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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 30, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM              TO             
Commission file number: 001-35947
Digirad Corporation
(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.)
1048 Industrial Court, SuwaneeGA 30024
(Address of Principal Executive Offices) (Zip Code)
(858726-1600
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareDRADNASDAQ Global Market
Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per shareDRADP
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller 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 x
As of August 5, 2020, the registrant had 4,698,201 shares of Common Stock ($0.0001 par value) outstanding.



DIGIRAD CORPORATION
TABLE OF CONTENTS
 

3


Important Information Regarding Forward-Looking Statements
Portions of this Quarterly Report on Form 10-Q (including information incorporated by reference) include “forward-looking statements” based on our current beliefs, expectations, and projections regarding our business strategies, market potential, future financial performance, industry, and other matters. This includes, in particular, “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q, as well as other portions of this Quarterly Report on Form 10-Q. The words “believe,” “expect,” “anticipate,” “project,” “could,” “would,” and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from those projected, anticipated, or implied in the forward-looking statements. The most significant of these risks, uncertainties, and other factors are described in “Item 1A — Risk Factors” of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission on March 9, 2020. Except to the limited extent required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
4


PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS

DIGIRAD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands, except for per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Revenues:
Healthcare $17,305  $25,798  $40,647  $49,710  
Building and Construction5,035    10,519    
Real Estate and Investments2    33    
Total revenues22,342  25,798  51,199  49,710  
Cost of revenues:
Healthcare 14,268  20,617  33,538  40,548  
Building and Construction3,982    9,063    
Real Estate and Investments66  177  131  177  
Total cost of revenues18,316  20,794  42,732  40,725  
Gross profit4,026  5,004  8,467  8,985  
Operating expenses:
Marketing, sales and general and administrative expenses4,751  4,867  10,979  9,700  
Amortization of intangible assets801  283  1,618  566  
Merger and finance costs  1,000    1,000  
Total operating expenses5,552  6,150  12,597  11,266  
Loss from operations(1,526) (1,146) (4,130) (2,281) 
Other income (expense):
Other income (expense), net672  (5) 832  (203) 
Interest expense, net(383) (254) (858) (435) 
Loss on sale of building  (232)   (232) 
Loss on extinguishment of debt      (151) 
Total other income (expense)289  (491) (26) (1,021) 
Loss before income taxes(1,237) (1,637) (4,156) (3,302) 
Income tax (expense) benefit (50) 162  (84) 170  
Net loss from continuing operations(1,287) (1,475) (4,240) (3,132) 
Net income from discontinued operations  266    266  
Net loss(1,287) (1,209) (4,240) (2,866) 
Deemed dividend on Series A redeemable preferred stock(484)   (968)   
Net loss attributable to common shareholders$(1,771) $(1,209) $(5,208) $(2,866) 
Net loss per share, attributable to common shareholders — basic and diluted:$(0.58) $(0.59) $(2.04) $(1.41) 
Net loss$(1,287) $(1,209) $(4,240) $(2,866) 
Other comprehensive (loss) income:
5


Reclassification of tax provision impact       22  
Total other comprehensive income      22  
Comprehensive loss$(1,287) $(1,209) $(4,240) $(2,844) 
See accompanying notes to the unaudited condensed consolidated financial statements.

6


DIGIRAD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
June 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents$9,111  $1,821  
Restricted cash169  240  
Equity securities27  26  
Accounts receivable, net14,523  18,571  
Inventories, net7,638  7,097  
Other current assets1,433  1,794  
Total current assets32,901  29,549  
Property and equipment, net19,210  22,138  
Operating lease right-of-use assets, net4,907  4,827  
Intangible assets, net21,286  22,903  
Goodwill9,978  9,978  
Other assets997  1,165  
Total assets$89,279  $90,560  
Liabilities, Mezzanine Equity and Stockholders’ Equity
Current liabilities:
Accounts payable$5,807  $8,932  
Accrued compensation4,132  4,579  
Accrued warranty272  421  
Deferred revenue2,185  1,786  
Short-term debt and current portion of long-term debt4,459  4,036  
Payable to related parties2,155  1,920  
Operating lease liabilities1,980  1,866  
Other current liabilities3,270  4,638  
Total current liabilities24,260  28,178  
Long-term debt, net of current portion19,124  17,038  
Deferred tax liabilities89  23  
Operating lease liabilities, net of current portion3,024  3,073  
Other liabilities1,102  1,551  
Total liabilities47,599  49,863  
Commitments and contingencies (Note 9)
Preferred stock, $0.0001 par value: 10,000,000 shares authorized: 10% Series A Cumulative Redeemable preferred stock, 8,000,000 shares liquidation preference ($10.00 per share), 1,915,637 shares issued or outstanding at June 30, 2020 and December 31, 2019, respectively20,570  19,602  
Stockholders’ equity:
Common stock, $0.0001 par value: 30,000,000 shares authorized; 4,692,451 and 2,050,659 shares issued and outstanding (net of treasury shares) at June 30, 2020 and December 31, 2019, respectively    
Treasury stock, at cost; 258,849 shares at June 30, 2020 and December 31, 2019, respectively(5,728) (5,728) 
7


Additional paid-in capital149,607  145,352  
Accumulated deficit(122,769) (118,529) 
Total stockholders’ equity21,110  21,095  
Total liabilities, mezzanine equity and stockholders’ equity$89,279  $90,560  
See accompanying notes to the unaudited condensed consolidated financial statements.
8


DIGIRAD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
20202019
Operating activities
Net loss$(4,240) $(2,866) 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation3,164  3,094  
Amortization of intangible assets1,618  566  
Provision for bad debt, net7  109  
Stock-based compensation260  302  
Gain on disposal of discontinued operations  (350) 
Amortization of loan issuance costs163  28  
Debt issuance costs write-off  151  
Financing costs write-off  273  
Loss on sale of assets 165  24  
Deferred income taxes, net66  (75) 
Other, net20  (23) 
Changes in operating assets and liabilities:
Accounts receivable4,042  (348) 
Inventories(446) (290) 
Other assets207  (529) 
Accounts payable(3,317) (694) 
Accrued compensation(447) 262  
Deferred revenue390  159  
Operating lease liabilities(5) (21) 
Other liabilities(1,598) 596  
Net cash provided by operating activities49  368  
Investing activities
Purchases of property and equipment(286) (1,446) 
Purchase of real estate from related and third parties  (5,180) 
Proceeds from sale of property and equipment84  1,320  
Proceeds from sales of equity securities  140  
Payments to acquire interest in joint ventures  (1,000) 
Net cash used in investing activities(202) (6,166) 
Financing activities
Proceeds from borrowings58,570  40,982  
Repayment of debt(55,371) (35,168) 
Loan issuance costs(317) (404) 
Net proceeds from sale of common stock and warrants4,203    
Proceeds from exercise of warrants773    
Taxes paid related to net share settlement of equity awards(13) (24) 
Repayment of obligations under finance leases(473) (369) 
Net cash provided by financing activities7,372  5,017  
Net increase (decrease) in cash, cash equivalents, and restricted cash7,219  (781) 
Cash, cash equivalents, and restricted cash at beginning of period2,061  1,813  
Cash, cash equivalents, and restricted cash at end of period$9,280  $1,032  
See accompanying notes to the unaudited condensed consolidated financial statements.
9


DIGIRAD CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
(Unaudited) (In thousands)
Redeemable Preferred StockCommon stockTreasury StockAdditional paid-in capitalAccumulated deficitTotal
stockholders’
equity
SharesAmountSharesAmount
Balance at December 31, 20191,916  $19,602  2,050  $  $(5,728) $145,352  $(118,529) $21,095  
Stock-based compensation—  —  —  —  —  109  —  109  
Shares issued under stock incentive plans, net of shares withheld for employee taxes—  —  5—  —  —  —  —  
Accrued dividend on redeemable preferred stock—  484  —  —  —  (484) —  (484) 
Net loss—  —  —  —  —  —  (2,953) (2,953) 
Balance at March 31, 20201,916  20,086  2,055    (5,728) 144,977  (121,482) 17,767  
Stock-based compensation—  —  —  —  151  —  151  
Shares issued under stock incentive plans, net of shares withheld for employee taxes—  —  42—  —  (13) —  (13) 
Accrued dividend on redeemable preferred stock—  484—  —  —  (484) —  (484) 
Net proceeds from sale of common stock and warrants —  —  2,450—  —  4,203  —  4,203  
Proceeds from exercise of warrants—  —  145—  —  773  —  773  
Net loss—  —  —  —  —  —  (1,287) (1,287) 
Balance at June 30, 20201,916  $20,570  4,692  $  $(5,728) $149,607  $(122,769) $21,110  

Common stockTreasury StockAdditional paid-in capitalAccumulated other comprehensive income (loss)Accumulated deficitTotal
stockholders’
equity
SharesAmount
Balance at December 31, 20182,025  $2  $(5,728) $145,428  $(22) $(113,880) $25,800  
Stock-based compensation—  —  —  112  —  —  112  
Shares issued under stock incentive plans, net of shares withheld for employee taxes6  —  —  (24) —  —  (24) 
Reclassification of tax provision impact—  —  —  —  22  —  22  
Net loss—  —  —  —  —  (1,657) (1,657) 
Balance at March 31, 20192,031  2  (5,728) 145,516    (115,537) 24,253  
Stock-based compensation—  —  —  190  —  —  190  
Shares issued under stock incentive plans, net of shares withheld for employee taxes9  —  —  —  —  —  —  
Shares issued for fractional shares in conjunction with reverse stock split 2  —  —  —  —  —  —  
Net loss—  —  —  —  —  (1,209) (1,209) 
Reclassification of tax provision impact—  —  —  —  —  (22) (22) 
Balance at June 30, 20192,042  $2  $(5,728) $145,706  $  $(116,768) $23,212  
See accompanying notes to unaudited consolidated financial statements.
10


DIGIRAD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
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 at December 31, 2019 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, 2019, filed with the SEC on Form 10-K on March 9, 2020, 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.
On March 11, 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus, COVID-19, a global pandemic, which continues to spread throughout the United States and around the world. Governmental authorities in the states in which we operate issued social distancing orders, which orders have required businesses in subject jurisdictions to cease non-essential operations at physical locations in those locations, unless exempted, rescinded, or amended. Accordingly, to comply with applicable regulations and to safeguard the health and safety of our employees and customers, we temporarily reduced our business operations.
During the three and six months ended June 30, 2020, we experienced a $8.5 million and $9.1 million, respectively, decrease in Digirad Health division revenue which was offset by $5.0 million and $10.5 million, respectively, increase in Building and Construction revenue, as compared to the same period of the prior year, related to a decrease in our diagnostic services due to the COVID-19 pandemic. As the COVID-19 pandemic affected the results of segments of our business during the three and six months ended June 30, 2020, we took steps to contain the impact of the COVID-19 pandemic on our business.
On April 1, 2020, we announced that in response to the COVID-19 pandemic, Matthew G. Molchan, our President and Chief Executive Officer, David J. Noble, our Chief Financial Officer and Chief Operating Officer, and Martin B. Shirley, the president of our Diagnostic Imaging Solutions Inc. subsidiary, had each agreed to have their base salaries reduced by 20%. These reductions were effective as of April 6, 2020, and remained in effect until May 15, 2020.
On April 1, 2020, we also announced that in response to the COVID-19 pandemic, we planned to furlough certain employees and that we would institute a 20% salary reduction for most of our salaried employees and reduce the number of working hours of most of our hourly employees by 20%. These reductions, which applied to our healthcare division, were effective as of April 6, 2020, and remained in effect until May 15, 2020. Throughout the COVID-19 pandemic, our building and construction division has furloughed employees or reduced employee hours based on fluctuations in demand for our products. As of June 30, 2020, the Company’s KBS Builders, Inc. subsidiary (“KBS”) brought back furloughed employees and increased its work force by over 20% to meet the higher manufacturing requirements for two commercial projects as well as the future growth we expect.
This partial disruption, although expected to be temporary, may impact our operations and overall business. The impact of COVID-19 is evolving rapidly and its future effects are uncertain. Given the uncertainty caused by the COVID-19 pandemic, the duration of the disruption and related financial impact cannot be reasonably estimated at this time. As a result of the evolving impact of COVID-19 on the economy, on April 7, 2020, we withdrew our 2020 full-year guidance. The COVID-19 pandemic is a highly fluid situation and it is not currently possible for us to reasonably estimate the impact it may have on our financial and operating results. We will continue to evaluate the impact of the COVID-19 pandemic on our business as we learn more and the impact of COVID-19 on our industry becomes clearer.
Reverse Stock Split
On May 31, 2019, the Company filed a Certificate of Amendment to its Restated Certificate of Incorporation (the “Amendment”) in order to effect a reverse stock split of the issued and outstanding shares of its common stock at a ratio of 1-for-10 (the “Reverse Stock Split”) and to reduce of the number of authorized shares of common stock to 30 million shares authorized (the “Share Reduction”). The Reverse Stock Split was implemented for the purpose of regaining compliance with the minimum bid price requirement for continued listing of the Company’s common stock on the Nasdaq Global Market.
11


The Reverse Stock Split and the Share Reduction became effective on June 4, 2019, at which time (a) every ten shares of the Company’s issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock and (b) the number of authorized shares of common stock under the Company’s Restated Certificate of Incorporation, as amended, was automatically reduced to 30 million shares authorized. No fractional shares were issued in connection with the Reverse Stock Split. Instead, the Company issued one full share of the post-Reverse Stock Split common stock to any stockholder who would have been entitled to receive a fractional share as a result of the Reverse Stock Split. The Amendment did not affect the par value of the Company’s common stock. The Company’s common stock began trading on a split-adjusted basis on June 5, 2019.
The Amendment, effecting the Reverse Stock Split and the Share Reduction, was approved by the stockholders of the Company at the Company’s 2019 Annual Meeting of Stockholders held on May 1, 2019. In connection with approving the Reverse Stock Split, the Company’s stockholders granted authority to the Company’s board of directors to determine, at its discretion, a ratio within the range of 1-for-5 to 1-for-10, at which to effectuate the Reverse Stock Split. The Reverse Stock Split was approved by the Company’s board of directors on March 8, 2019, and the ratio of 1-for-10 was approved by the Company’s board of directors on May 15, 2019.
The terms of equity awards under the Company’s incentive plans, including the per share exercise price of options and the number of shares issuable under outstanding awards, were converted on the effective date of the Reverse Stock Split in proportion to the reverse split ratio (subject to adjustment for fractional interests). In addition, the total number of shares of common stock that may be the subject of future grants under the Company’s incentive plans were adjusted and proportionately decreased as a result of the Reverse Stock Split.
All authorized, issued, and outstanding stock and per share amounts contained in the accompanying condensed consolidated financial statements have been adjusted to reflect the 1-for-10 Reverse Stock Split for all prior periods presented. The Reverse Stock Split was effective June 4, 2019.
ATRM Merger
On September 10, 2019, Digirad completed its acquisition of ATRM Holdings, Inc. (“ATRM”) pursuant to an Agreement and Plan of Merger, dated as of July 3, 2019 (the “ATRM Merger Agreement”), among Digirad, Digirad Acquisition Corporation, a Minnesota corporation and wholly-owned subsidiary of Digirad (“Merger Sub”), and ATRM. Under the terms of the ATRM Merger Agreement, Merger Sub merged with and into ATRM, with ATRM surviving as a wholly owned subsidiary of Digirad (the “ATRM Merger” or the “ATRM Acquisition”).
At the effective time of the ATRM Merger, (i) each share of ATRM common stock was converted into the right to receive three one-hundredths (0.03) of a share of 10.0% Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share, of the Company (“Company Preferred Stock”) and (ii) each share of ATRM 10.00% Series B Cumulative Preferred Stock, par value $0.001 per share (“ATRM Preferred Stock”), converted into the right to receive two and one-half (2.5) shares of Company Preferred Stock, for an approximate aggregate total of 1.6 million shares of Company Preferred Stock. No fractional shares of Company Preferred Stock were issued to any ATRM shareholder in the ATRM Merger. Each ATRM shareholder who would otherwise have been entitled to receive a fraction of a share of Company common stock in the ATRM Merger received one whole share of Company Preferred Stock. See Note 4, Merger, within the notes to our unaudited condensed consolidated financial statements for further detail.
Mezzanine Equity
Pursuant to the Certificate of Designations, Rights and Preferences of 10% Series A Cumulative Perpetual Preferred Stock of Digirad Corporation (the “Certificate of Designations”), upon a Change of Control Triggering Event, as defined in the Certificate of Designations, holders of the Company Preferred Stock may require the Company to redeem the Company 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 is not solely within the control of Digirad, the equity of Digirad does not qualify as permanent equity and has been classified as mezzanine or temporary equity. Accordingly, the Company recognizes Company Preferred Stock as mezzanine equity in the unaudited condensed consolidated financial statements. Company Preferred Stock is not redeemable and it was not probable that the Company Preferred Stock would become redeemable as of June 30, 2020.