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Item 9A. Controls and Procedures

2024-03-06 compared with 2023-03-14 · 899 added, 886 removed, 1365 unchanged (57% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended (the "Exchange Act") as of the end of the period covered by this report.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2022, our disclosure controls and procedures were effective.

Our management evaluated, with the participation of our interim Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended (the "Exchange Act") as of the end of the period covered by this report.

Based on this evaluation, our interim Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2023, our disclosure controls and procedures were effective.

Disclosure controls and procedures mean our controls and other procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

15 unchanged sentences

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

The information required by Part III will be provided in our definitive proxy statement for our 2023 annual meeting of stockholders ("2023 Proxy Statement"), which is incorporated herein by reference.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding this item will be set forth in our 2023 Proxy Statement and is incorporated herein by reference.

Information regarding this item will be set forth in our definitive proxy statement for our 2024 meeting of stockholders ("2024 Proxy Statement") and is incorporated herein by reference.

Code of Conduct

32 unchanged sentences

and Global Marine Holdings, Limited (solely for purposes of Section 2.04(a), Section 6.01, Section 6.02, Section 6.03, Section 6.07 and Article X) (incorporated by reference to Exhibit 2.1 to INNOVATE's Current Report on Form 8-K, filed on January 30, 2020) (File No.

2.4 Agreement and Plan of Merger, dated as of December 30, 2020, by and among Beyond6, Inc., Greenfill Inc., Greenfill Merger, Inc., and INNOVATE C orp.

(f/k/a HC2 Holdings, Inc.

) , solely in its capacity as the Stockholders’ Representative (incorporated by reference to Exhibit 2.1 on INNOVATE 's Current Report on Form 8-K, filed December 31, 2020) (File No.

2.5 First Amendment to Agreement and Plan of Merger, dated as of January 15, 2021 , by and among Beyond6, Inc., Greenfill Inc., Greenfill Merger, Inc., and INNOVATE Corp (f/k/a HC2 Holdings, Inc.

) , solely in its capacity as the Stockholders’ Representative (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by INNOVATE on January 19, 2021) (File No.

2.4 Agreement and Plan of Merger, dated as of December 30, 2020, by and among Beyond6, Inc., Greenfill Inc., Greenfill Merger, Inc., and INNOVATE Corp.

(f/k/a HC2 Holdings, Inc.), solely in its capacity as the Stockholders’ Representative (incorporated by reference to Exhibit 2.1 on INNOVATE's Current Report on Form 8-K, filed December 31, 2020) (File No.

2.5 First Amendment to Agreement and Plan of Merger, dated as of January 15, 2021, by and among Beyond6, Inc., Greenfill Inc., Greenfill Merger, Inc., and INNOVATE Corp (f/k/a HC2 Holdings, Inc.), solely in its capacity as the Stockholders’ Representative (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by INNOVATE on January 19, 2021) (File No.

2.6 Membership Interest Purchase Agreement, dated March 12, 2021 by and among DBM Global Inc., Bridge Fabrication Banker Holdings LLC, The Banker Family Irrevocable Trust #3 U/A/D December 22, 2009, Chesley F.

2 unchanged sentences

McPhatter, III, Richard Plant and Bridge Fabrication Banker Holdings LLC (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by INNOVATE on May 27, 2021) (File No.

2.8 Stock Purchase Agreement, dated March 26, 2021, by and among INNOVATE C orp 2 (f/k/a HC2 Holdings 2, Inc.

) , Continental Insurance Group, Ltd.

2.8 Stock Purchase Agreement, dated March 26, 2021, by and among INNOVATE Corp 2 (f/k/a HC2 Holdings 2, Inc.), Continental Insurance Group, Ltd.

and Continental General Holdings LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by INNOVATE on March 29, 2021) (File No.

3.1 Second Amended and Restated Certificate of Incorporation of INNOVATE Corp (f/k/a HC2 Holdings, Inc.) (incorporated by reference to Exhibit 3.1 to INNOVATE ’s Form 8-A, filed on June 20, 2011) (File No.

3.1 Second Amended and Restated Certificate of Incorporation of INNOVATE Corp.

(f/k/a HC2 Holdings, Inc.) (incorporated by reference to Exhibit 3.1 to INNOVATE’s Form 8-A, filed on June 20, 2011) (File No.

3.2 Certificate of Ownership and Merger Merging PTGI Name Change, Inc.

6 unchanged sentences

3.5 Certificate of Amendment No.

2 to Second Amended and Restated Certificate of Incorporation of INNOVATE C orp .

2 to Second Amended and Restated Certificate of Incorporation of INNOVATE Corp.

(f/k/a HC2 Holdings, Inc.) (incorporated by reference to Exhibit 3.1 on INNOVATE's Current Report on Form 10-K, filed on November 23, 2020 (File No.

2 unchanged sentences

3.7 Fourth Amended and Restated By-Laws of INNOVATE Corp (f/k/a HC2 Holdings, Inc.) (incorporated by reference to Exhibit 3.1 to INNOVATE's Current Report on Form 8-K, filed on February 25, 2019) (File No.

3.8 Amendment #1 to Fourth Amended and Restated By-Laws of INNOVATE Corp., effective September 20, 2021 (incorporated by reference to Exhibit 3.

3.8 Amendment #1 to Fourth Amended and Restated By-Laws of INNOVATE Corp., (f/k/a HC2 Holdings Inc.) effective September 20, 2021 (incorporated by reference to Exhibit 3.

2 to the Current Report on Form 8-K filed on August 19, 2021) (File No.

3.9 Certificate of Designations of Series B Preferred Stock, dated August 30, 2021 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on August 30, 2021) (File No.

3.9 Certificate of Designations of Series B Preferred Stock of INNOVATE Corp.

(f/k/a HC2 Holdings, Inc.) dated August 30, 2021 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on August 30, 2021) (File No.

4.1 Indenture, dated as of November 20, 2018, by and among INNOVATE Corp.

11 unchanged sentences

4.6 First Supplemental Indenture dated August 19, 2020, between INNOVATE Corp.

(f/k/a HC2 Holdings, Inc.

(f/k/a HC2 Holdings, Inc.) and U.S.

Bank National Association (incorporated by reference to Exhibit 4.1 of INNOVATE's Quarterly Report on Form 10-Q, filed on November 9, 2020) (File No.

4.7 Indenture governing the 8.500% senior secured notes due 2026, dated as of February 1, 2021, by and among INNOVATE Corp.

( f/k/a HC2 Holdings, Inc.

) , the guarantors party thereto and U.S.

(f/k/a HC2 Holdings, Inc.), the guarantors party thereto and U.S.

Bank National Association (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by INNOVATE on February 1, 2021) (File No.

1 unchanged sentence

4.9 Indenture governing the 7.5% convertible senior notes due 2026, dated as of February 1, 2021, by and between INNOVATE Corp.

(f/k/a HC2 Holdings, Inc.

(f/k/a HC2 Holdings, Inc.) and U.S.

Bank National Association (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by INNOVATE on February 1, 2021) (File No.

4.10 Form of 7.5% convertible senior notes due 2026 (included in exhibit 4.3) (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed by I N NOVATE on February 1, 2021) (File No.

4.11 Certificate of Designation of Series A-3 Convertible Participating Preferred Stock of INNOVATE Corp.

(f/k/a HC2 Holdings, Inc.

) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by INNOVATE on July 7, 2021) (File No.

(f/k/a HC2 Holdings, Inc.) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by INNOVATE on July 7, 2021) (File No.

4.12 Certificate of Designation of Series A-4 Convertible Participating Preferred Stock of INNOVATE Corp.

(f/k/a HC2 Holdings, Inc.

) (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed by INNOVATE on July 7, 2021) (File No.

(f/k/a HC2 Holdings, Inc.) (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed by INNOVATE on July 7, 2021) (File No.

4.13 Tax Benefits Preservation Plan, dated August 30, 2021 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on August 30, 2021) (File No.

2 unchanged sentences

Secured Notes, dated January 22, 2019, by and among HC2 Station, HC2 LPTV and the Institutional Investors (incorporated by reference to Exhibit 10.1 to INNOVATE's Current Report on Form 8-K, filed on January 23, 2019) (File No.

4.16 Tax Benefits Preservation Plan, dated as of April 1, 2023, by and between INNOVATE Corp.

and Computershare Trust Company, N.A.

(incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by INNOVATE on April 3, 2023) (File No.

INNOVATE Corp.

2 unchanged sentences

Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 on INNOVATE’s Current Report on Form 8-K, filed on September 22, 2014) (File No.

10.4^ Amended and Restated Employment Agreement, effective as of November 25, 2020, by and between INNOVATE Corp (f / k/a HC2 Holdings, Inc.

) and Wayne Barr, Jr.

Amended and Restated Employment Agreement, effective as of November 25, 2020, by and between INNOVATE Corp (f/k/a HC2 Holdings, Inc.) and Wayne Barr, Jr.

(incorporated by reference to Exhibit 10.1 on INNOVATE's Current Report on Form 8-K, filed on November 30, 2020) (File No.

21 unchanged sentences

INNOVATE Corp (f/k/a HC2 Holdings, Inc.) Second Amended and Restated 2014 Omnibus Equity Award Plan (incorporated by reference to Exhibit A to INNOVATE's Definitive Proxy Statement, filed on April 30, 2018) (File No.

10.16 Second Amended & Restated Limited Liability Company Agreement of Pansend Life Sciences, LLC, dated as of September 20, 2017, by and among INNOVATE C orp 2 (f/k/a HC2 Holdings 2, Inc.

) , David Present and Cherine Plumaker (incorporated by reference to Exhibit 10.2 to INNOVATE 's Current Report on Form 8-K, filed on May 3, 2018) (File No.

10.16 Second Amended & Restated Limited Liability Company Agreement of Pansend Life Sciences, LLC, dated as of September 20, 2017, by and among INNOVATE Corp 2 (f/k/a HC2 Holdings 2, Inc.), David Present and Cherine Plumaker (incorporated by reference to Exhibit 10.2 to INNOVATE's Current Report on Form 8-K, filed on May 3, 2018) (File No.

10.17 Securities Purchase Agreement, by and between DBM Global Inc.

2 unchanged sentences

Secured Notes dated October 24, 2019, among HC2 Station, HC2 LPTV, HC2 Network, HC2 Broadcasting, GALIC, GAIC and MSD (incorporated by reference to Exhibit 10.38 to INNOVATE's Annual Report on Form 10-K, filed on March 16, 2020) (File No.

10.19 Investment Agreement, dated as of September 9, 2020, by and between INNOVATE Corp (f/ k/a HC2 Holdings, Inc.

) and Lancer Capital, LLC (incorporated by reference to Exhibit 10.1 on INNOVATE 's Current Report on Form 8-K, filed on September 9, 2020 (File No.

10.19 Investment Agreement, dated as of September 9, 2020, by and between INNOVATE Corp (f/k/a HC2 Holdings, Inc.) and Lancer Capital, LLC (incorporated by reference to Exhibit 10.1 on INNOVATE's Current Report on Form 8-K, filed on September 9, 2020 (File No.

10.20 Form of Registration Rights Agreement by and between INNOVATE Corp (f/k/a HC2 Holdings, Inc.) and Lancer Capital LLC (incorporated by reference to Exhibit 10.2 (included in Exhibit 10.1) on INNOVATE's Current Report on Form 8-K, filed on September 9, 2020 (File No.

2 unchanged sentences

10.23 INNOVATE Corp.

(f/k/a HC2 Holdings, Inc.) Preferred Support Agreement, dated July 1, 2021, by and among INNOVATE Corp.

, Continental General Insurance Company and Continental General Holdings LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by INNOVATE on July 1, 2021) (File No.

(f/k/a HC2 Holdings, Inc.) Preferred Support Agreement, dated July 1, 2021, by and among INNOVATE Corp., Continental General Insurance Company and Continental General Holdings LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by INNOVATE on July 1, 2021) (File No.

10.24 DBM Common Support Agreement, dated July 1, 2021, by and among INNOVATE Corp.

(f/k/a HC2 Holdings, Inc.

) , Continental General Insurance Company and Continental General Holdings LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by INNOVATE on July 1, 2021 (File No.

(f/k/a HC2 Holdings, Inc.), Continental General Insurance Company and Continental General Holdings LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by INNOVATE on July 1, 2021 (File No.

10.25 Form of Exchange Agreement, dated July 1, 2021, by and among INNOVATE Corp.

(f/ k/a HC2 Holdings, Inc.

) and the investors party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by INNOVATE on July 7, 2021) (File No.

10.26 Second Amended and Restated Registration Rights Agreement, dated as of January 5, 2015, by and among INNOVATE Corp ( f/k/a HC2 Holdings, Inc.

) , the initial purchasers of the Series A Preferred Stock, the initial purchasers of the Series A Preferred Stock and the purchasers of the Series A-2 Preferred Stock (incorporated by reference to Exhibit 10.2 on INNOVATE's Current Report on Form 8-K, filed on January 9, 2015) (File No.

10.27 Letter Agreement dated March 26, 2021 by and between INNOVATE Corp (f/k/a HC2 Holdings, Inc.

) and Continental General Insurance Company (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q filed by INNOVATE's on August 6, 2021) (File No.

(f/k/a HC2 Holdings, Inc.) and the investors party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by INNOVATE on July 7, 2021) (File No.

10.26 Second Amended and Restated Registration Rights Agreement, dated as of January 5, 2015, by and among INNOVATE Corp (f/k/a HC2 Holdings, Inc.), the initial purchasers of the Series A Preferred Stock, the initial purchasers of the Series A Preferred Stock and the purchasers of the Series A-2 Preferred Stock (incorporated by reference to Exhibit 10.2 on INNOVATE's Current Report on Form 8-K, filed on January 9, 2015) (File No.

10.27 Letter Agreement dated March 26, 2021 by and between INNOVATE Corp (f/k/a HC2 Holdings, Inc.) and Continental General Insurance Company (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q filed by INNOVATE's on August 6, 2021) (File No.

10.28 Fifth Omnibus Amendment to Secured Notes, Consent and Second Amendment to Asset Sale Under Secured Notes and Intercreditor Agreement, dated as of October 21, 2021 by and among HC2 Station Group, Inc., HC2 LPTV Holdings, Inc., HC2 Broadcasting Inc., HC2 Network Inc., HC2 Broadcasting License Inc., HC2 Broadcasting Intermediate Holdings Inc., HC2 Broadcasting Holdings Inc., MSD PCOF Partners XVIII, LLC, Great American Life Insurance Company and Great American Insurance Company (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by INNOVATE on October 27, 2021) (File No.

10.29^ Executive Severance Guidelines (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by INNOVATE o n October 27, 2021) (File No.

10.30 Second Omnibus Amendment to Secured Notes dated as of August 31, 2020, by and among Station Group, LPTV, Broadcasting, Network, and HC2 Broadcasting Inc., Intermediate Parent, Parent Borrower, and MSD PCOF Partners, XVIII, LLC ("MSD"), GALIC and GAIC ( incorporated by reference to Exhibi t 10.33 to the Annual Report on Form 10-K filed on March 9, 2022) (File No.

Executive Severance Guidelines (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by INNOVATE on October 27, 2021) (File No.

10.30 Second Omnibus Amendment to Secured Notes dated as of August 31, 2020, by and among Station Group, LPTV, Broadcasting, Network, and HC2 Broadcasting Inc., Intermediate Parent, Parent Borrower, and MSD PCOF Partners, XVIII, LLC ("MSD"), GALIC and GAIC (incorporated by reference to Exhibit 10.33 to the Annual Report on Form 10-K filed on March 9, 2022) (File No.

10.31 Fourth Omnibus Amendment to Secured Notes and Third Amendment to Intercreditor Agreement, dated as of November 25, 2020, by and among Station Group, LPTV, Broadcasting, Network, and HC2 Broadcasting Inc., Intermediate Parent, Parent Borrower, and MSD PCOF Partners, XVIII, LLC ("MSD"), GALIC and GAIC (incorporated by reference to Exhibit 10.34 to the Annual Report on Form 10-K filed on March 9, 2022) (File No.

2019 INNOVATE Corp.

Executive Bonus Plan ( incorporated by reference to Exhibit 10.35 to th e Annual Report on Form 10-k f iled on March 9, 2022) (File No.

001-35210) ).

Executive Bonus Plan (incorporated by reference to Exhibit 10.35 to the Annual Report on Form 10-k filed on March 9, 2022) (File No.

Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.36 to the Annual Report on Form 10-K filed on March 9, 2022) (File No.

2 unchanged sentences

10.36 First Amendment to Credit Agreement dated as of August 2, 2022, among DBM Global Inc.

and the Other Borrowers, the Lenders, U MB Bank, as Administrative Agent and BMO Harris Bank N.A., as Syndication Agent (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on November 2 , 2022) (File No.

10.37 S eparation and Release Agreement by and between INNOVA TE Corp.

and the Other Borrowers, the Lenders, UMB Bank, as Administrative Agent and BMO Harris Bank N.A., as Syndication Agent (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on November 2, 2022) (File No.

10.37 Separation and Release Agreement by and between INNOVATE Corp.

and Joseph A.

Ferraro dated September 13, 2022 (incorporated by reference to Exhibit 10.

1 to the Current Report on Form 8-K, filed on September 16, 2022) (File No.

Ferraro dated September 13, 2022 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed on September 16, 2022) (File No.

10.38 Senior Secured Promissory Note dated as of July 13, 2022 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q, filed on November 2, 2022) (File No.

10.39 S enior Secured Promissory Note dated as of August 8, 2022 by and between R2 Technologies, Inc.

10.39 Senior Secured Promissory Note dated as of August 8, 2022 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q, filed on November 2, 2022) (File No.

, DTV America Corporation , HC2 Broadcasting Intermediate Holdings Inc., HC2 Broadcasting Holdings Inc., MSD PCOF Partners XVIII, LLC, MassMutual Ascent Life Insurance Company and Great American Insurance Company (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by INNOVATE on November 29, 2022 ) (File No.

10.41 Letter Agreement with Continental General Insurance Company dated December 30, 2022 (inco rporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by INNOVATE on January 5, 2023) (File No.

10.40 Sixth Omnibus Amendment to Secured Notes, dated as of November 28, 2022, by and among HC2 Station Group, Inc., HC2 LPTV Holdings, Inc., HC2 Broadcasting Inc., HC2 Network Inc., HC2 Broadcasting License Inc., DTV America Corporation, HC2 Broadcasting Intermediate Holdings Inc., HC2 Broadcasting Holdings Inc., MSD PCOF Partners, XVIII, LLC, MassMutual Ascent Life Insurance Company and Great American Insurance Company (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by INNOVATE on November 29, 2022) (File No.

10.41 Letter Agreement with Continental General Insurance Company dated December 30, 2022 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by INNOVATE on January 5, 2023) (File No.

10.42 Seventh Omnibus Amendment to Secured Notes, dated as of December 30, 2022, by and among HC2 Station Group, Inc., HC2 Broadcasting Inc., HC2 Network Inc., HC2 Broadcasting License Inc., DTV America Corporation, HC2 Broadcasting Intermediate Holdings Inc., HC2 Broadcasting Holdings Inc., MSD PCOF Partners, XVIII, LLC, MassMutual Ascent Life Insurance Company and Great American Insurance Company (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by INNOVATE on January 5, 2023) (File No.

10.43 M utual Release and Termination Agreement dated as of December 31, 2022, by and among Azteca International Corporation and TV Azteca, S.A.B.

, HC2 Network, Inc.

10.43 Mutual Release and Termination Agreement dated as of December 31, 2022, by and among Azteca International Corporation and TV Azteca, S.A.B.

de C.V., HC2 Network, Inc.

and TV Azteca, S.A.B.

1 unchanged sentence

10.44 Senior Secured Promissory Note dated as of December 13, 2022 by and between R2 Technologies, Inc.

and Lancer Capital LLC ( incorporated herein by reference to Exhibit 10.44 to the Annual Report on Form 10-K filed by INNOVATE on March 14 , 2023) (File No.

10.45 Senior Secured Promissory Note dated as of February 15, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10- Q filed by INNOVATE on May 10, 2023) (File No.

10.46 Senior Secured Promissory Note dated as of February 28, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.

2 to Quarterly Report on Form 10-Q filed by INNOVATE on May 10, 2023) (File No.

10.47 Senior Secured Promissory Note dated as of March 31, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC ( incorporated by reference to Exhibit 10.

3 to Quarterly Report on Form 10-Q filed by INNOVATE on May 10, 2023) (File No.

10.48 Senior Secured Promissory Note dated as of April 28, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.

4 to Quarterly Report on Form 10-Q filed by INNOVATE on May 10, 2023) (File No.

10.49 Stock Purchase Agreement dated as of May 9, 2023 by and between INNOVATE Corp.

and Continental General Insurance Company (incorporated by reference to Exhibit 10.

5 t o Quarterly Report on Form 10-Q filed by INNOVATE on May 10, 2023) (File No.

10.50 Subordinated Unsecured Promissory Note dated as of May 9, 2023 by and between INNOVATE Corp.

and Continental General Insurance Company (incorporated by reference to Exhibit 10.

6 to Quarterly Report on Form 10-Q filed by INNOVATE on May 10, 2023) (File No.

10.51 Stock Purchase Agreement dated as of May 9, 2023 by and between INNOVATE Corp.

and Continental General Insurance Company (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q filed by INNOVATE on May 10, 2023) (File No.

10.52 Subordinated Unsecured Promissory Note dated as of May 9, 2023 by and between INNOVATE Corp.

and Continental General Insurance Company (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed by INNOVATE on May 10, 2023) (File No.

10.53 Senior Secured Promissory Note dated as of May 12, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.

3 to Quarterly Report on Form 10-Q filed by INNOVATE on August 9 , 2023) (File No.

10.54 Senior Secured Promissory Note dated as of May 31, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.

4 to Quarterly Report on Form 10-Q filed by INNOVATE on August 9, 2023) (File No.

10.55 Senior Secured Promissory Note dated as of June 14, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.

5 to Quarterly Report on Form 10-Q filed by INNOVATE on August 9, 2023) (File No.

10.56 Amendment of Senior Secured Promissory Notes dated as of June 28, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.

6 to Quarterly Report on Form 10-Q filed by INNOVATE on August 9, 2023) (File No.

10.57 Senior Secured Promissory Note dated as of June 28, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.

7 to Quarterly Report on Form 10-Q filed by INNOVATE on August 9, 2023) (File No.

10.53 Senior Secured Promissory Note and amendment dated as of July 14, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed by INNOVATE on August 9, 2023) (File No.

10.54 Amendment of Senior Secured Promissory Notes dated as of July 28, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q filed by INNOVATE on August 9, 2023) (File No.

10.55 Senior Secured Promissory Note dated as of July 28, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q filed by INNOVATE on August 9, 2023) (File No.

10.56 Eighth Omnibus Amendment to Secured Notes, dated as of August 8, 2023, by and among, HC2 Station Group, Inc., HC2 Broadcasting Inc., HC2 Network Inc., DTV America Corporation, HC2 Broadcasting Intermediate Holdings Inc., HC2 Broadcasting Holdings Inc., MSD PCOF Partners XVIII, LLC, MassMutual Ascend Life Insurance Company and Great American Insurance Company (incorporated by reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q filed by INNOVATE on August 9, 2023) (File No.

10.57 Financial Support Commitment from Lancer Capital LLC dated August 8, 2023 (incorporated by reference to Exhibit 10.12 to the Quarterly Report on Form 10-Q filed by INNOVATE on August 9, 2023) (File No.

10.58 Senior Secured Promissory Note dated as of August 15, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed by INNOVATE on November 9, 2023) ( File No.

10.59 Amendment of Senior Secured Promissory Notes dated as of August 15, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed by INNOVATE on November 9, 2023) (File No.

10.60 Separation Agreement dated as of September 21, 2023 by and between Suzi Herbst and INNOVATE Corp.

(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by INNOVATE on September 21, 2023) (File No.

10.61 Employment Agreement dated as of October 6, 2023 by and between Paul K.

Voigt and INNOVATE Corp.

(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by INNOVATE on October 11, 2023) (File No.

10.62 Amended and Restated Financial Support Commitment Letter from Lancer Capital LLC dated November 7, 2023 (incorporated by reference to Exhibit 10.

10 to the Quarterly Report on Form 10-Q filed by INNOVATE on November 9, 2023) (File No.

10.63 Ninth Omnibus Amendment to Secured Notes, dated as of November 9, 2023, by and among, HC2 Station Group, Inc., HC2 Broadcasting Inc., HC2 Network Inc., DTV America Corporation, HC2 Broadcasting Intermediate Holdings Inc., HC2 Broadcasting Holdings Inc., MSD PCOF Partners XVIII, LLC, MassMutual Ascend Life Insurance Company and Great American Insurance Company (incorporated by reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q filed by INNOVATE on November 9, 2023) (File No.

10.64 Side Letter to Ninth Omnibus Amendment to Secured Notes, dated as of November 9, 2023, by and among,HC2 Station Group, Inc., HC2 Broadcasting Inc., HC2 Network, Inc., DTV America Corporation, HC2 Broadcasting Intermediate Holdings, Inc., HC2 Broadcasting Holdings, Inc., and MassMutual Life Insurance Company and Great American Insurance Company (incorporated by reference to Exhibit 10.12 to the Quarterly Report on Form 10-Q filed by INNOVATE on November 9, 2023) (File No.

10.65 Amendment of Senior Secured Promissory Notes dated as of November 15, 2023 by and between R2 Technologies, Inc.

and Lancer Capital LLC (filed herewith).

10.66 INNOVATE Corp.

Clawback Policy effective November 2, 2023 (filed herewith).

10.67 INNOVATE Corp.

Insider Trading Policy effective November 2, 2023 (filed herewith).

10.68 Second Amendment to Credit Agreement, dated as of December 12, 2023, among DBM Global Inc.

and the other Borrowers, the Lenders, UMB Bank, n.a., as Administrative Agent and BMO Harris Bank N.A., as Syndication Agent (filed herewith).

10.69 S ublease Agreement dated as of December 19, 2023, by and between INNOVATE Corp.

and Palm Beach Cultural Innovation Center Inc.

(filed herewith).

10.70 Investment Agreement dated as of March 5, 2024 by and between INNOVATE Corp.

and Lancer Capital LLC (filed herewith)

10.71 R egistration Rights Agreement dated as of March 5 , 2024 by and between INNOVATE Corp.

and Lancer Capital LLC (filed herewith).

10.72 A mended and Restated Senior Secured Promissory Note dated January 31, 2024 by and between R2 Technologies , Inc.

and Lancer Capital LLC (filed herewith)

21.1 Subsidiaries of INNOVATE (filed herewith).

23.1 Consent of BDO USA, LLP, an independent registered public accounting firm (filed herewith).

23.1 Consent of BDO USA, P.C., an independent registered public accounting firm (filed herewith).

31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith).

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32.1* Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (furnished herewith).

101 The following materials from the registrant’s Annual Report on Form 10-K for the fiscal years ended December 31, 2022, formatted in extensible business reporting language (XBRL);

(i) Consolidated Statements of Operations for the years ended December 31, 2022 and 2021, (ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022 and 2021, (iii) Consolidated Balance Sheets at December 31, 2022 and 2021, (iv) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022 and 2021, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021, and (vi) Notes to Consolidated Financial Statements (filed herewith).

101 The following materials from the registrant’s Annual Report on Form 10-K for the fiscal years ended December 31, 2023 and 2022, formatted in extensible business reporting language (XBRL);

(i) Consolidated Statements of Operations for the years ended December 31, 2023 and 2022, (ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022, (iii) Consolidated Balance Sheets at December 31, 2023 and 2022, (iv) Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2023 and 2022, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022, and (vi) Notes to Consolidated Financial Statements (filed herewith).

104 The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL (included as Exhibit 101).

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INNOVATE Corp.

/S/ WAYNE BARR, JR.

Wayne Barr, Jr.

President and Chief Executive Officer

President and Interim Chief Executive Officer

(Principal Executive Officer)

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POWER OF ATTORNEY

Each of the officers and directors of INNOVATE Corp., whose signature appears below, in so signing, also makes, constitutes and appoints each of Wayne Barr, Jr.

and Michael J.

Each of the officers and directors of INNOVATE Corp., whose signature appears below, in so signing, also makes, constitutes and appoints each of Paul K.

Voigt and Michael J.

Sena, and each of them, his true and lawful attorneys-in-fact, with full power and substitution, for him in any and all capacities, to execute and cause to be filed with the SEC any and all amendments to this Annual Report on Form 10-K, with exhibits thereto and other documents connected therewith and to perform any acts necessary to be done in order to file such documents, and hereby ratifies and confirms all that said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

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Signature Title

/S/ WAYNE BARR, JR.

President and Chief Executive Officer (Principal Executive Officer) and Director

Wayne Barr, Jr.

Interim Chief Executive Officer

/S/ MICHAEL J.

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INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm ( BDO USA, LLP , New York, NY ;

Report of Independent Registered Public Accounting Firm ( BDO USA, P.C.

, New York, NY ;

PCAOB ID# 243 )

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(8) Goodwill and Intangibles, Net

(9) Acquisitions

(10) Discontinued Operations

(1 0 ) Other Assets, Accrued Liabilities and Other Liabilities

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We have audited the accompanying consolidated balance sheets of INNOVATE Corp.

and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ deficit, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, stockholders’ deficit, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 6, 2024, expressed an unqualified opinion thereon.

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As described in Note 3 to the consolidated financial statements, with respect to the Company's Infrastructure segment (“DBMG”), the Company recognizes a significant portion of its revenue over time using the input method to measure progress for its service and construction contracts based on the costs incurred towards delivery to complete projects.

The estimate of costs to complete these projects is based on direct materials and labor costs related to contract performance, subcontractor costs, indirect labor, and fabrication plant overhead costs.

Changes in the scope of the contract and price changes, the timing of when work has commenced, and probability that cost changes will be recovered are among the factors that influence the estimate of progress for measuring service and construction contracts.

We identified estimated costs to complete on specific revenue contracts at DBMG as a critical audit matter.

The determination of the total estimated costs to complete requires management to make significant estimates and assumptions regarding direct materials and labor, subcontract costs, indirect labor, and fabrication plant overhead costs.

The estimate of costs to complete these projects is based on direct materials, labor costs related to contract performance, subcontractor costs, indirect labor, and fabrication plant overhead costs.

Changes in the scope of the contract and price changes and the timing of when work has commenced are among the factors that influence the estimate of cost and progress for measuring service and construction contracts.

We identified certain estimated costs to complete on specific revenue contracts at DBMG as a critical audit matter.

The determination of the total estimated costs to complete requires management to make significant estimates and assumptions regarding direct materials, labor, and subcontractor costs.

Changes in the estimates of these costs can have a significant impact on the revenue recognized each period.

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The primary procedures we performed to address this critical audit matter included:

• Testing the operating effectiveness of internal controls related to revenue recognition at DBMG, specifically controls over the formation and tracking of estimated costs to complete.

• Assessing the reasonableness of the estimated costs to complete for specific open projects through:

(i) evaluating the reasonableness of project budgets and the nature of costs required to complete open projects, (ii) assessing the status of completion of respective projects through testing of a sample of project costs incurred to date, (iii) evaluating the reasonableness of project status by performing inquiries of project managers and assessing the nature of activities required to complete open projects, and (iv) performing retrospective review for open projects and investigating budget to actual variances.

• Assessing the reasonableness of changes in estimated costs to complete for specific projects during quarterly reviews and at year end and investigating reasons for changes in expected costs and project margins.

• Evaluating the reasonableness of project budgets for specific projects during the year through a retrospective review against actual performance.

• Testing the operating effectiveness of internal controls related to revenue recognition at DBMG, specifically controls over the assessment of certain estimated costs to complete.

• Assessing the reasonableness of the certain estimated costs to complete for specific projects through:

(i) assessing the status of completion through testing of a sample of project costs incurred to date, (ii) evaluating the reasonableness of project budgets through performing gross margin analysis using subsequently available information, (iii) assessing the reasonableness of changes in the certain estimated costs to complete and investigating reasons for changes in expected costs and project margins, and (iv) evaluating the reasonableness of project status by performing inquiries of project management personnel and assessing the nature of activities required to complete open projects.

/s/ BDO USA, P.C.

We have served as the Company's auditor since 2011.

/s/ BDO USA, LLP

March 6, 2024

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Opinion on Internal Control over Financial Reporting

We have audited INNOVATE Corp.

and subsidiaries’ (the “Company’s”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

We have audited INNOVATE Corp.’s (the “Company’s”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

/s/ BDO USA, P.C.

March 6, 2024

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(in millions, except per share amounts)

Years Ended December 31,

Year Ended December 31,

Revenue $ 1,423.0 $ 1,637.3

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Other operating loss 1.3 0.7

Income (loss) from operations 13.4 ( 10.6 )

Income from operations 26.5 13.4

Other (expense) income:

Interest expense ( 68.2 ) ( 52.0 )

Loss on extinguishment of debt — ( 12.5 )

Loss from equity investees ( 9.4 ) ( 1.3 )

Other (expense) income, net ( 1.2 ) 4.3

Loss from continuing operations before income taxes ( 41.1 ) ( 80.7 )

Other income (expense), net 16.7 ( 1.2 )

Loss from operations before income taxes ( 34.4 ) ( 41.1 )

Income tax expense ( 4.5 ) ( 0.9 )

Loss from continuing operations ( 42.0 ) ( 86.3 )

Loss from discontinued operations (including net loss on disposal of $ 159.9 million for the year ended December 31, 2021)

Net loss ( 38.9 ) ( 42.0 )

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 6.1 8.7

Net loss attributable to non-controlling interests and redeemable non-controlling interests 3.7 6.1

Net loss attributable to INNOVATE Corp.

( 35.2 ) ( 35.9 )

Preferred dividends and deemed dividends from conversions 4.9 2.2

Preferred dividends 2.4 4.9

Net loss attributable to common stockholders $ ( 37.6 ) $ ( 40.8 )

Loss per common share - continuing operations - basic and diluted $ ( 0.53 ) $ ( 1.05 )

Loss per common share - discontinued operations - basic and diluted $ — $ ( 1.93 )

Loss per share - basic and diluted $ ( 0.48 ) $ ( 0.53 )

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(in millions)

Years Ended December 31,

Year Ended December 31,

Net loss $ ( 38.9 ) $ ( 42.0 )

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Foreign currency translation adjustment, net of tax ( 0.6 ) ( 0.2 )

Unrealized loss on available-for-sale securities, net of tax — ( 57.7 )

Dispositions, net of tax — ( 334.0 )

Disposition of equity method investment, net of tax ( 9.1 ) —

Other comprehensive loss $ ( 9.7 ) $ ( 0.2 )

Comprehensive loss ( 48.6 ) ( 42.2 )

Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests 5.8 7.8

Comprehensive loss attributable to non-controlling interests and redeemable non-controlling interests 6.4 5.8

Comprehensive loss attributable to INNOVATE Corp.

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Inventory 22.4 18.9

Restricted cash 0.3 2.0

Assets held for sale 3.1 —

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Temporary equity

Preferred stock 17.6 18.8

Redeemable noncontrolling interest 43.4 49.3

Preferred stock Series A-3 and Series A-4, $ 0.001 par value

Shares authorized:

20,000,000 as of both December 31, 2023 and 2022

Shares issued and outstanding:

6,125 of Series A-3 and 10,000 of Series A-4 as of both December 31, 2023 and 2022

Redeemable non-controlling interest ( 1.0 ) 43.4

Total temporary equity 15.4 61.0

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Accumulated deficit ( 487.3 ) ( 452.1 )

Accumulated other comprehensive income 5.9 6.4

Accumulated other comprehensive (loss) income ( 1.1 ) 5.9

Total INNOVATE Corp.

stockholders’ deficit ( 165.5 ) ( 121.3 )

Noncontrolling interest 30.7 28.1

Non-controlling interest 13.8 30.7

Total stockholders’ deficit ( 151.7 ) ( 90.6 )

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(in millions)

Common Stock Additional

Capital Treasury

Stock Accumulated Deficit Accumulated Other Comprehensive Income (Loss) (a) Total INNOVATE Stockholders' Equity (Deficit) Non-

Interest Total Stockholders’ Equity (Deficit) Temporary Equity

Common Stock Additional Paid-In Capital Treasury Stock Accumulated Deficit Accumulated Comprehensive Income (Loss) (a) Total INNOVATE Stockholders' (Deficit) Equity Non-controlling Interest Total Stockholders' (Deficit) Equity Temporary Equity

Shares Amount

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Share-based compensation — — 2.4 — — — 2.4 — 2.4 —

Fair value adjustment to redeemable noncontrolling interest — — 0.2 — — — 0.2 — 0.2 0.1

Fair value adjustment to redeemable non-controlling interest — — 0.2 — — — 0.2 — 0.2 ( 0.2 )

Taxes paid in lieu of shares issued for share-based compensation — — — ( 0.1 ) — — ( 0.1 ) — ( 0.1 ) —

Preferred stock dividend — — ( 2.2 ) — — — ( 2.2 ) — ( 2.2 ) —

Stock dividends — — ( 2.7 ) — — — ( 2.7 ) ( 1.3 ) ( 4.0 ) ( 1.2 )

Issuance of common stock 1.0 — — — — — — — — —

Issuance of preferred stock — — — — — — — — — 19.1

Issuance of redeemable controlling interest — — — — — — — — — 40.9

Purchase of preferred stock by subsidiary — — ( 0.3 ) — — — ( 0.3 ) — ( 0.3 ) —

Redemption of preferred shares — — — — — — — — — ( 10.4 )

Transactions with noncontrolling interests — — ( 22.2 ) — — — ( 22.2 ) ( 12.7 ) ( 34.9 ) 9.4

Spectrum warrant modification — — — — — — — 3.1 3.1 —

Issuance of preferred stock for dividend — — ( 0.9 ) — — — ( 0.9 ) — ( 0.9 ) 0.9

Transactions with non-controlling interests — — 0.2 — — — 0.2 ( 0.2 ) — 0.2

Other — — 0.3 — — — 0.3 — 0.3 —

Net loss — — — — ( 227.5 ) — ( 227.5 ) ( 2.0 ) ( 229.5 ) ( 6.7 )

Net (loss) income — — — — ( 35.9 ) — ( 35.9 ) 0.8 ( 35.1 ) ( 6.9 )

Other comprehensive (loss) income — — — — — ( 0.5 ) ( 0.5 ) 0.2 ( 0.3 ) 0.1

1 unchanged sentence

Share-based compensation — — 2.2 — — — 2.2 — 2.2 —

Fair value adjustment to redeemable noncontrolling interest — — 0.2 — — — 0.2 — 0.2 ( 0.2 )

Taxes paid in lieu of shares issued for share-based compensation ( 0.1 ) — — ( 0.1 ) — — ( 0.1 ) — ( 0.1 ) —

Stock dividends — — ( 2.7 ) — — — ( 2.7 ) ( 1.3 ) ( 4.0 ) ( 1.2 )

Preferred stock dividends — — ( 1.3 ) — — — ( 1.3 ) — ( 1.3 ) ( 1.3 )

Issuance of common stock 0.5 — — — — — — — — —

Spectrum warrant modification — — — — — — — 3.1 3.1 —

Issuance of preferred stock for dividend — — ( 0.9 ) — — — ( 0.9 ) — ( 0.9 ) 0.9

Transactions with noncontrolling interests — — 0.2 — — — 0.2 ( 0.2 ) — 0.2

Distributions to non-controlling interests — — — — — — — ( 10.7 ) ( 10.7 ) ( 5.2 )

Transactions with non-controlling interests — — ( 2.8 ) — — — ( 2.8 ) 2.9 0.1 —

Other — — — — — — — ( 9.0 ) ( 9.0 ) 9.0

DBMGi preferred stock liability repurchase — — — — — — — — — ( 41.8 )

Net (loss) income — — — — ( 35.2 ) — ( 35.2 ) 2.2 ( 33.0 ) ( 5.9 )

Other comprehensive (loss) income — — — — — ( 0.5 ) ( 0.5 ) 0.2 ( 0.3 ) 0.1

Other comprehensive loss — — — — — ( 7.0 ) ( 7.0 ) ( 2.3 ) ( 9.3 ) ( 0.4 )

Balance as of December 31, 2023 79.2 0.1 $ 328.2

(a) Inclusive of other comprehensive (loss) income, foreign currency cumulative translation adjustments totaled $ 7.1 million and $ 7.3 million as of December 31, 2022 and 2021, respectively.

$ ( 5.4 ) $ ( 487.3 ) $ ( 1.1 ) $ ( 165.5 ) $ 13.8 $ ( 151.7 ) $ 15.4

(a) Inclusive of other comprehensive (loss) income, foreign currency cumulative translation adjustments totaled a loss of $ 2.4 million and income of $ 4.6 million as of December 31, 2023 and 2022, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

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(in millions)

Years Ended December 31,

Year Ended December 31,

Cash flows from operating activities

Net loss $ ( 38.9 ) $ ( 42.0 )

Loss from discontinued operations, net of tax — ( 149.9 )

Loss from continuing operations ( 42.0 ) ( 86.3 )

Adjustments to reconcile net loss to cash (used in) provided by continuing operating activities

Adjustments to reconcile net loss to cash provided by (used in) operating activities

Share-based compensation expense 2.2 2.4

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Amortization of deferred financing costs and debt discount 6.9 3.4

Loss on debt extinguishment — 12.5

Loss from equity investees 9.4 1.3

Gain on sale of investments and step-up of equity method investments

Asset impairment expense 1.8 2.1

Deferred income taxes 1.1 2.0

Deferred income tax (benefit) expense

Other operating activities, net 2.1 —

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Other liabilities 2.9 4.4

Cash used in continuing operating activities ( 9.5 ) ( 6.5 )

Cash provided by discontinued operating activities — 33.5

Cash (used in) provided by operating activities ( 9.5 ) 27.0

Cash provided by (used in) operating activities

Cash flows from investing activities

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Proceeds from disposal of property, plant and equipment 1.6 2.0

Loan to equity method investee ( 4.5 ) —

Cash received from dispositions, net of cash disposed — 74.0

Extraordinary dividend received in business disposition — 62.5

Cash paid for acquisitions, net of cash acquired — ( 128.5 )

Loans to equity method investee

( 4.0 ) ( 4.5 )

Proceeds from the sale of investments

Other investing activities 0.7 0.7

Cash used in continuing investing activities ( 22.5 ) ( 1.9 )

Cash used in discontinued investing activities — ( 221.3 )

Cash used in investing activities ( 22.5 ) ( 223.2 )

Cash provided by (used in) investing activities 39.1 ( 22.5 )

Cash flows from financing activities

Proceeds from debt obligations, net of deferred financing costs 10.7 457.1

Principal payments on debt obligations ( 28.3 ) ( 458.1 )

Proceeds from line of credit, net of deferred financing costs 176.7 206.0

Payments on line of credit ( 85.1 ) ( 175.5 )

Redemption of preferred stock — ( 10.4 )

Cash received by subsidiary to issue preferred stock — 10.5

Transactions with noncontrolling interests — ( 13.5 )

Proceeds from lines of credit

Payments on lines of credit

( 94.7 ) ( 85.1 )

Proceeds from other debt obligations, net of deferred financing costs 4.9 10.7

Principal payments on other debt obligations ( 37.1 ) ( 28.3 )

Purchase of preferred stock ( 7.0 ) —

Payments to non-controlling interests and redeemable non-controlling interests related to sale of equity method investment ( 15.9 ) —

Dividend payments ( 2.2 ) ( 5.2 )

Other financing activities ( 0.3 ) ( 0.7 )

Cash provided by continuing financing activities 68.1 11.9

Cash used in discontinued financing activities — ( 7.6 )

Cash provided by financing activities 68.1 4.3

Cash (used in) provided by financing activities ( 65.3 ) 68.1

Effects of exchange rate changes on cash, cash equivalents and restricted cash ( 0.2 ) ( 1.4 )

Net increase (decrease) in cash and cash equivalents, including restricted cash and cash classified within assets held for sale 34.7 ( 193.2 )

Net decrease in cash and cash equivalents from discontinued operations — ( 195.4 )

Net change in cash, cash equivalents and restricted cash 34.7 2.2

Cash, cash equivalents and restricted cash, beginning of period 47.5 45.3

Cash, cash equivalents and restricted cash, end of period $ 82.2 $ 47.5

Net increase in cash and cash equivalents, including restricted cash

Cash, cash equivalents and restricted cash, beginning of year

Cash, cash equivalents and restricted cash, end of year

$ 82.3 $ 82.2

The accompanying notes are an integral part of these consolidated financial statements.

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We seek to grow these businesses so that they can generate long-term sustainable free cash flow and attractive returns in order to maximize value for all stakeholders.

While the Company generally intends to acquire controlling equity interests in its operating subsidiaries, the Company may invest to a limited extent in a variety of noncontrolling equity interest positions or debt instruments.

The Company’s shares of common stock trade on the NYSE under the symbol "VATE".

While the Company generally intends to acquire controlling equity interests in its operating subsidiaries, the Company may invest to a limited extent in a variety of non-controlling equity interest positions or debt instruments.

The Company’s shares of common stock trade on the New York Stock Exchange ("NYSE") under the symbol "VATE".

The Company currently has three reportable segments, plus our Other segment, based on management’s organization of the enterprise:

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Through Banker Steel Holdco, LLC ("Banker Steel"), DBMG provides full-service fabricated structural steel and erection services primarily for the East Coast and Southeast commercial and industrial construction market, in addition to full design-assist services.

The Company maintains an approximately 91 % controlling interest in DBMG.

Our Life Sciences segment is comprised of Pansend Life Sciences, LLC ("Pansend"), its subsidiaries and equity method investments.

Pansend maintains controlling interests of approximately 80 % in Genovel Orthopedics, Inc.

("Genovel"), which seeks to develop products to treat early osteoarthritis of the knee and approximately 57 % in R2 Technologies, Inc.

The Company maintains a 91.2 % controlling interest in DBMG.

Our Life Sciences segment is comprised of Pansend Life Sciences, LLC ("Pansend"), its subsidiaries and its equity investments.

Pansend maintains controlling interests of 80.0 % in Genovel Orthopedics, Inc.

("Genovel"), which seeks to develop products to treat early osteoarthritis of the knee and 56.6 % in R2 Technologies, Inc.

("R2"), which develops aesthetic and medical technologies for the skin.

Pansend also invests in other early stage or developmental stage healthcare companies including an approximately 47 % interest in MediBeacon Inc.

("MediBeacon"), a medical technology company specializing in the advances of fluorescent tracer agents and transdermal measurement, potentially enabling real-time, direct monitoring of kidney function, and an approximately 26 % interest in Triple Ring Technologies, Inc.

("Triple Ring"), a science and technology co-development company.

Pansend also invests in other early stage or developmental stage healthcare companies and as of December 31, 2023, had a 46.2 % interest in MediBeacon Inc.

("MediBeacon"), a medical technology company specializing in the advances of fluorescent tracer agents and transdermal measurement, potentially enabling real-time, direct monitoring of kidney function, a 1.9 % fully diluted interest in Triple Ring Technologies, Inc.

("Triple Ring"), a science and technology co-development company, and a 20.1 % interest in Scaled Cell Solutions, Inc.

("Scaled Cell"), an immunotherapy company developing a novel autologous cell therapy system to potentially improve current CAR-T treatments.

Our Spectrum segment is comprised of HC2 Broadcasting Holdings Inc.

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Broadcasting strategically acquired and operates over-the-air broadcasting stations across the United States.

In addition, Broadcasting, through its wholly-owned subsidiary, HC2 Network Inc.

("Network"), operates Azteca America, a Spanish-language broadcast network offering high quality Hispanic content to a diverse demographic across the United States.

The Company maintains a 98 % controlling interest in Broadcasting and maintains a controlling interest of approximately 77 %, inclusive of approximately 10 % proxy and voting rights from minority holders of DTV America Corporation ("DTV").

On a fully diluted basis, the Company would have an approximately 86 % controlling interest in Broadcasting.

The Company maintains a 98.0 % controlling interest in Broadcasting and maintains a controlling interest of approximately 69.2 %, inclusive of 2.8 % proxy rights from minority holders of DTV America Corporation ("DTV").

On a fully diluted basis, the Company would have a 85.8 % controlling interest in Broadcasting.

Our Other segment represents all other businesses or investments that do not meet the definition of a segment individually or in the aggregate.

Included in the Other segment is the former Marine Services segment, which includes its holding company, Global Marine Holdings, LLC ("GMH"), in which the Company maintains approximately 73 % controlling interest.

GMH results include the current and prior year equity investment in HMN International Co., Ltd., formerly known as Huawei Marine Networks Co.

(“HMN”), its 19 % equity method investment, and the discontinued operations of Global Marine Systems Limited ("GMSL").

Also included in the Other segment is the discontinued operations of Beyond6, Inc.

("Beyond6"), and Continental Insurance Group ("CIG").

Included in the Other segment is TIC Holdco, Inc.

("TIC"), and the former Marine Services segment, which includes its holding company, Global Marine Holdings, LLC ("GMH"), in which the Company maintains a 72.8 % controlling interest.

GMH's results include its subsidiary's prior 19.0 % equity method investment in HMN International Co., Ltd., formerly known as Huawei Marine Networks Co.

(“HMN”), until it was sold on March 6, 2023.

Refer to Note 6.

Investments for additional information.

Summary of Significant Accounting Policies

2 unchanged sentences

All intercompany profits, transactions and balances have been eliminated in consolidation.

The remaining interests not owned by the Company are presented as a noncontrolling interest component of total equity.

Basis of Presentation

The accompanying Consolidated Financial Statements of the Company included herein have been prepared in U.S.

dollars in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").

The remaining interests not owned by the Company are presented as a non-controlling interest component of total equity.

Basis of Presentation and Liquidity

The accompanying Consolidated Financial Statements of the Company included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").

Certain prior amounts have been reclassified or combined to conform to the current year presentation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (such as debt service and operating leases) and other cash needs for our operations for at least the next twelve months from the issuance of the Consolidated Financial Statements through a combination of available cash and distributions from our subsidiaries.

On February 23, 2024, the Company's Board of Directors (the “Board”) approved a plan to proceed with a $ 19.0 million rights offering for its common stock and fixed March 6, 2024 as the record date for holders of common stock entitled to participate in the rights offering.

On March 5, 2024, the Company set the subscription price at which the rights would be exercisable at $ 0.70 per share and entered into an investment agreement (the “Investment Agreement”) with Lancer Capital LLC (“Lancer Capital”), a related party and an entity controlled by Avram A.

Glazer, the Chairman of the Board and a beneficial owner of 29.1 % of the Company's common stock, pursuant to which the rights offering will be backstopped by Lancer Capital.

Pursuant to the Investment Agreement, Lancer Capital will also purchase an additional $ 16.0 million of the Company’s new Series C Preferred Stock in a private placement transaction to close concurrently with the settlement of the rights offering.

For more information regarding the back-stop and private placement commitments from Lancer Capital under the Investment Agreement, refer to Note 22.

Subsequent Events.

At this time, management believes that the Company will be able to continue to meet its liquidity requirements and fund its fixed obligations (such as debt service and operating leases) and other cash needs for its operations for at least the next twelve months from the issuance of the Consolidated Financial Statements through a combination of available cash on hand, distributions from the Company’s subsidiaries and the rights offering together with the back-stop and private placement commitments from Lancer Capital under the Investment Agreement.

The ability of INNOVATE’s subsidiaries to make distributions to INNOVATE is subject to numerous factors, including restrictions contained in each subsidiary’s financing agreements, availability of sufficient funds at each subsidiary and the approval of such payment by each subsidiary’s board of directors, which must consider various factors, including general economic and business conditions, tax considerations, strategic plans, financial results and condition, expansion plans, any contractual, legal or regulatory restrictions on the payment of dividends, and such other factors each subsidiary’s board of directors considers relevant.

Although the Company believes, to the extent needed, that it will be able to raise additional debt or equity capital, refinance indebtedness or preferred stock, enter into other financing arrangements or engage in asset sales and sales of certain investments sufficient to fund any cash needs that we are not able to satisfy with the funds on hand or expected to be provided by our subsidiaries, there can be no assurance that it will be able to do so on terms satisfactory to the Company, if at all.

Although the Company believes, to the extent needed, that it will be able to raise additional debt or equity capital, refinance indebtedness or preferred stock, enter into other financing arrangements or engage in asset sales and sales of certain investments sufficient to fund any cash needs that the Company is not able to satisfy with the funds on hand or expected to be provided by our subsidiaries, there can be no assurance that it will be able to do so on terms satisfactory to the Company, if at all.

Such financing options, if pursued, may also ultimately have the effect of negatively impacting our liquidity profile and prospects over the long-term and dilute holders of common stock.

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In addition, the sale of assets or the Company’s investments may also make the Company less attractive to potential investors or future financing partners.

The COVID-19 pandemic has continued to adversely affect the Company’s business.

Labor shortages and supply chain disruptions have created significant delays in the Company’s ability to complete projects and deliver products, including in its Infrastructure and Life Sciences segments.

The Company’s receipt of materials from areas impacted by the pandemic was slowed or disrupted in 2022 and the Company expects its suppliers to continue to face similar challenges in fulfilling orders.

Transportation costs continued to increase in 2022 as a result of COVID-19 and these costs may continue to rise.

The Company has not been able to pass all of these cost increases on to its customers and, as a result, its margins have been adversely impacted.

In addition, the Company’s Life Sciences segment was adversely affected in 2022 by continuing requirements to implement COVID-19 operational measures at clinical trial sites, which resulted in some clinical trials being delayed.

Cash and Cash Equivalents

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The Company's restricted cash balances consist of funds that are contractually or legally restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on the Consolidated Balance Sheets, and are primarily comprised of security deposits for long-term leases, which are held in separate bank accounts.

The Company’s acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date.

The Company accounts for acquisitions using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date.

Estimates of fair value included in the Consolidated Financial Statements, in conformity with ASC 820, Fair Value Measurements and Disclosures , represent the Company’s best estimates and valuations developed, when needed, with the assistance of independent appraisers or, where such valuations have not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions.

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Accordingly, the Company cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Equity Method Investments

The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee.

The ability to exercise significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee, such as with our investments in MediBeacon and Triple Ring, of which we own an approximately 47 % interest in MediBeacon and an approximately 26 % interest in Triple Ring.

This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted, such as with our 19 % equity method investment in HMN, as we continue to maintain a seat on the entity's board of directors and can exert significant influence.

The ability to exercise significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee, such as with our investments in MediBeacon and Scaled Cell, of which we own an approximately 46.2 % interest in MediBeacon and an approximately 20.1 % interest in Scaled Cell as of December 31, 2023.

This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted.

The Company applies the equity method to investments in common stock and to other investments when such other investments possess substantially identical subordinated interests to common stock.

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Such additional equity method losses, if any, are based upon the change in the Company's claim on the investee’s book value.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Measurement Alternative Investments

The Company utilizes the measurement alternative method to account for investments when it does not possess the ability to exercise significant influence or control and the investment does not have a readily determinable fair value.

Under this method, investments are initially recognized at cost and subsequently measured at cost, adjusted for any observable changes in the fair value of the investment.

In addition, the Company reviews the carrying value of investments measured under the measurement alternative for impairment on a regular basis.

If there is an indication of impairment, the Company assesses whether the carrying value of the investment exceeds its recoverable amount.

Any impairment losses are recognized in the financial statements.

Fair Value Measurements

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The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

The Company’s assets and liabilities that are measured at fair value on a recurring basis include cash equivalents, marketable securities and certain investments.

The Company’s assets and liabilities that are measured at fair value on a recurring basis include cash equivalents.

Our financial assets measured at fair value on a nonrecurring basis include non-marketable equity securities.

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Financial Instruments

Our financial instruments include cash and cash equivalents, marketable and non-marketable securities, including equity investments and certain other investments, accounts and notes receivable, accounts payable and other current liabilities, mandatorily redeemable noncontrolling interests and debt obligations.

Our financial instruments include cash and cash equivalents, marketable and non-marketable securities, including equity investments and certain other investments, accounts and notes receivable, accounts payable and other current liabilities, redeemable non-controlling interests and debt obligations.

Accounts Receivable

Accounts receivable are stated at amounts due from customers net of an allowance for doubtful accounts.

Accounts receivable are stated at amounts due from customers net of provision for expected credit losses.

Our allowance for doubtful accounts considers historical experience, the age of certain receivable balances, credit history, current economic conditions and other factors that may affect the counterparty’s ability to pay.

As of January 1, 2023 the company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.

At each balance sheet date, all potentially uncollectible accounts are assessed individually for the purpose of determining the appropriate provision for doubtful accounts.

Management has elected to use a risk-based, pool-level segmentation framework to calculate the expected loss rate.

Management evaluates its experience with historical losses and then applies this historical loss ratio to financial assets with similar characteristics.

The Company’s historical loss ratio or its determination of risk pools may be adjusted for changes in customer, economic, market or other circumstances.

The Company may also establish an allowance for credit losses for specific receivables when it is probable that the receivable will not be collected and the loss can be reasonably estimated.

Amounts are written off against the allowance when they are considered to be uncollectible, and reversals of previously reserved amounts are recognized if a specifically reserved item is settled for an amount exceeding the previous estimate.

The policy for determining past due status is based on the contractual payment terms of each customer.

Once collection efforts by the Company are exhausted, the determination for charging off uncollectible receivables is made.

For the years ended December 31, 2022 and 2021, the Company recorded bad debt expense of $ 0.9 million and $ 0.1 million, respectively.

INNOVATE CORP.

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Goodwill and Other Intangible Assets

Under ASC 350, Intangibles - Goodwill and Other ("ASC 350"), goodwill and indefinite lived intangible assets are not amortized but are reviewed annually for impairment, or more frequently, if impairment indicators arise.

Intangible assets that have finite lives are amortized over their estimated useful lives and are subject to the provisions of ASC 360, Property, plant, and equipment ("ASC 360").

Goodwill impairment is tested at least annually (October 1st) or when factors indicate potential impairment using a two-step process that begins with a qualitative evaluation of each reporting unit.

If such test indicates potential for impairment, a one-step quantitative test is performed and, if there is excess of a reporting unit's carrying amount over its fair value, an impairment loss is recorded, not to exceed the total amount of goodwill allocated to the reporting unit.

Estimating the fair value of a reporting unit requires various assumptions including projections of future cash flows, perpetual growth rates and discount rates.

The assumptions about future cash flows and growth rates are based on the Company’s assessment of a number of factors, including the reporting unit’s recent performance against budget, performance in the market that the reporting unit serves, and industry and general economic data from third-party sources.

Goodwill and intangible assets deemed to have indefinite lives are not amortized, but, rather, tested for impairment.

The Company tests goodwill and indefinite lived intangibles for impairment at least annually in the fourth quarter (October 1st) or when factors indicate potential impairment (i.e., events occur or circumstances change that indicate the potential impairment under ASC 350, Intangibles - Goodwill and Other ("ASC 350").

In addition to the foregoing, management reviews goodwill and intangible assets for possible impairment whenever events or circumstances indicate that the carrying amounts of assets may not be recoverable.

The factors that management considers important, and which could trigger an impairment review, include, but are not limited to:

a more likely than not expectation of selling or disposing all, or a portion, of a reporting unit;

a significant decline in the market value of our common stock or debt securities for a sustained period;

a material adverse change in economic, financial market, industry or sector trends;

a material failure to achieve operating results relative to historical levels or projected future levels;

and significant changes in operations or business strategy.

Intangible assets that have finite lives are amortized over their estimated useful lives and are subject to the impairment provisions of ASC 360, Property, plant, and equipment ("ASC 360").

The Company elected to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value, and if so, a quantitative test is performed.

The quantitative evaluation for impairment of indefinite lived intangibles follows the same approach as described with goodwill above and consists of a comparison of the fair value of an intangible asset with its carrying amount.

If the carrying amount of the intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to the excess.

Under the quantitative test, management estimates the fair value of a reporting unit, which requires various assumptions including projections of future cash flows, perpetual growth rates and discount rates.

The assumptions about future cash flows and growth rates are based on our assessment of a number of factors, including the reporting unit’s recent performance against budget, performance in the market that the reporting unit serves, and industry and general economic data from third-party sources.

Discount rate assumptions are based on an assessment of the risk inherent in those future cash flows.

Changes to the underlying businesses could affect the future cash flows, which in turn could affect the fair value of the reporting unit.

Intangible assets not subject to amortization consist of certain television broadcast licenses.

Such indefinite lived intangible assets are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

The impairment test shall consist of a comparison of the fair value of an intangible asset with its carrying amount.

If the carrying amount of the intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to the excess.

Further, management assesses the current market capitalization, forecasts and the amount by which the fair values exceeded the carrying values.

If the carrying amount of the reporting unit exceeds the fair value, an impairment loss shall be recognized in an amount equal to the excess.

Based on qualitative assessments performed as of October 1, 2023, management determined it was more likely than not that the fair value of its reporting units and the fair value of the indefinite-lived intangible assets exceeded their carrying values, and, as such, no impairment was required.

Intangible assets not subject to amortization (i.e.

indefinite lived intangibles) consist of certain television broadcast licenses.

Intangible assets subject to amortization consists of certain trade names, customer contracts and developed technology.

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The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset group.

An impairment loss is recorded to the extent the carrying amount exceeds the fair value of the asset and such amount is not recoverable.

In addition to the foregoing, the Company reviews its goodwill and intangible assets for possible impairment whenever events or circumstances indicate that the carrying amounts of assets may not be recoverable.

The factors that the Company considers important, and which could trigger an impairment review, include, but are not limited to:

a more likely than not expectation of selling or disposing all, or a portion, of a reporting unit;

a significant decline in the market value of our common stock or debt securities for a sustained period;

a material adverse change in economic, financial market, industry or sector trends;

a material failure to achieve operating results relative to historical levels or projected future levels;

and significant changes in operations or business strategy.

An impairment loss is recorded to the extent the carrying amount of the asset or asset group exceeds the fair value and is not recoverable.

Refer to Note 8.

Goodwill and Intangibles, Net for any intangible impairments recorded during the years presented.

Television broadcast licenses generally are granted for eight-year periods.

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The Company derives future cash flow estimates from its historical experience and its internal business plans, which include consideration of industry trends, competitive actions, technology changes, regulatory actions, available financial resources for marketing and capital expenditures and changes in its underlying cost structure.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company makes assumptions about the remaining useful life of its long-lived assets.

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In certain circumstances in which the underlying assets could be leased for an additional period of time or salvaged, the Company includes such estimated cash flows in its estimate.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The estimate of the appropriate discount rate to be used to apply the present value model in determining fair value was the Company’s weighted average cost of capital which is based on the effective rate of its debt obligations at the current market values (for periods during which the Company had debt obligations) as well as the current volatility and trading value of the Company’s common stock.

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The leases are expiring between 2024 and 2045.

Leases with an initial term of 12 months or less are not recorded on the balance sheets.

Leases with an initial term of twelve months or less are not recorded on the balance sheets.

Lease expense is recognized on a straight-line basis over the lease term.

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Income and expenses are translated at the average exchange rate during the period.

The net effect of such translation gains and losses are reflected within AOCI in the stockholders’ equity section of the Consolidated Balance Sheets.

The net effect of such translation gains and losses are reflected within AOCI in the stockholders’ equity (deficit) section of the Consolidated Balance Sheets.

If there is a planned or completed sale or liquidation of the Company's ownership in a foreign operation, the relevant foreign currency translation adjustment is recognized in the Consolidated Statement of Operations.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Convertible Instruments

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The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Deferred Financing Costs

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Share-based compensation is recorded net of actual forfeitures.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Income (Loss) Per Common Share

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Under ASC 360, Property, Plant and Equipment , assets may be classified as held-for-sale even though the discontinued operations criteria is not met.

The results of discontinued operations are reported in Loss from discontinued operations in the Consolidated Statement of Operations.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

For the years ended December 31, 2023 and 2022, there were no discontinued operations.

Recent Accounting Pronouncements

Accounting Pronouncements Adopted in the Current Year

There were no new accounting pronouncements adopted during the year ended December 31, 2022.

Accounting Pronouncements to be Adopted in 2023

Credit Loss Standard

In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326) , Measurement of Credit Losses on Financial Instruments .

Credit Losses Standard

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) , Measurement of Credit Losses on Financial Instruments .

This new standard and its related amendments change the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables and contract assets, from an incurred loss model to an expected loss model and adds certain new required disclosures.

Under the new expected loss model, which is based on historical experience, current conditions and reasonable and supportable forecasts, entities will recognize estimated credit losses over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred.

The Company is finalizing its implementation of the new credit losses standard and is updating certain of its business processes and internal controls to meet the reporting and disclosure requirement of the new ASU.

Based on historical trends, the financial condition of the Company’s customers and management’s expectations of economic and industry factors affecting the Company’s customers, the new guidance, which the Company will adopt on January 1, 2023, is not expected to materially affect the amount of expense recognized under the Company’s current practices and is not expected to have a material effect on the Company’s consolidated financial statements.

Other Recent Accounting Pronouncements

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) which contains optional practical expedients for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”).

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848, which extended the period for utilization of the practical expedients under ASU 2020-04 through December 31, 2024.

The Company has instruments, including DBMGi's $ 40.9 million Series A Preferred Stock (Refer to Note 18.

Temporary Equity and Equity) and INNOVATE's $ 20.0 million line of credit agreement (Refer to Note 13.

Debt Obligations) that reference LIBOR.

DBMGi's Series A Preferred Stock and INNOVATE's line of credit agreement that reference LIBOR contain customary LIBOR replacement language, including, but not limited to, the use of replacement rates based on the secured overnight financing rate, and consequently these ASUs are not expected to have a material effect on the Company's consolidated financial statements.

Under the new expected loss model, which is based on historical experience, current conditions and reasonable and supportable forecasts, entities recognize estimated credit losses over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred.

The adoption of ASU 2016-13 and its related amendments on January 1, 2023, did not have any effect on the Company’s Consolidated Financial statements and the Company did not record any effects through retained earnings.

For the amounts calculated for the Current Expected Credit Loss (“CECL”) model subsequent to initial transition, the Company recognizes the expense in the Consolidated Statements of Operations, and the amount is presented within general and administration costs rather than a separate line.

Refer to Note 4.

Accounts Receivable, Net.

The Company reviewed its entire portfolio of assets recognized on the balance sheet as of January 1, 2023, and identified Accounts Receivable and Contract Assets as the material impacted assets in-scope of Topic 326.

The risk of credit losses from the remaining portfolio of assets was concluded to be immaterial.

Accounts Receivable and Contract Assets are presented net of allowances for credit losses.

Refer to Note 4.

Accounts Receivable, Net.

Accounting Pronouncements Issued But Pending Adoption

In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842):

Common Control Arrangements (“ASU 2023-01”) to improve the guidance for applying Topic 842 , Leases, to related party arrangements between entities under common control.

ASU 2023-01 improves current GAAP by clarifying the accounting for leasehold improvements associated with common control leases, thereby reducing diversity in practice.

The provisions of this ASU that apply to public companies include a requirement for entities to amortize leasehold improvements associated with common control leases over the useful life of the common control group.

ASU 2023-01 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2023, with early adoption permitted.

The Company is currently evaluating this ASU but does not expect ASU 2023-01 to have a material effect on the Company’s consolidated financial statements.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

On October 9, 2023, the FASB issued ASU 2023-06 Disclosure Improvements:

Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative ("ASU 2023-06") , which modifies certain disclosure and presentation requirements of a variety of Topics in the Codification and is intended to both clarify or improve such requirements and align the requirements with the SEC's regulations.

The Company is in the process of evaluating the amendments provided in this ASU and believes certain of the disclosure improvements may be applicable to the Company's interim or annual disclosures, for example, disclosures related to:

earnings-per-share computation for dilutive securities, preferred stock, amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on short-term borrowings.

The effective date for each amendment is the effective date of the removal of the related disclosure from Regulation S-X or Regulation S-K, with early adoption prohibited.

The Company will apply the provisions prospectively as such provisions become effective and does not expect ASU 2023-06 to have a material impact on the Company's consolidated financial statements.

On November 27, 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ("ASU 2023-07").

ASU 2023-07 improves reportable segment disclosure requirements to enable investors to better understand an entity's overall performance, primarily through enhanced disclosures about significant segment expenses.

In addition, ASU 2023-07 enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements such as those related to the Company's Chief Operating Decision Maker ("CODM").

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating this ASU, which will only have an effect on the disclosures within the Company’s consolidated financial statements.

On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures ("ASU 2023-09").

ASU 2023-09 improves income tax disclosure requirements related to rate reconciliation income taxes paid and other miscellaneous tax disclosures to enhance their transparency and decision usefulness to investors.

These enhancements allow investors to better assess how an entity's operations, related tax risks, tax planning and operational opportunities affect its tax rate and prospects for future cash flows.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating this ASU, which will only have an effect on the disclosures within the Company’s consolidated financial statements.

Subsequent Events

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Refer to Note 22.

Subsequent Events for any subsequent events.

Subsequent Events.

Revenue and Contracts in Process

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In determining if the collectability of consideration is probable, the Company considers the customer’s ability and intention to pay such consideration through an evaluation of several factors, including an assessment of the creditworthiness of the customer and our prior collection history with such customer.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Identify the performance obligations in the contract

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In determining whether a warranty provides an additional service, the Company considers each warranty provision in comparison to warranty terms which are standard in the industry.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Determine the transaction price

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In certain circumstances, the standalone selling price is determined using an expected profit margin on anticipated costs related to the performance obligation.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Recognize revenue as performance obligations are satisfied

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(a) the customer simultaneously receives and consumes the benefits provided by the Company’s performance as we perform, (b) the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (c) the Company’s performance does not create an asset with an alternative use to us, and we have an enforceable right to payment for performance completed to date.

For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation.

For performance obligations satisfied over time, the Company recognizes revenue by measuring the progress toward complete satisfaction of that performance obligation.

The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Revenue from contracts with customers consists of the following (in millions):

Years Ended December 31,

Year Ended December 31,

Infrastructure

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Accounts receivables, net, from contracts with customers consist of the following (in millions):

Accounts receivables with customers

Infrastructure

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Total accounts receivables with customers $ 273.2 $ 250.4

As of January 1, 2022, total accounts receivable, net, from contracts with customers were $ 236.5 million.

Infrastructure Segment

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The nature of the projects does not provide measurable value to the customer over time and control does not transfer to the customer at discrete points in time.

The customer receives value over the term of the project based on the amount of work that has been completed towards the delivery of the completed project.

There is typically no alternative use to the Company for the partially completed construction project, resulting in the recognition of revenue over time as progress is made towards completion rather than at a single point in time.

The customer receives value based on the amount of work that has been completed towards the delivery of the completed project.

The most reliable measure of progress is the cost incurred towards delivery of the completed project.

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Costs include all direct material and labor costs related to contract performance, subcontractor costs, indirect labor, and fabrication plant overhead costs, which are charged to contract costs as incurred.

Revenues relating to changes in the scope of a contract are recognized when DBMG and customer or general contractor have agreed on both the scope and price of changes, the work has commenced, it is probable that the costs of the changes will be recovered and that realization of revenue exceeding the costs is assured beyond a reasonable doubt.

Revenues relating to changes in the scope of a contract are recognized when DBMG and customer or general contractor have agreed on both the scope and price of changes, the work has commenced, and that realization of revenue exceeding the costs is assured beyond a reasonable doubt.

Revisions in estimates during the course of contract work are reflected in the accounting period in which the facts requiring the revision become known.

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Amounts billed and due from customers, as well as the amount of contract assets, are generally classified within current assets in the consolidated balance sheets.

Refer to Note 4.

Accounts Receivable, Net and Contract Assets and Contract Liabilities for related discussion.

Refer to Contract Assets and Contract Liabilities below for related discussion.

Amounts expected to be collected beyond one year are classified as other long-term assets.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Service Contracts

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Retention on contract receivables are amounts due on progress billings, which are withheld until a future period.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Disaggregation of Revenues

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Contracts represent majority of the revenue of the Infrastructure segment and are generally recognized over time.

A majority of contracts are domestic, fixed priced, and are in excess of one year .

A majority of contracts are domestic, fixed priced, and are within one year .

Disaggregation of the Infrastructure segment, by market or type of customer, is used to evaluate its financial performance.

The following table disaggregates DBMG's revenue by market (in millions):

Years Ended December 31,

Commercial $ 794.0 $ 539.8

Year Ended December 31,

Industrial $ 403.0 $ 409.5

Commercial 382.9 794.0

Transportation 292.3 50.2

Healthcare 165.5 129.9

Convention 124.2 136.2

Transportation 50.2 52.7

Leisure 23.4 23.2

Government 11.2 34.8

Other 15.8 37.7

Energy 9.2 15.8

Leisure 8.1 23.4

Total revenue from contracts with customers $ 1,396.4 $ 1,593.8

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In addition, many of our time and materials arrangements, as well as our contracts to perform turnaround services within the United States industrial services segment, are billed in arrears pursuant to contract terms that are standard within the industry, resulting in contract assets and/or unbilled receivables being recorded, as revenue is recognized in advance of billings.

Also included in contract assets are amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to both scope and/or price or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders).

Our contract assets do not include capitalized costs to obtain and fulfill a contract.

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As of December 31, 2023 and 2022, the total retainage receivable was $ 120.6 million and $ 127.8 million, respectively, and the amount of retainage receivable estimated by management to be collected beyond one year is approximately 9.0 % and 20.7 % of the balance, respectively.

When payment of the retainage is contingent upon the Company fulfilling its obligations under the contract it does not meet the criteria to be included in accounts receivable and remains in the contract’s respective contract assets or contract liability, determined on a contract-by-contract basis.

The Company has reflected such amounts within the Consolidated Balance Sheets.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company has reflected such amounts within the Consolidated Balance Sheet as of December 31, 2022 and 2021.

Contract assets and contract liabilities and recognized earnings consisted of the following (in millions):

Years Ended December 31,

Year Ended December 31,

Costs incurred on contracts in progress $ 2,811.8 $ 2,503.3

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$ ( 34.9 ) $ 66.5

Years Ended December 31,

Year Ended December 31,

Cost in excess of billings $ 73.8 $ 90.7

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Contract liabilities $ ( 153.5 ) $ ( 98.6 )

The change in contract assets is a result of the recording of $ 205.3 million of contract assets driven by new commercial projects, offset by $ 158.8 million of contract assets transferred to receivables from contract assets recognized at the beginning of the period.

The change in contract liabilities is a result of periodic contract liabilities of $ 96.6 million driven largely by new commercial projects, offset by revenue recognized that was included in the contract liability balance at the beginning of the period in the amount of $ 77.1 million.

As of January 1, 2022, contract assets were $ 118.6 million and contract liabilities were $ 79.1 million.

The change in contract assets during the year ended December 31, 2023 is a result of the recording of $ 86.6 million of contract assets driven by new commercial projects, offset by $ 133.1 million of contract assets transferred to receivables from contract assets recognized at the beginning of the year.

The change in contract liabilities during the year ended December 31, 2023 is a result of periodic contract liabilities of $ 146.2 million driven largely by new commercial projects, offset by revenue recognized that was included in the contract liability balance at the beginning of the year in the amount of $ 91.3 million.

Transaction Price Allocated to Remaining Unsatisfied Performance Obligations

1 unchanged sentence

Within One Year Within Five Years Total

Commercial $ 354.5 $ 32.5 $ 387.0

Healthcare $ 200.5 $ 262.0 $ 462.5

Industrial 193.5 1.0 194.5

Transportation 180.9 37.9 218.8

Commercial 140.1 1.0 141.1

Government 11.9 — 11.9

Leisure 4.7 — 4.7

Healthcare 220.6 221.9 442.5

Convention 9.5 — 9.5

Other 2.9 — 2.9

Leisure 1.3 — 1.3

Remaining unsatisfied performance obligations $ 740.3 $ 301.9 $ 1,042.2

8 unchanged sentences

Life Sciences Segment

Beginning in 2021, R2 Technologies commercially launched its first systems product, the Glacial Rx, and other topical consumables.

The Glacial Rx system is sold to medical practices, or in certain cases leased for a small, initial upfront fee and recurring lease payments over a specified timeframe.

In order to operate the system, kits containing a cycle card with a set number of cycles must be purchased.

Once the cycles are exhausted, practices can purchase additional cards with additional cycles resulting in recurring revenues to R2 Technologies.

Further, topical consumables are contained in the kits sold to medical practices, which patients can utilize post-treatment to increase the efficacy of the treatment.

Beginning in 2022, R2 Technologies commercially launched its second systems product, the Glacial Spa.

The Glacial Spa device is a cooling experience used to even skin tone, and brighten and lighten skin and is intended to be operated by a trained aesthetician.

Beginning in 2021, R2 Technologies commercially launched its first product, Glacial Rx.

Combined with other topical consumables, the Glacial Rx system is sold to medical practices and is intended to be operated by a trained health care professional.

Beginning in 2022, R2 Technologies commercially launched its second product in China, Glacial Spa.

This product launched into the United States and Canada in 2023, marketed as Glacial fx.

This device is sold into nonmedical markets and is a cooling experience used to even skin tone and brighten and lighten skin.

It is intended to be operated by a trained esthetician.

Glacial Rx and Glacial fx are sold in North America using a direct sales force.

In certain cases, these systems are leased for a small, initial upfront fee and recurring lease payments over a specified timeframe.

Glacial fx is also sold in Canada.

The Glacial Spa system is currently sold in China and distributed by Huadong’s existing sales force to spas.

Quarterly, R2 receives purchase orders for the Glacial Spa and other topical consumables from Huadong and recognizes the revenue upon shipment of the device to Huadong.

To operate the systems, kits containing a cycle card with a set number of cycles must be purchased.

Once the cycles are exhausted, practices can purchase additional cards with additional cycles resulting in recurring revenues to R2 Technologies.

Further, certain topical consumables are required to be utilized in conjunction with the systems also resulting in recurring revenues to R2 Technologies.

Within North America, revenue is recognized on shipment.

For international sales, shipping terms are Ex Works, wherein R2 makes its products available at a specific location, but the buyer is required to pay the transportation costs.

Revenue is recognized once an agreed upon freight carrier is selected and goods are picked up by the freight carrier.

Payment Terms

R2 requires customers to remit payment upfront prior to shipping the devices.

Payment terms are expressly stated in our standard terms and conditions.

The invoiced amount to be received is recorded in Accounts Receivable, net on our Consolidated Balance Sheet.

The following table disaggregates the Life Sciences segment's revenue by type for the periods indicated (in millions):

Years Ended December 31,

In both North America and internationally, R2 generally requires customers to remit payment upfront prior to shipment.

These payment terms are expressly stated in the standard terms and conditions.

In certain circumstances within North America, R2 accepts longer payment terms not to exceed one year .

Any payment plan variation is expressly disclosed in the master services agreement which is required to be signed in conjunction with each sale by every customer.

The invoiced amount to be received is recorded in Accounts Receivable, Net, on the Consolidated Balance Sheet.

The following table disaggregates the Life Sciences segment's revenue by type (in millions):

Year Ended December 31,

Systems and consumables revenue $ 3.3 $ 4.3

1 unchanged sentence

Spectrum Segment

Broadcast station revenue is generated primarily from the sale of television airtime in return for a fixed fee or a portion of the related ad sales recognized by the third party.

In a typical broadcast station revenue agreement, the licensee of a station makes available, for a fee, airtime on its station to a party which supplies content to be broadcast during that airtime and collects revenue from advertising aired during such content.

Broadcast station revenue is recognized over the life of the contract, when the program is broadcast.

The fees that we charge can be fixed or variable and the contracts that the Company enters into are generally short-term in nature.

Variable fees are usage/sales-based and recognized as revenue when the subsequent usage occurs.

Transaction prices are based on the contract terms, with no material judgments or estimates.

Network advertising revenue is generated primarily from the sale of television airtime for programs or advertisements.

6 unchanged sentences

Transaction prices are based on the contract terms, with no material judgments or estimates.

Broadcast station revenue is generated primarily from the sale of television airtime in return for a fixed fee or a portion of the related ad sales recognized by the third party.

Broadcast station revenue is recognized over the life of the contract, when the program is broadcast.

The fees that we charge can be fixed or variable and the contracts that the Company enters into are generally short-term in nature.

Variable fees are usage/sales-based and recognized as revenue when the subsequent usage occurs.

Transaction prices are based on the contract terms, with no material judgments or estimates.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Payment Terms

2 unchanged sentences

The invoiced amount to be received is recorded in Accounts Receivable on our Consolidated Balance Sheet.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Disaggregation of Revenues

The following table disaggregates the Spectrum segment's revenue by type for the periods indicated (in millions):

Years Ended December 31,

The following table disaggregates the Spectrum segment's revenue by type (in millions):

Year Ended December 31,

Broadcast station $ 21.9 $ 19.6

5 unchanged sentences

As of December 31, 2023, the transaction price allocated to remaining unsatisfied performance obligations consisted of $ 10.9 million of broadcast station revenues of which $ 5.6 million is expected to be recognized within one year and $ 5.3 million is expected to be recognized within the next 3 years.

With the shut-down of HC2 Network as of December 31, 2022, the company no longer has any unsatisfied performance obligations related to network advertising or network distribution.

Accounts Receivable, Net

Accounts receivable, net as of the periods indicated consisted of the following (in millions):

Accounts receivable, net, consisted of the following (in millions):

Contracts in progress $ 271.7 $ 244.8

2 unchanged sentences

Other receivables 5.2 4.5

Allowance for doubtful accounts ( 0.5 ) ( 0.6 )

Allowance for expected credit losses (1)(2)

( 0.4 ) ( 0.5 )

Total $ 278.4 $ 254.9

Inventory as of the periods indicated consisted of the following (in millions):

(1) Allowance for doubtful accounts as of December 31, 2022, prior to the adoption of ASU 2016-13.

(2) There was no change to the allowance for expected credit losses as a result of the adoption of ASU 2016-13 on January 1, 2023.

As of January 1, 2022, total accounts receivable, net were $ 247.1 million.

For the year ended December 31, 2023, the Company recognized a net provision for expected credit losses of $ 2.3 million, of which $ 2.2 million related to a receivable at our Infrastructure segment expensed as a result of a legacy customer bankruptcy.

For the year ended December 31, 2022, the Company recognized provisions for doubtful accounts of $ 0.9 million.

Direct write-downs of accounts receivable charged against the allowance totaled $ 2.4 million and $ 1.0 million for the years ended December 31, 2023 and 2022, respectively.

Inventory consisted of the following (in millions):

Raw materials and consumables $ 21.0 $ 15.7

2 unchanged sentences

Total inventory $ 22.4 $ 18.9

The carrying values of the Company's investments as of the periods indicated were as follows (in millions):

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The carrying values of the Company's investments were as follows (in millions):

December 31, 2023

2 unchanged sentences

Common stock $ 0.9 $ 0.9 $ — $ 1.8

Preferred stock and fixed maturities — — 4.6 4.6

Put option 11.3 — — 11.3

Investment in securities — 40.6 — 40.6

Total $ 0.9 $ 0.9 $ — $ 1.8

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

December 31, 2022

7 unchanged sentences

(1) The Company accounts for its equity securities without readily determinable fair values under the measurement alternative election of ASC 321, whereby the Company can elect to measure an equity security without a readily determinable fair value, that does not qualify for the practical expedient to estimate fair value (net asset value), at its cost minus impairment, if any .

Pansend accounts for MediBeacon's preferred stock as an equity method investment, inclusive of any fixed maturity securities (notes) issued by Pansend to MediBeacon.

During the year ended December 31, 2022, Pansend issued MediBeacon a $ 4.5 million 8.0 % convertible note due March 2025, increasing the total outstanding principal to $ 5.0 million.

The increase in the net carrying value of the investment from the note was fully offset by additional equity method losses recognized on MediBeacon during the year ended December 31, 2022, and Pansend's net carrying amount of its investment in MediBeacon is zero as of December 31, 2022.

Equity Method Investments

The Company's equity method investments are comprised of investments in MediBeacon, Triple Ring and HMN.

The Company's investments as of December 31, 2023 are comprised of investments in MediBeacon, Triple Ring and Scaled Cell, and, as of December 31, 2022, were comprised of investments in MediBeacon, Triple Ring and HMN.

The Company's investments in Scaled Cell and MediBeacon are measured using the equity method of accounting and the Company's investment in Triple Ring is measured using the measurement alternative method as of December 31, 2023.

Until a partial sale of the Triple Ring common stock investment on November 30, 2023, the Triple Ring common stock investment was measured using the equity method of accounting (and on a one month lag basis) and the Triple Ring preferred stock investment was measured at fair value until it was sold on November 30, 2023.

HMN was measured using the equity method investment method of accounting until it was sold on March 6, 2023.

The Company's share of net losses from its equity method investments totaled $ 9.4 million and $ 1.3 million for the years ended December 31, 2023 and 2022, respectively.

The Company accounts for its Triple Ring equity method investment results on a one-month lag basis.

Subsequent to year end, on March 6, 2023, the Company closed on the sale of its remaining 19 % interest in HMN.

Refer to Note 15.

Commitments and Contingencies and Note 24.

Subsequent Events for additional information on the Company's investment in HMN.

The following tables provide combined summarized unaudited financial information for the periods indicated for the Company's equity method investments (in millions):

Assets $ 786.4 $ 604.5

Liabilities 670.2 481.5

Equity $ 116.2 $ 123.0

Years Ended December 31,

Total revenues $ 672.3 $ 695.9

Gross profit $ 109.6 $ 107.0

Operating income $ 6.4 $ 15.5

Net income $ 5.0 $ 9.4

Triple Ring and Scaled Cell

On November 30, 2023, the Company sold 546,709 shares of its common stock of Triple Ring and 804,375 shares of its preferred stock of Triple Ring and exchanged 255,333 of Triple Ring common stock for 240,613 shares of Scaled Cell (valued at $ 0.9 million).

As a part of this transaction, the Company received $ 5.0 million in cash proceeds and recognized a loss of $ 0.2 million on the sale of the investment, which is reflected in Other income (expense), net, in the Consolidated Statement of Operations for the year ended December 31, 2023.

As of December 31, 2023, the Company holds 240,613 shares of Scaled Cell, representing a 20.1 % interest.

Subsequent to the sale, the Company still holds 229,488 shares of common stock of Triple Ring, reflecting a 7.2 % interest ( 1.9 % on a fully diluted basis), and accounts for Triple Ring under the measurement alternative method as of December 31, 2023.

As of December 31, 2022 and prior to the sale in November 2023, the Company held a 25.8 % interest in Triple Ring.

Pansend accounts for its preferred stock investment in MediBeacon under the equity method of accounting, inclusive of any fixed maturity securities (notes) issued by Pansend to MediBeacon.

On March 15, 2022, MediBeacon issued Pansend a $ 4.5 million 8.0 % convertible note due March 2025, increasing the total outstanding principal due by MediBeacon to Pansend to $ 5.0 million.

Prior to December 6, 2023, MediBeacon issued $ 2.0 million in 12 % convertible note payable to Pansend, increasing the total outstanding principal by MediBeacon to Pansend to $ 7.0 million.

On December 6, 2023, MediBeacon terminated the $ 6.5 million of prior outstanding convertible notes with Pansend and simultaneously issued a new 12 % convertible note with an aggregate original principal amount of $ 7.2 million, which comprised of the prior outstanding convertible principal amounts and unpaid accrued interest of $ 0.7 million which was capitalized into the new principal balance, with future interest payable upon maturity of the note.

Subsequent to December 6, 2023, MediBeacon issued $ 2.0 million in 12 % convertible notes payable to Pansend, and, as of December 31, 2023, the total outstanding principal by MediBeacon to Pansend was $ 9.7 million, comprised of $ 9.2 million of convertible notes and $ 0.5 million of secured notes payable.

Subsequent to year end, on February 12, 2024, MediBeacon issued Pansend an additional $ 0.5 million 12 % convertible note.

As a result of these modifications and additional note issuances with MediBeacon during the year ended December 31, 2023, Pansend recognized $ 4.7 million of equity method losses which were previously unrecognized because Pansend's carrying amount of its investment in MediBeacon had been previously reduced to zero .

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

On February 23, 2023, pursuant to its amended commercial partnership with Huadong Medicine Co.

Ltd ("Huadong"), a publicly traded company on the Shenzhen Stock Exchange, MediBeacon issued $ 7.5 million of its preferred stock to Huadong, which decreased Pansend's ownership in MediBeacon from approximately 47.2 % as of December 31, 2022 to approximately 46.2 % subsequent to the transaction.

As a result of this equity transaction, Pansend recognized a gain of $ 3.8 million in Other income (expense), net in the Consolidated Statements of Operations for the year ended December 31, 2023, which increased Pansend's carrying amount of its investment in MediBeacon.

Concurrently, Pansend recognized equity method losses of $ 3.8 million which were previously unrecognized because Pansend's carrying amount of its investment in MediBeacon had been previously reduced to zero .

As of December 31, 2023, Pansend's carrying amount of its investment in MediBeacon remains at zero , inclusive of the $ 9.7 million in convertible notes which have been offset against recognized losses, and has cumulative unrecognized equity method losses relating to MediBeacon of $ 8.0 million.

For the years ended December 31, 2023 and 2022, Pansend earned $ 0.5 million and $ 0.3 million, respectively, of interest income from the convertible notes with MediBeacon.

On March 6, 2023, the Company, through New Saxon 2019 Limited (“New Saxon”), an indirect subsidiary of GMH, closed on the sale of its remaining 19 % interest in HMN to subsidiaries and an affiliate of Hengtong Optic-Electric Co Ltd.

The sale was consummated pursuant to the terms of a supplemental agreement entered into by the parties in June 2022.

New Saxon received gross proceeds of $ 54.2 million and interest income of $ 0.5 million, of which $ 4.4 million was withheld for a foreign tax payment.

For the year ended December 31, 2023, $ 15.9 million was distributed to GMH's non-controlling interest holders and redeemable non-controlling interest holders pursuant to the partnership agreement.

New Saxon recognized a gain on sale of $ 12.2 million, which is included in Other income (expense), net in the Consolidated Statement of Operations for the year ended December 31, 2023.

Property, Plant and Equipment, Net

Property, plant and equipment, net, ("PP&E") as of the periods indicated consisted of the following (in millions):

Property, plant and equipment, net, ("PP&E") consisted of the following (in millions):

Equipment, furniture and fixtures, and software $ 210.7 $ 196.0

8 unchanged sentences

These amounts included $ 15.8 million and $ 15.0 million of depreciation expense recognized within cost of revenue for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023 and 2022, the net book value of equipment under finance leases included in PP&E was $ 2.3 million and $ 2.1 million, respectively.

As of December 31, 2023 and 2022, the gross value of capitalized internal-use software included in PP&E was $ 40.9 million and $ 35.6 million, respectively, and the net book value was $ 9.9 million and $ 5.6 million, respectively.

As of December 31, 2023, $ 3.1 million in assets held for sale are presented separately in the Consolidated Balance Sheet and primarily consist of two buildings and their associated building improvements at the Company's Infrastructure segment.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

As of December 31, 2022 and December 31, 2021, the net book value of equipment under capital leases included in PP&E was $ 2.1 million and $ 0.2 million, respectively.

As of December 31, 2022 and December 31, 2021, the net book value of capitalized internal-use software included in PP&E was $ 35.6 million and $ 32.8 million, respectively.

Goodwill and Intangibles, Net

On an annual basis, in the fourth quarter, the Company performs its goodwill impairment review in accordance with ASC 350.

Estimating the fair value of a reporting unit requires various assumptions including projections of future cash flows, perpetual growth rates and discount rates.

Discount rate assumptions are based on an assessment of the risk inherent in those future cash flows.

Changes to the underlying businesses could affect the future cash flows, which in turn could affect the fair value of the reporting unit.

After considering all quantitative and qualitative factors, the Company has determined that, other than noted below, it is more likely than not that the reporting units' fair values exceed their carrying values as of the assessment date.

The Company also considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units.

Further, the Company assessed the current market capitalization, forecasts and the amount by which the fair values exceeded the carrying values.

The carrying amounts of goodwill by segment were as follows (in millions):

2 unchanged sentences

Balance at December 31, 2021 $ 106.0 $ 21.4 $ 127.4

Acquisition 16.7 — 16.7

Translation ( 0.3 ) — ( 0.3 )

Balance at December 31, 2022 $ 105.7 $ 21.4 $ 127.1

Translation ( 0.3 ) — ( 0.3 )

Balance as of December 31, 2023

$ 105.7 $ 21.4 $ 127.1

Indefinite-lived Intangible Assets

The carrying amounts of indefinite-lived intangible assets as of the periods indicated were as follows (in millions):

The carrying amounts of indefinite-lived intangible assets were as follows (in millions):

FCC licenses $ 106.3 $ 106.3

Total $ 106.3 $ 106.3

For the years ended December 31, 2022 and 2021, the Company recorded impairment charges of $ 0.2 million and $ 0.7 million, respectively, which are reflected in Other operating loss in the Consolidated Statements of Operations.

For the year ended December 31, 2022, the Company recorded impairment charges of $ 0.2 million which are reflected in Other operating loss in the Consolidated Statements of Operations.

The impairment charges related to non-core FCC licenses which were sold or expired in order to bring their carrying value equal to the agreed upon sales price prior to the execution of the sale or expiration.

There were no impairment charges recorded to indefinite lived intangible assets for the year ended December 31, 2023.

The weighted-average period prior to the next renewal for FCC licenses was 6.2 years and 6.6 years as of December 31, 2023 and 2022, respectively, after taking into consideration licenses that were successfully renewed shortly after year-end.

While broadcast television licenses are issued for a fixed period of time (generally eight years), renewals of these licenses have occurred routinely and at nominal cost.

In addition, the Company does not believe that the expiration or non-renewal of any of our FCC licenses would have a material adverse effect on the expected future cash flows and profitability.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

In addition, the Company does not believe that the expiration or non-renewal of any of its FCC licenses would have a material adverse effect on the expected future cash flows and profitability.

Definite Lived Intangible Assets

The gross carrying amounts and accumulated amortization of definite lived intangible assets by major intangible asset class as of the periods indicated were as follows (in millions):

The gross carrying amounts and accumulated amortization of definite lived intangible assets by major intangible asset class were as follows (in millions):

Weighted-Average Original Useful Life 2023 2022

5 unchanged sentences

Total $ 129.3 $ ( 56.7 ) $ 72.6 $ 129.7 $ ( 45.9 ) $ 83.8

For the year ended December 31, 2022, the Company recorded impairment charges to definite lived intangible assets of $ 1.5 million, which are reflected in Other operating loss in our Consolidated Statements of Operations.

The impairment charges related to the HC2 Network Program License Agreement ("PLA") due to a decline in performance.

Amortization expense for definite lived intangible assets was $ 16.6 million and $ 12.6 million for the years ended December 31, 2022 and 2021, respectively, and was included in Depreciation and amortization in our Consolidated Statements of Operations.

The impairment charges related to the impairment of the HC2 Network Program License Agreement ("PLA") due to a decline in performance.

There were no impairment charges recorded to definite lived intangible assets for the year ended December 31, 2023.

Amortization expense for definite lived intangible assets was $ 11.1 million and $ 16.6 million for the years ended December 31, 2023 and 2022, respectively, and was included in Depreciation and amortization in the Consolidated Statements of Operations.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Future estimated annual amortization expense for intangible assets as of December 31, 2023 is as follows (in millions):

1 unchanged sentence

Thereafter 41.1

Infrastructure Segment

Banker Steel Acquisition

On May 27, 2021, the Company, through its subsidiary DBMG, closed on a transaction to acquire 100 % of Banker Steel Holdco LLC ("Banker Steel") for $ 145.0 million.

The acquisition was financed with $ 64.1 million from a partial draw on a new $ 110.0 million revolving credit facility, $ 49.6 million of sellers' notes, $ 6.3 million of assumed debt of Banker Steel, and $ 25.0 million in cash received from INNOVATE in the settlement of certain intercompany balances.

Banker Steel, which is included in the Company's Infrastructure segment, provides full-service fabricated structural steel and erection services primarily for the East Coast and Southeast commercial and industrial construction market, in addition to full design-assist services.

Banker Steel consists of six operating companies:

Banker Steel Co., LLC;

NYC Constructors, LLC;

Derr & Isbell Construction LLC;

Innovative Detailing and Engineering Solutions;

and Lynchburg Freight and Specialty LLC.

The transaction was accounted for as a business acquisition and the valuation was finalized in the fourth quarter of 2021.

The allocation of the fair value of consideration transferred among the identified assets acquired, liabilities assumed, intangibles and residual goodwill is summarized as follows (in millions):

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Purchase Consideration at Fair Value

Partial draw on new $ 110.0 million revolving credit facility

Sellers' notes 49.6

Bankers Steel debt - assumed 6.3

Gross consideration 145.0

Seller transaction costs - assumed 0.4

Bankers debt - assumed 6.3

R&W premium paid by seller 0.5

Net consideration $ 137.8

Cash and cash equivalents $ 9.3

Accounts receivable, net 70.9

Contract assets 22.6

Assets held for sale 0.7

Inventory 5.7

Other current assets 1.7

Property, plant, and equipment, net 58.6

Other assets 40.1

Intangibles, net 60.8

Goodwill 16.7

Total assets to be acquired 287.1

Accounts payable 39.1

Contract liabilities 38.6

Other current liabilities 31.1

Other liabilities 34.2

Long-term debt, less current portion 6.3

Total liabilities to be assumed 149.3

Total net assets acquired $ 137.8

During the 2021 measurement period, adjustments to our acquisition accounting were made to certain amounts.

These include updates to accounts receivable based on additional information obtained regarding collectability, values assigned to intangible assets, and additional accrued liabilities.

As such, the valuation was finalized during the fourth quarter of 2021.

Goodwill was determined based on the residual differences between fair value of consideration transferred and the value assigned to acquired assets and liabilities.

Among the factors that contributed to goodwill was approximately $ 60.8 million assigned to intangibles, including customer relationships of $ 33.8 million with a useful life of 18 years, trade names of $ 7.4 million with a useful life of 15 years, existing customer contracts of $ 17.6 million with a useful life of 2 years and leasehold interests of $ 2.0 million with varying useful life.

Goodwill is not amortized.

The portion of goodwill that is deductible for tax purposes is $ 14.0 million.

For the year ended December 31, 2021, acquisition costs incurred by DBMG in connection with the acquisition of Banker Steel were $ 2.0 million, which were included in selling, general and administrative expenses.

The acquisition costs were primarily related to legal, accounting and valuation services.

Results of Operations and Unaudited Supplemental Pro Forma Information

The following table presents the results of operations data for the year ended December 31, 2021 for Banker Steel from the date of acquisition (in millions):

Year Ended December 31, 2021

Revenue $ 265.9

Income from operations $ 15.5

Net income attributable to INNOVATE $ 8.8

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The following table presents unaudited consolidated pro forma results of operations data as if the acquisition of Banker Steel had occurred at the beginning of 2021.

This information does not purport to be indicative of the actual results that would have occurred if the acquisitions had actually been completed on the date indicated, nor is it necessarily indicative of the future operating results or the financial position of the combined company (in millions):

Year Ended December 31, 2021

Revenue $ 1,402.7

Income from operations $ 0.9

Net loss attributable to INNOVATE $ ( 219.2 )

During the year ended December 31, 2021, the Company purchased an additional 53,759 shares of DBM Global, Inc.

on the open market, increasing its ownership to approximately 91 % from 89 %.

Spectrum Segment

During the year ended December 31, 2021, the Company increased its controlling interest in DTV from approximately 60 %, inclusive of approximately 10 % proxy and voting rights from minority holders, to approximately 77 %, inclusive of approximately 10 % proxy and voting rights from minority holders, from private purchases and proxy voting rights.

Discontinued Operations and Exit Activities

The sale of CIG closed on July 1, 2021 to Continental General Holdings LLC ("Continental"), an entity controlled by Michael Gorzynski, a former director of the Company who also serves as executive chairman of Continental since October 2020.

Our previous segment incorporating CIG (the "Insurance segment"), which primarily consisted of a closed block of long-term care insurance, had a book value, inclusive of intercompany eliminations, at the time of the sale of $ 544.0 million, inclusive of $ 344.0 million of Accumulated other comprehensive income ("AOCI").

The carrying value of the Insurance segment at the time of sale excluded cash of $ 62.5 million and investments of $ 26.7 million which were distributed to the Company through an extraordinary dividend immediately prior to the sale.

The extraordinary dividend was approved by our domestic regulator in connection with the approval of the sale.

The amount included in AOCI was reversed from equity at the time of the sale and offset the loss recognized.

While several factors impacted the fair value of the Insurance segment at the end of 2019, following discussions with our domestic regulator, changes in the asset management fee arrangement and expectations of future dividends primarily and ultimately resulted in the full impairment of the goodwill associated with the Insurance segment in 2019.

While these factors did not have a major impact on the operations of the stand-alone business, they did have a significant impact on the economic benefit that could be realized by the Company.

As a result of the factors described above, combined with the risks associated with the long-term care insurance industry, the Company exited the Insurance segment and sold the business resulting in a $ 200.8 million loss on the sale of CIG in the third quarter of 2021.

On September 3, 2022, INNOVATE and Continental entered into a tax cooperation agreement permitting Continental General Insurance Company ("CGIC") to consolidate into INNOVATE's 2021 U.S.

tax return for the six-month period INNOVATE owned CGIC, allowing CGIC to shield some of its income tax liability by utilizing a portion of INNOVATE's Net Operating Losses ("NOLs") while also converting a portion of INNOVATE's IRC Sec.

163(j) carryforward assets into NOLs.

Refer to Note 14.

Income Taxes for additional information regarding income tax attributes.

The net tax savings of $ 3.1 million on CGIC's income tax liability was split between CGIC and INNOVATE in accordance with the tax sharing agreement, which was executed on October 11, 2022.

INNOVATE recognized a current income tax benefit of $ 3.1 million in the current year and received $ 0.9 million as a result of the tax sharing agreement during the fourth quarter of 2022 and expects to receive the remaining $ 0.4 million in 2023.

As CGIC is no longer a subsidiary of INNOVATE, the $ 1.8 million tax benefit received by CGIC from the tax sharing agreement was treated as a deemed contribution, and therefore INNOVATE recognized an additional $ 1.8 million loss related to the previous sale of the subsidiary, through continuing operations.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Sale of Beyond6

On January 15, 2021, the Company closed on the sale of Beyond6 to an affiliate of Mercuria Investments US, Inc., pursuant to an Agreement and Plan of Merger (the "Merger Agreement") among Beyond6, Greenfill, Inc., a Delaware corporation ("Parent"), Greenfill Merger Inc., a newly-formed Delaware corporation and wholly-owned subsidiary of the Parent, and an affiliate of INNOVATE as the Stockholder Representative for the Beyond6 stockholders, for a total purchase price, net of Beyond6's debt and transaction expenses, customary purchase price adjustments and escrow arrangements, of approximately $ 106.5 million.

Net proceeds received by INNOVATE at closing was cash consideration of approximately $ 70.0 million.

During the first quarter of 2021, the Company recognized a $ 39.2 million gain on the sale.

During the third quarter of 2021, as a result of releases of related escrows and hold backs, the Company recognized an additional $ 0.5 million gain on the sale.

A portion of the proceeds from the sale of Beyond6 were used to repay $ 15.0 million of the then outstanding balance under the 6.75 % line of credit with MSD PCOF Partners IX, LLC ("Revolving Credit Agreement") and repay $ 27.9 million of the Company's 2021 Senior Secured Notes.

On February 28, 2020, the Company, through its indirect subsidiary, GMH, in which the Company holds an approximately 73 % controlling interest, sold 100 % of the shares of GMSL to Trafalgar AcquisitionCo, Ltd.

and an affiliate of J.F.

Lehman & Company, LLC.

During the year ended December 31, 2021, the Company recognized a gain of $ 1.2 million as a result of an indemnity release related to the sale of GMSL.

Discontinued Operations Reporting

The results of Beyond6 and CIG, as well as the gain from GMSL, and the related expenses directly attributable to the entities were reported as discontinued operations.

Formerly part of the Marine Services, Telecommunications, and Clean Energy segments, these entities were previously reclassified to the Other segment.

Summarized operating results of the discontinued operations as of the periods indicated were as follows (in millions):

Years Ended December 31,

Revenue $ — $ 1.7

Life, accident and health earned premiums, net — 55.7

Net investment income — 92.4

Realized/unrealized gains on investments — 5.1

Total revenue — 154.9

Cost of revenue — 0.8

Policy benefits, changes in reserves, and commissions — 126.0

Selling, general and administrative — 21.1

Depreciation and amortization — ( 11.0 )

Income from operations — 18.0

Interest expense — ( 0.5 )

Loss on sale and liquidation of subsidiaries — ( 159.9 )

Other loss — ( 3.1 )

Pre-tax loss from discontinued operations — ( 145.5 )

Income tax expense — ( 4.4 )

Loss from discontinued operations $ — $ ( 149.9 )

Assets Held for Sale

As of December 31, 2022 the Company had no assets held for sale, and as of December 31, 2021, the Company had approximately $ 1.5 million of other current assets related to discontinued operations which were classified in Assets held for sale in the Consolidated Balance Sheet.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Exit Activities - HC2 Network Shut-Down

On December 31, 2022, Broadcasting shut-down the operations and broadcasting of the Azteca America network and, during the year ended December 31, 2022, terminated both the PLA and BSA with TV Azteca.

HC2 Network did not quality for held-for-sale or discontinued operations as of December 31, 2022 as HC2 Network was not significant to the Company, does not represent a strategic shift and will not have a major effect on the Company's operations and financial results.

As a result of the cessation of the Azteca operations, for the year ended December 31, 2022, the Company recognized employee-related termination costs of $ 0.7 million, which are included in Selling, general & administrative, and a net loss of $ 30 thousand which is included in Other (expense) income, net.

Restructuring Costs - DBM Global

DBMG incurred approximately $ 6.5 million of restructuring costs for the year ended December 31, 2022, which are reflected in Selling, general and administrative in the Consolidated Statements of Operations.

These costs relate to a one-time internal project to evaluate and revamp DBMG's internal operations and back-office functions across all departments, including finance & accounting, risk management, human resources, IT and purchasing to improve future state delivery models and reduce redundancy throughout the organization.

There are no remaining amounts accrued as of December 31, 2022.

Operating lease right-of-use-assets and assets held under finance leases are recognized in the Consolidated Balance Sheets within Other assets and Property, plant and equipment, net, respectively.

Operating lease liabilities and finance lease liabilities are recognized in the Consolidated Balance Sheets within Other liabilities and Debt obligations, respectively.

As of the dates indicated, lease right-of-use assets and lease liabilities consisted of the following (in millions):

Right-of-use lease assets and lease liabilities consisted of the following (in millions):

Right-of-use assets:

7 unchanged sentences

Total lease liabilities $ 64.5 $ 73.0

The tables below present financial information associated with the Company's leases.

The information is presented as of, and for the years ended December 31, 2022 and 2021.

The Company has entered into operating and finance lease agreements primarily for land, office space, equipment and vehicles, expiring between 2024 and 2045.

For the year ended December 31, 2022, the Company recorded impairment charges to right-of-use assets of $ 0.5 million, which are reflected in Other operating loss, related to FCC licenses impaired.

In addition, for the year ended December 31, 2021, the Company recorded an impairment of the right-of-use-assets totaling $ 2.1 million, which is reflected in Other operating loss.

For the year ended December 31, 2023, the Company recorded impairment charges to right-of-use assets of $ 0.6 million, primarily related to FCC licenses impaired.

For the year ended December 31, 2022, the Company recorded an impairment charge to right-of-use-assets of $ 0.5 million.

Impairment charges are included in Other operating loss in the Consolidated Statements of Operations.

For the years ended December 31, 2023 and 2022, the Company recorded short-term lease costs totaling $ 39.2 million and $ 34.8 million, respectively.

The Company is expected to incur $ 10.8 million future short-term lease costs for the year ended December 31, 2023.

The following table summarizes the components of lease expense for the periods indicated (in millions):

Years Ended December 31,

Based on the short-term leases executed as of December 31, 2023, the Company expects that it will incur approximately $ 8.5 million in estimated short-term lease costs for the year ended December 31, 2024.

The tables below present financial information associated with the Company's leases as of, and for the years ended December 31, 2023 and 2022.

The following table summarizes the components of lease expense (in millions):

Year Ended December 31,

Finance lease cost:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Cash flow information related to leases for the periods indicated is as follows (in millions):

Years Ended December 31,

Cash flow information related to leases is as follows (in millions):

Year Ended December 31,

Cash paid for amounts included in the measurement of lease liabilities:

5 unchanged sentences

Operating leases $ 9.3 $ 15.0

The weighted-average remaining lease term and the weighted-average discount rate for finance leases and operating leases for the periods presented are as follows:

Years Ended December 31,

The weighted-average remaining lease term and the weighted-average discount rate for finance leases and operating leases are as follows:

Year Ended December 31,

Weighted-average remaining lease term (years) - operating leases 7.5 7.5

2 unchanged sentences

Weighted-average discount rate - finance leases 6.8 % 5.7 %

As of December 31, 2022, undiscounted cash flows for finance and operating leases are as follows (in millions):

Future minimum lease commitments (undiscounted) as of December 31, 2023, were as follows (in millions):

Leases Finance

1 unchanged sentence

2025 13.0 0.3

2025 10.8 0.1

Thereafter 24.0 —

Total future lease payments 86.3 2.2

Present values ( 15.4 ) ( 0.1 )

Total future minimum lease payments 75.8 2.6

amounts representing interest ( 13.7 ) ( 0.2 )

Total lease liability balance $ 62.1 $ 2.4

In November 2021, INNOVATE Corp.

entered into a ten-year lease agreement for a special purpose space in Palm Beach, Florida.

The new lease has not yet commenced, but will require future monthly lease payments of approximately $ 0.2 million over the entire lease term and yearly common area maintenance charges of $ 0.6 million, both of which are subject to 3 % annual upward adjustments, with total square footage of 20,950 .

The lease also provides for the Company to receive an allowance from the landlord of $ 2.1 million to be used toward costs to design, engineer, install, supply and construct improvements (the "Construction Allowance"), payable at the end of the construction period, of which $ 0.8 million is included in prepaid rent in Other Assets as of December 31, 2022.

The future lease payments and remaining unexpended amounts under the allowance are not yet recorded on our Consolidated Balance Sheet.

We expect the accounting lease commencement date for this initial portion of the lease for financial reporting purposes to begin in 2024.

Subsequent to December 31, 2022, the lease agreement was amended to extend the term of the lease to 15 years and to increase the Construction Allowance to a total of $ 4.4 million.

entered into a ten-year lease arrangement for a special purpose space in Palm Beach, Florida, which was amended in February 2023, to extend the term of the lease to 15 years, with future monthly lease payments of approximately $ 0.2 million over the entire lease term and annual common area maintenance charges of $ 0.6 million, both of which are subject to a 3 % annual upward adjustment, with total square footage of 25,184 , as amended.

In December 2023, the Company entered into a sublease agreement with Palm Beach Cultural Innovation Center, Inc.

(“PBCIC”), a Florida not-for-profit corporation and related party to Avram A.

Glazer, the Chairman of INNOVATE's Board of Directors, who is also on the board of directors of PBCIC.

Pursuant to the sublease, the Company allows PBCIC use of the underlying space and, as consideration, PBCIC has agreed to undertake all of the tenant’s build-out costs and related obligations under the lease agreement between the Company, as tenant, and RPP Palm Beach Property LP, as landlord.

As of December 31, 2023, the lease has not yet commenced.

The Company previously recorded $ 1.1 million in prepaid rent related to this lease, which was written-off in December 2023 upon the execution of the sublease to PBCIC and is reflected in Other operating loss in the Consolidated Statement of Operations.

The Company also incurred other expenses of $ 1.1 million since inception related to the special purpose space and PBCIC, of which $ 0.7 million and $ 0.4 million are reflected in Selling, general and administrative in the Consolidated Statement of Operations for the years ended December 31, 2023 and 2022, respectively.

In December 2021, the Company entered into a five-year lease agreement with an option to extend the lease for another five years for office space in West Palm Beach, Florida.

The new lease has not commenced yet, but will require future monthly lease payments of approximately $ 0.1 million over the entire lease term, subject to 3 % annual upward adjustment, with total square footage of 15,786 .

Other than a $ 0.2 million deposit included in Other Assets, the future lease payments are not yet recorded on our Consolidated Balance Sheets, as the building is still under construction.

We expect the accounting lease commencement date for this initial portion of the lease for financial reporting purposes to begin in 2024.

Other than a $ 0.2 million deposit included in Other assets, the future lease payments are not yet recorded on the Company's Consolidated Balance Sheets, as the building is still under construction.

Management expects the accounting lease commencement date for this initial portion of the lease for financial reporting purposes to begin in 2024.

INNOVATE CORP.

1 unchanged sentence

Other Assets, Accrued Liabilities and Other Liabilities

Other assets, which are reflected in non-current assets in the Consolidated Balance Sheets, as of the periods indicated consisted of the following (in millions):

Other Current Assets

Other current assets consisted of the following (in millions):

Prepaid assets

$ 11.2 $ 10.4

Income tax receivable

Restricted cash - current

Total other current assets

$ 14.6 $ 17.1

Other assets, which are reflected in non-current assets in the Consolidated Balance Sheets, consisted of the following (in millions):

Right-of-use assets $ 58.0 $ 65.8

2 unchanged sentences

Total other assets $ 61.3 $ 71.9

For the year ended December 31, 2022, the Company recorded impairment charges to right-of-use assets of $ 0.5 million, which are reflected in Other operating loss, related to FCC licenses impaired.

For the year ended December 31, 2021, the Company recorded impairment charges to right-of-use-assets totaling $ 2.1 million, which is reflected in Other operating loss.

Refer to Note 8.

Goodwill and Intangibles, Net for additional information.

Accrued liabilities as of the periods indicated consisted of the following (in millions):

Accrued expenses and other current liabilities $ 18.9 $ 24.5

Accrued Liabilities

Accrued liabilities consisted of the following (in millions):

Accrued expenses $ 14.3 $ 17.3

Accrued payroll and employee benefits 29.2 30.8

Accrued interest 17.1 15.3

Accrued sales and use taxes

Accrued income taxes 0.4 0.4

Total accrued liabilities $ 70.8 $ 65.4

Other liabilities, which are reflected in non-current liabilities in the Consolidated Balance Sheets, as of the periods indicated consisted of the following (in millions):

Restructuring Costs

DBMG incurred approximately $ 2.1 million and $ 6.5 million of restructuring costs for the years ended December 31, 2023 and 2022, which are included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

There were no remaining amounts accrued as of December 31, 2023.

HC2 Network Shut-Down

On December 31, 2022, Broadcasting shut-down the operations and broadcasting of the Azteca America network and, terminated both the PLA and BSA with TV Azteca.

HC2 Network did not qualify for discontinued operations presentation as HC2 Network was not significant to the Company, did not represent a strategic shift and would not have a major effect on the Company's operations and financial results.

As a result of the cessation of the Azteca operations, the Company no longer has any unsatisfied performance obligations related to network advertising or network distribution.

During the year ended December 31, 2022, the Company recognized employee-related termination costs of $ 0.7 million, which are included in Selling, general & administrative expenses in the Consolidated Statement of Operations, and a net loss of $ 30 thousand which is included in Other (expense) income, net, in the Consolidated Statement of Operations.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Other Liabilities

Other current liabilities consisted of the following (in millions):

Lease liability, current $ 13.5 $ 17.1

Other current liabilities 2.6 3.0

Total other current liabilities $ 16.1 $ 20.1

Other liabilities, which are reflected in non-current liabilities in the Consolidated Balance Sheets, consisted of the following (in millions):

Lease liability, net of current portion $ 48.6 $ 53.8

2 unchanged sentences

As of December 31, 2023 and 2022, there were $ 1.9 million and $ 1.7 million, respectively, of asset retirement obligations ("AROs") included in Other liabilities.

Accretion expense relating to these AROs was $ 0.1 million and zero for the years ended December 31, 2022 and 2021, respectively.

Accretion expense relating to the AROs was $ 0.2 million and $ 0.1 million for the years ended December 31, 2023 and 2023, respectively.

As of December 31, 2023, there was $ 14.9 million of non-current accrued interest and $ 15.9 million of exit fees payable included in Other liabilities.

As of December 31, 2022, there was $ 5.5 million of non-current accrued interest and $ 7.6 million of exit fees payable.

Refer to Note 11.

Debt Obligations for additional information on the exit fees.

INNOVATE CORP.

1 unchanged sentence

Debt Obligations

Debt obligations, including finance lease obligations, as of the periods indicated consisted of the following (in millions):

Years Ended December 31,

Debt obligations, including finance lease obligations, consisted of the following (in millions):

Year Ended December 31,

Infrastructure

3.25 % Note due 2026

PRIME minus 0.85 % Line of Credit due 2025

$ 100.0 $ 107.7

Line of Credit due 2024

(PRIME minus 0.85 % and PRIME minus 1.10 % as of December 31, 2022, and 2021, respectively)

4.00 % Note due 2024

3.25 % Term Loan due 2026

4.00 % Note due 2024

3 unchanged sentences

8.50 % Note due 2025

11.45 % Note due 2024

8.50 % Note due 2022

10.50 % Note due 2022

$ 19.3 $ 19.3

11.45 % Notes due 2025

Total Spectrum $ 69.7 $ 69.7

1 unchanged sentence

20.00 % Note due 2024

18.00 % Note due 2023

Total Life Sciences $ 17.4 $ 10.8

1 unchanged sentence

8.50 % Senior Secured Notes due 2026

7.50 % Convertible Senior Notes, due 2026

$ 330.0 $ 330.0

7.50 % Convertible Senior Notes due 2026

LIBOR plus 5.75 % Line of Credit, due 2024

SOFR plus 5.75 % Line of Credit

CGIC Unsecured Note due 2026 35.1 —

Total Non-Operating Corporate $ 436.9 $ 401.8

3 unchanged sentences

Debt obligations $ 679.3 $ 683.8

Aggregate finance lease and debt payments, including interest, as of December 31, 2022, were as follows (in millions):

As of December 31, 2023, estimated future aggregate finance lease and debt payments, including interest, were as follows (in millions):

Finance Leases Debt Total

3 unchanged sentences

2027 0.2 — 0.2

Thereafter — — —

2028 0.1 — 0.1

Total minimum principal and interest payments 2.6 855.2 857.8

1 unchanged sentence

Total aggregate finance lease and debt payments $ 2.4 $ 720.4 $ 722.8

As of December 31, 2022, the interest rates on finance leases ranged from approximately 2.0 % to 6.0 %.

The interest rates on finance leases ranged from approximately 2.0 % to 8.5 %.

INNOVATE CORP.

1 unchanged sentence

Infrastructure

In May 2021, DBMG repaid its LIBOR plus 1.50 % revolving line of credit (the "Revolving Line") under the Credit and Security Agreement with Wells Fargo Bank and its term loan due 2023 (the "TCW Loan") under a financing agreement with TCW Asset Management Company LLC.

In addition, DBMG entered into a new credit facility with UMB Bank ("UMB").

Under the terms of the agreement, UMB agreed to a $ 110.0 million term loan ("UMB Term Loan") and $ 110.0 million revolving credit agreement ("UMB Revolving Line").

The proceeds received in 2021 were used to fully repay DBMG's existing debt obligations, fund a portion of the Banker Steel acquisition, and provide additional working capital capacity to DBMG.

The 2021 extinguishment of the Revolving Line and the TCW Loan yielded a loss on extinguishment of $ 1.6 million included in Loss on early extinguishment or restructuring of debt in the Consolidated Statements of Operations.

The UMB Term Loan expires May 31, 2026 and bears interest at a rate of 3.25 % with an effective interest rate of 3.3 %.

DBMG has a $ 135.0 million Revolving Line with UMB that bears interest at a Prime Rate minus a spread.

On December 12, 2023, DBMG and UMB entered into an amendment to the agreement that extended the maturity date of the Revolving Line from May 31, 2024 to August 15, 2025, increased the interest rate spread for the Revolving Line by 0.35 % across all tiers, and established an interest rate floor of 4.25 %.

The effective interest rate on the Revolving Line was 8.33 % and 6.88 % as of December 31, 2023, and 2022, respectively.

Interest is paid monthly.

The UMB Revolving Line expires May 31, 2024 and, as of December 31, 2022 and 2021, bore interest at a rate of Prime Rate minus 0.85 % and Prime Rate minus 1.10 %, respectively.

The Revolving Line also includes a commitment fee equal to 0.25 % per annum times the average daily unused availability under the line.

DBMG also has a $ 91.4 million UMB Term Loan, which expires May 31, 2026, and bears interest at an annual rate of 3.25 % with an effective interest rate of 3.3 %.

Interest is paid monthly.

The UMB Revolving Line associated with our Infrastructure segment contains customary restrictive and financial covenants related to debt levels and performance, including a Fixed Coverage Ratio covenant, as defined in the agreement.

On August 2, 2022, DBMG negotiated and finalized an amendment to its UMB Revolving Line which included a retrospective change to the terms of the Fixed Coverage Ratio, and an increase in the UMB Revolving Line commitment from $ 110.0 million to $ 135.0 million, among other things.

The $ 15.0 million note expires March 31, 2024 and bears interest at a rate of 4.00 %.

Interest is paid quarterly.

The $ 18.7 million note expires May 27, 2024 and bears interest at a rate of 8.00 %.

The UMB Term Loan and UMB Revolving Line associated with the Infrastructure segment contain customary restrictive and financial covenants related to debt levels and performance, including a Fixed Charge Coverage Ratio covenant, as defined in their agreements.

The $ 5.0 million note expires March 31, 2024 and bears interest at an annual rate of 4.00 %.

Interest is paid quarterly.

On August 30, 2021, Broadcasting repurchased $ 1.0 million of DTV's outstanding notes payable, inclusive of accrued interest, to certain institutional investors.

Also on August 30, 2021, DTV extended its remaining outstanding notes by 60 days.

On October 21, 2021, Broadcasting entered into the Fifth Omnibus Amendment to Secured Notes, Consent and Second Amendment to Asset Sale Under Secured Notes and Intercreditor Agreement with its lenders, MSD Partners, L.P.

and Great American Life Insurance Company, which, among other things, extended the $ 52.2 million of its Senior Secured Notes, due October 21, 2021, through November 30, 2022.

Concurrently, Broadcasting completed the last of a series of repurchases of all the outstanding secured notes, inclusive of accrued interest, of DTV America Corporation (“DTV”) for a total consideration of $ 6.2 million using a combination of cash on hand and proceeds from the sales on non-core assets.

On October 26, 2021, Broadcasting repurchased the outstanding convertible promissory notes of DTV for a total consideration of $ 0.7 million using proceeds from the sales of non-core assets.

Subsequent to these acquisitions, DTV’s debt is held by Broadcasting and eliminated in consolidation.

On November 28, 2022, Broadcasting entered into a Sixth Omnibus Amendment to Secured Notes, extending the maturity date of $ 52.2 million of its Senior Secured Notes from November 30, 2022, to December 30, 2022.

The terms of the notes were otherwise substantially unchanged.

During the year ended December 31, 2023, DBM Global repaid the 8.00 % note in full.

Refer to Note 17.

Related Parties for additional information.

On December 30, 2022, Broadcasting entered into a Seventh Omnibus Amendment to Secured Notes which, among other things, extended the maturity date of $ 52.2 million of its Senior Secured Notes, due December 30, 2022 to May 31, 2024.

1 unchanged sentence

The other terms of the $ 19.3 million 8.5 % Senior Notes remained the same.

At the time of the extension, HC2 Broadcasting had accrued interest and other fees of $ 6.9 million.

At the time of the extension, Broadcasting had accrued interest and other fees of $ 6.9 million.

The interest rate on the $ 32.9 million 10.5 % Senior Notes was increased to 11.45 % and cumulative accrued interest and exit fees of $ 17.5 million were capitalized into the principal balance with both note extensions accounted for as debt modification events.

The new effective interest rates on the notes range from 12.8 % to 19.6 %.

All other terms were essentially the same.

Total outstanding principal after the refinancing was $ 69.7 million and $ 6.9 million of accrued interest and fees remain accrued, with total exit fees of $ 7.6 million which were recorded as original issue discount with a corresponding liability reflected in Other Liabilities.

Total outstanding principal after the refinancing was $ 69.7 million, and $ 6.9 million of accrued interest and fees remained accrued, with total exit fees of $ 7.6 million which were recorded as original issue discount with a corresponding liability reflected in Other Liabilities in the Consolidated Balance Sheet.

Interest is capitalized and payable upon maturity of the principal.

Concurrently therewith and as part of the consideration for extending the 10.5 % Senior Notes, HC2 Broadcasting amended warrants to purchase 145,825 shares of common stock of HC2 Broadcasting Holdings, Inc.

Concurrently therewith and as part of the consideration for extending the 10.5 % Senior Notes in December 2022, Broadcasting amended warrants to purchase 145,825 shares of common stock of HC2 Broadcasting Holdings, Inc.

common stock held by the lenders of the 10.5 % Senior Notes by extending the time to exercise such to the second half of 2026 and reducing the exercise price per share (i) from $ 140.00 to $ 0.01 in the case of the certain of the warrants and (ii) from $ 130.00 to $ 0.01 in the case of the remaining warrants.

The warrants have a five-year term and are exercisable at any time.

The change in the fair value of the warrants was recorded as original issue discount with a corresponding impact reflected in Noncontrolling interest of $ 3.1 million.

The warrants are exercisable at any time.

The change in the fair value of the warrants was recorded as original issue discount with a corresponding impact reflected in Non-controlling interest of $ 3.1 million.

On August 8, 2023, Broadcasting entered into an Eighth Amendment to Secured Notes with its lenders which extended the maturity date of its Senior Secured Notes aggregate principal amount of $ 69.7 million, from May 31, 2024 to August 15, 2024.

In exchange, Broadcasting incurred an additional exit fee of $ 1.1 million which was recorded as original issue discount with a corresponding liability reflected in Other Liabilities in the Consolidated Balance Sheet.

On November 9, 2023, Broadcasting entered into a Ninth Amendment to its Secured Notes with its lenders which extended the maturity date of its Senior Secured Notes aggregate principal amount of $ 69.7 million, from August 15, 2024 to August 15, 2025.

In exchange, Broadcasting will pay additional exit fees of $ 7.2 million which are payable on the earlier of maturity or repayment of the principal.

Interest is also capitalized and payable upon maturity of the principal.

In addition, the time to exercise the related warrants was extended to August 2027.

As of December 31, 2023, the effective interest rates on the notes, as amended, ranged from 20.6 % to 24.0 % per annum.

In addition, INNOVATE Corp.

entered into a related side letter with the institutional investors, whereby INNOVATE Corp.

has agreed to utilize proceeds from the sale of certain of its existing operations, as allowable under the Company's current agreements and indentures and after all other required payments have been made, for repayment of a portion of Broadcasting's Senior Secured Notes.

Assuming there are sufficient proceeds remaining after such repayment, an additional $ 1.0 million fee is payable if repayment occurs by November 9, 2024, or $ 2.0 million if repayment occurs after that date.

In exchange for the additional fee, the institutional investors will return their equity interests in HC2 Broadcasting Holdings, Inc.

and equity interests in DTV America.

The Company accounted for the transactions related to the Eighth Amendment, Ninth Amendment and the side letter as debt modification events under US GAAP as the present value of cash flows under the amended terms of Broadcasting's Senior Secured Notes was less than 10% different from the present value of cash flows under the original terms of the notes.

As a result of the modifications, and as of December 31, 2023, the Company has total capitalized estimated exit fees of $ 15.9 million, which are reflected in Other Liabilities in the Consolidated Balance Sheet.

INNOVATE CORP.

1 unchanged sentence

Life Sciences

On June 27, 2022, R2 Technologies issued a $ 0.5 million short-term 90 -day 12.0 % bridge financing loan with Lancer Capital, LLC ("Lancer"), a related party, an entity controlled by Avram A.

Glazer, the Chairman of INNOVATE's Board of Directors.

On July 13, 2022, R2 Technologies entered into a note purchase agreement with Lancer.

The note payable bears interest at 12.0 % per annum and was funded in two tranches.

The first tranche of $ 5.0 million closed on July 13, 2022, and included the settlement of a $ 0.5 million short-term 90 -day 12.0 % bridge financing loan made on June 27, 2022 by Lancer, and an additional $ 4.5 million in cash.

The second tranche of $ 5.0 million closed on August 8, 2022.

On December 13, 2022, R2 Technologies closed on an additional $ 0.8 million 18.0 % note with Lancer and also increased the borrowing rate on the existing $ 10.0 million note to 18.0 %.

In addition, the maturity date on the $ 10.0 million note, was amended to the earlier of March 31, 2023 or within five business days after the date on which R2 Technologies receives an aggregate $ 20.0 million from the consummation of a debt or equity financing.

All other terms were substantially unchanged.

Interest is capitalized and payable upon maturity of the principal.

Subsequent to year end, on February 15, 2023 and February 28, 2023, R2 Technologies closed on an additional 18 % $ 0.5 million note and an additional 18 % $ 0.4 million with Lancer, respectively.

For the year ended December 31, 2022, R2 Technologies recognized interest expense related to the contractual interest coupon with Lancer of $ 0.8 million.

During the year ended December 31, 2022, R2 Technologies entered into various note purchase agreements with Lancer Capital, an entity controlled by Avram A.

Glazer, the Chairman of INNOVATE's Board of Directors, for an aggregate $ 10.8 million in notes at a 18 % per annum interest rate as of December 31, 2022.

During 2023, R2 closed on an additional $ 6.6 million of notes, including $ 1.3 million of unpaid accrued interest which was capitalized into the new principal balance, increasing the aggregate outstanding principal to $ 17.4 million as of December 31, 2023.

The per annum interest rate on the outstanding principal balance also increased to 20 %.

In addition, after various amendments throughout 2023, R2 entered into an amendment with Lancer Capital on November 15, 2023 to extend the maturity date of all outstanding prior existing notes to the earlier of January 31, 2024 or within five business days of the date on which R2 receives an aggregate $ 20.0 million from the consummation of a debt or equity financing.

Subsequent to year end, the notes expired on January 31, 2024.

Effective January 31, 2024, R2 and Lancer Capital simultaneously issued a new 20 % note with an aggregate original principal amount of $ 20.0 million, which is comprised of the prior outstanding principal amounts and unpaid accrued interest of $ 2.6 million, which was capitalized into the new principal balance, with future interest payable monthly in arrears, in cash or, if not paid in cash, accrued and unpaid interest will be capitalized monthly into the principal balance.

The maturity date of the new note is April 30, 2024 or within five business days of the date on which R2 Technologies receives an aggregate $ 20.0 million from the consummation of a debt or equity financing or has a change in control, as defined in the agreement, with an optional prepayment of the entire then-outstanding and unpaid principal and accrued interest upon five-days written notice to Lancer Capital.

The new note also includes an exit fee payable upon the earliest of the maturity date, the acceleration date of the principal amount of the note, for any reason as defined in the agreement, or the date upon which any prepayment is made.

The exit fee shall be equal to 10.20 % if payment is made anytime from February 1, 2024 through February 29, 2024, 10.37 % if payment is made anytime from March 1, 2024 through March 31, 2024, and 10.54 % if payment is made anytime from April 1, 2024 through April 30, 2024.

For the years ended December 31, 2023 and 2022, R2 Technologies recognized interest expense related to the contractual interest coupon with Lancer Capital of $ 2.9 million and $ 0.8 million, respectively.

Non-Operating Corporate

2026 Senior Secured Notes

On February 1, 2021, INNOVATE repaid its 2021 Senior Secured Notes and issued $ 330.0 million aggregate principal amount of 8.50 % senior secured notes due February 1, 2026 (the "2026 Senior Secured Notes").

The 2026 Senior Secured Notes were issued under an indenture dated February 1, 2021, by and among the Company, the guarantors party thereto and U.S.

Bank National Association, a national banking association ("U.S.

Bank"), as trustee (the "Secured Indenture").

In addition, the Company entered into exchange agreements with certain holders of approximately $ 51.8 million aggregate principal amount of its existing $ 55.0 million 7.50 % convertible senior notes due 2022 (the "2022 Convertible Notes"), pursuant to which the Company exchanged such holders' 2022 Convertible Notes for newly issued 7.50 % convertible notes due 2026 (the "2026 Convertible Notes").

The 2026 Senior Secured Notes were issued in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

The Company accounted for the transactions under the debt extinguishment model as the present value of cash flows under the terms of the 2026 Senior Secured Notes and 2026 Convertible Notes was at least 10% different from the present value of the remaining cash flows under the 2021 Senior Secured Notes and the 2022 Convertible Notes.

The extinguishment of the 2021 Senior Secured Notes yielded a loss on extinguishment of $ 4.5 million.

The extinguishment of the $ 51.8 million of 2022 Convertible Notes yielded a loss on extinguishment of $ 5.5 million, an acceleration of the amortization of discount of $ 5.3 million, and extinguishment of the bifurcated conversion option classified as equity of $ 7.7 million.

The 2026 Senior Secured Notes were issued at 100 % of par, with a stated interest rate of 8.50 % and an effective interest rate of 9.26 %, which reflects $ 2.7 million of deferred financing fees.

For the years ended December 31, 2022 and 2021, interest expense recognize relating to both the contractual interest coupon and amortization of the deferred financing fees was $ 30.1 million and $ 27.2 million, respectively.

2022 Convertible Notes

On June 1, 2022, the 2022 Convertible Notes of $ 3.2 million matured, and the Company repaid the principal and accrued interest upon maturity.

For the years ended December 31, 2022 and 2021, interest expense recognized relating to both the contractual interest coupon and amortization of the discount on the 2022 Convertible Notes was $ 0.2 million and $ 0.6 million, respectively.

The $ 330.0 million aggregate principal amount of 8.50 % senior secured notes due February 1, 2026 (the "2026 Senior Secured Notes") was issued in 2021 at 100 % of par, with a stated annual interest rate of 8.50 % and an effective interest rate of 9.3 %, which reflects $ 10.8 million of deferred financing fees, including underwriting fees.

For both the years ended December 31, 2023 and 2022, aggregate interest expense, including the contractual interest coupon and amortization of the deferred financing fees, was $ 30.1 million.

2026 Convertible Notes

The 2026 Convertible Notes were issued under a separate indenture dated February 1, 2021, between the Company and U.S.

The $ 51.8 million of 7.50 % convertible notes (the "2026 Convertible Notes") were issued under a separate indenture dated February 1, 2021, between the Company and U.S.

Bank, as trustee (the "Convertible Indenture").

The 2026 Convertible Notes were issued at 100 % of par with a stated interest rate of 7.50 %.

The 2026 Convertible Notes were issued at 100 % of par with a stated annual interest rate of 7.50 %.

The fair value of the embedded conversion feature contained in the 2026 Convertible Notes had a fair value of $ 12.3 million, which was recorded as a premium on the 2026 Convertible Notes.

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Each $1,000 of principal of the 2026 Convertible Notes will initially be convertible into 234.2971 shares of our common stock, which is equivalent to an initial conversion price of approximately $ 4.27 per share, subject to adjustment upon the occurrence of specified events.

As of December 31, 2022, the 2026 Convertible Notes had a net carrying value of $ 59.3 million inclusive of an unamortized premium of $ 8.3 million.

As of December 31, 2023, the 2026 Convertible Notes had a net carrying value of $ 57.3 million inclusive of an unamortized premium of $ 6.0 million and unamortized deferred financing costs of $ 0.5 million.

Based on the closing price of our common stock of $ 1.23 on December 31, 2023, the if-converted value of the 2026 Convertible Notes did not exceed its principal value.

For both the years ended December 31, 2023 and 2022, aggregate interest expense recognized relating to both the contractual interest coupon and amortization of discount net of premium and deferred financing costs was $ 1.9 million.

2022 Convertible Notes

On June 1, 2022, the 2022 Convertible Notes of $ 3.2 million matured, and the Company repaid the principal and accrued interest upon maturity.

For the year ended December 31, 2022, interest expense recognized relating to both the contractual interest coupon and amortization of the discount on the 2022 Convertible Notes was $ 0.2 million.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

For the years ended December 31, 2022 and 2021, interest expense recognized relating to both the contractual interest coupon and amortization of discount net of premium was $ 1.9 million and $ 1.8 million, respectively.

Line of Credit - Revolving Credit Agreement

On February 23, 2021, the Company entered into a third amendment (the "Amendment") of the line of credit with MSD PCOF Partners IX, LLC ("Revolving Credit Agreement").

Among other things, the Amendment (i) increased the aggregate principal amount of the Revolving Credit Agreement to $ 20.0 million;

(ii) extended the maturity date of the Revolving Credit Amendment to February 23, 2024;

(iii) updated the affirmative and negative covenants contained in the Amended Credit Agreement so that they are substantially consistent with the affirmative and negative covenants contained in the indenture that governs the 2026 Senior Secured Notes;

and (iv) reduced the interest rate margin applicable to loans borrowed under the Amended Credit Agreement to 5.75 % from 6.75 %.

Except as modified by the Amendment, the terms of the Revolving Credit Agreement remain in effect.

In May 2021, INNOVATE drew $ 5.0 million under the Revolving Credit Agreement.

In July 2022, the Company drew an additional $ 15.0 million under the Revolving Credit Agreement.

Revolving Line of Credit

The Company has a revolving credit agreement with MSD PCOF Partners IX, LLC ("MSD"), which has a maximum commitment of $ 20.0 million ("Revolving Line of Credit").

The Revolving Line of Credit has an interest rate margin applicable to loans borrowed under the Revolving Line of Credit of 5.75 % and interest is paid quarterly.

The Revolving Line of Credit also includes a commitment fee at a per annum rate of 1.0 % calculated based off the actual daily amount of unused availability under the revolving credit line with MSD.

On April 25, 2023, the Company extended the maturity date of its Revolving Credit Agreement from February 23, 2024, to March 16, 2025, and also changed the benchmark rates for interest to SOFR-based rates and lowered the amount of net cash proceeds from certain asset sales in excess of which a prepayment is required from $ 50.0 million to $ 10.0 million.

The affirmative and negative covenants governing the Revolving Line of Credit are substantially consistent with the affirmative and negative covenants contained in the indenture that governs the 2026 Senior Secured Notes.

In March 2023, the Company paid down $ 15.0 million of the Revolving Credit Agreement, and in May 2023 and July 2023, INNOVATE drew an aggregate additional $ 15.0 million under the Revolving Credit Agreement, bringing the outstanding balance to $ 20.0 million as of December 31, 2023.

CGIC Unsecured Note Due 2026

On May 9, 2023, in connection with the redemption of the DBMGi Preferred Stock, the Company issued a subordinated unsecured promissory note to Continental General Insurance Company ("CGIC") in the principal amount of $ 35.1 million (the "CGIC Unsecured Note").

Refer to Note 16.

Temporary Equity and Equity for additional information.

The CGIC Note is due February 28, 2026, and bears interest at 9 % per annum through May 8, 2024, 16 % per annum from May 9, 2024 to May 8, 2025, and 32 % per annum thereafter, and the effective interest rate on the note is 18.1 %.

The CGIC Unsecured Note also requires a mandatory prepayment from the proceeds from certain asset sales and the greater of $ 3 million or 12.5 % of the proceeds from certain equity sales.

Other covenants in the CGIC Unsecured Note are generally consistent with the Company's Indenture governing the 8.50 % Senior Secured Notes due 2026, dated as of February 1, 2021, by and among the Company, the guarantors party thereto and U.S.

Bank National Association.

For the year ended December 31, 2023, interest expense recognized relating to the CGIC Unsecured Note was $ 4.1 million and cash paid for interest to CGIC was $ 1.8 million.

2026 Senior Secured Notes Terms and Conditions

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The amount of such debt is limited by the covenants contained in the Secured Indenture.

Events of Default .

The Secured Indenture contains customary events of default which could, subject to certain conditions, cause the 2026 Senior Secured Notes to become immediately due and payable.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Restricted Payments.

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At December 31, 2023, the Company was in compliance with all covenants contained in the 2026 Senior Secured Notes.

Events of Default .

The Secured Indenture contains customary events of default which could, subject to certain conditions, cause the 2026 Senior Secured Notes to become immediately due and payable.

2026 Convertible Notes Terms and Conditions

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Interest on the 2026 Convertible Notes is paid semi-annually on February 1 and August 1 of each year.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Issue Price .

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Optional Redemption .

The Company may not redeem the notes prior to August 1, 2023.

On or after August 1, 2023, the Company may redeem for cash all of the notes if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (which need not be consecutive trading days) during any 30 consecutive trading-day period ending within 5 trading days prior to the date on which the Company provides notice of redemption.

As of August 1, 2023 and thereafter, the Company may redeem for cash all of the notes if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (which need not be consecutive trading days) during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides notice of redemption.

The redemption price will equal 100 % of the principal amount of the notes being redeemed, plus accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date.

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Revolving Credit Agreement

MSD PCOF Partners IX, LLC (“MSD”)

The Revolving Credit Agreement matures on February 23, 2024.

MSD PCOF Partners IX, LLC

The Revolving Credit Agreement matures on March 16, 2025.

Obligations under the Revolving Credit Agreement constitute a First-Out Debt, as defined in the Secured Indenture, and are secured on a pari passu basis with the 2026 Senior Secured Notes.

As provided under a Collateral Trust Joinder, the lender was added as a secured party to the Collateral Trust Agreement, and accordingly the pari passu obligations and commitments under the Revolving Credit Agreement are secured equally and ratably by the collateral of the Secured Notes.

Any failure to comply with the restrictions in the agreements governing our indentures, or any agreement governing other indebtedness we could incur, may result in an event of default under those agreements.

Any failure to comply with the restrictions in the agreements governing the Company's indentures, or any agreement governing other indebtedness the Company could incur, may result in an event of default under those agreements.

Such default may allow the creditors to accelerate the related debt, which acceleration may trigger cross-acceleration or cross-default provisions in other debt.

INNOVATE is in compliance with its debt covenants as of December 31, 2022.

2026 Unsecured CGIC Note:

The 2026 Unsecured CGIC Note matures on February 28, 2026.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The provisions expense for income taxes for the years indicated were as follows (in millions):

Years Ended December 31,

The 2026 Unsecured CGIC Notes accrues interest at a rate 9 % per year through May 8, 2024, 16 % per year from May 9, 2024 to May 8, 2025, and 32 % per year thereafter.

Interest on the 2026 Convertible Notes is paid monthly, on the last day of each month or next succeeding business day.

Issue Price .

The issue price of the 2026 Unsecured CGIC Notes was 100 % of par.

The note is a part of the Company’s general unsecured and unsubordinated obligations and will rank equally in right of payment with all of the Company’s existing and future unsecured and unsubordinated indebtedness, and senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the notes.

The notes will be effectively subordinated to all of the Company’s existing and future secured indebtedness, including the Company’s 2026 Senior Secured Notes, 2026 Convertible Notes and structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries, including trade credit.

Optional and Mandatory Prepayments.

The Company may prepay the entire note or a portion thereof at any time, without incurring penalties or premiums.

Such prepayments must cover the principal amount along with accrued interest up to the prepayment date, as well as any other outstanding amounts under the note.

Any prepaid amount cannot be re-borrowed.

The CGIC Unsecured Note also requires a mandatory prepayment from the proceeds from certain asset sales and the greater of $ 3 million or 12.5 % of the proceeds from certain equity sales.

Events of Default .

The note contains customary events of default and contains cross-default provisions with the Company's Unsecured Indenture and Senior Debt which could, subject to certain conditions, cause the note to become immediately due and payable.

INNOVATE is in compliance with its debt covenants as of December 31, 2023.

The income tax expense (benefit) for income taxes for the years indicated were as follows (in millions):

Year Ended December 31,

Current tax expense (benefit)

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Foreign ( 5.8 ) 1.6

Net deferred tax expense 1.1 1.9

Net deferred tax (benefit) expense

$ ( 5.3 ) $ 1.1

Income tax expense $ 4.5 $ 0.9

The US and foreign components of income (loss) from continuing operations before income taxes for the years indicated were as follows (in millions):

Years Ended December 31,

Year Ended December 31,

US $ ( 46.9 ) $ ( 45.1 )

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Loss from continuing operations before income taxes $ ( 34.4 ) $ ( 41.1 )

For the years indicated, the provisions expense for income taxes differed from the amount computed by applying the federal statutory income tax rate to income (loss) before income taxes due to the following items (in millions):

Years Ended December 31,

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

For the years indicated, the income tax expense differed from the amount computed by applying the federal statutory income tax rate to income (loss) before income taxes due to the following items (in millions):

Year Ended December 31,

Tax (benefit) at federal statutory rate $ ( 7.2 ) $ ( 8.6 )

Permanent differences 0.3 0.4

State tax, net of federal benefit 1.4 1.0

Foreign rate differential — 0.4

Non-deductible meals and entertainment 0.6 0.2

Executive and stock compensation 0.3 0.1

Increase (decrease) in valuation allowance 8.9 ( 0.7 )

Transaction costs — 0.5

Tax rate changes 1.2 1.7

Return to provision 0.6 3.2

Rate change 1.7 20.2

Outside basis difference 4.2 0.9

Foreign withholding tax expense 4.4 —

Gain on sale of investment 0.5 —

Outside basis differences ( 6.9 ) 4.2

Other 0.7 ( 0.2 )

Equity income ( 1.0 ) ( 1.1 )

Derivative — ( 1.8 )

Income tax expense $ 4.5 $ 0.9

Income tax expense of $ 0.9 million for the year ended December 31, 2022 primarily relates to tax expense as calculated under ASC 740 for taxpaying entities, which was partially offset by the net tax savings of $ 3.1 million from the CGIC consolidation in the 2021 tax return, resulting in a partial release of the valuation allowance.

Discontinued Operations and Exit Activities in the Consolidated Financial Statements for additional information.

Income tax expense of $ 4.5 million for the year ended December 31, 2023 primarily relates to the tax expense as calculated under ASC 740 for taxpaying entities, for which there was an increase in current state tax expense at certain taxpaying entities due to an increase in profitability.

The tax expense for the year ended December 31, 2023 includes a $ 1.1 million net tax benefit, consisting of a current tax expense of $ 4.4 million related to a foreign withholding tax payment and a deferred tax benefit of $ 5.5 million related to the reversal of the deferred tax liability associated with the $ 11.3 million HMN put option agreement and the expected foreign withholding taxes on the book over tax outside basis difference in the investment, both of which were related to the sale of New Saxon's 19 % investment in HMN on March 6, 2023.

Additionally, the tax benefits associated with losses generated by the INNOVATE Corp.

tax consolidated group and certain other businesses have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized.

Income tax expense of $ 5.6 million for the year ended December 31, 2021 primarily relates to tax expense as calculated under ASC 740 for taxpaying entities.

tax consolidated group and certain other businesses have been reduced by a full valuation allowance as the Company does not believe it is more-likely-than not that the losses will be utilized prior to expiration.

Income tax expense of $ 0.9 million for the year ended December 31, 2022 primarily related to tax expense as calculated under ASC 740 for taxpaying entities, which was partially offset by the net tax savings of $ 3.1 million from the CGIC consolidation in the 2021 tax return, resulting in a partial release of the valuation allowance.

Additionally, the tax benefits associated with losses generated by the INNOVATE Corp.

tax consolidated group and certain other businesses have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

tax consolidated group and certain other businesses have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized prior to expiration.

Deferred income taxes reflect the net income tax effect of temporary differences between the basis of assets and liabilities for financial reporting purposes and for income tax purposes.

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Lease liability 18.5 20.5

Investment in partnership

Other deferred tax assets 7.2 6.1

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Right-of-use assets

( 17.3 ) ( 19.1 )

Basis difference in intangibles ( 30.4 ) ( 27.8 )

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Net deferred tax liabilities $ ( 2.1 ) $ ( 7.4 )

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Deferred tax assets refer to assets that are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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Generally, consolidation rules under the Internal Revenue Code require consolidation of like-kind entities with an 80% or greater equity ownership, and each individual state or foreign jurisdiction has their own distinct consolidation rules which vary.

At December 31, 2022, the Company has gross U.S.

Net Operating Losses

At December 31, 2023, the Company had gross U.S.

net operating loss carryforwards available to reduce future taxable income of the U.S.

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The Company expects that approximately $ 119.2 million of the gross U.S.

net operating loss carryforwards would be available to offset taxable income in 2023.

net operating loss carryforwards would be available to offset taxable income in 2024 and later periods.

This estimate may change based on changes to actual results reported on the 2023 U.S.

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tax return due to uncertain tax positions related to tax laws and regulations that are subject to varied interpretation by the IRS.

Additionally, the Company has $ 124.5 million of gross U.S.

net operating loss carryforwards from its subsidiaries that do not qualify to be included in the INNOVATE Corp.

consolidated income tax return, including $ 83.8 million from R2, $ 38.3 million from DTV America, and other entities of $ 2.4 million.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

enacted Public Law 115-97, known informally as the Tax Cuts and Jobs Act (the "TCJA") in 2017, U.S.

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net operating loss carryforwards, in the amount of $ 57.3 million, generated prior to 2018 will expire, if unused, by 2037.

Additionally, the Company has $ 138.0 million of gross U.S.

net operating loss carryforwards from its subsidiaries that do not qualify to be included in the INNOVATE Corp.

consolidated income tax return, including $ 92.9 million from R2, $ 42.7 million from DTV America, and other entities of $ 2.4 million.

Of the $ 138.0 million of gross U.S.

net operating loss carryforwards, $ 101.9 million was generated after 2017 and will have an indefinite carryforward period;

the remaining $ 36.1 million was generated prior to 2018 and will expire, if unused, by 2037.

Pursuant to the rules under Section 382, the Company concluded that it underwent an ownership change on May 29, 2014 and $ 46.1 million gross U.S.

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As of December 31, 2023, the Company had foreign operating loss carryforwards of approximately $ 1.2 million.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Unrecognized Tax Benefits

The Company follows the provision of ASC 740 which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return.

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Uncertain tax benefits - January 1 $ 17.6 $ 17.6

Gross decreases - Tax positions in prior period — ( 5.3 )

Gross decreases - Tax positions in prior year

Uncertain tax benefits - December 31 $ 17.6 $ 17.6

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The amounts are fixed and determinable and do not include variable components.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company is subject to claims and legal proceedings that arise in the ordinary course of business.

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The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its Consolidated Financial Statements.

The Company records a liability in its Consolidated Financial Statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated.

The Company records a liability in its Consolidated Financial Statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated as well as any legal costs incurred related to the litigation.

The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate.

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While acknowledging the uncertainties of litigation, management believes that the ultimate outcome of litigation will not have a material effect on its financial position and will defend itself vigorously.

VAT assessment

On February 20, 2017, and on August 15, 2017, the Company's subsidiary, PTGi International Carrier Services Ltd.

(“PTGi-ICS Ltd”), received notices from Her Majesty’s Revenue and Customs office in the U.K.

("HMRC") indicating that it was required to pay certain Value-Added Taxes ("VAT") for the 2015 and 2016 tax years.

On February 15, 2022, the Upper Tribunal (Tax and Chancery) Chamber (the "Tax Tribunal") found in favor of PTGi-ICS Ltd.

HMRC has acknowledged that it will not appeal the Tax Tribunal’s decision and it must pay reasonable legal fees incurred by PTGi-ICS Ltd.

On August 1, 2022 ICS received £ 1.1 million (~$ 1.3 million) from HMRC for the VAT refunds previously withheld.

ICS is waiting on the repayment of the outstanding interest and costs.

The Company is working with HMRC agents to obtain full resolution.

Fair Value Investments Litigation

On October 1, 2020, Fair Value Investments Incorporated (“FVI”) filed a putative stockholder class action and derivative complaint in the Delaware Court of Chancery (the "Court") against INNOVATE Corp.

and certain of DBMG’s current and former officers and directors, including current and former INNOVATE officers and directors AJ Stahl, Kenneth S.

Courtis, Robert V.

Leffler, Jr., Philip A.

Falcone, Michael J.

Sena, and Paul Voigt (together with INNOVATE, the “INNOVATE Defendants”) styled Fair Value Investments Incorporated v.

Roach, et al., C.A.

2020-0847-JTL (Del.

Ch.) (the “FVI Action”).

In the FVI Action, FVI alleges that the Company, in its capacity as DBMG’s controlling stockholder, and DBMG’s current and former officers and directors breached their fiduciary duties to DBMG and DBMG’s minority stockholders by approving certain transactions that allegedly provide disproportionate benefits to the Company.

FVI challenges the following transactions:

(i) DBMG’s payments to the Company from 2016–present pursuant to a Tax Sharing Agreement between DBMG and the Company;

(ii) DBMG acting as a guarantor or providing collateral for loans taken on by the Company;

(iii) DBMG’s issuance of dividends to its common and preferred stockholders in 2017–2020;

(iv) DBMG’s issuance of preferred stock to the Company to finance DBMG’s 2018 acquisition of GrayWolf Industrial;

and (v) the Company’s appointment of directors to DBMG’s board of directors by written consent in lieu of holding an annual stockholder meeting.

On February 23, 2021, FVI filed an Amended Verified Stockholder Class Action Complaint (the "Amended Complaint").

In the Amended Complaint, FVI named two additional defendants:

the Company’s Chief Executive Officer, Wayne Barr, and DBMG’s General Counsel, Scott D.

The Amended Complaint includes additional fact allegations in support of the largely similar claims raised in the original complaint.

Defendants moved to dismiss the Amended Complaint on April 23, 2021.

The Court heard argument on the motions to dismiss on January 21, 2022.

Ruling from the bench, the Court granted Defendants’ motions to dismiss, in part.

The Court dismissed all claims against all individual defendants other than Ronald Yagoda, including all claims against Messrs.

Barr, Stahl, Courtis, Leffler, Falcone, Sena, and Voigt.

As to the two remaining defendants - INNOVATE Corp.

and Yagoda - the Court dismissed all claims regarding:

(i) DBMG acting as a guarantor or providing collateral for loans by the Company;

(ii) DBMG’s issuance of dividends to its common and preferred stockholders in 2017–2020;

(iii) the Company’s appointment of directors to DBMG’s board of directors by written consent in lieu of holding an annual stockholder meeting;

and (iv) DBMG’s payments to the Company in 2016 and May 2017 pursuant to a Tax Sharing Agreement between DBMG and the Company.

The Company believes the surviving claims in the FVI Amended Complaint relating to (i) DBMG’s payments to the Company after May 2017 pursuant to a Tax Sharing Agreement between DBMG and the Company and (ii) DBMG’s issuance of preferred stock to the Company to finance DBMG’s 2018 acquisition of GrayWolf Industrial are without merit.

Discovery on the two remaining claims is underway.

On December 23, 2022, the parties entered into a Joint Stipulation and Proposed Scheduling Order which, among other things, scheduled the trial date for March 12-14, 2024.

On March 1, 2023, FVI's counsel filed a Motion to Withdraw and Temporarily Stay Proceedings, which motion was granted on March 9, 2023.

The Court ordered a 30 -day stay of the proceedings to allow FVI to engage new counsel.

The Company intends to vigorously defend this litigation.

INNOVATE CORP.

1 unchanged sentence

DTV Derivative Litigation

On March 15, 2021, twenty-two DTV stockholders and eight holders of DTV stock options filed a stockholder class action and derivative complaint in the Delaware Court of Chancery in an action styled Bocock, et al., v.

On March 15, 2021, 22 DTV stockholders and eight holders of DTV stock options filed a stockholder class action and derivative complaint in the Delaware Court of Chancery in an action styled Bocock, et al., v.

HC2 Holdings, Inc.

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Thus, after the Court issued its October 28, 2022 Memorandum Opinion, the only claims to survive Defendants’ motion to dismiss are (i) a derivative claim against the INNOVATE Entities (other than Continental General), Levi, and Falcone for breach of fiduciary duty in connection with the $ 0.1 million Frank Digital acquisition;

(ii) a derivative claim for breach of fiduciary duty against the INNOVATE Entities (other than Continental General), in their capacities as DTV’s controlling stockholders, relating to the sale of six licenses (for less than $ 0.5 million) in connection with the Gray Media sale;

(iii) a derivative claim for breach of fiduciary duty against the INNOVATE Entities (other than Continental General) and Levi in connection with the transfer of licenses ultimately sold to TV-49 for $ 0.1 million;

and (iv) a derivative claim for waste against Levi and Falcone in connection with the sale of two stations to Lowcountry, which Lowcountry later sold for $ 0.2 million and $ 0.4 million, respectively

On February 8, 2024, the Court granted Plaintiffs’ motion for leave to file a second amended complaint.

The proposed second amended complaint (i) names DTV as a nominal defendant, (ii) removes the Gray Media Claim, and (iii) removes all Plaintiffs other than James Bocock and Stan V.

Smith on Behalf of the Stan V.

Smith Trust dated April 30, 1993.

The Court ordered Plaintiffs to file their second amended complaint on or before February 13, 2024.

On February 14, 2024, Plaintiffs filed their second amended complaint.

The Company believes these remaining claims are without merit, and the Company intends to vigorously defend this litigation.

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McCarthy asserts claims against Schuff for breach of contract, express indemnity, breach of express warranties, negligence, equitable implied indemnity, breach of implied warranties, and declaratory relief.

On February 13, 2023.

Schuff filed its response denying liability to McCarthy and asserting a Cross-Complaint against McCarthy, and other companies involved in the design, construction, and quality assurance, who potentially are liable for damages and delays alleged by McCarthy on the Project.

On February 13, 2023, Schuff filed its response denying liability to McCarthy and asserting a Cross-Complaint against McCarthy, and other companies involved in the design, construction, and quality assurance, who potentially are liable for damages and delays alleged by McCarthy on the Project.

In the Cross-Complaint, Schuff asserts claims for breach of contract, violation of statute, equitable indemnity apportionment, and contribution and express indemnity (the “Cross-Complaint”).

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Meruelo Television Litigation

On August 8, 2023, Meruelo Television, LLC (“Plaintiff”) commenced a lawsuit in the Superior Court of the State of California, Los Angeles County, with the filing of a complaint naming as defendants HC2 Network, Inc.

(“HC2”), INNOVATE Corp.

(“INNOVATE” and, together with HC2, "Defendants"), and Does 1 through 20, in the matter titled Meruelo Television, LLC v.

HC2 Network, Inc., et al.

Ct.) Case No.

23ST-cv-18552.

On September 29, 2023, Defendants filed a Notice of Removal, removing the case from California state court to federal court in the U.S.

District Court for the Central District of California, where it has been assigned Case No.

2:23-cv-08184-AB-BFM.

On October 27, 2023, Plaintiff filed its First Amended Complaint (the “FAC”), asserting six (6) causes of action against Defendants:

(1) Breach of Contract, (2) Breach of the Implied Covenant of Good Faith and Fair Dealing, (3) Negligent Misrepresentation, (4) Intentional Misrepresentation, (5) Tortious Interference with Contract, and (6) Tortious Interference with Prospective Economic Relations.

On November 11, 2023, Defendants filed a motion to dismiss the FAC (Defendants’ “Motion”).

On January 30, 2024, the Court granted Defendants’ Motion, dismissing all claims asserted against Innovate and, with the exception of the First Cause of Action for Breach of Contract, dismissing all claims against HC2.

The Court further granted Plaintiff leave to file, within twenty-one ( 21 ) days, a second amended complaint to repleading the claims against Innovate and the Fourth and Fifth Causes of Action against HC2.

On February 20, 2024, Plaintiff filed its Second Amended Complaint (the “SAC”).

The SAC asserts only one cause of action, Count I for breach of the Agreement, as against both HC2 and INNOVATE.

Whereas INNOVATE is a non-party to the Agreement at issue, Plaintiff alleges that Innovate can be held liable under Count I as the alleged alter ego of HC2.

Defendants are assessing their potential response to the SAC.

INNOVATE is unable to assess the probability of loss or range of potential loss from this litigation at this time and intends to vigorously defend the litigation.

Other Commitments and Contingencies

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As of December 31, 2023, DBMG had outstanding letters of credit of $ 0.1 million under credit and security agreements and performance bonds of $ 360.8 million.

As of December 31, 2021, DBM had outstanding letters of credit of $ 13.5 million under credit and security agreements and performance bonds of $ 900.8 million.

As of December 31, 2022, DBMG had outstanding letters of credit of $ 2.6 million under credit and security agreements and performance bonds of $ 956.6 million.

DBMG’s contract arrangements with customers sometimes require DBMG to provide performance bonds to partially secure its obligations under its contracts.

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DBMG’s performance bonds are obtained through surety companies and typically cover the entire project price.

HMN Equity Interest

On October 30, 2019, the Company announced the sale of its New Saxon 2019 Limited (“New Saxon”) stake in HMN, its 49 % joint venture with Huawei Technologies Co., Ltd., to Hengtong Optic-Electric Co Ltd ("Hengtong").

Under the terms of the agreement, the sale of New Saxon’s 49 % interest in HMN will be affected in two tranches.

The first tranche, the sale of the portion of New Saxon’s 30 % interest of HMN, closed on May 12, 2020 (the "First HMN Close").

The remaining 19 % interest of HMN is retained by New Saxon and subject to a put option agreement by New Saxon, exercisable starting on the second year anniversary of the closing date of the First HMN Close at a price equal to the greater of the share price paid for the 30 % interest or fair market value as of the exercisable date.

On June 24, 2022, New Saxon entered into a supplemental agreement for the outright sale of its remaining 19 % interest in HMN, which also changed the buyers from a Hong Kong entity to three Chinese entities.

The new agreement preserved the rights under the original put option agreement, giving the Company the ability to exercise the put option if the transaction did not close by October 31, 2022.

The significant terms and structure of the transaction did not otherwise change, and the transaction still required cash settlement.

Subsequent to December 31, 2022, the transaction received final regulatory approvals in China, and the transaction closed on March 6, 2023.

Refer to Note 24.

Subsequent Events for additional information.

Concentrations of Credit Risk and of Significant Suppliers

The ratings of the bonding companies utilized by DBMG are highly rated, ranging from A-, A, A+ and AA.

Concentrations of Credit Risk and Significant Suppliers

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable.

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The Company has not experienced any losses in such accounts.

The Company holds $ 3.2 million and $ 4.7 million cash in foreign accounts as of December 31, 2022 and 2021, respectively.

The Company held $ 6.3 million and $ 4.1 million of cash and restricted cash in foreign accounts as of December 31, 2023 and 2022, respectively.

The Company attempts to minimize the risks related to cash and cash equivalents by investing in a range of financial instruments as defined by the Company.

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The Company performs ongoing credit evaluations of the customers' financial condition and generally does not require collateral to support customer receivables.

For the years ended December 31, 2022, one customer exceeded 10% of the Company's revenue and accounted for approximately 23.8 % and one customer accounted for more than 10% of accounts receivable for approximately 11.5 %.

For the fiscal year ended December 31, 2021, one customer exceeded 10% of the Company's revenue and accounted for approximately 13.9 % and no customers accounted for more than 10% of accounts receivable.

For the year ended December 31, 2022, one supplier accounted for more than 10% of the Company's accounts payable for approximately 17.5 %.

For the year ended December 31, 2023, two customers exceeded 10% of the Company's revenue and accounted for approximately 29.2 % and 11.4 %, respectively, and two customers accounted for more than 10% of accounts receivable, net, for approximately 30.0 % and 11.5 %, respectively.

For the year ended December 31, 2022, one customer exceeded 10% of the Company's revenue and accounted for approximately 23.8 % and one customer accounted for more than 10% of accounts receivable, net, for approximately 11.5 %.

For the year ended December 31, 2023, no suppliers accounted for more than 10% of the Company's accounts payable.

For the fiscal year ended December 31, 2022, one supplier accounted for more than 10% of the Company's accounts payable for approximately 17.5 %.

Employee Retirement Plans

The Company and various subsidiaries maintain 401(k) retirement savings plans which cover eligible employees, including for certain, union steelworkers, and permits participants to contribute to the plans, subject to Internal Revenue Code restrictions and which features matching contributions of various percentages of the first 1 % to 5 % of employee annual salary contributions, depending on the subsidiary.

The Company made aggregate matching contributions of $ 2.9 million and $ 2.2 million for the years ended December 31, 2022 and 2021, respectively.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Employee Retirement Plans

The Company and various subsidiaries maintain 401(k) retirement savings plans which cover eligible employees, including for certain, union steelworkers, and permits participants to contribute to the plans, subject to Internal Revenue Code restrictions and which feature matching contributions of various percentages of the first 3 % to 5 % of employee annual salary contributions, depending on the subsidiary.

The Company made aggregate matching contributions of $ 3.3 million and $ 2.9 million for the years ended December 31, 2023 and 2022, respectively.

Multi-Employer Plans

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The Company made contributions to various multi-employer pension plans totaling $ 17.3 million and $ 35.0 million during the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, approximately 14.1 % of DBMG’s employees are covered under various collective bargaining agreements.

As of December 31, 2023, most of the Infrastructure segment's collective bargaining agreements are subject to automatic annual or other renewal unless either party elects to terminate the agreement on the scheduled expiration date.

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Subject to adjustment as provided in the Second A&R 2014 Plan, the Second A&R 2014 Plan authorized the issuance of up to 3,500,000 shares of common stock of INNOVATE, plus any shares that again become available for awards under the 2014 Plan or the Restated 2014 Plan.

As of December 31, 2022, 1.0 million shares for awards remain available for issuance under Second A&R 2014 Plan.

As of December 31, 2023, 0.8 million shares for awards remain available for issuance under the Second A&R 2014 Plan.

The Second A&R 2014 Plan provides that no further awards will be granted pursuant to the 2014 Plan or the Restated 2014 Plan.

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The guidance generally requires that such transactions be accounted for using a fair-value based method and share-based compensation expense be recorded, based on the grant date fair value, estimated in accordance with the guidance, for all new and unvested stock awards that are ultimately expected to vest as the requisite service is rendered.

Total share-based compensation expense recognized by the Company and its subsidiaries under all equity compensation arrangements was $ 2.4 million for both the years ended December 31, 2022 and 2021.

Total share-based compensation expense recognized by the Company and its subsidiaries under all equity compensation arrangements was $ 2.2 million and $ 2.4 million for the years ended December 31, 2023 and 2022, respectively.

All grants are time based and vest either immediately or over a period established at grant, typically with a requisite service period of two to three years for the employee to vest in the stock-based award, subject to discretion by Compensation Committee of the Board of Directors.

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Vested ( 1,023,032 ) $ 2.32

Forfeited ( 45,289 ) $ 3.68

Unvested - December 31, 2023 625,729 $ 2.95

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Outstanding - December 31, 2021 4,715,859 $ 5.13

Expired ( 23,999 ) $ 5.31

Outstanding - December 31, 2021 4,715,859 $ 5.13

Granted 280,791 $ 3.25

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Outstanding and exercisable- December 31, 2022 4,995,150 $ 5.02

Expired ( 352,339 ) $ 3.12

Outstanding and exercisable - December 31, 2023 4,642,811 $ 5.17

The weighted-average grant-date fair value of the stock options granted during the year ended December 31, 2022 was $ 1.47 .

As of December 31, 2023, the intrinsic value and weighted-average remaining life of the Company's outstanding and exercisable stock options were zero and approximately 0.5 years, respectively.

The maximum contractual term of the Company's exercisable stock options is approximately 10 years.

As of December 31, 2022, there were no unvested stock options and no unrecognized stock-based compensation expenses related to unvested stock options.

The maximum contractual term of the Company's exercisable stock options is approximately ten years .

As of December 31, 2023, there were no unvested stock options and no unrecognized stock-based compensation expense related to unvested stock options.

Temporary Equity and Equity

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Series A-4 shares issued and outstanding 10,000 10,000

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Preferred Share Activity

Series A Shares

In December 2018, CGI, a wholly owned subsidiary of the Company closed on the purchase of 6,125 shares of Series A Preferred Stock, and on January 11, 2019, CGI purchased 10,000 shares of Series A-2 Preferred Stock.

The shares and dividends accrued related to the Series A-2 Preferred Stock owned by CGI were eliminated in consolidation prior to its sale on July 1, 2021.

Refer to Note 10.

Discontinued Operations and Exit Activities for further information.

Luxor and Corrib Conversions

On August 2, 2016, the Company entered into separate agreements with each of Corrib Master Fund, Ltd.

("Corrib"), then a holder of 1,000 shares of Series A Preferred Stock, and certain investment entities managed by Luxor Capital Group, LP ("Luxor"), that together then held 9,000 shares of Series A-1 Preferred Stock.

In conjunction with the conversions, the Company agreed to provide the following two forms of additional consideration for as long as the Preferred Stock remained entitled to receive dividend payments (the "Additional Share Consideration"):

• The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock (as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corrib and Luxor, on the date such Participating Dividends become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificates of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificates of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted.

• The Company agreed that it will issue to Corrib and Luxor, on each quarterly anniversary commencing May 29, 2017 (or, if later, the date on which the corresponding dividend payment is made to the holders of the outstanding Preferred Stock), through and until the Maturity Date (as defined in the respective Series A and Series A-1 Certificates of Designation), in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) 1.875 % the Accrued Value (as defined in the respective Series A and Series A-1 Certificates of Designation) of Corrib’s or Luxor’s Preferred Stock as of the Closing Date (as defined in applicable Voluntary Conversion Agreements) divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the applicable Dividend Payment Date (as defined in the respective Series A and Series A-1 Certificate of Designation).

For the year ended December 31, 2021, 119,784 and 13,477 shares of the Company's common stock were issued to Luxor and Corrib, respectively, in conjunction with the conversion agreements.

The fair value of the Additional Share Consideration for the year ended December 31, 2021 was valued by the Company at $ 0.3 million and was recorded within Preferred stock and deemed dividends from conversion line item of the Consolidated Statements of Operations as a deemed dividend.

On May 29, 2021, pursuant to the terms of the Additional Share Consideration, the final Participating Dividend payments were made to Luxor and Corrib.

Redemption and Conversion of Series A and A-2 Shares

On May 29, 2021, pursuant to the Certificate of Designation, holders of the Series A and A-2 Preferred Stock caused the Company to redeem the Series A and A-2 Preferred Stock at the accrued value per share plus accrued but unpaid dividends (to the extent not included in the accrued value of Series A and A-2 Preferred Stock), of which $ 10.4 million was paid in cash to holders of the Series A and A-2 Preferred Stock.

Each share of Series A and A-2 Preferred Stock that was not so redeemed was automatically converted into shares of common stock at the conversion price then in effect, of which 50,410 shares of the Company's common stock were issued in lieu of cash to holders of the Series A Preferred Stock.

In connection with the Stock Purchase Agreement, CGI, formerly a wholly owned subsidiary of the Company, entered into a letter agreement with the Company to not redeem at maturity or seek redemption of 6,125 shares of the Company's Series A and 10,000 shares of the Company's Series A-2 Preferred Stock.

Series A-3 and Series A-4 Shares

Issuance and Conversion.

On July 1, 2021 (the "Exchange Date") as a part of the sale of Continental Insurance Group ("CIG"), INNOVATE entered into an exchange agreement (the "Exchange Agreement") with Continental General Insurance Company ("CGIC"), also a former subsidiary, which held the remaining shares of the Company's previous Series A and Series A-2 Preferred Stock and was eliminated in consolidation prior to the sale of the Company's former Insurance segment on July 1, 2021.

Per the Exchange Agreement, INNOVATE exchanged 6,125 shares of the Series A and 10,000 shares of the Series A-2 shares that CGIC held for an equivalent number of Series A-3 Convertible Participating Preferred Stock ("Series A-3") and Series A-4 Convertible Participating Preferred Stock ("Series A-4"), respectively.

The terms remained substantially the same, except that the Series A-3 and Series A-4 mature on July 1, 2026.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Series A-3 and A-4 Share Issuance and Conversion

On July 1, 2021 (the "Exchange Date") as a part of the sale of CIG, INNOVATE entered into an exchange agreement (the "Exchange Agreement") with the now deconsolidated CGIC, who held the remaining shares of the Series A and Series A-2 Preferred Stock and was eliminated in consolidation prior to the sale of the Insurance segment on July 1, 2021.

The terms remained substantially the same, except that the Series A-3 and Series A-4 will mature on July 1, 2026.

A cash payment of $ 0.3 million was made as a part of the exchange for accrued and unpaid dividends on the Series A and Series A-2 being exchanged.

Upon issuance of the Series A-3 and Series A-4 Preferred Stock on July 1, 2021, the Series A-3 and Series A-4 have been classified as temporary equity in the Company's Consolidated Balance Sheet with a combined redemption value of $ 16.1 million with a current fair value as of December 31, 2022 of $ 17.6 million.

Upon issuance of the Series A-3 and Series A-4 Preferred Stock on July 1, 2021, the Series A-3 and Series A-4 have been classified as temporary equity in the Company's Consolidated Balance Sheet with a combined redemption value of $ 16.1 million and with a current fair value of $ 16.4 million as of December 31, 2023.

The Series A-3 and Series A-4 Preferred Stock accrue a cumulative quarterly cash dividend at an annualized rate of 7.50 %.

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Subsequent Measurement.

The Company has elected to account for the Series A-3 and Series A-4 Preferred Stock by immediately recognizing changes in the redemption value as they occur.

The carrying value of the Series A-3 and Series A-4 Preferred Stock will be adjusted to equal what the redemption amount would be as if the redemption were to occur at the end of the reporting period as if it were also the redemption date for the Series A-3 and Series A-4 Preferred Stock.

Any cash dividends paid will directly reduce the carrying value of the Series A-3 and Series A-4 Preferred Stock until the carrying value equals the redemption value.

The Company elected to account for the Series A-3 and Series A-4 Preferred Stock by immediately recognizing changes in the redemption value as they occur.

The carrying values of the Series A-3 and Series A-4 Preferred Stock are adjusted to equal what the redemption amount would be as if the redemption were to occur at the end of the reporting period as if it were also the redemption date for the Series A-3 and Series A-4 Preferred Stock.

Any cash dividends paid directly reduce the carrying value of the Series A-3 and Series A-4 Preferred Stock until the carrying value equals the redemption value.

The Company has a history of paying dividends on its preferred stock and expects to continue to pay such dividends each quarter.

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The Conversion Prices are subject to adjustment for dividends, certain distributions, stock splits, combinations, reclassifications, reorganizations, mergers, recapitalizations and similar events, as well as in connection with issuances of equity or equity-linked or other comparable securities by the Company at a price per share (or with a conversion or exercise price or effective issue price) that is below the Conversion Prices’ (which adjustment shall be made on a weighted average basis).

Actual conversion prices at the time of the exchange were $ 3.52 for the Series A and $ 5.33 for the Series A-2.

Redemption by the Holder / Automatic Conversion.

Actual conversion prices at the time of the exchange in 2021 were $ 3.52 for the Series A and $ 5.33 for the Series A-2.

Redemption by the Holders / Automatic Conversion.

On July 1, 2026, holders of the Series A-3 and Series A-4 shall be entitled to cause the Company to redeem the Series A-3 and Series A-4 at the accrued value per share plus accrued but unpaid dividends (to the extent not included in the accrued value of Series A-3 and Series A-4).

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Redemption by the Company / "Company Call Option".

At any time after the third anniversary of the Original Issue Date, May 29, 2014, the Company may redeem the Series A-3/Series A-4, in whole but not in part, at a price per share generally equal to 150 % of the accrued value per share, plus accrued but unpaid dividends (to the extent not included in the accrued value of the Series A-3/Series A-4), subject to the holder's right to convert prior to such redemption.

At any time, the Company may redeem the Series A-3/Series A-4, in whole but not in part, at a price per share generally equal to 150 % of the accrued value per share, plus accrued but unpaid dividends (to the extent not included in the accrued value of the Series A-3/Series A-4), subject to the holder's right to convert prior to such redemption.

Forced Conversion .

The Company may force conversion of the Series A-3 and Series A-4 into shares of the Company's common stock if the common stock's thirty-day VWAP exceeds 150 % of the then-applicable Conversion Price and the Common Stock’s daily VWAP exceeds 150 % of the then-applicable Conversion Price for at least twenty trading days out of the thirty trading day period used to calculate the thirty-day VWAP.

The Company may force conversion of the Series A-3 and Series A-4 into shares of the Company's common stock if the common stock's thirty-day VWAP exceeds 150 % of the then-applicable Conversion Price and the Common Stock’s daily VWAP exceeds 150 % of the then-applicable Conversion Price for at least 20 trading days out of the thirty trading day period used to calculate the 30-day VWAP.

In the event of a forced conversion, the holders of Series A-3 and Series A-4 will have the ability to elect cash settlement in lieu of conversion if certain market liquidity thresholds for the Company's common stock are not achieved.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Liquidation Preference .

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Voting Rights.

Except as required by applicable law, the holders of the shares of the Series A-3 and Series A-4 will be entitled to vote on an as-converted basis with the holders of the Series A-3 Preferred Stock and the Series A-4 Preferred Stock (on an as-converted basis), as applicable, and the holders of the Company’s common stock on all matters submitted to a vote of the holders of the Company's common stock with the holders of Series A-3 Preferred Stock and Series A-4 Preferred Stock on certain matters, and separately as a class on certain limited matters.

Except as required by applicable law, the holders of the shares of the Series A-3 and Series A-4 will be entitled to vote on an as-converted basis with the holders of the Company’s common stock on all matters submitted to a vote of the holders of the Company's common stock with the holders of Series A-3 Preferred Stock and Series A-4 Preferred Stock on certain matters, and separately as a class on certain limited matters.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Consent Rights.

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Preferred Share Dividends

During the years ended December 31, 2022 and 2021, INNOVATE's Board of Directors (the "Board") declared cash dividends with respect to INNOVATE’s issued and outstanding Preferred Stock, excluding the Series A and Series A-2 Preferred Stock which was owned by CGIC and was eliminated in consolidation prior to the sale of the Insurance segment on July 1, 2021, as presented in the following table (in millions):

Declaration Date March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022

Holders of Record Date March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022

During the years ended December 31, 2023 and 2022, INNOVATE's Board of Directors (the "Board") declared cash dividends with respect to INNOVATE’s issued and outstanding Preferred Stock, as presented in the following table (in millions):

Declaration Date and Holders of Record Date March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023

Payment Date April 17, 2023 July 14, 2023 October 13, 2023 January 15, 2024

Total Dividend $ 0.3 $ 0.3 $ 0.3 $ 0.3

Declaration Date March 31, 2021 May 29, 2021 September 30, 2021 December 31, 2021

Holders of Record Date March 31, 2021 May 29, 2021 September 30, 2021 December 31, 2021

Payment Date April 15, 2021 June 4, 2021 October 15, 2021 January 15, 2022

Declaration Date and Holders of Record Date March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022

Payment Date April 15, 2022 July 15, 2022 October 15, 2022 January 15, 2023

Total Dividend $ 0.3 $ 0.3 $ 0.3 $ 0.3

DBMGi Series A Preferred Stock Issuance

On November 30, 2018, CGIC purchased 40,000 shares of DBMGi's Series A Preferred Stock, which was eliminated in consolidation.

On July 1, 2021, as a part of the sale of CIG which resulted in the deconsolidation of the entity, INNOVATE was deemed to have issued $ 40.9 million of DBMGi Series A Preferred Stock to the now deconsolidated CGIC.

Upon issuance of the DBMGi Series A Preferred Stock on July 1, 2021, the DBMGi Series A Preferred Stock has been classified as temporary equity in the Company's Consolidated Balance Sheet.

As of December 31, 2022, there are 41,820.25 shares of DBMGi's Series A Preferred Stock outstanding and 500,000 shares with a par value of $ 0.001 each are authorized for issuance.

Redemption Option .

DBMGi Series A Preferred Stock

On November 30, 2018, CGIC purchased 40,000 shares of DBMGi's Series A Fixed-to-Floating Rate Perpetual Preferred Stock (the “DBMGi Preferred Stock”), which was then eliminated in consolidation.

On July 1, 2021, as a part of the sale of CIG which resulted in the deconsolidation of the entity, the Company was deemed to have issued $ 40.9 million of DBMGi Series A Preferred Stock to the then deconsolidated CGIC.

Upon the deemed issuance of the DBMGi Series A Preferred Stock on July 1, 2021, the DBMGi Series A Preferred Stock was classified as temporary equity in the Company's Consolidated Balance Sheet.

There are 500,000 shares with a par value of $ 0.001 each authorized for issuance.

Subsequent to the issuance of the DBMGi Preferred Stock, 1,820.25 shares were issued as payment in kind for dividends, resulting in a total of 41,820.25 shares of DBMGi's Series A Preferred Stock outstanding.

The DBMGi Preferred Stock is redeemable at any time, in whole or in part, at the option of the Company, or at any time or by the holder prior to July 2026.

On March 15, 2023, DBMGi received a redemption notice from CGIC requesting that DBMGi redeem 41,820.25 shares of DBMGi Preferred Stock, representing all of the issued and outstanding shares of DBMGi Preferred Stock, within 60 days of the notice, or by May 15, 2023.

On May 9, 2023, the Company entered into a Stock Purchase Agreement and Subordinated Unsecured Promissory Note with CGIC whereby INNOVATE purchased the 41,820.25 shares of DBMGi Preferred Stock for full satisfaction of the redemption notice.

In full consideration of the DBMGi Preferred Stock as well as the accrued dividend of $ 0.4 million, the Company paid CGIC $ 7.1 million on May 9, 2023, and issued a subordinated unsecured promissory note to CGIC in the principal amount of $ 35.1 million.

The promissory note is due February 28, 2026, and bears interest at 9 % per annum through May 8, 2024, 16 % per annum from May 9, 2024 to May 8, 2025, and 32 % per annum thereafter.

Refer to Note 11.

Debt Obligations for additional information on the promissory note.

The DBMGi Series A Preferred Stock was measured each reporting period at its maximum redemption value, which was equal to the stated value plus all accrued, accumulated and unpaid dividends as of the end of each reporting period, as they were currently redeemable.

The carrying amount as of May 9, 2023 was $ 41.8 million as well as the accrued dividend of $ 0.4 million and, subsequently, there was no gain or loss on the purchase of the DBMGi Preferred Stock from CGIC.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The DBMGi Series A Preferred Stock will accrue a cumulative quarterly cash or payment in kind dividend at a rate of (a) for the first five years following the date of issuance, (i) 9.00 % per annum if dividends are paid in kind or (ii) 8.25 % per annum if dividends are paid in cash and (b) starting on the fifth anniversary of the date of issuance, a rate per annum equal to (i) LIBOR (as defined in the Certificate of Designation) plus a spread of 5.85 % (together, the “LIBOR Rate”) per annum, plus 0.75 % if dividends are paid in kind or (ii) the LIBOR Rate per annum in the case of dividends paid in cash.

The DBMGi Series A Preferred Stock accrued a cumulative quarterly cash or payment in kind dividend at a rate of (a) for the first five years following the date of issuance, (i) 9.00 % per annum if dividends are paid in kind or (ii) 8.25 % per annum if dividends are paid in cash and (b) starting on the fifth anniversary of the date of issuance, a rate per annum equal to (i) LIBOR (as defined in the Certificate of Designation) plus a spread of 5.85 % (together, the “LIBOR Rate”) per annum, plus 0.75 % if dividends are paid in kind or (ii) the LIBOR Rate per annum in the case of dividends paid in cash.

Subsequent to the transition away from LIBOR beginning in 2023, the Certificate of Designation allows for a LIBOR Successor Rate, which allows the Company to reasonably determine an alternate benchmark rate (including any mathematical or other adjustments to the benchmarks (if any) incorporated therein) giving due consideration to any evolving or then existing convention for similar U.S.

dollar denominated syndicated credit facilities for such alternative benchmarks.

Subsequent Measurement.

The DBMGi Series A Preferred Stock is measured each reporting period at its maximum redemption value, which is equal to the stated value plus all accrued, accumulated and unpaid dividends as of the end of each reporting period as they are currently redeemable.

The Company pays accrued dividends quarterly in cash (with an option to PIK), and the Company does not expect to make any subsequent measurement adjustments recorded to the initial carrying amount.

As such no accretion will be recognized until future dividend payments would otherwise reduce the carrying value below its redemption value.

In such a case, the Company will adjust the carrying value to its maximum redemption amount.

During the years ending December 31, 2022 and 2021, DBMGi's Board of Directors declared dividends with respect to DBMGi’s issued and outstanding Preferred Stock, as presented in the following tables (in millions):

Declaration Date March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022

Holders of Record Date March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022

Subsequent to May 9, 2023, the date that INNOVATE purchased the DBMGi Preferred Stock, the dividends are eliminated on consolidation.

The dividends and equivalent amounts paid (excluding amounts eliminated on consolidation) are presented in the following tables (in millions):

Declaration Date and Holders of Record Date March 31, 2023 May 9, 2023 *

Payment Date April 17, 2023 May 9, 2023 *

Total Dividend $ 0.9 $ 0.4

*The dividend paid on April 17, 2023 was a cash dividend.

In connection with the Stock Purchase Agreement entered into with CGIC on May 9, 2023, an equivalent amount of the dividend that had accrued through May 8, 2023 was paid to CGIC on May 9, 2023 as part of the purchase price.

$ 0.1 million was paid in cash and $ 0.3 million was included in the principal amount of the new unsecured note that was issued on May 9, 2023.

The dividends that accrued for the remaining portion of those periods were eliminated on consolidation subsequent to the purchase.

Declaration Date and Holders of Record Date March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022

Payment Date April 15, 2022 July 15, 2022 October 15, 2022 January 15, 2023

Total Dividend** $ 0.9 $ 0.9 $ 0.9 $ 0.9

*The dividends paid on April 15, 2022, October 15, 2022 and January 15, 2023 were paid in cash.

**The dividends paid on April 15, 2022, October 15, 2022 and January 15, 2023 were cash dividends.

The DBMGi Board of Directors elected to pay the second quarter 2022 dividend payable July 15, 2022 in shares.

Declaration Date September 30, 2021 December 31, 2021

Holders of Record Date September 30, 2021 December 31, 2021

Payment Date October 15, 2021 January 15, 2022

Total Dividend $ 0.8 $ 0.9

The 2021 dividends were paid in cash.

R2 Technologies Non-Controlling Interests

The Company has redeemable and non-redeemable non-controlling interests related to R2 Technologies in the form of convertible preferred stock that is redeemable upon the occurrence of a change in control, as defined in the respective agreements.

If an event is not solely within the control of the Company, it is classified outside of permanent equity in the mezzanine section of the Company's Consolidated Balance Sheets.

The Company adjusts the carrying value of the non-controlling interests based on an allocation of subsidiary earnings (losses) based on ownership interests.

As of December 31, 2023, the Company has reclassified $ 9.0 million of R2 redeemable non-controlling interest to non-controlling interest in accordance with the considerations of ASC 480.

As of December 31, 2023, and 2022, it was not deemed probable that the non-controlling interests will become redeemable as no change in control has occurred or is expected to occur;

therefore, no additional adjustment or remeasurement was required under ASC 480-10.

As a result of allocation of losses in accordance with ASC 810, the redeemable non-controlling interest related to R2 was negative $ 1.0 million and negative $ 3.8 million as of December 31, 2023, and 2022, respectively.

Liquidation Preference

R2 Technologies has issued multiple A, B, and C-series participating convertible preferred stock (the "R2 Preferred Shares"), all of which contain a liquidation preference.

In the event of a liquidation event, each Preferred Share has a liquidation preference to be paid out of the assets legally available for distribution, which entitles the holder of each series A and series C R2 Preferred Share to receive, before any payments to holders of junior securities, the sum of the following:

(i) the accrued value in cash;

(ii) all accrued and unpaid dividends, including basic dividends and accreting dividends, if any, and (iii) an amount, in cash or otherwise, equivalent to what the holder would receive if they had converted the R2 Preferred Shares into R2 common stock or reference property just before the liquidation event.

Series B R2 Preferred Shareholders would be entitled to receive, before any payments to holders of junior securities, the greater of (i) the sum of (A) the accrued value in cash, plus (B) all accrued and unpaid dividends, including basic dividends and accreting dividends, if any, or (ii) an amount, in cash or otherwise, equivalent to what the holder would receive if they had converted the R2 Preferred Shares into R2 common stock or reference property just before the liquidation event.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

If the assets of R2 legally available for distribution are insufficient to pay these obligations in full, R2 Preferred Shareholders and holders of any parity securities share the remaining assets in proportion to the full respective amounts to which they are entitled.

After receiving the full liquidation preference, R2 Preferred Shareholders have no further claim to R2's assets, except for any new securities or instruments received as part of the liquidation preference.

The value of non-cash assets distributed equals their fair market value on the distribution date.

No holder of junior securities receives any payment unless the entire liquidation preference of R2 Preferred Shares is paid.

If there is insufficient cash to pay the entire liquidation preference and any liquidation preference in respect of any parity securities in full in cash upon a liquidation event, R2 Preferred Shareholders and parity securities holders will share available cash proportionally.

R2 Technologies' total liquidation preference upon a hypothetical liquidation event, including the liquidation preference for Pansend Life Sciences, LLC was $ 112.3 million and $ 104.0 million as of December 31, 2023 and 2022, respectively, of which $ 48.0 million and $ 44.5 million as of December 31, 2023 and 2022, respectively, was attributable to redeemable and non-redeemable non-controlling interests, inclusive of initial preferred stock and unpaid accreted dividends.

However, as of both December 31, 2023, and 2022, R2 Technologies had negative net assets after consideration of intercompany and third party debt, and, therefore, there would be no legally available funds to satisfy such liquidation preferences upon a hypothetical liquidation event.

Stockholders’ Rights Agreement - Tax Benefits Preservation Plan

On August 30, 2021, the Company entered into a Tax Benefits Preservation Plan (the “Preservation Plan”) between the Company and Computershare Trust Company, N.A., as Rights Agent.

The Preservation Plan is designed to protect the Company’s ability to use its tax net operating losses and certain other tax assets (“Tax Benefits”) by deterring an “ownership change” as defined under Section 382 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder (the “Code”).

On August 30, 2021, the Company entered into a Tax Benefits Preservation Plan (the “2021 Preservation Plan”) with Computershare Trust Company, N.A., as Rights Agent.

The 2021 Preservation Plan was intended to protect the Company’s ability to use its tax net operating losses and certain other tax assets (“Tax Benefits”) by deterring an “ownership change” as defined under Section 382 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder (the “Code”).

If any person or group acquires 4.9 % or more of the outstanding shares of the Company's common stock (subject to certain exceptions), there would be a triggering event under the 2021 Preservation Plan which could result in significant dilution in the ownership interest of such person or group.

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In connection with the adoption of the 2021 Preservation Plan, the Company disclosed that given the change-over in the Company’s stock over the past several years, the Company was approaching the risk of losing its Tax Benefits.

Pursuant to Preservation Plan, the Board of the Company declared a dividend distribution of one right (a “Right”) for each outstanding share of our common stock to stockholders of record at the close of business on September 9, 2021 (the “Record Date”).

The 2021 Preservation Plan terminated on March 31, 2023.

On April 1, 2023, the Company entered into a new Tax Benefits Preservation Plan (the “2023 Preservation Plan”) with Computershare Trust Company, N.A., as rights agent (the “Rights Agent”), and the Board of Directors of the Company declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $ 0.001 per share, of the Company (the “Common Stock”) to stockholders of record at the close of business on April 10, 2023 (the “Record Date”).

Each Right is governed by the terms of the Plan and entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share (a “Unit”) of Series B Preferred Stock, par value $ 0.001 per share (the “Series B Preferred Stock”), at a purchase price of $ 15.00 per Unit, subject to adjustment (the “Purchase Price”).

The Plan is intended to help protect the Company’s ability to use its tax net operating losses and certain other tax assets (“Tax Benefits”) by deterring an “ownership change” as defined under Section 382 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder (the “Code”) .

Initially, the Rights will be attached to all common stock certificates representing shares of our common stock then outstanding, and no separate rights certificates (“Rights Certificates”) will be distributed.

Subject to certain exceptions specified in the Plan, the Rights will separate from our shares of common stock then outstanding and a distribution date (the “Distribution Date”) will occur upon the earlier of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has become the beneficial owner of 4.9 % or more of our common stock and (ii) 10 business days (or such later date as the Board shall determine) following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person.

Rights Certificates and Exercise Period

Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate rights certificates (“Rights Certificates”) will be distributed.

Subject to certain exceptions specified in the 2023 Preservation Plan, the Rights will separate from the Common Stock then outstanding and a distribution date (the “Distribution Date”) will occur upon the earlier of (i) ten business days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has become the beneficial owner of 4.9 % or more of the shares of the Common Stock (the “Stock Acquisition Date”) and (ii) ten business days (or such later date as the Board shall determine) following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person.

Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates (or, in the case of book entry shares, by the notations in the book entry accounts) and will be transferred with and only with such Common Stock, (ii) new Common Stock certificates issued after the Record Date will contain a notation incorporating the 2023 Preservation Plan by reference and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificates.

Pursuant to the 2023 Preservation Plan, the Company reserves the right (prior to the occurrence of a Triggering Event (as defined below) and upon any exercise of Rights) to make the necessary and appropriate rounding adjustments so that only whole shares of Series B Preferred Stock will be issued.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The definition of “Acquiring Person” contained in the 2023 Preservation Plan contains several exemptions, including for (i) the Company or any of the Company’s subsidiaries;

(ii) any employee benefit plan of the Company, or of any subsidiary of the Company, or any person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan;

(iii) any person who becomes the beneficial owner of 4.9 % or more of the shares of the Common Stock then outstanding as a result of (x) a reduction in the number of shares of Common Stock by the Company due to a or (y) a stock dividend, stock split, reverse stock split or similar transaction, unless and until such person increases his ownership by more than 0.5 % over such person’s lowest percentage stock ownership on or after the consummation of the relevant transaction;

(iv) any person who, together with all affiliates and associates of such person, was the beneficial owner of 4.9 % or more of the shares of the Common Stock then outstanding on the date of the 2023 Preservation Plan, unless and until such person and its affiliates and associates increase their aggregate ownership by more than 0.5 % over their lowest percentage stock ownership on or after the date of the 2023 Preservation Plan or decrease their aggregate percentage stock ownership below 4.9 %;

(v) any person who, within ten business days of being requested by the Company to do so, certifies to the Company that such person became an Acquiring Person inadvertently or without knowledge of the terms of the Rights and who, together with all affiliates and associates, thereafter within ten business days following such certification disposes of such number of shares of Common Stock so that it, together with all affiliates and associates, ceases to be an Acquiring Person;

(vi) any person that the Board, in its sole discretion, has affirmatively determined shall not be deemed an Acquiring Person.

The Rights are not exercisable until the Distribution Date and will expire at the earliest of (i) 11:59 p.m.

(New York City time) on March 31, 2023 (as extended in June 2022 from August 30, 2022 to March 31, 2023) or such later date and time as may be determined by the Board and approved by the stockholders of the Company by a vote of the majority of the votes cast by the holders of shares entitled to vote thereon at a meeting of the stockholders of the Company prior to 11:59 p.m.

(New York City time) on March 31, 2023 (which later date and time shall be in no event later than 11:59 p.m.

(New York City time) on August 30, 2024), (ii) the time at which the Rights are redeemed or exchanged as provided in the Plan, (iii) the time at which the Board determines that the Plan is no longer necessary or desirable for the preservation of Tax Benefits, and (iv) the close of business on the first day of a taxable year of the Company to which the Board determines that no Tax Benefits may be carried forward.

Unless terminated early or extended by the Company's shareholders (to no later than 11:59 p.m.

(New York City time) on August 30, 2024), the Tax Benefits Preservation Plan will terminate on March 31, 2023.

(New York City time) on June 30, 2024 (as extended in June 2023 from October 31, 2023 to June 30, 2024) or such later date and time as may be determined by the Board and approved by the stockholders of the Company by a vote of the majority of the votes cast by the holders of shares entitled to vote thereon at a meeting of the stockholders of the Company prior to 11:59 p.m.

(New York City time) on June 30, 2024 (which later date and time shall be in no event later than 11:59 p.m.

(New York City time) on October 1, 2026), (ii) the time at which the Rights are redeemed or exchanged as provided in the 2023 Preservation Plan, (iii) the time at which the Board determines that the 2023 Preservation Plan is no longer necessary or desirable for the preservation of Tax Benefits, and (iv) the close of business on the first day of a taxable year of the Company to which the Board determines that no Tax Benefits may be carried forward.

Related Parties

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In September 2018, the Company entered into a 75 -month lease for office space.

As part of the agreement, INNOVATE was able to pay a lower security deposit and lease payments, and received favorable lease terms as consideration for landlord required cross default language in the event of default of the shared space leased by Harbinger Capital Partners, a company controlled by INNOVATE's former CEO and formerly a related party, in the same building.

As part of the agreement, INNOVATE was able to pay a lower security deposit and lease payments, and received favorable lease terms as consideration for landlord required cross default language in the event of default of the shared space leased by Harbinger Capital Partners, a company controlled by a former CEO of INNOVATE and formerly a related party, in the same building.

With the adoption of ASC 842, as of January 1, 2019, this lease was recognized as a right-of-use asset and lease liability on the Consolidated Balance Sheets.

During the year ended December 31, 2021, and subsequent to the sale of CGIC on July 1, 2021, to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a former director of the Company until June 17, 2022 and who has also served as executive chairman of Continental since October 2020, INNOVATE's Board of Directors declared cash dividends of $ 0.6 million to CGIC with respect to INNOVATE’s issued and outstanding Preferred Stock, and DBMGi's Board of Directors declared cash dividends of $ 1.7 million to CGIC with respect to DBMGi’s issued and outstanding Preferred Stock.

On May 9, 2023, the Company entered into a Stock Purchase Agreement and Subordinated Unsecured Promissory Note with CGIC, a significant shareholder, in the principal amount of $ 35.1 million.

Refer to Note 11.

Debt Obligations and Note 16.

Temporary Equity and Equity for additional information.

In December 2023, the Company entered into a sublease agreement with PBCIC, a Florida not-for-profit corporation and related party to Avram A.

Glazer, the Chairman of INNOVATE's Board of Directors, who is also on the board of directors of PBCIC.

Pursuant to the sublease, the Company allows PBCIC use of the underlying space with no required lease payments and, as consideration, PBCIC has agreed to undertake all of the tenant’s build-out costs and related obligations under the lease agreement between the Company, as tenant, and RPP Palm Beach Property LP, as landlord.

Refer to Note 9.

Leases for additional information.

Lancer Capital, an entity controlled by Avram A.

Glazer, the Chairman of INNOVATE's Board of Directors, held $ 2.0 million of principal amount of the Company's $ 51.8 million 7.5 % 2026 Convertible Notes, as of both December 31, 2023 and 2022.

The $ 2.0 million in notes are convertible into 468,594 shares of common stock of INNOVATE Corp.

upon conversion.

Refer to Note 11.

Debt Obligations for additional information on the 2026 Convertible Notes.

During both the years ended December 31, 2023 and 2022, Lancer Capital earned $ 0.2 million in interest relating to these notes.

Infrastructure

Banker Steel, a subsidiary of DBMG, has leased two office spaces from 2940 Fulks St LLC, a related party that is owned by Donald Banker, CEO of Banker Steel and a related party, with monthly lease payments of $ 10 thousand and a total lease liability of $ 0.1 million.

For the years ended December 31, 2022 and 2021, DBMG incurred lease expense of $ 97 thousand and $ 55 thousand, respectively.

Banker Steel has leased one plane from Banker Aviation LLC, a related party that is owned by Donald Banker, with monthly lease payments of $ 0.1 million and a total lease liability of $ 1.2 million.

During the first quarter 2022, one of the two plane leases was terminated.

Banker Steel previously leased two planes from Banker Aviation, LLC, a related party that is owned by Donald Banker, the former CEO of Banker Steel.

During the first quarter of 2022, one of the two plane leases was terminated, and during the fourth quarter of 2023, the second plane lease was terminated.

For the years ended December 31, 2023 and 2022, DBMG incurred lease expense related to these leases of $ 1.2 million and $ 1.3 million, respectively.

Banker Steel also had a subordinated 11.0 % note payable of $ 6.3 million to Donald Banker, a related party, which was redeemed in full by DBMG on April 4, 2022.

For the years ended December 31, 2022 and 2021, DBMG incurred interest expense related to this note, of $ 0.2 million and $ 0.4 million, respectively.

Refer to Note 13.

Debt Obligations for additional information.

Life Sciences

On June 27, 2022, R2 Technologies issued a $ 0.5 million short-term 90 -day 12.0 % bridge financing loan with Lancer Capital, LLC ("Lancer"), a related party, an entity controlled by Avram A.

Glazer, Chairman of the Board of Directors of INNOVATE.

On July 13, 2022, R2 Technologies entered into a $ 10.0 million note purchase agreement with Lancer.

The note payable bears interest at 12.0 % per annum, and was funded in two tranches.

The first tranche of $ 5.0 million closed on July 13, 2022, and included the settlement of the $ 0.5 million short-term 90 -day 12.0 % bridge financing loan made on June 27, 2022 by Lancer, and an additional $ 4.5 million in cash.

The second tranche of $ 5.0 million closed on August 8, 2022.

On December 13, 2022, R2 Technologies closed on an additional $ 0.8 million 18.0 % note with Lancer and also increased the borrowing rate on the existing $ 10.0 million note to 18.0 %.

In addition, the maturity date on the existing $ 10.0 million note, was amended to the earlier of March 31, 2023 or within five business days after the date on which R2 Technologies receives an aggregate $ 20.0 million from the consummation of a debt or equity financing.

For the year ended December 31, 2022, R2 Technologies recognized interest expense of $ 0.8 million related to the notes with Lancer.

Subsequent to year end, on February 15, 2023 and February 28, 2023, R2 Technologies closed on an additional 18 % $ 0.5 million and an additional 18 % $ 0.4 million note with Lancer, respectively.

For the years ended December 31, 2022 and 2021, R2 Technologies recognized revenues of $ 3.0 million and $ 0.1 million, respectively, from sales to a subsidiary of Huadong, a related party of R2 Technologies.

The related accounts receivable totaled $ 0.6 million and zero , as of December 31, 2022 and 2021, respectively.

DBMG and Banker Steel, jointly and severally, have a subordinated 4.0 % note payable to Banker Steel's former owner, in which Donald Banker's family trust has a 25 % interest, and jointly and severally also had a subordinated 8.0 % note payable to Donald Banker's family trust.

During the year ended December 31, 2023, DBMG made $ 12.1 million in scheduled repayments of the principal on these notes and made accelerated repayments of $ 16.6 million in full settlement of the 8.0 % subordinated note.

Banker Steel also previously had a subordinated 11.0 % note payable to Donald Banker of $ 6.3 million, which was redeemed in full by DBMG on April 4, 2022.

As of December 31, 2023, the 4.0 % note payable had a remaining balance of $ 5.0 million.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

For both the years ended December 31, 2022 and 2021, R2 Technologies incurred approximately $ 0.4 million of stock compensation and royalty expenses that were paid to Blossom Innovations, LLC, an investor and a related party of R2 Technologies.

During the year ended December 31, 2021, R2 Technologies paid $ 0.4 million of a milestone payment to Blossom Innovations, LLC.

For the years ended December 31, 2023 and 2022, DBMG incurred aggregate interest expense related to these notes of $ 1.5 million and $ 2.3 million, respectively, and the accrued interest was $ 0.1 million and $ 0.5 million as of December 31, 2023 and 2022, respectively.

Life Sciences

During the year ended December 31, 2022, R2 Technologies entered into various note purchase agreements with Lancer Capital, an entity controlled by Avram A.

Glazer, the Chairman of INNOVATE's Board of Directors, for an aggregate $ 10.8 million in notes at a 18 % per annum interest rate as of December 31, 2022.

The per annum interest rate on the outstanding principal balance also increased to 20 %.

Subsequent to year end, the notes expired on January 31, 2024.

Effective January 31, 2024, R2 and Lancer Capital simultaneously issued a new note with an aggregate original principal amount of $ 20.0 million, which is comprised of the prior outstanding principal amounts and unpaid accrued interest of $ 2.6 million, which was capitalized into the new principal balance, with future interest payable monthly in cash or, if not paid in cash, accrued and unpaid interest is capitalized monthly into the principal balance.

As of December 31, 2023 and 2022, R2 Technologies had accrued interest payable to Lancer Capital of $ 2.4 million and $ 0.8 million, respectively.

For the years ended December 31, 2023 and 2022, R2 Technologies recognized revenues of $ 0.7 million and $ 3.0 million, respectively, from sales to a subsidiary of Huadong, a related party of R2 Technologies.

The were no related receivables from this subsidiary of Huadong as of December 31, 2023 and there were $ 0.6 million of related receivables from this subsidiary with Huadong as of December 31, 2022.

For the years ended December 31, 2023 and 2022, R2 Technologies incurred approximately $ 0.3 million and $ 0.4 million, respectively, of stock compensation and royalty expenses related to Blossom Innovations, LLC, an investor of R2 Technologies since 2014.

Refer to Note 6.

Investments for transactions with equity method investees of the Company, refer to Note 9.

Leases for related party transactions related to a lease and refer to Note 22.

Subsequent Events for a related party transaction with Lancer Capital.

Operating Segments and Related Information

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The Company has three reportable operating segments, plus our Other segment, based on management’s organization of the enterprise - Infrastructure, Life Sciences, Spectrum, and Other.

We also have included a Non-operating Corporate segment.

All inter-segment revenues are eliminated on consolidation.

The Company's revenue concentrations of 10% and greater for the periods indicated were as follows:

Years Ended December 31,

The Company also has a Non-Operating Corporate segment.

All inter-segment transactions are eliminated on consolidation.

There are no inter-segment revenues.

The Company's revenue concentrations of 10% and greater were as follows:

Year Ended December 31,

Segment 2023 2022

Customer A Infrastructure 29.2 % 23.8 %

Summarized financial information with respect to the Company’s operating segments for the periods indicated is as follows (in millions):

Years Ended December 31,

Customer B Infrastructure 11.4 % *

* Less than 10% revenue concentration

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Summarized financial information with respect to the Company’s operating segments is as follows (in millions):

Year Ended December 31,

Infrastructure

3 unchanged sentences

Total revenue $ 1,423.0 $ 1,637.3

Years Ended December 31,

Year Ended December 31,

Income (loss) from operations

5 unchanged sentences

Non-Operating Corporate

Total income (loss) from operations $ 13.4 $ ( 10.6 )

Years Ended December 31,

Reconciliation of the consolidated segment income (loss) from operating consolidated loss from continuing operations before income taxes 2022 2021

Income (loss) from operations $ 13.4 $ ( 10.6 )

( 16.4 ) ( 19.6 )

Total income from operations

$ 26.5 $ 13.4

Year Ended December 31,

Reconciliation of the consolidated segment income from operations to consolidated loss from operations before income taxes:

Income from operations $ 26.5 $ 13.4

Interest expense ( 68.2 ) ( 52.0 )

Loss on extinguishment of debt — ( 12.5 )

Loss from equity investees ( 9.4 ) ( 1.3 )

Other (expense) income, net ( 1.2 ) 4.3

Loss from continuing operations before income taxes $ ( 41.1 ) $ ( 80.7 )

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Years Ended December 31,

Other income (expense), net 16.7 ( 1.2 )

Loss from operations before income taxes $ ( 34.4 ) $ ( 41.1 )

Year Ended December 31,

Depreciation and Amortization

4 unchanged sentences

Life Sciences 0.5 0.3

Life Sciences recognized within cost of revenue

Total Life Sciences

Spectrum 5.2 5.8

1 unchanged sentence

Total depreciation and amortization $ 36.0 $ 42.2

Years Ended December 31,

Year Ended December 31,

Capital Expenditures (*)

5 unchanged sentences

Total $ 18.4 $ 20.7

(*) The above capital expenditures exclude assets acquired under capital lease and other financing obligations.

Infrastructure

(*) The above capital expenditures exclude assets acquired under finance lease and other financing obligations.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Life Sciences $ 1.8 $ 7.6

Other 51.9 45.1

Total $ 1.8 $ 59.5

Equity Method Investments (included in Investments above)

Infrastructure $ — $ 0.7

Life Sciences $ 0.9 $ 3.0

Other 40.6 33.9

Total $ 0.9 $ 43.6

3 unchanged sentences

Spectrum 176.6 188.2

Other 53.6 48.0

Non-Operating Corporate

1 unchanged sentence

Basic and Diluted Loss Per Common Share

Earnings per share ("EPS") is calculated using the two-class method, which allocates earnings among common stock and participating securities to calculate EPS when an entity's capital structure includes either two or more classes of common stock or common stock and participating securities.

Earnings (loss) per share is calculated using the two-class method, which allocates earnings among common stock and participating securities to calculate EPS when an entity's capital structure includes either two or more classes of common stock or common stock and participating securities.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities.

2 unchanged sentences

The dilutive effect, if applicable, of stock options and their equivalents (including non-vested stock issued under stock-based compensation plans), is computed using the "if-converted method" if this measurement is determined to be more dilutive between the two available methods in a period.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company had no dilutive common share equivalents during the years ended December 31, 2022 and 2021 due to results from continuing operations being a loss, net of tax.

As of December 31, 2022, 868,104 common stock equivalents from unvested restricted stocks were excluded from the weighted average number of shares used to calculate diluted loss per share as their inclusion would have been anti-dilutive.

The Company had no dilutive common stock equivalents during the years ended December 31, 2023 and 2022 due to the results from continuing operations being a loss, net of tax.

For the years ended December 31, 2023, and 2022, 951,861 and 868,104 , respectively, of common stock equivalents from unvested restricted stock were excluded from the weighted average number of shares used to calculate diluted loss per share as their inclusion would have been anti-dilutive.

Other instruments that may, in the future, if the average market price of the Company's stock exceeds the conversion prices, have a dilutive effect on earnings per share, but were excluded from the computation of diluted net loss per share for the years ended December 31, 2023 and 2022 are:

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The following table presents a reconciliation of net loss used in the basic and diluted EPS calculations (in millions, except per share amounts):

Years Ended December 31,

Loss from continuing operations $ ( 42.0 ) $ ( 86.3 )

Loss from continuing operations attributable to noncontrolling interest and redeemable noncontrolling interest 6.1 7.8

Loss from continuing operations attributable to INNOVATE Corp.

Year Ended December 31,

Net loss $ ( 38.9 ) $ ( 42.0 )

Net loss attributable to non-controlling interest and redeemable non-controlling interest 3.7 6.1

Net loss attributable to INNOVATE Corp.

( 35.2 ) ( 35.9 )

Preferred dividends and deemed dividends from conversions 4.9 2.2

Loss from continuing operations attributable to INNOVATE common stockholders ( 40.8 ) ( 80.7 )

Loss from discontinued operations — ( 149.9 )

Loss from discontinued operations attributable to noncontrolling interest and redeemable noncontrolling interest — 0.9

Loss from discontinued operations, net of tax and noncontrolling interest — ( 149.0 )

Preferred dividends 2.4 4.9

Net loss attributable to common stockholders $ ( 37.6 ) $ ( 40.8 )

Numerator for loss per share - basic and diluted

Net loss from continuing operations attributable to common stock $ ( 40.8 ) $ ( 80.7 )

Net loss from discontinued operations attributable to common stock — ( 149.0 )

Net loss attributable to common stock - basic and diluted $ ( 40.8 ) $ ( 229.7 )

Denominator for basic and dilutive loss per share

Weighted average common shares outstanding 77.5 77.1

Loss per share - continuing operations - basic and diluted

$ ( 0.53 ) $ ( 1.05 )

Loss per share - discontinued operations - basic and diluted

$ — $ ( 1.93 )

Weighted-average common stock outstanding 78.1 77.5

Loss per share - basic and diluted $ ( 0.48 ) $ ( 0.53 )

$ ( 0.53 ) $ ( 2.98 )

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Fair Value of Financial Instruments

4 unchanged sentences

Carrying Value Estimated Fair Value Level 1 Level 2 Level 3

Other invested assets $ 11.3 $ 11.3 $ — $ — $ 11.3

Measurement alternative investment (1)

$ 0.9 $ 0.9 $ — $ 0.9 $ —

Total assets not accounted for at fair value $ 0.9 $ 0.9 $ — $ 0.9 $ —

2 unchanged sentences

Total liabilities not accounted for at fair value $ 707.4 $ 621.8 $ 283.2 $ 338.6 $ —

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(1) Refer to Note 6.

Investments for additional information.

(2) Excludes lease obligations accounted for under ASC 842 , Leases .

December 31, 2022 Fair Value Measurement Using:

Carrying Value Estimated Fair Value Level 1 Level 2 Level 3

Other invested assets $ 11.3 $ 11.3 $ — $ — $ 11.3

Measurement alternative investment (1)

$ 11.3 $ 11.3 $ — $ — $ 11.3

Total assets not accounted for at fair value $ 11.3 $ 11.3 $ — $ — $ 11.3

2 unchanged sentences

Total liabilities not accounted for at fair value $ 712.3 $ 643.0 $ 237.6 $ 405.4 $ —

(1) Excludes operating lease obligations accounted for under ASC 842, Leases .

(1) Was comprised of a put option that related to the Company's 19 % investment in HMN, which was sold March 6, 2023.

Refer to Note 6.

Investments for additional information.

(2) Excludes lease obligations accounted for under ASC 842 , Leases .

Debt Obligations.

The fair value of the Company’s long-term obligations was determined using reporting from Citadel Securities.

The methodology combines direct market observations from contributed sources with quantitative pricing models to generate evaluated prices and classified as Level 2.

The fair value of the Company’s long-term obligations was determined using reporting from externally quoted market prices for INNOVATE's 8.50 % 2026 Senior Secured Notes and for INNOVATE's 7.50 % Convertible Senior Notes due 2026, which are reflected as Level 1 fair value measurements.

All other long-term obligations of the Company are reflected as Level 2 fair value measurements, as this methodology combines direct recent transaction activity or, if available, market observations from contributed sources with quantitative pricing models or fair value reports from valuation providers to generate evaluated prices and are classified as Level 2 fair value measurements.

Certain long-term obligations have a fair value estimate equal to their carrying value due to recent transaction activity.

The fair value of the debt instruments is disclosed for informational purposes and does not necessarily represent the amount that would be realized upon settlement or transfer.

Supplementary Financial Information

Other (Expense) Income, net

The following table provides information relating to Other (expense) income, net for the periods indicated (in millions):

Years Ended December 31,

(Loss) on embedded derivatives $ — $ ( 0.7 )

Other (expense) income, net ( 1.2 ) 5.0

Other income (expense), net

The following table provides information relating to Other income (expense), net (in millions):

Year Ended December 31,

Gain on sale of investments $ 12.0 $ —

Gain on step-up of equity method investment 3.8 —

Total $ 16.7 $ ( 1.2 )

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Supplemental Cash Flow Information

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the Consolidated Balance Sheets and Consolidated Statements of Cash Flows for the periods indicated (in millions):

Years Ended December 31,

Cash and cash equivalents, beginning of period $ 45.5 $ 43.8

Year Ended December 31,

Cash and cash equivalents, beginning of the year

$ 80.4 $ 45.5

Restricted cash 0.3 2.0

Restricted cash included in other assets (non-current) 1.5 —

Total cash, cash equivalents and restricted cash $ 47.5 $ 45.3

Cash and cash equivalents, end of period $ 80.4 $ 45.5

Total cash, cash equivalents and restricted cash, beginning of the year

$ 82.2 $ 47.5

Cash and cash equivalents, end of the year

$ 80.8 $ 80.4

Restricted cash 0.9 0.3

Restricted cash included in other assets (non-current) 0.6 1.5

Total cash and cash equivalents and restricted cash $ 82.2 $ 47.5

Cash and cash equivalents classified in Assets held for sale, beginning of period $ — $ 195.2

Restricted cash classified in Assets held for sale — 0.2

Total cash and cash equivalents and restricted cash classified in Assets held for sale $ — $ 195.4

Total cash and cash equivalents and restricted cash, end of the year

$ 82.3 $ 82.2

Supplemental cash flow information:

2 unchanged sentences

Non-cash investing and financing activities:

Property, plant and equipment included in accounts payable $ 0.4 $ 1.4

Unsecured note issued in connection with purchase of preferred stock and payment of dividends $ 35.1 $ —

Accrued interest, exit fees and other fees capitalized into principal debt

Property, plant and equipment included in accounts payable or accrued expenses $ 0.9 $ 0.4

Issuance of preferred stock $ — $ 0.9

Accrued interest and fees capitalized into principal debt $ 17.5 $ —

Issuance of redeemable noncontrolling interest $ — $ 40.9

Extinguishment of convertible note in exchange $ — $ 51.8

Issuance of convertible note in exchange $ — $ ( 51.8 )

Debt assumed in acquisitions $ — $ 6.3

Subsequent Events

Rights Offering and Private Placement

On February 23, 2024, the Company's Board of Directors approved a plan to proceed with a $ 19.0 million rights offering for its common stock and fixed March 6, 2024 as the record date for holders of common stock entitled to participate in the rights offering.

On March 5, 2024, the Company set the subscription price at which the rights would be exercisable at $ 0.70 per share and entered into an investment agreement (the “Investment Agreement”) with Lancer Capital, a related party and an entity controlled by Avram A.

Glazer, the Chairman of INNOVATE's Board of Directors and a beneficial owner of 29.1 % of the Company's common stock, pursuant to which the rights offering will be backstopped by Lancer Capital.

Because the rules of the NYSE prohibit the issuance to Lancer Capital of more than 1 % of our common stock outstanding before the issuance unless stockholder approval of such issuance is obtained, in lieu of purchasing common stock under the back-stop arrangement Lancer Capital will purchase up to $ 19.0 million of Series C Non-Voting Participating Convertible Preferred Stock, par value $ 0.001 per share (“Series C Preferred Stock”) to be newly authorized by the Company.

The Series C Preferred Stock is intended to be the economic equivalent of common stock, participating on an as-converted basis in all dividends, distributions, merger consideration and all other consideration receivable by holders of common stock, and a means through which the back-stop arrangement can be effected prior to the completion of the stockholder vote and the satisfaction of any other regulatory requirements.

Pursuant to the Investment Agreement, and as a result of limitations on the amount that can be raised under the Company’s effective shelf registration statement on Form S-3, Lancer Capital will also purchase an additional $ 16.0 million of Series C Preferred Stock in a private placement transaction to close concurrently with the settlement of the rights offering.

Under the rules of the NYSE, because the shares Lancer Capital will purchase in the concurrent private placement are greater than 20% of our common stock outstanding before the issuance of the Series C Preferred, those shares of Series C Preferred Stock may not be converted unless stockholder approval of such issuance is obtained.

The Investment Agreement provides that, in the event that for any reason the rights offering is not settled by March 28, 2024, then Lancer Capital will purchase $ 25 million of Series C Preferred Stock.

The Company refers to this arrangement as the “equity advance.” Upon the closing of the rights offering, to the extent that Lancer Capital would have, based on the number of shares of common stock actually sold upon exercise of the rights, purchased less than $ 25 million of Series C Preferred Stock under the back-stop commitment and the concurrent private placement, the Company will redeem the excess shares of Series C Preferred Stock purchased by Lancer Capital under the equity advance at the redemption price of $ 1,000 per share from the proceeds of the rights offering.

The Series C Preferred Stock terms are set forth in a form of certificate of designations attached as Exhibit A to the Investment Agreement and include a liquidation preference junior to the Company’s existing preferred stock and equal to the Company’s common stock (other than a preference of $ 0.001 per share of Series Preferred Stock that will be paid to the holders of thereof before any payment or distribution is made to the holders of the common stock).

The certificate of designations for the Series C Preferred Stock will be filed with the Secretary of State of the State of Delaware on the early of the closing of the equity advance of the settlement of the rights offering.

In connection with the Investment Agreement, on March 5, 2024 the Company and Lancer entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which the Company granted Lancer certain customary shelf demand and piggyback registration rights with respect to the common stock issuable upon conversion of the Series C Preferred Stock purchased under the Investment Agreement.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Subsequent Events

On March 6, 2023, the Company closed on the sale of its remaining 19 % interest in HMN to subsidiaries and an affiliate of Hengtong Optic-Electric Co Ltd.

The sale was consummated pursuant to the terms of a supplemental agreement entered into by the parties in June 2022.

After taxes and transaction fees, INNOVATE received approximately $ 32 million in cash.

Assuming that the Company proceeds with the rights offering and that shares of Series C Preferred Stock are issued to Lancer pursuant to the Investment Agreement the Company intends to seek stockholder approval for the conversion of the Series C Preferred Stock into shares of our common stock at the Company’s 2024 annual stockholders meeting.

The Series C Preferred Stock to be issued to Lancer pursuant to the Investment Agreement will not be registered under the Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures