GEG US Equity☆

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations is a supplement to, and should be read in conjunction with, and is qualified entirely by, our consolidated financial statements (including Notes to the Consolidated Financial Statements) and the other consolidated financial information appearing elsewhere in this report. Some of the information in this discussion and analysis includes forward-looking statements that involve risk and uncertainties. Actual results and timing of events could differ from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

17

Overview

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

For additional information see “Item 1. Business.”

COVID-19

The Company continued to experience suppressed revenues relative to its pre-pandemic expectations due to the continuing impact of the COVID-19 pandemic. In particular, the investment management business continues to experience reduced assets under management in our managed portfolios as compared to pre-pandemic levels. COVID-19 may continue to impact such managed portfolios as well as the value of the shares of GECC held by the Company in the future. In addition, COVID-19 may impact our ability to finance and execute new acquisitions or other business opportunities.

At our durable medical equipment business, the impacts of COVID-19 resulted in suppressed referral pipelines for sleep studies and durable medical equipment set-ups relative to pre-COVID levels. Although we have observed a recovery in demand for these services and products during the current year, global supply chain challenges have impacted our ability to procure sufficient volumes of PAP devices in accordance with our normal procurement process to meet patient demand during the year ended June 30, 2022. Our equipment allotments from key suppliers has resulted in a patient backlog, resulting in missed revenue opportunities.

The impact of COVID-19 as well as global supply chain challenges continue to evolve and their duration and ultimate disruption to the Company’s customers and to its operations cannot be estimated at this time. However, the Company expects some level of missed revenue opportunities to continue in the near future due to the continually developing supply chain challenges noted above.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP). The preparation of these financial statements requires our management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are monitored and analyzed by our management for changes in facts and circumstances, and material changes in these estimates could occur in the future.

Asset Acquisitions and Business Combinations, Acquired Intangible Assets and Goodwill

Asset acquisitions are accounted for using the cost accumulation method while business combinations are accounted for at fair value. Determining whether the acquired set represents an asset acquisition or a business combination requires quantitative and qualitative assessments that require judgment. If determined to be a business combination, the accounting requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets and liabilities acquired. Goodwill represents the excess of fair value over identifiable tangible and intangible net assets acquired in business combinations. Goodwill is not amortized. Instead, goodwill is reviewed for impairment at least annually, or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value.

The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including projected financial information, effective income tax rates, present value discount factors, and long-term growth expectations. The Company utilizes third-party specialists to assist management with the identification and valuation of intangible assets using customary valuation procedures and techniques.

We perform our annual impairment test of goodwill on the first day of the fiscal fourth quarter. The Company tests long-lived assets, including intangible assets, for impairment if conditions exist that indicate the carrying value may not be recoverable.

All of the Company’s goodwill was acquired in conjunction with the acquisitions of the durable medical equipment businesses and has been recorded within our durable medical equipment reporting unit. Based on our annual impairment test as of April 1, 2022 the fair value of the durable medical equipment reporting unit exceeded the carrying value by 34.3% and no impairment occurred. The fair value of this reporting unit was derived using a combination of present value of estimated cash flows and the valuations and prices of comparable businesses. The discount rate used in this analysis was 13.0%.

18

Accounts Receivable

Substantially all of the accounts receivable balance relates to the durable medical equipment business. Accounts receivable are customer obligations due under normal sales and rental terms and represent the amount estimated to be collected from the patient customers and, if applicable, the third-party private insurance provider or government program (collectively, Payors), based on the contractual agreements. The Company does not require collateral in connection with its customer transactions and aside from verifying insurance coverage, does not perform credit checks on patient customers. Revenue and accounts receivable have been constrained to the extent that billed amounts exceed the amounts estimated to be collected. The constrained transaction price relates primarily to expected billing adjustments with the Payors and patient customers. Management’s evaluation of variable consideration takes into account such factors as past experience, information about specific receivables, Payors and patient customers.

The assessment of variable consideration to be constrained is based on estimates, and ultimate losses may vary from current estimates. As adjustments to these estimates become necessary, they are reported in earnings in the periods in which they become known. Changes in constraints on variable consideration are recorded as a component of net revenues. To the extent historical experience is not indicative of future performance, actual collections experience could differ significantly from management’s judgments and expectations, resulting in either increases or decreases to future revenues, as applicable.

The Company generally does not allow returns from providers for reasons not covered under the manufacturer’s standard warranty. Therefore, there is no provision for sales return reserves. The Company does not have significant bad debt experience with Payors, and therefore does not maintain an allowance for doubtful accounts.

Durable Medical Equipment Revenue

Durable medical equipment revenue from a customer consists of any combination of the sale and rental of durable medical equipment and/or the provision of sleep study services. For durable medical equipment sales and services, the Company recognizes revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. For revenue associated with durable medical equipment rentals, the Company recognizes revenue in accordance with ASC Topic 842, Leases.

The Company sells durable medical equipment, replacement parts and supplies to customers and recognizes revenue at the point control is transferred through delivery to the customer. Each piece of equipment, part or supply is distinct and separately priced; thus they each represent a single performance obligation. The revenue is allocated amongst the performance obligations based upon the relative standalone selling price method, however, items are typically all delivered or supplied together. The customer and, if applicable, the Payors are generally charged at the time that the product is sold, although separate layers of insurance coverage may need to be invoiced before final billings may occur.

The Company also provides sleep study services to customers and recognizes revenue when the results of the sleep study are complete as that is when the performance obligation is met.

The Company leases durable medical equipment to customers for a fixed monthly amount on a month-to-month basis. The customer has the right to cancel the lease at any time during the rental period and payments are generally billed in advance on a month-to-month basis.

Due to the nature of the durable medical equipment business, billing adjustments customarily occur during the collections process when explanations of benefits are received by Payors, and as amounts are deferred to secondary Payors or to patient responsibility. For durable medical equipment sales and services revenue, the Company includes in the transaction price only the amount that the Company expects to be entitled. Durable medical equipment rental revenue is recognized for amounts where collection from Payors and patients are reasonably assured. As such, revenue recognized upon satisfaction of the Company’s performance obligations consist of substantially all of the Payor billings at contractual rates as well as estimates of patient co-payments that will ultimately be collected.

Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain Payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application or claim denial. To the extent historical experience is not indicative of future performance, actual collections experience could differ significantly from management’s judgments and expectations, resulting in either increases or decreases to future durable medical equipment sales and services revenues or durable medical equipment rental income, as applicable.

19

Investment Management Revenue

The Company recognizes revenue from its investment management business at amounts that reflect the consideration to which it expects to be entitled in exchange for providing services to its customer. Investment management revenue primarily consists of fees based on a percentage of assets under management; fees based on rents collected; fees based on the performance of managed assets; and administrative fees.

Because of the uncertainty of when incentive fees will be collected due to market conditions and investment performance, incentive fees are fully constrained and not recorded until received and the probability of significant reversal of the fees is eliminated in accordance with the respective investment management agreements. As of June 30, 2022, the Company had no cumulative earned but constrained incentive fee revenue.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Valuation allowances are established when necessary in order to reduce deferred tax assets to the amounts expected to be recovered.

The Company has established a full valuation allowance for its deferred tax assets that are not recoverable from taxable temporary differences due to historical net operating losses. To the extent that the Company generates taxable income in the future, the reversal of valuation allowances could generate significant tax benefits to future operations. As of June 30, 2022, the Company has a valuation allowance of $207.1 million.

The calculation of the Company’s tax positions involves dealing with uncertainties in the application of complex tax regulations in several different state tax jurisdictions. The Company is periodically reviewed by tax authorities regarding the amount of taxes due. These reviews include inquiries regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. The Company records estimated reserves for exposures associated with positions that it takes on its income tax returns that do not meet the more likely than not standards.

Results of Operations

The following discussion is reflective of our two business operating segments: durable medical equipment and investment management. General corporate represents unallocated costs and activity to arrive at consolidated operations. Activity not allocated to the segments include, but are not limited to, certain passive investment and corporate financing activities, professional fees, costs associated with being a public company, acquisition costs and costs associated with executive and corporate management departments, including compensation, benefits, rent and insurance. During the fiscal year ended June 30, 2021 we sold our real estate business. See “Discontinued Operations” above for more information.

The following table provides the results of our consolidated operations:

For the years ended June 30,

Revenue:

Operating costs and expenses:

Other selling, general and administrative (45,876 ) 20% (38,376 )

Depreciation and amortization (2,261 ) (5)% (2,383 )

Other income (expense):

Total pre-tax loss from continuing operations $ (15,016 ) $ (6,844 )

NM - not meaningful

20

Revenues

Revenues for the year ended June 30, 2022 included $63.5 million from the durable medical equipment business and $4.5 million from the investment management business, while revenues for the year ended June 30, 2021 included $57.6 million from the durable medical equipment business and $3.2 million from the investment management business. The increase in total revenue for the year ended June 30, 2022 as compared to the year ended June 30, 2021 is primarily attributable to contributions from the acquisition of Advanced Medical DME, LLC and PM Sleep Lab, LLC (collectively, AMPM) in March 2021 and of MedOne Healthcare LLC (MedOne) in August 2021, as well as improvements in revenue reserves resulting from investments in the credit and collections process in the prior years. Investment management revenues also increased $1.4 million related to increases in assets under management at GECC as compared to the prior periods as well as contributions from the acquisition of the Monomoy REIT management agreement in May 2022.

Operating costs and expenses

The increase in operating expenses of $7.6 million for the year ended June 30, 2022 as compared to the year ended June 30, 2021 consists of increases of $1.8 million at our durable medical equipment business related to the operations of AMPM and MedOne and related transaction and integration costs, as well as increases of $3.4 million at our investment management business related to increased consulting costs on our managed products and the workforce acquired to manage the Monomoy REIT. In addition, the year ended June 30, 2022 includes $2.4 million in Employee Retention Credits (ERCs) claimed during such period under the enhanced CARES Act, primarily at our durable medical equipment business. This compares to $4.8 million in ERCs claimed during the year ended June 30, 2021.

Other income (expense)

Interest expense increased $0.8 million for the year ended June 30, 2022 as compared to the year ended June 30, 2021 due primarily to current period interest on the $35.8 million face value externally-held preferred stock in Forest and HC LLC which were issued in December 2020. In conjunction with the issuance of this preferred stock, we extinguished a term loan which had $24.8 million in principal outstanding on December 29, 2020 and paid down outstanding balances on our revolving credit facility of $0.3 million. Additionally, $0.2 million of the increase relates to recently issued GEGGL Notes and Seller Note (both issued in May 2022 and defined below under "Borrowings").

Other income (expense) typically consists of dividend income and net unrealized gain (loss) on investments. The year over year net increase is primarily attributable to the net realized and unrealized gains and losses on our investment in GECC and private funds which is discussed under “—Investment Management” below. In addition, the Company recognized approximately $0.2 million in losses on extinguishment of redeemable preferred stock during the year ended June 30, 2022, as compared to a loss of $1.9 million on extinguishment of the Corbel Facility during the year ended June 30, 2021.

21

Durable Medical Equipment

The key metrics of our durable medical equipment business include:

▪

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

▪

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

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

For the years ended June 30,

Revenue:

Operating costs and expenses:

Other selling, general and administrative (32,987 ) 14% (28,969 )

Depreciation and amortization (1,737 ) (9)% (1,909 )

Other income (expense):

Total other expense, net (8,053 ) (5,124 )

Total pre-tax loss from continuing operations $ (3,845 ) $ (2,489 )

Durable Medical Equipment Revenue

For the year ended June 30, 2022, revenues from the sale of medical equipment and sleep study services were $36.2 million and $5.6 million, respectively, compared to $32.3 million and $5.2 million, respectively, for the year ended June 30, 2021. The increases are primarily attributable to contributions from the acquisitions of AMPM in March 2021 and of MedOne in August 2021.

Revenue from medical equipment rentals was $21.7 million for the year ended June 30, 2022 as compared to $20.2 million for the year ended June 30, 2021. The increases relate to contributions from AMPM.

The results for the year ended June 30, 2022 were hindered by global supply chain issues which significantly restricted our ability to procure continuous positive airway pressure (CPAP) equipment, resulting in lost revenue opportunities during the periods primarily related to CPAP sales and CPAP rentals. We expect these global supply chain issues to persist in the near term but continue to work with key suppliers to minimize the impact to our business.

Durable Medical Equipment Costs and Expenses

Cost of goods sold includes inventory costs for medical equipment sold and direct costs associated with running sleep study services, including staff compensation to perform the studies and the purchase of supplies used in the studies. Cost of rentals includes depreciation on medical equipment held for lease and costs related to maintenance expenses. Margins on both sales and services as well as rentals increased year over year primarily due to revenue reserve improvements of $2.4 million achieved through strategic investments into our revenue cycle management processes in the prior year. The benefit of these improvements on rental margins were partially offset by vendor surcharges implemented to address increased costs related to ongoing global supply chain issues.

22

General and administrative expenses consist of employee-related, facility-related, freight and shipping, information technology and other costs. For the year ended June 30, 2022 and 2021, general and administrative expenses at our durable medical equipment business include benefits of $2.3 million and $4.6 million, respectively, related to ERCs claimed during each period. Exclusive of these benefits, employee-related costs were $24.5 million and $22.5 million for the year ended June 30, 2022 and 2021, respectively. The $2.0 million increase in employee related costs is primarily due to costs relating to acquired AMPM and MedOne employees. Facility-related expenses for the year ended June 30, 2022 of $3.4 million remained consistent with prior year, as incremental footprint of AMPM acquisition was offset with reduced rental expense on leases renewed office space leases during the COVID-19 pandemic. Freight and shipping expense also remained consistent with prior year at $1.7 million. Information technology expense increased by $0.2 million to $2.4 million during the year ended June 30, 2022 as compared to the prior year related to software support for acquired AMPM and MedOne employees. Other costs of $3.3 million for the year ended June 30, 2022 decreased by $0.3 million as compared to $3.6 million in the prior year primarily attributable to reduced professional fees.

Depreciation and amortization includes the depreciation of fixed assets, excluding depreciation on the equipment held for rental, which is included in the cost of rentals, and amortization of the intangible assets resulting from the acquisition of the durable medical equipment businesses. Depreciation and amortization for the year ended June 30, 2022 decreased slightly as we reduced discretionary capital expenditures during the year.

Transaction costs increased for the year ended June 30, 2022 as compared to the prior period as they primarily relate to one-time expenses incurred in the acquisition of MedOne in the current year and AMPM in the prior year.

Durable Medical Equipment Other Income (Expense)

Interest expense increased to $5.0 million for the year ended June 30, 2022 as compared to $4.0 million in the prior year. The increase is attributable primarily to higher outstanding principal balances of the HC LLC preferred stock of $38.1 million as compared to $25.1 million outstanding under the Corbel Facility and DME Revolver (both as defined below under "Borrowings") prior to the refinancing in December 2020.

Other income (expense) includes recurring fair value adjustments of an embedded derivative in the HC LLC Series A-2 preferred stock issued to Forest, as well as debt extinguishment costs. During the years ended June 30, 2022 and 2021, the durable medical equipment business recognized a charge of $2.1 million and a gain of $0.7 million, respectively, related to the embedded derivative valuation. These charges and benefits have an off-setting impact in our General Corporate activity and are eliminated in consolidation. In addition, for the year ended June 30, 2021, our durable medical equipment business recognized a non-cash charge of $0.9 million related to write-offs of unamortized discounts and deferred financing costs upon the redemption of $6.0 million par value HC LLC Series A-1 preferred stock. $4.2 million of these redemptions related to HC LLC Series A-1 preferred stock held by Forest, and therefore $0.7 million of these non-cash charges are reflected as an offsetting benefit in our General Corporate activity and eliminates in consolidation. This compares to a debt extinguishment charge of $1.9 million recorded during the year ended June 30, 2021 related to the paydown of the Corbel Facility in December 2020.

23

Investment Management

The key metrics of our investment management business include:

▪

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

▪

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

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

For the years ended June 30,

Revenue:

Operating costs and expenses:

Other general and administrative (4,879 ) 74% (2,810 )

Depreciation and amortization (523 ) 11% (473 )

Total operating expenses (7,274 ) (4,040 )

Operating income (loss) (2,758 ) (830 )

Other income (expense):

Total other income (expense), net (5,794 ) 3,553

Total pre-tax income (loss) from continuing operations $ (8,552 ) $ 2,723

NM - not meaningful

Investment Management Revenue

Investment management revenues include management fees, property management fees and administration fees related to services provided to certain managed investment vehicles. For the years ended June 30, 2022 and 2021, we recognized $3.6 million and $2.7 million, respectively, of management fee revenue and $0.7 million and $0.6 million, respectively, of administration fee revenue. The increase in management fee revenue for the year ended June 30, 2022 as compared to the year ended June 30, 2021 is attributable to higher assets under management at GECC related to market recoveries and the successful completion of rights offerings and $0.3 million of management fees earned the Monomoy REIT management agreement, which was acquired in May 2022. Administration fee revenue for the year ended June 30, 2022 increased as compared to the prior year primarily related to higher administrative costs to manage GECC. In conjunction with the acquisition of the Monomoy REIT management agreement in May 2022 we began earning property management fees, recognizing $0.2 million for the year ended June 30, 2022.

Investment Management Costs and Expenses

Non-cash compensation costs increased $1.1 million for the year ended June 30, 2022 as compared to the year ended June 30, 2021. The increase includes $0.6 million in charges upon the final discretionary vesting of 5-year performance awards initially granted in November 2016. In addition, ad-hoc awards were granted upon the acquisition of the Monomoy REIT management agreement in May 2022 and annual awards were granted to the investment team in September 2021, whereas no awards were granted to the investment team in the prior year.

Other general and administrative costs consist primarily of professional fees, facilities and other overhead costs, and payroll and related costs, excluding non-cash compensation. The $2.1 million increase in general and administrative costs for the year ended June 30, 2022 is primarily attributable to an increase in allocated payroll costs, bonus accruals and consulting fees including the assembled workforce acquired in conjunction with the Monomoy REIT management agreement.

24

Investment Management Other Income (Expense)

Other income and expense primarily consisted of dividend income and realized/unrealized gains or losses on the Company’s managed investments in GECC, Monomoy UpREIT and the underlying investments of our consolidated fund GESOF. Dividend income on managed investments for the years ended June 30, 2022 and 2021 was $2.8 million and $3.0 million, respectively. In addition, we recognized net realized and unrealized losses of $7.8 million during the year ended June 30, 2022 as compared to net gains of $0.7 million during the year ended June 30, 2021. We mark-to-market our investment in GECC and underlying investments of GESOF by reference to the closing price of related investments on Nasdaq or other exchanges, as applicable, as of each period end. Our investment in Monomoy UpREIT is adjusted quarterly based on net asset value as supported by recurring property valuations.

General Corporate

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

For the years ended June 30,

Revenue:

Operating costs and expenses:

Other general and administrative (4,594 ) 2% (4,504 )

Depreciation and amortization (1 ) 0% (1 )

Total operating expenses (6,433 ) (6,121 )

Other income (expense):

Total pre-tax loss from continuing operations $ (2,619 ) $ (7,078 )

General Corporate Revenue

For the years ended June 30, 2022 and 2021, General Corporate revenue consists of fees earned by Great Elm DME Manager, LLC (DME Manager), a subsidiary in our general corporate segment, for consulting services provided to HC LLC, a subsidiary in our durable medical equipment segment. In addition to this revenue, DME Manager earns fees for consulting services provided to our consolidated subsidiary, Forest. These intercompany revenues and corresponding expenses are eliminated in consolidation.

General Corporate Costs and Expenses

Non-cash compensation of $1.3 million during the year ended June 30, 2022 reflects an increase of $0.3 million as compared to the prior year, and relates primarily to the election by our directors to receive their compensation entirely in the form of shares instead of cash.

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

Other general and administrative costs primarily consisted of professional fees, employee-related and facility-related costs for our finance, legal and other administrative functions as well as professional fees and payroll costs in connection with our diligence efforts towards identifying asset and business acquisition opportunities. These costs remained relatively flat, increasing $0.1 million during the year ended June 30, 2022 as compared to the prior year.

General Corporate Other Income (Expense)

Interest expense primarily consists of interest on the Convertible Notes issued in March 2020, as well as on Forest Preferred Stock, which was issued in December 2020. Interest expense increased $2.1 million during the year ended June 30, 2022 as compared to the year ended June 30, 2021 primarily due to the fact that the Forest preferred stock was only outstanding for six months during the prior year. In addition, the Company issued $26.9 million in face value GEGGL Notes in May 2022 which incurred $0.2 million of interest during the year ended June 30, 2022.

25

Other income (expense) during the years ended June 30, 2022 and 2021 includes intercompany interest income of $4.7 million and $2.4 million, respectively, related to Forest's investments in HC LLC preferred stock. Changes in the valuation of the embedded derivative in the HC LLC Series A-2 preferred stock resulted in a benefit of $2.1 million and a charge of $0.7 million during the years ended June 30, 2022 and 2021, respectively. This income has corresponding and offsetting impacts in the durable medical equipment business and such impacts are eliminated in consolidation. Other income (expense) includes dividends earned and net gains/losses on passive investments. Prior to the acquisition of the Monomoy REIT management agreement in May 2022, the Company held a passive investment in the Monomoy Fund. Dividends and gains on this investment were $0.7 million during the year ended June 30, 2022. Lastly, during the year ended June 30, 2022 General Corporate activity included a $0.8 million benefit related to the redemption of $4.8 million of HC LLC Series A-1 preferred stock held by Forest, which has an offsetting charge in our durable medical equipment business.

Income Taxes

We do not expect that we will owe any federal taxes for the years ended June 30, 2022 and 2021, however, we provided for intraperiod taxes allocated between continuing operations and discontinued operations during the year ended June 30, 2021 related to our sale of our real estate business. There were no intraperiod allocations during the year end June 30, 2022. During 2021, the Company recognized an income tax benefit with respect to discontinued operations of $0.1 million related to intraperiod allocations. State and local taxes were approximately $0.02 million and $1.7 million for the years ended June 30, 2022 and 2021, respectively. State tax provisions during the year ended June 30, 2021 are primarily attributable to discrete taxable entity re-organization transactions at HC LLC and Great Elm Capital GP, LLC.

Summary of Discontinued Operations

On June 23, 2021, the Company’s majority-owned indirect subsidiary Great Elm FM Acquisition, Inc., entered into an agreement with Monomoy Properties Fort Myers, LLC (Monomoy FM) to sell the Company’s real estate business to Monomoy FM for $4.6 million in cash. The real estate business consists of majority-interests in two Class A office buildings totaling 257,000 square feet situated on 17 acres of land in Fort Myers, Florida. The Company acquired the real estate business in March 2018 for $2.7 million. After transaction costs, the gain on the sale was $0.3 million.

The sale of the real estate business, which has historically been disclosed as its own reportable segment, represents a strategic shift away from the direct ownership and operation of real estate properties. Accordingly, our historical financial information has been recast to present the activities of the real estate business within discontinued operations, and the assets and liabilities of the real estate business as assets and liabilities of discontinued operations.

(in thousands) For the year ended June 30, 2021

Discontinued operations:

Real estate expenses (505 )

Depreciation and amortization (1,689 )

Operating income from discontinued operations 2,811

Interest expense (2,536 )

Gain on sale of real estate business 263

Pretax income from discontinued operations 538

Income tax benefit 111

Net income from discontinued operations $ 649

Operations of the discontinued real estate business were relatively flat year over year. Upon sale of the business on June 23, 2021, we recognized a gain on sale of $0.3 million. In addition, we also recorded a tax benefit of $0.1 million related to intraperiod tax allocations to the discontinued operations.

Liquidity and Capital Resources

The following table presents selected financial information and statistics:

As of June 30,

26

For the years ended June 30,

Cash provided by (used in) operating activities $ 29,280 $ (18,976 )

Cash used in investing activities (40,047 ) (15,482 )

Cash provided by financing activities 9,980 18,340

Net decrease in cash and cash equivalents $ (787 ) $ (16,118 )

Working Capital and Cash Flows

As of June 30, 2022, we have cash of $23.6 million and investments with a fair value of $48.0 million.

We intend to make acquisitions that will likely result in our investment of all of our liquid financial resources, the issuance of equity securities and the incurrence of indebtedness. If we are unsuccessful at raising additional capital resources, through either debt or equity, it is unlikely we will be able execute our strategic growth plan. See “Item 1A. Risk Factors.”

Cash Provided by or Used in Operating Activities. Cash flows provided by operating activities totaled $29.3 million for the year ended June 30, 2022. Cash flows provided by operating activities are primarily driven by net sales of investments by consolidated funds of approximately $23.2 million and also includes non-cash activity of $8.8 million for depreciation and amortization, $2.8 million in stock-based compensation and $8.1 million in realized loss on investments. These inflows were partially offset by the net loss of $14.8 million.

Cash flows used in operating activities totaled $19.0 million for the June 30, 2021. Net cash used in operating activities consisted primarily of the net loss of $7.9 million and net purchases of investments of $25.5 million, partially offset by $8.7 million in non- cash depreciation and amortization, $1.9 million in non-cash interest and amortization and loss on extinguishment of debt of $1.9 million.

Cash Used in Investing Activities. Cash flows used in investing activities totaled $40.0 million for the year ended June 30, 2022, primarily consisting of $15.0 million in net purchases of interests in Monomoy UpREIT, $17.5 million for participation in the GECC rights offering and $6.4 million in capital expenditures related to purchases of equipment held for rental.

Cash flows used in investing activities totaled $15.5 million for the year ended June 30, 2021. Net cash used in investing activities primarily consists of $6.7 million in purchases of equipment held for rental, $8.8 million in participation in related party rights offering and $4.7 million purchases of investments, partially offset by $4.4 million in net proceeds received from the sale of the real estate business.

Cash Provided by Financing Activities. Cash flows provided by financing activities totaled $10.0 million for the year ended June 30, 2022 and primarily consisted of $26.9 million in proceeds from the issuance of the GEGGL baby bonds. This was partially offset by approximately $11.4 million in cash outflows related to the change in due to broker of the consolidated fund and $3.9 million in distributions made to non-controlling interests of GESOF.

Cash flows provided by financing activities totaled $18.3 million for the year ended June 30, 2021. Net cash inflows primarily consisted of $37.7 million in gross proceeds from the JPM Transaction, $11.2 million in margin borrowing due to broker from investment purchases in the consolidated funds, capital contributions from non-controlling interests in the consolidated funds of $4.8 million and $3.6 million in proceeds from new equipment financing debt. Such inflows were partially offset by principal payments of $33.4 million on our debt, $1.6 million in debt extinguishment costs and capitalized issuance costs of $1.3 million in connection with the JPM Transaction.

Borrowings

As of June 30, 2022, the Company had $26.9 million in outstanding aggregate principal of 7.25% Notes due 2027 (the GEGGL Notes). The GEGGL Notes are due on June 30, 2027, and interest is paid quarterly. The GEGGL Notes include covenants that limit additional indebtedness or the payment of dividends subject to compliance with a net consolidated debt to equity ratio.

As of June 30, 2022 the Company had $36.1 million face value in Convertible Notes outstanding. The Convertible Notes are held by a consortium of investors, including related parties. The Convertible Notes accrue interest at 5.0% per annum, payable semiannually in arrears on June 30 and December 31, in cash or in-kind at the option of the Company. To date, all interest on these instruments have been paid-in-kind.

27

The Convertible Notes are due on February 26, 2030, but are convertible at the option of the holders, subject to the terms therein, prior to maturity into shares of our common stock. Upon conversion of any note, the Company will pay or deliver, as the case may be, to the noteholder, in respect of each $1,000 principal amount of notes being converted, shares of common stock equal to the conversion rate in effect on the conversion date, together with cash, if applicable, in lieu of delivering any fractional share of common stock.

As of June 30, 2022, GECM had a $6.3 million promissory note related to the purchase of the Monomoy REIT investment management agreement (the Seller Note). The Seller Note is due on August 4, 2023 and is payable at GECM’s option with either cash, GECC shares owned by GEG, or newly issued GEG shares (subject to shareholder approval). There are no prepayment penalties. The Seller Note bears interest at 6.5%, which is paid quarterly.

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

As of June 30, 2022, Corbel and VHG, both related parties, held a combined $0.8 million in face value of shares of HC LLC Series A-1 Preferred Stock. The shares provide for a 9% annual dividend, which is payable quarterly. The shares are mandatorily redeemable by the Company at their face value of $1,000 per share on the earlier of certain redemption events or December 29, 2027. The redemption events include a bankruptcy, change in control or sale of the durable medical equipment business. The shares are redeemable at any time at the option of the Company at a redemption price equal to face value. The shares rank senior and have preference to the common shares of HC LLC. The shares are non-voting, do not participate in the earnings of HC LLC and contain standard protective rights.

The HC LLC Series A-1 Preferred Stock includes covenants that limit additional indebtedness, liens, asset dispositions and investments, require compliance and maintenance of licenses and government approvals and other customary conditions. In order to incur certain additional debt, HC LLC must also comply with a leverage ratio and levered free cash flow ratio, which are based in part on the HC LLC EBITDA levels.

As of June 30, 2022, we had an undrawn credit facility with Banc of California that accrues interest at the prime rate plus 0.4% (at June 30, 2022, the effective rate was 5.2%) through maturity on November 29, 2022 (the DME Revolver). The DME Revolver allows for borrowings up to $10 million. The DME Revolver requires monthly interest payments. The DME Revolver is secured by all of the assets of the durable medical equipment business and the Company is required to meet certain financial covenants.

The DME Revolver includes covenants that restrict HC LLC business operations to its current business, limit additional indebtedness, liens, asset dispositions and investments, require compliance and maintenance of licenses and government approvals and other customary conditions. Events of default include the failure to pay amounts when due, bankruptcy, or violation of covenants, including a change in control of HC LLC. HC LLC must also comply with a fixed-charge coverage and leverage ratio financial covenants, which are based in part on the HC LLC EBITDA levels. The Company was in compliance with all material covenants and restrictions at June 30, 2022.

HC LLC’s operating subsidiaries also utilize equipment financing debt to fund certain inventory and equipment purchases from suppliers. These equipment financing debt agreements are entered into with 3rd party banks and are generally payable in equal installments over terms of one to three years, depending on the nature of the underlying purchases being financed. The debt is secured by the inventory and equipment, as applicable, of the operating subsidiaries entering into the agreements, and the long-term agreements have implicit interest rates between 7 – 8%. As of June 30, 2022, the Company had $3.0 million in equipment financing debt outstanding.

Restrictions on Subsidiary Dividends

The ability of HC LLC to pay dividends is subject to compliance with the restricted payment covenants under the DME Revolver.

Off-Balance Sheet Obligations

As of June 30, 2022, we did not invest in any off-balance sheet vehicles that provide financing, liquidity, market or credit risk support or engage in any leasing activities that expose us to any liability that is not reflected in our consolidated financial statements.

28

New Accounting Pronouncements

See Note 2 – Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

The information required by this Item appears beginning on page F-1 of this Annual Report on Form 10-K and is incorporated in this Item 8 by reference.

Per Rule 3-09 of Regulation S-X, the audited financial statements of GECC for the years ended December 31, 2021 and 2020 included in GECC’s annual report on Form 10-K/A (File No. 814-01211), filed with the SEC on April 19, 2022 are incorporated herein by reference. We include the financial statements of GECC because our investment in GECC met the test of significance under Rule 3-09 in Regulation S-X. The management of GECC is responsible for the form and content of GECC’s financial statements. Certain officers and directors of GECC are also officers and directors of GEG. Matthew A. Drapkin is a director of our Board and also the Chairman of GECC's Board of Directors, and Adam M. Kleinman is our President as well as the Chief Compliance Officer of GECC.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

The Company’s management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective as of June 30, 2022.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for preparation of the accompanying consolidated financial statements in accordance with US GAAP.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13(a)-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our internal control over financial reporting is supported by written policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

29

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2021 as required by the Exchange Act. In making this assessment, we used the criteria set forth in the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework, management concluded that Great Elm Group, Inc.’s internal control over financial reporting was effective as of June 30, 2022.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

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

Item 11. Executive Compensation.

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

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

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

Item 13. Certain Relationships and Related Transactions, and Director Independence.

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

Item 14. Principal Accountant Fees and Services.

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

PART IV

Item 15. Exhibits, Financial Statement Schedules.

Financial Statements

The information required by this Item appears beginning on page F-1 of this Annual Report on Form 10-K and is incorporated in this Item 15 by reference.

Financial Statement Schedules

Schedules are omitted because they are not required or are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

30

Exhibits

The exhibit index attached hereto is incorporated by reference. We will furnish any exhibit upon request made to our Corporate Secretary, 800 South Street, Suite 230, Waltham, MA 02453. We charge $0.50 per page to cover expenses of copying and mailing.

EXHIBIT INDEX

We will furnish any exhibit upon request made to our Corporate Secretary, 800 South Street, Suite 230, Waltham, MA 02453. We charge $0.50 per page to cover expenses of copying and mailing.

Unless otherwise indicated, all references are to filings by Great Elm Group, Inc. (the Registrant) with the Securities and Exchange Commission under File No. 001-39832

Exhibit No. Description

4.7 Description of Securities

31

32

21.1 Subsidiaries of the Registrant.

* Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. GEG hereby undertakes to furnish supplementally a copy of any omitted schedule or exhibit upon request by the Securities and Exchange Commission.

+ Indicates a management contract or compensatory plan or arrangement.

Item 16. Form 10-K Summary.

We have elected not to provide a Form 10-K summary.

33

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of September 12, 2022.

GREAT ELM GROUP, INC.

By: /s/ Peter A. Reed

Name: Peter A. Reed

Title: Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of September 12, 2022.

Signature Title

/s/ Peter A. Reed Chief Executive Officer

Peter A. Reed (Principal Executive Officer)

/s/ Brent J. Pearson Chief Financial Officer & Chief Accounting Officer

Brent J. Pearson (Principal Financial and Accounting Officer)

/s/ Matthew A. Drapkin Director

Matthew A. Drapkin

/s/ Thomas S. Harbin III Director

Thomas S. Harbin III

/s/ James H. Hugar Director

James H. Hugar

/s/ David Matter Director

David Matter

/s/ James P. Parmelee Director

James P. Parmelee

/s/ Jason W. Reese Director

Jason W. Reese

/s/ Eric J. Scheyer Director

Eric J. Scheyer

/s/ Jeffrey S. Serota Director

Jeffrey S. Serota

34

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID: 248) F-2

Consolidated Balance Sheets at June 30, 2022 and 2021 F-4

Notes to the Consolidated Financial Statements F-9

F-1

Report of Independent Registered PUBLIC Accounting Firm

Board of Directors and Shareholders

Great Elm Group, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Great Elm Group, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of June 30, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity and contingently redeemable non-controlling interest, and cash flows for each of the two years in the period ended June 30, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Durable Medical Equipment Revenue Recognition – Variable Consideration

As described further in notes 2 and 3 to the financial statements, and disclosed in the consolidated statement of operations, the Company recorded $68.0 million of total revenues for the year ended June 30, 2022, of which $63.5 million related to the Durable Medical Equipment operating segment.

The Company’s revenue is recorded based on the amount that the Company expects to receive in exchange for the goods or services provided, which consists of the transaction price net of estimates for variable consideration. Actual amounts of consideration ultimately received may differ from the Company’s initial estimates. We identified the estimation of the variable consideration within the Durable Medical Equipment revenue streams as a critical audit matter.

F-2

The principal considerations for our determination that variable consideration is a critical audit matter are (i) the significant judgment exercised by the Company in estimating variable consideration and (ii) the volume and variability of information necessary to evaluate the initial amounts recorded that are subject to the Company’s estimate of variable consideration.

Our audit procedures related to the variable consideration constraint included the following, among others:

•

For a sample of revenue transactions, we (i) performed detailed transaction testing by agreeing the amount recognized to source documentation, which included fee schedules, explanation of benefits, or cash payments, as available and (ii) evaluated the rate of adjustment from our sample relative to the Company’s incremental constraints for variable consideration

•

Tested management’s process for determining the reasonableness of constraints for variable consideration, including testing of the inputs to the calculation and reperformance of management’s analysis to evaluate the reasonableness of rates applied to those inputs

/s/ Grant Thornton LLP

We have served as the Company’s auditor since 2019.

Boston, Massachusetts

September 12, 2022

F-3

GREAT ELM GROUP, INC.

CONSOLIDATED BALANCE SHEETS

Dollar amounts in thousands, except per share amounts

Current assets:

Prepaid and other current assets 1,050 3,791

Assets of consolidated funds:

Property and equipment, net 538 981

Equipment held for rental, net 7,504 7,391

Identifiable intangible assets, net 19,171 8,928

LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS' EQUITY

Current liabilities:

Accrued expenses and other liabilities 7,389 6,955

Current portion of related party payables 486 -

Current portion of lease liabilities 1,559 1,920

Current portion of equipment financing debt 2,993 1,974

Liabilities of consolidated funds - accrued expenses and other 11 12,197

Lease liabilities, net of current portion 2,375 3,596

Long term debt (face value $26,945 and $0, respectively) 25,532 -

Related party payables 1,120 -

Related party notes payable, net of current portion 6,270 -

Equipment financing debt, net of current portion - 67

Commitments and Contingencies (Note 20)

Contingently redeemable non-controlling interest 2,225 2,639

Stockholders' equity

Preferred stock, $0.001 par value; 5,000,000 authorized and zero outstanding - -

Total Great Elm Group, Inc. stockholders' equity 33,496 43,236

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

F-4

GREAT ELM GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Dollar amounts in thousands, except per share data

For the years ended June 30,

Revenues:

Durable medical equipment sales and services revenue $ 41,720 $ 37,460

Durable medical equipment rental income 21,738 20,183

Investment management revenues 4,516 3,210

Operating costs and expenses:

Cost of durable medical equipment sold and services 16,795 16,881

Cost of durable medical equipment rentals(1) 7,149 6,950

Durable medical equipment other operating expenses(2) 33,143 28,917

Investment management expenses 6,616 3,492

Depreciation and amortization 2,261 2,383

Selling, general and administrative(3) 5,982 5,892

Expenses of consolidated funds 135 75

Dividends and interest income 3,161 2,963

Net realized and unrealized gain (loss) on investments (7,571 ) 155

Extinguishment of debt (190 ) (1,866 )

Other income, net 2 45

Loss from continuing operations, before income taxes (15,016 ) (6,844 )

Income tax expense (21 ) (1,675 )

Loss from continuing operations (15,037 ) (8,519 )

Discontinued operations:

Income from discontinued operations, net of tax - 649

Net loss attributable to Great Elm Group, Inc. $ (14,893 ) $ (7,275 )

Basic income (loss) per share

Continuing operations $ (0.56 ) $ (0.31 )

Discontinued operations - 0.03

Net loss per share $ (0.56 ) $ (0.28 )

Diluted income (loss) per share from:

Continuing operations $ (0.56 ) $ (0.31 )

Discontinued operations - 0.03

Net loss per share $ (0.56 ) $ (0.28 )

Weighted average shares outstanding

(1) Includes depreciation expense of: 6,527 6,286

(3) Net of CARES Act Stimulus of: 84 168

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

F-5

GREAT ELM GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND CONTINGENTLY REDEEMABLE NON-CONTROLLING INTEREST

Shares Amount Capital Deficit Equity Interest Equity Interest

Repurchase of interests in subsidiary - - (707 ) - (707 ) 788 81 -

Issuance of Forest common stock - - - - - 2,700 2,700 -

Issuance of interests in Consolidated Fund - - - - - 4,325 4,325 -

Sale of real estate business - - - - - (830 ) (830 ) -

Repurchase of interests in subsidiary - - (129 ) - (129 ) 86 (43 ) -

Issuance of interests in Consolidated Fund - - - - - 527 527 -

Distribution of interests in Consolidated Fund - - - - - (3,899 ) (3,899 ) -

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

F-6

GREAT ELM GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollar amounts in thousands

For the years ended June 30,

Cash flows from operating activities:

Net income from discontinued operations - (649 )

Depreciation and amortization 8,788 8,669

Sales of investments by consolidated funds 41,692 5,842

Purchases of investments by consolidated funds (18,518 ) (31,365 )

Stock dividends received (350 ) (1,868 )

Unrealized gain on investments (623 ) (292 )

Realized loss on investments 8,194 137

Unrealized loss (gain) on investments of consolidated funds 311 (254 )

Realized loss (gain) on investments of consolidated funds 214 (291 )

Non-cash interest and amortization of capitalized issuance costs 2,117 1,851

Loss on extinguishment of debt 190 1,866

Deferred tax (benefit) expense (85 ) 546

Gain on sale of equipment held for rental (331 ) (452 )

Change in fair value of contingent consideration (121 ) (126 )

Changes in operating assets and liabilities:

Related party receivable (876 ) (606 )

Prepaid assets, deposits, and other assets 3,158 (3,223 )

Related party payable 486 -

Accounts payable, accrued liabilities and other liabilities (397 ) 3,931

Net cash provided by operating activities - discontinued operations - 1,931

Net cash provided by (used in) operating activities 29,280 (18,976 )

Cash flows from investing activities:

Acquisition of businesses, net of cash acquired (1,350 ) (748 )

Acquisition of assets (824 ) -

Participation in related party rights offering (17,500 ) (8,751 )

Purchases of equipment held for rental (6,404 ) (6,686 )

Proceeds from sale of equipment held for rental 1,147 1,273

Purchases of property and equipment (147 ) (287 )

Net cash provided by investing activities - discontinued operations - 4,357

Net cash used in investing activities (40,047 ) (15,482 )

F-7

GREAT ELM GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Dollar amounts in thousands

For the years ended June 30,

Cash flows from financing activities:

Proceeds of issuance of baby bond 26,945 -

Principal payments on revolving line of credit - (3,900 )

Principal payments on note payable to seller - (25,105 )

Principal payments on equipment financing (5,421 ) (4,378 )

Proceeds from equipment financing 6,373 3,642

Redemption of redeemable preferred stock of subsidiary (1,194 ) -

Capitalized issuance costs (1,429 ) (1,250 )

Due to broker of consolidated funds (11,379 ) 11,249

Repurchase of interests in subsidiary (43 ) (132 )

Payments of debt extinguishment costs - (1,627 )

Dividends paid to non-controlling interest holders of DME Inc. - (368 )

Issuance of Forest preferred stock - 35,010

Distributions to non-controlling interests in consolidated funds (3,899 ) -

Proceeds from issuance of Forest common stock, gross - 2,700

Net cash provided by financing activities - continuing operations 9,980 20,666

Net cash used in financing activities - discontinued operations - (2,326 )

Net cash provided by financing activities 9,980 18,340

Net decrease in cash and cash equivalents (787 ) (16,118 )

Cash and cash equivalents at beginning of year 24,382 40,500

Cash and cash equivalents at end of year $ 23,595 $ 24,382

Non-cash investing and financing activities

Repurchase of GP Corp. Note - 3,072

Issuance of convertible notes - 2,250

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

F-8

GREAT ELM GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.

Organization

Great Elm Group, Inc. (referred to as the Company) is a holding company incorporated in Delaware. The Company currently has two business operating segments: durable medical equipment and investment management, with general corporate representing unallocated costs and activity to arrive at consolidated operations. The Company is pursuing business development opportunities in durable medical equipment, investment management and other industries.

Investment Management

On September 27, 2016, the Company’s wholly-owned SEC-registered investment advisor subsidiary Great Elm Capital Management, Inc. (GECM), a Delaware corporation, entered into an investment management agreement (the IMA) with Great Elm Capital Corp., a publicly-traded business development company incorporated in Maryland (GECC).

On May 4, 2022, GECM acquired the investment management agreement of Monomoy Properties REIT, LLC (Monomoy REIT) from Imperial Capital Asset Management, LLC (ICAM). Formed in 2014, Monomoy REIT is a private real estate investment trust founded by ICAM, with a 108-property portfolio of diversified net leased industrial assets.

The Company earns revenue through the investment management agreements of these and other private investment vehicles which provide for management fees, property management fees, incentive fees and administrative fees.

Durable Medical Equipment

On September 7, 2018, the Company, through its majority-owned subsidiary, Great Elm DME Holdings, Inc. (DME Holdings), acquired an 80.1% equity interest in Great Elm DME, Inc. (DME Inc.) an entity formed to acquire and combine two companies, Valley Healthcare Holding, LLC and Northwest Medical, LLC. (Northwest), which both specialize in the distribution of respiratory care equipment, including primarily positive air pressure equipment and supplies, ventilators and oxygen equipment and operate in Arizona, Nebraska Oregon, Washington and Alaska. The Company has subsequently expanded its durable medical equipment business through acquisitions in 2019 and 2021.

On May 31, 2021, our wholly-owned subsidiary DME Holdings exchanged their 80.1% interests in DME Inc. for an identical 80.1% direct interest in DME Inc.’s subsidiary Great Elm Healthcare, LLC (HC LLC), which is the sole owner of the durable medical equipment operating subsidiaries. Following the consummation of the taxable reorganization, the Company no longer has an interest in DME Inc.

General Corporate

On December 29, 2020, the Company completed a non-taxable reorganization of the Company's corporate structure, where Great Elm Capital Group, Inc. (GEC) changed its name to Forest Investments, Inc. (Forest) and became a wholly owned subsidiary of a new holding company, Great Elm Group, Inc (GEG). Outstanding shares of Forest under the ticker symbol “GEC” were automatically converted into shares of common stock of Great Elm Group, Inc., ticker symbol “GEG”. Forest common stock was then delisted from the Nasdaq Global Select Market and subsequently deregistered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The Holding Company Reorganization (as defined in Note 4 – Holding Company Reorganization and Financing Transaction) was a tax-free transaction for U.S. federal income tax purposes for the Company’s shareholders.

F-9

Discontinued Operations

We launched our real estate business in March 2018 with an investment of $2.7 million in a majority-interest in two Class A office buildings totaling 257,000 square feet situated on 17 acres of land in Fort Myers, Florida (collectively, the Property). The Property was fully-leased, on a triple-net basis, to a single tenant through March 31, 2030. On June 23, 2021, the Company sold its real estate business for $4.6 million in cash.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. Wholly-owned subsidiaries include GECM, Great Elm Opportunities GP, Inc. (GEO GP), Great Elm Capital GP, LLC (GEC GP), Great Elm FM Acquisition, Inc. (FM Acquisition), DME Holdings and Great Elm DME Manager, LLC (DME Manager). Majority-owned subsidiaries include Forest, HC LLC and its seven wholly-owned subsidiaries. In addition, we have determined that the Company is the primary beneficiary of certain variable interest entities, and therefore the operations of those entities have been included in our consolidated results for the relevant periods.

2.

Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The preparation of these financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP) requires the Company to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates all of these estimates and assumptions. The most important of these estimates and assumptions relate to revenue recognition, the valuation of excess and obsolete inventories, depreciable lives of equipment, impairment of long lived tangible and intangible assets, valuation allowance for deferred tax assets, fair value measurements including stock-based compensation and contingent consideration, estimates associated with the application of acquisition accounting, and the value of lease liabilities and corresponding right to use assets. Although these and other estimates and assumptions are based on the best available information, actual results could be different from these estimates.

In addition, the historical results of the real estate business operating segment have been reflected in the accompanying consolidated statements of operations for the year ended June 30, 2021 as discontinued operations. See Note 5 – Discontinued Operations.

Principles of Consolidation

The Company consolidates the assets, liabilities, and operating results of its wholly-owned subsidiaries, majority-owned subsidiaries, and subsidiaries in which we hold a controlling financial interest as of the financial statement date. In most cases, a controlling financial interest often reflects ownership of a majority of the voting interests. We consolidate a variable interest entity (VIE) when we possess both the power to direct the activities of the VIE that most significantly impacts its economic performance and we are either obligated to absorb the losses that could potentially be significant to the VIE or we hold the right to receive benefits from the VIE that could potentially be significant to the VIE.

All intercompany accounts and transactions have been eliminated in consolidation.

Non-controlling interests in the Company’s subsidiaries are reported as a component of equity, separate from the parent company’s equity or outside of permanent equity for non-controlling interests that are contingently redeemable. See Note 16 – Non-Controlling Interests and Preferred Stock of Subsidiary. Results of operations attributable to the non-controlling interests are included in the Company’s consolidated statements of operations.

Segments

The Company has two business operating segments: durable medical equipment and investment management with general corporate representing unallocated costs and activity to arrive at consolidated operations. The Company regularly reviews each segment for purposes of allocating resources and assessing performance.

F-10

Cash and Cash Equivalents

Cash and cash equivalents are comprised of cash and highly liquid investments with original maturities of 90 days or less at the date of purchase. Cash equivalents consist primarily of exchange-traded money market funds. The Company is exposed to credit risk in the event of default by the financial institutions or the issuers of these investments to the extent the amounts on deposit or invested are in excess of amounts that are insured.

Accounts Receivable

Substantially all of the accounts receivable balance relates to the durable medical equipment business. Accounts receivable are customer obligations due under normal sales and rental terms and represent the amount estimated to be collected from the patient customers and, if applicable, the third-party private insurance provider or government program (collectively, Payors), based on the contractual agreements. The Company does not require collateral in connection with its customer transactions and aside from verifying insurance coverage, does not perform credit checks on patient customers. Revenue and accounts receivable have been constrained to the extent that billed amounts exceed the amounts estimated to be collected. The constrained transaction price relates primarily to expected billing adjustments with the Payors and patient customers. Management’s evaluation of variable consideration takes into account such factors as past experience, information about specific receivables, Payors and patient customers. The revenue reserves related to constraints on variable consideration were $1.9 million and $2.5 million as of June 30, 2022 and 2021, respectively. The Company recognized a reduction to revenue of $3.5 million and $5.9 million related to such constraints during the years ended June 30, 2022 and 2021. See Note 3 – Revenue.

The assessment of variable consideration to be constrained is based on estimates, and ultimate losses may vary from current estimates. As adjustments to these estimates become necessary, they are reported in earnings in the periods in which they become known. There were no material adjustments to revenues made in the year ended June 30, 2022 relating to prior periods. Changes in variable consideration are recorded as a component of net revenues.

The Company generally does not allow returns from providers for reasons not covered under the manufacturer’s standard warranty. Therefore, there is no provision for sales return reserves. The Company does not have significant bad debt experience with Payors, and therefore the allowance for doubtful accounts is immaterial.

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

Investments

Investments include investments in GECC, Monomoy Properties UpREIT, the operating partnership of Monomoy REIT (Monomoy UpREIT), and other private funds, which are carried at fair value.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under US GAAP. See Note 8 – Fair Value Measurements.

Property, Equipment and Rental Equipment

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

F-11

Within the durable medical equipment businesses, the Company capitalizes the cost of equipment predominantly leased out to patient customers within equipment held for rental, net. These purchases are classified as cash outflows from investing activities when they are paid. The Company capitalizes the cost of equipment predominantly sold to patient customers within inventories. These purchases are classified as cash outflows from operating activities when they are paid. A portion of equipment recorded within equipment held for rental, net, could ultimately be sold. A portion of equipment recorded within inventories could ultimately be leased. Management is not able to accurately project the ultimate use of equipment, which in many cases is determined by Payor reimbursement terms, and has therefore adopted the above stated policy.

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

The Company recognizes depreciation in amounts sufficient to match the cost of depreciable assets to operations over their estimated service lives, which considers the term of lease for any leased assets. The Company capitalizes expenditures for improvements that significantly extend the useful life of an asset. The Company charges expenditures for maintenance and repairs to operations in the periods incurred. When assets are sold, the asset and accumulated depreciation are eliminated, and a gain or loss is recognized in operating income.

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

Description Life in Years

Property and Equipment

Leasehold improvements lesser of 7 years or life of the lease

Vehicles 5

Sleep study equipment 5

Furniture and fixtures 1 to 5

Computer equipment and software 3

Rental Equipment

Medical equipment for lease 1 to 5

Inventories

Inventories, which principally consist of durable medical equipment and related supplies that are predominantly sold, are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company reduces the carrying value of inventories for items that are potentially excess, obsolete, or slow-moving based on changes in customer demand, technology developments or other economic factors. The Company bases its provisions for excess, expired and obsolete inventory primarily on purchasing activity and usage. A significant change in the timing or level of demand for our products as compared with forecasted amounts may result in recording additional provisions for excess, expired and obsolete inventory in the future. As the Company purchases all of its inventories, all inventories are categorized as finished goods. There were no significant write-offs during the year ended June 30, 2022.

Goodwill and Other Identifiable Intangible Assets

Goodwill represents the excess of fair value over identifiable tangible and intangible net assets acquired in business combinations. Goodwill is not amortized for US GAAP purposes. Instead goodwill is reviewed for impairment at least annually, or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. We perform our annual impairment test on the first day of the fiscal fourth quarter, or as required when impairment triggering events are identified.

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

F-12

Long-lived Assets

Long-lived assets include property and equipment, intangible assets and the right to use asset. These assets are evaluated for potential impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable based on undiscounted cash flows. If an impairment is indicated, the Company records the impaired asset at fair value and records a charge to operations.

Leases and Right of Use Assets

We determine if an arrangement is a lease at inception. As of June 30, 2022, all of our leases are operating leases. Operating leases are included in right of use (ROU) assets, current portion of lease liabilities and lease liabilities net of current portion in the consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide a readily determinable implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The ROU assets also include any lease payments made and adjustments recorded in acquisition accounting. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

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

Cost of Durable Medical Equipment Sold and Services

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

Cost of Durable Medical Equipment Rentals

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

Durable Medical Equipment Other Operating Expenses

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

Investment Management Expenses

The Company classifies all direct expenses of its investment management segment including: payroll, stock-compensation, and related taxes and benefits; facilities costs; and consulting; in investment management expenses in the accompanying consolidated statements of operations.

Depreciation and Amortization

The Company has separately presented depreciation and amortization expense, except for depreciation expense which is included in cost of durable medical equipment rentals as described above. Such depreciation and amortization expense is based on the estimated useful lives of the underlying assets.

F-13

Stock-based Compensation

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

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary, in order to reduce deferred tax assets to the amounts more likely than not to be recovered.

The Company has established a valuation allowance for its deferred tax assets that are not recoverable from taxable temporary differences because the Company is unable to conclude that future utilization of a portion of its net operating loss carryforwards and other deferred tax assets is more likely than not.

The calculation of the Company’s tax positions involves dealing with uncertainties in the application of complex tax regulations for federal and several different state tax jurisdictions. The Company is periodically reviewed by tax authorities regarding the amount of taxes due. These reviews include inquiries regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. The Company does not recognize income tax benefits for positions that it takes on its income tax returns that do not meet the more likely than not standard on its technical merits.

Asset Acquisitions and Business Combinations

Asset acquisitions are accounted for using the cost accumulation method while business combinations are accounted for at fair value. Determining whether the acquired set represents an asset acquisition or a business combination requires quantitative and qualitative assessments that require judgment.

In an asset acquisition, acquisition costs are capitalized as part of the acquired set. The accounting for asset acquisitions requires estimates and judgment to allocate the costs incurred to acquire the assets among the assets acquired using their relative fair value. As such, the values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.

F-14

In a business combination, acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses; previously held equity interests are valued at fair value upon the acquisition of a controlling interest; restructuring costs associated with a business combination are expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. Measurement period adjustments are made in the period in which the amounts are determined and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date. All changes that do not qualify as measurement period adjustments are also included in current period earnings. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of finite-lived intangible assets, or the recognition of additional consideration which would be expensed. The fair value of contingent consideration is remeasured each period based on relevant information and changes to the fair value are included in the operating results for the period within general and administrative expense.

Net Income (Loss) Per Share

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

For the years ended June 30,

(in thousands except per share amounts) 2022 2021

Loss from continuing operations $ (15,037 ) $ (8,519 )

Income from discontinued operations, net of tax - 649

Net loss attributable to Great Elm Group, Inc. $ (14,893 ) $ (7,275 )

Weighted average shares basic and diluted:

Weighted average shares of common stock outstanding 26,784 25,722

Weighted average shares used in computing income (loss) per share 26,784 25,722

Basic and diluted income (loss) per share from:

Loss from continuing operations $ (0.56 ) $ (0.31 )

Income from discontinued operations - 0.03

Net loss per share $ (0.56 ) $ (0.28 )

When calculating earnings per share, we are required to adjust for the dilutive effect of common stock equivalents. As of June 30, 2022 the Company had 13,839,273 potential shares of common stock, including 10,392,545 shares of common stock issuable upon the conversion of the Company’s convertible notes, that are not included in the diluted net income (loss) per share calculation because to do so would be anti-dilutive. As of June 30, 2021, the Company had 13,289,022 potential shares of common stock, including 9,891,734 shares of common stock issuable upon the conversion of the Company’s convertible notes, that are not included in the diluted net income (loss) per share calculation because to do so would be antidilutive.

As of June 30, 2022 and 2021, the Company had an aggregate of 1,216,481 and 732,909 issued shares, respectively, that are subject to forfeiture by the employee at a nominal price if service and/or performance milestones are not met. The Company does not account for such shares as being outstanding for accounting purposes since they are unvested and subject to forfeiture.

F-15

Restrictions on Subsidiary Dividends

The ability of HC LLC to pay dividends is subject to compliance with the restricted payment covenants under the DME Revolver.

Concentration of Risk

The Company’s net investment revenue and receivables from continuing operations are primarily attributable to the management of one investment vehicle, GECC. See Note 7 – Related Party Transactions.

The Company’s durable medical equipment revenue and related accounts receivable are concentrated with third-party Payors. The following table summarizes customer concentrations as a percentage of revenues:

For the years ended June 30,

Government Payor 35% 37%

Third-party Payor 12% 12%

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

As of June 30,

Government Payor 29% 30%

Third-party Payor 14% 14%

Recently Adopted Accounting Standards

Accounting for Convertible Instruments In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by eliminating certain separation models. Under ASU 2020-06, a convertible debt instrument will generally be reported as a single liability at its amortized cost with no separate accounting for embedded conversion features. Consequently, the interest rate of convertible debt instruments will be closer to the coupon interest rate. In addition, ASU 2020-06 eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The guidance in this ASU is effective for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted this ASU on July 1, 2021 under the full retrospective method. When our Convertible Notes were originally issued on February 29, 2020, we recorded a $12.6 million discount to additional paid-in capital and against the Convertible Notes due to the existence of a cash conversion feature. Upon adoption we reversed this entry to additional-paid in capital and the Convertible Notes in all periods presented, and reversed any life-to-date interest expense and deferred tax expense associated with the amortization of the discount as an adjustment to beginning retained earnings of the prior year. As a result of the application of the retrospective adoption of ASU 2020-06, certain line items in our consolidated financial statements and related notes were adjusted as follows:

Liabilities

Stockholders' equity

F-16

For the year ended June 30, 2021

Non-operating expenses

Net loss from continuing operations

Loss from continuing operations, before income taxes (7,515 ) 671 (6,844 )

Discontinued operations:

Income from discontinued operations, net of tax 649 649

Net loss attributable to Great Elm Group (8,084 ) 809 (7,275 )

Net loss per share (basic and diluted) (0.31 ) 0.03 (0.28 )

For the year ended June 30, 2021

For the year ended June 30, 2021

Net cash provided by (used in) operating activities (18,976 ) - (18,976 )

Net cash used in investing activities (15,482 ) - (15,482 )

Net cash provided by financing activities 18,340 - 18,340

Net increase (decrease) in cash and cash equivalents (16,118 ) - (16,118 )

Cash and cash equivalents at beginning of year 40,500 - 40,500

Cash and cash equivalents at end of year 24,382 - 24,382

F-17

(1)The As Reported column refects amounts originally reported in our Form 10-K filed on September 21, 2021. The As Adjusted column reflects recast amounts reported in our Form 8-K filed on May 5, 2022.

Recently Issued Accounting Standards

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

Reference Rate ReformIn March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): facilitation of the Effects of Reference Rate Reform on Financial Reporting, in response to the United Kingdom Financial Conduct Authority which announced the desire to phase out the use of London Interbank Offered Rate (LIBOR)by the end of 2021. The provisions provide optional expedients and exceptions for applying US GAAP to contracts, hedging relationships and other transactions affected by reference rate reform on financial reporting due to the cessation of LIBOR if certain criteria are met. If LIBOR ceases to exist, we may need to renegotiate outstanding notes payable outstanding which extend beyond 2021 with the respective counterparties. Adoption of the provisions in ASU 2020-04 are optional and effective from March 12, 2020 through December 31, 2022. The Company is considering the optionality of ASU 2020-04 and is evaluating the potential impact that the adoption of this ASU will have on its consolidated financial statements.

3.

Revenue

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

For the years ended June 30,

Product and Services Revenue

Investment Management

Property Management Fees 171 -

Durable Medical Equipment

Total product and services revenue $ 46,236 $ 40,670