STAR EQUITY HOLDINGS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

This management's discussion and analysis of financial condition and results of
operations ("MD&A"), contains forward-looking statements that involve risks and
uncertainties. Please see "Important Information Regarding Forward-Looking
Statements" for a discussion of the uncertainties, risks, and assumptions that
may cause our actual results to differ materially from those discussed in the
forward-looking statements. This discussion should be read in conjunction with
our unaudited condensed consolidated financial statements and related notes
thereto and the other disclosures contained elsewhere in this Quarterly Report
on Form 10-Q, and the audited consolidated financial statements and related
notes thereto for the fiscal year ended December 31, 2021, which were included
in our Annual Report on Form 10-K, filed with the SEC on March 31, 2022.

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

Overview


Star Equity Holdings, Inc. ("Star Equity", the "Company", "we", "our") has
operated as a multi-industry holding company since the acquisition of ATRM
Holdings, Inc. ("ATRM") in September 2019. With that merger, we added two
construction businesses and one investments business to what historically had
been a pure-play healthcare company. Today, Star Equity is a diversified holding
company with operating businesses in two key industry sectors of the economy,
Healthcare and Construction.

Our Healthcare division, which operates as Digirad Health, Inc., ("Digirad
Health") provides products and services in the area of nuclear medical imaging
with a focus on cardiac health. Digirad Health operates across the United States
and comprises two lines of business-imaging services to healthcare providers
using a fleet of our proprietary solid-state gamma cameras as well as the
manufacture, distribution, and maintenance of our proprietary solid-state gamma
cameras.

Our Construction division is made up of three operating businesses, KBS
Builders, Inc. ("KBS"), EdgeBuilder, Inc. ("EdgeBuilder"), and Glenbrook
Building Supply, Inc. ("Glenbrook"), with the latter two managed together and
referred to jointly as "EBGL". KBS is based in Maine and manufactures modular
buildings for installation principally in the New England market. EBGL is based
in the Minneapolis-Saint Paul area and principally serves the Upper Midwest.
Together, the EBGL businesses manufacture and deliver structural wall panels and
other engineered wood-based products as well as distribute building materials
primarily to professional builder customers.

Currently, our Investments division is an internally focused unit directly
supervised by Star Equity management. This entity currently holds our
corporate-owned real estate, which currently includes our three manufacturing
facilities in Maine that are leased to KBS, as well as any minority investments
we make in public and private companies.

Strategy

Star Equity


We believe our diversified, multi-industry holding company structure will allow
Star Equity management to focus on capital allocation, strategic leadership,
mergers and acquisitions, capital markets transactions, investor relations, and
management of our Investments division. Our structure frees up our operating
company management teams to focus on their respective businesses, look for
organic and bolt-on growth opportunities, and improve operations with less
distraction and administrative burden associated with running a public company.

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

Operating Businesses

We believe that both of our primary divisions, Healthcare and Construction, are
well positioned for growth in large addressable markets. The key elements of our
growth strategy include the following:

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

•Introduction of new services. In the Healthcare division, we plan to continue
to focus on healthcare solutions-related businesses that deliver necessary
assets, services, and logistics directly to the customer site. We believe that
over time


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we can either purchase or develop new and complementary businesses, and take
advantage of our customer loyalty and distribution channels. Additionally, we
are exploring new imaging technologies through the recent establishment of a
joint venture that is presently conducting research and development in the area
of heart imaging. In the Construction division, we will consider opportunities
to augment our service offering to better serve our customer base. We have done
this in the New England market with our entry into the commercial multi-family
segment. Other areas might include logistics, installation on site, and
manufacturing of sub-components.

•Acquisition of complementary businesses. We plan to continue to look at
complementary businesses that meet our internally developed financially
disciplined approach for acquisitions to grow our Company. We believe there are
many potential small public and private targets that can be acquired over time
and integrated into our platform. We will also look at larger, more
transformational mergers and acquisitions if we believe the appropriate mix of
value, risk, and return is present for our stockholders. The timing of these
potential transactions will always depend on market conditions, available
capital, and valuation. In general, we want to be "value" buyers, and will not
pursue any transaction unless we believe the post-transaction potential value is
high for stockholders.

Current Market Conditions

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

The target market for our Healthcare products and services is comprised of
cardiologists, internal medicine physicians, family practice physicians,
hospitals, integrated delivery networks, and federal institutions in the United
States that perform or could perform a diagnostic imaging procedure or have
interest in purchasing diagnostic imaging products. Our diagnostic services
businesses currently operate in approximately 25 states. During the three months
ended March 31, 2022, we have seen a return to a more normal pre-COVID volume of
imaging.

The target customers for our Construction division include professional home
builders, general contractors, project owners, developers, and design firms.
While housing demand and home improvement activity continues to be very strong,
supply chain disruptions caused by the COVID-19 pandemic led to a historic
increase in building materials prices during the first half of 2021. Since that
time, building materials prices have continued to be very volatile. We have
implemented both price increases and margin protection measures through our
contract language since that time and we believe these factors will have a
significantly positive effect on our profitability in 2022.

Trends and Drivers


The market for diagnostic services and products is highly competitive. Our
business, which is focused primarily on the private practice and hospital
sectors, continues to face uncertainty in the demand for diagnostic services and
imaging equipment, which we believe is due in part to the impact of the Deficit
Reduction Act on the reimbursement environment and the 2010 Healthcare Reform
laws, COVID-19 pandemic impact, as well as general uncertainty in overall
healthcare and legislative changes in healthcare, such as the Affordable Care
Act. These challenges have impacted, and will likely continue to impact, our
operations. We believe that the principal competitive factors in our market
include budget availability for our capital equipment, qualifications for
reimbursement, pricing, ease-of-use, reliability, and mobility. We have
addressed, and will continue to address, these market pressures by modifying our
Diagnostic Services business models, and by assisting our healthcare customers
in complying with new regulations and requirements.

In our construction division, we continue to see a greater adoption of offsite
or prefab construction in single-family and multi-family residential building
projects, our target market. Our modular units and structural wall panels offer
builders a number of benefits over traditional onsite or "stick built"
construction. These include shorter time to market, higher quality, reduced
waste, readily available labor and potential cost savings, among others. 3D BIM
software modeling and developments in engineered wood products offers greater
design flexibility for higher-end applications. The need for more affordable
housing solutions also presents a great opportunity for the continued emergence
of factory built housing.

Risks arising from global economic instability and conflicts, wars, and health
crises could impact our business. In addition the inflation caused by such
events may impact demand for our products and services and our cost to provide
products and services.

COVID-19 Pandemic

We continue to recover from the economic effects of the COVID-19 pandemic.
During the three months ended March 31, 2022, we had a $0.1 million increase in
Healthcare division revenue and a $2.6 million increase in Construction division
revenue as compared to the same period of the prior year. The Healthcare
division continued to operate at normal levels versus


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last year with revenue increasing 0.8% for the three months ended March 31,
2022. Our Construction division grew revenue by 28.6% due to increased output at
both KBS and EBGL coupled with pricing increases associated with higher raw
materials costs. Nevertheless, the current COVID-19 pandemic continues to impact
worldwide economic activity, and the extent to which the COVID-19 pandemic will
impact our business will depend on future developments that are highly uncertain
and cannot be predicted at this time.

Discontinued Operations


The DMS Sale Transaction (as defined in Note 1 to our condensed consolidated
financial statements) was completed on March 31, 2021, for $18.75 million in
cash. After certain adjustments, including a working capital adjustment, we
received an immaterial net escrow settlement in January 2022.

Goodwill valuation


We review goodwill for impairment on an annual basis during the fourth quarter,
and when events or changes in circumstances indicate that a reduction in the
carrying value may not be recoverable. During the three months ended March 31,
2022, we began the process by assessing qualitative factors to determine whether
it is more likely than not that the fair value of the reporting unit is less
than its carrying amount. Upon review of the results of such assessment, we may
begin performing impairment analysis by quantitatively comparing the fair value
of the reporting unit to the carrying value of the reporting unit, including
goodwill. An impairment charge for goodwill is recognized for the amount by
which the carrying value of the reporting unit exceeds its fair value and such
loss should not exceed the total goodwill allocated to the reporting unit.

There are numerous factors that may cause the fair value of a reporting unit to
fall below its carrying amount and/or that may cause the value of long-lived
assets to not be recoverable, which could lead to the measurement and
recognition of goodwill and/or long-lived asset impairment charges. These
factors include, but are not limited to, significant negative variances between
actual and expected financial results, lowered expectations of future financial
results, failure to realize anticipated synergies from acquisitions, adverse
changes in the business climate, and the loss of key personnel. As of March 31,
2022, we performed qualitative trigger events analysis and concluded that if we
are not able to achieve projected performance levels, future impairments could
be possible, which could negatively impact our earnings.

Business Segments


Our reportable segments are based upon our internal organizational structure;
the manner in which our operations are managed; the criteria used by our
Executive Chairman, who is our Chief Operating Decision Maker ("CODM"), to
evaluate segment performance; the availability of separate financial
information; and overall materiality considerations. Effective the first quarter
of 2022, we reorganized our financial statements into three reportable segments
by combining Diagnostic Imaging and Diagnostic Services into one Healthcare
segment to reflect the manner in which our CODM assesses performance and
allocates resources under the HoldCo Strategy:

•Healthcare

•Construction

•Investments

Healthcare

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

Construction


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Through this segment, by way of our wholly-owned subsidiaries KBS, Glenbrook and
EdgeBuilder, we service residential and commercial construction projects by
manufacturing modular housing units, structural wall panels, permanent wood
foundation systems, other engineered wood products, and supply general
contractors with building materials. KBS is a Maine-based manufacturer that
started business in 2001 as a manufacturer of modular homes. KBS offers products
for both multi-family and single-family residential buildings with a focus on
customization to suit the project requirements and provide engineering and
design expertise. Glenbrook is a supplier of lumber, windows, doors, cabinets,
drywall, roofing, decking and other building materials to professional builders
and conducts its operations in Oakdale, Minnesota. EdgeBuilder is a manufacturer
of structural wall panels, permanent wood foundation systems and other
engineered wood products and conducts its operations in Prescott, Wisconsin.

Investments


Through this segment, we hold real estate assets that we have acquired and will
potentially manage other future investments of Star Equity. In April 2019, the
Company funded the initial purchase of three manufacturing facilities in Maine
that manufacture modular buildings and leased those three properties back to
KBS. The initial funding of the assets acquisition was primarily through the
revolver loan under our SNB Credit Facility (as defined in Note 8 to our
condensed consolidated financial statements). Since that time, we have secured a
new facility from Gerber to finance these properties.

Healthcare Services and Products


Diagnostic imaging depictions of the internal anatomy or physiology are
generated primarily through non-invasive means. Diagnostic imaging facilitates
the early diagnosis of diseases and disorders, often minimizing the scope, cost,
and amount of care required and reducing the need for more invasive procedures.
Currently, the major types of non-invasive diagnostic imaging technologies
available are: ultrasound and nuclear imaging. The most widely used imaging
acquisition technology utilizing gamma cameras is single photon emission
computed tomography, or "SPECT". All 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 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 continued growth.

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 independent builders
and dealers, and direct salespeople.

Critical Accounting Policies and Estimates


In preparing our financial statements, we make estimates, assumptions and
judgments that can have a significant impact on our revenue and net income or
loss, as well as on the value of certain assets and liabilities on our condensed
Consolidated Balance Sheets. We believe that the estimates, assumptions, and
judgments involved in the accounting policies described in Management's
Discussion and Analysis of Financial Condition and Results of Operations in Item
7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021
have the greatest potential impact on our financial statements, so we consider
them to be our critical accounting policies and estimates.


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Results of Operations

Comparison of the Three Months Ended March 31, 2022 and 2021

The following table summarizes our results for the three months ended March 31,
2022
and 2021 (in thousands):


                                                                                         Three Months Ended March 31,
                                                               Percent of                                 Percent of                   Change from Prior Year
                                             2022                Revenues               2021                Revenues               Dollars              Percent *
Total revenues                           $  25,049                    100.0  %       $ 22,354                    100.0  %       $    2,695                    12.1  %
Total cost of revenues                      20,386                     81.4  %         19,277                     86.2  %            1,109                     5.8  %
Gross profit                                 4,663                     18.6  %          3,077                     13.8  %            1,586                    51.5  %
Total operating expenses                     7,218                     28.8  %          4,646                     20.8  %            2,572                    55.4  %
Loss from operations                        (2,555)                   (10.2) %         (1,569)                    (7.0) %             (986)                   62.8  %
Total other (expense) income                  (196)                    (0.8) %            983                      4.4  %           (1,179)                 (119.9) %
Loss before income taxes                    (2,751)                   (11.0) %           (586)                    (2.6) %           (2,165)                  369.5  %
Income tax provision                          (950)                    (3.8) %             (2)                       -  %             (948)               47,400.0  %
Net loss from continuing
operations                                  (3,701)                   (14.8) %           (588)                    (2.6) %           (3,113)                  529.4  %
Net income from discontinued
operations                                       -                        -  %          6,020                     26.9  %           (6,020)                 (100.0) %
Net (loss) income                        $  (3,701)                   (14.8) %       $  5,432                     24.3  %       $   (9,133)                 (168.1) %

*Percentage may not add due to rounding

Revenues

Healthcare

Healthcare revenue is summarized as follows (in thousands):

                                       Three Months Ended March 31,
                               2022               2021        Change      % Change
Healthcare              $    13,418            $ 13,307      $  111          0.8  %
Healthcare Revenue      $    13,418            $ 13,307      $  111          0.8  %


Healthcare revenue increased 0.8% compared to the prior year quarter, partially
driven by an increase in revenue from radiopharmaceuticals contracts. This
increase was partially offset by fewer camera sales and fewer total scanning
days.

Construction

Construction revenue is summarized as follows (in thousands):

                                          Three Months Ended March 31,
                                  2022             2021        Change       % Change
Construction               $    11,631           $ 9,047      $ 2,584         28.6  %
Construction Revenue       $    11,631           $ 9,047      $ 2,584         28.6  %


The increase in revenue for the Construction division was predominately driven
by large commercial projects at our EBGL business, partially offset by a $0.6
million decrease in revenues for KBS business.


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Gross Profit

Healthcare Gross Profit


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

                                           Three Months Ended March 31,
                                    2022                        2021        % Change
Healthcare gross profit       $      3,176                   $ 2,598          22.2  %
Healthcare gross margin               23.7   %                  19.5  %

The increase in Healthcare gross margin percentage was mainly due to the
increased percentage of high margin radiopharmaceuticals contracts for the three
months ended March 31, 2022, compared to the same period in the prior year.

Construction Gross Profit


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

                                               Three Months Ended March 31,
                                        2022                          2021       % Change
Construction gross profit        $        1,586                     $ 544         191.5  %
Construction gross margin                  13.6   %                   6.0  %


The increase in Construction gross profit was predominately due to significantly
increased pricing levels during 2022 to offset higher input costs in both
residential and commercial projects, slightly offset by net loss of $0.2 million
from lumber derivatives. Our backlog and sales pipeline remain at record levels
due to newly signed contracts.

Investments Gross Loss

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

                                                                               Three Months Ended March 31,
                                                                      2022                    2021               % Change

Real Estate and Investments gross loss                       $          (99)               $    (65)                   52.3  %


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

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Operating Expenses

Operating expenses are summarized as follows (in thousands):

                                                               Three Months Ended March 31,                                       Percent of Revenues
                                                                                               Change
                                               2022                 2021           Dollars             Percent                 2022                  2021
Selling, general and
administrative                          $    6,788               $ 5,055          $ 1,733                   34.3  %               27.1  %              22.6  %
Amortization of intangible assets              430                   438               (8)                  (1.8) %                1.7  %               2.0  %
Gain on sale of MD Office
Solutions                                        -                  (847)             847                 (100.0) %                  -  %              (3.8) %
Total operating expenses                $    7,218               $ 4,646          $ 2,572                   55.4  %               28.8  %              20.8  %


On a consolidated basis, there was a $1.7 million increase in sales, general and
administrative expenses. Most of the increase in SG&A was primarily associated
with a $0.3 million increase in Construction due to headcount and consulting
service expenses, a $0.2 million increase in corporate administrative expenses
due to headcount, a $0.8 million increase in legal expenses and a $0.4 million
increase in outside services expenses. SG&A as a percentage of revenue increased
to 27.1% of revenue, versus 22.6% in the prior year period.

Total Other Income (Expense)

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

                                               Three Months Ended March 31,
                                                     2022                      2021
Other (expenses) income, net          $             (6)                      $   35
Interest expense, net                             (190)                        (272)
Gain on forgiveness of PPP loans                     -                      

1,220


Total other (expense) income          $           (196)                     

$ 983

Other (expenses) income, net, for the three months ended March 31, 2022 and 2021
are predominately comprised of unrealized gain from available for sale
securities, and finance costs.

Interest expense, net, for the three months ended March 31, 2022 and 2021 are
predominantly comprised of interest costs and the related amortization of
deferred issuance costs on our debt, respectively.

Income Tax Expense


For the three months ended March 31, 2022, and 2021 we recorded an income tax
expense of $950 thousand and $2 thousand, respectively, within continuing
operations. See Note 10. Income Taxes, within the notes to our condensed
consolidated financial statements for further information related to the income
taxes.

Income from Discontinued Operations

See Note 2. Discontinued Operations of the condensed consolidated financial
statements for information regarding discontinued operations.

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Liquidity and Capital Resources

Overview

Cash Flows from Operating Activities


For the three months ended March 31, 2022, net cash used in operating activities
was $0.6 million, as compared to $2.2 million in 2021, resulting in a decrease
in net cash used in operating activities of $1.6 million. The decrease in net
cash used in operating activities was attributable to net loss from operations
and positive impact on net working capital changes. Additionally, 2021
consolidated net income included discontinued operations from DMS Health
Technologies, Inc. ("DMS Health"), the sale of our MD Office Solutions
subsidiary, and PPP loan forgiveness.

Cash Flows from Investing Activities


For the three months ended March 31, 2022, net cash used in investing activities
was $1.3 million, as compared to $18.3 million of net cash provided by investing
activities in 2021. The $19.6 million decrease in net cash used in investing
activities was attributable to the proceeds from the sale of discontinued
operations of $18.8 million in 2021.

Cash Flows from Financing Activities


For the three months ended March 31, 2022, net cash provided by financing
activities was $12.6 million, as compared to net cash used in financing
activities of $6.2 million in 2021, resulting in an increase in net cash
provided by financing activities of $18.7 million. The increase was attributable
to a net proceeds in principal on existing debt of $6.8 million, payment of
dividends of $0.5 million, partially offset by proceeds received related to the
2022 Public Offering of $12.7 million.


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Summary Cash Flows

The following table shows cash flow information for the three months ended
March 31, 2022 and 2021 (in thousands):


                                                                      Three 

Months Ended March 31,

                                                                        2022                   2021
Net cash used in operating activities                            $          (636)         $    (2,232)
Net cash (used in) provided by investing activities              $        (1,310)         $    18,315
Net cash provided by (used in) financing activities              $        12,550          $    (6,180)


Sources of Liquidity

Our principal sources of liquidity are our existing cash and cash equivalents,
cash generated from operations, availability on our revolving lines of credit
from our credit facility with Webster Bank, N.A. ("Webster"), as successor in
interest to Sterling National Bank ("Sterling" or "SNB"), our three credit
facilities with Gerber, and cash raised from equity financing. As of March 31,
2022, we had $15.0 million of cash and cash equivalents. The Gerber facilities
directly support our Construction businesses. As of March 31, 2022, we were
fully drawn in terms of available capacity and at $2.9 million outstanding on
the KBS revolver. We were at $2.1 million outstanding balance with approximately
$0.4 million in undrawn available capacity on the EBGL revolver. However, those
facilities have loan limits of $4.0 million each and we expect to be able to use
more of that availability as our borrowing base increases with higher production
levels. In January 2022, we successfully completed the 2022 Public Offering with
net proceeds of $12.7 million.

Going Concern


The accompanying condensed consolidated financial statements have been prepared
assuming we will continue as a going concern, which contemplates the realization
of assets and settlement of obligations in the normal course of business. We
incurred losses from continuing operations, net of income taxes, of
approximately $3.7 million and $0.6 million for the three months ended March 31,
2022 and 2021, respectively. We have an accumulated deficit of $131.7 million
and $128.0 million as of March 31, 2022 and 2021, respectively. Net cash used in
operations was $0.6 million for the three months ended March 31, 2022, compared
to net cash used in operations of $2.2 million for the same period in 2021. The
Company will likely need to secure additional financing in the future to
accomplish its business plan over the next several years and there can be no
assurance on the availability or terms upon which such financing and capital
might be available at that time. As of March 31, 2022, cash and cash equivalents
increased to $15.0 million from $4.5 million as of December 31, 2021.

At March 31, 2022, we had approximately $13.3 million in debt outstanding. All
of our debt is categorized as short-term on our condensed Consolidated Balance
Sheets. For more detail, see Note 8. Debt. The Company's loan pursuant to the
SNB Loan Agreement (as defined below) (the "SNB Loan"), which has a current
balance owed of $7.3 million, supports our Healthcare business. While the SNB
Loan matures in 2024, GAAP rules require that the outstanding balance be
classified as short-term debt. This is due to both the automatic sweep feature
embedded in the traditional lockbox arrangement and the subjective acceleration
clause in the SNB Loan Agreement. As of March 31, 2022, we were not in
compliance with covenants in the SNB Loan Agreement related to our Healthcare
division and we have not obtained a waiver from the Webster for these financial
covenant breaches. However, we have enough cash to pay down the SNB Loan.

Upon the occurrence and during the continuation of an event of default under the
SNB Loan Agreement, Webster 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. Management has concluded that this forecasted violation
raises substantial doubt about our ability to continue as a going concern within
twelve months after the date that financial statements are issued, if we are not
able to restructure those agreements or receive a waiver for non-compliance with
our covenants. Our financial statements do not reflect any adjustments that
might result from the outcome of this uncertainty. Management is taking a number
of steps to avoid these breaches and/or restructure the covenants within these
agreements. These steps include improving our operations, considering additional
or alternative financing arrangements, and negotiating with current lenders to
amend our covenants. While we believe that we maintain strong transparency and
relationships with our lenders, there can be no assurance that we will be
successful in these efforts.

As of March 31, 2022, we had $5.0 million outstanding on our two Construction
division revolvers with Gerber Finance, Inc. ("Gerber"). As of December 31,
2021, we were not in compliance with our bi-annual covenants on either of these
Gerber facilities. However, we have obtained waivers from Gerber covering the
measurement period ending June 30, 2022. While Gerber has historically provided
us with such waivers, when needed, there is no assurance that we will be able to
receive waivers for covenant violations in the future.

On January 31, 2020, we and certain of our Investments subsidiaries entered into
a 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, bearing interest at the prime rate plus 3.5% per annum, and
matures on January 1, 2025, unless terminated in

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accordance with the terms therein (the "Star Loan"). We currently have $1.0
million outstanding on the Star Loan, on which we are and historically have been
making timely payments in full compliance with all covenants. Related party
notes of $2.3 million that were outstanding as of December 31, 2020 were fully
paid off on April 1, 2021 using proceeds from the sale of DMS Health. In
addition, as of March 31, 2022, we had cash and cash equivalents of $15.0
million.

On January 24, 2022, we closed an underwritten public offering (the "2022 Public
Offering"), and gross proceeds, before deducting underwriting discounts and
offering expenses and excluding any proceeds we may receive upon exercise of the
common warrants, were $14.3 million and net proceeds were $12.7 million. Refer
to Note 14. Equity Transactions for details.

In the first quarter of 2022, we declared and made a $0.5 million preferred
stock dividend payment. In the second quarter of 2022, we declared a $0.5
million
preferred stock dividend payment. Refer to Note 13. Perpetual Preferred
Stock and Note 17. Subsequent Events for details.

Common Stock Equity Offering


On May 28, 2020, we closed an underwritten public offering (the "2020 Public
Offering") pursuant to an underwriting agreement with Maxim Group LLC, as
representative of the underwriters. The 2020 Public Offering was for 2,225,000
shares of our common stock, and 2,225,000 warrants (the "Warrants") to purchase
up to 1,112,500 additional shares of our common stock. The 2020 Public Offering
price was $2.24 per share of common stock and $0.01 per accompanying Warrant
(for a combined offering price of $2.25). Gross proceeds, before deducting
underwriting discounts and offering expenses and excluding any proceeds we may
receive upon exercise of the common warrants, were $5.5 million and net proceeds
were $5.2 million.

As noted above, on January 24, 2022, we closed the 2022 Public Offering pursuant
to an underwriting agreement with Maxim Group LLC, as representative of the
underwriters. The 2022 Public Offering was for 9,500,000 shares of common stock
(or pre-funded warrants to purchase shares of common stock in lieu thereof) and
warrants to purchase up to 9,500,000 shares of common stock (the "common
warrants"). Each share of common stock (or pre-funded warrant in lieu thereof)
was sold together with one common warrant to purchase one share of common stock
at a price of $1.50 per share and common warrant. Gross proceeds, before
deducting underwriting discounts and offering expenses and excluding any
proceeds we may receive upon exercise of the common warrants, were $14.3 million
and net proceeds were $12.7 million.

As of March 31, 2022, of the warrants issued through the 2020 Public Offering,
1.0 million warrants were exercised and 1.4 million warrants remained
outstanding, which represents 0.7 million shares of common stock equivalents, at
an exercise price of $2.25. As of March 31, 2022, of the warrants issued through
the 2022 Public Offering, there were 10.9 million of warrants and 0.3 million of
prefunded warrants outstanding at an exercise price of $1.50 and $0.01,
respectively.

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

Credit Facilities

SNB Credit Facility


On March 29, 2019, we entered into a Loan and Security Agreement (the "SNB Loan
Agreement") by and among certain subsidiaries of the Company, as borrowers
(collectively, the "SNB Borrowers"); the Company, as guarantor; and Sterling. On
February 1, 2022, Sterling became part of Webster, and Webster became the
successor in interest to the SNB Loan Agreement. The SNB Loan Agreement is a
five-year credit facility maturing in March 2024, with a maximum credit amount
of $20.0 million for revolving loans (the "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.

The borrowings under the SNB Loan Agreement were classified as short-term
obligations under GAAP as the agreement contained a subjective acceleration
clause and required a lockbox arrangement whereby all receipts within the
lockbox are swept daily to reduce borrowings outstanding. As of March 31, 2022,
the Company had $0.1 million of letters of credit outstanding and had additional
borrowing capacity of $1.1 million.

Financial covenants required that the SNB Borrowers maintain (a) a Fixed Charge
Coverage Ratio as of the last day of a fiscal quarter of not less than 1.25 to
1.0 and (b) a Leverage Ratio as of the last day of such fiscal quarter of no
greater than 3.50 to 1.0. As of March 31, 2022, we were not in compliance with
covenants related to our Healthcare division and we have not obtained a waiver
from Webster for these financial covenant breaches. While we do not believe
Webster will require us to pay down our balance on this facility, we have
sufficient cash to do so if necessary.

Construction Loan Agreements

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As of March 31, 2022, the Construction division had outstanding revolving lines
of credit and term loans of approximately $5.0 million. This debt includes: (i)
$2.9 million principal outstanding on KBS's $4.0 million revolving credit
facility under a Loan and Security Agreement, dated February 23, 2016, (as
amended, the "KBS Loan Agreement"), with Gerber and (ii) $2.1 million principal
outstanding on EBGL's $4.0 million revolving credit facility under a Revolving
Credit Loan Agreement, collectively known as the "Construction Loan Agreements"
with Gerber. The Construction division had a borrowing capacity under both
revolving lines of credit of $0.4 million, based on the inventory and accounts
receivable on March 31, 2022 which fluctuates weekly. The Construction Loan
Agreements contain cross-default provisions and subjective acceleration clauses
which may, in the event of a material adverse event, as determined by Gerber,
allow Gerber to declare the loans and all other obligations under the
Construction Loan Agreements immediately due and payable or increase the
interest rate at which loans and obligations under the Construction Loan
Agreements bear interest. Each of the two Gerber credit facilities are backed by
the assets of their respective borrower (KBS or EBGL), which serve as collateral
support. Therefore, distributions from each facility are restricted in their
use, as they must be used solely to finance the operations of their respective
borrower.

KBS Loan Agreement

The KBS Loan Agreement provides KBS with a revolving line of credit with
borrowing availability of up to $4.0 million which matures on February 22, 2023.
Availability under the line of credit is based on a formula tied to KBS’s
eligible accounts receivable, inventory and other collateral.


Financial covenants required that KBS maintain (a) a net cash income (as defined
in the KBS Loan Agreement) of at least equal to no less than $0 for the trailing
6-month period ending June 30, 2022 and be no less than $500,000 for the
trailing fiscal year ending December 31, 2022 and (b) a minimum EBITDA (as
defined in the KBS Loan Agreement) no less than $0 as of June 30, 2022 and no
less than $850,000 as of the fiscal year ending December 31, 2022. As of
March 31, 2022, we are not required to measure financial covenants. The
December 31, 2021 Gerber covenants waivers last until the next measurement
period.

The borrowings under the KBS Loan Agreement were classified as short-term
obligations under GAAP as the agreement contained a subjective acceleration
clause and required a lockbox arrangement whereby all receipts are swept daily
to reduce borrowings outstanding. At March 31, 2022, approximately $2.9 million
was outstanding under the KBS Loan Agreement.

EBGL Premier Note

All obligations under the Revolving Credit Loan Agreement (as amended, the
“Premier Loan Agreement” with Premier Bank (“Premier”)) were repaid in full on
May 26, 2021 and no amount remains outstanding as of March 31, 2022. In
exchange, Premier terminated all of its security interests in the assets of
EBGL.

Gerber Star Loan


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"), have a credit facility with Gerber
providing the Star Borrowers with borrowing availability of up to $2.5 million,
of which, $2.0 million was advanced to KBS and $0.5 million was advanced to EBGL
(the "Star 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, was to be repaid in monthly installments of twelve
(12) consecutive equal payments. The Star Loan matures on the earlier of (a)
January 1, 2025 or (b) the termination, the maturity or repayment of the EBGL
Loan (as defined below). Availability under the Star Loan Agreement was 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. The Star Loan
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.

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, Mr. Eberwein 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. 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 Gerber Eberwein Guaranty or any
guaranteed obligations.

On February 26, 2021, the Star Borrowers entered into the Third Star Amendment
with Gerber that amended the contract rate to prime rate plus 3% and discharged
the $2.5 million Gerber Eberwein Guaranty.

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The financial covenants under the Star Loan Agreement include maintenance of a
Debt Service Coverage Ratio of not less than 1:00 to 1:00, as defined in the
Star Loan Agreement, as of December 31, 2021. The occurrence of any event of
default under the Star Loan Agreement may result in the obligations of the Star
Borrowers becoming immediately due and payable. As of March 31, 2022, no event
of default was deemed to have occurred and the Star Borrowers were in compliance
with the bi-annual financial covenants under the Star Loan Agreement as of
December 31, 2021.

As of March 31, 2022, $1.0 million was outstanding under the Star Loan
Agreement. The borrowings under the Star Loan Agreement were classified as
short-term obligations under GAAP, because the borrowings under the EBGL Loan
Agreement were classified as short-term obligations under GAAP given the EBGL
and KBS Loan Agreements contain a subjective acceleration clause and require a
lockbox arrangement whereby all receipts are swept daily to reduce borrowings
outstanding. Accordingly, if (i) a material adverse effect may be seen to have
occurred, (ii) Gerber in its discretion deems a EBGL Loan Agreement default
occurred, and (iii) the proceeds swept are insufficient to pay the balance
outstanding, Gerber may then demand all obligations under the Star Loan
Agreement immediately due and payable due to cross-default provision, occurring
within the Star Loan Agreement. Since a material event can occur at any time,
all obligations under the Star Loan Agreement, EBGL Loan Agreement and KBS Loan
Agreement are classified as short-term obligations.

Gerber EBGL Loans


EdgeBuilder and Glenbrook (the "EBGL Borrowers"), each a Construction
Subsidiary, and the Company, 947 Waterford, 300 Park, 56 Mechanic, ATRM, and KBS
(collectively, the "EBGL Credit Parties") have a credit facility with Gerber
providing the EBGL Borrowers with a credit facility with borrowing availability
of up to $4.0 million (the "EBGL Loan"), pursuant to a Loan and Security
Agreement (the "EBGL Loan Agreement") with Gerber, which matures on January 1,
2023. As of March 31, 2022, $2.1 million was outstanding under the EBGL Loan.
Availability under the EBGL Loan Agreement was also based on a formula tied to
the EBGL Borrowers' eligible accounts receivable and inventory.

The borrowings under the EBGL Loan Agreement were classified as short-term
obligations under GAAP as the agreement contained a subjective acceleration
clause and required a lockbox arrangement whereby all receipts are swept daily
to reduce borrowings outstanding.


Financial covenants to require that EBGL maintain (a) a lower net cash income
(as defined in the EBGL Loan Agreement) at least equal to no less than $0 for
the trailing 6-month period ending June 30, 2022 and no less than $1,000,000 for
the trailing fiscal year end December 31, 2022 and (b) a reduced minimum EBITDA
(as defined in the EBGL Loan Agreement) to be no less than $0 as of June 30,
2022 and no less than $1,000,000 as of the fiscal year ending December 31, 2022.
As of March 31, 2022, no event of default was deemed to have occurred and EBGL
was in compliance with the bi-annual financial covenants under the EBGL Loan
Agreement as of December 31, 2021.

Paycheck Protection Program

From April 2020 through May 2020, the Company and its subsidiaries received
$6.7 million, of loans under the Paycheck Protection Program (“PPP”). Total PPP
loans received the Construction division and Healthcare division were
$5.5 million and $1.2 million, respectively.


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 were made
through Bremer Bank ("Bremer") as lender, and the loans evidenced by the
Healthcare Notes were 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 until repaid.


During the fiscal years ended 2020 and 2021, the Company applied for forgiveness
on all PPP Loans. All PPP Loans were forgiven, resulting in a gain of $4.2
million in 2021 and $2.5 million in 2020, thus, the Company has no PPP Loans
outstanding.

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

Off-Balance Sheet Arrangements


On April 1, 2022, the Company entered into a Guaranty Agreement to guarantee the
obligations of KBS to Consigli Construction Co., Inc. under a subcontract in the
event of a material breach by KBS in an amount up to $4.4 million, with such
amount decreasing as product deliveries occur.

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