Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November ~~5, 2021,~~7, 2022, there were ~~26,873,415~~30,022,424 shares of the registrant’s common stock outstanding.

Unless the context otherwise requires, “we,” “us,” “our,” “GEG,"” the “Company” and terms of similar import refer to Great Elm Group, Inc. and/or its subsidiaries. Our corporate website address is www.greatelmcap.com. The information contained in, or accessible through, our corporate website does not constitute part of this report. ~~On December 29, 2020, the Company completed a reorganization of the Company’s corporate structure, and outstanding shares of Great Elm Capital Group, Inc. (GEC) were automatically converted into shares of common stock of the Company.~~ Where context requires, references to “we,” “us,” “our,” “GEG” and the “Company” include ~~GEC.~~Great Elm Capital Group, Inc.

This report and certain information incorporated herein by reference, contain forward‑looking statements under the Private Securities Litigation Reform Act of 1995. Such statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “seek,” “anticipate,” “intend,” “estimate,” “plan,” “target,” “project,” “forecast,” “envision” and other similar phrases. Although we believe the assumptions and expectations reflected in these forward‑looking statements are reasonable, these assumptions and expectations may not prove to be correct and we may not achieve the financial results or benefits anticipated. These forward‑looking statements are not guarantees of actual results. Our actual results may differ materially from those suggested in the forward‑looking statements. These forward‑looking statements involve a number of risks and uncertainties, some of which are beyond our control, including, without limitation:

These forward‑looking statements speak only as of the time of filing of this report and we do not undertake to update or revise them as more information becomes available. You are cautioned not to place undue reliance on these forward‑looking statements. We do not undertake any obligation to release publicly any revisions to these forward‑looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.

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

Condensed Consolidated Statements of Stockholders’ Equity and Contingently Redeemable Non-controlling Interest (Unaudited)

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

Condensed Consolidated Statements of Stockholders’ Equity and Contingently Redeemable Non-controlling Interest (Unaudited)

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

1. Organization

Great Elm Group, Inc. (referred to as the Company or GEG) is a holding company incorporated in Delaware. The Company currently has 2two 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. (GECC), a publicly-traded business development company incorporated in Maryland.

On ~~November 3, 2016, Full Circle~~May 4, 2022, GECM acquired the investment management agreement of Monomoy Properties UpREIT, LLC (Monomoy UpREIT), the operating subsidiary of Monomoy Properties REIT, LLC, from Imperial Capital ~~Corporation merged with and into GECC and GECM hired the employees of MAST Capital~~Asset Management, LLC (~~MAST Capital~~ICAM),. Formed in 2014, Monomoy Properties REIT, LLC is a ~~Delaware limited liability company, to manage~~private real estate investment trust founded by ICAM, with a 123-property portfolio of diversified net leased industrial assets.

The Company earns revenue through the ~~assets~~investment management agreements of ~~GECC. Through the Company’s majority-owned subsidiary, GECC GP Corp. (GP Corp.~~), the Company acquired assets and assumed related liabilities associated with the on-going operations of GECM. A portion of the non-controlling interest of GP Corp. was owned by MAST Capital, and its affiliates and officers. In March 2021, the Company purchased all interests in GP Corp. held by MAST Capital and its affiliates.

On June 29, 2021, GP Corp assigned the rights to the Profit Sharing Agreement (as defined in Note 6 – Related Party Transactions) with GECM, their intercompany obligation under the GP Corp. Note (as defined in Note 12 – Borrowings)these and other ~~assets~~private investment vehicles which provide for management fees, property management fees, incentive fees, and ~~liabilities to their wholly-owned subsidiary Great Elm Capital GP, LLC (GEC GP~~administration and service fees.). Subsequent to the assignment, the Company exchanged their 98.2% interests in GP Corp. for an identical 98.2% direct interest in GP Corp.’s wholly-owned subsidiary GEC GP. Following the consummation of the taxable reorganization, the Company no longer has an interest in GP Corp.

Durable Medical Equipment

On September 7, 2018, the Company, through its ~~majority-owned~~wholly-owned subsidiary, Great Elm DME Holdings, Inc. (DME Holdings), acquired an ~~80.1%~~80.1% equity interest in Great Elm DME, Inc. (DME Inc.) an entity formed to acquire and combine two companies, Valley Healthcare Holding, LLC and Northwest Medical, LLC., 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 to Kansas, Iowa, and Missouri through acquisitions in 2019 and 2021.

On May 31, 2021, ~~our wholly-owned subsidiary~~ DME Holdings exchanged their ~~80.1%~~80.1% interests in DME Inc. for an identical ~~80.1%~~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 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. 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 ~~Holding Company Reorganization (as defined in Note 6 – Related Party Transactions)~~reorganization was a tax-free transaction for U.S. federal income tax purposes for the Company’s shareholders.

~~Discontinued Operations~~9

We launched our real estate business in March 2018 with an investment of $2.7 million in a majority-interest in 2 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 condensed 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. (GEO GP), Great Elm Capital GP, LLC (GEC GP), Great Elm FM Acquisition, Inc. (~~FM Acquisition~~), DME Holdings, and Great Elm DME Manager, LLC (DME Manager). Majority-owned subsidiaries ~~(including those divested during the year)~~ include Forest, ~~GEC GP, GP Corp., Great Elm FM Holdings, Inc. (FM Holdings), CRIC IT Fort Myers, LLC, DME Inc. and~~ HC LLC and its ~~eight~~ 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.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes which are normally included in the Company’s Form 10-K. These financial statements reflect all adjustments (consisting of normal recurring items or items discussed herein) that management believes are necessary to fairly state results for the interim periods presented. Results of operations for interim periods are not necessarily indicative of annual results of operations. The condensed consolidated balance sheet as of June 30, ~~2021,~~2022, presented herein, has been derived from the Company’s audited consolidated financial statements as of and for the ~~year-ended~~year ended June 30, ~~2021.~~2022.

All assets and liabilities related to discontinued operations are excluded from the notes unless otherwise noted. In addition, the historical results of the real estate business operating segment have been reflected in the accompanying consolidated statements of operations for the three months ended September 30, 2020 as discontinued operations. See Note 4 – Discontinued Operations.

Use of ~~Estimate~~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. On an on-going basis, the Company evaluates all of these estimates and assumptions. Included in these estimates and assumptions are items that relate to revenue recognition, recognition of rental income, 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 toof use assets. Although these and other estimates and assumptions are based on the best available information, actual results could be different from these estimates.

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 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 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.

All intercompany accounts and transactions have been eliminated in consolidation.

Non-controlling interests in the Company’s subsidiaries are reported as a component of liabilities for mandatorily redeemable interests, temporary equity for contingently redeemable interests or permanent equity, separate from the Company’s equity. See Note 1512 – Non-Controlling Interests and Preferred Stock of Subsidiaries. Results of operations attributable to the non-controlling interests are included in the Company’s condensed consolidated statements of operations.

Segments

~~Segments~~

The Company has 2two 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. 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 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 ~~$2.1~~$1.5 million and ~~$2.5~~$1.9 million as of September 30, ~~2021~~2022 and June 30, ~~2021,~~2022, respectively. During the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company recognized reductions to revenue of ~~$1.0~~$0.5 million and ~~$1.1~~$1.0 million, respectively, related to such constraints. See Note 3 – Revenue.

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 three months ended September 30, ~~2021~~2022 relating to prior periods. Changes in constraints on variable consideration are recorded as a component of net revenues.

The Company generally does not allow returns from customers 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 September 30, ~~2021~~2022 and June 30, ~~2021,~~2022, the Company had unbilled receivables of approximately ~~$0.2~~$0.3 million and ~~$0.3~~$0.4 million, respectively, 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. These unbilled amounts are included in accounts receivable in the condensed consolidated balance sheets.

~~Net Income (Loss)~~Loss per Share

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

For the three months ended September 30,

(in thousands except per share amounts)

2021

2020

Income (loss) from continuing operations

$
106

$
(3,768
)

Income from discontinued operations, net of tax

-

67

Net income (loss)

$
106

$
(3,701
)

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

306

(120
)

Less: net income attributable to non-controlling interest, discontinued operations

-

13

Net loss attributable to Great Elm Group, Inc.

$
(200
)

$
(3,594
)

Weighted average shares basic and diluted:

Weighted average shares of common stock outstanding

25,982

25,576

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

25,982

25,576

Basic and diluted income (loss) per share from:

Loss from continuing operations

$
(0.01
)

$
(0.14
)

Income from discontinued operations

-

0.00

Net loss

$
(0.01
)

$
(0.14
)


	For the three months ended September 30,
(in thousands except per share amounts)	2022			2021
Net (loss) income	$	(8,539	)	$	106
Less: net (loss) income attributable to non-controlling interest		(248	)		306
Net loss attributable to Great Elm Group, Inc.	$	(8,291	)	$	(200	)
Weighted average shares basic and diluted:
Weighted average shares of common stock outstanding		28,543			25,982
Weighted average shares used in computing loss per share		28,543			25,982
Basic and diluted loss per share	$	(0.29	)	$	(0.01	)

When calculating earnings (loss) per share, we are required to adjust for the dilutive effect of common stock equivalents. As of September 30, ~~2021,~~2022, the Company had ~~13,429,986~~13,249,948 potential shares of common stock, including ~~9,891,734~~10,392,545 potential shares of Company common stock issuable upon conversion of Convertible Notes (as defined below) and 2,857,403 potential shares issuable upon the exercise of stock options and vesting of restricted stock units and restricted stock awards, that are not included in the diluted ~~net income (loss)~~loss per share calculation because to do so would be anti-dilutive. As of September 30, ~~2020,~~2021, the Company had ~~12,134,751~~13,429,986 potential shares of common stock, including ~~8,790,049~~9,891,734 shares of common stock issuable upon the conversion of ~~the Company~~ Convertible Notes and 3,538,252 potential shares issuable upon the exercise of stock options and vesting of restricted stock units and restricted stock awards, that are not included in the diluted ~~net income (loss)~~loss per share calculation because to do so would be anti-dilutive.

As of September 30, ~~2021~~2022 and ~~2020,~~2021, the Company had an aggregate of ~~811,360~~1,303,386 and ~~732,909~~811,360 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 ~~DME Inc.~~HC LLC to pay dividends is subject to compliance with the restricted payment covenants under the DME Revolver (as defined below).

Concentration of Risk

The Company’s net investment revenue and receivables for the periods presented were primarily attributable to the management of ~~one~~two investment ~~vehicle, GECC.~~vehicles, GECC and Monomoy UpREIT. See Note 64 – 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 three months ended September 30,

2021

2020⁽¹⁾

Government Payor

37%

37%

Third-party Payor

13%

12%


	For the three months ended September 30,
	2022	2021
Government Payor	39%	37%
Third-party Payor	13%	13%

~~(1)~~

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

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


	As of
	September 30, 2022	June 30, 2022
Government Payor	29%	29%
Third-party Payor	13%	14%

As of

September 30, 2021

June 30, 2021

Government Payor

27%

30%

Third-party Payor

16%

14%

Recently ~~Adopted~~Issued Accounting Standards

~~Accounting for Convertible Instruments~~Supplier Finance Programs. In ~~August 2020,~~September 2022, the Financial Accounting Standards Board (FASB) issued Accounting ~~Standard~~Standards Update (ASU) ~~2020-06~~2022-04, , ~~Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity~~Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which ~~simplifies~~requires disclosures intended to enhance the ~~accounting for convertible instruments by eliminating certain separation models. Under~~transparency of supplier finance programs. The amendments in this ASU ~~2020-06,~~require the buyer in 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,~~supplier finance program to disclose information about 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 usekey terms of the ~~if-converted method.~~program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. The ~~guidance in this ASU~~amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the disclosure of rollforward information, which is effective for fiscal years beginning after December ~~31, 2023, including interim periods within those fiscal years.~~15, 2023. Early adoption is ~~permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.~~permitted. As of September 30, 2022, the Company had $3.9 million in equipment financing debt through supplier finance programs at our durable medical equipment business. The Company ~~adopted this ASU on July 1, 2021 using~~is evaluating the ~~full retrospective method.~~

Prior to adoption, under Accounting Standards Codification 470-20, Debt with Conversion and Other Options ("ASC 470-20"), we had separately accounted for the liability and equity components upon the original issuance of our Convertible Notes in February 2020 due to the existence of a temporary cash conversion feature. Under ASC 470-20, the equity component of the Convertible Notes was recorded as additional paid-in capital within stockholders’ equity on our consolidated balance sheet and generated an original issue discount on the carrying value of the Convertible Notes. As a result, prior topotential impact that the adoption of this ASU 2020-06, we recorded a greater amount of non-cash interest expense as the discounted carrying value is accreted up to their face value over the Convertible Notes term. Under the full retrospective method, the prior period condensedwill have on its consolidated financial statements have been retrospectively adjusted to reflect the adoption of the accounting standard in those periods. The following tables shows the impact of the adoption on our previously reported financial information:statements.

1312

Condensed consolidated balance sheet

June 30, 2021 As reported

ASU 2020-06 Adjustment

June 30, 2021 As adjusted

Liabilities

Convertible notes

$
22,054

$
11,279

$
33,333

Other liabilities

1,070

(155
)

915

Stockholders' equity

Additional paid-in-capital

3,319,767

(12,154
)

3,307,613

Accumulated deficit

(3,265,433
)

1,030

(3,264,403
)

Condensed consolidated statement of operations

For the three months ended

September 30, 2020 As reported⁽¹⁾

ASU 2020-06 Adjustment

September 30, 2020 As adjusted

Non-operating expenses

Interest expense

$
(1,307
)

$
162

$
(1,145
)
Net loss

Net loss

(3,863
)

162

(3,701
)
Net loss per share (basic and diluted)

(0.15
)

0.01

(0.14
)

~~(1)~~

~~As re-casted to reflect the operations of our real estate business as discontinued operations and therefore excluded.~~

~~Recently Issued Accounting Standards~~

Current Expected Credit ~~Losses~~Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which changes the impairment model for financial instruments, including trade receivables from an incurred loss method to a new forward looking approach, based on expected losses. The estimate of expected credit losses will require entities to incorporate considerations of historical experience, current information and reasonable and supportable forecasts. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the potential impact that the adoption of this ASU will have on its consolidated financial statements.

Reference Rate ~~Reform~~ 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 the 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. ~~We are currently~~The Company is evaluating the potential impact that the adoption of this ASU will have on ~~our~~its consolidated financial statements.

4. ~~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. 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 Properties), 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 Properties and with a membership interest of approximately 5%, we have determined that we have no significant continuing involvement with the real estate business.

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

For the three months ended September 30,

(in thousands)

2020

Discontinued operations:

Real estate rental revenue

$
1,272

Real estate expenses

125

Depreciation and amortization

430

Interest expense

650

Net income from discontinued operations

$
67

~~5. 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. We have recorded a preliminary allocation of the purchase price for MedOne, which 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 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 (AMPM~~), providers of sleep testing, positive air pressure, and other respiratory products and services in 9 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 purchase consideration was $1.1 million, comprised of $0.4 million paid at 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. We have recorded a preliminary allocation of the purchase price for AMPM, which resulted in goodwill of $0.7 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 ending September 1, 2022. The fair value of the contingent consideration arrangement at the acquisition date was $0.4 million. The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation model. The key assumptions in applying the Monte Carlo simulation model include volatility of 40.0% and a discount rate of 10.3%. The contingent consideration is included within other liabilities in the consolidated balance sheets.

6. Related Party Transactions

Related party transactions are measured in part by the amount of consideration paid or received as established and agreed by the parties. Consideration paid for such services in each case is the negotiated value.

Durable Medical Equipment

~~In connection with the acquisition of the durable medical equipment businesses in September 2018, DME Inc. and its subsidiaries entered into a term loan (the~~ ~~Corbel Facility) with Corbel Capital Partners SBIC, L.P. (Corbel~~). Jeffrey S. Serota, a member of the Company’s Board of Directors, serves as Vice Chairman to Corbel Capital Partners. Corbel previously held an interest in one of our acquired durable medical equipment businesses and was one of the sellers in our acquisition of the business. As a result of the acquisition, at September 30, 2021 Corbel holds a non-controlling interest in HC LLC. Pursuant to the Corbel Facility, Corbel was paid a structuring fee and a quarterly monitoring fee. In conjunction with the JPM Transactions (as defined below), 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 12 - Borrowings for additional information on the Corbel Facility and Note 15 – 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.~~Capital Partners SBIC, L.P. (Corbel). Jeffrey S. Serota, a member of the Company’s Board of Directors, serves as Chief Investment Officer at Corbel. These non-controlling interests in DME Inc. became non-controlling interests in HC LLC in May 2021. See Note 1512 – Non-Controlling Interests and Preferred Stock of ~~Subsidiary.~~Subsidiaries.

Investment Management

The Company’s wholly-owned subsidiary, GECM, has agreements to provide administrative services and manage the investment portfolio for GECC, Monomoy UpREIT and other investment products. Under these agreements, GECM receives ~~administrative~~administration 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. Additionally, GECM has agreements with portfolio companies of GECC in which it receives service fees for such services. 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~~also served as the managing member of Great Elm SPAC Opportunity Fund, LLC (GESOFor the Consolidated Fund), a Delaware limited liability company, and ~~provides~~provided administrative services and ~~manages~~managed 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~~were met for GESOF ~~which was launched in February~~during the three months ended September 30, 2022 and 2021. The operations of ~~each of these consolidated funds (the~~ the Consolidated ~~Funds~~)Fund are included in our consolidated financial statements. In July 2022, GESOF liquidated and the Company received a distribution of cash and equity investments, pending final dissolution of the Consolidated Fund. There are no consolidated funds as of September 30, 2022. See Note 2 – Summary of Significant Accounting Policies for additional details.

The Company ~~has~~ retained the specialized investment company accounting guidance under US GAAP with respect to the Consolidated ~~Funds.~~Fund during the periods it was consolidated. As such, investments of the Consolidated ~~Funds are~~Fund were included in the condensed consolidated balance sheets at fair value and the net unrealized gain (loss) on those investments iswas included as a component of other income on the condensed consolidated ~~income statement.~~statements of operations. Non-controlling interests in ~~these~~the Consolidated ~~Funds are~~Fund were included in net ~~loss~~(loss) income attributable to non-controlling interest. ~~As of September 30, 2021 no single issuer or investment of the Consolidated Funds had a fair value greater than 5% of the Company’s total consolidated assets.~~

Additionally, the Company receives dividends from its investment in GECC and Monomoy UpREIT (as defined below) and earns unrealized profits and losses based on the mark-to-market performance of ~~its investment in GECC.~~those investments. See Note 75 – Fair Value Measurements.

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


	For the three months ended September 30,
(in thousands)	2022			2021
Net realized and unrealized loss on investments	$	(6,797	)	$	(116	)
Net realized and unrealized loss on investments of Consolidated Fund		(16	)		(189	)
Dividend income		1,380			554

For the three months ended September 30,

(in thousands)

2021

2020

Net (loss) on investments

$
(116
)

$
(1,902
)
Net (loss) on investments of consolidated funds

(189
)

-

Dividend income

554

524


	As of
(in thousands)	September 30, 2022		June 30, 2022
Dividends receivable	$	586	$	612
Investment management revenues receivable		1,173		1,241
Receivable for reimbursable expenses paid		819		592

As of

(in thousands)

September 30, 2021

June 30, 2021

Dividends receivable

$
554

$
554

Investment management revenues receivable

988

936

Receivable for reimbursable expenses paid

257

297

Outstanding receivables are included in related party receivables in the condensed consolidated balance sheets. Outstanding receivables from the Consolidated Funds are eliminated in consolidation. As of September 30, 2021, the Company had $0.1 million in receivable for reimbursable expenses paid on behalf of the Consolidated Funds.

The Company ~~is the owner~~owns 1,744,048 shares of ~~approximately 20.4%~~GECC (approximately 22.9% of the outstanding ~~shares~~shares). Certain officers and directors of GECC ~~valued at $19.1 million as~~are also officers and directors of ~~September 30, 2021,~~GEG. Matthew A. Drapkin is a director of our Board and ~~the Company’s Chief Executive Officer is~~ also the ~~Chief Executive Officer~~Chairman of ~~GECC and Chief Investment Officer of GECM, in addition to being a member of the~~GECC's Board of Directors, ~~of the Company~~ and ~~chairman of the board of directors of GECC. The Company’s~~Adam M. Kleinman is our President, ~~and Chief Operating Officer is also the Chief Operating Officer, Chief Compliance Officer and General Counsel of GECM and~~as well as the Chief Compliance Officer of GECC.

~~GECM has a profit sharing agreement with the Company’s majority-owned subsidiary GEC GP (Profit Sharing Agreement~~17). Under the Profit Sharing Agreement, GECM’s profit from GECC is paid to GEC GP. Since its inception in November 2016, GECM has operated at a cumulative loss through September 30, 2021; correspondingly, no profits were available to GEC GP under the Profit Sharing Agreement. See Note 15 – Non-Controlling Interests and Preferred Stock of Subsidiaries.

As of September 30, 2021 MAST Capital is the beneficial owner of approximately 7.4% of the Company’s outstanding common stock and $2.3 million in Convertible Notes (as defined below). See Note 12 - Borrowings for additional discussion of the GP Corp. Note and Note 13 – Convertible Notes for additional discussion of the convertible notes.

In October 2020, GECM entered into a shared personnel and reimbursement agreement with ~~Imperial Capital Asset Management, LLC (ICAM~~).ICAM. Jason W. Reese, the Executive Chairman of the Company’s Board of Directors, is the Chief Executive Officer of ICAM. Costs incurred under this agreement relate to human resources, investment management, and other administrative services provided by ICAM employees, for the benefit of the Company, and are included in investment management expenses in the condensed consolidated ~~statement~~statements of operations. For the three months ended September 30, 2022 and 2021, such costs were ~~$0.1 million.~~

~~General Corporate~~

On August 31, 2021, the Company entered into a financial advisory agreement with Imperial Capital, LLC. Jason W. Reese, the Executive Chairman of the Company’s Board of Directors, is an Executive Committee Member of Imperial Capital, LLC. The agreement includes a retainer fee of $0.1 million which was paid during the quarter as well as certain success-based fees related to potential future transactions.

Additionally, the Company receives dividends from its investment in Monomoy Properties and earns unrealized profits and losses based on the mark-to-market performance of its underlying assets in Monomoy

$~~Properties. Monomoy Properties is managed by ICAM. The following tables summarize activity and outstanding balances between Monomoy Properties and the Company:~~0.4

For the three months ended September 30,

(in thousands)
2021

2020

Net gain on investment
$
102

$
-

Dividend income

99

-

Dividend receivable

99

-

In conjunction with the JPM Transactions, on December 29, 2020 Forest sold Forest Preferred Stock (as defined below) and the Company sold common stock in Forest to J.P. Morgan Broker-Dealer Holdings Inc. (~~JPM), a Delaware corporation and affiliate of JPMorgan Chase & Co., for cash consideration of $35.0~~ million and ~~$2.7~~$0.1 million, respectively. ~~As a result of these transactions, JPM holds a non-controlling interest in Forest. See Note 15 – 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.

~~Holding Company Reorganization~~

~~On December 21, 2020, GECannounced plans to create a new public holding company, Great Elm Group, Inc. (the~~ ~~Company) by implementing a 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, 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, JPM, 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) with a maturity date of December 29, 2027 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~~) with a maturity date of December 29, 2027 and face value of $1,000.00 per share to the owners of DME Inc., 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, and 9.95% is held by Valley Healthcare Group, LLC (~~VHG). Upon a sale of the durable medical equipment business, such holders of Series A-1 Preferred Stock are only entitled to their liquidation preference;~~

•

HC LLC, a wholly-owned subsidiary of DME Inc., and sole owner of the durable medical equipment operating subsidiaries, issued to Forest 34,010 newly issued shares of 9.0% Series A-2 preferred stock (the ~~Series A-2 Preferred Stock~~) with a maturity date of December 29, 2027 for $1,000.00 per share. Upon a sale of the durable medical equipment business, such holders of Series A-2 Preferred Stock are entitled to the greater of their liquidation preference or 33% of proceeds arising from such sale;

•

~~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; and

•

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~~).

~~Using proceeds from the JPM Transactions, DME Inc. paid off the Corbel Facility. See Note 12 – Borrowings.~~

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

▪

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

▪

Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

▪

Level 3: Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

▪

~~Level 1:~~ ~~Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.~~

▪

~~Level 2:~~ Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

▪

~~Level 3:~~ Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

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

	Fair Value as of September 30, 2021
	Level 1		Level 2		Level 3		Total		Fair Value as of September 30, 2022
(in thousands)									Level 1		Level 2		Level 3		Total
Assets:
Equity investments	$	19,141	$	0	$	0	$	19,141	$	20,075	$	-	$	-	$	20,075
Equity investments of Consolidated Funds		26,541		0		0		26,541
Total assets within the fair value hierarchy	$	45,682	$	0	$	0	$	45,682	$	20,075	$	-	$	-	$	20,075
Investments valued at net asset value								4,867							$	20,549
Total assets							$	50,549							$	40,624
Liabilities:
Participation feature of HC LLC Series A-2 Preferred Stock	$	0	$	0	*		*
Participation feature of Series A-2 Preferred Stock									$	-	$	-	*		*
Contingent consideration liability		0		0		605		605		-		-		1,709		1,709
Total liabilities	$	0	$	0	$	605	$	605	$	-	$	-	$	1,709	$	1,709


	Fair Value as of June 30, 2022
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Equity investments	$	27,678	$	-	$	-	$	27,678
Equity investments of Consolidated Fund		1,797		-		-		1,797
Total assets within the fair value hierarchy	$	29,475	$	-	$	-	$	29,475
Investments valued at net asset value							$	20,363
Total assets							$	49,838
Liabilities:
Participation feature of Series A-2 Preferred Stock	$	-	$	-	*		*
Contingent consideration liability		-		-		1,767		1,767
Total liabilities	$	-	$	-	$	1,767	$	1,767

*Balance eliminates in consolidation.

Fair Value as of June 30, 2021

(in thousands)

Level 1

Level 2

Level 3

Total

Assets:

Equity investments

$
19,444

$
0

$
0

$
19,444

Equity investments of Consolidated Funds

26,490

0

0

26,490

Total assets within the fair value hierarchy

$
45,934

$
0

$
0

$
45,934

Investments valued at net asset value

4,600

Total assets

$
50,534

Liabilities:

Participation feature of HC LLC Series A-2 Preferred Stock

$
0

$
0

*

*

Contingent consideration liability

0

0

271

271

Total liabilities

$
0

$
0

$
271

$
271

There were 0no transfers between levels of the fair value hierarchy during the three months ended September 30, ~~2021~~2022 and ~~2020.~~2021.

The following is a reconciliation of changes in contingent consideration, a Level 3 ~~liability, for the three months ended September 30, 2021 and 2020:~~liability:


	For the three months ended September 30,					For the three months ended September 30,
(in thousands)	2021			2020		2022			2021
Beginning balance	$	271		$	-	$	1,767		$	271
Additions		497			-		-			497
Change in fair value		(163	)		-		(58	)		(163	)
Ending balance	$	605		$	-	$	1,709		$	605

The valuation techniques applied to investments held by the Company and by the Consolidated ~~Funds vary~~Fund varied 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. To the extent these securities are actively traded and valuation adjustments are ~~not~~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 Accounting Standards Codification Topic 946, Financial Services – Investment Companies, as of the valuation date. Investments valued using NAV as a practical expedient are not categorized within the fair value hierarchy.

As of September 30, ~~2021~~2022 and June 30, 2022, investments in private funds ~~consist~~primarily consisted of our investment in Monomoy Properties ~~an industrial real estate-focused fund, and Sharp Alpha Fund I, LP (Sharp Alpha), a closed-end limited~~UpREIT, LLC, the operating partnership ~~focused on gaming technologies.~~of Monomoy Properties REIT, LLC (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. The Company had unfunded commitments of $0.3 million asAs of September 30, ~~2021.~~2022, there were no unfunded commitments.

Contingent consideration

In conjunction with the acquisition of ~~AMPM~~Advanced Medical DME, LLC and PM Sleep Lab, LLC on March 1, 2021, the Company entered into a contingent consideration agreement that requires the Company to pay up to ~~$2.1~~$2.1 million if certain revenue thresholds of the acquired business are achieved for the 12 months ending September 1, 2022. As these revenue thresholds were not expected to be achieved, the fair value of the contingent consideration was zero as of June 30, 2022. As of September 30, 2022, the Company made a preliminary determination that the target was not met, subject to agreement with the seller.

In conjunction with the acquisition of MedOne Healthcare, LLC on August 31, 2021, the Company entered into a separate 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. As of September 30, 2022, the Company made a preliminary determination that, based on the performance to date, the amount of contingent consideration earned under the agreement was $0.7 million (included within the accrued expenses and other liabilities), subject to agreement with the seller.

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 if certain fee revenue thresholds are achieved during fiscal years ending 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 ~~the acquisition date~~September 30, 2022 include revenue forecasts, volatility of ~~40.0%~~19.2% and a discount rate of ~~10.3%~~8.75%. The ~~key assumptions~~contingent consideration of $1.1 million is included within the related party payables in ~~applying~~ the ~~Monte Carlo simulation model~~condensed consolidated balance sheets as of September 30, ~~2021 include volatility of 23.3% and a discount rate of 10.3%.~~

In conjunction with the acquisition of MedOne on August 31, 2021, the Company entered into a separate contingent consideration agreement that requires the Company to pay up to $1.0 million if certain revenue thresholds of the acquired business are achieved for the 12 months ending September 1, 2022 and September 1, 2023. The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation model. The key assumptions in applying the Monte Carlo simulation model as of the acquisition date include revenue forecasts, volatility of 23.3% and a discount rate of 10.3%. June 30, 2022.

~~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 issued Series A-2 Preferred Stock to our consolidated subsidiary, Forest. See Note 1512 – 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 period end, the fair value of this derivative is determined using an option pricing model based on the estimated value of HC LLC 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 September 30, ~~2021~~2022 include financial forecasts of the durable medical equipment business ~~a discount rate of 14.5%~~ and a volatility rate of ~~49.9%~~63.5% (level 3 inputs in accordance with the US GAAP fair value hierarchy). The key assumptions in applying the valuation approach as of June 30, ~~2021~~2022 include financial forecasts of the durable medical equipment business ~~a discount rate of 14.5%~~ and a volatility rate of ~~50.4%~~59.1%. The fair value of the embedded derivative as of September 30, ~~2021~~2022 and June 30, ~~2021,~~2022, was ~~$5.3~~$0.9 million and ~~$5.8~~$7.9 million, respectively. Since ~~the HC LLC~~ Series A-2 Preferred Stock ~~are~~was 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 0zero within the table above. However, this valuation does impact our segment results and non-controlling interest accounts.

25See Note 10 - Borrowings 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.

8.6. Fixed Assets

~~The Company’s fixed assets consist of its medical~~Property and equipment and equipment held for rental ~~furniture~~consist of the following as of September 30, 2022 and ~~fixtures, and leasehold improvements used in its operations. The following tables detail the Company’s fixed assets:~~June 30, 2022:


(in thousands)	September 30, 2021			June 30, 2021			September 30, 2022			June 30, 2022
Property and Equipment
Leasehold improvements	$	839		$	835		$	981		$	970
Vehicles		187			172			162			162
Computer equipment and software		538			500			716			642
Furniture and fixtures		406			422			570			590
Sleep study equipment		599			593			594			594
		2,569			2,522			3,023			2,958
Accumulated depreciation		(1,684	)		(1,541	)		(2,520	)		(2,420	)
Net carrying amount	$	885		$	981		$	503		$	538

Medical Equipment Held for Rental
Equipment Held for Rental
Medical equipment held for rental	$	15,200		$	14,933		$	17,544		$	16,593
Accumulated depreciation		(7,970	)		(7,542	)		(9,621	)		(9,089	)
Net carrying amount	$	7,230		$	7,391		$	7,923		$	7,504

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


	For the three months ended September 30,
(in thousands)	2022		2021
Depreciation and amortization	$	101	$	143
Cost of durable medical equipment rentals		1,889		1,688
Total depreciation expense	$	1,990	$	1,831

For the three months ended September 30,

(in thousands)

2021

2020

Depreciation and amortization

$
143

$
164

Cost of durable medical equipment rentals

1,688

1,748

Total depreciation expense

$
1,831

$
1,912

9.7. Goodwill and Other Intangible Assets

The Company’s durable medical equipment and investment management segments include identifiable intangible assets ~~acquired~~obtained through acquisitions in prior years. Goodwill presented on the condensed consolidated balance sheets ~~consists only of the goodwill acquired as part of~~is attributed to the acquisitions of the durable medical equipment businesses. The Company’s annual impairment assessment date for goodwill ~~and other intangible assets~~ is April 1.

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


	For the three months ended September 30,
(in thousands)	2022		2021
Beginning balance	$	52,463	$	50,536
Acquisition of businesses		-		1,927
Ending balance	$	52,463	$	52,463

For the three months ended September 30,

(in thousands)

2021

2020

Beginning balance

$
50,536

$
50,010

Acquisition of businesses

1,927

-

Purchase accounting adjustment

-

-

Ending balance

$
52,463

$
50,010

The following tables provide additional details ~~associated with~~related to the Company’s acquired identifiable intangible ~~assets subject to amortization (dollar amounts in thousands):~~assets:


	As of September 30, 2021							As of June 30, 2021							As of September 30, 2022							As of June 30, 2022
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Durable Medical Equipment
Tradename	$	9,060	$	(2,744	)	$	6,316	$	9,060	$	(2,511	)	$	6,549	$	9,060	$	(3,676	)	$	5,384	$	9,060	$	(3,443	)	$	5,617
Hospital contracts		90		(26	)		64		90		(15	)		75		90		(55	)		35		90		(49	)		41
Non-compete agreements		990		(578	)		412		1,370		(890	)		480		1,370		(1,156	)		214		1,370		(1,107	)		263
		10,140		(3,348	)		6,792		10,520		(3,416	)		7,104		10,520		(4,887	)		5,633		10,520		(4,599	)		5,921

Investment Management
Investment management agreement		3,900		(2,387	)		1,513		3,900		(2,293	)		1,607
Investment management agreements																15,264		(3,019	)		12,245		15,264		(2,753	)		12,511
Assembled workforce		526		(322	)		204		526		(309	)		217		1,103		(389	)		714		1,103		(364	)		739
		4,426		(2,709	)		1,717		4,426		(2,602	)		1,824		16,367		(3,408	)		12,959		16,367		(3,117	)		13,250

Total	$	14,566	$	(6,057	)	$	8,509	$	14,946	$	(6,018	)	$	8,928	$	26,887	$	(8,295	)	$	18,592	$	26,887	$	(7,716	)	$	19,171

Estimated Future Amortization Expense (in thousands):

For the nine months ending June 30, 2022

$
1,156

For the year ending June 30, 2023

1,469

For the year ending June 30, 2024

1,267

For the year ending June 30, 2025

1,157

For the year ending June 30, 2026

1,095

Thereafter

2,365

Total

$
8,509

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.

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

A lease for office space located in Charleston, South Carolina was assumed as part of the acquisition of the Monomoy UpREIT investment management agreement in May 2022. The non-cancellable lease term expires on October 1, 2024.

The Company has a lease for office space located in Waltham, ~~MA.~~Massachusetts. 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~~10. Borrowings

Related party borrowings of the ~~Company began to occupy~~Company's subsidiaries are summarized in 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.~~following table:


(in thousands)	Borrower	September 30, 2022			June 30, 2022
Seller Note	GECM	$	5,661		$	6,270
GP Corp. Note	GEC GP	*			*
Total principal		$	5,661		$	6,270
Unamortized debt issuance cost			-			-
Total long-term related party notes payable			5,661			6,270
Less current portion of related party notes payable			(5,661	)		-
Related party notes payable, net of current portion		$	-		$	6,270

~~12. Borrowings~~*Balance eliminates in consolidation.

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


(in thousands)	Subsidiaries	September 30, 2021			June 30, 2021			Borrower	September 30, 2022			June 30, 2022
GEGGL Notes								GEG	$	26,945		$	26,945
DME Revolver								HC LLC and subsidiaries		-			-
Equipment Financing	DME Inc. and subsidiaries		2,969			2,041		HC LLC and subsidiaries		3,909			2,993
Less current portion of capitalized equipment financing			(2,927	)		(1,974	)
Equipment financing debt, net of current portion		$	42		$	67
Total principal									$	30,854		$	29,938
Unamortized debt discounts and issuance costs										(1,348	)		(1,413	)
Total other outstanding borrowings										29,506			28,525
Less current portion of other outstanding borrowings										(3,909	)		(2,993	)
Other outstanding borrowings, net of current portion									$	25,597		$	25,532

The Company incurred interest expense of ~~$0.01~~$0.7 million and ~~$0.05~~$0.01 million for the three months ended September 30, 2022 and 2021, respectively, on related-party and ~~2020, respectively.~~other borrowings. See Note 11 – Convertible Notes for interest expense on Convertible Notes and Note 12 – Non-Controlling Interests and Preferred Stock of Subsidiaries for interest expense on the preferred stock of subsidiaries.

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


(in thousands)	Principal Due		Principal Due
For the nine months ending June 30, 2022	$	2,927
For the year ending June 30, 2023		42
For the nine months ending June 30, 2023			$	3,909
For the year ending June 30, 2024				5,661
For the year ending June 30, 2025				-
For the year ending June 30, 2026				-
For the year ending June 30, 2027				26,945
Thereafter				-
Total	$	2,969	$	36,515

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

Durable Medical Equipment

The Corbel Facility was assumed in the acquisition of the durable medical equipment businesses in 2018 and was repaid on December 29, 2020. 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 6 – Related Party Transactions and Note 15 – Non-Controlling Interests and Preferred Stock of Subsidiaries.

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

For the three months ended September 30,

(in thousands)

2021

2020

Principal payments

$
-

$
354

Interest expense

-

661

The Company ~~also assumed~~has a revolving line of credit with Banc of California (formerly Pacific Mercantile ~~Bank~~Bank) (DME Revolver) ~~in the acquisition of the durable medical equipment businesses in 2018. There were 0 borrowings outstanding under the DME Revolver at September 30, 2021.~~. The DME Revolver allows for borrowings up to ~~$10~~$10 million, subject to a fixed percentage of qualifying accounts ~~receivables~~receivable 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 ~~0.4%~~0.4% per ~~annum.~~annum. At September 30, ~~2021~~2022 the interest rate was ~~3.7%~~6.7%. Interest is payable monthly in arrears. The Company has the option to prepay the borrowings without any penalty. As of September 30, 2022, there were no borrowings outstanding under the DME Revolver.

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 the 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. and its subsidiaries on a consolidated basis~~LLC must also comply with a fixed-charge coverage and leverage ratio financial covenants, which are based in part on the levels of HC ~~LLC. EBITDA levels.~~LLC's earnings before interest, taxes, depreciation and amortization. The ~~obligations under the DME Revolver are non-recourse to the Company.~~Company was in compliance with all material covenants and restrictions at September 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~~third party banks and are generally payable in equal installments over terms of one to three years, depending on the nature of the underlying purchases being financed. The debt is secured by the inventory and equipment, as applicable, of the operating subsidiaries entering into the agreements, and the long-term agreements have implicit interest rates between 7 – 8%8%. During the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company financed ~~$2.1~~$2.7 million and ~~$0.4~~$2.1 million, respectively, in inventory and equipment through such financing agreements.

Investment Management

AsOn May 4, 2022 as part of the ~~entry into~~consideration paid to acquire the Monomoy UpREIT investment management ~~business,~~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 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. The balance of the Seller Note as of September 30, 2022 was $5.7 million.

During the three months ended September 30, 2022, the Company ~~acquired certain assets from MAST Capital~~settled the principal amount of $0.6 million by transferring 50,000 shares of GECC stock.

General Corporate

On June 9, 2022, we issued $26.9 million in aggregate principal amount of 7.25% Notes due 2027 (the GEGGL Notes), which included $1.9 million of GEGGL Notes issued in connection with the partial exercise of the underwriters’ over-allotment option. The aggregate principal balance of the GEGGL Notes outstanding as of September 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 ~~consideration for those assets, GP Corp. issued a senior~~right of payment, to indebtedness under our Convertible Notes and any other future secured ~~note payable (the~~ 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 ~~GP Corp. Note~~June 30, 2027). 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 is a related party, no gain was recordedGEGGL Notes can be called 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~~or after, June 30, 2024. Holders of the ~~newly~~Notes do not have the option to have the GEGGL Notes repaid prior to the stated maturity date. The GEGGL Notes were issued ~~convertible notes was treated as~~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 ~~capital contribution and recorded~~net consolidated debt to ~~additional paid in capital in the amount~~equity ratio of ~~$0.6 million.~~

~~Payments and interest expense incurred on the GP Corp. Note are summarized in the following table:~~

	~~For the three months ended September 30,~~
~~(in thousands)~~	~~2021~~⁽¹⁾		~~2020~~
~~Principal payments~~	$	-	$	-
~~Interest expense~~		-		26

~~(1) Principal and interest amounts incurred after GEG’s purchase of the GP Corp. note are not reported in this table, as they eliminate in consolidation.~~

~~13. Convertible Notes~~

2:1. As of September 30, ~~2021~~2022 our consolidated debt to equity ratio is 1.59:1.00.

11. Convertible Notes

As of September 30, 2022 and June 30, 2022, the total outstanding principal balance of convertible notes due on February 26, 2030 (the Convertible Notes ~~outstanding~~) was ~~$34.3~~$36.1 million, including cumulative interest ~~paid-in-kind.~~paid in-kind. The ~~convertible notes (~~Convertible Notes) are held by a consortium of investors, including ~~$16.2~~$14.7 million issued to certain related parties. Such Convertible Notes issued to related parties include:

▪

~~$6.4 million issued to entities associated with Matthew A. Drapkin, including funds managed by Northern Right Capital Management, L.P. (Northern Right), a significant shareholder. Mr. Drapkin, a member of the Company’s Board of Directors, is the Chief Executive Officer of Northern Right.~~

▪

$6.7 million issued to entities associated with Matthew A. Drapkin, including funds managed by Northern Right Capital Management, L.P. (Northern Right), a significant shareholder. Mr. Drapkin, a member of the Company’s Board of Directors, is the Chief Executive Officer of Northern Right.

▪

$6.8 million issued to entities associated with Jason W. Reese, including funds managed by ICAM, a significant shareholder. Mr. Reese is the executive chairman of the Company’s Board of Directors.

▪

$7.2 million issued to entities associated with Jason W. Reese, including funds managed by ICAM, a significant shareholder.

▪

$0.7▪

~~$0.7~~ million issued to entities associated with Eric J. Scheyer, a member of the Company’s Board of Directors.

▪

~~$2.3 million issued to MAST Capital, owner of 7.4% of our outstanding company stock.~~

The Convertible Notes accrue interest at ~~5.0%~~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~~FASB Accounting Standards Codification Topic 815, Derivatives and Hedging, for certain contracts involving a reporting entity’s own equity. The Company incurred ~~$1.2~~$1.2 million in issuance costs on the original issuance. The debt issuance costs are being amortized over the ~~10-year Convertible Notes~~10-year term and are netted with the principal balance ~~within convertible debt~~ on our condensed consolidated balance ~~sheet.~~sheets. As of September 30, 2022 and June 30, 2022, the remaining balance of unamortized debt issuance costs was $0.9 million.

~~The Company incurred interest expense of $0.5 million and $0.4 million related to the convertible notes for~~During the three months ended September 30, 2022 and 2021, the Company incurred interest expense of $0.5 million and ~~2020,~~$0.5 million, respectively, related to the Convertible Notes, inclusive of non-cash interest related to amortization of ~~discount.~~debt issuance costs.

~~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 December 31, 2021. In addition to claiming ERC’s during the prior fiscal year, the Company claimed ERCs of $2.4 million during the quarter ended September 30, 2021. Such claimed ERCs not settled prior to quarter end in the amount of $4.0 million are expected to be settled shortly thereafter and are disclosed within prepaid and other current assets on our consolidated balance sheet. We will continue to monitor our eligibility for this credit during the quarter ending December 31, 2021.

~~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~~.

~~16.~~13. Stockholders’ Equity

Restricted Stock Awards and Restricted Stock Units

During the three months ended September 30, ~~2021, there were 0 awards or forfeitures of performance-based~~2022, the Company granted 397,545 restricted stock awards, ~~included in the below table and 732,909 remain outstanding as of September 30, 2021. These restricted stock awards granted~~which have ~~both performance and service requirements in connection with the formation of the investment management business. The~~various vesting ~~of these awards is subject to a~~ terms between ~~five-year~~1 ~~service requirement and an investment management cumulative revenue collection target of $40 million for the~~ ~~five-year~~- ~~period ended November~~ 3 2021. In order to recognize compensation expense over the vesting period, the Company estimates the probability of the performance target being met on an on-going basis. As of September 30, 2021, the Company estimated that approximately 249,802 of the restricted stock awards are probable of vesting under the performance condition. Subsequent to quarter end, the Compensation Committee of the Board of Directors in its discretion has determined that an aggregate of 580,923 performance shares previously awarded to certain employees have vested.

In addition, during the three months ended September 30, 2021, the Company granted 104,602 service-based restricted stock awards to a director, which vest 25% up-front and annually on a pro-rata basis over the next 3 years subject to service requirements.

Restricted stock units are subject to service requirements. During the three months ended September 30, 2022 the Company did not grant any shares of restricted stock units.

The Company accounts for forfeitures of the restricted stock awards and restricted stock units in the period incurred. ~~During the three months ended September 30, 2021 the Company granted 7,845 and 140,294 shares of restricted stock units to employees and directors, respectively.~~

The activity of the Company’s restricted stock awards and restricted stock units for the three months ended September 30, ~~2021~~2022 was as follows:


Restricted Stock Awards and Restricted Stock Units	Restricted Stock (in thousands)			Weighted Average Grant Date Fair Value		Restricted Stock (in thousands)			Weighted Average Grant Date Fair Value
Outstanding at June 30, 2021		904		$	3.71
Outstanding at June 30, 2022							1,312		$	1.79
Granted		253			2.38		398			2.19
Vested		(130	)		2.55		(238	)		2.16
Forfeited		-			-		(3	)		2.50
Outstanding at September 30, 2021		1,027		$	3.57
Outstanding at September 30, 2022							1,469		$	1.84

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 September 30, 2022, there were 138,973 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 28,965 restricted stock awards, for which the service condition was met during the three months ended September 30, 2022.

Stock Options

The following table summarizes the Company’s option award activity as of and ~~through~~during the three months ended September 30, ~~2021:~~2022:

Options

Shares
(in thousands)

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term (years)

Aggregate Intrinsic Value
(in thousands)

Outstanding at June 30, 2021

2,493

$
3.69

4.51

$
-

Options granted

18

2.87

-

-

Exercised

-

-

-

-

Forfeited, cancelled or expired

-

-

-

-

Outstanding at September 30, 2021

2,511

$
3.69

4.27

$
-

Exercisable at September 30, 2021

2,061

$
3.65

4.01

$
-

Vested and expected to vest as of September 30, 2021

2,511

$
3.69

4.27

$
-


Options	Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Outstanding at June 30, 2022		2,134		$	3.68		3.34	$	-
Options granted		125			3.60		-		-
Forfeited, cancelled or expired		(732	)		3.59		-		-
Outstanding at September 30, 2022		1,527		$	3.72		4.63	$	-
Exercisable at September 30, 2022		1,436		$	3.70		4.67	$	-
Vested and expected to vest as of September 30, 2022		1,527		$	3.72		4.63	$	-

During the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company recognized total stock-based compensation expense associated with all restricted stock and stock options of ~~$0.6~~$0.8 million and ~~$0.4~~$0.6 million, respectively.

As of September 30, ~~2021,~~2022, the Company had unrecognized compensation costs related to all unvested share awards and options totaling ~~$1.5~~$2.4 million.

During the three months ended September 30, ~~2021,~~2022, the Company issued compensation to certain employees in the form of GECC common ~~shares.~~shares to be settled with GECC shares currently held by the Company. The total value of ~~issued~~GECC shares ~~were $0.8~~awarded for the three months ended September 30, 2022 was $0.4 million, of which ~~$0.2~~$0.1 million vested immediately, and the balance will vest annually pro-rata over a three year period. Related compensation expense was $0.1 million for the ~~subsequent 3 years.~~three months ended September 30, 2022.

14. Income Taxes

~~17. Income Tax~~

As of June 30, ~~2021,~~2022, the Company had net operating loss (NOL) carryforwards for federal and state income tax purposes of approximately ~~$952~~$821 million and ~~$198~~$211 million, respectively. The federal NOL carryforwards generated prior to fiscal year 2018 will expire from ~~2022~~2023 through ~~2037.~~2037. The federal NOL carryforwards generated in fiscal year 2018 or later can be carried forward indefinitely. State NOL carryforwards primarily relate to California and Massachusetts. The California NOL carryforwards ~~of $185 million~~ will expire from 2029 through ~~2037.~~2037. The Massachusetts NOL carryforwards ~~of $13 million~~ will expire from 2031 to ~~2038.~~ 2038.

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.

3832

~~18.~~The Inflation Reduction Act (IRA) was enacted into law on August 16, 2022. Included in the IRA was a provision to implement a 15% corporate alternative minimum tax on "adjusted financial statement income" for applicable corporations and a 1% excise tax on repurchases of stock. These provisions are effective for tax years beginning after December 31, 2022. We are in the process of evaluating the provisions of the IRA, but we do not currently believe the IRA will have a material impact on our reported results, cash flows or financial position when it becomes effective.

15. Commitments and Contingencies

From time to time, the Company is involved in lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. 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.

~~19.~~16. Segment Information

The Company allocates resources based on 2two 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.

The following tables ~~illustrate~~summarize results of operations by segment:


	For the three months ended September 30, 2021															For the three months ended September 30, 2022
(in thousands)	Durable Medical Equipment			Investment Management⁽¹⁾			General Corporate⁽¹⁾			Intercompany Eliminations⁽²⁾			Consolidated Total			Durable Medical Equipment			Investment Management			General Corporate			Intercompany Eliminations(1)			Consolidated Total
Revenue:
Total revenue	$	15,555		$	983		$	243		$	(243	)	$	16,538		$	16,719		$	1,860		$	203		$	(203	)	$	18,579
Operating costs and expenses:
Cost of durable medical equipment sold and services		(4,060	)		-			-			-			(4,060	)		(4,340	)		-			-			-			(4,340	)
Cost of durable medical equipment rentals		(1,850	)		-			-			-			(1,850	)		(2,050	)		-			-			-			(2,050	)
Depreciation and amortization		(453	)		(109	)		-			-			(562	)		(387	)		(294	)		-			-			(681	)
Non-cash compensation⁽³⁾		-			(396	)		(372	)		-			(768	)
Transaction costs⁽⁴⁾		(97	)		-			(184	)		-			(281	)
Non-cash compensation(2)																	-			(477	)		(464	)		-			(941	)
Other selling, general and administrative		(6,286	)		(843	)		(1,130	)		243			(8,016	)		(9,062	)		(1,557	)		(1,136	)		203			(11,552	)
Total operating expenses		(12,746	)		(1,348	)		(1,686	)		243			(15,537	)		(15,839	)		(2,328	)		(1,600	)		203			(19,564	)
Other income (expense):
Interest expense		(1,287	)		(24	)		(1,269	)		1,218			(1,362	)		(1,106	)		(136	)		(1,839	)		1,085			(1,996	)
Other income (expense)		560			249			875			(1,218	)		466			6,984			(5,427	)		(5,834	)		(1,085	)		(5,362	)
Total other income (expense), net		(727	)		225			(394	)		-			(896	)		5,878			(5,563	)		(7,673	)		-			(7,358	)
Total pre-tax income (loss)	$	2,082		$	(140	)	$	(1,837	)	$	-		$	105
Total income (loss) before income taxes																$	6,758		$	(6,031	)	$	(9,070	)	$	-		$	(8,343	)

For the three months ended September 30, 2020

(in thousands)

Durable Medical Equipment

Investment Management⁽¹⁾

General Corporate⁽¹⁾

Intercompany Eliminations⁽²⁾

Consolidated Total

Revenue:

Total revenue

$
14,610

$
773

$
91

$
(91
)

$
15,383

Operating costs and expenses:

Cost of durable medical equipment sold and services

(4,207
)

-

-

-

(4,207
)
Cost of durable medical equipment rentals

(1,915
)

-

-

-

(1,915
)
Depreciation and amortization

(463
)

(128
)

-

-

(591
)
Non-cash compensation⁽³⁾

-

(194
)

(235
)

-

(429
)
Transaction costs⁽⁴⁾

-

-

(32
)

-

(32
)
Other selling, general and administrative

(7,771
)

(532
)

(1,146
)

91

(9,358
)
Total operating expenses

(14,356
)

(854
)

(1,413
)

91

(16,532
)
Other income (expense):

Interest expense

(709
)

(26
)

(410
)

(1,145
)
Other income (expense)

(3
)

(1,377
)

5

-

(1,375
)
Total other income (expense), net

(712
)

(1,403
)

(405
)

-

(2,520
)
Total pre-tax income (loss)

$
(458
)

$
(1,484
)

$
(1,727
)

$
-

$
(3,669
)

~~(1)~~33

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 from for those services. DME Manager is part of 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 condensed consolidated statements of operations. Non-cash compensation attributable to the general corporate segment is included in selling, general and administrative expense in the condensed consolidated statements of operations.

~~(4)~~

Transaction costs, which consist of legal and other professional services incurred in connection with consummated and unconsummated transactions, are included in selling, general and administrative expense in the condensed consolidated statements of operations.


	For the three months ended September 30, 2021
(in thousands)	Durable Medical Equipment			Investment Management			General Corporate			Intercompany Eliminations(1)			Consolidated Total
Revenue:
Total revenue	$	15,555		$	983		$	243		$	(243	)	$	16,538
Operating costs and expenses:
Cost of durable medical equipment sold and services		(4,060	)		-			-			-			(4,060	)
Cost of durable medical equipment rentals		(1,850	)		-			-			-			(1,850	)
Depreciation and amortization		(453	)		(109	)		-			-			(562	)
Non-cash compensation(2)		-			(396	)		(372	)		-			(768	)
Transaction costs(3)		(97	)		-			(184	)		-			(281	)
Other selling, general and administrative		(6,286	)		(843	)		(1,130	)		243			(8,016	)
Total operating expenses		(12,746	)		(1,348	)		(1,686	)		243			(15,537	)
Other income (expense):
Interest expense		(1,287	)		(24	)		(1,269	)		1,218			(1,362	)
Other income (expense)		560			249			875			(1,218	)		466
Total other income (expense), net		(727	)		225			(394	)		-			(896	)
Total income (loss) before income taxes	$	2,082		$	(140	)	$	(1,837	)	$	-		$	105

(1)

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 (excluding shares held by VHG) 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.

(2)

(3)

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

The following tables ~~illustrate~~summarize assets by segment:


	As of September 30, 2021								As of September 30, 2022
(in thousands)	Durable Medical Equipment		Investment Management		General Corporate		Total		Durable Medical Equipment		Investment Management		General Corporate		Total
Fixed assets, net	$	8,093	$	21	$	1	$	8,115	$	8,397	$	29	$	-	$	8,426
Identifiable intangible assets, net		6,792		1,717		-		8,509		5,633		12,959		-		18,592
Goodwill		52,463		-		-		52,463		52,463		-		-		52,463
Other assets		20,872		49,387		21,774		92,033		11,226		44,824		22,747		78,797
Total	$	88,220	$	51,125	$	21,775	$	161,120	$	77,719	$	57,812	$	22,747	$	158,278

	As of June 30, 2021								As of June 30, 2022
(in thousands)	Durable Medical Equipment		Investment Management		General Corporate		Total		Durable Medical Equipment		Investment Management		General Corporate		Total
Fixed assets, net	$	8,349	$	21	$	2	$	8,372	$	8,025	$	17	$	-	$	8,042
Identifiable intangible assets, net		7,104		1,824		-		8,928		5,921		13,250		-		19,171
Goodwill		50,536		-		-		50,536		52,463		-		-		52,463
Other assets		21,150		66,907		5,976		94,033		11,616		54,520		22,275		88,411
Total	$	87,139	$	68,752	$	5,978	$	161,869	$	78,025	$	67,787	$	22,275	$	168,087

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

~~We are~~GEG is a holding company seeking to acquire assets and businesses, where ~~our~~its people and other assets provide a competitive advantage. We currently have two business operating segments: durable medical equipment and investment management, with general corporate representing unallocated costs and activity to arrive at consolidated operations.

Our durable medical equipment business specializes in the distribution of respiratory care equipment, including positive air pressure equipment and supplies, ventilators and oxygen equipment, and provides sleep study services.

Our investment management business manages a business development company, Great Elm Capital Corp. (GECC), a private real estate investment trust, Monomoy Properties UpREIT, LLC (Monomoy UpREIT), and 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.~~LP. The combined assets under management of these entities at September 30, ~~2021~~2022 was approximately ~~$291.9~~$623.9 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.

We continue to explore other opportunities in the durable medical equipment and investment management sectors, as well as opportunities in other areas that we believe provide attractive risk-adjusted returns on invested capital. As of the date of this report, we have not entered into any binding commitments to make additional acquisitions or investments in any of these areas.

As of June 30, ~~2021,~~2022, we had ~~$952~~$821 million of net operating loss (NOL) carryforwards for federal income tax purposes.

~~Discontinued Operations~~COVID-19

We launched our real estate business in March 2018 with an investment 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. In June 2021, we sold the real estate business. Previously reported financial information~~Company has been ~~recast~~closely monitoring, and will continue to ~~present~~monitor, 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.~~

~~Holding Company Reorganization~~

~~On December 29, 2020, Great Elm Group, Inc. (the~~ ~~Company~~ or ~~GEG) completed a reorganization of the Company’s corporate structure (the~~ ~~Holding Company Reorganization), 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, the Company. 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 Exchange Act. The Reorganization is intended to be a tax-free transaction for U.S. federal income tax purposes for the Company’s shareholders.

~~Following the consummation of the Holding Company Reorganization, J.P. Morgan Broker-Dealer Holdings Inc. (JPM~~), a Delaware corporation and affiliate of JPMorgan Chase & Co., Forest, the Company and JPM 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) with a maturity date of December 29, 2027 for $1,000.00 per share;~~

•

~~Great Elm Healthcare, LLC (HC LLC) issued 10,090 newly issued shares of 9.0% Series A-1 preferred stock (the~~ ~~Series A-1 Preferred Stock) with a maturity date of December 29, 2027 and face value of $1,000.00 per share to Great Elm DME, Inc. (DME Inc~~.), 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). Upon a sale of the durable medical equipment business, such holders of Series A-1 Preferred Stock are only entitled to their liquidation preference;~~

•

~~HC LLC distributed to the owners of DME Inc. cash of $1.9 million and reimbursed GEG $1.3 million to cover deal costs;~~

•

~~JPM acquired 20% of Forest’s common stock for a purchase price of $2.7 million. The Company’s wholly-owned subsidiary, Great Elm DME Manager, LLC (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~~).

~~Using proceeds from the JPM Transactions, DME Inc. paid off the term loan with Corbel (the~~ ~~Corbel Facility~~).

~~COVID-19~~

~~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. In particular,~~pandemic (including new variants of COVID-19) on all aspects of its business. Given the fluidity of the pandemic, the Company cannot estimate the long-term impact of COVID-19 on its business, future results of operations, financial position or cash flows at this time. However, the operational and financial performance of the Company's 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, theand durable medical equipment business ~~continues~~may be significantly impacted by COVID-19. The COVID-19 pandemic and preventative measures taken to ~~experience a~~contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, cancellations of events and restrictions on travel, significant reductions in demand for certain goods and services, reductions in business activity and financial transactions, supply chain disruptions, labor difficulties and shortages, commodity inflation and elements of economic and financial market instability in the United States and globally. Such effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter.

Specifically at our durable medical equipment business, the impacts of COVID-19 initially resulted in suppressed referral ~~pipeline~~pipelines for sleep studies and durable medical equipment ~~set-ups. In addition, indirectly attributable~~set-ups relative to ~~the COVID-19 pandemic the durable medical equipment industry has been impacted by~~pre-COVID levels. Although we have observed a recovery in demand for these services and products, global supply chain challenges ~~most notably shortages in semiconductor microchips. These shortages~~ have impacted our ability to ~~purchase~~procure sufficient volumes of positive air pressure (PAP) devices ~~during the most recent quarter~~ in accordance with our normal procurement ~~process. Although we were able~~process 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 medicalthree months ended September 30, 2022. Our equipment ~~rental revenues~~allotments from key suppliers have created a patient backlog, resulting 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.missed revenue opportunities.

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

4335

The Company prioritizes the health and safety of employees and customers. Beginning in early March 2020, all employees at our corporate headquarters as well as certain employees of DME Inc. moved to a remote-working model. 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. Such employees and key service providers have been able to effectively transition to working remotely while maintaining a consistent level of capabilities and service, however, we will continue to monitor and make adjustments as necessary.

At DME Inc. 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. DME Inc. 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. governmental authorities. As such, we are unable to predict the duration of any business and supply-chain disruptions, the extent to which the COVID-19 pandemic will negatively affect our operating companies’ operating results or the impact that such disruptions may have on our results of operations and financial condition.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with ~~U.S.~~accounting principles generally accepted ~~accounting principles.~~in the United States of America. The preparation of these financial statements requires our management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are monitored and analyzed by our management for changes in facts and circumstances, and material changes in these estimates could occur in the future. During the three months ended September 30, ~~2021,~~2022, 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~~2022 as it relates to recurring ~~transactions, except as follows:~~transactions.

~~On July 1, 2021 the Company adoptedthe 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. Under the full retrospective method of adoption, previously reported financial information has been recast to reflect the adoption of this accounting standard in those periods.

Results of Operations

The following discussion reflects the historical performance of our two business operating segments and general corporate.

The following table provides the results of our consolidated operations:

	For the three months ended September 30,
	2021			Percent Change			2020			For the three months ended September 30,
(in thousands)										2022			Percent Change			2021
Revenue:
Total revenue	$	16,538			8	%	$	15,383		$	18,579			12	%	$	16,538
Operating costs and expenses:
Cost of goods sold		(4,060	)		(3	)%		(4,207	)
Cost of rentals		(1,850	)		(3	)%		(1,915	)
Cost of durable medical equipment sold and services											(4,340	)		7	%		(4,060	)
Cost of durable medical equipment rentals											(2,050	)		11	%		(1,850	)
Transaction costs											-			(100	)%		(281	)
Other selling, general and administrative		(9,065	)		(8	)%		(9,819	)		(12,493	)		42	%		(8,784	)
Depreciation and amortization		(562	)		(5	)%		(591	)		(681	)		21	%		(562	)
Total operating expenses		(15,537	)					(16,532	)
Operating income (loss)		1,001						(1,149	)
Other income (expense):
Total operating costs and expenses											(19,564	)					(15,537	)
Operating (loss) income											(985	)					1,001
Other (expense) income:
Interest expense		(1,362	)		19	%		(1,145	)		(1,996	)		47	%		(1,362	)
Other income (expense)		466			(134	)%		(1,375	)
Other (expense) income											(5,362	)		(1251	)%		466
Total other expense, net		(896	)					(2,520	)		(7,358	)					(896	)
Total pre-tax income (loss)	$	105					$	(3,669	)
(Loss) income before income taxes										$	(8,343	)				$	105

Revenue

Revenues for the three months ended September 30, ~~2021~~2022 increased ~~$1.2~~$2.0 million as compared to the corresponding period in the prior year. The increase is primarily attributable to ~~a $1.0~~$1.2 million increase in durable medical equipment ~~revenues.~~revenues for the corresponding period in the prior year. The increase reflects organic growth ~~reflects~~in resupply revenue, a full quarter of contributions from the ~~acquisitions of Advanced Medical DME, LLC and PM Sleep Lab, LLC (collectively,~~ ~~AMPM) in March 2021 and~~acquisition 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.2021 and improved revenue reserves. Investment management revenues also increased ~~$0.2~~$0.9 million related to ~~increases in assets under~~the recently acquired Monomoy UpREIT management ~~as compared to the prior period.~~agreement and related acquired workforce.

Operating ~~costs~~Costs and ~~expenses~~Expenses

Operating costs for the three months ended September 30, ~~2021 decreased $1.0~~2022 increased $4.0 million as compared to the corresponding period in the prior year. ~~The decrease is~~This increase was partially attributable to increases of $0.8 million at our durable medical equipment business due primarily ~~related~~ to revenue growth and vendor surcharges. Further, investment management operating costs and expenses increased $1.0 million primarily due to costs associated with servicing the recently acquired Monomoy UpREIT management agreement. These increases were partially offset by a reduction of $0.1 million in general corporate costs. In addition, the three months ended September 30, 2021 include $2.4 million in Employee Retention Credits (ERC) claimed during ~~the quarter~~such period 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~~

Other Expenses and ~~MedOne, and $0.8 million in investment management expenses primarily related to increased compensation.~~Income

~~Other income (expense)~~

Interest expense increased by ~~$0.2~~$0.6 million for the three months ended September 30, ~~2021,~~2022, as compared to the three months ended September 30, ~~2020,~~2021, primarily due to ~~current period~~ interest on the ~~$37.0 million face value externally-held preferred stock~~7.25% notes due in ~~Forest and HC LLC which were~~2027 issued in ~~December 2020. In conjunction with~~June 2022 (the GEGGL Notes) and on the ~~issuance~~$6.3 million promissory note issued to Imperial Capital Asset Management, LLC (ICAM) in May 2022 (the Seller Note), of ~~this preferred stock, we extinguished the Corbel Facility~~ which ~~had $24.8~~$5.7 million ~~in principal~~remains outstanding onas of September 30, ~~2020.~~2022.

~~Other~~During the three months ended September 30, 2022 the Company incurred $5.4 million of other expenses (net) comprised of net realized and unrealized loss on investments of $6.8 million, partially offset by dividends and interest income ~~and expense for~~of $1.5 million. During the three months ended September 30, 2021, the Company recognized $0.5 million of other income (net) mainly attributed to dividends and ~~2020 primarily consisted~~interest income of ~~dividend income~~$0.7 million, partially offset by net realized and ~~net~~ unrealized ~~gains and losses~~loss on ~~the Company’s investment in GECC and private funds which is discussed in more detail under “—Investment Management” below.~~investments of our consolidated fund Great Elm SPAC Opportunity Fund, LLC (GESOF) of $0.2 million.

Durable Medical Equipment ~~Business~~

The key metrics of our durable medical equipment business include:

▪

Patients and setup growth - which drives revenue growth and takes advantage of scalable operations; and

▪

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

▪

~~Patients and setup growth – which drives revenue growth and takes advantage of scalable operations; and~~

▪

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

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


	For the three months ended September 30,									For the three months ended September 30,
(in thousands)	2021			Percent Change			2020			2022			Percent Change			2021
Revenue:
Total revenue	$	15,555			6	%	$	14,610		$	16,719			7	%	$	15,555
Operating costs and expenses:
Cost of goods sold		(4,060	)		(3	)%		(4,207	)
Cost of rentals		(1,850	)		(3	)%		(1,915	)
Cost of durable medical equipment sold and services											(4,340	)		7	%		(4,060	)
Cost of durable medical equipment rentals											(2,050	)		11	%		(1,850	)
Depreciation and amortization											(387	)		(15	)%		(453	)
Transaction costs		(97	)	-%				-			-			(100	)%		(97	)
Other selling, general and administrative		(6,286	)		(19	)%		(7,771	)		(9,062	)		44	%		(6,286	)
Depreciation and amortization		(453	)		(2	)%		(463	)
Total operating expenses		(12,746	)					(14,356	)
Total operating costs and expenses											(15,839	)					(12,746	)
Operating income											880						2,809
Other income (expense):
Interest expense		(1,287	)		82	%		(709	)		(1,106	)		(14	)%		(1,287	)
Other income (expense)		560		NM				(3	)
Total other expense, net		(727	)					(712	)
Operating income (loss):
Total pre-tax income (loss)	$	2,082					$	(458	)
Other income											6,984			1147	%		560
Total other income (expense), net											5,878						(727	)
Income before income taxes										$	6,758					$	2,082

Durable Medical Equipment Revenue

For the three months ended September 30, ~~2021,~~2022, revenues from the sale of medical equipment and sleep study services were ~~$8.7~~$9.6 million and ~~$1.3~~$1.4 million, respectively, while for the three months ended September 30, ~~2020,~~2021, such revenues were ~~$8.0~~$8.7 million and ~~$1.2~~$1.3 million, respectively. The increases are primarily attributable to a full quarter of contributions from ~~the acquisitions of AMPM in March 2021 and of~~ MedOne (acquired in August ~~2021~~2021) and organic resupply sales growth, as well as ~~organic growth~~$0.3 million in ~~resupply sales.~~ reduced revenue reserves related to improved collection experience compared to the prior period.

For the three months ended September 30, ~~2021,~~2022, rental revenue was ~~$5.5~~$5.7 million as compared to ~~$5.4~~$5.5 million for the three months ended September 30, ~~2020. This decrease~~2021. The increase is ~~due~~ primarily attributable to reduced ~~referral pipelines~~revenue reserves consistent with medical equipment sales and sleep study services revenues.

Results for ~~new~~the three months ended September 30, 2022 continue to be hindered by global supply chain issues which have limited the availability of PAP equipment, ~~set-ups~~resulting in lost revenue opportunities during the ~~ongoing COVID-19 pandemic, which are customarily driven by in-house or external sleep studies. The contributions of AMPM~~periods primarily related to PAP sales and ~~MedOne were mostly offset by overall decreases~~rentals. We expect these global supply chain issues to persist in ~~durable medical equipment rentals due~~the near term but continue to work with key suppliers to minimize the ~~continued suppressed referral pipeline for new equipment set-ups.~~impact to our business.

Durable Medical Equipment Operating Costs and Expenses

Cost of ~~goods~~durable medical equipment sold and services includes inventory costs for medical equipment sold and direct costs associated with running sleep study services, including staff compensation to perform the studies and the purchase of supplies used in the studies. Cost of durable medical equipment rentals includes depreciation on medical equipment held for lease and costs related to maintenance expenses. The ~~favorable~~ margins on sales as compared to the prior period ~~are primarily due to favorable negotiated volume pricing with strategic vendors.~~remained consistent, while limited availability and related temporary vendor surcharges on PAP equipment has resulted in slightly lower margins on our rental revenues.

~~General~~Other selling, general and administrative expenses consist of employee-related, facility-related, freight and shipping, information technology, and other costs. For the ~~three months~~three-month period ended September 30, 2021, ~~these amounts~~such expenses are net of ~~government stimulus received~~$2.3 million in ERC claimed under the CARES ~~Act of $2.3 million related to employee retention tax credits.~~Act. Excluding such stimulus, employee-related costs were ~~$6.1~~$6.3 million and ~~$5.2~~$6.1 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in employee related costs is primarily due to ~~additional payroll-related costs relating~~organic headcount growth compared to ~~acquired AMPM and MedOne employees.~~the prior period. Facility-related expenses ofwere $0.7 million and $0.8 million, ~~and freight~~respectively, with the slight reduction related to strategic renewals of existing leases upon original lease expiry. Freight and shipping costs of $0.4 million, as well as IT expense of $0.6 million, remained consistent when compared to the corresponding period 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.~~prior year. Other costs for the three months ended September 30, 2022 were $1.1 million as compared to $0.7 million ~~and $0.9 million, respectively, primarily consisting of professional fees.~~for the three months ended September 30, 2021 . Other costs were benefited in the ~~current~~comparable period by $0.2 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~~related to ~~one-time expenses incurred in~~ the acquisition of MedOne in August 2021, whereas no acquisitions ~~were noted in~~took place during the ~~prior period.~~ three months ended September 30, 2022.

Depreciation and amortization includes the depreciation of ~~fixed assets, excluding depreciation on the~~property and 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.~~

~~Durable Medical Equipment Other Expenses~~

~~The increase in interest expense for~~2022 decreased slightly when compared to the three months ended September 30, 2021 as we reduced discretionary capital expenditures during the quarter ended September 30, 2022.

Durable Medical Equipment Other Expenses and Income

Interest expense decreased by $0.2 million in the three months ended September 30, 2022 as compared to the corresponding period in the prior year ~~is attributable primarily~~due to ~~higher outstanding principal balances~~partial settlement of the ~~HC LLC~~9.0% Series A-1 preferred stock (Series A-1 Preferred Stock) in June 2022 of ~~$44.1~~$6.0 million, as ~~compared to $25.3 million outstanding under the Corbel Facility and DME Revolver (as defined below)~~well as in July 2022 of ~~September 30, 2020.~~$0.4 million.

During the three months ended September 30, 2022 and 2021, the Company recognized a $7.0 million and $0.5 million benefit, respectively, within the durable medical equipment business related to the recurring fair value adjustment of an embedded derivative inwithin the ~~HC LLC~~9.0% Series A-2 preferred stock (Series A-2 Preferred Stock) issued to ~~Forest.~~Forest Investments, Inc. (Forest). This has an off-setting impact in our ~~General Corporate~~general corporate activity and ~~eliminates~~is eliminated in consolidation.

4738

Investment Management ~~Business~~

The key metrics of our investment management business ~~are:~~include:

•

Assets under management ― which provides the basis on which our management fees are determined

•

Investment performance ― on which our incentive fees (if any) are determined and is the benchmark on which we are measured against our competition

•

~~Assets under management ― which provides the basis on which our management fees and performance milestones for vesting of certain equity awards are based; and~~

•

~~Investment performance ― on which our incentive fees (if any) are based and on which we are measured against our competition.~~

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


	For the three months ended September 30,									For the three months ended September 30,
(in thousands)	2021			Percent Change			2020			2022			Percent Change			2021
Revenue:
Total revenue	$	983			27	%	$	773		$	1,860			89	%	$	983
Operating costs and expenses:
Non-cash compensation		(396	)		104	%		(194	)		(477	)		20	%		(396	)
Transaction Costs		-		-%				-
Other general and administrative		(843	)		58	%		(532	)		(1,557	)		85	%		(843	)
Depreciation and amortization		(109	)		(15	)%		(128	)		(294	)		170	%		(109	)
Total operating expenses		(1,348	)					(854	)
Other income (expense):
Total operating costs and expenses											(2,328	)					(1,348	)
Operating loss											(468	)					(365	)
Other (expense) income:
Interest expense		(24	)		(8	)%		(26	)		(136	)		467	%		(24	)
Other income (expense)		249			(118	)%		(1,377	)
Total other expense, net		225						(1,403	)
Operating income (loss):
Total pre-tax income (loss)	$	(140	)				$	(1,484	)
Other (expense) income											(5,427	)		(2280	)%		249
Total other (expense) income, net											(5,563	)					225
Loss before income taxes										$	(6,031	)				$	(140	)

Investment Management Revenue

Investment management revenues include management fees, property management fees, and ~~administrative fees.~~administration and service fees related to services provided to certain managed investment vehicles. For the three months ended September 30, 2022 and 2021, we recognized $1.3 million and ~~2020, management fees were~~ $0.9 million, respectively of management fee revenue and ~~$0.6~~$0.3 million and $0.1 million, respectively, of administration and ~~administrative fees were $0.1 million and $0.2 million, respectively.~~service fees. The increase in management ~~fees~~fee revenue for the three months ended September 30, ~~2021~~2022 as compared to the three months ended September 30, ~~2020~~2021 is attributable to ~~increases~~management fees earned under the Monomoy UpREIT investment management agreement acquired in May 2022. In conjunction with the ~~average assets on which such~~same agreement, we also began earning property management fees ~~are calculated through growth of GECC and GESOF.~~totaling $0.3 million for the three months ended September 30, 2022.

Investment Management Operating Costs and Expenses

Non-cash compensation ~~compensation was impacted by annual awards granted in~~costs increased $0.1 million for the three months ended September ~~2021, whereas no awards were granted~~30, 2022 as compared to the ~~investment team in~~three months ended September 30, 2021 primarily due to grants issued to recently hired personnel servicing the ~~prior year.~~ Monomoy UpREIT management agreement.

Other general and administrative costs consist primarily of professional fees, facilities and other overhead costs, and payroll and related costs, excluding ~~stock-based~~non-cash compensation. The $0.7 million increase in general and administrative costs for the three months ended September 30, ~~2021~~2022 as compared to the corresponding period in the prior year is primarily attributed to the additional costs incurred following the acquisition of the Monomoy UpREIT investment management agreement in May 2022.

Investment Management Other Expenses and Income

Interest expense increased by $0.1 million for the three months ended September 30, 2022, as compared to the three months ended September 30, ~~2020, is primarily attributable~~2021, due to ~~an increase~~interest on the Seller Note issued in ~~allocated payroll costs and consulting fees.~~May 2022.

~~Investment Management Other Income (Expense)~~

Other income and ~~expense~~expenses primarily consisted of dividend income and net realized and unrealized losses on the Company’s ~~investment~~managed investments in GECC, Monomoy UpREIT, and the underlying investments of our consolidated fund Great Elm SPAC Opportunity Fund, LLC (GESOF). During the three months ended September 30, 2022 the Company incurred $5.4 million of other expenses (net) comprised of net realized and unrealized ~~losses~~loss on investments of ~~consolidated funds. Dividend~~$6.8 million, partially offset by dividends and interest income ~~from GECC for~~of $1.4 million. During the three months ended September 30, 2021, ~~and 2020 was~~the Company recognized $0.2 million of other income (net) mainly attributed to the dividend income from GECC of $0.6 million, ~~and $0.5 million, respectively. We recognized~~partially offset by net realized and unrealized losses on our investment in GECC and the investments of ~~the consolidated funds~~GESOF 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.~~million. 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~~ Our investment in Monomoy UpREIT is adjusted quarterly based on net asset value as supported by recurring property valuations.

General Corporate

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


	For the three months ended September 30,									For the three months ended September 30,
(in thousands)	2021			Percent Change			2020			2022			Percent Change			2021
Revenue:
Total revenue	$	243			167	%	$	91		$	203			(16	)%	$	243
Operating costs and expenses:
Non-cash compensation		(372	)		58	%		(235	)		(464	)		25	%		(372	)
Transaction costs		(184	)		475	%		(32	)		-			(100	)%		(184	)
Other general and administrative		(1,130	)		(1	)%		(1,146	)		(1,136	)		1	%		(1,130	)
Depreciation and amortization		-		-%				-
Total operating expenses		(1,686	)					(1,413	)
Other income (expense):
Total operating costs and expenses											(1,600	)					(1,686	)
Operating loss											(1,397	)					(1,443	)
Other expense:
Interest expense		(1,269	)		210	%		(410	)		(1,839	)		45	%		(1,269	)
Other income (expense)		875		NM				5
Total other income (expense), net		(394	)					(405	)
Operating income (loss):
Total pre-tax income (loss)	$	(1,837	)				$	(1,727	)
Other (expense) income											(5,834	)		(767	)%		875
Total other expense, net											(7,673	)					(394	)
Loss before income taxes										$	(9,070	)				$	(1,837	)

General Corporate Revenue

For the three months ended September 30, ~~2020, all~~2022 and 2021, general corporate revenue ~~was derived from~~consists of fees earned by Great Elm DME Manager, ~~which provides~~LLC (DME Manager), a subsidiary in our general corporate segment, for consulting services provided to ~~DME Inc.~~Great Elm Healthcare, LLC (HC LLC), a subsidiary in our durable medical equipment segment. In addition to this revenue, DME Manager earns fees for consulting services provided to our consolidated subsidiary, Forest. These intercompany revenues and corresponding expenses are eliminated in consolidation.

General Corporate Operating Costs and Expenses

Non-cash compensation of $0.5 million during the three months ended September 30, 2022 reflects an increase of $0.1 million as compared to the corresponding period in the prior year, and relates to increases in director grants, as directors have elected to receive their compensation entirely in the form of shares instead of cash.

Transaction costs incurred in the three months ended September 30, 2021 ~~revenue includes $0.1 million~~primarily consisted of professional fees in ~~fees earned by DME Manager relating to consulting services provided to Forest.~~connection with our acquisitions of businesses as well as diligence for potential future opportunities. No such costs were incurred in the three months ended September 30, 2022.

~~General Corporate Costs and Expenses~~40

~~Our~~Other general and administrative costs primarily consisted of professional fees, employee-related and facility-related costs for our finance, legal and other administrative functions, as well as professional fees and payroll costs in connection with our ~~general corporate oversight of our subsidiaries and~~ diligence efforts towards identifying asset and business acquisition opportunities. ~~Transaction~~These 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~~remained relatively flat 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~~

General Corporate Other Expenses and ~~administrative costs.~~Income

~~The decrease in other general and administrative costs~~Interest expense for the three months ended September 30, ~~2021~~2022 consists primarily of interest on the convertible notes, preferred stock issued to J.P. Morgan Broker-Dealer Holdings Inc. (JPM) in Forest (Forest Preferred Stock), and GEGGL Notes. Interest expense increased $0.6 million in the three months ended September 30, 2022, as compared to the three months ended September 30, ~~2020 is~~2021, primarily ~~attributable~~due to interest on the GEGGL Notes that were issued in June 2022.

Other expense (net) during the three months ended September 30, 2022 includes a $7.0 million charge related to the recurring fair value adjustment for the embedded derivative within Series A-2 Preferred Stock issued to Forest that has an offsetting impact in our durable medical equipment segment and is eliminated in consolidation. This amount is partially offset by intercompany interest income of ~~director stock-based compensation discussed above.~~

$1.1 million related to Forest's investments in Series A-1 Preferred Stock and Series A-2 Preferred Stock. Other ~~Income (Expense)~~

~~Interest expense for~~income (net) during 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,~~Series A-1 Preferred Stock and Series A-2 Preferred Stock, and $0.2 million in dividends and unrealized gains on ~~our~~the investment in Monomoy Properties, LLC. This amount iswas 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.

Income Taxes

We do not expect that we will owe any federal taxes for the three months ended September 30, 2022 and 2021. However, during the three months ended September 30, 2022, we did incur $0.2 million in state tax expense related to jurisdictions where we do not have sufficient state NOL carryforwards to offset current and deferred state taxes. As of June 30, ~~2021,~~2022, the Company had NOL carryforwards for federal and state income tax purposes of approximately ~~$952~~$821 million and ~~$198~~$211 million, respectively. The federal NOL carryforwards generated prior to fiscal year 2018 will expire from ~~2022~~2023 through 2037. The federal NOL carryforwards generated in fiscal year 2018 or later can be carried forward indefinitely. State NOL carryforwards primarily relate to California and Massachusetts. The California NOL carryforwards ~~of $185 million~~ will expire from 2029 through 2037. The Massachusetts NOL carryforwards ~~of $13 million~~ will expire from 2031 to ~~2038. The state NOL carryforwards will expire from 2029 through~~ 2038. The Company assesses NOL carryforwards based on taxable income on an annual basis.

Liquidity and Capital Resources

Cash Flows

Cash flows provided by operating activities for the three months ended September 30, 2022 were $2.0 million. The adjustments to reconcile our net loss of $8.5 million to net cash provided by operating activities included add-backs for various non-cash charges, such as $5.6 million of realized loss on our investments, $1.2 million of unrealized loss on our investments, $2.6 million of depreciation and amortization, and $0.8 million of stock-based compensation expense, which was partially offset by the net negative change in our operating assets and liabilities of $1.5 million. Further, we received $1.6 million attributed to sales of investments by GESOF.

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~~net negative change in ~~prepaid~~our operating assets and liabilities of ~~$1.4~~$4.0 million, ~~an increase of deferred revenues of $1.2 million due to the ERC during the period,~~and $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.~~Consolidated Fund. These outflows were partially offset by non-cash inflows of ~~$2.2~~$2.3 million related to depreciation and amortization and $0.6 million in stock-based compensation.

Cash flows ~~provided by operating~~used in investing activities for the three months ended September 30, ~~2020~~2022 were ~~$1.2 million. The net cash inflow in our continuing operations was~~$2.3 million, which is primarily ~~the result~~attributed to $2.5 million of ~~our net loss from continuing operations~~purchases of ~~$3.8~~equipment held for rental and $0.1 million of purchases of property and equipment, partially offset by ~~non-cash charges~~$0.3 million in proceeds from sale 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.equipment held for rental.

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 held for rental, partially offset by $0.6 million in proceeds from sales of equipment held for ~~rental and disposal of property and equipment~~rental.

Cash flows used in ~~investing~~financing activities for the three months ended September 30, ~~2020~~2022 were ~~$15.0 million. The net cash outflow~~$0.1 million, which primarily consisted of ~~$13.6~~principal payments on equipment financing of $1.7 million, ~~due~~distributions to ~~the participation~~non-controlling interests in GESOF of ~~the Rights Offering~~$0.6 million, and redemption of ~~GECC. Additionally, there was $1.6 million in purchases~~Series A-1 Preferred Stock held by Corbel Capital Partners SBIC, L.P. of ~~equipment for rental~~$0.4 million. These outflows were partially offset by ~~$0.2 million in~~ proceeds from ~~sale~~equipment financing of ~~equipment held for rental and disposal of property and equipment.~~$2.7 million.

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~~fund of $0.5 million, partially offset by ~~principle~~principal 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.~~

Financial Condition

As of September 30, ~~2021,~~2022, we had an unrestricted cash balance of ~~$21.8~~$23.3 million. We also hold ~~5,484,669~~1,744,048 shares of GECC common stock with an estimated fair value of ~~$19.1~~$16.2 million as of September 30, ~~2021.~~2022.

We intend to make acquisitions or investments that we believe will result in the ~~investment~~usage of all of our liquid financial resources, or 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.

Borrowings

As of September 30, ~~2021,~~2022, the Company had ~~$34.3~~$26.9 million ~~face value~~in outstanding aggregate principal of the GEGGL Notes. The GEGGL Notes are due on June 30, 2027, and interest is paid quarterly. The GEGGL Notes include covenants that limit additional indebtedness or the payment of dividends subject to compliance with a net consolidated debt to equity ratio.

As of September 30, 2022, the Company had $36.1 million principal balance in convertible notes ~~outstanding.~~outstanding (including cumulative interest paid in-kind). The convertible notes are held by a consortium of investors, including related parties. The convertible notes accrue interest at 5.0% per annum, payable semiannually in arrears on June 30 and December 31, in cash or in kind at the option of the Company.

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.

As of September 30, ~~2021,~~2022, GECM had $5.7 million outstanding in respect to the Seller Note. The Seller Note is due on August 4, 2023 and is payable at GECM’s option with either cash or newly issued GEG shares (subject to shareholder approval). There are no prepayment penalties. The Seller Note bears interest at 6.5%, which is paid quarterly.

As of September 30, 2022, JPM held $35.0 million face value in shares of Forest Preferred Stock. The shares provide for a 9% annual dividend, which is payable quarterly. The shares are mandatorily redeemable by the Company at their face value of $1,000 per share on December 29, 2027, or at a 0-3% premium decreasing over time based upon the occurrence of certain redemption events prior to December 29, 2027. The redemption events include the occurrence of an ownership change that triggers an IRC § 382 limitation which reduces Forest’s net operating loss carryforwards to less than $300 million. The shares are redeemable at any time at the option of Company at a redemption price at face value plus the 0-3% premium then in place. The shares rank senior and have preference to the common shares of Forest. The shares are non-voting, do not participate in the earnings of Forest and contain standard protective rights.

As of September 30, ~~2021, Corbel and VHG, both~~2022, Valley Healthcare Group, LLC, a related ~~parties,~~party, held ~~a combined $2.0~~$0.4 million in face value of shares of ~~HC LLC~~ Series A-1 Preferred Stock. The shares provide for a 9% annual dividend, which is payable quarterly. The shares are mandatorily redeemable by the Company at their face value of $1,000 per share on the earlier of certain redemption events or December 29, 2027. The redemption events include a bankruptcy, change in control or sale of the durable medical equipment business. The shares are redeemable at any time at the option of the Company at a redemption price equal to face value. The shares rank senior and have preference to the common shares of HC LLC. The shares are non-voting, do not participate in the earnings of HC LLC and contain standard protective rights.

~~The HC LLC~~ Series A-1 Preferred Stock includes covenants that limit additional indebtedness, liens, asset dispositions and investments, require compliance and maintenance of licenses and government approvals and other customary conditions. In order to incur certain additional debt, ~~DME Inc.~~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~~As of September 30, 2022, the Company ~~has a~~had an undrawn credit facility with ~~Pacific Mercantile Bank~~Banc of California that accrues interest at the prime rate plus 0.4% per annum (at September 30, ~~2021,~~2022, the effective rate was ~~3.7%~~6.65%) through maturity on November 29, 2022 (the DME Revolver). The DME Revolver allows for borrowings up to $10 million. The DME Revolver requires monthly interest payments. The DME Revolver is secured by all of the assets of the durable medical equipment business and the Company is required to meet certain financial covenants. The DME Revolver ~~was not drawn as of September 30, 2021.~~

~~The DME Revolver~~ includes covenants that restrict HC ~~LLC.~~LLC’ 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 September 30, ~~2021~~2022.

As of September 30, 2022, the Company had $3.9 million in equipment financing debt outstanding. HC LLC’s operating subsidiaries ~~also~~ utilize the equipment financing ~~debt~~ to fund certain inventory and equipment purchases from suppliers. These equipment financing ~~debt~~ agreements are entered into with ~~3rd~~third 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~~This financing 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%.

Off-Balance Sheet Arrangements

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

~~Off-Balance Sheet Arrangements~~

~~As of September 30, 2021,~~2022, we did not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative 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, ~~2021.~~2022.

Item 4. Controls and Procedures.

We evaluated the effectiveness of our disclosure controls and procedures as of September 30, ~~2021.~~2022. Disclosure controls and procedures include, without limitation, controls and procedures that are designed to ensure that the information we are required to disclose in reports that we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding required disclosure. Our CEO and CFO participated in this evaluation and concluded that, as of September 30, ~~2021,~~2022, our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting for the quarter ended September 30, ~~2021,~~2022, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

No changes required to be disclosed.

Item 1A. Risk Factors.

We have disclosed the risk factors affecting our business, financial condition and operating results in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021~~.2022. There have been no material changes from the risk factors previously disclosed.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.~~

~~None.~~

~~Item 3. Defaults Upon Senior Securities.~~

~~None.~~

~~Item 4. Mine Safety Disclosures.~~

~~None.~~

~~Item 5. Other Information.~~

On November 9, 2021, the Compensation Committee of the Board of Directors in its discretion has determined that an aggregate of 580,923 performance shares previously awarded to certain employees have vested, included 220,923 performance shares to each of Peter Reed, our Chief Executive Officer, and Adam Kleinman, our President and Chief Operating Officer.

Item 6. Exhibits.

EXHIBIT INDEX

All references are to filings by Great Elm Group, Inc. (the ~~Registrant~~registrant) with the SEC under File No. 001-39832.

Exhibit

Number Description


~~Exhibit~~ ~~Number~~		~~Description~~
2.1
~~2.1~~		Agreement and Plan of Merger, dated December 21, 2020, by and among Great Elm Capital Group, Inc., Great Elm Group, Inc. and Forest Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Form 8-K filed on December 29, 2020)

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

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

31.1*10.1		Employment Letter, dated August 30, 2022, between Great Elm Capital Management, Inc. and Nichole Milz (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on September 6, 2022)

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		Materials from the Great Elm Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2021,~~2022, 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).
~~104~~
104		The cover page from the Great Elm Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2021,~~2022, formatted in inline XBRL (included as Exhibit 101).

*Filed or furnished herewith.

5344

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	GREAT ELM GROUP, INC.

Date: November ~~12, 2021~~14, 2022	/s/ Peter A. Reed
	Peter A. Reed
	Chief Executive Officer

Date: November ~~12, 2021~~14, 2022	/s/ Brent J. Pearson
	Brent J. Pearson
	Chief Financial Officer

5445


Delaware	85-3622015
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
800 South Street, Suite 230, WalthamMA	02453
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	GEG	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)
7.25% Notes due 2027	GEGGL	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets as of September 30, ~~2021~~2022 and June 30, ~~2021~~2022	3
	Unaudited Condensed Consolidated Statements of Operations for the three months ended September 30, ~~2021~~2022 and ~~2020~~2021	4
	Unaudited Condensed Consolidated Statement of Stockholders’ Equity and Contingently Redeemable Non-Controlling Interest for the three months ended September 30, ~~2021~~2022	5
	Unaudited Condensed Consolidated Statement of Stockholders’ Equity and Contingently Redeemable Non-Controlling Interest for the three months ended September 30, ~~2020~~2021	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended September 30, ~~2021~~2022 and ~~2020~~2021	7
	Unaudited Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4235
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5243
Item 4.	Controls and Procedures	5243

PART II. OTHER INFORMATION		5244

Item 1.	Legal Proceedings	5244
Item 1A.	Risk Factors	5244
Item 2.6.	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	53
~~Item 3.~~	~~Defaults Upon Senior Securities~~	53
~~Item 4.~~	~~Mine Safety Disclosures~~	53
~~Item 5.~~	~~Other Information~~	53
~~Item 6.~~	Exhibits	5344

SIGNATURES		5445


ASSETS	September 30, 2021			June 30, 2021			September 30, 2022			June 30, 2022
Current assets:
Cash and cash equivalents	$	21,791		$	24,382		$	23,265		$	23,595
Accounts receivable		5,544			6,518			5,854			5,867
Related party receivables		1,895			1,665			2,578			2,445
Investments, at fair value (cost $44,647 and $45,326, respectively)		24,008			24,044
Investments, at fair value (cost $62,531 and $68,766, respectively)								40,624			48,042
Inventories		1,071			1,066			1,017			898
Prepaid and other current assets		5,169			3,791			1,391			1,050
Assets of consolidated funds
Investments, at fair value (cost $26,955 and $26,814, respectively)		26,541			26,490
Prepaid expenses and other assets		574			578
Assets of Consolidated Fund:
Investments, at fair value (cost $0 and $2,432, respectively)								-			1,797
Prepaid expenses								-			746
Total current assets		86,593			88,534			74,729			84,440
Property and equipment, net		885			981			503			538
Equipment held for rental, net		7,230			7,391			7,923			7,504
Identifiable intangible assets, net		8,509			8,928			18,592			19,171
Goodwill		52,463			50,536			52,463			52,463
Right of use assets		5,184			5,241			3,815			3,722
Other assets		256			258			253			249
Total assets	$	161,120		$	161,869		$	158,278		$	168,087
LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	5,108		$	5,521		$	6,340		$	6,038
Accrued expenses and other liabilities		5,534			6,955			5,814			7,389
Deferred revenue		3,279			4,438			1,250			1,218
Current portion of related party payables								73			486
Current portion of lease liabilities		2,171			1,920			1,684			1,559
Current portion of capitalized equipment financing		2,927			1,974
Liabilities of consolidated funds- accrued expenses and other		11,940			12,197
Current portion of related party notes payable								5,661			-
Current portion of equipment financing debt								3,909			2,993
Liabilities of Consolidated Fund - accrued expenses and other								-			11
Total current liabilities		30,959			33,005			24,731			19,694
Lease liabilities, net of current portion		3,281			3,596			2,342			2,375
Convertible notes (face value $34,346, including $16,231 held by related parties)		33,362			33,333
Equipment financing debt, net of current portion		42			67
Redeemable preferred stock of subsidiaries (held by related parties, face value $37,018)		35,584			35,529
Long term debt (face value $26,945)								25,597			25,532
Related party payables								1,050			1,120
Related party notes payable, net of current portion								-			6,270
Convertible notes (face value $36,085, including $14,653 and $15,133 held by related parties, respectively)								35,216			35,187
Redeemable preferred stock of subsidiaries (held by related parties, face value $35,417 and $35,824, respectively)								34,450			34,747
Other liabilities		1,254			915			977			908
Total liabilities		104,482			106,445			124,363			125,833
Commitments and Contingencies (Note 20)
Commitments and contingencies (Note 15)
Contingently redeemable non-controlling interest		2,844			2,639			2,887			2,225
Stockholders' equity
Preferred stock, $0.001 par value; 5,000,000 authorized and 0 outstanding		-			-
Common stock, $0.001 par value; 350,000,000 shares authorized and 26,692,033 shares issued and 26,093,185 outstanding at September 30, 2021; and 26,613,913 shares issued and 25,948,100 outstanding at June 30, 2021		26			26
Preferred stock, $0.001 par value; 5,000,000 authorized and zero outstanding								-			-
Common stock, $0.001 par value; 350,000,000 shares authorized and 30,046,829 shares issued and 28,774,320 outstanding at September 30, 2022; and 28,932,444 shares issued and 28,507,490 outstanding at June 30, 2022								29			29
Additional paid-in-capital		3,308,194			3,307,613			3,313,597			3,312,763
Accumulated deficit		(3,264,603	)		(3,264,403	)		(3,287,587	)		(3,279,296	)
Total Great Elm Group, Inc. stockholders' equity		43,617			43,236			26,039			33,496
Non-controlling interests		10,177			9,549			4,989			6,533
Total stockholders' equity		53,794			52,785			31,028			40,029
Total liabilities, non-controlling interest and stockholders' equity	$	161,120		$	161,869		$	158,278		$	168,087

Dollar and share amounts in thousands	Common Stock				Additional Paid-in		Accumulated			Total Great Elm Group, Inc. Stockholders'			Non- controlling		Total Stockholders'			Contingently Redeemable Non-controlling
	Shares		Amount		Capital		Deficit			Equity			Interest		Equity			Interest
BALANCE, June 30, 2021		25,948	$	26	$	3,307,613	$	(3,264,403	)	$	43,236		$	9,549	$	52,785		$	2,639
Net loss		-		-		-		(200	)		(200	)		101		(99	)		205
Issuance of interests in Consolidated Funds, net		-		-		-		-			-			527		527			-
Issuance of common stock related to vesting of restricted stock		145	0			-		-			-			-		-			-
Stock-based compensation		-		-		581		-			581			-		581			-
BALANCE, September 30, 2021		26,093	$	26	$	3,308,194	$	(3,264,603	)	$	43,617		$	10,177	$	53,794		$	2,844


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

	For the three months ended September 30,
	2021	2020⁽¹⁾
Government Payor	37%	37%
Third-party Payor	13%	12%

Condensed consolidated balance sheet
	June 30, 2021 As reported			ASU 2020-06 Adjustment			June 30, 2021 As adjusted
Liabilities
Convertible notes	$	22,054		$	11,279		$	33,333
Other liabilities		1,070			(155	)		915
Stockholders' equity
Additional paid-in-capital		3,319,767			(12,154	)		3,307,613
Accumulated deficit		(3,265,433	)		1,030			(3,264,403	)

Condensed consolidated statement of operations	For the three months ended
	September 30, 2020 As reported⁽¹⁾			ASU 2020-06 Adjustment			September 30, 2020 As adjusted
Non-operating expenses
Interest expense	$	(1,307	)	$	162		$	(1,145	)
Net loss
Net loss		(3,863	)		162			(3,701	)
Net loss per share (basic and diluted)		(0.15	)		0.01			(0.14	)

	Fair Value as of June 30, 2021
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Equity investments	$	19,444	$	0	$	0	$	19,444
Equity investments of Consolidated Funds		26,490		0		0		26,490
Total assets within the fair value hierarchy	$	45,934	$	0	$	0	$	45,934
Investments valued at net asset value								4,600
Total assets							$	50,534
Liabilities:

Participation feature of HC LLC Series A-2 Preferred Stock	$	0	$	0	*		*
Contingent consideration liability		0		0		271		271
Total liabilities	$	0	$	0	$	271	$	271


Aggregate Amortization Expense (in thousands)	2021		2020		2022		2021
For the three months ended September 30,	$	419	$	426		579		419


Estimated Future Amortization Expense (in thousands):
For the nine months ending June 30, 2023	$	1,703
For the year ending June 30, 2024	$	2,084
For the year ending June 30, 2025	$	1,974
For the year ending June 30, 2026	$	1,912
For the year ending June 30, 2027	$	1,838
Thereafter	$	9,081
Total	$	18,592

Estimated Future Amortization Expense (in thousands):
For the nine months ending June 30, 2022	$	1,156
For the year ending June 30, 2023		1,469
For the year ending June 30, 2024		1,267
For the year ending June 30, 2025		1,157
For the year ending June 30, 2026		1,095
Thereafter		2,365
Total	$	8,509


(in thousands, except remaining life and discount rate)	September 30, 2022			June 30, 2022
Facilities
Right of use assets	$	3,382		$	3,400

Current portion of lease liabilities		1,561			1,475
Lease liabilities, net of current portion		2,032			2,137
Total liabilities	$	3,593		$	3,612

Weighted-average remaining life	2.9 years			3.1 years
Weighted-average discount rate		10.8	%		10.8	%

Vehicles
Right of use assets	$	429		$	315

Current portion of lease liabilities		119			77
Lease liabilities, net of current portion		310			238
Total liabilities	$	429		$	315

Weighted-average remaining life	4.1 years			4.2 years
Weighted-average discount rate		5.8	%		6.3	%

Equipment
Right of use assets	$	4		$	7

Current portion of lease liabilities		4			7
Total liabilities	$	4		$	7

Weighted-average remaining life	0.6 years			0.8 years
Weighted-average discount rate		12.5	%		12.5	%


	Balance, as of June 30, 2021		Issuance of Preferred Stock		Redemption of Preferred Stock		Balance, as of September 30, 2021		Balance, as of June 30, 2022		Redemption of Preferred Stock			Balance, as of September 30, 2022
HC LLC
Series A-1 Preferred Stock		10,090		-		-		10,090		4,090		(407	)		3,683
Series A-2 Preferred Stock		34,010		-		-		34,010		34,010		-			34,010
Total HC LLC		44,100		-		-		44,100		38,100		(407	)		37,693
Forest
Forest Preferred Stock		35,010		-		-		35,010		35,010		-			35,010
Total		79,110		-		-		79,110		73,110		(407	)		72,703