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 ENDED	~~June~~September 30, 2022


☐			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

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 Greenwich

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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	STRR	NASDAQ Global Market
Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share	STRRP	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 filer	o	Accelerated filer	o

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 ~~August 5,~~November 7, 2022, the registrant had ~~15,082,155~~15,138,732 shares of Common Stock ($0.0001 par value) outstanding.

STAR EQUITY HOLDINGS, INC.

TABLE OF CONTENTS

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, 2021 filed with the U.S. Securities and Exchange Commission on March 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.

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

STAR EQUITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (In thousands, except for per share amounts)
Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Revenues:
Healthcare $ 13,912 $ 14,870 $ 27,330 $ 28,177
Construction 16,806 10,936 28,437 19,983
Total revenues 30,718 25,806 55,767 48,160
Cost of revenues:
Healthcare 10,234 11,461 20,476 22,170
Construction 14,321 12,780 24,366 21,283
Investments 64 61 163 126
Total cost of revenues 24,619 24,302 45,005 43,579
Gross profit 6,099 1,504 10,762 4,581
Operating expenses:
Selling, general and administrative 6,867 5,584 13,655 10,638
Amortization of intangible assets 430 430 860 868
Gain on sale of MD Office Solutions — — — (847)
Total operating expenses 7,297 6,014 14,515 10,659
Loss from operations (1,198) (4,510) (3,753) (6,078)
Other (expense) income:
Other (expense) income, net (416) 2,950 (422) 4,205
Interest expense, net (289) (199) (479) (472)
Total other (expense) income (705) 2,751 (901) 3,733
Loss from continuing operations before income taxes (1,903) (1,759) (4,654) (2,345)
Income tax benefit (provision) 327 (32) (623) (34)
Loss from continuing operations, net of tax (1,576) (1,791) (5,277) (2,379)
(Loss) income from discontinued operations, net of tax — (65) — 5,955
Net (loss) income (1,576) (1,856) (5,277) 3,576
Deemed dividend on Series A perpetual preferred stock (479) (479) (958) (958)
Net (loss) income attributable to common shareholders $ (2,055) $ (2,335) $ (6,235) $ 2,618
Net (loss) income per share—basic and diluted
Net loss per share, continuing operations $ (0.10) $ (0.36) $ (0.38) $ (0.48)
Net (loss) income per share, discontinued operations $ — $ (0.01) $ — $ 1.20
Net (loss) income per share—basic and diluted* $ (0.10) $ (0.37) $ (0.38) $ 0.72
Deemed dividend on Series A cumulative perpetual preferred stock per share $ (0.03) $ (0.10) $ (0.07) $ (0.19)
Net (loss) income per share, attributable to common shareholders—basic and diluted* $ (0.13) $ (0.46) $ (0.44) $ 0.53
Weighted-average shares outstanding—basic and diluted 15,379 5,039 14,031 4,978
Dividends declared per Series A perpetual preferred stock $ 0.25 $ 0.25 $ 0.50 $ 0.25


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues:
Healthcare	$	13,137	$	14,807	$	40,467	$	42,984
Construction	11,107		14,052		39,544		34,035

Total revenues	24,244		28,859		80,011		77,019

Cost of revenues:
Healthcare	10,412		11,551		30,888		33,721
Construction	7,975		13,511		32,341		34,794
Investments	58		50		221		176
Total cost of revenues	18,445		25,112		63,450		68,691

Gross profit	5,799		3,747		16,561		8,328

Operating expenses:
Selling, general and administrative	6,860		5,201		20,515		15,839
Amortization of intangible assets	430		430		1,290		1,298


Gain on sale of MD Office Solutions	—		—		—		(847)
Total operating expenses	7,290		5,631		21,805		16,290

Income (loss) from operations	(1,491)		(1,884)		(5,244)		(7,962)

Other income (expense):
Other income (expense), net	(575)		3		(997)		4,208
Interest expense, net	(185)		(260)		(664)		(732)

Total other income (expense)	(760)		(257)		(1,661)		3,476

Income (loss) from continuing operations before income taxes	(2,251)		(2,141)		(6,905)		(4,486)
Income tax benefit (provision)	367		—		(256)		(34)
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)

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)	$	—
Weighted-average shares outstanding—basic and diluted	15,434		5,101		14,503		5,019

Dividends declared per Series A perpetual preferred stock	$	0.25	$	0.25	$	0.75	$	0.50

*Earnings per share may not add due to rounding

See accompanying notes to the unaudited condensed consolidated financial statements.

STAR EQUITY HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


		June 30, 2022 (unaudited)		December 31, 2021			September 30, 2022 (unaudited)		December 31, 2021
Assets:	Assets:					Assets:
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	13,657	$	4,538	Cash and cash equivalents	$	8,503	$	4,538
Restricted cash	Restricted cash	847		278		Restricted cash	846		278
Investments in equity securities	Investments in equity securities	2,550		47		Investments in equity securities	3,180		47
Lumber derivative contracts	Lumber derivative contracts	—		666		Lumber derivative contracts	—		666
Accounts receivable, net of allowances of $1.0 million and $0.8 million, respectively		15,208		15,811
Accounts receivable, net of allowances of $0.9 million and $0.8 million, respectively						Accounts receivable, net of allowances of $0.9 million and $0.8 million, respectively	13,754		15,811
Inventories, net	Inventories, net	11,217		8,525		Inventories, net	13,065		8,525
Other current assets	Other current assets	2,672		1,998		Other current assets	3,069		1,998

Total current assets	Total current assets	46,151		31,863		Total current assets	42,417		31,863
Property and equipment, net	Property and equipment, net	8,764		8,918		Property and equipment, net	8,499		8,918
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	4,980		4,494		Operating lease right-of-use assets, net	4,823		4,494
Intangible assets, net	Intangible assets, net	14,212		15,072		Intangible assets, net	13,782		15,072
Goodwill	Goodwill	6,046		6,046		Goodwill	6,046		6,046

Other assets	Other assets	1,495		1,659		Other assets	1,408		1,659
Total assets	Total assets	$	81,648	$	68,052	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 payable	Accounts payable	$	6,244	$	4,277	Accounts payable	$	6,094	$	4,277
Accrued liabilities	Accrued liabilities	4,316		2,445		Accrued liabilities	4,307		2,445
Accrued compensation	Accrued compensation	3,046		3,051		Accrued compensation	3,395		3,051
Accrued warranty	Accrued warranty	344		569		Accrued warranty	247		569
Lumber derivative contracts	Lumber derivative contracts	482		—		Lumber derivative contracts	635		—
Billings in excess of costs and estimated profit	Billings in excess of costs and estimated profit	2,181		312		Billings in excess of costs and estimated profit	—		312
Deferred revenue	Deferred revenue	3,840		2,457		Deferred revenue	3,801		2,457
Short-term debt	Short-term debt	11,568		12,869		Short-term debt	11,852		12,869
Operating lease liabilities	Operating lease liabilities	1,406		1,253		Operating lease liabilities	1,443		1,253
Finance lease liabilities	Finance lease liabilities	527		588		Finance lease liabilities	460		588

Total current liabilities	Total current liabilities	33,954		27,821		Total current liabilities	32,234		27,821
Deferred tax liabilities	Deferred tax liabilities	667		72		Deferred tax liabilities	298		72
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	3,651		3,299		Operating lease liabilities, net of current portion	3,463		3,299
Finance lease liabilities, net of current portion	Finance lease liabilities, net of current portion	548		706		Finance lease liabilities, net of current portion	459		706
Other liabilities	Other liabilities	360		412		Other liabilities	312		412
Total liabilities	Total liabilities	39,180		32,310		Total liabilities	36,766		32,310

Commitments and contingencies (Note 9)	Commitments and contingencies (Note 9)	0		0		Commitments and contingencies (Note 9)

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		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: 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 June 30, 2022. (Liquidation preference: $18,988,390 as of June 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.)						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 outstanding	Preferred stock, $0.0001 par value: 25,000 shares authorized; Series C Preferred stock, no shares issued or outstanding	—		—		Preferred stock, $0.0001 par value: 25,000 shares authorized; Series C Preferred stock, no shares issued or outstanding	—		—


Common stock, $0.0001 par value: 30,000,000 shares authorized; 15,082,155 and 5,805,916 shares issued and outstanding (net of treasury shares) at June 30, 2022 and December 31, 2021, respectively		1		—
Treasury stock, at cost; 258,849 shares at June 30, 2022 and December 31, 2021, 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, respectively						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, respectively	1		—
Treasury stock, at cost; 258,849 shares at September 30, 2022 and December 31, 2021, respectively						Treasury stock, at cost; 258,849 shares at September 30, 2022 and December 31, 2021, respectively	(5,728)		(5,728)
Additional paid-in capital	Additional paid-in capital	181,441		150,451		Additional paid-in capital	162,078		150,451

Accumulated deficit	Accumulated deficit	(133,246)		(127,969)		Accumulated deficit	(135,130)		(127,969)
Total stockholders’ equity	Total stockholders’ equity	42,468		16,754		Total stockholders’ equity	40,209		16,754
Total liabilities, mezzanine equity and stockholders’ equity	Total liabilities, mezzanine equity and stockholders’ equity	$	81,648	$	68,052	Total liabilities, mezzanine equity and stockholders’ equity	$	76,975	$	68,052

See accompanying notes to the unaudited condensed consolidated financial statements.

STAR EQUITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Operating activities	Operating activities					Operating activities
Net (loss) income	Net (loss) income	$	(5,277)	$	3,576	Net (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:					Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation of property and equipment	Depreciation of property and equipment	922		903		Depreciation of property and equipment	1,369		1,333
Amortization of intangible assets	Amortization of intangible assets	860		868		Amortization of intangible assets	1,290		1,298
Non-cash lease expense	Non-cash lease expense	536		785		Non-cash lease expense	885		1,123
Provision for bad debt, net	Provision for bad debt, net	289		31		Provision for bad debt, net	435		(30)
Stock-based compensation	Stock-based compensation	216		265		Stock-based compensation	322		391

Gain on disposal of discontinued operations	Gain on disposal of discontinued operations	—		(5,159)		Gain on disposal of discontinued operations	—		(5,159)
Amortization of loan issuance costs	Amortization of loan issuance costs	71		100		Amortization of loan issuance costs	104		141
Write-off of borrowing costs	Write-off of borrowing costs	—		130		Write-off of borrowing costs	—		130
Gain on disposal of MD Office Solutions	Gain on disposal of MD Office Solutions	—		(847)		Gain on disposal of MD Office Solutions	—		(847)
(Gain) loss on sale of assets	(Gain) loss on sale of assets	(44)		(117)		(Gain) loss on sale of assets	156		29
Gain on Paycheck Protection Program loan forgiveness	Gain on Paycheck Protection Program loan forgiveness	—		(4,179)		Gain on Paycheck Protection Program loan forgiveness	—		(4,179)
Deferred income taxes	Deferred income taxes	594		34		Deferred income taxes	226		34
Unrealized loss (gain) of equity securities and lumber derivatives	Unrealized loss (gain) of equity securities and lumber derivatives	1,380		289		Unrealized loss (gain) of equity securities and lumber derivatives	2,132		381
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	318		(1,340)		Accounts receivable	1,622		(3,131)
Inventories	Inventories	(2,692)		(2,233)		Inventories	(4,539)		(193)
Other assets	Other assets	(529)		(636)		Other assets	(848)		(1,032)
Accounts payable	Accounts payable	1,967		(197)		Accounts payable	1,817		(709)
Accrued compensation	Accrued compensation	(4)		64		Accrued compensation	345		582
Deferred revenue and billings in excess of costs and estimated profit	Deferred revenue and billings in excess of costs and estimated profit	3,253		970		Deferred revenue and billings in excess of costs and estimated profit	1,035		1,383
Operating lease liabilities	Operating lease liabilities	(520)		(795)		Operating lease liabilities	(865)		(1,100)
Other liabilities	Other liabilities	1,597		(111)		Other liabilities	1,441		(56)
Net cash provided (used) by operating activities	Net cash provided (used) by operating activities	2,937		(7,599)		Net cash provided (used) by operating activities	(234)		(8,176)

Investing activities	Investing activities					Investing activities
Purchases of property and equipment	Purchases of property and equipment	(754)		(383)		Purchases of property and equipment	(1,232)		(675)
Proceeds from sale of discontinued operations	Proceeds from sale of discontinued operations	—		18,750		Proceeds from sale of discontinued operations	—		18,750
Proceeds from sale of property and equipment	Proceeds from sale of property and equipment	121		48		Proceeds from sale of property and equipment	217		76
Purchases of equity securities	Purchases of equity securities	(2,764)		(394)		Purchases of equity securities	(3,994)		(399)
Proceeds from sales of equity securities	Proceeds from sales of equity securities	26		—		Proceeds from sales of equity securities	27		42
Net cash provided (used) by investing activities	Net cash provided (used) by investing activities	(3,371)		18,021		Net cash provided (used) by investing activities	(4,982)		17,794

Financing activities	Financing activities					Financing activities
Proceeds from borrowings	Proceeds from borrowings	53,458		63,583		Proceeds from borrowings	80,061		91,309
Repayment of debt	Repayment of debt	(54,811)		(70,739)		Repayment of debt	(81,152)		(97,594)

Proceeds from the sale of common stock, warrants, and exercise of over allotment options	Proceeds from the sale of common stock, warrants, and exercise of over allotment options	13,198		—		Proceeds from the sale of common stock, warrants, and exercise of over allotment options	13,198		—
Fees paid on issuance of common stock	Fees paid on issuance of common stock	(450)		—		Fees paid on issuance of common stock	(450)		—

Proceeds from exercise of warrants	Proceeds from exercise of warrants	—		567		Proceeds from exercise of warrants	—		567

Fees paid on issuance of rights agreement	Fees paid on issuance of rights agreement	—		(28)		Fees paid on issuance of rights agreement	—		(28)
Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	(3)		(18)		Taxes paid related to net share settlement of equity awards	(5)		(18)
Repayment of obligations under finance leases	Repayment of obligations under finance leases	(312)		(420)		Repayment of obligations under finance leases	(466)		(595)
Preferred stock dividends paid	Preferred stock dividends paid	(958)		(479)		Preferred stock dividends paid	(1,437)		(958)
Net cash provided (used) by financing activities	Net cash provided (used) by financing activities	10,122		(7,534)		Net cash provided (used) by financing activities	9,749		(7,317)
Net increase in cash, cash equivalents, and restricted cash including cash classified within current assets held for sale	Net increase in cash, cash equivalents, and restricted cash including cash classified within current assets held for sale	9,688		2,888		Net increase in cash, cash equivalents, and restricted cash including cash classified within current assets held for sale	4,533		2,301

109


Less: net increase in cash classified within current assets held for sale	Less: net increase in cash classified within current assets held for sale	—		(47)		Less: net increase in cash classified within current assets held for sale	—		(46)
Net increase in cash, cash equivalents, and restricted cash	Net increase in cash, cash equivalents, and restricted cash	9,688		2,935		Net increase in cash, cash equivalents, and restricted cash	4,533		2,347
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	4,816		3,393		Cash, cash equivalents, and restricted cash at beginning of period	4,816		3,393
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	14,504	$	6,328	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 year	Reconciliation of cash, cash equivalents, and restricted cash at end of year					Reconciliation of cash, cash equivalents, and restricted cash at end of year
Cash and cash equivalents	Cash and cash equivalents	$	13,657	$	6,160	Cash and cash equivalents	$	8,503	$	5,572
Restricted cash	Restricted cash	847		168		Restricted cash	846		168
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	14,504	$	6,328	Cash, cash equivalents, and restricted cash at end of period	$	9,349	$	5,740

Non-Cash Investing Activities	Non-Cash Investing Activities					Non-Cash Investing Activities
MD Office Solutions Promissory Note Receivable	MD Office Solutions Promissory Note Receivable	$	—	$	1,385	MD Office Solutions Promissory Note Receivable	$	—	$	1,385
Non-Cash Financing Activities	Non-Cash Financing Activities					Non-Cash Financing Activities
Gain on Paycheck Protection Program Loan Forgiveness	Gain 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 liabilities	Noncash property, plant, and equipment obtained in exchange for finance lease liabilities	$	90	$	—	Noncash property, plant, and equipment obtained in exchange for finance lease liabilities	$	90	$	—
Noncash right-of-use assets obtained in exchange for operating lease liabilities	Noncash right-of-use assets obtained in exchange for operating lease liabilities	$	1,229	$	—	Noncash right-of-use assets obtained in exchange for operating lease liabilities	$	1,436	$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

1110

STAR EQUITY HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)


		Perpetual Redeemable Preferred Stock			Perpetual Preferred Stock			Common stock			Treasury Stock		Additional paid-in capital		Accumulated deficit			Total stockholders’ equity					Perpetual Redeemable Preferred Stock							Perpetual Preferred Stock							Common stock							Treasury Stock				Additional paid-in capital					Accumulated deficit				Total stockholders’ equity
		Shares	Amount		Shares	Amount		Shares	Amount													Shares			Amount				Shares			Amount				Shares			Amount				Treasury Stock				Additional paid-in capital			Accumulated deficit
Balance at December 31, 2021	Balance at December 31, 2021	1,916	$	18,988	—	$	—	5,805	$	—	$	(5,728)	$	150,451	$	(127,969)		$	16,754	Balance at December 31, 2021			1,916			$	18,988			—			$	—			5,805			$	—			$	(5,728)			$	150,451				$	(127,969)			$	16,754
Stock-based compensation	Stock-based compensation	—	—		—	—		—	—		—		144		—			144		Stock-based compensation			—			—				—			—				—			—				—				144					—				144
Shares issued under stock incentive plans, net of shares withheld for employee taxes	Shares issued under stock incentive plans, net of shares withheld for employee taxes	—	—		—	—		49	—		—		(3)		—			(3)		Shares issued under stock incentive plans, net of shares withheld for employee taxes			—			—				—			—				49			—				—				(3)					—				(3)
Accrued dividends on redeemable preferred stock	Accrued dividends on redeemable preferred stock	—	479		—	—		—	—		—		(479)		—			(479)		Accrued dividends on redeemable preferred stock			—			479				—			—				—			—				—				(479)					—				(479)
Preferred stock dividends paid	Preferred stock dividends paid	—	(479)		—	—		—	—		—		—		—			—		Preferred stock dividends paid			—			(479)				—			—				—			—				—				—					—				—
Equity issuance costs	Equity issuance costs	—	—		—	—		—	—		—		(450)		—			(450)		Equity issuance costs			—			—				—			—				—			—				—				(450)					—				(450)
Proceeds from the sale of common stock, warrants, and exercise of over allotment options	Proceeds from the sale of common stock, warrants, and exercise of over allotment options	—	—		—	—		9,175	1		—		13,197		—			13,198		Proceeds from the sale of common stock, warrants, and exercise of over allotment options			—			—				—			—				9,175			1				—				13,197					—				13,198
Net loss	Net loss	—	—		—	—		—	—		—		—		(3,701)			(3,701)		Net loss			—			—				—			—				—			—				—				—					(3,701)				(3,701)
Balance at March 31, 2022	Balance at March 31, 2022	1,916	$	18,988	—	$	—	15,029	$	1	$	(5,728)	$	162,860	$	(131,670)		$	25,463	Balance at March 31, 2022			1,916			18,988				—			—				15,029			1				(5,728)				162,860					(131,670)				25,463
Stock-based compensation	Stock-based compensation	—	$	—	—	$	—	—	$	—	$	—	$	72	$	—		$	72	Stock-based compensation			—			—				—			—				—			—				—				72					—				72
Shares issued under stock incentive plans, net of shares withheld for employee taxes	Shares issued under stock incentive plans, net of shares withheld for employee taxes	—	—		—	—		53	—		—		—		—			—		Shares issued under stock incentive plans, net of shares withheld for employee taxes			—			—				—			—				53			—				—				—					—				—
Accrued dividends on redeemable preferred stock	Accrued dividends on redeemable preferred stock	—	—		—	479		—	—		—		(479)		—			(479)		Accrued dividends on redeemable preferred stock			—			—				—			479				—			—				—				(479)					—				—
Preferred stock dividends paid	Preferred stock dividends paid	—	—		—	(479)		—	—		—		—		—			—		Preferred stock dividends paid			—			—				—			(479)				—			—				—				—					—				(479)

Reclassification of preferred stock to permanent equity (See Note 1)	Reclassification of preferred stock to permanent equity (See Note 1)	(1,916)	(18,988)		1,916	—		—	—		—		18,988		—			18,988		Reclassification of preferred stock to permanent equity (See Note 1)			(1,916)			(18,988)				1,916			18,988				—			—				—				—					—				18,988
Net loss	Net loss	—	—		—	—		—	—		—				(1,576)			(1,576)		Net loss			—			—				—			—				—			—				—									(1,576)				(1,576)
Balance at June 30, 2022	Balance at June 30, 2022	—	$	—	1,916	$	—	15,082	$	1	$	(5,728)	$	181,441	$	(133,246)		$	42,468	Balance at June 30, 2022			—			—				1,916			18,988				15,082			1				(5,728)				162,453					(133,246)				42,468
Stock-based compensation																	Stock-based compensation				—			—				—			—				—			—				—				106					—				106
Shares issued under stock incentive plans, net of shares withheld for employee taxes																	Shares issued under stock incentive plans, net of shares withheld for employee taxes				—			—				—			—				57			—				—				(2)					—				(2)
Dividends on preferred stock																	Dividends on preferred stock				—			—				—			—				—			—				—				(479)					—				(479)

Net loss																	Net loss				—			—				—			—				—			—				—				—					(1,884)				(1,884)
Balance at September 30, 2022																	Balance at September 30, 2022				—			$	—			1,916			$	18,988			15,139			$	1			$	(5,728)			$	162,078				$	(135,130)			$	40,209

1211


		Perpetual Preferred Stock			Common stock			Treasury Stock		Additional paid-in capital		Accumulated deficit		Total stockholders’ equity				Perpetual Redeemable Preferred Stock					Common stock					Treasury Stock			Additional paid-in capital			Accumulated deficit		Total stockholders’ equity
		Shares	Amount		Shares	Amount											Shares		Amount			Shares		Amount			Treasury Stock			Additional paid-in capital			Accumulated deficit
Balance at December 31, 2020	Balance at December 31, 2020	1,916	$	21,500	4,798	$	—	$	(5,728)	$	149,143	$	(124,986)	$	18,429	Balance at December 31, 2020		1,916		$	21,500		4,798		$	—		$	(5,728)		$	149,143		$	(124,986)	$	18,429
Stock-based compensation	Stock-based compensation	—	—		—	—		—		131		—		131		Stock-based compensation		—		—			—		—			—			131			—		131
Shares issued under stock incentive plans, net of shares withheld for employee taxes	Shares issued under stock incentive plans, net of shares withheld for employee taxes	—	—		3	—		—		(5)		—		(5)		Shares issued under stock incentive plans, net of shares withheld for employee taxes		—		—			3		—			—			(5)			—		(5)
Accrued dividend on redeemable preferred stock	Accrued dividend on redeemable preferred stock	—	479		—	—		—		(479)		—		(479)		Accrued dividend on redeemable preferred stock		—		479			—		—			—			(479)			—		(479)
Proceeds from the exercise of warrants	Proceeds from the exercise of warrants	—	—		220	—		—		493		—		493		Proceeds from the exercise of warrants		—		—			220		—			—			493			—		493
Net income	Net income	—	—		—	—		—		—		5,432		5,432		Net income		—		—			—		—			—			—			5,432		5,432
Balance at March 31, 2021	Balance at March 31, 2021	1,916	$	21,979	5,021	$	—	$	(5,728)	$	149,283	$	(119,554)	$	24,001	Balance at March 31, 2021		1,916		21,979			5,021		—			(5,728)			149,283			(119,554)		24,001
Stock-based compensation	Stock-based compensation	—	$	—	—	$	—	$	—	$	134	$	—	$	134	Stock-based compensation		—		—			—		—			—			134			—		134
Shares issued under stock incentive plans, net of shares withheld for employee taxes	Shares issued under stock incentive plans, net of shares withheld for employee taxes	—	—		20	—		—		(13)		—		(13)		Shares issued under stock incentive plans, net of shares withheld for employee taxes		—		—			20		—			—			(13)			—		(13)
Accrued dividends on perpetual preferred stock	Accrued dividends on perpetual preferred stock	—	479		—	—		—		(479)		—		(479)		Accrued dividends on perpetual preferred stock		—		479			—		—			—			(479)			—		(479)
Preferred stock dividends paid	Preferred stock dividends paid	—	(479)		—	—		—		—		—		—		Preferred stock dividends paid		—		(479)			—		—			—			—			—		—
Fees paid on issuance of rights agreement	Fees paid on issuance of rights agreement	—	—		—	—		—		(28)		—		(28)		Fees paid on issuance of rights agreement		—		—			—		—			—			(28)			—		(28)
Proceeds from exercise of warrants	Proceeds from exercise of warrants	—	—		33	—		—		74		—		74		Proceeds from exercise of warrants		—		—			33		—			—			74			—		74
Net loss	Net loss	—	—		—	—		—		—		(1,856)		(1,856)		Net loss		—		—			—		—			—			—			(1,856)		(1,856)
Balance at June 30, 2021	Balance at June 30, 2021	1,916	$	21,979	5,074	$	—	$	(5,728)	$	148,971	$	(121,410)	$	21,833	Balance at June 30, 2021		1,916		21,979			5,074		—			(5,728)			148,971			(121,410)		21,833
Stock-based compensation																Stock-based compensation		—		—			—		—			—			126			—		126
Shares issued under stock incentive plans, net of shares withheld for employee taxes																Shares issued under stock incentive plans, net of shares withheld for employee taxes		—		—			46		—			—			—			—		—
Accrued dividends on perpetual preferred stock																Accrued dividends on perpetual preferred stock		—		479			—		—			—			(479)			—		(479)
Preferred stock dividends paid																Preferred stock dividends paid		—		(479)			—		—			—			—			—		—
Net loss																Net loss		—		—			—		—			—			—			(2,141)		(2,141)
Balance at September 30, 2021																Balance at September 30, 2021		1,916		$	21,979		5,120		$	—		$	(5,728)		$	148,618		$	(123,551)	$	19,339

See accompanying notes to unaudited condensed consolidated financial statements.

1312

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 Principles (“GAAP”) to be included in a full set of financial statements. The unaudited condensed ~~consolidated balance sheet~~Consolidated Balance Sheet at December 31, 2021 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, 2021, filed with the SEC on Form 10-K on March 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, announced~~Investments. 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 condensed consolidated financial statements relates to continuing operations. Refer to Note 2. ~~Discontinued Operations~~ ~~for additional information.~~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 (formerly Digirad Corporation) (the “Certificate of Designations”), upon a Change of Control Triggering Event, as defined in the Certificate of Designations, holders of the Series A Preferred Stock had the ability to require the 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 was not solely within the control of the Company, the Series A Preferred Stock did not qualify as permanent equity and was classified as mezzanine or temporary equity. The Series A Preferred Stock was not redeemable and it was not probable that our Series A Preferred Stock would become redeemable as of December 31, 2021. Therefore, we were not previously required to accrete the Series A Preferred Stock to its redemption value.

On 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 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 our 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 February 25, 2022 and May 19, 2022, our board of directors declared cash dividends to holders of our Series A Preferred Stock of $0.25 per share, for an aggregate amount of approximately $1.0 million. The record dates for these dividends were March 1, 2022 and June 1, 2022, respectively, and the payment dates were March 10, 2022 and June 10, 2022, respectively Refer to preferred stock dividends discussed in Note 13. Perpetual Preferred Stock.

1413

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 ~~$1.6~~$1.9 million and ~~$5.3~~$7.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and ~~$1.8~~$2.1 million and ~~$2.4~~$4.5 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. We have an accumulated deficit of ~~$133.2~~$135.1 million and $128.0 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively. As of ~~June~~September 30, 2022, cash and cash equivalents increased to ~~$13.7~~$8.5 million from $4.5 million as of December 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 details.

At ~~June~~September 30, 2022, we had approximately ~~$11.6~~$11.9 million in debt outstanding. All of our debt is categorized as short-term on our condensed Consolidated Balance Sheets. For more detail, see Note 8. Debt. The Company’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 ~~$8.1~~$7.5 million, supports our Healthcare business. While the Webster Loan matures in 2024, GAAP rules require that the outstanding balance be classified as short-term debt. This is due to both the automatic sweep feature embedded in the traditional lockbox arrangement and the subjective acceleration clause in the Webster Loan Agreement.

As of ~~June~~September 30, 2022, we 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 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. ~~We are currently in negotiations to avoid a default.~~ While we do not believe we will be required to pay down the current balance, our current cash is sufficient to repay the Webster Loan in full.

Management has historically concluded that this forecasted violation raises substantial doubt about our ability to continue as a going concern within twelve months. In consideration of the cash flow results for the ~~six~~nine months ended ~~June~~September 30, 2022, our current balance of cash and cash equivalents of ~~$13.7~~$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 these unaudited condensed consolidated financial statements are issued, even in the event that we 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 of recurring losses, the continued viability of the Company beyond ~~August~~November 2023 may be dependent on its ability to continue to raise additional capital to finance its operations.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and disclosures made in the accompanying notes to the condensed consolidated financial statements. Significant estimates and judgments include those related to revenue recognition, goodwill valuation, and income taxes. Actual results could materially differ from those 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 expects~~we 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.

~~The Company has~~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.

1514

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.

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 to our customers. Service revenue within our Healthcare reportable segment 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 Healthcare 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 that 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 radiopharmaceuticals doses.

Healthcare 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 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.

1615

Construction Revenue Recognition. Our Construction division is made up of three operating ~~businesses,~~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~~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 division, we service residential and commercial construction projects by manufacturing modular housing units and other products and ~~supply~~supplying 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. 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~~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, finance lease liabilities, net of current portion, and finance lease liabilities in our condensed 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. 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 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 our leases in which we 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.

1716

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 ~~its~~our 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.

Concentration of Credit Risk

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 United States and a portion of which exceed the 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 (“VIE”). We 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.

1817

Reclassification of Prior Year Presentation

~~PPP~~Paycheck Protection Program Loan forgiveness reclassification has been made to the prior period financial statements to conform to the current year financial statement 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

No new accounting standards were issued in the quarter ended ~~June~~September 30, 2022 that are expected to have a material impact on our financial statements.

Recently Adopted Accounting Standards

No accounting standards were adopted in the quarter ended ~~June~~September 30, 2022 that are expected to have a material impact on our financial statements.

Note 2. Discontinued Operations

On October 30, 2020, Star Equity entered into a Stock Purchase Agreement (the “DMS Purchase Agreement”) between the Company (“Seller”), DMS Health, and Knob Creek Acquisition Corp., a Tennessee corporation (“Buyer”), pursuant to which the 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 under the DMS Purchase Agreement was $18.75 million in cash, subject to certain adjustments, including a working capital adjustment. The transactions closed effective March 31, 2021.

We deemed the disposition of the Mobile Healthcare business unit to represent a strategic shift that will have a major effect on our operations and financial results. For the year ended December 31, 2021, the Mobile Healthcare business met the criteria to be classified as 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 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 ~~six~~nine months ended ~~June~~September 30, 2021. There have been no activities for the ~~six~~nine months ended ~~June~~September 30, 2022 (in thousands):

1918


		Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended September 30,		Nine Months Ended September 30,
		2021		2021				2021		2021
Total revenues	Total revenues	$	—	$	9,490		Total revenues	$	—	$	9,490
Total cost of revenues	Total cost of revenues	—		6,973			Total cost of revenues	—		6,973
Gross profit	Gross profit	—		2,517			Gross profit	—		2,517

Operating expenses:	Operating expenses:						Operating expenses:
Selling, general and administrative	Selling, general and administrative	—		1,469			Selling, general and administrative	—		1,469

Total operating expenses	Total operating expenses	—		1,469			Total operating expenses	—		1,469

Income from discontinued operations	Income from discontinued operations	—		1,048			Income from discontinued operations	—		1,048
Interest expense, net	Interest expense, net	—		(180)			Interest expense, net	—		(180)

(Loss) Gain on sale of discontinued operations		(65)		5,159
(Loss) Income from discontinuing operations before income taxes		(65)		6,027
Gain on sale of discontinued operations							Gain on sale of discontinued operations	—		5,159
Income from discontinuing operations before income taxes							Income from discontinuing operations before income taxes	—		6,027
Income tax expense	Income tax expense	—		(72)			Income tax expense	—		(72)
(Loss) Income from discontinuing operations		$	(65)	$	5,955
Income from discontinuing operations							Income from discontinuing operations	$	—	$	5,955

The following table presents the significant non-cash operating, investing and financing activities from discontinued operations for the ~~six~~nine months ended ~~June~~September 30, 2021 (in thousands):


	~~Six~~Nine Months Ended ~~June~~September 30,
		2021
Operating activities

Depreciation		$	7

Non-cash lease expense		256
Write-off of borrowing costs		130
Gain on sale of DMS discontinued operations		(5,159)













Investing activities
Purchase of property and equipment		(154)
Proceeds from sale of discontinued operations		18,750
Proceeds from sale of property and equipment		3

Following is the reconciliation of purchase price to the gain recognized in income from discontinued operations for the ~~six~~nine months ended ~~June~~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 businesses	7,712
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 ~~$0.7~~$1.1 million of revenues for the ~~six~~nine months ended ~~June~~September 30, 2022.

2019

Note 3. Revenue

Disaggregation of Revenue

The following tables present our revenues for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, disaggregated by major source (in thousands):


		Three Months Ended June 30, 2022				Three Months Ended September 30, 2022
		Healthcare		Construction			Total			Healthcare		Construction		Total
Major Goods/Service Lines	Major Goods/Service Lines								Major Goods/Service Lines
Mobile Imaging	Mobile Imaging	$	10,711	$	—		$	10,711	Mobile Imaging	$	9,867	$	—	$	9,867
Camera	Camera	1,461		—			1,461		Camera	1,302		—		1,302
Camera Support	Camera Support	1,667		—			1,667		Camera Support	1,853		—		1,853
Healthcare Revenue from Contracts with Customers	Healthcare Revenue from Contracts with Customers	13,839		—			13,839		Healthcare Revenue from Contracts with Customers	13,022		—		13,022
Lease Income	Lease Income	73		—			73		Lease Income	115		—		115
Construction	Construction	—		16,806			16,806		Construction	—		11,107		11,107

Total Revenues	Total Revenues	$	13,912	$	16,806		$	30,718	Total Revenues	$	13,137	$	11,107	$	24,244

Timing of Revenue Recognition	Timing of Revenue Recognition								Timing of Revenue Recognition
Services and goods transferred over time	Services and goods transferred over time	$	10,801	$	5,856		$	16,657	Services and goods transferred over time	$	10,072	$	3,816	$	13,888
Services and goods transferred at a point in time	Services and goods transferred at a point in time	3,111		10,950			14,061		Services and goods transferred at a point in time	3,065		7,291		10,356
Total Revenues	Total Revenues	$	13,912	$	16,806		$	30,718	Total Revenues	$	13,137	$	11,107	$	24,244


		Three Months Ended June 30, 2021				Three Months Ended September 30, 2021
		Healthcare		Construction			Total			Healthcare		Construction		Total
Major Goods/Service Lines	Major Goods/Service Lines								Major Goods/Service Lines
Mobile Imaging	Mobile Imaging	$	11,686	$	—		$	11,686	Mobile Imaging	$	11,036	$	—	$	11,036
Camera	Camera	1,464		—			1,464		Camera	2,057		—		2,057
Camera Support	Camera Support	1,663		—			1,663		Camera Support	1,652		—		1,652
Healthcare Revenue from Contracts with Customers	Healthcare Revenue from Contracts with Customers	14,813		—			14,813		Healthcare Revenue from Contracts with Customers	14,745		—		14,745
Lease Income	Lease Income	57		3			60		Lease Income	62		—		62
Construction	Construction	—		10,933			10,933		Construction	—		14,052		14,052

Total Revenues	Total Revenues	$	14,870	$	10,936		$	25,806	Total Revenues	$	14,807	$	14,052	$	28,859

Timing of Revenue Recognition	Timing of Revenue Recognition								Timing of Revenue Recognition
Services and goods transferred over time	Services and goods transferred over time	$	12,053	$	217		$	12,270	Services and goods transferred over time	$	11,384	$	232	$	11,616
Services and goods transferred at a point in time	Services and goods transferred at a point in time	2,817		10,719			13,536		Services and goods transferred at a point in time	3,423		13,820		17,243
Total Revenues	Total Revenues	$	14,870	$	10,936		$	25,806	Total Revenues	$	14,807	$	14,052	$	28,859

2120


		Six Months Ended June 30, 2022				Nine Months Ended September 30, 2022
		Healthcare		Construction			Total			Healthcare		Construction		Total
Major Goods/Service Lines	Major Goods/Service Lines								Major Goods/Service Lines
Mobile Imaging	Mobile Imaging	$	21,229	$	—		$	21,229	Mobile Imaging	$	31,096	$	—	$	31,096
Camera	Camera	2,593		—			2,593		Camera	3,895		—		3,895
Camera Support	Camera Support	3,346		—			3,346		Camera Support	5,199		—		5,199
Healthcare Revenue from Contracts with Customers	Healthcare Revenue from Contracts with Customers	27,168		—			27,168		Healthcare Revenue from Contracts with Customers	40,190		—		40,190
Lease Income	Lease Income	162		—			162		Lease Income	277		—		277
Construction	Construction	—		28,437			28,437		Construction	—		39,544		39,544

Total Revenues	Total Revenues	$	27,330	$	28,437		$	55,767	Total Revenues	$	40,467	$	39,544	$	80,011

Timing of Revenue Recognition	Timing of Revenue Recognition								Timing of Revenue Recognition
Services and goods transferred over time	Services and goods transferred over time	$	21,655	$	7,753		$	29,408	Services and goods transferred over time	$	31,727	$	11,569	$	43,296
Services and goods transferred at a point in time	Services and goods transferred at a point in time	5,675		20,684			26,359		Services and goods transferred at a point in time	8,740		27,975		36,715
Total Revenues	Total Revenues	$	27,330	$	28,437		$	55,767	Total Revenues	$	40,467	$	39,544	$	80,011


		Six Months Ended June 30, 2021				Nine Months Ended September 30, 2021
		Healthcare		Construction			Total			Healthcare		Construction		Total
Major Goods/Service Lines	Major Goods/Service Lines								Major Goods/Service Lines
Mobile Imaging	Mobile Imaging	$	21,867	$	—		$	21,867	Mobile Imaging	$	32,903	$	—	$	32,903
Camera	Camera	2,886		—			2,886		Camera	4,943		—		4,943
Camera Support	Camera Support	3,309		—			3,309		Camera Support	4,961		—		4,961
Healthcare Revenue from Contracts with Customers	Healthcare Revenue from Contracts with Customers	28,062		—			28,062		Healthcare Revenue from Contracts with Customers	42,807		—		42,807
Lease Income	Lease Income	115		41			156		Lease Income	177		41		218
Construction	Construction	—		19,942			19,942		Construction	—		33,994		33,994

Total Revenues	Total Revenues	$	28,177	$	19,983		$	48,160	Total Revenues	$	42,984	$	34,035	$	77,019

Timing of Revenue Recognition	Timing of Revenue Recognition								Timing of Revenue Recognition
Services and goods transferred over time	Services and goods transferred over time	$	23,145	$	2,948		$	26,093	Services and goods transferred over time	$	34,529	$	3,180	$	37,709
Services and goods transferred at a point in time	Services and goods transferred at a point in time	5,032		17,035			22,067		Services and goods transferred at a point in time	8,455		30,855		39,310
Total Revenues	Total Revenues	$	28,177	$	19,983		$	48,160	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 ~~six~~nine months ended ~~June~~September 30, 2021. For the ~~six~~nine months ended ~~June~~September 30, 2021, the amount of ~~$1.9~~$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 ~~$1.9~~$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 Healthcare segment, our sales are derived from providing services and materials to our customers, primarily physician practices and hospitals that allow them to perform diagnostic 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

2221

Within our Healthcare 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 recognize 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 Healthcare 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 Healthcare 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 ~~supply~~supplying 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 Revenue

Changes in the deferred revenue for ~~six~~nine months ended ~~June~~September 30, 2022, is as follows (in thousands):


Balance at December 31, 2021	$	2,869
Revenue recognized that was included in balance at beginning of the year	~~(1,664)~~(1,965)
Deferred revenue, net, related to contracts entered into during the year	~~2,995~~3,209
Balance at ~~June~~September 30, 2022	$	~~4,200~~4,113

As of ~~June~~September 30, 2022 and December 31, 2021, non-current deferred revenue was ~~$360~~$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 ~~six~~nine months ended ~~June~~September 30, 2022 is as follows (in thousands):


Balance at December 31, 2021	$	312
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	~~2,181~~—
Balance at ~~June~~September 30, 2022	$	~~2,181~~—

~~Contract Assets~~

~~There were no contract assets as of June 30, 2022 and December 31, 2021.~~

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 ~~income,~~loss, diluted ~~income~~loss per common share is equal to basic ~~income~~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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
Numerator:
Loss from continuing operations, net of tax $ (1,576) $ (1,791) $ (5,277) $ (2,379)
(Loss) income from discontinued operations, net of tax — (65) — 5,955
Net (loss) income (1,576) (1,856) (5,277) 3,576
Deemed dividend on Series A perpetual preferred stock (479) (479) (958) (958)
Net (loss) income attributable to common shareholders $ (2,055) $ (2,335) $ (6,235) $ 2,618
Denominator:
Weighted average common shares outstanding 15,054 5,039 13,751 4,978
Weighted average prefunded warrants outstanding 325 — 280 —
Weighted average shares outstanding - basic and diluted 15,379 5,039 14,031 4,978
Net (loss) income per share—basic and diluted
Net loss per share, continuing operations $ (0.10) $ (0.36) $ (0.38) $ (0.48)
Net (loss) income per share, discontinued operations $ — $ (0.01) $ — $ 1.20
Net (loss) income per share—basic and diluted* $ (0.10) $ (0.37) $ (0.38) $ 0.72
Deemed dividend on Series A cumulative perpetual preferred stock per share $ (0.03) $ (0.10) $ (0.07) $ (0.19)
Net (loss) income per share, attributable to common shareholders—basic and diluted* $ (0.13) $ (0.46) $ (0.44) $ 0.53


	Three Months Ended September 30				Nine Months Ended September 30
	2022		2021		2022		2021
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 outstanding	15,109		5,101		14,208		5,019
Weighted average prefunded warrants outstanding	325		—		295		—
Weighted average shares outstanding - basic and diluted	15,434		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. The computation of diluted earnings per share excludes stock options, RSUs, and stock warrants that are anti-dilutive. The following common stock equivalents were anti-dilutive (in thousands):


		Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended September 30		Nine Months Ended September 30
		2022	2021	2022	2021			2022	2021	2022	2021
Stock options	Stock options	6	20	6	22		Stock options	3	11	5	19
Restricted stock units	Restricted stock units	187	75	208	74		Restricted stock units	109	67	128	73
Stock warrants	Stock warrants	12,567	756	11,025	810		Stock warrants	11,865	730	10,843	783
Total	Total	12,760	851	11,239	906		Total	11,977	808	10,976	875

2523

Note 5. Supplementary Balance Sheet Information

Inventories

The components of inventories are as follows (in thousands):


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Raw materials	Raw materials	$	7,754	$	5,870	Raw materials	$	8,122	$	5,870
Work-in-process	Work-in-process	2,807		2,145		Work-in-process	3,078		2,145
Finished goods	Finished goods	972		830		Finished goods	2,184		830
Total inventories	Total inventories	11,533		8,845		Total inventories	13,384		8,845
Less reserve for excess and obsolete inventories	Less reserve for excess and obsolete inventories	(316)		(320)		Less reserve for excess and obsolete inventories	(319)		(320)
Total inventories, net	Total inventories, net	$	11,217	$	8,525	Total inventories, net	$	13,065	$	8,525

Property and Equipment

Property and equipment consist of the following (in thousands):


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Land	Land	$	805	$	805	Land	$	805	$	805
Buildings and leasehold improvements	Buildings and leasehold improvements	5,225		4,823		Buildings and leasehold improvements	4,843		4,823
Machinery and equipment	Machinery and equipment	24,838		24,881		Machinery and equipment	25,088		24,881
Computer hardware and software	Computer hardware and software	2,451		2,387		Computer hardware and software	2,451		2,387
Gross property and equipment	Gross property and equipment	33,319		32,896		Gross property and equipment	33,187		32,896
Accumulated depreciation	Accumulated depreciation	(24,555)		(23,978)		Accumulated depreciation	(24,688)		(23,978)
Total property and equipment, net	Total property and equipment, net	$	8,764	$	8,918	Total property and equipment, net	$	8,499	$	8,918

As of ~~June~~September 30, 2022, the non-operating land and ~~building,~~buildings, held for investments, had a carry value of $1.9 million and was included within property and equipment on the 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 costs consist principally of materials, personnel, overhead, and transportation. 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 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 ~~quarter~~period ended ~~June~~September 30, 2022 and year ended December 31, 2021 are as follows (in thousands):


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Balance at the beginning of year	Balance at the beginning of year	$	569	$	214	Balance at the beginning of year	$	569	$	214
Charges to cost of revenues	Charges to cost of revenues	65		963		Charges to cost of revenues	49		963
Applied to liability	Applied to liability	(290)		(608)		Applied to liability	(371)		(608)
Balance at the end of period	Balance at the end of period	$	344	$	569	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 condensed ~~Consolidated Balance Sheets.~~consolidated balance sheets.

The components of lease expense are as follows (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,		Nine Months Ended September 30,
		2022		2021		2022		2021				2022		2021		2022		2021
Operating lease cost	Operating lease cost	$	401	$	359	$	797	$	694		Operating lease cost	$	408	$	363	$	1,205	$	1,056

Finance lease cost:	Finance lease cost:										Finance lease cost:
Amortization of finance lease assets	Amortization of finance lease assets	$	101	$	170	$	224	$	276		Amortization of finance lease assets	$	132	$	117	$	356	$	393
Interest on finance lease liabilities	Interest on finance lease liabilities	14		23		31		44			Interest on finance lease liabilities	13		19		44		63
Total finance lease cost	Total finance lease cost	$	115	$	193	$	255	$	320		Total finance lease cost	$	145	$	136	$	400	$	456

Supplemental cash flow information related to leases from continuing operations was as follows (in thousands):


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Cash paid for amounts included in the measurement of lease liabilities	Cash paid for amounts included in the measurement of lease liabilities					Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	Operating cash flows from operating leases	$	536	$	539	Operating cash flows from operating leases	$	885	$	867
Operating cash flows from finance leases	Operating cash flows from finance leases	$	31	$	44	Operating cash flows from finance leases	$	44	$	63
Financing cash flows from finance leases	Financing cash flows from finance leases	$	312	$	318	Financing cash flows from finance leases	$	466	$	494

Right-of-use assets obtained in exchange for lease obligations	Right-of-use assets obtained in exchange for lease obligations					Right-of-use assets obtained in exchange for lease obligations
Operating leases	Operating leases	$	1,229	$	2,158	Operating leases	$	1,436	$	1,532

Supplemental balance sheet information related to leases was as follows (in thousands):


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021

Weighted average remaining lease term (in years)	Weighted average remaining lease term (in years)					Weighted average remaining lease term (in years)
Operating leases	Operating leases	4.0		3.9		Operating leases	3.8		3.9
Finance leases	Finance leases	2.5		2.6		Finance leases	2.3		2.6

Weighted average discount rate	Weighted average discount rate					Weighted average discount rate
Operating leases	Operating leases	4.60	%	4.23	%	Operating leases	4.63	%	4.23	%
Finance leases	Finance leases	5.98	%	5.05	%	Finance leases	5.98	%	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 ~~June~~September 30, 2022 were as follows (in thousands):


		Operating Leases		Finance Leases			Operating Leases		Finance Leases
2022 (excludes the six months ended June 30, 2022)		$	813	$	314
2022 (excludes the nine months ended September 30, 2022)						2022 (excludes the nine months ended September 30, 2022)	$	408	$	147
2023	2023	1,514		428		2023	1,587		428
2024	2024	1,352		274		2024	1,427		274
2025	2025	827		106		2025	905		106
2026 and thereafter		951		17
2026						2026	590		16
2027 and thereafter						2027 and thereafter	361		1
Total future minimum lease payments	Total future minimum lease payments	5,457		1,139		Total future minimum lease payments	5,278		972
Less amounts representing interest	Less amounts representing interest	400		64		Less amounts representing interest	372		53
Present value of lease obligations	Present value of lease obligations	$	5,057	$	1,075	Present value of lease obligations	$	4,906	$	919

Lessor

We generate lease income in the Healthcare 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 ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, our lease contracts were mainly month-to-month contracts.

Note 7. Fair 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 ~~June~~September 30, 2022 and December 31, 2021 (in thousands):


		Fair Value as of June 30, 2022									Fair Value as of September 30, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets (Liabilities):	Assets (Liabilities):									Assets (Liabilities):
Equity securities	Equity securities	$	2,550	$	—	$	—	$	2,550	Equity securities	$	3,180	$	—	$	—	$	3,180
Lumber derivative contracts	Lumber derivative contracts	(482)		—		—		(482)		Lumber derivative contracts	(635)		—		—		(635)
VIE Investments	VIE Investments	—		—		337		337		VIE Investments	—		—		337		337
Total	Total	$	2,068	$	—	$	337	$	2,405	Total	$	2,545	$	—	$	337	$	2,882


	Fair Value as of December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets (Liabilities):
Equity securities	$	47	$	—	$	—	$	47
Lumber derivative contracts	666		—		—		666
VIE Investments	—		—		337		337
Total	$	713	$	—	$	337	$	1,050

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 ~~June~~September 30, 2022 and December 31, 2021, respectively, and recorded in Investments in the Consolidated Balance Sheets. During the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, we recorded an unrealized ~~gain~~loss of ~~$235~~$834 thousand and unrealized ~~loss~~gain of ~~$33~~$30 thousand, respectively, recorded in other (expense) income, net in the condensed Consolidated Statements of Operations.

We may enter into lumber derivative contracts in order to protect our gross profit margins from fluctuations caused by volatility in lumber price, recorded within current assets or liabilities in the condensed Consolidated Balance Sheets. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, we recorded a net loss of ~~$1.1~~$1.8 million and ~~$0.3~~$0.4 million, respectively, in the cost of goods sold in the condensed Consolidated Statements of Operations. As of ~~June~~September 30, 2022, we had a net long (buying) position of ~~3,630,000~~2,310,000 board feet under 3321 lumber derivatives contracts. As of December 31, 2021, we had a net long (buying) position of 2,420,000 board feet under 22 lumber derivatives contracts.

Gains and losses from lumber derivative contracts are recorded in cost of goods sold of the condensed Consolidated Statements of Operations and included the ~~following:~~following for the nine months ended September 30:


		June 30, 2022		June 30, 2021			September 30, 2022		September 30, 2021
		Amount		Amount			Amount		Amount
Unrealized loss on lumber derivatives	Unrealized loss on lumber derivatives	$	1,145	$	241	Unrealized loss on lumber derivatives	$	1,298	$	322
Realized (gain) loss on lumber derivatives		(17)		62
Realized loss on lumber derivatives						Realized loss on lumber derivatives	549		76
Total loss on lumber derivatives	Total loss on lumber derivatives	$	1,128	$	303	Total loss on lumber derivatives	$	1,847	$	398

The fair value of VIE investments of $0.3 million recorded in Other Assets in the Consolidated Balance Sheets is based on unobservable inputs evaluated on ~~June~~September 30, 2022 and December 31, 2021, respectively. During the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, there were no realized or unrealized gains, losses, or impairments recorded in the condensed Consolidated Statements of Operations. See Note 16. Variable Interest Entity for further details.

Note 8. Debt

A summary of debt as of ~~June~~September 30, 2022 and December 31, 2021 is as follows (dollars in thousands):


		June 30, 2022			December 31, 2021				September 30, 2022			December 31, 2021
		Amount		Weighted-Average Interest Rate	Amount		Weighted-Average Interest Rate		Amount		Weighted-Average Interest Rate	Amount		Weighted-Average Interest Rate
Revolving Credit Facility - eCapital KBS	Revolving Credit Facility - eCapital KBS	$	—	7.50%	$	3,131	6.00%	Revolving Credit Facility - eCapital KBS	$	909	9.00%	$	3,131	6.00%

Revolving Credit Facility - eCapital EBGL	Revolving Credit Facility - eCapital EBGL	2,537		7.50%	1,652		6.00%	Revolving Credit Facility - eCapital EBGL	2,595		9.00%	1,652		6.00%
Revolving Credit Facility - Webster	Revolving Credit Facility - Webster	8,094		4.29%	7,016		2.60%	Revolving Credit Facility - Webster	7,484		5.64%	7,016		2.60%
Total Short-term Revolving Credit Facilities	Total Short-term Revolving Credit Facilities	$	10,631	5.05%	$	11,799	3.98%	Total Short-term Revolving Credit Facilities	$	10,988	6.71%	$	11,799	3.98%
eCapital - Star Loan Principal, net	eCapital - Star Loan Principal, net	$	937	7.75%	$	1,070	6.25%	eCapital - Star Loan Principal, net	$	864	9.25%	$	1,070	6.25%

Short Term Loan	Short Term Loan	$	937	7.75%	$	1,070	6.25%	Short Term Loan	$	864	9.25%	$	1,070	6.25%

Total Short-term debt	Total Short-term debt	$	11,568	5.27%	$	12,869	4.17%	Total Short-term debt	$	11,852	6.90%	$	12,869	4.17%

Webster Credit Facility

On March 29, 2019, the Company entered into a Loan and Security Agreement (the “Webster Loan Agreement”) by and among certain subsidiaries of the Company, as borrowers (collectively, the “Webster Borrowers”); the Company, as guarantor; and Sterling National Bank (“Sterling”). On February 1, 2022, Sterling became part of Webster, and Webster became the

successor in interest to the Webster Loan Agreement. The Webster Loan Agreement is also subject to a limited guarantee by Mr. Eberwein, the Executive Chairman of our board of directors.

The Webster 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 “Webster Credit Facility”). Under the Webster Credit Facility, the Webster 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 Webster 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 ~~June~~September 30, 2022, the Company had $0.1 million of letters of credit outstanding and had additional borrowing capacity of ~~$0.1~~$0.6 million under the Webster Credit Facility.

At the Webster Borrowers’ option, the Webster 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. Our floating rate on this facility at ~~June~~September 30, 2022 was ~~4.29%~~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 Webster Credit Facility is secured by the assets of the Digirad Health businesses.

Financial covenants require that the Webster Borrowers maintain (a) a Fixed Charge Coverage Ratio as of the last day of a fiscal quarter of 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 of ~~June~~September 30, 2022, the Company was not in compliance with the covenants under the Webster Loan Agreement and had not yet obtained a waiver from Webster for these financial covenant breaches.

eCapital Credit Facilities

EBGL

EdgeBuilder 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 Agreement”). The facility, as amended, provides for borrowings up to $4.0 million, subject to certain borrowing base limitations. As of ~~June~~September 30, 2022, EBGL was fully drawn in terms of available borrowing capacity available 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 the earlier of January 31, 2023 or upon repayment of the Star Loan (see below). The facility 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. ~~As of June 30, 2022, $2.5 million was outstanding under the EBGL Loan Agreement.~~

As of June 30, 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 eCapital for 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.

On March 8, 2022, the EBGL Borrowers entered into the Seventh Amendment to the EBGL Loan Agreement with eCapital to amend and lower the financial covenants to 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.

On August 11, 2022, the EBGL Borrowers entered into the Eighth Amendment to the EBGL Loan Agreement with eCapital to amend the lender name to eCapital Asset Based Lending Corp. formerly known as Gerber Finance, Inc. and to provide a waiver of certain covenants violated as of June 30, 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 ~~June~~September 30, 2022, KBS ~~was fully drawn in terms~~had additional borrowing capacity of ~~available borrowing capacity~~$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, ~~no amount was outstanding under the KBS Loan Agreement. As of June 30, 2022,~~ KBS was in compliance with the bi-annual financial covenants under the KBS Loan Agreement.

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.

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.

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 ~~June~~September 30, 2022 (in thousands):


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		Amount		Amount			Amount		Amount
eCapital - Star Loan Principal	eCapital - Star Loan Principal	$	1,060	$	1,246	eCapital - Star Loan Principal	$	964	$	1,246

Unamortized debt issuance costs	Unamortized debt issuance costs	(123)		(176)		Unamortized debt issuance costs	(100)		(176)
eCapital - Star Loan Principal, net	eCapital - Star Loan Principal, net	$	937	$	1,070	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 include 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 Star Loan Agreement may result in the obligations of the Star Borrowers becoming immediately due and payable. As of ~~June 30, 2022,~~December 31, 2021, no event of default was deemed to have occurred and the Star Borrowers were in compliance with the ~~bi-annual~~annual financial covenants under the Star Loan Agreement measured as of ~~June 30, 2022.~~December 31, 2021.

The outstanding balance is classified as a short-term obligation as a result of the acceleration clauses within the EBGL and KBS credit facility and the cross-default provisions.~~As of June 30, 2022, the short-term loan includes $0.9 million of the Star Loan, net of issuance costs.~~

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.

During the fiscal years ended 2020 and 2021, the Company applied for forgiveness on all PPP loans. As of December 31, 2021, all PPP loans were forgiven, resulting in a gain of $4.2 million in 2021 and $2.5 million in 2020.

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 different 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.

~~On April 1, 2022,~~In Livingston v. Digirad Corporation, et. al., the District Court, N.D. Ala. entered a dismissal on September 19, 2022. In contemplation of a dismissal, the Company ~~entered into~~agreed to settle for less 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 Stark Law beginning in 2016. The amount of the claim was not known until the third quarter of 2022. The potential settlement amount of $200 thousand, plus a ~~Guaranty Agreement to guarantee certain obligations~~portion of ~~KBS to Consigli Construction Co., Inc. under~~attorney’s fees, is reflected as a ~~subcontract~~component of accrued liabilities in the ~~event~~condensed Consolidated Balance Sheet as of ~~a material breach by KBS in an amount up to $4.4 million, with such amount decreasing as product deliveries occur.~~September 30, 2022.

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 ~~June~~September 30, 2022, we recorded an income tax benefit of ~~$327~~$367 thousand within continuing operations and zero income tax expense within discontinued operations. For the three months ended ~~June~~September 30, 2021, we recorded ~~an income tax expense of $32 thousand within continuing operations and~~ zero income tax expense within continuing operations and discontinued operations.

For the ~~six~~nine months ended ~~June~~September 30, 2022, we recorded an income tax expense of ~~$623~~$256 thousand within continuing operations and zero income tax expense within discontinued operations. For the ~~six~~nine months ended ~~June~~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. The tax expense for the ~~six~~nine months ended ~~June~~September 30, 2022 primarily relates to an ownership change under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) that occurred in January 2022 which required us to establish an additional valuation allowance on net operating losses that the Company cannot utilize in the future.

As of ~~June~~September 30, 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 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.

3230

Note 11. Segments

Our 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 separate financial information; and overall materiality considerations. ~~Under the prior period Holdco strategy,~~Prior to 2022, we organized our reportable segments into four reportable segments: Diagnostic Imaging, Diagnostic Services, Construction and Investments. Effective the first quarter of 2022, we realigned our internal reporting structure into 3three 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. Healthcare

2. Construction

3. Investments

Segment information has been recast to conform to our current allocation methodology. It is as follows (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021 (1)		2022		2021 (1)			2022		2021 (1)		2022		2021 (1)
Revenue by segment:	Revenue by segment:									Revenue by segment:
Healthcare	Healthcare	$	13,912	$	14,870	$	27,330	$	28,177	Healthcare	$	13,137	$	14,807	$	40,467	$	42,984
Construction	Construction	16,806		10,936		28,437		19,983		Construction	11,107		14,052		39,544		34,035
Investments	Investments	158		158		316		316		Investments	159		475		475		475
Intersegment elimination	Intersegment elimination	(158)		(158)		(316)		(316)		Intersegment elimination	(159)		(475)		(475)		(475)
Consolidated revenue	Consolidated revenue	$	30,718	$	25,806	$	55,767	$	48,160	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:
Healthcare	Healthcare	$	3,678	$	3,409	$	6,854	$	6,007	Healthcare	$	2,725	$	3,256	$	9,579	$	9,263
Construction	Construction	2,485		(1,844)		4,071		(1,300)		Construction	3,132		541		7,203		(759)
Investments	Investments	94		97		153		190		Investments	100		425		253		299
Intersegment elimination	Intersegment elimination	(158)		(158)		(316)		(316)		Intersegment elimination	(158)		(475)		(474)		(475)
Consolidated gross profit	Consolidated gross profit	$	6,099	$	1,504	$	10,762	$	4,581	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:
Healthcare	Healthcare	$	5	$	835	$	83	$	1,672	Healthcare	$	(1,036)	$	955	$	(953)	$	2,627
Construction	Construction	290		(3,837)		(469)		(5,385)		Construction	1,149		(956)		680		(6,341)
Investments	Investments	80		78		139		155		Investments	97		123		236		278
Star equity corporate and intersegment elimination	Star equity corporate and intersegment elimination	(1,573)		(1,586)		(3,506)		(2,520)		Star equity corporate and intersegment elimination	(1,701)		(2,006)		(5,207)		$	(4,526)
Segment loss from operations	Segment loss from operations	$	(1,198)	$	(4,510)	$	(3,753)	$	(6,078)	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:
Healthcare	Healthcare	$	322	$	320	$	637	$	677	Healthcare	$	330	$	321	$	967	$	998
Construction	Construction	495		481		982		961		Construction	489		489		1,471		1,450
Investments	Investments	64		61		163		126		Investments	58		50		221		176
Total depreciation and amortization	Total depreciation and amortization	$	881	$	862	$	1,782	$	1,764	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~~

Star Equity Holdings, Inc.

On December 10, 2021, the Company entered into a securities purchase agreement with its Executive Chairman, Jeffrey E. Eberwein, relating to the issuance and sale of 650,000 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a purchase price of $3.25 per share pursuant to a private placement. As of ~~June~~September 30, 2022, Mr. Eberwein owned ~~2,466,784~~2,559,737 shares of Common Stock, representing approximately ~~16.36%~~16.91% of our outstanding Common Stock. In addition, as of ~~June~~September 30, 2022, Mr. Eberwein owned ~~1,275,467~~1,243,422 shares of Series A Preferred Stock.

ATRM Notes Payable

ATRM had a total of $2.3 million of outstanding related party promissory notes payable to Lone Star Value Co-Invest I, LP and Lone Star Value Management as of December 31, 2020. These amounts were repaid in full during April 2021. Mr. Eberwein was the general partner of these entities.

Note 13. Perpetual Preferred Stock

Holders of shares of our Series A 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 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. The Company may redeem the Series A Preferred Stock upon the occurrence of a change of control, subject to certain conditions. The 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 19, 2022 and ~~May~~August 19, 2022, our board of directors declared cash dividends to holders of our Series A Preferred Stock of $0.25 per share, for an aggregate amount of approximately ~~$1.0~~$1.4 million. The record dates for these dividends were March 1, 2022, June 1, 2022 and ~~June~~September 1, 2022, respectively, and the payment dates were March 10, 2022, ~~and~~ June 10, 2022 and September 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 ~~therefore,~~ no ~~proceeds had been received~~exercises have occurred as of ~~June~~September 30, 2022.

As of ~~June~~September 30, 2022, of the warrants issued through the public offering we closed on May 28, 2020 (the “2020 Public Offering”), 1.0 million warrants were exercised and 1.4 million warrants remained outstanding, which represents 0.7 million shares of common stock equivalents, at an exercise price of $2.25. As of ~~June~~September 30, 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.

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Note 15. Preferred Stock Rights

On June 2, 2021, the board of directors 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 Code. The board of directors 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 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 (as defined in the 382 Agreement); and (ii) 10 business days (or a later date determined by the 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.

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 board of directors.

No rights were exercisable at ~~June~~September 30, 2022. There is no impact to financial results as a result of the adoption of the rights plan for the ~~six~~nine months ended ~~June~~September 30, 2022.

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 ~~June~~September 30, 2022. As of ~~June~~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.

~~Note 17. Subsequent Events~~

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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, 2021, which were included in our Annual Report on Form 10-K, filed with the SEC on March 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 Holdings, Inc. (“Star Equity”, the “Company”, “we”, “our”) ~~has operated as~~is a multi-industry holding company since the acquisition of ATRM Holdings, Inc. (“ATRM”) in September 2019. With that merger, we added two construction businesses and one investments business to what historically had 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, Healthcare 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 United States and comprises two 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 maintenance of our proprietary solid-state gamma cameras.

Our Construction division is made up of three operating ~~businesses,~~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 is based in Maine and manufactures modular buildings for installation principally in the New England market. EBGL is based in the Minneapolis-Saint Paul area and 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.

Currently, our Investments division is an internally focused unit directly supervised by Star Equity management. This entity currently holds our corporate-owned real estate, which currently includes our three manufacturing facilities in Maine that are leased to 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 Investments division. Our structure frees up our operating company management teams to focus on their respective businesses, look for organic and bolt-on growth opportunities, and improve operations with less distraction and administrative burden associated with running a public company.

We continue to explore strategic alternatives to improve our market position and the profitability of our product offerings, generate additional liquidity, and enhance our valuation. We may pursue our goals through organic growth and through strategic alternatives. Some of these alternatives have included, and could continue to include, selective acquisitions of businesses, divestitures of assets or businesses, equity offerings, debt financings, or a restructuring of our Company.

Operating Businesses

We believe that both of our 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.

•Introduction of new services. In the Healthcare division, we plan to continue to focus on healthcare solutions-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

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 with our entry into the commercial multi-family segment. Other areas might include logistics, installation on site, and manufacturing of 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. 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 if we believe the appropriate mix of value, risk, and return is present for our stockholders. The timing of these potential transactions will always depend on market conditions, available capital, and 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 stockholders.

Current Market Conditions

The COVID-19 pandemic has been a challenge for most businesses in the past two years. Since early 2021, the vaccine rollout has gradually allowed us to return to a more normal operating environment. Our Healthcare business has now returned to pre-COVID levels, after a brief scare with the onset of the Omicron variant late last year. On the Construction side, we continue to benefit from a strong housing market on the demand side, while a tight labor market and continued supply chain disruption make it difficult to maintain optimal production levels.

The target market for our Healthcare 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 or have interest in purchasing diagnostic imaging products. Our Healthcare businesses currently operate in approximately 25 states. During the ~~six~~nine months ended ~~June~~September 30, 2022, we have seen a return to a more normal pre-COVID volume of imaging.

The target customers for our Construction division include professional home builders, general contractors, project owners, developers, and design firms. While housing demand and home improvement activity continues to be very strong, supply chain disruptions caused by the COVID-19 pandemic led to a historic increase in building materials prices during 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 Services~~Healthcare 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 include~~construction, 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.

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 continue to recover from the economic effects of the COVID-19 pandemic. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, we had decreases of ~~$1.0~~$1.7 million and ~~$0.8~~$2.5 million, respectively, in Healthcare division revenue and ~~increases~~a decrease of ~~$5.9~~$2.9 million and ~~$8.5~~an increase of $5.5 million, respectively, in Construction division revenue as compared to the same period of the prior year.

The Healthcare division continued to operate at ~~normal~~lower levels versus last year with revenue decreasing ~~6.4%~~11.3% and ~~3.0%~~5.9% for the three and ~~six~~nine months ended ~~June~~September 30, 2022, primarily ~~related to fewer total scanning days~~ due to the national shortage of Nuclear

Medicine Technologists. Our Construction division ~~grew~~ revenue decreased by ~~53.7%~~21.0% for the three months ended September 30, 2022 and ~~42.3%, respectively,~~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. Nevertheless, the current COVID-19 pandemic continues to impact worldwide economic activity, and the extent to which the COVID-19 pandemic will impact our business will depend on future developments that are highly unpredictable.

Discontinued Operations

The DMS Sale Transaction (as defined in Note 12 to our condensed consolidated financial statements) was completed on March 31, 2021, for $18.75 million in cash. After certain adjustments, including a working capital adjustment, we received an immaterial net escrow settlement in 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. ~~During the three and six months ended June 30,~~In each quarter in 2022 we ~~began the process by assessing~~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 ~~June~~September 30, 2022, we performed a qualitative assessment and did not identify any triggering events that would lead to the performance of a quantitative analysis.

Business Segments

Our 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 separate financial information; and overall materiality considerations. Effective as of the first quarter of 2022, we reorganized our financial statements 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 under the Company’s HoldCo strategy:

•Healthcare

•Construction

•Investments

Healthcare

Through this segment, we provide services and products to our customers. 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. ~~Further,~~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.

In addition, we manufacture and sell our internally developed solid-state gamma cameras and imaging systems, ~~and~~as 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 Healthcare segment revenues derive primarily from selling solid-state gamma cameras and post-warranty camera maintenance contracts.~~

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~~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 Webster Credit Facility (as defined in Note 8 to our condensed consolidated financial statements). Since that time, we have secured a new facility from eCapital, Inc. (“eCapital”) to finance these properties.

~~Healthcare Services and Products~~

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”. All of our current internally-developed cardiac gamma cameras employ SPECT technology.

~~Diagnostic imaging is the standard of care in diagnosis of diseases~~Construction

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 modalities~~KBS, 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 trends~~2001 as a manufacturer of ~~utilization of one diagnostic imaging modality from another.~~

~~Construction Services~~modular 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 its~~project 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 ~~many~~some 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.

~~EBGL~~EdgeBuilder 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’s~~EdgeBuilder’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 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, 2021 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 ~~June~~September 30, 2022 and 2021

The following table summarizes our results for the three months ended ~~June~~September 30, 2022 and 2021 (in thousands):

Three Months Ended June 30,
2022 Percent of
Revenues 2021 Percent of
Revenues Change from Prior Year
Dollars Percent *
Total revenues $ 30,718 100.0 % $ 25,806 100.0 % $ 4,912 19.0 %
Total cost of revenues 24,619 80.1 % 24,302 94.2 % 317 1.3 %
Gross profit 6,099 19.9 % 1,504 5.8 % 4,595 305.5 %
Total operating expenses 7,297 23.8 % 6,014 23.3 % 1,283 21.3 %
Loss from operations (1,198) (3.9) % (4,510) (17.5) % 3,312 (73.4) %
Total other (expense) income (705) (2.3) % 2,751 10.7 % (3,456) (125.6) %
Loss before income taxes (1,903) (6.2) % (1,759) (6.8) % (144) 8.2 %
Income tax benefit (provision) 327 1.1 % (32) (0.1) % 359 (1,121.9) %
Net loss from continuing operations (1,576) (5.1) % (1,791) (6.9) % 215 (12.0) %
Net loss from discontinued operations — — % (65) (0.3) % 65 (100.0) %
Net (loss) income $ (1,576) (5.1) % $ (1,856) (7.2) % $ 280 (15.1) %


	Three Months Ended September 30,
	2022		Percent of Revenues		2021		Percent of Revenues		Change from Prior Year
									Dollars		Percent *
Total revenues	$	24,244	100.0	%	$	28,859	100.0	%	$	(4,615)	(16.0)	%
Total cost of revenues	18,445		76.1	%	25,112		87.0	%	(6,667)		(26.5)	%
Gross profit	5,799		23.9	%	3,747		13.0	%	2,052		54.8	%
Total operating expenses	7,290		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 is summarized as follows (in thousands):


		Three Months Ended June 30,									Three Months Ended September 30,
		2022		2021		Change		% Change			2022		2021		Change		% Change
Healthcare	Healthcare	$	13,912	$	14,870	$	(958)	(6.4)	%	Healthcare	$	13,137	$	14,807	$	(1,670)	(11.3)	%
Healthcare Revenue	Healthcare Revenue	$	13,912	$	14,870	$	(958)	(6.4)	%	Healthcare Revenue	$	13,137	$	14,807	$	(1,670)	(11.3)	%

Healthcare revenue decreased ~~6.4%~~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.~~Technologists, partially offset by pricing increases in Diagnostic Services in 2022.

Construction

Construction revenue is summarized as follows (in thousands):


		Three Months Ended June 30,									Three Months Ended September 30,
		2022		2021		Change		% Change			2022		2021		Change		% Change
Construction	Construction	$	16,806	$	10,936	$	5,870	53.7	%	Construction	$	11,107	$	14,052	$	(2,945)	(21.0)	%
Construction Revenue	Construction Revenue	$	16,806	$	10,936	$	5,870	53.7	%	Construction Revenue	$	11,107	$	14,052	$	(2,945)	(21.0)	%

The ~~increase~~decrease in revenue for the Construction division was predominately driven by ~~large commercial projects~~the timing of revenue recognition at our KBS business. ~~This increase is primarily related to a large contract entered into during 2022 that has resulted in recognized revenue of $5.3 million.~~

Gross Profit

Healthcare Gross Profit

Healthcare gross profit and gross margin is summarized as follows (in thousands):


		Three Months Ended June 30,											Three Months Ended September 30,
		2022			2021			$ Change		% Change			2022			2021			$ Change		% Change
Healthcare gross profit	Healthcare gross profit	$	3,678		$	3,409		$	269	7.9	%	Healthcare gross profit	$	2,725		$	3,256		$	(531)	(16.3)	%
Healthcare gross margin	Healthcare gross margin	26.4		%	22.9		%					Healthcare gross margin	20.7		%	22.0		%

The ~~increase~~decrease in Healthcare gross margin percentage was mainly driven by ~~an improved mix of product~~lower camera sales and ~~service revenues~~lower scanning revenue for the three months ended ~~June~~September 30, 2022, compared to the same period in the prior year.

Construction Gross Profit

Construction gross profit and margin is summarized as follows (in thousands):


		Three Months Ended June 30,											Three Months Ended September 30,
		2022			2021			$ Change		% Change			2022			2021			$ Change		% Change
Construction gross profit	Construction gross profit	$	2,485		$	(1,844)		$	4,329	234.8	%	Construction gross profit	$	3,132		$	541		$	2,591	478.9	%
Construction gross margin	Construction gross margin	14.8		%	(16.9)		%					Construction gross margin	28.2		%	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, slightly offset by net loss of $1.1 million from lumber derivatives.~~projects. Our backlog and sales pipeline remain ~~at record levels due to newly signed contracts.~~

~~Investments Gross Loss~~

~~Investments gross loss is summarized as follows (in thousands):~~

Three Months Ended June 30,
2022 2021 $ Change % Change
Real Estate and Investments gross loss $ (64) $ (61) $ (3) 4.9 %

~~The gross loss relates to depreciation expense associated with the three manufacturing facilities acquired in April 2019.~~

relatively strong despite economic headwinds.

Operating Expenses

Operating expenses are summarized as follows (in thousands):


		Three Months Ended June 30,																Percent of Revenues						Three Months Ended September 30,																Percent of Revenues
		2022				2021				Change								2022		2021				2022				2021				Change								2022				2021
								Dollars				Percent										Dollars								Percent
Selling, general and administrative	Selling, general and administrative			$	6,867			$	5,584			$	1,283			23.0	%				22.4		%		21.6	%	Selling, general and administrative			$	6,860			$	5,201			$	1,659			31.9	%			28.3	%	18.0	%
Amortization of intangible assets	Amortization of intangible assets	430				430				—				—	%			1.4	%	1.7	%	Amortization of intangible assets		430				430				—				—	%			1.8	%			1.5	%

Total operating expenses	Total operating expenses	$	7,297			$	6,014			$	1,283			21.3	%			23.8	%	23.3	%	Total operating expenses		$	7,290			$	5,631			$	1,659			29.5	%			30.1	%			19.5	%

On a consolidated basis, there was a ~~$1.3~~$1.7 million increase in sales, general and administrative expenses. The major drivers of the increase in selling, general and administrative expenses (“SG&A”) ~~was~~were a ~~$0.9~~$1.2 million increase in legal expenses and ~~a $0.4~~$0.3 million in severance ~~cost,~~and retention costs, both attributed to our healthcare segment. As a percentage of revenue, SG&A increased ~~modestly~~ to ~~22.4%~~28.3% for the three months ended ~~June~~September 30, 2022, versus ~~21.6%~~18.0% in the prior year period.

Total Other Income (Expense)

Total other income (expense) is summarized as follows (in thousands):

Three Months Ended June 30,
2022 2021
Other (expenses) income, net $ (416) $ 2,950
Interest expense, net (289) (199)
Total other (expense) income $ (705) $ 2,751


	Three Months Ended September 30,
	2022		2021
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 ~~June~~September 30, 2022 and 2021 are predominately comprised of unrealized ~~gain~~losses and gains from available for sale securities recorded in our investments division, and finance costs.

Interest expense, net, for the three months ended ~~June~~September 30, 2022 and 2021 are predominantly comprised of interest costs and the related amortization of deferred issuance costs on our ~~debt, respectively.~~debt.

Income Tax Expense

For the three months ended ~~June~~September 30, 2022 and 2021 we recorded an income tax benefit of ~~$327~~$367 thousand and zero income tax expense ~~of $32 thousand,~~ 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.

4240

Results of Operations

Comparison of the ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

The following table summarizes our results for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Six Months Ended June 30,													Nine Months Ended September 30,
		2022		Percent of Revenues		2021		Percent of Revenues		Change from Prior Year					2022		Percent of Revenues		2021		Percent of Revenues		Change from Prior Year
										Dollars		Percent *											Dollars		Percent *
Total revenues	Total revenues	$	55,767	100.0	%	$	48,160	100.0	%	$	7,607	15.8	%	Total revenues	$	80,011	100.0	%	$	77,019	100.0	%	$	2,992	3.9	%
Total cost of revenues	Total cost of revenues	45,005		80.7	%	43,579		90.5	%	1,426		3.3	%	Total cost of revenues	63,450		79.3	%	68,691		89.2	%	(5,241)		(7.6)	%
Gross profit	Gross profit	10,762		19.3	%	4,581		9.5	%	6,181		134.9	%	Gross profit	16,561		20.7	%	8,328		10.8	%	8,233		98.9	%
Total operating expenses	Total operating expenses	14,515		26.0	%	10,659		22.1	%	3,856		36.2	%	Total operating expenses	21,805		27.3	%	16,290		21.2	%	5,515		33.9	%
Loss from operations	Loss from operations	(3,753)		(6.7)	%	(6,078)		(12.6)	%	2,325		(38.3)	%	Loss from operations	(5,244)		(6.6)	%	(7,962)		(10.3)	%	2,718		(34.1)	%
Total other expense		(901)		(1.6)	%	3,733		7.8	%	(4,634)		(124.1)	%
Total other income (expense)														Total other income (expense)	(1,661)		(2.1)	%	3,476		4.5	%	(5,137)		(147.8)	%
Loss before income taxes	Loss before income taxes	(4,654)		(8.3)	%	(2,345)		(4.9)	%	(2,309)		98.5	%	Loss before income taxes	(6,905)		(8.6)	%	(4,486)		(5.8)	%	(2,419)		53.9	%
Income tax provision	Income tax provision	(623)		(1.1)	%	(34)		(0.1)	%	(589)		1,732.4	%	Income tax provision	(256)		(0.3)	%	(34)		—	%	(222)		652.9	%
Net loss from continuing operations	Net loss from continuing operations	(5,277)		(9.5)	%	(2,379)		(4.9)	%	(2,898)		121.8	%	Net loss from continuing operations	(7,161)		(9.0)	%	(4,520)		(5.9)	%	(2,641)		58.4	%
Net income (loss) from discontinued operations		—		—	%	5,955		12.4	%	(5,955)		(100.0)	%
Net income from discontinued operations														Net income from discontinued operations	—		—	%	5,955		7.7	%	(5,955)		(100.0)	%
Net income (loss)	Net income (loss)	$	(5,277)	(9.5)	%	$	3,576	7.4	%	$	(8,853)	(247.6)	%	Net income (loss)	$	(7,161)	(9.0)	%	$	1,435	1.9	%	$	(8,596)	(599.0)	%

*Percentage ~~to revenue were computed independently for each discrete item presented. Therefore, the sum of the individual items~~ may not ~~equal the total.~~add due to rounding

Revenues

Healthcare

Healthcare revenue by segments is summarized as follows (in thousands):


		Six Months Ended June 30,									Nine Months Ended September 30,
		2022		2021		Change		% Change			2022		2021		Change		% Change
Healthcare	Healthcare	$	27,330	$	28,177	$	(847)	(3.0)	%	Healthcare	$	40,467	$	42,984	$	(2,517)	(5.9)	%
Total Healthcare Revenue	Total Healthcare Revenue	$	27,330	$	28,177	$	(847)	(3.0)	%	Total Healthcare Revenue	$	40,467	$	42,984	$	(2,517)	(5.9)	%

Healthcare revenue decreased ~~3.0%~~5.9% compared to the prior year period, primarily driven by a decrease in revenue from fewer total scanning days due to the national shortage of Nuclear Medicine Technologists.

Construction

Construction revenue is summarized as follows (in thousands):


		Six Months Ended June 30,									Nine Months Ended September 30,
		2022		2021		Change		% Change			2022		2021		Change		% Change
Construction	Construction	$	28,437	$	19,983	$	8,454	42.3	%	Construction	$	39,544	$	34,035	$	5,509	16.2	%
Total Construction Revenue	Total Construction Revenue	$	28,437	$	19,983	$	8,454	42.3	%	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 number of projects completed of varying sizes and increased pricing at KBS and EBGL, including a large contract entered into during 2022 that has resulted in recognized revenue of ~~$5.3~~approximately $9 million.

4341

Gross Profit

Healthcare Gross Profit

Healthcare gross profit and gross margin by segments is summarized as follows (in thousands):


		Six Months Ended June 30,											Nine Months Ended September 30,
		2022			2021			Change		% Change			2022			2021			Change		% Change
Healthcare gross profit	Healthcare gross profit	$	6,854		$	6,007		$	847	14.1	%	Healthcare gross profit	$	9,579		$	9,263		$	316	3.4	%
Healthcare gross margin	Healthcare gross margin	25.1		%	21.3		%					Healthcare gross margin	23.7		%	21.5		%

The increase in Healthcare gross margin percentage was mainly driven by an improved mix of product and service revenues.

Construction Gross Profit (Loss)

Construction gross profit and margin is summarized as follows (in thousands):


		Six Months Ended June 30,											Nine Months Ended September 30,
		2022			2021			Change		% Change			2022			2021			Change		% Change
Construction gross (loss) profit		$	4,071		$	(1,300)		$	5,371	413.2	%
Construction gross profit (loss)												Construction gross profit (loss)	$	7,203		$	(759)		$	7,962	1,049.0	%
Construction gross margin	Construction gross margin	14.3		%	(6.5)		%					Construction gross margin	18.2		%	(2.2)		%

The increase in Construction gross profit was predominately due to an increase in revenues at KBS and EBGL for large commercial projects. We have significantly increased prices to offset higher input costs and have seen an improvement in our gross margin overall in 2022. Our backlog and sales pipeline remain ~~at record levels.~~

~~Investments Gross Loss~~

~~Investments gross loss and margin is summarized as follows (in thousands):~~

Six Months Ended June 30,
2022 2021 Change % Change
Investments gross loss $ (163) $ (126) $ (37) 29.4 %

~~The Investments 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):


		Six Months Ended June 30,																Percent of Revenues						Nine Months Ended September 30,																Percent of Revenues
		2022				2021				Change								2022		2021				2022				2021				Change								2022				2021
								Dollars				Percent										Dollars								Percent
Selling, general and administrative expenses	Selling, general and administrative expenses			$	13,655			$	10,638			$	3,017			28.4	%				24.5		%		22.1	%	Selling, general and administrative expenses			$	20,515			$	15,839			$	4,676			29.5	%			25.6	%	20.6	%
Amortization of intangible assets	Amortization of intangible assets	860				868				(8)				(0.9)	%			1.5	%	1.8	%	Amortization of intangible assets		1,290				1,298				(8)				(0.6)	%			1.6	%			1.7	%
Gain on sale of MD Office Solutions	Gain on sale of MD Office Solutions	—				(847)				847				(100.0)	%			—	%	(1.8)	%	Gain on sale of MD Office Solutions		—				(847)				847				(100.0)	%			—	%			(1.1)	%
Total operating expenses	Total operating expenses	$	14,515			$	10,659			$	3,856			36.2	%			26.0	%	22.1	%	Total operating expenses		$	21,805			$	16,290			$	5,515			33.9	%			27.2	%			21.2	%

On a consolidated basis, there was a ~~$3.0~~$4.7 million increase in sales, general and administrative expenses. Two major drivers of the increase in SG&A were a ~~$1.8~~$3 million increase in legal expenses and a ~~$0.4~~$0.7 million increase in severance and retention costs, both attributed to our healthcare segment. We also had a ~~$0.5 million SG&A increase in Construction due to increases in headcount and commissions and a $0.2~~$0.8 million increase at the corporate level related to ~~external and internal auditors review fees.~~corporate finance costs. As a percentage of revenue, SG&A increased to ~~24.5%~~25.6%, versus ~~22.1%~~20.6% in the prior year 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 ~~expense~~Income (expense) is summarized as follows (in thousands):
Six Months Ended June 30,
2022 2021
Other (expense) income, net $ (422) $ 4,205
Interest expense, net (479) (472)
Total other (expense) income $ (901) $ 3,733


	Nine Months Ended September 30,
	2022		2021
Other income (expense), net	$	(997)	$	4,208
Interest expense, net	(664)		(732)


Total other income (expense)	$	(1,661)	$	3,476

Other income, net for ~~six~~nine months ended ~~June~~September 30, 2022 is predominantly comprised of gains and losses from equity securities and sales of assets, whereas the ~~six~~nine months ended ~~June~~September 30, 2021 comprised of primarily $4.2 million in PPP

loan forgiveness from the Healthcare and Construction businesses. As of ~~June~~September 30, 2022, the Company has no PPP loans outstanding.

Interest expense, net, for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 is predominantly comprised of interest costs and the related amortization of deferred issuance costs on our debt.

Income Tax Expense

For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, we recorded income tax ~~expense~~expenses of ~~$623~~$256 thousand and $34 thousand, respectively. 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.

Liquidity and Capital Resources

Overview

~~Cash Flows from Operating Activities~~

For the six months ended June 30, 2022, net cash provided by operating activities was $2.9 million, as compared to $7.6 million net cash used in operating activities in 2021, resulting in an increase in net cash provided by operating activities of $10.5 million. The increase in net cash provided by operating activities was attributable to a positive impact on net working capital changes. Additionally, in 2021 consolidated net income included discontinued operations from DMS Health Technologies, Inc. (“DMS Health”), the sale of our MD Office Solutions subsidiary, and PPP loan forgiveness.

~~Cash Flows from Investing Activities~~

For the six months ended June 30, 2022, net cash used in investing activities was $3.4 million, as compared to $18.0 million of net cash provided by investing activities in 2021. The $21.4 million decrease in net cash used in investing activities was attributable to the purchase of securities of $2.8 million in 2022 and the proceeds from the sale of discontinued operations of $18.8 million in 2021.

~~Cash Flows from Financing Activities~~

For the six months ended June 30, 2022, net cash provided by financing activities was $10.1 million, as compared to net cash used in financing activities of $7.5 million in 2021, resulting in an increase in net cash provided by financing activities of $17.7 million. The increase in financing activities was due to lower net repayments of existing debt by $5.8 million, net proceeds received related to the 2022 Public Offering of $12.7 million and partially offset by payment of dividends of $1.0 million.

Summary Cash Flows

The following table shows cash flow information for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	2,937	$	(7,599)	Net cash provided by (used in) operating activities	$	(234)	$	(8,176)
Net cash (used in) provided by investing activities		$	(3,371)	$	18,021
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	$	(4,982)	$	17,794
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	$	10,122	$	(7,534)	Net cash provided by (used in) financing activities	$	9,749	$	(7,317)

Cash Flows from Operating 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 cash used in operating 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 DMS 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 cash 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 cash provided by investing activities was $17.8 million, which was primarily attributable to the proceeds we received from the sale of DMS for $18.75 million.

Cash Flows from Financing Activities

For the nine months ended September 30, 2022, net cash 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 due to net proceeds of $12.7 million raised in our 2022 public equity offering.

Sources of Liquidity

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from operations, ~~availability~~cash available on 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 cash raised from equity ~~financing.~~financings. As of ~~June~~September 30, 2022, we had ~~$13.7~~$8.5 million of cash and cash equivalents. The eCapital facilities directly support our Construction businesses. As of ~~June~~September 30, 2022, we ~~were fully drawn in terms~~have additional borrowing capacity of ~~available capacity~~$0.2 million and ~~no amount~~$0.9 million outstanding on the KBS revolver. We were at ~~$2.5~~$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

At ~~June~~September 30, 2022, we had approximately ~~$11.6~~$11.9 million in debt outstanding. All of our debt is categorized as short-term on our condensed Consolidated Balance Sheets. For more detail, see Note 8. Debt. The Company’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 ~~$8.1~~$7.5 million, supports our Healthcare business. While the Webster Loan matures in 2024, GAAP rules require that the outstanding balance be classified as short-term debt. This is due to both the automatic sweep feature embedded in the traditional lockbox arrangement and the subjective acceleration clause in the Webster Loan Agreement.

As of ~~June~~September 30, 2022, we 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 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. We are currently in negotiations to avoid a default. While we do not believe we will be required to pay down the current balance, our current cash is sufficient to repay the Webster Loan in full.

Management has historically concluded that this forecasted violation raises substantial doubt about our ability to continue as a going concern within twelve months. In consideration of the cash flow results for the ~~six~~nine months ended ~~June~~September 30, 2022, our current balance of cash and cash equivalents of ~~$13.7~~$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 these unaudited condensed financial statements are issued, even in the event that we 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 of recurring losses, the continued viability of the Company beyond ~~August~~November 2023 may be dependent on its ability to continue to raise additional capital to finance its operations.

Common Stock Equity Offering

On May 28, 2020, we closed an underwritten public offering (the “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 offering price of $2.25). Gross proceeds, before deducting underwriting discounts and offering 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 with Maxim Group LLC, as representative of the underwriters. The 2022 Public Offering was for 9,500,000 shares of common stock (or pre-funded warrants to purchase shares of common stock in lieu thereof) and warrants 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 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. Gross proceeds, before deducting underwriting discounts and offering expenses and excluding any proceeds we may receive upon exercise of the common warrants, were $14.3 million and net proceeds were $12.7 million.

See Note 14. Equity Transactions in the accompanying notes to the condensed consolidated financial statements for further details.

Webster Credit Facility

We have a $20.0 million credit facility with Webster, which matures in March 2024. As of ~~June~~September 30, 2022, the Company had $0.1 million of letters of credit outstanding and had additional borrowing capacity of ~~$0.1~~$0.6 million under the Webster Credit Facility. Financial covenants require that the Webster Borrowers maintain (a) a Fixed Charge Coverage Ratio as of the last day of a fiscal quarter of 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 of ~~June~~September 30, 2022, the Company was not in compliance with the covenants under the Webster Loan Agreement and had not yet obtained a waiver from Webster for these 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.

eCapital Credit Facilities

EdgeBuilder and Glenbrook (the “EBGL Borrowers”) have a $4.0 million credit facility with eCapital, which matures in January 2023. As of ~~June~~September 30, 2022, EBGL was fully drawn in terms of available borrowing capacity is available under the facility. As of ~~June~~September 30, 2022, ~~$2.5~~$2.6 million was outstanding under the EBGL Loan Agreement. As of June 30, 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 ~~June~~September 30, 2022, KBS ~~was fully drawn in terms of available~~had additional borrowing capacity ~~is available~~of $0.2 million under the facility. As of ~~June~~September 30, 2022, ~~no amount~~$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

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 ~~Construction~~Healthcare division and ~~Healthcare~~Construction division were $5.5 million and $1.2 million, respectively.

All PPP loans were forgiven, resulting in a gain of $4.2 million in 2021 and $2.5 million in 2020.

See Note 8. Debt in the accompanying notes to the financial statements for further details.

Off-Balance Sheet Arrangements

~~On April 1,~~As of September 30, 2022 ~~the Company entered into a Guaranty Agreement to guarantee the obligations of KBS to Consigli Construction Co.~~, ~~Inc. under a subcontract in the event of a material breach by KBS in an amount up to $4.4 million, with such amount decreasing as product deliveries occur.~~there were no off balance sheet arrangements.

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 ~~chairman~~officer 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.

As further discussed below, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive ~~chairman~~officer 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. Based on that

evaluation, our chief executive ~~chairman~~officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of ~~June~~September 30, 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, 2021, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2021 due to the material weaknesses as described below.

Our management identified a material weakness in our internal control over financial reporting as we dodid 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.

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, 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 ~~intends~~has taken steps to increase the skills and experience of our accounting and financial reporting staff ~~over time~~by making strategic hires and ~~to make future investments~~investing in the continuing education and public company accounting training of our accounting and financial professionals. We ~~may~~have also ~~retain~~retained additional outside financial consultants to conduct technical accounting reviews, when necessary.

Controls ~~will also be added~~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.

4946

PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

See Note 9. Commitments and Contingencies, within the notes to our condensed consolidated financial statements for a summary of legal proceedings.

ITEM 1A.RISK FACTORS

In evaluating us and our 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, 2021, which we filed with the SEC on March 31, 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, 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.

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 ~~August 11,~~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

None.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION

None.

5147

ITEM 6.EXHIBITS


Exhibit Number						Description

10.1*						Employment Agreement, dated as of March 31, 2022 between Star Equity Holdings, Inc. and Richard K. Coleman, Jr. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 4, 2022).
10.2*						~~Separation Agreement and Release between the Company and Matthew G. Molchan, dated April 19, 2022~~ ~~(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 22, 2022).~~
10.3*						eCapital EBGL Eighth Amendment to Loan and Security Agreement, dated August 11, 2022, by and among 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
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
104.1						Cover 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.

5248

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:

~~August 12,~~November 14, 2022

By:

/s/ RICHARD K. COLEMAN, JR.

Richard K. Coleman, Jr.

Chief Executive Officer

(Principal Executive Officer)

/s/ DAVID J. NOBLE

David J. Noble

Chief Financial Officer

(Principal Financial and Accounting Officer)

5349


IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS			4

PART I. FINANCIAL INFORMATION			5
Item 1. Financial Statements (Unaudited)			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3635
Item 3. Quantitative and Qualitative Disclosures about Market Risk			4846
Item 4. Controls and Procedures			4846

PART II. OTHER INFORMATION			5047
Item 1. Legal Proceedings			5047
Item 1A. Risk Factors			5047
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5147
Item 3. Defaults Upon Senior Securities			5147
Item 4. Mine Safety Disclosures			5147
Item 5. Other Information			5147
Item 6. Exhibits			5248


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues:
Healthcare	$	13,912	$	14,870	$	27,330	$	28,177
Construction	16,806		10,936		28,437		19,983

Total revenues	30,718		25,806		55,767		48,160

Cost of revenues:
Healthcare	10,234		11,461		20,476		22,170
Construction	14,321		12,780		24,366		21,283
Investments	64		61		163		126
Total cost of revenues	24,619		24,302		45,005		43,579

Gross profit	6,099		1,504		10,762		4,581

Operating expenses:
Selling, general and administrative	6,867		5,584		13,655		10,638
Amortization of intangible assets	430		430		860		868


Gain on sale of MD Office Solutions	—		—		—		(847)
Total operating expenses	7,297		6,014		14,515		10,659

Loss from operations	(1,198)		(4,510)		(3,753)		(6,078)

Other (expense) income:
Other (expense) income, net	(416)		2,950		(422)		4,205
Interest expense, net	(289)		(199)		(479)		(472)

Total other (expense) income	(705)		2,751		(901)		3,733

Loss from continuing operations before income taxes	(1,903)		(1,759)		(4,654)		(2,345)
Income tax benefit (provision)	327		(32)		(623)		(34)
Loss from continuing operations, net of tax	(1,576)		(1,791)		(5,277)		(2,379)
(Loss) income from discontinued operations, net of tax	—		(65)		—		5,955
Net (loss) income	(1,576)		(1,856)		(5,277)		3,576
Deemed dividend on Series A perpetual preferred stock	(479)		(479)		(958)		(958)
Net (loss) income attributable to common shareholders	$	(2,055)	$	(2,335)	$	(6,235)	$	2,618

Net (loss) income per share—basic and diluted
Net loss per share, continuing operations	$	(0.10)	$	(0.36)	$	(0.38)	$	(0.48)
Net (loss) income per share, discontinued operations	$	—	$	(0.01)	$	—	$	1.20
Net (loss) income per share—basic and diluted*	$	(0.10)	$	(0.37)	$	(0.38)	$	0.72
Deemed dividend on Series A cumulative perpetual preferred stock per share	$	(0.03)	$	(0.10)	$	(0.07)	$	(0.19)
Net (loss) income per share, attributable to common shareholders—basic and diluted*	$	(0.13)	$	(0.46)	$	(0.44)	$	0.53
Weighted-average shares outstanding—basic and diluted	15,379		5,039		14,031		4,978

Dividends declared per Series A perpetual preferred stock	$	0.25	$	0.25	$	0.50	$	0.25