Important Note about Forward-Looking Statements



The following discussion and analysis should be read in conjunction with our
audited consolidated financial statements as of December 31, 2021 and notes
thereto included in this document and our unaudited 10-Q filings for the first
three quarters of 2021 and the notes thereto. In addition to historical
information, the following discussion and other parts of this Form 10-K contain
forward-looking information that involves risks and uncertainties. Our actual
results could differ materially from those anticipated by such forward-looking
information due to factors discussed elsewhere in this Form 10-K.



The statements that are not historical constitute ''forward-looking
statements.'' Said forward-looking statements involve risks and uncertainties
that may cause the actual results, performance or achievements of the Company to
be materially different from any future results, performance or achievements,
expressed or implied by such forward-looking statements. These forward-looking
statements are identified by the use of such terms and phrases as ''expects,''
''intends,'' ''goals,'' ''estimates,'' ''projects,'' ''plans,'' ''anticipates,''
''should,'' ''future,'' ''believes,'' and ''scheduled.''



The variables, which may cause differences include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employment benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with various government regulations. Although the Company believes
that the assumptions underlying the forward-looking statements contained herein
are reasonable, any of the assumptions could be inaccurate; therefore, there can
be no assurance that the forward-looking statements included in this Form 10-K
will prove to be accurate.

In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any person that the objectives and expectations of the Company will be achieved.

Overview

Orbital Energy Group, Inc. is a Colorado corporation organized on April 21, 1998. The Company's principal place of business is located at 1924 Aldine Western, Houston, Texas 77038. Orbital Energy Group is a holding company dedicated to maximizing stockholder value through the acquisition and development of infrastructure services contractors. Through its subsidiaries, Orbital Energy Group has built a diversified portfolio of industry leading infrastructure service providers that touch many markets.

Critical Accounting Estimates



Our financial statements and related public financial information are based on
the application of accounting principles generally accepted in the United States
(''GAAP''). GAAP requires the use of estimates, assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenue, and expense amounts reported. These estimates can
also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition. We
believe our use of estimates and underlying accounting assumptions adhere to
GAAP and are consistently applied. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results may differ materially from these
estimates under different assumptions or conditions. We continue to monitor
significant estimates made during the preparation of our financial statements.



                                       27

--------------------------------------------------------------------------------

Table of Contents





While all of our significant accounting policies impact the Company's financial
condition and results of operations, we view certain of these policies as
critical. Policies determined to be critical are those policies that have the
most significant impact on our financial statements and require management to
use a greater degree of judgment and estimates. Actual results may differ from
those estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments or
estimate methodologies would have caused a material change in our results of
operations, financial position or liquidity for the periods presented in this
report.

Finite-Lived Asset Impairment



The Company reviews its long-lived assets including finite-lived intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset exceeds its fair value and may not be
recoverable. In performing the review for recoverability, the Company estimates
the future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized as the excess of the carrying amount over the fair
value. Otherwise, an impairment loss is not recognized. Management estimates the
fair value and the estimated future cash flows expected. Any changes in these
estimates could impact whether there was impairment and the amount of the
impairment.

Fair Value of Estimates in Business Combination Accounting and Goodwill and Indefinite Lived Assets



The Company accounts for business combinations under the acquisition method of
accounting in accordance with ASC 805, ''Business Combinations,'' where the
total purchase price is allocated to the tangible and identified intangible
assets acquired and liabilities assumed based on their estimated fair values.
The purchase price is allocated using the information currently available, and
may be adjusted, up to one year from acquisition date, after obtaining more
information regarding, among other things, asset valuations, liabilities assumed
and revisions to preliminary estimates. The purchase price in excess of the fair
value of the tangible and identified intangible assets acquired less liabilities
assumed is recognized as goodwill. At December 31, 2021, the Company has six
operating segments comprised of eight reporting units with Gibson Technical
Services, IMMCO, Inc, and Full Moon Telecom, LLC consolidating into one
operating segment called Gibson Technical Services. Goodwill is recognized at
the operating segment level. At December 31, 2021, operating segments with
goodwill include Front Line Power Construction, LLC, Orbital Solar Services and
Gibson Technical Services.



Upon acquisition of Front Line Power Construction, LLC, the Company recorded
$70.2 million of goodwill. Goodwill was valued as of November 17, 2021 by a
third-party valuation expert and was recorded following the recognition of Front
Line Power Construction's tangible assets and liabilities and $108.2 million of
finite- and indefinite-lived identifiable intangible assets. Factors that
contribute to the Company's goodwill at Front Line Power Construction include
the strong leadership of Kurt Johnson, Front Line Power Construction's Founder
and CEO, along with the skills and expertise brought by his team. Front Line
Power Construction's team provides synergies with Orbital Power Inc. that will
add momentum to the comprehensive range of solutions by OEG's Electric Power
Segment.

Upon acquisition of Full Moon Telecom, LLC, the Company recorded $0.8 million of
goodwill. Goodwill was valued as of October 22, 2021, by a third-party valuation
expert and was recorded following the recognition of Full Moon Telecom's
tangible assets and liabilities and $0.4 million of finite- and indefinite-lived
identifiable intangible assets. Factors that contribute to the Company's
goodwill in Full Moon Telecom, LLC, include the highly skilled and technically
competent workforce at Full Moon. This workforce when combined with Gibson
Technical Services and IMMCO provide synergies that increase the unique
portfolio of services provided to their customers and further penetrate the
telecommunications market.



Upon acquisition of IMMCO, Inc., the Company recorded $10.6 million of goodwill.
Goodwill was valued as of July 28, 2021 by a third-party valuation expert and
was recorded following the recognition of IMMCO Inc.'s tangible assets and
liabilities and $6.4 million of finite- and -indefinite-lived identifiable
intangible assets. Factors that contribute to the Company's goodwill at IMMCO
include the significant synergies added to the Company's telecommunications
segment by expanding the depth and breadth of the customer solutions provided.



Upon acquisition of Gibson Technical Services, the Company recorded $12.3
million of goodwill. Goodwill was valued as of April 13, 2021 by a third-party
valuation expert and was recorded following the recognition of Gibson Technical
Services' tangible assets and liabilities and $22.8 million of finite- and
indefinite-lived identifiable intangible assets. Factors that contribute to the
Company's goodwill in Gibson Technical Services (GTS) include GTS's sterling
reputation within the telecommunications industry which when combined with the
Company's resources, provides the Company the solid platform that will help OEG
penetrate the telecommunications market and build upon to create synergies with
future acquisitions.



Upon acquisition of Reach Construction Group, LLC, the Company
recorded $7.0 million of goodwill. Goodwill was valued as of April 1, 2020 by a
third-party valuation expert and was recorded following the recognition of
Reach's tangible assets and liabilities and $13.7 million of finite-lived
identifiable intangible assets. Factors that contributed to the Company's
goodwill are Reach Construction's skilled workforce and reputation within its
industry. The Company also expected to achieve future synergies between Reach
Construction and Orbital Power, Inc. business. These synergies were expected to
be achieved in the form of power line work necessary when bringing new solar
power systems online.



For Orbital Solar Systems, (formally known as Reach Construction), management
completed a quantitative analysis to determine potential impairment at the May
31, 2021 annual impairment test date. Goodwill in the Telecommunications segment
was qualitatively reviewed to determine whether it was more likely than not that
the fair value of its reporting unit was less than its carrying amount,
including goodwill. To complete the qualitative review, management evaluated the
fair value of the Goodwill and considered all known events and circumstances
that might trigger an impairment of goodwill. Management determined that no
additional testing was necessary, and no impairment was necessary. During 2021
there were no triggering events to suggest that it was more likely than not that
the fair value of each reporting unit and each indefinite-lived intangible was
less than its carrying amount and thus no impairment was necessary.



                                       28

--------------------------------------------------------------------------------


  Table of Contents



Revenue Recognition

On January 1, 2018, we adopted the accounting standard ASC 606, "Revenue from
Contracts with Customers" and all the related amendments ("new revenue
standard"), which supersedes nearly all existing revenue recognition guidance
under U.S. GAAP. This guidance includes the required steps to achieve the core
principle that a company should recognize revenue when it transfers promised
goods or services to customers in an amount that reflects the consideration to
which the company expects to be entitled in exchange for those goods or
services. For the majority of contracts, revenue is still measured over time
using the input cost-to-cost method or the output method. The change that most
affected the transition adjustment on revenue was the requirement to limit
revenue recognition on certain contracts without an enforceable right to payment
for performance completed to date. Without a specific enforceable right to
payment throughout the life of the contract, revenue is recorded at completion
of the contact. For the Telecommunications, Electric Power, and Renewables
segments, the majority of contracts are classified over time due to the guidance
that allows for over time revenue recognition for construction contracts where
the Company's performance creates or enhances an asset that the customer
controls as the asset is being created or enhanced. This criterion is met since
the Company is typically constructing the solar farms, as well as
telecommunications and electric power construction services on customer owned or
customer-controlled property, so the customer controls the asset as it is
created.



For our construction contracts, revenue is generally recognized over time. Our
fixed price construction projects use either an output method or a cost-to-cost
input method to measure our progress towards complete satisfaction of the
performance obligation as we believe it best depicts the transfer of control to
the customer. Under the cost-to-cost measure of progress, the extent of progress
towards completion is measured based on the ratio of costs incurred to date to
the total estimated costs at completion of the performance obligation. For jobs
under the output method, revenue is earned based on each unit in the contract
completed. We construct comprehensive revenue calculations based on quantifiable
measures of actual units completed multiplied by the agreed upon contract prices
per item completed to measure revenue based on the output method.



The timing of revenue recognition depends on the payment terms of the contract,
as our performance does not create an asset with an alternative use to us. For
those contracts which we have a right to payment for performance completed to
date at all times throughout our performance, inclusive of a cancellation, we
recognize revenue over time. As discussed above, these performance obligations
use a cost-to-cost input method or an output method to measure our progress
towards complete satisfaction of the performance obligation as we believe it
best depicts the transfer of control to the customer. However, for those
contracts for which we do not have a right, at all times, to payment for
performance completed to date, we recognize revenue at the point in time when
control is transferred to the customer.



                                       29

--------------------------------------------------------------------------------

Table of Contents





For our services contracts, revenue is generally recognized over time as the
customer simultaneously receives and consumes the benefits of our performance as
we perform the service. For our fixed price service contracts with specified
service periods, revenue is generally recognized on a straight-line basis over
such service period when our inputs are expended evenly, and the customer
receives and consumes the benefits of our performance throughout the contract
term.

For certain of our revenue streams, such as call-out repair and service work, outage services and training that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date.





Due to uncertainties inherent in the estimation process, it is possible that
estimates of costs to complete a performance obligation will be revised in the
near-term. For those performance obligations for which revenue is recognized
using a cost-to-cost input method, changes in total estimated costs, and related
progress towards complete satisfaction of the performance obligation, are
recognized on a cumulative catch-up basis in the period in which the revisions
to the estimates are made. When the current estimate of total costs for a
performance obligation indicate a loss, a provision for the entire estimated
loss on the unsatisfied performance obligation is made in the period in which
the loss becomes evident.



Our contracts with certain customers may be subject to contract cancellation
clauses. Contracts with other cancellation provisions may require judgment in
determining the contract term, including the existence of material rights,
transaction price and identifying the performance obligations and whether a
contract should be accounted for over time or on a completed contract basis.
Revenue is recognized for certain integration systems over time using cost-based
input methods, in which significant judgement is required to evaluate
assumptions including the amount of total estimated costs to determine our
progress towards contract completion and to calculate the corresponding amount
of revenue to recognize.



At times, customers may request changes that either amend, replace or cancel
existing contracts. Judgment is required to determine whether the specific facts
and circumstances within the contracts require the changes to be accounted for
as a separate contract or as a modification. Generally, contract modifications
containing additional goods and services that are determined to be distinct and
sold at their stand-alone selling price are accounted for as a separate
contract. For contract modifications where goods and services are not determined
to be distinct and sold at their stand-alone selling price, the original
contract is updated and the required adjustments to revenue and contract assets,
liabilities, and other accounts will be made accordingly.



                                       30

--------------------------------------------------------------------------------


  Table of Contents



Variable Consideration

The nature of our contracts gives rise to several types of variable
consideration. In rare instances, we include in our contract estimates,
additional revenue for submitted contract modifications or claims against the
customer when we believe we have an enforceable right to the modification or
claim, the amount can be estimated reliably and its realization is probable. In
evaluating these criteria, we consider the contractual/legal basis for the
claim, the cause of any additional costs incurred, the reasonableness of those
costs and the objective evidence available to support the claim.  These amounts
are included in our calculation of net revenue recorded for our contracts and
the associated remaining performance obligations. Additionally, if the contract
has a provision for liquidated damages in the case that the Company misses a
timing target, or fails to meet any other contract benchmarks, the Company
accounts for those estimated liquidated damages as variable consideration and
will adjust revenue accordingly with periodic updates to the estimated variable
consideration as the job progresses. Liquidated damages are recognized as
variable consideration only when the Company estimates that they will be a
factor in the performance of the contract.

In contracts where there are timing differences between when we transfer a promised good or service to the customer and when the customer pays for that good or service, we have determined that, our contracts do not include a significant financing component.

Liquidity and Capital Resources

Company Conditions and Sources of Liquidity



The Company has experienced net losses and cash outflows from cash used in
operating activities over the past years. As of and for the twelve months ended
December 31, 2021, the Company had an accumulated deficit of $210.9 million,
loss from continuing operations of $49.8 million, and net cash used in operating
activities of $45.7 million.



                                       31

--------------------------------------------------------------------------------




As of December 31, 2021, the Company had Cash and cash equivalents of $26.9
million available for working capital needs and planned capital asset
expenditures and a working capital deficit of approximately $33.3 million,
including current maturities of debt. These factors initially raise substantial
doubt about our ability to continue as a going concern, but this doubt has been
alleviated by the Company's plans to raise sufficient capital to meet our
current obligations over the next twelve months, in addition to the expected
recovery of our assets to satisfy liabilities in the normal course of business.



The Company has plans to access additional capital to meet its obligations for
the twelve months from the date these financial statements are available to be
issued. Historically, the Company has raised additional equity and debt
financing to fund the expansion; refer to Note - 10 Stockholders' Equity and
Stock-Based Compensation and Note 7 - Notes Payable. The Company has also funded
some of its capital expenditures through long-term financing with lenders and
other investors as also described in further detail in Note 7 - Notes Payable.
Our ability to raise the additional capital is dependent on a number of factors,
including, but not limited to, the market demand for our common stock, which
itself is subject to a number of business risks and uncertainties, our
creditworthiness and the uncertainty that we would be able to raise such
additional capital at a price that is favorable to us. The Company currently has
an effective S-3 shelf registration statement with $112 million of aggregate
offering value available for the issuance of various types of securities,
including common stock, preferred stock, debt securities and/or warrants. While
management will look to continue funding future acquisitions, organic growth
initiatives and continuing operations by raising additional capital from sources
such as sales of its debt or equity securities or notes payable in order to meet
operating cash requirements, there is no assurance that management's plans will
be successful.



As the Company continues its progression to build a full-service infrastructure
services platform, a successful transition to attaining profitable operations is
dependent upon achieving a level of positive cash flows through generating
adequate revenue growth to support the Company's cost structure. For the twelve
months ended December 31, 2021, our revenues have increased by $61.5 million
resulting in a 286% increase in revenue from the prior year. The significant
increase in revenues during the year was primarily driven by the strategic
acquisitions of Front Line Power Construction, LLC, Gibson Technical Services,
IMMCO, Inc., and Full Moon Telecom, LLC made coupled with organic growth within
Orbital Power Services. In addition, two large utility scale solar projects were
awarded to Orbital Solar Systems during the twelve-month period ended December
31, 2021. We anticipate, based on currently proposed plans and assumptions
relating to our operations, the Company to generate sufficient revenue growth
required to achieve profitability and generate positive cash flows from
operations over the next twelve months. No assurance can be made that we will be
able to obtain profitability and positive cash flows from our continuing
operations.



The Company plans to meet its obligations as they become due over the next
twelve months by raising additional capital through equity and debt financing
sources and expected positive cash flows generated from operations. Given the
considerations, we believe the mitigating effect of management's plans has
alleviated any substantial doubt about the Company's ability to continue as a
going concern.



                                       32

--------------------------------------------------------------------------------


  Table of Contents



Cash used in Operations

There was a use of cash from operations of approximately $45.7 million during
the year ended December 31, 2021 compared to a $15.0 million use of cash in
2020. This was an increase in the use of cash from operations of
approximately $30.7 million from the year ended December 31, 2020. Overall, the
change in cash used in operations is primarily the result of the loss from
continuing operations, net of income taxes in 2021 and changes in assets and
liabilities.



Increased uses of cash in 2021 are primarily for normal administrative costs,
and cash usage in the Electric Power segment primarily related to start-up costs
and Renewables primarily related to its loss from operations. While the Company
saw an initial cost increase from the Electric Power segment, management expects
this segment to become cash flow positive, as the business environment
normalizes and it continues to increase service crews deployed. The Company
believes that revenue generated by recent Telecommunications and Electric Power
acquisitions will improve cash flow from operating activities. The Company
believes overall cash used in operations will improve through revenue growth
associated with new customers and larger projects.



During 2021, in addition to the Company's net loss after non-cash items,
significant factors affecting cash used in operating activities included the
change in trade accounts receivable, accrued liabilities, and changes in
contract liabilities. The change in trade accounts receivable accounted for a
$19.2 million use of cash in operating activities and was due to increased
trades account receivable balances from the Electric Power and Renewables
segments. Accrued expenses and Accrued Compensation increased by $4.5 million
primarily related to increased accrued compensation expense in 2021 related to
the timing of payroll expense along with increased accrued expenses at the
corporate level for interest payable on outstanding debt. Change in contract
liabilities was a source of cash due to increased billings in excess of cash at
the Renewables segment.



During 2020, in addition to the Company's net loss after non-cash items,
significant factors affecting cash used in operating activities included the
change in accrued liabilities, accounts payable and changes in contract
liabilities. A use of cash of $1.2 million in accrued liabilities related
largely to the payout of severance at CUI Canada that was accrued for in 2019.
Change in accounts payable, which was a $3.5 million use of cash, was largely
due to the paydown of accounts payable at the Renewables segment, which
was acquired on April 1, 2020. Accounts payable paid down did not get replaced
at the same rate due to decreased business activity at the Renewables segment
due to the COVID-19 pandemic and timing of customer projects.  Change in
contract liabilities was a source of cash due to increased billings in excess of
cash at the Renewables segment partially offset by the decrease in provision for
loss contracts at the Renewables segment as the estimated contract losses
recorded on the acquisition date were realized as vendors were paid.



                                       33

--------------------------------------------------------------------------------

Table of Contents





During 2021 and 2020, the Company used stock and options as a form of payment to
certain vendors, consultants, directors and employees. For years ended December
31, 2021 and 2020, the Company recorded a total of $12.2 million and $0.3
million, respectively for share-based compensation related to equity given, or
to be given, to employees, directors and consultants for services provided and
as payment for royalties earned. The increase in 2021 compared to 2020 was due
to greater stock-based bonuses, and greater stock-based director compensation.
In addition, there was a fair value adjustment to stock appreciation rights of
$2.1 million in 2021 compared to a fair value adjustment of $0.6 million in
2020. Stock appreciate rights were exchanged for restricted stock units in the
first quarter of 2022. There was no stock option vesting expense in
2021 or 2020.

Capital Expenditures and Investments

In 2021, the Company paid $132.5 million cash for acquisitions, net of cash received.





During the years ended 2021 and 2020, Orbital Energy Group invested $7.8 million
and $1.7 million, respectively, in fixed assets. These investments typically
include additions to equipment including vehicles and equipment for powerline
service and maintenance, telecommunications service and maintenance, engineering
and research and development, tooling for manufacturing, furniture, computer
equipment for office personnel, facilities improvements and other fixed assets
as needed for operations. The increase in 2021 was due to the start-up costs
associated with the Company's Electric Power segment along with increased
equipment at the Telecommunications segment. The Company anticipates further
investment in fixed assets during 2022 in support of its on-going business and
continued development of product lines, technologies and services.



Orbital Energy Group invested $0.7 million and $11 thousand in other intangible
assets during 2021 and 2020, respectively. These investments typically include
product certifications, technology rights, capitalized website development,
software for engineering and research and development and software upgrades for
office personnel. The increase in cash paid for investments in the current year
primarily relates to VE Technology purchased by Orbital Gas Systems North
America, now classified as discontinued operations.



In 2021, the Company entered into finance lease agreements that required payment
of deposits. Per the agreement, these deposits should be returned 36 months
after the lease commences. During 2021 the Company paid $0.8 million on finance
lease deposits compared to zero in 2020.



In 2021 the Company recognized proceeds from notes receivable of $0.6 million
compared to zero in 2020. Cash used in purchase of short-term investments of
$1.0 million in 2021 compared to zero in 2020.



The Company made an additional $0.3 million investment in a convertible note
receivable from Virtual Power Systems ("VPS") in 2020 including payments made
related to the Company's transition agreement with VPS. This note was converted
to equity in VPS in the third quarter of 2020 along with an additional
contribution of $0.5 million and a non-cash contribution of inventory in the
amount of $0.3 million.



                                       34

--------------------------------------------------------------------------------


  Table of Contents



Financing Activities

During the years ended December 31, 2021 and 2020, the Company issued payments
of $2.0 million and $4 thousand, against finance leases of equipment. The
Company had proceeds from notes payable in 2021 of $143.0 million, compared to
$8.1 million in 2020. See Note 7, Note payable for more information on the
Company's notes payable. The Company made payments on notes payable of
$9.9 million in 2021 and $4.1 million in 2020.



On August 19, 2021, the Company's Telecommunications segment entered into a
$4.0 million variable rate line of credit agreement. Interest accrues at a rate
of 2.05% over the Daily Simple Secured Overnight Financing Rate ("SOFR") index
rate. At December 31, 2021 the Company had an outstanding balance on the line of
credit of $2.5 million and $1.5 million was available for borrowing. In 2020,
the $0.4 million line of credit balance was held at the Renewables segment. The
Renewable segment line of credit was paid and closed in the first quarter of
2021.

S-3 registration and share issuances



The Company filed an S-3 registration statement on July 17, 2020 containing a
prospectus that was effective in September 2020. The Company utilized this
filing in January 2021 to issue common stock for $45 million before costs. The
Company filed a new S-3 shelf registration in January 2021, which, as amended,
became effective in April 2021. With this filing, Orbital Energy Group may from
time-to-time issue various types of securities, including common stock,
preferred stock, debt securities and/or warrants, up to an aggregate amount of
$150 million. The Company utilized this S-3 registration to issue additional
common stock in July 2021 for $38 million before costs of approximately
$2.3 million for net proceeds of approximately $35.7 million.



As the Company focuses on growing its infrastructure services market presence
both organically and through strategic acquisitions, technology development,
product and service line additions, and increasing Orbital's market presence, it
will fund these activities together with related operating, sales and marketing
efforts for its various product offerings with cash on hand, and possible
proceeds from future issuances of equity through the S-3 registration statement,
and available debt.



Orbital Energy Group may raise additional capital needed to fund the further
development and marketing of its products and services as well as payment of its
debt obligations.

See the section entitled Recent Sales of Unregistered Securities for a complete listing of all unregistered securities transactions.


                                       35

--------------------------------------------------------------------------------

Table of Contents

Recap of Liquidity and Capital Resources



The Company had a net loss of $61.2 million and cash used in operating
activities of $45.7 million during 2021. As of December 31, 2021, the Company's
accumulated deficit is $210.9 million. The Company has supplemented its
liquidity by issuing $45 million of shares of stock in January 2021 and $38
million shares of stock in July 2021. In November 2021, the Company entered into
a Credit Agreement with Alter Domus (US), LLC, as administrative agent and
collateral agent and various lenders (the "Lenders") in order to enable the
Company to finance the acquisition of Front Line Power Construction, LLC ("Front
Line") (the "Acquisition"). Pursuant to the Credit Agreement, the Lenders made a
Term Loan to Front Line in the initial principal amount of $105 million for the
purposes of financing the Acquisition and the associated expenses. The Term Loan
initially bears interest at the three-month Adjusted LIBOR Rate, plus the
Applicable Margin, of which 2.5% may be paid in-kind. The Term Loan shall be
repaid in consecutive quarterly installments of $262,500, commencing on June 30,
2022. The Credit Agreement provides for mandatory prepayments on the occurrence
of events such as sales of assets, Consolidated Excess Cash Flow and Excess
Receipts during the term. The Credit Agreement provides for prepayment premiums
(initially 5% on prepayments made in the first 30 months of the term, declining
to 1% in the final year of the term). The Term Loan matures on November 17,
2026, subject to acceleration on Events of Default. Additionally, the Company
issued two, unsecured promissory notes to the sellers of Front Line in the
aggregate principle amount outstanding of $86.7 million with a maturity date of
May 17, 2022 and an interest rate of 6% per annum. The seller notes were amended
in the first quarter of 2022 so that $35 million will be due in 2022 and the
remaining portion of the seller notes will be due May 31, 2023.



At December 31, 2021, and 2020 the Company had cash and cash equivalents
balances of $26.9 million and $3.0 million. At December 31, 2021 and 2020, the
Company had $2.3 million and $0.6 million, respectively, of cash and cash
equivalents balances at domestic financial institutions, which were covered
under the FDIC insured deposits programs and $0.4 million and $0.2 million,
respectively, of cash and cash equivalents covered at foreign financial
institutions. At December 31, 2021 and 2020, the Company held $2.1 million and
$2.2 million, respectively, in foreign bank accounts.



The following tables present our contractual obligations as of December 31,
2021:

                                                                Payments due by period
                                  Less than
(In thousands)                      1 year        1 to 3 years       3 to 5 years       After 5 years        Total
Financing lease obligations:
Minimum lease payments            $    5,729     $        9,980     $          576     $             -     $  16,285

Operating lease obligations:
Operating lease - minimum
payments                               5,767              8,789              4,093               2,714        21,363

Notes payable obligations:
Notes payable maturities plus
interest                              97,659             92,077            130,053                   -       319,789
Total Obligations                 $  109,155     $      110,846     $      134,722     $         2,714     $ 357,437




The above notes payable maturities reflects the agreement made with the Front
Line sellers to extend the maturity date for those agreements from May 16, 2022
to May 31, 2023, with $35 million being due in 2022 and the remaining principal
due in 2023.

As of December 31, 2021, the Company had an accumulated deficit of $210.9 million.





The Company expects the revenues from its continuing operations to cover
operating and other expenses for the next twelve months of operations. However,
in the short-term, the Company expects its operating units to need cash support
as the Company acquires fixed assets to grow their businesses. Further equity
issuance or borrowing may be required to fund future acquisitions.

Off-Balance Sheet Arrangements - Obligations under Certain Guarantee Contracts



The Company may enter into guarantee arrangements in the normal course of
business to facilitate commercial transactions with third parties. As of
December 31, 2021, the Company is an indemnitor on four surety bonds and had
three letters of credit off-balance sheet for a total dollar value of
approximately $131.8 million. Two bonds were with the Renewables segment for a
total of $127.0 million dollars for two construction projects. At the Electric
Power segment there were two bonds totaling $3.8 million for various unit-based
construction jobs. For the projects related to these bonds, bonds, there was
$110.7 million in costs left to complete the projects at December 31, 2021. The
Company held three off-balance sheet letters of credit as of December 31, 2021.
The Telecommunications segment had a letter of credit for $0.4 million,
Discontinued UK operations for $54 thousand and Renewables for $0.6 million. The
Company does not expect any liability associated with these off-balance sheet
arrangements.



                                       36

--------------------------------------------------------------------------------


  Table of Contents



Results of Operations

The following tables set forth, for the periods indicated, Revenue and income (loss) from operations by segment:








                          For the Year
(Dollars in             Ended December
thousands)                    31, 2021
                                            Electric
                   Telecommunications        Power         Renewables        Other         Total
Total Revenues     $            27,799     $   43,599     $     11,550     $       -     $  82,948
Income (Loss)
from operations    $                43     $  (13,215 )   $    (19,043 )   $ (20,576 )   $ (52,791 )





                     For the Year
(Dollars in        Ended December
thousands)               31, 2020
              Telecommunications      Electric Power       Renewables        Other         Total
Total
Revenues      $                 -     $         8,482     $     13,005     $       -     $  21,487
Loss from
operations    $                 -     $        (4,942 )   $     (5,479 )   $ (11,610 )   $ (22,031 )




                                       37

--------------------------------------------------------------------------------


  Table of Contents



Revenue

                              For the Years Ended December 31,
Revenues by Segment                         Percent
(Dollars in thousands)      2021             Change          2020
Telecommunications       $    27,799            100.0 %    $      -
Electric Power                43,599            414.0 %       8,482
Renewables                    11,550            (11.2 )%     13,005
Total revenues           $    82,948            286.0 %    $ 21,487




2021 compared to 2020

Revenues in 2021 are attributable to newly acquired entities, continued sales,
and marketing efforts. Net revenues for the year ended December 31, 2021 were
greater than in 2020 due to the acquisitions in the Telecommunications and
Electric Power segments and the development of the Company's Electric Power
business. This increase was partially offset by lower renewables revenue at
Orbital Solar Services during 2021. Revenues will fluctuate generally around the
timing of customer project delivery schedules.



The Electric Power segment held backlogs of customer orders of approximately
$207.7 million as of December 31, 2021 and $22.2 million at December 31, 2020.
The Renewables segment held backlogs of customer orders of approximately
$121.4 million as of December 31, compared to $8.1 million as of December 31,
2020. Telecommunications, had backlogs of customer orders of approximately
$194.5 million compared to zero as of December 31, 2020.



Cost of Revenues



2021 compared to 2020

For the year ended December 31, 2021, the cost of revenues as a percentage of
revenue increased to 94.8% from 91.1% during 2020. This increase was
attributable to start-up costs at the Company's Electric Power segment and lower
margin projects during the period for Orbital Solar Services. Margins will vary
based upon the mix of work provided, proprietary technology included in
projects, contract labor necessary to complete projects, and the competitive
markets in which the Company competes. The year ended December 31, 2021 was also
affected negatively by the COVID-19 pandemic and the resulting world-wide
economic slowdown.



The Company expects continued improvement in 2022 with the addition of the newly
acquired companies Gibson Technical Services, IMMCO, Inc., Full Moon Telecom,
LLC, and Front Line Power Construction, LLC. These acquired entities have been
profitable from acquisition. With the addition of these entities, the Company
expects synergies that will promote efficiencies and increase revenue in the
years to come. Additionally, two large solar projects are scheduled to ramp up
in 2022 and increase revenue.

                                       38

--------------------------------------------------------------------------------

Table of Contents

Selling, General and Administrative Expense





Selling, General and Administrative (SG&A) expenses includes such items as
wages, commissions, consulting, general office expenses, business promotion
expenses and costs of being a public company including legal and accounting
fees, insurance and investor relations. SG&A expenses are generally associated
with the ongoing activities to reach new customers, promote new product lines
including Telecommunications, Electric Power, and Renewables segments and other
new product and service introductions.

2021 compared to 2020



During the year ended December 31, 2021, SG&A increased $31.0 million compared
to the year ended December 31, 2020. The increase in SG&A for 2021 compared to
2020 was due to the addition of entities in our Telecommunications and Electric
Power segments. Additionally, the Electric Power segment experienced increased
start-up SG&A costs around increased payroll and insurance expense. Also
contributing to SG&A were increased corporate costs largely due to strategic
initiatives, which included increased professional fees and costs associated
with due diligence activities related to acquisitions.

SG&A decreased to 60.3% of total revenue in 2021 compared to 88.6% of total revenue during the year ended December 31, 2020 due to economies of scale on 286.0% higher consolidated revenues.

Depreciation and Amortization



                                                For the Years Ended December 31,
Depreciation and Amortization by Segment                       Percent
(Dollars in thousands)                        2021             Change          2020
Telecommunications                         $     2,326             100.0 %    $     -
Electric Power                                   5,969            1278.5 %        433
Renewables                                       2,931             (10.6 )%     3,278
Other                                            1,684              10.1 %      1,530
Total depreciation and amortization (1)    $    12,910             146.3 %    $ 5,241




(1) For the years ended December 31, 2021 and 2020, depreciation and
amortization totals included $1.6 million and $1.5 million, respectively that
were classified in income from discontinued operations on the Consolidated
Statements of Operations in the Other segment. For the years ended December 31,
2021 and 2020, depreciation and amortization totals included $4.5 million and
$0.5 million, respectively that were classified as cost of revenues in the
Consolidated Statements of Operations.

The depreciation and amortization expenses are associated with depreciating buildings, furniture, vehicles, equipment, software and other intangible assets over the estimated useful lives of the related assets.


                                       39

--------------------------------------------------------------------------------


  Table of Contents



2021 compared to 2020

Depreciation and amortization expense in the year ended December 31, 2021 was up
compared to 2020 primarily due to the amortization of Telecommunications and
Electric Power segment acquisition intangibles and depreciation of equipment
used by Telecommunications and Electric Power segments.

Provision for Bad Debt



Provision for bad debt in 2021 represented less than 1% of total revenues and
related to miscellaneous receivables, which the Company had either recorded an
allowance for doubtful collections of the receivable or for which the Company
had determined the balance to be uncollectible. The provision for bad debt
decreased in 2021 compared to 2020 as the 2020 provision for bad debt primarily
related to accounts receivable write-offs on the Renewable segment's customer
balances that were deemed to be uncollectible.



                                       40

--------------------------------------------------------------------------------


  Table of Contents



Other Income (Expense)


                                                       For the Years Ended December 31,
                                                                    Percent
(Dollars in thousands)                             2021              Change             2020
Foreign exchange gain (loss)                   $       (500 )           (198.6 )%    $       507
Interest income                                         338               15.4 %             293
Sublet rental income                                    501               50.9 %             332
Financial instrument income (expense)                    33             (100.0 )%              -
Gain (loss) on extinguishment of debt and
loan modifications                                      365              337.0 %            (154 )
Other, net                                               40              900.0 %               4
Total other income (expense)                   $        777              (20.9 )%    $       982




Fluctuations in Other Income (Expense) are largely due to fluctuations in
foreign currency rates. Foreign currency gains and losses are primarily related
to intercompany receivables/payables between Orbital Energy Group and its U.K
Orbital Gas Systems subsidiary. Additionally, increased gain on extinguishment
of debt primarily relates to the forgiveness by the U.S. government of certain
payroll protection loans partially offset by the loss on extinguishment of debt
related to exchange of common stock for debt payments. The increase in financial
instrument income relates to a standalone financial instrument included in the
subscription agreement related to the $105 million credit agreement utilized in
the funding of the acquisition of Front Line Power Construction, LLC. This
financial instrument is discussed further in Note 7. Increased sublet rental
income is due to an increase in the square footage subleased in 2021 related to
the Company's previous corporate office in Oregon.

Investment Income



Prior to the third quarter of 2020, based on its equity ownership and that the
Company maintained a board seat and participated in operational activities of
Virtual Power Systems ("VPS"), the Company maintained significant influence to
account for the investment as an equity-method investment. Under the equity
method of accounting, results are not consolidated, but the Company records a
proportionate percentage of the profit or loss of VPS as an addition to or a
subtraction from the VPS investment asset balance. With the decrease in
ownership percentage following a Q3 2020 equity raise by VPS and additional
board seats placed, Orbital Energy Group, Inc. no longer has significant
influence to recognize the investment under the equity method. As such, the
Company held the investment under the cost method as of December 31 2020
resulting in a $4.8 million loss on its equity-method investment in the six
months ended June 30, 2020. The VPS investment continues to be held under the
cost method and at December 31, 2021 and December 31, 2020, the Company's basis
in the investment was $1.1 million as reflected on the consolidated balance
sheets.



Interest Expense

The Company incurred $8.3 million and $1.3 million of interest expense during
2021 and 2020, respectively. Interest expense is for interest on the short-term
and long-term notes payable including syndicated debt agreement, seller-financed
notes, non-recourse payable agreements, convertible note payable, insurance
financing notes, secured promissory note, and lines of credit. The increase in
interest expense in 2021 is related to the increase in notes payable outstanding
as of December 31, 2021. See note 7 for more information on the Company's notes
payable.



                                       41

--------------------------------------------------------------------------------


  Table of Contents



Provision (benefit) for taxes

The Company is subject to taxation in the U.S., various state and foreign
jurisdictions. We continue to record a full valuation allowance against the
Company's U.S. and U.K. net deferred tax assets as it is "not more likely than
not," that the Company will realize a benefit from these assets in a future
period. In future periods, tax benefits and related deferred tax assets will be
recognized when management concludes realization of such amounts is "more likely
than not."



2021 compared to 2020

In 2021, a net tax benefit of $10.5 million, was recorded to the income tax
provision from continuing operations for the year ended December 31,
2021 resulting in an effective tax rate of 17.4% compared to a $1.5 million tax
benefit from continuing operations for the year ended December 31, 2020 and an
effective tax rate of 5.3%. For the year ended December 31, 2021, the income tax
benefit primarily represents a decrease in the U.S. valuation allowance as a
result of the GTS acquisition. For the year ended December 31, 2020, the income
tax benefit primarily represents a decrease in the U.S. valuation allowance as a
result of the Reach Construction Group, LLC acquisition. As of December 31,
2021, we have federal, state and foreign net operating loss carry forwards of
approximately $97.3 million, $21.3 million, and $16.5 million, respectively, and
for which the federal and state net operating loss carry-forwards will expire
between 2026 and 2037.

Loss from Continuing Operations, net of income taxes

2021 compared to 2020



The Company had a loss from continuing operations, net of income taxes of $49.8
million for the year ended December 31, 2021 compared to a loss of $25.7 million
in 2020. The increased loss from continuing operations, net of income taxes was
attributable to start-up costs at the Company's Electric Power segment
and projects with lower than normal margins during the period for the Renewables
segment due to supply chain delays caused by COVID-19 leading to inefficiencies.
In addition, the Company faced increased administrative costs from acquisition
due diligence for the four companies acquired in 2021.



                                       42

--------------------------------------------------------------------------------

Table of Contents

Income from Discontinued Operations, net of income taxes

2021 compared to 2020



The Company had loss from discontinued operations, net of income taxes
of $11.4 million for the year ended December 31, 2021 compared to a loss of
$1.7 million in 2020. The increase in loss from discontinued operations is
primarily due to impairment recognized at Orbital UK in 2021 of $9.2 million. As
of December 31, 2021, Orbital UK was considered held for sale and their assets
were written down to their expected sale price.



Consolidated Net Loss

2021 compared to 2020

The Company had a net loss of $61.2 million for the year ended December 31,
2021 compared to a net loss of $27.4 million for the year ended December 31,
2020. The increased consolidated net loss was attributable to start-up costs at
the Company's Electric Power segment and projects with lower than normal margins
during the period for Renewables segment due to supply chain delays caused by
COVID-19 leading to inefficiencies, as well as increased administrative costs
from acquisition due diligence for the four companies acquired in 2021.

Recently Adopted and Recently Issued Accounting Standards

Information on recently adopted and recently issued accounting standards is included in Note 2 Summary of Significant Accounting Policies - Recent Accounting Pronouncements, to the Consolidated Financial Statements under Part II, Item 8, ''Financial Statements and Supplementary Data.''

© Edgar Online, source Glimpses