SEC Info - Star Equity Holdings, Inc. - ‘10-K’ for 12/31/20

STAR EQUITY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

Year ended December 31,

2020

2019

Revenues:

Healthcare

i 49,232

i 61,595

Building and Construction

i 28,879

i 11,257

Real Estate and Investments

i 52

i 82

Total revenues

i 78,163

i 72,934

Cost of revenues:

Healthcare

i 39,083

i 46,222

Building and Construction

i 24,832

i 9,244

Real Estate and Investments

i 261

i 308

Total cost of revenues

i 64,176

i 55,774

Gross profit

i 13,987

i 17,160

Operating expenses:

Selling, general and administrative

i 18,635

i 15,898

Amortization of intangible assets

i 2,124

i 829

Merger and financing costs

i —

i 2,342

Goodwill impairment

i 436

i —

Total operating expenses

i 21,195

i 19,069

Loss from continuing operations

( i 7,208)

( i 1,909)

Other income (expense):

Other income (expense), net

i 3,344

( i 133)

Interest expense, net

( i 1,292)

( i 746)

Loss on extinguishment of debt

i —

( i 151)

Total other income (expense)

i 2,052

( i 1,030)

Loss from continuing operations before income taxes

( i 5,156)

( i 2,939)

Income tax (provision) benefit

( i 129)

i 199

Loss from continuing operations, net of income taxes

( i 5,285)

( i 2,740)

Loss from discontinued operations, net of income taxes

( i 1,172)

( i 1,887)

Net loss

( i 6,457)

( i 4,627)

Deemed dividend on Series A cumulative perpetual preferred stock

( i 1,916)

( i 596)

Net loss attributable to common shareholders

( i 8,373)

( i 5,223)

Net loss per common share - basic and diluted*

Net loss per share, continuing operations

( i 1.44)

( i 1.34)

Net loss per share, discontinued operations

( i 0.32)

( i 0.92)

Net loss per share - basic and diluted

( i 1.76)

( i 2.27)

Deemed dividend on Series A cumulative perpetual preferred stock per share

( i 0.52)

( i 0.29)

Net loss per share, attributable to common shareholders - basic and diluted

( i 2.29)

( i 2.56)

Weighted-average shares outstanding – basic and diluted

i 3,659

i 2,041

Net loss

( i 6,457)

( i 4,627)

Other comprehensive loss:

Reclassification of tax provision impact

i —

i 22

Total other comprehensive income

i —

i 22

Comprehensive loss

( i 6,457)

( i 4,605)

*Earnings per share may not add due to rounding

See accompanying notes to consolidated financial statements.

STAR EQUITY HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts and par value)

2020

2019
(Restated)

Assets:

Current assets:

Cash and cash equivalents

i 3,225

i 1,747

Restricted cash

i 168

i 240

Equity securities

i 35

i 26

Accounts receivable, net

i 12,975

i 12,916

Inventories, net

i 9,787

i 7,029

Other current assets

i 1,990

i 1,339

Assets held for sale

i 20,756

i 6,251

Total current assets

i 48,936

i 29,548

Property and equipment, net

i 9,762

i 10,286

Operating lease right-of-use assets, net

i 1,769

i 2,238

Intangible assets, net

i 16,900

i 19,023

Goodwill

i 9,542

i 9,978

Other assets

i 1,384

i 1,165

Noncurrent assets held for sale

i —

i 18,322

Total assets

i 88,293

i 90,560

Liabilities, Mezzanine Equity and Stockholders’ Equity:

Current liabilities:

Accounts payable

i 4,952

i 6,462

Accrued compensation

i 2,825

i 3,747

Accrued warranty

i 214

i 421

Deferred revenue

i 2,184

i 1,776

Short-term debt and current portion of long-term debt

i 18,362

i 20,334

Notes payable to related parties

i 2,307

i 1,919

Operating lease liabilities

i 1,011

i 1,144

Other current liabilities

i 3,000

i 4,186

Liabilities held for sale

i 7,871

i 4,487

Total current liabilities

i 42,726

i 44,476

Long-term debt, net of current portion

i 3,700

i 740

Deferred tax liabilities

i 51

i 11

Operating lease liabilities, net of current portion

i 828

i 1,206

Other liabilities

i 1,059

i 932

Noncurrent liabilities held for sale

i —

i 2,498

Total liabilities

i 48,364

i 49,863

Commitments and contingencies (Note 11)

Preferred stock, $0.0001 par value: 10,000,000 shares authorized: 10% Series A Cumulative Perpetual Preferred Stock 8,000,000 shares authorized, liquidation preference ($10.00 per share), 1,915,637 shares issued and outstanding at December 31, 2020 and 2019, respectively

i 21,500

i 19,602

Stockholders’ equity:

Common stock, $0.0001 par value: 30,000,000 shares authorized; 4,798,367 and 2,050,659 shares issued and outstanding (net of treasury shares) at December 31, 2020 and 2019, respectively

i —

Treasury stock, at cost; 258,849 shares at December 31, 2020 and 2019

( i 5,728)

Additional paid-in capital

i 149,143

i 145,352

Accumulated deficit

( i 124,986)

( i 118,529)

Total stockholders’ equity

i 18,429

i 21,095

Total liabilities, mezzanine equity and stockholders’ equity

i 88,293

i 90,560

See accompanying notes to consolidated financial statements.

STAR EQUITY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year ended December 31,

2020

2019

Operating activities

Net loss

( i 6,457)

( i 4,627)

Adjustments to reconcile net loss to cash used in operating activities:

Depreciation

i 6,330

i 6,281

Amortization of intangible assets

i 3,087

i 1,794

Non-cash lease expense

i 1,561

i 1,461

Provision for bad debts

i 66

i 129

Stock-based compensation

i 524

i 540

Non-cash interest expense

i 316

i 185

Loss on extinguishment of debt

i —

i 151

Loss on write-off of financing costs

i —

i 273

Gain on disposal of discontinued operations

i —

( i 350)

Loss (gain) on sale of assets

i 150

( i 136)

Gain on Paycheck Protection Program loan forgiveness

( i 2,470)

i —

Goodwill impairment

i 436

i —

Goodwill tax adjustment

i —

( i 265)

Deferred income taxes

i 43

( i 98)

Other, net

( i 22)

( i 62)

Changes in operating assets and liabilities:

Accounts receivable

i 1,225

( i 3,325)

Inventories

( i 2,572)

( i 30)

Other assets

( i 1,201)

( i 317)

Accounts payable

( i 2,458)

( i 463)

Accrued compensation

( i 1,109)

i 211

Deferred revenue

i 478

i 155

Operating lease liabilities

( i 1,586)

( i 1,498)

Other liabilities

( i 1,294)

i 391

Net cash (used in) provided by operating activities

( i 4,953)

i 400

Investing activities

Purchases of property and equipment

( i 1,493)

( i 1,512)

Purchase of real estate from related and third parties

i —

( i 5,180)

Proceeds from sale of property and equipment

i 161

i 1,734

Sale of equity securities

i —

i 140

Payments to acquire interest in joint ventures

i —

( i 1,000)

Net cash used in investing activities

( i 1,332)

( i 5,818)

Financing activities

Proceeds from borrowings

i 120,485

i 98,541

Repayment of debt

( i 116,301)

( i 91,203)

Issuances of preferred stock

i —

i 3,000

Loan issuance costs and extinguishment costs

( i 317)

( i 662)

Net proceeds from sale and exercise of common stock, over-allotment options and warrants

i 5,193

i —

Repayment of Gerber acquisition loan

i —

( i 3,000)

Fees paid on issuance of preferred stock

( i 18)

( i 150)

Deferred financing costs

i —

i 27

Taxes paid related to net share settlement of equity awards

( i 10)

( i 24)

Repayment of obligations under finance leases

( i 972)

( i 863)

Net cash provided by financing activities

i 8,060

i 5,666

Net increase in cash and cash equivalents, including cash classified within current assets held for sale

i 1,775

i 248

Less: Net increase (decrease) in cash classified within current assets held for sale

i 369

( i 342)

Net increase in cash, cash equivalents, and restricted cash

i 1,406

i 590

Cash, cash equivalents, and restricted cash at beginning of year

i 1,987

i 1,397

Cash, cash equivalents, and restricted cash at end of year

i 3,393

i 1,987

Supplemental Information

Cash paid during the year for interest

i 965

i 1,083

Cash paid during the year for income taxes

i 30

i 102

Non-Cash Financing Activities

Gain on Paycheck Protection Program Loan Forgiveness

i 2,470

i —

See accompanying notes to consolidated financial statements.

STAR EQUITY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY

(In thousands)

Perpetual Preferred Stock

Common stock

Treasury Stock

Additional
paid-in
capital

Accumulated
other
comprehensive
income (loss)

Accumulated
deficit

Total
stockholders’
equity

Amount

Balance at December 31, 2018

i —

i 2,025

i —

( i 5,728)

i 145,430

( i 22)

( i 113,880)

i 25,800

Issuance of preferred stock

i 1,916

i 19,156

—

Stock-based compensation

—

i 540

—

i 540

Shares issued under stock incentive plans, net of shares withheld for employee taxes

—

i 23

—

( i 24)

—

( i 24)

Shares issued for fractional shares in conjunction with reverse stock split

—

i 2

—

i 2

—

i 2

Reclassification of tax provision impact

—

i 22

( i 22)

—

Fees paid on issuance of preferred stock

—

( i 150)

—

Accrued dividend on perpetual preferred stock

—

i 596

—

( i 596)

—

( i 596)

Net loss

—

( i 4,627)

Balance at December 31, 2019

i 1,916

i 19,602

i 2,050

i —

( i 5,728)

i 145,352

i —

( i 118,529)

i 21,095

Stock-based compensation

—

i 524

—

i 524

Shares issued under stock incentive plans, net of shares withheld for employee taxes

—

i 55

—

( i 10)

—

( i 10)

Accrued dividend on perpetual preferred stock

—

i 1,916

—

( i 1,916)

—

( i 1,916)

Net proceeds from sale and exercise of common stock, over allotment options and warrants

—

i 2,693

—

i 5,193

—

i 5,193

Fees paid on issuance of preferred stock

—

( i 18)

—

Net loss

—

( i 6,457)

Balance at December 31, 2020

i 1,916

i 21,500

i 4,798

i —

( i 5,728)

i 149,143

i —

( i 124,986)

i 18,429

See accompanying notes to consolidated financial statements.

STAR EQUITY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. i The Company

Star Equity Holdings, Inc. (“Star Equity”, or the “Company”) is a diversified holding company with i three divisions: Digirad Health, Star Building & Construction, and Star Real Estate & Investments. Star Equity, which was incorporated in Delaware in 1997, was formerly known as Digirad Corporation until it changed its name to Star Equity Holdings, Inc. effective January 1, 2021. Star Equity is a diversified holding company that operates the following i three divisions: Healthcare, Building & Construction, and Real Estate and Investments. Unless the context requires otherwise, in this report the terms “we,” “us,” and, “our” refer to Star Equity and our wholly owned subsidiaries.

Digirad Health Division

Digirad Health designs, manufactures, and distributes diagnostic medical imaging products. Digirad Health operates in i three businesses: Diagnostic Services, Diagnostic Imaging and Mobile Healthcare. The Diagnostic Services business offers imaging and monitoring services to healthcare providers as an alternative to purchasing the equipment or outsourcing the procedure. The Diagnostic Imaging business develops, sells, and maintains solid-state gamma cameras. The Mobile Healthcare business provides contract diagnostic imaging, including computerized tomography (“CT”), magnetic resonance imaging (“MRI”), positron emission tomography (“PET”), PET/CT, and nuclear medicine and healthcare expertise through a convenient mobile service. The Diagnostic Imaging business develops, sells, and maintains solid-state gamma cameras. On October 30, 2020, Star Equity entered into a Stock Purchase Agreement (the “DMS Purchase Agreement”) by and among Star Equity, Project Rendezvous Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of Star Equity (“Seller”), DMS Health Technologies, Inc., a North Dakota corporation and wholly owned subsidiary of 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 will purchase all of the issued and outstanding common stock of DMS Health, which operates the Mobile Healthcare business, from Seller (the “DMS Sale Transaction”). As a result of the entry into the DMS Purchase Agreement, as of December 31, 2020, the Mobile Healthcare business met the criteria to be classified as held for sale and is reported on the Consolidated Statement of Operations as discontinued operations and on the Consolidated Balance Sheet as Assets and Liabilities held for sale.

Star Building and Construction Division

Star Building and Construction manufactures modular housing units for commercial and residential applications. Star Building & Construction operates in i two businesses: (i) modular building manufacturing and (ii) structural wall panel and wood foundation manufacturing, including building supply retail operations. The modular building manufacturing business services New England and is operated by KBS Builders, Inc. (“KBS”) in Maine. The structural wall panel and wood foundation manufacturing segment is operated by EdgeBuilder, Inc. (“EdgeBuilder”), and the retail building supplies are sold through Glenbrook Building Supply, Inc. (“Glenbrook” and together with EdgeBuilder, “EBGL”). EBGL is based in and services the Greater Minneapolis metropolitan area. KBS, EdgeBuilder and Glenbrook are wholly owned subsidiaries of Star Equity and are referred to collectively herein, and together with ATRM, as the “Construction Subsidiaries.”

Star Real Estate & Investments Division

Star Real Estate & Investments generates revenue from the lease of commercial properties and equipment through Star Real Estate Holdings USA, Inc. (“SRE”), a wholly owned subsidiary of Star Equity. Star Real Estate & Investments also includes our investment arm, Lone Star Value Management, LLC (“LSVM”), a wholly owned subsidiary of Star Equity and a Connecticut-based exempt reporting advisor. LSVM, which was previously a wholly owned subsidiary of ATRM, was acquired by the Company in the ATRM Acquisition. In April 2019, as an initial transaction to create the Company’s real estate division under SRE, the Company funded the initial purchase of three modular building manufacturing facilities in Maine and then leased those three properties to KBS. The funding of the assets acquisition was primarily through the revolver loan under our credit facility with Sterling National Bank (“Sterling” or “SNB”), a national banking association. LSVM, SRE and the subsidiaries of SRE that are included in this division are referred to collectively herein as the “Investments Subsidiaries.”

As of December 31, 2020, our business is organized into i four reportable segments: Diagnostic Services, Diagnostic Imaging, Building and Construction, and Real Estate and Investments in the continuing operations. See Note 17. Segments, within the notes to our accompanying consolidated financial statements for financial data relating to our segments. For discussion purposes, we categorized our Diagnostic Services and Diagnostic Imaging reportable segments as “Digirad Health.”

Note 2. i Restatement of Previously Issued Consolidated Financial Statements

In connection with the preparation of our consolidated financial statements, we identified certain material historical errors related to the classification of short-term and long-term debt. Specifically, we determined that our historical presentation of the Sterling National Bank (“SNB”) revolver and the EdgeBuilder and Glenbrook (“EBGL”) Gerber Finance revolving credit facility were not in accordance with ASC 470 Debt. We determined that our borrowings under these revolving credit agreements that include both a subjective acceleration clause and a requirement to maintain a traditional lock-box arrangement should be classified as short-term obligations. However, the SNB revolver matures in March 2024, and EBGL revolver has an automatic annual renewal feature.

The Company's previously filed annual report on Form 10-K for the fiscal year ended December 31, 2019, and its quarterly reports on Form 10-Q for the periods affected by the restatements, have not been amended. Accordingly, investors should no longer rely upon the Company's previously released financial statements for any quarterly or annual periods after and including March 31, 2019, and any earnings releases or other communications relating to these periods.

The following tables summarize the effects of the restatement adjustments on the Company’s restated consolidated balance sheet as of December 31, 2019 and for the first three quarters of the years ended December 31, 2020 and 2019. In addition to the restatement of the consolidated balance sheet, certain historical information within the notes to the consolidated financial statements has been restated to reflect the correction of the error.

The restatement adjustments in the table below reflects the impact of reclassifying $ i i 17.0 / million SNB revolver balance from long-term to short-term debt and $ i i 0.7 / million of the Premier Loan balance from short-term to long-term debt as of December 31, 2019.

Total liabilities remains unchanged for all periods presented below and there is no impact to the Consolidated Statements of Operations and Comprehensive Loss, Consolidated Statements of Cash Flows, or Consolidated Statements of Mezzanine and Stockholders’ Equity for the Year Ended December 31, 2019 and for the first three quarters of the years ended December 31, 2020 and 2019.

Consolidated Balance Sheet

December 31, 2019

(in thousands)

As Reported

Restatement Adjustments

As Restated

Liabilities, Mezzanine Equity and Stockholders’ Equity

Short-term debt and current portion of long-term debt

i 4,036

i 16,298

i 20,334

Total current liabilities

i 28,178

i 16,298

i 44,476

Long-term debt, net of current portion

i 17,038

( i 16,298)

i 740

Total liabilities

i 49,863

i —

i 49,863

Quarterly Financial Information (Unaudited)

The following tables summarize the effects of reclassifying EBGL revolver balance from long-term to short-term debt for all quarters during 2020 and SNB revolver from long-term to short-term debt for all quarters presented below, on the Company’s consolidated balance sheets as of March 31, 2020 and 2019, June 30, 2020 and 2019, and September 30, 2020 and 2019, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods.

March 31, 2020

March 31, 2019

(in thousands)

As Reported

Restatement Adjustments

As Restated

As Reported

Restatement Adjustments

As Restated

Liabilities, Mezzanine Equity and Stockholders’ Equity

Short-term debt and current portion of long-term debt

i 1,211

i 16,600

i 17,811

i —

i 12,517

Total current liabilities

i 22,373

i 16,600

i 38,973

i 13,423

i 12,517

i 25,940

Long-term debt, net of current portion

i 18,775

( i 16,600)

i 2,175

i 12,517

( i 12,517)

i —

Total liabilities

i 45,954

i —

i 45,954

i 30,340

i —

i 30,340

June 30, 2020

June 30, 2019

(in thousands)

As Reported

Restatement Adjustments

As Restated

As Reported

Restatement Adjustments

As Restated

Liabilities, Mezzanine Equity and Stockholders’ Equity

Short-term debt and current portion of long-term debt

i 4,459

i 13,159

i 17,618

i —

i 15,314

Total current liabilities

i 24,260

i 13,159

i 37,419

i 14,809

i 15,314

i 30,123

Long-term debt, net of current portion

i 19,124

( i 13,159)

i 5,965

i 15,314

( i 15,314)

i —

Total liabilities

i 47,599

i —

i 47,599

i 34,639

i —

i 34,639

September 30, 2020

September 30, 2019

(in thousands)

As Reported

Restatement Adjustments

As Restated

As Reported

Restatement Adjustments

As Restated

Liabilities, Mezzanine Equity and Stockholders’ Equity

Short-term debt and current portion of long-term debt

i 4,260

i 12,106

i 16,366

i 3,988

i 17,217

i 21,205

Total current liabilities

i 24,899

i 12,106

i 37,005

i 26,165

i 17,217

i 43,382

Long-term debt, net of current portion

i 16,896

( i 12,106)

i 4,790

i 17,217

( i 17,217)

i —

Total liabilities

i 45,797

i —

i 45,797

i 50,533

i —

i 50,533

Note 3. i Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The consolidated financial statements are prepared in conformity with generally accepted accounting principles (“GAAP”) accepted in the United States of America and include the financial statements and our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. The divestiture of the Mobile Healthcare segment met the definition of a strategic shift that has a significant effect on our operations and financial results; therefore, the results of operations for the Mobile Healthcare segment have been presented as discontinued operations in accordance with ASC 205-20, Presentation of Financial Statements-Discontinued Operations for all periods presented. Additionally, Mobile Healthcare’s assets and liabilities as of December 31, 2020 and 2019 are separately presented as held for sale on the consolidated balance sheet. Unless otherwise noted, discussion within these notes to the consolidated financial statements relates to continuing operations. Refer to Note 4. Discontinued Operations for additional information.

Reverse Stock Split

On June 4, 2019, we completed a 1-for-10 reverse stock split of our common stock and reduced the number of authorized shares to i 30 million. The reverse stock split did not affect the par value of our common stock. The terms of equity awards under our incentive plans, including the exercise price and number of shares issuable under outstanding awards were also converted in proportion to the reverse split ratio.

All authorized, issued, and outstanding stock and per share amounts contained in the accompanying consolidated financial statements have been adjusted to reflect the 1-for-10 Reverse Stock Split for all prior periods presented.

ATRM Merger

On September 10, 2019 (the “ATRM Acquisition Date”), we completed our acquisition of ATRM pursuant to an Agreement and Plan of Merger, dated as of July 3, 2019 (the “ATRM Merger Agreement”), among Star Equity, Digirad Acquisition Corporation, a Minnesota corporation and our wholly owned subsidiary (“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 Star Equity. ATRM is now doing business as Star Building & Construction.

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 ( i 0.03) of a share of i 10.0% Series A Cumulative Perpetual Preferred Stock, par value $ i 0.0001 per share, of the Company (“Company Preferred Stock”) and (ii) each share of ATRM i 10.00% Series B Cumulative Preferred Stock, par value $ i 0.001 per share (“ATRM Preferred Stock”), converted into the right to receive two and one-half ( i 2.5) shares of Company Preferred Stock, for an approximate aggregate total of i 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 6. Merger, for further detail.

Mezzanine Equity

Pursuant to the Certificate of Designations, Rights and Preferences of i 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 Company Preferred Stock may require the Company to redeem the Company Preferred Stock at a price of $ i 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. Company Preferred Stock is not redeemable and it was not probable that our Preferred Stock would become redeemable as of December 31, 2020 and 2019. Therefore, we are not currently required to accrete the Company Preferred Stock to its redemption value.

In addition to a Change of Control Redemption, the Certificate of Designations also provides that we may redeem (at our option, in whole or in part) Preferred Stock following the fifth anniversary of issuance of the Company Preferred Stock, at a cash redemption price of $ i 10.00 per share, plus any accumulated and unpaid dividends.

Discontinued Operations

On October 30, 2020, we entered into the DMS Purchase Agreement to sell all of the issued and outstanding common stock of DMS Health, which operates our Mobile Healthcare business. The purchase price for the DMS Sale Transaction is $ i 18.75 million in cash, subject to certain adjustments, including a working capital adjustment.

The completion of the DMS Sale Transaction is subject to receipt of certain consents and customary closing conditions. The DMS Sale Transaction is not subject to approval by our stockholders. The Purchase Agreement contains representations, warranties and covenants, Seller and DMS Health that are customary for a transaction of this nature. The Purchase Agreement also contains indemnification obligations of the parties thereto. Assuming the satisfaction or waiver of the closing conditions, the DMS Sale Transaction is expected to close in the first half of 2021.

Between the date of the DMS Purchase Agreement and the closing date, the Company and Seller have agreed to allow DMS Health and its subsidiaries to, among other things, operate their respective businesses in the ordinary course in all material respects, and to keep their respective businesses and operations intact.

For all periods presented in our consolidated statements of operations, all revenue, cost of revenues, expenses, and income taxes attributable to DMS, except as related to the impact of the decrease in the federal statutory tax rate (see Note 14. Income Taxes), have been aggregated under the caption “net loss from discontinued operations, net of income taxes.” Additionally, the related assets and liabilities associated with the discontinued operations are classified as held for sale in the consolidated balance sheet. Cash flows used in or provided by DMS operations as part of discontinued operations and prior year results reclassified to conform with the current presentation are disclosed in Note 4. Discontinued Operations. Unless otherwise noted, amounts and disclosures throughout these notes to consolidated financial statements relate to our continuing operations.

Liquidity

The accompanying 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 net losses from continuing operations of approximately $ i 7.2 million and $ i 1.9 million for the years ended December 31, 2020 and 2019, respectively. We have an accumulated deficit of $ i 125.0 million and $ i 118.5 million as of December 31, 2020 and 2019, respectively. Net cash used in operations was $ i 5.0 million for the year ended December 31, 2020 compared to net cash provided by operations of $ i 0.4 million for the year ended 2019. The Company will need to secure additional future financing to accomplish its business plan over the next several years and that there can be no assurance on the availability or terms upon which such financing and capital mat be available in the future.

At December 31, 2020, we had approximately $ i 4.3 million in short term debt due within the next twelve months for our Building and Construction division. We were in breach of certain debt covenants with Gerber, as further discussed in Note 10. Debt below. The debt held by related parties totaled approximately $ i 2.3 million at December 31, 2020. In February 2021, as discussed more fully below, we refinanced our debt and obtained waivers with Gerber and reset the debt covenants with the lender.

We also had approximately $ i 12.7 million in short term debt due to our borrowings under the Sterling National Bank revolving credit facility which is classified as short term as disclosed in Note 10. Debt and matures in March 2024. As of December 31, 2020, we were in compliance with all borrowing arrangements related to our Digirad Health division. The revolver directly supports our healthcare business, but up to $ i 4 million may be drawn to fund non-healthcare operations as long as we maintain a $ i 4 million cushion of excess availability following any non-healthcare distributions, and certain other requirements. As of December 31, 2020, we had $ i 7.3 million of borrowing capacity to fund the operations of these divisions.

On May 28, 2020, we closed a public offering (the “Offering”) of i 2,225,000 shares of its common stock and i 2,225,000 warrants (“Warrants”) to purchase up to i 1,112,500 shares of its common stock. Net proceeds of the Offering is being used to fund working capital and other general corporate purposes. Further, Jeffrey E. Eberwein, the Executive Chairman of our board of directors, has committed to provide financial support to us by providing written assurances that he will (a) not call approximately $ i 2.3 million of related party debt when it becomes due in October 2020 then extended to June 30, 2022 and (b) extend through June 2021 our put option with respect to $ i 1.0 million in Preferred Stock. In November 2020, Mr. Eberwein signed the second extension letter to extends the maturity date of all notes above to the earlier of (i) the date that is 5 business days after the Closing Date defined within the DMS Purchase Agreement dated October 30, 2020 between the Company and Knob Creek Acquisition Corp. or (ii) the date when the Note is no longer subject to a certain subordinate letter agreement dated January 12, 2018, as amended in favor of Gerber. Management believes that we have the liquidity and operations to continue to support the business through the next 12 months from the issuance of these consolidated financial statements. Our ability to continue as a going concern is dependent on ability to execute our plans.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes to the consolidated financial statements. Significant estimates and judgments include those related to revenue recognition, allowances for doubtful accounts and contractual allowances, self-insurance, inventory 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 in the year of 2020 and 2019, which are explained below.

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, including a reasonable profit margin. Determining if an enforceable right to payment includes a reasonable profit margin requires judgment and 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 imaging and cardiac monitoring services to our customers. Service revenue within our Diagnostic Imaging reportable segments is derived from providing our customers with contract diagnostic imaging 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 Imaging 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 i one year from the date of purchase. Revenue from these service contracts is deferred and recognized ratably over the period of the obligation.

Building and Construction Revenue Recognition.

Within the Building and 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. 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. 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 consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our 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 discount rate, we use an 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 to not separate lease and non-lease components of our operating leases in which it is the lessee and lessor. Additionally, the Company elected not to recognize right-of use assets and leases liabilities that arise from short-term leases of twelve months or less.

Lessor Accounting

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 used 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.

We elected the operating lease practical expedient for leases to not separate non-lease components of regular maintenance services from associated lease components.

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 income 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.

i Concentration of Credit Risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash and cash equivalents, investments, and accounts receivable. We limit our exposure to credit loss by generally placing cash and investments in high credit quality financial institutions and investment grade corporate debt securities. Additionally, we have established guidelines regarding diversification of our investments and their maturities, which are designed to maintain principal and maximize liquidity.

Fair Value of Financial Instruments

The authoritative guidance for fair value measurements defines fair value for accounting purposes, establishes a framework for measuring fair value, and provides disclosure requirements regarding fair value measurements. The guidance defines fair value as an exit price, which is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities generally correlates to the level of pricing observability. Financial instruments primarily consist of cash equivalents, equity securities, accounts receivable, other current assets, restricted cash, accounts payable, and other current liabilities. The carrying amount of other short-term and long term borrowings approximates fair value because of the relative short maturity of these instruments and interest rates we could currently obtain.

i Cash and Cash Equivalents

We consider all investments with a maturity of three months or less when acquired to be cash equivalents.

i Equity Securities

As of December 31, 2020 and 2019, securities consist of investments in equity securities that are publicly traded. Investments that are strategic in nature, with the intent to hold the investment over a several year period, are classified as other assets (non-current). Effective January 1, 2018, equity securities, with certain exceptions, are measured at fair value and changes in fair value are recognized in net income. During the year ended December 31, 2020, we recognized gains related to changes in fair value of $ i 22 thousand in the statement of operations. During the year ended December 31, 2019, we recorded gains related to changes in fair value of $ i 62 thousand.

Allowance for Doubtful Accounts, and Billing Adjustments

Accounts receivable consist principally of trade receivables from customers and government or third-party healthcare insurance providers, and are generally unsecured and due within 30 days. We regularly evaluate the collectability of our trade receivables and provide reserves for doubtful accounts based on our historical experience rate, known collectability issues and disputes, and our bad debt write-off history. Our estimates of collectability could be impacted by material amounts due to changed circumstances, such as a higher number of defaults or material adverse changes in a payor’s ability to meet its obligations. Expected credit losses related to trade accounts receivable are recorded as an allowance for doubtful accounts within accounts receivable, net in the consolidated balance sheets, and the related provision for doubtful accounts is charged to general and administrative expenses.

Within the Diagnostic Services segment, we record a provision for billing adjustments, which are based on our historical experience rate of billing adjustments history. The provision for billing adjustments is charged against Diagnostic Services revenues.

Within the Building and Construction segment, accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of losses that may result from uncollectable accounts receivable. We determine the allowance based on an analysis of individual accounts and an evaluation of the collectability of our accounts receivable in the aggregate based on factors such as the aging of receivable amounts, customer concentrations, historical experience, and current economic trends and conditions. Account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered. We do not have any off-balance sheet credit exposure related to our customers.

The following table summarizes the allowance for doubtful accounts, billing adjustments, and contractual allowances as of and for the years ended December 31, 2020, and 2019 (in thousands):

Allowance for

Doubtful Accounts (1)

Reserve for

Billing Adjustments (2)

Balance at December 31, 2018

i 419

i 18

ATRM beginning balance

i 223

i —

Provision adjustment

i 227

i 248

Write-offs and recoveries, net

( i 234)

( i 246)

Balance at December 31, 2019

i 635

i 20

Provision adjustment

i 68

i 183

Write-offs and recoveries, net

( i 207)

( i 190)

Balance at December 31, 2020

i 496

i 13

(1)The provision was charged against general and administrative expenses.

(2)The provision was charged against Diagnostic Services revenue.

The amounts above exclude $ i 10 thousand and $ i 13 thousand of Allowance for Doubtful Accounts at Mobile Healthcare classified as held for sale as of December 31, 2020 and December 31, 2019, respectively. See Note 4. Discontinued Operations, for additional information.

Inventory

Inventories are stated at the lower of cost (first-in first-out basis) or net realizable value. Finished goods and work-in-process inventory values include the cost of raw materials, labor and manufacturing overhead. Inventory when written down to net realizable value establishes a new cost basis and its value is not subsequently increased based upon changes in underlying facts and circumstances. We also make adjustments to reduce the carrying amount of inventories for estimated excess or obsolete inventories. Factors influencing these adjustments include inventories on-hand compared with historical and estimated future sales for existing and new products and assumptions about the likelihood of obsolescence.

The following table summarizes our reserves for excess and obsolete inventory as of and for the years ended December 31, 2020 and 2019 (in thousands):


	Reserve for Excess and Obsolete Inventories (1)
Balance at December 31, 2018		$	i 380
Provision adjustment		i 50
Write-offs and scrap		( i 47)
Balance at December 31, 2019		i 383
Provision adjustment		i 137
Write-offs and scrap		( i 121)
Balance at December 31, 2020		$	i 399

(1)The provision was charged against Product and product-related cost of revenues.

/ i

Long-Lived Assets including Finite Lived Purchased Intangible Assets

Long-lived assets consist of property and equipment and finite lived intangible assets. We record property and equipment at cost, and record other intangible assets based on their fair values at the date of acquisition. We calculate depreciation on property and equipment using the straight-line method over the estimated useful life of the assets, which range from i 5 to i 20 years for buildings and improvements, i 3 to i 13 years for machinery and equipment, i 1 to i 10 years for computer hardware and software, and the lesser of the estimated useful life or remaining lease term for leasehold improvements. Charges related to amortization of assets recorded under capital leases are included within depreciation expense. We calculate amortization on other intangible assets using either the accelerated or the straight-line method over the estimated useful life of the assets, based on when we expect to receive cash inflows generated by the intangible assets. Estimated useful lives for intangibles range from i 1 to i 15 years.

i Impairment losses on long-lived assets used in operations are recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. i i No / impairment was recorded on long-lived assets to be held and used during the years ended December 31, 2020 and 2019.

i Valuation of Goodwill

Goodwill has historically been derived from the acquisition of ATRM in 2019, MD Office Solutions (“MD Office”) in 2015, and substantially all of the assets of Ultrascan, Inc. (“Ultrascan”) in 2007. Digirad Imaging Solutions, KBS and EBGL are the reporting units that carry a goodwill balance of $ i 1.7 million, $ i 3.8 million, and $ i 4.0 million, respectively. A goodwill impairment of $ i 0.4 million was recorded for the year ended December 31, 2020. See Note 9. Goodwill, for further information.

i Self-Insured Health Insurance Benefits

Digirad Health provides healthcare benefits to its employees through a self-insured plan with “stop loss” coverage. The Company records a liability that represents our estimated cost of claims incurred and unpaid as of the balance sheet date. Our estimated reserve is based on historical experience and trends related to both health insurance claims and payments. The ultimate cost of healthcare benefits will depend on actual costs incurred to settle the claims and may differ from the amounts reserved by the Company for those claims. As of December 31, 2020 and 2019, the reserve for estimated claims incurred and unpaid was $ i 0.5 million and $ i 0.5 million, respectively.

i Restricted Cash

We maintain certain cash amounts restricted as to withdrawal or use. As of December 31, 2020 and 2019, restricted cash was $ i 0.2 million and $ i 0.2 million, respectively, comprised of cash held for letters of credit for our real estate leases and certain minimum balance requirements on our banking arrangements.

Debt Issuance Costs

We incur debt issuance costs in connection with debt financings. Debt issuance costs recorded in connection with our Sterling National Bank, Gerber, and Premier Bank revolving credit facility are presented in other assets on the consolidated balance sheets and are amortized over the term of the revolving debt agreements using the straight-line method. Amortization of debt issuance costs are included in interest expense. As of December 31, 2020 and 2019, we have $ i 0.6 million and $ i 0.6 million, respectively, of unamortized debt issuance costs.

i Shipping and Handling Fees and Costs

We record all shipping and handling costs billed to customers as revenue earned for the goods provided. Shipping and handling costs related to continuing operations are included in cost of revenues and totaled $ i 1.0 million and $ i 0.7 million for the years ended December 31, 2020 and 2019, respectively. Shipping and handling costs included in discontinued operations totaled $ i 24 thousand and $ i 34 thousand for the years ended December 31, 2020 and 2019, respectively.

Share-Based Compensation

We account for share-based awards exchanged for employee and board services in accordance with the authoritative guidance for share-based compensation. Under this guidance, share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of forfeitures, over the requisite service period.

Warranty

In Digirad Health, we generally provide a i 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, if necessary, make adjustments.

Within our Building and Construction segment, KBS provides a limited assurance warranty on its residential homes that covers substantial defects in materials or workmanship for a period of i 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 i 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 years ended December 31, 2020 and 2019 are as follows (in thousands):

Year Ended December 31,

2020

2019

Balance at beginning of year

i 421

i 197

ATRM beginning balance

i —

i 60

Charges to cost of revenues

i 232

i 547

Applied to liability

( i 439)

( i 383)

Balance at end of year

i 214

i 421

i Advertising Costs

Advertising costs are expensed as incurred. Total advertising costs in continuing operations for the years ended December 31, 2020 and 2019 were $ i 0.1 million and $ i 0.3 million, respectively. Total advertising costs in discontinued operations for each of the years ended December 31, 2020 and 2019 were $ i 7 thousand and $ i 11 thousand, respectively.

Basic and Diluted Net 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. 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 per share for the years ended December 31, 2020 and 2019 (in thousands):

Year Ended December 31,

2020

2019

Numerator:

Net loss from continuing operations

( i 5,285)

( i 2,740)

Net loss from discontinued operations

( i 1,172)

( i 1,887)

Net loss

( i 6,457)

( i 4,627)

Deemed dividend on Series A perpetual preferred stock

( i 1,916)

( i 596)

Net loss attributable to common shareholders

( i 8,373)

( i 5,223)

Denominator:

Weighted average shares outstanding - basic and diluted

i 3,659

i 2,041

Net loss per common share - basic and diluted*

Net loss per share, continuing operations

( i 1.44)

( i 1.34)

Net loss per share, discontinued operations

( i 0.32)

( i 0.92)

Net loss per share

( i 1.76)

( i 2.27)

Deemed dividend on Series A perpetual preferred stock per share

( i 0.52)

( i 0.29)

Net loss per share, attributable to common shareholders - basic and diluted

( i 2.29)

( i 2.56)

/ /

*Earnings per share may not add due to rounding

Antidilutive common stock equivalents are excluded from the computation of diluted loss per share. Stock options and restricted stock units are antidilutive when the assumed proceeds per share are greater than the average market price of the common shares. In addition, in periods where net losses are incurred, stock options and restricted stock units with assumed proceeds per share less than the average market price of the common shares become antidilutive as well. i The following weighted-average outstanding common stock equivalents were not included in the calculation of diluted net loss per share because their effect was antidilutive (in thousands):

Year Ended December 31,

2020

2019

Stock options

i 43

i 54

Stock warrants

i 1,247

i —

Restricted stock units

i 26

i 24

Total

i 1,316

i 78

As of December 31, 2020, there were i 486,140 warrants exercised and i 1,963,860 warrants remained outstanding at an exercise price of $ i 2.25.

i Other Comprehensive Income (Loss)

Other comprehensive income (loss) is defined as revenues, expenses, gains and losses that under GAAP are included in comprehensive income (loss) but excluded from net income (loss).

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We recognize net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that we would be able to realize deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

We record uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. We recognize interest and penalties related to unrecognized tax benefits within income tax expense, and any accrued interest and penalties would be included within the related tax liability. No such costs were recorded for the years ended December 31, 2020 and December 31, 2019.

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.

Note 4. i Discontinued Operations

On February 1, 2018, we completed the sale of customer contracts relating to our Medical Device Sales and Service (“MDSS”) post-warranty service business to Philips pursuant to an Asset Purchase Agreement, dated as of December 22, 2017 for $ i 8.0 million. The total cash proceeds were adjusted for deferred revenue liabilities assigned to Philips at the closing date, as well as $ i 0.5 million of proceeds held in escrow, subject to claims for breaches of general representation and warranties, which was recorded in other current assets at the date of sale.

As of December 31, 2019, we recognized a $ i 350 thousand gain for the remaining settlement of the warranty claims in regards to equipment sold to Phillips.

On November 3, 2020, we announced the sale of its DMS Health Technologies, Inc. business unit. The purchase price under the DMS Purchase Agreement is $ i 18.75 million in cash, subject to certain adjustments, including a working capital adjustment. 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. 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.

The following table summarizes the DMS and MDSS results for the years ended December 2020 and 2019 (in thousands):

Year ended December 31,

2020

2019

Total revenues

i 36,011

i 41,251

Total cost of revenues

i 31,493

i 36,295

Gross profit

i 4,518

i 4,956

Operating expenses:

Selling, general and administrative

i 4,447

i 5,677

Amortization of intangible assets

i 965

Loss on sale of buildings

i —

i 232

Gain on sale of MDSS discontinued operations

i —

( i 350)

Total operating expenses

i 5,412

i 6,524

Loss from discontinued operations

( i 894)

( i 1,568)

Interest expense, net

( i 256)

( i 411)

Loss from discontinued operations before income taxes

( i 1,150)

( i 1,979)

Tax expense

( i 22)

i 92

Net loss from discontinued operations

( i 1,172)

( i 1,887)

The carrying amounts of the major classes of assets reported as “Assets held for sale” consist of the following as of December 2020 and 2019 (in thousands):

2020

2019

Cash and cash equivalents

i 443

i 73

Accounts receivable, net

i 4,305

i 5,655

Inventories, net

i 50

i 68

Other current assets

i 459

i 456

Property and equipment, net

i 7,721

i 11,852

Operating lease right-of-use assets, net

i 4,863

i 2,589

Intangible assets, net

i 2,915

i 3,880

i 20,756

i 24,573

The carrying amounts of the major classes of liabilities reported as “Liabilities held for sale” consist of the following as of December 2020 and 2019 (in thousands):

2020

2019

Accounts payable

i 1,597

i 2,469

Accrued compensation

i 645

i 832

Deferred revenue

i 96

i 10

Operating lease liabilities

i 4,863

i 2,588

Other current liabilities

i 560

i 453

Deferred tax liabilities

i 16

i 12

Other liabilities

i 94

i 621

i 7,871

i 6,985

The following table presents supplemental cash flow information of discontinued operations for the years ended December 2020 and 2019 (in thousands):

2020

2019

Operating activities

Net loss from discontinued operations

( i 1,172)

( i 1,887)

Depreciation

i 4,519

i 4,679

Amortization of intangible assets

i 965

Gain on sale of MDSS discontinued operations

i —

( i 350)

Share-based compensation

i 14

i 18

Loss on disposal of assets

i 172

i 17

Provision for bad debt

i 2

i —

Deferred income taxes

i 5

( i 266)

Accounts Receivable

i 1,348

( i 682)

Other Accounts Receivable

( i 3,544)

( i 2,655)

Inventory

i 18

( i 28)

Other assets

( i 3)

( i 43)

Accounts payable

( i 872)

( i 278)

Accrued compensation

( i 187)

( i 340)

Deferred revenue

i 86

i 326

Other liabilities

( i 39)

i 161

Net cash provided by operating activities

i 1,312

( i 363)

Investing activities

Purchase of property and equipment

( i 701)

( i 1,053)

Proceeds from sale of property and equipment

i 142

i 1,428

Net cash (used in) provided by investing activities

( i 559)

i 375

Financing activities

Repayment of obligations under finance leases

( i 384)

( i 354)

Net cash used in financing activities

( i 384)

( i 354)

Note 5. i Revenue

Healthcare Product and Product-Related Services 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 interim rentals of imaging systems to our customers.

Building and Construction

Building and 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.

Real Estate and 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, provides services that include 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, including a reasonable profit margin. Determining if an enforceable right to payment includes a reasonable profit margin requires judgment and 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 variable consideration when estimating the amount of revenue to be recognized.

Disaggregation of Revenue

The following table presents our continuing revenues disaggregated by major source for the years ended December 31, 2020 and 2019 (in thousands):

Year Ended December 31, 2020

Diagnostic Services

Diagnostic Imaging

Building and Construction

Real Estate and Investments

Total

Major Goods/Service Lines

Mobile Imaging

i 38,690

i —

i 38,690

Camera Sales

i —

i 3,450

i —

i 3,450

Camera Support

i —

i 6,515

i —

i 6,515

Healthcare Revenue from Contracts with Customers

i 38,690

i 9,965

i —

i 48,655

Lease Income

i 577

i —

i 260

i —

i 837

Building and Construction

i —

i 28,619

i —

i 28,619

Real Estate and Investments

i —

i 52

Total Revenues

i 39,267

i 9,965

i 28,879

i 52

i 78,163

Timing of Revenue Recognition

Services and goods transferred over time

i 39,267

i 6,008

i 3,255

i —

i 48,530

Services and goods transferred at a point in time

i —

i 3,957

i 25,624

i 52

i 29,633

Total Revenues

i 39,267

i 9,965

i 28,879

i 52

i 78,163

Year Ended December 31, 2019

Diagnostic Services

Diagnostic Imaging

Building and Construction

Real Estate and Investments

Total

Major Goods/Service Lines

Mobile Imaging

i 46,531

i —

i 46,531

Camera Sales

i —

i 7,213

i —

i 7,213

Camera Support

i —

i 6,659

i —

i 6,659

Healthcare Revenue from Contracts with Customers

i 46,531

i 13,872

i —

i 60,403

Lease Income

i 1,192

i —

i 40

i —

i 1,232

Building and Construction

i —

i 11,217

i —

i 11,217

Real Estate and Investments

i —

i 82

Total Revenues

i 47,723

i 13,872

i 11,257

i 82

i 72,934

Timing of Revenue Recognition

Services and goods transferred over time

i 47,723

i 6,090

i 40

i —

i 53,853

Services and goods transferred at a point in time

i —

i 7,782

i 11,217

i 82

i 19,081

Total Revenues

i 47,723

i 13,872

i 11,257

i 82

i 72,934

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.

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 i one-year assurance-type warranty. The estimated costs associated with our standard warranties and field service actions are 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 i 12 to i 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 over time 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 primarily our Diagnostic Service segment, we also generate income from rentals of state-of-the-art equipment including cameras, 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.

Within our Building and Construction segment, we subleased the manufacturing building located in Waterford, Maine to a commercial tenant pursuant to a rental agreement with an initial i 5 year term that commenced on September 6, 2019. The rental agreement is structured with a monthly payment arrangement and is accounted for as an operating lease.

Building and Construction

Within the Building and 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, it is 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, including a reasonable profit margin, for performance completed to date.

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 annual contract period or at periodic intervals (e.g., monthly, quarterly, or annually).

Changes in the deferred revenues for the year ended December 31, 2020 and 2019, is as follows (in thousands):


Balance at December 31, 2018	$	i 1,713
ATRM beginning balance (1)	i 317
Revenue recognized that was included in balance at beginning of the year	( i 1,477)
Deferred revenue, net, related to contracts entered into during the year	i 1,248
Balance at December 31, 2019	i 1,801
Revenue recognized that was included in balance at beginning of the year	( i 1,494)
Deferred revenue, net, related to contracts entered into during the year	i 2,045
Balance at December 31, 2020	$	i 2,352

(1) Contract liabilities assumed on business combination

As of December 31, 2020 and 2019, non-current deferred revenue for continuing operations was $ i 168 thousand and $ i 15 thousand, respectively. See Note 4. Discontinued Operations for deferred revenue included in discontinued operations.

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.

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 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.

Note 6. i Merger

On September 10, 2019 (the “ATRM Acquisition Date”), Star Equity completed its acquisition of ATRM pursuant to an Agreement and Plan of Merger, dated as of July 3, 2019 (the “ATRM Merger Agreement”), among Star Equity, Digirad Acquisition Corporation, a Minnesota corporation and wholly owned subsidiary of Star Equity (“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 Star Equity. As a result of the ATRM Merger, ATRM’s operations have been included in our consolidated financial statements since the ATRM Acquisition Date.

ATRM, through its wholly-owned subsidiaries, KBS, Glenbrook, and EdgeBuilder, services residential and commercial construction projects by manufacturing modular housing units, structural wall panels, permanent wood foundation systems, and other engineered wood products and supplies general contractors with building materials. LSVM, which was a wholly owned subsidiary of ATRM on the ATRM Acquisition Date, is a Connecticut based exempt reporting advisor that was acquired by the Company in 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 ( i 0.03) of a share of i 10.0% Series A Cumulative Perpetual Preferred Stock, par value $ i 0.0001 per share, of the Company (Company Preferred Stock) and (ii) each share of ATRM i 10.00% Series B Cumulative Preferred Stock, par value $ i 0.001 per share (ATRM Preferred Stock), converted into the right to receive two and one-half ( i 2.5) shares of Company Preferred Stock, for an approximate aggregate total of i 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.

The acquisition-date fair value of the consideration transferred in connection with the ATRM Merger approximately $ i 17.5 million, which consisted of the following (in thousands, except share data):


Digirad Series A Cumulative Perpetual Preferred Stock ( i 1,615,637 shares)	$	i 16,156
Settlement of pre-existing note receivable between DRAD and ATRM	i 296
Fair value of pre-existing joint venture settlement between DRAD and ATRM	i 1,000
Estimated purchase price	$	i 17,452

The fair value of the preferred shares issued was determined based on the product of (a) $ i 10.00 (the stated liquidation preference per share of Company Preferred Stock), and (b) i 1,615,637 (the number of shares of Company Preferred Stock were issued and exchanged in the ATRM Merger).

The following table summarizes the fair values of the assets acquired and liabilities assumed at the ATRM Acquisition Date (in thousands):

(in thousands)

As originally reported

Measurement period adjustments

As adjusted

Cash and cash equivalents

i —

—

i —

Accounts receivable, net

i 2,831

—

i 2,831

Inventory, net

i 1,609

—

i 1,609

Other current assets

i 481

i 252

i 733

Property and equipment, net

i 840

—

i 840

Operating Lease Right-of-use assets, net

i 495

—

i 495

Accounts payable and other accrued liabilities

( i 10,851)

—

( i 10,851)

Debt and notes payable

( i 5,144)

—

( i 5,144)

Lease liability

( i 499)

—

( i 499)

Deferred income taxes

i —

( i 265)

Net assets acquired (liabilities assumed)

( i 10,238)

( i 13)

( i 10,251)

Goodwill

i 8,230

i 3

i 8,233

Intangibles

i 19,460

i 10

i 19,470

Estimated purchase price

i 17,452

i —

i 17,452

i The $ i 19.5 million of identified intangible assets was allocated as follows (in thousands): /

Fair Value

Weighted-Average Useful Life (years)

Trade Names

i 5,540

i 15

Customer Relationships - Modular Buildings

i 7,830

i 10

Customer Relationships - Wood Products

i 5,670

i 10

Backlog

i 430

i 1

Fair value of identified intangible assets

i 19,470

$ i 11.3 million and $ i 8.2 million of $ i 19.5 million intangibles were assigned to KBS and EBGL reporting units, respectively. $ i 4.0 million and $ i 4.3 million of $ i 8.2 million goodwill were allocated to KBS and EBGL reporting units, respectively. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of KBS and EBGL. As of December 31, 2019, there was a subsequent measurement of goodwill and a related tax benefit adjustment that resulted in a net adjustment of $ i 3.0 thousand to the recognized amounts of goodwill resulting from the acquisition of ATRM.

The Company recognized $ i 2.3 million of acquisition related costs including legal, accounting that were expensed during the year ended December 31, 2019. These costs are included in the consolidated statement of operations in the line item entitled “Merger and financing costs.”

The amounts of revenue and earnings of ATRM included in the Company’s consolidated statement of operations from the ATRM Acquisition Date for the year ended 2019 are as follows (in thousands):


	Year Ended December 31,
		2019
Revenue		$	i 11,339
Net loss		$	( i 821)

The following table presents supplemental cash flow information of the ATRM Merger (in thousands):



	2019
Non-cash investing and financing activities:
Issuance of Digirad Series A Cumulative Perpetual Preferred Stock ( i 1,615,637 shares)	$	i 16,156
Settlement of pre-existing note receivable between DRAD and ATRM	$	i 296
Fair value of pre-existing joint venture settlement between DRAD and ATRM	$	i 1,000

/ i

The following represents the unaudited pro forma condensed consolidated statement of operations as if ATRM had been included in the consolidated results of the Company for the year ended 2019 (in thousands):

Year Ended December 31,

2019

Revenue

i 92,323

Net loss

( i 7,242)

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of ATRM to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment and intangible assets had been applied on January 1, 2019, together with the consequential tax effects.

Note 7. i Supplementary Balance Sheet Information

The following tables show the consolidated balance sheet details as of December 31, 2020 and 2019 (in thousands):

Inventories:

Raw materials

i 5,489

i 4,309

Work-in-process

i 2,821

i 2,710

Finished goods

i 1,876

i 393

Total inventories

i 10,186

i 7,412

Less reserve for excess and obsolete inventories

( i 399)

( i 383)

Total inventories, net (1)

i 9,787

i 7,029

(1) The amounts above exclude $ i 50 thousand and $ i 68 thousand of inventory at DMS classified as held for sale as of December 31, 2020 and 2019, respectively. See Note 4. Discontinued Operations, for additional information.

/ i

Property and equipment, net:

Land

i 805

Buildings and leasehold improvements

i 4,771

i 4,776

Machinery and equipment

i 25,687

i 25,394

Computer hardware and software

i 3,688

i 3,483

Gross property and equipment

i 34,951

i 34,458

Accumulated depreciation

( i 25,189)

( i 24,172)

Total property and equipment, net (1)

i 9,762

i 10,286

(1) The amounts above exclude $ i 7.7 million and $ i 11.9 million of property and equipment, net at DMS classified as held for sale as of December 31, 2020 and 2019, respectively. See Note 4. Discontinued Operations, for additional information.

Depreciation expense in continuing operations for the years ended December 31, 2020 and 2019 was $ i 1.8 million and $ i 1.6 million, respectively. Depreciation expense in discontinued operations for the years ended December 31, 2020 and 2019 was $ i 4.5 million and $ i 4.7 million, respectively.

In April 2019, Star Equity purchased i three manufacturing facilities, including land, in Maine prior to the ATRM Merger, ( i two of which were purchased from KBS) for $ i 5.2 million and leased those i three properties to KBS, as part of a sale and lease back transaction. Subsequent to the ATRM Merger, all lease payments and obligations between the entities are eliminated on consolidation.

KBS subleased the manufacturing building located in Waterford, Maine to North Country Steel Inc., a Maine corporation with an initial i 5 year term rental agreement, commenced on September 6, 2019. The rental agreement is structured with a monthly payment arrangement and is accounted for as operating lease. Refer to lease income discussed in Note 5. Revenue.

December 31, 2020

Weighted-Average Useful Life (years)

Gross Carrying Amount

Accumulated Amortization

Intangible Assets, Net

Intangible assets with finite useful lives:

Customer relationships

i 10.0

i 17,079

( i 5,238)

i 11,841

Trademarks

i 15.0

i 5,727

( i 670)

i 5,057

Patents

i 15.0

i 141

( i 139)

i 2

Covenants not to compete

i 5.0

i 181

( i 181)

i —

Backlog

i 1.0

i 430

( i 430)

i —

Total intangible assets, net (1)

i 23,558

( i 6,658)

i 16,900

December 31, 2019

Weighted-Average Useful Life (years)

Gross Carrying Amount

Accumulated Amortization

Intangible Assets, Net

Intangible assets with finite useful lives:

Customer relationships

i 10.0

i 17,079

( i 3,796)

i 13,283

Trademarks

i 15.0

i 5,727

( i 294)

i 5,433

Patents

i 15.0

i 141

( i 138)

i 3

Covenants not to compete

i 5.0

i 181

( i 174)

i 7

Backlog

i 1.0

i 430

( i 133)

i 297

Total intangible assets, net (1)

i 23,558

( i 4,535)

i 19,023

(1) The amounts above exclude $ i 2.9 million and $ i 3.9 million of intangible assets, net at DMS classified as held for sale as of December 31, 2020 and 2019, respectively. See Note 4. Discontinued Operations, for additional information.

Amortization expense in continuing operations for intangible assets, net for the years ended December 31, 2020 and 2019 was $ i 2.1 million and $ i 0.8 million, respectively. Amortization expense in discontinued operations for intangible assets, net for the years ended December 31, 2020 and 2019 was $ i 1.0 million and $ i 1.0 million, respectively.

Estimated amortization expense for intangible assets for 2021 is $ i 1.8 million, for 2022 is $ i 1.7 million, for 2023 is $ i 1.7 million, for 2024 is $ i 1.7 million, for 2025 is $ i 1.7 million, and thereafter is $ i 8.3 million.

Other current liabilities:

Professional fees

i 534

i 634

Sales and property taxes payable

i 453

i 1,133

Radiopharmaceuticals and consumable medical supplies

i 219

i 79

Current portion of finance lease obligation

i 594

i 559

Facilities and related costs

i 70

i 144

Outside services and consulting

i 181

i 213

Other accrued liabilities

i 949

i 1,424

Total other current liabilities (1)

i 3,000

i 4,186

(1) The amounts above exclude $ i 0.6 million and $ i 0.5 million of other current liabilities at DMS classified as held for sale as of December 31, 2020 and 2019, respectively. See Note 4. Discontinued Operations, for additional information.

Note 8. i Fair Value Measurements

We categorize our assets and liabilities measured at fair value into a three-level hierarchy in accordance with the authoritative guidance for fair value measurements. Assets and liabilities presented at fair value in our consolidated balance sheets are generally categorized as follows:

Level 1:Quoted prices in active markets for identical assets or liabilities.

Level 2:Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3:Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Such assets and liabilities may have values determined using pricing models, discounted cash flow methodologies, or similar techniques, and include instruments for which the determination of fair value requires significant management judgment or estimation.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels. i The following table sets forth by level within the fair value hierarchy our assets that were recorded at fair value as of December 31, 2020 and 2019 (in thousands):

At Fair Value as of December 31, 2020

Level 1

Level 2

Level 3

Total

Assets:

Equity securities

i 35

i 55

i —

i 90

Total

i 35

i 55

i —

i 90

At Fair Value as of December 31, 2019

Level 1

Level 2

Level 3

Total

Assets:

Equity securities

i 26

i 43

i —

i 69

Lumber derivative contracts

i 10

i —

i 10

Total

i 36

i 43

i —

i 79

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 December 31, 2020 and 2019, respectively. During the year ended December 31, 2020, and 2019, we recorded in the statement of operations unrealized gains of $ i 22 thousand and $ i 62 thousand, respectively.

We occasionally enter into lumber derivative contracts in order to protect our gross profit margins from fluctuations caused by volatility in lumber prices. At December 31, 2020, we had no derivative contracts. At December 31, 2019, we had a net long (buying) position of i 770,000 board feet under i seven lumber derivatives contracts and had a short position of i 770,000 board feet under i seven lumber derivative contracts.

At December 31, 2020, we no longer have any derivative contracts.

The fair values of our revolving credit facility approximate carrying value due to the variable rate nature of these borrowings.

Note 9. i Goodwill

Changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019, by reportable segment, are as follows (in thousands):

Diagnostic Services

Building and Construction

Total

Balance at December 31, 2018

i 1,745

i —

i 1,745

Recognition of ATRM (1)

i —

i 8,233

Balance at December 31, 2019

i 1,745

i 8,233

i 9,978

Impairment of EBGL

i —

( i 436)

Balance at December 31, 2020

i 1,745

i 7,797

i 9,542

(1)On September 10, 2019, Star Equity, previously known as Digirad Corporation, completed its acquisition of ATRM pursuant to the ATRM Merger Agreement. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of KBS and EBGL. As the result, we allocated the goodwill to the two reporting units, KBS and EBGL, $ i 3.8 million and $ i 4.0 million, respectively. As of December 31, 2019, there was a subsequent measurement of goodwill and a related tax benefit adjustment that resulted in a net adjustment of $ i 3.0 thousand to the recognized amounts of goodwill resulting from the acquisition.

During the fourth quarter of 2020, we performed a qualitative assessment for all reporting units to estimate whether it is more likely than not that the fair value of each reporting unit was less than its carrying amount. In performing this qualitative assessment, we assessed relevant events and circumstances that may impact the fair value and the carrying amount of each reporting unit. Factors that were considered included, but were not limited to, the following: (1) macroeconomic conditions; (2) industry and market conditions; (3) overall financial performance and expected financial performance; (4) other entity specific events. Based on the results of this qualitative assessment, we determined that it is more likely than not that all reporting units were not impaired, with the exception of our EBGL reporting unit.

The Company concluded that it was more likely than not that the carrying value of the EBGL reporting unit were in excess of fair value and therefore, updated its estimated fair value of these assets as of that date. This conclusion was based on lower than expected operating results during the year ended December 31, 2020, primarily as a result of higher commodity lumber price and COVID-19 impact. In performing the goodwill impairment assessment, we determined the fair value of the EBGL and KBS reporting units using both an income approach and a market approach. Under the income-based approach, we use a discounted cash flow model in which cash flows anticipated over several future periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate risk-adjusted rate of return. We use our internal forecasts to estimate future cash flows and include an estimate of long-term growth rates based on our most recent views of the long-term outlook. Actual results may differ materially from those used in our forecasts. The discount rate used in the discounted cash flow analysis reflects the risks inherent in the expected future cash flows. Determining fair value using a market approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of companies. From the comparable companies, a representative market multiple was determined which was applied to financial metrics to estimate the fair value. As a result, we recorded an impairment loss of $ i 0.4 million associated with the impairment assessment of the EBGL reporting unit as of December 31, 2020 within Statement of Operations.

Estimating the fair value of the reporting units requires the use of estimates and significant judgments regarding future cash flows that are based on a number of factors including actual operating results, forecasted billings, revenue, and spend targets, discount rate assumptions, and long-term growth rate assumptions. These estimates and judgments could adversely change in future periods and we cannot provide absolute assurance that all of the targets will be achieved, which could lead to future impairment charges.

Note 10. i Debt

i i

A summary of debt as of December 31, 2020 and 2019 is as follows (dollars in thousands):

December 31, 2020

December 31, 2019

Amount

Weighted-Average Interest Rate

Amount (Restated)

Weighted-Average Interest Rate

Revolving Credit Facility - Gerber KBS

i 1,099

i 6.00%

i 1,111

i 7.50%

Revolving Credit Facility - Premier

i —

i —%

i 2,185

i 6.25%

Revolving Credit Facility - Gerber EBGL

i 2,016

i 6.00%

i —

i —%

Revolving Credit Facility - SNB

i 12,710

i 2.64%

i 17,038

i 4.26%

Total Short-term Revolving Credit Facility

i 15,825

i 3.30%

i 20,334

i 4.65%

Gerber - Star Term Loan

i 262

i 6.75%

i —

i —%

Premier - Term Loan

i 419

i 5.75%

i —

i —%

Total Short Term Debt

i 681

i 6.13%

i —

i —%

Short-term Paycheck Protection Program Notes

i 1,856

i 1.00%

i —

i —%

Short-term debt and current portion of long-term debt

i 18,362

i 3.17%

i 20,334

i 3.98%

Revolving Credit Facility - Premier

i —

i —%

i 740

i 6.25%

Total Long-term Revolving Credit Facility

i —

i —%

i 740

i 6.25%

Gerber - Star Term Loan

i 1,058

i 6.75%

i —

i —%

Premier - Term Loan

i 321

i 5.75%

i —

i —%

Total Long Term Debt

i 1,379

i 6.52%

i —

i —%

Long-term Paycheck Protection Program Notes

i 2,321

i 1.00%

i —

i —%

Long-term debt, net of current portion

i 3,700

i 3.06%

i 740

i 6.25%

LSV Co-Invest I Promissory Note (“January Note”)

i 709

i 12.00%

i 595

i 12.00%

LSV Co-Invest I Promissory Note (“June Note”)

i 1,220

i 12.00%

i 1,023

i 12.00%

LSVM Note

i 378

i 12.00%

i 301

i 12.00%

Total Notes Payable To Related Parties (1)

i 2,307

i 12.00%

i 1,919

i 12.00%

Total Debt

i 24,369

i 3.99%

i 22,993

i 5.32%

(1) See Note 16. Related Party Transactions, for information regarding certain ATRM promissory notes that are outstanding.

/ /

Term Loan Facilities

As of December 31, 2020, the short-term debt and current portion of long-term debt included $ i 0.3 million of the Gerber Star term loan, net of issuance costs, and $ i 0.4 million of the Premier term loan. Long-term debt, net of current portion, included $ i 1.1 million of the Gerber Star term loan, net of issuance costs, and $ i 0.3 million of the Premier term loan.

The following table presents the Star and Premier term loans balance net of unamortized debt issuance costs as of December 31, 2020 (in thousands):


	December 31, 2020
	Amount
Gerber - Star Term Loan	$	i 1,633
Premier - Term Loan	i 740
Total Principal	i 2,373
Unamortized debt issuance costs	( i 313)
Total	$	i 2,060

Sterling Credit Facility

On March 29, 2019, the Company entered into a Loan and Security Agreement (the “SNB Loan Agreement”) by and among certain subsidiaries of the Company, as borrowers (collectively, the “ SNB Borrowers”); the Company, as guarantor; and Sterling National Bank, a national banking association, as lender (“Sterling” or “SNB”).

The SNB Loan Agreement is a i five-year credit facility maturing in March 2024, with a maximum credit amount of $ i 20.0 million for revolving loans (the “SNB Credit Facility”). Under the SNB Credit Facility, the SNB Borrowers can request the issuance of letters of credit in an aggregate amount not to exceed $ i 0.5 million at any one time outstanding. The borrowings under the SNB Loan Agreement were classified as short-term obligations under GAAP as the agreement contained a subjective acceleration clause and required a lockbox arrangement whereby all receipts are swept daily to reduce borrowings outstanding. As of December 31, 2020, the Company had $ i 0.2 million of letters of credit outstanding and had additional borrowing capacity of $ i 7.3 million.

At the Borrowers’ option, the SNB Credit Facility will bear interest at either (i) a Floating LIBOR Rate, as defined in the Loan Agreement, plus a margin of i 2.50% per annum; or (ii) a Fixed LIBOR Rate, as defined in the Loan Agreement, plus a margin of i 2.25% per annum. As our largest single debt outstanding, our floating rate on this facility at the end of 2020 was i 2.64%.

The Company used a portion of the financing made available under the SNB Credit Facility to refinance and terminate, effective as of March 29, 2019, its previous credit facility with Comerica.

On March 29, 2019, in connection with the Company’s entry into the SNB Loan Agreement, Jeffery E. Eberwein, the Executive Chairman of the Company’s board of directors, entered into Limited Guaranty Agreement (the “SNB Eberwein Guaranty”) with SNB pursuant to which he guaranteed to SNB the prompt performance of all the Borrowers’ obligations to SNB under the SNB Loan Agreement, including the full payment of all indebtedness owing by Borrowers to SNB under or in connection with the SNB Loan Agreement and related SNB Credit Facility documents. Mr. Eberwein’s obligations under the SNB Eberwein Guaranty are limited in the aggregate to the amount of (a) $ i 1.5 million, plus (b) reasonable costs and expenses of SNB incurred in connection with the SNB Eberwein Guaranty. Mr. Eberwein’s obligations under the SNB Eberwein Guaranty terminate upon the Company and Borrowers achieving certain milestones set forth therein.

In connection with the SNB Credit Facility, in the year ended December 31, 2019, the Company recognized a $ i 0.2 million loss on extinguishment due to the write off of unamortized deferred financing costs associated with our prior revolving credit facility with Comerica.

At December 31, 2020 and 2019, the Company was in compliance with all covenants.

ATRM Loan Agreements

As of December 31, 2020, ATRM had outstanding revolving lines of credit of approximately $ i 3.1 million. Our debt through ATRM primarily included (i) $ i 1.1 million principal outstanding on KBS’s $ i 4.0 million revolving credit facility under a Loan and Security Agreement, dated February 23, 2016, (as amended, the “KBS Loan Agreement”), with Gerber Finance Inc. (“Gerber”) and (ii) $ i 2.0 million principal outstanding on EBGL’s $ i 3.0 million revolving credit facility under a Revolving Credit Loan Agreement, dated June 30, 2017 (as amended, the “Premier Loan Agreement”) with Premier Bank (“Premier”), net of an immaterial amount of unamortized financing fees. As of December 31, 2020, ATRM was at the maximum borrowing capacity under both revolving lines of credit, based on the inventory and accounts receivable on that day which fluctuates weekly.

See Note 16. Related Party Transactions, for information regarding certain ATRM promissory notes that are outstanding.

KBS Loan Agreement

On February 23, 2016, ATRM, KBS and Main Modular Haulers, Inc. (a subsidiary of ATRM) entered into a Loan and Security Agreement, (as amended, the “KBS Loan Agreement”), with Gerber. The KBS Loan Agreement provides KBS with a revolving line of credit with borrowing availability of up to $ i 4.0 million. Availability under the line of credit is based on a formula tied to KBS’s eligible accounts receivable, inventory and other collateral. The KBS Loan Agreement, which was scheduled to expire on February 22, 2018, has been automatically extended for successive one ( i 1) year periods in accordance with its terms and is now scheduled to expire on February 22, 2022. The KBS Loan Agreement will be automatically extended for another one ( i 1) year period unless a party thereto provides prior written notice of termination. As of December 31, 2020, neither party has provided notice of termination. Upon the final expiration of the term of the KBS Loan Agreement, the outstanding principal balance is payable in full. Borrowings bear interest at the prime rate plus i 2.75%, equating to i 6.00% at December 31, 2020, with interest payable monthly. The KBS Loan Agreement also provides for certain fees payable to Gerber during its term, including a i 1.5% annual facilities fee and a i 0.10% monthly collateral monitoring fee. KBS’s obligations under the KBS Loan Agreement are secured by all of its assets and are guaranteed by ATRM. Unsecured promissory notes issued by KBS and ATRM are subordinate to KBS’s obligations under the KBS Loan Agreement. The KBS Loan Agreement contains representations, warranties, affirmative and negative covenants, defined events of default and other provisions customary for financings of this type. Financial covenants require that KBS maintain a maximum leverage ratio (as defined in the KBS Loan Agreement) and KBS not incur a net annual post-tax loss in any fiscal year during the term of the KBS Loan Agreement. The borrowings under the KBS Loan Agreement were classified as short-term obligations under GAAP as the agreement contained a subjective acceleration clause and required a lockbox arrangement whereby all receipts are swept daily to reduce borrowings outstanding. At December 31, 2020, approximately $ i 1.1 million was outstanding under the KBS Loan Agreement.

On September 10, 2019, the parties of the KBS Loan Agreement entered into a Consent and Acknowledgment Agreement and Twelfth Amendment to Loan Agreement (the “Twelfth Amendment”), by and among Gerber, KBS, ATRM and the Company, pursuant to which the Company agreed to guarantee amounts borrowed by certain ATRM’s subsidiaries from Gerber. The Twelfth Amendment requires the Company to serve as an additional guarantor with the existing guarantor, ATRM, with respect to the payment, performance and discharge of each and every obligation of payment and performance by the borrowing subsidiaries with respect to the loans made by Gerber to them. The Twelfth Amendment also provides that upon payment in full of the EBGL Obligations (as defined therein), the amount of the Cash Collateral (as defined therein) will be reduced to $ i 0.3 million. Additionally, ATRM had on deposit $ i 0.2 million in a collateral account maintained with Gerber to secure the loans under the KBS Loan Agreement which was returned to ATRM in November 2019.

On April 1, 2020, Gerber and KBS entered into a Fifteenth Amendment to Loan Agreement (the “Fifteenth Amendment”) pursuant to which the “Minimum Average Monthly Loan Amount” under the KBS Loan Agreement was decreased to twenty-five percent ( i 25%) of the Maximum Revolving Amount (as defined in the KBS Loan Agreement).

On February 26, 2021 Gerber and KBS entered into a Seventeenth Amendment to Loan Agreement (the Seventeenth Amendment”). The Seventeenth Amendment provided the waiver to the 2020 covenant breach and amended the financial covenants. The financial covenants under the KBS Loan Agreement, as amended, provide that (i) KBS shall make no distribution, transfer, payment, advance, or contribution of cash or property which would constitute a restricted payment; (ii) KBS shall report annual post-tax net income at least equal to (a) $ i 385 thousand for the trailing 6-month period ending June 30, 2021 and (b) $ i 500 thousand for the trailing fiscal year end December 31, 2021; and (iii) a minimum EBITDA at June 30, 2021 of more than $ i 880 thousand or at December 31, 2021 of more than $ i 1.5 million.

EBGL Premier Note

On June 30, 2017, EdgeBuilder and Glenbrook (together, EBGL) entered into a Revolving Credit Loan Agreement (as amended, “the Premier Loan Agreement”) with Premier providing EBGL with a working capital line of credit of up to $ i 3.0 million. The Premier Loan Agreement replaced the prior revolving credit facility under a loan and security agreement with Gerber (the “EBGL Loan Agreement”), which was terminated on the same date and all obligations of EBGL and ATRM in favor of Gerber in connection with the EBGL Loan Agreement were extinguished.

Availability under the Premier Loan Agreement is based on a formula tied to EBGL’s eligible accounts receivable, inventory and equipment, and borrowings bear interest at the prime rate plus i 1.50%, with interest payable monthly and the outstanding principal balance payable upon expiration of the term of the Premier Loan Agreement. The Premier Loan Agreement also provides for certain fees payable to Premier during its term. The initial term of the Premier Loan Agreement was scheduled to expire on June 30, 2018, but was extended multiple times by Premier through January 31, 2023. The Premier Loan Agreement may be further extended from time to time at our request, subject to approval by Premier. EBGL’s obligations under the Premier Loan Agreement are secured by all of their inventory, equipment, accounts and other intangibles, fixtures and all proceeds of the foregoing.

On January 31, 2020, contemporaneously with the execution and delivery of the Star Loan Agreement and EBGL Loan Agreement described below, Glenbrook and EdgeBuilder entered into an Extension and Modification Agreement (the “Modification Agreement”) with Premier that modified the terms of the Revolving Credit Promissory Note (the “Premier Note”) made by Glenbrook and EdgeBuilder pursuant to the Premier Loan Agreement. Pursuant to the Modification Agreement, the amount of indebtedness evidenced by the Premier Note was reduced to $ i 1.0 million, and the Premier Note was modified to, among other things: (a) extend the Final Maturity Date (as defined in the Premier Note) of the Premier Note to January 31, 2023, and (b) set the interest that the Premier Note will bear at i 5.75% per annum. As a condition to close and to then later extend the term of the Premier Loan Agreement, ATRM and Mr. Eberwein executed a guaranty in favor of Premier, which has, through the multiple extensions described above, been extended through January 1, 2023, under which ATRM and Mr. Eberwein have absolutely and unconditionally guaranteed all of EBGL’s obligations under the Premier Loan Agreement. As of December 31, 2020, approximately $ i 0.7 million was outstanding under the Premier Loan Agreement.

Gerber Star and EBGL Loans

On January 31, 2020, SRE, 947 Waterford Road, LLC (“947 Waterford”), 300 Park Street, LLC (“300 Park”), and 56 Mechanic Falls Road, LLC (“56 Mechanic” and together with SRE, 947 Waterford, and 300 Park, (the “Star Borrowers”), each an Investments Subsidiary, and the Company, ATRM, KBS, EdgeBuilder, and Glenbrook (collectively, the “Star Credit Parties”), entered into a Loan and Security Agreement (as amended, the “Star Loan Agreement”) with Gerber providing the Star Borrowers with a credit facility with borrowing availability of up to $ i 2.5 million ($ i 2.0 million and $ i 0.5 million to KBS and EBGL, respectively) (the “Star Loan”). The advance of $ i 2.0 million to KBS is to be repaid in monthly installments of sixty ( i 60) consecutive equal payments. The advance of $ i 0.5 million to EBGL, which has been temporarily increased by $ i 0.3 million due to be repaid on April 30, 2020, is to be repaid in monthly installments of twelve ( i 12) consecutive equal payments. On February 20, 2020, the Star Borrowers entered into a First Amendment to Loan and Security Agreement (the “First Star Amendment”) with Gerber that amended the Star Loan Agreement in order to (i) temporarily advance $ i 0.3 million to EBGL, which amount is to be repaid to Gerber on or before April 30, 2020; (ii) clarify that Gerber can make multiple advances under the Star Loan Agreement, and (iii) to correct the maturity date of the Star Loan. On April 30, 2020, the Star Borrowers entered into a Second Amendment to Loan and Security Agreement (the “Second Star Amendment”) with Gerber that amended the Star Loan Agreement in order to change terms of repayment for the advance of $ i 0.3 million to EBGL provided for under the First Star Amendment. Under the terms of the Second Star Amendment, the advance of $ i 0.3 million to EBGL is to be repaid in three ( i 3) consecutive equal monthly installments on the thirtieth (30th) day in each calendar month, commencing May 30, 2020, and in a final installment on or before July 31, 2020. As of September 30, 2020, EBGL repaid $ i 0.3 million to Gerber. As of December 31, 2020, $ i 1.6 million was outstanding under the Star Loan Agreement.

On January 31, 2020, EdgeBuilder and Glenbrook (the “EBGL Borrowers”), each a Construction Subsidiary, and the Company, Star, 947 Waterford, 300 Park, 56 Mechanic, ATRM, and KBS (collectively, the “EBGL Credit Parties”), entered into a Loan and Security Agreement (the “EBGL Loan Agreement”) with Gerber providing the EBGL Borrowers with a credit facility with borrowing availability of up to $ i 3.0 million (the “EBGL Loan”). On March 5, 2020, the EBGL Borrowers entered into a First Amendment to Loan and Security Agreement (the “First EBGL Amendment”) with Gerber that amended the EBGL Loan Agreement and the KBS Loan Agreement in order to, among other things, include a pledge $ i 0.3 million of cash collateral by LSVI under the EBGL Loan Agreement which, prior to the First EBGL Amendment, was pledged by LSVI in connection with the KBS Loan Agreement. On July 1, 2020, the EBGL Borrowers entered into a Second Amendment to Loan and Security Agreement that amended the EBGL Loan Agreement in order to, among other things, terminate the pledge of $ i 0.3 million in cash collateral. On February 26, 2021, the EBGL Borrowers entered into a third amendment to the EBGL Loan Agreement (the “Third EBGL Amendment”) pursuant to which the Company and Gerber agreed to, among other things, eliminate the minimum leverage ratio covenant, lower the minimum EBITDA, and require the borrowers to not incur a net operating loss on bi-annual basis. The Third EBGL Amendment also discharged the EBGL Eberwein Guaranty described below. As of December 31, 2020, $ i 2.0 million was outstanding under the Gerber EBGL revolving credit facility.

Availability under the Star Loan Agreement is based on a formula tied to the value of real estate owned by the Star Borrowers, and borrowings bear interest at the prime rate plus i 3.5% per annum. Availability under the EBGL Loan Agreement is based on a formula tied to the EBGL Borrowers’ eligible accounts receivable and inventory, and borrowings bear interest at the prime rate plus i 2.75% per annum. The Loan Agreements also provide for certain fees payable to Gerber during their respective terms. The Star Loan matures on the earlier of (a) January 1, 2025 or (b) the termination, the maturity or repayment of the EBGL Loan. The EBGL Loan matures on the earlier of (a) January 1, 2022, unless extended, or (b) the termination, the maturity or repayment of the Star Loan. The maturity of the EBGL Loan is automatically extended for successive periods of one ( i 1) year each unless terminated by Gerber or the EBGL Borrowers. The borrowings under the EBGL Loan Agreement were classified as short-term obligations under GAAP as the agreement contained a subjective acceleration clause and required a lockbox arrangement whereby all receipts are swept daily to reduce borrowings outstanding.

The obligations of the EBGL Borrowers under the EBGL Loan Agreement are guaranteed by the EBGL Credit Parties and are secured by substantially all the assets of the EBGL Borrowers and the EBGL Credit Parties. The obligations of the Star Borrowers under the Star Loan Agreement are guaranteed by the Star Credit Parties and are secured by substantially all the assets of the Star Borrowers and the Star Credit Parties. Contemporaneously with the execution and delivery of the Star Loan Agreement, Jeffrey E. Eberwein, the Executive Chairman of the Company’s board of directors, executed and delivered a Guaranty (the “Gerber Eberwein Guaranty”) to Gerber pursuant to which he guaranteed the performance of all the Star Borrowers’ obligations to Gerber under the Star Loan Agreement, including the full payment of all indebtedness owing by the Star Borrowers to Gerber under or in connection with the Star Loan Agreement and related financing documents. Mr. Eberwein’s obligations under the Gerber Eberwein Guaranty are limited in the aggregate to the amount of (a) $ i 2.5 million, plus (b) costs of Gerber incidental to the enforcement of the Gerber Eberwein Guaranty or any guaranteed obligations. On March 5, 2020, contemporaneously with the execution and delivery of the First EBGL Amendment, Mr. Eberwein, the Executive Chairman of the Company’s board of directors, executed and delivered a Guaranty (the “EBGL Eberwein Guaranty”) to Gerber pursuant to which he guaranteed the performance of all the EBGL Borrowers’ obligations to Gerber under the EBGL Loan Agreement, including the full payment of all indebtedness owing by the EBGL Borrowers to Gerber under or in connection with the EBGL Loan Agreement and related financing documents. Mr. Eberwein’s obligations under the EBGL Eberwein Guaranty are limited in the aggregate to the amount of (a) $ i 0.5 million, plus (b) costs of Gerber incidental to the enforcement of the EBGL Eberwein Guaranty or any guaranteed obligations.

On February 26, 2021, the Star Borrowers entered into a third amendment to the Star Loan Agreement (the “Third Star Amendment”) with Gerber that, among other things, amended the contract rate to prime rate plus i 3% and discharged the $ i 2.5 million Gerber Eberwein Guaranty.

Paycheck Protection Program

On April 30, 2020, each of KBS, EdgeBuilder and Glenbrook executed a separate promissory note evidencing unsecured loans under the Paycheck Protection Program (the “PPP”). The promissory note executed by KBS is for $ i 0.8 million (the “KBS Note”), the promissory note executed by EdgeBuilder is for $ i 0.2 million (the “EdgeBuilder Note”) and the promissory note executed by Glenbrook is for $ i 0.2 million (the “Glenbrook Note”). The KBS Note, the EdgeBuilder Note and the Glenbrook Note, each dated April 30, 2020, are referred to together as the “Construction Notes”.

On May 11, 2020, the Company and each of Digirad Imaging Solutions, Inc. (“DIS”), DMS Imaging, Inc. (“DMS Imaging”) and DMS Health Technologies, Inc. (“DMS Health”), each a direct or indirect wholly owned subsidiary of the Company, executed a separate promissory note evidencing unsecured loans under the PPP. The promissory note executed by the Company, dated May 7, 2020, is for $ i 0.8 million (the “Company Note”); the promissory note executed by DIS, dated May 5, 2020, is for $ i 3.0 million (the “DIS Note”); the promissory note executed by DMS Imaging, dated May 5, 2020, is for $ i 1.6 million (the “DMS Imaging Note”) and the promissory note executed by DMS Health, dated May 7, 2020, is for $ i 0.1 million (the “DMS Health Note”). The Company Note, the DIS Note, the DMS Imaging Note, and the DMS Health Note are referred to together as the “Healthcare Notes”. The Construction Notes and the Healthcare Notes are referred to collectively as the “PPP Notes” and each promissory note individually as a “PPP Note”. As of December 31, 2020, the $ i 1.6 million DMS Imaging Note, the $ i 0.1 million DMS Health Note, and the $ i 0.8 million Company Note were forgiven. In first quarter 2021, $ i 0.4 million of the Glenbrook Note and EdgeBuilder Note, and $ i 0.8 million of the KBS Note were forgiven; therefore, the DIS Loan is the only PPP Note that remains outstanding.

In order to apply for the PPP Loans, we were required to certify, among other things, that the current economic uncertainty made the PPP Loans request necessary to support ongoing operations of the Company. This certification further required the Company to take into account its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The Company is continuing to evaluate the criteria and new guidance put out by the SBA regarding loan forgiveness and the procedures to seek loan forgiveness. As of December 31, 2020, $ i 2.5 million of the Company Note, DMS Imaging Note and DMS Health Note were forgiven. Subsequently, Construction Notes were forgiven. The Company has sought full loan forgiveness from the SBA for the DIS Note, based on the satisfaction of applicable criteria and guidelines. PPP Loan forgiveness is sought under the belief that all entities requesting loan forgiveness have met the stated criteria and guidelines provided by the SBA and terms of the CARES Act; however, no assurance can be provided that forgiveness of the rest of PPP Loans will be obtained.

As of December 31, 2020, maturities of debt obligations, including ATRM Notes Payable, for the next five years and thereafter are as follows (in thousands):


	Debt Maturities
2021	$	i 20,718
2022	i 3,072
2023	i 460
2024	i 400
2025	i 33
Total	$	i 24,683

Note 11. i Commitments and Contingencies

Other Matters

In the normal course of business, we have been, and will likely continue to be, subject to litigation or administrative proceedings incidental to our business, such as claims related to customer disputes, employment practices, wage and hour disputes, product liability, professional 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 do not expect that the resolution of these matters will have a material adverse effect on our financial position or results of operations.

Note 12. i i i Leases / /

Lessee

We have operating and finance leases for corporate offices, vehicles, and certain equipment. Our leases have remaining lease terms of i 1 year to i 10 years, some of which include options to extend the leases and some of which include options to terminate the leases within i 1 year. Operating leases are included separately in the consolidated balance sheets and finance lease assets are included in property and equipment with the related liabilities included in other current liabilities and other liabilities in the consolidated balance sheets.

The components of lease expense in continuing operations for the year ended December 31, 2020 and 2019 are as follows (in thousands):

Operating lease cost

i 1,303

i 942

Finance lease cost:

Amortization of finance lease assets

i 463

i 435

Interest on finance lease liabilities

i 92

i 86

Total finance lease cost

i 555

i 521

Operating lease cost in discontinued operations for the years ended December 31, 2020 and 2019 was $ i 0.9 million and $ i 0.6 million, respectively.

Total finance lease cost in discontinued operations for the years ended December 31, 2020 and 2019 was $ i 0.4 million and $ i 0.3 million, respectively.

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

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

i 1,201

i 938

Operating cash flows from finance leases

i 92

i 86

Financing cash flows from finance leases

i 588

i 509

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

i 596

i 1,189

Finance leases

i 579

i 654

Supplemental balance sheet information related to leases as of December 31, 2020 and 2019 was as follows (in thousands):

Operating lease right-of-use assets, net (1)

i 1,769

i 2,238

Operating lease liabilities

i 1,011

i 1,144

Operating lease liabilities, net of current

i 828

i 1,206

Total operating lease liabilities (2)

i 1,839

i 2,350

Finance lease assets

i 2,765

i 2,760

Finance lease accumulated amortization

( i 791)

( i 1,089)

Total finance lease assets, net (3)

i 1,974

i 1,671

Finance lease liabilities

i 594

i 559

Finance lease liabilities, net of current

i 937

i 1,001

Total finance lease liabilities (4)

i 1,531

i 1,560

Weighted-Average Remaining Lease Term (in years)

Operating leases

i 2.3

i 1.6

Finance leases

i 2.8

i 3.0

Weighted-Average Discount Rate

Operating leases

i 5.53

i 7.59

Finance leases

i 6.44

i 6.52

Finance leases are recorded in other current and long-term liabilities as of December 31, 2020 and 2019.

(1) The amounts above exclude $ i 4.9 million and $ i 2.6 million of right-of-use assets, net at DMS classified as held for sale as of December 31, 2020 and 2019, respectively.

(2) The amounts above exclude $ i 4.9 million and $ i 2.6 million of operating lease liabilities at DMS classified as held for sale as of December 31, 2020 and 2019, respectively.

(3) The amounts above exclude $ i 0.9 million and $ i 1.2 million of finance lease assets, net at DMS classified as held for sale as of December 31, 2020 and 2019, respectively.

(4) The amounts above exclude $ i 0.5 million and $ i 0.9 million of finance lease liabilities at DMS classified as held for sale as of December 31, 2020 and 2019, respectively. See Note 4. Discontinued Operations, for additional information.

We are committed to making future cash payments on non-cancelable operating leases and finance leases (including interest). i i 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 December 31, 2020 were as follows (in thousands): /

Operating
Leases

Finance
Leases

2021

i 1,084

i 729

2022

i 477

i 536

2023

i 256

i 286

2024

i 137

i 118

Thereafter

i —

i 2

Total future minimum lease payments

i 1,954

i 1,671

Less amounts representing interest

( i 115)

( i 140)

Present value of lease obligations

i 1,839

i 1,531

Lessor

In the Digirad Health division, we generate lease income in the Diagnostic Services 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. As of December 31, 2020 and 2019, our lease contracts are mainly month to month contracts.

Within our Building and Construction segment, we subleased the manufacturing building located in Waterford, Maine to a commercial tenant pursuant to a lease with an initial i 5 years term, commencing on September 6, 2019. The lease is structured with a monthly payment arrangement and is accounted for as an operating lease. As of December 31, 2020 our undiscounted cash flows for future minimum base rents to be received under operating leases from 2021 to 2024 are $ i 0.1 million, $ i 0.1 million, $ i 0.2 million, and $ i 0.1 million, respectively.

Note 13. i Share-Based Compensation

At December 31, 2020, we have i two active equity incentive plans, the 2011 Inducement Stock Incentive Plan (the “2011 Plan”), and the 2018 Incentive Plan (the “2018” Plan and together with the 2011 Plan, “the Plans”), under which stock options, restricted stock units, and other stock-based awards may be granted to employees and non-employees, including members of our Board of Directors. The terms of any equity instruments granted under the Plans are approved by the Board of Directors. Stock options typically vest over the requisite service period of one to i 4 years and have a contractual term of seven to i 10 years. Restricted stock units generally vest over one to i 4 years. Under the Plans, we are authorized to issue an aggregate of i 485,000 shares of common stock. As of December 31, 2020, the Plans had i 368,334 shares available for future issuance. The number of shares reserved for issuance under the 2018 Plan is subject to increase by (i) the number of shares of common stock that remained available for grant under the 2014 Equity Incentive Award Plan (the “2014 Plan”) as of the effective date of the 2018 Plan, plus (ii) any shares of common stock under the 2014 Plan that are forfeited, expire, or are canceled. As of December 31, 2020, the number of shares provided for issuance under the 2018 Plan due to unissued, forfeited, expired, and canceled shares under the 2014 Plan was i 59,620 shares.

Stock Options

The estimated fair value of our stock options is determined using the Black-Scholes model. All stock options were granted with an exercise price equal to the fair value of the common stock on the grant date. There were i no employee stock options granted during the years ended December 31, 2020 and 2019.

A summary of our stock option award activity as of and for the year ended December 31, 2020 is as follows (in thousands, except per share data):

Number of
Shares

Weighted-
Average
Exercise
Price per
Share

Weighted-
Average
Remaining
Contractual
Term (In Years)

Aggregate
Intrinsic Value

Options exercisable at December 31, 2019

i 53

i 32.41

Options outstanding at December 31, 2019

i 54

i 32.93

Options expired

( i 19)

i 25.66

Options outstanding at December 31, 2020

i 35

i 36.83

i 1.1

i —

Options exercisable at December 31, 2020

i 35

i 36.83

i 1.1

i —

At December 31, 2020, there is i no unrecognized compensation cost related to unvested stock options.

Upon exercise, we issue new shares of common stock. There were i i no / stock option exercises was during the years ended December 31, 2020 and 2019, respectively.

Under the guidance for share-based payments, the fair value of our restricted stock units is based on the grant date fair value of our common stock. All restricted stock units were granted with i no purchase price. Vesting of the restricted stock units is subject to service conditions, as well as the attainment of additional performance objectives for certain of the awards. The weighted-average grant date fair value of the restricted stock units was $ i 2.37 and $ i 6.87 per share during the years ended December 31, 2020 and 2019, respectively.

A summary of our restricted stock unit activity as of and for the year ended December 31, 2020 is as follows (in thousands, except per share data):

Number of
Shares

Weighted-Average
Grant Date Fair
Value Per Share

Non-vested restricted stock units outstanding at December 31, 2019

i 78

i 11.34

Granted

i 19

i 2.37

Forfeited

( i 4)

i 4.44

Vested

( i 59)

i 8.38

Non-vested restricted stock units outstanding at December 31, 2020

i 34

i 12.39

The following table summarizes information about restricted stock units that vested during the years ended December 31, 2020 and 2019 based on service conditions (in thousands):


	Year Ended December 31,
	2020		2019
Fair value on vesting date of vested restricted stock units	$	i 159	$	i 171

At December 31, 2020, total unrecognized compensation cost related to non-vested restricted stock units was $ i 0.2 million, which is expected to be recognized over a weighted-average period of i 0.7 years.

Allocation of Share-Based Compensation Expense

Total share-based compensation expense related to all of our share-based units for the years ended December 31, 2020 and 2019 was allocated as follows (in thousands):

Year Ended December 31,

2020

2019

Cost of revenues:

Services

i 19

i 21

Product and product-related

i 8

Selling, general and administrative

i 483

i 493

Total share-based compensation expense

i 510

i 522

Share-based compensation expense in continuing operations for the years ended December 31, 2020 and 2019 was $ i 0.5 million and $ i 0.5 million, respectively. Share-based compensation expense in discontinued operations for the years ended December 31, 2020 and 2019 was $ i 14 thousand and $ i 18 thousand, respectively.

Note 14. i Income Taxes

Significant components of the provision (benefit) for income taxes from continuing operations for the years ended December 31, 2020 and 2019 are as follows (in thousands):

Year Ended December 31,

2020

2019

Current provision:

State

i 89

i 55

Total current provision

i 89

i 55

Deferred provision:

Federal

i 21

i 253

State

i 19

( i 507)

Total deferred benefit

i 40

( i 254)

Total income tax provision (benefit)

i 129

( i 199)

Intraperiod allocation rules require us to allocate our provision for income taxes between continuing operations and other categories or comprehensive income (loss) such as discontinued operations. As described in Note 4. Discontinued Operations, the results of our Mobile Healthcare reportable segment have been reported as discontinued operations for the current and prior year. As a result of the intraperiod allocation rules, for the year ended December 31, 2020 and 2019, the Company recorded a tax expense of $ i 22 thousand and a benefit of $ i 0.1 million, respectively, for discontinued operations.

Differences between the provision for income taxes and income taxes at the statutory federal income tax rate for continuing operations are for the years ended December 31, 2020 and 2019 as follows:


	Year Ended December 31,
	2020		2019
Income tax expense at statutory federal rate	i 21.0	%	i 21.0	%
State income tax expense, net of federal benefit	i 0.4	%	( i 4.6)	%
Permanent differences and other	( i 11.7)	%	( i 12.0)	%
PPP Loan Forgiveness	i 12.8	%	i —	%
Transaction costs	i —	%	( i 8.5)	%
Withholding costs	i —	%	i —	%

Revaluation of deferred taxes due to change in effective federal and state tax rates	( i 1.1)	%	i 0.9	%
Expiration of net operating loss and tax credit carryovers	( i 47.4)	%	( i 78.3)	%
Stock compensation	( i 1.3)	%	( i 0.1)	%
Reserve for uncertain tax positions and other reserves	i 4.0	%	i 22.9	%
Change in valuation allowance	i 20.1	%	i 65.6	%

(Provision) benefit for income taxes	( i 3.2)	%	i 6.9	%

Our net deferred tax assets as of December 31, 2020 and 2019 consisted of the following (in thousands):

2020

2019

Deferred tax assets:

Net operating loss carryforwards

i 22,614

i 23,922

Research and development and other credits

i 72

Reserves

i 363

i 402

Operating lease liabilities

i 2,619

i 1,265

Interest carryover

i 14

i 190

Other, net

i 1,186

i 1,264

Total deferred tax assets

i 26,868

i 27,115

Deferred tax liabilities:

Fixed assets and other

( i 1,342)

( i 2,166)

Right of use assets

( i 2,534)

( i 1,236)

Intangibles

( i 4,128)

( i 4,597)

Total deferred tax liabilities

( i 8,004)

( i 7,999)

Valuation allowance for deferred tax assets

( i 18,930)

( i 19,139)

Net deferred tax liabilities

( i 66)

( i 23)

The Company recognizes federal and state deferred tax assets or liabilities based on the Company’s estimate of future tax effects attributable to temporary differences and carryovers. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. As of December 31, 2020, as a result of a three-year cumulative loss and recent events, we concluded that a full valuation allowance was necessary to offset our deferred tax assets. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. The Company continues to be in a cumulative pretax loss for the three year period ended December 31, 2020. Accordingly, the full valuation allowance was maintained for the year ended December 31, 2020. The Company’s valuation allowance balance at December 31, 2020 is $ i 18.9 million , offsetting the Company’s deferred tax assets. The Company will continue to evaluate its deferred tax balances to determine any assets that are more likely than not to be realized.

As of December 31, 2020, we had federal and state income tax net operating loss carryforwards after estimated section 382 limitations of $ i 94.9 million and $ i 108.8 million, respectively. Pre-2018 federal loss carryforwards will begin to expire in 2021 unless previously utilized. State loss carryforwards of approximately $ i 0.2 million expired in 2020, and approximately $ i 0.4 million is set to expire in 2021, unless previously utilized. We also have federal and California research and other credit carryforwards of approximately $ i 0.7 million and $ i 2.1 million, respectively, as of December 31, 2020. The federal credits will begin to expire in 2021. The California research credits have no expiration. Pursuant to Internal Revenue Code Sections 382 and 383, use of our net operating loss and credit carryforwards may be limited because of a cumulative change in ownership greater than 50%. As of December 31, 2020, the Company has not experienced a change in ownership greater than 50%; however, some of the tax attributes acquired with the DMS Health businesses are subject to such limitations due to ownership changes of greater than 50% that may have occurred or which may occur in the future. A valuation allowance has been recognized to offset the deferred tax assets, as realization of such assets has not met the “more likely than not” threshold required under the authoritative guidance of accounting for income taxes. In addition, the net operating losses acquired in the ATRM Acquisition are also limited under section 382.

The following table summarizes the activity related to our unrecognized tax benefits for the years ended December 31, 2020 and 2019 (in thousands):

2020

2019

Balance at beginning of year

i 2,941

i 3,610

Expiration of the statute of limitations for the assessment of taxes

( i 163)

( i 669)

Balance at end of year

i 2,778

i 2,941

Included in the unrecognized tax benefits of $ i 2.8 million at December 31, 2020 was $ i 2.3 million of tax benefits that, if recognized, would reduce our annual effective tax rate, subject to the valuation allowance. The Company does not expect our unrecognized tax benefits to change significantly over the next 12 months.

We file income tax returns in the U.S. and in various state jurisdictions with varying statutes of limitations. We are no longer subject to income tax examination by tax authorities for years prior to 2016; 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. The accrued interest as of December 31, 2020 and 2019, and interest and penalties recognized during the years ended December 31, 2020 and 2019 were of insignificant amounts.

Note 15. i Employee Retirement Plan

Employees of the Company’s Digirad Health division have a 401(k) retirement plan under which employees may contribute up to i 100% of their annual salary, within IRS limits. The Company contributions in continuing operations to the retirement plans totaled $ i 0.2 million and $ i 0.2 million for the years ended December 31, 2020 and 2019, respectively. The Company contributions in discontinued operations to the retirement plans totaled $ i 0.1 million and $ i 0.1 million for the years ended December 31, 2020 and 2019, respectively.

Note 16. i Related Party Transactions

Eberwein Guarantees

SNB

On March 29, 2019, in connection with the Company’s entry into the SNB Loan Agreement, Mr. Eberwein, the Executive Chairman of the Company’s board of directors, entered into the Limited Guaranty Agreement (the “SNB Eberwein Guaranty”) with SNB pursuant to which he guaranteed to SNB the prompt performance of all the Borrowers’ obligations to SNB under the SNB Loan Agreement, including the full payment of all indebtedness owing by Borrowers to SNB under or in connection with the SNB Loan Agreement and related SNB Credit Facility documents. Mr. Eberwein’s obligations under the SNB Eberwein Guaranty are limited in the aggregate to the amount of (a) $ i 1.5 million, plus (b) reasonable costs and expenses of SNB incurred in connection with the SNB Eberwein Guaranty. Mr. Eberwein’s obligations under the SNB Eberwein Guaranty terminate upon the Company and Borrowers achieving certain milestones set forth therein.

Gerber

On March 5, 2020, contemporaneously with the execution and delivery of the First EBGL Amendment, Mr. Eberwein, the Executive Chairman of the Company’s board of directors, executed and delivered a Guaranty (the “EBGL Eberwein Guaranty)” to Gerber pursuant to which he guaranteed the performance of all the EBGL Borrowers’ obligations to Gerber under the EBGL Loan Agreement, including the full payment of all indebtedness owing by the EBGL Borrowers to Gerber under or in connection with the EBGL Loan Agreement and related financing documents. Mr. Eberwein’s obligations under the EBGL Eberwein Guaranty were limited in the aggregate to the amount of (a) $ i 0.5 million, plus (b) costs of Gerber incidental to the enforcement of the EBGL Eberwein Guaranty or any guaranteed obligations. On February 26, 2021, the Third EBGL Amendment discharged the EBGL Eberwein Guaranty and removed Mr. Eberwein as an ancillary guarantor from the EBGL Loan Agreement.

On February 26, 2021, the Third Star Amendment discharged the $ i 2.5 million Gerber Eberwein Guaranty.

Premier

As a condition to the Premier Loan Agreement, Mr. Eberwein entered into a guaranty in favor of Premier, absolutely and unconditionally guaranteeing all of the borrowers’ obligations thereunder.

Premier Participation

Pursuant to a certain Participation Agreement by and between Mr. Eberwein and Premier, which was signed on March 31, 2020 and was effective as of March 26, 2020, Mr. Eberwein purchased a ratable participation in, and assumed a ratable part of, the aggregate maximum principal amount of the outstanding balance of the loan under the Premier Loan Agreement in the amount of $ i 0.3 million.

ATRM

Jeffrey E. Eberwein, the Executive Chairman of our board of directors is also the Chief Executive Officer of Lone Star Value Management, LLC (“LSVM”), which is the investment manager of Lone Star Value Investors, LP (“LSVI”) and Lone Star Value Co-Invest I, LP (“LSV Co-Invest I”). Mr. Eberwein is also the sole manager of Lone Star Value Investors GP, LLC (“LSV GP”), the general partner of LSVI and LSV Co-Invest I, and is the sole owner of LSV Co-Invest I. LSVM was a wholly owned subsidiary of ATRM on the ATRM Acquisition Date (see Acquisition of LSVM below). Prior to the closing of the ATRM Merger, Mr. Eberwein was also Chairman of the board of directors of ATRM. On October 25, 2019, ATRM distributed its interest in LSVM to Digirad, resulting in LSVM becoming a wholly owned direct subsidiary of Star Equity.

Prior to the closing of the ATRM Merger, Mr. Eberwein and his affiliates owned approximately i 4.3% of the outstanding Company common stock and i 17.4% of the outstanding ATRM common stock. In addition, LSVI owned i 222,577 shares of ATRM’s i 10.0% Series B Cumulative Preferred Stock (the “ATRM Preferred Stock”) and another i 374,562 shares of ATRM Preferred Stock were owned directly by LSV Co-Invest I. Through these relationships and other relationships with affiliated entities, Mr. Eberwein may be deemed the beneficial owner of the securities owned by LSVI and LSV Co-Invest I. Mr. Eberwein disclaimed beneficial ownership of ATRM Preferred Stock, except to the extent of his pecuniary interest therein. At the effective time of the ATRM Merger, (i) each share of ATRM common stock converted into the right to receive three one-hundredths ( i 0.03) of a share of Company Preferred Stock and (ii) each share of ATRM Preferred Stock converted into the right to receive two and one-half ( i 2.5) shares of Company Preferred Stock.

As of December 31, 2020, Mr. Eberwein owned approximately i 3.3% of the outstanding Star Equity common stock. In addition, as of December 31, 2020, Mr. Eberwein owned i 1,310,036 shares of Company Preferred Stock. Mr. Eberwein as the CEO of LSVM, which is the investment advisor of LSVI, and as the sole manager of LSV GP, which is the general partner of LSVI Mr. Eberwein may be deemed the beneficial owner of the securities held by LSVI. Mr. Eberwein disclaims beneficial ownership of Company Preferred Stock, except to the extent of his pecuniary interest therein.

On July 10, 2020, Star Equity authorized LSVI to initiate a pro-rata distribution to its partners of an aggregate of i 300,000 shares of Company Preferred Stock at $ i 10 per share, which was finalized by the Company's transfer agent on July 22, 2020 (the "Distribution"), which includes i 114,624 shares of Company Preferred Stock consisting of (i) i 113,780 shares of Company Preferred Stock received by the Jeffrey E. Eberwein Revocable Trust (the “Eberwein Trust”) as a result of the Distribution and (ii) i 844 shares of Company Preferred Stock acquired by the Eberwein Trust as a result of shares of Company Preferred Stock distributable to LSV GP in the Distribution being transferred directly to the Eberwein Trust contemporaneously with the Distribution. At the time of the Distribution, the Eberwein Trust was a limited partner of LSVI and LSV GP was the general partner of LSVI. Mr. Eberwein, as the trustee of the Eberwein Trust, may be deemed to beneficially own the securities held in the Eberwein Trust. Mr. Eberwein expressly disclaims beneficial ownership of such securities held in the Eberwein Trust except to the extent of his pecuniary interest therein. Mr. Eberwein, by virtue of his position as the manager and sole beneficial owner of LSV GP, the general partner of LSVI, may be deemed to beneficially own the securities owned by LSVI and LSV GP. Mr. Eberwein expressly disclaims beneficial ownership of such securities owned by LSVI and the securities owned by LSV GP, except to the extent of his pecuniary interest therein.

Private Placement

Immediately prior to the closing of the ATRM Merger, the Company issued i 300,000 shares of Company Preferred Stock in a private placement (the “Private Placement”) to LSVI for a price of $ i 10.00 per share for total proceeds to the Company of $ i 3.0 million. The Private Placement was made pursuant to the terms of a Stock Purchase Agreement, dated as of September 10, 2019. The shares of Company Preferred Stock sold in the Private Placement have not been registered under the Securities Act of 1933, as amended (the “Act”), and may not be resold absent registration under, or exemption from registration under, the Act.

At the closing of the Private Placement, the Company and LSVI entered into a Registration Rights Agreement, dated as of September 10, 2019 (the “Registration Rights Agreement”), pursuant to which Digirad agreed to file a registration statement with the SEC, covering the resale of the shares of Company Preferred Stock issued in the Private Placement, if and upon the written request of the Private Placement investors at any time on or before September 10, 2021.

100

On September 17, 2020, in connection with satisfying the Company’s obligations under the Registration Rights Agreement, the Company filed a registration statement with the SEC (the “September Registration Statement”) relating to the sale or other disposition from time to time of up to i 1,492,321 shares of Company Preferred Stock by the selling stock holders identified in the September Registration Statement, including their transferees, pledgees, donees or successors. Jeffrey E. Eberwein, the Executive Chairman of the Company’s board of directors, is a selling stockholder under the September Registration Statement. The selling stockholders may, from time to time, sell transfer, or otherwise dispose of any or all of their shares of Company Preferred Stock or interests in shares of Company Preferred Stock on any stock exchange, market, or trading facility on which the shares are traded or in private transactions. These dispositions by the selling stockholders may be at fixed prices, at prevailing market prices at the time of sale, at prices related to prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.

Put Option Agreement

In addition, prior to the effective time of the ATRM Merger, the Company entered into a put option purchase agreement with Mr. Eberwein, pursuant to which the Company has the right to require Mr. Eberwein to acquire up to i 100,000 shares of Company Preferred Stock at a price of $ i 10.00 per share for aggregate proceeds of up to $ i 1.0 million at any time, in the Company’s discretion, during the 12 months following the effective time of the ATRM Merger (the “Issuance Option”). In March 2020, Mr. Eberwein extended the put option agreement through June 30, 2021.

ATRM Notes Payable

ATRM has the following related party promissory notes (the “ATRM Notes”) outstanding:

(i) Unsecured promissory note (principal amount of $ i 0.7 million payable to LSV Co-Invest I), with interest payable semi-annually at a rate of i 10.0% per annum (LSV Co-Invest I may elect to receive interest in-kind at a rate of i 12.0% per annum), with any unpaid principal and interest previously due on January 12, 2020 (the “January Note”). On November 13, 2019, LSV Co-Invest I extended the maturity date of the January Note from January 12, 2020, to the earlier of (i) October 1, 2020 and (ii) the date when the January Note is no longer subject to a certain Subordinate Agreement dated January 12, 2018, as amended, in favor of Gerber. As described below, in November 2020 and March 2021, Mr. Eberwein signed the second and third extension letter to extends the maturity date of January Note.

(ii) Unsecured promissory note (principal amount of $ i 1.2 million payable to LSV Co-Invest I), with interest payable semi-annually at a rate of i 10.0% per annum (LSV Co-Invest I may elect to receive interest in-kind at a rate of i 12.0% per annum), with any unpaid principal and interest previously due on June 1, 2020 (the “June Note”). On November 13, 2019 LSV Co-Invest I also extended the maturity date of the June Note from June 1, 2020, to the earlier of (i) October 1, 2020 and (ii) the date when the January Note is no longer subject to a certain Subordinate Agreement dated June 1, 2018, as amended, in favor of Gerber. As described below, in November 2020 and March 2021, Mr. Eberwein signed the second and third extension letter to extends the maturity date of June Note.

(iii) Unsecured promissory note (principal amount of $ i 0.4 million payable to LSVM), with interest payable annually at a rate of i 10.0% per annum (LSVM may elect to receive any interest payment entirely in-kind at a rate of i 12.0% per annum), with any unpaid principal and interest previously due on November 30, 2020 (the “LSVM Note”). As described below, in November 2020, Mr. Eberwein signed the second and third extension letter to extends the maturity date of LSVM Note.

LSVM and LSV Co-Invest I on July 17, 2019, waived any right to accelerate payment with respect to the ATRM Merger under the ATRM Notes. In March 2020, Mr. Eberwein, sole manager of LSV Co-Invest I and LSVM, provided the Company a Letter of Support of the ATRM Notes indicating that he will take no adverse action against ATRM for failure to pay the principal due on the ATRM Notes by the maturity date and intends to work with the Company and ATRM to assure the financial success of the Company. In November 2020, Mr. Eberwein signed the second extension letter to extend the maturity date of the ATRM Notes to the earlier of (i) the date that is 5 business days after the Closing Date defined within the DMS stock Purchase Agreement dated October 30, 2020 between the Company and Knob Creek Acquisition Corp. or (ii) the date when the Note is no longer subject to a certain subordinate letter agreement dated January 12, 2018, as amended in favor of Gerber. In March 2021, Mr. Eberwein signed the third extension letter to extend the maturity dates of the ATRM Notes to aforementioned two conditions or to June 30, 2022.

Subordination Agreement

LSVM and LSV Co-Invest I are party to subordination agreements with ATRM and Gerber pursuant to which LSVM and LSV Co-Invest I agreed to subordinate the obligations of ATRM under their unsecured promissory notes to the obligations of the borrowers to Gerber.

101

Acquisition of LSVM

On April 1, 2019, ATRM entered into a Membership Interest Purchase Agreement (the “LSVM Purchase Agreement”) with LSVM and Mr. Eberwein. Pursuant to the terms of the LSVM Purchase Agreement, Mr. Eberwein sold all of the issued and outstanding membership interests of LSVM to ATRM (the “LSVM Acquisition”) for a purchase price of $ i 100, subject to a working capital adjustment provision. The LSVM Acquisition closed simultaneously with the execution and delivery of the LSVM Purchase Agreement, and was deemed effective as of January 1, 2019 for accounting purposes, as a result of which LSVM became a wholly-owned subsidiary of ATRM. Pursuant to the LSVM Purchase Agreement, the current assets as well as the $ i 0.3 million promissory note issued by ATRM and current liabilities existing prior to January 1, 2019 remain with Mr. Eberwein. Cash contributions made by Mr. Eberwein subsequent to the ATRM Acquisition also exist as a payment due to Mr. Eberwein by ATRM. The LSVM Purchase Agreement contains representations, warranties, covenants and indemnification provisions customary for transactions of this type. LSVM was acquired by the Company as part of the ATRM Acquisition.

Financial Assistance

On May 1, 2019, the special committee of the Company’s board of directors (the “Special Committee”) approved financial assistance by the Company to ATRM, in the form of advances or cash payments on behalf of ATRM, in order assist ATRM in becoming current with its financial statements and filings with the SEC. Under the terms of this approval, the Company was authorized to advance or spend up to an aggregate maximum amount of $ i 0.4 million, with subsequent increments of $ i 0.01 million subject to further approval by a designated member of the Special Committee. On July 30, 2019, the Special Committee increased the amount of financial assistance that the Company is authorized to provide to $ i 0.8 million. The Company entered into an agreement with ATRM pursuant to which ATRM agreed to repay all such financial assistance if the ATRM Acquisition did not close.

Joint Venture

On December 14, 2018, the Company and ATRM, entered into a joint venture and formed Star Procurement, LLC (“Star Procurement”), with the Company and ATRM each holding a i 50% interest in Star Procurement. The purpose of the joint venture was to provide the service of purchasing and selling building materials and related goods to KBS with which Star Procurement entered into a Services Agreement on January 2, 2019. In accordance with the terms of the Star Procurement Limited Liability Company Agreement, the Company made a $ i 1.0 million capital contribution to the joint venture in January 2019.

As of December 31, 2020, and upon the completion of the ATRM Merger, Star Procurement became wholly owned subsidiary of the Company.

Acquisitions and Leases of Maine Facilities

Through its SRE subsidiary, and prior to the completion of the ATRM Merger, the Company purchased two plants in Maine that manufacture modular buildings from KBS, a wholly-owned subsidiary of ATRM. SRE then leased these properties back to KBS, as further described below.

Waterford

On April 3, 2019, 947 Waterford, a wholly-owned subsidiary of SRE, entered into a Purchase and Sale Agreement (the “Waterford Purchase Agreement”) with KBS pursuant to which 947 Waterford closed on the purchase of certain real property and related improvements (including buildings) located in Waterford, Maine (the “Waterford Facility”) from KBS, and acquired the Waterford Facility. The purchase price of the Waterford Facility was $ i 1.0 million, subject to adjustment for taxes and other charges and assessments.

KBS subleased the manufacturing building located in Waterford, Maine to North Country Steel Inc., a Maine corporation with an initial 5 year term rental agreement, commenced on September 6, 2019. The rental agreement is structured with a monthly payment arrangement and is accounted for as operating lease.

Paris

On April 3, 2019, 300 Park, a wholly-owned subsidiary of SRE, entered into a Purchase and Sale Agreement (the “Park Purchase Agreement”) with KBS, pursuant to which 300 Park closed on the purchase of certain real property and related improvements and personal property (including buildings, machinery and equipment) located in Paris, Maine (the “Park Facility”) from KBS, and acquired the Park Facility. The purchase price of the Park Facility was $ i 2.9 million, subject to adjustment for taxes and other charges and assessments.

102

Lease of Maine Facilities

On April 3, 2019, KBS entered into a separate lease agreement with each of 947 Waterford (the “Waterford Lease”) and 300 Park (the “Park Lease”). The Waterford Lease has an initial term of i 120 months, which is subject to extension. The base rental payments associated with the initial term under the Waterford Lease were estimated to be between $ i 1.2 million and $ i 1.3 million in the aggregate. The Park Lease had an initial term of i 120 months, which is subject to extension. The base rental payments associated with the initial term under the Park Lease are estimated to be between $ i 3.3 million and $ i 3.6 million in the aggregate. ATRM had unconditionally guaranteed the performance of all obligations under the Waterford Lease and Park Lease to be performed by KBS under each lease, including, without limitation, the payment of all required rent.

On March 27, 2019, 56 Mechanic, a wholly-owned subsidiary of SRE, purchased from a third party certain property and equipment located in Oxford, Maine (the “Oxford Facility”). The transaction closed on April 25, 2019. The purchase price of the Oxford Facility was $ i 1.2 million, subject to adjustment for taxes and other charges and assessments. On April 3rd and 18th of 2019, KBS signed a lease and an amendment, respectively, with 56 Mechanic (the “Oxford Lease”), which became effective upon the closing of the transaction. The initial term under the Oxford Lease commenced upon delivery of the Oxford Facility to KBS. The Oxford Lease had an initial term of i 120 months, which is subject to extension. The base rental payments associated with the initial term under the Oxford Lease were estimated to be between $ i 1.4 million and $ i 1.5 million in the aggregate. ATRM had unconditionally guaranteed the performance of all obligations under the Oxford Lease to be performed by KBS, including, without limitation, the payment of all required rent.

As of September 10, 2019 and upon the completion of the ATRM Merger, the Waterford Lease, the Park Lease and the Oxford Lease are treated as intercompany transactions and eliminated in consolidation.

Note 17. i Segments

Our business is organized into i four reportable segments:

1.Diagnostic Services

2.Diagnostic Imaging

3.Building and Construction

4.Real Estate and Investments

For discussion purposes, we categorized our Diagnostic Services reportable segment as “Services,” and our Diagnostic Imaging reportable segment as “Product and Product-Related.”

Diagnostic Services. Through Diagnostic Services, the Company offers 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. The Company provides imaging services primarily to cardiologists, internal medicine physicians, and family practice doctors who typically enter annual contracts for a set number of days ranging from once per month to five times per week.

Diagnostic Imaging. Through Diagnostic Imaging, the Company sells our internally developed solid-state gamma cameras, imaging systems and camera maintenance contracts. Our imaging systems include nuclear cardiac imaging systems, as well as general purpose nuclear imaging systems. We sell our imaging systems to physician offices and hospitals primarily in the United States, although we have sold a small number of imaging systems internationally.

Building and Construction. Through Star Equity’s 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 commercial and residential buildings with a focus on customization to suit the project requirements and provide engineering and design expertise. Glenbrook is a retail supplier of lumber, windows, doors, cabinets, drywall, roofing, decking and other building materials 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.

103

Real Estate and Investments. Through this segment, we hold significant real estate assets that the Company acquires. As an initial transaction to create the Company’s real estate division under SRE in April 2019, the Company funded the initial purchase of i three manufacturing facilities in Maine that manufacture modular buildings and leased those i three properties. The funding of the assets acquisition was primarily through the revolver loan under our SNB Credit Facility. We also have an investment arm that operates under LSVM, which provides investment advisory services. We expect the investment advisory services to assist in making strategic investments, some of which may produce potential acquisition targets for the Company.

Our reporting segments have been determined based on the nature of the products and services offered to customers or the nature of their function in the organization. We evaluate performance based on the gross profit and operating income (loss) excluding litigation reserve expense, goodwill impairment, and transaction and integration costs. The Company does not identify or allocate its assets by operating segments. Accordingly, assets are not being reported by segment because the information is not available by segment and is not reviewed in the evaluation of performance or making decisions in the allocation of resources. Our operating costs included in our shared service functions primarily consist of senior executive officers, finance, human resources, legal, and information technology. During the fourth quarter of 2020, we have classified the results of our DMS segment as discontinued operations in our consolidated statement of operations for all periods presented. Accordingly, segment results have been recast for all periods presented to reflect DMS as discontinued operations. As costs of shared service functions previously allocated to DMS are not allocable to discontinued operations, prior period corporate costs have been reallocated amongst the continuing reportable segments.

104

Segment information for the years ended December 31, 2020 and 2019 is as follows (in thousands):

Year ended December 31,

2020

2019

Revenue by segment:

Diagnostic Services

i 39,267

i 47,723

Diagnostic Imaging

i 9,965

i 13,872

Building and Construction

i 28,879

i 11,257

Real Estate and Investments

i 685

i 275

Corporate, eliminations and other

( i 633)

( i 193)

Consolidated revenue

i 78,163

i 72,934

Gross profit by segment:

Diagnostic Services

i 6,758

i 10,237

Diagnostic Imaging

i 3,391

i 5,136

Building and Construction

i 4,047

i 2,013

Real Estate and Investments

i 424

( i 33)

Corporate, eliminations and other

( i 633)

( i 193)

Consolidated gross profit

i 13,987

i 17,160

Income (loss) from operations by segment:

Diagnostic Services

i 3,888

i 6,788

Diagnostic Imaging

i 2,136

i 3,283

Building and Construction

( i 2,909)

i 307

Real Estate and Investments

i 270

( i 312)

Corporate, eliminations and other

( i 633)

( i 193)

Unallocated corporate and other expenses

( i 9,524)

( i 9,440)

Segment (loss) income from operations

( i 6,772)

i 433

Goodwill impairment (1)

( i 436)

i —

Merger and finance costs (2)

i —

( i 2,342)

Consolidated loss from operations

( i 7,208)

( i 1,909)

Depreciation and amortization by segment:

Diagnostic Services

i 1,222

i 1,277

Diagnostic Imaging

i 260

i 278

Building and Construction

i 2,172

i 711

Real Estate and Investments

i 282

i 165

Total depreciation and amortization

i 3,936

i 2,431

(1) Reflects impairment of goodwill for Building & Construction.

(2) Reflects legal and other costs related to the ATRM Merger and holding company establishment.

Geographic Information. The Company’s sales to customers located outside the United States in continuing operations for the years ended December 31, 2020 and 2019 was $ i 0.3 million and $ i 0.2 million, respectively. The Company’s sales to customers located outside the United States in discontinued operations for the years ended December 31, 2020 and 2019 was $ i 0.1 million and $ i 0.2 million, respectively. All of our long-lived assets are located in the United States.

105

Note 18. i Perpetual Preferred Stock

Holders of shares of Company Preferred Stock are entitled to receive, when, as and if, authorized by the Company’s board of directors (or a duly authorized committee of the Company’s board of directors) and declared by the Company out of funds legally available for the payment of dividends, preferential cumulative cash dividends at the rate of i 10.0% per annum of the liquidation preference of $ i 10.00 per share. Dividends are payable quarterly, in arrears, on the last calendar day of March, June, September and December to holders of record at the close of business on the first day of each payment month. 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 for the past dividend periods and the dividend for the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set apart for payment. Under change of control or other conditions, Series A Preferred Stock may be subject to redemption. The Company may redeem the Series A Preferred 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 on or after September 10, 2024.

As of December 31, 2020 and 2019, the Company’s board has not declared a dividend on the Company Preferred Stock and the aggregate and per-share amounts of cumulative preferred dividends in arrears are $ i 2.5 million and $ i 1.31 per share, respectively.

A roll forward of the balance of Company Preferred Stock for the year ended December 31, 2020 is as follows (in thousands):


Balance at December 31, 2019	$	i 19,602
Deemed dividend on Series A cumulative perpetual preferred stock	i 1,916
Fees paid on issuance of preferred stock	( i 18)
Balance at December 31, 2020	$	i 21,500

Note 19. i Subsequent Events

On February 1, 2021, the Company completed the sale of its MD Office Solutions subsidiary to M.D.O.S.C.A Inc., a California based holding company (“MDOSCA”), in exchange for a secured promissory note in the original principal amount of $ i 1.4 million and entry into multi-year service and support agreements between MDOSCA and Digirad Health, Inc., a wholly owned subsidiary of the Company.

On February 1, 2021, in connection with the closing of the Company’s sale of MD Office Solutions, the Company entered into an amendment to the SNB Loan Agreement pursuant to which, among other things, Sterling consented to the sale of MD Office Solutions and the Company’s name change from Digirad Corporation to Star Equity Holdings, Inc.

On February 26, 2021 Gerber and KBS entered into a Seventeenth Amendment to Loan Agreement (the Seventeenth Amendment”). The Seventeenth Amendment provided the waiver to the 2020 covenant breach and amended the financial covenants. The financial covenants under the KBS Loan Agreement, as amended, provide that (i) KBS shall make no distribution, transfer, payment, advance, or contribution of cash or property which would constitute a restricted payment; (ii) KBS shall report annual post-tax net income at least equal to (a) $ i 385 thousand for the trailing 6-month period ending June 30, 2021 and (b) $ i 500 thousand for the trailing fiscal year end December 31, 2021; and (iii) a minimum EBITDA at June 30, 2021 of more than $ i 880 thousand or at December 31, 2021 of more than $ i 1.5 million.

On February 26, 2021, the Star Borrowers entered into a third amendment to the Star Loan Agreement (the “Third Star Amendment”) with Gerber that, among other things, amended the contract rate to prime rate plus i 3% and discharged the $ i 2.5 million Gerber Eberwein Guaranty.

On February 26, 2021, the EBGL Borrowers entered into a third amendment to the EBGL Loan Agreement (the “Third EBGL Amendment”) pursuant to which the Company and Gerber agreed to, among other things, eliminate the minimum leverage ratio covenant, lower the minimum EBITDA, and require the borrowers to not incur a net operating loss on bi-annual basis. The Third EBGL Amendment also discharged the EBGL Eberwein Guaranty and removed Mr. Eberwein as an ancillary guarantor from the EBGL Loan Agreement.

106

On March 26, 2021, in connection with the DMS Sale Transaction, Seller and Buyer entered into an Amendment to Stock Purchase Agreement that amended the Purchase Agreement in order to, among other things, (i) eliminate the requirement that a portion of the purchase price be held in escrow upon closing, and (ii) eliminate the requirement for a purchase price adjustment at closing based on cash and net working capital.

107

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities and Exchange Commission Act of 1934 reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive 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 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 officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2020 as a result of the material weakness discussed below.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was not effective as of December 31, 2020.

A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The Company identified material errors in the accounting for debt classification which resulted in the restatement of previously issued consolidated financial statements. These errors resulted from a material weakness related to ineffectively designed controls over review of contracts for new debt agreements and the proper application of GAAP for such agreements.

Plan for Remediation of the Material Weakness in Internal Control Over Financial Reporting

The Company has developed a remediation plan which includes, but is not limited to, a more detailed review over debt contracts and the proper application of GAAP.

Our internal controls over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our internal controls over financial reporting 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.

Changes in Internal Control over Financial Reporting

Other than the material weakness described above in this Item 9A, there were 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 Securities Exchange Act of 1934 that occurred during fourth quarter of 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

108

ITEM 9B. OTHER INFORMATION

None.

109

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The current number of directors on our Board of Directors is five. Under our bylaws, the number of directors on our Board of Directors will not be less than five, nor more than nine, and is fixed, and may be increased or decreased by resolution of the Board of Directors. There are no family relationships among any of our directors or executive officers.


Name	Age*	Position	Director Since
Jeffrey E. Eberwein	50	Director, Executive Chairman of the Board	2012
Matthew G. Molchan	54	President and Chief Executive Officer of Digirad Health, Inc., and Director	2013
Michael A. Cunnion	50	Director	2014
John W. Sayward	69	Director	2008
Mitchell I. Quain	69	Director (Lead Independent Director)	2019

* As of March 6, 2021

We began fiscal year 2020 with seven directors. On April 6, 2020, director John M. Climaco resigned from the Board of Directors of the Company and all committees of the Board of Directors effective as of such date and director Dimitrios J. Angelis did not stand for re-election to the Board of Directors at our annual meeting held on July 31, 2020. With the departures of Mr. Climaco and Mr. Dimitrios in 2020, the number of directors on our Board of Directors was reduced to five.

Our Board of Directors


Jeffrey E. Eberwein	Age: 50	Director since 2012
Chief Executive Officer of Hudson Global Inc. (“Hudson”) and Executive Chairman of Star Equity Holdings, Inc.

Committees: None

Mr. Eberwein assumed the position of Executive Chairman of the Board of the Company on January 1, 2021, after serving as Chairman of the Board since February 6, 2013. As Executive Chairman, Mr. Eberwein became the Company’s principal executive officer. Mr. Eberwein is also the chairman of the board at Hudson, a global recruitment company. Mr. Eberwein has served as a director of Hudson since May 2014 and as its Chief Executive Officer since April 1, 2018. Mr. Eberwein is also the Chief Executive Officer of Lone Star Value Management, LLC (“LSVM”), a Connecticut based exempt reporting advisor and investment firm that Mr. Eberwein founded in 2013, of which certain funds it manages are winding down. LSVM was a wholly owned subsidiary of ATRM Holdings, Inc. (“ATRM”), a modular building company that was acquired by the Company on September 10, 2019 (the “ATRM Acquisition” or the “ATRM Merger”). Mr. Eberwein joined the board of directors of ATRM in January 2013 and became its chairman in November 2013. He has 25 years of Wall Street experience, and has valuable public company and financial expertise gained through his employment history and directorships. Prior to founding LSVM in 2013, Mr. Eberwein was a private investor and served as a portfolio manager at Soros Fund Management from 2009 to 2011 and Viking Global Investors from 2005 to 2008. Previously, Mr. Eberwein served as chairman of the board of Ameri Holdings, Inc. from May 2015 to August 2018. Mr. Eberwein also previously served as a director of Novation Companies, Inc. from April 2015 to March 2018; Crossroads Systems, Inc. from June 2013 to May 2016; NTS, Inc. from December 2012 to June 2014; On Track Innovations Ltd. from 2012 to 2014; and Goldfield Corporation from 2012 to 2013. Mr. Eberwein earned an M.B.A. from The Wharton School, University of Pennsylvania and a B.B.A. with High Honors from The University of Texas at Austin.

We believe Mr. Eberwein’s expertise in finance and experience in the investment community, along with his extensive experience, qualifications, attributes and skills make him well qualified to serve as a director of our Company.

110

On February 14, 2017, the Securities and Exchange Commission (“SEC”) issued an order (Securities Exchange Act Release No. 80038) (the “Order”) relating to allegations that certain groups of investors failed to properly disclose ownership information during a series of five campaigns to influence or exert control over microcap companies. The Order alleged violations of Section 13(d)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 13d-1 thereunder, Section 13(d)(2) of the Exchange Act and Rule 13d-2(a) thereunder and Section 16(a) of the Exchange Act and Rules 16a-2 and 16a-3 thereunder by Mr. Eberwein and a hedge fund adviser headed by him, LSVM, a mutual fund adviser and another investor. Without admitting or denying the findings, they consented to the Order and agreed to cease and desist from committing any violations of the above-referenced Exchange Act provisions and civil penalties of $90 thousand for Mr. Eberwein, $120 thousand for LSVM, $180 thousand for the mutual fund advisor and $30 thousand for the other investor. On February 24, 2020, the SEC issued an order (Securities Exchange Act Release No. 5448) (the “Advisers Act Order”) relating to allegations, among other things, that LSVM failed to properly disclose certain specific transactions in advance and obtain client consent for these transaction prior to their completion and that LSVM failed to implement certain written policies and procedures. The Advisers Act Order alleged violations of Section 206(3) and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-7 thereunder by Mr. Eberwein and LSVM. Without admitting or denying the findings, they consented to the Advisers Act Order and agreed to cease and desist from committing or causing any violations of the above-referenced Advisers Act provisions, for LSVM to be censured and to pay civil penalties of $25 thousand for Mr. Eberwein and $100 thousand for LSVM.


Matthew G. Molchan	Age: 54	Director since 2013
President and Chief Executive Officer of Digirad Health, Inc.

Committees: None

Mr. Molchan’s full biographical information is provided below under the heading “Our Executive Officers.”

We believe that Mr. Molchan’s extensive experience and key roles at a number of other companies having attributes similar to the Company, enable him to assist in the effective management of the Company and make him well qualified to serve on our Board of Directors.


Michael A. Cunnion	Age: 50	Director since 2014
President and Chief Executive Officer, Remedy Health Media

Committees: Audit, Corporate Governance and Compensation (Chairman)

Mr. Cunnion has an extensive history of leadership roles at healthcare media and communication companies. Since September 2008, Mr. Cunnion has been Chief Executive Officer of Remedy Health Media, a privately held health media company. In addition, prior to that, from January 2004 to December 2007, Mr. Cunnion was the President of privately held HealthTalk, a leading provider of tools and information for chronically ill patients and caregivers. Mr. Cunnion successfully built this company and subsequently sold it to Revolution Health in December 2007. Subsequent to this sale, Mr. Cunnion took on the role of Executive Vice President of Revolution Health, where he oversaw revenue and sales strategy until Revolution Health merged with Everyday Health. Prior to HealthTalk, from December 1998 to December 2003, Mr. Cunnion held the role of Senior Director, Consumer Marketing at WebMD, where he led consumer sales strategy, product development and advertising operations. Mr. Cunnion currently serves on the board of directors of Health-e-Commerce, a healthcare e-commerce platform that simplifies healthcare purchasing for consumers, employers and benefit administrators. This is a post that he has held since 2011. Mr. Cunnion earned a B.A. degree in English from Florida State University.

We believe that Mr. Cunnion’s extensive experience with health care media companies, coupled with his experience with building up companies and creating ownership value are of significant strategic importance to us and make him well qualified to serve on our Board of Directors. His history of creating and leveraging collaborative relationships with the companies he has been part of to maximize value in both the continued organic growth and sale of such companies can be of great benefit to our stockholders.

111


John W. Sayward	Age: 69	Director since 2008
Retired Partner, Nippon Heart Hospital LLC

Committees: Audit (Chairman), Corporate Governance and Compensation

John W. Sayward is a career health care and pharmaceutical executive. Most recently, he served as Chief Executive Officer for Hera Therapeutics Inc., a position he held through June 2015. Prior to this, Mr. Sayward served as the Chief Operating Officer and Chief Financial Officer of Hera Therapeutics Inc. since September 2014. Previously, he was Partner at Nippon Heart Hospital, LLC from September 2005 to January 2007, which was formed to build and manage cardiovascular care hospitals in Japan. From 2002 to 2005, Mr. Sayward was the Executive Vice President and Chief Financial Officer of LMA North America Inc., a medical device business focused on patient airway management. From 1996 to 2001, Mr. Sayward served as the Executive Vice President of Finance, Chief Financial Officer and Treasurer of SICOR Inc., and was elected to its board of directors in 1998. Previous to the above, he served in various management positions with Baxter Healthcare. He received a B.A. in History from Northwestern University in 1973 and a Master of Management from the Kellogg School of Management at Northwestern University in 1975.

We believe that Mr. Sayward’s past experiences in the health care industry, both in medical devices and pharmaceuticals, makes him well qualified to serve on our Board of Directors. Further, Mr. Sayward’s depth and breadth of positions and experiences also makes him well qualified to serve as a financial expert and audit committee chairman.


Mitchell I. Quain	Age: 69	Director since 2019
Lead Director, Jason Incorporated

Committees: Audit, Corporate Governance and Compensation

Mr. Quain joined the board of the Company in January, 2019 and became lead independent director on January 1, 2021. He has served as a Senior Advisor to The Carlyle Group, L.P., a private equity firm, since December 2011. Mr. Quain is currently the Lead Director of Jason Incorporated , where he has served as a director since September 2015 and is a member of its Compensation Committee and its Corporate Governance and Nominating Committee. Mr. Quain has served a director of AstroNova, Inc. (NASDAQ: ALOT) since August 2011 and is the Chairman of its Compensation Committee and a member of its Audit and Nominating Committees. Previously, Mr. Quain served on the boards of RBC Bearings Incorporated (NASDAQ: ROLL) from September 2011 until September 2018, where he was a member of its Audit Committee; Hardinge, Inc. (NASDAQ: HDNG) from 2004 until May 2018, where he was lead outside director, Chairman of its Nominating and Governance Committee and a member of its Compensation Committee; Xerium Technologies, Inc. (NYSE: XRM) from April 2017 until October 2018, where he was a member of its Audit and Compensation Committees; Magnetek, Inc. (NASDAQ: MAG) from 1999 until September 2015, where he was Chairman of it board from October 2006 until September 2015 and a member of its Compensation, Audit and Retirement Plan Committees and Chairman of its Nominating and Corporate Governance Committee; and Tecumseh Products Company (NASDAQ: TECU) from October 2014 until September 2015, where he was a member of its Audit Committee and Governance and Nominating Committee. Mr. Quain also previously served on the boards of DeCrane Aircraft Holdings, Inc., Handy & Harman, Heico Corporation, Mechanical Dynamics, Inc., Titan International, Inc., and Register.com, Inc. From January 2010 through December 2011, Mr. Quain was a Partner at One Equity Partners, a private investment firm. From 2006 through 2009, he was a Senior Director of ACI Capital Corp. From 1997 to 2001 he was employed with ABN AMRO and its predecessors in several capacities, including Vice Chairman of Investment Banking. Mr. Quain has a Bachelor of Science degree in electrical engineering from the University of Pennsylvania and a Master of Business Administration degree from Harvard University. He is also a Chartered Financial Analyst.

Mr. Quain brings to the Board experience in public company governance and investment experience in small-cap and industrial companies, which gives him a valuable perspective in his role as a director. His qualifications to serve as a director also include his private equity investment experience.

112

Our Executive Officers

The names of our executive officers, their ages, their positions with the Company, and other biographical information are set forth below.

Name

Age

Position

Jeffrey E. Eberwein

Director, Executive Chairman of the Board

Matthew G. Molchan

President and Chief Executive Officer of Digirad Health, Inc., and Director

David J. Noble

Chief Financial Officer and Chief Operating Officer

Martin B. Shirley

President of Digirad Imaging Solutions

Jeffrey E. Eberwein. Mr. Eberwein’s full biographical information is provided above under the heading “Our Board of Directors.”

Matthew G. Molchan became President of Digirad Health, Inc., in October 2018 and a member of our Board of Directors on July 1, 2013. Effective January 1, 2021, Mr. Molchan assumed the additional position of Chief Executive Officer of Digirad Health, Inc. following his resignation as President and Chief Executive Officer of the Company, a position he held since July 1, 2013. In addition, Mr. Molchan served as our Interim Chief Financial Officer from April 10, 2018 until January 15, 2019. In connection with the Company’s investment in Perma-Fix Medical, S.A. (“Perma-Fix Medical”), a publicly traded company listed on the NewConnect market of the Warsaw Stock Exchange and a majority-owned subsidiary of Perma-Fix Environmental Services, Inc. (NASDAQ: PESI), Mr. Molchan was appointed to the Supervisory Board of Perma-Fix Medical in December 2015. From February 2013 to July 2013, Mr. Molchan held the position of President of the Company. He was previously President, Digirad Imaging Solutions, Inc. from January 2012 to June 2013. Prior to that, he was Chief Operating Officer of Digirad Ultrascan Solutions from May 2007 to January 2012. He joined Digirad Ultrascan Solutions upon the acquisition of Ultrascan, Inc. (“Ultrascan”) by us in May 2007. Prior to joining us, Mr. Molchan was the Chief Financial Officer for Ultrascan since he joined in 2003. Prior to Ultrascan, Mr. Molchan held various executive level business development, finance and operations positions at Somera, Inc. and Equifax, Inc. Mr. Molchan earned a B.S. degree in Economics from the United States Air Force Academy and an M.B.A. in finance from the University of Southern California.

David J. Noble became Chief Operating Officer of the Company on September 1, 2018 when he was hired to assist with the transformation of the Company from a healthcare company into a diversified, multi-industry holding company. The Chief Financial Officer title was added to his responsibilities on July 3, 2019 after he served as Interim Chief Financial Officer beginning January 15, 2019. Prior to joining the Company, Mr. Noble briefly served as Managing Member of Noble Point LLC, a business and financial advisory firm, from October 2017 to August 2018. For more than a decade, from July 2005 to September 2017, Mr. Noble was a senior investment banker at HSBC, serving as Managing Director & Head of HSBC’s Equity Capital Markets business in the Americas. Prior to joining HSBC, Mr. Noble held various senior roles within Equity Capital Markets at Lehman Brothers, both in the U.S. and overseas, from August 1997 to July 2005. In his 20-year career as an investment banker, Mr. Noble was involved in hundreds of equity transactions in many countries across a wide range of sectors, including healthcare, industrials, financial services, media, technology, and energy, among others. Mr. Noble earned a B.A. degree from Yale University in 1992 and an M.B.A. in Finance from MIT’s Sloan School of Management in 1997.

Martin B. Shirley became President, Digirad Imaging Solutions in January 2016. Previously, Mr. Shirley was Senior Vice President, Sales and Marketing, Digirad Imaging Solutions from January 2012 to January 2016; Vice President of Sales and Operations for Digirad Imaging Solutions from June 2010 to January 2012; and Vice President of Sales for Digirad Imaging Solutions from January 2008 to June 2010. Prior to this, he served in a variety of roles during his tenure with the Company, including National, Regional and Territory Sales Management positions in both the Digirad Imaging Solutions division and the Diagnostic Imaging division. Prior to joining the Company, Mr. Shirley has held various roles in medical imaging, including regional and territory sales positions at SMV America, a manufacturer of nuclear medicine equipment that was purchased by General Electric, and with Sopha Medical Systems. He holds an A.A. degree in both Nuclear Medicine Technology and an A.A. degree in Liberal Arts.

113

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act, requires the Company’s directors, executive officers, and holders of more than 10% of its common stock to file with the SEC reports regarding their ownership and changes in ownership of Digirad's securities. Based solely on our review of such reports or written representations from certain reporting persons, we believe that, during the fiscal year ended December 31, 2020 (“Fiscal 2020”), our officers, directors and 10% stockholders complied with all applicable Section 16(a) filing requirements applicable to such individuals, other than the inadvertent late filing of one Form 4 for Martin B. Shirley relating to three of nine reported transactions and one Form 4 for Matthew G. Molchan relating to three of nine reported transactions.

Code of Business Ethics and Conduct

We have established a Code of Business Ethics and Conduct (the “Ethics Code”) that applies to all our officers, directors, employees, and contractors. The Ethics Code contains general guidelines for conducting our business consistent with the highest standards of business ethics and compliance with applicable law, and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K. Day-to-day compliance with the Ethics Code is overseen by the Company compliance officer appointed by our Board of Directors. A copy of the Ethics Code can be found by clicking on the “Corporate Governance” link under the Investors tab on our website at http://www.starequity.com/home. If we make any substantive amendments to the Ethics Code or grant any waiver from a provision of the Code to any director or executive officer, we will promptly disclose the nature of the amendment or waiver on the Corporate Governance on our website. The contents of our website are not part of this Amended Report, and our internet address is included in this document as an inactive textual reference only.

Director Nominations

During Fiscal 2020, we made no material changes to the procedures by which stockholders may recommend nominees to our Board of Directors, as described in our most recent proxy statement.

Audit Committee

The Board has a separately designated Audit Committee of the Board of Directors (the “Audit Committee”) established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee consists of Messrs. Quain, Cunnion, and Sayward, with Mr. Sayward serving as chairman. All members of the Audit Committee are independent directors (as independence is defined in Rule 5605(a)(2) of the NASDAQ listing rules) and meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act. No member of the Audit Committee has participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years, and all members of the Audit Committee are able to read and understand fundamental financial statements.

Mr. Sayward qualifies as an “audit committee financial expert” as defined in the rules and regulations established by the Securities and Exchange Commission. The Audit Committee is governed by a written charter (the “Audit Committee Charter”) approved by our Board of Directors. A copy of the Audit Committee Charter can be found by clicking on the “Corporate Governance” link under the Investors tab on our website at https://www.starequity.com/investor-relations. Prior to his resignation on April 6, 2020, Mr. Climaco was a member of the Audit Committee and met the criteria for independence as set forth in the applicable Nasdaq rules and Rule 10A-3(b)(1) under the Exchange Act. Mr. Cunnion was appointed to the Audit Committee following Mr. Climaco’s resignation.

114

ITEM 11.EXECUTIVE COMPENSATION

Summary Compensation Table

The following table provides information regarding the compensation earned during the fiscal years ended December 31, 2020 and 2019 by our principal executive officer and our two other most highly compensated executive officers (the “named executive officers”) who were serving as executive officers as of December 31, 2020.


Name and Principal Position	Year	Salary ($) (1)	Bonus ($) (2)	Stock Awards ($) (3)	Nonequity Incentive Plan Compensation ($)(4)	All Other Compensation ($) (5)	Total ($)
Matthew G. Molchan	2020	405,619	—	—	—	3,500	409,119
President, Chief Executive Officer of Digirad Health*	2019	416,797	—	103,800	285,662	3,500	809,759

David J. Noble	2020	293,077	150,000	—	—	3,500	446,577
Chief Financial Officer and Chief Operating Officer	2019	301,154	—	200,000	191,114	3,500	695,768

Martin B. Shirley	2020	254,000	65,000	—	—	3,500	322,500
President, Diagnostic Imaging Solutions	2019	261,000	—	65,000	165,632	1,303	492,935

__________________

*Mr. Molchan resigned from his positions as President and Chief Executive Officer of the Company effective January 1, 2021, and assumed the additional position of Chief Executive Officer of Digirad Health Inc. effective that same day. Effective January 1, 2021, Mr. Eberwein assumed the position of Executive Chairman of the Board and as such became the Company’s principal executive officer.

(1)The base salary for each executive is initially established through negotiation at the time the executive is hired, taking into account his or her scope of responsibilities, qualifications, experience, prior salary, and competitive salary information within our industry. Year-to-year adjustments to each executive officer’s base salary are determined by an assessment of his or her sustained performance against individual goals, including leadership skills and the achievement of high ethical standards, the individual’s impact on our business and financial results, current salary in relation to the salary range designated for the job, experience, demonstrated potential for advancement, and an assessment against base salaries paid to executives for comparable jobs in the marketplace. Based on the factors discussed above, 2020 base salaries were: Mr. Molchan’s 2020 base salary was initially set at $415,200 from his last adjustment in February 2017, with a 20% reduction from April 6, 2020 to May 15, 2020, the total for 2020 was $405,619; Mr. Shirley’s 2020 base salary was initially set at $260,000 from his last adjustment in February 2017, with a 20% reduction from April 6, 2020 to May 15, 2020, the total for 2020 was $254,000; Mr. Noble’s 2020 base salary was set at $300,000, which represented no change from his 2018 base salary; with a 20% reduction from April 6, 2020 to May 15, 2020, the total for 2020 was $293,077. The differences between base and actual salary are due to pay period timing differences at year end.

(2)The 2020 Executive Incentive Plan for fiscal year ended December 31, 2020 (the “2020 Annual Plan”), which provides for discretionary bonuses, is described below in the Narrative Disclosure to Summary Compensation Table.

(3)Represents full fair value at grant date of restricted stock units (“RSUs”), including the PSUs described below, representing the right to receive, at settlement, common stock of the Company, granted to our named executive officers, computed in accordance with FASB ASC Topic 718, Stock Compensation. The full grant date fair value of an equity award is the maximum value that may be received over the vesting period if all vesting conditions are satisfied, as discussed further below. Thus, there is no assurance that the value, if any, eventually received by our executive officers will correspond to the amount shown. For information regarding assumptions made in connection with this valuation, please see Note 13. Share-Based Compensation to our accompanying consolidated financial statements.

115

(4)Represents the stock awards granted in 2019 as part of the Company’s executive incentive plan for that year (described below), were RSUs with performance conditions (PSUs), which vest ratably over two years subject to continued employment and achievement of the performance conditions for 2019 as determined by the Compensation Committee. No stock awards with performance conditions were granted in 2020 as part of the Company’s executive incentive plan for that year. The performance conditions for the 2019 PSUs were achieved at 100% of the Board approved budgeted EBITDA, excluding certain predetermined items, for the year ended December 31, 2019 and 2020, and the 2019 PSUs vested accordingly. The performance metrics for the 2019 performance period, and a grant date fair value for those tranches of the awards, were established by the Board and Compensation Committee on April 30, 2019. As of the grant date, the Company believed that it was probable that the performance criteria would be met and that each individual would remain employed through the date the grant would become fully vested by its terms, and accordingly, the full value of the awards as of the grant date has been included in the table above in accordance with FASB ASC 718. The performance conditions for 2019 were met. As such, the grant date fair values of the 2019 PSU awards were $0.1 million, and $0.07 million for Mr. Molchan and Mr. Shirley, respectively. The amount of PSUs vests in 2020 totaled 11,580 units. The RSU grant to Mr. Noble was made according to the terms of the Noble Employment Agreement (described below). The Company did not grant any stock awards to its named executive officers in 2020.

(5)Represents amounts earned under the Executive Incentive Plans of the Company with performance targets.

(6)Amounts shown for 2020 and 2019 include up to $2,500 matching contributions to the officers’ 401(k) retirement plans and up to $1,000 seed contribution to the executive’s Health Saving Account plans.

Narrative Disclosure to Summary Compensation Table.

Base Salary. The base salary for each executive is initially established through negotiation at the time the executive is hired, taking into account his or her scope of responsibilities, qualifications, experience, prior salary, and competitive salary information within the industry. Year-to-year adjustments to each executive officer’s base salary are determined by an assessment of his or her sustained performance against individual goals, including leadership skills and the achievement of high ethical standards, the individual’s impact on the Company’s business and financial results, current salary in relation to the salary range designated for the job, experience, demonstrated potential for advancement, and an assessment against base salaries paid to executives for comparable jobs in the marketplace.

When determining the base salary component of executive compensation for 2020, the Compensation Committee considered the achievements of the executives in 2019 based on actual financial performance of the business and achievement of the goals set by the Board of Directors for the individual executive, the fiscal 2020 budget and financial performance expectations, the totality of all compensation components. After due consideration, the Compensation Committee set compensation as reflected in the Summary Compensation Table above.

Annual Incentive Bonus. Payments under the Company’s executive bonus plan are based on achieving clearly defined, short-term goals, with the 2020 Annual Plan (described below) being the exception because it only provided for discretionary bonuses. We believe that such bonuses provide incentive to achieve goals that the Company aligns with its stockholders’ interests by measuring the achievement of these goals, whenever possible, in terms of revenue, income or other financial objectives. In setting bonus levels, the Company reviews its annual business plan and financial performance objectives. After estimating the likely financial results of the business plan as submitted by management and approved by the Board of Directors, the Company sets financial threshold goals based on those estimated results primarily in terms of EBITDA. The Company sets the minimum performance thresholds that must be reached before any bonus is paid at levels that will take significant effort and skill to achieve. An executive officer’s failure to meet some or all of these personal goals can affect his or her bonus amount. The Company believes that offering significant potential income in the form of bonuses allows the Company to attract and retain executives and to align their interests with those of the Company’s stockholders.

116

Fiscal Year 2020.

Due to the unprecedented and unpredictable nature of the COVID-19 pandemic, the Company’s executive team was pushed to new limits and was compelled to be creative, flexible, thoughtful, proactive and diligent in implementing decisions regarding the best way to meet the needs and expectations of our customers, our employees and our vendors, and our traditional bonus measures did not encompass or reward the effort being put forth during the pandemic. As a result, the 2020 Annual Plan was made 100% discretionary and based on subjective objectives to be determined by the Board. The actual cash bonuses payable (if any) for the achievement of such objectives was determined by the Compensation Committee.

The cash bonus amounts under the 2020 Annual Plan were as follows.


Name and Principal Position*	Percentage of Base Salary		Bonus Payout

David J. Noble, Chief Financial Officer and Chief Operating Officer	50	%	$	150,000
Martin B. Shirley, President, Digirad Imaging Solutions	25	%	$	65,000

*Mr. Molchan did not receive a discretionary cash bonus under the 2020 Annual Plan.

Equity Grants

The Company did not grant any stock awards to its named executive officers in 2020.

In connection with the adoption of the 2019 Executive Incentive Plan for fiscal year ended December 31, 2019 (the “2019 Annual Plan”), the Compensation Committee determined that, as part of a long-term retention mechanism and to incentivize the executive officers to increase the Company’s shareholder value, the following RSUs were awarded effective on May 15, 2019 (the “2019 Grant Date”), to Messrs. Molchan, Noble, and Shirley.

The RSUs granted to Messrs. Molchan and Shirley vest over two years in two equal installments, with each such installment vesting on each anniversary of the 2019 Grant Date, subject to satisfaction of certain 2019 performance criteria objectives. Each RSU grant to Messrs. Molchan and Shirley was made pursuant to and subject to the terms of the 2019 Annual Plan, the Company’s 2018 Incentive Plan, and the respective award agreement that sets forth the terms of the grant.

The RSU grant to Mr. Noble was made according to the terms of the Noble Employment Agreement (described below) and under the Company’s 2018 Incentive Plan. Mr. Noble’s RSU grant vests in three equal tranches. Mr. Noble did not receive an equity grants under the 2019 Annual Plan.


Name and Principal Position	Cash Value of the Restricted Stock Units Granted
Matthew G. Molchan, President and Chief Executive Officer of Digirad Health	$	103,800
David J. Noble, Chief Financial Officer and Chief Operating Officer	200,000
Martin B. Shirley, President, Digirad Imaging Solutions	65,000

Other Compensation

The Company currently maintains benefits for executive officers, that include medical, dental, vision and life insurance coverage and the ability to contribute to a 401(k) retirement plan; however, the Compensation Committee in its discretion may revise, amend or add to the officer's executive benefits if it deems it advisable. The benefits currently available to the executive officers are also available to other employees.

Outstanding Equity Awards at Fiscal Year-End

The following table presents the outstanding equity awards held by each of the named executive officers as of the fiscal year ended December 31, 2020, including the value of the stock awards.

117


Name			Option Awards				Stock Awards
	Grant Date		Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)	Option Expiration Date	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Matthew G. Molchan	5/15/2019	(5)	—	—	—	—	7,120	25,561
	2/28/2018	(4)	—	—	—	—	2,655	9,531
	2/28/2017	(3)	—	—	—	—	1,049	3,766
	2/1/2016	(2)	4,131	—	51.20	02/01/2026	—	—
	1/29/2014	(1)	11,000	—	35.50	01/29/2021	—	—

David J. Noble	05/15/2019	(6)	—	—	—	—	9,146	32,834

Martin B. Shirley	5/15/2019	(5)	—	—	—	—	4,459	16,008
	2/28/2018	(4)	—	—	—	—	700	2,513
	2/28/2017	(3)	—	—	—	—	277	994
	2/1/2016	(2)	906	—	51.20	02/01/2026	—	—
	1/29/2014	(1)	4,000	—	35.50	01/29/2021	—	—

____________________

(1)33 1/3% of the total number of shares subject to option vested on the first anniversary of the grant date, and the remaining shares vested quarterly over 24 months.

(2)Scheduled to vest as to 25% of the units on each of February 1, 2017, February 1, 2018, February 1, 2019, and February 1, 2020, with vesting of 50% of each such Restricted Stock Unit tranche to be further subject to the satisfaction of certain performance criteria to be determined and approved by the Compensation Committee with respect to each such period. These units are shown net of 50% of the performance-based units that were deemed not to be earned and were canceled as of December 31, 2018.

(3)25% of the units vested on each of February 28, 2018, February 28, 2019, February 28, 2020 and February 28, 2021.

(4)25% of the units vested on each of February 1, 2019, February 1, 2020 and February 1, 2021, with the remaining shares to February 1, 2022.

(5)50% of the Restricted Stock Units vested on May 15, 2020 with the remaining shares to vest 50% on May 15, 2021, with vesting of 50% of each such Restricted Stock Unit tranche subject to the satisfaction of certain performance criteria to be determined and approved by the Compensation Committee with respect to each such period.

(6)66 2/3% of the units were vested as of May 15, 2020, with the remaining one third tranche of 33 1/3% of the units to vest on May 15, 2021.

118

Potential Payments Upon Termination or Change of Control

Matthew G. Molchan

On May 1, 2007, the Company entered into an employment agreement with Mr. Molchan, which agreement was amended on September 30, 2010 (as amended, the “Molchan Employment Agreement”).

Pursuant to the Molchan Employment Agreement, Mr. Molchan can be terminated for “cause” or without “cause.” Under the Molchan Employment Agreement, termination for “cause” generally means the termination of Mr. Molchan’s employment by reason of: (i) willful misconduct or gross negligence in the performance of duties in the employment agreement; (ii) willful failure or refusal to perform in the usual manner at the usual time those duties which he regularly and routinely performs in connection with the Company’s business or such other duties reasonably related to the capacity in which he is employed which may be assigned to him if such failure or refusal has not been substantially cured; (iii) performance of any material action when specifically and reasonably instructed not to do; (iv) engaging or in any manner participating in any activity which is directly competitive with or intentionally injurious to the Company; (v) commission of any fraud, or unauthorized use or appropriation for his personal use or benefit of any funds, properties or opportunities of the Company; (vii) willful or grossly negligent violation of the Code of Ethics of the Company. Termination without “cause” means the termination of Mr. Molchan’s employment without “cause” at any time without liability for any reason not specified as a termination for “cause” upon not less than thirty (30) days written notice to Mr. Molchan.

Accordingly, if Mr. Molchan is terminated for “cause” before the last day of any calendar month, he would be entitled to receive compensation for such calendar month at his then current salary prorated to the date of termination on the basis of a 30-day calendar month. He would not be entitled to receive any severance payment. If Mr. Molchan is terminated without “cause,” he would be entitled to receive (i) his then current salary and the prorated amount of any accrued but unpaid performance bonus up to and including the date of termination, and (ii) a severance payment equal to six months of his then current salary.

If Mr. Molchan’s employment was terminated without “cause” as of December 31, 2020, Mr. Molchan would be entitled to receive $290,640.

Equity awards that would have vested upon termination or change of control at December 31, 2020, are described below under the heading “Equity Awards.”

David J. Noble

On October 31, 2018, the Company entered into an employment agreement with David J. Noble (the “Noble Employment Agreement”).

Pursuant to the Noble Employment Agreement, Mr. Noble can be terminated for “cause,” upon death, upon disability and without “cause.” Under the Noble Employment Agreement, termination for “cause” generally means the termination of Mr. Noble’s employment by reason of: (A) the willful failure of Mr. Noble to perform his duties and obligations in any material respect (other than any failure resulting from his disability), (B) intentional acts of dishonesty or willful misconduct by Mr. Noble with respect to the Company, (C) arrest or conviction of a felony or violation of any law involving dishonesty, disloyalty, moral turpitude, or fraud, or entry of a plea of guilty or nolo contendere to such charge, (D) Mr. Noble’s commission at any time of any act of fraud, embezzlement or willful misappropriation of material Company property, (E) repeated refusal to perform the reasonable and legal instructions of the Board, (F) willful and material breach of his obligations under any material agreement entered into between Mr. Noble and the Company or any of its affiliates, or willful and material breach of the Company’s polices or procedures which causes material damage to the Company, its business or reputation, provided that for subsections (A), (E), and (F), if the breach reasonably may be cured, Mr. Noble has been given at least thirty (30) days after his receipt of written notice of such breach from the Company to cure such breach. Termination without “cause” means termination for any reason other than death, disability, for “cause,” or for no reason at all, upon sixty (60) days’ written notice.

119

The Noble Employment Agreement provides for termination of Mr. Noble’s employment upon his election by voluntary resignation or termination for good reason. Termination by voluntary resignation means Mr. Noble can terminate his employment with the Company at any time and for any reason whatsoever or for no reason at all in his sole discretion upon giving sixty (60) days’ written notice. A termination for good reason means Mr. Noble can terminate his employment with the Company pursuant to the occurrence of any of the following events: (i) any material diminution in his authority, duties and responsibilities, (ii) any material reduction of his base salary, aggregate incentive compensation opportunities or aggregate benefits, unless such changes are applied to all members of the Company’s leadership team and amount to less than a 10% reduction in total, or (iii) a material breach by the Company of the Noble Employment Agreement. In addition, either the Company or Mr. Noble can deliver to the other party a written notice of non-renewal at least sixty (60) days prior to the applicable renewal date of the Noble Employment Agreement.

In the event Mr. Noble voluntarily resigns, is terminated for “cause,” is terminated upon death, or is terminated upon disability, he would be entitled to receive: (i) his then current salary accrued up to and including the date of termination or resignation, (ii) unreimbursed expenses, and (iii) any vested payment or accrued benefits under any equity or Company benefit plan (the “Accrued Obligations”). In March 2021, Mr. Noble agreed by letter that all future RSU awards under the Noble Employment Agreement would vest one-third on each of the first, second and third anniversaries of the grant date.

In the event Mr. Noble terminates his employment for good reason, his employment is terminated without “cause,” or his employment is terminated by delivery of a non-renewal notice by the Company, he would be entitled to receive: (i) the Accrued Obligations (described above), (ii) a target bonus based on the target bonus metrics used to determine actual performance at the end of the fiscal year, but prorated to reflect the number of full months worked during the fiscal year, (iii) immediate vesting of any RSUs awarded under the Noble Employment Agreement for which the performance period has not been completed as of the date of termination based on the level of achievement of the performance goals at the end of the performance period, but pro-rated based on the number of full months worked during the performance period, and (iv) immediate vesting of any RSUs awarded under the Noble Employment Agreement which are outstanding as of the date of termination. Notwithstanding the foregoing, if within twelve (12) months following a change of control (as defined in the Noble Employment Agreement), the Company terminates Mr. Noble’s employment without “cause,” he resigns from his employment with good reason, or his employment terminates due to Company’s delivery of a non-renewal notice, then the bonus payment under (ii) above shall equal the equivalent of his target bonus without proration and, in addition to (iii) and (iv) above, he shall receive (v) twelve months of his then-current base salary.

If Mr. Noble’s employment was terminated without “cause” as of December 31, 2020, he would have been entitled to receive: (i) a cash payment in the amount of $4,615, (ii) and immediate vesting of equity awards described below under the heading “Equity Awards.”

If Mr. Noble’s employment was terminated in connection with a change of control as of December 31, 2020, he would have been entitled to receive: (i) a cash payment in the amount of $300,000, (ii) and immediate vesting of equity awards described below under the heading “Equity Awards.”

Martin B. Shirley

On January 28, 2014, the Company entered into a severance agreement with Martin B. Shirley (the “Shirley Severance Agreement”). In the event his employment with the Company is terminated without “cause” (as defined below), he would receive a severance payment in an amount equal to six months of his base salary as in effect immediately prior to his termination date. In the event Mr. Shirley’s employment with the Company is terminated for “cause” or if he voluntarily terminates his employment with the Company, he will not be entitled to receive a severance payment. Assuming that Mr. Shirley’s employment was terminated without “cause” as of December 31, 2020, he would have been entitled to receive severance payments of $130,000.

Under the Shirley Severance Agreement, “cause” generally includes the occurrence of any of the following events: (i) the willful and deliberate failure to perform assigned duties or responsibilities to the Company or the lawful directions of his supervisor after notice from the Company describing his failure to perform such duties or responsibilities and a reasonable time to cure such failure; (ii) engaging in any act of dishonesty, fraud or misrepresentation in connection with his duties; (iii) a willful act constituting gross misconduct that is materially injurious to the Company; (iv) any act of embezzlement against the Company; (v) the breach of any confidentiality agreement or invention assignment agreement or any other written agreement with the Company; or (vi) his indictment for or conviction of, or entering a plea of nolo contendere to, a felony.

Equity awards that would have vested upon termination or change of control at December 31, 2020, are described below under the heading “Equity Awards.”

120

Equity Awards

The equity agreements of our named executive officers provide that, in case of a change of control of the Company, all equity instruments then outstanding but neither assumed nor replaced by the successor entity shall vest immediately upon the change of control event. Further, if an executive’s employment is terminated without cause within twelve (12) months of the change of control, all equity instruments then outstanding, either assumed or replaced, shall become fully vested at the time of termination. As of December 31, 2020, the value of the equity instruments of our named executive officers that would accelerate upon (i) termination without cause within twelve (12) months of a change of control in which stock options and restricted stock units are assumed or replaced by the successor entity, or (ii) a change of control in which the outstanding stock options and restricted stock units are neither assumed or replaced by the successor entity, would be as follows based on the difference between the closing price on the last trading day of the year of $3.59 per share and the exercise price of the respective options, and with regard to restricted stock units, based solely on the closing price on the last trading day of the year of $3.59:


Name	Option Value as of December 31, 2020		Stock Award Value as of December 31, 2020
Matthew G. Molchan	$	—	$	38,858
David J. Noble	—		32,834
Martin B. Shirley	—		19,515

COMPENSATION OF DIRECTORS

Annual Retainer

Non-employee members of our Board of Directors are paid an annual retainer for their service, with additional compensation for being the chairperson of the Board, serving on a committee of the Board of Directors and chairing a committee of the Board of Directors. Payments are made quarterly.

The compensation paid to the members of the Board of Directors is indicated in the chart below:


2020 Director Cash Compensation
(1) Director Annual Retainer (all)	$	36,000
Additional Annual Retainer to Chairperson	$	15,000
Additional Annual Retainer to Audit Committee Chairperson	$	14,500
Additional Annual Retainer to Compensation Committee Chairperson	$	5,000
Additional Annual Retainer to Corporate Governance Committee Chairperson	$	5,000
(2) Additional Annual Retainer to Strategic Advisory Committee Chairperson	$	5,000
Additional Annual Retainer to Audit Committee Member	$	4,000
Additional Annual Retainer to Compensation Committee Member	$	4,000
Additional Annual Retainer to Corporate Governance Committee Member	$	4,000
(2) Additional Annual Retainer to Strategic Advisory Committee Member	$	4,000

(1)In April 2020, the Board of Directors elected to receive, all future payments of annual retainer amounts in Company RSUs in lieu of cash, the “Retainer Awards”. All other committee payments, committee chairmanship fees and Board chairmanship fees continue to be paid in cash for the remainder of 2020. In March 2021, the Compensation Committee of the Board elected that all directors receive all committee related compensation in the form RSUs, unless the director makes a timely one-time election to receive cash for the applicable year.

(2)The Strategic Advisory Committee was dissolved in April 2020.

For the sake of clarity, in fiscal year ended December 31, 2020, each of the Audit Committee, the Compensation Committee, the Corporate Governance Committee, and the Strategic Advisory Committee chairpersons only received an amount equal to the chairperson fee set forth in the table above and not the chairperson fee plus the member fee.

The single employee director of our Board of Directors, Mr. Molchan, the President and Chief Executive Officer of Digirad Health and our former President and Chief Executive Officer, does not receive additional compensation for his service on our Board of Directors.

121

Equity Compensation

Equity compensation awards, and the amount of such awards, to non-employee members of our Board are at the discretion of the Compensation Committee of our Board. Historically, such awards have been in the form of RSUs and the Compensation Committee generally set the amount of those awards at a fair market value equal to the annual cash retainer received by non-employee members of our Board. In April, 2020, the Compensation Committee approved the Board’s transition from quarterly cash retainer payments to quarterly equity awards for non-employee directors. In August, 2020, the Compensation Committee approved increasing the annual grant from 1,250 RSUs to 12,000 RSUs, with cliff vesting of one year from Grant Date, subject to the recipient continuing to be a service provider through vesting date and subject to Board approval of such grant. We believe that equity compensation helps to further align the interests of our directors with those of our stockholders because the value of directors’ share ownership will rise and fall with that of our other stockholders. In March 2021, the Compensation Committee of the Board elected to end the separate annual equity awards described above and to instead increase the size of the Retainer Awards to quarterly awards of RSUs having a fair market value (as defined in the 2018 Plan) of $18,000 each.

Director Compensation Table

The following table sets forth summary information concerning compensation paid or accrued for services rendered to us in all capacities to the non-employee members of our Board of Directors for the fiscal year ended December 31, 2020.


	Fees Paid in Cash ($)		Stock Awards $ (5)		All Other Compensation ($)	Total ($)
Jeffrey E. Eberwein	$	27,333	$	60,718	—	$	88,051
Dimitrios J. Angelis (1)	17,250		9,000		—	26,250
John M. Climaco (2)	11,250		—		—	11,250
Michael A. Cunnion (3)	19,667		60,718		—	80,385
John W. Sayward (4)	29,167		60,718		—	89,885
Mitchell I. Quain	20,083		60,718		—	80,801

____________________

(1)Mr. Angelis did not standing for re-election to the Board of Directors at the Annual Meeting of Stockholders held on July 31, 2020 (the “2020 Annual Meeting”), and ceased to be a member of the Board on such date.

(2)On April 6, 2020, Mr. Climaco resigned from the Board of Directors of the Company and all committees of the Board of Directors effective as of such date.

(3)Mr. Cunnion holds, in addition to the stock awards noted in the table, outstanding options to purchase an aggregate of 8,000 shares of our common stock at December 31, 2020.

(4)Mr. Sayward holds, in addition to the stock awards noted in the table, outstanding options to purchase an aggregate of 6,000 shares of our common stock at December 31, 2020.

(5)Represents full fair value at grant date of restricted stock units granted to our directors, computed in accordance with FASB ASC Topic 718.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information as of February 22, 2021 regarding the beneficial ownership of our common stock by (i) each person we know to be the beneficial owner of 5% or more of our common stock, (ii) each of our current executive officers, (iii) each of our directors, and (iv) all of our current executive officers and directors as a group. Information with respect to beneficial ownership has been furnished by each director, executive officer or 5% or more stockholder, as the case may be. The address for all executive officers and directors is c/o Star Equity Holdings, Inc., 53 Forest Avenue Suite 101, Old Greenwich, CT 06870.

122

Percentage of beneficial ownership is calculated based on 4,922,027 shares of common stock outstanding as of February 22, 2021. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission which generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and includes shares of our common stock issuable pursuant to the exercise of stock options, warrants or other securities that are immediately exercisable or convertible or exercisable or convertible within 60 days of February 22, 2021. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them.


Name and Address of Beneficial Owner	Number of Shares Beneficially Owned	Percent of Shares Beneficially Owned
5% Stockholders:
None


Named Executive Officers and Directors:
Jeffrey E. Eberwein (1)	179,213	3.64%
Matthew G. Molchan (2)	46,242	*
John W. Sayward (3)	26,699	*
Michael A. Cunnion (4)	26,797	*
Mitchell I. Quain (5)	59,528	1.21%
David J. Noble (6)	60,478	1.23%
Marty B. Shirley (7)	11,802	*
All Executive Officers and Directors as a group (7 persons)(8)	410,759	8.21%

____________________

* Indicates beneficial ownership of less than 1% of the outstanding common stock

(1)Includes (a) 157,213 shares of common stock held by Mr. Eberwein, and (b) 22,000 shares of common stock underlying the warrants exercisable within 60 days of February 22, 2021.

(2)Includes (a) 15,131 shares of common stock subject to options exercisable within 60 days of February 22, 2021, (b) 2,376 RSUs vesting within 60 days of February 22, 2021, (c) 27,735 shares of common stock held by Mr. Molchan, and (d) 1,000 shares of common stock underlying the warrants exercisable within 60 days of February 22, 2021.

(3)Includes (a) 6,000 shares of common stock subject to options exercisable within 60 days of February 22, 2021 and (b) 20,699 shares of common stock held by Mr. Sayward.

(4)Includes (a) 8,000 shares of common stock subject to options exercisable within 60 days of February 22, 2021, (b) 16,297 shares of common stock held by Mr. Cunnion, (c) 2,500 shares of common stock underlying the warrants exercisable within 60 days of February 22, 2021.

(5)Includes (a) 11,000 shares of common stock underlying the warrants exercisable within 60 days of February 22, 2021, and (b) 48,528 shares of common stock held by Mr. Quain.

(6)Includes (a) 50,478 shares of common stock held by Mr. Noble and (b) 10,000 shares underlying warrants exercisable within 60 days of February 22, 2021.

(7)Includes (a) 4,906 shares of common stock subject to options exercisable within 60 days of February 22, 2021, (b) 626 RSUs vesting within 60 days of February 22, 2021, and (c) 6,270 shares of common stock held by Mr. Shirley.

(8)Includes (a) 34,037 shares of common stock subject to options exercisable within 60 days of February 22, 2021, (b) 3,002 RSUs vesting within 60 days of February 22, 2021, and (c) 327,220 shares of common stock held by our 7 executive officers and directors.

123

Securities Authorized for Issuance Under Equity Compensation Plans


	Equity Compensation Plan Information
	As of December 31, 2020
	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants, and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a))
Plan Category	(a)		(b) (2)		(c)
Equity compensation plans approved by security holders	116,013	(1)	$	20.93	368,334	(3)
Equity compensation plans not approved by security holders	—		—		—
Total	116,013		$	20.93	368,334

____________________

(1)This amount includes the following:

•35,371 shares issuable upon the exercise of outstanding stock options under the Company’s 2004 Stock Incentive 7 Year Plan, the 2004 Stock Incentive Plan, and the 2014 Equity Incentive Award Plan (the “2014 Incentive Plan”), with a weighted-average exercise price of $36.83.

•47,317 RSUs granted under the 2014 Incentive Plan and 2018 Incentive Plan.

•33,325 PSUs granted under the 2018 Incentive Plan. Outstanding performance-based PSUs met the target in 2019.

(2)The 2014 Incentive Plan and 2018 Incentive Plan RSUs and PSUs have been excluded from the computation of the weighted-average exercise price since these awards have no exercise price.

(3)This amount represents the number of shares available for issuance pursuant to stock options and other awards that could be granted in the future under the 2018 Incentive Plan, as amended July 31, 2020 in order to increase the number of shares authorized for issuance thereunder. The 2018 Incentive Plan allows for issuance of up to the sum of (i) 450,000 shares, plus (ii) the number of shares of common stock of the Company which remain available for grants of options or other awards under the 2014 Incentive Plan as of April 27, 2018, plus (iii) the number of shares that, after April 27, 2018, would again become available for issuance pursuant to the reserved share replenishment provisions of the 2014 Incentive Plan as a result of, stock options issued thereunder expiring or becoming unexercisable for any reason before being exercised in full, or, as a result of restricted stock being forfeited to the Company or repurchased by the Company pursuant to the terms of the agreements governing such shares (the shares described in clauses (ii) and (iii) of this sentence, the “Carryover Shares”). As of December 31, 2020, there were 59,620 Carryover Shares.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Eberwein Guarantees

SNB

124

Gerber

On February 26, 2021, the Third Star Amendment discharged the $2.5 million Gerber Eberwein Guaranty.

Premier

As a condition to the Premier Loan Agreement, Mr. Eberwein entered into a guaranty in favor of Premier, absolutely and unconditionally guaranteeing all of the borrowers’ obligations thereunder.

Eberwein Premier Participation

ATRM

Jeffrey E. Eberwein, the Executive Chairman of our board of directors is also the Chief Executive Officer of Lone Star Value Management, LLC (“LSVM”), which is the investment manager of Lone Star Value Investors, LP (“LSVI”) and Lone Star Value Co-Invest I, LP (“LSV Co-Invest I”). Mr. Eberwein is also the sole manager of Lone Star Value Investors GP, LLC (“LSV GP”), the general partner of LSVI and LSV Co-Invest I, and is the sole owner of LSV Co-Invest I. LSVM was a wholly owned subsidiary of ATRM on the ATRM Acquisition Date (see Acquisition of LSVM below). Prior to the closing of the ATRM Merger, Mr. Eberwein was also Chairman of the board of directors of ATRM. On October 25, 2019, ATRM distributed its interest in LSVM to Star Equity, resulting in LSVM becoming a wholly owned direct subsidiary of Star Equity.

125

Private Placement

Put Option Agreement

ATRM Notes Payable

ATRM has the following related party promissory notes (the “ATRM Notes”) outstanding:

126

Subordination Agreement

Acquisition of LSVM

Financial Assistance

Joint Venture

127

As of December 31, 2020, and upon the completion of the ATRM Merger, Star Procurement became wholly owned subsidiary of the Company.

Acquisitions and Leases of Maine Facilities

Waterford

Paris

Lease of Maine Facilities

As of September 10, 2019 and upon the completion of the ATRM Merger, the Waterford Lease, the Park Lease and the Oxford Lease are treated as intercompany transactions and eliminated in consolidation.

128

Director Independence

The Board has determined that each of Michael Cunnion, John Sayward and Mitchell Quain, a majority of the Board, satisfy the criteria for being an “independent director” under the independence standards of Nasdaq (as currently defined in Rule 5605(a)(2) of the NASDAQ rules) and has no material relationship with the Company other than by virtue of his service on the Board. Dimitrios Angelis, who served on the Board until the 2020 Annual Meeting, and John Climaco, who served on the Board until April 6, 2020, both satisfied the criteria for being an “independent director” under the independence standards of Nasdaq. In determining the independence of our directors, the Board of Directors considered all transactions in which the Company and any director had any interest, including those discussed above. The independent directors meet as often as necessary to fulfill their responsibilities, including meeting at least twice annually in executive session without the presence of non-independent directors and management. A full list of directors is set forth above under “ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE – Our Board of Directors.”

The Audit Committee of the Board, established in accordance with Section 3(a)(58)(A) of the Exchange Act, currently consists of Messrs. Quain, Cunnion, and Sayward, with Mr. Sayward serving as chairman. All members of the Audit Committee are independent directors as defined in Rule 5605(a)(2) of the NASDAQ listing rules and Rule 10A-3 under the Exchange Act, and no member of the Audit Committee participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years. Prior to his resignation form the Board of Directors on April 6, 2020, Mr. Climaco served on the Audit Committee and was an independent director as defined in applicable Nasdaq rules and Rule 10A-3. Mr. Cunnion was appointed to the Audit Committee following Mr. Climaco’s resignation.

The Compensation Committee currently consists of Messrs. Quain, Sayward and Cunnion, with Mr. Cunnion serving as chairman. All members of the Compensation Committee are independent directors as determined in accordance with the Compensation Committee charter and applicable Nasdaq listing rules (Rule 5605(a)(2) of the NASDAQ listing rules). Prior to the expiration of his term as a director, Mr. Angelis served on the Compensation Committee and was an independent director as determined in accordance with the Compensation Committee charter and applicable Nasdaq listing rules.

The Corporate Governance Committee currently consists of Messrs. Cunnion, Sayward and Quain, with Mr. Quain serving as chairman. All members of the Corporate Governance Committee are independent directors (as defined in Rule 5605(a)(2) of the NASDAQ listing rules). Mr. Eberwein, who served on the Corporate Governance Committee until July 21, 2020, was determined by the Board on April 17, 2020, to no longer be independent under the Nasdaq listing rules. Nasdaq Rule 5605(e)(3) permits one non-independent director to serve on the Corporate Governance Committee for a period of up to two years if the Board of Directors has determined that it is in the best interests of the Company and its shareholders. Our Board of Directors has determined that it is in the best interests of the Company and its shareholders for Mr. Eberwein to serve on the Corporate Governance Committee due to his finance expertise, extensive contacts and longtime experience with the Company. Prior to the expiration of his term as a director, Mr. Angelis served on the Corporate Governance Committee and was an independent director as determined in accordance with the applicable Nasdaq listing rules.

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

Principal Accounting Fees

In connection with the audit of the 2020 consolidated financial statements, we entered into an engagement agreement with BDO USA, LLP (“BDO”) which sets forth the terms by which BDO has performed audit and related professional services for us.

The following table sets forth the aggregate accounting fees paid by us to BDO for the past two fiscal years ended December 31, 2020 and 2019. The below fees were paid to BDO ; no other accounting firm was retained to perform the identified accounting work for us. All non-audit related services in the table were pre-approved and/or ratified by the Audit Committee of our Board of Directors.

129


	For the years ended December 31
Type of Fee	2020		2019
	(in thousands)
Audit Fees	$	733	$	786
Audit Related Fees	—		—
Tax Fees	311		139
All Other Fees	—		—
Totals	$	1,044	$	925

Types of Fees Explanation

Audit Fees. Audit fees were incurred for accounting services rendered for the audit of our annual consolidated financial statements and reviews of quarterly consolidated financial statements.

Audit-Related Fees. These fees relate to professional services not included in the Audit Fees category and include professional services related to entering into other advisory services. There were no Audit-Related Fees billed for fiscal years ended December 31, 2020 and 2019.

Tax Fees. These fees were billed to us for professional services relating to tax compliance, tax advice and tax planning.

All Other Fees. There were no other fees billed by BDO for the years 2020 and 2019 for products and services.

Audit Committee Pre-Approval of Services by Independent Registered Public Accounting Firm

The Audit Committee is granted the authority and responsibility under its charter to pre-approve all audit and non-audit services provided to the Company by its independent registered public accounting firm, including specific approval of internal control and tax-related services. In exercising this responsibility, the Audit Committee considers whether the provision of each professional accounting service is compatible with maintaining the audit firm’s independence. The committee has delegated this pre-approval authority to the Chairperson of the Audit Committee with ratification by the full Audit Committee at its next scheduled meeting.

Pre-approvals are detailed as to the category or professional service and when appropriate are subject to budgetary limits. Company management and the independent registered public accounting firm periodically report to the Audit Committee regarding the scope and fees for professional services provided under the pre-approval.

With respect to the professional services rendered, the Audit Committee had determined that the rendering of all non-audit services by BDO was compatible with maintaining the auditor’s independence and had pre-approved all such services.

130

PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report:

1.Financial Statements

The financial statements of Star Equity Holdings, Inc. listed below are set forth in Item 8 of this report for the year ended December 31, 2020:

–Report of Independent Registered Public Accounting Firm

–Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2020 and 2019

–Consolidated Balance Sheets at December 31, 2020 and 2019

–Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

–Consolidated Statements of Mezzanine and Stockholders’ Equity for the years ended December 31, 2020 and 2019

–Notes to Consolidated Financial Statements

2. Financial Statement Schedules

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

3. Exhibits required by Item 601 of Regulation S-K

The information required by this Section (a)(3) of Item 15 is set forth on the exhibit index below.

131

EXHIBIT INDEX


Exhibit Number						Description

1.1						Underwriting Agreement, dated May 26, 2020, between Digirad Corporation and Maxim Group LLC (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 29, 2020).

2.1						Agreement of Merger and Plan of Reorganization, dated March 5, 2015 by and between Digirad Corporation, Maleah Incorporated, MD Office Solutions and the Stockholders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2015). Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby agrees to furnish supplementary copies of any of the omitted schedules or exhibits upon request by the Commission.

2.2						Stock Purchase Agreement dated as of October 13, 2015, by and among Digirad Corporation, Project Rendezvous Holding Corporation, the stockholders of Project Rendezvous Holding Corporation, and Platinum Equity Advisors, LLC as the stockholder representative (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Commission on January 7, 2016). Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby agrees to furnish supplementary copies of any of the omitted schedules or exhibits upon request by the Commission.

2.3						Amendment to Stock Purchase Agreement dated as of December 31, 2015, by and between Digirad Corporation and Platinum Equity Advisors, LLC as the stockholder representative (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed with the Commission on January 7, 2016).

2.4						Second Amendment to Stock Purchase Agreement dated as of June 7, 2016, by and between Digirad Corporation and Platinum Equity Advisors, LLC as the stockholder representative (incorporated by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 1, 2016).

2.5						Asset Purchase Agreement by and between DMS Health Technologies, Inc., as Seller, and Philips North America LLC, as Buyer dated as of December 22, 2017 (incorporated by reference to Exhibit 2.8 to the Company’s Annual Report on Form 10-K filed with the Commission on February 28, 2018). Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby agrees to furnish supplementary copies of any of the omitted schedules or exhibits upon request by the Commission.

2.6						Agreement and Plan of Merger, dated as of July 3, 2019, by and among Digirad Corporation, ATRM Holdings, Inc. and Digirad Acquisition Corporation (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 3, 2019).

3.1						Restated Certificate of Incorporation of Digirad Corporation (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on May 3, 2006).

3.2						Certificate of Designation of Rights, Preferences and Privileges of Series B Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 24, 2013).

3.3						Certificate of Amendment of the Restated Certificate of Incorporation of Digirad Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 5, 2015).

3.4						Certificate of Amendment of the Restated Certificate of Incorporation of Digirad Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 1, 2018).

3.5						Amended and Restated Bylaws of Digirad Corporation dated May 4, 2007 and Amendment No. 1 to the Amended and Restated Bylaws of Digirad Corporation dated April 5, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 1, 2017).

3.6						Certificate of Amendment of the Restated Certificate of Incorporation of Digirad Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 31, 2019).

3.7						Certificate of Designations, Rights and Preferences of 10% Series A Cumulative Perpetual Preferred Stock of Digirad Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 11, 2019).

3.8						Certificate of Amendment of the Restated Certificate of Incorporation of Digirad Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 28, 2020.

4.1						Form of Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 (File No. 333-113760) filed with the Commission on March 19, 2004).

132


Exhibit Number						Description

4.2						Preferred Stock Rights Agreement, by and between Digirad Corporation and American Stock Transfer and Trust Company, dated November 22, 2005 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form 8-A filed with the Commission on November 29, 2005).

4.3						Tax Benefit Preservation Plan by and between Digirad Corporation and American Stock Transfer & Trust Company, dated as of May 23, 2013 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by the Company with the Commission on May 24, 2013).

4.4						Tax Benefit Preservation Plan Amendment, dated November 11, 2013, by and between the Company and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K filed with the Commission on March 20, 2014).

4.5						First Amendment to Preferred Stock Rights Agreement, dated as of March 5, 2015, by and between the Company and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K filed with the Commission on March 6, 2015).

4.6						Promissory Note, dated January 12, 2018, made by ATRM Holdings, Inc. for the benefit of Lone Star Value Co-Invest I, LP (incorporated by reference to Exhibit 4.1 to ATRM Holdings, Inc.’s Current Report on Form 8-K filed with the Commission on January 19, 2018).

4.7						Promissory Note, dated June 1, 2018, made by ATRM Holdings, Inc. for the benefit of Lone Star Value Co-Invest I, LP (incorporated by reference to Exhibit 4.1 to ATRM Holdings, Inc.’s Current Report on Form 8-K filed with the Commission on June 7, 2018).

4.8						Promissory Note, dated December 17, 2018, made by ATRM Holdings, Inc. for the benefit of Lone Star Value Management, LLC (incorporated by reference to Exhibit 4.2 to ATRM Holdings, Inc.’s Current Report on Form 8-K filed with the Commission on December 18, 2018).

4.9						Description of Registrant’s Securities (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 13, 2020).

4.10						Form of Maxim Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 29, 2020, referencing Exhibit 1.1 (Underwriting Agreement) to the same Current Report on Form 8-K).

4.11						Form of Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the Commission on May 29, 2020).

4.12						Warrant Agent Agreement, dated May 28, 2020, between Digirad Corporation and American Stock Transfer & Trust Company, LLC. (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed w ith the Commission on May 29, 2020).

10.1#						Digirad Corporation 2004 Stock Incentive Plan, as Amended and Restated on August 2, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 7, 2007).

10.2#						Form of Notice of Stock Option Award and Stock Option Award Agreement for 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed with the Commission on March 3, 2005).

10.3#						2004 Non-Employee Director Option Program (incorporated by reference to Exhibit 10.19 to the Company’s Amended Registration Statement on Form S-1/A (File No. 333-113760) filed with the Commission on May 24, 2004).

10.4#						Form of Notice of Non-Qualified Stock Option Award and Stock Option Award Agreement for 2004 Non-Employee Director Option Program (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K filed with the Commission on March 3, 2005).

10.5#						Form of Indemnification Agreement (incorporated by reference to Exhibits 10.20 to the Registration Statement on Form S-1/A (File No. 333-113760) filed with the Commission on April 29, 2004).

10.6#						Employment Agreement, dated as of May 1, 2007, as amended on September 30, 2010, by and between the Company and Matthew G. Molchan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 5, 2013).

10.7#						Form of 2011 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 July 29, 2011).

10.8#						Form of 2011 Inducement Stock Incentive Plan Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on July 29, 2011).

133


Exhibit Number						Description
10.9#						Form of 2011 Inducement Stock Incentive Plan Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on July 29, 2011).

10.10#						Digirad Corporation 2014 Equity Incentive Award Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed with the Commission on June 6, 2014).

10.11#						Form Indemnification Agreement of the Company for directors and officers (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K filed with the Commission on March 6, 2015).

10.12						Registration Rights Agreement, dated March 5, 2015, by and among the Company, Keenan - Thornton Family Trust, David Keenan and Samia Arram (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 1, 2015).

10.13						Consolidated Agreements, dated April 1, 2014, between DMS Health Technologies, Inc. and Philips Healthcare, a Division of Philips Electronics North America Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 3, 2017).

10.14						Amendment, dated June 9, 2015, to the Consolidated Agreements between DMS Health Technologies, Inc. and Philips Healthcare, a Division of Philips Electronics North America Corporation (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 10-Q filed with the Commission on November 3, 2017).

10.15#						Digirad Corporation 2018 Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 1, 2018).

10.16#						Form of 2018 Incentive Plan Restricted Stock Unit Agreement (incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8 filed with the Commission on November 6, 2018).

10.17#						Form of 2018 Incentive Plan Restricted Stock Unit Agreement (Performance Based) (incorporated by reference to Exhibit 99.3 to the Company’s Registration Statement on Form S-8 filed with the Commission on November 6, 2018).

10.18#						Employment Agreement, by and between Digirad Corporation and David Noble, dated October 31, 2018 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 5, 2018).

10.19#						Indemnification Agreement, by and between Digirad Corporation and David Noble, dated October 25, 2018 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 5, 2018).

10.20						Limited Liability Company Agreement for Star Procurement, LLC, dated December 14, 2018, by and among Star Procurement LLC, Digirad Corporation and ATRM Holdings, Inc. (incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K filed with the Commission on March 1, 2019).

10.21						Purchase and Sale Agreement, dated March 27, 2019, by and between RJF – Keiser Real Estate, LLC and 56 Mechanic Falls Road, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 3, 2019). The schedules and exhibits to this Exhibit have been omitted. The Company agrees to furnish a copy of the omitted schedules and exhibits to the Commission on a supplemental basis upon its request.

10.22						Purchase and Sale Agreement, dated April 3, 2019, by and between KBS Builders, Inc. and 947 Waterford Road, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on April 3, 2019). The schedules and exhibits to this Exhibit have been omitted. The Company agrees to furnish a copy of the omitted schedules and exhibits to the Commission on a supplemental basis upon its request.

10.23						Purchase and Sale Agreement, dated April 3, 2019, by and between KBS Builders, Inc. and 300 Park Street, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on April 3, 2019). The schedules and exhibits to this Exhibit have been omitted. The Company agrees to furnish a copy of the omitted schedules and exhibits to the Commission on a supplemental basis upon its request.

10.24						Lease Agreement, dated April 3, 2019, by and between KBS Builders, Inc. and 947 Waterford Road, LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on April 3, 2019). The schedules and exhibits to this Exhibit have been omitted. The Company agrees to furnish a copy of the omitted schedules and exhibits to the Commission on a supplemental basis upon its request.

10.25						Lease Agreement, dated April 3, 2019, by and between KBS Builders, Inc. and 300 Park Street, LLC (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the Commission on April 3, 2019). The schedules and exhibits to this Exhibit have been omitted. The Company agrees to furnish a copy of the omitted schedules and exhibits to the Commission on a supplemental basis upon its request.

134


Exhibit Number						Description

10.26						Lease Agreement, dated April 3, 2019, by and between KBS Builders, Inc. and 56 Mechanic Falls Road, LLC (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2019). The schedules and exhibits to this Exhibit have been omitted. The Company agrees to furnish a copy of the omitted schedules and exhibits to the Commission on a supplemental basis upon its request.

10.27						First Amendment to Lease, dated April 18, 2019, by and between 56 Mechanic Falls Road, LLC and KBS Builders, Inc. (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2019).

10.28						Loan and Security Agreement, dated March 29, 2019, by and among Digirad Corporation, certain subsidiaries of the Digirad Corporation identified on the signature pages thereto, and Sterling National Bank (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the Commission on April 3, 2019). The schedules and exhibits to this Exhibit have been omitted. The Company agrees to furnish a copy of the omitted schedules and exhibits to the Commission on a supplemental basis upon its request.

10.29						Stock Purchase Agreement, dated as of September 10, 2019, by and between Digirad Corporation and Lone Star Value Investors, LP (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 11, 2019).

10.30						Registration Rights Agreement, dated as of September 10, 2019, by and between Digirad Corporation and Lone Star Value Investors, LP (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on September 11, 2019).

10.31						Put Option Purchase Agreement, dated as of September 10, 2019, by and between Digirad Corporation and Jeffrey Eberwein (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on September 11, 2019).

10.32						Consent and Acknowledgment Agreement and Twelfth Amendment to Loan Agreement, dated as of September 10, 2019, by and among Gerber Finance Inc., KBS Builders, Inc., ATRM Holdings, Inc. and Digirad Corporation. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on September 11, 2019).

10.33						Waiver of Promissory, Note dated July 17, 2019, by Lone Star Value Co-Invest I, LP to Promissory Note dated January 12, 2018, made by ATRM Holdings, Inc. in favor of Lone Star Value Co-Invest I, LP (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2019).

10.34						Waiver of Promissory Note, dated July 17, 2019, by Lone Star Value Co-Invest I, LP to Promissory Note dated June 1, 2018, made by ATRM Holdings, Inc. in favor of Lone Star Value Co-Invest I, LP (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2019).

10.35						Waiver of Promissory Note, dated July 17, 2019, by Lone Star Value Management, LLC to Promissory Note dated December 17, 2018, made by ATRM Holdings, Inc. in favor of Lone Star Value Management, LLC (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2019).

10.36						Extension/Revision Agreement of Note dated October 1, 2019, by Premier Bank to Promissory Note dated June 30, 2017, made by Glenbrook Building Supply, Inc. and Edgebuilder, Inc. in favor of Premier Bank (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2019).

10.37						Extension/Revision Agreement of Note dated November 1, 2019, by Premier Bank to Promissory Note dated June 30, 2017, made by Glenbrook Building Supply, Inc. and Edgebuilder, Inc. in favor of Premier Bank (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2019).

10.38						Loan and Security Agreement, dated as of February 23, 2016, by and among Gerber Finance Inc., KBS Builders, Inc., Maine Modular Haulers, Inc., and ATRM Holdings, Inc. (incorporated by reference to Exhibit 10.1 to ATRM Holdings, Inc.’s Quarterly Report on Form 10-Q filed with the Commission on May 16, 2016).

10.39						Third Agreement of Amendment to the Loan and Security Agreement, dated as of September 29, 2017, by and among Gerber Finance, Inc., KBS Builders, Inc. and ATRM Holdings, Inc. (incorporated by reference to Exhibit 10.3 to ATRM Holdings, Inc.’s Quarterly Report on Form 10-Q filed with the Commission on April 16, 2019).

10.40						Revolving Credit Loan Agreement, dated as of June 30, 2017, by and between Glenbrook Building Supply, Inc., EdgeBuilder, Inc. and Premier Bank (incorporated by reference to Exhibit 10.3 to ATRM Holdings, Inc.’s Quarterly Report on Form 10-Q filed with the Commission on April 16, 2019).

135


Exhibit Number						Description
10.41						Fourth Agreement of Amendment to Loan and Security Agreement, dated as of July 20, 2017, by and among Gerber Finance Inc., KBS Builders, Inc. and ATRM Holdings, Inc. (incorporated by reference to Exhibit 10.1 to ATRM Holdings, Inc.’s Quarterly Report on Form 10-Q filed with the Commission on April 16, 2019).

10.42						Fifth Agreement of Amendment to Loan and Security Agreement, dated as of September 29, 2017, by and among Gerber Finance Inc., KBS Builders, Inc. and ATRM Holdings, Inc. (incorporated by reference to Exhibit10.2 to ATRM Holdings, Inc.’s Quarterly Report on Form 10-Q filed with the Commission on April 16, 2019).

10.43						Sixth Agreement of Amendment to Loan and Security Agreement, dated as of December 22, 2017, by and among Gerber Finance Inc., KBS Builders, Inc. and ATRM Holdings, Inc. (incorporated by reference to Exhibit10.22 to ATRM Holdings, Inc.’s Annual Report on Form 10-K filed with the Commission on April 30, 2019).

10.44						Securities Purchase Agreement, dated as of January 12, 2018, by and between ATRM Holdings, Inc. and Lone Star Co-Invest I, LP (incorporated by reference to Exhibit 10.1 to ATRM Holdings, Inc.’s Current Report on Form 8-K filed with the Commission on January 19, 2018).

10.45						Securities Purchase Agreement, dated as of June 1, 2018, by and between ATRM Holdings, Inc. and Lone Star Co-Invest I, LP (incorporated by reference to Exhibit 10.1 to ATRM Holdings, Inc.’s Current Report on Form 8-K filed with the Commission on June 7, 2018).

10.46						Eighth Agreement of Amendment to Loan and Security Agreement, dated as of October 1, 2018, by and among Gerber Finance Inc., KBS Builders, Inc. and ATRM Holdings, Inc. (incorporated by reference to Exhibit 10.25 to ATRM Holdings, Inc.’s Annual Report on Form 10-K filed with the Commission on April 30, 2019).

10.47						Securities Purchase Agreement, dated as of December 17, 2018, by and between ATRM Holdings, Inc. and Lone Star Value Management, LLC (incorporated by reference to Exhibit 10.1 to ATRM Holdings, Inc.’s Current Report on Form 8-K filed with the Commission on December 18, 2018).

10.48						Ninth Agreement of Amendment to Loan and Security Agreement, dated as of February 22, 2019, by and among Gerber Finance Inc., KBS Builders, Inc. and ATRM Holdings, Inc. (incorporated by reference to Exhibit 10.29 to ATRM Holdings, Inc.’s Annual Report on Form 10-K filed with the Commission on April 30, 2019).

10.49						Tenth Agreement of Amendment to Loan and Security Agreement, dated as of April 1, 2019, by and among Gerber Finance Inc., KBS Builders, Inc. and ATRM Holdings, Inc. (incorporated by reference to Exhibit 10.30 to ATRM Holdings, Inc.’s Annual Report on Form 10-K filed with the Commission on April 30, 2019).

10.50						Fifth Agreement of Amendment to Loan and Security Agreement, dated as of April 1, 2019, by and among Gerber Finance Inc., Edgebuilder, Inc., Glenbrook Building Supply Inc., ATRM Holdings, Inc. and KBS Builders, Inc. (incorporated by reference to Exhibit 10.31 to ATRM Holdings, Inc.’s Annual Report on Form 10-K filed with the Commission on April 30, 2019).

10.51						Membership Interest Purchase Agreement, dated as of April 1, 2019, by and among ATRM Holdings, Inc., Lone Star Value Management, LLC and Jeffrey E. Eberwein (incorporated by reference to Exhibit 10.3 to ATRM Holdings, Inc.’s Current Report on Form 8-K filed with the Commission on April 26, 2019).

10.52						Eleventh Agreement of Amendment to Loan and Security Agreement, dated as of April 15, 2019, by and among Gerber Finance Inc., KBS Builders, Inc. and ATRM Holdings, Inc. (incorporated by reference to Exhibit 10.39 to ATRM Holdings, Inc.’s Annual Report on Form 10-K filed with the Commission on April 30, 2019).

10.53						Agreement, dated as of May 15, 2019, by and between Digirad Corporation and ATRM Holdings, Inc. (incorporated by reference to Exhibit 10.39 to ATRM Holdings, Inc.’s Annual Report on Form 10-K filed with the Commission on June 26, 2019).

10.54						Loan and Security Agreement, dated January 31, 2020, by and among Star Real Estate Holdings USA, Inc., 300 Park Street, LLC, 947 Waterford Road, LLC, 56 Mechanic Falls Road, LLC, ATRM Holdings, Inc., EdgeBuilder, Inc., Glenbrook Building Supply, Inc., KBS Builders, Inc., Digirad Corporation, and Gerber Finance Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on February 6, 2020). Schedules and exhibits to this Exhibit have been omitted. The Company agrees to furnish a copy of the omitted schedules and exhibits to the Commission on a supplemental basis upon its request.

10.55						Loan and Security Agreement, dated January 31, 2020, by and among EdgeBuilder, Inc., Glenbrook Building Supply, Inc., Star Real Estate Holdings USA, Inc., 300 Park Street, LLC, 947 Waterford Road, LLC, 56 Mechanic Falls Road, LLC, ATRM Holdings, Inc., KBS Builders, Inc., Digirad Corporation, and Gerber Finance Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on February 6, 2020). Schedules and exhibits to this Exhibit have been omitted. The Company agrees to furnish a copy of the omitted schedules and exhibits to the Commission on a supplemental basis upon its request.

136


Exhibit Number						Description
10.56						Extension and Modification Agreement, dated January 31, 2020, by and among EdgeBuilder, Inc., Glenbrook Building Supply, Inc. and Premier Bank (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on February 6, 2020).

10.57						Thirteenth Amendment to Loan and Security Agreement, dated January 31, 2020, by and among Gerber Finance Inc., KBS Builders, Inc. ATRM Holdings, Inc., and Digirad Corporation (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on February 6, 2020).

10.58						First Amendment to Loan and Security Agreement, dated February 20, 2020, by and among Star Real Estate Holdings USA, Inc., 300 Park Street, LLC, 947 Waterford Road, LLC, 56 Mechanic Falls Road, LLC and Gerber Finance Inc (incorporated by reference to Exhibit 10.63 to the Company’s Annual Report on Form 10-K filed with the Commission on March 9, 2020).

10.59						First Amendment to Loan and Security Agreement Dated January 31, 2020, dated as of March 5, 2020, by and among Gerber Finance Inc., EdgeBuilder, Inc. and Glenbrook Building Supply, Inc.; and Consent and as a Fourteenth Amendment to Loan and Security Agreement Dated February 23, 2016, by and among Gerber Finance Inc., KBS Builders, Inc., ATRM Holdings, Inc. and Digirad Corporation (incorporated by reference to Exhibit 10.64 to the Company’s Annual Report on Form 10-K filed with the Commission on March 9, 2020).

10.60						Severance Agreement, dated January 28, 2014, between Digirad Corporation and Martin B. Shirley (incorporated by reference to Exhibit 10.65 to the Company’s Amendment No. 1 to Annual Report on Form 10-K/A filed with the Commission on April 17, 2020).

10.61						Note, dated April 30, 2020, made by KBS Builders, Inc. in favor of Bremer Bank (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 6, 2020).

10.62						Note, dated April 30, 2020, made by EdgeBuilder, Inc. in favor of Bremer Bank (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on May 6, 2020).

10.63						Note, dated April 30, 2020, made by Glenbrook Building Supply Inc. in favor of Bremer Bank (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on May 6, 2020).

10.64						Second Amendment to Loan and Security Agreement, dated April 30, 2020, by and among Star Real Estate Holdings USA, Inc., 300 Park Street, LLC, 947 Waterford Road, LLC, 56 Mechanic Falls Road, LLC and Gerber Finance Inc. (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020).

10.65						Fifteenth Amendment to Loan and Security Agreement dated April 1, 2020, between KBS Builders, Inc. and Gerber Finance Inc. (incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020).

10.66						Promissory Note, dated May 5, 2020, made by DMS Imaging, Inc. in favor of Sterling National Bank (incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020).

10.67						Promissory Note, dated May 5, 2020, made by Digirad Imaging Solutions, Inc. in favor of Sterling National Bank (incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020).

10.68						Promissory Note, dated May 7, 2020, made by DMS Health Technologies, Inc. in favor of Sterling National Bank (incorporated by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020).

10.69						Promissory Note, dated May 7, 2020, made by Digirad Corporation in favor of Sterling National Bank (incorporated by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020).

10.70						Second Amendment to Loan and Security Agreement, dated July 1, 2020, by and among Gerber Finance Inc., EdgeBuilder, Inc., and Glenbrook Building Supply, Inc. (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 13, 2020).

10.71						2018 Incentive Plan, as amended July 31, 2020 (incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 13, 2020).

137


Exhibit Number						Description
10.72*						First Amendment to Loan and Security Agreement, Consent and Release, dated February 1, 2021, by and among Digirad Health, Inc., Digirad Imaging Solutions, Inc., MD Office Solutions, DMS Health Technologies, Inc., DMS Imaging, Inc., DMS Health Technologies-Canada, Inc., Project Rendezvous Holding Corporation, Project Rendezvous Acquisition Corporation, Digirad Diagnostic Imaging, Inc., Star Equity Holdings, Inc., and Sterling National Bank.

10.73*						Sixteenth Amendment to Loan and Security Agreement, dated January 5, 2021, by and among Gerber Finance Inc., KBS Builders, Inc., ATRM Holdings, Inc., and Star Equity Holdings, Inc.

10.74*						Seventeenth Amendment to Loan and Security Agreement, dated February 26, 2021, by and among Gerber Finance Inc., KBS Builders, Inc., ATRM Holdings, Inc., and Star Equity Holdings, Inc.

10.75*						Third Amendment to Loan and Security Agreement, dated January 31, 2020, by and among Gerber Finance Inc., Star Real Estate Holdings USA, Inc., 300 Park Street, LLC, 947 Waterford Road, LLC, and 56 Mechanic Falls Road, LLC.

10.76*						Third Amendment to Loan and Security Agreement, dated January 31, 2020, by and among Gerber Finance Inc., EdgeBuilder, Inc., and Glenbrook Building Supply, Inc.

10.77*						Stock Purchase Agreement, dated October 30, 2020, by and among Knob Creek Acquisition Corp., Digirad Corporation, Project Rendezvous Acquisition Corporation and DMS Health Technologies, Inc. The schedules and exhibits to this exhibit have been omitted. The Company agrees to furnish a copy of the omitted schedules and exhibits to the Commission on a supplemental basis upon its request.

10.78*						Amendment to Stock Purchase Agreement dated as of March 26, 2021, by and between Project Rendezvous Acquisition Corporation and Knob Creek Acquisition Corp.

21.1*						Subsidiaries of Star Equity Holdings, Inc.

23.1*						Consent of BDO USA, LLP, Independent Registered Public Accounting Firm

24.1*						Power of Attorney (included on the signature page of this Form 10-K)

31.1*						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*+						Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*+						Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*						XBRL Instance Document
101.SCH*						XBRL Taxonomy Extension Schema
101.CAL*						XBRL Taxonomy Extension Calculation Linkbase
101.LAB*						XBRL Taxonomy Extension Labels Linkbase
101.PRE*						XBRL Taxonomy Presentation Linkbase
101.DEF*						XBRL Taxonomy Extension Definition Linkbase


#			Indicates management contract or compensatory plan.


*			Filed herewith.


+			The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Digirad Corporation under the Securities and Exchange Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended, whether made before or after the date of this 10-K, irrespective of any general incorporation language contained in such filings.

138

ITEM 16.FORM 10-K SUMMARY

None.

139

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DIGIRAD CORPORATION

Dated:

By:

/S/ JEFFREY E. EBERWEIN

Name:

Jeffrey E. Eberwein

Title:

Executive Chairman

(Principal Executive Officer)

Power of Attorney

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffrey E. Eberwein and David J. Noble, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-facts and agents, or his substitute or substitutes, or any of them, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Name

Title

Date

/S/ JEFFREY E. EBERWEIN

Executive Chairman of the Board and Director

Jeffrey E. Eberwein

(Principal Executive Officer)

/S/ DAVID J. NOBLE

Chief Financial Officer
and Chief Operating Officer

David J. Noble

(Principal Financial and Accounting Officer)

/S/ MATTHEW G. MOLCHAN

Director

Matthew G. Molchan

/S/ MITCH I. QUAIN

Director

Mitch I. Quain

/S/ MICHAEL A. CUNNION

Director

Michael A. Cunnion

/S/ JOHN W. SAYWARD

Director