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Fair Value Measurements | 6 Months Ended
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Dec. 31, 2020
Fair Value Disclosures [Abstract] |
Fair Value Measurements | 6. 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. GAAP provides a framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:
| ▪ | Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ▪ | Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| ▪ | Level 3: Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
All financial assets or liabilities that are measured at fair value on a recurring and non-recurring basis have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date. The assets and liabilities measured at fair value on a recurring and non-recurring basis are summarized in the tables below:
|  | Fair Value as of December 31, 2020 |  |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment in GECC |  | $ | 19,532 |  |  | $ | - |  |  | $ | - |  |  | $ | 19,532 |  |
Equity investments of Consolidated Fund |  | $ | 3,417 |  |  | $ | - |  |  | $ | - |  |  | $ | 3,417 |  |
Total assets |  | $ | 22,949 |  |  | $ | - |  |  | $ | - |  |  | $ | 22,949 |  |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Participation feature of HC LLC Series A-2 Preferred Stock |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |
Total liabilities |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |
|  | Fair Value as of June 30, 2020 |  |
(in thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment in GECC |  | $ | 8,705 |  |  | $ | - |  |  | $ | - |  |  | $ | 8,705 |  |
Total assets |  | $ | 8,705 |  |  | $ | - |  |  | $ | - |  |  | $ | 8,705 |  |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration liability |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |
Total liabilities |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |
The following is a reconciliation of changes in contingent consideration, a Level 3 liability, for the three and six months ended December 31, 2020:
|  | For the six months ended December 31, |
(in thousands) |  | 2020 |  |  | 2019 |
Beginning balance |  | $ | - |  |  | $ | 1,135 |
Additions |  |  | - |  |  |  | - |
Payments |  |  | - |  |  |  | - |
Change in fair value |  |  | - |  |  |  | (1,135 | )
Ending balance |  | $ | - |  |  | $ | - |
There were no transfers between levels of the fair value hierarchy during the six months ended December 31, 2020 and 2019. The contingent consideration arrangement required the Company to pay up to $2.1 million of additional consideration to the former shareholders of the durable medical equipment businesses if certain earnings before interest, taxes, depreciation and amortization (EBITDA) thresholds, as adjusted per the terms of the purchase agreement, were achieved for the 12 months ended December 31, 2019. The Company determined that the EBITDA achieved, as adjusted per terms of the contract, for the 12 months ended December 31, 2019 was below the earnout threshold for payout. As such, during the year ended June 30, 2020, the fair value of the contingent consideration was updated to zero. This determination of the earnout was finalized and agreed to with the former shareholders of the durable medical equipment businesses during the quarter ended December 31, 2020. On December 29, 2020, in conjunction with the JPM Transactions, the Company issued HC LLC Series A-2 Preferred Stock to our consolidated subsidiary, Forest. See Note 14 – Non-Controlling Interests and Preferred Stock of Subsidiaries. An embedded derivative was identified in the instrument requiring bifurcation from the host instrument as a derivative to be carried at fair value. The value of the derivative related to a participation feature upon the sale of the durable medical equipment business. As of the issuance date, the fair value was determined using an option pricing model based on the transaction price. The key assumption used in the option pricing model is a volatility rate of 72.7% and an option term of 3 years. Subsequent to the issuance date, fair value of this derivative is determined using a discounted cash flow income approach and a guideline public company market approach. The key assumptions in applying the valuation approach as of December 31, 2020 include financial forecasts of the durable medical equipment business, a discount rate of 17% and a discount for lack of marketability of 33% (level 3 inputs in accordance with the GAAP fair value hierarchy). The fair value of the embedded derivative as of both the issuance date and December 31, 2020 was $6.5 million. However, as the HC LLC Series A-2 Preferred Stock are issued to Forest, a consolidated subsidiary, the instruments and their effects on our operations have been eliminated in consolidation and therefore the valuation of the participation feature is reflected as zero within the table above. However, this valuation does impact our segment results and non-controlling interest accounts. The Company is the owner of approximately 23.6% (or 5,425,644 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 GAAP fair value hierarchy).

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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