What changed in this filing

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Item 1A. Risk Factors

2023-03-14 compared with 2022-03-09 · 113 added, 162 removed, 792 unchanged (26% of the section changed)

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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

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

• Our levels of indebtedness, financing arrangements and other obligations

• Restrictive covenants in our debt and preferred stock instruments

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

• Ability to meet working capital requirements

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

• Impact of supply chain delays and disruptions

• Any identified material weaknesses in our internal controls

• Impact of inflationary pressures

• Constraints in the labor market and increases in labor costs

• Any identified material weaknesses in our internal controls

• Foreign exchange rate volatility

• Changes in United States trade policy

• Impact of competition on our business

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• Cyber-attacks and other privacy or data security incidents

• Stability and security of our information technology systems

• Managing growth related to increased operational size

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

• Risk of restated financial statements

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

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

• Impact of climate change

• Compliance costs related to our acquired businesses

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• Potential dilution of our current stockholders

• Status as a “smaller reporting company”

• Impact of our recently reconstituted board and change in management

• Effect of future sales of common stock by preferred stockholders

• Common stock price fluctuations

• Prevention of potential takeover due to Delaware law and charter documents

• Activist stockholders

Risks Related to the Infrastructure segment

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

• Transportation challenges as a result of COVID-19

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

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• Reliability of subcontractors and third-party vendors

• Impact of inflationary pressures

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

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• Impact of environmental compliance costs

• Labor disruptions that would interfere with operations

• Impact of potential litigation

• Union labor disruptions that would interfere with operations

• Ability to maintain safe work environment

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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 have been and are expected to continue 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.

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.

While many countries have begun lifting restrictions, there could be additional restrictions enacted in the future in response to changes in the ongoing pandemic.

COVID-19 has continued to cause supply chain challenges related to labor shortages and supply chain disruptions, which may create significant delays in our ability to complete projects or deliver products.

The receipt of material from impacted areas has been slowed or disrupted and our suppliers are expected to face similar challenges in fulfilling orders.

In addition, reductions in the number of ocean carrier voyages, ocean freight capacity issues, congestion at major international gateways and other economic factors continue to persist worldwide due to COVID-19 and worldwide supply impacts as there is much greater demand for shipping and reduced capacity and equipment, which has resulted in recent price increases per shipping container.

In addition, in the United States, trucking costs have risen dramatically due to driver shortages and increased labor costs, as well as new federal and state safety, environmental and labor regulations.

These changes, as well as COVID-19 related state and local restrictions on domestic trucking and the operation of distribution centers, may disrupt our supply chain, which may result in a delay in the completion of our projects and cause us to incur significant additional costs.

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

As a result, our margins may be adversely impacted by such cost increases.

These supply chain disruptions and transportation challenges could have a material adverse effect on our results of operations or financial condition.

The Company’s top priority has been 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 local governments, including changing operational procedures as necessary, providing additional protective gear and cleaning to protect personnel and customers, which has resulted and may continue to result in disruptions to and increased costs of the Company’s operations.

We may take further action as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, vendors, and suppliers.

Work-from-home and other measures introduce additional operational risks, including cybersecurity risks, and have affected the way we conduct our operations.

As the vaccine rollout has commenced, certain employees have begun to return to the office, either full-time or part-time.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, including any new strains of the virus, and illness and workforce disruptions could lead to unavailability of key personnel and harm our ability to perform critical functions.

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 years ended December 31, 2021 and 2020, $8.6 million and $19.4 million of COVID-19 related expenses were incurred, respectively.

The majority of these expenses related to payroll costs for safety and cleaning procedures in DBMG's shops and in the field, and personal protective equipment for employees.

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.

This could cause the timing of revenue to be delayed 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.

Any such continued loss or suspension of projects under contract may negatively impact 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 the availability of semiconductors, 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 Huadong Medicine Company Limited (“Huadong”) which in turn could result in Huadong 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 Sciences 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 several ways.

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

Many of the top industries that are heavy television advertisers suffered earlier in the pandemic 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.

Risks Related to Our Businesses

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As a result, INNOVATE’s principal source of revenue and cash flow is distributions from its subsidiaries and its subsidiaries may be limited by law and by contract in making distributions to INNOVATE.

As a holding company, INNOVATE's assets are its cash and cash equivalents, the equity interests in its subsidiaries and other investments.

As of December 31, 2021, we had $22.0 million in cash and cash equivalents at the corporate level at INNOVATE.

As a holding company, INNOVATE's material assets are its cash and cash equivalents, the equity interests in its subsidiaries and other investments.

As of December 31, 2022, the Company had $80.4 million of cash and cash equivalents, excluding restricted cash.

On a stand-alone basis, as of December 31, 2022, the Non-Operating Corporate segment had cash and cash equivalents, excluding restricted cash, of $9.1 million.

INNOVATE’s principal source of revenue and cash flow is distributions from its subsidiaries.

Thus, its ability to service its debt, including the $330.0 million in aggregate principal amount of 8.50% Senior Secured Notes due 2026 (the "Secured Notes"), $3.2 million aggregate principal amount of 7.50% convertible senior notes due 2022 (the "2022 Convertible Notes"), $51.8 million aggregate principal of 7.50% convertible senior notes due 2026 (the "2026 Convertible Notes", and, together with the 2022 Convertible Notes, the "Convertible Notes"), and $15.0 million secured revolving credit agreement (the “Revolving Credit Agreement”), of which $5.0 million was drawn as of December 31, 2021, and to finance future acquisitions, is dependent on the ability of its subsidiaries to generate sufficient net income and cash flows to make upstream cash distributions to INNOVATE.

Thus, its ability to service its debt, including the $330.0 million in aggregate principal amount of 8.5% Senior Secured Notes due 2026 (the "Secured Notes"), $51.8 million aggregate principal of 7.50% convertible senior notes due 2026 (the "2026 Convertible Notes"), and $20.0 million secured revolving credit agreement (the “Revolving Credit Agreement”), of which $20.0 million was drawn as of December 31, 2022, and to finance future acquisitions, is dependent on the ability of its subsidiaries to generate sufficient net income and cash flows to make upstream cash distributions to INNOVATE.

INNOVATE’s subsidiaries are separate legal entities, and although they may be wholly-owned or controlled by INNOVATE, they have no obligation to make any funds available to INNOVATE, whether in the form of loans, dividends, distributions or otherwise.

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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 INNOVATE.

For additional information, See Item 7.

For additional information, refer to Item 7.

"Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources".

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This, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.

For a description of our and our subsidiaries' indebtedness, see Item 7.

"Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Note 9.

Debt Obligations, of the "Notes to Consolidated Financial Statements."

For a description of our and our subsidiaries' indebtedness, refer to Note 13.

Debt Obligations to the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference.

If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us in an amount sufficient to enable us and our subsidiaries to pay our indebtedness or make mandatory redemption payments with respect to our outstanding shares of preferred stock, or to fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness or redeem the preferred stock, on or before the maturity thereof, sell assets, reduce or delay capital investments or seek to raise additional capital, any of which could have a material adverse effect on us.

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The agreements governing our indebtedness and the Certificates of Designation for our outstanding shares of preferred stock contain, and any of our other future financing agreements may contain, covenants imposing operating and financial restrictions on our businesses.

The indentures governing our outstanding senior secured notes and convertible notes contain, and any future indentures may contain various covenants, including those that restrict our ability to, among other things, the ability of the Company, and, in certain cases, the Company’s subsidiaries, to incur additional indebtedness;

The indentures governing our outstanding senior secured notes and convertible notes contain, and any future indentures may contain various covenants, including those that restrict our ability to, and, in certain cases, the ability of the Company’s subsidiaries, to, among other things, incur additional indebtedness;

create liens;

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If any of these risks were to occur, our business and operations could be materially and adversely affected.

Refer to Footnote 13.

Debt Obligations to our Consolidated Financial Statements included in the Annual Report on Form 10-K for additional information.

The Certificates of Designation provide the holders of our preferred stock with consent and voting rights with respect to certain of the matters referred to above, in addition to certain corporate governance rights.

These restrictions may interfere with our ability to obtain financings or to engage in other business activities, which could have a material adverse effect on our business and operations.

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

The COVID-19 pandemic adversely affected the economies and financial markets of many countries.

The Company's business may continue to adversely affected by the pandemic’s global economic impact.

This may include adverse effects stemming from any recession, economic downturn, government spending cuts, tightening of credit markets or increased unemployment that 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.

From time to time during the pandemic, many governments implemented policies intended to stop or slow the spread of COVID-19.

Although no material restrictions are currently in place in the countries in which we operate, there could be additional restrictions enacted in the future in response to changes in the ongoing pandemic or potential future waves in the regions where we operate.

COVID-19 continues to cause labor shortages and supply chain disruptions, which may create significant delays in our ability to complete projects or deliver products, including in our Infrastructure and Life Sciences segments.

Our receipt of materials from areas impacted by the pandemic was slowed or disrupted in 2022 and we expect our suppliers to continue to face similar challenges in fulfilling orders.

In addition, reductions in the number of ocean carrier voyages, ocean freight capacity issues, congestion at major international gateways and other factors resulted in increased shipping costs and may continue to do so.

In addition, in the United States, in 2022 trucking costs rose dramatically due to driver shortages and increased labor costs, as well as new federal and state safety, environmental and labor regulations, and these costs may continue to rise.

These changes, as well as COVID-19 related state and local restrictions on domestic trucking and the operation of distribution centers that may be implemented, may continue to disrupt our supply chains, which may result in delays in the completion of our projects and cause us to incur significant additional costs.

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

As a result, our margins may be adversely impacted by such cost increases.

These supply chain disruptions and transportation challenges could have a material adverse effect on our results of operations or financial condition.

Our Life Sciences segment may be adversely disrupted by the continuing 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.

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

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

If such mandates are implemented, advertisers may reduce or suspend their purchase of television advertising time, which would have a material adverse effect on our results of operations and financial condition.

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

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 related 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.

We have significant indebtedness and other financing arrangements and could incur additional indebtedness and other obligations, which could adversely affect our business and financial condition.

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If we cannot generate net income or sufficient operating profitability, we may not be able to meet our working capital requirements or service our indebtedness.

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.

Our ability to generate sufficient cash for our operations will depend upon, among other things, the future financial and operating performance of our operating businesses, 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 attributable to INNOVATE of $35.9 million in 2022 and net loss attributable to INNOVATE of $227.5 million in 2021, and have incurred net losses in prior periods.

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Furthermore, any proceeds that we could realize from any such disposition may not be adequate to meet our obligations.

We recognized cash flow uses from continuing operating activities of $6.5 million in 2021 and $55.2 million in 2020.

For the years ended December 31, 2022 and 2021, we recognized cash flows used in continuing operating activities of $9.5 million and $6.5 million, respectively.

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.

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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.

Our failure to meet the continued listing requirements of NYSE could result in a delisting of our securities, which in turn could adversely affect our financial condition and the market for our common stock.

On October 27, 2022, the Company was notified by NYSE that the average closing price of the Company’s common stock had fallen below $1.00 per share over a period of 30 consecutive trading days, which is the minimum average share price required by Section 802.01C of the NYSE Listed Company Manual (“Section 802.01C”).

On January 3, 2023, the Company was notified by the NYSE that it had regained compliance with this listing standard.

However, if in the future we fall below this standard and do not regain compliance, there is a risk that our common stock would be delisted from NYSE.

If the common stock ultimately were to be delisted from the NYSE, it could negatively impact the Company by, among other things, (i) reducing the liquidity and market price of the Company’s common stock;

(ii) reducing the number of investors willing to hold or acquire the Company’s common stock, which could negatively impact the Company’s ability to raise equity financing;

and (iii) limiting the Company’s ability to sell its common stock in certain states within the United States, also potentially impacting the Company’s ability to raise financing.

If the Company’s common stock is delisted from NYSE, the price paid by investors may not be recovered.

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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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 the Infrastructure, Life Sciences and Spectrum segments.

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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In addition, our financial condition, results of operations and the ability to service our debt may be adversely impacted depending on the specific risks applicable to any business we invest in or acquire and our ability to address those risks.

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

The integration of acquired businesses into our operations may be a complex and time-consuming process that may not be successful.

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.

We rely on information systems to conduct our businesses, and failure to protect these systems against security breaches and otherwise to implement, integrate, upgrade and maintain such systems in working order could have a material adverse effect on our results of operations, cash flows or financial condition.

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In addition, the unexpected or sustained unavailability of the information systems or the failure of these systems to perform as anticipated for any reason, including cyber-security attacks and other intentional hacking, could subject us to legal claims if there is loss, disclosure or misappropriation of or access to our customers’ information and could result in service interruptions, safety failures, security violations, regulatory compliance failures, an inability to protect information and assets against intruders, sensitive data being lost or manipulated and could otherwise disrupt our businesses and result in decreased performance, operational difficulties and increased costs, any of which could adversely affect our business, results of operations, financial condition or liquidity.

We intend to increase our operational size in the future, and may experience difficulties in managing growth.

We have adopted a business strategy that contemplates that we will expand our operations, including future acquisitions or other business opportunities, and as a result, we are required to increase our level of corporate functions, which may include hiring additional personnel to perform such functions and enhancing our information technology systems.

We may increase our operational size in the future, and may experience difficulties in managing growth.

We have adopted a business strategy that contemplates that we will expand our operations, including future acquisitions or other business opportunities, and as a result, we may need to increase our level of corporate functions, which may include hiring additional personnel to perform such functions and enhancing our information technology systems.

Any future growth may increase our corporate operating costs and expenses and impose significant added responsibilities on members of our management, including the need to identify, recruit, maintain and integrate additional employees and implement enhanced informational technology systems.

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If the Company were to experience an ownership change as defined in Code Section 382, its ability to utilize these tax attributes would be substantially limited.

In 2014, substantial acquisitions of our common stock were reported by new beneficial owners on Schedule 13D filings made with the SEC, and we issued shares of our preferred stock, which are convertible into a substantial number of shares of our common stock.

During the second quarter of 2014, we completed a Section 382 review.

For instance, in 2014, after substantial acquisitions of our common stock were reported by new beneficial owners, and we issued shares of our preferred stock, convertible into our common stock.

We conducted a Section 382 review.

The conclusions of this review indicated that an ownership change had occurred as of May 29, 2014.

As a result of our common stock offering in November 2015 and our purchase of GrayWolf in November 2018, we triggered additional ownership changes at GrayWolf, imposing additional limitations on the use of the acquired NOL carryforward amounts.

The ownership changes may impact the timing of our ability to use these losses.

Additionally, as a result of our common stock offering in November 2015 and our purchase of GrayWolf in November 2018, we triggered additional ownership changes at GrayWolf, imposing additional limitations on the use of the acquired NOL carryforward amounts.

There can be no assurance that future ownership changes would not further negatively impact our NOL carryforward amounts because any future annual Section 382 limitation will ultimately depend on the value of our equity as determined for these purposes and the amount of unrealized gains immediately prior to such ownership change.

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Our officers, directors, stockholders and their respective affiliates may have a pecuniary interest in certain transactions in which we are involved, and may also compete with us.

While we have adopted a code of ethics applicable to our officers and directors reasonably designed to promote the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, we have neither adopted a policy that expressly prohibits our directors, officers, stockholders or affiliates from having a direct or indirect pecuniary interest in any transaction to which we are a party or in which we have an interest nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us.

We have in the past engaged in transactions in which such persons have an interest (for example, the 2021 sale of CIG to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company) and, subject to the terms of any applicable covenants in financing arrangements or other agreements we may enter into from time to time, may in the future enter into additional transactions in which such persons have an interest.

While we have adopted a code of ethics applicable designed to promote the ethical handling of actual or apparent conflicts of interest, we have not adopted a policy that expressly prohibits our directors, officers, stockholders or affiliates from having an interest in any transaction to which we are a party or in which we have an interest.

Additionally, we do not have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us.

Subject to the terms of any applicable covenants in financing arrangements or other agreements we may enter into from time to time, may in the future enter into additional transactions in which such persons have an interest.

In addition, such parties may have an interest in certain transactions such as strategic partnerships or joint ventures in which we are involved, and may also compete with us.

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To the extent that we sustain losses from any pending litigation which are not reserved or otherwise provided for or insured against, our business, results of operations, cash flows and/or financial condition could be materially adversely affected.

See Item 3, "Legal Proceedings."

Refer to Item 3, "Legal Proceedings."

Deterioration of global economic conditions could adversely affect our business.

The global economy and capital and credit markets have experienced exceptional turmoil and upheaval over the past several years.

Ongoing concerns about the systemic impact of potential long-term and widespread recession and potentially prolonged economic recovery, volatile energy costs, fluctuating commodity prices and interest rates, volatile exchange rates, geopolitical issues, including the recent outbreak of armed conflict in Ukraine, natural disasters and pandemic illness, instability in credit markets, cost and terms of credit, consumer and business confidence and demand, a changing financial, regulatory and political environment, and substantially increased unemployment rates have all contributed to increased market volatility and diminished expectations for many established and emerging economies, including those in which we operate.

Ongoing concerns about the systemic impact of potential long-term and widespread recession and potentially prolonged economic recovery, volatile energy costs, fluctuating commodity prices and interest rates, volatile exchange rates, geopolitical issues, including the armed conflict in Ukraine, natural disasters and pandemic illness, instability in credit markets, cost and terms of credit, consumer and business confidence and demand, a changing financial, regulatory and political environment, and substantially increased unemployment rates have all contributed to increased market volatility and diminished expectations for many established and emerging economies, including those in which we operate.

Furthermore, austerity measures that certain countries may agree to as part of any debt crisis or disruptions to major financial trading markets may adversely affect world economic conditions and have an adverse impact on our business.

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For example, our offices globally have historically experienced, and are projected to continue to experience, climate-related events at an increasing frequency, including drought, water scarcity, heat waves, wildfires and resultant air quality impacts and power shutoffs associated with wildfire prevention.

Furthermore, it is more difficult to mitigate the impact of these events on our employees while they work from home as a result of the COVID-19 pandemic.

Changing market dynamics, global policy developments and the increasing frequency and impact of extreme weather events on critical infrastructure in the U.S.

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Violations of the FCPA, the Bribery Act, the rules and regulations established by OFAC and other laws, sanctions or regulations may result in severe criminal or civil penalties, and we may be subject to other liabilities, which could materially adversely affect our business, financial condition or results of operations.

Furthermore, significant developments stemming from the current U.S.

administration's trade policies could have a material adverse effect on us.

For example, the administration has expressed a desire to alter existing trade agreements and proposed increases in tariffs on goods imported into the United States, particularly from China.” Further changes in U.S.

Additionally, changes in U.S.

social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently develop and sell products, and any negative sentiments towards the United States as a result of such changes, could adversely affect our business.

In addition, negative sentiments towards the United States among non-U.S.

Negative sentiments towards the United States among non-U.S.

customers and among non-U.S.

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The negotiations associated with the acquisition and disposition of businesses could also disrupt our ongoing business, distract management and employees or increase our expenses.

In addition, we may not be able to integrate acquisitions successfully and we could incur or assume unknown or unanticipated liabilities or contingencies, which may impact our results of operations.

If we dispose of or otherwise exit certain businesses, there can be no assurance that we will not incur certain disposition related charges, or that we will be able to reduce overhead related to the divested assets.

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In addition, there is a risk that we sell a business whose subsequent performance exceeds our expectations, in which case our decision would have potentially sacrificed enterprise value.

In addition to the risks described above, acquisitions are accompanied by a number of inherent risks, including, without limitation, the following:

• the difficulty of integrating acquired products, services or operations;

• difficulties in maintaining uniform standards, controls, procedures and policies;

• the potential impairment of relationships with employees and customers as a result of any integration of new management personnel;

• difficulties in disposing of the excess or idle facilities of an acquired company or business and expenses in maintaining such facilities;

• the effect of and potential expenses under the labor, environmental and other laws and regulations of various jurisdictions to which the business acquired is subject.

We also own a minority interest in a number of entities, such as MediBeacon and Triple Ring Technologies, Inc., over which we do not exercise, or have only limited, management control, and we are, therefore, unable to direct or manage the business to realize the anticipated benefits that we can achieve through full integration.

We have incurred substantial costs in connection with our prior acquisitions and expect to incur substantial costs in connection with any other transaction we complete in the future, which may increase our indebtedness or reduce the amount of our available cash and could adversely affect our financial condition, results of operations and liquidity.

We have incurred substantial costs in connection with our prior acquisitions and expect to incur substantial costs in connection with any other transactions we complete in the future.

These costs may increase our indebtedness or reduce the amount of cash otherwise available to us for acquisitions, business opportunities and other corporate purposes.

There is no assurance that the actual costs associated with any such acquisitions will not exceed our estimates.

Once an acquisition is consummated, we may continue to incur additional material charges reflecting additional costs associated with our investments and the integration of INNOVATE and our subsidiaries' acquisitions in fiscal quarters subsequent to the quarter in which such investments and acquisitions were consummated.

We also own a minority interest in a number of entities, such as MediBeacon, Triple Ring Technologies, Inc.

and HMN, over which we do not exercise, or have only limited, management control, and we are, therefore, unable to direct or manage the business to realize the anticipated benefits that we can achieve through full integration.

Our development stage companies may never produce revenues or income.

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Our decision to make a particular acquisition, sell a particular asset or increase or decrease a particular investment may be based on considerations other than the timing and amount of taxes owed as a result thereof.

We remain liable for certain tax obligations of certain disposed companies, and we may be required to make material payments in connection therewith.

We may remain liable for certain tax obligations of certain disposed companies, and we may be required to make material payments in connection therewith.

Our participation in any future joint investment could be adversely affected by our lack of sole decision-making authority, our reliance on a partner’s financial condition and disputes between us and the relevant partners.

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Future sales of substantial amounts of our common stock by holders of our preferred stock or other significant stockholders may adversely affect the market price of our common stock.

As of December 31, 2021, the holders of our outstanding preferred stock had certain rights to convert their Preferred Stock into approximately 3.6 million shares of our common stock.

As of December 31, 2022, the holders of our outstanding preferred stock had certain rights to convert their Preferred Stock into 3,616,233 shares of our common stock.

Pursuant to a second amended and restated registration rights agreement, dated January 5, 2015, entered into in connection with the issuance of the preferred stock (the "Registration Rights Agreement"), we have granted registration rights to the purchasers of our preferred stock and certain of their transferees with respect to INNOVATE common stock held by them and common stock underlying the preferred stock.

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We are subject to the provisions of Section 203 of the Delaware General Corporation Law which limit the right of a corporation to engage in a business combination with a holder of 15 percent or more of the corporation’s outstanding voting securities, or certain affiliated persons.

We do not currently have a stockholder rights plan in place.

Although we believe that these charter and bylaw provisions, and provisions of Delaware law, provide an opportunity for the board to assure that our stockholders realize full value for their investment, they could have the effect of delaying or preventing a change of control, even under circumstances that some stockholders may consider beneficial.

We are a “smaller reporting company” and we cannot be certain whether the reduced requirements applicable to smaller reporting companies will make our common stock less attractive to investors.

We are a “smaller reporting company” under the rules of the Securities Act and the Exchange Act.

As a result, we may choose to take advantage of certain scaled disclosure requirements available specifically to smaller reporting companies.

For example, we are not required to provide market risk disclosures, a contractual obligations table in our management’s discussion and analysis of our financial condition and results of operations or selected financial data in our annual report.

Additionally, as long as we continue to be a smaller reporting company, we may continue to use reduced compensation disclosure obligations.

We will remain a smaller reporting company until the fiscal year following the determination that our public float is $250 million or more measured on the last business day of our second fiscal quarter, or our annual revenues are $100 million or more during the most recently completed fiscal year and our public float is $700 million or more measured on the last business day of our second fiscal quarter.

We cannot predict or otherwise determine if investors will find our securities less attractive as a result of our reliance on exemptions as a smaller reporting company.

If some investors find our securities less attractive as a result, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.

Actions of activist stockholders, including a proxy contest, could be disruptive and potentially costly and the possibility that activist stockholders may contest, or seek changes that conflict with, our strategic direction could cause uncertainty about the strategic direction of our business.

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

Our recently 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.

Changes in our executive management team and composition of the Board beginning in mid-2020, 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

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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.

Persistent inflation and economic uncertainty may negatively impact DBMG's business.

Inflation in the United States and worldwide has increased DBMG’s costs and may result in additional cost increases, including of steel and welding wire components and other inputs that are critical to the completion of DBMG’s projects, may cause additional shortages of supplies and components, may increase cost of borrowing, and may continue to reduce DBMG’s purchasing power, all of which would have a negative impact on DBMG’s results of operation.

Due to competitive pressure and pressure from DBMG’s customers, DBMG may not be able to offset the impacts of inflation in the price of its products.

Additionally, continued inflation and economic uncertainty may result in DBMG’s customers decreasing the scope, canceling, or delaying projects in process.

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.

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Pansend’s reliance on these third parties may reduce its control over these activities however, reliance on third parties does not relieve Pansend of its responsibility to ensure compliance with all required legal, regulatory, and scientific standards.

These third parties may be adversely impacted by COVID-19 which could affect their ability to perform satisfactorily.

Any failure of these third parties to perform satisfactorily and in compliance with relevant laws and regulations could lead to delays in the development of Pansend’s planned products, including delays in its clinical trials, or failure to obtain regulatory approval for its planned products, or failure to successfully commercialize its planned products or other future products.

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Delays in obtaining regulatory clearance or approval could adversely affect Pansend’s revenues and profitability.

Although R2 has obtained 510(k) clearances for its GlacialRx system for use in the removal of benign lesions of the skin, such as those caused by aging, sun damage and/or genetics, these approvals and clearances may be subject to revocation if post- marketing data demonstrates safety issues or lack of effectiveness.

R2 has obtained 510(k) clearances for its Glacial Rx system for various uses, including, but not limited to:

the removal of benign lesions of the skin;

the use of cooling technologies intended for the temporary reduction of pain;

inflammation;

hematoma for minor surgical procedures;

general dermabrasion;

scar revision;

acne scar revision;

tattoo removal;

and minimization of pain, inflammation and thermal injury during laser and dermatological treatments.

However, these approvals and clearances may be subject to revocation if post- marketing data demonstrates safety issues or lack of effectiveness.

Many medical devices, such as medical lasers, are also regulated by the FDA as “electronic products.” In general, manufacturers and marketers of “electronic products” are subject to certain FDA regulatory requirements intended to ensure the radiological safety of the products.

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If a physician elects to apply an off-label use and the use leads to injury, Pansend may be involved in costly litigation.

In addition, the fact that Pansend trains technicians whom it does not supervise in the use of the GlacialRx system during patient treatment may expose Pansend to third-party claims if it is accused of providing inadequate training.

In addition, the fact that Pansend trains technicians whom it does not supervise in the use of the Glacial Rx system during patient treatment may expose Pansend to third-party claims if it is accused of providing inadequate training.

Pansend may also be subject to claims against it even if the apparent injury is due to the actions of others or the pre-existing health of the patient.

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Pansend’s success depends, in part, on its ability to manufacture its current and future products in sufficient quantities and on a timely basis to meet demand, while adhering to product quality standards, complying with regulatory quality system requirements and managing manufacturing costs.

For example, R2's third-party contract manufacturer has a manufacturing facility located in Sunnyvale, California where they produce, package and warehouse the GlacialRx system.

R2 also relies on a global third-party manufacturer for production of some of the components used in the GlacialRx System.

For example, R2's third-party contract manufacturer has a manufacturing facility located in Sunnyvale, California where they produce, package and warehouse the Glacial Rx system.

R2 also relies on a global third-party manufacturer for production of some of the components used in the Glacial Rx System.

If R2’s facility, or the facilities of its third-party contract manufacturers, suffer damage, or a force majeure event, this could materially impact R2’s ability to operate.

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Pansend will rely on patents to protect a significant part of Pansend’s intellectual property and to enhance Pansend’s competitive position.

However, Pansend’s presently pending or future patent applications may be denied, and any patent previously issued to Pansend or Pansend’s subsidiaries may be challenged, invalidated, held unenforceable or circumvented.

However, Pansend’s pending or future patent applications may be denied, and any patent previously issued to Pansend or Pansend’s subsidiaries may be challenged, invalidated, held unenforceable or circumvented.

In particular, R2 filed a patent application with the U.S.

Patent and Trademark Office for a commercial patent that covers the GlacialRx System, U.S.

Patent and Trademark Office for a commercial patent that covers the Glacial Rx System, U.S.

9522031 through 2029, with additional issued patents or patent applications that, once allowed, will protect coverage through 2042.

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Risks related to the Spectrum segment

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

Following the completion of Broadcasting’s recent 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 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, Broadcasting’s completed acquisitions and station builds expand Broadcasting's network to 238 operational stations and 8 silent stations.

In addition, Spectrum owns approximately 19 additional 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.