related to the operations of AMPM and MedOne, and $0.8 million in investment management expenses primarily related to increased compensation.

Operating costs for the three and six months ended December 31, 2021 increased $1.7 million and $0.7 million, respectively as compared to the corresponding periods in the prior year.

This increase was primarily attributable to increases of $0.5 million and $1.2 million in other durable medical equipment costs primarily related to the operations of AMPM and MedOne and related transaction and integration costs, and $1.1 million and $1.6 million in investment management expenses primarily related to increased compensation and consulting costs.

The increases during the six months ended December 31, 2021 were partially offset by $2.4 million in Employee Retention Credits claimed during such period under the enhanced Coronavirus Aid, Relief, and Economic Security Act ( CARES Act ).

Remaining increases of $0.1 million and $0.3 million for the three and six months ended December 31, 2021, respectively, relate primarily to strategic initiatives.

Other income (expense)

Interest expense increased by $0.2 million for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, due to current period interest on the $37.0 million face value externally-held preferred stock in Forest and HC LLC which were issued in December 2020.

In conjunction with the issuance of this preferred stock, we extinguished the Corbel Facility which had $24.8 million in principal outstanding on September 30, 2020.

Other income and expense for the three months ended September 30, 2021 and 2020 primarily consisted of dividend income and net unrealized gains and losses on the Company’s investment in GECC and private funds which is discussed in more detail under “—Investment Management” below.

Interest expense increased by $0.3 million and $0.5 million, respectively, for the three and six months ended December 31, 2021, as compared to the three and six months ended December 31, 2020, due to current period interest on the $37.0 million face value externally-held preferred stock in Forest and HC LLC which were issued in December 2020.

In conjunction with the issuance of this preferred stock, we extinguished the Corbel Facility which had $24.8 million in principal outstanding on December 29, 2020.

Other income (expense) for the three and six months ended December 31, 2021 and 2020 primarily consisted of dividend income and net unrealized gains and losses on the Company’s investment in GECC and private funds which is discussed in more detail under “—Investment Management” below.

In addition, other income (expense) during the three and six months ended December 31, 2020 includes $1.9 million in losses on the extinguishment of the Corbel Facility.

Durable Medical Equipment Business

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

For the three months ended September 30,

For the three months ended December 31,

For the six months ended December 31,

(in thousands)

Percent Change

Total revenue

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Durable Medical Equipment Revenue

For the three months ended September 30, 2021, revenues from the sale of medical equipment and sleep study services were $8.7 million and $1.3 million, respectively, while for the three months ended September 30, 2020, such revenues were $8.0 million and $1.2 million, respectively.

The increases are primarily attributable to contributions from the acquisitions of AMPM in March 2021 and of MedOne in August 2021 as well as organic growth in resupply sales.

For the three months ended September 30, 2021, rental revenue was $5.5 million as compared to $5.4 million for the three months ended September 30, 2020.

This decrease is due primarily to reduced referral pipelines for new equipment set-ups during the ongoing COVID-19 pandemic, which are customarily driven by in-house or external sleep studies.

The contributions of AMPM and MedOne were mostly offset by overall decreases in durable medical equipment rentals due to the continued suppressed referral pipeline for new equipment set-ups.

For the three months ended December 31, 2021, revenues from the sale of medical equipment and sleep study services were $9.0 million and $1.3 million, respectively, while for the three months ended December 31, 2020, such revenues were $8.4 million and $1.1 million, respectively.

The increases are primarily attributable to contributions from the acquisitions of AMPM in March 2021 and of MedOne in August 2021 as well as $0.4 million in revenue reserve improvements on sales and services revenue.

For the six months ended December 31, 2021, revenues from the sale of medical equipment and sleep study services were $17.7 million and $2.7 million, respectively, while for the six months ended December 31, 2020, such revenues were $16.4 million and $2.4 million, respectively.

The increases are primarily attributable to contributions from the acquisitions of AMPM in March 2021 and of MedOne in August 2021 as well as $0.5 million in revenue reserve improvements on sales and services revenue.

For the three months ended December 31, 2021, rental revenue was $5.5 million as compared to $5.0 million for the six months ended December 31, 2020.

The increases are primarily attributable to contributions from the acquisitions of AMPM in March 2021 and of MedOne in August 2021 as well as $0.2 million in revenue reserve improvements on sales and services revenue.

For the six months ended December 31, 2021, rental revenue was $10.9 million as compared to $10.4 million for the six months ended December 31, 2020.

The increases are primarily attributable to contributions from the acquisitions of AMPM in March 2021 and of MedOne in August 2021 as well as $0.3 million in revenue reserve improvements on sales and services revenue.

The results for the three and six months ended December 31, 2021 were hindered by global supply chain issues which significantly restricted our ability to procure CPAP equipment, resulting in lost revenue opportunities during the periods primarily related to CPAP sales and CPAP rentals.

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

Durable Medical Equipment Operating Costs and Expenses

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

The favorable margins as compared to the prior period are primarily due to favorable negotiated volume pricing with strategic vendors.

The favorable margins on sales as compared to the prior periods are primarily due to favorable negotiated volume pricing with strategic vendors, as well as $0.4 million and $0.5 million improvements in revenue reserves as compared to the three and six month periods in the prior year.

Margins on rentals as compared to the prior periods have remained consistent, as benefits from lower revenue reserves have been mostly offset by vendor surcharges implemented to address increased costs related to ongoing global supply chain issues.

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

For the three months ended September 30, 2021, these amounts are net of government stimulus received under the CARES Act of $2.3 million related to employee retention tax credits.

Excluding such stimulus, employee-related costs were $6.

1 million and $5.2 million for the three months ended September 30, 2021 and 2020, respectively.

For the three months ended December 31, 2021 and 2020, employee-related costs were $6.1 million and $5.6 million, respectively.

The increase in employee related costs is primarily due to additional payroll-related costs relating to acquired AMPM and MedOne employees.

Facility-related expenses of $0.8 million and freight and shipping costs of $0.4 million remained consistent in the comparative periods.

Information technology costs were $0.6 million and $0.5 million, respectively, with increases due to the AMPM and MedOne acquisitions.

Other costs were $0.7 million and $0.9 million, respectively, primarily consisting of professional fees.

Facility-related expenses of $0.8 million and freight and shipping costs of $0.4 million for the three months ended December 31, 2021 remained consistent as compared to the prior comparative period.

Information technology costs were $0.6 million and $0.5 million for the three months ended December 31, 2021 and 2020, respectively, with increases due to the AMPM and MedOne acquisitions.

Other costs for the three months ended December 31, 2021 were $1.0 million as compared to $0.7 million in the prior period, primarily related to professional fees.

Other costs were benefited in the current period by $0.3 million related to change in fair value of contingent consideration.

Transaction costs increased for the three months ended September 30, 2021 of $0.1 million primarily relate to one-time expenses incurred in the acquisition of MedOne, whereas no acquisitions were noted in the prior period.

For the six months ended December 31, 2021, these amounts are net of government stimulus received under the CARES Act of $2.3 million related to employee retention tax credits.

Excluding such stimulus, employee-related costs were $12.2 million and $10.9 million for the six months ended December 31, 2021 and 2020, respectively.

The increase in employee related costs is primarily due to additional payroll-related costs relating to acquired AMPM and MedOne employees.

Facility-related expenses and information technology costs for the six months ended December 31, 2021 of $1.6 million and $1.2 million, respectively, increased nominally as compared to $1.5 million and $1.0 million in the comparable period due to added facilities and personnel from AMPM.

Freight and shipping costs for the six months ended December 31, 2021 of $0.8 million remained consistent as compared to the prior comparative period.

Other costs for the six months ended December 31, 2021 of $1.4 million increased as compared to $1.3 million in the comparable period, primarily due to professional fees.

Other costs were benefited in the current period by $0.5 million related to change in fair value of contingent consideration.

Transaction costs for the three and six months ended Dec ember 3 1 , 2021 were nominal in the current and corresponding prior period s .

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

Depreciation and amortization for the three months ended September 30, 2021 and 2020 remained consistent at $0.5 million.

Depreciation and amortization for the three and six months ended December 31, 2021 and 2020 remained consistent at $0.5 million and $0.9 million, respectively.

Durable Medical Equipment Other Expenses

The increase in interest expense for the three months ended September 30, 2021 as compared to the corresponding period in the prior year is attributable primarily to higher outstanding principal balances of the HC LLC preferred stock of $44.1 million as compared to $25.3 million outstanding under the Corbel Facility and DME Revolver (as defined below) as of September 30, 2020.

During the three months ended September 30, 2021, the Company recognized a $0.5 million benefit within the durable medical equipment business related to the recurring fair value adjustment of an embedded derivative in the HC LLC Series A-2 preferred stock issued to Forest.

This has an off-setting impact in our General Corporate activity and eliminates in consolidation.

The increase in interest expense for the three and six months ended December 31, 2021 as compared to the corresponding periods in the prior year is attributable primarily to higher outstanding principal balances of the HC LLC preferred stock of $44.1 million as compared to $25.1 million outstanding under the Corbel Facility and DME Revolver (as defined below) during the three and six months ended December 31, 2020.

During the three and six months ended December 31, 2021, the Company recognized a $1.6 million and $2.1 million benefit within the durable medical equipment business related to the recurring fair value adjustment of an embedded derivative in the HC LLC Series A-2 preferred stock issued to Forest.

This has an off-setting impact in our General Corporate activity and is eliminated in consolidation.

Investment Management Business

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

For the three months ended September 30,

For the three months ended December 31,

For the six months ended December 31,

(in thousands)

Percent Change

Total revenue

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Investment management revenues include management fees and administrative fees.

For the three months ended September 30, 2021 and 2020, management fees were $0.9 million and $0.6 million, respectively, and administrative fees were $0.1 million and $0.2 million, respectively.

The increase in management fees for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 is attributable to increases in the average assets on which such fees are calculated through growth of GECC and GESOF.

For the three and six months ended December 31, 2021 management fees were $0.9 million and $1.8 million, respectively, and administrative fees were $0.1 million and $0.2 million, respectively.

For the three and six months ended December 31, 2020 management fees were $0.6 million and $1.2 million, respectively, while administration fees were $0.2 million and $0.3 million, respectively.

The increase in management fees for the three and six months ended December 31, 2021 as compared to the three and six months ended December 31, 2020 is attributable to increases in the average assets on which such fees are calculated through growth of GECC and our private fund GESOF, which was launched in February 2021.

Investment Management Costs and Expenses

Non-cash compensation compensation was impacted by annual awards granted in September 2021, whereas no awards were granted to the investment team in the prior year.

Non-cash compensation was impacted for the three and six months ended December 31, 2021 include $0.6 million in charges upon the final discretionary vesting of 5-year performance awards initially granted in November 2016.

In addition, the Non-cash compensation expense includes annual awards granted to the investment team in September 2021, whereas no awards were granted to the investment team in the prior year.

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

The increase in general and administrative costs for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, is primarily attributable to an increase in allocated payroll costs and consulting fees.

The increase in general and administrative costs for the three and six months ended December 31, 2021 of $0.4 million and $0.6 million as compared to the corresponding prior periods, is primarily attributable to an increase in allocated payroll costs, bonus accruals and consulting fees.

Investment Management Other Income (Expense)

Other income and expense primarily consisted of dividend income and net realized and unrealized losses on the Company’s investment in GECC and the net realized and unrealized losses of consolidated funds.

Dividend income from GECC for the three months ended September 30, 2021 and 2020 was $0.6 million and $0.5 million, respectively.

We recognized net realized and unrealized losses on our investment in GECC and the investments of the consolidated funds of $0.3 million for the three months ended September 30, 2021 as compared to net unrealized loss of $1.9 million on our investment in GECC for the three months ended September 30, 2020.

Dividend income from GECC for the three months ended December 31, 2021 and 2020 was $0.5 million and $1.3 million, respectively.

Dividend income from GECC for the six months ended December 31, 2021 and 2020 was $1.1 million and $1.8 million, respectively.

We recognized net realized and unrealized losses on our investment in GECC and the investments of the Consolidated Funds of $2.0 million and $2.4 million for the three and six months ended December 31, 2021, respectively, as compared to net realized and unrealized gains of $2.6 million and $0.8 million on our investment in GECC and the investments of the Consolidated Funds for the three and six months ended December 31, 2020.

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

Interest expense for the three months ended September 30, 2021 remained consistent with the three months ended September 30, 2020

Interest expense for the three and six months ended December 31, 2021 remained consistent with the three and six months ended December 31, 2020.

General Corporate

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

For the three months ended September 30,

For the three months ended December 31,

For the six months ended December 31,

(in thousands)

Percent Change

Total revenue

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General Corporate Revenue

For the three months ended September 30, 2020, all revenue was derived from fees earned by DME Manager, which provides consulting services to DME Inc.

In addition to this revenue, the three months ended September 30, 2021, revenue includes $0.1 million in fees earned by DME Manager relating to consulting services provided to Forest.

For the three and six months ended December 31, 2021 and 2020, all revenue was derived from fees earned by DME Manager, which provides consulting services to DME Inc.

In addition to this revenue, the three and six months ended December 31, 2021, revenue includes $0.2 million and $0.4 million, respectively, in fees earned by DME Manager relating to consulting services provided to our consolidated subsidiary, Forest.

General Corporate Costs and Expenses

Our general and administrative costs primarily consisted of professional fees and payroll costs in connection with our general corporate oversight of our subsidiaries and diligence efforts towards identifying asset and business acquisition opportunities.

These costs increased approximately $0.3 million for the three and six months ended December 31, 2021 as compared to prior periods primarily due to increased professional fees related to strategic initiatives.

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

Non-cash compensation, increased $0.1 million for the three months ended September 30, 2021 as compared to the corresponding period in the prior year.

The increase was due primarily to the election of directors to receive their compensation in the form of shares instead of cash, which had a corresponding decrease in other general and administrative costs.

The decrease in other general and administrative costs for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 is primarily attributable to the impact of director stock-based compensation discussed above.

Non-cash compensation, increased $0.2 million and $0.3 million for the three and six months ended December 31, 2021 as compared to the corresponding periods in the prior year.

The increase was due primarily to the election of directors to receive their compensation in the form of shares instead of cash.

Other Income (Expense)

Interest expense for the three months ended September 30, 2021 consists primarily of interest on the convertible notes, as well as on Forest Preferred Stock, which was issued in December 2020.

The corresponding periods in the prior year does not include interest on the Forest Preferred Stock, as it was not outstanding in the prior period.

Other income (expense) during the current year is comprised of intercompany interest income of $ 1.2 million related to Forest's investments in HC LLC preferred stock , and $0.2 million in dividends and unrealized gains on our investment in Monomoy Properties, LLC .

This amount is partially offset by a $0.5 million charge related to changes in the valuation of the embedded derivative.

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

Since the preferred stock was issued in December 2020, there is no corresponding activity in the prior year.

Interest expense for the three and six months ended December 31, 2021 consists primarily of interest on the convertible notes, as well as on Forest Preferred Stock, which was issued in December 2020.

The increase of $0.9 million and $1.7 million in the corresponding periods in the prior year is primarily due to the prior year not including interest on the Forest Preferred Stock, as it was not outstanding in the prior period.

Other income (expense) during the three and six months ended December 31, 2021 is comprised of intercompany interest income of $ 1 .

2 million and $2.4 million related to Forest's investments in HC LLC preferred stock , and $0.

7 million and $1.0 million in dividends and unrealized gains on our investment in Monomoy Properties, LLC .

This amount is partially offset by a $ 1 .

6 million and $2.1 million charge related to changes in the valuation of the embedded derivative.

Since the preferred stock was issued in December 2020 and Monomoy interests were purchased in June 2021, there is no corresponding activity in the prior year.

Except for Monomoy-related income, this other income has corresponding charges in the durable medical equipment business and such impacts are eliminated in consolidation.

As of June 30, 2021, the Company had NOL carryforwards for federal and state income tax purposes of approximately $952 million and $198 million, respectively.

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Liquidity and Capital Resources

Cash flows used in operating activities for the three months ended September 30, 2021 were $1.0 million.

The net cash outflow was primarily the result of our net loss of $0.1 million, along with a decrease in prepaid assets of $1.4 million, an increase of deferred revenues of $1.2 million due to the ERC during the period, $0.7 million in net purchases of investments within our consolidated funds and $0.6 million due to the timing of cash payments and receipts within our receivables and payables.

These outflows were partially offset by non-cash inflows of $2.2 million related to depreciation and amortization and $0.6 million in stock-based compensation.

Cash flows provided by operating activities for the three months ended September 30, 2020 were $1.2 million.

The net cash inflow in our continuing operations was primarily the result of our net loss from continuing operations of $3.8 million offset by non-cash charges of $2.8 million, along with unrealized loss on investments of $1.9 million.

Additional fluctuations in these accounts are due to the timing of cash payments and cash receipts in the normal course of business.

Cash flows used in investing activities for the three months ended September 30, 2021 were $3.2 million.

The net cash outflow primarily consisted of $1.3 million due to acquisition of MedOne, along with $2.5 million of purchases of capital equipment, partially offset by $0.6 million in proceeds from sales of equipment held for rental and disposal of property and equipment

Cash flows used in investing activities for the three months ended September 30, 2020 were $15.0 million.

The net cash outflow primarily consisted of $13.6 million due to the participation of the Rights Offering of GECC.

Additionally, there was $1.6 million in purchases of equipment for rental partially offset by $0.2 million in proceeds from sale of equipment held for rental and disposal of property and equipment.

Cash flows provided by financing activities for the three months ended September 30, 2021 were $1.6 million which primarily consisted of proceeds from equipment financing of $2.1 million and capital contributions to our consolidated funds of $0.5 million, partially offset by principle payments of the equipment financing totaling $1.2 million.

Cash flows provided by financing activities for the three months ended September 30, 2020 were $4.3 million which consisted of net principal payments on durable medical equipment debt of $4.3 million.

Cash flows provided by operating activities for the six months ended December 31, 2021 were $3.1 million.

The net cash inflow was primarily the result of $4.7 million in sales of investments by our Consolidated Funds, $1.8 million in realized and unrealized losses on our investments and non-cash inflows of $7.2 million related to stock-based compensation, depreciation and amortization.

These inflows were partially offset by our net loss of $4.1 million, purchases of investments by our Consolidated Funds of $5.1 million, the timing of cash payments and receipts within our operating assets and liabilities, resulting in a $1.5 million use of cash.

Cash flows used in operating activities for the six months ended December 31, 2020 were $1.7 million.

The net cash outflow was primarily the result of our net loss of $4.5 million, $3.3 million in purchases of investments made by the Consolidated Funds and $1.4 million of distributions received in stock from the Company’s investment in GECC.

These outflows were partially offset by non-cash inflows of $4.4 million related to depreciation and amortization and $1.4 million related to amortization of debt issuance costs.

Cash flows used in investing activities for the six months ended December 31, 2021 were $3.1 million.

The net cash outflow primarily consisted of $1.3 million due to acquisition of MedOne, along with $2.6 million of purchases of capital equipment, partially offset by $0.8 million in proceeds from sale of capital equipment and $0.2 million in sales of investments.

Cash flows used in investing activities for the six months ended December 31, 2020 were $11.4 million.

The net cash outflow primarily consisted of $8.8 million in purchases of investments related to participation in the GECC non-transferable rights offering in October 2020 and $3.1 million in purchases of equipment to be held for rental.

These outflows were partially offset by $0.5 million in proceeds from sales of equipment held for rental.

Cash flows provided by financing activities for the six months ended December 31, 2021 were $0.6 million which primarily consisted of proceeds from equipment financing of $3.0 million and capital contributions to our Consolidated Funds of $0.1 million, partially offset by principle payments of the equipment financing totaling $2.5 million.

Cash flows provided by financing activities for the six months ended December 31, 2020 were $5.6 million which primarily consisted of $37.7 million in gross proceeds from the JPM Transactions and $1.6 million in proceeds from new equipment financing debt.

Such inflows were partially offset by principal payments of $31.0 million on our debt, and debt issuance costs of $1.3 million in connection with the JPM Transactions.

Financial Condition

As of September 30, 2021, we had an unrestricted cash balance of $21.8 million.

We also hold 5,484,669 shares of GECC common stock with an estimated fair value of $19.1 million as of September 30, 2021.

As of December 31, 2021, we had an unrestricted cash balance of $25.0 million.

We also hold 5,484,669 shares of GECC common stock with an estimated fair value of $16.9 million as of December 31, 2021.

We intend to make acquisitions or investments that we believe will result in the investment of all of our liquid financial resources, to issue equity securities and to incur indebtedness.

If we are unsuccessful at raising additional capital resources, through either debt or equity, it is unlikely we will be able execute our strategic growth plan.

As of September 30, 2021, the Company had $34.3 million face value in convertible notes outstanding.

As of December 31, 2021, the Company had $35.2 million face value in convertible notes outstanding.

The convertible notes are held by a consortium of investors, including related parties.

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

As of September 30, 2021, JPM held $35.0 million face value in shares of Forest Preferred Stock.

As of December 31, 2021, JPM held $35.0 million face value in shares of Forest Preferred Stock.

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

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

As of September 30, 2021, Corbel and VHG, both related parties, held a combined $2.0 million in face value of shares of HC LLC Series A-1 Preferred Stock.

As of December 31, 2021, Corbel and VHG, both related parties, held a combined $2.0 million in face value of shares of HC LLC Series A-1 Preferred Stock.

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

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

In order to incur certain additional debt, DME Inc.

must also comply with a leverage ratio and levered free cash flow ratio, which are based in part on the HC LLC EBITDA levels.

The Company has a credit facility with Pacific Mercantile Bank that accrues interest at the prime rate plus 0.4% (at September 30, 2021, the effective rate was 3.7%) through maturity on November 29, 2022 (the DME Revolver ).

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

The Company has a credit facility with Pacific Mercantile Bank that accrues interest at the prime rate plus 0.4% (at December 31, 2021, the effective rate was 3.7%) through maturity on November 29, 2022 (the DME Revolver ).

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

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The DME Revolver is secured by all of the assets of the durable medical equipment business and the Company is required to meet certain financial covenants.

The DME Revolver was not drawn as of September 30, 2021.

The DME Revolver include s covenants that restrict HC LLC .

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

The DME Revolver was not drawn as of December 31, 2021.

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

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

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

The Company was in compliance with all material covenants and restrictions at September 30, 2021

The Company was in compliance with all material covenants and restrictions at Dec ember 3 1 , 2021 .

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

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

As of September 30, 2021, the Company had $3.0 million in equipment financing debt outstanding.

As of December 31, 2021, the Company had $2.6 million in equipment financing debt outstanding.

Off-Balance Sheet Arrangements

As of September 30, 2021, we did not have any off-balance sheet arrangements.

As of December 31, 2021, we did not have any off-balance sheet arrangements.

Quantitative and Qualitative Disclosures About Market Risk.

2 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis