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Item 1A. Risk Factors

2021-03-10 compared with 2020-03-16 · 437 added, 515 removed, 656 unchanged (59% of the section changed)

Summary of Risk Factors

Investing in our common stock involves a high degree of risk.

These risks are discussed more fully below and include, but are not limited to, the following, any of which could have a material adverse effect on our financial condition, results of operations and cash flows:

Risks Related to the COVID-19 Pandemic

• The COVID-19 pandemic and its effects on our liquidity, business, financial condition and results of operations.

Risks Related to Our Businesses

• The ability of our subsidiaries to make distributions, our principal source of revenue

• Our levels of indebtedness, financing arrangements and other obligations

• Restrictive covenants in our debt and preferred stock instruments

• Ability to meet working capital requirements

• Dependence on key personnel and ability to attract and retain skilled personnel

• Any identified material weaknesses in our internal controls

• Foreign exchange rate volatility

• Changes in United States trade policy

• Impact of competition on our business

• Impact of any potential future acquisitions and ability to manage future growth and the incurrence of substantial costs in connection with acquisitions

• Cyber-attacks and other privacy or data security incidents

• Stability and security of our information technology systems

• Ability to fully utilize net operating loss and other tax carryforwards

• Presentation of corporate opportunities by certain current and former directors and officers and the impact of related party transactions

• Our status as a non-investment company

• Impact of potential litigation

• Deterioration of global economic conditions and the impact of operating globally

• Impact of Brexit

• Compliance costs related to our acquired businesses

• Ability of our development stage companies to produce revenues or income

• Adverse tax impact of our acquisitions or dispositions

• Lack of sole control in joint venture investments

• Ability to protect our intellectual property

• Potential dilution of our current stockholders

• Status as a “smaller reporting company”

• Impact of our recently reconstituted board and change in management

Risks Related to the Infrastructure segment

• Unpredictability in timing of DBMG’s construction contracts and payments thereunder

• Impact of construction contract pricing terms, including fixed-price and cost-plus pricing

• Termination or cancellation of construction projects

• Increased concentration of construction projects in backlog

• Ability to realize revenue value reported in backlog

• Ability to meet contractual schedule or performance requirements

• Modification or termination of government contracts

• Reliability of subcontractors and third-party vendors

• Volatility in the supply and demand for steel and steel components

• Dependability of steel component suppliers

• Intense competition in construction markets

• Ability of customers to receive applicable regulatory and environmental approvals

• Impact of failure to obtain or maintain required licenses

• Impact of bonding and letter of credit capacity

• Variability in liquidity over time

• Exposure to professional liability, product liability, warranty and other claims

• Impact of environmental compliance costs

• Labor disruptions that would interfere with operations.

• Ability to maintain safe work environment

Risks related to our Spectrum segment

• Effectiveness of our operations in a highly competitive market

• Impact of FCC regulations, including with respect to broadcasting licenses, or Congressional legislation

Risks Related to the Insurance Segment

• Ability to attract and retain quality personnel

• Variability of statutory capital required to be held

• Ability of management to make good assumptions and accurate estimates

• Variability in timing and amount of policy claims

• Inability to increase premiums on in-force long-term care insurance policies

• Impact of legal restrictions and regulations

• Adverse developments for our reinsurers

• Impact of assumptions on fair value and future performance of investments from actual experience.

• Interest rate fluctuations

• Impact of financial disintermediation

• Impact of credit spreads

• Ability to successfully diversify investment portfolio

• Impact of any potential litigation or law enforcement or regulatory investigations

• Dependence on the performance of others under the Administrative Services Agreement

• Availability of growth capital

• Impact of evolving accounting rules

• Any catastrophes, pandemics and malicious and terrorist acts

• Impact of decreases in the fair value of fixed maturity securities

• Unanticipated increases in policyholder withdrawals or surrenders

The following risk factors and the forward-looking statements elsewhere herein should be read carefully in connection with evaluating the business of the Company and its subsidiaries.

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These risk factors may be amended, supplemented or superseded from time to time in filings and reports that we file with the SEC in the future.

To the extent that the COVID-19 pandemic adversely affects the Company’s business, financial condition, results of operations, cash flows and liquidity, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to the Company’s level of indebtedness, its ability to comply with the financial covenants contained in the agreements that govern the Company’s indebtedness and volatility of the Company’s common stock price.

Risks Related to the COVID-19 Pandemic

Our business, operating results and financial condition may be adversely impacted by COVID-19.

We are monitoring and continue to assess the ongoing effects of the COVID-19 pandemic on our businesses and operations.

We operate in a number of industries and geographies that are expected to be impacted materially by the COVID-19 pandemic.

The scope of the effects of the COVID-19 pandemic and its related economic impact on our businesses depends on many factors beyond our control, and the effects are difficult to assess or predict with meaningful precision both generally and specifically as to our businesses.

While the full extent to which the COVID-19 pandemic may adversely impact our results is uncertain, the adverse impact of the COVID-19 pandemic may be material to our businesses.

The pandemic has resulted in a widespread health crisis that is adversely affecting the economies and financial markets of many countries.

During the COVID-19 pandemic and even after it has subsided, the Company may continue to experience adverse impacts to the Company’s business as a result of the pandemic’s global economic impact, including any recession, economic downturn, government spending cuts, tightening of credit markets or increased unemployment that has occurred or may occur in the future, which could cause our ultimate customers and potential customers to postpone or reduce spending on our products or put downward pressure on prices.

In addition, the illness, incapacitation or death due to COVID-19 of any key personnel of our businesses can have a material impact on our financial condition and results of operations.

Many governments have implemented policies intended to stop or slow the further spread of COVID-19, such as shelter-in-place orders, travel bans, declarations of states of emergency, business closures, manufacturing and other commercial restrictions and closure of schools and non-essential businesses, and these measures may remain in place for a significant period of time.

The Company’s top priority is to protect our employees and their families, and those of the Company’s customers.

The Company is taking precautionary measures as directed by health authorities and the local government, including changing operational procedures as necessary, providing additional protective gear and cleaning to protect them, which has resulted and may continue to result in disruptions to and increased costs of the Company’s operations.

Individually and collectively, the consequences of the COVID-19 pandemic could adversely impact the Company's business, financial condition, results of operations, cash flows and liquidity.

The extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

Infrastructure Segment

DBMG is dependent on its workforce to carry out its services.

Developments resulting from governmental responses to COVID-19, such as social distancing and shelter-in-place directives, have impacted, and will continue to impact, DBMG’s ability to deploy its workforce in its facilities and project sites efficiently.

The nature of DBMG’s business does not permit alternative workforce arrangements in its facilities and project sites such as remote work schemes to be implemented effectively, and as a result of potential workforce disruptions, DBMG may experience delays or suspensions of projects.

During the year ended December 31, 2020, $19.4 million COVID-19 related expenses were incurred.

DBMG may also experience disruptions in the supply chain depending on the spread of COVID-19 and related governmental orders.

These delays, suspensions, and impacts to supply chain, may negatively impact DBMG’s results of operations, cash flows or financial condition.

likely will cause the timing of revenue and possibly impact earnings and backlog.

Persistent delays, suspensions or cancellations of projects under contract may occur while governments implement policies designed to respond to the COVID-19 pandemic.

continued loss or suspension of projects under contract may negatively impact the DBMG’s results of operations, cash flows or financial condition.

Life Sciences Segment

Our Life Sciences segment may be adversely disrupted by the effects of the COVID-19 pandemic.

For example, requirements to implement COVID-19 operational measures at clinical trial sites may result in clinical studies in some locations being delayed.

Such delays may slow progress towards regulatory clearances and approval of our products in the U.S.

and globally.

In addition, stay-in-place orders of governmental authorities have impacted the ability of our employees to continue to conduct research and development activities despite our work-from-home policies.

Disruptions in our labor force and in the labor force of our suppliers may also lead to delays in our manufacturing scale up, which in turn could result in delays in our product launch plans and ultimate customer adoption of our products.

In the event that we are unable to achieve anticipated regulatory clearances or commence certain clinical trials in a timely manner due to the ongoing pandemic, we could fail to achieve the final milestones under our stock purchase agreements with Hangzhou Huasheng Investment Management Co., Ltd.

(“Hangzhou”) which in turn could result in Hangzhou determining not to purchase the final $15.0 million of preferred stock for MediBeacon, and our inability to continue our operations.

The ultimate impact of the COVID-19 pandemic on the business operations of our Life Science segment is highly uncertain and subject to change and will depend on future developments, which cannot be accurately predicted, including the duration of the pandemic, additional or modified government actions, new information that will emerge concerning the severity and impact of COVID-19 and the actions taken to contain or address its impact in the short and long term, among others.

Spectrum Segment

Our Spectrum segment has been, and may continue to be, impacted by the COVID-19 pandemic in numerous ways.

Spectrum is dependent on advertising revenue, and numerous advertisers have reduced or suspended their purchase of television advertising time, primarily due to the cessation of local consumer business activity mandated by state governors.

Many of the top industries that are heavy television advertisers have suffered from these business shut downs, including the significant industry sectors relating to travel, entertainment and theme parks, auto sales, all consumer retail, casual dining and quick serve restaurants.

We may also be indirectly impacted by the slow-down in television advertising by our spectrum lease clients.

These clients pay us lease fees to air their programming on our television stations, and many of them rely on advertising revenue from those television stations to pay such spectrum lease fees.

Losses in our clients’ advertising revenue could expose us to consequential loss of broadcast station revenue.

In addition, the COVID-19 pandemic has slowed down our ability to build out our additional television stations.

Illness, social distancing, and other pandemic-related precautions have resulted in equipment delivery delays and labor shortages, including the availability of tower crews, an already limited, highly-specialized and thinly-stretched work force necessary to install our broadcast antennas and related equipment.

We depend on operational stations for our revenue, and delays in completing our station builds will directly result in delays in monetizing those stations.

Our ability to refinance our short term debt may be compromised to the extent COVID-19 disrupts our access to the high-yield debt markets.

Insurance Segment

Our Insurance segment may incur increased losses under insurance policies that it has written including group life insurance, individual life insurance, and annuities, which may result in increased death claims due to COVID-19 mortality.

Our Insurance segment has not written or does not retain any risk for workers’ compensation, short-term disability, general liability, surety, director and officer liability, and employment practices liability which are key insurance liabilities that may be directly impacted by COVID-19.

Our Insurance segment does not actively issue or market new policies, therefore there is no potential disruptions to brokers or agents that would have an impact on operations.

In addition, our insurance segment relies on timely collections of premiums due from our customers.

Regulatory requirements applicable to our Insurance segment to extend premium grace periods (e.g., FL Memorandum OIR – 20-04M), potential delays in obtaining rate increase approvals for the long-term care liabilities, and increased demands for cash surrender values for life and annuity liabilities may negatively impact our cash flows and result of operations.

Risks Related to Our Businesses

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The ability of HC2’s subsidiaries to distribute cash to it are and will remain subject to, among other things, restrictions that are contained in its subsidiaries’ financing agreements, availability of sufficient funds and applicable state laws and regulatory restrictions.

For instance, each of DBMG and GMSL are borrowers under credit facilities that restrict their ability to make distributions or loans to HC2.

For instance, each of DBMG is a borrower under credit facilities that restrict their ability to make distributions or loans to HC2.

Specifically, DBMG is party to credit agreements that include certain financial covenants that can limit the amount of cash available to make upstream dividend payments to HC2.

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Our ability to generate sufficient cash for our operations will depend upon, among other things, the future financial and operating performance of our operating business, which will be affected by prevailing economic and related industry conditions and financial, business, regulatory and other factors, many of which are beyond our control.

We recognized net loss income attributable to HC2 of $31.5 million in 2019 and net income attributable to HC2 of $155.6 million in 2018, and have incurred net losses in prior periods.

We recognized net loss attributable to HC2 of $92.0 million in 2020 and net loss attributable to HC2 of $31.5 million in 2019, and have incurred net losses in prior periods.

We cannot assure you that our business will generate cash flow from operations in an amount sufficient to fund our liquidity needs.

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We recognized cash flows from operating activities of $41.7 million in 2020 and $110.7 million in 2019.

We are dependent on Philip A.

Falcone, our Chairman, CEO and President, and certain other key personnel, the loss or distraction of whom may adversely affect our financial condition or results of operations.

We believe that the future success of HC2 and its operating subsidiaries depends and will depend to a significant extent upon the performance of Philip A.

Falcone, our Chairman, CEO and President, who has served as our Chairman, CEO and President since May 2014, as well as the services of other key personnel at HC2 and its operating subsidiaries, which may consist of a relatively small number of individuals that possess sales, marketing, engineering, financial, technical and other skills that are critical to the operation of our businesses.

We are dependent on Wayne Barr, Jr., our President and Chief Executive Officer, and certain other key personnel, the loss or distraction of whom may adversely affect our financial condition or results of operations.

We believe that the future success of HC2 and its operating subsidiaries depends and will depend to a significant extent upon the performance of Wayne Barr, Jr., our President and Chief Executive Officer ("CEO"), who has served as a director of HC2 since January 2014, as Lead Director during March 2020, as interim CEO from June 2020 to November 2020 and as President and CEO of HC2 since November 2020, as well as the services of other key personnel at HC2 and its operating subsidiaries, which may consist of a relatively small number of individuals that possess sales, marketing, engineering, financial, technical and other skills that are critical to the operation of our businesses.

The executive management teams that lead our subsidiaries are also highly experienced and possess extensive skills in their relevant industries.

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The unexpected loss of the services of one or more of these individuals, whether due to competition, distraction caused by personal matters or otherwise, could have a detrimental effect on the financial condition or results of operations of our businesses, and could hinder the ability of such businesses to effectively compete in the various industries in which we operate.

Falcone is a named defendant in litigation in connection with certain personal financial matters.

HC2 understands that Mr.

Falcone continues to vigorously pursue his defense in connection with these matters which may be time consuming, may divert Mr.

Falcone’s attention from management of our business and therefore may adversely affect our business, and could result in the loss of certain shares of his investment in HC2.

We and our subsidiaries may not be able to attract and/or retain additional skilled personnel.

We may not be able to attract new personnel, including management and technical and sales personnel, necessary for future growth, or replace lost personnel.

In particular, the activities of some of our operating subsidiaries, such as GMSL and CGI require personnel with highly specialized skills.

In particular, the activities of some of our operating subsidiaries, such as CGI, require personnel with highly specialized skills.

Competition for the best personnel in our businesses can be intense.

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dollar and in foreign currencies may adversely impact our results of operations and financial condition.

We conduct various operations outside the United States, primarily in the United Kingdom.

We conduct various operations outside the United States.

As a result, we face exposure to movements in currency exchange rates.

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• planning risk related to changes in exchange rates between the time we prepare our annual and quarterly forecasts and when actual results occur.

We face risks related to changes in U.S.

trade policy arising from the current administration.

government has indicated its intent to adopt a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements.

For example, the current administration has reached a new trade agreement with the governments of Canada and Mexico to replace the North American Free Trade Agreement ("NAFTA") with the United States-Mexico-Canada Agreement ("USMCA").

The USMCA maintains duty-free access for most products and leaves many key provisions of the NAFTA agreement intact.

On January 29, 2020, following Congressional approval, President Trump signed an agreement with Mexico on the USMCA.

The agreement remains subject to ratification by the government of Canada.

The full impact of this agreement on us, our customers and on economic conditions is currently unknown.

Furthermore, the current administration has threatened tougher trade terms with China and other countries.

The current administration’s assertive trade policies could result in further conflicts with U.S.

trading partners, affecting the Company’s supply chains, sourcing, and markets.

Foreign countries may impose additional burdens on U.S.

companies through the use of local regulations, tariffs or other requirements which could increase our operating costs in those foreign jurisdictions.

It remains unclear what additional actions, if any, the current administration will take.

If the United States were to materially modify international trade agreements to which it is a party, or if tariffs were raised on the foreign-sourced goods that we sell, such goods may no longer be available at a commercially attractive price, which in turn could have a material adverse effect on our business, financial condition and results of operations.

Because we face significant competition for acquisition and business opportunities, including from numerous companies with a business plan similar to ours, it may be difficult for us to fully execute our business strategy.

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This inherent competitive limitation gives others an advantage in pursuing acquisition and investment opportunities.

Furthermore, our subsidiaries also face competition from both traditional and new market entrants that may adversely affect them as well, as discussed below in the risk factors related to DBMG, GMSL, ANG, ICS, the Insurance Company, and HC2 Broadcasting.

We may be required to expend substantial sums in order to bring the companies we have acquired or may acquire in the future, into compliance with the various reporting requirements applicable to public companies and/or to prepare required financial statements, and such efforts may harm our operating results or be unsuccessful altogether.

The Sarbanes-Oxley Act requires our management to assess the effectiveness of the internal control over financial reporting for the companies we acquire and our external auditor to attest to, and report on the internal control over financial reporting, for these companies.

In order to comply with the Sarbanes-Oxley Act, we will need to implement or enhance internal control over financial reporting at acquired companies and evaluate the internal controls.

We do not conduct a formal evaluation of companies’ internal control over financial reporting prior to an acquisition.

We may be required to hire additional staff and incur substantial costs to implement the necessary new internal controls at the companies we acquire.

Any failure to implement required internal controls, or difficulties encountered in their implementation, could harm our operating results or increase the risk of material weaknesses in internal controls, which could, if not remediated, adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner.

Future acquisitions or business opportunities could involve unknown risks that could harm our business and adversely affect our financial condition and results of operations.

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We may not be able to fully utilize our net operating loss and other tax carryforwards.

Our ability to utilize our NOL and other tax carryforward amounts, such as Section 163(j) disallowed interest carryforwards, to reduce taxable income in future years may be limited for various reasons.

Our ability to utilize our net operating loss ("NOL") and other tax carryforward amounts, such as Section 163(j) disallowed interest carryforwards, to reduce taxable income in future years may be limited for various reasons.

As a result of the enactment of the Tax Cuts and Jobs Act ("TCJA"), the deduction for NOLs arising in tax years after December 31, 2017, will be limited to 80% of taxable income, although they can be carried forward indefinitely.

NOLs that arose prior to the years beginning January 1, 2018 are still subject to the same carryforward periods.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted in the second quarter of 2020, temporarily reverses or modifies some of the changes made by the TCJA.

The CARES Act provides businesses with the ability to amend returns to carry back NOLs and permits such NOLs to fully offset taxable income.

In addition, the CARES Act temporarily increases the Section 163(j) limitation.

In addition, our ability to fully utilize these U.S.

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and international markets and economies and prolonged stagnation in business and consumer spending may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers, including our ability to access capital markets and obtain capital lease financing to meet liquidity needs.

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China.

In January 2020, this coronavirus spread to other countries, including the United States, and efforts to contain the spread of this coronavirus intensified.

The outbreak and any preventative or protective actions that governments or we may take in respect of this coronavirus may result in a period of business disruption, reduced customer traffic and reduced operations.

Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our business, financial condition and results of operations.

The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

We are subject to risks associated with our international operations.

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employees or prospective employees could adversely affect sales or hiring and retention, respectively.

Due to the fact that we have operations located within the United Kingdom (UK), our business and financial results may be negatively impacted as a result of the UK's exit from the European Union (EU), resulting primarily from (a) continued depression in the value of the GBP as compared to the USD;

and (b) potential price increases for supplies purchased by our UK businesses from companies located in the EU or elsewhere.

On March 29, 2017, the United Kingdom formally notified the European Council of its intention to leave the European Union (“Brexit”).

Under the process for leaving the European Union contemplated in Article 50 of the Treaty on the Functioning of the European Union, the United Kingdom left the European Union on January 31, 2020 and entered an 11-month transitional period.

During the transitional period, the United Kingdom and the European Union will negotiate the terms of their future relationship and during this period most European Union law will continue to apply to the United Kingdom.

The full effect of Brexit is difficult to predict, however it could have a significant adverse impact on United Kingdom, European and global macroeconomic conditions and could lead to prolonged political, legal, regulatory, tax and economic uncertainty.

For example, following the UK’s vote to leave the EU in 2016, the value of the British pound ("GBP") incurred significant fluctuations.

If the value of the GBP continues to incur similar fluctuations, unfavorable exchange rate changes may negatively affect the value of our operations and businesses located in the UK, as translated to our reporting currency, the USD, in accordance with US GAAP, which may impact the revenue and earnings we report.

For more information with respect to Exchange Rate risk applicable to us, please see Part 2 Item 7A.

"Market Risk Disclosures" elsewhere in this Annual Report on Form 10-K.

Continued fluctuations in the GBP may also result in the imposition of price adjustments by EU-based suppliers to our UK businesses, as those suppliers seek to compensate for the changes in value of the GBP as compared to the Euro.

There is no guarantee that an agreement between the United Kingdom and the European Union will be reached.

A so-called "Hard Brexit," where no formal agreement is made between the EU and UK, could result in a continued deflation of the GBP, additional increases in prices, fees, taxes or tariffs applicable to goods that are bought and sold between the UK and Europe, and a negative impact on end markets in the UK as a result of declines in consumer sentiment or decreased immigration rates into the UK.

Any of these results could have a material adverse effect on the business, revenues and financial condition of our UK and European operations.

The "Sarbanes-Oxley Act requires our management to assess the effectiveness of the internal control over financial reporting for the companies we acquire and our external auditor to attest to, and report on the internal control over financial reporting, for these companies.

In order to comply with the Sarbanes-Oxley Act, we will need to implement or enhance internal control over financial reporting at acquired companies and evaluate the internal controls.

We do not conduct a formal evaluation of companies’ internal control over financial reporting prior to an acquisition.

We may be required to hire additional staff and incur substantial costs to implement the necessary new internal controls at the companies we acquire.

We face certain risks associated with the acquisition or disposition of businesses and lack of control over certain of our investments.

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We have, indirectly through our subsidiaries, formed joint ventures, and may in the future engage in similar joint ventures with third parties.

For example, GMSL operates various joint ventures outside of the United States.

In such circumstances, we may not be in a position to exercise significant decision-making authority if we do not own a substantial majority of the equity interests of such joint venture or otherwise have contractual rights entitling us to exercise such authority.

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Such actions may also trigger a change in control under certain agreements to which the Company is party, which could materially and adversely affect our business.

On February 13, 2020, we received notice from Percy Rockdale LLC and its affiliates (collectively, “Percy Rockdale”) that it intends to nominate six individuals to stand for election as directors at our 2020 Annual Meeting of Stockholders.

Subsequently, on February 18, 2020, Percy Rockdale issued a press release expressing certain concerns, including, among others, concerns with our long-term performance, strategy and management.

Further, on March 13, 2020, Percy Rockdale filed a preliminary consent statement to solicit consents from stockholders for the removal of the Company’s Board of Directors and election of the Percy Rockdale nominees.

While we have conducted outreach to Percy Rockdale, no substantive discussions have taken place with Percy Rockdale with respect to their interest in, or concerns regarding, the Company.

While our Board of Directors and management team strive to maintain constructive, ongoing communications with all of our stockholders, including Percy Rockdale, and we welcome constructive input from all stockholders toward the shared goal of enhancing stockholder value, activist campaigns that contest, or seek to change, our strategic direction could have an adverse effect on us because:

(i) responding to actions by activist stockholders can disrupt our operations, be costly (resulting in significant professional fees and proxy solicitation expenses) and time-consuming, and divert the attention of our Board of Directors and senior management from the pursuit of business strategies, which could materially and adversely affect our business, operating results and financial condition;

(ii) perceived uncertainties as to our future direction may lead to the perception of a change in the direction of the business, instability or lack of continuity, which may be exploited by our competitors, cause concern to our stakeholders, including the current or potential customers of our operating segments, may result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel and business partners;

and (iii) these types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

In addition, under certain circumstances arising out of, or related to, certain actions of activist stockholders, including a proxy contest or consent solicitation, a change in a majority of our Board of Directors may trigger the requirement that we make an offer to redeem our shares of preferred stock at a price per share of preferred stock, equal to the greater of (i) the accrued value of the preferred stock, plus any accrued and unpaid dividends (to the extent not included in the accrued value of preferred stock), and (ii) the value that would be received if the share of preferred stock were converted into common stock, the occurrence of which could materially and adversely affect our business.

Under certain circumstances arising out of, or related to, certain actions of activist stockholders, including a proxy contest or consent solicitation, a change in a majority of our Board of Directors may trigger the requirement that we make an offer to redeem our shares of preferred stock at a price per share of preferred stock, equal to the greater of (i) the accrued value of the preferred stock, plus any accrued and unpaid dividends (to the extent not included in the accrued value of preferred stock), and (ii) the value that would be received if the share of preferred stock were converted into common stock, the occurrence of which could materially and adversely affect our business.

In such instance, the Company cannot assure stockholders that it would be able to obtain the financing on commercially reasonable terms (if at all) to fund the offer to redeem all of the preferred stock.

If any of these risks were to occur, our business, operating results and financial condition could be materially and adversely affected.

Risks Related to American Natural Energy

The adoption, modification or repeal in environmental, tax, government regulations, and other programs and incentives that encourage the use of clean fuel and alternative vehicles, may impact our business.

Programs and regulations that have the effect of encouraging the use of CNG as a vehicle fuel are subject to change, and could expire or be repealed or amended as a result of changes in federal, state or local political, social or economic conditions.

In particular, the AFTC provided a tax credit worth $0.50 per gasoline gallon equivalent of compressed natural gas, or diesel gallon equivalent of liquefied natural gas, which our subsidiary ANG claimed for a portion of its fuel sales each year.

The AFTC tax credit has been used as an incentive for fleet operators to adopt natural gas vehicles, as it helped offset the incremental cost of a natural gas vehicle versus a similar gas- or diesel-powered version.

The termination, modification or repeal of federal, state and local government tax credits, rebates, grants and similar programs and incentives that promote the use of CNG as a vehicle fuel and various government programs that make available grant funds for the purchase and construction of natural gas vehicles and stations may have an adverse impact on our business.

As of the date of this filing, the U.S.

Congress has passed an AFTC extension making the law effective through December 31, 2020.

Demand for natural gas vehicles may decline with advances in other alternative technologies and fuels, or with improvements in gasoline, diesel or hybrid engines.

The market for CNG vehicles may diminish with technological advances in gasoline, diesel or other alternative fuels that may be considered more cost-effective or otherwise more advantageous than CNG.

Operators may perceive an inability to timely recover the additional costs of natural gas vehicles if CNG fuel is not offered at a lower price than gasoline and diesel.

In addition, the adoption of CNG as a fuel for vehicle may be slowed or limited if the low prices and over-supply of gasoline and diesel continue or deteriorate further or if natural gas prices increases without corresponding increases in prices of gasoline and diesel.

Advances or improvements in fuel efficiency also may offer more economical choice and deter consumers to convert their vehicles to natural gas.

Growth in the use of electric commercial vehicles likewise may reduce demand for natural gas vehicles and renewable diesel, hydrogen and other alternative fuels may prove to be more economical alternatives to gasoline and diesel than natural gas, which could have an adverse impact on our business.

If there are advances in other alternative vehicle fuels or technologies, or if there are improvements in gasoline, diesel or hybrid engines, demand for natural gas vehicles may decline.

Technological advances in the production, delivery and use of gasoline, diesel or other alternative fuels that are, or are perceived to be, cleaner, more cost-effective, more readily available or otherwise more attractive than CNG, may slow or limit adoption of natural gas vehicles.

For example, advances in gasoline and diesel engine technology, including efficiency improvements and further development of hybrid engines, may offer a cleaner, more cost-effective option and make fleet customers less likely to convert their vehicles to natural gas.

Additionally, technological advances related to ethanol or biodiesel, which are used as an additive to, or substitute for gasoline and diesel fuel, may slow the need to diversify fuels and affect the growth of the natural gas vehicle fuel market.

Further, use of electric commercial vehicles, or the perception that such vehicles may soon be widely available and provide satisfactory performance at an acceptable cost, may reduce demand for natural gas vehicles.

In addition, renewable diesel, hydrogen and other alternative fuels may prove to be cleaner, more cost-effective alternatives to gasoline and diesel than natural gas.

Advances in technology that reduce demand for natural gas as a vehicle fuel or the failure of natural gas vehicle technology to advance at an equal pace could slow or curtail the growth of natural gas vehicle purchases or conversions, which would have an adverse effect on our business.

Increases, decreases and general volatility in oil, gasoline, diesel and natural gas prices could adversely affect our business.

In recent years, the prices of oil, gasoline, diesel and natural gas have been volatile, and this volatility may continue.

Additionally, prices for crude oil in recent years have been low, due in part to over-production and increased supply without a corresponding increase in demand.

Market adoption of CNG (which can be delivered in the form of CNG) as vehicle fuels could be slowed or limited if the low prices and over-supply of gasoline and diesel, today’s most prevalent and conventional vehicle fuels, continue or worsen, or if the price of natural gas increases without equal and corresponding increases in prices of gasoline and diesel.

Any of these circumstances could decrease the market's perception of a need for alternative vehicle fuels generally and could cause the success or perceived success of our industry and our business to materially suffer.

In addition, low gasoline and diesel prices contribute to the differential between the cost of natural gas vehicles and gasoline or diesel-powered vehicles.

Generally, natural gas vehicles cost more initially than gasoline or diesel powered vehicles, as the components needed for a vehicle to use natural gas add to the vehicle’s base cost.

Operators seek to recover the additional costs of acquiring or converting to natural gas vehicles over time through the lower costs of fueling natural gas vehicles;

however, operators may perceive an inability to timely recover these additional costs if we do not offer CNG fuel at prices lower than gasoline and diesel.

Our ability to offer our customers an attractive pricing advantage for CNG and maintain an acceptable margin on our sales becomes more difficult if prices of gasoline and diesel decrease or if prices of natural gas increase.

These pricing conditions exacerbate the cost differential between natural gas vehicles and gasoline or diesel powered vehicles, which may lead operators to delay or refrain from purchasing or converting to natural gas vehicles at all.

Any of these outcomes would decrease our potential customer base and harm our business prospects.

Further, fluctuations in natural gas prices affect the cost to us of the natural gas commodity.

High natural gas prices adversely impact our operating margins in cases where we cannot pass the increased costs through to our customers.

Conversely, lower natural gas prices reduce our revenue in cases where the commodity cost is passed through to our customers.

As a result, these fluctuations in natural gas prices can have a significant and adverse impact on our operating results.

Factors that can cause fluctuations in gasoline, diesel and natural gas prices include, among others, changes in supply and availability of crude oil and natural gas, government regulations and political conditions, inventory levels, consumer demand, price and availability of other alternative fuels, weather conditions, negative publicity surrounding drilling, production or importing techniques and methods for oil or natural gas, economic conditions and the price of foreign imports.

With respect to natural gas supply and use as a vehicle fuel, there have been recent efforts to place new regulatory requirements on the production of natural gas by hydraulic fracturing of shale gas reservoirs and other means and on transporting, dispensing and using natural gas.

Hydraulic fracturing and horizontal drilling techniques have resulted in a substantial increase in the proven natural gas reserves in the United States.

Any changes in regulations that make it more expensive or unprofitable to produce natural gas through these techniques or others, as well as any changes to the regulations relating to transporting, dispensing or using natural gas, could lead to increased natural gas prices.

If pricing conditions worsen, or if all or some combination of factors causing further volatility in natural gas, oil and diesel prices were to occur, our business and our industry would be materially harmed.

Automobile and engine manufacturers currently produce few originally manufactured natural gas vehicles and engines for the markets in which ANG participates, which may adversely impact the adoption of CNG as a vehicle fuel.

Limited availability of natural gas vehicles and engine sizes of such vehicles restricts their wide scale introduction and narrows ANG’s potential customer base.

This, in turn, has a limiting effect on the results of operations.

Due to the limited supply of natural gas vehicles, ANG’s ability to promote certain of the services contemplated by ANG’s business plan may be restricted, even if there is demand.

ANG faces intense competition from oil and gas companies, retail fuel providers, industrial gas companies, natural gas utilities, and other organizations that have far greater resources and brand awareness than ANG has .

A significant number of established businesses, including oil and gas companies, natural gas utilities, industrial gas companies, station owners and other organizations have entered, or are planning to enter, the natural gas fuels market.

Many of these current and potential competitors have substantially greater financial, marketing, research and other resources than ANG.

Natural gas utilities continue to own and operate natural gas fueling stations.

Utilities in Michigan, Illinois, New Jersey, North Carolina and Georgia have also recently made efforts to invest in the natural gas vehicle fuel space.

ANG expects competition to intensify in the near term in the market for natural gas vehicle fuel as the use of natural gas vehicles and the demand for natural gas vehicle fuel increases.

Increased competition will lead to amplified pricing pressure, reduced operating margins and fewer expansion opportunities.

ANG’s failure to compete successfully would adversely affect ANG’s business and financial results, even if ANG is successful in implementing its business plan.

The infrastructure to support gasoline and diesel consumption is vastly more developed than the infrastructure for natural gas vehicle fuels.

Gasoline and diesel fueling stations and service infrastructure are widely available in the United States.

For natural gas vehicle fuels to achieve more widespread use in the United States, they will require a promotional and educational effort and the development and supply of more natural gas vehicles and fueling stations.

This will require significant continued effort by us, as well as government and clean air groups.

In addition, ANG may face resistance from oil companies and other vehicle fuel companies.

Our newly reconstituted Board and change in executive management may not result in growth of our business or enhance stockholder value.

Our executive management team is critical to the overall management of the Company and also plays a key role in maintaining our culture and setting our strategic direction.

Recent changes in our executive management team and composition of the Board, and any related speculation and uncertainty regarding our future business strategy and direction, may cause or result in:

disruption of our business and operations;

difficulty recruiting, hiring, motivating and retaining talented and skilled personnel;

departures of other members of management;

increased stock price volatility;

and difficulty in establishing, maintaining or negotiating business or strategic relationships or transactions.

On May 14, 2020, the Company announced a settlement agreement with MG Capital Management, Ltd.

to reconstitute the Board as a result of ongoing engagement with stockholders.

On June 11, 2020, the Company announced that the Board had appointed Wayne Barr, Jr.

as interim Chief Executive Officer.

On November 30, 2020 the Company announced that the Board appointed Mr.

Barr as permanent Chief Executive Officer effective as of November 25, 2020.

Risks Related to the Infrastructure segment

DBMG’s business is dependent upon major construction contracts, the unpredictable timing of which may result in significant fluctuations in its cash flow due to the timing of receipt of payment under such contracts.

DBMG’s cash flow is dependent upon obtaining major construction contracts primarily from general contractors and engineering firms responsible for commercial and industrial construction projects, such as high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas, shopping malls, hospitals, dams, bridges, mines and power plants.

The timing of or failure to obtain contracts, delays in awards of contracts, cancellations of contracts, delays in completion of contracts, or failure to obtain timely payment from DBMG’s customers, could result in significant periodic fluctuations in cash flows from DBMG’s operations.

In addition, many of DBMG’s contracts require it to satisfy specific progress or performance milestones in order to receive payment from the customer.

As a result, DBMG may incur significant costs for engineering, materials, components, equipment, labor or subcontractors prior to receipt of payment from a customer.

Such expenditures could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition

The nature of DBMG’s primary contracting terms for its contracts, including fixed-price and cost-plus pricing, could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

DBMG’s projects are awarded through a competitive bid process or are obtained through negotiation, in either case generally using one of two types of contract pricing approaches:

fixed-price or cost-plus pricing.

Under fixed-price contracts, DBMG performs its services and executes its projects at an established price, subject to adjustment only for change orders approved by the customer, and, as a result, it may benefit from cost savings but be unable to recover any cost overruns.

If DBMG does not execute such a contract within cost estimates, it may incur losses or the project may be less profitable than expected.

Historically, the majority of DBMG’s contracts have been fixed-price arrangements.

The revenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to:

• failure to properly estimate costs of materials, including steel and steel components, engineering services, equipment, labor or subcontractors;

• costs incurred in connection with modifications to a contract that may be unapproved by the customer as to scope, schedule, and/or price;

• unanticipated technical problems with the structures, equipment or systems we supply;

• unanticipated costs or claims, including costs for project modifications, customer-caused delays, errors or changes in specifications or designs, or contract termination;

• changes in the costs of materials, engineering services, equipment, labor or subcontractors;

• changes in labor conditions, including the availability and productivity of labor;

• productivity and other delays caused by weather conditions;

• failure to engage necessary suppliers or subcontractors, or failure of such suppliers or subcontractors to perform;

• difficulties in obtaining required governmental permits or approvals;

• changes in laws and regulations;

• changes in general economic conditions.

Under cost-plus contracts, DBMG receives reimbursement for its direct labor and material cost, plus a specified fee in excess thereof, which is typically a fixed rate per hour, an overall fixed fee, or a percentage of total reimbursable costs, up to a maximum amount, which is an arrangement that may protect DBMG against cost overruns.

If DBMG is unable to obtain proper reimbursement for all costs incurred due to improper estimates, performance issues, customer disputes, or any of the additional factors noted above for fixed-price contracts, the project may be less profitable than expected.

Generally, DBMG’s contracts and projects vary in length from 1 to 24 months, depending on the size and complexity of the project, project owner demands and other factors.

The foregoing risks are exacerbated for projects with longer-term durations because there is an increased risk that the circumstances upon which DBMG based its original estimates will change in a manner that increases costs.

In addition, DBMG sometimes bears the risk of delays caused by unexpected conditions or events.

To the extent there are future cost increases that DBMG cannot recover from its customers, suppliers or subcontractors, the outcome could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

Furthermore, revenue and gross profit from DBMG’s contracts can be affected by contract incentives or penalties that may not be known or finalized until the later stages of the contract term.

Some of DBMG’s contracts provide for the customer’s review of its accounting and cost control systems to verify the completeness and accuracy of the reimbursable costs invoiced.

These reviews could result in reductions in reimbursable costs and labor rates previously billed to the customer.

The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on contracts in progress.

Due to the various estimates inherent in DBMG’s contract accounting, actual results could differ from those estimates.

DBMG’s billed and unbilled revenue may be exposed to potential risk if a project is terminated or canceled or if DBMG’s customers encounter financial difficulties.

DBMG’s contracts often require it to satisfy or achieve certain milestones in order to receive payment for the work performed.

As a result, under these types of arrangements, DBMG may incur significant costs or perform significant amounts of services prior to receipt of payment.

If the ultimate customer does not proceed with the completion of the project or if the customer or contractor under which DBMG is a subcontractor defaults on its payment obligations, DBMG may face difficulties in collecting payment of amounts due to it for the costs previously incurred.

If DBMG is unable to collect amounts owed to it, this could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

DBMG may be exposed to additional risks as it obtains new significant awards and executes its backlog, including greater backlog concentration in fewer projects, potential cost overruns and increasing requirements for letters of credit, each of which could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

As DBMG obtains new significant project awards, these projects may use larger sums of working capital than other projects and DBMG’s backlog may become concentrated among a smaller number of customers.

Approximately $141.8 million, representing 35.9%, of DBMG’s backlog at December 31, 2020 was attributable to five contracts, letters of intent, notices to proceed or purchase orders.

If any significant projects such as these currently included in DBMG’s backlog or awarded in the future were to have material cost overruns, or be significantly delayed, modified or canceled, DBMG’s results of operations, cash flows or financial position could be adversely impacted.

Moreover, DBMG may be unable to replace the projects that it executes in its backlog.

Additionally, as DBMG converts its significant projects from backlog into active construction, it may face significantly greater requirements for the provision of letters of credit or other forms of credit enhancements which exceed its current credit facilities.

We can provide no assurance that DBMG would be able to access such capital and credit as needed or that it would be able to do so on economically attractive terms.

DBMG may not be able to fully realize the revenue value reported in its backlog, a substantial portion of which is attributable to a relatively small number of large contracts or other commitments.

At December 31, 2020, DBMG's backlog was $394.5 million, consisting of $334.9 million under contracts or purchase orders and $59.6 million under letters of intent or notices to proceed.

Approximately $141.8 million, representing 35.9% of DBMG’s backlog at December 31, 2020, was attributable to five contracts, letters of intent, notices to proceed or purchase orders.

If one or more of these projects terminate or reduce their scope, DBMG’s backlog could decrease substantially.

Commitments may be in the form of written contracts, letters of intent, notices to proceed and purchase orders.

New awards may also include estimated amounts of work to be performed based on customer communication and historic experience and knowledge of our customers’ intentions.

Backlog consists of projects which have either not yet been started or are in progress but are not yet complete.

In the latter case, the revenue value reported in backlog is the remaining value associated with work that has not yet been completed, which increases or decreases to reflect modifications in the work to be performed under a given commitment.

The revenue projected in DBMG’s backlog may not be realized or, if realized, may not be profitable as a result of poor contract terms or performance.

Due to project terminations, suspensions or changes in project scope and schedule, we cannot predict with certainty when or if DBMG’s backlog will be performed.

From time to time, projects are canceled that appeared to have a high certainty of going forward at the time they were recorded as new awards.

In the event of a project cancellation, DBMG typically has no contractual right to the total revenue reflected in its backlog.

Some of the contracts in DBMG’s backlog provide for cancellation fees or certain reimbursements in the event customers cancel projects.

These cancellation fees usually provide for reimbursement of DBMG’s out-of-pocket costs, costs associated with work performed prior to cancellation, and, to varying degrees, a percentage of the profit DBMG would have realized had the contract been completed.

Although DBMG may be reimbursed for certain costs, it may be unable to recover all direct costs incurred and may incur additional unrecoverable costs due to the resulting under-utilization of DBMG’s assets.

DBMG’s failure to meet contractual schedule or performance requirements could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

In certain circumstances, DBMG guarantees project completion by a scheduled date or certain performance levels.

Failure to meet these schedule or performance requirements could result in a reduction of revenue and additional costs, and these adjustments could exceed projected profit.

Project revenue or profit could also be reduced by liquidated damages withheld by customers under contractual penalty provisions, which can be substantial and can accrue on a daily basis.

Schedule delays can result in costs exceeding our projections for a particular project.

Performance problems for existing and future contracts could cause actual results of operations to differ materially from those previously anticipated and could cause us to suffer damage to our reputation within our industry and our customer base.

DBMG’s government contracts may be subject to modification or termination, which could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

DBMG is a provider of services to U.S.

government agencies and is therefore exposed to risks associated with government contracting.

Government agencies typically can terminate or modify contracts to which DBMG is a party at their convenience, due to budget constraints or various other reasons.

As a result, DBMG’s backlog may be reduced or it may incur a loss if a government agency decides to terminate or modify a contract to which DBMG is a party.

DBMG is also subject to audits, including audits of internal control systems, cost reviews and investigations by government contracting oversight agencies.

As a result of an audit, the oversight agency may disallow certain costs or withhold a percentage of interim payments.

Cost disallowances may result in adjustments to previously reported revenue and may require DBMG to refund a portion of previously collected amounts.

In addition, failure to comply with the terms of one or more of our government contracts or government regulations and statutes could result in DBMG being suspended or debarred from future government projects for a significant period of time, possible civil or criminal fines and penalties, the risk of public scrutiny of our performance, and potential harm to DBMG’s reputation, each of which could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

Other remedies that government agencies may seek for improper activities or performance issues include sanctions such as forfeiture of profit and suspension of payments.

In addition to the risks noted above, legislatures typically appropriate funds on a year-by-year basis, while contract performance may take more than one year.

As a result, contracts with government agencies may be only partially funded or may be terminated, and DBMG may not realize all of the potential revenue and profit from those contracts.

Appropriations and the timing of payment may be influenced by, among other things, the state of the economy, competing political priorities, curtailments in the use of government contracting firms, budget constraints, the timing and amount of tax receipts and the overall level of government expenditures.

DBMG is exposed to potential risks and uncertainties associated with its reliance on subcontractors and third-party vendors to execute certain projects.

DBMG relies on third-party suppliers, especially suppliers of steel and steel components, and subcontractors to assist in the completion of projects.

To the extent these parties cannot execute their portion of the work and are unable to deliver their services, equipment or materials according to the agreed-upon contractual terms, or DBMG cannot engage subcontractors or acquire equipment or materials, DBMG’s ability to complete a project in a timely manner may be impacted.

Furthermore, when bidding or negotiating for contracts, DBMG must make estimates of the amounts these third parties will charge for their services, equipment and materials.

If the amount DBMG is required to pay for third-party goods and services in an effort to meet its contractual obligations exceeds the amount it has estimated, DBMG could experience project losses or a reduction in estimated profit.

Any increase in the price of, or change in supply and demand for, the steel and steel components that DBMG utilizes to complete projects could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

The prices of the steel and steel components that DBMG utilizes in the course of completing projects are susceptible to price fluctuations due to supply and demand trends, energy costs, transportation costs, government regulations, duties and tariffs, changes in currency exchange rates, price controls, general economic conditions and other unforeseen circumstances.

Although DBMG may attempt to pass on certain of these increased costs to its customers, it may not be able to pass all of these cost increases on to its customers.

As a result, DBMG’s margins may be adversely impacted by such cost increases.

DBMG’s dependence on suppliers of steel and steel components makes it vulnerable to a disruption in the supply of its products.

DBMG purchases a majority of the steel and steel components utilized in the course of completing projects from several domestic and foreign steel producers and suppliers.

DBMG generally does not have long-term contracts with its suppliers.

An adverse change in any of the following could have a material adverse effect on DBMG’s results of operations or financial condition:

• its ability to identify and develop relationships with qualified suppliers;

• the terms and conditions upon which it purchases products from its suppliers, including applicable exchange rates, transport costs and other costs, its suppliers’ willingness to extend credit to it to finance its inventory purchases and other factors beyond its control;

• financial condition of its suppliers;

• political instability in the countries in which its suppliers are located;

• its ability to import products;

• its suppliers’ noncompliance with applicable laws, trade restrictions and tariffs;

• its inability to find replacement suppliers in the event of a deterioration of the relationship with current suppliers;

• its suppliers’ ability to manufacture and deliver products according to its standards of quality on a timely and efficient basis.

Intense competition in the markets DBMG serves could reduce DBMG’s market share and earnings.

The principal geographic and product markets DBMG serves are highly competitive, and this intense competition is expected to continue.

DBMG competes with other contractors for commercial, industrial and specialty projects on a local, regional, or national basis.

Continued service within these markets requires substantial resources and capital investment in equipment, technology and skilled personnel, and certain

of DBMG’s competitors have financial and operating resources greater than DBMG.

Competition also places downward pressure on DBMG’s contract prices and margins.

Among the principal competitive factors within the industry are price, timeliness of completion of projects, quality, reputation, and the desire of customers to utilize specific contractors with whom they have favorable relationships and prior experience.

While DBMG believes that it maintains a competitive advantage with respect to these factors, failure to continue to do so or to meet other competitive challenges could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

DBMG’s customers’ ability to receive the applicable regulatory and environmental approvals for projects and the timeliness of those approvals could adversely affect DBMG’s business.

The regulatory permitting process for DBMG’s projects requires significant investments of time and money by DBMG’s customers and sometimes by DBMG.

There are no assurances that DBMG’s customers or DBMG will obtain the necessary permits for these projects.

Applications for permits may be opposed by governmental entities, individuals or special interest groups, resulting in delays and possible non-issuance of the permits.

DBMG’s failure to obtain or maintain required licenses may adversely affect its business.

DBMG is subject to licensure and holds licenses in each of the states in the United States in which it operates and in certain local jurisdictions within such states.

While we believe that DBMG is in material compliance with all contractor licensing requirements in the various jurisdictions in which it operates.

The failure to obtain, loss or revocation of any license or the limitation on any of DBMG’s primary services thereunder in any jurisdiction in which it conducts substantial operations could prevent DBMG from conducting further operations in such jurisdiction and have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

Volatility in equity and credit markets could adversely impact DBMG due to its impact on the availability of funding for DBMG’s customers, suppliers and subcontractors.

Some of DBMG’s ultimate customers, suppliers and subcontractors have traditionally accessed commercial financing and capital markets to fund their operations, and the availability of funding from those sources could be adversely impacted by volatile equity or credit markets.

The unavailability of financing could lead to the delay or cancellation of projects or the inability of such parties to pay DBMG or provide needed products or services and thereby have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

DBMG’s business may be adversely affected by bonding and letter of credit capacity.

Certain of DBMG’s projects require the support of bid and performance surety bonds or letters of credit.

A restriction, reduction, or termination of DBMG’s surety bond agreements or letter of credit facilities could limit its ability to bid on new project opportunities, thereby limiting new awards, or to perform under existing awards.

DBMG is vulnerable to significant fluctuations in its liquidity that may vary substantially over time.

DBMG’s operations could require the utilization of large sums of working capital, sometimes on short notice and sometimes without assurance of recovery of the expenditures.

Circumstances or events that could create large cash outflows include losses resulting from fixed-price contracts, environmental liabilities, litigation risks, contract initiation or completion delays, customer payment problems, professional and product liability claims and other unexpected costs.

There is no guarantee that DBMG’s facilities will be sufficient to meet DBMG’s liquidity needs or that DBMG will be able to maintain such facilities or obtain any other sources of liquidity on attractive terms, or at all.

DBMG’s projects expose it to potential professional liability, product liability, warranty and other claims.

DBMG’s operations are subject to the usual hazards inherent in providing engineering and construction services for the construction of often large commercial industrial facilities, such as the risk of accidents, fires and explosions.

These hazards can cause personal injury and loss of life, business interruptions, property damage and pollution and environmental damage.

DBMG may be subject to claims as a result of these hazards.

In addition, the failure of any of DBMG’s products to conform to customer specifications could result in warranty claims against it for significant replacement or rework costs, which could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

Although DBMG generally does not accept liability for consequential damages in its contracts, should it be determined liable, it may not be covered by insurance or, if covered, the dollar amount of these liabilities may exceed applicable policy limits.

Any catastrophic occurrence in excess of insurance limits at project sites involving DBMG’s products and services could result in significant professional liability, product liability, warranty or other claims against DBMG.

Any damages not covered by insurance, in excess of insurance limits or, if covered by insurance, subject to a high deductible, could result in a significant loss for DBMG, which may reduce its profits and cash available for operations.

These claims could also make it difficult for DBMG to obtain adequate insurance coverage in the future at a reasonable cost.

Additionally, customers or subcontractors that have agreed to indemnify DBMG against such losses may refuse or be unable to pay DBMG.

DBMG may experience increased costs and decreased cash flow due to compliance with environmental laws and regulations, liability for contamination of the environment or related personal injuries.

DBMG is subject to environmental laws and regulations, including those concerning emissions into the air, discharge into waterways, generation, storage, handling, treatment and disposal of waste materials and health and safety.

DBMG’s fabrication business often involves working around and with volatile, toxic and hazardous substances and other highly regulated pollutants, substances or wastes, for which the improper characterization, handling or disposal could constitute violations of U.S.

federal, state or local laws and regulations and laws of other countries, and result in criminal and civil liabilities.

Environmental laws and regulations generally impose limitations and standards for certain pollutants or waste materials and require DBMG to obtain permits and comply with various other requirements.

Governmental authorities may seek to impose fines and penalties on DBMG, or revoke or deny issuance or renewal of operating permits for failure to comply with applicable laws and regulations.

DBMG is also exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or wastes.

In connection with the historical operation of our facilities, substances which currently are or might be considered hazardous may have been used or disposed of at some sites in a manner that may require us to make expenditures for remediation.

The environmental, health and safety laws and regulations to which DBMG is subject are constantly changing, and it is impossible to predict the impact of such laws and regulations on DBMG in the future.

We cannot ensure that DBMG’s operations will continue to comply with future laws and regulations or that these laws and regulations will not cause DBMG to incur significant costs or adopt more costly methods of operation.

Additionally, the adoption and implementation of any new regulations imposing reporting obligations on, or limiting emissions of greenhouse gases from, DBMG’s customers’ equipment and operations could significantly impact demand for DBMG’s services, particularly among its customers for industrial facilities.

Any expenditures in connection with compliance or remediation efforts or significant reductions in demand for DBMG’s services as a result of the adoption of environmental proposals could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

DBMG is and will likely continue to be involved in litigation that could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.

DBMG has been and may be, from time to time, named as a defendant in legal actions claiming damages in connection with fabrication and other products and services DBMG provides and other matters.

These are typically claims that arise in the normal course of business, including employment-related claims and contractual disputes or claims for personal injury or property damage which occur in connection with services performed relating to project or construction sites.

Contractual disputes normally involve claims relating to the timely completion of projects or other issues concerning fabrication and other products and services DBMG provides.

There can be no assurance that any of DBMG’s pending contractual, employment-related personal injury or property damage claims and disputes will not have a material effect on DBMG’s future results of operations, cash flows or financial condition.

Work stoppages, union negotiations and other labor problems could adversely affect DBMG’s business.

A portion of DBMG’s employees are represented by labor unions, and 28% of DBMG’s employees are covered under collective bargaining agreements that expire in less than one year, at which time they will be renegotiated.

A lengthy strike or other work stoppage at any of its facilities could have a material adverse effect on DBMG’s business.

There is inherent risk that ongoing or future negotiations relating to collective bargaining agreements or union representation may not be favorable to DBMG.

From time to time, DBMG also has experienced attempts to unionize its non-union facilities.

Such efforts can often disrupt or delay work and present risk of labor unrest.

DBMG’s employees work on projects that are inherently dangerous, and a failure to maintain a safe work site could result in significant losses.

DBMG often works on large-scale and complex projects, frequently in geographically remote locations.

Such involvement often places DBMG’s employees and others near large equipment, dangerous processes or highly regulated materials.

If DBMG or other parties fail to implement appropriate safety procedures for which they are responsible or if such procedures fail, DBMG’s employees or others may suffer injuries.

In addition to being subject to state and federal regulations concerning health and safety, many of DBMG’s customers require that it meet certain safety criteria to be eligible to bid on contracts, and some of DBMG’s contract fees or profits are subject to satisfying safety criteria.

Unsafe work conditions also have the potential of increasing employee turnover, project costs and operating costs.

The failure to comply with safety policies, customer contracts or applicable regulations could subject DBMG to losses and liability and could result in a variety of administrative, civil and criminal enforcement measures.

Risks related to our Spectrum segment

We may not be able to successfully integrate HC2 Broadcasting's recent acquisitions into our business, or realize the anticipated benefits of these acquisitions.

Following the completion of HC2 Broadcasting’s recent and pending acquisitions, the integration of these businesses into our operations may be a complex and time-consuming process that may not be successful.

For example, prior to the completion of HC2 Broadcasting’s acquisition of Azteca America, we did not operate a Spanish-language broadcast network providing original content to the Hispanic audience in the United States.

In addition, HC2 Broadcasting’s pending and completed acquisitions during 2020 expanded HC2 Broadcasting's network to 221 operational stations.

In addition, Spectrum owns approximately 200 construction permits, allowing for further build-out of coverage across the United States.

This may add complexity to effectively overseeing, integrating and operating these assets.

Even if we successfully integrate these assets into our business and operations, there can be no assurance that we will realize the anticipated benefits and operating synergies.

The Company's estimates regarding the earnings, operating cash flow, capital expenditures and liabilities resulting from these acquisitions may prove to be incorrect.

For example, with any past or future acquisition, there is the possibility that:

• we may not have implemented company policies, procedures and cultures, in an efficient and effective manner;

• we may not be able to successfully reduce costs, increase advertising revenue or audience share;

• we may fail to retain and integrate employees and key personnel of the acquired business and assets;

• our management may be reassigned from overseeing existing operations by the need to integrate the acquired business;

• we may encounter unforeseen difficulties in extending internal control and financial reporting systems at the newly acquired business;

• we may fail to successfully implement technological integration with the newly acquired business or may exceed the capabilities of our technology infrastructure and applications;

• we may not be able to generate adequate returns;

• we may encounter and fail to address risks or other problems associated with or arising from our reliance on the representations and warranties and related indemnities, if any, provided to us by the sellers of acquired companies and assets;

• we may suffer adverse short-term effects on operating results through increased costs and may incur future impairments of goodwill associated with the acquired business;

• we may be required to increase our leverage and debt service or to assume unexpected liabilities in connection with our acquisitions;

• we may encounter unforeseen challenges in entering new markets in which we have little or no experience.

The occurrence of any of these events or our inability generally to successfully implement our acquisition and investment strategy would have an adverse effect, which could be material, on our business, financial condition and results of operations.

Our broadcasting business conducted by HC2 Broadcasting operates in highly competitive markets and our ability to maintain market share and generate operating revenues depends on how effectively we compete with existing and new competition.

Spectrum's broadcast stations compete for audiences and advertising revenue with other broadcast stations as well as with other media such as the Internet and radio.

HC2 Broadcasting also faces competition from (i) local free over-the-air broadcast television and radio stations;

(ii) telecommunication companies;

(iii) cable and satellite system operators and cable networks;

(iv) print media providers such as newspapers, direct mail and periodicals;

(v) internet search engines, internet service providers, websites, and mobile applications;

and (vi) other emerging technologies including mobile television.

Some of HC2 Broadcasting's current and potential competitors have greater financial and other resources than HC2 Broadcasting does and so may be better placed to extend audience reach and expand programming.

Many of HC2 Broadcasting’s competitors possess greater access to capital, and its financial resources may be relatively limited when contrasted with those of such competitors.

If HC2 Broadcasting needs to obtain additional funding, HC2 Broadcasting may be unable to such raise capital or, if HC2 Broadcasting is able to obtain capital it may be on unfavorable terms.

If HC2 Broadcasting is unable to obtain additional funding as and when needed, it could be forced to delay its development, marketing and expansion efforts and, if it continues to experience losses, potentially cease operations.

In addition, cable companies and others have developed national advertising networks in recent years that increase the competition for national advertising.

Over the past decade, cable television programming services, other emerging video distribution platforms and the Internet have captured increasing market share.

Cable providers, direct broadcast satellite companies and telecommunication companies are developing new technology that allows them to transmit more channels on their existing equipment to highly targeted audiences, reducing the cost of creating channels and potentially leading to the division of the television industry into ever more specialized niche markets.

The decreased cost of creating channels may also encourage new competitors to enter HC2 Broadcasting's markets and compete with us for advertising revenue.

In addition, technologies that allow viewers to digitally record, store and play back television programming may decrease viewership of commercials as recorded by media measurement services and, as a result, lower Spectrum's advertising revenues.

Furthermore, technological advancements and the resulting increase in programming alternatives, such as cable television, direct broadcast satellite systems, pay-per-view, home video and entertainment systems, video-on-demand, mobile video and the Internet have also created new types of competition to television broadcast stations and will increase competition for household audiences and advertisers.

We cannot provide any assurances that we will remain competitive with these developing technologies.

HC2 Broadcasting's inability to successfully respond to new and growing sources of competition in the broadcasting industry could have an adverse effect on HC2 Broadcasting's business, financial condition and results of operations.

The Federal Communications Commission ("FCC") could implement regulations or the U.S.

Congress could adopt legislation that might have a significant impact on the operations of the stations we own and the stations we provide services to or the television broadcasting industry as a whole.

The FCC regulates HC2 Broadcasting's broadcasting business.

We must often times obtain the FCC’s approval to obtain, renew, assign or modify, a license, purchase a new station, sell an existing station or transfer the control of one of HC2 Broadcasting's subsidiaries that hold a license.

HC2 Broadcasting's FCC licenses are critical to HC2 Broadcasting's operations;

we cannot operate without them.

We cannot be certain that the FCC will renew these licenses in the future or approve new acquisitions in a timely manner, if at all.

If licenses are not renewed or acquisitions are not approved, we may lose revenue that we otherwise could have earned and this would have an adverse effect on HC2 Broadcasting's business, financial condition and results of operations.

In addition, Congress and the FCC may, in the future, adopt new laws, regulations and policies regarding a wide variety of matters (including, but not limited to, technological changes in spectrum assigned to particular services) that could, directly or indirectly, materially and adversely affect the operation and ownership of HC2 Broadcasting's broadcast properties.

Broadcasting Licenses are issued by, and subject to the jurisdiction of the FCC, pursuant to the Communications Act of 1934, as amended (the "Communications Act").

The Communications Act empowers the FCC, among other actions, to issue, renew, revoke and modify broadcasting licenses;

determine stations’ frequencies, locations and operating power;

regulate some of the equipment used by stations;

adopt other regulations to carry out the provisions of the Communications Act and other laws, including requirements affecting the content of broadcasts;

and to impose penalties for violation of its regulations, including monetary forfeitures, short-term renewal of licenses and license revocation or denial of license renewals.

License Renewals.

Broadcast television licenses are typically granted for standard terms of eight years.

Most licenses for commercial and noncommercial TV broadcast stations, Class A TV broadcast stations, television translators and Low Power Television ("LPTV") broadcast stations are scheduled to expire between 2020 and 2023;

however, the Communications Act requires the FCC to renew a broadcast license if the FCC finds that the station has served the public interest, convenience and necessity and, with respect to the station, there have been no serious violations by the licensee of either the Communications Act or the FCC’s rules and regulations and there have been no other violations by the licensee of the Communications Act or the FCC’s rules and regulations that, taken together, constitute a pattern of abuse.

The Company has 51 pending renewal applications at the end of 2020, and will have 75 applications due in 2021.

Third parties may oppose license renewals.

A station remains authorized to operate while its license renewal application is pending.

License Assignments.

The Communications Act requires prior FCC approval for the assignment or transfer of control of an FCC licensee.

Third parties may oppose the Company’s applications to assign, transfer or acquire broadcast licenses.

Full Power and Class A Station Regulations.

The Communications Act and FCC rules and regulations limit the ability of individuals and entities to have certain official positions or ownership interests, known as "attributable" interests, above specific levels in full power broadcast stations as well as in other specified mass media entities.

Many of these limits do not apply to Class A stations, television translators and LPTV authorizations.

In seeking FCC approval for the acquisition of a broadcast television station license, the acquiring person or entity must demonstrate that the acquisition complies with applicable FCC ownership rules or that a waiver of the rules is in the public interest.

Additionally, while the Communications Act and FCC regulations have been modified to no longer strictly prohibit ownership of a broadcast station license by any corporation with more than 25 percent of its stock owned or voted by non-U.S.

persons, their representatives or any other corporation organized under the laws of a foreign country, foreign ownership above such threshold is determined by the FCC on a case-by-case basis, which analysis is subject to the specific circumstances of each such request.

The FCC has also adopted regulations concerning children’s television programming, commercial limits, local issues and programming, political files, sponsorship identification, equal employment opportunity requirements and other requirements for full power and Class A broadcast television stations.

The FCC’s rules require operational full-power and Class A stations to file quarterly reports demonstrating compliance with these regulations.

Low Power Television and TV Translator Authorizations.

LPTV stations and TV Translators have "secondary spectrum priority" to full-service television stations.

The secondary status of these authorizations prohibits LPTV and TV Translator stations from causing interference to the reception of existing or future full-service television stations and requires them to accept interference from existing or future full-service television stations and other primary licensees.

LPTV and TV Translator licensees are subject to fewer regulatory obligations than full-power and Class A licensees, and there no limit on the number of LPTV stations that may be owned by any one entity.

The 600 MHz Incentive Auction and the Post-Auction Relocation Process.

The FCC concluded a two-sided auction process for 600 MHz band spectrum (the "600 MHz Incentive Auction") on April 13, 2017.

The auction process allowed eligible full-power and Class A broadcast television licensees to sell some or all of their spectrum usage rights in exchange for compensation;

the FCC would pay reasonable expenses for the remaining, non-participating full-power and Class A stations to relocate to the remaining "in-core" portion of the 600 MHz band.

Several of our stations will relocate to new channel assignments and will receive funding from the 600 MHz Band Broadcaster Relocation Fund.

LPTV and TV translator stations will eventually be required to relocate from the "out-of-core" portion of the 600 MHz band (i.e., channels 38-51) and are required under the rules to mitigate interference to any relocated full-power or Class A station in the in-core band (or cease operations).

The FCC has created a priority filing window for LPTV and TV translator stations licensed and operating as of April 13,

2017, and some of our LPTV and TV translator stations have found new channel assignments as a result of this special displacement window.

But some LPTV and TV translator stations displaced as a result of the 600 MHz Incentive Auction were not qualified for an alternate channel assignment.

The FCC opened a second displacement application filing window in April of 2019 for LPTV and TV translator stations that still lacked channel assignments.

All of our remaining LPTV and TV translator stations have found new channel assignments as a result of this window.

License Expirations.

The Communications Act prohibits any licensed television station to remain silent for more than one year.

We have purchased numerous stations whose on-air deadlines occurred in 2019.

Building these stations before those deadlines has been extremely challenging, especially in the post-auction relocation environment, which is creating scarcity of industry equipment and labor, which has caused us to miss such deadlines for some stations.

The FCC may extend these deadlines for reasons beyond the control of a station licensee, and has granted such extensions for reasons of equipment delivery delays or installation labor shortages due to the post-auction repack.

However, it remains possible that we will not obtain such extensions for some stations, in which case those licenses will expire.

Obscenity and Indecency Regulations.

Federal law and FCC regulations prohibit the broadcast of obscene material on television at any time and the broadcast of indecent material between the hours of 6:00 a.m.

and 10:00 p.m.

The FCC investigates complaints of broadcasts of prohibited obscene or indecent material and can assess fines of up to $350,000 per incident for violation of the prohibition against obscene or indecent broadcasts and up to $3,300,000 for any continuing violation based on any single act or failure to act.

The FCC may also revoke or refuse to renew a broadcast station license based on a serious violation of the agency’s obscenity and indecency rules.

Risks Related to the Insurance Segment

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and (iii) the increase in the premium deficiency reserve as reported at December 31, 2015 of approximately $8.0 million.

Because the balance is cumulative over the period at issue, a decrease of approximately $8.0 million is required before any obligation existed to the Seller Parties under the earn-out).

Because the balance is cumulative over the period at issue, a decrease of approximately $8.0 million would have been required before any obligation existed to the Seller Parties under the earn-out).

On August 9, 2018, CGI completed the acquisition of KMG America Corporation ("KMG"), the parent company of Kanawha Insurance Company ("KIC"), Humana’s long-term care insurance subsidiary for consideration of ten thousand dollars.

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As a result of the merger of KIC with and into CGI, the Insurance Company’s cash flow testing and premium deficiency reserve increased to $537.9 million which exceeded the December 31, 2014 amount of such reserve by $462.5 million.

Because the balance is cumulative over the period at issue a decrease of approximately $462.5 million is required before any obligation existed to the Seller Parties under the earn-out.

Because the balance is cumulative over the period at issue a decrease of approximately $462.5 million would have been required before any obligation existed to the Seller Parties under the earn-out.

The obligation to the Seller Parties expired without payment with the conclusion of the December 31, 2019 financial reporting.

If our Insurance segment is unable to retain, attract and motivate qualified employees, its results of operations and financial condition may be adversely impacted and it may incur additional costs to recruit replacement and additional personnel.

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This revision would result in increased reserves and other unfavorable consequences.

In addition, while the amount of statutory reserves is not directly affected by changes in interest rates, additional statutory reserves may be required as the result of an asset adequacy analysis, which is altered by rising or falling interest rates and widening credit spreads.

Some of our products, principally traditional whole life insurance and deferred annuities expose us to the risk that changes in interest rates will reduce our "spread," or the difference between the amounts we are required to pay under our contracts to policyholders and the rate of return we are able to earn on our investments intended to support obligations under the contracts.

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If it is determined that the deferred tax assets cannot be realized, a deferred tax valuation allowance must be established, with a corresponding charge to net income.

the Insurance segment generated sufficient current year income to release the valuation allowance against its beginning of year deferred tax assets.

In addition, the Insurance segment came out of a cumulative loss position and determined that it can rely upon projections of future income to support the realization of its deferred tax assets.

In 2019, the Insurance segment generated sufficient current year income to come out of a cumulative loss position and to release the valuation allowance against its beginning of year deferred tax assets.

In addition, the Insurance segment continues to be in a cumulative gain position through December 31, 2020 and has determined that it can rely upon projections of future income to support the realization of its deferred tax assets.

The ultimate realizability of the deferred tax assets depends on the Insurance segment's ability to generate sufficient future taxable income and needs to be assessed at each balance sheet date.

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In addition, insurance is a highly regulated industry and many acquisition transactions are subject to approval of state insurance regulatory authorities, and therefore involve heightened execution risk.

On October 7, 2013, the New York State Department of Financial Services announced that Philip A.

Falcone, now our Chairman, President and Chief Executive Officer, had committed not to exercise control, within the meaning of New York insurance law, of a New York-licensed insurer for seven years (the "NYDFS Commitment").

Falcone, who at the time of the NYDFS Commitment was the Chief Executive Officer and Chairman of the Board of HRG Group Inc.

("HGI"), also committed not to serve as an officer or director of certain insurance company subsidiaries and related subsidiaries of HGI or to be involved in any investment decisions made by such subsidiaries, and agreed to recuse himself from participating in any vote of the board of HGI relating to the election or appointment of officers or directors of such companies.

However, it was also noted that in the event compliance with the NYDFS Commitment proves impracticable, including in the context of merger, acquisition or similar transactions, then the terms of the NYDFS Commitment may be reconsidered and modified or withdrawn to the extent determined to be appropriate by the NYDFS Insurance regulatory authorities.

We may consider the NYDFS Commitment in the course of a review of any prospective acquisition of an insurance company or block of insurance business by us or our Insurance segment, increasing the risk that any such transaction may be disapproved, or that regulatory conditions will be applied to the consummation of such an acquisition which may adversely affect the economic benefits anticipated to be derived by us and/or our Insurance segment from such transaction.

Our Insurance segment’s investment portfolio is subject to various risks that may result in realized investment losses.

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While we own a significant amount of liquid assets, we could exhaust all sources of liquidity and be forced to obtain additional financing or liquidate assets, perhaps on unfavorable terms, if we experience unanticipated withdrawal or surrender activity.

The availability of additional financing will depend on a variety of factors, such as market conditions, the availability of credit in general or more specifically in the insurance industry, the strength or weakness of the capital markets, the volume of trading activities, our credit capacity, and the perception of our long- or short-term financial prospects if we incur large realized or unrealized investment losses or if the level of business activity declines due to a market downturn.

The availability of additional

financing will depend on a variety of factors, such as market conditions, the availability of credit in general or more specifically in the insurance industry, the strength or weakness of the capital markets, the volume of trading activities, our credit capacity, and the perception of our long- or short-term financial prospects if we incur large realized or unrealized investment losses or if the level of business activity declines due to a market downturn.

If we are forced to dispose of assets on unfavorable terms, it could have an adverse effect on our liquidity, results of operations and financial condition.

Risks Related to the Construction segment