Great Elm (GEG) - 2022 Q3 - Quarterly Report

FORM 10-Q Filing Information This section provides the basic identification details for the company's Quarterly Report on Form 10-Q Registrant Information This section details Great Elm Group, Inc.'s identification, incorporation, address, and stock exchange listing for its Form 10-Q filing Registrant Information - Key Details | Field | Value | | :--- | :--- | | Registrant Name | Great Elm Group, Inc. | | Jurisdiction of Incorporation | Delaware | | Principal Executive Offices | 800 South Street, Suite 230, Waltham MA 02453 | | Telephone Number | (617) 375-3006 | | Trading Symbol | GEG | | Exchange | The Nasdaq Stock Market LLC (Nasdaq Global Select Market) | | Shares Outstanding (May 2, 2022) | 27,466,513 | | Filer Status | Non-accelerated filer, Smaller reporting company | Cautionary Statement Regarding Forward-Looking Information This section outlines risks and uncertainties that may cause actual results to differ from forward-looking statements Forward-Looking Statements and Risks This section outlines forward-looking statements, emphasizing that actual results may differ due to various risks and uncertainties - The report contains forward-looking statements that are not guarantees of actual results, and actual results may differ materially due to various risks and uncertainties[8] - Key risks include the ability of Great Elm Capital Management, Inc. (GECM) to profitably manage Great Elm Capital Corp. (GECC) and Great Elm SPAC Opportunity Fund, LLC (GESOF)[10] - Other significant risks involve the company's ability to develop and grow its durable medical equipment and investment management businesses, raise capital, make acquisitions, and manage acquired businesses[10] - External factors such as equity and debt capital market conditions, interest rate volatility, inflationary pressures, supply chain challenges, and the impact of the COVID-19 pandemic are also identified as risks[10] PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and related disclosures Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, and detailed notes Unaudited Condensed Consolidated Balance Sheets This section presents the company's unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets (Unaudited) - Key Figures (in thousands) | Metric | March 31, 2022 | June 30, 2021 | | :--- | :--- | :--- | | ASSETS | | | | Total current assets | $65,586 | $88,534 | | Property and equipment, net | $613 | $981 | | Equipment held for rental, net | $6,810 | $7,391 | | Identifiable intangible assets, net | $7,733 | $8,928 | | Goodwill | $52,463 | $50,536 | | Total assets | $137,465 | $161,869 | | LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $17,566 | $33,005 | | Convertible notes | $34,278 | $33,333 | | Redeemable preferred stock of subsidiaries | $35,694 | $35,529 | | Total liabilities | $90,485 | $106,445 | | Total stockholders' equity | $44,718 | $52,785 | | Total liabilities, non-controlling interest and stockholders' equity | $137,465 | $161,869 | - Total assets decreased by $24.4 million (15.1%) from $161.9 million at June 30, 2021, to $137.5 million at March 31, 2022[12] - Total current liabilities decreased by $15.4 million (46.8%) from $33.0 million at June 30, 2021, to $17.6 million at March 31, 2022[12] Unaudited Condensed Consolidated Statements of Operations This section presents the unaudited condensed consolidated statements of operations, detailing revenues, expenses, and net loss Condensed Consolidated Statements of Operations (Unaudited) - Key Figures (in thousands) | Metric | For the three months ended March 31, 2022 | For the three months ended March 31, 2021 | For the nine months ended March 31, 2022 | For the nine months ended March 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $16,622 | $13,845 | $49,909 | $44,531 | | Total operating costs and expenses | $18,561 | $14,942 | $52,712 | $48,697 | | Operating loss | $(1,939) | $(1,097) | $(2,803) | $(4,166) | | Net realized and unrealized loss on investments | $(3,220) | $(1,112) | $(5,055) | $(454) | | Interest expense | $(1,354) | $(1,361) | $(4,078) | $(3,607) | | Net loss attributable to Great Elm Group, Inc. | $(5,909) | $(2,587) | $(10,347) | $(6,367) | | Basic and diluted net loss per share | $(0.22) | $(0.10) | $(0.38) | $(0.25) | - Total revenues increased by $2.8 million (20.1%) for the three months ended March 31, 2022, and by $5.4 million (12.1%) for the nine months ended March 31, 2022, compared to the prior year periods[14] - Net loss attributable to Great Elm Group, Inc. significantly widened to $(5.9) million for the three months ended March 31, 2022, from $(2.6) million in the prior year, and to $(10.3) million for the nine months, from $(6.4) million[14] Unaudited Condensed Consolidated Statement of Stockholders' Equity and Contingently Redeemable Non Controlling Interest (March 31, 2022) This section details changes in stockholders' equity and non-controlling interests for the period ended March 31, 2022 Stockholders' Equity and Non-controlling Interest (March 31, 2022) - Key Changes (in thousands) | Metric | Balance, June 30, 2021 | Net Loss | Stock-based Compensation | Balance, March 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Great Elm Group, Inc. Stockholders' Equity | $43,236 | $(10,347) | $2,220 | $34,981 | | Non-controlling Interests | $9,549 | $159 | - | $9,737 | | Contingently Redeemable Non-controlling Interest | $2,639 | $(377) | - | $2,262 | - Total Great Elm Group, Inc. stockholders' equity decreased by from $43.2 million at June 30, 2021, to $35.0 million at March 31, 2022, primarily due to net losses[16] - Stock-based compensation contributed $2.2 million to additional paid-in capital during the nine months ended March 31, 2022[16] Unaudited Condensed Consolidated Statement of Stockholders' Equity and Contingently Redeemable Non Controlling Interest (March 31, 2021) This section details changes in stockholders' equity and non-controlling interests for the period ended March 31, 2021 Stockholders' Equity and Non-controlling Interest (March 31, 2021) - Key Changes (in thousands) | Metric | Balance, June 30, 2020 | Net Loss | Stock-based Compensation | Balance, March 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Great Elm Group, Inc. Stockholders' Equity | $48,845 | $(6,367) | $1,330 | $43,876 | | Non-controlling Interests | $3,886 | $(862) | - | $9,536 | | Contingently Redeemable Non-controlling Interest | $3,890 | $(509) | - | $2,055 | - Total Great Elm Group, Inc. stockholders' equity decreased by from $48.8 million at June 30, 2020, to $43.9 million at March 31, 2021, primarily due to net losses[18] - Non-controlling interests increased significantly from $3.9 million to $9.5 million, partly due to the issuance of LP interests in Consolidated Fund ($3.3 million)[18] Unaudited Condensed Consolidated Statements of Cash Flows This section presents the unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Unaudited) - Key Figures (in thousands) | Cash Flow Activity | Nine months ended March 31, 2022 | Nine months ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $15,408 | $(21,302) | | Net cash used in investing activities | $(4,526) | $(13,361) | | Net cash provided by (used in) financing activities | $(12,518) | $18,465 | | Net decrease in cash and cash equivalents | $(1,636) | $(16,198) | | Cash and cash equivalents at end of period | $22,746 | $24,302 | - Operating activities generated $15.4 million in cash for the nine months ended March 31, 2022, a significant improvement from a $(21.3) million outflow in the prior year, driven by investment sales and non-cash adjustments[20][257] - Investing activities used $4.5 million, primarily for acquisitions and equipment purchases, a decrease by from $13.4 million used in the prior year which included a large related party rights offering[20][259][260] - Financing activities resulted in a net outflow of $12.5 million, mainly due to payments to brokers of Consolidated Funds and equipment financing debt, contrasting with a $18.5 million net inflow in the prior year from JPM Transactions[22][261][263] Unaudited Notes to Condensed Consolidated Financial Statements This section provides comprehensive notes to the unaudited condensed consolidated financial statements, detailing accounting policies and disclosures Note 1. Organization Great Elm Group, Inc. operates in durable medical equipment and investment management, expanded through acquisitions, and reorganized; real estate is discontinued - Great Elm Group, Inc. operates with two main business segments: durable medical equipment and investment management[24] - The durable medical equipment business, acquired in 2018, specializes in respiratory care equipment and has expanded to Kansas, Iowa, and Missouri through acquisitions in 2019 and 2021[27] - The investment management business, established in 2016, manages Great Elm Capital Corp. (GECC) and Great Elm SPAC Opportunity Fund, LLC (GESOF)[25][26][10] - A corporate reorganization on December 29, 2020, resulted in Great Elm Group, Inc. becoming the new holding company, with former GEC shares converting to GEG common stock[29] - The real estate business, launched in March 2018, was sold on June 23, 2021, for $4.6 million in cash and is now reported as discontinued operations[30] Note 2. Summary of Significant Accounting Policies This note details significant accounting policies, including basis of presentation, consolidation, segment reporting, and the retrospective adoption of ASU 2020-06 - The financial statements are unaudited and prepared in accordance with Form 10-Q instructions, reflecting all necessary adjustments for fair presentation[33] - The company consolidates wholly-owned, majority-owned, and variable interest entities where it holds a controlling financial interest[36] - The company has two business operating segments: durable medical equipment and investment management, with general corporate representing unallocated costs[39] - Accounts receivable for the DME business are constrained based on estimated collections from customers and third-party payors, with revenue reductions of $1.2 million and $3.0 million for the three and nine months ended March 31, 2022, respectively[41] Impact of ASU 2020-06 Adoption (as of June 30, 2021, in thousands) | Metric | As Reported | ASU 2020-06 Adjustment | As Adjusted | | :--- | :--- | :--- | :--- | | Convertible notes | $22,054 | $11,279 | $33,333 | | Additional paid-in-capital | $3,319,767 | $(12,154) | $3,307,613 | | Accumulated deficit | $(3,265,433) | $1,030 | $(3,264,403) | | Total Stockholder's Equity | $63,909 | $(11,124) | $52,785 | - The company adopted ASU 2020-06 on July 1, 2021, using the full retrospective method, which simplified accounting for convertible instruments by eliminating certain separation models and increased reported convertible notes and decreased additional paid-in capital[50][51][52] Note 3. Revenue This note details revenue sources, including investment management, DME sales, services, and rental income, explaining recognition policies and billing adjustments Revenue by Source (in thousands) | Revenue Source | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2021 | 9 Months Ended Mar 31, 2022 | 9 Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Investment Management | $988 | $728 | $2,992 | $2,261 | | DME Equipment Sales | $8,976 | $7,309 | $26,674 | $23,728 | | DME Service Revenues | $1,383 | $1,297 | $4,038 | $3,635 | | DME Medical Equipment Rental Income | $5,275 | $4,511 | $16,205 | $14,907 | | Total Revenues | $16,622 | $13,845 | $49,909 | $44,531 | - Investment management revenues increased by 35.7% for the three months and 32.3% for the nine months ended March 31, 2022, driven by management and administration fees[55] - Durable medical equipment sales and services revenue increased by 20.4% for the three months and 12.2% for the nine months ended March 31, 2022[55] - Durable medical equipment rental income increased by 16.9% for the three months and 8.7% for the nine months ended March 31, 2022[55] - The company constrains transaction prices for DME sales and services due to expected billing adjustments with Payors and patient customers, with revenue reserves of $2.2 million as of March 31, 2022[41][60] - Incentive fees from investment management were unconditionally waived through March 31, 2022, resulting in $0.0 million in accrued yet constrained incentive fees[68] Note 4. Discontinued Operations This note details the sale of the real estate business for $4.6 million, a strategic shift, with its financial information recast as discontinued operations - The real estate business was sold on June 23, 2021, for $4.6 million in cash, with proceeds reinvested in Monomoy Properties, LLC[75] - The sale signifies a strategic shift away from direct ownership and operation of real estate properties[76] Net Income from Discontinued Operations (in thousands) | Metric | For the three months ended March 31, 2021 | For the nine months ended March 31, 2021 | | :--- | :--- | :--- | | Real estate rental revenue | $1,276 | $3,824 | | Real estate expenses | $128 | $380 | | Depreciation and amortization | $430 | $1,291 | | Interest expense | $645 | $1,942 | | Net income from discontinued operations | $73 | $211 | Note 5. Acquisitions This note outlines the acquisitions of MedOne Healthcare and AMPM, expanding the DME segment and contributing to goodwill and contingent consideration - On August 31, 2021, the company acquired MedOne Healthcare LLC for $2.0 million, including $0.5 million in contingent consideration, resulting in $1.9 million of goodwill[79][80][81] - On March 1, 2021, the company acquired Advanced Medical DME, LLC and PM Sleep Lab, LLC (AMPM) for $1.1 million, including $0.4 million in contingent consideration, resulting in $0.7 million of goodwill and $0.4 million in intangible assets[82][84][85] - Contingent consideration for MedOne is up to $1.0 million based on revenue thresholds for 12-month periods ending September 1, 2022, and 2023[81] - Contingent consideration for AMPM is up to $2.1 million based on revenue thresholds for the 12 months ending September 1, 2022[85] Note 6. Related Party Transactions This note details various related party transactions across DME, investment management, and corporate segments, including financing, management fees, and reorganization - Corbel Capital Partners SBIC, L.P., a related party, held a non-controlling interest in HC LLC and was involved in the Corbel Facility, which was repaid early in December 2020[87] - GECM manages investment portfolios for GECC and other private funds, earning administrative, management, and incentive fees[89] - The company owns approximately 20.4% of GECC, valued at $13.4 million as of March 31, 2022, and receives dividends and recognizes unrealized profits/losses from this investment[95] - MAST Capital, a beneficial owner of 7.3% of the company's common stock, holds $2.3 million in Convertible Notes[96] - The Holding Company Reorganization on December 29, 2020, involved J.P. Morgan Broker-Dealer Holdings Inc. (JPM) providing $37.7 million in financing, including the issuance of Forest Preferred Stock and HC LLC preferred stock[103][210] Net (Loss) Income on Investments (in thousands) | Metric | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2021 | 9 Months Ended Mar 31, 2022 | 9 Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income on investments | $(3,474) | $(1,112) | $(5,838) | $(454) | | Net (loss) income on investments of Consolidated Funds | $(284) | $155 | $(279) | $221 | | Dividend income | $549 | $554 | $1,651 | $2,400 | Note 7. Fair Value Measurements This note defines fair value, categorizes financial assets and liabilities into a three-level hierarchy, and details valuation techniques for investments and contingent consideration - Fair value is defined as the exit price in an orderly transaction between market participants, categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[105][107] Fair Value Hierarchy of Assets and Liabilities (in thousands) | Metric | Level 1 (Mar 31, 2022) | Level 2 (Mar 31, 2022) | Level 3 (Mar 31, 2022) | Total (Mar 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Equity investments | $13,419 | $- | $- | $13,419 | | Equity investments of Consolidated Funds | $11,340 | $- | $- | $11,340 | | Investments valued at net asset value | - | - | - | $5,741 | | Contingent consideration liability | $- | $- | $388 | $388 | - Contingent consideration liabilities, valued using Monte Carlo simulation models, increased by from $0.27 million at June 30, 2021, to $0.39 million at March 31, 2022, due to additions from acquisitions and changes in fair value[109][114][115] - The participation feature of HC LLC Series A-2 Preferred Stock, an embedded derivative, had a fair value of $9.3 million at March 31, 2022, determined using an option pricing model, but eliminates in consolidation[117] Note 8. Fixed Assets This note provides a breakdown of fixed assets, including property, equipment, and medical equipment held for rental, along with recognized depreciation expense Fixed Assets (in thousands) | Asset Category | March 31, 2022 (Net Carrying Amount) | June 30, 2021 (Net Carrying Amount) | | :--- | :--- | :--- | | Property and Equipment | $613 | $981 | | Medical Equipment Held for Rental | $6,810 | $7,391 | | Total Fixed Assets | $7,423 | $8,372 | Total Depreciation Expense (in thousands) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended March 31, | $1,716 | $1,557 | | Nine months ended March 31, | $5,296 | $4,846 | - Net carrying amount of property and equipment decreased by 37.6% from June 30, 2021, to March 31, 2022[119] - Net carrying amount of medical equipment held for rental decreased by 7.9% from June 30, 2021, to March 31, 2022[119] Note 9. Goodwill and Other Intangible Assets This note details goodwill and identifiable intangible assets, primarily from DME and investment management acquisitions, with goodwill increasing due to recent acquisitions Changes in Carrying Value of Goodwill (in thousands) | Metric | For the nine months ended March 31, 2022 | For the nine months ended March 31, 2021 | | :--- | :--- | :--- | | Beginning balance | $50,536 | $50,010 | | Acquisition of businesses | $1,927 | $648 | | Ending balance | $52,463 | $50,658 | Identifiable Intangible Assets, Net (in thousands) | Asset Category | March 31, 2022 (Net Carrying Amount) | June 30, 2021 (Net Carrying Amount) | | :--- | :--- | :--- | | Durable Medical Equipment | $6,209 | $7,104 | | Investment Management | $1,524 | $1,824 | | Total | $7,733 | $8,928 | - Goodwill increased by $1.9 million for the nine months ended March 31, 2022, primarily due to the acquisition of MedOne Healthcare LLC[122][80] Aggregate Amortization Expense (in thousands) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended March 31, | $376 | $413 | | Nine months ended March 31, | $1,195 | $1,261 | Note 10. Lessor Operating Leases This note describes the company's role as a lessor of medical equipment through HC LLC, with all leases treated as month-to-month operating leases due to cancellation rights - The company leases medical equipment to customers, primarily patients through clinical providers, with lease terms generally ranging from 10 to 36 months[124][125] - All leases are treated as month-to-month operating leases because customers can cancel at any time without penalty[125] - Rental income from operating leases is recognized on a daily basis, with deferred revenue related to remaining monthly rental periods[71][73] Note 11. Lessee Operating Leases This note details the company's operating leases for facilities, vehicles, and equipment, providing key metrics like right-of-use assets, lease liabilities, and payment obligations Lessee Operating Lease Details (in thousands) | Category | March 31, 2022 (Right of Use Assets) | March 31, 2022 (Total Liabilities) | Weighted-Average Remaining Life (Years) | Weighted-Average Discount Rate (%) | | :--- | :--- | :--- | :--- | :--- | | Facilities | $3,957 | $4,183 | 3.0 | 11.0 | | Vehicles | $58 | $58 | 4.4 | 6.5 | | Equipment | $9 | $9 | 0.9 | 12.5 | | Total | $4,024 | $4,250 | | | Operating Lease Costs (in thousands) | Category | 3 Months Ended Mar 31, 2022 | 9 Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Facilities | $592 | $1,717 | | Vehicles | $19 | $48 | | Equipment | $5 | $23 | | Total Operating Lease Cost | $616 | $1,788 | Undiscounted Cash Payment Obligations for Operating Leases (in thousands) | Period | Amount | | :--- | :--- | | For the three months ending June 30, 2022 | $611 | | For the year ending June 30, 2023 | $1,804 | | For the year ending June 30, 2024 | $1,343 | | For the year ending June 30, 2025 | $814 | | For the year ending June 30, 2026 | $546 | | Thereafter | $128 | | Total Lease Payments | $5,246 | Note 12. Borrowings This note summarizes outstanding borrowings, primarily equipment financing debt, detailing the Corbel Facility repayment, DME Revolver terms, and interest expense Equipment Financing Debt (in thousands) | Metric | March 31, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Equipment Financing | $2,711 | $2,041 | | Less current portion | $(2,711) | $(1,974) | | Equipment financing debt, net of current portion | $0 | $67 | Interest Expense on Borrowings (in thousands) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended March 31, | $30 | $900 | | Nine months ended March 31, | $900 | $2,300 | - The Corbel Facility, a term loan with a related party, was repaid early on December 29, 2020[137] - The DME Revolver allows for borrowings up to $10.0 million, secured by durable medical equipment assets, with no outstanding borrowings as of March 31, 2022[138] - HC LLC's operating subsidiaries utilize equipment financing debt, totaling $2.7 million outstanding as of March 31, 2022, with implicit interest rates between 7-8%[142][274] Note 13. Convertible Notes This note details outstanding Convertible Notes, including principal balance, interest, payment terms, and conversion features, with a significant portion held by related parties - As of March 31, 2022, the total principal balance of Convertible Notes outstanding was $35.2 million, including cumulative interest paid-in-kind[146] - Related parties hold $16.6 million of the Convertible Notes, including entities associated with Matthew A. Drapkin ($6.6 million), Jason W. Reese ($7.0 million), Eric J. Scheyer ($0.7 million), and MAST Capital ($2.3 million)[146][151] - The Convertible Notes accrue interest at 5.0% per annum, payable semiannually in cash or in kind, and are convertible into common stock at the holder's option[146] Interest Expense on Convertible Notes (in thousands) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended March 31, | $400 | $400 | | Nine months ended March 31, | $1,300 | $1,200 | Note 14. CARES Act This note explains the company's participation in the Employee Retention Credit (ERC) program under the CARES Act, providing refundable tax credits - The company claimed $2.4 million in Employee Retention Credits (ERCs) during the nine months ended March 31, 2021, under the expanded CARES Act[150] - ERCs provide eligible employers with less than 500 employees a refundable tax credit equal to 70% of qualified wages paid during calendar 2021, up to $7,000 per employee per quarter[150] - The proceeds from the CARES Act are accounted for as in-substance government grants[151] Note 15. Non-Controlling Interests and Preferred Stock of Subsidiaries This note provides a comprehensive overview of non-controlling interests and redeemable preferred stock in subsidiaries, detailing their classification and impact on net income (loss) Non-Controlling Interests of Subsidiaries (in thousands) | Subsidiary | March 31, 2022 | June 30, 2021 | | :--- | :--- | :--- | | HC LLC (Temporary equity) | $2,262 | $2,639 | | HC LLC (Permanent equity) | $2,262 | $2,639 | | Consolidated Funds (Permanent equity) | $3,648 | $4,228 | | Forest (Permanent equity) | $3,827 | $2,761 | | Total Non-controlling interests | $11,999 | $12,188 | Net Income (Loss) Attributable to Non-Controlling Interests (in thousands) | Subsidiary | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2021 | 9 Months Ended Mar 31, 2022 | 9 Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | HC LLC (Temporary equity) | $(686) | $- | $(377) | $- | | HC LLC (Permanent equity) | $(686) | $- | $(377) | $- | | Consolidated Funds (Permanent equity) | $(95) | $(148) | $(146) | $(148) | | Forest (Permanent equity) | $1,244 | $1,019 | $1,066 | $1,019 | | Total | $(226) | $(158) | $159 | $(862) | - HC LLC Series A-1 Preferred Stock (10,090 shares, $1,000 face value) and Series A-2 Preferred Stock (34,010 shares, $1,000 face value) were issued in connection with the JPM Transactions, both classified as liabilities due to mandatory redemption features[164][165][170] - Forest Preferred Stock (35,010 shares, $1,000 face value) was sold to JPM and is classified as a liability due to mandatory redemption on December 29, 2027[174][176] Note 16. Stockholders' Equity This note details changes in stockholders' equity, focusing on restricted stock awards, units, and options, including grants, vesting, and compensation expense - In November 2021, 580,023 performance shares vested, resulting in a $0.6 million stock-based compensation expense for the nine months ended March 31, 2022[180] - The company granted 748,288 service-based restricted stock awards and 140,294 restricted stock units to employees and directors during the nine months ended March 31, 2022[181][182] Stock-Based Compensation Expense (in thousands) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended March 31, | $500 | $600 | | Nine months ended March 31, | $2,200 | $1,300 | - As of March 31, 2022, unrecognized compensation costs for unvested share awards and options totaled $1.7 million[185] Note 17. Income Tax This note outlines the company's net operating loss (NOL) carryforwards and the valuation allowance against deferred tax assets due to cumulative operating losses - As of June 30, 2021, the company had federal NOL carryforwards of approximately $952.0 million and state NOL carryforwards of $198.0 million[187] - Federal NOLs generated prior to fiscal year 2018 expire from 2022-2037, while those from fiscal year 2018 or later can be carried forward indefinitely[187] - A valuation allowance has been recorded for all federal and state deferred tax assets due to the company's history of cumulative operating losses, indicating uncertainty about their realization[188] Note 18. Commitments and Contingencies This note states the company is involved in routine legal proceedings but expects no material adverse impact on its business, operations, or financial condition - The company is involved in lawsuits, claims, investigations, and proceedings in the ordinary course of business[189] - No pending or threatened litigation is expected to have a material adverse impact on the company's business, results of operations, financial condition, or cash flows[189] Note 19. Segment Information This note provides detailed financial results and asset allocation for the durable medical equipment and investment management segments, including corporate activities Total Pre-Tax Income (Loss) by Segment (in thousands) | Segment | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2021 | 9 Months Ended Mar 31, 2022 | 9 Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Durable Medical Equipment | $(6,620) | $(5,059) | $(3,601) | $(8,395) | | Investment Management | $(3,981) | $(732) | $(6,752) | $1,414 | | General Corporate | $4,446 | $2,930 | $79 | $(453) | | Consolidated Total | $(6,155) | $(2,861) | $(10,274) | $(7,434) | Total Assets by Segment (in thousands) | Segment | March 31, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Durable Medical Equipment | $83,246 | $87,139 | | Investment Management | $31,837 | $68,752 | | General Corporate | $22,382 | $5,978 | | Consolidated Total | $137,465 | $161,869 | - Durable Medical Equipment segment revenue increased by 19% for the three months and 11% for the nine months ended March 31, 2022, compared to prior periods[192][193] - Investment Management segment revenue increased by 36% for the three months and 32% for the nine months ended March 31, 2022, compared to prior periods[192][193] Note 20. Subsequent Events This note describes the Monomoy Transaction, where GECM acquired investment management assets for Monomoy Properties REIT, involving a $10 million purchase and $15 million equity investment - On May 4, 2022, GECM agreed to acquire the investment management agreement and assets for Monomoy Properties REIT, LLC from ICAM[196] - The upfront purchase price is $10.0 million, financed by GEG common stock, GECC common stock, and a promissory note[197] - Additional consideration of up to $2.0 million is owed if certain performance targets are met over the first two years post-closing[199] - The transaction requires a $15.0 million equity investment into Monomoy REIT to fund growth in originations[199] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, condition, and outlook, covering business segments, discontinued operations, COVID-19 impacts, and liquidity - The company operates two business segments: durable medical equipment (respiratory care, sleep study services) and investment management (managing GECC, private funds, SPAC-focused fund)[201][202] - The real estate business was sold in June 2021, and its activities are now presented as discontinued operations[206] - The company completed a holding company reorganization on December 29, 2020, with Great Elm Group, Inc. becoming the new public holding company[207] - COVID-19 and global supply chain challenges continue to suppress revenues in both investment management (reduced AUM) and durable medical equipment (restricted PAP device procurement, missed revenue opportunities)[212][213] Consolidated Revenue and Operating Loss (in thousands) | Metric | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2021 | 9 Months Ended Mar 31, 2022 | 9 Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $16,622 | $13,845 | $49,909 | $44,531 | | Operating loss | $(1,939) | $(1,097) | $(2,803) | $(4,166) | - Consolidated revenues increased by $2.8 million (20%) for the three months and $5.4 million (12%) for the nine months ended March 31, 2022, primarily due to DME acquisitions and improved revenue reserves[222] - Operating costs increased by $3.6 million and $4.0 million for the three and nine months, respectively, driven by DME acquisitions, related transaction costs, and increased investment management expenses[223] - Cash and cash equivalents stood at $22.7 million as of March 31, 2022, with $13.4 million in GECC common stock[264] - The company had $35.2 million in convertible notes outstanding and $35.0 million face value in Forest Preferred Stock as of March 31, 2022[266][268] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes in market risks since the Annual Report on Form 10-K for the fiscal year ended June 30, 2021 - No material changes in market risks have occurred since the Annual Report on Form 10-K for the fiscal year ended June 30, 2021[276] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting - The company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022[277] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[278] PART II. OTHER INFORMATION This section covers other information, including legal proceedings, risk factors, exhibits, and official signatures Item 1. Legal Proceedings This section indicates no changes to legal proceedings requiring disclosure, implying no new material legal developments - No changes to legal proceedings are required to be disclosed[280] Item 1A. Risk Factors This section confirms no material changes to risk factors previously disclosed in the Annual Report on Form 10-K - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2021[281] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including merger agreements, corporate documents, CEO/CFO certifications, and XBRL financial statements - Exhibits include the Agreement and Plan of Merger (December 21, 2020), Certificate of Incorporation (October 23, 2020), and Bylaws (October 23, 2020)[285] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed or furnished[285] - The Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, is provided in inline Extensible Business Reporting Language (XBRL) format[285] SIGNATURES This section contains the official signatures of the CEO and CFO, certifying the filing of the Form 10-Q on behalf of Great Elm Group, Inc. - The report is signed by Peter A. Reed, Chief Executive Officer, and Brent J. Pearson, Chief Financial Officer, on May 5, 2022[290]