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 ENDEDSeptember 30, 20212022
☐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: 001-35947

digirad-20220930_g1.jpg
Star Equity Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 33-0145723
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
53 Forest Ave., Suite 101,Old GreenwichCT 06870
(Address of Principal Executive Offices) (Zip Code)
(203) 489-9500
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareSTRRNASDAQ Global Market
Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per shareSTRRP
NASDAQ Global Market
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  x    No  o
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  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 fileroAccelerated filero
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. o
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 November 1st, 2021,7, 2022, the registrant had 5,120,97815,138,732 shares of Common Stock ($0.0001 par value) outstanding.



STAR EQUITY HOLDINGS, INC.
TABLE OF CONTENTS
 
4
5
Item 1. Financial Statements (Unaudited)
5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
4335
Item 3. Quantitative and Qualitative Disclosures about Market Risk
5946
Item 4. Controls and Procedures
5946
6147
Item 1. Legal Proceedings
6147
Item 1A. Risk Factors
6147
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
6247
Item 3. Defaults Upon Senior Securities
6247
Item 4. Mine Safety Disclosures
6247
Item 5. Other Information
6247
Item 6. Exhibits
6348


3


Important Information Regarding Forward-Looking Statements
Portions of this Quarterly Report on Form 10-Q (including information incorporated by reference) include “forward-looking statements” based on our current beliefs, expectations, and projections regarding our business strategies, market potential, future financial performance, industry, and other matters. This includes, in particular, “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q, as well as other portions of this Quarterly Report on Form 10-Q. The words “believe,” “expect,” “anticipate,” “project,” “could,” “would,” and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from those projected, anticipated, or implied in the forward-looking statements. The most significant of these risks, uncertainties, and other factors are described in “Item 1A — Risk Factors” of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 filed with the U.S. Securities and Exchange Commission on March 29, 2021.31, 2022. Except to the limited extent required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

4

PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS

5

STAR EQUITY HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except for per share amounts)
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended
September 30,		Nine Months Ended
September 30,
20212020202120202022202120222021
Revenues:Revenues:Revenues:
HealthcareHealthcare$14,807 $12,759 $42,984 $35,907 Healthcare$13,137 $14,807 $40,467 $42,984 
ConstructionConstruction14,052 8,542 34,035 19,061 Construction11,107 14,052 39,544 34,035 
Investments— 17 — 50 
Total revenuesTotal revenues28,859 21,318 77,019 55,018 Total revenues24,244 28,859 80,011 77,019 
Cost of revenues:Cost of revenues:Cost of revenues:
HealthcareHealthcare11,551 10,283 33,721 28,372 Healthcare10,412 11,551 30,888 33,721 
ConstructionConstruction13,511 7,290 34,794 16,353 Construction7,975 13,511 32,341 34,794 
InvestmentsInvestments50 65 176 196 Investments58 50 221 176 
Total cost of revenuesTotal cost of revenues25,112 17,638 68,691 44,921 Total cost of revenues18,445 25,112 63,450 68,691 
Gross profitGross profit3,747 3,680 8,328 10,097 Gross profit5,799 3,747 16,561 8,328 
Operating expenses:Operating expenses:Operating expenses:
Selling, general and administrativeSelling, general and administrative5,201 4,528 15,839 13,061 Selling, general and administrative6,860 5,201 20,515 15,839 
Amortization of intangible assetsAmortization of intangible assets430 561 1,298 1,696 Amortization of intangible assets430 430 1,290 1,298 
Gain on sale of MD Office SolutionsGain on sale of MD Office Solutions— — (847)— Gain on sale of MD Office Solutions— — — (847)
Total operating expensesTotal operating expenses5,631 5,089 16,290 14,757 Total operating expenses7,290 5,631 21,805 16,290 
Loss from operations(1,884)(1,409)(7,962)(4,660)
Income (loss) from operationsIncome (loss) from operations(1,491)(1,884)(5,244)(7,962)
Other income (expense):Other income (expense):Other income (expense):
Other income, net3 135 4,208 967 
Other income (expense), netOther income (expense), net(575)3 (997)4,208 
Interest expense, netInterest expense, net(260)(309)(732)(1,008)Interest expense, net(185)(260)(664)(732)
Total other income (expense)Total other income (expense)(760)(257)(1,661)3,476 
Total other (expense) income(257)(174)3,476 (41)
Loss from continuing operations before income taxes(2,141)(1,583)(4,486)(4,701)
Income tax expense— (11)(34)(72)
Loss from continuing operations, net of tax(2,141)(1,594)(4,520)(4,773)
(Loss) income from discontinued operations, net of tax— (166)5,955 (1,227)
Net (loss) income(2,141)(1,760)1,435 (6,000)
Income (loss) from continuing operations before income taxesIncome (loss) from continuing operations before income taxes(2,251)(2,141)(6,905)(4,486)
Income tax benefit (provision)Income tax benefit (provision)367 — (256)(34)
Income (loss) from continuing operations, net of taxIncome (loss) from continuing operations, net of tax(1,884)(2,141)(7,161)(4,520)
Income (loss) from discontinued operations, net of taxIncome (loss) from discontinued operations, net of tax— — — 5,955 
Net income (loss)Net income (loss)(1,884)(2,141)(7,161)1,435 
Deemed dividend on Series A perpetual preferred stockDeemed dividend on Series A perpetual preferred stock(479)(474)(1,437)(1,442)Deemed dividend on Series A perpetual preferred stock(479)(479)(1,437)(1,437)
Net loss attributable to common shareholders$(2,620)$(2,234)$(2)$(7,442)
Net income (loss) attributable to common shareholdersNet income (loss) attributable to common shareholders$(2,363)$(2,620)$(8,598)$(2)
Net income (loss) per share—basic and dilutedNet income (loss) per share—basic and dilutedNet income (loss) per share—basic and diluted
Net loss per share, continuing operations$(0.42)$(0.34)$(0.90)$(1.46)
Net (loss) income per share, discontinued operations$— $(0.04)$1.19 $(0.37)
Net (loss) income per share—basic and diluted$(0.42)$(0.37)$0.29 $(1.83)
Net income (loss) per share, continuing operationsNet income (loss) per share, continuing operations$(0.12)$(0.42)$(0.49)$(0.90)
Net income (loss) per share, discontinued operationsNet income (loss) per share, discontinued operations$— $— $— $1.19 
Net income (loss) per share—basic and diluted*Net income (loss) per share—basic and diluted*$(0.12)$(0.42)$(0.49)$0.29 
Deemed dividend on Series A cumulative perpetual preferred stock per shareDeemed dividend on Series A cumulative perpetual preferred stock per share$(0.09)$(0.10)$(0.29)$(0.44)Deemed dividend on Series A cumulative perpetual preferred stock per share$(0.03)$(0.09)$(0.10)$(0.29)
Net (loss) income per share, attributable to common shareholders—basic and diluted:$(0.51)$(0.47)$— $(2.27)
Net income (loss) per share, attributable to common shareholders—basic and diluted*Net income (loss) per share, attributable to common shareholders—basic and diluted*$(0.15)$(0.51)$(0.59)$— 
Weighted-average shares outstanding—basic and dilutedWeighted-average shares outstanding—basic and diluted15,434 5,101 14,503 5,019 
Weighted-average shares outstanding—basic and diluted5,101 4,724 5,019 3,280 
Dividends declared per Series A perpetual preferred stockDividends declared per Series A perpetual preferred stock$0.25 $0.25 $0.75 $0.50 
5

Dividends declared per Series A perpetual preferred stock$0.25 $— $0.50 $— 
*Earnings per share may not add due to rounding
See accompanying notes to the unaudited condensed consolidated financial statements.

6



STAR EQUITY HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
September 30,
2021		December 31,
2020		September 30, 2022 (unaudited)December 31,
2021
Assets:Assets:Assets:
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$5,572 $3,225 Cash and cash equivalents$8,503 $4,538 
Restricted cashRestricted cash168 168 Restricted cash846 278 
Accounts receivable, net15,928 12,975 
Investments in equity securitiesInvestments in equity securities3,180 47 
Lumber derivative contractsLumber derivative contracts— 666 
Accounts receivable, net of allowances of $0.9 million and $0.8 million, respectivelyAccounts receivable, net of allowances of $0.9 million and $0.8 million, respectively13,754 15,811 
Inventories, netInventories, net9,980 9,787 Inventories, net13,065 8,525 
Other current assetsOther current assets2,695 2,025 Other current assets3,069 1,998 
Assets held for sale— 20,756 
Total current assetsTotal current assets34,343 48,936 Total current assets42,417 31,863 
Property and equipment, netProperty and equipment, net9,130 9,762 Property and equipment, net8,499 8,918 
Operating lease right-of-use assets, netOperating lease right-of-use assets, net3,692 1,769 Operating lease right-of-use assets, net4,823 4,494 
Intangible assets, netIntangible assets, net15,502 16,900 Intangible assets, net13,782 15,072 
GoodwillGoodwill9,405 9,542 Goodwill6,046 6,046 
Other assetsOther assets2,815 1,384 Other assets1,408 1,659 
Total assetsTotal assets$74,887 $88,293 Total assets$76,975 $68,052 
Liabilities, Mezzanine Equity and Stockholders’ Equity:Liabilities, Mezzanine Equity and Stockholders’ Equity:Liabilities, Mezzanine Equity and Stockholders’ Equity:
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$4,592 $4,952 Accounts payable$6,094 $4,277 
Accrued liabilitiesAccrued liabilities4,307 2,445 
Accrued compensationAccrued compensation3,202 2,825 Accrued compensation3,395 3,051 
Accrued warrantyAccrued warranty426 214 Accrued warranty247 569 
Lumber derivative contractsLumber derivative contracts635 — 
Billings in excess of costs and estimated profitBillings in excess of costs and estimated profit— 312 
Deferred revenueDeferred revenue3,653 2,184 Deferred revenue3,801 2,457 
Short-term debt and current portion of long-term debt14,026 18,362 
Payable to related parties— 2,307 
Short-term debtShort-term debt11,852 12,869 
Operating lease liabilitiesOperating lease liabilities1,043 1,011 Operating lease liabilities1,443 1,253 
Other current liabilities2,657 3,000 
Liabilities held for sale— 7,871 
Finance lease liabilitiesFinance lease liabilities460 588 
Total current liabilitiesTotal current liabilities29,599 42,726 Total current liabilities32,234 27,821 
Long-term debt, net of current portion— 3,700 
Deferred tax liabilitiesDeferred tax liabilities85 51 Deferred tax liabilities298 72 
Operating lease liabilities, net of current portionOperating lease liabilities, net of current portion2,700 828 Operating lease liabilities, net of current portion3,463 3,299 
Finance lease liabilities, net of current portion Finance lease liabilities, net of current portion459 706 
Other liabilitiesOther liabilities1,185 1,059  Other liabilities312 412 
Total liabilitiesTotal liabilities33,569 48,364 Total liabilities36,766 32,310 
Commitments and contingencies (Note 9)Commitments and contingencies (Note 9)00Commitments and contingencies (Note 9)
Preferred stock, $0.0001 par value: 10,000,000 shares authorized: 10% Series A Cumulative Perpetual Preferred Stock, 8,000,000 shares authorized, liquidation preference ($10.00 per share), 1,915,637 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively21,979 21,500 
Preferred stock, $0.0001 par value: 10,000,000 shares authorized: Series A Preferred Stock, 8,000,000 shares authorized, liquidation preference ($10.00 per share), 1,915,637 shares issued and outstanding at December 31, 2021. (Liquidation preference: $18,988,390 as of December 31, 2021.)Preferred stock, $0.0001 par value: 10,000,000 shares authorized: Series A Preferred Stock, 8,000,000 shares authorized, liquidation preference ($10.00 per share), 1,915,637 shares issued and outstanding at December 31, 2021. (Liquidation preference: $18,988,390 as of December 31, 2021.)— 18,988 
Stockholders’ Equity:Stockholders’ Equity:Stockholders’ Equity:
Preferred stock, $0.0001 par value: 25,000 shares authorized; Series C Participating Preferred stock, no shares issued or outstanding— — 
Preferred stock, $0.0001 par value: 10,000,000 shares authorized: Series A Preferred Stock, 8,000,000 shares authorized, liquidation preference ($10.00 per share), 1,915,637 shares issued and outstanding at September 30, 2022. (Liquidation preference: $18,988,390 as of September 30, 2022.)Preferred stock, $0.0001 par value: 10,000,000 shares authorized: Series A Preferred Stock, 8,000,000 shares authorized, liquidation preference ($10.00 per share), 1,915,637 shares issued and outstanding at September 30, 2022. (Liquidation preference: $18,988,390 as of September 30, 2022.)18,988 — 
Preferred stock, $0.0001 par value: 25,000 shares authorized; Series C Preferred stock, no shares issued or outstandingPreferred stock, $0.0001 par value: 25,000 shares authorized; Series C Preferred stock, no shares issued or outstanding— — 

7

Common stock, $0.0001 par value: 30,000,000 shares authorized; 5,120,978 and 4,798,367 shares issued and outstanding (net of treasury shares) at September 30, 2021 and December 31, 2020, respectively— — 
Treasury stock, at cost; 258,849 shares at September 30, 2021 and December 31, 2020, respectively(5,728)(5,728)
Common stock, $0.0001 par value: 30,000,000 shares authorized; 15,138,732 and 5,805,916 shares issued and outstanding (net of treasury shares) at September 30, 2022 and December 31, 2021, respectivelyCommon stock, $0.0001 par value: 30,000,000 shares authorized; 15,138,732 and 5,805,916 shares issued and outstanding (net of treasury shares) at September 30, 2022 and December 31, 2021, respectively1 — 
Treasury stock, at cost; 258,849 shares at September 30, 2022 and December 31, 2021, respectivelyTreasury stock, at cost; 258,849 shares at September 30, 2022 and December 31, 2021, respectively(5,728)(5,728)
Additional paid-in capitalAdditional paid-in capital148,618 149,143 Additional paid-in capital162,078 150,451 
Accumulated deficitAccumulated deficit(123,551)(124,986)Accumulated deficit(135,130)(127,969)
Total stockholders’ equityTotal stockholders’ equity19,339 18,429 Total stockholders’ equity40,209 16,754 
Total liabilities, mezzanine equity and stockholders’ equityTotal liabilities, mezzanine equity and stockholders’ equity$74,887 $88,293 Total liabilities, mezzanine equity and stockholders’ equity$76,975 $68,052 
See accompanying notes to the unaudited condensed consolidated financial statements.

8

STAR EQUITY HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended September 30,Nine Months Ended September 30,
2021202020222021
Operating activitiesOperating activitiesOperating activities
Net income (loss)$1,435 $(6,000)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation1,333 4,735 
Net (loss) incomeNet (loss) income$(7,161)$1,435 
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation of property and equipmentDepreciation of property and equipment1,369 1,333 
Amortization of intangible assetsAmortization of intangible assets1,298 2,420 Amortization of intangible assets1,290 1,298 
Non-cash lease expenseNon-cash lease expense1,123 1,047 Non-cash lease expense885 1,123 
Provision for bad debt, netProvision for bad debt, net(30)(29)Provision for bad debt, net435 (30)
Stock-based compensationStock-based compensation391 382 Stock-based compensation322 391 
Gain on disposal of discontinued operationsGain on disposal of discontinued operations— (5,159)
Amortization of loan issuance costsAmortization of loan issuance costs141 248 Amortization of loan issuance costs104 141 
Debt issuance costs write-off130 — 
Gain on disposal of discontinued operations(5,159)— 
Write-off of borrowing costsWrite-off of borrowing costs— 130 
Gain on disposal of MD Office SolutionsGain on disposal of MD Office Solutions(847)— Gain on disposal of MD Office Solutions— (847)
Loss on sale of assets29 142 
(Gain) loss on sale of assets(Gain) loss on sale of assets156 29 
Gain on Paycheck Protection Program loan forgivenessGain on Paycheck Protection Program loan forgiveness(4,179)— Gain on Paycheck Protection Program loan forgiveness— (4,179)
Deferred income taxesDeferred income taxes34 68 Deferred income taxes226 34 
Other, net381 (33)
Unrealized loss (gain) of equity securities and lumber derivativesUnrealized loss (gain) of equity securities and lumber derivatives2,132 381 
Changes in operating assets and liabilities:Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivableAccounts receivable(3,131)2,850 Accounts receivable1,622 (3,131)
InventoriesInventories(193)(1,735)Inventories(4,539)(193)
Other assetsOther assets(1,032)(852)Other assets(848)(1,032)
Accounts payableAccounts payable(709)(2,109)Accounts payable1,817 (709)
Accrued compensationAccrued compensation582 (845)Accrued compensation345 582 
Deferred revenue1,383 494 
Deferred revenue and billings in excess of costs and estimated profitDeferred revenue and billings in excess of costs and estimated profit1,035 1,383 
Operating lease liabilitiesOperating lease liabilities(1,100)(1,059)Operating lease liabilities(865)(1,100)
Other liabilitiesOther liabilities(56)(1,604)Other liabilities1,441 (56)
Net cash used in operating activities(8,176)(1,880)
Net cash provided (used) by operating activitiesNet cash provided (used) by operating activities(234)(8,176)
Investing activitiesInvesting activitiesInvesting activities
Purchases of property and equipmentPurchases of property and equipment(675)(646)Purchases of property and equipment(1,232)(675)
Proceeds from sale of discontinued operationsProceeds from sale of discontinued operations18,750 — Proceeds from sale of discontinued operations— 18,750 
Proceeds from sale of property and equipmentProceeds from sale of property and equipment76 156 Proceeds from sale of property and equipment217 76 
Purchases of derivatives and equity securities(399)— 
Proceeds from sale of derivatives and equity securities42 — 
Net cash provided by (used in) investing activities17,794 (490)
Purchases of equity securitiesPurchases of equity securities(3,994)(399)
Proceeds from sales of equity securitiesProceeds from sales of equity securities27 42 
Net cash provided (used) by investing activitiesNet cash provided (used) by investing activities(4,982)17,794 
Financing activitiesFinancing activitiesFinancing activities
Proceeds from borrowingsProceeds from borrowings91,309 85,648 Proceeds from borrowings80,061 91,309 
Repayment of debtRepayment of debt(97,594)(84,940)Repayment of debt(81,152)(97,594)
Loan issuance costs— (317)
Net proceeds from sale of common stock and warrants— 4,203 
Proceeds from the sale of common stock, warrants, and exercise of over allotment optionsProceeds from the sale of common stock, warrants, and exercise of over allotment options13,198 — 
Fees paid on issuance of common stockFees paid on issuance of common stock(450)— 
Proceeds from exercise of warrantsProceeds from exercise of warrants567 892 Proceeds from exercise of warrants— 567 
Fees paid on issuance of rights agreementFees paid on issuance of rights agreement(28)(3)Fees paid on issuance of rights agreement— (28)
Taxes paid related to net share settlement of equity awardsTaxes paid related to net share settlement of equity awards(18)(13)Taxes paid related to net share settlement of equity awards(5)(18)
Repayment of obligations under finance leasesRepayment of obligations under finance leases(595)(725)Repayment of obligations under finance leases(466)(595)
Preferred stock dividends paidPreferred stock dividends paid(958)— Preferred stock dividends paid(1,437)(958)
Net cash (used in) provided by financing activities(7,317)4,745 
Net cash provided (used) by financing activitiesNet cash provided (used) by financing activities9,749 (7,317)
Net increase in cash, cash equivalents, and restricted cash including cash classified within current assets held for saleNet increase in cash, cash equivalents, and restricted cash including cash classified within current assets held for sale2,301 2,375 Net increase in cash, cash equivalents, and restricted cash including cash classified within current assets held for sale4,533 2,301 

9

Less: net (increase) decrease in cash classified within current held for sale(46)298 
Less: net increase in cash classified within current assets held for saleLess: net increase in cash classified within current assets held for sale— (46)
Net increase in cash, cash equivalents, and restricted cashNet increase in cash, cash equivalents, and restricted cash2,347 2,077 Net increase in cash, cash equivalents, and restricted cash4,533 2,347 
Cash, cash equivalents, and restricted cash at beginning of periodCash, cash equivalents, and restricted cash at beginning of period3,393 1,987 Cash, cash equivalents, and restricted cash at beginning of period4,816 3,393 
Cash, cash equivalents, and restricted cash at end of periodCash, cash equivalents, and restricted cash at end of period$5,740 $4,064 Cash, cash equivalents, and restricted cash at end of period$9,349 $5,740 
Reconciliation of cash, cash equivalents, and restricted cash at end of yearReconciliation of cash, cash equivalents, and restricted cash at end of year
Cash and cash equivalentsCash and cash equivalents$8,503 $5,572 
Restricted cashRestricted cash846 168 
Cash, cash equivalents, and restricted cash at end of periodCash, cash equivalents, and restricted cash at end of period$9,349 $5,740 
Non-Cash Investing ActivitiesNon-Cash Investing ActivitiesNon-Cash Investing Activities
MD Office Solutions Promissory Note ReceivableMD Office Solutions Promissory Note Receivable$1,385 $— MD Office Solutions Promissory Note Receivable$— $1,385 
Non-Cash Financing ActivitiesNon-Cash Financing ActivitiesNon-Cash Financing Activities
Gain on Paycheck Protection Program Loan ForgivenessGain on Paycheck Protection Program Loan Forgiveness$4,179 $— Gain on Paycheck Protection Program Loan Forgiveness$— $4,179 
Noncash property, plant, and equipment obtained in exchange for finance lease liabilitiesNoncash property, plant, and equipment obtained in exchange for finance lease liabilities$90 $— 
Noncash right-of-use assets obtained in exchange for operating lease liabilitiesNoncash right-of-use assets obtained in exchange for operating lease liabilities$1,436 $— 
See accompanying notes to the unaudited condensed consolidated financial statements.

10

STAR EQUITY HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)
Perpetual Preferred StockCommon stockTreasury StockAdditional paid-in capitalAccumulated deficitTotal
stockholders’
equity
SharesAmountSharesAmount
Balance at December 31, 20201,916 $21,500 4,798 $— $(5,728)$149,143 $(124,986)$18,429 
Stock-based compensation— — — — — 131 — 131 
Shares issued under stock incentive plans, net of shares withheld for employee taxes— — 3— — (5)— (5)
Accrued dividends on perpetual preferred stock— 479— — — (479)— (479)
Proceeds from exercise of warrants— — 220— — 493— 493 
Net income— — — — — — 5,432 5,432 
Balance at March 31, 20211,916 21,979 5,021 — (5,728)149,283 (119,554)24,001 
Stock-based compensation— — — — — 134— 134 
Shares issued under stock incentive plans, net of shares withheld for employee taxes— — 20— — (13)— (13)
Accrued dividends on perpetual preferred stock— 479— — — (479)— (479)
Preferred dividends paid— (479)— — — — — — 
Fees paid on issuance of rights agreement— — — — — (28)— (28)
Proceeds from exercise of warrants— — 33— — 74— 74 
Net loss— — — — — — (1,856)(1,856)
Balance at June 30, 20211,916 21,979 5,074 — (5,728)148,971 (121,410)21,833 
Stock-based compensation— — — — — 126 — 126 
Shares issued under stock incentive plans, net of shares withheld for employee taxes— — 46 — — — — — 
Accrued dividends on perpetual preferred stock— 479 — — — (479)— (479)
Preferred dividends paid— (479)— — — — — — 
Net loss— — — — — — (2,141)(2,141)
Balance at September 30, 20211,916 $21,979 5,120 $— $(5,728)$148,618 $(123,551)$19,339 
Perpetual Redeemable Preferred StockPerpetual Preferred StockCommon stockTreasury StockAdditional paid-in capitalAccumulated deficitTotal
stockholders’
equity
SharesAmountSharesAmountSharesAmount
Balance at December 31, 20211,916 $18,988 — $— 5,805 $— $(5,728)$150,451 $(127,969)$16,754 
Stock-based compensation— — — — — — — 144 — 144 
Shares issued under stock incentive plans, net of shares withheld for employee taxes— — — — 49 — — (3)— (3)
Accrued dividends on redeemable preferred stock— 479 — — — — — (479)— (479)
Preferred stock dividends paid— (479)— — — — — — — — 
Equity issuance costs— — — — — — — (450)— (450)
Proceeds from the sale of common stock, warrants, and exercise of over allotment options— — — — 9,175 1 — 13,197 — 13,198 
Net loss— — — — — — — — (3,701)(3,701)
Balance at March 31, 20221,916 18,988 — — 15,029 1 (5,728)162,860 (131,670)25,463 
Stock-based compensation— — — — — — — 72 — 72 
Shares issued under stock incentive plans, net of shares withheld for employee taxes— — — — 53 — — — — — 
Accrued dividends on redeemable preferred stock— — — 479 — — — (479)— — 
Preferred stock dividends paid— — — (479)— — — — — (479)
Reclassification of preferred stock to permanent equity (See Note 1)
(1,916)(18,988)1,916 18,988 — — — — — 18,988 
Net loss— — — — — — — (1,576)(1,576)
Balance at June 30, 2022— — 1,916 18,988 15,082 1 (5,728)162,453 (133,246)42,468 
Stock-based compensation— — — — — — — 106 — 106 
Shares issued under stock incentive plans, net of shares withheld for employee taxes— — — — 57 — — (2)— (2)
Dividends on preferred stock— — — — — — — (479)— (479)
Net loss— — — — — — — — (1,884)(1,884)
Balance at September 30, 2022— $— 1,916 $18,988 15,139 $1 $(5,728)$162,078 $(135,130)$40,209 


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Perpetual Preferred StockCommon stockTreasury StockAdditional paid-in capitalAccumulated deficitTotal
stockholders’
equity		Perpetual Redeemable Preferred StockCommon stockTreasury StockAdditional paid-in capitalAccumulated deficitTotal
stockholders’
equity
SharesAmountSharesAmountSharesAmountSharesAmountTreasury StockAdditional paid-in capitalAccumulated deficit
Balance at December 31, 20191,916 $19,602 2,050 $— $(5,728)$145,352 $(118,529)$21,095 
Stock-based compensation— — — — — 109 — 109 
Shares issued under stock incentive plans, net of shares withheld for employee taxes— — 5 — — — — — 
Accrued dividend on perpetual preferred stock— 484— — — (484)— (484)
Net loss— — — — — — (2,953)(2,953)
Balance at March 31, 20201,916 20,086 2,055 — (5,728)144,977 (121,482)17,767 
Stock-based compensation— — — — — 151— 151 
Shares issued under stock incentive plans, net of shares withheld for employee taxes— — 42— — (13)— (13)
Accrued dividend on perpetual preferred stock— 484— — — (484)— (484)
Net proceeds from sale of common stock and warrants— — 2,450— — 4,203— 4,203 
Proceeds from exercise of warrants— — 145— — 773— 773 
Net loss— — — — — — (1,287)(1,287)
Balance at June 30, 20201,916 20,570 4,692 0(5,728)149,607 (122,769)21,110 
Balance at December 31, 2020Balance at December 31, 20201,916 $21,500 4,798 $— $(5,728)$149,143 $(124,986)$18,429 
Stock-based compensationStock-based compensation— — — — — 122 — 122 Stock-based compensation— — — — — 131 — 131 
Shares issued under stock incentive plans, net of shares withheld for employee taxesShares issued under stock incentive plans, net of shares withheld for employee taxes— — 6— — — — — Shares issued under stock incentive plans, net of shares withheld for employee taxes— — 3 — — (5)— (5)
Accrued dividend on redeemable preferred stockAccrued dividend on redeemable preferred stock— 474— — — (474)— (474)Accrued dividend on redeemable preferred stock— 479 — — — (479)— (479)
Equity issuance costs— (3)— — — — — — 
Proceeds from the exercise of warrantsProceeds from the exercise of warrants— — 220 — — 493 — 493 
Net incomeNet income— — — — — — 5,432 5,432 
Balance at March 31, 2021Balance at March 31, 20211,916 21,979 5,021 — (5,728)149,283 (119,554)24,001 
Stock-based compensationStock-based compensation— — — — — 134 — 134 
Shares issued under stock incentive plans, net of shares withheld for employee taxesShares issued under stock incentive plans, net of shares withheld for employee taxes— — 20 — — (13)— (13)
Accrued dividends on perpetual preferred stockAccrued dividends on perpetual preferred stock— 479 — — — (479)— (479)
Preferred stock dividends paidPreferred stock dividends paid— (479)— — — — — — 
Fees paid on issuance of rights agreementFees paid on issuance of rights agreement— — — — — (28)— (28)
Proceeds from exercise of warrantsProceeds from exercise of warrants— — 53— — 119 — 119 Proceeds from exercise of warrants— — 33 — — 74 — 74 
Net lossNet loss— — — — — — (1,760)(1,760)Net loss— — — — — — (1,856)(1,856)
Balance at September 30, 20201,916 $21,041 4,751 $— — $(5,728)$149,374 $(124,529)$19,117 
Balance at June 30, 2021Balance at June 30, 20211,916 21,979 5,074 — (5,728)148,971 (121,410)21,833 
Stock-based compensationStock-based compensation— — — — — 126 — 126 
Shares issued under stock incentive plans, net of shares withheld for employee taxesShares issued under stock incentive plans, net of shares withheld for employee taxes— — 46 — — — — — 
Accrued dividends on perpetual preferred stockAccrued dividends on perpetual preferred stock— 479 — — — (479)— (479)
Preferred stock dividends paidPreferred stock dividends paid— (479)— — — — — — 
Net lossNet loss— — — — — — (2,141)(2,141)
Balance at September 30, 2021Balance at September 30, 20211,916 $21,979 5,120 $— $(5,728)$148,618 $(123,551)$19,339 
See accompanying notes to unaudited condensed consolidated financial statements.

12

STAR EQUITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation and Significant Policies
Basis of Presentation
The unaudited condensed consolidated financial statements included in this Form 10-Q have been prepared in accordance with the U.S. Securities and Exchange Commission (the “SEC”) instructions for Quarterly Reports on Form 10-Q. Accordingly, the condensed consolidated financial statements are unaudited and do not contain all the information required by U.S. generally accepted accounting principlesAccepted Accounting Principles (“GAAP”) to be included in a full set of financial statements. The unaudited condensed consolidated balance sheetConsolidated Balance Sheet at December 31, 20202021 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for a complete set of financial statements. The audited consolidated financial statements for our fiscal year ended December 31, 2020,2021, filed with the SEC on Form 10-K on March 29, 2021,31, 2022, include a summary of our significant accounting policies and should be read in conjunction with this Form 10-Q. In the opinion of management, all material adjustments necessary to present fairly the results of operations, cash flows, and balance sheets for such periods have been included in this Form 10-Q. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results of operations for the entire year.
The Company and Discontinued Operations
On March 31, 2021, Star Equity Holdings, Inc. (“Star Equity,” the “Company,” “we,” or “our”), is a multi-industry diversified holding company with 3three divisions: Healthcare, Construction, and Investments, announcedInvestments. Our common stock and preferred stock are listed on the completion of the sale of DMS Health Technologies, Inc.NASDAQ Global Market exchange as “STRR” and “STRRP”, a North Dakota corporation and wholly owned indirect subsidiary of Star Equity (“DMS Health”), for $18.75 million in cash, as originally announced on November 3, 2020 (the “DMS Sale Transaction”). The assets and liabilities of DMS Health were previously classified as held for sale and the results of DMS Health’s operations were presented as a discontinued operations in our previously issued financial statements. Unless otherwise noted, discussion within these notes to the consolidated financial statements relates to continuing operations. Refer to Note 2. Discontinued Operations for additional information.
COVID-19 Pandemic
During the three and nine months ended September 30, 2021, we had a $2.0 million and $7.1 million increase, respectively, in Healthcare division revenue and a $5.5 million and $15.0 million increase, respectively, in Construction division revenue, as compared to the same period of the prior year. We have largely recovered from the economic effects of the COVID-19 pandemic and made our way back to pre-COVID-19 levels of business activity, and we have actual revenue growth, especially in our construction division. In our Healthcare Division, our imaging volume continues to rebound as the pandemic is brought further under control. The current COVID-19 pandemic, which is impacting worldwide economic activity, poses the risk that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities.respectively.
Mezzanine and Permanent Equity
Pursuant to the Certificate of Designations, Rights and Preferences of 10% Series A Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”) of Star Equity Holdings, Inc. (formerly Digirad Corporation) (the “Certificate of Designations”), upon a Change of Control Triggering Event, as defined in the Certificate of Designations, holders of the 10% Series A Cumulative Perpetual Preferred Stock (the “Preferred Stock”) mayhad the ability to require usthe Company to redeem the Series A Preferred Stock at a price of $10.00 per share, plus any accumulated and unpaid dividends (a “Change of Control Redemption”). As this redemption feature of the shares iswas not solely within the control of the Company, the Series A Preferred Stock doesdid not qualify as permanent equity and has beenwas classified as mezzanine or temporary equity. The Series A Preferred Stock iswas not redeemable and it was not probable that theour Series A Preferred Stock would become redeemable as of September 30,December 31, 2021. Therefore, we arewere not currentlypreviously required to accrete the Series A Preferred Stock to its redemption value.
In additionOn June 2, 2022, the Certificate of Designations was amended to include a “Special Optional Redemption Right” at the Company’s discretion and to extinguish the option of preferred stockholders to redeem preferred shares upon a Change of Control Redemption,Triggering Event, as defined in the Certificate of Designations, as amended. As the redemption features of the Series A Preferred Stock are now solely within the control of the Company, the Series A Preferred Stock qualifies as permanent equity and has been reclassified to permanent equity effective June 2, 2022.
In addition to the foregoing redemption features, the Certificate of Designations also provides that we may redeem (at itsour option, in whole or in part) the Series A Preferred Stock following the fifth anniversary of issuance of the Series A Preferred Stock, at a cash redemption price of $10.00 per share, plus any accumulated and unpaid dividends.
On May 26, 2021 and August 16, 2021, our board of directors declared a cash dividend to holders of 10% Series A Cumulative Perpetual Preferred Stock of $0.25 per share, for an aggregate amount of approximately $0.5 million, respectively. The record date for this dividend was June 1, 2021 and September 1, 2021, and the payment date was June 11, 2021 and September 13, 2021. Refer to preferred stock dividends discussed in Note 13,13. Perpetual Preferred Stock.

13

Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and settlement of obligations in the normal course of business. We incurred losses from continuing operations, net of income taxes, of approximately $1.9 million and $8.0$7.2 million for the three and nine months ended September 30, 2022, respectively, and $2.1 million and $4.5 million for the three and nine months ended September 30, 2021, respectively, and $1.4 million and $4.7 million for the three and nine months ended September 30, 2020, respectively. We have an accumulated deficit of $123.6$135.1 million and $125.0$128.0 million as of September 30, 20212022 and December 31, 2020,2021, respectively. Net cash used in operations was $8.2 million for the nine months endedAs of September 30, 2022, cash and cash equivalents increased to $8.5 million from $4.5 million as of December 31, 2021, comparedprimarily as a result of an underwritten public offering (the “2022 Public Offering”) which closed on January 24, 2022. Refer to net cash used in operations of $1.9 millionNote 14. Equity Transactions for the same prior year period in 2020.details.
Regarding our debt,At September 30, 2022, we had approximately $14.0$11.9 million outstanding asin debt outstanding. All of September 30, 2021, all of whichour debt is classifiedcategorized as short-term and is explained inon our condensed Consolidated Balance Sheets. For more detail, insee Note 8. Debt. The $7.4Company’s loan pursuant to the Webster Loan Agreement (as defined below) (the “Webster Loan”) with Webster Bank, N.A., a national banking association as lender (“Webster”), as successor in interest to Sterling National Bank, with a loan balance of approximately $7.5 million, SNB debt primarily supports our healthcare business andHealthcare business. While the Webster Loan matures in 2024, but GAAP rules require that the outstanding balance be classified as short-term debt,debt. This is due to both the automatic sweep feature embedded in the traditional lockbox arrangement along with aand the subjective acceleration clause in the SNBWebster Loan and Security Agreement. In practice, we have the ability to immediately borrow back these daily sweeps to fund our working capital.
As of September 30, 2021,2022, we were not in compliance with all covenants in the Webster Loan Agreement related to our Healthcare division and had $1.7 millionwe have not yet obtained a waiver from Webster for these financial covenant breaches. Upon the occurrence and during the continuation of excess available borrowing capacity to fund these operations.
Asan event of September 30, 2021,default under the Webster Loan Agreement, Webster may, among other things, declare the loans and all other obligations under the Webster Loan Agreement immediately due and payable and increase the interest rate at which loans and obligations under the Webster Loan Agreement bear interest. While we had $5.5 million outstanding on our two Construction division revolvers with Gerber. However, we weredo not in compliance with our bi-annual covenants on these Gerber facilities, but obtained waivers for the bi-annual measurement period ended June 30, 2021. While Gerber has historically provided us with waivers, there is no assurance thatbelieve we will be ablerequired to receive waivers for covenant violationspay down the current balance, our current cash is sufficient to repay the Webster Loan in the future, or that we will meet compliance with covenants in the future.full.

We also have $1.1 million outstanding on our Star Real Estate term loan with Gerber, on which we have been making timely payments and are in compliance with all covenants. Related party notes of $2.3 million that were outstanding as of December 31, 2020 were fully paid off on April 1, 2021, using proceeds from the DMS Sale Transaction. In addition, as of September 30, 2021, we had cash and cash equivalents of $5.7 million.

The Company is forecasting SNB Loan covenant violations within twelve months after the date that financial statements are issued. Management believeshas historically concluded that this forecasted violation raises substantial doubt about the Company’sour ability to continue as a going concern within twelve months. In consideration of the cash flow results for the nine months afterended September 30, 2022, our current balance of cash and cash equivalents of $8.5 million and our projected use of cash for the next twelve months, management believes that the Company's existing cash and current free cash flow generation expectations will allow the Company to continue its operations for at least the next 12 months from the date thatthese unaudited condensed consolidated financial statements are issued. The Company's financial statements do not reflect any adjustmentsissued, even in the event that mightwe are requested to pay some or all of the outstanding Webster Loan balance. Therefore, the conditions that led us to conclude substantial doubt in prior periods have been alleviated. As a result fromof recurring losses, the outcomecontinued viability of this uncertainty. Management is taking steps to provide the Company with the opportunitybeyond November 2023 may be dependent on its ability to continue as a going concern, including but not limited to increased pricing, improvements in operations, and obtainingraise additional financing. There can be no assurance that we will be successful in procuring of such efforts. Our abilitiescapital to continue as a going concern maybe dependent on our ability to implement our plans.finance its operations.
Use of Estimates
PreparationThe preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported amounts of assetsin the condensed consolidated financial statements and liabilities,disclosures made in the disclosure of contingent assetsaccompanying notes to the condensed consolidated financial statements. Significant estimates and liabilities,judgments include those related to revenue recognition, goodwill valuation, and the reported amounts of revenues and expenses. By their nature, estimates are subject to an inherent degree of uncertainty.income taxes. Actual results could materially differ from management’sthose estimates.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 and Topic 842.
Pursuant to ASC 606, Revenue from Contracts with Customers, we recognize revenue when a customer obtains control of promised goods or services. We record the amount of revenue that reflects the consideration that it expectswe expect to receive in exchange for those goods or services. We apply the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of 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.
We have elected to use the practical expedient under ASC 606 to exclude disclosures of unsatisfied remaining performance obligations for (i) contracts having an original expected length of one year or less or (ii) contracts for which the practical expedient has been applied to recognize revenue at the amount for which it has a right to invoice.
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.


14

The majority of our contracts have a single performance obligation, as we provide a series of distinct goods or services that are substantially the same and are transferred with the same pattern to the customer. For contracts with multiple performance obligations, we allocate the total transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available. For bill and hold sales, we determine when the customer obtains control of the product on a case-by-case basis to determine the amount of revenue to recognize each period.
Revenue recognition is evaluated on a contract by contract basis. Performance obligations are satisfied over time as work progresses or at a point in time. A performance obligation is satisfied over time if we have an enforceable right to payment. Determining if there is an enforceable right to payment is assessed on a contract by contract basis. For contracts requiring over time revenue recognition, the selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We use a cost-based input measurement of progress because it best depicts the transfer of assets to the customer, which occurs as costs are incurred during the manufacturing process or as services are rendered. Under the cost-based measure of progress, the extent of progress towards completion is measured based on the costs incurred to date.
14

Our products are generally not sold with a right of return and the Company does not provide significant credits or incentives, which may be variable consideration when estimating the amount of revenue to be recognized.
Healthcare Services Revenue Recognition. We generate service revenue primarily from providing diagnostic services and cardiac monitoring services to our customers. Service revenue within our Diagnostic ServicesHealthcare reportable segmentssegment is derived from providing our customers with contract diagnostic services, which includes use of our imaging systems, qualified personnel, radiopharmaceuticals, licensing, logistics and related items required to perform testing in their own offices. We bill customers either on a per-scan or fixed-payment methodology, depending upon the contract that is negotiated with the customer. Within our Diagnostic ServiceHealthcare segment, we also rent cameras to healthcare customers for use in their operations. Rental revenues are structured as either a weekly or monthly payment arrangement, and are recognized in the month servicesthat rental assets are provided. Revenue related to provision of our services is recognized at the time services are performed.
Healthcare Product and Product-Related Revenue Recognition. We generate revenue from product and product-related sales, primarily from the sale of gamma cameras, accessories, and accessories.radiopharmaceuticals doses.
Diagnostic ImagingHealthcare product revenues are generated from the sale of internally developed solid-state gamma camera imaging systems and post-warranty camera maintenance service contracts. Revenue from sales of imaging systems is generally recognized at point in time upon the delivery of systems and acceptance by customers. We also provide installation services and training on cameras sold, primarily in the United States. Installation and initial training is generally performed shortly after delivery and the revenue related to the provision of these services is recognized at the time services are performed. Neither installation nor training is essential to the functionality of the product. Finally, we offer camera maintenance service contracts that are sold beyond the term of the initial warranty, generally one year from the date of purchase. Revenue from these service contracts is deferred and recognized ratably over the period of the obligation. We offer time and material services and record revenue when service is performed. Radiopharmaceuticals doses revenue, generated by Healthcare, is generally recognized when delivered to the customer.

15


Construction Revenue Recognition. Our Construction division is made up of three operating businesses: KBS Builders, Inc. (“KBS”), EdgeBuilder, Inc. (“EdgeBuilder”), and Glenbrook Building Supply, Inc. (“Glenbrook”)—with the latter two managed together and referred to jointly as “EBGL”. KBS, EdgeBuilder and Glenbrook are wholly-owned subsidiaries of Star Equity and are referred to collectively herein, and together with ATRM Holdings, Inc. (“ATRM”), as the “Construction Subsidiaries.” Within the Construction segment,division, we service residential and commercial construction projects by manufacturing modular housing units and other products and supplysupplying general contractors with building materials. KBS manufactures modular buildings for both single-family residential homes and larger, commercial building projects. Our EdgeBuilder Inc. (“EdgeBuilder”) subsidiary manufactures structural wall panels, permanent wood foundation systems and other engineered wood products, and our Glenbrook Building Supply, Inc. (“Glenbrook”) subsidiary is a retail supplier of lumber and other building materials and products. Revenue is generally recognized upon delivery of the product.supplies. Retail sales at Glenbrook are recognized at the point of sale. For bill and hold sales, we determine when the customer obtains control of the product on a case-by-case basis to determine the amount of revenue to recognize each period. Revenue is generally recognized at point in time upon delivery of product or over time by measuring progress towards completion.
Billings in excess of costs and estimated profit.We recognize billings in excess of costs and estimated profit on uncompleted contracts within current liabilities. Such amounts relate to fixed-price contracts recognized over time, and represents payments in advance of performing the related contract work. Billings in excess of costs and estimated profit on uncompleted contracts are not considered to be a significant financing component because they are generally used to meet working capital demands that can be higher in the early stages of a contract. Contract liabilities are classified in deferred revenue in the condensed Consolidated Balance Sheets. Contract liabilities are reduced when the associated revenue from the contract is recognized, which is generally within one year.
Contract Assets.We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less. These costs mainly include the internal sales commissions; under the terms of these programs these are generally earned and the costs are recognized at the time the revenue is recognized.
Deferred Revenue
We record deferred revenue when cash payments are received in advance of our performance. We have determined our contracts do not include a significant financing component. The majority of our deferred revenue relates to payments received on camera support post-warranty service contracts, which are billed at the beginning of the contract period or at periodic intervals (e.g., monthly, quarterly, or annually).
Leases
Lessee Accounting
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and operating lease liabilities, net of current portion in our condensed consolidated balance sheets.Consolidated Balance Sheets. Finance leases are included in property and equipment, otherfinance lease liabilities, net of current liabilities,portion, and other long-termfinance lease liabilities in our condensed consolidated balance sheets.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. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use the implicit discount rate when readily determinable; however, 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. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease valuation 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 elected not to separate lease and non-lease components of its operatingour leases in which it iswe are the lessee and lessor. Additionally, we elected not to recognize right-of-use assets and leases liabilities that arise from short-term leases of twelve months or less.
15

16

Lessor Accounting
The majority of the lease income of the Healthcare division comes from camera rentals and the lease income of the Construction division comes from the rental of the Waterford facility to a commercial tenant.rentals. We determine lease classification at the commencement date. Leases not classified as sales-type or direct financing leases are classified as operating leases. The primary accounting criteria we use for lease classification are (a) review to determine if the lease transfers ownership of the underlying asset to the lessee by the end of the lease term, (b) review to determine if the lease grants the lessee a purchase option that the lessee is reasonably certain to exercise, (c) determine, using a seventy-five percent or more threshold, if the lease term is for a major part of the remaining economic life of the underlying asset (however, we do not use this classification criterion when the lease commencement date falls within the last 25 percent of the total economic life of the underlying asset) and (d) determine, using a 90 percent or more threshold, if the present value of the sum of the lease payments and any residual value guarantees equal or exceeds substantially all of the fair value of the underlying asset. We do not lease equipment of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Each of our leases is classified as an operating lease.
We elected the operating lease practical expedient for itsour leases toand do not separate non-lease components of regular maintenance services from associated lease components. This practical expedient is available when both of the following are met: (i) the timing and pattern of transfer of the non-lease components and associated lease component are the same and (ii) the lease component, if accounted for separately, would be classified as an operating lease.
Property taxes paid by the lessor that are reimbursed by the lessee are considered to be lessor costs of owning the asset, and are recorded gross with revenue included in other non-interest income and expense recorded in operating expenses. 
We selected a lessor accounting policy election to exclude from revenue and expenses sales taxes and other similar taxes assessed by a governmental authority on lease revenue-producing transactions and collected by the lessor from a lessee.
Operating lease equipment is carried at cost less accumulated depreciation. Operating lease equipment is depreciated to its estimated residual value using the straight-line method over the lease term or estimated useful life of the asset.
Rental revenue on operating leases is recognized on a straight-line basis over the lease term unless collectability is not probable. In these cases, rental revenue is recognized as payments are received.
Recently Adopted Accounting PronouncementsConcentration of Credit Risk
In December 2019,Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash and cash equivalents and accounts receivable. We limit our exposure to credit loss by generally placing cash in high credit quality financial institutions. Cash balances are maintained primarily at major financial institutions in the Financial Accounting Standards Board issued ASU No 2019-12, “Income Taxes (Topic 740): SimplifyingUnited States and a portion of which exceed the Accounting for Income Taxes”regulatory limit of $250,000 insured by the Federal Deposit Insurance Corporation (FDIC). We have not experienced any credit losses associated with our cash balances. Additionally, we have established guidelines regarding diversification of our investments and their maturities, which are designed to maintain principal and maximize liquidity.
Variable Interest Entities
We determine at the inception of each arrangement whether an entity in which we have made an investment or in which we have other variable interests is considered a variable interest entity (“ASU 2019-12”VIE”). ASU 2019-12 removes certain exceptionsWe consolidate VIEs when we are the primary beneficiary. We are the primary beneficiary of a VIE when we have the power to direct activities that most significantly affect the economic performance of the VIE and have the obligation to absorb the significant losses or benefits. If we are not the primary beneficiary in a VIE, we account for the investment or other variable interests in a VIE in accordance with applicable GAAP.
Periodically, we assess whether any changes in our interest or relationship with the entity affect our determination of whether the entity is a VIE and, if so, whether we are the primary beneficiary.

17

Reclassification of Prior Year Presentation
Paycheck Protection Program Loan forgiveness reclassification has been made to the general principles in Topic 740 in Generally Accepted Accounting Principles. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. We adoptedprior period financial statements to conform to the guidance effective the first quarter of 2021. ASU 2019-12 does not have a material effect on our current financial position, results of operations oryear financial statement disclosures.presentation of the condensed Consolidated Statements of Operations. This change did not impact previously reported net loss, loss per share, stockholders’ equity, total assets or the condensed Consolidated Statements of Cash Flows.
Finance Lease liabilities and Investments reclassifications have been made to the prior period financial statements to conform to the current year financial statement presentation of the condensed Consolidated Balance Sheets. These changes did not impact previously reported net (loss) income, (loss) income per share, stockholders’ equity, total liabilities, total assets or the condensed Consolidated Statements of Cash Flows.
Other reclassifications have been made to the current period financial statement presentation of the condensed Consolidated Balance Sheets. These changes did not impact previously reported net loss, loss per share, stockholders’ equity, total assets or the condensed Consolidated Statements of Cash Flows.
New Accounting Standards To Be Adopted
In June 2016, the FASBNo new accounting standards were issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. This update is effective for annual periods beginning after December 15, 2022, and interim periods within those periods, and early adoption is permitted. We expect to adopt the standard on its effective date in the first quarter of 2023. We believe the adoption will modify the way we analyze financial instruments, but currently do not expect the adoptionended September 30, 2022 that are expected to have a material financial impact on our consolidated financial statements.

In March 2020, the FinancialRecently Adopted Accounting Standards Board issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848),
No accounting standards were adopted in the quarter ended September 30, 2022 that are expected to temporarily ease the potential burden in accounting for reference rate reform. The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The guidance generally can be applied through December 31, 2022. We will monitorhave a material impact on our contracts and transactions for potential application of this ASU.

financial statements.
Note 2. Discontinued Operations
16

On October 30, 2020, Star Equity entered into a Stock Purchase Agreement (the “DMS Purchase Agreement”) by and among the Company, Project Rendezvous Acquisition Corporation, a Delaware corporation and wholly owned subsidiary ofbetween the Company (“Seller”), DMS Health, and Knob Creek Acquisition Corp., a Tennessee corporation (“Buyer”), pursuant to which subject to the satisfaction or waiver of certain conditions, Buyer purchased all of the issued and outstanding common stock of DMS Health, which operated our Mobile Healthcare business unit, from Seller. The purchase price forunder the DMS Sale TransactionPurchase Agreement was $18.75 million in cash, subject to certain adjustments, including a working capital adjustment. The DMS Sale Transaction was announced on November 3, 2020, and was subsequently completed ontransactions closed effective March 31, 2021.
We deemed the disposition of the Mobile Healthcare business unit which was effected upon the closing of the DMS Sale Transaction, to represent a strategic shift that will have a major effect on our operations and financial results. As ofFor the year ended December 31, 2020,2021, the Mobile Healthcare business met the criteria to be classified as held for sale. This segment is reported on the Consolidated Statement of Operations as discontinued operations and on the Consolidated Balance Sheet as Assets and Liabilities held for sale.
We allocated a portion of interest expense to discontinued operations since the proceeds received from the sale were required to be used to pay down outstanding borrowings under our revolving credit facility with Sterling National Bank.under the Webster Loan Agreement. The allocation was based on the ratio of assets generated based on the borrowing capacity to total borrowings capacity for the period. In addition, certain general and administrative costs related to corporate and shared service functions previously allocated to the mobile healthcare reportable segment are included in discontinued operations.
The following table presents financial results of DMS Health for the three and nine months ended September 30, 2021 and 2020 business2021. There have been no activities for the nine months ended September 30, 2022 (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Total revenues$— $9,035 $9,490 $26,534 
Total cost of revenues— 7,880 6,973 23,329 
Gross profit— 1,155 2,517 3,205 
Operating expenses:
    Selling, general and administrative— 1,038 1,469 3,484 
    Amortization of intangible assets— 241 — 724 
        Total operating expenses— 1,279 1,469 4,208 
(Loss) income from discontinued operations— (124)1,048 (1,003)
Interest expense, net— (47)(180)(206)
Gain on sale of discontinued operations— — 5,159 — 
(Loss) income from discontinuing operations before income taxes— (171)6,027 (1,209)
Income tax benefit (expense)— 5 (72)(18)
(Loss) income from discontinuing operations$— $(166)$5,955 $(1,227)

1718

The following represents the carrying amounts of the major classes of assets reported as “Assets held for sale” as of December 31, 2020 (in thousands):
December 31, 2020
Cash and cash equivalents$443 
Accounts receivable, net4,305 
Inventories, net50 
Other current assets459 
Property and equipment, net7,721 
Operating lease right-of-use assets, net4,863 
Intangible assets, net2,915 
$20,756 
The following represents the carrying amounts of the major classes of liabilities reported as “Liabilities held for sale” as of December 31, 2020 (in thousands):
December 31, 2020
Accounts payable$1,597 
Accrued compensation645 
Deferred revenue96 
Operating lease liabilities4,863 
Other current liabilities560 
Deferred tax liabilities16 
Other liabilities94 
$7,871 
Three Months Ended September 30,Nine Months Ended September 30,
20212021
Total revenues$— $9,490 
Total cost of revenues— 6,973 
Gross profit— 2,517 
Operating expenses:
    Selling, general and administrative— 1,469 
        Total operating expenses— 1,469 
Income from discontinued operations— 1,048 
Interest expense, net— (180)
Gain on sale of discontinued operations— 5,159 
Income from discontinuing operations before income taxes— 6,027 
Income tax expense— (72)
Income from discontinuing operations$— $5,955 

18

The following table presents the significant non-cash operating, investing and financing activities from discontinued operations for the nine months ended September 30, 2021 and 2020 (in thousands):
Nine Months Ended September 30,
20212020
Operating activities
Depreciation$7 $3,406 
Amortization of intangible assets— 724 
Non-cash lease expense256 176 
Loss on extinguishment of debt130 — 
Gain on sale of DMS discontinued operations(5,159)— 
Share-based compensation2 11 
Loss on disposal of assets1 172 
Provision for bad debt— 3 
Investing activities
Purchase of property and equipment(154)(529)
Proceeds from sale of discontinued operations18,750 — 
Proceeds from sale of property and equipment3 142 
Non-Cash Investing Activities
Fixed asset purchases in accounts payable— 150 
Lease assets obtained in exchange for new operating lease liabilities— 741 
Nine Months Ended September 30,
2021
Operating activities
Depreciation$7 
Non-cash lease expense256 
Write-off of borrowing costs130 
Gain on sale of DMS discontinued operations(5,159)
Investing activities
Purchase of property and equipment(154)
Proceeds from sale of discontinued operations18,750 
Proceeds from sale of property and equipment3 

Following is the reconciliation of purchase price to the gain recognized in income from discontinued operations for the nine months ended September 30, 2021 (in thousands):

Estimated proceeds of the disposition, net of transaction costs$18,750 
Assets of the businesses(20,920)
Liabilities of the businesses7,712 
Transaction expenses(383)
Pre-tax gain on the disposition$5,159 

In April 2021, DMS Health contracted Digirad Imaging Solutions for a term of three years to purchase radiopharmaceuticals doses, resulting in $1.1 million of revenues for the nine months ended September 30, 2022.

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Note 3. Revenue
Healthcare Product and Product-Related Revenues and Services Revenue
Healthcare product and product-related services revenue are generated from the sale of gamma cameras, accessories and post-warranty maintenance service contracts within our Diagnostic Imaging reportable segment.
Healthcare Imaging services revenue are generated from providing diagnostic imaging services to customers within our Diagnostic Services reportable segment. Services revenue also includes lease income generated from camera rentals of imaging systems to our customers.
Construction
Construction revenue is generated from selling modular buildings for both single-family residential homes, larger commercial building projects and selling building materials and products, structural wall panels, permanent wood foundation systems and other engineered wood products.
Investments
Star Real Estate Holdings USA, Inc. (“SRE”) generates revenue from the lease of commercial properties and equipment and Lone Star Value Management, LLC (“LSVM”), a Connecticut based exempt reporting advisor provided services that included investment advisory services, and the servicing of pooled investment vehicles.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.
The majority of our contracts have a single performance obligation, as we provide a series of distinct goods or services that are substantially the same and are transferred with the same pattern to the customer. For contracts with multiple performance obligations, we allocate the total transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available. For bill and hold sales, we determine when the customer obtains control of the product on a case-by-case basis to determine the amount of revenue to recognize each period.
Revenue recognition is evaluated on a contract by contract basis. Performance obligations are satisfied over time as work progresses or at a point-in-time. A performance obligation is satisfied over time if we have an enforceable right to payment. Determining if there is an enforceable right to is assessed on a contract by contract basis. For contracts requiring over time revenue recognition, the selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We use a cost-based input measurement of progress because it best depicts the transfer of assets to the customer, which occurs as costs are incurred during the manufacturing process or as services are rendered. Under the cost-based measure of progress, the extent of progress towards completion is measured based on the costs incurred to date.
Our products are generally not sold with a right of return and we do not provide significant credits or incentives, which may be a variable consideration when estimating the amount of revenue to be recognized.

20

Disaggregation of Revenue
The following tables present our revenues for the three and nine months ended September 30, 20212022 and 2020,2021, disaggregated by major source (in thousands):
Three Months Ended September 30, 2021Three Months Ended September 30, 2022
Diagnostic ServicesDiagnostic ImagingConstructionTotalHealthcareConstructionTotal
Major Goods/Service LinesMajor Goods/Service LinesMajor Goods/Service Lines
Mobile ImagingMobile Imaging$11,036 $— $— $11,036 Mobile Imaging$9,867 $— $9,867 
CameraCamera— 2,057 — 2,057 Camera1,302 — 1,302 
Camera SupportCamera Support— 1,652 — 1,652 Camera Support1,853 — 1,853 
Healthcare Revenue from Contracts with CustomersHealthcare Revenue from Contracts with Customers11,036 3,709 — 14,745 Healthcare Revenue from Contracts with Customers13,022 — 13,022 
Lease IncomeLease Income62 — 062 Lease Income115 — 115 
ConstructionConstruction— — 14,052 14,052 Construction— 11,107 11,107 
Total RevenuesTotal Revenues$11,098 $3,709 $14,052 $28,859 Total Revenues$13,137 $11,107 $24,244 
Timing of Revenue RecognitionTiming of Revenue RecognitionTiming of Revenue Recognition
Services and goods transferred over timeServices and goods transferred over time$8,346 $1,540 $232 $10,118 Services and goods transferred over time$10,072 $3,816 $13,888 
Services and goods transferred at a point in timeServices and goods transferred at a point in time2,752 2,169 13,820 18,741 Services and goods transferred at a point in time3,065 7,291 10,356 
Total RevenuesTotal Revenues$11,098 $3,709 $14,052 $28,859 Total Revenues$13,137 $11,107 $24,244 

Three Months Ended September 30, 2020Three Months Ended September 30, 2021
Diagnostic ServicesDiagnostic ImagingConstructionInvestmentsTotalHealthcareConstructionTotal
Major Goods/Service LinesMajor Goods/Service LinesMajor Goods/Service Lines
Mobile ImagingMobile Imaging$10,590 $— $— $— $10,590 Mobile Imaging$11,036 $— $11,036 
CameraCamera— 540 — — 540 Camera2,057 — 2,057 
Camera SupportCamera Support— 1,508 — — 1,508 Camera Support1,652 — 1,652 
Healthcare Revenue from Contracts with CustomersHealthcare Revenue from Contracts with Customers10,590 2,048 — — 12,638 Healthcare Revenue from Contracts with Customers14,745 — 14,745 
Lease IncomeLease Income121 — 56 — 177 Lease Income62 — 62 
ConstructionConstruction— — 8,486 — 8,486 Construction— 14,052 14,052 
Investments— — — 17 17 
Total RevenuesTotal Revenues$10,711 $2,048 $8,542 $17 $21,318 Total Revenues$14,807 $14,052 $28,859 
Timing of Revenue RecognitionTiming of Revenue RecognitionTiming of Revenue Recognition
Services and goods transferred over timeServices and goods transferred over time$10,711 $1,439 $57 $— $12,207 Services and goods transferred over time$11,384 $232 $11,616 
Services and goods transferred at a point in timeServices and goods transferred at a point in time— 609 8,485 17 9,111 Services and goods transferred at a point in time3,423 13,820 17,243 
Total RevenuesTotal Revenues$10,711 $2,048 $8,542 $17 $21,318 Total Revenues$14,807 $14,052 $28,859 















21

20

Nine Months Ended September 30, 2021
Diagnostic ServicesDiagnostic ImagingConstructionTotal
Major Goods/Service Lines
Mobile Imaging$32,903 $— $— $32,903 
Camera— 4,943 — 4,943 
Camera Support— 4,961 — 4,961 
Healthcare Revenue from Contracts with Customers32,903 9,904 — 42,807 
Lease Income177 041 218 
Construction— — 33,994 33,994 
Total Revenues$33,080 $9,904 $34,035 $77,019 
Timing of Revenue Recognition
Services and goods transferred over time$30,328 $4,561 $3,180 $38,069 
Services and goods transferred at a point in time2,752 5,343 30,855 38,950 
Total Revenues$33,080 $9,904 $34,035 $77,019 

Nine Months Ended September 30, 2020Nine Months Ended September 30, 2022
Diagnostic ServicesDiagnostic ImagingConstructionInvestmentsTotalHealthcareConstructionTotal
Major Goods/Service LinesMajor Goods/Service LinesMajor Goods/Service Lines
Mobile ImagingMobile Imaging$28,181 $— $— $— $28,181 Mobile Imaging$31,096 $— $31,096 
CameraCamera— 2,553 — — 2,553 Camera3,895 — 3,895 
Camera SupportCamera Support— 4,689 — — 4,689 Camera Support5,199 — 5,199 
Healthcare Revenue from Contracts with CustomersHealthcare Revenue from Contracts with Customers28,181 7,242 — — 35,423 Healthcare Revenue from Contracts with Customers40,190 — 40,190 
Lease IncomeLease Income484 — 203 — 687 Lease Income277 — 277 
ConstructionConstruction— — 18,858 — 18,858 Construction— 39,544 39,544 
Investments— — — 50 50 
Total RevenuesTotal Revenues$28,665 $7,242 $19,061 $50 $55,018 Total Revenues$40,467 $39,544 $80,011 
Timing of Revenue RecognitionTiming of Revenue RecognitionTiming of Revenue Recognition
Services and goods transferred over timeServices and goods transferred over time$28,665 $4,444 $203 $— $33,312 Services and goods transferred over time$31,727 $11,569 $43,296 
Services and goods transferred at a point in timeServices and goods transferred at a point in time— 2,798 18,858 50 21,706 Services and goods transferred at a point in time8,740 27,975 36,715 
Total RevenuesTotal Revenues$28,665 $7,242 $19,061 $50 $55,018 Total Revenues$40,467 $39,544 $80,011 

Nine Months Ended September 30, 2021
HealthcareConstructionTotal
Major Goods/Service Lines
Mobile Imaging$32,903 $— $32,903 
Camera4,943 — 4,943 
Camera Support4,961 — 4,961 
Healthcare Revenue from Contracts with Customers42,807 — 42,807 
Lease Income177 41 218 
Construction— 33,994 33,994 
Total Revenues$42,984 $34,035 $77,019 
Timing of Revenue Recognition
Services and goods transferred over time$34,529 $3,180 $37,709 
Services and goods transferred at a point in time8,455 30,855 39,310 
Total Revenues$42,984 $34,035 $77,019 
We have corrected an immaterial disclosure error in the previously disclosed disaggregated revenue balances relating to the timing of revenue for the nine months ended September 30, 2021. For the nine months ended September 30, 2021, the amount of $0.4 million was revised from over time to point in time related to revenue recognition in the table above. Healthcare for goods transferred over time decreased by $0.4 million, with a corresponding increase to revenue recognized for goods and services transferred at a point in time. The adjustments did not impact the total amount of revenue or the period in which it was recognized, therefore, they had no effect on the condensed Consolidated Balance Sheets, Statements of Operations and Cash Flows for the periods presented.
Nature of Goods and Services
Mobile Imaging
Within our Diagnostic ServicesHealthcare segment, our sales are derived from providing services and materials to our customers, primarily physician practices and hospitals that allow them to perform diagnostic imaging services at their site. We typically bundle our services in providing staffing, our imaging systems, licensing, radiopharmaceuticals, and supplies depending on our customers’ needs. Our contracts with customers are typically entered into annually and are billed on a fixed rate per-day or per-scan basis, depending on terms of the contract. For the majority of these contracts, we have the right to invoice the customer in an amount that directly corresponds with the value to the customer as we perform the services. We use the practical expedient to recognize revenue corresponding with amounts we have the right to invoice for services performed.
Camera
22

21

Camera
Within our Diagnostic ImagingHealthcare segment, camera revenues are generated from the sale of internally developed solid-state gamma camera imaging systems and accessories. We recognize revenue upon transfer of control to the customer at a point-in-time, which is generally upon delivery and acceptance. We also provide installation services and training on cameras we sell, primarily in the United States. Installation and initial training is generally performed shortly after delivery. We recognizesrecognize revenues for installation and training over time as the customer receives and consumes benefits provided as we perform the installation services.
Our sale of imaging systems includes a one-year assurance-type warranty. The estimated costs associated with our standard warranties and field service actions continue to be recognized as expense when cameras are sold. Maintenance service contracts sold beyond the term of our standard warranties are accounted for as a service-type warranty and revenue is deferred and recognized ratably over the period of the warranty obligation.
Camera Support
Within our Diagnostic ImagingHealthcare segment, camera support revenue is derived from the sale of separately-priced extended maintenance contracts to camera owners, training, and the sale of parts to customers that do not have an extended warranty. Our separately priced service contracts range from 12 to 48 months. Service contracts are usually billed at the beginning of the contract period or at periodic intervals (e.g., monthly, quarterly, or annually) and revenue is recognized ratably over the term of the agreement.
Services and training revenues are recognized in the period the services and training are performed. Revenue for sales of parts are recognized when the parts are delivered to the customer and control is transferred.
Lease Income
Within our Diagnostic ServiceHealthcare segment, we also generate income from rentals of state-of-the-art equipment including cameras and ultrasound machines to customers. Rental contracts are structured as either a weekly or monthly payment arrangement and are accounted for as operating leases. Revenues are recognized on a straight-line basis over the term of the rental.
Construction
Within the Construction segment, we service residential and commercial construction projects by manufacturing modular housing units and other products and supplysupplying general contractors with building materials. KBS manufactures modular buildings for both single-family residential homes and larger, commercial building projects. EdgeBuilder manufactures structural wall panels, permanent wood foundation systems and other engineered wood products, and Glenbrook is a retail supplier of lumber and other building supplies. Revenues are evaluated on a contract by contract basis. In general, construction revenues are recognized upon transfer of control to the customer at a point-in-time, which is generally upon delivery and acceptance. However, construction revenues are recognized over time for arrangements with customers for which: (i) performance does not create an asset with an alternative use, and (ii) we have an enforceable right to payment for performance completed to date.
Deferred Revenues
We record deferred revenues when cash payments are received in advance of our performance. We have determined our contracts do not include a significant financing component. The majority of our deferred revenue relates to payments received on camera support post-warranty service contracts, which are billed at the beginning of the contract period or at periodic intervals (e.g., monthly, quarterly, or annually).Revenue
Changes in the deferred revenuesrevenue for nine months ended September 30, 2021,2022, is as follows (in thousands):
Balance at December 31, 20202021$2,3522,869 
Revenue recognized that was included in balance at beginning of the year(1,897)(1,965)
Deferred revenue, net, related to contracts entered into during the year3,5913,209 
Balance at September 30, 2022$4,113 
As of September 30, 2022 and December 31, 2021, non-current deferred revenue was $312 thousand and $412 thousand, respectively, in other liabilities within our condensed Consolidated Balance Sheets, which is expected to be recognized over a period of 2-4 years.
Billings in Excess of Costs and Estimated Profit
Changes in the billings in excess of costs and estimated profit for nine months ended September 30, 2022 is as follows (in thousands):
Balance at September 30,December 31, 2021$4,046312 
Revenue recognized that was included in balance at beginning of the year(312)
Billings in excess of costs, related to contracts entered into during the year— 
Balance at September 30, 2022$— 
Included in the balances above as of September 30, 2021 and December 31, 2020 is non-current deferred revenue included in other liabilities of $0.4 million and $0.2 million, respectively.
We have elected to use the practical expedient under ASC 606 to exclude disclosures of unsatisfied remaining performance obligations for (i) contracts having an original expected length of one year or less or (ii) contracts for which the practical expedient has been applied to recognize revenue at the amount for which it has a right to invoice.
23

Contract Costs
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We apply a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less. These costs mainly include our internal sales commissions; under the terms of these programs these are generally earned and the costs are recognized at the time the revenue is recognized.
2422

Note 4. Basic and Diluted Net Income (Loss) Per Share
We present net income (loss) per share attributable to common stockholders in conformity with the two-class method required for participating securities, as the warrants are considered participating securities. We have not allocated net loss attributable to common stockholders to warrants because the holders of our warrants are not contractually obligated to share in our losses. Basic net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per share attributable to common stockholders is calculated to give effect to all potential shares of common stock, including common stock issuable upon exercise of warrants, stock options, and restricted stock units (“RSUs”). In periods for which there is a net loss, diluted loss per common share is equal to basic loss per common share, since the effect of including any common stock equivalents would be antidilutive.
The following table sets forth the reconciliation of shares used to compute basic and diluted net (loss) or income per share for the periods indicated (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Numerator:
   Loss from continuing operations, net of tax$(2,141)$(1,594)$(4,520)$(4,773)
    (Loss) income from discontinued operations, net of tax— (166)5,955 (1,227)
Net (loss) income(2,141)(1,760)1,435 (6,000)
   Deemed dividend on Series A perpetual preferred stock(479)(474)(1,437)(1,442)
Net (loss) income attributable to common shareholders$(2,620)$(2,234)$(2)$(7,442)
Denominator:
Weighted average shares outstanding - basic and diluted5,101 4,724 5,019 3,280 
Net (loss) income per share - basic and diluted
Net loss per share, continuing operations$(0.42)$(0.34)$(0.90)$(1.46)
Net (loss) income per share, discontinued operations$— $(0.04)$1.19 $(0.37)
Net (loss) income per share - basic and diluted$(0.42)$(0.37)$0.29 $(1.83)
Deemed dividend on Series A perpetual preferred stock per share$(0.09)$(0.10)$(0.29)$(0.44)
Net (loss) income per share, attributable to common shareholders - basic and diluted$(0.51)$(0.47)$— $(2.27)
Three Months Ended
September 30		Nine Months Ended
September 30
2022202120222021
Numerator:
Income (loss) from continuing operations, net of tax$(1,884)$(2,141)$(7,161)$(4,520)
Income (loss) from discontinued operations, net of tax— — — 5,955 
Net income (loss)(1,884)(2,141)(7,161)1,435 
Deemed dividend on Series A perpetual preferred stock(479)(479)(1,437)(1,437)
Net income (loss) attributable to common shareholders$(2,363)$(2,620)$(8,598)$(2)
Denominator:
Weighted average common shares outstanding15,109 5,101 14,208 5,019 
Weighted average prefunded warrants outstanding325 — 295 — 
Weighted average shares outstanding - basic and diluted15,434 5,101 14,503 5,019 
Net income (loss) per share—basic and diluted
Net income (loss) per share, continuing operations$(0.12)$(0.42)$(0.49)$(0.90)
Net income (loss) per share, discontinued operations$— $— $— $1.19 
Net income (loss) per share—basic and diluted*$(0.12)$(0.42)$(0.49)$0.29 
Deemed dividend on Series A cumulative perpetual preferred stock per share$(0.03)$(0.09)$(0.10)$(0.29)
Net income (loss) per share, attributable to common shareholders—basic and diluted*$(0.15)$(0.51)$(0.59)$— 
*Earnings per share may not add due to rounding
Antidilutive common stock equivalents are excluded from the computation of diluted loss per share. Stock options and restricted stock units are antidilutive when the assumed proceeds per share are greater than the average market price of the common shares. In addition, in periods where net losses are incurred, stock options and restricted stock units with assumed proceeds per share less than the average market price of the common shares become antidilutive as well. The computation of diluted earnings per share excludes stock options, RSUs, and stock unitswarrants that are anti-dilutive. The following common stock equivalents were anti-dilutive (in thousands):

Three Months Ended September 30,		Nine Months Ended September 30,Three Months Ended
September 30		Nine Months Ended
September 30
20212020202120202022202120222021
Stock optionsStock options11 36 19 45 Stock options3 11 5 19 
Restricted stock unitsRestricted stock units67 23 73 28 Restricted stock units109 67 128 73 
Stock warrantsStock warrants730 2,102 783 999 Stock warrants11,865 730 10,843 783 
TotalTotal808 2,161 875 1,072 Total11,977 808 10,976 875 

As of September 30, 2021, 1.0 millionwarrants were exercised and 1.5 million warrants remained outstanding at an exercise price of $2.25.
2523

Note 5. Supplementary Balance Sheet Information
Inventories
The components of inventories are as follows (in thousands):
September 30, 2021December 31, 2020September 30, 2022December 31, 2021
Raw materialsRaw materials$6,468 $5,489 Raw materials$8,122 $5,870 
Work-in-processWork-in-process2,579 2,821 Work-in-process3,078 2,145 
Finished goodsFinished goods1,249 1,876 Finished goods2,184 830 
Total inventoriesTotal inventories10,296 10,186 Total inventories13,384 8,845 
Less reserve for excess and obsolete inventoriesLess reserve for excess and obsolete inventories(316)(399)Less reserve for excess and obsolete inventories(319)(320)
Total inventories, netTotal inventories, net$9,980 $9,787 Total inventories, net$13,065 $8,525 
Property and Equipment
Property and equipment consist of the following (in thousands):
September 30, 2021December 31, 2020September 30, 2022December 31, 2021
LandLand$805 $805 Land$805 $805 
Buildings and leasehold improvementsBuildings and leasehold improvements4,771 4,771 Buildings and leasehold improvements4,843 4,823 
Machinery and equipmentMachinery and equipment27,359 29,375 Machinery and equipment25,088 24,881 
Total property and equipment32,935 34,951 
Less accumulated depreciation(23,805)(25,189)
Computer hardware and softwareComputer hardware and software2,451 2,387 
Gross property and equipmentGross property and equipment33,187 32,896 
Accumulated depreciationAccumulated depreciation(24,688)(23,978)
Total property and equipment, netTotal property and equipment, net$9,130 $9,762 Total property and equipment, net$8,499 $8,918 
On June 9, 2021,we, through our subsidiary 947 Waterford Road, LLC, entered into a contract for the sale of commercial real estate (the "Waterford Sale Agreement"), pursuant to which we will sell 947 Waterford Road, in the Town of Waterford, Oxford County, and State of Maine, together with any fixtures and other items of real property situated thereon to Barnum. The total consideration related to the Waterford Sale Agreement is $1.2 million in cash, which will be paid at the closing. Expected closing date will be in the fourth quarter of 2021.
As of September 30, 2021,2022, the Waterford property hasnon-operating land and buildings, held for investments, had a carry value of $1.0$1.9 million and iswas included within property and equipment as held for sale on the unaudited consolidated balance sheet.condensed Consolidated Balance Sheet.
Warranty Reserves
In our Healthcare division, we generally provide a 12-month assurance warranty on our gamma cameras. We accrue the estimated cost of this warranty at the time revenue is recorded and charge warranty expense to product and product-related cost of revenues. Warranty reserves are established based on historical experience with failure rates and repair costs and the number of systems covered by warranty. Warranty reserves are depleted as gamma cameras are repaired. The Waterford Sale Agreement includes customary representations, warranties, covenants,costs consist principally of materials, personnel, overhead, and indemnification obligationstransportation. We review warranty reserves quarterly and make adjustments, as necessary.
Within our Construction division, KBS provides a limited assurance warranty on its residential homes that covers substantial defects in materials or workmanship for a period of 12 months after delivery to the parties.owner. EBGL provides a limited warranty on the sale of its wood foundation products that covers leaks resulting from defects in workmanship for a period of twenty-five years. Estimated warranty costs are accrued in the period that the related revenue is recognized.
The activities related to our warranty reserve for the period ended September 30, 2022 and year ended December 31, 2021 are as follows (in thousands):
September 30, 2022December 31, 2021
Balance at the beginning of year$569 $214 
Charges to cost of revenues49 963 
Applied to liability(371)(608)
Balance at the end of period$247 $569 

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Note 6. Leases
Lessee
We have operating and finance leases for corporate offices, vehicles, and certain equipment. Our leases have remaining lease terms of 1 year to 10 years, some of which include options to extend the leases and some of which include options to terminate the leases within 1 year. Operating leases and finance leases are included separately in the unaudited condensed consolidated balance sheets and finance lease assets are included in property and equipment with the related liabilities included in other current liabilities and other liabilities in the unaudited consolidated balance sheets.
The components of lease expense are as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Operating lease cost$363 $313 $1,056 $957 
Finance lease cost:
Amortization of finance lease assets$117 $139 $393 $371 
Interest on finance lease liabilities19 22 63 68 
Total finance lease cost$136 $161 $456 $439 
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Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Operating lease cost$408 $363 $1,205 $1,056 
Finance lease cost:
Amortization of finance lease assets$132 $117 $356 $393 
Interest on finance lease liabilities13 19 44 63 
Total finance lease cost$145 $136 $400 $456 
Supplemental cash flow information related to leases from continuing operations was as follows (in thousands):

Nine  Months Ended September 30,
20212020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$867 $871 
Operating cash flows from finance leases$63 $68 
Financing cash flows from finance leases$494 $433 
Right-of-use assets obtained in exchange for lease obligations
Operating leases$1,532 $596 

Nine Months Ended September 30,
20222021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$885 $867 
Operating cash flows from finance leases$44 $63 
Financing cash flows from finance leases$466 $494 
Right-of-use assets obtained in exchange for lease obligations
Operating leases$1,436 $1,532 
Supplemental balance sheet information related to leases was as follows (in thousands):
September 30,
2021		December 31,
2020
Operating lease right-of-use assets, net$3,692 $1,769 
Operating lease liabilities$1,043 $1,011 
Operating lease liabilities, net of current2,700 828 
Total operating lease liabilities$3,743 $1,839 
Finance lease assets$2,807 $2,765 
Finance lease accumulated amortization(1,285)(791)
Finance lease assets, net$1,522 $1,974 
Finance lease liabilities$616 $594 
Finance lease liabilities, net of current793 937 
Total finance lease liabilities$1,409 $1,531 
Weighted average remaining lease term (in years)
Operating leases3.92.3
Finance leases2.72.8
Weighted average discount rate
Operating leases3.96 %5.53 %
Finance leases5.23 %6.44 %
September 30,
2022		December 31,
2021
Weighted average remaining lease term (in years)
Operating leases3.83.9
Finance leases2.32.6
Weighted average discount rate
Operating leases4.63 %4.23 %
Finance leases5.98 %5.05 %
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We are committed to making future cash payments on non-cancelable operating leases and finance leases (including interest). The future minimum lease payments due under both non-cancelable operating leases and finance leases having initial or remaining lease terms in excess of one year as of September 30, 20212022 were as follows (in thousands):
Operating
Leases		Finance
Leases		Operating Leases
Finance Leases
2021 (excludes the nine-months ended September 30, 2021)$312 $190 
20221,123 618 
2022 (excludes the nine months ended September 30, 2022)2022 (excludes the nine months ended September 30, 2022)$408 $147 
20232023957 391 20231,587 428 
20242024851 236 20241,427 274 
2025 and thereafter800 70 
20252025905 106 
20262026590 16 
2027 and thereafter2027 and thereafter361 1 
Total future minimum lease paymentsTotal future minimum lease payments4,043 1,505 Total future minimum lease payments5,278 972 
Less amounts representing interestLess amounts representing interest300 96 Less amounts representing interest372 53 
Present value of lease obligationsPresent value of lease obligations$3,743 $1,409 Present value of lease obligations$4,906 $919 

Lessor

In the Healthcare division, weWe generate lease income in the Diagnostic ServicesHealthcare segment from equipment rentals to customers. Rental contracts are structured as either a weekly or monthly payment arrangement and are accounted for as operating leases. Revenues are recognized on a straight-line basis over the term of the rental. During the nine months ended September 30, 20212022 and 2020,2021, our lease contracts arewere mainly month to monthmonth-to-month contracts.

Note 7. Financial InstrumentsFair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Financial Accounting Standards Board’s authoritative guidance for fair value measurements establishes a three-level hierarchy based upon the inputs to the valuation model of an asset or liability. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are inputs other than quoted prices that are significant and observable; and Level 3 inputs are significant unobservable inputs to be used in situations where markets do not exist or illiquid. The following table presents information about our financial assets that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques we utilize to determine such fair value at September 30, 20212022 and December 31, 20202021 (in thousands):
Fair Value as of September 30, 2021Fair Value as of September 30, 2022
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:
Assets (Liabilities):Assets (Liabilities):
Equity securitiesEquity securities$51 $42 $— $93 Equity securities$3,180 $— $— $3,180 
Lumber derivative contractsLumber derivative contracts186 — — 186 Lumber derivative contracts(635)— — (635)
VIE InvestmentsVIE Investments— — 337 337 
TotalTotal$237 $42 $— $279 Total$2,545 $— $337 $2,882 
Fair Value as of December 31, 2020Fair Value as of December 31, 2021
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:
Assets (Liabilities):Assets (Liabilities):
Equity securitiesEquity securities$35 $55 $— $90 Equity securities$47 $— $— $47 
Lumber derivative contractsLumber derivative contracts666 — — 666 
VIE InvestmentsVIE Investments— — 337 337 
TotalTotal$35 $55 $— $90 Total$713 $— $337 $1,050 

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The investment in equity securities consists of common stock of publicly traded companies. The fair value of these securities is based on the closing prices observed on September 30, 20212022 and December 31, 2020, respectively.2021, respectively, and recorded in Investments in the Consolidated Balance Sheets. During the nine months ended September 30, 2022 and 2021, we recorded an unrealized loss of $834 thousand and unrealized gain of $30 thousand, respectively, recorded in other (expense) income, net in the condensed Consolidated Statements of Operations.
We occasionallymay enter into lumber derivative contracts in order to protect our gross profit margins from fluctuations caused by volatility in lumber prices. At December 31, 2020, we had no lumber derivative contracts. Duringprice, recorded within current assets or liabilities in the condensed Consolidated Balance Sheets. For the nine months ended September 30, 2022 and 2021, we recorded a net loss of $1.8 million and $0.4 million, respectively, in the cost of goods sold ofin the condensed unaudited consolidated statementConsolidated Statements of operations. AtOperations. As of September 30, 2022, we had a net long (buying) position of 2,310,000 board feet under 21 lumber derivatives contracts. As of December 31, 2021, we had a net long (buying) position of 550,0002,420,000 board feet pursuant to 15under 22 lumber derivatives contracts.
TheGains and losses from lumber derivative contracts are recorded in cost of goods sold of the condensed Consolidated Statements of Operations and included the following for the nine months ended September 30:
September 30, 2022September 30, 2021
AmountAmount
Unrealized loss on lumber derivatives$1,298 $322 
Realized loss on lumber derivatives549 76
Total loss on lumber derivatives$1,847 $398 
The fair value of VIE investments of $0.3 million recorded in other assets on our consolidated balance sheet. We did not reclassify any investments between levelsOther Assets in the fair value hierarchy duringConsolidated Balance Sheets is based on unobservable inputs evaluated on September 30, 2022 and December 31, 2021, respectively. During the three and nine months ended September 30, 2021. The fair values2022 and 2021, there were no realized or unrealized gains, losses, or impairments recorded in the condensed Consolidated Statements of our revolving credit facility approximate carrying value due to the variable rate nature of these borrowings.
Operations. See Note 16.
Variable Interest Entity for further details.
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Note 8. Debt
A summary of debt as of September 30, 20212022 and December 31, 2020 are2021 is as follows (dollars in thousands):
September 30, 2021December 31, 2020
AmountWeighted-Average Interest RateAmountWeighted-Average Interest Rate
Revolving Credit Facility - Gerber KBS$3,452 6.00%$1,099 6.00%
Revolving Credit Facility - Gerber EBGL2,036 6.00%2,016 6.00%
Revolving Credit Facility - SNB7,398 2.58%12,710 2.64%
Total Short-term Revolving Credit Facility$12,886 4.04%$15,825 3.30%
Gerber - Star Term Loan$1,140 6.25%$262 6.75%
Premier - Term Loan— —%419 5.75%
Total Short Term Debt$1,140 6.25%$681 6.13%
Short-term Paycheck Protection Program Notes$— —%$1,856 1.00%
Short-term debt and current portion of long-term debt$14,026 4.22%$18,362 3.17%
Gerber - Star Term Loan$— —%$1,058 6.75%
Premier - Term Loan— —%321 5.75%
Total Long Term Debt$— —%$1,379 6.52%
Long-term Paycheck Protection Program Notes$— —%$2,321 1.00%
Long-term debt, net of current portion$— —%$3,700 3.06%
LSV Co-Invest I Promissory Note (“January Note”)$— —%$709 12.00%
LSV Co-Invest I Promissory Note (“June Note”)— —%1,220 12.00%
LSVM Note— —%378 12.00%
Total Notes Payable To Related Parties (1)
$— —%$2,307 12.00%
Total Debt$14,026 4.22%$24,369 3.99%
September 30, 2022December 31, 2021
AmountWeighted-Average Interest RateAmountWeighted-Average Interest Rate
Revolving Credit Facility - eCapital KBS$909 9.00%$3,131 6.00%
Revolving Credit Facility - eCapital EBGL2,595 9.00%1,652 6.00%
Revolving Credit Facility - Webster7,484 5.64%7,016 2.60%
Total Short-term Revolving Credit Facilities$10,988 6.71%$11,799 3.98%
eCapital - Star Loan Principal, net$864 9.25%$1,070 6.25%
Short Term Loan$864 9.25%$1,070 6.25%
Total Short-term debt$11,852 6.90%$12,869 4.17%
(1) See Note 12. Related Party Transactions, for information regarding certain ATRM promissory notes that were outstanding.
Term Loan Facilities
As of September 30, 2021, the short-term debt includes $1.1 million of the Gerber Star term loan, net of issuance costs.
The following table presents the Star term loan balance net of unamortized debt issuance costs as of September 30, 2021 (in thousands):
September 30, 2021
Amount
Gerber - Star Term Loan Principal$1,346 
Unamortized debt issuance costs(206)
Total$1,140 
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SterlingWebster Credit Facility
On March 29, 2019, the Company entered into a Loan and Security Agreement (the “SNB“Webster Loan Agreement”) by and among certain subsidiaries of the Company, as borrowers (collectively, the “SNB“Webster Borrowers”); the Company, as guarantor; and Sterling National Bank (“Sterling”). On February 1, 2022, Sterling became part of Webster, and Webster became the

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successor in interest to the Webster Loan Agreement. The Webster Loan Agreement is also subject to a national banking association, as lender (“Sterling” or “SNB”).limited guarantee by Mr. Eberwein, the Executive Chairman of our board of directors.
The SNBWebster Loan Agreement is a five-year credit facility maturing in March 2024, with a maximum credit amount of $20.0 million for revolving loans (the “SNB“Webster Credit Facility”). Under the SNBWebster Credit Facility, the SNBWebster Borrowers can request the issuance of letters of credit in an aggregate amount not to exceed $0.5 million at any one time outstanding. The borrowings under the SNBWebster Loan Agreement were classified as short-term obligations under GAAP as the agreement contained a subjective acceleration clause and required a lockbox arrangement whereby all receipts within the lockbox are swept daily to reduce borrowings outstanding. As of September 30, 2021,2022, the Company had $0.1 million of letters of credit outstanding and had additional borrowing capacity of $1.7 million.$0.6 million under the Webster Credit Facility.
At the Webster Borrowers’ option, the SNBWebster Credit Facility will bear interest at either (i) a Floating LIBOR Rate, as defined in the Webster Loan Agreement, plus a margin of 2.50% per annum; or (ii) a Fixed LIBOR Rate, as defined in the Webster Loan Agreement, plus a margin of 2.25% per annum. As our largest single debt outstanding, ourOur floating rate on this facility at September 30, 20212022 was 2.58%5.64%. The Webster Loan Agreement also provides for unused line fees and restricts the usage of borrowings under the line solely to support the Healthcare businesses, subject to certain limitations.
The SNB Loan Agreement includes certain representations, warranties of SNB Borrowers, as well as events of default and certain affirmative and negative covenants by the SNB Borrowers that are customary for loan agreements of this type. These covenants include restrictions on borrowings, investments and dispositions by SNB Borrowers, as well as limitations on the SNB Borrowers’ ability to make certain distributions. Upon the occurrence and during the continuation of an event of default under the SNB Loan Agreement, SNB may, among other things, declare the loans and all other obligations under the SNB Loan Agreement immediately due and payable and increase the interest rate at which loans and obligations under the SNB Loan Agreement bear interest. The SNBWebster Credit Facility is secured by a first-priority security interest in substantially all of the assets of the Company andDigirad Health businesses.
Financial covenants require that the SNBWebster Borrowers andmaintain (a) a pledge of all sharesFixed Charge Coverage Ratio as of the SNB Borrowers.
On March 29, 2019, in connection with the Company’s entry into the SNB Loan Agreement, Jeffery E. Eberwein, the Executive Chairmanlast day of a fiscal quarter of not less than 1.25 to 1.0 and (b) a Leverage Ratio as of the Company’s boardlast day of directors, entered into Limited Guaranty Agreement (the “SNB Eberwein Guaranty”) with SNB pursuantsuch fiscal quarter of no greater than 3.50 to which he guaranteed the prompt performance1.0. As of all the Borrowers’ obligations under the SNB Loan Agreement. The SNB Eberwein Guaranty is limited in the aggregate to the amount of (a) $1.5 million, plus (b) reasonable costs and expenses of SNB incurred in connection with the SNB Eberwein Guaranty. Mr. Eberwein’s obligations under the SNB Eberwein Guaranty terminate uponSeptember 30, 2022, the Company and Borrowers achieving certain milestones set forth therein.
On February 1, 2021, in connection with the closing of the Company’s sale of MD Office Solutions, the Company entered into a First Amendment to the SNB Loan Agreement pursuant to which, among other things, Sterling consented to the sale of MD Office Solutions and the Company’s name change from Digirad Corporation to Star Equity Holdings, Inc.
On March 31, 2021, in connection with completing the sale of DMS Health, the Company, certain subsidiaries of the Company, and Sterling entered into a Second Amendment to the SNB Loan Agreement pursuant to which, among other things, Sterling consented to the sale of DMS Health and its subsidiaries, removed DMS Health and its subsidiaries as borrowers under the SNB Loan Agreement, and required the principle to be paid down to $7.0 million.
At September 30, 2021, the Company was not in compliance with the covenants under the SNBWebster Loan Agreement.Agreement and had not yet obtained a waiver from Webster for these financial covenant breaches.

eCapital Credit Facilities
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EBGL
ConstructionEdgeBuilder and Glenbrook (the “EBGL Borrowers”) are a party to a revolving credit facility with eCapital Asset Based Lending Corp., formerly known as Gerber Finance Inc. (“eCapital”) (the “EBGL Loan Agreements
Agreement”). The facility, as amended, provides for borrowings up to $4.0 million, subject to certain borrowing base limitations. As of September 30, 2021, the Construction division had outstanding revolving lines2022, EBGL was fully drawn in terms of credit and term loans of approximately $5.5 million. This debt includes: (i) $3.5 million principal outstanding on KBS’s $4.0 million revolving credit facility under a Loan and Security Agreement, dated February 23, 2016, (as amended, the “KBS Loan Agreement”), with Gerber and (ii) $2.0 million principal outstanding on EBGL’s $3.0 million revolving credit facility under a Revolving Credit Loan Agreement, which was increased from $3.0 million to $4.0 million on July 30, 2021. The Construction division was at the maximumavailable borrowing capacity under both revolving lines of credit, based on the inventory and accounts receivable on September 30, 2021 which fluctuates weekly.
KBS Loan Agreement
On February 23, 2016, ATRM, KBS and Main Modular Haulers, Inc. (a former subsidiary of ATRM) entered into a Loan and Security Agreement, (as amended, the “KBS Loan Agreement”), with Gerber. The KBS Loan Agreement provides KBS with a revolving line of credit with borrowing availability of up to $4.0 million. Availabilityavailable under the line of credit is based on a formula tied to KBS’s eligible accounts receivable, inventory and other collateral. The KBS Loan Agreement, which was scheduled to expire on February 22, 2018, has been automatically extended for successive one (1) year periods in accordance with its terms and is now scheduled to expire on February 22, 2022. The KBS Loan Agreement will be automatically extended for another one (1) year period unless a party thereto provides prior written notice of termination. As of September 30, 2021 neither party has provided notice of termination. Upon the final expiration of the term of the KBS Loan Agreement, thefacility. Amounts outstanding principal balance isbear interest, payable in full. Borrowings bear interestmonthly, at the prime rate plus 2.75%, equating and payments of outstanding principal are due in full upon maturity. The facility is subject to 6.00% at September 30, 2021, with interest payable monthly.annual renewal and is currently set to mature on the earlier of January 31, 2023 or upon repayment of the Star Loan (see below). The KBSfacility is secured by substantially all of the assets of EBGL and borrowings under the line are restricted for use to finance the operations of EBGL.
On March 8, 2022, the EBGL Borrowers entered into the Seventh Amendment to the EBGL Loan Agreement also provides for certain fees payablewith eCapital to Gerber during its term, including a 1.5% annual facilities feeamend and a 0.10% monthly collateral monitoring fee. KBS’s obligations underlower the KBS Loan Agreement are secured by all of its assets and are guaranteed by ATRM. Unsecured promissory notes issued by KBS and ATRM are subordinatefinancial covenants to KBS’s obligations under the KBS Loan Agreement. The KBS Loan Agreement contains representations, warranties, affirmative and negative covenants, defined events of default and other provisions customary for financings of this type. Financial covenants require that KBSEBGL maintain (a) a maximum leverage ratiolower net cash income (as defined in the KBSEBGL Loan Agreement) and KBS not incur a net annual post-tax loss in any fiscal year during the term of the KBS Loan Agreement. The borrowings under the KBS Loan Agreement were classified as short-term obligations under GAAP as the agreement contained a subjective acceleration clause and required a lockbox arrangement whereby certain receipts are swept daily to reduce borrowings outstanding. At September 30, 2021, approximately $3.5 million was outstanding under the KBS Loan Agreement.
On September 10, 2019, the parties to the KBS Loan Agreement entered into the twelfth amendment to the KBS Loan Agreement (the “Twelfth KBS Amendment”), pursuant to which the Company agreed to guarantee amounts borrowed by certain ATRM’s subsidiaries from Gerber.
On January 31, 2020, the Company, ATRM, KBS and Gerber entered into a thirteenth amendment to the KBS Loan Agreement (the “Thirteenth KBS Amendment”) to amend the terms of the KBS Loan Agreement, in order to, among other things (a) amend the definitions of “Ancillary Credit Parties,” “Guarantor,” “Obligations,” and “Subordinated Lender” to address the obligations of the Star Borrowers, the EBGL Borrowers, the Star Credit Parties, and the EBGL Credit Parties under the Star Loan Agreement, EBGL Loan Agreement and the Subordination Agreements (each as defined below) to which they are a party and (b) add a new cross default provision.
On March 5, 2020, in connection with the First EBGL Amendment, Gerber, KBS, ATRM and the Company entered into a fourteenth amendment to the KBS Loan Agreement in order to, among other things consent to the First EBGL Amendment and remove cash and cash collateral from the borrowing base.
On April 1, 2020, Gerber and KBS entered into a fifteenth amendment to the KBS Loan Agreement pursuant to which the “Minimum Average Monthly Loan Amount” was decreased to twenty-five percent (25%) of the Maximum Revolving Amount.
On January 5, 2021, Gerber and KBS entered into a sixteenth amendment to the KBS Loan Agreement in order to, among other things, amend certain definitions under the KBS Loan Agreement and to increase the inventory assets against which funds can be borrowed.
On February 26, 2021 Gerber and KBS entered into a seventeenth amendment to the KBS Loan Agreement in order to provide the waiver to the 2020 covenant breach and amended the financial covenants. The financial covenants under the KBS Loan Agreement, as amended, provide that (i) KBS shall make no distribution, transfer, payment, advance, or contribution of cash or property which would constitute a restricted payment as such term is defined in the agreement; (ii) KBS shall report annual post-tax net income at least equal to (a) $385 thousandno less than $0 for the trailing 6-month period ending June 30, 20212022 and (b) $500 thousandno less than $1,000,000 for the trailing fiscal year endending December 31, 2021;2022 and (iii)(b) a reduced minimum EBITDA at June 30, 2021 of more(as defined in the EBGL Loan Agreement) to be no less than $880 thousand or at December 31, 2021 of more than $1.5 million.
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On March 31, 2021, the parties to the KBS Loan Agreement amended the KBS Loan Agreement to provide for increased availability under the KBS Loan Agreement to KBS under certain circumstances, including for new equipment additions, and certain other changes,$0 as well as a waiver of certain covenants.
As of June 30, 20212022 and no less than $1,000,000 as of the fiscal year ending December 31, 2020, KBS was not in compliance with the bi-annual financial covenants requiring no net annual post-tax income for KBS of at least $385 thousand and EBITDA to equal at least $880 thousand, during the six months ended June 30, 2021. The occurrence of any event of default under the KBS Loan Agreement may result in KBS’s obligations under the KBS Loan Agreement becoming immediately due and payable. Subsequently, we obtained a waiver from Gerber for these events.2022.
On July 30, 2021 in connection with the Fourth EBGL Amendment, Gerber, KBS, ATRM and the Company entered into an eighteenth amendment to the KBS Loan Agreement in order to, among other things, (a) confirm the cancellation of certain subordination agreements with Lone Star Value Management, LLC (“LSVM”) and Lone Star Value Co-Invest I, LP (“LSV Co-Invest I”), after the LSVM Note and LSV Co-Invest June Note and January Note were paid by the Company, (b) amend the terms of the KBS Loan Agreement, including the definitions of “Ancillary and “Subordinated Lender” to include SRE and remove LSVM and LSV Co-Invest I, and (c) add confirm certain cross-default provisions.
EBGL Premier Note
On June 30, 2017, EdgeBuilder and Glenbrook (together, EBGL) entered into a Revolving Credit Loan Agreement (as amended, the “Premier Loan Agreement”) with Premier providing EBGL with a working capital line of credit of up to $3.0 million. The Premier Loan Agreement replaced the prior revolving credit facility.
Availability under the Premier Loan Agreement is based on a formula tied to EBGL’s eligible accounts receivable, inventory and equipment, and borrowings bear interest at the prime rate plus 1.50%, with interest payable monthly and the outstanding principal balance payable upon expiration of the term of the Premier Loan Agreement. The Premier Loan Agreement also provides for certain fees payable to Premier during its term. The initial term of the Premier Loan Agreement was scheduled to expire on June 30, 2018, but was extended multiple times by Premier until January 31, 2023. EBGL’s obligations under the Premier Loan Agreement are secured by all of their inventory, equipment, accounts and other intangibles, fixtures and all proceeds of the foregoing.
On January 31, 2020, Glenbrook and EdgeBuilder entered into an Extension and Modification Agreement (the “Modification Agreement”) with Premier that modified the terms of the Revolving Credit Promissory Note made by Glenbrook and EdgeBuilder. The Modification Agreement reduced the outstanding borrowings to $1.0 million, extended the final maturity date to January 31, 2023, and set the interest rate to at 5.75% per annum. Mr. Eberwein executed a guaranty in favor of Premier, which had been extended through January 1, 2023, under which ATRM and Mr. Eberwein absolutely and unconditionally guaranteed all of EBGL’s obligations under the Premier Loan Agreement.
All obligations under the Premier Loan Agreement have been repaid in full in second quarter and no amount remains outstanding as of September 30, 2021. In exchange Premier terminated all of its security interests in the assets of EBGL.
Gerber Star and EBGL Loans
On January 31, 2020, SRE, 947 Waterford Road, LLC (“947 Waterford”), 300 Park Street, LLC (“300 Park”), and 56 Mechanic Falls Road, LLC (“56 Mechanic” and together with SRE, 947 Waterford, and 300 Park, (the “Star Borrowers”), each an Investments Subsidiary, and the Company, ATRM, KBS, EdgeBuilder, and Glenbrook (collectively, the “Star Credit Parties”), entered into a Loan and Security Agreement (as amended, the “Star Loan Agreement”) with Gerber providing the Star Borrowers with a credit facility with borrowing availability of up to $2.5 million ($2.0 million and $0.5 million to KBS and EBGL, respectively) (the “Star Loan”). The advance of $2.0 million to KBS is to be repaid in monthly installments of sixty (60) consecutive equal payments. The advance of $0.5 million to EBGL, which has been temporarily increased by $0.3 million due to be repaid on April 30, 2020, is to be repaid in monthly installments of twelve (12) consecutive equal payments. On February 20, 2020, the Star Borrowers entered into a first amendment to the Star Loan Agreement (the “First Star Amendment”) in order to (i) temporarily advance $0.3 million to EBGL, which amount is to be repaid to Gerber on or before April 30, 2020; (ii) clarify that Gerber can make multiple advances under the Star Loan Agreement, and (iii) to correct the maturity date of the Star Loan. On April 30, 2020, the Star Borrowers entered into a second amendment to the Star Loan Agreement (the “Second Star Amendment”) to change terms of repayment for the advance of $0.3 million to EBGL to provide for repayment in three consecutive equal monthly installments, commencing on May 30, 2020, with a final installment on or before July 31, 2020. EBGL paid off approximately $0.5 million of the advance in 2020 and $1.1 million was outstanding, net with deferred financing costs, under the Star Loan Agreement as of September 30, 2021.

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On January 31, 2020, EdgeBuilder and Glenbrook (the “EBGL Borrowers”), each a Construction subsidiary, and the Company, Star, 947 Waterford, 300 Park, 56 Mechanic, ATRM, and KBS (collectively, the “EBGL Credit Parties”), entered into a Loan and Security Agreement (the “EBGL Loan Agreement”) with Gerber providing the EBGL Borrowers with a credit facility with borrowing availability of up to $3.0 million (the “EBGL Loan”). On March 5, 2020,August 11, 2022, the EBGL Borrowers entered into a first amendmentthe Eighth Amendment to the EBGL Loan Agreement (the “First EBGL Amendment”) with Gerber that amended the EBGL Loan Agreement and the KBS Loan AgreementeCapital to include a pledge $0.3 million of cash collateral by LSVI under the EBGL Loan Agreement which, prior to the First EBGL Amendment, was pledged by LSVI in connection with the KBS Loan Agreement. On July 1, 2020, the EBGL Borrowers entered into a second amendment to the EBGL Loan Agreement to terminate the pledge of $0.3 million in cash collateral. On February 26, 2021, the EBGL Borrowers entered into a third amendment to the EBGL Loan Agreement (the “Third EBGL Amendment”) pursuant to which the Company and Gerber agreed to, among other things, eliminate the minimum leverage ratio covenant, lower the minimum EBITDA, and require the borrowers to not incur a net operating loss on bi-annual basis. The Third EBGL Amendment also discharged the EBGL Eberwein Guaranty described below. As of September 30, 2021, approximately $2.0 million was outstanding under the EBGL Loan Agreement.
Availability under the Star Loan Agreement is based on a formula tied to the value of real estate owned by the Star Borrowers, and borrowings bear interest at the prime rate plus 3.5% per annum. Availability under the EBGL Loan Agreement is based on a formula tied to the EBGL Borrowers’ eligible accounts receivable and inventory, and borrowings bear interest at the prime rate plus 2.75% per annum. The Loan Agreements also provide for certain fees payable to Gerber during their respective terms. The Star Loan matures on the earlier of (a) January 1, 2025 or (b) the termination, the maturity or repayment of the EBGL Loan. The EBGL Loan matures on the earlier of (a) January 1, 2022, unless extended, or (b) the termination, the maturity or repayment of the Star Loan. The maturity of the EBGL Loan is automatically extended for successive periods of one (1) year each unless terminated by Gerber or the EBGL Borrowers. The borrowings under the EBGL Loan Agreement were classified as short-term obligations under GAAP as the agreement contained a subjective acceleration clause and required a lockbox arrangement whereby all receipts are swept daily to reduce borrowings outstanding.

The obligations of the EBGL Borrowers under the EBGL Loan Agreement are guaranteed by the EBGL Credit Parties and are secured by substantially all the assets of the EBGL Borrowers and the EBGL Credit Parties. The obligations of the Star Borrowers under the Star Loan Agreement are guaranteed by the Star Credit Parties and are secured by substantially all the assets of the Star Borrowers and the Star Credit Parties. Contemporaneously with the execution and delivery of the Star Loan Agreement, Jeffrey E. Eberwein, the Executive Chairman of the Company’s board of directors, executed and delivered a Guaranty (the “Gerber Eberwein Guaranty”) to Gerber pursuant to which he guaranteed the performance of all the Star Borrowers’ obligations to Gerber under the Star Loan Agreement, including the full payment of all indebtedness owing by the Star Borrowers to Gerber under or in connection with the Star Loan Agreement and related financing documents. Mr. Eberwein’s obligations under the Gerber Eberwein Guaranty are limited in the aggregate to the amount of (a) $2.5 million, plus (b) costs of Gerber incidental to the enforcement of the Gerber Eberwein Guaranty or any guaranteed obligations. On March 5, 2020, contemporaneously with the execution and delivery of the First EBGL Amendment, Mr. Eberwein, the Executive Chairman of the Company’s board of directors, executed and delivered a Guaranty (the “EBGL Eberwein Guaranty”) to Gerber pursuant to which he guaranteed the performance of all the EBGL Borrowers’ obligations to Gerber under the EBGL Loan Agreement, including the full payment of all indebtedness owing by the EBGL Borrowers to Gerber under or in connection with the EBGL Loan Agreement and related financing documents. Mr. Eberwein’s obligations under the EBGL Eberwein Guaranty are limited in the aggregate to the amount of (a) $0.5 million, plus (b) costs of Gerber incidental to the enforcement of the EBGL Eberwein Guaranty or any guaranteed obligations.
On February 26, 2021, the Star Borrowers entered into a third amendment to the Star Loan Agreement (the “Third Star Amendment”) with Gerber that, among other things, amended the contract rate to prime rate plus 3% and discharged the $2.5 million Gerber Eberwein Guaranty.
On July 30, 2021, the Star Borrowers entered into a fourth amendment to the Star Loan Agreement (the “Fourth Star Amendment”) with Gerber, in order to increase the eligible inventory against which Gerber will advance credit to increase the line of credit from $3.0 million to $4.0 million, with a new promissory note between Gerber and EBGL, and amend the definitionlender name to eCapital Asset Based Lending Corp. formerly known as Gerber Finance, Inc. and to provide a waiver of “Subordinated Lender” to include only Star Procurement, Inc., ATRM, and the Company.
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The Star Loan Agreement and EBGL Loan Agreement contain representations, warranties, affirmative and negativecertain covenants events of default and other provisions customary for financings of this type. The financial covenants under the EBGL Loan Agreement applicable to the EBGL Borrowers include maintenance of a minimum tangible net worth, a minimum debt service coverage ratio and minimum net income. The Financial covenants under the Star Loan Agreement applicable to the Star Borrowers include a minimum debt service coverage ratio. The occurrence of any event of default under the Loan Agreements may result in the obligations of the Borrowers becoming immediately due and payable. Asviolated as of June 30, 2021, 2022.
EBGL was not in compliance with the bi-annual financial covenants under the EBGL Loan Agreement measured as of June 30, 2022. However, we obtained a waiver from eCapital for the bi-annual financial covenant breach. There can be no assurance that we will be able to obtain such waivers in the event of future financial covenant violations.
KBS
KBS is a party to a revolving credit facility with eCapital (“KBS Loan Agreement”). The facility, as amended, provides for borrowings up to $4.0 million, subject to certain borrowing base limitations. As of September 30, 2022, KBS had additional borrowing capacity of $0.2 million under the facility. Amounts outstanding bear interest, payable monthly, at the prime rate plus 2.75% and payments of outstanding principal are due in full upon maturity. The facility is subject to annual renewal and is currently set to mature on February 22, 2023. The facility is secured by the assets of KBS and borrowings under the line are restricted for use to finance the operations of KBS. As of June 30, 2022, KBS was in compliance with the bi-annual financial covenants under the KBS Loan Agreement.

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On March 8, 2022, the borrowers under the KBS Loan Agreement entered into the Nineteenth Amendment to the KBS Loan Agreement to amend the financial covenants to require that KBS maintain (a) net cash income (as defined in the KBS Loan Agreement) of at least equal to no less than $0 for the trailing 6-month period ending June 30, 2022 and be no less than $500,000 for the trailing fiscal year end and (b) a minimum EBITDA (as defined in the KBS Loan Agreement) no less than $0 as of June 30, 2022 and no less than $850,000 as of the fiscal year end, as well as a waiver of certain covenants as of December 31, 2021.
The eCapital credit facilities contain cross-default provisions and subjective acceleration clauses which may, in the event of a material adverse event, as determined by eCapital, allow eCapital to declare the loans immediately due and payable or increase the interest rate. The facilities are also subject to a guaranty by the Company and the Company is responsible for certain facility and other fees.
Borrowings under the eCapital credit facilities are classified as short-term obligations as the agreements contain a subjective acceleration clauses and require a lockbox arrangement whereby all receipts within the lockbox are swept daily to reduce borrowings outstanding.
Term Loan
We and certain of our Investments subsidiaries (collectively, the “Star Borrowers”) are party to a Loan and Security Agreement with eCapital, as successor in interest to Gerber Finance, Inc. (as amended, the “Star Loan Agreement”), which provides for a credit facility with borrowing availability of up to $2.5 million, bearing interest at the prime rate plus 3.5% per annum, and matures on January 1, 2025, unless terminated in accordance with the terms therein (the “Star Loan”).
The following table presents the Star Loan balance, net of unamortized debt issuance costs as of September 30, 2022 (in thousands):
September 30, 2022December 31, 2021
AmountAmount
eCapital - Star Loan Principal$964 $1,246 
Unamortized debt issuance costs(100)(176)
eCapital - Star Loan Principal, net$864 $1,070 
The Star Loan, as amended, requires monthly payments of principal of $33 thousand plus interest at the prime rate plus 3% per annum through the earlier of maturity in January 2025 or the termination, maturity or repayment of the EBGL credit facility.
The Star Loan is secured by the assets of SRE, 947 Waterford Road, LLC, 300 Park Street, LLC and 56 Mechanic Falls Road, LLC and guaranteed by the Company. The Star loan is subject to certain annual financial covenants. The financial covenants under the Star Loan Agreement and EBGLinclude maintenance of a Debt Service Coverage Ratio of not less than 1:00 to 1:00, as defined in the Star Loan Agreement. The occurrence of any event of default under the EBGLStar Loan Agreement may result in EBGL’s obligations under the EBGL Loan Agreement becoming immediately due and payable. In July, 2021, we obtained a waiver from Gerber for these events and, as part of the Fourth EBGL Amendment (described above).
As a condition to the extension of credit to the Star Borrowers and EBGL Borrowers under the Star Loan Agreement and EBGL Loan Agreement, the holders of certain existing unsecured promissory notes made by ATRM and certain of its subsidiaries entered into subordination agreements (the “Subordination Agreements”) with Gerber pursuant to which such noteholders (including the Company and certain of its subsidiaries) agreed to subordinate the obligations of ATRM and its subsidiaries to such noteholders to the obligations of the Star Borrowers becoming immediately due and EBGL Borrowerspayable. As of December 31, 2021, no event of default was deemed to Gerber under the loan agreements.
On October 21, 2021,have occurred and the Star Borrowers entered intowere in compliance with the fifth amendment toannual financial covenants under the Star Loan Agreement (the “Fifth Star Amendment”) with Gerber to amendmeasured as of December 31, 2021.
The outstanding balance is classified as a short-term obligation as a result of the definition of “Reserves” to include a minimum amount, subsequent to Glenbrook Building Supply, Inc. entering a new lease for a larger property.acceleration clauses within the EBGL and KBS credit facility and the cross-default provisions.
Paycheck Protection Program
From April 2020 through May 2020, the Company and its subsidiaries received $6.7 million of loans under the Paycheck Protection Program (“PPP”). Total PPP loans received by the Healthcare division and Construction division were $5.5 million and $1.2 million, respectively.
The PPP was established underDuring the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). PPP loans for the Construction and Healthcare division were made through Bremer Bank and Sterling as lenders, respectively.
The PPP loans have two-year terms and bear interest at a rate of 1.00% per annum. Monthly principal and interest payments under the PPP loans are deferred for ten months, after the end of covered periods. The PPP loans may be prepaid at any time prior to maturity with no prepayment penalties.
The promissory notes issued in connection with the PPP loans (the “PPP Notes”) contain customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or lender, or breaching the terms of the applicable PPP loan documents. Upon an event of default under a PPP Note, the lender thereunder may, among other things, require immediate payment of all amounts owing under the applicable PPP Note, collect all amounts owing from the applicable borrower, or file suit and obtain judgment.
Under the terms of the CARES Act, recipients of loans under the PPP can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. Such forgiveness is determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and certain other eligible costs. Even if forgiveness is granted the PPP loans may remain subject to review and audit for up to six (6) years.
During Q4fiscal years ended 2020 and January 2021, the Company applied for forgiveness on all PPP loans. As of Q4 2020,December 31, 2021, all PPP loans were forgiven, resulting in a gain of $4.2 million in 2021 and $2.5 million of the Healthcare division PPP Notes were forgiven. During Q2, 2021, all amounts under the Construction division and Healthcare division PPP Notes were forgiven. As of September 30, 2021, the Company has no PPP loans outstanding.in 2020.

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Note 9. Commitments and Contingencies
In the normal course of business, we have been and will likely continue to be subject to other litigation or administrative proceedings incidental to our business, such as claims related to compliance with regulatory standards, customer disputes, employment practices, wage and hour disputes, product liability, professional liability, malpractice liability, commercial disputes, licensure restrictions or denials, and warranty or patent infringement. Responding to litigation or administrative proceedings, regardless of whether they have merit, can be expensive and disruptive to normal business operations. We are not able to predict the timing or outcome of these matters and currently do not expect that the resolution of these matters will have a material adverse effect on our financial position or results of operations.
The outcome of litigation and the amount or range of potential loss at particulardifferent points in time may be difficult to ascertain. Among other things, uncertainties can include how trial and appellate courts will apply the law and interpret facts, as well as the contractual and statutory obligations of other indemnifying and insuring parties. The estimated range of reasonably possible losses, and their effect on our financial position is based upon currently available information and is subject to significant judgment and a variety of assumptions, as well as known and unknown uncertainties.

In KieferLivingston v. HeartDigirad Corporation, et. al., the District Court, N.D. Ala. entered a dismissal on September 19, 2022. In contemplation of Georgia, et tal, GA State Ct. (“Kiefer”), a judgmentdismissal, the Company agreed to settle for wrongful deathless than the anticipated cost of ongoing litigation with no admission of liability. The original complaint, filed in December 2018, alleged violations of the False Claims Act and medical expenses was entered on October 4, 2021 against a prior employee of DISStark Law beginning in the2016. The amount of $4.96 million, currently an unenforceable judgement due to several factors, including pending post-trial motions. The plaintiff’s original complaint was filed April 19, 2018, regarding events occurring on October 12, 2015, for which the requested monetary amountclaim was not known until October 1, 2021.the third quarter of 2022. The Company is scheduled to participate in a forthcoming mediation with multiple parties in fourth quarter 2021. Due to the employer statuspotential settlement amount of DIS in the litigation, insurance carrier participation, forthcoming formal mediation, pending motions (including but not limited to motions for new trial. remittitur, supersedeas bond, attorneys fees, and correction), right to appeal, indemnification claims, and other contractual rights, the actual liability of DIS is uncertain.Due to the uncertainty associated with the aforementioned items, we are unable to estimate a specific expected loss. The Company has accrued for $50$200 thousand, in insurance retention. DIS may incur a liability above the insurance retention amount, for none, all, orplus a portion of the judgement and attorney’s fees, with insurance covering some or allis reflected as a component of the judgement and fees. It is reasonably possible that current contingencies regarding any expected loss under Kiefer will change prior to the second half of 2022. Thus, the ultimate resolution of the matter, which is expected to occur within one year, could result in a material loss in excess of the amount accrued.

We record loss contingencies when the likelihood of a future event’s occurrence indicates that it is probable that a loss has occurred and the loss contingency is also reasonably estimable. Due to the uncertainty associated with the current actions being taken by us, we are unable to estimate the expected loss. It is reasonably possible that litigation may cause the payment of expenditures or accrual ofaccrued liabilities in amounts that could not be reasonably estimatedthe condensed Consolidated Balance Sheet as of September 30, 2021. While the potential future liabilities could be material in the particular periods in which they are recorded, based on information currently known, we are uncertain about the potential adverse effect on our business and our consolidated financial position, results of operations, and cash flows.2022.

Certainties and estimates underlying current contingencies will change from time to time, and actual results may vary significantly from the current estimates. On a quarterly and annual basis, we review relevant information with respect to litigation and other loss contingencies and update our accruals, disclosures, and estimates of reasonably possible loss or range of loss.
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Note 10. Income Taxes
We provide for income taxes under the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the tax basis of assets or liabilities and their carrying amounts in the financial statements. We provide a valuation allowance for deferred tax assets if it is more likely than not that these items will expire before we are able to realize their benefit. We calculate the valuation allowance in accordance with the authoritative guidance relating to income taxes, which requires an assessment of both positive and negative evidence regarding the realizability of these deferred tax assets, when measuring the need for a valuation allowance. Significant judgment is required in determining any valuation allowance against deferred tax assets. We continue to record a full valuation allowance against our deferred tax assets and intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.
Intraperiod tax allocation rules require us to allocate our provision for income taxes between continuing operations and other categories of comprehensive income, such as discontinued operations.
For the three months ended September 30, 2022, we recorded an income tax benefit of $367 thousand within continuing operations and zero income tax expense within discontinued operations. For the three months ended September 30, 2021, we recorded zero income tax expense within continuing operations and discontinued operations.
For the threenine months ended September 30, 2020,2022, we recorded an income tax expense of $11$256 thousand within continuing operations and anzero income tax benefit of $5 thousandexpense within discontinued operations.
For the nine months ended September 30, 2021, we recorded an income tax expense of $34 thousand within continuing operations and an income tax expense of $72 thousand within discontinued operations. ForThe tax expense for the nine months ended September 30, 2020, we recorded2022 primarily relates to an income tax expenseownership change under Section 382 of $72 thousand within continuing operations andthe Internal Revenue Code of 1986, as amended (the “Code”) that occurred in January 2022 which required us to establish an income tax expense of $18 thousand within discontinued operations.additional valuation allowance on net operating losses that the Company cannot utilize in the future.
As of September 30, 2021,2022, we had unrecognized tax benefits of approximately $2.6$2.4 million related to uncertain tax positions. Included in the unrecognized tax benefits were $2.1$2.0 million of tax benefits that, if recognized, would reduce our annual effective tax rate, subject to the valuation allowance.
We file income tax returns in the U.S. and in various state jurisdictions with varying statutes of limitations. We are no longer subject to income tax examination by tax authorities for years prior to 2016;2017; however, our net operating loss carryforwards and research credit carryforwards arising prior to that year are subject to adjustment. Our policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense.                                                                                     
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). There were several income tax provisions included in the CARES Act, as well as other non-tax matters incorporated into law as a result of the enactment of the CARES Act.
Under the CARES Act, net operating losses generated in tax years 2018, 2019, and 2020 can be carried back five years, allowing corporate taxpayers to amend earlier tax returns and potentially obtain a tax refund. In addition, losses generated and utilized prior to January 1, 2021 are not subject to the 80 percent limitation that was previously applied to losses generated after December 31, 2017 under the Tax Cuts and Jobs Act of 2017. We don’t currently estimate that any tax will be recoverable from these tax provisions and therefore do not anticipate there to be a material impact from these provisions on our income tax balances in our current year financial statements.
The Tax Cuts and Jobs Act of 2017 limited interest deductions to 30% of adjusted taxable income (ATI). The CARES Act increases the limitation to 50 percent of adjusted taxable income for tax years 2019 or 2020, thereby raising the limitation ceiling and potentially allowing for increased interest deductions.In addition, companies have the option of using 2019 ATI to compute the limitation for 2020.We tentatively plan to take advantage of certain of these provisions to eliminate any potential section 163(j) interest carryovers from our inventory of deferred tax assets for the year ending December 31, 2020.
The CARES Act adopts a technical correction to the Tax Cuts and Jobs Act’s apparent oversight in excluding the eligibility of qualified improvement property (e.g., real estate/leasehold improvements) from eligibility for bonus depreciation for tax years after 2017.Companies are allowed to amend 2018 income tax returns or file accounting method changes in 2019 to claim the additional deductions.We are still evaluating the impact of this provision; however, we do not anticipate that this provision will have any impact on our tax expense or payable balances.If pursued, this provision may have an impact on our allocation of deferred tax assets related to property, plant, and equipment and net operating losses, which are substantially offset by the full valuation allowance.
Certain other provisions of the CARES Act, such as the ability to obtain a refund of alternative minimum taxes (“AMT”) previously paid to the IRS and the increased ability to deduct charitable contributions by corporations are not expected to be applicable to us. Overall, we do not expect the income tax provisions of the CARES Act to have a material impact to our financial statements.
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On December 21, 2020, Congress passed the $2.3 trillion Consolidated Appropriations Act, 2021, H.R. 133 (the “Act”), which combined the $1.4 trillion omnibus spending bill for the 2021 federal fiscal year with the $900 billion stimulus relief package aimed to respond to the economic fallout caused by the COVID-19 pandemic. On December 27, 2020, the United States enacted the Consolidated Appropriations Act of 2021 (CAA). The CAA includes provisions extending certain CARES Act provisions and adds coronavirus relief tax and health extenders. We will continue to evaluate the impact of the CAA and its impact on our financial statements in 2021 and beyond.                                                    
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Note 11. Segments
Our businessreportable segments are based upon our internal organizational structure; the manner in which our operations are managed; the criteria used by our Chief Executive Officer, who is our Chief Operating Decision Maker ("CODM"), to evaluate segment performance; the availability of separate financial information; and overall materiality considerations. Prior to 2022, we organized our reportable segments into 4four reportable segments: Diagnostic Imaging, Diagnostic Services, Construction and Investments. Effective the first quarter of 2022, we realigned our internal reporting structure into three reportable segments by combining Diagnostic Imaging and Diagnostic Services into one Healthcare segment to reflect the manner in which our CODM assesses performance and allocates resources:
1. Diagnostic ServicesHealthcare
2. Diagnostic ImagingConstruction
3. Construction
4. Investments
Effective January 1, 2020, we revised the allocation methodology used to allocate corporate costs to each of the operating segments. “Loss (income) by operating segment” for the historical periodSegment information has been recast to conform to our current allocation methodology. Segment informationIt is as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
20212020202120202022
2021 (1)
2022
2021 (1)
Revenue by segment:Revenue by segment:Revenue by segment:
Diagnostic Services$11,098 $10,711 $33,080 $28,665 
Diagnostic Imaging3,709 2,048 9,904 7,242 
HealthcareHealthcare$13,137 $14,807 $40,467 $42,984 
ConstructionConstruction14,052 8,542 34,035 19,061 Construction11,107 14,052 39,544 34,035 
InvestmentsInvestments— 17 — 50 Investments159 475 475 475 
Intersegment eliminationIntersegment elimination(159)(475)(475)(475)
Consolidated revenueConsolidated revenue$28,859 $21,318 $77,019 $55,018 Consolidated revenue$24,244 $28,859 $80,011 $77,019 
Gross profit (loss) by segment:Gross profit (loss) by segment:Gross profit (loss) by segment:
Diagnostic Services$1,923 $2,076 $5,923 $5,034 
Diagnostic Imaging1,333 399 3,340 2,500 
HealthcareHealthcare$2,725 $3,256 $9,579 $9,263 
ConstructionConstruction541 1,253 (759)2,709 Construction3,132 541 7,203 (759)
InvestmentsInvestments(50)(48)(176)(146)Investments100 425 253 299 
Intersegment eliminationIntersegment elimination(158)(475)(474)(475)
Consolidated gross profitConsolidated gross profit$3,747 $3,680 $8,328 $10,097 Consolidated gross profit$5,799 $3,747 $16,561 $8,328 
Income (loss) from operations by segment:Income (loss) from operations by segment:Income (loss) from operations by segment:
Diagnostic Services$617 $(221)$2,253 $(290)
Diagnostic Imaging338 (217)374 (388)
HealthcareHealthcare$(1,036)$955 $(953)$2,627 
ConstructionConstruction(956)(822)(6,341)(2,520)Construction1,149 (956)680 (6,341)
InvestmentsInvestments(352)(66)(197)(266)Investments97 123 236 278 
Unallocated corporate and other expenses(1,531)(83)(4,051)(1,196)
Star equity corporate and intersegment eliminationStar equity corporate and intersegment elimination(1,701)(2,006)(5,207)$(4,526)
Segment loss from operationsSegment loss from operations$(1,884)$(1,409)$(7,962)$(4,660)Segment loss from operations$(1,491)$(1,884)$(5,244)$(7,962)
Depreciation and amortization by segment:Depreciation and amortization by segment:Depreciation and amortization by segment:
Diagnostic Services$273 $280 $832 $917 
Diagnostic Imaging48 60 166 189 
HealthcareHealthcare$330 $321 $967 $998 
ConstructionConstruction489 580 1,450 1,723 Construction489 489 1,471 1,450 
InvestmentsInvestments50 65 176 196 Investments58 50 221 176 
Total depreciation and amortizationTotal depreciation and amortization$860 $985 $2,624 $3,025 Total depreciation and amortization$877 $860 $2,659 $2,624 
(1) Segment information has been recast for all periods presented to reflect Healthcare as one segment. Intersegment eliminations previously allocated to Investments have been reclassified to a separate line.

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Note 12. Related Party Transactions
Eberwein Guarantees
SNBStar Equity Holdings, Inc.
On March 29, 2019, in connectionDecember 10, 2021, the Company entered into a securities purchase agreement with the Company’s entry into the SNB Loan Agreement, Mr. Eberwein, theits Executive Chairman, Jeffrey E. Eberwein, relating to the issuance and sale of 650,000 shares of the Company’s boardcommon stock, par value $0.0001 per share (the “Common Stock”) at a purchase price of directors, entered into the Limited Guaranty Agreement (the SNB Eberwein Guaranty) with SNB$3.25 per share pursuant to which he guaranteed to SNB the prompt performance of all the Borrowers’ obligations to SNB under the SNB Loan Agreement, including the full payment of all indebtedness owing by Borrowers to SNB under or in connection with the SNB Loan Agreement and related SNB Credit Facility documents. Mr. Eberwein’s obligations under the SNB Eberwein Guaranty are limited in the aggregate to the amount of (a) $1.5 million, plus (b) reasonable costs and expenses of SNB incurred in connection with the SNB Eberwein Guaranty. Mr. Eberwein’s obligations under the SNB Eberwein Guaranty terminate upon the Company and SNB Borrowers achieving certain milestones set forth therein.
Gerber
On March 5, 2020, contemporaneously with the execution and delivery of the First EBGL Amendment, Mr. Eberwein, the Executive Chairman of the Company’s board of directors, executed and delivered a Guaranty (the EBGL Eberwein Guaranty) to Gerber pursuant to which he guaranteed the performance of all the EBGL Borrowers’ obligations to Gerber under the EBGL Loan Agreement, including the full payment of all indebtedness owing by the EBGL Borrowers to Gerber under or in connection with the EBGL Loan Agreement and related financing documents. Mr. Eberwein’s obligations under the EBGL Eberwein Guaranty were limited in the aggregate to the amount of (a) $0.5 million, plus (b) costs of Gerber incidental to the enforcement of the EBGL Eberwein Guaranty or any guaranteed obligations.
On February 26, 2021, the Third EBGL Amendment discharged the EBGL Eberwein Guaranty and removed Mr. Eberwein as an ancillary guarantor from the EBGL Loan Agreement. On February 26, 2021, the Third Star Amendment discharged the $2.5 million Gerber Eberwein Guaranty.
Premier
As a condition to the Premier Loan Agreement, Mr. Eberwein entered into a guaranty in favor of Premier, absolutely and unconditionally guaranteeing all of the borrowers’ obligations thereunder.private placement. As of September 30, 2021, all obligations under the Premier Loan Agreement have been repaid in full and no amount remains outstanding.
Premier Participation
Pursuant to a certain Participation Agreement by and between Mr. Eberwein and Premier, which was signed on March 31, 2020 and was effective as of March 26, 2020, Mr. Eberwein purchased a ratable participation in, and assumed a ratable part of, the aggregate maximum principal amount of the outstanding balance of the loan under the Premier Loan Agreement in the amount of $0.3 million. This participation amount has been repaid.
ATRM
Jeffrey E. Eberwein, the Executive Chairman of our board of directors is also the Chief Executive Officer of Lone Star Value Management, LLC (“LSVM”), which was the investment manager of Lone Star Value Investors, LP (“LSVI”) and is the investment manager of Lone Star Value Co-Invest I, LP (“LSV Co-Invest I”). Mr. Eberwein is also the manager of Lone Star Value Investors GP, LLC (“LSV GP”), which was the general partner of LSVI and is the general partner of LSV Co-Invest I, and is the sole owner of LSV Co-Invest I. LSVM was a wholly owned subsidiary of ATRM on the ATRM Acquisition Date (see Acquisition of LSVM below). Prior to the closing of the ATRM Merger, Mr. Eberwein was also Chairman of the board of directors of ATRM. On October 25, 2019, ATRM distributed its interest in LSVM to Star Equity, resulting in LSVM becoming a wholly owned direct subsidiary of Star Equity.
Prior to the closing of the ATRM Merger, Mr. Eberwein and his affiliates owned approximately 4.3% of the outstanding Company common stock and 17.4% of the outstanding ATRM common stock. In addition, LSVI owned 222,577 shares of ATRM’s 10.0% Series B Cumulative Preferred Stock (the “ATRM Preferred Stock”) and another 374,562 shares of ATRM Preferred Stock were owned directly by LSV Co-Invest I. Through these relationships and other relationships with affiliated entities, Mr. Eberwein may be deemed the beneficial owner of the securities owned by LSV Co-Invest I. Mr. Eberwein disclaimed beneficial ownership of ATRM Preferred Stock, except to the extent of his pecuniary interest therein. At the effective time of the ATRM Merger, (i) each share of ATRM common stock converted into the right to receive three one-hundredths (0.03) of a share of Company Preferred Stock and (ii) each share of ATRM Preferred Stock converted into the right to receive two and one-half (2.5) shares of Company Preferred Stock.
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As of September 30, 2021,2022, Mr. Eberwein owned 2,559,737 shares of Common Stock, representing approximately 3.8%16.91% of theour outstanding Star Equity common stock.Common Stock. In addition, as of September 30, 2021,2022, Mr. Eberwein owned 1,308,0361,243,422 shares of CompanySeries A Preferred Stock.
On July 10, 2020, Star Equity authorized LSVI to initiate a pro-rata distribution to its partners of an aggregate of 300,000 shares of Company Preferred Stock at $10 per share, which was finalized by the Company’s transfer agent on July 22, 2020 (the Distribution), which includes 114,624 shares of Company Preferred Stock consisting of (i) 113,780 shares of Company Preferred Stock received by the Jeffrey E. Eberwein Revocable Trust (the “Eberwein Trust”) as a result of the Distribution and (ii) 844 shares of Company Preferred Stock acquired by the Eberwein Trust as a result of shares of Company Preferred Stock distributable to LSV GP in the Distribution being transferred directly to the Eberwein Trust contemporaneously with the Distribution. At the time of the Distribution, the Eberwein Trust was a limited partner of LSVI and LSV GP was the general partner of LSVI. Mr. Eberwein, as the trustee of the Eberwein Trust, may be deemed to beneficially own the securities held in the Eberwein Trust. Mr. Eberwein expressly disclaims beneficial ownership of such securities held in the Eberwein Trust except to the extent of his pecuniary interest therein.
Private Placement
Immediately prior to the closing of the ATRM Merger, the Company issued 300,000 shares of Company Preferred Stock in a private placement (the “Private Placement”) to LSVI for a price of $10.00 per share for total proceeds to the Company of $3.0 million.
At the closing of the Private Placement, the Company and LSVI entered into a Registration Rights Agreement.
On September 17, 2020, in connection with satisfying the Company’s obligations under the Registration Rights Agreement, the Company filed a registration statement 1,492,321 shares of Company Preferred Stock.
Put Option Agreement
In addition, prior to the effective time of the ATRM Merger, the Company entered into a put option purchase agreement with Mr. Eberwein, pursuant to which the Company has the right to require Mr. Eberwein to acquire up to 100,000 shares of Company Preferred Stock at a price of $10.00 per share for aggregate proceeds of up to $1.0 million at any time, in the Company’s discretion, during the 12 months following the effective time of the ATRM Merger. In March 2020, Mr. Eberwein extended the put option agreement through June 30, 2021.
ATRM Notes Payable
ATRM had the followinga total of $2.3 million of outstanding related party promissory notes (the “ATRM Notes”) outstandingpayable to Lone Star Value Co-Invest I, LP and Lone Star Value Management as of MarchDecember 31, 2021, which2020. These amounts were repaid in full during April 2021 using proceeds from the DMS Sale Transaction:
(i) Unsecured promissory note (principal amount of $0.7 million payable to LSV Co-Invest I), with interest payable semi-annually at a rate of 10.0% per annum (LSV Co-Invest I may elect to receive interest in-kind at a rate of 12.0% per annum), with any unpaid principal and interest previously due on January 12, 2020 (the “January Note”). On November 13, 2019, LSV Co-Invest I extended the maturity date of the January Note from January 12, 2020, to the earlier of (i) October 1, 2020 and (ii) the date when the January Note is no longer subject to a certain Subordinate Agreement dated January 12, 2018, as amended, in favor of Gerber. As described below, in November 2020 and March 2021,2021. Mr. Eberwein signedwas the second and third extension letter to extend the maturity dategeneral partner of the January Note.
(ii) Unsecured promissory note (principal amount of $1.2 million payable to LSV Co-Invest I), with interest payable semi-annually at a rate of 10.0% per annum (LSV Co-Invest I may elect to receive interest in-kind at a rate of 12.0% per annum), with any unpaid principal and interest previously due on June 1, 2020 (the “June Note”). On November 13, 2019 LSV Co-Invest I also extended the maturity date of the June Note from June 1, 2020, to the earlier of (i) October 1, 2020 and (ii) the date when the January Note is no longer subject to a certain Subordinate Agreement dated June 1, 2018, as amended, in favor of Gerber. As described below, in November 2020 and March 2021, Mr. Eberwein signed the second and third extension letter to extend the maturity date of the June Note.
(iii) Unsecured promissory note (principal amount of $0.4 million payable to LSVM), with interest payable annually at a rate of 10.0% per annum (LSVM may elect to receive any interest payment entirely in-kind at a rate of 12.0% per annum), with any unpaid principal and interest previously due on November 30, 2020 (the “LSVM Note”). As described below, in November 2020, Mr. Eberwein signed the second and third extension letter to extend the maturity date of the LSVM Note.
LSVM and LSV Co-Invest I on July 17, 2019, waived any right to accelerate payment with respect to the ATRM Merger under the ATRM Notes. In March 2020, Mr. Eberwein, sole manager of LSV Co-Invest I and LSVM, provided the Company a Letter of Support of the ATRM Notes indicating that he will take no adverse action against ATRM for failure to pay the principal due on the ATRM Notes by the maturity date and intends to work with the Company and ATRM to assure the
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financial success of the Company. In November 2020, Mr. Eberwein signed the second extension letter to extend the maturity date of the ATRM Notes to the earlier of (i) the date that is 5 business days after the Closing Date defined within the DMS stock Purchase Agreement dated October 30, 2020 between the Company and Knob Creek Acquisition Corp. or (ii) the date when the Note is no longer subject to a certain subordinate letter agreement dated January 12, 2018, as amended in favor of Gerber. In March 2021, Mr. Eberwein signed the third extension letter to extend the maturity dates of the ATRM Notes to aforementioned two conditions or to June 30, 2022. The ATRM Notes were paid off in full in April 2021, upon the completion of DMS Sale Transaction.
Subordination Agreement
LSVM and LSV Co-Invest I were parties to subordination agreements with ATRM and Gerber pursuant to which LSVM and LSV Co-Invest I agreed to subordinate the obligations of ATRM under their unsecured promissory notes to the obligations of the borrowers to Gerber. These subordination agreements were cancelled with the execution of the eighteenth amendment to the KBS Loan Agreement and the fourth amendment to the EGBL Loan Agreement.these entities.
Note 13. Perpetual Preferred Stock
Holders of shares of our Series A Preferred Stock (the Preferred Stock) are entitled to receive, when, as and if, authorized by the Company’s board of directors (or a duly authorized committee of the Company’s board of directors) and declared by the Company out of funds legally available for the payment of dividends, preferential cumulative cash dividends at the rate of 10.0% per annum of the liquidation preference of $10.00 per share. Dividends are payable quarterly, in arrears, onby the last calendar day of March, June, September and December to holders of record at the close of business on the first day of each payment month. The Series A Preferred Stock is not convertible and does not have any voting rights, except when dividends are in arrears for six or more consecutive quarters, then the holders of those shares together with holders of all other series of preferred stock equal in rank will be entitled to vote separately as a class for the election of two additional directors to board of directors, until all dividends accumulated on such shares of Series A Preferred Stock for the past dividend periods and the dividend for the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set apart for payment. Under change of control or other conditions, the Series A Preferred Stock may be subject to redemption. WeThe Company may redeem the Series A Preferred Stock upon the occurrence of a change of control, subject to certain conditions. WeThe Company may also voluntarily redeem some or all of the Series A Preferred Stock on or after September 10, 2024.
On February 25, 2022, May 26, 202119, 2022 and August 16, 2021,19, 2022, our board of directors declared a cash dividenddividends to holders of the 10%our Series A Cumulative Perpetual Preferred Stock of $0.25 per share, for an aggregate amount of approximately $479 thousand.$1.4 million. The record datedates for this dividend wasthese dividends were March 1, 2022, June 1, 20212022 and September 1, 2021,2022, respectively, and the payment date wasdates were March 10, 2022, June 11, 202110, 2022 and September 13, 2021.12, 2022, respectively.
Note 14. Equity Transactions
On January 24, 2022, we closed the 2022 Public Offering pursuant to an underwriting agreement with Maxim Group LLC (“Maxim”), as representative of the underwriters. Company issued and sold (A)(i) 9,175,000 shares of the Company’s Common Stock, (ii) an aggregate of 325,000 pre-funded warrants to purchase up to an aggregate of 325,000 shares of Common Stock, and (iii) an aggregate of 9,500,000 common stock purchase warrants (the “Firm Purchase Warrants”) to purchase up to 9,500,000 shares of Common Stock and (B) at the election of Maxim, (i) up to an additional 1,425,000 shares of Common Stock and/or (ii) up to an additional 1,425,000 shares of common stock purchase warrants (the “Option Purchase Warrants”, and together with the Firm Purchase Warrants, the “Warrants”). Maxim partially exercised its over-allotment option for the purchase of 1,425,000 Warrants for a price of $0.01 per Warrant. Each share of common stock (or pre-funded warrant in lieu thereof) was sold together with one common warrant to purchase one share of common stock at a price of $1.50 per share and common warrant. Gross proceeds, before deducting underwriting discounts and offering expenses and excluding any proceeds we may receive upon exercise of the Warrants, were $14.3 million and net proceeds were $12.7 million.
In addition, as part of the 2022 Public Offering, the Company issued to Maxim 237,500 common stock purchase warrants (the “Underwriter’s Warrants”) to purchase up to 237,500 shares of Common Stock at an exercise price of $1.65 per common warrant. The Underwriter’s Warrants have an initial exercise date beginning July 19, 2022, and no exercises have occurred as of September 30, 2022.
As of September 30, 2021, the aggregate and per-share amounts of cumulative preferred dividends in arrears are $3.0 million and $1.56 per share, respectively.
A roll forward2022, of the balancewarrants issued through the public offering we closed on May 28, 2020 (the “2020 Public Offering”), 1.0 millionwarrants were exercised and 1.4 million warrants remained outstanding, which represents 0.7 million shares of Preferred Stock for the quarter endedcommon stock equivalents, at an exercise price of $2.25. As of September 30, 2021 is as follows (in thousands):2022, of the Warrants issued through the 2022 Public Offering, there were 10.9 million Warrants and 0.3 million prefunded warrants outstanding at an exercise price of $1.50 and $0.01, respectively. The Underwriter’s Warrants have not been exercised.
Balance at December 31, 2020$21,500 
Deemed dividend on perpetual preferred stock1,437 
Less: cash dividend paid on perpetual preferred stock(958)
Balance at September 30, 2021$21,979 

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Note 14.15. Preferred Stock Rights
On June 2, 2021, the Boardboard of Directorsdirectors adopted a tax benefit preservation plan in the form of a Section 382 Rights Agreement (the “382 Agreement”). The 382 Agreement is intended to diminish the risk that our ability to use our net operating loss carryforwards to reduce future federal income tax obligations may become substantially limited due to an “ownership change,” as defined in Section 382 of the Internal Revenue CodeCode. The board of 1986, as amended (the “Code’). The Boarddirectors authorized and declared a dividend distribution of one right for each outstanding share of common stock, par value $0.0001 per share, to stockholders of record as of the close of business on June 14, 2021. Each right entitles the registered holder to purchase from the one one-thousandth of a share of Series C Participating Preferred Stock, par value $0.0001 per share (the “Series C Preferred Stock”), at an exercise price of $12.00 per one one-thousandth of a share of Series C Preferred Share,Stock, subject to adjustment.
The rights will become exercisable following (i) 10 days after a public announcement that a person or group has become an Acquiring Person;Person (as defined in the 382 Agreement); and (ii) 10 business days (or a later date determined by the Board)board of directors) after a person or group begins a tender or an exchange offer that, if completed, would result in that person or group becoming an Acquiring Person.
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In addition, upon the occurrence of certain events, the exercise price of the rights would be adjusted and holders of the rights (other than rights owned by an acquiring person or group) would be entitled to purchase common stock at approximately half of market value. Given the potential adjustment of the exercise price of the rights, the rights could cause substantial dilution to a person or group that acquires 4.99% or more of common stock on terms not approved by the Boardboard of Directors.directors.
No rights were exercisable at September 30, 2021.2022. There is no impact to financial results as a result of the adoption of the rights plan for the quarternine months ended September 30, 2021.
Note 15. Subsequent Events
None.2022.



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Note 16. Variable Interest Entity
VIE in which we are not the Primary Beneficiary
We have an investment in a VIE of $0.3 million, recorded in Other Assets, in which we are not the primary beneficiary. This VIE is a small private company that is primarily involved in research related to new heart imaging technologies.
We have determined that the governance structures of this entity do not allow us to direct the activities that would significantly affect its economic performance. Therefore, we are not the primary beneficiary, and the results of operations and financial position of the VIE are not included in our condensed consolidated financial statements. We account for this investment as non-marketable equity securities which is valued at cost less impairment.
The potential maximum exposure of this unconsolidated VIE is generally based on the current carrying value of the investments and any future funding commitments based on the milestone agreement and board approval. We have determined that the single source of our exposure to the VIE is our capital investment in them. The carrying value and maximum exposure of the unconsolidated VIE were $0.3 million as of September 30, 2022. As of September 30, 2022, we performed a qualitative assessment on the carrying value via inquiries with the board of directors and a review of the entity’s financial statements and determined that there have not been any impairment indicators to the carrying value.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management’s discussion and analysis of financial condition and results of operations (“MD&A”), contains forward-looking statements that involve risks and uncertainties. Please see “Important Information Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks, and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and related notes thereto for the fiscal year ended December 31, 2020,2021, which were included in our Annual Report on Form 10-K, filed with the SEC on March 29, 2021.31, 2022.
The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods.
Overview
Star Equity known prior to January 1, 2021 as Digirad Corporation, has operated asHoldings, Inc. (“Star Equity”, the “Company”, “we”, “our”) is a multi-industry holding company since the acquisition of ATRM in September 2019. With that merger, we added two construction businesses to what had historically been a pure-play healthcare company. Today, Star Equity is a diversified holding company with three divisions which include operating businesses in two key industry sectors of the economy, healthcareHealthcare and construction.

Construction, and an Investments division.
Our Healthcare division, which operates as Digirad Health, Inc. (“Digirad Health”), provides products and services in the area of nuclear medical imaging with a focus on cardiac health. Digirad Health operates across the U.S. The healthcare business involvesUnited States and comprises two reporting segments, Diagnostic Services, which offers lines of business—imaging services to healthcare providers using a fleet of our proprietary solid-state gamma cameras as well as the manufacture, distribution, and Diagnostic Imaging, which manufactures, distributes and maintainsmaintenance of our proprietary solid-state gamma cameras.

Our Construction division is a single reporting segment but is made up of three operating business,businesses: KBS Builders, Inc. (“KBS”), EdgeBuilder, Inc. (“EdgeBuilder”), and Glenbrook.Glenbrook Building Supply, Inc. (“Glenbrook”), with the latter two managed together and referred to jointly as “EBGL”. KBS is based in Maine and manufactures modular buildings for installation throughoutprincipally in the New England market. EdgeBuilder and Glenbrook, referred to together as “EBGL” internally andEBGL is based in the Minneapolis-Saint Paul area togetherand principally serves the Upper Midwest. Together, the EBGL businesses manufacture and deliver structural wall panels and other engineered wood-based products as well as distribute building materials primarily to professional builder customers in the Upper Midwest.

customers.
Currently, our Investments division is an internally-focusedinternally focused unit that is directly supervised by Star Equity management and is primarily responsible for the management ofmanagement. This entity currently holds our corporate-owned real estate, and investments, which currently includes our three manufacturing facilities in Maine that are leased to KBS.KBS, as well as any minority investments we make in public and private companies.
Strategy
Star Equity
We believe our diversified, multi-industry holding company structure will allow Star Equity management to focus on capital allocation, strategic leadership, mergers and acquisitions, capital markets transactions, investor relations, and management of our real estate and investments, and other public company activities.Investments division. Our structure will freefrees up our operating Chief Executive Officerscompany management teams to managefocus on their respective businesses, improve operations, and look for organic and bolt-on growth opportunities, and improve operations with fewer distractionsless distraction and less administrative burden.

burden associated with running a public company.
We continue to explore strategic alternatives to improve theour market position and the profitability of our product offerings, in the marketplace, generate additional liquidity, and enhance our valuation. We may pursue our goals through organic growth orand through strategic transactions.alternatives. Some of these strategic transactionsalternatives have included, and could continue to include, selective acquisitions of business segments or entire businesses, divestitures of assets or divisions,businesses, equity offerings, debt financings, or a restructuring of our company.Company.

Operating Businesses
We seek to growbelieve that both of our business by, among other things:primary divisions, Healthcare and Construction, are well positioned for growth in large addressable markets. The key elements of our growth strategy include the following:
•Organic growth from our core businesses. We believe that we operate in markets and geographies that will allow us to continue to grow our core businesses, allowing us to benefit from our scale and strengths. We plan to focus our efforts on markets in which we already have a presence in order to take advantage of personnel, infrastructure, and brand recognition we have in these areas.
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•Introduction of new services. In the Healthcare division, we plan to continue to focus on healthcare solutions relatedsolutions-related businesses that deliver necessary assets, services, and logistics directly to the customer site. We believe that over time we can either purchase or develop new and complementary businesses, and take advantage of our customer loyalty and distribution channels. Additionally, we are exploring new imaging technologies through the recent establishment of a

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joint venture that is presently conducting research and development in the area of heart imaging. In the Construction division, we will consider opportunities to augment our service offering to better serve our customer base. We have done this in the New England market by adding a structural wall panel line.with our entry into the commercial multi-family segment. Other areas might include logistics, installation on site, and manufacturing of sub-components or enhancements that create even more complete modules, such as full HVAC installation.sub-components.
•Acquisition of complementary businesses.We plan to continue to look at complementary businesses that meet our internally developed financially disciplined approach for acquisitions to grow our company.Company. We believe there are many potential small public and private targets that can be acquired over time and integrated into our platform. We will also look at larger, more transformational mergers and acquisitions (public or private) if we believe the appropriate mix of value, risk, and return is present for our shareholders.stockholders. The timing of these potential acquisitionstransactions will always depend on market conditions, available capital, and the value for each transaction.valuation. In general, we want to be “value” buyers, and will not pursue any transaction unless we believe the post-transaction potential value is high for shareholders.

stockholders.
Current Market Conditions
Since the second quarter of 2020, navigating theThe COVID-19 pandemic has proved to be challenging yearbeen a challenge for most businesses in the vast majority of businesses across many sectors of the economy. Aspast two years. Since early 2021, the vaccine rollout expanded through the second quarter of this year, we have seen our businesseshas gradually allowed us to return substantiallyto a more normal operating environment. Our Healthcare business has now returned to pre-COVID levels. We believelevels, after a brief scare with the uncertainty surroundingonset of the pandemic willOmicron variant late last year. On the Construction side, we continue to decrease as we progress through the fourth quarter of 2021. On the healthcare side, we see imaging volume stabilize at pre-pandemic levels. In construction, we expect that continued recovery in employment andbenefit from a strong housing market will underpinon the demand side, while a period of secular growth.tight labor market and continued supply chain disruption make it difficult to maintain optimal production levels.
The target market for our healthcareHealthcare products and services is comprised of cardiologists, internal medicine physicians, family practice physicians, hospitals, integrated delivery networks, and federal institutions in the United States that perform or could perform a diagnostic imaging procedure have a need for cardiac event monitoring, or have interest in purchasing a diagnostic imaging products. Our diagnostic servicesHealthcare businesses currently operate in approximately 25 states. The overriding challenge during 2020 was the drop in imaging volume due to the COVID-19 pandemic. During the nine months ended September 30, 2021,2022, we have seen a return to a more normal pre-COVID volume of imaging.
The target marketcustomers for our constructionConstruction division includes residentialinclude professional home builders, general contractors, project owners, or developers, of commercial buildings, and individual retail customers.design firms. While housing demand and home improvement activity continues to be very strong, this demand and supply chain disruptions resulting fromcaused by the COVID-19 pandemic causedled to a historic increase in the price of building materials during second half of 2020 and through the second quarter of 2021. While revenues have tracked the robust activity in the housing sector, our bottom line has been impacted by this rapid price increase in materials. As the third quarter 2021 came to a close, prices continue to decline and are significantly lower than at the peak. We believe this will bode well for the fourth quarter of 2021 as our pricing levels have increased due to adjustments made induring the first half of 2021. Since that time, building materials prices have continued to be very volatile. We have implemented both price increases and margin protection measures through our contract language since that time and we believe these factors will have a significantly positive effect on our profitability in 2022.
Trends and Drivers
The market for diagnostic services and products is highly competitive. Our business, which is focused primarily on the private practice and hospital sectors, continues to face uncertainty in the demand for diagnostic services and imaging equipment, which we believe is due in part to the impact of the Deficit Reduction Act on the reimbursement environment and the 2010 Healthcare Reform laws, COVID-19 pandemic impact, as well as general uncertainty in overall healthcare and legislative changes in healthcare, such as the Affordable Care Act. These challenges have impacted, and will likely continue to impact, our operations. We believe that the principal competitive factors in our market include budget availability for our capital equipment, qualifications for reimbursement, pricing, ease-of-use, reliability, and mobility. We have addressed, and will continue to address, these market pressures by modifying our Diagnostic ServicesHealthcare business models, and by assisting our healthcare customers in complying with new regulations and requirements.
In our construction division, we continue to see a greater adoption of offsite or prefab construction in single-family and multi-family residential building projects, our target market. Our modular units and structural wall panels offer builders a number of benefits over traditional onsite or “stick built” construction. These includeconstruction, including shorter time to market, higher quality, reduced waste, readily available labor and potential cost savings, among others.savings. 3D BIM software modeling and developments in engineered wood products offers greater design flexibility for higher-end applications. The need for more affordable housing solutions also presents a great opportunity for the continued emergence of factory built housing.
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Risks arising from global economic instability and conflicts, wars, and health crises could impact our business. In addition, the inflation caused by such events may impact demand for our products and services and our cost to provide products and services.
COVID-19 Pandemic
We continuedcontinue to recover from the economic effects of the COVID-19 pandemic and made our way back to pre-COVID-19 levels of business activity.pandemic. During the three and nine months ended September 30, 2021,2022, we had a $2.0decreases of $1.7 million and $7.1$2.5 million, increaserespectively, in Healthcare division revenue respectively and a $5.5decrease of $2.9 million and $15.0an increase of $5.5 million, increase, respectively, in Construction division revenue as compared to the same period of the prior year. The Healthcare division continued to rebound to more normaloperate at lower levels versus the third quarter of last year with revenue increasing 16.1%.decreasing 11.3% and 5.9% for the three and nine months ended September 30, 2022, primarily due to the national shortage of Nuclear

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Medicine Technologists. Our Construction division grew revenue decreased by 64.5%21.0% for the three months ended September 30, 2022 and increased by 16.2% for the nine months ended September 30, 2022 due to increased output at both KBS and EBGL coupled with pricing increases associated with higher raw materials costs. TheNevertheless, the current COVID-19 pandemic which is impactingcontinues to impact worldwide economic activity, posesand the risk that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. The extent to which the COVID-19 pandemic will impact the Company’sour business will depend on future developments that are highly uncertain and cannot be predicted at this time.unpredictable.
Discontinued Operations
The DMS Sale Transaction (as defined in Note 2 to our condensed consolidated financial statements) was completed on March 31, 2021, for $18.75 million in cash, subject tocash. After certain adjustments, including a working capital adjustment. The divestiture of DMS Health, which operated our Mobile Healthcare segment, met the definition of a strategic shift that has a significant effect on our operations and financial results; therefore, the results of operations for the Mobile Healthcare segment have been presented as discontinued operationsadjustment, we received an immaterial net escrow settlement in accordance with ASC 205-20, Presentation of Financial Statements-Discontinued Operations for all periods presented. Additionally, Mobile Healthcare’s assets and liabilities as of December 31, 2020 are separately presented as held for sale on the unaudited consolidated balance sheet. Unless otherwise noted, discussion within these notes to the unaudited consolidated financial statements relates to continuing operations.January 2022.
Goodwill valuation
We review goodwill for impairment on an annual basis during the fourth quarter, and when events or changes in circumstances indicate that a reduction in the carrying value may not be recoverable. We begin the process by assessingIn each quarter in 2022 we assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. Upon review of the results of such assessment, we may begin performing impairment analysis by quantitatively comparing the fair value of the reporting unit to the carrying value of the reporting unit, including goodwill. An impairment charge for goodwill is recognized for the amount by which the carrying value of the reporting unit exceeds its fair value and such loss should not exceed the total goodwill allocated to the reporting unit.

There are numerous factors that may cause the fair value of a reporting unit to fall below its carrying amount and/or that may cause the value of long-lived assets to not be recoverable, which could lead to the measurement and recognition of goodwill and/or long-lived asset impairment charges. These factors include, but are not limited to, significant negative variances between actual and expected financial results, lowered expectations of future financial results, failure to realize anticipated synergies from acquisitions, adverse changes in the business climate, and the loss of key personnel. As of September 30, 2021,2022, we performed a qualitative triggerassessment and did not identify any triggering events analysis and concluded that if we are not ablewould lead to achieve projectedthe performance levels, future impairments could be possible, which could negatively impact our earnings.of a quantitative analysis.
Business Segments
AsOur reportable segments are based upon our internal organizational structure; the manner in which our operations are managed; the criteria used by our Chief Executive Officer, who is our Chief Operating Decision Maker ("CODM"), to evaluate segment performance; the availability of September 30, 2021,separate financial information; and overall materiality considerations. Effective as of the first quarter of 2022, we reorganized our business is organizedfinancial statements into fourthree reportable segments:segments by combining Diagnostic Imaging and Diagnostic Services into one Healthcare segment to reflect the manner in which our CODM assesses performance and allocates resources under the Company’s HoldCo strategy:
•Diagnostic Services
•Diagnostic ImagingHealthcare
•Construction
•Investments
Diagnostic ServicesHealthcare
Through this segment, we offer a convenient and economically efficient imaging and monitoring services program as an alternative to purchasing equipment or outsourcing the procedures to another physician or imaging center. For physicians who wish to perform nuclear imaging, echocardiography, vascular or general ultrasound tests, we provide imaging systems, qualified personnel, radiopharmaceuticals, licensing services, and the logistics required to perform imaging in their own offices, and thereby the ability to bill Medicare, Medicaid, or one of the third-party healthcare insurers directly for those services, which are primarily cardiac in nature. We provide imaging services primarily to cardiologists, internal medicine physicians, and family practice doctors who typically enter into annual contracts for a set number of days ranging from once per month to five times per week. We offer a convenient and economically efficient cardiac imaging services program as an alternative to purchasing equipment or outsourcing the procedure to an imaging center.
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Diagnostic Imaging
Through this segment,In addition, we manufacture and sell our internally developed solid-state gamma cameras and imaging systems, andas well as provide field services through camera maintenance contracts. Our imaging systems include nuclear cardiac imaging systems, as well as general purpose nuclear imaging systems. We sell our imaging systems and service contracts to physician offices and hospitals primarily in the United States, although we have sold a small number of imaging systems internationally. Our imaging systems are sold in both portable and fixed configurations, provide enhanced operability and improved patient comfort, fit easily into floor spaces as small as seven feet by eight feet, and facilitate the delivery of nuclear medicine procedures in a physician’s office, an outpatient hospital setting, or within multiple departments of a hospital (e.g., emergency and operating rooms). Our Diagnostic Imaging segment revenues derive primarily from selling solid-state gamma cameras and post-warranty camera maintenance contracts.
Construction
Through this segment, by way of our wholly-owned subsidiaries KBS, Glenbrook and EdgeBuilder, we service residential and commercial construction projects by manufacturing modular housing units, structural wall panels, permanent wood foundation systems, other engineered wood products, and supply general contractors with building materials. KBS is a Maine-based manufacturer that started business in 2001 as a manufacturer of modular homes. KBS offers products for both multi-family and single-family residential buildings with a focus on customization to suit the project requirements and provide engineering and design expertise. Glenbrook is a supplier of lumber, windows, doors, cabinets, drywall, roofing, decking and other building materials to professional builders and conducts its operations in Oakdale, Minnesota. EdgeBuilder is a manufacturer of structural wall panels, permanent wood foundation systems and other engineered wood products and conducts its operations in Prescott, Wisconsin.
Investments

Through this segment, we hold real estate assets that we have acquired and will potentially manage other future investments of Star Equity. In April 2019, the Company funded the initial purchase of three manufacturing facilities in Maine that manufacture modular buildings and leased those three properties back to KBS. The initial funding of the assets acquisition was primarily through the revolver loan under our SNB Credit Facility. Since that time, we have secured a new facility from Gerber to finance these properties.
Healthcare Services and Products
37

Diagnostic imaging depictions of the internal anatomy or physiology are generated primarily through non-invasive means. Diagnostic imaging facilitates the early diagnosis of diseases and disorders, often minimizing the scope, cost, and amount of care required and reducing the need for more invasive procedures. Currently, the major types of non-invasive diagnostic imaging technologies available are: ultrasound and nuclear imaging. The most widely used imaging acquisition technology utilizing gamma cameras is single photon emission computed tomography, or SPECT.“SPECT”. All of our current internally-developed cardiac gamma cameras employ SPECT technology.
Diagnostic imaging is the standard of care in diagnosis of diseasesConstruction
Through this segment, we service residential and disorders. We offer,commercial construction projects through our businesses, the majority of these diagnostic imaging modalities. All of the diagnostic imaging modalitiesKBS, EdgeBuilder and Glenbrook brands, through which we manufacture modular housing units, structural wall panels, permanent wood foundation systems and other engineered wood products, as well as supply general contractors with building materials.
KBS is a Maine-based manufacturer that we offer (both from provision of services and product sales) have been consistently utilized in clinical applications for many years, and are stable in their use and need. By offering a wide array of these modalities, we believe that we have strategically diversified ourstarted operations in possible changing trends2001 as a manufacturer of utilization of one diagnostic imaging modality from another.
Construction Servicesmodular homes. KBS offers products for both multi-family and Products
Insingle-family residential buildings with a focus on customization to suit the construction business, KBS markets itsproject requirements and provide engineering and design expertise. We market our modular homes products through a direct sales organization and through inside sales, outside sales, a network of independent dealers, builders, and contractors in the New England states (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont). KBS’s direct sales organization is responsible for all commercial building projects, and works with developers, architects, owners, and general contractors to establish the scope of work, terms of payment, and general requirements for each project. KBS’s sales people also work with independent dealers, builders, and contractors to accurately configure and place orders for residential homes for their end customers. KBS’s network of independent dealers and contractors do not work with itus exclusively, although manysome have KBS model homes on display at their retail centers. KBS does not assign exclusive territories to its independent dealers and contractors, but they tend to sell in areas of New England where they will not be competing against another KBS dealer or contractor. KBS’s backlog and pipeline, along with its market initiatives to build more workforce housing, are expected to position KBS for continued growth.growth, particularly in the multi-family arena.
46

EBGLEdgeBuilder is a manufacturer of structural wall panels, permanent wood foundation systems and other engineered wood products and conducts its operations in Prescott, Wisconsin. EdgeBuilder markets its engineered structural wall panels and permanent wood foundation systems through direct sales people and a network of builders, contractors and developers in and around Minneapolis and St. Paul areas. EBGL’sEdgeBuilder’s direct sales organization is responsible for both residential and commercial projects and it works with general contractors, developers and builders to provide bids and quotes for specific projects. Our marketing efforts include participation in industry trade shows, production of product literature, and sales support tools. These efforts are designed to generate sales leads for our independent builders and dealers, and direct salespeople.
Glenbrook is a supplier of lumber, windows, doors, cabinets, drywall, roofing, decking and other building materials to professional builders and conducts its operations in Oakdale, Minnesota. EdgeBuilder and Glenbrook operate as one business with a single management team and we refer to them together as EBGL.
Investments
We have begun to expand our investments activities and have established minority positions in the equity securities of a small number of publicly traded companies. We also hold 3 real estate assets in our portfolio, all of which we lease to our construction subsidiary, KBS. These include their principal production facility in South Paris, ME.
Critical Accounting Policies and Estimates
In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our revenue and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet.condensed Consolidated Balance Sheets. We believe that the estimates, assumptions, and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates.
Results of Operations
Comparison of the Three Months Ended September 30, 20212022 and 20202021
The following table summarizes our results for the three months ended September 30, 20212022 and 20202021 (in thousands):

Three Months Ended September 30,
2021Percent of 
Revenues		2020Percent of 
Revenues		Change from Prior Year
DollarsPercent *
Total revenues$28,859 100.0 %$21,318 100.0 %$7,541 35.4 %
Total cost of revenues25,112 87.0 %17,638 82.7 %7,474 42.4 %
Gross profit3,747 13.0 %3,680 17.3 %67 1.8 %
Total operating expenses5,631 19.5 %5,089 23.9 %542 10.7 %
Loss from operations(1,884)(6.5)%(1,409)(6.6)%(475)33.7 %
Total other expense(257)(0.9)%(174)(0.8)%(83)47.7 %
Loss before income taxes(2,141)(7.4)%(1,583)(7.4)%(558)35.2 %
Income tax expense— — %(11)(0.1)%11 (100.0)%
Net loss from continuing operations(2,141)(7.4)%(1,594)(7.5)%(547)34.3 %
Net loss from discontinued operations— — %(166)(0.8)%166 (100.0)%
Net loss$(2,141)(7.4)%$(1,760)(8.3)%$(381)21.6 %
38

Three Months Ended September 30,
2022Percent of 
Revenues		2021Percent of 
Revenues		Change from Prior Year
DollarsPercent *
Total revenues$24,244 100.0 %$28,859 100.0 %$(4,615)(16.0)%
Total cost of revenues18,445 76.1 %25,112 87.0 %(6,667)(26.5)%
Gross profit5,799 23.9 %3,747 13.0 %2,052 54.8 %
Total operating expenses7,290 30.1 %5,631 19.5 %1,659 29.5 %
Loss from operations(1,491)(6.1)%(1,884)(6.5)%393 (20.9)%
Total other expense(760)(3.1)%(257)(0.9)%(503)195.7 %
Loss before income taxes(2,251)(9.3)%(2,141)(7.4)%(110)5.1 %
Income tax benefit (provision)367 1.5 %— — %367 — %
Net loss from continuing operations(1,884)(7.8)%(2,141)(7.4)%257 (12.0)%
Net loss from discontinued operations— — %— — %— — %
Net loss$(1,884)(7.8)%$(2,141)(7.4)%$257 (12.0)%
*Percentage may not add due to rounding    
Revenues
Healthcare
Healthcare revenue were computed independentlyis summarized as follows (in thousands):
Three Months Ended September 30,
20222021Change% Change
Healthcare$13,137 $14,807 $(1,670)(11.3)%
Healthcare Revenue$13,137 $14,807 $(1,670)(11.3)%
Healthcare revenue decreased 11.3% compared to the prior year quarter, driven primarily by a decrease in revenue from fewer camera sales in 2022 and fewer total scanning days due to the national shortage of Nuclear Medicine Technologists, partially offset by pricing increases in Diagnostic Services in 2022.
Construction
Construction revenue is summarized as follows (in thousands):
Three Months Ended September 30,
20222021Change% Change
Construction$11,107 $14,052 $(2,945)(21.0)%
Construction Revenue$11,107 $14,052 $(2,945)(21.0)%
The decrease in revenue for each discrete item presented. Therefore, the sumConstruction division was predominately driven by the timing of revenue recognition at our KBS business.

Gross Profit
Healthcare Gross Profit
Healthcare gross profit and gross margin is summarized as follows (in thousands):
Three Months Ended September 30,
20222021$ Change% Change
Healthcare gross profit$2,725 $3,256 $(531)(16.3)%
Healthcare gross margin20.7 %22.0 %
The decrease in Healthcare gross margin percentage was mainly driven by lower camera sales and lower scanning revenue for the three months ended September 30, 2022, compared to the same period in the prior year.
Construction Gross Profit

39

Construction gross profit and margin is summarized as follows (in thousands):
Three Months Ended September 30,
20222021$ Change% Change
Construction gross profit$3,132 $541 $2,591 478.9 %
Construction gross margin28.2 %3.8 %
The increase in Construction gross profit was predominately due to significantly increased pricing levels during 2022 to offset higher input costs in both residential and commercial projects. Our backlog and sales pipeline remain relatively strong despite economic headwinds.
Operating Expenses
Operating expenses are summarized as follows (in thousands):
Three Months Ended September 30,Percent of Revenues
20222021Change20222021
DollarsPercent
Selling, general and administrative$6,860 $5,201 $1,659 31.9 %28.3 %18.0 %
Amortization of intangible assets430 430 — — %1.8 %1.5 %
Total operating expenses$7,290 $5,631 $1,659 29.5 %30.1 %19.5 %
On a consolidated basis, there was a $1.7 million increase in sales, general and administrative expenses. The major drivers of the individual itemsincrease in selling, general and administrative expenses (“SG&A”) were a $1.2 million increase in legal expenses and $0.3 million in severance and retention costs, both attributed to our healthcare segment. As a percentage of revenue, SG&A increased to 28.3% for the three months ended September 30, 2022, versus 18.0% in the prior year period.
Total Other Income (Expense)
Total other income (expense) is summarized as follows (in thousands):
Three Months Ended September 30,
20222021
Other income (expense), net$(575)$3 
Interest expense, net(185)(260)
Total other income (expense)$(760)$(257)
Other (expenses) income, net, for the three months ended September 30, 2022 and 2021 are predominately comprised of unrealized losses and gains from available for sale securities recorded in our investments division, and finance costs.
Interest expense, net, for the three months ended September 30, 2022 and 2021 are predominantly comprised of interest costs and the related amortization of deferred issuance costs on our debt.
Income Tax Expense
For the three months ended September 30, 2022 and 2021 we recorded an income tax benefit of $367 thousand and zero income tax expense respectively, within continuing operations. See Note 10. Income Taxes, within the notes to our condensed consolidated financial statements for further information related to the income taxes.
Income from Discontinued Operations
See Note 2. Discontinued Operations of the condensed consolidated financial statements for information regarding discontinued operations.

40

Results of Operations
Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table summarizes our results for the nine months ended September 30, 2022 and 2021 (in thousands): 
Nine Months Ended September 30,
2022Percent of 
Revenues		2021Percent of 
Revenues		Change from Prior Year
DollarsPercent *
Total revenues$80,011 100.0 %$77,019 100.0 %$2,992 3.9 %
Total cost of revenues63,450 79.3 %68,691 89.2 %(5,241)(7.6)%
Gross profit16,561 20.7 %8,328 10.8 %8,233 98.9 %
Total operating expenses21,805 27.3 %16,290 21.2 %5,515 33.9 %
Loss from operations(5,244)(6.6)%(7,962)(10.3)%2,718 (34.1)%
Total other income (expense)(1,661)(2.1)%3,476 4.5 %(5,137)(147.8)%
Loss before income taxes(6,905)(8.6)%(4,486)(5.8)%(2,419)53.9 %
Income tax provision(256)(0.3)%(34)— %(222)652.9 %
Net loss from continuing operations(7,161)(9.0)%(4,520)(5.9)%(2,641)58.4 %
Net income from discontinued operations— — %5,955 7.7 %(5,955)(100.0)%
Net income (loss)$(7,161)(9.0)%$1,435 1.9 %$(8,596)(599.0)%
*Percentage may not equal the total.add due to rounding
Revenues
Healthcare
Healthcare revenue by segments is summarized as follows (in thousands):
Three Months Ended September 30,
20212020Change% Change
Diagnostic Services$11,098 $10,711 $387 3.6 %
Diagnostic Imaging3,709 2,048 1,661 81.1 %
Total Healthcare Revenue$14,807 $12,759 $2,048 16.1 %
Nine Months Ended September 30,
20222021Change% Change
Healthcare$40,467 $42,984 $(2,517)(5.9)%
Total Healthcare Revenue$40,467 $42,984 $(2,517)(5.9)%

Diagnostic ServicesHealthcare revenue increased 3.6%decreased 5.9% compared to the prior year quarter due to an increaseperiod, primarily driven by a decrease in revenue from several large select contracts. This business has recovered from COVID-19 and is now performing at pre-pandemic levels. Most doctor offices have reopened and hospitals are now performing non-emergency procedures.
The increase in Diagnostic Imaging isfewer total scanning days due to higher numberthe national shortage of cameras sold compared to the prior year quarter.
47

Nuclear Medicine Technologists.
Construction
Construction revenue is summarized as follows (in thousands):
Three Months Ended September 30,
20212020Change% Change
Construction$14,052 $8,542 $5,510 64.5 %
Construction Revenue$14,052 $8,542 $5,510 64.5 %

Nine Months Ended September 30,
20222021Change% Change
Construction$39,544 $34,035 $5,509 16.2 %
Total Construction Revenue$39,544 $34,035 $5,509 16.2 %
The increase in revenue for the Construction division was predominately due to a higher production levels,number of projects completed of varying sizes and increased pricing in both residential and commercial projects at KBS and EBGL, businesses.including a large contract entered into during 2022 that has resulted in recognized revenue of approximately $9 million.

Investments41
Investments revenue is summarized as follows (in thousands):

Three Months Ended September 30,
20212020Change% Change
Investments$— $17 $(17)(100.0)%
Investments Revenue$— $17 $(17)(100.0)%
The decrease in investments revenue was due to the wind down of investment vehicles from Lone Star Value Management, LLC (“LSVM”).
Gross Profit
Healthcare Gross Profit
Healthcare gross profit and gross margin by segments is summarized as follows (in thousands):
Three Months Ended September 30,
20212020% Change
Diagnostic Services gross profit$1,923 $2,076 (7.4)%
Diagnostic Services gross margin17.3 %19.4 %
Diagnostic Imaging gross profit$1,333 $399 234.1 %
Diagnostic Imaging gross margin35.9 %19.5 %
Total healthcare gross profit$3,256 $2,475 31.6 %
Total healthcare gross margin22.0 %19.4 %
Nine Months Ended September 30,
20222021Change% Change
Healthcare gross profit$9,579 $9,263 $316 3.4 %
Healthcare gross margin23.7 %21.5 %
The decreaseincrease in Diagnostic ServicesHealthcare gross margin percentage was mainly due todriven by an increase in raw material costs.
The increase in Diagnostic Imaging gross margin percentage was mainly due to the increased percentageimproved mix of high margin new cameras sold for the three months ended September 30, 2021, compared to the same period in the prior year.product and service revenues.
Construction Gross Profit (Loss)
Construction gross profit and margin is summarized as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20212020% Change20222021Change% Change
Construction gross profit$541 $1,253 (56.8)%
Construction gross profit (loss)Construction gross profit (loss)$7,203 $(759)$7,962 1,049.0 %
Construction gross marginConstruction gross margin3.8 %14.7 %Construction gross margin18.2 %(2.2)%
The decreaseincrease in Construction gross profit was predominately due to higher material costsan increase in revenues at KBS and EBGL for large commercial projects. The decrease in gross margin percentage is due to the adverse impact of a rapid and historic rise in raw materials costs during the first half of the year. We have significantly increased prices during 2021 to offset these higher input costs and expect to see further benefit from these increases onhave seen an improvement in our marginsgross margin overall in the fourth quarter of this year.2022. Our backlog and sales pipeline remain at record levels.
48

Investments Gross Loss
Investments gross loss is summarized as follows (in thousands):
Three Months Ended September 30,
20212020% Change
Real Estate and Investments gross loss$(50)$(48)4.2 %
The gross loss relates to depreciation expense associated with the three manufacturing facilities acquired in April 2019.strong despite economic headwinds.
Operating Expenses
Operating expenses are summarized as follows (in thousands):
Three Months Ended September 30,Percent of RevenuesNine Months Ended September 30,Percent of Revenues
20212020Change2021202020222021Change20222021
DollarsPercentDollarsPercent
Selling, general and administrative$5,201 $4,528 $673 14.9 %18.0 %21.2 %
Selling, general and administrative expensesSelling, general and administrative expenses$20,515 $15,839 $4,676 29.5 %25.6 %20.6 %
Amortization of intangible assetsAmortization of intangible assets430 561 (131)(23.4)%1.5 %2.6 %Amortization of intangible assets1,290 1,298 (8)(0.6)%1.6 %1.7 %
Gain on sale of MD Office SolutionsGain on sale of MD Office Solutions— (847)847 (100.0)%— %(1.1)%
Total operating expensesTotal operating expenses$5,631 $5,089 $542 10.7 %19.5 %23.8 %Total operating expenses$21,805 $16,290 $5,515 33.9 %27.2 %21.2 %
On a consolidated basis, there was a $0.7$4.7 million increase in sales, general and administrative expenses. MostTwo major drivers of the increase in SG&A was primarily associated withwere a $0.3$3 million increase in KBS headcount,legal expenses and a $0.3$0.7 million increase in corporate administrative expenses dueseverance and retention costs, both attributed to headcount andour healthcare segment. We also had a $0.1$0.8 million increase in IT and outside services fees. However, SG&A asat the corporate level related to corporate finance costs. As a percentage of revenue, decreasedSG&A increased to 18.0% of revenue,25.6%, versus 21.2%20.6% in the prior year periods.
Total Other Income (Expense)
Total other income (expense) is summarized as follows (in thousands):
Three Months Ended September 30,
20212020
Other income, net$3 $135 
Interest expense, net(260)(309)
Total other expense$(257)$(174)
Interest expense, net, for the three months ended September 30, 2021 and 2020 are predominantly comprised of interest costs and the related amortization of deferred issuance costs on our debt, respectively.
Income Tax Expense
For the three months ended September 30, 2021, there were no income tax expense from continuing operations. See Note 10, Income Taxes, within the notes to our unaudited consolidated financial statements for further information related to the income taxes.
Income from Discontinued Operations
See Note 2, Discontinued Operations of the unaudited condensed consolidated financial statements for information regarding discontinued operations.

49

Results of Operations
Comparison of the Nine Months Ended September 30, 2021 and 2020
The following table summarizes our results for the nine months ended September 30, 2021 and 2020 (in thousands):
Nine Months Ended September 30,
2021Percent of 
Revenues		2020Percent of 
Revenues		Change from Prior Year
DollarsPercent *
Total revenues$77,019 100.0 %$55,018 100.0 %$22,001 40.0 %
Total cost of revenues68,691 89.2 %44,921 81.6 %23,770 52.9 %
Gross profit8,328 10.8 %10,097 18.4 %(1,769)(17.5)%
Total operating expenses16,290 21.2 %14,757 26.8 %1,533 10.4 %
Loss from operations(7,962)(10.3)%(4,660)(8.4)%(3,302)70.9 %
Total other expense3,476 4.5 %(41)(0.1)%3,517 (8,578.0)%
Loss before income taxes(4,486)(5.7)%(4,701)(8.5)%215 (4.6)%
Income tax expense(34)— %(72)(0.1)%38 (52.8)%
Net loss from continuing operations(4,520)(5.9)%(4,773)(8.6)%253 (5.3)%
Net income (loss) from discontinued operations5,955 7.7 %(1,227)(2.2)%7,182 (585.3)%
Net income (loss)$1,435 2.0 %$(6,000)(10.8)%$7,435 (123.9)%
*Percentage to revenue were computed independently for each discrete item presented. Therefore, the sum of the individual items may not equal the total.
Revenues
Healthcare
Healthcare revenue by segments is summarized as follows (in thousands):
Nine Months Ended September 30,
20212020Change% Change
Diagnostic Services$33,080 $28,665 $4,415 15.4 %
Diagnostic Imaging9,904 7,242 2,662 36.8 %
Total Healthcare Revenue$42,984 $35,907 $7,077 19.7 %

Diagnostic Services revenue increased 15.4% compared to prior year quarter. This business has recovered and is now performing at pre-pandemic levels. Doctor’s offices have reopened and hospitals are now performing non-emergency procedures.
The increase in Diagnostic Imaging is due to higher number of cameras sold compared to the same period in the prior year.
Construction
Construction revenue is summarized as follows (in thousands):
Nine Months Ended September 30,
20212020Change% Change
Building and Construction$34,035 $19,061 $14,974 78.6 %
Total Construction Revenue$34,035 $19,061 $14,974 78.6 %
The increase in revenue for the Construction division was predominately due to a higher number of projects completed and increased pricing at KBS and EBGL.
50

Real Estate and Investments
Real Estate and Investments revenue is summarized as follows (in thousands):
Nine Months Ended September 30,
20212020Change% Change
Real Estate and Investments$— $50 $(50)(100.0)%
Real Estate and Investments Revenue$— $50 $(50)(100.0)%
The decrease in investments revenue was due to the wind down of investment vehicles from LSVM.
Gross Profit
Healthcare Gross Profit
Healthcare gross profit and gross margin by segments is summarized as follows (in thousands):
Nine Months Ended September 30,
20212020% Change
Diagnostic Services gross profit$5,923 $5,034 17.7 %
Diagnostic Services gross margin17.9 %17.6 %
Diagnostic Imaging gross profit3,340 2,500 33.6 %
Diagnostic Imaging gross margin33.7 %34.5 %
Total healthcare gross profit$9,263 $7,534 22.9 %
Total healthcare gross margin21.5 %21.0 %

The increase in Diagnostic Services gross margin percentage was mainly due to increased sales as the business recovered from the COVID-19 pandemic. Our fixed costs such as employee costs, insurance, workers compensation, rents, utilities, repairs, and maintenance remained fairly constant.
The decrease in Diagnostic Imaging gross margin percentage was mainly due to product mix of new and used cameras sold for the nine months ended September 30, 2021, compared to the same period in the prior year.

Construction Gross (Loss) Profit
Construction gross profit and margin is summarized as follows (in thousands):
Nine Months Ended September 30,
20212020% Change
Building and Construction gross (loss) profit$(759)$2,709 (128.0)%
Building and Construction gross margin(2.2)%14.2 %
The decrease in Construction gross profit was predominately due to higher material costs at KBS and EBGL for large commercial projects. The decrease in gross margin percentage is due to the adverse impact of a rapid and historic rise in raw materials costs. We have significantly increased prices during 2021 to offset these higher input costs and expect to see further benefit from these increases on our margins in the fourth quarter of this year. Our backlog and sales pipeline remain at record levels.
Real Estate and Investments Gross Profit
Real Estate and Investments gross profit and margin is summarized as follows (in thousands):
Nine Months Ended September 30,
20212020% Change
Real Estate and Investments gross loss$(176)$(146)20.5 %
51

The Investments gross loss relates to depreciation expense associated with the three manufacturing facilities acquired in April 2019.
Operating Expenses
Operating expenses are summarized as follows (in thousands):
Nine Months Ended September 30,Percent of Revenues
20212020Change20212020
DollarsPercent
Selling, general and administrative expenses$15,839 $13,061 $2,778 21.3 %20.6 %23.7 %
Amortization of intangible assets1,298 1,696 (398)(23.5)%1.7 %3.1 %
Gain on sale of MD Office Solutions(847)— (847)(100.0)%(1.1)%— %
Total operating expenses$16,290 $14,757 $1,533 10.4 %21.2 %26.8 %
The $2.8 million increase in sales, general and administrative expenses was primarily associated with a $1 million increase in KBS as a result of increased headcount and commissions, a $0.3 million increase in external and internal auditors review fees, a $0.8 million increase in corporate administrative department due to headcount and a $0.6 million increase in IT and outside services fees. However, SG&A as a percentage of revenue decreased from 23.7% to 20.6%, respectively.period.
On February 1, 2021, we completed the sale of our MD Office Solutions business and recognized $0.8 million in gain upon sale.
Total Other Income (Expense)
Total other expenseIncome (expense) is summarized as follows (in thousands):
Nine Months Ended September 30,
20212020
Other income, net$4,208 $967 
Interest expense, net(732)(1,008)
Total other expense$3,476 $(41)
Nine Months Ended September 30,
20222021
Other income (expense), net$(997)$4,208 
Interest expense, net(664)(732)
Total other income (expense)$(1,661)$3,476 
Other income, net for nine months ended September 30, 20212022 is predominantly comprised of gains and losses from equity securities and sales of assets, whereas the nine months ended September 30, 2021 comprised of primarily $4.2 million in PPP

42

loan forgiveness from the Diagnostic ServicesHealthcare and Construction business.businesses. As of September 30, 2021,2022, the Company has no PPP loans outstanding.
Interest expense, net, for the nine months ended September 30, 20212022 and 20202021 is predominantly comprised of interest costs and the related amortization of deferred issuance costs on our debt.
Income Tax Expense
For the nine months ended September 30, 2022 and 2021, we recorded an income tax expenseexpenses of $256 thousand and $34 thousand.thousand, respectively. See Note 10, Income Taxes, within the notes to our unaudited condensed consolidated financial statements for further information related to the income taxes.
Income from Discontinued Operations
See Note 2, Discontinued Operations of the unaudited condensed consolidated financial statements for information regarding discontinued operations.
Liquidity and Capital Resources
Overview
We usedSummary Cash Flows
The following table shows cash of $8.2 million of cash in operations duringflow information for the nine months ended September 30, 2022 and 2021 predominately(in thousands): 
Nine Months Ended September 30,
20222021
Net cash provided by (used in) operating activities$(234)$(8,176)
Net cash provided by (used in) investing activities$(4,982)$17,794 
Net cash provided by (used in) financing activities$9,749 $(7,317)
Cash Flows from an increaseOperating Activities
For the nine months ended September 30, 2022, net cash used in operating activities was $0.2 million, as compared to $8.2 million in net working capital. Cash flowcash used in operations primarily consistoperating activities in 2021. The decrease in net cash used in operating activities is attributable to better operating performance, particularly at our Construction Division. In 2021 consolidated net income included non-cash items related to the gain on sale of our overallDMS Health Technologies, Inc. (“DMS Health”) and MD Office Solutions businesses, and PPP loan forgiveness.
Cash Flows from Investing Activities
For the nine months ended September 30, 2022, net income (adjusted for depreciation, amortization, and other non-cash items), and thecash used in investing activities was $5.0 million, which principally consists of $4.0 million in purchases of equity securities as we expanded our Investments Division. In 2021, net effect of changes in working capital. Cash flowcash provided by investing activities was $17.8 million, which was primarily attributable to the proceeds we received from the sale of DMS Sale Transaction was used primarily for a $9.9 million reduction in debt, $1.0 million preferred dividend payment and general use in$18.75 million.
Cash Flows from Financing Activities
For the nine months ended September 30, 2022, net working capital. Cash flow fromcash provided by financing activities was $9.7 million, as compared to net cash used in financing activities of $7.3 million in 2021. The increase in cash provided by financing activities was primarily consisteddue to net proceeds of $12.7 million raised in our net payments2022 public equity offering.
Sources of borrowings on various revolving facilities and the receipt of cash from the conversion of cash warrants converted into common stock, offset by the repayments of finance leases and dividends.
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Liquidity
Our principal sources of liquidity includeare our existing cash and cash equivalents, cash generated from operations, and fundscash available under variouson our revolving lines of credit from our credit facility with Webster Bank, N.A., a national banking association (“Webster”), as successor in interest to Sterling National Bank (“Sterling”), our three credit facilities with eCapital, and proceedscash raised from sale of DMS Health.equity financings. As of September 30, 2021,2022, we had $5.7$8.5 million of cash and cash equivalents. The eCapital facilities directly support our Construction businesses. As of September 30, 2022, we have additional borrowing capacity of $0.2 million and $0.9 million outstanding on the KBS revolver. We were at $2.6 million outstanding balance and were fully drawn in terms of available capacity on the EBGL revolver. We were at $7.5 million outstanding balance and an additional borrowing capacity of $0.6 million on the Webster credit facility. However, those facilities have loan limits of $4.0 million each and we expect to be able to use more of that availability as our borrowing base increases with higher production levels. In January 2022, we successfully completed the 2022 Public Offering with net proceeds of $12.7 million.
Going Concern

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The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and settlement of obligations in the normal course of business. We incurred losses from continuing operations, net of income taxes, of approximately $1.9 million and $7.2 million for the three and nine months ended September 30, 2022, respectively, and $2.1 million and $4.5 million for the three and nine months ended September 30, 2021, respectively. We have an accumulated deficit of $135.1 million and $128.0 million as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, cash and cash equivalents and restricted cash and $1.7increased to $8.5 million available under our Sterling revolving linefrom $4.5 million as of credit.
We require capital, principallyDecember 31, 2021, primarily as a result of an underwritten public offering (the “2022 Public Offering”) which closed on January 24, 2022. Refer to Note 14. Equity Transactions for capital expenditures, acquisition activity, dividend payments and to finance accounts receivable and inventory. Our working capital requirements vary from period to period depending on inventory requirements, the timing of deliveries, and the payment cycles of our customers. Our capital expenditures consist primarily of medical imaging and diagnostic devices utilized in the delivery of our services, equipment used for construction projects, as well as vehicles and information technology hardware and software.details.
Regarding our debt,At September 30, 2022, we had approximately $14.0$11.9 million in short term debt due tooutstanding. All of our borrowings whichdebt is classifiedcategorized as short term as disclosed inshort-term on our condensed Consolidated Balance Sheets. For more detail, see Note 8. Debt. The $7.4Company’s loan pursuant to the Webster Loan Agreement (as defined below) (the “Webster Loan”) with Webster, as successor in interest to Sterling National Bank, with a loan balance of approximately $7.5 million, SNB debt primarily supports our healthcare business andHealthcare business. While the Webster Loan matures in 2024, but GAAP rules require that the outstanding balance be classified as short-term debt,debt. This is due to both the automatic sweep feature embedded in the traditional lockbox arrangement along with aand the subjective acceleration clause in the SNBWebster Loan and Security Agreement. In practice, we have the ability to immediately borrow back these daily sweeps to fund our working capital. As of September 30, 2021, we were in compliance with all borrowing arrangements related to our Healthcare division. As of September 30, 2021, we had $1.7 million of borrowing capacity to fund the operations of these divisions.
As of September 30, 2021,2022, we have $5.5 million outstanding on our Construction revolvers with Gerber and were not in compliance with covenants in the Webster Loan Agreement related to our Healthcare division and we have not yet obtained a waiver from Webster for these financial covenant breaches. Upon the occurrence and during the continuation of an event of default under the Webster Loan Agreement, Webster may, among other things, declare the loans and all bi-annual borrowing covenants for Gerber, but obtained waivers forother obligations under the bi-annual measurement period ended June 30, 2021.Webster Loan Agreement immediately due and payable and increase the interest rate at which loans and obligations under the Webster Loan Agreement bear interest. We are currently in negotiations to avoid a default. While Gerber has historically provided us with waivers, there is no assurance thatwe do not believe we will be ablerequired to receive waivers for covenant violationspay down the current balance, our current cash is sufficient to repay the Webster Loan in the future, or that we will meet compliance with covenants in the future. We have $1.1 million outstanding on our Star term loan, on which we have been making timely payments and are in compliance with the borrowing arrangements. Related party notes of $2.3 million that were outstanding as of December 31, 2020 were fully paid off on April 1, 2021, using proceeds from the DMS Sale Transaction. In addition, as of September 30, 2021, we had cash and cash equivalents of $5.7 million.full.
The Company is forecasting SNB Loan covenant violations within twelve months after the date that financial statements are issued. Management believeshas historically concluded that this forecasted violation raises substantial doubt about the Company’sour ability to continue as a going concern within twelve months. In consideration of the cash flow results for the nine months afterended September 30, 2022, our current balance of cash and cash equivalents of $8.5 million and our projected use of cash for the next twelve months. Management believes that the Company's existing cash and current free cash flow generation expectations will allow the Company to continue its operations for at least the next 12 months from the date thatthese unaudited condensed financial statements are issued. The Company's financial statements do not reflect any adjustmentsissued, even in the event that mightwe are requested to pay some or all of the outstanding Webster Loan balance. Therefore, the conditions that led us to conclude substantial doubt in prior periods have been alleviated. As a result fromof recurring losses, the outcomecontinued viability of this uncertainty. Management is taking steps to provide the Company with the opportunitybeyond November 2023 may be dependent on its ability to continue as a going concern, including but not limited to increased pricing, improvements in operations, and obtainingraise additional financing. There can be no assurance that we will be successful in procuring of such efforts. Our abilitiescapital to continue as a going concern maybe dependent on our ability to implement our plans.finance its operations.
Common Stock Equity Offering
On May 28, 2020, we closed aan underwritten public offering (the “Offering”“2020 Public Offering”) pursuant to an underwriting agreement with Maxim Group LLC, as representative of the underwriters. The 2020 Public Offering was for 2,225,000 shares of our common stock, and 2,225,000 warrants (the “Warrants”) to purchase up to 1,112,500 additional shares of our common stock. The 2020 Public Offering price was $2.24 per share of common stock and $0.01 per accompanying Warrant (for a combined Offeringoffering price of $2.25), initially raising $5.0 million in gross. Gross proceeds, before underwriterdeducting underwriting discounts and offering-related expenses. Theoffering expenses and excluding any proceeds we may receive upon exercise of the common warrants, were $5.5 million and net proceeds were $5.2 million.
As noted above, on January 24, 2022, we closed the 2022 Public Offering pursuant to an underwriting agreement (the “Underwriting Agreement”) we entered into with Maxim Group LLC, (“Maxim”), as representative of the underwriters,underwriters. The 2022 Public Offering was for the Offering contained customary representations, warranties,9,500,000 shares of common stock (or pre-funded warrants to purchase shares of common stock in lieu thereof) and agreements by thewarrants to purchase up to 9,500,000 shares of common stock (the “common warrants”). Each share of common stock (or pre-funded warrant in lieu thereof) was sold together with one common warrant to purchase one share of common stock at a price of $1.50 per share and common warrant. Additionally, Company customary conditions to closing, indemnification obligations of the Company and Maxim and certain other obligations.
Pursuant to the terms of the Underwriting Agreement, we grantedissued to Maxim an option for a period of 45 days237,500 common stock purchase warrants (the “Over-Allotment Option”“Underwriter’s Warrants”) to purchase up to 225,000 additional237,500 shares of ourCommon Stock at an exercise price of $1.65 per common stockwarrant. Gross proceeds, before deducting underwriting discounts and 225,000 Warrants to purchase up to an additional 112,500 shares of our common stock. Effective asoffering expenses and excluding any proceeds we may receive upon exercise of the closingcommon warrants, were $14.3 million and net proceeds were $12.7 million.
As of September 30, 2022, of the Offering, Maximwarrants issued through the public offering we closed on May 28, 2020 (the “2020 Public Offering”), 1.0 millionwarrants were exercised the Over-Allotment Option for the purchase of 225,000 Warrants for a price of $0.01 per Warrant. On June 10, 2020, Maxim exercised the Over-Allotment Option for the purchase of 225,000 shares of our common stock for a price of $2.24 per share, before underwriting discounts. The closing of the sale of the over-allotment shares brought the total number ofand 1.4 million warrants remained outstanding, which represents 0.7 million shares of common stock we sold in the Offering to 2,450,000 shares, and total gross proceeds to approximately $5.5 million. In addition, the Company received $2.2 million million from investors in the Offering throughout the balanceequivalents, at an exercise price of $2.25. As of September 30, 2021, due to the exercise of a portion2022, of the Warrants soldissued through the 2022 Public Offering, there were 10.9 million Warrants and 0.3 million prefunded warrants outstanding at an exercise price of $1.50 and $0.01, respectively. The Underwriter’s Warrants have not been exercised.
See Note 14. Equity Transactions in the Offering, bringingaccompanying notes to the total gross proceeds from equity issuance to $7.7 million. .condensed consolidated financial statements for further details.

The net proceeds to the Company from the Offering and Warrant exercises in 2020 were approximately $5.2 million (inclusive of the exercise of the over-allotment option), after deducting underwriter fees and offering-related expenses estimated at $0.8 million. We used a significant portion of the net proceeds from the Offering to fund working capital needs at our construction businesses, particularly related to modular housing projects which we produced at KBS Builders, Inc. (“KBS”) for the Boston-area projects. The remainder of the net proceeds is being used for working capital and for other general corporate purposes. We have broad discretion in determining how the proceeds of the Offering is used, and our discretion is not limited by the aforementioned possible uses.
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Webster Credit Facility
We have a $20.0 million credit facility with Webster, which matures in March 2024. As of September 30, 2021, 1.0 million warrants were exercised and 1.5 million warrants remained outstanding at an exercise price of $2.25.
Cash Flows
The following table shows cash flow information for the nine months ended September 30, 2021 and 2020 (in thousands):
Nine Months Ended September 30,
20212020
Net cash used in operating activities$(8,176)$(1,880)
Net cash provided by (used in) investing activities$17,794 $(490)
Net cash (used in) provided by financing activities$(7,317)$4,745 
Operating Activities
The increase in cash used compared to the prior year period was primarily due to operating losses due to increased material prices in the Construction division.
Investing Activities
The increase in investing activities positive cash flow compared to the prior year period was primarily attributable to $18.75 million proceeds received from DMS Health disposition.
Financing Activities
The decrease in cash flow from financing activities is primarily due to a $7.9 million pay down of the SNB Credit Facility, $2.3 million pay down of the ATRM Promissory Notes, and $0.7 million pay down of the EBGL Premier Note, $1.0 million pay down of preferred stock dividends, using the proceeds from the sale of the DMS Health business.
Sterling Credit Facility
On March 29, 2019, the Company entered into a Loan and Security Agreement (the “SNB Loan Agreement”) by and among certain subsidiaries of the Company, as borrowers (collectively, the “SNB Borrowers”); the Company, as guarantor; and Sterling National Bank, a national banking association, as lender (“Sterling” or “SNB”).
The SNB Loan Agreement is a five-year credit facility maturing in March 2024, with a maximum credit amount of $20.0 million for revolving loans (the “SNB Credit Facility”). Under the SNB Credit Facility, the SNB Borrowers can request the issuance of letters of credit in an aggregate amount not to exceed $0.5 million at any one time outstanding. The borrowings under the SNB Loan Agreement were classified as short-term obligations under GAAP as the agreement contained a subjective acceleration clause and required a lockbox arrangement whereby all receipts within the lockbox are swept daily to reduce borrowings outstanding. As of September 30, 2021,2022, the Company had $0.1 million of letters of credit outstanding and had additional borrowing capacity of $1.7 million.
At$0.6 million under the Borrowers’ option,Webster Credit Facility. Financial covenants require that the SNB Credit Facility will bear interest at either (i) a Floating LIBOR Rate, as defined in the Loan Agreement, plus a margin of 2.50% per annum; or (ii)Webster Borrowers maintain (a) a Fixed LIBOR Rate,Charge Coverage Ratio as defined inof the Loan Agreement, pluslast day of a marginfiscal quarter of 2.25% per annum.not less than 1.25 to 1.0 and (b) a Leverage Ratio as of the last day of such fiscal quarter of no greater than 3.50 to 1.0. As our largest single debt outstanding, our floating rate on this facility atof September 30, 2021 was 2.58%.
The SNB Loan Agreement includes certain representations, warranties of SNB Borrowers, as well as events of default and certain affirmative and negative covenants by the SNB Borrowers that are customary for loan agreements of this type. These covenants include restrictions on borrowings, investments and dispositions by SNB Borrowers, as well as limitations on the SNB Borrowers’ ability to make certain distributions. Upon the occurrence and during the continuation of an event of default under the SNB Loan Agreement, SNB may, among other things, declare the loans and all other obligations under the SNB Loan Agreement immediately due and payable and increase the interest rate at which loans and obligations under the SNB Loan Agreement bear interest. The SNB Credit Facility is secured by a first-priority security interest in substantially all of the assets of2022, the Company and the SNB Borrowers and a pledge of all shares of the SNB Borrowers.
On March 29, 2019, in connection with the Company’s entry into the SNB Loan Agreement, Jeffery E. Eberwein, the Executive Chairman of the Company’s board of directors, entered into Limited Guaranty Agreement (the “SNB Eberwein Guaranty”) with SNB pursuant to which he guaranteed the prompt performance of all the Borrowers’ obligations under the SNB Loan Agreement. The SNB Eberwein Guaranty is limited in the aggregate to the amount of (a) $1.5 million, plus (b) reasonable costs and expenses of SNB incurred in connection with the SNB Eberwein Guaranty. Mr. Eberwein’s obligations under the SNB Eberwein Guaranty terminate upon the Company and Borrowers achieving certain milestones set forth therein.
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On February 1, 2021, in connection with the closing of the Company’s sale of MD Office Solutions, the Company entered into a First Amendment to the SNB Loan Agreement pursuant to which, among other things, Sterling consented to the sale of MD Office Solutions and the Company’s name change from Digirad Corporation to Star Equity Holdings, Inc.
On March 31, 2021, in connection with completing the sale of DMS Health, the Company, certain subsidiaries of the Company, and Sterling entered into a Second Amendment to the SNB Loan Agreement pursuant to which, among other things, Sterling consented to the sale of DMS Health and its subsidiaries, removed DMS Health and its subsidiaries as borrowers under the SNB Loan Agreement, and required the principle to be paid down to $7.0 million.
At September 30, 2021, the Company was not in compliance with the covenants under the SNB Loan Agreement.
Construction Loan Agreements
As of September 30, 2021, the Construction division had outstanding revolving lines of credit and term loans of approximately $5.5 million. This debt includes: (i) $3.5 million principal outstanding on KBS’s $4.0 million revolving credit facility under a Loan and Security Agreement, dated February 23, 2016, (as amended, the “KBS Loan Agreement”), with Gerber and (ii) $2.0 million principal outstanding on EBGL’s $3.0 million revolving credit facility under a Revolving Credit Loan Agreement, which was increased from $3.0 million to $4.0 million on July 30, 2021. The Construction division was at the maximum borrowing capacity under both revolving lines of credit, based on the inventory and accounts receivable on September 30, 2021 which fluctuates weekly.
KBS Loan Agreement
On February 23, 2016, ATRM, KBS and Main Modular Haulers, Inc. (a former subsidiary of ATRM) entered into a Loan and Security Agreement, (as amended, the “KBS Loan Agreement”), with Gerber. The KBS Loan Agreement provides KBS with a revolving line of credit with borrowing availability of up to $4.0 million. Availability under the line of credit is based on a formula tied to KBS’s eligible accounts receivable, inventory and other collateral. The KBS Loan Agreement, which was scheduled to expire on February 22, 2018, has been automatically extended for successive one (1) year periods in accordance with its terms and is now scheduled to expire on February 22, 2022. The KBS Loan Agreement will be automatically extended for another one (1) year period unless a party thereto provides prior written notice of termination. As of September 30, 2021 neither party has provided notice of termination. Upon the final expiration of the term of the KBS Loan Agreement, the outstanding principal balance is payable in full. Borrowings bear interest at the prime rate plus 2.75%, equating to 6.00% at September 30, 2021, with interest payable monthly. The KBS Loan Agreement also provides for certain fees payable to Gerber during its term, including a 1.5% annual facilities fee and a 0.10% monthly collateral monitoring fee. KBS’s obligations under the KBS Loan Agreement are secured by all of its assets and are guaranteed by ATRM. Unsecured promissory notes issued by KBS and ATRM are subordinate to KBS’s obligations under the KBS Loan Agreement. The KBS Loan Agreement contains representations, warranties, affirmative and negative covenants, defined events of default and other provisions customary for financings of this type. Financial covenants require that KBS maintain a maximum leverage ratio (as defined in the KBS Loan Agreement) and KBS not incur a net annual post-tax loss in any fiscal year during the term of the KBS Loan Agreement. The borrowings under the KBS Loan Agreement were classified as short-term obligations under GAAP as the agreement contained a subjective acceleration clause and required a lockbox arrangement whereby certain receipts are swept daily to reduce borrowings outstanding. At September 30, 2021, approximately $3.5 million was outstanding under the KBS Loan Agreement.
On September 10, 2019, the parties to the KBS Loan Agreement entered into the twelfth amendment to the KBS Loan Agreement (the “Twelfth KBS Amendment”), pursuant to which the Company agreed to guarantee amounts borrowed by certain ATRM’s subsidiaries from Gerber.
On January 31, 2020, the Company, ATRM, KBS and Gerber entered into a thirteenth amendment to the KBS Loan Agreement (the “Thirteenth KBS Amendment”) to amend the terms of the KBS Loan Agreement, in order to, among other things (a) amend the definitions of “Ancillary Credit Parties,” “Guarantor,” “Obligations,” and “Subordinated Lender” to address the obligations of the Star Borrowers, the EBGL Borrowers, the Star Credit Parties, and the EBGL Credit Parties under the Star Loan Agreement, EBGLWebster Loan Agreement and the Subordination Agreements (each as defined below) to which they are a party and (b) add a new cross default provision.
On March 5, 2020, in connection with the First EBGL Amendment, Gerber, KBS, ATRM and the Company entered into a fourteenth amendment to the KBS Loan Agreement in order to, among other things consent to the First EBGL Amendment and remove cash and cash collateral from the borrowing base.
On April 1, 2020, Gerber and KBS entered into a fifteenth amendment to the KBS Loan Agreement pursuant to which the “Minimum Average Monthly Loan Amount” was decreased to twenty-five percent (25%) of the Maximum Revolving Amount.
On January 5, 2021, Gerber and KBS entered into a sixteenth amendment to the KBS Loan Agreement in order to, among other things, amend certain definitions under the KBS Loan Agreement and to increase the inventory assets against which funds can be borrowed.
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On February 26, 2021 Gerber and KBS entered into a seventeenth amendment to the KBS Loan Agreement in order to provide the waiver to the 2020 covenant breach and amended the financial covenants. The financial covenants under the KBS Loan Agreement, as amended, provide that (i) KBS shall make no distribution, transfer, payment, advance, or contribution of cash or property which would constitute a restricted payment as such term is defined in the agreement; (ii) KBS shall report annual post-tax net income at least equal to (a) $385 thousand for the trailing 6-month period ending June 30, 2021 and (b) $500 thousand for the trailing fiscal year end December 31, 2021; and (iii) a minimum EBITDA at June 30, 2021 of more than $880 thousand or at December 31, 2021 of more than $1.5 million.
On March 31, 2021, the parties to the KBS Loan Agreement amended the KBS Loan Agreement to provide for increased availability under the KBS Loan Agreement to KBS under certain circumstances, including for new equipment additions, and certain other changes, as well as a waiver of certain covenants.
As of June 30, 2021 and December 31, 2020, KBS washad not in compliance with the bi-annual financial covenants requiring no net annual post-tax income for KBS of at least $385 thousand, during the nine months ended September 30, 2021. So long as EBITDA for the year ended December 31, 2021 is at least $1.5 million, KBS may nevertheless comply with the covenant for the year, but as of June 30, 2021, KBS was not in compliance with the bi-annual financial requirement requiring EBITDA to equal at least $880 thousand. The occurrence of any event of default under the KBS Loan Agreement may result in KBS’s obligations under the KBS Loan Agreement becoming immediately due and payable. Subsequently, weyet obtained a waiver from GerberWebster for these events.financial covenant breaches. While we do not believe Webster will require us to pay down our balance on this facility, we have sufficient cash to do so if necessary.
On July 30, 2021 in connection with the Fourth EBGL Amendment, Gerber, KBS, ATRM and the Company entered into an eighteenth amendment to the KBS Loan Agreement in order to, among other things, (a) confirm the cancellation of certain subordination agreements with Lone Star Value Management, LLC (“LSVM”) and Lone Star Value Co-Invest I, LP (“LSV Co-Invest I”), after the LSVM Note and LSV Co-Invest June Note and January Note were paid by the Company, (b) amend the terms of the KBS Loan Agreement, including the definitions of “Ancillary and “Subordinated Lender” to include SRE and remove LSVM and LSV Co-Invest I, and (c) add confirm certain cross-default provisionseCapital Credit Facilities
EBGL Premier Note
On June 30, 2017, EdgeBuilder and Glenbrook (together, EBGL) entered into a Revolving Credit Loan Agreement (as amended, the “Premier Loan Agreement”) with Premier providing EBGL with a working capital line of credit of up to $3.0 million. The Premier Loan Agreement replaced the prior revolving credit facility.
Availability under the Premier Loan Agreement is based on a formula tied to EBGL’s eligible accounts receivable, inventory and equipment, and borrowings bear interest at the prime rate plus 1.50%, with interest payable monthly and the outstanding principal balance payable upon expiration of the term of the Premier Loan Agreement. The Premier Loan Agreement also provides for certain fees payable to Premier during its term. The initial term of the Premier Loan Agreement was scheduled to expire on June 30, 2018, but was extended multiple times by Premier until January 31, 2023. EBGL’s obligations under the Premier Loan Agreement are secured by all of their inventory, equipment, accounts and other intangibles, fixtures and all proceeds of the foregoing.
On January 31, 2020, Glenbrook and EdgeBuilder entered into an Extension and Modification Agreement (the “Modification Agreement”) with Premier that modified the terms of the Revolving Credit Promissory Note made by Glenbrook and EdgeBuilder. The Modification Agreement reduced the outstanding borrowings to $1.0 million, extended the final maturity date to January 31, 2023, and set the interest rate to at 5.75% per annum. Mr. Eberwein executed a guaranty in favor of Premier, which had been extended through January 1, 2023, under which ATRM and Mr. Eberwein absolutely and unconditionally guaranteed all of EBGL’s obligations under the Premier Loan Agreement.
All obligations under the Premier Loan Agreement have been repaid in full in second quarter and no amount remains outstanding as of September 30, 2021. In exchange Premier terminated all of its security interests in the assets of EBGL.

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Gerber Star and EBGL Loans
On January 31, 2020, SRE, 947 Waterford Road, LLC (“947 Waterford”), 300 Park Street, LLC (“300 Park”), and 56 Mechanic Falls Road, LLC (“56 Mechanic” and together with SRE, 947 Waterford, and 300 Park, (the “Star Borrowers”), each an Investments Subsidiary, and the Company, ATRM, KBS, EdgeBuilder, and Glenbrook (collectively, the “Star Credit Parties”), entered into a Loan and Security Agreement (as amended, the “Star Loan Agreement”) with Gerber providing the Star Borrowers with a credit facility with borrowing availability of up to $2.5 million ($2.0 million and $0.5 million to KBS and EBGL, respectively) (the “Star Loan”). The advance of $2.0 million to KBS is to be repaid in monthly installments of sixty (60) consecutive equal payments. The advance of $0.5 million to EBGL, which has been temporarily increased by $0.3 million due to be repaid on April 30, 2020, is to be repaid in monthly installments of twelve (12) consecutive equal payments. On February 20, 2020, the Star Borrowers entered into a first amendment to the Star Loan Agreement (the “First Star Amendment”) in order to (i) temporarily advance $0.3 million to EBGL, which amount is to be repaid to Gerber on or before April 30, 2020; (ii) clarify that Gerber can make multiple advances under the Star Loan Agreement, and (iii) to correct the maturity date of the Star Loan. On April 30, 2020, the Star Borrowers entered into a second amendment to the Star Loan Agreement (the “Second Star Amendment”) to change terms of repayment for the advance of $0.3 million to EBGL to provide for repayment in three consecutive equal monthly installments, commencing on May 30, 2020, with a final installment on or before July 31, 2020. EBGL paid off approximately $0.5 million of the advance in 2020 and $1.1 million was outstanding, net with deferred financing costs, under the Star Loan Agreement as of September 30, 2021.

On January 31, 2020, EdgeBuilder and Glenbrook (the “EBGL Borrowers”), each have a Construction subsidiary, and the Company, Star, 947 Waterford, 300 Park, 56 Mechanic, ATRM, and KBS (collectively, the “EBGL Credit Parties”), entered into a Loan and Security Agreement (the “EBGL Loan Agreement”) with Gerber providing the EBGL Borrowers with a$4.0 million credit facility with borrowing availability of up to $3.0 million (the “EBGL Loan”). On March 5, 2020, the EBGL Borrowers entered into a first amendment to the EBGL Loan Agreement (the “First EBGL Amendment”) with Gerber that amended the EBGL Loan Agreement and the KBS Loan Agreement to include a pledge $0.3 million of cash collateral by LSVI under the EBGL Loan AgreementeCapital, which prior to the First EBGL Amendment, was pledged by LSVImatures in connection with the KBS Loan Agreement. On July 1, 2020, the EBGL Borrowers entered into a second amendment to the EBGL Loan Agreement to terminate the pledge of $0.3 million in cash collateral. On February 26, 2021, the EBGL Borrowers entered into a third amendment to the EBGL Loan Agreement (the “Third EBGL Amendment”) pursuant to which the Company and Gerber agreed to, among other things, eliminate the minimum leverage ratio covenant, lower the minimum EBITDA, and require the borrowers to not incur a net operating loss on bi-annual basis. The Third EBGL Amendment also discharged the EBGL Eberwein Guaranty described below.January 2023. As of September 30, 2021, approximately $2.02022, EBGL was fully drawn in terms of available borrowing capacity is available under the facility. As of September 30, 2022, $2.6 million was outstanding under the EBGL Loan Agreement.
Availability under the Star Loan Agreement is based on a formula tied to the value of real estate owned by the Star Borrowers, and borrowings bear interest at the prime rate plus 3.5% per annum. Availability under the EBGL Loan Agreement is based on a formula tied to the EBGL Borrowers’ eligible accounts receivable and inventory, and borrowings bear interest at the prime rate plus 2.75% per annum. The Loan Agreements also provide for certain fees payable to Gerber during their respective terms. The Star Loan matures on the earlier of (a) January 1, 2025 or (b) the termination, the maturity or repayment of the EBGL Loan. The EBGL Loan matures on the earlier of (a) January 1, 2022, unless extended, or (b) the termination, the maturity or repayment of the Star Loan. The maturity of the EBGL Loan is automatically extended for successive periods of one (1) year each unless terminated by Gerber or the EBGL Borrowers. The borrowings under the EBGL Loan Agreement were classified as short-term obligations under GAAP as the agreement contained a subjective acceleration clause and required a lockbox arrangement whereby all receipts are swept daily to reduce borrowings outstanding.

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The obligations of the EBGL Borrowers under the EBGL Loan Agreement are guaranteed by the EBGL Credit Parties and are secured by substantially all the assets of the EBGL Borrowers and the EBGL Credit Parties. The obligations of the Star Borrowers under the Star Loan Agreement are guaranteed by the Star Credit Parties and are secured by substantially all the assets of the Star Borrowers and the Star Credit Parties. Contemporaneously with the execution and delivery of the Star Loan Agreement, Jeffrey E. Eberwein, the Executive Chairman of the Company’s board of directors, executed and delivered a Guaranty (the “Gerber Eberwein Guaranty”) to Gerber pursuant to which he guaranteed the performance of all the Star Borrowers’ obligations to Gerber under the Star Loan Agreement, including the full payment of all indebtedness owing by the Star Borrowers to Gerber under or in connection with the Star Loan Agreement and related financing documents. Mr. Eberwein’s obligations under the Gerber Eberwein Guaranty are limited in the aggregate to the amount of (a) $2.5 million, plus (b) costs of Gerber incidental to the enforcement of the Gerber Eberwein Guaranty or any guaranteed obligations. On March 5, 2020, contemporaneously with the execution and delivery of the First EBGL Amendment, Mr. Eberwein, the Executive Chairman of the Company’s board of directors, executed and delivered a Guaranty (the “EBGL Eberwein Guaranty”) to Gerber pursuant to which he guaranteed the performance of all the EBGL Borrowers’ obligations to Gerber under the EBGL Loan Agreement, including the full payment of all indebtedness owing by the EBGL Borrowers to Gerber under or in connection with the EBGL Loan Agreement and related financing documents. Mr. Eberwein’s obligations under the EBGL Eberwein Guaranty are limited in the aggregate to the amount of (a) $0.5 million, plus (b) costs of Gerber incidental to the enforcement of the EBGL Eberwein Guaranty or any guaranteed obligations.
On February 26, 2021, the Star Borrowers entered into a third amendment to the Star Loan Agreement (the “Third Star Amendment”) with Gerber that, among other things, amended the contract rate to prime rate plus 3% and discharged the $2.5 million Gerber Eberwein Guaranty.
On July 30, 2021, the Star Borrowers entered into a fourth amendment to the Star Loan Agreement (the “Fourth Star Amendment”) with Gerber that, among other things, amended the terms of the Star Loan Agreement, in order to, among other things amend the definitions of (a) “Inventory” to increase the eligible inventory against which Gerber will advance credit, (b) “Maximum Revolving Amount” to increase the line of credit from $3.0 million to $4.0 million, (c) “Note” to mean the $4.0 million promissory note between Gerber and EBGL, and (d) “Subordinated Lender” to include only Star Procurement, Inc., ATRM, and the Company.
The Star Loan Agreement and EBGL Loan Agreement contain representations, warranties, affirmative and negative covenants, events of default and other provisions customary for financings of this type. The financial covenants under the EBGL Loan Agreement applicable to the EBGL Borrowers include maintenance of a minimum tangible net worth, a minimum debt service coverage ratio and minimum net income. The Financial covenants under the Star Loan Agreement applicable to the Star Borrowers include a minimum debt service coverage ratio. The occurrence of any event of default under the Loan Agreements may result in the obligations of the Borrowers becoming immediately due and payable. As of June 30, 2021,2022, EBGL was not in compliance with the bi-annual financial covenants under the EBGL Loan Agreement measured as of June 30, 2022. As of June 30, 2022, we obtained a waiver from Gerber for the bi-annual financial covenant breaches. However, there can be no assurance that we will be able to obtain such waivers in the event of future financial covenant violations.
Financial covenants require that EBGL maintain (a) a lower net cash income (as defined in the EBGL Loan Agreement) at least equal to no less than $0 for the trailing 6-month period ending June 30, 2022 and no less than $1,000,000 for the trailing fiscal year ending December 31, 2022 and (b) a reduced minimum EBITDA (as defined in the EBGL Loan Agreement) to be no less than $0 as of June 30, 2022 and no less than $1,000,000 as of the fiscal year ending December 31, 2022.
KBS has a $4.0 million credit facility with eCapital, which matures in February 2023. As of September 30, 2022, KBS had additional borrowing capacity of $0.2 million under the facility. As of September 30, 2022, $0.9 million was outstanding under the KBS Loan Agreement. As of June 30, 2022, KBS was in compliance with the bi-annual financial covenants under the EBGL Loan Agreement.
Financial covenants require that KBS maintain (a) net cash income (as defined in the KBS Loan Agreement) of at least equal to no less than $0 for the trailing 6-month period ending June 30, 2022 and be no less than $500,000 for the trailing fiscal year end and (b) a minimum EBITDA (as defined in the KBS Loan Agreement) no less than $0 as of June 30 and no less than $850,000 as of the fiscal year end.
Term Loan
We and certain of our Investments subsidiaries (collectively, the “Star Borrowers”) are party to a Loan and Security Agreement with eCapital, as successor in interest to Gerber Finance, Inc. (as amended, the “Star Loan Agreement”), which provides for a credit facility with borrowing availability of up to $2.5 million, bearing interest at the prime rate plus 3.5% per annum, and matures on January 1, 2025, unless terminated in accordance with the terms therein (the “Star Loan”). As of September 30, 2022, the short term loan includes $0.9 million of the Star Loan, net of issuance costs.
The Star Loan is secured by the assets of SRE, 947 Waterford Road, LLC, 300 Park Street, LLC and 56 Mechanic Falls Road, LLC and guaranteed by the Company. The Star loan is subject to certain annual financial covenants. The financial covenants under the Star Loan Agreement and EBGLinclude maintenance of a Debt Service Coverage Ratio of not less than 1:00 to 1:00, as defined in the Star Loan Agreement. The occurrence of any event of default under the EBGLStar Loan Agreement may result in EBGL’s obligations under the EBGL Loan Agreement becoming immediately due and payable. In July, 2021, we obtained a waiver from Gerber for these events and, as part of the Fourth EBGL Amendment (described above).
As a condition to the extension of credit to the Star Borrowers and EBGL Borrowers under the Star Loan Agreement and EBGL Loan Agreement, the holders of certain existing unsecured promissory notes made by ATRM and certain of its subsidiaries entered into subordination agreements (the “Subordination Agreements”) with Gerber pursuant to which such noteholders (including the Company and certain of its subsidiaries) agreed to subordinate the obligations of ATRM and its subsidiaries to such noteholders to the obligations of the Star Borrowers becoming immediately due and EBGL Borrowerspayable. As of December 31, 2021, no event of default was deemed to Gerber under the loan agreements.
On October 21, 2021,have occurred and the Star Borrowers entered intowere in compliance with the fifth amendment toannual financial covenants under the Star Loan Agreement (the “Fifth Star Amendment”) with Gerber to amend the definitionmeasured as of “Reserves” to include a minimum amount, subsequent to Glenbrook Building Supply, Inc. entering a new lease for a larger property.December 31, 2021.
Paycheck Protection Program
From April 2020 through May 2020, the Company and its subsidiaries received $6.7 million of loans under the Paycheck Protection Program (“PPP”). Total PPP loans received for the ConstructionHealthcare division and HealthcareConstruction division were $5.5 million and $1.2 million, respectively.
The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”).All PPP loans forwere forgiven, resulting in a gain of $4.2 million in 2021 and $2.5 million in 2020.
See Note 8. Debt in the Construction and Healthcare division were made through Bremer Bank and Sterling as lenders, respectively.
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The PPP loans have two-year terms and bear interest at a rate of 1.00% per annum. Monthly principal and interest payments under the PPP loans are deferred for ten months, after the end of covered periods. The PPP loans may be prepaid at any time prior to maturity with no prepayment penalties.
The promissoryaccompanying notes issued in connection with the PPP loans (the “PPP Notes”) contain customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or lender, or breaching the terms of the applicable PPP loan documents. Upon an event of default under a PPP Note, the lender thereunder may, among other things, require immediate payment of all amounts owing under the applicable PPP Note, collect all amounts owing from the applicable borrower, or file suit and obtain judgment.
Under the terms of the CARES Act, recipients of loans under the PPP can applyfinancial statements for and be granted forgiveness for all or a portion of the loan granted under the PPP. Such forgiveness is determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and certain other eligible costs. Even if forgiveness is granted the PPP loans may remain subject to review and audit for up to six (6) years.
During Q4 2020 and January 2021, the Company applied for forgiveness on all PPP loans. As of Q4 2020, $2.5 million of the Healthcare division PPP Notes were forgiven. During Q2, 2021, all amounts under the Construction division and Healthcare division PPP Notes were forgiven. As of September 30, 2021, the Company has no PPP loans outstanding.further details.
Off-Balance Sheet Arrangements
On As of September 10, 2019, the parties to the KBS Loan Agreement entered into the Twelfth KBS Amendment pursuant to which the Company agreed to guarantee amounts borrowed by certain of ATRM’s subsidiaries from Gerber. The Twelfth KBS Amendment requires the Company to serve as an additional guarantor with the existing guarantor, ATRM, with respect to the payment, performance and discharge of each and every obligation of payment and performance by the borrowing subsidiaries with respect to the loans made by Gerber to them. On January 31, 2020, the Company, ATRM, KBS and Gerber entered into the Thirteenth KBS Amendment, in order to, among other things (a) amend the definitions of “Ancillary Credit Parties,” “Guarantor,” “Obligations,” and “Subordinated Lender” to address the obligations of the Star Borrowers, the EBGL Borrowers, the Star Credit Parties, and the EBGL Credit Parties under the Star Loan Agreement, the EBGL Loan Agreement and the Subordination Agreements to which they are a party and (b) add a new cross default provision. On April 1, 2020, Gerber and KBS entered into a Fifteenth KBS Amendment pursuant to which the “Minimum Average Monthly Loan Amount” under the KBS Loan Agreement was decreased to twenty-five percent (25%) of the Maximum Revolving Amount (as defined in the KBS Loan Agreement). See Note 8, Debt30, 2022, within the notes to our unaudited consolidated financial statements for further detail.there were no off balance sheet arrangements.

On June 5, 2020, the Company entered into a Guaranty Agreement (the “Tocci Guaranty”) with Tocci Building Corporation (“Tocci”) pursuant to which the Company irrevocably guaranteed all the obligations of KBS under a certain Subcontract Agreement by and between Tocci and KBS in the event of a material breach by KBS under the Subcontract. The Company’s liability under the Tocci Guaranty is limited to $2.0 million.

On October 12, 2021, the Company entered into a Guaranty Agreement (the “IHT Guaranty”) to guarantee the obligations of KBS to Cape Built Construction, under the Subcontract in the event of a material breach by KBS up to $2.3 million with such amount decreasing as product deliveries occur.45

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.

ITEM 4.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (the “Exchange Act”) reports 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 chairmanofficer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
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As further discussed below, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive chairmanofficer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Due to the existence of the material weaknesses as described below,Based on that evaluation, our chief executive chairmanofficer and chief financial officer concluded that our disclosure controls and procedures were not effective as of September 30, 2021.2022 as a result of the material weakness discussed below.
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 20202021 due to the material weaknesses as described below.
Our management identified a material weakness in our internal control over financial reporting as we did not have a sufficient complement of accounting resources to address complex accounting matters across all operating entities and to allow timely completion of financial reporting and accounting activities, including sufficiently precise management review controls. The material weakness did not result in any material identified misstatements to the financial statements, and there were no material changes to previously released financial results.
A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The Company identified material errors in the accounting for debt classification which resulted in the restatement of previously issued consolidated financial statements. These errors resulted from a material weakness related to ineffectively designed controls over review of contracts for new debt agreements and the proper application of GAAP for such agreements.
Plan for Remediation of the Material Weakness in Internal Control Over Financial Reporting
The Company has developed and implemented a remediation plan which includes, but is not limited to, a more detailed review over debt contracts and the proper application of GAAP.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all errors and fraud. Any internal control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
Plan for Remediation of the Material Weakness in Internal Control Over Financial Reporting
Management has taken steps to increase the skills and experience of our accounting and financial reporting staff by making strategic hires and investing in the continuing education and public company accounting training of our accounting and financial professionals. We have also retained additional outside financial consultants to conduct technical accounting reviews, when necessary.
Controls continue to increase the precision of management review controls, including the review of key inputs used in the preparation and review process. Our management is committed to remediation of the material weakness described above.
Changes in Internal Control over Financial Reporting
Other than in connection with implementing a plan to remediate the material weakness described above, there has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
See Note 9,9. Commitments and Contingencies, within the notes to our unauditedcondensed consolidated financial statements for a summary of legal proceedings.

ITEM 1A.RISK FACTORS
In evaluating us and our common stock,Common Stock, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020,2021, which we filed with the SEC on March 29, 2021. The31, 2022. Except as noted below, the risks and uncertainties described in “Item 1A - Risk Factors” of our Annual Report on Form 10-K have not materially changed. Any of the risks discussed in this Quarterly Report on Form 10-Q or any of the risks disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020,2021, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition.
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Risks Related to our Common Stock and our Company Preferred Stock

If we cannot continue to satisfy the Nasdaq Global Market continued listing standards and other Nasdaq rules, our Common Stock could be delisted, which would harm our business, the trading price of our Common Stock, our ability to raise additional capital and the liquidity of the market for our Common Stock.
Our Common Stock is currently listed on the Nasdaq Global Market. To maintain the listing of our Common Stock on the Nasdaq Global Market, we are required to meet certain listing requirements, including, among others, either: (i) a minimum closing bid price of $1.00 per share, a market value of publicly held shares (excluding shares held by our executive officers, directors and 10% or more stockholders) of at least $5.0 million and stockholders’ equity of at least $10 million; or (ii) a minimum closing bid price of $1.00 per share, a market value of publicly held shares (excluding shares held by our executive officers, directors and 10% or more stockholders) of at least $15.0 million and total assets of at least $50.0 million and total revenue of at least $50.0 million (in the latest fiscal year or in two of the last three fiscal years).
There is no assurance that we will be able to maintain compliance with the minimum closing price requirement. As of November 10, 2022, our Common Stock had closed above $1.00 per share for twelve consecutive trading days. In the event that our stock price falls below $1.00 per share for 30 consecutive trading days, Nasdaq may send us a notice stating we will be provided a period of 180 days to regain compliance with the minimum bid requirement or else Nasdaq may make a determination to delist our Common Stock. If our Common Stock were to be delisted from Nasdaq and was not eligible for quotation or listing on another market or exchange, trading of our Common Stock could be conducted only in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our Common Stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price of our Common Stock to decline further.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
Holders of shares of the Company Preferred Stock are entitled to receive, when, as and if authorized by the Company’s board of directors (or a duly authorized committee of the Company’s board of directors) and declared by the Company out of funds legally available for the payment of dividends, preferential cumulative cash dividends at the rate of 10.0% per annum of the liquidation preference of $10.00 per share. Dividends are payable quarterly, in arrears, on the last calendar day of March, June, September and December to holders of record at the close of business on the first day of each payment month. As of the date of this Quarterly Report on Form 10-Q, the total arrearage of cash dividends due on the Company Preferred Stock is $3.0 million.None.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
None.
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ITEM 6.EXHIBITS
Exhibit
Number
Description
10.1*
GerbereCapital EBGL FifthEighth Amendment to Loan and Security Agreement, dated October 21, 2021,August 11, 2022, by and among Gerber Finance Inc.eCapital Asset Based Lending Corp., EdgeBuilder, Inc., and Glenbrook Building Supply, Inc.
10.2*
2022 Inducement Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 31, 2022).
10.3*
eCapital EBGL Ninth Amendment to Loan and Security Agreement, dated September 1, 2022, by and among eCapital Asset Based Lending Corp., EdgeBuilder, Inc., and Glenbrook Building Supply, Inc.
10.4*
Gerber KBS Twentieth Amendment to Loan and Security Agreement, dated September 27, 2022, by and among Gerber Finance Inc. and KBS Builders, Inc.
31.1*
Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated pursuant to the Securities Exchange Act of 1934, as amended.
31.2*
Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated pursuant to the Securities Exchange Act of 1934, as amended.
32.1**
Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*Inline XBRL Taxonomy Extension Schema
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase
101.LAB*Inline XBRL Taxonomy Extension Labels Linkbase
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase
104.1Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).
_________________ 
*    Filed herewith.
**    This certification is being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of Star Equity Holdings, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
STAR EQUITY HOLDINGS, INC.
Date:November 12, 202114, 2022By:
/s/     JEFFREY E. EBERWEINRICHARD K. COLEMAN, JR.
Jeffrey E. EberweinRichard K. Coleman, Jr.
Chief Executive ChairmanOfficer
(Principal Executive Officer)
/s/     DAVID J. NOBLE
David J. Noble
Chief Financial Officer and Chief Operating Officer
(Principal Financial and Accounting Officer)


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