GPB Holdings II 10Q 2023 Q2 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

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

For the transition period from to

Commission File Number: 000-56442

GPB Holdings II, LP

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	47-3870808 (I.R.S. Employer Identification No.)
c/o Highline Management, Inc. 33 East 33rd Street, Suite 807 New York, NY (Address of principal executive offices)	10016 (Zip Code)

(877) 489-8484

Registrant’s telephone number, including area code

Securities to be registered pursuant to Section 12(b) of the Act:




Title of each class	Trading Symbol(s)	Name of each exchange on which each class is registered
None	None	None

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, 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.


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

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

Table of Contents

GPB HOLDINGS II, LP AND SUBSIDIARIES

Table of Contents


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Consolidated Financial Statements:
	Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	2
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022	4
	Condensed Consolidated Statements of Changes in Partners’ Capital for the three and six months ended June 30, 2023 and 2022	6
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Control and Procedures	46
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	57
Item 6.	Exhibits	58
	Signatures	59

Table of Contents

GPB HOLDINGS II, LP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)

Item 1. Unaudited Condensed Consolidated Financial Statements.


	June 30,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	36,465	$	334,427
Restricted cash		7,177		18,227
Investment securities, current portion		293,486		—
Accounts receivable, net		30,218		26,909
Inventories		1,220		1,097
Prepaid expenses		5,798		5,649
Contract assets		11,235		15,740
Assets held for sale, continuing operations		4,223		—
Assets held for sale, discontinued operations		14,132		21,583
Total current assets		403,954		423,632
Non-current assets:
Property and equipment, net		9,340		8,245
Investment securities, net of current portion		503		729
Equity method investments		17,416		15,467
Right-of-use assets operating		6,516		6,535
Goodwill		83,938		78,895
Intangible assets, net		62,239		67,973
Other non-current assets		830		699
Total non-current assets		180,782		178,543
Total assets	$	584,736	$	602,175

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)


	June 30,		December 31,
	2023		2022
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable	$	6,563	$	8,192
Accrued expenses		22,328		21,510
Deferred revenue and customer deposits		9,108		19,319
Long-term debt, current portion		4,258		1,724
Finance lease liabilities, current portion		165		224
Operating lease liabilities, current portion		2,811		2,533
Liabilities held for sale, continuing operations		1,836		—
Due to related parties		2,934		374
Total current liabilities		50,003		53,876
Non-current liabilities:
Long-term debt, net of current portion		1,956		25
Finance lease liabilities, net of current portion		19		159
Operating lease liabilities, net of current portion		3,422		3,498
Deferred tax liabilities		4,103		4,033
Other liabilities		717		816
Total non-current liabilities		10,217		8,531
Total liabilities		60,220		62,407
Commitments and contingencies (see Note 11)
Partners’ capital
Partners’ capital attributable to the Partnership		516,418		529,172
Accumulated other comprehensive loss		(2,284)		(2,170)
Total partners’ capital attributable to the Partnership		514,134		527,002
Non-controlling interests		10,382		12,766
Total partners’ capital		524,516		539,768
Total liabilities and partners’ capital	$	584,736	$	602,175

See Notes to Condensed Consolidated Financial Statements.

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Dollars in thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues:
Product revenue	$	8,145	$	15,841	$	21,226	$	30,381
Service revenue		36,606		30,879		72,246		62,406
Debt investment interest income		79		76		157		171
Gain on sale of investment securities		—		—		29		—
Unrealized loss on investment securities		(168)		—		(168)		—
Other revenue		—		—		—		67
Total revenues		44,662		46,796		93,490		93,025
Cost of revenues:
Cost of goods sold		5,402		7,611		12,165		15,401
Cost of services		19,908		18,359		39,721		36,806
Total cost of revenues		25,310		25,970		51,886		52,207
Gross profit		19,352		20,826		41,604		40,818
Operating expenses (income):
Selling, general and administrative expenses		22,163		23,194		41,914		40,059
Managerial assistance fee, related party		3,088		2,281		6,116		5,376
Rent expense		975		1,149		2,010		2,265
Income from equity method investments		(484)		(546)		(3,948)		(1,024)
Gain on disposal of businesses		—		—		—		(6,723)
Gain on reduction of contingent liability		(6,291)		—		(6,291)		—
Impairment of goodwill and intangibles		15,004		—		15,004		—
Depreciation and amortization		3,811		3,699		8,640		7,678
Total net operating expenses		38,266		29,777		63,445		47,631
Operating loss		(18,914)		(8,951)		(21,841)		(6,813)
Other income (expense):
Interest expense		(119)		(1,370)		(259)		(2,751)
Interest expenses, related parties		—		(43)		—		(399)
Interest income		2,725		150		6,060		385
Loss on extinguishment of debt		—		(4,502)		—		(4,502)
Other (expense) income		(242)		45		(1,446)		(148)
Total other income (expense)		2,364		(5,720)		4,355		(7,415)
Loss from continuing operations, before tax		(16,550)		(14,671)		(17,486)		(14,228)
Income tax expense		(256)		(212)		(467)		(355)
Net loss from continuing operations		(16,806)		(14,883)		(17,953)		(14,583)
Net income from discontinued operations		430		3,101		590		1,645
Gain on sale of discontinued operations		—		7,619		—		7,619
Net income from discontinued operations		430		10,720		590		9,264
Net loss of continuing and discontinued operations		(16,376)		(4,163)		(17,363)		(5,319)
Net (loss) income attributable to non-controlling interests		(6,022)		414		(5,778)		2,375
Net loss attributable to the Partnership		(10,354)		(4,577)		(11,585)		(7,694)

See Notes to Condensed Consolidated Financial Statements.

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Net loss	$	(16,376)	$	(4,163)	$	(17,363)	$	(5,319)
Other comprehensive gain (loss):
Foreign currency translation gain (loss)		7		(420)		(125)		(525)
Total other comprehensive loss		(16,369)		(4,583)		(17,488)		(5,844)
Foreign currency gain (loss) attributable to non-controlling interests		1		(47)		(11)		(59)
Net (loss) income attributable to non-controlling interest		(6,022)		414		(5,778)		2,375
Comprehensive loss attributable to the Partnership	$	(10,348)	$	(4,950)	$	(11,699)	$	(8,160)

See Notes to Condensed Consolidated Financial Statements.

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Partners’ Capital

(Dollars in thousands)

(Unaudited)


									Partners’
									Capital		Accumulated
	Class A		Class A-1		Class B		Class B-1		Attributable		Other		Non-
	Limited		Limited		Limited		Limited		to GPB		Comprehensive		Controlling
	Partners		Partners		Partners		Partners		Holdings II, LP		Loss		Interests		Total
Partners’ capital - December 31, 2021	$	228,859	$	117,833	$	134,729	$	70,482	$	551,903	$	(1,201)	$	16,566	$	567,268
Distributions		—		—		—		—		—		—		(42)		(42)
Net (loss) income		(1,462)		(706)		(650)		(299)		(3,117)		—		1,961		(1,156)
Other comprehensive loss		—		—		—		—		—		(93)		(12)		(105)
Partners’ capital - March 31, 2022	$	227,397	$	117,127	$	134,079	$	70,183	$	548,786	$	(1,294)	$	18,473	$	565,965
Distributions to non-controlling interests holders		—		—		—		—		—		—		(384)		(384)
Net (loss) income		(2,440)		(1,156)		(598)		(383)		(4,577)		—		414		(4,163)
Other comprehensive loss		—		—		—		—		—		(374)		(47)		(421)
Partners’ capital - June 30, 2022	$	224,957	$	115,971	$	133,481	$	69,800	$	544,209	$	(1,668)	$	18,456	$	560,997

Partners’ capital - December 31, 2022	$	212,740	$	118,598	$	129,372	$	68,462	$	529,172	$	(2,170)	$	12,766	$	539,768
Transfers		5		(5)		—		—		—		—		—		—
Tax withholding distributions		(36)		(14)		(19)		(10)		(79)		—		—		(79)
Contribution		—		—		—		—		—		—		3,800		3,800
Net (loss) income		(732)		(291)		(186)		(22)		(1,231)		—		244		(987)
Other comprehensive loss		—		—		—		—		—		(120)		(12)		(132)
Partners’ capital - March 31, 2023	$	211,977	$	118,288	$	129,167	$	68,430	$	527,862	$	(2,290)	$	16,798	$	542,370
Transfers		(17)		17		—		—		—		—				—
Purchase of non-controlling interest		(438)		(244)		(267)		(141)		(1,090)		—		(395)		(1,485)
Net loss		(4,281)		(2,414)		(2,412)		(1,247)		(10,354)		—		(6,022)		(16,376)
Other comprehensive income		—		—		—		—		—		6		1		7
Partners’ capital - June 30, 2023	$	207,241	$	115,647	$	126,488	$	67,042	$	516,418	$	(2,284)	$	10,382	$	524,516

See Notes to Condensed Consolidated Financial Statements.

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net loss from continuing operations:	$	(17,953)	$	(14,583)
Net income from discontinued operations, excluding gain		590		1,645
Gain on sale of discontinued operations		—		7,619
Net loss		(17,363)		(5,319)
Adjustments to reconcile net loss to net cash used in operating activities:
Income from equity method investments		(3,948)		(1,024)
Gain on sale of securities		(29)		—
Gain on disposal of business		—		(6,723)
Unrealized loss on investment securities		168		—
(Gain) loss on sale of property, equipment, and leased assets		(101)		55
Gain on reduction of contingent liability		(6,291)		—
Impairment of goodwill and intangibles		15,004		—
Bad debt (recoveries) expense, net		(602)		938
Depreciation and amortization		9,976		8,305
Amortization of deferred financing costs		—		286
Amortization of right of use assets - operating		1,755		2,284
Loss on extinguishment of debt		—		4,502
Changes in deferred tax liabilities		72		(10)
Changes in operating assets and liabilities, net of effects from business combinations and dispositions:
Accounts receivable, net		1,862		(132)
Due from related parties		—		(41)
Inventories		(123)		(247)
Prepaid expenses		360		(715)
Contract assets		4,505		(4,568)
Other assets		(135)		(7,379)
Accounts payable		(1,885)		(657)
Accrued expenses		(4,411)		(1,411)
Due to related parties		2,810		463
Customer deposits		(9,501)		5,917
Payments on lease liabilities - operating		(1,615)		(2,328)
Other current liabilities		—		(140)
Other liabilities		(93)		6
Operating cash flows from discontinued operations, net		(590)		(1,645)
Net cash used in operating activities		(10,175)		(9,583)
Cash flows from investing activities:
Proceeds from sale of business (net of cash withheld)		—		14,283
Purchase of business (net of cash acquired)		(11,673)		—
Purchase of short term investments		(293,486)		—
Proceeds from debt investments		87		2,135
Distribution received from investee		10,040		38,525
Collections of notes receivable - related party		—		245
Purchase of property and equipment		(1,281)		(687)
Proceeds from sale of property and equipment		193		—
Payments for intangibles and long lived assets		(278)		(314)
Net cash (used in) provided by investing activities		(296,398)		54,187
Cash flows from financing activities:
Repayments of notes payable - related party		—		(6,500)
Repayments on loans payable		(675)		(57,477)
Repayments on finance lease obligations		(118)		(105)
Repayments on lines of credit		(69)		(618)
Distributions		(79)		(2,082)
Purchase of non-controlling interest		(1,485)		(426)
Net cash used in financing activities		(2,426)		(67,208)
Effect of exchange rate changes on cash		(13)		(19)
Net decrease in cash and cash equivalents		(309,012)		(22,623)
Cash and cash equivalents and restricted cash of continuing operations - beginning of period		352,654		375,801
Cash and cash equivalents and restricted cash of continuing operations - end of period	$	43,642	$	353,178

Supplemental schedule of non-cash investing and financing activities:
Operating lease assets assumed	$	(606)	$	(624)
Operating lease liabilities assumed		606		624
Contingent liability assumed		11,140		—
Non-controlling interest contribution		3,800		—

See Notes to Condensed Consolidated Financial Statements.

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Nature of the Business

Organization

GPB Holdings II, LP (“Holdings II”, the “Partnership”, “we”, “us”, “our” or the “Registrant”) is a holding company which was organized as a Delaware limited partnership on April 17, 2015 and commenced operations on June 1, 2015.

GPB Capital Holdings, LLC (“General Partner”, “Capital Holdings”, “GPB Capital” or “GPB”), a Delaware limited liability company and registered investment adviser, is the Partnership’s General Partner pursuant to the terms of the Fourth Amended and Restated Agreement of Limited Partnership, dated April 26, 2018 (as the same may be amended from time to time, the “LPA”). Pursuant to the LPA, GPB conducts and manages our business. Robert Chmiel, GPB’s Chief Executive Officer and Chief Financial Officer, currently serves as the sole manager of GPB under the terms of GPB’s limited liability company agreement. GPB has entered into a management services agreement with GPB’s wholly owned subsidiary, Highline Management, Inc. (“Highline”), pursuant to which Highline provides certain management services to GPB to assist GPB in fulfilling GPB’s duties as the Partnership’s General Partner.

Nature of Business

The Partnership provides a range of strategic, operational and management resources to our subsidiaries which are engaged in a number of diverse business activities. Our Chief Operating Decision Maker (“CODM”) who manages the segments as detailed below, regularly reviews consolidated financial information, evaluates overall strategic performance, and allocates resources to the Partnership. We report our businesses in the three segments for accounting purposes based on how our CODM views the Partnership as follows:

●

Technology-Enabled Services segment (“Technology-Enabled Services” or “TES”) acquires and operates Technology-Enabled Services portfolio companies which provide Technology-Enabled Services to healthcare companies. Services provided include the sale and licensing of various electronic health records software and practice management software platforms for ambulatory, acute and long-term healthcare facilities. The customer base served by our TES portfolio companies is dispersed across the U.S., related territories, Costa Rica, Philippines, and India. As of June 30, 2023, Holdings II owned 96% of Project Halo Holdings, LLC (“Halo”), which is comprised of Cantata Health Solutions, LLC (“Cantata”) (formerly Meta Healthcare IT Solutions, LLC) and Experience Care, LLC (“Experience Care”) (formerly Cantata Health, LLC); and 91.5% of HealthPrime International, LLC (“HealthPrime” or “HPI”), which includes 100% of Micro Development Services Inc. (“MDS”), all of which are accounted for under the consolidation method. Our Technology-Enabled Services segment also has a non-controlling investment of 31% in Hotel Internet Services, LLC (“HIS”) as of June 30, 2023 which is accounted for under the equity method. HIS provides the equipment and associated internet services to hotels, resorts, military, student housing, casinos, and many other commercial venues.

●

Energy segment (“Energy”) acquires and operates companies that provide services in the solar panel market and other services in the energy sector. As of June 30, 2023, the Partnership owned 60% of Erus Holdings, LLC (“Erus”), which is accounted for under the consolidation method. In January 2022, the Partnership sold its investment in its subsidiary Greenwave Energy, LLC (“Greenwave”). The Partnership has a 50% non-controlling equity method investment in Quantum Energy Holdings, LLC (“Quantum”). Quantum provides customer acquisition services to the alternative energy industry.

●

Corporate and Other segment primarily consists of other operating entities that are not reportable under the quantitative thresholds under United States Generally Accepted Accounting Principles (“U.S. GAAP”), or are the selling, general and administrative expenses of the Partnership. During the year ended December 31, 2021, the Partnership sold substantially all of its automotive assets including Orangeburg Subaru, LLC, and continues to own its 33.5% interest in GPB Prime Holdings, LLC (“GPB Prime”), an equity method investment. In March 2022, the Partnership sold its real estate investment in 124 Middleneck Realty LLC (“Middleneck”).

Further information regarding our reportable business segments is contained in “Note 13. Business Segments”. Further information regarding equity method investments is contained in “Note 6. Equity Method Investments”.

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

2. Significant Accounting Policies

The significant accounting policies used in preparation of these Condensed Consolidated Financial Statements are disclosed in our Annual report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023 (the “Form 10-K”), and there have been no changes to the Partnership’s significant accounting policies during the six months ended June 30, 2023.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements as of June 30, 2023, and for the three and six months ended June 30, 2023 and 2022 have been prepared in accordance with U.S. GAAP for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. The unaudited Condensed Consolidated Financial Statements herein should be read in conjunction with our audited Consolidated Financial Statements and notes included in the Form 10-K filed with the SEC on March 31, 2023.

Principles of Consolidation and Equity Method

These Condensed Consolidated Financial Statements include the accounts of the Partnership and its subsidiaries in which it has a controlling interest. Intercompany accounts and transactions have been eliminated in consolidation.

Our strategy in the segments in which we choose to participate is to invest in and operate income producing, middle market private companies primarily in North America. We focus on owning and operating portfolio companies on a long-term basis with a goal of maximizing returns for our investors by improving operational performance, and in turn, increasing the value. We strive to create long-term value and generate cash flow from operations for our Limited Partners, as defined in the LPA, by building industry-leading companies. To accomplish our objectives, we acquire controlling interests in operating companies and provide managerial expertise and investment capital to develop the operations and enhance the overall value of the business. In other situations, we acquire equity that affords us the ability to exercise significant influence over the business without a controlling stake. For this reason, we classify the earnings from our investments in entities where we have the ability to exercise significant influence as a component of operating income in our Condensed Consolidated Statements of Operations.

Cash, Cash Equivalents and Short Term Investments

Cash and cash equivalents includes cash on hand, cash in bank accounts without restriction, and investments in Treasury Bills with original maturities of no longer than three months. The Partnership maintains cash balances with financial institutions that, at times, may exceed federally insured limits. Management periodically evaluates the creditworthiness of these institutions and has not experienced any losses on such deposits.

As of June 30, 2023, the standard Federal Deposit Insurance Corporation (the “FDIC”) insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Any deposit in excess of this insured amount could be lost. As of June 30, 2023, substantially all of the Partnership’s $36.5 million of deposited cash held in banks was in excess of the FDIC coverage limit.

As of June 30, 2023, $293.5 million was invested in Treasury Bills, with original maturities on the date of purchase in excess of three months and was presented as short-term investments on the Condensed Consolidated Balance Sheets. The Treasury Bills are recorded at fair value which includes accrued interest and any unrealized appreciation.

As of June 30, 2023 and December 31, 2022, the Partnership had cash deposited in certain financial institutions in excess of FDIC insured levels. The Partnership regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on the Partnership’s operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, the Partnership’s ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on its business, financial condition and results of operations.

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Restricted Cash

As of June 30, 2023 and December 31, 2022, the Partnership held $7.2 million and $18.2 million, respectively, of total restricted cash which initially represented $11.0 for the sale of Alliance Physical Therapy Partners, LLC (“Alliance”) and $7.2 million for the purchase of AdvantEdge Healthcare Solutions, Inc. (“AHS”). The Partnership received the $11.0 in escrow from Alliance during the 3 months ended June 30, 2023. The AHS escrow agreement reimburses the seller for contingent liabilities and reimburses for any breaches in prior periods and expired in November 2022, reimbursement amounts are currently expected to be received during September 2023.

Fair Value Measurements

The Partnership utilizes valuation techniques that maximize the use of observable inputs. The Partnership determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

●

Level 1Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

●

Level 2Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

●

Level 3Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

A financial instruments categorization with the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Assets Held for Sale

The Partnership classifies long-lived assets (disposal groups) to be sold as held for sale in accordance with ASU 2014-08, Presentation Of Financial Statements (ASC Topic 205) And Property, Plant, And Equipment (ASC Topic 360): Reporting Discontinued Operations And Disclosures Of Disposals Of Components Of An Entity (“ASU 2014-08”), in the period in which all of the following criteria are met: management, having the authority to approve the action, commits to a plan to sell the asset; the asset (disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; the sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset beyond one year; the asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

The fair value of a long-lived asset (disposal group) less any costs to sell is assessed each reporting period it remains classified as held for sale and any subsequent changes are reported as an adjustment to the carrying value of the asset (disposal group), as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale. Upon determining that a long-lived asset (disposal group) meets the criteria to be classified as held for sale, the Partnership reports the assets and liabilities of the disposal group for all periods presented in the line items assets held for sale and liabilities held for sale in the accompanying Consolidated Balance Sheets.

The Partnership recognizes an impairment loss if the carrying amount of the long-lived asset (disposal group) exceeds the estimated fair value of the long-lived asset (disposal group) less cost to sell. If the Partnership recognizes an impairment loss, the adjusted carrying amount of the long-lived asset (disposal group) becomes its carrying amount.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Risks and Uncertainties

We are subject to a number of legal proceedings at both the Partnership and our portfolio companies, as described in “Note 11. Commitments and Contingencies.” While we are vigorously defending our position in these proceedings, there is uncertainty surrounding their related outcomes and timing. The cost to defend and outcomes of these proceedings could affect the liquidity of the Partnership and the use of available cash.

The Technology-Enabled Services industry is subject to rapid innovation, which forces companies to move swiftly to react to changes in the industry. Maintenance of state-of-the-art technology and network equipment is costly and requires expertise. It can be difficult to accurately price our Technology-Enabled Services portfolio companies’ long-term service contracts, which could negatively affect our business. Renewal of customer service contracts and establishment of new customer relationships are essential for growth of our Technology-Enabled Services portfolio companies. Our revenue could decline if we are unable to renew contracts and establish new relationships. Our Technology-Enabled Services portfolio companies derive a significant portion of their revenues from a limited number of customers. Our Technology-Enabled Services portfolio companies rely on their top vendor partners. We outsource a significant portion of our Technology-Enabled Services to offshore service providers which can subject us to a number of risks that may affect our ability to meet our customers’ expectations, contractual obligations and regulatory requirements. If the emerging technologies and platforms upon which we build our products do not gain or continue to maintain broad market acceptance, or if we fail to develop and introduce in a timely manner new products and services compatible with such emerging technologies, we may not be able to compete effectively and our ability to generate revenue will suffer. We are dependent on our license rights and other services from third parties, which may cause us to discontinue, delay or reduce product shipments. We may experience interruption at our data centers or client support facilities. In our healthcare information technology businesses, we and our clients are subject to a number of existing laws, regulations and industry initiatives, including The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and other data privacy regulations, and we are susceptible to a continually changing and complex regulatory environment.

We own and operate portfolio companies engaged in the energy business, which are subject to various market and regulatory risks that could have a negative impact on our financial results, including changes to government-sponsored incentives to adoption of solar energy, solar panel supply chain interruptions and changes in the relative price of energy sources supplying the electric grid. Many of our customers in this segment finance their purchases, and high levels of inflation or increased interest rates may discourage such purchases in the future.

Our energy segment had one major vendor that accounted for substantially all material purchases in cost of sales for the three and six months ended June 30, 2023 and 2022, respectively. Accounts payable to this vendor were $1.2 million and $1.5 million at June 30, 2023 and December 31, 2022, respectively.

On February 11, 2021, the United States District Court for the Eastern District of New York (the “EDNY Court”), in a contested civil proceeding filed by the SEC (the “SEC Action”), appointed Joseph T. Gardemal III as an independent monitor over GPB (the “Monitor”) until further order of the Court (the “Order”). The Monitor is required to assess the Partnership’s operations and business, and make recommendations to the EDNY Court, which may include continuation of GPB’s operations subject to the Monitorship, a liquidation of assets, or filing for reorganization in bankruptcy.

The Order provides that the Monitor will remain in place until terminated by order of the EDNY Court, and grants the Monitor the authority to approve or disapprove proposed material corporate transactions by GPB, the Partnership or its subsidiaries, extensions of credit by them outside the ordinary course of business, decisions to resume distributions to the Limited Partners of the Partnership, or any decision to file any bankruptcy or receiver petition for any of them, among other actions. On June 13, 2022, the SEC filed by Order to Show Cause in the SEC Action an application to (i) convert the existing Monitorship over GPB and the GPB-managed funds to a Receivership, and appoint the previously-appointed Monitor, Joseph T. Gardemal III, as Receiver; and (ii) impose a litigation injunction on cases filed against GPB and the GPB-managed funds (the “Receivership Application”). The Receivership Application and the Proposed Order Appointing Receiver and Imposing Litigation Injunction (the “Proposed Order”) were filed with the EDNY Court with consent of GPB’s management. If appointed, the receiver could assume the right to operate and manage the business and we may be subject to, among other things, closer monitoring of our day-to-day activities and books and records than under the current Monitorship. We may also be prohibited from making certain investments or undertaking other activities that we would have otherwise pursued, may be required to settle disputes, including with creditors, in ways that we may not otherwise have agreed to outside of Receivership, or otherwise be subject to reorganization or liquidation.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Report and Recommendation is not a legally binding Order until it is adopted by the EDNY Court. The EDNY Court will consider the Report and Recommendation and determine whether, and to what extent, to adopt it in a final ruling. The parties in the SEC Action are permitted to submit objections to the Report and Recommendation, for the EDNY Court to consider. Objections to the Report and Recommendation are due to be filed by September 8, 2023, and responses to those objections are due by September 22, 2023. Should the EDNY Court adopt the Report and Recommendation, a party would be permitted to appeal the EDNY Court’s decision to the United States Court of Appeals for the Second Circuit.

Future outbreaks of COVID-19 could have a material adverse impact on our businesses, financial condition and results of operations. Our impacted businesses have rebounded well to at or near pre-COVID-19 sales levels. However, future COVID-19 outbreaks in the markets in which we operate may in the future cause changes in customer behaviors, including a decrease for healthcare services, and for home and commercial solar systems. This may lead to increased valuation risks, such as impairment of long-lived assets. Uncertainties in the global economy may negatively impact our suppliers and other business partners, which may interrupt our supply chain and require other changes to our operations. These and other factors may adversely impact our financial condition, liquidity and cash flow.

Our access to our cash and cash equivalents in amounts adequate to finance our operations could be significantly impaired by the financial institutions with which we have arrangements. Any material decline in our ability to access our cash and cash equivalents could adversely impact our ability to meet our operating expenses, provide distributions, result in breaches of our contractual obligations or result in violations of federal or state wage and hour laws, among other things, any of which could have material adverse impacts on our operations and liquidity.

3. Revenue Recognition

The following is a disaggregation of revenue by major product or service lines, separated by reportable segments from which the Partnership generates its revenue. For more detailed information about reportable segments, see “Note 13. Business Segments”.


	Technology -
	Enabled
(Dollars in thousands)	Services		Energy		Total
Three Months Ended June 30, 2023
Product revenue	$	90	$	8,055	$	8,145
Service revenue		36,606		—		36,606

Revenue Stream
Software licenses	$	90	$	—	$	90
Software maintenance and support		4,093		—		4,093
Professional services		6,097		—		6,097
Medical billing and services		26,416		—		26,416
Solar panel sales		—		8,055		8,055

Timing of Revenue Recognition
Products and services transferred at a point in time	$	90	$	8,055	$	8,145
Products and services transferred over time		36,606		—		36,606

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Notes to Condensed Consolidated Financial Statements

(Unaudited)


	Technology -
	Enabled
(Dollars in thousands)	Services		Energy		Total
Six Months Ended June 30, 2023
Product revenue	$	610	$	20,616	$	21,226
Service revenue		72,246		—		72,246

Revenue Stream
Software licenses	$	610	$	—	$	610
Software maintenance and support		8,280		—		8,280
Professional services		11,807		—		11,807
Medical billing and services		52,159		—		52,159
Solar panel sales		—		20,616		20,616

Timing of Revenue Recognition
Products and services transferred at a point in time	$	610	$	20,616	$	21,226
Products and services transferred over time		72,246		—		72,246


	Technology -
	Enabled
(Dollars in thousands)	Services		Energy		Total
Three Months Ended June 30, 2022
Product revenue	$	574	$	15,267	$	15,841
Service revenue		30,879		—		30,879

Revenue Stream
Software licenses	$	574	$	—	$	574
Software maintenance and support		3,865		—		3,865
Professional services		6,541		—		6,541
Medical billing and services		20,473		—		20,473
Solar panel sales		—		15,267		15,267

Timing of Revenue Recognition
Products and services transferred at a point in time	$	574	$	15,267	$	15,841
Products and services transferred over time		30,879		—		30,879


	Technology -
	Enabled
(Dollars in thousands)	Services		Energy		Total
Six Months Ended June 30, 2022
Product revenue	$	1,264	$	29,117	$	30,381
Service revenue		62,406		—		62,406

Revenue Stream
Software licenses	$	1,264	$	—	$	1,264
Software maintenance and support		9,305		—		9,305
Professional services		12,930		—		12,930
Medical billing and services		40,171		—		40,171
Solar panel sales		—		29,117		29,117

Timing of Revenue Recognition
Products and services transferred at a point in time	$	1,264	$	29,117	$	30,381
Products and services transferred over time		62,406		—		62,406

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Debt investment interest income, gain on the sale of investment securities, unrealized loss on investment securities, and other revenue earned from success fees on debt investments included in our consolidated revenues are not within the scope of ASC 606 Revenue from Contracts with Customers.

4. Acquisitions, Disposals and Discontinued Operations

2023 ACQUISITION

On January 6, 2023, with an effective date of January 1, 2023, HPI, entered into an agreement to acquire substantially all of the assets of ALN Medical Management, LLC, (“ALN”), a provider of revenue cycle management and business related management services for total purchase consideration of $26.7 million. The purchase consideration was comprised of cash consideration of $11.7 million (net of cash acquired of $0.1 million); the fair value of an earnout of $11.1 million, which is a Level 3 financial asset; and, the fair value of rollover units of $3.8 million, which are defined as 1,339 of Class A-1 Units of HPI Holdings, LLC, the parent of HPI (“HPI Holdings”), which are recorded in non-controlling interest in partners’ capital. Included in net assets is the assumption of promissory notes of $5.2 million. The terms of the assumed promissory notes are discussed in “Note 10. Borrowings”. The earnout was valued using a discounted cash flow analysis, significant assumptions include the risk-free rate of 4.3% and the credit spread rate of 8.4%, and is included in accrued expenses in the Condensed Consolidated Balance Sheets as of June 30, 2023 see “Note 7, Fair Value”.

The components of the assets acquired and liabilities assumed, which are recorded at estimated fair values, are as follows:


(Dollars in thousands)
Current assets	$	5,392
Operating lease assets		1,131
Other current assets		683
Property and equipment		1,255
Intangible assets		6,800
Goodwill		19,337
Debt		(5,208)
Operating lease liabilities		(1,120)
Current liabilities		(1,557)
Total net assets	$	26,713

The Partnership has finalized the purchase price and there have been no material adjustments from the preliminary allocation.

The purchase of ALN resulted in the recognition of goodwill in the Partnership’s Condensed Consolidated Financial Statements, which is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized and includes the expected synergies from combining ALN and HPI. ALN is included in the HPI reporting unit.

In connection with the ALN acquisition, the Partnership identified the following intangible assets:


(Dollars in thousands)			Useful Lives
Customer relationships	$	5,200	5 years
Trade name		1,600	5 years
	$	6,800

The accompanying Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2023, includes $5.8 million and $11.2 million of revenue and net loss of $1.6 million and $2.2 million, respectively, related to ALN for the period from January 1, 2023 (date of acquisition), through June 30, 2023. The Partnership’s unaudited pro forma consolidated results of operations for the three and six months ended June 30, 2022, are summarized in the table below, assuming the acquisition of ALN occurred on January 1, 2022. These unaudited pro forma results of operations have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually resulted had the acquisition occurred on January 1, 2022, or are they indicative of future results of operations.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Partnership’s unaudited pro forma consolidated results of operations (as if the acquisition of ALN had occurred on January 1, 2022) is as follows:


	Three months ended		Six months ended
(Dollars in thousands)	June 30, 2022		June 30, 2022
Pro forma revenue	$	53,516	$	106,432
Pro forma net loss from continuing operations		(15,028)		(14,495)

2023 DISPOSITIONS

In June 2023 the Partnership committed to selling 100% of the equity in Experience Care, LLC (“Experience Care”), for $14.0 million in an all cash transaction. The sale of Experience Care is expected to close in 2023. Accordingly, the assets and liabilities of Experience Care have been classified as held for sale as of June 30, 2023.

The following tables reconcile the assets and liabilities of the Experience Care to the amount recorded as assets and liabilities held for sale, continuing operations in the accompanying Condensed Consolidated Balance Sheets at June 30, 2023:


(Dollars in thousands)
Assets
Accounts receivable, net	$	574
Prepaid expenses		174
Intangible assets		3,475
Current assets held for sale, continuing operations	$	4,223

Liabilities
Accounts payable	$	261
Accrued expenses		866
Customer deposits		709
Current liabilities held for sale, continuing operations	$	1,836

2022 DISPOSITIONS

In January 2022, Greenwave Energy, LLC (“Greenwave”), a subsidiary of the Partnership entered into an Asset Purchase Agreement with United Energy Trading, LLC (“UET”). The Asset Purchase Agreement became effective on January 1, 2022, at which time UET acquired all customer contracts for the sale of natural gas or renewable energy credits and carbon offsets as well as intellectual property rights to the Greenwave name in exchange for $4.4 million in net cash proceeds. The $4.4 million in net cash proceeds were received in January 2022. The Partnership recorded a gain of $4.4 million on disposal of the business in January 2022 in the Condensed Consolidated Statements of Operation.

In March 2022, the Partnership sold Middleneck, the real estate of its shuttered Tower Ford dealership for net proceeds of $9.9 million, to the current operator of an auto dealership on the site, subject to standard post-closing adjustments. The Partnership recorded a gain of approximately $2.3 million on disposal of the real estate in 2022 in the Condensed Consolidated Statements of Operation.

Discontinued Operations

The following dispositions represent a strategic shift in the Partnership’s operations and financial results. Therefore, the Partnership is presenting the operating results and cash flows as discontinued operations in the accompanying Condensed Financial Statements for all periods presented.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Automotive Retail

GPB Prime, in which the Partnership continues to hold a 33.5% equity investment, completed the sale of substantially all of its assets, including real estate, three collision centers and 28 dealerships in 2021. The Partnership also sold its wholly owned dealership, Orangeburg Subaru LLC (“Orangeburg”), in 2021. The carrying value of the Partnership’s remaining investment in GPB Prime of $14.1 million and $21.6 million as of June 30, 2023 and December 31, 2022, respectively, is included in assets held for sale, discontinued operations on the Condensed Consolidated Balance Sheets. In March 2023 and 2022, GPB Prime reached additional agreements with M&T Bank to allow for distributions to the Partnership of $8.0 million in March 2023, $28.5 million in March 2022 and $10.0 million in April 2022, respectively. Following the completion of the sale, the Partnership has no involvement in the operations of GPB Prime or Orangeburg.

Summarized operating results for the Automotive Retail segment for the three and six months ended June 30, 2023 and 2022 were as follows:


	Three months ended June 30,				Six months ended June 30,
(Dollars in thousands)	2023		2022		2023		2022
Operating income (loss)	$	430	$	(3,101)	$	590	$	1,645
Income (loss) from discontinued operations		430		(3,101)		590		1,645
Net income (loss) from discontinued operations	$	430	$	(3,101)	$	590	$	1,645

Summarized cash flow for the Automotive Retail segment for the six months ended June, 2023 and 2022 were as follows:


	Six months ended June 30,
(Dollars in thousands)	2023		2022
Cash provided by
Investing activities	$	8,040	$	38,525
Net increase in cash and cash equivalents	$	8,040	$	38,525

The cash flow amounts in the table above exclude the effects of transactions among and between Automotive Retail and the Partnership.

5. Receivables, net

Receivables, net of allowance for doubtful accounts, consisted of the following:


	June 30,		December 31,
(Dollars in thousands)	2023		2022
Receivables
Energy	$	1,889	$	1,866
Technology-enabled services		29,972		27,155
Total		31,861		29,021
Allowance for doubtful accounts
Energy		(223)		(223)
Technology-enabled services		(1,420)		(1,889)
Total		(1,643)		(2,112)
Receivables, net	$	30,218	$	26,909

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

6. Equity Method Investments

The carrying amounts of equity method investments were as follows:


		June 30, 2023				December 31, 2022
		Ownership		Carrying		Ownership		Carrying
(Dollars in thousands)	Segment	Percentage		Amount		Percentage		Amount
Investment
Quantum Energy Holdings, LLC	Energy	50.0	%	$	10,664	50.0	%	$	9,397
Hotel Internet Services, LLC	Technology-Enabled Services	31.0	%		6,752	31.0	%		5,996
Other					—				74
				$	17,416			$	15,467

Income from equity method investments for the three and six months ended June 30, 2023 and 2022 were as follows:


	Three months ended June 30,				Six months ended June 30,
(Dollars in thousands)	2023		2022		2023		2022
Investment
Quantum Energy Holdings, LLC	$	292	$	80	$	3,266	$	(48)
Hotel Internet Services, LLC		192		466		756		1,072
Other		—		—		(74)		—
Total	$	484	$	546	$	3,948	$	1,024

In March 2023, Quantum sold one of its operating companies and the Partnership recorded its share of the gain of $3.0 million which is included in income from equity method investments in the Condensed Consolidated Statement of Operations for the six months ended June 30, 2023. In June 2023 Quantum made a $2.0 million distribution to the Partnership.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

7. Fair Value Measurements

The following tables present the cost basis and fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis:


	Fair value Measurement Using
							Total
(Dollars in Thousands)	Level 1		Level 2		Level 3		Fair Value
June 30, 2023
Assets:
Investment securities:
United States Treasury Bills	$	293,486	$	—	$	—	$	293,486
Corporate debt securities		—		—		503	$	503
	$	293,486	$	—	$	503	$	293,989

Liabilities:
Contingent liability (1)	$	—	$	—	$	9,221	$	9,221
Total liabilities	$	—	$	—	$	9,221	$	9,221

December 31, 2022
Assets:
United States Treasury Bills (2)		304,300		—		—	$	304,300
Investment securities:
Corporate debt securities		—		—		729		729
Total assets	$	304,300	$	—	$	729	$	305,029

Liabilities:
Contingent liability (1)	$	—	$	—	$	7,216	$	7,216
Total liabilities	$	—	$	—	$	7,216	$	7,216

(1) Included in accrued liabilities

(2) Included in cash

The Partnership’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of any level for the six months ended June 30, 2023 or the year ended December 31, 2022.

The Partnership classifies is United Sates Treasury bills as Level 1 assets under the fair value hierarchy, as these assets have been valued using quoted market prices in active markets without valuation adjustment.

The reconciliation of the Partnership’s contingent liability, which is recorded in accrued liabilities in the condensed consolidated balance sheets, measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:


	Contingent
	Liability
Balance, December 31, 2022	$	7,216
Add: ALN acquisition		11,140
Less:
Payments		(2,844)
Gain on reduction of liability		(6,291)
Balance, June 30, 2023	$	9,221

Contingent liabilities are included on in accrued liabilities on the Condensed Consolidated Balance Sheets.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Partnership estimated the contingent liability using a discounted cash flow analysis, significant assumptions include a risk-free interest rate of 4.3% and a credit spread rate of 8.4%. The risk-free interest rate is based on U.S. Treasury zero-coupon yield curve on the valuation date commensurate with the payment term. The credit spread rate is based on similar debt instruments. There were no changes to the assumptions from January 6, 2023 (acquisition date, see Footnote 4) to June 30, 2023.

8. Property and Equipment

Components of property and equipment were as follows:


	June 30,		December 31,
(Dollars in thousands)	2023		2022
Property and equipment
Buildings	$	4,637	$	4,476
Leasehold improvements		747		747
Computer and office equipment		5,572		4,410
Furniture and fixtures		926		528
Vehicles		1,820		2,272
Computer software		2,195		1,473
Total		15,897		13,906
Accumulated depreciation and amortization		(6,557)		(5,661)
Total property and equipment, net	$	9,340	$	8,245

Depreciation and amortization expense related to property and equipment for the three and six months ended June 30, 2023 was $0.6 million and $1.3 million, respectively and for the three and six months ended June 30, 2022 was $0.5 million and $1.0 million, respectively.

9. Goodwill and Intangible Assets

At June 30, 2023 and December 31, 2022, goodwill balances consisted of the following:


	Technology -
	Enabled
(Dollars in thousands)	Services		Energy		Total
Balance, December 31, 2022	$	64,601	$	14,294	$	78,895
Goodwill acquired through business combinations		19,337		—		19,337
Impairment of Goodwill		—		(14,294)		(14,294)
Balance, June 30, 2023	$	83,938	$	—	$	83,938

The Partnership performed quantitative impairment testing in 2023 and 2022. For the six months ended June 30, 2023, an impairment loss of $14.3 million was recorded in the Energy Segment. The impairment was due to decreasing revenue and cash flows and sales pipeline partially resulting from higher interest rates and inflation and an increase in the costs needed to complete installations. See further information on goodwill acquired which is included in “Note 4. Acquisitions and Dispositions”.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of June 30, 2023 and December 31, 2022, intangible assets consisted of the following:


									Weighted
	Gross								Average
	Carrying				Accumulated		Net Carrying		Remaining
(Dollars in thousands)	Amount		Impairment		Amortization		Amount		Lives (Years)
June 30, 2023
Customer relationships	$	88,958	$	—	$	(38,947)	$	50,011	6.4
Trademark and trade names ⁽¹⁾		7,360		(710)		(3,602)		3,048	4.3
Software development and platform cost		34,837		—		(25,657)		9,180	3.5
Covenant not to compete		1,341		—		(1,341)		—	—
Total	$	132,496	$	(710)	$	(69,547)	$	62,239
December 31, 2022
Customer relationships	$	90,658	$	—	$	(37,993)	$	52,665	5.6
Trademark and trade names ⁽¹⁾		5,760		—		(3,108)		2,652	1.7
Software development and platform cost		38,610		—		(25,954)		12,656	4.1
Covenant not to compete		1,341		—		(1,341)		—	—
Total	$	136,369	$	—	$	(68,396)	$	67,973

1.	Includes indefinite lived intangible assets not subject to amortization totaling $0.9 million and $1.6 million as of June 30, 2023 and December 31, 2022.

The Partnership capitalized software development costs of $0.3 million and $0.3 million during each of the six months ended June 30, 2023 and 2022, respectively.

Amortization expense related to intangible assets was $8.6 million and $7.3 million for the six months ended June 30, 2023 and 2022, respectively, and $3.9 million and $3.4 million for the three months ended June 30, 2023 and 2022, respectively.

The amortization expense for software development and platform costs included in cost of revenues was $1.3 million and $0.6 million, respectively, for the six months ended June 30, 2023 and 2022, and $0.8 million and $0.3 million, respectively, for the three months ended June 30, 2023 and 2022.

The Partnership reviews each reporting unit and definite-lived intangible asset for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to future undiscounted cash flows the assets are expected to generate. If the goodwill or the definite-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds their fair market value. The Partnership recorded an impairment loss based on a quantitative assessment that indicated that the carrying value was greater than fair value of $0.7 million related to trade names in the Energy Segment during the six months ended June 30, 2023.

The Partnership reclassified $3.5 million of intangible assets at June 30, 2023, to assets held for sale on the Condensed Consolidated Balance Sheets after committing to sell 100% of the equity in Experience Care.

Estimated amortization expense as of June 30, 2023 for each of the next five years and thereafter is as follows:


	Estimated
(Dollars in thousands)	Amortization Expense
2024	$	13,414
2025		12,019
2026		10,542
2027		7,560
2028		4,727
Thereafter		13,077
Total	$	61,339

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10. Borrowings

Debt

Debt, other than amounts due to related-parties and lease obligations, as of June 30, 2023 and December 31, 2022, consisted of the following:


	June 30,		December 31,
(Dollars in thousands)	2023		2022
Promissory notes	$	4,583	$	—
Installment Note		75		125
Lines of credit		1,556		1,624
Total long-term debt		6,214		1,749
Less: current maturities		(4,258)		(1,724)
Long term debt, less current maturities	$	1,956	$	25

The aggregate contractual maturities of debt as of June 30, 2023 were as follows:


	Contractual
(Dollars in thousands)	Amount
2024	$	4,258
2025		1,956
Total	$	6,214

Promissory Notes

The Partnership held the following Promissory notes:

●

As part of HPI’s acquisition of ALN, the Partnership assumed promissory notes of $5.2 million to be repaid in eight quarterly installments of approximately $0.6 million beginning April 15, 2023, including interest of 8.0%. Repayments on the promissory note were $0.6 million for the three and six months ended June 30, 2023.

●

The Partnership has a credit agreement outstanding with BBVA Compass Bank. The credit agreement requires equal principal payments plus interest at the bank’s prime rate plus 4.0%. Repayments were $25 thousand and $50 thousand in the three and six months ended June 30, 2023 and 2022. The note matures in March 2024. The outstanding amount due on the note as of June 30, 2023 and December 31, 2022 was $0.1 million and $0.1 million, respectively. The note payable is secured by substantially all the assets of the Partnership.

Lines of Credit

The Partnership had the following credit lines as of June 30, 2023 and December 31, 2022:

●

The Partnership has a line of credit with BBVA Compass Bank. The line requires monthly payments of interest only at the prime rate plus 0.25% per annum (8.5% as of June 30, 2023 and 7.75% as of December 31, 2022) through maturity in July 2026. The outstanding balance on the line of credit as of June 30, 2023 and December 31, 2022, was $1.6 million and $1.6 million, respectively. There were no additional borrowings under the line of credit in the six months ended June 30, 2023 and 2022, respectively. Repayments on the line of credit were $69 thousand and $0.6 million in the six months ended June 30, 2023 and 2022, respectively.

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11. Commitments and Contingencies

We, our General Partner, and our portfolio companies are involved in a number of regulatory, litigation, arbitration and other proceedings or investigations, many of which expose us to potential financial loss. We are advancing funds, pursuant to indemnification clauses in the LPA, to officers and directors, as well as GPB, its principals, representatives, and affiliates, for any costs they may incur in connection with their legal defense of such disputes as required by various agreements or governing law. This advancing of funds does not cover any potential future outcomes or settlements that result from these disputes.

We establish reserves or escrows for legal actions when potential losses associated with the actions become probable and the costs can be reasonably estimated. The actual costs of resolving legal actions may be substantially higher or lower than the amounts reserved or placed in escrow for those actions. Distributions may be delayed or withheld until such reserves are no longer needed or the escrow period expires. If liabilities exceed the amounts reserved or placed in escrow, Limited Partners may need to fund the difference by refunding some or all distributions previously received. For the three and six months ended June 30, 2023, the Partnership accrued $3.5 million and $7.1 million, respectively, and $2.1 million and $2.4 million for the three and six months ended June 30, 2022, respectively of legal indemnification expenses recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

With respect to all significant litigation and regulatory matters facing us and our General Partner, we have considered the likelihood of an adverse outcome. It is possible that we could incur losses pertaining to these matters that may have a material adverse effect on our operational results, financial condition or liquidity in any future reporting period. We understand that the General Partner is currently paying legal costs associated with these actions for itself and certain indemnified parties. The Partnership expects to provide partial or in many cases complete reimbursement to the General Partner as required by various agreements or governing law.

Regulatory and Governmental Matters

GPB and certain of its principals and affiliates face various regulatory and governmental matters. GPB seeks to comply with all laws, rules, regulations and investigations into any potential or alleged violation of law. In such situations where GPB disagrees with the Government’s allegations made against it, GPB intends to vigorously defend itself in court. These matters could have a material adverse effect on GPB and/or the Partnership’s business, acquisitions, or results of operations.

Appointment of Monitor and Application for Receivership

On February 11, 2021, the EDNY Court in the SEC Action appointed the Monitor over GPB until further order of the EDNY Court. The EDNY Court appointed the Monitor in response to a request from the SEC, which asserted that the Monitor was necessary to protect investors in light of the alleged misconduct of GPB Capital’s former CEO, David Gentile. In its February 4, 2021 Complaint in the SEC Action, the SEC alleged that Mr. Gentile, as the owner and then-CEO of GPB Capital, along with Jeffry Schneider, the owner of Ascendant, GPB’s placement agent (as defined below), lied to investors about the source of money used to make 8% annualized distribution payments to investors. According to the SEC, Mr. Gentile and others allegedly told investors that the distribution payments were paid exclusively with monies generated by GPB portfolio companies, but as alleged, GPB actually used investor money to pay portions of the annualized 8% distributions. The Complaint further contains allegations that Mr. Gentile and others manipulated financial statements of certain limited partnership funds that GPB manages to perpetuate the deception by giving the false appearance that the funds’ income was closer to generating sufficient income to cover the distribution payments than it actually was. Moreover, the Complaint alleges that Mr. Gentile engaged in undisclosed self-dealing, including by omitting from investor communications certain conflicts of interest and fees and other compensation that he received, totaling approximately $8.0 million.

In support of the Order, the SEC contended that the Monitor would provide assurances to investors, GPB’s counterparties, and the public that an unbiased and qualified person, who was not beholden to Mr. Gentile, was vetting any significant transactions and decisions, and looking out for the interests of investors. Accordingly, pursuant to the Order, GPB shall (i) grant the Monitor access to all non-privileged books, records and account statements for the GPB-managed funds, including the Partnership, as well as their portfolio companies; and (ii) cooperate fully with requests by the Monitor reasonably calculated to fulfill the Monitor’s duties. As noted below, the Order was amended on April 14, 2021 (the “Amended Order”).

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On April 14, 2021, the EDNY Court entered an Amended Order, providing that, in addition to the SEC and GPB, certain State regulators will receive access to the periodic reports filed by the Monitor pursuant to the Order.

On May 31, 2022, Mr. Gentile filed a motion in the SEC Action to modify the Amended Order pursuant to Rule 60(b) of the Federal Rules of Civil Procedure (the “Rule 60(b) Motion”). In his Rule 60(b) Motion, Mr. Gentile is seeking a court order to, among other things, (i) narrow the scope of the Monitor’s responsibilities; and (ii) direct the Monitor to ensure that GPB does not sell or otherwise dispose of assets or portfolio companies that the Partnership owns before the completion of a “strategic assessment” to be conducted by three managers Mr. Gentile purportedly appointed to GPB on May 27, 2022. On that same day, May 31, 2022, the Monitor notified Mr. Gentile and GPB that Mr. Gentile’s purported appointment of three new managers to GPB without Monitor approval was, amongst other things, in violation of the Amended Order. Mr. Gentile and GPB were, at that time, given ten (10) business days to cure the violation of the Amended Order. The cure period expired without any steps having been taken to comply with the Monitor’s notification of violation of the Amended Order.

On June 13, 2022, the SEC filed by order to show cause in the SEC Action an application and order to (i) convert the existing Monitorship over GPB and the GPB-managed funds to a Receivership, and appoint the previously-appointed Monitor, Joseph T. Gardemal III, as Receiver; and (ii) impose a litigation injunction on cases filed against GPB and the GPB-managed funds (the “Receivership Application” and “Proposed Order”). The Receivership Application and the Proposed Order were filed with the EDNY Court with consent of GPB’s management.

The Receivership Application seeks appointment of Mr. Gardemal as Receiver in order to, in part, streamline the process by which GPB and the GPB-managed funds liquidate remaining portfolio company assets and distribute money to Limited Partners, subject to the EDNY Court’s supervision. The Proposed Order would grant to Mr. Gardemal, generally, all powers and authorities previously possessed by the entities subject to the Proposed Order, as well as the powers possessed by the officers, directors, managers and others previously in charge of those entities, and permits him to, among other things, take all such actions necessary to preserve receivership assets.

Additionally, the Receivership Application includes a proposed stay of all Federal and State actions (as well as any arbitrations) presently pending against GPB and the GPB-managed funds, and provides for a centralized claims process for GPB’s Limited Partners, in the EDNY Court, to prevent potentially disparate actions in different courts that could negatively impact the assets proposed to be subject to the EDNY Court’s jurisdiction and control.

On July 28, 2023, an Eastern District of New York Magistrate Judge issued a Report and Recommendation, recommending that the EDNY Court grant the SEC’s Receivership Application (i.e., convert the monitorship to a receivership), including the imposition of a litigation injunction. The Magistrate Judge further recommended that Mr. Gentile’s Rule 60(b) Motion be denied as moot, or alternatively, that it be denied as procedurally improper.

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Federal Matters

On February 4, 2021, the SEC Action was filed against GPB, Ascendant Capital, LLC (“Ascendant”), Ascendant Alternative Strategies, LLC (“AAS”), David Gentile, Jeffry Schneider and Jeffrey Lash in the EDNY Court. No GPB-managed partnership is a named defendant in the SEC Action. The SEC Action alleges several violations of the federal securities laws, including securities fraud. The SEC is seeking disgorgement and civil monetary penalties, among other remedies.

Also on February 4, 2021, the United States Attorney’s Office (the “USAO”) brought the Criminal Case against Mr. Gentile, Mr. Schneider, and Mr. Lash. The indictment in the Criminal Case alleges conspiracy to commit securities fraud, conspiracy to commit wire fraud, and securities fraud against all three individuals. Mr. Gentile and Mr. Lash were also charged with two counts of wire fraud. We understand that the USAO intends to seek criminal forfeiture. Mr. Gentile resigned from all management and board positions with GPB and Highline, and the GPB-managed funds, including the Partnership, and subsidiaries of the Partnership, promptly following his indictment. In a status conference held on April 17, 2023, the Judge in the Criminal Case scheduled the trial for June 3, 2024. On June 6, 2023, Mr. Lash pled guilty to one count of wire fraud in the Criminal Case pursuant to a plea agreement. Mr. Lash’s sentencing is scheduled for October 4, 2023.

State Matters

On May 27, 2020, the State of Massachusetts (“Massachusetts”) filed an Administrative Complaint against GPB for alleged violations of the Massachusetts Uniform Securities Act. No GPB-managed fund is a named defendant. The complaint alleges, among other things, that the offering documents for several GPB-managed funds, including the Partnership, included material misstatements or omissions. Massachusetts is seeking both monetary and administrative relief, including disgorgement and rescission to Massachusetts residents who purchased the GPB-managed funds. This matter is currently stayed, pending resolution of the Criminal Case.

On February 4, 2021, seven state securities regulators (from Alabama, Georgia, Illinois, Missouri, New Jersey, New York, and South Carolina, collectively the “States”) each filed suit against GPB. No GPB-managed fund is a named defendant in any of the suits. Several of the suits also named Ascendant, AAS, Mr. Gentile, Mr. Schneider, and Mr. Lash as defendants. The States’ lawsuits allege, among other things, that the offering documents for several GPB-managed funds, including the Partnership, included material misstatements and omissions. The States are seeking both monetary and administrative relief, including disgorgement and rescission. The cases brought by the States have been stayed pending the conclusion of the related Criminal Case. The State of New Jersey has voluntarily dismissed its case, without prejudice to re-file it following the conclusion of the Criminal Case.

Actions Asserted Against GPB and Others, Not Including the Partnership

Ismo J. Ranssi, derivatively on behalf of Armada Waste Management, LP, v. GPB Capital Holdings, LLC, et al. (New York Supreme Court, New York County, Index No. 654059/2020)

In August 2020, plaintiffs filed a derivative action against GPB, Ascendant, AAS, Axiom, David Gentile, Mark D. Martino, and Jeffry Schneider in New York Supreme Court. GPB Waste Management, LP is named as a nominal defendant. The Partnership is not a named defendant. The Complaint alleges, among other things, that the offering documents for certain GPB managed funds include material misstatements and omissions. Plaintiffs bring causes of action against GPB for breach of fiduciary duty, breach of contract, unjust enrichment, and an equitable accounting, and against all other defendants for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, and unjust enrichment. The plaintiffs seek a declaration from the Court that defendants breached duties owed to them, and that defendants must indemnify GPB Waste Management, LP for costs in connection with the suit. Plaintiffs also seek unspecified damages and an equitable accounting, and an Order that defendants disgorge all fees obtained through the sale of GPB Waste Management, LP “securities”. Any potential losses associated with this matter cannot be estimated at this time.

Galen G. Miller and E. Ruth Miller, derivatively on behalf of GPB Holdings II, LP, v. GPB Capital Holdings, LLC, et al. (New York Supreme Court, New York County, Index No. 656982/2019)

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other things, that the offering documents for certain GPB-managed funds include material misstatements and omissions. The Amended Complaint alleges causes of action for breach of fiduciary duty against all defendants; aiding and abetting breach of fiduciary duty against Ascendant, AAS, Axiom and Mr. Martino; breach of contract against GPB; unjust enrichment against all defendants; and an equitable accounting against GPB. The plaintiffs are seeking disgorgement of alleged unjust enrichment, unspecified damages as a result of alleged wrongful acts, costs of the action, and an equitable accounting. Any potential losses associated with this matter cannot be estimated at this time.

GPB Lender, LLC v. GPB Capital Holdings, LLC (New York Supreme Court, Nassau County, Index No. 604887/2022)

On or about April 14, 2022, plaintiff GPB Lender, LLC, a related entity, filed a lawsuit against GPB Capital Holdings, LLC in New York Supreme Court, Nassau County, for breaches of a promissory note and breaches of contract related to a 2016 loan agreement and a 2019 loan agreement entered into between the parties. Plaintiff alleged that it is owed approximately $2.0 million in unpaid principal and interest under the promissory note. Plaintiff also alleged that it is owed approximately $0.4 million in unpaid principal and interest under the two loan agreements. On January 30, 2023, the Court granted GPB Lender, LLC’s motion for summary judgment in the principal amount of approximately $2.5 million, plus interest. No costs associated with the settlement were charged to the Partnership.

Cient LLC v. GPB Capital Holdings, LLC (New York Supreme Court, Nassau County, Index No. 604886/2022)

On or about April 14, 2022, plaintiff Cient LLC, a related entity, filed a lawsuit against GPB Capital Holdings, LLC in New York Supreme Court, Nassau County, for breach of a loan agreement and breach of contract relating to a 2019 loan agreement entered into by the parties. Plaintiff alleged that approximately $0.8 million in unpaid principal remains due, along with accrued and unpaid interest. On January 30, 2023, the Court granted Cient LLC’s motion for summary judgment in the principal amount of $0.9 million, plus interest. No costs associated with the settlement were charged to the Partnership.

Plymouth Rock Holding LLC v. GPB Capital Holdings, LLC (New York Supreme Court, Nassau County, Index No. 604873/2022)

On or about April 14, 2022, plaintiff Plymouth Rock Holding, LLC, a related entity, filed a lawsuit against GPB Capital Holdings, LLC in New York Supreme Court, Nassau County, for breach of a loan agreement and breach of contract relating to a 2019 loan agreement entered into by the parties. Plaintiff alleged that approximately $0.3 million in unpaid principal remains due, along with accrued and unpaid interest. On January 30, 2023, the Court granted Plymouth Rock Holding LLC’s motion for summary judgment in the principal amount of $0.4 million, plus interest. No costs associated with the settlement were charged to the Partnership.

Actions Asserted Against GPB and Others, Including the Partnership

For all matters below in which the Partnership is a defendant and where the partnership disagrees with the allegations against, we intend to vigorously defend against the allegations, however no assurances can be given that we will be successful.

Tom Alberto, et al. v. GPB Capital Holdings, LLC, et al. (American Arbitration Association, Case Number: 01-22-0001-5433)

On or about April 13, 2022, claimants, investors in funds managed by GPB Capital Holdings, LLC, commenced an arbitration with the American Arbitration Association against GPB Capital Holdings, LLC, GPB Automotive Portfolio, LP, GPB Holdings II, LP, GPB Cold Storage, LP, GPB Holdings, LP, GPB Holdings II, LP, GPB Holdings Qualified, LP, GPB Holdings III, LP, GPB NYC Development, LP, and GPB Waste Management, LP, along with other non-GPB parties. All claimants were customers of Concorde Investment Services, LLC (“Concorde”), and each purchased his or her limited partnership interest in a GPB-managed Fund through Concorde. Claimants asserted claims based on fraud, breach of fiduciary duty, breach of contract, among others, and claimed to have suffered millions of dollars in damages.

GPB contended that the arbitration was improperly filed, and as such commenced a proceeding in New York State Supreme Court (GPB Capital Holdings, LLC et al. v. Tom Alberto et al., Index No. 656432/2022), solely for the purpose of seeking a stay of the arbitration. In July 2022, following the Court’s entry of an Order temporarily staying the arbitration, the parties stipulated and agreed to the entry of a court order entering judgment for GPB and the other petitioners. The arbitration will be permanently stayed upon the Court so-

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ordering the parties stipulation. In a letter dated December 20, 2022, the American Arbitration Association informed the parties to the arbitration that, as of December 20, 2022, the arbitration was closed.

John Thomas Alberto, et al. v. GPB Capital Holdings, LLC, GPB Automotive Portfolio, LP, GPB Cold Storage, LP, GPB Holdings, LP, GPB Holdings Qualified, LP, GPB Holdings II, LP, GPB Holdings III, LP, GPB NYC Development, LP, GPB Waste Management, LP, Ascendant Capital, LLC, Alternative Strategies, LLC, Axiom Capital Management, Inc., DJ Partners, MR Ranger, LLC, David Gentile, Jeffry Schneider, Jeffrey Lash, Mark Martino, and DOES 1-50 (New York Supreme Court, New York County, Index No. 651143/2023)

In March 2023, plaintiffs filed an action in New York Supreme Court against the above-named defendants, alleging, inter alia, breaches of contract, breaches of fiduciary duty, constructive fraud, conspiracy to commit fraud, negligent misrepresentation, unjust enrichment, and violations of New York General Business Laws. Defendants were not served with the complaint until June 2023. Plaintiffs are seeking compensatory, punitive, and exemplary damages, restitution, rescission, and an equitable accounting. Any potential losses associated with this matter cannot be estimated at this time.

Michael Peirce, derivatively on behalf of GPB Automotive Portfolio, LP v. GPB Capital Holdings, LLC, Ascendant Capital, LLC, Ascendant Alternative Strategies, LLC, Axiom Capital Management, Inc., Steven Frangioni, David Gentile, William Jacoby, Minchung Kgil, Mark D. Martino and Jeffry Schneider, -and- GPB Automotive Portfolio, LP, Nominal Defendant (New York Supreme Court, New York County, Case No. 652858/2020)

In July 2020, plaintiff filed a derivative action in New York Supreme Court against GPB, Ascendant, AAS, Axiom, Steve Frangioni, David Gentile, William Jacoby, Minchung Kgil, Mark Martino, and Jeffry Schneider. The Complaint alleges various breaches of fiduciary duty and/or aiding and abetting the breaches of fiduciary duty against all defendants, breach of contract against GPB, unjust enrichment, and an equitable accounting. Plaintiffs are seeking declaratory relief, disgorgement, restitution, an equitable accounting, and unspecified damages. Any potential losses associated with this matter cannot be estimated at this time.

Alfredo J. Martinez, et al. v. GPB Capital Holdings, LLC (Delaware Chancery Court, Case No. 2019-1005)

In December 2019, plaintiffs filed a civil action in Delaware Court of Chancery to compel inspection books and records from GPB, as General Partner, and from the Partnership, GPB Holdings I, GPB Automotive Portfolio, LP, and GPB Waste Management. In June 2020, the court dismissed plaintiffs’ books and records request, but allowed a contract claim for specific performance to proceed as a plenary action. The plaintiffs are seeking unspecified damages and penalties. Any potential losses associated with this matter cannot be estimated at this time.

Alfredo J. Martinez and HighTower Advisors v. GPB Capital Holdings, LLC, et al. (Delaware Chancery Court, Case No. 2020-0545)

In July 2020, plaintiff filed a complaint against GPB, Armada Waste Management GP, LLC, Armada Waste Management, LP, the Partnership, GPB Automotive Portfolio, LP, and GPB Holdings, LP in the Delaware Court of Chancery to compel inspection of GPB’s books and records based upon specious and unsubstantiated allegations regarding alleged fraudulent activity, mismanagement, and breaches of fiduciary duty. The plaintiffs are seeking an order compelling GPB to permit inspection of documents related to Armada Waste, as well as for costs and fees. Any potential losses associated with this matter cannot be estimated at this time.

Lance Cotten, Alex Vavas and Eric Molbegat v. GPB Capital Holdings, LLC, Automile Holdings LLC D/B/A Prime Automotive Group, David Gentile, David Rosenberg, Philip Delzotta, Joseph Delzotta, and any other related entities (New York Supreme Court, Nassau County, Case No. 604943/2020)

In May 2020, plaintiffs filed a civil action in New York Supreme Court, Nassau County against GPB, Automile Holdings LLC d/b/a Prime Automotive Group, David Gentile, David Rosenberg, Philip Delzotta, Joseph Delzotta, and other related entities. The complaint alleged that defendants engaged in fraudulent and discriminatory schemes against customers and engaged in retaliatory actions against plaintiffs, who were employed by Garden City Nissan from August until October 2019. The plaintiffs sought damages pursuant to New York Labor Law Section 740 and Executive Law Section 296. In May 2023, the parties agreed to settle the action. No costs associated with the settlement were charged to the Partnership.

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Monica Ortiz, on behalf of herself and other individuals similarly situated v. GPB Capital Holdings LLC; Automile Holdings, LLC d/b/a Prime Automotive Group; David Gentile; David Rosenberg; Philip Delzotta; Joseph Delzotta; and other affiliated entities and individuals (New York Supreme Court, Nassau County, Case No. 604918/2020)

In May 2020, plaintiff filed a class action in New York Supreme Court, Nassau County against GPB, Automile Holdings LLC d/b/a Prime Automotive Group, David Gentile, David Rosenberg, Philip Delzotta, Joseph Delzotta, and other affiliated entities and individuals. The complaint alleged deceptive and misleading business practices of the named defendants with respect to the marketing, sale, and/or leasing of automobiles and the financial and credit products related to the same. Plaintiff alleged defendants’ collection of fraudulent rebates exceeded $1.0 million, and sought class-wide injunctive relief, along with monetary and punitive damages and costs and fees. In May 2023, the parties agreed to settle the action. No costs associated with the settlement were charged to the Partnership.

In re: GPB Capital Holdings, LLC Litigation (formerly, Adam Younker, Dennis and Cheryl Schneider, Elizabeth Plaza, and Plaza Professional Center Inc. PFT Sharing v. GPB Capital Holdings, LLC, et al. and Peter G. Golder, individually and on behalf of all others similarly situated, v. GPB Capital Holdings, LLC, et al. (New York Supreme Court, New York County, Case No. 157679/2019)

In May 2020, plaintiffs filed a consolidated class action complaint in New York Supreme Court, New York County, against GPB, GPB Holdings, GPB Holdings II, GPB Holdings III, the Partnership, GPB Cold Storage, GPB Waste Management, David Gentile, Jeffrey Lash, Macrina Kgil, a/k/a Minchung Kgil, William Edward Jacoby, Scott Naugle, Jeffry Schneider, AAS, Ascendant, and Axiom Capital Management. The Complaint alleges, among other things, that the offering documents for certain GPB-managed funds, include material misstatements and omissions. The plaintiffs are seeking disgorgement, unspecified damages, and other equitable relief. Any potential losses associated with this matter cannot be estimated at this time.

Phillip J. Cadez, et al. v. GPB Capital Holdings, LLC, et al. (Delaware Chancery Court, Case No. 2020-0402)

In May 2020, plaintiffs filed a derivative action in Delaware Court of Chancery against GPB, David Gentile, Jeffrey Lash, and Jeffry Schneider. The complaint also names GPB Holdings, LP, and the Partnership as nominal defendants. Previously, plaintiffs had filed a complaint to compel inspection of books and records, which had been dismissed without prejudice.

In the current action, plaintiffs are alleging breaches of fiduciary duties and/or the aiding and abetting of those breaches, unjust enrichment, and with regard to GPB, breach of the Partnerships’ Limited Partnership Agreements. Plaintiffs are seeking unspecified damages based on the causes of action pled, equitable relief in the form of a directive to remove GPB as the General Partner of GPB Holdings, LP and the Partnership, a constructive trust, costs of the action (including attorneys’ fees), and other declaratory and equitable relief. Any potential losses associated with this matter cannot be estimated at this time.

Jeff Lipman and Carol Lipman, derivatively on behalf of GPB Holdings II, LP and GPB Automotive Portfolio, LP v. GPB Capital Holdings, LLC, et al. (Delaware Chancery Court, Case No. 2020-0054)

In January 2020, plaintiffs filed a derivative action in Delaware Court of Chancery against GPB, David Gentile, Jeffrey Lash, and Jeffry Schneider. The complaint alleges breaches of fiduciary duty and/or aiding and abetting breaches of fiduciary duty against each of the defendants, and declaratory relief from the Court related to allegations of fraud, gross negligence, and willful misconduct. The plaintiffs seek unspecified damages and declaratory forms of relief. Any potential losses associated with this matter cannot be estimated at this time.

Mary Purcell, et al. v. GPB Holdings II, LP, et al. (Cal. Supreme Court, Orange County, Case No. 30-2019-01115653-CU-FR-CJC)

In December 2019, plaintiffs filed a civil action in Superior Court in Orange County, California against Rodney Potratz, FSC Securities Corporation, GPB Automotive Portfolio, LP, the Partnership, GPB, David Gentile, Roger Anscher, William Jacoby, Jeffrey Lash, Ascendant, Trevor Carney, Jeffry Schneider, and DOES 1 - 15, inclusive. An Amended Complaint was filed on or about June 10, 2020. In the Amended Complaint, Plaintiffs allege breach of contract against GPB Capital and DOES 1-15, inclusive; statutory and common law fraud against all defendants; breach of fiduciary duty against all defendants; and negligence against all defendants. Plaintiffs allege

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losses in excess of $4.8 million and are seeking rescission, compensatory damages, unspecified equitable relief and punitive damages, and interest and attorneys’ fees in unspecified amounts. Any potential losses associated with this matter cannot be estimated at this time.

Barbara Deluca and Drew R. Naylor, on behalf of themselves and other similarly situated Limited Partners, v. GPB Automotive Portfolio, LP et al. (S.D.N.Y., Case No. 19-CV-10498)

In November 2019, plaintiffs filed a putative class action complaint in the United States District Court for the Southern District of New York against GPB, GPB Automotive Portfolio, LP, the Partnership, David Gentile, Jeffery Lash, AAS, Axiom, Jeffry Schneider, Mark Martino, and Ascendant. The Complaint alleges fraud and material omissions and misrepresentations to induce investment and losses in excess of $1.27 billion. The plaintiffs are seeking disgorgement, compensatory, consequential, and general damages; disgorgement; rescission; restitution; punitive damages; and the establishment of a constructive trust. Any potential losses associated with this matter cannot be estimated at this time.

Kinnie Ma Individual Retirement Account, et al., individually and on behalf of all others similarly situated, v. Ascendant Capital, LLC, et al. (W.D. Texas, Case No. 19-CV-01050)

In October 2019, plaintiffs filed a putative class action in the United States District Court for the Western District of Texas against GPB, certain GPB-managed limited partnerships, including the Partnership, for which GPB is the General Partner, AAS, and Ascendant, as well as certain principals of the GPB-managed limited partnerships, auditors, broker-dealers, a fund administrator, and other individuals. The Complaint alleges violations and/or aiding and abetting violations of the Texas Securities Act, fraud, substantial assistance in the commission of fraud, breach of fiduciary duty, substantial assistance in breach of fiduciary duty, and negligence. Plaintiffs allege losses in excess of $1.8 billion and are seeking compensatory damages in an unspecified amount, rescission, fees and costs, and class certification. Any potential losses associated with this matter cannot be estimated at this time.

On June 1, 2022, the Western District of Texas Court consolidated this matter with Barasch v. GPB Capital, et al. (19-cv-01079); only the Kinnie Ma case continues, including the claims at issue in the Barasch v. GPB Capital matter (as described below), which were consolidated under the Kinnie Ma docket number. On June 23, 2022, the Court denied Defendants David Gentile and Jeffry Schneider’s motion to stay the case pending the resolution of the criminal case, U.S. v. Gentile, et al., No. 1:21-CR-54-DG (E.D.N.Y. Jan. 29, 2021). Plaintiffs filed a consolidated complaint on July 1, 2022, and defendants filed answers thereafter. The parties are engaged in discovery related to class certification.

Stanley S. and Millicent R. Barasch Trust and Loretta Dehay, individually and on behalf of others similar situated v. GPB Capital Holdings, LLC, et al. (W.D. Texas, Case No. 19 Civ. 01079)

In November 2019, plaintiffs filed a putative class action in the United States District Court for the Western District of Texas against, the Partnership and other GPB-managed limited partnerships, AAS, and Ascendant, as well as certain principals of the GPB-managed funds, auditors, a fund administrator, and individuals. (The original Complaint named Millicent R. Barasch as the plaintiff, but since her death, her trust has successfully moved to substitute for all purposes in this litigation.) The Complaint alleged civil conspiracy, fraud, substantial assistance in the commission of fraud, breach of fiduciary duty, substantial assistance in the breach of fiduciary duty, negligence, violations of the Texas Securities Act, and aiding and abetting violations of the Texas Securities Act.

On June 1, 2022, the Western District of Texas Court consolidated this matter into Kinnie Ma v. Ascendant Capital, LLC et al. (19-cv-01050). The claims at issue in this case continue under the Kinnie Ma docket number.

Concorde Investment Services, LLC v. GPB Capital Holdings, LLC, et al. (New York Supreme Court, New York County, Index No. 650928/2021)

In February 2021, Concorde Investment Services, LLC filed suit in New York State Supreme Court, New York County against GPB, certain limited partnerships for which GPB is the General Partner, and others. The Complaint alleges breaches of contract, fraudulent inducement, negligence, interference with contract, interference with existing economic relations, interference with prospective economic advantage, indemnity, and declaratory relief, and includes a demand for arbitration. Plaintiff’s demands include compensatory damages of at least $5.0 million, punitive damages, and a declaration that Concorde is contractually indemnified by the Defendants.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

In October 2021, the New York State Supreme Court ordered the action be stayed so that the Plaintiffs could pursue claims in arbitration. By the same Order, the New York State Supreme Court denied the Defendants’ motions to dismiss the Complaint. Any potential losses associated with this action cannot be estimated at this time.

Concorde Investment Services, LLC v. GPB Capital Holdings, LLC, GPB Holdings, LP, GPB Automotive Portfolio, LP, GPB Waste Management, LP (American Arbitration Association, Case No. 01-21-0018-1470)

In December 2021, claimant Concorde Investment Services, LLC (“Concorde”, the Plaintiff in the New York case set forth above) filed a Demand for Arbitration with the American Arbitration Association (AAA). The arbitration, however, was dormant while certain issues in the New York case were litigated. In January 2023, Concorde sought the appointment of an arbitration panel to proceed against GPB Capital and the GPB-managed funds (the “GPB Funds”). Concorde seeks indemnification damages from FINRA arbitrations brought against Concorde by its clients with respect to the limited partnership interests Concorde sold in GPB Funds, and based upon the so-called “dealer agreements” entered into between Concorde and the GPB Funds. On request of Concorde, a three-member arbitration panel has been appointed. On or about April 25, 2023, the panel denied the Respondents’ request to file either a motion to dismiss the arbitration, or to stay the arbitration pending the resolution of the related Criminal Case. Any potential losses associated with this action cannot be estimated at this time.

Jeffry Schneider v. GPB Capital Holdings, LLC et al., Case No. 2021-0963 (Court of Chancery, DE)

In November 2021, Plaintiff, a former affiliate of GPB Capital Holdings, LLC, filed a Complaint in Chancery Court in Delaware against GPB Capital Holdings, LLC and each of the funds it manages, including the Partnership, seeking a ruling that he is contractually entitled to mandatory advancement of legal fees by GPB Capital with respect to several lawsuits in which Plaintiff is named. On March 24, 2022, the Chancery Court issued a bench ruling, finding that Plaintiff was entitled to advancement of his legal fees from GPB Capital.

David Gentile v. GPB Capital Holdings, LLC et al., Case No. 2021-1102-SG (Court of Chancery, DE)

On or about December 20, 2021, Plaintiff David Gentile, founder and former Chief Executive Officer of GPB Capital Holdings, LLC, filed a Complaint in Chancery Court in Delaware against GPB Capital Holdings, LLC and each of the funds it manages, including the Partnership, seeking entry of an Order governing his contractual entitlement to advancement of legal fees by GPB Capital with respect to several lawsuits in which Plaintiff is named. On April 12, 2022, the Chancery Court entered the parties’ Stipulation and Advancement Order governing Plaintiff’s entitlement to advancement of attorneys’ fees and expenses.

Dealership Related Litigation

AMR Auto Holdings – SM, LLC d/b/a Prime Subaru Manchester v. Subaru of New England, Inc. (New Hampshire Motor Vehicle Industry Board, Case No. 2021-01)

Prime Subaru Manchester has a franchise agreement (“Subaru Dealer Agreement”) with Subaru of New England, Inc., the distributor of Subaru vehicles in New Hampshire (“SNE”), pursuant to which Prime Subaru Manchester owns and operates a Subaru dealership in Manchester, New Hampshire. On September 13, 2021, Prime Subaru Manchester notified SNE that it proposed to transfer substantially all of the assets of its dealership to Group 1 Automotive, Inc. (“Group 1”), pursuant to the purchase agreement. To comply with the requirements of the Subaru Dealer Agreement and New Hampshire law, Prime Subaru Manchester asked for SNE’s consent to the transfer to Group 1. SNE refused to approve the transfer to Group 1 (the “Turndown”). On December 10, 2021, Prime Subaru Manchester, as Protestor, filed a Protest action against SNE, as Respondent, with the New Hampshire Motor Vehicle Industry Board (the “NHMVIB”) (Case No. 2021-01), claiming that the Turndown by SNE breached the Subaru Dealer Agreement and New Hampshire law, and seeking a finding and ruling from the NHMVIB, among others, that SNE unreasonably and in violation of law withheld its consent to the proposed transfer of the assets of Prime Subaru Manchester to Group 1, as well as awarding costs and attorney’s fees to Prime Subaru Manchester.

After discovery by both sides, the NHMVIB held a final hearing on the Protest action on August 2, 2022. On August 10, 2022, the NHMVIB deliberated and a Final Order on Hearing was issued by the NHMVIB on August 12, 2022 in which it was ordered that Prime Subaru Manchester’s Protest was granted because SNE unreasonably withheld consent of the sale of the dealership to Group 1 in violation of New Hampshire law, and SNE’s claims were denied.

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On or about September 1, 2022, SNE filed with the NHMVIB a Motion for Rehearing, asking the NHMVIB to reconsider its Final Order in favor of Prime Subaru Manchester. On September 12, 2022, Prime Subaru Manchester filed a Reply to SNE’s Motion for Rehearing with the NHMVIB. On October 4, 2022, the NHMVIB deliberated and, on October 11, 2022, issued an Order denying SNE’s Motion for Rehearing.

Subaru of New England, Inc. v. AMR Auto Holdings–SM LLC d/b/a Prime Subaru Manchester (Hillsborough Superior Court Northern District, New Hampshire, 216-2022-CV-00786)

On November 10, 2022, SNE filed an appeal with the Hillsborough Northern District Superior Court of New Hampshire, seeking to overturn the Final Order of the NHMVIB and to obtain an order that SNE’s Turndown complied with New Hampshire law. On July 6, 2023, the New Hampshire Superior Court ruled in favor of Prime Subaru Manchester, affirming the NHMVIB’s Final Order. On August 7, 2023, SNE filed a notice of appeal of the Superior Court’s ruling to the New Hampshire Supreme Court.

Pending the resolution of the appeal filed by SNE, GPB Prime will continue to operate the Prime Subaru Manchester dealership until the earlier of an ownership transfer or November 2023, twenty-four months from the closing date, at which time, any cost associated with closing the dealership and liquidating the assets will be borne by Group 1. If a resolution of the Protest and completion of the sale of assets to Group 1 occurs prior to November 2023, the remaining estimated net cash inflows from the Prime Subaru Manchester operation will be reversed from the liability for estimated costs in excess of estimated receipts on APLP’s Condensed Consolidated Statements of Net Assets in Liquidation by a corresponding amount, however, any such reversals are not expected to have a material impact on the Partnership’s Condensed Consolidated Financial Statements.

Actions asserted by GPB

GPB Capital Holdings, LLC et al. v. Patrick Dibre (New York Supreme Court, Nassau County, Case No. 606417/2017)

In July 2017, GPB, the Partnership, GPB Holdings I, LP, GPB Holdings Automotive, LLC, and GPB Portfolio Automotive, LLC filed suit in New York State Supreme Court, Nassau County, against Patrick Dibre, one of their former operating partners, for breach of contract, breach of fiduciary duty, fraud and conversion arising out of the Defendant’s sale of certain automobile dealerships to the GPB Plaintiffs. Mr. Dibre answered GPB’s Complaint, and asserted counterclaims alleging breach of contract and unjust enrichment. Plaintiffs have since filed amended complaints, narrowing the prior claims to focus on certain specific provisions in the documents governing the sale of the dealerships at issue. The plaintiffs seek damages based on the value of the subject dealerships related to the alleged breach, and also seek an order of specific performance compelling Mr. Dibre to fulfill other obligations under the governing documents. Any potential losses associated with this matter cannot be estimated at this time.

Portfolio Company Litigation

Doctor’s Emergency Service, P.A. v. Professional Management, Inc. and AdvantEdge Healthcare Solutions, Inc. (Circuit Court for Baltimore City, No. 24-C-23-001840 CN)

In April 2023, Plaintiff Doctor’s Emergency Service, P.A., a customer of AdvantEdge Healthcare Solutions, Inc. (“AdvantEdge”), filed suit against AdvantEdge and another party for breach of contract and breach of fiduciary duties relating to a dispute over purported negligent billing practices. Plaintiff seeks in excess of $3 million in damages. AdvantEdge disputes the Plaintiff’s allegations. Any potential losses associated with this matter cannot be estimated at this time.

Certain of these outstanding matters include speculative, substantial or indeterminate monetary amounts. We record a liability when we believe that it is probable a loss will be incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the reasonably possible loss. We evaluate developments in our legal matters that could affect the amount of liability that has been previously accrued, if any, and the matters and related reasonably possible losses disclosed, and make adjustments as appropriate. Significant judgement is required to determine both the likelihood of there being and the estimated amount of a loss related to such matters. We continue to evaluate these legal matters and potential future losses in accordance with FASB ASC 450, Contingencies.

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

12. Related Party Transactions

FEES AND EXPENSES

The Partnership incurred the following related party fees and expenses:

Managerial Assistance Fee

Per the LPA and Private Placement Memorandum (the “PPM”), GPB, as General Partner, is entitled to receive an annualized managerial assistance fee (the Managerial Assistance Fee”) for providing managerial assistance services to the Partnership and its portfolio companies and equity method investees. Those services include conducting the day-to-day operations of the Partnership inclusive of the identification, management and disposition of underlying portfolio companies and other duties assumed and stated under the LPA. The Managerial Assistance Fee does not include expenses related to In-House Services and Operations Support Services (defined below under “Partnership Expenses”) provided to the Partnership or its portfolio companies and equity method investees. Such expenses are in addition to, and not in lieu of, the Managerial Assistance Fee. The Managerial Assistance Fee is payable by the Partnership quarterly, in advance, at 2.0% per annum for Class A and B Units and 1.75% per annum for Class A-1 and B-1 Units calculated on each Limited Partners’ Gross Capital Contributions. GPB, in its sole discretion, may defer, reduce or waive all or a portion of the Managerial Assistance Fee with respect to one or more Limited Partners for any period of time (and intends to waive the Managerial Assistance Fee with respect to GPB H2 SLP, LLC, as defined below, and its affiliates that invest in the Partnership). Managerial Assistance Fees charged to “Managerial assistance fee, related party” and included in the Condensed Consolidated Statements of Operations for the three months ended June 30, 2023 and 2022 were $3.1 million and $2.3 million, respectively. Managerial Assistance Fees charged to “Managerial assistance fee, related party” and included in the Condensed Consolidated Statements of Operations for the six months ended June 30, 2023 and 2022 were $6.1 million and $5.4 million, respectively. The Partnership has non-interest-bearing payables of $2.1 million and nil to GPB for these expenses as of June 30, 2023 and December 31, 2022, respectively, which are included in amounts due to related parties in the Condensed Consolidated Balance Sheets.

Partnership Expenses

The Partnership pays its own operating expenses. GPB is responsible for its or its affiliates’ general and administrative costs and expenses and its day to day overhead expenses of managing the Partnership and is not entitled to be reimbursed by the Partnership for such expenses other than for the portion of the total compensation of GBP’s or its affiliates (including holding companies), officers and employees relating to the time such officers or employees provide In-House Services or Operations Support Services to the Partnership or its investee entities. Such expenses are in addition to, and not in lieu of, the Managerial Assistance Fee. “In-House Services” include but are not limited to accounting, legal, compliance, information technology, human resources, and operational and management services to the Partnership or the investee entities. “Operations Support Services” include, but are not limited to, operational support and consulting services and similar services to, or in connection with, the identification, acquisition, holding and improvement of the investee entities. In addition GPB, on occasion, pays Partnership expenses on the Partnerships’ behalf when operationally feasible and obtains reimbursement. Upon request from GPB, the Partnership reimburses GPB in full for all of the expenses paid on its behalf.

Partnership expenses included as a component of selling, general and administrative expenses in the Condensed Consolidated Statements of Operations for the three months ended June 30, 2023 and 2022, were $4.5 million and $3.6 million, respectively. Partnership expenses included as a component of selling, general and administrative expenses in the Condensed Consolidated Statements of Operations for the six months ended June 30, 2023 and 2022, were $8.5 million and $4.8 million, respectively. As of June 30, 2023 and December 31, 2022, respectively, the Partnership has non-interest-bearing payables of $0.8 million and nil, to GPB for these expenses, which are included in amounts due to related parties in the Condensed Consolidated Balance Sheets,

NOTES RECEIVABLE FROM RELATED PARTIES

In February 2016, the Partnership entered into a loan agreement with Quantum, an equity method investee. This “interest only” loan bore interest at 4% per annum through 2017 and 8% per annum through March 2022. Subsequent repayments and additional lending resulted in a loan balance of $0.1 million at December 31, 2021, which was included in note receivable – related party in the Condensed Consolidated Balance Sheets. During the three months ended June 30, 2022, no payments were received. During the six months ended June 30, 2022, payments of $0.1 million were received. The note was repaid in full at December 31, 2022.

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

During 2019, the Partnership loaned Quantum $0.8 million under an additional loan agreement to be used for purposes of closing their Florida office. The loan had a 36-month term which expired in October 2022 and accrued interest at 8% annually. The principal and interest payments commenced in April 2020. Subsequent repayments resulted in a loan balance of $0.3 million at December 31, 2021. During the three months ended June 30, 2022, payments of $0.1 million were received. During the six months ended June 30, 2022, payments of $0.2 million were received. The note was repaid in full at December 31, 2022.

NOTES PAYABLE TO RELATED PARTIES

In 2017, a term loan agreement was entered into by Halo of which Meta HealthCare IT Solutions, LLC and Cantata were co-borrowers, with Rural India Supporting Trust (“RIST”), a company that controls a board seat of Halo. As of December 31, 2019, the principal outstanding was $13.0 million. Interest-only payments accrued at an annual rate of 10.0% for 36 months from the effective date of June 2017. In September 2020, Halo entered into the First Amendment to Intercreditor Agreement with RIST which required Halo to pay down $6.5 million of its outstanding debt obligation and extended the maturity date of the term loan to December 31, 2022.The amended term loan accrued interest at a rate of 10% with all outstanding principal due at maturity. The loan agreement contained certain financial and non-financial covenants.

On February 24, 2022, the Partnership paid off the RIST loan principal in full and outstanding interest on behalf of the borrowers. For the three months ended June 30, 2023 and 2022, interest expense related to these notes were nil and nil, respectively, included in interest expense to related parties in the Condensed Consolidated Statements of Operations. For the six months ended June 30, 2023 and 2022, interest expense related to these notes were nil and $0.1 million, respectively, included in interest expense to related parties in the Condensed Consolidated Statements of Operations.

CONSULTING AGREEMENTS

For the three months ended June 30, 2023 and 2022, Erus paid $20 thousand and $0.1 million, respectively, for consulting fees to a non-controlling interest member of Erus, who was also previously a member of Erus’ management. For the six months ended June 30, 2023 and 2022, Erus paid $0.1 million and $0.1 million, respectively, for consulting fees to a non-controlling interest member of Erus. The consulting fees are recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Quantum, an equity method investee of the Partnership, incurred expenses of $22 thousand and $0.1 million for the three months ended June 30, 2023 and 2022, respectively. Quantum incurred expenses of $0.2 million and $0.3 million for the six months ended June 30, 2023 and 2022, respectively. The expenses were related to the provision of consulting services from several companies owned by officers of the subsidiary. Accounts payable related to these services were nil and $0.2 million, as of June 30, 2023 and December 31, 2022, respectively.

OTHER RELATED PARTY TRANSACTIONS

For the three months ended June 30, 2023 and 2022, respectively, Erus paid $0.1 million and $33 thousand to Reimagine Roofing, Barrier Insulation and Brooks Enterprises, companies affiliated with one of the Erus’ senior executives. For the six months ended June 30, 2023 and 2022, respectively, Erus paid $0.3 million and $0.1 million to Reimagine Roofing, Barrier Insulation and Brooks Enterprises. These fees are included in cost of services in the Condensed Consolidated Statements of Operations.

Erus occasionally sells customer accounts to an entity controlled by a non-controlling interest member of Erus, who is a member of the subsidiary’s management. For the three months ended June 30, 2023 and 2022, the amounts sold were $0.2 million and $0.3 million, respectively, which are included in product revenue in the Condensed Consolidated Statements of Operations. For the six months ended June 30, 2023 and 2022, the amounts sold were $0.5 million and $0.5 million, respectively, which are included in product revenue in the Condensed Consolidated Statements of Operations.

HPI, a subsidiary of the Partnership, entered into sales transactions with a company controlled by a director of the subsidiary. Revenues related to this relationship were $1.6 million and $1.7 million for the three months ended June 30, 2023 and 2022, respectively. Revenues related to this relationship were $3.1 million and $3.3 million for the six months ended June 30, 2023 and 2022, respectively. These revenues were included in service revenue in Condensed Consolidated Statements of Operations. Accounts receivable were $0.7 million

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

and $0.5 million, as of June 30, 2023 and December 31, 2022, respectively, and are included in accounts receivable, net on the Condensed Consolidated Balance Sheets.

As compensation for the services to be rendered by Highline, the Partnership pays GPB’s OSP fees to Highline for an annual amount agreed to by GPB and Highline, subject to the Highline Board’s approval, following Highline’s delivery of the annual written budget to GPB detailing the fees, costs and expenses that will be incurred by Highline in providing its Services. The Partnership recorded OSP fees as a component of selling, general and administrative expenses in the Condensed Consolidated Statements of Operations of $0.4 million and $0.5 million for the three months ended June 30, 2023 and 2022, respectively. The Partnership recorded OSP fees as a component of selling, general and administrative expenses in the Condensed Consolidated Statements of Operations of $0.8 million and $1.0 million for the six months ended June 30, 2023 and 2022, respectively.

On July 18, 2022, HPI Holdings entered into an agreement to acquire 100% of the outstanding shares of MDS for cash consideration of $13.5 million net of $0.5 million to be paid to a non-controlling shareholder. Transaction costs were $0.3 million. At the consummation of the transaction, the assets and liabilities of MDS were recorded on HPI’s books at their respective carrying values. No gain or loss was recorded in connection with the transaction as MDS and HPI Holdings were both under common control of the Partnership prior to and after the consummation of the transaction. MDS is included in the HPI Holdings reporting unit. The Partnership and non-controlling shareholder executed a contribution agreement in connection with the acquisition, which states that the non-controlling shareholder will receive eight quarterly installments of $63 thousand starting in July 2022. During the three months ended June 30, 2023, one payment was made. During the six months ended June 30, 2023, two payments were made. As of June 30, 2023, the outstanding payable balance was $0.4 million, which is included in accounts payable in the Condensed Consolidated Balance Sheets. As of December 31, 2022, the outstanding payable balance was $0.4 million, which is included in amounts due to related parties in the Condensed Consolidated Balance Sheets. On May 31, 2023, the employment of the non-controlling shareholder was terminated. At that time, an agreement was executed to repurchase all of his membership interest in HPI for $1.5 million, pay an integration bonus amount of $16 thousand, a revenue bonus of $0.1 million and a severance of $50 thousand. The contribution agreement amount and revenue bonus will be paid if the MDS business line exceeds $12.5 million for calendar year 2023. The severance amount will be paid over a six month period effective June 2023.

Quantum leases space from an officer of the company. Quantum paid rent for the three months ended June 30, 2023 and 2022 of nil and $38 thousand, respectively. Quantum paid rent for the six months ended June 30, 2023 and 2022 of $13 thousand and $77 thousand, respectively. The arrangement ended on January 31, 2023.

During the three months ended June 30, 2023, Quantum made profit distributions totaling $2.0 million to the Partnership.

13. Business Segments

ASC 280, Segment Reporting, requires use of the management approach model for segment reporting, which considers how management organizes segments within the Partnership to allocate resources, make operating decisions and assess performance. The reportable segments are among the business activities of the Partnership for which discrete financial information is available and for which operating results are regularly reviewed by its CODM. The Partnership’s chief operating decision maker is its Chief Executive Officer. Management deems operating segments that exceed certain quantitative thresholds to be reportable segments. Our segments coincide with how our businesses are managed.

As of June 30, 2023, the Partnership has the following reportable segments:

●

Technology-Enabled Services;

●

Energy; and

●

Corporate and Other.

The last segment, which we refer to as “Corporate and Other,” primarily consists of other operating segments that are not reportable under the quantitative thresholds, or are selling, general and administrative expenses of the Partnership.

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GPB HOLDINGS II, LP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Segment results incorporate the revenues and expenses of consolidated subsidiaries from the date of acquisition.

Reportable segments’ financial data were as follows:


	Technology
	Enabled				Corporate
(Dollars in thousands)	Services		Energy		and Other		Total
Three Months Ended June 30, 2023
Revenue	$	36,696	$	8,055	$	(89)	$	44,662
Income from equity method investments		(192)		(292)		—		(484)
Depreciation and amortization		3,705		106		—		3,811
Gain on contingent liability		(6,291)		—		—		(6,291)
Asset impairment		—		15,004		—		15,004
Operating income (loss)		6,722		(16,140)		(9,496)		(18,914)
Income from discontinued operations		—		—		430		430
Expenditures for long-lived assets		(996)		96		—		(900)
Total assets		233,696		29,808		321,232		584,736

Six Months Ended June 30, 2023
Revenue	$	72,856	$	20,616	$	18	$	93,490
Income from equity method investments		(682)		(3,266)		—		(3,948)
Depreciation and amortization		8,407		233		—		8,640
Gain on contingent liability		(6,291)		—		—		(6,291)
Asset impairment		—		15,004		—		15,004
Operating income (loss)		8,803		(12,512)		(18,132)		(21,841)
Income from discontinued operations		—		—		590		590
Expenditures for long-lived assets		(1,494)		(65)		—		(1,559)
Purchase of business		(12,857)		—		—		(12,857)
Total assets		233,696		29,808		321,232		584,736

Three Months Ended June 30, 2022
Revenue	$	31,453	$	15,267	$	76	$	46,796
Income from equity method investments		(467)		(79)		—		(546)
Depreciation and amortization		3,523		176		—		3,699
Operating income (loss)		288		(1,763)		(7,476)		(8,951)
Income from discontinued operations		—		—		10,720		10,720
Expenditures for long-lived assets		(76)		(55)		—		(131)

Six Months Ended June 30, 2022
Revenue	$	63,670	$	29,117	$	238	$	93,025
Income from equity method investments		(1,073)		49		—		(1,024)
Gain on disposal of business		—		(4,424)		(2,299)		(6,723)
Depreciation and amortization		7,413		265		—		7,678
Operating income (loss)		1,984		2,829		(11,626)		(6,813)
Income from discontinued operations		—		—		9,264		9,264
Expenditures for long-lived assets		(893)		(108)		—		(1,001)

Operating segments do not sell products to each other; however, several of the portfolio companies in the Technology-Enabled Services segment paid management fees to the Corporate and Other operating segment for services performed by Corporate. These fees have been eliminated from the respective segment information above.

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Item 2. Financial Information

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes and the other financial information included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 31, 2023. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements.

For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operations section, we use the terms “Holdings II,” “the Partnership,” “we”, “us”, “our” or “Registrant” refer to the business of GPB Holdings II, LP and its consolidated subsidiaries, unless content otherwise indicated.

Impact of COVID-19 on Our Operations, Financial Condition, Results of Operations, and Liquidity

The effects of the COVID-19 pandemic continue to evolve. Our impacted businesses have rebounded to at or near pre-COVID-19 sales levels. However, future COVID-19 outbreaks in the markets in which we operate may cause changes in customer behaviors, including a decrease for healthcare services, and for home and commercial solar systems. This may lead to increased valuation risks, such as impairment of long-lived assets. Uncertainties in the global economy may negatively impact our suppliers and other business partners, which may interrupt our supply chain and require other changes to our operations. These and other factors may adversely impact our financial condition, liquidity and cash flow.

Supply Chain Disruptions

The Partnership has had supply chain disruptions, specifically in the Energy segment and our portfolio company Erus. The solar industry has, and continues to experience, supply chain disruptions due to COVID-19, issues related to the Antidumping and Countervailing Duties, Anti Circumvention for solar panels imported into the United States from Cambodia, Malaysia, Thailand and Vietnam filed by a domestic solar manufacturer, the Uyghur Forced Labor Protection Act and Forced Labor Withhold Release Order and tariffs imposed under Section 201 of the Trade Act of 1974, the ongoing conflict between Russia and Ukraine and a rise in global inflationary pressures. In order to offset the delays due to supply chain disruptions, Erus works closely with its suppliers to ensure the required materials for its systems are ordered and obtained prior to their scheduled installation date and in the event of a delay, alternative installation plans are put in place in a timely manner and in compliance with the applicable utility company guidelines and any local, state or federal laws or regulations. Erus also monitors the market for potential alternative panel brands and if there is any issue with its current supplier, Erus is able to quickly notify its design and sales teams that alternative panels are being used to ensure the correct plans are generated and presented to the customer on a timely basis and in compliance with the applicable utility company guidelines and any local, state or federal laws or regulations.

Interest Rates

We are exposed to certain market risks, including the effects of changes in interest rates and changes in consumer attitude and spending patterns, which are inherent to our businesses and arise from transactions entered into in the normal course of operations. For example, many of Erus’ customers finance their purchases, and rising interest rates have and may further discourage such purchases in the future. In addition, in a high inflation environment, customers have and may further elect to forgo purchasing the products and services we offer in favor of other necessary expenditures. Further, we have a significant cash balance that is currently earning higher interest. However, if interest rates decrease in the future, we will earn a lower return on our cash balances.

We currently do not have outstanding debt with variable interest rates, and we do not use derivatives or other financial instruments for trading or speculative purposes. However, certain of our portfolio companies may in the future incur debt with variable interest rates or make use of derivative financial instruments to manage the economic impacts of increasing inflation and general instability in global financial markets. We do not expect the future use of these financial instruments by any of our portfolio companies to have any material effect on our business, financial condition or results of operations.

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OVERVIEW

The Partnership is a holding company which was organized as a Delaware limited partnership on April 17, 2015 and commenced operations on June 1, 2015.

GPB, a Delaware limited liability company and registered investment adviser, is the Partnership’s General Partner pursuant to the terms of the Fourth Amended and Restated LPA, dated April 26, 2018 (as the same may be amended from time to time). Pursuant to the LPA, GPB conducts and manages our business. Robert Chmiel, GPB’s Chief Executive Officer and Chief Financial Officer, currently serves as the sole manager of GPB under the term of GPB’s limited liability company agreement. GPB has entered into a management services agreement with GPB’s wholly owned subsidiary, Highline, pursuant to which Highline provides certain management services to GPB to assist GPB in fulfilling GPB’s duties as the Partnership’s General Partner.

On February 11, 2021, the EDNY Court issued an Order, appointing the Monitor who was granted the authority to approve or disapprove proposed material corporate transactions by GPB, the Partnership or its subsidiaries. The Monitor, pursuant to the original Order and an April 14, 2021 Amended Order, is required to assess the Partnership’s operations and business, and make recommendations to the EDNY Court, which may include continuation of the operations subject to his monitoring, or a liquidation of assets, or filing for reorganizing in bankruptcy. See “Part II - Other Information - Item 1. Legal Proceedings” for additional information.

Our strategy in the segments in which we choose to participate is to own and operate income producing, middle-market private companies primarily in North America on a long-term basis with a goal of maximizing returns for our investors by improving performance of operations, thereby increasing the value of these companies. To accomplish our objectives, we provide managerial expertise and investment capital to our portfolio companies in order to develop the operations and enhance the overall value of the business. In other situations, we have equity interests that enable us to exercise significant influence but not control over the businesses. Following our strategy, we classify the earnings from our investments in entities where we have the ability to exercise significant influence as a component of operating income in our Condensed Consolidated Statement of Operations.

Our focus is on owning and operating our portfolio companies in our Technology-Enabled Services and Energy segments. We also intend to maintain and maximize the value of all of our other investments, which are made for the purpose of generating income from operations. We intend to continually consider strategic transactions on an opportunistic basis, such as spinoffs of businesses, the sale of a portfolio company, or the sale of a business line.

OUR SEGMENTS

The Partnership provides a range of strategic, operational and management resources to our subsidiaries which are engaged in a number of diverse business activities. Our CODM who manages the segments as detailed below, regularly reviews consolidated financial information, evaluates overall strategic performance, and allocates resources to the Partnership. We report our businesses in the three segments for accounting purposes based on how our CODM views the Partnership as follows:

●

Technology-Enabled Services segment acquires and operates Technology-Enabled Services portfolio companies which provide Technology-Enabled Services to healthcare companies. Services provided include the sale and licensing of various electronic health records software and practice management software platforms for ambulatory, acute and long-term care facilities. The customer base served by our TES portfolio companies is dispersed across the U.S., related territories, Costa Rica, Philippines, and India. As of June 30, 2023, Holdings II owned 96% of Halo, which is comprised of Cantata (formerly Meta Healthcare IT Solutions, LLC) and Experience Care (formerly Cantata Health, LLC); and 91.5% of HealthPrime, which includes 100% of MDS, all of which are accounted for under the consolidation method. Our Technology-Enabled Services segment also has a non-controlling investment of 31% in HIS as of June 30, 2023, which is accounted for under the equity method. HIS provides the equipment and associated services to hotels, resorts, military, student housing, casinos, and many other commercial venues.

●

Energy segment acquires and operates companies that provide services in the solar panel market and other services in the energy sector. As of June 30, 2023, the Partnership owned 60% of Erus, which is accounted for under the consolidation method. In January 2022, the Partnership sold its investment in its subsidiary Greenwave Energy, LLC. The Partnership has a 50% non-controlling equity method investment in Quantum. Quantum provides customer acquisition services to the alternative energy industry.

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●

Corporate and Other segment primarily consists of other operating segments that are not reportable under the quantitative thresholds under U.S. GAAP, or are the selling, general and administrative expenses of the Partnership. During the year ended December 31, 2021, the Partnership sold substantially all of its automotive assets including Orangeburg Subaru, LLC, and continues to own its 33.5% interest in GPB Prime, an equity method investment. In March 2022, the Partnership sold its real estate investment in Middleneck.

Our operations are primarily located in the United States of America.

Segment results incorporate the revenues and expenses of consolidated subsidiaries and the equity in earnings (loss) of unconsolidated investments accounted for under the equity method from the date of acquisition.

RESULTS OF OPERATIONS

The following table summarizes the results of our operations for three and six months ended June 30, 2023 and 2022.


	Three Months Ended June 30,				2023 vs 2022				Six Months Ended June 30,				2023 vs 2022
					Increase		% Increase						Increase		% Increase
(Dollars in thousands)	2023		2022		(Decrease)		(Decrease)		2023		2022		(Decrease)		(Decrease)
Revenues:
Product revenue	$	8,145	$	15,841	$	(7,696)	(48.6)	%	$	21,226	$	30,381	$	(9,155)	(30.1)	%
Service revenue		36,606		30,879		5,727	18.5	%		72,246		62,406		9,840	15.8	%
Debt investment interest income		79		76		3	3.9	%		157		171		(14)	(8.2)	%
Gain on sale of investment securities		—		—		—	—	%		29		—		29	100.0	%
Unrealized loss on investment securities		(168)		—		(168)	(100.0)	%		(168)		—		(168)	(100.0)	%
Other revenue		—		—		—	—	%		—		67		(67)	(100.0)	%
Total revenues		44,662		46,796		(2,134)	(4.6)	%		93,490		93,025		465	0.5	%
Cost of revenues:
Cost of goods sold		5,402		7,611		(2,209)	(29.0)	%		12,165		15,401		(3,236)	(21.0)	%
Cost of services		19,908		18,359		1,549	8.4	%		39,721		36,806		2,915	7.9	%
Total cost of revenues		25,310		25,970		(660)	(2.5)	%		51,886		52,207		(321)	(0.6)	%
Gross profit		19,352		20,826		(1,474)	(7.1)	%		41,604		40,818		786	1.9	%
Operating expenses (income):
Selling, general and administrative expenses		22,163		23,194		(1,031)	(4.4)	%		41,914		40,059		1,855	4.6	%
Managerial assistance fee, related party		3,088		2,281		807	35.4	%		6,116		5,376		740	13.8	%
Rent expense		975		1,149		(174)	(15.1)	%		2,010		2,265		(255)	(11.3)	%
Income from equity method investments		(484)		(546)		62	(11.4)	%		(3,948)		(1,024)		(2,924)	285.5	%
Gain on disposal of businesses		—		—		—	—	%		—		(6,723)		6,723	(100.0)	%
Gain on contingent liability		(6,291)		—		(6,291)	100.0	%		(6,291)		—		(6,291)	100.0	%
Impairment of goodwill and intangibles		15,004		—		15,004	100.0	%		15,004		—		15,004	100.0	%
Depreciation and amortization		3,811		3,699		112	3.0	%		8,640		7,678		962	12.5	%
Total net operating expenses		38,266		29,777		8,489	28.5	%		63,445		47,631		15,814	33.2	%
Operating loss		(18,914)		(8,951)		(9,963)	111.3	%		(21,841)		(6,813)		(15,028)	220.6	%
Other income (expense):
Interest expense		(119)		(1,370)		1,251	(91.3)	%		(259)		(2,751)		2,492	(90.6)	%
Interest expenses, related parties		—		(43)		43	(100.0)	%		—		(399)		399	(100.0)	%
Interest income		2,725		150		2,575	1716.7	%		6,060		385		5,675	1474.0	%
Loss on extinguishment of debt		—		(4,502)		4,502	(100.0)	%		—		(4,502)		4,502	(100.0)	%
Other income (expense)		(242)		45		(287)	(637.8)	%		(1,446)		(148)		(1,298)	877.0	%
Total other income (expense)		2,364		(5,720)		8,084	(141.3)	%		4,355		(7,415)		11,770	(158.7)	%
Loss from continuing operations, before tax		(16,550)		(14,671)		(1,879)	12.8	%		(17,486)		(14,228)		(3,258)	22.9	%
Income tax expense		(256)		(212)		(44)	20.8	%		(467)		(355)		(112)	31.5	%
Net loss from continuing operations		(16,806)		(14,883)		(1,923)	12.9	%		(17,953)		(14,583)		(3,370)	23.1	%
Net income from discontinued operations		430		3,101		(2,671)	(86.1)	%		590		1,645		(1,055)	(64.1)	%
Gain on sale of discontinued operations		—		7,619		(7,619)	(100.0)	%		—		7,619		(7,619)	(100.0)	%
Net income from discontinued operations		430		10,720		(10,290)	(96.0)	%		590		9,264		(8,674)	(93.6)	%
Net loss of continuing and discontinued operations		(16,376)		(4,163)		(12,213)	293.4	%		(17,363)		(5,319)		(12,044)	226.4	%
Net (loss) income attributable to non-controlling interests		(6,022)		414		(6,436)	(1554.6)	%		(5,778)		2,375		(8,153)	(343.3)	%
Net loss attributable to the Partnership	$	(10,354)	$	(4,577)	$	(5,777)	126.2	%	$	(11,585)	$	(7,694)	$	(3,891)	50.6	%

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SEGMENT OPERATING RESULTS

Technology-Enabled Services Segment

Comparison of Operating Results for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				2023 vs 2022				Six Months Ended June 30,				2023 vs 2022
					Increase		% Increase						Increase		% Increase
(Dollars in thousands)	2023		2022		(Decrease)		(Decrease)		2023		2022		(Decrease)		(Decrease)
Revenues:
Software licenses	$	90	$	574	$	(484)	(84.3)	%	$	610	$	1,264	$	(654)	(51.7)	%
Software maintenance and support		4,093		3,865		228	5.9	%		8,280		9,305		(1,025)	(11.0)	%
Professional services		6,097		6,541		(444)	(6.8)	%		11,807		12,930		(1,123)	(8.7)	%
Medical billing and services		26,416		20,473		5,943	29.0	%		52,159		40,171		11,988	29.8	%
Total revenues		36,696		31,453		5,243	16.7	%		72,856		63,670		9,186	14.4	%
Cost of revenues:
Cost of goods sold		392		67		325	485.1	%		727		141		586	415.6	%
Cost of service		19,908		18,340		1,568	8.5	%		39,721		36,783		2,938	8.0	%
Total cost of revenues		20,300		18,407		1,893	10.3	%		40,448		36,924		3,524	9.5	%
Gross profit		16,396		13,046		3,350	25.7	%		32,408		26,746		5,662	21.2	%
Operating expenses (income):
Selling, general and administrative expenses		11,732		8,722		3,010	34.5	%		20,622		16,453		4,169	25.3	%
Rent expense		720		980		(260)	(26.5)	%		1,549		1,969		(420)	(21.3)	%
Income from equity method investments		(192)		(467)		275	(58.9)	%		(682)		(1,073)		391	(36.4)	%
Gain on contingent liability		(6,291)		—		(6,291)	(100.0)	%		(6,291)		—		(6,291)	(100.0)	%
Depreciation and amortization		3,705		3,523		182	5.2	%		8,407		7,413		994	13.4	%
Total net operating expenses		9,674		12,758		(3,084)	(24.2)	%		23,605		24,762		(1,157)	(4.7)	%
Operating income	$	6,722	$	288	$	6,434	2,234.0	%	$	8,803	$	1,984	$	6,819	343.7	%

Comparison of the three months ended June 30, 2023 and 2022

Revenues

For the three months ended June 30, 2023 and 2022, the Technology-Enabled Services segment generated revenues of $36.7 million and $31.5 million, respectively. This represents an increase of approximately $5.2 million, or 16.7%. The increase in revenue was primarily due to additional revenues of $5.2 million of medical billing services and $0.5 million of professional services related to HPI’s acquisition of ALN in January 2023. In addition there was a $0.4 million increase in revenue from professional services and $0.2 million in software maintenance at Halo and a $0.4 million of increased medical billings at HPI from legacy operations. These increases were partially offset by a decrease of $1.1 million in professional services at MDS and a decrease of $0.5 million in software maintenance revenue from existing Halo customers.

Cost of Revenues

For the three months ended June 30, 2023 and 2022, overall cost of revenues was $20.3 million and $18.4 million, respectively. This represents an increase of approximately $1.9 million, or 10.3% primarily due to an increase of $1.9 million in cost of revenue related to HPI’s acquisition of ALN in January 2023, an increase of $0.9 at HPI due to one-time integration costs, an increase of $0.4 million related to increased license expenses at Halo partially offset by a decrease of $0.7 million in payroll costs at Halo related to product payroll costs, and by decrease of $0.6 million at MDS.

Gross Profit

For the three months ended June 30, 2023 and 2022, our gross profit was $16.4 million and $13.0 million, our gross margin percentage was 44.7% and 41.5%, respectively. This represents an increase of $3.4 million, or 25.7%. This increase was primarily due to the decreased payroll costs at Halo and achieving synergies after the integration of ALN and MDS.

Total Net Operating Expenses

For the three months ended June 30, 2023 and 2022, operating expenses were $9.7 million and $12.8 million, respectively. This represents a decrease of $3.1 million, or 24.2%. This decrease is primarily due to a $6.3 million gain on settlement of contingent liabilities, a decrease in rent of $0.5 million partially offset by an increase in restructuring costs of $1.8 million at HPI, increases in

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expenses due to the acquisition of ALN of $1.2 million, an increase of $0.4 million from legacy HPI customers and an increase of $0.2 million in depreciation expense due to the ALN acquisition.

Operating Income

For the three months ended June 30, 2023 and 2022, operating income was $6.7 million and $0.3 million, respectively. This was due to a combination of the above described changes in revenues, cost of revenues, gross profit and operating expenses.

Comparison of the six months ended June 30, 2023 and 2022

Revenues

For the six months ended June 30, 2023 and 2022, the Technology-Enabled Services segment generated revenues of $72.9 million and $63.7 million, respectively. This represents an increase of approximately $9.2 million, or 14.4%. The increase in revenue was primarily due to additional revenues of $10.3 million of medical billing services and $0.9 million of professional services related to HPI’s acquisition of ALN in January 2023. In addition there were increases of $1.8 million of professional services at Halo and a $1.5 million in medical billings at HPI from legacy operations. These increases were partially offset by a decrease of $3.7million in professional services at MDS and a decreases of $1.0 million in software maintenance revenue and $0.6 million in product revenue from existing Halo customers.

Cost of Revenues

For the six months ended June 30, 2023 and 2022, overall cost of revenues was $40.4 million and $36.9 million, respectively. This represents an increase of approximately $3.5 million, or 9.5% primarily due to $8.5 million in cost of revenue related to HPI’s acquisition of ALN in January 2023, an increase of $0.9 at HPI due to one-time integration costs, an increase of $0.6 million related to increased license expenses at Halo partially offset by a decrease of $1.8 million in payroll costs at Halo related to product payroll costs, and by decreases of $3.1 million at MDS and $1.7 million from legacy customers at HPI as a result of synergies achieved from the AHS acquisition and MDS merger.

Gross Profit

For the six months ended June 30, 2023 and 2022, our gross profit was $32.4 million and $26.7 million, our gross margin percentage was 44.5% and 42.0%, respectively. This represents an increase of $5.7 million, or 21.2%. This increase was primarily due to the decreased payroll costs at Halo and achieving synergies after the integration of ALN and MDS.

Total Net Operating Expenses

For the six months ended June 30, 2023 and 2022, operating expenses were $23.6 million and $24.8 million, respectively. This represents a decrease of $1.2 million, or 4.7%. This decrease is primarily due to a $6.3 million gain on settlement of contingent liabilities, a decrease in rent of $0.7 million partially offset by an increase in restructuring costs of $1.8 million at HPI, increases in expenses of $2.0 million due to the acquisition of ALN, $1.3 million due to the acquisition of MDS and an increase of $0.9 million in depreciation due to the acquisition.

Operating Income

For the six months ended June 30, 2023 and 2022, operating income was $8.8 million and $2.0 million, respectively. This was due to a combination of the above described changes in revenues, cost of revenues, gross profit and operating expenses.

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Energy Segment

Comparison of Operating Results for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				2023 vs 2022				Six Months Ended June 30,				2022 vs 2021
					Increase		% Increase						Increase		% Increase
(Dollars in thousands)	2023		2022		(Decrease)		(Decrease)		2023		2022		(Decrease)		(Decrease)
Revenues:
Solar panel sales	$	8,055	$	15,267	$	(7,212)	(47.2)	%	$	20,616	$	29,117	$	(8,501)	(29.2)	%
Total revenues		8,055		15,267		(7,212)	(47.2)	%		20,616		29,117		(8,501)	(29.2)	%
Cost and expenses:
Cost of goods sold		5,010		7,544		(2,534)	(33.6)	%		11,438		15,260		(3,822)	(25.0)	%
Total cost of revenues		5,010		7,544		(2,534)	(33.6)	%		11,438		15,260		(3,822)	(25.0)	%
Gross profit		3,045		7,723		(4,678)	(60.6)	%		9,178		13,857		(4,679)	(33.8)	%
Operating expense (income):
Selling, general and administrative expenses		4,112		9,220		(5,108)	(55.4)	%		9,258		14,842		(5,584)	(37.6)	%
Rent Expense		255		169		86	50.9	%		461		296		165	55.7	%
Income from equity method investments		(292)		(79)		(213)	269.6	%		(3,266)		49		(3,315)	(6,765.3)	%
Gain on disposal of businesses		—		—		—	—	%		—		(4,424)		4,424	(100.0)	%
Impairment of goodwill and intangibles		15,004		—		15,004	100.0	%		15,004		—		15,004	100.0	%
Depreciation and amortization		106		176		(70)	(39.8)	%		233		265		(32)	(12.1)	%
Total net operating expenses		19,185		9,486		9,699	102.2	%		21,690		11,028		10,662	96.7	%
Operating (loss) income	$	(16,140)	$	(1,763)	$	(14,377)	815.5	%	$	(12,512)	$	2,829	$	(15,341)	(542.3)	%

Comparison of the three months ended June 30, 2023 and 2022

Revenues

For the three months ended June 30, 2023 and 2022, the Energy segment generated revenues of $8.1 million and $15.3 million, respectively. This represents a decrease of approximately $7.2 million or 47.2%. The decrease in revenue was primarily due to a decrease in the number of jobs receiving “permission to operate” driven partially by an increase in the time needed to complete jobs and higher borrowing costs for the consumer.

Cost of Revenues

For the three months ended June 30, 2023 and 2022, overall cost of revenues was $5.0 million and $7.5 million, respectively. This represents a decrease of $2.5 million, or 33.6%, primarily due to a decrease in the number of jobs receiving “permission to operate” and comprised of decreases of $2.0 million in cost of materials and $0.5 million in cost of labor.

Gross Profit

For the three months ended June 30, 2023 and 2022, our gross profit was $3.0 million and $7.7 million, respectively and our gross margin percentage was 37.8% and 50.6%, respectively. The percentage decrease was due to the increase in per job material and labor costs.

Total Net Operating Expenses

For the three months ended June 30, 2023 and 2022, operating expenses were $19.2 million and $9.5 million, respectively. This represents an increase of $9.7 million, or 102.2%. This increase was primarily due to impairment of Erus goodwill and intangible assets of $15.0 million in the second quarter of 2023, partially offset by a decreases at Erus of $2.0 million in dealer commissions due to the decrease in the number of jobs receiving “permission to operate”, $1.7 million in sales and marketing payroll costs due to the closure of sales channels, $0.5 million in marketing expenses, $0.3 million in insurance expense, $0.3 million in general and administrative payroll.

Operating Loss

For the three months ended June 30, 2023 and 2022, operating loss was $16.1 million and $1.8 million, respectively. This change is the result of the above described changes in revenues, cost of revenues, gross profit and operating expenses.

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Comparison of the six months ended June 30, 2023 and 2022

Revenues

For the six months ended June 30, 2023 and 2022, the Energy segment generated revenues of $20.6 million and $29.1 million, respectively. This represents a decrease of approximately $8.5 million or 29.2%. The decrease in revenue was primarily due to a decrease in the number of jobs receiving “permission to operate” driven partially by an increase in the time needed to complete jobs and higher borrowing costs for the consumer.

Cost of Revenues

For the six months ended June 30, 2023 and 2022, overall cost of revenues was $11.4 million and $15.3 million, respectively. This represents a decrease of $3.8 million, or 25.0%, primarily due to a decrease in the number of jobs receiving “permission to operate” and comprised of decreases of $1.8 million in cost of materials, $0.7 million in cost of labor, $0.7 million in maintenance and repair services and $0.6 in permitting expenses.

Gross Profit

For the six months ended June 30, 2023 and 2022, our gross profit was $9.2 million and $13.9 million, respectively and our gross margin percentage was 44.5% and 47.6%, respectively. The percentage decrease was due to the increase in per job material and labor costs.

Total Net Operating Expenses

For the six months ended June 30, 2023 and 2022, operating expenses were $21.7 million and $11.0 million, respectively. This represents an increase of $10.7 million, or 96.7%. This increase was primarily due to the impairment of Erus goodwill and intangible assets of $15.0 million in the second quarter of 2023, the absence in the first quarter of 2023 of the $4.4 million gain on sale of Greenwave on January 1, 2022, partially offset by a $3.3 million increase in income from the equity method investment in Quantum and decreases at Erus of $4.0 million in sales and dealer commissions, $1.5 million in sales and marketing payroll and $0.2 in marketing expenses.

Operating (Loss) Income

For the six months ended June 30, 2023, operating loss was $12.5 million compared to operating income of $2.8 million for the six months ended June 30, 2022. This change is the result of the above described changes in revenues, cost of revenues, gross profit and operating expenses.

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Corporate and Other Segment

Comparison of Operating Results for three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				2023 vs 2022				Six Months Ended June 30,				2023 vs 2022
					Increase		% Increase						Increase		% Increase
(Dollars in thousands)	2023		2022		(Decrease)		(Decrease)		2023		2022		(Decrease)		(Decrease)
Revenues:
Debt investment interest income	$	79	$	76	$	3	3.9	%	$	157	$	171	$	(14)	(8.2)	%
Gain on sale of investment securities		—		—		—	—	%		29		—		29	100.0	%
Unrealized loss on investment securities		(168)		—		(168)	(100.0)	%		(168)		—		(168)	(100.0)	%
Other revenue		—		—		—	—	%		—		67		(67)	(100.0)	%
Total revenues		(89)		76		(165)	(217.1)	%		18		238		(220)	(92.4)	%
Cost and expenses:
Cost of service		—		19		(19)	(100.0)	%		—		23		(23)	(100.0)	%
Total cost and expenses		—		19		(19)	(100.0)	%		—		23		(23)	(100.0)	%
Gross profit		(89)		57		(146)	(256.1)	%		18		215		(197)	(91.6)	%
Operating expenses (income)
Selling, general and administrative expenses		6,319		5,252		1,067	20.3	%		12,034		8,764		3,270	37.3	%
Managerial assistance fee, related party		3,088		2,281		807	35.4	%		6,116		5,376		740	13.8	%
Gain on disposal of businesses		—		—		—	—	%		—		(2,299)		2,299	(100.0)	%
Total net operating expenses		9,407		7,533		1,874	24.9	%		18,150		11,841		6,309	53.3	%
Operating loss		(9,496)		(7,476)		(2,020)	27.0	%		(18,132)		(11,626)		(6,506)	56.0	%
Other income		2,685		626		2,059	328.9	%		6,015		640		5,375	839.8	%
Loss from continuing operations		(6,811)		(6,850)		39	(0.6)	%		(12,117)		(10,986)		(1,131)	10	%
Income from operations of discontinued operations		430		3,101		(2,671)	(86)	%		590		1,645		(1,055)	(64)	%
Gain on sale of discontinued operations		—		7,619		(7,619)	(100)	%		—		7,619		(7,619)	(100)	%
Net income from discontinued operations		430		10,720		(10,290)	(96.0)	%		590		9,264		(8,674)	(93.6)	%
Net (loss) income of continuing and discontinued operations		(6,381)		3,870		(10,251)	(264.9)	%		(11,527)		(1,722)		(9,805)	569.4	%
Net loss attributable to non-controlling interests		—		1,855		(1,855)	(100.0)	%		—		1,854		(1,854)	(100.0)	%
Net (loss) income attributable to the Partnership	$	(6,381)	$	2,015	$	(8,396)	(417)	%	$	(11,527)	$	(3,576)	$	(7,951)	222	%

Comparison of the three months ended June 30, 2023 and 2022

Revenues

For the three months ended June 30, 2023 and 2022, revenue was $0.1 million and $0.1 million, respectively.

Total Net Operating Expenses

For the three months ended June 30, 2023 and 2022, operating expenses were $9.4 million and $7.5 million, respectively. This represents an increase of $1.9 million, or 24.9%, primarily due to a $1.1 million increase in legal fees and a $0.8 million increase in management assistance fees.

Operating Loss

For the three months ended June 30, 2023 and 2022, operating loss was $9.5 million and $7.5 million, respectively. This represents an increase of approximately $2.0 million or 27.0%. This change can be explained as a combination of the above described changes in operating expenses.

Income from Discontinued Operations

For the three months ended June 30, 2023, net income from discontinued operations was $0.4 million and $10.7 million, respectively. This represents a decrease of $10.3 million or 96.0%. Income from discontinued operations is from the disposed automotive retail business. The 2022 gain on sale of discontinued operations represents a $7.6 million income payment which was contingent on the future sales of a portfolio company sold in 2020.

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Comparison of the six months ended June 30, 2023 and 2022

Revenues

For the six months ended June 30, 2023 and 2022, revenue was $0.0 million and $0.2 million, respectively.

Total Net Operating Expenses

For the six months ended June 30, 2023 and 2022, operating expenses were $18.2 million and $11.8 million, respectively. This represents an increase of $6.3 million, or 53.3%, primarily due to a $3.3 million increase in legal fees and an increase of $0.7 million in management assistance fees and the absence of a gain of $2.3 million for the six months ended June 30, 2023 from Middleneck which was sold in March, 2022.

Operating Loss

For the six months ended June 30, 2023 and 2022, operating loss was $18.1 million and $11.6 million, respectively. This represents an increase of approximately $6.5 million or 56.0%. This change can be explained as a combination of the above described changes in operating expenses.

Income from Discontinued Operations

For the six months ended June 30, 2023, net income from discontinued operations was $0.6 million and $9.3 million, respectively. This represents a decrease of $8.7 million or 93.6%. Income from discontinued operations is from the disposed automotive retail business. The 2022 gain on sale of discontinued operations represents a $7.6 million income payment which was contingent on the future sales of a portfolio company sold in 2020.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the components of working capital as of June 30, 2023 and December 31, 2022:


	June 30,		December 31,
(Dollars in thousands)	2023		2022
Cash and cash equivalents	$	36,465	$	334,427
Investment securities		293,486		—
Total current assets		403,954		423,632
Total current liabilities		50,003		53,876
Working capital		353,951		369,756
Total assets	$	584,736	$	602,175

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Debt obligations are summarized below as of June 30, 2023 and December 31, 2022:


	June 30,		December 31,
(Dollars in thousands)	2023		2022
Promissory notes	$	4,583	$	—
Lines of credit		1,556		1,624
Installment notes		75		125
Total long-term debt		6,214		1,749
Less: current maturities		(4,258)		(1,724)
Total long-term debt, net of current portion	$	1,956	$	25
Finance lease liabilities	$	184	$	383
Less: current portion		(165)		(224)
Finance lease liabilities, net of current portion	$	19	$	159

Operating lease liabilities	$	6,233	$	6,031
Less: current portion		(2,811)		(2,533)
Operating lease liabilities, net of current portion	$	3,422	$	3,498

The Partnership’s cash flows from operating, investing and financing activities for the six months ended June 30, 2023 and 2022 were as follows:


	June 30,		June 30,
(Dollars in thousands)	2023		2022
Cash provided by (used in):
Operating activities	$	(10,175)	$	(9,583)
Investing activities		(296,398)		54,187
Financing activities		(2,426)		(67,208)
Effect of exchange rate changes on cash		(13)		(19)
Net decrease in cash and cash equivalents	$	(309,012)	$	(22,623)

Total cash, cash equivalents and investment securities on hand at June 30, 2023 and December 31, 2022 was $330.0 million and $334.4 million, respectively. In addition to this amount, there was total restricted cash of $7.2 million and $18.2 million respectively, as of June 30, 2023 and December 31, 2022. Included in cash on hand was $29.3 million and $22.6 million as of June 30, 2023 and December 31, 2022, respectively, held by certain subsidiaries of the Partnership that was available for distribution to the Partnership and immediate use without restriction. As of June 30, 2023 and December 31, 2022, the Partnership had working capital (current assets less current liabilities) of $354.0 million and $369.8 million, respectively. Working capital as of June 30, 2023 and December 31, 2022 is inclusive of approximately $4.3 million and $1.7 million, respectively, in aggregate principal outstanding, under the Partnership’s related party promissory note, and current maturities of long-term debt.

At times, the Partnership has incurred losses from continuing operations and has used cash to finance its operating activities. The Partnership incurred a net loss from continuing operations of $18.0 million and used cash in operating activities of $10.2 million for the six months ended June 30, 2023. The Partnership recorded net income of $0.6 million from discontinued operations during the six months ended June 30, 2023. We may continue to generate operating losses and use cash in our operating activities for the foreseeable future.

As discussed in “Item 1. Legal Proceedings” in Part II, the Partnership, our General Partner and our portfolio companies are involved in a number of regulatory, litigation, arbitration and other proceedings, many of which expose the Partnership to potential financial loss. However, any liability originating from such contingencies which would require an outflow of cash would most likely not be charged to the Partnership, and if such payments were to occur, any such payments would most likely not occur until 2024 at the earliest and are not estimable at this time. Based on the complexity of these issues, the Partnership anticipates that the resolution of these matters will likely take substantial time. In many of the cases, there is still significant discovery and/or investigation to be completed. When combined with lengthy motion practice and possible trial and appeals, coupled with the slowdown due to the lingering effects of the pandemic, some or all of these matters may not be resolved for several years.

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In addition, the Partnership is indemnifying officers and directors, as well as GPB, its principals, representatives, and affiliates, for any costs they may incur in connection with such disputes as required by various agreements or governing law. This indemnification does not cover any potential future outcomes or settlements that result from these disputes.

In determining its ability to meet its obligations, the Partnership takes into consideration the amount of cash on hand, working capital requirements, availability and repayment requirements of outstanding credit facilities, commitments for capital improvements to the business and to acquire additional businesses, and contingencies likely to arise from disputes and litigation. Proceeds from the sale of businesses are considered when such transactions have occurred or are considered probable of occurring.

The Partnership does not presently have a ready mechanism for raising additional financing or capital. The Partnership intends to pursue any additional financing or capital as needs arise. However, no assurances can be made that the Partnership will be successful in obtaining such financing or capital at all, or in amounts or on terms and conditions acceptable to us.

We believe we will have sufficient liquidity to meet our obligations as they come due in the normal course of business for a period of at least twelve months from the date of issuance of these Condensed Consolidated Financial Statements.

See also “Item 1. Legal Proceedings” in Part II for discussion of the role of the Monitor with respect to the Partnership’s use of cash including regarding distributions to investors and indemnification obligations to GPB.

Six months ended June 30, 2023 compared to June 30, 2022

Net cash used in operating activities was $10.2 million for the six months ended June 30, 2023 compared to $9.6 million for the six months ended June 30, 2022. This change of approximately $0.6 million was primarily due to an increase in net loss adjusted for non-cash items and an increase in cash generated by working capital in part due to increases in customer deposits of $15.4 million, asset impairment of $15.0 million, income from equity method investments of $2.9 million, gain on contingent liability of $6.3 million, accounts payable and accrued expenses of $4.2 million, prepaid expenses of $1.1 million, and bad debt expense of $1.5 million partially offset by decreases in contract assets of $9.1 million, other assets of $7.2 million, gain on disposal of business of $6.7 million, accounts receivable of $2.0 million, loss on extinguishment of debt of $4.5 million, due to related parties of $2.3 million, discontinued operations of $1.1 million and depreciation and amortization of $1.7 million.

Net cash used in investing activities was $296.4 million for the six months ended June 30, 2023 compared to net cash provided by of $54.2 million for the six months ended June 30, 2022. Cash flows from investing activities primarily related to acquisitions, capital expenditures and divestitures. The change of approximately $350.6 million was primarily due to the purchase of short term investments of $293.5 million, the purchase of ALN during the six months ended June 30, 2023 of $11.7 million compared to the sale of Greenwave during the three months ended June 30, 2022 for $14.3 million, a decrease of $28.5 million in distributions received from investees and a decrease of $2.0 million in proceed from the sale of debt investments.

Net cash provided by financing activities was $2.4 million for the six months ended June 30, 2023 compared to net cash used of $67.2 million for the six months ended June 30, 2022. The change of approximately $64.8 million was primarily due to a decrease in the repayment of loans payable of $56.8 million, a decrease of $6.5 million in the repayment of notes payable - related party, a decrease in distributions to partners of $2.0 million and a decrease of $0.5 million in repayments of lines of credit partially offset by an increase in distributions to non-controlling interests of $1.1 million.

CRITICAL ACCOUNTING ESTIMATES

There have been no material changes to the critical accounting policies and use of estimates since the filing of our Annual Report filed on Form 10-K filed with the SEC on March 31, 2023.

OFF BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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CONTRACTUAL PAYMENT OBLIGATIONS

We are party to contracts associated with ongoing business and financing activities, which will result in cash payments to counterparties in future periods.

The following table summarizes our payment obligations under certain contracts on June 30, 2023. The amounts presented are based upon, among other things, the terms of any relevant agreements. Future events that may occur related to payment obligations could cause actual payments to differ significantly from these amounts.


(Dollars in thousands)	2024		2025-2026		2027-2028		2029+		Total
Contractual Obligations
Debt obligations		4,258		1,956		—		—		6,214
Interest on debt and notes payable		410		75		—		—		485
Operating and finance leases, including imputed interest		3,139		2,485		726		432		6,782
Total	$	7,807	$	4,516	$	726	$	432	$	13,481

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks or risk management policies since the filing of our Annual report on Form 10-K filed with the SEC on March 31, 2023.

Item 4. Controls and Procedures

The Partnership’s management, with the participation of Rob Chmiel, the Chief Executive Officer and Chief Financial Officer of GPB, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that at June 30, 2023, due to the existence of the material weaknesses in the Partnership’s internal controls over financial reporting (“ICFR”) described below, the Partnership’s disclosure controls and procedures were not effective.

Notwithstanding such material weakness in the Partnership’s ICFR, our management concluded that our Condensed Consolidated Financial Statements in this Form 10-Q present fairly, in all material respects, the Partnership’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with U.S. GAAP for interim financial information and in accordance with the rules and regulations of the SEC.

Internal Controls over Financial Reporting

Material Weaknesses

There are material weaknesses in our system of ICFR, which if not remediated could materially and adversely affect our ability to timely and accurately report our results of operations and financial condition.

We have identified deficiencies, or a combination of deficiencies, relating to our control environment, risk assessment, information and communication, control activities and monitoring activities that have been determined to be pervasive material weaknesses in our internal controls. Specifically, our material weaknesses result from inadequate resources, insufficient and ineffective controls within our financial close and reporting process, and weaknesses in reaching and documenting accounting conclusions.

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Remediation Plan

Our management is committed to maintaining a strong internal control environment and implementing measures designed to help ensure that the material weaknesses are remediated. With respect to the material weakness pertaining to risk assessment, control activities and monitoring of the control environment components of the Internal Control - Integrated Framework (2013) issued by COSO, management developed and is implementing remediation plans to address these material weaknesses. Such plans and measures include, among other things:

●

establishing a hierarchy of review with the appropriate complement of management employees, and

●

implementing intensive review policies and procedures to be performed at an appropriate level of precision.

While management believes the measures described above and others that may be implemented should remediate the material weaknesses that we have identified, management does not expect to fully remediate these material weaknesses in the near term. As management continues to evaluate and improve ICFR, we may decide to take additional measures to address control deficiencies or determine to modify certain of the remediation measures described above.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three and six months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our ICFR.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

With respect to all significant litigation and regulatory matters facing us and our General Partner, we have considered the likelihood of an adverse outcome. It is possible that we could incur losses pertaining to these matters that may have a material adverse effect on our operational results, financial condition or liquidity in any future reporting period. We understand that the General Partner is currently paying legal costs associated with these actions for itself and certain indemnified parties. The Partnership expects to provide partial, or in many cases complete, reimbursement to the General Partner as required by various agreements or governing law.

Regulatory and Governmental Matters

Appointment of Monitor and Application for Receivership

On February 11, 2021, the EDNY Court in the SEC Action appointed the Monitor over GPB until further order of the EDNY Court. The EDNY Court appointed the Monitor in response to a request from the SEC, which asserted that the Monitor was necessary to protect investors in light of the alleged misconduct of GPB Capital’s former CEO, David Gentile. In its February 4, 2021 Complaint in the SEC Action, the SEC alleged that Mr. Gentile, as the owner and then-CEO of GPB Capital, along with Jeffry Schneider, the owner of Ascendant, GPB’s placement agent, lied to investors about the source of money used to make 8% annualized distribution payments to investors. According to the SEC, Mr. Gentile and others allegedly told investors that the distribution payments were paid exclusively with monies generated by GPB portfolio companies, but as alleged, GPB actually used investor money to pay portions of the annualized 8% distributions. The Complaint further contains allegations that Mr. Gentile and others manipulated financial statements of certain limited partnership funds that GPB manages to perpetuate the deception by giving the false appearance that the funds’ income was closer to generating sufficient income to cover the distribution payments than it actually was. Moreover, the Complaint alleges that Mr. Gentile engaged in undisclosed self-dealing, including by omitting from investor communications certain conflicts of interest and fees and other compensation that he received, totaling approximately $8.0 million

In support of the Order, the SEC contended that the Monitor would provide assurances to investors, GPB’s counterparties, and the public that an unbiased and qualified person who was not beholden to Mr. Gentile, was vetting any significant transactions and decisions, and looking out for the interests of investors. Accordingly, pursuant to the Order, GPB shall (i) grant the Monitor access to all non-privileged books, records and account statements for the GPB-managed funds, including the Partnership, as well as their portfolio companies; and (ii) cooperate fully with requests by the Monitor reasonably calculated to fulfill the Monitor’s duties. As noted below, the Order was amended on April 14, 2021.

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On May 31, 2022, Mr. Gentile filed a motion in the SEC Action to modify the Amended Order pursuant to Rule 60(b) of the Federal Rules of Civil Procedure. In his Rule 60(b) Motion, Mr. Gentile is seeking a court order to, among other things, (i) narrow the scope of the Monitor’s responsibilities; and (ii) direct the Monitor to ensure that GPB does not sell or otherwise dispose of assets or portfolio companies that the Partnership owns before the completion of a “strategic assessment” to be conducted by three managers Mr. Gentile purportedly appointed to GPB on May 27, 2022. On that same day, May 31, 2022, the Monitor notified Mr. Gentile and GPB that Mr. Gentile’s purported appointment of three new managers to GPB without Monitor approval was, amongst other things, in violation of the Amended Order. Mr. Gentile and GPB were, at that time, given ten (10) business days to cure the violation of the Amended Order. The cure period expired without any steps having been taken to comply with the Monitor’s notification of violation of the Amended Order.

On June 13, 2022, the SEC filed by order to show cause in the SEC Action an application and order to (i) convert the existing Monitorship over GPB and the GPB-managed funds to a Receivership, and appoint the previously-appointed Monitor, Joseph T. Gardemal III, as Receiver; and (ii) impose a litigation injunction on cases filed against GPB and the GPB-managed funds. The Receivership Application and the Proposed Order were filed with the EDNY Court with consent of GPB’s management.

Federal Matters

On February 4, 2021, the SEC Action was filed against GPB, Ascendant, AAS, David Gentile, Jeffry Schneider and Jeffrey Lash in the EDNY Court. No GPB-managed partnership is a named defendant in the SEC Action. The SEC Action alleges several violations of the federal securities laws, including securities fraud. The SEC is seeking disgorgement and civil monetary penalties, among other remedies.

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Also on February 4, 2021, the USAO brought the Criminal Case against Mr. Gentile, Mr. Schneider, and Mr. Lash. The indictment in the Criminal Case alleges conspiracy to commit securities fraud, conspiracy to commit wire fraud, and securities fraud against all three individuals. Mr. Gentile and Mr. Lash were also charged with two counts of wire fraud. We understand that the USAO intends to seek criminal forfeiture. Mr. Gentile resigned from all management and board positions with GPB and Highline, and the GPB-managed funds, including the Partnership, and subsidiaries of the Partnership, promptly following his indictment. In a status conference held on April 17, 2023, the Judge in the Criminal Case scheduled the trial for June 3, 2024. On June 6, 2023, Mr. Lash pled guilty to one count of wire fraud in the Criminal Case pursuant to a plea agreement. Mr. Lash’s sentencing is scheduled for October 4, 2023.

State Matters

On May 27, 2020, Massachusetts filed an Administrative Complaint against GPB for alleged violations of the Massachusetts Uniform Securities Act. No GPB-managed fund is a named defendant. The complaint alleges, among other things, that the offering documents for several GPB-managed funds, including the Partnership, included material misstatements or omissions. Massachusetts is seeking both monetary and administrative relief, including disgorgement and rescission to Massachusetts residents who purchased the GPB-managed funds. This matter is currently stayed, pending resolution of the Criminal Case.

Actions Asserted Against GPB and Others, Not Including the Partnership

Ismo J. Ranssi, derivatively on behalf of Armada Waste Management, LP, v. GPB Capital Holdings, LLC, et al. (New York Supreme Court, New York County, Index No. 654059/2020)

Galen G. Miller and E. Ruth Miller, derivatively on behalf of GPB Holdings II, LP, v. GPB Capital Holdings, LLC, et al. (New York Supreme Court, New York County, Index No. 656982/2019)

In November 2019, plaintiffs filed a derivative action against GPB, Ascendant, AAS, Axiom, Michael Cohn, Steven Frangioni, David Gentile, William Jacoby, Minchung Kgil, Mark D. Martino, and Jeffry Schneider in New York Supreme Court, New York County. The Partnership was named only as a nominal defendant. An Amended Complaint was filed on or about March 2, 2020, alleging, among other things, that the offering documents for certain GPB-managed funds include material misstatements and omissions. The Amended Complaint alleges causes of action for breach of fiduciary duty against all defendants; aiding and abetting breach of fiduciary duty against Ascendant, AAS, Axiom and Mr. Martino; breach of contract against GPB; unjust enrichment against all defendants; and an equitable accounting against GPB. The plaintiffs are seeking disgorgement of alleged unjust enrichment, unspecified damages as a result of alleged wrongful acts, costs of the action, and an equitable accounting. Any potential losses associated with this matter cannot be estimated at this time.

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GPB Lender, LLC v. GPB Capital Holdings, LLC (New York Supreme Court, Nassau County, Index No. 604887/2022)

Cient LLC v. GPB Capital Holdings, LLC (New York Supreme Court, Nassau County, Index No. 604886/2022)

Plymouth Rock Holding LLC v. GPB Capital Holdings, LLC (New York Supreme Court, Nassau County, Index No. 604873/2022)

Actions Asserted Against GPB and Others, Including the Partnership

Tom Alberto, et al. v. GPB Capital Holdings, LLC, et al. (American Arbitration Association, Case Number: 01-22-0001-5433)

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Alfredo J. Martinez, et al. v. GPB Capital Holdings, LLC (Delaware Chancery Court, Case No. 2019-1005)

Alfredo J. Martinez and HighTower Advisors v. GPB Capital Holdings, LLC, et al. (Delaware Chancery Court, Case No. 2020-0545)

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Phillip J. Cadez, et al. v. GPB Capital Holdings, LLC, et al. (Delaware Chancery Court, Case No. 2020-0402)

Jeff Lipman and Carol Lipman, derivatively on behalf of GPB Holdings II, LP and GPB Automotive Portfolio, LP v. GPB Capital Holdings, LLC, et al. (Delaware Chancery Court, Case No. 2020-0054)

Mary Purcell, et al. v. GPB Holdings II, LP, et al. (Cal. Supreme Court, Orange County, Case No. 30-2019-01115653-CU-FR-CJC)

Barbara Deluca and Drew R. Naylor, on behalf of themselves and other similarly situated Limited Partners, v. GPB Automotive Portfolio, LP et al. (S.D.N.Y., Case No. 19-CV-10498)

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Kinnie Ma Individual Retirement Account, et al., individually and on behalf of all others similarly situated, v. Ascendant Capital, LLC, et al. (W.D. Texas, Case No. 19-CV-01050)

Stanley S. and Millicent R. Barasch Trust and Loretta Dehay, individually and on behalf of others similar situated v. GPB Capital Holdings, LLC, et al. (W.D. Texas, Case No. 19 Civ. 01079)

Concorde Investment Services, LLC v. GPB Capital Holdings, LLC, et al. (New York Supreme Court, New York County, Index No. 650928/2021)

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arbitration, or to stay the arbitration pending the resolution of the related Criminal Case. Any potential losses associated with this action cannot be estimated at this time.

Jeffry Schneider v. GPB Capital Holdings, LLC et al., Case No. 2021-0963 (Court of Chancery, DE)

David Gentile v. GPB Capital Holdings, LLC et al., Case No. 2021-1102-SG (Court of Chancery, DE)

Dealership Related Litigation

AMR Auto Holdings – SM, LLC d/b/a Prime Subaru Manchester v. Subaru of New England, Inc. (New Hampshire Motor Vehicle Industry Board, Case No. 2021-01)

Subaru of New England, Inc. v. AMR Auto Holdings–SM LLC d/b/a Prime Subaru Manchester (Hillsborough Superior Court Northern District, New Hampshire, 216-2022-CV-00786)

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Actions asserted by GPB

GPB Capital Holdings, LLC et al. v. Patrick Dibre (New York Supreme Court, Nassau County, Case No. 606417/2017)

Portfolio Company Litigation

Doctor’s Emergency Service, P.A. v. Professional Management, Inc. and AdvantEdge Healthcare Solutions, Inc. (Circuit Court for Baltimore City, No. 24-C-23-001840 CN)

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the Form 10-K, under “Risk Factors” in Item 1A, since the filing with the SEC on March 31, 2023, which are incorporated herein by reference.

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.

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Item 5. Other Information

None.

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Item 6. Exhibits


Exhibit Number		Exhibit Description
3.1		Certificate of Limited Partnership of GPB Holdings II, LP (Incorporated by reference to Form 10/A filed on July 25, 2022).
3.2		Fourth Amended and Restated Agreement of Limited Partnership of GPB Holdings II, LP, dated April 26, 2018 (Incorporated by reference to Form 10/A filed on July 25, 2022).
10.1		Second Amended and Restated Management Services Agreement, by and between GPB Capital Holdings, LLC, and Highline Management Inc., dated August 1, 2021 (Incorporated by reference to Form 10/A filed on July 25, 2022).
10.2		Purchase Agreement by and among Group 1 Automotive, Inc., GPB Portfolio Automotive, LLC, Capstone Automotive Group, LLC, Capstone Automotive Group II, LLC, Automile Parent Holdings, LLC, Automile TY Holdings, LLC and Prime Real Estate Holdings, LLC, dated September 12, 2021 (Incorporated by reference to Form 10/A filed on July 25, 2022).
10.3		Credit and Guaranty Agreement dated as of September 30, 2021 among HPI Holdco, LLC, as Borrower HPI Holdings, LLC, as Holdings certain subsidiaries of Holdings, as Guarantors, various lenders, and Crestline Direct Finance, L.P. as Administrative Agent, Collateral Agent and Sole Lead Arranger (Incorporated by reference to Form 10/A filed on July 25, 2022).
10.4		Agreement and Plan of Merger by and among HPI Holdings, LLC, AHS Granite Merger Sub, Inc., Shareholder Representative Services, LLC (as Stockholders’ Representative) and AdvantEdge Healthcare Holdings, Inc., dated September 30, 2021 (Incorporated by reference to Form 10/A filed on July 25, 2022).
10.5		Interest Purchase Agreement by and among GPB Holdings II, LP, Alliance Physical Therapy Partners, LLC and Alliance PT Buyer, Inc., dated November 15, 2021 (Incorporated by reference to Form 10/A filed on July 25, 2022).
10.6		Asset Purchase Agreement by and between Greenwave Energy, LLC and United Energy Trading, LLC, dated January 1, 2022 (Incorporated by reference to Form 10/A filed on July 25, 2022).
21		Subsidiaries of GPB Holdings II, LP (Incorporated by reference to Form 10/A filed on July 25, 2022).
31.1*		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2*		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1**		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2**		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS		XBRL Instance Document.
101.SCG		XBRL Taxonomy Extension Schema.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase.
101.DEF		XBRL Taxonomy Extension Definition Linkbase.
101.LAB		XBRL Taxonomy Extension Label Linkbase.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase.

*Filed herewith

**Furnished herewith

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on behalf by the undersigned, thereunto duly authorized.


		GPB Holdings II, LP
		(Registrant)

	By:	/s/Robert Chmiel
		Robert Chmiel
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Evan Cutler
		Evan Cutler
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Date: August 16, 2023

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GPB Holdings II 10-Q2023 Q2 Quarterly report

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