10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2018

or

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

For the transition period from    to    

Commission File Number: 001-16073

Great Elm Capital Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	94-3219054
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
800 South Street, Suite 230, Waltham MA	02453
(Address of principal executive offices)	(Zip Code)

(617) 375-3006

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

As of February 5, 2019, there were 26,002,815 shares of the registrant’s common stock outstanding.

Table of Contents

PART I. FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets as of December 31, 2018 and June 30, 2018	3
	Unaudited Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2018 and 2017	4
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the six months ended December 31, 2018 and 2017	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2018 and 2017	7
	Unaudited Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	58
PART II. OTHER INFORMATION		59
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 5.	Other Information	63
Item 6.	Exhibits	64
SIGNATURES		66

Unless the context otherwise requires, “we”, “us”, “our”, “GEC”, the “Company” and terms of similar import refer to Great Elm Capital Group, Inc. and/or its subsidiaries. Our corporate website address is www.greatelmcap.com. The information contained in, or accessible through, our corporate website does not constitute part of this report.

i

Cautionary Statement Regarding Forward-Looking Information

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

▪ our ability to profitably manage Great Elm Capital Corp. (GECC);

▪ the dividend rate that GECC will pay;

▪ our ability to grow our investment management, real estate and durable medical equipment businesses;

▪ our ability to raise capital to fund our business plan;

▪ our ability to make acquisitions and manage any businesses we may acquire;

▪ conditions in the equity capital markets, and debt capital markets as well as the economy generally;

▪ our ability to maintain the security of electronic and other confidential information;

▪ serious disruptions and catastrophic events;

▪ competition, mostly from larger, well-financed organizations (both domestic and foreign), including operating companies, global asset managers, investment banks, commercial banks, and private equity funds;

▪ outcomes of litigation and proceedings and the availability of insurance, indemnification and other third-party coverage of any losses suffered in connection therewith;

▪ our ability to attract, assimilate and retain key personnel;

▪ compliance with laws, regulations and orders;

▪ changes in laws and regulations; and

▪ other factors described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 under “Risk Factors” or as set forth from time to time in our Securities and Exchange Commission (SEC) filings.

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

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Great Elm Capital Group, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

Dollar amounts in thousands (except per share data)

ASSETS	December 31, 2018			June 30, 2018
Current assets:
Cash and cash equivalents	$	21,361		$	42,962
Restricted cash		702			578
Current portion of related party receivables		2,039			1,338
Accounts receivable		6,550			-
Investments, at fair value (cost $18,046 at December 31, 2018; and $30,000 at June 30, 2018)		9,287			18,172
Inventories		1,587			-
Prepaid and other current assets		635			544
Total current assets		42,161			63,594
Related party receivables, net of current		-			2,919
Restricted investments, at fair value (cost $11,954 at December 31, 2018)		6,152			-
Real estate assets, net		55,029			55,641
Property and equipment, net		1,045			41
Equipment held for rental, net		8,738			-
Identifiable intangible assets, net		16,905			9,400
Goodwill		45,336			-
Right of use assets		5,640			1,521
Other assets		934			471
Total assets	$	181,940		$	133,587
LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	5,945		$	32
Accrued expenses and other liabilities		3,807			2,535
Current portion of related party payables		995			-
Current portion of lease liabilities		1,289			336
Liabilities related to discontinued operations		3,608			3,608
Current portion of long term debt		2,038			1,999
Current portion of related party notes payable		1,326			-
Total current liabilities		19,008			8,510
Lease liabilities, net of current portion		4,620			1,304
Long term debt, net of current portion		61,588			55,632
Related party notes payable, net of current portion		26,229			3,224
Redeemable preferred stock of subsidiary		5,266			-
Other liabilities		331			331
Total liabilities		117,042			69,001
Commitments and Contingencies
Contingently redeemable non-controlling interest		3,690			-
Stockholders' equity
Preferred stock, $0.001 par value; 5,000 authorized and zero outstanding		-			-
Common stock, $0.001 par value; 350,000,000 shares authorized and 25,983,141 shares issued and 25,221,524 outstanding at December 31, 2018; and 25,480,200 shares issued and 24,718,395 outstanding at June 30, 2018		25			25
Additional paid-in-capital		3,305,137			3,302,886
Accumulated deficit		(3,247,816	)		(3,238,547	)
Total Great Elm Capital Group, Inc. stockholders' equity		57,346			64,364
Non-controlling interests		3,862			222
Total stockholders' equity		61,208			64,586
Total liabilities, non-controlling interest and stockholders' equity	$	181,940		$	133,587

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

3

Great Elm Capital Group, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

Dollar amounts in thousands (except per share data)

	For the three months ended December 31,						For the six months ended December 31,
	2018			2017			2018			2017
Revenues:
Investment management revenues	$	915		$	2,523		$	1,855		$	4,291
Real estate rental income		1,474			-			2,916			-
Durable medical equipment sales and services revenue		9,076			-			11,860			-
Durable medical equipment rental income		4,076			-			5,383			-
Total revenues		15,541			2,523			22,014			4,291
Operating costs and expenses:
Cost of durable medical equipment sold and services		3,545			-			4,489			-
Cost of durable medical equipment rentals (includes depreciation expense of $1,882 and $2,162 for the three and six months ended December 31, 2018, respectively)		1,970			-			2,260			-
Investment management expenses		741			2,263			2,190			5,333
Real estate expenses		342			-			637			-
Durable medical equipment other operating expenses		5,843			-			7,704			-
Depreciation and amortization		828			133			1,538			313
Selling, general and administrative		2,039			1,131			5,406			3,017
Total operating costs and expenses		15,308			3,527			24,224			8,663
Operating income (loss)		233			(1,004	)		(2,210	)		(4,372	)
Dividends and interest income		988			959			1,535			1,450
Unrealized loss on investment in GECC		(3,639	)		(1,180	)		(2,734	)		(1,534	)
Interest expense		(1,788	)		(37	)		(2,783	)		(135	)
Other income (expense), net		(45	)		60			-			5
Loss from continuing operations		(4,251	)		(1,202	)		(6,192	)		(4,586	)
Loss from discontinued operations		(25	)		-			(93	)		-
Net loss	$	(4,276	)	$	(1,202	)	$	(6,285	)	$	(4,586	)
Less: net gain (loss) attributable to non-controlling interest		70			(33	)		65			(387	)
Net loss attributable to Great Elm Capital Group	$	(4,346	)	$	(1,169	)	$	(6,350	)	$	(4,199	)
Basic and diluted loss per share from:
Continuing operations	$	(0.17	)	$	(0.05	)	$	(0.25	)	$	(0.18	)
Discontinued operations		(0.00	)		-			(0.00	)		-
Net loss	$	(0.17	)	$	(0.05	)	$	(0.25	)	$	(0.18	)
Weighted average shares outstanding
Basic and diluted		25,187			24,562			25,121			23,898

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

4

Great Elm Capital Group, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

Dollar and share amounts in thousands

	Common Stock				Additional Paid-in		Accumulated			Total Great Elm Capital Group Inc. Stockholders'			Non- controlling			Total Stockholders'			Contingently Redeemable Non-controlling
	Shares		Amount		Capital		Deficit			Equity			Interest			Equity			Interest
BALANCE, June 30, 2018		24,719	$	25	$	3,302,886	$	(3,238,547	)	$	64,364		$	222		$	64,586		$	-
Net loss		-		-		-		(2,004	)		(2,004	)		(15	)		(2,019	)		10
Adoption of accounting standard (Note 2)		-		-		-		(2,919	)		(2,919	)		-			(2,919	)		-
Acquisition of Great Elm DME, Inc.		-		-		-		-			-			3,632			3,632			3,632
Issuance of common stock related to warrants exercise		420		0		1,409		-			1,409			-			1,409			-
Issuance of common stock related to vesting of restricted stock		4		0		0		-			0			-			0			-
Stock-based compensation		-		-		490		-			490			-			490			-
BALANCE, September 30, 2018		25,143		25		3,304,785		(3,243,470	)		61,340			3,840			65,180			3,642
Net Loss		-		-		-		(4,346	)		(4,346	)		22			(4,324	)		48
Issuance of common stock related to vesting of restricted stock		79		0		0		-			0			-			0			-
Stock-based compensation		-		-		352		-			352			-			352			-
BALANCE, December 31, 2018		25,222	$	25	$	3,305,137	$	(3,247,816	)	$	57,346		$	3,862		$	61,208		$	3,690

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

5

Great Elm Capital Group, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) (continued)

Dollar and share amounts in thousands

	Common Stock				Additional Paid-in		Accumulated			Total Great Elm Capital Group Inc. Stockholders'			Non- controlling			Total Stockholders'
	Shares		Amount		Capital		Deficit			Equity			Interest			Equity
BALANCE, June 30, 2017		23,200	$	23	$	3,293,683	$	(3,227,480	)	$	66,226		$	(10	)	$	66,216
Net loss		-		-		-		(3,030	)		(3,030	)		(354	)		(3,384	)
Issuance of common stock in exchange for cancelling the MAST Warrants		55		0		207		-			207			-			207
Issuance of common stock related to vesting of restricted stock		43		0		-		-			0			-			0
Stock-based compensation		-		-		1,757		-			1,757			-			1,757
BALANCE, September 30, 2017		23,298		23		3,295,647		(3,230,510	)		65,160			(364	)		64,796
Net Loss		-		-		-		(1,169	)		(1,169	)		(33	)		(1,202	)
Issuance of common stock related to warrants exercise		1,266		1		4,571		-			4,572			-			4,572
Issuance of common stock related to vesting of restricted stock		25		1		-		-			1			-			1
Stock-based compensation		-		-		928		-			928			-			928
BALANCE, December 31, 2017		24,589	$	25	$	3,301,146	$	(3,231,679	)	$	69,492		$	(397	)	$	69,095

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

6

Great Elm Capital Group, Inc.

Condensed Consolidated Statements of Cash Flow (Unaudited)

Dollar amounts in thousands

	For the six months ended December 31,
	2018			2017
Cash flows from operating activities:
Net loss	$	(6,285	)	$	(4,586	)
Loss from discontinued operations		93			-
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		3,700			313
Stock-based compensation		842			2,684
Unrealized loss on investments		2,734			1,534
Non-cash interest and amortization of debt issuance costs		402			-
Other non-cash expense, net		86			55
Changes in operating assets and liabilities:
Related party receivable		(701	)		(2,934	)
Accounts receivable		(1,097	)		-
Inventories		(41	)		-
Prepaid assets, deposits, and other assets		(52	)		(191	)
Operating leases		(16	)		-
Related party payable		150			-
Accounts payable, accrued liabilities and other liabilities		882			9
Net cash provided by (used in) operating activities - continuing operations		697			(3,116	)
Net cash used in operating activities - discontinued operations		(93	)		-
Net cash provided by (used in) operating activities		604			(3,116	)
Cash flows from investing activities:
Acquisition of business, net of cash acquired		(41,567	)		-
Purchases of equipment held for rental		(2,340	)		-
Purchases of property and equipment		(232	)		(13	)
Net cash used in investing activities - continuing operations		(44,139	)		(13	)
Net cash used in investing activities - discontinued operations		-			-
Net cash used in investing activities		(44,139	)		(13	)
Cash flows from financing activities:
Proceeds on revolving line of credit		5,855			-
Principal payments on long term debt		(963	)		-
Principal payments on related party notes payable		(313	)
Proceeds from note payable to seller		16,500			-
Debt financing costs		(430	)		-
Exercise of warrants to purchase common stock		1,409			-
Proceeds from issuance of common stock, gross		-			4,572
Net cash provided by financing activities - continuing operations		22,058			4,572
Net cash provided by financing activities - discontinued operations		-			-
Net cash provided by financing activities		22,058			4,572
Net increase (decrease) in cash, cash equivalents and restricted cash		(21,477	)		1,443
Cash, cash equivalents and restricted cash at beginning of period		43,540			45,894
Cash, cash equivalents and restricted cash at end of period	$	22,063		$	47,337

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

7

Great Elm Capital Group, Inc.

Condensed Consolidated Statements of Cash Flow (Unaudited) (continued)

Dollar amounts in thousands

Cash paid for interest	$	2,144	$	42
Non-cash investing and financing activities
Assumption of borrowings in connection with acquisition	$	9,275	$	-
Issuance of non-controlling interests in subsidiary in connection with acquisition		7,265		-
Preferred stock issued to seller in acquisition		5,266		-
Contingent consideration issued in connection with acquisition		845		-
Warrant liability settled with common stock issuance		-		194

As of December 31, 2018, amounts included in cash, cash equivalents and restricted cash consist of $21.4 million of cash and cash equivalents and $0.7 million of restricted cash as reported on the condensed consolidated balance sheet.  As of June 30, 2018, amounts included in cash, cash equivalents and restricted cash consist of $42.9 million of cash and cash equivalents and $0.6 million of restricted cash as reported on the condensed consolidated balance sheet.  There were no restricted cash balances at December 31, 2017 or June 30, 2017.

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

8

Great Elm Capital Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

December 31, 2018

1. Organization

Great Elm Capital Group, Inc. (the Company) is a holding company incorporated in Delaware.  The Company currently has four operating segments: investment management, real estate, durable medical equipment and general corporate.  The Company is pursuing business development opportunities in investment management, real estate, durable medical equipment and other industries.

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

The 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., DME Holdings and Great Elm DME Manager, LLC.  Majority-owned subsidiaries include GECC GP Corp., Great Elm FM Holdings, Inc., CRIC IT Fort Myers, LLC and 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, 2018, presented herein, has been derived from the Company’s audited consolidated financial statements as of and for the year-ended June 30, 2018.

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, estimates for contractual allowances, estimates for allowance for doubtful accounts, 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.

9

Principles of Consolidation

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

All intercompany accounts and transactions have been eliminated in consolidation.

Non-controlling interests in the Company’s subsidiaries are reported as a component of liabilities for mandatorily redeemable interests, temporary equity for contingently redeemable interests or permanent equity, separate from the Company’s equity.  See Note 13 – Non-Controlling Interests and Preferred Stock of Subsidiary.  Results of operations attributable to the non-controlling interests are included in the Company’s consolidated statements of operations.

Segments

The Company has four operating segments: investment management, real estate, durable medical equipment and general corporate.  The Company regularly reviews each segment for purposes of allocating resources and assessing performance.

Cash, Cash Equivalents, and Restricted Cash

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

The Company’s restricted cash consists of real estate rental income received in advance and a portion of prior period rental income that is reserved for capital and certain operating expenses in connection with the Company’s real estate assets.

Accounts receivable

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.  Substantially all of the accounts receivable balance relates to the durable medical equipment business.  The Company does not require collateral in connection with its customer transactions.  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 contractual allowances where the gross charge is greater than the contractual rate with the Payors.  Management’s evaluation of variable consideration takes into account such factors as past experience, contractual rates with Payors and information about specific receivables and Payors.  In addition, co-payments, co-insurance and deductible amounts billed to patient customers are initially constrained until paid.  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. As additional information becomes known, the Company adjusts its assumptions accordingly to change its estimates.   There were no material adjustments to revenues made in three and six months ended December 31, 2018 relating to prior years.  Changes in constraints on variable consideration are recorded as a component of net revenues.

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

10

As of December 31, 2018, the Company had unbilled receivables of approximately $0.5 million that relate to transactions where the Company has the ultimate right to invoice a Payor under the terms of the arrangement, but are not currently billable.  Such receivables are included in accounts receivable in the consolidated balance sheets.

Investments and Restricted Investments

Investments and restricted investments consist of shares in Great Elm Capital Corp. (GECC), which is carried at fair value.  The Company’s restricted investment represents a portion of its investment in GECC, which has been contributed as part of the capitalization of DME Holdings, as required under the terms of the DME Holdings preferred stock.  Under the terms of the preferred stock issued by DME Holdings (See Note 13 – Non-Controlling Interests and Preferred Stock of Subsidiary), the Company is required to maintain capitalization of DME Holdings at a specified level with qualifying assets.  Therefore these assets are restricted and not available for use to fund the Company’s operations.  If at any month end the value of the qualifying assets falls below the required threshold, the Company shall, as promptly as practicable, contribute additional assets to meet the capitalization requirements.  Similarly, if at any month end the value of the qualifying assets exceeds the required threshold, the Company may remove the excess assets. The Company has provided DME Holdings with shares of GECC in the amount of $6.2 million as of December 31, 2018, as capitalization for the preferred stock in DME Holdings.

Fair Value Measurements

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

Property, Equipment, Real Estate Assets and Rental Equipment

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

The Company capitalizes the cost of the equipment predominantly leased out as part of the durable medical equipment business as such assets are acquired within equipment held for rental, net.  These purchases are classified as cash outflows from investing activities when they are paid.  The Company capitalizes the cost of equipment predominantly sold as part of the durable medical equipment business as such assets are acquired within inventories.  These purchases are classified as cash outflows from operating activities when they are paid.  A portion of equipment recorded within equipment held for rental, net, could ultimately be sold.  A portion of equipment recorded within inventories could ultimately be leased.  Management is not able to accurately track the ultimate use of equipment and has therefore adopted the above stated policy.

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

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

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

Description	Life in Years
Real Estate Assets
Buildings	55
Site improvements	16
Tenant improvements	12
Property and Equipment
Leasehold improvements	lesser of 7 years or life of the lease
Vehicles	5
Sleep study equipment	5
Furniture and fixtures	1 to 5
Computer equipment and software	3
Rental Equipment
Medical equipment for lease	1 to 5

Inventories

Inventories, which principally consist of durable medical equipment and related supplies that are predominantly held for sale, are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.  The Company reduces the carrying value of inventories for items that are potentially excess, obsolete, or slow-moving based on changes in customer demand, technology developments or other economic factors.  The Company bases its provisions for excess, expired and obsolete inventory primarily on our estimates of forecasted net sales.  A significant change in the timing or level of demand for our products as compared with forecasted amounts may result in recording additional provisions for excess, expired and obsolete inventory in the future.  As the Company purchases all of its inventories, all inventories are categorized as finished goods.  There were no significant write-offs during the six months ended December 31, 2018.

Goodwill and Other Identifiable Intangible Assets

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

The Company amortizes its identifiable intangible assets over their estimated useful lives using applicable discounted cash flow attribution and straight-line methods.  The Company amortizes its identifiable intangible assets over periods ranging from five to fifteen years.

Long-Lived Assets

Long-lived assets include real estate assets, property and equipment, intangible assets and the right of use assets.  These assets are evaluated for potential impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable based on undiscounted cash flows.  If an impairment is indicated, the Company records the impaired asset at fair value, and records a charge to operations.  No such impairment triggering events were identified in the current period.

Leases and Right of Use Assets

We determine if an arrangement is a lease at inception.  As of December 31, 2018, all of our leases are operating leases.  Operating leases are included in operating lease right of use assets (ROU), current portion of lease liabilities and lease liabilities net of current portion in the condensed consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.  ROU assets and liabilities are recognized at commencement date based

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

We have lease agreements with lease and non-lease components, which are accounted for together as a single lease component.

At December 31, 2018, the majority of our lease liabilities and ROU assets were acquired with the durable medical equipment businesses as discussed in Note 4 – Acquisition and the amounts disclosed on the condensed consolidated balance sheet represent preliminary valuations.

Cost of Durable Medical Equipment Sold and Services

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

Cost of Durable Medical Equipment Rentals

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

Investment Management Expenses

The Company classifies direct expenses of its investment management segment including: payroll, stock-compensation, and related taxes and benefits; facilities costs; and professional fees; in investment management expenses in the accompanying condensed consolidated statements of operations.  GECM has a three-year contractual consulting arrangement through November 2019 with a third party to provide services in exchange for 26% of the fees earned from the management of GECC, excluding incentive fees.

Real Estate Expenses

The Company classifies direct expenses of its real estate segment, including: real estate taxes, insurance, property management fees and other operating expenses in real estate expenses in the accompanying condensed consolidated statements of operations.  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 consolidated statements of operations, in the same periods as the expense are incurred.

Durable Medical Equipment Other Operating Expenses

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

Depreciation and Amortization

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

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Business combinations

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

Net Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period.  Diluted net loss per share is computed by dividing the diluted net loss by the weighted-average number of common shares, including potential dilutive common shares assuming the dilutive effect of outstanding stock options, unvested restricted common shares and common stock warrants, as determined using the treasury stock method.  For periods in which the Company has reported net losses, diluted net loss per share is the same as basic net loss per share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

As of December 31, 2018 and 2017, the Company had 3,606,206 and 3,936,334 potential shares of Company common stock issuable upon exercise of the stock options, respectively, that are not included in the diluted net loss per share calculation because to do so would be antidilutive.

Restrictions on Subsidiary Dividends

In the GP Corp. Note Agreement, GECC GP Corp. agreed not to declare any dividends until the GP Corp. Note is satisfied.  In 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 from continuing operations for the periods presented were attributable to the management of one investment vehicle, GECC, which is also a related party.  See Note 5 – 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.  For the three and six months ended December 31, 2018, one government program payor constituted approximately 30% and 28%, respectively, of consolidated revenues.  As of December 31, 2018, receivables from that government program payor constituted 29% of our ending accounts receivable.  An additional government program payor constituted another 13% of our ending accounts receivable as of December 31, 2018.  

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Recently Adopted Accounting Standards

Revenue RecognitionIn May 2014, the Financial Accounting Standards Board (FASB) issued the New Revenue Standard, which replaced Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605), including industry-specific requirements, and provided companies with a single principles-based revenue recognition model for recognizing revenue from contracts with customers. The core principle of the New Revenue Standard is that a company should recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.

On July 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (Topic 606) and related amendments, under the modified retrospective transition method.  Accordingly, the periods prior to adoption are presented under our prior accounting policies and we applied the new guidance to all open contracts with customers as of the implementation date.

The new guidance outlines a single revenue recognition model for all contracts with customers and provides a framework for addressing revenue recognition issues on a comprehensive basis.  The framework includes five steps:

1. Identifying the contract(s) with a customer.

2. Identifying the performance obligations in the contract.

3. Determining the transaction price.

4. Allocating the transaction price to the performance obligations in the contract.

5. Recognizing revenue when (or as) the entity satisfies a performance obligation.

The adoption of Topic 606 impacted the Company’s revenue recognition policy for incentive fee revenue associated with our investment management agreements.  The Company’s revenue recognition policy for rental revenue for its real estate segment did not change since the revenue recognition for such arrangements is outside the scope of Topic 606.

Under Topic 606, variable consideration such as incentive fees must be constrained (not recognized) if it is not probable that there would not be a significant reversal of recognized revenue.  There was no impact on the Company’s revenue recognition policy for management and administrative revenues as these amounts are not subject to constraint.  The Company fully constrained its performance-based incentive fee revenue in contrast to recognizing revenue based on a hypothetical liquidation of net assets on the reporting date and the distribution of the net proceeds in accordance with the respective investment management agreements under its prior policies.  Under the modified retrospective method, the cumulative effect of adopting Topic 606 was recognized as an adjustment to eliminate incentive fees receivable and increase accumulated deficit of $2.9 million and after such adjustment there were no incentive fees receivable.

The following table reflects the impact of the cumulative effect of the accounting changes upon the adoption of Topic 606 on the condensed consolidated balance sheet as of the beginning of the period:

(in thousands)	As of June 30, 2018			Impact of accounting change			As of July 1, 2018
Incentive fees receivable - related party	$	2,919		$	(2,919	)	$	-
Accumulated deficit		(3,238,547	)		(2,919	)		(3,241,466	)

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The following table shows the effect of the change in accounting on the condensed consolidated statement of operations:

	For the three months ended December 31, 2018								For the six months ended December 31, 2018
(in thousands)	Under Topic 605			Under Topic 606			Effect of Change		Under Topic 605			Under Topic 606			Effect of Change
Investment management revenues	$	1,289		$	915		$	374	$	2,805		$	1,855		$	950
Durable medical equipment sales and services revenue		9,076			9,076			-		11,860			11,860			-
Total revenues accounted for under Topic 606	$	10,365		$	9,991		$	374	$	14,665		$	13,715		$	950
Total revenues		15,915			15,541		$	374		22,964			22,014			950
Net loss from continuing operations		(3,877	)		(4,251	)	$	374		(5,242	)		(6,192	)		950
Net loss		(3,902	)		(4,276	)	$	374		(5,335	)		(6,285	)		950
Net loss attributable to Great Elm Capital Group		(3,972	)		(4,346	)	$	374		(5,400	)		(6,350	)		950
Net loss per share	$	(0.15	)	$	(0.17	)	$	0.02	$	(0.21	)	$	(0.25	)	$	0.04

Fair Value MeasurementsIn 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.

Recently Issued Accounting Standards

Share-Based Compensation  In June 2018, the FASB issued amended guidance expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, ASU 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment.  The new standard will include share-based payment transactions for acquiring goods and services from nonemployees, whereby share-based payments to nonemployees will be measured and recorded at the fair value of the equity instruments that an entity is obligated to issue on the grant date. The standard should be applied for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period using a modified retrospective approach with a cumulative adjustment to opening retained earnings in the year of adoption for the remeasurement of liability-classified awards that have not been settled by the date of adoption and equity-classified awards for which a measurement date has not been established.  Early application is permitted.  We are currently evaluating the impact of this guidance on the Company’s financial statements.

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Lessor Lease Accounting  In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors.  The new guidance permits lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs, and instead, account for those costs as lessee costs.  Additionally, the guidance updates revenue recognition related to variable payments by (1) requiring lessors to exclude from variable payments lessor costs paid directly to third parties by lessees; and (2) requiring lessors to allocate certain variable payments to lease and nonlease components when there are changes in facts and circumstances on which the variable payment is based.  When an allocation of variable payments between lease and nonlease components is made, the variable payment allocated to the lease component will be recognized as revenue in accordance with Topic 842, whereas the variable payment allocated to the nonlease component will be recognized in accordance with other applicable topics, such as Topic 606.  The new guidance will be effective for the Company in the reporting period beginning January 1, 2019 and will be applied prospectively.  The impact of the adoption of this new guidance will result in a reduction of real estate rental income and real estate expenses of approximately $0.8 million annually on a prospective basis.

3. Revenue

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

	For the three months ended December 31,				For the six months ended December 31,
(in thousands)	2018		2017		2018		2017
Product and Services Revenue(1)
Investment Management
Management Fees	$	755	$	606	$	1,523	$	1,157
Incentive Fees		-		1,609		-		2,500
Administration Fees		160		308		332		634
		915		2,523		1,855		4,291
Durable Medical Equipment
Equipment Sales		7,502		-		9,802		-
Service Revenues		1,574		-		2,058		-
		9,076		-		11,860		-
Total product and services revenue	$	9,991	$	2,523	$	13,715	$	4,291
Rental Revenues
Real Estate
Rental Income		1,474		-		2,916		-
Durable Medical Equipment
Medical Equipment Rental Income		4,076		-		5,383		-
Total rental revenue		5,550		-		8,299		-
Total	$	15,541	$	2,523	$	22,014	$	4,291

(1) Revenue for sales of products or services recognized in the three and six months ended December 31, 2018 and 2017 was accounted for under Topic 606 and Topic 605, respectively, as discussed in this note and Note 2 – Summary of Significant Accounting Policies.

Revenue Accounting Under Topic 605

For discussion of our revenue recognition policy as it relates to revenue transactions accounted for prior to July 1, 2018, which was accounted for under Topic 605, refer to our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.

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Revenue Accounting Under Topic 606

In determining the appropriate amount of revenue to be recognized under 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) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

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; as follows:

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.  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%.  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.

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.

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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.

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, gross charges are retail charges and generally do not reflect what the Company is ultimately paid.  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 contractual allowances and discounts 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, which are included in the transaction price when considered probable of payment, which is generally when paid, and included in revenue if the product or service has already been provided to the customer.

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 six months ended December 31, 2018, 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.  As such, the Company has no contract liabilities as of December 31, 2018 and September 30, 2018.

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.  Such amounts related to contracts with customers are not material as of December 31, 2018 and September 30, 2018.

We had no balances of contract assets or contract liabilities related to equipment sales and services as of June 30, 2018 as these contracts with customers were acquired in September 2018, with our acquisition of the durable medical equipment businesses.

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Revenue Accounting Under Topic 842

Real Estate Revenue

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.  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 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.

Durable Medical Equipment Revenue

Equipment Rental Revenue

Consistent with the lease of real estate assets, the Company recognizes rental revenue on a straight-line basis over the non-cancelable term of the lease.  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, which is generally when paid.

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 six months ended December 31, 2018, 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 $0.7 million as of December 31, 2018 and September 30, 2018.

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.  The estimate of net unbilled rental revenue recognized is based on historical trends and estimates of future collectability.  Such amounts related to equipment rentals are not material as of December 31, 2018 and September 30, 2018.

We had no balances related to deferred revenue or unbilled revenue related to equipment rentals as of June 30, 2018 as these balances were acquired in September 2018, with our acquisition of the durable medical equipment businesses.

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4. Acquisition

In September 2018, through its subsidiary, DME Holdings, the Company acquired an 80.1% interest in DME Inc., an entity formed to acquire and combine two previously unrelated durable medical equipment distribution companies, Valley and Northwest, which both specialize in the distribution of sleep and respiratory care equipment, including positive air pressure equipment and supplies, ventilators, and oxygen equipment.  The medical distribution companies operate in Alaska, Arizona, Nebraska, Oregon and Washington.  The Company expects to achieve significant synergies and costs reductions through the combination of these companies in this acquisition.  Operating results of the acquired businesses have been included in the consolidated statements of operations since September 1, 2018 as the impact of including the period prior to September 7, 2018 was immaterial to the condensed consolidated financial statements.

On the date of Acquisition, the Company allocated the consideration given to the individual assets acquired and the liabilities assumed based on a preliminary estimate of their fair values.  The assessment of fair value previously reported, as of and for the three months ended September 30, 2018, was preliminary as the Company had not finalized its fair value estimates.

During the three months ended December 31, 2018, the Company obtained and considered additional information related to the assets acquired and liabilities assumed, and recorded measurement period adjustments to the allocation of the purchase price noted below.

The acquisition date fair value of the consideration transferred is summarized in the following table:

(in thousands)	As Previously Reported		Adjustment			As Adjusted
Cash	$	25,321	$	-		$	25,321
Net working capital adjustment		-		(254	)		(254	)
Increase in note payable to seller(1)		16,500		-			16,500
Debt assumed		9,275		-			9,275
Preferred stock in DME Holdings		5,266		-			5,266
Contingent consideration		1,225		(380	)		845
Total Consideration	$	57,587	$	(634	)	$	56,953

(1) Included in related party note payable on the condensed consolidated balance sheet.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.  The Company is in the process of obtaining finalized third-party valuations of certain intangible assets, and gathering information on all assets acquired and liabilities assumed, including tax attributes, thus, all amounts are preliminary and are subject to change as these provisional estimates are finalized.

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(in thousands)	As Previously Reported			Adjustment			As Adjusted
Accounts receivable	$	5,363		$	90		$	5,453
Inventories		1,546			-			1,546
Other assets		503			-			503
Fixed assets		852			-			852
Equipment held for rent		8,470			(294	)		8,176
Goodwill		46,222			(886	)		45,336
Tradename		6,900			-			6,900
Non-compete agreements		1,450			-			1,450
Right of use asset		4,205			-			4,205
Current liabilities		(6,374	)		456			(5,918	)
Operating lease liabilities		(4,285	)		-			(4,285	)
Non-controlling interest		(7,265	)		-			(7,265	)
Net Assets Acquired	$	57,587		$	(634	)	$	56,953

The outstanding balances of the note payable to seller, debt assumed on the revolving credit facility, and the preferred stock in DME Holdings approximates fair value based upon current rates and terms available for similar instruments.

The trade name was determined to have a fair value of $6.9 million.  The valuation of the trade name was based on a relief from royalty method.  The key assumptions in applying the relief from royalty approach are as follows: royalty rate of 3.0% and a discount rate of 20%.  

The non-compete agreements were determined to have a fair value of $1.5 million.  The valuation of the non-compete agreements was based on a lost profits method.  The key assumptions in applying the lost profits method are as follows; probability adjusted EBITDA of the acquired businesses and a discount rate of 20%.

The contingent consideration arrangement requires the Company to pay up to $2.4 million of additional consideration to the acquired companies’ former shareholders if certain earnings before interest, taxes, depreciation and amortization (EBITDA) thresholds, as adjusted per the terms of the purchase agreement, are achieved for the 12 months ended December 31, 2018 and 2019.  Under the Transaction Agreement, payment of the contingent consideration for any period is subject to satisfaction of the applicable EBITDA threshold.  The fair value of the contingent consideration arrangement at the acquisition date was $0.8 million.  The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation model.  The key assumptions in applying the Monte Carlo simulation model as follows: 33.5% volatility, and EBITDA forecasts of the acquired businesses.  The contingent consideration is included within the current portion of related party payables in the consolidated balance sheets.

These fair value measurements are based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC Topic 820, Fair Value Measurement.  

Upon a subsequent sale of DME Inc., certain members of the DME Inc. management team will be entitled to a contingent bonus based on a percentage of the proceeds of the sale less the Company’s invested capital in DME Inc.

Of the $8.4 million of acquired identifiable intangible assets, $6.9 million was provisionally assigned to tradenames and $1.5 million was provisionally assigned to non-compete assets, which are associated with the former sellers of the businesses.  All tradenames acquired have an expected life of 10 years over which they will be amortized on a straight-line basis, which matches the pattern of economic use of these assets.  The non-compete agreements have a weighted-average expected life of 4.2 years.  All non-compete agreements will be amortized on a straight-line basis, which approximates the pattern of economic use.  Neither tradenames nor the non-compete agreements have renewal terms or are expected to have any net realizable value at the end of their useful lives.

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The $45.3 million of goodwill was assigned to the durable medical equipment segment and is attributable primarily to expected synergies and the assembled workforce of the acquired businesses.  Approximately $20.5 million of the goodwill is expected to be deductible for income tax purposes.  This amount is preliminary and subject to change as the provisional estimate is finalized.

The fair value of the 19.9% non-controlling interest in acquired companies is provisionally estimated to be $7.3 million. The fair value of the non-controlling interest was estimated based on the purchase price paid by the Company for its 80.1% of the acquired business since the non-controlling interest holders hold equity in DME Inc., which allows the holders to share in at least the same benefits inured from the acquisition as the Company.

The Company has not recorded any deferred tax amounts associated with differences between income tax basis and the stepped up basis of financial statement basis amounts in its preliminary purchase allocation of consideration transferred for the acquired businesses.  The Company is in the process of obtaining the income tax basis amounts related to assets acquired and liabilities assumed.  As a result, the related deferred tax balance sheet amounts and any potentially impacted income tax provision or benefit will be recorded once the information becomes available and is evaluated by the Company.  The Company expects these provisional amounts to be resolved prior to the end of fiscal year 2019.

The Company recognized $2.0 million of acquisition costs that were expensed in the current period.  These costs are included in general and administrative expenses in the accompanying condensed consolidated statement of operations.  The Company also incurred $0.4 million in costs associated with issuing debt to finance the cost of the acquired businesses, which are debt issuance costs that are amortized over the term of the debt using the effective interest rate method.

The amounts of revenue and net income of the acquired business included in the Company’s condensed consolidated statement of operations from the date of acquisition through December 31, 2018 is $17.2 million and $0.4 million, respectively.

Supplemental Pro Forma Information

The pro forma results presented below were prepared pursuant to the requirements of ASC Topic 805, Business Combinations, and give effect to the acquisition as if it had been consummated on July 1, 2017.  The pro forma results have been prepared for comparative purposes only and do not necessarily represent what revenue or results of operations would have been had the acquisition been completed on July 1, 2017.  In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved by the Company.

	For the three months ended December 31,						For the six months ended December 31,
(in thousands)	2018			2017			2018			2017
Revenues	$	15,541		$	14,383		$	30,308		$	27,796
Net loss		(4,276	)		(727	)		(5,399	)		(5,652	)
Net loss attributable to Great Elm Capital Group		(4,346	)		(792	)		(5,278	)		(5,415	)

These pro forma results presented include adjustments to historical operating results include the following activity related to the acquisition: (a) interest expenses incurred on the debt paid down and borrowed upon closing; (b) dividends on preferred stock in subsidiary; (c) amortization of intangible assets acquired; and (d) reclassification of non-recurring transaction costs to the prior period.

5. 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.

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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 8 – Fair Value Measurements.

The following tables summarize activity and outstanding balances between GECC and the Company.

	For the three months ended December 31,						For the six months ended December 31,
(in thousands)	2018			2017			2018			2017
Change in unrealized gain (loss) on investment in GECC recorded in the period	$	(3,639	)	$	(1,180	)	$	(2,734	)	$	(1,534	)
GECC dividends recorded in the period		961			883			1,451			1,373

(in thousands)	December 31, 2018		June 30, 2018
Dividends receivable from GECC	$	814	$	163
Investment management revenues receivable from GECC(1)		909		4,094

(1) Investment management fees receivable from GECC as of June 30, 2018 include incentive fee receivables of $2.9 million which have been reversed as a result of the adoption of Topic 606 on July 1, 2018.  See Note 2 – Summary of Significant Accounting Policies.

Outstanding receivables are included in related party receivables in the condensed consolidated balance sheets.

The Company is the beneficial owner of approximately 18.5% 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.  The Company’s Chief Financial Officer is also the Chief Financial Officer 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 December 31, 2018; 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 and Preferred Stock of Subsidiary.

The Company’s wholly-owned subsidiary, Great Elm Opportunities GP, Inc. (GEOF GP) serves as the general partner of Great Elm Opportunities I, LP (GEOF).  As the general partner, GEOF GP provides administrative services and manages the investment portfolio of GEOF.  Based on the performance of GEOF’s investment portfolio, GEOF GP may be entitled to certain incentive allocations.  GEOF began investing in July 2018 and through December 31, 2018 no incentive allocations have been made to GEOF GP.

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As part of the entry into the investment management business in November 2016, the Company entered into a cost sharing agreements with MAST Capital Management, LLC (MAST Capital) and acquired certain assets from MAST Capital.  In consideration for the assets acquired, GECC GP Corp. issued a senior secured not payable (GP Corp. Note).  In addition, the Company issued warrants to purchase 54,733 shares of the Company’s common stock (MAST Warrants).  During the six months ended December 31, 2017 the Company paid $0.3 million in non-reimbursable expenses in connection with the cost sharing agreement.  There was no such activity for the six months ended December 31, 2018 as a result of the separation discussed below.

In September 2017, the Company entered into a separation agreement with MAST.  The separation agreement contemplated, among other things, a reduction in the principal balance of the GP Corp. Note, the termination of the cost sharing agreement and the exchange of the MAST warrants for new warrants to purchase 420,000 shares of the Company’s common stock (New MAST Warrants).  As a result of the separation, $0.5 million of non-vested stock-based compensation was forfeited.  In July 2018, MAST Capital exercised the New MAST Warrants.  MAST Capital is the beneficial owner of approximately 9.3% of the Company’s outstanding common stock as of December 31, 2018. See Note 11 - Borrowings for additional discussion of the GP Corp. Note and Note 13 – Stockholders’ Equity for additional discussion of the warrant activity.

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 and Preferred Stock of Subsidiary.

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 Northwest and was one of the sellers in our acquisition of the business.  As a result of the acquisition, at December 31, 2018 Corbel holds preferred stock of DME Holdings and 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 11 - Borrowings for additional information on the Corbel Facility and Note 12 – Non-Controlling Interests and Preferred Stock 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.  See Note 13 – Non-Controlling Interests and Preferred Stock of Subsidiary.  Additionally, the Company has a contingent liability to the sellers for $0.8 million, which is included in the current portion of related party payables on the balance sheet.  See Note 4 – Acquisition for additional details.

As a result of measurement period adjustments to the net working capital discussed in Note 4 – Acquisition, the Company has a receivable of $0.3 million from a former owner as of December 31, 2018.

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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):

	December 31, 2018			June 30, 2018
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		(996	)		(384	)
Net carrying amount	$	55,029		$	55,641
Property and Equipment
Leasehold improvements	$	376		$	45
Vehicles		188			-
Computer equipment and software		141			-
Furniture and fixtures		224			27
Sleep study equipment		227			-
		1,156			72
Accumulated depreciation		(111	)		(31	)
Net carrying amount	$	1,045		$	41
Medical Equipment Held for Rental
Medical equipment held for rental	$	10,776		$	-
Accumulated depreciation		(2,038	)		-
Net carrying amount	$	8,738		$	-

The Company recognized total depreciation expense of $2.2 million for the three months ended December 31, 2018, of which $1.9 million is included in cost of durable medical equipment rentals and $0.3 million is included in depreciation and amortization on the condensed consolidated statements of operations.  The Company recognized total depreciation expense of $2.9 million for the six months ended December 31, 2018, of which $2.2 million is included in cost of durable medical equipment rentals and $0.7 million is included in depreciation and amortization on the condensed consolidated statements of operations.  The Company incurred immaterial depreciation expense for the three and six months ended December 31, 2017.

7. Lessor Operating 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.

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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 11 - 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.

Rental income from real estate leases is summarized in the following table:

(in thousands)	For the three months ended December 31, 2018		For the six months ended December 31, 2018
Revenues from base rents	$	1,151	$	2,302
Revenues from additional rental payments		323		614
Total rental revenues	$	1,474	$	2,916

The following table summarizes the base rents for the remaining lease term:

(in thousands)	Base Rent Payments
For the six months ending June 30, 2019	$	2,032
For the year ending June 30, 2020		4,120
For the year ending June 30, 2021		4,213
For the year ending June 30, 2022		4,312
For the year ending June 30, 2023		4,420
Thereafter		33,203
Total base rent	$	52,300

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.

8. 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.

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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 (in thousands):

	Fair Value as of December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Investment in GECC	$	9,287	$	-	$	-	$	9,287
Restricted investment in GECC		6,152		-		-		6,152
Total assets	$	15,439	$	-	$	-	$	15,439
Liabilities:
Contingent consideration liability	$	-	$	-	$	845	$	845
Total liabilities	$	-	$	-	$	845	$	845

The only recurring fair value measurements at June 30, 2018 was the investment in GECC which did not have any restrictions at that date.  The investment in GECC was valued using Level 1 inputs at June 30, 2018.

The following is a reconciliation of changes in contingent consideration, a Level 3 liability, for the three and six months ended December 31, 2018:

(in thousands)
Balance as of June 30, 2018	$	-
Additions		845
Balance as of September 30, 2018		845
Change in fair value		-
Balance as of December 30, 2018	$	845

There were no Level 3 assets or liabilities held during the three and six months ended December 31, 2017.

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Contingent consideration is included within the current portion of related party payables in the consolidated balance sheets.  The contingent consideration arrangement requires the Company to pay up to $2.4 million of additional consideration to the acquired companies’ former shareholders if certain EBITDA thresholds, as adjusted per the terms of the purchase agreement, are achieved for the 12 months ended December 31, 2018 and 2019.  The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation model.  The key assumptions in applying the Monte Carlo simulation model as of December 31, 2018 are as follows: 36.3% volatility and related EBITDA forecasts of the acquired businesses for the twelve months ended December 31, 2018 and 2019.  A fair value of $0.8 million was calculated as of the acquisition date, which has been reflected as a measurement period adjustment as the valuation was not finalized as of September 30, 2018.  There was not a significant change in the fair value of the contingent consideration through December 31, 2018 as compared to the measurement date fair value and no adjustment was recorded during the three months ended December 31, 2018.

The ultimate payout of the contingent consideration will be based on actual results achieved. As the fair value of the contingent consideration changes until finalized with the results for the twelve months ended December 31, 2019, these changes may have a material impact on earnings.  The Company determined that the EBITDA achieved, as adjusted per terms of the contract, for the 12 months ended December 31, 2018 was below the earnout threshold for payout, however, final determination is subject to a review process with the sellers.  A full or partial contingent consideration payment of up to $2.4 million may be due to the sellers following completion of the review process or if the applicable targets are met during the 12 months ended December 31, 2019.

The Company is the beneficial owner of approximately 18.5% (or 1,966,667 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).

The Company recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred.  There were no transfers between levels of the fair value hierarchy during the six months ended December 31, 2018 and 2017.

See Note 11 - Borrowings for additional discussion related to the fair value of notes payable.  The carrying value of all other financial assets and liabilities approximate their fair values.

9. 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.  See Note 4 – Acquisition.

Goodwill of $45.3 million presented on the condensed consolidated balance sheet consists only of the goodwill acquired as part of the acquisition of the durable medical equipment businesses in September 2018.  During the three months ended December 31, 2018 we recognized adjustments to goodwill which correspond to adjustments to provisional amounts assigned to acquired assets and liabilities.  See Note 4 – Acquisition for additional details.  There was no goodwill as of June 30, 2018.

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

	As of December 31, 2018							As of June 30, 2018
Amortized intangible assets:	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Investment Management
Investment management agreement	$	3,900	$	(1,024	)	$	2,876	$	3,900	$	(789	)	$	3,111
Assembled workforce		526		(138	)		388		526		(106	)		420
		4,426		(1,162	)		3,264		4,426		(895	)		3,531
Real Estate
In-place lease		6,028		(410	)		5,618		6,028		(159	)		5,869
Durable Medical Equipment
Tradename		6,900		(230	)		6,670		-		-			-
Non-compete agreements		1,450		(97	)		1,353		-		-			-
		8,350		(327	)		8,023		-		-			-
Total	$	18,804	$	(1,899	)	$	16,905	$	10,454	$	(1,054	)	$	9,400

Aggregate Amortization Expense:	2018		2017
For the three months ended December 31,	$	501	$	129
For the six months ended December 31,		845		302

Estimated Amortization Expense:
For the six months ending June 30, 2019	$	1,094
For the year ending June 30, 2020		2,082
For the year ending June 30, 2021		1,938
For the year ending June 30, 2022		1,865
For the year ending June 30, 2023		1,798

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10. 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)	December 31, 2018			June 30, 2018
Facilities
Right of use assets	$	5,574		$	1,521
Current portion of lease liabilities		1,276			336
Lease liabilities, net of current portion		4,567			1,304
Total liabilities	$	5,843		$	1,640
Weighted-average remaining life	4.5 years			6.3 years
Weighted-average discount rate		11.6	%		10.0	%
Vehicles
Right of use assets	$	66		$	-
Current portion of lease liabilities		13			-
Lease liabilities, net of current portion		53			-
Total liabilities	$	66		$	-
Weighted-average remaining life	4.2 years			n/a
Weighted-average discount rate		12.2	%	n/a

As of December 31, 2018, the Company had remaining right of use assets of $5.6 million and lease liabilities of $5.9 million (consisting of $1.3 million in current portion of lease liabilities and $4.6 million in lease liabilities, net of current portion on the condensed consolidated balance sheet) related to the leases discussed herein.

Operating lease costs are included in the operating expense associated with the business segment leasing the asset on the statements of operations 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 December 31,				For the six months ended December 31,
(in thousands)	2018		2017		2018		2017
Facilities
Operating lease cost	$	502	$	89	$	721	$	184
Cash paid for operating leases		486		576		699		755
Vehicles
Operating lease cost	$	5	$	-	$	7	$	-
Cash paid for operating leases		5		-		7		-

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The following table summarizes the Company’s undiscounted cash payment obligations for its operating leases (in thousands):

(in thousands)
For the six months ending June 30, 2019	$	993
For the year ending June 30, 2020		1,764
For the year ending June 30, 2021		1,630
For the year ending June 30, 2022		1,400
For the year ending June 30, 2023		875
Thereafter		965
Total lease payments	$	7,627
Imputed interest		(1,718	)
Total lease liabilities	$	5,909

Investment Management and General Corporate

The Company entered into 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.

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.

Durable Medical Equipment

As part of the acquisition discussed in Note 4 – Acquisition, the Company assumed leases for facilities and vehicles.  The facility leases include offices, retail and warehouse space and sleep labs.  The leases have original or amended terms ranging from 60 to 183 months, some of which include an additional option to extend the lease for up to 180 months.  At the date of acquisition, the remaining lease terms ranged from 3 to 96 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.

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11. Borrowings

Related party borrowings of the Company’s subsidiaries are summarized in the following table:

(in thousands)	Subsidiaries	December 31, 2018			June 30, 2018
GP Corp. Note	GECC GP Corp.	$	3,224		$	3,224
Corbel Facility	DME Inc. and subsidiaries		24,688			-
Total principal, net		$	27,912		$	3,224
Unamortized debt issuance cost			(357	)		-
Total long-term related party notes payable			27,555			3,224
Less current portion of related party notes payable			(1,326	)		-
Related party notes payable, net of current portion		$	26,229		$	3,224

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

(in thousands)	Subsidiaries	December 31, 2018			June 30, 2018
Senior Note	CRIC IT	$	53,187		$	54,161
Subordinated Note	CRIC IT		3,041			2,823
DME Revolver	DME Inc. and subsidiaries		6,630			-
Total principal, net		$	62,858		$	56,984
Unamortized debt premiums			3,170			3,131
Unamortized debt discounts and issuance costs			(2,402	)		(2,484	)
Total long term debt			63,626			57,631
Less current portion of long-term debt			(2,038	)		(1,999	)
Long term debt, net of current portion		$	61,588		$	55,632

The Company incurred interest expense of $1.8 million and $0.04 million for the three months ended December 31, 2018 and 2017, respectively.  The Company incurred interest expense of $2.8 million and $0.1 million for the six months ended December 31, 2018 and 2017, respectively.

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

(in thousands)	Principal Due
For the six months ending June 30, 2019	$	1,650
For the year ending June 30, 2020		3,485
For the year ending June 30, 2021		10,282
For the year ending June 30, 2022		3,833
For the year ending June 30, 2023		4,027
For the year ending June 30, 2024		22,044
Thereafter		58,677
Total	$	103,998
Outstanding principal on related party borrowings	$	27,912
Outstanding principal on other borrowings		62,858
Future interest to be paid-in-kind		13,228
Total future required principal payments	$	103,998

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

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 December 31, 2018 the interest rate was 5.8%.  The GP Corp. Note requires quarterly interest only payments and annual principal payments of $0.08 million, based on the Company’s fiscal year ending 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 December 31,				For the six months ended December 31,
(in thousands)	2018		2017		2018		2017
Principal payments	$	-	$	-	$	-	$	-
Interest expense		42		36		86		134

The Company estimated the fair value of the GP Corp. Note as of December 31, 2018 and June 30, 2018, on a non-recurring basis, using Level 3 inputs.  As of December 31, 2018 and June 30, 2018, the carrying value of the note approximated the fair value.

Real Estate

In March 2018, in connection with the acquisition of the real estate business, the Company 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.  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.

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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 7 – Lessor Operating Leases.

As of December 31, 2018 and June 30, 2018, the fair value approximates the carrying value for both the Senior Note and Subordinated Note.

Durable Medical Equipment

In September 2018, in conjunction with the acquisition of 80.1% of Great Elm 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 acquisition described in Note 4 – Acquisition.  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 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 December 31, 2018 the interest rate was 12.8%.  The Corbel Facility requires quarterly interest payments and principal payments of $0.3 million through the maturity date with the final principal balance due at maturity.  In addition, beginning with the quarter ending 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. and preferred stock issued by DME Holdings.  In connection with the issuance of the amended Corbel Facility, the borrowers paid Corbel a one-time structuring fee of $375,000, which is included in debt issuance costs.  See Note 5 – Related Party Transactions and Note 13 – Non-Controlling Interests and Preferred Stock 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, 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 December 31,				For the six months ended December 31,
(in thousands)	2018		2017		2018		2017
Principal payments	$	313	$	-	$	313	$	-
Interest expense		793		-		990		-

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The DME Revolver had a balance of $6.6 million at December 31, 2018 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 are due on August 30, 2020 and accrue interest at a variable rate of the prime rate plus 0.40% per annum.  At December 31, 2018 the interest rate was 5.9%.  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 based on the maturity date of the facility.

The borrowings under the DME Revolver are collateralized by the assets of the durable medical equipment business and the Company is required to meet certain financial covenants.

The 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.

As of December 31, 2018, the fair value approximates the carrying value for both the Corbel Facility and the DME Revolver.

12. Stockholders’ Equity

Performance Shares (Restricted Stock Awards)

The Company did not grant any restricted stock awards during the three and six months ended December 31, 2018.  As of December 31, 2018, the Company had 761,617 restricted stock awards that carry both performance and service conditions to vest.  The awards vest over a five-year service period, with the first twenty percent of the award vesting on the first anniversary of the grant, and the remaining award vesting quarterly through November 3, 2021.  In addition, the restricted stock awards are subject to pro-rated forfeiture based on the collection of cumulative fees under the GECC investment management agreement of at least $40 million for the five-year period ended November 3, 2021.

The Company estimates the performance condition is probable of being achieved.  The Company accounts for forfeitures of the restricted stock awards in the period incurred.  There were no forfeitures during the six months ended December 31, 2018.

For the three and six months ended December 31, 2018, the Company recognized compensation cost totaling $(0.1) million and $0.1 million, respectively associated with the performance-based awards.  For the three and six months ended December 31, 2017, the Company recognized compensation cost totaling $0.3 million and $0.4 million, respectively, associated with the performance-based awards.

The following table summarizes the Company’s restricted stock award activity as of and through December 31, 2018 (in thousands, except per share amounts):

Restricted Stock Awards and Restricted Stock Units	Restricted Stock			Weighted Average Grant Date Fair Value
Outstanding at June 30, 2018		767		$	3.92
Granted		186			3.43
Vested		(83	)		3.45
Forfeited		-			-
Outstanding at December 31, 2018		870		$	3.86

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Stock Options

During the six months ended December 31, 2018, the Company issued 60,000 stock options with an estimated grant date fair value of $0.1 million.  The Company utilizes a Black-Scholes option pricing model to estimate the fair value of its option awards.  The assumptions used to value the stock options granted during the six months ended December 31, 2018 consist of: expected volatilities between 58.9% and 59.2%; no expected dividend yields; risk-free rates between 3.12% and 3.13%; and expected terms between 6.3 and 6.5 years.

The following table summarizes the Company’s option award activity as of and through December 31, 2018 (in thousands, except per share amounts):

Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at June 30, 2018		2,676	$	4.31		7.44	$	70
Options granted		60		3.43
Exercised		-		-
Forfeited, cancelled or expired		-		-
Outstanding at December 31, 2018		2,736	$	4.29		7.00	$	25
Exercisable at December 31, 2018		1,632	$	4.77		5.79	$	18
Vested and expected to vest as of December 31, 2018		2,736	$	4.29		7.00	$	25

During the three and six months ended December 31, 2018, the Company recognized total stock-based compensation associated with all restricted stock and stock options of $0.2 million and $0.8 million, respectively.  During the three and six months ended December 31, 2017, the Company recognized total stock based compensation associated with all restricted stock and stock options of $0.9 million and $2.7 million, respectively.

As of December 31, 2018, unrecognized compensation costs associated with outstanding stock and stock-linked awards totaled approximately $3.3 million.

Warrants

In July 2018, MAST Capital exercised their outstanding warrants for cash proceeds totaling $1.4 million.  At December 31, 2018, no warrants remained outstanding.

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13. Non-Controlling Interests and Preferred Stock of Subsidiary

Holders of non-controlling interests (NCI) or preferred stock 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 interest balances on the condensed consolidated balance sheets:

(in thousands)	December 31, 2018			June 30, 2018
DME Holdings
Preferred stock classified as liability	$	5,266		$	-
DME Inc.
NCI classified as temporary equity		3,690			-
NCI classified as permanent equity		3,690			-
Total DME Inc.		12,646			-
GECC GP Corp.
NCI classified as permanent equity		(535	)		(465	)
GE FM Holdings
NCI classified as permanent equity		707			687
Total	$	12,818		$	222

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 December 31,						For the six months ended December 31,
(in thousands)	2018			2017			2018			2017
DME Holdings
Preferred stock classified as liability	$	-		$	-		$	-		$	-
DME Inc.
NCI classified as temporary equity		48			-			58			-
NCI classified as permanent equity		48			-			58			-
Total DME Inc.		96			-			115			-
GECC GP Corp.
NCI classified as permanent equity		(35	)		(33	)		(70	)		(387	)
GE FM Holdings
NCI classified as permanent equity		9			-			20			-
Total	$	70		$	(33	)	$	65		$	(387	)

Preferred stock in DME Holdings classified as liability

In connection with the acquisition of the acquired businesses on September 7, 2018, the Company issued 5,266 shares of preferred stock in DME Holdings valued at $1,000 per share at issuance.  The preferred shares provide for a 10% annual dividend, which is payable semi-annually.  The preferred shares are mandatorily redeemable by the Company at their face value of $1,000 per share on the earlier of certain redemption events or September 7, 2038.  The redemption events include a change in control, initial public offering, liquidation of DME Holdings, or failure to pay dividends.  The preferred shares rank senior and have preference to the common shares of DME Holdings.  The shares are non-voting, do not participate in the earnings of DME Holdings and contain standard protective rights.

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As the preferred shares are mandatorily redeemable at a specified date, the security has been classified as a liability in the consolidated balance sheet.  The dividends on the preferred stock are included in interest expense in the consolidated statement of operations.

Under the terms of the preferred stock, DME Holdings must maintain a required level of capitalization.  At the option of the Company, such capitalization is required to be an amount in cash and/or common stock of GECC, net of any debt of DME Holdings, with an aggregate value greater than or equal to 125% of the value of the shares of preferred stock.  After August 31, 2019, at least 100% of the value of the shares of preferred stock must be held in cash.  If at any month end the value of the qualifying assets falls below the required threshold, the Company shall, as promptly as practicable, contribute additional assets to meet the capitalization requirements.  Similarly, if at any month end the value of the qualifying assets exceeds the required threshold, the Company may remove the excess assets.  As of December 31, 2018, the Company contributed to DME Holdings GECC stock valued at approximately $6.2 million.  This investment is classified as restricted investments in the consolidated balance sheet.

The holder of the preferred stock, Corbel, is also the holder of the Corbel Facility and the non-controlling interest in DME Inc. classified as temporary equity discussed below.  See Note 5 – Related Party Transactions and Note 11 – Borrowings.

Non-controlling interest in DME Inc. classified as temporary equity

In connection with the acquisition of the acquired businesses on September 7, 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 and the preferred stock in DME Holdings discussed above.  See Note 5 – Related Party Transactions and Note 11 – Borrowings.

Non-controlling interest in DME Inc. classified as permanent equity

In connection with the acquisition of the acquired businesses on September 7, 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 September 2017, the Company eliminated the vesting provisions and removed the call rights for the GECC GP Corp. stock owned by employees of the Company.  As a result of the elimination, the Company recognized stock-based compensation expense of $1.5 million, equal to the estimated fair value of the non-controlling interest held by our employees in GECC 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.

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14. Income Tax

As of June 30, 2018, the Company had net operating loss (NOL) carryforwards for federal and state income tax purposes of approximately $1.7 billion and $197 million, respectively.  The federal NOL carryforwards will expire from 2019 through 2037 with the exception of NOL carryforwards generated in fiscal year 2018 or later which can be carried forward indefinitely.  The state NOL carryforwards will expire from 2019 through 2038.  The Company assesses NOL carryforwards based on taxable income on an annual basis.

15. Segment Information

The Company allocates resources based on four operating segments: investment management, real estate, durable medical equipment and general corporate.

The following tables illustrate results of operations by segment (in thousands):

	For the three months ended December 31, 2018
(in thousands)	Investment Management			Real Estate			Durable Medical Equipment			General Corporate			Reconciliation to Consolidated Total(1)			Consolidated Total
Revenue:
Total revenue	$	915		$	1,474		$	13,152		$	52		$	(52	)	$	15,541
Operating costs and expenses:
Cost of durable medical equipment sold and services		-			-			(3,545	)		-			-			(3,545	)
Cost of durable medical equipment rentals		-			-			(1,970	)		-			-			(1,970	)
Depreciation and amortization		(137	)		(431	)		(260	)		-			-			(828	)
Stock-based compensation(2)		(37	)		-			-			(132	)		-			(169	)
Transaction costs(3)		-			-			(2	)		(135	)		-			(137	)
Other selling, general and administrative		(704	)		(342	)		(5,895	)		(1,770	)		52			(8,659	)
Total operating expenses		(878	)		(773	)		(11,672	)		(2,037	)		52			(15,308	)
Other income (expense):
Interest expense		(44	)		(663	)		(1,081	)		-			-			(1,788	)
Other income (expense)		-			-			-			(2,696	)		-			(2,696	)
Total other expense, net		(44	)		(663	)		(1,081	)		(2,696	)		-			(4,484	)
Total pre-tax income (loss) from continuing operations	$	(7	)	$	38		$	399		$	(4,681	)	$	-		$	(4,251	)

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	For the three months ended December 31, 2017
(in thousands)	Investment Management			Real Estate(4)		Durable Medical Equipment(5)		General Corporate			Reconciliation to Consolidated Total		Consolidated Total
Revenue:
Total revenue	$	2,523		$	-	$	-	$	-		$	-	$	2,523
Operating costs and expenses:
Depreciation and amortization		(133	)		-		-		-			-		(133	)
Stock-based compensation(2)		(719	)		-		-		(208	)		-		(927	)
Other general and administrative		(1,544	)		-		-		(923	)		-		(2,467	)
Total operating expenses		(2,396	)		-		-		(1,131	)		-		(3,527	)
Other income (expense):
Interest expense		(37	)		-		-		-			-		(37	)
Other income (expense)		60			-		-		(221	)		-		(161	)
Total other expense, net		23			-		-		(221	)		-		(198	)
Total pre-tax income (loss) from continuing operations	$	150		$	-	$	-	$	(1,352	)	$	-	$	(1,202	)

	For the six months ended December 31, 2018
(in thousands)	Investment Management			Real Estate			Durable Medical Equipment(5)			General Corporate			Reconciliation to Consolidated Total(1)			Consolidated Total
Revenue:
Total revenue	$	1,855		$	2,916		$	17,243		$	70		$	(70	)	$	22,014
Operating costs and expenses:
Cost of durable medical equipment sold and services		-			-			(4,489	)		-			-			(4,489	)
Cost of durable medical equipment rentals		-			-			(2,260	)		-			-			(2,260	)
Depreciation and amortization		(273	)		(862	)		(403	)		-			-			(1,538	)
Stock-based compensation(2)		(582	)		-			-			(260	)		-			(842	)
Transaction costs(3)		-			-			(544	)		(1,459	)		-			(2,003	)
Other selling, general and administrative		(1,608	)		(637	)		(7,774	)		(3,143	)		70			(13,092	)
Total operating expenses		(2,463	)		(1,499	)		(15,470	)		(4,862	)		70			(24,224	)
Other income (expense):
Interest expense		(88	)		(1,328	)		(1,367	)		-			-			(2,783	)
Other income (expense)		-			-			20			(1,219	)		-			(1,199	)
Total other income (expense), net		(88	)		(1,328	)		(1,347	)		(1,219	)		-			(3,982	)
Total pre-tax income (loss) from continuing operations	$	(696	)	$	89		$	426		$	(6,011	)	$	-		$	(6,192	)

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	For the six months ended December 31, 2017
(in thousands)	Investment Management			Real Estate(4)		Durable Medical Equipment(5)		General Corporate			Reconciliation to Consolidated Total		Consolidated Total
Revenue:
Total revenue	$	4,291		$	-	$	-	$	-		$	-	$	4,291
Operating costs and expenses:
Depreciation and amortization		(313	)		-		-		-			-		(313	)
Stock-based compensation(2)		(2,271	)		-		-		(413	)		-		(2,684	)
Other selling, general and administrative		(3,062	)		-		-		(2,604	)		-		(5,666	)
Total operating expenses		(5,646	)		-		-		(3,017	)		-		(8,663	)
Other income (expense):
Interest expense		(135	)		-		-		-			-		(135	)
Other income (expense)		13			-		-		(92	)		-		(79	)
Total other income (expense), net		(122	)		-		-		(92	)		-		(214	)
Total pre-tax income (loss) from continuing operations	$	(1,477	)	$	-	$	-	$	(3,109	)	$	-	$	(4,586	)

(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 consolidated statements of operations.  Stock-based compensation attributable to the general corporate segment is included in selling, general and administrative expense in the consolidated statements of operations.

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

(4) Our real estate business began in March 2018 and there was no related activity prior to that date.

(5) Our durable medical equipment business began in September 2018 and there was no related activity prior to that date.

The following tables illustrate assets by segment (in thousands):

	As of December 31, 2018
Assets (in thousands)	Investment Management		Real Estate		Durable Medical Equipment		General Corporate		Total
Fixed assets, net	$	48	$	55,029	$	9,735	$	-	$	64,812
Identifiable intangible assets, net		3,264		5,618		8,023		-		16,905
Goodwill		-		-		45,336		-		45,336
Other assets		2,699		1,097		21,517		29,574		54,887
Total	$	6,011	$	61,744	$	84,611	$	29,574	$	181,940
	As of June 30, 2018
Assets (in thousands)	Investment Management		Real Estate		Durable Medical Equipment		General Corporate		Total
Fixed assets, net	$	41	$	55,641	$	-	$	-	$	55,682
Identifiable intangible assets, net		3,531		5,869		-		-		9,400
Other assets		5,878		937		-		61,690		68,505
Total	$	9,450	$	62,447	$	-	$	61,690	$	133,587

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16. Commitments and Contingencies

In conjunction with the Divesture of its patent licensing business on June 30, 2016, the Company was entitled to receive additional proceeds of up to $10 million, subject to adjustment for indemnification or claims breach of representations, and warranties.  The purchaser had claimed that it has losses indemnifiable in excess of the $10 million contractual payment due on June 30, 2018.  As of December 31, 2018, the Company had determined that a loss related to final settlement with the purchaser was not realizable or estimable.  As a result we have not recognized any portion of the $10 million in the accompanying consolidated financial statements for the periods presented.  On January 21, 2019, we entered into a mutual release and settlement agreement with the purchaser resulting in the release of any indemnifiable liabilities and an incremental cash receipt of $1.5 million.  The gain related to this settlement will be recorded in discontinued operations during the quarter ending March 31, 2019.

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.

17. Subsequent Events

On January 21, 2019, we entered into a mutual release and settlement agreement in connection with the divestiture of the patent licensing business.  See Note 16 – Commitments and Contingencies for additional details.

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

Overview

We are a holding company seeking to acquire assets and businesses, where our people and other assets provide a competitive advantage.  We currently have four business operating segments: investment management, real estate, durable medical equipment, and general corporate.

Through our investment management business we manage a business development company, Great Elm Capital Corp. (GECC), a credit-focused private fund, Great Elm Opportunities, LP, and separate accounts for an institutional investor.  The combined assets under management of these entities at December 31, 2018 was approximately $205.8 million.

Our real estate business, which we launched in March 2018, has a majority-interest in two Class A office buildings totaling 257,000 square feet situated on 17 acres of land in Fort Myers, Florida (collectively, the Property).  The Property is fully-leased, on a triple-net basis, to a single tenant through March 31, 2030.

In September 2018, we launched our durable medical equipment segment by acquiring two durable medical equipment businesses that specialize in the distribution of respiratory care equipment, including positive air pressure equipment and supplies, ventilators and oxygen equipment, and also provide sleep study services.  These durable medical equipment businesses have operations in Alaska, Arizona, Nebraska, Oregon and Washington.

The operations of our general corporate segment encompass our corporate headquarters operations, in addition to management consulting services provided to certain of our subsidiaries.

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

As of June 30, 2018, we had $1.7 billion of net operating loss (NOL) carryforwards for Federal income tax purposes.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (US GAAP).  The preparation of these financial statements requires our management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  These items are monitored and analyzed by our management for changes in facts and circumstances, and material changes in these estimates could occur in the future.  During the period ended December 31, 2018, we did not make material changes in our critical accounting policies or underlying assumptions as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 as it relates to recurring transactions, except for impact of our acquisition of the durable medical equipment businesses and the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606) as discussed below:

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Acquisition of Durable Medical Equipment Businesses

The acquisition of the durable medical equipment businesses resulted in the application of the following critical accounting policies:

Business combinations

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

Goodwill

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

Inventories

Inventories, which principally consist of durable medical equipment and related supplies that are predominantly held for sale, are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.  The Company reduces the carrying value of inventories for items that are potentially excess, obsolete, or slow-moving based on changes in customer demand, technology developments or other economic factors.  The Company bases its provisions for excess, expired and obsolete inventory primarily on our estimates of forecasted net sales.  A significant change in the timing or level of demand for our products as compared with forecasted amounts may result in recording additional provisions for excess, expired and obsolete inventory in the future.  As the Company purchases all of its inventories, all inventories are categorized as finished goods.  

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Accounts receivable

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.  Substantially all of the accounts receivable balance relates to the durable medical equipment business.  The Company does not require collateral in connection with its customer transactions.  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 contractual allowances where the gross charge is greater than the contractual rate with the Payors.  Management’s evaluation of variable consideration takes into account such factors as past experience, contractual rates with Payors and information about specific receivables and Payors.  In addition, co-payments, co-insurance and deductible amounts billed to patient customers are initially constrained until paid.  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. As additional information becomes known, the Company adjusts its assumptions accordingly to change its estimates.   There were no material adjustments to revenues made in three and six months ended December 31, 2018 relating to prior years.  Changes in constraints on variable consideration are recorded as a component of net revenues.

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

Revenue Recognition

Durable Medical Equipment Sales and Service Revenue

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

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

The 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, gross charges are retail charges and generally do not reflect what the Company is ultimately paid.  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 contractual allowances and discounts 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, which are included in the transaction price when considered probable of payment, which is generally when paid, and included in revenue if the product or service has already been provided to the customer.

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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 current period, 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 are services are not recognized as revenue.  The Company does not incur contract acquisition costs. 

Durable Medical Equipment Rental Revenue

Consistent with the lease of real estate assets, the Company recognizes rental revenue on a straight-line basis over the non-cancelable term of the lease.  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, which is generally when paid.

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 private payors, Medicare 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 current period, relating to prior periods.

Revenue Recognition – Adoption of Topic 606

During the six months ended December 31, 2018, we adopted Topic 606, which affected our revenue recognition methods for in the following areas:

In determining the appropriate amount of revenue to be recognized under 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) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

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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; as follows:

Investment Management Fees Revenue

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.  Management fees are billed quarterly in arrears.

Incentive Fees Revenue

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%.  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.

Administration Fees Revenue

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.

The non-recurring transactions in the period ended December 31, 2018 requiring management judgment and estimation are as follows:

Acquisition of Durable Medical Equipment Businesses

In September 2018, through its majority-owned subsidiary, Great Elm DME Holdings, Inc. (DME Holdings), the Company acquired an 80.1% interest in Great Elm DME, Inc. (DME Inc.) and its subsidiaries.  The remaining 19.9% ownership interest was issued to the prior owners.  See Note 4 – Acquisition in the Notes to Condensed Consolidated Financial Statements (Unaudited).

Results of Operations

The following discussion is reflective of our four business operating segments.  Two of these segments, real estate and durable medical equipment, commenced operations in March and September 2018, respectively.  Correspondingly, the results of operations for these two segments for the periods presented are not comparable to the corresponding periods ended December 31, 2017.

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Investment Management Business

The key metrics of our investment management business are:

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

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

• Earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA – which are (non-GAAP) measurements of our investment management operations; and

• Dividends and GECC share price ― which determine the return on our investment in GECC shares.

The following table provides the results of our investment management business for the three and six months ended December 31, 2018 and 2017.

	For the three months ended December 31,									For the six months ended December 31,
(in thousands)	2018			Percent Change			2017			2018			Percent Change			2017
Revenue:
Total revenue	$	915			(64	)%	$	2,523		$	1,855			(57	)%	$	4,291
Operating costs and expenses:
Stock-based compensation		(37	)		(95	)%		(719	)		(582	)		(74	)%		(2,271	)
Consulting agreement		(198	)		21	%		(163	)		(402	)		32	%		(305	)
Other general and administrative		(506	)		(63	)%		(1,381	)		(1,206	)		(56	)%		(2,757	)
Depreciation and amortization		(137	)		3	%		(133	)		(273	)		(13	)%		(313	)
Total operating expenses		(878	)					(2,396	)		(2,463	)					(5,646	)
Other income (expense):
Interest expense		(44	)		19	%		(37	)		(88	)		(35	)%		(135	)
Other income (expense)		-			(100	)%		60			-			(100	)%		13
Total other expense, net		(44	)					23			(88	)					(122	)
Operating income (loss):
Total pre-tax income (loss) from continuing operations	$	(7	)				$	150		$	(696	)				$	(1,477	)

Investment Management Revenue

For the three and six months ended December 31, 2018, investment management revenues consisted of $0.8 million in management fees and $0.2 million in administrative fees and $1.5 million in management fees and $0.3 million in administrative fees, respectively.  For the three and six months ended December 31, 2017, investment management revenues consisted of $0.6 million in management fees and $0.3 million in administrative fees and $1.2 million in management fees and $0.6 million in administrative fees, respectively.  In addition, investment management revenues for the three and six months ended December 31, 2017 included incentive fees of $1.6 million and $2.5 million, respectively.  Such incentive fees have not been recognized for the three and six months ended December 31, 2018 as a result of the change in accounting principle discussed under “Revenue Recognition – Adoption of Topic 606.”

The increases in management fees for the three and six months ended December 31, 2018 as compared to the corresponding prior year periods is due to increases in the assets under management at GECC.  The decreases in administrative fees for the three and six months ended December 31, 2018 as compared to the corresponding prior year periods is the result of reductions in compensation allocated to GECC in connection with the MAST Capital Management, LLC (MAST Capital) separation in the first quarter of fiscal year 2018 and additional staffing changes made through the second half of fiscal year 2018.

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The decrease in incentive fees is due to the adoption of Topic 606 under US GAAP as of July 1, 2018 which requires certain criteria be met before the Company can recognize fee income.  As a result of this new accounting policy, the incentive fees earned are not recognized until payment is assured and the probability of significant reversal of the fees is eliminated.  See Note 2 – Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements (Unaudited).  See also “—Non-GAAP Measurements.”

Investment Management Costs and Expenses

The changes in operating costs and other expenses for the three and six months ended December 31, 2018 as compared to the three and six months ended December 31, 2017 are largely attributable to our separation from MAST in September 2017.  The separation resulted in several non-recurring expenses in the period of separation and the restructuring of compensation arrangements for the remaining employees subsequent to the separation as described below:

• Included in general and administrative expenses for the three and six months ended December 31, 2017 are approximately $0.3 million and $0.3 million, respectively, in professional fees and other un-reimbursed costs incurred as a result of the separation process.

• Compensation arrangements were restructured for remaining employees resulting in a net increase of approximately $0.3 million in stock-based compensation and a net decrease of approximately $0.9 million in salaries and related costs for the six months ended December 31, 2018 as compared to the six months ended December 31, 2017.  For the three months ended December 31, 2018 the net decrease in salaries was $0.4 million as compared to the three months ended December 31, 2017.

• The Company eliminated the vesting provisions and removed the call rights for GECC GP Corp. stock owned by certain employees of the Company resulting in stock-based compensation expense equal to the estimated fair value of the non-controlling interest in GECC GP Corp. held by those employees of $1.5 million for the six months ended December 31, 2017.

• As part of the entry into the investment management business in November 2016, the Company entered into a cost sharing agreement with MAST Capital and acquired certain assets from MAST Capital.  In consideration for the assets acquired, GECC GP Corp. issued a senior secured note payable (the GP Corp. Note).  The principal of the GP Corp. Note was reduced from $10.8 million to $3.3 million resulting in a corresponding decrease in the related interest expense for the three and six months ended December 31, 2018 as compared to the three and six months ended December 31, 2017.  In addition, there was a one-time loss of $0.05 million which was recognized in other expense during the six months ended December 31, 2017.

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Real Estate Business

The following table provides the results of our real estate business for the three and six months ended December 31, 2018.  We began to operate the real estate business in March 2018 and thus there are no comparable results for the corresponding prior year periods.

(in thousands)	For the three months ended December 31, 2018			For the six months ended December 31, 2018
Revenue:
Total revenue	$	1,474		$	2,916
Operating costs and expenses:
General and administrative		(342	)		(637	)
Depreciation and amortization		(431	)		(862	)
Total operating expenses		(773	)		(1,499	)
Other income (expense):
Interest expense		(663	)		(1,328	)
Other income (expense)		-			-
Total other expense, net		(663	)		(1,328	)
Operating income (loss):
Total pre-tax income (loss) from continuing operations	$	38		$	89

Real Estate Revenue

For the three and six months ended December 31, 2018, we recognized $1.5 million and $2.9 million of rental income from the Property, respectively.

Real Estate Costs and Expenses

During the three and six months ended December 31, 2018, general and administrative costs primarily consisted of management fees, insurance, real estate taxes and state sales tax expense.  Depreciation and amortization for the three and six months ended December 31, 2018 includes depreciation on real estate assets of $0.3 million and $0.6 million, respectively, and the amortization of the related intangible assets of $0.1 million and $0.3 million, respectively.

In addition to the operating costs, we recognized interest expense of $0.6 million and net amortization of discount and premium of $0.1 million for the three months ended December 31, 2018 and interest expense of $1.2 million and net amortization of discount and premium of $0.2 million for the six months ended December 31, 2018 related to the Senior Note and the Subordinated Note (each as defined herein); see Note 11 – Borrowings in the Notes to Condensed Consolidated Financial Statements (Unaudited).

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Durable Medical Equipment Business

The following table provides the results of our durable medical equipment business for the three months ended December 31, 2018 and for the period from the inception of the durable medical equipment business to December 31, 2018 (the inception period).  We began to operate the durable medical equipment business in September 2018 and thus there are no comparable results for those periods.

(in thousands)	For the three months ended December 31, 2018			September 7, 2018 to December 31, 2018
Revenue:
Total revenue	$	13,152		$	17,243
Operating costs and expenses:
Cost of goods sold		(3,545	)		(4,489	)
Cost of rentals		(1,970	)		(2,260	)
Transaction costs		(2	)		(544	)
Other selling, general and administrative		(5,895	)		(7,774	)
Depreciation and amortization		(260	)		(403	)
Total operating expenses		(11,672	)		(15,470	)
Other income (expense):
Interest expense		(1,081	)		(1,367	)
Other income (expense)		-			20
Total other expense, net		(1,081	)		(1,347	)
Operating income (loss):
Total pre-tax income (loss) from continuing operations	$	399		$	426

Durable Medical Equipment Revenue

For the three months and inception period ended December 31, 2018, durable medical equipment revenue consisted of $9.1 million  and $11.9 million, respectively, in sales of medical equipment and sleep study services and $4.1 million and $5.4 million, respectively, in rentals of medical equipment.

Durable Medical Equipment Costs and Expenses

Cost of goods sold includes inventory costs for medical equipment sold and direct costs associated with running sleep study services, including staff to perform the studies and supplies used in the studies.  For the three months and inception period ended December 31, 2018, cost of rentals included $1.9 million and $2.2 million, respectively, of depreciation on medical equipment held for lease with the remaining costs related to maintenance expenses.

General and administrative expenses for the three months and inception period ended December 31, 2018 included approximately $5.6 million and $4.2 million, respectively, of payroll and related costs, $1.0 million and $0.8 million, respectively, of rental expenses associated with facility and equipment leases and other administrative costs.  In addition, the Company incurred transaction costs of $0.5 million for the inception period ended December 31, 2018 in connection with the acquisition of the durable medical equipment businesses.  Depreciation and amortization includes the depreciation of fixed assets, excluding depreciation on the equipment held for rental which is included in the cost of rentals, and amortization of the intangible assets resulting from the acquisition of the durable medical equipment businesses.

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In addition to the operating costs, we recognized interest expense of $1.1 million and $1.4 million, respectively, for the three months and inception period ended December 31, 2018.  Other income for the three months and inception period ended December 31, 2018 includes dividend income of $0.35 million and $0.4 million, respectively, and unrealized loss of $0.3 million and $0.4 million, respectively, for the portion of the investment in GECC which is restricted as a result of the related party note payable.  In addition, management and monitoring expenses, which are payable to Great Elm DME Manager, LLC (DME Manager), a subsidiary of the Company in the general corporate segment, and one of the former owners of the durable medical equipment businesses are included in other income.

General Corporate

The following table provides the results of our general corporate activities for the three and six months ended December 31, 2018 and 2017.

	For the three months ended December 31,									For the six months ended December 31,
(in thousands)	2018			Percent Change			2017			2018			Percent Change			2017
Revenue:
Total revenue	$	52			100	%	$	-		$	70			100	%	$	-
Operating costs and expenses:
Stock-based compensation		(132	)		(37	)%		(208	)		(260	)		(37	)%		(413	)
Transaction costs		(135	)		100	%		-			(1,459	)		100	%		-
Other general and administrative		(1,770	)		92	%		(923	)		(3,143	)		21	%		(2,604	)
Depreciation and amortization		-			0	%		-			-			0	%		-
Total operating expenses		(2,037	)					(1,131	)		(4,862	)					(3,017	)
Other income (expense):
Interest expense		-			0	%		-			-			0	%		-
Other income (expense)		(2,696	)		1120	%		(221	)		(1,219	)		1225	%		(92	)
Total other expense, net		(2,696	)					(221	)		(1,219	)					(92	)
Operating income (loss):
Total pre-tax income (loss) from continuing operations	$	(4,681	)		246	%	$	(1,352	)	$	(6,011	)				$	(3,109	)

General Corporate Revenue

For the three and six months ended December 31, 2018, all revenue was derived from fees earned by the Company’s wholly-owned subsidiary, DME Manager, which provides consulting services to DME Inc.  Both DME Manager and DME Inc. were formed in connection with the acquisition of the durable medical equipment businesses in September 2018 and there was no corresponding activity prior to this acquisition.

General Corporate Costs and Expenses

Our general and administrative costs primarily consist of professional fees and payroll costs in connection with our diligence efforts towards identifying asset and business acquisition opportunities.  For the three and six months ended December 31, 2018, professional fees in relation to the diligence of such opportunities was $0.1 million and $1.5 million, respectively.  There were no such fees recognized for the three and six months ended December 31, 2017.

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Other Income (Expense)

Other income and expense primarily consisted of dividends and unrealized gains or losses on the Company’s investment in GECC and interest income earned on cash balances.  A portion of the Company’s investment in GECC has been allocated to the durable medical equipment segment due to collateral requirements of the related party qualified preferred stock issued by DME Holdings in connection with the acquisition of the durable medical equipment businesses.  This resulted in a decrease of $0.3 million in dividend income, primarily related to the special dividend declared in December 2018, for both the three and six months ended December 31, 2018 as compared to the corresponding periods in the prior year.  In addition, the investment in GECC had a net unrealized loss of $3.3 million for the three months ended December 31, 2018 as compared to a net unrealized loss of $1.2 million for the three months ended December 31, 2017.  The net unrealized loss for the six months ended December 31, 2018 was $2.3 million as compared to a net unrealized loss of $1.5 million for the six months ended December 31, 2017.

Discontinued Operations

On April 6, 2016, we entered into a purchase and sale agreement with Optis UP Holdings, LLC (Optis) providing for the sale of the entities that conducted our patent licensing business (the Divestiture).  The Divestiture was completed on June 30, 2016.

In the Divestiture, we received $34.2 million in gross cash proceeds, inclusive of reimbursement of $4.2 million of agreed upon expenses, and were entitled to receive up to $10 million in additional cash payment, which was due on June 30, 2018.  Optis claimed that it had losses indemnifiable under the purchase and sale agreement in excess of the $10 million contractual payment due on June 30, 2018.  As a result, we have not recognized any portion of the $10 million in the accompanying consolidated financial statements for the periods presented. On January 21, 2019, we entered into a mutual release and settlement agreement with Optis resulting in the release of any indemnifiable liabilities and an incremental cash receipt of $1.5 million.  The gain related to this settlement will be recorded in discontinued operations during the quarter ending March 31, 2019.  Activity related to our legacy patent business is reflected in our financial statements as discontinued operations.

We incurred discontinued operating costs of approximately $0.1 million for the six months ended December 31, 2018 related to the representations and warranties associated with the disposal of our legacy patent licensing business.

Income Taxes

As of June 30, 2018, the Company had net operating loss (NOL) carryforwards for federal and state income tax purposes of approximately $1.7 billion and $197 million, respectively.  The federal NOL carryforwards will expire from 2019 through 2037 with the exception of NOL carryforwards generated in fiscal year 2018 or later which can be carried forward indefinitely.  The state NOL carryforwards will expire from 2019 through 2038.  The Company assesses NOL carryforwards based on taxable income on an annual basis.

Liquidity and Capital Resources

Cash Flows

Operating cash flows provided by continuing operations for the six months ended December 31, 2018 were $0.7 million.  The net cash inflow in our continuing operations was primarily the result of our net loss of $6.3 million offset by non-cash charges of $7.7 million.  The remaining net cash outflows from operations are attributable to increases in accounts receivable and related party receivable which are partially offset by increases in accounts payable, accrued liabilities and other liabilities.  The fluctuations in these accounts are due to the timing of cash payments and cash receipts in the normal course of business.

Operating cash flows used in continuing operations for the six months ended December 31, 2017 totaled approximately $3.1 million.  The cash used in our continuing operations were primarily the result of increases in receivables from our investment management fees and other related party receivables of $2.9 million and the funding of our operating expenses.

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Investing cash flows used in continuing operations for the six months ended December 31, 2018 were $44.1 million.  The net cash outflow primarily consisted of $41.6 million used in our acquisition of the durable medical equipment businesses in September 2018 and an additional $2.3 million used in subsequent purchases of equipment for rental.  We used an immaterial amount of cash in investing activities related to leasehold improvements at our corporate offices during the six months ended December 31, 2017.

Financing cash flows provided by continuing operations for the six months ended December 31, 2018 were $22.1 million.  Approximately $16.1 million and $5.5 million was provided by net proceeds on the note payable from a seller and a revolving line of credit, respectively,  established with the acquisition of the durable medical equipment businesses.  Subsequent to the acquisition, an additional $0.3 million in cash proceeds was drawn from the revolving line of credit and principal payments of $1.3 million were made on long term debt.  An additional $1.4 million was provided by the exercise of warrants by MAST Capital in July 2018.

During the six months ended December 31, 2017, financing cash flows provided by continuing operations consisted of $4.6 million in proceeds from the exercise of warrants.

Financial Condition

As of December 31, 2018, we had an unrestricted cash balance of $21.4 million.  We also beneficially own 1,966,667 shares of GECC common stock with an estimated fair value of $15.4 million as of December 31, 2018, of which $6.2 million is restricted under the terms of the related party qualified preferred stock issued by DME Holdings in connection with the acquisition of the durable medical equipment businesses.

We intend to make acquisitions or investments that we believe will result in the investment of all of our liquid financial resources, issuance of equity securities and incurring indebtedness.  If we are unsuccessful at raising additional capital resources, through either debt or equity, it is unlikely we will be able execute our strategic growth plan.

Further, during the six months ended December 31, 2018:

▪ we issued 420,000 shares of our common stock in exchange for cash proceeds of $1.4 million in connection with the redemption of outstanding warrants held by MAST Capital.

▪ we invested $25 million, including transaction expenses, to acquire an 80.1% interest in DME Inc. to launch our durable medical equipment business segment.

Borrowings

As of December 31, 2018, we had a related party GP Corp. Note due to MAST Capital totaling $3.2 million that accrues interest at a variable rate of three-month LIBOR plus 3.0%, as adjusted for each 90-day period (at December 31, 2018, the effective rate was 5.81%) through maturity on November 3, 2026.  The GP Corp. Note requires minimum annual principal payments of $0.08 million and quarterly interest-only payments.  The GP Corp. Note is secured by the profit sharing agreement between GECM and GECC GP Corp. that transfers profits generated by our management of GECC, with no recourse to any of our other assets, entities or operations.

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.

As of December 31, 2018, we had a senior note due to Wells Fargo Bank Northwest, National totaling $53.2 million that accrues interest at a rate of 3.49% through maturity on March 15, 2030 (the Senior Note).  The Senior Note requires monthly principal and interest payments through the maturity date.  The Senior Note is secured by a first lien mortgage on the Property and an Assignment of Leases and Rents, with no recourse to any of our assets, entities or operations.

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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.

As of December 31, 2018, we had a subordinated note due to Wells Fargo Bank Northwest, National totaling $3.0 million that accrues interest at a rate of 15.0% through maturity on March 15, 2030 (the Subordinated Note).  The Subordinated Note is a capital appreciation note, whereby the monthly interest is capitalized to the principal balance and due at maturity.  The Subordinated Note is secured by a second lien mortgage on the Property, and an Assignment of Leases and Rents, with no recourse to any of our assets, entities or operations.

The principal and interest due on the Subordinated 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 for both the Senior Note and the Subordinated Note 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.

As of December 31, 2018, we had a note due to a non-controlling interest holder of DME Inc. totaling $24.7 million that accrues interest at a rate of three-month LIBOR plus 10.0% (at December 31, 2018, the effective rate was 12.81%) through maturity on August31, 2023 (the Corbel Facility).  The Corbel Facility requires quarterly interest payments along with principal payments of $0.3 million plus an additional amount based on excess cash flows, if any, generated by the durable medical equipment business operations.  The Corbel Facility is secured by all of the assets of the durable medical equipment business.

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.

DME Inc. is required to pay to Corbel, as agent of the Corbel Facility, a quarterly monitoring fee of $25,000 per quarter while the borrowings remain outstanding.  In addition, 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.

As of December 31, 2018, we had a credit facility due to Pacific Mercantile Bank totaling $6.6 million that accrues interest at the prime rate plus 0.40% (at December 31, 2018, the effective rate was 5.90%) through maturity on August 30, 2020 (the DME Revolver).  The DME Revolver allows for borrowings up to $10 million.  The DME Revolver requires monthly interest payments.  The DME Revolver is secured by all of the assets of the durable medical equipment business and the Company is required to meet certain financial covenants.

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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.

Preferred Stock in Subsidiary

As of December 31, 2018, we had 5,266 shares of preferred stock in DME Holdings outstanding.  The preferred shares provide for a 10% annual dividend, which is payable semi-annually.  The preferred shares are mandatorily redeemable by the Company at their face value of $1,000 per share on the earlier of certain redemption events or September 7, 2038.  The redemption events include a change in control, initial public offering, liquidation of DME Holdings, or failure to pay dividends.

Contractual Obligations

Our contractual obligations as of December 31, 2018 are as follows (in thousands):

	Payments due by period
	Total		Less than 1 Year		1-3 years		3-5 years		More than 5 Years
GP Corp. Note payable(1)	$	4,568	$	261	$	509	$	491	$	3,307
Senior Note payable		68,154		3,901		8,070		8,471		47,712
Subordinated Note payable		16,270		-		-		-		16,270
Corbel Facility(2)		37,978		4,395		8,310		25,273		-
DME Revolver(3)		7,290		395		6,895		-		-
Operating Lease Obligations		7,628		1,889		3,207		1,849		683
Preferred stock of subsidiary		10,367		527		1,053		1,053		7,734
Total Contractual Obligations	$	152,255	$	11,368	$	28,044	$	37,137	$	75,706

(1) Includes estimated interest based on an interest rate of 5.81%, the 3 month LIBOR plus 3% as of December 31, 2018.

(2) Includes estimated interest based on an interest rate of 12.81%, the 3 month LIBOR plus 10% as of December 31, 2018.

(3) Includes estimated interest based on an interest rate of 5.90%, the prime rate plus 0.40% as of December 31, 2018.

Off-Balance Sheet Arrangements

As of December 31, 2018, we did not have any off-balance sheet arrangements that were not reflected in our condensed consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the market risks discussed in Item 7A. of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.

Item 4. Controls and Procedures.

We evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2018.  Disclosure controls and procedures are designed to ensure that the information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, (the Exchange Act) is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s (SEC) rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures that are designed to ensure that information required to be disclosed in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding required disclosure.  Our CEO and CFO participated in this evaluation and concluded that, as of December 31, 2018, our disclosure controls and procedures were not effective.

As disclosed in our Annual Report on Form 10-K, Item 9A. for the fiscal year ended June 30, 2018, our management concluded that our internal controls over financial reporting were not effective at June 30, 2018.  As of that date, our management identified material weaknesses in internal controls over financial reporting relating to personnel, the design and operating effectiveness of certain controls and the monitoring of our controls.

We have taken numerous actions to remediate the control deficiencies which contributed to the material weaknesses, including engaging an outside consultant to assist us in our remediation efforts, redesign of existing controls, the implementation of new controls and the development of an ongoing control testing plan. In addition, we have added experienced personnel to our team, which we believe will contribute significantly in our remediation efforts.    When all remedial actions are complete and in operation for a sufficient period of time, we will test the controls to determine whether the applicable controls are operating effectively.  The material weaknesses will not be considered remediated until our controls are operational for a period of time, tested and management concludes that these controls are operating effectively.

There were no material changes in our internal control over financial reporting during the six months ended December 31, 2018, other than the acquisition of the durable medical equipment businesses as discussed in Note 4 – Acquisition in the condensed consolidated financial statements.  In September 2018, we completed the acquisition of an 80.1% interest in DME Inc.  We are in the process of evaluating the existing controls and procedures of DME Inc., as well as the steps required to integrate DME Inc. into our internal controls over financial reporting.

We and our board of directors believe that these remediation efforts will result in significant improvements in our control environment.  Notwithstanding the identified material weaknesses and the conclusion that our controls were not effective as of June 30, 2018, management believes that the consolidated financial statements contained in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with US GAAP.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

No changes required to be disclosed.

Item 1A. Risk Factors.

In addition to the risk factors set forth below and the other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, which could materially affect our business, financial condition and/or operating results.

Risks Associated with the Launch of the Durable Medical Equipment Business and the Acquisition of Great Elm DME, Inc. (DME Inc.)

Adverse trends in the healthcare industry may negatively affect our investment in DME Inc., a provider of durable medical equipment and services.

The healthcare industry is currently experiencing, among other things:

• changes in the demand for and methods of delivering healthcare services;

• competition among healthcare providers;

• consolidation of large health insurers;

• regulatory and government reimbursement uncertainty resulting from the Patient Protection and Affordable Care Act (the ACA) and other healthcare reform laws;

• federal court decisions on cases challenging the legality of certain aspects of the ACA;

• federal and state government plans to reduce budget deficits and address debt ceiling limits by lowering healthcare provider Medicare and Medicaid payment rates;

• changes in third-party reimbursement methods and policies; and

• increased scrutiny of billing, referral and other practices by U.S. federal and state authorities.

These factors may negatively impact the economic performance of DME Inc., which may have a material adverse effect on our business and financial condition.

A significant portion of DME Inc.’s rental patients who use its products have health coverage under the Medicare program, and future changes in the reimbursement rates or payment methodologies under Medicare and other government programs may adversely affect the financial condition of DME Inc., which could materially and adversely affect our business and operating results.

As a provider of respiratory-related product rentals, a portion of DME Inc.’s revenue comes from Medicare reimbursement, due in part to a higher proportion of elderly persons suffering from chronic respiratory conditions than in the general population. There are increasing pressures on Medicare to control healthcare costs and to reduce or limit reimbursement rates for home medical products.

Legislation, including the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the Deficit Reduction Act of 2005, the Medicare Improvements for Patients and Providers Act of 2008, the ACA, and the 21stCentury Cures Act contain provisions that directly impact reimbursement for the durable medical equipment products provided by DME Inc. These legislative provisions as currently in effect and any changes to such provisions in the future will continue to have a material effect on DME Inc.’s business, financial condition and operating results.

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Further, due to budgetary shortfalls, many states are considering, or have enacted, cuts to their Medicaid programs. These cuts have included, or may include, elimination or reduction of coverage for DME Inc.’s products, amounts eligible for payment under co-insurance arrangements, or payment rates for covered items. Continued state budgetary pressures could lead to further reductions in funding for the reimbursement for DME Inc.’s products which, in turn, would adversely affect its, and ultimately our, business, financial condition and results of operations.

The competitive bidding process under Medicare could adversely impact the business and financial condition of DME Inc.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires the Secretary of Health and Human Services to establish and implement programs under which competitive acquisition areas are established throughout the U.S. for purposes of awarding contracts for the furnishing of competitively priced items of durable medical equipment. The Centers for Medicare and Medicaid Services, the agency responsible for administering this Medicare program, conducts a competition for each competitive acquisition area under which providers submit bids to supply certain covered items of durable medical equipment. Successful bidders must meet certain program quality standards in order to be awarded a contract and only successful bidders can supply the covered items to Medicare beneficiaries in the acquisition area. There are, however, regulations in place that allow non-contracted providers to continue to provide products and services to their existing customers at the new competitive bidding payment amounts. The contracts are expected to be re-bid every three years.

We continue to monitor developments regarding the implementation of this competitive bidding program, but we are currently unable to predict the outcome of the competitive bidding program on DME Inc. once fully implemented. It is likely that payment rates will continue to fluctuate, thus resulting in payment adjustments which could adversely affect the financial conditions and results of operations of DME Inc.

The Center for Medicare and Medicaid Services announced in July 2018 that it would temporarily suspend its competitive bidding process and that existing contracts would expire on December 31, 2018. Any enrolled Medicare supplier is able to supply durable medical equipment in competitive bidding areas as of January 1, 2019 until further notice.

Since 2011, the competitive bidding program has undergone several rounds, awarding contracts to program winners to supply durable medical equipment in competitive bid areas. DME Inc. currently has contracts in Phoenix and Tucson, AZ, as well as Omaha, NE, where it anticipates new competition as a result of the expiration of contracts that could adversely affect the financial conditions and results of operations of DME Inc.

DME Inc. obtains some of the components, subassemblies and completed products included in its sleep and respiratory-focused durable medical equipment from a single source or a limited group of manufacturers or suppliers, and the partial or complete loss of one of these manufacturers or suppliers could cause significant production delays, an inability to meet customer demand and a substantial loss in revenue.

DME Inc. utilizes single-source suppliers for some of the components and subassemblies it uses in its sleep and respiratory-focused durable medical equipment. DME Inc.’s use of single-source suppliers for some components of its durable medical equipment may expose it to several risks, including, among other things:

• its suppliers may encounter financial hardships as a result of unfavorable economic and market conditions unrelated to its demand for components, which could inhibit their ability to fulfill orders and meet DME Inc.’s requirements;

• suppliers may fail to comply with regulatory requirements, be subject to lengthy compliance, validation or qualification periods, or make errors in manufacturing components that could negatively affect the performance or safety of DME Inc.’s products or cause delays in the supplying of DME Inc.’s products to its customers;

• newly identified suppliers may not qualify under the stringent quality regulatory standards to which DME Inc.’s business is subject;

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• DME Inc. or its suppliers may not be able to respond to unanticipated changes in customer orders, and if orders do not match forecasts, DME Inc. or its suppliers may have excess or inadequate inventory of materials and components;

• DME Inc. may be subject to price fluctuations due to a lack of long-term supply arrangements for key components;

• DME Inc. may experience delays in delivery by its suppliers due to customs clearing delays, shipping delays, scarcity of raw materials or changes in demand from DME Inc. or their other customers;

• DME Inc. or its suppliers may lose access to critical services and components, resulting in an interruption in the manufacture, assembly and shipment of its systems;

• DME Inc.’s suppliers may be subject to allegations by other parties of misappropriation of proprietary information in connection with their supply of products to DME Inc., which could inhibit their ability to fulfill DME Inc.’s orders and meet its requirements;

• fluctuations in demand for products that DME Inc.’s suppliers manufacture for others may affect their ability or willingness to deliver components to DME Inc. in a timely manner;

• DME Inc.’s suppliers may wish to discontinue supplying components or services to DME Inc.; and

• DME Inc. may not be able to find new or alternative components or reconfigure its system and manufacturing processes in a timely manner if the necessary components become unavailable.

DME Inc. may experience problems with some of its suppliers in the future. It may not be able to quickly establish additional or replacement suppliers, particularly for single source components or subassemblies. Any interruption or delay in the supply of components or subassemblies, or DME Inc.’s inability to obtain components or subassemblies from alternate sources at acceptable prices in a timely manner, could impair its ability to meet the demand of its customers and cause them to cancel orders or switch to competitive products, potentially resulting in a loss of revenues.

DME Inc. depends upon reimbursement from Medicare, private payors, Medicaid and patients for a significant portion of its revenue, and if it fails to manage the complex and lengthy reimbursement process, its business and operating results could suffer.

A significant portion of DME Inc.’s rental revenue is derived from reimbursement by third-party payors. DME Inc. accepts assignment of insurance benefits from customers and, in a majority of cases, invoices and collects payments directly from Medicare, private insurance companies and Medicaid, as well as direct from patients under co-insurance provisions.

DME Inc.’s financial condition and results of operations may be affected by the healthcare industry’s reimbursement process, which is complex and can involve lengthy delays between the time that a product is delivered to the consumer and the time that the reimbursement amounts are settled. Depending on the payor, DME Inc. may be required to obtain certain payor-specific documentation from physicians and other healthcare providers before submitting claims for reimbursement. Certain payors have filing deadlines and they will not pay claims submitted after such time. DME Inc. is also subject to extensive pre-payment and post-payment audits by governmental and private payors that could result in material delays, refunds of monies received or denials of claims submitted for payment under such third-party payor programs and contracts. We cannot ensure that DME Inc. will be able to continue to effectively manage the reimbursement process and collect payments for its products promptly. If it fails to manage the complex and lengthy reimbursement process, it could adversely affect DME Inc.’s business, financial conditions and results of operations.

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If DME Inc. fails to comply with state and federal fraud and abuse laws, including anti-kickback, Stark, false claims and anti-inducement laws, it, and we, could face substantial penalties and DME Inc.’s business, operations, and financial condition could be adversely affected.

The federal anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering, or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federal healthcare programs. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors are drawn narrowly, and any remuneration to or from a prescriber or purchaser of healthcare products or services may be subject to scrutiny if it does not qualify for an exception or safe harbor. DME Inc.’s practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability. Failure to meet all requirements of a safe harbor is not determinative of a kickback issue but could subject the practice to increased scrutiny by the government.

The “Stark Law” prohibits a physician from referring Medicare or Medicaid patients to an entity providing “designated health services,” which includes durable medical equipment, if the physician or immediate family member of the physician has an ownership or investment interest in or compensation arrangement with such entity that does not comply with the requirements of a Stark exception. Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a non-compliant arrangement, civil penalties, and exclusion from Medicare, Medicaid or other governmental programs. Although we believe that DME Inc. has structured its provider arrangements to comply with current Stark Law requirements, these arrangements may not expressly meet the requirements for applicable exceptions from the law.

Federal false claims laws prohibit any person from knowingly presenting or causing to be presented a false claim for payment to the federal government, or knowingly making or causing to be made a false statement to get a false claim paid. The majority of states also have statutes or regulations similar to the federal anti-kickback and self-referral laws and false claims laws, which apply to items or services, reimbursed under Medicaid and other state programs, or, in several states, apply regardless of payor. These false claims statutes allow any person to bring suit in the name of the government alleging false and fraudulent claims presented to or paid by the government (or other violations of the statutes) and to share in any amounts paid by the entity to the government in fines or settlement. Such suits, known as qui tam actions, have increased significantly in the healthcare industry in recent years. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment. In addition, the recently enacted ACA, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Because of the breadth of these laws and the narrowness of the safe harbors and exceptions, it is possible that some of DME Inc.’s business activities could be subject to challenge under one or more of such laws. Such a challenge, regardless of the outcome, could have a material adverse effect on its business, business relationships, reputation, financial condition and results of operations.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians. Certain states mandate implementation of compliance programs and/or the tracking and reporting of gifts, compensation and other remuneration to physicians. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company many violate one or more of the requirements.

The federal Civil Monetary Penalties Law prohibits the offering or giving of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of items or services reimbursable by a federal or state governmental healthcare program. While it is DME Inc.’s intent to comply with all applicable laws, the government may find that DME Inc.’s marketing activities violate the Civil Monetary Penalties Law. If it is found to be in non-compliance, DME Inc. could be subject to civil money penalties of up to $0.01 million for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the federal or state healthcare programs.

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The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. If DME Inc.’s operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, it, and potentially we, may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restricting of DME Inc.’s operations. Any penalties, damages, fines, curtailment or restructuring or DME Inc.’s operations could harm its ability to operate its business, and ultimately our financial results. Any action against DME Inc. for violation of these laws, even if successfully defended against, could cause DME Inc. to incur significant legal expenses and divert its management’s attention from operation of its business. Moreover, achieving and sustaining compliance with applicable federal and state fraud laws may prove costly.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

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Item 6. Exhibits.

EXHIBIT INDEX

All references are to filings by Great Elm Capital Group, Inc., formerly known as Unwired Planet, Inc. (the Registrant) with the Securities and Exchange Commission under File No. 001-16073.

Exhibit Number	Description
2.1	Purchase and Sale Agreement, dated as of April 6, 2016, by and between the Registrant and Optis UP Holdings, LLC (incorporated by reference to Exhibit 2.1 to the Form 8-K filed on April 7, 2016)
2.2	First Amendment to the Purchase and Sale Agreement, dated as of May 25, 2016, by and between the Registrant and Optis UP Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on May 25, 2016)
2.3	Asset Purchase Agreement, dated as of November 3, 2016, by and between GECC GP Corp. and MAST Capital Management, LLC (incorporated by reference to Exhibit 10.4 to the Form 8-K filed on November 9, 2016)
2.4	Contract of Purchase and Sale, dated as of March 6, 2018, by and between IT Fort Myers Holdings LLC and Great Elm FM Holdings, Inc. (incorporated by reference to Exhibit 2.1 to the Form 8-K filed on March 6, 2018)
2.5	Transaction Agreement, dated as of September 7, 2018, by and among Corbel Capital Partners SBIC, L.P., NWMI Manager LLC, Valley Healthcare Holding, LLC and Great Elm DME Holdings, Inc. (incorporated by reference to Exhibit 2.1 to the Form 8-K filed on September 11, 2018)
3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on November 15, 2013)
3.2	Certificate of Ownership and Merger merging Unwired Planet, Inc. with and into Openwave Systems Inc. (incorporated by reference to Exhibit 3.3 to the Form 10-Q filed on May 10, 2012)
3.3	Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on January 5, 2016)
3.4	Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on January 11, 2016)
3.5	Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on June 16, 2016)
3.6	Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on October 17, 2017)
3.7	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Form 8-K filed on November 15, 2015)
3.8	Amended and Restated Certificate of Designations of Series A Junior Participating Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Form 8-A filed on January 29, 2018)
4.1	Amended and Restated Form of the Registrant’s Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Form 10-Q filed on May 15, 2018)

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Exhibit Number	Description
4.2	Stockholders’ Rights Agreement, dated as of January 28, 2018, between the Registrant and Computershare Trust Company, N.A., as Rights Agent (incorporated by reference to Exhibit 4.1 to the Form 8-A filed on January 29, 2018)
10.1	Offer Letter, dated as of October 3, 2018, between Brent J. Pearson and the Registrant (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on October 5, 2018)
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	Materials from the Great Elm Capital Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) related Notes to the Condensed Consolidated Financial Statements, tagged in detail (furnished herewith).

*Filed herewith.

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SIGNATURES

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

	GREAT ELM CAPITAL GROUP, INC.
Date: February 11, 2019	/s/ Peter A. Reed
	Peter A. Reed
	Chief Executive Officer
Date: February 11, 2019	/s/ John J. Woods
	John J. Woods
	Chief Financial Officer

66

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Peter A. Reed, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Great Elm Capital Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 11, 2019	By:	/s/ Peter A. Reed
		Peter A. Reed
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, John J. Woods, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Great Elm Capital Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 11, 2019	By:	/s/ John J. Woods
		John J. Woods
		(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Great Elm Capital Group, Inc. (the “Company”) for the period ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Peter A. Reed, Principal Executive Officer of the Company, and  John J. Woods, Principal Financial Officer of the Company, each certify, pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the undersigned’s knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Peter A. Reed
	Peter A. Reed
	(Principal Executive Officer)

By:	/s/ John J. Woods
	John J. Woods
	(Principal Financial Officer)

February 11, 2019

XML

Document and Entity Information - shares	6 Months Ended
	Dec. 31, 2018	Feb. 05, 2019
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Trading Symbol	GEC
Entity Registrant Name	Great Elm Capital Group, Inc.
Entity Central Index Key	0001082506
Current Fiscal Year End Date	--06-30
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		26,002,815

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Dec. 31, 2018	Jun. 30, 2018
Current assets:
Cash and cash equivalents	$ 21,361,000	$ 42,962,000
Restricted cash	702,000	578,000
Current portion of related party receivables	2,039,000	1,338,000
Accounts receivable	6,550,000
Investments, at fair value (cost $18,046 at December 31, 2018; and $30,000 at June 30, 2018)	9,287,000	18,172,000
Inventories	1,587,000
Prepaid and other current assets	635,000	544,000
Total current assets	42,161,000	63,594,000
Related party receivables, net of current		2,919,000
Restricted investments, at fair value (cost $11,954 at December 31, 2018)	6,152,000
Real estate assets, net	55,029,000	55,641,000
Property and equipment, net	1,045,000	41,000
Equipment held for rental, net	8,738,000
Identifiable intangible assets, net	16,905,000	9,400,000
Goodwill	45,336,000	0
Right of use assets	5,640,000	1,521,000
Other assets	934,000	471,000
Total assets	181,940,000	133,587,000
Current liabilities:
Accounts payable	5,945,000	32,000
Accrued expenses and other liabilities	3,807,000	2,535,000
Current portion of related party payables	995,000
Current portion of lease liabilities	1,289,000	336,000
Liabilities related to discontinued operations	3,608,000	3,608,000
Current portion of long term debt	2,038,000	1,999,000
Current portion of related party notes payable	1,326,000
Total current liabilities	19,008,000	8,510,000
Lease liabilities, net of current portion	4,620,000	1,304,000
Long term debt, net of current portion	61,588,000	55,632,000
Related party notes payable, net of current portion	26,229,000	3,224,000
Redeemable preferred stock of subsidiary	5,266,000
Other liabilities	331,000	331,000
Total liabilities	117,042,000	69,001,000
Commitments and Contingencies
Contingently redeemable non-controlling interest	3,690,000
Stockholders' equity
Preferred stock, $0.001 par value; 5,000 authorized and zero outstanding
Common stock, $0.001 par value; 350,000,000 shares authorized and 25,983,141 shares issued and 25,221,524 outstanding at December 31, 2018; and 25,480,200 shares issued and 24,718,395 outstanding at June 30, 2018	25,000	25,000
Additional paid-in-capital	3,305,137,000	3,302,886,000
Accumulated deficit	(3,247,816,000)	(3,238,547,000)
Total Great Elm Capital Group, Inc. stockholders' equity	57,346,000	64,364,000
Non-controlling interests	3,862,000	222,000
Total stockholders' equity	61,208,000	64,586,000
Total liabilities, non-controlling interest and stockholders' equity	$ 181,940,000	$ 133,587,000

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2018	Jun. 30, 2018
Statement Of Financial Position [Abstract]
Investments, cost basis	$ 18,046	$ 30,000
Restricted investments, cost basis	$ 11,954
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000	5,000
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	350,000,000	350,000,000
Common stock, shares issued	25,983,141	25,480,200
Common stock, shares outstanding	25,221,524	24,718,395

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
Revenues:
Revenue from contract with customer	$ 9,991	$ 2,523	$ 13,715	$ 4,291
Rental income	5,550		8,299
Revenues	15,541	2,523	22,014	4,291
Operating costs and expenses:
Durable medical equipment other operating expenses	5,843		7,704
Depreciation and amortization	828	133	1,538	313
Selling, general and administrative	2,039	1,131	5,406	3,017
Total operating costs and expenses	15,308	3,527	24,224	8,663
Operating income (loss)	233	(1,004)	(2,210)	(4,372)
Dividends and interest income	988	959	1,535	1,450
Unrealized loss on investment in GECC	(3,639)	(1,180)	(2,734)	(1,534)
Interest expense	(1,788)	(37)	(2,783)	(135)
Other income (expense), net	(45)	60		5
Loss from continuing operations	(4,251)	(1,202)	(6,192)	(4,586)
Loss from discontinued operations	(25)		(93)
Net loss	(4,276)	(1,202)	(6,285)	(4,586)
Less: net gain (loss) attributable to non-controlling interest	70	(33)	65	(387)
Net loss attributable to Great Elm Capital Group	$ (4,346)	$ (1,169)	$ (6,350)	$ (4,199)
Basic and diluted loss per share from:
Continuing operations	$ (0.17)	$ (0.05)	$ (0.25)	$ (0.18)
Discontinued operations	0.00		0.00
Net loss	$ (0.17)	$ (0.05)	$ (0.25)	$ (0.18)
Weighted average shares outstanding
Basic and diluted	25,187	24,562	25,121	23,898
Investment Management
Revenues:
Revenue from contract with customer	$ 915	$ 2,523	$ 1,855	$ 4,291
Operating costs and expenses:
Total operating costs and expenses	741	$ 2,263	2,190	$ 5,333
Real Estate
Operating costs and expenses:
Total operating costs and expenses	342		637
Real Estate | Rental
Revenues:
Rental income	1,474		2,916
Durable Medical Equipment | Rental
Revenues:
Rental income	4,076		5,383
Operating costs and expenses:
Total operating costs and expenses	1,970		2,260
Durable Medical Equipment | Sales and Services
Revenues:
Revenue from contract with customer	9,076		11,860
Operating costs and expenses:
Total operating costs and expenses	$ 3,545		$ 4,489

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Condensed Consolidated Statements of Operations (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Dec. 31, 2018	Dec. 31, 2018
Depreciation expense	$ 2,200	$ 2,900
Durable Medical Equipment | Rental
Depreciation expense	$ 1,882	$ 2,162

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Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Total	MAST	Great Elm DME, Inc.	Common Stock	Common Stock MAST	Additional Paid-in Capital	Additional Paid-in Capital MAST	Accumulated Deficit	Total Great Elm Capital Group Inc. Stockholders' Equity	Total Great Elm Capital Group Inc. Stockholders' Equity MAST	Non-controlling Interest	Non-controlling Interest Great Elm DME, Inc.
Beginning balance at Jun. 30, 2017	$ 66,216			$ 23		$ 3,293,683		$ (3,227,480)	$ 66,226		$ (10)
Beginning balance (in shares) at Jun. 30, 2017				23,200,000
Net loss	(3,384)							(3,030)	(3,030)		(354)
Issuance of common stock in exchange for cancelling warrants		$ 207			$ 0		$ 207			$ 207
Issuance of common stock share exchange for cancelling warrants (in shares)					55,000
Issuance of common stock related to vesting of restricted stock	0			$ 0					0
Issuance of common stock related to vesting of restricted stock units (in shares)				43,000
Stock-based compensation	1,757					1,757			1,757
Ending balance at Sep. 30, 2017	64,796			$ 23		3,295,647		(3,230,510)	65,160		(364)
Ending balance (in shares) at Sep. 30, 2017				23,298,000
Net loss	(1,202)							(1,169)	(1,169)		(33)
Issuance of common stock related to warrants exercise	4,572			$ 1		4,571			4,572
Issuance of common stock shares related to warrants exercise (in shares)				1,266,000
Issuance of common stock related to vesting of restricted stock	1			$ 1					1
Issuance of common stock related to vesting of restricted stock units (in shares)				25,000
Stock-based compensation	928					928			928
Ending balance at Dec. 31, 2017	69,095			$ 25		3,301,146		(3,231,679)	69,492		(397)
Ending balance (in shares) at Dec. 31, 2017				24,589,000
Beginning balance at Jun. 30, 2018	$ 64,586			$ 25		3,302,886		(3,238,547)	64,364		222
Beginning balance (in shares) at Jun. 30, 2018	24,718,395			24,719,000
Net loss	$ (2,019)							(2,004)	(2,004)		(15)
Net loss, Contingently redeemable non-controlling interest	10
Adoption of accounting standard (Note 2)	(2,919)							(2,919)	(2,919)
Acquisition of Great Elm DME, Inc.			$ 3,632									$ 3,632
Acquisition of Great Elm DME, Inc., Contingently redeemable non-controlling interest			$ 3,632
Issuance of common stock related to warrants exercise	1,409			$ 0		1,409			1,409
Issuance of common stock shares related to warrants exercise (in shares)				420,000
Issuance of common stock related to vesting of restricted stock	0			$ 0		0			0
Issuance of common stock related to vesting of restricted stock units (in shares)				4,000
Stock-based compensation	490					490			490
Ending balance at Sep. 30, 2018	65,180			$ 25		3,304,785		(3,243,470)	61,340		3,840
Ending balance (in shares) at Sep. 30, 2018				25,143,000
Ending balance, Contingently redeemable non-controlling interest at Sep. 30, 2018	3,642
Net loss	(4,324)							(4,346)	(4,346)		22
Net loss, Contingently redeemable non-controlling interest	48
Issuance of common stock related to vesting of restricted stock	0			$ 0		0			0
Issuance of common stock related to vesting of restricted stock units (in shares)				79,000
Stock-based compensation	352					352			352
Ending balance at Dec. 31, 2018	$ 61,208			$ 25		$ 3,305,137		$ (3,247,816)	$ 57,346		$ 3,862
Ending balance (in shares) at Dec. 31, 2018	25,221,524			25,222,000
Ending balance, Contingently redeemable non-controlling interest at Dec. 31, 2018	$ 3,690

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Condensed Consolidated Statements of Cash Flow (Unaudited) - USD ($) $ in Thousands		6 Months Ended
		Dec. 31, 2018	Dec. 31, 2017
Cash flows from operating activities:
Net loss		$ (6,285)	$ (4,586)
Loss from discontinued operations		93
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		3,700	313
Stock-based compensation	[1]	842	2,684
Unrealized loss on investments		2,734	1,534
Non-cash interest and amortization of debt issuance costs		402
Other non-cash expense, net		86	55
Changes in operating assets and liabilities:
Related party receivable		(701)	(2,934)
Accounts receivable		(1,097)
Inventories		(41)
Prepaid assets, deposits, and other assets		(52)	(191)
Operating leases		(16)
Related party payable		150
Accounts payable, accrued liabilities and other liabilities		882	9
Net cash provided by (used in) operating activities - continuing operations		697	(3,116)
Net cash used in operating activities - discontinued operations		(93)
Net cash provided by (used in) operating activities		604	(3,116)
Cash flows from investing activities:
Acquisition of business, net of cash acquired		(41,567)
Purchases of equipment held for rental		(2,340)
Purchases of property and equipment		(232)	(13)
Net cash used in investing activities - continuing operations		(44,139)	(13)
Net cash used in investing activities		(44,139)	(13)
Cash flows from financing activities:
Proceeds on revolving line of credit		5,855
Principal payments on long term debt		(963)
Principal payments on related party notes payable		(313)
Proceeds from note payable to seller		16,500
Debt financing costs		(430)
Exercise of warrants to purchase common stock		1,409
Proceeds from issuance of common stock, gross			4,572
Net cash provided by financing activities - continuing operations		22,058	4,572
Net cash provided by financing activities		22,058	4,572
Net increase (decrease) in cash, cash equivalents and restricted cash		(21,477)	1,443
Cash, cash equivalents and restricted cash at beginning of period		43,540	45,894
Cash, cash equivalents and restricted cash at end of period		22,063	47,337
Cash paid for interest		2,144	42
Non-cash investing and financing activities
Assumption of borrowings in connection with acquisition		9,275
Issuance of non-controlling interests in subsidiary in connection with acquisition		7,265
Preferred stock issued to seller in acquisition		5,266
Contingent consideration issued in connection with acquisition		$ 845
Warrant liability settled with common stock issuance			$ 194

[1] Stock-based compensation attributable to the investment management segment is included in investment management expenses in the consolidated statements of operations. Stock-based compensation attributable to the general corporate segment is included in selling, general and administrative expense in the consolidated statements of operations.

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Condensed Consolidated Statements of Cash Flow (Unaudited) (Parenthetical) - USD ($)	Dec. 31, 2018	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017
Statement Of Cash Flows [Abstract]
Cash and cash equivalents	$ 21,361,000	$ 42,962,000
Restricted cash	$ 702,000	$ 578,000	$ 0	$ 0

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Organization

6 Months Ended

Dec. 31, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization

1. Organization

Great Elm Capital Group, Inc. (the Company) is a holding company incorporated in Delaware.  The Company currently has four operating segments: investment management, real estate, durable medical equipment and general corporate.  The Company is pursuing business development opportunities in investment management, real estate, durable medical equipment and other industries.

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

The 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., DME Holdings and Great Elm DME Manager, LLC.  Majority-owned subsidiaries include GECC GP Corp., Great Elm FM Holdings, Inc., CRIC IT Fort Myers, LLC and DME Inc. and its seven wholly-owned subsidiaries.

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Summary of Significant Accounting Policies

6 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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, 2018, presented herein, has been derived from the Company’s audited consolidated financial statements as of and for the year-ended June 30, 2018.

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, estimates for contractual allowances, estimates for allowance for doubtful accounts, 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.

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 and Preferred Stock of Subsidiary.  Results of operations attributable to the non-controlling interests are included in the Company’s consolidated statements of operations.

Segments

The Company has four operating segments: investment management, real estate, durable medical equipment and general corporate.  The Company regularly reviews each segment for purposes of allocating resources and assessing performance.

Cash, Cash Equivalents, and Restricted Cash

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

The Company’s restricted cash consists of real estate rental income received in advance and a portion of prior period rental income that is reserved for capital and certain operating expenses in connection with the Company’s real estate assets.

Accounts receivable

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.  Substantially all of the accounts receivable balance relates to the durable medical equipment business.  The Company does not require collateral in connection with its customer transactions.  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 contractual allowances where the gross charge is greater than the contractual rate with the Payors.  Management’s evaluation of variable consideration takes into account such factors as past experience, contractual rates with Payors and information about specific receivables and Payors.  In addition, co-payments, co-insurance and deductible amounts billed to patient customers are initially constrained until paid.  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. As additional information becomes known, the Company adjusts its assumptions accordingly to change its estimates.   There were no material adjustments to revenues made in three and six months ended December 31, 2018 relating to prior years.  Changes in constraints on variable consideration are recorded as a component of net revenues.

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

As of December 31, 2018, the Company had unbilled receivables of approximately $0.5 million that relate to transactions where the Company has the ultimate right to invoice a Payor under the terms of the arrangement, but are not currently billable.  Such receivables are included in accounts receivable in the consolidated balance sheets.

Investments and Restricted Investments

Investments and restricted investments consist of shares in Great Elm Capital Corp. (GECC), which is carried at fair value.  The Company’s restricted investment represents a portion of its investment in GECC, which has been contributed as part of the capitalization of DME Holdings, as required under the terms of the DME Holdings preferred stock.  Under the terms of the preferred stock issued by DME Holdings (See Note 13 – Non-Controlling Interests and Preferred Stock of Subsidiary), the Company is required to maintain capitalization of DME Holdings at a specified level with qualifying assets.  Therefore these assets are restricted and not available for use to fund the Company’s operations.  If at any month end the value of the qualifying assets falls below the required threshold, the Company shall, as promptly as practicable, contribute additional assets to meet the capitalization requirements.  Similarly, if at any month end the value of the qualifying assets exceeds the required threshold, the Company may remove the excess assets.  The Company has provided DME Holdings with shares of GECC in the amount of $6.2 million as of December 31, 2018, as capitalization for the preferred stock in DME Holdings.

Fair Value Measurements

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

Property, Equipment, Real Estate Assets and Rental Equipment

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

The Company capitalizes the cost of the equipment predominantly leased out as part of the durable medical equipment business as such assets are acquired within equipment held for rental, net.  These purchases are classified as cash outflows from investing activities when they are paid.  The Company capitalizes the cost of equipment predominantly sold as part of the durable medical equipment business as such assets are acquired within inventories.  These purchases are classified as cash outflows from operating activities when they are paid.  A portion of equipment recorded within equipment held for rental, net, could ultimately be sold.  A portion of equipment recorded within inventories could ultimately be leased.  Management is not able to accurately track the ultimate use of equipment and has therefore adopted the above stated policy.

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

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

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

Description	Life in Years
Real Estate Assets
Buildings	55
Site improvements	16
Tenant improvements	12
Property and Equipment
Leasehold improvements	lesser of 7 years or life of the lease
Vehicles	5
Sleep study equipment	5
Furniture and fixtures	1 to 5
Computer equipment and software	3
Rental Equipment
Medical equipment for lease	1 to 5

Inventories

Inventories, which principally consist of durable medical equipment and related supplies that are predominantly held for sale, are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.  The Company reduces the carrying value of inventories for items that are potentially excess, obsolete, or slow-moving based on changes in customer demand, technology developments or other economic factors.  The Company bases its provisions for excess, expired and obsolete inventory primarily on our estimates of forecasted net sales.  A significant change in the timing or level of demand for our products as compared with forecasted amounts may result in recording additional provisions for excess, expired and obsolete inventory in the future.  As the Company purchases all of its inventories, all inventories are categorized as finished goods.  There were no significant write-offs during the six months ended December 31, 2018.

Goodwill and Other Identifiable Intangible Assets

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

The Company amortizes its identifiable intangible assets over their estimated useful lives using applicable discounted cash flow attribution and straight-line methods.  The Company amortizes its identifiable intangible assets over periods ranging from five to fifteen years.

Long-Lived Assets

Long-lived assets include real estate assets, property and equipment, intangible assets and the right of use assets.  These assets are evaluated for potential impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable based on undiscounted cash flows.  If an impairment is indicated, the Company records the impaired asset at fair value, and records a charge to operations.  No such impairment triggering events were identified in the current period.

Leases and Right of Use Assets

We determine if an arrangement is a lease at inception.  As of December 31, 2018, all of our leases are operating leases.  Operating leases are included in operating lease right of use assets (ROU), current portion of lease liabilities and lease liabilities net of current portion in the condensed consolidated balance sheets.

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

We have lease agreements with lease and non-lease components, which are accounted for together as a single lease component.

At December 31, 2018, the majority of our lease liabilities and ROU assets were acquired with the durable medical equipment businesses as discussed in Note 4 – Acquisition and the amounts disclosed on the condensed consolidated balance sheet represent preliminary valuations.

Cost of Durable Medical Equipment Sold and Services

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

Cost of Durable Medical Equipment Rentals

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

Investment Management Expenses

The Company classifies direct expenses of its investment management segment including: payroll, stock-compensation, and related taxes and benefits; facilities costs; and professional fees; in investment management expenses in the accompanying condensed consolidated statements of operations.  GECM has a three-year contractual consulting arrangement through November 2019 with a third party to provide services in exchange for 26% of the fees earned from the management of GECC, excluding incentive fees.

Real Estate Expenses

The Company classifies direct expenses of its real estate segment, including: real estate taxes, insurance, property management fees and other operating expenses in real estate expenses in the accompanying condensed consolidated statements of operations.  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 consolidated statements of operations, in the same periods as the expense are incurred.

Durable Medical Equipment Other Operating Expenses

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

Depreciation and Amortization

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

Business combinations 

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

Net Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period.  Diluted net loss per share is computed by dividing the diluted net loss by the weighted-average number of common shares, including potential dilutive common shares assuming the dilutive effect of outstanding stock options, unvested restricted common shares and common stock warrants, as determined using the treasury stock method.  For periods in which the Company has reported net losses, diluted net loss per share is the same as basic net loss per share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

As of December 31, 2018 and 2017, the Company had 3,606,206 and 3,936,334 potential shares of Company common stock issuable upon exercise of the stock options, respectively, that are not included in the diluted net loss per share calculation because to do so would be antidilutive.

Restrictions on Subsidiary Dividends

In the GP Corp. Note Agreement, GECC GP Corp. agreed not to declare any dividends until the GP Corp. Note is satisfied.  In 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 from continuing operations for the periods presented were attributable to the management of one investment vehicle, GECC, which is also a related party.  See Note 5 – 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.  For the three and six months ended December 31, 2018, one government program payor constituted approximately 30% and 28%, respectively, of consolidated revenues.  As of December 31, 2018, receivables from that government program payor constituted 29% of our ending accounts receivable.  An additional government program payor constituted another 13% of our ending accounts receivable as of December 31, 2018.  

Recently Adopted Accounting Standards

Revenue RecognitionIn May 2014, the Financial Accounting Standards Board (FASB) issued the New Revenue Standard, which replaced Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605), including industry-specific requirements, and provided companies with a single principles-based revenue recognition model for recognizing revenue from contracts with customers. The core principle of the New Revenue Standard is that a company should recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.

On July 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (Topic 606) and related amendments, under the modified retrospective transition method.  Accordingly, the periods prior to adoption are presented under our prior accounting policies and we applied the new guidance to all open contracts with customers as of the implementation date.

The new guidance outlines a single revenue recognition model for all contracts with customers and provides a framework for addressing revenue recognition issues on a comprehensive basis.  The framework includes five steps:

1. Identifying the contract(s) with a customer.

2. Identifying the performance obligations in the contract.

3. Determining the transaction price.

4. Allocating the transaction price to the performance obligations in the contract.

5. Recognizing revenue when (or as) the entity satisfies a performance obligation.

The adoption of Topic 606 impacted the Company’s revenue recognition policy for incentive fee revenue associated with our investment management agreements.  The Company’s revenue recognition policy for rental revenue for its real estate segment did not change since the revenue recognition for such arrangements is outside the scope of Topic 606.

Under Topic 606, variable consideration such as incentive fees must be constrained (not recognized) if it is not probable that there would not be a significant reversal of recognized revenue.  There was no impact on the Company’s revenue recognition policy for management and administrative revenues as these amounts are not subject to constraint.  The Company fully constrained its performance-based incentive fee revenue in contrast to recognizing revenue based on a hypothetical liquidation of net assets on the reporting date and the distribution of the net proceeds in accordance with the respective investment management agreements under its prior policies.  Under the modified retrospective method, the cumulative effect of adopting Topic 606 was recognized as an adjustment to eliminate incentive fees receivable and increase accumulated deficit of $2.9 million and after such adjustment there were no incentive fees receivable.

The following table reflects the impact of the cumulative effect of the accounting changes upon the adoption of Topic 606 on the condensed consolidated balance sheet as of the beginning of the period:

(in thousands)	As of June 30, 2018			Impact of accounting change			As of July 1, 2018
Incentive fees receivable - related party	$	2,919		$	(2,919	)	$	-
Accumulated deficit		(3,238,547	)		(2,919	)		(3,241,466	)

The following table shows the effect of the change in accounting on the condensed consolidated statement of operations:

	For the three months ended December 31, 2018								For the six months ended December 31, 2018
(in thousands)	Under Topic 605			Under Topic 606			Effect of Change		Under Topic 605			Under Topic 606			Effect of Change
Investment management revenues	$	1,289		$	915		$	374	$	2,805		$	1,855		$	950
Durable medical equipment sales and services revenue		9,076			9,076			-		11,860			11,860			-
Total revenues accounted for under Topic 606	$	10,365		$	9,991		$	374	$	14,665		$	13,715		$	950
Total revenues		15,915			15,541		$	374		22,964			22,014			950
Net loss from continuing operations		(3,877	)		(4,251	)	$	374		(5,242	)		(6,192	)		950
Net loss		(3,902	)		(4,276	)	$	374		(5,335	)		(6,285	)		950
Net loss attributable to Great Elm Capital Group		(3,972	)		(4,346	)	$	374		(5,400	)		(6,350	)		950
Net loss per share	$	(0.15	)	$	(0.17	)	$	0.02	$	(0.21	)	$	(0.25	)	$	0.04

Fair Value MeasurementsIn 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.

Recently Issued Accounting Standards

Share-Based Compensation  In June 2018, the FASB issued amended guidance expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, ASU 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment.  The new standard will include share-based payment transactions for acquiring goods and services from nonemployees, whereby share-based payments to nonemployees will be measured and recorded at the fair value of the equity instruments that an entity is obligated to issue on the grant date. The standard should be applied for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period using a modified retrospective approach with a cumulative adjustment to opening retained earnings in the year of adoption for the remeasurement of liability-classified awards that have not been settled by the date of adoption and equity-classified awards for which a measurement date has not been established.  Early application is permitted.  We are currently evaluating the impact of this guidance on the Company’s financial statements.

Lessor Lease Accounting  In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors.  The new guidance permits lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs, and instead, account for those costs as lessee costs.  Additionally, the guidance updates revenue recognition related to variable payments by (1) requiring lessors to exclude from variable payments lessor costs paid directly to third parties by lessees; and (2) requiring lessors to allocate certain variable payments to lease and nonlease components when there are changes in facts and circumstances on which the variable payment is based.  When an allocation of variable payments between lease and nonlease components is made, the variable payment allocated to the lease component will be recognized as revenue in accordance with Topic 842, whereas the variable payment allocated to the nonlease component will be recognized in accordance with other applicable topics, such as Topic 606.  The new guidance will be effective for the Company in the reporting period beginning January 1, 2019 and will be applied prospectively.  The impact of the adoption of this new guidance will result in a reduction of real estate rental income and real estate expenses of approximately $0.8 million annually on a prospective basis.

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Revenue

6 Months Ended

Dec. 31, 2018

Revenue From Contract With Customer [Abstract]

Revenue

3. Revenue

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

	For the three months ended December 31,				For the six months ended December 31,
(in thousands)	2018		2017		2018		2017
Product and Services Revenue(1)
Investment Management
Management Fees	$	755	$	606	$	1,523	$	1,157
Incentive Fees		-		1,609		-		2,500
Administration Fees		160		308		332		634
		915		2,523		1,855		4,291
Durable Medical Equipment
Equipment Sales		7,502		-		9,802		-
Service Revenues		1,574		-		2,058		-
		9,076		-		11,860		-
Total product and services revenue	$	9,991	$	2,523	$	13,715	$	4,291
Rental Revenues
Real Estate
Rental Income		1,474		-		2,916		-
Durable Medical Equipment
Medical Equipment Rental Income		4,076		-		5,383		-
Total rental revenue		5,550		-		8,299		-
Total	$	15,541	$	2,523	$	22,014	$	4,291

(1) Revenue for sales of products or services recognized in the three and six months ended December 31, 2018 and 2017 was accounted for under Topic 606 and Topic 605, respectively, as discussed in this note and Note 2 – Summary of Significant Accounting Policies.

Revenue Accounting Under Topic 605

For discussion of our revenue recognition policy as it relates to revenue transactions accounted for prior to July 1, 2018, which was accounted for under Topic 605, refer to our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.

Revenue Accounting Under Topic 606

In determining the appropriate amount of revenue to be recognized under 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) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

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; as follows:

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.  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%.  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.

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.

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.

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, gross charges are retail charges and generally do not reflect what the Company is ultimately paid.  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 contractual allowances and discounts 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, which are included in the transaction price when considered probable of payment, which is generally when paid, and included in revenue if the product or service has already been provided to the customer.

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 six months ended December 31, 2018, 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.  As such, the Company has no contract liabilities as of December 31, 2018 and September 30, 2018.

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.  Such amounts related to contracts with customers are not material as of December 31, 2018 and September 30, 2018.

We had no balances of contract assets or contract liabilities related to equipment sales and services as of June 30, 2018 as these contracts with customers were acquired in September 2018, with our acquisition of the durable medical equipment businesses.

Revenue Accounting Under Topic 842

Real Estate Revenue

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.  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 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.

Durable Medical Equipment Revenue

Equipment Rental Revenue

Consistent with the lease of real estate assets, the Company recognizes rental revenue on a straight-line basis over the non-cancelable term of the lease.  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, which is generally when paid.

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 six months ended December 31, 2018, 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 $0.7 million as of December 31, 2018 and September 30, 2018.

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.  The estimate of net unbilled rental revenue recognized is based on historical trends and estimates of future collectability.  Such amounts related to equipment rentals are not material as of December 31, 2018 and September 30, 2018.

We had no balances related to deferred revenue or unbilled revenue related to equipment rentals as of June 30, 2018 as these balances were acquired in September 2018, with our acquisition of the durable medical equipment businesses.

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Acquisition

6 Months Ended

Dec. 31, 2018

Business Combinations [Abstract]

Acquisition

4. Acquisition

In September 2018, through its subsidiary, DME Holdings, the Company acquired an 80.1% interest in DME Inc., an entity formed to acquire and combine two previously unrelated durable medical equipment distribution companies, Valley and Northwest, which both specialize in the distribution of sleep and respiratory care equipment, including positive air pressure equipment and supplies, ventilators, and oxygen equipment.  The medical distribution companies operate in Alaska, Arizona, Nebraska, Oregon and Washington.  The Company expects to achieve significant synergies and costs reductions through the combination of these companies in this acquisition.  Operating results of the acquired businesses have been included in the consolidated statements of operations since September 1, 2018 as the impact of including the period prior to September 7, 2018 was immaterial to the condensed consolidated financial statements.

On the date of Acquisition, the Company allocated the consideration given to the individual assets acquired and the liabilities assumed based on a preliminary estimate of their fair values.  The assessment of fair value previously reported, as of and for the three months ended September 30, 2018, was preliminary as the Company had not finalized its fair value estimates.

During the three months ended December 31, 2018, the Company obtained and considered additional information related to the assets acquired and liabilities assumed, and recorded measurement period adjustments to the allocation of the purchase price noted below.

The acquisition date fair value of the consideration transferred is summarized in the following table:

(in thousands)	As Previously Reported		Adjustment			As Adjusted
Cash	$	25,321	$	-		$	25,321
Net working capital adjustment		-		(254	)		(254	)
Increase in note payable to seller(1)		16,500		-			16,500
Debt assumed		9,275		-			9,275
Preferred stock in DME Holdings		5,266		-			5,266
Contingent consideration		1,225		(380	)		845
Total Consideration	$	57,587	$	(634	)	$	56,953

(1) Included in related party note payable on the condensed consolidated balance sheet.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.  The Company is in the process of obtaining finalized third-party valuations of certain intangible assets, and gathering information on all assets acquired and liabilities assumed, including tax attributes, thus, all amounts are preliminary and are subject to change as these provisional estimates are finalized.

(in thousands)	As Previously Reported			Adjustment			As Adjusted
Accounts receivable	$	5,363		$	90		$	5,453
Inventories		1,546			-			1,546
Other assets		503			-			503
Fixed assets		852			-			852
Equipment held for rent		8,470			(294	)		8,176
Goodwill		46,222			(886	)		45,336
Tradename		6,900			-			6,900
Non-compete agreements		1,450			-			1,450
Right of use asset		4,205			-			4,205
Current liabilities		(6,374	)		456			(5,918	)
Operating lease liabilities		(4,285	)		-			(4,285	)
Non-controlling interest		(7,265	)		-			(7,265	)
Net Assets Acquired	$	57,587		$	(634	)	$	56,953

The outstanding balances of the note payable to seller, debt assumed on the revolving credit facility, and the preferred stock in DME Holdings approximates fair value based upon current rates and terms available for similar instruments.

The trade name was determined to have a fair value of $6.9 million.  The valuation of the trade name was based on a relief from royalty method.  The key assumptions in applying the relief from royalty approach are as follows: royalty rate of 3.0% and a discount rate of 20%.  

The non-compete agreements were determined to have a fair value of $1.5 million.  The valuation of the non-compete agreements was based on a lost profits method.  The key assumptions in applying the lost profits method are as follows; probability adjusted EBITDA of the acquired businesses and a discount rate of 20%.

The contingent consideration arrangement requires the Company to pay up to $2.4 million of additional consideration to the acquired companies’ former shareholders if certain earnings before interest, taxes, depreciation and amortization (EBITDA) thresholds, as adjusted per the terms of the purchase agreement, are achieved for the 12 months ended December 31, 2018 and 2019.  Under the Transaction Agreement, payment of the contingent consideration for any period is subject to satisfaction of the applicable EBITDA threshold.  The fair value of the contingent consideration arrangement at the acquisition date was $0.8 million.  The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation model.  The key assumptions in applying the Monte Carlo simulation model as follows: 33.5% volatility, and EBITDA forecasts of the acquired businesses.  The contingent consideration is included within the current portion of related party payables in the consolidated balance sheets.

These fair value measurements are based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC Topic 820, Fair Value Measurement.  

Upon a subsequent sale of DME Inc., certain members of the DME Inc. management team will be entitled to a contingent bonus based on a percentage of the proceeds of the sale less the Company’s invested capital in DME Inc.

Of the $8.4 million of acquired identifiable intangible assets, $6.9 million was provisionally assigned to tradenames and $1.5 million was provisionally assigned to non-compete assets, which are associated with the former sellers of the businesses.  All tradenames acquired have an expected life of 10 years over which they will be amortized on a straight-line basis, which matches the pattern of economic use of these assets.  The non-compete agreements have a weighted-average expected life of 4.2 years.  All non-compete agreements will be amortized on a straight-line basis, which approximates the pattern of economic use.  Neither tradenames nor the non-compete agreements have renewal terms or are expected to have any net realizable value at the end of their useful lives.

The $45.3 million of goodwill was assigned to the durable medical equipment segment and is attributable primarily to expected synergies and the assembled workforce of the acquired businesses.  Approximately $20.5 million of the goodwill is expected to be deductible for income tax purposes.  This amount is preliminary and subject to change as the provisional estimate is finalized.

The fair value of the 19.9% non-controlling interest in acquired companies is provisionally estimated to be $7.3 million. The fair value of the non-controlling interest was estimated based on the purchase price paid by the Company for its 80.1% of the acquired business since the non-controlling interest holders hold equity in DME Inc., which allows the holders to share in at least the same benefits inured from the acquisition as the Company.

The Company has not recorded any deferred tax amounts associated with differences between income tax basis and the stepped up basis of financial statement basis amounts in its preliminary purchase allocation of consideration transferred for the acquired businesses.  The Company is in the process of obtaining the income tax basis amounts related to assets acquired and liabilities assumed.  As a result, the related deferred tax balance sheet amounts and any potentially impacted income tax provision or benefit will be recorded once the information becomes available and is evaluated by the Company.  The Company expects these provisional amounts to be resolved prior to the end of fiscal year 2019.

The Company recognized $2.0 million of acquisition costs that were expensed in the current period.  These costs are included in general and administrative expenses in the accompanying condensed consolidated statement of operations.  The Company also incurred $0.4 million in costs associated with issuing debt to finance the cost of the acquired businesses, which are debt issuance costs that are amortized over the term of the debt using the effective interest rate method.

The amounts of revenue and net income of the acquired business included in the Company’s condensed consolidated statement of operations from the date of acquisition through December 31, 2018 is $17.2 million and $0.4 million, respectively.

Supplemental Pro Forma Information

The pro forma results presented below were prepared pursuant to the requirements of ASC Topic 805, Business Combinations, and give effect to the acquisition as if it had been consummated on July 1, 2017.  The pro forma results have been prepared for comparative purposes only and do not necessarily represent what revenue or results of operations would have been had the acquisition been completed on July 1, 2017.  In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved by the Company.

	For the three months ended December 31,						For the six months ended December 31,
(in thousands)	2018			2017			2018			2017
Revenues	$	15,541		$	14,383		$	30,308		$	27,796
Net loss		(4,276	)		(727	)		(5,399	)		(5,652	)
Net loss attributable to Great Elm Capital Group		(4,346	)		(792	)		(5,278	)		(5,415	)

These pro forma results presented include adjustments to historical operating results include the following activity related to the acquisition: (a) interest expenses incurred on the debt paid down and borrowed upon closing; (b) dividends on preferred stock in subsidiary; (c) amortization of intangible assets acquired; and (d) reclassification of non-recurring transaction costs to the prior period.

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Related Party Transactions

6 Months Ended

Dec. 31, 2018

Related Party Transactions [Abstract]

Related Party Transactions

5. 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.

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 8 – Fair Value Measurements.

The following tables summarize activity and outstanding balances between GECC and the Company.

	For the three months ended December 31,						For the six months ended December 31,
(in thousands)	2018			2017			2018			2017
Change in unrealized gain (loss) on investment in GECC recorded in the period	$	(3,639	)	$	(1,180	)	$	(2,734	)	$	(1,534	)
GECC dividends recorded in the period		961			883			1,451			1,373

(in thousands)	December 31, 2018		June 30, 2018
Dividends receivable from GECC	$	814	$	163
Investment management revenues receivable from GECC(1)		909		4,094

(1) Investment management fees receivable from GECC as of June 30, 2018 include incentive fee receivables of $2.9 million which have been reversed as a result of the adoption of Topic 606 on July 1, 2018.  See Note 2 – Summary of Significant Accounting Policies.

Outstanding receivables are included in related party receivables in the condensed consolidated balance sheets.

The Company is the beneficial owner of approximately 18.5% 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.  The Company’s Chief Financial Officer is also the Chief Financial Officer 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 December 31, 2018; 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 and Preferred Stock of Subsidiary.

The Company’s wholly-owned subsidiary, Great Elm Opportunities GP, Inc. (GEOF GP) serves as the general partner of Great Elm Opportunities I, LP (GEOF).  As the general partner, GEOF GP provides administrative services and manages the investment portfolio of GEOF.  Based on the performance of GEOF’s investment portfolio, GEOF GP may be entitled to certain incentive allocations.  GEOF began investing in July 2018 and through December 31, 2018 no incentive allocations have been made to GEOF GP.

As part of the entry into the investment management business in November 2016, the Company entered into a cost sharing agreements with MAST Capital Management, LLC (MAST Capital) and acquired certain assets from MAST Capital.  In consideration for the assets acquired, GECC GP Corp. issued a senior secured not payable (GP Corp. Note).  In addition, the Company issued warrants to purchase 54,733 shares of the Company’s common stock (MAST Warrants).  During the six months ended December 31, 2017 the Company paid $0.3 million in non-reimbursable expenses in connection with the cost sharing agreement.  There was no such activity for the six months ended December 31, 2018 as a result of the separation discussed below.

In September 2017, the Company entered into a separation agreement with MAST.  The separation agreement contemplated, among other things, a reduction in the principal balance of the GP Corp. Note, the termination of the cost sharing agreement and the exchange of the MAST warrants for new warrants to purchase 420,000 shares of the Company’s common stock (New MAST Warrants).  As a result of the separation, $0.5 million of non-vested stock-based compensation was forfeited.  In July 2018, MAST Capital exercised the New MAST Warrants.  MAST Capital is the beneficial owner of approximately 9.3% of the Company’s outstanding common stock as of December 31, 2018.  See Note 11 - Borrowings for additional discussion of the GP Corp. Note and Note 13 – Stockholders’ Equity for additional discussion of the warrant activity.

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 and Preferred Stock of Subsidiary.

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 Northwest and was one of the sellers in our acquisition of the business.  As a result of the acquisition, at December 31, 2018 Corbel holds preferred stock of DME Holdings and 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 11 - Borrowings for additional information on the Corbel Facility and Note 12 – Non-Controlling Interests and Preferred Stock 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.  See Note 13 – Non-Controlling Interests and Preferred Stock of Subsidiary.  Additionally, the Company has a contingent liability to the sellers for $0.8 million, which is included in the current portion of related party payables on the balance sheet.  See Note 4 – Acquisition for additional details.

As a result of measurement period adjustments to the net working capital discussed in Note 4 – Acquisition, the Company has a receivable of $0.3 million from a former owner as of December 31, 2018.

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Fixed Assets

6 Months Ended

Dec. 31, 2018

Property Plant And Equipment [Abstract]

Fixed Assets

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):

	December 31, 2018			June 30, 2018
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		(996	)		(384	)
Net carrying amount	$	55,029		$	55,641
Property and Equipment
Leasehold improvements	$	376		$	45
Vehicles		188			-
Computer equipment and software		141			-
Furniture and fixtures		224			27
Sleep study equipment		227			-
		1,156			72
Accumulated depreciation		(111	)		(31	)
Net carrying amount	$	1,045		$	41
Medical Equipment Held for Rental
Medical equipment held for rental	$	10,776		$	-
Accumulated depreciation		(2,038	)		-
Net carrying amount	$	8,738		$	-

The Company recognized total depreciation expense of $2.2 million for the three months ended December 31, 2018, of which $1.9 million is included in cost of durable medical equipment rentals and $0.3 million is included in depreciation and amortization on the condensed consolidated statements of operations.  The Company recognized total depreciation expense of $2.9 million for the six months ended December 31, 2018, of which $2.2 million is included in cost of durable medical equipment rentals and $0.7 million is included in depreciation and amortization on the condensed consolidated statements of operations.  The Company incurred immaterial depreciation expense for the three and six months ended December 31, 2017.

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Lessor Operating Leases

6 Months Ended

Dec. 31, 2018

Lessor Disclosure [Abstract]

Lessor Operating Leases

7. Lessor Operating 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 11 - 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.

Rental income from real estate leases is summarized in the following table:

(in thousands)	For the three months ended December 31, 2018		For the six months ended December 31, 2018
Revenues from base rents	$	1,151	$	2,302
Revenues from additional rental payments		323		614
Total rental revenues	$	1,474	$	2,916

The following table summarizes the base rents for the remaining lease term:

(in thousands)	Base Rent Payments
For the six months ending June 30, 2019	$	2,032
For the year ending June 30, 2020		4,120
For the year ending June 30, 2021		4,213
For the year ending June 30, 2022		4,312
For the year ending June 30, 2023		4,420
Thereafter		33,203
Total base rent	$	52,300

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.

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Fair Value Measurements

6 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

8. 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 (in thousands):

	Fair Value as of December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Investment in GECC	$	9,287	$	-	$	-	$	9,287
Restricted investment in GECC		6,152		-		-		6,152
Total assets	$	15,439	$	-	$	-	$	15,439
Liabilities:
Contingent consideration liability	$	-	$	-	$	845	$	845
Total liabilities	$	-	$	-	$	845	$	845

The only recurring fair value measurements at June 30, 2018 was the investment in GECC which did not have any restrictions at that date.  The investment in GECC was valued using Level 1 inputs at June 30, 2018.

The following is a reconciliation of changes in contingent consideration, a Level 3 liability, for the three and six months ended December 31, 2018:

(in thousands)
Balance as of June 30, 2018	$	-
Additions		845
Balance as of September 30, 2018		845
Change in fair value		-
Balance as of December 30, 2018	$	845

There were no Level 3 assets or liabilities held during the three and six months ended December 31, 2017.

Contingent consideration is included within the current portion of related party payables in the consolidated balance sheets.  The contingent consideration arrangement requires the Company to pay up to $2.4 million of additional consideration to the acquired companies’ former shareholders if certain EBITDA thresholds, as adjusted per the terms of the purchase agreement, are achieved for the 12 months ended December 31, 2018 and 2019.  The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation model.  The key assumptions in applying the Monte Carlo simulation model as of December 31, 2018 are as follows: 36.3% volatility and related EBITDA forecasts of the acquired businesses for the twelve months ended December 31, 2018 and 2019.  A fair value of $0.8 million was calculated as of the acquisition date, which has been reflected as a measurement period adjustment as the valuation was not finalized as of September 30, 2018.  There was not a significant change in the fair value of the contingent consideration through December 31, 2018 as compared to the measurement date fair value and no adjustment was recorded during the three months ended December 31, 2018.

The ultimate payout of the contingent consideration will be based on actual results achieved. As the fair value of the contingent consideration changes until finalized with the results for the twelve months ended December 31, 2019, these changes may have a material impact on earnings.  The Company determined that the EBITDA achieved, as adjusted per terms of the contract, for the 12 months ended December 31, 2018 was below the earnout threshold for payout, however, final determination is subject to a review process with the sellers.  A full or partial contingent consideration payment of up to $2.4 million may be due to the sellers following completion of the review process or if the applicable targets are met during the 12 months ended December 31, 2019.

The Company is the beneficial owner of approximately 18.5% (or 1,966,667 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).

The Company recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred.  There were no transfers between levels of the fair value hierarchy during the six months ended December 31, 2018 and 2017.

See Note 11 - Borrowings for additional discussion related to the fair value of notes payable.  The carrying value of all other financial assets and liabilities approximate their fair values.

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Goodwill and Other Intangible Assets

6 Months Ended

Dec. 31, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

9. 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.  See Note 4 – Acquisition.

Goodwill of $45.3 million presented on the condensed consolidated balance sheet consists only of the goodwill acquired as part of the acquisition of the durable medical equipment businesses in September 2018.  During the three months ended December 31, 2018 we recognized adjustments to goodwill which correspond to adjustments to provisional amounts assigned to acquired assets and liabilities.  See Note 4 – Acquisition for additional details.  There was no goodwill as of June 30, 2018.

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

	As of December 31, 2018							As of June 30, 2018
Amortized intangible assets:	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Investment Management
Investment management agreement	$	3,900	$	(1,024	)	$	2,876	$	3,900	$	(789	)	$	3,111
Assembled workforce		526		(138	)		388		526		(106	)		420
		4,426		(1,162	)		3,264		4,426		(895	)		3,531
Real Estate
In-place lease		6,028		(410	)		5,618		6,028		(159	)		5,869
Durable Medical Equipment
Tradename		6,900		(230	)		6,670		-		-			-
Non-compete agreements		1,450		(97	)		1,353		-		-			-
		8,350		(327	)		8,023		-		-			-
Total	$	18,804	$	(1,899	)	$	16,905	$	10,454	$	(1,054	)	$	9,400

Aggregate Amortization Expense:	2018		2017
For the three months ended December 31,	$	501	$	129
For the six months ended December 31,		845		302

Estimated Amortization Expense:
For the six months ending June 30, 2019	$	1,094
For the year ending June 30, 2020		2,082
For the year ending June 30, 2021		1,938
For the year ending June 30, 2022		1,865
For the year ending June 30, 2023		1,798

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Lessee Operating Leases

6 Months Ended

Dec. 31, 2018

Lessor Disclosure [Abstract]

Lessee Operating Leases

10. 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)	December 31, 2018			June 30, 2018
Facilities
Right of use assets	$	5,574		$	1,521
Current portion of lease liabilities		1,276			336
Lease liabilities, net of current portion		4,567			1,304
Total liabilities	$	5,843		$	1,640
Weighted-average remaining life	4.5 years			6.3 years
Weighted-average discount rate		11.6	%		10.0	%
Vehicles
Right of use assets	$	66		$	-
Current portion of lease liabilities		13			-
Lease liabilities, net of current portion		53			-
Total liabilities	$	66		$	-
Weighted-average remaining life	4.2 years			n/a
Weighted-average discount rate		12.2	%	n/a

As of December 31, 2018, the Company had remaining right of use assets of $5.6 million and lease liabilities of $5.9 million (consisting of $1.3 million in current portion of lease liabilities and $4.6 million in lease liabilities, net of current portion on the condensed consolidated balance sheet) related to the leases discussed herein.

Operating lease costs are included in the operating expense associated with the business segment leasing the asset on the statements of operations 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 December 31,				For the six months ended December 31,
(in thousands)	2018		2017		2018		2017
Facilities
Operating lease cost	$	502	$	89	$	721	$	184
Cash paid for operating leases		486		576		699		755
Vehicles
Operating lease cost	$	5	$	-	$	7	$	-
Cash paid for operating leases		5		-		7		-

The following table summarizes the Company’s undiscounted cash payment obligations for its operating leases (in thousands):

(in thousands)
For the six months ending June 30, 2019	$	993
For the year ending June 30, 2020		1,764
For the year ending June 30, 2021		1,630
For the year ending June 30, 2022		1,400
For the year ending June 30, 2023		875
Thereafter		965
Total lease payments	$	7,627
Imputed interest		(1,718	)
Total lease liabilities	$	5,909

Investment Management and General Corporate

The Company entered into 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.

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.

Durable Medical Equipment

As part of the acquisition discussed in Note 4 – Acquisition, the Company assumed leases for facilities and vehicles.  The facility leases include offices, retail and warehouse space and sleep labs.  The leases have original or amended terms ranging from 60 to 183 months, some of which include an additional option to extend the lease for up to 180 months.  At the date of acquisition, the remaining lease terms ranged from 3 to 96 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.

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Borrowings

6 Months Ended

Dec. 31, 2018

Debt Disclosure [Abstract]

Borrowings

11. Borrowings

Related party borrowings of the Company’s subsidiaries are summarized in the following table:

(in thousands)	Subsidiaries	December 31, 2018			June 30, 2018
GP Corp. Note	GECC GP Corp.	$	3,224		$	3,224
Corbel Facility	DME Inc. and subsidiaries		24,688			-
Total principal, net		$	27,912		$	3,224
Unamortized debt issuance cost			(357	)		-
Total long-term related party notes payable			27,555			3,224
Less current portion of related party notes payable			(1,326	)		-
Related party notes payable, net of current portion		$	26,229		$	3,224

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

(in thousands)	Subsidiaries	December 31, 2018			June 30, 2018
Senior Note	CRIC IT	$	53,187		$	54,161
Subordinated Note	CRIC IT		3,041			2,823
DME Revolver	DME Inc. and subsidiaries		6,630			-
Total principal, net		$	62,858		$	56,984
Unamortized debt premiums			3,170			3,131
Unamortized debt discounts and issuance costs			(2,402	)		(2,484	)
Total long term debt			63,626			57,631
Less current portion of long-term debt			(2,038	)		(1,999	)
Long term debt, net of current portion		$	61,588		$	55,632

The Company incurred interest expense of $1.8 million and $0.04 million for the three months ended December 31, 2018 and 2017, respectively.  The Company incurred interest expense of $2.8 million and $0.1 million for the six months ended December 31, 2018 and 2017, respectively.

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

(in thousands)	Principal Due
For the six months ending June 30, 2019	$	1,650
For the year ending June 30, 2020		3,485
For the year ending June 30, 2021		10,282
For the year ending June 30, 2022		3,833
For the year ending June 30, 2023		4,027
For the year ending June 30, 2024		22,044
Thereafter		58,677
Total	$	103,998
Outstanding principal on related party borrowings	$	27,912
Outstanding principal on other borrowings		62,858
Future interest to be paid-in-kind		13,228
Total future required principal payments	$	103,998

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

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 December 31, 2018 the interest rate was 5.8%.  The GP Corp. Note requires quarterly interest only payments and annual principal payments of $0.08 million, based on the Company’s fiscal year ending 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 December 31,				For the six months ended December 31,
(in thousands)	2018		2017		2018		2017
Principal payments	$	-	$	-	$	-	$	-
Interest expense		42		36		86		134

The Company estimated the fair value of the GP Corp. Note as of December 31, 2018 and June 30, 2018, on a non-recurring basis, using Level 3 inputs.  As of December 31, 2018 and June 30, 2018, the carrying value of the note approximated the fair value.

Real Estate

In March 2018, in connection with the acquisition of the real estate business, the Company 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.  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 7 – Lessor Operating Leases.

As of December 31, 2018 and June 30, 2018, the fair value approximates the carrying value for both the Senior Note and Subordinated Note.

Durable Medical Equipment

In September 2018, in conjunction with the acquisition of 80.1% of Great Elm 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 acquisition described in Note 4 – Acquisition.  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 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 December 31, 2018 the interest rate was 12.8%.  The Corbel Facility requires quarterly interest payments and principal payments of $0.3 million through the maturity date with the final principal balance due at maturity.  In addition, beginning with the quarter ending 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. and preferred stock issued by DME Holdings.  In connection with the issuance of the amended Corbel Facility, the borrowers paid Corbel a one-time structuring fee of $375,000, which is included in debt issuance costs.  See Note 5 – Related Party Transactions and Note 13 – Non-Controlling Interests and Preferred Stock 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, 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 December 31,				For the six months ended December 31,
(in thousands)	2018		2017		2018		2017
Principal payments	$	313	$	-	$	313	$	-
Interest expense		793		-		990		-

The DME Revolver had a balance of $6.6 million at December 31, 2018 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 are due on August 30, 2020 and accrue interest at a variable rate of the prime rate plus 0.40% per annum.  At December 31, 2018 the interest rate was 5.9%.  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 based on the maturity date of the facility.

The borrowings under the DME Revolver are collateralized by the assets of the durable medical equipment business and the Company is required to meet certain financial covenants.

The 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.

As of December 31, 2018, the fair value approximates the carrying value for both the Corbel Facility and the DME Revolver.

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Stockholders' Equity

6 Months Ended

Dec. 31, 2018

Equity [Abstract]

Stockholders' Equity

12. Stockholders’ Equity

Performance Shares (Restricted Stock Awards)

The Company did not grant any restricted stock awards during the three and six months ended December 31, 2018.  As of December 31, 2018, the Company had 761,617 restricted stock awards that carry both performance and service conditions to vest.  The awards vest over a five-year service period, with the first twenty percent of the award vesting on the first anniversary of the grant, and the remaining award vesting quarterly through November 3, 2021.  In addition, the restricted stock awards are subject to pro-rated forfeiture based on the collection of cumulative fees under the GECC investment management agreement of at least $40 million for the five-year period ended November 3, 2021.

The Company estimates the performance condition is probable of being achieved.  The Company accounts for forfeitures of the restricted stock awards in the period incurred.  There were no forfeitures during the six months ended December 31, 2018.

For the three and six months ended December 31, 2018, the Company recognized compensation cost totaling $(0.1) million and $0.1 million, respectively associated with the performance-based awards.  For the three and six months ended December 31, 2017, the Company recognized compensation cost totaling $0.3 million and $0.4 million, respectively, associated with the performance-based awards.

The following table summarizes the Company’s restricted stock award activity as of and through December 31, 2018 (in thousands, except per share amounts):

Restricted Stock Awards and Restricted Stock Units	Restricted Stock			Weighted Average Grant Date Fair Value
Outstanding at June 30, 2018		767		$	3.92
Granted		186			3.43
Vested		(83	)		3.45
Forfeited		-			-
Outstanding at December 31, 2018		870		$	3.86

Stock Options

During the six months ended December 31, 2018, the Company issued 60,000 stock options with an estimated grant date fair value of $0.1 million.  The Company utilizes a Black-Scholes option pricing model to estimate the fair value of its option awards.  The assumptions used to value the stock options granted during the six months ended December 31, 2018 consist of: expected volatilities between 58.9% and 59.2%; no expected dividend yields; risk-free rates between 3.12% and 3.13%; and expected terms between 6.3 and 6.5 years.

The following table summarizes the Company’s option award activity as of and through December 31, 2018 (in thousands, except per share amounts):

Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at June 30, 2018		2,676	$	4.31		7.44	$	70
Options granted		60		3.43
Exercised		-		-
Forfeited, cancelled or expired		-		-
Outstanding at December 31, 2018		2,736	$	4.29		7.00	$	25
Exercisable at December 31, 2018		1,632	$	4.77		5.79	$	18
Vested and expected to vest as of December 31, 2018		2,736	$	4.29		7.00	$	25

During the three and six months ended December 31, 2018, the Company recognized total stock-based compensation associated with all restricted stock and stock options of $0.2 million and $0.8 million, respectively.  During the three and six months ended December 31, 2017, the Company recognized total stock based compensation associated with all restricted stock and stock options of $0.9 million and $2.7 million, respectively.

As of December 31, 2018, unrecognized compensation costs associated with outstanding stock and stock-linked awards totaled approximately $3.3 million.

Warrants

In July 2018, MAST Capital exercised their outstanding warrants for cash proceeds totaling $1.4 million.  At December 31, 2018, no warrants remained outstanding.

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Non-Controlling Interests and Preferred Stock of Subsidiary

6 Months Ended

Dec. 31, 2018

Noncontrolling Interest [Abstract]

Non-Controlling Interests and Preferred Stock of Subsidiary

13. Non-Controlling Interests and Preferred Stock of Subsidiary

Holders of non-controlling interests (NCI) or preferred stock 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 interest balances on the condensed consolidated balance sheets:

(in thousands)	December 31, 2018			June 30, 2018
DME Holdings
Preferred stock classified as liability	$	5,266		$	-
DME Inc.
NCI classified as temporary equity		3,690			-
NCI classified as permanent equity		3,690			-
Total DME Inc.		12,646			-
GECC GP Corp.
NCI classified as permanent equity		(535	)		(465	)
GE FM Holdings
NCI classified as permanent equity		707			687
Total	$	12,818		$	222

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 December 31,						For the six months ended December 31,
(in thousands)	2018			2017			2018			2017
DME Holdings
Preferred stock classified as liability	$	-		$	-		$	-		$	-
DME Inc.
NCI classified as temporary equity		48			-			58			-
NCI classified as permanent equity		48			-			58			-
Total DME Inc.		96			-			115			-
GECC GP Corp.
NCI classified as permanent equity		(35	)		(33	)		(70	)		(387	)
GE FM Holdings
NCI classified as permanent equity		9			-			20			-
Total	$	70		$	(33	)	$	65		$	(387	)

Preferred stock in DME Holdings classified as liability

In connection with the acquisition of the acquired businesses on September 7, 2018, the Company issued 5,266 shares of preferred stock in DME Holdings valued at $1,000 per share at issuance.  The preferred shares provide for a 10% annual dividend, which is payable semi-annually.  The preferred shares are mandatorily redeemable by the Company at their face value of $1,000 per share on the earlier of certain redemption events or September 7, 2038.  The redemption events include a change in control, initial public offering, liquidation of DME Holdings, or failure to pay dividends.  The preferred shares rank senior and have preference to the common shares of DME Holdings.  The shares are non-voting, do not participate in the earnings of DME Holdings and contain standard protective rights.

As the preferred shares are mandatorily redeemable at a specified date, the security has been classified as a liability in the consolidated balance sheet.  The dividends on the preferred stock are included in interest expense in the consolidated statement of operations.

Under the terms of the preferred stock, DME Holdings must maintain a required level of capitalization.  At the option of the Company, such capitalization is required to be an amount in cash and/or common stock of GECC, net of any debt of DME Holdings, with an aggregate value greater than or equal to 125% of the value of the shares of preferred stock.  After August 31, 2019, at least 100% of the value of the shares of preferred stock must be held in cash.  If at any month end the value of the qualifying assets falls below the required threshold, the Company shall, as promptly as practicable, contribute additional assets to meet the capitalization requirements.  Similarly, if at any month end the value of the qualifying assets exceeds the required threshold, the Company may remove the excess assets.  As of December 31, 2018, the Company contributed to DME Holdings GECC stock valued at approximately $6.2 million.  This investment is classified as restricted investments in the consolidated balance sheet.

The holder of the preferred stock, Corbel, is also the holder of the Corbel Facility and the non-controlling interest in DME Inc. classified as temporary equity discussed below.  See Note 5 – Related Party Transactions and Note 11 – Borrowings.

Non-controlling interest in DME Inc. classified as temporary equity

In connection with the acquisition of the acquired businesses on September 7, 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 and the preferred stock in DME Holdings discussed above.  See Note 5 – Related Party Transactions and Note 11 – Borrowings.

Non-controlling interest in DME Inc. classified as permanent equity

In connection with the acquisition of the acquired businesses on September 7, 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 September 2017, the Company eliminated the vesting provisions and removed the call rights for the GECC GP Corp. stock owned by employees of the Company.  As a result of the elimination, the Company recognized stock-based compensation expense of $1.5 million, equal to the estimated fair value of the non-controlling interest held by our employees in GECC 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.

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Income Tax

6 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Tax

14. Income Tax

As of June 30, 2018, the Company had net operating loss (NOL) carryforwards for federal and state income tax purposes of approximately $1.7 billion and $197 million, respectively.  The federal NOL carryforwards will expire from 2019 through 2037 with the exception of NOL carryforwards generated in fiscal year 2018 or later which can be carried forward indefinitely.  The state NOL carryforwards will expire from 2019 through 2038.  The Company assesses NOL carryforwards based on taxable income on an annual basis.

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Segment Information

6 Months Ended

Dec. 31, 2018

Segment Reporting [Abstract]

Segment Information

15. Segment Information

The Company allocates resources based on four operating segments: investment management, real estate, durable medical equipment and general corporate.

The following tables illustrate results of operations by segment (in thousands):

	For the three months ended December 31, 2018
(in thousands)	Investment Management			Real Estate			Durable Medical Equipment			General Corporate			Reconciliation to Consolidated Total(1)			Consolidated Total
Revenue:
Total revenue	$	915		$	1,474		$	13,152		$	52		$	(52	)	$	15,541
Operating costs and expenses:
Cost of durable medical equipment sold and services		-			-			(3,545	)		-			-			(3,545	)
Cost of durable medical equipment rentals		-			-			(1,970	)		-			-			(1,970	)
Depreciation and amortization		(137	)		(431	)		(260	)		-			-			(828	)
Stock-based compensation(2)		(37	)		-			-			(132	)		-			(169	)
Transaction costs(3)		-			-			(2	)		(135	)		-			(137	)
Other selling, general and administrative		(704	)		(342	)		(5,895	)		(1,770	)		52			(8,659	)
Total operating expenses		(878	)		(773	)		(11,672	)		(2,037	)		52			(15,308	)
Other income (expense):
Interest expense		(44	)		(663	)		(1,081	)		-			-			(1,788	)
Other income (expense)		-			-			-			(2,696	)		-			(2,696	)
Total other expense, net		(44	)		(663	)		(1,081	)		(2,696	)		-			(4,484	)
Total pre-tax income (loss) from continuing operations	$	(7	)	$	38		$	399		$	(4,681	)	$	-		$	(4,251	)

	For the three months ended December 31, 2017
(in thousands)	Investment Management			Real Estate(4)		Durable Medical Equipment(5)		General Corporate			Reconciliation to Consolidated Total		Consolidated Total
Revenue:
Total revenue	$	2,523		$	-	$	-	$	-		$	-	$	2,523
Operating costs and expenses:
Depreciation and amortization		(133	)		-		-		-			-		(133	)
Stock-based compensation(2)		(719	)		-		-		(208	)		-		(927	)
Other general and administrative		(1,544	)		-		-		(923	)		-		(2,467	)
Total operating expenses		(2,396	)		-		-		(1,131	)		-		(3,527	)
Other income (expense):
Interest expense		(37	)		-		-		-			-		(37	)
Other income (expense)		60			-		-		(221	)		-		(161	)
Total other expense, net		23			-		-		(221	)		-		(198	)
Total pre-tax income (loss) from continuing operations	$	150		$	-	$	-	$	(1,352	)	$	-	$	(1,202	)

	For the six months ended December 31, 2018
(in thousands)	Investment Management			Real Estate			Durable Medical Equipment(5)			General Corporate			Reconciliation to Consolidated Total(1)			Consolidated Total
Revenue:
Total revenue	$	1,855		$	2,916		$	17,243		$	70		$	(70	)	$	22,014
Operating costs and expenses:
Cost of durable medical equipment sold and services		-			-			(4,489	)		-			-			(4,489	)
Cost of durable medical equipment rentals		-			-			(2,260	)		-			-			(2,260	)
Depreciation and amortization		(273	)		(862	)		(403	)		-			-			(1,538	)
Stock-based compensation(2)		(582	)		-			-			(260	)		-			(842	)
Transaction costs(3)		-			-			(544	)		(1,459	)		-			(2,003	)
Other selling, general and administrative		(1,608	)		(637	)		(7,774	)		(3,143	)		70			(13,092	)
Total operating expenses		(2,463	)		(1,499	)		(15,470	)		(4,862	)		70			(24,224	)
Other income (expense):
Interest expense		(88	)		(1,328	)		(1,367	)		-			-			(2,783	)
Other income (expense)		-			-			20			(1,219	)		-			(1,199	)
Total other income (expense), net		(88	)		(1,328	)		(1,347	)		(1,219	)		-			(3,982	)
Total pre-tax income (loss) from continuing operations	$	(696	)	$	89		$	426		$	(6,011	)	$	-		$	(6,192	)

	For the six months ended December 31, 2017
(in thousands)	Investment Management			Real Estate(4)		Durable Medical Equipment(5)		General Corporate			Reconciliation to Consolidated Total		Consolidated Total
Revenue:
Total revenue	$	4,291		$	-	$	-	$	-		$	-	$	4,291
Operating costs and expenses:
Depreciation and amortization		(313	)		-		-		-			-		(313	)
Stock-based compensation(2)		(2,271	)		-		-		(413	)		-		(2,684	)
Other selling, general and administrative		(3,062	)		-		-		(2,604	)		-		(5,666	)
Total operating expenses		(5,646	)		-		-		(3,017	)		-		(8,663	)
Other income (expense):
Interest expense		(135	)		-		-		-			-		(135	)
Other income (expense)		13			-		-		(92	)		-		(79	)
Total other income (expense), net		(122	)		-		-		(92	)		-		(214	)
Total pre-tax income (loss) from continuing operations	$	(1,477	)	$	-	$	-	$	(3,109	)	$	-	$	(4,586	)

(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 consolidated statements of operations.  Stock-based compensation attributable to the general corporate segment is included in selling, general and administrative expense in the consolidated statements of operations.

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

(4) Our real estate business began in March 2018 and there was no related activity prior to that date.

(5) Our durable medical equipment business began in September 2018 and there was no related activity prior to that date.

The following tables illustrate assets by segment (in thousands):

	As of December 31, 2018
Assets (in thousands)	Investment Management		Real Estate		Durable Medical Equipment		General Corporate		Total
Fixed assets, net	$	48	$	55,029	$	9,735	$	-	$	64,812
Identifiable intangible assets, net		3,264		5,618		8,023		-		16,905
Goodwill		-		-		45,336		-		45,336
Other assets		2,699		1,097		21,517		29,574		54,887
Total	$	6,011	$	61,744	$	84,611	$	29,574	$	181,940
	As of June 30, 2018
Assets (in thousands)	Investment Management		Real Estate		Durable Medical Equipment		General Corporate		Total
Fixed assets, net	$	41	$	55,641	$	-	$	-	$	55,682
Identifiable intangible assets, net		3,531		5,869		-		-		9,400
Other assets		5,878		937		-		61,690		68,505
Total	$	9,450	$	62,447	$	-	$	61,690	$	133,587

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Commitments and Contingencies

6 Months Ended

Dec. 31, 2018

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

16. Commitments and Contingencies

In conjunction with the Divesture of its patent licensing business on June 30, 2016, the Company was entitled to receive additional proceeds of up to $10 million, subject to adjustment for indemnification or claims breach of representations, and warranties.  The purchaser had claimed that it has losses indemnifiable in excess of the $10 million contractual payment due on June 30, 2018.  As of December 31, 2018, the Company had determined that a loss related to final settlement with the purchaser was not realizable or estimable.  As a result we have not recognized any portion of the $10 million in the accompanying consolidated financial statements for the periods presented.  On January 21, 2019, we entered into a mutual release and settlement agreement with the purchaser resulting in the release of any indemnifiable liabilities and an incremental cash receipt of $1.5 million.  The gain related to this settlement will be recorded in discontinued operations during the quarter ending March 31, 2019.

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.

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Subsequent Events

6 Months Ended

Dec. 31, 2018

Subsequent Events [Abstract]

Subsequent Events

17. Subsequent Events

On January 21, 2019, we entered into a mutual release and settlement agreement in connection with the divestiture of the patent licensing business.  See Note 16 – Commitments and Contingencies for additional details.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Basis of Presentation

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, 2018, presented herein, has been derived from the Company’s audited consolidated financial statements as of and for the year-ended June 30, 2018.

Use of Estimates

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, estimates for contractual allowances, estimates for allowance for doubtful accounts, 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

Principles of Consolidation

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

All intercompany accounts and transactions have been eliminated in consolidation.

Non-controlling interests in the Company’s subsidiaries are reported as a component of liabilities for mandatorily redeemable interests, temporary equity for contingently redeemable interests or permanent equity, separate from the Company’s equity.  See Note 13 – Non-Controlling Interests and Preferred Stock of Subsidiary.  Results of operations attributable to the non-controlling interests are included in the Company’s consolidated statements of operations.

Segments

Segments

The Company has four operating segments: investment management, real estate, durable medical equipment and general corporate.  The Company regularly reviews each segment for purposes of allocating resources and assessing performance.

Cash, Cash Equivalents, and Restricted Cash

Cash, Cash Equivalents, and Restricted Cash

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

The Company’s restricted cash consists of real estate rental income received in advance and a portion of prior period rental income that is reserved for capital and certain operating expenses in connection with the Company’s real estate assets.

Accounts receivable

Accounts receivable

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.  Substantially all of the accounts receivable balance relates to the durable medical equipment business.  The Company does not require collateral in connection with its customer transactions.  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 contractual allowances where the gross charge is greater than the contractual rate with the Payors.  Management’s evaluation of variable consideration takes into account such factors as past experience, contractual rates with Payors and information about specific receivables and Payors.  In addition, co-payments, co-insurance and deductible amounts billed to patient customers are initially constrained until paid.  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. As additional information becomes known, the Company adjusts its assumptions accordingly to change its estimates.   There were no material adjustments to revenues made in three and six months ended December 31, 2018 relating to prior years.  Changes in constraints on variable consideration are recorded as a component of net revenues.

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

As of December 31, 2018, the Company had unbilled receivables of approximately $0.5 million that relate to transactions where the Company has the ultimate right to invoice a Payor under the terms of the arrangement, but are not currently billable.  Such receivables are included in accounts receivable in the consolidated balance sheets.

Investments and Restricted Investments

Investments and Restricted Investments

Investments and restricted investments consist of shares in Great Elm Capital Corp. (GECC), which is carried at fair value.  The Company’s restricted investment represents a portion of its investment in GECC, which has been contributed as part of the capitalization of DME Holdings, as required under the terms of the DME Holdings preferred stock.  Under the terms of the preferred stock issued by DME Holdings (See Note 13 – Non-Controlling Interests and Preferred Stock of Subsidiary), the Company is required to maintain capitalization of DME Holdings at a specified level with qualifying assets.  Therefore these assets are restricted and not available for use to fund the Company’s operations.  If at any month end the value of the qualifying assets falls below the required threshold, the Company shall, as promptly as practicable, contribute additional assets to meet the capitalization requirements.  Similarly, if at any month end the value of the qualifying assets exceeds the required threshold, the Company may remove the excess assets.  The Company has provided DME Holdings with shares of GECC in the amount of $6.2 million as of December 31, 2018, as capitalization for the preferred stock in DME Holdings.

Fair Value Measurements

Fair Value Measurements

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

Property, Equipment, Real Estate Assets and Rental Equipment

Property, Equipment, Real Estate Assets and Rental Equipment

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

The Company capitalizes the cost of the equipment predominantly leased out as part of the durable medical equipment business as such assets are acquired within equipment held for rental, net.  These purchases are classified as cash outflows from investing activities when they are paid.  The Company capitalizes the cost of equipment predominantly sold as part of the durable medical equipment business as such assets are acquired within inventories.  These purchases are classified as cash outflows from operating activities when they are paid.  A portion of equipment recorded within equipment held for rental, net, could ultimately be sold.  A portion of equipment recorded within inventories could ultimately be leased.  Management is not able to accurately track the ultimate use of equipment and has therefore adopted the above stated policy.

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

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

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

Description	Life in Years
Real Estate Assets
Buildings	55
Site improvements	16
Tenant improvements	12
Property and Equipment
Leasehold improvements	lesser of 7 years or life of the lease
Vehicles	5
Sleep study equipment	5
Furniture and fixtures	1 to 5
Computer equipment and software	3
Rental Equipment
Medical equipment for lease	1 to 5

Inventories

Inventories

Inventories, which principally consist of durable medical equipment and related supplies that are predominantly held for sale, are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.  The Company reduces the carrying value of inventories for items that are potentially excess, obsolete, or slow-moving based on changes in customer demand, technology developments or other economic factors.  The Company bases its provisions for excess, expired and obsolete inventory primarily on our estimates of forecasted net sales.  A significant change in the timing or level of demand for our products as compared with forecasted amounts may result in recording additional provisions for excess, expired and obsolete inventory in the future.  As the Company purchases all of its inventories, all inventories are categorized as finished goods.  There were no significant write-offs during the six months ended December 31, 2018.

Goodwill and Other Identifiable Intangible Assets

Goodwill and Other Identifiable Intangible Assets

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

The Company amortizes its identifiable intangible assets over their estimated useful lives using applicable discounted cash flow attribution and straight-line methods.  The Company amortizes its identifiable intangible assets over periods ranging from five to fifteen years.

Long-Lived Assets

Long-Lived Assets

Long-lived assets include real estate assets, property and equipment, intangible assets and the right of use assets.  These assets are evaluated for potential impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable based on undiscounted cash flows.  If an impairment is indicated, the Company records the impaired asset at fair value, and records a charge to operations.  No such impairment triggering events were identified in the current period.

Leases and Right of Use Assets

Leases and Right of Use Assets

We determine if an arrangement is a lease at inception.  As of December 31, 2018, all of our leases are operating leases.  Operating leases are included in operating lease right of use assets (ROU), current portion of lease liabilities and lease liabilities net of current portion in the condensed consolidated balance sheets.

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

We have lease agreements with lease and non-lease components, which are accounted for together as a single lease component.

At December 31, 2018, the majority of our lease liabilities and ROU assets were acquired with the durable medical equipment businesses as discussed in Note 4 – Acquisition and the amounts disclosed on the condensed consolidated balance sheet represent preliminary valuations.

Cost of Durable Medical Equipment Sold and Services

Cost of Durable Medical Equipment Sold and Services

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

Cost of Durable Medical Equipment Rentals

Cost of Durable Medical Equipment Rentals

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

Investment Management Expenses

Investment Management Expenses

The Company classifies direct expenses of its investment management segment including: payroll, stock-compensation, and related taxes and benefits; facilities costs; and professional fees; in investment management expenses in the accompanying condensed consolidated statements of operations.  GECM has a three-year contractual consulting arrangement through November 2019 with a third party to provide services in exchange for 26% of the fees earned from the management of GECC, excluding incentive fees.

Real Estate Expenses

Real Estate Expenses

The Company classifies direct expenses of its real estate segment, including: real estate taxes, insurance, property management fees and other operating expenses in real estate expenses in the accompanying condensed consolidated statements of operations.  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 consolidated statements of operations, in the same periods as the expense are incurred.

Durable Medical Equipment Other Operating Expenses

Durable Medical Equipment Other Operating Expenses

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

Depreciation and Amortization

Depreciation and Amortization

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

Business Combinations

Business combinations 

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

Net Loss Per Share

Net Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period.  Diluted net loss per share is computed by dividing the diluted net loss by the weighted-average number of common shares, including potential dilutive common shares assuming the dilutive effect of outstanding stock options, unvested restricted common shares and common stock warrants, as determined using the treasury stock method.  For periods in which the Company has reported net losses, diluted net loss per share is the same as basic net loss per share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

As of December 31, 2018 and 2017, the Company had 3,606,206 and 3,936,334 potential shares of Company common stock issuable upon exercise of the stock options, respectively, that are not included in the diluted net loss per share calculation because to do so would be antidilutive.

Restrictions on Subsidiary Dividends

Restrictions on Subsidiary Dividends

In the GP Corp. Note Agreement, GECC GP Corp. agreed not to declare any dividends until the GP Corp. Note is satisfied.  In 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

Concentration of Risk

The Company’s net investment revenue and receivables from continuing operations for the periods presented were attributable to the management of one investment vehicle, GECC, which is also a related party.  See Note 5 – 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.  For the three and six months ended December 31, 2018, one government program payor constituted approximately 30% and 28%, respectively, of consolidated revenues.  As of December 31, 2018, receivables from that government program payor constituted 29% of our ending accounts receivable.  An additional government program payor constituted another 13% of our ending accounts receivable as of December 31, 2018.  

Recently Adopted and Issued Accounting Standards

Recently Adopted Accounting Standards

Revenue RecognitionIn May 2014, the Financial Accounting Standards Board (FASB) issued the New Revenue Standard, which replaced Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605), including industry-specific requirements, and provided companies with a single principles-based revenue recognition model for recognizing revenue from contracts with customers. The core principle of the New Revenue Standard is that a company should recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.

On July 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (Topic 606) and related amendments, under the modified retrospective transition method.  Accordingly, the periods prior to adoption are presented under our prior accounting policies and we applied the new guidance to all open contracts with customers as of the implementation date.

The new guidance outlines a single revenue recognition model for all contracts with customers and provides a framework for addressing revenue recognition issues on a comprehensive basis.  The framework includes five steps:

1. Identifying the contract(s) with a customer.

2. Identifying the performance obligations in the contract.

3. Determining the transaction price.

4. Allocating the transaction price to the performance obligations in the contract.

5. Recognizing revenue when (or as) the entity satisfies a performance obligation.

The adoption of Topic 606 impacted the Company’s revenue recognition policy for incentive fee revenue associated with our investment management agreements.  The Company’s revenue recognition policy for rental revenue for its real estate segment did not change since the revenue recognition for such arrangements is outside the scope of Topic 606.

Under Topic 606, variable consideration such as incentive fees must be constrained (not recognized) if it is not probable that there would not be a significant reversal of recognized revenue.  There was no impact on the Company’s revenue recognition policy for management and administrative revenues as these amounts are not subject to constraint.  The Company fully constrained its performance-based incentive fee revenue in contrast to recognizing revenue based on a hypothetical liquidation of net assets on the reporting date and the distribution of the net proceeds in accordance with the respective investment management agreements under its prior policies.  Under the modified retrospective method, the cumulative effect of adopting Topic 606 was recognized as an adjustment to eliminate incentive fees receivable and increase accumulated deficit of $2.9 million and after such adjustment there were no incentive fees receivable.

The following table reflects the impact of the cumulative effect of the accounting changes upon the adoption of Topic 606 on the condensed consolidated balance sheet as of the beginning of the period:

(in thousands)	As of June 30, 2018			Impact of accounting change			As of July 1, 2018
Incentive fees receivable - related party	$	2,919		$	(2,919	)	$	-
Accumulated deficit		(3,238,547	)		(2,919	)		(3,241,466	)

The following table shows the effect of the change in accounting on the condensed consolidated statement of operations:

	For the three months ended December 31, 2018								For the six months ended December 31, 2018
(in thousands)	Under Topic 605			Under Topic 606			Effect of Change		Under Topic 605			Under Topic 606			Effect of Change
Investment management revenues	$	1,289		$	915		$	374	$	2,805		$	1,855		$	950
Durable medical equipment sales and services revenue		9,076			9,076			-		11,860			11,860			-
Total revenues accounted for under Topic 606	$	10,365		$	9,991		$	374	$	14,665		$	13,715		$	950
Total revenues		15,915			15,541		$	374		22,964			22,014			950
Net loss from continuing operations		(3,877	)		(4,251	)	$	374		(5,242	)		(6,192	)		950
Net loss		(3,902	)		(4,276	)	$	374		(5,335	)		(6,285	)		950
Net loss attributable to Great Elm Capital Group		(3,972	)		(4,346	)	$	374		(5,400	)		(6,350	)		950
Net loss per share	$	(0.15	)	$	(0.17	)	$	0.02	$	(0.21	)	$	(0.25	)	$	0.04

Fair Value MeasurementsIn 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.

Recently Issued Accounting Standards

Share-Based Compensation  In June 2018, the FASB issued amended guidance expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, ASU 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment.  The new standard will include share-based payment transactions for acquiring goods and services from nonemployees, whereby share-based payments to nonemployees will be measured and recorded at the fair value of the equity instruments that an entity is obligated to issue on the grant date. The standard should be applied for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period using a modified retrospective approach with a cumulative adjustment to opening retained earnings in the year of adoption for the remeasurement of liability-classified awards that have not been settled by the date of adoption and equity-classified awards for which a measurement date has not been established.  Early application is permitted.  We are currently evaluating the impact of this guidance on the Company’s financial statements.

Lessor Lease Accounting  In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors.  The new guidance permits lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs, and instead, account for those costs as lessee costs.  Additionally, the guidance updates revenue recognition related to variable payments by (1) requiring lessors to exclude from variable payments lessor costs paid directly to third parties by lessees; and (2) requiring lessors to allocate certain variable payments to lease and nonlease components when there are changes in facts and circumstances on which the variable payment is based.  When an allocation of variable payments between lease and nonlease components is made, the variable payment allocated to the lease component will be recognized as revenue in accordance with Topic 842, whereas the variable payment allocated to the nonlease component will be recognized in accordance with other applicable topics, such as Topic 606.  The new guidance will be effective for the Company in the reporting period beginning January 1, 2019 and will be applied prospectively.  The impact of the adoption of this new guidance will result in a reduction of real estate rental income and real estate expenses of approximately $0.8 million annually on a prospective basis.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Dec. 31, 2018

Estimated Useful Lives of Property, Equipment, Real Estate Assets and Rental Equipment

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

Description	Life in Years
Real Estate Assets
Buildings	55
Site improvements	16
Tenant improvements	12
Property and Equipment
Leasehold improvements	lesser of 7 years or life of the lease
Vehicles	5
Sleep study equipment	5
Furniture and fixtures	1 to 5
Computer equipment and software	3
Rental Equipment
Medical equipment for lease	1 to 5

Topic 606

Impact of Cumulative Effect of Accounting Changes on Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Operations

The following table reflects the impact of the cumulative effect of the accounting changes upon the adoption of Topic 606 on the condensed consolidated balance sheet as of the beginning of the period:

(in thousands)	As of June 30, 2018			Impact of accounting change			As of July 1, 2018
Incentive fees receivable - related party	$	2,919		$	(2,919	)	$	-
Accumulated deficit		(3,238,547	)		(2,919	)		(3,241,466	)

The following table shows the effect of the change in accounting on the condensed consolidated statement of operations:

	For the three months ended December 31, 2018								For the six months ended December 31, 2018
(in thousands)	Under Topic 605			Under Topic 606			Effect of Change		Under Topic 605			Under Topic 606			Effect of Change
Investment management revenues	$	1,289		$	915		$	374	$	2,805		$	1,855		$	950
Durable medical equipment sales and services revenue		9,076			9,076			-		11,860			11,860			-
Total revenues accounted for under Topic 606	$	10,365		$	9,991		$	374	$	14,665		$	13,715		$	950
Total revenues		15,915			15,541		$	374		22,964			22,014			950
Net loss from continuing operations		(3,877	)		(4,251	)	$	374		(5,242	)		(6,192	)		950
Net loss		(3,902	)		(4,276	)	$	374		(5,335	)		(6,285	)		950
Net loss attributable to Great Elm Capital Group		(3,972	)		(4,346	)	$	374		(5,400	)		(6,350	)		950
Net loss per share	$	(0.15	)	$	(0.17	)	$	0.02	$	(0.21	)	$	(0.25	)	$	0.04

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Revenue (Tables)

6 Months Ended

Dec. 31, 2018

Revenue From Contract With Customer [Abstract]

Summary of Major Source of Revenue

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

	For the three months ended December 31,				For the six months ended December 31,
(in thousands)	2018		2017		2018		2017
Product and Services Revenue(1)
Investment Management
Management Fees	$	755	$	606	$	1,523	$	1,157
Incentive Fees		-		1,609		-		2,500
Administration Fees		160		308		332		634
		915		2,523		1,855		4,291
Durable Medical Equipment
Equipment Sales		7,502		-		9,802		-
Service Revenues		1,574		-		2,058		-
		9,076		-		11,860		-
Total product and services revenue	$	9,991	$	2,523	$	13,715	$	4,291
Rental Revenues
Real Estate
Rental Income		1,474		-		2,916		-
Durable Medical Equipment
Medical Equipment Rental Income		4,076		-		5,383		-
Total rental revenue		5,550		-		8,299		-
Total	$	15,541	$	2,523	$	22,014	$	4,291

(1) Revenue for sales of products or services recognized in the three and six months ended December 31, 2018 and 2017 was accounted for under Topic 606 and Topic 605, respectively, as discussed in this note and Note 2 – Summary of Significant Accounting Policies.

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Acquisition (Tables)

6 Months Ended

Dec. 31, 2018

Business Combinations [Abstract]

Summary of Acquisition Date Fair Value of Consideration Transferred

The acquisition date fair value of the consideration transferred is summarized in the following table:

(in thousands)	As Previously Reported		Adjustment			As Adjusted
Cash	$	25,321	$	-		$	25,321
Net working capital adjustment		-		(254	)		(254	)
Increase in note payable to seller(1)		16,500		-			16,500
Debt assumed		9,275		-			9,275
Preferred stock in DME Holdings		5,266		-			5,266
Contingent consideration		1,225		(380	)		845
Total Consideration	$	57,587	$	(634	)	$	56,953

(1) Included in related party note payable on the condensed consolidated balance sheet.

Summary of Fair Values of Assets Acquired and Liabilities Assumed at Date of Acquisition

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.  The Company is in the process of obtaining finalized third-party valuations of certain intangible assets, and gathering information on all assets acquired and liabilities assumed, including tax attributes, thus, all amounts are preliminary and are subject to change as these provisional estimates are finalized.

(in thousands)	As Previously Reported			Adjustment			As Adjusted
Accounts receivable	$	5,363		$	90		$	5,453
Inventories		1,546			-			1,546
Other assets		503			-			503
Fixed assets		852			-			852
Equipment held for rent		8,470			(294	)		8,176
Goodwill		46,222			(886	)		45,336
Tradename		6,900			-			6,900
Non-compete agreements		1,450			-			1,450
Right of use asset		4,205			-			4,205
Current liabilities		(6,374	)		456			(5,918	)
Operating lease liabilities		(4,285	)		-			(4,285	)
Non-controlling interest		(7,265	)		-			(7,265	)
Net Assets Acquired	$	57,587		$	(634	)	$	56,953

Pro Forma Results Pursuant to Requirements of ASC Topic 805

The pro forma results presented below were prepared pursuant to the requirements of ASC Topic 805, Business Combinations, and give effect to the acquisition as if it had been consummated on July 1, 2017.  The pro forma results have been prepared for comparative purposes only and do not necessarily represent what revenue or results of operations would have been had the acquisition been completed on July 1, 2017.  In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved by the Company.

	For the three months ended December 31,						For the six months ended December 31,
(in thousands)	2018			2017			2018			2017
Revenues	$	15,541		$	14,383		$	30,308		$	27,796
Net loss		(4,276	)		(727	)		(5,399	)		(5,652	)
Net loss attributable to Great Elm Capital Group		(4,346	)		(792	)		(5,278	)		(5,415	)

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Related Party Transactions (Tables)

6 Months Ended

Dec. 31, 2018

Related Party Transactions [Abstract]

Schedule of Activity and Outstanding Balances Between GECC and Company

The following tables summarize activity and outstanding balances between GECC and the Company.

	For the three months ended December 31,						For the six months ended December 31,
(in thousands)	2018			2017			2018			2017
Change in unrealized gain (loss) on investment in GECC recorded in the period	$	(3,639	)	$	(1,180	)	$	(2,734	)	$	(1,534	)
GECC dividends recorded in the period		961			883			1,451			1,373

(in thousands)	December 31, 2018		June 30, 2018
Dividends receivable from GECC	$	814	$	163
Investment management revenues receivable from GECC(1)		909		4,094

(1) Investment management fees receivable from GECC as of June 30, 2018 include incentive fee receivables of $2.9 million which have been reversed as a result of the adoption of Topic 606 on July 1, 2018.  See Note 2 – Summary of Significant Accounting Policies.

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Fixed Assets (Tables)

6 Months Ended

Dec. 31, 2018

Property Plant And Equipment [Abstract]

Summary of Fixed Assets

The following tables detail the Company’s fixed assets (in thousands):

	December 31, 2018			June 30, 2018
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		(996	)		(384	)
Net carrying amount	$	55,029		$	55,641
Property and Equipment
Leasehold improvements	$	376		$	45
Vehicles		188			-
Computer equipment and software		141			-
Furniture and fixtures		224			27
Sleep study equipment		227			-
		1,156			72
Accumulated depreciation		(111	)		(31	)
Net carrying amount	$	1,045		$	41
Medical Equipment Held for Rental
Medical equipment held for rental	$	10,776		$	-
Accumulated depreciation		(2,038	)		-
Net carrying amount	$	8,738		$	-

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Lessor Operating Leases (Tables)

6 Months Ended

Dec. 31, 2018

Lessor Disclosure [Abstract]

Summary of Rental Income from Real Estate Leases

Rental income from real estate leases is summarized in the following table:

(in thousands)	For the three months ended December 31, 2018		For the six months ended December 31, 2018
Revenues from base rents	$	1,151	$	2,302
Revenues from additional rental payments		323		614
Total rental revenues	$	1,474	$	2,916

Summary of Base Rents for Remaining Lease Term

The following table summarizes the base rents for the remaining lease term:

(in thousands)	Base Rent Payments
For the six months ending June 30, 2019	$	2,032
For the year ending June 30, 2020		4,120
For the year ending June 30, 2021		4,213
For the year ending June 30, 2022		4,312
For the year ending June 30, 2023		4,420
Thereafter		33,203
Total base rent	$	52,300

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Fair Value Measurements (Tables)

6 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

Summary of Assets and Liabilities Measured at Fair Value on Recurring and Non-recurring Basis

The assets and liabilities measured at fair value on a recurring and non-recurring basis are summarized in the tables below (in thousands):

	Fair Value as of December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Investment in GECC	$	9,287	$	-	$	-	$	9,287
Restricted investment in GECC		6,152		-		-		6,152
Total assets	$	15,439	$	-	$	-	$	15,439
Liabilities:
Contingent consideration liability	$	-	$	-	$	845	$	845
Total liabilities	$	-	$	-	$	845	$	845

Reconciliation of Changes in Contingent Consideration, Level 3 Liability

The following is a reconciliation of changes in contingent consideration, a Level 3 liability, for the three and six months ended December 31, 2018:

(in thousands)
Balance as of June 30, 2018	$	-
Additions		845
Balance as of September 30, 2018		845
Change in fair value		-
Balance as of December 30, 2018	$	845

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Goodwill and Other Intangible Assets (Tables)

6 Months Ended

Dec. 31, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Summary of Identifiable Intangible Assets

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

	As of December 31, 2018							As of June 30, 2018
Amortized intangible assets:	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Investment Management
Investment management agreement	$	3,900	$	(1,024	)	$	2,876	$	3,900	$	(789	)	$	3,111
Assembled workforce		526		(138	)		388		526		(106	)		420
		4,426		(1,162	)		3,264		4,426		(895	)		3,531
Real Estate
In-place lease		6,028		(410	)		5,618		6,028		(159	)		5,869
Durable Medical Equipment
Tradename		6,900		(230	)		6,670		-		-			-
Non-compete agreements		1,450		(97	)		1,353		-		-			-
		8,350		(327	)		8,023		-		-			-
Total	$	18,804	$	(1,899	)	$	16,905	$	10,454	$	(1,054	)	$	9,400

Summary of Amortization Expense of Identifiable Intangible Assets

Aggregate Amortization Expense:	2018		2017
For the three months ended December 31,	$	501	$	129
For the six months ended December 31,		845		302

Estimated Amortization Expense:
For the six months ending June 30, 2019	$	1,094
For the year ending June 30, 2020		2,082
For the year ending June 30, 2021		1,938
For the year ending June 30, 2022		1,865
For the year ending June 30, 2023		1,798

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Lessee Operating Leases (Tables)

6 Months Ended

Dec. 31, 2018

Lessee Disclosure [Abstract]

Schedule of Additional Details of Lease Presented in Balance Sheet

The following table provides additional details of the leases presented in the balance sheets:

(in thousands)	December 31, 2018			June 30, 2018
Facilities
Right of use assets	$	5,574		$	1,521
Current portion of lease liabilities		1,276			336
Lease liabilities, net of current portion		4,567			1,304
Total liabilities	$	5,843		$	1,640
Weighted-average remaining life	4.5 years			6.3 years
Weighted-average discount rate		11.6	%		10.0	%
Vehicles
Right of use assets	$	66		$	-
Current portion of lease liabilities		13			-
Lease liabilities, net of current portion		53			-
Total liabilities	$	66		$	-
Weighted-average remaining life	4.2 years			n/a
Weighted-average discount rate		12.2	%	n/a

Schedule of Operating Lease Cost

Operating lease costs are included in the operating expense associated with the business segment leasing the asset on the statements of operations 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 December 31,				For the six months ended December 31,
(in thousands)	2018		2017		2018		2017
Facilities
Operating lease cost	$	502	$	89	$	721	$	184
Cash paid for operating leases		486		576		699		755
Vehicles
Operating lease cost	$	5	$	-	$	7	$	-
Cash paid for operating leases		5		-		7		-

Schedule of Company's Undiscounted Cash Payment Obligations for Operating Lease

The following table summarizes the Company’s undiscounted cash payment obligations for its operating leases (in thousands):

(in thousands)
For the six months ending June 30, 2019	$	993
For the year ending June 30, 2020		1,764
For the year ending June 30, 2021		1,630
For the year ending June 30, 2022		1,400
For the year ending June 30, 2023		875
Thereafter		965
Total lease payments	$	7,627
Imputed interest		(1,718	)
Total lease liabilities	$	5,909

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Borrowings (Tables)

6 Months Ended

Dec. 31, 2018

Debt Instrument [Line Items]

Schedule of Related Party Borrowings of Subsidiaries

Related party borrowings of the Company’s subsidiaries are summarized in the following table:

(in thousands)	Subsidiaries	December 31, 2018			June 30, 2018
GP Corp. Note	GECC GP Corp.	$	3,224		$	3,224
Corbel Facility	DME Inc. and subsidiaries		24,688			-
Total principal, net		$	27,912		$	3,224
Unamortized debt issuance cost			(357	)		-
Total long-term related party notes payable			27,555			3,224
Less current portion of related party notes payable			(1,326	)		-
Related party notes payable, net of current portion		$	26,229		$	3,224

Schedule of Subsidiaries' Other Outstanding Borrowings

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

(in thousands)	Subsidiaries	December 31, 2018			June 30, 2018
Senior Note	CRIC IT	$	53,187		$	54,161
Subordinated Note	CRIC IT		3,041			2,823
DME Revolver	DME Inc. and subsidiaries		6,630			-
Total principal, net		$	62,858		$	56,984
Unamortized debt premiums			3,170			3,131
Unamortized debt discounts and issuance costs			(2,402	)		(2,484	)
Total long term debt			63,626			57,631
Less current portion of long-term debt			(2,038	)		(1,999	)
Long term debt, net of current portion		$	61,588		$	55,632

Schedule of Aggregate Future Required Principal Debt Repayments

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

(in thousands)	Principal Due
For the six months ending June 30, 2019	$	1,650
For the year ending June 30, 2020		3,485
For the year ending June 30, 2021		10,282
For the year ending June 30, 2022		3,833
For the year ending June 30, 2023		4,027
For the year ending June 30, 2024		22,044
Thereafter		58,677
Total	$	103,998
Outstanding principal on related party borrowings	$	27,912
Outstanding principal on other borrowings		62,858
Future interest to be paid-in-kind		13,228
Total future required principal payments	$	103,998

GP Corp. Note

Debt Instrument [Line Items]

Schedule of Payments and Interest Expense Incurred

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 December 31,				For the six months ended December 31,
(in thousands)	2018		2017		2018		2017
Principal payments	$	-	$	-	$	-	$	-
Interest expense		42		36		86		134

Corbel Facility

Debt Instrument [Line Items]

Schedule of Payments and Interest Expense Incurred

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

	For the three months ended December 31,				For the six months ended December 31,
(in thousands)	2018		2017		2018		2017
Principal payments	$	313	$	-	$	313	$	-
Interest expense		793		-		990		-

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Stockholders' Equity (Tables)

6 Months Ended

Dec. 31, 2018

Equity [Abstract]

Activity of Restricted Stock Award

The following table summarizes the Company’s restricted stock award activity as of and through December 31, 2018 (in thousands, except per share amounts):

Restricted Stock Awards and Restricted Stock Units	Restricted Stock			Weighted Average Grant Date Fair Value
Outstanding at June 30, 2018		767		$	3.92
Granted		186			3.43
Vested		(83	)		3.45
Forfeited		-			-
Outstanding at December 31, 2018		870		$	3.86

Summary of Option Activity

The following table summarizes the Company’s option award activity as of and through December 31, 2018 (in thousands, except per share amounts):

Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at June 30, 2018		2,676	$	4.31		7.44	$	70
Options granted		60		3.43
Exercised		-		-
Forfeited, cancelled or expired		-		-
Outstanding at December 31, 2018		2,736	$	4.29		7.00	$	25
Exercisable at December 31, 2018		1,632	$	4.77		5.79	$	18
Vested and expected to vest as of December 31, 2018		2,736	$	4.29		7.00	$	25

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Non-Controlling Interests and Preferred Stock of Subsidiary (Tables)

6 Months Ended

Dec. 31, 2018

Noncontrolling Interest [Abstract]

Summary of Non-controlling Interest Balance on Condensed Consolidated Balance Sheet

The following table summarizes the non-controlling interest balances on the condensed consolidated balance sheets:

(in thousands)	December 31, 2018			June 30, 2018
DME Holdings
Preferred stock classified as liability	$	5,266		$	-
DME Inc.
NCI classified as temporary equity		3,690			-
NCI classified as permanent equity		3,690			-
Total DME Inc.		12,646			-
GECC GP Corp.
NCI classified as permanent equity		(535	)		(465	)
GE FM Holdings
NCI classified as permanent equity		707			687
Total	$	12,818		$	222

Summary of Non-controlling Interest Balance on Condensed Consolidated Statements of Operations

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 December 31,						For the six months ended December 31,
(in thousands)	2018			2017			2018			2017
DME Holdings
Preferred stock classified as liability	$	-		$	-		$	-		$	-
DME Inc.
NCI classified as temporary equity		48			-			58			-
NCI classified as permanent equity		48			-			58			-
Total DME Inc.		96			-			115			-
GECC GP Corp.
NCI classified as permanent equity		(35	)		(33	)		(70	)		(387	)
GE FM Holdings
NCI classified as permanent equity		9			-			20			-
Total	$	70		$	(33	)	$	65		$	(387	)

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Segment Information (Tables)

6 Months Ended

Dec. 31, 2018

Segment Reporting [Abstract]

Schedule of Results of Operations by Segment

The following tables illustrate results of operations by segment (in thousands):

	For the three months ended December 31, 2018
(in thousands)	Investment Management			Real Estate			Durable Medical Equipment			General Corporate			Reconciliation to Consolidated Total(1)			Consolidated Total
Revenue:
Total revenue	$	915		$	1,474		$	13,152		$	52		$	(52	)	$	15,541
Operating costs and expenses:
Cost of durable medical equipment sold and services		-			-			(3,545	)		-			-			(3,545	)
Cost of durable medical equipment rentals		-			-			(1,970	)		-			-			(1,970	)
Depreciation and amortization		(137	)		(431	)		(260	)		-			-			(828	)
Stock-based compensation(2)		(37	)		-			-			(132	)		-			(169	)
Transaction costs(3)		-			-			(2	)		(135	)		-			(137	)
Other selling, general and administrative		(704	)		(342	)		(5,895	)		(1,770	)		52			(8,659	)
Total operating expenses		(878	)		(773	)		(11,672	)		(2,037	)		52			(15,308	)
Other income (expense):
Interest expense		(44	)		(663	)		(1,081	)		-			-			(1,788	)
Other income (expense)		-			-			-			(2,696	)		-			(2,696	)
Total other expense, net		(44	)		(663	)		(1,081	)		(2,696	)		-			(4,484	)
Total pre-tax income (loss) from continuing operations	$	(7	)	$	38		$	399		$	(4,681	)	$	-		$	(4,251	)

	For the three months ended December 31, 2017
(in thousands)	Investment Management			Real Estate(4)		Durable Medical Equipment(5)		General Corporate			Reconciliation to Consolidated Total		Consolidated Total
Revenue:
Total revenue	$	2,523		$	-	$	-	$	-		$	-	$	2,523
Operating costs and expenses:
Depreciation and amortization		(133	)		-		-		-			-		(133	)
Stock-based compensation(2)		(719	)		-		-		(208	)		-		(927	)
Other general and administrative		(1,544	)		-		-		(923	)		-		(2,467	)
Total operating expenses		(2,396	)		-		-		(1,131	)		-		(3,527	)
Other income (expense):
Interest expense		(37	)		-		-		-			-		(37	)
Other income (expense)		60			-		-		(221	)		-		(161	)
Total other expense, net		23			-		-		(221	)		-		(198	)
Total pre-tax income (loss) from continuing operations	$	150		$	-	$	-	$	(1,352	)	$	-	$	(1,202	)

	For the six months ended December 31, 2018
(in thousands)	Investment Management			Real Estate			Durable Medical Equipment(5)			General Corporate			Reconciliation to Consolidated Total(1)			Consolidated Total
Revenue:
Total revenue	$	1,855		$	2,916		$	17,243		$	70		$	(70	)	$	22,014
Operating costs and expenses:
Cost of durable medical equipment sold and services		-			-			(4,489	)		-			-			(4,489	)
Cost of durable medical equipment rentals		-			-			(2,260	)		-			-			(2,260	)
Depreciation and amortization		(273	)		(862	)		(403	)		-			-			(1,538	)
Stock-based compensation(2)		(582	)		-			-			(260	)		-			(842	)
Transaction costs(3)		-			-			(544	)		(1,459	)		-			(2,003	)
Other selling, general and administrative		(1,608	)		(637	)		(7,774	)		(3,143	)		70			(13,092	)
Total operating expenses		(2,463	)		(1,499	)		(15,470	)		(4,862	)		70			(24,224	)
Other income (expense):
Interest expense		(88	)		(1,328	)		(1,367	)		-			-			(2,783	)
Other income (expense)		-			-			20			(1,219	)		-			(1,199	)
Total other income (expense), net		(88	)		(1,328	)		(1,347	)		(1,219	)		-			(3,982	)
Total pre-tax income (loss) from continuing operations	$	(696	)	$	89		$	426		$	(6,011	)	$	-		$	(6,192	)

	For the six months ended December 31, 2017
(in thousands)	Investment Management			Real Estate(4)		Durable Medical Equipment(5)		General Corporate			Reconciliation to Consolidated Total		Consolidated Total
Revenue:
Total revenue	$	4,291		$	-	$	-	$	-		$	-	$	4,291
Operating costs and expenses:
Depreciation and amortization		(313	)		-		-		-			-		(313	)
Stock-based compensation(2)		(2,271	)		-		-		(413	)		-		(2,684	)
Other selling, general and administrative		(3,062	)		-		-		(2,604	)		-		(5,666	)
Total operating expenses		(5,646	)		-		-		(3,017	)		-		(8,663	)
Other income (expense):
Interest expense		(135	)		-		-		-			-		(135	)
Other income (expense)		13			-		-		(92	)		-		(79	)
Total other income (expense), net		(122	)		-		-		(92	)		-		(214	)
Total pre-tax income (loss) from continuing operations	$	(1,477	)	$	-	$	-	$	(3,109	)	$	-	$	(4,586	)

(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 consolidated statements of operations.  Stock-based compensation attributable to the general corporate segment is included in selling, general and administrative expense in the consolidated statements of operations.

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

(4) Our real estate business began in March 2018 and there was no related activity prior to that date.

(5) Our durable medical equipment business began in September 2018 and there was no related activity prior to that date.

Schedule of Assets by Segment

The following tables illustrate assets by segment (in thousands):

	As of December 31, 2018
Assets (in thousands)	Investment Management		Real Estate		Durable Medical Equipment		General Corporate		Total
Fixed assets, net	$	48	$	55,029	$	9,735	$	-	$	64,812
Identifiable intangible assets, net		3,264		5,618		8,023		-		16,905
Goodwill		-		-		45,336		-		45,336
Other assets		2,699		1,097		21,517		29,574		54,887
Total	$	6,011	$	61,744	$	84,611	$	29,574	$	181,940
	As of June 30, 2018
Assets (in thousands)	Investment Management		Real Estate		Durable Medical Equipment		General Corporate		Total
Fixed assets, net	$	41	$	55,641	$	-	$	-	$	55,682
Identifiable intangible assets, net		3,531		5,869		-		-		9,400
Other assets		5,878		937		-		61,690		68,505
Total	$	9,450	$	62,447	$	-	$	61,690	$	133,587

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Organization (Details) - Segment	6 Months Ended
	Dec. 31, 2018	Sep. 07, 2018
Number of operating segments	4
Great Elm DME Holdings Incorporation
Percentage of equity interest acquired (as a percent)		80.10%

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Summary of Significant Accounting Policies - Additional Information (Details)	3 Months Ended	6 Months Ended
	Dec. 31, 2018 USD ($) Payor	Dec. 31, 2018 USD ($) ReportingSegment Payor shares	Dec. 31, 2017 shares	Jul. 01, 2018 USD ($)	Jun. 30, 2018 USD ($)
Significant Accounting Policies [Line Items]
Number of Reportable Segments | ReportingSegment		4
Unbilled receivables	$ 500,000	$ 500,000
Capitalization amount	6,152,000	6,152,000
Impairment triggering events		$ 0
Term of contractual arrangement to provide investment management related services		3 years
Contractual arrangement expiration month and year		2019-11
Percentage of fees for investment management related services		26.00%
Potentially dilutive shares excluded from diluted net loss per share | shares		3,606,206	3,936,334
Accumulated deficit	$ (3,247,816,000)	$ (3,247,816,000)			$ (3,238,547,000)
Incentive fees receivable - related party					$ 2,919,000
Topic 606
Significant Accounting Policies [Line Items]
Accumulated deficit				$ (3,241,466,000)
Incentive fees receivable - related party				0
Topic 606 | Impact of accounting change
Significant Accounting Policies [Line Items]
Accumulated deficit				(2,919,000)
Incentive fees receivable - related party				$ (2,919,000)
ASU 2018-20
Significant Accounting Policies [Line Items]
Impact of adoption, Reduction of real estate rental income and real estate expenses		$ 800,000
Revenues | Credit Concentration Risk
Significant Accounting Policies [Line Items]
Concentration risk, percentage	30.00%	28.00%
Number of third party payor | Payor	1	1
Accounts Receivable | Credit Concentration Risk
Significant Accounting Policies [Line Items]
Concentration risk, percentage		29.00%
Accounts Receivable | Credit Concentration Risk | Additional Government Program Payor
Significant Accounting Policies [Line Items]
Concentration risk, percentage		13.00%
Minimum
Significant Accounting Policies [Line Items]
Amortization period of intangible assets		5 years
Maximum
Significant Accounting Policies [Line Items]
Amortization period of intangible assets		15 years
Capped Rentals
Significant Accounting Policies [Line Items]
Title transfer period		13 months
Preferred Stock | DME Holdings
Significant Accounting Policies [Line Items]
Capitalization amount	$ 6,200,000	$ 6,200,000

XML

Summary of Significant Accounting Policies - Estimated Useful Lives of Property, Equipment, Real Estate Assets and Rental Equipment (Details)	6 Months Ended
	Dec. 31, 2018
Buildings
Property Plant And Equipment [Line Items]
Estimated useful lives	55 years
Site Improvements
Property Plant And Equipment [Line Items]
Estimated useful lives	16 years
Tenant Improvements
Property Plant And Equipment [Line Items]
Estimated useful lives	12 years
Leasehold Improvements
Property Plant And Equipment [Line Items]
Estimated useful lives	lesser of 7 years or life of the lease
Vehicles
Property Plant And Equipment [Line Items]
Estimated useful lives	5 years
Sleep Study Equipment
Property Plant And Equipment [Line Items]
Estimated useful lives	5 years
Furniture and Fixtures | Minimum
Property Plant And Equipment [Line Items]
Estimated useful lives	1 year
Furniture and Fixtures | Maximum
Property Plant And Equipment [Line Items]
Estimated useful lives	5 years
Computer Equipment And Software
Property Plant And Equipment [Line Items]
Estimated useful lives	3 years
Medical Equipment for Lease | Minimum
Property Plant And Equipment [Line Items]
Estimated useful lives	1 year
Medical Equipment for Lease | Maximum
Property Plant And Equipment [Line Items]
Estimated useful lives	5 years

XML

Summary of Significant Accounting Policies - Impact of Cumulative Effect of Accounting Changes on Condensed Consolidated Balance Sheet (Details) - USD ($)	Dec. 31, 2018	Jul. 01, 2018	Jun. 30, 2018
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Incentive fees receivable - related party			$ 2,919,000
Accumulated deficit	$ (3,247,816,000)		$ (3,238,547,000)
Topic 606
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Incentive fees receivable - related party		$ 0
Accumulated deficit		(3,241,466,000)
Impact of accounting change | Topic 606
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Incentive fees receivable - related party		(2,919,000)
Accumulated deficit		$ (2,919,000)

XML

Summary of Significant Accounting Policies - Effect of Change in Accounting On Condensed Consolidated Statement of Operations (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Total revenues accounted for under Topic 606	$ 9,991	$ 2,523	$ 13,715	$ 4,291
Total revenues	15,541	2,523	22,014	4,291
Net loss from continuing operations	(4,251)	(1,202)	(6,192)	(4,586)
Net loss	(4,276)	(1,202)	(6,285)	(4,586)
Net loss attributable to Great Elm Capital Group	$ (4,346)	$ (1,169)	$ (6,350)	$ (4,199)
Net loss per share	$ (0.17)	$ (0.05)	$ (0.25)	$ (0.18)
Investment Management
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Total revenues accounted for under Topic 606	$ 915	$ 2,523	$ 1,855	$ 4,291
Durable Medical Equipment | Sales and Services
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Total revenues accounted for under Topic 606	9,076		11,860
Topic 606 | Under Topic 605
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Total revenues accounted for under Topic 606	10,365		14,665
Total revenues	15,915		22,964
Net loss from continuing operations	(3,877)		(5,242)
Net loss	(3,902)		(5,335)
Net loss attributable to Great Elm Capital Group	$ (3,972)		$ (5,400)
Net loss per share	$ (0.15)		$ (0.21)
Topic 606 | Effect of Change
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Total revenues accounted for under Topic 606	$ 374		$ 950
Total revenues	374		950
Net loss from continuing operations	374		950
Net loss	374		950
Net loss attributable to Great Elm Capital Group	$ 374		$ 950
Net loss per share	$ 0.02		$ 0.04
Topic 606 | Investment Management | Under Topic 605
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Total revenues accounted for under Topic 606	$ 1,289		$ 2,805
Topic 606 | Investment Management | Effect of Change
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Total revenues accounted for under Topic 606	374		950
Topic 606 | Durable Medical Equipment | Sales and Services | Under Topic 605
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Total revenues accounted for under Topic 606	$ 9,076		$ 11,860

XML

Revenue - Summary of Major Source of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
Disaggregation Of Revenue [Line Items]
Total product and services revenue	$ 9,991	$ 2,523	$ 13,715	$ 4,291
Total rental revenue	5,550		8,299
Total revenues	15,541	2,523	22,014	4,291
Investment Management
Disaggregation Of Revenue [Line Items]
Total product and services revenue	915	2,523	1,855	4,291
Investment Management | Management Fees
Disaggregation Of Revenue [Line Items]
Total product and services revenue	755	606	1,523	1,157
Investment Management | Incentive Fees
Disaggregation Of Revenue [Line Items]
Total product and services revenue		1,609		2,500
Investment Management | Administration Fees
Disaggregation Of Revenue [Line Items]
Total product and services revenue	160	$ 308	332	$ 634
Durable Medical Equipment | Equipment Sales
Disaggregation Of Revenue [Line Items]
Total product and services revenue	7,502		9,802
Durable Medical Equipment | Service Revenues
Disaggregation Of Revenue [Line Items]
Total product and services revenue	1,574		2,058
Durable Medical Equipment | Sales and Services
Disaggregation Of Revenue [Line Items]
Total product and services revenue	9,076		11,860
Durable Medical Equipment | Rental
Disaggregation Of Revenue [Line Items]
Total rental revenue	4,076		5,383
Durable Medical Equipment | Medical Equipment
Disaggregation Of Revenue [Line Items]
Total rental revenue	4,076		5,383
Real Estate | Rental
Disaggregation Of Revenue [Line Items]
Total rental revenue	$ 1,474		$ 2,916

XML

Revenue - Additional Information (Details) - USD ($)	6 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018
Disaggregation Of Revenue [Line Items]
Contract with customer liability	$ 0	$ 0
Equipment Sales
Disaggregation Of Revenue [Line Items]
Contract with customer liability			$ 0
Contract with customer, asset			0
Equipment Rental
Disaggregation Of Revenue [Line Items]
Contract with customer liability	$ 700,000	$ 700,000	0
Unbilled revenue			$ 0
Minimum
Disaggregation Of Revenue [Line Items]
Equipment Lease Term	10 months
Maximum
Disaggregation Of Revenue [Line Items]
Equipment Lease Term	36 months
GECC
Disaggregation Of Revenue [Line Items]
Annual rate of base management fee earned as percentage of average adjusted gross assets	1.50%
GECC | Minimum
Disaggregation Of Revenue [Line Items]
Incentive fee earned as percentage on investment performance	5.00%
GECC | Maximum
Disaggregation Of Revenue [Line Items]
Incentive fee earned as percentage on investment performance	20.00%

XML

Acquisition - Additional Information (Details)			3 Months Ended	4 Months Ended	6 Months Ended
		Sep. 07, 2018 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)	Jun. 30, 2018 USD ($)
Business Acquisition [Line Items]
Maximum additional consideration payable		$ 2,400,000
Goodwill			$ 45,336,000	$ 45,336,000	$ 45,336,000	$ 0
Acquisition costs	[1]		137,000		2,003,000
Costs associated with issuing debt			$ 400,000	$ 400,000	400,000
General and Administrative Expense
Business Acquisition [Line Items]
Acquisition costs					$ 2,000,000
Monte Carlo Simulation Model | Volatility
Business Acquisition [Line Items]
Contingent consideration, fair value estimation, volatility			36.3	36.3	36.3
DME, Inc.
Business Acquisition [Line Items]
Percentage of voting interests acquired		80.10%
Intangible assets, fair value		$ 8,400,000
Maximum additional consideration payable		2,400,000	$ 2,400,000	$ 2,400,000	$ 2,400,000
Contingent consideration fair value		800,000	$ 800,000	800,000	$ 800,000
Goodwill		45,336,000
Goodwill expected to be deductible for income tax purposes		$ 20,500,000
Non-controlling interest in acquired companies, percentage		19.90%
Estimated fair value of non-controlling interest in acquired business		$ 7,265,000
Revenue of acquired business				17,200,000
Net income of acquired business				$ 400,000
DME, Inc. | Monte Carlo Simulation Model | Volatility
Business Acquisition [Line Items]
Contingent consideration, fair value estimation, volatility		33.5
DME, Inc. | Trade Name
Business Acquisition [Line Items]
Intangible assets, fair value		$ 6,900,000
Intangible assets, fair value assumptions, royalty rate		3.00%
Intangible assets, fair value assumptions, discount rate		20.00%
Expected life					10 years
DME, Inc. | Non-compete Agreements
Business Acquisition [Line Items]
Intangible assets, fair value		$ 1,450,000
Intangible assets, fair value assumptions, discount rate		20.00%
Weighted-average expected life					4 years 2 months 12 days

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

XML

Acquisition - Summary of Acquisition Date Fair Value of Consideration Transferred (Details) - DME, Inc. $ in Thousands	3 Months Ended
	Sep. 30, 2018 USD ($)
Business Acquisition [Line Items]
Cash	$ 25,321
Net working capital adjustment	(254)
Increase in note payable to seller	16,500
Debt assumed	9,275
Contingent consideration	845
Total Consideration	56,953
As Previously Reported
Business Acquisition [Line Items]
Cash	25,321
Increase in note payable to seller	16,500
Debt assumed	9,275
Contingent consideration	1,225
Total Consideration	57,587
Adjustment
Business Acquisition [Line Items]
Net working capital adjustment	(254)
Contingent consideration	(380)
Total Consideration	(634)
Preferred Stock | DME Holdings
Business Acquisition [Line Items]
Preferred stock in DME Holdings	5,266
Preferred Stock | As Previously Reported | DME Holdings
Business Acquisition [Line Items]
Preferred stock in DME Holdings	$ 5,266

XML

Acquisition - Summary of Fair Values of Assets Acquired and Liabilities Assumed at Date of Acquisition (Details) - USD ($)	Dec. 31, 2018	Sep. 07, 2018	Jun. 30, 2018
Business Acquisition [Line Items]
Goodwill	$ 45,336,000		$ 0
DME, Inc.
Business Acquisition [Line Items]
Accounts receivable		$ 5,453,000
Inventories		1,546,000
Other assets		503,000
Fixed assets		852,000
Equipment held for rent		8,176,000
Goodwill		45,336,000
Intangible assets		8,400,000
Right of use asset		4,205,000
Current liabilities		(5,918,000)
Operating lease liabilities		(4,285,000)
Non-controlling interest		(7,265,000)
Net Assets Acquired		56,953,000
DME, Inc. | As Previously Reported
Business Acquisition [Line Items]
Accounts receivable		5,363,000
Inventories		1,546,000
Other assets		503,000
Fixed assets		852,000
Equipment held for rent		8,470,000
Goodwill		46,222,000
Right of use asset		4,205,000
Current liabilities		(6,374,000)
Operating lease liabilities		(4,285,000)
Non-controlling interest		(7,265,000)
Net Assets Acquired		57,587,000
DME, Inc. | Adjustment
Business Acquisition [Line Items]
Accounts receivable		90,000
Equipment held for rent		(294,000)
Goodwill		(886,000)
Current liabilities		456,000
Net Assets Acquired		(634,000)
DME, Inc. | Trade Name
Business Acquisition [Line Items]
Intangible assets		6,900,000
DME, Inc. | Trade Name | As Previously Reported
Business Acquisition [Line Items]
Intangible assets		6,900,000
DME, Inc. | Non-compete Agreements
Business Acquisition [Line Items]
Intangible assets		1,450,000
DME, Inc. | Non-compete Agreements | As Previously Reported
Business Acquisition [Line Items]
Intangible assets		$ 1,450,000

XML

Acquisition - Pro Forma Results Pursuant to Requirements of ASC Topic 805 (Details) - DME, Inc. - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
Business Acquisition [Line Items]
Revenues	$ 15,541	$ 14,383	$ 30,308	$ 27,796
Net loss	(4,276)	(727)	(5,399)	(5,652)
Net loss attributable to Great Elm Capital Group	$ (4,346)	$ (792)	$ (5,278)	$ (5,415)

XML

Related Party Transactions - Schedule of Activity and Outstanding Balances Between GECC and Company (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Jun. 30, 2018
Related Party Transaction [Line Items]
Change in unrealized gain (loss) on investment in GECC recorded in the period	$ (3,639)	$ (1,180)	$ (2,734)	$ (1,534)
GECC
Related Party Transaction [Line Items]
Change in unrealized gain (loss) on investment in GECC recorded in the period	(3,639)	(1,180)	(2,734)	(1,534)
GECC dividends recorded in the period	961	$ 883	1,451	$ 1,373
Dividends receivable from GECC	814		814		$ 163
Investment management revenues receivable from GECC	$ 909		$ 909		$ 4,094

XML

Related Party Transactions - Schedule of Activity and Outstanding Balances Between GECC and Company (Parenthetical) (Details) $ in Thousands	Jun. 30, 2018 USD ($)
Related Party Transaction [Line Items]
Incentive fees receivable	$ 2,919
GECC
Related Party Transaction [Line Items]
Incentive fees receivable	$ 2,900

XML

Related Party Transactions - Additional Information (Details) - USD ($)	1 Months Ended	6 Months Ended
	Sep. 30, 2017	Dec. 31, 2018	Dec. 31, 2017	Sep. 07, 2018	Mar. 31, 2018
DME, Inc.
Related Party Transaction [Line Items]
Contingent consideration fair value		$ 800,000		$ 800,000
Receivable from owner as part of measurement period adjustment to working capital				$ 5,453,000
MAST Capital Investor
Related Party Transaction [Line Items]
Warrants granted to purchase common stock	420,000
Percentage of ownership interest issued to former owner/holder		9.30%
GE FM Holdings
Related Party Transaction [Line Items]
Percentage of ownership interest issued to former owner/holder					19.90%
Former Owner
Related Party Transaction [Line Items]
Receivable from owner as part of measurement period adjustment to working capital		$ 300,000
GECC
Related Party Transaction [Line Items]
Percentage of ownership interest (as a percent)		18.50%
GECC GP Corp.
Related Party Transaction [Line Items]
Warrants granted to purchase common stock		54,733
Cost Sharing with MAST
Related Party Transaction [Line Items]
Non-reimbursable expenses paid		$ 0	$ 300,000
Forfeiture of non-vested stock-based compensation	$ 500,000

XML

Fixed Assets - Summary of Fixed Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Jun. 30, 2018
Property Plant And Equipment [Line Items]
Real Estate Assets, Gross Carrying Amount	$ 56,025	$ 56,025
Accumulated depreciation	(996)	(384)
Net carrying amount	55,029	55,641
Property and Equipment, Gross Carrying Amount	1,156	72
Accumulated depreciation	(111)	(31)
Net carrying amount	1,045	41
Medical equipment held for rental	10,776
Accumulated depreciation	(2,038)
Net carrying amount	8,738
Buildings
Property Plant And Equipment [Line Items]
Real Estate Assets, Gross Carrying Amount	43,355	43,355
Land and Site Improvements
Property Plant And Equipment [Line Items]
Real Estate Assets, Gross Carrying Amount	9,170	9,170
Tenant Improvements
Property Plant And Equipment [Line Items]
Real Estate Assets, Gross Carrying Amount	3,500	3,500
Leasehold Improvements
Property Plant And Equipment [Line Items]
Property and Equipment, Gross Carrying Amount	376	45
Vehicles
Property Plant And Equipment [Line Items]
Property and Equipment, Gross Carrying Amount	188
Computer Equipment And Software
Property Plant And Equipment [Line Items]
Property and Equipment, Gross Carrying Amount	141
Furniture and Fixtures
Property Plant And Equipment [Line Items]
Property and Equipment, Gross Carrying Amount	224	$ 27
Sleep Study Equipment
Property Plant And Equipment [Line Items]
Property and Equipment, Gross Carrying Amount	$ 227

XML

Fixed Assets - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Dec. 31, 2018	Dec. 31, 2018
Property Plant And Equipment [Line Items]
Depreciation expense	$ 2,200	$ 2,900
Durable Medical Equipment | Rental
Property Plant And Equipment [Line Items]
Depreciation expense	1,882	2,162
Depreciation and amortization
Property Plant And Equipment [Line Items]
Depreciation expense	$ 300	$ 700

XML

Lessor Operating Leases - Additional Information (Details) $ in Millions	6 Months Ended
	Dec. 31, 2018 USD ($) Property
Minimum
Lessor Lease Description [Line Items]
Lessor, lease terms	10 months
Minimum | DME, Inc.
Lessor Lease Description [Line Items]
Lessor, lease terms	10 months
Maximum
Lessor Lease Description [Line Items]
Lessor, lease terms	36 months
Maximum | DME, Inc.
Lessor Lease Description [Line Items]
Lessor, lease terms	36 months
Gartner I and Gartner II
Lessor Lease Description [Line Items]
Number of office buildings | Property	2
Lessor, lease option to extend	The Gartner I lease contains two five-year extensions and the Gartner II lease contains three five-year extensions
Existence of option to extend operating lease	true
Lessor, lease renewal rate	95.00%
Monthly base lease payments | $	$ 0.4

XML

Lessor Operating Leases - Summary of Rental Income from Real Estate Leases (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Dec. 31, 2018	Dec. 31, 2018
Leases Operating [Abstract]
Revenues from base rents	$ 1,151	$ 2,302
Revenues from additional rental payments	323	614
Total rental revenues	$ 1,474	$ 2,916

XML

Lessor Operating Leases - Summary of Base Rents for Remaining Lease Term (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Lessor Disclosure [Abstract]
For the six months ending June 30, 2019	$ 2,032
For the year ending June 30, 2020	4,120
For the year ending June 30, 2021	4,213
For the year ending June 30, 2022	4,312
For the year ending June 30, 2023	4,420
Thereafter	33,203
Total base rent	$ 52,300

XML

Fair Value Measurements - Summary of Assets and Liabilities Measured at Fair Value on Recurring and Non-recurring Basis (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Assets:
Total assets	$ 15,439
Liabilities:
Contingent consideration liability	845
Total liabilities	845
GECC
Assets:
Investment in GECC	9,287
Restricted investment in GECC	6,152
Fair Value, Inputs, Level 1
Assets:
Total assets	15,439
Fair Value, Inputs, Level 1 | GECC
Assets:
Investment in GECC	9,287
Restricted investment in GECC	6,152
Fair Value, Inputs, Level 3
Liabilities:
Contingent consideration liability	845
Total liabilities	$ 845

XML

Fair Value Measurements - Reconciliation of Changes in Contingent Consideration, Level 3 Liability (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Sep. 30, 2018
Fair Value Disclosures [Abstract]
Beginning balance	$ 845
Additions		$ 845
Change in fair value	0
Ending balance	$ 845	$ 845

XML

Fair Value Measurements - Additional Information (Details)	6 Months Ended
	Dec. 31, 2018 USD ($) shares	Dec. 31, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 07, 2018 USD ($)	Jun. 30, 2018 shares
Level 3 assets held		$ 0
Level 3 liabilities held	$ 845,000	0	$ 845,000
Maximum additional consideration payable				$ 2,400,000
Contingent consideration liability	$ 845,000
Common stock, shares outstanding | shares	25,221,524				24,718,395
Fair value assets level 1 to level 2 transfers	$ 0	0
Fair value assets level 2 to level 1 transfers	0	0
Fair Value asset transfers into level 3	0	0
Fair Value asset transfers out of level 3	0	0
Fair value liabilities level 1 to level 2 transfers	0	0
Fair value liabilities level 2 to level 1 transfers	0	0
Fair value liability transfers into level 3	0	0
Fair value liability transfers out of level 3	$ 0	$ 0
GECC
Percentage of ownership interest (as a percent)	18.50%
Common stock, shares outstanding | shares	1,966,667
DME, Inc.
Maximum additional consideration payable	$ 2,400,000			2,400,000
Contingent consideration liability				$ 800,000
Monte Carlo Simulation Model | Volatility
Contingent consideration, fair value estimation, volatility	36.3
Monte Carlo Simulation Model | Volatility | DME, Inc.
Contingent consideration, fair value estimation, volatility				33.5

XML

Goodwill and Other Intangible Assets - Additional Information (Details) - USD ($)	6 Months Ended
	Dec. 31, 2018	Sep. 07, 2018	Jun. 30, 2018
Finite Lived Intangible Assets [Line Items]
Goodwill	$ 45,336,000		$ 0
DME, Inc.
Finite Lived Intangible Assets [Line Items]
Goodwill acquired	$ 45,300,000
Goodwill		$ 45,336,000

XML

Goodwill and Other Intangible Assets - Summary of Identifiable Intangible Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Jun. 30, 2018
Finite Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 18,804	$ 10,454
Accumulated Amortization	(1,899)	(1,054)
Net Carrying Amount	16,905	9,400
Investment Management Assets
Finite Lived Intangible Assets [Line Items]
Gross Carrying Amount	4,426	4,426
Accumulated Amortization	(1,162)	(895)
Net Carrying Amount	3,264	3,531
Investment Management Assets | Investment Management Agreement
Finite Lived Intangible Assets [Line Items]
Gross Carrying Amount	3,900	3,900
Accumulated Amortization	(1,024)	(789)
Net Carrying Amount	2,876	3,111
Investment Management Assets | Assembled Workforce
Finite Lived Intangible Assets [Line Items]
Gross Carrying Amount	526	526
Accumulated Amortization	(138)	(106)
Net Carrying Amount	388	420
Real Estate Assets | In-place Lease
Finite Lived Intangible Assets [Line Items]
Gross Carrying Amount	6,028	6,028
Accumulated Amortization	(410)	(159)
Net Carrying Amount	5,618	$ 5,869
Durable Medical Equipment Assets
Finite Lived Intangible Assets [Line Items]
Gross Carrying Amount	8,350
Accumulated Amortization	(327)
Net Carrying Amount	8,023
Durable Medical Equipment Assets | Trade Name
Finite Lived Intangible Assets [Line Items]
Gross Carrying Amount	6,900
Accumulated Amortization	(230)
Net Carrying Amount	6,670
Durable Medical Equipment Assets | Non-compete Agreements
Finite Lived Intangible Assets [Line Items]
Gross Carrying Amount	1,450
Accumulated Amortization	(97)
Net Carrying Amount	$ 1,353

XML

Goodwill and Other Intangible Assets - Summary of Amortization Expense of Identifiable Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
Finite Lived Intangible Assets Future Amortization Expense Current And Five Succeeding Fiscal Years [Abstract]
Aggregate Amortization Expense	$ 501	$ 129	$ 845	$ 302
Estimated Amortization Expense, For the six months ending June 30, 2019	1,094		1,094
Estimated Amortization Expense, For the year ending June 30, 2020	2,082		2,082
Estimated Amortization Expense, For the year ending June 30, 2021	1,938		1,938
Estimated Amortization Expense, For the year ending June 30, 2022	1,865		1,865
Estimated Amortization Expense, For the year ending June 30, 2023	$ 1,798		$ 1,798

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Lessee Operating Leases - Schedule of Additional Details of Leases Presented in Balance Sheets (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Jun. 30, 2018
Operating Leased Assets [Line Items]
Right of use assets	$ 5,640	$ 1,521
Current portion of lease liabilities	1,289	336
Lease liabilities, net of current portion	4,620	1,304
Total liabilities	5,909
Facilities
Operating Leased Assets [Line Items]
Right of use assets	5,574	1,521
Current portion of lease liabilities	1,276	336
Lease liabilities, net of current portion	4,567	1,304
Total liabilities	$ 5,843	$ 1,640
Weighted-average remaining life	4 years 6 months	6 years 3 months 18 days
Weighted-average discount rate	11.60%	10.00%
Vehicles
Operating Leased Assets [Line Items]
Right of use assets	$ 66
Current portion of lease liabilities	13
Lease liabilities, net of current portion	53
Total liabilities	$ 66
Weighted-average remaining life	4 years 2 months 12 days
Weighted-average discount rate	12.20%

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Lessee Operating Leases - Additional Information (Details) - USD ($) $ in Thousands		6 Months Ended
	Sep. 07, 2018	Dec. 31, 2018	Jun. 30, 2018
Lessee Lease Description [Line Items]
Remaining right of use assets		$ 5,640	$ 1,521
Lease liabilities		5,909
Current portion of lease liabilities		1,289	336
Lease liabilities, net of current portion		$ 4,620	1,304
Lessee, operating lease term		88 months
Lessee, operating leases optional lease extension period		60 months
Existence of option to extend operating lease		true
Increase in average rate of lease payment		2.40%
Facilities
Lessee Lease Description [Line Items]
Remaining right of use assets		$ 5,574	1,521
Lease liabilities		5,843	1,640
Current portion of lease liabilities		1,276	336
Lease liabilities, net of current portion		$ 4,567	$ 1,304
Facilities | DME, Inc.
Lessee Lease Description [Line Items]
Existence of option to extend operating lease		true
Vehicles
Lessee Lease Description [Line Items]
Remaining right of use assets		$ 66
Lease liabilities		66
Current portion of lease liabilities		13
Lease liabilities, net of current portion		$ 53
Vehicles | DME, Inc.
Lessee Lease Description [Line Items]
Lessee, operating lease term		60 months
Lessee, termination description		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.
Existence of option to terminate operating lease		false
Minimum
Lessee Lease Description [Line Items]
Increase in average rate of lease payment, value		$ 28
Minimum | Facilities | DME, Inc.
Lessee Lease Description [Line Items]
Lessee, operating lease term		60 months
Lessee operating lease remaining lease term	3 months
Maximum
Lessee Lease Description [Line Items]
Increase in average rate of lease payment, value		$ 32
Maximum | Facilities | DME, Inc.
Lessee Lease Description [Line Items]
Lessee, operating lease term		183 months
Lessee, operating leases optional lease extension period		180 months
Lessee operating lease remaining lease term	96 months

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Lessee Operating Leases - Schedule of Operating Lease Cost (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
Facilities
Operating Leased Assets [Line Items]
Operating lease cost	$ 502	$ 89	$ 721	$ 184
Cash paid for operating leases	486	$ 576	699	$ 755
Vehicles
Operating Leased Assets [Line Items]
Operating lease cost	5		7
Cash paid for operating leases	$ 5		$ 7

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Lessee Operating Leases - Schedule of Company's Undiscounted Cash Payment Obligations for Operating Lease (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Lessee Disclosure [Abstract]
For the six months ending June 30, 2019	$ 993
For the year ending June 30, 2020	1,764
For the year ending June 30, 2021	1,630
For the year ending June 30, 2022	1,400
For the year ending June 30, 2023	875
Thereafter	965
Total lease payments	7,627
Imputed interest	(1,718)
Total lease liabilities	$ 5,909

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Borrowings - Schedule of Related Party Borrowings of Subsidiaries (Details) - USD ($)	Dec. 31, 2018	Jun. 30, 2018
Debt Instrument [Line Items]
Less current portion of long-term debt	$ (2,038,000)	$ (1,999,000)
Long term debt, net of current portion	61,588,000	55,632,000
Related Party Borrowings Subsidiaries
Debt Instrument [Line Items]
Total principal, net	27,912,000	3,224,000
Unamortized debt issuance cost	(357,000)
Total long-term related party notes payable	27,555,000	3,224,000
Less current portion of long-term debt	(1,326)
Long term debt, net of current portion	26,229,000	3,224,000
GP Corp. Note | GECC GP Corp. | Related Party Borrowings Subsidiaries
Debt Instrument [Line Items]
Total principal, net	3,224,000	$ 3,224,000
Corbel Facility | DME, Inc. | Related Party Borrowings Subsidiaries
Debt Instrument [Line Items]
Total principal, net	$ 24,688,000

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Borrowings - Schedule of Subsidiaries' Other Outstanding Borrowings (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Jun. 30, 2018	Mar. 31, 2018
Debt Instrument [Line Items]
Less current portion of long-term debt	$ (2,038)	$ (1,999)
Long term debt, net of current portion	61,588	55,632
Subsidiaries Other Outstanding Borrowings
Debt Instrument [Line Items]
Total principal, net	62,858	56,984
Unamortized debt premiums	3,170	3,131
Unamortized debt discounts and issuance costs	(2,402)	(2,484)
Total long-term related party notes payable	63,626	57,631
Less current portion of long-term debt	(2,038)	(1,999)
Long term debt, net of current portion	61,588	55,632
Senior Notes | CRIC IT | Subsidiaries Other Outstanding Borrowings
Debt Instrument [Line Items]
Total principal, net	53,187	54,161
Subordinated Notes
Debt Instrument [Line Items]
Unamortized debt premiums			$ 3,100
Subordinated Notes | CRIC IT | Subsidiaries Other Outstanding Borrowings
Debt Instrument [Line Items]
Total principal, net	3,041	$ 2,823
DME Revolver | DME, Inc. | Subsidiaries Other Outstanding Borrowings
Debt Instrument [Line Items]
Total principal, net	$ 6,630

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Borrowings - Additional Information (Detail) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Sep. 30, 2018	Sep. 07, 2018	Mar. 31, 2018
Debt Instrument [Line Items]
Interest expense	$ 1,788,000	$ 37,000	$ 2,783,000	$ 135,000
Percentage of termination fee payable on original credit limit upon termination within first year			3.00%
DME Revolver
Debt Instrument [Line Items]
Debt instrument description			the prime rate plus 0.40% per annum
Debt instrument variable rate			0.40%
Credit facility balance	6,600,000		$ 6,600,000
Credit facility maximum borrowing capacity	$ 10,000,000		$ 10,000,000
Credit facility expiration date			Aug. 30, 2020
Credit facility interest rate	5.90%		5.90%
Great Elm DME, Inc.
Debt Instrument [Line Items]
Percentage of voting interests acquired						80.10%
Great Elm DME, Inc. | DME Revolver
Debt Instrument [Line Items]
Debt acquired principal amount					$ 6,300,000	$ 800,000
GP Corp. Note
Debt Instrument [Line Items]
Secured notes, maturity date			Nov. 30, 2026
Debt instrument description			three-month LIBOR plus 3.0% per annum
Debt instrument variable rate			3.00%
Debt instrument interest rate	5.80%		5.80%
Mandatory annual payments on debt			$ 80,000
Senior Notes
Debt Instrument [Line Items]
Secured notes, maturity date			Mar. 15, 2030
Debt instrument interest rate	3.49%		3.49%
Debt acquired principal amount							$ 54,800,000
Senior and subordinated notes payable							52,200,000
Debt instrument unamortized discount							2,600,000
Debt instrument last required payment	$ 18,400,000		$ 18,400,000
Debt instrument last installment payment date			Mar. 15, 2030
Subordinated Notes
Debt Instrument [Line Items]
Secured notes, maturity date			Mar. 15, 2030
Debt instrument interest rate	15.00%		15.00%
Debt acquired principal amount							2,700,000
Senior and subordinated notes payable							5,800,000
Debt instrument unamortized premium							$ 3,100,000
Debt instrument last required payment	$ 16,300,000		$ 16,300,000
Debt instrument last installment payment date			Mar. 15, 2030
Corbel Facility
Debt Instrument [Line Items]
Secured notes, maturity date			Aug. 31, 2023
Debt instrument description			three-month LIBOR plus 10% per annum
Debt instrument variable rate			10.00%
Debt instrument interest rate	12.80%		12.80%
Debt instrument last required payment	$ 300,000		$ 300,000
Debt Instrument prepayment period			5 years
Debt instrument structuring fee	375,000		$ 375,000
Debt instrument monitoring fee per quarterly	$ 25,000		$ 25,000
Debt instrument early repayment period			3 years
Corbel Facility | Minimum
Debt Instrument [Line Items]
Debt instrument prepayment penalties	1.00%		1.00%
Debt instrument additional fee percentage	3.50%		3.50%
Corbel Facility | Maximum
Debt Instrument [Line Items]
Debt instrument prepayment penalties	5.00%		5.00%
Debt instrument additional fee percentage	2.10%		2.10%
Corbel Facility | Great Elm DME, Inc.
Debt Instrument [Line Items]
Debt acquired principal amount					$ 25,000,000	$ 8,500,000

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Borrowings - Schedule of Aggregate Future Required Principal Debt Repayments (Detail) - USD ($) $ in Thousands	Dec. 31, 2018	Jun. 30, 2018
Debt Instrument [Line Items]
For the six months ending June 30, 2019	$ 1,650
For the year ending June 30, 2020	3,485
For the year ending June 30, 2021	10,282
For the year ending June 30, 2022	3,833
For the year ending June 30, 2023	4,027
For the year ending June 30, 2024	22,044
Thereafter	58,677
Total	103,998
Future interest to be paid-in-kind	13,228
Related Party Borrowings Subsidiaries
Debt Instrument [Line Items]
Outstanding principal	27,912	$ 3,224
Subsidiaries Other Outstanding Borrowings
Debt Instrument [Line Items]
Outstanding principal	$ 62,858	$ 56,984

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Borrowings - Schedule of Payments and Interest Expense Incurred (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
GP Corp. Note | Acquisition Agreement with MAST Capital
Debt Instrument [Line Items]
Interest expense	$ 42	$ 36	$ 86	$ 134
Corbel Facility
Debt Instrument [Line Items]
Principal payments	313		313
Interest expense	$ 793		$ 990

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Stockholders' Equity - Performance Shares (Restricted Stock Awards) (Details) - Restricted Stock - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
Stockholders' Equity
Granted	0		0
Outstanding shares			761,617
Vesting period			5 years
Restricted stock awards forfeited			0
Recognized compensation cost (benefit) related to performance based awards	$ (0.1)	$ 0.3	$ 0.1	$ 0.4
GECC
Stockholders' Equity
Investment management agreement collections performance requirement			$ 40.0
Maximum term of Investment management agreement fees earned			5 years
Vesting on First Anniversary of Grant
Stockholders' Equity
Percentage vesting			20.00%

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Stockholders' Equity - Activity of Restricted Stock Award (Details) - Restricted Stock shares in Thousands	6 Months Ended
	Dec. 31, 2018 $ / shares shares
Shares
Beginning Balance | shares	767
Granted | shares	186
Vested | shares	(83)
Ending Balance | shares	870
Weighted average grant date fair value
Beginning Balance | $ / shares	$ 3.92
Granted | $ / shares	3.43
Vested | $ / shares	3.45
Ending Balance | $ / shares	$ 3.86

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Stockholders' Equity - Stock Options (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
Stockholders' Equity
Options granted				60,000
Stock-based compensation	[1]	$ 169	$ 927	$ 842	$ 2,684
Total unrecognized compensation cost		3,300		$ 3,300
Employee Stock Option
Stockholders' Equity
Options granted				60,000
Estimated grant date fair value of options				$ 100
Expected volatility, minimum				58.90%
Expected volatility, maximum				59.20%
Risk free rate, minimum				3.12%
Risk free rate, maximum				3.13%
Employee Stock Option | Minimum
Stockholders' Equity
Expected term (years)				6 years 3 months 18 days
Employee Stock Option | Maximum
Stockholders' Equity
Expected term (years)				6 years 6 months
Restricted Stock Awards and Stock Options
Stockholders' Equity
Stock-based compensation		$ 200	$ 900	$ 800	$ 2,700

[1] Stock-based compensation attributable to the investment management segment is included in investment management expenses in the consolidated statements of operations. Stock-based compensation attributable to the general corporate segment is included in selling, general and administrative expense in the consolidated statements of operations.

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Stockholders' Equity - Summary of Option Activity (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	6 Months Ended	12 Months Ended
	Dec. 31, 2018	Jun. 30, 2018
Shares
Beginning Balance	2,676
Options granted	60
Ending Balance	2,736	2,676
Exercisable	1,632
Vested and expected to vest	2,736
Weighted average exercise price
Beginning Balance	$ 4.31
Options granted	3.43
Ending Balance	4.29	$ 4.31
Exercisable	4.77
Vested and expected to vest	$ 4.29
Weighted average remaining contractual term
Outstanding	7 years	7 years 5 months 8 days
Exercisable	5 years 9 months 14 days
Vested and expected to vest	7 years
Aggregate intrinsic value
Outstanding	$ 25	$ 70
Exercisable	18
Vested and expected to vest	$ 25

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Stockholders' Equity - Warrants (Details) - USD ($) $ in Thousands	1 Months Ended	6 Months Ended
	Jul. 31, 2018	Dec. 31, 2018
Class Of Warrant Or Right [Line Items]
Cash proceeds from warrants exercised		$ 1,409
MAST
Class Of Warrant Or Right [Line Items]
Cash proceeds from warrants exercised	$ 1,400
Warrants remained outstanding		0

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Non-Controlling Interests and Preferred Stock of Subsidiary - Summary of Non-controlling Interest Balance on Condensed Consolidated Balance Sheet (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018
Balance as of
Redeemable preferred stock of subsidiary	$ 5,266
NCI classified as temporary equity	3,690	$ 3,642
Total	12,818		$ 222
DME Holdings
Balance as of
Redeemable preferred stock of subsidiary	5,266
DME, Inc.
Balance as of
NCI classified as temporary equity	3,690
NCI classified as permanent equity	3,690
Total DME Inc.	12,646
GECC GP Corp.
Balance as of
NCI classified as permanent equity	(535)		(465)
GE FM Holdings
Balance as of
NCI classified as permanent equity	$ 707		$ 687

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Non-Controlling Interests and Preferred Stock of Subsidiary - Summary of Non-controlling Interest Balance on Condensed Consolidated Statements of Operations (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
Net income (loss)
Total	$ 70	$ (33)	$ 65	$ (387)
DME, Inc.
Net income (loss)
NCI classified as temporary equity	48		58
NCI classified as permanent equity	48		58
Total	96		115
GECC GP Corp.
Net income (loss)
NCI classified as permanent equity	(35)	$ (33)	(70)	$ (387)
GE FM Holdings
Net income (loss)
NCI classified as permanent equity	$ 9		$ 20

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Non-Controlling Interests and Preferred Stock of Subsidiary - Additional Information (Details) - USD ($) $ / shares in Units, $ in Millions		3 Months Ended	6 Months Ended
	Sep. 07, 2018	Sep. 30, 2017	Dec. 31, 2018	Jun. 30, 2018	Mar. 31, 2018
Minority Interest [Line Items]
Preferred stock, par value			$ 0.001	$ 0.001
GE FM Holdings
Minority Interest [Line Items]
Percentage of ownership interest issued to former owner/holder					19.90%
DME Holdings
Minority Interest [Line Items]
Preferred stock, shares issued	5,266
Preferred stock, par value	$ 1,000
Preferred stock, dividend rate, percentage	10.00%
Preferred stock, dividend payment terms			Semi-annually
Preferred stock, redemption price per share	$ 1,000
Value of stock contributed			$ 6.2
DME Holdings | Minimum
Minority Interest [Line Items]
Preferred stock capitalization percentage net of debt			125.00%
Percentage of value of shares of preferred stock must be held in cash			100.00%
DME, Inc.
Minority Interest [Line Items]
Percentage of common stock equity ownership issued			9.95%
Description of non-controlling interest in subsidiaries upon seventh anniversary of issuance date			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.
Percentage of common stock equity ownership issued			9.95%
GECC GP Corp.
Minority Interest [Line Items]
Stock-based compensation expense		$ 1.5

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Income Tax - Additional Information (Details) - USD ($) $ in Millions	6 Months Ended
	Dec. 31, 2018	Jun. 30, 2018
Income Tax [Line Items]
Federal net operating loss carryforwards		$ 1,700
Operating loss carryforward for state income tax		$ 197
Earliest Tax Year | Federal
Income Tax [Line Items]
Operating loss carryforwards expiration period	2019
Earliest Tax Year | State
Income Tax [Line Items]
Operating loss carryforwards expiration period	2019
Latest Tax Year | Federal
Income Tax [Line Items]
Operating loss carryforwards expiration period	2037
Latest Tax Year | State
Income Tax [Line Items]
Operating loss carryforwards expiration period	2038

XML

Segment Information - Additional Information (Details)	6 Months Ended
	Dec. 31, 2018 Segment
Segment Reporting [Abstract]
Number of operating segments	4

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Segment Information - Schedule of Results of Operations by Segment (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018		Dec. 31, 2017
Revenue:
Total revenues		$ 15,541	$ 2,523	$ 22,014		$ 4,291
Operating costs and expenses:
Depreciation and amortization		(828)	(133)	(1,538)		(313)
Stock-based compensation	[1]	(169)	(927)	(842)		(2,684)
Transaction costs	[2]	(137)		(2,003)
Other selling, general and administrative		(8,659)	(2,467)	(13,092)		(5,666)
Total operating expenses		(15,308)	(3,527)	(24,224)		(8,663)
Other income (expense):
Interest expense		(1,788)	(37)	(2,783)		(135)
Other income (expense)		(2,696)	(161)	(1,199)		(79)
Total other income (expense), net		(4,484)	(198)	(3,982)		(214)
Total pre-tax income (loss) from continuing operations		(4,251)	(1,202)	(6,192)		(4,586)
Reconciliation to Consolidated Total
Revenue:
Total revenues	[3]	(52)		(70)
Operating costs and expenses:
Other selling, general and administrative	[3]	52		70
Total operating expenses	[3]	52		70
Investment Management
Operating costs and expenses:
Total operating costs and expenses		(741)	(2,263)	(2,190)		(5,333)
Investment Management | Operating Segments
Revenue:
Total revenues		915	2,523	1,855		4,291
Operating costs and expenses:
Depreciation and amortization		(137)	(133)	(273)		(313)
Stock-based compensation	[1]	(37)	(719)	(582)		(2,271)
Other selling, general and administrative		(704)	(1,544)	(1,608)		(3,062)
Total operating expenses		(878)	(2,396)	(2,463)		(5,646)
Other income (expense):
Interest expense		(44)	(37)	(88)		(135)
Other income (expense)			60			13
Total other income (expense), net		(44)	23	(88)		(122)
Total pre-tax income (loss) from continuing operations		(7)	150	(696)		(1,477)
Real Estate
Operating costs and expenses:
Total operating costs and expenses		(342)		(637)
Real Estate | Operating Segments
Revenue:
Total revenues		1,474		2,916
Operating costs and expenses:
Depreciation and amortization		(431)		(862)
Other selling, general and administrative		(342)		(637)
Total operating expenses		(773)		(1,499)
Other income (expense):
Interest expense		(663)		(1,328)
Total other income (expense), net		(663)		(1,328)
Total pre-tax income (loss) from continuing operations		38		89
Durable Medical Equipment | Operating Segments
Revenue:
Total revenues		13,152		17,243	[4]
Operating costs and expenses:
Depreciation and amortization		(260)		(403)	[4]
Transaction costs	[2]	(2)		(544)	[4]
Other selling, general and administrative		(5,895)		(7,774)	[4]
Total operating expenses		(11,672)		(15,470)	[4]
Other income (expense):
Interest expense		(1,081)		(1,367)	[4]
Other income (expense)	[4]			20
Total other income (expense), net		(1,081)		(1,347)	[4]
Total pre-tax income (loss) from continuing operations		399		426	[4]
Durable Medical Equipment | Sales and Services
Operating costs and expenses:
Total operating costs and expenses		(3,545)		(4,489)
Durable Medical Equipment | Sales and Services | Operating Segments
Operating costs and expenses:
Total operating costs and expenses		(3,545)		(4,489)	[4]
Durable Medical Equipment | Rental
Operating costs and expenses:
Total operating costs and expenses		(1,970)		(2,260)
Durable Medical Equipment | Rental | Operating Segments
Operating costs and expenses:
Total operating costs and expenses		(1,970)		(2,260)	[4]
General Corporate | Operating Segments
Revenue:
Total revenues		52		70
Operating costs and expenses:
Stock-based compensation	[1]	(132)	(208)	(260)		(413)
Transaction costs	[2]	(135)		(1,459)
Other selling, general and administrative		(1,770)	(923)	(3,143)		(2,604)
Total operating expenses		(2,037)	(1,131)	(4,862)		(3,017)
Other income (expense):
Other income (expense)		(2,696)	(221)	(1,219)		(92)
Total other income (expense), net		(2,696)	(221)	(1,219)		(92)
Total pre-tax income (loss) from continuing operations		$ (4,681)	$ (1,352)	$ (6,011)		$ (3,109)

[1] Stock-based compensation attributable to the investment management segment is included in investment management expenses in the consolidated statements of operations. Stock-based compensation attributable to the general corporate segment is included in selling, general and administrative expense in the consolidated statements of operations.

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

[3] 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.

[4] Our durable medical equipment business began in September 2018 and there was no related activity prior to that date.

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Segment Information - Schedule of Assets by Segment (Details) - USD ($)	Dec. 31, 2018	Jun. 30, 2018
Segment Reporting Information [Line Items]
Fixed assets, net	$ 64,812,000	$ 55,682,000
Identifiable intangible assets, net	16,905,000	9,400,000
Goodwill	45,336,000	0
Other assets	54,887,000	68,505,000
Total assets	181,940,000	133,587,000
Investment Management
Segment Reporting Information [Line Items]
Fixed assets, net	48,000	41,000
Identifiable intangible assets, net	3,264,000	3,531,000
Other assets	2,699,000	5,878,000
Total assets	6,011,000	9,450,000
Real Estate
Segment Reporting Information [Line Items]
Fixed assets, net	55,029,000	55,641,000
Identifiable intangible assets, net	5,618,000	5,869,000
Other assets	1,097,000	937,000
Total assets	61,744,000	62,447,000
Durable Medical Equipment
Segment Reporting Information [Line Items]
Fixed assets, net	9,735,000
Identifiable intangible assets, net	8,023,000
Goodwill	45,336,000
Other assets	21,517,000
Total assets	84,611,000
General Corporate
Segment Reporting Information [Line Items]
Other assets	29,574,000	61,690,000
Total assets	$ 29,574,000	$ 61,690,000

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Commitments and Contingencies (Detail) - USD ($)		6 Months Ended	12 Months Ended
	Jan. 21, 2019	Dec. 31, 2018	Jun. 30, 2016	Sep. 07, 2018
Commitments And Contingencies [Line Items]
Maximum additional consideration payable				$ 2,400,000
Divesture
Commitments And Contingencies [Line Items]
Maximum additional consideration payable			$ 10,000,000
Divesture of businesses closing adjustment second amount			$ 10,000,000
Contractual payment due date		Jun. 30, 2018
Recognized portion of divesture of businessess		$ 0
Divesture | Subsequent Event
Commitments And Contingencies [Line Items]
Incremental cash receipt under mutual release and settlement agreement	$ 1,500,000