Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

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

 

For the quarterly period ended September 30, 2017March 31, 2022

 

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

 

CUI Global,Orbital Energy Group, Inc.

(Exact name of registrant as specified in its charter)

 

Colorado

 

84-1463284

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

20050 SW 112th Avenue
Tualatin, Oregon 970621924 Aldine Western
 Houston, Texas 77038


(Address of principal executive offices and zip code)

 

(503) 612-2300

(832) 467-1420

(Registrant’s telephone number, including area code)

 

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  x    NO  ¨Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

YES  x    NO  ¨Yes ☒  No ☐

 

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 x

Non-accelerated filer  ¨(Do not check if a smaller reporting company)

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES  ¨    NO  xYes ☐  No ☒

 

There were 28,404,79695,594,968 shares of the registrant’sregistrant's common stock, par value $0.001 per share, issued and outstanding as of November 7, 2017.May 11, 2022.

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value.

OEG

Nasdaq Capital Market

 

 


 

INDEX

 

  

Page

 

Part I

 
   

Item 1.

Financial Statements

32

 

Condensed Consolidated Balance Sheets (Unaudited)

32

 

Condensed Consolidated Statements of Operations (Unaudited)

43

 

Condensed Consolidated Statements of Comprehensive Income and Loss (Unaudited)

54

 

Condensed Consolidated StatementStatements of Changes in Stockholders’ Equity (Unaudited)

65

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

76

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

98

Item 2.

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

2531
 

Overview

2532
 

Results of Operations

2633
 

Liquidity and Capital Resources

3338

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

3740

Item 4.

Controls and Procedures

3941
 

Part II

 
   

Item 1.

Legal Proceedings

3942

Item 1A.

Risk Factors

3942

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds. Common Stock Issued

3943

Item 5.

Other Information

4043

Item 6.

Exhibits

Exhibits4044
 

Exhibit Index

4044
 

Signatures

4145

 

2
1

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial StatementsStatements.

 

CUI Global,Orbital Energy Group, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

  September 30,  December 31, 
(in thousands, except share and per share data) 2017  2016 
  (Unaudited)    
Assets:        
Current Assets:        
Cash and cash equivalents $758  $4,617 
Trade accounts receivable, net of allowance of $128 and $151, respectively  11,365   9,375 
Inventories, net of allowance of $1,127 and $774, respectively  14,221   13,202 
Costs in excess of billings  1,451   2,735 
Prepaid expenses and other  1,733   2,174 
Total current assets  29,528   32,103 
        
Property and equipment, less accumulated depreciation of $4,128 and $3,299, respectively  11,260   10,952 
Goodwill  20,737   20,125 
Other intangible assets, less accumulated amortization of $11,415        
and $9,438, respectively  15,852   16,201 
Note receivable, less current portion  324   362 
Deposits and other assets  1,876   100 
Total assets $79,577  $79,843 
         
Liabilities and Stockholders' Equity:        
Current Liabilities:        
Accounts payable $5,996  $6,170 
Short-term overdraft facility  1,022    
Mortgage note payable, current portion  93   89 
Capital lease obligation, current portion  3   28 
Accrued expenses  4,120   4,542 
Billings in excess of costs  2,853   1,977 
Unearned revenue  7,231   4,932 
Total current liabilities  21,318   17,738 
         
Long term mortgage note payable, less current portion  3,280   3,350 
Long term note payable, related party  5,304   5,304 
Line of credit  1,932    
Capital lease obligation, less current portion  10   12 
Derivative liability  412   467 
Deferred tax liabilities  3,528   4,120 
Other long-term liabilities  114   217 
Total liabilities  35,898   31,208 
         
Commitments and contingencies        
         
Stockholders' Equity:        
Preferred stock, par value $0.001; 10,000,000 shares authorized; no shares issued at September 30, 2017 or December 31, 2016      
Common stock, par value $0.001; 325,000,000 shares authorized; 20,995,916 shares issued and outstanding at September 30, 2017 and 20,916,848 shares issued and outstanding at December 31, 2016  21   21 
Additional paid-in capital  150,571   150,174 
Accumulated deficit  (103,294)  (95,970)
Accumulated other comprehensive loss  (3,619)  (5,590)
Total stockholders' equity $43,679  $48,635 
Total liabilities and stockholders' equity $79,577  $79,843 

  

March 31,

  

December 31,

 

(in thousands, except share and per share amounts)

 

2022

  

2021

 
         

Assets:

        

Current Assets:

        

Cash and cash equivalents

 $20,949  $26,865 

Restricted cash - current portion

  146   150 

Trade accounts receivable, net of allowance

  52,670   48,752 

Inventories

  1,299   1,335 

Contract assets

  14,198   7,478 

Note receivable, current portion

  1,051   3,536 

Prepaid expenses and other current assets

  7,291   6,919 

Assets held for sale, current portion

  6,611   6,679 

Total current assets

  104,215   101,714 
         
         

Property and equipment, less accumulated depreciation

  28,727   29,638 

Investment

  1,063   1,063 

Right of use assets - Operating leases

  20,040   18,247 

Right of use assets - Financing leases

  14,231   14,702 

Goodwill

  102,349   100,899 

Other intangible assets, net

  138,207   142,656 

Restricted cash, noncurrent portion

  1,026   1,026 

Note receivable, noncurrent portion

  0   836 

Deposits and other assets

  1,557   1,558 

Total assets

 $411,415  $412,339 
         

Liabilities and Stockholders' Equity:

        

Current Liabilities:

        

Accounts payable

 $17,853  $10,111 

Notes payable, current portion

  68,563   72,774 

Line of credit

  4,000   2,500 

Operating lease obligations - current portion

  5,179   4,674 

Financing lease obligations - current portion

  5,048   4,939 

Accrued expenses

  30,524   28,301 

Contract liabilities

  6,470   6,503 

Financial instrument liability, current portion

  25,912   825 

Liabilities held for sale, current portion

  5,735   4,367 

Total current liabilities

  169,284   134,994 
         

Financial instrument liability, noncurrent portion

  1,753   0 

Deferred tax liabilities

  260   260 

Notes payable, less current portion

  153,414   156,605 

Operating lease obligations, less current portion

  14,878   13,555 

Financing lease obligations, less current portion

  9,455   9,939 

Other long-term liabilities

  720   720 

Total liabilities

  349,764   316,073 
         

Commitments and contingencies

          
         

Stockholders' Equity:

        

Preferred stock, par value $0.001; 10,000,000 shares authorized; no shares issued at March 31, 2022 or December 31, 2021

  0   0 

Common stock, par value $0.001; 325,000,000 shares authorized; 85,887,514 shares issued and 85,409,451 shares outstanding at March 31, 2022 and 82,259,739 shares issued and 81,906,676 shares outstanding at December 31, 2021

  86   82 

Additional paid-in capital

  314,485   311,487 

Treasury stock at cost; 353,063 shares held at March 31, 2022 and December 31, 2021

  (413)  (413)

Accumulated deficit

  (248,535)  (210,934)

Accumulated other comprehensive loss

  (3,989)  (3,995)

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

  61,634   96,227 

Noncontrolling interest

  17   39 

Total stockholders' equity

  61,651   96,266 

Total liabilities and stockholders' equity

 $411,415  $412,339 

 

See accompanying notes to condensed consolidated financial statements

 

 

CUI Global,Orbital Energy Group, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

(In thousands, except share and per share amounts) For the Three Months
Ended September 30,
 For the Nine Months Ended
September 30,
 
 

For the Three Months

 

(in thousands, except share and per share amounts)

 

Ended March 31,

 
 2017 2016 2017 2016  

2022

  

2021

 
          
Total revenues $21,796  $23,257  $62,141  $67,058 

Revenues

 $70,254  $5,561 
                 
Cost of revenues  14,356   14,660   40,793   41,269   58,671   8,082 
                 
Gross profit  7,440   8,597   21,348   25,789   11,583   (2,521)
                 
Operating expenses:                 
Selling, general and administrative  8,212   8,080   25,480   26,328 

Selling, general and administrative expense

 8,126  12,019 
Depreciation and amortization  521   585   1,636   1,809  5,323  1,082 
Research and development  696   512   1,920   1,544 
Provision (credit) for bad debt  30      (21)  48 
Other operating expenses     5   12   5 

Recovery of bad debt

 (60) 0 

Other operating income

  (18)  0 
                 
Total operating expenses  9,459   9,182   29,027   29,734   13,371   13,101 
                 
Loss from operations  (2,019)  (585)  (7,679)  (3,945) (1,788) (15,622)
                 

Loss on extinguishment of debt

 (26,019) (250)
Other income (expense)  77   6   169   (265) (583) 313 
Interest expense  (137)  (119)  (374)  (364)  (8,039)  (734)
                 
Loss before taxes  (2,079)  (698)  (7,884)  (4,574)

Loss from continuing operations before income taxes

 (36,429) (16,293)

Income tax expense

  241   16 
                 
Income tax expense (benefit)  (177)  (191)  (560)  82 

Loss from continuing operations, net of income taxes

 (36,670) (16,309)
 

Discontinued operations (Note 3)

 

Loss from discontinued operations, net of income taxes

  (953)  (1,643)
                 
Net loss $(1,902) $(507) $(7,324) $(4,656) $(37,623) $(17,952)

Less: net loss attributable to noncontrolling interest

 (22) 0 

Net loss attributable to Orbital Energy Group, Inc.

 $(37,601) $(17,952)
                 
Basic and diluted weighted average common shares outstanding  20,991,534   20,906,781   20,969,735   20,891,517   83,126,709   44,564,868 
                 
Basic and diluted loss per common share $(0.09) $(0.02) $(0.35) $(0.22)

Loss from continuing operations per common share - basic and diluted

 $(0.44) $(0.36)
 

Income from discontinued operations - basic and diluted

  (0.01)  (0.04)
 

Loss per common share - basic and diluted

 $(0.45) $(0.40)

 

See accompanying notes to condensed consolidated financial statements

 

 

CUI Global,Orbital Energy Group, Inc.

Condensed Consolidated Statements of Comprehensive Income and Loss

(Unaudited)

 

(in thousands) For the Three Months Ended
September 30,
  For the Nine Months
Ended September 30,
 
  2017  2016  2017  2016 
Net loss $(1,902) $(507) $(7,324) $(4,656)
                 
Other comprehensive income (loss)                
Foreign currency translation adjustment  771   (796)  1,971   (2,897)
Comprehensive loss $(1,131) $(1,303) $(5,353) $(7,553)

  

For the Three Months

 

(in thousands)

 

Ended March 31,

 
  

2022

  

2021

 

Net loss

 $(37,623) $(17,952)

Other comprehensive income (loss)

        

Foreign currency translation adjustment

  6   (22)

Comprehensive loss

 $(37,617) $(17,974)

 

See accompanying notes to condensed consolidated financial statements

 

 

CUI Global,Orbital Energy Group, Inc.

Condensed Consolidated StatementStatements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2022 and 2021

(Unaudited)

 

(in thousands, except share amounts)

 

Common Stock

      

Treasury Stock

                     
  

Shares

  

Amount

  

Additional Paid-in Capital

  

Shares

  

Amount

  

Accumulated Deficit

  

Accumulated Other Comprehensive Income (Loss)

  

Total OEG Stockholder's Equity

  

Non-controlling Interest

  

Total Stockholders' Equity

 
                                         

Balance, December 31, 2021

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

Common stock issuable for acquisition

  125,000   0   250   0   0   0   0   250   0   250 

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

  795,384   1   (1,694)  0   0   0   0   (1,693)  0   (1,693)

Common stock issued for debt repayment

  2,653,365   3   4,442   0   0   0   0   4,445   0   4,445 

Common stock issued to lenders for OID for $105 million debt - (reissued)

  54,026   0   0   0   0   0   0   0   0   0 

Net loss

     0   0      0   (37,601)  0   (37,601)  (22)  (37,623)

Other comprehensive loss

     0   0      0   0   6   6   0   6 

Balance, March 31, 2022

  85,887,514   86  $314,485   (353,063) $(413) $(248,535) $(3,989) $61,634  $17  $61,651 

             Accumulated    
              Other  Total 
 Common Stock  Additional  Accumulated  Comprehensive  Stockholders' 
(In thousands, except share amounts) Shares  Amount  Paid-in Capital  Deficit  Income (Loss)  Equity 
                   
Balance, December 31, 2016  20,916,848  $21  $150,174  $(95,970) $(5,590) $48,635 
                         
Common stock issued for exercises of options  245                
Common stock issued for compensation, services, and royalty payments  78,823      397         397 
Net loss for the period ended September 30, 2017           (7,324)     (7,324)
Other comprehensive income              1,971   1,971 
Balance, September 30, 2017  20,995,916  $21  $150,571  $(103,294) $(3,619) $43,679 

(in thousands, except share amounts)

 

Common Stock

      

Treasury Stock

             
  

Shares

  

Amount

  

Additional Paid-in Capital

  

Shares

  

Amount

  

Accumulated Deficit

  

Accumulated Other Comprehensive Income (Loss)

  

Total Stockholders' Equity

 
                                 

Balance, December 31, 2020

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

Issuance of common stock via equity raises

  15,555,556   16   42,360   0   0   0   0   42,376 

Common stock issued for cashless exercises of stock options

  214,596   0   0   0   0   0   0   0 

Common stock issued and vesting of restricted stock for compensation, services, and royalty payments

  40,188   0   2,551   0   0   0   0   2,551 

Net loss

     0   0      0   (17,952)  0   (17,952)

Other comprehensive income

     0   0      0   0   (22)  (22)

Balance, March 31, 2021

  46,839,982  $47  $216,527   (353,063) $(413) $(167,633) $(4,428) $44,100 

 

See accompanying notes to condensed consolidated financial statements

 

 

CUI Global,Orbital Energy Group, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

(in thousands) For the Nine Months Ended September 30, 
  2017  2016 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss $(7,324) $(4,656)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:        
Depreciation  744   697 
Amortization of intangibles  1,388   1,450 
Stock and options issued and stock to be issued for compensation, royalties and services  313   983 
Unrealized (gain) loss on derivative liability  (55)  98 
Non-cash royalties, net (see Note 5)  (6)  15 
(Credit to) provision for bad debt expense and returns allowances  (21)  52 
(Credit to) provision for warranty reserve  (11)   
Deferred income taxes  (666)  (105)
Inventory reserve  317   269 
Non-cash unrealized foreign currency (gains)/losses  (307)  122 
Impairment of intangible assets  3    
Loss on disposal of assets  9   5 
         
(Increase) decrease in operating assets:        
Trade accounts receivable  (1,667)  2,244 
Inventory  (902)  (506)
Costs in excess of billings  1,402   (513)
Prepaid expenses and other current assets  (562)  445 
Deposits and other assets  (515)  (27)
Increase (decrease) in operating liabilities:        
Accounts payable  (321)  148 
Accrued expenses  (482)  (1,056)
Unearned revenue  2,219   643 
Billings in excess of costs  683   865 
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES  (5,761)  1,173 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of property and equipment  (635)  (463)
Proceeds from sale of property and equipment  2   22 
Investments in other intangible assets  (448)  (662)
Proceeds from notes receivable  19    
NET CASH USED IN INVESTING ACTIVITIES  (1,062)  (1,103)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from overdraft facility  2,146    
Payments on overdraft facility  (1,174)   
Proceeds from line of credit  19,585    
Payments on line of credit  (17,653)   
Payments on capital lease obligations  (27)  (38)
Payments on mortgage note payable  (66)  (64)
Payments on contingent consideration  (61)  (59)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES  2,750   (161)
         
Effect of exchange rate changes on cash  214   (125)
Net decrease in cash and cash equivalents  (3,859)  (216)
Cash and cash equivalents at beginning of period  4,617   7,267 
         
CASH AND CASH EQUIVALENTS AT END OF PERIOD $758  $7,051 

  

For the Three Months

 

(in thousands)

 

Ended March 31,

 
  

2022

  

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net loss

 $(37,623) $(17,952)

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

        

Depreciation

  3,687   316 

Amortization of intangibles

  5,003   1,431 

Amortization of debt discount

  1,635   140 

Amortization of note receivable discount

  (63)  (74)

Stock-based compensation and expense, net of forfeitures

  (3,050)  2,559 

Fair value adjustment to liability for stock appreciation rights

  (269)  1,908 

Fair value adjustment to financial instrument liability

  928   0 

Loss on extinguishment of debt and debt modifications

  26,019   250 

Recovery of bad debt

  31   (19)

Inventory reserve

  (22)  (72)

Gain on sale of assets

  (103)  0 

Non-cash unrealized foreign currency (gain) loss

  48   (100)
         

Change in operating assets and liabilities, net of acquisition:

        

Trade accounts receivable

  (3,935)  1,689 

Inventories

  20   225 

Contract assets

  (6,378)  156 

Prepaid expenses and other current assets

  (751)  783 

Right of use assets/lease liabilities, net

  35   (222)

Deposits and other assets

  (26)  0 

Accounts payable

  7,929   (4,343)

Accrued expenses

  4,175   1,286 

Contract liabilities

  1,145   (1,443)

NET CASH USED IN OPERATING ACTIVITIES

  (1,565)  (13,482)
         

CASH FLOWS FROM INVESTING ACTIVITIES:

        

Cash paid for acquisition, net of cash received

  (773)  0 

Purchases of property and equipment

  (1,351)  (2,946)

Deposits on financing lease property and equipment

  26   0 

Proceeds from sale of property and equipment

  78   0 

Purchase of other intangible assets

  (51)  (692)

Proceeds from notes receivable

  3,500   100 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

  1,429   (3,538)
         

CASH FLOWS FROM FINANCING ACTIVITIES:

        

Proceeds from line of credit

  3,500   0 

Payments on line of credit

  (2,000)  (441)

Payments on financing lease obligations

  (1,212)  (1)

Proceeds from notes payable

  0   9,701 

Payments on notes payable

  (5,804)  (3,238)

Proceeds from sales of common stock

  0   42,376 

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

  (5,516)  48,397 
         

Effect of exchange rate changes on cash

  (268)  11 

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

  (5,920)  31,388 

Cash, cash equivalents and restricted cash at beginning of period

  28,041   4,524 
         

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

 $22,121  $35,912 

 

See accompanying notes to condensed consolidated financial statements

 

 

CUI Global,Orbital Energy Group, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(Unaudited)

 

(in thousands) For the Nine Months Ended September 30, 
  2017  2016 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Income taxes paid $130  $169 
Interest paid, net of capitalized interest $375  $366 
         
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:        
Common stock issued and to be issued for royalties payable pursuant to product agreements, related party $8  $38 
Common stock issued and to be issued for consulting services and compensation in common stock $389  $718 
Exchange of investment in TPI in return for note receivable (note 5) $  $385 
Accrued property and equipment purchases $21  $8 
Accrued investment in other intangible assets $83  $137 
Capital leases $  $19 
  

For the Three Months

 

(in thousands)

 

Ended March 31,

 
  

2022

  

2021

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

        

Income taxes paid (net refunded)

 $(405) $(570)

Interest paid

 $5,183  $499 
         

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

        

Non-cash investment in acquisition for equity issuances

 $250  $0 

Financing note payable issued for payment on certain insurance policies

 $0  $291 

Accrued property and equipment purchases

 $126  $0 

 

See accompanying notes to condensed consolidated financial statements

 

 

CUI Global,Orbital Energy Group, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

1.

NATURE OF OPERATIONS, BASIS OF PRESENTATION AND COMPANY CONDITIONS

 

Nature of Operations

CUI GlobalOrbital Energy Group, Inc. (CUI Global)(Orbital Energy Group, "OEG," "The Company") is a platformdiversified infrastructure services company composed of twoserving customers in the electric power, telecommunications, and renewable markets. The Company’s reportable segments are the Electric Power and Electromechanicalsegment, the Telecommunications segment, and the Renewables segment. In December 2021, the Company announced the planned divestiture of its previously reported Integrated Energy segment, along with an "Other" category.Infrastructure Solutions and Services segment. 

 

The Electric Power and Electromechanical segment consists of the wholly owned subsidiaries: CUI, Inc. (CUI),Front Line Power Construction, LLC based in Tualatin, Oregon; CUI Japan,Houston, Texas (acquired November 17, 2021), Orbital Power, Inc. based in Tokyo, Japan; CUI-Canada,Dallas, Texas, (began operations in Q12020) and Eclipse Foundation Group based in Toronto, Canada;Gonzales, Louisiana (began operations in Q12021). 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 entity holdingengineering, 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 corporate building, CUI Properties. All three subsidiaries are providers of powerelectric transmission and electromechanical components including power supplies, transformers, converters, connectorssubstation, industrial, telecommunication and industrial controls for Original Equipment Manufacturers (OEMs).disaster restoration market sectors, with expertise performing services in water, marsh and rock terrains.

 

The Power Telecommunications segment is made up of Gibson Technical Services, Inc. (“GTS”) (acquired April 13, 2021) and Electromechanical segment defines its product offerings into subsidiaries. GTS is an Atlanta-based telecommunications company providing diversified telecommunications services nationally since 1990 and is the parent of IMMCO, Inc., Full Moon Telecom, LLC, and Coax Fiber Solutions, LLC. IMMCO, Inc. (acquired July 28, 2021), which includes two categories: components Indian subsidiaries, 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. Full Moon Telecom, LLC (acquired October 22, 2021) is a Florida-based telecommunications service provider that offers an extensive array of wireless service capabilities and experience including connectors, speakers, buzzers,Layer 2/Layer3 Transport, Radio Access Network (“RAN”) Integration, test and measurement devices,turn-up of Small Cell systems and control solutions including encodersIntegration/Commissioning of Distributed Antenna (“DAS”) systems. Coax Fiber Solutions, LLC (acquired March 7, 2022), is based in Georgia. Founded in 2016, Coax Fiber Solutions is a GDOT Certified contractor specializing in Aerial Installation, directional drilling, trenching, plowing, and sensors;missile crews for telecommunications, power, gas, water, CCTV, ATMS, and power solutions, which includes Novum and ICE. These offerings provide a technology architecture that addresses power and related accessories to industries as broadly ranging as consumer electronics, medical and defense.traffic signal cable installation.

 

The Company’s EnergyRenewables segment consists of Orbital Solar Services based in Raleigh, North Carolina. Orbital Solar Services provides engineering, procurement and construction (“EPC”) services that support the Orbital Gas Systems Ltd subsidiary (Orbital-UK)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 the Orbital Gas Systems, North America, Inc. subsidiary, collectively referred to as "Orbital." This business segment was formed when in April 2013, CUI Global acquired 100% of the capital stock of Orbital-UK, a United Kingdom-based provider of natural gas infrastructure and advanced technology, including metering, odorization, remote telemetry units (‘‘RTU’’) and a diverse range of personalized gas engineering solutions to the gas utilities, power generation, emissions, manufacturing and automotive industries. In January 2015, CUI Global formed and opened Orbital Gas Systems, North America, Inc., a wholly owned subsidiary of CUI Global, to represent the Energy segment in the North American market. GasPT® and VE Technology® products are sold through Orbital.

public utility projects.

 

The Other category represents the remaining activities that are not included as part of the other reportable segments and primarily represents corporate activity.

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information, which includes condensed consolidated financial statements. Accordingly, they do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations and should be read in conjunction with the Company's Annual Report on Form 10-K10-K for the year ended December 31, 2016.2021. The Condensed Consolidated Balance Sheet as of December 31, 2021 has been derived from the audited financial statements as of that date included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

 

It is management's opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. SignificantAll intercompany accounts and transactions have been eliminated in consolidation. The results for the interim period are not necessarily indicative of the results to be expected for the remaining quarters or year ending December 31, 2017.2022.

 

9
8

Reconciliation of Cash, Cash Equivalents, and Restricted Cash on Condensed Consolidated Statements of Cash Flows

  

For the Three Months

 

(in thousands)

 

Ended March 31,

 
  

2022

  

2021

 

Cash and cash equivalents at beginning of period

 $26,865  $3,046 

Restricted cash at beginning of period (1)

  1,176   1,478 

Cash, cash equivalents and restricted cash at beginning of period

 $28,041  $4,524 
         

Cash and cash equivalents at end of period

 $20,949  $34,733 

Restricted cash at end of period (1)

  1,172   1,179 

Cash, cash equivalents and restricted cash at end of period

 $22,121  $35,912 

 

(1) Restrictions on cash at March 31, 2022 and March 31, 2021 relate to collateral for several bank-issued letters of credit for contract guaranties. 

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 reviewrecord purchase price allocation for the Company’sCompany's acquisitions, fair value measurements used in goodwill impairments andimpairment tests, impairment estimations of long-lived assets, impairment of prepaid royalties, revenue recognition on percentage of completioncost-to-cost type contracts, allowances for uncollectible accounts, inventory valuation, warranty reserves, 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.

 

RevisionReclassifications

Immaterial revision wasCertain reclassifications have been made to the condensed consolidated statement2021 classifications in order to conform to the 2022 presentation.

Company Conditions and Sources of Liquidity

The Company has experienced net losses and cash flows:outflows from cash used in operating activities over the past years. As of and for the ninethree months ended September 30, 2016, $122 thousandMarch 31, 2022, the Company had an accumulated deficit of $248.5 million, loss from continuing operations of $36.7 million, and net cash used in operating activities of $1.6 million.

As of March 31, 2022, the Company had cash and cash equivalents of $20.9 million available for working capital needs and planned capital asset expenditures and a working capital deficit of $65.1 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 its expansion; refer to Note 15 — Notes Payable and Line of Credit. 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 15 — Notes Payable and Line of Credit and Note 19 – Subsequent Events. 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. As of March 31, 2022, the Company has an effective S-3 shelf registration statement with $112.0 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 three months ended March 31, 2022, our revenues have increased by $64.7 million resulting in over a 1,100% increase in revenue compared to the three-month period ended in 2021. The significant increase in revenues during the year was reclassifiedprimarily 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 Systems. 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 exchange rate changes on cashmanagement’s plans has alleviated any substantial doubt about the Company’s ability to non-cash unrealized foreign currency gains/losses includedcontinue as a reconciling item to cash provided by operating activities. This change was related primarily to foreign currency gainsgoing concern.

Goodwill

The Company has Goodwill from acquisitions made in 2020,2021 and losses on intercompany advances to Orbital-UK.2022.

 

2. INVENTORIES

Inventories consist

9

 

The Company tests for impairment of other indefinite-lived intangible assets in the second quarter of each yearIndefinite-lived intangibles and when events or circumstances indicate that the carrying amount of the intangible assets exceed their fair value and may not be recoverable. The Company performed a qualitative assessment of impairment for other indefinite-lived intangible assets at May 31, 2017 following the guidance in ASC 350-30-35-18A and 18B and determined there to be no impairment. Other indefinite-lived intangibles were $7.3 million at September 30, 2017.

The Company also tests for impairment of Goodwill in the second quarter of each year and when events or circumstances indicate that the carrying amount of Goodwill exceeds its fair value and may not be recoverable. As detailed in ASC 350-20-35-3A, in performing its testing for impairment of goodwill as of May 31, 2017, management completes a qualitative analysis

Under current accounting guidance, Orbital Energy Group is not required to determine whether it was more likely than not thatcalculate 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, including goodwill. Periodically, as was done at May 31, 2016, the Company also preparesamount. The guidance includes a quantitative analysisnumber of factors to consider in addition toconducting the qualitative one. 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.

To complete the qualitative review, management follows the steps in ASC 350-20-35-3C to evaluateevaluated the fair valuesvalue of the goodwillGoodwill and considersconsidered all known events and circumstances that might trigger an impairment of goodwill. ThroughWe evaluated the OSS, FLP and GTS reporting units for possible triggering events of possible impairment as of the end of the quarter ended March 31, 2022, noting none.

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 March 31, 2022 and December 31, 2021, accrued expenses of $30.5 million and $28.3 million, respectively included the following components:

(in thousands)

 

March 31

  

December 31

 
  

2022

  

2021

 

Accrued compensation

 $5,250  $6,369 

Working capital adjustment on Front Line Power Construction acquisition

  14,092   14,092 

Accrued interest

  4,128   2,902 

Accrued taxes payable

  76   102 

Other accrued expenses

  6,978   4,836 

Total accrued expense

 $30,524  $28,301 

COVID-19 Assessment and Liquidity

In March 2020, the World Health Organization categorized the current coronavirus disease (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects can be severe. While the Company expects the effects of the pandemic to negatively impact its results from operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time. The Company has experienced customer delays and extensions for projects, supply chain delays, furloughs of personnel, increased utilization of telework, increased safety protocols to address COVID-19 risks, decreased field service work and other impacts from the COVID-19 pandemic.  While the economic effects of COVID-19 are beginning to subside as a higher percentage of people become vaccinated, there remains uncertainty regarding the future affects of the pandemic. Events and changes in circumstances arising after March 31, 2022, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

Management believes the Company's present cash flows along with access to additional debt and equity raises will allow OEG to meet its obligations for twelve months from the date these reviews,financial statements are available to be issued. Including our cash balance, we continue to manage working capital primarily related to trade accounts receivable, notes receivable, prepaid assets, contract assets and our inventory less current liabilities that we will manage during the next twelve months. In 2022, the Company has entered into various long and short-term debt agreements. Considering these above factors, management concludedbelieves the Company can meet its obligations for the twelve-month period from the date the financial statements are available to be issued. 

The Company’s available capital may be consumed faster than anticipated due to other events, including the length and severity of the global novel coronavirus disease pandemic and measures taken to control the spread of COVID-19, as well as changes in and progress of our development activities and the impact of commercialization efforts due to the COVID-19 pandemic. The Company may seek to obtain additional capital as needed through equity financings, debt or other financing arrangements, but given the impact of COVID-19 on the U.S. and global financial markets, the Company may be unable to access further equity or debt financing when needed. As such, there can be no assurance that there were no eventsthe Company will be able to raise additional capital when needed or circumstancesunder acceptable terms, if at all. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences compared to currently outstanding common shares.

10

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are detailed in "Note 2 Summary of Significant Accounting Policies" within Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022.

3.

DISCONTINUED OPERATIONS AND SALE OF A BUSINESS

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 triggeredare 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 (and there was no expectation that a reporting unit or a significant portionrelated to its U.K. operations to write the value of a reporting unit would be sold or otherwise disposed ofits investment in the following year)U.K. operations to its expected realizable value of 3 million GBP ($4.1 million on December 31, 2021).

 

The carrying valuesale of goodwillthe U.K. operations closed in May of 2022. Assets and liabilities held for sale are included in the Company's balance sheet and are described below. See Note 19. Subsequent Events for more information on the sale of the U.K. business. 

  

As of

  

As of

 
  

March 31,

  

December 31,

 

(in thousands)

 

2022

  

2021

 
         

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

        
         

Trade accounts receivable

 $3,109  $2,996 

Inventories

  547   530 

Prepaid expenses and other current assets

  212   114 

Contract assets

  835   1,141 

Assets held for sale, current portion

  4,703   4,781 

Property and equipment

  52   42 

Other intangible assets

  1,813   1,813 

Deposits and other assets

  43   43 

Assets held for sale, noncurrent portion

  1,908   1,898 

Total assets of the disposal group classified as held for sale

 $6,611  $6,679 
         

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

        
         

Accounts payable

 $1,564  $1,657 

Contract liabilities

  2,537   1,414 

Operating lease obligations - current portion

  73   76 

Accrued expenses

  1,474   1,126 

Liabilities held for sale, current portion

  5,648   4,273 

Operating lease obligations, less current portion

  82   85 

Other long-term liabilities

  5   9 

Liabilities held for sale, noncurrent portion

  87   94 

Total liabilities held for sale

 $5,735  $4,367 

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 Condensed Consolidated Statement of Operations

(Unaudited)

(in thousands)

 

For the Three Months

 
  

Ended March 31,

 

Major classes of line items constituting pretax profit of discontinued operations:

 

2022

  

2021

 
         

Revenues

 $3,986  $3,930 

Cost of revenues

  (2,694)  (2,715)

Selling, general and administrative expense

  (2,139)  (2,443)

Depreciation and amortization

  0   (432)

(Provision) credit for bad debt

  (91)  19 

Interest expense

  (7)  (2)

Other expense

  (8)  0 

Pretax income of discontinued operations

  (953)  (1,643)

Income tax expense

  0   0 

Total income from discontinued operations

 $(953) $(1,643)
Net cash provided by operating activities of discontinued operations for the three months ended March 31, 2022 was $0.5 million.

There was $10 thousand net cash used in investing activities of discontinued operations for the three months ended March 31, 2022.

11

4.

REVENUE FROM CONTRACTS WITH CUSTOMERS 

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 activitycustomer 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 nineentire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

12

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 customer's 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 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 Condensed Consolidated Balance Sheets.

Contract liabilities from our construction contracts occur when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost or output method measure 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 three months ended September 30, 2017March 31, 2022 and 2021 was as follows:

  

For the Three Months

 
  

Ended March 31,

 

(in thousands)

 

2022

  

2021

 

Total contract liabilities - beginning of period

 $6,503  $4,873 

Other contract additions, net

  6,905   210 

Revenue recognized

  (6,938)  (877)

Contract settlements

  0   (3,129)

Total contract liabilities - end of period

 $6,470  $1,077 

13

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 March 31,2022, 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 $261.2 million in the aggregate of future revenue related to remaining performance obligations that are unsatisfied or partially unsatisfied as of March 31, 2022. 

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. For separately priced extended warranty or product maintenance performance obligations, when estimates of total costs to be incurred on the performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.

Performance Obligations Satisfied Over Time

To determine the proper revenue recognition method for our contracts, 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 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.

14

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.

The following tables present the Company's revenues disaggregated by the type of customer:

  

For the Three Months

  

For the Three Months

 
  

Ended March 31, 2022

  

Ended March 31, 2021

 

(in thousands)

 

Electric Power

  

Telecommunications

  

Renewables

  

Total

  

Electric Power

  

Telecommunications

  

Renewables

  

Total

 
                                 

Utilities

 $39,251  $0  $0  $39,251  $3,189  $0  $0  $3,189 

Telecommunications

  0   16,095   0   16,095   0   0   0   0 

Solar

  0   0   14,464   14,464   0   0   2,372   2,372 

Other

  444   0   0   444   0   0   0   0 

Total revenues

 $39,695  $16,095  $14,464  $70,254  $3,189   0  $2,372  $5,561 

15

The following tables present the Company's revenues disaggregated by type of contract:

  

For the Three Months

  

For the Three Months

 
  

Ended March 31, 2022

  

Ended March 31, 2021

 

(in thousands)

 

Electric Power

  

Telecommunications

  

Renewables

  

Total

  

Electric Power

  

Telecommunications

  

Renewables

  

Total

 
                                 

Cost-plus contracts

 $17,237  $112  $0  $17,349  $1,354  $0  $0  $1,354 

Fixed price contracts

  7,742   2,319   14,464   24,525   470   0   2,372   2,842 

Unit price contracts

  14,716   13,664   0   28,380   1,365   0   0   1,365 

Total revenues

 $39,695  $16,095  $14,464  $70,254  $3,189  $0  $2,372  $5,561 

5.

INVENTORIES

Inventories consist of work-in-process and finished goods and are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method as a cost flow convention or through the moving average cost method. At March 31,2022 and December 31, 2021, inventory by category is valued net of reserves and consists of:

  

As of March 31,

  

As of December 31,

 

(in thousands)

 

2022

  

2021

 

Raw materials

  1,299   1,316 

Work-in-process

  0   19 

Total inventories

 $1,299  $1,335 

16

6.

INVESTMENTS

The Company has a minority ownership in Virtual Power Systems ("VPS"). The VPS investment basis at March 31, 2022 and December 31, 2021 was $1.1 million and $1.1 million, respectively, as reflected on the condensed consolidated balance sheets. The investment is held at March 31,2022 under the cost method of accounting for investments. 

7.

LEASES

Consolidated total operating lease costs were $1.8 million for the three months ended March 31, 2022 and $0.7 million for the three months ended March 31, 2021 and are included in cost of sales; selling, general and administrative expense; and other income (expense), on the condensed consolidated statement of operations.

Future minimum operating lease obligations at March 31, 2022 are as follows for the years ended December 31:

(in thousands)

    

2022 (remaining period)

 $4,824 

2023

  5,696 

2024

  4,534 

2025

  2,876 

2026

  2,496 

Thereafter

  2,785 

Interest portion

  (3,154)

Total operating lease obligations

 $20,057 

17

Total lease cost and other lease information is as follows:

  

For the Three Months Ended March 31,

 

(in thousands)

 

2022

  

2021

 

Operating lease cost

 $1,623  $668 

Short-term lease cost

  59   1 

Variable lease cost

  251   144 

Sublease income

  (129)  (113)

Total lease cost

 $1,804  $700 

Other information - Operating leases (in thousands)

 

For the Three Months Ended March 31,

 
  

2022

  

2021

 

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

        

Operating cash flows from operating leases (includes discontinued operations)

 $(1,635) $(922)

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

 $3,172  $2,783 

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

  4.5   5.0 

Weighted-average discount rate - operating leases

  7.1%  6.5%

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

Future minimum finance lease obligations are as follows:

 

(in thousands) Power and
Electro -
Mechanical
  Energy  Other  Total 
Balance, December 31, 2016 $13,083  $7,042  $  $20,125 
Currency translation adjustments  9   603      612 
Balance, September 30, 2017 $13,092  $7,645  $  $20,737 

(in thousands)

    

2022 (remaining period)

 $4,358 

2023

  5,811 

2024

  5,069 

2025

  321 

2026

  255 

Thereafter

  0 

Interest portion

  (1,312)

Total financing lease obligations

 $14,502 

 

5. INVESTMENT AND NOTE RECEIVABLETotal financing lease costs are as follows:

  

For the Three Months Ended March 31,

 

(in thousands)

 

2022

  

2021

 

Depreciation of financing lease assets

 $1,308  $0 

Interest on lease liabilities

  241   0 

Total finance lease cost

 $1,549  $0 

18

 

Other information - Financing leases

 

For the Three Months Ended March 31,

 

(in thousands)

 

2022

  

2021

 

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

        

Operating cash flows from financing leases

 $(241) $0 

Financing cash flows from financing leases

 $(1,212) $0 

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

 $837  $0 

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

  2.8    

Weighted-average discount rate - finance leases

  6.5%  0 

8.

STOCK-BASED COMPENSATION AND EXPENSE

Through December 31, 2021, the Company had been vesting a series of stock appreciation rights (SARS) to be settled in cash to certain executives. The SARS were considered liability-classified awards meaning their fair-values were remeasured at the end of each reporting period using a binomial lattice model and any changes in fair value for the vesting periods to-date were recorded through the income statement with a corresponding liability accrued on the balance sheet. Since December 31, 2021, the SARS have been exchanged for restricted stock units (RSUs) on the modification date of January 14, 2022 as approved by the Board of Directors. To account for this exchange, the company revalued the SARS as of the modification date of January 14, 2022 using the binomial lattice model and recorded changes in the vested value since December 31, 2021 as an adjustment to the income statement. The Company then reclassified the SARS accrued liability to APIC for new RSUs and recognized incremental expense. Shares deemed vested at the modification date were released and issued net of tax in March 2022. The company recorded expense for these RSUs for the period of January 15, 2022 to March 31, 2022.

 

During Restricted Stock

In March 2021, the three months ended March 31, 2016, CUI Global's 8.5% ownership investment in Test Products International, Inc. ("TPI"), recognized under the cost method, was exchanged for a note receivable from TPI of $0.4Company granted 3 million which was the carryingrestricted shares with an aggregate fair value of the investment, earning interest at 5% per annum,$16.4 million with a graded vesting schedule. One-third of which were vested in April 2021, one-third of which were due June 30, 2019. to vest in April 2022, and one-third of which were due to vest in April 2023. The Company recorded $5 thousanda net credit of $3.9 million and $5 thousandexpense of interest income from the note in the three months ended September 30, 2017 and 2016, respectively. The Company recorded $13 thousand and $15 thousand of interest income from the note in the nine months ended September 30, 2017 and 2016, respectively. The interest receivable is settled on a quarterly basis via a non-cash offset against the finders-fee royalties earned by TPI on GasPT sales. Any remaining finders-fee royalties balance is offset against the note receivable quarterly. The Company also received a $19 thousand cash payment against the note in the nine months ended September 30, 2017. CUI Global reviewed the note receivable for non-collectability as of September 30, 2017 and concluded that no allowance was necessary. For more details on this investment see Note 2 - Summary of Significant Accounting policies$2.0 million to CUI Global's financial statements filed in Item 8 of the Company's latest Form 10-K filed with the SEC on March 14, 2017.

11

6. DERIVATIVE INSTRUMENTS

The Company uses various derivative instruments including forward currency contracts and interest rate swaps to manage certain exposures. These instruments are entered into under the Company’s corporate risk management policy to minimize exposure and are not for speculative trading purposes. The Company recognizes all derivatives as either assets or liabilities in the condensed consolidated balance sheet and measures those instruments at fair value. Changes in the fair value of derivatives are recognized in earnings. For additional information on fair value of derivatives, see Note 10, “Investments and Fair Value Measurements,” of these condensed consolidated financial statements. The Company has limited involvement with derivative instruments and does not trade them. The Company has entered into one interest rate swap, which has a maturity date of ten years from the date of inception, and is used to minimize the interest rate risk on the variable rate mortgage. During the three and nine months ended September 30, 2017, the Company had $20 thousand and $55 thousand, respectively of unrealized gaincompensation expense related to the derivative liabilities.forfeiture and partial vesting of these grants in the three months ended March 31, 2022 and March 31, 2021, respectively. The credit to compensation expense in the firstthree months of 2022 was due to a $5.2 million dollar reversal of expense related to the forfeiture of the restricted stock upon the termination of an employee as of March 31, 2022. 

 

Embedded Derivative LiabilitiesRestricted Stock Units

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.

  

Number of restricted shares

  

Weighted-average grant date fair value

 
         

Non-vested shares, beginning of year

  3,018,788  $4.58 

Granted

  2,810,414   1.94 

Vested

  (1,332,788)  1.96 

Forfeited

  (2,000,000)  5.46 

Non-vested shares, end of period

  2,496,414  $2.30 

 

9.

7. STOCK-BASED PAYMENTS FOR COMPENSATION, SERVICES AND ROYALTIES

The Company records its stock-based compensation expense under its stock option plans and the Company also issues stock for services and royalties. A detailed description of the awards under these plans and the respective accounting treatment is included in the “Notes to the Consolidated Financial Statements” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The Company did not grant any stock options in the three and nine months ended September 30, 2017. For the three and nine months ended September 30, 2017, the Company recorded stock-based expense of $0.1 million and $0.3 million, respectively, and for the three and nine months ended September 30, 2016, the Company recorded stock-based expense of $0.1 million and $1.0 million, respectively.

8. SEGMENT REPORTING

 

Operating segments are defined in accordance with ASC 280-10280-10 as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision makingdecision-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 six5 operating segments based on the activities of the Company in accordance with the ASC 280-10.280-10. These operating segments have been aggregated into two3 reportable segments. The three reportable segments are Electric Power, Telecommunications, and Renewables and an Other category. 

The two reportable segments areElectric Power segment consists of Front Line Power Construction, LLC, Orbital Power Services, and Electromechanical and Energy.Eclipse Foundation Group. The Power and Electromechanicalsegment provides comprehensive solutions to customers in the electric power industries. 

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: IMMCO, Inc., Full Moon Telecom, and Coax Fiber Solutions, LLC.

The Renewables segment consists of Orbital Solar Services based in Raleigh, North Carolina. Orbital Solar Services provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on the operationsutility-scale solar construction. The Company serves a wide variety of CUI, CUI-Canadaproject types, including commercial, substation, solar farms and CUI Japan for the sale of internal and external power supplies, related components and industrial controls. The Power and Electromechanical segment also includes CUI Properties, LLC that owns the Company's Tualatin, Oregon facility. The Energy segment is focused on the operations of Orbital Gas Systems Ltd. and Orbital Gas Systems, North America, Inc. which includes gas related test and measurement systems, including the GasPT. public utility projects.

The Other category represents the remaining activities that are not included as partis made up primarily of the other reportableCompany's corporate activities. This category does not include any operating segments and represents primarily corporate activity.does not generate revenue. 

 

DuringThe following information represents segment activity for the three months ended September 30, 2017,March 31, 2022:

(in thousands)

 

Electric Power

  

Telecommunications

  

Renewables

  

Other

  

Total

 

Revenues from external customers

 $39,695  $16,095  $14,464  $0  $70,254 

Depreciation and amortization (1)

  6,975   1,091   608   16   8,690 

Interest expense

  4,071   37   2   3,929   8,039 

Income (loss) from operations

  (711)  477   428   (1,982)  (1,788)

Expenditures for long-lived assets (2)

  943   423   0   36   1,402 

(1)For the Company’s total revenues consisted of 77% from theElectric Power and Electromechanical segment and 23% from the Energy segment. DuringTelecommunications segment, depreciation and amortization includes $3.2 million and $0.2 million respectively, which was included in cost of revenues in the three months ended September 30, 2016, the Company's total revenues consistedCondensed Consolidated Statements of 69% from the PowerOperations.

(2)  Includes purchases of property, plant and Electromechanical segmentequipment and 31% from the Energy segment.other intangible assets. The Other category includes expenditures for discontinued operations of $10 thousand.

 

12
19

During the nine months ended September 30, 2017, the Company’s total revenues consisted

The following information represents selected balance sheet items by segment and 22% from the Energy segment. During the nine months ended September 30, 2016, the Company's total revenues consistedas of 67% from the Power and Electromechanical segment and 33% from the Energy segment.March 31, 2022:

(in thousands)

 

Electric Power

  

Telecommunications

  

Renewables

  

Other

  

Total

 

Segment assets

 $277,615  $86,058  $30,286  $17,456  $411,415 

Goodwill

  70,151   25,192   7,006   0   102,349 

Other intangible assets, net

  102,680   28,412   7,115   0   138,207 

 

The following information represents segment activity for the three months ended September 30, 2017 and selected balance sheet items as of September 30, 2017:March 31, 2021:

(in thousands) Power and
Electro-
Mechanical
  Energy  Other  Total 
Revenues from external customers $16,700  $5,096  $  $21,796 
Depreciation and amortization(1)  363   342      705 
Interest expense  75   1   61   137 
Profit (loss) from operations  890   (1,660)  (1,249)  (2,019)
Segment assets  49,377   29,495   705   79,577 
Other intangible assets, net  8,979   6,873      15,852 
Goodwill  13,092   7,645      20,737 
Expenditures for long-lived assets(2)  157   114      271 

13

The following information represents segment activity for the nine months ended September 30, 2017 and selected balance sheet items as of September 30, 2017:

(in thousands) Power and
Electro-
Mechanical
  Energy  Other  Total 
Revenues from external customers $48,542  $13,599  $  $62,141 
Depreciation and amortization(1)  1,139   993      2,132 
Interest expense  187   3   184   374 
Profit (loss) from operations  1,984   (5,924)  (3,739)  (7,679)
Segment assets  49,377   29,495   705   79,577 
Other intangible assets, net  8,979   6,873      15,852 
Goodwill  13,092   7,645      20,737 
Expenditures for long-lived assets(2)  786   297      1,083 

(in thousands)

 

Electric Power

  

Telecommunications

  

Renewables

  

Other

  

Total

 

Revenues from external customers

 $3,189  $0  $2,372  $0  $5,561 

Depreciation and amortization (1)

  217   0   1,089   441   1,747 

Interest expense

  1   0   15   718   734 

Loss from operations

  (4,264)  0   (5,326)  (6,032)  (15,622)

Expenditures for long-lived assets (2)

  2,920   0   0   718   3,638 

(1)For the Electric Power and Electromechanical segment, for the three and nine months ended September 30, 2017, depreciation and amortization include $184 thousand and $496 thousand, respectively,includes $0.2 million, which were classified aswas included in cost of revenues in the Condensed Consolidated Statements of Operations.

Other category includes $432 thousand of depreciation and amortization from discontinued operations.

(2)(2)  Includes purchases of property, plant and equipment and the investment in other intangible assets. The Other category includes expenditures for discontinued operations of $705 thousand.

 

20

The following information represents segment activity for the three months ended September 30, 2016 and selected balance sheet items by segment as of September 30, 2016:December 31, 2021:

 

(in thousands) Power and
Electro-
Mechanical
  Energy  Other  Total 
Revenues from external customers $16,157  $7,100  $  $23,257 
Depreciation and amortization(1)  371   339      710 
Interest expense  56   3   60   119 
Profit (loss) from operations  813   (201)  (1,197)  (585)
Segment assets  51,438   32,316   268   84,022 
Other intangibles assets, net  9,461   7,541      17,002 
Goodwill  13,102   7,403      20,505 
Expenditures for segment assets(2)  99   255      354 

(in thousands)

 

Electric Power

  

Telecommunications

  

Renewables

  

Other

  

Total

 

Segment assets

 $273,726  $80,800  $28,324  $29,489  $412,339 

Goodwill

  70,151   23,742   7,006   0   100,899 

Other intangible assets, net

  106,377   28,571   7,708   0   142,656 

21

10.

RECENT ACCOUNTING PRONOUNCEMENTS

 

The following information represents segment activity for On October 28, 2021, the nine months ended September 30, 2016 and selected balance sheet items as of September 30, 2016:

(in thousands) Power and
Electro-
Mechanical
  Energy  Other  Total 
Revenues from external customers $44,607  $22,451  $  $67,058 
Depreciation and amortization(1)  1,063   1,083   1   2,147 
Interest expense  166   5   193   364 
Profit (loss) from operations  1,038   (480)  (4,503)  (3,945)
Segment assets  51,438   32,316   268   84,022 
Other intangibles assets, net  9,461   7,541      17,002 
Goodwill  13,102   7,403      20,505 
Expenditures for segment assets(2)  580   545      1,125 

14

(1)For the Power and Electromechanical segment, depreciation and amortization totals for the three and nine months ended September 30, 2016, include $125 thousand and $338 thousand, respectively, which were classified as cost of revenues in the Condensed Consolidated Statements of Operations.

(2)Includes purchases of property plant and equipment and the investment in other intangible assets.

The following represents revenue by country:

(dollars in thousands) For the Three Months Ended September 30, 
  2017  2016 
  Amount  %  Amount  % 
USA $13,631   62% $13,152   56%
United Kingdom  3,634   17%  4,540   20%
All Others  4,531   21%  5,565   24%
Total $21,796   100% $23,257   100%

(dollars in thousands) For the Nine Months Ended September 30, 
  2017  2016 
  Amount  %  Amount  % 
USA $38,209   61% $35,006   52%
United Kingdom  10,434   17%  13,988   21%
All Others  13,498   22%  18,064   27%
Total $62,141   100% $67,058   100%

9. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2017, the FASBFinancial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-04,2021-08, Business Combinations (Topic 805): Intangibles - GoodwillAccounting for Contract Assets and Other (Topic 350): Simplifying the TestContract 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 Goodwill Impairment. ASU 2017-04 simplifies the goodwill impairment test by eliminating Step 2 from the test among other technical changes intendedrevenue contracts with customers. Legacy guidance requires entities to streamline the impairment test. The amendment requires an entityrecord contract assets and contract liabilities acquired to perform its annual, or interim goodwill impairment test by comparing thebe recorded at fair value of a reporting unit with its carrying amount.value. The amendments should be applied on a prospective basis.

The Company is required to adopt ASU 2017-04 for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and may early adopt as early as its first annual or interim impairment testing date following January 1, 2017. The Company elected to early adopt the amendments of this standard effective with its May 31, 2017 goodwill impairment test. The early adoption of this standard did not impact the Company’s financial condition, results of operations, and cash flows.

In August 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 clarifies whether eight specifically identified cash flow issues should be categorized as operating, investing or financing activities in the statement of cash flows. The guidance will be effective for the fiscal yearCompany beginning after December 15, 2017, including interim periods within that year. The Company is currently assessing the impact of this ASU on its consolidated financial statements.

15

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 is intended to provide financial statement users with more useful information about expected credit losses on financial assets held by a reporting entity at each reporting date. The new standard replaces the existing incurred loss impairment methodology with a methodology that requires consideration of a broader range of reasonable and supportable forward-looking information to estimate all expected credit losses. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2019 and early adoption is permitted for fiscal years and interim periods within those years beginning after December 15, 2018. The Company is currently assessing the impact of this ASU on its consolidated financial statements.

In February 2016, The FASB issued ASU No. 2016-02, Leases (Topic 842) (‘‘ASU 2016-02’’). ASU 2016-02 requires lessees to present right-of-use assets and lease liabilities (with the exception of short-term leases) on the balance sheet. The new guidance will be effective for public business entities for fiscal years beginning after December 15, 2018 including interim periods within that fiscal year. We are currently evaluating2022. Early adoption is allowed. If an entity early adopts, the impactentity would be required to apply the new guidance to all acquisitions made in the year of the Company’s pending adoption of ASU 2016-02 on the Company’s consolidated financial statements and will adoptearly adoption. The Company is still reviewing the standard in 2019.

In July 2015,and as of the FASB issued ASU No. 2015-11, “Simplifying the Measurementreporting date of Inventory” (“ASU 2015-11”) that requires entities to measure inventory at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2017. The guidance must be applied on a prospective basis with early adoption permitted. The guidance is this filing has not expected to have a material impact on our financial statements and we have not elected to early adopt.

 

11.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard was originally effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional note disclosures). On July 9, 2015, the FASB affirmed its proposal to defer the effective date of the new revenue standard for public entities by one year to annual reporting periods beginning after December 15, 2017, and interim periods beginning in the first interim period within the year of adoption. Early application is permitted, but not before the original effective date for public entities, annual reporting periods after December 15, 2016, and interim periods beginning in the first interim period within the year of adoption. We are currently evaluating the impact of the Company’s pending adoption of ASU 2014-09 on the Company’s consolidated financial statements. After initial evaluation, the Company expects to implement using the modified retrospective method. The Company continues to prepare for implementation in the first quarter of 2018. The Company expects to utilize certain practical expedients in its implementation of the revenue standard.

10. INVESTMENTS AND FAIR VALUE MEASUREMENTS

 

The Company’s fair value hierarchy for its cash equivalents, marketable securitiesour financial assets and derivative instruments, including contingent consideration,liabilities as of September 30, 2017 March 31, 2022 and December 31, 2016, respectively, 2021 was as follows:

 

16

 

(in thousands)            
September 30, 2017 Level 1  Level 2  Level 3  Total 
Money market securities $16  $  $  $16 
Total assets $16  $  $  $16 
Derivative instrument payable $  $413  $  $413 
Contingent consideration        45   45 
Total liabilities $  $413  $45  $458 

(in thousands)

                

March 31, 2022

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Contingent consideration

 $0  $0  $720  $720 

Front Line Power Construction Seller financed debt

  0   85,560   0   85,560 

Financial instrument liability - related to Syndicated debt

  0   0   1,753   1,753 

Financial instrument liability - related to Front Line Power Construction seller financed debt

  0   0   25,912   25,912 
                 

Total liabilities

 $0  $85,560  $28,385  $113,945 

 

December 31, 2016 Level 1  Level 2  Level 3  Total 
Money market securities $16  $  $  $16 
Total assets $16  $  $  $16 
Derivative instrument payable $  $467  $  $467 
Contingent consideration        103   103 
Total liabilities $  $467  $103  $570 

December 31, 2021

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Contingent consideration

 $0  $0  $720  $720 

Front Line Power Construction Seller financed debt

  0   86,183   0   86,183 

Financial instrument liability

  0   0   825   825 

Total liabilities

 $0  $86,183  $1,545  $87,728 

 

Fair Value Measurements   
Using Significant Unobservable Inputs (Level 3)   
(in thousands) Contingent
consideration
 
Balance at December 31, 2016 $103 
Payments  (61)
Fair value adjustments  3 
Balance at September 30, 2017 $45 

(in thousands)

 

Financial Instrument Liability - related to Syndicated debt

 

Balance at December 31, 2021

 $825 

Fair Value adjustment to Financial instrument liability

  928 

Balance at March 31, 2022

 $1,753 

(in thousands)

 

Financial Instrucment Liability - related to FLP seller financed debt

 

Balance at December 31, 2021

 $0 

Fair value of financial instrument liability at inception

  25,912 

Balance at March 31, 2022

 $25,912 

 

There were no transfers between Level 3 and Level 2 in 2017the three months ended March 31,2022 as determined at the end of the reporting period. The contingent consideration liability is associated with the acquisition of Tectrol in March 2015 and represents the present value of the expected future contingent payment based on revenue projections of select Tectrol legacy products. The inputs used to measure contingent consideration are classified as Level 3 within the valuation hierarchy. The valuation is not supported by market criteria and reflects the Company’s internal revenue forecasts. Since the valuation is not supported by market criteria, the valuation is completely dependent on unobservable inputs. During quarterly updates of the valuation, the calculation of the value is based on actual and reasonably estimated future revenues. Based on the Company’s revenue projections and third quarter 2017 analysis, the current value of the contingent consideration increased $3 thousand, net of actual payments made during the nine months ended September 30, 2017.

 

Contingent consideration in the amount

22

 

12.

11. LOSS PER COMMON SHARE

 

In accordance with FASBFinancial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 260 (“FASB ASC 260”), “Earnings per Share,” Basic loss from continuing operations per share, basic income from discontinued operations per share and basic net income (loss) per share that is available to shareholders is computed by dividing the net income (loss) available to common stockholders for the periodor loss by the weighted average number of common shares outstanding during the period. Diluted net income (loss)loss per share is computed by dividing net income (loss)the respective 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 from continuing operations in the three and nine months ended September 30, 2017 March 31, 2022 and September 30, 2016, March 31, 2021, the assumed exercise of stock options and the unvested restricted stock that would otherwise increase diluted shares using the treasury stock method would have had an antidilutive effect and therefore 1.00.2 million shares related to stock options outstanding at March 31, 2022 and 0 shares of restricted stock were excluded from the computation of diluted net loss per share for both the three and nine months ended September 30, 2017 March 31, 2022 and 2016. Accordingly,0.2 million shares related to stock options outstanding at March 31, 2021 were excluded for the three months ended March 31, 2021 and 3.0 million shares of restricted stock were excluded from the computation of diluted net loss per share is the same as basic net loss per share for the three and nine months ended September 30, 2017March 31, 2021. Accordingly, diluted earnings (loss) per share for continuing operations, discontinued operations and 2016.net income is the same as basic earnings (loss) per share for continuing operations, discontinued operations and net income for the three months ended March 31, 2022 and 2021.

 

17

  

For the Three Months

 

(in thousands, except share and per share amounts)

 

Ended March 31,

 
  

2022

  

2021

 

Loss from continuing operations, net of income taxes

 $(36,670) $(16,309)

Income from discontinued operations, net of income taxes

  (953)  (1,643)
         

Net loss

 $(37,623) $(17,952)
         

Basic and diluted weighted average number of shares outstanding

  83,126,709   44,564,868 
         

Loss from continuing operations per common share - basic and diluted

 $(0.44) $(0.36)
         

Income from discontinued operations - basic and diluted

  (0.01)  (0.04)
         

Loss per common share - basic and diluted

 $(0.45) $(0.40)

 

(in thousands, except share and per share amounts) For the Three Months
Ended September 30,
  For the Nine Months
Ended September 30,
 
  2017  2016  2017  2016 
Net loss $(1,902) $(507) $(7,324) $(4,656)
Basic and diluted weighted average number of shares outstanding  20,991,534   20,906,781   20,969,735   20,891,517 
                 
Basic and diluted loss per common share $(0.09) $(0.02) $(0.35) $(0.22)

13.

12. CAPITALIZED INTEREST

The cost of constructing facilities, equipment and project assets includes interest costs incurred during the assets’ construction period. The components of interest expense and capitalized interest are as follows:

(in thousands) For the Three
Months Ended
September 30,
  For the Nine
Months Ended
September 30,
 
  2017  2016  2017  2016 
Interest cost incurred $143  $123  $389  $370 
Interest cost capitalized - property and equipment  (6)  (4)  (15)  (6)
Interest expense, net $137  $119  $374  $364 

13. INCOME TAXES

 

The Company is subject to taxation in the U.S., as well as various state and foreign jurisdictions. The Company continues to record a full valuation allowance against the Company’sCompany's U.S. and U.K. net deferred tax assets and a partial valuation allowance on its Canada 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.period other than a $98 thousand carryback benefit at Canada. 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.

 

ATotal net income tax benefitexpense of $(177)$0.2 million and $16 thousand and $(560) thousand waswere recorded to the income tax provision from continuing operations for the three and nine months ended September 30, 2017March 31, 2022 and March 31, 2021, respectively, resulting in an effective tax rate of 8.5%(0.7%) and 7.1%(0.1%), respectively. The incomeIncome tax benefitexpense was primarily relatesdue to realizable benefits on losses in certain foreign jurisdictions offset by taxes on profitable foreign operations and domestic state minimum taxes. All of our USA deferred tax assets were reduced by a full valuation allowance. During the three months ended September 30, 2017, the Company received notice that the Canada Revenue Agency had accepted the Company’s application for a Scientific Researchtaxes and Experimental Development (SRED) tax credit for research and development performed in Canada in a prior year. Accordingly, the Company recorded a tax benefit of $51 thousand related to the SRED credit in the current period.

The Company’s total income tax expense (benefit) and effective tax rate was $(191) thousand and 27.4%, and $82 thousand and (1.8)% respectively, for the same periods in 2016. The income tax expense (benefit) for the quarter and year-to-date related primarily to taxes on the Company's profitable foreign operations and domestic state minimumestimated Texas gross receipts taxes.

 

18
23

The Company adopted ASU 2016-09,Compensation - Stock Compensation (Topic 718) effective January 1, 2017 on a modified retrospective basis, whereby a cumulative-effect adjustment to equity as

 

14.

19

ACCUMULATED OTHER COMPREHENSIVE LOSS

On October 5, 2016, Orbital Gas Systems Ltd. signed a five-year agreement with the London branch of Wells Fargo Bank N.A. for a multi-currency variable rate overdraft facility with a facility limit of 1.5 million pounds sterling ($2.0 million at September 30, 2017) that expires on October 5, 2021. The London branch of Wells Fargo Bank N.A. can demand repayment of amounts on overdraft at any time. The interest rate on the facility is a base rate plus a 2.25% margin. The facility had an interest rate of 2.5% at September 30, 2017. The overdraft facility is primarily secured by land, equipment, intellectual property rights, and rights to potential future insurance proceeds held by Orbital Gas Systems Ltd. At September 30, 2017, there was a $1.0 million balance outstanding on the overdraft facility and $1.0 million of credit was available.

15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

The components of accumulated other comprehensive income (loss)loss are as follows:

 

(in thousands) As of September 30,  As of December 31, 
  2017  2016 
Foreign currency translation adjustment $(3,619) $(5,590)
         
Accumulated other comprehensive income (loss) $(3,619) $(5,590)

16. CAPITAL LEASES

The following is an analysis of the leased property under capital leases by major classes as of September 30, 2017 and December 31, 2016:

  September 30,  December 31, 
(in thousands) 2017  2016 
Classes of Property        
Motor vehicles $  $98 
Equipment  19   19 
Less: Accumulated depreciation  (6)  (65)
  $13  $52 

The following summarizes the current and long-term portion of capital leases payable as of September 30, 2017 and December 31, 2016:

(in thousands)

 

As of March 31, 2022

  

As of December 31, 2021

 

Foreign currency translation adjustment

 $(3,989) $(3,995)

Accumulated other comprehensive loss

 $(3,989) $(3,995)

 

15.

20

NOTES PAYABLE AND LINE OF CREDIT

  September 30,  December 31, 
(in thousands) 2017  2016 
Current leases payable $3  $28 
Long-term leases payable  10   12 
  $13  $40 

17. NOTES PAYABLE

 

Notes payable is summarized as follows as of September 30, 2017 and December 31, 2016:follows:

 

(in thousands) September 30,
2017
  December 31,
2016
 
Mortgage note payable(1) $3,373  $3,439 
Acquisition Note Payable - related party(2)  5,304   5,304 
Ending Balance $8,677  $8,743 

(in thousands)

 

As of March 31, 2022

  

As of December 31, 2021

 

Syndicated debt (1)

 $105,000  $105,000 

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

  86,730   86,730 

Note Payable - Financing notes (3)

  672   1,357 

Seller Financed notes payable - Reach Construction Group, LLC acquisition (4)

  3,510   3,480 

Vehicle and equipment loans (5)

  1,268   222 

Non-recourse payable agreements (6)

  4,223   8,269 

Notes payable - Institutional investor (7)

  29,086   33,922 

Conditional settlement notes payable agreement (8)

  2,500   3,000 

Full Moon and CFS - loans to prior owners (9)

  31   2 

Subtotal

  233,020   241,982 

Unamortized prepaid financing fees

  (11,043)  (12,603)

Total long-term debt

  221,977   229,379 

Less: notes payable, current

  (68,563)  (72,774)

Notes payable, less current portion

 $153,414  $156,605 

 

(1)

(1)

On October 1, 2013, November 17, 2021, the fundingCompany 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 the purchase of the Company’s Tualatin, Oregon corporate offices from Barakel, LLC was completed.Front Line Power Construction, LLC. The purchase price for this asset was $5.1 million. The purchase was funded, in part, byLenders made a promissory note payableTerm Loan to Wells Fargo BankFront Line in the initial principal amount of $3.7 million plus$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 first30 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 is 13.5% at March 31, 2022.

24

(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 2% above LIBOR, payable over ten years6% per annum and as modified, $20 million is due on May 6, 2022, $15 million is due on December 31, 2022, and $52 million is due on May 31, 2023.  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 balloon payment due at maturity. It was secured by6% per annum interest rate in exchange for a deedreduction of trust onshares issued to Mr. Johnson of 400,000. Additionally in a Q12022 amendment to the purchased property which was executed by CUI Properties, LLC and guaranteed by CUI Global, Inc. During the nine months ended September 30, 2017,note, 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 principal payments of $66 thousand against the mortgage promissory note payable. At September 30, 2017, the balance owedup by issuing Mr. Johnson additional common shares.  See Subsequent Event footnote 20 for more information on the mortgage promissory note payable was $3.4 million, of which $93 thousand and $3.3 million were in current and long-term liabilities, respectively.amendments to these Promissory notes. See Note 14, Working Capital Line of Credit and Overdraft Facility,Debt modification subheading below for more information on the Company's debt covenants.modification of the unsecured promissory notes.

(2)(3)The noteCompany has three notes payable to International Electronic Devices, Inc. (formerly CUI, Inc.) is associatedFirst Insurance Funding executed in 2021 for the purposes of financing a portion of the Company's insurance coverage. Two of these notes have an annual percentage rate of 4.35% and one note with an annual percentage rate of 3.00%, all three notes to be paid in ten monthly payments. The notes are set to mature in May, July and September of 2022.
(4)

Includes two seller-financed notes payable, one for $5 million and the acquisitionsecond for $1.5 million. In August 2021, the $5 million note was amended from its original 18-month term; the Company paid $1 million in cash and exchanged 155,763 shares of CUI, Inc.common stock in exchange for an additional $1 million reduction in principal. The promissory note is due May 15, 2020new loan had a face value of $2.0 million at a rate of 6% per annum and includes a 5%was recorded based on an estimated market interest rate of 10% per annum with an original issue discount of $48 thousand. The second seller financed note payable is due 36-months from the April 1, 2020 acquisition date. Both notes had an original stated interest payable monthlyrate of 6% per annum. The Company recently filed and the principal due asserved a balloon payment at maturity. The note contains a contingent conversion feature, such that in the event of default on the noteFederal Civil Complaint asserting various causes-of-action against the holder of the note, can, atincluding misrepresentations made during the holder’s option, convertcourse of negotiating this transaction.  Based on that complaint, the note principalevidence contained therein, and the conduct described, the Company reasonably believes that it owes no additional compensation as a result of this transaction.

(5)Includes vehicle and equipment loans with interest rates ranging from 1.00% to 9.15%.
(6)The Company entered into common stock at $0.001 per share.a non-recourse agreement with C6 which 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 first12 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 September 30, 2017, March 31, 2022, the future payments for this financing agreement was approximately $4.2 million ($3.8 million net of discount). See Subsequent Events footnote 20 for information on amendments to this note.

25

(7)

On March 23, 2021, the Company completed a note payable agreement with an 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%, and an original issue discount of $1.0 million.  The carrying value was $4.5 million at March 31, 2022. The note payable is in compliance with all terms of this promissory notepayable within eighteen (18) months after the purchase date and the conversion featurecreditor may request payment of up to $1 million per calendar month beginning 6 months after initial issuance.

On May 11, 2021, the Company completed note payable agreement with the institutional investor with a face amount of $10.7 million, a stated interest of 9.0% per annum and a combined original issue discount and unamortized prepaid fees of $1.0 million and a carrying value of $7.8 million at March 31, 2022. The net proceeds were to be used for working capital, future acquisitions and general corporate purposes. Beginning six (6) months from the purchase price date, investor has the right, in its sole and absolute discretion, to redeem all or any portion of the Note (such amount, the “Redemption Amount”) subject to the maximum monthly redemption amount of $1 million per calendar month, by providing Company with a “Redemption Notice," and is payable in full within 18 months of issuance.

On December 20, 2021, the Company completed a 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 $15.7 million at March 31, 2022. The Company has not effective. made any payments on this note as of March 31, 2022.

For payments made by exchanging stock for payments against the debt in 2022, the Company recorded a total loss of $0.7 million on the exchanges due to the Company issuing shares at a lower price than the current market price on the dates of exchange.

(8)In October 2020, the Company entered into a conditional settlement agreement with a subcontractor to make payments of $3.5 million at 0 interest over three years. The Company made a $0.5 million payment in the fourth quarter of 2021. In the current period, the Company made a $150,000 payment in February 2022, and a $350,000 payment in March 31, 2022. The Company is scheduled to make a $1 million payment by November 2022 and the final $1.5 million payment by November 2023.
(9)Represents Coax Fiber Solutions and  Full Moon Telecom, LLC opening balance sheet loans to prior Coax Fiber Solutions and Full Moon Telecom, LLC owners.

 

18. CONCENTRATIONSLine 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 March 31,2022 the Company had an outstanding balance on the line of credit of $4.0 million with 0 dollars available for borrowing.

 

ForDebt Modifications

In the three months ended September 30, 2017, 27%first quarter of revenues were derived2022, the Company entered into a loan modification on the Front Line Seller Financed notes payable. In order to extend the maturity date of these loans from the original maturity date of May 16, 2022, the Company agreed to reduce the restriction period on the stock granted to the sellers from two years to one customer: Digi-Key Electronics and guarantee a $4.00 stock value upon the expiration of the restriction period. The stock price guarantee was valued as a put option and the additional expected cost of the debt from the put option was determined to be an extinguishment of debt and for this transaction, the Company recorded a $25.3 million loss on extinguishment. The put option was valued at $25.9 million and the difference between the put option value and the discount on the orginal and amended seller notes was recorded as a loss on extingusihment. The put option was valued as of the March 29, 2022 modification date. Between the inception date and the quarter-end date of March 31, 2022, the Company's stock fluctuated by $.01 and the Company determined that any revaluation of the put option for a change in the Power and Electromechanical segment. For the value during those three months ended September 30, 2016, 19% days would be immaterial. 

26

16.

CONCENTRATIONS

 

The Company’s major product lines duringin 2021 and 2022 were electric power transmission and distribution maintenance and service, utility-scale solar construction projects and telecommunications maintenance and service.

The Company had the first nine monthsfollowing revenue concentrations by customer greater than 10% of 2017 and 2016 were power and electromechanical products and natural gas infrastructure and high-tech solutions.consolidated revenue:

 

  For the Three Months Ended March 31, 

Customer

 

2022

  

2021

 

Customer 1

 <10%   40%

Customer 2

  <10%   27%

Customer 3

 

<10%

   16%

Customer 4

  28% <10% 

Customer 5

  19% <10% 

Customer 6

  14% <10% 

Total concentrations

  61%  83%

At September 30, 2017,The Company did not have geographic revenue concentrations outside the U.S.A. greater than 10% of consolidated revenue.

27

The Company had the following gross trade accounts receivable concentrations by customer greater than 10%of $11.5 million, 16% was due from one customer: National Grid in the Energy segment. At December 31, 2016,gross trade accounts receivable:

  

As of March 31,

  

As of December 31,

 

Customer

 

2022

  

2021

 

Customer 4

 

28

%  30%

Customer 5

  15%  16%

Customer 6

  13%  <10% 

Total concentrations

  56%  46%

The Company did not have a geographic concentrations of the gross trade accounts receivable totaling $9.5 million, 30% was due from three customers: Scotia Gas Networks plc, Socrate spa, and National Grid, each at 10% inoutside of the Energy segment.U.S.A. greater than 10% of gross trade accounts receivable.


 

21

CUIThe Company had one1 supplier concentration of approximately 11% and 12% for the three and nine months ended September 30, 2017, respectively, related to inventory product received. DuringMarch 31, 2022 in the threeRenewables segment and nine months ended September 30, 2016, CUI had one1 supplier concentration of 8%approximately 12% in the three months ended March 31, 2021 in the Electric Power segment.

28

17.

ACQUISITIONS

Acquisition of Coax Fiber Solutions

Effective March 7, 2022, GTS, an OEG subsidiary, entered into a share purchase agreement to acquire Coax Fiber Solutions (CFS), a Georgia based GDOT Certified contractor specializing in Aerial Installation, directional drilling, trenching, plowing, and missile crews for telecommunications, power, gas, water, CCTV, ATMS, and traffic signal cable installation. GTS paid $0.8 million and are to issue 125,000 shares of restricted common stock to the Seller to purchase CFS with the stock preliminarily vaued at $250,000. Goodwill reflects the excess purchase price over the fair value of net assets. The Company recorded preliminary opening balance items of $0.4 million of current assets, $0.5 million of fixed assets, $1.4 million of goodwill, and $1.3 million of liabilities as part of this transaction. The company is currently in the process of finalizing the allocation of the purchase price for this acquisition.

18.

COMMITMENTS AND CONTINGENCIES

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 inventory product received.

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 had revenue concentrationmust reimburse the surety for expenses or outlays it incurs. Certain bonds are for open-ended contracts with multiple work orders so the value may increase as the work progresses and more work orders are started. The bonds will remain in place as the United Kingdom forCompany completes projects and resolves any disputed matters with the three months ended September 30, 2017,customers, vendors and 2016subcontractors related to the bonded projects. As of 17%March 31, 2022 the total amount of the outstanding performance and 20%, respectively.

The Company had revenue concentration in the United Kingdom for the nine months ended September 30, 2017 and 2016 of 17% and 21%, respectively.

At September 30, 2017 and December 31, 2016,payment bonds was approximately $108.1 million. In addition, the Company had trade accounts receivable concentrationsletters of credit outstanding of $1.4 million as of March 31, 2022.

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 United Kingdomordinary course of 33%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 27%, respectively. At September 30, 2017, the Company had a trade accounts receivable concentration in Canada of 11%.hour and other employment-related damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief.

 

19. OTHER EQUITY TRANSACTIONS

The following shares issued during 2017 were recorded in expenseRegarding 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. In addition, 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 prepaid asset usingcash flows. In all instances, management has assessed the grant-date fair valuematter based on current information and made a judgment concerning its potential outcome, considering the nature of the stock: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.

 

29

19.

22

SUBSEQUENT EVENTS

Date of
issuance
 Type of
issuance
 Expense/
Prepaid/
Cash
 Stock
issuance
recipient
 Reason for
issuance
 Total no.
of
shares
  Grant date
fair value
recorded at
issuance
(in
thousands)
 
January, April and August 2017 Vested restricted common stock Expense Four board members Director compensation  33,956  $150 
                 
January, February and June 2017 Common stock Expense Three Employees Approved bonus  28,634   182(1)
                 
January 2017 Common stock Expense Related party Q4 Royalty Fee  1,233   8(1)
                 
January and February 2017 Common stock Expense Two Employees Cashless stock option exercises  245   (2)
                 
May 2017 Common stock Prepaid exp/
expense
 Third-party consultant Strategic investor marketing services  15,000   57(3)
                 
           79,068  $397(4)

 

(1)Bonuses and royalty of $176 thousand were accrued and expensed in 2016.

(2)The Company received $— for the issuance in the cashless option exercises.

(3) Amount includes $38 thousand that was included in prepaid expense at September 30, 2017.

(4) Does not include stock expense of $130 thousand included in accrued liabilities at September 30, 2017 for unissued stock.

23

20. SUBSEQUENT EVENTEquity Raise

 

On October 23, 2017,April 20,2022, the Company closed onentered into a Sales Agreement pursuant to which the Company may offer and sell, from time to time, up to $50,000,000 in shares of its common stock. NaN sales have been made as of this filing.

On April 28, 2022, the Company entered into an underwritten public offeringadditional Securities Purchase Agreement with an institutional investor to raise gross proceeds of 7,392,856$21 million. The Purchase Agreement provides for the sale and issuance by the Company of an aggregate of: (i) 9,000,000 shares at a publicof the Company’s common stock, (ii) pre-funded warrants to purchase up to 7,153,847 shares of Common Stock and (iii) warrants (the “Accompanying Warrant” and together with the Shares and the Pre-Funded Warrants, the “Securities”) to purchase up to 16,000,000 shares of Common Stock. The offering price of $2.80 per share, including 964,285 shares sold atShare and associated Accompanying Warrant is $1.30 and the public offering price pursuantper Pre-Funded Warrant and associated Accompanying Warrant is $1.30. Proceeds were received in May 2022, and used to pay the underwriter's exerciseamount due on the Front Line Power seller financed notes.

Loan Modifications

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

On April 29, 2022, the Company reached an agreement with the Front Line Power Construction, LLC Sellers to pay $20 million of the $35 million due May 16, 2022 by May 6, 2022 and to extend the remaining $15 million to a due date of December 31, 2022.

Non-recourse financing agreement

In April, 2022, the Company took out three non-recourse agreements with C6 Capital for the sale of future revenues in fullthe combined amount of its option to purchase additional shares to cover over-allotments. The net proceeds to CUI Global (after deducting underwriting discount and other estimated expenses payable by the Company) were approximately $19.2$20.2 million. The Company intends to usereceived approximately $13.3 million after the net proceeds from the offering  primarily for general corporate purposes, which may include operating expenses, working capital to improvededuction of an original issue discount and promote its commercially available products, advance product candidates, future acquisitions or share repurchases, expand international presence and commercialization, general capital expenditures and satisfaction of debt obligations.upfront fees. In October 2017, April 2022, the Company used somepart of the proceeds of the public offeringfrom these non-recourse agreements to pay off  the non-recourse C6 note of $4.2 million that was on the balance sheet as of March 31, 2022. The loans vary in length from 26 to 48 weeks.

Sale of Orbital U.K.

On May 10, 2022, the Company completed the sale of its lineOrbital U.K. operations for the agreed upon amount of credit, which had3,000,000 GBP. The Company received 1,500,000 GBP on the settlement date and the remaining 1,500,000 GBP will be received within 60 days of the settlement date. The Company could receive additional consideration if certain events transpire during the 12-month restricted period following the settlement date.In addition, the Company will receive a balance“royalty” of $1.9 million at September 30, 2017.15% on any sales of the GasPT device related to Snam Rete Gas and/or the Future Billing Methodology (FBM) Project.

 

30

Item 2.

24

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

 

Item 2. 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 the Company’s unaudited condensed consolidated financial statements as of September 30, 2017March 31, 2022 and notes thereto included in this document and the audited consolidated financial statements in the Company’s 10-K filing for the period ended December 31, 20162021 and the notes thereto. In addition to historical information, the following discussion and other parts of this Form 10-Q contain forward-looking information that involves risks and uncertainties. The Company’s actual results could differ materially from those anticipated by such forward-looking information due to factors discussed elsewhere in this Form 10-Q.

 

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, express or implied by such forward-looking statements. These forward-looking statements are identified by their 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; changes in regulatory environment; extraordinary external events such as the current pandemic health event resulting from COVID-19; 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-Q 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.

 

31

Overview

CUI GlobalOrbital Energy Group is a platformdiversified infrastructure services company serving customers in the electric power, telecommunications, and renewable markets. The Company is dedicated to maximizing shareholder value through greenfield development and the acquisition developmentof, and commercializationinvestment in successful, entrepreneurial led companies to profitably grow revenues by providing end-to-end solutions to customers, primarily in the renewable, electric power transmission and distribution, and telecommunications infrastructure markets. The Company is organized in three segments. The Electric Power segment consists of new, innovative technologies. ThroughFront 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 consists of Gibson Technical Services (GTS) along with its subsidiaries CUI Global has builtIMMCO, 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. Coax Fiber Solutions was acquired as of March 7, 2022, and is a diversified portfolio of industry leading technologies that touch many markets.Georgia based GDOT Certified contractor specializing in Aerial Installation, directional drilling, trenching, plowing, and missile crews for telecommunications, power, gas, water, CCTV, ATMS, and traffic signal cable installation.

 

25

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. 

The Company has experienced rapid growth through organic growth and acquisitions as the Company benefits from its 2021 investments and acquisitions and as the economy continues to emerge from the COVID-19 induced slowdown. First Quarter 2022 revenue was over twelve times greater than the Company's total revenue from the first quarter of 2021. Improved revenues and income were as a result of the inclusion of a full quarter of operations from the November acquisition of Front Line Construction in the Electric Power segment along with improved revenue and gross margins from the rest of the segment. The Company's results also reflect the inclusion of the 2021 Telecom acquisitions that began operations in the second quarter of 2021. The Company continues to incur professional fees related to mergers and acquisitions as the Company pursues both organic growth and growth through acquisitions. The Company's Telecommunications segment made an additional "tuck-in" acquisition in the first quarter of 2022 for cash and stock consideration of approximately $1 million. The three-month period ended March 31, 2022 for all segments began to see tangible benefits from the investments the Company made in 2021 through improved revenue and gross margins. The Company's results were affected negatively in the first quarter of 2022 by the $25.3 million loss on extinguishment of the Company's seller financed debt on the November 2021 Front Line Construction acquisition. The loss on extinguishment was primarily related to financial instruments included in the first quarter 2022 loan modification. Partially offsetting this loss was a  $5.2 million gain on the forfeiture of restricted stock by a Renewable segment executive. 

In the first quarter of 2021, the Company incurred ramp-up costs in the Electric Power segment that put downward pressure on margins in the first quarter of 2021.The Company also incurred professional fees related to mergers and acquisitions as the Company pursued both organic and growth through acquisitions. The three-month period ended March 31, 2021 for both segments were also negatively affected by generally lower economic activity due to the COVID-19 pandemic that caused economic slowdowns throughout the world.

 

For the three and nine months ended September 30, 2017, CUI GlobalMarch 31, 2022, Orbital Energy Group, Inc. had a consolidated loss from operations of $2.0$1.8 million and $7.7 million, respectively, compared to consolidated loss from operations in the three and nine months ended September 30, 2016March 31, 2021 of  $0.6 million and $3.9 million, respectively.$15.6 million. During the three and nine months ended September 30, 2017, CUI GlobalMarch 31, 2022, Orbital Energy Group, Inc. had a consolidated loss from continuing operations of $36.7 million compared to a loss of $16.3 million in the comparable prior-year period.

During the three months ended March 31, 2022, Orbital Energy Group, Inc. had a consolidated net loss of $1.9$37.6 million and $7.3 million, respectively, compared to a consolidated net loss in the three and nine months ended September 30, 2016March 31, 2021 of $0.5 million and $4.7 million, respectively.$18.0 million. The consolidatedgreater net loss for the three and nine months ended September 30, 2017,March 31, 2022, was primarily the result of lower revenue in the Energy segment related to lower salesloss on extinguishment of gas related metering, monitoring and control systems, including GasPT and the negative impact of hurricane related work stoppages and customer delays/issues in the Houston market, lower gross profit margins in the Energy segment, and the ongoing amortization of intangible assetsdebt related to the Orbital Gas Systems Limitedloan modification of the seller financed debt and CUI-Canada acquisitions. In addition,ongoing merger and acquisition activity. SG&A cost decreases in the Power and ElectromechanicalOther segment had slightlyrelate to the 2021 cash-settled SARS mark to market adjustment along with lower gross profit on slightly higher revenues inemployee performance bonuses. 

Revenues from continuing operations increased for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Overall lower results for the nine months ended September 30, 2017 were partially offset by increased revenues and gross profit in the Power and Electromechanical segment for the nine month period. In 2017, a lower value of the British pound SterlingMarch 31, 2022 due to the June 2016 Brexit vote resultedcontinued ramp-up of the Electric Power and Renewables segments along with the addition of the Telecommunications segment which was assembled via acquisitions in lower translated revenue at our U.K. operations, but did not have a significant effect on operating or net income.2021 and 2022.

 

32

Continuing Results of Operations

The following tables set forth, for the period indicated, certain financial information regarding revenue and costsoperating results by segment.

 

For the three months ended September 30, 2017:Three Months Ended March 31, 2022:

 

(dollars in
thousands)
 Power and
Electro -
Mechanical
  Percent of
Segment
Revenues
  Energy  Percent of
Segment
Revenues
  Other  Percent  of
Segment
Revenues
  Total  Percent of
Total
Revenues
 
  $  %  $  %  $  %  $  % 
Total revenues $16,700   100.0% $5,096   100.0% $    $21,796   100.0%
                                 
Cost of revenue  11,006   65.9%  3,350   65.7%       14,356   65.9%
Gross profit  5,694   34.1%  1,746   34.3%       7,440   34.1%
                                 
Operating expenses:                                
Selling, general and administrative  3,975   23.8%  2,988   58.6%  1,249     8,212   37.7%
Depreciation and amortization  179   1.1%  342   6.7%       521   2.4%
Research and development  620   3.7%  76   1.5%      %  696   3.2%
Provision (credit) for bad debt  30   0.2%            30   0.1%
Other operating expenses                %     
Total operating expenses  4,804   28.8%  3,406   66.8%  1,249     9,459   43.4%
Income (loss) from operations $890   5.3% $(1,660)  (32.5)% $(1,249)   $(2,019)  (9.3)%

(dollars in thousands)

 

Electric Power

  

Percent of Segment Revenues

  

Telecommunications

  

Percent of Segment Revenues

  

Renewables

  

Percent of Segment Revenues

  

Other

  

Percent of Segment Revenues

  

Total

  

Percent of Total Revenues

 
      

$%

      

$%

      

$%

      $%      

$%

 

Revenues

 $39,695   100.0% $16,095   100.0% $14,464   100.0% $   % $70,254   100.0%

Income (loss) from operations

 $(711)  (1.8)% $477   3.0% $428   3.0% $(1,982)  % $(1,788)  (2.5)%

 

26
For the Three Months Ended March 31, 2021:

(dollars in thousands)

 

Electric Power

  

Percent of Segment Revenues

  

Telecommunications

  

Percent of Segment Revenues

  

Renewables

  

Percent of Segment Revenues

  

Other

  

Percent of Segment Revenues

  

Total

  

Percent of Total Revenues

 
  

$

  

%

  

$

   % 

$

   % 

$

   % 

$

   %

Revenues

 $3,189   100.0% $   % $2,372   100.0% $   % $5,561   100.0%

Income (loss) from operations

 $(4,264)  (133.7)% $   % $(5,326)  (224.5)% $(6,032)  % $(15,622)  (280.9)%

 

For the three months ended September 30, 2016:

(dollars in
thousands)
 Power and
Electro -
Mechanical
  Percent of
Segment
Revenues
  Energy  Percent of
Segment
Revenues
  Other  Percent of
Segment
Revenues
  Total  Percent of
Total
Revenues
 
  $  %  $  %  $  %  $  % 
Total Revenues $16,157   100.0% $7,100   100.0% $    $23,257   100.0%
                                 
Cost of revenue  10,424   64.5%  4,236   59.6%      %  14,660   63.0%
Gross Profit  5,733   35.5%  2,864   40.4%      %  8,597   37.0%
                                 
Operating expenses:                                
Selling, general and administrative  4,208   26.1%  2,675   37.7%  1,197    %  8,080   34.8%
Depreciation and amortization  246   1.5%  339   4.8%     %  585   2.5%
Research and development  480   3.0%  32   0.4%      %  512   2.2%
Provision (credit) for bad debt  (14)  (0.1)%  14   0.2%      %     %
Other operating expenses       5   0.1%      %  5   
Total operating expenses  4,920   30.5%  3,065   43.2%  1,197    %  9,182   39.5%
Income (loss) from operations $813   5.0% $(201)  (2.8)% $(1,197)   % $(585)  (2.5)%

For the nine months ended September 30, 2017:

(dollars in
thousands)
 Power and
Electro -
Mechanical
  Percent of
Segment
Revenues
  Energy  Percent of
Segment
Revenues
  Other  Percent  of
Segment
Revenues
  Total  Percent of
Total
Revenues
 
  $  %  $  %  $  %  $  % 
Total revenues $48,542   100.0% $13,599   100.0% $    $62,141   100.0%
                                 
Cost of revenue  31,900   65.7%  8,893   65.4%      %  40,793   65.6%
 Gross profit  16,642   34.3%  4,706   34.6%      %  21,348   34.4%
                                 
Operating expenses:                                
Selling, general and administrative  12,249   25.3%  9,492   69.8%  3,739    %  25,480   41.0%
Depreciation and amortization  643   1.3%  993   7.3%      %  1,636   2.6%
Research and development  1,766   3.6%  154   1.1%      %  1,920   3.1%
Provision (credit) for bad debt  (3)    (18)  (0.1)%      %  (21)  
Other operating expenses  3   %  9   0.1%      %  12   
Total operating expenses  14,658   30.2%  10,630   78.2%  3,739    %  29,027   46.7%
Income (loss) from operations $1,984   4.1% $(5,924)  (43.6)% $(3,739)   % $(7,679)  (12.3)%

27

For the nine months ended September 30, 2016:

(dollars in
thousands)
 Power and
Electro -
Mechanical
  Percent of
Segment
Revenues
  Energy  Percent of
Segment
Revenues
  Other  Percent of
Segment
Revenues
  Total  Percent of
Total
Revenues
 
  $  %  $  %  $  %  $  % 
Total Revenues $44,607   100.0% $22,451   100.0% $    $67,058   100.0%
                                 
Cost of revenue  28,693   64.3%  12,576   56.0%      %  41,269   61.5%
Gross Profit  15,914   35.7%  9,875   44.0%      %  25,789   38.5%
                                 
Operating expenses:                                
Selling, general and administrative  12,733   28.6%  9,093   40.5%  4,502    %  26,328   39.3%
Depreciation and amortization  725   1.6%  1,083   4.8%  1    %  1,809   2.7%
Research and development  1,401   3.1%  143   0.7%      %  1,544   2.3%
Provision (credit) for bad debt  17   0.1%  31   0.1%      %  48   0.1%
Other operating expenses       5         %  5   
Total operating expenses  14,876   33.4%  10,355   46.1%  4,503    %  29,734   44.4%
Income (loss) from operations $1,038   2.3% $(480)  (2.1)% $(4,503)   % $(3,945)  (5.9)%

Revenue

(dollars in thousands)

  For the Three Months Ended
September 30,
       
Revenues by Segment or Category 2017  2016  $ Change  % Change 
Power and Electromechanical $16,700  $16,157  $543   3.4%
Energy  5,096   7,100   (2,004)  (28.2)%
Other           %
Total revenues $21,796  $23,257  $(1,461)  (6.3)%

  For the Nine Months Ended
September 30,
       
Revenues by Segment or Category 2017  2016  $ Change  % Change 
Power and Electromechanical $48,542  $44,607  $3,935   8.8%
Energy  13,599   22,451   (8,852)  (39.4)%
Other           %
Total revenues $62,141  $67,058  $(4,917)  (7.3)%

The revenues for the three and nine months ended September 30, 2017 were lower thanMarch 31, 2022 increased compared to the 2021 comparable period due to lower revenues in our Energy segment associated with the timing of customer project delivery schedules and the temporary halt of deliveries of gas related metering, monitoring and control systems, including GasPT units in Italy due to a tariff issue as well as lower translated revenue at our UK operationsprimarily due to the lower value British pound Sterlingadditions of the Telecommunications segment following Brexit. The Italian contract is stillthe acquisitions of GTS in placeQ2 2021, IMMCO in Q3 2021, Full Moon in Q4 2021 and Coax Fiber Solutions, LLC in Q1 2022 along with the Company announcedacquisition of Front Line Power Construction, LLC to the Company's Electric Power segment in October 2017 that the tariff issue has been resolved and that the Company believes deliveries will resume in early 2018. Partially offsetting the decreaseQ4 2021. In addition, Orbital Power Inc. in the EnergyElectric Power segment was an increasehas continued to ramp up operations in revenue in the Power and Electromechanical segment in the three and nine months ended September 30, 2017 due to the timing of customer delivery schedules and sell through activity at distributors.

28

The customer orders related to the Power and Electromechanical segment are associated with the existing product offering, continued new product introductions, continued sales and marketing programs, new customer engagements, distribution channel sales, and the addition in March 2015 of the products from CUI-Canada. In October 2017, the Company announced its first order for its new power monitoring and switching system (ICE Switch) for data centers that is expected to be deliveredQ1 2022. Renewables had significantly higher revenues in the first quarter of 2018.2022 compared to the first quarter of 2021, which was affected by supply chain issues and a general slow-down caused by the COVID-19 epidemic.

The Electric Power Segment held backlogs of customer orders of approximately $217.1 million as of March 31, 2022 and Electromechanical segment$207.7 million at December 31, 2021. Increases to the backlog are due to the continuous growth of Front Line Power Construction and EnergyOrbital Power Inc. The Telecommunications segment held backlogs of customer orders of approximately $18.1$189.3 million and $13.7 million, respectively, as of September 30, 2017.March 31, 2022, compared to a backlog of $194.5 million at December 31, 2021. The Renewables segment had a backlog of $107.1 million as of March 31, 2022 compared to $121.4 million as of December 31, 2021 which is due to further work being completed and revenue being recognized in the quarter on projects that make up this backlog. Of the March 31, 2022 backlog totals, the amounts expected to be recognized in the twelve months following Q1 are approximately $294.6 million. The amounts expected to be recognized in the twelve months following Q1 consist of $131.6 million from the Electric Power segment, $55.9 million from the Telecommunications segment and $107.1 million from the Renewables segment. 

 

Cost of revenues

(dollars in thousands)

 

  For the Three Months Ended
September 30,
       
Cost of Revenues by Segment orCategory 2017  2016  $ Change  % Change 
Power and Electromechanical $11,006  $10,424  $582   5.6%
Energy  3,350   4,236   (886)  (20.9)%
Other           %
Total cost of revenues $14,356  $14,660  $(304)  (2.1)%

  For the Nine Months Ended
September 30,
       
Cost of Revenues by Segment or Category 2017  2016  $ Change  % Change 
Power and Electromechanical $31,900  $28,693  $3,207   11.2%
Energy  8,893   12,576   (3,683)  (29.3)%
Other           %
Total cost of revenues $40,793  $41,269  $(476)  (1.2)%

 

For the three months ended September 30, 2017,March 31, 2022, the cost of revenues as a percentage of revenue increaseddecreased to 66%83.5% from 63% during145.3% respectively from the prior-year comparative period. ForThis decrease was primarily in the nine months ended September 30, 2017, the costElectric Power segment and was attributable to ramp-up of revenues as a percentin the segment both organically and the addition of revenue increased to 66% from 62% during the prior year comparative period. This percentageFront Line Power Construction.  Margin percentages will vary based upon the power and electromechanical product mix sold, the mix of natural gas systems sold, contract labor necessary to complete gas relatedOrbital Power Services projects including emergency response services, new crew onboarding costs, and the competitive markets in which the Company competes, and foreign exchange rates.competes.

 

The cost of revenues as a percentage of revenue forthree months ended March 31, 2021 were affected by start-up costs at the Company's Orbital Power and Electromechanical segment for the three and nine month period ended September 30, 2017 was 66% for both periods compared to 65% and 64%, respectively,Services group, lower margin projects during the prior-year comparative periods. Costperiod for Orbital Solar Service and was also affected negatively by the COVID-19 pandemic and the resulting world-wide economic slowdown. Ramp-up costs included onboarding personnel, equipment and supplies in advance of revenues increasedprojected work in order to obtain the necessary resources in a competitive market as the Companye prepared for forward demand expectations. Additionally, adverse weather negatively impacted several Electric Power fixed price jobs in the Power and Electromechanical segment primarily as a resultfirst quarter of higher sales volume. The cost of revenues as a percentage of revenue for the Energy segment for the three and nine months ended September 30, 2017 was 66% and 65%, respectively, compared to 60% and 56%, respectively in the three and nine months ended September 30, 2016. The higher cost percentage in the Energy segment was due to a less favorable product mix during the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016. As previously noted, the Energy segment was affected by a temporary halt in shipments of higher margin GasPT units to an Italian customer until a tariff issue affecting the customer's project was resolved. 2021.

The Company expects grosscontinued improvement in margins during the remainder of 2022 as the Electric Power segment continues to improve in 2018 as a result of the resolution of the tariff issuegain efficiencies and increase revenues, and the resumptionTelecommunications segment sees continued synergistic benefits from the acquisitions of deliveries on the Italian contract.GTS, IMMCO, Full Moon, Coax Fiber Solutions.

 

29

Selling, General and Administrative Expenses

(dollars in thousands)

 

Selling, General, and Administrative For the Three Months Ended
September 30,
       
Expense by Segment or Category 2017  2016  $ Change  % Change 
Power and Electromechanical $3,975  $4,208  $(233)  (5.5)%
Energy  2,988   2,675   313   11.7%
Other  1,249   1,197   52   4.3%
Total SG&A $8,212  $8,080  $132   1.6%

Selling, General, and Administrative For the Nine Months Ended
September 30,
       
Expense by Segment or Category 2017  2016  $ Change  % Change 
Power and Electromechanical $12,249  $12,733  $(484)  (3.8)%
Energy  9,492   9,093   399   4.4%
Other  3,739   4,502   (763)  (16.9)%
Total SG&A $25,480  $26,328  $(848)  (3.2)%

Selling, General and Administrative (SG&A) expenses include 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 and service lines including Novum, ICE, GasPT, IRISfor the Electric Power segment, Renewables segment, and VE, and new product introductions.Telecommunications segments.

 

During the three and nine months ended September 30, 2017,March 31, 2022, SG&A increased $0.1decreased $3.9 million and decreased $0.8 million, respectively, compared to the prior-year comparative periods. The increasedecrease in SG&A for the quarter were due to decreased SG&A costs in the Renewables segment due to the $5.2 million forfeiture related to a Renewables Executive termination. Also contributing to the decreased SG&A was lower executive bonuses and a $0.3 million positive cash settled SARS mark-to-market fair value adjustment in 2022 compared to a $1.9 million mark to market expense in the first quarter of 2021. These decreases were partially offset by increases in SG&A in the third quarter of 2017 was due to increased costs in the Energy segment,Electric Power and Telecommunications segments primarily due to severance cost of approximately $0.1 million inorganic growth and the U.K.Company's 2021 and increased advertising costs of approximately $86 thousand for the segment. The decreases in the nine months ended September 30, 2017 are largely due to $0.8 million in severance costs incurred in the first nine months of 2016 in the Power and Electromechanical segment for the transition of the R&D team to CUI-Canada and for various positions within the Energy segment. In addition, the Company began implementing various cost saving measures in Q2 2017, which provided some benefits in Q2 and Q3 and are expected to further improve SG&A going forward. These benefits were partially offset by a $0.2 million increase in advertising costs in the Energy segment in the nine months ended September 30, 2017. SG&A as a percent of revenue slightly increased to 38% from 35% of total revenue during the three-month period ended September 30, 2017, primarily due to lower revenues and slightly increased to 41% from 39% for the nine-month period ended primarily due to lower revenues offset by SG&A expense reductions.2022 aquistions. 

 

 

Depreciation and Amortization

(dollars in thousands)

 

Depreciation and Amortization by For the Three Months Ended
September 30,
       
Segment or Category 2017  2016  $ Change  % Change 
Power and Electromechanical $363  $371  $(8)  (2.2)%
Energy  342   339   3   0.9%
Other           %
Total depreciation and amortization $705  $710  $(5)  (0.7)%

Depreciation and Amortization by For the Nine Months Ended
September 30,
       
Segment or Category 2017  2016  $ Change  % Change 
Power and Electromechanical $1,139  $1,063  $76   7.1%
Energy  993   1,083   (90)  (8.3)%
Other     1   (1)  (100.0)%
Total depreciation and amortization $2,132  $2,147  $(15)  (0.7)%
  

For the Three Months Ended

         

Depreciation and amortization expense by Segment

 

March 31,

         
  

2022

  

2021

  

$ Change

  

% Change

 

Electric Power

 $6,975  $217  $6,758   3114.3%

Telecommunications

  1,091      1,091   100.0%

Renewables

  608   1,089   (481)  (44.2)%

Other

  16   441   (425)  (96.4)%

Total depreciation and amortization

 $8,690  $1,747  $6,943   397.4%

 

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

 

The total depreciation and amortization expense for the three months ended September 30, 2017 and 2016 included $184 thousand and $125 thousand, respectively, which was included in cost of revenues. The total depreciation and amortization expense for the nine months ended September 30, 2017 and 2016 included $496 thousand and $338 thousand, respectively, which was included in cost of revenues. The increase in depreciation and amortization included in cost of sales was due to increased allocation of depreciation and amortization to cost of revenues at CUI Inc. and CUI-Canada.

Depreciation and amortization expense in the three and nine months ended September 30, 2017 was down slightlyMarch 31, 2022 were up compared to the three and nine months ended September 30, 2016 as a result of lower translated depreciation and amortization at our U.K. operationMarch 31, 2021 primarily due to lower pound Sterling translation rates duringadditional amortization in the periods resulting fromElectric Power and Telecommunication segments and GTS, IMMCO, Full Moon Telecom, and Front Line Power Construction acquisition intangibles that were acquired in the Brexit votesecond, third and fourth quarter of 2021 and depreciation of equipment used by Orbital Power Services which has been ramping up their capital expenditures as more crews are added. 

Loss on Extinguishment of debt

Loss on extinguishment of debt in June 2016. Partially offsetting this decrease were depreciationthe three ended March 31, 2022 of $26.0 million was primarily related to loan modifications on the Company's seller financed debt with the sellers of Front Line Power Construction and amortization increases due to new additions to property and equipment and intangibles duringapproximately $0.7 million loss on extinguishment in the lastfirst three months ended March 31, 2022 related to the payment of 2016 and first ninecertain loans with stock-based payments. Loss on extinguishment of debt in the three months ended March 31, 2021 related to the removal of 2017.a conversion feature of a note payable. 

 

Research and Development

Other Income (Expense), net

(dollars in thousands)

 

Research and Development by For the Three Months Ended
September 30,
       
Segment or Category 2017  2016  $ Change  % Change 
Power and Electromechanical $620  $480  $140   29.2%
Energy  76   32   44   137.5%
Other           %
Total research and development $696  $512  $184   35.9%

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Research and Development by For the Nine Months Ended
September 30,
       
Segment or Category 2017  2016  $ Change  % Change 
Power and Electromechanical $1,766  $1,401  $365   26.1%
Energy  154   143   11   7.7%
Other           %
Total research and development $1,920  $1,544  $376   24.4%

Research and development costs are associated with the continued research and development of new and existing technologies including the Novum advanced power technologies, ICE, GasPT, VE Technology and other products. The increase in research and development for the three months and nine months ended September 30, 2017 was due to increased activities on the ICE technology in Power and Electromechanical Segment and GasPT and VE technologies in the Energy segment.

Provision (Credit) for Bad Debt

(dollars in thousands)

Provision (Credit) for Bad Debt by For the Three Months Ended
September 30,
       
Segment or Category 2017  2016  $ Change  % Change 
Power and Electromechanical $30  $(14) $44   (314.3)%
Energy     14   (14)  (100.0)%
Other           %
Total provision (credit) for bad debt $30  $  $30   %

Provision (Credit) for Bad Debt by For the Nine Months Ended
September 30,
       
Segment or Category 2017  2016  $ Change  % Change 
Power and Electromechanical $(3) $17  $(20)  (117.6)%
Energy  (18)  31   (49)  (158.1)%
Other           %
Total provision (credit) for bad debt $(21) $48  $(69)  (143.8)%

The changes in bad debt are due to normal fluctuations in bad debt reserves based on the age of receivables. Collections are strong across all businesses in the three and nine months ended September 30, 2017.

Other Income (Expense)

Other income (expense) consisted of the following items:

(dollars in thousands)

  For the Three Months Ended
September 30,
       
Other Income (Expense) 2017  2016  $ Change  % Change 
Foreign exchange gain (loss) $43  $(74) $117   (158.1)%
Interest income  4   7   (3)  (42.9)%
Unrealized gain (loss) on derivative  20   48   (28)  (58.3)%
Other, net  10   25   (15)  (60.0)%
Total Other income (expense) $77  $6  $71   1,183.3%

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 For the Nine Months Ended
September 30,
       

For the Three Months Ended

     
Other Income (Expense) 2017  2016  $ Change  % Change 

Other Income (Expense), net

 

March 31,

       
 

2022

  

2021

  

$ Change

  

% Change

 
Foreign exchange gain (loss) $76  $(229) $305   (133.2)% (49) $95 $(144) (151.6)%

Financial instrument expense

 (928)  $(928) (100.0)%
Interest income  14   24   (10)  (41.7)% 78 81 $(3) (3.7)%
Unrealized gain (loss) on derivative  55   (98)  153   (156.1)%
Other, net  24   38   (14)  (36.8)%

Rental income

 129 113 $16 14.2%

Other income

  187   24  $163   679.2%
Total Other income (expense) $169  $(265) $434   (163.8)% $(583) $313 $(896)  (286.3)%

 

Other income (expense) changes were due primarilycontributing to increased expenses was a $0.9 million mark-to-market loss on the value of a financial instrument liability related to the Company's syndicated debt offset by interest rateincome, rental income and exchange rate fluctuations in the three and nine months ended September 30, 2017.other income. 

Interest Expense

For both the three months ended September 30, 2017 and 2016,March 31, 2022, the Company incurred interest expense net of amounts capitalized,$8.0 million compared to interest for the three months ended March 31, 2021 of $0.1$0.7 million. The increase in interest expense in 2022 is related to the increase in notes payable outstanding in the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily related to the Front Line Power Construction acquisition.

 

For both the nine months ended September 30, 2017 and 2016, the Company incurred interest expense, net of amounts capitalized, of $0.4 million.

Interest expense in 2017 and 2016 is associated with interest on the line of credit, bank overdraft facility, bank and secured promissory notes.

Income Tax Expense (Benefit)

The Company is subject to taxation in the U.S., various state and foreign jurisdictions. We continueThe Company continues to record a full valuation allowance against the Company's U.S. and United Kingdom net deferred tax assets and partial valuation allowance against the Company’s U.S.Canada 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

 

For additional analysis, see Note 13,14, "Income Taxes," of the condensed consolidated financial statements in Part I - Item I, "Financial Statements."

 

Liquidity and Capital Resources

 

GeneralCompany 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 three months ended March 31, 2022, the Company had an accumulated deficit of $248.5 million, loss from continuing operations of $36.7 million, and net cash used in operating activities of $1.6 million.

As of September 30, 2017,March 31, 2022, the Company held Cashhad cash and cash equivalents of $0.8$20.9 million available for working capital needs and planned capital asset expenditures and a working capital deficit of $65.1 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 its expansion; refer to Note 15 — Notes Payable and Line of Credit. 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 15 — Notes Payable and Line of Credit and Note 19 Subsequent Events. 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. As of March 31, 2022, the Company has an effective S-3 shelf registration statement with $112.0 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 three months ended March 31, 2022, our revenues have increased by $64.7 million resulting in over a 1,100% increase in revenue compared to the three-month period ended in 2021. 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 Systems. 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.

General

As of March 31, 2022, the Company held cash and cash equivalents of $20.9 million and restricted cash of $1.2 million. Operations, investments, patents and equipment have been funded through cash on hand, the issuance of common stock authorized by its July 2020 and February 2021 S-3 filings, seller financing, and the issuance of debt and financing through the sale of future revenues. The Company filed an S-3 in February of 2021 which became effective in April 2021 for the issuance of additional stock or public debt. In April, 2022, the Company issued 9,000,000 shares of common stock and pre-funded warrants to purchase up to 7,153,847 shares of Common Stock for a total raise of $21.0 million before expenses.  In August of 2021, the Company opened a $4.0 million dollar line of credit to support additional funding. Major uses of cash in the first three months of 2022 included the purchases of property and equipment, debt payments and changes in working capital. The Company continues to work to improve its short-term liquidity through management of its working capital. Long-term liquidity is expected to benefit from revenue growth and earnings through its existing operations. Overall volume growth in the Company's businesses both organically and through acquisitions are expected to benefit cash flows as well.

 

Cash Used Inin Operations

Cash used in operations of $5.8$1.6 million was a $6.9$11.9 million increasedecrease in cash used compared to the comparablethree-month period in 2016. 2021.

The ninedecrease in uses of cash in the first three months ended September 30, 2017 were significantly affected by lowerof 2022 are primarily related to higher merger and acquisition costs in the first quarter of 2021 as compared to 2022 along with company growth in 2022. Due to the large increase in revenue and associated costs both through acquisitions and organic growth, the related gross profits inCompany was better able to cover it's fixed costs, but increased interest costs partially offset the Energy segment.benefits of much greater sales. Also with the growth of the company's revenue comes increased accounts receivables and accounts payable, which outside of timing, generally have offsetting cash flow effects. In the first nine months of 2017,short-term, rapid growth can have a detrimental effect on cash flows as sales on account with positive gross margins waiting to be collected exceed accounts payable not yet paid. As the Company's growth begins to moderate, overall cash used in operations by the Energy segment was approximately $5.4 million, and cash used in operations by the Other category was approximately $4.0 million. These uses of cash were partially offset by cash provided by operating activities in the Power and Electromechanical segment of approximately $3.6 million. We believe cash from operations will improve in the Energy segment in the first half of 2018 due to the recently announced resolution of the tariff issue that caused a temporary halt in deliveries on our Italy contract. The Power and Electromechanical segment is expected to continue to provide cash from operationsimprove through revenue growth associated with new customers and we believe the cash usage rate in the other category to be less in the fourth quarter of the year due to cost cutting initiatives put in place during the first nine months of the year.

33

larger projects. The change in cash used in operating activities since December 31, 2021, exclusive of net loss, is primarily the result of the following line items: Timing of cash payments on accounts payable and accrued liabilities was a combined $12.1 million increase in cash provided by operating activities related to larger net lossprojects at Orbital Solar Services and Front Line Power. Changes in cost in excess of billing and accounts receivable from December 31, 2021 was a combined $10.3 million use of cash for the nineperiod and reflects the greater revenue volumes in the first three months ended September 30, 2017of 2022 compared to the ninefirst three months ended September 30, 2016 and negative cash flows due to the increase in trade accounts receivable of $1.7 million, increases in inventory of $0.9 million, increases in prepaid expenses and other current assets of $0.6 million, increases in Deposits and other assets of $0.5 million, decreases in accrued expenses of $0.5 million, and payments of accounts payable of $0.3 million partially offset by cash provided by changes in unearned revenue of $2.2 million, costs in excess of billings of $1.4 million and changes in billings in excess of costs of $0.7 million.2021.

 

During the first nine months of 2017 and 2016, the Company used stock as a form of payment to certain employees, vendors and consultants. For the nine months ended September 30, 2017 and 2016, the Company recorded a total of $0.3 million and $1.0 million, respectively for share-based compensation related to equity given, or to be given and for options vesting, to employees and consultants for services provided and as payment for royalties earned. The decrease in expense was due to lower accrued share-based bonuses and that all employee options were fully vested in 2016.

 

S-3 registration

The Company filed an S-3 registration statement on March 14, 2017July 17, 2020 containing a prospectus that was effective March 29, 2017.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, CUI GlobalOrbital Energy Group may from time to timetime-to-time issue various types of securities, including common stock, preferred stock, debt securities and/or warrants, up to an aggregate amount of $100 million.

On October 23, 2017, the Company closed on an underwritten public offering of 7,392,856 shares at a public offering price of $2.80 per share, including 964,285 shares sold at the public offering price pursuant to the underwriter's exercise in full of its option to purchase additional shares to cover over-allotments. The net proceeds to CUI Global (after deducting underwriting discount and other estimated expenses payable by the Company) were approximately $19.2$150 million. The Company intendsutilized this S-3 registration to use the net proceeds from the offering  primarilyissue additional common stock in July 2021 for general corporate purposes, which may include operating expenses, working capital to improve and promote its commercially available products, advance product candidates, future acquisitions or share repurchases, expand international presence and commercialization, general capital expenditures and satisfaction of debt obligations. In October 2017, the Company used some of the proceeds of the public offering to pay off its line of credit, which had a balance of $1.9$38 million at September 30, 2017.before expenses.

 

As the Company focuses on growing its infrastructure services market presence both organically and through strategic acquisitions, technology development, product and service line additions, developing CUI-Canada operations, and developing Orbital Gas Systems, North America, Inc. during the remainder of 2017 and beyond,increasing Orbital’s market presence, it will fund strategic acquisitions, research and developmentthese activities together with related operating, sales and marketing efforts for its various product offerings with cash on hand, available debt and possible proceeds from the October 2017future issuances of equity through the S-3 registration statement.statement, and available debt.

 

Capital Expenditures and Investments

During the first nine months of 2017 and 2016, CUI Global invested $0.6 million and $0.5 million, respectively, in property and equipment. These investments typically include additions to equipment, tooling for manufacturing, furniture, computer equipment, buildings and leasehold improvements and other fixed assets as needed for operations. The Company anticipates further investment in property and equipment in the remaining quarter of 2017 in support of its on-going business and continued development of product lines and technologies, and setup of its new facility for Orbital Gas Systems North America Inc..

34

During the nine months ended September 30, 2017 and 2016, CUI Global invested $0.4 million and $0.7 million, respectively, in other intangible assets. These investments typically include product certifications, capitalized website development, software for engineering and research and development and software upgrades for office personnel.

Financing Activities

For the nine months ended September 30, 2017 and 2016, the Company recorded net proceeds of $1.9 million and $0, respectively, from line of credit and recorded net proceeds of $1.0 million and $0 from the overdraft facility in the U.K. and made payments of $27 thousand and $38 thousand, respectively, toward capital lease obligations; $66 thousand and $64 thousand, respectively, toward the mortgage note payable; and $61 thousand and $59 thousand, respectively, toward the contingent liability related to the Tectrol, Inc. acquisition.

As a result of the Company’s cash management system at CUI, checks issued but not presented to the bank for payment may create a negative book cash balance. Such a negative balance would be included in the Company's two-year revolving line of credit (LOC). There was not a negative book cash balance as of September 30, 2017. At September 30, 2017, the Company had a $1.9 million balance on its $6.0 million LOC. There was $4.1 million available on the Company's working capital line of credit at September 30, 2017.

CUI GlobalEnergy 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.

 

Financing activities – related party activitySee the section entitled Recent Sales of Unregistered Securities for a complete listing of all unregistered securities transactions.

For

Capital Expenditures and Investments

During the ninefirst three months of 2022 and 2021, Orbital Energy Group invested $1.4 million and $2.9 million, respectively, in property and equipment. These purchases in 2022 were primarily for capital assets associated with the Company's Electric Power segment and Telecommunications segment. These investments typically include additions to equipment including vehicles and equipment for powerline service and maintenance, engineering, furniture, computer equipment for office personnel, facilities improvements and other fixed assets as needed for operations. In addition, during the three months ended September 30, 2017March 31, 2022, the Company had proceeds from a notes receivable of $3.5 million. The Company anticipates further investment in fixed assets and 2016, $0.2 millionacquisitions during 2022 in support of interest payments were made in relation to the promissory note issued to related party, IED, Inc.its on-going business and continued development of its infrastructure services operations.

 

Financing Activities

In the three months ended March 31, 2022 and 2021 the Company made cash payments on notes payable of $5.8 million and proceeds from notes payable of $9.7 million, respectively. The Company also received $3.5 million in proceeds from their line of credit and made $2 million in payments on this line of credit in 2022 compared to $0.4 million paid in the quarter ended March 31, 2021 to close its line of credit that was acquired with the Orbital Solar Services business. In the three months ended March 31 2022 and 2021 the Company recorded payments on finance lease obligations of $1.2 million and one thousand dollars, respectively.  

Recap of Liquidity and Capital Resources

The Wells Fargo mortgage promissory note has a balance at September 30, 2017 of $3.4 million, of which $93 thousand is the current portion. Additionally, at September 30, 2017,At March 31, 2022, the Company had a $1.9 million balance on its $6.0 million LOC with Wells Fargo Bank. The LOC contains certain financial covenants. In the second quarter of 2017, the Company renegotiated the terms of the LOC and its related covenants. The Company is currently in compliance with its covenants. CUI Global, Inc., the parent company, is a payment guarantor of the LOC.

On October 5, 2016, Orbital Gas Systems Ltd. signed a five-year agreement with the London branch of Wells Fargo Bank N.A. for a multi-currency variable rate overdraft facility with a facility limit of 1.5 million pounds sterling ($2.0 million at September 30, 2017) that expires on October 5, 2021. The balance at September 30, 2017 was $1.0 million.

At September 30, 2017, the Company hadunrestricted cash and cash equivalents balances of $0.8$20.9 million. At September 30, 2017,March 31, 2022 the Company had $0.6$2.2 million of cash and cash equivalents balances at domestic financial institutions whichthat were covered under the FDIC insured deposits programs and $32 thousand$0.4 million covered at foreign financial institutions covered under the United Kingdom Financial Services Compensation (FSC) and the Canada Deposit Insurance Corporation (CDIC). The money market balance of $16 thousand is covered under the SIPC insured program for investments up to a maximum of $500,000. At September 30, 2017, the Company had cash and cash equivalents of $0.1 million in Japanese bank accounts, $14 thousand in European bank accounts and $18 thousand in Canadian bank accounts.

At September 30, 2017, the Company has capital lease obligations of $13 thousand, of which $3 thousand are current obligations.

35

As described in Item 1A - Risk factors included in the Company's 2016 10-K, the United Kingdom's proposed withdrawal from the European Union could have an adverse effect on our business and financial results but the extent of the effect, if any, is not yet determinable. See Item 1A - Risk factors in our 2016 10-K, for more information on the potential risks that are associated with the United Kingdom's pending withdrawal from the European Union.institutions.

 

The Company believeshad a net loss of $37.6 million and cash used in operating activities of $1.6 million during the three months ended March 31, 2022. As of March 31, 2022, the Company's accumulated deficit was $248.5 million.

The Company expects the revenues from its continuing operations, and existing financing structure, including cash on hand, to cover operating and cash equivalents at September 30, 2017 in conjunction with the proceeds from the October 2017 equity raise, its S-3 registration statement and the availability under line of credit and overdraft facilities, will provide sufficient cash to meet its short-term working capital requirementsother expenses for the next twelve months.months of operations. However, in the short-term, the Company expects to continue to need cash support as the Company's businesses increase their market positions and revenue. The Company believes the operating requirements necessarymay issue additional debt or equity to further support Orbital Gas Systems, North America, Inc.continuing operations and CUI-Canadaacquisition efforts in the remaining three months of 2017 will be comparable to the same period of 2016.2022.

 

Critical Accounting Policies

 

OurThe Company has adopted various accounting policies to prepare the consolidated financial statements and related public financial information are based onin accordance with Generally Accepted Accounting Principles, ("GAAP"). Certain of the Company's accounting policies require the application of accounting principles generally acceptedsignificant judgment by management in selecting the United States (“GAAP”). GAAP requiresappropriate assumptions for calculating financial estimates. In the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impactCompany's 2021 Annual Report on Form 10-K filed on March 31, 2022, the assets, liabilities, revenue, and expense amounts reported. Significant estimates include estimates used to reviewCompany identified the Company’s goodwill, impairment and estimations of long-lived assets, impairment of prepaid royalties, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, warranty reserves, valuation of non-cash capital stock issuances and the valuation allowance on deferred tax assets. These estimates can also affect supplemental information contained in the Company’s external disclosures including information regarding contingencies, risk and financial condition. We believe the Company’s use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. 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 materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of the Company’s financial statements.

While all of the Company’s significant accounting policies impact the Company’s financial condition and results of operations, we view the following policies as critical:

Asset impairments
Identifiable intangibles and goodwill
Percentage of completion
Revenue recognition
Stock based compensation
Valuation of noncash capital stock issuances
Income taxes

Policies determined to be critical are those policies that have the most significant impact on the Company’s financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. The Company’s management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on the Company’s results of operations, financial position or liquidity for the periods presented in this report. A description of our critical accounting policies and related judgments and estimates that affect the preparation of our condensedCompany's more significant estimates and assumptions used in preparing the Company's consolidated financial statements is set forth in our 2016 Form 10-K.statements.

36

 

Recent Accounting Pronouncements

 

See Note 911 Recent Accounting Pronouncements of the condensed consolidated financial statements in Part I—Item I, “Financial Statements” for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial position, results of operations and cash flows.

 

Off-Balance Sheet Arrangements

 

AsSee Note 20 Commitments and Contingencies of September 30, 2017, the Company had nocondensed consolidated financial statements in Part I—Item I, “Financial Statements” for a description of the Company's off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosure about Market Risk

Quantitative and Qualitative Disclosure about Market Risk.

 

The Company is exposed to market risk in the ordinary course of business. Market risk represents the risk of loss that may impact the Company’s 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. 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 operations in four principal currencies: the U.S. dollar, the British pound sterling, the Canadian dollar and the Japanese yen. These currencies operate primarily as the functional currency for the Company’s U.S., U.K., Canadian and Japanese operations, respectively. Cash is managed centrally within each

40

 

The table below details the percentage of revenues and expenses by the four principal currencies for the three and nine months ended September 30, 2017 and 2016:

     British Pound  Canadian  Japanese 
  U.S. Dollar  Sterling  Dollar  Yen 
For the Three Months Ended September 30, 2017                
Revenues  81%  18%  %  1%
Operating expenses  66%  24%  9%  1%
For the Three Months Ended September 30, 2016                
Revenues  75%  24%  %  1%
Operating expenses  68%  24%  7%  1%

     British Pound  Canadian  Japanese 
  U.S. Dollar  Sterling  Dollar  Yen 
For the Nine months ended September 30, 2017                
Revenues  81%  18%  %  1%
Operating expenses  66%  25%  8%  1%
For the Nine months ended September 30, 2016                
Revenues  70%  29%  %  1%
Operating expenses  68%  24%  7%  1%

To date, the Company has 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. We believe that during the three and nine months ended September 30, 2017, the effect of a hypothetical 100 basis point shift in foreign currency exchange rates applicable to the Company’s business would not have had a material impact on the Company’s consolidated financial statements.

Investment Risk

The Company has an Investment Policy that, among other things,inter alia, provides an internal control structure that takes into consideration safety (credit risk and interest rate risk), liquidity and yield. The Company’s investmentOur Investment officers, CEO and CFO, oversee the investment portfolio and compile a quarterly analysis of the investment portfolio if any investments exist during the period.

Investments made bywhen applicable for internal use. In addition, the Company are subjecthas an Investment Committee to an investment policy, which limitsadminister and operate the Company’s riskportfolio. At March 31, 2022, the Investment Committee is comprised of loss exposure by setting appropriate credit quality requirements for investments held, limiting maturities to be 1 year or less,C. Stephen Cochennet, Corey A. Lambrecht, Chairman, and also setting appropriate concentration levels to prevent concentrations. This includes a requirement that no more than 3% of the portfolio, or $0.5 million, whichever is greater, may be invested in one particular issue.Nicholas M. Grindstaff, CFO.

 

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 revenuesrevenue concentrations with large customers. Additionally,See Note 16 of the Company has a largeCompany's financial statements for more information on the Company's concentration of cash, trade receivables and revenues in foreign countries including the United Kingdom, Canada and Japan.

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Item 4. Controls and Proceduresrisks.

 

Item 4.

Controls and Procedures. 

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer (CEO) and its Chief Financial Officer (CFO), 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 quarterly report. In designing and evaluating the Company’s disclosure controls and procedures, the Company’s 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 the Company’s 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 September 30, 2017,March 31, 2022, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.effective.

 

Changes in Internal Control over Financial Reporting

There werehave been no significant changes in the Company’sour internal controlcontrols over financial reporting (as defined in Rule 13(a)-15(f) or Rule 15d-15(f) of the Exchange Act) during the three months ended September 30, 2017,March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’sour internal controlcontrols over financial reporting.

 

PART IIll – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

CUI Global,Orbital Energy Group, Inc. is occasionally party to various lawsuits, claims and its subsidiaries are not a party in anyother legal proceedings where theythat 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. The Company currently has no such reserves. In addition, 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 defendant. No director, officermaterial adverse effect on Orbital Energy Group, Inc.’s consolidated financial position, results of operations or affiliatecash 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 CUI Global, Inc., anythe 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.

The Company recently filed and served a federal civil complaint in the United States District Court for the Northern District of Texas – Dallas Division against the former owner of record or beneficiallyReach Construction Group LLC (“Reach”).  The complaint alleges, among other things, misrepresentations and misconduct committed by the former owner in conjunction with the purchase and sale of Reach to Orbital Energy Group, Inc.  Based on the information and evidence contained in the complaint, the Company reasonable believes that it owes no more than five percentcompensation to the former owner and is seeking return of any class of voting securities of CUI Global, Inc. or any associate of any such director, officer, affiliate of CUI Global, Inc. or security holder is a party adverse to CUI Global, Inc. or any of its subsidiaries or has a material interest adverse to CUI Global, Inc. or any of its subsidiaries.certain funds already paid.

 

Item 1A. Risk Factors.

 

There are no material changes from Risk Factors as previously disclosed in the Company’s Form 10-K filed with the Commission on March 14, 2017.31, 2022.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Common Stock Issued.

 

During the three months ended September 30, 2017,March 31, 2022, the Company issued the following shares of common stock, 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.

 

39

Date of issuance

 

Type of issuance

  

Stock issuance recipient

  

Reason for issuance

  

Total no. of shares

  

Grant date fair value recorded at issuance and periodic vesting (in thousands)

 

January 2022

 

Common stock

  

Consultant

  

Services

   17,320  $45 

January, February and March 2022

 

Common stock

  

Various

  

Debt payment

   2,653,365   4,445 

February 2022

 

Common stock

  

1 lender

  

Portion of original issue discount on $105 million credit facility *

   54,026    

Total other equity transactions

              2,724,711  $4,490 

 

Date of
issuance
 Type of issuance Expense/
Prepaid/
Cash
 Stock
issuance
recipient
 Reason for
issuance
 Total no.
of shares
  Grant date fair value
recorded at issuance
(in thousands)
 
August 2017 Vested restricted common stock Expensed Four board members Director compensation  15,196  $50 
                 
           15,196  $50(1)

* These shares were issuable as of November 17, 2021 and were recorded as part of additional paid in capital prior to issuance.

(1)Does not include stock expense of $45 thousand recorded in the quarter that was included in accrued liabilities at September 30, 2017.

Item 5. Other Information.

 

On September 20, 2017, the Company amended its line of credit agreement with Wells Fargo Bank, NA to increase the borrowings limit to $6 million through December 31, 2017 at which time the limit will return to $4 million under the original terms of the line of credit agreement. The associated agreement is included as an exhibit to this filing.None.

 

Item 6. ExhibitsExhibits.

 

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

 

Exhibit No.

Description
10.911

Documents relating to the temporary increase in the line of credit of our subsidiary, CUI, Inc., with Wells Fargo Bank, NA dated September 20, 2017Description

  

31.11

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934

  

31.21

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934

  

32.11

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

  

32.21

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.INS1

Inline XBRL Instance Document

  

101.SCH1

Inline XBRL Taxonomy Extension Schema Document

101.CAL 1

Inline XBRL Taxonomy Extension Calculation Linkbase Document

  
101.CAL

101.DEF 1

Inline XBRL Taxonomy Extension CalculationDefinition Linkbase Document

  
101.DEF

101.LAB 1

Inline XBRL Taxonomy Extension DefinitionLabel Linkbase Document

  
101.LAB

101.PRE 1

Inline XBRL Taxonomy Extension LabelPresentation Linkbase Document

  
101.PRE1104Cover Page Interactive Data File (formatted as Inline XBRL Taxonomy Extension Presentation Linkbase Documentand contained in Exhibit 101)

 

Footnotes to Exhibits:

1Filed herewith.

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

Signed and submitted this 9th16th day of November, 2017.May 2022.

 

  CUI Global,

Orbital Energy Group, Inc.

 

By:

/s/ William J. CloughJames F. O'Neil

 
  William J. Clough,

James F. O'Neil,

  

Chief Executive Officer/PresidentOfficer

  

(PrinciplePrincipal Executive Officer)

   
 

By:

/s/ Daniel N. FordNicholas M. Grindstaff

 
  Daniel N. Ford,

Nicholas M. Grindstaff,

  

Chief Financial Officer

  

(PrinciplePrincipal Financial Officer)

 

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