Item 1. Financial Statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The following table reconciles the amounts shown for cash and cash equivalents and restricted cash in the condensed consolidated balance sheets to the amounts shown for cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2020
1. Organization
Great Elm Capital Group, Inc. (the Company) is a holding company incorporated in Delaware. The Company currently has three business operating segments: durable medical equipment, investment management and real estate, 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, real estate and other industries.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. Wholly-owned subsidiaries include Great Elm Capital Management, Inc. (GECM), Great Elm Opportunities GP, Inc., Great Elm FM Acquisition, Inc., Great Elm DME Holdings, Inc. and Great Elm DME Manager, LLC. Majority-owned subsidiaries include GECC GP Corp., Great Elm FM Holdings, Inc., CRIC IT Fort Myers, LLC (CRIC IT) and Great Elm DME, Inc. (DME Inc.) and its seven wholly-owned subsidiaries.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes which are normally included in the Company’s Form 10-K. These financial statements reflect all adjustments (consisting of normal recurring items or items discussed herein) that management believes are necessary to fairly state results for the interim periods presented. Results of operations for interim periods are not necessarily indicative of annual results of operations. The condensed consolidated balance sheet as of June 30, 2020, presented herein, has been derived from the Company’s audited consolidated financial statements as of and for the year-ended June 30, 2020.
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, recognition of rental income, the valuation of excess and obsolete inventories, depreciable lives of equipment, impairment of long lived tangible and intangible assets, valuation allowance for deferred tax assets, fair value measurements including stock-based compensation and contingent consideration, estimates associated with the application of acquisition accounting, and the value of lease liabilities and corresponding right 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.
Principles of Consolidation
The Company consolidates the assets, liabilities, and operating results of its wholly-owned subsidiaries; majority-owned subsidiaries; and subsidiaries in which we hold a controlling financial interest as of the financial statement date. In most cases, a controlling financial interest reflects ownership of a majority of the voting interests. We consolidate a variable interest entity (VIE) when we possess both the power to direct the activities of the VIE that most significantly impact its economic performance and we are either obligated to absorb the losses that could potentially be significant to the VIE or we hold the right to receive benefits from the VIE that could potentially be significant to the VIE.
All intercompany accounts and transactions have been eliminated in consolidation.
9
Non-controlling interests in the Company’s subsidiaries are reported as a component of liabilities for mandatorily redeemable interests, temporary equity for contingently redeemable interests or permanent equity, separate from the Company’s equity. See Note 13 – Non-Controlling Interests of Subsidiary. Results of operations attributable to the non-controlling interests are included in the Company’s condensed consolidated statements of operations.
Segments
The Company has three business operating segments: durable medical equipment, investment management and real estate, 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.
Accounts receivable
Substantially all of the accounts receivable balance relates to the durable medical equipment business. Accounts receivable are customer obligations due under normal sales and rental terms and represent the amount estimated to be collected from the customers and, if applicable, the third-party private insurance provider or government program (collectively, Payors), based on the contractual agreements. The Company does not require collateral in connection with its customer transactions and aside from verifying insurance coverage, does not perform credit checks on patient customers. Revenue and accounts receivable have been constrained to the extent that billed amounts exceed the amounts estimated to be collected. The constrained transaction price relates primarily to expected billing adjustments with the Payors and patient customers. Management’s evaluation of variable consideration takes into account such factors as past experience, information about specific receivables, Payors and patient customers. The revenue reserves related to constraints on variable consideration were $4.6 million and $4.8 million as of September 30, 2020 and June 30, 2020, respectively. During the three months ended September 30, 2020 and 2019, the Company recognized reductions to revenue of $1.1 million and $0.9 million, respectively, related to such constraints. See Note 3 – Revenue.
The assessment of variable consideration to be constrained is based on estimates, and ultimate losses may vary from current estimates. As adjustments to these estimates become necessary, they are reported in earnings in the periods in which they become known. There were no material adjustments to revenues made in the three months ended September 30, 2020 relating to prior periods. Changes in constraints on variable consideration are recorded as a component of net revenues.
The Company generally does not allow returns from customers for reasons not covered under the manufacturer’s standard warranty. Therefore, there is no provision for sales return reserves. The Company does not have significant bad debt experience with Payors, and therefore the allowance for doubtful accounts is immaterial.
As of September 30, 2020 and June 30, 2020, the Company had unbilled receivables of approximately $1.5 million and $1.9 million, respectively, that relate to transactions where the Company has the ultimate right to invoice a Payor under the terms of the arrangement, but are not currently billed. Previously disclosed unbilled amounts have been updated to reflect current presentation. These unbilled amounts are included in accounts receivable in the condensed consolidated balance sheets.
10
Net Income (Loss) per Share
The following table presents the calculation of basic and diluted earnings (loss) per share:
|
|
For the three months ended September 30,
|
|
(in thousands except per share amounts)
|
|
2020
|
|
|
2019
|
|
Loss from continuing operations
|
|
$
|
(3,863
|
)
|
|
$
|
(3,278
|
)
|
Net loss
|
|
$
|
(3,863
|
)
|
|
$
|
(3,278
|
)
|
Less: net loss attributable to non-controlling interest
|
|
|
(107
|
)
|
|
|
(189
|
)
|
Net loss attributable to Great Elm Capital Group
|
|
$
|
(3,756
|
)
|
|
$
|
(3,089
|
)
|
Weighted average shares basic and diluted:
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
25,576
|
|
|
|
25,373
|
|
Weighted average shares used in computing income (loss) per share
|
|
|
25,576
|
|
|
|
25,373
|
|
Basic and diluted income (loss) per share from:
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(0.15
|
)
|
|
$
|
(0.12
|
)
|
Net loss
|
|
$
|
(0.15
|
)
|
|
$
|
(0.12
|
)
|
When calculating earnings per share, we are required to adjust for the dilutive effect of common stock equivalents. As of September 30, 2020, the Company had 12,134,751 potential shares of common stock, including 8,790,049 potential shares of Company common stock issuable upon conversion of Convertible Notes (as defined in Note 11 – Convertible Notes) and 3,344,702 potential shares issuable upon the exercise of stock options and vesting of restricted stock units and restricted stock awards that are not included in the diluted net loss per share calculations because to do so would be antidilutive. As of September 30, 2019, the Company had 3,290,624 potential shares of Company common stock issuable upon exercise of the stock options and vesting of restricted stock units and restricted stock awards that are not included in the diluted net loss per share calculations because to do so would be antidilutive.
As of September 30, 2020 and 2019, the Company had an aggregate of 732,909 issued shares that are subject to forfeiture by the employee at a nominal price if service and performance milestones are not met. The Company does not account for such shares as being outstanding for accounting purposes since they are unvested and subject to forfeiture.
Restrictions on Subsidiary Dividends
Under the GP Corp. Note Agreement, GECC GP Corp. agreed not to declare any dividends until the GP Corp. Note is satisfied. Under the Senior Note and Subordinated Note, CRIC IT Fort Myers, LLC is restricted from paying any dividends until the Notes are satisfied. The ability of DME Inc. to pay dividends is subject to compliance with the restricted payment covenants under the Corbel Facility and DME Revolver.
Concentration of Risk
The Company’s net investment revenue and receivables for the periods presented were attributable to the management of one investment vehicle, GECC, which is also a related party. See Note 4 – Related Party Transactions.
The Company’s real estate rental revenue from continuing operations is derived from one tenant.
The Company’s durable medical equipment revenue and related accounts receivable are concentrated with third-party Payors. The following table summarizes customer concentrations as a percentage of revenues:
|
|
For the three months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Government Payor A
|
|
34%
|
|
|
28%
|
|
Third-party Payor C
|
|
11%
|
|
|
*
|
|
* Not a significant concentration.
11
The following table summarizes customer concentrations as a percentage of accounts receivable:
|
|
September 30, 2020
|
|
|
June 30, 2020
|
|
Government Payor A
|
|
23%
|
|
|
20%
|
|
Government Payor B
|
|
*
|
|
|
11%
|
|
Third-party Payor C
|
|
11%
|
|
|
11%
|
|
* Not a significant concentration
Recently Adopted Accounting Standards
Fair Value Measurements In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, resulting in various disclosures related to fair value measurements being eliminated, modified or supplemented. ASU 2018-13 is effective for interim and annual periods beginning after December 15, 2019, with an option to early adopt any eliminated or modified disclosures, and to delay adoption of the additional disclosures, until the effective date. The Company early adopted the eliminated and modified disclosures of ASU 2018-13 during the three months ended September 30, 2018 and, as a result, updated its financial statement disclosures accordingly. A modified narrative description of measurement uncertainty for level 3 fair value measurements was applied prospectively, with all other amendments applied retrospectively. The Company has adopted the supplemental disclosures as of July 1, 2020.
Recently Issued Accounting Standards
Current Expected Credit Losses In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326), which changes the impairment model for financial instruments, including trade receivables from an incurred loss method to a new forward looking approach, based on expected losses. The estimate of expected credit losses will require entities to incorporate considerations of historical experience, current information and reasonable and supportable forecasts. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the potential impact that the adoption of this ASU will have on its consolidated financial statements.
Reference Rate Reform In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): facilitation of the Effects of Reference Rate Reform on Financial Reporting, in response to the United Kingdom Financial Conduct Authority which announced the desire to phase out the use of London Interbank Offered Rate (LIBOR) by the end of 2021. The provisions provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform on financial reporting due to the cessation of LIBOR if certain criteria are met. If LIBOR ceases to exist, we may need to renegotiate outstanding notes payable outstanding which extend beyond 2021 with the respective counterparties. Adoption of the provisions in ASU 2020-04 are optional and effective from March 12, 2020 through December 31, 2022. We are currently evaluating the impact of this ASU on our financial statements.
Accounting for Convertible Instruments In August 2020, the FASB issued 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 are 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 is currently evaluating the impact of this ASU on its consolidated financial statements.
12
3. Revenue
The revenues from each major source of revenue are summarized in the following table:
|
|
For the three months ended September 30,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Product and Services Revenue
|
|
|
|
|
|
|
|
|
Investment Management
|
|
|
|
|
|
|
|
|
Management Fees
|
|
$
|
601
|
|
|
$
|
758
|
|
Administration Fees
|
|
|
172
|
|
|
|
109
|
|
|
|
|
773
|
|
|
|
867
|
|
Durable Medical Equipment
|
|
|
|
|
|
|
|
|
Equipment Sales
|
|
|
8,008
|
|
|
|
6,361
|
|
Service Revenues
|
|
|
1,205
|
|
|
|
1,384
|
|
|
|
|
9,213
|
|
|
|
7,745
|
|
|
|
|
|
|
|
|
|
|
Total product and services revenue
|
|
$
|
9,986
|
|
|
$
|
8,612
|
|
|
|
|
|
|
|
|
|
|
Rental Revenues
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
Rental Income
|
|
|
1,272
|
|
|
|
1,273
|
|
Durable Medical Equipment
|
|
|
|
|
|
|
|
|
Medical Equipment Rental Income
|
|
|
5,397
|
|
|
|
5,486
|
|
Total rental revenue
|
|
|
6,669
|
|
|
|
6,759
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,655
|
|
|
$
|
15,371
|
|
Revenue Accounting Under Topic 606
In determining the appropriate amount of revenue to be recognized under FASB Accounting Standards Codification Topic 606, Revenues, (Topic 606) the Company performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measured the transaction price, including the constraint on variable consideration; (iv) allocated the transaction price to the performance obligations; and (v) recognized revenue when (or as) the Company satisfies each performance obligation.
Durable Medical Equipment Revenue
Equipment Sales and Services Revenues
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.
13
The transaction price on both equipment sales and sleep studies is the amount that the Company expects to receive in exchange for the goods and services provided. 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. As such, we constrain the transaction price for the difference between the gross charge and what we believe we will collect from Payors and from patients. The transaction price therefore is predominantly based on contractual payment rates determined by the Payors. The Company does not generally contract with uninsured customers. We determine our estimates of billing adjustments based upon contractual agreements, our policies and historical experience. While the rates are fixed for the product or service with the customer and the Payors, such amounts typically include co-payments, co-insurance and deductibles, which vary in amounts, from the patient customer. The Company includes in the transaction price only the amount that the Company expects to be entitled, which is substantially all of the Payor billings at contractual rates. The transaction price is initially constrained by the amount of customer co-payments we estimate will not be collected.
Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenue and accounts receivable. 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. The Company constrains revenue for these estimated adjustments. There were no material changes in estimates recorded in the three months ended September 30, 2020, relating to prior periods.
The payment terms and conditions of customer contracts vary by customer type and the products and services offered.
The Company may provide shipping services prior to the point of delivery and has concluded that the services represent a fulfilment activity and not a performance obligation. Returns and refunds are not accepted on either equipment sales or sleep study services. The Company does not offer warranties to customers in excess of the manufacturer’s warranty. Any taxes due upon sale of the products or services are not recognized as revenue. The Company does not incur contract acquisition costs. The Company does not have any partially or unfilled performance obligations related to contracts with customers. However, during the quarter ended June 30, 2020, the Company applied for and received $4.4 million in advanced payments from the Centers for Medicare and Medicaid Services (CMS) under their Accelerated and Advance Payment Program, which was expanded to increase cash flow to providers of services and suppliers impacted by the COVID-19 pandemic. These advance payments will begin to be recouped against the Company’s future Medicare and Medicaid claims beginning in the fourth quarter of our fiscal year 2021. These amounts are included within deferred revenue on the condensed consolidated balance sheet. The Company has no other contract liabilities as of September 30, 2020 or June 30, 2020.
Included in sales and services revenue are unbilled amounts for which the revenue recognition criteria had been met as of period end but were not yet billed to the Payor. The estimate of net unbilled rental revenue recognized is based on historical trends and estimates of future collectability. As of September 30, 2020 and June 30, 2020, net unbilled sales and services revenue is approximately $1.0 million and $1.2 million, respectively, and is included in accounts receivable.
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 the performance of managed assets; and administrative fees. Fees are based on agreements with each investment product and may be terminated at any time by either party subject to the specific terms of each respective agreement.
14
Management Fees
The Company earns management fees based on the investment management agreement GECM has with GECC. The performance obligation is satisfied over time as the services are rendered, since GECC simultaneously receives and consumes the benefits provided as GECM performs services. Under GECC’s investment management agreement with GECM, the base management fee from GECC is calculated at an annual rate of 1.50% of GECC’s average adjusted gross assets. The base management fee is calculated based on the average value of GECC’s gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters, and is recognized over time as the services are provided. Management fees are billed quarterly in arrears.
Incentive Fees
The Company earns incentive fees based on the investment management agreements GECM has with GECC and separately managed accounts. Where an investment management agreement includes both management fees and incentive fees, the performance obligation is considered to be a single obligation for both fees. Incentive fees are variable consideration associated with the GECC investment management agreement. Incentive fees are recognized based on investment performance during the period, subject to the achievement of minimum return levels or high-water marks, in accordance with the terms of the respective investment management agreements. Incentive fees range from 5.0% to 20.0% of the performance-based metric specified within each agreement. 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 September 30, 2020, there is $8.9 million in incentive fees which have been earned per the terms of the investment management agreements but not recognized as they are still subject to the constraints described above.
Administration Fees
The Company earns administration fees based on the administration agreement GECM has with GECC whereby GECC reimburses GECM for costs incurred in performing administrative functions for GECC. This revenue is recognized over time as the services are performed. Administrative fees are billed quarterly in arrears, which is consistent with the timing of the delivery of services and reflect agreed upon rates for the services provided. The services are accounted for as a single performance obligation that is a series of distinct services with substantially the same pattern of transfer as the services are provided on a daily basis.
Revenue Accounting Under Topic 842
Durable Medical Equipment Revenue
Equipment Rental Revenue
Under FASB Accounting Standards Codification Topic 842, Leases, (Topic 842) rental income from operating leases is recognized on a straight-line basis, based on contractual lease terms with fixed and determinable increases over the non-cancellable term of the related lease when collectability is reasonably assured. The Company leases durable medical equipment to customers for a fixed monthly amount on a month-to-month basis. The contractual length of the lease term varies based on the type of equipment that is rented to the customer, but generally is from 10 to 36-months. In the case of capped rental agreements, title to the equipment transfers to the customer at the end of the contractual rental period. The customer has the right to cancel the lease at any time during the rental period for a subsequent month’s rental and payments are generally billed in advance on a month-to-month basis. Under Topic 842, rental income from operating leases is recognized on a month-to-month basis, based on contractual lease terms when collectability is reasonably assured. Certain customer co-payments are included in revenue when considered probable of payment.
15
The lease term begins on the date products are delivered to patients and are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including Medicare, private payors, and Medicaid. Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenue and accounts receivable at their net realizable values. 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. There were no material changes in estimates recorded in the three months ended September 30, 2020, relating to prior periods.
Although invoicing typically occurs at the beginning of the monthly rental period, we recognize revenue from rentals on a daily basis. Since rental agreements can commence at any time during a given month, we defer revenue related to the remaining monthly rental period as of period end. Deferred revenue related to rentals was $0.9 million and $1.3 million as of September 30, 2020 and June 30, 2020, respectively.
Included in rental revenue are unbilled amounts for which the revenue recognition criteria had been met as of period end but were not yet billed to the Payor. Net unbilled rental revenue is recognized to the extent payment is probable. As of September 30, 2020 and June 30, 2020, net unbilled rental revenue is approximately $0.5 million and $0.7 million, respectively, and is included in accounts receivable.
Real Estate Revenue
Rental Revenue
Consistent with the leases of durable medical equipment, the Company recognizes rental revenue on a straight-line basis over the non-cancelable term of the lease. Under the terms of the lease, the Company may recover from the tenant certain expenses, including: real estate taxes, insurance and other operating expenses. The recovery of these expenses is recognized in rental income in the accompanying condensed consolidated statements of operations, in the same periods as the expenses are incurred. These expenses recognized in both revenue and expense may fluctuate from period to period based on actual expense amounts.
4. Related Party Transactions
Related party transactions are measured in part by the amount of consideration paid or received as established and agreed by the parties. Consideration paid for such services in each case is the negotiated value.
Durable Medical Equipment
In connection with the acquisition of the durable medical equipment businesses in September 2018, DME Inc. and its subsidiaries entered into a term loan agreement with Corbel Capital Partners SBIC, L.P. (Corbel) (the Corbel Facility). Jeffrey S. Serota, a member of the Company’s Board of Directors, serves as Vice Chairman to Corbel Capital Partners. Corbel previously held an interest in one of our acquired durable medical equipment businesses and was one of the sellers in our acquisition of the business. As a result of the acquisition, at September 30, 2020 Corbel holds a non-controlling interest in DME Inc. Pursuant to the Corbel Facility, Corbel was paid a structuring fee, will be paid an ongoing quarterly monitoring fee, and may be paid a deferred structuring fee if the loans are subject to early repayment. See Note 10 - Borrowings for additional information on the Corbel Facility and Note 13 – Non-Controlling Interests of Subsidiary.
In connection with the acquisition of the durable medical equipment businesses, the Company issued non-controlling interests in DME Inc. to the former owners, including Corbel discussed above. Additionally, the Company has contingent consideration to the sellers, currently valued at zero. See Note 5 – Fair Value Measurements for additional details.
16
Investment Management
The Company’s wholly-owned subsidiary, GECM, has agreements to provide administrative services and manage the investment portfolio for GECC. Under these agreements, GECM receives administrative fees, management fees based on GECC’s assets (other than cash and cash equivalents) and incentive fees if GECC has net capital gains or if its net investment income exceeds a specified hurdle rate. Fees under the agreements began to accrue on November 4, 2016. See Note 3 – Revenue for additional discussions of the fee arrangements.
All of the Company’s investment management revenue recognized for the periods presented was generated from the management and administration of GECC. Additionally, the Company receives dividends from its investment in GECC and earns unrealized profits and losses based on the mark-to-market performance of GECC. See Note 5 – Fair Value Measurements.
The following tables summarize activity and outstanding balances between the managed investment products and the Company.
|
|
For the three months ended September 30,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Change in unrealized loss on investment in GECC
|
|
$
|
(1,902
|
)
|
|
$
|
(983
|
)
|
GECC dividend income
|
|
|
524
|
|
|
|
490
|
|
(in thousands)
|
|
September 30, 2020
|
|
|
June 30, 2020
|
|
Dividends receivable from GECC
|
|
$
|
178
|
|
|
$
|
170
|
|
Investment management revenues receivable
|
|
|
772
|
|
|
|
746
|
|
Receivable for reimbursable expenses paid
|
|
|
174
|
|
|
|
158
|
|
Outstanding receivables are included in related party receivables in the condensed consolidated balance sheets.
The Company is the owner of approximately 19.6% of the outstanding shares of GECC, and the Company’s Chief Executive Officer is also the Chief Executive Officer of GECC and Chief Investment Officer of GECM, in addition to being a member of the board of directors of the Company and chairman of the board of GECC. The Company’s President and Chief Operating Officer is also the Chief Operating Officer, Chief Compliance Officer and General Counsel of GECM and the Chief Compliance Officer of GECC.
On August 31, 2020, GECC announced a non-transferable rights offering to purchase shares of its common stock. The Company committed to fully exercising its rights and oversubscribed for a total aggregate commitment of up to $13.6 million in shares of common stock. This commitment is included in the receivable for securities purchased on the consolidated balance sheet as of September 30, 2020. On October 1, 2020, GECC announced the results of the non-transferable rights offering in which the Company received 2,966,531 shares at a price of $2.95 per share for an aggregate total of $8.8 million. As a result, after the closing of the non-transferable rights offering, the Company was the owner of approximately 23.5% of the outstanding shares of GECC.
GECM has a profit sharing agreement with the Company’s majority-owned subsidiary GECC GP Corp. (Profit Sharing Agreement). Under the Profit Sharing Agreement, GECM’s profit from GECC is paid to GECC GP Corp. Since its inception in November 2016, GECM has operated at a cumulative loss through September 30, 2020; correspondingly, no profits were available to GECC GP Corp. under the Profit Sharing Agreement. Certain employees of the Company have a non-controlling interest in GECC GP Corp. See Note 13 – Non-Controlling Interests of Subsidiary.
The Company’s wholly-owned subsidiary, Great Elm Opportunities GP, Inc. (GEO GP) serves as the general partner of Great Elm Opportunities Fund I, LP (GEOF). As the general partner, GEO GP provides administrative services and manages the investment portfolio of GEOF. Based on the performance of GEOF’s investment portfolio, GEO GP may be entitled to certain incentive allocations. GEOF began investing in July 2018 and through September 30, 2020 no incentive allocations have been made to GEO GP.
17
MAST Capital Management, LLC (MAST Capital) is the beneficial owner of approximately 7.6% of the Company’s outstanding common stock as of September 30, 2020. See Note 10 - Borrowings for additional discussion of the GP Corp. Note.
Real Estate
In connection with the acquisition of the real estate business in March 2018, the Company issued the former owner a 19.9% interest in Great Elm FM Holdings, Inc. (GE FM Holdings). See Note 13 – Non-Controlling Interests of Subsidiary.
5. Fair Value Measurements
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
US GAAP provides a framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:
|
▪
|
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
▪
|
Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
▪
|
Level 3: Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
|
All financial assets or liabilities that are measured at fair value on a recurring and non-recurring basis have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date. The assets and liabilities measured at fair value on a recurring and non-recurring basis are summarized in the tables below:
|
|
Fair Value as of September 30, 2020
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in GECC
|
|
$
|
7,241
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,241
|
|
|
Total assets
|
|
$
|
7,241
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,241
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
Fair Value as of June 30, 2020
|
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in GECC
|
|
$
|
8,705
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,705
|
|
|
Total assets
|
|
$
|
8,705
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,705
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
18
The following is a reconciliation of changes in contingent consideration, a Level 3 liability, for the three months ended September 30, 2020:
|
|
For the three months ended September 30,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Beginning Balance
|
|
$
|
-
|
|
|
$
|
1,135
|
|
Change in fair value
|
|
|
-
|
|
|
|
(195
|
)
|
Ending Balance
|
|
$
|
-
|
|
|
$
|
940
|
|
The contingent consideration arrangement requires the Company to pay up to $2.1 million of additional consideration to the former shareholders of the durable medical equipment businesses if certain earnings before interest, taxes, depreciation and amortization (EBITDA) thresholds, as adjusted per the terms of the purchase agreement, were achieved for the 12 months ended December 31, 2019. The Company determined that the EBITDA achieved, as adjusted per terms of the contract, for the 12 months ended December 31, 2019 was below the earnout threshold for payout. As such, during the year ended June 30, 2020, the fair value of the contingent consideration was updated to zero. The finalization of the earnout is subject to agreement with the former shareholders of the durable medical equipment businesses.
The Company is the owner of approximately 19.6% (or 2,142,238 shares) of the outstanding shares of GECC and values its ownership based on the NASDAQ-listed market price of GECC common stock (a Level 1 input in accordance with the US GAAP fair value hierarchy).
There were no transfers between levels of the fair value hierarchy during the three months ended September 30, 2020 and 2019.
6. Fixed Assets
The Company’s fixed assets consist of its leased real estate assets, medical equipment held for rental, furniture and fixtures, and leasehold improvements used in its operations. The following tables detail the Company’s fixed assets:
(in thousands)
|
|
September 30, 2020
|
|
|
June 30, 2020
|
|
Real Estate Assets
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
43,355
|
|
|
$
|
43,355
|
|
Land and site improvements
|
|
|
9,170
|
|
|
|
9,170
|
|
Tenant improvements
|
|
|
3,500
|
|
|
|
3,500
|
|
|
|
|
56,025
|
|
|
|
56,025
|
|
Accumulated depreciation
|
|
|
(3,143
|
)
|
|
|
(2,837
|
)
|
Net carrying amount
|
|
$
|
52,882
|
|
|
$
|
53,188
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
858
|
|
|
$
|
858
|
|
Vehicles
|
|
|
232
|
|
|
|
237
|
|
Computer equipment and software
|
|
|
318
|
|
|
|
277
|
|
Furniture and fixtures
|
|
|
415
|
|
|
|
417
|
|
Sleep study equipment
|
|
|
592
|
|
|
|
589
|
|
|
|
|
2,415
|
|
|
|
2,378
|
|
Accumulated depreciation
|
|
|
(1,129
|
)
|
|
|
(968
|
)
|
Net carrying amount
|
|
$
|
1,286
|
|
|
$
|
1,410
|
|
|
|
|
|
|
|
|
|
|
Medical Equipment Held for Rental
|
|
|
|
|
|
|
|
|
Medical equipment held for rental
|
|
$
|
13,759
|
|
|
$
|
13,828
|
|
Accumulated depreciation
|
|
|
(6,706
|
)
|
|
|
(6,345
|
)
|
Net carrying amount
|
|
$
|
7,053
|
|
|
$
|
7,483
|
|
19
The following table reconciles depreciation expense included in the following lines of the condensed consolidated statements of operations to total depreciation expense for each period presented.
|
|
For the three months ended September 30,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Depreciation and amortization
|
|
$
|
470
|
|
|
$
|
428
|
|
Cost of durable medical equipment rentals
|
|
|
1,748
|
|
|
|
2,051
|
|
Total depreciation expense
|
|
$
|
2,218
|
|
|
$
|
2,479
|
|
7. Goodwill and Other Intangible Assets
The Company’s investment management and real estate segments include identifiable intangible assets acquired through acquisitions in prior years. In connection with the acquisition of the durable medical equipment businesses, the Company has also recognized goodwill and identifiable intangible assets associated with the tradenames and non-compete agreements. The Company’s annual impairment assessment date for goodwill and other intangible assets is April 1.
Goodwill of $50.0 million presented on the condensed consolidated balance sheet consists only of the goodwill acquired as part of the acquisitions of the durable medical equipment businesses in September 2018 and June 2019.
The changes in the carrying value of goodwill are as follows:
|
|
For the three months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
50,010
|
|
|
$
|
50,397
|
|
Purchase accounting adjustment
|
|
|
-
|
|
|
|
36
|
|
Ending Balance
|
|
$
|
50,010
|
|
|
$
|
50,433
|
|
The following tables provide details associated with the Company’s identifiable intangible assets subject to amortization (dollar amounts in thousands):
|
|
As of September 30, 2020
|
|
|
As of June 30, 2020
|
|
(in thousands)
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Durable Medical Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
$
|
8,800
|
|
|
$
|
(1,834
|
)
|
|
$
|
6,966
|
|
|
$
|
8,800
|
|
|
$
|
(1,613
|
)
|
|
$
|
7,187
|
|
Non-compete agreements
|
|
|
1,360
|
|
|
|
(654
|
)
|
|
|
706
|
|
|
|
1,360
|
|
|
|
(573
|
)
|
|
|
787
|
|
|
|
|
10,160
|
|
|
|
(2,488
|
)
|
|
|
7,672
|
|
|
|
10,160
|
|
|
|
(2,186
|
)
|
|
|
7,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management agreement
|
|
|
3,900
|
|
|
|
(1,997
|
)
|
|
|
1,903
|
|
|
|
3,900
|
|
|
|
(1,887
|
)
|
|
|
2,013
|
|
Assembled workforce
|
|
|
526
|
|
|
|
(269
|
)
|
|
|
257
|
|
|
|
526
|
|
|
|
(255
|
)
|
|
|
271
|
|
|
|
|
4,426
|
|
|
|
(2,266
|
)
|
|
|
2,160
|
|
|
|
4,426
|
|
|
|
(2,142
|
)
|
|
|
2,284
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-place lease
|
|
|
6,028
|
|
|
|
(1,282
|
)
|
|
|
4,746
|
|
|
|
6,028
|
|
|
|
(1,157
|
)
|
|
|
4,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,614
|
|
|
$
|
(6,036
|
)
|
|
$
|
14,578
|
|
|
$
|
20,614
|
|
|
$
|
(5,485
|
)
|
|
$
|
15,129
|
|
20
Aggregate Amortization Expense (in thousands)
|
|
2020
|
|
|
2019
|
|
For the three months ended September 30,
|
|
$
|
551
|
|
|
$
|
639
|
|
Estimated Future Amortization Expense (in thousands):
|
|
|
|
|
For the nine months ending June 30, 2021
|
|
$
|
1,605
|
|
For the year ending June 30, 2022
|
|
|
1,981
|
|
For the year ending June 30, 2023
|
|
|
1,894
|
|
For the year ending June 30, 2024
|
|
|
1,702
|
|
For the year ending June 30, 2025
|
|
|
1,597
|
|
Thereafter
|
|
$
|
5,799
|
|
8. Lessor Operating Leases
Medical Equipment Leases
Through its majority-owned subsidiary DME Inc., and the subsidiaries of DME Inc., the Company owns medical equipment which is leased to customers. The Company’s customers consist primarily of patients through their clinical providers including medical centers, clinics and hospices and the Company has lease arrangements with these patients. In addition, the arrangements between the Company and its customers are impacted by arrangements between the Company and Payors. The Payors may cover a portion or all of the rental payments under the agreements between the Company and its customers. The patient is responsible for any residual co-payments.
The lease terms may be for a pre-determined time period, generally 10 months to 36 months; however, the customer may cancel the lease at any time and for any reason without penalty and therefore, the Company treats all leases as month-to-month leases. Upon termination of the lease, the equipment, if not aged beyond its useful life, may be refurbished and subsequently sold or leased to another customer. As the leases are month-to-month, there are no future lease receivables under the terms of the current leases.
Real Estate Leases
The Company’s majority-owned subsidiary CRIC IT Fort Myers LLC (Property Owner) owns a fee simple interest in two Class A office buildings, Gartner I and Gartner II (collectively, the Property). The Property is fully leased, on a triple net basis, to Gartner, Inc. (Gartner) until March 31, 2030, which may be extended at the option of Gartner in accordance with the terms of the lease. The Gartner I lease contains two five-year extensions and the Gartner II lease contains three five-year extensions (collectively, the Leases). Under the terms of the Leases, the renewal rates are equal to 95% of the then fair market rent, and the tenant does not have a purchase option at the end of the lease term. The leases require Gartner to make a base monthly lease payment of approximately $0.4 million as calculated on a straight line basis over the remaining expected lease term plus additional rent payments for additional costs. Additional rental payments are due for Property Owner costs, such as property taxes, management fees, and insurance costs, as incurred. See Note 3 – Revenue for additional discussion of rental revenues.
The Property is subject to mortgage, security agreement and assignment of leases and rents with the senior and subordinated lenders, which is further described in Note 10 - Borrowings. The Property Owner has assigned all rights, title and interest in and to the Property and the Leases to the senior and subordinated lenders and all amounts received are paid to a trust which funds the operating costs associated with the Property. The Company does not have rights to these rent payments while the borrowings remain outstanding.
The Company expects to derive value from the residual value at the end of the existing lease term by further leasing the assets or through a sale transaction.
21
Rental income from real estate leases is summarized in the following table:
|
|
For the years ended September 30,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Revenues from base rents
|
|
$
|
1,151
|
|
|
$
|
1,151
|
|
Revenues from additional rental payments
|
|
|
121
|
|
|
|
122
|
|
Total rental revenues
|
|
$
|
1,272
|
|
|
$
|
1,273
|
|
The following table summarizes the base rents for the remaining lease term:
(in thousands)
|
|
Base Rent Payments
|
|
For the nine months ending June 30, 2021
|
|
$
|
3,169
|
|
For the year ending June 30, 2022
|
|
|
4,312
|
|
For the year ending June 30, 2023
|
|
|
4,419
|
|
For the year ending June 30, 2024
|
|
|
4,529
|
|
For the year ending June 30, 2025
|
|
|
4,648
|
|
Thereafter
|
|
|
24,025
|
|
Total base rent
|
|
$
|
45,102
|
|
22
9. Lessee Operating Leases
All of the Company’s leases are operating leases. Certain of the leases have both lease and non-lease components. The Company has elected to account for each separate lease component and the non-lease components associated with that lease component as a single lease component for all classes of underlying assets. The following table provides additional details of the leases presented in the balance sheets:
(in thousands)
|
|
September 30, 2020
|
|
|
June 30, 2020
|
|
Facilities
|
|
|
|
|
|
|
|
|
Right of use assets
|
|
$
|
4,881
|
|
|
$
|
5,265
|
|
|
|
|
|
|
|
|
|
|
Current portion of lease liabilities
|
|
|
1,428
|
|
|
|
1,560
|
|
Lease liabilities, net of current portion
|
|
|
3,730
|
|
|
|
3,990
|
|
Total liabilities
|
|
$
|
5,158
|
|
|
$
|
5,550
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining life
|
|
3.8 years
|
|
|
3.9 years
|
|
Weighted-average discount rate
|
|
|
11.7
|
%
|
|
|
11.7
|
%
|
|
|
|
|
|
|
|
|
|
Vehicles
|
|
|
|
|
|
|
|
|
Right of use assets
|
|
$
|
56
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
Current portion of lease liabilities
|
|
|
20
|
|
|
|
20
|
|
Lease liabilities, net of current portion
|
|
|
36
|
|
|
|
41
|
|
Total liabilities
|
|
$
|
56
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining life
|
|
2.4 years
|
|
|
2.8 years
|
|
Weighted-average discount rate
|
|
|
12.3
|
%
|
|
|
12.3
|
%
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
|
|
|
|
|
|
Right of use assets
|
|
$
|
56
|
|
|
$
|
66
|
|
|
|
|
|
|
|
|
|
|
Current portion of lease liabilities
|
|
|
33
|
|
|
|
37
|
|
Lease liabilities, net of current portion
|
|
|
23
|
|
|
|
29
|
|
Total liabilities
|
|
$
|
56
|
|
|
$
|
66
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining life
|
|
1.7 years
|
|
|
2.0 years
|
|
Weighted-average discount rate
|
|
|
12.5
|
%
|
|
|
12.5
|
%
|
As of September 30, 2020, the Company had remaining right of use assets of $5.0 million and lease liabilities of $5.3 million (consisting of $1.5 million in current portion of lease liabilities and $3.8 million in lease liabilities, net of current portion on the condensed consolidated balance sheet) related to the leases discussed herein.
23
Operating lease costs are included in the operating expense associated with the business segment leasing the asset on the statements of operations and are included in cash flows from operating activities on the statements of cash flows. Certain operating leases include variable lease costs which are not material and are included in operating lease costs. Additional details are presented in the following table:
|
|
For the three months ended September 30,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Facilities
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
530
|
|
|
$
|
528
|
|
Cash paid for operating leases
|
|
|
548
|
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
Vehicles
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
7
|
|
|
$
|
7
|
|
Cash paid for operating leases
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
11
|
|
|
$
|
11
|
|
Cash paid for operating leases
|
|
|
11
|
|
|
|
11
|
|
The following table summarizes the Company’s undiscounted cash payment obligations for its operating leases:
(in thousands)
|
|
|
|
|
For the nine months ending June 30, 2021
|
|
$
|
1,643
|
|
For the year ending June 30, 2022
|
|
|
1,927
|
|
For the year ending June 30, 2023
|
|
|
1,273
|
|
For the year ending June 30, 2024
|
|
|
897
|
|
For the year ending June 30, 2025
|
|
|
409
|
|
Thereafter
|
|
|
374
|
|
Total lease payments
|
|
$
|
6,523
|
|
Imputed interest
|
|
|
(1,253
|
)
|
Total lease liabilities
|
|
$
|
5,270
|
|
Durable Medical Equipment
The facility leases include offices, retail and warehouse space and sleep labs. The leases have original or amended terms ranging from 12 to 96 months, some of which include an additional option to extend the lease for up to 120 months. Certain of these leases have variable rental payments tied to a consumer price index or include additional rental payments for maintenance costs, taxes and insurance, which are accounted for as variable rent.
The vehicles leases have original lease terms of 60 months from the commencement date of each lease with no option to extend. Each lease may be terminated by the lessee with 30-days’ notice after the first 13 months of the lease subject to certain early termination costs, including residual value guarantees. The lease costs include variable payments for taxes and other fees.
Equipment leases consist of office equipment with original lease terms ranging from 36 to 48 months from the commencement date of each lease and may include an option to extend or purchase at the end of the lease term. Certain of these leases include additional rental costs for taxes, insurance and additional fees in addition to the base rental costs.
Investment Management and General Corporate
The Company has a lease for office space located in Waltham, MA. This office space is allocated between the investment management and general corporate segments. On the commencement date of the lease, the non-cancellable term was for eighty-eight months from the occupancy date of June 1, 2017 and contains an option to extend for an additional sixty-month period.
24
The lease payments commenced on October 1, 2017, four months after the Company began to occupy the space. On an annual basis, the lease payments increase at an average rate of approximately 2.4% from $28 to $32 thousand per month.
10. Borrowings
Related party borrowings of the Company’s subsidiaries are summarized in the following table:
(in thousands)
|
|
Subsidiaries
|
|
September 30, 2020
|
|
|
June 30, 2020
|
|
Corbel Facility
|
|
DME Inc. and subsidiaries
|
|
$
|
24,751
|
|
|
$
|
25,106
|
|
GP Corp. Note
|
|
GP Corp.
|
|
|
3,072
|
|
|
|
3,072
|
|
Total principal
|
|
|
|
$
|
27,823
|
|
|
$
|
28,178
|
|
Unamortized debt issuance cost
|
|
|
|
|
(253
|
)
|
|
|
(275
|
)
|
Total long-term related party notes payable
|
|
|
|
|
27,570
|
|
|
|
27,903
|
|
Less current portion of related party notes payable
|
|
|
|
|
(1,494
|
)
|
|
|
(1,418
|
)
|
Related party notes payable, net of current portion
|
|
|
|
$
|
26,076
|
|
|
$
|
26,485
|
|
The Company’s subsidiaries’ other outstanding borrowings are summarized in the following table:
(in thousands)
|
|
Subsidiaries
|
|
September 30, 2020
|
|
|
June 30, 2020
|
|
DME Revolver
|
|
DME Inc. and subsidiaries
|
|
$
|
500
|
|
|
$
|
3,900
|
|
Equipment Financing
|
|
DME Inc. and subsidiaries
|
|
|
1,730
|
|
|
|
2,230
|
|
Senior Note
|
|
CRIC IT
|
|
|
49,439
|
|
|
|
50,004
|
|
Subordinated Note
|
|
CRIC IT
|
|
|
3,948
|
|
|
|
3,803
|
|
Total principal
|
|
|
|
$
|
55,617
|
|
|
$
|
59,937
|
|
Unamortized debt premiums
|
|
|
|
|
3,257
|
|
|
|
3,251
|
|
Unamortized debt discounts and issuance costs
|
|
|
|
|
(1,886
|
)
|
|
|
(1,956
|
)
|
Total other outstanding borrowings
|
|
|
|
|
56,988
|
|
|
|
61,232
|
|
Less current portion of other outstanding borrowings
|
|
|
|
|
(3,941
|
)
|
|
|
(8,255
|
)
|
Other outstanding borrowings, net of current portion
|
|
|
|
$
|
53,047
|
|
|
$
|
52,977
|
|
The Company incurred interest expenses of $0.7 million and $1.0 million for the three months ended September 30, 2020 and 2019, respectively.
25
The Company’s aggregate future required principal debt repayments are summarized in the following table:
(in thousands)
|
|
Principal Due
|
|
For the nine months ending June 30, 2021
|
|
$
|
4,358
|
|
For the year ending June 30, 2022
|
|
|
4,141
|
|
For the year ending June 30, 2023
|
|
|
4,750
|
|
For the year ending June 30, 2024
|
|
|
23,835
|
|
For the year ending June 30, 2025
|
|
|
3,202
|
|
Thereafter
|
|
|
55,476
|
|
Total
|
|
$
|
95,762
|
|
|
|
|
|
|
Outstanding principal on related party borrowings
|
|
$
|
27,823
|
|
Outstanding principal on other borrowings
|
|
|
55,617
|
|
Future interest to be paid-in-kind
|
|
|
12,322
|
|
Total future required principal payments
|
|
$
|
95,762
|
|
Additional details of each borrowing by operating segment are discussed below.
Durable Medical Equipment
In connection with the acquisition of 80.1% of DME Inc., the Company assumed a secured note (Corbel Facility) with a principal balance of $8.5 million, which was amended and increased to $25 million concurrent with the closing of the first acquisition of the durable medical equipment businesses. In addition, the Company assumed and expanded a revolving line of credit agreement (DME Revolver) with a principal balance of $0.8 million, which was amended and increased to $6.3 million at the date of acquisition.
The Company amended and borrowed an additional $3.4 million under the Corbel Facility in June 2019. As of September 30, 2020 the outstanding principal balance was $24.8 million. The Corbel Facility matures on August 31, 2023, accrues interest at a variable rate of three-month LIBOR plus 10% per annum and is secured by the assets of the durable medical equipment business. At September 30, 2020 the interest rate was 10.2%. The Corbel Facility requires quarterly interest payments and principal payments of $0.4 million through the maturity date with the final principal balance due at maturity. In addition, beginning with the quarter ended December 31, 2018, the Company is required to make additional quarterly principal payments based on a percentage of excess cash flows generated by the durable medical equipment business operations. The Company has the option to prepay the borrowings outstanding in whole or in part subject to certain prepayment penalties ranging from 1% - 5% of the early payment of the principal, based on the time that the loan has been outstanding through the first five years of the loan.
The Corbel Facility is held by a related party, Corbel, which holds a non-controlling interest in DME Inc. See Note 4 – Related Party Transactions and Note 13 – Non-Controlling Interests of Subsidiary.
DME Inc. is required to pay to Corbel, as agent of the Corbel Facility, a quarterly monitoring fee of $25,000 while the borrowings remain outstanding. In addition, under certain conditions, if the borrowing is repaid with proceeds of debt in full or in part at any time within the first three years from the date of issuance, the borrower shall pay an additional fee to the agent, ranging from 2.10% to 3.50% depending on the date of repayment based on the period outstanding, of the aggregate repaid principal amount.
Principal payments and interest expense incurred on the Corbel Facility are summarized in the following table:
|
|
For the three months ended September 30,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Principal payments
|
|
$
|
354
|
|
|
$
|
961
|
|
Interest expense
|
|
|
661
|
|
|
|
855
|
|
26
The DME Revolver had a balance of $0.5 million at September 30, 2020 and allows for borrowings up to $10 million, subject to a fixed percentage of qualifying accounts receivables and inventories related to the durable medical equipment business operations. Borrowings under the line of credit were due on November 29, 2020 and accrue interest at a variable rate of the prime rate plus 0.4% per annum. In November 2020, the maturity date was extended to November 29, 2022. At September 30, 2020 the interest rate was 3.7%. Interest is payable monthly in arrears. The Company has the option to prepay the borrowings without any penalty. If the DME Revolver is terminated within the first year, a termination fee equal to 3% of the original credit limit will be due. The Company has classified all borrowings under the DME Revolver as long-term in the condensed consolidated balance sheets as of September 30, 2020 based on the extended maturity date of the facility.
The borrowings under the DME Revolver are collateralized by the assets of the durable medical equipment business and DME Inc. is required to meet certain financial covenants.
The Corbel Facility and DME Revolver each include covenants that restrict DME Inc. 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 DME Inc. DME Inc. must also comply with a fixed-charge coverage and leverage ratio financial covenants, which are based in part on the DME Inc. EBITDA levels. Both the Corbel Facility and the DME Revolver are non-recourse to the Company.
DME Inc’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%. During the three months ended September 30, 2020 and 2019, the Company financed $0.4 million and $1.3 million, respectively, in inventory and equipment through such financing agreements.
Investment Management
The GP Corp. Note matures in November 2026, accrues interest at a variable rate of three-month LIBOR plus 3.0% per annum and is secured by a profit sharing agreement related to GECM’s management of GECC. At September 30, 2020 the interest rate was 3.2%. The GP Corp. Note requires quarterly interest only payments and annual principal payments of $0.08 million each June 30.
The GP Corp. Note is non-recourse to any of the Company’s operations or net assets not related to GECM’s management services to GECC. The GP Corp. Note may be prepaid at par value at any time with prior written notice to the holders of the GP Corp. Note. Additionally, GECC GP Corp. is required to prepay the GP Corp. Note upon certain material liquidation transactions including any termination of the Profit Sharing Agreement.
The GP Corp. Note is held by MAST Capital, a related party. Payments and interest expense incurred on the GP Corp. Note are summarized in the following table:
|
|
For the three months ended September 30,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Principal payments
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest expense
|
|
|
26
|
|
|
|
44
|
|
27
Real Estate
In connection with the acquisition of the real estate business, the Company’s majority-owned subsidiary, CRIC IT, assumed a senior secured note (Senior Note) with a principal balance of $54.8 million and a subordinated note (Subordinated Note) with a principal balance of $2.7 million at the date of acquisition both due to Wells Fargo Bank Northwest, National as trustee. The Senior Note was recorded at an estimated fair value of $52.2 million, reflecting a discount of $2.6 million from the face amount; and the Subordinated Note was recorded at $5.8 million, reflecting a premium of $3.1 million. The discount and premium amortize over the life of the notes.
The Senior Note matures on March 15, 2030, accrues interest at a rate of 3.49% per annum and is secured by a first lien mortgage on the Property and an Assignment of Leases and Rents. The Senior Note requires monthly principal and interest payments through the maturity date, with the last payment of $18.4 million on March 15, 2030. The principal and interest due on the Senior Note may be prepaid at the option of the borrower, based on an amount determined by discounting the remaining principal and interest payments at a rate equal to an applicable premium in excess of a rate corresponding to the specified U.S. Treasury security over the remaining average life of the Senior Note.
The Subordinated Note matures on March 15, 2030, accrues interest at a rate of 15.0% per annum, and is secured by a second lien mortgage on the Property and an Assignment of Leases and Rents. The Subordinated Note is a capital appreciation note, whereby the monthly interest is capitalized to the principal balance and due at maturity. Accordingly, a $16.3 million payment is due on March 15, 2030. The principal and interest due on the Subordinate Note may be prepaid at the option of the borrower, based on an amount determined by discounting the remaining principal and interest payments at a rate equal to an applicable premium in excess of a rate corresponding to the specified U.S. Treasury security over the remaining average life of the Subordinated Note.
The note agreements include negative covenants that restrict the Property Owner’s business operations to ownership and lease of the Property, limit additional indebtedness, require maintenance of insurance and other customary requirements related to the Property. Events of default include non-payment of amounts when due, inability to pay indebtedness or material change in the business operations or financial condition of the Property Owner or the lease tenant that in the Lender’s reasonable determination would reasonably be expected to materially impair the value of the Property, prevent timely repayment of the notes or performance of any material obligations under the note and related agreements. The payments under the notes are also guaranteed on a full and several basis by the non-controlling interest holder of the Property Owner. Both the Senior Note and Subordinated Note are non-recourse to the Company, but are secured by the Property, the rights associated with the Leases and the stock owned by the Company in the Property Owner. See Note 8 – Lessor Operating Leases.
11. Convertible Notes
On February 26, 2020, the Company issued Convertible Notes at par with an aggregate principal balance of $30 million due February 26, 2030 (the Convertible Notes), and an additional $0.5 million of additional Convertible Notes as paid-in-kind interest on June 30, 2020. The Convertible Notes are held by a consortium of investors, including $13.3 million issued to certain related parties. Such Convertible Notes issued to related parties include:
|
▪
|
$6.1 million issued to entities associated with Matthew A. Drapkin, including funds managed by Northern Right Capital Management, L.P, a significant shareholder. Mr. Drapkin, a member of the Company’s Board of Directors, is the Chief Executive Officer of Northern Right Capital Management, L.P.
|
|
|
▪
|
$6.5 million issued to entities associated with Jason A. Reese, including funds managed by Imperial Capital Asset Management, LLC (ICAM), a significant shareholder. Jason A. Reese, who subsequently became Executive co-Chairman of the Company’s Board of Directors, is the Chief Executive Officer of ICAM.
|
|
|
▪
|
$0.7 million issued to entities associated with Eric J. Scheyer, who subsequently became a member of the Company’s Board of Directors.
|
|
28
The Convertible Notes accrue interest at 5.0% per annum, payable semiannually in arrears on June 30 and December 31, commencing June 30, 2020, in cash or in kind at the option of the Company. Each $1,000 principal amount of the Convertible Notes are convertible into 288.0018 shares of the Company’s common stock, subject to the terms therein, prior to maturity at the option of the holder.
The Company may, subject to compliance with the terms of the Convertible Notes, effect the conversion of some or all of the Convertible Notes into shares of common stock, subject to certain liquidity and pricing requirements, as specified in the Convertible Notes.
The embedded conversion feature in the Convertible Notes qualifies for the scope exception to derivative accounting in ASC Topic 815, Derivatives and Hedging, for certain contracts involving a reporting entity’s own equity. However, due to a Company option to settle any conversion request by holders prior to July 1, 2020 in either cash or in shares, the conversion option is bifurcated and recorded to additional paid-in-capital within equity, creating a debt discount. In valuing the conversion option, we estimated that the yield on an identical non-convertible instrument would be 12.5%, resulting in a debt discount of $12.6 million. The Company incurred $1.2 million in issuance costs, which were allocated ratably between the debt and equity portions of the instrument. Both the debt discount and debt issuance costs are being amortized over the 10-year Convertible Notes term and are netted with the principal balance within convertible debt on our condensed consolidated balance sheet.
The Company incurred interest expense of $0.6 million related to the convertible notes for the three months ended September 30, 2020.
12. CARES Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed into law. Section 1102 of the CARES Act, the Paycheck Protection Program Loan (PPP Loan) provided additional funding for small businesses, as defined by the Small Business Act, to keep workers employed during through the COVID-19 crisis. In April 2020, our majority-owned subsidiary DME Inc. applied for and received $3.6 million in PPP Loans. Proceeds can only be used for specified covered purposes including payroll, rent and utilities in accordance with the CARES Act. The PPP Loan has a two year term and bears interest at a rate of 1% per annum. To the extent proceeds are used for these covered purposes, some or all of the related principal balances may be forgiven. Monthly principal and interest payments are deferred until the U.S. Small Business Administration (SBA) has remitted the loan forgiveness amount to the lender. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. Between funding and June 30, 2020, the Company spent these proceeds on covered purposes and recognized the proceeds as a reduction to operating expenses. The Company has submitted a forgiveness application to the U.S. Small Business Administration seeking full forgiveness of the PPP Loan. The eligibility requirement of the PPP Loan is subjective, and if determined that we were ineligible to receive the PPP Loan we could be required to pay the PPP Loan in its entirety.
Additionally, pursuant to the CARES Act, Congress appropriated $100 billion in relief funds for hospitals and healthcare providers through grants administered by the U.S. Department of Health and Human Services (HHS). Qualified providers of healthcare, services and support may receive HHS grants for healthcare-related expenses or lost revenue due to the COVID-19 pandemic. Retention and use of the HHS grants are subject to certain terms and conditions including that such grant funds may only be used to prevent, prepare for, and respond to COVID-19 and such grant funds will reimburse only healthcare-related expenses or lost revenues that are attributable to the COVID-19 pandemic. If these terms and conditions are met, HHS grants do not need to be repaid. In April 2020, subsidiaries of DME Inc. received $1.4 million in HHS grants to continue providing health care treatment to patients during the COVID-19 pandemic. Between funding and June 30, 2020, the Company used these funds as authorized by the HHS grant and recognized the proceeds as a reduction to operating expenses. We will continue to monitor our compliance with the terms and conditions of the HHS grant and any additional requirements if and when they become applicable.
We have accounted for such proceeds as in-substance government grants by analogizing to International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance.
29
13. Non-Controlling Interests of Subsidiary
Holders of non-controlling interests (NCI) in a subsidiary of the Company hold certain rights, which result in the classification of the securities as either liability, temporary equity or permanent equity. The following table summarizes the non-controlling interests of subsidiary balances on the condensed consolidated balance sheets:
(in thousands)
|
|
September 30, 2020
|
|
|
June 30, 2020
|
|
DME Inc.
|
|
|
|
|
|
|
|
|
NCI classified as temporary equity
|
|
|
3,844
|
|
|
|
3,890
|
|
NCI classified as permanent equity
|
|
|
3,844
|
|
|
|
3,890
|
|
Total DME Inc.
|
|
|
7,688
|
|
|
|
7,780
|
|
GP Corp.
|
|
|
|
|
|
|
|
|
NCI classified as permanent equity
|
|
|
(810
|
)
|
|
|
(782
|
)
|
GE FM Holdings
|
|
|
|
|
|
|
|
|
NCI classified as permanent equity
|
|
|
791
|
|
|
|
778
|
|
Total
|
|
$
|
7,669
|
|
|
$
|
7,776
|
|
The following table summarizes the net income (loss) attributable to the non-controlling interests on the condensed consolidated statements of operations:
|
|
For the three months ended September 30,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
DME Inc.
|
|
|
|
|
|
|
|
|
NCI classified as temporary equity
|
|
|
(46
|
)
|
|
|
(80
|
)
|
NCI classified as permanent equity
|
|
|
(46
|
)
|
|
|
(80
|
)
|
Total DME Inc.
|
|
|
(92
|
)
|
|
|
(160
|
)
|
GP Corp.
|
|
|
|
|
|
|
|
|
NCI classified as permanent equity
|
|
|
(28
|
)
|
|
|
(42
|
)
|
GE FM Holdings
|
|
|
|
|
|
|
|
|
NCI classified as permanent equity
|
|
|
13
|
|
|
|
13
|
|
Total
|
|
$
|
(107
|
)
|
|
$
|
(189
|
)
|
Non-controlling interest in DME Inc. classified as temporary equity
In connection with the acquisition of the durable medical equipment businesses in September 2018, the Company issued a 9.95% common stock equity ownership in DME Inc. The holder of the interest has a board observer rights for the DME Inc. board of directors, but no voting rights. DME Inc. has the right of first offer if the holder desires to sell the security and in the event of a sale of DME Inc., the holder must sell their securities (drag along rights) and has the right to participate in sales of DME Inc. securities (tag along rights). In addition, upon the seventh anniversary of issuance date, if (i) the holder owns 50% of the common shares issued to it at the closing of the transaction, (ii) an initial public offering of DME Inc. has not commenced and (iii) the holder has not had an earlier opportunity to sell its shares at their fair market value, the holder has the right to request a marketing process for a sale of DME Inc. and has the right to put its common shares to DME Inc. at the price for such shares implied by such marketing process. The Company also has the right to call the holder’s common shares at such price. The holder of the non-controlling interest is entitled to participate in earnings of DME Inc. and is not required to fund losses. As the redemption is contingent upon future events outside of the Company’s control which are not probable, the Company has classified the non-controlling interest as temporary equity and its fair value on the date of issuance, adjusted for any earnings in DME Inc.
The holder of this non-controlling interest, Corbel, is also the holder of the Corbel Facility. See Note 4 – Related Party Transactions and Note 10 – Borrowings.
30
Non-controlling interest in DME Inc. classified as permanent equity
In connection with the acquisition of the durable medical equipment businesses in September 2018, the Company issued one of the former owners, a 9.95% common stock equity ownership in DME Inc. The rights are consistent with the non-controlling interest classified as temporary equity, other than the holder does not have a contingent put right. Accordingly, Company has classified the non-controlling interest as permanent equity at its fair value on the date of issuance, adjusted for any earnings in DME Inc.
GECC GP Corp. – Non-controlling interest classified as permanent equity
In connection with the acquisition of the investment management business in November 2016, the Company issued certain affiliates and employees of the Company a 19.9% interest in GP Corp.
GE FM Holdings – Non-controlling interest classified as permanent equity
In connection with the acquisition of the real estate business in March 2018, the Company issued the former owner a 19.9% interest in GE FM Holdings.
14. Stockholders’ Equity
Restricted Stock Awards (Performance Shares) and Restricted Stock Units
During the three months ended September 30, 2020, there were no awards or forfeitures of restricted stock awards included in the below table and 732,909 remain outstanding as of September 30, 2020. Restricted stock awards granted have both performance and service requirements in connection with the formation of the investment management business. The vesting of these awards is subject to a five-year service requirement and an investment management cumulative revenue collection target of $40 million for the five-year period ended November 3, 2021. In order to recognize compensation expense over the vesting period, the Company estimates the probability of the performance target being met on an on-going basis. As of September 30, 2020, the Company estimates that approximately 243,322 of the restricted stock awards are probable of vesting under the performance condition.
Restricted stock units are subject to service requirements. The Company accounts for forfeitures of the restricted stock units in the period incurred. During the three months ended September 30, 2020 the Company granted 44,490 shares of restricted stock units granted to employees and directors.
The activity of the Company’s restricted stock awards and units for the three months ended September 30, 2020 was as follows:
Restricted Stock Awards and Restricted Stock Units
|
|
Restricted Stock
(in thousands)
|
|
|
Weighted Average Grant Date Fair Value
|
|
Outstanding at June 30, 2020
|
|
|
941
|
|
|
$
|
3.71
|
|
Granted
|
|
|
44
|
|
|
|
2.36
|
|
Vested
|
|
|
(116
|
)
|
|
|
2.73
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2020
|
|
|
869
|
|
|
$
|
3.77
|
|
31
Stock Options
The following table summarizes the Company’s option award activity as of and through September 30, 2020:
Options
|
|
Shares
(in thousands)
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term (years)
|
|
|
Aggregate Intrinsic Value
(in thousands)
|
|
Outstanding at June 30, 2020
|
|
|
2,475
|
|
|
$
|
3.69
|
|
|
|
5.51
|
|
|
$
|
1,590
|
|
Options granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited, cancelled or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
|
|
2,475
|
|
|
$
|
3.69
|
|
|
|
5.26
|
|
|
$
|
-
|
|
Exercisable at September 30, 2020
|
|
|
1,712
|
|
|
$
|
3.64
|
|
|
|
4.69
|
|
|
$
|
-
|
|
Vested and expected to vest as of September 30, 2020
|
|
|
2,475
|
|
|
$
|
3.69
|
|
|
|
5.26
|
|
|
$
|
-
|
|
During the three months ended September 30, 2020 and 2019, the Company recognized total stock-based compensation associated with all restricted stock and stock options of $0.4 million and $0.3 million, respectively.
As of September 30, 2020, unrecognized compensation costs associated with outstanding stock and stock-linked awards totaled approximately $2.0 million.
15. Income Tax
As of June 30, 2020, the Company had net operating loss (NOL) carryforwards for federal and state income tax purposes of approximately $1.5 billion and $203 million, respectively. The federal NOL carryforwards generated prior to fiscal year 2018 will expire from 2021 through 2037. The federal NOL carryforwards generated in fiscal year 2018 or later can be carried forward indefinitely. The state NOL carryforwards will expire from 2029 through 2038. The Company assesses NOL carryforwards based on taxable income on an annual basis.
In light of the Company’s history of cumulative operating losses, the Company recorded a valuation allowance for all of its federal and state deferred tax assets, as it is presently unable to conclude that it is more likely than not that the federal and state deferred tax assets in excess of deferred tax liabilities will be realized.
16. Commitments and Contingencies
From time to time, the Company is involved in lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. The Company maintains insurance to mitigate losses related to certain risks. The Company is not a named party in any other pending or threatened litigation that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.
32
17. Segment Information
The Company allocates resources based on three business operating segments: durable medical equipment, investment management and real estate with general corporate representing unallocated costs and activity to arrive at consolidated operations. Activity not allocated to the segments include, but are not limited to, certain investment and financing activities, professional fees, costs associated with being a public company, acquisition costs and costs associated with executive and corporate management departments, including compensation, benefits, rent and insurance.
The following tables illustrate results of operations by segment:
|
|
For the three months ended September 30, 2020
|
|
(in thousands)
|
|
Durable Medical Equipment
|
|
|
Investment Management
|
|
|
Real Estate
|
|
|
General Corporate
|
|
|
Intercompany Eliminations(1)
|
|
|
Consolidated Total
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
14,610
|
|
|
$
|
773
|
|
|
$
|
1,272
|
|
|
$
|
91
|
|
|
$
|
(91
|
)
|
|
$
|
16,655
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of durable medical equipment sold and services
|
|
|
(4,207
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,207
|
)
|
Cost of durable medical equipment rentals
|
|
|
(1,915
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,915
|
)
|
Depreciation and amortization
|
|
|
(463
|
)
|
|
|
(128
|
)
|
|
|
(430
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,021
|
)
|
Stock-based compensation(2)
|
|
|
-
|
|
|
|
(194
|
)
|
|
|
-
|
|
|
|
(235
|
)
|
|
|
-
|
|
|
|
(429
|
)
|
Transaction costs(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(32
|
)
|
|
|
-
|
|
|
|
(32
|
)
|
Other selling, general and administrative
|
|
|
(7,771
|
)
|
|
|
(532
|
)
|
|
|
(125
|
)
|
|
|
(1,146
|
)
|
|
|
91
|
|
|
|
(9,483
|
)
|
Total operating expenses
|
|
|
(14,356
|
)
|
|
|
(854
|
)
|
|
|
(555
|
)
|
|
|
(1,413
|
)
|
|
|
91
|
|
|
|
(17,087
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(709
|
)
|
|
|
(26
|
)
|
|
|
(650
|
)
|
|
|
(572
|
)
|
|
|
-
|
|
|
|
(1,957
|
)
|
Other income (expense)
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,372
|
)
|
|
|
-
|
|
|
|
(1,375
|
)
|
Total other income (expense), net
|
|
|
(712
|
)
|
|
|
(26
|
)
|
|
|
(650
|
)
|
|
|
(1,944
|
)
|
|
|
-
|
|
|
|
(3,332
|
)
|
Total pre-tax income (loss) from continuing operations
|
|
$
|
(458
|
)
|
|
$
|
(107
|
)
|
|
$
|
67
|
|
|
$
|
(3,266
|
)
|
|
$
|
-
|
|
|
$
|
(3,764
|
)
|
|
|
For the three months ended September 30, 2019
|
|
(in thousands)
|
|
Durable Medical Equipment
|
|
|
Investment Management
|
|
|
Real Estate
|
|
|
General Corporate
|
|
|
Intercompany Eliminations(1)
|
|
|
Consolidated Total
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
13,231
|
|
|
$
|
867
|
|
|
$
|
1,273
|
|
|
$
|
23
|
|
|
$
|
(23
|
)
|
|
$
|
15,371
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of durable medical equipment sold and services
|
|
|
(3,463
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,463
|
)
|
Cost of durable medical equipment rentals
|
|
|
(2,265
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,265
|
)
|
Depreciation and amortization
|
|
|
(457
|
)
|
|
|
(179
|
)
|
|
|
(431
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,067
|
)
|
Stock-based compensation(2)
|
|
|
-
|
|
|
|
(175
|
)
|
|
|
-
|
|
|
|
(118
|
)
|
|
|
-
|
|
|
|
(293
|
)
|
Transaction costs(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(91
|
)
|
|
|
-
|
|
|
|
(91
|
)
|
Other selling, general and administrative
|
|
|
(6,872
|
)
|
|
|
(516
|
)
|
|
|
(124
|
)
|
|
|
(1,577
|
)
|
|
|
23
|
|
|
|
(9,066
|
)
|
Total operating expenses
|
|
|
(13,057
|
)
|
|
|
(870
|
)
|
|
|
(555
|
)
|
|
|
(1,786
|
)
|
|
|
23
|
|
|
|
(16,245
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(996
|
)
|
|
|
(42
|
)
|
|
|
(658
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,696
|
)
|
Other income (expense)
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(469
|
)
|
|
|
-
|
|
|
|
(466
|
)
|
Total other income (expense), net
|
|
|
(993
|
)
|
|
|
(42
|
)
|
|
|
(658
|
)
|
|
|
(469
|
)
|
|
|
-
|
|
|
|
(2,162
|
)
|
Total pre-tax income (loss) from continuing operations
|
|
$
|
(819
|
)
|
|
$
|
(45
|
)
|
|
$
|
60
|
|
|
$
|
(2,232
|
)
|
|
$
|
-
|
|
|
$
|
(3,036
|
)
|
33
(1)
|
The Company’s wholly-owned subsidiary, Great Elm DME Manager, LLC (DME Manager), provides advisory services to DME Inc. and receives consulting fee from DME Inc. for those services. DME Manager is considered part of the general corporate segment of the Company. The corresponding expense to DME Inc. and revenue to DME Manager are eliminated in consolidation.
|
(2)
|
Stock-based compensation attributable to the investment management segment is included in investment management expenses in the condensed consolidated statements of operations. Stock-based compensation attributable to the general corporate segment is included in selling, general and administrative expense in the condensed consolidated statements of operations.
|
(3)
|
Transaction costs, which consist of legal and other professional services incurred in connection with consummated and unconsummated transactions, are included in selling, general and administrative expense in the condensed consolidated statements of operations.
|
The following tables illustrate assets by segment:
|
|
As of September 30, 2020
|
|
(in thousands)
|
|
Durable Medical Equipment
|
|
|
Investment Management
|
|
|
Real Estate
|
|
|
General Corporate
|
|
|
Total
|
|
Fixed assets, net
|
|
$
|
8,306
|
|
|
$
|
29
|
|
|
$
|
52,882
|
|
|
$
|
4
|
|
|
$
|
61,221
|
|
Identifiable intangible assets, net
|
|
|
7,672
|
|
|
|
2,160
|
|
|
|
4,746
|
|
|
|
-
|
|
|
|
14,578
|
|
Goodwill
|
|
|
50,010
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,010
|
|
Other assets
|
|
|
15,220
|
|
|
|
2,542
|
|
|
|
2,279
|
|
|
|
41,818
|
|
|
|
61,859
|
|
Total
|
|
$
|
81,208
|
|
|
$
|
4,731
|
|
|
$
|
59,907
|
|
|
$
|
41,822
|
|
|
$
|
187,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
|
(in thousands)
|
|
Durable Medical Equipment
|
|
|
Investment Management
|
|
|
Real Estate
|
|
|
General Corporate
|
|
|
Total
|
|
Fixed assets, net
|
|
$
|
8,854
|
|
|
$
|
35
|
|
|
$
|
53,188
|
|
|
$
|
4
|
|
|
$
|
62,081
|
|
Identifiable intangible assets, net
|
|
|
7,974
|
|
|
|
2,284
|
|
|
|
4,871
|
|
|
|
-
|
|
|
|
15,129
|
|
Goodwill
|
|
|
50,010
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,010
|
|
Other assets
|
|
|
19,055
|
|
|
|
2,654
|
|
|
|
2,171
|
|
|
|
44,345
|
|
|
|
68,225
|
|
Total
|
|
$
|
85,893
|
|
|
$
|
4,973
|
|
|
$
|
60,230
|
|
|
$
|
44,349
|
|
|
$
|
195,445
|
|
34