ORBITAL ENERGY GROUP, INC. Discussion and analysis by management of the financial position and operating results. (form 10-Q)

Important Note Regarding 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, 2021 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, 2020 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.



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Overview

Orbital Energy Group is a platform company dedicated to maximizing shareholder
value through greenfield development and the acquisition of, and investment 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. Orbital Energy Group's Electric Power and Solar
Infrastructure Services segment provides comprehensive network solutions to
customers in the electric power, telecommunications and solar industries. This
segment includes Orbital Power Services, Orbital Solar Services, and Orbital
Telecom Services. The Company started its Orbital Power Services operations
during the first three months of 2020 as a full-service provider of building,
maintenance and support to the electrical power distribution, transmission,
substation, renewables, and emergency response sectors of North America. Eclipse
Foundation Group, Inc., which began operations in January 2021 within Orbital
Power Services, is a drilled shaft foundation construction company that
specializes in providing services to the electric transmission and substation,
industrial, communication towers and disaster restoration market sectors, with
expertise in water, marsh and rock terrains. The Company acquired Orbital Solar
Services (formerly Reach Construction Group, LLC) as of April 1, 2020,
which provides engineering, procurement and construction services that support
the development of renewable energy generation focused on utility scale solar
and community solar projects. Orbital Telecom was launched through the
acquisition of GTS in April 2021 and expanded its service offerings in July 2021
with the acquisition of IMMCO. The Telecom group provided both topside and
bottom line benefits to the Company since acquisition.



The Company has more than doubled its third-quarter revenue year over year and
has also more than doubled its revenue for the first nine months of 2021
compared to the similar period in 2020. This has been accomplished through the
Company's acquisition and organic growth efforts. However, ramp-up costs at
Orbital Power Services contributed to lower margins and increased SG&A in the
Electric Power and Solar Infrastructure Services segment during the three and
nine months ended September 30, 2021. The Company also continued to incur
professional fees related to mergers and acquisitions as the Company continues
to pursue both organic growth and growth through acquisitions. The Company's
Integrated Energy Infrastructure Solutions and Services Segment
include subsidiaries, Orbital Gas Systems, Ltd., and Orbital Gas Systems, North
America, Inc., which are leaders in innovative gas solutions with more than 30
years of experience in design, installation and the commissioning of industrial
gas sampling, measurement and delivery systems providing solutions to the
energy, power and processing markets. Orbital Gas Systems manufactures and
delivers a broad range of technologies including environmental monitoring, gas
metering, process control, telemetry, gas sampling and BioMethane. The three-and
nine-month periods ended September 30, 2021 for both segments continue to face
headwinds due to the COVID-19 pandemic that has caused economic slowdowns
throughout the world, but economic activity has begun to improve and backlogs
are strong in the Electric Power and Solar Infrastructure segment.



In the first half of 2020, the Company launched Orbital Power Services. The
first nine months of 2020 included set up costs related to Orbital Power
Services and the establishment of the Company's shared services center in
Dallas, Texas as well as elevated professional fees related to mergers and
acquisitions as the Company pivoted from its legacy Power and Electromechanical
business that was divested in the second half of 2019 with the remaining Canada
and Japan business being divested in 2020. The second quarter of 2020 was
affected by generally lower economic activity due to the COVID-19 pandemic that
caused economic slowdowns throughout the world, which hampered growth in its
electric power and solar infrastructure ventures. The first nine months of 2020
also included a $4.8 million net loss of affiliate in Virtual Power Systems
("VPS"), respectively primarily as a result of a $3.5 million impairment loss on
the investment in the three months ended June 30, 2020.



For the three and nine months ended September 30, 2021, Orbital Energy Group,
Inc. had consolidated loss from operations of $11.7 million and $47.3 million,
respectively compared to consolidated loss from operations in the three and
nine months ended September 30, 2020 of $6.3 million and $20.6 million. During
the three and nine months ended September 30, 2021, Orbital Energy Group, Inc.
had a consolidated loss from continuing operations of
$10.1 million and $36.3 million, respectively compared to a loss of
$5.7 million and $22.6 million, respectively, in the comparable prior-year
period.



During the three and nine months ended September 30, 2021, Orbital Energy Group,
Inc. had a consolidated net loss of $10.1 million and $36.3 million,
respectively, compared to a consolidated net loss in the three and nine months
ended September 30, 2020 of $3.2 million and $19.9 million, respectively. The
greater net loss for the three months ended September 30, 2021, was primarily
the result of stock-based compensation, start-up costs related to Orbital
Power and ongoing merger and acquisition activity. Partially offsetting these
costs were $9.0 million tax benefit related to the acquisition of GTS in the
nine months ended September 30, 2021 and $2.5 million tax benefit related to the
acquisition of IMMCO. These tax benefits partially offset higher cost of revenue
and selling, general and administrative expense ("SG&A") in the Electric Power
and Solar Infrastructure Services and Integrated Energy Infrastructure segments.
Cost increases were associated with the inclusion of IMMCO since its July 28,
2021 acquisition, GTS since its April 13, 2021 acquisition and the inclusion of
the Orbital Solar Services business since its April 1, 2020
acquisition, including amortization costs on IMMCO, GTS and Orbital Solar
Service's acquisition intangibles, the ramp up of the Orbital Power
Services operations, and stock-based compensation. As the Company adds new
service crews in the Orbital Power Services business, there is a certain amount
of upfront costs related to that, including equipment, supplies and training
before the new crews can start generating income for the Company. As the Company
aggressively has ramped up the Orbital Power Services business, it has absorbed
more of these type set-up costs than it will need to once all teams are in place
and operating at full capacity. SG&A cost increases in the Other segment relate
to vesting and mark to market adjustments on cash-based executive stock
appreciation rights and employee performance bonus payments as well as
continuing merger and acquisition costs.



Revenues from continuing operations increased for the three and nine months ended September 30, 2021 due to the continued ramp-up of Orbital Power Services and the additions of GTS, IMMCO and Orbital Solar Services.

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Continuous operating results

The following tables present, for the period indicated, certain financial information regarding revenues and costs by segment.

For the three months ended September 30, 2021:


                                                                       Integrated
                                                                         Energy
                          Electric Power and       Percent of        Infrastructure       Percent of                       Percent of           

Percentage of

                         Solar Infrastructure        Segment          Solutions and         Segment                         Segment                          Total
(dollars in thousands)         Services             Revenues            Services           Revenues           Other         Revenues         Total         Revenues
                                                       $%                                     $%                               $%                             $%
Revenues                 $             24,822             100.0 %    $         6,097             100.0 %    $       -                - %   $  30,919             100.0 %
Cost of revenue                        22,561              90.9 %              4,608              75.6 %          (38 )              - %      27,131              87.7 %
Gross profit                            2,261               9.1 %              1,489              24.4 %           38                - %       3,788              12.3 %

Operating expenses:
Selling, general and
administrative                          7,338              29.5 %              2,259              37.1 %        4,104                - %      13,701              44.3 %
Depreciation and
amortization                            1,322               5.3 %                404               6.6 %           12                - %       1,738               5.6 %
Research and
development                                 -                 - %                  1                 - %            -                - %           1                 - %
Provision for
(recovery of) bad debt                     93               0.4 %                 (6 )            (0.1 )%           -                - %          87               0.3 %
Other operating
Expenses                                   (6 )               - %                  -                 - %            -                - %          (6 )               - %
Total operating
expenses                                8,747              35.2 %              2,658              43.6 %        4,116                - %      15,521              50.2 %
Loss from operations     $             (6,486 )           (26.1 )%   $        (1,169 )           (19.2 )%   $  (4,078 )              - %   $ (11,733 )           (37.9 )%



For the three months ended September 30, 2020:

                                                                       Integrated
                                                                         Energy
                          Electric Power and       Percent of        Infrastructure       Percent of                       Percent of           

Percentage of

                         Solar Infrastructure        Segment          Solutions and         Segment                         Segment                          Total
(dollars in thousands)         Services             Revenues            Services           Revenues           Other         Revenues         Total         Revenues
                                  $                     %                   $                  %                $              %               $               %
Revenues                 $              9,478             100.0 %    $         4,137             100.0 %    $       -                - %   $  13,615             100.0 %
Cost of revenue                         8,353              88.1 %              2,908              70.3 %            -                - %      11,261              82.7 %
Gross profit                            1,125              11.9 %              1,229              29.7 %            -                - %       2,354              17.3 %

Operating expenses:
Selling, general and
administrative                          2,252              23.8 %              2,663              64.4 %        2,264                - %       7,179              52.7 %
Depreciation and
amortization                            1,070              11.3 %                372               9.0 %           12                - %       1,454              10.7 %
Research and
development                                 -                 - %                  6               0.1 %            -                - %           6                 -
Provision for bad debt                      -                 - %                 15               0.4 %            -                - %          15               0.1 %
Other operating
expenses                                   23               0.2 %                  -               0.0 %            -                - %          23               0.2 %
Total operating
expenses                                3,345              35.3 %              3,056              73.9 %        2,276                - %       8,677              63.7 %
Loss from operations     $             (2,220 )           (23.4 )%   $        (1,827 )           (44.2 )%   $  (2,276 )              - %   $  (6,323 )           (46.4 )%




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For the nine months ended September 30, 2021:

                                                                       Integrated
                                                                         Energy
                          Electric Power and       Percent of        Infrastructure       Percent of                       Percent of           

Percentage of

                         Solar Infrastructure        Segment          Solutions and         Segment                         Segment                          Total
(dollars in thousands)         Services             Revenues            Services           Revenues           Other         Revenues         Total         Revenues
                                  $                     %                   $                  %                $              %               $               %
Revenues                 $             41,902             100.0 %    $        14,816             100.0 %    $       -                - %   $  56,718             100.0 %
Cost of revenue                        45,032             107.5 %             10,452              70.5 %          (84 )              - %      55,400              97.7 %
Gross profit (loss)                    (3,130 )            (7.5 )%             4,364              29.5 %           84                - %       1,318               2.3 %

Operating expenses:
Selling, general and
administrative                         23,194              55.3 %              7,207              48.7 %       13,455                - %      43,856              77.3 %
Depreciation and
amortization                            3,387               8.1 %              1,250               8.4 %           31                - %       4,668               8.2 %
Research and
development                                 -                 - %                  2                 - %            -                - %           2                 - %
Provision for
(Recovery of) bad debt                     93                 - %                (28 )            (0.2 )%           -                - %          65               0.1 %
Other operating
expenses                                  (15 )               - %                  -                 - %            -                - %         (15 )               - %
Total operating
expenses                               26,659              63.6 %              8,431              56.9 %       13,486                - %      48,576              85.6 %
Loss from operations     $            (29,789 )           (71.1 )%   $        (4,067 )           (27.4 )%   $ (13,402 )              - %   $ (47,258 )           (83.3 )%





For the nine months ended September 30, 2020:

                                                                       Integrated
                                                                         Energy
                          Electric Power and       Percent of        Infrastructure       Percent of                       Percent of           

Percentage of

                         Solar Infrastructure        Segment          Solutions and         Segment                         Segment                          Total
(dollars in thousands)         Services             Revenues            Services           Revenues           Other         Revenues         Total         Revenues
                                  $                     %                   $                  %                $              %               $               %
Revenues                 $             13,904             100.0 %    $        13,174             100.0 %    $       -                - %   $  27,078             100.0 %
Cost of revenue                        14,132             101.6 %              8,989              68.2 %            -                - %      23,121              85.4 %
Gross profit (loss)                      (228 )            (1.6 )%             4,185              31.8 %            -                - %       3,957              14.6 %

Operating expenses:
Selling, general and
administrative                          4,895              35.2 %              8,294              63.0 %        7,969                - %      21,158              78.1 %
Depreciation and
amortization                            2,147              15.4 %              1,108               8.4 %           30                - %       3,285              12.1 %
Research and
development                                 -                 - %                 51               0.4 %            -                - %          51               0.2 %
Provision for bad debt                      -                 - %                 23               0.2 %            -                - %          23               0.1 %
Other operating
expenses                                   23               0.2 %                  -                 - %            -                - %          23               0.1 %
Total operating
expenses                                7,065              50.8 %              9,476              72.0 %        7,999                - %      24,540              90.6 %
Loss from operations     $             (7,293 )           (52.4 )%   $        (5,291 )           (40.2 )%   $  (7,999 )              - %   $ (20,583 )           (76.0 )%






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Revenue

(dollars in thousands)

                                              For the Three Months Ended
Revenues by Segment                                  September 30,
                                               2021                2020           $ Change       % Change
Electric Power and Solar Infrastructure
Services                                   $      24,822       $       9,478     $   15,344          161.9 %
Integrated Energy Infrastructure
Solutions and Services                             6,097               4,137          1,960           47.4 %
Total revenues                             $      30,919       $      13,615     $   17,304          127.1 %




                                               For the Nine Months Ended
Revenues by Segment                                  September 30,
                                               2021                2020           $ Change       % Change
Electric Power and Solar Infrastructure
Services                                   $      41,902       $      13,904     $   27,998          201.4 %
Integrated Energy Infrastructure
Solutions and Services                            14,816              13,174          1,642           12.5 %
Total revenues                             $      56,718       $      27,078     $   29,640          109.5 %




The revenues for the three and nine months ended September 30, 2021 increased
compared to the 2020 comparable period primarily due to the additions of
Orbital Telecom Services following the acquisitions of GTS in Q2 and IMMCO in Q3
2021 and Orbital Solar Services in Q2 2020 as well as the ramp up of the Orbital
Power Services operations including a significant amount of storm-related work
in the quarter in the Electric Power and Solar Infrastructure Services segment.
In addition, the Integrated Energy Infrastructure Solutions and Services segment
increased in the three months ended September 30, 2021 due to significantly
higher revenue in our U.K. operations and slightly higher revenue in the North
American operations.

The UK operations rebounded after 2020 slowed down by Covid and Brexit. The we markets continue to face headwinds around COVID-19. Revenue generally fluctuates around the delivery schedule of clients’ projects.


The Electric Power and Solar Infrastructure Services Segment held backlogs of
customer orders of approximately $399.9 million as of September 30, 2021 and
$30.3 million at December 31, 2020. Increases to the backlog are due to the
acquisitions and growth of  Orbital Telecom, the ramp up of the Orbital Power
Services operations and an improved Orbital Solar Services backlog compared to
December 31, 2020. The Integrated Energy Infrastructure Solutions and Services
segment held backlogs of customer orders of approximately $10.7 million as of
September 30, 2021, an increase from the December 31, 2020 backlog of
$10.1 million due to the improvement in the business climate in both the U.S.
and U.K. markets. Of the September 30, 2021 backlog totals, the amounts expected
to be recognized in the twelve and eighteen months following Q3 were
approximately $191.5 million and $270.4 million, respectively. The
amounts expected to be recognized in the twelve and eighteen months following
Q3, consisted of $180.7 million and $259.7 million, respectively, from the
Electric Power and Solar Infrastructure Services segment and $10.7 million and
10.7 million, respectively, from the Integrated Energy Infrastructure Solutions
and Services segment.



Cost of revenues

(dollars in thousands)



                                              For the Three Months Ended
Cost of revenues by Segment                          September 30,
                                               2021                2020           $ Change       % Change
Electric Power and Solar Infrastructure
Services                                   $      22,561       $       8,353     $   14,208          170.1 %
Integrated Energy Infrastructure
Solutions and Services                             4,608               2,908          1,700           58.5 %
Other                                                (38 )                 -            (38 )       (100.0 )%
Total cost of revenues                     $      27,131       $      11,261     $   15,870          140.9 %




                                               For the Nine Months Ended
Cost of revenues by Segment                          September 30,
                                               2021                2020           $ Change       % Change
Electric Power and Solar Infrastructure
Services                                   $      45,032       $      14,132     $   30,900          218.7 %
Integrated Energy Infrastructure
Solutions and Services                            10,452               8,989          1,463           16.3 %
Other                                                (84 )                 -            (84 )       (100.0 )%
Total cost of revenues                     $      55,400       $      23,121     $   32,279          139.6 %




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For the three and nine months ended September 30, 2021, the cost of revenues as
a percentage of revenue increased to 88% and 98% respectively from 83% and 85%,
respectively from the prior-year period. This increase was primarily in the
Electric Power and Solar Infrastructure Services segment and was attributable to
ramp-up costs at the Company's Orbital Power Services group, and lower margin
projects during the period for Orbital Solar Services. Ramp-up costs have
included onboarding personnel, equipment and supplies in advance of projected
work in order to obtain the necessary resources in a competitive market as we
prepare for forward demand expectations. Additionally, adverse weather
negatively impacted several of Orbital Power Services' fixed price jobs in the
first quarter of 2021, which are now complete. Margin percentages will vary
based upon the mix of natural gas systems sold, proprietary technology included
in projects, contract labor necessary to complete gas related projects, mix of
Orbital Power Services projects including emergency response services, new crew
onboarding costs, Orbital Solar Services solar projects, the competitive markets
in which the Company competes, and foreign exchange rates.



The three and nine months ended September 30, 2020 were affected by start-up
costs at the Company's Orbital Power Services group, lower margin projects
during the period for Orbital Solar Service and was also affected negatively by
the COVID-19 pandemic and the resulting world-wide economic slowdown.



The Company expects improvement in margins during the remainder of
2021 as Orbital Power Services continues to gain efficiencies and increase
revenues, Orbital Telecom Services benefits from the acquisitions of GTS and
IMMCO, as companies continue to learn to cope with the COVID-19 pandemic, and
several large Orbital Solar Services solar projects begin.



Selling, general and administrative expenses

(dollars in thousands)



                                              For the Three Months Ended
Selling, general, and administrative
expense by Segment                                   September 30,
                                                2021                2020          $ Change       % Change
Electric Power and Solar Infrastructure
Services                                   $        7,338       $      2,252     $    5,086          225.8 %
Integrated Energy Infrastructure
Solutions and Services                              2,259              2,663           (404 )        (15.2 )%
Other                                               4,104              2,264          1,840           81.3 %
Total selling, general and
administrative expense                     $       13,701       $      7,179     $    6,522           90.8 %




                                               For the Nine Months Ended
Selling, general, and administrative
expense by Segment                                   September 30,
                                               2021                2020           $ Change       % Change
Electric Power and Solar Infrastructure
Services                                   $      23,194       $       4,895     $   18,299          373.8 %
Integrated Energy Infrastructure
Solutions and Services                             7,207               8,294         (1,087 )        (13.1 )%
Other                                             13,455               7,969          5,486           68.8 %
Total selling, general and
administrative expense                     $      43,856       $      21,158     $   22,698          107.3 %




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 Orbital Gas Systems, Orbital Power Services, Orbital Solar
Services, Orbital Telecom Services and other new product and service
introductions.



During the three and nine months ended September 30, 2021, SG&A increased
$6.5 million and $22.7 million, respectively, compared to the prior-year
comparative periods. The increase in SG&A for the quarter and year-to-date
periods were due to increased SG&A costs in the Electric Power and Solar
Infrastructure Services segment primarily due to ramp-up costs at Orbital Power
Services group, which included increased payroll and insurance costs and
start-up costs at Eclipse Foundation Group, as well as $1.4 million and
$8.0 million of employee stock-based compensation vesting expense, for the three
and nine month periods, respectively. The addition of GTS in April 2021, IMMCO
in July 2021, and Orbital Solar Services in April 2020 compared to the first
nine months of 2020, which only included Orbital Solar Services for six of the
nine months ended September 30, 2020, also contributed to the increase in SG&A
costs. Also contributing to the increase were increased corporate costs in the
Other segment due to a $2.4 million increase in the mark to market adjustment to
the executive cash-based stock appreciation rights and $0.8 million increase in
employee performance bonuses paid year to date. These increases were partially
offset by decreased SG&A costs in the Integrated Energy Infrastructure Solutions
and Services segment due to cost saving measures.



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Depreciation and amortization

(dollars in thousands)



                                              For the Three Months Ended
Depreciation and amortization expense by
Segment                                              September 30,
                                               2021                2020           $ Change       % Change
Electric Power and Solar Infrastructure
Services                                   $       2,483       $       1,197     $    1,286          107.4 %
Integrated Energy Infrastructure
Solutions and Services                               404                 373             31            8.3 %
Other                                                 12                  11              1            9.1 %
Total depreciation and amortization        $       2,899       $       1,581     $    1,318           83.4 %






                                              For the Nine Months Ended
Depreciation and amortization by Segment            September 30,
                                               2021               2020          $ Change       % Change
Electric Power and Solar Infrastructure
Services                                   $      5,653       $      2,477     $    3,176          128.2 %
Integrated Energy Infrastructure
Solutions and Services                            1,249              1,109            140           12.6 %
Other                                                31                 30              1            3.3 %

Total depreciation and amortization $ 6,933 $ 3,616

   $    3,317           91.7 %



Depreciation charges are associated with the depreciation of buildings, furniture, equipment, vehicles and the depreciation of intangible assets over the estimated useful lives of the assets concerned.



Depreciation and amortization expense in the three and nine months ended
September 30, 2021 were up compared to the three and nine months ended
September 30, 2020 primarily due to additional amortization in the Electric
Power and Solar Infrastructure Services segment including Orbital Solar Services
and GTS and IMMCO acquisition intangibles that were acquired in the second
quarter of 2020 and 2021 and depreciation of equipment used by Orbital Power
Services which has been ramping up their capital expenditures as more crews are
added.


Investment using the equity method / cost method

The Company owns a cost-basis investment in VPS with a book value at
September 30, 2021 of $1.1 million. Through June 30, 2020, the Company accounted
for its investment in VPS under the equity method of accounting and accordingly
recorded income or loss of affiliate based on the equity method of accounting.
The Company recorded losses in the three and nine months ended September 30,
2020 of zero and $4.8 million, respectively, related to its share of VPS's
loss. Due to additional outside investments into VPS during the third quarter of
2020, which diluted OEG's ownership percentage coupled with increased board
seats reducing OEG's board influence, the Company's management determined that
it no longer met the qualification of having significant influence necessary to
record its investment under the equity method of accounting. Following this
change, the Company has recorded its investment under the cost method of
accounting. There were no changes in the basis in the Company's investment in
the three and nine months ended September 30, 2021.



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Other Income (Expense), net

(dollars in thousands)



                                               For the Three Months Ended
Other Income (Expense), net                           September 30,
                                                2021                  2020          $ Change       % Change
Foreign exchange gain (loss)               $         (395 )       $        707     $   (1,102 )       (155.9 )%
Interest income                                        82                   75              7            9.3 %
Rental income                                         129                   78             51           65.4 %
Gain on extinguishment of debt                        722                    -            722          100.0 %
Other income                                          216                    -            216          100.0 %
Total Other income (expense)               $          754         $        860     $     (106 )        (12.3 )%





                                              For the Nine Months Ended
Other Income (Expense), net                         September 30,
                                               2021               2020          $ Change       % Change
Foreign exchange gain (loss)               $        (265 )     $      (410 )   $      145          (35.4 )%
Interest income                                      245               218             27           12.4 %
Rental income                                        372               254            118           46.5 %
Gain on extinguishment of debt                     2,412                 -          2,412          100.0 %
Other income                                         245                 -            245          100.0 %
Total Other income (expense)               $       3,009       $        62     $    2,947         4753.2 %




Other income (expense) changes were primarily the result of gains on
extinguishment of debt in the three and nine months ended September 30, 2021 of
$0.7 million and $2.4 million, respectively, due to the forgiveness by the U.S.
government of certain payroll protection loans and certain exchange agreements
that Company entered into in the third quarter of 2021. For the nine month
period, the gain on extinguishment was partially offset by the loss on the
extinguishment of debt due to the amendment to remove the convertible equity
feature of its convertible debt during the nine months ended September 30, 2021
compared to the nine months ended September 30, 2020. Foreign currency gain/loss
fluctuations in the three and nine-month periods principally related to the
fluctuation in the U.K. pound in both 2020 and 2021.



Interest charges

For the three and nine months ended September 30, 2021, the Company incurred
interest expense of $1.3 million and $3.1 million, respectively compared to
interest for the three and nine months ended September 30, 2020 of $0.3 million
and $0.5 million, respectively. The increase in interest expense in 2021 is
related to the increase in notes payable outstanding in the three and
nine months ended September 30, 2021 compared to the three and nine months ended
September 30, 2020. See note 16 for more information on the Company's notes
payable.



Income Tax Expense (Benefit)

The Company is subject to tax in the we, various state and foreign jurisdictions. The Company continues to record a full valuation allowance on we and UK net deferred tax assets and partial valuation allowance on Canada net deferred tax assets, as it is not more likely than not that the Company will derive a benefit from these assets in a future period.



In the three months ended September 30, 2021, as a result of the assets acquired
and liabilities assumed related to the acquisition of IMMCO, the Company
recorded a $2.5 million deferred tax liability. As a result, the Company
recorded a $2.5 million tax benefit for a reduction in prior recorded valuation
allowances.



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In the three months ended June 30, 2021, as a result of the assets acquired and
liabilities assumed related to the acquisition of GTS, the Company recorded a
$9.0 million deferred tax liability. As a result, the Company recorded a
$9.0 million tax benefit for a reduction in prior recorded valuation allowances.



In the three months ended June 30, 2020, as a result of the assets acquired and
liabilities assumed related to the acquisition of Reach Construction, LLC, the
Company recorded a $1.6 million deferred tax liability. As a result, the Company
recorded a $1.6 million tax benefit for a reduction in prior recorded valuation
allowances.



For the three and nine months ended September 30, 2020, the Company is
allocating income tax expense (benefit) in accordance to ASC 740-20-45-7 to more
than one financial statement component other than continuing operations. Prior
period comparative allocations have also been made.



In the nine months ended September 30, 2020, as a result of HM Revenue & Customs
review, the Company recorded a $1.6 million tax benefit for estimated prior year
taxes related to refunds for the surrender for cash, United Kingdom net
operating losses generated related to enhanced research and development
deduction claims.



For further discussion, see Note 14, “Income Taxes”, to the condensed consolidated financial statements in Part I – Item I, “Financial Statements”.



Restructuring Charges

During the fourth quarter of 2019, the Company completed the sale of its largest
group within the Power and Electromechanical segment. The Company completed the
sale of its Japan operations as of September 30, 2020 and completed the disposal
of Canada's assets in the fourth quarter of 2020. The Company recorded an
accrued liability of $4.0 million Canadian dollars ($3.1 million US dollars at
December 31, 2019) for estimated employee termination costs. This accrual was
adjusted down by $0.3 million Canadian dollars ($0.2 million US dollars) in 2020
based on updated estimates. The termination costs began to be paid out in the
third quarter of 2020 and the majority of the remaining accrual was paid in the
fourth quarter of 2020. The Company paid out an additional $0.3 million of
termination benefits in the first nine months of 2021 and expect to pay the
remaining $28 thousand during the remainder of 2021. For more information on the
Company's restructuring charges, see Note 1 Nature of Operations, Basis of
Presentation and Company Conditions under the Restructuring Charges subheading.



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Liquidity and capital resources

General

As of September 30, 2021, the Company held cash and cash equivalents of
$11.2 million and restricted cash of $1.2 million. Operations, investments, 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, 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 July, 2021, the Company issued
10,410,959 shares of common stock at $3.65 a share for a total raise of $38.0
million before expenses.  In August of 2021, the Company opened a $4.0 million
dollar line of credit to support additional funding. The Company's cash used in
operations was more in the first nine months of 2021 than in the first
nine months of 2020 primarily driven by a larger net loss. Major uses of cash in
the first nine months of 2021 included the acquisitions of Gibson Technical
Services and IMMCO Inc., purchases of property and equipment, completion of the
purchase of the VE Technology 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 in operations

Cash used in operations of $36.8 million was a $26.9 million increase in cash
used compared to the nine-month period in 2020. Cash used in operations for the
nine months ended September 30, 2021 were approximately $14.5 million in the
other segment, $19.3 million in the Electric Power and Solar Infrastructure
Services segment, $3.0 million in the Integrated Energy Infrastructure Solutions
and Services segment. Included in the Other segment is a $0.3 million source of
cash related to the former discontinued operations of the Power and
Electromechanical segment, which was primarily the collection of trade accounts
receivable. This compares to prior year nine-month-period cash used of
approximately $7.7 million used in the Other segment, $2.9 million used for the
Electric Power and Solar Infrastructure Services segment $1.2 million used by
the Integrated Energy Infrastructure Solutions and Services segment and $1.9
million provided by discontinued Power and Electromechanical segment.



Increased uses of cash in the first nine months of 2021 are primarily for costs
associated with mergers and acquisitions in the Electric Power and Solar
Infrastructure Services segment in addition to normal administrative costs,
ramp-up costs on the Company's Orbital Power Services group, and cash used by
Orbital Solar Services operations. The Company believes that revenue generated
by recent Orbital Telecom Services acquisitions Gibson Technical Services and
IMMCO, Inc. will improve cash flow from operating activities. While the Company
saw an initial cost increase from Orbital Power Services, management expects
these groups to become cash flow positive, as the business environment
normalizes and the Company continues to increase revenue-generating service
crews deployed. The Company believes overall cash used in operations
will improve through revenue growth associated with new customers and larger
projects, the additional cash expected from operations of Orbital Solar Services
when it begins work on contracts with solar developers including performing as
company "of choice" for the recently-formed Black Sunrise Century Fund, which
over the next three years is expected to build over 1 gigawatt of solar power.



The change in cash used in operating activities, exclusive of net loss, is
primarily the result of the following line items: payment towards accounts
payable increased cash used in operating activities by $2.5 million, increased
cash used for right of use assets, which are partially offset by increased lease
liabilities related to the ramp up of the Orbital Power Services group. Timing
of cash receipts on trade accounts receivable was a $5.2 million increase in
cash used in operating activities related to build up of accounts receivable at
Orbital Gas Systems, Orbital Power Services partially offset by sources of cash
at Orbital Solar Services, Orbital Telecom Services and receipts of final sales
at CUI-Canada. Changes in prepaid expenses of $1.4 million was a source of cash
and were due to timing of payments primarily related to changes in prepaid
expenses at Orbital Gas Systems, Orbital Power Services, and the Other segment.



During the nine months ended September 30, 2021 and 2020, the Company recorded a
total of $9.8 million and $12 thousand, respectively, for share-based
compensation related to equity given, or to be given to directors, employees and
consultants for services provided and as payment for royalties earned. The
increase in expense during the first nine months of 2021 compared to the first
nine months of 2020 is primarily due to employee stock-based bonuses and
increased director stock-based compensation in 2021 compared to director
stock-based compensation in the nine months of 2020 when director compensation
was being accrued as cash compensation while the structure of their compensation
was being evaluated. During the nine months ended the Company recorded $11.2
million of non-cash deferred tax benefits as a result of the acquisition of GTS
and IMMCO, which allowed the Company to utilize deferred tax assets that had
been fully reserved. Also during the nine months ended September 30, 2021, the
Company recorded fair value adjustments of $2.5 million on unsettled stock
appreciation rights held by corporate officers that will be settled in cash at a
future date.



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S-3 registration

The Company filed an S-3 registration statement on July 17, 2020 containing a
prospectus that was effective in September 2020. The Company utilized this
filing in January 2021 to issue common stock for $45 million before costs. The
Company filed a new S-3 shelf registration in January 2021, which, as amended,
became effective in April 2021. With this filing, Orbital Energy Group may from
time-to-time issue various types of securities, including common stock,
preferred stock, debt securities and/or warrants, up to an aggregate amount of
$150 million. The Company utilized this S-3 registration to issue additional
common stock in July 2021 for $38 million before 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, and increasing Orbital's market presence, it
will fund these activities together with related operating, sales and marketing
efforts for its various product offerings with cash on hand, and possible
proceeds from future issuances of equity through the S-3 registration statement,
and available debt.



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


See the section called Recent Sales of Unregistered titles for a complete list of all unsaved corporate actions.

Capital expenditure and investments

During the first nine months of 2021 and 2020, Orbital Energy Group invested
$6.6 million and $1.5 million, respectively, in property and equipment. These
purchases in 2021 were primarily for capital assets associated with the
Company's Orbital Power Services and Orbital Telecom Services. 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 nine months ended September 30, 2021 and
2020, the Company paid cash for acquisitions, net of cash received of $36.9
million and $3.0 million respectively. The Company anticipates further
investment in fixed assets and acquisitions during 2021 in support of its
on-going business and continued development of its infrastructure services
operations. The Company entered into a $3 million note receivable with Orbital
Solar Services during the three months ended March 31, 2020 prior to the April 1
acquisition. This payment became part of the Company's purchase consideration
upon the close of the acquisition.



Fundraising activities

To date in 2021, the Company issued a total of 26.0 million shares of common
stock in three separate equity raises with a face amount of $83.0 million for
which the Company netted $78.0 million after expenses. For the nine months ended
September 30, 2021, the Company received cash proceeds of $19.4 million for the
issuance of debt with a face value of $23.4 million and a weighted average
stated interest rate of 8.5% and a weighted average estimated effective rate of
18.3%. In the nine months ended September 30, 2021 and 2020 the Company made
cash payments on notes payable of $7.5 million and $1.7 million, respectively,
including $2.0 million in 2021 toward the seller notes payable related to the
April 2020 acquisition of Orbital Solar Services. The Company also implemented
several exchange agreements whereby shares of common stock were exchanged for
additional debt reduction. The Company recorded a $0.7 million extinguishment of
debt of the Reach Construction seller note due to the Company making an early
cash payment in exchange for a portion of the loan being forgiven and a portion
being paid by the Company with shares of its common stock. See Note 16 for more
information on the Company's notes payable. In addition, the Company paid $0.4
million in the three months ended March 31, 2021 to close its line of credit
that was acquired with the Orbital Solar Services business.



Summary of liquidity and capital resources

At September 30, 2021, the Company had unrestricted cash and cash equivalents
balances of $11.2 million. At September 30, 2021 the Company had $1.8 million of
cash and cash equivalents balances at domestic financial institutions that were
covered under the FDIC insured deposits programs and $0.1 million and
$72 thousand, at foreign financial institutions covered under the United Kingdom
Financial Services Compensation (FSC) and Canada Deposit Insurance Corporation
(CDIC), respectively. At September 30, 2021, the Company had cash and cash
equivalents of $1.0 million in European bank accounts and $72 thousand in
Canadian bank accounts.



The Company recorded a net loss of $ 36.3 million and cash used in the operating activities of $ 36.8 million during the nine months ended September 30, 2021. From September 30, 2021, the accumulated deficit of the Company is $ 186.0 million.

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The Company expects the revenues from its continuing operations, and cash on
hand, to cover operating and other expenses for the next twelve 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 may issue additional debt or equity to support continuing
operations and acquisition efforts in the remaining months of 2021.



Critical Accounting Policies



The Company has adopted various accounting policies to prepare the consolidated
financial statements in accordance with Generally Accepted Accounting
Principals, ("GAAP"). Certain of the Company's accounting policies require the
application of significant judgment by management in selecting the appropriate
assumptions for calculating financial estimates. In the Company's 2020 Annual
Report on Form 10-K filed on March 30, 2021, the Company identified the critical
accounting policies that affect the Company's more significant estimates and
assumptions used in preparing the Company's consolidated financial statements.



Adoption of new accounting standards



See Note 2 Summary of Significant Accounting Policies - Update of the condensed
consolidated financial statements in Part I-Item I, "Financial Statements" for a
description of recent accounting pronouncement adoptions, including the dates of
adoption and effects on financial position, results of operations and cash flows
if any.


Recent accounting positions



See Note 11 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 provisions

See note 20 Commitments and contingencies to the condensed consolidated financial statements in Part I-Point I, “Financial Statements” for a description of the Company’s off-balance sheet arrangements.

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