##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended December 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 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 incorporation or organization)
    
    (I.R.S. Employer Identification number)2210 Woodland Drive, Manitowoc, Wisconsin
    
    54220(Address of principal executive offices)
    
    (Zip code)
 Registrants telephone number, including area code: (920) 892-9340
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



Orion Energy Systems, Inc.
 Quarterly Report On Form 10-Q
 For The Quarter Ended December 31, 2010
 Table Of Contents
 Page(s)PART I FINANCIAL INFORMATIONITEM 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2010
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2009 and 2010
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2009 and 2010
    
    
    5Notes to the Condensed Consolidated Financial Statements
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    31ITEM 4. Controls and Procedures
    
    
    31PART II OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    31ITEM 1A. Risk Factors
    
    
    32ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32ITEM 4. Removed and Reserved
    
    
    32ITEM 5. Other Information
    
    
    32ITEM 6. Exhibits
    
    
    34SIGNATURES
    
    
    35Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1:
    
    Financial Statements
 ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share amounts)
 March 31,
    
    
    December 31,2010
    
    
    2010AssetsCash and cash equivalents
    
    $
    23,364
    
    
    $
    9,858Short-term investments
    
    
    1,000
    
    
    
    1,010Accounts receivable, net of allowances of $382 and $467
    
    
    14,617
    
    
    
    24,326Inventories, net
    
    
    25,991
    
    
    
    32,230Deferred tax assets
    
    
    
    
    
    
    502Prepaid expenses and other current assets
    
    
    2,974
    
    
    
    3,140Total current assets
    
    
    67,946
    
    
    
    71,066Property and equipment, net
    
    
    30,500
    
    
    
    37,741Patents and licenses, net
    
    
    1,590
    
    
    
    1,634Deferred tax assets
    
    
    2,610
    
    
    
    2,662Other long-term assets
    
    
    975
    
    
    
    2,963Total assets
    
    $
    103,621
    
    
    $
    116,066Liabilities and Shareholders EquityAccounts payable
    
    $
    7,761
    
    
    $
    15,363Accrued expenses and other
    
    
    3,844
    
    
    
    4,190Deferred tax liabilities
    
    
    44
    
    
    
    Current maturities of long-term debt
    
    
    562
    
    
    
    1,261Total current liabilities
    
    
    12,211
    
    
    
    20,814Long-term debt, less current maturities
    
    
    3,156
    
    
    
    4,618Deferred revenue, long-term
    
    
    186
    
    
    
    1,599Other long-term liabilities
    
    
    398
    
    
    
    399Total liabilities
    
    
    15,951
    
    
    
    27,430Commitments and contingencies (See Note F)Shareholders equity:Preferred stock, $0.01 par value: Shares authorized: 30,000,000 shares at March 31, 2010 and
December 31, 2010; no shares issued and outstanding at March 31, 2010 and December 31, 2010
    
    
    
    
    
    
    Common stock, no par value: Shares authorized: 200,000,000 at March 31, 2010 and December
31, 2010; shares issued: 29,911,203 and 30,224,199 at March 31, 2010 and December 31, 2010;
shares outstanding: 22,442,380 and 22,792,302 at March 31, 2010 and December 31, 2010
    
    
    
    
    
    
    Additional paid-in capital
    
    
    122,515
    
    
    
    123,965Shareholder notes receivable
    
    
    
    
    
    
    (157
    )Treasury stock: 7,468,823 and 7,431,897 common shares at March 31, 2010 and December 31, 2010
    
    
    (32,011
    )
    
    
    (31,767
    )Accumulated deficit
    
    
    (2,834
    )
    
    
    (3,405
    )Total shareholders equity
    
    
    87,670
    
    
    
    88,636Total liabilities and shareholders equity
    
    $
    103,621
    
    
    $
    116,066
   3




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##### Table of Contents



ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except share and per share amounts)
 Three Months Ended December 31,
    
    
    Nine Months Ended December 31,2009
    
    
    2010
    
    
    2009
    
    
    2010Product revenue
    
    $
    17,205
    
    
    $
    27,663
    
    
    $
    41,645
    
    
    $
    54,080Service revenue
    
    
    2,090
    
    
    
    2,008
    
    
    
    4,897
    
    
    
    3,994Total revenue
    
    
    19,295
    
    
    
    29,671
    
    
    
    46,542
    
    
    
    58,074Cost of product revenue
    
    
    10,633
    
    
    
    18,784
    
    
    
    27,727
    
    
    
    35,566Cost of service revenue
    
    
    1,568
    
    
    
    1,674
    
    
    
    3,455
    
    
    
    3,089Total cost of revenue
    
    
    12,201
    
    
    
    20,458
    
    
    
    31,182
    
    
    
    38,655Gross profit
    
    
    7,094
    
    
    
    9,213
    
    
    
    15,360
    
    
    
    19,419Operating expenses:General and administrative
    
    
    3,051
    
    
    
    2,709
    
    
    
    9,357
    
    
    
    8,642Sales and marketing
    
    
    3,063
    
    
    
    3,235
    
    
    
    9,176
    
    
    
    10,124Research and development
    
    
    404
    
    
    
    614
    
    
    
    1,315
    
    
    
    1,797Total operating expenses
    
    
    6,518
    
    
    
    6,558
    
    
    
    19,848
    
    
    
    20,563Income (loss) from operations
    
    
    576
    
    
    
    2,655
    
    
    
    (4,488
    )
    
    
    (1,144
    )Other income (expense):Interest expense
    
    
    (67
    )
    
    
    (99
    )
    
    
    (197
    )
    
    
    (223
    )Dividend and interest income
    
    
    49
    
    
    
    3
    
    
    
    248
    
    
    
    19Total other income (expense)
    
    
    (18
    )
    
    
    (96
    )
    
    
    51
    
    
    
    (204
    )Income (loss) before income tax
    
    
    558
    
    
    
    2,559
    
    
    
    (4,437
    )
    
    
    (1,348
    )Income tax expense (benefit)
    
    
    (249
    )
    
    
    1,915
    
    
    
    (1,072
    )
    
    
    (777
    )Net income (loss)
    
    $
    807
    
    
    $
    644
    
    
    $
    (3,365
    )
    
    $
    (571
    )Basic net income (loss) per share
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    (0.15
    )
    
    $
    (0.03
    )Weighted-average common shares outstanding
    
    
    21,792,175
    
    
    
    22,726,426
    
    
    
    21,709,799
    
    
    
    22,629,776Diluted net income (loss) per share
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    (0.15
    )
    
    $
    (0.03
    )Weighted-average common shares and share
equivalents outstanding
    
    
    22,567,575
    
    
    
    23,110,633
    
    
    
    21,709,799
    
    
    
    22,629,776
   4




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##### Table of Contents



ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Nine Months Ended December 31,2009
    
    
    2010Operating activitiesNet loss
    
    $
    (3,365
    )
    
    $
    (571
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,956
    
    
    
    3,145Stock-based compensation expense
    
    
    1,064
    
    
    
    931Deferred income tax benefit
    
    
    (1,234
    )
    
    
    (597
    )Change in allowance for notes and accounts receivable
    
    
    384
    
    
    
    85Other
    
    
    15
    
    
    
    25Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,950
    )
    
    
    (9,794
    )Inventories
    
    
    (4,285
    )
    
    
    (6,239
    )Prepaid expenses and other assets
    
    
    1,414
    
    
    
    (350
    )Accounts payable
    
    
    5,193
    
    
    
    7,602Accrued expenses
    
    
    633
    
    
    
    346Net cash used in operating activities
    
    
    (175
    )
    
    
    (5,417
    )Investing activitiesPurchase of property and equipment
    
    
    (4,268
    )
    
    
    (2,885
    )Purchase of property and equipment leased to customers under operating
leases
    
    
    (5,328
    )
    
    
    (7,375
    )Purchase of short-term investments
    
    
    
    
    
    
    (10
    )Sale of short-term investments
    
    
    5,522
    
    
    
    Additions to patents and licenses
    
    
    (186
    )
    
    
    (158
    )Proceeds from sales of long-term assets
    
    
    6
    
    
    
    1Long-term assets
    
    
    
    
    
    
    (330
    )Net cash used in investing activities
    
    
    (4,254
    )
    
    
    (10,757
    )Financing activitiesPayment of long-term debt
    
    
    (640
    )
    
    
    (528
    )Proceeds from long-term debt
    
    
    200
    
    
    
    2,689Proceeds from shareholder notes
    
    
    
    
    
    
    1Repurchase of common stock into treasury
    
    
    (400
    )
    
    
    Excess tax benefits from stock-based compensation
    
    
    95
    
    
    
    193Deferred financing costs and offering costs
    
    
    
    
    
    
    (61
    )Proceeds from issuance of common stock
    
    
    947
    
    
    
    374Net cash provided by financing activities
    
    
    202
    
    
    
    2,668Net decrease in cash and cash equivalents
    
    
    (4,227
    )
    
    
    (13,506
    )Cash and cash equivalents at beginning of period
    
    
    36,163
    
    
    
    23,364Cash and cash equivalents at end of period
    
    $
    31,936
    
    
    $
    9,858Supplemental cash flow information:Cash paid for interest
    
    $
    215
    
    
    $
    192Cash paid for income taxes
    
    
    30
    
    
    
    31Supplemental disclosure of non-cash investing and financing activitiesShares issued from treasury for stock note receivable
    
    $
    
    
    
    $
    158Shares surrendered into treasury for stock option exercise
    
    $
    
    
    
    $
    51
   5




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##### Table of Contents



ORION ENERGY SYSTEMS, INC. AND SUBSIDIARIES
 
 UNAUDITED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  DESCRIPTION OF BUSINESS
 Organization
    NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of consolidation
  Reclassifications
  Basis of presentation
    Use of estimates
   6




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Cash and cash equivalents
  Short-term investments available for sale
  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
 December 31, 2010Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    
    
    
    
    Cash and Cash
    
    
    Short TermCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value
    
    
    Equivalents
    
    
    InvestmentsMoney market funds
    
    $
    484
    
    
    $
    
    
    
    $
    
    
    
    $
    484
    
    
    $
    484
    
    
    $
    Bank certificate of deposit
    
    
    1,010
    
    
    
    
    
    
    
    
    
    
    
    1,010
    
    
    
    
    
    
    
    1,010Total
    
    $
    1,494
    
    
    $
    
    
    
    $
    
    
    
    $
    1,494
    
    
    $
    484
    
    
    $
    1,010
   Fair value of financial instruments
  Accounts receivable
  Inventories
   7




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March 31,
    
    
    December 31,2010
    
    
    2010Raw materials and components
    
    $
    11,107
    
    
    $
    14,128Work in process
    
    
    669
    
    
    
    402Finished goods
    
    
    14,215
    
    
    
    17,700$
    25,991
    
    
    $
    32,230
 Property and Equipment
  March 31,
    
    
    December 31,2010
    
    
    2010Land and land improvements
    
    $
    1,436
    
    
    $
    1,474Buildings
    
    
    14,072
    
    
    
    15,749Furniture, fixtures and office equipment
    
    
    6,615
    
    
    
    8,056Equipment leased to customers under finance agreements
    
    
    1,586
    
    
    
    8,582Plant equipment
    
    
    7,627
    
    
    
    7,919Construction in progress
    
    
    6,777
    
    
    
    6,48438,113
    
    
    
    48,264Less: accumulated depreciation and amortization
    
    
    (7,613
    )
    
    
    (10,523
    )Net property and equipment
    
    $
    30,500
    
    
    $
    37,741
  Patents and Licenses
  Other Long-Term Assets
   Fiscal 2013
    
    $
    336Fiscal 2014
    
    
    336Fiscal 2015
    
    
    403Total gross long-term receivable
    
    
    1,075Less: amount representing interest
    
    
    (164
    )Net long-term receivable
    
    $
    911
  8




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##### Table of Contents



Accrued Expenses
    Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2010
    
    
    2009
    
    
    2010Beginning of period
    
    $
    42
    
    
    $
    59
    
    
    $
    55
    
    
    $
    60Provision to cost of revenue
    
    
    40
    
    
    
    20
    
    
    
    60
    
    
    
    95Charges
    
    
    (44
    )
    
    
    (18
    )
    
    
    (77
    )
    
    
    (94
    )End of period
    
    $
    38
    
    
    $
    61
    
    
    $
    38
    
    
    $
    61
 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
     9




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March 31,
    
    
    December 31,2010
    
    
    2010Deferred revenue  current liability
    
    $
    338
    
    
    $
    518Deferred revenue  long term liability
    
    
    186
    
    
    
    1,599Total deferred revenue
    
    $
    524
    
    
    $
    2,117
 Income Taxes
  Income Taxes
  10




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Stock Option Plans
  Three Months Ended December 31,
    
    
    Nine Months Ended December 31,2009
    
    
    2010
    
    
    2009
    
    
    2010Weighted average expected term
    
    5.9 years
    
    
    6.0 years
    
    
    6.4 years
    
    
    5.6 yearsRisk-free interest rate
    
    
    2.33
    %
    
    
    1.47
    %
    
    
    2.56
    %
    
    
    2.06
    %Expected volatility
    
    
    60
    %
    
    
    74.8
    %
    
    
    60
    %
    
    
    60%  74.8
    %Expected forfeiture rate
    
    
    3
    %
    
    
    10
    %
    
    
    3
    %
    
    
    10
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Net Income (Loss) per Common Share
  Three months Ended December 31,
  
  Nine months Ended December 31,2009
  
  
  2010
  
  
  2009
  
  
  2010Numerator:Net income (loss)(in thousands)
  
  $
  807
  
  
  $
  644
  
  
  $
  (3,365
  )
  
  $
  (571
  )Denominator:Weighted-average common shares outstanding
  
  
  21,792,175
  
  
  
  22,726,426
  
  
  
  21,709,799
  
  
  
  22,629,776Weighted-average effect of assumed conversion of stock options and warrants
  
  
  775,400
  
  
  
  384,207
  
  
  
  —
  
  
  
  —Weighted-average common shares and common share equivalents outstanding
  
  
  22,567,575
  
  
  
  23,110,633
  
  
  
  21,709,799
  
  
  
  22,629,776Net income (loss) per common share:Basic
  
  $
  0.04
  
  
  $
  0.03
  
  
  $
  (0.15
  )
  
  $
  (0.03
  )Diluted
  
  $
  0.04
  
  
  $
  0.03
  
  
  $
  (0.15
  )
  
  $
  (0.03
  )
   December 31,
    
    
    December 31,2009
    
    
    2010Warrants
    
    
    357,144
    
    
    
    45,040Stock Options
    
    
    3,564,200
    
    
    
    3,651,6483,921,344
    
    
    
    3,696,688
 Concentration of Credit Risk and Other Risks and Uncertainties
   11




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Recent Accounting Pronouncements
 Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit Losses
 Multiple-Deliverable Revenue
Arrangements
 NOTE C  RELATED PARTY TRANSACTIONS
    12




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##### Table of Contents



NOTE D  LONG-TERM DEBT
  March 31,
    
    
    December 31,2010
    
    
    2010Term note
    
    $
    1,017
    
    
    $
    843Customer equipment finance note payable
    
    
    
    
    
    
    2,318First mortgage note payable
    
    
    926
    
    
    
    872Debenture payable
    
    
    847
    
    
    
    817Lease obligations
    
    
    7
    
    
    
    2Other long-term debt
    
    
    921
    
    
    
    1,027Total long-term debt
    
    
    3,718
    
    
    
    5,879Less: current maturities
    
    
    (562
    )
    
    
    (1,261
    )Long-term debt, less current maturities
    
    $
    3,156
    
    
    $
    4,618
 New Debt Arrangements
   Revolving Credit Agreement
      13




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NOTE E  INCOME TAXES
   Nine Months Ended December 31,2009
    
    
    2010Statutory federal tax rate
    
    
    (34.0
    )%
    
    
    (34.0
    )%State taxes, net
    
    
    0.2
    %
    
    
    (5.5
    )%Stock-based compensation expense
    
    
    6.6
    %
    
    
    (19.8
    )%Federal tax credit
    
    
    4.0
    %
    
    
    20.0
    %State tax credit
    
    
    0.0
    %
    
    
    0.0
    %State valuation allowance
    
    
    0.0
    %
    
    
    (7.9
    )%Permanent items
    
    
    (1.1
    )%
    
    
    (9.6
    )%Other, net
    
    
    0.1
    %
    
    
    (1.1
    )%Effective income tax rate
    
    
    (24.2
    )%
    
    
    (57.9
    )%
     Uncertain tax positions
   14




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Nine Months Ended
    
    
    Nine Months EndedDecember 31, 2009
    
    
    December 31, 2010Unrecognized tax benefits as of beginning of period
    
    $
    397
    
    
    $
    398Decreases relating to settlements with tax authorities
    
    
    
    
    
    
    Additions based on tax positions related to the current period positions
    
    
    1
    
    
    
    1Unrecognized tax benefits as of end of period
    
    $
    398
    
    
    $
    399
 NOTE F  COMMITMENTS AND CONTINGENCIES
 Operating Leases and Purchase Commitments
  Litigation
      15




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##### Table of Contents



NOTE G  SHAREHOLDERS EQUITY
 Employee Stock Purchase Plan
  As of December 31, 2010Shares Issued
    
    
    Closing
    
    
    Shares Issued
    
    
    Dollar Value
    
    
    RepaymentPeriod
    
    Under ESPP Plan
    
    
    Market Price
    
    
    Under  Loan Program
    
    
    Of Loans Issued
    
    
    Of LoansQuarter Ended September 30, 2010
    
    
    40,560
    
    
    $
    3.17
    
    
    
    38,202
    
    
    $
    121,100
    
    
    $
    Quarter Ended December 31, 2010
    
    
    12,274
    
    
    
    3.34
    
    
    
    10,898
    
    
    
    36,400
    
    
    
    844Total
    
    
    52,834
    
    
    $
    3.21
    
    
    
    49,100
    
    
    $
    157,500
    
    
    $
    844
  NOTE H  STOCK OPTIONS AND WARRANTS
    Three Months Ended December 31,
    
    
    Nine Months Ended December 31,2009
    
    
    2010
    
    
    2009
    
    
    2010Cost of product revenue
    
    $
    51
    
    
    $
    42
    
    
    $
    163
    
    
    $
    116General and administrative
    
    
    135
    
    
    
    147
    
    
    
    400
    
    
    
    417Sales and marketing
    
    
    205
    
    
    
    123
    
    
    
    472
    
    
    
    377Research and development
    
    
    10
    
    
    
    9
    
    
    
    29
    
    
    
    21Total
    
    $
    401
    
    
    $
    321
    
    
    $
    1,064
    
    
    $
    931
  16




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##### Table of Contents



Options OutstandingWeightedWeighted
    
    
    AverageShares
    
    
    
    
    
    
    Average
    
    
    Remaining
    
    
    AggregateAvailable for
    
    
    Number
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicGrant
    
    
    of Shares
    
    
    Price
    
    
    Term (in years)
    
    
    valueBalance at March 31, 2010
    
    
    569,690
    
    
    
    3,546,249
    
    
    $
    3.66
    
    
    
    6.87Amendment to Plan
    
    
    1,500,000Granted stock options
    
    
    (609,077
    )
    
    
    609,077
    
    
    
    3.66Granted shares in lieu of cash compensation
    
    
    (11,976
    )
    
    
    
    
    
    
    Forfeited
    
    
    218,658
    
    
    
    (218,658
    )
    
    
    3.88Exercised
    
    
    
    
    
    
    (285,020
    )
    
    
    1.31Balance at December 31, 2010
    
    
    1,667,295
    
    
    
    3,651,648
    
    
    $
    3.80
    
    
    
    6.65
    
    
    $
    2,080,575Exercisable at December 31, 2010
    
    
    
    
    
    
    1,748,281
    
    
    $
    3.34
    
    
    
    4.96
    
    
    $
    1,581,405
   Non-vested at March 31, 2010
    
    
    1,789,119Granted
    
    
    609,077Vested
    
    
    (276,171
    )Forfeited
    
    
    (218,658
    )Non-vested at December 31, 2010
    
    
    1,903,367
   WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceBalance at March 31, 2010
    
    
    76,240
    
    
    $
    2.37Issued
    
    
    
    
    
    
    Exercised
    
    
    (16,000
    )
    
    
    2.50Cancelled
    
    
    (15,200
    )
    
    
    2.50Balance at December 31, 2010
    
    
    45,040
    
    
    $
    2.28
  Number ofExercise Price
    
    Warrants
    
    
    Expiration$2.25
    
    
    38,980
    
    
    Fiscal 2014$2.50
    
    
    6,060
    
    
    Fiscal 2011Total
    
    
    45,040
  17




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##### Table of Contents



NOTE I  SEGMENTS
  Energy Management
  Engineered Systems
  Corporate and Other
  Revenues
    
    
    Operating (Loss) ProfitFor the Three Months Ended December 31,
    
    
    For the Three Months Ended December 31,(dollars in thousands)
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Segments:Energy Management
    
    $
    16,672
    
    
    $
    19,354
    
    
    $
    2,384
    
    
    $
    3,262Engineered Systems
    
    
    2,623
    
    
    
    10,317
    
    
    
    (199
    )
    
    
    976Corporate and Other
    
    
    
    
    
    
    
    
    
    
    (1,609
    )
    
    
    (1,583
    )$
    19,295
    
    
    $
    29,671
    
    
    $
    576
    
    
    $
    2,655Revenues
    
    
    Operating (Loss) ProfitFor the Nine Months Ended December 31,
    
    
    For the Nine Months Ended December 31,(dollars in thousands)
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Segments:Energy Management
    
    $
    40,447
    
    
    $
    44,696
    
    
    $
    928
    
    
    $
    3,698Engineered Systems
    
    
    6,095
    
    
    
    13,378
    
    
    
    (511
    )
    
    
    135Corporate and Other
    
    
    
    
    
    
    
    
    
    
    (4,905
    )
    
    
    (4,977
    )$
    46,542
    
    
    $
    58,074
    
    
    $
    (4,488
    )
    
    $
    (1,144
    )Total Assets
    
    
    Deferred Revenue(dollars in thousands)
    
    March 31, 2010
    
    
    December 31, 2010
    
    
    March 31, 2010
    
    
    December 31, 2010Segments:Energy Management
    
    $
    55,771
    
    
    $
    70,003
    
    
    $
    390
    
    
    $
    1,341Engineered Systems
    
    
    3,962
    
    
    
    12,199
    
    
    
    134
    
    
    
    776Corporate and Other
    
    
    43,888
    
    
    
    33,864
    
    
    
    
    
    
    
    $
    103,621
    
    
    $
    116,066
    
    
    $
    524
    
    
    $
    2,117
   18




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis of our financial condition and results of operations should
be read together with our unaudited condensed consolidated financial statements and related notes
included elsewhere in the Form 10-Q. It should also be read in conjunction with our audited
consolidated financial statements and related notes included in our Annual Report on Form 10-K for
the year ended March 31, 2010.
 Cautionary Note Regarding Forward-Looking Statements
  Overview
       19




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##### Table of Contents



Revenue and Expense Components
 Revenue.
  20




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##### Table of Contents



Fiscal 2011 remainder
    
    $
    735Fiscal 2012
    
    
    4,171Fiscal 2013
    
    
    4,055Fiscal 2014
    
    
    3,447Beyond
    
    
    4,239Total expected future gross revenue from OTAs
    
    $
    16,647
  Fiscal 2011 remainder
    
    $
    130Fiscal 2012
    
    
    432Fiscal 2013
    
    
    432Fiscal 2014
    
    
    431Beyond
    
    
    1,896Total expected future discounted revenue from PPAs
    
    $
    3,321
   21




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##### Table of Contents



Contracted Revenue.
 Three months ended
    
    
    Nine months endedDecember 31, 2010
    
    
    December 31, 2010Total Contracted
Revenues
    
    $
    26.7
    
    
    $
    74.8Change in backlog (1)
    
    
    5.1
    
    
    
    (5.4
    )Contracted Revenue
from OTAs and PPAs
(2)
    
    
    (3.4
    )
    
    
    (12.8
    )OTA and PPA GAAP
revenue recognized
    
    
    0.7
    
    
    
    1.7Other miscellaneous
    
    
    0.6
    
    
    
    (0.2
    )Revenue  GAAP basis
    
    $
    29.7
    
    
    $
    58.1
 (1)
    
    Change in backlog reflects the (increase) or decrease in cash orders at the end of the
respective period where product delivery or service performance has not yet occurred. GAAP
revenue will be recognized when the performance conditions have been satisfied, typically
within 90 days from the end of the period.(2)
    
    Contracted Revenue from OTAs and PPAs are subtracted to reconcile the GAAP revenue as
recognition of GAAP revenue will occur in future periods.  22




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##### Table of Contents



Backlog.
 Cost of Revenue.
 Gross Margin.
 Operating Expenses.
  23




---



##### Table of Contents



Interest Expense.
 Dividend and Interest Income.
 Income Taxes.
   24




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##### Table of Contents



Results of Operations
  Three Months Ended December 31,
    
    
    Nine Months Ended December 31,2009
    
    
    2010
    
    
    
    
    
    
    2009
    
    
    2010% of
    
    
    
    
    
    
    % of
    
    
    %
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    %Amount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    Change
    
    
    Amount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    ChangeProduct revenue
    
    $
    17,205
    
    
    
    89.2
    %
    
    $
    27,663
    
    
    
    93.2
    %
    
    
    60.8
    %
    
    $
    41,645
    
    
    
    89.5
    %
    
    $
    54,080
    
    
    
    93.1
    %
    
    
    29.9
    %Service revenue
    
    
    2,090
    
    
    
    10.8
    %
    
    
    2,008
    
    
    
    6.8
    %
    
    
    (3.9
    )%
    
    
    4,897
    
    
    
    10.5
    %
    
    
    3,994
    
    
    
    6.9
    %
    
    
    (18.4
    )%Total revenue
    
    
    19,295
    
    
    
    100.0
    %
    
    
    29,671
    
    
    
    100.0
    %
    
    
    53.8
    %
    
    
    46,542
    
    
    
    100.0
    %
    
    
    58,074
    
    
    
    100.0
    %
    
    
    24.8
    %Cost of product revenue
    
    
    10,633
    
    
    
    55.1
    %
    
    
    18,784
    
    
    
    63.3
    %
    
    
    76.7
    %
    
    
    27,727
    
    
    
    59.6
    %
    
    
    35,566
    
    
    
    61.3
    %
    
    
    28.3
    %Cost of service revenue
    
    
    1,568
    
    
    
    8.1
    %
    
    
    1,674
    
    
    
    5.6
    %
    
    
    6.8
    %
    
    
    3,455
    
    
    
    7.4
    %
    
    
    3,089
    
    
    
    5.3
    %
    
    
    (10.6
    )%Total cost of revenue
    
    
    12,201
    
    
    
    63.2
    %
    
    
    20,458
    
    
    
    68.9
    %
    
    
    67.7
    %
    
    
    31,182
    
    
    
    67.0
    %
    
    
    38,655
    
    
    
    66.6
    %
    
    
    24.0
    %Gross profit
    
    
    7,094
    
    
    
    36.8
    %
    
    
    9,213
    
    
    
    31.1
    %
    
    
    29.9
    %
    
    
    15,360
    
    
    
    33.0
    %
    
    
    19,419
    
    
    
    33.4
    %
    
    
    26.4
    %General and administrative expenses
    
    
    3,051
    
    
    
    15.8
    %
    
    
    2,709
    
    
    
    9.2
    %
    
    
    (11.2
    )%
    
    
    9,357
    
    
    
    20.1
    %
    
    
    8,642
    
    
    
    14.9
    %
    
    
    (7.6
    )%Sales and marketing expenses
    
    
    3,063
    
    
    
    15.9
    %
    
    
    3,235
    
    
    
    10.9
    %
    
    
    5.6
    %
    
    
    9,176
    
    
    
    19.7
    %
    
    
    10,124
    
    
    
    17.4
    %
    
    
    10.3
    %Research and development expenses
    
    
    404
    
    
    
    2.1
    %
    
    
    614
    
    
    
    2.1
    %
    
    
    52.0
    %
    
    
    1,315
    
    
    
    2.8
    %
    
    
    1,797
    
    
    
    3.1
    %
    
    
    36.7
    %Income (loss) from operations
    
    
    576
    
    
    
    3.0
    %
    
    
    2,655
    
    
    
    8.9
    %
    
    
    360.9
    %
    
    
    (4,488
    )
    
    
    (9.6
    )%
    
    
    (1,144
    )
    
    
    (2.0
    )%
    
    
    (74.5
    )%Interest expense
    
    
    (67
    )
    
    
    0.4
    %
    
    
    (99
    )
    
    
    0.3
    %
    
    
    47.8
    %
    
    
    (197
    )
    
    
    0.4
    %
    
    
    (223
    )
    
    
    0.3
    %
    
    
    13.2
    %Dividend and interest income
    
    
    49
    
    
    
    0.3
    %
    
    
    3
    
    
    
    0.0
    %
    
    
    (93.9
    )%
    
    
    248
    
    
    
    0.5
    %
    
    
    19
    
    
    
    0.0
    %
    
    
    (92.3
    )%Income (loss) before income tax
    
    
    558
    
    
    
    2.9
    %
    
    
    2,559
    
    
    
    8.6
    %
    
    
    358.6
    %
    
    
    (4,437
    )
    
    
    (9.5
    )%
    
    
    (1,348
    )
    
    
    (2.3
    )%
    
    
    69.6
    %Income tax expense (benefit)
    
    
    (249
    )
    
    
    (1.3
    )%
    
    
    1,915
    
    
    
    6.4
    %
    
    
    (869.1
    )%
    
    
    (1,072
    )
    
    
    (2.3
    )%
    
    
    (777
    )
    
    
    (1.3
    )%
    
    
    (27.5
    )%Net income (loss)
    
    $
    807
    
    
    
    4.2
    %
    
    $
    644
    
    
    
    2.2
    %
    
    
    (20.2
    )%
    
    $
    (3,365
    )
    
    
    (7.2
    )%
    
    $
    (571
    )
    
    
    (1.0
    )%
    
    
    83.0
    %
 Consolidated
 Revenue.
 Cost of Revenue and Gross Margin.
 General and Administrative Expense.
  25




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##### Table of Contents



Sales and Marketing Expense.
 Research and Development Expense.
 Interest Expense.
 Interest Income.
 Income Taxes.
 Contracted Revenue.
  26




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##### Table of Contents



Energy Management Segment
  For the Three Months Ended December 31,
    
    
    For the Nine Months Ended December 31,(dollars in thousands)
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Revenues
    
    $
    16,672
    
    
    $
    19,354
    
    
    $
    40,447
    
    
    $
    44,696Operating income
    
    
    2,384
    
    
    
    3,262
    
    
    
    928
    
    
    
    3,698Operating margin
    
    
    14.3
    %
    
    
    16.9
    %
    
    
    2.3
    %
    
    
    8.3
    %
   Engineered Systems Segment
  For the Three Months Ended December 31,
    
    
    For the Nine Months Ended December 31,(dollars in thousands)
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Revenues
    
    $
    2,623
    
    
    $
    10,317
    
    
    $
    6,095
    
    
    $
    13,378Operating (loss) income
    
    
    (199
    )
    
    
    976
    
    
    
    (511
    )
    
    
    135Operating margin
    
    
    (7.6
    )%
    
    
    9.5
    %
    
    
    (8.4
    )%
    
    
    1.0
    %
   Liquidity and Capital Resources
 Overview
   27




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##### Table of Contents



Cash Flows
  Nine Months EndedDecember 31,2009
    
    
    2010Operating activities
    
    $
    (175
    )
    
    $
    (5,417
    )Investing activities
    
    
    (4,254
    )
    
    
    (10,757
    )Financing activities
    
    
    202
    
    
    
    2,668Decrease in cash and cash equivalents
    
    $
    (4,227
    )
    
    $
    (13,506
    )
 Cash Flows Related to Operating Activities.
   Cash Flows Related to Investing Activities.
  Cash Flows Related to Financing Activities.
   28




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##### Table of Contents



Working Capital
    Indebtedness
 Revolving Credit Agreement
    29




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##### Table of Contents



Capital Spending
  Contractual Obligations and Commitments
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    YearsBank debt obligations
    
    $
    5,877
    
    
    $
    1,261
    
    
    $
    2,315
    
    
    $
    1,632
    
    
    $
    669Capital lease obligations
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Cash interest payments on debt
    
    
    1,209
    
    
    
    312
    
    
    
    403
    
    
    
    174
    
    
    
    320Operating lease obligations
    
    
    9,217
    
    
    
    1,699
    
    
    
    2,301
    
    
    
    1,670
    
    
    
    3,547Purchase order and cap-ex commitments (1)
    
    
    13,460
    
    
    
    9,643
    
    
    
    3,817
    
    
    
    
    
    
    
    Total
    
    $
    29,765
    
    
    $
    12,917
    
    
    $
    8,836
    
    
    $
    3,476
    
    
    $
    4,536
 
 (1)
    
    Reflects non-cancellable purchase order commitment in the amount of $13.4 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 $0.1 million for improvements to
information technology systems, renewable energy products and manufacturing equipment and
tooling. Off-Balance Sheet Arrangements
  Inflation
  Critical Accounting Policies and Estimates
   30




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##### Table of Contents



Recent Accounting Pronouncements
  
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   
 PART II OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
      31




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##### Table of Contents



ITEM 1A.
    
    RISK FACTORS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 (b) Use of Proceeds
  
 ITEM 4.
    
    REMOVED AND RESERVED
 
 ITEM 5.
    
    OTHER INFORMATION
 Statistical Data
  Cumulative FromDecember 1, 2001Through December 31, 2010(in thousands, unaudited)HIF lighting systems sold(1)
    
    
    1,973Total units sold (including HIF lighting systems)
    
    
    2,593Customer kilowatt demand reduction(2)
    
    
    607Customer kilowatt hours saved(2)(3)
    
    
    14,321,538Customer electricity costs saved(4)
    
    $
    1,102,758Indirect carbon dioxide emission reductions from customers energy savings (tons)(5)
    
    
    9,519Square footage retrofitted(6)
    
    
    1,010,057
 
 (1)
    
    HIF lighting systems includes all HIF units sold under the brand name Compact Modular and
its predecessor, Illuminator.  32




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##### Table of Contents



(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 2.59
million units).(3)
    
    We calculate the number of kilowatt hours saved on a cumulative basis by assuming the
reduction of 0.241 kilowatts of electricity consumption per six-lamp equivalent unit we
install 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), by (ii) the number of customer kilowatt hours saved
as indicated in the table. The calculation of indirect carbon dioxide emissions reductions
reflects the most recent Environmental Protection Agency eGrid data.(6)
    
    Based on 2.59 million total units sold, which contain a total of approximately 12.95 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.  33




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##### Table of Contents



ITEM 6.
    
    EXHIBITS
 (a) Exhibits
 10.1
    
    
    Orion Energy Systems, Inc. 2004 Stock and Incentive Awards Plan, as amended
(incorporated by reference to Appendix A to the definitive proxy statement of Orion Energy
Systems, Inc. filed on Schedule 14A on September 10, 2010).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 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 2002.32.2
    
    
    Certification of 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.
 
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##### Table of Contents



SIGNATURE
  ORION ENERGY SYSTEMS, INC.RegistrantBy
    
    /s/ Scott R. JensenScott R. JensenChief Financial Officer(Principal Financial Officer and Authorized Signatory)
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##### Table of Contents



Exhibit Index to Form 10-Q for the Period Ended December 31, 2010
 10.1
    
    
    Orion Energy Systems, Inc. 2004 Stock and Incentive Awards Plan, as amended (incorporated by
reference to Appendix A to the definitive proxy statement of Orion Energy Systems, Inc. filed
on Schedule 14A on September 10, 2010).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 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 2002.32.2
    
    
    Certification of 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.
 
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