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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
MARCH 31, 2021
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 GreenwichCT 06870
(Address of Principal Executive Offices) (Zip Code)
(203489-9500
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareSTRRNASDAQ Global Market
Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per shareSTRRP
NASDAQ Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
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As of May 7, 2021, the registrant had 5,018,271 shares of Common Stock ($0.0001 par value) outstanding.




STAR EQUITY HOLDINGS, INC.
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, 2020 filed with the U.S. Securities and Exchange Commission on March 29, 2021. 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
STAR EQUITY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except for per share amounts)
Three Months Ended
March 31,
20212020
Revenues:
Healthcare $13,307 $13,675 
Construction9,047 5,484 
Investments 31 
Total revenues22,354 19,190 
Cost of revenues:
Healthcare 10,709 10,801 
Construction8,503 5,081 
Investments65 65 
Total cost of revenues19,277 15,947 
Gross profit3,077 3,243 
Operating expenses:
Selling, general and administrative5,055 4,863 
Amortization of intangible assets438 576 
Gain on sale of MD Office Solutions(847) 
Total operating expenses4,646 5,439 
Loss from operations(1,569)(2,196)
Other income (expense):
Other income, net1,255 160 
Interest expense, net(272)(305)
Total other income (expense)983 (145)
Loss from continuing operations before income taxes(586)(2,341)
Income tax expense(2)(27)
Loss from continuing operations, net of tax(588)(2,368)
Income (loss) from discontinued operations, net of tax6,020 (585)
Net income (loss)5,432 (2,953)
Deemed dividend on Series A redeemable preferred stock(479)(484)
Net income (loss) attributable to common shareholders$4,953 $(3,437)
Net income (loss) per share—basic and diluted
Net loss per share, continuing operations$(0.12)$(1.15)
Net income (loss) per share, discontinued operations$1.22 $(0.28)
Net income (loss) per share—basic and diluted$1.10 $(1.44)
Deemed dividend on Series A cumulative perpetual preferred stock per share$(0.10)$(0.24)
Net income (loss) per share, attributable to common shareholders—basic and diluted:$1.01 $(1.67)
Weighted-average shares outstanding—basic and diluted4,916 2,055 
See accompanying notes to the unaudited consolidated financial statements.
5



STAR EQUITY HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
March 31,
2021
December 31,
2020
Assets:
Current assets:
Cash and cash equivalents$13,175 $3,225 
Restricted cash168 168 
Accounts receivable, net14,886 12,975 
Inventories, net9,838 9,787 
Other current assets2,738 2,025 
Assets held for sale 20,756 
Total current assets40,805 48,936 
Property and equipment, net9,383 9,762 
Operating lease right-of-use assets, net2,848 1,769 
Intangible assets, net16,362 16,900 
Goodwill9,405 9,542 
Other assets2,588 1,384 
Total assets$81,391 $88,293 
Liabilities, Mezzanine Equity and Stockholders’ Equity:
Current liabilities:
Accounts payable$5,535 $4,952 
Accrued compensation3,695 2,825 
Accrued warranty180 214 
Deferred revenue2,352 2,184 
Short-term debt and current portion of long-term debt12,548 18,362 
Payable to related parties2,307 2,307 
Operating lease liabilities1,075 1,011 
Other current liabilities2,859 3,000 
Liabilities held for sale 7,871 
Total current liabilities30,551 42,726 
Long-term debt, net of current portion1,967 3,700 
Deferred tax liabilities51 51 
Operating lease liabilities, net of current portion1,824 828 
Other liabilities1,018 1,059 
Total liabilities35,411 48,364 
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 authorized, liquidation preference ($10.00 per share), 1,915,637 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
21,979 21,500 
Stockholders’ Equity:
Common stock, $0.0001 par value: 30,000,000 shares authorized; 5,020,969 and 4,798,367 shares issued and outstanding (net of treasury shares) at March 31, 2021 and December 31, 2020, respectively
  
Treasury stock, at cost; 258,849 shares at March 31, 2021 and December 31, 2020, respectively(5,728)(5,728)
6



Additional paid-in capital149,283 149,143 
Accumulated deficit(119,554)(124,986)
Total stockholders’ equity24,001 18,429 
Total liabilities, mezzanine equity and stockholders’ equity$81,391 $88,293 
See accompanying notes to the unaudited consolidated financial statements.
7



STAR EQUITY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended March 31,
20212020
Operating activities
Net income (loss)$5,432 $(2,953)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation471 1,593 
Amortization of intangible assets438 814 
Non-cash lease expense584 543 
Provision for bad debt, net359 32 
Stock-based compensation131 109 
Amortization of loan issuance costs50 31 
Debt issuance costs write-off130  
Gain on disposal of discontinued operations(5,224) 
Gain on disposal of MD Office Solutions(847) 
Loss on sale of assets 34 180 
Gain on Paycheck Protection Program loan forgiveness(1,220) 
Deferred income taxes 20 
Other, net(23)26 
Changes in operating assets and liabilities:
Accounts receivable(2,476)3,606 
Inventories(51)481 
Other assets(782)154 
Accounts payable258 (1,525)
Accrued compensation1,075 (1,123)
Deferred revenue119 (166)
Operating lease liabilities(597)(545)
Other liabilities(93)(654)
Net cash (used in) provided by operating activities(2,232)623 
Investing activities
Purchases of property and equipment(449)(158)
Proceeds from sale of discontinued operations18,750  
Proceeds from sale of property and equipment14 23 
Net cash provided by (used in) investing activities18,315 (135)
Financing activities
Proceeds from borrowings32,088 31,996 
Repayment of debt(38,495)(32,407)
Loan issuance costs (317)
Proceeds from exercise of warrants493  
Taxes paid related to net share settlement of equity awards(6) 
Repayment of obligations under finance leases(260)(229)
Net cash used in financing activities(6,180)(957)
Net increase (decrease) in cash, cash equivalents, and restricted cash including cash classified within current assets held for sale9,903 (469)
Less: Net (decrease) increase in cash classified within current held for sale(47)108 
Net increase (decrease) in cash, cash equivalents, and restricted cash9,950 (577)
Cash, cash equivalents, and restricted cash at beginning of period3,393 1,987 
Cash, cash equivalents, and restricted cash at end of period$13,343 $1,410 
8



Non-Cash Investing Activities
MD Office Solutions Promissory Note Receivable$1,385 $ 
Non-Cash Financing Activities
Gain on Paycheck Protection Program Loan Forgiveness$1,220 $ 
See accompanying notes to the unaudited consolidated financial statements.
9



STAR EQUITY HOLDINGS, INC. CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)
Perpetual Preferred StockCommon stockTreasury StockAdditional paid-in capitalAccumulated deficitTotal
stockholders’
equity
SharesAmountSharesAmount
Balance at December 31, 20201,916 $21,500 4,798 $ $(5,728)$149,143 $(124,986)$18,429 
Stock-based compensation— — — — — 131 — 131 
Shares issued under stock incentive plans, net of shares withheld for employee taxes— — 3— — (5)— (5)
Accrued dividend on redeemable preferred stock— 479— — — (479)— (479)
Proceeds from exercise of warrants— — 220— — 493 — 493 
Net income— — — — — — 5,432 5,432 
Balance at March 31, 20211,916 $21,979 5,021 $ $(5,728)$149,283 $(119,554)$24,001 


Perpetual 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 

See accompanying notes to unaudited consolidated financial statements.
10



STAR EQUITY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
Basis of Presentation
The unaudited 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 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, 2020 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for a complete set of financial statements. The audited consolidated financial statements for our fiscal year ended December 31, 2020, filed with the SEC on Form 10-K on March 29, 2021, 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”), a diversified holding company with three divisions: Healthcare, Construction, and Investments, announced the completion of the sale of DMS Health Technologies, Inc., a North Dakota corporation and wholly owned indirect subsidiary of Star Equity (“DMS Health”), for $18.75 million in cash, as originally announced on November 3, 2020 (the “DMS Sale Transaction”). The assets and liabilities of DMS Health were previously classified as held for sale and the results of DMS Health’s operations were presented as a discontinued operations in our previously issued financial statements. Unless otherwise noted, discussion within these notes to the consolidated financial statements relates to continuing operations. Refer to Note 2. Discontinued Operations for additional information.
COVID-19 Pandemic
During the three months ended March 31, 2021, we experienced a $0.4 million decrease in Healthcare division revenue which was offset by a $3.6 million increase, in Construction division revenue, as compared to the same period of the prior year. With the COVID-19 vaccine rollout now well underway, we are hopeful that we will gradually make our way back to pre-COVID levels of business activity. We believe the uncertainty surrounding the pandemic will continue to decrease as we progress through 2021. On the healthcare side, we expect to see imaging volume recover as the pandemic is brought under control. In construction, we expect that continued recovery in employment and a strong housing market will underpin the growth we are seeing. However, we are unsure about the potential impact.
Mezzanine Equity
Pursuant to the Certificate of Designations, Rights and Preferences of 10% Series A Cumulative Perpetual Preferred Stock of Star Equity Holdings, Inc. (formerly Digirad Corporation) (the “Certificate of Designations”), upon a Change of Control Triggering Event, as defined in the Certificate of Designations, holders of the 10% Series A Cumulative Perpetual Preferred Stock (the “Company Preferred Stock”) may require us 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 the Company, the Company Preferred Stock does not qualify as permanent equity and has been classified as mezzanine or temporary equity. Accordingly, the Company Preferred Stock is not redeemable and it was not probable that the Company Preferred Stock would become redeemable as of March 31, 2021. Therefore, we are not currently required to accrete the Preferred Stock to its redemption value.
In addition to a Change of Control Redemption, the Certificate of Designations also provides that the Company may redeem (at its option, in whole or in part) the Company Preferred Stock following the fifth anniversary of issuance of the Company Preferred Stock, at a cash redemption price of $10.00 per share, plus any accumulated and unpaid dividends.
11



Common Stock Equity Offering
On May 28, 2020, we closed a public offering (the “Offering”) of 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 Offering price was $2.24 per share of common stock and $0.01 per accompanying Warrant (for a combined Offering price of $2.25), initially raising $5.0 million in gross proceeds before underwriter discounts and offering-related expenses. The underwriting agreement (the “Underwriting Agreement”) we entered into with Maxim Group LLC (“Maxim”), as representative of the underwriters, for the Offering contained customary representations, warranties, and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and Maxim and certain other obligations.
Pursuant to the terms of the Underwriting Agreement, we granted to Maxim an option for a period of 45 days (the “Over-Allotment Option”) to purchase up to 225,000 additional shares of our common stock and 225,000 Warrants to purchase up to an additional 112,500 shares of our common stock. Effective as of the closing of the Offering, Maxim exercised the Over-Allotment Option for the purchase of 225,000 Warrants for a price of $0.01 per Warrant. On June 10, 2020, Maxim exercised the Over-Allotment Option for the purchase of 225,000 shares of our common stock for a price of $2.24 per share, before underwriting discounts. The closing of the sale of the over-allotment shares brought the total number of shares of common stock we sold in the Offering to 2,450,000 shares, and total gross proceeds to approximately $5.5 million. In addition, the Company received $0.5 million from investors in the Offering throughout the balance of 2020 due to the exercise of a portion of the Warrants sold in the Offering, bringing the total gross proceeds from equity issuance to $6.0 million.

The net proceeds to the Company from the Offering and Warrant exercises in 2020 were approximately $5.2 million (inclusive of the exercise of the over-allotment option), after deducting underwriter fees and offering-related expenses estimated at $0.8 million. We used a significant portion of the net proceeds from the Offering to fund working capital needs at our construction businesses, particularly related to modular housing projects which we produced at KBS Builders, Inc. (“KBS”) for the Boston-area projects. The remainder of the net proceeds is being used for working capital and for other general corporate purposes. We have broad discretion in determining how the proceeds of the Offering is used, and our discretion is not limited by the aforementioned possible uses.

As of March 31, 2021, 0.9 million warrants were exercised and 1.5 million warrants remained outstanding at an exercise price of $2.25.
Liquidity Outlook
The accompanying 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 net losses from operations of approximately $1.6 million and $2.2 million for the three months ended March 31, 2021 and 2020, respectively. We have an accumulated deficit of $119.6 million and $125.0 million as of March 31, 2021 and December 31, 2020, respectively. Net cash used in operations of $2.2 million for the three months ended March 31, 2021 compared to net cash provided by operations of $0.6 million for the same prior year period in 2020.
Regarding our debt, we had approximately $12.5 million in short term debt due to our borrowings which is classified as short term as disclosed in Note 8. Debt. The $5.0 million SNB debt primarily supports our healthcare business and actually matures in 2024, but GAAP rules require that the outstanding balance be classified as short-term debt, due to the automatic sweep feature embedded in the traditional lockbox arrangement along with a subjective acceleration clause in the SNB Loan and Security Agreement. In practice, we have the ability to immediately borrow back these daily sweeps to fund our working capital. As of March 31, 2021, we were in compliance with all borrowing arrangements related to our Healthcare division. As of March 31, 2021, we had $4.5 million of borrowing capacity to fund the operations of these divisions.
As of March 31, 2021, we have $4.6 million outstanding on our Construction revolvers with Gerber and were in compliance with all borrowing covenants for Gerber, however, we were in breach of our covenants as of December 31, 2020 and may be in breach at our next measurement period at June 30, 2021. While Gerber has historically provided us with waivers, there is no assurance that we will be able to receive waivers for covenant violations in the future, or that we will meet compliance with covenants in the future. Related party notes of $2.3 million was paid off on April 1, 2021 using proceeds from the DMS Sale Transaction. In addition, as of March 31, 2021, we had cash and cash equivalents of $13.3 million.
Management believes that the Company has the liquidity and operations to continue to support the business through the next 12 months from the issuance of this Quarterly Report. Our ability to continue as a going concern is dependent on its ability to execute its plans.
12



Use of Estimates
Preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from management’s estimates.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 and Topic 842 for the three months ended March 31, 2021 and 2020, which are explained below.
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 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.
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.
Healthcare Services Revenue Recognition. We generate service revenue primarily from providing diagnostic services and cardiac monitoring services to our customers. Service revenue within our Diagnostic Services reportable segments is derived from providing our customers with contract diagnostic services, which includes use of our imaging systems, qualified personnel, radiopharmaceuticals, licensing, logistics and related items required to perform testing in their own offices.  We bill customers either on a per-scan or fixed-payment methodology, depending upon the contract that is negotiated with the customer. Within our Diagnostic Service 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 services 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 and accessories.
Diagnostic Imaging product revenues are generated from the sale of internally developed solid-state gamma camera imaging systems and 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.
13



Construction Revenue Recognition. Within the Construction segment, we service residential and commercial construction projects by manufacturing modular housing units and other products and supplies general contractors with building materials. KBS manufactures modular buildings for both single-family residential homes and larger, commercial building projects. Our EdgeBuilder, Inc. (“EdgeBuilder”) subsidiary manufactures structural wall panels, permanent wood foundation systems and other engineered wood products, and our Glenbrook Building Supply, Inc. (“Glenbrook”) subsidiary is a retail supplier of lumber and other building supplies. Revenue is generally recognized at point in time upon delivery of product. 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.
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. Finance leases are included in property and equipment, other current liabilities, and other long-term 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. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use the implicit discount rate when readily determinable; however, as most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease valuation may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
We elected not to separate lease and non-lease components of its operating leases in which it is 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.
Lessor Accounting
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. 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 ninety 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 the Company’s leases is classified as an operating lease.
We elected the operating lease practical expedient for its leases to 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.
14



Recently Adopted Accounting Pronouncements
In December of 2019, the Financial Accounting Standards Board issued ASU No 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company adopted the guidance during the three months ended 2021. ASU 2019-12 does not have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.
New Accounting Standards To Be Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. This update is effective for annual periods beginning after December 15, 2022, and interim periods within those periods, and early adoption is permitted. We expect to adopt the standard on its effective date in the first quarter of 2023. We believe the adoption will modify the way we analyze financial instruments, but currently do not expect the adoption to have a material financial impact on our consolidated financial statements.

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848), to temporarily ease the potential burden in accounting for reference rate reform. The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The guidance generally can be applied through December 31, 2022. We will monitor our contracts and transactions for potential application of this ASU.

Note 2. Discontinued Operations
On October 30, 2020, Star Equity entered into a Stock Purchase Agreement (the “DMS Purchase Agreement”) by and among the Company, Project Rendezvous Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of the Company (“Seller”), DMS Health, and Knob Creek Acquisition Corp., a Tennessee corporation (“Buyer”) pursuant to which, subject to the satisfaction or waiver of certain conditions, Buyer purchased all of the issued and outstanding common stock of DMS Health from Seller. The purchase price for the DMS Sale Transaction was $18.75 million in cash, subject to certain adjustments, including a working capital adjustment. The DMS Sale Transaction was announced on November 3, 2020, and was subsequently completed on March 31, 2021. We deemed the disposition of the Mobile Healthcare business unit, which was effected upon the closing of the DMS Sale Transaction, to represent a strategic shift that will have a major effect on our operations and financial results. As of December 31, 2020, the Mobile Healthcare business met the criteria to be classified as held for sale. This segment is reported on the Consolidated Statement of Operations as discontinued operations and on the Consolidated Balance Sheet as Assets and Liabilities held for sale.
We allocated a portion of interest expense to discontinued operations since the proceeds received from the sale were required to be used to pay down outstanding borrowings under our revolving credit facility with Sterling National Bank. 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.

15



The following table presents financial results of DMS Health for the three months ended March 31, 2021 and 2020 business (in thousands):

Three Months Ended March 31,
20212020
Total revenues$9,490 $9,667 
Total cost of revenues6,973 8,469 
Gross profit2,517 1,198 
Operating expenses:
    Selling, general and administrative1,469 1,366 
    Amortization of intangible assets 241 
        Total operating expenses1,469 1,607 
Income (loss) from discontinued operations1,048 (409)
Interest expense(180)(169)
Gain on sale of discontinued operations5,224  
Income (loss) from discontinuing operations before income taxes6,092 (578)
Income tax expense(72)(7)
Income (loss) from discontinuing operations$6,020 $(585)

The following represents the carrying amounts of the major classes of assets reported as “Assets held for sale” as of twelve months ended December 31, 2020 (in thousands):
December 31, 2020
Cash and cash equivalents$443 
Accounts receivable, net4,305 
Inventories, net50 
Other current assets459 
Property and equipment, net7,721 
Operating lease right-of-use assets, net4,863 
Intangible assets, net2,915 
$20,756 
The following represents the carrying amounts of the major classes of liabilities reported as “Liabilities held for sale” as of December 31, 2020 (in thousands):
December 31, 2020
Accounts payable$1,597 
Accrued compensation645 
Deferred revenue96 
Operating lease liabilities4,863 
Other current liabilities560 
Deferred tax liabilities16 
Other liabilities94 
$7,871 

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The following table presents the significant non-cash operating, investing and financing activities from discontinued operations for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
20212020
Operating activities
Depreciation$8 $1,137 
Amortization of intangible assets 241 
Non-cash lease expense256 192 
Loss on extinguishment of debt130  
Gain on sale of DMS discontinued operations(5,224) 
Share-based compensation2 4 
Loss on disposal of assets1 130 
Provision for bad debt 2 
Investing activities
Purchase of property and equipment(154)(243)
Proceeds from sale of discontinued operations18,750  
Proceeds from sale of property and equipment3 15 
Financing activities
Repayment of obligations under finance leases(60)(80)
Non-Cash Investing Activities
Fixed asset purchases in accounts payable 150 
Lease assets obtained in exchange for new operating lease liabilities 564 
Following is the reconciliation of purchase price to the gain recognized in income from discontinued operations for the three months ended March 31, 2021 (in thousands):

Estimated proceeds of the disposition, net of transaction costs$18,750 
Assets of the businesses(20,920)
Liabilities of the businesses7,712 
Transaction expenses(318)
Pre-tax gain on the disposition$5,224 


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Note 3. Revenue
Healthcare Product and Product-Related Revenues and Services Revenue
Healthcare product and product-related services revenue are generated from the sale of gamma cameras, accessories and post-warranty maintenance service contracts within our Diagnostic Imaging reportable segment.
Healthcare Imaging services revenue are generated from providing diagnostic imaging services to customers within our Diagnostic Services reportable segment. Services revenue also includes lease income generated from camera rentals of imaging systems to our customers.
Construction
Construction revenue is generated from selling modular buildings for both single-family residential homes, larger commercial building projects and selling structural wall panels, permanent wood foundation systems and other engineered wood products.
Investments
Star Real Estate Holdings USA, Inc. (“SRE”) generates revenue from the lease of commercial properties and equipment and Lone Star Value Management, LLC (“LSVM”), a Connecticut based exempt reporting advisor through March 31, 2021, provided services that included investment advisory services, and the servicing of pooled investment vehicles.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.
The majority of our contracts have a single performance obligation, as we provide a series of distinct goods or services that are substantially the same and are transferred with the same pattern to the customer. For contracts with multiple performance obligations, we allocate the total transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available. For bill and hold sales, we determine when the customer obtains control of the product on a case-by-case basis to determine the amount of revenue to recognize each period.
Revenue recognition is evaluated on a contract by contract basis. Performance obligations are satisfied over time as work progresses or at a point-in-time. A performance obligation is satisfied over time if the Company has an enforceable right to payment. Determining if there is an enforceable right to is assessed on a contract by contract basis. For contracts requiring over time revenue recognition, the selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company uses 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 a variable consideration when estimating the amount of revenue to be recognized.

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Disaggregation of Revenue
The following tables present our revenues for the three months ended March 31, 2021 and 2020, disaggregated by major source (in thousands):
Three Months Ended March 31, 2021
Diagnostic ServicesDiagnostic ImagingConstructionTotal
Major Goods/Service Lines
Mobile Imaging$10,181 $ $ $10,181 
Camera 1,422  1,422 
Camera Support 1,646  1,646 
Healthcare Revenue from Contracts with Customers10,181 3,068  13,249 
Lease Income58  38 96 
Construction  9,009 9,009 
Total Revenues$10,239 $3,068 $9,047 $22,354 
Timing of Revenue Recognition
Services and goods transferred over time$10,239 $1,490 $2,731 $14,460 
Services and goods transferred at a point in time 1,578 6,316 7,894 
Total Revenues$10,239 $3,068 $9,047 $22,354 

Three Months Ended March 31, 2020
Diagnostic ServicesDiagnostic ImagingConstructionInvestmentsTotal
Major Goods/Service Lines
Mobile Imaging$10,602 $ $ $ $10,602 
Camera 1,339   1,339 
Camera Support 1,522   1,522 
Healthcare Revenue from Contracts with Customers10,602 2,861   13,463 
Lease Income212  84  296 
Construction  5,400  5,400 
Investments   31 31 
Total Revenues$10,814 $2,861 $5,484 $31 $19,190 
Timing of Revenue Recognition
Services and goods transferred over time$10,814 $1,487 $84 $ $12,385 
Services and goods transferred at a point in time 1,374 5,400 31 6,805 
Total Revenues$10,814 $2,861 $5,484 $31 $19,190 

Nature of Goods and Services
Mobile Imaging
Within our Diagnostic Services segment, our sales are derived from providing services and materials to our customers, primarily physician practices and hospitals that allow them to perform diagnostic imaging services at their site. We typically bundle our services in providing staffing, our imaging systems, licensing, radiopharmaceuticals, and supplies depending on our customers’ needs. Our contracts with customers are typically entered into annually and are billed on a fixed rate per-day or per-scan basis, depending on terms of the contract. For the majority of these contracts, the Company has the right to invoice the customer in an amount that directly corresponds with the value to the customer as the Company performs the services. The Company uses the practical expedient to recognize revenue corresponding with amounts we have the right to invoice for services performed.
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Camera
Within our Diagnostic Imaging 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. The Company recognizes revenues for installation and training over time as the customer receives and consumes benefits provided as the Company performs the installation services.
Our sale of imaging systems includes a one-year assurance-type warranty. The estimated costs associated with our standard warranties and field service actions continue to be recognized as expense when cameras are sold. Maintenance service contracts sold beyond the term of our standard warranties are accounted for as a service-type warranty and revenue is deferred and recognized ratably over the period of the warranty obligation.
Camera Support
Within our Diagnostic Imaging segment, camera support revenue is derived from the sale of separately-priced extended maintenance contracts to camera owners, training, and the sale of parts to customers that do not have an extended warranty. Our separately priced service contracts range from 12 to 48 months. Service contracts are usually billed at the beginning of the contract period or at periodic intervals (e.g., monthly, quarterly, or annually) and revenue is recognized ratably over the term of the agreement.
Services and training revenues are recognized in the period the services and training are performed. Revenue for sales of parts are recognized when the parts are delivered to the customer and control is transferred.
Lease Income
Within our Diagnostic Service 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 general contractors with building materials. KBS manufactures modular buildings for both single-family residential homes and larger, commercial building projects. EdgeBuilder manufactures structural wall panels, permanent wood foundation systems and other engineered wood products, and Glenbrook is a retail supplier of lumber and other building supplies. Revenues are evaluated on a contract by contract basis. In general, construction revenues are recognized upon transfer of control to the customer at a point-in-time, which is generally upon delivery and acceptance. However, construction revenues are recognized over time for arrangements with customers for which: (i) performance does not create an asset with an alternative use, and (ii) we have an enforceable right to payment for performance completed to date.
Deferred Revenues
We record deferred revenues when cash payments are received in advance of our performance. We have determined our contracts do not include a significant financing component. The majority of our deferred revenue relates to payments received on camera support post-warranty service contracts, which are billed at the beginning of the contract period or at periodic intervals (e.g., monthly, quarterly, or annually).
Changes in the deferred revenues for continuing operations for three months ended March 31, 2021, is as follows (in thousands):
Balance at December 31, 2020$2,352 
Revenue recognized that was included in balance at beginning of the year(1,019)
Deferred revenue, net, related to contracts entered into during the year1,327 
Balance at March 31, 2021$2,660 
Included in the balances above as of March 31, 2021 and December 31, 2020 is non-current deferred revenue included in other liabilities of $308 thousand and $168 thousand, respectively.
The Company has 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.
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Contract Costs
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. 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 Company’s 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.
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Note 4. Basic and Diluted Net Income (Loss) Per Share
We present net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities, as the warrants are considered participating securities. We have not allocated net loss attributable to common stockholders to warrants because the holders of our warrants are not contractually obligated to share in our losses. Basic net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per share attributable to common stockholders is calculated to give effect to all potential shares of common stock, including common stock issuable upon exercise of warrants, stock options, and restricted stock units (“RSUs”). In periods for which there is a net loss, diluted loss per common share is equal to basic loss per common share, since the effect of including any common stock equivalents would be antidilutive.
The following table sets forth the reconciliation of shares used to compute basic and diluted net loss income per share for the periods indicated (in thousands):
Three Months Ended
March 31
20212020
Numerator:
   Loss from continuing operations, net of tax$(588)$(2,368)
   Income (loss) from discontinued operations, net of tax6,020 (585)
Net income (loss)5,432 (2,953)
   Deemed dividend on Series A redeemable preferred stock(479)(484)
Net income (loss) attributable to common shareholders$4,953 $(3,437)
Denominator:
Weighted average shares outstanding - basic and diluted4,916 2,055 
Net loss per common share - basic and diluted
Net loss per share, continuing operations$(0.12)$(1.15)
Net income (loss) per share, discontinued operations$1.22 $(0.28)
Net income (loss) per share$1.10 $(1.44)
Deemed dividend on Series A perpetual preferred stock per share$(0.10)$(0.24)
Net income (loss) per share, attributable to common shareholders - basic and diluted$1.01 $(1.67)
Antidilutive common stock equivalents are excluded from the computation of diluted loss per share. Stock options and restricted stock units are antidilutive when the assumed proceeds per share are greater than the average market price of the common shares. In addition, in periods where net losses are incurred, stock options and restricted stock units with assumed proceeds per share less than the average market price of the common shares become antidilutive as well. The computation of diluted earnings per share excludes stock options and stock units that are anti-dilutive. The following common stock equivalents were anti-dilutive (in thousands):
Three Months Ended
March 31
20212020
Stock options25 54 
Restricted stock units68 13 
Stock warrants866  
Total959 67 

As of March 31, 2021, 0.9 million warrants were exercised and 1.5 million warrants remained outstanding at an exercise price of $2.25.
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Note 5. Supplementary Balance Sheet Information
The components of inventories are as follows (in thousands):
March 31, 2021December 31, 2020
Raw materials$6,170 $5,489 
Work-in-process2,879 2,821 
Finished goods1,108 1,876 
Total inventories10,157 10,186 
Less reserve for excess and obsolete inventories(319)(399)
Total inventories, net$9,838 $9,787 
Property and equipment consist of the following (in thousands):