Discontinued Operations

3 Months Ended

Mar. 31, 2022

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

On October 30, 2020, Star Equity entered into a Stock Purchase Agreement (the “DMS Purchase Agreement”) between the Company (“Seller”), DMS Health, and Knob Creek Acquisition Corp., a Tennessee corporation (“Buyer”), pursuant to which the Buyer purchased all of the issued and outstanding common stock of DMS Health, which operated our Mobile Healthcare business unit, from Seller. The purchase price under the DMS Purchase Agreement was $18.75 million in cash, subject to certain adjustments, including a working capital adjustment. We deemed the disposition of the Mobile Healthcare business unit to represent a strategic shift that will have a major effect on our operations and financial results. For the year ended December 31, 2021, the Mobile Healthcare business met the criteria to be classified as held for sale. This segment is reported on the condensed Consolidated Statements of Operations as discontinued operations and on the condensed Consolidated Balance Sheets as Assets and Liabilities held for sale. In January, 2022, we received an immaterial amount of net escrow settlement. In April 2021, DMS Health contracted Digirad Imaging Solutions for a term of three years to purchase radiopharmaceuticals doses, resulting in $0.4 million of revenues for the three months ended March 31, 2022.

We allocated a portion of interest expense to discontinued operations since the proceeds received from the sale were required to be used to pay down outstanding borrowings under our revolving credit facility under the SNB Loan Agreement. The allocation was based on the ratio of assets generated based on the borrowing capacity to total borrowings capacity for the period. In addition, certain general and administrative costs related to corporate and shared service functions previously allocated to the mobile healthcare reportable segment are included in discontinued operations.

The following table presents financial results of DMS Health for the three months ended March 31, 2021. There have been no activities for the three months ended March 31, 2022 (in thousands):

	Three Months Ended March 31,
	2021
Total revenues	$	9,490
Total cost of revenues	6,973
Gross profit	2,517
Operating expenses:
Selling, general and administrative	1,469
Total operating expenses	1,469
Income from discontinued operations	1,048
Interest expense, net	(180)
Gain on sale of discontinued operations	5,224
Income from discontinuing operations before income taxes	6,092
Income tax expense	(72)
Income from discontinuing operations	$	6,020

There have been no activities for the three months ended March 31, 2022. The following table presents the significant non-cash operating, investing and financing activities from discontinued operations for the three months ended March 31, 2021 (in thousands):

	Three Months Ended March 31,
		2021
Operating activities
Depreciation		$	8
Non-cash lease expense		256
Write-off of borrowing costs		130
Gain on sale of DMS discontinued operations		(5,224)
Investing activities
Purchase of property and equipment		(154)
Proceeds from sale of discontinued operations		18,750
Proceeds from sale of property and equipment		3

Following is the reconciliation of purchase price to the gain recognized in income from discontinued operations for the three months ended March 31, 2021 (in thousands):

Estimated proceeds of the disposition, net of transaction costs	$	18,750
Assets of the businesses	(20,920)
Liabilities of the businesses	7,712
Transaction expenses	(318)
Pre-tax gain on the disposition	$	5,224