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Note 1 - Nature of Operations, Basis of Presentation and Company Conditions
 6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Business Description and Basis of Presentation [Text Block]
1.
NATURE OF OPERATIONS, BASIS OF PRESENTATION AND COMPANY CONDITIONS
 
Nature of Operations
Orbital Energy Group Inc. (Orbital Energy Group or "the Company") (formerly known as CUI Global, Inc.) is a platform company composed of
three
segments, the Integrated Energy Infrastructure Solutions and Services segment, the Electric Power and Solar Infrastructure Services segment, along with an "Other" segment. This segment structure is a new segment structure in recognition of the Company's transformation following the disposition of its Power and Electromechanical segment in the
third
and
fourth
quarters of
2019,
the ramp up of Orbital Power Services in
2020
and the acquisition of Reach Construction Group, LLC (Reach Construction) on
April 1, 2020.
The following describes the Company's newly reorganized segments.
 
Electric Power and Solar Infrastructure Services Segment
 
The Electric Power and Solar Infrastructure Services segment consists of Reach Construction Group, LLC based in Apex, North Carolina and Orbital Power Services based in Dallas, Texas.  The segment provides comprehensive network solutions to customers in the electric power and solar industries. Services performed by Orbital Power Services generally include the design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities and emergency restoration services, including the repair of infrastructure damaged by inclement weather, and the energized installation, maintenance and upgrade of electric power infrastructure. Reach Construction Group, LLC provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility scale solar construction.
 
Integrated Energy Infrastructure Solutions and Services Segment
 
The Integrated Energy Infrastructure Solutions and Services segment consists of Orbital Gas Systems, North America, Inc. based in Houston, Texas and Orbital Gas Systems Ltd based in Stone, Staffordshire in the United Kingdom, collectively referred to as “Orbital Gas Systems.”  Orbital Gas Systems provides a portfolio of products, services and resources to offer a diverse range of personalized gas engineering solutions to the gas utilities, power generation, emissions, manufacturing and automotive industries. Its proprietary VE® Technology enhances the capability and speed of the Company's GasPT® Technology. VE Technology provides a superior method of penetrating the gas flow without the associated vortex vibration, thereby making it a ‘‘stand-alone'' product for thermal sensing (thermowells) and trace-element sampling. 
 
The Other segment represents the remaining activities that are
not
included as part of the other reportable segments and primarily represents corporate activity.
 
Prior to the
third
quarter of
2019,
the Company included another segment named, the Power and Electromechanical segment. This segment is included in Discontinued Operations. See Note
3
- Discontinued Operations and Sale of a Business for more information on the Company's discontinued operations.
 
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
-K for the year ended
December 31, 2019
. The condensed consolidated balance sheet as of
December 31, 2019
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, 2019
.
 
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. All 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, 2020
.
 
Reconciliation of Cash, Cash Equivalents, and Restricted Cash on Condensed Consolidated Statements of Cash Flows
 
   
For the Six Months
  
(in thousands)
  
Ended June 30,
  
   
2020
    
2019
  
Cash and cash equivalents at beginning of period
   $
23,351
     $
3,979
  
Restricted cash at beginning of period (1)
    
—
      
523
  
Cash, cash equivalents and restricted cash at beginning of period
   $
23,351
     $
4,502
  
                 
Cash and cash equivalents at end of period
   $
4,370
     $
2,635
  
Restricted cash at end of period (1)
    
3,578
      
523
  
Cash, cash equivalents and restricted cash at end of period
   $
7,948
     $
3,158
  
 
 
(
1
) Restrictions on cash at
June 30, 2020
and
June 30, 2019
relate to collateral for several bank-issued letters of credit for contract guaranties. Also included in the
June 30, 2020
total is 
$2.3
million of restricted cash held in a cash bond in regards to disputed amounts with a subcontractor.  The Company is working to settle the disputed amounts payable and the funds will release at such time to pay agreed amounts with any excess returning to the Company.
 
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 review the Company's impairments and estimations of long-lived assets, revenue recognition on cost-to-cost-method type contracts, inventory valuation, warranty reserves, refund liabilities/returns allowances, valuations of non-cash capital stock issuances, valuation for acquisitions, the valuation allowance on deferred tax assets, equity method investment valuation, note receivable interest imputation, and the incremental borrowing rate used in determining the value of right of use 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 conditions.
 
Goodwill
The Company records goodwill associated with its acquisitions of businesses when the consideration paid exceeds the fair value of the net tangible and identifiable intangible assets acquired. Goodwill balances are evaluated for potential impairment on an annual basis. The current guidance allows an entity to assess qualitatively whether it is necessary to perform step
one
of a prescribed
two
-step annual goodwill impairment test. If an entity believes, as a result of its qualitative assessment, that it is more likely than
not
that the fair value of a reporting unit exceeds its carrying amount, the
two
-step goodwill impairment test is
not
required. Upon acquisition of Reach Construction Group, Inc., the Company recorded 
$7.0
 million of goodwill. Goodwill was valued as of
April 1, 2020
by a
third
-party valuation expert and was recorded following the recognition of Reach's tangible assets and liabilities and
$13.7
million of finite-lived identifiable intangible assets included in the table below. There was
zero
goodwill at
December 31, 2019.
 
Other Intangibles Assets
The following table provides the components of identifiable intangible assets:
 
                                                         
Finite-lived intangible assets (in thousands)
      
 
      
 
      
 
      
 
      
 
      
 
      
 
Integrated Energy Infrastructure Solutions and Services Segment
  
Estimated Useful Life (in years)
    
June 30, 2020 Gross Carrying Amount
    
Accumulated Amortization
    
Identifiable Intangible Assets, less Accumulated Amortization
    
December 31, 2019 Gross Carrying Amount
    
Accumulated Amortization
    
Identifiable Intangible Assets, less Accumulated Amortization
  
Order backlog
    
2
     $
2,746
     $
(2,746
 )   $
—
     $
2,938
     $
(2,938
 )   $
—
  
Trade name - Orbital-UK
    
10
      
1,477
      
(1,071
 )    
406
      
1,579
      
(1,066
 )    
513
  
Customer list - Orbital-UK
    
10
      
5,741
      
(4,163
 )    
1,578
      
6,142
      
(4,146
 )    
1,996
  
Technology rights
    
20
      
308
      
(214
 )    
94
      
330
      
(213
 )    
117
  
Technology-Based Asset - Know How
    
12
      
2,326
      
(1,405
 )    
921
      
2,488
      
(1,399
 )    
1,089
  
Technology-Based Asset - Software
    
10
      
504
      
(365
 )    
139
      
539
      
(364
 )    
175
  
Computer software
    
3
to
5
      
673
      
(396
 )    
277
      
717
      
(331
 )    
386
  
Total Integrated Energy Infrastructure Solutions and Services Segment
    
 
      
13,775
      
(10,360
 )    
3,415
      
14,733
      
(10,457
 )    
4,276
  
                                                         
Electric Power and Solar Infrastructure Services Segment
      
 
      
 
      
 
      
 
      
 
      
 
      
 
Customer Relationships
    
5
      
8,647
      
(432
 )    
8,215
      
—
      
—
      
—
  
Trade name - Reach Construction Group
    
1
      
1,878
      
(469
 )    
1,409
      
—
      
—
      
—
  
Non-compete agreements
    
5
      
3,212
      
(161
 )    
3,051
      
—
      
—
      
—
  
Total Electric Power and Solar Infrastructure Services Segment
    
 
      
13,737
      
(1,062
 )    
12,675
      
—
      
—
      
—
  
                                                         
Other category
      
 
      
 
      
 
      
 
      
 
      
 
      
 
Computer software
    
3
to
5
      
720
      
(708
 )    
12
      
720
      
(698
 )    
22
  
Product certifications
    
3
      
36
      
(36
 )    
-
      
36
      
(36
 )    
-
  
Total Other category
    
 
      
756
      
(744
 )    
12
      
756
      
(734
 )    
22
  
                                                         
Total identifiable other intangible assets
    
 
     $
28,268
     $
(12,166
 )   $
16,102
     $
15,489
     $
(11,191
 )   $
4,298
  
 
Company Conditions
Orbital Power Services began operations during the
first
quarter of
2020
and while
not
certain, is expected to quickly increase revenues to achieve positive cash flows during
2020.
Orbital Gas Systems Ltd. continues to face issues surrounding Brexit and the overall economy in the United Kingdom coupled with continued delays in shipment of GasPTs on a significant European-based project, and the related slower than expected acceptance of this new disruptive technology that have caused a delay in our expected profitability from continuing operations. Orbital Gas Systems, North America, Inc. continues to see improvements in its operations, increasing customer opportunities and is moving toward break-even and profitability. The Company will continue to work to identify cost reductions and efficiencies while at the same time working to grow revenues and margins.
 
The Company had net loss of
$16.7
 million and cash used in operating activities of
$9.0
 million during the
six
months ended
June 30, 2020
. As of
June 30, 2020
, the Company's accumulated deficit is
$138.9
million.
 
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 are currently unknown. 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.  The Company is proactively working to adjust its operations to properly reflect the market environment during the immediate pandemic while maintaining sufficient resources for the expected rebound later this year. Events and changes in circumstances arising after
June 30, 2020,
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 will meet its obligations for
twelve
months from the date these financial statements are available to be issued. Including our cash balance, we have positive working capital primarily related to assets held for sale, trade accounts receivable, notes receivable, prepaid assets, contract assets and our inventory less current liabilities that we will manage in the next
twelve
 months. In the
three
months ended
June 30, 2020, 
the Company received loans under the CARES Act Paycheck Protection Program of approximately
$1.9
million which further assisted the Company as it continues to operate in
2020
(Note
16.
Notes Payable and Line of Credit). Considering these above factors, management believes 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 the Company will be able to raise additional capital when needed or under 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.
 
Restructuring Charges
During the
fourth
quarter of
2019,
the Company completed the sale of its largest group within the Power and Electromechanical segment. The remaining assets remain held-for-sale. However, in conjunction with that sale, it was concluded that should the remaining power and electromechanical operations
not
sell, the Company will fulfill its backlog obligations and sell its remaining operations of CUI-Canada and CUI Japan during
2020.
As such, the Company has recorded an accrued liability of
$4.0
million Canadian dollars (
$2.9
 million US dollars at
June 30, 2020
) for estimated employee termination costs. The termination costs are expected to begin during
2020
based around backlog production and delivery schedule requirements. The lease for the CUI-Canada facility expires during
2020
and the CUI Japan lease includes a
four
-month notice period to terminate. There were
no
changes to the restructuring accruals during the
six
months ended
June 30, 2020.