Great Elm Capital Group, Inc.

Unaudited Pro Forma Consolidated Balance Sheet

At March 31, 2018

(in thousands)

Great Elm Historical (a)

CIFM

Pro Forma

Adjustments

(b)(c)

Great Elm Pro Forma

ASSETS

Current assets:

Cash and cash equivalents

$

44,282

$

(25

)

(d)

$

44,257

Restricted cash

622

(17

)

(d)

605

Management fees receivable - related party

692

—

692

Related party dividend receivable

163

—

163

Related party receivable

300

—

300

Investments, at fair value (cost $30,000)

18,133

—

18,133

Prepaid and other current assets

354

22

(e)

376

Total current assets

64,546

(20

)

64,526

Rent receivable, net of current portion (restricted)

46

(46

)

(f)

—

Incentive fees receivable

3,491

—

3,491

Real estate assets, net

55,868

78

(g)

55,946

Property and equipment, net

42

—

42

Identifiable intangible assets, net

9,659

35

(h)

9,694

Right to use assets, net

1,564

—

1,564

Other assets, net

92

—

92

Total assets

$

135,308

$

47

$

135,355

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

221

$

—

$

221

Accrued liabilities

1,611

(29

)

(i)

1,582

Accrued legal expense

317

—

317

Accrued compensation

60

—

60

Lease liability

174

—

174

Liabilities related to discontinued operations

3,608

—

3,608

Senior note payable, current portion

1,960

—

1,960

Related party note payable, current portion

76

—

76

Total current liabilities

8,027

(29

)

7,998

Lease liability, net of current portion

1,507

—

1,507

Warrant liability

—

—

—

Senior note payable

50,130

138

(j)

50,268

Subordinated note payable

5,829

(40

)

(k)

5,789

Related party note payable

3,224

—

3,224

Other liabilities

296

—

296

Total liabilities

69,013

69

69,082

Stockholders' equity:

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

—

—

—

Common stock, par value $0.001 per share; 350,000,000 shares authorized; and

   25,467,732 shares issued and 24,706,115 shares outstanding at March 31, 2018

25

—

25

Additional paid-in-capital

3,302,063

—

3,302,063

Accumulated deficit

(3,236,039

)

(18

)

(l)

(3,236,057

)

Total Great Elm Capital Group, Inc.'s stockholders' equity

66,049

(18

)

66,031

Non-controlling interest

246

(4

)

(m)

242

Total stockholders' equity

66,295

(22

)

66,273

Total liabilities and stockholders' equity

$

135,308

$

47

$

135,355

Great Elm Capital Group, Inc.

Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended June 30, 2017

(in thousands)

Great Elm Historical (n)

CIFM

Pro Forma

Adjustments (o)

Great Elm

Pro Forma

Revenue:

Investment management and administration fees

$

4,927

$

-

$

4,927

Rental income

—

5,749

(p)

5,749

Total Revenue

4,927

5,749

10,676

Operating costs and expenses:

Investment management expenses

4,779

—

4,779

Real estate expenses

—

1,151

(q)

1,151

Amortization and depreciation

340

1,699

(r)

2,039

General and administrative

4,413

—

4,413

Total operating costs and expenses

9,532

2,850

12,382

Operating income (loss)

(4,605

)

2,899

(1,706

)

Dividends and interest income

1,306

—

1,306

Unrealized loss on investment in GECC

(9,114

)

—

(9,114

)

Interest expense

(6,321

)

(2,662

)

(s)

(8,983

)

Other income, net

84

—

84

Income (loss) from continuing operations, before income taxes

(18,650

)

237

(18,413

)

Benefit from income taxes

(1,210

)

—

(1,210

)

Income (loss) from continuing operations

(17,440

)

237

(17,203

)

Discontinued operations:

Income from discontinued operations, net of tax

2,203

—

2,203

Net income from discontinued operations, net of tax

2,203

—

2,203

Net income (loss)

$

(15,237

)

$

237

$

(15,000

)

Less: Net income (loss) attributable to non-controlling interest

(30

)

47

(t)

17

Net income (loss) attributable to Great Elm Capital Group

$

(15,207

)

$

190

$

(15,017

)

Basic and diluted earnings (loss) per share from:

Continuing operations

$

(1.06

)

$

-

$

(1.05

)

Discontinued operations

0.13

-

0.13

Net income (loss)

$

(0.93

)

$

-

$

(0.91

)

Weighted average shares outstanding

Basic and diluted

16,433

—

16,433

Great Elm Capital Group, Inc.

Unaudited Pro Forma Consolidated Statement of Operations

For the Nine Months Ended March 31, 2018

(in thousands)

Great Elm Historical (u)

CIFM

Pro Forma

Adjustments (v)

Great Elm

Pro Forma

Management and administration fees

$

2,766

$

—

$

2,766

Incentive fees

735

—

735

Rental income

343

3,969

(w)

4,312

Total revenue

3,844

3,969

7,813

Operating costs and expenses:

Investment management expenses

6,423

—

6,423

Real estate expenses

21

842

(x)

863

Amortization and depreciation

562

1,161

(y)

1,723

General and administrative

4,745

—

4,745

Total operating costs and expenses

11,751

2,003

13,754

Operating income (loss)

(7,907

)

1,966

(5,941

)

Dividends and interest income

2,014

—

2,014

Unrealized loss on investment in GECC

(2,753

)

—

(2,753

)

Interest expense, net

(360

)

(1,813

)

(z)

(2,173

)

Other income, net

5

—

5

Income (loss) from continuing operations, before income taxes

(9,001

)

153

(8,848

)

(Benefit) expense from income taxes

(182

)

—

(182

)

Income (loss) from continuing operations

(8,819

)

153

(8,666

)

Discontinued operations:

Loss from discontinued operations, net of tax

(155

)

—

(155

)

Loss from discontinued operations, net of tax

(155

)

—

(155

)

Net income (loss)

$

(8,974

)

$

153

$

(8,821

)

Less: Net income (loss) attributable to non-controlling interest

(415

)

30

(aa)

(385

)

Net income (loss) attributable to Great Elm Capital Group,

   Inc.

$

(8,559

)

$

123

$

(8,436

)

Basic and diluted earnings (loss) per share attributable to Great Elm Capital

   Group, Inc. from:

Continuing operations

$

(0.35

)

$

—

$

(0.34

)

Discontinued operations

(0.01

)

—

(0.01

)

Net loss per share

$

(0.36

)

$

—

$

(0.35

)

Weighted average shares outstanding:

Basic and diluted

24,132

24,132

(a)

Reflects the historical consolidated balance sheet of the Company as of March 31, 2018 as filed with the Securities and Exchange Commission (SEC) in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2018.

(b)

Reflects pro forma adjustments as if the acquisition of 80.1% of CIFM had occurred on March 31, 2018.

(c)

On March 6, 2018 the Company completed the acquisition of 80.1% of CIFM for cash consideration of approximately $2.7 million and incurred transaction costs of approximately $0.3 million.  The assets acquired and liabilities assumed are recorded at fair market value.  The following is a summary of the consideration paid and the assets and liabilities acquired:

Amount

Cash consideration

$

2,700

Cash and restricted cash acquired

(606

)

Transaction costs

261

Non-controlling interests

671

Total consideration, net of cash and restricted cash acquired

$

3,026

Buildings

$

43,276

Land and site improvements

9,170

In-place lease intangible asset

6,028

Tenant improvements

3,500

Other assets

35

Senior note payable assumed

(52,227

)

Subordinated note payable assumed

(5,789

)

Deferred tax liability

(478

)

Other liabilities assumed

(489

)

Non-controlling interests

(671

)

Net assets acquired

$

2,355

(d)

Reflects the change in cash, cash equivalents and restricted cash in connection with CIFM’s operations.

(e)

Reflects the change in prepaid and other current assets in connection with CIFM’s operations.

(f)

Reflects the increase in rent receivable as of March 31, 2018.

(g)

Reflects $0.08 million of depreciation expense related to the real property acquired.  The real property assets acquired will be depreciated over their remaining useful lives, as follows: buildings – 55 years; site improvements – 17 years; tenant improvements – 12 years.

(h)

Reflects $0.04 million of amortization expense related to the in place lease intangible asset acquired.  The intangible asset acquired will be amortized over its remaining useful life of 12 years.

(i)

Reflects the change in accrued liabilities in connection with CIFM’s operations between March 6, 2018 and March 31, 2018.  

(j)

In conjunction with the acquisition of an 80.1% interest in CIFM, the Company assumed a senior secured note (Senior Note) with a principal balance of $54.8 million at the date of the 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.  The discount will amortize over the life of the Senior Note.  The Senior Note is non-recourse to the Company, but is secured by the Property, the rights associated with the leases, and the stock owned by the Company in CIFM.  The Senior Note matures on March 15, 2030, and 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 due on March 14, 2030.  Amount shown reflects the scheduled principal amortization and the amortization of discount recorded in March 2018.

(k)

In conjunction with the acquisition of an 80.1% interest in CIFM, the Company assumed a subordinated note (Subordinated Note) with a principal balance of $2.7 million at the date of the acquisition.  The Subordinated Note was recorded at $5.8 million, reflecting a premium of $3.1 million.  The premium will amortize over the life of the Subordinated Note.  The Subordinated Note is non-recourse to the Company, but is secured by the Property, the rights associated with the leases, and the stock owned by the Company in CIFM. The Subordinated Note matures on March 15, 2030, and 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. Amount shown reflects the net accretion of the principal balance and the amortization of premium recorded in March 2018.

(l)

Reflects the income generated by CIFM’s operations during March 2018 attributable to the Company’s common stock holders.

(m)

Reflects income generated by CIFM’s operations during March 2018 attributable to the 19.9% non-controlling interest holders.

(n)

Reflects the historical consolidated statement of operations of the Company for the year ended June 30, 2017 as filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended June 30, 2017.

(o)

Reflects pro forma adjustments as if the acquisition of 80.1% of CIFM had occurred on July 1, 2016.

(p)

Reflects $4.6 million of estimated straight-line rental income per the lease agreements and an estimated $1.1 million in certain lease related operating expenses reimbursed by the tenant under the terms of the lease agreements.

(q)

Reflects the estimated operating expense associated with CIFM’s operation and administration of the Property, including an estimated $1.1 million of expenses reimbursed by the tenant.  

(r)

Reflects the estimated amortization expense of $0.5 million in connection with the acquired intangible asset, see footnote (h).  In addition, this amount includes the estimated depreciation expense of $1.2 million in connection with the acquired real property; (see footnotes (c) and (g)).

(s)

Reflects the estimated interest expense of $1.9 million related to the Senior Note and $0.4 million of interest expense related to the Subordinated Note.  In addition, the amount reflects $0.3 million of amortization of discount and premium on the Senior Note and Subordinated Note.  See footnotes (j) and (k).

(t)

Reflects the allocation of income to the 19.9% non-controlling interest holder.

(u)

Reflects the historical consolidated statement of operations of the Company for the nine months ended March 31, 2018 as filed with the SEC in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2018.

(v)

Reflects pro forma adjustments as if the acquisition of 80.1% of CIFM had occurred on July 1, 2017

(w)

Reflects $3.1 million of estimated straight-line rental income per the lease agreements and an estimated $0.8 million in certain lease related operating expenses reimbursed by the tenant under the terms of the lease agreements.

(x)

Reflects the estimated operating expense associated with CIFM’s operation and administration of the Property, including an estimated $0.8 million of expenses reimbursed by the tenant.  

(y)

Reflects the estimated amortization expense of $0.3 million in connection with the acquired intangible asset, see footnote (h).  In addition, this amount includes the estimated depreciation expense of $0.8 million in connection with the acquired real property; (see footnotes (c) and (g)).

(z)

Reflects the estimated interest expense of $1.3 million related to the Senior Note and $0.3 million of interest expense related to the Subordinated Note.  In addition, the amount reflects $0.2 million of amortization of discount and premium on the Senior Note and Subordinated Note. See footnotes (j) and (k).

(aa)

Reflects the allocation of income to the 19.9% non-controlling interest holder.