0001108967 Orbital Energy Group, Inc. false --12-31 FY 2021 0.001 0.001 10,000,000 10,000,000 0 0 0.001 0.001 325,000,000 325,000,000 82,259,739 81,906,676 31,029,642 30,676,579 353,063 353,063 105 0 5 3 0 9 3 35.7 1 5 0 0 21 2 3 2 1 2 15 1 3 10 10 5 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 year ended December 31, 2021 depreciation and amortization totals included $0.4 million that was classified as cost of revenues in the Telecommunications segment, $4.0 million that was classified as cost of revenues in the Electric Power segment and $54 thousand that was classified as cost of revenue in the Renewables segment. For the year ended December 31, 2020 depreciation and amortization totals included $0.4 million that was classified as cost of revenues in the Electric Power segment and $68 thousand that was classified as cost of revenue in the Renewables segment. On September 1st and 2nd, 2020, the Company entered into non-recourse agreements for the sale of future receipts to C6 Capital. The Company received net cash proceeds of $1.9 million for the future receipts of revenues in the amount of approximately $2.5 million. The Company recorded a liability of approximately $2.5 million and a debt discount of approximately $0.5 million, which represents the original issue discount and the fees paid in association with the financing. The debt discount was amortized to interest expense over the life of the agreement. Under the terms of the agreement, the Company was required to make minimum weekly payments in the aggregate of $155 thousand, which included a portion related to the discount amortization that was recorded as interest expense. The note had no stated interest rate and the effective interest rate used to amortize the discount was approximately 158%. These notes were refinanced in November 2020 and a loss on extinguishment of debt was recorded for $154 thousand related to the unamortized discount at the time of payoff. To refinance the original future revenues payable note and to provide the Company with additional capital, the Company took out two additional non-recourse agreements with C6 Capital for the sale of future revenues in the total amount of $3.5 million. These agreements had no stated interest rate and the original issue discount including upfront fees are being amortized using an effective interest rate of approximately 117%. After combined weekly payments of approximately $54 thousand for the first four weeks, the combined payments increased to approximately $116 thousand until June 2021 when the notes were paid off. In October 2021, the Company entered into a 60-day non-recourse agreement for the sale of future receipts to C6 Capital. The Company received net cash proceeds of $1.0 million with a face amount of $1.2 million. This agreement was paid off in December 2021. The agreement had no stated interest rate, but the discount and loan origination fees were amortized based on a 129% interest rate. A second non-recourse agreement with C6 was originated in November 2021 with a face amount of $9.5 million. The Company received net cash proceeds of $6.9 million. The Company recorded a liability of $9.5 million and a debt discount of $2.6 million. Under the terms of the agreement, for the first 12 weeks, the Company makes weekly payments of $148 thousand and for the final 20 weeks, the Company makes payments of $384 thousand. The agreement had no stated interest rate, but the discount and loan origination fees are being amortized based on an 89% interest rate. As of December 31, 2021, the future payments for this financing agreement was approximately $8.3 million ($6.6 million net of discount). See table on following page. Includes two seller-financed notes payable, one for $5 million and the second for $1.5 million. The $5 million note was amended from its original 18-month term to provide for installments of $1 million paid on March 3, 2021, a second $1 million payment to be made on October 31, 2021 and a final principal payment of $3 million on March 31, 2022. In August 2021, the Company paid $1 million in cash and exchanged 155,763 shares of common stock in exchange for an additional $1 million reduction in principal. The Company recorded this as an extinguishment of debt and a gain on extinguishment of $0.7 million. The new loan had a face value of $2.0 million at a rate of 6% per annum and was recorded based on an estimated market interest rate of 10% per annum with a discount of $48 thousand. The original payment terms called for the full $5 million principal to be paid no later than November 1, 2021 without separate installments. The second seller financed note payable is due 36-months from the April 1, 2020 acquisition date. Both notes had an original stated interest rate of 6% per annum. On November 13, 2020, the Company completed a Securities Purchase Agreement with an institutional investor, pursuant to which the Company agreed to issue to the Investor an unsecured convertible instrument in the principal amount of $2.2 million (the “Convertible Security” or “Note”) to purchase shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”) against the payment of the applicable consideration therefore. Upon the closing on November 13, 2020, the Company received gross proceeds of $2.2 million before fees and other expenses associated with the transaction, including but not limited to, a $0.2 million original issue discount payable to the Investor. The net proceeds received by the Company were used primarily for working capital, debt repayment and general corporate purposes. The Note is payable in full within eighteen (18) months after the purchase price date in accordance with the terms set forth in the Note and accrues interest on the outstanding balance at the rate of ten percent (10%) per annum from the Purchase Price Date until the Note is paid in full. All interest shall compound daily and shall be payable in accordance with the terms of the Note. Company has the right to prepay all or any portion of the outstanding balance in an amount equal to 115% multiplied by the portion of the outstanding balance to be prepaid. The creditor may request payment of up to $250 thousand per month beginning 6 months after initial issuance. Original issue discount is amortized over the expected life of the investment at an effective interest rate of approximately 29%. The Company elected the fair value option for this note and as a result did not bifurcate any potential embedded derivatives. The Company determined that the fair value at December 31, 2020 approximated its carrying value so no fair value adjustment was made as of December 31, 2020. In February 2021, the Company negotiated modified terms which effectively removed the convertible option from the note and the Company recorded a $250 thousand loss on extinguishment. In July 2021, the Company issued 248,509 shares of common stock in exchange for a payment against the debt of $1 million and in September 2021, the Company signed an exchange agreement to issue 83,333 shares of common stock in exchange for a payment against the debt of $250 thousand. In October 2021, the Company issued 100,000 shares in exchange for a payment against the debt of $250,000. In November 2021, the Company issued 113,636 shares in exchange for a payment against the debt of $250,000. The carrying value was $0.7 million at December 31, 2021. On March 23, 2021, the Company completed a second note payable with the same institutional investor with a face amount of $10.7 million, a stated interest rate of 9.0%, an estimated effective interest rate of 19.6%, an original issue discount of $1.0 million. The note payable is payable within eighteen (18) months after the purchase date and the creditor may request payment of up to $1 million per month beginning 6 months after initial issuance. In September 2021, the Company issued 333,333 shares of common stock in exchange for a payment against the debt of $1 million. In October 2021, the Company issued 400,000 shares of common stock in exchange for $1.0 million payment against the debt. In November 2021, the Company issued 454,545 shares of common stock in exchange for a $1.0 million payment against the debt. In December 2021, the Company issued 454,545 shares of common stock in exchange for $1.0 million payment against the debt. The carrying value was $7.2 million at December 31, 2021. On May 11, 2021, the Company completed a third note payable agreement with the institutional investor with a face amount of $10.7 million, a stated interest of 9% per annum and a combined original issue discount and unamortized prepaid fees of $1.0 million. The net proceeds were to be used for working capital, future acquisitions and general corporate purposes. The note payable is payable within eighteen (18) months after the purchase date and the creditor may request payment of up to $1 million per month beginning 6 months after initial issuance. In November 2021, the Company issued 454,545 shares of common stock in exchange for $1.0 million payment against the debt. In December 2021, the Company issued 284,090 shares of common stock in exchange for $625 thousand payment against the debt. The carrying value was $9.3 million at December 31, 2021. On December 20, 2021, the Company completed a fourth note payable agreement with the institutional investor with a face amount of $16.1 million, a stated interest rate of 9.0%, an estimated effective interest rate of 16.3%, and an original issue discount of $1.1 million. The note payable is payable within eighteen (18) months after the purchase date and the creditor may request payment of up to $1.5 million per month beginning 6 months after initial issuance. The carrying value was $15.1 million at December 31, 2021. The Company has not made any payments on this note as of December 31, 2021. For Streeterville payments made by exchanging stock for payments against the debt in 2021, the Company recorded a total loss of $1.3 million on the exchanges due to the Company issuing shares at a lower price than the current market price on the dates of exchange. Includes vehicle and equipment loans with interest rates ranging from 5.74% to 8.99%. On November 17, 2021, the Company entered into a credit agreement and associated documents (the “Credit Agreement”) with Alter Domus (US), LLC (“Alter Domus”), 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. The Lenders made a Term Loan to Front Line in the initial principal amount of $105,000,000 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. Interest rate on the term notes at December 31, 2021 was 13.5%. In October 2020, the Company entered into a conditional settlement agreement with a subcontractor to make payments of $3.5 million at zero interest over three years. The Company made a $0.5 million payment in the fourth quarter of 2021. Subsequent to year end, the Company made a $150,000 payment in February 2022, and is scheduled to make a $350,000 payment by March 31, 2022, a $1 million payment by November 2022 and the final $1.5 million payment by November 2023. Other category includes assets held for sale of the discontinued Orbital Gas subsidiaries. On November 17, 2021, the Company entered into two unsecured promissory notes, one with Kurt A Johnson, Jr, for $34,256,000 and the second for $51,384,000 with Tidal Power Group LLC. These promissory notes bear an interest rate of 6% per annum and were due on May 17, 2022. On December 10, 2021, Kurt A Johnson Jr. received an additional unsecured promissory note in the principal sum of $1,090,000 also with a 6% per annum interest rate in exchange for a reduction of shares issued to Kurt of 400,000. In March 2022, the marturity date for a portion of the two promissory notes was extended to May 31, 2023. See Note 18 for details on extension of maturity date. The deferred tax liability recorded at acquisition was offset against the Company's valuation allowance and recorded as a tax benefit in 2020. Note payable with an original balance for $1.4 million to First Insurance Funding was executed in July 2020 by the Company for the purposes of financing a portion of the Company's insurance coverage. The Note had an annual percentage rate of 3.35% with nine monthly payments of approximately $159 thousand and was paid off in the three months ended June 30 ,2021. The Company financed two additional insurance policies in the fourth quarter of 2020 for $0.1 million and $0.4 million, respectively. The smaller of which matured in April 2021 and the other of which matured in September 2021, and for which had annual interest rates of 3.35% and 4.35%, respectively. The Company executed two additional notes payable in the third quarter of 2021 for $1.7 million and $54 thousand, respectively at interest rates of 3.00% and 4.35%, respectively. In the fourth quarter, the Company executed one additional notes payable for $0.5 million at an interest rate of 4.35%. Includes purchases of property and equipment and purchases of other intangible assets. On April 30, 2020 and May 2, 2020, the Company entered into unsecured loans in the aggregate principal amount of approximately $1.9 million (the “Loans”) pursuant to the Paycheck Protection Program (the “PPP”), sponsored by the Small Business Administration as guarantor of loans under the PPP ($0.8 million of the loans related to a since discontinued operation and is classified in liabilities held for sale at December 31, 2020). The Loans, and interest accrued thereon, were forgivable, partially or in full, if certain conditions were met. The Loans were evidenced by four promissory notes, three with Bank of America, NA which were dated as of April 30, 2020 and one with Dogwood State Bank dated May 2, 2020. The Bank of America notes were to mature two years from funding date of the notes and the Dogwood State Bank note was to mature two years from the note date. Each of the notes bore interest at a fixed rate of 1.0% per annum with payments deferred. Prepayments on the Loans were permitted at any time prior to maturity with no prepayment penalties. All $1.9 million of the loans outstanding at December 31, 2020 were forgiven in the three months ending June 30, 2021. The remaining $1.4 million of Pay-check Protection loans were acquired as part of the GTS acquisition, and which were forgiven in the third quarter of 2021. The Company had a contingent receivable associated with the remaining PPP loan whereby the Company would be paid by the Sellers of GTS if the remaining PPP loan was not forgiven. Upon forgiveness of the loan, the receivable was relieved resulting in no gain or loss on the transaction. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2021

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to        

 

Commission File Number 0-29923

_____________________________________

 

Orbital Energy Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

Colorado

 

(1731)

 

84-1463284

(State or jurisdiction of

 

(Primary Standard Industrial

 

(I.R.S. Employer

incorporation or organization)

 

Classification Code Number)

 

Identification No.)

 

1924 Aldine Western

Houston, Texas  77038

(832) 467-1420

(Address and Telephone Number of Principal Executive Offices and Principal Place of Business)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 Trading Symbol(s) 

Name of each exchange

where registered

Common Stock, $0.001 par value.

 OEG 

Nasdaq Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes   ☒ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐ Yes   ☒ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   ☒ Yes  ☐ No

 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   ☒ Yes  ☐ No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐            Accelerated filer ☐    Non-accelerated filer  ☒

Smaller reporting company  ☒     Emerging growth company  ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   ☐ Yes   ☒ No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates, based on the closing price of our common stock on the last business day of the registrant’s most recently completed fiscal second quarter (June 30, 2021), was approximately $226,816,958. Shares of common stock beneficially held by each executive officer and director as well as 10% holders as of June 30, 2021 have been excluded from this computation because these persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.

 

As of March 31, 2022, the registrant had 85,409,451 shares of common stock outstanding and no shares of preferred stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

None.

 

 

 

Part I

Item 1.

Business

4

Item 1A.

Risk Factors

7

Item 1B.

Unresolved Staff Comments

22

Item 2.

Properties

22

Item 3.

Legal Proceedings

22

Item 4.

Mine Safety Disclosure

22

Part II

Item 5.

Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

23

 

Market Value

23

 

Description of Securities

23

Item 6.

Reserved

23

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

27

 

Critical Accounting Policies

27

 

Liquidity and Capital Resources

31

 

Results of Operations

37

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

43

Item 8.

Financial Statements and Supplementary Data

45

Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

90

Item 9A.

Controls and Procedures

90

Item 9B.

Other Information

91

Part III

Item 10.

Directors, Executive Officers and Corporate Governance

92

 

Our Corporate Governance Practices

96
 

Audit Committee

97
 

Audit Committee Report

98
 

Nominating Committee

98

Item 11.

Executive Compensation

102

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

107

Item 13.

Certain Relationships, Related Transactions and Director Independence

109

Item 14.

Principal Accounting Fees and Services

110

Part IV

Item 15.

Exhibits, Financial Statement Schedules

111

 

Exhibits

112

Item 16.

Form 10-K Summary

113

 

Signatures

113

 

Certifications

 

 

 

 

PART I

 

 

Item 1.  Business

 

Corporate Overview

 

Orbital Energy Group, Inc. and subsidiaries (Nasdaq: OEG), formerly known as CUI Global Inc., are collectively referred to as ‘‘Orbital Energy Group,’’ the “Company,” or “OEG.” Orbital Energy Group is a Colorado corporation organized on April 21, 1998 with its principal place of business located at 1924 Aldine Western, Houston, Texas 77038. The Company is a diversified infrastructure services company serving customers in the electric power, telecommunications, and renewable markets.

 

In the fourth quarter of 2021, the Company's continuing operations were reclassified into three reportable segments, which include the Electric Power segment, the Telecommunications segment, and the Renewables segment. The Company’s corporate overhead activities are included in Other. Orbital Energy Group has continuing operations in two countries, including the United States and India.

 

In December 2021, the Company announced plans to exit its Integrated Energy Infrastructure Solutions and Services segment. Both the domestic portion of the segment, Orbital Gas Systems, North America, and the foreign segment, Orbital Gas Systems, Ltd. (Orbital-UK) was held for sale as of December 31, 2021, and considered discontinued operations.

 

 

Electric Power Segment

 

The Electric Power segment consists of Front Line Power Construction, LLC based in Houston, Texas, Orbital Power, Inc. based in Dallas, Texas, and Eclipse Foundation Group based in Gonzales, Louisiana. The segment provides comprehensive infrastructure solutions to customers in the electric power industry. Services performed by Front Line Power and Orbital Power, Inc. generally include but are not limited to the engineering, design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities as well as emergency restoration services. Eclipse Foundation Group, which began operations in January 2021, is a drilled shaft foundation construction company that specializes in providing services to the electric transmission and substation, industrial, telecommunication and disaster restoration market sectors, with expertise performing services in water, marsh and rock terrains.

 

Telecommunications Segment

 

The Telecommunications segment consists of Gibson Technical Services (GTS) along with its subsidiaries IMMCO, Inc. based in Atlanta, Georgia and Full Moon Telecom, LLC based in Florida. GTS provides engineering, design, construction, and maintenance services to the broadband and wireless telecommunication industries and was acquired by the Company effective April 13, 2021. IMMCO, Inc. provides enterprise solutions to the cable and telecommunication industries and was acquired by the Company effective July 28, 2021. Full Moon Telecom, LLC provides telecommunication services including an extensive array of wireless service capabilities and was acquired by the Company effective October 22, 2021.

 

Renewables Segment

 

Orbital Solar Services, LLC (OSS), based in Raleigh, North Carolina, makes up the Renewables segment. OSS provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility-scale solar construction. 

 

 

Discontinued Operations  - Integrated Energy Infrastructure Solutions and Services

 

On December 28, 2021, the Board of Directors of Orbital Energy Group, Inc. approved management’s recommendation for certain restructuring and costs reduction actions to strategically reposition the Company’s business. This strategy focuses on building an infrastructure services company serving the electric power, telecommunications and renewable markets by disposing of two (2) of its subsidiaries.  The two subsidiaries are:

 

● Orbital Gas Systems, North America, Inc. (“OGSNA”);

 

● Orbital Gas Systems, Ltd. (“Orbital UK”).

 

OGSNA and Orbital UK are collectively referred to as the “Orbital Gas Subsidiaries."

 

The Orbital Gas Subsidiaries provide proprietary gas measurement and sampling technologies and the integration of process control and measuring/sampling systems.  These legacy businesses do not fit within the Company's future strategy to build an infrastructure services company serving the electric power, telecommunications, and renewable markets. The disposition of the Orbital Gas Subsidiaries will facilitate the Company’s restructuring and cost savings initiatives and are intended to realign and simplify its business structure and better position the Company for future growth and improved profitability.

 

Following is a description of the businesses held for sale:

 

Orbital Gas Systems, Ltd. (Orbital-UK) is based in Stone, Staffordshire in the United Kingdom and Orbital Gas Systems, North America, Inc. (Orbital North America), is based in Houston, Texas. The Integrated Energy Infrastructure Solutions and Services segment subsidiaries, collectively referred to as (“Orbital Gas Systems”) are leaders in innovative gas solutions, with more than 30 years of experience in design, installation and the commissioning of industrial gas sampling, measurement and delivery systems. Included in the U.K. is a 46,000 square foot manufacturing/administration/research and development facility.

Orbital Gas Systems manufactures and delivers integrated engineering solutions and technologies including environmental monitoring, gas metering, process control, telemetry, gas sampling and BioMethane to grid solutions. Its proprietary VE® Technology enhances the capability and speed of our GasPT® Technology. VE Technology® provides a superior method of penetrating the gas flow without the associated vortex vibration, thereby making it a ‘‘stand-alone’’ product for thermal sensing (thermowells) and trace-element sampling.

Under the United States Trademark Act of 1946, as amended, and the system of international registration of trademarks governed by international treaties, the Madrid Agreement, which maintains the international register and, in several instances, direct trademark registration in foreign countries, our discontinued operations maintain up to date the following trademarks: GasPT, IRIS, Orbital Gas Systems, and VE Technology.

 

As of December 31, 2021, Orbital UK was considered held for sale and its assets were written down to their expected sale price, resulting in a $9.2 million impairment in 2021.   

 

 

Anticipated Growth Strategy

 

Our strategy includes:

 

 

Profitably grow organically and through acquisitions into infrastructure services within the electric power, telecommunications and renewables markets.
 

We are committed to fostering greater diversity within the industries we serve, ensuring that people of color and minority-owned and/or operated businesses have ample opportunities to join in and benefit from our growth.

 

Continuing to enhance our service capabilities, expand existing and new customer relationships and broaden our geographic footprint.

 

Acquisition Strategy

 

Our acquisition strategy is focused on pursuing targets with profitability that is equal to or greater than that of industry peers, revenue visibility, good outlook for growth, long-standing customer relationships and entrepreneurial leaders with a proven track record in operations management. Due diligence is performed on each potential acquisition target to identify relevant synergies with our current business, along with the potential for increasing revenue, earnings and shareholder value.

 

 

 

Employees

 

As of December 31, 2021, Orbital Energy Group, Inc., with its consolidated subsidiaries, had 1,329 employees in continuing operations and 111 employees in discontinued operations. This is an increase in total employees from the 284 total employees reported as of December 31, 2020. As of December 31, 2021, 203 of its employees are members of the International Brotherhood of Electrical Workers or IBEW, which is an increase from zero IBEW members as of December 31, 2020. Most of the increase in employees relates to the acquisitions of Front Line Power Construction, LLC, and Gibson Technical Services and subsidiaries IMMCO, Inc. and Full Moon Telecom, LLC along with the growth of Orbital Power, Inc. and Eclipse Foundation Group operations during 2021. The Company values all of its employees and fosters a good working relationship. As the company continues to increase revenues, additional staff may be added to adequately support the business.

Intellectual Property Protection

The Company relies on various intellectual property laws and contractual restrictions to protect its proprietary rights in products, logos and services. These include confidentiality, invention assignment and nondisclosure agreements with employees, contractors, suppliers and strategic partners. The confidentiality and nondisclosure agreements with employees, contractors and suppliers are in perpetuity or for a sufficient length of time so as to not threaten exposure of proprietary information.

 

Under the United States Trademark Act of 1946, as amended, and the system of international registration of trademarks governed by international treaties, the Madrid Agreement, which maintains the international register and, in several instances, direct trademark registration in foreign countries, we and our subsidiaries actively maintain up to date the following trademarks for continuing operations: Orbital Solar Services, Orbital Power, Inc., Eclipse Foundation Group, Orbital Renewables, Gibson Technical Services, Front Line Services, LLC, IMMCO, Inc., and Full Moon Telecom, LLC.

 

The Company continuously reviews and updates the existing intellectual property filings and files new documentation both nationally and internationally (Patent Cooperation Treaty) in a continuing effort to maintain up-to-date protection of its intellectual property.

 

For those intellectual property applications pending, there is no assurance that the registrations will be granted. Furthermore, the Company is exposed to the risk that other parties may claim the Company infringes their existing patent and trademark rights, which could cause the Company’s inability to develop and market its products unless the Company enters into licensing agreements with the technology owner or could force the Company to engage in costly and potentially protracted litigation.

 

Competitive Business Conditions

 

The markets in which we operate are highly fragmented and highly competitive wherein Orbital Energy Group competes with other contractors, from small local independent companies to large national firms, in most of the geographic markets in which we operate. Several competitors are large companies that have significant financial, technical and marketing resources. Certain barriers to entry exist in the markets in which we operate such as technical expertise, high safety rating requirements, operational experience and quality, and financial resources. From time to time, new competitors that have adequate financial resources and access to technical expertise may become a competitor in our markets. A significant portion of our revenues is currently derived from unit price or fixed price agreements with price often a primary factor in customer project awards; therefore, we could be underbid by our competitors. We believe that as demand for our services increases, customers often consider other factors in choosing a service provider, including technical expertise and experience, safety ratings, financial and operational resources, geographic presence, industry reputation and dependability, which we expect to benefit larger contractors such as us. There can be no assurance, however, that our competitors will not develop the expertise, experience and resources to provide services that are superior in both price and quality to our services, or that we will be able to maintain or enhance our competitive position. Many of our customers are able to perform their own infrastructure services similar to the work we provide. Although these companies currently outsource a significant portion of these services, there can be no assurance that they will continue to do so in the future or that they will not acquire additional in-house capabilities.

 

 

Item 1A. Risk Factors

 

RISK FACTORS

 

Our business is subject to various risks and uncertainties. Investors should read carefully the following factors as well as the cautionary statements referred to in ‘‘Forward-Looking Statements’’ together with all of the other information in this Form 10-K. If any of the risks and uncertainties described below or elsewhere in this annual report on Form 10-K actually occur, the Company's business, financial condition or results of operations could be materially adversely affected and/or the trading price of our common stock could decline. We also may not be able to achieve our goals or expectations. 

 

Risks Related to Our Business and Operations, Services, Products and Industries We Serve

Historically, we have generated annual losses from operations, and we may need additional funding in the future.

Historically, on an annual basis, we have not generated sufficient revenues from operations to self-fund our capital and operating requirements. For the year ended 2021, we had a net loss of $61.2 million, an accumulated deficit as of December 31, 2021 of $210.9 million, and negative working capital including of $33.3 million, which includes current maturities of long-term debt. If we are not able to generate sufficient income and cash flows from operations to fund our operations and growth plans, we may seek additional capital from equity and debt placements or corporate arrangements. Additional capital may not be available on terms favorable to us, or at all. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve restrictive covenants or security interests in our assets. If we raise additional funds through collaboration arrangements with third parties, it may be necessary to relinquish some rights to technologies or products. If we are unable to raise adequate funds or generate them from operations, we may have to delay, reduce the scope of, or eliminate some or all of our growth plans or liquidate some or all of our assets.

 

There is no assurance we will achieve or sustain profitability.

For the year ended December 31, 2021, we had a net loss of $61.2 million. There is no assurance that we will achieve or sustain profitability. If we fail to achieve or sustain profitability, the price of our common stock could fall and our ability to raise additional capital could be adversely affected.

 

 

Acquisitions and strategic investments related to business expansion activities may not be successful and may divert our resources from our existing business activities, negatively affecting our operating results, cash flows and liquidity and may not enhance shareholder value.

Orbital Energy Group has focused our business on the acquisition and development of energy infrastructure services companies including Front Line Power Construction, LLC, Gibson Technical Services, IMMCO, Inc, Full Moon Telecom, LLC. and Orbital Solar Services (formerly Reach Construction Group, LLC), and the greenfield development of Orbital Power, Inc. and Eclipse Foundation Group. We may not be successful in acquiring energy infrastructure services companies that are commercially viable. We may fail to successfully develop or commercialize such services, solutions and products that we acquire. Research, development and commercialization of such acquired services, solutions and products may disproportionately divert our resources from our other business activities. Acquisitions expose us to operational challenges and risks, including the ability to profitably manage and integrate acquired operations, implement internal controls, procedures, financial reporting and accounting systems into our business. In addition, increased indebtedness, earn-out obligations and cash flow requirements may result in cash flow shortages if anticipated revenue and earnings are not realized or are delayed. Other risks for acquisitions include, among other things, the ability to retain and hire qualified personnel, costs to integrate the business and fund capital needs. 

 

We may not be able to identify suitable acquisitions or investments or may have difficulty obtaining the necessary financing required to complete such acquisitions and investments. We may utilize our common stock, debt instruments, including convertible debt securities, which could dilute the ownership interests of our shareholders. In addition, we may pursue acquisitions our existing shareholders may not agree with. 

 

We cannot assure you that the indemnifications granted to Orbital Energy Group, Inc. by sellers of acquired companies will be sufficient in amount, scope or duration to fully offset potential liabilities from acquired businesses which may have liabilities that we failed, or were unable, to discover during due diligence processes. Any such liabilities could have a material adverse effect on our business.

 

Acquisitions could result in operating difficulties, dilution and other harmful consequences.

We expect to continue to pursue acquisitions which require integration into our own business model. We expect to continue to evaluate and enter into discussions regarding a wide array of potential strategic transactions focused on energy infrastructure services. These transactions could be material to our financial condition and results of operations. The process of integrating an acquired company, business or technologies may create unforeseen operating difficulties and expenditures. The areas where we face risks include:

 

 

implementation or remediation of controls, procedures and policies of the acquired company;

 

diversion of management time and focus from operating our business to acquisition integration challenges;

 

coordination of product, engineering and sales and marketing functions;

 

transition of operations, users and customers into our existing customs;

 

cultural challenges associated with integrating employees from the acquired company into our organization;

 

retention of employees from the businesses we acquire;

 

integration of the acquired company’s accounting, management information, human resource and other administrative systems;

 

liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities;

 

litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former shareholders, or other third parties;

 

in the case of foreign acquisitions, the need to integrate operations across different cultures, time zones, and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;

 

failure to successfully further develop the acquired technologies; and

 

other as yet unknown risks that may impact our business.

 

Our failure to address these risks or other problems encountered in connection with our past or future acquisitions could cause us to fail to realize the anticipated benefits of such acquisitions, incur unanticipated liabilities and harm our business generally. 

 

Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, write-offs of goodwill, or reductions to our tangible net worth any of which could harm our business, financial condition, results of operations and prospects. Also, the anticipated benefit of many of our acquisitions may not materialize.

 

We could incur goodwill and intangible asset impairment expenses, which could negatively impact our profitability.

We have goodwill and intangible assets and will continue to as we acquire new businesses. We periodically review the carrying values of goodwill and intangible assets to determine whether such carrying values exceed their fair market values. Adverse changes in financial, competitive and other conditions such as declines in operating performance or other adverse changes in valuation assumptions could adversely affect the estimated fair values of the related assets and impairment to goodwill or intangible assets. See Note 5 in the notes to the audited consolidated financial statements for further details.

 

We utilize debt to fund our operations and acquisitions strategy, which could adversely affect our business, financial condition and results of operations or could affect our ability to access capital markets in the future. Our debt may contain restrictive covenants that may prevent Orbital Energy Group from engaging in transactions that might benefit us.

Outstanding debt and related debt service requirements could have significant consequences on our future operations including making it difficult to meet payment and other obligations. Events of default may occur if we fail to comply with the financial and other restrictive covenants included with our debt agreements which could result in an acceleration of our debts becoming due and payable which would negatively impact our ability to fund working capital, capital expenditures, acquisitions and investments and could impact our ability to obtain additional financing or limiting access to financing with reasonable terms. 

 

We cannot assure that our business will generate future cash flow from operations, or that future borrowings will be available to us in an amount sufficient to enable us to meet our payment obligations and to fund other operational and liquidity needs.

 

In addition, regulatory changes and/or reforms, such as the phase-out of the London Inter-bank Offered Rate (“LIBOR”), which is expected to occur by June 30, 2023, could lead to additional volatility in interest rates and other unpredictable effects. 

 

 

 

 

We have a significant amount of debt, and our significant indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations under our other debt.

We have a significant amount of debt and debt service requirements. As of December 31, 2021, we had approximately $156.6 million of outstanding debt, net of current maturities and $75.3 million of current maturities including line of credit. A large amount of the debt includes amounts borrowed during 2021 to finance a portion of the closing consideration paid in connection with our acquisition of Front Line Power Construction, LLC. This level of debt could have significant consequences on our future operations, including:

 

  making it more difficult for us to meet our payment and other obligations under our outstanding debt;
  an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which event of default could result in an acceleration of our debt maturity and higher default-level interest rates.
  reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions or strategic investments, and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;
  subjecting us to the risk of increasing interest expense on variable rate indebtedness.
  limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to changes in our business, the industries in which we operate and the general economy;
  limiting our ability to pursue business opportunities that become available to us; and
  placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged.

 

Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations on our existing indebtedness.

 

 

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our operations to pay our indebtedness.

Our ability to generate cash in order to make scheduled payments on the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive, legislative, regulatory and other factors beyond our control. In addition, our ability to borrow funds in the future to make payments on our debt will depend on the satisfaction of the covenants in our current credit agreements and those we may enter into in the future. Specifically, we will need to maintain certain financial ratios. Our business may not continue to generate sufficient cash flow from operations in the future and future borrowings may not be available to us under our senior credit facility or from other sources in an amount sufficient to service our indebtedness, to make necessary capital expenditures or to fund our other liquidity needs. If we are unable to generate cash from our operations or through borrowings, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to make payments on our indebtedness or refinance our indebtedness will depend on factors including the state of the capital markets and our financial condition at such time, as well as the terms of our financing agreements. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

 

We may be unable to obtain sufficient bonding capacity to support certain service offerings, and the need for performance and surety bonds could reduce availability of our available working capital resources.

Some of our contracts require performance and payment bonds. If Orbital Energy Group, Inc. is unable to obtain or renew the necessary bonding capacity, we may be precluded from participation in bidding for certain contracts and from certain customers. Such bonding may require Orbital Energy Group to post letters of credit or other collateral in connection with the bonds, which could reduce our available capacity to support other needs. Standard terms in the surety market allow for sureties to issue bonds on a project-by-project basis. Sureties may decline to issue bonds at any time and can require additional collateral as a condition to issuing or renewing any bonds. 

 

Changes to laws, governmental regulations and policies, including among other things, permitting processes and tax incentives, could affect demand for our services. Demand for construction services depends on industry activity and expenditure levels which can be affected by numerous factors. An inability to adjust to such changes could result in decreased demand for our services and adversely affect our operating results, cash flows and liquidity.

Government regulations, climate change initiatives, political and social activism each effect the industries Orbital Energy Group, Inc. serves. Changes in such could result in reduced demand for our services, delays in the timing of construction projects and possible cancellation of current or planned projects. Many of our customers must comply with strict regulatory and environmental requirements along with complex permitting processes. Our energy customers are regulated by the Federal Energy Regulatory Commission (“FERC”), among others. Our utility customers are regulated by state public utility commissions. Changes to existing, or implementation of new regulations and policies could have an adverse effect on our customers resulting in reduced demand for our services. We build renewable energy infrastructure including solar and other renewable energy projects for which the development is often dependent upon federal tax credits, existing renewable portfolio standards and other incentives. Changes to those may delay or otherwise negatively affect the demand for our services and solutions.

 

Our business and operating results are subject to physical risks associated with climate change.

Changes in climate have caused, and are expected to continue to cause, among other things, increasing temperatures, rising sea levels and changes to patterns and intensity of wildfires, hurricanes, floods, other storms and severe weather-related events and natural disasters. These changes have and could continue to significantly impact our future operating results and may have a long-term impact on our business, results of operation, financial condition and cash flows. While we seek to mitigate our risks associated with climate change, we recognize that there are inherent climate-related risks regardless of how and where we conduct our operations. For example, a catastrophic natural disaster could negatively impact any of our projects or office locations and the locations and service regions of our customers. Accordingly, a natural disaster has the potential to disrupt our business as well as the businesses that we serve and may cause us to experience work stoppages, project delays, financial losses and additional costs to resume operations, including increased insurance costs or loss of coverage, legal liability and reputational losses.

 

A lack of availability or an increase in the price of fuel, materials or equipment necessary for our business or our customers’ projects could adversely affect our business.

Pursuant to certain contracts, including fixed price and EPC contracts where we have assumed responsibility for procuring materials for a project, we are exposed to availability issues and price increases for materials that are utilized in connection with our operations, including, among other things, copper, steel and aluminum. In addition, the timing of our customers’ ongoing projects, as well as their capital budgets and decision-making with respect to the timing of the future projects, can be negatively impacted by a lack of availability or an increase in prices of certain materials. Prices and availability could be materially impacted by, among other things, supply chain and other logistical challenges, global trade relationships (e.g., tariffs, sourcing restrictions) and other general market and geopolitical conditions (e.g., inflation). For example, recent logistical challenges in connection with the COVID-19 pandemic and sourcing restrictions have resulted in uncertainty concerning availability and pricing of certain commodities and goods important to our and our customers’ businesses, including renewable energy project components (e.g., solar panels). The lack of availability of necessary materials could result in project delays, some of which could be attributable to us, and an increase in prices of materials could reduce our profitability on projects or negatively impact our customers, which could have an adverse effect on demand for our services or our business, financial condition, results of operations and cash flows.

 

Additionally, supply chain and other logistical challenges have negatively impacted suppliers of certain equipment necessary for the performance of our business, including, among other things, new vehicles for our fleet (both on-road and specialty vehicles) and vehicle parts (e.g., tires). Based on the significant worldwide shortage of semiconductors, as well as other factors, vehicle manufacturers are experiencing production delays with respect to vehicles we utilize in our operations. To the extent these production issues worsen or become longer-term in nature, our operations could be negatively impacted.

 

We are also exposed to increases in energy prices, particularly fuel prices for our fleet of vehicles, which have increased during the COVID-19 pandemic, and could increase further due to future regulatory, legislative and policy changes that result from, among other things, war in Ukraine and climate change initiatives. Furthermore, some of our fixed price contracts do not allow us to adjust our prices and, as a result, increases in fuel costs could reduce our profitability with respect to such projects. Our ability to utilize certain existing vehicles within our fleet may also be limited by new emissions or other regulations, and, due to lack of production or availability, we may not be able to procure a sufficient number of vehicles meeting any such regulations. To the extent we are unable to utilize a significant portion of our existing fleet, we may be unable to perform services, which could have an adverse effect on our future financial condition, results of operations and cash flows. The broader and longer-term implications of these challenges, as a result of the COVID-19 pandemic, the transition to a carbon-neutral economy and otherwise, remains highly uncertain and variable and could negatively impact our overall business, financial condition, results of operations and cash flows.

 

If our manufacturers, suppliers or our service providers are unable to provide an adequate supply of products and services, our growth could be limited, and our business could be harmed.  

We rely on third parties to supply services and materials for our integrated solutions and construction offerings. In order to grow our business to achieve profitability, we may need such business partners to increase, or scale up, production and supply by a significant factor over current levels. There are technical challenges to scaling up capacity that may require the investment of substantial additional funds by our manufacturers or suppliers and hiring and retaining additional management and technical personnel who have the necessary experience. If our manufacturers and suppliers are unable to do so, we may not be able to meet the requirements to grow our business to anticipated levels. We also may represent only a small portion of our supplier’s or manufacturer’s business, and if they become capacity constrained, they may choose to allocate their available resources to other customers that represent a larger portion of their business.

 

Our global operations are subject to increased risks, which could harm our business, operating results and financial condition.

Our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to a number of risks, including the following:

 

challenges caused by distance, and cultural differences and by doing business with foreign agencies and governments;

 

longer payment cycles in some countries;

 

uncertainty regarding liability for services and content;

 

credit risk and higher levels of payment fraud;

 

currency exchange rate fluctuations and our ability to manage these fluctuations;

 

foreign exchange controls that might prevent us from repatriating cash earned in countries outside the U.S.;

 

import and export requirements that may prevent us from shipping products or providing services to a particular market and may increase our operating costs;

 

potentially adverse tax consequences;

 

higher costs associated with doing business internationally;

 

political, social and economic instability abroad, terrorist attacks and security concerns in general;

 

natural disasters, public health issues including impacts from global or national health epidemics and concerns such as the recent coronavirus, and other catastrophic events;

 

reduced or varied protection for intellectual property rights in some countries; and

 

different employee/employer relationships and the existence of workers’ councils and labor unions.

 

In addition, compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business in international venues and could expose us or our employees to fines and penalties. These numerous and sometimes conflicting laws and regulations include import and export requirements, content requirements, trade restrictions, tax laws, sanctions, internal and disclosure control rules, data privacy requirements, labor relations laws, U.S. laws such as the Foreign Corrupt Practices Act and local laws prohibiting corrupt payments to governmental officials. Violations of these laws and regulations could result in fines, civil and criminal penalties against us, our officers or our employees, prohibitions on the conduct of our business and damage to our reputation. Any such violations could include prohibitions on our ability to offer our products and services in one or more countries and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results.

 

Our revenues depend on key customers and suppliers.

The Company’s major product and service lines in 2021 were electric power, telecommunications, and renewables and in 2020 were electric power and solar infrastructure services, and natural gas infrastructure.

 

During 2021, 26% of revenues were derived from two customers, one with 15% and a second with 11% of total revenues. During  2020, over 53% of revenues were derived from three customers, one with 31%, and two with 11%. 

 

 

At December 31, 2021, of the gross trade accounts receivable totaling approximately $50.2 million, there were two individual customers that made up approximately 46% of the Company's total trade accounts receivable: one customer with 30%, and one customer with 16%. At  December 31, 2020, of the gross trade accounts receivable totaling approximately $6.9 million, approximately 70% was due from four customers: one with 27%, a second with 16% a third with 16%, and a fourth with 11%.

 

During 2021 the Company had one supplier that made up 12% of purchases included in cost of revenues and in 2020, the Company has three suppliers that made up 39% of our purchases included in cost of revenues, with 14%, 13% and 12%, for the three suppliers.

 

There is no assurance that we will continue to maintain all of our existing key customers or vendors in the future. Should we, for any reason, discontinue our business relationship with any one of these key customers, the impact to our revenue stream would be substantial. For additional information on our concentrations, see Note 15 – Concentrations.

 

The novel coronavirus outbreak, or other similar pandemic, epidemic or outbreak of infectious disease, could adversely impact our business, financial condition and results of operations and acquisitions.

Certain of our suppliers and the manufacturers of certain of our products may be adversely impacted by the novel coronavirus outbreak. As a result, we may face delays or difficulty sourcing products and services, which could negatively affect our business and financial results. Even if we are able to find alternate sources for such products and services, they may cost more, which could adversely impact our results of operations and financial condition. If we temporarily close our locations for periods of time or if our partners temporarily close, demand for our products and services may be reduced, and our revenues, results of operations and financial condition could be materially adversely affected.

 

A significant outbreak of COVID-19 and other infectious diseases could result in a widespread health crisis that could adversely affect the economies and financial markets worldwide, and the business of any potential target business with which we consummate a business combination could be materially and adversely affected. Furthermore, we may be unable to complete a business combination if continued concerns relating to COVID-19 restrict travel, limit the ability to have meetings with potential investors or the target company’s personnel, vendors and services providers are unavailable to negotiate and consummate a transaction in a timely manner. The extent to which COVID-19 impacts our search for a business combination will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other matters of global concern continue for an extended period of time, our ability to consummate a business combination, or the operations of a target business with which we ultimately consummate a business combination, may be materially adversely affected.

 

Unfavorable market conditions, market uncertainty, and/or economic downturns could reduce capital expenditures in the industries we serve.

Demand for our products, solutions and services has been, and will likely continue to be cyclical in nature. We are vulnerable to general downturns in the U.S. economy and those of the countries in which we operate. Unfavorable market conditions, market uncertainty, and/or economic downturns could have a negative effect on demand from our customers and our customers health. During such times, our customers may not have the ability to fund capital expenditures for infrastructure due to difficulty obtaining financing when there may be limited availability of debt or equity financing. This could result in project cancellations or deferral which could materially adversely affect our results of operations, cash flows and liquidity. 

 

Demand for alternative energy sources and legislative and regulatory changes, the volatility of oil and gas markets, among others, are beyond our control. Such economic factors can negatively affect our results of operations, cash flows and liquidity.

 

Our failure to properly manage projects, or project delays, could result in additional costs or claims, which could have a material adverse effect on our operating results, cash flows and liquidity.

Certain of our engagements occur over extended time periods and involve large-scale, complex projects. Our ability to manage our client relationship and the project itself, such as the timely deployment of appropriate resources, including third-party contractors and our own personnel will impact the quality of our project performance. Our results of operations, cash flows and liquidity could be adversely affected if we miscalculate the resources or time needed to complete a project with capped or fixed fees, or the resources or time needed to meet contractual milestones.

 

We perform work under a variety of conditions, including, but not limited to, challenging and hard to reach terrain and difficult site conditions. Performing work under such conditions can result in project delays or cancellations, potentially causing us to incur unanticipated costs, reductions in revenue or the payment of liquidated damages. In addition, some of our contracts require that we assume the risk should actual site conditions vary from those expected. Some of our projects involve challenging engineering, procurement and construction phases, which may occur over extended time periods. We may encounter difficulties in engineering, delays in designs or materials provided by the customer or our vendors and subcontractors, equipment and material delivery delays, permitting delays, weather-related delays, schedule changes, delays from customer failure to timely obtain rights-of-way, delays by subcontractors in completing their portion of projects and governmental, market and political or other factors, some of which are beyond our control and could affect our ability to complete a project as originally scheduled. In some cases, delays and additional costs may be substantial, and/or we may be required to cancel or defer a project and/or compensate the customer for the delay. We may not be able to recover any of such costs. Any such delays, cancellations, errors or other failures to meet customer expectations could result in damage claims substantially in excess of the revenue associated with a project. Delays or cancellations could also negatively affect our reputation or relationships with our customers, which could adversely affect our ability to secure new contracts.

 

We could also encounter project delays due to opposition, including political and social activism, and such delays could adversely affect our project margins. In addition, some of our agreements require that we share in cost overages or pay liquidated damages if we do not meet project deadlines; therefore, any failure to properly estimate or manage cost, or delays in the completion of projects, could subject us to penalties, which could adversely affect our results of operations, cash flows and liquidity. Further, any defects or errors, or failures to meet our customers’ expectations, could result in large damage claims against us. Due to the substantial cost of, and potentially long lead-times necessary to acquire certain of the materials and equipment used in our complex projects, damage claims could substantially exceed the amount we can charge for our associated services.

 

Fixed price contracts include risk that estimated costs are not accurate. We recognize revenue for certain projects using the cost-to-cost method of accounting and variations to assumptions could reduce profitability.

Some of our contracts include fixed price master service and other service arrangements in which the price of our services may be set on a per unit or aggregate basis. Our ability to accurately estimate the costs associated with our products, solutions and services and our ability to execute within those estimates is necessary for the success of those efforts. 

 

For certain projects we recognize revenue over time utilizing the cost-to-cost method of accounting whereby the percentage of revenue to be recognized in a period is measured by the percentage of the costs incurred to date relative to the total estimated costs for the contract. This method relies upon estimates of total estimated costs. Contract revenue and cost estimates are reviewed and revised on an ongoing basis as work progresses with adjustments recognized in the fiscal period in which the changes are made. 

 

Estimates are based upon management’s reasonable assumptions, judgment and experience. There are inherent risks in estimates, including unanticipated delays, technical complications, job conditions, and other factors including management’s assessment of expected variables. Any such adjustments could negatively affect the results of operations, cash flows, and liquidity.

 

We may fail to adequately recover on claims against project owners, subcontractors or suppliers for payment or performance.

From time to time, we may bring claims against project owners for additional costs that exceed the contract price or for amounts not included in the original contract. We may also present change orders and claims to our subcontractors and suppliers. Failure to properly document the nature of change orders or claims or other reasons that may result in unsuccessful negotiations for settlement could result in reduced profits, cost overruns or project losses. 

 

Our subcontractors and suppliers may fail or be unable to satisfy their obligations to us or other parties, or we may be unable to maintain these relationships, either of which could have a material adverse effect on our results of operations, cash flows and liquidity.

We depend on subcontractors to perform work for some of our projects. There is a risk that we could have disputes with subcontractors arising from, among other things, the quality and timeliness of the work they perform, customer concerns, or our failure to extend existing work orders or issue new work orders under a subcontracting arrangement. Our ability to fulfill our obligations as a prime contractor could be jeopardized if any of our subcontractors fail to perform the agreed-upon services on a timely basis and/or deliver the agreed-upon supplies. In addition, the absence of qualified subcontractors with whom we have satisfactory relationships could adversely affect our ability to perform under some of our contracts, or the quality of the services we provide. Additionally, in some cases, we pay our subcontractors before our customers pay us for the related services. We could experience a material decrease in profitability and liquidity if we pay our subcontractors for work performed for customers that fail to or delay paying us for the related work. Any of these factors could have a material adverse effect on our results of operations, cash flows and liquidity.

 

We also rely on suppliers, equipment manufacturers and lessors to obtain or provide the materials and equipment we require to conduct our operations. Any substantial limitation on the availability of suppliers or equipment, including from economic, regulatory or market conditions, could negatively affect our operations. Our results of operations, cash flows and liquidity could be adversely affected if we were unable to acquire sufficient materials or equipment to conduct our operations.

 

 

 

We include amounts in backlog that may not result in actual revenue or translate into profits. 

Our backlog may be subject to cancellation and unexpected adjustments, as such, it is an uncertain indicator of future operating results. OEG’s backlog includes estimated amounts of revenue we expect to realize from future work on uncompleted contracts, revenue from change orders and renewal options, and master service agreements. Some of these may be cancellable on short or no advance notice. Backlog amounts are determined based on contract price, estimates of work to be completed under contracts taking into account historical trends, experience on similar projects and estimates of customer demand based upon communications with our customers. In the past, we have experienced postponements, cancellations and reduction in expected future work due to customers’ changing plans, market volatility, regulatory and other factors. There can be no assurance that actual results will be consistent with the estimates included in our forecasts and as such backlog as of any particular date is an uncertain indicator of future revenue and earnings. 

 

We are a relatively small energy infrastructure services business and face formidable competition.

We are a relatively small company with limited capitalization in comparison to many of our competitors. Because of our size and capitalization, we believe that we have not yet established sufficient market awareness that is essential to our continued growth and success in all of our markets. We face formidable competition in every aspect of our business from other companies, many of whom have greater name recognition, more resources and broader service offerings than ours.

 

We also expect competition to intensify in the future. Our future success in keeping pace with technological developments and achieving product acceptance depends upon our ability to enhance our current products and to continue to develop and introduce new product offerings and enhanced performance features and functionality on a timely basis at competitive prices. Our inability, for technological or other reasons, to enhance, develop, introduce or deliver compelling products in a timely manner, or at all, in response to changing market conditions, technologies or customer expectations, could have a material adverse effect on our operating results and growth prospects. Our ability to compete successfully will depend in large measure on our ability to maintain a technically skilled development and engineering staff and to adapt to technological changes and advances in the industry, including providing for the continued compatibility of our products and solutions with evolving industry standards and protocols in a competitive environment.

 

The industries we serve are highly competitive and subject to rapid technological and regulatory change as well as customer consolidation. Any of these could result in decreased demand for our services, solutions and products which could adversely affect our results of operations, cash flows and liquidity.

We compete with other companies in most of the markets in which we operate that range from small independent firms serving local markets to larger regional, national and international firms. Some of our customers employ in-house personnel to perform some of the services we provide. Most of our customers’ work is awarded through bid processes, and our project bids may not be successful which could materially adversely affect our results of operations, cash flows and liquidity. 

 

Technological advances in the markets we serve could change our customers’ operating models and project requirements. Governmental regulations may also change our customers’ project requirements and our ability to adapt to those changing requirements could reduce the demand for our solutions, services and products. 

 

Our business is subject to operational risk, including from operational and physical hazards that could result in substantial liabilities and negatively affect our financial condition.

Due to the nature of the services we provide and the conditions in which we operate, our business is subject to operational hazards. Though we invest in substantial resources to provide for safety including occupational health and safety programs and by carrying appropriate amounts of insurance coverage, there can be no assurance that we will be able to mitigate all hazards, including electricity, fires, explosions, mechanical failures and weather-related incidents. This could result in significant liability. The risks faced by our personnel can cause personal injuries and loss of life, severe damage to or destruction of property and equipment and other consequential damages which could lead to large damage claims, suspension of operations, government enforcement actions, regulatory penalties, civil litigation or criminal prosecution. These costs could exceed the amount we charge for the associated products, solutions and services.

 

If serious accidents or fatalities occur, or if our safety records deteriorate, we could be restricted from bidding on certain projects, obtaining new customers or contracts, and contracts could be terminated. Accidents in the course of our business could result in significant liabilities, employee turnover and/or an increase to the costs of our projects. 

 

 

We will need to grow our organization and we may encounter difficulties in managing this growth.

As of December 31, 2021, Orbital Energy Group, Inc., together with its consolidated subsidiaries, had 1,329 full-time employees excluding 111 employees at our discontinued operations. We expect to experience growth in the number of our employees and the scope of our operations as we follow our growth strategy. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of new products, solutions and services. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize new products, solutions and services and compete effectively will depend, in part, on our ability to effectively manage any future growth.

 

Our operating results may vary over time and such fluctuations could cause the market price of our common stock to decline.

Our operating results may fluctuate significantly due to a variety of factors, many of which are outside of our control. Because revenues for any future period are not predictable with any significant degree of certainty, you should not rely on our past results as an indication of our future performance. If our revenues or operating results fall below the expectations of investors or securities analysts or below any estimates we may provide to the market, the price of our common shares would likely decline substantially. Factors that could cause our operating results and stock price to fluctuate include, among other things:

 

varying demand for our products, solutions and services due to the financial and operating condition of our customers, and general economic conditions;

 

inability of our suppliers and subcontractors to meet our demand;

 

success and timing of new product, solutions and services introductions by us and the performance of those generally;

 

announcements by us or our competitors regarding products, solutions, services, promotions or other transactions;

 

costs related to responding to government inquiries related to regulatory compliance;

 

our ability to control and reduce product, solutions and services costs;

 

changes in the manner in which we sell products, solutions and services;

 

volatility in foreign exchange rates, changes in interest rates and/or the availability and cost of financing or other working capital to our customers.

 

Our operating expenses may increase as we make further expenditures to enhance and expand our operations in order to support additional growth in our business and national stock market reporting and compliance obligations.

In the future, we expect our operations and marketing investments to increase to support our anticipated growth and as a result of our listing on the Nasdaq Stock Market. We have made significant investments in using professional services and expanding our operations. We may make additional investments in personnel and continue to expand our operations to support anticipated growth in our business. In addition, we may determine the need in the future to increase our direct sales force, add distributors and sales representatives to market and sell our products, solutions and services. Such changes to our existing sales model would likely result in higher selling, general and administrative expenses as a percentage of our revenues. We expect such increased investments could adversely affect operating income in the short term while providing long-term benefit.

 

Our business depends on a strong brand and failing to maintain and enhance our brand would hurt our ability to expand our base of customers.

We believe that we have not yet established sufficient market awareness in our various markets. Market awareness of our capabilities and products, solutions and services is essential to our continued growth and our success in all of our markets. We expect the brand identity that we acquired with platform companies, Front Line Power Construction, LLC, and Gibson Telecom Services along with developing brand identity with Orbital Solar Services and Orbital Power, Inc. will significantly contribute to the success of our business. Maintaining and enhancing these brands is critical to expanding our base of customers. If we fail to maintain and enhance our brands, or if we incur excessive expenses in this effort, our business, operating results and financial condition could be materially and adversely affected. Maintaining and enhancing our brands will depend largely on our ability to be a technology leader and continue to provide high-quality services, solutions, and products, which we may not do successfully.

 

 

New entrants in our markets may harm our competitive position.

New entrants seeking to gain market share by introducing new technology, services, solutions and products may make it more difficult for us to sell our services, solutions and products and could create increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.

 

Adverse conditions in the global economy and disruption of financial markets may significantly restrict our ability to generate revenues or obtain debt or equity financing.

The global economy continues to experience volatility and uncertainty and governments in many countries continue to evaluate and implement spending cuts designed to reduce budget deficits. These conditions and deficit reduction measures could reduce demand for our products and services, including through reduced government infrastructure projects, which would significantly jeopardize our ability to achieve our sales targets. These conditions could also affect our potential strategic partners, which in turn, could make it more difficult to execute a strategic collaboration. Moreover, volatility and disruption of financial markets could limit our customers’ ability to obtain adequate financing or credit to purchase and pay for our products, solutions and services in a timely manner, or to maintain operations and result in a decrease in sales volume. General concerns about the fundamental soundness of domestic and international economies may also cause customers to reduce purchases. Changes in governmental banking, monetary and fiscal policies to restore liquidity and increase credit availability may not be effective. Economic conditions and market turbulence may also impact our suppliers’ and subcontractors’ ability to supply sufficient resources in a timely manner, which could impair our ability to fulfill sales orders. It is difficult to determine the extent of the economic and financial market problems and the many ways in which they may affect our suppliers, customers, investors and business in general. Continuation or further deterioration of these financial and macroeconomic conditions could significantly harm sales, profitability and results of operations.

 

Some of our operations and certain suppliers and customers are located in areas subject to natural disasters or other events that could stop us from having our products made or shipped or could result in a substantial delay in our production or development activities.

Many of our operating units and customers are located in and around Houston, Texas, Eclipse Foundation Group is located in Gonzales, Louisiana, and Full Moon Telecom is located in Florida. The risk of hurricanes and other natural disasters in these geographic areas are significant due to the proximity to the coast and their propensity to flood. Despite precautions taken by us and our third-party providers, a natural disaster or other unanticipated problems, at our locations or at third-party providers could cause interruptions to our operations. Any disruption resulting from these events could cause significant delays in our ability to deliver our solutions, services and products until we are able to shift our manufacturing, assembly or testing from the affected contractor(s) to another third-party vendor. We cannot assure you that alternative capacity could be obtained on favorable terms, if at all.

 

Defects in our solutions could harm our reputation and business.

Our services and solutions are complex and have contained and may contain undetected defects or errors. Defects in our services and solutions may require us to implement design changes or updates.

 

Any defects or errors in our products, or the perception of such defects or errors, could result in:

 

expenditure of significant financial and product development resources in efforts to analyze, correct, eliminate or work around errors or defects;

 

loss of existing or potential customers;

 

delayed or lost revenue;

 

delay or failure to attain market acceptance;

 

negative publicity, which would harm our reputation;

 

warranty claims against us;

 

an increase in collection cycles for accounts receivable, which could result in an increase in our provision for doubtful accounts and the risk of costly litigation; and

 

harm to our results of operations.

 

 

 

 

Our contract manufacturers purchase some components, subassemblies and products from a limited number of suppliers. The loss of any of these suppliers may substantially disrupt our ability to obtain orders and fulfill sales. 

We rely on third-party components and technology to build and operate our solutions and we rely on our contract manufacturers to obtain the components, subassemblies and products necessary for our services and solutions. Shortages in components that we use in our solutions are possible and our ability to predict the availability of such components is limited. If shortages occur in the future, as they have in the past, our business, operating results and financial condition would be materially adversely affected. Unpredictable price increases of such components due to market demand may occur. 

 

We depend on key personnel and will need to recruit new personnel as our business grows.

As a small company, our future success depends in a large part upon the continued service of key members of our senior management team who are critical to the overall management of Orbital Energy Group, Inc. and our subsidiary companies, as well as the development of our technologies, products, solutions and service offerings, our business culture and our strategic direction. The loss of any of our management or key personnel could seriously harm our business and we do not maintain any key-person life insurance policies on the lives of these critical individuals.

 

If we are successful in expanding our product and customer base, we will need to add additional key personnel as our business continues to grow. If we cannot attract and retain enough qualified and skilled staff, the growth of the business may be limited. Our ability to provide services to customers and expand our business depends, in part, on our ability to attract and retain staff with professional experiences that are relevant to technology development and other functions the Company performs. Competition for personnel with these skills is intense. We may not be able to recruit or retain the caliber of staff required to carry out essential functions at the pace necessary to sustain or expand our business.

 

We believe our future success will depend in part on the following:

 

the continued employment and performance of our senior management;

 

our ability to retain and motivate our officers and key employees; and

 

our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing, sales and customer service personnel.

 

Our insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage could adversely impact our business.

Our business is subject to operating hazards and risks relating to handling, storing, transporting and use of the products, solutions and services we sell. We maintain insurance policies in amounts and with coverage and deductibles that we believe are reasonable and prudent. Nevertheless, our insurance coverage may not be adequate to protect us from all liabilities and expenses that may arise from claims for personal injury or death or property damage arising in the ordinary course of business, and our current levels of insurance may not be maintained or available in the future at economical prices. If a significant liability claim is brought against us that is not adequately covered by insurance, we may have to pay the claim with our own funds, which could have a material adverse effect on our business, consolidated financial condition, results of operations, or cash flows.

 

 

We may become subject to lawsuits, indemnity or other claims, in the ordinary course of our business, which could materially and adversely affect our business, results of operations and cash flows.

From time to time, we are subject to various claims, lawsuits and other legal proceedings brought or threatened against us in the ordinary course of our business. These actions and proceedings may seek, among other things, compensation for alleged personal injury, workers’ compensation, employment discrimination and other employment-related damages, breach of contract, property damage, environmental liabilities, liquidated damages, consequential damages, punitive damages and civil penalties or other losses, or injunctive or declaratory relief. We may also be subject to litigation in the normal course of business involving allegations of violations of the Fair Labor Standards Act and state wage and hour laws. In addition, we generally indemnify our customers for claims related to the services we provide and actions we take under our contracts, and, in some instances, we may be allocated risk through our contract terms for actions by our joint venture partners, equity investments, customers or other third parties.

 

Claimants may seek large damage awards and defending claims can involve significant costs. When appropriate, we establish accruals for litigation and contingencies that we believe to be adequate in light of current information, legal advice and our indemnity insurance coverages. We reassess our potential liability for litigation and contingencies as additional information becomes available and adjust our accruals as necessary. We could experience a reduction in our profitability and liquidity if we do not properly estimate the number of required accruals for litigation or contingencies, or if our insurance coverage proves to be inadequate or becomes unavailable, or if our self-insurance liabilities are higher than expected. The outcome of litigation is difficult to assess or quantify, as plaintiffs may seek recovery of very large or indeterminate amounts and the magnitude of the potential loss may remain unknown for substantial periods of time. Furthermore, because litigation is inherently uncertain, the ultimate resolution of any such claim, lawsuit or proceeding through settlement, mediation, or court judgment could have a material adverse effect on our business, financial condition or results of operations. In addition, claims, lawsuits and proceedings may harm our reputation or divert management’s attention from our business or divert resources away from operating our business and cause us to incur significant expenses, any of which could have a material adverse effect on our business, results of operations or financial condition.

 

Expanding and evolving data privacy laws and regulations could impact our business and expose us to increased liability.

The California Consumer Privacy Act (“CCPA”) became effective in 2020. CCPA created new consumer rights relating to the access to, deletion of, and sharing of personal information that is collected by businesses. Costs to comply with and implement these privacy-related and data protection measures could be significant. In addition, even our inadvertent failure to comply with federal, state, or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others. Any inability to adequately address privacy concerns, even if unfounded, or to comply with the more complex privacy or data protection laws, regulations and privacy standards, could lead to significant financial penalties, which may result in a material and adverse effect on our results of operations.

 

We are subject to taxation in multiple jurisdictions. As a result, any adverse development in the tax laws of any of these jurisdictions or any disagreement with our tax positions could have a material adverse effect on our business, consolidated financial condition or results of operations. In addition, our annual effective income tax rate can change materially as a result of changes in our mix of U.S. and foreign earnings and other factors, including changes in tax laws and changes made by regulatory authorities.

We are subject to taxation in, and to the tax laws and regulations of, multiple jurisdictions as a result of the global scope of our operations and our corporate and financing structure. We are also subject to transfer pricing laws with respect to our intercompany transactions. Adverse developments in these laws or regulations, or any change in position regarding the application, administration or interpretation thereof, in any applicable jurisdiction, could have a material adverse effect on our business, consolidated financial condition or results of our operations. In addition, the tax authorities in any applicable jurisdiction, including the United States, may disagree with the positions we have taken or intend to take regarding the tax treatment or characterization of any of our transactions. If any applicable tax authorities, including U.S. tax authorities, were to successfully challenge the tax treatment or characterization of any of our transactions, it could have a material adverse effect on our business, consolidated financial condition or consolidated results of our operations.

 

Our overall effective income tax rate is equal to our total tax expense as a percentage of total earnings before tax. However, income tax expense and benefits are not recognized on a global basis but rather on a jurisdictional or legal entity basis. Losses in one jurisdiction may not be used to offset profits in other jurisdictions and may cause an increase in our tax rate. Changes in statutory tax rates and laws, as well as ongoing audits by domestic and international authorities, could affect the amount of income taxes and other taxes paid by us. Also, changes in the mix of earnings (or losses) between jurisdictions and assumptions used in the calculation of income taxes, among other factors, could have a significant effect on our overall effective income tax rate.

 

 

Our operating results may be affected by fluctuations in foreign currency exchange rates, which may affect our operating results in U.S. dollar terms.

A portion of our revenue arises from our international operations. Revenues generated and expenses incurred by our international operations are often denominated in foreign currencies. As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates as revenues and expenses of our international operations are translated from local currencies into U.S. dollars. In addition, our financial results are subject to changes in exchange rates that impact the settlement of transactions. The Company does not currently undertake any hedges to protect against adverse foreign currency exposure.

 

A failure of our internal control over financial reporting could materially affect our business.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. An internal control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Internal control over financial reporting may not prevent or detect misstatements due to inherent limitations in internal control systems. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to prevent and detect fraud, and could expose us to litigation, harm our reputation, and/or adversely affect the market price of our common stock.

 

Risks Related to Our Intellectual Property and Technology

 

Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information.

We have devoted substantial resources to the development of our proprietary technology and trade secrets. In order to protect our proprietary technology and trade secrets, we rely in part on confidentiality agreements with our key employees, licensees, independent contractors and other advisors. These agreements may not effectively prevent disclosure of our trade secrets and may not provide an adequate remedy in the event of unauthorized disclosure of our trade secrets. We may have difficulty enforcing our rights to our proprietary technology and trade secrets, which could have a material adverse effect on our business, operating results and financial condition. In addition, others may independently discover trade secrets and proprietary information and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to determine and enforce the scope of our proprietary rights and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

 

Cyber risk and the failure to maintain the integrity of our operational or security systems or infrastructure, or those of third parties with which we do business, could have a material adverse effect on our business, consolidated financial condition and results of operations.

We are subject to an increasing number of various types of information technology vulnerabilities, threats and targeted computer crimes which pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. Disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber-attacks or security breaches of our networks or systems, could result in the loss of customers and business opportunities, legal liability, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensatory costs, and additional compliance costs, any of which could materially adversely affect our business, financial condition and results of operations. While we attempt to mitigate these risks, our systems, networks, products, solutions and services remain potentially vulnerable to advanced and persistent threats. Despite our efforts, our facilities and systems and those of our customers and third-party service providers may be vulnerable to security breaches, theft, misplaced or lost data, programming and/or human errors that could lead to the compromising of sensitive, confidential or personal data or information, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions, which in turn could adversely affect our consolidated financial condition and results of operations.

 

 

Risks Related to Regulation and Compliance

 

Our failure to comply with the regulations of federal, state and local agencies that oversee transportation and safety compliance could reduce our revenue, profitability and liquidity.

OSHA establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by OSHA and various recordkeeping, disclosure and procedural requirements. Various standards, including standards for notices of hazards and safety in excavation and demolition work, may apply to our operations. We incur capital and operating expenditures and other costs in the ordinary course of business in complying with OSHA and other state and local laws and regulations, and could incur penalties and fines in the future from violations of health and safety regulations, including, in extreme cases, criminal sanctions. Our customers could cancel existing contracts and not award future business to us if we were in violation of these regulations.

 

From time to time, we may receive notice from the Department of Transportation (“DOT”) that our motor carrier operations will be monitored. The failure to monitor and maintain our safety performance could result in suspension or revocation of vehicle registration privileges. Our ability to service our customers could be damaged if we were not able to successfully resolve such issues, which could lead to a material adverse effect on our results of operations, cash flows and liquidity.

 

Our operations could affect the environment or cause exposure to hazardous substances. In addition, our properties could have environmental contamination, which could result in material liabilities.

Our operations are subject to various environmental laws and regulations, including those dealing with the handling and disposal of waste products, polychlorinated biphenyls, fuel storage, air quality and the protection of endangered species. Certain of our current and historical construction operations have used hazardous materials and, to the extent that such materials are not properly stored, contained or recycled, they could become hazardous waste. Additionally, some of our contracts require that we assume the environmental risk of site conditions and require that we indemnify our customers for any damages, including environmental damages, incurred in connection with our projects. We may be subject to claims under various environmental laws and regulations, federal and state statutes and/or common law doctrines for toxic torts and other damages, as well as for natural resource damages and the investigation and clean-up of soil, surface water, groundwater, and other media under laws such as the Comprehensive Environmental Response, Compensation and Liability Act. Such claims may arise, for example, out of current or former conditions at project sites, current or former properties owned or leased by us, or contaminated sites that have always been owned or operated by third parties. For example, we own and lease facilities at which we store our equipment. Some of these facilities may contain fuel storage tanks. If these tanks were to leak, we could be responsible for the cost of remediation as well as potential fines. Liability may be imposed without regard to fault and may be strict and joint and several, such that we may be held responsible for more than our share of any contamination or other damages, or even for the entire share, and we may be unable to obtain reimbursement from the parties that caused the contamination. The obligations, liabilities, fines and costs or reputational harm associated with these and other events could be material and could have a material adverse impact on our business, financial condition, results of operations and cash flows.

 

We perform work in underground environments, which could affect the environment. A failure to comply with environmental laws could result in significant liabilities or harm our reputation, and new environmental laws or regulations could adversely affect our business.

Some of the work we perform is in underground environments. If the field location maps supplied to us are not accurate, or if objects are present in the soil that are not indicated on the field location maps, our underground work could strike objects in the soil containing pollutants and result in a rupture and discharge of pollutants. In such a case, we could incur significant costs, including clean-up costs, and we may be liable for significant fines and damages and could suffer reputational harm. Additionally, we sometimes perform directional drilling operations below certain environmentally sensitive terrains and water bodies. Due to the inconsistent nature of terrain and water bodies, it is possible that such directional drilling could cause a surface fracture releasing subsurface materials or drilling fluid. These releases alone or, in combination with releases that may contain contaminants in excess of amounts permitted by law, could potentially expose us to significant clean up and remediation costs, damages, fines and reputational harm, which could have a material adverse effect on our results of operations, cash flows and liquidity.

 

New environmental laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or leaks, or the imposition of new clean-up requirements could require us to incur significant costs or result in new or increased liabilities that could have a material adverse effect on our results of operations, cash flows and liquidity. We may incur work stoppages to avoid violating these laws and regulations, or we may risk fines or other sanctions if we inadvertently violate these laws and regulations, which could adversely affect our business.

 

 

Compliance with and changes in tax laws could adversely affect our financial results.

We are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, indirect taxes (excise/duty, sales/use, gross receipts, and value-added taxes), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax laws, treaties and regulations and changes in existing tax laws, treaties and regulations are continuously being enacted or proposed, and significant changes could result from the change in control of the U.S. Congress and presidency in 2021, all of which can result in significant changes to the tax rate on our earnings and have a material impact on our earnings and cash flows from operations. Since future changes to federal and state tax legislation and regulations are unknown, we cannot predict the ultimate impact such changes may have on our business.

 

In addition, significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We may be audited by tax authorities, and our tax estimates and tax positions could be materially affected by many factors, including the final outcome of tax audits and related litigation, the introduction of new tax accounting standards, legislation, regulations and related interpretations, our global mix of earnings, our ability to realize deferred tax assets and changes in uncertain tax positions. A significant increase in our tax rate can have a material adverse effect on our profitability and liquidity.

 

Risks Related to Our Common Stock

 

The trading price of our common stock may continue to be volatile, which could result in substantial losses for individual shareholders.

Our common stock trades on the Nasdaq Stock Market. There can be no assurance, however, that the trading market for our common stock will be robust. A limited trading market for our common stock may cause fluctuations in the market value of our common stock to be exaggerated, leading to price volatility in excess of that which would occur in a more active trading market for our common stock. The trading price of our common stock has been volatile and could continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control. During calendar year 2021, our common stock traded at a low of $2.08 and a high of $9.86.

 

We do not believe that this volatility corresponds to any recent change in our financial condition. However, such factors as: (1) our move into the renewable energy space (specifically solar); (2) the increased market interest in alternative energy stocks; (3) our recent press release outlining our commitment to bringing greater diversity and opportunities for underrepresented minority groups in the energy industry; and, (4) the changes in Washington DC with the new administration and its emphasis on renewable energy, as well as conditions in the financial markets generally, may have caused or contributed to this volatility.

 

The stock market in general, and the market for energy companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Public perception and other factors outside of our control may additionally impact the stock price of companies like us that garner a disproportionate degree of public attention, regardless of actual operating performance.

 

As a result of this volatility, our securities could experience rapid and substantial decreases in price, and you may be able to sell securities you purchase under this prospectus only at a substantial loss to the initial offering price.

 

Some, but not all, of the factors that may cause the market price of our common stock to fluctuate include:

 

 

fluctuations in our quarterly or annual financial results or the quarterly or annual financial results of companies perceived to be similar to us or relevant for our business;

 

changes in estimates of our financial results or recommendations by securities analysts;

 

failure of our services, products, and technologies to achieve or maintain market acceptance;

 

changes in market valuations of similar or relevant companies;

 

success of competitive service offerings or technologies;

 

changes in our capital structure, such as the issuance of securities or the incurrence of debt;

 

announcements by us or by our competitors of significant services, contracts, acquisitions or strategic alliances;

 

regulatory developments in the United States, foreign countries, or both;

 

litigation;

 

additions or departures of key personnel;

 

investors’ general perceptions; and

 

changes in general economic, industry or market conditions.

 

 

 

 

These factors may materially and adversely affect the market price of our common stock, regardless of our performance. In addition, the stock market in general and the market for energy infrastructure services companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our actual operating performance. Additionally, because the trading volume of our stock is not large, there can be a disparity between the bid and the asked price that may not be indicative of the stock’s true value.

 

In addition, if the market for energy stocks, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition, or results of operations. Further, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

 

A possible “short squeeze” due to a sudden increase in demand of our common stock that largely exceeds supply may lead to additional price volatility.

In the future investors may purchase shares of our common stock to hedge existing exposure or to speculate on the price of our common stock. Speculation on the price of our common stock may involve long and short exposures. To the extent an aggregate short exposure in our common stock becomes significant, investors with short exposure may have to pay a premium to purchase shares for delivery to share lenders at times if and when the price of our common stock increases significantly, particularly over a short period of time. Those purchases may in turn, dramatically increase the price of our common stock. This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our common stock that are not directly correlated to our business prospects, financial performance or other traditional measures of value for the Company or its common stock.

 

Additional stock offerings in the future may dilute then-existing shareholders’ percentage ownership of the Company.

Given our plans and expectations that we will need additional capital in the future, we anticipate that we may need to issue additional shares of common stock or securities convertible or exercisable for shares of common stock, including convertible preferred stock, convertible notes, stock options or warrants. The issuance of additional securities in the future will dilute the percentage ownership and potentially voting power of then current stockholders and could negatively impact the price of our common stock and other securities.

 

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock and make it more difficult for us to raise funds through future offerings of common stock.

 

We have never paid dividends on our common stock and do not expect to pay any in the foreseeable future.

Potential purchasers should not expect to receive a return on their investment in the form of dividends on our common stock. The Company has never paid cash dividends on its common stock and the Company does not expect to pay dividends in the foreseeable future.

 

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Our ability to pay dividends may be further restricted by the terms of any of our future debt or preferred securities. Accordingly, investors must rely on sales of their own common stock after price appreciation, which may never occur, as the only way to realize their investment. Investors seeking cash dividends should not purchase shares of our stock.

 

There is a limited public trading market for our common stock so you may not be able to resell your stock and may not be able to turn your investment into cash.

Our common stock is currently traded on the NASDAQ Stock Market under the trading symbol ‘‘OEG.’’ Our shares of common stock are thinly traded. Due to the illiquidity, the market price may not accurately reflect our relative value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. Because our common stock is thinly traded, a large block of shares traded can lead to a dramatic fluctuation in the share price and investors may not be able to liquidate their investment in us at all or at a price that reflects the value of the business.

 

 

Nasdaq may delist our common stock from its exchange which could limit your ability to make transactions in our securities and subject us to additional trading restrictions.

If for 30 consecutive trading days, the bid price of our common stock closes below the $1.00 per share minimum required for continued listing on the Nasdaq Stock Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), Nasdaq will send us a Notice. The Notice would not have an immediate effect on the listing of our common stock, and our common stock would continue to trade on the Nasdaq Stock Market under the symbol “OEG.” Under Nasdaq Listing Rule 5810(c)(3)(A), if during the 180 calendar day period following the date of the Notice (the “Compliance Period”), the closing bid price of our common stock would be at or above $1.00 for a minimum of 10 consecutive business days, we would regain compliance with the Minimum Bid Price Requirement and our common stock would continue to be eligible for listing on the Nasdaq Stock Market, absent noncompliance with any other requirement for continued listing. If we did not regain compliance with the Minimum Bid Price Requirement by the end of the Compliance Period (or the Compliance Period as may be extended) the Company’s common stock would be subject to delisting. If this were to happen, we would monitor the closing bid price of our common stock and may, if appropriate, consider implementing available options to regain compliance with the Minimum Bid Price Requirement under the Nasdaq Listing Rules.

 

If our common stock is delisted, our common stock would likely then trade only in the over-the-counter market. If our common stock were to trade on the over-the-counter market, selling our common stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and we could face significant material adverse consequences, including: a limited availability of market quotations for our securities; reduced liquidity with respect to our securities; a determination that our shares are a “penny stock,” which will require brokers trading in our securities to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our securities; a reduced amount of news and analyst coverage for our Company; and a decreased ability to issue additional securities or obtain additional financing in the future. These factors could result in lower prices and larger spreads in the bid and ask prices for our common stock and would substantially impair our ability to raise additional funds and could result in a loss of institutional investor interest and fewer development opportunities for us.

 

In addition to the foregoing, if our common stock is delisted from Nasdaq and it trades on the over-the-counter market, the application of the “penny stock” rules could adversely affect the market price of our common stock and increase the transaction costs to sell those shares. The SEC has adopted regulations which generally define a “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. If our common stock is delisted from Nasdaq and it trades on the over-the-counter market at a price of less than $5.00 per share, our common stock would be considered a penny stock. The SEC’s penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that before a transaction in a penny stock occurs, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s agreement to the transaction. If applicable in the future, these rules may restrict the ability of brokers-dealers to sell our common stock and may affect the ability of investors to sell their shares, until our common stock no longer is considered a penny stock.

 

Risks Relating to Stockholder Rights

Our board of directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to existing common stockholders and with the ability to adversely affect stockholder voting power and perpetuate their control.

Although we do not have any preferred stock outstanding presently, our Articles of Incorporation allow us to issue shares of preferred stock without any vote or further action by our stockholders. Our board of directors has the authority to issue preferred stock without further stockholder approval, as well as the authority to fix and determine the relative rights and preferences of preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock or other preferred stockholders and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.

 

Preferred stock could be used to dilute a potential hostile acquirer. Accordingly, any future issuance of preferred stock or any rights to purchase preferred shares may have the effect of making it more difficult for a third party to acquire control of us. This may delay, defer or prevent a change of control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings attributable to and assets available for distribution to, the holders of our common stock and could adversely affect the rights and powers, including voting rights, of the holders of our common stock and preferred stock.

 

Our Articles of Incorporation limits director liability, thereby making it difficult to bring any action against them for breach of fiduciary duty.

Orbital Energy Group, Inc. is a Colorado corporation. As permitted by Colorado law, the Company’s Articles of Incorporation limits the liability of directors to Orbital Energy Group, Inc. or its stockholders for monetary damages for breach of a director’s fiduciary duty, with certain exceptions. These provisions may discourage stockholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on behalf of the Company against a director.

 

Our charter documents may inhibit a takeover that stockholders consider favorable.

Provisions of our Articles of Incorporation and Bylaws may delay or discourage transactions involving an actual or potential change in control of the Company, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. These provisions:

 

 

provide that the authorized number of directors may be changed by resolution of the board of directors;

 

provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; and

 

do not provide for cumulative voting rights.

 

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2.  Properties

 

In 2020, the Company relocated its headquarters to its Houston office where it rents office and warehouse space totaling approximately 40,000 square feet. Its lease expires in 2022.

 

 

In April 2021, the Company acquired Gibson Technical Services, LLC ("GTS"), which leases approximately 10,000 square feet of office and 5,000 square feet of warehouse space in Atlanta, GA. In addition, this space includes a fenced equipment yard  of approximately 30,000 square feet. The lease ends in July 2028. GTS also leases warehouse space ranging from 250 square feet to 8,700 square feet in Alabama, Georgia, North Carolina, Nevada, Mississippi, Louisiana, New York, Virginia, and Oklahoma. 

 

In July 2021, the Company acquired IMMCO, Inc, which is a subsidiary of Gibson Technical Services, LLC and which shares office space with GTS in Atlanta, GA. 

 

In October 2021, the Company acquired Full Moon, Telecom, LLC, which runs remotely and thus has no properties associated with it.

 

In November 2021, the Company acquired Front Line Power Construction, LLC, which leases two industrial/office type buildings and surrounding six acres in the greater Houston area of Rosharon, Texas. The lease expires in 2024.

 

In April 2020, the Company sublet office space in Irving, Texas for corporate support services and Orbital Power, Inc. office personnel; the lease runs through 2023. Orbital Power, Inc. also maintains an equipment yard in Sherman, Texas that houses equipment primarily for Orbital Power, Inc. for which the lease runs until 2022.

 

With the acquisition of Orbital Solar (formerly Reach Construction Group, LLC), the Company leased industrial space in Sanford, North Carolina which includes approximately 4,600 square feet of warehouse space and 4,800 square feet of office space and runs through 2022.

 

The Company leases office and warehouse space in Tualatin, Oregon, which was its former headquarters and now sublets to outside parties.

 

In the future, the Company may obtain additional leased properties to support its growth strategy and expansion of operations within the energy infrastructure services industry.

 

 

 

Item 3.  Legal Proceedings

 

The Company and its subsidiaries are not parties in any legal proceedings. No director, officer or affiliate of the Company, any owner of record or beneficially of more than five percent of any class of voting securities of the Company or any associate of any such director, officer, affiliate of the Company or security holder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.

 

Item 4.  Mine Safety Disclosure

 

Not applicable.

 

 

 

 

 

PART II

 

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Description of Securities

The Company’s common stock is traded on The Nasdaq Stock Market under the trading symbol ‘‘OEG.’’ The Company currently has authorized 325,000,000 common shares, par value $0.001 per share, and as of December 31, 2021, the Company’s issued and outstanding shares consisted of 82,259,739 shares of common stock issued and 81,906,676 shares outstanding of which 65,787,438 shares are freely tradable without restriction or limitation under the Securities Act. As of December 31, 2021, the Company had in excess of 3,000 beneficial holders of our common stock and in excess of 2,300 stockholders of record. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.

 

The holders of Common Stock are entitled to one vote per share and do not have cumulative voting rights. Holders of the Company’s Common Stock do not have any pre-emptive or other rights to subscribe for or purchase additional shares of capital stock and no conversion rights, redemption or sinking-fund provisions.

 

Market Value

The Company’s common stock is traded on the Nasdaq Stock Market under the trading symbol ‘‘OEG.’’ The following table sets forth, the high and low sales prices of our Common Stock on the Nasdaq during each quarter of the two most recent years.

 

   

High

   

Low

 

2021

               

First Quarter

  $ 9.86     $ 2.08  

Second Quarter

    7.64       2.91  

Third Quarter

    4.66       2.92  

Fourth Quarter

    3.07       2.15  

2020

               

First Quarter

  $ 1.79     $ 1.18  

Second Quarter

    1.31       0.82  

Third Quarter

    0.91       0.53  

Fourth Quarter

    1.19       0.68  

 

 

 

 

Dividend Policy

The Company has never paid cash dividends on its common stock and the Company does not expect to pay dividends in the foreseeable future.

 

We currently expect to retain future earnings to finance the growth and development of our business. The timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flows; our general financial condition and future prospects; our capital requirements and surplus; contractual restrictions; the amount of distributions, if any, received by us from our subsidiaries; and other factors deemed relevant by our board of directors. Any future dividends on our common shares would be declared by and subject to the discretion of our board of directors.

 

Common Stock Reserved for Future Issuances

Set forth below is a summary of the outstanding securities, transactions and agreements, which relate to 237,985 shares of common stock the Company is required to reserve for potential future issuances.

 

237,985 common shares reserved for outstanding options issued under our Equity Compensation Plans.

As of December 31, 2021, there were reserved for issuance an aggregate of 237,985 shares of common stock for options outstanding under the Company’s 2008 Equity Incentive Plan and the Company’s 2009 Equity Incentive Plan (Executive).

 

At the 2020 Annual Meeting of Shareholders, the Company’s shareholders approved the Orbital Energy Group 2020 Incentive Award Plan and authorized a share limit of 2,000,000 shares. This limit was increased to a total of 5,000,000 shares at the 2021 Annual Meeting of Shareholders. This Plan replaced the 2008 and 2009 Equity Incentive Plan, which had expired. As of December 31, 2021 there are 4,130,665 remaining shares available to grant under the 2020 Incentive Award Plan. See Note 10 Stockholders' Equity for more information on the Company's 2020 Incentive Award Plan.

 

Other than as described herein, as of the date of this report, there are currently no plans, arrangements, commitments or understandings for the issuance of additional shares of Common Stock.

 

 

RECENT SALES OF UNREGISTERED SECURITIES

 

Following is a list of all securities we sold within the past two years, which were not registered under the Securities Act. The Company relied on Section 4(2) of the Securities Act of 1933 as the basis for an exemption from registration for the following issuances.

 

 2021 Sales of Unregistered Securities

Common Stock Issued During 2021

 

(Dollars in thousands)

                           

Dates of issuance

 

Type of issuance

 

Stock issuance recipient

 

Reason for issuance

 

Total no. of shares

   

Fair value recorded at issuance

 
                             

February, June, July, and August and October 2021

 

Common stock

 

Four consultants

 

Services

    251,537       1,161  
                             

April and June 2021

 

Common stock

 

Various GTS sellers

 

GTS acquisition

    5,929,267       16,932  
                             

July 2021

 

Common stock

 

Various IMMCO sellers

 

IMMCO acquisition

    874,317       2,024  
                             

July, August, and September, October, November and December 2021

 

Common stock

 

Various

 

Debt payment

    3,082,299       8,971  
                             

October 2021

 

Common stock

 

2 sellers

 

Full Moon Telecom acquisition

    227,974       368  
                             

November 2021

 

Common stock

 

2 sellers

 

Front Line Power acquisition

    11,622,018       17,612  
                             

November 2021

 

Common stock

 

4 lenders

 

Portion of original issue discount on $105 million credit facility

    1,636,651       3,813  
                             

Total 2021 issuances

    23,624,063     $ 50,881  

 

 

 Shares Eligible for Future Sale

As of December 31, 2021, we had outstanding 81,906,676 shares of common stock. Of these shares, 65,787,438 shares are freely tradable without restriction or limitation under the Securities Act.

 

The 16,119,141 shares of common stock held by existing stockholders as of December 31, 2021 that are ‘‘restricted’’ within the meaning of Rule 144 adopted under the Securities Act (the ‘‘Restricted Shares’’), may not be sold unless they are registered under the Securities Act or sold pursuant to an exemption from registration, such as the exemption provided by Rule 144 promulgated under the Securities Act. The Restricted Shares were issued and sold by us in private transactions in reliance upon exemptions from registration under the Securities Act.

 

 

 

 Item 6. Reserved

 

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

Results of Operations

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

 

 

                                         

(Dollars in thousands)

    For the Year Ended December 31, 2021                                  
   

Telecommunications

   

Electric 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 )


 

                                         

(Dollars in thousands)

    For the Year Ended December 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 )

 

 

 

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.

 

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. 

 

 

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.

 

 

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.

 

 

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.

 

 

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.’’

 

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

 

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. This market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. The Company neither holds nor issues financial instruments for trading purposes.

 

The following sections provide quantitative information on the Company’s exposure to foreign currency exchange rate risk and stock price risk. The Company makes use of sensitivity analyses that are inherently limited in estimating actual losses in fair value that can occur from changes in market conditions.

 

Foreign Currency Exchange Rates

The Company conducts continuing operations in one principal currency: the U.S. dollar. This currency operates as the functional currency for the Company’s U.S. operations. Cash is managed centrally within  the  region with net earnings invested in the U.S. and working capital requirements met from existing U.S. intercompany liquid funds. 

 

Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheets from functional currency to the Company’s reporting currency, the U.S. dollar, for consolidation purposes. As currency exchange rates fluctuate, translation of our Statements of our foreign operations into U.S. dollars affects the comparability of revenues and operating expenses between years.

 

 

Revenues and operating expenses are primarily denominated in the currencies of the countries in which our continuing operations are located, which is the U.S. Our U.K. operations were reclassified to discontinued operations in 2021 and so the Company's revenues and operating expenses from continuing operations were not materially affected by foreign currency translation. We have limited operations in India and Australia. Our consolidated results of operations and cash flows are, therefore, subject to limited fluctuations due to changes in foreign currency exchange rates and is not expected to be adversely affected in the future due to changes in foreign exchange rates.

 

To date, we have not entered into any hedging arrangements with respect to foreign currency risk and have limited activity with forward foreign currency contracts or other similar derivative instruments.

Investment Risk

The Company has an Investment Policy that, inter alia, provides an internal control structure that takes into consideration safety (credit risk and interest rate risk), liquidity and yield. Our Investment officers, CEO and CFO, oversee the investment portfolio and compile a quarterly analysis of the investment portfolio when applicable for internal use. In addition, the Company implemented an Investment Committee in 2019 to administer and operate the portfolio. At December 31, 2021, the Investment Committee is comprised of C. Stephen Cochennet, Corey A. Lambrecht, Chairman, and Nicholas M. Grindstaff, CFO. See Item 10 of this Form 10-K for more information on the Company’s Investment Committee.

Cash and cash equivalents are diversified and maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit, therefore, bear minimal credit risk.

 

The Company has trade receivable and revenue concentrations with large customers. See Note 15 of the Company's financial statements for more information on the Company's concentration risks.

 

 

Item 8.  Financial Statements and Supplementary Data

 

This item includes the following financial information:

 

 

Page

Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248)

46

   

Consolidated Balance Sheets

48

   

Consolidated Statements of Operations

49

   

Consolidated Statements of Comprehensive Income and (Loss)

50

   

Consolidated Statements of Changes in Stockholders’ Equity

51

   

Consolidated Statements of Cash Flows

52

   

Notes to Consolidated Financial Statements

54 – 89

   

 

 

 

 

   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Board of Directors and Shareholders

 

Orbital Energy Group, Inc.

 

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Orbital Energy Group, Inc. (a Colorado corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income and (loss), changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing  separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Revenue Recognition

As described in Note 2 to the consolidated financial statements, revenues derived from long-term fixed price contracts are recognized as the performance obligations are satisfied over time with the progress toward completion measured as a percentage of costs incurred to the total estimated cost for such performance obligation. In addition, the Company’s contracts may include variable considerations related to contract modifications through change orders or claims, and management must also estimate the variable consideration the Company expects to receive in order to estimate the total contract revenue. We identified revenue recognized over time for long-term fixed price contracts to be a critical audit matter.

 

 

The principal considerations for our determination that revenue recognized over time for long-term fixed price contracts is a critical audit matter is that auditing management’s estimate of the progress towards completion of its projects was complex and subjective. This is due to the considerable judgment required to evaluate management’s determination of the forecasted costs to complete its long-term contracts as future results may vary significantly from past estimates due to changes in facts and circumstances. In addition, auditing the Company’s measurement of variable consideration is also complex and highly judgmental and can have a material effect on the amount of revenue recognized.

 

Our audit procedures related to the recognition of revenue over time included the following procedures, among others. i) We tested the Company’s cost-to-cost estimates by evaluating the appropriate application of the cost to cost method;  ii) tested management’s process for determining the total estimated contract cost which included evaluating the contracts and other documents that support those estimates, and testing the underlying contract costs; iii) evaluated management’s ability to reasonably estimate total contract costs by performing a comparison of the actual total estimate contract costs as compared with the prior period estimates, including evaluating the timely identification of circumstances that may warrant a modification to the total estimated contract cost and iv) tested the estimated variable consideration by evaluating the appropriate application of the most likely amount method, and tracing amounts to supporting documentation.

 

Acquisition of Gibson Technical Services, IMMCO, and Front Line Power Construction

As described in Note 17 to the consolidated financial statements, during the year ended December 31, 2021, the Company completed acquisitions of Gibson Technical Services (“GTS”), IMMCO Inc., and Front Line Power Construction LLC, and the assets acquired and liabilities assumed were required to be recorded at fair value as of the acquisition date, for which the Company utilized a third party valuation firm. We identified the fair value of the acquired intangible assets, including customer relationships and trade name to be a critical audit matter.

 

The principal considerations for our determination that the estimation of the Company’s methods and assumptions used in estimating the fair value of these acquired intangible assets is a critical audit matter, include the significant judgment required by management when estimating the fair value of these assets.. The estimation was significant primarily to the sensitivity of the respective fair value to the underlying assumptions used to estimate the future revenues and cash flows, including revenue growth rates, gross margins, the discount rate used and the valuation methodologies applied by the third party valuation firm. In addition, the audit effort involved the use of specialists to assist in performing these procedures and evaluating the audit evidence obtained.

 

Our audit procedures related to the fair value of the intangible assets acquired included the following, among others (i) evaluated the reasonableness of management’s forecasted financial results by testing the revenue growth rates and gross margins by comparing such items to actual historical results to identify material changes based on the Company’s future plans for the acquired entities, corroborating the basis for increases in forecasted revenue and gross margin, as applicable (ii) utilized a valuation specialist to evaluate the methodologies used and whether they were acceptable for the underlying assets or operations and being applied correctly by performing an independent calculation, the appropriateness of the discount rate by recalculating the weighted average cost of capital, and the qualification of third-party valuation firm engaged by the Company based on their credentials and experience.

 

/s/ GRANT THORNTON LLP

 

We have served as the Company’s auditor since 2019.

 

 

Dallas, Texas

 

March 31, 2022

 

 

 

Orbital Energy Group, Inc.

Consolidated Balance Sheets

As of December 31, 

 

  

December 31,

  

December 31,

 

(In thousands, except share and per share amounts)

 

2021

  

2020

 

Assets:

        

Current Assets:

        

Cash and cash equivalents

 $26,865  $3,046 

Restricted cash - current

  150   452 

Trade accounts receivable, net of allowance

  48,752   5,689 

Inventories

  1,335    

Contract assets

  7,478   6,820 

Notes receivable, current portion

  3,536   44 

Prepaid expenses and other current assets

  6,919   2,601 

Assets held for sale, current portion

  6,679   6,146 

Total current assets

  101,714   24,798 

Property and equipment, less accumulated depreciation

  29,638   2,084 

Investment

  1,063   1,063 

Right of use assets - Operating leases

  18,247   6,268 

Right of use assets - Financing leases

  14,702    

Goodwill

  100,899   7,006 

Other intangible assets, net

  142,656   10,553 

Restricted cash, noncurrent portion

  1,026   1,026 

Note receivable

  836   3,601 

Deposits and other assets

  1,558   120 

Assets held for sale, noncurrent portion

     9,526 

Total assets

 $412,339  $66,045 
         

Liabilities and Stockholders' Equity:

        

Current Liabilities:

        

Accounts payable

 $10,111  $8,960 

Notes payable, current

  72,774   11,681 

Line of credit

  2,500   441 

Operating lease obligations - current portion

  4,674   1,369 

Financing lease obligations - current portion

  4,939    

Accrued expenses

  28,301   4,372 

Contract liabilities

  6,503   4,873 

Financial instrument liability

  825    

Liabilities held for sale, current portion

  4,367   5,380 

Total current liabilities

  134,994   37,076 

Deferred tax liabilities

  260    

Notes payable, less current portion

  156,605   4,850 

Operating lease obligations, less current portion

  13,555   4,774 

Financing lease obligations, less current portion

  9,939    

Other long-term liabilities

  720   1,368 

Liabilities held for sale, noncurrent portion

     830 

Total liabilities

  316,073   48,898 
         

Commitments and contingencies

          
         

Stockholders' Equity:

        

Preferred stock, par value $0.001; 10,000,000 shares authorized; no shares issued at December 31, 2021 or December 31, 2020

      

Common stock, par value $0.001; 325,000,000 shares authorized; 82,259,739 shares issued and 81,906,676 shares outstanding at December 31, 2021 and 31,029,642 shares issued and 30,676,579 shares outstanding at December 31, 2020

  82   31 

Additional paid-in capital

  311,487   171,616 

Treasury stock at cost; 353,063 shares held at December 31, 2021 and December 31, 2020

  (413)  (413)

Accumulated deficit

  (210,934)  (149,681)

Accumulated other comprehensive loss

  (3,995)  (4,406)

Total Orbital Energy Group, Inc.'s stockholders' equity

  96,227   17,147 

Noncontrolling interest

  39    

Total stockholders' equity

  96,266   17,147 

Total liabilities and stockholders' equity

 $412,339  $66,045 
         

 

See accompanying notes to consolidated financial statements

 

 

 

Orbital Energy Group, Inc.

Consolidated Statements of Operations

For the Years Ended December 31,

 

(In thousands, except share and per share amounts)

               
   

2021

   

2020

 

Revenues

  $ 82,948     $ 21,487  

Cost of revenues

    78,630       19,567  

Gross profit

    4,318       1,920  

Operating expenses:

               

Selling, general and administrative expense

    50,024       19,041  

Depreciation and amortization

    6,762       3,260  

Provision for bad debt

    346       1,626  

Other operating (income) expenses

    (23 )     24  

Total operating expenses

    57,109       23,951  

Loss from operations

    (52,791 )     (22,031 )

Other income

    777       982  

Interest expense

    (8,337 )     (1,298 )

Loss from continuing operations before income taxes and equity in net loss of affiliate

    (60,351 )     (22,347 )

Net loss of affiliate

          (4,806 )

Loss from continuing operations before taxes

    (60,351 )     (27,153 )

Income tax benefit

    (10,508 )     (1,451 )

Loss from continuing operations, net of income taxes

    (49,843 )     (25,702 )

Discontinued operations (Note 2)

               

Loss from operations of discontinued businesses

    (12,705 )     (3,097 )

Income tax benefit

    (1,334 )     (1,352 )

Loss from discontinued operations, net of income taxes

    (11,371 )     (1,745 )

Net loss

    (61,214 )     (27,447 )

Less: net income attributable to noncontrolling interest

    39        

Net loss attributable to Orbital Energy Group, Inc.

  $ (61,253 )   $ (27,447 )
                 

Basic and diluted weighted average number of shares outstanding

    58,348,489       29,937,863  

Loss from continuing operations per common share - basic and diluted

  $ (0.86 )   $ (0.86 )

Loss from discontinued operations per common share - basic and diluted

  $ (0.19 )   $ (0.06 )

Loss per common share - basic and diluted

  $ (1.05 )   $ (0.92 )
                 

 

See accompanying notes to consolidated financial statements

 

 

 

Orbital Energy Group, Inc.

Consolidated Statements of Comprehensive Income and (Loss)

For the Years Ended December 31,

 

(In thousands)

 

   

2021

   

2020

 

Net loss

  $ (61,214 )   $ (27,447 )

Other comprehensive income (loss)

               

Foreign currency translation adjustment

    411       (21 )

Reclassification adjustment

          (14 )

Other comprehensive income (loss)

    411       (35 )

Comprehensive loss

    (60,803 )     (27,482 )

 

See accompanying notes to consolidated financial statements

 

 

 

Orbital Energy Group, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 

 

(In thousands, except share amounts)

 

                          

Accumulated

             
          

Additional

              

Other

  

Total OEG

   Non-  

Total

 
  

Common Stock

  

Paid-in

  

Treasury Stock

  

Accumulated

  

Comprehensive

  

Stockholders'

  

controlling

  

Stockholders'

 
  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Deficit

  

Income (Loss)

  

Equity

  

Interest

  

Equity

 

Balance, January 1, 2020

  28,736,436  $29  $170,106   (353,063) $(413) $(122,234) $(4,371) $43,117  $  $43,117 

Common stock issued for acquisition

  2,000,000   2   1,222               1,224      1,224 

Common stock issued for compensation, services, and royalty payments

  293,206      288               288      288 

Net loss for the year ended December 31, 2021

                 (27,447)     (27,447)     (27,447)

Other comprehensive loss

                    (35)  (35)     (35)

Balance, December 31, 2020

  31,029,642  $31  $171,616   (353,063) $(413) $(149,681) $(4,406) $17,147  $  $17,147 

Issuance of common stock via equity raises

  25,966,515   26   78,020               78,046      78,046 

Common stock issued for acquisitions

  18,653,576   18   36,917               36,935      36,935 

Common stock issued and issuable for compensation, services and royalty payments

  1,891,056   2   12,155               12,157      12,157 

Common stock issued to lenders for OID for $105 million debt

  1,636,651   2   3,811               3,813      3,813 

Common stock issued for debt repayment

  3,082,299   3   8,968               8,971      8,971 

Net loss

                 (61,253)     (61,253)  39   (61,214)

Other comprehensive loss

                    411   411      411 

Balance, December 31, 2021

  82,259,739  $82   311,487   (353,063)  (413)  (210,934)  (3,995)  96,227   39   96,266 

 

See accompanying notes to consolidated financial statements

 

 

 

Orbital Energy Group, Inc.

Consolidated Statements of Cash Flows

For the Years Ended December 31,

 

(In thousands)

  

2021

  

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net loss

 $(61,214) $(27,447)

Adjustments to reconcile net loss to net cash used in operating activities:

        

Depreciation

  5,208   820 

Amortization of intangibles

  7,702   4,421 

Amortization of debt discount

  3,392   75 

Gain on extinguishment of debt and loan modifications

  (1,134)   

Amortization of note receivable discount

  (319)  (288)

Stock-based compensation and expense

  12,168   280 

Fair value adjustment to liability for stock appreciation rights

  2,054   648 

Fair value adjustment to financial instrument liability

  (33)   

Net loss of affiliate

     4,806 

Provision for bad debt

  343   1,639 

Deferred income taxes

  (10,878)  (1,006)

Non-cash unrealized foreign currency gain

  492   (310)

Impairment of assets held for sale

  9,185    

Inventory reserve

  (350)  (424)

Gain (loss) on disposal of assets

  (26)  39 

Gain on sale of businesses

     (14)
         

Change in operating assets and liabilities, net of acquisition:

        

Trade accounts receivable

  (19,173)  3,675 

Inventories

  (425)  3,766 

Contract assets

  (296)  (2,250)

Prepaid expenses and other current assets

  41   1,614 

Right of use assets/lease liabilities, net of acquisitions:

  49   (222)

Deposits and other assets

  (24)  (1,197)

Increase (decrease) in operating liabilities:

        

Accounts payable

  (38)  (3,521)

Accrued expenses

  4,540   (1,856)

Contract liabilities

  3,060   1,720 

NET CASH USED IN OPERATING ACTIVITIES

  (45,676)  (15,032)
         

CASH FLOWS FROM INVESTING ACTIVITIES:

        

Cash paid for acquisitions, net of cash received

  (132,518)  (2,981)

Purchases of property and equipment

  (7,779)  (1,696)

Deposits on financing lease property and equipment

  (762)   

Cash paid for working capital adjustment on Power group disposition

     (2,804)

Sale of discontinued operations, net of cash

     (227)

Proceeds from sale of property and equipment

  141   605 

Purchase of other intangible assets

  (705)  (11)

Purchase of convertible note receivable

     (260)

Purchase of investments

  (1,025)  (532)

Proceeds from notes receivable

  621    

NET CASH USED IN INVESTING ACTIVITIES

  (142,027)  (7,906)
         

CASH FLOWS FROM FINANCING ACTIVITIES:

        

Proceeds from line of credit

  3,250   100 

Payments on line of credit

  (1,191)  (109)

Payments on financing lease obligations

  (1,995)  (4)

Proceeds from notes payable, net of debt discounts and issuances costs

  143,045   8,145 

Payments on notes payable

  (9,941)  (4,131)

Proceeds from sales of common stock

  78,046    

NET CASH PROVIDED BY FINANCING ACTIVITIES

  211,214   4,001 
         

Effect of exchange rate changes on cash

  6   110 

Net (decrease) increase in cash, cash equivalents and restricted cash

  23,517   (18,827)

Cash, cash equivalents and restricted cash at beginning of year

  4,524   23,351 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR

 $28,041  $4,524 

 

 

See accompanying notes to consolidated financial statements

 

 

 

   

2021

   

2020

 

Income taxes paid (net refunded)

  $ (316 )   $ (1,003 )

Interest paid

  $ 2,257     $ 1,025  

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

               

Non-cash investment in acquisitions including seller notes, equity issued and contingent consideration

  $ 123,457     $ 8,424  

Financing note payable issued for payment on certain insurance policies, net of insurance cancellation

  $ 2,854     $ 2,457  

Accrued property and equipment purchases at December 31

  $ 404     $ 631  

 

See accompanying notes to consolidated financial statements

 

 

 

Orbital Energy Group, Inc.

Notes to Consolidated Financial Statements 

 

 

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

 

Orbital Energy Group, Inc. (Orbital Energy Group, "OEG," "The Company") The Company is a diversified infrastructure services company serving customers in the electric power, telecommunications, and renewable markets. The Company’s reportable segments are the Electric Power segment, the Telecommunications segment, and the Renewables segment. In December 2021, the Company announced the planned divestiture of its previous Integrated Energy Infrastructure Solutions and Services segment. In 2020, the Company divested the remaining portion of its previous Power and Electromechanical segment.

 

The Electric Power segment consists of Front Line Power Construction, LLC based in Houston, Texas, Orbital Power, Inc. based in Dallas, Texas, and Eclipse Foundation Group based in Gonzales, Louisiana. The segment provides comprehensive infrastructure solutions to customers in the electric power industry. Services performed by Front Line Power and Orbital Power, Inc. generally include but are not limited to the engineering, design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities as well as emergency restoration services. Eclipse Foundation Group, which began operations in January 2021, is a drilled shaft foundation construction company that specializes in providing services to the electric transmission and substation, industrial, telecommunication and disaster restoration market sectors, with expertise performing services in water, marsh and rock terrains.

 

The Telecommunications segment is made up of Gibson Technical Services, Inc. (“GTS”) (acquired April 13, 2021). GTS is an Atlanta-based telecommunications company providing diversified telecommunications services nationally since 1990 and is the parent of the following companies:

 

 

o

IMMCO, Inc. (acquired July 28, 2021), which includes two Indian subsidiaries and is an Atlanta-based, full-service telecom engineering and network design company providing diversified engineering services and customized software solutions to a global customer base since 1992.

 

 

o

Full Moon Telecom, LLC (acquired October 22, 2021) a Florida-based telecommunications service provider that offers an extensive array of wireless service capabilities and experience including Layer 2/Layer 3 Transport, Radio Access Network (“RAN”) Integration, test and turn-up of Small Cell systems and Integration/Commissioning of Distributed Antenna (“DAS”) systems.

 

The Renewables segment consists of Orbital Solar Services based in Sanford, North Carolina. Orbital Solar Services provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility-scale solar construction. The Company serves a wide variety of project types, including commercial, substation, solar farms and public utility projects.

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to record purchase price allocation for the Company's acquisitions, fair value measurements used in goodwill impairment tests, impairment estimations of long-lived assets, revenue recognition on cost-to-cost type contracts, allowances for uncollectible accounts, valuations of non-cash capital stock issuances, estimates of the incremental borrowing rate for long-term leases, fair value estimates and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

54

 

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Orbital Energy Group, Inc. and its wholly owned subsidiaries Front Line Power Construction, LLC, Orbital Power, Inc., Eclipse Foundation Group, Orbital Solar Services, Gibson Technical Services, Inc., and GTS's wholly owned subsidiaries, IMMCO, Inc. and Full Moon Telecom, LLC hereafter referred to as the ‘‘Company.’’ Additionally, the following wholly owned subsidiaries are included in these financial statements as discontinued operations: Orbital Gas Systems, Ltd., Orbital Gas Systems, North America, Inc., and the following in 2020 only: CUI Holdings Inc.(formerly CUI, Inc.), CUI Japan, CUI-Canada, and CUI Properties, LLC. The primary assets and liabilities of CUI Holdings Inc. were sold or settled during 2019 and CUI Japan, and CUI-Canada were sold or settled in 2020. CUI Properties is a dormant administrative entity. Significant intercompany accounts and transactions have been eliminated in consolidation.

 

Variable Interest Entity

Orbital Solar Services entered into an agreement in 2021 to form OSS-JPOW Solar Services, LLC (OSS-JPOW), a partnership with Jingoli Power, LLC. Orbital Solar Services holds a controlling interest in OSS-JPOW and the portions of OSS-JPOW’s net earnings and equity not attributable to Orbital Solar Service’s controlling interest are shown separately as noncontrolling interests in the consolidated statements of operations and consolidated balance sheets. OSS-JPOW is considered a Variable Interest Entity (VIE) to Orbital Solar Services.

 

Orbital Solar Services, through its controlling interest in OSS-JPOW, has the power to direct the activities that significantly affect the economic performance of OSS-JPOW and the obligation to absorb losses or the right to receive benefits that could be significant to OSS-JPOW; therefore, Orbital Solar Services is considered the primary beneficiary and consolidates OSS-JPOW. During 2021, Jingoli Power, LLC did not make contributions to or distributions from OSS-JPOW. For the year ended December 31, 2021, $0.1 million of income was attributable to OSS-JPOW with $39 thousand allocated to non-controlling interest.

 

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.

 

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 7Notes 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.

 

Discontinued Operations and Sales of Businesses

As part of the Company’s stated strategy to transform Orbital Energy Group into a diversified energy infrastructure services platform serving North American energy customers, the Company’s board of directors made the decision to divest of its Orbital Gas subsidiaries. The Orbital Gas subsidiaries provide proprietary gas measurement and sampling technologies and the integration of process control and measuring/sampling systems. They are legacy businesses that are not part of the Company’s strategy of  building an infrastructure services company serving the electric power, telecommunications and renewable markets. The disposition of the Orbital Gas subsidiaries will facilitate the Company’s restructuring and cost savings initiatives and are intended to realign and simplify its business structure and better position the Company for future growth and improved profitability. In the fourth quarter the Company recorded a $9.2 million impairment related to its U.K. operations to write the value of its investment in the U.K. operations to its expected realizable value of 3 million GBP ($4.1 million at December 31, 2021). Assets and liabilities held for sale are included in the Company's balance sheet and are described below. In 2020, the assets and liabilities of the Company's CUI-Canada and CUI Japan subsidiaries were sold as well. 

55

 

Selected data for these discontinued businesses consisted of the following:

 

Reconciliation of the Major Classes of Line Items Constituting Pretax Income from Discontinued Operations to the After-Tax Income from Discontinued Operations That Are Presented in the Statement of Operations

 

(In thousands)

        
         
  

For the Year

 
  

Ended December 31,

 
         

Major classes of line items constituting pretax profit (loss) of discontinued operations

 

2021

  

2020

 
         

Revenues

 $19,855  $33,278 

Cost of revenues

  (14,193)  (23,637)

Selling, general and administrative expense

  (8,550)  (11,205)

Depreciation and amortization

  (1,638)  (1,489)

Research and development

  (2)  (45)

(Provision) credit for bad debt

  3   (13)

Impairment of assets held for sale

  (9,185)   

Gain on extinguishment of PPP loan

  779    

Interest expense

  (2)  (5)

Other income and (expense)

  228   (98)

Pretax profit (loss) of discontinued operations related to major classes of pretax profit (loss)

  (12,705)  (3,214)

Pretax gain on sale of certain power and electromechanical businesses

     117 

Total pretax income on discontinued operations

  (12,705)  (3,097)

Income tax benefit

  (1,334)  (1,352)
         

Total income from discontinued operations

 $(11,371) $(1,745)

 

56

 

Reconciliation of the Carrying Amounts of Major Classes of Assets and Liabilities of the Discontinued Operation to Total Assets and Liabilities of the Disposal Group Classified as Held for Sale

 

  

As of December 31,

  

As of December 31,

 

(In thousands)

 

2021

  

2020

 
         

Carrying amounts of the major classes of assets included in discontinued operations:

        
         

Trade accounts receivables

 $2,996  $2,798 

Inventories

  530   1,123 

Prepaid expenses and other current assets

  114   1,185 

Contract assets

  1,141   1,040 

Assets held for sale, current portion

  4,781   6,146 

Property and equipment

  42   4,311 

Right of use assets - Operating leases

     786 

Other intangible assets

  1,813   3,144 

Deposits and other assets

  43   1,285 

Assets held for sale, noncurrent portion

  1,898   9,526 

Total assets of the disposal group classified as held for sale

 $6,679  $15,672 
         

Carrying amounts of the major classes of liabilities included in discontinued operations:

        
         

Accounts payable

 $1,657  $953 

Contract liabilities

  1,414   1,937 

Operating lease obligations, current portion

  76   415 

Accrued expenses

  1,126   1,510 

Notes payable - PPP, current portion

     565 

Liabilities held for sale, current portion

  4,273   5,380 

Operating lease obligations, less current portion

  85   436 

Notes payable - PPP, less current portion

     207 

Other long-term liabilities

  9   187 

Liabilities held for sale, noncurrent portion

  94   830 

Total liabilities held for sale

 $4,367  $6,210 

 

The assets and liabilities of the disposal group classified as held for sale are classified as current on the December 31, 2021 balance sheet because it is probable that the sale will occur and proceeds will be collected within one year.

 

Net cash (used) provided by operating activities of discontinued operations for 2021 and 2020 was ($3.2) million and $1.9 million, respectively.

 

57

 

Net cash provided by (used in) investing activities of discontinued operations for 2021 and 2020 was $0 and ($1.8) million, respectively.

 

Fair Value of Financial Instruments

Accounting Standards Codification (‘‘ASC’’) 820 ‘‘Fair Value Measurements and Disclosures’’ (‘‘ASC 820’’) defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the U.S., and enhances disclosures about fair value measurements. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

 

 

Level 1 – Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the reporting date.

 

Level 2 – Pricing inputs are quoted for similar assets, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes assets or liabilities valued at quoted prices adjusted for legal or contractual restrictions specific to these investments.

 

Level 3 – Pricing inputs are unobservable for the assets or liabilities; that is, the inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

 

The Company determines when a financial instrument transfers between levels based on management’s judgment of the significance of unobservable inputs used to calculate the fair value of the financial instrument.

 

Management believes the carrying amounts of the short-term financial instruments, including cash and cash equivalents, investment, note receivable, accounts receivable, contract assets, prepaid expense and other assets, accounts payable, accrued liabilities, contract liabilities, and other current liabilities reflected in the accompanying consolidated balance sheet approximate fair value at  December 31, 2021 and 2020 due to the relatively short-term nature of these instruments. The carrying value of the notes payable approximate fair value based on the proximity of the issuance to the balance sheet date and current market conditions, including the Company's $86.7 million Front Line Power seller notes, and $105 million syndicated term note debt issued in the three months ended December 31, 2021, which included a subscription agreement that was determined to be a financial instrument that is valued at fair value at inception and December 31, 2021. See Note 3 for fair value of financial instruments.

 

Cash and Cash Equivalents

Cash includes deposits at financial institutions with maturities of three months or less. The Company at times has cash in banks in excess of FDIC insurance limits and places its temporary cash investments with high credit quality financial institutions. The Company considers all highly liquid marketable securities with maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents include money market funds, certificates of deposit and commercial paper. 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 that were covered under the FDIC insured deposits programs and $0.4 million and $0.2 million, respectively, at foreign financial institutions covered internationally. At December 31, 2021 and 2020, the Company held $2.1 million and $2.2, respectively, in foreign bank accounts. In addition to the Company's unrestricted cash and cash equivalents at December 31, 2021 and 2020, the Company has $0.2 million and $0.5 of current restricted cash and $1.0 million and $1.0 million, respectively, of long-term restricted cash on its balance sheet related to contract guarantees. Restricted cash is combined with other cash and cash equivalents in reconciling the change in cash on the Company's Consolidated Statements of Cash Flows.

 

(In thousands)

 

As of December 31,

 
  

2021

  

2020

 

Cash and cash equivalents at beginning of year

 $3,046  $23,351 

Restricted cash at beginning of year

  1,478    

Cash, cash equivalents and restricted cash at beginning of year

 $4,524  $23,351 
         

Cash and cash equivalents at end of year

 $26,865  $3,046 

Restricted cash at end of year

  1,176   1,478 

Cash, cash equivalents and restricted cash at end of year

 $28,041  $4,524 

 

58

 

Investments and Notes Receivable

At December 31, 2021, the Company had a note receivable from Back Porch International that was originated as part of the divestiture of the Company's electromechanical components business. The note has an original stated value of $5 million, and is presented on the balance sheet as of December 31, 2021 and December 31, 2020 at its present value of $3.3 million and $3.5 million, respectively, including $2.5 million and $44 thousand of current maturities, respectively. The Company obtained a second note receivable in 2020 from Back Porch International for $0.1 million as payment for the Company's CUI Japan subsidiary. The second note receivable was paid in 2021. Subsequent to December 31, 2021, the Company received final payment on the note receivable.

 

Accounts Receivable and Allowance for Uncollectible Accounts

Accounts receivable consist of the receivables associated with revenue derived from service sales including present amounts due to contracts accounted for under fixed price, cost-to-cost, cost plus, or output method. An allowance for uncollectible accounts is recorded to allow for any amounts that may not be recoverable, based on an analysis of prior collection experience, customer credit worthiness and current economic trends. Based on management’s review of accounts receivable, an allowance for doubtful accounts of $1.5 million and $1.2 million at December 31, 2021 and 2020, respectively, is considered adequate. The reserve in both periods considers aged receivables that management believes should be specifically reserved for as well as historic experience with bad debts to determine the total reserve appropriate for each period. Receivables are determined to be past due based on the payment terms of original invoices. Payment terms and conditions vary by contract, and are within industry standards across our business lines. The Company routinely assesses the financial strength of its customers and, therefore, believes that its accounts receivable credit risk exposure is limited. 

 

Activity in the allowance for doubtful accounts for the years ended  December 31, 2021 and 2020 is as follows:

 

(In thousands)

 

For the Years ended December 31,

 
  

2021

  

2020

 

Allowance for doubtful accounts, beginning of year

 $1,172  $ 

Bad debt expense

  346   1,626 

Deductions

  (31)  (454)
         

Allowance for doubtful accounts, end of year

 $1,487  $1,172 

 

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Retainage Receivables

At December 31, 2021, the Company had $1.5 million billed but not paid by customers under retainage provisions in contracts. These amounts are included as part of contract assets.

 

Inventories

Inventories consist of finished and unfinished products and are stated at the lower of cost or market through either the first-in, first-out (FIFO) method as a cost flow convention or through the moving average cost method.

 

At December 31, 2021, and 2020, inventory is presented on the balance sheet net of reserves. The Company provides reserves for inventories estimated to be excess, obsolete or unmarketable. The Company’s estimation process for assessing the net realizable value is based upon its known backlog, projected future demand, historical usage and expected market conditions. Inventory by category consists of:

 

(In thousands)

 

As of December 31,

 
  

2021

  

2020

 

Finished goods

 $  $ 

Raw materials

  1,316    

Work-in-process

  19    

Total inventories

 $1,335  $ 

 

Property and equipment, less accumulated depreciation

Land is recorded at cost and includes expenditures made to ready it for use. Land is considered to have an infinite useful life.

 

Buildings and improvements are recorded at cost.

 

Furniture, vehicles, and equipment are recorded at cost and include major expenditures, which increase productivity or substantially increase useful lives.

 

Leasehold improvements are recorded at cost and are depreciated over the lesser of the lease term or estimated useful life.

 

The cost of buildings, improvements, furniture, vehicles, and equipment is depreciated over the estimated useful lives of the related assets.

 

Depreciation is computed using the straight-line method for financial reporting purposes. The estimated useful lives for buildings, improvements, furniture, vehicles, and equipment are as follows:

 

  

Estimated

 
  

Useful

 
  

Life (in years)

 

Leasehold improvements

  5 to 10 

Equipment

  3 to 10 

 

60

 

Maintenance, repairs and minor replacements are charged to expenses when incurred. When buildings, improvements, furniture, equipment and vehicles are sold or otherwise disposed of, the asset and related accumulated depreciation are removed and any gain or loss is included in the statement of operations.

 

Long-Lived Assets Including Finite-Lived Intangible Assets

Long-lived assets including finite-lived intangible assets are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. In performing the review for recoverability, the future cash flows expected to result from the use of the asset and its eventual disposition are estimated. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the long-lived 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.

 

No impairments were recognized on long-lived assets in 2021 or 2020 except in 2021, the Company wrote down the assets held for sale of its discontinued Orbital U.K. operations by $9.2 million based on an expected selling price of 3 million GBP ($4.1 million at December 31, 2021)

 

Identifiable Finite-lived Intangible Assets

Intangible assets are stated at cost net of accumulated amortization and impairment. Finite-lived intangible assets includes customer relationships, technology know how, software, noncompete agreements, order backlog, and trade name. The fair value for intangible assets acquired through acquisitions is measured at the time of acquisition utilizing the following inputs, as needed:

 

1.

Inputs used to measure fair value are unadjusted quoted prices available in active markets for the identical assets or liabilities if available.

 

2.

Inputs used to measure fair value, other than quoted prices included in 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in inactive markets. This includes assets and liabilities valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full life of the asset.

 

3.

Inputs used to measure fair value are unobservable inputs supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

 

4.

Expert appraisal and fair value measurement as completed by third-party experts.

 

 

  

Estimated

 
  

Useful

 
  

Life (in years)

 

Finite-lived intangible assets

    

Order backlog

  1 

Customer Relationships- Front Line Power Construction

  15 

Trade name - Reach Construction Group

  1 

Customer relationships - Reach Construction Group, LLC

  5 

Non-compete agreements - Reach Construction Group, LLC

  5 

Customer Relationships - Gibson Technical Services

  10 

Customer Relationships - IMMCO

  10 

Technology- Know How

  3 

Non-compete agreements-GTS

  5 

Software, at cost

  3 to 5 

 

The Company amortizes the intangible assets that are subject to amortization on a straight line basis, which the company believes approximates the estimated consumption of their economic benefits. Intangible assets are reviewed for impairment and tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For instance, a significant change in business climate or a loss of a significant customer, among other things, may trigger the need for impairment testing of intangible assets. An impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value.

 

 

61

 

Indefinite-Lived Intangibles and Goodwill 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.  The unit of accounting for goodwill is at a level of the entity referred to as a reporting unit. Goodwill is assigned to specific reporting units for purposes of the impairment assessments. As of December 31, 2021, the Company has five operating segments that are also considered reporting units for goodwill impairment testing. The five operating segments are, Front Line Power Construction, LLC, Orbital Power Inc., Eclipse Foundation Group, Orbital Solar Services, Gibson Technical Services, which includes  IMMCO, Inc. and Full Moon Telecom, LLC.

 

Annual Test. The Company tests for impairment of indefinite-lived intangibles and Goodwill in the second quarter of each year and whenever events or circumstances indicate that the carrying amount of Goodwill exceeds its fair value and may not be recoverable. The Company’s qualitative assessment for indefinite-lived assets at May 31, 2021, followed the guidance in ASC 350-30-35-18A and 18B. In addition, since the  May 31st assessment was the first year following the acquisition of Orbital Solar Services, the Company elected to perform a third-party quantitative review. Following the quantitative and qualitative review, no impairment was identified.

 

Under current accounting guidance, the Company is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance includes a number of factors to consider in conducting the qualitative assessment. The Company tests for goodwill impairment in the second quarter of each year and whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable.

 

As detailed in ASC 350-20-35-3A, in performing its testing for Goodwill and indefinite lived intangible as of May 31, 2021, for the GTS reporting unit, management completed a qualitative analysis to determine whether it was more likely than not that the fair value of a reporting unit is less than its carrying amount, including Goodwill. To complete the qualitative review, management follows the steps in ASC 350-20-35-3C to evaluate the fair values of the Goodwill and indefinite lived intangible and considers all known events and circumstances that might trigger an impairment of Goodwill or the indefinite lived intangible. At interim dates, the Company reviewed for triggering events. The Company did not identify any triggering events and no impairments to goodwill or indefinite lived assets were recorded.

 

62

 

Accrued expenses

Accrued expenses are liabilities that reflect expenses on the statement of operations that have not been paid or recorded in accounts payable at the end of the period. At  December 31, 2021 and December 31, 2020, accrued expenses of $28.3 million and $4.4 million, respectively included the following components:

 

(In thousands)

 

As of December 31,

 
  

2021

  

2020

 

Accrued compensation

 $6,369  $1,180 

Working capital adjustment on Front Line Power Construction acquisition

  14,092    

Accrued interest

  2,902   200 

Accrued taxes payable

  102   83 

Other accrued expenses

  4,836   2,909 

Total accrued expense

 $28,301  $4,372 

 

Financial instrument liability

The Company evaluates embedded conversion features pursuant to FASB Accounting Standards Codification No. 815 (‘‘FASB ASC 815’’), ‘‘Derivatives and Hedging,’’ which requires a periodic valuation of the fair value of derivative instruments and a corresponding recognition of liabilities associated with such derivatives. The Company has limited involvement with derivative instruments and does not trade them. In November 2021, the Company identified a subscription agreement with lenders of the $105 million syndicated debt agreement as a free standing financial instrument since it is legally separate from the credit agreement. The subscription provides the lenders with shares of the Company's common stock, which was recorded by the Company as additional debt discount to be amortized over the life of the loan. The subscription agreement also provided the lenders with protection from downside risk in the event that the Company issues shares prior to paying off the Front Line seller notes at a price lower than the price when the shares were issued to the lenders. This financial instrument liability was recorded by the Company at $0.9 million and was valued at loan inception on November 17, 2021 using the Black Scholes option pricing model. The value of the liability decreased to $0.8 million as of December 31, 2021 and the difference was recorded as income in other income for the fourth quarter of 2021. The Company did not own any derivative instruments in 2020.

 

63

 

Stock-Based Compensation

The Company records its stock-based compensation expense under its stock option plans and also issues stock for services. The Company accounts for stock-based compensation using FASB Accounting Standards Codification No. 718 (‘‘FASB ASC 718’’), ‘‘Compensation – Stock Compensation.’’ FASB ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related service period.

 

Stock bonuses and restricted stock units ("RSU"s) issued to employees are recorded at fair value using the market price of the stock on the date of grant and expensed over the service period or immediately if fully vested on date of issuance. Employee stock options are recorded at fair value using the Black-Scholes or binomial option pricing model. The underlying assumptions in the Black-Scholes and binomial option pricing models used by the Company are taken from publicly available sources including: (1) volatility and grant date stock price, which are sourced from historic stock price information; (2) the appropriate discount rates are sourced from the United States Federal Reserve; and (3) other inputs are determined based on previous experience and related estimates. With regards to expected volatility, the Company utilizes an appropriate period for historical share prices for Orbital Energy Group that best reflect the expected volatility for determining the fair value of its stock options.

 

See Note 10 Stockholders' Equity for additional disclosure and discussion of the employee stock plan and activity.

 

Common stock and stock options are also recorded on the basis of their fair value, as required by FASB ASC 718, which is measured as of the date required by FASB ASC 718. In accordance with FASB ASC 718, the stock options or common stock warrants are valued using the Black-Scholes or binomial option pricing model on the basis of the market price of the underlying common stock on the ‘‘valuation date,’’ which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the performance completion date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. Where expense must be recognized prior to a valuation date, the expense is computed based off an estimate of the fair value of the stock award as valued under the Black-Scholes option pricing model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock up through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs.

 

Common stock issued to other than employees or directors subject to performance (performance based awards) require interpretation when the counterparty’s performance is complete based on delivery, or other relevant performance criteria in accordance with the relevant agreement. When performance is complete, the common stock is issued and the expense recorded on the basis of their value as required by FASB ASC 718 on the date the performance requirement is achieved.

 

Defined Contribution Plans

The Company has a 401(k) retirement savings plan that allows employees to contribute to the plan after they have completed 60 days of service and are 18 years of age. The Company matches the employee's contribution up to 6% of total compensation. GTS, Orbital Power, Inc., Orbital Solar Services, Front Line Power Construction, LLC, Eclipse Foundation, and Corporate made total employer contributions, net of forfeitures, of $0.6 million and $0.3 million for 2021 and 2020, respectively. In addition, in 2021 and 2020, the Company made contributions of $72 thousand and $145 thousand, respectively, associated with discontinued operations.

 

 

 

64

Revenue Recognition

The Electric Power segment provides full service building, maintenance and support to the electrical power distribution, transmission, substation, and emergency response sectors of North America through Front Line Power, Orbital Power Services and  Eclipse Foundation. The Telecommunications segment composed of Gibson Technical Services and subsidiaries provides technical implementation, design, maintenance, emergency and repair support services in the broadband, wireless, and outside plant and building technologies.  The Renewables segment, Orbital Solar Services, provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility scale solar and community solar construction.

 

For our construction contracts, revenue is generally recognized over time. Our fixed price and unit-price construction projects generally 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. 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. Under the output method, progress towards completion is measured based on units of work completed based on the contractual pricing amounts.  Under the output method, revenue is determined by actual work achieved. 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. Revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service.

 

The timing of revenue recognition also 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 where the Company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced or for 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 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 and we are not enhancing a customer-controlled asset, we recognize revenue at the point in time when control is transferred to the customer. 

 

For our service contracts, revenue is also 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, and outage services, that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an input 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 indicates 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.

 

65

 

Accounts Receivable, Contract Assets and Contract Liabilities

Accounts receivable are recognized in the period when our right to consideration is unconditional. We also assess our customers' ability and intention to pay, which is based on a variety of factors, including our historical payment experience with and the financial condition of our customers. Payment terms and conditions vary by contract, and are within industry standards across our business lines. Accounts receivable are recognized net of an allowance for doubtful accounts.

 

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenue recognized under the output method or the input cost-to-cost method exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Also included in contract assets are retainage receivables and 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. Contract assets are generally classified as current within the Consolidated Balance Sheets.

 

Contract liabilities from our construction contracts occur when amounts invoiced to our customers exceed revenues recognized under the input cost-to-cost or output method of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts and provision for future contract losses for those contracts estimated to close in a gross loss position. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue.

 

Balances and activity in the current contract liabilities as of and for the years ended  December 31, 2021 and 2020 is as follows:

 

  

For the Year Ended December 31,

 
  

2021

  

2020

 

Total contract liabilities - January 1

 $4,873  $ 

Contract liability additions acquired through acquisition

  100   3,349 

Contract additions, net

  6,371   1,524 

Contract settlements

  (3,140)   

Revenue recognized

  (1,701)   

Total contract liabilities - December 31

 $6,503  $4,873 

 

 

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Performance Obligations

 

Remaining Performance Obligations

Remaining performance obligations, represents the transaction price of contracts with customers for which work has not been performed and excludes unexercised contract options and potential orders under ordering-type contracts. As of December 31, 2021, the Company's remaining performance obligations are generally expected to be filled within the next 12 months. For the contracts that are greater than 12 months the Company has approximately $121.0 million in the aggregate of remaining performance obligations that are unsatisfied or partially unsatisfied as of December 31, 2021.  

 

Any adjustments to net revenues, cost of revenues, and the related impact to operating income are recognized as necessary in the period they become known. These adjustments may result from positive program performance, and may result in an increase in operating income during the performance of individual performance obligations, if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations. Likewise, these adjustments may result in a decrease in operating income if we determine we will not be successful in mitigating these risks. Changes in estimates of net revenues, cost of revenues and the related impact to operating income are recognized on a cumulative catch-up basis in the period they become known, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. 

 

Performance Obligations Satisfied Over Time

To determine the proper revenue recognition method for our contracts satisfied over time, we evaluate whether a single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to separate the single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

 

For most of our contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation. Less commonly, however, we may promise to provide distinct goods or services within a contract in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We infrequently sell standard products with observable standalone sales. In cases where we do, the observable standalone sales are used to determine the standalone selling price. More frequently, we sell a customized customer specific solution, and in these cases we typically use the output method or the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

 

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 and are estimated based on the most likely amount that is deemed probable of realization.

 

Significant Judgments

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 projects 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.

 

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately rather than together may require significant judgment. For, example, we consider many of our contracts that coordinate multiple products into an integrated system to be a single performance obligation, while the same products would be considered separate performance obligations if not so integrated.

 

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.

 

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The following table presents our revenues disaggregated by timing of revenue recognition:

 

(In thousands)

 

For the Year Ended December 31, 2021

     
  

Telecommunications

  

Electric Power

  

Renewables

  

Total

 

Revenues recognized at point in time

 $1,812  $  $  $1,812 

Revenues recognized over time

  25,987   43,599   11,550   81,136 

Total revenues

 $27,799  $43,599  $11,550  $82,948 

 

(In thousands)

 

For the Year Ended December 31, 2020

     
  

Telecommunications

  

Electric Power

  

Renewables

  

Total

 

Revenues recognized at point in time

 $  $  $  $ 

Revenues recognized over time

     8,482   13,005   21,487 

Total revenues

 $  $8,482  $13,005  $21,487 

 

The following table presents our revenues disaggregated by region:

 

(In thousands)

 

For the Year Ended December 31, 2021

     
  

Telecommunications

  

Electric Power

  

Renewables

  

Total

 

North America

 $25,446  $43,599  $11,550  $80,595 

Other

  2,353         2,353 

Total revenues

 $27,799  $43,599  $11,550  $82,948 

 

(In thousands)

 

For the Year Ended December 31, 2020

     
  

Telecommunications

  

Electric Power

  

Renewables

  

Total

 

North America

 $  $8,482  $13,005  $21,487 

Total revenues

 $  $8,482  $13,005  $21,487 

 

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Advertising

The costs incurred for producing and communicating advertising are charged to operations as incurred. Advertising expense for the years ended  December 31, 2021 and 2020 were $0.5 million and $41 thousand, respectively.

 

Income Taxes

Income taxes are accounted for under the asset and liability method of FASB Accounting Standards Codification No. 740 (‘‘FASB ASC 740’’), ‘‘Income Taxes.’’ Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance to the extent that management believes it is more likely than not that such deferred tax assets will not be realized.

 

Valuation allowances have been established against all domestic based deferred tax assets and U.K. based deferred tax assets due to uncertainties in the Company’s ability to generate sufficient taxable income in future periods to make realization of such assets more likely than not. In future periods, tax benefits and related domestic and U.K. deferred tax assets will be recognized when management considers realization of such amounts to be more likely than not. In addition, the Company has provided for a partial valuation allowance in Canada. The Company has not provided for valuation allowances on deferred tax assets in any other jurisdiction.

 

The Company recognizes interest and penalties, if any, related to its tax positions in income tax expense.

 

Orbital Energy Group files consolidated income tax returns with its U.S. based subsidiaries for federal and many state jurisdictions in addition to separate subsidiary income tax returns in Japan, the United Kingdom and Canada. After the sale of CUI Japan in September 2020, and the final disposition of CUI-Canada assets and liabilities, the Company will only be required to file returns in the U.S. and the United Kingdom. As of December 31, 2021, the Company is not under examination by any income tax jurisdiction. The Company is no longer subject to U.S. examination for years prior to 2017.

 

Net Loss per Share

In accordance with FASB Accounting Standards Codification No. 260 (‘‘FASB ASC 260’’), ‘‘Earnings per Share,’’ basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of diluted shares outstanding during the period calculated using the treasury stock method. Due to the Company’s net loss in 2021 and 2020, the assumed exercise of stock options using the treasury stock method would have had an antidilutive effect and therefore all options for each of the two years were excluded from the calculation of diluted net loss per share. Accordingly, diluted net loss per share is the same as basic net loss per share for 2021 and 2020. 

 

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The following table summarizes the number of stock options outstanding:

 

  

As of December 31,

 
  

2021

  

2020

 

Options, outstanding

  237,985   790,648 

 

Any common shares issued as a result of stock options would come from newly issued common shares as granted under our equity incentive plans.

 

The following is the calculation of basic and diluted earnings per share:

 

  

For the Years Ended December 31,

 

(In thousands, except dollars per share)

 

2021

  

2020

 

Continuing operations:

        

Loss from continuing operations, net of income taxes

 $(49,843) $(25,702)

Discontinued operations:

        

Income from discontinued operations, net of income taxes

  (11,371)  (1,745)

Net loss

 $(61,214) $(27,447)
         

Basic and diluted weighted average number of shares outstanding

  58,348,489   29,937,863 
         

Loss from continuing operations per common share - basic and diluted

 $(0.86) $(0.86)

Earnings from discontinued operations - basic and diluted

  (0.19)  (0.06)

Loss per common share - basic and diluted

 $(1.05) $(0.92)

 

Foreign Currency Translation

The financial statements of the Company's foreign offices have been translated into U.S. dollars in accordance with FASB ASC 830, ‘‘Foreign Currency Matters’’ (FASB ASC 830). All balance sheet accounts have been translated using the exchange rate in effect at the balance sheet date. Statement of Operations amounts have been translated using an appropriately weighted average exchange rate for the year. The translation gains and losses resulting from the changes in exchange rates during 2021 and 2020 have been reported in accumulated other comprehensive income (loss), except for gains and losses resulting from the translation of short-term intercompany receivables and payables, which are included in earnings for the period.

 

Segment Reporting

Operating segments are defined in accordance with ASC 280-10 as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The measurement basis of segment profit or loss is income (loss) from operations. Management has identified five operating segments based on the activities of the Company in accordance with ASC 280-10. These operating segments have been aggregated into three reportable segments. The three reportable segments are Electric Power, Telecommunications, and Renewables and an Other category. The Electric Power segment consists of Front Line Power Construction, LLC based in Houston, Texas, Orbital Power Services based in Dallas, Texas, and Eclipse Foundation Group based in Gonzales, Louisiana. The segment provides comprehensive solutions to customers in the electric power industries. Front Line Power, LLC is a Houston-based full-service electrical infrastructure service company that provides construction, maintenance, and emergency response services for customers since 2010. Services performed by Orbital Power Services generally include the design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities as well as emergency restoration services, including the repair of infrastructure damaged by inclement weather. Eclipse Foundation Group, which began operations in January 2021, is a drilled shaft foundation construction company that specializes in providing services to the electric transmission and substation, industrial, communication towers and disaster restoration market sectors, with expertise in water, marsh and rock terrains.

 

The Telecommunications segment is made up of Gibson Technical Services, Inc. (“GTS”) (acquired April 13, 2021) GTS is an Atlanta-based telecommunications company providing diversified telecommunications services nationally since 1990 and is the parent of the following companies:

 

 

o

IMMCO, Inc. (acquired July 28, 2021), which includes two Indian subsidiaries and is an Atlanta-based, full-service telecom engineering and network design company providing diversified engineering services and customized software solutions to a global customer base since 1992.

 oFull Moon Telecom, LLC (acquired October 22, 2021) a Florida-based telecommunications services provider that offers an extensive array of wireless services capabilities and experience including Layer 2/Layer 3 Transport, Radio Access Network ("RAN") Integrations, test and turn-up of Small Cell systems and Integration/Commissioning of Distributed Antenna ("DAS") systems.

 

The Renewables segment consists of Orbital Solar Services based in Sanford, North Carolina. Orbital Solar Services provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility-scale solar construction. The Company serves a wide variety of project types, including commercial, substation, solar farms and public utility projects.

 

The Other category is made up primarily of the Company's corporate activities. This category does not include any operating segments and does not generate revenue. In addition, Orbital’s integrated operations and common administrative support for its operating units require that certain allocations be made to determine segment profitability, including allocations of shared and indirect costs (e.g., insurance costs) and general and administrative costs such as stock bonuses, and professional fees, including audit fees. Certain corporate costs are not allocated and include corporate employees’ salaries and benefits, Board of Director fees and costs, certain legal fees, due diligence costs related to prospective acquisitions, and regulatory costs associated with being a publicly traded company. Unallocated corporate expenses and costs associated with discontinued operations are included in the all-other category.

 

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The following information represents segment activity as of and for the year ended December 31, 2021:

 

(In thousands)

 

Telecommunications

  

Electric Power

  

Renewables

  

Other

  

Total

 

Revenues from external customers

 $27,799  $43,599  $11,550  $   82,948 

Depreciation and amortization (1)

  2,326   5,969   2,931   1,684   12,910 

Interest expense

  50   3,129   349   4,809   8,337 

Income (loss) from operations

  43   (13,215)  (19,043)  (20,576)  (52,791)

Segment assets (2)

  80,800   273,726   28,324   28,459   411,309 

Other intangibles assets, net

  28,571   106,377   7,708      142,656 

Goodwill

  23,742   70,151   7,006      100,899 

Expenditures for segment assets (3)

  1,615   5,905   118   846   8,484 

 

The following information represents segment activity as of and for the year ended December 31, 2020:

 

(In thousands)

 

Telecommunications

  

Electric Power

  

Renewables

  

Other

  

Total

 

Revenues from external customers

 $  $8,482  $13,005  $  $21,487 

Depreciation and amortization (1)

     433   3,278   1,530   5,241 

Interest expense

     18   332   948   1,298 

Loss from operations

     (4,942)  (5,479)  (11,610)  (22,031)

Segment assets (2)

     7,554   28,271   30,220   66,045 

Other intangibles assets, net

        10,550   3   10,553 

Goodwill

        7,006      7,006 

Expenditures for segment assets (3)

     1,567   17   123   1,707 

 

(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 year ended December 31, 2021 depreciation and amortization totals included $0.4 million that was classified as cost of revenues in the Telecommunications segment, $4.0 million that was classified as cost of revenues in the Electric Power segment and $54 thousand that was classified as cost of revenue in the Renewables segment. For the year ended December 31, 2020 depreciation and amortization totals included $0.4 million that was classified as cost of revenues in the Electric Power segment and $68 thousand that was classified as cost of revenue in the Renewables segment. 

(2)

Other category includes assets held for sale of the discontinued Orbital Gas subsidiaries.

(3)Includes purchases of property and equipment and purchases of other intangible assets.

 

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The following information represents revenue by country:

 

  

For the Years Ended December 31,

 

(In thousands)

 

2021

  

2020

 

USA

 $80,595   97% $21,487   100%

All Others

  2,353   3%     0%

Total

 $82,948   100% $21,487   100%

 

The Company's long-lived assets are located in the U.S.

 

Adoption of new accounting standards

On January 1, 2021, the Company adopted ASU No. 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASU 2020-04 provides optional expedients and exceptions related to contract modifications and hedge accounting to address the transitions from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance permits an entity to consider contract modification due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. ASU 2020-04 also temporarily allows hedge relationships to continue without de-designation upon changes due to reference rate reform. The standard is effective upon issuance and can be applied as of March 12, 2020 through December 31, 2022. There is not a material effect on the Company's financial statements due to the Company not having any current financial instruments that are affected by this new guidance.

 

On January 1, 2021, the Company adopted ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives, and is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. The amendments in ASU 2020-01 are effective for the Company's 2021 fiscal year, including interim periods. The new guidance does not currently have a material impact on the Company's consolidated financial statements due to the Company currently not having any equity-method investments or any derivative instruments.

 

On January 1, 2021, the Company adopted ASU 2019-12, Simplifying the Accounting for Income Taxes, which is guidance intended to simplify various aspects related to accounting for income taxes, eliminate certain exceptions within ASC 740 and clarify certain aspects of the current guidance to promote consistency among reporting entities. The pronouncement is effective for the Company's 2021 fiscal year, including interim periods. The ASU does not have a material impact on the Company's consolidated financial statements.

 

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Recent Accounting Pronouncements

On  October 28, 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This guidance will require entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. This standard was designed to provide consistent recognition and measurement guidance for revenue contracts with customers. Legacy guidance requires entities to record contract assets and contract liabilities acquired to be recorded at fair value. The amendments will be effective for the Company beginning for fiscal years beginning after  December 15, 2022. Early adoption is allowed. If an entity early adopts, the entity would be required to apply the new guidance to all acquisitions made in the year of the early adoption. The Company is still reviewing the standard and as of the reporting date of this filing has not elected to early adopt.

 

 

3.      INVESTMENTS AND FAIR VALUE MEASUREMENTS

 

The Company’s fair value hierarchy for its cash equivalents, marketable securities and financial instruments as of  December 31, 2021 and December 31, 2020, respectively, was as follows:

 

(In thousands)

                               

December 31, 2021

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Contingent Consideration

  $     $     $ 720     $ 720  

Financial instrument liability

                825       825  

Total liabilities

  $     $     $ 1,545     $ 1,545  

 

December 31, 2020

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Convertible note payable

  $     $     $ 1,955     $ 1,955  

Contingent Consideration

                720       720  

Total liabilities

  $     $     $ 2,675     $ 2,675  

 

Fair Value Measurements

       

Using Significant Unobservable Inputs (Level 3 - recurring basis)

       

(In thousands)

 

Convertible Note Payable

 

Balance at December 31, 2020

  $ 1,955  

Loss on extinguishment on amendment to remove convertible feature

    250  

Amortization of original issue discount

    40  

Accrued interest

    57  

Extinguishment of note

    (2,302 )

Balance at December 31, 2021

  $  

 

Fair Value Measurements

       

Using Significant Unobservable Inputs (Level 3 - recurring basis)

       

(In thousands)

 

Contingent Consideration

 

Balance at December 31, 2019

  $  

Contingent consideration valued at acquisition of Reach Construction Group, LLC

    720  

Fair Value adjustment

     

Balance at December 31, 2020

  $ 720  

Balance at December 31, 2021

  $ 720  

 

The Company evaluated the contingent consideration for fair value as of December 31, 2021 using a third-party valuation specialist. Significant unobservable inputs include projected future EBITDA, future estimated growth rate, estimated discount rate, and estimated volatility. The fair value of the contingent consideration did not change significantly from 2020 to 2021 and as a result, no adjustment was recorded. 

 

Fair Value Measurements

       

Using Significant Unobservable Inputs (Level 3 - recurring basis)

       

(In thousands)

 

Convertible Note

 
   

Receivable

 

Balance at December 31, 2020

  $  

Fair value of Financial instrument liability at inception

    858  

Fair value adjustment

    (33 )

Balance at December 31, 2021

  $ 825  

 

In conjunction with the Company issuing $105 million of debt to a syndicate of lenders, the Company committed to issuing 1,690,677 shares of stock to the lenders in the syndicate in a subscription agreement. Included in the subscription agreement is a provision that provides for additional shares to be issued to the lenders of the syndicate if the Company issues shares of common stock in an offering at a price lower than the $2.36 per share amount for the shares initially issued to the lenders in the syndicate. This financial instrument was valued as a put option using the Black Scholes option pricing model. Unobservable inputs include volatility, exercise price, and time to expiration. The put expires at the maturity of the Company's seller notes. 

 

There were no transfers between Level 3 and Level 2 in 2021 as determined at the end of the reporting period.

 

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The fair values of the reporting units subject to the Company’s quantitative impairment analysis were determined utilizing a blend of a market and an income approach to determine the estimated fair values of the reporting units, as discussed in Note 2. The fair value measurements and models were classified as non-recurring Level 3 measurements.

 

Investment in VPS

As of December 31, 2021, the Company had a minority interest in Virtual Power Systems ("VPS"). 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 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. The VPS investment basis at  December 31, 2021 and December 31, 2020 was $1.1 million and $1.1 million as reflected on the consolidated balance sheets. The Company recorded a $4.8 million loss on its equity-method investment in 2020. With the decrease in ownership percentage following a Q3 2020 equity raise by VPS and additional board seats placed, OEG no longer has significant influence to recognize the investment under the equity method. The investment is recorded starting as of September 30, 2020 under the cost method of accounting for investments. 

 

The Company made a purchase of a convertible note receivable for $0.2 million from VPS in the three months ended March 31, 2020, which was increased to $0.3 million in the second quarter of 2020 via payments made to VPS and accrued interest recorded by the Company as part of the transition agreement between the Company and VPS. VPS chose to convert the note receivable to equity in the third quarter of 2020. In addition, the Company made additional cash investments of $0.5 million and a $0.3 million non-cash inventory investment in VPS in 2020.

 

 

4.             PROPERTY AND EQUIPMENT, NET

 

Property and equipment from continuing operations is summarized as follows:

 

   

At December 31,

 

(In thousands)

 

2021

   

2020

 

Leasehold improvements

  $ 272     $  

Equipment

    32,762       2,714  

Property and equipment, gross

    33,034       2,715  

Less accumulated depreciation

    (3,396 )     (631 )

Property and equipment, net

  $ 29,638     $ 2,084  

 

Depreciation expense from continuing operations for the years ended  December 31, 2021 and 2020 was $5.0 million and $0.6 million, respectively. For the year ended December 31, 2021, depreciation totals included $0.4 million that was classified as cost of revenues in the Telecommunications segment, $4.0 million that was classified as cost of revenues in the Electric Power segment and $54 thousand as cost of revenues in the Renewables segment.

 

During the year ended December 31, 2021, the Company's continuing operations disposed of $0.2 million of property and equipment with an accumulated depreciation at disposal of $39 thousand. Cash and non-cash proceeds from sale was $0.2 million and a gain of $14 thousand.

 

During the year ended December 31, 2020, the Company's continuing operations disposed of $0.3 million of property and equipment including a $93 thousand trade in with a total accumulated depreciation at disposal of $0.2 million and a loss of $25 thousand.

 

 

 

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5.             GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill

The Company records goodwill associated with its acquisitions of businesses when the consideration paid exceeds the fair value of the net tangible and identifiable intangible assets acquired. Goodwill balances are evaluated for potential impairment on an annual basis. The current guidance requires the Company to perform an annual impairment test of our goodwill or at an interim period if there is an event that occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We are required to perform our annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. As of December 31, 2021, the Company has five operating segments that are also considered reporting units for goodwill impairment testing. The five operating segments are: Front Line Power Construction, LLC, Orbital Power Inc., Eclipse Foundation Group, Orbital Solar Services, Gibson Technical Services, which includes  IMMCO, Inc. and Full Moon Telecom, LLC. The five operating segments are grouped into three reportable segments, Telecommunications (GTS  Renewables (OSS), and Electric Power (FLP, OPI, and EFG).

 

We would be required to recognize an impairment charge for the amount by which the reporting unit's carrying amount exceeds its fair value up to but not to exceed the amount of the goodwill. Based on management's evaluation, there were no such circumstances at December 31, 2021 or 2020 that would require us to perform an interim goodwill impairment test. Upon acquisition of Reach Construction Group, LLC, (now known as Orbital Solar Services ("OSS"), considered both a reporting unit and operating segment and included in the Renewables segment, 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 OSS's tangible assets and liabilities and $13.7 million of finite-lived identifiable intangible assets included in the table below. Factors that contributed to the Company's goodwill are OSS's skilled workforce and reputation within its industry. The Company also expects to achieve future synergies between the Renewables segment and the Electric Power segment. These synergies are expected to be achieved in the form of power line work necessary when bringing new solar power systems online. 

 

Throughout 2021, the Company acquired three companies that make up the Telecommunication reportable segment. Each company acquired, Gibson Technical Services, IMMCO, Inc., and Full Moon Telecom, LLC, is considered a reporting unit that together aggregate into one integrated operating segment called Gibson Technical Service. Goodwill for these three reporting units will be aggregated together and recognized at the operating segment level Gibson Technical Services.

 

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) includes GTS’s sterling reputation within the telecommunications industry which when combined with the Company’s resources, provides synergies that will help OEG 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 $5.3 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 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 Front Line Power Construction, LLC, which is considered both a reporting unit and an operating segment, 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.

 

For Orbital Solar Systems, (formally known as Reach Construction), management completed a quantitative analysis to determine potential impairment at the May 31st, 2021 annual impairment test date. Goodwill in the Telecommunications segment was qualitatively reviewed due to the fact that this review was performed within 50 days of the initial valuation of GTS. The qualitative review was performed 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 management's review of goodwill as of December 31, 2021, the Company determined that there were not indicators present and 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.

 

Other intangible assets

 

At December 31, 2021 and 2020, the gross carrying amount and accumulated amortization of intangible assets, other than goodwill, are as follows:

 

Finite-lived intangible assets (in thousands)

        (In years)     December 31, 2021     December 31, 2020  

Telecommunications

 

Estimated Useful Life (in years)

   

Weighted average remaining amortization period

   

Gross Carrying Amount

   

Accumulated Amortization

   

Identifiable Intangible Assets, less Accumulated Amortization

   

Gross Carrying Amount

   

Accumulated Amortization

   

Identifiable Intangible Assets, less Accumulated Amortization

 

Customer Relationships-GTS

  10       9.29     $ 16,075     $ (1,152 )   $ 14,923     $     $     $  

Customer Relationships-IMMCO

  10       9.58       3,800       (158 )     3,642                    

Customer Relationships - Full Moon

  10       9.82       210       (4 )     206                    

Technology - Know How

  4       3.58       1,459       (152 )     1,307                    

Software-IMMCO

  3       2.57       547       (93 )     454                    

Non-compete agreements-GTS

  5       4.29       385       (55 )     330                    

Total Telecommunications

                  22,476       (1,614 )     20,862                    
                                                               

Electric Power

                                                             

Order backlog

  1       0.88       9,186       (1,148 )     8,038                    

Customer relationships - Front Line

  15       14.89       84,012       (700 )     83,312                    

Total Electric Power

                  93,198       (1,848 )     91,350                    
                                                               

Renewables

                                                             

Customer Relationships

  5       3.25       8,647       (3,027 )     5,620       8,647       (1,297 )     7,350  

Trade name - Reach Construction Group

  1             1,878       (1,878 )     -       1,878       (1,409 )     469  

Non-compete agreements

  5       3.25       3,212       (1,124 )     2,088       3,212       (482 )     2,730  

Total Renewables

                  13,737       (6,029 )     7,708       13,737       (3,188 )     10,549  
                                                               

Other category

                                                             

Computer software

  3       0.08       713       (713 )           713       (709 )     4  

Product certifications

  3             36       (36 )           36       (36 )      

Total Other category

                  749       (749 )           749       (745 )     4  
                                                               

Total identifiable finite-lived other intangible assets

                $ 130,160     $ (10,240 )   $ 119,920     $ 14,486     $ (3,933 )   $ 10,553  
                                                               

Identifiable indefinite-lived other intangible assets

                                                             
                                                               

Electric Power

                                                             

Trade name - Front line

                  15,027             15,027                    
                                                               

Telecommunications

                                                             

Trade name - GTS

                  6,388             6,388                    

Trade name - IMMCO

                  1,162             1,162                    

Trade name - Full Moon

                  159             159                    

Total Telecommunications

                  7,709             7,709                    

Total identifiable indefinite-lived other intangible assets

                  22,736             22,736                    
                                                               

Total identifiable other intangible assets

                  152,896       (10,240 )     142,656       14,486       (3,933 )     10,553  

 

 

Intangible asset amortization by category was as follows:

 

   

For the Years Ended December 31,

 

(In thousands)

 

2021

   

2020

 
                 

Trademarks and trade name

  $ 469     $ 1,409  

Customer lists/relationships

    3,744       1,297  

Technology-Know How

    152        

Computer software

    96       18  

Noncompete agreements

    697       482  

Order Backlog

    1,148        

Intangibles held by discontinued operations

    1,396       1,215  

Total amortization

  $ 7,702     $ 4,421  

 

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Estimated future amortization by category of finite-lived intangible assets at  December 31, 2021 was as follows:

 

   

For the Years Ended December 31,

 
                                           

2027 and

         

(In thousands)

 

2022

   

2023

   

2024

   

2025

   

2026

   

thereafter

   

Totals

 

Trademarks and trade name

  $     $     $     $     $     $     $  

Customer lists/relationships

    9,339       9,339       9,339       8,042       7,609       64,035       107,703  

Technology-Know How

    365       365       365       212                   1,307  

Computer software

    222       222       10                         454  

Order Backlog

    8,038                                     8,038  

Non-compete agreements

    719       719       719       238       23             2,418  

Total amortization

  $ 18,683     $ 10,645     $ 10,433     $ 8,492     $ 7,632     $ 64,035     $ 119,920  

 

Management reviews other intangible assets for impairment when facts or circumstances suggest. As of December 31, 2021, management has evaluated the remaining finite-lived and indefinite-lived intangible assets and believes no impairment exists.

 

The following table reflects the carrying amount of goodwill as of  December 31, 2021 and 2020, and the 2021 activity. 

 

(In thousands)

 

Telecommunications

   

Electric Power

   

Renewables

   

Other

   

Total

 

Balance, December 31, 2020

  $     $     $ 7,006     $     $ 7,006  

Acquisition of Gibson Technical Services

    12,339                         12,339  

Acquisition of IMMCO Inc.

    10,577                         10,577  

Acquisition of Full Moon Telecom, LLC

    826                         826  

Acquisition of Front Line Power Construction, LLC

          70,151                   70,151  

Balance, December 31, 2021

  $ 23,742     $ 70,151     $ 7,006     $     $ 100,899  

 

 

 

 

6.          INSTRUMENTS AND RISK MANAGEMENT

 

The Company has limited involvement with derivative instruments and does not trade them. 

 

At December 31, 2021 and 2020, the Company had no derivative instruments designated as effective hedges.

 

76

 
 

7.          NOTES PAYABLE

 

Notes payable is summarized as follows:

 

   

As of December 31,

 

(In thousands)

 

2021

   

2020

 

Syndicated debt (1)

  $ 105,000     $  

Seller Financed notes payable - Front Line Power Construction, LLC acquisition (2)

    86,730        

Note payable - financing notes (3)

    1,357       1,163  

Pay-check protection loans (4)

          1,152  

Seller financed notes payable - Reach Construction acquisition (5)

    3,480       6,480  

Vehicle and equipment loans (6)

    222       195  

Non-recourse payable agreements (7)

    8,269       2,699  

Notes payable - Institutional investor (8)

    33,922       2,245  

Conditional settlement note payable agreement (9)

    3,000       3,500  

Full Moon - loan to prior owner (10)

    2        

Subtotal

    241,982       17,434  

Unamortized debt discount and debt issuance costs

    (12,603 )     (903 )

Total long-term debt

    229,379       16,531  

Less short term notes and current maturities of long term notes payable

    (72,774 )     (11,681 )

Notes payable, less current portion

  $ 156,605     $ 4,850  

 

(1)

On November 17, 2021, the Company entered into a credit agreement and associated documents (the “Credit Agreement”) with Alter Domus (US), LLC (“Alter Domus”), 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. The Lenders made a Term Loan to Front Line in the initial principal amount of $105,000,000 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. Interest rate on the term notes at December 31, 2021 was 13.5%.

   

(2)

On November 17, 2021, the Company entered into two unsecured promissory notes, one with Kurt A Johnson, Jr, for $34,256,000 and the second for $51,384,000 with Tidal Power Group LLC. These promissory notes bear an interest rate of 6% per annum and were due on May 17, 2022. On December 10, 2021, Kurt A Johnson Jr. received an additional unsecured promissory note in the principal sum of $1,090,000 also with a 6% per annum interest rate in exchange for a reduction of shares issued to Kurt of 400,000. In March 2022, the maturity date for a portion of the two promissory notes was extended to May 31, 2023. See Note 18 for details on extension of maturity date.      

   
(3)

Note payable with an original balance for $1.4 million to First Insurance Funding was executed in  July 2020 by the Company for the purposes of financing a portion of the Company's insurance coverage. The Note had an annual percentage rate of 3.35% with nine monthly payments of approximately $159 thousand and was paid off in the three months ended  June 30 ,2021. The Company financed two additional insurance policies in the fourth quarter of 2020 for $0.1 million and $0.4 million, respectively. The smaller of which matured in  April 2021 and the other of which matured in  September 2021, and for which had annual interest rates of 3.35% and 4.35%, respectively. The Company executed two additional notes payable in the third quarter of 2021 for $1.7 million and $54 thousand, respectively at interest rates of 3.00% and 4.35%, respectively. In the fourth quarter, the Company executed one additional notes payable for $0.5 million at an interest rate of 4.35%.

   
(4)

On  April 30, 2020 and  May 2, 2020, the Company entered into unsecured loans in the aggregate principal amount of approximately $1.9 million (the “Loans”) pursuant to the Paycheck Protection Program (the “PPP”), sponsored by the Small Business Administration as guarantor of loans under the PPP ($0.8 million of the loans related to a since discontinued operation and is classified in liabilities held for sale at December 31, 2020). The Loans, and interest accrued thereon, were forgivable, partially or in full, if certain conditions were met. The Loans were evidenced by four promissory notes, three with Bank of America, NA which were dated as of  April 30, 2020 and one with Dogwood State Bank dated  May 2, 2020. The Bank of America notes were to mature two years from funding date of the notes and the Dogwood State Bank note was to mature two years from the note date. Each of the notes bore interest at a fixed rate of 1.0% per annum with payments deferred. Prepayments on the Loans were permitted at any time prior to maturity with no prepayment penalties. All $1.9 million of the loans outstanding at  December 31, 2020 were forgiven in the three months ending  June 30, 2021. The remaining $1.4 million of Pay-check Protection loans were acquired as part of the GTS acquisition, and which were forgiven in the third quarter of 2021. The Company had a contingent receivable associated with the remaining PPP loan whereby the Company would be paid by the Sellers of GTS if the remaining PPP loan was not forgiven. Upon forgiveness of the loan, the receivable was relieved resulting in no gain or loss on the transaction.

   
(5)

Includes two seller-financed notes payable, one for $5 million and the second for $1.5 million. The $5 million note was amended from its original 18-month term to provide for installments of $1 million paid on  March 3, 2021, a second $1 million payment to be made on  October 31, 2021 and a final principal payment of $3 million on  March 31, 2022.  In  August 2021, the Company paid $1 million in cash and exchanged 155,763 shares of common stock in exchange for an additional $1 million reduction in principal. The Company recorded this as an extinguishment of debt and a gain on extinguishment of $0.7 million. The new loan had a face value of $2.0 million at a rate of 6% per annum and was recorded based on an estimated market interest rate of 10% per annum with a discount of $48 thousand. The original payment terms called for the full $5 million principal to be paid no later than  November 1, 2021 without separate installments. The second seller financed note payable is due 36-months from the  April 1, 2020 acquisition date. Both notes had an original stated interest rate of 6% per annum.

   
(6)

Includes vehicle and equipment loans with interest rates ranging from 5.74% to 8.99%.

   
(7)

On September 1st and 2nd, 2020, the Company entered into non-recourse agreements for the sale of future receipts to C6 Capital. The Company received net cash proceeds of $1.9 million for the future receipts of revenues in the amount of approximately $2.5 million. The Company recorded a liability of approximately $2.5 million and a debt discount of approximately $0.5 million, which represents the original issue discount and the fees paid in association with the financing. The debt discount was amortized to interest expense over the life of the agreement. Under the terms of the agreement, the Company was required to make minimum weekly payments in the aggregate of $155 thousand, which included a portion related to the discount amortization that was recorded as interest expense. The note had no stated interest rate and the effective interest rate used to amortize the discount was approximately 158%. These notes were refinanced in November 2020 and a loss on extinguishment of debt was recorded for $154 thousand related to the unamortized discount at the time of payoff. To refinance the original future revenues payable note and to provide the Company with additional capital, the Company took out two additional non-recourse agreements with C6 Capital for the sale of future revenues in the total amount of $3.5 million. These agreements had no stated interest rate and the original issue discount including upfront fees are being amortized using an effective interest rate of approximately 117%. After combined weekly payments of approximately $54 thousand for the first four weeks, the combined payments increased to approximately $116 thousand until June 2021 when the notes were paid off.  In October 2021, the Company entered into a 60-day non-recourse agreement for the sale of future receipts to C6 Capital. The Company received net cash proceeds of $1.0 million with a face amount of $1.2 million. This agreement was paid off in December 2021. The agreement had no stated interest rate, but the discount and loan origination fees were amortized based on a 129% interest rate. A second non-recourse agreement with C6 was originated in November 2021 with a face amount of $9.5 million. The Company received net cash proceeds of $6.9 million. The Company recorded a liability of $9.5 million and a debt discount of $2.6 million. Under the terms of the agreement, for the first 12 weeks, the Company makes weekly payments of $148 thousand and for the final 20 weeks, the Company makes payments of $384 thousand. The agreement had no stated interest rate, but the discount and loan origination fees are being amortized based on an 89% interest rate.  As of December 31, 2021, the future payments for this financing agreement was approximately $8.3 million ($6.6 million net of discount). See table on following page.

   
(8)

On November 13, 2020, the Company completed a Securities Purchase Agreement with an institutional investor, pursuant to which the Company agreed to issue to the Investor an unsecured convertible instrument in the principal amount of $2.2 million (the “Convertible Security” or “Note”) to purchase shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”) against the payment of the applicable consideration therefore. Upon the closing on November 13, 2020, the Company received gross proceeds of $2.2 million before fees and other expenses associated with the transaction, including but not limited to, a $0.2 million original issue discount payable to the Investor. The net proceeds received by the Company were used primarily for working capital, debt repayment and general corporate purposes. The Note is payable in full within eighteen (18) months after the purchase price date in accordance with the terms set forth in the Note and accrues interest on the outstanding balance at the rate of ten percent (10%) per annum from the Purchase Price Date until the Note is paid in full. All interest shall compound daily and shall be payable in accordance with the terms of the Note. Company has the right to prepay all or any portion of the outstanding balance in an amount equal to 115% multiplied by the portion of the outstanding balance to be prepaid. The creditor may request payment of up to $250 thousand per month beginning 6 months after initial issuance. Original issue discount is amortized over the expected life of the investment at an effective interest rate of approximately 29%. The Company elected the fair value option for this note and as a result did not bifurcate any potential embedded derivatives. The Company determined that the fair value at December 31, 2020 approximated its carrying value so no fair value adjustment was made as of December 31, 2020. In February 2021, the Company negotiated modified terms which effectively removed the convertible option from the note and the Company recorded a $250 thousand loss on extinguishment. 

 

In  July 2021, the Company issued 248,509 shares of common stock in exchange for a payment against the debt of $1 million and in  September 2021, the Company signed an exchange agreement to issue 83,333 shares of common stock in exchange for a payment against the debt of $250 thousand. In October 2021, the Company issued 100,000 shares in exchange for a payment against the debt of $250,000. In November 2021, the Company issued 113,636 shares in exchange for a payment against the debt of $250,000. The carrying value was $0.7 million at  December 31, 2021. 

On  March 23, 2021, the Company completed a second note payable with the same institutional investor with a face amount of $10.7 million, a stated interest rate of 9.0%, an estimated effective interest rate of 19.6%, an original issue discount of $1.0 million. The note payable is payable within eighteen (18) months after the purchase date and the creditor  may request payment of up to $1 million per month beginning 6 months after initial issuance. In  September 2021, the Company issued 333,333 shares of common stock in exchange for a payment against the debt of $1 million. In October 2021, the Company issued 400,000 shares of common stock in exchange for $1.0 million payment against the debt. In November 2021, the Company issued 454,545 shares of common stock in exchange for a $1.0 million payment against the debt. In December 2021, the Company issued 454,545 shares of common stock in exchange for $1.0 million payment against the debt. The carrying value was $7.2 million at  December 31, 2021.    

 

On  May 11, 2021, the Company completed a third note payable agreement with the institutional investor with a face amount of $10.7 million, a stated interest of 9% per annum and a combined original issue discount and unamortized prepaid fees of $1.0 million. The net proceeds were to be used for working capital, future acquisitions and general corporate purposes. The note payable is payable within eighteen (18) months after the purchase date and the creditor  may request payment of up to $1 million per month beginning 6 months after initial issuance. In November 2021, the Company issued 454,545 shares of common stock in exchange for $1.0 million payment against the debt. In December 2021, the Company issued 284,090 shares of common stock in exchange for $625 thousand payment against the debt. The carrying value was $9.3 million at December 31, 2021. 

 

On December 20, 2021, the Company completed a fourth note payable agreement with the institutional investor with a face amount of $16.1 million, a stated interest rate of 9.0%, an estimated effective interest rate of 16.3%, and an original issue discount of $1.1 million. The note payable is payable within eighteen (18) months after the purchase date and the creditor  may request payment of up to $1.5 million per month beginning 6 months after initial issuance. The carrying value was $15.1 million at December 31, 2021. The Company has not made any payments on this note as of  December 31, 2021.

 

For Streeterville payments made by exchanging stock for payments against the debt in 2021, the Company recorded a total loss of $1.3 million on the exchanges due to the Company issuing shares at a lower price than the current market price on the dates of exchange.

   
(9)

In October 2020, the Company entered into a conditional settlement agreement with a subcontractor to make payments of $3.5 million at zero interest over three years. The Company made a $0.5 million payment in the fourth quarter of 2021. Subsequent to year end, the Company made a $150,000 payment in February 2022, and is scheduled to make a $350,000 payment by March 31, 2022, a $1 million payment by November 2022 and the final $1.5 million payment by November 2023.

 

 

(10)

Represents Full Moon Telecom, LLC opening balance sheet loan to prior Full Moon Telecom, LLC owner.

 

77

 

The following shows the elements of the Non-recourse payable agreements:

 

                                                 

(In thousands)

                                               
   

Face Value

   

Repayments

   

Loan Origination Fees

   

Discounts

   

Amortization of Discounts

   

Balance as of December 31, 2021

 

Non-recourse payable agreements

  $ 9,450     $ (1,181 )     (140 )   $ (2,450 )   $ 922     $ 6,601  

 

The following table details the maturity of the notes payable for Orbital Energy Group, Inc.:

 

(In thousands)

       
   

As of December 31,

 
   

2021

 

2022

  $ 97,659  

2023

    76,848  

2024

    15,229  

2025

    15,030  

2026

    115,023  

Less interest portion of payments

    (90,410 )

Total

  $ 229,379  

 

78

 
 

8.           LINE OF CREDIT

 

On  August 19, 2021, the Company's GTS subsidiary 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 a $2.5 million outstanding balance on the line of credit and $1.5 million was available for borrowing.

 

With the acquisition of Reach Construction Group, LLC in April 2020, the Company acquired with it a line of credit. The Company had a revolving line of credit with Truist bank with a balance of $441 thousand at December 31, 2020. Interest was payable monthly at LIBOR plus 2.5% per annum, with a minimum rate of 2.5%. The interest rate was 6.65% at December 31, 2020. The line of credit was collateralized by all assets of Reach Construction Group, LLC and guaranteed by the Seller of Reach Construction Group, LLC. The line of credit did not have an established maturity date. There was no available balance at December 31, 2020 on the line of credit and the Company closed this line of credit in the first quarter of 2021.

 

 

9.          COMMITMENTS AND CONTINGENCIES

 

Legal Matters

The Company may be involved in certain legal actions arising from the ordinary course of business. While it is not feasible to predict or determine the outcome of these matters, we do not anticipate that any of these matters, or these matters in the aggregate, will have a material adverse effect on the financial position or results of operations.

 

79

 

Off-Balance Sheet Arrangements - Performance and Payment Bonds and Parent Guarantees

In the ordinary course of business, Orbital Energy Group and its subsidiaries are required by certain customers to provide performance and payment bonds for contractual commitments related to its projects. These bonds provide a guarantee to the customer that the Company will perform under the terms of a contract and that the Company will pay its subcontractors and vendors. If the Company fails to perform under a contract or to pay its subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. The Company must reimburse the surety for expenses or outlays it incurs. The bonds will remain in place as the Company completes projects and resolves any disputed matters with the customers, vendors and subcontractors related to the bonded projects. As of  December 31, 2021 the total amount of the outstanding performance and payment bonds was approximately $131.8 million. Two of the bonds were on Orbital Solar Services jobs and two bonds were on Orbital Power Inc. construction jobs.  The Orbital Solar Services. jobs were for unconsolidated third parties related to two separate projects that had $109.5 million left to complete the jobs, for a combined bond amount of approximately $127.0 million. The two Orbital Power Inc. bonds were for a third party related to two ongoing unit-based projects that as of  December 31, 2021 had a consolidated contract value of $3.8 million with costs left to complete of $1.2 million. The Company does not expect any liability associated with these off-balance sheet arrangements.

 

Additionally, from time to time, we guarantee certain obligations and liabilities of our subsidiaries that may arise in connection with, among other things, contracts with customers, equipment lease obligations, and contractor licenses. These guarantees may cover all of the subsidiary’s unperformed, undischarged and unreleased obligations and liabilities under or in connection with the relevant agreement. For example, with respect to customer contracts, a guarantee may cover a variety of obligations and liabilities arising during the ordinary course of the subsidiary’s business or operations, including, among other things, warranty and breach of contract claims, third-party and environmental liabilities arising from the subsidiary’s work and for which it is responsible, liquidated damages, or indemnity claims.

 

Contingent Liabilities

Orbital Energy Group, Inc. is occasionally party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, negligence or gross negligence and/or property damages, wage and hour and other employment-related damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief.

 

Regarding all lawsuits, claims and proceedings, Orbital Energy Group, Inc. records a reserve when it is probable that a liability has been incurred and the loss can be reasonably estimated. Orbital Energy Group, Inc. discloses matters for which management believes a material loss is at least reasonably possible. None of these proceedings are expected to have a material adverse effect on Orbital Energy Group, Inc.’s consolidated financial position, results of operations or cash flows. In all instances, management has assessed the matter based on current information and made a judgment concerning its potential outcome, considering the nature of the claim, the amount and nature of damages sought and the probability of success. Management’s judgment may prove materially inaccurate, and such judgment is made subject to the known uncertainties of litigation.

 

 

10.          STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

 

Common Stock Dividend Restrictions

As of December 31, 2021, there are no restrictions on common stock dividends. Also, at December 31, 2021 and 2020, retained earnings were not restricted upon involuntary liquidation.

 

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 $35.7million. 

 

80

 

Stock Appreciation Rights ("SARS")

During the years ended December 31, 2021 and 2020, the Company issued SARS to five key executives in 2021 and four key executives in 2020. The number of SARS granted to each of the executives equated to the corresponding dollar amount of a portion of the cash bonus otherwise due to them pursuant to their employment agreements. The SARS are subject to acceleration upon a change in control or termination of the executive’s employment with the Company in certain circumstances. SARS granted in 2020 vest over 24 months and SARS granted in 2021 vest and are paid out on the anniversary of the grant in one-third increments on the first-, second-, and third-year anniversaries of the grant date. The Company recorded $2.1 million and $0.6 million of compensation related to SARs in the years ended December 31, 2021 and 2020. Unamortized expense for SARS at December 31, 2021 was $4.3 million.

 

  

2021

  

2020

 

Month Issued

 

April 2021

  

June 2020

 

Number Issued

  3,770,960   1,054,687 

Interest Rate

  0.34%  6%

Estimated Volatility

  156%  130%

Stock Price at Issuance

 $4.17  $0.72 

Years to Maturity

  1.5   6 

Grant date Value per Right

 $3.56  $0.64 

 

The 2020 grant was issued with a $1.00 exercise price. The $1.00 SAR exercise price represented approximately a 40% premium over the market price of the Company's common stock as reported on Nasdaq as of May 29, 2020. The issuance of the SARS conserved approximately $1,000,000 of the Company's cash reserves at the time of issuance. Upon exercise, the Company is obligated to pay the executive an amount equal to the difference between the average closing price of the Company's common stock, as reported on Nasdaq for the five (5) trading days preceding the exercise date, less the SAR exercise price of $1.00. 

 

The 2021 grant was issued with a $2.89 exercise price. 

 

The SARS were valued using a binomial lattice model. Because the SARS will be settled in cash, the obligation for them is accounted for as a liability rather than equity. Quarterly, the SARS are revalued and the new value is amortized. Information on the grant date value of the SARS and weighted average inputs to the binomial lattice model are as follows:

 

 

  

2021

  

2020

 

Weighted average expected term at December 31 (years)

  1.55   3.42 

Total fair value of all awards at December 31

 $6,979,824  $2,232,491 

Total fair value of all vested awards at December 31

 $2,701,802  $648,180 

Total intrinsic value at December 31

 $1,255,078  $1,255,078 

 

At December 31, 2021 and 2020 there were 3,126,000 and 748,000, respectively of non-vested cash-settled SARS outstanding at a weighted average fair value of $1.45 and $2.12, respectively. See Note 18 Subsequent Events regarding the exchange of SARS for RSUS in the first quarter of 2022.

 

81

Restricted Stock Units:

 

In 2021 the Company granted Restricted stock units to certain key employees of the Company from the Company's 2020 Incentive Award Plan. RSUs generally vest over 3 years. In 2021, there were two grants totaling 367,319 units that immediately vested. New common shares are issued for vested RSUs. RSU activity in 2021 was as follows:

 

  

Number of restricted stock units

  

Weighted-average grant date fair value

 
         

Non-vested shares, beginning of year

    $ 

Granted

  4,386,107   4.64 

Vested

  (1,367,319)  4.26 

Forfeited

      

Non-vested shares, end of year

  3,018,788  $4.81 

 

The Company recorded $10.6 million of expense related to vested RSUs in 2021. Unamortized expense on unvested RSUs was $9.7 million at December 31, 2021. Unvested RSUs have a weighted average remaining life of 1.80 years.

 

Employee Stock Options and other share-based compensation

At the 2020 Annual Meeting of Shareholders, the Company’s shareholders approved the Orbital Energy Group 2020 Incentive Award Plan and authorized a share limit of 2,000,000 shares. In 2021, the Company's shareholder's approved an increase in shares available for the 2020 Incentive Award Plan from a total of 2 million shares to a total of 5 million shares. As of December 31, 2021 there are 4,130,665 remaining shares available to grant under the 2020 Incentive Award Plan. This Plan replaced the 2008 and 2009 Equity Incentive Plan, which had expired. 

 

The purpose of the Orbital Energy Group 2020 Incentive Award Plan is to enhance our ability to attract, retain and motivate persons who make (or are expected to make) important contributions to Orbital Energy Group by providing these individuals with equity ownership opportunities. Equity awards are intended to motivate high levels of performance and align the interests of our directors, employees and consultants with those of our stockholders by giving directors, employees and consultants the perspective of an owner with an equity stake in Orbital Energy Group and providing a means of recognizing their contributions to the success of Orbital Energy Group. Our board of directors and management believe that equity awards are necessary to remain competitive in its industry and are essential to recruiting and retaining the highly qualified employees who help Orbital Energy Group meet its goals. A primary purpose of the plan is to provide OEG with appropriate capacity to issue equity compensation in anticipation of future acquisitions.

 

The Orbital Energy Group 2020 Incentive Award Plan provides for the grant of stock options, including ISOs and nonqualified stock options (“NSOs”), stock appreciation rights (“SARs”), restricted stock, dividend equivalents, restricted stock units (“RSUs”) and other stock or cash-based awards. Certain awards under the Orbital Energy Group 2020 Incentive Award Plan may constitute or provide for payment of “nonqualified deferred compensation” under Section 409A of the Code. All awards under the Orbital Energy Group 2020 Incentive Award Plan will be set forth in the award agreement, which will detail the terms and conditions of awards, including any applicable vesting and payment terms and post termination exercise limitations. All awards shall be subject to a minimum vesting of one year from the Grant Date. A brief description of each award type follows.

 

 

Stock Options and SARs. Stock options provide for the purchase of shares of common stock of Orbital Energy Group in the future at an exercise price set on the grant date. ISOs, in contrast to NSOs, may provide tax deferral beyond exercise and favorable capital gains tax treatment to their holders if certain holding period and other requirements of the Code are satisfied. SARs entitle their holder, upon exercise, to receive from Orbital Energy Group an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The plan administrator will determine the number of shares covered by each option and SAR, the exercise price of each option and SAR and the conditions and limitations applicable to the exercise of each option and SAR. The exercise price of a stock option or SAR will not be less than 100% of the fair market value of the underlying share on the grant date (or 110% in the case of ISOs granted to certain significant stockholders), except with respect to certain substitute awards granted in connection with a corporate transaction. The term of a stock option or SAR may not be longer than five years.

 

Restricted Stock. Restricted stock is an award of nontransferable shares of common stock of Orbital Energy Group that remain forfeitable unless and until specified conditions are met and which may be subject to a purchase price. Upon issuance of restricted stock, recipients generally have the rights of a stockholder with respect to such shares, which generally include the right to receive dividends and other distributions in relation to the award. The terms and conditions applicable to restricted stock will be determined by the plan administrator, subject to the conditions and limitations contained in the Orbital Energy Group 2020 Incentive Award Plan.

 

RSUsRSUs are contractual promises to deliver shares of common stock of Orbital Energy Group in the future, which may also remain forfeitable unless and until specified conditions are met and may be accompanied by the right to receive the equivalent value of dividends paid on shares of common stock of Orbital Energy Group prior to the delivery of the underlying shares (i.e., dividend equivalent rights). The Company accounts for forfeitures of employee awards as they occur. The plan administrator may provide that the delivery of the shares underlying RSUs will be deferred on a mandatory basis or at the election of the participant. The terms and conditions applicable to RSUs will be determined by the plan administrator, subject to the conditions and limitations contained in the Orbital Energy Group 2020 Incentive Award Plan.

 

Other Stock or Cash Based Awards. Other stock or cash-based awards are awards of cash, shares of common stock of Orbital Energy Group and other awards valued wholly or partially by referring to, or otherwise based on, shares of common stock of Orbital Energy Group or other property. Other stock or cash-based awards may be granted to participants and may also be available as a payment form in the settlement of other awards, as standalone payments and as payment in lieu of compensation to which a participant is otherwise entitled. The plan administrator will determine the terms and conditions of other stock or cash-based awards, which may include any purchase price, performance goal, transfer restrictions and vesting conditions, subject to the conditions and limitations in the Orbital Energy Group 2020 Incentive Award Plan.

 

The Orbital Energy Group 2020 Incentive Award Plan provides that the plan administrator may establish compensation for non-employee directors from time to time subject to the Orbital Energy Group 2020 Incentive Award Plan’s limitations. The plan administrator will from time to time determine the terms, conditions and amounts of all non-employee director compensation in its discretion and pursuant to the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time, provided that, the sum of any cash compensation or other compensation and the grant date fair value of any equity awards granted under the Orbital Energy Group 2020 Incentive Award Plan as compensation for services as a non-employee director during any fiscal year may not exceed $250,000 per year of a non-employee director’s service as a non-employee director. The non-employee Director receiving such additional compensation may not participate in the decision to award such compensation or in other contemporaneous compensation decisions involving the non-employee Director.

 

 

 

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A summary of the stock options granted to employees and directors and changes during the year are presented below:

 

  

For the Year Ended December 31, 2021

 
  

Number of Options

  

Weighted Average Exercise Price ($)

  

Weighted Average Remaining Contract Life (years)

  

Aggregate Intrinsic Value ($ '000)

 

Balance at beginning of year

  790,648  $6.06   2.11  $ 

Exercised

  (214,596) $6.00       

Forfeited in cash exercise

  (338,067)  6.05       

Balance at end of year

  237,985  $6.14   1.41    

Exercisable

  237,985  $6.14   1.41    

 

As of  December 31, 2021 and 2020 all issued and outstanding stock options were fully vested. There was no unamortized expense related to unvested stock options at December 31, 2021 and 2020. There were no options granted during 2021 and 2020.

 

 

11.          RELATED PARTY TRANSACTIONS

 

Executive Chairman of the Board of Directors, Chief Legal Counsel, and former Chief Executive Officer, William J. Clough’s son Nicholas J. Clough, serves as Vice President of Greenfield Operations, Orbital Energy Group. In 2021 and 2020, Mr. Clough received an aggregate salary of $360 thousand and $335 thousand, respectively, and received a cash bonus of $309 thousand and $60 thousand in fiscal 2021 and 2020, respectively. In April 2021, Mr. Clough was granted 235,876 stock appreciation rights with a grant date fair value of $840 thousand. These SARS were to vest and be payable on the first, second and third anniversaries of the grant date. In 2020, Mr. Clough was awarded 67,187 cash-settled stock appreciation rights with a grant date fair value of $40 thousand, vesting evenly over 2 years, an exercise price of $1.00 and a 6 year term. He also received other benefits valued at $43 thousand and $49 thousand in 2021 and 2020, respectively. As of December 31, 2021 and 2020, there was an accrual of $0 thousand and $142 thousand, respectively, for compensation accrued to Nicholas J. Clough. Nicholas J. Clough does not report to William J. Clough nor does William J. Clough have input regarding Nicholas J. Clough’s salary, bonus, or performance. Mr. Clough’s salary and bonus is set by his direct supervisor and relevant market conditions, while his performance is evaluated and monitored by his direct supervisor. In addition, pursuant to Company policy, any related-party bonus and/or salary change in excess of $50,000 is independently reviewed and approved by the Company’s Compensation Committee, comprised of Independent Board Members from the Company’s Board of Directors.

 

The Company's Front Line Power Construction, LLC subsidiary has an operating lease for a facility with Danbury Property Company LLC in Rosharon, Texas with a base rental of $10,500 per month. Danbury Property Company, LLC is owned by Kurt Johnson and Tidal Power, which are greater than 5% shareholders of Orbital Energy Group, Inc.

 

The Company's Front Line Power Construction, LLC subsidiary has an operating lease for a facility with Manvel Property Management in Rosharon, Texas with a base rent of $4,000 per month. Tidal Power, a greater than 5% shareholder of Orbital Energy Group, Inc. has an ownership interest in Manvel Property Management.

 

The Company's Front Line Power Construction, LLC subsidiary has an operating lease for a facility with  Oak Property Group in Rosharon, Texas with a base rent of $2,000 per month. Tidal Power, a greater than 5% shareholder of Orbital Energy Group, Inc. has an ownership interest in Oak Property Group.

 

Kurt Johnson, a greater than 5% shareholder of Orbital Energy Group, Inc. has an employment contract with the Company's Front Line Power Construction, LLC facility with a base compensation ranging up to $250,000 per year. 

 

Kurt Johnson, a greater than 5% shareholder has two unsecured promissory notes with the Company for $34,256,000 and $1,090,000, earning interest at 6% and maturing on May 17, 2022.

 

 

12.     ACCUMULATED OTHER COMPREHENSIVE LOSS

 

The components of accumulated other comprehensive loss are as follows:

 

(In thousands)

 

As of December 31,

 
   

2021

   

2020

 

Foreign currency translation adjustment

  $ (3,995 )   $ (4,406 )

Accumulated other comprehensive loss

  $ (3,995 )   $ (4,406 )

 

83

 
 

13.     RESTRUCTURING AND IMPAIRMENT CHARGES

 

Restructuring Charges

During the fourth quarter of 2019, the Company completed the sale of its largest group within the Power and Electromechanical segment. The Company completed the sale of its Japan operations as of September 30, 2020. The Company recorded an accrued liability of $4.0 million Canadian dollars ($3.1 million US dollars at December 31, 2019) for estimated employee termination costs and the lease for the CUI-Canada facility expired in the fourth quarter of 2020. This termination accrual was adjusted down by $0.3 million Canadian dollars ($0.2 million US dollars) based on updated estimates in 2020. The termination costs began to be paid out in the third quarter of 2020 and the majority of the remaining accrual was paid in the fourth quarter of 2020. The remaining termination accrual at December 31, 2020 was $0.4 million (see table below). All restructuring costs related to CUI-Canada are included in the statement of operations on the line labeled Income from operations of discontinued operations.

 

Activity in the termination benefit liability in 2021 is as follows:

 

  

For the Years ended December 31,

     

CUI-Canada termination benefits (In thousands)

 

2021

  

2020

 
         

January 1 liability balance

 $371  $3,073 

Severance accrual adjustments

     (247)

Severance payouts

  (376)  (2,448)

Translation

  5   (7)

December 31 liability balance

 $  $371 

 

 

14. INCOME TAXES

 

(Loss) income before income taxes consisted of the following:

 

(In thousands)

 

For the Years Ended December 31,

 
  

2021

  

2020

 

Continuing operations

 $(60,351) $(27,153)

Discontinued operations

  (12,705)  (3,097)

Loss before income taxes

 $(73,056) $(30,250)

 

Loss from continuing operations before taxes consisted of the following:    

 

(In thousands)

 

For the Years Ended December 31,

 
  

2021

  

2020

 

U.S. operations

 $(60,351) $(27,153)

Loss before income taxes

 $(60,351) $(27,153)

 

The income tax (benefit) expense allocation for the years ended  December 31, 2021 and 2020 consisted of the following:

 

(In thousands)

 

For the Years Ended December 31,

 
  

2021

  

2020

 

Continuing operations

 $(10,508) $(1,451)

Discontinued operations

  (1,334)  (1,352)

Total income tax (benefit)

 $(11,842) $(2,803)

 

The income tax (benefit) expense from continuing operations consisted of the following:

 

(In thousands)

 

For the Years Ended December 31,

 
  

2021

  

2020

 

Current:

        

Federal

 $  $ 

State and local

  370   119 

Total current provision

  370   119 

Deferred:

        

Federal

  

(8,714

)  (1,258)

State and local

  (2,164)  (312)

Total deferred (benefit)

  (10,878)  (1,570)

Total income tax (benefit)

 $(10,508) $(1,451)

 

84

 

The following table provides a reconciliation of the federal statutory tax at 21% to the recorded tax expense (benefit) from continuing operations for the years ended December 31, 2021 and 2020, respectively:

 

(In thousands)

 

For the Years Ended December 31,

 
  

2021

  

2020

 

Computed federal income taxes at the statutory rate (benefit)

 $(12,674) $(5,702)

State taxes

  292  $94 

Permanent tax differences and limited compensation

  2,140   (34)

Foreign tax rates and tax credits differing from USA

      

Expired NOL's

  541    

Refundable Foreign R&D Credits

      

Change in valuation allowance

  (807)  4,191 

Total income tax (benefit)

 $(10,508) $(1,451)
         

Effective tax rate

  17.41%  5.34%

 

The Company accounts for income taxes under the asset-liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are provided when it is “more likely than not” that the benefits of existing deferred tax assets will not be realized in a future period. Significant components of the Company’s deferred tax assets and liabilities as

of December 31, 2021 and 2020, respectively, are as follows:

 

(In thousands)

 

As of December 31,

 
  

2021

  

2020

 

Deferred tax assets:

        

Net operating loss carryforwards

 $23,941  $19,198 

Inventory and accounts receivable reserves

  1,826   2,104 

Operating lease obligations

  8,058   1,801 

Accrued liabilities

  786   927 

Other

  4,371   1,209 

Valuation allowance

  (20,129)  (19,817)

Deferred tax assets after valuation allowance

  18,853   5,422 

Deferred tax liabilities

        

Intangible assets

  (9,426)  (3,274)

Property, plant and equipment

  (9,588)  (2,050)

Total deferred tax liabilities

  (19,014)  (5,324)

Net deferred tax asset (liability)

 $(161) $98 

 

The Company adopted the provisions of ASU 2015-17 in 2015. ASU 2015-17 requires that all deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The net deferred tax asset as of  December 31, 2021 is recorded within other assets and the net deferred tax liability recorded as of December 31, 2020 was zero.

 

As of December 31, 2021 and 2020, the Company recorded a valuation allowance of $20.1 million and $19.8 million, respectively. During the years ended December 31, 2021 and 2020, the Company recorded an increase in valuation allowance of $0.3 million and $7.4 million, respectively. The state taxes included in the rate reconciliation table is net of the change in state valuation allowance. As of December 31, 2021, the Company has available federal, state and foreign net operating loss carry forwards of approximately $97.3 million, $21.3 million and $16.5 million, respectively which have various expiration dates beginning in 2026 through 2037.

 

The Company files consolidated income tax returns for federal and many state jurisdictions in addition to separate subsidiary income tax returns in Australia, Canada, India and the United Kingdom. The Company has an insignificant amount of foreign taxes that have not been separately presented. As of December 31, 2021, the Company is not under examination by any income tax jurisdiction. The Company is no longer subject to examination in the USA for years prior to 2018.

 

85

 

The Company accounts for income tax uncertainties using a threshold of "more-likely-than-not" in accordance with the provisions of ASC Topic 740, Income Taxes ("ASC 740"). As of December 31, 2021, the Company has reviewed all of its tax filings and positions taken on its returns and has not identified any material current or future effect on its consolidated results of operations, cash flows or financial position. As such, the Company has not recorded any tax, penalties or interest on tax uncertainties. It is Company policy to record any interest on tax uncertainties as a component of income tax expense.

 

 

15.      CONCENTRATIONS

 

During 2021, 26% of revenues were derived from two customers that individually had over 10% of our total revenues: Customer 1 with 15% and Customer 2 with 11%. During 2020, 53% of revenues were derived from three customers that individually had over 10% of our total revenues: Customer 3 with 31%, Customer 4 with 11% and Customer 5 with 11%.

 

The Company’s major product lines in 2021 were electric power transmission and distribution maintenance and service, utility-scale solar construction projects and telecommunications maintenance and services and in 2020 were electric power transmission and distribution maintenance and service, utility-scale solar construction projects and natural gas infrastructure solutions.

 

At December 31, 2021, of the gross trade accounts receivable totaling approximately $50.2 million, two individual customers made up approximately 46% of the Company's total trade accounts receivable: Customer 2 at 30% and Customer 6 at 16%. At December 31, 2020, of the gross trade accounts receivable totaling approximately $6.9 million, approximately 70% was due from four customers: Customer 7 at 27%, Customer 8 at 16%, Customer 9 at 16% and Customer 10 at 11%.

 

For the 12 months ended December 31, 2021, there was one supplier concentration of approximately 12%. For the 12 months ended December 31, 2020, there were three supplier concentrations that made up 39% of expenditures at 14%, 13% and 12%.

 

For the years ended December 31, 2021 and 2020, the Company had no foreign revenue concentrations or foreign trade accounts receivable concentrations outside the United States.

 

 

16. LEASES

 

Effective January 1, 2019, the Company implemented the new accounting guidance on leases found in ASC 842, Leases. As part of its transition, the Company elected to utilize the transition method of adoption. Under the transition method, the Company includes the new required disclosures for the current period and provides the disclosures required by the previous guidance found in ASC 840 for the prior year comparative periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classifications and allowed the Company to exclude leases with an initial term of 12 months or less (after consideration of renewal options) from being recorded on the Company's consolidated balance sheet; the Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. At  December 31, 2021 the Company did not factor in any renewal options when calculating its consolidated right-of-use assets and lease obligations as the options were not considered reasonably certain to be exercised. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The Company reviewed outstanding service contracts to determine if any of the Company's service contracts contained an embedded lease. Determining whether a contract contains a lease requires judgement. The Company did not identify any new leases through this process. The new lease accounting guidance also changes the name of leases formerly referred to as Capital leases under ASC 840 to Financing leases under ASC 842.

 

86

 

The Company rents office space and warehouse space, which it uses for the Corporate Headquarters in Houston, Texas through December 2022. During the year ended December 31, 2021, rent expense on this lease was approximately $38 thousand per month. In addition, the company has two corporate leases in Portland, Oregon, one running through April 2022 and another running through December 2028. These leases when combined approximate $25 thousand monthly as of December 31, 2021.

 

The Company sublets office space in Irving, Texas for corporate support services and Orbital Power Inc. office personnel; the lease runs through 2023. Orbital Power Inc. also maintains an equipment yard in Sherman, Texas that houses equipment primarily for Orbital Power, Inc. for which the lease runs until 2022. During the year ended December 31, 2021, rent expense on these leases were a combined average of $11 thousand per month.

 

Eclipse Foundation Group entered into two property leases in 2021 in Gonzales, Louisiana, both with two-year lease terms. During the year ended December 31, 2021, rent expense on these leases were a combined average of $10 thousand per month.

 

Orbital Power Inc. and Eclipse Foundation Group rent equipment as well as vehicles for use on their jobs. These vehicle leases range from 3 to 7-year terms. During the year ended December 31, 2021, rent expense on operating leases when combined approximated $0.2 million monthly. Depreciation and interest expense on finance leases at Orbital Power, Inc. and Eclipse Foundation for the year ending December 31, 2021 averaged $0.2 million monthly.

 

Gibson Technical Services leases four properties, one in Georgia, North Carolina, Louisiana, and New York with lease terms ranging from 2-8 years. During the year ended December 31, 2021, rent expense on these leases were a combined average of $18 thousand per month. In addition, Gibson Technical Services rents multiple pieces of equipment. Rent expenses on these equipment leases combined were approximately $27 thousand per month. IMMCO, a subsidiary of Gibson Technical Services, rents three office spaces in Kochi, India. Rent expenses on these leases when combined approximate $5 thousand per month with one lease running through 2023 and two leases running through 2026.

 

Front Line Power Construction rents three office spaces in Rosharon, Texas that run through November 2024. Rent expense on these leases when combined approximate $17 thousand per month. In addition, Front Line Power Construction has finance equipment leases at December 31, 2021 that approximate $32 thousand monthly in depreciation and interest expense.

 

The Company rents office and industrial space in Sanford, North Carolina through July 2022 as well as multiple pieces of equipment. Rent expense on these leases were a combined approximately $46 thousand per month.

 

Consolidated rental expense on operating leases was $4.4 million and depreciation on financing leases was $2.2 million for the year ended  December 31, 2021 and is included in cost of revenue and selling, general and administrative expense, on the condensed consolidated statement of operations. Interest expense for finance leases was $0.4 million for the year ended December 31, 2021.

 

 

Future minimum operating lease obligations for continuing operations at  December 31, 2021 are as follows for the years ended December 31:

 

(In thousands)

       

2022

  $ 5,767  

2023

    4,925  

2024

    3,864  

2025

    2,218  

2026

    1,875  

Thereafter

    2,714  
         

Less interest portion

    (3,134 )
         

Total operating lease obligations

  $ 18,229  

 

Total lease cost and other lease information is as follows:

 

   

For the Year

   

For the Year

 
   

Ended

   

Ended

 
   

December 31,

   

December 31,

 
   

2021

   

2020

 

(In thousands)

               

Operating lease cost

  $ 3,897     $ 1,626  

Short-term lease cost

    265       12  

Variable lease cost

    732       408  

Sublease income

    (501 )     (332 )

Total lease cost

  $ 4,393     $ 1,714  
                 

Other information

               

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

               

Operating cash flows used in operating leases

  $ (3,515 )   $ (1918 )

Right-of-use assets obtained in exchange for new operating lease obligations

  $ 13,707     $ 2,050  

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

    4.6      

5.5

 
                 

Weighted-average discount rate - operating leases

    6.9 %     6.6 %

 

Future minimum finance lease obligations are as follows:

 

 

 

(In thousands)

       

2022

  $ 5,729  

2023

    5,729  

2024

    4,251  

2025

    321  

2026

    255  

Thereafter

     

Less interest portion

    (1,407 )

Total financing lease obligations

  $ 14,878  

 

Total financing lease costs are as follows:

 

 

   

For the Year

   

For the Year

 
   

Ended

   

Ended

 
   

December 31,

   

December 31,

 
   

2021

   

2020

 
                 

Depreciation of financing lease assets

  $ 2,166     $  

Interest on lease liabilities

    402        

Total finance lease cost

  $ 2,568     $  
                 
                 

Other information

               

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

               

Operating cash flows used in financing leases

  $ (402 )   $  

Financing cash flows from financing leases

  $ (1,995 )   $  

Right-of-use assets obtained in exchange for new financing lease obligations

  $ 16,868     $  

Weighted-average remaining lease term - financing leases (in years)

    2.9        
                 

Weighted-average discount rate - financing leases

    6.5 %      

 

87

 

Variable lease costs primarily include common area maintenance costs, real estate taxes and insurance costs passed through to the Company from lessors.

 

 

17.         Business Combinations 

 

Front Line Power Construction, LLC

On November 17, 2021, Kurt A. Johnson, Jr. (the Active Seller) and Tidal Power Group LLC, a Texas limited liability company (the Passive Seller and together with the Active Seller, collectively, the Sellers), and Orbital Energy Group, Inc., a Colorado corporation (Buyer or the Company) entered into a Membership Unit Purchase Agreement (the Purchase Agreement).  Under the Purchase Agreement, the Company purchased all of the issued and outstanding membership interests of Front Line Power Construction, LLC (FLP) from the Sellers for the purpose of expanding the Company’s market opportunities and creating synergies. FLP is a Houston-based full-service electrical infrastructure service company that provides construction, maintenance, and emergency response services. The Company has included the financial results of FLP in the consolidated financial statements from the date of acquisition and recorded $9.2 million of revenues and $98 thousand loss for the period from November 17, 2021 through December 31, 2021. The transaction costs associated with the acquisition were approximately $230 thousand and were recorded in general and administrative expense. The acquisition date fair value of the consideration transferred for FLP was approximately $219.2 million, which consisted of the following (in thousands):

 

Cash

 $101,536 

Working capital adjustment payable

  14,092 

Fair value of unsecured promissory notes

  86,001 

Fair value of common stock issued to Sellers

  17,612 

Fair value of purchase consideration

 $219,241 

 

The cash consideration paid by the Buyer includes cash paid to the Sellers of $101.5 million, cash paid for the Sellers indebtedness of $1.0 million, and cash paid for the Sellers transaction expenses of $4.4 million. The Company funded the FLP acquisition through the issuance of a $105 million term loan on November 17, 2021, with a maturity date of November 21, 2026 (see Note 7).

 

The Buyer issued two unsecured promissory notes to the Sellers of FLP, in the aggregate principal amount outstanding of $86.7 million (the Seller Notes) and an estimated fair value of $86.0 million. The Seller Notes are due in full, including any accrued and unpaid interest, on May 17, 2022 and accrue interest at a rate of 6% per annum. The Sellers also received a total of 11,622,018 shares of restricted common stock of the Buyer. The fair value of the unsecured promissory notes and the Buyer equity issued to Sellers was estimated using a market approach. 

 

The Company accounted for the acquisition as a business combination in accordance with ASC Topic 805, Business Combinations.  The Company applied the acquisition method, which requires the assets acquired and liabilities assumed be recorded at fair value with limited exceptions. The following table summarizes the fair values of assets and preliminary purchase price allocation for assets acquired and liabilities assumed as of the date of acquisition (in thousands):

 

 

Cash and cash equivalents

 $6,779 

Trade accounts receivable

  15,726 

Contract assets

  2,092 

Prepaid expenses and other current assets

  481 

Property and equipment

  18,730 

Other long-term assets

  531 

Indefinite lived intangible assets

  15,027 

Definite lived intangible assets

  93,211 

Accounts payable

  (620)

Contract liabilities

  (120)

Accrued expenses

  (2,747)

Net assets acquired

  149,090 

Goodwill

  70,151 

Purchase price allocation

 $219,241 

 

The excess of the fair value of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce, synergies, and expanded market opportunities, for which there is no basis for U.S. income tax purposes.  Goodwill amounts are not amortized, but are rather tested for impairment at least annually during the second quarter.

 

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands):

 

 

  

Fair Value

 

Useful Life

Customer relationships

 $84,012 

15 years

Backlog

  9,186 

1 year

Tradename

  15,027 

Indefinite

Software

  13 

3 years

Total intangible assets

 $108,238  

 

Full Moon Telecom, LLC

Effective October 22, 2021, the Company's subsidiary, Gibson Technical Services, Inc. ("GTS") entered into and closed upon a Purchase Agreement by and among the Company and the owners of Full Moon Telecom, LLC (“Full Moon”). Full Moon is a Florida-based privately-owned telecommunications service provider that offers an extensive array of wireless service capabilities and experience including Layer 2/Layer 3 Transport, Radio Access Network (“RAN”) Integration, test and turn-up of Small Cell systems and Integration/Commissioning of Distributed Antenna (“DAS”) systems.

 

The acquisition adds revenues and was accretive to earnings for GTS and OEG in its first fiscal quarter with the Company. Full Moon is a wholly-owned subsidiary of GTS, expanding GTS’s service offerings to its customers.

 

Full Moon’s additional capabilities include providing site surveys, regulatory support, project management, continuous wave testing, scanner walks, optimization/data collection and E911 data validation and testing.  These additional skill sets combined with Full Moon’s RAN integration and DAS commissioning efforts have allowed for an expanded service offering and turnkey approach to ensuring the on time delivery and quality on end-to-end solutions to wireless customers.

 

Subject to the terms and conditions set forth in the Purchase Agreement, the purchase consideration for 100% of the ownership of Full Moon was $2.0 million, with the consideration structured as follows:

 

 

 

$1.2 million in cash paid at closing less the amount needed to pay certain outstanding debt of Full Moon; and plus or minus the amount needed for estimated closing working capital to equal a 2 to 1 ratio; and

 

 

 

227,974 shares of restricted common stock issued to the Full Moon owners with an aggregate fair value of $368 thousand based upon a per share value of $1.614. 

 

 

 

The Purchase Agreement provided for the adjustment of the selling price to adjust the final closing working capital at the acquisition date as a post-closing adjustment for net working capital above or below a 2-1 ratio for the closing working capital ratio estimated on the acquisition date and to be finalized within 45 days after the closing date of October 22, 2021. This was calculated to be an additional $381 thousand of cash consideration. 

 

The Purchase Agreement contains various customary representations, warranties and covenants.

 

The Company accounted for the acquisition as a business combination in accordance with ASC Topic 805, Business Combinations.  The Company applied the acquisition method, which requires the assets acquired and liabilities assumed be recorded at fair value with limited exceptions. The following table summarizes the fair values and preliminary purchase of assets acquired and liabilities assumed as of the date of acquisition (in thousands):

 

Cash and cash equivalents

 $747 

Trade accounts receivable

  297 

Property and equipment

  124 

Intangible, Tradename (indefinite)

  159 

Intangible, Customer relationships (10-year life)

  210 

Accounts payable

  (197)

Accrued expenses and other liabilities

  (182)

Net assets acquired

  1,158 

Goodwill

  826 

Purchase price allocation

 $1,984 

 

The Company has included the financial results of Full Moon Telecom, LLC in the consolidated financial statements from the date of acquisition and recorded $1.0 million of revenues and $0.3 million of earnings for the period from October 22, 2021 through December 31, 2021.

 

IMMCO, Inc.

Effective  July 28, 2021, the Company entered into a share purchase agreement to acquire IMMCO, Inc., an Atlanta-based telecommunications company providing enterprise solutions to the cable and telecommunications industries since 1992. The acquisition was effectuated pursuant to the Share Purchase Agreement (the “Agreement”), with the shareholders of IMMCO (the "Seller"). Orbital Energy Group paid $16 million and issued 874,317 shares of restricted common stock issued to the Seller ($2.5 million estimated fair value as of  July 28, 2021) plus a $0.6 million working capital adjustment for a combined total of $19.1 million. Goodwill reflects the excess purchase price over the fair value of net assets. The Company recorded $11.0 million of goodwill as part of this transaction and all of this goodwill is deductible for tax purposes. Acquisition-related expenses incurred during the year ended December 31, 2021 for the IMMCO acquisitions were approximately $0.6 million before taxes, which were recognized within the Selling, general and administrative expense line of the Condensed Consolidated Statements of Operations.

 

The purchase consideration was as follows (in thousands):

 

Purchase Consideration

    
     

Cash payment

 $16,597 

Fair value of common stock issued to Sellers

  2,024 

Total

 $18,621 

 

 

The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated preliminary fair values at the date of acquisition (in thousands):

 

Cash and cash equivalents

 $1,634 

Trade accounts receivable, net

  1,254 

Contract assets

  1,001 

Prepaid expenses and other current assets

  1,088 

Property and equipment

  760 

Intangible, customer relationships

  3,800 

Intangible, trade name

  1,162 

Intangible, technology know how

  1,459 

Other long-term assets

  76 

Deferred tax liability

  (2,090)

Liabilities assumed

  (2,100)

Net assets acquired

  8,044 

Goodwill

  10,577 

Purchase price allocation

 $18,621 

 

 

The Company has included the financial results of IMMCO, Inc.in the consolidated financial statements from the date of acquisition and recorded $3.7 million of revenues and $2.8 million of net income for the period from October 22, 2021 through December 31, 2021.The deferred tax liability recorded at acquisition was offset against the Company's valuation allowance and recorded as a tax benefit in 2021 within the income tax benefit line of the Condensed Consolidated Statement of Operations and is included in the net income of IMMCO, Inc. 

 

Gibson Technical Services, Inc.

Effective  April 13, 2021, the Company entered into a share purchase agreement to acquire Gibson Technical Services, an Atlanta-based telecommunications company providing diversified telecommunications services nationally since 1990. The acquisition was effectuated pursuant to the Share Purchase Agreement (the “Agreement”), dated as of  April 13, 2021, between Orbital Energy Group and the shareholders of GTS (the "Seller"). Orbital Energy Group paid $22 million and issued 5,929,267 shares of restricted common stock issued to the Seller ($16.9 million estimated fair value as of  April 13, 2021) for a combined total of $38.9 million. Goodwill reflects the excess purchase price over the fair value of net assets. The Company recorded $12.3 million of goodwill as part of this transaction and all of this goodwill is deductible for tax purposes. Acquisition-related expenses incurred during the year ended December 31, 2021 were approximately $0.9 million before tax which were recognized within the Selling, general and administrative expense line of the Condensed Consolidated Statements of Operations.

 

The purchase consideration was as follows (in thousands):

 

 

Cash payment

 $22,000 

Fair value of common stock issued to Sellers

  16,932 

Total

 $38,932 

 

The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated preliminary fair values at the date of acquisition (in thousands).

                                                                                    

Cash and cash equivalents

 $610 

Trade accounts receivable

  7,871 

Contract assets

  1,686 

Contingent receivable

  1,424 

Prepaid expenses and other current assets

  408 

Property and equipment

  3,795 

Right of use assets - Operating leases

  860 

Intangible, customer relationships (10-year life)

  16,075 

Intangible, tradename (indefinite life)

  6,388 

Intangible, non-compete agreements (5-year life)

  385 

Other long-term assets

  123 

Deferred tax liability

  (9,048)

Liabilities assumed

  (3,984)

Net assets acquired

  26,593 

Goodwill

  12,339 

Purchase price allocation

 $38,932 

 

 

The Company has included the financial results of Gibson Technical Services, Inc.in the consolidated financial statements from the date of acquisition and recorded $23.1 million of revenues and $9.2 million of earnings for the period from April 13, 2021 through December 31, 2021. The deferred tax liability recorded at acquisition was offset against the Company's valuation allowance and recorded as a tax benefit 2021 within the income tax benefit line of the Condensed Consolidated Statement of Operations and is included in the total earnings of GTS. 

 

Reach Construction Group, LLC

Effective April 1, 2020, the Company entered into an equity purchase agreement to acquire 100% of the assets of Reach Construction Group, LLC, an, industry-leading solar construction company. Headquartered in Sanford, North Carolina and renamed Orbital Solar Services, the business is an engineering, procurement and construction (“EPC”) company with expertise in the renewable energy industry. The acquisition was effectuated pursuant to the Equity Purchase Agreement (the “Agreement”), dated as of April 1, 2020, between Orbital Energy Group and Brandon S. Martin (the "Seller"). Orbital Energy Group issued 2,000,000 shares of restricted common stock issued to the Seller ($1.2 million estimated fair value as of April 1, 2020) along with two seller notes for a combined total of $35 million (Adjusted to $6.5 million following preliminary working capital adjustment as of April 1, 2020) and an earn-out not in excess of $30 million ($0.7 million estimated fair value as of  April 1, 2020.) The seller notes were decreased by a $28.5 million working capital adjustment.

 

(In thousands)

Purchase Consideration

    

Fair value of common stock issued to Sellers

 $1,224 

18-Month Seller Note

  5,000 

3-year Seller Note

  1,480 

Contingent consideration

  720 

Cash payment

  3,000 

Total

 $11,424 

 

The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values and purchase price allocation at the date of acquisition (in thousands).

 

Purchase price

 $11,424 
     

Cash and cash equivalents

 $19 

Trade accounts receivable, net of allowance

  6,972 

Contract assets

  3,299 

Prepaid expenses and other current assets

  427 

Property and equipment

  382 

Right of use assets - Operating leases

  890 

Intangible, customer relationships & backlog

  8,647 

Intangible, trade name

  1,878 

Intangible, non-compete agreements

  3,212 

Deferred tax liability

  (1,570)

Liabilities assumed

  (19,738)
Net assets acquired  4,418 

Goodwill

  7,006 

Purchase price allocation

 $11,424 

 

Revenue from April 1, 2020 acquisition date to December 31, 2020

 $13,005 

Loss from continuing operations, net of income taxes from April 1, 2020 acquisition date to December 31, 2020

 $(4,243

 

)

 

 

The deferred tax liability recorded at acquisition was offset against the Company's valuation allowance and recorded as a tax benefit in 2020. 

 

The table below summarizes the unaudited condensed pro forma information of the results of operations of Orbital Energy Group, Inc. for the twelve months ended December 31, 2021 and 2020 as though the Company's 2021 and 2020 acquisitions had been completed as of January 1, 2020 (in thousands):

 

  (Unaudited) 
  

For the Years Ended December 31,

 
  

2021

  

2020

 

Gross revenue

 $158,625  $135,189 
         

Loss from continuing operations, net of income taxes

 $(69,671) $(52,953)
         
         

 

 

88

 
 

18.        SUBSEQUENT EVENTS

 

Exchange agreements to exchange common shares for debt payments

Subsequent to the year ended December 31, 2021 and up through the date of issuance of the financial statements, the Company issued 2,653,365 shares of common stock as consideration for repayment of debt. The Company recorded a loss subsequent to year end in the amount of $0.7 million as a result of the share price issued being lower than the closing price on the days of the exchange.

 

Extension of maturity date of Front Line Power Construction seller notes payable

In March 2022, the Company reached an agreement with Kurt Johnson and Tidal Power to extend the maturity dates for $52 million of promissory notes (holders of the Front Line Power Construction seller notes) from the original maturity date of May 16, 2022 until May 31, 2023. The remaining balance of $35 million remains due in May 2022. The Company also agreed to reduce the restriction period under the Tidal Lockup letter from two years to one year and to the extent that if the value of the shares previously issued to Tidal Power were less than $4.00 per share upon expiration of the restriction period, the Company has agreed to pay additional consideration to Tidal Power so that the value of Tidal Power's shares are equal to no less than $28,852,844. For the Johnson lockup letter, the Company agreed to pay additional consideration to Mr. Johnson upon expiration of the restriction period so that the value of his stock consideration is no less than $17,635,228, which is equal to $4.00 per common share. Any shortfall would be made up by issuing Mr. Johnson additional common shares.

 

Non-recourse payable agreements signed

In March 2021, The Company signed a non-recourse agreement with C6 Capital Funding, LLC to receive $13.0 million less a $650 thousand origination fee. In return, the Company will pay C6 Capital $18.6 million over 44 weeks. The agreement does not have any stated interest rate. Interest will be recorded as the discount is amortized using the interest method of accounting.

 

 

89

 

 

Item 9.     Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this annual report. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply their judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, the Company's management, including the CEO and the CFO, concluded that, as of December 31, 2021, the Company’s disclosure controls and procedures were effective.

 

 

Management's Annual Report on Internal Control over Financial Reporting

Management of Orbital Energy Group, Inc. is responsible for establishing and maintaining effective internal control over financial reporting. The 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 in the United States of America (“U.S. GAAP”). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company assets that could have a material effect on the financial statements.

 

Internal control over financial reporting, no matter how well designed, has inherent limitations. Because of such 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.

 

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (“2013 framework”). Based on this evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2021.

 

Orbital Energy Group management is responsible for establishing and maintaining adequate internal control over financial reporting for Orbital Energy Group, Inc. and its subsidiaries. Based on the criteria for effective internal control over financial reporting established in the 2013 framework, management has assessed the Company’s internal control over financial reporting as effective as of December 31, 2021. 

 

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B.  Other Information

 

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Our bylaws permit the number of directors to be fixed by resolution of the board of directors, but to be no less than one. The board of directors has set the maximum number of members to no more than twelve members. Directors are elected by a majority of the votes cast by the stockholders and serve a one-year term or until their successors have been elected and qualified or their earlier resignation or removal. At December 31, 2021, we have nine directors, six of whom are ‘‘independent’’ in accordance with applicable rules promulgated by the Securities and Exchange Commission and within the meaning of Rule 5605(a)(2) of the Nasdaq Stock Market.

 

The board of directors has five standing committees: Audit Committee, Compensation Committee, Disclosure Committee, Investment Committee and Nomination Committee, each of which has a written charter and/or statement of policy approved by our board. Our board currently appoints the members of each committee. Copies of the current committee charters and/or statement of policy for each committee are posted on our website at www.OrbitalEnergyGroup.com. During 2021, two directors missed one board meeting each. In each of those instances, the board members were informed of the meeting agenda and results. All directors attended, either in person or electronically, all of the meetings held by the committees on which such director served.

 

Sean P. Rooney Retired from the Board

On March 23, 2021, our director, Sean P. Rooney, formally notified the board of directors he will retire from the Orbital Energy Group board of directors when his term expired and would not seek reelection at the Company’s annual meeting in 2021.

 

The following are officers and directors of the Company with their ages as of December 31, 2021, and a list of the members of our five standing committees: Audit Committee, Compensation Committee, Disclosure Committee, Investment Committee and Nomination Committee.

 

William J. Clough, Esq. Executive Chairman of the board of directors and Chief Legal Officer of the Company and its wholly owned subsidiaries, age 70.

Mr. Clough has served on the board of directors since 2006 and was reelected at the 2021 Annual Meeting of Stockholders to serve a one-year termA seasoned executive and entrepreneur, Mr. Clough joined the company’s Board in 2006 and was subsequently appointed chief executive officer in 2008. In his role as CEO, a position he held until 2019 with the appointment of Jim O’Neil, he led the establishment of the company’s Energy division, formed its Energy operations in North America, and guided the company to its largest Energy contract award in its history while concurrently managing the company’s Power & Electro-Mechanical division to greater than average electronics industry growth rates in recent years. As CEO, he directed company’s capital markets strategy, including leading several equity offerings to institutional investors and spearheaded the company’s uplist to the Nasdaq Capital Market in 2012.

 

Mr. Clough previously founded and operated a multi-state, multi-office law firm for 14 years. He received a Juris Doctorate, Cum Laude, from the University of California’s Hastings College of Law in 1990. He is a former law enforcement officer and U.S. Federal Air Marshal. Mr. Clough serves on the board of directors of privately-held Virtual Power Systems, creator of Software Defined Power®, in which Orbital Energy Group holds a minority equity investment.

 

James F. ONeil III, Vice Chairman of the board of directors and Chief Executive Officer of the Company and its wholly owned subsidiaries, age 63.

Mr. O’Neil was appointed to the Board of Directors in July 2019 and reelected at the 2021 Annual Meeting of Stockholders to serve a one-year term. James (Jim) O'Neil joined Orbital Energy Group as vice chairman in July 2019 and was subsequently appointed chief executive officer in October 2019. He is a veteran executive of the power industry and has been instrumental in formulating and is overseeing execution on Orbital Energy Group’s transformation plan that reshapes the company into a diversified energy services platform.

 

Mr. O’Neil was previously chief operating officer, chief executive officer and president of Quanta Services, Inc. (Quanta) from 2008 to 2016, an infrastructure solutions provider for the electric power, oil and natural gas, telecommunications and renewable industries. During this period, he grew the company into a Fortune 500 enterprise with $7+ billion in annual revenue at its peak through a combination of both organic growth and many strategic acquisitions.

 

Mr. O’Neil joined Quanta in 1999 and over his tenure was responsible for various initiatives including the company’s growth strategy, internal audit, and merger and acquisition initiatives. He began his career at Halliburton Company in 1980 where he held various positions, lastly as Director, Global Deepwater Development.

 

Mr. O’Neil holds a B.S. in Civil Engineering from Tulane University.

 

Nicholas M. Grindstaff, Chief Financial Officer, age 59.

Mr. Grindstaff assumed the role of Chief Financial Officer for Orbital Energy Group in November 2021. Prior to that, Mr. Grindstaff served as Vice President – Finance from May 2011 and Treasurer from October 1999 through October 2021 for Quanta Services, Inc., a leading provider of specialty contracting services, delivering comprehensive infrastructure solutions for the electric and gas utility, communications, pipeline and energy industries primarily in the United States, Canada and Australia. 

 

As an executive officer at Quanta Services, Inc. he was responsible for capital structure, which included numerous capital raises across various markets, managing acquisitions, financial planning and analysis, internal and SOX control compliance, procurement, working capital allocation, treasury operations as well as numerous other strategic initiatives.  Mr. Grindstaff holds a Master of Science degree in Accounting.

 

Daniel N. Ford,  Executive Vice President of Orbital Energy Group, Inc., age 42

Mr. Ford has a background in audit with big 4 accounting firms, including KPMG. As the former CFO of Orbital Energy Group, Mr. Ford has consistently moved OEG into a position of efficiency, and forward thinking, transforming many of the Company's accounting and financial management processes while working directly with OEG’s operating groups.

 

Mr. Ford has implemented improved ERP systems, worked in conjunction with Mr. Clough on the 2012, 2013 and 2017 equity raises, listing onto the Nasdaq Stock Market, various acquisitions including Orbital Gas Systems Ltd. and Reach Construction Group, LLC as well as the 2019 divestitures of the CUI Inc. power and electromechanical business units.

 

Mr. Ford serves on the board of the Portland Providence Medical Foundation whose purpose is to connect people with Providence to advance research, health care and wellness.

 

Mr. Ford earned his B.B.A with a double major in Finance and Accounting from the University of Portland and holds an MBA from George Fox University.

 

C. Stephen Cochennet, Director, age 65

Mr. Cochennet was elected to serve as a director at the 2018 Annual Meeting and continues to serve on the board of directors as an independent director within the meaning of Rule 5605(a)(2) of The Nasdaq Stock Market. Mr. Cochennet was reelected at the 2021 Annual Meeting of Stockholders to serve a one-year term.

 

Mr. Cochennet, as an independent director, serves on the nominating committee along with Messrs. Lambrecht, Addison, Williams, Ms. Thornton and Ms. Tucker. Mr. Cochennet is also a member of our Audit Committee, Compensation Committee and Investment Committee.

 

Mr. Cochennet has served as CEO/President, of Kansas Resource Development Company, a private oil and gas exploration company since 2011. From 2011 through 2015 he was also the CEO and president of Guardian 8 Corporation. From 2005 to 2010 Mr. Cochennet was the Chairman, President, and Chief Executive Officer of EnerJex Resources, Inc., a publicly traded SEC registered Oil and Gas Company. Prior to joining EnerJex, Mr. Cochennet was President of CSC Group, LLC in which he supported several Fortune 500 corporations, international companies, and natural gas/electric utilities as well as various startup organizations. The services provided included strategic planning, capital formation, corporate development, executive networking and transaction structuring. From 1985 to 2002, he held several executive positions with UtiliCorp United Inc. (Aquila) in Kansas City, Missouri. His responsibilities included finance, administration, operations, human resources, corporate development, natural gas/energy marketing, and managing several new startup operations. Prior to his experience at Aquila Mr. Cochennet served 6 years with the Federal Reserve System managing problem and failed banking institutions primarily within the oil and gas markets.

 

Mr. Cochennet graduated from the University of Nebraska with a B.A. in Finance and Economics.

 

 

 

Paul D. White, Employee and Director, age 61

 

Mr. White was appointed in April 2014 as a director to fill a vacancy and continues to serve on the board of directors. Mr. White was reelected at the 2021 Annual Meeting of Stockholders to serve a one-year term.

 

Mr. White is a graduate of Humboldt State University and brings to the Orbital Energy Group board of directors over 25 years of upper-level business management skills. Mr. White served for two years as the President of Orbital Gas Systems, Ltd. Prior to working for the Company, Mr. White served as Vice President of the Healthcare Division for North America of a global security company. His responsibilities included direct responsibility for profit and loss statements with approximately $120 million in revenues, along with management, control, and supervision of approximately 3,000 employees working at 44 medical centers & hospitals and over 600 medical office buildings throughout the United States. He previously served in the Office of the General Counsel and Risk Services, as an Environmental Risk Consultant with Sutter Health Support Services - Corporate Services. His key responsibilities included: formulating best practice solutions to minimize/eliminate existing and potential risk and quality concerns, patient, employee health & safety and security exposures as well as consultations of state, federal, and professional standards for Risk Control/Environmental Health, & Safety programs from agencies such as OSHA, TJC, DHS, EPA, NFPA, and DOT.

 

As a results-oriented business leader, Mr. White has skills in developing, managing and expanding business portfolios. Mr. White has senior management experience in contract management, public relations, program strategy and design and has been consistently recognized for effective financial management, leadership, integrity, teambuilding, and program management skills.

 

Corey A. Lambrecht, Director, age 52

Mr. Lambrecht was elected to serve as a director at the 2007 Annual Meeting of Stockholders and continues to serve on the board of directors as an independent director within the meaning of Rule 5605(a)(2) of The Nasdaq Stock Market. Mr. Lambrecht was reelected at the 2021 Annual Meeting to serve a one-year term.

 

Mr. Lambrecht, as an independent director, serves on the nominating committee along with Messrs. Cochennet, Addison, Williams, Ms. Thornton and Ms. Tucker. Mr. Lambrecht is also Chairman of our Compensation Committee and Investment Committee and a member of our Audit Committee.

 

Mr. Lambrecht is a 20+ year public company executive with broad experience in strategic acquisitions, corporate turnarounds, new business development, pioneering consumer products, corporate licensing, and interactive technology services. In addition, Mr. Lambrecht has held public company executive roles with responsibilities including day-to-day business operations, management, raising capital, board of directors' communication and investor relations. Mr. Lambrecht holds a certificate as a Certified Director from the UCLA Anderson Graduate School of Management Accredited Directors program.

 

Mr. Lambrecht, as an independent director, serves as one of six independent directors on the nominating committee along with Messrs. Cochennet, Williams, Ms. Thornton and Ms. Tucker. Mr. Lambrecht is also Chairman of our Compensation Committee.

 

 

Mr. Lambrecht is a director of ORHub, a SaaS company as well as a strategic consultant for American Rebel Holdings, Inc. He served as Director of Sales for Leveraged Marketing Associates, the worldwide leader in licensed brand extension strategies. While Executive Vice President for Smith & Wesson Holding Corporation, he was responsible for Smith & Wesson Licensing, Advanced Technologies and Interactive Marketing divisions. Previously, Mr. Lambrecht served as an independent director of Guardian 8 Holdings. He was the former President of A For Effort, an interactive database marketing company specializing in online content (advergaming) for clients such as the National Hockey League. Mr. Lambrecht's prior experience also includes Pre-IPO founder for Premium Cigars International and VP Sales/Marketing for ProductExpress.com.

 

Sarah Tucker, Director, age 76

 

Sarah Tucker was appointed to the Board of Directors in October 2019, and was elected at the 2020 Annual Meeting to serve a one-year term as an Independent Director within the meaning of Rule 5605(a)(2) of The Nasdaq Stock Market. Ms. Tucker was reelected at the 2021 Annual Meeting to serve a one-year term.  Ms. Tucker, as an independent director, serves on the nominating committee along with Messrs. Cochennet, Lambrecht, Williams, Addison and Ms. Thornton.

 

Sarah Tucker is a veteran executive for the business strategy/development, risk management, planning, engineering, procurement and construction of oil and gas projects globally. She has led projects with budgets from $5 million to over $3 billion in refining, petrochemicals, power, and offshore (both shallow and deep-water) for oil and liquified natural gas in Angola, Brazil, China, India, Italy, Korea, Mexico, Nigeria, Oman, Qatar, Spain, the United Kingdom and the United States.

 

She has served as an operations executive and managing director for major engineering, construction and petrochemical technology companies including Kellogg, KBR, Kellogg-Mitsubishi Development Company, Raytheon Engineers and Constructors, Kvaerner Engineering and Construction of Norway and Silvertech of United Kingdom, a Process Control and High Integrity Safety System Solutions.

 

Sarah headed the Pollution Prevention Task Force Committee with eight Oil Companies' representatives participating and contributing to the Study for "Refinery Crude Unit Pollution Prevention Project" which is now an American Petroleum Institute DC Publication number 31101. 

 

Over the past several years, she has worked closely with Mexican national oil company PEMEX to establish the country’s first deep water project valued at $14 billion.

 

According to her personal and professional philosophy, Sarah believes in developing strong relationships and respecting diverse cultures. As part of her philosophy, she led in 1992 a program to author a 51-page report which became the American Petroleum Institute publication, Environmental Design Considerations for Petroleum Refining Crude Processing Units.

 

 

Her parallel and subsequent effort with the World Bank was successful in striking a balance between the interests of indigenous people and major oil companies allowing projects to proceed in Africa. The publication became an influential guide for doing business in the developing world.

 

Paul T. Addison, Director, age 74

Paul T. Addison was appointed to the Board of Directors in June 2021, as an Independent Director within the meaning of Rule 5605(a)(2) of The Nasdaq Stock Market. Mr. Addison was reelected at the 2021 Annual Meeting to serve a one-year term.  Mr. Addison, as an independent director, serves on the nominating committee along with Messrs. Cochennet, Lambrecht, Williams, Ms. Thornton  and Ms. Tucker.

 

Paul T. Addison earned a B. A. in political science and economics from Howard University in 1969 and a M.B.A. from Harvard University in 1972.

 

He began his career as a loan specialist for The Economic Development Administration of the US Department of Commerce in 1972 providing loan assistance for companies that agreed to expand operations in areas of high unemployment before moving to New York in 1974 to join a Chase Manhattan subsidiary as Vice President and Treasurer that provided financing and startup capital for minority small business enterprises (a MESBIC). In 1978, he joined Citibank/Citicorp as a banker in the firm’s energy and utilities department rising to the level of a senior credit officer and Managing Director.

 

In this capacity, he managed the bank’s significant exposure to a large segment of the gas and electric utility industry. He also provided financial advice to the firm’s clients and on numerous occasions provided testimony before state and federal regulatory commissions. He also developed financing structures which allowed a number of utilities to rate base large nuclear projects without which a number of utilities would have suffered significant losses. This was a particular issue during the last significant construction cycle for the industry.

 

He also approved and structured a number of large energy project financings for the firm.

 

Mr. Addison continued his work in the utility industry when he joined Solomon Smith Barney (Citigroup) in 1997 as a Managing Director in the electric and gas utility space until his retirement from the firm in 2002.

 

Upon retirement from Citigroup, Mr. Addison became an independent director of First Energy Corporation of Akron, Ohio, serving until his mandatory retirement in 2019. In his capacity as independent director, he served as Chair of the Finance Committee, and member of the Audit Committee as a designated financial expert. He was heavily involved in numerous financings over his term on the board and significantly participated in the company’s $4.7 billion acquisition of Allegheny Energy in 2010.

 

Mr. Addison is also a Trustee of the Maimonides Medical Center in Brooklyn New York, where he resides. Maimonides is the largest nonprofit hospital in Brooklyn with revenues approaching $1.5 billion and serves an extremely diverse population where over 60 languages are spoken. In his capacity as Trustee, Mr. Addison serves as Chair of the Budget and Finance Committee, member of the Legal and Audit Committee, member of the Quality and Safety Committee, and member of the Executive Committee. Mr. Addison also has served as the hospital’s representative on their self-insurance malpractice company, Hospital Insurance Company (HIC). Mr. Addison also served as Chair of the Audit Committee of HIC’s parent, the Federation of Jewish Philanthropies (FOJP), until its dissolution in 2019.

 

Jerry Sue ThorntonDirector, age 74

Dr. Thornton was appointed to the Board of Directors in July 2021, as an Independent Director within the meaning of Rule 5605(a)(2) of The Nasdaq Stock Market.

 

Dr. Jerry Sue Thornton earned her B.A. and M. A. in Communications from Murray State University (Kentucky) and Ph.D. in Higher Education Leadership/Administration from The University of Texas (Austin). She earned a post-doctorate certificate from Harvard University.

 

Dr. Thornton is President of DreamCatcher Education Consulting providing professional development, coaching and mentoring for newly appointed presidents of colleges. She is President Emeritus of the Cuyahoga Community College District serving from 1992 to 2013 which is headquartered in Cleveland, Ohio. The College serves over 30,000 students on four campuses with a budget over $300 million. She brings over 45 years of experience in leading and managing higher education institutions in Chicago, Minnesota and Ohio with a focus on workforce training and professional education.

 

She also has extensive corporate board service beginning in 1992 with National City Bank/Corporation, Office Max, American Greetings and Bridgestreet Worldwide, Inc. until those companies had a change of control. She later served on the Boards of American Family Insurance, Applied Industrial Technologies, Inc., Republic Powdered Metals, (RPM, Inc.) and First Energy. She is currently serving on the Boards of Barnes and Noble Education (BNED) and Parkwood LLC (an Ohio financial planning company).

 

Gaining extensive business experience through her board director services of public and private companies, she has been a member of compensation, nominating and governance and audit committees. From manufacturing through distribution; industrial through commercial; financial through merchandizing and energy, Dr. Thornton has amassed over 29 years of business experience. During that tenure, she has served on Special Committees of the Board of Directors involved in acquisition.

 

Dr. Thornton brings to the Board of Directors broad leadership and business skills as well as an extensive background in workforce/talent acquisition, development and evaluation/assessment.

 

 

 

 

La Forrest V. Williams, Director, age 70

Mr. Williams was appointed to the Board of Directors in July 2021, as an Independent Director within the meaning of Rule 5605(a)(2) of The Nasdaq Stock Market and was reelected at the 2021 Annual Meeting to serve a one-year term.  Mr. Williams, as an independent director, serves on the nominating committee along with Messrs. Cochennet, Lambrecht, Addison, Ms. Thornton and Ms. Tucker.

 

Mr. Williams is a veteran executive of the communications, computer and information assurance business of the Department of Defense and Intelligence community. He served in the civilian Defense Intelligence Senior Executive Service and the United States Air Force senior officer corps as a communication/computer intelligence and information assurance strategist for more than 40 years. His activity in information assurance became a nexus with the vulnerabilities of the energy grid.

 

His accomplishments include serving as a leader in the original merging of communications and computer systems technology into one management structure for the United States Air Force. His energy focus evolved through his engagement in studying cybersecurity threats to our energy grid during his career at the National Security Agency. Mr. Williams has a history of leadership positions which includes, Chief Information Officer (CIO) of the National Security Agency (NSA), Director of Information Assurance for the U.S. European Command and Director of Legislative Affairs for the National Security Agency. Mr. Williams' experience includes leading a military Communications Group of more than 500 technicians and staff, supporting Nellis Air Force Base Nevada networks. He has installed, managed, upgraded and secured communication cable and space networks worldwide; to include the United States, Europe and South Pacific.

 

Mr. Williams holds a B.S. degree in Business Administration from San Jose State University and an M.S. Degree in Technology of Management Information Systems from the American University, Washington D.C. He has served at the forefront in the Information Age and was an early leader at NSA in advocating concern about the vulnerability of our nation's energy grid. His advocacy led to the formation of customer assistance teams that he established to advise on the survivability of energy systems of national security concern. He later joined the National War College faculty in 2010 to teach National Security Strategy as a visiting Professor until 2013.  

 

He is a proven results-oriented leader with broad experience as an Air Force Colonel and three years of Board of Director experience with The Government Employees Benefit Association for federal employees. In his spare time, he is a volunteer Docent at the Smithsonian Institute in Washington D.C. and gives tours through the National Museum of American History.

 

Corporate Governance and Board of Directors Matters

 

We are committed to maintaining the highest standards of business conduct and corporate governance, which we believe are essential to running our business efficiently, serving our stockholders well and maintaining our integrity in the marketplace. We have adopted a Corporate Code of Ethics and Business Conduct, a code of business conduct and ethics for employees, directors and officers (including our principal executive officer and principal financial and accounting officer). We have also adopted the following governance guides: Charters for each of the Audit Committee, Compensation Committee, Disclosure Committee, Investment Committee, Nominating Committee, a policy for Director Independence, and Whistleblower Policy, all of which, in conjunction with our certificate of incorporation and bylaws, form the framework for our corporate governance. These corporate governance documents are available on the Internet at our website www.OrbitalEnergyGroup.com.

 

 

Our Corporate Governance Practices

We have always believed in strong and effective corporate governance procedures and practices. In that spirit, we have summarized several of our corporate governance practices below.

 

The Board of Director’s Role in Risk Oversight

The board of directors and its committees have an important role in the Company’s risk oversight, management and assessment process. The board regularly reviews with management the Company’s financial and business strategies, which include a discussion of relevant material risks as appropriate. The board discusses with the Company’s outside general counsel, as appropriate, its risk oversight and assessment as well as any material risks to the Company. In addition, the board delegates risk management responsibilities to the Audit Committee and Compensation Committee, which committees are each comprised of independent directors. The Audit Committee, as part of its charter, oversees the Company’s risk oversight, management and assessment of the Company and oversees and assesses the risks associated with the corporate governance and ethics of the Company. Risk considerations are a material aspect of the Compensation Committee. The Compensation Committee is responsible for overseeing the management of risks relating to executive compensation. In addition, the Compensation Committee also, as appropriate, assesses the risks relating to the Company’s overall compensation programs. The Investment Committee is responsible for overseeing and advising on possible investment opportunities as well as to administer and operate the Company’s investment portfolio. This includes aligning investment policies and strategies with the Company’s short and long-term goals, as well as setting benchmarks to evaluate long-term objectives and continual evaluation of the investment strategies. While the Committees oversee the management of the risk areas identified above, the entire board is regularly informed through committee reports about such risks. This enables the board and its committees to coordinate the risk management, assessment and oversight roles.

 

Adopting Governance Guidelines

Our board of directors has adopted a set of corporate governance guidelines to establish a framework within which it will conduct its business and to guide management in its running of the Company. The governance guidelines can be found on our website at www.OrbitalEnergyGroup.com and are summarized below.

 

Monitoring Board Effectiveness

It is important that our board of directors and its committees are performing effectively and in the best interest of the Company and its stockholders. The board of directors and each committee are responsible for annually assessing their effectiveness in fulfilling their obligations.

 

Conducting Formal Independent Director Sessions

On a regular basis, at the conclusion of regularly scheduled board meetings, the independent directors are encouraged to meet privately, without our management or any non-independent directors.

 

Hiring Outside Advisors

The board and each of its committees may retain outside advisors and consultants of their choosing at our expense, without management's consent.

 

Avoiding Conflicts of Interest

We expect our directors, executives and employees to conduct themselves with the highest degree of integrity, ethics and honesty. Our credibility and reputation depend upon the good judgment, ethical standards and personal integrity of each director, executive and employee. In order to provide assurances to the Company and its stockholders, we have implemented standards of business conduct, which provide clear conflict of interest guidelines to its employees and directors, as well as an explanation of reporting and investigatory procedures.

 

 

Providing Transparency

We believe that it is important that stockholders understand our governance practices. In order to help ensure transparency of our practices, we have posted information regarding our corporate governance procedures on our website at www.OrbitalEnergyGroup.com.

 

Whistleblower Policy

In furtherance of our governance transparency and ethical standards, we adopted a comprehensive Whistleblower Policy that encourages employees to report to proper authorities incorrect financial reporting, unlawful activity, activities that are not in line with the Orbital Energy Group Code of Business Conduct or activities, which otherwise amount to serious improper conduct. Our Whistleblower Policy is posted on our website at www.OrbitalEnergyGroup.com.

 

Accuracy of All Public Disclosure

It is the Company's policy that all public disclosure made by the Company should be accurate and complete, fairly present, in all material respects, the Company's financial condition and results of operations, and be made on a timely basis as required by applicable laws and securities exchange requirements. In order to oversee this policy, a Disclosure Committee Charter has been adopted by the Chief Executive Officer and Chief Financial Officer and ratified by our Audit Committee. You can view a copy of this document on our website at www.OrbitalEnergyGroup.com or obtain a copy by making a written request to the Company at Orbital Energy Group, Inc., 1924 Aldine Western, Houston, Texas 77038.

 

Communications with the Board of Directors

Stockholders may communicate with the board of directors by writing to the Company at Orbital Energy Group, Inc., 1924 Aldine Western, Houston, Texas 77038. Stockholders who would like their submission directed to a member of the board may so specify and the communication will be forwarded as appropriate.

 

Standards of Business Conduct

The board of directors has adopted a Code of Ethics and Business Conduct for all our employees and directors, including the Company's principal executive and senior financial officers. You can obtain a copy of these documents on our website at www.OrbitalEnergyGroup.com or by making a written request to the Company at Orbital Energy Group, Inc., 1924 Aldine Western, Houston, Texas 77038. We will disclose any amendments to the Code of Ethics and Business Conduct or waiver of a provision therefrom on our website at www.OrbitalEnergyGroup.com.

 

Ensuring Auditor Independence

We have taken several steps to ensure the continued independence of our independent registered public accounting firm. That firm reports directly to the Audit Committee, which also has the ability to pre-approve or reject any non-audit services proposed to be conducted by our independent registered public accounting firm.

 

Committees of the Board and Meetings

 

At December 31, 2021, our board of directors consists of nine directors. Six of our nine directors are ‘‘independent’’ as defined in Rule 5605(a)(2) of The Nasdaq Stock Market. Our board of directors has the following standing committees: Audit Committee, Compensation Committee, Disclosure Committee, Investment Committee and Nominating Committee. Each of the committees operates under a written charter adopted by the board of directors. All committee charters are available on our website at www.OrbitalEnergyGroup.com.

 

 

Audit Committee

The Audit Committee is established pursuant to the Sarbanes-Oxley Act of 2002 for the purposes of overseeing the company’s accounts and financial reporting processes and audits of its financial statements. The Audit Committee reviews the financial information that will be provided to the stockholders and others, the systems of internal controls established by management and the board and the independence and performance of the Company’s audit process. The Audit Committee is directly responsible for, among other things, the appointment, compensation, retention and oversight of our independent registered public accounting firm, review of financial reporting, internal company processes of business/financial risk and applicable legal, ethical and regulatory requirements. During 2021, the Audit Committee held seven formal meetings.

 

 

At December 31, 2021, the Audit Committee is comprised of Sean P. Rooney, Chairman, C. Stephen Cochennet, and Corey A. Lambrecht. Messrs. Rooney, Cochennet, and Lambrecht are independent in accordance with Rule 10A-3 under the Securities Exchange Act of 1934 and Rule 5605(a)(2) of The Nasdaq Stock Market.

 

Audit Committee Report

THE FOLLOWING REPORT OF THE AUDIT COMMITTEE DOES NOT CONSTITUTE SOLICITING MATERIAL AND SHOULD NOT BE DEEMED FILED OR INCORPORATED BY REFERENCE INTO ANY OTHER COMPANY FILING UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES THIS REPORT BY REFERENCE THEREIN.

 

Audit Committee Report

The Audit Committee reviews the financial information that will be provided to the stockholders and others, the systems of internal controls established by management and the board and the independence and performance of the Company’s audit process.

 

The Audit Committee has:

 

reviewed and discussed with management the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K and the most recent Quarterly Report on Form 10-Q;

 

discussed with Grant Thornton LLP., the Company’s independent registered public accounting firm, the matters required to be discussed by General Auditing Standard 1301: Communications with Audit Committees as adopted by the Public Company Accounting Oversight Board; and

 

received the written disclosures and letter from Grant Thornton LLP as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and has discussed with Grant Thornton LLP its independence from Orbital Energy Group.

 

Based on these reviews and discussions, the Audit Committee has recommended that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Audit Committee has also considered whether the amount and nature of non-audit services provided by Grant Thornton LLP is compatible with the auditor’s independence and determined that it is compatible.

 

Submitted by: Audit Committee by

Sean P. Rooney, Chairman

C. Stephen Cochennet

Corey A. Lambrecht

 

Nominating Committee

The nominating committee consists of all of the members of the board of directors who are ‘‘independent directors’’ within the meaning of Rule 5605(a)(2) of The Nasdaq Stock Market. The nominating committee is responsible for the evaluation of nominees for election as director, the nomination of director candidates for election by the stockholders and evaluation of sitting directors. The board has developed a formal policy for the identification and evaluation of nominees, Charter of the Nominating Committee of the Board of Directors, which can be reviewed on our website at www.OrbitalEnergyGroup.com. In general, when the board determines that expansion of the board or replacement of a director is necessary or appropriate, the nominating committee will review, through candidate interviews with members of the board and management, consultation with the candidate's associates and through other means, a candidate's honesty, integrity, reputation in and commitment to the community, judgment, personality and thinking style, willingness to invest in the Company, residence, willingness to devote the necessary time, potential conflicts of interest, independence, understanding of financial statements and issues, and the willingness and ability to engage in meaningful and constructive discussion regarding Company issues. The committee reviews any special expertise, for example, that qualifies a person as an audit committee financial expert, membership or influence in a geographic or business target market, or other relevant business experience. To date the Company has not paid any fee to any third party to identify or evaluate, or to assist it in identifying or evaluating, potential director candidates.

 

 

The nominating committee considers director candidates nominated by stockholders during such times as the Company is actively considering obtaining new directors. Candidates recommended by stockholders will be evaluated based on the same criteria described above. Stockholders desiring to suggest a candidate for consideration should send a letter to the Company's secretary and include: (a) a statement that the writer is a stockholder (providing evidence if the person's shares are held in street name) and is proposing a candidate for consideration; (b) the name and contact information for the candidate; (c) a statement of the candidate's business and educational experience; (d) information regarding the candidate's qualifications to be director, including but not limited to an evaluation of the factors discussed above which the board would consider in evaluating a candidate; (e) information regarding any relationship or understanding between the proposing stockholder and the candidate; (f) information regarding potential conflicts of interest and (g) a statement that the candidate is willing to be considered and willing to serve as director if nominated and elected. Because of the small size of the Company and the limited need to seek additional directors, there is no assurance that all stockholder proposed candidates will be fully considered, that all candidates will be considered equally or that the proponent of any candidate or the proposed candidate will be contacted by the Company or the board and no undertaking to do so is implied by the willingness to consider candidates proposed by stockholders.

 

Disclosure Committee

We have formed a Disclosure Committee, which has been adopted by our CEO and CFO (‘‘Principal Officers’’) and ratified by our Audit Committee. The Disclosure Committee assists our Principal Officers in fulfilling their responsibility for oversight of the accuracy, completeness and timeliness of our public disclosures including, but not limited to our SEC filings, press releases, correspondence disseminated to security holders, presentations to analysts and release of financial information or earnings guidance to security holders or the investment community. The Disclosure Committee consists of our Principal Officers, the individual or representative of the firm primarily charged with investor/public relations, the Audit Committee Chairman and outside SEC counsel. Our Executive Chairman is Chairman of the committee. Our Senior Officers may replace or add new members from time to time. Our Senior Officers have the option to assume all the responsibilities of this committee or designate a committee member, who shall be a person with expertise in SEC and SRO rules and regulations with respect to disclosure, who shall have the power, acting together with our Senior Officers, to review and approve disclosure statements when time or other circumstances do not permit the full committee to meet. You may review the full text of our Disclosure Committee Charter on our website, www.OrbitalEnergyGroup.com, under the link, governance.

 

Generally, the committee serves as a central point to which material information should be directed and a resource for people who have questions regarding materiality and the requirement to disclose. In discharging its duties, the committee has full access to all Company books, records, facilities and personnel, including the board of directors, Audit Committee, independent public accountants and outside counsel.

 

Investment Committee

The purpose of the investment committee is to administer and to operate the portfolio. The members of the investment committee are fiduciaries of the portfolio, with responsibility for overseeing investment policies, general policies, guidelines, investment performance and related risk management. Committee members will fulfill their duties solely on behalf of the company’s mission. In addition to aligning investment policies and strategies with the company’s short- and long-term goals, investment committees must set benchmarks to evaluate long-term objectives and continually evaluate their strategies to keep pace with market fluctuations and changes.

 

The Investment Committee shall also provide initial oversight and analysis of potential acquisition targets being considered by Management. In that capacity, Investment Committee members may, among other things, participate in reviewing initial due diligence; visit prospective acquisition targets; participate in strategy and other discussions with Management; and, where appropriate, more.

 

At December 31, 2021, the Investment Committee is comprised of C. Stephen Cochennet, Corey A. Lambrecht, Chairman, and Nicholas M. Grindstaff, CFO.

 

 

Compensation Committee

The Compensation Committee discharges the board’s responsibilities relating to general compensation policies and practices and to compensation of our executives. In discharging its responsibilities, the Compensation Committee establishes principles and procedures in order to ensure to the board and the stockholders that the compensation practices of the Company are appropriately designed and implemented to attract, retain and reward high quality executives and are in accordance with all applicable legal and regulatory requirements. In this context, the Compensation Committee’s authority, duties and responsibilities are:

 

 

To annually review the Company’s philosophy regarding executive compensation.

 

To periodically review market and industry data to assess the Company’s competitive position, and to retain any compensation consultant to be used to assist in the evaluation of directors’ and executive officers’ compensation.

 

To establish and approve the Company goals and objectives, and associated measurement metrics relevant to compensation of the Company’s executive officers.

 

To establish and approve incentive levels and targets relevant to compensation of the executive officers.

 

To annually review and make recommendations to the board to approve, for all principal executives and officers, the base and incentive compensation, taking into consideration the judgment and recommendation of the Chief Executive Officer for the compensation of the principal executives and officers.

 

To separately review, determine and approve the Chief Executive Officer’s applicable compensation levels based on the Committee’s evaluation of the Chief Executive Officer’s performance considering the Company’s and the individual goals and objectives.

 

To review for any related party employee situations, to ensure appropriate controls are implemented surrounding compensation changes, bonuses and performance reviews of the related party employee, and to participate in such controls as appropriate.

 

To periodically review and make recommendations to the board with respect to the compensation of directors, including board and committee retainers, meeting fees, equity-based compensation and such other forms of compensation as the Compensation Committee may consider appropriate.

 

To administer and annually review the Company’s incentive compensation plans and equity-based plans.

 

To review and make recommendations to the board regarding any executive employment agreements, any proposed severance arrangements or change in control and similar agreements/provisions, and any amendments, supplements or waivers to the foregoing agreements, and any perquisites, special or supplemental benefits.

 

The Committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser.

 

The Committee shall be directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel and other adviser retained by the Committee. The Company must provide for appropriate funding, as determined by the Committee, for payment of reasonable compensation to a compensation consultant, legal counsel or any other adviser retained by the Committee.

 

The Committee may select, or receive advice from, a compensation consultant, legal counsel or other adviser to the Committee, other than in-house legal counsel, only after taking into consideration the following factors:

 

 

(i)

the provision of other services to the Company by the person that employs the compensation consultant, legal counsel or other adviser;

 

(ii)

the amount of fees received from the Company by the person that employs the compensation consultant, legal counsel or other adviser, as a percentage of the total revenue of the person that employs the compensation consultant, legal counsel or other adviser;

 

(iii)

the policies and procedures of the person that employs the compensation consultant, legal counsel or other adviser that are designed to prevent conflicts of interest;

 

(iv)

any business or personal relationship of the compensation consultant, legal counsel or other adviser with a member of the Committee;

 

(v)

any stock of the Company owned by the compensation consultant, legal counsel or other adviser; and

 

 

 

(vi)

any business or personal relationship of the compensation consultant, legal counsel, other adviser or the person employing the adviser with an executive officer of the Company.

 

 

The Committee is not required to implement or act consistently with the advice or recommendations of the compensation consultant, legal counsel or other adviser to the Committee.

 

Compensation Committee Members

The Compensation Committee of the board of directors is appointed by the board of directors to discharge the board’s responsibilities with respect to all forms of compensation of the Company’s executive officers, to administer the Company’s equity incentive plans and to produce an annual report on executive compensation for use in the Company’s Form 10-K and the proxy statement on Schedule 14A. At December 31, 2021, the Compensation Committee consists of two independent members of the board of directors, Messrs. Corey A. Lambrecht, and C. Stephen Cochennet, both of whom are ‘‘independent directors’’ within the meaning of Rule 5605(a) (2) of the Nasdaq Stock Market.

 

Committee Meetings

Our Compensation Committee meets formally and informally as often as necessary to perform its duties and responsibilities. The Compensation Committee held three formal meetings during fiscal 2021. On an as requested basis, our Compensation Committee receives and reviews materials prepared by management, consultants or committee members, in advance of each meeting. Depending on the agenda for the particular meeting, these materials may include, among other factors:

 

 

minutes and materials from the previous meeting(s);

 

reports on year-to-date Company financial performance versus budget;

 

reports on progress and levels of performance of individual and Company performance objectives;

 

reports on the Company’s financial and stock performance versus a peer group of companies;

 

reports from the Committee’s compensation consultant regarding market and industry data relevant to executive officer compensation;

 

reports and executive compensation summary worksheets, which sets forth for each executive officer: current total compensation and incentive compensation target percentages, current equity ownership holdings and general partner ownership interest and current and projected value of each and all such compensation elements, including distributions and dividends therefrom, over a five-year period.

 

Compensation Committee Charter

Our Compensation Committee Charter is posted on our website at www.OrbitalEnergyGroup.com.

 

Compensation Committee Interlocks and Insider Participation

None of the members of the Company’s Compensation Committee is or has at any time during the last completed fiscal year been an officer or employee of the Company. None of the Company’s executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on the Company’s board of directors or Compensation Committee during the last completed fiscal year.

 

 

 

Item 11.      Executive Compensation

 

 

 

Summary Compensation Table

The following table sets forth the compensation paid and accrued to be paid by the Company for the fiscal years 2020 and 2019 to the Company’s Chief Executive Officer, Chief Financial Officer and Executive Chairman/Chief Legal Counsel

 

Summary Compensation Table

 

Name and Principal Position

Year

    Salary (dollars)               Stock Awards (dollars)               Option Awards (dollars)               Non-equity Incentive Plan Compensation (dollars)               All Other Compensation (dollars)       Total (dollars)  

William J. Clough, Executive Chairman/ Chief Legal Officer/former CEO/ Director (1)

2021

  $ 831,442       (2 )   $       (2 )   $ 3,203,800       (2 )   $ 531,250       (2 )   $ 18,669     $ 4,585,161  
 

2020

    759,363       (2 )     21,887       (2 )     288,085       (2 )     300,000       (2 )     27,768       1,397,103  

Daniel N. Ford, Executive Vice President (3)

2021

    581,442       (4 )           (4 )     2,652,034       (4 )     265,625       (4 )     36,761       3,535,862  
 

2020

    512,346       (4 )     18,904       (4 )     224,066       (4 )     150,000       (4 )     43,121       948,437  

James F. O'Neil, CEO/Vice Chairman/Director (5)

2021

    800,000       (6 )           (6 )     5,695,644       (6 )           (6 )     41,271       6,536,915  
 

2020

    753,563       (6 )     8,937       (6 )     120,036       (6 )           (6 )     47,797       930,333  

 

Footnotes:

 

1.

Mr. Clough joined the Company on September 1, 2005. Effective September 13, 2007, Mr. Clough was appointed CEO/President of Orbital Energy Group and Chief Executive Officer of all wholly owned subsidiaries of the Company. Effective October 1, 2019 Mr. Clough stepped down as Chief Executive Officer and was appointed Executive Chairman and Chief Legal Officer.

 

2.

Mr. Clough is employed under a three-year employment contract with the Company, which became effective May 14, 2019. Said contract provides, in relevant part, for salary in year 1 of $750 thousand, year 2 of $800 thousand and year 3 of $850 thousand. The employment agreement includes bonus provisions for each calendar year targeted at seventy-five percent of base salary to be based on performance objectives, goals and milestones for each calendar year including company performance. Bonuses are approved based on various performance-related factors and an evaluation of current performance and includes a discretionary bonus of up to twenty-five percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. The agreement provides for up to $9,999 of annual premium life insurance expenses along with the ordinary benefits provided to employees of the Company. The agreement entitles Mr. Clough to severance package of 2.5 times the sum of annual base salary and target bonus along with eighteen months of medical coverage under the Company's medical plans.

 

 

3.

Mr. Ford joined the Company May 15, 2008 and served as Chief Financial Officer until November 15, 2021 when he was appointed Executive Vice President.

 

4.

Mr. Ford is employed under a three-year employment contract with the Company, which became effective May 14, 2019. Said contract provides, in relevant part, for salary in year 1 of $500 thousand, year 2 of $550 thousand and year 3 of $600 thousand. The employment agreement includes bonus provisions for each calendar year targeted at seventy-five percent of base salary to be based on performance objectives, goals and milestones for each calendar year including company performance. Bonuses are approved based on various performance-related factors and an evaluation of current performance and includes a discretionary bonus of up to twenty-five percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. The agreement provides for ordinary benefits provided to employees of the Company. The agreement entitles Mr. Ford to a severance package of 2.0 times the sum of annual base salary and target bonus along with eighteen months of medical coverage under the Company's medical plans.

 

5.

Mr. O'Neil was appointed Director July 9, 2019 and was appointed Vice Chairman and Chief Executive Officer effective October 1, 2019.

 

6.

Mr. O'Neil is employed under a three-year employment contract with the Company, which became effective October 1, 2019. Said contract provides, in relevant part, for salary in year 1 of $750 thousand, year 2 of $800 thousand and year 3 of $850 thousand. The employment agreement includes bonus provisions for each calendar year targeted at seventy-five percent of base salary to be based on performance objectives, goals and milestones for each calendar year including company performance. Bonuses are approved based on various performance-related factors and an evaluation of current performance and includes a discretionary bonus of up to twenty-five percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. The agreement provides for up to $9,999 of annual premium life insurance expenses along with the ordinary benefits provided to employees of the Company. The agreement entitles Mr. O'Neil to a severance package of 2.5 times the sum of annual base salary and target bonus along with eighteen months of medical coverage under the Company's medical plans.

 

7.

As of December 31, 2021, Mr. Ford held 112,598 outstanding options. As of December 31, 2021, Mr. Clough, Mr. Ford and Mr. O'Neil held 1,350,000, 1,095,000, and 1,787,500 cash settled stock appreciation rights, respectively.

 

8.

All other compensation includes health care, insurance and 401(k) matching benefits.

 

 

The following table summarizes potential payments upon termination of employment to each of the named executive officers employed on the last day of our most recently completed fiscal year. The amounts set forth in the table are based on the assumption that the triggering event occurred on the last business day of our last completed fiscal year.

 

       

Involuntary

         
       

Termination or

         
       

Resignation for

   

Termination

 
       

Good Reason

   

upon Disability

 

Name

 

Benefit

               
                     
   

Salary and bonus continuation

  $ 3,718,750 (1)   $ 318,750 (1)

William J. Clough, Executive Chairman/ Chief Legal Officer/ former CEO/Director

 

Benefits

    28,003 (1)     28,003 (1)
                     
   

Salary and bonus continuation

    2,100,000 (2)     225,000 (2)

Daniel N. Ford, Chief Financial Officer

 

Benefits

    29,042 (2)     29,042 (2)
                     
   

Salary and bonus continuation

    3,718,750 (3)     318,750 (3)

James F. O'Neil, CEO/ Director

 

Benefits

    37,906 (3)     37,906 (3)

 

 

1.

Mr. Clough's employment contract with the Company entitles Mr. Clough to a severance package of 2.5 times the sum of annual base salary and target bonus along with eighteen months of medical coverage under the Company's medical plans. Under involuntary termination without cause or resignation for good reason, Mr. Clough would receive any amounts earned, accrued or owing but not yet paid; full vesting of any unvested stock options and any deferred past bonuses that have been earned but not paid. Should Mr. Clough be terminated on account of disability he is entitled to 75% of his then current annual base salary for six months and eighteen months of medical coverage.

 

 

2.

Mr. Ford's employment contract with the Company entitles Mr. Ford to a severance package of 2.0 times the sum of annual base salary and target bonus along with eighteen months of medical coverage under the Company's medical plans. Under involuntary termination without cause or resignation for good reason, Mr. Ford would receive any amounts earned, accrued or owing but not yet paid; full vesting of any unvested stock options and any deferred past bonuses that have been earned but not paid. Should Mr. Ford be terminated on account of disability he is entitled to 75% of his then current annual base salary for six months and eighteen months of medical coverage.

 

 

3.

Mr. O'Neil's employment contract with the Company entitles Mr. O'Neil to a severance package of 2.5 times the sum of annual base salary and target bonus along with eighteen months of medical coverage under the Company's medical plans. Under involuntary termination without cause or resignation for good reason, Mr. O'Neil would receive any amounts earned, accrued or owing but not yet paid; full vesting of any unvested stock options and any deferred past bonuses that have been earned but not paid. Should Mr. O'Neil be terminated on account of disability he is entitled to 75% of his then current annual base salary for six months and eighteen months of medical coverage.

 

 

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth the outstanding equity awards at December 31, 2021 to each of the named executive officers:

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

                           

Name

 

Number of Securities Underlying Unexercised Options (#)

   

Option Exercise Price ($)

 

Option Expiration

 

Payout Value of Unexercised In-the-Money Options/SARs at Fiscal Year-End ($)

 

Daniel N. Ford (1)

    12,598       4.56  

4/16/2022

     

Daniel N. Ford (2)

    100,000       6.25  

6/24/2023

     

William J. Clough (3)

    450,000       1.00  

6/1/2026

    535,500  

Daniel N. Ford (3)

    350,000       1.00  

6/1/2026

    416,500  

James F. O'Neil (3)

    187,500       1.00  

6/1/2026

    223,125  

William J. Clough (4)

    900,000       2.89  

4/23/2024

     

Daniel N. Ford (4)

    745,000       2.89  

4/23/2024

     

James F. O'Neil (4)

    1,600,000       2.89  

4/23/2024

     

 

Footnotes:

 

1.

Effective April 16, 2012, Mr. Ford received bonus options to purchase 12,598 common shares within ten years from date of issuance, at a price of $4.56 per share that vested over 4 years: 25% at year one and thereafter in equal monthly installments. 

 

2.

Effective June 24, 2013, Mr. Ford received bonus options to purchase 100,000 common shares within ten years from date of issuance, at a price of $6.25 per share that vested one third per year over 3 years.

 

3.

Effective June 1, 2020, Mr. Clough, Mr. Ford and Mr. O'Neil received 450,000, 350,000 and 187,500 cash-settled stock appreciation rights, respectively, within 6 years from the date of issuance, at a price of $1.00 per share that vest in equal monthly installments over 2 years.

 

4. Effective April 23, 2021, Mr. Clough, Mr. Ford, and Mr. O'Neil received 900,000, 745,000 and 1,600,000 cash-settled stock appreciation rights, respectively, within 3 years from the date of issuance, at a price of $2.89 per share that vests in equal monthly installments over 3 years.

 

 

 

Director Compensation

 

For 2021, each of our directors received the following compensation pursuant to our director compensation plan:

 

Non-employee directors earned/received annual compensation of $100,000.

 

 

The $100,000 annual compensation for non-employee directors is issued in the form of $50,000 cash compensation and $50,000 common stock calculated by using the Nasdaq Stock Market closing price per share on the date of issuance. In addition, the chairman and member of the Investment Committee received $84,500 and $58,500, respectively of additional cash compensation for their services. 
  In March 2021, each director received a 20,000 one-time award for director compensation under the Company's 2020 Equity Compensation Plan.
 

At the election of each director, all or any portion of the cash compensation may be converted to stock purchase options calculated by using the strike price of ten percent (10%) above the Nasdaq Stock Market closing price per share on the date of grant. 

 

At the election of each director, all or any portion of the cash compensation may be converted to stock calculated by using the Nasdaq Stock Market closing price per share on the date of conversion. 

 

The following table sets forth the compensation of the non-employee directors for the fiscal year ended December 31, 2021:

 

   

 

                   

Non-

                         
   

 

                   

Equity

   

Nonqualified

                 
   

Fees

                   

Incentive

   

Deferred

                 
   

paid in

   

Stock

   

Option

   

Plan

   

Compensation

   

All Other

         
   

Cash

   

Awards

   

Awards

   

Compensation

   

Earnings

   

Compensation

   

Total

 

Name

 

($) (1)

   

($)

   

($)

   

($)

   

($)

   

($)

   

($)

 
                                                         

Paul Addison, Director

  $ 28,851     $ 28,842     $     $     $     $     $ 57,693  
                                                         

C. Stephen Cochennet, Director 

    146,006       159,194                               305,200  
                                                         

Corey A. Lambrecht, Director 

    172,006       159,194                               331,200  
                                                         

Sean P. Rooney, Director

    75,006       146,694                               221,700  
                                                         

Jerry Sue Thornton, Director

    20,837       20,830                               41,667  
                                                         

Sarah Tucker, Director

    87,506       159,194                               246,700  
                                                         

La Forrest Williams, Director

    20,837       20,830                               41,667  

 

 

 

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth certain information regarding beneficial ownership of our voting shares as of December 31, 2021 by: (i) each stockholder known by us to be the beneficial owner of 5% or more of the outstanding voting shares, (ii) each of our directors and executives and (iii) all directors and executive officers as a group. Except as otherwise indicated, we believe that the beneficial owners of the voting shares listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Shares of common stock issuable upon exercise of options and warrants that are currently exercisable or that will become exercisable within 60 days of December 31, 2021 have been included in the table.

 

No shares of preferred stock are outstanding at the date of this report.

 

Beneficial Interest Table

 

           

Percentages of

 
   

Number of

   

Shares

 
   

Securities

   

Beneficially

 

Name and Address of Beneficial Owner (1)

 

Owned

   

Owned (2)

 

Paul T. Addison (3)

    8,756       * %

William J. Clough (4)

    319,480       * %

James F. O'Neil (5)

    1,200,263       1.47 %

C. Stephen Cochennet (6)

    184,667       * %

Daniel N. Ford (7)

    220,433       * %

Corey A. Lambrecht (8)

    193,672       * %

Jerry Sue Thornton (9)

    6,709       * %

Sarah Tucker (10)

    94,378       * %

Paul D. White (11)

    50,727       * %

La Forrest V. Williams (12)

    6,709       * %

Kurt A. Johnson, Jr.

               

15502 Bayou Oaks Drive, Danbury, Texas 77534

    4,408,807       5.38 %

Tidal Power Group LLC

               

4211 Chance Lane, Rosharon, Texas 77583

    7,213,211       8.81 %

Officers, Directors, Executives as Group

    2,435,740       2.97 %

 

Footnotes:

 

1.

Except as otherwise indicated, the address of each beneficial owner is c/o Orbital Energy Group, Inc., 1924 Aldine Western, Houston, Texas 77038.

 

2.

Calculated on the basis of 81,906,676 shares of common stock outstanding at December 31, 2021 except that shares of common stock underlying options exercisable within 60 days and issued within 60 days of the date hereof are deemed to be outstanding for purposes of calculating the beneficial ownership of securities of such holder of options and shares. A * denotes less than 1 percent beneficially owned.

 

3. Mr. Addison is a Director.

 

4. Mr. Clough is a Director, Executive Chairman and Chief Legal Officer of Orbital Energy Group, Inc.

 

5.

Mr. O'Neil is a Director, and Chief Executive Officer of Orbital Energy Group, Inc.

 

6.

Mr. Cochennet is a Director.

 

7.

Mr. Ford’s shares include vested options to purchase 112,598 common shares. Mr. Ford is Executive Vice President and former Chief Financial Officer of Orbital Energy Group, Inc.

 

8.

Mr. Lambrecht’s shares include vested options to purchase 13,300 common shares. Mr. Lambrecht is a Director.

 

9.

Ms. Thornton is a Director.

 

10. Ms. Tucker is a Director.

 

11.

Mr. White’s shares include vested options to purchase 7,500 common shares. Mr. White is a Director.

 

12. Mr. Williams is a Director.

 

We relied upon Section 4(2) of the Securities Act of 1933 as the basis for an exemption from registration for the issuance of the above securities.

 

 

Employee Equity Incentive Plans

At December 31, 2021, the Company had outstanding the following equity compensation plan information:

 

                     
   

Number of securities to be issued upon exercise of outstanding options, warrants and rights

   

Weighted-average exercise price of outstanding options, warrants and rights

   

Future issuance under equity compensation plans (excluding securities reflected in column (a))

 

Plan Category

 

(a)

   

(b)

   

(c)

 

Equity compensation plans approved by security holders

    2,500     $ 4.58       4,130,665  

Equity compensation plans not approved by security holders

    235,485       6.16        
      237,985     $ 6.14       4,130,665  

 

Equity Compensation Plans Approved by Stockholders

On May 16, 2008 the Company’s board of directors adopted the 2008 Equity Incentive Plan and authorized 1,500,000 shares of Common Stock to fund the Plan which was approved by the Company shareholders at the 2008 Annual Meeting of Shareholders. At the 2009 Annual Meeting of Shareholders, the shareholders approved an amendment to the 2008 Equity Incentive Plan to increase the number of common shares issuable under the plan from 1,500,000 to 3,000,000. These shares have been registered under Form S-8. As of December 31, 2020 there are no remaining shares available to grant under the 2008 Equity Incentive Plan.

 

At the 2020 Annual Meeting of Shareholders, the Company’s shareholders approved the Orbital Energy Group 2020 Incentive Award Plan and authorized a share limit of 2,000,000 shares. At the 2021 Annual Meeting of Shareholders, the Company's shareholders approved an increase in authorized share limit to 5,000,000.

 

The purpose of the Orbital Energy Group 2020 Incentive Award Plan is to enhance our ability to attract, retain and motivate persons who make (or are expected to make) important contributions to Orbital Energy Group by providing these individuals with equity ownership opportunities. Equity awards are intended to motivate high levels of performance and align the interests of our directors, employees and consultants with those of our stockholders by giving directors, employees and consultants the perspective of an owner with an equity stake in Orbital Energy Group and providing a means of recognizing their contributions to the success of Orbital Energy Group. Our board of directors and management believe that equity awards are necessary to remain competitive in its industry and are essential to recruiting and retaining the highly qualified employees who help Orbital Energy Group meet its goals. A primary purpose of the plan is to provide OEG with appropriate capacity to issue equity compensation in anticipation of future acquisitions. 

 

The Orbital Energy Group 2020 Incentive Award Plan provides for the grant of stock options, including ISOs and nonqualified stock options (“NSOs”), stock appreciation rights (“SARs”), restricted stock, dividend equivalents, restricted stock units (“RSUs”) and other stock or cash-based awards. Certain awards under the Orbital Energy Group 2020 Incentive Award Plan may constitute or provide for payment of “nonqualified deferred compensation” under Section 409A of the Code. All awards under the Orbital Energy Group 2020 Incentive Award Plan will be set forth in the award agreement, which will detail the terms and conditions of awards, including any applicable vesting and payment terms and post termination exercise limitations. All Awards shall be subject to a minimum vesting of one year from the Grant Date. A brief description of each award type follows.

 

 

Stock Options and SARs. Stock options provide for the purchase of shares of common stock of Orbital Energy Group in the future at an exercise price set on the grant date. ISOs, in contrast to NSOs, may provide tax deferral beyond exercise and favorable capital gains tax treatment to their holders if certain holding period and other requirements of the Code are satisfied. SARs entitle their holder, upon exercise, to receive from Orbital Energy Group an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The plan administrator will determine the number of shares covered by each option and SAR, the exercise price of each option and SAR and the conditions and limitations applicable to the exercise of each option and SAR. The exercise price of a stock option or SAR will not be less than 100% of the fair market value of the underlying share on the grant date (or 110% in the case of ISOs granted to certain significant stockholders), except with respect to certain substitute awards granted in connection with a corporate transaction. The term of a stock option or SAR may not be longer than five years and are subject to any limitations of the Plan or that the Administrator may impose or provide in the Award Agreement.

 

Restricted Stock. Restricted stock is an award of nontransferable shares of common stock of Orbital Energy Group that remain forfeitable unless and until specified conditions are met and which may be subject to a purchase price. Upon issuance of restricted stock, recipients generally have the rights of a stockholder with respect to such shares, which generally include the right to receive dividends and other distributions in relation to the award. The terms and conditions applicable to restricted stock will be determined by the plan administrator, subject to the conditions and limitations contained in the Orbital Energy Group 2020 Incentive Award Plan.

 

RSUsRSUs are contractual promises to deliver shares of common stock of Orbital Energy Group in the future, which may also remain forfeitable unless and until specified conditions are met and may be accompanied by the right to receive the equivalent value of dividends paid on shares of common stock of Orbital Energy Group prior to the delivery of the underlying shares (i.e., dividend equivalent rights). The Company accounts for forfeitures of employee awards as they occur. The plan administrator may provide that the delivery of the shares underlying RSUs will be deferred on a mandatory basis or at the election of the participant. The terms and conditions applicable to RSUs will be determined by the plan administrator, subject to the conditions and limitations contained in the Orbital Energy Group 2020 Incentive Award Plan or as provided in the Award Agreement.

 

Other Stock or Cash Based Awards. Other stock or cash-based awards are awards of cash, shares of common stock of Orbital Energy Group and other awards valued wholly or partially by referring to, or otherwise based on, shares of common stock of Orbital Energy Group or other property. Other stock or cash-based awards may be granted to participants and may also be available as a payment form in the settlement of other awards, as standalone payments and as payment in lieu of compensation to which a participant is otherwise entitled. The plan administrator will determine the terms and conditions of other stock or cash-based awards, which may include any purchase price, performance goal, transfer restrictions and vesting conditions, subject to the conditions and limitations in the Orbital Energy Group 2020 Incentive Award Plan or as provided in the Award Agreement.

 

 

The Orbital Energy Group 2020 Incentive Award Plan provides that the plan administrator may establish compensation for non-employee directors from time to time subject to the Orbital Energy Group 2020 Incentive Award Plan’s limitations. The plan administrator will from time to time determine the terms, conditions and amounts of all non-employee director compensation in its discretion and pursuant to the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time, provided that, the sum of any cash compensation or other compensation and the grant date fair value of any equity awards granted under the Orbital Energy Group 2020 Incentive Award Plan as compensation for services as a non-employee director during any fiscal year may not exceed $250,000 per year of a non-employee director’s service as a non-employee director. The non-employee Director receiving such additional compensation may not participate in the decision to award such compensation or in other contemporaneous compensation decisions involving the non-employee Director.

 

As of December 31, 2021 there are 4,130,665 remaining shares available to grant under the 2020 Incentive Award Plan.

 

Equity Compensation Plans Not Approved by Stockholders

Pursuant to a board resolution in January 2009, following recommendation by the Compensation Committee, the 2009 Equity Incentive Plan (Executive), a Non-Qualified Stock Option Plan, was created and funded with 4,200,000 shares of $0.001 par value common stock. The Compensation Committee was appointed as the Plan Administrator to manage the plan. In October 2010 and September 2012, the board of directors authorized an additional 3,060,382 and 330,000 options, respectively, under the 2009 Equity Incentive Plan (Executive).

 

Issuances of stock options under the 2009 Equity Incentive Plan (Executive) were made to attract, retain and motivate executive and management employees and directors and to encourage these individuals to acquire an equity interest in the Company, to make monetary payments to certain management employees and directors based upon the value of the Company’s stock and to provide these individuals with an incentive to maximize the success of the Company and further the interest of the shareholders. The 2009 Plan allowed for the issuance of Incentive Non-Statutory Options.

 

The Company has outstanding at December 31, 2021, the following options issued under equity compensation plans not approved by security holders:

 

 

During 2012, the Company granted options to purchase restricted common stock at $4.56 per share to officers and directors as follows: 19,800 options that vest one year after the April 16, 2012 grant date; 64,875 options that vest over four years, 25% at one year after the grant date, thereafter in equal monthly installments, and 330,000 options to purchase restricted common stock at $6.00 per share were granted to an officer that vest in equal monthly installments over the course of forty-eight consecutive months beginning September 2012. Of these 2012 grants, 37,598 remain outstanding and fully vested at December 31, 2021.

 

During 2013, the Company issued 350,000 options to purchase restricted common stock at $6.25 per share to three officers as follows: one third that vest one year after the June 24, 2013 grant date, one third that vest two years after the grant date and the balance that vest three years after the grant date. At December 31, 2021, 150,000 of these 2013 granted options are outstanding and fully vested.

 

During 2014, the Company issued options to purchase 10,000 shares of restricted common stock at a price of $6.92 per share to each board member who is not an employee of the Company. The options vested in twelve equal installments during 2014. The Company issued options to purchase 42,890 restricted shares of common stock at a price of $6.92 per share to two board members, who chose to receive a portion of their annual board compensation in the form of equity. The Company granted options to purchase 7,500 restricted shares of common stock at a price of $8.15 per share to each of the two then newly elected directors that vested August 31, 2015. Of these 2014 options grants, 47,887 options are outstanding and fully vested at December 31, 2021.

 

 

 

As of December 31, 2021, there are no remaining shares available to grant under the 2009 Equity Incentive Plan (Executive).

 

The description of the Company’s capital stock does not purport to be complete and is subject to and qualified by its Articles of Incorporation, Bylaws, and amendments thereto and by the provisions of applicable Colorado law. The Company’s transfer agent is Computershare Trust Company, Inc., 350 Indiana Street, Suite 800, Golden, Colorado 80401.

 

Item 13.  Certain Relationships and Related Transactions and Director Independence

 

The Board of Directors is responsible for the review and approval of all related party transactions. Although the Board does not have written policies and procedures with respect to the review of related party transactions, we intend that any such transactions will be reviewed by the Board of Directors or one of its committees, which will consider all relevant facts and circumstances and will consider, among other factors:

 

 

the material terms of the transaction;

 

the nature of the relationship between the Company and the related party;

 

the significance of the transaction to the Company; and

 

whether or not the transaction would be likely to impair (or create the appearance of impairing) the judgment of a director or executive officer to act in the best interest of the Company.

 

Except as set forth herein, no related party of the Company, including, but not limited to, any director, officer, nominee for director, immediate family member of a director or officer, immediate family member of any nominee for director, security holder that beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to its outstanding shares, or immediate family member of any such security holder, since the beginning of fiscal year 2021, has any material interest, direct or indirect, in any transaction or in any presently proposed transaction with the Company where the amount involved exceeds $120,000 which has or will materially affect the Company.

 

Chief Legal Officer and Executive Chairman of the Board of Directors, William J. Clough’s son, Nicholas J. Clough, serves as Vice President of Greenfield Operations. Additional Information on Nicholas Clough’s compensation is included in Note 11 Related Party Transactions, to the Consolidated Financial Statements under Part II, Item 8, ‘‘Financial Statements and Supplementary Data.’’

 

 

Item 14.  Principal Accountants Fees and Services

 

Fees or controlled billings for services billed by the Company’s principal accountant, Grant Thornton LLP, were as follows:

 

   

For the Years Ended December 31,

 

(In thousands)

 

2021

   

2020

 

Audit fees (1)

  $ 1,064     $ 725  

Tax fees and other fees (2)

    242       106  

Total Fees

  $ 1,306     $ 831  

 

(1)

Includes fees for audit of the Company's consolidated financial statements, review of the related quarterly financial statements, and services that are normally provided by our independent registered public accounting firm in connection with the statutory and regulatory filings, including reviews of documents filed with the SEC.

 

(2)

Includes fees for tax planning and tax compliance/preparation fees for professional services rendered by our independent registered public accounting firm to certain subsidiaries of the Company.

 

In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder, the Audit Committee has adopted an informal approval policy that it believes will result in an effective and efficient procedure to pre-approve services performed by the independent registered public accounting firm.

 

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and persons owning more than 10% of our common stock to file reports of ownership and reports of changes of ownership with the Securities and Exchange Commission. These reporting persons are required to furnish us with copies of all Section 16(a) forms that they file. We have made all officers and directors aware of their reporting obligations and have appointed an employee to oversee Section 16 compliance for future filings.

 

Stockholder Communications

Company stockholders who wish to communicate with the board of directors or an individual director may write to Orbital Energy Group, Inc., 1924 Aldine Western, Houston, Texas 77038 or to the attention of an individual director. Your letter should indicate that you are a stockholder and whether you own your shares in street name. Letters received will be retained until the next Board meeting when they will be available to the addressed director. Such communications may receive an initial evaluation to determine, based on the substance and nature of the communication, a suitable process for internal distribution, review and response or other appropriate treatment. There is no assurance that all communications will receive a response.

 

Certain Provisions of the Articles of Incorporation and Colorado Business Corporation Act Relating to Indemnification of Directors and Officers

The Colorado General Corporation Act, as revised, provides that if so provided in the articles of incorporation, the corporation shall eliminate or limit the personal liability of a director to the corporation or to its stockholders for monetary damages for breach of fiduciary duty as a director; except that any such provision shall not eliminate or limit the liability of a director to the corporation or to its stockholders for monetary damages for any breach of the director's duty of loyalty to the corporation or to its stockholders, acts or omissions not in good faith or, which involve intentional misconduct or a knowing violation of law, unlawful distributions, or any transaction from which the director directly or indirectly derived an improper personal benefit.

 

Our Articles of Incorporation and bylaws provide that a person who is performing his or her duties shall not have any liability by reason of being or having been a director of the corporation and that the Company shall indemnify and advance expenses to a director or officer in connection with a proceeding to the fullest extent permitted or required by and in accordance with the indemnification sections of Colorado statutes.

 

Insofar as indemnification for liabilities may be invoked to disclaim liability for damages arising under the Securities Act of 1933, as amended, or the Securities Act of 1934 (collectively, the ‘‘Acts’’), as amended, it is the position of the Securities and Exchange Commission that such indemnification is against public policy as expressed in the Acts and are therefore, unenforceable.

 

 

Reports to Stockholders

We intend to voluntarily send Form 10-Ks to our stockholders, which will include audited consolidated financial statements. We are a reporting company and file reports with the Securities and Exchange Commission (SEC), including this Form 10-K as well as quarterly reports under Form 10-Q. The public may read and copy any materials filed with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The company files its reports electronically and the SEC maintains an Internet site that contains reports, proxy and information statements and other information filed by the company with the SEC electronically. The address of that site is www.sec.gov.

 

The company also maintains an Internet site, which contains information about the company, news releases, governance documents and summary financial data. The address of that site is www.OrbitalEnergyGroup.com.

 

Part IV

 

Item 15. Exhibits, Financial Statement Schedules

 

No schedules are included because the required information is inapplicable, not required or are presented in the financial statements or the related notes thereto.

 

 

EXHIBITS

 

The following exhibits are included as part of this Form 10-K.

 

Exhibit

No.

 

Description

2.1 1

 

Asset purchase agreement between and among CUI, Inc., CUI Global, Inc. and Back Porch International, Inc.

2.2 2

 

Asset purchase agreement between and among CUI, Inc., CUI Global, Inc. and Bel Fuse Inc.

2.3 3   Agreement and Plan of Merger effectively changing the Company name to Orbital Energy Group, Inc., as filed with the Secretary of State of the State of Colorado.

3.11(i) 4

 

Amended Restated Articles of Incorporation that compile prior amendments into a single document.

3.11(ii) 3   Articles of Amendment of Articles of Incorporation effectively changing the Company name to Orbital Energy Group, Inc. as filed with the Secretary of State of the State of Colorado.

3.12(iii) 3

  Amended and restated corporate bylaws of Orbital Energy Group, Inc.

10.86 5

 

Asset Purchase Agreement dated February 23, 2015 to acquire the assets of Tectrol, Inc. and commercial lease attached as exhibits to our Form 8-K filed with the commission March 3, 2015.

10.87 6

 

Promissory note dated March 13, 2020 for $3,000,000 with Reach Construction Group.

10.88 6

 

Security agreement with Reach Construction group dated March 13, 2020.

10.90 6

 

Three-year lease for Sherman, Texas facility effective December 1, 2019.

10.91 6

 

Four-year lease for Irving, Texas facility effective January 1, 2020.

10.92 7

 

Five-year lease for Houston, Texas facility effective November 1, 2017.

10.93 7

 

Employment agreement with Paul D. White effective December 1, 2017.

10.94 8

 

10-year lease for Tualatin, OR facility effective December 21, 2018.

10.95 9

 

Employment agreement with William J. Clough effective May 14, 2019.

10.96 9

 

Employment agreement with Daniel N. Ford effective May 14, 2019.

10.97 1

 

Employment agreement with James F. O'Neil effective October 1, 2019.

10.98 6

 

Agreement dated January 1, 2020 between Orbital Gas Systems Limited and VE Technology Limited to acquire VE Technology designated intellectual property.

10.99 10   Unsecured Paycheck Protection Program loan agreement sponsored by the Small Business Administration between CUI Global, Inc and Bank of America dated April 30, 2020.
10.100 10  

Unsecured Paycheck Protection Program loan agreement sponsored by the Small Business Administration between Orbital Gas Systems, North America and Bank of America dated April 30, 2020.

10.101 10  

Unsecured Paycheck Protection Program loan agreement sponsored by the Small Business Administration between Orbital Power, Inc. and Bank of America dated April 30, 2020.

10.102 10   Unsecured Paycheck Protection Program loan agreement sponsored by the Small Business Administration between Reach Construction Group, LLC and Dogwood State Bank dated May 2, 2020.
10.103 11   Securities Purchase Agreement with institutional investor for issuance of convertible securities dated November 13, 2020
10.104 12   Registered Direct Offering for the sale and issuance by the Company of an aggregate of 5,555,556 common shares for gross proceeds of $10.0 million filed January 4, 2021.
10.105 13   Placement Agency Agreement for the sale of shares at a price to the public of $1.80 per share.
10.106 14   Registered Direct Offering for the sale and issuance of an aggregate of 10,000,000 common shares at an offering price of $3.50.
10.107 15   Placement Agency Agreement for the sale of shares at a price to the public of $3.50 per share.
10.108 16   Amended and restated Securities Purchase Agreement with institutional investor dated February 12, 2021.

10.109 17

  Equity purchase agreement to purchase Reach Construction Group, LLC.
10.110 17  

Subordinated promissory note - 18 month seller financed note for the purchase of Reach Construction Group, LLC.

10.110 17   Subordinated promissory note - 3 year seller financed note for the purchase of Reach Construction Group, LLC.
10.111 18   Note Purchase Agreement with institutional investor for issuance of note payable dated March 23, 2021
10.113 19   Note purchase Agreement with institutional investor 

21.3 19

 

List of all subsidiaries, state of incorporation and name under which the subsidiary does business.

23.1 19

 

Consent of Grant Thornton LLP

31.1 19

 

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.

31.2 19

 

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.

32.1 19

 

Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

32.2 19

 

Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

 

101 19

 

Inline XBRL-Related Documents.

101.INS 19

 

Inline XBRL Instance Document.

101.SCH 19

 

Inline XBRL Taxonomy Extension Schema Document.

101.CAL 19

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF 19

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB 19

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE 19

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104 19

  Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

 

104    Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

 

Footnotes to Exhibits:

 

1.

Incorporated by reference to our Report on Form 8-K filed with the Commission on October 2, 2019.

2.

Incorporated by reference to our Report on Form 8-K filed with the Commission on November 14, 2019.

3.

Incorporated by reference to our Report on Form 8-K filed with the Commission on May 8, 2020.

4. Incorporated by reference to our Proxy Statement and Notice of 2013 Annual Stockholder Meeting filed with the Commission September 17, 2013.

 

 

5.

Incorporated by reference to our Report on Form 8-K filed with the Commission on March 3, 2015 and Form 8-K/A filed with the Commission on May 13, 2015.

6. Incorporated by reference to our Report on Form 10-K filed with the Commission on March 30, 2020.

7.

Incorporated by reference to our Report on Form 10-K filed with the Commission on March 14, 2018.

8. Incorporated by reference to our Report on Form 10-K filed with the Commission on March 18, 2019.

9.

Incorporated by reference to our Report on Form 10-Q filed with the Commission on May 15, 2019.

10. Incorporated by reference to our Report on Form 10-Q filed with the Commission on May 20, 2020.
11. Incorporated by reference to our Report on Form 8-K filed with the Commission on November 18, 2020.
12. Incorporated by reference to our Report on Form 424B5 Prospectus supplement filed with the Commission on January 4, 2021.
13. Incorporated by reference to our Report on Form 8-K filed with the Commission on January 4, 2021.
14. Incorporated by reference to our Report on Form 424B5 Prospectus supplement filed with the Commission on January 15, 2021.
15. Incorporated by reference to our Report on Form 8-K filed with the Commission on January 15, 2021.
16. Incorporated by reference to our Report on Form 8-K filed with the Commission on February 16, 2021.
17. Incorporated by reference to our Report on Form 8-K filed with the Commission on April 6, 2020.
18. Incorporated by reference to our Report on Form 8-K filed with the Commission on March 26, 2021.

19.

Filed herewith.

 

Item 16. Form 10-K Summary

 

None.

 

Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Orbital Energy Group, Inc.

 

 

Signature

 

Title

 

Date

           

By

/s/ James F. O'Neil

 

CEO/Principal Executive

  March 31, 2022
 

James F. O'Neil

 

Officer/Director

   
           

By

/s/ Nicholas M. Grindstaff

 

CFO/ Principal Financial

  March 31, 2022
 

Nicholas M. Grindstaff

 

and Accounting Officer

   

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities on the dates indicated.

 

Signature

 

Title

 

Date

           

By

/s/ James F. O'Neil

 

CEO/Principal Executive

  March 31, 2022
 

James F. O'Neil

 

Officer/Director

   
           

By

/s/ William J. Clough

 

Executive Chairman/Chief Legal

  March 31, 2022
 

William J. Clough

 

Counsel/Director

   
           

By

/s/ Nicholas M. Grindstaff

 

CFO/ Principal Financial

  March 31, 2022
 

Daniel N. Ford

 

and Accounting Officer

   
           

By

/s/ Paul Addison, Director  

Director

  March 31, 2022
  Paul Addison        
           

By

/s/ C. Stephen Cochennet

 

Director

  March 31 2022
 

C. Stephen Cochennet

       
           

By

/s/ Corey A. Lambrecht

 

Director

  March 31, 2022
 

Corey A. Lambrecht

       
           

By

/s/ Jerry Sue Thornton 

 

Director

  March 31, 2022
 

Jerry Sue Thornton

       
           

By

/s/ Sarah Tucker

 

Director

  March 31, 2022
 

Sarah Tucker

       
           
By /s/ Paul D. White  

Director

  March 31, 2022
  Paul D. White        
           

By

/s/ La Forrest Williams

 

Director

 

March 31, 2022

 

La Forrest Williams

       

 

114

Exhibit 10.113

 

Note Purchase Agreement

 

THIS NOTE PURCHASE AGREEMENT (this “Agreement”), dated as of December 20, 2021, is entered into by and between ORBITAL ENERGY GROUP, INC., a Colorado corporation (“Company”), and STREETERVILLE CAPITAL, LLC, a Utah limited liability company, its successors and/or assigns (“Investor”).

 

A.    Company and Investor are executing and delivering this Agreement in reliance upon an exemption from securities registration afforded by the Securities Act of 1933, as amended (the “1933 Act”), and the rules and regulations promulgated thereunder by the United States Securities and Exchange Commission (the “SEC”).

 

B.    Investor desires to purchase and Company desires to issue and sell, upon the terms and conditions set forth in this Agreement a Promissory Note, in the form attached hereto as Exhibit A, in the original principal amount of $16,065,000.00 (the “Note”).

 

C.    This Agreement, the Note, and all other certificates, documents, agreements, resolutions and instruments delivered to any party under or in connection with this Agreement, as the same may be amended from time to time, are collectively referred to herein as the “Transaction Documents”.

 

NOW, THEREFORE, in consideration of the above recitals and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Company and Investor hereby agree as follows:

 

1. Purchase and Sale of Note.

 

1.1.    Purchase of Note. Company shall issue and sell to Investor and Investor shall purchase from Company the Note. In consideration thereof, Investor shall pay the Purchase Price (as defined below) to Company.

 

1.2.    Form of Payment. On the Closing Date (as defined below), Investor shall pay the Purchase Price to Company via wire transfer of immediately available funds against delivery of the Note.

 

1.3.    Closing Date. Subject to the satisfaction (or written waiver) of the conditions set forth in Section 5 and Section 6 below, the date of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be December 20, 2021, or another mutually agreed upon date. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date by means of the exchange by email of signed .pdf documents, but shall be deemed for all purposes to have occurred at the offices of Hansen Black Anderson Ashcraft PLLC in Lehi, Utah.

 

1.4.    Collateral for the Note. The Note shall be unsecured.

 

1.5.    Original Issue Discount; Transaction Expense Amount. The Note carries an original issue discount of $1,050,000.00 (the “OID”). In addition, Company agrees to pay $15,000.00 to Investor to cover Investor’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of the Note (the “Transaction Expense Amount”), all of which amount is included in the initial principal balance of the Note. The “Purchase Price”, therefore, shall be $15,000,000.00, computed as follows: $16,065,000.00 initial principal balance, less the OID, less the Transaction Expense Amount.

 

1

 

2. Investor’s Representations and Warranties. Investor represents and warrants to Company that as of the Closing Date: (i) this Agreement has been duly and validly authorized; (ii) this Agreement constitutes a valid and binding agreement of Investor enforceable in accordance with its terms; and (iii) Investor is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D of the 1933 Act.

 

3. Company’s Representations and Warranties. Company represents and warrants to Investor that as of the Closing Date: (i) Company is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has the requisite corporate power to own its properties and to carry on its business as now being conducted; (ii) Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary; (iii) Company has registered its Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and is obligated to file reports pursuant to Section 13 or Section 15(d) of the 1934 Act; (iv) each of the Transaction Documents and the transactions contemplated hereby and thereby, have been duly and validly authorized by Company and all necessary actions have been taken; (v) this Agreement, the Note, and the other Transaction Documents have been duly executed and delivered by Company and constitute the valid and binding obligations of Company enforceable in accordance with their terms; (vi) the execution and delivery of the Transaction Documents by Company, the issuance of the Note in accordance with the terms hereof, and the consummation by Company of the other transactions contemplated by the Transaction Documents do not and will not conflict with or result in a breach by Company of any of the terms or provisions of, or constitute a default under (a) Company’s formation documents or bylaws, each as currently in effect, (b) any indenture, mortgage, deed of trust, or other material agreement or instrument to which Company is a party or by which it or any of its properties or assets are bound, including, without limitation, any listing agreement for the Common Stock, or (c) any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal, state or foreign regulatory body, administrative agency, or other governmental body having jurisdiction over Company or any of Company’s properties or assets; (vii) no further authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders or any lender of Company is required to be obtained by Company for the issuance of the Note to Investor or the entering into of the Transaction Documents; (viii) none of Company’s filings with the SEC contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading; (ix) Company has filed all reports, schedules, forms, statements and other documents required to be filed by Company with the SEC under the 1934 Act on a timely basis or has received a valid extension of such time of filing and has filed any such report, schedule, form, statement or other document prior to the expiration of any such extension; (x) there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of Company, threatened against or affecting Company before or by any governmental authority or non- governmental department, commission, board, bureau, agency or instrumentality or any other person, wherein an unfavorable decision, ruling or finding would have a material adverse effect on Company or which would adversely affect the validity or enforceability of, or the authority or ability of Company to perform its obligations under, any of the Transaction Documents; (xi) Company has not consummated any financing transaction that has not been disclosed in a periodic filing or current report with the SEC under the 1934 Act; (xii) Company is not, nor has it been at any time in the previous twelve (12) months, a “Shell Company,” as such type of “issuer” is described in Rule 144(i)(1) under the 1933 Act; (xiii) with respect to any commissions, placement agent or finder’s fees or similar payments that will or would become due and owing by Company to any person or entity as a result of this Agreement or the transactions contemplated hereby (“Broker Fees”), any such Broker Fees will be made in full compliance with all applicable laws and regulations and only to a person or entity that is a registered investment adviser or registered broker-dealer; (xiv) Investor shall have no obligation with respect to any Broker Fees or with respect to any claims made by or on behalf of other persons for fees of a type contemplated in this subsection that may be due in connection with the transactions contemplated hereby and Company shall indemnify and hold harmless each of Investor, Investor’s employees, officers, directors, stockholders, members, managers, agents, and partners, and their respective affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorneys’ fees) and expenses suffered in respect of any such claimed Broker Fees; (xv) neither Investor nor any of its officers, directors, stockholders, members, managers, employees, agents or representatives has made any representations or warranties to Company or any of its officers, directors, employees, agents or representatives except as expressly set forth in the Transaction Documents and, in making its decision to enter into the transactions contemplated by the Transaction Documents, Company is not relying on any representation, warranty, covenant or promise of Investor or its officers, directors, members, managers, employees, agents or representatives other than as set forth in the Transaction Documents; (xvi) Company acknowledges that the State of Utah has a reasonable relationship and sufficient contacts to the transactions contemplated by the Transaction Documents and any dispute that may arise related thereto such that the laws and venue of the State of Utah, as set forth more specifically in Section 8.2 below, shall be applicable to the Transaction Documents and the transactions contemplated therein; and (xvii) Company has performed due diligence and background research on Investor and its affiliates including, without limitation, John M. Fife, and, to its satisfaction, has made inquiries with respect to all matters Company may consider relevant to the undertakings and relationships contemplated by the Transaction Documents including, among other things, the following: http://investing.businessweek.com/research/stocks/people/person.asp?personId=7505107&ticker=UAHC; SEC Civil Case No. 07-C-0347 (N.D. Ill.); SEC Civil Action No. 07-CV-347 (N.D. Ill.); and FINRA Case #2011029203701. In addition, various affiliates of Investor are involved in ongoing litigation with the SEC regarding broker-dealer registration (see SEC Civil Case No. 1:20-cv-05227 (N.D. Ill.)). Company, being aware of the matters described in subsection (xvii) above, acknowledges and agrees that such matters, or any similar matters, have no bearing on the transactions contemplated by the Transaction Documents and covenants and agrees it will not use any such information as a defense to performance of its obligations under the Transaction Documents or in any attempt to avoid, modify or reduce such obligations.

 

2

 

4. Company Covenants. Until all of Company’s obligations under all of the Transaction Documents are paid and performed in full, or within the timeframes otherwise specifically set forth below, Company will at all times comply with the following covenants: (i) so long as Investor beneficially owns the Note and for at least twenty (20) Trading Days (as defined in the Note) thereafter, Company will timely file on the applicable deadline all reports required to be filed with the SEC pursuant to Sections 13 or 15(d) of the 1934 Act, and will take all reasonable action under its control to ensure that adequate current public information with respect to Company, as required in accordance with Rule 144 of the 1933 Act, is publicly available, and will not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination; (ii) the Common Stock shall be listed or quoted for trading on either NYSE or Nasdaq; (iii) trading in Company’s Common Stock will not be suspended, halted, chilled, frozen, reach zero bid or otherwise cease trading on Company’s principal trading market; (iv) Company will not make any Restricted Issuance (as defined below) without Investor’s prior written consent, which consent may be granted or withheld in Investor’s sole and absolute discretion; (v) Company will not enter into any agreement or otherwise agree to any covenant, condition or obligation that locks up, prohibits or otherwise restricts Company’s ability to issue shares of Common Stock for a period of more than sixty (60) days; and (vi) Company will not enter into any financing transaction with John Kirkland or any entity owned by or affiliated with John Kirkland. For purposes hereof, the term “Restricted Issuance” means any issuance of any Company securities that (A) have or may have conversion rights of any kind, contingent, conditional or otherwise, in which the number of shares that may be issued pursuant to such conversion right varies with the market price of the Common Stock, or (B) are or may become convertible into Common Stock (including without limitation convertible debt, warrants or convertible preferred stock), with a conversion price that varies with the market price of the Common Stock, even if such security only becomes convertible following an event of default, the passage of time, or another trigger event or condition. For avoidance of doubt, the issuance of shares of Common Stock under, pursuant to, in exchange for or in connection with any contract or instrument, whether convertible or not, is deemed a Restricted Issuance for purposes hereof if the number of shares of Common Stock to be issued is based upon or related in any way to the market price of the Common Stock, including, but not limited to, Common Stock issued in connection with a Section 3(a)(9) exchange, a Section 3(a)(10) settlement, or any other similar settlement or exchange.

 

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5. Conditions to Company’s Obligation to Sell. The obligation of Company hereunder to issue and sell the Note to Investor at the Closing is subject to the satisfaction, on or before the Closing Date, of each of the following conditions:

 

5.1.    Investor shall have executed this Agreement and delivered the same to Company.

 

5.2.    Investor shall have delivered the Purchase Price to Company in accordance with Section 1.2 above.

 

6. Conditions to Investor’s Obligation to Purchase. The obligation of Investor hereunder to purchase the Note at the Closing is subject to the satisfaction, on or before the Closing Date, of each of the following conditions, provided that these conditions are for Investor’s sole benefit and may be waived by Investor at any time in its sole discretion:

 

6.1.    Company shall have executed this Agreement and the Note and delivered the same to Investor.

 

6.2.    Company shall have delivered to Investor a fully executed Secretary’s Certificate substantially in the form attached hereto as Exhibit B evidencing Company’s approval of the Transaction Documents.

 

6.3.    Company shall have delivered to Investor fully executed copies of all other Transaction Documents required to be executed by Company herein or therein.

 

7. Terms of Future Financings. So long as the Note is outstanding, upon any issuance by Company of any security with any term or condition more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to Investor in the Transaction Documents, then Company shall notify Investor of such additional or more favorable term and such term, at Investor’s option, shall become a part of the Transaction Documents for the benefit of Investor. Additionally, if Company fails to notify Investor of any such additional or more favorable term, but Investor becomes aware that Company has granted such a term to any third party, Investor may notify Company of such additional or more favorable term and such term shall become a part of the Transaction Documents retroactive to the date on which such term was granted to the applicable third party. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion rights, interest rates, original issue discounts, stock sale price, conversion price per share, warrant coverage, warrant exercise price, and anti-dilution/conversion and exercise price resets.

 

8. Miscellaneous. The provisions set forth in this Section 8 shall apply to this Agreement, as well as all other Transaction Documents as if these terms were fully set forth therein; provided, however, that in the event there is a conflict between any provision set forth in this Section 8 and any provision in any other Transaction Document, the provision in such other Transaction Document shall govern.

 

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8.1.    Arbitration of Claims. The parties shall submit all Claims (as defined in Exhibit C) arising under this Agreement or any other Transaction Document or any other agreement between the parties and their affiliates or any Claim relating to the relationship of the parties to binding arbitration pursuant to the arbitration provisions set forth in Exhibit C attached hereto (the “Arbitration Provisions”). For the avoidance of doubt, the parties agree that the injunction described in Section 8.3 below may be pursued in an arbitration that is separate and apart from any other arbitration regarding all other Claims arising under the Transaction Documents. The parties hereby acknowledge and agree that the Arbitration Provisions are unconditionally binding on the parties hereto and are severable from all other provisions of this Agreement. By executing this Agreement, Company represents, warrants and covenants that Company has reviewed the Arbitration Provisions carefully, consulted with legal counsel about such provisions (or waived its right to do so), understands that the Arbitration Provisions are intended to allow for the expeditious and efficient resolution of any dispute hereunder, agrees to the terms and limitations set forth in the Arbitration Provisions, and that Company will not take a position contrary to the foregoing representations. Company acknowledges and agrees that Investor may rely upon the foregoing representations and covenants of Company regarding the Arbitration Provisions.

 

8.2.    Governing Law; Venue. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Utah. Each party consents to and expressly agrees that the exclusive venue for arbitration of any dispute arising out of or relating to any Transaction Document or the relationship of the parties or their affiliates shall be in Salt Lake County, Utah. Without modifying the parties’ obligations to resolve disputes hereunder pursuant to the Arbitration Provisions, for any litigation arising in connection with any of the Transaction Documents, each party hereto hereby (i) consents to and expressly submits to the exclusive personal jurisdiction of any state or federal court sitting in Salt Lake County, Utah, (ii) expressly submits to the exclusive venue of any such court for the purposes hereof, (iii) agrees to not bring any such action outside of any state or federal court sitting in Salt Lake County, Utah, and (iv) waives any claim of improper venue and any claim or objection that such courts are an inconvenient forum or any other claim, defense or objection to the bringing of any such proceeding in such jurisdiction or to any claim that such venue of the suit, action or proceeding is improper. Finally, Company covenants and agrees to name Investor as a party in interest in, and provide written notice to Investor in accordance with Section 8.9 below prior to bringing or filing, any action that is related in any way to the Transaction Documents or any transaction contemplated herein or therein, and further agrees to timely name Investor as a party to any such action. Company acknowledges that the governing law and venue provisions set forth in this Section 8.2 are material terms to induce Investor to enter into the Transaction Documents and that but for Company’s agreements set forth in this Section 8.2 Investor would not have entered into the Transaction Documents.

 

8.3.   Specific Performance. Company acknowledges and agrees that Investor may suffer irreparable harm in the event that Company fails to perform any material provision of this Agreement or any of the other Transaction Documents in accordance with its specific terms. It is accordingly agreed that Investor shall be entitled to one or more injunctions to prevent or cure breaches of the provisions of this Agreement or such other Transaction Document and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which the Investor may be entitled under the Transaction Documents, at law or in equity. Company specifically agrees that following an Event of Default (as defined in the Note) under the Note, Investor shall have the right to seek and receive injunctive relief from a court or an arbitrator prohibiting Company from issuing any of its common or preferred stock to any party unless the Note is being paid in full simultaneously with such issuance. Company specifically acknowledges that Investor’s right to obtain specific performance constitutes bargained for leverage and that the loss of such leverage would result in irreparable harm to Investor. For the avoidance of doubt, in the event Investor seeks to obtain an injunction from a court or an arbitrator against Company or specific performance of any provision of any Transaction Document, such action shall not be a waiver of any rightof Investor under any Transaction Document, at law, or in equity, including without limitation its rights to arbitrate any Claim pursuant to the terms of the Transaction Documents, nor shall Investor’s pursuit of an injunction prevent Investor, under the doctrines of claim preclusion, issues preclusion, res judicata or other similar legal doctrines, from pursuing other Claims in the future in a separate arbitration.

 

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8.4.   Counterparts. Each Transaction Document may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. The parties acknowledge and agree that this Agreement and all other Transaction Documents may be executed by electronic signature, which shall be considered as an original signature for all purposes and shall have the same force and effect as an original signature. The parties hereto confirm that any electronic copy of another party’s executed counterpart of a Transaction Document (or such party’s signature page thereof) will be deemed to be an executed original thereof.

 

8.5.    Headings. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.

 

8.6.    Severability. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

 

8.7.    Entire Agreement. This Agreement, together with the other Transaction Documents, contains the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither Company nor Investor makes any representation, warranty, covenant or undertaking with respect to such matters. For the avoidance of doubt, all prior term sheets or other documents between Company and Investor, or any affiliate thereof, related to the transactions contemplated by the Transaction Documents (collectively, “Prior Agreements”), that may have been entered into between Company and Investor, or any affiliate thereof, are hereby null and void and deemed to be replaced in their entirety by the Transaction Documents. To the extent there is a conflict between any term set forth in any Prior Agreement and the term(s) of the Transaction Documents, the Transaction Documents shall govern.

 

8.8.    Amendments. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by both parties hereto.

 

8.9.    Notices. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of: (i) the date delivered, if delivered by personal delivery as against written receipt therefor or by email to an executive officer named below or such officer’s successor, or by facsimile (with successful transmission confirmation which is kept by sending party), (ii) the earlier of the date delivered or the third Trading Day after deposit, postage prepaid, in the United States Postal Service by certified mail, or (iii) the earlier of the date delivered or the third Trading Day after mailing by express courier, with delivery costs and fees prepaid, in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by five (5) calendar days’ advance written notice similarly given to each of the other parties hereto):

 

If to Company:

 

Orbital Energy Group, Inc.

Attn: James O’Neil

 

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1924 Aldine Western

Houston, Texas 77038

 

If to Investor:

 

Streeterville Capital, LLC

Attn: John Fife

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

 

With a copy to (which copy shall not constitute notice):

 

Hansen Black Anderson Ashcraft PLLC

Attn: Jonathan Hansen

3051 West Maple Loop Drive, Suite 325 Lehi, Utah 84043

 

8.10.    Successors and Assigns. This Agreement or any of the severable rights and obligations inuring to the benefit of or to be performed by Investor hereunder may be assigned by Investor to a third party, including its affiliates, in whole or in part, without the need to obtain Company’s consent thereto. Company may not assign its rights or obligations under this Agreement or delegate its duties hereunder, whether directly or indirectly, without the prior written consent of Investor, and any such attempted assignment or delegation shall be null and void.

 

8.11.    Survival. The representations and warranties of Company and the agreements and covenants set forth in this Agreement shall survive the Closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of Investor. Company agrees to indemnify and hold harmless Investor and all its officers, directors, employees, attorneys, and agents for loss or damage arising as a result of or related to any breach or alleged breach by Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.

 

8.12.    Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

8.13.    Investor’s Rights and Remedies Cumulative. All rights, remedies, and powers conferred in this Agreement and the Transaction Documents are cumulative and not exclusive of any other rights or remedies, and shall be in addition to every other right, power, and remedy that Investor may have, whether specifically granted in this Agreement or any other Transaction Document, or existing at law, in equity, or by statute, and any and all such rights and remedies may be exercised from time to time and as often and in such order as Investor may deem expedient.

 

8.14. Attorneys’ Fees and Cost of Collection. In the event any suit, action or arbitration is filed by either party against the other to interpret or enforce any of the Transaction Documents, the unsuccessful party to such action agrees to pay to the prevailing party all costs and expenses, including attorneys’ fees incurred therein, including the same with respect to an appeal. The “prevailing party” shall be the party in whose favor a judgment is entered, regardless of whether judgment is entered on all claims asserted by such party and regardless of the amount of the judgment; or where, due to the assertion of counterclaims, judgments are entered in favor of and against both parties, then the arbitrator shall determine the “prevailing party” by taking into account the relative dollar amounts of the judgments or, if the judgments involve nonmonetary relief, the relative importance and value of such relief. Nothing herein shall restrict or impair an arbitrator’s or a court’s power to award fees and expenses for frivolous or bad faith pleading. If (i) the Note is placed in the hands of an attorney for collection or enforcement prior to commencing arbitration or legal proceedings, or is collected or enforced through any arbitration or legal proceeding, or Investor otherwise takes action to collect amounts due under the Note or to enforce the provisions of the Note, or (ii) there occurs any bankruptcy, reorganization, receivership of Borrower or other proceedings affecting Borrower’s creditors’ rights and involving a claim under the Note; then Borrower shall pay the costs incurred by Investor for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees, expenses, deposition costs, and disbursements.

 

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8.15. Waiver. No waiver of any provision of this Agreement shall be effective unless it is in the form of a writing signed by the party granting the waiver. No waiver of any provision or consent to any prohibited action shall constitute a waiver of any other provision or consent to any other prohibited action, whether or not similar. No waiver or consent shall constitute a continuing waiver or consent or commit a party to provide a waiver or consent in the future except to the extent specifically set forth in writing.

 

8.16.    Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.

 

8.17.    Time is of the Essence. Time is expressly made of the essence with respect to each and every provision of this Agreement and the other Transaction Documents.

 

8.18.    Voluntary Agreement. Company has carefully read this Agreement and each of the other Transaction Documents and has asked any questions needed for Company to understand the terms, consequences and binding effect of this Agreement and each of the other Transaction Documents and fully understand them. Company has had the opportunity to seek the advice of an attorney of Company’s choosing, or has waived the right to do so, and is executing this Agreement and each of the other Transaction Documents voluntarily and without any duress or undue influence by Investor or anyone else.

 

8.19.    Document Imaging. Investor shall be entitled, in its sole discretion, to image or make copies of all or any selection of the agreements, instruments, documents, and items and records governing, arising from or relating to any of Borrower’s loans, including, without limitation, this Agreement and the other Transaction Documents, and Investor may destroy or archive the paper originals. The parties hereto (i) waive any right to insist or require that Investor produce paper originals, (ii) agree that such images shall be accorded the same force and effect as the paper originals, (iii) agree that Investor is entitled to use such images in lieu of destroyed or archived originals for any purpose, including as admissible evidence in any demand, presentment or other proceedings, and (iv) further agree that any executed facsimile (faxed), scanned, emailed, or other imaged copy of this Agreement or any other Transaction Document shall be deemed to be of the same force and effect as the original manually executed document.

 

 

[Remainder of page intentionally left blank; signature page follows]

 

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IN WITNESS WHEREOF, the undersigned Investor and Company have caused this Agreement to be duly executed as of the date first above written.

 

SUBSCRIPTION AMOUNT:  
  $16,065,000.00
Principal Amount of Note:    
   
Purchase Price:  $15,000,000.00

 

   

 

INVESTOR:

 

     
  STREETERVILLE CAPITAL, LLC  

 

 

 

 

 

 

 

 

 

By:

/s/ John M. Fife, President

 

 

 

John M. Fife, President

 

 

 

 

 

 

 

COMPANY:

 

     
  ORBITAL ENERGY GROUP, INC.  

 

 

 

 

 

 

 

 

 

By:

/s/ William Clough 

 

 

Printed Name:

William Clough

 

 

Title:

William Clough 

 

 

 

[Signature Page to Note Purchase Agreement]

 

 

 

ATTACHED EXHIBITS:

 

Exhibit A Note

Exhibit B Secretary’s Certificate
Exhibit C Arbitration Provisions

 

 

 

 

EXHIBIT C

 

ARBITRATION PROVISIONS

 

1. Dispute Resolution. For purposes of this Exhibit C, the term “Claims” means any disputes, claims, demands, causes of action, requests for injunctive relief, requests for specific performance, liabilities, damages, losses, or controversies whatsoever arising from, related to, or connected with the transactions contemplated in the Transaction Documents and any communications between the parties related thereto, including without limitation any claims of mutual mistake, mistake, fraud, misrepresentation, failure of formation, failure of consideration, promissory estoppel, unconscionability, failure of condition precedent, rescission, and any statutory claims, tort claims, contract claims, or claims to void, invalidate or terminate the Agreement (or these Arbitration Provisions (defined below)) or any of the other Transaction Documents. For the avoidance of doubt, Investor’s pursuit of an injunction or other Claim pursuant to these Arbitration Provisions or with a court will not later prevent Investor under the doctrines of claim preclusion, issue preclusion, res judicata or other similar legal doctrines from pursuing other Claims in a separate arbitration in the future. The parties to this Agreement (the “parties”) hereby agree that the Claims may be arbitrated in one or more Arbitrations pursuant to these Arbitration Provisions (one for an injunction or injunctions and a separate one for all other Claims). The term “Claims” specifically excludes a dispute over Calculations. The parties to the Agreement hereby agree that the arbitration provisions set forth in this Exhibit C (“Arbitration Provisions”) are binding on each of them. As a result, any attempt to rescind the Agreement (or these Arbitration Provisions) or declare the Agreement (or these Arbitration Provisions) or any other Transaction Document invalid or unenforceable for any reason is subject to these Arbitration Provisions. These Arbitration Provisions shall also survive any termination or expiration of the Agreement. Any capitalized term not defined in these Arbitration Provisions shall have the meaning set forth in the Agreement.

 

2. Arbitration. Except as otherwise provided herein, all Claims must be submitted to arbitration (“Arbitration”) to be conducted exclusively in Salt Lake County, Utah and pursuant to the terms set forth in these Arbitration Provisions. Subject to the arbitration appeal right provided for in Paragraph 5 below (the “Appeal Right”), the parties agree that the award of the arbitrator rendered pursuant to Paragraph 4 below (the “Arbitration Award”) shall be (a) final and binding upon the parties, (b) the sole and exclusive remedy between them regarding any Claims, counterclaims, issues, or accountings presented or pleaded to the arbitrator, and (c) promptly payable in United States dollars free of any tax, deduction or offset (with respect to monetary awards). Subject to the Appeal Right, any costs or fees, including without limitation attorneys’ fees, incurred in connection with or incident to enforcing the Arbitration Award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. The Arbitration Award shall include default interest (as defined or otherwise provided for in the Note, “Default Interest”) (with respect to monetary awards) at the rate specified in the Note for Default Interest both before and after the Arbitration Award. Judgment upon the Arbitration Award will be entered and enforced by any state or federal court sitting in Salt Lake County, Utah.

 

3. The Arbitration Act. The parties hereby incorporate herein the provisions and procedures set forth in the Utah Uniform Arbitration Act, U.C.A. § 78B‐11‐101 et seq. (as amended or superseded from time to time, the “Arbitration Act”). Notwithstanding the foregoing, pursuant to, and to the maximum extent permitted by, Section 105 of the Arbitration Act, in the event of conflict or variation between the terms of these Arbitration Provisions and the provisions of the Arbitration Act, the terms of these Arbitration Provisions shall control and the parties hereby waive or otherwise agree to vary the effect of all requirements of the Arbitration Act that may conflict with or vary from these Arbitration Provisions.

 

4. Arbitration Proceedings. Arbitration between the parties will be subject to the following:

 

4.1    Initiation of Arbitration. Pursuant to Section 110 of the Arbitration Act, the parties agree that a party may initiate Arbitration by giving written notice to the other party (“Arbitration Notice”) in the same manner that notice is permitted under Section 8.9 of the Agreement; provided, however, that the Arbitration Notice may not be given by email or fax. Arbitration will be deemed initiated as of the date that the Arbitration Notice is deemed delivered to such other party under Section 8.9 of the Agreement (the “Service Date”). After the Service Date, information may be delivered, and notices may be given, by email or fax pursuant to Section 8.9 of the Agreement or any other method permitted thereunder. The Arbitration Notice must describe the nature of the controversy, the remedies sought, and the election to commence Arbitration proceedings. All Claims in the Arbitration Notice must be pleaded consistent with the Utah Rules of Civil Procedure.

 

 

 

4.2 Selection and Payment of Arbitrator.

 

(a)    Within ten (10) calendar days after the Service Date, Investor shall select and submit to Company the names of three (3) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Services ( http://www.utahadrservices.com) (such three (3) designated persons hereunder are referred to herein as the “Proposed Arbitrators”). For the avoidance of doubt, each Proposed Arbitrator must be qualified as a “neutral” with Utah ADR Services. Within five (5) calendar days after Investor has submitted to Company the names of the Proposed Arbitrators, Company must select, by written notice to Investor, one (1) of the Proposed Arbitrators to act as the arbitrator for the parties under these Arbitration Provisions. If Company fails to select one of the Proposed Arbitrators in writing within such 5‐day period, then Investor may select the arbitrator from the Proposed Arbitrators by providing written notice of such selection to Company.

 

(b) If Investor fails to submit to Company the Proposed Arbitrators within ten (10) calendar days after the Service Date pursuant to subparagraph (a) above, then Company may at any time prior to Investor so designating the Proposed Arbitrators, identify the names of three (3) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Service by written notice to Investor. Investor may then, within five (5) calendar days after Company has submitted notice of its Proposed Arbitrators to Investor, select, by written notice to Company, one (1) of the Proposed Arbitrators to act as the arbitrator for the parties under these Arbitration Provisions. If Investor fails to select in writing and within such 5‐day period one (1) of the three (3) Proposed Arbitrators selected by Company, then Company may select the arbitrator from its three (3) previously selected Proposed Arbitrators by providing written notice of such selection to Investor.

 

(c)    If a Proposed Arbitrator chosen to serve as arbitrator declines or is otherwise unable to serve as arbitrator, then the party that selected such Proposed Arbitrator may select one (1) of the other three (3) Proposed Arbitrators within three (3) calendar days of the date the chosen Proposed Arbitrator declines or notifies the parties he or she is unable to serve as arbitrator. If all three (3) Proposed Arbitrators decline or are otherwise unable to serve as arbitrator, then the arbitrator selection process shall begin again in accordance with this Paragraph 4.2.

 

(d)    The date that the Proposed Arbitrator selected pursuant to this Paragraph 4.2 agrees in writing (including via email) delivered to both parties to serve as the arbitrator hereunder is referred to herein as the “Arbitration Commencement Date”. If an arbitrator resigns or is unable to act during the Arbitration, a replacement arbitrator shall be chosen in accordance with this Paragraph 4.2 to continue the Arbitration. If Utah ADR Services ceases to exist or to provide a list of neutrals and there is no successor thereto, then the arbitrator shall be selected under the then prevailing rules of the American Arbitration Association.

 

(e)    Subject to Paragraph 4.10 below, the cost of the arbitrator must be paid equally by both parties. Subject to Paragraph 4.10 below, if one party refuses or fails to pay its portion of the arbitrator fee, then the other party can advance such unpaid amount (subject to the accrual of Default Interest thereupon), with such amount being added to or subtracted from, as applicable, the Arbitration Award.

 

4.3    Applicability of Certain Utah Rules. The parties agree that the Arbitration shall be conducted generally in accordance with the Utah Rules of Civil Procedure and the Utah Rules of Evidence. More specifically, the Utah Rules of Civil Procedure shall apply, without limitation, to the filing of any pleadings, motions or memoranda, the conducting of discovery, and the taking of any depositions. The Utah Rules of Evidence shall apply to any hearings, whether telephonic or in person, held by the arbitrator. Notwithstanding the foregoing, it is the parties’ intent that the incorporation of such rules will in no event supersede these Arbitration Provisions. In the event of any conflict between the Utah Rules of Civil Procedure or the Utah Rules of Evidence and these Arbitration Provisions, these Arbitration Provisions shall control.

 

4.4    Answer and Default. An answer and any counterclaims to the Arbitration Notice shall be required to be delivered to the party initiating the Arbitration within twenty (20) calendar days after the Arbitration Commencement Date. If an answer is not delivered by the required deadline, the arbitrator must provide written notice to the defaulting party stating that the arbitrator will enter a default award against such party if such party does not file an answer within five (5) calendar days of receipt of such notice. If an answer is not filed within the five (5) day extension period, the arbitrator must render a default award, consistent with the relief requested in the Arbitration Notice, against a party that fails to submit an answer within such time period.

 

 

 

4.5    Related Litigation. The party that delivers the Arbitration Notice to the other party shall have the option to also commence concurrent legal proceedings with any state or federal court sitting in Salt Lake County, Utah (“Litigation Proceedings”), subject to the following: (a) the complaint in the Litigation Proceedings is to be substantially similar to the claims set forth in the Arbitration Notice, provided that an additional cause of action to compel arbitration will also be included therein, (b) so long as the other party files an answer to the complaint in the Litigation Proceedings and an answer to the Arbitration Notice, the Litigation Proceedings will be stayed pending an Arbitration Award (or Appeal Panel Award (defined below), as applicable) hereunder, (c) if the other party fails to file an answer in the Litigation Proceedings or an answer in the Arbitration proceedings, then the party initiating Arbitration shall be entitled to a default judgment consistent with the relief requested, to be entered in the Litigation Proceedings, and (d) any legal or procedural issue arising under the Arbitration Act that requires a decision of a court of competent jurisdiction may be determined in the Litigation Proceedings. Any award of the arbitrator (or of the Appeal Panel (defined below)) may be entered in such Litigation Proceedings pursuant to the Arbitration Act.

 

4.6    Discovery. Pursuant to Section 118(8) of the Arbitration Act, the parties agree that discovery shall be conducted as follows:

 

(a)    Written discovery will only be allowed if the likely benefits of the proposed written discovery outweigh the burden or expense thereof, and the written discovery sought is likely to reveal information that will satisfy a specific element of a claim or defense already pleaded in the Arbitration. The party seeking written discovery shall always have the burden of showing that all of the standards and limitations set forth in these Arbitration Provisions are satisfied. The scope of discovery in the Arbitration proceedings shall also be limited as follows:

 

(i) To facts directly connected with the transactions contemplated by the Agreement.

 

(ii)    To facts and information that cannot be obtained from another source or in another manner that is more convenient, less burdensome or less expensive than in the manner requested.

 

(b) No party shall be allowed (i) more than fifteen (15) interrogatories (including discrete subparts), (ii) more than fifteen (15) requests for admission (including discrete subparts), (iii) more than ten (10) document requests (including discrete subparts), or (iv) more than three (3) depositions (excluding expert depositions) for a maximum of seven (7) hours per deposition. The costs associated with depositions will be borne by the party taking the deposition. The party defending the deposition will submit a notice to the party taking the deposition of the estimated attorneys’ fees that such party expects to incur in connection with defending the deposition. If the party defending the deposition fails to submit an estimate of attorneys’ fees within five (5) calendar days of its receipt of a deposition notice, then such party shall be deemed to have waived its right to the estimated attorneys’ fees. The party taking the deposition must pay the party defending the deposition the estimated attorneys’ fees prior to taking the deposition, unless such obligation is deemed to be waived as set forth in the immediately preceding sentence. If the party taking the deposition believes that the estimated attorneys’ fees are unreasonable, such party may submit the issue to the arbitrator for a decision. All depositions will be taken in Utah.

 

(c) All discovery requests (including document production requests included in deposition notices) must be submitted in writing to the arbitrator and the other party. The party submitting the written discovery requests must include with such discovery requests a detailed explanation of how the proposed discovery requests satisfy the requirements of these Arbitration Provisions and the Utah Rules of Civil Procedure. The receiving party will then be allowed, within five (5) calendar days of receiving the proposed discovery requests, to submit to the arbitrator an estimate of the attorneys’ fees and costs associated with responding to such written discovery requests and a written challenge to each applicable discovery request. After receipt of an estimate of attorneys’ fees and costs and/or challenge(s) to one or more discovery requests, consistent with subparagraph (c) above, the arbitrator will within three (3) calendar days make a finding as to the likely attorneys’ fees and costs associated with responding to the discovery requests and issue an order that (i) requires the requesting party to prepay the attorneys’ fees and costs associated with responding to the discovery requests, and (ii) requires the responding party to respond to the discovery requests as limited by the arbitrator within twenty‐five (25) calendar days of the arbitrator’s finding with respect to such discovery requests. If a party entitled to submit an estimate of attorneys’ fees and costs and/or a challenge to discovery requests fails to do so within such 5‐day period, the arbitrator will make a finding that (A) there are no attorneys’ fees or costs associated with responding to such discovery requests, and (B) the responding party must respond to such discovery requests (as may be limited by the arbitrator) within twenty‐five (25) calendar days of the arbitrator’s finding with respect to such discovery requests. Any party submitting any written discovery requests, including without limitation interrogatories, requests for production subpoenas to a party or a third party, or requests for admissions, must prepay the estimated attorneys’ fees and costs, before the responding party has any obligation to produce or respond to the same, unless such obligation is deemed waived as set forth above.

 

 

 

(d)    In order to allow a written discovery request, the arbitrator must find that the discovery request satisfies the standards set forth in these Arbitration Provisions and the Utah Rules of Civil Procedure. The arbitrator must strictly enforce these standards. If a discovery request does not satisfy any of the standards set forth in these Arbitration Provisions or the Utah Rules of Civil Procedure, the arbitrator may modify such discovery request to satisfy the applicable standards, or strike such discovery request in whole or in part.

 

(e)    Each party may submit expert reports (and rebuttals thereto), provided that such reports must be submitted within sixty (60) days of the Arbitration Commencement Date. Each party will be allowed a maximum of two (2) experts. Expert reports must contain the following: (i) a complete statement of all opinions the expert will offer at trial and the basis and reasons for them; (ii) the expert’s name and qualifications, including a list of all the expert’s publications within the preceding ten (10) years, and a list of any other cases in which the expert has testified at trial or in a deposition or prepared a report within the preceding ten (10) years; and (iii) the compensation to be paid for the expert’s report and testimony. The parties are entitled to depose any other party’s expert witness one (1) time for no more than four (4) hours. An expert may not testify in a party’s case‐in‐chief concerning any matter not fairly disclosed in the expert report.

 

4.6 Dispositive Motions. Each party shall have the right to submit dispositive motions pursuant Rule 12 or Rule 56 of the Utah Rules of Civil Procedure (a “Dispositive Motion”). The party submitting the Dispositive Motion may, but is not required to, deliver to the arbitrator and to the other party a memorandum in support (the “Memorandum in Support”) of the Dispositive Motion. Within seven (7) calendar days of delivery of the Memorandum in Support, the other party shall deliver to the arbitrator and to the other party a memorandum in opposition to the Memorandum in Support (the “Memorandum in Opposition”). Within seven (7) calendar days of delivery of the Memorandum in Opposition, as applicable, the party that submitted the Memorandum in Support shall deliver to the arbitrator and to the other party a reply memorandum to the Memorandum in Opposition (“Reply Memorandum”). If the applicable party shall fail to deliver the Memorandum in Opposition as required above, or if the other party fails to deliver the Reply Memorandum as required above, then the applicable party shall lose its right to so deliver the same, and the Dispositive Motion shall proceed regardless.

 

4.7    Confidentiality. All information disclosed by either party (or such party’s agents) during the Arbitration process (including without limitation information disclosed during the discovery process or any Appeal (defined below)) shall be considered confidential in nature. Each party agrees not to disclose any confidential information received from the other party (or its agents) during the Arbitration process (including without limitation during the discovery process or any Appeal) unless (a) prior to or after the time of disclosure such information becomes public knowledge or part of the public domain, not as a result of any inaction or action of the receiving party or its agents, (b) such information is required by a court order, subpoena or similar legal duress to be disclosed if such receiving party has notified the other party thereof in writing and given it a reasonable opportunity to obtain a protective order from a court of competent jurisdiction prior to disclosure, or (c) such information is disclosed to the receiving party’s agents, representatives and legal counsel on a need to know basis who each agree in writing not to disclose such information to any third party. Pursuant to Section 118(5) of the Arbitration Act, the arbitrator is hereby authorized and directed to issue a protective order to prevent the disclosure of privileged information and confidential information upon the written request of either party.

 

4.8    Authorization; Timing; Scheduling Order. Subject to all other portions of these Arbitration Provisions, the parties hereby authorize and direct the arbitrator to take such actions and make such rulings as may be necessary to carry out the parties’ intent for the Arbitration proceedings to be efficient and expeditious. Pursuant to Section 120 of the Arbitration Act, the parties hereby agree that an Arbitration Award must be made within one hundred twenty (120) calendar days after the Arbitration Commencement Date. The arbitrator is hereby authorized and directed to hold a scheduling conference within ten (10) calendar days after the Arbitration Commencement Date in order to establish a scheduling order with various binding deadlines for discovery, expert testimony, and the submission of documents by the parties to enable the arbitrator to render a decision prior to the end of such 120‐day period.

 

 

 

4.9    Relief. The arbitrator shall have the right to award or include in the Arbitration Award (or in a preliminary ruling) any relief which the arbitrator deems proper under the circumstances, including, without limitation, specific performance and injunctive relief, provided that the arbitrator may not award exemplary or punitive damages.

 

4.10    Fees and Costs. As part of the Arbitration Award, the arbitrator is hereby directed to require the losing party (the party being awarded the least amount of money by the arbitrator, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any party) to (a) pay the full amount of any unpaid costs and fees of the Arbitration, and (b) reimburse the prevailing party for all reasonable attorneys’ fees, arbitrator costs and fees, deposition costs, other discovery costs, and other expenses, costs or fees paid or otherwise incurred by the prevailing party in connection with the Arbitration.

 

5. Arbitration Appeal.

 

5.1    Initiation of Appeal. Following the entry of the Arbitration Award, either party (the “Appellant”) shall have a period of thirty (30) calendar days in which to notify the other party (the “Appellee”), in writing, that the Appellant elects to appeal (the “Appeal”) the Arbitration Award (such notice, an “Appeal Notice”) to a panel of arbitrators as provided in Paragraph 5.2 below. The date the Appellant delivers an Appeal Notice to the Appellee is referred to herein as the “Appeal Date”. The Appeal Notice must be delivered to the Appellee in accordance with the provisions of Paragraph 4.1 above with respect to delivery of an Arbitration Notice. In addition, together with delivery of the Appeal Notice to the Appellee, the Appellant must also pay for (and provide proof of such payment to the Appellee together with delivery of the Appeal Notice) a bond in the amount of 110% of the sum the Appellant owes to the Appellee as a result of the Arbitration Award the Appellant is appealing. In the event an Appellant delivers an Appeal Notice to the Appellee (together with proof of payment of the applicable bond) in compliance with the provisions of this Paragraph 5.1, the Appeal will occur as a matter of right and, except as specifically set forth herein, will not be further conditioned. In the event a party does not deliver an Appeal Notice (along with proof of payment of the applicable bond) to the other party within the deadline prescribed in this Paragraph 5.1, such party shall lose its right to appeal the Arbitration Award. If no party delivers an Appeal Notice (along with proof of payment of the applicable bond) to the other party within the deadline described in this Paragraph 5.1, the Arbitration Award shall be final. The parties acknowledge and agree that any Appeal shall be deemed part of the parties’ agreement to arbitrate for purposes of these Arbitration Provisions and the Arbitration Act.

 

5.2    Selection and Payment of Appeal Panel. In the event an Appellant delivers an Appeal Notice to the Appellee (together with proof of payment of the applicable bond) in compliance with the provisions of Paragraph 5.1 above, the Appeal will be heard by a three (3) person arbitration panel (the “Appeal Panel”).

 

(a) Within ten (10) calendar days after the Appeal Date, the Appellee shall select and submit to the Appellant the names of five (5) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Services (http://www.utahadrservices.com) (such five (5) designated persons hereunder are referred to herein as the “Proposed Appeal Arbitrators”). For the avoidance of doubt, each Proposed Appeal Arbitrator must be qualified as a “neutral” with Utah ADR Services, and shall not be the arbitrator who rendered the Arbitration Award being appealed (the “Original Arbitrator”). Within five (5) calendar days after the Appellee has submitted to the Appellant the names of the Proposed Appeal Arbitrators, the Appellant must select, by written notice to the Appellee, three (3) of the Proposed Appeal Arbitrators to act as the members of the Appeal Panel. If the Appellant fails to select three (3) of the Proposed Appeal Arbitrators in writing within such 5‐day period, then the Appellee may select such three (3) arbitrators from the Proposed Appeal Arbitrators by providing written notice of such selection to the Appellant.

 

(b)    If the Appellee fails to submit to the Appellant the names of the Proposed Appeal Arbitrators within ten (10) calendar days after the Appeal Date pursuant to subparagraph (a) above, then the Appellant may at any time prior to the Appellee so designating the Proposed Appeal Arbitrators, identify the names of five (5) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Service (none of whom may be the Original Arbitrator) by written notice to the Appellee. The Appellee may then, within five (5) calendar days after the Appellant has submitted notice of its selected arbitrators to the Appellee, select, by written notice to the Appellant, three (3) of such selected arbitrators to serve on the Appeal Panel. If the Appellee fails to select in writing within such 5‐day period three (3) of the arbitrators selected by the Appellant to serve as the members of the Appeal Panel, then the Appellant may select the three (3) members of the Appeal Panel from the Appellant’s list of five (5) arbitrators by providing written notice of such selection to the Appellee.

 

 

 

(c)    If a selected Proposed Appeal Arbitrator declines or is otherwise unable to serve, then the party that selected such Proposed Appeal Arbitrator may select one (1) of the other five (5) designated Proposed Appeal Arbitrators within three (3) calendar days of the date a chosen Proposed Appeal Arbitrator declines or notifies the parties he or she is unable to serve as an arbitrator. If at least three (3) of the five (5) designated Proposed Appeal Arbitrators decline or are otherwise unable to serve, then the Proposed Appeal Arbitrator selection process shall begin again in accordance with this Paragraph 5.2; provided, however, that any Proposed Appeal Arbitrators who have already agreed to serve shall remain on the Appeal Panel.

 

(d) The date that all three (3) Proposed Appeal Arbitrators selected pursuant to this Paragraph 5.2 agree in writing (including via email) delivered to both the Appellant and the Appellee to serve as members of the Appeal Panel hereunder is referred to herein as the “Appeal Commencement Date”. No later than five (5) calendar days after the Appeal Commencement Date, the Appellee shall designate in writing (including via email) to the Appellant and the Appeal Panel the name of one (1) of the three (3) members of the Appeal Panel to serve as the lead arbitrator in the Appeal proceedings. Each member of the Appeal Panel shall be deemed an arbitrator for purposes of these Arbitration Provisions and the Arbitration Act, provided that, in conducting the Appeal, the Appeal Panel may only act or make determinations upon the approval or vote of no less than the majority vote of its members, as announced or communicated by the lead arbitrator on the Appeal Panel. If an arbitrator on the Appeal Panel ceases or is unable to act during the Appeal proceedings, a replacement arbitrator shall be chosen in accordance with Paragraph 5.2 above to continue the Appeal as a member of the Appeal Panel. If Utah ADR Services ceases to exist or to provide a list of neutrals, then the arbitrators for the Appeal Panel shall be selected under the then prevailing rules of the American Arbitration Association.

 

(d) Subject to Paragraph 5.7 below, the cost of the Appeal Panel must be paid entirely by the Appellant.

 

5.3 Appeal Procedure. The Appeal will be deemed an appeal of the entire Arbitration Award. In conducting the Appeal, the Appeal Panel shall conduct a de novo review of all Claims described or otherwise set forth in the Arbitration Notice. Subject to the foregoing and all other provisions of this Paragraph 5, the Appeal Panel shall conduct the Appeal in a manner the Appeal Panel considers appropriate for a fair and expeditious disposition of the Appeal, may hold one or more hearings and permit oral argument, and may review all previous evidence and discovery, together with all briefs, pleadings and other documents filed with the Original Arbitrator (as well as any documents filed with the Appeal Panel pursuant to Paragraph 5.4(a) below). Notwithstanding the foregoing, in connection with the Appeal, the Appeal Panel shall not permit the parties to conduct any additional discovery or raise any new Claims to be arbitrated, shall not permit new witnesses or affidavits, and shall not base any of its findings or determinations on the Original Arbitrator’s findings or the Arbitration Award.

 

5.4 Timing.

 

(a)    Within seven (7) calendar days of the Appeal Commencement Date, the Appellant (i) shall deliver or cause to be delivered to the Appeal Panel copies of the Appeal Notice, all discovery conducted in connection with the Arbitration, and all briefs, pleadings and other documents filed with the Original Arbitrator (which material Appellee shall have the right to review and supplement if necessary), and (ii) may, but is not required to, deliver to the Appeal Panel and to the Appellee a Memorandum in Support of the Appellant’s arguments concerning or position with respect to all Claims, counterclaims, issues, or accountings presented or pleaded in the Arbitration. Within seven (7) calendar days of the Appellant’s delivery of the Memorandum in Support, as applicable, the Appellee shall deliver to the Appeal Panel and to the Appellant a Memorandum in Opposition to the Memorandum in Support. Within seven (7) calendar days of the Appellee’s delivery of the Memorandum in Opposition, as applicable, the Appellant shall deliver to the Appeal Panel and to the Appellee a Reply Memorandum to the Memorandum in Opposition. If the Appellant shall fail to substantially comply with the requirements of clause (i) of this subparagraph (a), the Appellant shall lose its right to appeal the Arbitration Award, and the Arbitration Award shall be final. If the Appellee shall fail to deliver the Memorandum in Opposition as required above, or if the Appellant shall fail to deliver the Reply Memorandum as required above, then the Appellee or the Appellant, as the case may be, shall lose its right to so deliver the same, and the Appeal shall proceed regardless.

 

 

 

(b)    Subject to subparagraph (a) above, the parties hereby agree that the Appeal must be heard by the Appeal Panel within thirty (30) calendar days of the Appeal Commencement Date, and that the Appeal Panel must render its decision within thirty (30) calendar days after the Appeal is heard (and in no event later than sixty (60) calendar days after the Appeal Commencement Date).

 

5.5    Appeal Panel Award. The Appeal Panel shall issue its decision (the “Appeal Panel Award”) through the lead arbitrator on the Appeal Panel. Notwithstanding any other provision contained herein, the Appeal Panel Award shall (a) supersede in its entirety and make of no further force or effect the Arbitration Award (provided that any protective orders issued by the Original Arbitrator shall remain in full force and effect), (b) be final and binding upon the parties, with no further rights of appeal, (c) be the sole and exclusive remedy between the parties regarding any Claims, counterclaims, issues, or accountings presented or pleaded in the Arbitration, and (d) be promptly payable in United States dollars free of any tax, deduction or offset (with respect to monetary awards). Any costs or fees, including without limitation attorneys’ fees, incurred in connection with or incident to enforcing the Appeal Panel Award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. The Appeal Panel Award shall include Default Interest (with respect to monetary awards) at the rate specified in the Note for Default Interest both before and after the Arbitration Award. Judgment upon the Appeal Panel Award will be entered and enforced by a state or federal court sitting in Salt Lake County, Utah.

 

5.6    Relief. The Appeal Panel shall have the right to award or include in the Appeal Panel Award any relief which the Appeal Panel deems proper under the circumstances, including, without limitation, specific performance and injunctive relief, provided that the Appeal Panel may not award exemplary or punitive damages.

 

5.7    Fees and Costs. As part of the Appeal Panel Award, the Appeal Panel is hereby directed to require the losing party (the party being awarded the least amount of money by the arbitrator, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any party) to (a) pay the full amount of any unpaid costs and fees of the Arbitration and the Appeal Panel, and

 

(b) reimburse the prevailing party (the party being awarded the most amount of money by the Appeal Panel, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any part) the reasonable attorneys’ fees, arbitrator and Appeal Panel costs and fees, deposition costs, other discovery costs, and other expenses, costs or fees paid or otherwise incurred by the prevailing party in connection with the Arbitration (including without limitation in connection with the Appeal).

 

6. Miscellaneous.

 

6.1 Severability. If any part of these Arbitration Provisions is found to violate or be illegal under applicable law, then such provision shall be modified to the minimum extent necessary to make such provision enforceable under applicable law, and the remainder of the Arbitration Provisions shall remain unaffected and in full force and effect.

 

6.2    Governing Law. These Arbitration Provisions shall be governed by the laws of the State of Utah without regard to the conflict of laws principles therein.

 

6.3    Interpretation. The headings of these Arbitration Provisions are for convenience of reference only and shall not form part of, or affect the interpretation of, these Arbitration Provisions.

 

6.4    Waiver. No waiver of any provision of these Arbitration Provisions shall be effective unless it is in the form of a writing signed by the party granting the waiver.

 

6.5    Time is of the Essence. Time is expressly made of the essence with respect to each and every provision of these Arbitration Provisions.

 

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PROMISSORY NOTE

 

Effective Date: December 20, 2021  U.S. $16,065,000.00

        

FOR VALUE RECEIVED, ORBITAL ENERGY GROUP, INC., a Colorado corporation (“Borrower”), promises to pay to STREETERVILLE CAPITAL, LLC, a Utah limited liability company, or its successors or assigns (“Lender”), $16,065,000.00 and any interest, fees, charges, and late fees accrued hereunder on the date that is eighteen (18) months after the Purchase Price Date (the “Maturity Date”) in accordance with the terms set forth herein and to pay interest on the Outstanding Balance at the rate of nine percent (9%) per annum from the Purchase Price Date (as defined below) until the same is paid in full. All interest calculations hereunder shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months, shall compound daily and shall be payable in accordance with the terms of this Note. This Promissory Note (this “Note”) is issued and made effective as of December 20, 2021 (the “Effective Date”). This Note is issued pursuant to that certain Note Purchase Agreement dated December 20, 2021, as the same may be amended from time to time, by and between Borrower and Lender (the “Purchase Agreement”). Certain capitalized terms used herein are defined in Attachment 1 attached hereto and incorporated herein by this reference.

 

This Note carries an OID of $1,050,000.00. In addition, Borrower agrees to pay $15,000.00 to Lender to cover Lender’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of this Note (the “Transaction Expense Amount”), all of which amount is included in the initial principal balance of this Note. The purchase price for this Note shall be $15,000,000.00 (the “Purchase Price”), computed as follows: $16,065,000.00 original principal balance, less the OID, less the Transaction Expense Amount.

 

1. Payment; Prepayment; Credit Risk Premium.

 

1.1.    Payment. All payments owing hereunder shall be in lawful money of the United States of America and delivered to Lender at the address or bank account furnished by Lender to Borrower for that purpose. All payments shall be applied first to (a) Lender’s reasonable costs of collection, if any, then to (b) fees and charges hereunder, if any, then to (c) accrued and unpaid interest hereunder, and thereafter, to (d) principal hereunder.

 

1.2.    Prepayment. Borrower may pay all or any portion of the Outstanding Balance earlier than it is due; provided that in the event Borrower elects to prepay all or any portion of the Outstanding Balance, it shall pay to Lender 115% of the portion of the Outstanding Balance Borrower elects to prepay. Early payments of less than all principal, fees and interest outstanding will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s remaining obligations hereunder.

 

2. Security. This Note is unsecured.

 

3. Redemption. Beginning on the date that is six (6) months after the Purchase Price Date, Lender shall have the right, exercisable at any time in its sole and absolute discretion, to redeem any amount of this Note up to $1,500,000.00 (such amount, the “Redemption Amount”) per calendar month by providing written notice to Borrower (each, a “Redemption Notice”). For the avoidance of doubt, Lender may submit to Borrower one (1) or more Redemption Notices in any given calendar month so long as the aggregate amount being redeemed in such month does not exceed $1,500,000.00. Upon receipt of any Redemption Notice, Borrower shall pay the applicable Redemption Amount in cash to Lender within three (3) Trading Day of Borrower’s receipt of such Redemption Notice.

 

4. Trigger Events; Defaults; Remedies.

 

 

 

4.1.    Trigger Events. The following are trigger events under this Note (each, a “Trigger Event”): (a) Borrower fails to pay any principal, interest, fees, charges, or any other amount when due and payable hereunder; (b) a receiver, trustee or other similar official shall be appointed over Borrower or a material part of its assets and such appointment shall remain uncontested for twenty (20) days or shall not be dismissed or discharged within sixty (60) days; (c) Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any; (d) Borrower makes a general assignment for the benefit of creditors; (e) Borrower files a petition for relief under any bankruptcy, insolvency or similar law (domestic or foreign); (f) an involuntary bankruptcy proceeding is commenced or filed against Borrower; (g) Borrower or any pledgor, trustor, or guarantor of this Note defaults or otherwise fails to observe or perform any covenant, obligation, condition or agreement of Borrower or such pledgor, trustor, or guarantor contained herein or in any other Transaction Document (as defined in the Purchase Agreement), other than those specifically set forth in this Section 4.1 and Section 4 of the Purchase Agreement; (h) any representation, warranty or other statement made or furnished by or on behalf of Borrower or any pledgor, trustor, or guarantor of this Note to Lender herein, in any Transaction Document, or otherwise in connection with the issuance of this Note is false, incorrect, incomplete or misleading in any material respect when made or furnished; (i) the occurrence of a Fundamental Transaction without Lender’s prior written consent; (j) Borrower effectuates a reverse split of its Common Stock without twenty (20) Trading Days prior written notice to Lender; (k) any money judgment, writ or similar process is entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets for more than $500,000.00, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) calendar days unless otherwise consented to by Lender; (l) Borrower fails to observe or perform any covenant set forth in Section 4 of the Purchase Agreement; or (m) Borrower, any affiliate of Borrower, or any pledgor, trustor, or guarantor of this Note breaches any covenant or other term or condition contained in any Other Agreements.

 

4.2.    Trigger Event Remedies. At any time following the occurrence of any Trigger Event, Lender may, at its option, increase the Outstanding Balance by applying the Trigger Effect (subject to the limitation set forth below).

 

4.3. Defaults. At any time following the occurrence of a Trigger Event, Lender may, at its option, send written notice to Borrower demanding that Borrower cure the Trigger Event within five (5) Trading Days. If Borrower fails to cure the Trigger Event within the required five (5) Trading Day cure period, the Trigger Event will automatically become an event of default hereunder (each, an “Event of Default”).

 

4.4.    Default Remedies. At any time and from time to time following the occurrence of any Event of Default, Lender may accelerate this Note by written notice to Borrower, with the Outstanding Balance becoming immediately due and payable in cash at the Mandatory Default Amount. Notwithstanding the foregoing, upon the occurrence of any Trigger Event described in clauses (b), (c), (d), (e) or (f) of Section 4.1, an Event of Default will be deemed to have occurred and the Outstanding Balance as of the date of the occurrence of such Trigger Event shall become immediately and automatically due and payable in cash at the Mandatory Default Amount, without any written notice required by Lender for the Trigger Event to become an Event of Default. At any time following the occurrence of any Event of Default, upon written notice given by Lender to Borrower, interest shall accrue on the Outstanding Balance beginning on the date the applicable Event of Default occurred at an interest rate equal to the lesser of twenty-two percent (22%) per annum or the maximum rate permitted under applicable law (“Default Interest”). In connection with acceleration described herein, Lender need not provide, and Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and Lender may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Lender at any time prior to payment hereunder and Lender shall have all rights as a holder of the Note until such time, if any, as Lender receives full payment pursuant to this Section 4.4. No such rescission or annulment shall affect any subsequent Trigger Event or Event of Default or impair any right consequent thereon.

 

 

 

5.    Unconditional Obligation; No Offset. Borrower acknowledges that this Note is an unconditional, valid, binding and enforceable obligation of Borrower not subject to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has or may have hereafter against Lender, its successors and assigns, and agrees to make the payments called for herein in accordance with the terms of this Note.

 

6. Waiver. No waiver of any provision of this Note shall be effective unless it is in the form of a writing signed by the party granting the waiver. No waiver of any provision or consent to any prohibited action shall constitute a waiver of any other provision or consent to any other prohibited action, whether or not similar. No waiver or consent shall constitute a continuing waiver or consent or commit a party to provide a waiver or consent in the future except to the extent specifically set forth in writing.

 

7. Governing Law; Venue. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Utah. The provisions set forth in the Purchase Agreement to determine the proper venue for any disputes are incorporated herein by this reference.

 

8.    Arbitration of Disputes. By its issuance or acceptance of this Note, each party agrees to be bound by the Arbitration Provisions (as defined in the Purchase Agreement) set forth as an exhibit to the Purchase Agreement.

 

9. Cancellation. After repayment of the entire Outstanding Balance, this Note shall be deemed paid in full, shall automatically be deemed canceled, and shall not be reissued.

 

10.    Amendments. The prior written consent of both parties hereto shall be required for any change or amendment to this Note.

 

11.    Assignments. Borrower may not assign this Note without the prior written consent of Lender. This Note may be offered, sold, assigned or transferred by Lender to any of its affiliates without the consent of Borrower, so long as such transfer is in accordance with applicable federal and state securities laws.

 

12.    Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with the subsection of the Purchase Agreement titled “Notices.”

 

13.    Liquidated Damages. Lender and Borrower agree that in the event Borrower fails to comply with any of the terms or provisions of this Note, Lender’s damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’ inability to predict future interest rates, future share prices, future trading volumes and other relevant factors. Accordingly, Lender and Borrower agree that any fees, balance adjustments, Default Interest or other charges assessed under this Note are not penalties but instead are intended by the parties to be, and shall be deemed, liquidated damages.

 

14.    Severability. If any part of this Note is construed to be in violation of any law, such part shall be modified to achieve the objective of Borrower and Lender to the fullest extent permitted by law and the balance of this Note shall remain in full force and effect.

 

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the Restatement Date.

 

 

BORROWER:

 

ORBITAL ENERGY GROUP, INC.

 

 

 

sig01.jpg

 

 

 

 

 

By:

 

 

Name:

William Clough

 

 

Title:

Executive Chairman 

 

 

 

ACKNOWLEDGED, ACCEPTED AND AGREED:

 

LENDER:

 

STREETERVILLE CAPITAL, LLC

 
By:
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  John M. Fife, President  

 

[Signature Page to Promissory Note]

 

 

 

ATTACHMENT 1 DEFINITIONS

 

 

For purposes of this Note, the following terms shall have the following meanings:

 

A1. “Fundamental Transaction” means that (a) (i) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consolidate or merge with or into (whether or not Borrower or any of its subsidiaries is the surviving corporation) any other person or entity, or (ii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other person or entity, or (iii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, allow any other person or entity to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock of Borrower held by the person or persons making or party to, or associated or affiliated with the persons or entities making or party to, such purchase, tender or exchange offer), or (iv) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other person or entity whereby such other person or entity acquires more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock of Borrower held by the other persons or entities making or party to, or associated or affiliated with the other persons or entities making or party to, such stock or share purchase agreement or other business combination), or (v) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize, recapitalize or reclassify the Common Stock, other than an increase in the number of authorized shares of Borrower’s Common Stock, or reverse splits of its outstanding and authorized shares of Common Stock to meet Nasdaq listing requirements or (b) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of Borrower.

 

A2. “Major Trigger Event” means any Trigger Event occurring under Sections 4.1(a) or 4.1(l).

 

A3. “Mandatory Default Amount” means the Outstanding Balance following the application of the Trigger Effect.

 

A4. “Market Capitalization” means a number equal to (a) the average VWAP of the Common Stock for the immediately preceding fifteen (15) Trading Days, multiplied by (b) the aggregate number of outstanding Common Stock as reported on Borrower’s most recently filed Form 10-Q or Form 10-K.

 

A5. “Minor Trigger Event” means any Trigger Event that is not a Major Trigger Event. A6. “OID” means an original issue discount.

 

A7. “Other Agreements” means, collectively, (a) all existing and future agreements and instruments between, among or by Borrower (or an affiliate), on the one hand, and Lender (or an affiliate), on the other hand, and

(b) any financing agreement or a material agreement that affects Borrower’s ongoing business operations.

 

A8. “Outstanding Balance” means as of any date of determination, the Purchase Price, as reduced or increased, as the case may be, pursuant to the terms hereof for payment, offset, or otherwise, plus the OID, the Transaction Expense Amount, accrued but unpaid interest, collection and enforcements costs (including attorneys’ fees) incurred by Lender, transfer, stamp, issuance and similar taxes and fees incurred under this Note.

 

A9. “Purchase Price Date” means the date the Purchase Price is delivered by Lender to Borrower.

 

A10. “Trigger Effect” means multiplying the Outstanding Balance as of the date the applicable Trigger Event occurred by (a) fifteen percent (15%) for each occurrence of any Major Trigger Event, or (b) five percent (5%) for each occurrence of any Minor Trigger Event, and then adding the resulting product to the Outstanding Balance as of the date the applicable Trigger Event occurred, with the sum of the foregoing then becoming the Outstanding Balance under this Note as of the date the applicable Trigger Event occurred; provided that the Trigger Effect may only be applied three (3) times hereunder with respect to Major Trigger Events and three (3) times hereunder with respect to Minor Trigger Events.

 

 

 

A11. “Trading Day” means any day on which Nasdaq (or such other principal market for the Common Stock) is open for trading.

 

 

 

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ORBITAL ENERGY GROUP, INC.

SECRETARY’ S CERTIFICATE

 

I, Deborah Moen         , hereby certify that I am the duly elected, qualified and acting Secretary of Orbital Energy Group, Inc., a Colorado corporation (“Company”), and I am authorized to execute this Secretary’s Certificate (this “Certificate”) on behalf of Company. This Certificate is delivered in connection with that certain Securities Purchase Agreement dated December 20, 2021 (the “Purchase Agreement”), by and between Company and Streeterville Capital, LLC, a Utah limited liability company.

 

Solely in my capacity as Secretary, I certify that Schedule 1 attached hereto is a true, accurate and complete copy of all of the resolutions adopted by the Board of Directors of Company (the “Resolutions”) approving and authorizing the execution, delivery and performance of the Purchase Agreement and related documents to which Company is a party on the date hereof, and the transactions contemplated thereby. Such Resolutions have not been amended, rescinded or modified since their adoption and remain in effect as of the date hereof.

 

 

IN WITNESS WHEREOF, I have made this Secretary’s Certificate effective as of December 20, 2021.

 

 

Orbital Energy Group, Inc.

 

     
 
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Printed Name:

Deborah Moen   

 

 

Title: Secretary

 

 

 

 

 

 

 

 

 

Schedule 1

 

 

BOARD RESOLUTIONS

 

[attached]

 

 

 

 

 

 

ORBITAL ENERGY GROUP, INC.

RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS

 


 

Effective December 20, 2021

 


 

APPROVAL OF FINANCING

 

WHEREAS, the Board of Directors (the “Board”) of Orbital Energy Group, Inc., a Colorado corporation (“Company”), has determined that it is in the best interests of Company to seek financing in the amount of $15,000,000.00 through the issuance and sale to Streeterville Capital, LLC, a Utah limited liability company (“Investor”), of a Promissory Note (the “Financing”);

 

WHEREAS, the terms of the Financing are reflected in a Securities Purchase Agreement substantially in the form attached hereto as Exhibit A (the “Purchase Agreement”), a Promissory Note issued by Company to Investor in the original principal amount of $16,065,000.00 substantially in the form attached hereto as Exhibit B (the “Note”), and all other agreements, certificates, instruments and documents being or to be executed and delivered under or in connection with the Financing (collectively, the “Financing Documents”); and

 

WHEREAS, the Board, having received and reviewed the Financing Documents, believes that it is in the best interests of Company and its stockholders to approve the Financing and the Financing Documents and authorize the officers of Company to execute such documents.

 

NOW, THEREFORE, BE IT:

 

RESOLVED, that the Financing is hereby approved and determined to be in the best interests of Company and its stockholders;

 

RESOLVED FURTHER, that the form, terms and provisions of the Financing Documents (including all exhibits, schedules and other attachments thereto) are hereby ratified, confirmed and approved);

 

RESOLVED FURTHER, that the Note shall be duly and validly issued upon the issuance and delivery thereof in accordance with the Purchase Agreement;

 

RESOLVED FURTHER, that each of the officers of Company be, and each of them hereby is, authorized to execute and deliver in the name of and on behalf of Company, each of the Financing Documents and any other related agreements (with such additions to, modifications to, or deletions from such documents as the officer approves, such approval to be conclusively evidenced by such execution and delivery), to conform Company’s minute books and other records to the matters set forth in these resolutions, and to take all other actions on behalf of Company as any of them deem necessary, required, or advisable with respect to the matters set forth in these resolutions;

 

RESOLVED FURTHER, that the Board hereby determines that all acts and deeds previously performed by the Board and other officers of Company relating to the foregoing matters prior to the date of these resolutions are ratified, confirmed and approved in all respects as the authorized acts and deeds of Company; and

 

 

 

Page 1 of Board Resolutions

 

 

RESOLVED FURTHER, that all prior actions or resolutions of Company’s directors that are inconsistent with the foregoing are hereby amended, corrected and restated to the extent required to be consistent herewith.

 

 

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EXHIBITS ATTACHED TO BOARD RESOLUTIONS: Exhibit A PURCHASE AGREEMENT

 

Exhibit B NOTE

 

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13

Exhibit 21.3

 

List of all subsidiaries, state of incorporation and name under which the subsidiary does business.

 

Effective April 1, 2013, Orbital Energy Group, Inc. closed on a share purchase agreement to acquire 100% of the equity interest in Orbital Gas Systems Ltd., a company organized under the laws of England and Wales. Orbital Gas Systems, Ltd. does business under the name, Orbital.

 

Effective May 31, 2013, Orbital Energy Group, Inc. formed a wholly owned subsidiary, Orbital Gas Systems, North America, Inc., a Texas corporation, to facilitate the marketing and sales of the GasPT product line in North America.

 

Effective October 29, 2019, Orbital Energy Group, Inc. formed a wholly owned subsidiary, Orbital Power, Inc., a Texas corporation doing business as Orbital Power Services.

 

Effective April 1, 2020, Orbital Energy Group, Inc. closed on an equity purchase agreement to acquire 100% of the equity in Reach Construction Group, LLC. Reach Construction Group, LLC, a North Carolina limited liability company was renamed to Orbital Solar Services, LLC. 

 

Effective July 1, 2020, Orbital Energy Group, Inc. formed a wholly owned subsidiary, Orbital Renewables, LLC., a Texas corporation.

 

Effective October 29, 2020, Orbital Energy Group, Inc. formed a wholly owned subsidiary, Eclipse Foundation Group, Inc., a Texas corporation.

 

Effective April 13, 2021, Orbital Energy Group, Inc. closed on a share purchase agreement to acquire 100% of the equity of Gibson Technical Services, Inc.

 

Effective July 28, 2021, Orbital Energy Group, Inc. closed on a share purchase agreement to acquire 100% of the equity of IMMCO, Inc.

 

Effective October 22, 2021, Gibson Technical Services, Inc. closed on a purchase agreement to acquire 100% of the ownership of Full Moon Telecom, LLC.

 

Effective November 17, 2021, Orbital Energy Group, Inc. entered into a Membership Unit Purchase agreement to acquire Front Line Power Construction, LLC.

 

 

 

Exhibit 23.1

 

 

 

Consent of Independent Registered Public Accounting Firm

 

 

 

 

 

 

 

We have issued our report dated March 31, 2022, with respect to the consolidated financial statements included in the Annual Report of Orbital Energy Group, Inc. (formally known as CUI Global, Inc.), on Form 10-K for the year ended December 31, 2021. We consent to the incorporation by reference of said report in the Registration Statements of Orbital Energy Group, Inc. on Forms S-3 (File No. 333-252682).

 

 

 

/s/ Grant Thornton LLP

 

 

Dallas, Texas

 

March 31, 2022

 

 

 

 

 

 

Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, James F. O'Neil, certify that:

 

1.     I have reviewed this annual report on Form 10-K of Orbital Energy Group, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

 

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

 

By:  /s/ James F. O'Neil   March 31, 2022
       
  James F. O'Neil  
   Chief Executive Officer /Principal Executive Officer/Director   

 

 

 

 

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Nicholas M. Grindstaff, certify that:

 

1.     I have reviewed this annual report on Form 10-K of Orbital Energy Group, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

 

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information;

 

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

 

By: /s/ Nicholas M. Grindstaff   March 31, 2022
       
  Nicholas M. Grindstaff  
  Chief Financial Officer/Principal Financial and Accounting Officer  

 

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

In connection with the annual report of Orbital Energy Group, Inc. (the ‘‘Company’’), on Form 10-K for the period ended December 31, 2021, I hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

1.

The annual report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.

The information contained in the annual report fairly presents, in all materials respects, the financial condition and results of operations of the Company.

 

 

 

By:/s/ James F. O'Neil    March 31, 2022
       
  James F. O'Neil   
  Chief Executive Officer/Principal Executive Officer/Director   

          

              

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

In connection with the annual report of Orbital Energy Group, Inc. (the ‘‘Company’’), on Form 10-K for the period ended December 31, 2021, I hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

1.

The annual report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.

The information contained in the annual report fairly presents, in all materials respects, the financial condition and results of operations of the Company.

 

 

 

By: /s/ Nicholas M. Grindstaff   March 31, 2022
       
  Nicholas M. Grindstaff  
  Chief Financial Officer/Principal Financial and Accounting Officer