Holders of non-controlling interests 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)	September 30, 2022		June 30, 2022
HC LLC
Temporary equity	$	2,887	$	2,225
Permanent equity		2,887		2,225
Total HC LLC		5,774		4,450
Consolidated Fund
Permanent equity		-		642
Forest
Permanent equity		2,102		3,666
Total non-controlling interests	$	7,876	$	8,758

The following table summarizes the net (loss) income attributable to the non-controlling interests on the condensed consolidated statements of operations:


	For the three months ended September 30,
(in thousands)	2022			2021
HC LLC
Temporary equity		662			205
Permanent equity		662			205
Total HC LLC		1,324			410
GEC GP
Permanent equity		-			(2	)
Consolidated Fund
Permanent equity		(8	)		(85	)
Forest
Permanent equity		(1,564	)		(17	)
Total net (loss) income attributable to non-controlling interest	$	(248	)	$	306

Corbel holds a 9.95% indirect common stock equity interest in HC LLC. The interest includes board observer rights for the HC LLC board of directors, but no voting rights. HC LLC has the right of first offer if the holder desires to sell the security and in the event of a sale of HC LLC, the holder must sell their securities (drag along rights) and has the right to participate in sales of HC LLC securities (tag along rights). In addition, upon the seventh anniversary of issuance date, if (i) the holder owns at least 50% of the common shares issued to it at the closing of the transaction, (ii) an initial public offering of HC LLC 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 HC LLC and has the right to put its common shares to HC LLC 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 HC LLC 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 HC LLC.

Valley Healthcare Group, LLC (VHG) holds a 9.95% indirect common stock equity interest in HC LLC. The rights are consistent with the non-controlling interest classified as temporary equity, other than the holder not having a contingent put right. Accordingly, the Company has classified the non-controlling interest as permanent equity at its fair value on the date of issuance, adjusted for any earnings in HC LLC.

GEC GP owned the rights to the profit sharing agreement with GECM as well as an intercompany obligation under a senior secured note payable issued by Great Elm GECC GP Corp (the GP Corp. Note) in consideration for the assets acquired from MAST Capital Management, LLC. During the three months ended March 31, 2022, the Company purchased the remaining shares of GEC GP. As of September 30, 2022, no non-controlling interest was outstanding.

The Company sold J.P. Morgan Broker-Dealer Holdings Inc. (JPM) a 20.0% common stock interest in Forest in exchange for $2.7 million. JPM has the right to designate a number of directors commensurate with their common stock ownership interest. Forest has the right of first offer if the holder desires to sell the security and in the event of a sale of Forest, the holder must sell their securities (drag along rights) and has the right to participate in sales of Forest securities (tag along rights). The holder of the non-controlling interest is entitled to participate in earnings of Forest and is not required to fund losses.

The holder of this non-controlling interest, JPM, is also the holder of Forest Preferred Stock discussed below.

As of June 30, 2022, the Company held 73.4% of the capital in the Consolidated Fund. The remaining capital in the Consolidated Fund was recorded as a non-controlling interest that included affiliated individuals and entities. In July 2022, the Consolidated Fund ceased operations and distributed its remaining assets to non-controlling interests in the total amount of $0.6 million.

The following table summarizes the share activity for the preferred stock of subsidiaries:


	Balance, as of June 30, 2022		Redemption of Preferred Stock			Balance, as of September 30, 2022
HC LLC
Series A-1 Preferred Stock		4,090		(407	)		3,683
Series A-2 Preferred Stock		34,010		-			34,010
Total HC LLC		38,100		(407	)		37,693
Forest
Forest Preferred Stock		35,010		-			35,010
Total		73,110		(407	)		72,703

On December 29, 2020, the Company issued 10,090 shares of Series A-1 Preferred Stock with a face value of $1,000 per share at issuance (Series A-1 Preferred Stock). The shares were issued pro-rata to the stockholders of DME Inc. in the form of a distribution and no consideration was provided in exchange for such instruments. The shares provide for a 9% annual dividend, which is payable quarterly. The shares are mandatorily redeemable by the Company at their face value of $1,000 per share on the earlier of certain redemption events or December 29, 2027. The redemption events include a bankruptcy, change in control or sale of the durable medical equipment business. The shares are redeemable at any time at the option of Company at a redemption price equal to face value. The shares rank senior and have preference to the common shares of HC LLC. The shares are non-voting, do not participate in the earnings of HC LLC and contain standard protective rights. During the three months ended September 30, 2022, the Company optionally redeemed 407 shares of Series A-1 Preferred Stock held by Corbel.

As the shares of Series A-1 Preferred Stock are mandatorily redeemable at a specified date, the security has been classified as a liability in the condensed consolidated balance sheets. The dividends on the shares are included in interest expense in the condensed consolidated statements of operations.

The fair value of each share of Series A-1 Preferred Stock on the issuance date was determined to be $801 per share. The difference between the fair value and the redemption value of $1,000 per share as well as debt issuance costs of $0.2 million was accounted for as a debt discount, and accretion of the discount is charged to interest expense over the 7-year period to redemption using the effective interest method.

The holders of Series A-1 Preferred Stock include our majority-owned consolidated subsidiary Forest (3,276 shares). Such shares of Series A-1 Preferred Stock issued to consolidated subsidiaries and their effects on our operations have been eliminated in consolidation. Additionally, 407 shares are held by VHG, who is also the holder of non-controlling interests in HC LLC discussed above.

On December 29, 2020, the Company issued 34,010 shares of Series A-2 Preferred Stock with a face value of $1,000 per share at issuance (Series A-2 Preferred Stock). The shares were issued to Forest in exchange for cash equal to the face value of such shares. The shares provide for a 9% annual dividend, which is payable quarterly. The shares are mandatorily redeemable by the Company at their face value of $1,000 per share on December 29, 2027, or at a 0-3% premium decreasing over time based upon the occurrence of certain redemption events prior to December 29, 2027. The redemption events include a bankruptcy, change in control or sale of the durable medical equipment business. The shares are redeemable at any time at the option of Company at a redemption price at face value plus the 0-3% premium then in place. The shares rank senior and have preference to the common shares of HC LCC. The shares are non-voting and contain standard protective rights. In addition, upon a sale of the durable medical equipment business, the holders of Series A-2 Preferred Stock are entitled to the greater of their liquidation preference or 33% of proceeds arising from such sale.

As the shares of Series A-2 Preferred Stock are mandatorily redeemable at a specified date, the security has been classified as a liability in the condensed consolidated balance sheets. The dividends on the shares are included in interest expense in the condensed consolidated statements of operations.

We have identified the feature allowing holders of Series A-2 Preferred Stock to participate in up to 33% of proceeds arising from a sale of the durable medical equipment business as an embedded derivative. We have bifurcated this embedded derivative from the mandatorily redeemable preferred stock host and have recorded the derivative liability at fair value. The fair value of the derivative liability on the issuance date was $6.5 million, and is marked to fair value at each reporting date. The fair value of each share of Series A-2 Preferred Stock on the issuance date was determined to be $810 per share. The difference between the fair value and the redemption value of $1,000 per share, as well as debt issuance costs of $1.1 million, was accounted for as a debt discount, and accretion of the discount is charged to interest expense over the 7-year period to redemption using the effective interest method.

The holder of the Series A-2 Preferred Stock is our majority-owned consolidated subsidiary Forest. Such shares and related embedded derivatives issued to consolidated subsidiaries and their effects on our operations have been eliminated in consolidation.

On December 29, 2020, Forest issued 35,010 shares of preferred stock in Forest with a face value of $1,000 per share at issuance (Forest Preferred Stock). The preferred shares were sold to JPM in exchange for cash equal to the face value of such shares. The preferred shares provide for a 9% annual dividend, which is payable quarterly. The preferred shares are mandatorily redeemable by the Company at their face value of $1,000 per share on December 29, 2027, or at a 0-3% premium decreasing over time based upon the occurrence of certain redemption events prior to December 29, 2027. The redemption events include the occurrence of an ownership change that triggers an IRC §382 limitation which reduces Forest's net operating loss carryforwards to less than $300 million. The preferred shares are redeemable at any time at the option of the Company at a redemption price at face value plus the 0-3% premium then in place. The preferred shares rank senior and have preference to the common shares of Forest. The shares are non-voting, do not participate in the earnings of Forest 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 condensed consolidated balance sheets. The dividends on the preferred stock are included in interest expense in the condensed consolidated statements of operations.

The fair value of each share of Forest Preferred Stock on the issuance date was determined to equal its face value based on the transaction price. Debt issuance costs of $1.2 million was accounted for as a debt discount, and accretion of the discount is charged to interest expense over the 7-year period to redemption using the effective interest method.

After eliminating the impact of all intercompany transactions, the Company recorded interest expense, inclusive of non-cash interest related to amortization of discounts and debt issuance costs, of $0.8 million and $0.9 million, respectively, related to the preferred stock of subsidiaries during the three months ended September 30, 2022 and 2021.