Delaware

33-0145723

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

1048 Industrial Court,

Suwanee GA

30024

(Address of Principal Executive Offices)

(Zip Code)

(858) 726-1600

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	DRAD	NASDAQ Global Market
Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share	DRADP	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer		o			Accelerated filer		o

~~Large accelerated filer~~		o	~~Accelerated filer~~	o

Non-accelerated filer	x		Smaller reporting company			x☒

					Emerging growth company		o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o☐ Yes No x

As of ~~April 29, 2019~~May 8, 2020, the registrant had ~~20,309,908~~2,055,158 shares of Common Stock ($0.0001 par value) outstanding.

DIGIRAD CORPORATION

TABLE OF CONTENTS

Important Information Regarding Forward-Looking Statements

Portions of this Quarterly Report on Form 10-Q (including information incorporated by reference) include “forward-looking statements” based on our current beliefs, expectations, and projections regarding our business strategies, market potential, future financial performance, industry, and other matters. This includes, in particular, “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q, as well as other portions of this Quarterly Report on Form 10-Q. The words “believe,” “expect,” “anticipate,” “project,” “could,” “would,” and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from those projected, anticipated, or implied in the forward-looking statements. The most significant of these risks, uncertainties, and other factors are described in “Item 1A — Risk Factors” of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 filed with the U.S. Securities and Exchange Commission on March ~~1, 2019.~~9, 2020. Except to the limited extent required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

PART I. FINANCIAL INFORMATION


~~ITEM 1.~~ ITEM 1.FINANCIAL STATEMENTS 5	~~FINANCIAL STATEMENTS~~

DIGIRAD CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except for per share amounts)

Three Months Ended March 31,
2019 2018
Revenues:
Services $ 21,389
$ 22,623
Product and product-related 2,523
2,842
Total revenues 23,912
25,465

Cost of revenues:
Services 18,194
19,261
Product and product-related 1,737
1,597
Total cost of revenues 19,931
20,858

Gross profit 3,981
4,607

Operating expenses:
Marketing and sales 1,143
1,467
General and administrative 3,690
4,392
Amortization of intangible assets 283
357
Total operating expenses 5,116
6,216

Loss from operations (1,135 ) (1,609 )

Other expense:
Other expense, net (198 ) (17 )
Interest expense, net (181 ) (217 )
Loss on extinguishment of debt (151 ) —
Total other expense (530 ) (234 )

Loss before income taxes (1,665 ) (1,843 )
Income tax benefit 8
455
Net loss from continuing operations (1,657 ) (1,388 )
Net income from discontinued operations —
5,494
Net (loss) income $ (1,657 ) $ 4,106

Net (loss) income per share—basic and diluted
Continuing operations $ (0.08 ) $ (0.07 )
Discontinued operations —
0.27
Net (loss) income per share—basic and diluted $ (0.08 ) $ 0.20

Dividends declared per common share $ —
$ 0.055

Net (loss) income $ (1,657 ) $ 4,106
Other comprehensive (loss) income:
Reclassification of tax provision impact 22
—
Reclassification of unrealized gains on equity securities to retained earnings —
(17 )
Total other comprehensive income (loss) 22
(17 )
Comprehensive (loss) income $ (1,635 ) $ 4,089


	Three Months Ended March 31,
	2020		2019
Revenues:
Healthcare	$	23,342	$	23,912
Building and Construction	5,484		—
Real Estate and Investments	31		—
Total revenues	28,857		23,912

Cost of revenues:
Healthcare	19,270		19,931
Building and Construction	5,081		—
Real Estate and Investments	65		—
Total cost of revenues	24,416		19,931

Gross profit	4,441		3,981

Operating expenses:
Marketing, sales and general and administrative expenses	6,228		4,833
Amortization of intangible assets	817		283


Total operating expenses	7,045		5,116

Loss from operations	(2,604)		(1,135)

Other expense:
Other income (expense), net	160		(198)
Interest expense, net	(475)		(181)

Loss on extinguishment of debt	—		(151)
Total other expense	(315)		(530)

Loss before income taxes	(2,919)		(1,665)
Income tax (expense) benefit	(34)		8


Net loss	(2,953)		(1,657)
Deemed dividend on Series A redeemable preferred stock	(484)		—
Net loss attributable to common shareholders	$	(3,437)	$	(1,657)




Net loss per share, attributable to common shareholders — basic and diluted:	$	(1.67)	$	(0.82)



Net loss	$	(2,953)	$	(1,657)
Other comprehensive (loss) income:
Reclassification of tax provision impact	—		22

Total other comprehensive income	—		22
Comprehensive loss	$	(2,953)	$	(1,635)

See accompanying notes to the unaudited condensed consolidated financial statements.

DIGIRAD CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except share amounts)

~~(In thousands)~~


	March 31, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	1,423	$	1,821
Restricted cash	169		240
Equity securities	18		26
Accounts receivable, net	14,933		18,571
Inventories, net	6,617		7,097
Other current assets	1,416		1,794
Total current assets	24,576		29,549
Property and equipment, net	20,762		22,138
Operating lease right-of-use assets, net	5,310		4,827
Intangible assets, net	22,087		22,903
Goodwill	9,978		9,978



Other assets	1,094		1,165
Total assets	$	83,807	$	90,560

Liabilities, Mezzanine Equity and Stockholders’ Equity
Current liabilities:
Accounts payable	$	7,623	$	8,932
Accrued compensation	3,456		4,579
Accrued warranty	347		421
Deferred revenue	1,626		1,786
Short-term debt and current portion of long-term debt	1,211		4,036
Payable to related parties	2,034		1,920
Operating lease liabilities	2,009		1,866
Other current liabilities	4,067		4,638
Total current liabilities	22,373		28,178
Long-term debt, net of current portion	18,775		17,038

Deferred tax liabilities	43		23
Operating lease liabilities, net of current portion	3,404		3,073
Other liabilities	1,359		1,551
Total liabilities	45,954		49,863

Commitments and contingencies (Note 9)

Preferred stock, $0.0001 par value: 10,000,000 shares authorized: 10% Series A Cumulative Redeemable preferred stock, 8,000,000 shares liquidation preference ($10.00 per share), 1,915,637 shares issued or outstanding at March 31, 2020 and December 31, 2019, respectively	20,086		19,602

Stockholders’ equity:
Common stock, $0.0001 par value: 30,000,000 shares authorized; 2,055,158 and 2,050,659 shares issued and outstanding (net of treasury shares) at March 31, 2020 and December 31, 2019, respectively	—		—
Treasury stock, at cost; 258,849 shares at March 31, 2020 and December 31, 2019, respectively	(5,728)		(5,728)
Additional paid-in capital	144,977		145,352

Accumulated deficit	(121,482)		(118,529)
Total stockholders’ equity	17,767		21,095
Total liabilities, mezzanine equity and stockholders’ equity	$	83,807	$	90,560

March 31,
2019 December 31,
2018
Assets

Current assets:
Cash and cash equivalents $ 797
$ 1,545
Equity securities 17
153
Accounts receivable, net 13,361
12,642
Inventories, net 5,483
5,402
Restricted cash 168
167
Other current assets 1,522
1,285
Total current assets 21,348
21,194
Property and equipment, net 20,575
21,645
Operating lease right-of-use assets, net 3,681
—
Intangible assets, net 4,944
5,228
Goodwill 1,745
1,745
Restricted cash 101
101
Deferred tax assets 16
—
Other assets 2,183
681
Total assets $ 54,593
$ 50,594

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 4,808
$ 5,206
Accrued compensation 3,246
3,862
Accrued warranty 230
197
Deferred revenue 1,414
1,687
Operating lease liabilities 1,251
—
Other current liabilities 2,474
2,265
Total current liabilities 13,423
13,217
Long-term debt 12,517
9,500
Deferred tax liabilities 121
121
Operating lease liabilities, net of current portion 2,564
—
Other liabilities 1,715
1,956
Total liabilities 30,340
24,794

Commitments and contingencies (Note 9)

Stockholders’ equity:
Preferred stock, $0.0001 par value: 10,000,000 shares authorized; no shares issued or outstanding —
—
Common stock, $0.0001 par value: 80,000,000 shares authorized; 20,309,908 and 20,249,786 shares issued and outstanding (net of treasury shares) at March 31, 2019 and December 31, 2018, respectively 2
2
Treasury stock, at cost; 2,588,484 shares at March 31, 2019 and December 31, 2018 (5,728 ) (5,728 )
Additional paid-in capital 145,516
145,428
Accumulated other comprehensive loss —
(22 )
Accumulated deficit (115,537 ) (113,880 )
Total stockholders’ equity 24,253
25,800
Total liabilities and stockholders’ equity $ 54,593
$ 50,594

See accompanying notes to the unaudited condensed consolidated financial statements.

DIGIRAD CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended March 31,							Three Months Ended March 31,
	2019			2018				2020		2019
Operating activities							Operating activities
Net (loss) income	$	(1,657	)	$	4,106
Net loss							Net loss	$	(2,953)	$	(1,657)
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	1,526			1,910			Depreciation	1,593		1,526
Amortization of intangible assets	283			370			Amortization of intangible assets	814		283
Amortization of operating lease right-of-use assets	276			—

Provision for bad debt	75			13			Provision for bad debt	32		75
Gain on disposal of discontinued operations	—			(6,261		)
Stock-based compensation	112			200			Stock-based compensation	109		112

Amortization of loan issuance costs	8			54			Amortization of loan issuance costs	31		8
Debt issuance costs write-off	151			—
(Gain) loss on sale of assets	(42		)	5
Debt issuance costs written-off							Debt issuance costs written-off	—		151

Loss (gain) on sale of assets							Loss (gain) on sale of assets	180		(42)
Deferred income taxes	(16		)	107			Deferred income taxes	20		(16)
Other, net	(28		)	17			Other, net	26		(28)
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Accounts receivable	(794		)	3,119			Accounts receivable	3,606		(794)
Inventories	8			(177		)	Inventories	481		8
Other assets	(454		)	185			Other assets	154		(454)
Accounts payable	(664		)	21			Accounts payable	(1,525)		(664)
Accrued compensation	(616		)	(2,299		)	Accrued compensation	(1,123)		(616)
Deferred revenue	(273		)	(568		)	Deferred revenue	(166)		(273)
Operating lease liabilities	(287		)	—			Operating lease liabilities	(2)		(11)
Other liabilities	207			(382		)	Other liabilities	(654)		207
Net cash (used in) provided by operating activities	(2,185		)	420
Net cash provided by (used in) operating activities							Net cash provided by (used in) operating activities	623		(2,185)

Investing activities							Investing activities
Purchases of property and equipment	(387		)	(201		)	Purchases of property and equipment	(158)		(387)

Proceeds from sale of property and equipment	257			40			Proceeds from sale of property and equipment	23		257
Purchases of equity securities	—			(14		)

Proceeds from sales of equity securities	140			—			Proceeds from sales of equity securities	—		140
Proceeds from sale of discontinued operations	—			6,844

Payments to acquire interest in joint ventures	(1,000		)	—			Payments to acquire interest in joint ventures	—		(1,000)
Net cash (used in) provided by investing activities	(990		)	6,669
Net cash used in investing activities							Net cash used in investing activities	(135)		(990)

Financing activities							Financing activities
Proceeds from long-term borrowings	23,517			7,758
Repayment of long-term debt	(20,500		)	(14,257		)
Proceeds from borrowings							Proceeds from borrowings	31,996		23,517
Repayment of debt							Repayment of debt	(32,407)		(20,500)

Loan issuance costs	(381		)	(4		)	Loan issuance costs	(317)		(381)
Dividends paid	—			(1,105		)

Taxes paid related to net share settlement of equity awards	(24		)	(70		)	Taxes paid related to net share settlement of equity awards	—		(24)
Repayment of obligations under finance leases	(184		)	(254		)	Repayment of obligations under finance leases	(229)		(184)
Net cash provided by (used in) financing activities	2,428			(7,932		)
Net decrease in cash and cash equivalents and restricted cash	(747		)	(843		)
Net cash (used in) provided by financing activities							Net cash (used in) provided by financing activities	(957)		2,428
Net decrease in cash, cash equivalents, and restricted cash							Net decrease in cash, cash equivalents, and restricted cash	(469)		(747)
Cash, cash equivalents, and restricted cash at beginning of period	1,813			2,220			Cash, cash equivalents, and restricted cash at beginning of period	2,061		1,813
Cash, cash equivalents, and restricted cash at end of period	$	1,066		$	1,377		Cash, cash equivalents, and restricted cash at end of period	$	1,592	$	1,066

The Company completed the sale on the remaining Fargo building for $0.8 million on May 1, 2019. On the same day, we entered into an agreement with JS2L Partners, LLP, to lease this property for a term of 12 months. The base rental payments associated with the lease are $0.1 million in aggregate.


~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management’s discussion and analysis of financial condition and results of operations (“MD&A”), contains forward-looking statements that involve risks and uncertainties. Please see “Important Information Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks, and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and related notes thereto for the fiscal year ended December 31, ~~2018,~~2019, which were included in our Form 10-K, filed with the SEC on March ~~1, 2019.~~9, 2020.

The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods.

Overview

Upon Digirad’s acquisition of ATRM Holdings, Inc. (“ATRM”) on September 10, 2019 (the “ATRM Merger” or the “ATRM Acquisition”), Digirad converted into a diversified holding company (the “HoldCo Conversion”). As a diversified holding company, Digirad has three divisions:

•Healthcare (Digirad Health): designs, manufactures, and distributes diagnostic medical imaging products. Digirad Health operates in three businesses: Diagnostic Services, Mobile Healthcare, and Diagnostic Imaging. The Diagnostic Services business offers imaging and monitoring services to healthcare providers as an alternative to purchasing the equipment or outsourcing the job. 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.

•Building and Construction (ATRM): 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.

•Real Estate and Investments: manages real estate assets (currently three manufacturing plants in Maine) and investments.

Healthcare (Digirad Health) delivers convenient, effective, and efficient healthcare solutions on an as needed, when needed, and where needed basis. Digirad’s diverse portfolio of mobile healthcare solutions and diagnostic imaging equipment and services provides hospitals, physician practices, and imaging centers throughout the United States access to technology and services necessary to provide patient care in the rapidly changing healthcare environment. Digirad’s direct and indirect subsidiaries that are included in this division are referred to collectively herein as the “Healthcare Subsidiaries”.

Building and Construction (ATRM) manufactures modular housing units for commercial and residential applications. ATRM operates in 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 is operated by KBS Builders, Inc. (“KBS”), and 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”). KBS, EdgeBuilder and Glenbrook are wholly-owned subsidiaries of ATRM and are referred to collectively herein, and together with ATRM, as the “Building and Construction Subsidiaries”.

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 Digirad, and provides services that include investment advisory services and the servicing of pooled investment vehicles through Lone Star Value Management, LLC (“LSVM”), a Connecticut based exempt reporting advisor. LSVM, which was a wholly owned subsidiary of ATRM on the ATRM Acquisition Date (as defined below), was acquired by the Company in the ATRM Acquisition. In April 2019, as an initial transaction to create Digirad’s real estate division under SRE and launch that aspect of the HoldCo Conversion, Digirad 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 “Real Estate and Investments Subsidiaries”.

In February of 2018, we completed the sale of our customer contracts relating to our MDSS post-warranty service business to Philips. On October 31, 2018, we sold our Telerhythmics business to G Medical Innovations USA, Inc., for $1.95 million cash. ~~Our business~~

On December 14, 2018, Digirad and ATRM, entered into a joint venture and formed Star Procurement, with Digirad and ATRM each holding a 50% interest. The purpose of the joint venture is ~~organized~~to provide the service of purchasing and selling building materials and related goods to KBS with which Star Procurement entered into ~~three reportable segments: Diagnostic~~a Services ~~Mobile Healthcare, and Diagnostic Imaging.~~Agreement on January 2, 2019. In accordance with the terms of the Star Procurement Limited Liability Company Agreement, Digirad made a $1.0 million capital contribution to the joint venture, which was made in January 2019. This entity was subsequently consolidated within the unaudited condensed consolidated financial statements upon completion of the ATRM Merger.

On September 10, ~~2018, we announced that our board of directors approved the conversion of~~2019 (the “ATRM Acquisition Date”), Digirad ~~into a diversified holding company, and the potential~~completed its acquisition of ATRM pursuant to an Agreement and Plan of Merger, dated as ~~an initial “kick-off” transaction~~of July 3, 2019 (the “ATRM ~~Acquisition”~~Merger Agreement”)~~. ATRM is~~, among Digirad, Digirad Acquisition Corporation, a ~~modular building company consisting~~Minnesota corporation and wholly-owned subsidiary of ~~two divisions, KBS Builders~~Digirad (“Merger Sub”), and EdgeBuilder. The KBS division manufactures and distributes modular housing units. EdgeBuilder manufactures engineered wood products used in modular construction, as well as distributes building materials through its Glenbrook unit. Both divisions serveATRM. Under the ~~residential and commercial segments~~terms of the ~~market.~~ATRM Merger Agreement, Merger Sub merged with and into ATRM, with ATRM surviving as a wholly owned subsidiary of Digirad.

~~Strategy~~

~~Our main strategic focus~~At the effective time of the ATRM Merger, (i) each share of ATRM common stock was converted into the right to receive three one-hundredths (0.03) of a share of 10.0% Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share, of the Company (“Company Preferred Stock”) and (ii) each share of ATRM 10.00% Series B Cumulative Preferred Stock, par value $0.001 per share (“ATRM Preferred Stock”), converted into the right to receive two and one-half (2.5) shares of Company Preferred Stock, for an approximate aggregate total of 1.6 million shares of Company Preferred Stock. No fractional shares of Company Preferred Stock were issued to any ATRM shareholder in the ATRM Merger. Each ATRM shareholder who would otherwise have been entitled to receive a fraction of a share of Company common stock in the ATRM Merger received one whole share of Company Preferred Stock.

As a result of the ATRM Merger, ATRM’s operations have been included in our unaudited consolidated financial statements since the ATRM Acquisition Date. Digirad’s aim with this acquisition is to continue to grow ~~our~~its business into an integrated healthcare services company while simultaneously converting into a diversified holding company through the acquisition of businesses that meet ~~our~~Digirad’s internally developed ~~financially disciplined approach~~financial screen for acquisitions. ~~Within~~The Company expects to achieve significant synergies and cost reductions by eliminating redundant processes and facilities.

COVID-19

On March 11, 2020, the ~~healthcare industry, we believe that there are many opportunities~~World Health Organization declared the outbreak of a novel strain of coronavirus, COVID-19, a global pandemic, which continues to ~~provide outsourced~~spread throughout the United States and ~~mobile healthcare services and solutions~~around the world. Governmental authorities in the ~~current~~states in which we operate issued social distancing orders, which orders have required businesses in subject jurisdictions to cease non-essential operations at physical locations in those locations, unless exempted, rescinded, or amended. Accordingly, to comply with applicable regulations and to safeguard the health and safety of our employees and customers, we have temporarily reduced our business operations.

During the three months ended March 31, 2020, we operated our business in the ordinary course. However, we experienced a $0.9 million decrease in revenue, as compared to the same period of the prior year, related to a decrease in our diagnostic services due to the COVID-19 pandemic. While the COVID-19 pandemic did not have a significant impact on the results of other segments of our business during the three months ended March 31, 2020, we have taken steps to contain the impact of the COVID-19 pandemic on our business.

On April 1, 2020, we announced that in response to the COVID-19 pandemic, Matthew G. Molchan, our President and Chief Executive Officer, David J. Noble, our Chief Financial Officer and Chief Operating Officer, and Martin B. Shirley, the president of our Diagnostic Imaging Solutions Inc. subsidiary, have each agreed to have their base salaries reduced by 20%. These reductions were effective as of April 6, 2020, and will remain in effect until May 15, 2020, subject to extension or adjustment based on developments surrounding the COVID-19 pandemic.

On April 1, 2020, we also announced that in response to the COVID-19 pandemic, we planned to furlough certain employees (without pay, but with our payment of health insurance) and that we would institute a 20% salary reduction for most of our salaried employees and reduce the number of working hours of most of our hourly employees by 20%. These reductions, which apply to our healthcare ~~environment. We believe that~~division, were effective as of April 6, 2020, and will remain in effect until May 15, 2020, subject to extension or adjustment developments surrounding the COVID-19 pandemic.

Throughout the COVID-19 pandemic, our ~~strategy~~building and construction division has furloughed employees or reduced employee hours based on fluctuations in demand for our products. Many of these employees are expected to return to work within the ~~healthcare~~next few weeks.

This partial disruption, although expected to be temporary, may impact our operations and overall business. The impact of COVID-19 is evolving rapidly and its future effects are uncertain. Given the uncertainty of the situation, the duration of the disruption and related financial impact cannot be reasonably estimated at this time. As a result of the evolving impact of COVID-19 on the economy, on April 7, 2020, we withdrew our 2020 full-year guidance. At Digirad, our highest priority remains the safety, health and well-being of our employees, their families and our communities and we remain committed to serving the needs of our customers. The COVID-19 pandemic is a highly fluid situation and it is not currently possible for us to reasonably estimate the impact it may have on our financial and operating results. We will continue to evaluate the impact of the COVID-19 pandemic on our business as we learn more and the impact of COVID-19 on our industry ~~will be accomplished by:~~becomes clearer.

~~Focused organic~~Strategy

We seek to grow our business by, among other things:

•Organic growth from our core businesses.We believe that we operate in markets and geographies that will allow us to continue to grow our core businesses, allowing us to benefit from our scale and strengths. We plan to focus our efforts on markets in which we already have a presence in order to take advantage of personnel, infrastructure, and brand recognition we have in these areas.

~~Introducing~~

•Introduction of new ~~service offerings through~~services. We plan to continue to focus on healthcare solutions related businesses that deliver necessary assets, services and logistics directly to the customer site. We believe that over time we can either purchase or develop new and complementary businesses and take advantage of our customer loyalty and distribution channels. In addition, as we transform into a multi-industry holding company, our largest near-term growth opportunity is to execute a successful turnaround of the KBS modular business that we acquired pursuant to the ATRM Merger. While we intend to continue to pursue and grow our residential modular building business, which provides us with positive margins and cash flow, we are also targeting large multi-family projects in the 25 to 100 building modules range.

•Acquisition of complementary businesses. The current economic environment offers significant opportunities for strategic acquisitions which can be either be bolt-on acquisitions for existing platform businesses, or ~~through acquisitions;~~new core businesses complementary to our new holding company structure.We will have a disciplined approach for making any potential acquisitions and will focus on faster growing and higher margin businesses. We believe there are many potential targets in the range of $3 million to $10 million in annual revenues that can be acquired over time and integrated into our businesses. We will also look at larger, more transformational acquisitions if we believe the appropriate mix of value, risk and return is present for our shareholders. The timing of these potential acquisitions will always depend on market conditions, available capital, and the value for each transaction. In general, we want to be “value” buyers, and will not pursue any transaction unless we believe the post-transaction potential value is high for shareholders.

~~Acquiring complementary companies.~~

~~Discontinued Operations~~

~~On February 1, 2018,~~•Divestiture of business units. From time to time we consider divestitures of business units and/or assets which are not consistent with the ~~Company completed~~future strategy of our business, or if we believe the sale of such units and/or assets could be in the best interests of our business and its ~~customer contracts relating~~stockholders, subject to our ~~MDSS post-warranty service~~ability to agree on acceptable terms with a prospective buyer. We currently are considering several possible transactions, including discussions regarding the sale of a business unit. Upon any such sale, a significant portion of the proceeds would be used to ~~Philips pursuant~~repay indebtedness, with the remainder being used for working capital purposes, and potentially the acquisition of complementary businesses as discussed above. There is no assurance that any such divestiture will occur, or if it does, if it would occur for a sales price currently contemplated. If it occurs, there is no assurance that we will be able to ~~an Asset Purchase Agreement, dated as~~use the proceeds in the acquisition of ~~December 22, 2017 for $8.0 million. The Company deemed~~a complementary business, or if we do if such acquisition will be successful.

We continue to explore strategic alternatives to improve the ~~disposition~~market position and profitability of our ~~MDSS reportable segment~~product offerings in the ~~first quarter~~marketplace, generate additional liquidity, and enhance our valuation. We may pursue our goals through organic growth and through strategic alternatives. Some of ~~2018~~these alternatives have included, and could continue to ~~represent~~include, selective acquisitions of business segments or entire businesses, divestitures of assets or divisions, or a strategic shift that will have a major effect on our operations and financial results. In accordance with the provisions of FASB authoritative guidance on the presentation of financial statements we have classified the resultsrestructuring of our ~~MDSS segment as discontinued operations in our condensed consolidated statement of operations for all periods presented.~~company.

Business Segments

As of ~~December~~March 31, ~~2018,~~2020, our business is organized into ~~three~~five reportable segments:

•Diagnostic Services

•Mobile Healthcare

•Diagnostic Imaging

•Building and Construction

•Real Estate and Investments

Diagnostic Services.Through Diagnostic Services, we offer a convenient and economically efficient imaging and monitoring services program as an alternative to purchasing equipment or outsourcing the procedures to another physician or imaging center. For physicians who wish to perform nuclear imaging, echocardiography, vascular or general ultrasound tests, we provide imaging systems, qualified personnel, radiopharmaceuticals, licensing services, and the logistics required to perform imaging in their own offices, and thereby the ability to bill Medicare, Medicaid, or one of the third-party healthcare insurers directly for those services, which are primarily cardiac in nature. We provide imaging services primarily to cardiologists, internal medicine physicians, and family practice doctors who typically enter into annual contracts for a set number of days ranging from once per month to five times per week.

Mobile Healthcare.Through Mobile Healthcare, we provide contract diagnostic imaging, including computerized tomography (“CT”), magnetic resonance imaging (“MRI”), positron emission tomography (“PET”), PET/CT, and nuclear medicine and healthcare expertise to hospitals, integrated delivery networks (“IDNs”), and federal institutions on a long-term contract basis, as well as provisional (short-term) services to institutions that are in transition. ~~These~~Rather than our customers owning the equipment directly and operating the related services, ~~are provided primarily~~we provide this service when there is a cost, ease, and efficiency ~~component of providing the services directly rather than owning and operating the related services and equipment directly by our customers.~~benefit.

Diagnostic Imaging.Through Diagnostic Imaging, we sell 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. Our imaging systems are sold in both portable and fixed configurations, provide enhanced operability and improved patient comfort, fit easily into floor spaces as small as seven feet by eight feet, and facilitate the delivery of nuclear medicine procedures in a physician’s office, an outpatient hospital setting, or within multiple departments of a hospital (e.g., emergency and operating rooms). Our Diagnostic Imaging segment revenues derive primarily from selling solid-state gamma cameras and post-warranty camera maintenance contracts.

Building and Construction. 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. KBS is a Maine-based manufacturer that started business in 2001 as a manufacturer of modular homes. Our focus is to offer high quality products for both commercial and residential buildings with a focus on customization to suit the project requirements, provide value with our engineering and design expertise, and deliver product when required by the customer. 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. We provide high quality building materials and unmatched service and attention to detail to building professionals, as well as homeowners. In addition, we provide highly personalized service, knowledgeable salespeople and attention to detail that the larger, big-box chain home stores do not provide. We offer a superior products unique to each project’s requirements, provide value with our engineering and design expertise that meet the customer’s needs, while staying cost-competitive and on schedule. While EdgeBuilder supplies the wall panels, Glenbrook supplies “loose lumber” such as floor and roof sheathing, bracing, and hardware with a “tandem” approach to every project. Our production strategy is to utilize automation and the most efficient methods of manufacturing and high-quality materials in all of our projects.

Real Estate and Investments. As part of the HoldCo Conversion, Digirad formed a real estate division under a newly formed subsidiary named Star Real Estate Holdings USA, Inc. (“SRE”) for the purposes of holding significant real estate assets that Digirad acquires. As an initial transaction to create Digirad’s real estate division under SRE and launch that aspect of the HoldCo Conversion, in April 2019, Digirad funded the initial purchase of three manufacturing facilities in Maine that manufacture modular buildings and leased those three properties. The funding of the assets acquisition was primarily through the revolver loan under our SNB Credit Facility. Digirad expects SRE to be substantially self-funded over time and SRE has recently closed a commercial mortgage financing with Gerber, whereby monies raised will be injected into KBS. Lone Star Value Management, LLC (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. LSVM provides services that include investment advisory services and the servicing of pooled investment vehicles. The Company expects to use LSVM to make strategic investments in future potential acquisition targets for the Company.

Our Market

Healthcare Services and Products

Diagnostic imaging depictions of the internal anatomy or physiology are generated primarily through non-invasive means. Diagnostic imaging facilitates the early diagnosis of diseases and disorders, often minimizing the scope, cost, and amount of care required and reducing the need for more invasive procedures. Currently, the major types of non-invasive diagnostic imaging technologies available are: x-ray, MRI, CT, ultrasound, PET, and nuclear imaging. The ~~target~~most widely used imaging acquisition technology utilizing gamma cameras is single photon emission computed tomography, or SPECT. All our current internally-developed cardiac gamma cameras employ SPECT technology.

Diagnostic imaging is the standard of care in diagnosis of diseases and disorders. We offer, through our businesses, the majority of these diagnostic imaging modalities. All of the diagnostic imaging modalities that we offer (both from provision of services and product sales) have been consistently utilized in clinical applications for many years, and are stable in their use and need. By offering a wide array of these modalities, we believe that we have strategically diversified our operations in possible changing trends of utilization of one diagnostic imaging modality from another.

Construction Services and Products

In the building and construction business, KBS markets its modular homes products through a direct sales organization and through inside sales, outside sales, a network of independent dealers, builders, and contractors in the New England states (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont). KBS’s direct sales organization is responsible for all commercial building projects, and works with developers, architects, owners, and general contractors to establish the scope of work, terms of payment, and general requirements for each project. KBS’s sales people also work with independent dealers, builders, and contractors to accurately configure and place orders for residential homes for their end customers. KBS’s network of independent dealers and contractors do not work with it exclusively, although many have KBS model homes on display at their retail centers. KBS does not assign exclusive territories to its independent dealers and contractors, but they tend to sell in areas of New England where they will not be competing against another KBS dealer or contractor. KBS’s backlog and pipeline, along with its market initiatives to build more workforce housing, are expected to position KBS for growth in 2020.

EBGL markets its engineered structural wall panels and permanent wood foundation systems through direct sales people and a network of builders, contractors and developers in and around Minneapolis and St. Paul areas. EBGL’s direct sales organization is responsible for both residential and commercial projects and it works with general contractors, developers and builders to provide bids and quotes for specific projects. Our marketing efforts include participation in industry trade shows, production of product literature, and sales support tools. These efforts are designed to generate sales leads for our ~~products~~independent builders and ~~services is comprised of cardiologists, internal medicine physicians, family practice physicians, hospitals, IDNs,~~dealers, and federal institutions in the United States that perform or could perform a diagnostic imaging procedure, have a need for cardiac event monitoring, or have interest in purchasing a diagnostic imaging product. During the year ended December 31, 2018, through Diagnostic Services and Mobile Healthcare, we provided imaging services to 992 physicians, physician groups, hospitals, IDNs and federal institutions. Our Diagnostic Services and Mobile Healthcare businesses currently operate in approximately 40 states. In the past, our market has been negatively affected by lower reimbursements from the Center for Medicare and Medicaid Services (“CMS”) and third-party insurance providers for the codes under which our customers bill for our services, although reimbursements have stabilized in the last several years. We have addressed, and will continue to address, these market pressures by modifying our Diagnostic Services and Mobile Healthcare business models, and by assisting our healthcare customers in complying with new regulations and requirements.direct salespeople.

Trends and Drivers

The market for diagnostic ~~services~~products and ~~products~~services is highly competitive. Our business, which is focused primarily on the private practice and hospital sectors, continues to face ~~uncertainty in the~~challenges of demand for diagnostic services and imaging equipment, which we believe is due in part to the impact of the Deficit Reduction Act on the reimbursement environment and the 2010 Healthcare Reform laws, as well as general uncertainty in overall healthcare and legislative changes in healthcare, such as the Affordable Care Act. These challenges have impacted, and will likely continue to impact, our operations. We believe that the principal competitive factors in our market include acceptance by hospitals and physicians, relationships that we develop with our customers, budget availability for our capital equipment, ~~qualifications~~requirements for reimbursement, pricing, ease-of-use, reliability, and mobility.

Diagnostic Services.In providing ~~Diagnostic Services imaging~~diagnostic services, we compete against many smaller local and regional nuclear ~~and~~and/or ultrasound providers, often owner-operators that may have lower operating costs. The fixed-installation operators often utilize older, used equipment, and the mobile operators may use older Digirad single-head cameras or newer dual-head cameras. We are the only mobile provider with our own exclusive source of triple-head mobile systems. Some competing operators place new or used cameras into physician offices and then provide the staffing, supplies, and other support as an alternative to a Diagnostic Services service contract. In addition, we compete against imaging centers that install fixed nuclear gamma cameras and make them available to referring physicians in their geographic vicinity. In these cases, the physician sends their patients to the imaging center.

Diagnostic Imaging. In selling our imaging systems, we compete against several large medical device manufacturers who offer a full line of imaging cameras for each diagnostic imaging technology, including x-ray, MRI, CT, ultrasound, nuclear medicine, or SPECT/CT and PET/CT hybrid imagers. The existing nuclear imaging systems sold by these competitors have been in use for a longer period of time than our internally developed nuclear gamma cameras, and are more widely recognized and used by physicians and ~~hospitals;~~hospitals for nuclear imaging; however, they are generally not solid-state, ~~light-weight,~~lightweight, as flexible, or portable. Additionally, certain medical device companies have developed a version of solid-state gamma cameras that may directly compete with our product offerings. Many of the larger multi-modality competitors enjoy significant competitive advantages over us, including greater brand recognition, greater financial and technical resources, established relationships with healthcare professionals, broader distribution networks, more resources for product development and marketing and sales, and the ability to bundle products to offer discounts.

Mobile Healthcare. The market for selling, servicing, and operating diagnostic imaging services, patient monitoring equipment, and imaging systems is highly competitive. In providing our Mobile Healthcare services, we compete against a few large national and regional providers. In addition to direct competition from other providers of services similar to those offered by us, we compete with freestanding imaging centers and healthcare providers that have their own diagnostic imaging systems, as well as with equipment manufacturers that sell imaging equipment directly to healthcare providers for permanent installation. Some of the direct competitors, which provide contract MRI and PET/CT services, have access to greater financial resources than we do. In addition, some of our customers are capable of providing the same services we provide to their patients directly, subject only to their decision to acquire a high-cost diagnostic imaging system, assume the financial and technology risk, and employ the necessary technologists, rather than obtain equipment and services from us. We may also experience greater competition in states that currently have certificate of need laws if such laws were repealed, thereby reducing barriers to entry and competition in those states. We also compete against other similar providers in quality of services, quality of imaging systems, relationships with healthcare providers, knowledge and service quality of technologists, price, availability, and reliability.

~~Proposed Acquisition~~Building and Construction. The market for building and construction is highly competitive. KBS is a regional manufacturer of ~~ATRM Holdings, Inc.~~

~~As described above, on September 10, 2018, we announced a potential acquisition of ATRM. As currently contemplated by the non-binding letter of intent~~modular housing units with ~~ATRM (the “LOI”), ATRM stockholders would receive consideration consisting of 0.4 shares of Digirad common stock for each share of outstanding ATRM common stock we acquire~~its primary market in the ~~ATRM Acquisition. The issuance of Digirad common stock~~New England states. Several modular manufacturers are located in connection with the ATRM Acquisition is expected to increase the number of shares of outstanding Digirad common stock by less than 5%. Proceeding with the ATRM Acquisition is subject to, among other things, ATRM becoming current with its filings with the SECthese New England states and ~~the negotiation~~in nearby Pennsylvania. Some competitors have manufacturing locations in Canada and execution of definitive documentation. The ATRM Acquisition has been approved by a special committee of independent directors of ATRM. The final terms of the ATRM Acquisition are subject to change depending on the outcome of our due diligence investigation and may differ from those reflected in the LOI, and there can be no assurance that we will complete the ATRM Acquisition or the HoldCo Conversion.

On December 14, 2018, Digirad and ATRM, entered into a joint venture and formed Star Procurement, LLC (“Star Procurement”), with Digirad and ATRM each holding a 50% interest. The purpose of the joint venture is to provide the service of purchasing and selling building materials and related goods to KBS Builders, Inc., a wholly-owned subsidiary of ATRM 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, Digirad made a $1.0 million capital contributionship their products to the ~~joint venture, which was made in January 2019.~~United States. KBS’s competitors include Apex Homes, Commodore Corporation, Skyline Champion Homes, Custom Building Systems, Durabuilt, Excel Homes, Huntington Homes, Icon Legacy Homes, Kent Homes (Canada), Maple Leaf Homes (Canada), Muncy Homes, New England Homes, New Era, Pennwest, Premier Builders (PA), Professional Builders Systems, RCM (Canada), Redmond Homes, Ritz-Craft, Simplex Homes, and Westchester Modular. EBGL is a regional manufacturer of engineered structural wall panels and permanent wood foundation systems, and also has a local retail business. EBGL’s market is primarily the Upper Midwest states (Iowa, Minnesota, Missouri, North Dakota, South Dakota, and Wisconsin). EBGL’s competitors include Precision Wall Systems, Component Manufacturing Company, JL Schwieters Construction, Arrow Building Center, and Marshall Truss Systems Incorporated. EBGL’s professional building supply business competes on a local level against both small, local lumber yards, regional building supply companies and to a certain degree, the “big box” stores such as Home Depot, Lowe’s, and Menard’s.

On December 14, 2018, the Company received an unsecured promissory note from ATRM in the principal amount of $0.3 million (the “ATRM Note”) in exchange for a loan to ATRM in the same amount. The ATRM Note bears interest at 10% per annum for the first 12 months of its term,Real Estate and at 12% per annum for the remaining 12 months. All unpaid principal and interest is due on December 14, 2020. ATRM may prepay the note at any time after a specified amount of advance notice to the Company. The ATRM Note provides for customary events of default, the occurrence of any of which may result in the principal and unpaid interest then outstanding becoming immediately due and payable.

Jeffrey E. Eberwein, the Chairman of our board of directors and the Chairman of the board of directors of ATRM, owns approximately 17.4% of the outstanding common stock of ATRM. Mr. Eberwein is also the Chief Executive Officer of Lone Star Value Management, LLC, which is the investment manager of Lone Star Value Investors, LP (“LSVI”). LSVI owns 222,577 shares of ATRM’s 10.0% Series B Cumulative Preferred Stock (the “Series B Stock”) and another 374,562 shares of Series B Stock are owned directly by Lone Star Value Co-Invest I, LP (“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 disclaims beneficial ownership of Series B Stock, except to the extent of his pecuniary interest therein.

~~Series A Preferred Stock Offering~~

The Company has filed a registration statement on Form S-1 with the SEC for a potential offering of nonconvertible Series A Preferred Stock. However, it is unlikely that the Company will proceed with its proposed offering of nonconvertible preferred stock on substantially the terms described in the registration statement.

~~Acquisitions and Leases of Maine Facilities~~

Investments. As part of the HoldCo Conversion, weDigirad formed a real estate division under a newly formed subsidiary named Star Real Estate Holdings USA, Inc. (“SRE”)~~. SRE will hold any~~ for the purposes of holding significant real estate assets ~~we acquire. We expect~~that Digirad acquires. As an initial transaction to create Digirad’s real estate division under SRE and launch that aspect of the HoldCo Conversion, in April 2019, Digirad funded the initial purchase of three manufacturing facilities in Maine that manufacture modular buildings and leased those three properties. The funding of the assets acquisition was primarily through the revolver loan under our SNB Credit Facility. Digirad expects SRE to be substantially self-funded over time by raising its own capital in the form of commercial mortgages on the properties it owns or by raising other forms of external capital. As ~~an initial transaction to create our real estate division under SRE and launch that aspect~~part of the ~~HoldCo Conversion, we purchased three plants in Maine that manufacture modular buildings and leased these three properties, as further described below.~~

~~Oxford~~

On March 27, 2019, 56 Mechanic Falls Road, LLC (“56 Mechanic”), a wholly-owned subsidiary of SRE, entered into a Purchase and Sale Agreement (the “Oxford Purchase Agreement”) with RJF - Keiser Real Estate, LLC (“RJF”), pursuant to which 56 Mechanic will purchase certain real property and related improvements and personal property (including buildings, fixtures, and other improvements on the land, and all machinery and equipment and other personal property, if any, owned by RJF and located on the property) located in Oxford, Maine (the “Oxford Facility”) from RJF (the “Oxford Transaction”). The Oxford Transaction was closed on April 25, 2019. The purchase priceinvestment arm of the ~~Oxford Facility was $1.2 million (the “Oxford Purchase Price”), subject~~Company, LSVM, a Connecticut based exempt reporting advisor may make strategic investments in future potential acquisition targets for the Company or in pursuit of other strategic relationships. LSVM currently also provides investment advisory services and manages assets of related and unrelated parties to ~~adjustment for taxes and other charges and assessments.~~

~~Waterford~~

On April 3, 2019, 947 Waterford Road, LLC (“947 Waterford”), a wholly-owned subsidiary of SRE, entered into a Purchase and Sale Agreement (the “Waterford Purchase Agreement”) with KBS Builders, Inc. (“KBS”), a wholly-owned subsidiary of ATRM, 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 $1.0 million, subject to adjustment for taxes and other charges and assessments.

~~Paris~~

On April 3, 2019, 300 Park Street, LLC (“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 $2.9 million, subject to adjustment for taxes and other charges and assessments.

~~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 120 months, which is subject to extension. The base rental payments associated with the initial term under the Waterford Lease are estimated to be between $1.2 million and $1.3 million in the aggregate. The Park Lease has an initial term of 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 $3.3 million and $3.6 million in the aggregate. ATRM has 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 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 Oxford Transaction. The initial term under the Oxford Lease will commence upon delivery of the Oxford Facility to KBS. The Oxford Lease has an initial term of 120 months, which is subject to extension. The base rental payments associated with the initial term under the Oxford Lease are estimated to be between $1.4 million and $1.5 million in the aggregate. ATRM has 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.Company through pooled investment vehicles.

Critical Accounting Policies and Estimates

In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our revenue and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet. We believe that the estimates, assumptions, and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates.

Results of Operations

Comparison of the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019

The following table summarizes our results for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	Three Months Ended March 31,																Three Months Ended March 31,
	2019			Percent of Revenues		2018			Percent of Revenues		Change from Prior Year						2020		Percent of Revenues		2019		Percent of Revenues		Change from Prior Year
											Dollars			Percent															Dollars	Percent
Total revenues	$	23,912		100.0	%	$	25,465		100.0	%	$	(1,553	)	(6.1	)%	Total revenues	$	28,857	100.0	%	$	23,912	100.0	%	$	4,945	20.7	%
Total cost of revenues	19,931			83.4	%	20,858			81.9	%	(927		)	(4.4	)%	Total cost of revenues	24,416		84.6	%	19,931		83.4	%	4,485		22.5	%
Gross profit	3,981			16.6	%	4,607			18.1	%	(626		)	(13.6	)%	Gross profit	4,441		15.4	%	3,981		16.6	%	460		11.6	%
Total operating expenses	5,116			21.4	%	6,216			24.4	%	(1,100		)	(17.7	)%	Total operating expenses	7,045		24.4	%	5,116		21.4	%	1,929		37.7	%
Loss from operations	(1,135		)	(4.7	)%	(1,609		)	(6.3	)%	474			(29.5	)%	Loss from operations	(2,604)		(9.0)	%	(1,135)		(4.8)	%	(1,469)		129.4	%
Total other expense	(530		)	(2.2	)%	(234		)	(0.9	)%	(296		)	126.5	%	Total other expense	(315)		(1.1)	%	(530)		(2.2)	%	215		(40.6)	%
Loss before income taxes	(1,665		)	(7.0	)%	(1,843		)	(7.2	)%	178			(9.7	)%	Loss before income taxes	(2,919)		(10.1)	%	(1,665)		(7.0)	%	(1,254)		75.3	%
Income tax benefit	8			—	%	455			1.8	%	(447		)	(98.2	)%
Net loss from continuing operations	(1,657		)	(6.9	)%	(1,388		)	(5.5	)%	(269		)	19.4	%
Net income from discontinued operations	—			—	%	5,494			21.6	%	(5,494		)	(100.0	)%
Net (loss) income	$	(1,657	)	(6.9	)%	$	4,106		16.1	%	$	(5,763	)	(140.4	)%
Income tax (expense) benefit																Income tax (expense) benefit	(34)		(0.1)	%	8		—	%	(42)		(525.0)	%

Net loss																Net loss	$	(2,953)	(10.2)	%	$	(1,657)	(7.0)	%	$	(1,296)	78.2	%

~~As described in Note 2~~ ~~Discontinued Operations~~ of the unaudited condensed consolidated financial statements, the results of our MDSS reportable segment have been reported as discontinued operations for all periods presented. During the three months ended March 31, 2018, discontinued operations includes a $6.3 million gain on the sale of our MDSS post-warranty service contracts to Philips that closed on February 1, 2018.

Liquidity and Capital Resources

Overview

We ~~used~~generated cash of ~~$2.2~~$0.6 million from operations during the three months ended March 31, ~~2019.~~2020. Cash flows from operations primarily ~~represents~~consists of our net loss (adjusted for depreciation, amortization, and other non-cash items), ~~as well as~~and the net effect of changes in working capital. Cash flows from investing activities primarily ~~represent~~consist of our investment in capital equipment required to maintain and grow our business, as well as acquisitions and dispositions. Cash flows from financing activities primarily ~~represent~~consist of our net proceeds from borrowings and receipt of cash related to the exercise of stock options, offset by outflows ~~related to~~for dividend payments and the repayments of long-term borrowings.

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from operations, and ~~availability on our revolving line of~~funds available under various credit ~~from our Sterling Credit Agreement.~~facilities. As of March 31, ~~2019,~~2020, we had ~~$0.8~~$1.4 million of cash and cash equivalents and as ~~well as $7.5~~$4.7 million available under our Sterling revolving line of credit.

We require capital, principally for capital expenditures, acquisition activity, dividend payments and to finance accounts receivable and inventory. Our working capital requirements vary from period to period depending on inventory requirements, the timing of deliveries, and the payment cycles of our customers. Our capital expenditures consist primarily of medical imaging and diagnostic devices utilized in the provision of our services, as well as vehicles and information technology hardware and software. ~~Based upon~~

The accompanying financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and settlement of obligations in the normal course of business. We incurred net losses from operations of approximately $2.6 million and $1.1 million for the three months ended March 31, 2020 and 2019, respectively. We have an accumulated deficit of $121.5 million and $118.5 million as of March 31, 2020 and 2019, respectively. However, we were able to generate positive cash flow from operations of $0.6 million for the three months ended March 31, 2020 compared to a negative cash flow from operations of $2.2 million for the same prior year period in 2019.

As of March 31, 2020, we had approximately $1.2 million in third party credit facilities and $2.0 million in related party notes coming due in the current business cycle. As of December 31, 2019, we have a covenant breach with Gerber and obtained a waiver letter as disclosed in the Note 8, Debt. In January 2020, as discussed more fully below, we refinanced our ~~current level~~debt with Gerber and Premier and reset the debt covenants with these lenders.

The operating losses resulted predominantly from our Building and Construction division. As a part of ~~expenditures, we believe our current working capital, together~~the ATRM Merger, ATRM has restructured operations to focus more on higher value added properties and larger commercial projects with ~~cash flows from operating activities,~~the goal of increasing sales prices and increasing margins.

Should the Company not be able to increase sales and profit margins in the Building and Construction division, the Company may require additional support. To this end, a significant shareholder and lender has committed to provide financial support to the Company by providing written assurances that he will ~~be more than adequate~~(a) not call approximately $2.0 million of related party debt when it becomes due in October 2020; and (b) extend through June 2021 the Company’s put option with this shareholder of $1.0 million in Series A Cumulative Perpetual Preferred stock. Management believes that the Company has the liquidity and operations to ~~meet our anticipated cash requirements for at least~~continue to support the business through the next 12 ~~months.~~months from the issuance of this Quarterly Report. The Company’s ability to continue as a going concern is dependent on its ability to execute its plans.

Equity Offering

On April 30, 2020, the Company filed a registration statement with the SEC relating to a public offering of the Company’s common stock for potential gross proceeds of up to $5 million, before fees and expenses (the “Registration Statement”).The Registration Statement has not yet become effective and the securities registered thereunder may not be sold, nor may offers to buy be accepted, prior to the time the Registration Statement becomes effective.

Cash Flows

The following table shows cash flow information for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (in thousands):

Three Months Ended March 31,
2019 2018
Net cash (used in) provided by operating activities $ (2,185 ) $ 420
Net cash (used in) provided by investing activities $ (990 ) $ 6,669
Net cash provided by (used in) financing activities $ 2,428
$ (7,932 )


	Three Months Ended March 31,
	2020		2019
Net cash provided by (used in) operating activities	$	623	$	(2,185)
Net cash used in investing activities	$	(135)	$	(990)
Net cash (used in)provided by financing activities	$	(957)	$	2,428

Operating Activities

The ~~decrease~~increase in cash compared to the prior year ~~quarter~~period was primarily due to ~~lower net income adjusted for non-cash items as a result of higher~~increased accounts receivable ~~and lower accounts payable.~~collections.

Investing Activities

The decrease in ~~cash provided by~~ investing activities cash flow compared to the prior year ~~quarter~~period was primarily attributable to ~~$6.8 million of proceeds received from the sale of our MDSS service contract business to Philips during the prior year quarter.~~lower capital expenditures.

Financing Activities

The ~~increase~~decrease in cash flows from financing activities is primarily due to net ~~borrowings~~principal repayments of approximately ~~$3.0~~$0.4 million compared to net principal ~~repayments~~borrowings in the prior year quarter of ~~$6.5~~$3.0 million as we used proceeds from the Sterling National Bank credit facility to ~~refinance and terminate~~finance the ~~Comerica Credit Agreement (see further discussion below).~~purchase of three Maine properties.

Sterling Credit Facility

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

The SNB Loan Agreement is a five-year credit facility maturing in March 2024, with a maximum credit amount of $20.0 million for both revolving loans and outstanding letter of credit obligations (the “SNB Credit Facility”). Under the SNB Credit Facility, the SNB Borrowers can request the issuance of letters of credit in an aggregate amount not to exceed $0.5 million at any one time outstanding.

At the SNB Borrowers’ option, the SNB Credit Facility will bear interest at either (i) a Floating LIBOR Rate, as defined in the SNB Loan Agreement, plus a margin of 2.50% per annum; or (ii) a Fixed LIBOR Rate, as defined in the SNB Loan Agreement, plus a margin of 2.25% per annum.

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 ~~under the~~with Comerica Bank (the “Comerica Credit ~~Agreement.~~

Facility”).

The SNB Loan Agreement includes certain representations, warranties of SNB Borrowers, as well as events of default and certain affirmative and negative covenants by the SNB Borrowers that are customary for loan agreements of this type. These covenants include restrictions on borrowings, investments and dispositions by SNB Borrowers, as well as limitations on the SNB Borrowers’ ability to make certain distributions. Upon the occurrence and during the continuation of an event of default under the SNB Loan Agreement, SNB may, among other things, declare the loans and all other obligations under the SNB Loan Agreement immediately due and payable and increase the interest rate at which loans and obligations under the SNB Loan Agreement bear interest. The SNB Credit Facility is secured by a first-priority security interest in substantially all of the assets of the Company and the SNB Borrowers and a pledge of all shares of the SNB Borrowers.

In connection with the SNB Credit Facility, in the ~~three~~twelve months ended ~~March~~December 31, 2019 the Company recognized a $0.2 million loss on extinguishment due to the write off of unamortized deferred financing costs associated with the Comerica Credit ~~Agreement.~~Facility.

At March 31, ~~2019,~~2020, the Company was in compliance with SNB covenants.

ATRM Promissory Notes

See Note 12, 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 Finance Inc. (“Gerber”). The KBS Loan Agreement provides KBS with a revolving line of credit with borrowing availability of up to $4.0 million.Availability under the line of credit is based on a formula tied to KBS’s eligible accounts receivable, inventory and other collateral.The KBS Loan Agreement, which was scheduled to expire on February 22, 2018, has been automatically extended for successive one (1) year periods in accordance with its terms and is now scheduled to expire on February 22, 2021. The KBS Loan Agreement will be automatically extended for another one (1) year period unless a party thereto provides prior written notice of termination As of March 31, 2020, neither parties has provided notice of termination. Upon the final expiration of the term of the KBS Loan Agreement, the outstanding principal balance is payable in full. Borrowings bear interest at the prime rate plus 2.75%, with interest payable monthly. The KBS Loan Agreement also provides for certain fees payable to Gerber during its term, including a 1.5% annual facilities fee and a 0.10% monthly collateral monitoring fee. KBS’s obligations under the KBS Loan Agreement are secured by all of its assets and are guaranteed by ATRM. Unsecured promissory notes issued by KBS and ATRM are subordinate to KBS’s obligations under the KBS Loan Agreement. The KBS Loan Agreement contains representations, warranties, affirmative and negative covenants, defined events of default and other provisions customary for financings of this type. Financial covenants require that KBS maintain a maximum leverage ratio (as defined in the KBS Loan Agreement) and KBS not incur a net annual post-tax loss in any fiscal year during the term of the KBS Loan Agreement.

The parties to the KBS Loan Agreement have amended the KBS Loan Agreement to provide for increased availability under the KBS Loan Agreement to KBS under certain circumstances, including for new equipment additions, and certain other changes, as well as a waiver of certain covenants.

As of December 31, 2019 and 2018, KBS was not in compliance with the financial covenants requiring no net annual post-tax loss for KBS or the minimum leverage ratio covenant as of 2018. The occurrence of any event of default under the KBS Loan Agreement may result in KBS’s obligations under the KBS Loan Agreement becoming immediately due and payable. In April 2019, June 2019 and February 2020, we obtained a waiver from Gerber for these events. In addition obtaining a waiver for these covenants, the Company and Gerber agreed to eliminate the minimum leverage ratio covenant for fiscal years after 2018.

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 $0.3 million. Additionally, ATRM had on deposit $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 January 31, 2020, the Company, ATRM, KBS and Gerber entered into a Thirteenth Amendment to Loan and Security Agreement (the “Thirteenth Amendment”) to amend the terms of the KBS Loan Agreement, in order to, among other things (a) amend the definitions of “Ancillary Credit Parties,” “Guarantor,” “Obligations,” and “Subordinated Lender” to address the obligations of the Star Borrowers, the EBGL Borrowers, the Star Credit Parties, and the EBGL Credit Parties under the Star Loan Agreement, EBGL Loan Agreement and the Subordination Agreements (each as defined below) to which they are a party and (b) add a new cross default provision. As of March 31, 2020, approximately $0.6 million was outstanding under the KBS Loan Agreement.

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 (25%) of the Maximum Revolving Amount (as defined in the KBS Loan Agreement).

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 Bank (“Premier”) providing EBGL with a working capital line of credit of up to $3.0 million. The Premier Loan Agreement replaced the prior revolving credit facility 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 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 by Premier until February 1, 2019, and in July 2019, it was extended further by Premier until October 1, 2019. On October 1, 2019, it was extended until November 1, 2019; and on November 1, 2019, was extended until January 1, 2020; and on January 31, 2020, it was extended until 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.

As of December 31, 2019, EBGL was in compliance with the following covenants under the Premier Loan Agreement: (i) a requirement to maintain a Debt Service Coverage Ratio for the calendar year of at least 1.0; and (ii) a requirement to deliver ATRM’s fiscal year-end audited financial statements within 120 days of the end of each calendar year. The occurrence of any event of default under the Premier Loan Agreement may result in EBGL’s obligations under the Premier Loan Agreement becoming immediately due and payable.

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 that certain Revolving Credit Promissory Note (the “Premier Note”) made by Glenbrook and EdgeBuilder pursuant to that the Premier Loan Agreement. Pursuant to the Modification Agreement, the amount of indebtedness evidenced by the Premier Note was reduced to $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 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 March 31, 2020, approximately $1.0 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 $2.5 million ($2.0 million and $0.5 million to KBS and EBGL, respectively) (the “Star Term Loan”). The advance of $2.0 million to KBS is to be repaid in monthly installments of sixty (60) consecutive equal payments. The advance of $0.5 million to EBGL, which has been temporarily increased by $0.3 million due to be repaid on April 30, 2020, is to be repaid in monthly installments of twelve (12) consecutive equal payments. On February 20, 2020, the Star Borrowers entered into a First Amendment to Loan and Security Agreement (the “First Star Amendment”) with Gerber that amended the Star Loan Agreement in order to (i) temporarily advance $0.3 million to EBGL, which amount was, prior to the Second Star Amended described below, 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 Term 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 $0.3 million to EBGL provided for under the First Star Amendment.Under the terms of the Second Star Amendment, the advance of $0.3 million to EBGL is to be repaid in three (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 March 31, 2020, approximately $2.4 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 $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 $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.As of March 31, 2020, approximately $1.3 million was outstanding under the EBGL Loan Agreement.

Availability under the Star Loan Agreement is based on a formula tied to the value of real estate owned by the Star Borrowers, and borrowings bear interest at the prime rate plus 3.5% per annum. Availability under the EBGL Loan Agreement is based on a formula tied to the EBGL Borrowers’ eligible accounts receivable and inventory, and borrowings bear interest at the prime rate plus 2.75% per annum. The Loan Agreements also provide for certain fees payable to Gerber during their respective terms. The Star Term 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 Term Loan. The maturity of the EBGL Loan is automatically extended for successive periods of one (1) year each unless terminated by Gerber or the EBGL Borrowers.

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

The Star Loan Agreement and EBGL Loan Agreement contains representations, warranties, affirmative and negative covenants, events of default and other provisions customary for financings of this type. The financial covenants under the EBGL Loan Agreement applicable to the EBGL Borrowers include maintenance of a minimum tangible net worth, a minimum debt service coverage ratio and minimum net income. The Financial covenants under the Star Loan Agreement applicable to the Star Borrowers include a minimum debt service coverage ratio. The occurrence of any event of default under the Loan Agreements may result in the obligations of the Borrowers becoming immediately due and payable. As a condition to the extension of credit to the Star Borrowers and EBGL Borrowers under the Star Loan Agreement and EBGL Loan Agreement, the holders of certain existing unsecured promissory notes made by ATRM and certain of its subsidiaries entered into subordination agreements (the “Subordination Agreements”) with Gerber pursuant to which such noteholders (including the Company and certain of its subsidiaries) agreed to subordinate the obligations of ATRM and its subsidiaries to such noteholders to the obligations of the Star Borrowers and EBGL Borrowers to Gerber under the loan agreements.

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 $0.8 million (the “KBS Note”), the promissory note executed by EdgeBuilder is for $0.2 million (the “EdgeBuilder Note”) and the promissory note executed by Glenbrook is for $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 $0.8 million (the “Company Note”); the promissory note executed by DIS, dated May 5, 2020, is for $3.0 million (the “DIS Note”); the promissory note executed by DMS Imaging, dated May 5, 2020, is for $1.6 million (the “DMS Imaging Note”) and the promissory note executed by DMS Health, dated May 7, 2020, is for $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”.

The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The loans evidenced by the Construction Notes are being made through Bremer Bank (“Bremer”) as lender, and the loans evidenced by the Healthcare Notes are being made through Sterling as lender.

The loans evidenced by the PPP Notes (the “PPP Loans”) have two-year terms and bear interest at a rate of 1.00% per annum. Monthly principal and interest payments under the PPP Loans are deferred for six months. Beginning seven months from the date of a PPP Note, unless fully forgiven prior thereto, the applicable borrower will pay to its lender thereunder a monthly principal and interest payments. The PPP Loans may be prepaid at any time prior to maturity with no prepayment penalties. The Construction Notes mature on April 30, 2022, and the Healthcare Notes mature two years from the date the loans under the Healthcare Notes are disbursed. Loans under the Company Note and the DIS Note were disbursed on May 12, 2020, and the loans under the DMS Health Note and DMS Imaging Note were disbursed on May 13, 2020.

The PPP Notes contain customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or lender, or breaching the terms of the applicable PPP Loan documents. Upon an event of default under a PPP Note, the lender thereunder may, among other things, require immediate payment of all amounts owing under the applicable PPP Note, collect all amounts owing from the applicable borrower, or file suit and obtain judgment.

Under the terms of the CARES Act, recipients of loans under the PPP can apply for and be granted forgiveness for all or a portion of loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and certain other eligible costs. However, no assurance is provided that forgiveness for any portion of the PPP Loans will be obtained.

The Company is continuing to evaluate the criteria and new guidance put out by the SBA regarding qualification of loans under the PPP and the criteria for meeting loan conditions.

Off-Balance Sheet Arrangements

AsOn September 10, 2019, the parties to the KBS Loan Agreement entered a Consent and Acknowledgment Agreement and Twelfth Amendment to Loan Agreement, by and among Gerber, KBS, ATRM and the Company, pursuant to which the Company agreed to guarantee amounts borrowed by certain of ~~March~~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. On January 31, ~~2019, we did not have any off-balance sheet arrangements.~~2020, the Company, ATRM, KBS and Gerber entered into a Thirteenth Amendment to Loan and Security Agreement (the “Thirteenth Amendment”) to amend the KBS Loan Agreement, by and among the Company, ATRM, KBS and Gerber, in order to, among other things (a) amend the definitions of “Ancillary Credit Parties,” “Guarantor,” “Obligations,” and “Subordinated Lender” to address the obligations of the Star Borrowers, the EBGL Borrowers, the Star Credit Parties, and the EBGL Credit Parties under the Loan Agreements and the Subordination Agreements to which they are a party and (b) add a new cross default provision.On April 1, 2020, Gerber and KBS entered into a Fifteenth 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 (25%) of the Maximum Revolving Amount (as defined in the KBS Loan Agreement).See Note 8, Debt, within the notes to our unaudited condensed consolidated financial statements for further detail.


~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.


~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~

ITEM 4.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (the “Exchange Act”) reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive 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. ~~See Item 5. (Other Information) for a discussion of the security breach that occurred following March 31, 2019.~~

As ~~required by Rules 13a-15(e) and 15d-15(e) of the Exchange Act,~~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 ~~end of the period covered by this report.~~Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective ~~at the reasonable assurance level~~ as of March 31, ~~2019.~~2020.

The Company closed the acquisition of ATRM on September 10, 2019, and ATRM’s total assets and revenues constitute 38.9% and 19.1%, respectively, of the Company’s consolidated total assets and revenues as shown on our unaudited consolidated financial statements as of and for the three-months ended March 31, 2020. As the ATRM Acquisition occurred in the third quarter of fiscal 2019, we excluded the internal control over financial reporting of ATRM from the scope of our assessment of the effectiveness of the Company’s disclosure controls and procedures. This exclusion is in accordance with the general guidance issued by the Staff of the Securities and Exchange Commission that an assessment of a recently-acquired business may be omitted from the scope of our assessment for a period not to extend beyond one year from the date of acquisition, if specified conditions are satisfied.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control over Financial Reporting

~~There~~Except as described, below, there has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Subsequent to the ATRM Acquisition on September 10, 2019, certain elements of ATRM’s internal control over financial reporting and related processes were being integrated into the Company existing internal control over financial reporting process.

PART II. OTHER INFORMATION


~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~

ITEM 1.LEGAL PROCEEDINGS

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


~~ITEM 1A.~~	~~RISK FACTORS~~

ITEM 1A.RISK FACTORS

In evaluating us and our common stock, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, which we filed with the SEC on March ~~1, 2019,~~9, 2020, as amended on April 17, 2020, and in our registration statement on Form ~~S-1/A filed with~~S-1 relating to a public offering of the ~~SEC~~Company’s common stock for ~~the Preferred Offering on April 9, 2019.~~potential gross proceeds of up to $5 million, before fees and expenses (the “Offering”). Except as noted below, the risks and uncertainties described in “Item 1A - Risk Factors” of our Annual Report on Form 10-K have not materially changed. Any of the risks discussed in this Quarterly Report on Form 10-Q or any of the risks disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition.

Risks Related to Our Business and Industry

We face risks related to health pandemics and other widespread outbreaks of contagious disease, including the novel coronavirus, COVID-19, which could significantly disrupt our ~~Common Stock~~operations and impact our financial results.

Our business has been disrupted and could be materially adversely affected by the recent outbreak of COVID-19. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce. Global health concerns, such as coronavirus, could also result in social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate. The future progression of the outbreak and its effects on our business and operations are uncertain. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, including downturns in global economies and financial markets that could affect our future operating results. Any adverse impact on our results and financial condition could have a negative impact on our ability to comply with certain financial covenants in certain of our loan agreements (as described further below) and on your investment in our common ~~stock~~stock.

Our goodwill and other long-lived assets are subject to potential impairment that could negatively impact our earnings.

A significant portion of our assets consists of goodwill and other long-lived assets, the carrying value of which may be ~~subject to delisting~~reduced if we determine that those assets are impaired. At March 31, 2020, goodwill and net intangible assets represented $32.1 million, or 38.3% of our total assets. In addition, net property, plant and equipment assets totaled $20.8 million, or 24.8% of our total assets. If actual results differ from the ~~Nasdaq Global Market~~assumptions and estimates used in our goodwill and long-lived asset valuation calculations, we could incur impairment charges, which could negatively impact our earnings.

We review our reporting units for potential goodwill impairment annually or more often if ~~we do~~events or circumstances indicate that it is more likely than not ~~meet Nasdaq’s Minimum Bid Price Requirement.~~

~~On January 8, 2019, we received a deficiency letter from~~that the Nasdaq Listing Qualifications Department notifying us that, for the prior thirty consecutive business days, the closing bid price for our common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rules, we have been given 180 calendar days, or until July 8, 2019 to regain compliance with the Minimum Bid Price Requirement. If we do not regain compliance by July 8, 2019, we may transfer from The Nasdaq Global Market to The Nasdaq Capital Market and may be eligible for an additional compliance period of 180 days. To qualify for the additional compliance period, we will have to: (i) submit a transfer application and related application fees; (ii) meet the continued listing requirement for marketfair value of ~~publicly held shares and all other initial listing standards~~a reporting unit is less than its carrying amount. In addition, we test the recoverability of ~~The Nasdaq Capital Market (except for~~long-lived assets if events or circumstances indicate the bid price requirement); and (iii) provide written notice to Nasdaq of our intention to cure the deficiency during the additional 180-day compliance period by effecting a reverse stock split if necessary. If we do not qualify for an additional compliance period, or should we determine not to submit a transfer application or make the required representation, or if Nasdaq concludes that we willcarrying values may not be ~~able~~recoverable. Recoverability of long-lived assets is measured by comparison of their carrying amounts to ~~cure~~future undiscounted cash flows the ~~deficiency, Nasdaq will provide written notice~~assets are expected to usgenerate. We conduct impairment testing based on our current business strategy in light of present industry and economic conditions, as well as future expectations. There are numerous risks that ~~our common stock will~~may cause the fair value of a reporting unit to fall below its carrying amount and/or the value of long-lived assets to not be ~~subject~~recoverable, which could lead to ~~delisting.~~

~~On March 8, 2019, our board~~the measurement and recognition of directors unanimously approved, subject to stockholder approval, an amendment to our Restated Certificate of Incorporation to effect a reverse stock split of our outstanding common stock by a ratio of not less than 1-for-5 and not more than 1-for-10 at any time within 12 months following the date of stockholder approval of the reverse stock split, with the exact ratio to be set within this range by our board of directors at its sole discretion (the “Reverse Stock Split”), and a reduction of the number of authorized shares of common stock to 30 million shares authorized. Our board of directors may alternatively elect to abandon such proposed amendment and not effect the Reverse Stock Split authorized by stockholders, in its sole discretion. As proposed to our stockholders, our board of directors will have 12 months following stockholder approval to implement the Reverse Stock Split, and if we implement the Reverse Stock Split to regain compliance with the Minimum Bid Price Requirement by the July 8, 2019 deadline, we must complete the Reverse Split no later than ten business days prior to such deadline. The Reverse Stock Split (which includes the reduction of the number of authorized shares of common stock), if approved by our stockholders, would become effective at the time and date set forth in a certificate of amendment to our Restated Certificate of Incorporation to be filed with the Secretary of State of the State of Delaware. The form of the proposed certificate of amendment to our Restated Certificate of Incorporation to effect the Reverse Stock Split is attached as Appendix A to our preliminary proxy statement filed on March 8, 2019. If we choose to implement a reverse stock split, it must be completed no later than ten business days prior to July 8, 2019.

~~If we do not regain compliance with the Minimum Bid Price Requirement by July 8, 2019 and we~~goodwill and/or long-lived asset impairment. These risks include, but are not ~~eligible for an additional compliance period at that time,~~limited to, significant negative variances between actual and expected financial results, lowered expectations of future financial results, failure to realize anticipated synergies from acquisitions, adverse changes in the ~~staff will provide written notification to us that our common stock will be subject to delisting. At that time, we may appeal~~business climate, and the staff’s decision to a Nasdaq Listing Qualifications Panel (the “Panel”). We would remain listed pending the Panel’s decision. There can be no assurance that, if we do appeal a subsequent delisting determination by the staff to the Panel, that such an appeal would be successful.

loss of key personnel. If we are not able to ~~regain compliance with the Minimum Bid Price Requirement or do not transfer to The Nasdaq Capital Market, our common stock~~achieve projected performance levels, future impairments could be traded on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it would become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely be a reduction in our coverage by security analysts and the news media,possible, which could cause the price of our common stock to decline further. Additionally, the sale or purchase of our common stock would likely be made more difficult and the trading volume and liquidity of our common stock would likely decline. A delisting from the Nasdaq would also result in negative publicity and would negatively impact our ~~ability~~earnings.

During the year ended December 31, 2018, the Company derecognized $1.1 million of goodwill related to ~~raise capital~~the termination of the Philips Agreements with DMS Health effective December 31, 2017. Additionally, during the same period, the Company recorded a $0.5 million and $0.2 million goodwill impairment loss, respectively, related to Telerhythmics LLC (Telerhythmics), the Company’s cardiac event monitoring services business that was acquired on March 13, 2014. On October 31, 2018, the Company entered into a membership interest purchase agreement (the “Telerhythmics Purchase Agreement”) with G Medical Innovations USA, Inc. (“G Medical”), pursuant to which we sold all the outstanding membership interests in Telerhythmics to G Medical. On September 10, 2019, Digirad completed its acquisition of ATRM pursuant to the ~~future.~~ATRM Merger Agreement. The $8.2 million goodwill recognized is attributable primarily to expected synergies and the assembled workforce of ATRM. As of December 31, 2019, as a result of the finalization of the purchase price allocation for the ATRM Merger, an adjustment of $3.0 thousand was made to the recognized amounts of goodwill resulting from the acquisition of ATRM. No other significant impairment losses on long-lived assets were recognized during the three months ended March 31, 2020 and 2019.

~~Risks Related~~

If we are unable to secure contracts for certain modular housing projects to be constructed in New England pursuant to federal and state governmental contracts (the “KBS Projects”), or are unable to successfully complete the KBS Projects, our ~~Business~~revenues and ~~Industry~~results could be adversely affected.

~~Our HoldCo Conversion and related acquisitions or investments could involve unknown risks that could harm our business and adversely affect our financial condition.~~

We are in advanced stages of negotiation for contracts to secure the ~~process of becoming a diversified holding company with interests in a variety of industries and market sectors. The real estate acquisitions~~KBS Projects; however, we can provide no assurance that we ~~have made under our SRE real estate division and~~will be awarded the ~~pending and future acquisitions~~KBS Projects, that we ~~consummate will involve unknown risks, some of which~~ will be ~~particular~~able to successfully complete the ~~industry in which~~KBS Projects if they are awarded to KBS, or that the ~~acquisition target operates. Although~~anticipated revenues from the KBS Projects will be achieved. If we ~~intend to conduct extensive business, financial~~are not awarded the contracts for the KBS Projects, do not complete them as planned or do not receive payment for the KBS Projects as projected, then KBS’ and ~~legal due diligence in connection with the evaluation of all~~ our ~~acquisition~~revenues and ~~investment opportunities, there can be no assurance our due diligence investigations will identify every matter that could have a material adverse effect on us. We~~results may be unable to adequately address the financial, legal and operational risks raised by such acquisitions or investments, especially if we are unfamiliar with the industry in which we invest. The realization of any unknown risks could prevent or limit us from realizing the projected benefits of the acquisitions or investments, which could adversely affect our financial condition and liquidity. In addition, our financial condition, results of operations and the ability to service our debt will be subject to the specific risks applicable to any company we acquire or in which we invest.

~~We are subject to particular risks associated with real estate ownership, which could result in unanticipated losses or expenses.~~

Following our recent acquisition of real estate, our business is subject to many risks that are associated with the ownership of real estate. For example, if our tenants do not renew their leases or default on their leases, we may be unable to re-lease the facilities at favorable rental rates. Other risks that are associated with real estate acquisition and ownership include, without limitation, the following:

~~general liability, property and casualty losses, some of which may be uninsured;~~

~~the inability to purchase or sell our assets rapidly to respond to changing economic conditions, due to the illiquid nature of real estate and the real estate market;~~

~~leases which are not renewed or are renewed at lower rental amounts at expiration;~~

~~the default by a tenant or guarantor under any lease;~~

~~costs relating to maintenance and repair of our facilities and the need to make expenditures due to changes in governmental regulations, including the Americans with Disabilities Act;~~

~~environmental hazards created by prior owners or occupants, existing tenants, mortgagors or other persons for which we may be liable;~~

~~acts of God affecting our properties; and~~

~~acts of terrorism affecting our properties.~~

~~We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could materially harm our business.~~

We rely on information technology and systems, including the Internet, commercially available software, and other applications, to process, transmit, store, and safeguard information and to manage or support a variety of our business processes, including financial transactions and maintenance of records, which may include personal identifying information and other valuable or confidential information. If we experience material failures, inadequacies, or interruptions or security failures of our information technology, we could incur material costs and losses. Further, third-party vendors could experience similar events with respect to their information technology and systems that impact the products and services they provide to us or to our customers. We rely on commercially available systems, software, tools, and monitoring, as well as other applications and internal procedures and personnel, to provide security for processing, transmitting, storing, and safeguarding confidential information such as personally identifiable information related to our employees and others, information regarding financial accounts, and information regarding customers and vendors. We take various actions, and we incur significant costs, to maintain and protect the operation and security of our information technology and systems, including the data maintained in those systems. However, it is possible that these measures will not prevent the systems’ improper functioning or a compromise in security, such as in the event of a cyberattack or the improper disclosure of information. Security breaches, computer viruses, attacks by hackers, online fraud schemes, and similar breaches can create significant system disruptions, shutdowns, fraudulent transfer of assets, or unauthorized disclosure of confidential information. For example, in April 2019, we became aware that we had been a victim of criminal fraud commonly referred to as “business email compromise fraud.” The incident involved the impersonation of an officer of the Company and improper access to his email, resulting in the transfer by the Company of funds to a third-party account.

Despite any defensive measures we take to manage threats to our business, our risk and exposure to these matters remain heightened because of, among other things, the evolving nature of such threats in light of advances in computer capabilities, new discoveries in the field of cryptography, new and sophisticated methods used by criminals including phishing, social engineering, or other illicit acts, or other events or developments that we may be unable to anticipate or fail to adequately mitigate. Any failure to maintain the security, proper function and availability of our information technology and systems, or certain third-party vendors’ failure to similarly protect their information technology and systems that are relevant to our operations, or to safeguard our business processes, assets, and information could result in financial losses, interrupt our operations, damage our reputation, cause us to be in default of material contracts, and subject us to liability claims or regulatory penalties, any of which could materially and adversely affect us.affected.

Risks Related to our Indebtedness

On March 29, 2019, weDigirad and certain Healthcare Subsidiaries entered into ~~the SNB~~a Loan and Security Agreement with Sterling National Bank ~~a national banking association.~~(the “SNB Loan Agreement”). The SNB Loan Agreement is a five-year revolving credit facility (maturing in March 2024), which, as amended, has a maximum credit amount of ~~$20 million. We used~~$20.0 million (the “SNB Credit Facility”). On January 31, 2020, Digirad and certain of its Investments Subsidiaries entered into a ~~portion~~Loan and Security Agreement with Gerber (as amended, the “Star Loan Agreement”), which provides for a credit facility with borrowing availability of up to $2.5 million and matures on January 1, 2025, unless terminated in accordance with the terms therein (the “Star Term Loan”). On January 31, 2020, Digirad and certain of its Construction Subsidiaries entered into a Loan and Security Agreement with Gerber (the “EBGL Loan Agreement”), which provides for a credit facility with borrowing availability of up to $3.0 million and matures on January 1, 2022, unless extended or terminated in accordance with the terms therein (the “EBGL Loan”). On January 31, 2020, Glenbrook and EdgeBuilder entered into an Extension and Modification Agreement (the “Modification Agreement”) with Premier Bank (“Premier”) that modified the terms of the ~~financing~~loan made ~~available~~by Premier to Glenbrook and EdgeBuilder pursuant to that certain Revolving Credit Loan Agreement, dated June 30, 2017, by and among Glenbrook, EdgeBuilder and Premier (as amended, the “Premier Loan Agreement”). Pursuant to the Modification Agreement, the amount of indebtedness evidenced by the promissory note issued under the ~~SNB~~Premier Loan Agreement was reduced to ~~refinance and terminate, effective as of March 29, 2019, our previous~~$1.0 million. Our credit facility under the ~~Comerica Credit Agreement.~~

~~Our indebtedness could restrict our operations~~Loan and ~~make us more vulnerable~~Security Agreement, dated February 23, 2016, by and among KBS, ATRM, the Company and Gerber (as amended, the “KBS Loan Agreement”) provides for a revolving credit facility of up to ~~adverse economic conditions.~~

~~Our indebtedness could have important consequences~~$4.0 million that matures on February 22, 2021, subject to automatic extension for us and our stockholders. For example, the SNB Loan Agreement requires a balloon payment at the termination of the facility in March 2024, which may require us to dedicate a substantial portion of our cash flow from operations to this future payment if we feel we cannot be successful in our ability to refinance in the future, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, and acquisitions, and for other general corporate purposes. In addition, our indebtedness could:

~~increase our vulnerability to adverse economic and competitive pressures in our industry;~~

~~place us at a competitive disadvantage compared to our competitors that have less debt;~~

~~limit our flexibility in planning for, or reacting to, changes in our business and our industry; and~~

~~limit our ability to borrow~~an additional ~~funds on terms that are acceptable to us or at all.~~

year unless terminated. The SNB Loan Agreement, Star Loan Agreement, EBGL Loan Agreement, the Premier Loan Agreement and the KBS Loan Agreement are collectively referred to as the “Company Loan Agreements.” See Note 12, Related Party Transactions, within the notes to our accompanying unaudited consolidated financial statements for information regarding certain ATRM promissory notes that are outstanding.

The Company Loan Agreements governing our indebtedness ~~contains~~contain restrictive covenants that ~~will~~ restrict our operating flexibility and require that we maintain specified financial ratios. If we cannot comply with these covenants, we may be in default under one or more of the ~~SNB~~ Loan ~~Agreement.~~Agreements.

The ~~SNB~~ Loan ~~Agreement~~Agreements governing our indebtedness ~~contains~~contain restrictions and limitations on our ability to engage in activities that may be in our long-term best interests. The ~~SNB~~ Loan Agreement contains affirmative and negative covenants that limit and restrict, among other things, our ability to:

•incur additional debt;

•sell assets;

•incur liens or other encumbrances;

•make certain restricted payments and investments;

•acquire other businesses; and

•merge or consolidate.

The SNB Loan Agreement limits our ability to pay dividends and to redeem our equity securities if such dividend or redemption would result in our non-compliance with the financial covenants in the SNB Loan Agreement, there is insufficient borrowing availability under the SNB Loan Agreement, or if there is a default or event of default under the SNB Loan Agreement that has occurred and is continuing. In addition, the Company Loan Agreements include explicit restrictions on the payment of dividends and distributions to Digirad, which could limit the Company’s ability to pay dividends. The Company may, therefore be required to reduce or eliminate its dividends, if any, including on the ~~Series A~~Company Preferred Stock (if any outstanding), and/or may be unable to redeem shares of the ~~Series A~~Company Preferred Stock (if any outstanding) until compliance with such financial covenants can be met.

The ~~SNB~~ Loan ~~Agreement contains a fixed charge coverage ratio covenant and a leverage ratio covenant. Going~~Agreements contain various financial covenants that, going forward, we or our subsidiaries may not have the ability to ~~meet these and other~~meet. Due to increased financial pressure on the Company as a result of the COVID-19 pandemic, there is an increased likelihood that we may fail to comply with such financial covenants if the impacts of the pandemic persist for a significant duration. We cannot provide any assurance that any such breach of covenants will be able to be remedied or that they will not result in a default under the ~~SNB~~ Loan ~~Agreement depending on a number of factors including, without limitation,~~Agreements.

The Loan Agreements also contain various other affirmative and negative covenants regarding, among other things, the performance of our business, capital allocation decisions made by the Company and its subsidiaries, or events beyond our control.

Our failure to comply with our covenants and other obligations under the ~~SNB~~ Loan ~~Agreement~~Agreements may result in an event of default thereunder. A default, if not cured or waived, may permit acceleration of our indebtedness. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness (together with accrued interest and fees), or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all. This could have serious consequences to our financial condition, operating results, and business, and could cause us to become insolvent or enter bankruptcy proceedings, and stockholders may lose all or a portion of their investment because of the priority of the claims of our creditors on our assets.

~~Substantially all~~We may not be entitled to forgiveness of our ~~assets~~recently received PPP Loans, and our application for the PPP Loans could in the future be determined to have been ~~pledged to SNB as security for our indebtedness~~impermissible

During April and May, we received proceeds of $6.7 million from various loans under the ~~SNB Loan Agreement.~~

~~Pursuant to the SNB Loan Agreement, the SNB Loan Agreement is secured by a first-priority security interest in substantially all~~PPP of the ~~assets~~CARES Act, which we intend to use to retain current employees, maintain payroll and make lease and utility payments. The PPP Loans mature in April and May, 2022 and bear annual interest at a rate of 1.0%.

Commencing November and December, 2020, we are required to pay the lenders equal monthly payments of principal and interest as required to fully amortize by April and May, 2022 any principal amount outstanding on the PPP Loans as of October, 2020. Under the CARES Act, loan forgiveness is generally available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight week period beginning on the date the lender makes the first disbursement of the ~~Company and its subsidiaries and a pledge of all shares and equity interests~~PPP Loan. We will be required to repay any portion of the ~~Company’s subsidiaries. Upon~~outstanding principal that is not forgiven, along with accrued interest, and we cannot provide any assurance that we will be eligible for loan forgiveness, that we will ultimately apply for forgiveness equally among all business entities, or that any amount of the ~~occurrence and during~~PPP Loans will ultimately be forgiven by the ~~continuation~~SBA.

Furthermore, in April 2020, the Secretary of ~~an event~~the U.S. Department of ~~default under~~ the ~~SNB~~Treasury stated that the SBA will perform a full review of any PPP loan over $2.0 million before forgiving the loan. In order to apply for the PPP Loan, ~~Agreement, SNB may,~~we were required to certify, among other things, ~~declare~~that the ~~loans and all~~current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other ~~obligations under~~things, the ~~SNB Loan Agreement immediately due and payable and increase~~maintenance of our entire workforce, taking into consideration certain limitations associated with the ~~interest rate at which loans and obligations under the SNB Loan Agreement bear interest. The exercise by SNB~~nature of ~~remedies provided under the SNB Loan Agreement~~our work in the ~~event~~healthcare business and uncertainty of ~~a default thereunder~~the industry where healthcare clients resources may be diverted during the COVID-19 pandemic. In considering our position, the Company took into account our need for additional funding to continue operations, and our ability to access alternative forms of capital in the current market environment to offset the effects of the COVID -19 pandemic. Following this analysis, we believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the PPP of the CARES Act. The certification described above did not contain any objective criteria and is subject to interpretation. If, despite our good-faith belief that given our circumstances we satisfied all eligible requirements for the PPP Loans, we are later determined to have violated any applicable laws or regulations or it is otherwise determined that we were ineligible to receive the PPP Loans, we may be required to repay the PPP Loans in their entirety and/or be subject to additional penalties, which could also result in adverse publicity and damage to reputation. In addition, if these events were to transpire, they could have a material adverse effect on ~~the liquidity, financial condition and~~our business, results of operations and financial condition.

Risks Related to our Common Stock and our Company Preferred Stock

If we fail to pay dividends on our Company Preferred Stock for six or more consecutive quarters, holders of our Series A Stock will be entitled to elect two additional directors to our board of directors.

To date no dividends have been paid on the Company Preferred Stock and as a result, cumulative dividends will continue to accrue as part of the liquidation value of the Company Preferred Stock. Whenever dividends on any shares of Company Preferred Stock are in arrears for six or more consecutive quarters, then the holders of those shares together with the holders of all other series of preferred stock equal in rank with the Company Preferred Stock upon which like voting rights have been conferred and ~~could cause~~are exercisable, will be entitled to vote separately as a class for the election of a total of two additional directors to Digirad’s board of directors. Holders of our common stock will not be entitled to vote no such additional directors.

Digirad may not be able to redeem its Company Preferred Stock upon a Change of Control Triggering Event.

Upon the occurrence of a Change of Control Triggering Event, (as defined in the Certificate of Designations, Rights and Preferences of 10% Series A Cumulative Perpetual Preferred Stock of Digirad Corporation) unless the Company has exercised its option to redeem the Company Preferred Stock after September 10, 2024, each holder of the Company Preferred Stock will have the right to require the Company to ~~become bankrupt~~redeem all or ~~insolvent.~~any part of such holder’s Company Preferred Stock at a price equal to the liquidation preference of $10.00 per share, plus an amount equal to any accumulated and unpaid dividends up to but excluding the date of payment, but without interest. If the Company experiences a Change of Control Triggering Event, there can be no assurance that the Company would have sufficient financial resources available to satisfy its obligations to redeem the Company Preferred Stock and any indebtedness that may be required to be repaid or repurchased as a result of such event. In addition, Digirad may be unable to redeem the ~~event~~Company Preferred Stock upon a Change of ~~any bankruptcy, liquidation, dissolution, reorganization, or similar proceeding against us,~~Control Triggering Event if such redemption would result in our non-compliance with the ~~assets that are pledged as collateral securing any unpaid amounts under~~financial covenants in the ~~SNB~~Company Loan ~~Agreement must first be used~~Agreements. Digirad’s failure to ~~pay such amounts, as well as any other obligation secured by~~redeem the ~~pledged assets, in full, before making any distributions to our stockholders. In~~Company Preferred Stock could have material adverse consequences for Digirad, and the ~~event of any~~holders of the ~~foregoing,~~Company Preferred Stock.

As a smaller reporting company, we are subject to scaled disclosure requirements that may make it more challenging for investors to analyze our ~~stockholders could lose all or~~results of operations and financial prospects.

Currently, we are a ~~part~~“smaller reporting company,” as defined by Rule 12b-2 of ~~their investment.~~the Exchange Act. As a “smaller reporting company,” we are able to provide simplified executive compensation disclosures in our filings and have certain other decreased disclosure obligations in our filings with the SEC, including being required to provide only two years of audited financial statements in annual reports. Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects.

Furthermore, we are a non-accelerated filer as defined by Rule 12b-2 of the Exchange Act, and, as such, are not required to provide an auditor attestation of management’s assessment of internal control over financial reporting, which is generally required for SEC reporting companies under Section 404(b) of the Sarbanes-Oxley Act. Because we are not required to, and have not, had our auditor’s provide an attestation of our management’s assessment of internal control over financial reporting, a material weakness in internal controls may remain undetected for a longer period.

If we ~~are unable~~cannot continue to ~~generate or borrow sufficient cash to make payments on~~satisfy the Nasdaq Capital Market continued listing standards and other Nasdaq rules, our ~~indebtedness, our financial condition~~common stock could be delisted, which would ~~be materially harmed,~~harm our business, ~~could fail,~~the trading price of our common stock, our ability to raise additional capital and ~~stockholders may lose all~~the liquidity of ~~their investment.~~the market for our common stock.

Our ~~ability to make scheduled payments~~common stock is currently listed on ~~or to refinance~~the Nasdaq Global Market. To maintain the listing of our ~~obligations will depend~~common stock on our financial and operating performance, which will be affected by economic, financial, competitive, business, and other factors, some of which are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations to service our indebtedness or to fund our other liquidity needs. Ifthe Nasdaq Global Market, we are ~~unable~~required to meet certain listing requirements, including, among others, either: (i) a minimum closing bid price of $1.00 per share, a market value of publicly held shares (excluding shares held by our ~~debt obligations~~executive officers, directors and 10% or ~~fund~~more stockholders) of at least $5.0 million and stockholders’ equity of at least $10 million; or (ii) a minimum closing bid price of $1.00 per share, a market value of publicly held shares (excluding shares held by our ~~other liquidity needs, we may need to restructure~~executive officers, directors and 10% or ~~refinance all~~more stockholders) of at least $15.0 million and total assets of at least $50.0 million and total revenue of at least $50.0 million (in the latest fiscal year or ~~a portion~~in two of ~~our indebtedness on or before maturity or sell certain of our assets. We cannot assure you~~the last three fiscal years).

There is no assurance that we will be able to ~~restructure~~maintain compliance with the minimum closing price requirement and other listing requirements. In the event that we fail to maintain compliance with Nasdaq listing requirements for 30 consecutive trading days, our common stock may be delisted from the Nasdaq Global Market. If our common stock were to be delisted from Nasdaq and was not eligible for quotation or ~~refinance any~~listing on another market or exchange, trading of our ~~indebtedness~~common stock could be conducted only in the over-the-counter market or on ~~commercially reasonable terms, if at all,~~an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause ~~us to default on our debt obligations and impair our liquidity. Any refinancing~~the price of our ~~indebtedness~~common stock to decline further.

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, the price and trading volume of our securities could decline.

The trading market for our securities will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our securities would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to meet the expectations of analysts, the price of our securities would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the price or trading volume of our securities to decline.

If we become a personal holding company, our results could be ~~at higher interest rates and may require us to comply with more onerous covenants, which~~negatively impacted.

We could ~~further restrict our business operations.~~

~~Increases in interest rates could adversely affect our results from operations and financial condition.~~

~~The SNB Loan Agreement allows the Company to elect for amounts borrowed under the SNB Loan Agreement to~~ be subject to a ~~floating~~second level of U.S. federal income tax on a portion of our income if we are determined to be a personal holding company (“PHC”) for U.S. federal income tax purposes. A U.S. corporation generally will be classified as a PHC for U.S. federal income tax purposes in a given taxable year if (i) at any time during the last half of such taxable year, five or fewer individuals (without regard to their citizenship or residency and including as individuals for this purpose certain entities such as certain tax-exempt organizations, pension funds and charitable trusts) own or are deemed to own (pursuant to certain constructive ownership rules) more than 50% of the stock of the corporation by value (by reference to all common, preferred and all other classes of stock) (the “Ownership Test”) and (ii) at least 60% of the corporation’s adjusted ordinary gross income, as determined for U.S. federal income tax purposes, for such taxable year consists of PHC income (which includes, among other things, dividends, interest, ~~rate which may change with market interest rates. An increase in prevailing interest rates would have an effect on the interest rates charged~~certain royalties, annuities and, under certain circumstances, rents) (the “Income Test”).

Based on our ~~variable rate debt,~~knowledge, we believe we meet the Ownership Test discussed above. However, based on our present operations and income sources, we believe that we will not meet the Income Test, and as a result we should not be treated as a PHC for the foreseeable future. If we are or were to become a PHC in a given taxable year, we would be subject to an additional PHC tax, currently 20%, on our undistributed PHC income, which ~~rise and fall upon changes~~generally includes our taxable income (without the benefit of any federal net operating loss carry forward), subject to certain adjustments. We can give no assurance that we will not become a PHC in ~~interest rates. If prevailing interest rates or other factors result in higher interest rates,~~ the ~~increased interest expense would adversely affect our cash flow and our ability to service our indebtedness.~~

future.


~~ITEM 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.


~~ITEM 3.~~	~~DEFAULTS UPON SENIOR SECURITIES~~

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.


~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.


~~ITEM 5.~~	~~OTHER INFORMATION~~

On April 22, 2019, the Company determined that it had been the victim of a criminal security breach commonly referred to as “business email compromise fraud.” The Company self-discovered this fraudulent activity and promptly initiated contact with its bank and federal law enforcement authorities. As a result of these efforts, the Company has recovered the full amount of the funds transferred. The Company’s internal investigation of this matter and law enforcement actions are ongoing.ITEM 5.OTHER INFORMATION

While the Company’s internal controls were followed, this incident of email compromise fraud indicates that the design of the Company’s controls needs to be improved. The Company is in the process of enhancing controls relating to electronic transfers, as well as the ability of our personnel to identify and block attempts by third parties to fraudulently receive electronic payments from us. Our management believes that the foregoing actions will improve our internal controls regarding the detection of fraudulent activities and the safeguarding of our assets.Not applicable.

ITEM 6.EXHIBITS


~~ITEM 6.~~	~~EXHIBITS~~

Exhibit

Number

Description

10.1

~~Purchase~~Loan and ~~Sale~~Security Agreement, dated ~~March 27, 2019,~~January 31, 2020, by and ~~between RJF – Keiser~~among Star Real Estate Holdings USA, Inc., 300 Park Street, LLC, ~~and~~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 ~~April 3, 2019)~~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.

~~10.2~~

10.2

~~Purchase~~Loan and ~~Sale~~Security Agreement, dated ~~April 3, 2019,~~January 31, 2020, by and ~~between KBS Builders,~~among EdgeBuilder, Inc. ~~and~~, 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 ~~April 3, 2019)~~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.

~~10.3~~

10.3

~~Purchase~~Extension and ~~Sale~~Modification Agreement, dated ~~April 3, 2019,~~January 31, 2020, by and ~~between KBS Builders,~~among EdgeBuilder, Inc., Glenbrook Building Supply, Inc. and ~~300 Park Street, LLC~~Premier Bank (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)~~February 6, 2020).

~~10.4~~

10.4

~~Lease~~Thirteenth Amendment to Loan and Security Agreement, dated ~~April 3, 2019,~~January 31, 2020, by and ~~between~~among Gerber Finance Inc., KBS Builders, Inc. ATRM Holdings, Inc., and ~~947 Waterford Road, LLC~~Digirad Corporation (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)~~February 6, 2020).

~~10.5~~

10.5

~~Lease~~First Amendment to Loan and Security Agreement, dated ~~April 3, 2019,~~February 20, 2020, by and ~~between KBS Builders,~~among Star Real Estate Holdings USA, Inc. ~~and~~, 300 Park Street, LLC, 947 Waterford Road, LLC, 56 Mechanic Falls Road, LLC and Gerber Finance Inc. (incorporated by reference to Exhibit ~~10.5~~10.63 to the Company’s Annual Report on Form 10-K filed with the Commission on March 9, 2020).

10.6

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).

10.7

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 ~~April 3, 2019)~~May 6, 2020).

10.6*

10.8

~~Lease Agreement,~~Note, dated April ~~3, 2019,~~30, 2020, made by ~~and between KBS Builders,~~EdgeBuilder, Inc. ~~and 56 Mechanic Falls Road, LLC~~

10.7*

~~First Amendment to Lease, dated April 18, 2019, by and between 56 Mechanic Falls Road, LLC and KBS Builders, Inc.~~

~~10.8~~

~~Loan and Security Agreement, dated March 29, 2019, by and among Digirad Corporation, certain subsidiaries~~in favor of ~~the Digirad Corporation identified on the signature pages thereto, and Sterling National~~Bremer Bank (incorporated by reference to Exhibit ~~10.6~~10.2 to the Company’s Current Report on Form 8-K filed with the Commission on ~~April 3, 2019)~~May 6, 2020).

31.1*

10.9

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).

10.10*

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.

10.11*

Fifteenth Amendment to Loan and Security Agreement dated April 1, 2020, between KBS Builders, Inc. and Gerber Finance Inc.

10.12*

Promissory Note, dated May 5, 2020, made by DMS Imaging, Inc. in favor of Sterling National Bank.

10.13*

Promissory Note, dated May 5, 2020, made by Digirad Imaging Solutions, Inc. in favor of Sterling National Bank.

10.14*

Promissory Note, dated May 7, 2020, made by DMS Health Technologies, Inc. in favor of Sterling National Bank.

10.15*

Promissory Note, dated May 7, 2020, made by Digirad Corporation in favor of Sterling National Bank.

31.1*

Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated pursuant to the Securities Exchange Act of 1934, as amended.

31.2*

Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated pursuant to the Securities Exchange Act of 1934, as amended.

32.1**

Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.2**						Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						Inline XBRL Taxonomy Extension Schema
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase
101.LAB*						Inline XBRL Taxonomy Extension Labels Linkbase
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase

_________________


*	* Filed herewith.

This certification is being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of Digirad Corporation, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

** This certification is being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of Digirad Corporation, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DIGIRAD CORPORATION

Date:

May 15, 2020

~~DIGIRAD CORPORATION~~

By:

~~Date:~~

~~May 8, 2019~~

~~By:~~

/s/ MATTHEW G. MOLCHAN

Matthew G. Molchan

President and Chief Executive Officer

(Principal Executive Officer, Duly Authorized Officer)



ý☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE QUARTERLY PERIOD ENDED ~~MARCH~~	March 31, ~~2019~~2020


IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS		4

~~IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS~~		3

PART I. FINANCIAL INFORMATION	45
Item 1. Financial Statements (Unaudited)		45
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2139
Item 3. Quantitative and Qualitative Disclosures about Market Risk		2953
Item 4. Controls and Procedures		2953

PART II. OTHER INFORMATION		3055
Item 1. Legal Proceedings		3055
Item 1A. Risk Factors		3055
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3460
Item 3. Defaults Upon Senior Securities		3460
Item 4. Mine Safety Disclosures		3460
Item 5. Other Information		3460
Item 6. Exhibits		3561



	Three Months Ended March 31, 2019
	Diagnostic Services		Diagnostic Imaging		Mobile Healthcare		Total
Major Goods/Service Lines
Mobile Imaging and Cardiac Monitoring	$	11,585	$	—	$	7,494	$	19,079
Camera	—		804		—		804
Camera Support	—		1,719		—		1,719
Revenue from Contracts with Customers	11,585		2,523		7,494		21,602
Lease Income	141		—		2,169		2,310
Total Revenues	$	11,726	$	2,523	$	9,663	$	23,912

Timing of Revenue Recognition
Services and goods transferred over time	$	11,726	$	1,551	$	9,525	$	22,802
Services and goods transferred at a point in time	—		972		138		1,110
Total Revenues	$	11,726	$	2,523	$	9,663	$	23,912


	Three Months Ended March 31, 2019
	Diagnostic Services		Diagnostic Imaging		Mobile Healthcare		Total
Major Goods/Service Lines
Mobile Imaging	$	11,585	$	—	$	7,494	$	19,079
Camera	—		804		—		804
Camera Support	—		1,719		—		1,719
Healthcare Revenue from Contracts with Customers	11,585		2,523		7,494		21,602
Lease Income	141		—		2,169		2,310
Building and construction	—		—		—		—
Real Estate and Investments	—		—		—		—
Total Revenues	$	11,726	$	2,523	$	9,663	$	23,912

Timing of Revenue Recognition
Services and goods transferred over time	$	11,726	$	1,551	$	9,525	$	22,802
Services and goods transferred at a point in time	—		972		138		1,110
Total Revenues	$	11,726	$	2,523	$	9,663	$	23,912



	Three Months Ended March 31, 2018
	Diagnostic Services		Diagnostic Imaging		Mobile Healthcare		Total
Major Goods/Service Lines
Mobile Imaging and Cardiac Monitoring	$	11,898	$	—	$	8,079	$	19,977
Camera	—		1,070		—		1,070
Camera Support	—		1,744		—		1,744
Revenue from Contracts with Customers	11,898		2,814		8,079		22,791
Lease Income	127		28		2,519		2,674
Total Revenues	$	12,025	$	2,842	$	10,598	$	25,465

Timing of Revenue Recognition
Services and goods transferred over time	$	10,964	$	1,720	$	10,491	$	23,175
Services and goods transferred at a point in time	1,061		1,122		107		2,290
Total Revenues	$	12,025	$	2,842	$	10,598	$	25,465



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			FOR THE TRANSITION PERIOD FROM TO



	March 31, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	797		$	1,545
Equity securities	17			153
Accounts receivable, net	13,361			12,642
Inventories, net	5,483			5,402
Restricted cash	168			167
Other current assets	1,522			1,285
Total current assets	21,348			21,194
Property and equipment, net	20,575			21,645
Operating lease right-of-use assets, net	3,681			—
Intangible assets, net	4,944			5,228
Goodwill	1,745			1,745
Restricted cash	101			101
Deferred tax assets	16			—
Other assets	2,183			681
Total assets	$	54,593		$	50,594

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	4,808		$	5,206
Accrued compensation	3,246			3,862
Accrued warranty	230			197
Deferred revenue	1,414			1,687
Operating lease liabilities	1,251			—
Other current liabilities	2,474			2,265
Total current liabilities	13,423			13,217
Long-term debt	12,517			9,500
Deferred tax liabilities	121			121
Operating lease liabilities, net of current portion	2,564			—
Other liabilities	1,715			1,956
Total liabilities	30,340			24,794

Commitments and contingencies (Note 9)

Stockholders’ equity:
Preferred stock, $0.0001 par value: 10,000,000 shares authorized; no shares issued or outstanding	—			—
Common stock, $0.0001 par value: 80,000,000 shares authorized; 20,309,908 and 20,249,786 shares issued and outstanding (net of treasury shares) at March 31, 2019 and December 31, 2018, respectively	2			2
Treasury stock, at cost; 2,588,484 shares at March 31, 2019 and December 31, 2018	(5,728		)	(5,728		)
Additional paid-in capital	145,516			145,428
Accumulated other comprehensive loss	—			(22		)
Accumulated deficit	(115,537		)	(113,880		)
Total stockholders’ equity	24,253			25,800
Total liabilities and stockholders’ equity	$	54,593		$	50,594


	Redeemable Preferred Stock				Common stock						Treasury Stock		Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit	Total stockholders’ equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2019	1,916	$	19,602	2,050	$	—	$	(5,728)	$	145,352	$	—	$	(118,529)	$	21,095
Stock-based compensation	—	—		—	—		—		109		—		—		109
Shares issued under stock incentive plans, net of shares withheld for employee taxes	—	—		5	—		—		—		—		—		—
Accrued dividend on redeemable preferred stock	—	484		—	—		—		(484)		—		—		(484)
Net loss	—	—		—	—		—		—		—		(2,953)		(2,953)
Balance at March 31, 2020	1,916	$	20,086	2,055	$	—	$	(5,728)	$	144,977	$	—	$	(121,482)	$	17,767


	Three Months Ended March 31, 2020
	Diagnostic Services		Diagnostic Imaging		Mobile Healthcare		Building and Construction		Real Estate and Investments		Total
Major Goods/Service Lines
Mobile Imaging	$	10,602	$	—	$	7,261	$	—	$	—	$	17,863
Camera	—		1,339		—		—		—		1,339
Camera Support	—		1,522		—		—		—		1,522
Healthcare Revenue from Contracts with Customers	10,602		2,861		7,261		—		—		20,724
Lease Income	212		—		2,406		84		—		2,702
Building and Construction	—		—		—		5,400		—		5,400
Real Estate and Investments	—		—		—		—		31		31
Total Revenues	$	10,814	$	2,861	$	9,667	$	5,484	$	31	$	28,857

Timing of Revenue Recognition
Services and goods transferred over time	$	10,814	$	1,487	$	9,574	$	84	$	—	$	21,959
Services and goods transferred at a point in time	—		1,374		93		5,400		31		6,898
Total Revenues	$	10,814	$	2,861	$	9,667	$	5,484	$	31	$	28,857



Balance at December 31, 2018	$	1,713
Revenue recognized that was included in balance at beginning of the year	(541		)
Deferred revenue, net, related to contracts entered into during the year	262
Balance at March 31, 2019	$	1,434


Balance at December 31, 2019	$	1,801
Revenue recognized that was included in balance at beginning of the year	(778)
Deferred revenue, net, related to contracts entered into during the year	623
Balance at March 31, 2020	$	1,646


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


(in thousands)	As originally reported		Measurement period adjustments		As adjusted
Cash and cash equivalents	$	—	$	—	$	—
Accounts receivable, net	2,831		—		2,831
Inventory, net	1,609		—		1,609
Other current assets	481		252		733
Property and equipment, net	840		—		840
Operating Lease Right-of-use assets, net	495		—		495
Accounts payable and other accrued liabilities	(10,851)		—		(10,851)
Debt and notes payable	(5,144)		—		(5,144)
Lease liability	(499)		—		(499)
Deferred income taxes	—		(265)		(265)
Net assets acquired (liabilities assumed)	(10,238)		(13)		(10,251)
Goodwill	8,230		3		8,233
Intangibles	19,460		10		19,470
Estimated purchase price	$	17,452	$	—	$	17,452


	Fair Value		Useful Life (years)
Trade Names	$	5,540	15
Customer Relationships - Modular Buildings	7,830		10
Customer Relationships - Wood Products	5,670		10
Backlog	430		1
Fair value of identified intangible assets	$	19,470


	March 31, 2020		December 31, 2019
Land	$	995	$	995
Buildings and leasehold improvements	5,451		5,451
Machinery and equipment	57,388		57,417
Total property and equipment	63,834		63,863
Less accumulated depreciation	(43,072)		(41,725)
Total property and equipment, net	$	20,762	$	22,138


								March 31, 2020		December 31, 2019
	March 31, 2019			December 31, 2018
Inventories:
Raw materials	$	2,425		$	2,419		Raw materials	$	3,855	$	4,309
Work-in-process	2,285			2,307			Work-in-process	2,723		2,710
Finished goods	1,154			1,056			Finished goods	352		461
Total inventories	5,864			5,782			Total inventories	6,930		7,480
Less reserve for excess and obsolete inventories	(381		)	(380		)	Less reserve for excess and obsolete inventories	(313)		(383)
Total inventories, net	$	5,483		$	5,402		Total inventories, net	$	6,617	$	7,097



	March 31, 2019			December 31, 2018
Property and equipment:
Land	$	550		$	550
Buildings and leasehold improvements	1,989			1,989
Machinery and equipment	52,138			52,409
Computer hardware and software	4,489			4,490
Total property and equipment	59,166			59,438
Less accumulated depreciation	(38,591		)	(37,793		)
Total property and equipment, net	$	20,575		$	21,645


	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Operating lease cost	$	556	$	326

Finance lease cost:
Amortization of finance lease assets	$	183	$	53
Interest on finance lease liabilities	34		33
Total finance lease cost	$	217	$	86



	Three Months Ended March 31, 2019
Operating lease cost	$	326

Finance lease cost:
Amortization of finance lease assets	$	53
Interest on finance lease liabilities	33
Total finance lease cost	$	86


	Operating Leases		Finance Leases
2020 (excludes the three-months ended March 31, 2020)	$	1,722	$	770
2021	1,854		989
2022	1,106		466
2023	673		151
2024 and thereafter	552		7
Total future minimum lease payments	$	5,907	$	2,383
Less amounts representing interest	494		168
Present value of lease obligations	$	5,413	$	2,215



	Operating Leases		Finance Leases
2019 (excludes the three-months ended March 31, 2019)	$	1,066	$	696
2020	1,317		842
2021	953		817
2022	552		258
2023	259		10
Thereafter	4		—
Total future minimum lease payments	$	4,151	$	2,623
Less amounts representing interest	336		207
Present value of lease obligations	$	3,815	$	2,416


	Fair Value as of March 31, 2020
	Level 1		Level 2		Level 3		Total

Equity securities	$	18	$	26	$	—	$	44

Total	$	18	$	26	$	—	$	44



	Fair Value as of March 31, 2019
	Level 1		Level 2		Level 3		Total
Equity securities	$	17	$	31	$	—	$	48



	Fair Value as of December 31, 2018
	Level 1		Level 2		Level 3		Total
Equity securities	$	153	$	6	$	—	$	159


	Fair Value as of December 31, 2019
	Level 1		Level 2		Level 3		Total

Equity securities	$	26	$	43	$	—	$	69
Lumber derivative contracts	10		—		—		10
Total	$	36	$	43	$	—	$	79


	March 31, 2020						December 31, 2019
	Amount		Weighted-Average Interest Rate		Amount		Weighted-Average Interest Rate
Revolving Credit Facility - Gerber KBS	$	600	6.00	%	$	1,111	7.50	%
Revolving Credit Facility - Premier	—		—	%	2,925		6.25	%
Total Short Term Revolving Credit Facility	$	600	6.00	%	$	4,036	6.59	%
Revolving Credit Facility - SNB	$	15,321	3.49	%	$	17,038	4.26	%
Revolving Credit Facility - Gerber EBGL	1,279		6.00	%	—		—	%
Total Long Term Revolving Credit Facility	$	16,600	3.68	%	$	17,038	4.26	%
LSV Co-Invest I Promissory Note (“January Note”)	$	631	12.00	%	$	595	12.00	%
LSV Co-Invest I Promissory Note (“June Note”)	1,086		12.00	%	1,023		12.00	%
LSVM Note	317		12.00	%	302		12.00	%
Total Notes Payable To Related Parties	$	2,034	12.00	%	$	1,920	12.00	%



	March 31, 2019			December 31, 2018
	Amount		Weighted-Average Interest Rate	Amount		Weighted-Average Interest Rate
Revolving Credit Facility - SNB	$	12,517	5.00%	$	—	—%
Revolving Credit Facility - Comerica	$	—	—%	$	9,500	4.87%


	March 31, 2020
	Amount
Gerber - Star Term Loan	$	2,350
Premier - Term Loan	974
Total Principal	3,324
Unamortized debt issuance costs	(538)
Total	$	2,786


Balance at December 31, 2019	$	19,602
Deemed dividend on redeemable convertible preferred stock	484
Balance at March 31, 2020	$	20,086


	Three Months Ended March 31,															Percent of Revenues
	2020		2019		Change								2020		2019
									Dollars			Percent
Selling, general and administrative expenses	$	6,228	$	4,833	$	1,395	28.9	%		21.6	%		20.2	%
Amortization of intangible assets	817		283		534		188.7	%		2.8	%		1.2	%

Total operating expenses	$	7,045	$	5,116	$	1,929	37.7	%		24.4	%		21.4	%