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 three
business operating segments: durable medical equipment, investment management
and real estate, with general corporate representing unallocated costs and
activity to arrive at consolidated operations.

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.



Our investment management business manages a business development company, Great
Elm Capital Corp. (GECC), a credit-focused private fund, Great Elm Opportunities
Fund I, LP, and separate accounts for an institutional investor. The combined
assets under management of these entities at September 30, 2020 was
approximately $196.1 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.

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 durable medical equipment,
investment management and real estate 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 binding
commitments to make additional acquisitions or investments in any of these
areas.

As of June 30, 2020, we had $1.5 billion of net operating loss (NOL) carryforwards for federal income tax purposes.

COVID-19



During the quarter ended September 30, 2020, the Company continued to experience
suppressed revenues relative to its pre-pandemic expectations due to the
continuing impact of the Coronavirus Disease 2019 (COVID-19) pandemic. In
particular, during the quarter ended September 30, 2020, the investment
management business continues to experience reduced assets under management in
our managed portfolios as compared to pre-pandemic levels. COVID-19 may continue
to impact such managed portfolios as well as the value of the shares of GECC
held by the Company in the future. In addition, the durable medical equipment
business continues to experience a suppressed referral pipeline for sleep
studies and durable medical equipment set-ups. In addition, the durable medical
equipment business continues to experience a suppressed referral pipeline for
sleep studies and durable medical equipment set-ups. The impact of COVID-19
continues to evolve and its duration and ultimate disruption to the Company's
customers and to its operations cannot be estimated at this time. However, the
Company expects to experience decreased durable medical equipment rental
revenues in the near future due to the reduction in new patient set-ups during
the pandemic. Should the disruption continue for an extended period of time, the
impact could have a more severe adverse effect on our business and operations.

In addition, COVID-19 may impact our ability to act on new acquisitions or other business opportunities.



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The Company prioritizes the health and safety of employees and
customers. Beginning in early March 2020, all employees at our GEC headquarters
as well as certain employees of DME Inc. moved to a remote-working model. In
addition, the officers of GEC have maintained regular communications with key
service providers, including legal and accounting professionals, other
consultants and vendors, noting that those firms have similarly moved to
remote-working models to the extent possible. Such employees and key service
providers have been able to effectively transition to working remotely while
maintaining a consistent level of capabilities and service, however, we will
continue to monitor and make adjustments as necessary.

At DME Inc. we invested in virtual patient set-ups which allow our respiratory
therapists to interact with patients by video to maintain social
distance. Certain other employees whose responsibilities have been impacted by
social distancing have been temporarily redeployed within the organization.

We cannot predict the full impact of the COVID-19 pandemic, including its
duration in the United States and worldwide and the magnitude of the economic
impact of the outbreak, particularly with respect to the travel restrictions,
business closures and other quarantine measures imposed on our employees,
suppliers and service providers by various local, state, and federal
governmental authorities, as well as non-U.S. governmental authorities. As such,
we are unable to predict the duration of any business and supply-chain
disruptions, the extent to which the COVID-19 pandemic will negatively affect
our operating companies' operating results or the impact that such disruptions
may have on our results of operations and financial condition.

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 three months ended September 30, 2020, 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, 2020 as it relates to recurring transactions.

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Results of Operations



The following discussion reflects the historical performance of our three
business operating segments and general corporate. We expect that our results of
operations in future periods will be adversely impacted by the COVID-19 outbreak
and its negative effects on the global economic conditions.

The following table provides the results of our consolidated operations:



                                                   For the three months ended September 30,
                                              2020             Percent Change               2019
Revenue:
Total revenue                            $        16,655                     8 %       $        15,371
Operating costs and expenses:
Cost of goods sold                                (4,207 )                  21 %                (3,463 )
Cost of rentals                                   (1,915 )                 (15 )%               (2,265 )
Other selling, general and
administrative                                    (9,944 )                   5 %                (9,450 )
Depreciation and amortization                     (1,021 )                  (4 )%               (1,067 )
Total operating expenses                         (17,087 )                                     (16,245 )
Operating income (loss)                             (432 )                                        (874 )
Other income (expense):
Interest expense                                  (1,957 )                  15 %                (1,696 )
Other income (expense)                            (1,375 )                 195 %                  (466 )
Total other expense, net                          (3,332 )                                      (2,162 )
Total pre-tax income (loss) from
continuing operations                    $        (3,764 )                             $        (3,036 )


Revenue

For the three months ended September 30, 2020, revenues included $14.6 million
from the durable medical equipment businesses, $0.8 million from the investment
management business, and $1.3 million from the real estate business. For the
three months ended September 30, 2019, revenues included $13.2 million from the
durable medical equipment businesses, $0.9 million from the investment
management business, and $1.3 million from the real estate business.

The increases in revenues for the three months ended September 30, 2020 as compared to the corresponding periods in the prior year are primarily attributable to organic growth in the durable medical equipment businesses.

Operating costs and expenses



The increase in operating costs for the three months ended September 30, 2020,
as compared to the three months ended September 30, 2019, is primarily
attributable to the additional costs associated with the durable medical
equipment business, including cost of goods sold and general and administrative
costs. The increase in costs are primarily due to increase in topline sales,
along with increase in expenses to enhance scalability of the durable medical
equipment business. These increases are partially offset by decreases in costs
of rentals associated with the durable medical equipment businesses due
primarily to reduced referral pipelines for new equipment set-ups during the
COVID-19 pandemic.

Other income (expense)

Interest expense increased for the three months ended September 30, 2020, as
compared to the three months ended September 30, 2019, primarily due to interest
expense associated with the Convertible Notes issued in February 2020. Other
income and expense consisted of dividend income and unrealized gains or losses
on the Company's investment in GECC and interest income earned on cash
balances. The period over period increase in net other expense is primarily
attributable to larger unrealized losses on the Company's investment in GECC as
compared to the prior period.

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Durable Medical Equipment Business

The key metrics of our durable medical equipment business include:

? Patients and setup growth - which drives revenue growth and takes advantage


     of scalable operations


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


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

                                                    For the three months ended September 30,
(in thousands)                                   2020             Percent Change             2019
Revenue:
Total revenue                               $       14,610                     10 %       $    13,231
Operating costs and expenses:
Cost of goods sold                                  (4,207 )                   21 %            (3,463 )
Cost of rentals                                     (1,915 )                  (15 )%           (2,265 )
Transaction costs                                        -                      - %                 -
Other selling, general and administrative           (7,771 )                   13 %            (6,872 )
Depreciation and amortization                         (463 )                    1 %              (457 )
Total operating expenses                           (14,356 )                                  (13,057 )
Other income (expense):
Interest expense                                      (709 )                  (29 )%             (996 )
Other income (expense)                                  (3 )                 (200 )%                3
Total other expense, net                              (712 )                                     (993 )
Operating income (loss):
Total pre-tax income (loss) from
continuing operations                       $         (458 )                              $      (819 )

Durable Medical Equipment Revenue



For the three months ended September 30, 2020, revenues from the sale of medical
equipment and sleep study services were $8.0 million and $1.2 million
respectively, while for the three months ended September 30, 2019 such revenues
were $6.4 million and $1.4 million, respectively. The increases in medical
equipment sales versus the corresponding period in the prior year are primarily
attributable to organic growth of CPAP resupply sales, while the decrease in
sleep study services is primarily attributable to softened demand for sleep
studies during the ongoing COVID-19 pandemic.

For the three months ended September 30, 2020, rental revenue was $5.4 million
as compared to $5.5 million for the corresponding period in the prior year. This
decrease is due primarily to reduced referral pipelines for new equipment
set-ups, which are customarily driven by in-house or external sleep studies.

Durable Medical Equipment Costs and Expenses



Cost of goods sold includes inventory costs for medical equipment sold and
direct costs associated with running sleep study services, including staff
compensation to perform the studies and the purchase of supplies used in the
studies. Cost of rentals includes depreciation on medical equipment held for
lease and costs related to maintenance expenses.

For the three months ended September 30, 2020 and 2019, payroll related costs
were $5.2 million and $4.8 million respectively, with the increases primarily
related to accrued management bonuses in the current year that were not probable
and therefore not accrued in the prior comparable period. Professional service
and consulting fees were $0.7 million and $0.3 million, respectively, with the
increases related to continued investments to enhance the scalability of the
durable medical equipment platform. Freight and postage expenses were $0.4
million and $0.3 million, respectively, with the increases primarily
attributable to the additional costs of remote patient set-ups which were
performed in person prior to the COVID-19 pandemic.

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Depreciation and amortization includes the depreciation of fixed assets,
excluding depreciation on the equipment held for rental, which is included in
the cost of rentals, and amortization of the intangible assets resulting from
the acquisition of the durable medical equipment businesses. Depreciation and
amortization for the three months ended September 30, 2020 as compared to the
corresponding period in the prior year remained flat.

The decrease in interest expense for the three months ended September 30, 2020
as compared to the three months ended September 30, 2019 is attributable
primarily to lower outstanding principal balances on the Corbel Facility and DME
Revolver, decreasing to $25.3 million at September 30, 2020 as compared to $33.1
million at September 30, 2019.

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; and

• Investment performance - on which our incentive fees (if any) are based

and on which we are measured against our competition.




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

                                                 For the three months ended September 30,
(in thousands)                              2020             Percent Change              2019
Revenue:
Total revenue                           $         773                    (11 )%      $         867
Operating costs and expenses:
Stock-based compensation                         (194 )                   11 %                (175 )
Consulting agreement                                -                   (100 )%               (211 )
Other general and administrative                 (532 )                   74 %                (305 )
Depreciation and amortization                    (128 )                  (28 )%               (179 )
Total operating expenses                         (854 )                                       (870 )
Other income (expense):
Interest expense                                  (26 )                  (38 )%                (42 )
Other income (expense)                              -                      - %                   -
Total other expense, net                          (26 )                                        (42 )
Operating income (loss):
Total pre-tax income (loss) from
continuing operations                   $        (107 )                              $         (45 )



Investment Management Revenue



Investment management revenues include management fees and administrative
fees. For the three months ended September 30, 2020 and 2019, management fees
were $0.6 million and $0.8 million, respectively, and administrative fees were
$0.2 million and $0.1 million, respectively.

The decrease in management fees for the three months ended September 30, 2020 as
compared to the three months ended September 30, 2019 is attributable to
decreases in the average assets on which such fees are calculated as a result of
the impact of COVID-19 on the portfolio managed.

Investment Management Costs and Expenses



GECM had a consulting agreement with a third party to provide services in
exchange for 26% of the fees earned from the management of GECC, excluding
incentive fees. The consulting agreement expired in November 2019 and as such,
there were no corresponding fees incurred for the three months ended September
30, 2020.

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Other general and administrative costs consist primarily of professional fees,
facilities and other overhead costs, and payroll and related costs, excluding
stock-based compensation. The increase in general and administrative costs for
the three months ended September 30, 2020 as compared to the three months ended
September 30, 2019, is primarily attributable to an increase in allocated
payroll costs due to additional staffing in the investment management business.

Interest expense for the three months ended September 30, 2020 decreased as compared to the three months ended September 30, 2019 due to the decrease in LIBOR, on which the interest rate is based.

Real Estate Business

The key metrics of our real estate business include rental revenues, depreciation on rental properties and interest expense on the related debt.

The following table provides the results of our real estate business:



                                                     For the three months ended September 30,
(in thousands)                                  2020             Percent Change              2019
Revenue:
Total revenue                               $       1,272                     (0 )%      $       1,273
Operating costs and expenses:
General and administrative                           (125 )                    1 %                (124 )
Depreciation and amortization                        (430 )                   (0 )%               (431 )
Total operating expenses                             (555 )                                       (555 )
Other income (expense):
Interest expense                                     (650 )                   (1 )%               (658 )
Other income (expense)                                  -                      - %                   -
Total other expense, net                             (650 )                                       (658 )
Operating income (loss):
Total pre-tax income (loss) from
continuing operations                       $          67                                $          60


Real Estate Revenue

Real estate rental revenue for the three months ended September 30, 2020 was
consistent with the three months ended September 30, 2019. Real estate rental
revenue consists of rents received from the Class A office buildings in Fort
Meyers, Florida.

Real Estate Costs and Expenses



The real estate business' costs primarily consist of management fees, insurance
and state sales tax, depreciation of real estate assets and the amortization of
the in-place lease intangible assets. Our costs and expenses have generally
remained consistent year over year.

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General Corporate



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

                                                  For the three months ended September 30,
(in thousands)                               2020             Percent Change               2019
Revenue:
Total revenue                           $           91                    296 %       $           23
Operating costs and expenses:
Stock-based compensation                          (235 )                   99 %                 (118 )
Transaction costs                                  (32 )                  (65 )%                 (91 )
Other general and administrative                (1,146 )                  (27 )%              (1,577 )
Depreciation and amortization                        -                      - %                    -
Total operating expenses                        (1,413 )                                      (1,786 )
Other income (expense):
Interest expense                                  (572 )                    - %                    -
Other income (expense)                          (1,372 )                  193 %                 (469 )
Total other income (expense), net               (1,944 )                                        (469 )
Operating income (loss):
Total pre-tax income (loss) from
continuing operations                   $       (3,266 )                              $       (2,232 )


General Corporate Revenue

For the three months ended September 30, 2020 and 2019, all revenue was derived
from fees earned by Great Elm DME Manager, LLC (DME Manager), which provides
consulting services to Great Elm DME, Inc. (DME Inc.).

Revenues for the three months ended September 30, 2020 increased as compared to
the three months ended September 30, 2019 as a result of increased management
fees earned from the durable medical equipment business.

General Corporate Costs and Expenses



Our general and administrative costs primarily consisted of professional fees
and payroll costs in connection with our general corporate oversight of our
subsidiaries and diligence efforts towards identifying asset and business
acquisition opportunities. Transaction costs primarily consist of professional
fees in connection with our acquisitions of assets and businesses, as well as
diligence for potential future opportunities.

The decrease in other general and administrative costs for the three months
ended September 30, 2020 as compared to the three months ended September 30,
2019 is primarily attributable to lower audit-related professional fees due to
the change in auditors in the prior fiscal year, as well as the Company becoming
a non-accelerated filer with reduced reporting requirements under the updated
rules of the SEC.

Other Income (Expense)

Interest expense for the three months ended September 30, 2020 consists of
interest on the Convertible Notes which were issued in February 2020. There is
no corresponding debt or related interest expense for the three months ended
September 30, 2019.

Other income (expense) primarily consists of dividends and unrealized losses on
the Company's investment in GECC and interest income earned on cash
balances. The decrease in other income (expense) is primarily driven by
fluctuations in the fair value of the investment in GECC, which resulted in
unrealized losses of $1.9 million and $1.0 million for the three months ended
September 30, 2020 and 2019, respectively. Our investment in GECC is
marked-to-market by reference to the closing price on Nasdaq as of each period
end.

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Income Taxes



As of June 30, 2020, the Company had NOL carryforwards for federal and state
income tax purposes of approximately $1.5 billion and $203 million,
respectively. The federal NOL carryforwards generated prior to fiscal year 2018
will expire from 2021 through 2037. The federal NOL carryforwards generated in
fiscal year 2018 or later can be carried forward indefinitely. The state NOL
carryforwards will expire from 2029 through 2038. The Company assesses NOL
carryforwards based on taxable income on an annual basis.

Liquidity and Capital Resources

Cash Flows



Operating cash flows provided by continuing operations for the three months
ended September 30, 2020 were $1.8 million. The net cash inflow in our
continuing operations was primarily the result of our net loss of $3.9 million
offset by non-cash charges of $5.5 million. Additional net cash inflows from
operations are attributable to an increase of $0.8 million in accounts payable,
accrued liabilities and other liabilities partially offset by outflows due to
decreases of $0.4 million and $0.4 million related to operating leases and
prepaid assets, deposits, and other assets, respectively. 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 provided by continuing operations for the three months
ended September 30, 2019 were $1.1 million. The net cash inflow in our
continuing operations was primarily the result of our net loss of $3.3 million
offset by non-cash charges of $4.5 million. Additional net cash inflows from
operations are attributable to increase of $0.9 million in accounts payable,
accrued liabilities and other liabilities partially offset by outflows due to
decreases of $0.3 million and $0.7 million related to prepaid assets, deposits,
and other assets and related party payables, respectively. The fluctuations in
these accounts are due to the timing of cash payments and cash receipts in the
normal course of business.

Investing cash flows used in continuing operations for the three months ended
September 30, 2020 were $15.0 million. The net cash outflow primarily consisted
of $13.6 million in commitments to purchase investments related to participation
in the GECC non-transferable rights offering in September 2020. Subsequent to
quarter end, GECC announced the results of the non-transferable rights offering
in which the Company's total purchase was determined to be $8.8 million and the
remaining $4.8 million of cash was returned to the Company.

Investing cash flows used in continuing operations for the three months ended
September 30, 2019 were $1.4 million. The net cash outflow primarily consisted
of $2.1 million in purchases of equipment for rental partially offset by
proceeds from sale of equipment held for rental and disposal of property and
equipment.

Financing cash flows used in continuing operations for the three months ended
September 30, 2020 were $4.8 million which primarily consisted of $3.4 million
in principal payments our revolving line of credit and $1.1 million in principal
payments on equipment financing debt.

Financing cash flows used in continuing operations for the three months ended
September 30, 2019 were $1.7 million which primarily consisted of principal
payments on long term debt, related party notes payable and our revolving line
of credit.

Financial Condition

As of September 30, 2020, we had an unrestricted cash balance of $22.5 million. We also beneficially own 2,142,238 shares of GECC common stock with an estimated fair value of $7.2 million as of September 30, 2020.



We intend to make acquisitions or investments that we believe will result in the
investment of all of our liquid financial resources, to issue equity securities
and to incur 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.

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Borrowings



As of September 30, 2020, the Company had $30.5 million face value in
Convertible Notes outstanding. The Convertible Notes are held by a consortium of
investors, including related parties. The Convertible Notes accrue interest at
5.0% per annum, payable semiannually in arrears on June 30 and December 31, in
cash or in kind at the option of the Company.

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

As of September 30, 2020, the Company had a note due to a non-controlling
interest holder of DME Inc., Corbel Capital Partners SBIC, L.P. (Corbel),
totaling $24.8 million that accrues interest at a rate of three-month LIBOR plus
10.0% (at September 30, 2020, the effective interest rate was 10.2%) through
maturity on August 31, 2023 (the Corbel Facility). The Corbel Facility requires
quarterly interest payments along with principal payments of $0.4 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 under the Corbel
Facility in whole or in part subject to certain prepayment penalties ranging
from 1.0% - 5.0% of the early payment of the principal, based on the time that
the Corbel Facility 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, under certain conditions, if the borrowing is repaid
with proceeds of debt in full or in part at any time within the first three
years from the date of issuance, the borrower shall pay an additional fee to the
agent, ranging from 2.10% to 3.50% depending on the date of repayment based on
the period outstanding, of the aggregate repaid principal amount.

The Company has a credit facility with Pacific Mercantile Bank that accrues
interest at the prime rate plus 0.4% (at September 30, 2020, the effective rate
was 3.7%) through maturity on November 29, 2022 (the DME Revolver). The DME
Revolver allows for borrowings up to $10 million. The DME Revolver requires
monthly interest payments. The DME Revolver is secured by all of the assets of
the durable medical equipment business and the Company is required to meet
certain financial covenants. $0.5 million was drawn on the DME Revolver as of
September 30, 2020.

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.

The Company remains focused on exploring ways to lower the cost of capital of
the durable medical equipment business and obtain additional funds for potential
future acquisitions.

As of September 30, 2020, the Company had a related party GP Corp. Note due to
MAST Capital totaling $3.1 million that accrues interest at a variable rate of
three-month LIBOR plus 3.0%, as adjusted for each 90-day period (at September
30, 2020, the effective rate was 3.2%) 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 one of our wholly-owned subsidiaries, Great Elm
Capital Management, Inc. (GECM) and GECC GP Corp. (the Profit Sharing Agreement)
that transfers profits generated by our management of GECC, with no recourse to
any of our other assets, entities or operations.

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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 September 30, 2020, the Company had a senior note due to Wells Fargo Bank
Northwest, National as trustee totaling $49.4 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.

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 September 30, 2020, the Company had a subordinated note due to Wells Fargo
Bank Northwest, National as trustee totaling $3.9 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 Company's majority-owned subsidiary, CRIC
IT Fort Myers LLC's (the Property Owner), 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 notes 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.

Off-Balance Sheet Arrangements

As of September 30, 2020, we did not have any off-balance sheet arrangements.

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, 2020.


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