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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2010
 or
 o
    
    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: 001-33887
 Orion Energy Systems, Inc.
 (Exact name of Registrant as specified in its charter)
 Wisconsin
    
    39-1847269(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)2210 Woodland Drive, Manitowoc, WI
    
    54220(Address of principal executive offices)
    
    (Zip Code)
 (920) 892-9340  (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon stock, no par value
    
    NYSE AMEX LLCCommon stock purchase rights
    
    NYSE AMEX LLC
 Securities registered pursuant to Section 12(g) of the act:
None
 Yes o No þ
 Yes o No þ
 Yes þ No o
 Yes o No o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ
   DOCUMENTS INCORPORATED BY REFERENCE




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FORWARD-LOOKING STATEMENTS
  
    
    further deterioration of market conditions, including customer capital expenditure
budgets;
 
    
    our ability to compete in a highly competitive market and our ability to respond
successfully to market competition;
 
    
    increasing duration of customer sales cycles;
 
    
    the market acceptance of our products and services, including our Orion Throughput
Agreements, or OTAs, and/or Orion Virtual Power Plant Agreements, or OVPPs;
 
    
    our sales mix as between the
relative level of our cash sales and our finance transactions
through OTAs and OVPPs;
 
    
    our ability to internally and/or externally finance a potentially greater volume of OTAs
and OVPPs;
 
    
    price fluctuations, shortages or interruptions of component supplies and raw materials
used to manufacture our products;
 
    
    loss of one or more key customers or suppliers, including key contacts at such
customers;
 
    
    a reduction in the price of electricity;
 
    
    the cost to comply with, and the effects of, any current and future government
regulations, laws and policies;
 
    
    increased competition from government subsidies and utility incentive programs;
 
    
    dependence on customers capital budgets for sales of products and services;
 
    
    our development of, and participation in, new product and technology offerings or
applications;
 
    
    legal proceedings; and
 
    
    potential warranty claims.
    2




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##### 



ORION ENERGY SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED MARCH 31, 2010
 Table of Contents
 PagePART IItem 1. Business
    
    
    4Item 1A Risk Factors
    
    
    16Item 1B Unresolved Staff Comments
    
    
    26Item 2 Properties
    
    
    26Item 3 Legal Proceedings
    
    
    26Item 4 Removed and Reserved
    
    
    27PART IIItem 5 Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
    
    
    27Item 6 Selected Financial Data
    
    
    30Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    32Item 7A Quantitative and Qualitative Disclosures About Market Risk
    
    
    47Item 8 Financial Statements and Supplementary Data
    
    
    48Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    74Item 9A Controls and Procedures
    
    
    74Item 9B Other Information
    
    
    75PART IIIItem 10 Directors, Executive Officers and Corporate Governance
    
    
    75Item 11 Executive Compensation
    
    
    75Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
    
    
    76Item 13 Certain Relationships and Related Transactions, and Director Independence
    
    
    76Item 14 Principal Accountant Fees and Services
    
    
    76PART IVItem 15 Exhibits and Financial Statement Schedules
    
    
    76Signatures
    
    
    79Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   3




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##### Table of Contents



ITEM 1.
    
    BUSINESS
 The following business overview is qualified in its entirety by the more detailed information
included elsewhere or incorporated by reference in this Annual Report on Form 10-K . As used herein,
unless otherwise expressly stated or the context otherwise requires, all references to Orion,
we, us, our, the Company and similar references are to Orion Energy Systems, Inc. and its
consolidated subsidiaries.
 Overview
     Cumulative From December 1, 2001Through March 31, 2010(in thousands, unaudited)HIF lighting systems sold (1)
    
    
    1,739Total units sold (including HIF lighting systems)
    
    
    2,252Customer kilowatt demand reduction (2)
    
    
    528Customer kilowatt hours saved (2)(3)
    
    
    11,128,923Customer electricity costs saved (4)
    
    $
    856,927Indirect carbon dioxide emission reductions from customers energy savings (tons) (5)
    
    
    7,397Square footage retrofitted (6)
    
    
    886,455
 
 (1)
    
    HIF lighting systems includes all HIF units sold under the brand
name Compact Modular and its predecessor, Illuminator.  4




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(2)
    
    A substantial majority of our HIF lighting systems, which generally
operate at approximately 224 watts per six-lamp fixture, are installed
in replacement of HID fixtures, which generally operate at
approximately 465 watts per fixture in commercial and industrial
applications. We calculate that each six-lamp HIF lighting system we
install in replacement of an HID fixture generally reduces electricity
consumption by approximately 241 watts (the difference between 465
watts and 224 watts). In retrofit projects where we replace fixtures
other than HID fixtures, or where we replace fixtures with products
other than our HIF lighting systems (which other products generally
consist of products with lamps similar to those used in our HIF
systems, but with varying frames, ballasts or power packs), we
generally achieve similar wattage reductions (based on an analysis of
the operating wattages of each of our fixtures compared to the
operating wattage of the fixtures they typically replace). We
calculate the amount of kilowatt demand reduction by multiplying
(i) 0.241 kilowatts per six-lamp equivalent unit we install by
(ii) the number of units we have installed in the period presented,
including products other than our HIF lighting systems (or a total of
approximately 2.25 million units).(3)
    
    We calculate the number of kilowatt hours saved on a cumulative basis
by assuming the demand (kW) reduction for each fixture and assuming
that each such unit has averaged 7,500 annual operating hours since
its installation.(4)
    
    We calculate our customers electricity costs saved by multiplying the
cumulative total customer kilowatt hours saved indicated in the table
by $0.077 per kilowatt hour. The national average rate for 2009, which
is the most current full year for which this information is available,
was $0.0989 per kilowatt hour according to the United States Energy
Information Administration.(5)
    
    We calculate this figure by multiplying (i) the estimated amount of
carbon dioxide emissions that result from the generation of one
kilowatt hour of electricity (determined using the Emissions and
Generation Resource Integration Database, or EGrid, prepared by the
United States Environmental Protection Agency, or EPA), by (ii) the
number of customer kilowatt hours saved as indicated in the table.(6)
    
    Based on 2.2 million total units sold, which contain a total of
approximately 11.0 million lamps. Each lamp illuminates approximately
75 square feet. The majority of our installed fixtures contain six
lamps and typically illuminate approximately 450 square feet. Our Industry
  Todays Electricity Market
 Growing Demand for Electricity. $
  5




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Challenges to Capacity Expansion.
   Underinvestment in Electricity Transmission and Distribution.
 High Electricity Costs.
  6




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Our Market Opportunity
  
    
    Forty-eight states, through legislation, regulation or voluntarily, have seen their
utilities design and fund programs that promote or deliver energy efficiency. In fact, as of
March 31, 2010, only Alaska and West Virginia, along with the District of Columbia, do not
have some form of utility or state energy efficiency programs for any of their commercial or
industrial customers.
 
    
    According to the ACEEE, 22 states have implemented, or are in the process of
implementing, Energy Efficiency Resource Standards, or EERS, or have an energy efficiency
component to their Renewable Portfolio Standard, or RPS, which generally requires utilities
to allocate funds to energy efficiency programs to meet near-term energy savings targets set
by state governments or regulatory authorities.
 
    
    In recent years, there has also been an increasing focus on decoupling, a regulatory
initiative designed to break the linkage between utility kWh sales and revenues, in order to
remove the disincentives for utilities to promote load reducing initiatives. Decoupling aims
to encourage utilities to actively promote energy efficiency by allowing utilities to
generate revenues and returns on investment from employing energy management solutions.
According to the Natural Resources Defense Council, or NRDC, as of August 20, 2009, 19
states had adopted or are considering adopting some form of decoupling for electric
utilities.
   The Role of Lighting
  Our Solution
 50/50 Value Proposition.
  7




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Multi-Facility Roll-Out Capability
 Rapid Payback Period.
 Comprehensive Energy Management System.
 Easy Installation, Implementation and Maintenance.
 Expanded Product/Service Offerings
 Base and Peak Load Relief for Utilities.
 Environmental Benefits.
 Our Competitive Strengths
 Compelling Value Proposition.
  8




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Large and Growing Customer Base.
 Systematized Sales Process.
 Innovative Technology.
 Expanded Product/Service Offerings
 Expanded Partner Network
 Strong, Experienced Leadership Team.
  9




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Innovative Financing Solutions.
 Efficient, Scalable Manufacturing Process.
 Our Growth Strategies
 Leverage Existing Customer Base.
 Target Additional Customers.
 Develop New Sources of Revenue Through Expanded Product/Service Offerings
 Expanded Partner Network
 Provide Load Relief to Utilities and Grid Operators.
  10




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Continue to Improve Operational Efficiencies.
 Products and Services
  Products
  The Compact Modular.
   InteLite Wireless Controls.
  11




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Apollo Solar Light Pipe.
 Renewable Energy Projects
 Other Products.
  Services
  
    
    comprehensive site assessment, which includes a review of the current lighting
requirements and energy usage at the customers facility;
 
    
    site field verification, where we perform a test implementation of our energy management
system at a customers facility upon request;
 
    
    utility incentive and government subsidy management, where we assist our customers in
identifying, applying for and obtaining available utility incentives or government
subsidies;
 
    
    engineering design, which involves designing a customized system to suit our customers
facility lighting and energy management needs, and providing the customer with a written
analysis of the potential energy savings and lighting and environmental benefits associated
with the designed system;
 
    
    project management, which involves our working with the electrical contractor in
overseeing and managing all phases of implementation from delivery through installation for
a single facility or through multi-facility roll-outs tied to a defined project schedule;
 
    
    installation services, which we provide through our national network of qualified
third-party installers; and
 
    
    recycling in connection with our retrofit installations, where we remove, dispose of and
recycle our customers legacy lighting fixtures.
  12




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Our Customers
  American Standard International Inc.
    
    Ecolab, Inc.
    
    Newell Rubbermaid Inc.
    
    SYSCO Corp.Anheuser-Busch Companies, Inc.
    
    Gap, Inc.
    
    OfficeMax, Inc.
    
    Textron, Inc.Avery Dennison Corporation
    
    General Electric Co.
    
    PepsiAmericas Inc.
    
    Toyota Motor Corp.Big Lots Inc.
    
    Kraft Foods Inc.
    
    Sealed Air Corp.
    
    United Stationers Inc.Coca-Cola Enterprises Inc.
    
    Miller Coors LLC
    
    Sherwin-Williams Co.
    
    U.S. Foodservice
  Sales and Marketing
     13




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Competition
      Intellectual Property
  
    
    Portions of our core HIF lighting technology (including our optically efficient reflector
and some of our thermally efficient fixture I-frame constructions) are patented with
additional patents pending.
 
    
    Our ballast assembly method is patent pending.
 
    
    Our light pipe technology and its manufacturing methods are patented with additional
patents pending.
 
    
    Our wireless lighting control system is patent pending.
 
    
    The technology and methodology of our OVPP financing program is patent pending.
   14




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Manufacturing and Distribution
   Research and Development
  Regulation
   Our Corporate and Other Available Information
 www.oriones.com
 Employees
   15




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ITEM 1A. RISK FACTORS
 You should carefully consider the risk factors set forth below and in other reports that we file
from time to time with the Securities and Exchange Commission and the other information in this
Annual Report on Form 10-K . The matters discussed in the risk factors, and additional risks and
uncertainties not currently known to us or that we currently deem immaterial, could have a material
adverse effect on our business, financial condition, results of operation and future growth
prospects and could cause the trading price of our common stock to decline.
 Adverse conditions in the global economy and disruption of financial markets have negatively
impacted, and could continue to negatively impact, our customers, suppliers and business.
  Adverse market conditions have led to increasing duration of customer sales cycles, limitations on
customer capital budgets, closure of facilities and the loss of key contacts due to workforce
reductions at existing and prospective customers.
  The acceptance of our Orion Throughput Agreements and/or Orion Virtual Power Plant Agreements
could result in a delay in revenue realization, a mis-match of expense and revenue recognition,
expose us to additional customer credit risk and impact our financial results.
    16




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We have a limited operating history, and have previously incurred net losses.
   Our addition of new renewable energy technologies into our product, application and service
offerings involves many risks and uncertainties. Many technologies do not become commercially
profitable products, applications or services despite extensive development and commercialization
efforts.
   
    
    Unanticipated and/or substantial delays;
 
    
    Unanticipated and/or substantially increased costs;
 
    
    Unrecoverable and/or substantially increased expenses;
 
    
    Technical, reliability, durability or quality problems, including potential warranty and/or
product liability claims;
 
    
    Insufficiency of dedicated or budgeted funds;
 
    
    Inability to meet targeted cost or performance objectives;
 
    
    Inability to satisfy industry standards or consumer expectations and needs;
 
    
    Regulatory obstacles;
 
    
    Competition;
 
    
    Inability to prove the original concept;
 
    
    Lack of demand; and
 
    
    Diversion of our managements and employees focus and/or attention.
  17




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Orion Engineered Systems may not be able to identify suitable new technologies, we may invest too
much in new technologies, our management could be distracted by new technologies and we could fail
to develop any new products, applications or services successfully.
  We may not be able to obtain additional equity capital or debt financing necessary to effectively
introduce and commercialize any new alternative renewable energy technologies identified by Orion
Engineered Systems into our product, application and service offerings.
  
    
    The price, volatility and trading volume and history of our common stock.
 
    
    Our current and future financial results and position, including our recent losses
generated from operations.
 
    
    The markets view of our industry and products.
 
    
    The perception in the equity and debt markets of our ability to execute our business plan
or achieve our operating results expectations.
 We have no significant operating history in the solar photovoltaic or wind energy industries that
can be used to evaluate our potential prospects for success in these industries.
   18




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Orion Engineered Systems pursuit of solar photovoltaic and/or wind electricity generating
technologies is subject to risks specific to the solar photovoltaic and/or wind industry.
  
    
    The market for photovoltaic and wind electricity generating technologies has been adversely
affected by the recessionary economic conditions, and we cannot guarantee that demand will
return or increase in the future.
 
    
    A variety of solar power, wind power and other renewable energy technologies may be
currently under development by other companies that could result in higher or more effective
product performance than the performance expected to be produced by any technology that we
decide to offer.
 
    
    Our ability to generate revenue and profitability from adding solar photovoltaic and/or
wind electricity generating technologies into our product, application or service offerings
will be dependent on consumer acceptance and the economic feasibility of solar and/or wind
generated energy.
 
    
    A drop in the retail price of conventional energy or other alternate renewable energy
sources may negatively impact our ability to generate revenue and profitability from solar
photovoltaic and/or wind generated energy technologies.
 
    
    The reduction, elimination or expiration of government mandates and subsidies or economic
or tax rebates, credits and/or incentives for alternative renewable energy systems would
likely substantially reduce the demand for, and economic feasibility of, any solar
photovoltaic and/or wind electricity generating products, applications or services and could
materially reduce any prospects for our successfully introducing any new products,
applications or services using such technologies.
 As our sales mix changes, it may impact our profitability.
  Increasing use of our OTA/OVPP financing programs could expose us to financing risk and additional
customer credit risk and impact our financial results.
   19




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We operate in a highly competitive industry and if we are unable to compete successfully our
revenue and profitability will be adversely affected.
   Our success is largely dependent upon the skills, experience and efforts of our senior management,
and the loss of their services could have a material adverse effect on our ability to expand our
business or to maintain profitable operations.
  The success of our business depends on the market acceptance of our energy management products and
services.
   20




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Our products use components and raw materials that may be subject to price fluctuations, shortages
or interruptions of supply.
  We depend on a limited number of key suppliers.
  We experienced component quality problems related to certain suppliers in the past, and our
current suppliers may not deliver satisfactory components in the future.
  We have made a significant investment in inventory related to our wireless controls product
offering, which is costly and, if not properly managed, may result in an inability to provide our
products on a timely basis or in unforeseen valuation adjustments.
  We depend upon a limited number of customers in any given period to generate a substantial portion
of our revenue.
   21




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Product liability claims could adversely affect our business, results of operations and financial
condition.
  We depend on our ability to develop new products and services.
  We may pursue acquisitions and investments in new product lines, businesses or technologies that
involve numerous risks, which could disrupt our business or adversely affect our financial
condition and results of operations.
  We are currently subject to securities class action litigation, the unfavorable outcome of which
may have a material adverse effect on our financial condition, results of operations and cash
flows.
   22




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Our inability to protect our intellectual property, or our involvement in damaging and disruptive
intellectual property litigation, could adversely affect our business, results of operations and
financial condition or result in the loss of use of the product or service.
      We may face additional competition if government subsidies and utility incentives for renewable
energy increase or if such sources of energy are mandated.
   23




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If our information technology systems fail, or if we experience an interruption in their
operation, then our business, results of operations and financial condition could be materially
adversely affected.
  
    
    earthquake, fire, flood and other natural disasters;
 
    
    employee or other theft;
 
    
    attacks by computer viruses or hackers;
 
    
    power outages; and
 
    
    computer systems, internet, telecommunications or data network failure.
  We own and operate an industrial property that we purchased in 2004 and, if any environmental
contamination is discovered, we could be responsible for remediation of the property.
  The cost of compliance with environmental laws and regulations and any related environmental
liabilities could adversely affect our results of operations or financial condition.
  Our retrofitting process frequently involves responsibility for the removal and disposal of
components containing hazardous materials.
   24




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We expect our quarterly revenue and operating results to fluctuate. If we fail to meet the
expectations of market analysts or investors, the market price of our common stock could decline
substantially, and we could become subject to additional securities litigation.
  Our ability to use our net operating loss carryforwards will be subject to limitation.
  If securities or industry analysts do not publish research or publish inaccurate or unfavorable
research about our business, our stock price and trading volume could decline.
  The market price of our common stock could be adversely affected by future sales of our common
stock in the public market by our executive officers and directors.
  Anti-takeover provisions included in the Wisconsin Business Corporation Law, provisions in our
amended and restated articles of incorporation or bylaws and the common share purchase rights that
accompany shares of our common stock could delay or prevent a change of control of our company,
which could adversely impact the value of our common stock and may prevent or frustrate attempts
by our shareholders to replace or remove our current board of directors or management.
     25




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We may fail to comply with the financial and operating covenants in our credit agreement, which
could result in our being unable to borrow under the agreement and other negative consequences.
   
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
  
 ITEM 3.
    
    LEGAL PROCEEDINGS
     26




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ITEM 4.
    
    REMOVED AND RESERVED
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 Price Range of our Common Stock
  High
    
    
    LowFiscal 2009First Quarter
    
    $
    13.35
    
    
    $
    9.01Second Quarter
    
    $
    10.25
    
    
    $
    4.48Third Quarter
    
    $
    5.94
    
    
    $
    2.76Fourth Quarter
    
    $
    5.67
    
    
    $
    2.94Fiscal 2010First Quarter
    
    $
    4.66
    
    
    $
    3.25Second Quarter
    
    $
    3.92
    
    
    $
    2.68Third Quarter
    
    $
    4.76
    
    
    $
    3.05Fourth Quarter
    
    $
    6.35
    
    
    $
    4.37
 Shareholders
  Dividend Policy
   27




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Use of Proceeds from our Public Offering
     Securities Authorized for Issuance under Equity Compensation Plans
  Equity Compensation Plan Information
 Number of SecuritiesRemaining Available forNumber of Securities to be
    
    
    Weighted-Average
    
    
    Future Issuances Under theIssued Upon Exercise of
    
    
    Exercise Price of
    
    
    Equity Compensation PlansPlan Category
    
    Outstanding Options
    
    
    Outstanding Options
    
    
    (2)Equity Compensation
plans approved by
security holders (1)
    
    
    3,546,249
    
    
    $
    3.66
    
    
    
    569,690
 
 (1)
    
    Approved before our IPO.(2)
    
    Excludes shares reflected in the column titled Number of Securities to be Issued Upon Exercise
of Outstanding Options. Issuer Purchase of Equity Securities
  Total Numberof SharesPurchased as Part
    
    
    Maximum Dollar Amount thatTotal Number
    
    
    Average
    
    
    of Publicly
    
    
    May Yet Beof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Purchased Under the Plans orPeriod
    
    Purchased
    
    
    Per Share
    
    
    or Programs (1)
    
    
    ProgramsJanuary 1  January 31, 2010
    
    
    17,084
    
    
    $
    4.39
    
    
    
    17,084
    
    
    $
    185,000February 1  February 28, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    185,000March 1  March 31, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    185,000
 
 (1)
    
    In July 2008, our Board of Directors authorized a stock repurchase plan
providing for the repurchase of up to $20 million of shares of our outstanding
common stock and, in December 2008, our Board of Directors authorized the
repurchase of up to an additional $10 million of our outstanding common stock.
The plan had no expiration date, but as of March 31, 2010, we had substantially
completed the repurchase of the maximum permitted under the plan.  28




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Unregistered Sales of Securities
  Stock Price Performance Graph
  
 December 19,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,2007
    
    
    2008
    
    
    2009
    
    
    2010Orion Energy Systems, Inc.
    
    $
    100
    
    
    $
    73
    
    
    $
    34
    
    
    $
    38Russell 2000 Index
    
    $
    100
    
    
    $
    91
    
    
    $
    57
    
    
    $
    93NASDAQ Clean Edge Green Energy Index
    
    $
    100
    
    
    $
    78
    
    
    $
    36
    
    
    $
    54
  29




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ITEM 6.
    
    SELECTED FINANCIAL DATA
  Fiscal Year Ended March 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010(in thousands, except per share amounts)Consolidated statements of operations data:Product revenue
    
    $
    29,993
    
    
    $
    40,201
    
    
    $
    65,359
    
    
    $
    63,008
    
    
    $
    58,227Service revenue
    
    
    3,287
    
    
    
    7,982
    
    
    
    15,328
    
    
    
    9,626
    
    
    
    7,191Total revenue
    
    
    33,280
    
    
    
    48,183
    
    
    
    80,687
    
    
    
    72,634
    
    
    
    65,418Cost of product revenue(1)
    
    
    20,225
    
    
    
    26,511
    
    
    
    42,127
    
    
    
    42,235
    
    
    
    38,628Cost of service revenue
    
    
    2,299
    
    
    
    5,976
    
    
    
    10,335
    
    
    
    6,801
    
    
    
    5,266Total cost of revenue
    
    
    22,524
    
    
    
    32,487
    
    
    
    52,462
    
    
    
    49,036
    
    
    
    43,894Gross profit
    
    
    10,756
    
    
    
    15,696
    
    
    
    28,225
    
    
    
    23,598
    
    
    
    21,524General and administrative expenses(1)
    
    
    4,875
    
    
    
    6,162
    
    
    
    10,200
    
    
    
    10,451
    
    
    
    12,836Sales and marketing expenses(1)
    
    
    5,991
    
    
    
    6,459
    
    
    
    8,832
    
    
    
    11,261
    
    
    
    12,596Research and development expenses(1)
    
    
    1,171
    
    
    
    1,078
    
    
    
    1,832
    
    
    
    1,942
    
    
    
    1,891Income (loss) from operations
    
    
    (1,281
    )
    
    
    1,997
    
    
    
    7,361
    
    
    
    (56
    )
    
    
    (5,799
    )Interest expense
    
    
    1,051
    
    
    
    1,044
    
    
    
    1,390
    
    
    
    167
    
    
    
    260Extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250Dividend and interest income
    
    
    5
    
    
    
    201
    
    
    
    1,189
    
    
    
    1,661
    
    
    
    269Income (loss) before income tax
    
    
    (2,327
    )
    
    
    1,154
    
    
    
    7,160
    
    
    
    1,438
    
    
    
    (5,540
    )Income tax expense (benefit)
    
    
    (762
    )
    
    
    225
    
    
    
    2,750
    
    
    
    927
    
    
    
    (1,350
    )Net income (loss)
    
    
    (1,565
    )
    
    
    929
    
    
    
    4,410
    
    
    
    511
    
    
    
    (4,190
    )Accretion of redeemable preferred stock and preferred stock
dividends(2)
    
    
    (3
    )
    
    
    (201
    )
    
    
    (225
    )
    
    
    
    
    
    
    Conversion of preferred stock(3)
    
    
    
    
    
    
    (83
    )
    
    
    
    
    
    
    
    
    
    
    Participation rights of preferred stock in undistributed earnings(4)
    
    
    
    
    
    
    (205
    )
    
    
    (775
    )
    
    
    
    
    
    
    Net income (loss) attributable to common shareholders
    
    $
    (1,568
    )
    
    $
    440
    
    
    $
    3,410
    
    
    $
    511
    
    
    $
    (4,190
    )Net income (loss) per share attributable to common shareholders:Basic
    
    $
    (0.18
    )
    
    $
    0.05
    
    
    $
    0.22
    
    
    $
    0.02
    
    
    $
    (0.19
    )Diluted
    
    $
    (0.18
    )
    
    $
    0.05
    
    
    $
    0.19
    
    
    $
    0.02
    
    
    $
    (0.19
    )Weighted-average shares outstanding:Basic
    
    
    8,524
    
    
    
    9,080
    
    
    
    15,548
    
    
    
    25,352
    
    
    
    21,844Diluted
    
    
    8,524
    
    
    
    16,433
    
    
    
    23,454
    
    
    
    27,445
    
    
    
    21,844
  30




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##### Table of Contents



As of March 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010(in thousands)Consolidated balance sheet data:Cash and cash equivalents
    
    $
    1,089
    
    
    $
    285
    
    
    $
    78,312
    
    
    $
    36,163
    
    
    $
    23,364Short-term investments
    
    
    
    
    
    
    
    
    
    
    2,404
    
    
    
    6,490
    
    
    
    1,000Total assets
    
    
    24,738
    
    
    
    33,583
    
    
    
    130,702
    
    
    
    103,722
    
    
    
    103,621Long-term debt, less current maturities
    
    
    10,492
    
    
    
    10,603
    
    
    
    4,473
    
    
    
    3,647
    
    
    
    3,156Temporary equity (Series C convertible
redeemable preferred stock)
    
    
    
    
    
    
    4,953
    
    
    
    
    
    
    
    
    
    
    
    Series A convertible preferred stock
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Series B convertible preferred stock
    
    
    5,591
    
    
    
    5,959
    
    
    
    
    
    
    
    
    
    
    
    Shareholder notes receivable
    
    
    (398
    )
    
    
    (2,128
    )
    
    
    
    
    
    
    
    
    
    
    Shareholders equity
    
    $
    6,622
    
    
    $
    9,355
    
    
    $
    113,190
    
    
    $
    88,695
    
    
    $
    87,670
 
 (1)
    
    Includes stock-based compensation expense recognized under Financial
Accounting Standards Board Accounting Standards Codification Topic
718, or ASC Topic 718, as follows: Fiscal Year Ended March 31,2008
    
    
    2009
    
    
    2010(in thousands)Cost of product revenue
    
    $
    122
    
    
    $
    269
    
    
    $
    222General and administrative expenses
    
    
    852
    
    
    
    676
    
    
    
    539Sales and marketing expenses
    
    
    375
    
    
    
    587
    
    
    
    691Research and development expenses
    
    
    42
    
    
    
    45
    
    
    
    39Total stock-based compensation expense
    
    $
    1,391
    
    
    $
    1,577
    
    
    $
    1,491
 
 (2)
    
    For fiscal 2007 and 2008, represents the impact attributable to the
accretion of accumulated dividends on our Series C preferred stock,
plus accumulated dividends on our Series A preferred stock prior to
its conversion into common stock on March 31, 2007. The Series C
preferred converted automatically into common stock on a one-for-one
basis upon the closing of our IPO and our obligation to pay
accumulated dividends was extinguished. For fiscal 2006, represents
accumulated dividends on our Series A preferred stock prior to its
conversion into common stock. See Managements Discussion and
Analysis of Financial Condition and Results of Operations  Revenue
and Expense Components  Accretion of Preferred Stock and Preferred
Stock Dividends.(3)
    
    Represents the estimated fair market value of the premium paid to
holders of Series A preferred stock upon induced conversion. See
Managements Discussion and Analysis of Financial Condition and
Results of Operations  Revenue and Expense Components  Conversion of
Preferred Stock.(4)
    
    Represents undistributed earnings allocated to participating preferred
shareholders as described under Managements Discussion and Analysis
of Financial Condition and Results of Operations  Revenue and Expense
Components  Participation Rights of Preferred Stock in Undistributed
Earnings. All of our preferred stock converted automatically into
common stock on a one-for-one basis upon the closing of our IPO,
thereby ending our requirement to allocate any undistributed earnings
to our preferred shareholders.  31




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 You should read the following discussion together with our financial statements, including the
related notes, and our other financial information appearing elsewhere in this Annual Report on
Form 10-K. See also Forward-Looking Statements and Item 1A. Risk Factors.
 Overview
         32




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##### Table of Contents



Revenue and Expense Components
 Revenue
     33




---



##### Table of Contents



Bookings
 Backlog
 Cost of Revenue.
  34




---



##### Table of Contents



Gross Margin.
 Operating Expenses.
     Compensation  Stock Compensation.
 Interest Expense.
  35




---



##### Table of Contents



Dividend and Interest Income.
 Income Taxes.
  Accretion of Preferred Stock and Preferred Stock Dividends.
 Conversion of Preferred Stock.
 Participation Rights of Preferred Stock in Undistributed Earnings. Earnings Per Share
  36




---



##### Table of Contents



Results of Operations
  Fiscal Year Ended March 31,2008
    
    
    2009
    
    
    
    
    
    
    2010(Dollars in thousands)% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    %Amount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    Change
    
    
    Amount
    
    
    Revenue
    
    
    ChangeProduct revenue
    
    $
    65,359
    
    
    
    81.0
    %
    
    $
    63,008
    
    
    
    86.7
    %
    
    
    (3.6
    )%
    
    $
    58,227
    
    
    
    89.0
    %
    
    
    (7.6
    )%Service revenue
    
    
    15,328
    
    
    
    19.0
    %
    
    
    9,626
    
    
    
    13.3
    %
    
    
    (37.2
    )%
    
    
    7,191
    
    
    
    11.0
    %
    
    
    (25.3
    )%Total revenue
    
    
    80,687
    
    
    
    100.0
    %
    
    
    72,634
    
    
    
    100.0
    %
    
    
    (10.0
    )%
    
    
    65,418
    
    
    
    100.0
    %
    
    
    (9.9
    )%Cost of product revenue
    
    
    42,127
    
    
    
    52.2
    %
    
    
    42,235
    
    
    
    58.1
    %
    
    
    0.3
    %
    
    
    38,628
    
    
    
    59.1
    %
    
    
    (8.5
    )%Cost of service revenue
    
    
    10,335
    
    
    
    12.8
    %
    
    
    6,801
    
    
    
    9.4
    %
    
    
    (34.2
    )%
    
    
    5,266
    
    
    
    8.0
    %
    
    
    (22.6
    )%Total cost of revenue
    
    
    52,462
    
    
    
    65.0
    %
    
    
    49,036
    
    
    
    67.5
    %
    
    
    (6.5
    )%
    
    
    43,894
    
    
    
    67.1
    %
    
    
    (10.5
    )%Gross profit
    
    
    28,225
    
    
    
    35.0
    %
    
    
    23,598
    
    
    
    32.5
    %
    
    
    (16.4
    )%
    
    
    21,524
    
    
    
    32.9
    %
    
    
    (8.8
    )%General and administrative expenses
    
    
    10,200
    
    
    
    12.6
    %
    
    
    10,451
    
    
    
    14.4
    %
    
    
    2.5
    %
    
    
    12,836
    
    
    
    19.6
    %
    
    
    22.8
    %Sales and marketing expenses
    
    
    8,832
    
    
    
    10.9
    %
    
    
    11,261
    
    
    
    15.5
    %
    
    
    27.5
    %
    
    
    12,596
    
    
    
    19.3
    %
    
    
    11.9
    %Research and development expenses
    
    
    1,832
    
    
    
    2.3
    %
    
    
    1,942
    
    
    
    2.7
    %
    
    
    6.0
    %
    
    
    1,891
    
    
    
    2.9
    %
    
    
    (2.6
    )%Income (loss) from operations
    
    
    7,361
    
    
    
    9.1
    %
    
    
    (56
    )
    
    
    (0.1
    )%
    
    
    (100.8
    )%
    
    
    (5,799
    )
    
    
    (8.9
    )%
    
    NMInterest expense
    
    
    (1,390
    )
    
    
    1.7
    %
    
    
    (167
    )
    
    
    0.2
    %
    
    
    (88.0
    )%
    
    
    (260
    )
    
    
    0.4
    %
    
    
    55.7
    %Extinguishment of debt
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    250
    
    
    
    0.4
    %
    
    
    100.0
    %Dividend and interest income
    
    
    1,189
    
    
    
    1.5
    %
    
    
    1,661
    
    
    
    2.3
    %
    
    
    39.7
    %
    
    
    269
    
    
    
    0.4
    %
    
    
    (83.8
    )%Income (loss) before income tax
    
    
    7,160
    
    
    
    8.9
    %
    
    
    1,438
    
    
    
    2.0
    %
    
    
    (79.9
    )%
    
    
    (5,540
    )
    
    
    (8.5
    )%
    
    
    (485.3
    )%Income tax expense (benefit)
    
    
    2,750
    
    
    
    3.4
    %
    
    
    927
    
    
    
    1.3
    %
    
    
    (66.3
    )%
    
    
    (1,350
    )
    
    
    (2.1
    )%
    
    
    (245.6
    )%Net income (loss)
    
    
    4,410
    
    
    
    5.5
    %
    
    
    511
    
    
    
    0.7
    %
    
    
    (88.4
    )%
    
    
    (4,190
    )
    
    
    (6.4
    )%
    
    
    (920.0
    )%Accretion of redeemable preferred stock and preferred stock dividends
    
    
    (225
    )
    
    
    (0.3
    )%
    
    
    
    
    
    
    0.0
    %
    
    
    100.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %Participation rights of preferred stock in undistributed earnings
    
    
    (775
    )
    
    
    (1.0
    )%
    
    
    
    
    
    
    0.0
    %
    
    
    100.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %Net income (loss) attributable to common shareholders
    
    $
    3,410
    
    
    
    4.2
    %
    
    $
    511
    
    
    
    0.7
    %
    
    
    (85.0
    )%
    
    $
    (4,190
    )
    
    
    (6.4
    )%
    
    
    (920.0
    )%
 
  Fiscal 2010 Compared to Fiscal 2009
 Bookings.
 Revenue.
  37




---



##### Table of Contents



Cost of Revenue and Gross Margin.
 Operating Expenses
 General and Administrative.
 Sales and Marketing.
 Research and Development.
 Interest Expense.
 Extinguishment of Debt.
 Dividend and Interest Income.
 Income Taxes.
 Fiscal 2009 Compared to Fiscal 2008
 Bookings.
 Revenue.
  38




---



##### Table of Contents



Cost of Revenue.
 Gross Margin.
 Operating Expenses
 General and Administrative.
 Sales and Marketing.
 Research and Development.
 Interest Expense.
 Dividend and Interest Income.
 Income Taxes.
  39




---



##### Table of Contents



Quarterly Results of Operations
  For the Three Months EndedJune 30,
    
    
    Sept. 30,
    
    
    Dec. 31,
    
    
    Mar. 31,
    
    
    June 30,
    
    
    Sept. 30,
    
    
    Dec. 31,
    
    
    Mar. 31,2008
    
    
    2008
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2010(in thousands, unaudited)Product revenue
    
    $
    12,889
    
    
    $
    17,280
    
    
    $
    20,671
    
    
    $
    12,168
    
    
    $
    10,677
    
    
    $
    13,763
    
    
    $
    17,205
    
    
    $
    16,582Service revenue
    
    
    3,217
    
    
    
    1,480
    
    
    
    1,704
    
    
    
    3,225
    
    
    
    1,951
    
    
    
    856
    
    
    
    2,090
    
    
    
    2,294Total revenue
    
    
    16,106
    
    
    
    18,760
    
    
    
    22,375
    
    
    
    15,393
    
    
    
    12,628
    
    
    
    14,619
    
    
    
    19,295
    
    
    
    18,876Cost of product revenue
    
    
    8,613
    
    
    
    11,467
    
    
    
    13,644
    
    
    
    8,511
    
    
    
    7,872
    
    
    
    9,222
    
    
    
    10,633
    
    
    
    10,901Cost of service revenue
    
    
    2,296
    
    
    
    958
    
    
    
    1,311
    
    
    
    2,236
    
    
    
    1,255
    
    
    
    632
    
    
    
    1,568
    
    
    
    1,811Total cost of revenue
    
    
    10,909
    
    
    
    12,425
    
    
    
    14,955
    
    
    
    10,747
    
    
    
    9,127
    
    
    
    9,854
    
    
    
    12,201
    
    
    
    12,712Gross profit
    
    
    5,197
    
    
    
    6,335
    
    
    
    7,420
    
    
    
    4,646
    
    
    
    3,501
    
    
    
    4,765
    
    
    
    7,094
    
    
    
    6,164General and administrative expenses
    
    
    2,615
    
    
    
    2,893
    
    
    
    2,438
    
    
    
    2,505
    
    
    
    3,163
    
    
    
    3,143
    
    
    
    3,051
    
    
    
    3,479Sales and marketing expenses
    
    
    2,652
    
    
    
    2,771
    
    
    
    2,741
    
    
    
    3,097
    
    
    
    3,152
    
    
    
    2,962
    
    
    
    3,063
    
    
    
    3,420Research and development expenses
    
    
    418
    
    
    
    373
    
    
    
    347
    
    
    
    804
    
    
    
    419
    
    
    
    491
    
    
    
    404
    
    
    
    576Income (loss) from operations
    
    
    (488
    )
    
    
    298
    
    
    
    1,894
    
    
    
    (1,760
    )
    
    
    (3,233
    )
    
    
    (1,831
    )
    
    
    576
    
    
    
    (1,311
    )Interest expense
    
    
    67
    
    
    
    41
    
    
    
    33
    
    
    
    26
    
    
    
    56
    
    
    
    74
    
    
    
    67
    
    
    
    63Extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250Dividend and interest income
    
    
    617
    
    
    
    550
    
    
    
    325
    
    
    
    169
    
    
    
    123
    
    
    
    76
    
    
    
    49
    
    
    
    21Income (loss) before income tax
    
    
    62
    
    
    
    807
    
    
    
    2,186
    
    
    
    (1,617
    )
    
    
    (3,166
    )
    
    
    (1,829
    )
    
    
    558
    
    
    
    (1,103
    )Income tax expense (benefit)
    
    
    28
    
    
    
    354
    
    
    
    1,032
    
    
    
    (487
    )
    
    
    (393
    )
    
    
    (430
    )
    
    
    (249
    )
    
    
    (278
    )Net income (loss)
    
    $
    34
    
    
    $
    453
    
    
    $
    1,154
    
    
    $
    (1,130
    )
    
    $
    (2,773
    )
    
    $
    (1,399
    )
    
    $
    807
    
    
    $
    (825
    )
 June 30,
    
    
    Sept. 30,
    
    
    Dec. 31,
    
    
    Mar. 31,
    
    
    June 30,
    
    
    Sept. 30,
    
    
    Dec. 31,
    
    
    Mar. 31,2008
    
    
    2008
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2010(unaudited)Product revenue
    
    
    80.0
    %
    
    
    92.1
    %
    
    
    92.4
    %
    
    
    79.0
    %
    
    
    84.6
    %
    
    
    94.1
    %
    
    
    89.2
    %
    
    
    87.8
    %Service revenue
    
    
    20.0
    %
    
    
    7.9
    %
    
    
    7.6
    %
    
    
    21.0
    %
    
    
    15.4
    %
    
    
    5.9
    %
    
    
    10.8
    %
    
    
    12.2
    %Total revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of product revenue
    
    
    53.5
    %
    
    
    61.1
    %
    
    
    61.0
    %
    
    
    55.3
    %
    
    
    62.3
    %
    
    
    63.1
    %
    
    
    55.1
    %
    
    
    57.8
    %Cost of service revenue
    
    
    14.3
    %
    
    
    5.1
    %
    
    
    5.9
    %
    
    
    14.5
    %
    
    
    9.9
    %
    
    
    4.3
    %
    
    
    8.1
    %
    
    
    9.6
    %Total cost of revenue
    
    
    67.7
    %
    
    
    66.2
    %
    
    
    66.8
    %
    
    
    69.8
    %
    
    
    72.3
    %
    
    
    67.4
    %
    
    
    63.2
    %
    
    
    67.3
    %Gross margin
    
    
    32.3
    %
    
    
    33.8
    %
    
    
    33.2
    %
    
    
    30.2
    %
    
    
    27.7
    %
    
    
    32.6
    %
    
    
    36.8
    %
    
    
    32.7
    %General and administrative expenses
    
    
    16.2
    %
    
    
    15.4
    %
    
    
    10.9
    %
    
    
    16.3
    %
    
    
    25.0
    %
    
    
    21.5
    %
    
    
    15.8
    %
    
    
    18.4
    %Sales and marketing expenses
    
    
    16.5
    %
    
    
    14.8
    %
    
    
    12.3
    %
    
    
    20.1
    %
    
    
    25.0
    %
    
    
    20.3
    %
    
    
    15.9
    %
    
    
    18.1
    %Research and development expenses
    
    
    2.6
    %
    
    
    2.0
    %
    
    
    1.6
    %
    
    
    5.2
    %
    
    
    3.3
    %
    
    
    3.4
    %
    
    
    2.1
    %
    
    
    3.1
    %Income (loss) from operations
    
    
    (3.0
    )%
    
    
    1.6
    %
    
    
    8.4
    %
    
    
    (11.4
    )%
    
    
    (25.6
    )%
    
    
    (12.5
    )%
    
    
    3.0
    %
    
    
    (6.9
    )%Interest expense
    
    
    0.4
    %
    
    
    0.2
    %
    
    
    0.1
    %
    
    
    0.2
    %
    
    
    0.4
    %
    
    
    0.5
    %
    
    
    0.3
    %
    
    
    0.3
    %Extinguishment of debt
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    1.3
    %Dividend and interest income
    
    
    3.8
    %
    
    
    2.9
    %
    
    
    1.5
    %
    
    
    1.1
    %
    
    
    1.0
    %
    
    
    0.5
    %
    
    
    0.3
    %
    
    
    0.1
    %Income (loss) before income tax
    
    
    0.4
    %
    
    
    4.3
    %
    
    
    9.8
    %
    
    
    (10.5
    )%
    
    
    (25.1
    )%
    
    
    (12.5
    )%
    
    
    2.9
    %
    
    
    (5.8
    )%Income tax expense (benefit)
    
    
    0.2
    %
    
    
    1.9
    %
    
    
    4.6
    %
    
    
    (3.2
    )%
    
    
    (3.1
    )%
    
    
    (2.9
    )%
    
    
    (1.3
    )%
    
    
    (1.5
    )%Net income (loss)
    
    
    0.2
    %
    
    
    2.4
    %
    
    
    5.2
    %
    
    
    (7.3
    )%
    
    
    (22.0
    )%
    
    
    (9.6
    )%
    
    
    4.2
    %
    
    
    (4.4
    )%
   40




---



##### Table of Contents



Liquidity and Capital Resources
 Overview
     Cash Flows
  Fiscal Year Ended March 31,2008
    
    
    2009
    
    
    2010(in thousands)Operating activities
    
    $
    (1,362
    )
    
    $
    3,239
    
    
    $
    (8,574
    )Investing activities
    
    
    (7,437
    )
    
    
    (17,873
    )
    
    
    (5,214
    )Financing activities
    
    
    86,826
    
    
    
    (27,515
    )
    
    
    989Increase (decrease) in cash and cash equivalents
    
    $
    78,027
    
    
    $
    (42,149
    )
    
    $
    (12,799
    )
 Cash Flows Related to Operating Activities.
   41




---



##### Table of Contents



Cash Flows Related to Investing Activities.
 Cash Flows Related to Financing Activities.
   Working Capital
  Indebtedness
    42




---



##### Table of Contents



Capital Spending
  Contractual Obligations
  Payments Due By PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(in thousands)Bank debt obligations
    
    $
    3,711
    
    
    $
    556
    
    
    $
    1,163
    
    
    $
    856
    
    
    $
    1,136Capital lease obligations
    
    
    7
    
    
    
    6
    
    
    
    1
    
    
    
    
    
    
    
    Cash interest payments on debt and capital leases
    
    
    963
    
    
    
    189
    
    
    
    284
    
    
    
    164
    
    
    
    326Operating lease obligations
    
    
    2,760
    
    
    
    953
    
    
    
    1,437
    
    
    
    262
    
    
    
    108Purchase order and cap-ex commitments(1)
    
    
    13,013
    
    
    
    12,719
    
    
    
    294
    
    
    
    
    
    
    
    Total
    
    $
    20,454
    
    
    $
    14,423
    
    
    $
    3,179
    
    
    $
    1,282
    
    
    $
    1,570
 
 (1)
    
    Reflects non-cancellable purchase commitments in the amount of $12.4
million for certain inventory items entered into in order to secure
better pricing and ensure materials on hand and capital expenditure
commitments in the amount of $0.6 million for the completion of
improvements to information technology systems.  43




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Inflation
  Critical Accounting Policies and Estimates
  Revenue Recognition.
  Inventories.
  44




---



##### Table of Contents



Allowance for Doubtful Accounts.
 Investments.
 Level 1 
    
    Quoted prices in active markets for identical assets or liabilities.Level 2 
    
    Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.Level 3 
    
    Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities.
  Stock-Based Compensation. Compensation  Stock
Compensation
  Fiscal Year Ended March 31,2008
    
    
    2009
    
    
    2010Weighted average expected term
    
    4.0 years
    
    
    5.7 years
    
    
    6.6 yearsRisk-free interest rate
    
    
    3.92
    %
    
    
    3.01
    %
    
    
    2.68
    %Expected volatility
    
    
    60
    %
    
    
    60
    %
    
    
    60
    %Expected forfeiture rate
    
    
    6
    %
    
    
    2
    %
    
    
    3
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
  45




---



##### Table of Contents



Common Stock Warrants.
 Accounting for Income Taxes.
    46




---



##### Table of Contents



Income Taxes
 Recent Accounting Pronouncements
  
 Item 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  Inflation.
 Foreign Exchange Risk.
 Interest Rate Risk.
  Commodity Price Risk.
  47




---



##### Table of Contents



ITEM 8.
    
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageNumberReports of Independent Registered Public Accounting Firm
    
    
    49Consolidated Balance Sheets
    
    
    51Consolidated Statements of Operations
    
    
    52Consolidated Statements of Temporary Equity and Shareholders Equity
    
    
    53Consolidated Statements of Cash Flows
    
    
    54Notes to Consolidated Financial Statements
    
    
    55
  48




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal Control  Integrated Framework
  
  49




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control 
Integrated Framework .
    Internal
Control  Integrated Framework
   
  50




---



##### Table of Contents



ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share amounts)
 March 31,2009
    
    
    2010AssetsCash and cash equivalents
    
    $
    36,163
    
    
    $
    23,364Short-term investments
    
    
    6,490
    
    
    
    1,000Accounts receivable, net of allowances of $222 and $382
    
    
    11,572
    
    
    
    14,617Inventories, net
    
    
    19,582
    
    
    
    25,991Deferred tax assets
    
    
    548
    
    
    
    Prepaid expenses and other current assets
    
    
    4,019
    
    
    
    2,974Total current assets
    
    
    78,374
    
    
    
    67,946Property and equipment, net
    
    
    22,999
    
    
    
    30,500Patents and licenses, net
    
    
    1,404
    
    
    
    1,590Deferred tax assets
    
    
    593
    
    
    
    2,610Other long-term assets
    
    
    352
    
    
    
    975Total assets
    
    $
    103,722
    
    
    $
    103,621Liabilities and Shareholders EquityAccounts payable
    
    $
    7,817
    
    
    $
    7,761Accrued expenses
    
    
    2,315
    
    
    
    3,844Deferred tax liabilities
    
    
    
    
    
    
    44Current maturities of long-term debt
    
    
    815
    
    
    
    562Total current liabilities
    
    
    10,947
    
    
    
    12,211Long-term debt, less current maturities
    
    
    3,647
    
    
    
    3,156Other long-term liabilities
    
    
    433
    
    
    
    584Total liabilities
    
    
    15,027
    
    
    
    15,951Commitments and contingencies (See Note G)Shareholders equity:Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2009
and 2010; no shares issued and outstanding at March 31, 2009 and 2010
    
    
    
    
    
    
    Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2009 and 2010;
shares issued: 28,875,879 and 29,911,203 at March 31, 2009 and 2010; shares
outstanding: 21,528,783 and 22,442,380 at March 31, 2009 and 2010
    
    
    
    
    
    
    Additional paid-in capital
    
    
    118,907
    
    
    
    122,515Treasury stock: 7,347,096 common shares at March 31, 2009 and 7,468,823 at March 31, 2010
    
    
    (31,536
    )
    
    
    (32,011
    )Accumulated other comprehensive loss
    
    
    (32
    )
    
    
    Retained earnings (deficit)
    
    
    1,356
    
    
    
    (2,834
    )Total shareholders equity
    
    
    88,695
    
    
    
    87,670Total liabilities and shareholders equity
    
    $
    103,722
    
    
    $
    103,621
   51




---



##### Table of Contents



ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except share and per share amounts)
 Fiscal Year Ended March 31,2008
    
    
    2009
    
    
    2010Product revenue
    
    $
    65,359
    
    
    $
    63,008
    
    
    $
    58,227Service revenue
    
    
    15,328
    
    
    
    9,626
    
    
    
    7,191Total revenue
    
    
    80,687
    
    
    
    72,634
    
    
    
    65,418Cost of product revenue
    
    
    42,127
    
    
    
    42,235
    
    
    
    38,628Cost of service revenue
    
    
    10,335
    
    
    
    6,801
    
    
    
    5,266Total cost of revenue
    
    
    52,462
    
    
    
    49,036
    
    
    
    43,894Gross profit
    
    
    28,225
    
    
    
    23,598
    
    
    
    21,524Operating expenses:General and administrative
    
    
    10,200
    
    
    
    10,451
    
    
    
    12,836Sales and marketing
    
    
    8,832
    
    
    
    11,261
    
    
    
    12,596Research and development
    
    
    1,832
    
    
    
    1,942
    
    
    
    1,891Total operating expenses
    
    
    20,864
    
    
    
    23,654
    
    
    
    27,323Income (loss) from operations
    
    
    7,361
    
    
    
    (56
    )
    
    
    (5,799
    )Other income (expense):Interest expense
    
    
    (1,390
    )
    
    
    (167
    )
    
    
    (260
    )Extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    250Dividend and interest income
    
    
    1,189
    
    
    
    1,661
    
    
    
    269Total other income (expense)
    
    
    (201
    )
    
    
    1,494
    
    
    
    259Income (loss) before income tax
    
    
    7,160
    
    
    
    1,438
    
    
    
    (5,540
    )Income tax expense (benefit)
    
    
    2,750
    
    
    
    927
    
    
    
    (1,350
    )Net income (loss)
    
    
    4,410
    
    
    
    511
    
    
    
    (4,190
    )Accretion of redeemable preferred stock and preferred stock dividends
    
    
    (225
    )
    
    
    
    
    
    
    Participation rights of preferred stock in undistributed earnings
    
    
    (775
    )
    
    
    
    
    
    
    Net income (loss) attributable to common shareholders
    
    $
    3,410
    
    
    $
    511
    
    
    $
    (4,190
    )Basic net income (loss) per share attributable to common shareholders
    
    $
    0.22
    
    
    $
    0.02
    
    
    $
    (0.19
    )Weighted-average common shares outstanding
    
    
    15,548,189
    
    
    
    25,351,839
    
    
    
    21,844,150Diluted net income (loss) per share attributable to common shareholders
    
    $
    0.19
    
    
    $
    0.02
    
    
    $
    (0.19
    )Weighted-average common shares and share equivalents outstanding
    
    
    23,453,803
    
    
    
    27,445,290
    
    
    
    21,844,150
   52




---



##### Table of Contents



ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF TEMPORARY EQUITY AND SHAREHOLDERS EQUITY
 (in thousands, except share amounts)
 Temporary Equity
    
    
    Shareholders EquitySeries C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common Stock
    
    
    
    
    
    
    
    
    
    
    AccumulatedRedeemable
    
    
    Preferred Stock
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Shareholder
    
    
    Other
    
    
    Retained
    
    
    TotalPreferred Stock
    
    
    Series A
    
    
    Series B
    
    
    
    
    
    
    Paid-in
    
    
    Treasury
    
    
    Notes
    
    
    Comprehensive
    
    
    Earnings
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Capital
    
    
    Stock
    
    
    Receivable
    
    
    Loss
    
    
    (Deficit)
    
    
    EquityBalance, March 31, 2007
    
    
    1,818,182
    
    
    $
    4,953
    
    
    
    
    
    
    $
    
    
    
    
    2,989,830
    
    
    $
    5,959
    
    
    
    12,038,499
    
    
    $
    9,438
    
    
    $
    (361
    )
    
    $
    (2,128
    )
    
    $
    
    
    
    $
    (3,553
    )
    
    $
    9,355Accretion of preferred stock
    
    
    
    
    
    
    225
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (225
    )
    
    
    (225
    )Accrued dividend conversion
    
    
    
    
    
    
    (423
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    423
    
    
    
    423Changes in shareholder notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (306,932
    )
    
    
    
    
    
    
    (1,378
    )
    
    
    2,128
    
    
    
    
    
    
    
    
    
    
    
    750Initial public offering: conversion of preferred stock
    
    
    (1,818,182
    )
    
    
    (4,755
    )
    
    
    
    
    
    
    
    
    
    
    (2,989,830
    )
    
    
    (5,959
    )
    
    
    4,808,012
    
    
    
    10,714
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,755Initial public offering: conversion of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,360,802
    
    
    
    10,762
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,762Initial public offering, net of issuance costs of $4,246
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,849,092
    
    
    
    78,559
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,559Issuance of stock and warrants for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,210
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29Exercise of stock options and warrants for cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,211,725
    
    
    
    2,014
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,014Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,183Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,391Adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (210
    )
    
    
    (210
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,410
    
    
    
    4,410Unrealized loss on short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,404Balance, March 31, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    26,963,408
    
    
    $
    114,090
    
    
    $
    (1,739
    )
    
    $
    
    
    
    $
    (6
    )
    
    $
    845
    
    
    $
    113,190Issuance of stock and warrants for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,627
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105Exercise of stock options and warrants for cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,519,838
    
    
    
    2,032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,032Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,103
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,103Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,577
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,577Treasury stock purchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,971,090
    )
    
    
    
    
    
    
    (29,797
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,797
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    511
    
    
    
    511Unrealized loss on short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    (26
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    485Balance, March 31, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    21,528,783
    
    
    $
    118,907
    
    
    $
    (31,536
    )
    
    $
    
    
    
    $
    (32
    )
    
    $
    1,356
    
    
    $
    88,695Issuance of stock and warrants for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,211
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Exercise of stock options and warrants for cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,024,113
    
    
    
    1,989
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,989Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,491
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,491Treasury stock purchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (121,727
    )
    
    
    
    
    
    
    (475
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (475
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,190
    )
    
    
    (4,190
    )Unrealized gain on short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    32Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,222
    )Balance, March 31, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    22,442,380
    
    
    $
    122,515
    
    
    $
    (32,011
    )
    
    $
    
    
    
    $
    
    
    
    $
    (2,834
    )
    
    $
    87,670
   53




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##### Table of Contents



ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Fiscal Year Ended March 31,2008
    
    
    2009
    
    
    2010Operating activitiesNet income (loss)
    
    $
    4,410
    
    
    $
    511
    
    
    $
    (4,190
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    1,410
    
    
    
    1,841
    
    
    
    3,072Stock-based compensation expense
    
    
    1,391
    
    
    
    1,577
    
    
    
    1,491Deferred income tax (benefit) provision
    
    
    966
    
    
    
    145
    
    
    
    (1,425
    )Gain (loss) on sale of assets
    
    
    2
    
    
    
    (31
    )
    
    
    (16
    )Change in allowance for notes and accounts receivable
    
    
    (10
    )
    
    
    144
    
    
    
    458Extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (139
    )Other
    
    
    228
    
    
    
    106
    
    
    
    48Changes in operating assets and liabilities:Accounts receivable
    
    
    (6,459
    )
    
    
    5,950
    
    
    
    (3,205
    )Inventories
    
    
    (7,293
    )
    
    
    (2,793
    )
    
    
    (6,409
    )Prepaid expenses and other assets
    
    
    33
    
    
    
    (2,580
    )
    
    
    268Accounts payable
    
    
    1,914
    
    
    
    296
    
    
    
    (56
    )Accrued expenses
    
    
    2,046
    
    
    
    (1,927
    )
    
    
    1,529Net cash provided by (used in) operating activities
    
    
    (1,362
    )
    
    
    3,239
    
    
    
    (8,574
    )Investing activitiesPurchase of property and equipment
    
    
    (5,044
    )
    
    
    (13,140
    )
    
    
    (5,649
    )Purchase of property and equipment leased to customers under operating leases
    
    
    
    
    
    
    
    
    
    
    (4,795
    )Purchase of short-term investments
    
    
    (2,410
    )
    
    
    (4,113
    )
    
    
    Sale of short-term investments
    
    
    
    
    
    
    
    
    
    
    5,522Additions to patents and licenses
    
    
    (171
    )
    
    
    (1,121
    )
    
    
    (299
    )Proceeds from sales of long term assets
    
    
    
    
    
    
    858
    
    
    
    Gain on sale of long term investment
    
    
    
    
    
    
    (361
    )
    
    
    Proceeds from disposal of equipment
    
    
    
    
    
    
    4
    
    
    
    7Net decrease (increase) in amount due from shareholder
    
    
    188
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (7,437
    )
    
    
    (17,873
    )
    
    
    (5,214
    )Financing activitiesProceeds from issuance of long-term debt
    
    
    750
    
    
    
    
    
    
    
    200Proceeds from issuance of convertible debt
    
    
    10,600
    
    
    
    
    
    
    
    Repurchase of common stock into treasury
    
    
    
    
    
    
    (29,340
    )
    
    
    (475
    )Payment of long-term debt
    
    
    (710
    )
    
    
    (854
    )
    
    
    (805
    )Net activity in revolving line of credit
    
    
    (6,064
    )
    
    
    
    
    
    
    Excess benefit for deferred taxes on stock-based compensation
    
    
    1,183
    
    
    
    1,103
    
    
    
    80Proceeds from shareholder notes receivable
    
    
    750
    
    
    
    
    
    
    
    Proceeds from initial public offering, net of issuance costs of $4,246
    
    
    78,559
    
    
    
    
    
    
    
    Deferred financing costs
    
    
    (256
    )
    
    
    
    
    
    
    Proceeds from issuance of common stock
    
    
    2,014
    
    
    
    1,576
    
    
    
    1,989Net cash provided by (used in) financing activities
    
    
    86,826
    
    
    
    (27,515
    )
    
    
    989Net increase (decrease) in cash and cash equivalents
    
    
    78,027
    
    
    
    (42,149
    )
    
    
    (12,799
    )Cash and cash equivalents at beginning of period
    
    
    285
    
    
    
    78,312
    
    
    
    36,163Cash and cash equivalents at end of period
    
    $
    78,312
    
    
    $
    36,163
    
    
    $
    23,364Supplemental cash flow information:Cash paid for interest
    
    $
    1,182
    
    
    $
    350
    
    
    $
    277Cash paid for income taxes
    
    
    830
    
    
    
    134
    
    
    
    32Supplemental disclosure of non-cash investing and financing activities:Shares surrendered into treasury for stock option exercise (see Note C)
    
    $
    
    
    
    $
    457
    
    
    $
    Long-term note receivable received on sale of investment
    
    
    
    
    
    
    297
    
    
    
    Shares surrendered for payment of shareholder note receivable
    
    
    (307
    )
    
    
    
    
    
    
    Conversion of debt to common stock
    
    
    10,762
    
    
    
    
    
    
    
    Conversion of redeemable preferred stock and accrued dividends to common stock
    
    
    10,714
    
    
    
    
    
    
    
    Preferred stock accretion
    
    
    225
    
    
    
    
    
    
    
    
   54




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##### Table of Contents



ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  DESCRIPTION OF BUSINESS
 Organization
  Initial Public Offering
  NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Reclassifications
  Use of Estimates
  Cash and cash equivalents
   55




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##### Table of Contents



Short-term investments
  March 31, 2009Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    
    
    
    
    Cash and Cash
    
    
    Short TermCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value
    
    
    Equivalents
    
    
    InvestmentsMoney market funds
    
    $
    14,114
    
    
    $
    
    
    
    $
    
    
    
    $
    14,114
    
    
    $
    14,114
    
    
    $
    Bank certificates of deposit
    
    
    9,007
    
    
    
    
    
    
    
    
    
    
    
    9,007
    
    
    
    6,207
    
    
    
    2,800Commercial paper
    
    
    3,690
    
    
    
    
    
    
    
    
    
    
    
    3,690
    
    
    
    
    
    
    
    3,690Corporate obligations
    
    
    2,257
    
    
    
    
    
    
    
    (7
    )
    
    
    2,250
    
    
    
    2,250
    
    
    
    Government agency obligations
    
    
    12,412
    
    
    
    
    
    
    
    (25
    )
    
    
    12,387
    
    
    
    12,387
    
    
    
    Total
    
    $
    41,480
    
    
    $
    
    
    
    $
    (32
    )
    
    $
    41,448
    
    
    $
    34,958
    
    
    $
    6,490
 March 31, 2010Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    
    
    
    
    Cash and Cash
    
    
    Short TermCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value
    
    
    Equivalents
    
    
    InvestmentsMoney market funds
    
    $
    22,297
    
    
    $
    
    
    
    $
    
    
    
    $
    22,297
    
    
    $
    22,297
    
    
    $
    Bank certificates of deposit
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000Total
    
    $
    23,297
    
    
    $
    
    
    
    $
    
    
    
    $
    23,297
    
    
    $
    22,297
    
    
    $
    1,000
  Fair value of financial instruments
   Level 1 
    
    Quoted prices in active markets for identical assets or liabilities.
 Level 2 
    
    Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
 Level 3 
    
    Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities.
 Accounts receivable
   56




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##### Table of Contents



Fiscal 2011
    
    $
    1,646Fiscal 2012
    
    
    Fiscal 2013
    
    
    338Fiscal 2014
    
    
    338Fiscal 2015
    
    
    405Total gross receivable
    
    
    2,727Less: amount representing interest
    
    
    (212
    )Net contracts receivable
    
    $
    2,515
 Inventories
    March 31,
    
    
    March 31,2009
    
    
    2010Raw materials and components
    
    $
    9,629
    
    
    $
    11,107Work in process
    
    
    1,753
    
    
    
    669Finished goods
    
    
    8,200
    
    
    
    14,215$
    19,582
    
    
    $
    25,991
 Prepaid Expenses and Other Current Assets
  Property and Equipment
  Property, Plant and Equipment
  57




---



##### Table of Contents



March 31,2009
    
    
    2010Land and land improvements
    
    $
    822
    
    
    $
    1,436Buildings
    
    
    5,435
    
    
    
    14,072Furniture, fixtures and office equipment
    
    
    3,432
    
    
    
    8,201Plant equipment
    
    
    6,882
    
    
    
    7,627Construction in progress
    
    
    11,366
    
    
    
    6,77727,937
    
    
    
    38,113Less: accumulated depreciation and amortization
    
    
    (4,938
    )
    
    
    (7,613
    )Net property and equipment
    
    $
    22,999
    
    
    $
    30,500
  March 31,2009
    
    
    2010Equipment
    
    $
    1,104
    
    
    $
    25Less: accumulated amortization
    
    
    (477
    )
    
    
    (20
    )Net equipment
    
    $
    627
    
    
    $
    5
  Land improvements
    
    10  15 yearsBuildings
    
    10  39 yearsFurniture, fixtures and office equipment
    
    3  10 yearsPlant equipment
    
    3  10 years
  Patents and Licenses
    Fiscal 2011
    
    $
    113Fiscal 2012
    
    
    113Fiscal 2013
    
    
    110Fiscal 2014
    
    
    109Fiscal 2015
    
    
    109Thereafter
    
    
    1,036$
    1,590
  58




---



##### Table of Contents



Other Long-Term Assets
    Accrued Expenses
    March 31,2009
    
    
    2010Beginning of year
    
    $
    69
    
    
    $
    55Provision to cost of revenue
    
    
    30
    
    
    
    80Charges
    
    
    (44
    )
    
    
    (75
    )End of year
    
    $
    55
    
    
    $
    60
 Incentive Compensation
    59




---



##### Table of Contents



Revenue Recognition
  
    
    persuasive evidence of an arrangement exists;
 
    
    delivery has occurred and title has passed to the customer;
 
    
    the sales price is fixed and determinable and no further obligation exists; and
 
    
    collectability is reasonably assured
         March 31,2009
    
    
    2010Deferred revenue  current liability
    
    $
    103
    
    
    $
    338Deferred revenue  long term liability
    
    
    36
    
    
    
    186Total deferred revenue
    
    $
    139
    
    
    $
    524
  60




---



##### Table of Contents



Shipping and Handling Costs
  Advertising
  Research and Development
  Income Taxes
  Income Taxes
  Stock Option Plans
  Compensation  Stock Compensation
    61




---



##### Table of Contents



Fiscal Year Ended March 31,2008
    
    
    2009
    
    
    2010Weighted average expected term
    
    4.0 years
    
    
    5.7 years
    
    
    6.6 yearsRisk-free interest rate
    
    
    3.92
    %
    
    
    3.01
    %
    
    
    2.68
    %Expected volatility
    
    
    60
    %
    
    
    60
    %
    
    
    60
    %Expected forfeiture rate
    
    
    6
    %
    
    
    2
    %
    
    
    3
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Net Income per Common Share
    Fiscal Year Ended March 31,2008
    
    
    2009
    
    
    2010Numerator:Net income (loss)
    
    $
    4,410
    
    
    $
    511
    
    
    $
    (4,190
    )Accretion of redeemable preferred stock and preferred stock dividends
    
    
    (225
    )
    
    
    
    
    
    
    Participation rights of preferred stock in undistributed earnings
    
    
    (775
    )
    
    
    
    
    
    
    Numerator for basic net income (loss) per common share
    
    
    3,410
    
    
    
    511
    
    
    
    (4,190
    )Adjustment for convertible note interest, net of income tax effect
    
    
    149
    
    
    
    
    
    
    
    Preferred stock dividends and participation rights of preferred stock
    
    
    1,000
    
    
    
    
    
    
    
    Numerator for diluted net income (loss) per common share
    
    $
    4,559
    
    
    $
    511
    
    
    $
    (4,190
    )Denominator:Weighted-average common shares outstanding
    
    
    15,548,189
    
    
    
    25,351,839
    
    
    
    21,844,150Weighted-average effect of preferred stock, restricted stock,
convertible notes and assumed conversion of stock options and warrants
    
    
    7,905,614
    
    
    
    2,093,451
    
    
    
    Weighted-average common shares and common share equivalents outstanding
    
    
    23,453,803
    
    
    
    27,445,290
    
    
    
    21,844,150
  62




---



##### Table of Contents



March 31,2008
    
    
    2009
    
    
    2010Common stock options
    
    
    4,716,022
    
    
    
    3,680,945
    
    
    
    3,546,249Common stock warrants
    
    
    578,788
    
    
    
    488,504
    
    
    
    76,240Total
    
    
    5,294,810
    
    
    
    4,169,449
    
    
    
    3,622,489
 Concentration of Credit Risk and Other Risks and Uncertainties
     Segment Information
   Recent Accounting Pronouncements
 Earnings Per Share Amendments to Section 260-10-S99, Earnings per Share,
 Multiple-Deliverable
Revenue Arrangements  a consensus of the FASB Emerging Issues Task Force
 Fair
Value Measurements and Disclosures, Fair Value Measurements and
Disclosures
 NOTE C  RELATED PARTY TRANSACTIONS
   63




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##### Table of Contents



NOTE D  LONG-TERM DEBT
  March 31,2009
    
    
    2010Term note
    
    $
    1,235
    
    
    $
    1,017First mortgage note payable
    
    
    990
    
    
    
    926Debenture payable
    
    
    885
    
    
    
    847Lease obligations
    
    
    227
    
    
    
    7Other long-term debt
    
    
    1,125
    
    
    
    921Total long-term debt
    
    
    4,462
    
    
    
    3,718Less current maturities
    
    
    (815
    )
    
    
    (562
    )Long-term debt, less current maturities
    
    $
    3,647
    
    
    $
    3,156
 Revolving Credit Agreement
   64




---



##### Table of Contents



Term Note
  First Mortgage Note Payable
  Debenture Payable
  Lease Obligations
  Other Long-Term Debt
    65




---



##### Table of Contents



Aggregate Maturities
  Fiscal 2011
    
    $
    562Fiscal 2012
    
    
    608Fiscal 2013
    
    
    556Fiscal 2014
    
    
    564Fiscal 2015
    
    
    291Thereafter
    
    
    1,137$
    3,718
 NOTE E  CONVERTIBLE NOTES
   NOTE F  INCOME TAXES
  Fiscal Year Ended March 31,2008
    
    
    2009
    
    
    2010Current
    
    $
    1,784
    
    
    $
    782
    
    
    $
    75Deferred
    
    
    966
    
    
    
    145
    
    
    
    (1,425
    )$
    2,750
    
    
    $
    927
    
    
    $
    (1,350
    )
 2008
    
    
    2009
    
    
    2010Federal
    
    $
    2,494
    
    
    $
    824
    
    
    $
    (1,677
    )State
    
    
    256
    
    
    
    103
    
    
    
    327$
    2,750
    
    
    $
    927
    
    
    $
    (1,350
    )
  Fiscal Year Ended March 31,2008
    
    
    2009
    
    
    2010Statutory federal tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    (34.0
    )%State taxes, net
    
    
    4.2
    %
    
    
    11.0
    %
    
    
    1.8
    %Stock-based compensation expense
    
    
    2.7
    %
    
    
    21.2
    %
    
    
    4.2
    %Federal tax credit
    
    
    (1.5
    )%
    
    
    (2.7
    )%
    
    
    (3.0
    )%State tax credit
    
    
    (1.0
    )%
    
    
    (1.5
    )%
    
    
    (0.4
    )%Change in valuation reserve
    
    
    0.0
    %
    
    
    1.4
    %
    
    
    4.4
    %Change in tax contingency reserve
    
    
    (0.1
    )%
    
    
    0.7
    %
    
    
    0.1
    %Other, net
    
    
    (0.2
    )%
    
    
    0.4
    %
    
    
    2.5
    %Effective income tax rate
    
    
    38.1
    %
    
    
    64.5
    %
    
    
    (24.4
    )%
  66




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##### Table of Contents



March 31,2009
    
    
    2010Inventory, accruals and reserves
    
    $
    464
    
    
    $
    608Other
    
    
    178
    
    
    
    532Deferred revenue
    
    
    (94
    )
    
    
    (1,184
    )Total current deferred tax assets and liabilities
    
    $
    548
    
    
    $
    (44
    )Federal and state operating loss carryforwards
    
    $
    74
    
    
    $
    3,111Tax credit carryforwards
    
    
    832
    
    
    
    848Non qualified stock options
    
    
    435
    
    
    
    603Fixed assets
    
    
    (724
    )
    
    
    (1,683
    )Valuation allowance
    
    
    (24
    )
    
    
    (269
    )Total long-term deferred tax assets
    
    $
    593
    
    
    $
    2,610
       Uncertain tax positions
   Fiscal Year Ended
    
    
    Fiscal Year EndedMarch 31, 2009
    
    
    March 31, 2010Unrecognized tax benefits as of beginning of fiscal year
    
    $
    392
    
    
    $
    397Decreases relating to settlements with tax authorities
    
    
    (5
    )
    
    
    Additions based on tax positions related to the current period positions
    
    
    10
    
    
    
    1Unrecognized tax benefits as of end of fiscal year
    
    $
    397
    
    
    $
    398
  67




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##### Table of Contents



NOTE G  COMMITMENTS AND CONTINGENCIES
 Operating Leases
  Fiscal 2011
    
    $
    953Fiscal 2012
    
    
    877Fiscal 2013
    
    
    560Fiscal 2014
    
    
    131Fiscal 2015
    
    
    131Thereafter
    
    
    108$
    2,760
 Purchase Commitments
  Retirement Savings Plan
  Litigation
     68




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##### Table of Contents



NOTE H SHAREHOLDERS EQUITY
 Conversion of Preferred Stock Upon Completion of Initial Public Offering
  Series C Redeemable Preferred Stock
  
    
    senior rank to other classes and series of stock with respect to the payment of dividends
and proceeds upon liquidation
 
    
    entitlement to receive cumulative dividends accruing at a non-compounded annual rate of
6% upon the occurrence of certain events (accumulated dividends through the IPO were
$423,000)
 
    
    liquidation preference equal to the purchase price plus any accumulated dividends
 
    
    conversion into common stock at a one-to-one ratio upon certain qualifying exit events
resulting in net proceeds to the Company of at least $30 million (upon conversion in a
qualifying event, all rights related to accrued and unpaid dividends would be extinguished)
 
    
    weighted average dilution protection for any issuance of stock or other equity
instruments (other than for stock options granted under existing stock plans) at a price per
share less than the Series C purchase price of $2.75
 
    
    proportional adjustment of the number of shares of common stock into which one share of
Series C preferred stock may be converted in the event of stock splits, stock dividends
reclassifications and similar events
 
    
    a redemption feature at the option of the holder, including accumulated dividends, if
certain liquidity events are not achieved within five years from issuance
 
    
    right to vote with common stock on all matters submitted to a vote of shareholders
  Series B Preferred Stock
  
    
    a liquidation preference equal to the purchase price of the Series B shares
 
    
    automatic conversion to common stock at a one-to-one ratio upon registration of the
common stock under a 1933 Act registration
  69




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##### Table of Contents




    
    no dividend preference
 
    
    right to vote with common stock on all matters submitted to a vote of shareholders
  Series A Preferred Stock
 Debt
  Share Repurchase Program and Treasury Stock
    Shareholder Rights Plan
    70




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##### Table of Contents



Shareholder receivables
     NOTE I  STOCK OPTIONS AND WARRANTS
    71




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##### Table of Contents



Fiscal Year Ended2008
    
    
    2009
    
    
    2010Cost of product revenue
    
    $
    122
    
    
    $
    269
    
    
    $
    222General and administrative
    
    
    852
    
    
    
    676
    
    
    
    539Sales and marketing
    
    
    375
    
    
    
    587
    
    
    
    691Research and development
    
    
    42
    
    
    
    45
    
    
    
    39$
    1,391
    
    
    $
    1,577
    
    
    $
    1,491
  Available at March 31, 2007
    
    
    670,700Amendment to Plan; concurrent with IPO
    
    
    1,500,000Granted stock options
    
    
    (737,432
    )Granted shares
    
    
    (2,210
    )Forfeited
    
    
    51,000Available at March 31, 2008
    
    
    1,482,058Granted stock options
    
    
    (731,879
    )Granted shares
    
    
    (16,627
    )Forfeited
    
    
    337,402Available at March 31, 2009
    
    
    1,070,954Granted stock options
    
    
    (888,018
    )Granted shares
    
    
    (11,211
    )Forfeited
    
    
    397,965Available at March 31, 2010
    
    
    569,690
  WeightedWeighted
    
    
    AverageAverage
    
    
    Fair ValueNumber of
    
    
    Exercise
    
    
    of Options
    
    
    Aggregate IntrinsicShares
    
    
    Price
    
    
    Granted
    
    
    ValueOutstanding at March 31, 2007
    
    
    4,714,547
    
    
    
    1.56
    
    
    $
    1.35Granted
    
    
    737,432
    
    
    
    6.09Exercised
    
    
    (684,957
    )
    
    
    1.27Forfeited
    
    
    (51,000
    )
    
    
    2.05Outstanding at March 31, 2008
    
    
    4,716,022
    
    
    
    2.30
    
    
    $
    3.03Granted
    
    
    731,879
    
    
    
    7.58Exercised
    
    
    (1,429,554
    )
    
    
    1.24Forfeited
    
    
    (337,402
    )
    
    
    6.26Outstanding at March 31, 2009
    
    
    3,680,945
    
    
    
    3.40
    
    
    $
    4.25Granted
    
    
    888,018
    
    
    
    3.92Exercised
    
    
    (624,749
    )
    
    
    1.71Forfeited
    
    
    (397,965
    )
    
    
    4.89Outstanding at March 31, 2010
    
    
    3,546,249
    
    
    
    3.66
    
    
    $
    2.23
    
    
    $
    6,399,684Exercisable at March 31, 2010
    
    
    1,757,130
    
    
    
    
    
    
    
    
    
    
    $
    4,139,343
  72




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##### Table of Contents



March 31, 2010WeightedAverageRemaining
    
    
    Weighted
    
    
    
    
    
    
    WeightedContractual
    
    
    Average
    
    
    
    
    
    
    AverageLife
    
    
    Exercise
    
    
    
    
    
    
    ExercisePrice
    
    Outstanding
    
    
    (Years)
    
    
    Price
    
    
    Vested
    
    
    Price$0.69
    
    
    370,610
    
    
    
    1.14
    
    
    $
    0.69
    
    
    
    370,610
    
    
    $
    0.690.75  0.94
    
    
    112,420
    
    
    
    1.66
    
    
    
    0.89
    
    
    
    112,420
    
    
    
    0.891.50
    
    
    31,000
    
    
    
    3.52
    
    
    
    1.50
    
    
    
    31,000
    
    
    
    1.502.20  2.25
    
    
    1,086,946
    
    
    
    6.54
    
    
    
    2.21
    
    
    
    554,646
    
    
    
    2.212.50  2.75
    
    
    118,167
    
    
    
    6.20
    
    
    
    2.51
    
    
    
    80,167
    
    
    
    2.513.00  4.32
    
    
    578,102
    
    
    
    9.31
    
    
    
    3.36
    
    
    
    107,776
    
    
    
    3.064.48  4.76
    
    
    475,932
    
    
    
    7.88
    
    
    
    4.53
    
    
    
    346,632
    
    
    
    4.505.23  6.05
    
    
    457,870
    
    
    
    9.01
    
    
    
    5.45
    
    
    
    53,477
    
    
    
    5.469.00  10.04
    
    
    122,500
    
    
    
    8.03
    
    
    
    9.42
    
    
    
    43,900
    
    
    
    9.2410.14  11.61
    
    
    192,702
    
    
    
    8.06
    
    
    
    11.07
    
    
    
    56,502
    
    
    
    10.873,546,249
    
    
    
    6.87
    
    
    $
    3.66
    
    
    
    1,757,130
    
    
    $
    2.86
   Fiscal 2011
    
    $
    1,352Fiscal 2012
    
    
    1,184Fiscal 2013
    
    
    854Fiscal 2014
    
    
    526Fiscal 2015
    
    
    290Thereafter
    
    
    259$
    4,465Remaining weighted average expected term
    
    6.9 years
   WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceOutstanding at March 31, 2007
    
    
    1,109,390
    
    
    $
    2.24Issued
    
    
    
    
    
    
    Exercised
    
    
    (526,766
    )
    
    
    2.17Cancelled
    
    
    (3,836
    )
    
    
    1.50Outstanding at March 31, 2008
    
    
    578,788
    
    
    $
    2.31Issued
    
    
    
    
    
    
    Exercised
    
    
    (90,284
    )
    
    
    2.32Cancelled
    
    
    
    
    
    
    Outstanding at March 31, 2009
    
    
    488,504
    
    
    $
    2.31Issued
    
    
    
    
    
    
    Exercised
    
    
    (399,364
    )
    
    
    2.30Cancelled
    
    
    (12,900
    )
    
    
    Outstanding at March 31, 2010
    
    
    76,240
    
    
    $
    2.37
  73




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##### Table of Contents



Number ofExercise Price
    
    Warrants
    
    
    Expiration$2.25
    
    
    38,980
    
    
    Fiscal 2015$2.50
    
    
    37,260
    
    
    Fiscal 2011Total
    
    
    76,240
 NOTE J  QUARTERLY FINANCIAL DATA (UNAUDITED)
  Three Months EndedJune 30,
    
    
    Sept. 30,
    
    
    Dec. 31,
    
    
    Mar. 31,2009
    
    
    2009
    
    
    2009
    
    
    2010
    
    
    Total(in thousands, except per share amounts)Total revenue
    
    $
    12,628
    
    
    $
    14,619
    
    
    $
    19,295
    
    
    $
    18,876
    
    
    $
    65,418Gross profit
    
    
    3,501
    
    
    
    4,765
    
    
    
    7,094
    
    
    
    6,164
    
    
    
    21,524Net income (loss)
    
    $
    (2,773
    )
    
    $
    (1,399
    )
    
    $
    807
    
    
    $
    (825
    )
    
    $
    (4,190
    )Basic net income per share
    
    $
    (0.13
    )
    
    $
    (0.06
    )
    
    $
    0.04
    
    
    $
    (0.04
    )
    
    $
    (0.19
    )Shares used in basic per share calculation
    
    
    21,588
    
    
    
    21,707
    
    
    
    21,792
    
    
    
    22,255
    
    
    
    21,844Diluted net income per share
    
    $
    (0.13
    )
    
    $
    (0.06
    )
    
    $
    0.04
    
    
    $
    (0.04
    )
    
    $
    (0.19
    )Shares used in diluted per share calculation
    
    
    21,588
    
    
    
    21,707
    
    
    
    22,568
    
    
    
    22,255
    
    
    
    21,844
 Three Months EndedJune 30,
    
    
    Sept. 30,
    
    
    Dec. 31,
    
    
    Mar. 31,2008
    
    
    2008
    
    
    2008
    
    
    2009
    
    
    Total(in thousands, except per share amounts)Total revenue
    
    $
    16,106
    
    
    $
    18,760
    
    
    $
    22,375
    
    
    $
    15,393
    
    
    $
    72,634Gross profit
    
    
    5,197
    
    
    
    6,335
    
    
    
    7,420
    
    
    
    4,646
    
    
    
    23,598Net income
    
    $
    34
    
    
    $
    453
    
    
    $
    1,154
    
    
    $
    (1,130
    )
    
    $
    511Basic net income per share
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    0.05
    
    
    $
    (0.05
    )
    
    $
    0.02Shares used in basic per share calculation
    
    
    27,038
    
    
    
    26,960
    
    
    
    25,204
    
    
    
    22,154
    
    
    
    25,352Diluted net income per share
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    0.04
    
    
    $
    (0.05
    )
    
    $
    0.02Shares used in diluted per share calculation
    
    
    30,015
    
    
    
    29,019
    
    
    
    26,415
    
    
    
    22,154
    
    
    
    27,445
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Managements Evaluation of Disclosure Controls and Procedures
    74




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##### Table of Contents



Managements Report on Internal Control Over Financial Reporting
  
    
    pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;
 
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
authorization of our management and directors: and
 
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
     Changes in Internal Controls Over Financial Reporting
  
 ITEM 9B.
    
    OTHER INFORMATION
  
 PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
   75




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##### Table of Contents



ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a) Financial Statements
  (b) Financial Statement Schedule
 SCHEDULE IIVALUATION and QUALIFYING ACCOUNTSBalance at
    
    
    Provisions
    
    
    
    
    
    
    Balance atbeginning
    
    
    charged to
    
    
    Write offs
    
    
    end ofof period
    
    
    expense
    
    
    and other
    
    
    period(in thousands)March 31,2008
    
    Allowance for Doubtful Accounts
    
    $
    89
    
    
    
    66
    
    
    
    76
    
    
    $
    792009
    
    Allowance for Doubtful Accounts
    
    
    79
    
    
    
    178
    
    
    
    35
    
    
    
    2222010
    
    Allowance for Doubtful Accounts
    
    
    222
    
    
    
    388
    
    
    
    228
    
    
    
    3822008
    
    Inventory Obsolescence Reserve
    
    $
    448
    
    
    
    376
    
    
    
    294
    
    
    $
    5302009
    
    Inventory Obsolescence Reserve
    
    
    530
    
    
    
    149
    
    
    
    11
    
    
    
    6682010
    
    Inventory Obsolescence Reserve
    
    
    668
    
    
    
    105
    
    
    
    17
    
    
    
    756
  76




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##### Table of Contents



EXHIBIT INDEX
 Number
    
    Exhibit Title3.1
    
    
    Amended and Restated Articles of Incorporation of Orion
Energy Systems, Inc., filed as Exhibit 3.3 to the
Registrants Form S-1 filed August 20, 2007 (File No.
333-145569), is hereby incorporated by reference as Exhibit
3.1.3.2
    
    
    Amended and Restated Bylaws of Orion Energy Systems, Inc.,
filed as Exhibit 3.5 to the Registrants Form S-1 filed
August 20, 2007 (File No. 333-145569), is hereby incorporated
by reference as Exhibit 3.2.4.1
    
    
    Form of Warrant to purchase Common Stock of Orion Energy
Systems, Inc., filed as Exhibit 4.3 to the Registrants Form
S-1 filed August 20, 2007 (File No. 333-145569), is hereby
incorporated by reference as Exhibit 4.1.4.2
    
    
    Form of Warrant to purchase Common Stock of Orion Energy
Systems, Inc., filed as Exhibit 4.4 to the Registrants Form
S-1 filed August 20, 2007 (File No. 333-145569), is hereby
incorporated by reference as Exhibit 4.2.4.3
    
    
    Rights Agreement, dated as of January 7, 2009, between Orion
Energy Systems, Inc. and Wells Fargo Bank, N.A., which
includes as Exhibit A thereto the Form of Right Certificate
and as Exhibit B thereto the Summary of Common Share Purchase
Rights, filed as Exhibit 4.1 to the Registrants Form 8-A
filed January 8, 2009 (File No. 001-33887), is hereby
incorporated by reference as Exhibit 4.3.10.1
    
    
    Credit Agreement, dated March 18, 2008, by and between Orion
Energy Systems, Inc., Great Lakes Energy Technologies, LLC
and Wells Fargo Bank, National Association, filed as Exhibit
10.1 to the Registrants Form 8-K filed March 21, 2008 (File
No. 001-33887), is hereby incorporated by reference as
Exhibit 10.1.10.2
    
    
    First Amendment, dated May 15, 2009, to the Credit Agreement,
dated as of March 18, 2008, among the Company, Great Lakes
Energy Technologies, LLC, and Wells Fargo Bank, National
Association, filed as Exhibit 10.1 to the Registrants Form
8-K filed May 20, 2009 (File No. 001-33887), is hereby
incorporated by reference as Exhibit 10.2.*10.3
    
    
    Second Amendment, dated December 18, 2009, to the Credit
Agreement, dated as of March 18, 2008, among the Company,
Great Lakes Energy Technologies, LLC, and Wells Fargo Bank,
National Association, filed as Exhibit 10.1 to the
Registrants Current Report on Form 8-K dated December 18,
2009 (File No. 001-33887), is hereby incorporated by
reference as Exhibit 10.3.10.4
    
    
    Revolving Line of Credit Note, dated March 18, 2008, by and
between Orion Energy Systems, Inc., Great Lakes Energy
Technologies, LLC and Wells Fargo Bank, National Association,
filed as Exhibit 10.2 to the Registrants Form 8-K filed
March 21, 2008 (File No. 001-33887), is hereby incorporated
by reference as Exhibit 10.4.10.5
    
    
    Orion Energy Systems, Inc. 2003 Stock Option Plan, as
amended, filed as Exhibit 10.6 to the Registrants Form S-1
filed August 20, 2007 (File No. 333-145569), is hereby
incorporated by reference as Exhibit 10.5.*10.6
    
    
    Form of Stock Option Agreement under the Orion Energy
Systems, Inc. 2003 Stock Option Plan, filed as Exhibit 10.7
to the Registrants Form S-1 filed August 20, 2007 (File No.
333-145569), is hereby incorporated by reference as Exhibit
10.6.*10.7
    
    
    Orion Energy Systems, Inc. 2004 Stock and Incentive Awards
Plan, filed as Exhibit 10.9 to the Registrants Form S-1
filed August 20, 2007 (File No. 333-145569), is hereby
incorporated by reference as Exhibit 10.7.*10.8
    
    
    Form of Stock Option Agreement under the Orion Energy
Systems, Inc. 2004 Equity Incentive Plan, filed as Exhibit
10.10 to the Registrants Form S-1 filed August 20, 2007
(File No. 333-145569), is hereby incorporated by reference as
Exhibit 10.8.*10.9
    
    
    Form of Stock Option Agreement under the Orion Energy
Systems, Inc. 2004 Stock and Incentive Awards Plan, filed as
Exhibit 10.11 to the Registrants Form S-1 filed August 20,
2007 (File No. 333-145569), is hereby incorporated by
reference as Exhibit 10.9.*10.10
    
    
    Summary of Non-Employee Director Compensation, filed as
Exhibit 10.15 to the Registrants Form S-1 filed November 16,
2007 (File No. 333-145569), is hereby incorporated by
reference as Exhibit 10.10.*10.11
    
    
    Executive Employment and Severance Agreement, dated August
12, 2008, by and between Orion Energy Systems, Inc. and
Daniel J. Waibel, filed as Exhibit 10.2 to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2008 (File No. 001-33887), is hereby incorporated by
reference as Exhibit 10.11.*10.12
    
    
    Executive Employment and Severance Agreement, dated February 21,
2008, by and between Orion Energy Systems, Inc. and Michael J.
Potts, filed as Exhibit 10.2 to the Registrants Form 8-K filed
February 22, 2008 (File No. 001-33887), is hereby incorporated by
reference as Exhibit 10.12.*10.13
    
    
    Executive Employment and Severance Agreement, dated February 20,
2008, by and between Orion Energy Systems, Inc. and Eric von
Estorff, filed as Exhibit 10.3 to the Registrants Form 8-K filed
February 22, 2008 (File No. 001-33887), is hereby incorporated by
reference as Exhibit 10.13.*10.14
    
    
    Executive Employment and Severance Agreement, dated March 18, 2008,
by and between Orion Energy Systems, Inc. and John H. Scribante,
filed as Exhibit 10.3 to the Registrants Form 8-K filed March 21,
2008 (File No. 001-33887), is hereby incorporated by reference as
Exhibit 10.14.*
  77




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##### Table of Contents



Number
    
    Exhibit Title10.15
    
    
    Executive Employment and Severance Agreement, dated April 14, 2008,
by and between Orion Energy Systems, Inc. and Neal R. Verfuerth,
filed as Exhibit 10.1 to the Registrants Form 8-K filed April 18,
2008 (File No. 001-33887), is hereby incorporated by reference as
Exhibit 10.15.*10.16
    
    
    Executive Employment and Severance Agreement, dated August 12,
2008, by and between Orion Energy Systems, Inc. and Scott R.
Jensen, filed as Exhibit 10.1 to the Registrants Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2008 (File No.
001-33887), is hereby incorporated by reference as Exhibit 10.16.*10.17
    
    
    Patent and Trademark Security Agreement by and between Orion Energy
Systems, Inc. and Wells Fargo Bank, National Association, Acting
Through its Wells Fargo Business Credit Operating Division, dated
December 22, 2005, filed as Exhibit 10.13 to the Registrants Form
S-1 filed August 20, 2007 (File No. 333-145569), is hereby
incorporated by reference as Exhibit 10.17.10.18
    
    
    Patent and Trademark Security Agreement by and between Great Lakes
Energy Technologies, LLC and Wells Fargo Bank, National
Association, Acting Through its Wells Fargo Business Credit
Operating Division, dated December 22, 2005, filed as Exhibit 10.14
to the Registrants Form S-1 filed August 20, 2007 (File No.
333-145569), is hereby incorporated by reference as Exhibit 10.18.10.19
    
    
    Letter Agreement, dated as of August 27, 2009, between the Company
and John H. Scribante, filed as Exhibit 10.1 to the Companys Form
8-K filed on September 2, 2009, is hereby incorporated by reference
as Exhibit 10.19.*10.20
    
    
    Executive Employment and Severance Agreement, dated September 8,
2009, by and between Stuart L. Ralsky and the Company, filed as
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2009, is hereby incorporated
by reference as Exhibit 10.20.*21.1
    
    
    Subsidiaries of Orion Energy Systems, Inc.**23.1
    
    
    Consent of Independent Registered Public Accounting Firm.**31.1
    
    
    Certification of Chief Executive Officer of Orion Energy Systems,
Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under
the Securities Exchange Act of 1934, as amended.**31.2
    
    
    Certification of Chief Financial Officer of Orion Energy Systems,
Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under
the Securities Exchange Act of 1934, as amended.**32.1
    
    
    Certification of Chief Executive Officer and Chief Financial
Officer of Orion Energy Systems, Inc. pursuant to Rule 13a-14(b)
promulgated under the Securities Exchange Act of 1934, as amended,
and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.**
 
 *
    
    Management contract or compensatory plan or arrangement required to be
filed (and/or incorporated by reference) as an exhibit to this Annual
Report on Form 10-K pursuant to Item 15(a)(3) of Form 10-K.**
    
    Filed herewith  78




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##### Table of Contents



SIGNATURES
  ORION ENERGY SYSTEMS, INC.By:
    /s/  Neal R. VerfuerthNeal R. VerfuerthChairman and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ Neal R. Verfuerth

Neal R. Verfuerth
    
    Chairman and Chief Executive Officer
(Principal Executive Officer)
    
    June 14, 2010/s/ Scott R. Jensen

Scott R. Jensen
    
    Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
    
    June 14, 2010/s/ Michael W. Altschaefl
    
    
    
    June 14, 2010Michael W. Altschaefl/s/ James R. Kackley
    
    
    
    June 14, 2010James R. Kackley/s/ Michael J. Potts
    
    
    
    June 14, 2010Michael J. Potts/s/ Thomas A. Quadracci
    
    
    
    June 14, 2010Thomas A. Quadracci/s/ Thomas N. Schueller
    
    
    
    June 14, 2010Thomas N. Schueller/s/ Roland G. Stephenson
    
    
    
    June 14, 2010Roland G. Stephenson/s/ Mark C. Williamson
    
    
    
    June 14, 2010Mark C. Williamson
  79